Hornbeck Offshore Services Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2009
OR

‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF

1934

For the Transition Period from

to

Commission File Number 333-69826

Hornbeck Offshore Services, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

72-1375844
(I.R.S. Employer
Identification Number)

103 Northpark Boulevard, Suite 300
Covington, Louisiana 70433
(985) 727-2000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, $0.01 par value

Name of exchange, on which registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes ‘ No È

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the

Act. Yes ‘ No È

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the

Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ‘ No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will

not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. È

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
Large accelerated filer È

Accelerated filer ‘ Non-accelerated filer ‘ Smaller reporting company ‘

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No È
The aggregate market value of the Common Stock held by non-affiliates computed by reference to the price at which the
Common Stock was last sold as of the last day of registrant’s most recently completed second fiscal quarter is $536,382,143.

The number of outstanding shares of Common Stock as of January 31, 2010 is 26,160,617 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive 2010 proxy statement, anticipated to be filed with the Securities and Exchange

Commission within 120 days after the close of the Registrant’s fiscal year, are incorporated by reference into Part III of this Annual
Report on Form 10-K.

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009

TABLE OF CONTENTS

PART I

4
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1—Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
Item 1A—Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 1B—Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Item 2—Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 3—Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 4—Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

PART II

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 5—Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . 30
Item 6—Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . 35
Item 7A—Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Item 8—Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Item 9—Changes in and Disagreements with Accountants on Accounting and Financial Disclosures . . . . . . . . . . . . 56
Item 9A—Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Item 9B—Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

PART III

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Item 10—Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Item 11—Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . 59
Item 13—Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . 59
Item 14—Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Item 15—Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1

1

This Annual Report on Form 10-K contains “forward-looking statements,” as

contemplated by the Private Securities Litigation Reform Act of 1995, in which the Company
discusses factors it believes may affect its performance in the future. Forward-looking
statements are all statements other than historical facts, such as statements regarding
assumptions, expectations, beliefs and projections about future events or conditions. You can
generally identify forward-looking statements by the appearance in such a statement of words
like “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,”
“might,” “plan,” “potential,” “predict,” “project,” “should” or “will” or other comparable words or
the negative of such words. The accuracy of the Company’s assumptions, expectations,
beliefs and projections depend on events or conditions that change over time and are thus
susceptible to change based on actual experience, new developments and known and
unknown risks. The Company gives no assurance that the forward-looking statements will
prove to be correct and does not undertake any duty to update them. The Company’s actual
future results might differ from the forward-looking statements made in this Annual Report on
Form 10-K for a variety of reasons, which include: the Company’s inability to successfully or
timely complete its remaining vessel construction programs; less than anticipated success in
marketing and operating its MPSVs further weakening of demand for the Company’s services;
inability to effectively curtail operating expenses from stacked vessels; inability to sell or
otherwise dispose of non-core assets on acceptable terms; unplanned customer suspensions,
cancellations, rate reductions or non-renewals of vessel charters or failures to finalize
commitments to charter vessels; industry risks; further reductions in capital spending budgets
by customers; declines in oil and natural gas prices; increases in operating costs; the inability
to accurately predict vessel utilization levels and dayrates; less than anticipated subsea
infrastructure demand activity in the U.S. Gulf of Mexico and other markets; the level of fleet
additions by competitors that could result in over-capacity; economic and political risks;
weather related risks; the inability to attract and retain qualified marine personnel; regulatory
risks; the repeal or administrative weakening of the Jones Act; the imposition of laws or
regulations that result in reduced exploration and production activities in the United States or
that increase the Company’s operating costs or operating requirements; drydocking delays
and cost overruns and related risks; vessel accidents or pollution incidents resulting in lost
revenue or expenses that are unrecoverable from insurance policies or other third parties;
unexpected litigation and insurance expenses; fluctuations in foreign currency valuations
compared to the U.S. dollar and risks associated with expanded foreign operations. In
addition, the Company’s future results may be impacted by continued volatility or further
deterioration in the capital markets and the continuing worldwide economic downturn;
inflation, deflation, or other adverse economic conditions that may negatively affect it or
parties with whom it does business resulting in their non-payment or inability to perform
obligations owed to the Company, such as the failure of shipyards and major suppliers to
complete orders or the failure by banks to provide expected funding under the Company’s
credit agreement, or changes that may result from actions by the United States government.
Should one or more of the foregoing risks or uncertainties materialize in a way that negatively
impacts the Company, or should the Company’s underlying assumptions prove incorrect, the
Company’s actual results may vary materially from those anticipated in its forward-looking
statements, and its business, financial condition and results of operations could be materially
and adversely affected.

References in this Annual Report on Form 10-K to “OSVs” mean offshore supply vessels;

to “TTB” mean ocean-going tugs and tank barges; to “MPSVs” mean multi-purpose support

2

vessels; to “AHTS” mean anchor-handling towing supply; to “ROVs” mean remotely operated
vehicles; to “DP-1”, “DP-2” and “DP-3” mean various classifications of dynamic positioning
systems on new generation vessels to automatically maintain a vessel’s position and heading;
to “flotel” mean accommodations services, such as lodging, meals and office space; to
“deepwater” mean offshore areas, generally 1,000’ to 5,000’ in depth; to “ultra-deepwater”
mean offshore areas, generally more than 5,000’ in depth; to “deep well” mean a well drilled
to a true vertical depth of 15,000’ or greater; to “new generation,” when referring to OSVs,
mean modern, deepwater-capable vessels subject to the regulations promulgated under the
International Convention on Tonnage Measurement of Ships, 1969, which was adopted by
the United States and made effective for all U.S.-flagged vessels in 1992 and foreign-flagged
equivalent vessels; and to “conventional,” when referring to OSVs, mean vessels that are at
least 20 years old, are generally less than 200’ in length or carry less than 1,500 dead weight
tons of cargo when originally built and primarily operate, when active, on the Continental
Shelf.

3

ITEM 1—Business

GENERAL DEVELOPMENT OF BUSINESS

PART I

Hornbeck Offshore Services, Inc. was incorporated under the laws of the State of
Delaware in 1997. In this Annual Report on Form 10-K, references to “company,” “we,” “us,”
“our” or like terms refer to Hornbeck Offshore Services, Inc. and its subsidiaries, except as
otherwise indicated. Hornbeck Offshore Services, Inc. is a leading provider of marine services
to exploration and production, oilfield service, offshore construction and military customers.
Since our establishment, we have primarily focused on providing innovative technologically
advanced marine solutions to meet the evolving needs of the deepwater and ultra-deepwater
energy industry. Throughout our history, we have expanded our fleet of vessels primarily
through a series of new vessel construction programs, as well as through acquisitions of
existing vessels. We maintain our headquarters at 103 Northpark Boulevard, Suite 300,
Covington, Louisiana, 70433; our telephone number is (985)727-2000.

We operate two business segments in the marine industry. Our Upstream segment owns

and operates one of the youngest and largest fleets of U.S.-flagged, new generation OSVs
and, we believe, one of the youngest and largest U.S. owned fleets of DP-2 and DP-3
MPSVs. Together, these vessels support deepwater and ultra-deepwater exploration,
development, production, construction, installation, maintenance, repair and enhanced oil
recovery requirements of the oil and gas industry, primarily in the U.S. Gulf of Mexico, or
GoM, and in select international markets. Our Upstream segment also includes conventional
OSVs, work class ROVs and a shore-base facility located in Port Fourchon, Louisiana. On
occasion, we provide vessel management services for other vessels owners, such as
crewing, daily operational management and maintenance activities. Our Downstream
segment owns and operates a fleet of ocean-going tugs and tank barges that transport
petroleum products, primarily in the northeastern United States and the GoM. Although all of
our vessels can operate in domestic and international waters, all but six of our vessels are
qualified under Section 27 of the Merchant Marine Act of 1920, also known as the Jones Act,
to engage in the U.S. coastwise trade. Foreign owned, built or crewed vessels are restricted
in their ability to conduct U.S. coastwise trade and are typically excluded from such trade.

We intend to continue our efforts to maximize stockholder value through our long-term
return-oriented growth strategy. We will, as opportunities arise, acquire or construct additional
vessels, as well as divest certain assets that we consider to be non-core or otherwise not
in-line with our long-term strategy.

DESCRIPTION OF OUR BUSINESS

Our Upstream Segment

General—OSVs

OSVs primarily serve exploratory and developmental drilling rigs and production facilities

and support offshore and subsea construction, installation, maintenance, repair and
decommissioning activities. OSVs differ from other ships primarily due to their cargo carrying
flexibility and capacity. In addition to transporting deck cargo, such as pipe or drummed
material and equipment, OSVs also transport liquid mud, potable and drilling water, diesel
fuel, dry bulk cement and personnel between shore bases and offshore rigs and production

4

facilities. In the mid-1990s, oil and gas producers began seeking large hydrocarbon reserves
in deeper water depths using new, specialized drilling and production equipment. We
recognized that the then-existing fleet of conventional OSVs operating in the GoM was not
designed to support these more complex projects or to operate in the challenging
environments in which they were conducted. Therefore, in 1997, we conceived of a fleet of
new generation OSVs with enhanced capabilities to allow them to more effectively support
deepwater drilling and related construction projects. In order to best serve these projects, we
designed our new generation vessels with larger liquid mud and dry bulk cement capacities,
as well as larger areas of open deck space, which are features essential to deepwater
projects that are often distant from shore-based support infrastructure. Deepwater
environments also required dynamic positioning, or anchorless station-keeping capability,
driven primarily by safety concerns that preclude vessels from physically mooring to
deepwater installations. Such DP systems have experienced steady increases in technology
over time with the highest DP rating currently being DP-3. The number following the DP
notation generally indicates the degree of redundancy built into the vessel’s systems and the
range of usefulness of the vessel in deepwater construction and subsea operations. Higher
numbers represent greater DP capabilities.

Since 1997, we have executed our business plan to serve the deepwater exploration and
production requirements of our customers with our diverse fleet of new generation OSVs. We
own a fleet of 49 new generation OSVs and expect to take delivery of two additional newbuild
OSVs in 2010. Our new generation OSV fleet is comprised of a broad array of vessel classes
with varying sizes and capabilities. Through a series of newbuild construction programs and
multiple acquisitions, we now have a total of ten distinct new generation OSV vessel class
designs particularly suited for our customers’ needs. Upon its completion during 2010, our
fourth OSV newbuild program will have added six 240 ED class OSVs, nine 250 EDF class
OSVs and one 290 class OSV, respectively, to our Upstream fleet. Our newest design, the
250 EDF class, is based on our highly successful 240 ED design modified to lengthen the
vessel and expand the propulsion package to achieve faster transit speeds.

General—MPSVs

MPSVs also support the offshore exploration and production activities of the energy
industry. MPSVs are distinguished from OSVs in that they are significantly larger and more
specialized vessels that are principally used to support complex deepwater subsea
construction, installation, intervention, maintenance, repair, decommissioning and other
sophisticated operations. These vessels are or can be equipped with a variety of lifting and
deployment systems, including ROVs, large capacity cranes, winches or reel systems. For
example, MPSVs can serve as a platform for the subsea installation of risers, jumpers and
umbilicals. MPSVs also support ROV operations, diving activities, well intervention, including
live well intervention, platform decommissioning and other complex construction operations.
Generally, MPSVs command higher day rates than OSVs due to their significantly larger
relative size and versatility, as well as higher construction and operating costs.

In May 2005, we conceived of a new breed of MPSV that, in addition to the array of
services described above, are also capable of being utilized to transport deck or bulk cargoes
with capacities far exceeding that of even the largest new generation OSVs. We launched an
innovative MPSV program to convert two former U.S.-flagged sulfur carriers into proprietary 370
class DP-2 new generation MPSVs. These MPSVs have nearly three times the deadweight and

5

liquid mud capacity of one of our 265 class new generation OSVs and more than eight times
the liquid mud capacity of one of our 200 class new generation OSVs. Moreover, these
MPSVs can assist in large volume deepwater well testing and flow-back operations. In
addition, these vessels can be outfitted with a variety of “tool kits” including ROVs, large
capacity cranes, winches and other apparatus to support offshore construction, subsea well
intervention, ROV operations, pipe-hauling and flotel services, among others.

In May 2007, we expanded our MPSV program to include the HOS Iron Horse, which is a
newbuild MPSV that was constructed at IHC Holland’s Merwede Shipyard in the Netherlands.
The MPSV program was further expanded in January 2008 with the acquisition of the HOS
Achiever, which was then under construction at IHC Holland’s Krimpen Shipyard, also in the
Netherlands. The HOS Iron Horse and HOS Achiever are 430 class DP-3 new generation
MPSVs. A DP-3 notation requires greater vessel and ship systems redundancies. DP-3
systems also include separate vessel compartments with fire-retardant walls for generators,
prime movers, switchboards and most other DP components. These 430 class MPSVs are
designed to handle a variety of global offshore energy applications, many of which are not
dependent on the exploratory rig count. They are excellent platforms to support
subsea-to-surface construction, inspection, repair and maintenance, well intervention,
decommissioning projects and flotel services, as well as pipeline and subsea wellhead
installations with ROVs, saturation diving systems and flexible umbilical and flexible pipe-
laying capabilities. They are not, however, equipped to handle liquid cargoes. The HOS Iron
Horse and the HOS Achiever are not U.S. flag vessels, however, they can, and have recently,
engaged in legally permissible operations in the U.S.

6

The following table provides information, as of February 15, 2010, regarding our fleet of

new generation vessels that serve our OSV and MPSV customers.

New Generation Vessels

Name(1)

Class

Current Service
Function

Built (Acquired)

Deadweight
(long tons)

Liquid Mud
Capacity
(barrels)

Brake
Horsepower

Active:
OSVs
. . . . . . . . . . . 290
HOS Coral
BJ Blue Ray . . . . . . . . . . 265
HOS Brimstone . . . . . . . 265
HOS Stormridge . . . . . . . 265
HOS Sandstorm . . . . . . . 265
HOS Resolution . . . . . . . 250 EDF
HOS Mystique . . . . . . . . 250 EDF
HOS Black Powder
. . . . 250 EDF
HOS Westwind . . . . . . . . 250 EDF
HOS Eagleview . . . . . . . 250 EDF
HOS Arrowhead . . . . . . . 250 EDF
HOS Pinnacle . . . . . . . . . 250 EDF
HOS Wildwing . . . . . . . . 250 EDF
HOS Windancer . . . . . . . 250 EDF
HOS Bluewater
. . . . . . . 240 ED
HOS Gemstone . . . . . . . 240 ED
HOS Greystone . . . . . . . 240 ED
HOS Silverstar . . . . . . . . 240 ED
HOS Polestar . . . . . . . . . 240 ED
HOS Shooting Star
. . . . 240 ED
HOS North Star . . . . . . . 240 ED
HOS Lode Star . . . . . . . . 240 ED
HOS Silver Arrow . . . . . . 240 ED
HOS Sweet Water . . . . . 240 ED
HOS Innovator . . . . . . . . 240 E
HOS Dominator . . . . . . . 240 E
HOS Saylor . . . . . . . . . . . 240
HOS Deepwater . . . . . . . 240
HOS Cornerstone . . . . . 240
HOS Hope . . . . . . . . . . . 200
HOS Beaufort . . . . . . . . . 200
HOS Hawke . . . . . . . . . . 200
HOS Byrd . . . . . . . . . . . . 200
HOS St. James . . . . . . . 200
HOS St. John . . . . . . . . . 200
HOS Douglas . . . . . . . . . 200
HOS Davis . . . . . . . . . . . 200
HOS Nome . . . . . . . . . . . 200
HOS North . . . . . . . . . . . 200
HOS Crossfire . . . . . . . . 200
HOS Brigadoon . . . . . . . 200
HOS Thunderfoot . . . . . . 200
HOS Dakota . . . . . . . . . . 200
MPSVs
HOS Achiever . . . . . . . . . 430
HOS Iron Horse . . . . . . . 430
HOS Centerline . . . . . . . 370
HOS Strongline . . . . . . . 370
Inactive:(2)
OSVs
HOS Navegante(3)
. . . . . 240
HOS Explorer . . . . . . . . . 220
HOS Express . . . . . . . . . 220
. . . . . . . . . 220
HOS Pioneer
HOS Trader
. . . . . . . . . . 220
HOS Voyager . . . . . . . . . 220
HOS Mariner
. . . . . . . . . 220
HOS Super H . . . . . . . . . 200

Mar 2009
Nov 2001
Jun 2002
Aug 2002
Oct 2002
Oct 2008
Jan 2009
Jun 2009
Jun 2009
Oct 2009
Jan 2010
Feb 2010
May 2010 est.
Aug 2010 est.
Mar 2003
Jun 2003
Sep 2003
Jan 2004
May 2008
Jul 2008
Nov 2008
Feb 2009
Oct 2009
Dec 2009
Apr 2001
Feb 2002

Supply
Well Stimulation
Supply
Supply
Supply
Supply
ROV Support
Military
Military
Military
Military
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Well Stimulation (FF) Oct 1999 (Jan 2005)
Supply (FF)
Supply
Supply
Well Stimulation
Well Stimulation
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply (FF)
Supply
Supply

Nov 1999
Mar 2000
Jan 1999 (Aug 2007)
Mar 1999 (Aug 2007)
Jul 1999 (Aug 2007)
Aug 1999 (Aug 2007)
Oct 1999 (Aug 2007)
Jan 2000 (Aug 2007)
Apr 2000 (Aug 2007)
Jun 2000 (Aug 2007)
Aug 2000 (Aug 2007)
Oct 2000 (Aug 2007)
Nov 1998
Mar 1999
May 1999
Jun 1999

Multi-Purpose (FF)
Multi-Purpose (FF)
Multi-Purpose
Multi-Purpose

October 2008
November 2009
March 2009
March 2010

Towing/Supply (FF)
Supply
Supply
Supply
Supply
Supply
Supply
Supply

Jan 2000 (Mar 2005)
Feb 1999 (Jun 2003)
Sep 1998 (Jun 2003)
Jun 2000 (Jun 2003)
Nov 1997 (Jun 2003)
May 1998 (Jun 2003)
Sep 1999 (Aug 2003)
Jan 1999

7

5,600
3,756
3,756
3,756
3,756
2,950
2,950
2,900
2,900
2,900
2,900
2,950
2,950
2,950
2,850
2,850
2,850
2,850
2,850
2,850
2,850
2,850
2,850
2,850
2,380
2,380
3,322
2,250
2,250
2,250
2,250
2,250
2,250
2,246
2,246
2,250
2,250
2,250
2,250
1,750
1,750
1,750
1,750

8,200
8,200
8,000
8,000

3,322
1,607
1,607
1,607
1,607
1,607
1,607
1,750

15,200
10,700
10,400
10,400
10,400
8,300
8,300
8,300
8,300
8,300
8,300
8,300
8,300
8,300
8,300
8,300
8,300
8,300
8,300
8,300
8,300
8,300
8,300
8,300
5,500
6,400
n/a
6,300
6,300
4,100
4,100
4,100
4,100
4,100
4,100
4,100
4,100
4,100
4,100
3,600
3,600
3,600
3,600

n/a
n/a
32,000
32,000

6,000
3,100
3,100
3,100
3,100
3,100
3,100
3,600

6,100
6,700
6,700
6,700
6,700
6,000
6,000
6,000
6,000
6,000
6,000
6,000
6,000
6,000
4,000
4,000
4,000
4,000
4,000
4,000
4,000
4,000
4,000
4,000
4,500
4,500
8,000
4,500
4,500
4,200
4,200
4,200
4,200
4,200
4,200
4,200
4,200
4,200
4,200
4,000
4,000
4,000
4,000

8,000
8,000
6,000
6,000

7,845
3,900
3,900
4,200
3,900
3,900
3,900
4,000

FF – foreign-flagged
(1) Excludes three conventional OSVs acquired with the Sea Mar Fleet in August 2007. These vessels are considered non-core assets and are

(2)

currently inactive and held for sale.
In recognition of the soft Upstream market conditions that began in the second quarter of 2009 and are expected to continue through 2010, we
commenced stacking certain of our older new generation OSVs on various dates since May 2009. We currently expect to have eight stacked
new generation OSVs during 2010.

(3) The HOS Navegante, a foreign-flagged AHTS, is used primarily for its OSV capabilities and for towing jack-up rigs.

In December 2005, we acquired the lease rights to a shore-base facility located in Port

Fourchon, Louisiana, which we renamed HOS Port. Port Fourchon’s proximity to the
deepwater GoM provides a strategic logistical advantage for servicing drilling rigs and
production units. Developed as a multi-use facility, Port Fourchon has historically been a land
base for offshore oil support services and the Louisiana Offshore Oil Port, or LOOP.
According to industry sources, Port Fourchon services nearly all deepwater rigs and almost
half of all shallow rigs in the GoM. The HOS Port facility lease has three years remaining on
its initial term, with four additional five-year renewal periods. In January 2008, we purchased a
leasehold interest in an additional parcel of improved real estate adjacent to HOS Port. The
new facility lease has five years remaining on its initial term, with four additional five-year
renewal periods. The combined acreage of the two adjoining properties now comprising HOS
Port is approximately 60 acres with total waterfront bulkhead of nearly 3,000 linear feet. HOS
Port not only supports our existing fleet and Upstream customers’ deepwater logistics
requirements, but it underscores our long-term commitment to and our favorable long-term
outlook for the deepwater GoM.

Principal Markets for Upstream Segment

OSVs and MPSVs operate worldwide, but are generally concentrated in relatively few
offshore regions with high levels of exploration and development activity, such as the GoM,
the North Sea, Southeast Asia, West Africa, Latin America, and the Middle East. While there
is some vessel migration between regions, key factors such as mobilization costs, vessel
suitability and government statutes prohibiting foreign-flagged vessels from operating in
certain waters, or cabotage laws such as the Jones Act, can limit the migration of OSVs.
Because MPSVs are generally utilized for non-cargo operations, they are less limited by
cabotage laws. Demand for OSVs, as evidenced by dayrates and utilization rates, is primarily
related to offshore oil and natural gas exploration, development and production activity. Such
activity is influenced by a number of factors, including the actual and forecasted price of oil
and natural gas, capital budgets of offshore exploration and production companies, and repair
and maintenance needs in the deepwater oilfield. Our principal geographic market is the
GoM, where we provide services to several major integrated oil companies as well as
mid-size and large independent oil companies with deepwater and ultra-deepwater activities.
We also operate in select international markets, primarily Mexico, Trinidad, Brazil and Qatar,
where we provide services to state-owned oil companies and major international oil and
oilfield service companies. We are often subcontracted by other oilfield service companies,
both in the GoM and internationally, to provide a new generation fleet that enables them to
render offshore oilfield services, such as well stimulation or other enhanced oil recovery
activities, diving and ROV operations, construction, installation, maintenance, repair and
decommissioning services. Since 2006, we have also developed a specialized application of
our new generation OSVs for use by the military.

8

Our charters are the product of either direct negotiation or a competitive proposal
process, which evaluates vessel capability, availability and price. Our primary method of
chartering in the GoM is through direct vessel negotiations with our customers on either a
long-term or spot basis. In the international market, we often charter through local entities in
order to comply with cabotage or other local requirements. Some charters are solicited by
customers through international vessel brokerage firms, which earn a commission that is
customarily paid by the vessel owner. Our military charters are the product of a competitive
procurement process conducted by the Military Sealift Command. All of our charters, whether
long-term or spot, are priced on a dayrate basis, whereby for each day that the vessel is
under contract to the customer, we earn a fixed amount of charter-hire for making the vessel
available for the customer’s use. Many long-term contracts and all government, including
national oil company, charters contain early termination options in favor of the customer;
however, some have fees designed to discourage early termination. Long-term charters
sometimes contain provisions that permit us to increase our dayrates in order to be
compensated for certain increased operational expenses or regulatory changes.

Competition for Upstream Segment

The OSV and MPSV industry is highly competitive. Competition primarily involves such

factors as:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

quality, capability and age of vessels;

quality and capability of the crew members;

ability to meet the customer’s schedule;

safety record;

reputation;

price and;

experience.

All but six of our OSVs and MPSVs are U.S.-flagged vessels, which are qualified under

the Jones Act to engage in domestic coastwise trade. The Jones Act restricts the ability of
vessels that are foreign built, foreign owned, foreign crewed or foreign-flagged from engaging
in coastwise trade in the United States and Puerto Rico. The services provided by OSVs
constitute coastwise trade as defined by the Jones Act. Consequently, competition for our
Upstream services is largely restricted to other U.S. vessel owners and operators, both
publicly and privately held. We believe that we operate the second largest fleet of new
generation Jones Act qualified OSVs in the United States. See “Environmental and Other
Governmental Regulation” for a more detailed discussion of the Jones Act. Internationally, our
OSVs compete against other U.S. owners, as well as foreign owners and operators of OSVs.
Some of our international competitors may benefit from a lower cost basis in their vessels,
which are not generally constructed in high-cost U.S. shipyards, as well as from lower crewing
costs and favorable tax regimes. While foreign vessel owners cannot engage in U.S.
coastwise trade, some cabotage laws in other parts of the world permit waivers for foreign
vessels if domestic vessels are unavailable. We, and other U.S. and foreign vessel owners
have been able to obtain such waivers in the foreign jurisdictions in which we operate.

9

Many of the services provided by MPSVs do not involve the transportation of

merchandise and therefore are generally not considered coastwise trade under U.S. and
foreign cabotage laws. Accordingly, competition in the MPSV industry is global in nature and
is more greatly affected by the particular capabilities of a vessel to meet the requirements of a
customer’s project. Our 430 class MPSVs have DP-3 systems, which increase their
uniqueness in the international market and their ability to support highly specialized
operations for which customers require a high-end dynamic positioning solution. Our 370
class MPSVs are Jones Act-qualified DP-2 classed vessels. Unlike most MPSVs that do not
carry significant amounts of deck or bulk cargo, these vessels will compete for projects with
other international MPSVs as well as participate in the GoM OSV market as large-capacity
carriers of drilling fluids, petroleum products and deck cargos in support of deepwater
exploration, development and production operations.

Although some of our principal competitors are larger, have greater financial resources
and have more extensive international operations than we do, we believe that our operating
capabilities and reputation for quality and safety enable us to compete effectively with other
fleets in the market areas in which we operate. In particular, we believe that the relatively
young age and advanced features of our OSVs and MPSVs provide us with a competitive
advantage. The ages of our new generation OSVs range from less than one year to twelve
years. In fact, one-third of our active new generation OSVs have been placed in service since
January 1, 2008. The average age of the industry’s conventional U.S.-flagged OSV fleet is
approximately 30 years. We believe that most of these older vessels are stacked and many of
them will be permanently retired in the next few years due to physical and economic
obsolescence. Worldwide competition for new generation vessels has been impacted in
recent years by the increase in newbuild OSVs placed in service and greater customer
interest in deep well, deepwater and ultra-deepwater drilling activity.

Competition for MPSVs differs from OSVs in that MPSVs that do not have coastwise
trade privileges might be permitted to operate in the GoM provided they do not engage in
certain activities that are reserved for Jones Act-qualified vessels. Consequently, our U.S. flag
DP-2 MPSVs may face more competition from foreign-flagged vessels in the GoM than do our
OSVs. In addition, while operating in the GoM, our foreign-flagged DP-3 MPSVs are required
to utilize U.S. crews while foreign owned vessels are not. U.S. crews are often more
expensive than foreign crews. Also, foreign MPSV owners may have more favorable tax
regimes than ours. Consequently, prices for foreign-owned MPSVs in the GoM are often
lower than prices we can charge. Finally, some potential MPSV customers are also owners of
MPSVs that will compete with our vessels. Our OSVs, by contrast, are usually contracted by
oil companies, which do not own their own vessels and therefore do not compete with us.

Our Downstream Segment

General

The domestic tank barge industry provides marine transportation of crude oil, petroleum
products and petrochemicals by ocean-going tugs and tank barges and is a critical link in the
U.S. petroleum distribution chain. The largest domestic tank barge market is on the East
Coast. The largest tank barge market in the northeastern United States is New York Harbor.
Petroleum products are transported in the northeastern United States through a vast network
of terminals, tankers and pipelines. Imported petroleum products are primarily delivered to

10

New York Harbor as it has the capacity to receive products in cargo lots of 50,000 tons or
more per tanker. By contrast, draft limitations in most New England ports and drawbridge
limitations in Boston, Massachusetts and Portland, Maine limit the average cargo-carrying
capacity of direct imports into many of the largest New England ports to about 30,000 tons
per tanker. As larger petroleum tankers are being built, we believe that direct delivery into
New York Harbor has favorably impacted tank barge demand for lightering services and
further shipment to New England, the Hudson River and Long Island.

We offer marine transportation, distribution and logistics services primarily in the

northeastern United States, GoM, Great Lakes and Puerto Rico with our active Downstream
fleet of nine double-hulled tank barges and ten ocean-going tugs. We also own six single-
hulled tank barges and six ocean-going tugs that are stacked. We provide our services to
major integrated oil companies, independent refineries and oil traders. Generally, a tug and
tank barge work together as a tow to transport refined or bunker grade petroleum products.
Our tank barges carry petroleum products that are typically characterized as either “clean” or
“dirty”. Clean products are primarily gasoline, home heating oil, diesel fuel and jet fuel. Dirty
products are mainly crude oils, residual crudes and feedstocks, heavy fuel oils and asphalts.

Oil Pollution Act of 1990

OPA 90 mandates that all single-hulled tank vessels operating in U.S. waters be
removed from petroleum transportation service according to a set time schedule. Based on
data provided by a U.S. Coast Guard report dated September 2001, 5.5 million barrels of
single-hulled tank barge capacity was retired by 2005 and an additional 3.5 million barrels by
2010, as mandated by OPA 90. According to the report, this represented, on a cumulative
basis as of each such retirement date; 32% and 52%, respectively, of the total 17.2 million
barrel single-hulled tank barge capacity that existed in 2001.

None of our double-hulled tank barges are subject to OPA 90 retirement dates. Of our

remaining six single-hulled tank barges, two were retired from U.S. service in 2009 and four
will need to be retired from U.S. service or double-hulled prior to January 1, 2015. See the
“Government Regulation” section below for more information regarding OPA 90.

11

The following tables provide information, as of February 15, 2010, regarding our

Downstream fleet of 16 tugs and 15 tank barges.

Ocean-Going Tugs

Name

Active:
Freedom Service . . . . . . . . . . . . . . . . . . . . . . . . .
Liberty Service . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patriot Service . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eagle Service . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gulf Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Erie Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Superior Service . . . . . . . . . . . . . . . . . . . . . . . . . .
Huron Service . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michigan Service . . . . . . . . . . . . . . . . . . . . . . . . .
Sea Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inactive:(2)
Caribe Service . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brooklyn Service . . . . . . . . . . . . . . . . . . . . . . . . . .
Atlantic Service . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tradewind Service . . . . . . . . . . . . . . . . . . . . . . . .
Spartan Service . . . . . . . . . . . . . . . . . . . . . . . . . .
Bayridge Service . . . . . . . . . . . . . . . . . . . . . . . . .

Gross
Tonnage

Length
(feet)

Year Built
(Retrofitted)(1)

Brake
Horsepower

180
180
198
198
198
98
98
98
98
173

194
198
198
183
126
194

126
126
124
124
126
105
105
105
105
109

111
105
105
105
102
100

1982(2005)
1982(2005)
1996(2006)
1996(2006)
1979
1981(2008)
1981(2008)
1981(2007)
1981(2007)
1975

1970
1975
1978
1975
1978
1981

6,140
6,140
6,140
6,140
3,900
3,620
3,620
3,000
3,000
2,820

3,900
3,900
3,900
3,200
3,000
2,000

(1) Our first and second TTB newbuild programs included the retrofitting of a total of eight tugs. These vessels were significantly improved and

(2)

modernized to accommodate our newbuild double-hulled tank barges.
In recognition of the soft Downstream market conditions for our single-hulled equipment that began early in the second quarter of 2008 and is
expected to continue through at least 2010, we stacked six lower horsepower tugs on various dates since April 1, 2008.

Ocean-Going Tank Barges

Name

Active:
Energy 13501 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy 13502 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy 11103 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy 11104 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy 11105 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy 8001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy 6506 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy 6507 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy 6508 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inactive:(2)
Energy 6501 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy 6502 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy 6504 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy 2201 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy 11102 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy 11101 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Barrel
Capacity

Length
(feet)

135,380
135,380
112,269
112,269
112,269
81,364
64,282
65,230
65,230

63,875
64,317
66,333
22,556
111,844
111,844

450
450
390
390
390
350
362
362
362

300
300
305
242
420
420

Year
Built

2005
2005
2005
2005
2005
1996
2007
2007
2008

1974
1980
1958
1973
1979
1979

OPA 90
Date(1)

DH
DH
DH
DH
DH
DH
DH
DH
DH

2015
2015
2015
2015
Retired
Retired

DH: OPA 90 limitations are not applicable to these double-hulled vessels.
(1) Prior to January 1 of the year indicated, according to OPA 90, the vessel must be refurbished as a double-hull or be retired from petroleum
transportation service in U.S. waters. For a discussion of OPA 90, see “—Environmental and Other Governmental Regulation” below.
In recognition of the soft Downstream market conditions for our single-hulled equipment that began early in the second quarter of 2008 and is
expected to continue through at least 2010, we commenced stacking all of our single-hulled tank barges on various dates since April 1, 2008.
Effective January 1, 2009 and June 17, 2009, the Energy 11102 and Energy 11101 reached their respective OPA 90 phase-out dates and
were retired from active service.

(2)

12

Principal Market for Downstream Segment

Major oil companies, refining, marketing and trading companies constitute the majority of

our customers for Downstream services. We enter into a variety of contract arrangements
with our Downstream customers, including spot and time charters, contracts of affreightment,
consecutive voyage contracts and, occasionally, bareboat charters. Our contracts are
obtained through competitive bidding, or with established customers through negotiation. We
sometimes place charters through the brokerage community, which charges a brokerage
commission payable by us. The brokerage commissions are based on the dayrates charged
to customers. Our ocean-going tugs and tank barges serve the northeastern U.S. coast,
primarily New York Harbor, by transporting both clean and dirty petroleum products to and
from refineries and distribution terminals. Our tugs and tank barges have also transported
both clean and dirty petroleum products from refineries and distribution terminals in Puerto
Rico to the Puerto Rico Electric Power Authority and to utilities located on other Caribbean
islands. In addition, we have provided ship lightering, bunkering and docking services in these
markets and are well positioned to provide such services to the increasing number of new
tankers that are too large to make direct deliveries to distribution terminals and refineries.
Also, since 2005, we have accessed new markets for our double-hulled tank barges by
performing upstream services for our OSV customers in the deepwater GoM. Re-deploying
some of our TTB equipment to the GoM provided additional market opportunities with new
downstream customers. Our tug and tank barge fleet has also served the Great Lakes region
on a seasonal basis to support increased demand for clean fuels during the summer driving
season.

Competition for Downstream Segment

In addition to pricing, which is a significant factor, the basis for competition in the

Downstream industry is dependent upon four major determinants:

(cid:129) Management systems: The operating capabilities of the vessels and the skill of the
crews that man those vessels is a key determinant of a fleet’s ability to operate
efficiently

(cid:129) Scheduling: The ability of the fleet to meet stringent customer sailing and delivery

schedule requirements.

(cid:129) Experience: Efficient sailing schedules and lower fleet incident rates are indicative of

higher safety standards and experienced personnel.

(cid:129) Vessel size and accessibility to customer terminals: Customer terminals vary widely

in the sizes and types of vessels than can be accepted in their berths.

A TTB operator’s market reputation is a function of its performance against each of these

criteria. Our Downstream segment has built a reputation in the TTB industry for providing
punctual, high quality service with a focus on safety.

When analyzing our competitive landscape, we consider the blue water, short-haul niche
within the East Coast market to be our primary operating domain. In defining the East Coast,
we include the entire Atlantic seaboard from the northeastern U.S. to Florida, the GoM region,
Puerto Rico and the Great Lakes. The total barrel capacity of all short-haul competitors that
are either headquartered or currently operating the majority of their vessels within the East

13

Coast market is fairly evenly distributed among seven companies that own about 90% of the
short-haul fleet; including the barrels that we transport. Competitors in our market niche are
primarily comprised of well-established, multi-generational, family-owned businesses, with
only two publicly traded companies, including us, having a critical mass of coastwise barges
in the size range of 50,000 to 150,000 barrels.

The Company does not anticipate significant competition in the near term from new
“greenfield” refined products pipelines or pipeline expansions along its primary transportation
routes in the northeastern U.S. or Puerto Rico.

FINANCIAL INFORMATION ABOUT SEGMENTS

See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results

of Operations” and Note 15 to our consolidated financial statements for further discussion
regarding financial information by segment and geographic location.

CUSTOMER DEPENDENCY

The percentage of revenues attributable to a customer in any particular year depends on
the level of oil and natural gas exploration, development and production activities undertaken
or refined petroleum products or crude oil transported by a particular customer, the availability
and suitability of our vessels for the customer’s projects or products and other factors, many
of which are beyond our control. For the year ended December 31, 2009, Military Sealift
Command and Shell Oil Company each accounted for more than 10% of our total revenues.
For a discussion of significant customers in prior periods, see Note 13 of the notes to our
consolidated financial statements.

GOVERNMENT REGULATION

Environmental Laws and Regulations

Our operations are subject to a variety of federal, state, local and international laws and
regulations regarding the discharge of materials into the environment or otherwise relating to
environmental protection. The requirements of these laws and regulations have become more
complex and stringent in recent years and may, in certain circumstances, impose strict
liability, rendering a company liable for environmental damages and remediation costs without
regard to negligence or fault on the part of such party. Aside from possible liability for
damages and costs including natural resource damages associated with releases of oil or
hazardous materials into the environment, such laws and regulations may expose us to
liability for the conditions caused by others or even acts of ours that were in compliance with
all applicable laws and regulations at the time such acts were performed. Failure to comply
with applicable laws and regulations may result in the imposition of administrative, civil and
criminal penalties, revocation of permits, issuance of corrective action orders and suspension
or termination of our operations. Moreover, it is possible that changes in the environmental
laws, regulations or enforcement policies that impose additional or more restrictive
requirements or claims for damages to persons, property, natural resources or the
environment could result in substantial costs and liabilities to us. We believe that we are in
substantial compliance with currently applicable environmental laws and regulations.

14

OPA 90 and regulations promulgated pursuant thereto impose a variety of regulations on

“responsible parties” related to the prevention and/or reporting of oil spills and liability for
damages resulting from such spills. A “responsible party” includes the owner or operator of an
onshore facility, pipeline or vessel or the lessee or permittee of the area in which an offshore
facility is located. OPA 90 assigns liability to each responsible party for oil removal costs and
a variety of public and private damages. Under OPA 90, as amended by the Coast Guard and
Maritime Transportation Act of 2006, “tank vessels” of over 3,000 gross tons that carry oil or
other hazardous materials in bulk as cargo, a term, which includes our tank barges, are
subject to liability limits of (i) for a single-hulled vessel, the greater of $3,200 per gross ton or
$23.5 million or (ii) for a tank vessel other than a single-hulled vessel, the greater of $2,000
per gross ton or $17.1 million. “Tank vessels” of 3,000 gross tons or less are subject to liability
limits of (i) for a single-hulled vessel, the greater of $3,200 per gross ton or $6.4 million or
(ii) for a tank vessel other than a single-hulled vessel, the greater of $2,000 per gross ton or
$4.3 million. For any vessels, other than “tank vessels,” that are subject to OPA 90, the
liability limits are the greater of $1,000 per gross ton or $854,400. A party cannot take
advantage of liability limits if the spill was caused by gross negligence or willful misconduct or
resulted from violation of a federal safety, construction or operating regulation. In addition,
there are no liability limits for vessels carrying crude oil from a well situated on the Continental
Shelf. If the party fails to report a spill or to cooperate fully in the cleanup, the liability limits
likewise do not apply and certain defenses may not be available. Moreover, OPA 90 imposes
on responsible parties the need for proof of financial responsibility to cover at least some
costs in a potential spill. As required, we have provided satisfactory evidence of financial
responsibility to the U.S. Coast Guard for all of our vessels over 300 tons.

OPA 90 also imposes ongoing requirements on a responsible party, including

preparedness and prevention of oil spills and preparation of an oil spill response plan. We
have engaged the National Response Corporation to serve as our independent contractor for
purposes of providing stand-by oil spill response services in all geographical areas of our fleet
operations. In addition, our Oil Spill Response Plan has been approved by the U.S. Coast
Guard.

OPA 90 requires that all newly-built tank vessels used in the transportation of petroleum
products be built with double hulls and provides for a phase-out period for existing single hull
vessels. Modifying or replacing existing vessels to provide for double hulls will be required of
all single-hulled tank barges and tankers in the industry by the year 2015. Under existing legal
requirements, therefore, we will be required to modify or retire from service, before January 1,
2015, the remaining six single-hulled tank barges that have not previously been retired. All six
of the single-hulled tank barges that we own were stacked and inactive as of December 31,
2009.

The Clean Water Act imposes strict controls on the discharge of pollutants into the
navigable waters of the United States. The Clean Water Act also provides for civil, criminal
and administrative penalties for any unauthorized discharge of oil or other hazardous
substances in reportable quantities and imposes liability for the costs of removal and
remediation of an unauthorized discharge. Many states have laws that are analogous to the
Clean Water Act and also require remediation of accidental releases of petroleum in
reportable quantities. Our OSVs routinely transport diesel fuel to offshore rigs and platforms
and also carry diesel fuel for their own use. Our OSVs also transport bulk chemical materials

15

used in drilling activities and liquid mud, which contain oil and oil by-products. In addition, our
tank barges are specifically engaged to transport a variety of petroleum products. We
maintain vessel response plans as required by the Clean Water Act to address potential oil
and fuel spills.

The Comprehensive Environmental Response, Compensation, and Liability Act of 1980,

also known as “CERCLA” or “Superfund,” and similar laws impose liability for releases of
hazardous substances into the environment. CERCLA currently exempts crude oil from the
definition of hazardous substances for purposes of the statute, but our operations may involve
the use or handling of other materials that may be classified as hazardous substances.
CERCLA assigns strict liability to each responsible party for response costs, as well as
natural resource damages. Under CERCLA, responsible parties include owners and
operators of vessels. Thus, we could be held liable for releases of hazardous substances that
resulted from operations by third parties not under our control or for releases associated with
practices performed by us or others that were standard in the industry at the time.

The Resource Conservation and Recovery Act regulates the generation, transportation,

storage, treatment and disposal of onshore hazardous and non-hazardous wastes and
requires states to develop programs to ensure the safe disposal of wastes. We generate
non-hazardous wastes and small quantities of hazardous wastes in connection with routine
operations. We believe that all of the wastes that we generate are handled in all material
respects in compliance with the Resource Conservation and Recovery Act and analogous
state statutes.

The United States Coast Guard recently has announced proposed regulations that when

adopted, would require all of our existing vessels to meet certain standards pertaining to
ballast water discharge, on or before certain dates between January 2014 and July 2016. The
cost of compliance with these standards is presently unknown; however, some estimates
range between $250,000 and $700,000, per vessel, for Phase I compliance and additional
amounts thereafter for Phase II compliance.

The United States Environmental Protection Agency (“EPA”) also has recently imposed
emissions regulations affecting vessels that operate in the United States. These regulations
impose standards that may require modifications to our vessels at a cost that we have as yet
been unable to estimate. Moreover, the EPA’s recent decision to regulate “green house
gasses” as a pollutant may result in further regulations and compliance costs.

EMPLOYEES

On December 31, 2009, we had 1,025 employees, including 835 operating personnel

and 190 corporate, administrative and management personnel. None of our employees are
represented by a union or employed pursuant to a collective bargaining agreement or similar
arrangement. We have not experienced any strikes or work stoppages, and our management
believes that we continue to experience good relations with our employees.

SEASONALITY

Demand for our offshore support services is directly affected by the levels of offshore

drilling activity. Budgets of many of our customers are based upon a calendar year, and

16

demand for our upstream services has historically been stronger in the second and third
calendar quarters when allocated budgets are expended by our customers and weather
conditions are more favorable for offshore activities. Many other factors, such as the
expiration of drilling leases and the supply of and demand for oil and natural gas, may affect
this general trend in any particular year. In addition, we typically have an increase in demand
for our Upstream vessels to survey and repair offshore infrastructure immediately following
major hurricanes in the GoM.

Downstream services are significantly affected by the strength of the U.S. economy,

changes in weather patterns and population growth that affect the consumption of and the
demand for refined petroleum products and crude oil. The Downstream market has been
historically impacted by seasonal weather patterns. Demand for heating oil in the
northeastern United States, which is a significant market for our Downstream services, is
generally driven by temperature levels experienced during the winter months. Normal winter
conditions in the northeastern United States usually drive demand higher from December
through March. However, unseasonably mild winters result in significantly lower demand
during such months. In addition, the summer driving season, notwithstanding the impact of
general economic trends such as gasoline price volatility, can increase demand for
automobile fuel and, accordingly, the demand for our services.

WEBSITE AND OTHER ACCESS TO COMPANY REPORTS AND OTHER MATERIALS

Our website address is http://www.hornbeckoffshore.com/. We make available on this
website, free of charge, access to our Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K and amendments to those reports, as well as other
documents that we file with, or furnish to, the Commission pursuant to Sections 13(a) or 15(d)
of the Exchange Act, as soon as reasonably practicable after such documents are filed with,
or furnished to, the Commission. We intend to use our website as a means of disclosing
material non-public information and for complying with disclosure obligations under
Regulation FD. Such disclosures will be included on our website under the heading
“Investors—IR Home.” Accordingly, investors should monitor such portion of our website, in
addition to following our press releases, Commission filings and public conference calls and
webcasts. You may read and copy any materials we file with the Commission at the
Commission’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You
can obtain information on the operation of the Public Reference Room by calling the
Commission at 1-800-732-0330. The SEC maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that file
electronically with the Commission at http://www.sec.gov. Our Corporate Governance
Guidelines, Employee Code of Business Conduct and Ethics (which applies to all employees,
including our Chief Executive Officer and certain Financial and Accounting Officers), Board of
Directors Code of Business Conduct and Ethics, and the charters for our Audit, Nominating/
Corporate Governance and Compensation Committees, can all be found on the Investor
Relations page of our website under “Corporate Governance”. We intend to disclose any
changes to or waivers from the Employee Code of Business Conduct and Ethics that would
otherwise be required to be disclosed under Item 5.05 of Form 8-K on our website. We will
also provide printed copies of these materials to any stockholder upon request to Hornbeck
Offshore Services, Inc., Attn: General Counsel, 103 Northpark Boulevard, Suite 300,
Covington, Louisiana 70433. The information on our website is not, and shall not be deemed
to be, a part of this report or incorporated into any other filings we make with the Commission.

17

ITEM 1A—Risk Factors

Our results of operations and financial condition can be adversely affected by numerous
risks. You should carefully consider the risks described below as well as the other information
we have provided in this Annual Report on Form 10-K. The risks described below are not the
only ones we face. You should also consider the factors contained in our “Forward Looking
Statements” disclaimer found on page 1 of this Annual Report on Form 10-K. Additional risks
not presently known to us or that we currently deem immaterial may also impair our business
operations.

Demand for our OSV services substantially depends on the level of activity in offshore
oil and gas exploration, development and production.

The level of offshore oil and gas exploration, development and production activity has

historically been volatile and is likely to continue to be so in the future. The level of activity is
subject to large fluctuations in response to relatively minor changes in a variety of factors that
are beyond our control, including:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

changes in capital spending budgets by our customers;

unavailability of drilling rigs in the GoM, our principal operating area;

prevailing oil and natural gas prices and expectations about future prices and price
volatility;

the cost of offshore exploration for, and production and transportation of, oil and
natural gas;

successful exploration for, and production and transportation of, oil and natural gas
from onshore sources;

(cid:129) worldwide demand for oil and natural gas;

(cid:129)

(cid:129)

(cid:129)

(cid:129)

consolidation of oil and gas and oil service companies operating offshore;

availability and rate of discovery of new oil and natural gas reserves in offshore
areas;

local and international political and economic conditions and policies;

technological advances affecting energy production and consumption;

(cid:129) weather conditions;

(cid:129)

(cid:129)

environmental and other regulation affecting our customers and their other service
providers; and

the ability of oil and gas companies to generate or otherwise obtain funds for
exploration and production.

We expect levels of oil and gas exploration, development and production activity to
continue to be volatile and affect the demand for our Upstream and Downstream
services.

Oil and natural gas prices are volatile. A downturn in oil prices or further deterioration in

natural gas prices is likely to cause a decline in expenditures for exploration, development

18

and production activity, which would likely result in a corresponding decline in the demand for
OSVs and MPSVs and thus decrease the utilization and dayrates of our OSVs and MPSVs.
Such decreases could continue to negatively impact our financial condition and results of
operations. Moreover, increases in oil and natural gas prices and higher levels of expenditure
by oil and gas companies for exploration, development and production may not necessarily
result in increased demand for our OSVs and MPSVs and could adversely affect utilization of
our tugs and tank barges.

Increases in the supply of vessels could decrease dayrates.

In addition to our own vessel building programs, certain of our competitors have

announced plans to construct new vessels to be deployed in domestic and foreign locations.
A remobilization to the GoM oilfield of U.S.-flagged vessels currently operating in other
regions or in non-oilfield applications would result in an increase in vessel capacity in our
primary market. Additionally, construction of double-hulled, ocean-going tank barges has
increased ocean-going tank barge capacity. Further, a repeal, suspension or significant
modification of the Jones Act, or the administrative erosion of its benefits, permitting vessels
that are either foreign-flagged, foreign-built, foreign-owned, foreign-controlled or foreign-
operated to engage in the U.S. coastwise trade, would also result in an increase in capacity.
Any increase in the supply of OSVs or MPSVs, whether through new construction,
refurbishment or conversion of vessels from other uses, remobilization or changes in law or
its application, could not only increase competition for charters and lower utilization and
dayrates, which would adversely affect our revenues and profitability, but could also worsen
the impact of any downturn in the oil and gas industry on our results of operations and
financial condition. Similarly, any increase in the supply of ocean-going tank barges, could not
only increase competition for charters and lower utilization and dayrates, which could
negatively affect our revenues and profitability, but could also worsen the impact of any
reduction in domestic consumption of refined petroleum products or crude oil on our results of
operations and financial condition. Because some services provided by MPSVs are not
protected by the Jones Act, foreign competitors may bring MPSVs to the GoM or build
additional MPSVs that we will compete with domestically or internationally.

Intense competition in our industry could reduce our profitability and market share.

Contracts for our vessels are generally awarded on an intensely competitive basis. Some

of our competitors, including diversified multinational companies in the Upstream segment,
have substantially greater financial resources and larger operating staffs than we do. They
may be better able to compete in making vessels available more quickly and efficiently,
meeting the customer’s schedule and withstanding the effect of declines in dayrates and
utilization rates. They may also be better able to weather a downturn in the oil and gas
industry. As a result, we could lose customers and market share to these competitors. Some
of our competitors may also be willing to accept lower dayrates in order to maintain utilization,
which can have a negative impact on dayrates and utilization in both of our market segments.

19

The failure to successfully complete construction or conversion of our vessels or
repairs, maintenance and routine drydockings on schedule and on budget and to
utilize such vessels and the other vessels in our fleet at profitable levels could
adversely affect our financial condition and results of operations.

We currently have two new generation OSVs under construction. We may plan to
construct other such vessels as market conditions warrant. We also routinely engage
shipyards to drydock our vessels for regulatory compliance and to provide repair and
maintenance. Our construction projects and drydockings are subject to the risks of delay and
cost overruns inherent in any large construction project, including shortages of equipment,
lack of shipyard availability, unforeseen engineering problems, work stoppages, weather
interference, unanticipated cost increases, inability to obtain necessary certifications and
approvals and shortages of materials or skilled labor. Significant delays could have a material
adverse effect on anticipated contract commitments or anticipated revenues with respect to
vessels under construction, conversion or for other drydockings. Further, significant cost
overruns or delays for vessels under construction, conversion or retrofit not adequately
protected by liquidated damages provisions, in general could adversely affect our financial
condition and results of operations. Moreover, customer demand for vessels currently under
construction or conversion may not be as strong as we have anticipated, and our inability to
obtain contracts on anticipated terms or at all may have a material adverse effect on our
revenues and profitability. In addition, our Upstream vessels are sometimes chartered or hired
to provide services to a specified drilling rig or project. A delay in the availability of the drilling
rig or other project delays may have an adverse impact on our utilization of the contracted
vessel and thus on our financial condition and results of operations.

We have grown, and may continue to grow, through acquisitions that give rise to risks
and challenges that could adversely affect our future financial results.

We regularly consider possible acquisitions of single vessels, vessel fleets and
businesses that complement our existing operations to enable us to grow our business.
Acquisitions can involve a number of special risks and challenges, including:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

diversion of management time and attention from our existing business and other
business opportunities;

delays in closing or the inability to close an acquisition for any reason, including third
party consents or approvals;

any unanticipated negative impact on us of disclosed or undisclosed matters relating
to any vessels or operations acquired;

loss or termination of employees, including costs associated with the termination or
replacement of those employees;

assumption of debt or other liabilities of the acquired business, including litigation
related to the acquired business;

the incurrence of additional acquisition-related debt as well as increased expenses
and working capital requirements;

dilution of stock ownership of existing stockholders;

increased costs and efforts in connection with compliance with Section 404 of the
Sarbanes-Oxley Act; and

20

(cid:129)

substantial accounting charges for restructuring and related expenses, impairment of
goodwill, amortization of intangible assets, and stock-based compensation expense.

Even if we consummate an acquisition, the process of integrating acquired operations

into our own may result in unforeseen operating difficulties and costs and may require
significant management attention and financial resources. In addition, integrating acquired
businesses may impact the effectiveness of our internal control over financial reporting. Any
of the foregoing, and other factors, could harm our ability to achieve anticipated levels of
utilization and profitability from acquired vessels or businesses or to realize other anticipated
benefits of acquisitions.

We can give no assurance that we will be able to identify desirable acquisition candidates
or that we will be successful in entering into definitive agreements or closing such acquisitions
on satisfactory terms. An inability to acquire additional vessels or businesses may limit our
growth potential.

Revenues from our Downstream business could be further adversely affected by a
decline in demand for domestic refined petroleum products and crude oil or a change
in existing methods of delivery in response to insufficient availability of Downstream
services and other conditions.

A reduction in domestic consumption of refined petroleum products or crude oil has

recently adversely affected the revenues of our Downstream business and could worsen.
Further worsening could affect our financial condition and results of operation. Weather
conditions also affect demand for our Downstream services. For example, a mild winter may
reduce demand for heating oil in the northeastern United States.

Moreover, alternative methods of delivery of refined petroleum products or crude oil may
develop as a result of insufficient availability of Downstream services, the cost of compliance
with homeland security, environmental regulations or increased liabilities connected with the
transportation of refined petroleum products and crude oil. For example, long-haul
transportation of refined petroleum products and crude oil is generally less costly by pipeline
than by tank barge. While there are significant impediments to building new pipelines, such as
high capital costs and environmental concerns, entities may propose new pipeline
construction to meet demand for petroleum products. To the extent new pipeline segments
are built or existing pipelines converted to carry petroleum products, such activity could have
an adverse effect on our ability to compete in particular markets.

The early termination of contracts on our vessels could have an adverse effect on our
operations.

Some of the long-term contracts for our vessels and all contracts with governmental
entities and national oil companies contain early termination options in favor of the customer;
however, some have early termination remedies or other provisions designed to discourage
the customers from exercising such options. We cannot assure that our customers would not
choose to exercise their termination rights in spite of such remedies or the threat of litigation
with us. Until replacement of such business with other customers, any termination could
temporarily disrupt our business or otherwise adversely affect our financial condition and
results of operations. We might not be able to replace such business on economically
equivalent terms.

21

We are subject to complex laws and regulations, including environmental regulations
that can adversely affect the cost, manner or feasibility of doing business.

Increasingly stringent federal, state, local and foreign laws and regulations governing
worker health and safety and the manning, construction and operation of vessels significantly
affect our operations. Many aspects of the marine industry are subject to extensive
governmental regulation by the United States Coast Guard, the National Transportation
Safety Board, the Environmental Protection Agency and the United States Customs Service,
and their foreign equivalents, and to regulation by private industry organizations such as the
American Bureau of Shipping. The Coast Guard and the National Transportation Safety
Board set safety standards and are authorized to investigate vessel accidents and
recommend improved safety standards, while the United States Coast Guard and Customs
Service is authorized to inspect vessels at will. Our operations are also subject to federal,
state, local and international laws and regulations that control the discharge of pollutants into
the environment or otherwise relate to environmental protection. Compliance with such laws,
regulations and standards may require installation of costly equipment, increased manning, or
operational changes. While we endeavor to comply with all applicable laws, we might not and
our failure to comply with applicable laws and regulations may result in administrative and civil
penalties, criminal sanctions, imposition of remedial obligations or the suspension or
termination of our operations. Some environmental laws impose strict liability for remediation
of spills and releases of oil and hazardous substances, which could subject us to liability
without regard to whether we were negligent or at fault. These laws and regulations may
expose us to liability for the conduct of, or conditions caused by, others, including charterers.
Moreover, these laws and regulations could change in ways that substantially increase costs
that we may not be able to pass along to our customers. Any changes in laws, regulations or
standards that would impose additional requirements or restrictions could adversely affect our
financial condition and results of operations.

We are also subject to the Merchant Marine Act of 1936, which provides that, upon
proclamation by the President of a national emergency or a threat to the security of the
national defense, the Secretary of Transportation may requisition or purchase any vessel or
other watercraft owned by United States citizens (which includes United States corporations),
including vessels under construction in the United States. If one of our OSVs, MPSVs, tugs or
tank barges were purchased or requisitioned by the federal government under this law, we
would be entitled to be paid the fair market value of the vessel in the case of a purchase or, in
the case of a requisition, the fair market value of charter hire. However, if one of our tugs is
requisitioned or purchased and its associated tank barge is left idle, we would not be entitled
to receive any compensation for the lost revenues resulting from the idled barge. We would
also not be entitled to be compensated for any consequential damages we suffer as a result
of the requisition or purchase of any of our OSVs, MPSVs, tugs or tank barges. The purchase
or the requisition for an extended period of time of one or more of our vessels could adversely
affect our results of operations and financial condition.

Finally, we are subject to the Merchant Marine Act of 1920, commonly referred to as the

Jones Act, which requires that vessels engaged in coastwise trade to carry cargo between
U.S. ports be documented under the laws of the United States and be controlled by U.S.
citizens. We endeavor to ensure that we would be determined to be a U.S. citizen as defined
under these laws by including in our certificate of incorporation certain restrictions on the
ownership of our capital stock by non-U.S. citizens and establishing certain mechanisms to

22

maintain compliance with these laws. If we are determined at any time not to be in
compliance with these citizenship requirements, our vessels would become ineligible to
engage in the coastwise trade in U.S. domestic waters, and our business and operating
results would be adversely affected. The Jones Act’s provisions restricting coastwise trade to
vessels controlled by U.S. citizens have recently been circumvented by foreign interests that
seek to engage in trade reserved for vessels controlled by U.S. citizens and otherwise
qualifying for coastwise trade. Legal challenges against such actions are difficult, costly to
pursue and are of uncertain outcome. To the extent such efforts are successful and foreign
competition is permitted, such competition could have a material adverse effect on domestic
companies in the offshore service vessel industry and on our financial condition and results of
operations. In addition, in the interest of national defense, the Secretary of Homeland Security
is authorized to suspend the coastwise trading restrictions imposed by the Jones Act on
vessels not controlled by U.S. citizens. Such a waiver was issued following Hurricane Katrina
and was in effect on a temporary basis for tank vessels that carried petroleum products. A
more limited waiver continues in existence for vessels that carry petroleum cargoes from the
Strategic Petroleum Reserve.

Our business involves many operating risks that may disrupt our business or
otherwise result in substantial losses, and insurance may be unavailable or inadequate
to protect us against these risks.

Our vessels are subject to operating risks such as:

(cid:129)

(cid:129)

catastrophic marine disaster;

adverse weather and sea conditions;

(cid:129) mechanical failure;

(cid:129)

(cid:129)

(cid:129)

(cid:129)

collisions or allisions;

oil and hazardous substance spills;

navigation errors;

acts of God; and

(cid:129) war and terrorism.

The occurrence of any of these events may result in damage to or loss of our vessels
and their tow or cargo or other property and injury to passengers and personnel. If any of
these events were to occur, we could be exposed to liability for resulting damages and
possible penalties, that pursuant to typical marine indemnity policies, we must pay and then
seek reimbursement from our insurer. Affected vessels may also be removed from service
and thus be unavailable for income-generating activity. While we believe our insurance
coverage is at adequate levels and insures us against risks that are customary in the industry,
we may be unable to renew such coverage in the future at commercially reasonable rates.
Moreover, existing or future coverage may not be sufficient to cover claims that may arise and
we do not maintain insurance for loss of income resulting from a marine casualty.

23

Our expansion of operations into international markets and shipyard activities in
foreign shipyards subjects us to risks inherent in conducting business internationally.

Over the past several years we have derived an increasing portion of our revenues from

foreign sources. In addition, certain of our shipyard repair and procurement activities are
being conducted with foreign vendors. We therefore face risks inherent in conducting
business internationally, such as legal and governmental regulatory requirements, potential
vessel seizure or nationalization of assets, import-export quotas or other trade barriers,
difficulties in collecting accounts receivable and longer collection periods, political and
economic instability, kidnapping of or assault on personnel, piracy, adverse tax
consequences, difficulties and costs of staffing international operations and language and
cultural differences. We do not hedge against foreign currency risk. While we endeavor to
contract in U.S. Dollars when operating internationally, some contracts may be denominated
in a foreign currency, which would result in a foreign currency exposure risk. All of these risks
are beyond our control and difficult to insure against. We cannot predict the nature and the
likelihood of any such events. If such an event should occur, however, it could have a material
adverse effect on our financial condition and results of operations.

We may lose the right to operate in some international markets in which we have a
presence.

In certain foreign markets in which we operate, most notably Mexico and Brazil, we
depend upon governmental waivers of cabotage laws. These waivers could be revoked or
made more burdensome, which could result in our inability to continue our operations or
materially increase the costs of operating in such foreign locations.

Future results of operations depend on the long-term financial stability of our
customers.

Some of the contracts we enter into for our vessels are full utilization contracts with initial

terms ranging from one to five years. We enter into these long-term contracts with our
customers based on a credit assessment at the time of execution. Our financial condition in any
period may therefore depend on the long-term stability and creditworthiness of our customers.
We can provide no assurance that our customers will fulfill their obligations under our long-term
contracts and the insolvency or other failure of a customer to fulfill its obligations under such
contract could adversely affect our financial condition and results of operations.

We may be unable to attract and retain qualified, skilled employees necessary to
operate our business.

Our success depends in large part on our ability to attract and retain highly skilled and

qualified personnel. Our inability to hire, train and retain a sufficient number of qualified
employees could impair our ability to manage, maintain and grow our business.

In crewing our vessels, we require skilled employees who can perform physically
demanding work. As a result of the volatility of the oil and gas industry and the demanding
nature of the work, potential vessel employees may choose to pursue employment in fields
that offer a more desirable work environment at wage rates that are competitive with ours.
With a reduced pool of workers, it is possible that we will have to raise wage rates to attract

24

workers and to retain our current employees. If we are not able to increase our service rates
to our customers to compensate for wage-rate increases, our financial condition and results of
operations may be adversely affected. If we are unable to recruit qualified personnel we may
not be able to operate our vessels at full utilization, which would adversely affect our results of
operations.

Our employees are covered by federal laws that may subject us to job-related claims in
addition to those provided by state laws.

Some of our employees are covered by provisions of the Jones Act, the Death on the

High Seas Act and general maritime law. These laws preempt state workers’ compensation
laws and permit these employees and their representatives to pursue actions against
employers for job-related incidents in federal courts based on tort theories. Because we are
not generally protected by the damage limits imposed by state workers’ compensation
statutes for these types of claims, we may have greater exposure for any claims made by
these employees.

Our success depends on key members of our management, the loss of whom could
disrupt our business operations.

We depend to a large extent on the efforts and continued employment of our executive

officers and key management personnel. We do not maintain key-man insurance. The loss of
services of one or more of our executive officers or key management personnel could have a
negative impact on our financial condition and results of operations.

Restrictions contained in the indentures governing our 6.125% senior notes due 2014
and our 8.000% senior notes due 2017 and in the agreement governing our revolving
credit facility may limit our ability to obtain additional financing and to pursue other
business opportunities.

Covenants contained in the indentures governing our 6.125% senior notes due 2014 and
our 8.000% senior notes due 2017 and in the agreement governing our revolving credit facility
require us to meet certain financial tests, which may limit or otherwise restrict:

(cid:129)

(cid:129)

(cid:129)

our flexibility in operating, planning for, and reacting to changes, in our business;

our ability to dispose of assets, withstand current or future economic or industry
downturns and compete with others in our industry for strategic opportunities; and

our ability to obtain additional financing for working capital, capital expenditures,
including our newbuild programs, acquisitions, general corporate and other
purposes.

We have high levels of fixed costs that will be incurred regardless of our level of
business activity.

Our business has high fixed costs. Downtime or low productivity due to reduced demand,
as experienced in 2009, weather interruptions or other causes can have a significant negative
effect on our operating results and financial condition.

25

Our revenues and operating results may vary significantly from quarter to quarter due
to a number of factors such as volatility in our vessel dayrates, changes in utilization,
vessel incidents and other unforeseen matters. Many of these factors that may cause
our actual financial results to vary from our publicly disclosed earnings guidance and
forecasts are outside of our control.

Our actual financial results might vary from those anticipated by us or by securities
analysts and investors, and these variations could be material. From time to time we publicly
provide earnings or other forms of guidance, which reflect our projections about future
dayrates, utilization, operating costs and capital structure, among other factors. These
numerous assumptions may be impacted by factors that are beyond our control and might not
turn out to be correct. Although we believe that the assumptions underlying our projections
are reasonable, when such projections are made, actual results could be materially different.

We are susceptible to unexpected increases in operating expenses such as materials
and supplies, crew wages, maintenance and repairs, and insurance costs.

Many of our operating costs are unpredictable and vary based on events beyond our
control. Our gross margins will vary based on fluctuations in our operating costs. If our costs
increase or we encounter unforeseen costs, we may not be able to recover such costs from
our customers, which could adversely affect our financial position, results of operations and
cash flows.

We may not have the ability to raise the funds necessary to settle conversion of our
1.625% convertible senior notes or to purchase such notes upon a fundamental
change or on other purchase dates as defined in the agreement, and our future debt
may contain limitations on our ability to pay cash upon conversion or repurchase of
shares.

Upon conversion of our 1.625% convertible senior notes, we may pay a settlement

amount in cash and shares of our common stock, if any, based upon a 25 trading-day
observation period. In addition, on November 15, 2013, November 15, 2016 and
November 15, 2021, holders of the 1.625% convertible senior notes may require us to
purchase their notes for cash. We cannot assure you that we will have sufficient financial
resources, or would be able to arrange financing, to pay the settlement amount in cash, or the
purchase price or fundamental change purchase price for the 1.625% convertible senior notes
tendered by the holders in cash. Further, our ability to pay the settlement amount in cash, or
the purchase price or fundamental change purchase price for the 1.625% convertible senior
notes in cash may be subject to limitations in our revolving credit facility or any other
indebtedness we may have in the future. If the holders of the 1.625% convertible senior notes
convert such notes or require us to repurchase them, we may seek the consent of our lenders
or attempt to refinance the debt, but there can be no assurance that we will be able to obtain
consent or complete a refinancing. Failure by us to pay the settlement amount upon
conversion or purchase the notes when required will result in an event of default with respect
to the notes, which may also result in the acceleration of our other indebtedness, which we
would not be able to satisfy.

26

The convertible note hedge and warrant transactions may affect the value of our
common stock.

In connection with the original issuance of our 1.625% convertible senior notes, we
entered into convertible note hedge and warrant transactions with counterparties that include
affiliates of the initial purchasers of the convertible senior notes. The convertible note hedge
transactions are expected to reduce the potential dilution upon conversion of such notes.
However, if the warrants are exercised, such exercise would mitigate some of that reduction.
In connection with these hedging and warrant transactions, such counterparties or their
affiliates may enter into, or may unwind, various derivatives and/or purchase or sell our
common stock in secondary market transactions (and are likely to do so during any
observation period related to a conversion of notes).

The effect, if any, of these convertible note hedge and warrant transactions or any of
these hedging activities on the market price of our common stock or the convertible senior
notes will depend in part on market conditions and cannot be ascertained at this time, but any
of these activities could materially and adversely affect the value of our common stock.

The fundamental change purchase feature of our 1.625% convertible senior notes and
provisions of our certificate of incorporation, bylaws, stockholder rights plan and
Delaware law may delay or prevent an otherwise beneficial takeover attempt of our
company.

The terms of our 1.625% convertible senior notes require us to purchase the notes for

cash in the event of a fundamental change. A takeover of our company would trigger the
requirement that we purchase the notes. Furthermore, our certificate of incorporation and
bylaws, Delaware corporations law, and our stockholder rights plan contain provisions that
could have the effect of making it more difficult for a third party to acquire, or discourage a
third party from attempting to acquire, control of us. These provisions could limit the price that
investors might be willing to pay in the future for shares of our common stock and may have
the effect of delaying or preventing a takeover of our company that would otherwise be
beneficial to investors.

Conversion of the 1.625% convertible senior notes or exercise of the warrants issued
in the warrant transactions may dilute the ownership interest of existing stockholders.

The conversion of the 1.625% convertible senior notes or exercise of some or all of the
warrants we issued in the warrant transactions may dilute the ownership interests of existing
stockholders. Although the convertible note hedge transactions are expected to reduce
potential dilution upon conversion of the 1.625% convertible senior notes, the warrant
transactions could have a dilutive effect on our earnings per share to the extent that the price
of our common stock exceeds the strike price of the warrants. Any sales in the public market
of our common stock issuable upon such conversion of the 1.625% convertible senior notes
could adversely affect prevailing market prices of our common stock. In addition, the
anticipated exercise of the warrants for shares of our common stock could depress the price
of our common stock.

27

We may be adversely affected by uncertainty in the global financial markets.

Our future results may be impacted by continued volatility, weakness or further
deterioration in the debt and equity capital markets. Inflation, deflation, or other adverse
economic conditions may negatively affect us or parties with whom we do business resulting
in their non-payment or inability to perform obligations owed to us, such as the failure of
customers to honor their commitments, the failure of shipyards and major suppliers to
complete orders or the failure by banks to provide expected funding under our revolving credit
agreement. Additionally, credit market conditions may slow our collection efforts as customers
experience increased difficulty in obtaining requisite financing, potentially leading to lost
revenue and higher than normal accounts receivable. This could result in greater expense
associated with collection efforts and increased bad debt expense.

The cost of raising money in the debt and equity capital markets has increased
substantially during the current financial crisis while the availability of funds from those
markets has diminished significantly. The current global economic downturn may adversely
impact our ability to issue additional debt and equity in the future on acceptable terms. Also,
the cost of obtaining money from the credit markets has increased as many lenders and
institutional investors have increased interest rates, enacted tighter lending standards,
refused to refinance existing debt upon maturity or on terms similar to expiring debt. If we
require additional sources of short-term liquidity for any reason including without limitation the
factors stated above, our existing lenders may be unable or unwilling to extend credit to us.
Due to these factors, we cannot be certain that additional funding will be available if needed
and to the extent required, on acceptable terms.

We may be unable to collect amounts owed to us by our customers.

We typically grant our customers credit on a short-term basis. Related credit risks are

inherent as we do not typically collateralize receivables due from customers. We provide
estimates for uncollectible accounts based primarily on our judgment using historical losses,
current economic conditions and individual evaluations of each customer as evidence
supporting the receivables valuations stated on our financial statements. However, our
receivables valuation estimates may not be accurate and receivables due from customers
reflected in our financial statements may not be collectible.

ITEM 1B—Unresolved Staff Comments

None.

28

ITEM 2—Properties

Our principal executive offices are in Covington, Louisiana, where we lease

approximately 61,000 square feet of office space under leases expiring in September 2013.
Our operating offices are located in Port Fourchon, Louisiana, and Brooklyn, New York. For
more information, see Management’s Discussion and Analysis of Financial Condition and
Results of Operations included within this report. We believe that our facilities, including
waterfront locations used for vessel dockage and certain vessel repair work, provide an
adequate base of operations for the foreseeable future. Our principal properties as of
December 31, 2009 are as follows:

Location

Description

Segment Using
Property

Owned/Leased

Leased
Covington, LA . . . . . . . . . . . . . . . . . . Corporate Headquarters
Leased
Madisonville, LA . . . . . . . . . . . . . . . . Warehouse
Brooklyn, NY . . . . . . . . . . . . . . . . . . . Dock, Office, Warehouse, Yard Downstream
Leased
Port Fourchon, LA . . . . . . . . . . . . . . Dock, Office, Warehouse, Yard Upstream/Downstream Leased

Corporate
Upstream

Item 3—Legal Proceedings

In April 2008, Superior Offshore International, Inc., or Superior Offshore, announced that
it filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. Superior
Offshore was the charterer of the HOS Achiever, a vessel that the Company acquired from
Superior Offshore in January 2008, for the period October 1, 2008 through October 1, 2013,
and cancellable by Superior Offshore as of March 29, 2009. In early January 2009, Superior
Offshore obtained an order from the Bankruptcy Court approving the rejection of the HOS
Achiever charter pursuant to the provisions of section 365 of the Bankruptcy Code. The
rejection of the HOS Achiever charter constituted a breach of the charter. The Company filed
a proof of claim in the Superior Offshore bankruptcy case for payment of rejection damages
associated with the breach of the charter. In late January 2009, Superior Offshore obtained
confirmation of its Chapter 11 Plan of Reorganization. On May 22, 2009, Superior Offshore
commenced an adversary proceeding against the Company in the Bankruptcy Court to set
aside the HOS Achiever charter and objecting to the Company’s amended proof of claim. In
the adversary proceeding, the Liquidating Plan Agent of Superior Offshore also asserted that
(i) the Company’s draw-down on the letter of credit was not permitted by law, (ii) such funds
must be returned to the bankruptcy estate and (iii) the Company was liable for punitive
damages. In July 2009, the Company filed an Answer, Affirmative Defenses and
Counterclaims vigorously contesting the claims in the adversary proceeding. The adversary
proceeding was settled on December 11, 2009, and the Bankruptcy Court dismissed the
Liquidating Plan Agent’s adversarial claim with prejudice. The Company has received all
payments due under the stipulation and settlement with the Liquidating Plan Agent. As a
result of the settlement, the Company achieved a recovery of 92.3% of its total claims, which
resulted in the collection of an incremental $7.9 million in cash from the bankruptcy estate and
incremental revenue recognition of $4.0 million in December 2009.

Item 4—Reserved

29

PART II

Item 5—Market for Registrant’s Common Equity, Related Stockholder Matters and

Issuer Purchases of Equity Securities

Our common stock, $0.01 par value, trades on the New York Stock Exchange, or NYSE,

under the trading symbol “HOS”. The following table sets forth, for the quarterly period
indicated, the high and low sale prices for our common stock as reported by the NYSE during
2009 and 2008.

2009

2008

High

Low

High

Low

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20.51 $10.28 $49.08 $37.15
First Quarter
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30.76 $15.00 $59.43 $43.55
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28.22 $18.60 $56.71 $33.67
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30.55 $21.40 $38.39 $12.56

On January 31, 2010, we had 29 holders of record of our common stock.

We have not previously declared or paid, and we do not plan to declare or pay in the
foreseeable future, any cash dividends on our common stock. We presently intend to retain all
of the cash our business generates to meet our working capital requirements and fund future
growth. Any future payment of cash dividends will depend upon the financial condition, capital
requirements, plans to reduce our long-term debt and earnings of our Company, as well as
other factors that our Board of Directors may deem relevant. In addition, the indentures
governing our 6.125% senior notes and our 8.000% senior notes and the agreement
governing our revolving credit facility include restrictions on our ability to pay cash dividends
on our common stock. See Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and Note 6 of the notes to our consolidated financial
statements for further discussion.

See Item 12 “Security Ownership of Certain Beneficial Owners and Management and

Related Stockholder Matters” for information regarding shares of common stock authorized
for issuance under our equity compensation plans.

30

Item 6—Selected Financial Data

SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except operating and per share data)

Our selected historical consolidated financial information as of and for the periods ended

December 31, 2009, 2008, 2007, 2006, and 2005 was derived from our audited historical
consolidated financial statements prepared in accordance with generally accepted accounting
principles, or GAAP. The data should be read in conjunction with and is qualified in its entirety
by reference to “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and our historical consolidated financial statements and the notes to those
statements included elsewhere in this Annual Report on Form 10-K.

Statement of Operations Data:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization(1)
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on early extinguishment of debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income(2)
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Per Share Data:
Basic net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average basic shares outstanding . . . . . . . . . . . . . . . . . . . . . .
Weighted average diluted shares outstanding(3) . . . . . . . . . . . . . . . . . . . .

Balance Sheet Data (at period end):
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital
Property, plant, and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term debt(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Statement of Cash Flows Data:
Net cash provided by (used in):

Year Ended December 31,

2009

2008

2007

2006

2005

$ 385,948
161,188
93,369
30,844
1,147
101,694
—
482
21,024
(597)
80,555
30,155
50,400

$
$

1.94
1.87
26,040
26,975

$

51,019
85,736
1,602,663
1,786,348
746,674
797,063

$ 432,084
164,532
52,002
37,155
8,402
186,797
—
1,525
8,331
190
180,181
64,379
115,802

$ 338,970
126,876
35,169
32,857
1,859
145,927
—
18,414
21,299
(43)
142,999
51,782
91,217

$ 274,551
95,591
32,021
28,388
1,854
120,405
—
16,074
18,866
70
117,683
42,727
74,956

$ 182,586
66,910
27,270
20,327
1,893
69,972
1,698
3,178
12,558
87
58,981
21,538
37,443

$
$

$

4.48
4.29
25,840
27,020

$
$

3.55
3.45
25,662
26,467

$
$

2.78
2.73
26,966
27,461

$
$

1.67
1.64
22,369
22,837

20,216
66,069
1,405,340
1,595,743
618,519
736,900

$ 173,552
214,266
956,558
1,265,399
484,076
606,147

$ 474,261
489,261
532,158
1,098,587
475,282
502,280

$ 271,739
290,471
462,041
796,675
299,449
429,495

Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 183,244
(263,050)
110,590

$ 206,832
(487,293)
127,109

$ 138,550
(442,032)
2,710

$ 131,996
(87,344)
157,797

Other Financial Data (unaudited):
EBITDA(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 194,466
273,646

$ 238,989
505,105

$ 181,053
447,915

$ 152,496
91,418

$

$

75,806
(120,617)
262,202

95,631
124,964

Other Operating Data (unaudited):
Offshore Supply Vessels:

Average number of new generation OSVs(6) . . . . . . . . . . . . . . . . . . .
Average new generation OSV fleet capacity (deadweight) . . . . . . .
Average new generation OSV vessel capacity (deadweight)
. . . . .
Average new generation OSV utilization rate(7) . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Effective new generation OSV utilization rate(8)
Average new generation OSV dayrate(9) . . . . . . . . . . . . . . . . . . . . . .
Effective dayrate(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

43.2
105,858
2,448

79.9%
88.0%

36.4
84,892
2,329

95.4%
95.4%

29.0
67,739
2,341

93.3%
93.3%

25.0
59,042
2,362

90.3%
90.3%

24.6
57,658
2,341

96.2%
96.2%

$
$

21,348
17,057

$
$

22,939
21,884

$
$

21,505
20,064

$
$

19,380
17,500

$
$

13,413
12,903

Double-hulled Tank Barges(11):

Average number of tank barges(12) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average fleet capacity (barrels)(12) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average barge capacity (barrels) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average utilization rate(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average dayrate(13)
Effective dayrate(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.0
884,621
98,291

8.8
872,347
98,824

6.5
719,354
109,943

6.0
685,902
114,317

2.5
275,437
98,586

71.5%

85.0%

92.4%

97.9%

92.6%

$
$

21,138
15,114

$
$

21,806
18,535

$
$

23,026
21,276

$
$

24,539
24,024

$
$

17,409
16,121

31

(1)

In June 2009, we recorded a pre-tax non-cash asset impairment charge of $25.8 million related to ten single-hulled tank barges and six ocean-
going tugs. This impairment charge is reflected in depreciation expense for the year ended December 31, 2009. The Company’s amortization
expense for such period includes a $0.9 million pre-tax non-cash charge for the write-off of remaining goodwill associated with our
Downstream segment. Effective January 1, 2007, we modified our assumptions regarding estimated salvage values for its marine equipment.
Salvage values for marine equipment are estimated to range between 5% and 25% of the originally recorded cost, depending on vessel type.
For the year ended December 31, 2007, this change in estimated salvage values resulted in an increase in operating income, net income and
diluted earnings per share of approximately $6.2 million, $4.0 million and $0.15, respectively. Our depreciation expense for vessels that were
in service as of January 1, 2007, as well as for vessels placed in service after that date, are expected to be lower for the remaining estimated
useful life of such assets based on the change in our estimated salvage values.

(2) Represents other operating income and expenses, including equity in income from investments and foreign currency transaction gains or

losses.

(3) For the years ended December 31, 2009, 2008, 2007, 2006, and 2005 stock options representing rights to acquire 414, 3, 146, 323, and 42
shares, respectively, of common stock were excluded from the calculation of diluted earnings per share because the effect was anti-dilutive
after considering the exercise price of the options in comparison to the average market price, proceeds from exercise, taxes and related
unamortized compensation. See Note 3 of our consolidated financial statements for more information on diluted shares outstanding.
(4) Excludes original issue discount associated with our 6.125% senior notes in the amount of $341, $398, $453, $503, and $551 as of

December 31, 2009, 2008, 2007, 2006 and 2005, respectively, original issue discount associated with our 8.000% senior notes in the amount
of $6,980 as of December 31, 2009 and original issue discount associated with our 1.625% convertible senior notes in the amount of $46,005,
$56,083, $65,471, and $74,215 as of December 31, 2009, 2008, 2007, and 2006, respectively.

(5) See our discussion of EBITDA as a non-GAAP financial measure immediately following these footnotes.
(6) We owned 47 new generation OSVs as of December 31, 2009. For the year ended December 31, 2009, our average number of new

generation OSVs above includes the HOS Lode Star, the HOS Silver Arrow, and the HOS Sweet Water, three newly constructed 240 ED class
OSVs that were placed in service under our fourth OSV newbuild program in February 2009, October 2009, and December 2009, respectively.
The HOS Mystique, the HOS Black Powder, the HOS Westwind, and the HOS Eagleview are four 250 EDF class OSVs that were also placed
in service under our fourth OSV newbuild program in January 2009, June 2009, June 2009, and October 2009, respectively. The HOS Coral,
our only 290 class OSV under our fourth OSV newbuild program, was placed in service March 2009. For the year ended December 31, 2008,
our average number of new generation OSVs above includes the HOS Polestar, HOS Shooting Star, and HOS North Star, three newly
constructed 240 ED class OSVs that were placed in service under our fourth OSV newbuild program in May 2008, July 2008, and November
2008, respectively, and the HOS Resolution, a 250 EDF class OSV that was also placed in service under our fourth OSV newbuild program in
October 2008. Also included are ten new generation OSVs that were acquired in August 2007. Excluded from this data are ten conventional
OSVs that were also acquired in August 2007, seven of which were sold on various dates in 2008 and 2009. Our three remaining conventional
OSVs, which are stacked, are considered non-core assets.

(7) Utilization rates are average rates based on a 365-day year. Vessels are considered utilized when they are generating revenues.
(8) Effective utilization rate is based on a denominator comprised only of vessel-days available for service by the active fleet, which excludes the

impact of stacked vessel days.

(9) Average dayrates represent average revenue per day, which includes charter hire, crewing services and net brokerage revenues, based on

the number of days during the period that the OSVs generated revenue.

(10) Effective dayrate represents the average dayrate multiplied by the average utilization rate.
(11) Other operating data for tugs and tank barges reflects only the results from our double-hulled tank barges as our single-hulled tank barges,

which are stacked, are considered non-core assets. Our active Downstream fleet is currently comprised of nine double-hulled barges and ten
ocean-going tugs.

(12) The averages for the years ended December 31, 2009, December 31, 2008 and December 31, 2007 include the Energy 6506, Energy 6507
and Energy 6508, three double-hulled tank barges delivered under our second TTB newbuild program in August 2007, November 2007, and
March 2008, respectively. As of December 31, 2009, our double-hulled tank barge fleet consisted of nine vessels.

(13) Average dayrates represent average revenue per day, including time charters, brokerage revenue, revenues generated on a per-barrel-

transported basis, demurrage, shipdocking and fuel surcharge revenue, based on the number of days during the period that the tank barges
generated revenue. For purposes of brokerage arrangements, this calculation excludes that portion of revenue that is equal to the cost of
in-chartering third-party equipment paid by customers.

Non-GAAP Financial Measures

We disclose and discuss EBITDA as a non-GAAP financial measure in our public
releases, including quarterly earnings releases, investor conference calls and other filings
with the Commission. We define EBITDA as earnings (net income) before interest, income
taxes, depreciation and amortization. Our measure of EBITDA may not be comparable to
similarly titled measures presented by other companies. Other companies may calculate
EBITDA differently than we do, which may limit their usefulness as comparative measures.

We view EBITDA primarily as a liquidity measure and, as such, we believe that the
GAAP financial measure most directly comparable to this measure is cash flows provided by
operating activities. Because EBITDA is not a measure of financial performance calculated in
accordance with GAAP, it should not be considered in isolation or as a substitute for

32

operating income, net income or loss, cash flows provided by operating, investing and
financing activities, or other income or cash flow statement data prepared in accordance with
GAAP.

EBITDA is widely used by investors and other users of our financial statements as a

supplemental financial measure that, when viewed with our GAAP results and the
accompanying reconciliation, we believe provides additional information that is useful to gain
an understanding of the factors and trends affecting our ability to service debt, pay deferred
taxes and fund drydocking charges and other maintenance capital expenditures. We also
believe the disclosure of EBITDA helps investors meaningfully evaluate and compare our
cash flow generating capacity from quarter to quarter and year to year.

EBITDA is also a financial metric used by management (i) as a supplemental internal
measure for planning and forecasting overall expectations and for evaluating actual results
against such expectations; (ii) as a significant criteria for annual incentive cash bonuses paid
to our executive officers and other shore-based employees; (iii) to compare to the EBITDA of
other companies when evaluating potential acquisitions; and (iv) to assess our ability to
service existing fixed charges and incur additional indebtedness.

The following table provides the detailed components of EBITDA as we define that term

for the years ended December 31, 2009, 2008, 2007, 2006, and 2005 respectively (in
thousands). Information for years prior to 2009 has been reclassified to conform to the 2009
presentation.

Year Ended December 31,

2009

2008

2007

2006

2005

Components of EBITDA:

Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 50,400 $115,802 $ 91,217 $ 74,956 $ 37,443
Interest, net:

Debt obligations . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . .

Total interest, net

. . . . . . . . . . . . . . . . . .

Income tax expense . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . .

21,024
(482)

20,542

30,155
69,461
23,908

8,331
(1,525)

21,299
(18,414)

18,866
(16,074)

6,806

64,379
33,498
18,504

2,885

51,782
22,950
12,219

2,792

42,727
24,070
7,951

12,558
(3,178)

9,380

21,538
19,954
7,316

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . $194,466 $238,989 $181,053 $152,496 $ 95,631

33

The following table reconciles EBITDA to cash flows provided by operating activities for

the years ended December 31, 2009, 2008, 2007, 2006, and 2005 respectively (in
thousands).

Year Ended December 31,

2009

2008

2007

2006

2005

EBITDA Reconciliation to GAAP:
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $194,466 $238,989 $181,053 $152,496 $ 95,631
(6,827)
Cash paid for deferred drydocking charges . . .
Cash paid for interest . . . . . . . . . . . . . . . . . . . . .
(17,888)
Cash paid for taxes . . . . . . . . . . . . . . . . . . . . . .
Changes in working capital
. . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . .
Loss on early extinguishment of debt . . . . . . . .
Changes in other, net . . . . . . . . . . . . . . . . . . . . .

(19,234)
(24,201)
(15,520)
41,117
8,704
—
(2,088)

(19,812)
(22,644)
(4,799)
(986)
7,390
—
(1,652)

(12,881)
(18,537)
(1,398)
8,797
5,196
—
(1,677)

(19,773)
(24,981)
(6,119)
15,406
10,815

—
5,139
—
1,698
(1,947)

—
(7,505)

Cash flows provided by operating activities . . . $183,244 $206,832 $138,550 $131,996 $ 75,806

In addition, we also make certain adjustments to EBITDA for loss on early

extinguishment of debt, stock-based compensation expense and interest income to compute
ratios used in certain financial covenants of our revolving credit facility with various lenders.
We believe that these ratios are a material component of certain financial covenants in such
credit agreements and failure to comply with the financial covenants could result in the
acceleration of indebtedness or the imposition of restrictions on our financial flexibility. The
applicable covenants contained in our credit facility are described in the Liquidity and Capital
Resources section of Item 7.

The following table provides certain detailed adjustments to EBITDA, as defined in our

revolving credit facility for the years ended December 31, 2009, 2008, 2007, 2006, and 2005
respectively (in thousands).

Adjustments to EBITDA for Computation of Financial Ratios Used in Debt Covenants

Year Ended December 31,

2009

2008

2007

2006

2005

Loss on early extinguishment of debt
Stock-based compensation expense . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . $ — $ — $ — $ — $ 1,698

8,704
482

10,815
1,525

7,390
18,414

5,196
16,074

—
3,178

Set forth below are the material limitations associated with using EBITDA as a
non-GAAP financial measure compared to cash flows provided by operating activities.

(cid:129) EBITDA does not reflect the future capital expenditure requirements that may be
necessary to replace our existing vessels as a result of normal wear and tear,

(cid:129) EBITDA does not reflect the interest, future principal payments and other financing-

related charges necessary to service the debt that we have incurred in acquiring and
constructing our vessels,

(cid:129) EBITDA does not reflect the deferred income taxes that we will eventually have to

pay once we are no longer in an overall tax net operating loss carryforward position,
as applicable, and

(cid:129) EBITDA does not reflect changes in our net working capital position.

34

Management compensates for the above-described limitations in using EBITDA as a

non-GAAP financial measure by only using EBITDA to supplement our GAAP results.

Item 7—Management’s Discussion and Analysis of Financial Condition and Results of

Operations

The following management’s discussion and analysis of financial condition and results of
operations should be read in conjunction with our historical consolidated financial statements
and their notes included elsewhere in this Annual Report on Form 10-K. This discussion
contains forward-looking statements that reflect our current views with respect to future
events and financial performance. Our actual results may differ materially from those
anticipated in these forward-looking statements or as a result of certain factors such as those
set forth in our Forward Looking Statements disclaimer on page 1 of this Annual Report on
Form 10-K.

Outlook

The continued weakness in the overall economy, and volatile and depressed commodity

prices, especially natural gas prices, have resulted in less exploration, development and
production spending by our customers. Consequently, we are experiencing weakened
demand for our services, which is having a corresponding negative impact on our dayrates
and utilization. The ultimate extent of such weakened demand and how long it may last is not
predictable. In addition, the construction of deepwater drilling rigs, which are a demand driver
for our Upstream segment, may be cancelled or delayed in the current climate. The weakness
in demand for our services has manifested itself at a time when we are completing the
construction of new OSVs and MPSVs. While, as is discussed below, several of our OSVs
have been or will be delivered to customers under existing contracts, that is not the case for
our MPSVs, which have been or will be delivered into the spot market. Although we believe
that the long-term market for these vessels will likely strengthen, we anticipate short-term
weakness affecting our MPSVs, which may last for several quarters. Moreover, many existing
contracts that were entered into prior to 2009 have expired in 2009 or will expire on various
dates in 2010. We do not expect that contract renewals or replacements will be on terms as
favorable as those that existed prior to expiration. For example, several OSV time charter
contracts expired during the fourth quarter of 2009. Such contracts were previously fixed in
2008 at dayrates in the range of $20,000 to $36,000. These vessels worked in the spot
market during the remainder of the fourth quarter of 2009 at dayrates that were roughly 30%
to 50% lower than their previously contracted rates.

Asset Impairment

In the second quarter of 2009, triggering events occurred which resulted in our

performing impairment tests on our Downstream segment assets as well as the conventional
OSVs in our Upstream Segment. As a result of these impairment tests, we recorded a
non-cash asset impairment charge of $25.8 million, or $0.60 per diluted share, related to ten
single-hulled tank barges and six ocean-going tugs, and a $0.9 million, or $0.02 per diluted
share, non-cash charge for the write-off of remaining goodwill associated with our
Downstream segment. Based on the analysis performed, no impairment existed for any of the
six conventional OSVs that we owned at that time. The specific triggering events were the

35

Downstream segment operating loss for the quarter ended June 30, 2009, the lack of any
material new contracts for our Downstream equipment since March 31, 2009, and the lack of
any expected change in performance for that segment in the near term. As of June 30, 2009,
we had stacked all six of our conventional OSVs, which we considered to be a triggering
event for those specific assets. No new triggering events have occurred since June 30, 2009.
In addition, recent asset sales and the results of a third-party appraisal obtained during the
fourth quarter of 2009 provide evidence that no further impairment exists as of December 31,
2009.

Upstream Segment

Our average new generation OSV dayrates for the year ended December 31, 2009 were

approximately $21,000 and our average new generation OSV utilization was approximately
80%. The significant drop in the price of oil and natural gas since their peak in 2008 has
increasingly affected our new generation OSV effective dayrates during 2009. OSV market
conditions in the U.S. Gulf of Mexico, or GoM, have continued to deteriorate, particularly for
our 200 class vessels. This vessel class has experienced an annual effective, or utilization-
adjusted, dayrate decrease of over $6,500 from the year ended December 31, 2008 and spot
dayrates decreased nearly 50% from the spot dayrates experienced in late-2008. The
extended soft OSV market conditions in the GoM have also affected demand for our larger
240 class and 265 class OSVs. Average dayrates for these larger OSV classes decreased
approximately $4,000 and effective dayrates for our 240 and 265 class vessels were down
approximately $6,400 compared to the year ended December 31, 2008. The OSV demand
outlook in the GoM is not expected to change in the near term based on various market
indicators such as rig counts and oil and gas industry capital spending budgets for 2010. In
recognition of the current and forecasted soft demand for such vessels, we elected to stack
ten 200 class new generation OSVs on various dates since May 2009. During December
2009, we returned to service two of these inactive vessels and plan to unstack a third vessel
during the second quarter of 2010 for deployment on long-term contracts in Latin America.
However, we expect to have eight new generation OSVs stacked during 2010.

Because 2009 was the first full-year in which we operated any MPSVs and because
these vessels were introduced into our fleet throughout the course of 2009, we have limited
operating experience data and market information against which to judge their future
performance. While we have had some measure of success with our newly delivered MPSVs,
these vessels have also been impacted by the trough market conditions in the GoM.
Fleetwide MPSV effective dayrates have trended about 25% lower than what we originally
projected for 2009; however, as noted, 2009 was an introductory year for these vessels. We
expect soft market conditions to have a continuing impact on dayrates and utilization of these
vessels in fiscal year 2010. Because these vessels, when operating, have worked at dayrates
that are often considerably higher than OSV dayrates, their contribution can significantly
increase volatility in our results of operations. We may elect during 2010 to take advantage of
soft market conditions to make improvements to certain of our MPSVs, which would further
impact their utilization during the period of such modifications.

36

As of December 31, 2009, our 39 active new generation OSVs and three MPSVs were

operating in domestic and international areas as noted in the following table:

Operating Areas
Domestic

GoM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other U.S. coastlines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Foreign(1)

Latin America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Upstream Vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27
4

31

9
2

11

42

(1) Our Upstream foreign areas of operation generally include the following countries: Mexico, Qatar, Brazil and Trinidad.

OSV Newbuild Program. Of the 16 new generation DP-2 OSVs under our fourth OSV

newbuild program, eleven have been awarded customer contracts prior to their shipyard
delivery. Three of the 240 ED class OSVs under this program, the HOS Lode Star, the HOS
Silver Arrow, and the HOS Sweet Water, were placed in service in February 2009, October
2009, and December 2009, respectively. Four of the 250 EDF class vessels under this
program, the HOS Mystique, the HOS Black Powder, the HOS Westwind, and the HOS
Eagleview were placed in service in January 2009, June 2009, June 2009, and October 2009,
respectively. Our only 290 class vessel under this program, the HOS Coral was placed in
service in March 2009. The HOS Arrowhead and HOS Pinnacle, the sixth and seventh
newbuild 250 EDF class vessels delivered under this program, commenced operations in
January 2010 and February 2010, respectively. We have two remaining 250 EDF class OSVs
that we expect to place in service during the late third quarter of 2010. Upon their delivery, all
of our announced newbuild programs will be concluded. For further information regarding our
fourth OSV newbuild program, please refer to the Capital Expenditures and Related
Commitments section.

MPSV Program. The HOS Achiever, originally placed in service on October 1, 2008, is
the first of two foreign-built 430 class DP-3 MPSVs to be delivered under our MPSV program.
During the first quarter of 2009, we placed in service, the HOS Centerline, the first of two
converted Jones Act-qualified 370 class DP-2 MPSVs to be delivered under this program.
During the fourth quarter of 2009, we placed in service, the HOS Iron Horse, a 430 class
DP-3 MPSV. The only remaining vessel to be delivered under this program, the HOS
Strongline, a 370 class DP-2 MPSV, is expected to be placed in service late in the first
quarter of 2010. We also have an exclusive four-year option to construct two additional “sister
vessels” based on the same 430 class DP-3 MPSV design at a U.S. shipyard of our choice,
which would qualify for domestic coastwise trade under the Jones Act. For further information
regarding our MPSV program, please refer to the Capital Expenditures and Related
Commitments section.

The HOS Centerline has received final regulatory approvals to operate under

subchapters “L”, “I”, “D”, and “O”. We took advantage of general softness in the market to
make some final modifications needed to comply with the subchapter “D” and “O”
requirements. In connection with these requirements, the HOS Centerline experienced

37

approximately 50 days out-of-service during 2009. We believe that this vessel is now, not only
the largest supply vessel in the world, but also the only vessel in the world to have received
certifications by the United States Coast Guard allowing operations as a supply vessel,
industrial/construction vessel and as a petroleum and chemical tanker. We expect that the
HOS Strongline, the sister vessel to the HOS Centerline, will also receive these four
regulatory notations during 2010.

All of our current vessels are qualified under the Jones Act to engage in U.S. coastwise

trade, except for one foreign-flagged AHTS vessel, one foreign-flagged well stimulation
vessel, two foreign-flagged new generation OSVs and two foreign-flagged MPSVs.

Downstream Segment

As of December 31, 2009, our Downstream fleet was comprised of a mix of nine double-
hulled tank barges, four single-hulled tank barges and 16 ocean-going tugs. In recognition of
the soft market conditions for our single-hulled equipment that began early in the second
quarter of 2008, we stacked all of our single-hulled tank barges and six lower horsepower
tugs on various dates since the first quarter of 2008. Six of our stacked single-hulled barges
were sold during 2009. The unfavorable revenue impact of stacking barges and tugs was
partially offset by the reduced operating expenses associated with the lower cost of
maintaining stacked equipment. Weak demand for Downstream equipment during 2009 has
also impacted double-hulled tank barge utilization and dayrates, particularly for our black-oil
equipment. We anticipate these weak market conditions will continue throughout 2010, and
may result in our decision to stack or dispose of double-hulled tank barges in 2010. We do not
expect to return to active service any of the currently stacked single-hulled barges in our
Downstream fleet. With the protracted weak demand for tugs and tank barges coupled with
the expansion of our Upstream fleet, we expect our Downstream segment to represent a
much smaller portion of our consolidated operating results compared to historical trends.

Operating Costs

Our operating costs are primarily a function of fleet size and utilization levels. The most
significant direct operating costs are wages paid to vessel crews, maintenance and repairs,
and marine insurance. Because most of these expenses are incurred regardless of vessel
utilization, our direct operating costs as a percentage of revenues may fluctuate considerably
with changes in dayrates and utilization. By stacking under-utilized vessels, we have been
able to realize some reductions in our operating costs.

In addition to the operating costs described above, we incur fixed charges related to the

depreciation of our fleet and amortization of costs for routine drydock inspections and
maintenance and repairs necessary to ensure compliance with applicable regulations and to
maintain certifications for our vessels with the U.S. Coast Guard and various classification
societies. The aggregate number of drydockings and other repairs undertaken in a given
period determines the level of maintenance and repair expenses and marine inspection
amortization charges. We capitalize costs incurred for drydock inspection and regulatory
compliance and amortize such costs over the period between such drydockings, typically 30
months. Applicable maritime regulations require us to drydock our vessels twice in a five-year
period for inspection and routine maintenance and repair. If we undertake a large number of
drydockings in a particular fiscal period, comparative results may be affected. While we can
defer required drydockings of stacked vessels, we will be required to conduct any deferred
drydockings prior to such vessels returning to service.

38

Critical Accounting Policies

Our consolidated financial statements included in this Annual Report on Form 10-K have
been prepared in accordance with accounting principles generally accepted in the United States.
In many cases, the accounting treatment of a particular transaction is specifically dictated by
generally accepted accounting principles. In other circumstances, we are required to make
estimates, judgments and assumptions that we believe are reasonable based upon available
information. We base our estimates and judgments on historical experience and various other
factors that we believe are reasonable based upon the information available. Actual results may
differ from these estimates under different assumptions and conditions. We believe that of our
significant accounting policies discussed in Note 2 to our consolidated financial statements, the
following may involve estimates that are inherently more subjective.

Carrying Value of Vessels. We depreciate our tugs, tank barges, OSVs, and MPSVs over

estimated useful lives of 14 to 25 years, three to 25 years, five to 25 years and 25 years,
respectively. The shorter useful lives relate to acquired vessels. Salvage values for marine
equipment range between 5% and 25% of the originally recorded cost, depending on vessel
type. The useful lives used for single-hulled tank barges are based on their retirement date
classification under OPA 90, and for double-hulled tank barges it is 25 years. In assigning
depreciable lives to these assets, we have considered the effects of both physical
deterioration largely caused by wear and tear due to operating use and other economic and
regulatory factors that could impact commercial viability. To date, our experience confirms
that these policies are reasonable, although there may again be events or changes in
circumstances in the future that indicate that recovery of the carrying amount of a vessel
might not be possible. Examples of events or changes in circumstances that could indicate
that the recoverability of a vessel’s carrying amount should be assessed might include a
change in regulations such as OPA 90, a significant decrease in the market value of a vessel
and current period operating or cash flow losses combined with a history of operating or cash
flow losses or a projection or forecast that demonstrates continuing losses associated with a
vessel. If events or changes in circumstances as set forth above indicate that a vessel’s
carrying amount may not be recoverable, we would then be required to estimate the
undiscounted future cash flows expected to result from the use of the vessel and its eventual
disposition. If the sum of the expected future cash flows is less than the carrying amount of
the vessel, we would be required to recognize an impairment loss. Please refer to Note 14 of
our consolidated financial statements included herein.

Recertification Costs. Our vessels are required by regulation to be recertified after certain

periods of time. These recertification costs are incurred while the vessel is in drydock where
other routine repairs and maintenance are performed and, at times, major replacements and
improvements are performed. We expense routine repairs and maintenance as they are
incurred. Recertification costs can be accounted for in one of two ways: (1) defer and
amortize or (2) expense as incurred. We defer and amortize recertification costs over the
length of time that the recertification is expected to last, which is generally 30 months. Major
replacements and improvements, which extend the vessel’s economic useful life or functional
operating capability, are capitalized and depreciated over the vessel’s remaining economic
useful life. Inherent in this process are judgments we make regarding whether the specific
cost incurred is capitalizable and the period that the incurred cost will benefit.

39

Revenue Recognition. We charter our vessels to customers under time charters based
on a daily rate of hire and recognize revenue as earned on a daily basis during the contract
period of the specific vessel. We also contract our Downstream vessels to customers under
COAs, under which revenue is recognized based on the number of days incurred for the
voyage as a percentage of total estimated days applied to total estimated revenues. Voyage
related costs are expensed as incurred. Substantially all voyages under COAs are less than
10 days in length.

Allowance for Doubtful Accounts. Our customers are primarily major and independent,
domestic and international, oil and gas and oil service companies. Our customers are granted
credit on a short-term basis and related credit risks are considered minimal. We usually do not
require collateral. We provide an estimate for uncollectible accounts based primarily on
management’s judgment. Management uses historical losses, current economic conditions and
individual evaluations of each customer to make adjustments to the allowance for doubtful
accounts. Our historical losses have not been significant. However, because amounts due from
individual customers can be significant, future adjustments to the allowance can be material if
one or more individual customer’s balances are deemed uncollectible.

Income Taxes. We follow accounting standards for income taxes as set forth by the

Financial Accounting Standards Board which requires the use of the liability method of
computing deferred income taxes. Under this method, deferred income taxes are provided for
the temporary differences between the financial reporting basis and the tax basis of our
assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The assessment of the realization of deferred tax assets,
particularly those related to tax net operating loss carryforwards, involves the use of
management’s judgment to determine whether it is more likely than not that we will realize
such tax benefits in the future. In addition, each reporting period, we assess and adjust for
any significant changes to our liability for unrecognized income tax benefits. We account for
any interest and penalties relating to uncertain tax positions in operating expense.

Stock-Based Compensation Expense. In accordance with accounting standards set forth

by the Financial Accounting Standards Board all share-based payments to employees and
directors, including grants of stock options and restricted stock are recognized in the income
statement based on their fair values.

Convertible Senior Notes. Effective January 1, 2009, we retroactively applied new
accounting rules set forth by the Financial Accounting Standards Board regarding the
Company’s 1.625% convertible senior notes due 2026, or convertible senior notes. The new
requirements state that the liability and equity components of a convertible debt instrument
that may be settled in cash upon conversion be accounted for separately so that an entity’s
accounting reflects additional non-cash original issue discount, or OID, interest expense to
match the non-convertible debt borrowing rate when interest cost is recognized in subsequent
periods. We applied a non-convertible debt borrowing rate of 7.125% upon adoption of these
new rules based on quoted market prices for our 6.125% senior notes due 2014 on the date
the convertible senior notes were issued. The impact of this requirement has resulted in a
material increase to our non-cash OID interest expense for financial statements covering the
periods ended December 31, 2006 through December 31, 2013. The additional interest costs

40

are being amortized over the period ending November 15, 2013, which is the date that the
convertible senior notes are first putable by the convertible note holders.

For the year ended December 31, 2009, the impact of incremental non-cash OID interest

expense related to this new accounting treatment on our income before taxes, net income
and diluted earnings per share was $4.5 million, $2.8 million and $0.10, respectively.

Results of Operations

The tables below set forth, by segment, the average dayrates, utilization rates and
effective dayrates for our vessels and the average number and size of vessels owned during
the periods indicated. These new generation OSVs and tank barges generate substantially all
of our revenues and operating profit. Excluded from the OSV information below is the results
of operations for our MPSVs, conventional vessels, our shore-base facility, and vessel
management services. We have excluded MPSV results because fiscal years 2008 and 2009
were introductory operating years for these vessels.

Years Ended December 31,

2009

2008

2007

Offshore Supply Vessels:

Average number of new generation OSVs(1)
. . . . . . . . . . . . . . . .
Average new generation OSV fleet capacity (deadweight) . . . . .
Average new generation vessel capacity (deadweight)
. . . . . . .
Average new generation OSV utilization rate(2) . . . . . . . . . . . . . .
Effective new generation OSV utilization rate(7) . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . $ 21,348 $ 22,939 $ 21,505
Average new generation OSV dayrate(3)
Effective dayrate(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,057 $ 21,884 $ 20,064

43.2
105,858
2,448

36.4
84,892
2,329

29.0
67,739
2,341

95.4%
95.4%

79.9%
88.0%

93.3%
93.3%

Double-hulled Tank Barges:

Average number of double-hulled tank barges(5) . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Average fleet capacity (barrels)
Average barge size (barrels) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average utilization rate(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average dayrate(6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,138 $ 21,806 $ 23,026
Effective dayrate(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,114 $ 18,535 $ 21,276

8.8
872,347
98,824

9.0
884,621
98,291

6.5
719,354
109,943

85.0%

71.5%

92.4%

(1) We owned 47 new generation OSVs as of December 31, 2009. For the year ended December 31, 2009, our average number of new

generation OSVs above includes the HOS Mystique, HOS Lode Star, HOS Coral, HOS Black Powder, HOS Westwind, HOS Silver Arrow,
HOS Eagleview and the HOS Sweet Water, which are eight newly constructed OSVs that were placed in service under our fourth OSV
newbuild program in January 2009, February 2009, March 2009, June 2009, June 2009, October 2009, October 2009, and December 2009,
respectively. As of December 31, 2009, eight new generation OSVs were stacked. For the year ended December 31, 2008, our average
number of new generation OSVs above includes the HOS Polestar, HOS Shooting Star, HOS Resolution and HOS North Star, four newly
constructed OSVs that were placed in service under our fourth OSV newbuild program in May 2008, July 2008, October 2008 and November
2008, respectively. Also included are ten new generation OSVs that were acquired in August 2007. Excluded from this data are ten
conventional OSVs that were also acquired in August 2007, seven of which were sold on various dates in 2008 and 2009. We consider our
three remaining conventional OSVs to be non-core assets.

(2) Utilization rates are average rates based on a 365-day year. Vessels are considered utilized when they are generating revenues.
(3) Average dayrates represent average revenue per day, which includes charter hire, crewing services and net brokerage revenues, based on

the number of days during the period that the OSVs generated revenue.

(4) Effective dayrate represents the average dayrate multiplied by the average utilization rate.
(5) The operating data presented above reflects only the results from our double-hulled tank barges. Our six single-hulled tank barges, all of

which have been stacked, have been excluded from our Downstream dayrate and utilization rate information. Our active Downstream fleet is
comprised of nine double-hulled barges and ten ocean-going tugs.

(6) Average dayrates represent average revenue per day, including time charters, brokerage revenue, revenues generated on a per-barrel-

transported basis, demurrage, shipdocking and fuel surcharge revenue, based on the number of days during the period that the tank barges
generated revenue. For purposes of brokerage arrangements, this calculation excludes that portion of revenue that is equal to the cost paid by
customers of in-chartering third-party equipment.

(7) Effective utilization rate is based on a denominator comprised only of vessel-days available for service by the active fleet, which excludes the

impact of stacked vessel days.

41

YEAR ENDED DECEMBER 31, 2009 COMPARED TO YEAR ENDED DECEMBER 31, 2008

Summarized financial information concerning our reportable segments for the years
ended December 31, 2009 and 2008, respectively, is shown below in the following table (in
thousands, except percentage changes):

Year Ended
December 31,

Increase (Decrease)

2009

2008

$ Change

% Change

Revenues by segment:

Upstream

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $274,782 $262,199 $ 12,583
(20,286)
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

72,161

51,875

4.8%

(28.1)

Downstream

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign(1)

Operating expenses by segment:

326,657

334,360

(7,703)

(2.3)

58,050
1,241

59,291

88,235
9,489

(30,185)
(8,248)

97,724

(38,433)

(34.2)
(86.9)

(39.3)

$385,948 $432,084 $ (46,136)

(10.7)%

Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $121,488 $111,256 $ 10,232
(13,576)
Downstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

53,276

39,700

9.2%

(25.5)

Depreciation and amortization by segment:

$161,188 $164,532 $ (3,344)

(2.0)%

Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,740 $ 32,958 $ 17,782
23,585
Downstream(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19,044

42,629

General and administrative expenses:

$ 93,369 $ 52,002 $ 41,367

Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,641 $ 26,255 $
Downstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,900

5,203

(614)
(5,697)

$ 30,844 $ 37,155 $ (6,311)

Gain on sale of assets:

Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Downstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

111 $ 8,402 $ (8,291)
—

1,036

— > 100.0

Operating income:

$ 1,147 $ 8,402 $ (7,255)

(86.3)%

Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $128,899 $172,293 $ (43,394)
Downstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(27,205)

14,504

(41,709) >(100.0)

(25.2)%

$101,694 $186,797 $ (85,103)

(45.6)%

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,024 $ 8,331 $ 12,693

> 100.0%

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

482 $ 1,525 $ (1,043)

(68.4)%

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,155 $ 64,379 $ (34,224)

(53.2)%

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,400 $115,802 $ (65,402)

(56.5)%

42

54.0%

123.8

79.5%

(2.3)%

(52.3)

(17.0)%

(98.7)%

(1)

(2)

Included are the amounts applicable to our Puerto Rico Downstream operations, even though Puerto Rico is considered a possession of the
United States and the Jones Act applies to vessels operating in Puerto Rican waters.
Included in depreciation and amortization is a pre-tax non-cash asset impairment charge of $25.8 million related to ten single-hulled tank
barges and six ocean-going tugs as well as a $0.9 million pre-tax non-cash charge for the write-off of remaining goodwill associated with this
segment.

Revenues. Revenues for 2009 decreased 10.7%, or $46.1 million, to $385.9 million from

2008 primarily due to a decline in effective, or utilization-adjusted, dayrates for both our
Upstream and Downstream segments. These lower dayrates were partially offset by the full
and partial-period contribution of Upstream vessels that were added to our fleet since
December 31, 2007. For the year ended December 31, 2009, our weighted-average active
fleet, including our Upstream and Downstream vessels, was approximately 66 vessels
compared to 80 vessels for the same period in 2008.

Revenues from our Upstream segment decreased $7.7 million, or 2.3%, to $326.7 million

for 2009 compared to $334.4 million for 2008. The vessels placed in service under our
ongoing newbuild and conversion programs accounted for a $46.1 million increase in
Upstream revenues. This increase was more than offset by a $34.0 million decrease in
revenue from lower effective dayrates for our new generation OSVs that were in service
during each of the years ended December 31, 2009 and 2008 and a $19.8 million decrease in
revenue from our conventional OSVs that were in service during 2008, but have either been
stacked or sold on various dates since then. Our new generation OSV average dayrate was
$21,348 in 2009 compared to $22,939 in 2008, a decrease of $1,591 or 6.9%. Our new
generation OSV utilization was 79.9% compared to 95.4% in 2008. Our new generation OSV
dayrates were driven lower by slack demand for our services resulting from decreased drilling
and production activity in the markets in which we operate. Domestic revenues for our
Upstream segment increased $12.6 million during 2009 on the basis of our fleet growth, offset
by decreased dayrates and utilization. Foreign revenues for our Upstream segment
decreased by $20.3 million primarily due to the mobilization of three new generation OSVs
from Latin America to the GoM during 2009. However, we mobilized four new generation
OSVs back to Latin America from the GoM in December 2009.

Revenues from our Downstream segment decreased $38.4 million, or 39.3%, to $59.3

million for 2009 compared to 2008. The decrease in revenues was driven by soft market
conditions that led to our decision to stack all of our single-hulled tank barges and six lower
horsepower tugs on various dates since April 30, 2008. The decrease in revenues was
partially offset by incremental revenues generated by a double-hulled tank barge performing
non-traditional tank barge services and the full-period contribution from one newbuild double-
hulled tank barge, the Energy 6508, which was placed in service in March 2008. Our double-
hulled tank barge average dayrate was $21,138 in 2009, a decrease of $668, or 3.1%, from
$21,806 in 2008. Our double-hulled tank barge utilization was 71.5% for 2009 compared to
85.0% for 2008. The decrease in double-hulled tank barge utilization was driven by reduced
demand for petroleum products in the U.S., which we attribute to the depressed state of the
economy. During the fourth quarter of 2009, six of these stacked vessels were sold. Foreign
revenues for our Downstream segment decreased $8.2 million primarily due to fewer vessels
operating in Puerto Rico during 2009 compared to the same period in 2008.

Operating expenses. Operating expenses for 2009 decreased by $3.3 million, or 2.0%, to

$161.2 million. This decrease reflects the reduced costs associated with removing from our

43

active operating fleet, through vessel sales or stacking, eight new generation OSVs, six
conventional OSVs, six single-hulled barges and six ocean-going tugs since the end of 2008.
These fleet reductions were partially offset by the incremental operating costs associated with
adding eight new generation OSVs and two MPSVs to our active fleet since 2008 under our
fourth OSV newbuild program and MPSV program, respectively. Daily vessel operating costs
for 2009 were in-line with 2008 for vessels that operated in both of our segments during 2009
and 2008. We expect that cash operating expenses per OSV vessel-day in fiscal 2010 will be
in-line with fiscal 2009 levels for vessels that were in service for each of the past two years,
excluding contract-related costs recoverable through higher dayrates or other revenue.

Operating expenses for our Upstream segment were $121.5 million, an increase of $10.2

million, or 9.2%, for 2009 compared to $111.3 million for 2008. Newly constructed vessels
placed in service since 2008 accounted for approximately $18.5 million of increased operating
expenses during 2009. Excluding the impact of the recent newbuild deliveries, operating
expense decreased approximately $8.3 million from 2008 primarily due to the stacking of
eight new generation OSVs and the sale or stacking of our conventional OSVs on various
dates during 2008 and 2009.

Operating expenses for our Downstream segment were $39.7 million, a decrease of
$13.6 million, or 25.5%, for 2009 compared to 2008. The decrease in operating expenses for
the Downstream segment is primarily associated with the lower cost of maintaining equipment
that was stacked, sold or retired from service since 2008.

Depreciation and Amortization. Depreciation and amortization was $41.4 million higher

for 2009 compared to 2008, substantially due to an asset impairment charge for our
Downstream vessels. During the second quarter of 2009, we recorded an asset impairment of
$25.8 million, or $0.60 per diluted share, related to the write-down of ten of our single-hulled
tank barges and six of our ocean-going tugs to their respective fair values. In addition, we
incurred incremental depreciation related to eight OSVs placed in service under our fourth
OSV newbuild program and two MPSVs placed in service under our MPSV program since
2008. Our depreciation and amortization expense for 2009 also included an approximate $0.9
million, or $0.02 per diluted share, charge for the write-off of remaining goodwill associated
with our Downstream segment, which was also recorded during the second quarter of 2009.
Excluding the Downstream asset and goodwill impairment charges, depreciation and
amortization expense is expected to increase further when the remaining vessels to be
delivered under our current newbuild and conversion programs are placed in service and
when these and any other recently acquired and newly constructed vessels undergo their
initial 30-month and 60-month recertifications.

General and Administrative Expenses. General and administrative expenses of $30.8

million, or 8.0% of revenues, decreased by $6.3 million during 2009 compared to 2008. This
decrease is due to lower shore-side incentive compensation and stock-based compensation
expense. Our general and administrative expenses are expected to be in the approximate
range of 9% to 11% of revenues in 2010.

Gain on Sale of Assets. During 2009, we sold the Stapleton Service, an older, lower-
horsepower tug, six single-hulled tank barges, the Energy 5501, Energy 6503, Energy 6505,
Energy 7001, Energy 7002 and Energy 8701 and three of our six remaining conventional

44

OSVs, the Cape Charles, Cape Misty and Cape Hatteras, for net cash proceeds of $10.6
million. We recorded aggregate gains of approximately $1.1 million, or $0.03 per diluted
share, on the sales of these vessels. In 2008, we sold four conventional OSVs for net cash
proceeds of $17.8 million for an aggregate gain of $8.4 million, or $0.20 per diluted share.

Operating Income. Operating income decreased by $85.1 million, or 45.6%, to $101.7
million during 2009 compared to 2008 due to the reasons discussed above. Operating income
as a percentage of revenues for our Upstream segment was 39.5% for 2009 compared to
51.5% for 2008. The primary driver for this margin decrease relates to lower effective
dayrates and lower utilization for our Upstream equipment during 2009 compared to 2008 and
higher gains from vessel sales recorded in 2008. We recorded an operating loss of $27.2
million for our Downstream segment for 2009, compared to operating income of $14.5 million
for 2008. This decrease primarily relates to the $26.7 million impairment losses discussed
above and lower dayrates and utilization for Downstream equipment during 2009.

Interest Expense. Interest expense increased $12.7 million during 2009 compared to
2008. Our interest expense variance was driven by incremental interest resulting from our
newly issued 8.000% senior notes due 2017 and lower capitalized interest driven by having
fewer vessels under construction in our ongoing newbuild and conversion programs. See
“Liquidity and Capital Resources” for further discussion.

Interest Income. Interest income decreased by $1.0 million to $0.5 million during 2009
largely due to lower invested cash balances. The decrease in invested cash balances was
driven by cash paid for ongoing newbuild and conversion programs. Our weighted-average
cash balance for 2009 was $36.2 million compared to $43.0 million for 2008. The average
interest rate earned on our invested cash balances during the year ended December 31, 2009
was 1.5% compared to 3.2% for 2008.

Income Tax Expense. Our effective tax rate was 37.4% and 35.7% for 2009 and 2008,

respectively. Our effective rate increased mainly due to a larger effect of permanent book-tax
differences on our lower pre-tax income. Our income tax expense primarily consists of
deferred taxes. Our income tax rate is higher than the federal statutory rate primarily due to
expected state tax liabilities and items not deductible for federal income tax purposes. We
expect our effective tax rate to be 36.9% in 2010.

Net Income. Net income decreased by $65.4 million, or 56.5%, to $50.4 million for 2009
compared to 2008. This decrease was primarily due to the lower operating income discussed
above, as well as a $13.7 million increase in net interest expense.

45

YEAR ENDED DECEMBER 31, 2008 COMPARED TO YEAR ENDED DECEMBER 31, 2007

Summarized financial information concerning our reportable segments for the years
ended December 31, 2008 and 2007, respectively, is shown below in the following table (in
thousands, except percentage changes):

Year Ended
December 31,

Increase (Decrease)

2008

2007

$ Change

% Change

Revenues by segment:

Upstream

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$262,199
72,161

$193,634
34,721

$ 68,565
37,440

Downstream

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign(1)

334,360

228,355

106,005

88,235
9,489

97,724

101,427
9,188

110,615

(13,192)
301

(12,891)

35.4%

107.8

46.4

(13.0)
3.3

(11.7)

$432,084

$338,970

$ 93,114

27.5%

Operating expenses by segment:

Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Downstream . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$111,256
53,276

$ 78,512
48,364

$ 32,744
4,912

$164,532

$126,876

$ 37,656

Depreciation and amortization by segment:

Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Downstream . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 32,958
19,044

$ 19,903
15,266

$ 13,055
3,778

$ 52,002

$ 35,169

$ 16,833

General and administrative expenses:

Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Downstream . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 26,255
10,900

$ 17,865
14,992

$ 8,390
(4,092)

$ 37,155

$ 32,857

$ 4,298

41.7%
10.2

29.7%

65.6%
24.7

47.9%

47.0%
(27.3)

13.1%

Gain on sale of assets:

Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Downstream . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 8,402

$ 1,859

$ 6,543

—

—

—

>100.0%
—

$ 8,402

$ 1,859

$ 6,543

>100.0%

Operating income:

Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Downstream . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$172,293
14,504

$113,934
31,993

$ 58,359
(17,489)

$186,797

$145,927

$ 40,870

51.2%
(54.7)

28.0%

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 8,331

$ 21,299

$ (12,968)

(60.9)%

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,525

$ 18,414

$ (16,889)

(91.7)%

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . .

$ 64,379

$ 51,782

$ 12,597

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$115,802

$ 91,217

$ 24,585

24.3%

27.0%

(1)

Included are the amounts applicable to our Puerto Rico Downstream operations, even though Puerto Rico is considered a possession of the
United States and the Jones Act applies to vessels operating in Puerto Rican waters.

46

Revenues. Revenues for 2008 increased 27.5%, or $93.1 million, to $432.1 million from

2007 due to improved OSV market conditions and the full and partial-period contribution of
additional vessels that were added to our fleet during 2007 and 2008. Our average operating
fleet was approximately 82 vessels at the end of 2008 compared to 63 vessels at the end of
2007.

Revenues from our Upstream segment increased $106.0 million, or 46.4%, to $334.4
million for 2008 compared to $228.4 million for 2007. The increase in revenues is primarily the
result of the growth of our fleet through acquisition and new vessel construction and higher
new generation OSV effective dayrates. Revenues generated by newly constructed vessels
since 2007 and the incremental contribution of the vessels acquired in the August 2007 Sea
Mar Fleet acquisition accounted for approximately $75.0 million of the OSV revenue increase.
The remaining $31.0 million of the OSV revenue increase was attributable to higher effective
dayrates for the vessels that were in service during all of 2007 and 2008. Our new generation
OSV average dayrate was $22,939 in 2008 compared to $21,505 in 2007, an increase of
$1,434 or 6.7%. Our new generation OSV utilization was 95.4% in 2008 compared to 93.3%
in 2007. Our new generation OSV dayrates and utilization were driven higher by continued
market strength in the GoM and increased demand for our vessels related to inspection,
construction and repair services and other specialty applications, particularly after Hurricanes
Gustav and Ike. Domestic revenues for our Upstream segment increased $68.6 million during
2008 on the basis of our fleet growth and strong spot market conditions in the GoM that were
prevailing through most of 2008. Foreign revenues for our Upstream segment increased
$37.4 million primarily due to the full and partial-period contribution of four additional vessels
operating in foreign waters as a result of the Sea Mar Fleet acquisition, two OSVs operating in
foreign waters that operated in the GoM during 2007, and an OSV newbuild delivery whose
initial charter commenced in foreign waters in May 2008.

Revenues from our Downstream segment decreased $12.9 million, or 11.7%, to $97.7

million for 2008 compared to 2007. The decrease in revenues was mainly driven by soft
market conditions for our single-hulled vessels that resulted in the stacking of six single-hulled
tank barges on various dates since the first quarter of 2008. The decrease in revenues was
partially offset by the full and partial-period contribution from three newbuild double-hulled
tank barges, the Energy 6506, Energy 6507, and Energy 6508, which were placed in service
in August 2007, November 2007 and March 2008, respectively. Our double-hulled tank barge
average dayrate was $21,806 for 2008, a decrease of $1,220 or 5.3%, from $23,026 for 2007.
Our double-hulled tank barge utilization was 85.0% for 2008 compared to 92.4% for 2007.
The decrease in double-hulled tank barge utilization was largely due to a shift in contract mix
from time charters to COAs and, to a lesser extent, an increase in days out-of-service for
regulatory drydockings. Our single-hulled tank barge average dayrate was $17,302 for 2008,
an increase of $2,241, or 14.9%, from $15,061 for 2007. The increase in single-hulled tank
barge average dayrates was largely the result of non-traditional services provided by our
Downstream equipment to an Upstream customer in the GoM. Our single-hulled tank barge
utilization was 49.9% for 2008 compared to 89.8% for 2007. The decrease in single-hulled
tank barge utilization was primarily driven by soft market conditions that have prevailed since
the first quarter of 2008, which ultimately resulted in our decision to stack six single-hulled
barges. Our effective single-hulled tank barge utilization, which excludes the impact of
stacked tank barges, was 72.3% for 2008. Foreign revenues for our Downstream segment
during 2008 were in-line with the prior year.

47

Operating expenses. Operating expenses for 2008 grew 29.7% to $164.5 million

compared to 2007 primarily due to the vessels added to our operating fleet through
acquisitions or newbuild deliveries. In addition, higher fleet personnel costs, including FAS
123R stock-based compensation expense related to restricted stock unit awards granted to
mariners, fuel expense and additional labor costs incurred to operate our recently expanded
port facility contributed to the increase in operating expenses. Daily vessel operating costs
have trended higher by approximately 10% for 2008 over 2007 levels for vessels that
operated in both of our segments during 2008 and 2007.

Operating expenses for our Upstream segment were $111.3 million, an increase of $32.7

million, or 41.7%, for 2008 compared to $78.5 million in 2007. Newly constructed vessels
delivered during 2008 and the incremental contribution of vessels acquired in the August
2007 Sea Mar Fleet acquisition accounted for approximately $24.3 million of the operating
expense increase over the year-ago period. Personnel costs, including FAS 123R stock-
based compensation expense, additional shore-side labor costs to operate our recently
expanded port facility, and to a lesser extent, higher insurance costs were the primary drivers
for the remaining $8.4 million of the OSV operating expense increase.

Operating expenses for our Downstream segment were $53.3 million, an increase of $4.9

million, or 10.2%, for 2008 compared to 2007. The increase in operating expenses for the
Downstream segment were mainly driven by additional vessels delivered under our second
TTB newbuild program, higher fuel costs resulting from a shift in contract mix from time
charters to COAs, and increased compensation costs for Downstream mariners, including
FAS 123R stock-based compensation expense, partially offset by the non-renewal of
contracts for three in-chartered tugs during the first half of 2008.

Depreciation and Amortization. Depreciation and amortization was $16.8 million higher

for 2008 compared to 2007 primarily due to incremental depreciation related to 20 OSVs
acquired in August 2007, seven vessels placed in service under our second TTB newbuild
program throughout the second half of 2007 and the first half of 2008, four OSVs placed in
service under our fourth OSV newbuild program during 2008, and one MPSV placed in
service under our MPSV program in October 2008.

General and Administrative Expense. General and administrative expenses of $37.2

million or 8.6% of revenues, increased by $4.3 million during 2008 compared to 2007. The
12% increase in general and administrative expenses is primarily due to higher compensation
costs and greater FAS 123R stock-based compensation expense related to restricted stock
unit awards granted to shore-based employees.

Gain on Sale of Assets. During 2008, we sold four conventional OSVs for net cash
proceeds of $17.8 million at an aggregate gain of $8.4 million. During 2007, we recorded a
$1.9 million gain in our Upstream segment due to the sale of our only fast supply vessel.

Operating Income. Operating income increased by 28.0%, or $40.9 million, to $186.8
million during 2008 compared to 2007 due to the reasons discussed above. Operating income
as a percentage of revenues for our Upstream segment was 51.5% for 2008 compared to
49.9% for 2007. The primary driver for this margin increase relates to an increase in effective
dayrates and the gain on sale of conventional OSVs discussed above. Operating income as a

48

percentage of revenues for our Downstream segment was 14.8% for 2008, compared to
28.9% for 2007. This margin decrease primarily relates to the soft market conditions for our
single-hulled tank barges during 2008 and the increase in operating expenses discussed
above.

Interest Expense. Interest expense decreased $13.0 million during 2008 compared to

2007, primarily as a result of a $16.8 million increase in capitalized interest during 2008
compared to 2007. The increase in capitalized interest resulted from higher cash outlays
associated with our ongoing newbuild and conversion programs. The decrease in interest
expense was partially offset by the incremental interest incurred on an average balance under
our revolving credit facility of $56.7 million for 2008 compared to a zero balance outstanding
under such facility for 2007. See “Liquidity and Capital Resources” for further discussion.

Interest Income. Interest income decreased $16.9 million to $1.5 million during 2008

mainly due to lower invested cash balances. The decrease in invested cash balances was
driven by cash outflows for vessel acquisitions in August 2007 and January 2008, the
acquisition of a leasehold interest in a new port facility adjacent to our shore-base in January
2008 and cash paid for ongoing newbuild and conversion programs. Our weighted average
cash balance for 2008 was $43.0 million compared to $359.5 million for 2007. The average
interest rate earned on our invested cash balances during the year ended December 31, 2008
was 3.2% compared to 5.1% for 2007.

Income Tax Expense. Our effective tax rate was 35.7% and 36.2% for 2008 and 2007,

respectively. Our income tax expense primarily consists of deferred taxes generated by
accelerated depreciation for tax purposes. Our income tax rate is higher than the federal
statutory rate, due primarily to expected state and foreign tax liabilities and items not
deductible for federal income tax purposes.

Net Income. Net income increased by 27.0%, or $24.6 million, to $115.8 million for 2008
compared to 2007 primarily due to the increase in operating income discussed above, which
was partially offset by a $3.9 million increase in net interest expense and increased tax
expense.

Liquidity and Capital Resources

Our capital requirements have historically been financed with cash flows from operations,

proceeds from issuances of our debt and common equity securities, borrowings under our
credit facilities and cash received from the sale of assets. We require capital to fund on-going
operations, vessel construction, retrofit or conversion, acquisitions, vessel recertifications,
discretionary capital expenditures and debt service. The nature of our capital requirements
and the types of our financing sources are not expected to change significantly during 2010.
While we have deferred required drydockings of our stacked vessels, we will be required to
conduct any deferred drydockings prior to such vessels returning to service. The drydocking
funds required to recertify currently stacked vessels will be dependent upon vessel class,
certification requirements and the timing and sustainability of any market recovery.

With the failures of several large banks in the latter-half of 2008, and resulting tight credit

conditions, we have reviewed all of our debt agreements as well as our liquidity position and
projected future cash needs. Despite volatility in financial and commodity markets, we remain

49

confident in our current financial position, the strength of our balance sheet and the short- and
long-term viability of our business model. To date, our liquidity has not been materially
impacted and we do not expect that it will be materially impacted in the near-future due to
such volatility. We believe that our cash on-hand, projected operating cash flow and recently
amended revolver capacity will be more than sufficient to operate the Company, complete our
remaining newbuild programs and meet our other commitments for the foreseeable future.

Although we expect to continue generating positive working capital through our
operations, events beyond our control, such as declines in expenditures for exploration,
development and production activity, mild winter conditions or any extended reduction in
domestic consumption of refined petroleum products and other reasons discussed under
“Forward Looking Statements” on page 1 and the Risk Factors stated in Item 1A of this
Annual Report on Form 10-K, may affect our financial condition or results of operations. None
of our debt instruments mature any sooner than March 2013. Depending on the market
demand for our vessels and other growth opportunities that may arise, we may require
additional debt or equity financing. It is possible that, due to events beyond our control, should
such need for additional financing arise, we may not be able to access the capital markets on
attractive terms at that time. We will continue to closely monitor our liquidity position, as well
as the state of the global capital and credit markets.

As of December 31, 2009, we had total cash and cash equivalents of $51.0 million. The

remaining construction costs related to our MPSV program and our fourth OSV newbuild
program of approximately $5.4 million and $39.1 million, respectively, as of December 31,
2009 have been and will continue to be funded with cash on hand, projected cash flows from
operations and borrowings available under our revolving credit facility. During 2009, we used
the majority of the net proceeds from a private placement of 8.000% senior notes to pay the
then-outstanding $200.0 million balance drawn under our revolving credit facility. In addition,
we subsequently amended and extended our revolving credit facility to include an accordion
feature that allows for the expansion of the facility up to an aggregate of $350.0 million as
discussed in Note 6 to our consolidated financial statements. The revolving credit facility as of
February 15, 2010 remains undrawn. As of December 31, 2009, we had a posted letter of
credit for $0.9 million and had $249.1 million of credit immediately available under our
revolving credit facility. Our liquidity position is primarily dependent upon cash flows
generated from operations, shipyard schedules, the achievement of construction milestones,
and the potential sale of additional non-core assets. In addition, our liquidity may be affected
should we access additional debt or equity financings.

Cash Flows

Operating Activities. We rely primarily on cash flows from operations to provide working

capital for current and future operations. Cash flows from operating activities were $183.2
million in 2009, $206.8 million in 2008, and $138.6 million in 2007. Operating cash flows
decreased from 2008 mainly due to a decline in effective dayrates and utilization for our
Upstream and Downstream segments, which was partially offset by the growth of our
Upstream fleet. Cash flows from operations for 2009 reflect full- and partial-period
contributions from eight additional new generation OSVs and two MPSVs that were placed in
service since January 1, 2008. The increase in operating cash flows from 2007 to 2008 was
primarily the result of the growth of our operating fleet and an increase in effective dayrates in

50

our Upstream segment. Our cash flows from operations for 2008 reflect a full-period
contribution from the OSVs that were acquired in August 2007, three additional double-hulled
newbuild tank barges that were placed in service during the second half of 2007 and early
2008 and four newbuild OSVs that were placed in service in 2008. Our cash flows from
operations for 2007 reflects a full-year contribution from a tank barge that was returned to
service during the fourth quarter of 2006, the partial-year contribution from two additional
double-hulled newbuild tank barges that were placed in service during the second half of
2007 and the partial-year contribution from OSVs that were acquired in August 2007. Our
cash flows from operations should continue to be favorably impacted in 2010 by the partial-
year of revenue contribution from vessels placed in service on various dates throughout 2010
under our MPSV program and our fourth OSV newbuild program.

Investing Activities. Net cash used in investing activities was $263.1 million in 2009,

$487.3 million in 2008, and $442.0 million in 2007. Cash utilized during 2009 primarily
consisted of construction costs incurred for our ongoing newbuild and conversion programs,
which were partially offset by approximately $10.6 million in net cash proceeds from the sale
of the three conventional OSVs, six single-hulled barges and one older, lower-horsepower
tug. Cash utilized in 2008 primarily consisted of construction costs incurred for our ongoing
newbuild and conversion programs, as well as acquisition costs for the HOS Achiever and the
lease rights for an additional shore-base facility adjacent to HOS Port. These investing
activities were partially offset by approximately $17.8 million in net cash proceeds from the
May 2008 sale of the Cape Scott and the August 2008 sale of the Cape Cod, Cape San
Lucas and Cape Spencer, which were conventional OSVs purchased in the August 2007 Sea
Mar Fleet acquisition. Cash utilized in 2007 primarily consisted of the Sea Mar Fleet
acquisition from Nabors in August 2007 and construction costs incurred for our MPSV
program, our fourth OSV newbuild program, and our second TTB newbuild program. These
investing activities were partially offset by approximately $5.9 million in net cash inflows from
the April 2007 sale of the HOS Hotshot, our only fast supply vessel. As of December 31,
2009, the estimated construction costs remaining to be incurred under our MPSV program
and fourth OSV program were approximately $44.5 million, of which $3.0 million and $20.1
million, respectively, is expected to be incurred during the first quarter of 2010.

Financing Activities. Net cash provided by financing activities was $110.6 million in 2009,

$127.1 million in 2008, and $2.7 million in 2007. Net cash provided by financing activities for
2009 is primarily the result of approximately $237.3 million in net proceeds in connection with
a private placement of $250.0 million in 8.000% senior notes offset by net payments on our
revolving credit facility Net cash provided by financing activities for 2008 primarily resulted
from the $125.0 million in borrowings under our revolving credit facility and, to a lesser extent,
the net proceeds attributed to common stock issued under employee benefit programs. Net
cash provided by financing activities for 2007 resulted from the net proceeds from common
stock issued under employee benefit programs.

51

Commitments and Contractual Obligations

The following table sets forth our aggregate contractual obligations as of December 31,

2009 (in thousands).

Contractual Obligations

Total

Less than
1 Year

1-3 Years

3-5 Years

Thereafter

. . . . . . . . . . . . . $ 300,000 $
6.125% senior notes(1)
8.000% senior notes(2)
. . . . . . . . . . . . .
1.625% convertible senior notes(3) . . . .
. . . . . . . . . . . . . . .
Interest payments(4)
. . . . . . . . . . . . . . . .
Operating leases(5)
. .
Vessel construction commitments(6)

250,000
250,000
300,226
36,766
44,500

— $
—
—

— $ 300,000 $
—
—

—
—

42,437
2,511
44,500

84,875
4,494
—

82,165
2,726
—

—

250,000
250,000
90,749
27,035

—

Total . . . . . . . . . . . . . . . . . . . . . . . . $1,181,492 $

89,448 $

89,369 $ 384,891 $ 617,784

(4)

(1) Our 6.125% senior notes mature on December 1, 2014 and include $341 of original issue discount.
(2) Our 8.000% senior notes mature on September 1, 2017 and include $6,980 of original issue discount.
(3) Our 1.625% convertible senior notes, with an initial interest rate of 1.625% per year, declining to 1.375% beginning on November 15, 2013,
mature on November 15, 2026 and include $46,005 of non-cash original issue discount. Holders of the convertible senior notes may convert
such notes at their option as early as November 15, 2013, pursuant to certain conditions described in Note 6 of our consolidated financial
statements included herein.
Interest payments relate to our 6.125% senior notes due December 1, 2014, our 8.000% senior notes due September 1, 2017 and our 1.625%
convertible senior notes due November 15, 2026 with semi-annual interest payments of $9.2 million payable June 1 and December 1, $10.0
million payable March 1 and September 1, and $2.0 million payable May 15 and November 15, respectively. The semi-annual interest
payments for our convertible senior notes will decline to $1.7 million for interest payments made after November 15, 2013. Effective January 1,
2009, we adopted new accounting standards which require us to record additional non-cash interest expense. Non-cash interest expense has
been excluded from the table above.
Included in operating leases are commitments for vessel rentals, a shore-base port facility, office space, office equipment and vehicles. See
“—Properties” for additional information regarding our leased office space and other facilities.

(5)

(6) The timing of the incurrence of these costs is subject to change among periods based on the achievement of shipyard milestones; however,

the amounts are not expected to change materially in the aggregate.

Debt

As of December 31, 2009, we had total debt of $746.7 million, net of original issue
discount of $53.3 million. Our debt is comprised of $299.7 million of our 6.125% senior notes
due 2014, or 2014 senior notes, $243.0 million of our 8.000% senior notes due 2017, or 2017
senior notes, and $204.0 million of our 1.625% convertible senior notes due 2026, or
convertible senior notes. The effective interest rate on the 2014 senior notes is 6.39% with
semi-annual cash interest payments of $9.2 million due and payable each June 1 and
December 1. The effective interest rate on the 2017 senior notes is 8.63% with semi-annual
cash interest payments of $10.0 million due and payable each March 1 and September 1,
commencing March 1, 2010. The $250.0 million, in face amount, of convertible senior notes
bear interest at an annual coupon of 1.625% with semi-annual cash interest payments of $2.0
million due May 15 and November 15, declining to 1.375%, or $1.7 million semi-annually,
beginning on November 15, 2013. The effective interest rate on such notes is 6.36%. The
senior notes do not require any payments of principal prior to their stated maturity dates, but
pursuant to the each indenture under which the 2014 senior notes and 2017 senior notes
were issued, we would be required to make offers to purchase such senior notes upon the
occurrence of specified events, such as certain asset sales or a change in control. As of
December 31, 2009, we had a posted letter of credit for $0.9 million and had $249.1 million of
credit immediately available under our revolving credit facility. The revolving credit facility
remains undrawn as of February 15, 2010. Under our revolving credit facility, we have the
option of borrowing at a variable rate of interest equal to either (i) the London Interbank

52

Offered Rate, or LIBOR; plus an applicable margin, or (ii) the greatest of the Prime Rate, the
Federal Funds Effective Rate plus 1/2 of 1% and the one-month LIBOR plus 1% plus in each
case an applicable margin. The applicable margin for each base rate is determined by a
pricing grid, which is based on our leverage ratio, as defined in the credit agreement
governing our revolving credit facility. Unused commitment fees are payable quarterly at the
annual rate of 50.0 basis points of the unused portion of the $250.0 million borrowing base of
the amended facility. For additional information with respect to our revolving credit facility, our
2014 senior notes, our 2017 senior notes and our convertible senior notes, please refer to
Note 6 of our consolidated financial statements included herein.

The credit agreement governing the revolving credit facility and the indentures governing

our 2014 senior notes and 2017 senior notes impose certain operating and financial
restrictions on us. Such restrictions affect, and in many cases limit or prohibit, among other
things, our ability to incur additional indebtedness, make capital expenditures, redeem equity,
create liens, sell assets and make dividend or other restricted payments. Our credit
agreement requires us to adhere to financial covenants, including defined ratios of interest
coverage of at least 3.00 to 1.0 and a maximum leverage ratio of at least 4.50 to 1.0,
declining to 4.25 to 1.0 for the fiscal quarters ending September 30, 2010 and December 31,
2010. The maximum leverage ratio declines further to 4.00 to 1.0, 3.75 to 1.00 and 3.50 to
1.00 on various dates in 2011 and 2012. These financial ratios are further defined in our credit
agreement. We continuously review our debt covenants and report our compliance with
financial ratios on a quarterly basis. We also consider such covenants in evaluating
transactions that will have an effect on our financial ratios. As of December 31, 2009, we were
in compliance with all of our debt covenants.

Capital Expenditures and Related Commitments

The following table sets forth the amounts incurred for our newbuild and conversion
programs, before construction period interest, during the year ended December 31, 2009 and
since each program’s inception, respectively, as well as the estimated total project costs for
each of our current expansion programs (in millions):

For the Year Ended
December 31,
2009

Incurred
Since
Inception

Estimated
Program
Totals(1)

Projected
Delivery
Dates(1)

Growth Capital Expenditures:
. . . . . . . . . . . .
MPSV program(2)
OSV newbuild program #4(3) . . .

Total:

. . . . . . . . . . . . . . . . . .

$ 99.0
134.5

$233.5

$484.6
405.9

$890.5

$490.0
445.0

$935.0

4Q2008-1Q2010
2Q2008-3Q2010

(1) Estimated Program Totals and Projected Delivery Dates are based on internal estimates and are subject to change due to delays and possible
cost overruns inherent in any large construction project, including, without limitations, shortages of equipment, lack of shipyard availability,
unforeseen engineering problems, work stoppages, weather interference, unanticipated cost increases, the inability to obtain necessary
certifications and approvals and shortages of materials, component equipment or skilled labor. All of the above historical and budgeted capital
expenditure project amounts for our newbuild and conversion programs represent estimated cash outlays and do not include any allocation of
capitalized construction period interest. Projected delivery dates correspond to the first and last vessels that are contracted with shipyards for
construction, retrofit or conversion for delivery under our currently active programs, respectively.

(2) Our MPSV program includes the conversion of two coastwise sulfur tankers into U.S.-flagged, proprietary 370 class DP-2 new generation
MPSVs at domestic shipyards, and the newbuild construction of two 430 class DP-3 new generation MPSVs at foreign shipyards. The first
converted DP-2 MPSV, the HOS Centerline, was placed in service during March 2009. The second converted DP-2 MPSV, the HOS
Strongline, is expected to be placed in service during the first quarter of 2010. We took delivery of the first newbuild DP-3 MPSV, the HOS
Achiever, and promptly mobilized the vessel to the GoM, where it was placed in service on October 1, 2008. The second newbuild DP-3

53

MPSV, the HOS Iron Horse, was placed in service during November 2009. Based on internal estimates, the aggregate cost of the MPSV
program, prior to the allocation of construction period interest, is expected to be approximately $490.0 million.

(3) Our fourth OSV newbuild program consists of vessel construction contracts with three domestic shipyards to build six 240 ED class OSVs,

nine 250 EDF class OSVs and one 290 class OSV. Of the 16 new generation DP-2 OSVs included in this program, we have placed in service
four vessels in 2008 and eight vessels in 2009. Two of the four remaining vessels were placed in service in January and February 2010,
respectively. The remaining two are expected to be placed in service on various dates in 2010 as follows: one vessel each in May and August.
Based on the current schedule of projected vessel in-service dates, we expect to own and operate 51 new generation OSVs as of
December 31, 2010. These projections result in an average new generation OSV fleet complement of 49.9 vessels for fiscal year 2010.
Inclusive of the prior vessel deliveries discussed above, the aggregate cost of our fourth OSV newbuild program is expected to be
approximately $445.0 million.

The following table summarizes the costs incurred, prior to the allocation of construction
period interest, for the purposes set forth for the years ended December 31, 2009, 2008 and
2007 and a forecast for 2010 (in millions):

Maintenance and Other Capital Expenditures:
Maintenance Capital Expenditures

Deferred drydocking charges(1) . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Other vessel capital improvements(2)

Other Capital Expenditures

Commercial-related vessel improvements(3) . . . . . . . . . . . . . .
Non-vessel capital expenditures(4) . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2010

2009

2008

2007

Forecast

Actual

Actual

Actual

$18.8
4.6

23.4

14.2
4.2

18.4

$19.2
5.5

24.7

7.3
3.5

10.8

$19.8
4.7

24.5

17.5
23.7

41.2

$19.8
6.8

26.6

11.2
4.9

16.1

Total:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$41.8

$35.5

$65.7

$42.7

(1) Deferred drydocking charges for 2010 include the projected recertification costs for 11 OSVs, seven tank barges and three tugs.
(2) Other vessel capital improvements include costs for discretionary vessel enhancements, which are typically incurred during a planned

drydocking event to meet customer specifications.

(3) Commercial-related vessel improvements includes items, such as cranes, ROVs and other specialized vessel equipment, which costs are

typically included in and offset by higher dayrates charged to customers.

(4) Non-vessel capital expenditures are primarily related to information technology initiatives.

Inflation

To date, general inflationary trends have not had a material effect on our operating

revenues or expenses.

54

Item 7A—Quantitative and Qualitative Disclosures About Market Risk

We have not entered into any derivative financial instrument transactions to manage or

reduce market risk or for speculative purposes, other than the convertible note hedge and
warrant transactions entered into concurrently with our convertible note offering in November
2006. Such transactions were entered into to mitigate the potential dilutive effect of the
conversion feature of the convertible notes on our common stock. A hypothetical 25% change
from our closing share price of $23.28 as of December 31, 2009 would not have an impact on
such transactions.

Changes in interest rates may result in changes in the fair market value of our financial
instruments, interest income and interest expense. Our financial instruments that are exposed
to interest rate risk are cash equivalents and long-term borrowings. Due to the short duration
and conservative nature of our cash equivalent investment portfolio, we do not expect any
material loss with respect to our investments. The book value for cash equivalents is
considered to be representative of its fair value. A hypothetical 10% change in interest rates
as of December 31, 2009 would have no material impact on such investments or interest
expense.

Changes in interest rates would not impact our interest expense for our long-term fixed

interest rate 6.125% senior notes, 8.000% senior notes and 1.625% convertible senior notes.
However, changes in interest rates would impact the fair market value of such notes. In
general, the fair market value of debt with a fixed interest rate will increase as interest rates
fall. Conversely, the fair market value of debt will decrease as interest rates rise. The currently
outstanding 6.125% senior notes accrue interest at the rate of 6.125% per annum and mature
on December 1, 2014 and the effective interest rate on such notes is 6.39%. The currently
outstanding 8.000% senior notes accrue interest at a rate of 8.000% per annum and mature
on September 1, 2017 and the effective interest rate on such notes is 8.63%. Our outstanding
1.625% convertible senior notes accrue interest at the rate of 1.625%, which will decline to
1.375% beginning on November 15, 2013, and mature on November 15, 2026. The effective
interest rate on such notes is 6.36%. In connection with our convertible notes, we are a party
to convertible note hedge transactions with respect to our common stock with Jefferies &
Company, Inc., Bear Stearns International Limited and AIG-FP Structured Finance (Cayman)
Limited, or the counterparties. As a result of the financial markets crisis during the third
quarter of 2008, the Bear Stearns International Limited position has been assumed by
JPMorgan Chase in its acquisition of Bear Stearns and AIG-FP Structured Finance (Cayman)
Limited’s parent company, or AIG, was recently re-capitalized by the U.S. Government. We
are not currently aware of any collection issues with regard to any of these counter-parties.

We estimate the fair value of our 6.125% senior notes due 2014, our 8.000% senior
notes due 2017 and our 1.625% convertible senior notes due 2026, all of which are publicly
traded, by using quoted market prices. The fair value of our revolving credit facility, when
there are outstanding balances, approximates its carrying value. The face value, carrying
value and fair value of our total debt was $800.0 million, $746.7 million and $742.9 million,
respectively, as of December 31, 2009.

As of December 31, 2009, we had no amounts outstanding under our revolving credit

facility. Therefore it is not subject to interest rate risk.

Our operations are primarily conducted between U.S. ports, including along the coast of

Puerto Rico, and historically we have not been exposed to significant foreign currency

55

fluctuation. However, as we expand our operations in international markets, we may become
exposed to certain risks typically associated with foreign currency fluctuation. We currently
have time charters for nine of our OSVs for service offshore Latin America. Although such
contracts are denominated and will be paid in U.S. Dollars, value added tax, or VAT,
payments are paid in local currencies which creates an exchange risk related to currency
fluctuations. There is an exchange risk to foreign currency fluctuations related to the payment
terms of such time charters. We also have purchase commitments for our ongoing newbuild
program and frequently acquire other vessel equipment for our active vessels that are
denominated in foreign currencies, which creates an exchange risk to foreign currency
fluctuations related to the payment terms of such commitments or purchases. To date, we
have not hedged against any foreign currency rate fluctuations associated with foreign
currency VAT payments or other foreign currency denominated transactions arising in the
normal course of business. We continually monitor the currency exchange risks associated
with conducting international operations. To date, gains or losses associated with such
fluctuations have not been material.

Item 8—Financial Statements and Supplementary Data

The financial statements and information required by this Item appear on pages F-1

through F-28 of this Annual Report on Form 10-K.

Item 9—Changes in and Disagreements with Accountants on Accounting and Financial

Disclosures

None.

Item 9A—Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief

Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures
(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, our disclosure controls and procedures were
effective to ensure that information required to be disclosed by us in reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission’s rules and forms, and
that such information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosures.

Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate

internal control over financial reporting, as such term is defined in Rule 13(a)-15(f) or
Rule15d-15(f) under the Exchange Act. Internal control over financial reporting is a process to
provide reasonable assurance regarding the reliability of our financial reporting for external
purposes in accordance with U.S. generally accepted accounting principles. Internal control

56

over financial reporting includes maintaining records that, in reasonable detail, accurately and
fairly reflect our transactions; providing reasonable assurance that transactions are recorded
as necessary for preparation of our financial statements in accordance with U.S. generally
accepted accounting principles; providing reasonable assurance that receipts and
expenditures of company assets are made in accordance with authorizations of the
Company’s management and board of directors; and providing reasonable assurance that
unauthorized acquisition, use or disposition of company assets that could have a material
effect on our financial statements would be prevented or detected on a timely basis. Because
of its inherent limitations, internal control over financial reporting is not intended to provide
absolute assurance that a misstatement of our financial statements would be prevented or
detected. In addition, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies of procedures may deteriorate.

Under the supervision and with the participation of our management, including our Chief

Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness
of our internal control over financial reporting as of December 31, 2009, utilizing the criteria
set forth in the report entitled Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon
such assessment, our management concluded that our internal control over financial
reporting was effective as of December 31, 2009.

Ernst & Young LLP, an independent registered public accounting firm, who audited our

consolidated financial statements included in this Form 10-K, has issued an attestation report
on our internal control over financial reporting which is included herein.

There were no changes in our internal controls over financial reporting that occurred
during the quarter ended December 31, 2009 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.

57

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Hornbeck Offshore Services, Inc.

We have audited Hornbeck Offshore Services, Inc.’s internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Hornbeck Offshore Services, Inc.’s management is
responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the company’s internal control over financial
reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company

Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.

A company’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on the financial
statements.

Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Hornbeck Offshore Services, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2009, based on the
COSO criteria.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of Hornbeck

58

Offshore Services, Inc. and subsidiaries as of December 31, 2009 and 2008, and the related
consolidated statements of operations, changes in stockholders’ equity and cash flows for
each of the three years in the period ended December 31, 2009 of Hornbeck Offshore
Services, Inc. and subsidiaries and our report dated March 1, 2010 expressed an unqualified
opinion thereon.

/s/ Ernst & Young LLP

New Orleans, Louisiana
March 1, 2010

Item 9B—Other Information

None.

PART III

Item 10—Directors, Executive Officers and Corporate Governance

The information required under this item is incorporated by reference herein from the
Company’s definitive 2010 proxy statement anticipated to be filed with the Securities and
Exchange Commission within 120 days after December 31, 2009.

Item 11—Executive Compensation

The information required under this item is incorporated by reference herein from the
Company’s definitive 2010 proxy statement anticipated to be filed with the Securities and
Exchange Commission within 120 days after December 31, 2009.

Item 12—Security Ownership of Certain Beneficial Owners and Management and

Related Stockholder Matters

The information required under this item is incorporated by reference herein from the
Company’s definitive 2010 proxy statement anticipated to be filed with the Securities and
Exchange Commission within 120 days after December 31, 2009.

Item 13—Certain Relationships and Related Transactions, and Director Independence

The information required under this item is incorporated by reference herein from the
Company’s definitive 2010 proxy statement anticipated to be filed with the Securities and
Exchange Commission within 120 days after December 31, 2009.

Item 14—Principal Accounting Fees and Services

The information required under this item is incorporated by reference herein from the
Company’s definitive 2010 proxy statement anticipated to be filed with the Securities and
Exchange Commission within 120 days after December 31, 2009.

59

PART IV

Item 15—Exhibits and Financial Statement Schedules

(a) The following items are filed as part of this report:

1. Financial Statements. The financial statements and information required by Item 8

appear on pages F-1 through F-28 of this report. The Index to Consolidated Financial
Statements appears on page F-1.

2. Financial Statement Schedules. All schedules are omitted because they are not
applicable or the required information is shown in the financial statements or the notes
thereto.

3. Exhibits. The Exhibit Index is shown on page E-1 of this report.

60

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

CONSOLIDATED FINANCIAL STATEMENTS OF HORNBECK OFFSHORE SERVICES, INC.:

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2

Consolidated Balance Sheets as of December 31, 2009 and 2008 . . . . . . . . . . . . . . . . . . . . . F-3

Consolidated Statements of Operations for Each of the Three Years in the Period Ended

December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4

Consolidated Statements of Changes in Stockholders’ Equity for Each of the Three Years in

the Period Ended December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5

Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended

December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Hornbeck Offshore Services, Inc.

We have audited the accompanying consolidated balance sheets of Hornbeck Offshore

Services, Inc. and subsidiaries as of December 31, 2009 and 2008, and the related
consolidated statements of operations, changes in stockholders’ equity and cash flows for
each of the three years in the period ended December 31, 2009. These financial statements
are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material

respects, the consolidated balance sheets of Hornbeck Offshore Services, Inc. and
subsidiaries at December 31, 2009 and 2008, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December 31, 2009, in
conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), Hornbeck Offshore Services, Inc.’s internal
control over financial reporting as of December 31, 2009, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated March 1, 2010 expressed an unqualified
opinion thereon.

/s/ ERNST & YOUNG LLP

New Orleans, Louisiana
March 1, 2010

F-2

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

December 31,

2009

2008

Current assets:

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts receivable, net of allowance for doubtful accounts of $860

51,019 $

20,216

and $2,135, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

61,724

—

13,999

87,942
13,865
12,203

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

126,742

134,226

Property, plant and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,602,663
41,195
15,748

1,405,340
37,972
18,205

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,786,348 $1,595,743

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued payroll and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net of original issue discount of $53,326 and $56,481,

respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16,279 $
9,787
6,878
1,876
1,615
4,571

41,006

—

746,674
198,934
2,671

989,285

16,693
2,110
10,078
21,720
13,990
3,566

68,157
125,000

493,519
169,987
2,180

858,843

Stockholders’ equity:

Preferred stock: $0.01 par value; 5,000 shares authorized; no shares

issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

Common stock: $0.01 par value; 100,000 shares authorized; 26,161

and 25,920 shares issued and outstanding, respectively . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . .

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

262
407,334
389,218
249

797,063

259
397,593
338,818
230

736,900

Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . $1,786,348 $1,595,743

The accompanying notes are an integral part of these consolidated statements.

F-3

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

Year Ended December 31,

2009

2008

2007

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $385,948 $432,084 $338,970
Costs and expenses:

Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . .

161,188
69,461
23,908
30,844

164,532
33,498
18,504
37,155

126,876
22,950
12,219
32,857

Gain on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,147

8,402

1,859

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

101,694

186,797

145,927

285,401

253,689

194,902

Other income (expense):

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

482
(21,024)
(597)

(21,139)

1,525
(8,331)
190

(6,616)

18,414
(21,299)
(43)

(2,928)

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

80,555
30,155

180,181
64,379

142,999
51,782

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,400 $115,802 $ 91,217

Basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

1.94 $

4.48 $

Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . $

1.87 $

4.29 $

3.55

3.45

Weighted average basic shares outstanding . . . . . . . . . . . . . . . . . . . .

26,040

25,840

25,662

Weighted average diluted shares outstanding . . . . . . . . . . . . . . . . . .

26,975

27,020

26,467

The accompanying notes are an integral part of these consolidated statements.

F-4

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)

Balance at January 1, 2007 . . . . . . . . . . . . . . . . . . . . . . .
Shares issued under employee benefit programs . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . .
Tax benefits from equity awards . . . . . . . . . . . . . . . . . . . .
Comprehensive income:

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . .

Total comprehensive income . . . . . . . . . . . . . . . . . . . . . .

Common Stock

Shares

25,561
199
—
—

—
—

Amount

$255
2
—
—

—
—

Additional
Paid-In
Capital

$370,075
2,930
8,521
1,134

—
—

Retained
Earnings

$131,799
—
—
—

91,217
—

Accumulated
Other
Comprehensive
Income

Total
Stockholders’
Equity

$151
—
—
—

—
63

$502,280
2,932
8,521
1,134

91,217
63

91,280

Balance at December 31, 2007 . . . . . . . . . . . . . . . . . . . .

25,760

$257

$382,660

$223,016

$214

$606,147

Shares issued under employee benefit programs . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . .
Tax benefits from equity awards . . . . . . . . . . . . . . . . . . . .
Comprehensive income:

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . .

Total comprehensive income . . . . . . . . . . . . . . . . . . . . . .

160
—
—

—
—

2
—
—

—
—

2,140
12,183
610

—
—

—
—
—

115,802
—

—
—
—

—
16

2,142
12,183
610

115,802
16

115,818

Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . .

25,920

$259

$397,593

$338,818

$230

$736,900

Shares issued under employee benefit programs . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . .
Tax expense from equity awards . . . . . . . . . . . . . . . . . . .
Comprehensive income:

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . .

Total comprehensive income . . . . . . . . . . . . . . . . . . . . . .

240
—
—

—
—

3
—
—

—
—

1,508
9,788
(1,555)

—
—

—
—
—

50,400
—

—
—
—

—
19

1,511
9,788
(1,555)

50,400
19

50,419

Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . .

26,160

$262

$407,334

$389,218

$249

$797,063

The accompanying notes are an integral part of these consolidated statements.

F-5

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Year Ended December 31,

2009

2008

2007

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,400 $ 115,802 $ 91,217
Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . .
Provision for bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financing costs . . . . . . . . . . . . . .
Gain on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in (income) loss from investment . . . . . . . . . . . . . .
Changes in operating assets and liabilities:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables and current assets . . . . . . . . . . . .
Deferred drydocking charges . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities and other liabilities . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest
Net cash provided by operating activities . . . . . . . . . . . . . . . . .

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of offshore supply vessels . . . . . . . . . . . . . . . . . . . .
Costs incurred for MPSV program . . . . . . . . . . . . . . . . . . . . . .
Costs incurred for OSV newbuild program #4 . . . . . . . . . . . . .
Costs incurred for TTB newbuild program #2 . . . . . . . . . . . . . .
Acquisition of shore-base port facility . . . . . . . . . . . . . . . . . . . .
Net proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . . .
Vessel capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vessel capital expenditures . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . .

CASH FLOWS FROM FINANCING ACTIVITIES:

69,461
23,908
8,704
(1,275)
24,073
12,869
(1,147)
555

26,500
12,141
(19,234)
(4,869)
(26,519)
7,677
183,244

—

(114,507)
(142,842)

—
—

10,596
(12,774)
(3,523)
(263,050)

33,498
18,504
10,815
1,087
44,270
11,573
(8,402)
(188)

(11,517)
(12,593)
(19,773)
(12)
23,746
22
206,832

—

(257,802)
(191,965)
(9,261)
(11,541)
17,812
(22,386)
(12,150)
(487,293)

22,950
12,219
7,390
303
46,471
10,705
(1,859)
(96)

(31,948)
(6,925)
(19,812)
3,259
4,902
(226)
138,550

(186,000)
(113,019)
(74,542)
(51,496)

—
5,883
(17,990)
(4,868)
(442,032)

—
Proceeds from borrowings under revolving credit facility . . . .
—
Repayment of borrowings under revolving credit facility . . . . .
—
Net proceeds from issuance of senior notes . . . . . . . . . . . . . .
(226)
Deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,936
Net cash proceeds from other shares issued . . . . . . . . . . . . . .
2,710
Net cash provided by financing activities . . . . . . . . . . . . . . . . .
63
Effects of exchange rate changes on cash . . . . . . . . . . . . . . .
(300,709)
Net increase (decrease) in cash and cash equivalents . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . .
474,261
Cash and cash equivalents at end of period . . . . . . . . . . . . . . $ 51,019 $ 20,216 $ 173,552

75,000
(200,000)
242,808
(9,514)
2,296
110,590
19
30,803
20,216

—
—
(32)
2,141
127,109
16
(153,336)
173,552

125,000

SUPPLEMENTAL DISCLOSURES OF CASH FLOW

ACTIVITIES:

Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,201 $ 24,981 $ 22,644

Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . $ 15,520 $

6,119 $

4,799

The accompanying notes are an integral part of these consolidated statements.

F-6

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

Nature of Operations

Hornbeck Offshore Services, Inc., or the Company, was incorporated in the state of
Delaware in 1997. The Company, through its subsidiaries, operates offshore supply vessels,
or OSVs, multi-purpose support vessels, or MPSVs, and a shore-base facility to provide
logistics support and specialty services to the offshore oil and gas exploration and production
industry, primarily in the U.S. Gulf of Mexico, or GoM, and select international markets. The
Company, through its subsidiaries, also operates ocean-going tugs and tank barges that
provide transportation of petroleum products, primarily in the northeastern United States,
GoM and Puerto Rico. All significant intercompany accounts and transactions have been
eliminated.

2. Summary of Significant Accounting Policies

Revenue Recognition

The Company charters its OSVs, MPSVs and certain of its tank barges to clients under

time charters based on a daily rate of hire and recognizes revenue as earned on a daily basis
during the contract period of the specific vessel.

The Company also contracts certain of its tank barges to clients under contracts of
affreightment, or COAs, under which revenue is recognized based on the number of days
incurred for the voyage as a percentage of total estimated days applied to total estimated
revenues. Voyage related costs are expensed as incurred. Substantially all voyages under
these contracts are less than 10 days in length.

Deferred revenue represents payments received from customers or billings submitted to

customers in advance of vessels commencing time charters.

Cash and Cash Equivalents

Cash and cash equivalents consist of all highly liquid investments in money market
funds, deposits and investments available for current use with an initial maturity of three
months or less.

Accounts Receivable

Accounts receivable consists of trade receivables net of reserves, amounts to be rebilled

to customers and interest receivables.

Property, Plant and Equipment

Property, plant and equipment is recorded at cost. Depreciation and amortization of
equipment and leasehold improvements are computed using the straight-line method based
on the estimated useful lives of the related assets. Major modifications and improvements,

F-7

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

which extend the useful life of the vessel, are capitalized and amortized over the remaining
useful life of the vessel. Gains and losses from retirements or other dispositions are
recognized as incurred. Salvage values for marine equipment are estimated to range between
5% and 25% of the originally recorded cost, depending on the vessel type.

The estimated useful lives by classification are as follows:

Tugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tank barges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Offshore supply vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multi-purpose support vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Non-vessel related property, plant and equipment

14-25 years
3-25 years
5-25 years
25 years
3-28 years

All of the Company’s single-hulled tank barges have estimated useful lives based on their

classification under the Oil Pollution Act of 1990. The Company’s double-hulled tank barges
have an estimated useful life of 25 years. See “Impairment of Long-Lived Assets” below for
more information.

Deferred Charges

The Company’s vessels are required by regulation to be recertified after certain periods
of time. The Company defers the drydocking expenditures incurred due to regulatory marine
inspections and amortizes the costs on a straight-line basis over the period to be benefited
from such improvements (generally 30 months). Financing charges are amortized over the
term of the related debt.

Deferred charges also include prepaid lease expenses related to the Company’s shore-
base port facility. Such prepaid lease expenses are being amortized on a straight-line basis
over the effective remaining term of the lease.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences

attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using currently enacted tax rates. The

effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. The provision for income taxes includes
provisions for federal, state and foreign income taxes.

Use of Estimates

The preparation of financial statements in conformity with United States generally
accepted accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.

F-8

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Concentration of Credit Risk

Customers are primarily major and independent, domestic and international, oil and oil
service companies. The Company’s customers are granted credit on a short-term basis and
related credit risks are considered minimal. The Company usually does not require collateral.
The Company provides an estimate for uncollectible accounts based primarily on
management’s judgment using historical losses, current economic conditions and individual
evaluations of each customer to make adjustments to the allowance for doubtful accounts.

The following table represents the allowance for doubtful accounts (in thousands):

. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, beginning of year
Changes to provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,135
(1,275)

$ 1,048
1,087

$ 745
303

Balance, end of year

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

860

$ 2,135

$ 1,048

December 31,

2009

2008

2007

Impairment of Long-Lived Assets

When events or circumstances indicate that the carrying amount of long-lived assets to

be held and used or intangible assets might not be recoverable, the expected future
undiscounted cash flows from the assets are estimated and compared with the carrying
amount of the assets. If the sum of the estimated undiscounted cash flows is less than the
carrying amount of the assets, an impairment loss is recorded. The impairment loss is
measured by comparing the fair value of the assets with their carrying amounts. Fair value is
determined based on discounted cash flow or appraised values, as appropriate. See Note 14
for further information

Reclassifications

Certain prior year amounts in the financial statements have been reclassified to conform

to the current year presentation. These reclassifications had no impact on the Company’s
results of operations.

Recent Accounting Pronouncements

Convertible Debt. Effective January 1, 2009, the Company retroactively applied new

accounting rules set forth by the Financial Accounting Standards Board regarding the
Company’s 1.625% convertible senior notes due 2026, or convertible senior notes. The new
requirements state that the liability and equity components of a convertible debt instrument
that may be settled in cash upon conversion be accounted for separately so that an entity’s
accounting reflects additional non-cash original issue discount, or OID, interest expense to
match the non-convertible debt borrowing rate when interest cost is recognized in subsequent
periods. The Company applied a non-convertible debt borrowing rate of 7.125% upon
adoption of these new rules based on quoted market prices for its 6.125% senior notes due
2014 on the date the convertible senior notes were issued. The impact of this requirement

F-9

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

has resulted in a material increase to the Company’s non-cash OID interest expense for
financial statements covering the periods ended December 31, 2006 through December 31,
2013. The additional interest costs are being amortized over the period ending November 15,
2013, which is the date that the convertible senior notes are first putable by the convertible
note holders.

3. Earnings Per Share

Basic earnings per common share was calculated by dividing net income by the weighted

average number of common shares outstanding during the period. Diluted earnings per
common share was calculated by dividing net income by the weighted average number of
common shares outstanding during the year plus the effect of dilutive stock options. Weighted
average number of common shares outstanding was calculated by using the sum of the
shares determined on a daily basis divided by the number of days in the period. The table
below reconciles the company’s earnings per share (in thousands, except for per share data):

Year Ended December 31,

2009

2008

2007

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 50,400

$115,802

$ 91,217

Weighted average number of shares of common stock outstanding . . . . . . . . . . . . . . .
Add: Net effect of dilutive stock options(1)(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Adjusted weighted average number of shares of common stock outstanding(3) . . . . . .

26,040
935

26,975

25,840
1,180

27,020

25,662
805

26,467

Earnings per common share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

1.94

1.87

$

$

4.48

4.29

$

$

3.55

3.45

(1) As of December 31, 2009, 2008 and 2007, stock options representing rights to acquire 414, 3, and 146, shares, respectively, of common stock
were excluded from the calculation of diluted earnings per share because the effect was antidilutive. Stock options are anti-dilutive when the
exercise price of the options is greater than the average market price of the common stock for the period or when the results from operations
are a net loss.

(2) For the year ended December 31, 2009, 2008 and 2007, the 1.625% convertible senior notes were not dilutive, as the average price of the

Company’s stock was less than the effective conversion price of the Notes. See Note 6 for further information.

(3) Dilutive restricted stock is expected to fluctuate from quarter to quarter depending the Company’s performance compared to a predetermined

set of performance criteria. See Note 8 for further information regarding certain of the Company’s restricted stock awards.

4. Defined Contribution Plan

The Company offers a 401(k) plan to all full-time employees. Employees must be at least

eighteen years of age and have completed three months of service to be eligible for
participation. Participants may elect to defer up to 60% of their compensation, subject to
certain statutorily established limits. The Company may elect to make annual matching and
profit sharing contributions to the 401(k) plan. During the years ended December 31, 2009,
2008, and 2007, the Company made contributions to the 401(k) plan of approximately $2.9
million, $2.3 million, and $1.5 million, respectively.

F-10

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5. Property, Plant and Equipment

Property, plant and equipment consisted of the following (in thousands):

December 31,

2009

2008

Tugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tank barges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Offshore supply vessels and multi-purpose support vessels . . . .
. . . . . . . . . . . .
Non-vessel related property, plant and equipment
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

76,913
163,664
1,222,381
73,069
(183,022)

1,353,005

Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

249,658

$

96,725
180,289
711,180
47,397
(148,897)

886,694

518,646

$1,602,663

$1,405,340

6. Long-Term Debt

Senior Notes

On November 23, 2004, the Company issued in a private placement $225.0 million in
aggregate principal amount of 6.125% senior unsecured notes, or senior notes, governed by
an indenture, or the 2004 indenture. The effective interest rate on the 2004 senior notes is
6.38%. On October 4, 2005, the Company issued in a private placement an additional $75.0
million in aggregate principal amount of 6.125% senior unsecured notes, or additional notes,
governed by the 2004 indenture. The additional notes were priced at 99.25% of principal
amount to yield 6.41%. The senior notes and additional notes, collectively, the 2014 senior
notes, mature on December 1, 2014 and require semi-annual interest payments at a fixed
interest rate of 6.125% per year on June 1 and December 1 of each year until maturity. No
principal payments are due until maturity. Pursuant to registered exchange offers, the senior
notes issued in November 2004 and October 2005 that were initially sold pursuant to private
placements were exchanged by the holders for 6.125% senior notes with substantially the
same terms, except that the issuance of the senior notes issued in the exchange offers was
registered under the Securities Act of 1933, as amended, or the Securities Act. Both series of
senior notes were issued under and are entitled to the benefits of the same 2004 indenture.

On August 17, 2009, the Company issued in a private placement $250.0 million of
8.000% senior notes, or 2017 senior notes. The net proceeds to the Company from the
offering were approximately $237.3 million, net of original issue discount and estimated
transaction costs. The Company used $200.0 million of proceeds to repay debt under its
revolving credit facility, which may be reborrowed. The remaining proceeds are available for
general corporate purposes, which may include partial funding of the construction of OSVs
and MPSVs under existing newbuild programs. The 2017 senior notes mature on
September 1, 2017 and require semi-annual interest payments at an annual rate of 8.000%,
or $10.0 million semi-annually, on March 1 and September 1 of each year until maturity,
beginning on March 1, 2010. The effective interest rate on the 2017 senior notes is 8.63%

F-11

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

and no principal payments are due until maturity. Pursuant to a registered exchange offer, the
senior notes issued in August 2009 that were initially sold pursuant to private placements
were exchanged by the holders for 8.000% senior notes with substantially the same terms,
except that the issuance of the senior notes issued in the exchange offer was registered
under the Securities Act of 1933, as amended, or the Securities Act. The original 8.000%
senior notes and the similar notes exchanged therefor were issued under and are entitled to
the benefits of the same 2009 indenture.

The 2014 senior notes and 2017 senior notes are senior unsecured obligations and rank

equally in right of payment with other existing and future senior indebtedness and senior in
right of payment to any subordinated indebtedness that may be incurred by the Company in
the future. These senior notes are guaranteed by certain of the Company’s subsidiaries. The
guarantees are full and unconditional, joint and several, and all of the Company’s
non-guarantor subsidiaries are minor as defined in the Securities and Exchange Commission,
or Commission, regulations. Hornbeck Offshore Services, Inc., as the parent company issuer
of these senior notes, has no independent assets or operations other than its ownership
interest in its subsidiaries and affiliates. There are no significant restrictions on the Company’s
ability or the ability of any guarantor to obtain funds from its subsidiaries by such means as a
dividend or loan, except for certain restrictions contained in the Company’s revolving credit
facility restricting the payment of dividends by the Company’s two principal subsidiaries. The
Company may, at its option, redeem all or part of the 2014 senior notes or 2017 senior notes
from time to time at specified redemption prices and subject to certain conditions required by
the indenture. The Company is permitted under the terms of the indenture to incur additional
indebtedness in the future, provided that certain financial conditions set forth in the indenture
are satisfied by the Company.

Convertible Senior Notes

On November 13, 2006, the Company issued in a private placement $250.0 million of
convertible senior notes due 2026, or the convertible notes, to qualified institutional buyers
pursuant to Rule 144A under the Securities Act. During the first quarter of 2007, the Company
registered the resale of the convertible notes by the holders thereof. The convertible notes
bear interest at an annual rate of 1.625%, declining to 1.375% beginning on November 15,
2013, payable semi-annually on May 15 and November 15 of each year, with the first interest
payment made on May 15, 2007. The effective interest rate on such notes is 6.36%. The
convertible notes are convertible into shares of the Company’s common stock based on the
applicable conversion rate only under the following circumstances:

(cid:129)

(cid:129)

during any calendar quarter (and only during such calendar quarter), if the closing
price of the Company’s shares of common stock for at least 20 trading days in the 30
consecutive trading days ending on the last trading day of the immediately preceding
calendar quarter is more than 135% of the conversion price per share, which is
$1,000 divided by the then applicable conversion rate;

prior to November 15, 2013, during the five business day period after a 10
consecutive trading day period in which the trading price per $1,000 principal

F-12

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

amount of senior subordinated convertible notes for each day of that period was less
than 95% of the product of the closing price for the Company’s shares of common
stock for each day of that period and the number of shares of common stock
issuable upon conversion of $1,000 principal amount of the convertible notes;

(cid:129)

(cid:129)

if the convertible notes have been called for redemption, or

upon the occurrence of specified corporate transactions, as defined by the
convertible note agreement.

The initial conversion rate of 20.6260 shares per $1,000 principal amount of notes, which

corresponds to a conversion price of approximately $48.48 per share, is based on the last
reported sale price of the Company’s common shares on The New York Stock Exchange of
$35.26 on November 7, 2006. As of December 31, 2009, the Company’s closing share price
was $23.28.

The convertible senior notes are guaranteed by certain of the Company’s subsidiaries.

The guarantees are full and unconditional, joint and several, and all of the Company’s
non-guarantor subsidiaries are minor as defined in Commission regulations. Hornbeck
Offshore Services, Inc., as the parent company issuer of the convertible senior notes, has no
independent assets or operations other than its ownership interest in its subsidiaries and
affiliates. There are no significant restrictions on the Company’s ability or the ability of any
guarantor to obtain funds from its subsidiaries by such means as a dividend or loan, except
for certain restrictions contained in the Company’s revolving credit facility restricting the
payment of dividends by the Company’s two principal subsidiaries. The convertible notes are
general unsecured, senior obligations of the Company, ranking equally in right of payment
with all of its existing and future senior indebtedness, including its outstanding 6.125% senior
notes due 2014, 8.000% new senior notes due 2017, and indebtedness under its revolving
credit facility.

If, upon the occurrence of certain events, the holders of the convertible notes exercise

the conversion provisions of the convertible notes, the Company may need to remit the
principal balance of the convertible notes to them in cash as discussed below. In such case,
the Company would classify the entire amount of the outstanding convertible notes as a
current liability in the respective quarter. This evaluation of the classification of amounts
outstanding associated with the convertible notes will occur every calendar quarter. Upon
conversion, a holder will receive, in lieu of common stock, an amount of cash equal to the
lesser of (i) the principal amount of the convertible note, or (ii) the conversion value,
determined in the manner set forth in the indenture governing the convertible notes, of a
number of shares equal to the conversion rate. If the conversion value exceeds the principal
amount of the convertible note on the conversion date, the Company will also deliver, at the
Company’s election, cash or common stock or a combination of cash and common stock with
respect to the conversion value upon conversion. If conversion occurs in connection with a
change of control, the Company may be required to deliver additional shares of its common
stock by increasing the conversion rate with respect to such convertible notes.

F-13

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In connection with the sale of the convertible notes, the Company is a party to convertible

note hedge transactions with respect to its common stock with Jefferies & Company, Inc., JP
Morgan Chase and AIG-FP Structured Finance (Cayman) Limited, or the counterparties.
Each of the convertible note hedge transactions involves the purchase of call options with
exercise prices equal to the conversion price of the convertible notes, and are intended to
mitigate dilution to the Company’s stockholders upon the potential future conversion of the
convertible notes. Under the convertible note hedge transactions, the counterparties are
required to deliver to the Company the number of shares of the Company’s common stock
that the Company is obligated to deliver to the holders of the convertible notes with respect to
the conversion. The convertible note hedge transactions cover approximately the same
number of shares of the Company’s common stock underlying the convertible notes, subject
to customary anti-dilution adjustments, at a strike price of approximately $48.48 per share of
common stock. The convertible note hedge transactions expire at the close of trading on
November 15, 2013, which is the date that the convertible notes are first putable by the
convertible noteholders, although the counterparties will have ongoing obligations with
respect to convertible notes properly converted on or prior to that date of which the
counterparty has been timely notified. In addition, on November 15, 2016 and November 15,
2021, holders of the 1.625% convertible senior notes may require the Company to purchase
their notes for cash.

The Company also entered into separate warrant transactions, whereby the Company
sold to the counterparties warrants to acquire approximately the same number of shares of its
common stock underlying the convertible notes, subject to customary anti-dilution
adjustments, at a strike price of $62.59 per share of common stock, which represented a
77.5% premium over the closing price of the Company’s shares of common stock on
November 7, 2006. If the counterparties exercise the warrants, the Company will have the
option to settle in cash or shares of its common stock equal to the difference between the
then market price and strike price. The convertible note hedge and warrant transactions are
separate and legally distinct instruments that bind the Company and the counterparties and
have no binding effect on the holders of the convertible notes.

For income tax reporting purposes, the Company has elected to integrate the convertible

notes and the convertible note hedge transactions. Integration of the convertible note hedge
with the convertible notes creates an in-substance original issue debt discount for income tax
reporting purposes and, therefore, the cost of the convertible note hedge is accounted for as
interest expense over the term of the convertible notes for income tax reporting purposes.
The associated income tax deductions will be recognized in the period that the deduction is
taken for income tax reporting purposes. The Company has also treated the proceeds from
the sale of warrants as a non-taxable increase in additional paid-in capital in stockholders’
equity.

The Company used a portion of the $243.8 million in net proceeds of the offering, along

with a portion of the $51.9 million in proceeds from the sale of warrants, to fund the $75.8
million cost of convertible note hedge transactions and the $63.3 million cost to repurchase
approximately 1.8 million shares of its common stock contemporaneously with the closing of

F-14

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the convertible notes offering. The remaining net proceeds of the convertible notes offering
and the warrant transactions of approximately $156.6 million was used for general corporate
purposes, including acquisitions and additional new vessel construction.

Revolving Credit Facility

On September 27, 2006, the Company closed on a five-year senior secured

$100.0 million revolving credit facility with an accordion feature that allowed for the expansion
of the facility up to an aggregate of $250.0 million. On February 20, 2008, the Company
exercised its accordion feature in full and increased the then-undrawn borrowing base of its
revolving credit facility from $100.0 million to $250.0 million. In accordance with the terms of
the expanded facility, the Company pledged an additional 16 new generation OSVs as
collateral commensurate with the higher borrowing base. On November 4, 2009, the
Company amended and extended its revolving credit facility, which maintains its $250.0
million borrowing base but now includes an accordion feature that allows for the expansion of
the facility up to an aggregate of $350.0 million. The amended facility, among other changes,
also extends the maturity from September 2011 to March 2013. With the amended facility, the
Company has the option of borrowing at a variable rate of interest equal to either (i) LIBOR,
plus an applicable margin, or (ii) the greatest of the Prime Rate, the Federal Funds Effective
Rate plus 1⁄2 of 1% and the one-month LIBOR plus 1%, plus in each case an applicable
margin. The applicable margin for each base rate is determined by a new pricing grid, which
is based on the Company’s leverage ratio, as defined in the credit agreement governing the
amended revolving credit facility. Unused commitment fees are payable quarterly at the
annual rate of 50.0 basis points of the unused portion of the borrowing base of the amended
facility. The Company also exchanged certain vessels pledged as collateral under the
amended revolving credit facility such that the total number of vessels pledged as collateral is
19 new generation OSVs. None of the Company’s Downstream vessels are pledged under
the amended and extended facility. As of December 31, 2009, there were no amounts drawn
under the Company’s revolving credit facility and $0.9 million posted in letters of credit, which
resulted in $249.1 million of credit immediately available under such facility. As of
December 31, 2009, the Company is in compliance with all financial covenants contained in
its revolving credit facility.

The credit agreement governing the revolving credit facility and the indentures governing

the Company’s 2014 senior notes and 2017 senior notes impose certain operating and
financial restrictions on the Company. Such restrictions affect, and in many cases limit or
prohibit, among other things, the Company’s ability to incur additional indebtedness, make
capital expenditures, redeem equity, create liens, sell assets and make dividend or other
restricted payments.

The Company estimates the fair value of its 6.125% senior notes due 2014, its 8.000%

senior notes due 2017 and its 1.625% convertible senior notes due 2026 by using quoted
market prices. The fair value of the Company’s revolving credit facility, when there are
outstanding balances, approximates its carrying value. The face value, carrying value and fair
value of the Company’s total debt was $800.0 million, $746.7 million and $742.9 million,
respectively, as of December 31, 2009.

F-15

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Interest expense excludes capitalized interest related to the construction or conversion of

vessels in the approximate amount of $23.8 million, $28.3 million, and $11.4 million, for the
years ended December 31, 2009, 2008 and 2007, respectively.

As of the dates indicated, the Company had the following outstanding long-term debt (in

thousands):

December 31,

2009

2008

6.125% senior notes due 2014, net of original issue discount of $341 and $398 . . . . . . . . . . . . . . . . . . . . . $299,659
243,020
8.000% senior notes due 2017, net of original issue discount of $6,980 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.625% convertible senior notes due 2026, net of original issue discount of $46,005 and $56,083(1) . . . . .
203,995
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

$299,602

—

193,917
125,000

Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

746,674

618,519

$746,674

$618,519

(1) The notes initially bear interest at a fixed rate of 1.625% per year, declining to 1.375% beginning on November 15, 2013.

Annual maturities of debt, excluding the potential effects of conditions discussed in

Convertible Senior Notes, during each year ending December 31, are as follows (in
thousands):

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

—
—
—
—

299,659
447,015

$746,674

7. Stockholders’ Equity

Preferred Stock

The Company’s certificate of incorporation authorizes 5.0 million shares of preferred
stock. The Board of Directors has the authority to issue preferred stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation of such
series, without further vote or action by the Company’s stockholders.

Stockholder Rights Plan

The Company’s Board of Directors previously implemented a stockholder rights plan, as

amended, establishing one right for each outstanding share of common stock. The rights
become exercisable, and transferable apart from the Company’s common stock, 10 business

F-16

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

days following a public announcement that a person or group has acquired beneficial
ownership of, or has commenced a tender or exchange offer for, 10% or more of the
Company’s common stock.

8. Stock-Based Compensation

Incentive Compensation Plan

The Company has an incentive compensation plan covering a maximum of 3.5 million

shares of common stock that allows the Company to grant stock options, restricted stock
awards and restricted stock unit awards, or collectively restricted stock, and stock
appreciation rights to employees and directors. The issuance of shares of common stock
under the incentive compensation plan has been registered on Form S-8 with the Securities
and Exchange Commission.

The table below reflects selected financial captions and the related impact stock-based

compensation expense charges have on the Company’s operating results (in thousands,
except per share data):

Year Ended December 31,

2009

2008

2007

Income before taxes . . . . . . . . . . . . . . . . . . . . . . . .

$ 8,704

$10,815

$ 7,390

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,449

$ 6,954

$ 4,715

Earnings per common share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 0.21

$ 0.27

$ 0.18

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 0.20

$ 0.26

$ 0.18

For the years ended December 31, 2009, 2008 and 2007, approximately $1.1 million,

$1.4 million, and $1.1 million, of stock-based compensation expense, respectively, was
capitalized as part of the Company’s newbuild construction programs and general corporate
projects. The accounting rule also requires the benefits of tax deductions in excess of
recognized compensation expense to be reported as financing cash flows, rather than as
operating cash flows. The Company recorded financing cash flows for such excess tax
deductions of approximately $0.2 million, $0.5 million, and $1.2 million for the years ended
December 31, 2009, 2008 and 2007, respectively. Net cash proceeds from the exercise of
stock options were $1.0 million, $1.2 million, and $2.3 million for the years ended
December 31, 2009, 2008 and 2007, respectively, and the income tax benefit from such
exercises was $1.3 million, $1.0 million, and $1.1 million for the respective periods. As of
December 31, 2009, the Company has approximately 0.5 million shares available for future
grants of stock options, restricted stock, stock appreciation rights or other awards to
employees and directors under the incentive compensation plan.

Stock Options

The Company is authorized to grant stock options under its incentive compensation plan

in which the purchase price of the stock subject to each option is established as the closing

F-17

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

price on the New York Stock Exchange of the Company’s common stock on the date of grant
and accordingly is not less than the fair market value of the stock on the date of grant. All
options granted during the year ended December 31, 2006 expire ten years after the date of
grant, have an exercise price equal to or greater than the actual or estimated market price of
the Company’s stock on the date of grant and vest over a one to four-year period. No stock
options were granted during the two years ended December 31, 2009.

The following table represents the Company’s stock option activity for the year ended

December 31, 2009 (in thousands, except per share data and years):

Number of
Shares

Weighted
Average
Exercise Price

Options outstanding at January 1, 2009 . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Options outstanding at December 31, 2009 . . . . . . . . . . . . .

Exercisable options outstanding at December 31, 2009 . . .

966
(82)
(18)

866

866

$ 18.10
11.92
30.92

$ 18.41

$ 18.41

Weighted-
Average
Remaining
Contractual
Term (years)

5.1
n/a
n/a

4.1

4.1

Aggregate
Intrinsic
Value

$3,195
1,087
n/a

$6,035

$6,035

In addition, the total fair value of stock options vested for the year ended December 31,

2009 was $0.8 million.

The following table represents the Company’s nonvested stock option activity for the year

ended December 31, 2009 (in thousands, except per share data):

Nonvested stock options at January 1, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Nonvested stock options at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

58
(57)
(1)

—

$12.47
33.15
33.15

$ —

Number of
Shares

Weighted-Average
Grant-Date Fair Value

The Company recorded approximately $0.1 million of stock-based compensation
expense during the year ended December 31, 2009, and as of December 31, 2009, had no
unamortized stock-based compensation expense associated with stock options.

Restricted Stock

The Company’s incentive compensation plan allows the Company to issue restricted

stock units, with either performance-based or time-based vesting provisions. The Company
has issued two types of performance-based restricted stock unit awards whose vesting is
determined by achieving either external or internal performance criteria. For the first type of
performance-based restricted stock unit award, the number of shares that will ultimately be
received by the award recipients at the end of the performance period is dependent upon the
Company’s performance relative to a peer group, as defined by the restricted stock unit
agreements governing such awards. Performance has historically been measured by a
number of factors, including the change in the Company’s stock price measured against the
peer group during the measurement period, generally three years, return on invested capital,

F-18

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

return on equity, OSV operating profit margin and growth in earnings (net income) before
interest, income taxes, depreciation and amortization or EBITDA. The actual number of
shares that could be received by the award recipients can range from 0% to 200% of the
Company’s base share awards depending on the Company’s performance ranking relative to
the peer group. This type of performance-based restricted stock unit was granted in 2007 and
2008. The second type of performance-based restricted stock unit award, calculates the
shares to be received based on the Company’s achievement of certain performance criteria
over a three-year period as defined by the restricted stock unit agreement governing such
awards. The actual number of shares that could be received by these award recipients can
range from 0% to 100% of the Company’s base share awards depending on the number of
performance goals attained by the Company. Compensation expense related to restricted
stock unit awards is recognized over the period the restrictions lapse, from one to three years.
The fair value of the Company’s performance-based restricted stock unit awards, which is
determined using a Monte Carlo simulation, is applied to the base shares and is amortized
over the vesting period based on either their relative performance compared to peers or
internal performance goals attained. The compensation expense related to time-based
restricted stock unit awards, which is amortized over a one-to-four year vesting period, is
determined based on the market price of the Company’s stock on the date of grant applied to
the total shares that are expected to fully vest. As of December 31, 2009, the Company had
unamortized stock-based compensation expense of $9.0 million, which will be recognized
over the next 1.6 years. In addition, the Company has recorded approximately $8.6 million of
compensation expense during the year ended December 31, 2009 associated with restricted
stock unit awards.

The following table summarizes the restricted stock awards activity during the year ended

December 31, 2009 (in thousands, except per share data):

Number of
Shares

Weighted Avg.
Fair Value Per Share(1)

Restricted stock awards:

Restricted stock awards as of January 1, 2009 . . . . . . . . . . . . . . . .
Granted during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellations during the period(2)
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,135
273
(241)
(110)

Outstanding, as of December 31, 2009 . . . . . . . . . . . . . . . . . . . . . .

1,057

$28.89
15.60
22.12
37.55

$31.66

(1) The weighted average fair value per share is determined by the stock price on the date of grant for time-based shares and is determined using

(2)

a Monte Carlo simulation for performance-based shares, of which the fair value is applied to both the base and bonus share awards.
Includes the full amount of both base and bonus share awards granted or cancelled during the period, which represents up to 200% of the
aggregate total of the base share awards.

Employee Stock Purchase Plan

On May 3, 2005, the Company established the Hornbeck Offshore Services, Inc. 2005
Employee Stock Purchase Plan, or ESPP, which was adopted by the Company’s Board of
Directors and approved by the Company’s stockholders. Under the ESPP, the Company is

F-19

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

authorized to issue up to 700,000 shares of common stock to eligible employees of the
Company and its designated subsidiaries. Employees have the opportunity to purchase
shares of the Company’s common stock at periodic intervals through accumulated payroll
deductions that will be applied at semi-annual intervals to purchase shares of common stock
at a discount from the market price as defined by the ESPP. The ESPP is designed to satisfy
the requirements of Section 423 of the Internal Revenue Code of 1986, as amended, and
thereby allows participating employees to defer recognition of taxes when purchasing the
shares of common stock at a 15% discount under the ESPP. The Company has an effective
Registration Statement on Form S-8 with the Commission registering the issuance of shares
of common stock under the ESPP. As of December 31, 2009, there were approximately
528,927 shares available for future issuance to employees under the ESPP.

The fair value of the employees’ stock purchase rights granted under the ESPP was
estimated using the Black-Scholes model with the following assumptions for years ended
December 31, 2009 and 2008:

2009

2008

Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (months) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average grant-date fair value per share . . . . . . . . . . . . . . . . . . . . . .

0%

0%
73.2% 41.4%
0.3% 2.7%
6.0
$7.03

6.0
$6.45

9. Income Taxes

The net long-term deferred tax liabilities in the accompanying consolidated balance

sheets include the following components (in thousands):

Deferred tax liabilities:

December 31,

2009

2008

2007

Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $249,698 $190,983 $130,369
7,809
Deferred charges and other liabilities . . . . . . . . . . . . . . . . . . . . . .

12,313

8,623

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .

262,011

199,606

138,178

Deferred tax assets:

Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . .
Alternative minimum tax credit carryforward . . . . . . . . . . . . . . . .
Foreign tax credit carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(29,603)
(311)
(6,554)
(20,863)
(3,462)
(2,284)

(63,077)

—

(134)
(777)
(6,994)
(21,183)

—
(665)

(351)
(381)
(4,349)
(5,743)
(1,343)
(282)

(29,753)
134

(12,449)
351

Total deferred tax liabilities, net . . . . . . . . . . . . . . . . . . . . . . . $198,934 $169,987 $126,080

F-20

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The components of the income tax expense follow (in thousands):

Current Tax Expense (Benefit):

December 31,

2009

2008

2007

U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (448) $15,446 $ —
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,416

3,096

1,343

Total current tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,648

19,862

1,343

Deferred tax expense:

U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27,507

44,517

50,439

Total tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,155 $64,379 $51,782

Current taxes payable as of December 31, 2008 consists primarily of U.S. federal income

tax liabilities; which represents alternative minimum taxes related to 2008. The payment due
dates of such taxes were postponed by the Internal Revenue Service from September 2008
and December 2008 until January 2009.

Income before income taxes, based on jurisdiction earned, was as follows (in thousands):

December 31,

2009

2008

2007

U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,016 $141,982 $125,375
17,624
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

38,199

22,539

Total income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . $ 80,555 $180,181 $142,999

At December 31, 2009, the Company had federal tax net operating loss carryforwards of

approximately $81.7 million which will expire in 2029 and foreign tax credit carryforwards of
approximately $3.5 million, which will expire in 2019. The Company has state tax net
operating loss carryforwards of approximately $19.2 million related to one state tax
jurisdiction, a portion of which will expire in 2023 and the balance in 2024 and can only be
utilized if the Company generates taxable income in that same tax jurisdiction.

The following table reconciles the difference between the Company’s income tax

provision calculated at the federal statutory rate and the actual income tax provision (in
thousands):

Year Ended December 31,

2009

2008

2007

Statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,194 $63,063 $50,050
1,865
State taxes, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37
Non-deductible expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(170)
Foreign taxes and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,355
34
(1,073)

1,047
71
843

$30,155 $64,379 $51,782

F-21

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

10. Commitments and Contingencies

Vessel Construction

The Company’s MPSV program consists of the conversion of two U.S.-flagged coastwise

sulfur tankers at domestic shipyards into 370 class DP-2 new generation MPSVs and the
construction of two 430 class DP-3 new generation MPSV newbuilds in foreign shipyards.
Three of these MPSVs have been added to the Company’s Upstream fleet since October 1,
2008. The HOS Strongline, the second converted DP-2 MPSV and final vessel under this
program, is expected to be placed in service during the first quarter of 2010. Based on
internal estimates, the aggregate cost of this program is expected to be approximately $490.0
million. From the inception of this program through December 31, 2009, the Company has
incurred $484.6 million, or 98.9%, of total anticipated project costs. The remainder of these
project costs is expected to be incurred during the first half of 2010.

The Company’s fourth OSV newbuild program consists of vessel construction contracts

with three domestic shipyards to build six 240 ED class OSVs, nine 250 EDF class OSVs and
one 290 class OSV, respectively. Fourteen OSVs have been added to the Company’s
Upstream fleet under this program on various dates since May 2008 and the Company
expects the two remaining vessels to be placed in service in May 2010 and August 2010. The
aggregate cost of the Company’s fourth OSV newbuild program is expected to be
approximately $445.0 million. From the inception of this program through December 31, 2009,
the Company has incurred $405.9 million, or 91.2%, of total expected project costs.

Operating Leases

The Company is obligated under certain operating leases for marine vessels, office
space, shore-base facilities and vehicles. The Covington facility lease, which commenced on
September 1, 2003, provides for an initial term of five years with two five-year renewal
options. In September 2008, the Company exercised its first five-year renewal option. A
shore-base facility lease in Port Fourchon commenced on December 20, 2005 and provides
for an initial term of seven years with four additional five-year periods upon the terms and
conditions contained in the lease agreement. On January 30, 2008, the Company purchased
a leasehold interest in a parcel of improved real estate as an adjacent addition to HOS Port,
its existing shore-base facility located in Port Fourchon, Louisiana. At December 31, 2009, the
new facility lease had approximately five years remaining on its initial term, with four
additional five-year renewal periods.

F-22

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Future minimum payments under noncancelable leases for years subsequent to 2009

follow (in thousands):

Year Ended December 31,

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,511
2,299
2,195
1,850
876
27,035

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$36,766

In addition, the Company leases marine vessels used in its operations under long-term
and month-to-month operating lease agreements. Total rent expense related to such leases
was approximately $0.2 million, $5.4 million, and $9.4 million, during the years ended
December 31, 2009, 2008 and 2007, respectively.

Contingencies

In the normal course of its business, the Company becomes involved in various claims
and legal proceedings in which monetary damages are sought. It is management’s opinion
that the Company’s liability, if any, under such claims or proceedings would not materially
affect its financial position or results of operations.

The Company insures against losses relating to its vessels, pollution and third party
liabilities, including claims by employees under Section 33 of the Merchant Marine Act of
1920, or the Jones Act. Third party liabilities and pollution claims that relate to vessel
operations are covered by the Company’s entry in a mutual protection and indemnity
association, or P&I Club, as well as by marine liability policies in excess of the P&I Club’s
coverage. In February 2009, the terms of entry with the P&I Club for both of the Company’s
segments contained an annual aggregate deductible (AAD) for which the Company remains
responsible. The P&I Club is responsible for covered amounts that exceed the AAD, after
payment by the Company of an additional individual claim deductible. The Company provides
reserves for those portions of the AAD and any individual claim deductibles for which the
Company remains responsible by using an estimation process that considers Company-
specific and industry data, as well as management’s experience, assumptions and
consultation with outside counsel. As additional information becomes available, the Company
will assess the potential liability related to its pending litigation and revise its estimates.
Although historically revisions to such estimates have not been material, changes in
estimates of the potential liability could materially impact the Company’s results of operations,
financial position or cash flows.

F-23

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

11. Deferred Charges

Deferred charges include the following (in thousands):

Deferred financing costs, net of accumulated amortization of $8,578, $6,101,

respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$17,565

$10,572

Deferred drydocking costs, net of accumulated amortization of $21,988,

$20,788, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid lease expense, net of amortization of $593, $435, respectively . . . . . .
Other deferred charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19,686
3,796
148

23,257
3,954
189

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$41,195

$37,972

Year Ended December 31,

2009

2008

12. Related Party Transactions

During 2009, 2008 and 2007, the Company received aggregate payments of

approximately $9.9 million, $0.6 million, and $7.4 million, respectively, for charter of its OSVs
and rental of its shore-base port facility from a customer whose Chairman of the Board is
currently a member of the Company’s Board of Directors. From October 2007 until his
retirement on May 7, 2009, such customer’s Chairman also served as its President and Chief
Executive Officer. This Board member has announced that he is stepping down as Chairman
of such customer and will cease to serve as a director effective May 7, 2010.
13. Major Customers

In the years ended December 31, 2009, 2008 and 2007, revenues from the following

customers exceeded 10% of total revenues:

Year Ended
December 31,

2009

2008

2007

Customer A(1)
Customer B(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18% —
11% —

10%
—

(1) Upstream and Downstream segment.
(2) Upstream segment.

14. Asset and Goodwill Impairment Assessment

In the second quarter of 2009, triggering events occurred which resulted in the Company

performing impairment tests on its Downstream segment assets as well as the conventional
OSVs in its Upstream Segment. This resulted in the Company recording a non-cash asset
impairment charge of $25.8 million, included in depreciation expense, related to ten single-
hulled tank barges and six ocean-going tugs, and a $0.9 million non-cash charge, included in
amortization expense, for the write-off of remaining goodwill associated with the Company’s
Downstream segment. Based on the analysis performed, no impairment existed for any of the
Company’s six conventional OSVs. The specific triggering events were the Downstream

F-24

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

segment operating loss for the quarter ended June 30, 2009, the lack of any material new
contracts for the Downstream segment since March 31, 2009, and the lack of any expected
change in performance in that segment in the near term. As of June 30, 2009, the Company
had stacked all six of its conventional OSVs, which it considered to be a triggering event for
those specific assets.

The impairment assessment compared the net book values of the Company’s

Downstream marine assets, as well as Downstream segment goodwill that was booked upon
the Company’s formation in June 1997, to their respective fair values. The analysis performed
during the second quarter of 2009 included considering recent vessel sales, quoted market
prices and past third-party appraisals.

No new triggering events have occurred since June 30, 2009. Based on recent

comparable vessel sales in the second half of 2009 and third party appraisals obtained during
the fourth quarter of 2009 in connection with the Company’s amended and extended revolving
credit facility in November 2009, the Company believes that no further impairment for its
vessels was required as of December 31, 2009. The Company did not record any impairment
losses related to its long-lived assets during 2008 or 2007.

15. Segment Information

The Company provides marine transportation and logistics services through two business

segments. The Company primarily operates new generation OSVs and MPSVs in the U.S.
Gulf of Mexico, or GoM, other U.S. coastlines, Latin America and the Middle East and
operates a shore-base facility in Port Fourchon, Louisiana through its Upstream segment. The
OSVs, MPSVs and the shore-base facility principally support complex exploration and
production projects by transporting cargo to offshore drilling rigs and production facilities and
provide support for oilfield and non-oilfield specialty services, including military applications.
The Downstream segment primarily operates ocean-going tugs and tank barges in the
northeastern United States, the GoM, Great Lakes and Puerto Rico. The ocean-going tugs
and tank barges provide coastwise transportation of refined and bunker grade petroleum
products as well as non-traditional downstream services, such as support of deepwater well
testing and other specialty applications for the Company’s upstream customers.

F-25

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table shows reportable segment information for the years ended

December 31, 2009, 2008 and 2007, reconciled to consolidated totals and prepared on the
same basis as the Company’s consolidated financial statements (in thousands).

Year Ended December 31,

2009

2008

2007

Revenues:

Upstream

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $274,782 $262,199 $193,634
34,721
Foreign(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

72,161

51,875

Downstream

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

326,657

334,360

228,355

58,050
1,241

59,291

88,235
9,489

97,724

101,427
9,188

110,615

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $385,948 $432,084 $338,970

Operating Expenses:

Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $121,488 $111,256 $ 78,512
48,364
Downstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

53,276

39,700

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $161,188 $164,532 $126,876

Depreciation and Amortization:

Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,740 $ 32,958 $ 19,903
15,266
Downstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19,044

42,629

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 93,369 $ 52,002 $ 35,169

General and Administrative Expenses:

Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,641 $ 26,255 $ 17,865
14,992
Downstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,900

5,203

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,844 $ 37,155 $ 32,857

Gain on sale of assets:

Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Downstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

111 $ 8,402 $ 1,859
—

—

1,036

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,147 $ 8,402 $ 1,859

Operating Income:

Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $128,899 $172,293 $113,934
31,993
Downstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(27,205)

14,504

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $101,694 $186,797 $145,927

Capital Expenditures:

Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $272,147 $491,253 $389,519
54,125
Downstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,271
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vessel
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $273,646 $505,105 $447,915

11,627
2,225

391
1,108

F-26

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Year Ended December 31,

2009

2008

2007

Identifiable Assets:

Upstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,552,974 $1,319,392 $ 980,510
261,581
Downstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,308
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

204,850
28,524

254,574
21,777

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,786,348 $1,595,743 $1,265,399

Long-Lived Assets:
Upstream

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,295,100 $1,042,540 $ 594,603
125,905
Foreign(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

108,335

126,709

Downstream

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign(1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,403,435

1,169,249

720,508

191,627

—

191,627
7,601

223,669
4,431

228,100
7,991

223,242
5,149

228,391
7,659

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,602,663 $1,405,340 $ 956,558

(1) The Company’s vessels conduct operations in international areas. Vessels will routinely move to and from international and domestic
operating areas. As these assets are highly mobile, the long-lived assets reflected above represent the assets that were present in
international areas as of December 31, 2009, 2008 and 2007, respectively.
Included are amounts applicable to the Puerto Rico downstream operations, even though Puerto Rico is considered a possession of the
United States and the Jones Act applies to vessels operating in Puerto Rican waters.

(2)

16. Employment Agreements

The Company has employment agreements with certain members of its executive

management team. These agreements include, among other things, contractually stated base
level salaries and a structured cash incentive compensation program dependent upon the
Company achieving certain targeted financial results. The agreements contain an EBITDA
target, as, well as a discretionary component in setting the cash incentive compensation for
such executives under this program. In the event such a member of the executive
management team is terminated due to certain events as defined in such officer’s agreement,
the employee will continue to receive salary, bonus and other payments for the full remaining
term of the agreement.

F-27

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

17. Supplemental Selected Quarterly Financial Data (Unaudited) (in thousands, except
per share data):

The following table contains selected unaudited quarterly financial data from the
consolidated statements of operations for each quarter of fiscal years 2009 and 2008. The
operating results for any quarter are not necessarily indicative of results for any future period.

Quarter Ended

Mar 31

Jun 30

Sep 30

Dec 31

Fiscal Year 2009(1)

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $109,647 $ 97,909 $ 90,086 $ 88,307
24,174
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,327
Earnings per common share:

27,072
13,774

45,411
27,101

5,038
199

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.04 $
1.01

0.01 $
0.01

0.53 $
0.51

0.36
0.34

Fiscal Year 2008(1)

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 97,521 $104,473 $109,060 $121,029
56,461
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34,643
Earnings per common share:

40,753
25,247

52,623
33,282

36,960
22,629

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.88 $
0.84

0.98 $
0.93

1.29 $
1.23

1.34
1.29

(1) The sum of the four quarters may not equal annual results due to rounding.

F-28

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of

1934, the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Covington, the State of Louisiana, on
March 1, 2010.

HORNBECK OFFSHORE SERVICES, INC.

By:

/s/ TODD M. HORNBECK

Todd M. Hornbeck
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has
been signed below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.

Signature

Title

Date

/s/ TODD M. HORNBECK

(Todd M. Hornbeck)

/s/ JAMES O. HARP, JR.

(James O. Harp, Jr.)

Chairman of the Board,
President, and Chief
Executive Officer
(Principal Executive Officer)

Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)

March 1, 2010

March 1, 2010

/s/ LARRY D. HORNBECK

Director

March 1, 2010

(Larry D. Hornbeck)

/s/ BRUCE W. HUNT

Director

March 1, 2010

(Bruce W. Hunt)

/s/ STEVEN W. KRABLIN

Director

March 1, 2010

(Steven W. Krablin)

/s/ PATRICIA B. MELCHER

Director

March 1, 2010

(Patricia B. Melcher)

/s/ BERNIE W. STEWART

Director

March 1, 2010

(Bernie W. Stewart)

/s/ DAVID A. TRICE

Director

March 1, 2010

(David A. Trice)

S-1

Exhibit
Number

Description of Exhibit

Exhibit Index

3.1 — Second Restated Certificate of Incorporation of the Company, as amended

(incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q for the
quarter ended March 31, 2005).

3.2 — Certificate of Designation of Series A Junior Participating Preferred Stock filed with
the Secretary of State of the State of Delaware on June 20, 2003 (incorporated by
reference to Exhibit 3.6 to the Company’s Registration Statement on Form S-1
dated September 19, 2003, Registration No. 333-108943).

3.3 — Fourth Restated Bylaws of the Company adopted June 30, 2004 (incorporated by

reference to Exhibit 3.3 to the Company’s Form 10-Q for the quarter ended June 30,
2004).

4.1 — Indenture dated as of November 23, 2004 between the Company, the guarantors

named therein and Wells Fargo Bank, National Association (as Trustee), including
table of contents and cross-reference sheet (incorporated by reference to Exhibit
4.1 to the Company’s Current Report on Form 8-K filed November 24, 2004).

4.2 — Specimen 6.125% Series B Senior Note due 2014 (incorporated by reference to
Exhibit 4.12 to the Company’s Registration Statement on Form S-4 dated
December 22, 2004, Registration No. 333-121557).

4.3 — Specimen stock certificate for the Company’s common stock, $0.01 par value

(incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement
on Form 8-A dated March 25, 2004, Registration No. 001-32108).

4.4 — Rights Agreement dated as of June 18, 2003 between the Company and Mellon

Investor Services LLC as Rights Agent, which includes as Exhibit A the Certificate
of Designations of Series A Junior Participating Preferred Stock, as Exhibit B the
form of Right Certificate and as Exhibit C the form of Summary of Rights to
Purchase Stock (incorporated by reference to Exhibit 4.1 to the Company’s Current
Report on Form 8-K filed July 3, 2003).

4.5 — Amendment to Rights Agreement dated as of March 5, 2004 between the Company

and Mellon Investor Services LLC as Rights Agent (incorporated by reference to
Exhibit 4.13 to the Company’s Form 10-K for the period ended December 31, 2003).

4.6 — Second Amendment to Rights Agreement dated as of September 3, 2004 by and
between the Company and Mellon Investor Services, LLC as Rights Agent
(incorporated by reference to Exhibit 4.3 to the Company’s Form 8-A/A filed
September 3, 2004, Registration No. 001-32108).

4.7 — Indenture dated as of November 13, 2006 by and among Hornbeck Offshore

Services, Inc., the guarantors named therein, and Wells Fargo Bank, National
Association, as Trustee (including form of 1.625% Convertible Senior Notes due
2026) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on
Form 8-K filed November 13, 2006).

4.8 — Confirmation of OTC Warrant Confirmation dated as of November 7, 2006 by and

between Hornbeck Offshore Services, Inc. and Jefferies International Limited
(incorporated by reference to Exhibit 4.6 to the Company’s Current Report on Form
8-K filed November 13, 2006).

E-1

Exhibit
Number

Description of Exhibit

4.9 — Confirmation of OTC Warrant Confirmation dated as of November 7, 2006 by and
between Hornbeck Offshore Services, Inc and Bear, Stearns International Limited,
as supplemented on November 9, 2006 (incorporated by reference to Exhibit 4.7 to
the Company’s Current Report on Form 8-K filed November 13, 2006).

4.10 — Confirmation of OTC Warrant Confirmation dated as of November 7, 2006 by and
between Hornbeck Offshore Services, Inc. and AIG-FP Structured Finance
(Cayman) Limited, as supplemented on November 9, 2006 (incorporated by
reference to Exhibit 4.8 to the Company’s Current Report on Form 8-K filed
November 13, 2006).

4.11 — Indenture dated as of August 17, 2009 by and among Hornbeck Offshore Services,
Inc., the guarantors named therein, and Wells Fargo Bank, National Association, as
Trustee (including form of 8% Senior Notes due 2017) (incorporated by reference to
Exhibit 4.1 to the Company’s Current Report on Form 8-K filed August 18, 2009).

4.12 — Registration Rights Agreement dated August 17, 2009 by and among Hornbeck

Offshore Services, Inc., the guarantors named therein, and J.P. Morgan Securities
Inc., as representative of the purchasers of the Company’s 8% Senior Notes due
2017 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on
Form 8-K filed August 18, 2009).

4.13 — Specimen 144A Global 8% Series A Senior Note due 2017 (incorporated by

reference to Exhibit 4.9 to the Company’s Registration Statement on Form S-4
dated September 29, 2009, Registration No. 333-162197).

4.14 — Specimen Regulation S Global 8% Series A Senior Note due 2017 (incorporated by

reference to Exhibit 4.10 to the Company’s Registration Statement on Form S-4
dated September 29, 2009, Registration No. 333-162197).

4.15 — Specimen 8% Series B Senior Note due 2017 (incorporated by reference to Exhibit

4.11 to the Company’s Registration Statement on Form S-4 dated September 29,
2009, Registration No. 333-162197).

10.1 — Facilities Use Agreement effective January 1, 2006, and incorporated

Indemnification Agreement and amendments thereto (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 21, 2006).

10.2† — Director & Advisory Director Compensation Policy, effective January 1, 2008

(incorporated by reference to Exhibit 10.10 to the Company’s Form 10-Q for the
period ended March 31, 2008).

10.3† — Hornbeck Offshore Services, Inc. Deferred Compensation Plan dated as of July 10,
2007 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the
period ended June 30, 2007).

10.4† — Second Amended and Restated Hornbeck Offshore Services, Inc. Incentive

Compensation Plan, effective May 2, 2006 (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed May 4, 2006).

10.5† — Amendment to the Second Amended and Restated Hornbeck Offshore Services,
Inc Incentive Compensation Plan, dated effective May 12, 2008 (incorporated by
reference to Exhibit 10.4 to the Company’s Form 10-Q for the period ended March
31, 2008).

E-2

Exhibit
Number

Description of Exhibit

10.6† — Amended and Restated Senior Employment Agreement dated May 7, 2007 by and

between Todd M. Hornbeck and the Company (incorporated by reference to
Exhibit 10.1 to the Company’s Form 10-Q for the period ended March 31, 2007).

10.7† — Amended and Restated Employment Agreement dated May 7, 2007 by and

between Carl G. Annessa and the Company (incorporated by reference to Exhibit
10.2 to the Company’s Form 10-Q for the period ended March 31, 2007).

10.8† — Amended and Restated Employment Agreement dated May 7, 2007 by and
between James O. Harp, Jr. and the Company (incorporated by reference to
Exhibit 10.3 to the Company’s Form 10-Q for the period ended March 31, 2007).

10.9† — Amendment to Amended and Restated Senior Employment Agreement dated
effective May 12, 2008 by and between Todd M. Hornbeck and the Company
(incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the
period ended March 31, 2008).

10.10† — Amendment to Amended and Restated Employment Agreement dated effective
May 12, 2008 by and between Carl G. Annessa and the Company (incorporated
by reference to Exhibit 10.2 to the Company’s Form 10-Q for the period ended
March 31, 2008).

10.11† — Amendment to Amended and Restated Employment Agreement dated effective

May 12, 2008 by and between James O. Harp, Jr. and the Company (incorporated
by reference to Exhibit 10.3 to the Company’s Form 10-Q for the period ended
March 31, 2008).

*10.12† — Second Amendment to Amended and Restated Senior Employment Agreement
dated effective December 31, 2009 by and between Todd M. Hornbeck and the
Company.

*10.13† — Second Amendment to Amended and Restated Employment Agreement dated

effective December 31, 2009 by and between Carl G. Annessa and the Company.

*10.14† — Second Amendment to Amended and Restated Employment Agreement dated

effective December 31, 2009 by and between James O. Harp, Jr. and the
Company.

10.15† — Change in Control Agreement dated effective August 5, 2008 by and between

Samuel A. Giberga and the Company (incorporated by reference to Exhibit 10.1 to
the Company’s Form 10-Q for the quarter ended June 30, 2008).

10.16† — Change in Control Agreement dated effective August 5, 2008 by and between

John S. Cook and the Company (incorporated by reference to Exhibit 10.2 to the
Company’s Form 10-Q for the quarter ended June 30, 2008).

10.17† — Change in Control Agreement dated effective August 4, 2009 by and between

Kimberly S. Patterson and the Company (incorporated by reference to Exhibit 10.2
to the Company’s Form 10-Q for the quarter ended June 30, 2009).

*10.18† — Amendment to Change in Control Agreement dated effective December 31, 2009

by and between Samuel A. Giberga and the Company.

*10.19† — Amendment to Change in Control Agreement dated effective December 31, 2009

by and between John S. Cook and the Company.

E-3

Exhibit
Number

Description of Exhibit

*10.20† — Amendment to Change in Control Agreement dated effective December 31, 2009

by and between Kimberly S. Patterson and the Company.

10.21 — Senior Secured Revolving Credit Facility dated effective September 27, 2006 by

and among the Company and two of its subsidiaries, Hornbeck Offshore Services,
LLC and Hornbeck Offshore Transportation, LLC, and Wells Fargo Bank, N.A., as
administrative agent, Comerica Bank, as syndication agent, and the lenders party
thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed October 3, 2006).

10.22 — First Amendment to Senior Secured Revolving Credit Facility and Second

Amendment to Guaranty and Collateral Agreement dated as of November 4, 2009
by and among the Company and two of its subsidiaries, Hornbeck Offshore
Services, LLC and Hornbeck Offshore Transportation, LLC, each of the lenders
and guarantors signatory thereto, and Wells Fargo Bank, N.A., as administrative
agent for the lenders (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed November 6, 2009).

10.23 — Form of Amended and Restated Indemnification Agreement (incorporated by

reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended June
30, 2009).

10.24† — Form of Executive Non-Qualified Stock Option Agreement (incorporated by

reference to Exhibit 10.16 to the Company’s Form 10-K for the period ended
December 31, 2004).

10.25† — Form of Director Non-Qualified Stock Option Agreement (incorporated by

reference to Exhibit 10.17 to the Company’s Form 10-K for the period ended
December 31, 2004).

10.26† — Form of Employee Non-Qualified Stock Option Agreement (incorporated by
reference to Exhibit 10.18 to the Company’s Form 10-K for the period ended
December 31, 2004).

10.27† — Form of Restricted Stock Unit Agreement for Executive Officers (Time Vesting)
(incorporated by reference to Exhibit 10.7 to the Company’s Form 10-Q for the
quarter ended March 31, 2008).

10.28† — Form of Restricted Stock Unit Agreement for Non-Employee Directors (Time

Vesting) (incorporated by reference to Exhibit 10.8 to the Company’s Form 10-Q
for the quarter ended March 31, 2008).

10.29† — Form of Restricted Stock Unit Agreement for Executive Officers (Performance

Based) (incorporated by reference to Exhibit 10.9 to the Company’s Form 10-Q for
the quarter ended March 31, 2008).

10.30† — Form of Restricted Stock Unit Agreement for Executive Officers (Performance

Based) (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for
the quarter ended March 31, 2009).

10.31† — Form of Restricted Stock Unit Agreement for Executive Officers (Time Vesting)
(incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the
quarter ended March 31, 2009).

E-4

Exhibit
Number

Description of Exhibit

10.32 — Confirmation of OTC Convertible Note Hedge dated as of November 7, 2006 by

and between Hornbeck Offshore Services, Inc. and Jefferies International Limited
(incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form
8-K filed November 13, 2006).

10.33 — Confirmation of OTC Convertible Note Hedge dated as of November 7, 2006 by
and between Hornbeck Offshore Services, Inc. and Bear, Stearns International
Limited, as supplemented on November 9, 2006 (incorporated by reference to
Exhibit 4.4 to the Company’s Current Report on Form 8-K filed November 13,
2006).

10.34 — Confirmation of OTC Convertible Note Hedge dated as of November 7, 2006 by
and between Hornbeck Offshore Services, Inc. and AIG-FP Structured Finance
(Cayman) Limited, as supplemented on November 9, 2006 (incorporated by
reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K filed
November 13, 2006).

10.35 — Purchase Agreement dated August 12, 2009 by and among Hornbeck Offshore
Services, Inc., the guarantors named therein, and J.P. Morgan Securities Inc. as
representative of the several Purchasers named in Schedule I thereto (incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
August 18, 2009).

*21 — Subsidiaries of the Company

*23.1 — Consent of Ernst & Young LLP

*31.1 — Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-

Oxley Act of 2002.

*31.2 — Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-

Oxley Act of 2002.

*32.1 — Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-

Oxley Act of 2002.

*32.2 — Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-

Oxley Act of 2002.

Filed herewith.

*
† Compensatory plan or arrangement under which executive officers or directors of the

Company may participate.

E-5

CERTIFICATION

EXHIBIT 31.1

I, Todd M. Hornbeck, certify that:
I have reviewed this Annual Report on Form 10-K of Hornbeck Offshore Services, Inc.;

1.
2. Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information

included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this
report;

4. The registrant’s other certifying officer and I are responsible for establishing and

maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in
which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures

and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation;

d) Disclosed in this report any change in the registrant’s internal control over financial

reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent

evaluation of internal control over financial reporting, to the registrant’s auditors and the
audit committee of registrant’s board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of

internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial
information; and

b) Any fraud, whether or not material, that involves management or other employees

who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2010

/s/ Todd M. Hornbeck
Todd M. Hornbeck
Chief Executive Officer
(Principal Executive Officer)

CERTIFICATION

EXHIBIT 31.2

I, James O. Harp, Jr., certify that:
I have reviewed this Annual Report on Form 10-K of Hornbeck Offshore Services, Inc.;

1.
2. Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information

included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this
report;

4. The registrant’s other certifying officer and I are responsible for establishing and

maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in
which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures

and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation;

d) Disclosed in this report any change in the registrant’s internal control over financial

reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent

evaluation of internal control over financial reporting, to the registrant’s auditors and the
audit committee of registrant’s board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of

internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial
information; and

b) Any fraud, whether or not material, that involves management or other employees

who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2010

/s/ James O. Harp, Jr.
James O. Harp, Jr.
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)

Performance Graph

The graph below compares the cumulative total shareholder return on our common stock to the cumulative
total shareholder return of the Standard & Poor’s 500 Stock Index and the cumulative total shareholder
return of the Philadelphia Stock Exchange Oil Service Index. The total shareholder return assumes $100
invested on December 31, 2004 (the last day before the beginning of our fifth preceding fiscal year) in
Hornbeck Offshore Services, Inc., the Standard & Poor’s 500 Stock Index and the Philadelphia Stock
Exchange Oil Service Index. It also assumes reinvestment of all dividends of companies in such indexes.
The Philadelphia Stock Exchange Oil Service Sector Index consists of 15 companies that provide oil drilling
and production services, oil
field equipment, support services and geophysical/reservoir services. The
results shown in the graph below are not necessarily indicative of future performance.

Hornbeck Offshore Services, Inc.

S&P 500

PHLX OSX

$300

$250

$200

$150

$100

$50

$0

12/31/2004

12/31/2005

12/31/2006

12/31/2007

12/31/2008

12/31/2009

COMPANY STATEMENT REGARDING CORPORATE
GOVERNANCE LISTING STANDARDS

As required by the New York Stock Exchange, Todd M. Hornbeck, the Company’s Chairman, President and
Chief Executive Officer certified to the Exchange on June 24, 2009, without qualification, that he was not
aware of any violation by the Company of New York Stock Exchange corporate governance listing
standards.

R-1