HORNBECK OFFSHORE SERVICES, INC.
ANNUAL REPORT TO STOCKHOLDERS
For the Year Ended December 31, 2014
EXPLANATORY NOTE
This Annual Report to Stockholders of Hornbeck Offshore Services, Inc. (the "Company") for the year ended
December 31, 2014 includes the Company's previously filed Annual Report on Form 10-K for the year ended
December 31, 2014 as well as additional disclosures on the last page of this report that are required to be included
in annual reports to stockholders.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2014
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 001-32108
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
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
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
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.
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
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
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 $1,628,299,575.
The number of outstanding shares of Common Stock as of January 31, 2015 is 35,556,990 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive 2015 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.
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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014
TABLE OF CONTENTS
PART I ...........................................................................................................................................................
Item 1—Business ..................................................................................................................................
Item 1A—Risk Factors ...........................................................................................................................
Item 1B—Unresolved Staff Comments ..................................................................................................
Item 2—Properties .................................................................................................................................
Item 3—Legal Proceedings ...................................................................................................................
Item 4—Mine Safety Disclosures ...........................................................................................................
PART II ..........................................................................................................................................................
Item 5—Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities ...............................................................................................
Item 6—Selected Financial Data ...........................................................................................................
Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.....
Item 7A—Quantitative and Qualitative Disclosures About Market Risk .................................................
Item 8—Financial Statements and Supplementary Data .......................................................................
Item 9—Changes in and Disagreements with Accountants on Accounting and Financial Disclosures ..
Item 9A—Controls and Procedures .......................................................................................................
Item 9B—Other Information ...................................................................................................................
PART III .........................................................................................................................................................
Item 10—Directors, Executive Officers and Corporate Governance ......................................................
Item 11—Executive Compensation ........................................................................................................
Item 12—Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters ...............................................................................................................
Item 13—Certain Relationships and Related Transactions, and Director Independence ......................
Item 14—Principal Accounting Fees and Services ................................................................................
PART IV ........................................................................................................................................................
Item 15—Exhibits and Financial Statement Schedules .........................................................................
1
1
14
23
23
23
24
24
24
26
30
45
46
46
46
49
51
51
51
51
51
51
52
52
CONSOLIDATED FINANCIAL STATEMENTS ..............................................................................................
SIGNATURES ...............................................................................................................................................
EXHIBIT INDEX ............................................................................................................................................
F - 1
S - 1
E - 1
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Forward Looking Statements
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,” “remain,” “should,” “will,” or other comparable words or the negative of such
words. The accuracy of the Company’s assumptions, expectations, beliefs and projections depends 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, including significant and sustained additional declines in oil and natural gas prices; a
sustained weakening of demand for the Company’s services; unplanned customer suspensions, cancellations,
rate reductions or non-renewals of vessel charters or failures to finalize commitments to charter vessels;
further reductions in capital spending budgets by customers; the inability to accurately predict vessel utilization
levels and dayrates; fewer than anticipated deepwater and ultra-deepwater drilling units operating in the GoM
or other regions that the Company operates in; the effect of inconsistency by the United States government in
the pace of issuing drilling permits and plan approvals in the GoM or other drilling regions; the Company’s
inability to successfully complete the remainder of its current vessel newbuild and conversion programs on-
time and on-budget, which involves the construction, conversion and integration of highly complex vessels and
systems; the inability to successfully market the vessels that the Company owns, is constructing, converting or
might acquire; the inability of the Company to complete a sale to the U.S. Navy of four vessels or the
government's cancellation or non-renewal of the operations and maintenance contracts for those vessels; an
oil spill or other significant event in the United States or another offshore drilling region that could have a broad
impact on deepwater and other offshore energy exploration and production activities, such as the suspension
of activities or significant regulatory responses; the imposition of laws or regulations that result in reduced
exploration and production activities or that increase the Company’s operating costs or operating requirements;
environmental litigation that impacts customer plans or projects; disputes with customers; bureaucratic,
administrative or operating barriers that delay vessels chartered in foreign markets from going on-hire or result
in contractual penalties or deductions imposed by foreign customers; industry risks; the impact stemming from
the reduction of Petrobras' announced plans for or administrative barriers to exploration and production
activities in Brazil; less than expected growth in Mexican offshore activities; age restrictions imposed on our
vessels by PEMEX ; unanticipated difficulty in effectively competing in or operating in international markets;
less than anticipated subsea infrastructure and field development demand in the GoM and other markets; the
level of fleet additions by the Company and its competitors that could result in over capacity in the markets in
which the Company competes; economic and political risks; weather-related risks; the shortage of or the
inability to attract and retain qualified personnel, including vessel personnel for active, and newly constructed
vessels; regulatory risks; the repeal or administrative weakening of the Jones Act or changes in the
interpretation of the Jones Act related to the U.S. citizenship qualification; drydocking delays and cost overruns
and related risks; vessel accidents, pollution incidents or other events resulting in lost revenue, fines, penalties
or other 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, such as non-compliance with or the unanticipated effect of tax
laws, customs laws, immigration laws, or other legislation that result in higher than anticipated tax rates or
other costs or the inability to repatriate foreign-sourced earnings and profits. In addition, the Company’s future
results may be impacted by adverse economic conditions, such as inflation, deflation, or lack of liquidity in the
capital markets, that may negatively affect it or parties with whom it does business resulting in their non-
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payment or inability to perform obligations owed to the Company, such as the failure of customers to fulfill their
contractual obligations or the failure by individual banks to provide funding under the Company’s credit
agreement, if required. Further, the Company can give no assurance regarding when and to what extent it will
affect share repurchases. 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. Additional
factors that you should consider are set forth in detail in the “Risk Factors” section of this Annual Report on
Form 10-K as well as other filings the Company has made and will make with the Securities and Exchange
Commission which, after their filing, can be found on the Company’s website, www.hornbeckoffshore.com.
The Company makes references to certain industry-related terms in this Annual Report on Form 10-K. A
glossary and definitions of such terms can be found in Item 9B—Other Information on page 49.
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ITEM 1—Business
COMPANY OVERVIEW
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
transportation, subsea installation and accommodation support services to exploration and production, oilfield service,
offshore construction and U.S. 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 in domestic and select foreign locations. 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. Until
August 29, 2013 we operated a Downstream tug and tank barge fleet, which we sold on that date. We maintain our
headquarters at 103 Northpark Boulevard, Suite 300, Covington, Louisiana, 70433; our telephone number is
(985) 727-2000.
We own and operate one of the youngest and largest fleets of U.S.-flagged, new generation OSVs and MPSVs. In
late 2011, we commenced our fifth OSV newbuild program, which also includes the construction of MPSVs. Since that
time we have grown our new generation fleet from 51 OSVs and four MPSVs to 63 OSVs and five MPSVs. Upon
completion of the vessels currently contracted to be constructed under this newbuild program in 2016, our expected fleet
will be comprised of 62 OSVs and 10 MPSVs. Together, these vessels support the deep-well, deepwater and ultra-
deepwater activities of the offshore oil and gas industry. Such activities include oil and gas exploration, field development,
production, construction, installation, IRM, well-stimulation and other enhanced oil recovery activities. We have also
developed a specialized application of our new generation OSVs for use by the U.S. military. Our new generation OSVs
and MPSVs have enhanced capabilities that allow us to more effectively support the premium drilling and installation
equipment and facilities required for the offshore deep-well, deepwater and ultra-deepwater energy industry. We are
among the leading operators of new generation OSVs in each of our three core markets and one of the top five operators
of such equipment worldwide based on DWT. Our fleet is among the youngest in the industry, with an average vessel age
of approximately seven years compared to our domestic public company OSV peer group average vessel age of 10
years. Upon completion of our current newbuild program, we believe that our fleet will have a weighted-average age,
based on DWT, of seven years at the end of 2016.
While we have historically operated our vessels predominately in the U.S. GoM, we have diversified our market
presence and now operate in three core geographic markets: the GoM, Mexico and Brazil. In addition to our core
markets, we frequently operate in other foreign regions on a project or term charter basis. We have recently operated in
the Middle East, the Mediterranean Sea, the Black Sea and the Caribbean basin, including Nicaragua, Guyana, Trinidad
and Venezuela. We have further diversified by providing specialized vessel solutions to non-oilfield customers such as
the United States military as well as oceanographic research and other customers that utilize sophisticated marine
platforms in their operations. We also operate a shore-base support facility located in Port Fourchon, Louisiana. See
"Item 2-Properties" for a listing of our shoreside support facilities. On occasion, we provide vessel management services
for other vessel owners, such as crewing, daily operational management and maintenance activities. We have recently
agreed to sell to the U.S. Navy four vessels that it currently charters from us and to continue operating such vessels
pursuant to an operations and maintenance contract. This transaction is described further under "Recent Events".
Although all of our vessels are physically capable of operating in both domestic and international waters,
approximately 85% are qualified under Section 27 of the Merchant Marine Act of 1920, as amended, or the Jones Act, to
engage in the U.S. coastwise trade. All of the vessels being constructed under our fifth OSV newbuild program will qualify
for Jones Act coastwise trading privileges. Foreign owned, flagged, built or crewed vessels are restricted in their ability to
conduct U.S. coastwise trade and are typically excluded from such trade in the GoM. Of the public company OSV peer
group, we own the largest fleet of Jones Act-qualified, new generation OSVs, which we believe offers us a competitive
advantage in the GoM. From time to time we may elect to reflag certain of our vessels to the flag of another nation. For
instance, since 2009 we have reflagged six Jones Act-qualified OSVs to Mexican and other flags. Once a Jones Act-
qualified vessel is reflagged, it permanently loses its right to return to the U.S. coastwise trade.
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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 or prevailing industry trends.
Recent Events
In February 2015, we agreed to sell four of our 250EDF class OSVs currently chartered to the U.S. Navy and to
subsequently operate such vessels for the Navy under an operations and maintenance (O&M) contract, which contains an
initial term and annual renewal options spanning a 10-year operating period. These arrangements are subject to final
documentation. Since their construction in 2008 and 2009, these vessels have supported the U.S. Navy’s submarine fleet
on the east and west coasts of the U.S. In order for the Navy to continue receiving the unique capabilities of these
vessels, Congress has required their purchase from the Company, provided an agreement could be reached. The details
of this transaction are currently being finalized and are expected to be completed in late-February with the O&M contract
beginning immediately upon closing of each respective vessel sale. More details will be announced upon completion of
the transaction.
DESCRIPTION OF OUR BUSINESS
The Deepwater Offshore Energy Industry
The modern quest to explore for and produce energy resources located offshore began in the 1940’s. While these
offshore operations began in shallow waters, relatively close to shore, technological advances have permitted them to
migrate to ever deeper waters and well depths. Until the late 1970's, most offshore activity was technologically and
logistically restricted to that which was accessible on the continental shelf, or waters of up to about 500 feet of depth.
Since that time, a number of advances have opened drilling regions in deepwater. The initial push into deeper waters was
facilitated through the development of “floating” drilling units that could be positioned over a drilling site without being
fixed. Petrobras pioneered these techniques in Brazil beginning in the late 1970’s as it lacked an accessible “shallow
water” continental shelf. The first deepwater project in the United States Gulf of Mexico was completed in 1993 in nearly
3,000 feet of water by Shell Oil Company. The Auger facility produced a then unheard of 46,000 barrels per day from a
reservoir tapped at 25,000 feet. Today, exploration and production activities have pushed into the ultra-deepwater, where
wells are routinely drilled in water depths of more than 8,000 feet, the deepest having been drilled in approximately 10,000
feet of water.
In addition to the ability to operate in very deepwater, technological advances have also allowed hydrocarbon
resources to be detected, drilled for and produced at extreme well depths. “Pre-salt” discoveries in Brazil are being drilled
and produced in waters exceeding 5,000 feet and at well depths of more than 35,000 feet. In 2014, Chevron announced
first oil from its Jack/St. Malo facility in the GoM, which is expected to produce previously undetectable lower tertiary
hydrocarbons at an astounding rate of 94,000 barrels per day from deposits more than 20,000 feet below the seabed
situated in 7,000 feet of water. In addition to contending with extreme deepwater and deep well depths, these projects
present challenges involving high temperatures and pressures within reservoirs and the associated difficulties of safely
bringing those resources to the surface and then transporting them to shoreside locations. Despite these challenges,
today deepwater production accounts for approximately 80% percent of all offshore production in the United States.
Deepwater Regions
The energy industry has had success in many deepwater regions throughout the world. Deepwater drilling efforts
are underway in the Mediterranean Sea, the Indian Ocean and Asia. However, the so-called “golden triangle” of
deepwater activity is comprised of deposits found offshore West Africa, the Eastern coast of South America - dominated
by Brazil - and the GoM.
As large international oil companies have been pushed out of participating in many regions of the world by national
oil companies intent upon retaining for themselves the economic benefits of national exploitation, the deepwater GoM has
grown in significance. The deepwater GoM is among the most abundant hydrocarbon regions in the world. Political
stability in the United States and accessibility of deepwater lease blocks allows major oil companies to plan, execute and
finance the significant long-term commitments that deepwater success requires. While the scale and complexity
associated with deepwater projects is considerable, the significant size of the resource discoveries allows companies to
replenish reserves on a large scale from relatively few projects. Unlike most on-shore exploration and production
projects, deepwater projects require long-lead times to plan and execute, but also enjoy long production lives once online.
For instance, the first exploratory wells at the Jack/St. Malo fields were drilled in 2003 and 2004 and first oil was not
produced until 2014. Now online, Chevron projects that Jack/St. Malo are expected to produce an estimated 500 million
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oil equivalent barrels over 30 years. Consequently, short term fluctuations in oil and gas prices do not have the same
impact on sanctioned deepwater projects as such fluctuations may have on other on-shore and continental shelf projects.
An emerging opportunity for the deepwater offshore energy industry is presented by recent changes in Mexico, which
is opening its petroleum sector to foreign investment for the first time in recent history. In December 2013, the Mexican
congress ended PEMEX's 75 year-old monopoly on drilling activities in Mexico and voted in favor of allowing the
government to grant contracts and licenses for exploration and production of oil and gas to foreign firms, which previously
had been prohibited under Mexico’s constitution. The Mexican congress has recently finalized reforms that would allow
Round One tenders and joint ventures to be formed between PEMEX and private companies, which means contracts
could be awarded as early as during the second quarter of 2015. These tenders and joint ventures will cover an estimated
20 billion barrels of oil equivalent and are expected to generate more than $40 billion in new investments over the next
few years. The “Perdido Belt”, which straddles the U.S. and Mexican portions of the GoM, accounts for several
deepwater and ultra-deepwater successes. The recent constitutional and legislative changes in Mexico are expected to
allow technology not previously available in Mexico to be deployed there in order to exploit the Mexican deepwater GoM.
Brazil, through its state-owned national oil company, Petrobras, has been a pioneer in deepwater drilling. Today it is
a dominant player in the global deepwater energy industry claiming 34% of global deepwater and ultra-deepwater
production. Petrobras claims approximately 13.8 billion barrels of proven deepwater and ultra-deepwater resources, the
vast majority of which are located in pre-salt formations which are the driving force behind an ambitious national plan to
dramatically increase production by 2020 to 4.2 million barrels per day. Petrobras has previously announced plans to
spend $220 billion in order to achieve its aggressive goals.
The Subsea Oilfield
Deepwater successes have driven further innovation around the infrastructure required to produce and transport
ashore the abundant resources that have been discovered. In shallower regions, once hydrocarbons are discovered, they
are typically produced by installing a fixed platform over the well site onto which are installed all of the equipment and
infrastructure necessary to produce the hydrocarbons and move them ashore through pipelines. Platforms also provide a
locale from which well maintenance and similar activities can be performed. The size, pressures, temperatures and water
depths of deepwater hydrocarbon deposits require enormous amounts of infrastructure to develop, produce and maintain
their wells. These challenges have pushed the development of technologies to allow infrastructure to be placed directly
onto the seafloor, as opposed to a fixed platform. The process of building out this subsea oilfield requires the use of
vessels to transport infrastructure to location, install infrastructure to subsea points and inspect, repair and maintain it all
over the multi-decade life of the field. When hydrocarbons are brought to the surface, they are brought from multiple
subsea locations through pipelines to a single deepwater floating production facility that often serves as a production hub
for multiple fields. These production facilities take years to design, engineer, transport, install and, often, cost billions of
dollars.
OSVs
OSVs primarily serve exploratory and developmental drilling rigs and production facilities and support offshore and
subsea construction, installation, IRM 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 facilities. Deepwater environments require OSVs with capabilities that allow
them to more effectively support drilling and related subsea construction projects that occur far from shore, in deepwater
and increasingly at extreme well depths. In order to best serve these projects, we have designed our various classes of
new generation vessels in a manner that seeks to maximize their liquid mud and dry bulk cement capacities, as well as
their open larger areas of open deck space. Deepwater operations also require vessels having dynamic positioning, or
anchorless station-keeping capability, driven primarily by safety concerns that preclude vessels from physically mooring to
floating deepwater installations. 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. Today, deepwater drilling operations in the GoM overwhelmingly prefer
a DP-2 notation and a vessel with 2,500 DWT capacity or greater. We consider these vessels to be high-spec new
generation OSVs. Currently, 52 of our vessels are DP-2 and two are DP-3. All eight of the remaining vessels contracted
to be constructed under our fifth OSV newbuild program are expected to be DP-2. Ultra-deepwater projects, which occur
in waters of greater than 5,000 feet, are driving a need for DP-2 vessels with very large capacities. The distance of these
projects from shore, together with their water and well depths dictate the use of massive volumes of bulk drilling materials
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and related supplies. Our fifth OSV newbuild program is comprised of OSVs that will be among the largest in the world.
With DWT capacities of 5,500 DWT to 6,200 DWT, we believe these ultra high-spec vessels provide our ultra-deepwater
drilling customers vessel solutions that will help them to maximize efficiencies and improve the logistical challenges
prevalent in their projects.
Vessels that do not carry a DP-2 notation or have less than 2,500 DWT capacity typically operate in more shallow
U.S. waters or in foreign locations in which DP-2 has not yet emerged as the dominant standard. Currently, 14 of our
vessels are DP-1, comprising 11% of our fleet by DWT. The remaining 89% of our fleet is considered high-spec, including
54% of our overall fleet that are ultra high-spec.
MPSVs
MPSVs also support the deepwater activities of the energy industry. MPSVs are distinguished from OSVs in that
they are significantly larger and more specialized vessels that are principally used for IRM activities, such as the subsea
installation of well heads, risers, jumpers, umbilicals and other equipment placed on the seafloor. MPSVs are also utilized
in connection with the setting of pipelines, the commissioning and de-commissioning of offshore facilities, the
maintenance and/or repair of subsea equipment and the intervention of such wells, well testing and flow-back operations
and other sophisticated deepwater operations. To perform these various functions, MPSVs are or can be equipped with a
variety of lifting and deployment systems, including large capacity cranes, winches or reel systems, well intervention
equipment, ROVs and accommodation facilities. The typical MPSV is outfitted with one or more deepwater cranes
employing active heave compensation technology, one or more ROVs and accommodations for the offshore crew,
including customer personnel. MPSVs can also be outfitted as a flotel to provide accommodations to large numbers of
offshore construction and technical personnel involved in large-scale offshore projects, such as the commissioning of a
floating offshore production facility. When in a flotel mode, the MPSV provides living quarters for personnel, catering,
laundry, medical services, recreational facilities and offices. In addition, flotels coordinate and help to provide the facilities
necessary for the offshore workers being accommodated to safely move from the vessel to other offshore structures being
supported. 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.
We have devised a new breed of MPSV that, in addition to the array of services described above, also are capable
of being utilized to transport deck or bulk cargoes in capacities exceeding all other new generation OSVs. We own and
operate two proprietary 370 class DP-2 new generation MPSVs with such capabilities. These MPSVs have approximately
double the deadweight and three times the liquid mud barrel-capacity of one of our 265 class new generation OSVs and
more than four times the liquid mud barrel-capacity of one of our 240 class new generation OSVs. Moreover, with their
large tanks, these MPSVs have assisted in large volume deepwater well testing and flow-back operations as well as
supporting large drilling operations in remote or harsh conditions.
Both of our 370 class MPSVs have certifications by the United States Coast Guard that permit Jones Act-qualified
operations as a supply vessel, industrial/construction vessel and as a petroleum and chemical tanker under subchapters
“L”, “I”, “D”, and “O”, respectively. We believe that these vessels are not only the largest supply vessels in the world, but
are also the only vessels in the world to have received all four of these certifications. As part of our fifth OSV newbuild
program, we are constructing five additional Jones Act-qualified 310 class MPSVs. Because these MPSVs are Jones Act-
qualified, we expect that they will enable our customers to transport from shore to the installation site equipment to be
installed by the MPSV. Today, due to a lack of Jones Act-qualified MPSVs, customers typically charter an OSV to carry
equipment to location, which is then installed by a foreign flag MPSV. By eliminating the need for two vessels, we believe
our customers will improve efficiencies and mitigate operational risks. Our Jones Act-qualified MPSVs will include a
heave-compensated, knuckle-boom crane, helideck, accommodations for approximately 70 persons and will be suitable
for two or more work-class ROVs. Moreover, our 310 class MPSVs will also be equipped with below deck cargo tanks,
allowing them to expand their mission usefulness to include services more typically provided by OSVs.
We also recently announced plans to outfit one of our 300 class OSVs that was placed in service under our ongoing
newbuild program as an additional 300 class MPSV in flotel configuration. This new U.S.-flagged, Jones Act-qualified
MPSV requires an additional period of modification in the shipyard and will include a 35-ton knuckle-boom crane, a
motion-compensated gangway and accommodations for 194 persons. Upon re-delivery as a domestic flotel in April 2015,
this vessel will be included in our MPSV fleet counts and operating statistics. Being Jones Act-qualified will give it mission
flexibility that foreign flag flotels lack in the GoM.
We also operate the HOS Iron Horse and HOS Achiever which are 430 class DP-3 new generation MPSVs. A DP-3
notation requires greater vessel and ship-system redundancies. DP-3 systems also include separate vessel
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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 for those specialty services described above for our
370 class MPSVs with the exception of handling liquid cargoes. The HOS Iron Horse and the HOS Achiever are not U.S.-
flagged vessels, however, they can engage in certain legally permissible operations in the U.S. that do not constitute
coastwise trade. In 2009 and during 2012, 2013 and 2014, the HOS Achiever was operating as a flotel. During the fourth
quarter of 2013, the HOS Achiever was outfitted with additional accommodations for up to 270 personnel onboard,
including the vessel's marine crew, hotel and catering staff. The increased accommodations will allow this vessel to
support the commissioning of deepwater installations around the world. Because flotel services do not typically involve
the transportation of passengers, foreign-flag vessels, such as our 430 class MPSVs, can provide this service in the U.S.
We believe that our reputation for safety and technologically superior vessels, combined with our size and scale
relative to our public company OSV peer group, enhance our ability to compete for work awarded by large international oil
and gas producers, who are among our primary customers. Approximately 85% of our total forward-contracted revenue is
currently with major oil companies, national oil companies, and the U.S. government. These customers demand a high
level of safety and technological advancements to meet the more stringent regulatory standards in the GoM. As our
customers’ needs and requirements become more demanding, we expect that smaller vessel operators may struggle to
meet these standards.
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The following table provides information, as of February 11, 2015, regarding our fleet of 63 new generation OSVs,
five MPSVs and the four new generation OSVs and four MPSVs yet to be delivered under our fifth OSV newbuild
program.
Our Vessels
Name(1)
Design
Current
Service
Function
Current
Location
In-Service
Date
Deadweight
(long tons)
Liquid Mud
Capacity
(barrels)
Brake
Horsepower
DP
Class(2)
Multi-Purpose (FF)
Flotel (FF)
Multi-Purpose
Multi-Purpose
Multi-Purpose
Multi-Purpose
Multi-Purpose
Multi-Purpose
Multi-Purpose
Flotel
GoM
GoM
Europe
GoM
GoM
TBD
TBD
TBD
TBD
GoM
430
430
370
370
310
310
310
310
310
300
320
320
320
320
320
320
320
320
320
320
310
310
310
310
310
300
300
300
290
265
265
265
265
Active:
MPSVs
HOS Iron Horse ................................
HOS Achiever...................................
HOS Centerline ................................
HOS Strongline.................................
HOS Bayou ......................................
HOS Warland ...................................
HOS Woodland.................................
HOS West Haven .............................
HOS Wild Horse ...............................
HOS Riverbend(4) .............................
OSVs
300 class (Over 5,000 DWT)
HOS Commander .............................
HOS Carolina ...................................
HOS Claymore .................................
HOS Captain ....................................
HOS Clearview .................................
HOS Crockett ...................................
HOS Caledonia.................................
HOS Crestview .................................
HOS Cedar Ridge.............................
HOS Carousel ..................................
HOS Black Foot................................
HOS Black Rock...............................
HOS Black Watch.............................
HOS Brass Ring ...............................
HOS Briarwood.................................
HOS Red Dawn ................................
HOS Red Rock .................................
HOS Renaissance ............................
HOS Coral ........................................
280 class (3,500 to 5,000 DWT)
HOS Ridgewind ................................
HOS Brimstone.................................
HOS Stormridge ...............................
HOS Sandstorm ...............................
240 class (2,500 to 3,500 DWT)
HOS Saylor ......................................
HOS Navegante ...............................
HOS Resolution................................
HOS Mystique ..................................
HOS Pinnacle ...................................
HOS Windancer................................
HOS Wildwing ..................................
HOS Black Powder...........................
HOS Westwind .................................
HOS Eagleview ................................
HOS Arrowhead................................
HOS Bluewater.................................
HOS Gemstone ................................
HOS Greystone ................................
HOS Silverstar..................................
HOS Polestar....................................
HOS Shooting Star ...........................
HOS North Star ................................
HOS Lode Star .................................
HOS Silver Arrow..............................
HOS Sweet Water ............................
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
240
240
250 EDF
250 EDF
250 EDF
250 EDF
250 EDF
250 EDF
250 EDF
250 EDF
250 EDF
240 ED
240 ED
240 ED
240 ED
240 ED
240 ED
240 ED
240 ED
240 ED
240 ED
Well Stimulation (FF)
Supply (FF)
Supply
ROV Support
Supply
Supply
Supply
Military
Military
Military
Military
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Military
Supply
Nov 2009
Oct 2008
Mar 2009
Mar 2010
Dec 2014
4Q2015 est.(3)
1Q2016 est.(3)
2Q2016 est.(3)
3Q2016 est.(3)
Feb 2014
Nov 2013
Feb 2014
Mar 2014
Jul 2014
Aug 2014
Dec 2014
Jan 2015
Feb 2015
2Q2015 est.(3)
1Q2015 est.(3)
Jul 2014
Aug 2014
Oct 2014
2Q2015 est.(3)
3Q2015 est.(3)
Jun 2013
Oct 2013
Nov 2013
Mar 2009
Nov 2001
Jun 2002
Aug 2002
Oct 2002
Oct 1999
Jan 2000
Oct 2008
Jan 2009
Feb 2010
May 2010
Sept 2010
Jun 2009
Jun 2009
Oct 2009
Jan 2010
Mar 2003
Jun 2003
Sep 2003
Jan 2004
May 2008
Jul 2008
Nov 2008
Feb 2009
Oct 2009
Dec 2009
9,000
8,500
8,000
8,000
5,600
6,200 est.
6,200 est.
6,200 est
6,200 est.
5,500
6,100
6,100
6,100
6,100
6,100
6,100
6,100
6,100
6,100 est.
6,100 est.
6,200
6,200
6,200
6,200 est.
6,200 est.
5,500
5,500
5,500
5,600
3,756
3,756
3,756
3,756
3,322
3,322
2,950
2,950
2,950
2,950
2,950
2,900
2,900
2,900
2,900
2,850
2,850
2,850
2,850
2,850
2,850
2,850
2,850
2,850
2,850
n/a
n/a
32,000
32,000
20,000
20,200 est.
20,200 est.
20,200 est.
20,200 est.
21,100
21,000
21,000
21,000
21,000
21,000
21,000
21,000
21,000
21,000 est.
21,000 est.
21,500
21,500
21,500
21,500 est.
21,500 est.
21,000
21,000
21,000
15,200
10,700
10,400
10,400
10,400
n/a
6,000
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
8,000
8,000
6,000
6,000
7,300
9,000 est.
9,000 est.
9,000 est.
9,000 est.
6,700
6,100
6,100
6,100
6,100
6,100
6,100
6,100
6,100
6,100 est.
6,100 est.
7,300
7,300
7,300
7,300 est.
7,300 est.
6,700
6,700
6,700
6,100
6,700
6,700
6,700
6,700
8,000
7,845
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
DP-3
DP-3
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-1
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
GoM
GoM
GoM
GoM
GoM
GoM
GoM
GoM
TBD
TBD
GoM
GoM
GoM
TBD
TBD
GoM
GoM
GoM
GoM
GoM
GoM
GoM
GoM
Mexico
Mexico
Brazil
GoM
Brazil
Brazil
Brazil
Other U.S.
Other U.S.
Other U.S.
Other U.S.
GoM
GoM
GoM
GoM
GoM
GoM
GoM
Mexico
Other U.S.
GoM
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Table of Contents
Name(1)
HOS Beignet ....................................
HOS Boudin .....................................
HOS Bourre' .....................................
HOS Coquille....................................
HOS Cayenne ..................................
HOS Chicory.....................................
200 class (1,500 to 2,500 DWT)
HOS Innovator..................................
HOS Dominator ................................
HOS Deepwater ...............................
HOS Cornerstone .............................
HOS Beaufort ...................................
HOS Hawke......................................
HOS Douglas....................................
HOS Nome .......................................
HOS Crossfire ..................................
HOS Super H....................................
HOS Brigadoon ................................
HOS Thunderfoot .............................
HOS Dakota .....................................
HOS Explorer ...................................
HOS Voyager....................................
HOS Pioneer ....................................
Design
S240 E
S240 E
S240 E
S240 E
S240 E
S240 E
240 E
240 E
240
240
200
200
200
200
200
200
200
200
200
220
220
220
FF—foreign-flagged
TBD—to be determined
Current
Service
Function
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Military
Supply (FF)
Supply
Supply
Well Stimulation (FF)
Supply
Supply
Supply (FF)
Supply
Supply (FF)
Supply (FF)
Supply (FF)
Supply
Supply
Supply
Current
Location
GoM
GoM
Mexico
Mexico
GoM
Mexico
Mexico
Other U.S.
Mexico
GoM
GoM
Mexico
GoM
GoM
Mexico
GoM
Mexico
Mexico
Mexico
GoM
GoM
GoM
In-Service
Date
May 2013(5)
May 2013(5)
Sep 2013(5)
Sep 2013(5)
Nov 2013(5)
Nov 2013(5)
Apr 2001
Feb 2002
Nov 1999
Mar 2000
Mar 1999
Jul 1999
Apr 2000
Aug 2000
Nov 1998
Jan 1999
Mar 1999
May 1999
Jun 1999
Feb 1999
May 1998
Jun 2000
Deadweight
(long tons)
Liquid Mud
Capacity
(barrels)
Brake
Horsepower
DP
Class(2)
2,800
2,700
2,800
2,700
2,800
2,700
2,380
2,380
2,250
2,250
2,250
2,250
2,250
2,250
1,750
1,750
1,750
1,750
1,750
1,607
1,607
1,607
8,000
8,000
8,000
8,000
8,000
8,000
5,500
6,400
6,300
6,300
4,100
4,100
4,100
4,100
3,600
3,600
3,600
3,600
3,600
3,100
3,100
3,100
4,000
4,000
4,000
4,000
4,000
4,000
4,500
4,500
4,500
4,500
4,200
4,200
4,200
4,200
4,000
4,000
4,000
4,000
4,000
3,900
3,900
4,200
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-1
DP-2
DP-1
DP-1
DP-1
DP-1
DP-1
DP-1
DP-1
DP-1
DP-1
DP-1
DP-1
DP-1
(1)
(2)
(3)
(4)
(5)
Excludes one conventional OSV acquired with the Sea Mar Fleet in August 2007. This vessel, the Cape Breton, is considered a non-core asset and is currently
inactive and marketed for sale.
“DP-1,” “DP-2” and “DP-3” mean various classifications, or equivalent, of dynamic positioning systems on new generation vessels to automatically maintain a vessel’s
position and heading.
These vessels are currently being constructed under our fifth OSV newbuild construction program with anticipated in-service dates ranging during 2015 and 2016.
The HOS Riverbend is currently being converted into a 300 class MPSV flotel vessel. Upon re-delivery in the second quarter of 2015, this vessel will be included in
the Company’s MPSV fleet.
These six vessels were converted into 240 class DP-2 OSVs as part of our 200 class OSV retrofit program. These six vessels were originally constructed and placed
in service in their prior 200 class DP-1 configuration in 1999 or 2000 and were acquired by us in August 2007.
We own long-term lease rights to two adjacent shore-base facilities located in Port Fourchon, Louisiana, named
HOS Port. Port Fourchon’s proximity to the deepwater GoM provides a strategic logistical advantage for servicing drilling
rigs, production facilities and other offshore installations and sites. 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 has four years remaining on its current leases and three additional five-year renewal options on each
parcel. The combined acreage of 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 customers’ deepwater logistics requirements, but it underscores
our long-term commitment to and our long-term outlook for the deepwater GoM.
Principal Markets
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. Our core geographic markets are the GoM, Mexico and Brazil. In these markets 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 and to national oil companies such as PEMEX and Petrobras. We also
occasionally operate in select international markets, which have included West Africa, Latin America, the Mediterranean
Sea, the Black Sea and the Caribbean basin. 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. We also provide a specialized application of our new generation
OSVs for use by the United States military.
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 coastwise cabotage laws such
as the Jones Act, can limit the migration of OSVs. Because MPSVs are generally utilized for non-cargo operations, they
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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, the level of drilling permit activity, capital budgets
of offshore exploration and production companies, and repair and maintenance needs in the deepwater oilfield.
Offshore exploration and production activities are increasingly focused on deep wells (as defined by total well depth
rather than water depth), whether on the Outer Continental Shelf or in the deepwater or ultra-deepwater. These types of
wells require high-specification equipment and have resulted in an on-going newbuild cycle for drilling rigs and for OSVs.
As a result of the projected deepwater drilling activity levels worldwide, there were 81 floating rigs under construction or
on order on February 11, 2015 and, as of that date, there were options outstanding to build 34 additional floating rigs. In
addition, on that date, there were 129 high-spec jack-up rigs under construction or on order worldwide, and there were
options outstanding to build 60 additional high-spec jack-up rigs. Each drilling rig working on deep-well projects typically
requires more than one OSV to service it, and the number of OSVs required is dependent on many factors, including the
type of activity being undertaken and the location of the rig. For example, based on the historical data for the number of
floating rigs and OSVs working, we believe that two to four OSVs per rig are required in the GoM and even more OSVs
are necessary per rig in Brazil where greater logistical challenges result in longer vessel turnaround times to service drill
sites. Typically, during the initial drilling stage, more OSVs are required to supply drilling mud, drill pipe and other materials
than at later stages of the drilling cycle. In addition, generally more OSVs are required the farther a drilling rig is located
from shore. Under normal weather conditions, the transit time to deepwater drilling rigs in the GoM and Brazil can typically
range from six to 24 hours for a new generation vessel. In Brazil, transit time for a new generation vessel to some of the
newer, more logistically remote deepwater drilling rig locations are more appropriately measured in days, not hours. In
addition to drilling rig support, deepwater and ultra-deepwater exploration and production activities will result in the
expansion of other specialty-service offerings for our vessels. These markets include subsea construction support,
installation, IRM work, and life-of-field services, which include well-stimulation, workovers and decommissioning.
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 sometimes 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 U.S.
Navy charters are the product of a competitive procurement process conducted by the Military Sealift Command as well
as sole source selections based upon certain capabilities that are unique to the Company. 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
The offshore support vessel industry is highly competitive. Competition primarily involves such factors as:
•
•
•
•
•
quality, capability and age of vessels;
quality, capability and nationality of the crew members;
ability to meet the customer’s schedule;
safety record, reputation, experience and;
price.
Our high-spec OSVs are predominately U.S.-flagged vessels, which qualify them 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 including its territories, like Puerto Rico.
The transportation services typically provided by OSVs constitute coastwise trade as defined by the Jones Act.
Consequently, competition for our services in the GoM 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 by DWT of new generation Jones Act-
qualified OSVs in the United States. See "Item 1A-Risk Factors" 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
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our international competitors may benefit from a lower cost basis in their vessels, which are usually not constructed in
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 temporary 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.
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. Consequently, our MPSVs face, and the
HOSMAX MPSVs to be constructed under our fifth OSV newbuild program will face, competition from both foreign-flagged
vessels and U.S.-flagged vessels for non-coastwise trade activities. However, because our MPSVs will be Jones Act-
qualified, we believe our customers will achieve greater efficiency as our MPSVs will eliminate the need for customers to
separately charter a Jones Act-qualified vessel to transport project cargo from a U.S. point to an installation site. In
addition, our U.S.-flagged MPSVs will compete for projects with other international MPSVs as well as participate in the
GoM and international OSV markets as large-capacity carriers of drilling fluids, petroleum products and deck cargos in
support of deep-well exploration, development and production operations. Competition in the MPSV industry is
significantly affected by the particular capabilities of a vessel to meet the requirements of a customer’s project. 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. However, we
have, for some time, observed a clear preference by our customers for a “one-stop” Jones Act solution, which would
provide improved efficiencies, derived from a single U.S.-flagged vessel as well as greater regulatory certainty as
compliance questions continue to arise from the use of foreign-flagged vessels in the subsea GoM. In the post-Macondo
GoM, we see this Jones Act preference as a long-term trend, not only for construction vessels but for vessels of all types
working offshore.
We continue to observe intense scrutiny by our customers on the safety and environmental management systems of
vessel operators. As a consequence, we believe that deepwater customers are increasingly biased towards companies
that have demonstrated a financial and operational commitment and capacity to employ such systems. We believe this
trend will, over time, make it difficult for small enterprises to compete effectively in the deepwater OSV and MPSV
markets. Additionally, we have observed less willingness by operators to utilize DP-1 vessels in deepwater operations in
the GoM. This trend will likely result in the retirement of non-DP vessels and a migration of DP-1 vessels to non-
deepwater regions, such as the shelf, and certain international regions. In 2014, Pemex announced its intention to use
only vessels that are less than 15 years old. A recent tender included this age requirement, we and other market
participants in Mexico have challenged this restriction.
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 financial strength, operating capabilities and reputation for quality
and safety enable us to compete effectively with other fleets in the market areas in which we operate or intend to 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 high-spec new generation OSVs range from less than one year to 16 years with
weighted-average age, based on DWT, of less than six years. In fact, over 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 35 years. We believe that most of these older vessels are cold-stacked and many of them have
been or 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, greater customer interest in deep-well, deepwater and ultra-deepwater drilling activity. Upon completion of our
fifth OSV newbuild program, we expect to own a fleet of 72 Upstream vessels of which 81% will be DP-2 or DP-3 with a
weighted-average age, based on DWT, of seven years in 2016.
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.
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Discontinued Operations
Historically, we had operated our business in two segments, an Upstream segment and a Downstream segment.
Through our Downstream segment, we previously operated nine double-hulled tank barges and nine ocean-going tugs
and provided marine transportation, distribution and logistics services primarily in the northeastern United States, GoM,
Great Lakes and Puerto Rico. On August 29, 2013, we closed the sale of substantially all of the assets and business of
our Downstream segment's tug and tank barge fleet to Genesis Marine, LLC, an affiliate of Genesis Energy L.P.
(NYSE:GEL), for net cash proceeds of approximately $227.5 million, after deal costs. The net proceeds of this asset sale
have been reinvested in the construction of vessels under our fifth OSV newbuild program. The sale resulted in a gain of
$60.0 million ($38.1 million after-tax or $1.04 per diluted share). Excluded from the sale were three older, lower-
horsepower tugs considered to be non-core assets, all of which were later sold to different buyers on various dates in
2014 at nominal gains. The historical results for the Downstream segment and the gain on the sale of the segment have
been presented as discontinued operations for all periods in the accompanying condensed consolidated financial
statements.
CUSTOMER DEPENDENCY
Our customers are generally limited to large, independent, integrated or nationally-owned energy companies. These
firms are relatively few in number. 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, 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, 2014, Royal Dutch Shell plc (including worldwide affiliates) accounted for 10% or more
of our consolidated revenues. For a discussion of significant customers in prior periods, see Note 12 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 future 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 and could
have a material adverse effect on our financial condition, results of operations or cash flows. We believe that we are in
substantial compliance with currently applicable environmental laws and regulations.
OPA 90 and regulations promulgated pursuant thereto amend and augment the oil spill provisions of the Clean
Water Act and impose a variety of duties and liabilities on “responsible parties” related to the prevention and/or reporting
of oil spills and damages resulting from such spills in or threatening U.S. Waters, including the Outer Continental Shelf or
adjoining shorelines. 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 containment and oil removal costs, as well as a variety of public and private damages including the costs of
responding to a release of oil, natural resource damages, damages for injury to, or economic losses resulting from,
destruction of real or personal property of persons who own or lease such affected property. 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, for vessels carrying crude oil from a well
situated on the Outer Continental Shelf, the limits apply only to liability for damages. The owner or operator of such vessel
is liable for all removal costs resulting from a discharge without limits. 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.
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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 Marine Spill Response Corporation to serve as
our Oil Spill Removal Organization for purposes of providing oil spill removal resources and services for our operations in
U.S. waters as required by the U.S. Coast Guard. In addition, our Tank Vessel Response Plan and Non-Tank Vessel
Response Plan have been approved by the U.S. Coast Guard.
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, including the costs of restoring damaged natural resources. 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 used in drilling activities and liquid mud, which contain oil and oil
by-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
treatment, storage and 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 published its final Ballast Rule on March 23, 2012, which became effective on
June 21, 2012, and the United States EPA renewed the Vessel General Permit under the National Pollutant Discharge
Elimination System on December 19, 2013. These regulations require all our existing vessels to meet certain standards
pertaining to ballast water discharges, on or before certain dates between January 2014 and January 2016. An
exemption to certain compliance requirements is provided for vessels that operate within an isolated geographic region,
as determined by the United States Coast Guard. Most of our vessels operating in the GoM are exempt from the ballast
water treatment requirements. However, for vessels that do not so operate, ballast water treatment equipment may be
required to be utilized on the vessel. The cost of compliance with this higher standard is expected to be approximately
$250,000 per vessel that may be fitted with a system.
The EPA also 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 decision to regulate “greenhouse gases” as a pollutant may result in further regulations and
compliance costs.
Climate Change
Greenhouse gas emissions have increasingly become the subject of international, national, regional, state and local
attention. The EPA has adopted regulations under the Clean Air Act that require new and existing industrial facilities to
obtain permits for carbon dioxide equivalent emissions above emission thresholds. In addition, the EPA adopted rules that
mandate reporting of greenhouse gas data and other information by i) industrial sources, ii) suppliers of certain products,
and iii) facilities that inject carbon dioxide underground. To the extent that these regulations may apply, we could be
responsible for costs associated with complying with such regulations. Cap and trade initiatives to limit greenhouse gas
emissions have been introduced in the European Union. Similarly, numerous bills related to climate change have been
introduced in the U.S. Congress, which could adversely impact most industries. In addition, future regulation of
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greenhouse gas could occur pursuant to future treaty obligations, statutory or regulatory changes or new climate change
legislation in the jurisdictions in which we operate. It is uncertain whether any of these initiatives will be implemented.
However, based on published media reports, we believe that it is unlikely that the current proposed initiatives in the U.S.
will be implemented without substantial modification. If such initiatives are implemented, we do not believe that such
initiatives would have a direct, material adverse effect on our operating results.
Restrictions on greenhouse gas emissions or other related legislative or regulatory enactments could have an effect
in those industries that use significant amounts of petroleum products, which could potentially result in a reduction in
demand for petroleum products and, consequently and indirectly, our offshore transportation and support services. We are
currently unable to predict the manner or extent of any such effect. Furthermore, one of the asserted long-term physical
effects of climate change may be an increase in the severity and frequency of adverse weather conditions, such as
hurricanes, which may increase our insurance costs or risk retention, limit insurance availability or reduce the areas in
which, or the number of days during which, our customers would contract for our vessels in general and in the GoM in
particular. We are currently unable to predict the manner or extent of any such effect.
EMPLOYEES
On December 31, 2014, we had 1,641 employees, including 1,326 operating personnel and 315 corporate,
administrative and management personnel. Excluded from these personnel totals are 235 third-country nationals that we
contracted to serve on our vessels as of December 31, 2014. These non-U.S. mariners are typically provided by
international crewing agencies. With the exception of our employees in Brazil and Mexico, 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.
GEOGRAPHIC AREAS
The table below presents revenues by geographic region for the past three fiscal years (in thousands):
United States ........................................................... $
International .............................................................
$
Year Ended December 31,
2014
2013
2012
490,314 $
144,479
634,793 $
415,898 $
132,247
548,145 $
301,430
161,879
463,309
The table below presents net property, plant and equipment by geographic region for the past three fiscal years (in
thousands):
United States ................................................................ $
International ..................................................................
2,052,145 $
1,913,293 $
407,341
212,081
$
2,459,486 $
2,125,374 $
2014
December 31,
2013
2012
1,250,305
393,318
1,643,623
Foreign Operations
Operating in foreign markets present many political, social and economic challenges. Although we take measures
to mitigate these risks, they cannot be completely eliminated. See "Item—1A Risk Factors" for a further discussion of the
risks of operating in foreign markets.
SEASONALITY
Demand for our offshore support services is directly affected by the levels of offshore drilling and production activity.
Budgets of many of our customers are based upon a calendar year, and demand for our 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
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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 vessels to survey and repair offshore infrastructure immediately following major
hurricanes or other named storms in the GoM.
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. Periodically, we also update our investor
presentations which can be viewed on our website. 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, Code of Conduct (which
applies to all employees, including our Chief Executive Officer and certain Financial and Accounting Officers), Code of
Business Conduct and Ethics for Members of the Board of Directors, 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 Code of Conduct 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.
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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 ii 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.
As a result of the recent declines in oil prices that began in late 2014 and have continued into 2015, our clients
will likely reduce spending on exploration and production projects, resulting in a decrease in demand for our
services.
Oil and natural gas prices, and market expectations of potential changes in these prices, significantly impact the level
of worldwide drilling and production services activities. Reduced demand for oil and natural gas or periods of surplus oil
and natural gas generally result in lower prices for these commodities and often impact the economics of planned drilling
projects and ongoing production projects, resulting in the curtailment, reduction, delay or postponement of such projects
for an indeterminate period of time. When drilling and production activity and spending declines, both vessel dayrates and
utilization for our vessels historically decline as well.
In recent months, beginning in October 2014, oil prices worldwide have dropped significantly. If the current
depressed oil and natural gas prices persist for a prolonged period, or decline further, oil and gas exploration and
production companies are likely to cancel or curtail their drilling programs and lower production spending on existing wells
even more than they have already, thereby further reducing demand for our services.
Any prolonged reduction in the overall level of exploration and development activities, whether resulting from
changes in oil and gas prices or otherwise, could materially and adversely affect us by negatively impacting:
• our revenues, cash flows and profitability;
•
the fair market value of our vessels;
• our ability to maintain or increase our borrowing capacity;
• our ability to obtain additional capital to finance our business and make acquisitions, and the cost of that
capital;
•
the collectability of our receivables; and
• our ability to retain skilled personnel whom we would need in the event of an upturn in the demand for our
services.
If any of the foregoing were to occur, it could have a material adverse effect on our business and financial results.
Increases in the supply of vessels could decrease dayrates.
In addition to our fifth OSV newbuild program, 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 the
GoM, one of our core markets. Similarly, vessel capacity in foreign markets, including our core markets of Mexico and
Brazil, may also be impacted by U.S.-flagged or other vessels migrating to such foreign locations. 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. Because some services provided by MPSVs are not protected by the Jones
Act, foreign competitors may bring additional MPSVs to the GoM or build additional MPSVs that we will compete with
domestically or internationally.
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The failure to successfully complete our fifth OSV newbuild program or repairs, maintenance and routine
drydockings on-schedule and on-budget could adversely affect our financial condition and results of operations.
In November 2011, we commenced and later expanded our fifth OSV newbuild program. We have contracted with
three domestic shipyards on the Gulf Coast to construct a total of 19 new generation, high-spec OSVs, 14 of which have
already been delivered, and six MPSVs, one of which has been delivered. We routinely engage shipyards to drydock our
vessels for regulatory compliance and to provide repair and maintenance. Our vessel newbuild program 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, including costs of steel, inability to obtain necessary certifications and approvals and
shortages of materials or skilled labor. Significant delays under our fifth OSV newbuild program could have a material
adverse effect on anticipated contract commitments or anticipated revenues. Further, significant delays with respect to
other possible newbuild programs or the conversion or drydockings of vessels could result in similar adverse effects to our
anticipated contract commitments or revenues. Significant cost overruns or delays for vessels under construction not
adequately protected by liquidated damages provisions, in general could adversely affect our financial condition and
results of operations.
Additional reductions in Petrobras' announced plans for exploration and production activities offshore
Brazil could have a material adverse effect on the market for high-spec OSVs.
Petrobras accounts for a substantial portion of global deepwater drilling activity and has publicly announced plans to
reduce its investment in exploration and production activities by roughly $10 billion. This reduction and any decision by
Petrobras to further reduce the scope or pace of its announced exploration and production plans offshore Brazil could
negatively impact the worldwide market for high-spec OSVs and could have a material adverse effect on our financial
condition and results of operations.
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
Changes in, among others, the following factors can negatively impact our performance:
• worldwide demand for oil and natural gas;
•
•
•
•
•
•
•
•
•
•
prevailing oil and natural gas prices and expectations about future prices and price volatility;
changes in capital spending budgets by our customers;
the ability of oil and gas companies to generate or otherwise obtain funds for exploration and production;
local and international political and economic conditions and policies;
unavailability of drilling rigs in our core markets of the GoM, Mexico and Brazil;
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;
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;
technological advances affecting energy production and consumption;
• weather conditions; and
•
environmental and other regulation affecting our customers and their other service providers.
Since late 2014 we have observed a significant decline in oil prices, which has caused oil companies to announce
and implement significant reductions in their capital spending programs, upon which much of our business activities
depend. A prolonged reduction in oil prices could have a significant adverse and long-term impact on the Company’s
financial condition and results of operations.
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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, 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. Similarly, competition in various markets may also be impacted by
U.S.-flagged vessels migrating in and out of foreign locations due to the pace of drilling permit activity in the GoM.
Moreover, customer demand for vessels under our fifth OSV newbuild program 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.
We may not have the funds available or be able to obtain the funds necessary to meet the obligations relating to
our fifth OSV newbuild program, our 2019 convertible senior notes, our 2020 senior notes, or our 2021 senior
notes.
Under our fifth OSV newbuild program, we are spending approximately $1,265 million, excluding capitalized
construction period interest, for the construction of vessels currently under contract, of which $1,032.4 million has been
paid as of December 31, 2014. The amounts required to fund our fifth OSV newbuild program represent a substantial
capital commitment. We expect the remaining obligations relating to this newbuild program to be paid, over time through
2016, based on construction milestones. Our 2019 convertible senior notes, our 2020 senior notes, and our 2021 senior
notes, which collectively have a face value of $1,125 million, mature in September 2019, April 2020, and March 2021,
respectively. In addition, upon the occurrence of certain change of control events, as defined in the indentures governing
the 2020 senior notes and the 2021 senior notes, holders of such notes would have the right to require us to repurchase
such notes at 101% of their principal amount, plus accrued and unpaid interest. Further, upon certain fundamental
changes as defined in the indenture governing the 2019 convertible senior notes, holders of such notes would have the
right to require us to repurchase such notes at 100% of their principal amount, plus any accrued and unpaid interest. To
the extent that our cash on hand and cash flow from operations are not sufficient to meet these obligations, we plan to
borrow on our currently undrawn credit facility, sell non-core assets and arrange for additional financing. Nevertheless,
there can be no assurance that we will be able to sell our non-core assets or arrange for additional financing on
acceptable terms. Failure to meet our obligations related to our fifth OSV newbuild program, our 2019 convertible senior
notes, our 2020 senior notes, and our 2021 senior notes may result in the acceleration of our other indebtedness and
result in a material adverse effect 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:
•
•
•
•
•
•
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;
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•
•
•
dilution of stock ownership of existing stockholders;
increased costs and efforts in connection with compliance with Section 404 of the Sarbanes-Oxley Act; and
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 controls 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.
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. In addition, during the current and prior downturns, we have experienced customers
requesting contractual concessions even though contrary to existing contractual terms. While not legally required to give
concessions, commercial considerations may dictate that we do so, given the relatively few deepwater customers
operating in the GoM.
Our contracts with the United States Government could be impacted by budget cuts.
Our government contracts depend upon annual funding commitments authorized by Congress. In a period of
government budget cuts or other political events, our contracts might not be re-authorized, resulting in a decline in our
anticipated revenues.
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 EPA 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 Coast Guard and Customs Service are authorized to inspect vessels at will. Our operations are also
subject to international conventions, 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, and/or operational changes. While we
endeavor to comply with all applicable laws, circumstances might exist where we might not come into complete
compliance with applicable laws and regulations which could 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 applicable
conventions or laws, regulations or standards that would impose additional requirements or restrictions on our or our oil
and gas exploration and production customers’ operations could adversely affect our financial condition and results of
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operations. It is possible that laws and regulations may become even more stringent, which could also 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 or MPSVs 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. 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 or
MPSVs. 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. A corporation is not considered a U.S. citizen unless, among other things, at
least 75% of the ownership of voting interests with respect to its equity securities are held 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 maintain compliance with these laws. If we are determined at any time not to be in compliance with these
citizenship requirements, our vessels might 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 been circumvented
in recent years 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. In addition, the Jones Act is often criticized and there are efforts underway by affected interest groups
to seek its repeal. For instance, Senator John McCain recently introduced legislation, that was subsequently withdrawn,
seeking to repeal the Jones Act. 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 waivers are granted from time-to-time.
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:
•
•
catastrophic marine disaster;
adverse weather and sea conditions;
• mechanical failure;
•
•
•
•
collisions or allisions;
oil and hazardous substance spills;
navigation errors;
acts of God; and
• war and terrorism.
The occurrence of any of these events may result in damage to or loss of our vessels or other property, injury or
death of people or contamination of the environment. 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 adequate 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.
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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.
Our operations in international markets and shipyard activities in foreign shipyards subjects us to risks inherent
in conducting business internationally.
We derive a 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. In addition, our foreign
customers are often large state-owned oil companies that have monopolies or near monopolies in their home countries.
These companies sometimes impose contractual requirements or restrictions that cannot be negotiated away and that
can impose sigificant operating risks upon us. We have attempted to challenge these contractual actions in foreign
markets, which entails significant risks.
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.
Further, we face strong competition within the broader oilfield industry for potential employees, including competition from
drilling rig operators for our fleet personnel. As the vessels being constructed in our fifth OSV newbuild program are
delivered and placed in service, we may not be able to hire employees or find suitable replacements. With a reduced pool
of workers, it is possible that we will have to raise wage rates to attract 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
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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 2020 senior notes, our 2021 senior notes, 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 indenture governing our 2020 senior notes, in the indenture governing our 2021 senior
notes and in the agreement governing our revolving credit facility require us to meet certain financial tests, which may limit
or otherwise restrict:
•
•
•
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 is currently being
experienced, from weather interruptions or other causes can have a significant negative effect on our operating results
and financial condition.
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 various forms of guidance, which reflect our projections
about future market expectations and operating performance. The numerous assumptions underlying such guidance 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, particularly with respect to our MPSVs.
We are susceptible to unexpected increases in operating expenses such as crew wages, materials and supplies,
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 be adversely affected by uncertainty in the global financial markets.
Our future results may be impacted by volatility, weakness or 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
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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.
Any significant softening in the already limited global economic recovery may adversely impact our ability to issue
additional debt and equity in the future on acceptable terms. 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.
Future changes in legislation, policy, restrictions or regulations for drilling in the United States that cause delays
or deter new drilling could have a material adverse effect on our financial position, results of operations and cash
flows.
In response to the April 20, 2010, Deepwater Horizon incident, the regulatory agencies with jurisdiction over oil and
gas exploration, including the DOI, imposed temporary moratoria on drilling operations, by requiring operators to reapply
for exploration plans and drilling permits that had previously been approved, and by adopting numerous new regulations
and new interpretations of existing regulations regarding offshore operations that are applicable to our customers and with
which their new applications for exploration plans and drilling permits must prove compliant. Compliance with these new
regulations and new interpretations of existing regulations have materially increased the cost of drilling operations in the
GoM. These additional compliance costs could materially adversely impact our business, financial position or results of
operations.
The fundamental change purchase feature of our 2019 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 2019 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.
The convertible note hedge transactions may affect the value of our common stock.
In connection with the original issuance of our 2019 convertible senior notes, we entered into convertible note hedge
transactions with counterparties that include the initial purchasers or their affiliates. The convertible note hedge
transactions cover, subject to customary anti-dilution adjustments, the aggregate number of shares of our common stock
that initially underlie the notes, and are expected to reduce the potential equity dilution, and/or offset cash payments due,
upon conversion of the notes in the event the volume-weighted average price of our common stock on each trading day of
the relevant conversion period or other relevant valuation period is greater than the strike price of the convertible note
hedge transactions. Concurrently with entering into the convertible note hedge transactions, we also entered into separate
warrant transactions with the same counterparties relating to the same number of shares of our common stock, subject to
customary anti-dilution adjustments, pursuant to which we sold warrants to the counterparties. If the warrants are
exercised, such exercise would mitigate some of the reduction upon exercise of the convertible note hedge transactions,
and could have a dilutive effect on our earnings per share to the extent that the volume-weighted average price of our
common stock during the measurement period at maturity of the warrants exceeds the strike price of the sold warrants.
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In connection with establishing their initial hedges of these transactions, such counterparties or their affiliates
entered into various cash-settled over-the-counter derivative transactions with respect to our common stock. The
counterparties or their affiliates may modify their hedge positions by unwinding these derivative transactions, entering into
or unwinding additional cash-settled over-the-counter derivative transactions and/or purchasing or selling our common
stock or other of our securities in secondary market transactions from time to time following the pricing of the notes and
prior to maturity of the notes (and are likely to do so during any conversion period related to any conversion of the notes).
The potential 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 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.
We do not make any representation or prediction as to the direction or magnitude of any potential effect that the
transactions described above may have on the price of our common stock. In addition, we do not make any
representation that the counterparties to those transactions will engage in these transactions or activities or that these
transactions and activities, once commenced, will not be discontinued without notice; the counterparties or their affiliates
may choose to engage in, or discontinue engaging in, any of these transactions or activities with or without notice at any
time, and their decisions will be in their sole discretion and not within our control.
We are subject to counterparty risk with respect to the convertible note hedge transactions.
The counterparties to the convertible note hedge transactions are financial institutions, and we will be subject to the
risk that any or all of them might default under the convertible note hedge transactions. Our exposure to the credit risk of
the counterparties will not be secured by any collateral. Global economic conditions experienced between 2008 and 2010
resulted in the actual or perceived failure or financial difficulties of many financial institutions. If a counterparty becomes
subject to insolvency proceedings, we will become an unsecured creditor in those proceedings, with a claim equal to our
exposure at that time under our transactions with that counterparty. Our exposure will depend on many factors but,
generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our
common stock. In addition, upon a default by a counterparty, we may suffer adverse tax consequences and more dilution
than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability
or viability of the counterparties to the convertible note hedge transactions.
Conversion of the 2019 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 2019 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 our convertible 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 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. Current accounting standards require us to use the treasury
method for determining potential dilution in our diluted earnings per share computation since it is our intention to settle the
principal amount of the notes in cash. However, if due to changes in facts and circumstances beyond our control such
intention were to change, or it becomes probable that we will be unable to settle the principal in cash, we could be
required to change our methodology for determining fully diluted earnings per share to the if-converted method. The if-
converted method would result in a substantial dilutive effect on diluted earnings per share compared to the treasury
method.
Our stock price has been volatile, declining precipitously from time to time during the period from 2008 through
the present, and it could decline again.
The securities markets in general and our common stock in particular have experienced significant price and volume
volatility in recent years. The market price and trading volume of our common stock may continue to experience
significant fluctuations due not only to general stock market conditions but also to a change in sentiment in the market
regarding our operations or business prospects or those of companies in our industry. In addition to the other risk factors
discussed above, the price and volume volatility of our common stock may be affected by:
• operating results that vary from the expectations of securities analysts and investors;
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•
factors influencing the levels of global oil and natural gas exploration and exploitation activities, such as
depressed prices for oil or natural gas;
• disasters such as the Deepwater Horizon incident in the Gulf of Mexico in 2010;
•
the operating and securities price performance of companies that investors or analysts consider
comparable to us;
• actions by rating agencies related to the our our 2019 convertible senior notes, our 2020 senior notes, or
our 2021 senior notes;
• announcements of strategic developments, acquisitions and other material events by us or our
competitors; and
• changes in global financial markets and global economies and general market conditions, such as
interest rates, commodity and equity prices and the value of financial assets.
ITEM 1B—Unresolved Staff Comments
None.
ITEM 2—Properties
Our principal executive offices are in Covington, Louisiana, where we lease approximately 65,000 square feet of
office space under a lease with an initial term expiring in September 2025 and three additional five-year renewal periods.
Our primary domestic operating office is located in Port Fourchon, Louisiana. We also maintain four international offices
from which we operate our fleet of vessels in Mexico and Brazil, as set forth below. 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, 2014 are as follows:
Description
Area Using Property
Location
Corporate
Covington, Louisiana, USA ........................................ Corporate Headquarters
Hammond, Louisiana, USA ....................................... Warehouse
GoM
Port Fourchon, Louisiana, USA ................................. Dock, Office, Warehouse, Yard GoM
Paraiso, Tabasco, Mexico.......................................... Office
Ciudad Del Carmen, Campeche, Mexico .................. Office
Barra da Tijuca, Rio de Janeiro, Brazil ...................... Office
Macae, Rio de Janeiro, Brazil .................................... Office
Houston, Texas, USA................................................. Office
Mexico
Mexico
Brazil
Brazil
GoM
Owned/
Leased
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
In addition to the foregoing, our revenues are principally derived from our vessels described in "Item 1—Business" of
this Annual Report on Form 10-K.
Item 3—Legal Proceedings
The Company has made presentment of a claim to BP in the class action lawsuit arising from the Deepwater
Horizon tragedy. Doing so has allowed the Company to preserve claims against BP under OPA 90 assuming the
Company has claims that are compensable under the court-approved settlement reached between BP and class action
plaintiffs.
In 2013, the Company voluntarily reported to federal and state authorities two incidents involving the improper
discharge of limited amounts of water containing oil residues into the environment and in 2014 it voluntarily reported the
discharge of sewage from a vessel. Since its reports, the Company has been advised with respect to the sewage
discharge that a federal investigation has been closed. The Company has not been contacted or otherwise informed of
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the initiation of legal proceedings regarding the 2013 incidents. A further discussion of current legal proceedings is set
forth in Note 10 to our consolidated financial statements.
Item 4—Mine Safety Disclosures
None.
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 periods indicated, the high and low sale prices for our common
stock as reported by the NYSE during 2014 and 2013.
2014
2013
High
Low
High
Low
First Quarter ........................................................................ $
Second Quarter .................................................................. $
Third Quarter ...................................................................... $
Fourth Quarter .................................................................... $
49.04 $
47.08 $
47.45 $
33.54 $
38.17 $
37.44 $
32.46 $
19.16 $
46.75 $
56.13 $
59.40 $
59.93 $
34.82
39.25
52.62
47.02
On January 31, 2015, we had 26 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. In October 2014, our Board of Directors approved the buyback of up to $150 million of
our common stock. We presently intend to retain all additional cash that our business generates to meet our working
capital requirements, retire debt, buy our common stock and fund future growth. Any future payment of cash dividends or
stock repurchases 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 2020 senior notes, our 2021 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 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.
Repurchase of Common Stock
On October 28, 2014, our Board of Directors authorized us to repurchase up to $150 million in shares of our
common stock using different methods including, but not limited to, open-market purchases, privately negotiated
transactions, accelerated share repurchases and Rule 10b5-1 trading plans. The timing and amount of the repurchases
depends on several factors, such as market conditions, applicable legal requirements, available liquidity, the discretion of
management and other appropriate factors. The repurchase program does not obligate us to acquire any particular
amount of common stock and may be modified, suspended or discontinued at any time. As of December 31, 2014, we
had repurchased and retired 891,396 shares at an average price of $28.05 per share. The repurchased shares cost a
total of $25 million and represent roughly 2.5% of our total shares outstanding prior to the commencement of the program.
As of February 11, 2015, no additional shares had been repurchased.
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The following table provides information with respect to purchases of common stock under the repurchase program
during the fourth quarter of the year ended December 31, 2014 (in thousands, except for per share data):
Period
Total Number
of Shares
Purchased
Average
Price Paid
per Share
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
Maximum
Number (or
Approximate
Dollar Value)
of Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
October 1, 2014 - October 31, 2014..........................
November 1, 2014 - November 30, 2014 ..................
December 1, 2014 - December 31, 2014 ..................
— $
618 $
273 $
—
28.92
26.06
— $
618 $
891 $
150,000
132,117
125,000
25
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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 years ended December 31, 2014, 2013,
2012, 2011 and 2010, 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.
On August 29, 2013, we closed the sale of substantially all of the assets and business of our Downstream segment's tug and
tank barge fleet to Genesis Marine, LLC. The historical results for the Downstream segment and the gain on the sale of that
segment have been presented as discontinued operations for all periods in the Selected Historical Consolidated Financial
Information presented herein. See Note 13 of the Consolidated Financial Statements for more information.
Statement of Operations Data:
Revenues ................................................................................................................................ $
Operating expenses ................................................................................................................
Depreciation and amortization .................................................................................................
General and administrative expenses .....................................................................................
Gain (loss) on sale of assets ...................................................................................................
Operating income ....................................................................................................................
Loss on early extinguishment of debt ......................................................................................
Interest income ........................................................................................................................
Interest expense ......................................................................................................................
Other income (expenses)(1) .....................................................................................................
Income (loss) before income taxes ..........................................................................................
Income tax expense (benefit) ..................................................................................................
Income (loss) from continuing operations ................................................................................
Income from discontinued operations, net of tax .....................................................................
Net income (loss) .....................................................................................................................
Per Share Data:
Basic earnings (loss) per common share from continuing operations ..................................... $
Basic earnings per common share from discontinued operations ...........................................
Basic earnings (loss) per common share ................................................................................ $
Diluted earnings (loss) per common share from continuing operations................................... $
Diluted earnings per common share from discontinued operations.........................................
Diluted earnings (loss) per common share .............................................................................. $
Weighted average basic shares outstanding ...........................................................................
Weighted average diluted shares outstanding(2) ......................................................................
Balance Sheet Data (at period end):
Cash and cash equivalents...................................................................................................... $
Working capital(3) .....................................................................................................................
Property, plant, and equipment from continuing operations, net..............................................
Property, plant, and equipment from discontinued operations, net..........................................
Total assets(4) ...........................................................................................................................
Total short-term debt(5) .............................................................................................................
Total long-term debt(6) ..............................................................................................................
Total stockholders’ equity.........................................................................................................
Statement of Cash Flows Data:
Net cash provided by (used in) continuing operations:
2014
634,793
296,500
115,450
54,245
822
169,420
—
1,086
30,733
501
140,274
52,367
87,907
618
88,525
2.43
0.02
2.45
2.40
0.01
2.41
36,172
36,692
185,123
299,097
2,459,486
—
2,922,451
—
1,073,472
1,370,765
Operating activities ......................................................................................................... $
Investing activities ..........................................................................................................
Financing activities .........................................................................................................
163,106
(401,515)
(19,664)
Net cash provided by (used in) discontinued operations:
Operating activities ......................................................................................................... $
Investing activities ..........................................................................................................
2,374
1,638
Other Financial Data (unaudited):
EBITDA(7) ................................................................................................................................. $
Capital expenditures ................................................................................................................
Other Operating Data (unaudited)(8):
Average number of new generation OSVs(9) ...........................................................................
Average number of active new generation OSVs(10) ................................................................
Average new generation OSV fleet capacity (DWT)................................................................
Average new generation OSV vessel capacity (DWT) ............................................................
Average new generation OSV utilization rate(11) ......................................................................
Average new generation OSV dayrate(12) ................................................................................ $
Effective dayrate(13) .................................................................................................................. $
26
285,371
408,693
57.4
56.6
177,033
3,076
Year Ended December 31,
2012
2011
2013
2010
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
548,145
239,239
85,962
53,428
1,587
171,103
(25,776)
2,515
47,352
(92)
100,398
36,320
64,078
47,315
111,393
1.79
1.31
3.10
1.76
1.29
3.05
35,895
36,548
439,291
518,959
2,125,374
759
2,834,280
—
1,064,092
1,295,428
207,067
(526,630)
(61,344)
15,368
228,689
231,197
542,651
50.7
50.3
132,564
2,609
$
$
$
$
$
$
$
$
$
463,309
226,462
73,675
45,178
(350)
117,644
(6,048)
2,167
57,869
185
56,079
21,384
34,695
2,322
37,017
0.98
0.07
1.05
0.97
0.06
1.03
35,311
36,080
576,678
388,004
1,643,623
168,487
2,631,731
238,907
850,530
1,165,845
128,865
(255,323)
334,391
13,847
(1,772)
185,456
258,325
51.0
48.3
128,190
2,514
$
$
$
$
$
$
$
$
$
330,836
177,868
67,910
32,327
980
53,711
—
829
59,649
231
(4,878)
(1,358)
(3,520)
959
(2,561)
(0.12)
0.03
(0.09)
(0.12)
0.03
(0.09)
27,876
27,876
356,849
401,216
1,431,414
174,371
2,136,346
—
770,648
1,072,988
52,582
(62,889)
228,830
11,068
675
121,852
72,176
51.0
41.8
128,190
2,514
374,527
166,349
64,685
34,295
986
110,184
—
528
55,183
104
55,633
20,655
34,978
1,438
36,416
1.33
0.05
1.38
1.29
0.05
1.34
26,396
27,176
126,966
162,156
1,421,151
184,970
1,878,425
—
758,233
841,877
126,145
(56,434)
1,866
4,186
129
174,973
59,121
49.9
42.4
124,965
2,507
71.6%
21,561
15,438
79.6%
83.7%
83.2%
71.5%
27,416
21,823
$
$
26,605
22,268
$
$
23,445
19,506
$
$
21,121
15,102
$
$
Table of Contents
(1) Represents other operating income and expenses, including equity in income from investments and foreign currency transaction gains or losses.
(2)
For the years ended December 31, 2014, 2013 and 2012, the Company had no anti-dilutive stock options. Due to a net loss, we excluded, for the calculation of
loss per share, the effect of equity awards representing the rights to acquire 1,209 shares of common stock for the year ended December 31, 2011 because the
effect was anti-dilutive. For the year ended December 31, 2010, stock options representing rights to acquire 400 shares 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
about diluted shares outstanding.
Includes working capital (deficit) from discontinued operations in the amount of $469, $1,461, $(1,750), $210, $(677), and as of December 31, 2014, 2013, 2012,
2011 and 2010, respectively.
Includes total assets from discontinued operations in the amount of $470, $2,337, $176,277, $183,472 and $195,464 as of December 31, 2014, 2013, 2012,
2011 and 2010, respectively.
Excludes imputed original issue discount associated with our 2026 convertible senior notes in the amount of $11,093 as of December 31, 2012. These notes
were putable by the holders to the Company on November 15, 2013 and therefore were classified as short-term debt. These notes were converted or redeemed
in full by the Company in November 2013.
Excludes original issue discount associated with our 2014 senior notes in the amount of $215 and $279 as of December 31, 2011 and 2010, respectively;
original issue discount associated with our 2017 senior notes in the amount of $4,771, $5,571 and $6,305 as of December 31, 2012, 2011 and 2010,
respectively; imputed original issue discount associated with our 2026 convertible senior notes in the amount of $23,566 and $35,183 as of December 31, 2011,
and 2010, respectively; and imputed original issue discount associated with our 2019 convertible senior notes in the amount of $51,528, $60,908 and $69,699
as of December 31, 2014, 2013 and 2012, respectively.
See our discussion of EBITDA as a non-GAAP financial measure immediately following these footnotes.
Excluded from the Other Operating Data are the results of operations for our MPSVs, our shore-base facility, and vessel management services. Due to the fact
that each of our MPSVs have a workload capacity and significantly higher income generating potential than each of our new generation OSVs, the utilization and
dayrate levels of our MPSVs could have a very large impact on our results of operations. For this reason, our consolidated operating results, on a period-to-
period basis, are disproportionately impacted by the level of dayrates and utilization achieved by our five MPSVs.
(3)
(4)
(5)
(6)
(7)
(8)
(9) We owned 61 new generation OSVs as of December 31, 2014. Our average number of new generation OSVs for the years ended December 31, 2014, 2013,
2012, 2011, and 2010, reflect the deliveries of certain vessels under our fourth and fifth OSV newbuild programs. Please refer to Our Vessels on page 6 of this
Form 10-K for more information about vessel names and placed in-service dates. Excluded from this data are ten conventional OSVs that were acquired in
August 2007, nine of which have been sold on various dates in 2008, 2009, and 2010. Our sole remaining conventional OSV, which is stacked, is considered a
non-core asset.
In response to weak market conditions, we elected to stack certain of our new generation OSVs on various dates in 2009 and 2010. Based on improved market
conditions, we had re-activated all of our stacked new generation OSVs by June 30, 2013. During 2014, we experienced weak market conditions for which we
elected to stack certain of our new generation OSVs on various dates during the fourth quarter of 2014.
(10)
(11) Utilization rates are average rates based on a 365-day year. Vessels are considered utilized when they are generating revenues.
(12) 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.
(13) Effective dayrate represents the average dayrate multiplied by the average utilization rate.
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
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.
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The following table provides the detailed components of EBITDA from continuing operations as we define that term for
the years ended December 31, 2014, 2013, 2012, 2011, and 2010 respectively (in thousands).
Components of EBITDA:
Income (loss) from continuing operations..... $
Interest, net:
Debt obligations .....................................
Interest income ......................................
Total interest, net ..........................................
Income tax expense (benefit) .......................
Depreciation .................................................
Amortization .................................................
EBITDA ........................................................ $
2014
2013
2012
2011
2010
Year Ended December 31,
87,907 $
64,078 $
34,695 $
(3,520) $
34,978
30,733
(1,086)
29,647
52,367
71,301
44,149
47,352
(2,515)
44,837
36,320
55,332
30,630
57,869
(2,167)
55,702
21,384
52,005
21,670
59,649
(829)
58,820
(1,358)
52,453
15,457
55,183
(528)
54,655
20,655
50,008
14,677
285,371 $
231,197 $
185,456 $
121,852 $
174,973
The following table reconciles EBITDA from continuing operations to cash flows provided by operating activities for the
years ended December 31, 2014, 2013, 2012, 2011, and 2010 respectively (in thousands).
2014
2013
2012
2011
2010
Year Ended December 31,
285,371 $
231,197 $
185,456 $
121,852 $
EBITDA Reconciliation to GAAP:
EBITDA ............................................................... $
Cash paid for deferred drydocking charges ........
Cash paid for interest ..........................................
Cash paid for taxes .............................................
Changes in working capital .................................
Stock-based compensation expense ..................
Loss on early extinguishment of debt .................
Changes in other, net..........................................
Cash flows provided by operating activities ........ $
(43,609)
(50,548)
(5,679)
(32,213)
10,324
—
(540)
163,106 $
(35,875)
(53,636)
(4,537)
33,458
11,888
25,776
(1,204)
(39,211)
(38,597)
(1,332)
3,571
10,805
6,048
2,125
(16,832)
(43,811)
(1,272)
(13,297)
6,403
—
(461)
174,973
(13,153)
(44,178)
(2,809)
4,274
8,144
—
(1,106)
207,067 $
128,865 $
52,582 $
126,145
In addition, we also make certain adjustments, as applicable, to EBITDA for losses on early extinguishment of debt,
stock-based compensation expense and interest income, to internally evaluate our performance based on the computation of
ratios historically used in certain financial covenants of our credit agreements with various lenders. We believe that these
ratios can be material components of financial covenants and, when applicable, failure to comply with such covenants could
result in the acceleration of indebtedness or the imposition of restrictions on our financial flexibility. The recent changes to the
applicable covenants contained in our credit facility are described in Note 6 of our consolidated financial statements included
herein.
The following table provides certain detailed adjustments to EBITDA, as defined in our revolving credit facility for the
years ended December 31, 2014, 2013, 2012, 2011, and 2010, respectively (in thousands).
Adjustments to EBITDA for Computation of Financial Ratios Used in Debt Covenants
Year Ended December 31,
Loss on early extinguishment of debt ........................... $
Stock-based compensation expense ...........................
Interest income ............................................................
2014
2013
25,776 $
— $
2012
2011
2010
6,048 $
— $
10,324
1,086
11,914
2,515
10,891
2,167
6,525
829
28
—
8,710
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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.
• 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,
• 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,
• 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
• EBITDA does not reflect changes in our net working capital position.
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.
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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 ii of this Annual Report on Form 10-K.
General
Over the last several months oil prices have fallen precipitously from a prevailing price during most of 2014 of
over $90 per barrel to an average price of approximately $45 per barrel to date in 2015. The fall in price appears to be
due to surplus oil, driven in part by a significant rise in U.S. shale oil production as well as other previously unavailable
sources of supply. In addition, economic weakness in many regions of the world, notably Europe and China, has
reduced the previously expected oil consumption growth rate. As a result of the reduction in oil prices, oil companies
have significantly reduced their capital spending budgets for 2015. A Barclays survey of 225 E&P companies released
in January 2015 noted that global E&P spending is projected to decline by at least 8%, while North American budgets
are expected to fall by at least 14%. Oil prices have since fallen further, which may impact budgets even more than
projected. Several major and independent oil companies with deepwater operations have announced capital spending
reductions. We believe that the long-term nature of deepwater projects insulates them, somewhat, from a short-term
fall in oil prices and that sanctioned or on-going projects will proceed. However, deepwater activities will be affected by
lower prices, even if they are affected less than other activities. We have experienced requests by our deepwater
customers for price reductions in order to help mitigate the impact that lower prices are having and will continue to
have on oil company operating results and cashflows. In addition, sustained low prices may cause un-sanctioned
projects to be delayed or cancelled altogether, which could be manifested in less activity later, even if oil prices recover.
Many of our operations are in support of deepwater projects that are in their final stages or of projects that do not
involve deepwater and are more susceptible to immediate wind-down. We cannot predict whether, and to what extent,
or when oil prices will improve. For instance, shelf drilling activity in the GoM has declined substantially. The lack of a
shelf market has impacted us in two ways. First, our low-spec DP-1 vessels in the GoM principally support shelf
activities. Second, in prior periods of market over capacity, high-spec equipment has been able to displace low-spec
equipment working on the shelf. However, that alternative market has deteriorated considerably.
The recent and rapid decline in global oil prices has created great uncertainty in the industry for all of our core
markets in 2015. In the GoM, aggressive cost cutting measures employed by our customers and the increased supply
of high-spec OSVs have placed pressure on dayrates across the entire fleet. We expect 37 high-spec OSVs to deliver
into the domestic market during 2015, including six of our own. During the fourth quarter of 2014, there was an
average of 51 floating rigs available in the GoM, while an average of 40 were working. Today there are 51 rigs
available and 44 are working. However, 10 floating rigs have contracts that will expire during 2015 and two are
scheduled to leave the region. We do not know whether the remaining eight rigs will receive contract renewals for
operations in the GoM. We also expect nine rigs to arrive in the GoM during 2015, eight of which are contracted. We
have observed recently that, following arrival in the GoM, it can take several months for a rig to commence work, and,
therefore, we do not know the timing of when operations of newly arrived rigs will begin. Given these market
conditions, we anticipate our average dayrates and utilization levels to be adversely affected compared to our 2013
and 2014 results.
In Mexico, while the energy reform continues to progress, questions remain on the timing of the incremental
activity expected in the deepwater GoM given the current oil price environment. We will continue to explore
opportunities to place additional vessels into Mexico to support Pemex in its ongoing shallow water activity. Pemex
recently announced a 15 year age restriction on vessels that are contracted to work directly or indirectly for Pemex.
This restriction, if it remains in effect, together with the availability of newly built OSV tonnage on the world market, may
adversely affect our ability to grow in Mexico through deployment of some of our vessels.
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In Brazil, lower oil prices combined with a significant corruption probe involving Petrobras have combined to
create substantial uncertainty over the pace at which Petrobras can proceed with previously announced plans. The
four vessels we currently have operating under long-term charter for Petrobras will end their initial term during 2015. It
remains unclear whether Petrobras intends to open negotiations for extending the charters or, given the current oil
price environment, will choose to allow the contracts to expire.
During the fourth quarter of 2014, in recognition of these weak market conditions, we cold stacked five 200
class OSVs and sold one such vessel. We have stacked two additional 200 class OSVs and five 240 class OSVs in
the first quarter of 2015. By stacking vessels, we expect to reduce our cash outlays, however, we will also have fewer
revenue producing units in service that can potentially contribute to our results.
Market conditions
As of February 11, 2015, we had 38% of our new generation OSV vessel-days contracted for the fiscal year
ending December 31, 2015. Our forward OSV contract coverage for the fiscal year ending December 31, 2016
currently stands at 6%. MPSV contract coverage for the fiscal years ending December 31, 2015 and 2016 is
currently 24% and 0%, respectively.
The principal threat facing all of our markets is the fall in oil prices and resultant reduction in capital spending
by our customers.
Our Vessels
All of our current vessels are qualified under the Jones Act to engage in U.S. coastwise trade, except for six
foreign-flagged new generation OSVs, two foreign-flagged well-stimulation vessels and two foreign-flagged MPSVs. As
of December 31, 2014, our 56 active new generation OSVs and five MPSVs were operating in domestic and
international areas as noted in the following table:
Operating Areas
Domestic
GoM ............................................................................................................................................
Other U.S. coastlines(1) ...............................................................................................................
Foreign
Brazil ...........................................................................................................................................
Mexico .........................................................................................................................................
Middle East .................................................................................................................................
Europe .........................................................................................................................................
Total Active Vessels(2)
36
6
42
4
13
1
1
19
61
(1)
(2)
Includes six vessels that are currently supporting the military.
Excluded from this table are five new generation OSVs and one non-core conventional OSV that were stacked as of December 31, 2014.
OSV Newbuild Program #5. Our fifth OSV newbuild program consists of vessel construction contracts with three
domestic shipyards to build four 300 class OSVs, five 310 class OSVs, ten 320 class OSVs, and five 310 class
MPSVs. As of February 11, 2015, we had delivered and placed in service 16 vessels under such newbuild program.
Delivery of the eight remaining vessels under this 24-vessel domestic newbuild program is expected to occur on
various dates during 2015 and 2016. In October 2014, we announced plans to convert one of our newbuild HOSMAX
300 class OSVs that was previously placed in service under this newbuild program, the HOS Riverbend, into a 300
class MPSV flotel vessel. As a result of this newbuild program, the OSV-to-MPSV conversion and the recent
agreement to sell four vessels to the U.S. Navy, we expect to own and operate 62 new generation OSVs as of
December 31, 2015. These aggregate OSV vessel additions and divestitures result in a projected average new
generation OSV fleet complement of 60.9 and 62.0 for fiscal years 2015 and 2016, respectively. With the addition of
the five MPSVs and the OSV-to-MPSV conversion, we expect to own and operate seven and ten MPSVs as of
December 31, 2015 and 2016, respectively. These MPSV additions result in a projected average MPSV fleet
complement of 5.9, 8.8 and 10.0 vessels for the fiscal years 2015, 2016 and 2017, respectively. The aggregate cost of
our fifth OSV newbuild program, excluding construction period interest, is expected to be approximately $1,265 million.
For further information regarding our fifth OSV newbuild program, please refer to the Capital Expenditures and Related
Commitments section.
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Operating Costs
Our operating costs are primarily a function of fleet size, areas of operations 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. In the past, we have been
able to realize meaningful reductions in our operating costs by stacking under-utilized vessels.
In certain foreign markets in which we operate, we are susceptible to higher operating costs, such as materials
and supplies, crew wages, maintenance and repairs, taxes, importation duties, and insurance costs. Difficulties and
costs of staffing international operations, including vessel crews, and language and cultural differences generally
contribute to a higher cost structure in foreign locations compared to our domestic operations. We may not be able to
recover higher international operating costs through higher dayrates charged to our customers. Therefore, when we
increase our international complement of vessels, our gross margins may fluctuate depending on the foreign areas of
operation and the complement of vessels operating domestically.
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 disproportionately 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 such deferred drydockings prior to such vessels
returning to service.
Critical Accounting Estimates
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 OSVs and MPSVs over estimated useful lives of 25 years each.
Salvage value for our new generation marine equipment is typically 25% of the originally recorded cost for these asset
types. 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 be events
or changes in circumstances in the future that indicate that recovery of the carrying amount of our vessels might not be
possible.
We presently review our vessels for impairment using the following asset groups: New Generation OSVs, MPSVs
and Conventional OSV. As of December 31, 2014, we only had one remaining conventional OSV, which remains cold-
stacked. Management has concluded that these groupings are currently appropriate because our vessels are highly
mobile and are consistent based on the operating and marketing characteristics desired by our customers. When
analyzing asset groups for impairment, we consider recent vessel sales, recent vessel appraisals, both historical and
projected operating cash flows, operating income, and EBITDA based on current operating environment and future
conditions that we can reasonably anticipate, such as inflation or prospective wage costs. These projections are based
on, but not limited to, job location, current market dayrates included in recent sales proposals, utilization and contract
coverage; along with anticipated market drivers, such as drilling rig movements, results of offshore lease sales and
discussions with our customers regarding their ongoing drilling plans. When evaluating our one stacked Conventional
OSV, we use recent vessel sales and/or independent third-party appraisers to determine our estimate of undiscounted
future cash flow. The vessel appraisers used for these assets are the same ones that are used by our lenders when
vessels are appraised in secured financing arrangements. We have executed financing transactions in the ordinary
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course of our business, such as our revolving credit facility, requiring third-party appraisals for collateralized assets.
Such appraisals are reviewed and considered in assessing whether an impairment exists.
If events or changes in circumstances as set forth above indicate that the asset group’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 asset group 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 reduce the carrying amount to fair value. Examples of events
or changes in circumstances that could indicate that the recoverability of the carrying amount of our asset groups
should be assessed might include a significant change in regulations such as OPA 90, a significant decrease in the
market value of the asset group 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 the asset group.
We reviewed ASC 360 regarding triggering events that would require an impairment analysis and concluded that
there were no such events in 2014 or 2013. Our review gave consideration to the current market conditions, which
include the recent commodity price decline and reduction in certain projected 2015 capital budgets for our customers.
While we expect this environment to have a negative impact on vessel utilization and dayrates, we view the deepwater
and ultra deepwater projects of our customers, which is the principal market for our vessel fleet, to be somewhat
insulated from commodity price cycles compared to onshore shale and shallow shelf offshore exploration and
production activities. However, continued commodity price declines or protracted extensions of the current price cycle
could result in additional delays or cancellations of deepwater projects, which is a major indicator of fleet utilization.
Should this occur, we will update our analysis of whether a triggering event has occurred. While the Company has
historically operated its vessels predominately in the GoM, we will continue to deploy vessels to international markets
as conditions warrant. Our technologically advanced vessels are capable of working in and are effectively mobilized to
different markets so neither the geographic location of vessels, nor reduced drilling activity in a particular exploration
area is considered on its own as an impairment trigger. It is Management’s opinion that the fair values of all of our
asset groups exceed their carrying values. In order for the fair values of any of our assets to be below their respective
carrying values, current and projected effective dayrates would have to be significantly below the lowest levels
experienced in our Company’s history. In addition, those market conditions would have to be sustained for the
remaining economic useful lives of each vessel class, which is also unlikely.
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.
Mobilization Costs. Vessels will routinely move to and from international and domestic operating areas.
Mobilization costs associated with relocating vessels typically include fuel, crew costs, vessel modifications, materials
and supplies, importation taxes or other pre-positioning expenses required by the customer. The extent of mobilization
costs incurred to relocate a vessel is directly related to the customer contract terms and area of operation. Some of our
charter agreements provide for us to recover mobilization costs through billings to our customers. Unless mobilization
costs are rebillable to customers, we expense these costs as incurred.
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.
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 the relative age of receivable
balances, 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.
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Income Taxes. We follow accounting standards for income taxes that require 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 and foreign tax credit 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 prior to their expiration. 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 general and administrative expenses.
Stock-Based Compensation Expense. All equity-settled 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 at the date of grant. All cash-settled share-based payments to employees and directors are recognized in the
income statement based on their fair values at the end of the reporting period.
Legal Contingencies. We are involved in a variety of claims, lawsuits, investigations and proceedings, as
described in Note 10 to our consolidated financial statements. We determine whether an estimated loss from a
contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated.
We assess our potential liability by analyzing our litigation and regulatory matters using available information. We
develop our views on estimated losses in consultation with outside counsel handling our defense in these matters,
which involves an analysis of potential results, assuming a combination of litigation and settlement strategies. Should
developments in any of these matters cause a change in our determination such that we expect an unfavorable
outcome and result in the need to recognize a material accrual, or should any of these matters result in a final adverse
judgment or be settled for a significant amount, they could have a material adverse effect on our results of operations
in the period or periods in which such change in determination, judgment or settlement occurs.
Results of Operations
The tables below set forth the average dayrates, utilization rates and effective dayrates for our new generation
OSVs and the average number and size of such vessels owned during the periods indicated. These vessels generate
a substantial portion of our revenues and operating profit. Excluded from the OSV information below is the results of
operations for our MPSVs, our shore-base facility, and vessel management services. The Company does not provide
average or effective dayrates for its MPSVs. MPSV dayrates are impacted by highly variable customer-required cost-
of-sales associated with ancillary equipment and services, such as ROVs, accomodation units and cranes, which are
typically recovered through higher dayrates charged to the customer. Due to the fact that each of our MPSVs have a
workload capacity and significantly higher income generating potential than each of the Company’s new generation
OSVs, the utilization and dayrate levels of our MPSVs could have a very large impact on our results of operations. For
this reason, our consolidated operating results, on a period-to-period basis, are disproportionately impacted by the
level of dayrates and utilization achieved by our five MPSVs.
Years Ended December 31,
2014
2013
2012
Offshore Supply Vessels:
Average number of new generation OSVs(1)..........................
Average number of active new generation OSVs(2) ...............
Average new generation OSV fleet capacity (DWT) ..............
Average new generation vessel capacity (DWT) ...................
Average new generation OSV utilization rate(3) .....................
Average new generation OSV dayrate(4)................................ $
Effective dayrate(5) ................................................................. $
57.4
56.6
177,033
3,076
50.7
50.3
132,564
2,609
79.6%
27,416
21,823
$
$
83.7%
26,605
22,268
$
$
51.0
48.3
128,190
2,514
83.2%
23,445
19,506
(1) We owned 61 new generation OSVs as of December 31, 2014. Our average number of new generation OSVs for the year ended December 31, 2014
reflects the deliveries of certain vessels under our fifth OSV newbuild program. Please refer to Our Vessels on page 6 of this Form 10-K for more
information about vessel names and placed in-service dates. Excluded from this data is one conventional OSV that we consider to be a non-core
asset.
In response to weak market conditions, we elected to stack certain of our new generation OSVs on various dates in 2009 and 2010. Based on
improved market conditions, we had re-activated all of our stacked new generation OSVs as of June 30, 2013. During the fourth quarter of 2014, we
(2)
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elected to stack five new generation OSVs. Active new generation OSVs represent vessels that are immediately available for service during each
respective period.
(3) Utilization rates are average rates based on a 365-day year. Vessels are considered utilized when they are generating revenues.
(4)
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.
Effective dayrate represents the average dayrate multiplied by the average utilization rate.
(5)
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YEAR ENDED DECEMBER 31, 2014 COMPARED TO YEAR ENDED DECEMBER 31, 2013
Summarized financial information for the years ended December 31, 2014 and 2013, respectively, is shown
below in the following table (in thousands, except percentage changes):
Year Ended
December 31,
Increase (Decrease)
2014
2013
$ Change
% Change
Revenues:
Domestic .............................................................. $
Foreign .................................................................
Operating expenses ..........................................................
Depreciation and amortization ..........................................
General and administrative expenses...............................
Gain on sale of assets ......................................................
Operating income .............................................................
Loss on early extinguishment of debt ...............................
Interest expense ...............................................................
Interest income .................................................................
Income tax expense ..........................................................
Income from continuing operations ................................... $
Income from discontinued operations, net of tax ..............
Net income ....................................................................... $
490,314 $
144,479
634,793
296,500
115,450
54,245
466,195
822
169,420
—
30,733
1,086
52,367
87,907 $
618
88,525 $
415,898 $
132,247
548,145
239,239
85,962
53,428
378,629
1,587
171,103
25,776
47,352
2,515
36,320
64,078 $
47,315
111,393 $
74,416
12,232
86,648
57,261
29,488
817
87,566
(765)
(1,683)
(25,776)
(16,619)
(1,429)
16,047
23,829
(46,697)
(22,868)
17.9 %
9.2 %
15.8 %
23.9 %
34.3 %
1.5 %
23.1 %
(48.2) %
(1.0) %
(100.0) %
(35.1) %
(56.8) %
44.2 %
37.2 %
(98.7) %
(20.5) %
Revenues. Revenues for 2014 increased by $86.6 million, or 15.8%, to $634.8 million compared to $548.1 million
for 2013. Our weighted-average active operating fleet for 2014 was approximately 61 vessels compared to 54 vessels
for 2013. These higher revenues primarily resulted from the full or partial-period contribution of 20 vessels that were
placed in service under our fifth OSV newbuild program since 2013 or returned to service under our 200 class OSV
retrofit program since 2012 and, to a lesser extent, an increase in revenues from the MPSV fleet. Vessels placed in-
service under our fifth OSV newbuild program and our OSV retrofit program accounted for increases of $102.5 million
and $17.7 million, respectively, in revenues during 2014 compared to 2013. Revenues from our MPSVs that were in
service during each of the twelve months ended December 31, 2014 and 2013 increased by $35.3 million, or 27.5%,
primarily due to higher spot dayrates earned by one of our MPSVs performing flotel services in the GoM. These higher
revenues were partially offset by a $73.4 million decrease in revenue for our remaining vessels that were in service
during each of the twelve months ended December 31, 2014 and 2013 due to soft market conditions and 128
incremental days out-of-service for regulatory drydockings compared to 2013. Our new generation OSV average
dayrates were $27,416 for 2014 compared to $26,605 for 2013, an increase of $811, or 3.0%. Our new generation
OSV utilization was 79.6% for 2014 compared to 83.7% for 2013. This decrease in utilization was primarily due to soft
spot market conditions for our high-spec OSVs operating in the GoM and the incremental vessel-days out-of-service
for regulatory drydockings during 2014 compared to 2013. Domestic revenues increased by $74.4 million during 2014
due to the full or partial-period contribution of 14 vessels added to our fleet under our fifth OSV newbuild program on
various dates during 2013 and 2014. Foreign revenues increased by $12.2 million primarily due to the relocation of an
MPSV from the GoM to foreign markets during 2014. Foreign revenues comprised 22.8% of our total revenues for
2014 compared to 24.1% for 2013.
Operating expenses. Operating expenses were $296.5 million, an increase of $57.3 million, or 23.9%, for 2014
compared to $239.2 million for 2013. Newly constructed vessels under our fifth OSV newbuild program and upgraded
vessels placed in service under our 200 class OSV retrofit program during 2013 and 2014 accounted for approximately
$55.0 million of the higher operating costs. Aggregate cash operating expenses are projected to be in the range of
$265.0 million to $280.0 million for 2015. Our cash operating expense estimate is exclusive of any additional
repositioning expenses we may incur in connection with the potential relocation of more of our current spot or expiring
term vessels into international markets or back to the GoM and any customer-required cost-of-sales related to future
contract fixtures that are typically recovered through higher dayrates.
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Depreciation and Amortization. Depreciation and amortization expense was $29.5 million, or 34.3%, higher for
2014 compared to 2013. This increase is primarily due to the full or partial-period contribution of 14 newbuild vessels
that were placed in service on various dates during 2013 and 2014, as well as the higher cost basis of six vessels
redelivered under our 200 class OSV retrofit program in 2013. The increase in amortization is primarily due to a higher
per-vessel average in shipyard costs for vessel regulatory drydockings given the shift in our fleet mix to a higher
percentage of much larger high-spec vessels and, to a lesser extent, incremental amortization recorded for the
accelerated regulatory drydocking of vessels during 2014. Depreciation and amortization expense is expected to
increase from current levels as the vessels under our current newbuild and conversion programs are placed in-service
and when any newly constructed vessels undergo their initial 30-month and 60-month recertifications.
General and Administrative Expenses. General and administrative expenses of $54.2 million increased by $0.8
million, or 1.5%, during 2014 compared to 2013. This increase in G&A expenses was primarily the result of the growth
of our shoreside support team related to our on-going newbuild program and expanding international operations. This
increase was partially offset due to the valuation of our stock-based compensation expense, which was driven lower by
the recent decline in our stock price, and lower shoreside incentive compensation expense. General and administrative
expenses as a percentage of revenues were 8.5% for 2014 compared to 9.7% for 2013. Our general and
administrative expenses are expected to increase to the approximate annual range of $55 million to $60 million for
2015, or slightly above 2014 levels, commensurate with our fleet growth, expanding international operations and
increased complexity of the active fleet. We expect to remain within our historical range of G&A-to-revenue margins, as
well as those of our domestic public OSV peer group.
Gain on Sale of Assets. During 2014, we sold a non-core 220 class OSV that resulted in an aggregate gain of
approximately $0.8 million ($0.5 million after-tax or $0.01 per diluted share). During 2013, we sold certain non-core
marine assets, including two 220 class OSVs, that resulted in an aggregate gain of approximately $1.6 million ($1.0
million after-tax or $0.03 per diluted share).
Operating Income. Operating income decreased by $1.7 million to $169.4 million during 2014 compared to 2013
for the reasons discussed above. Operating income as a percentage of revenues was 26.7% for 2014 compared to
31.2% for 2013.
Loss on Early Extinguishment of Debt. On March 14, 2013, we commenced a cash tender offer for all of the
$250.0 million in aggregate principal amount of our 2017 senior notes. Approximately 94% of such senior notes were
validly tendered during the designated tender period, which ended on March 27, 2013. The remaining 2017 senior
notes were redeemed on May 13, 2013. During 2013, we recorded a loss on early extinguishment of debt of
approximately $25.8 million ($16.1 million after-tax or $0.44 per diluted share), which was comprised of the tender offer
costs, the write-off of unamortized financing costs and original issue discount, and a bond redemption premium. There
was no such transaction in 2014.
Interest Expense. Interest expense decreased $16.6 million during 2014 compared to 2013 primarily due to lower
interest expense resulting from the November 2013 retirement of our convertible senior notes due 2026. During 2014,
we capitalized interest of $33.2 million, or roughly 52% of our total interest costs, compared to capitalized interest of
$31.2 million, or roughly 40% of our total interest costs, for 2013.
Interest Income. Interest income decreased by $1.4 million to $1.1 million for 2014 compared to $2.5 million for
2013. Our average cash balance decreased to $307.9 million for 2014 compared to $663.4 million for 2013. The
average interest rate earned on our invested cash balances was approximately 0.4% during the fiscal years ended
December 31, 2014 and December 31, 2013. The decrease in average cash balance was due to cash outflows
associated with our fifth OSV newbuild program in 2014 and the retirement of all of our outstanding $250 million
aggregate principal amount of 2026 convertible senior notes in November 2013.
Income Tax Expense. Our effective tax rate was 37.3% and 36.2% for 2014 and 2013, respectively. During 2014,
our income tax expense primarily consisted of deferred taxes. Our income tax rate is different from the federal statutory
rate primarily due to expected state tax liabilities and items not deductible for federal income tax purposes. The lower
tax rate for 2013 was primarily attributable to the tax benefit taken in 2013 in connection with the re-pricing of the net
deferred tax liabilities on the balance sheet as a result of the sale of the Downstream segment.
Income from Continuing Operations. Operating performance increased year-over-year by $23.8 million for
reported income from continuing operations of $87.9 million for 2014 compared to $64.1 million for 2013. Excluding the
after-tax loss on early extinguishment of debt, income from continuing operations would have been $80.2 million for the
twelve months ended December 31, 2013 compared to $87.9 million for the same period in 2014. This increase in
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income from continuing operations for 2014 was primarily due to higher operating income based on the full or partial-
period contribution of 14 vessels placed in service under our fifth OSV newbuild program discussed above and a $15.2
million decrease in net interest expense. Income from continuing operations for 2013 was adversely impacted by a
$25.8 million pre-tax loss on early extinguishment of debt in connection with the tender offer purchase and redemption
of our 2017 senior notes.
Discontinued Operations. On August 29, 2013, we closed the sale of substantially all of our Downstream assets
to Genesis Marine, LLC. As a result of this transaction, the current and historical operating results of these vessels for
2014 and 2013 have been restated and reflected as discontinued operations. Excluded from the sale were three older,
lower-horsepower tugs considered to be non-core assets. During the twelve months ended December 31, 2014, these
three tugs were sold for net cash proceeds of $1.6 million. These sales resulted in a pre-tax gain of approximately
$0.9 million ($0.6 million after-tax or $0.02 per diluted share. Operating income during 2013 for this segment included
a gain on sale of assets of approximately $60.0 million ($38.1 million after-tax or $1.04 per diluted share).
The following table details financial highlights for fiscal years ended December 31, 2014, and 2013, respectively,
related to our Downstream segment that was sold in August 2013 (in thousands):
Revenue ............................................................................................................. $
Gain on sale of assets ........................................................................................
Operating income ................................................................................................
Income from discontinued operations, net of tax .................................................
Year Ended December 31,
2014
2013
12 $
867
555
618
43,318
60,076
74,278
47,315
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YEAR ENDED DECEMBER 31, 2013 COMPARED TO YEAR ENDED DECEMBER 31, 2012
Summarized financial information for the years ended December 31, 2013 and 2012, respectively, is shown
below in the following table (in thousands, except percentage changes):
Revenues:
Year Ended
December 31,
Increase (Decrease)
2013
2012
$ Change
% Change
Operating expenses .................................................................
Depreciation and amortization ..................................................
General and administrative expenses ......................................
Domestic ...................................................................... $ 415,898 $ 301,430 $ 114,468
(29,632)
Foreign ........................................................................
84,836
12,777
12,287
8,250
33,314
1,937
53,459
19,728
(10,517)
348
14,936
29,383
44,993
74,376
Gain (loss) on sale of assets ....................................................
Operating income .....................................................................
Loss on early extinguishment of debt .......................................
Interest expense .......................................................................
Interest income .........................................................................
Income tax expense .................................................................
Income from continuing operations ...........................................
Income from discontinued operations, net of tax ......................
Net income ............................................................................... $ 111,393 $
161,879
463,309
226,462
73,675
45,178
345,315
(350)
117,644
6,048
57,869
2,167
21,384
34,695
2,322
132,247
548,145
239,239
85,962
53,428
378,629
1,587
171,103
25,776
47,352
2,515
36,320
64,078
47,315
37,017 $
38.0 %
(18.3) %
18.3 %
5.6 %
16.7 %
18.3 %
9.6 %
> (100.0) %
45.4 %
>100.0 %
(18.2) %
16.1 %
69.8 %
84.7 %
>100.0 %
>100.0 %
Revenues. Revenues for 2013 increased by $84.8 million, or 18.3%, to $548.1 million compared to $463.3 million
for 2012 due to improved Upstream market conditions. Our weighted-average active operating fleet for 2013 was
approximately 54 vessels compared to 52 vessels for 2012. These higher revenues primarily resulted from increased
demand for our high-spec OSVs, including four newly constructed vessels placed in service under our fifth OSV
newbuild program, and MPSVs operating in the GoM. Vessels placed in-service under our fifth OSV newbuild program
accounted for an $11.8 million increase in revenues during 2013. Revenue from our four-vessel MPSV fleet increased
by $33.3 million, or 35.0%, for 2013 compared to 2012. Our new generation OSV average dayrates were $26,605 for
2013 compared to $23,445 for 2012, an increase of $3,160, or 13.5%. Our new generation OSV utilization was 83.7%
for 2013 compared to 83.2% for 2012. Domestic revenues increased by $114.5 million during 2013 due to improved
spot market activity in the GoM. Foreign revenues decreased by $29.6 million primarily due to an average of four fewer
vessels deployed to foreign regions during 2013 compared to 2012. Foreign revenues comprised 24.1% of our total
revenues for 2013 compared to 34.9% for 2012.
Operating expenses. Operating expenses were $239.2 million, an increase of $12.8 million, or 5.6%, for 2013
compared to $226.5 million for 2012. Newly constructed vessels placed in service during 2013 accounted for
approximately $7.3 million of the higher operating costs. The remaining increase in operating expenses was driven by
an increase in the number of active vessels in our fleet during 2013 compared to 2012 and by the full-year impact of
the April 2012 mariner wage increases on 2013 operating expenses. The increase in the number of active vessels in
our fleet is primarily due to the partial-period contribution of four newly constructed vessels under our fifth OSV
newbuild program.
Depreciation and Amortization. Depreciation and amortization expense was $12.3 million, or 16.7%, higher for
2013 compared to 2012. This increase is primarily due to the contribution of four OSVs that were placed in service
during 2013, as well as the higher cost basis of vessels redelivered to the Company under its 200 class OSV retrofit
program. The increase in amortization is primarily due to a higher per-vessel average in shipyard costs for vessel
regulatory drydockings given the shift in our fleet mix to a higher percentage of larger high-spec OSVs and MPSVs.
General and Administrative Expenses. General and administrative expenses of $53.4 million increased by $8
million, or 18.3%, during 2013 compared to 2012. This increase in G&A expenses was primarily the result of higher
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shoreside incentive compensation expense. General and administrative expenses as a percentage of revenues were
9.7% for 2013 compared to 9.8% for 2012.
Gain (Loss) on Sale of Assets. During 2013, we sold certain non-core marine assets that resulted in an aggregate
gain of approximately $1.6 million ($1.0 million after-tax or $0.03 per diluted share). During 2012, we sold certain non-
core shoreside assets that resulted in an aggregate loss of approximately $0.4 million ($0.2 million after-tax or $0.01
per diluted share). The gain on sale of our Downstream segment is reflected in discontinued operations.
Operating Income. Operating income increased by $53.5 million to $171.1 million during 2013 compared to 2012
for the reasons discussed above. Operating income as a percentage of revenues was 31.2% for 2013 compared to
25.4% for 2012.
Loss on Early Extinguishment of Debt. On March 14, 2013, we commenced a cash tender offer for all of the
$250.0 million in aggregate principal amount of our 2017 senior notes. Approximately 94% of such senior notes were
validly tendered during the designated tender period, which ended on March 27, 2013. The remaining 2017 senior
notes were redeemed on May 13, 2013. During 2013, we recorded a loss on early extinguishment of debt of
approximately $25.8 million ($16.1 million after-tax or $0.44 per diluted share), which was comprised of the tender offer
costs, the write-off of unamortized financing costs and original issue discount, and a bond redemption premium.
During 2012, we recorded an aggregate loss on early extinguishment of debt of approximately $6.0 million ($3.7 million
after-tax or $0.11 per diluted share) related to a similar tender offer for our 2014 senior notes.
Interest Expense. Interest expense decreased $10.5 million during 2013 compared to 2012 primarily due to
higher capitalized interest attributable to vessels under construction. During 2013, we capitalized interest of $31.2
million, or roughly 40% of our total interest costs, compared to capitalized interest of $11.0 million, or roughly 16% of
our total interest costs, for 2012. This net decrease in interest expense, due to capitalized interest, was offset by the
incurrence of $16.6 million of incremental interest expense (including $6.3 million of incremental original issue
discount) related to the issuances of senior notes in March 2012 and March 2013, and convertible senior notes in
August 2012. See “Liquidity and Capital Resources” for further discussion.
Interest Income. Interest income increased by $0.3 million to $2.5 million for 2013 compared to $2.2 million for
2012. Our average cash balance increased to $663.4 million for 2013 compared to $500.8 million for 2012. The
average interest rate earned on our invested cash balances was approximately 0.4% during the fiscal years ended
December 31, 2013 and December 31, 2012, respectively. The increase in average cash balance was primarily due to
the sale of our active Downstream fleet, which resulted in net cash proceeds of approximately $227.5 million in the
aggregate, after deal costs, and our March 2013 bond refinancing, which resulted in net cash proceeds of $173.9
million.
Income Tax Expense. Our effective tax rate was 36.2% and 38.1% for 2013 and 2012, respectively. The lower tax
rate for 2013 compared to 2012 was primarily attributable to the tax benefit taken in 2013 as a result of the re-pricing of
the net deferred tax liabilities on the balance sheet as a result of the sale of the Downstream segment. During 2013,
our income tax expense primarily consisted of deferred taxes. Our income tax rate is different from the federal statutory
rate primarily due to expected state tax liabilities and items not deductible for federal income tax purposes.
Income from Continuing Operations. Operating performance increased year-over-year by $29.4 million for
reported income from continuing operations of $64.1 million for 2013 compared to $34.7 million for 2012. This increase
in income from continuing operations for 2013 was primarily due to higher operating income based on improved market
conditions discussed above and a $10.5 million decrease in interest expense. Income from continuing operations for
2013 was adversely impacted by a $25.8 million pre-tax loss on early extinguishment of debt.
Discontinued Operations. On August 29, 2013, we closed the sale of substantially all of our Downstream assets
to Genesis Marine, LLC. As a result of this transaction, the current and historical operating results of these vessels for
2013 and 2012 have been restated and reflected as discontinued operations. Operating income for this segment
included a gain on sale of assets of approximately $60.0 million ($38.1 million after-tax or $1.04 per diluted share).
During 2013, the operating financial performance of these vessels was favorably impacted by increased demand for
movements of petroleum based products in the GoM.
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The following table details financial highlights for fiscal years ended December 31, 2013, and 2012, respectively,
related to our Downstream segment that was sold in August 2013 (in thousands):
Revenue ............................................................................................................. $
Gain on sale of assets ........................................................................................
Operating income ................................................................................................
Income from discontinued operations, net of tax .................................................
Liquidity and Capital Resources
Year Ended December 31,
2013
2012
43,318 $
60,076
74,278
47,315
49,429
624
3,663
2,322
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, remaining obligations under our expanded fifth OSV
newbuild program, vessel recertifications, discretionary capital expenditures and debt service and may require capital
to fund potential future vessel construction, retrofit or conversion projects, acquisitions or stock repurchases. The
nature of our capital requirements and the types of our financing sources are not expected to change significantly for
2015.
We have reviewed all of our debt agreements as well as our liquidity position and projected future cash needs.
Despite volatility in commodity markets, we remain 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 available borrowing capacity under our recently
amended and extended revolving credit facility will be more than sufficient to operate the Company and meet all of its
near-term obligations, including milestone construction payments for the contracted vessels under our expanded fifth
OSV newbuild program.
As of December 31, 2014, we had total cash and cash equivalents of $185.1 million. We also have a $300 million
revolving credit facility, expandable up to $500 million, which is undrawn as of February 11, 2015. Excluding any cash
requirements for potential new growth opportunities that may arise, our current cash on-hand and our internal cash
flow projections indicate that our $300 million revolving credit facility should be sufficient to meet our liquidity needs for
the foreseeable future. As of December 31, 2014, we had posted letters of credit for $0.8 million and had $299.2
million of credit available under our revolving credit facility. The full undrawn credit amount of such facility is available
for all uses of proceeds, including stock buy-backs and working capital, if necessary. However, the primary intended
use of the facility is the potential future construction or acquisition of assets that generate additional EBITDA.
On October 28, 2014, our Board of Directors authorized us to repurchase up to $150 million in shares of our
common stock from time to time, $25 million of which was used to buy-back 891,396 shares during the fourth quarter
of 2014. Any future repurchases under this program will be funded from our cash on-hand, cash flow from operations
and/or cash proceeds from the divestiture of non-core assets.
Although we expect to continue generating positive working capital through our operations, events beyond our
control, such as a further significant decline in commodity prices, renewed regulatory-driven delays in the issuance of
drilling plans and permits in the GoM, declines in expenditures for exploration, development and production activity,
any extended reduction in domestic consumption of refined petroleum products and other reasons discussed under the
Forward Looking Statements on page ii and "Item 1A—Risk Factors" of this Annual Report on Form 10-K, may affect
our financial condition, results of operations or cash flows. None of our funded debt instruments mature any sooner
than September 2019. Our currently undrawn revolving credit facility matures in February 2020, unless our 2020 senior
notes remain outstanding on October 1, 2019, in which case the facility would mature on such date. See further
discussion of these refinancing conditions in the Contractual Obligations section below.
Depending on the market demand for our vessels, long-term debt maturities and other growth opportunities that
may arise, we may require additional debt or equity financing. We currently expect to generate sufficient cash flows
from operations to meet our obligations under our fifth OSV newbuild program, commercial capital expenditures,
scheduled recertifications of vessels and maintenance capital expenditures. We also currently expect to generate
sufficient cash from operating activities to pay our annually recurring cash debt service and re-pay our long-term debt
upon maturity. However, it is possible that, due to events beyond our control, including those described in our Risk
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Factors, should such need for additional financing arise, we may not be able to access the capital markets on attractive
terms at that time or otherwise obtain sufficient capital to meet our maturing debt obligations or finance growth
opportunities that may arise. We will continue to closely monitor our liquidity position, as well as the state of the global
capital and credit markets.
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 $163.1 million in 2014, $207.1 million in 2013, and $128.9
million in 2012. Operating cash flows in 2014 were unfavorably affected by soft market conditions for our OSVs
operating in the GoM, which were partially offset by an increase in the weighted-average number of vessels in our
operating fleet. Cash flows from operations for 2014 reflect full or partial-period contributions from 14 vessels that
were placed in service under our fifth OSV newbuild program on various dates during 2013 and 2014. Operating cash
flows in 2013 were favorably affected by then improved market conditions for our high-spec OSVs and MPSVs
operating in the GoM and, to a lesser extent, an increase in the weighted-average number of vessels in our operating
fleet. Cash flows from operations for 2013 reflect partial-period contributions from four new generation OSVs that were
delivered under our fifth OSV newbuild program. Operating cash flows in 2012 were favorably affected by an increase
in our weighted-average active operating fleet and then improved market conditions. Cash flows from operations for
2012 reflect partial-period contributions from four new generation OSVs that were stacked during the prior year and
were re-activated in 2012.
Investing Activities. Net cash used in investing activities was $401.5 million in 2014, $526.6 million in 2013, and
$255.3 million in 2012. Cash utilized during 2014 primarily consisted of construction costs incurred for our fifth OSV
newbuild program and capital improvements made to our existing operating fleet, which were partially offset by
approximately $7.2 million in aggregate net cash proceeds from the sale of non-core assets. Cash utilized during 2013
primarily consisted of construction costs incurred for our fifth OSV newbuild program and capital improvements made
to our existing operating fleet, which were partially offset by approximately $16.0 million in aggregate net cash
proceeds from the sale of non-core assets. Cash utilized during 2012 primarily consisted of construction costs incurred
for our fifth OSV newbuild program and capital improvements made to our existing operating fleet, which were partially
offset by approximately $3.0 million in aggregate net cash proceeds from the sale of non-core assets.
Financing Activities. Net cash provided by (used in) financing activities was $(19.7) million in 2014, $(61.3) million
in 2013, and $334.4 million in 2012. Net cash used in financing activities for 2014 primarily resulted from the
repurchase of our common stock. See Note 7 to our consolidated financial statements for further information regarding
the common stock repurchase. Net cash used in financing activities for 2013 primarily resulted from the repurchase
and retirement of our 2017 senior notes and the redemption of our 2026 convertible senior notes. These outflows were
partially offset by the issuance of our 2021 senior notes. Net cash provided by financing activities for 2012 primarily
resulted from the issuance of our 2020 senior notes and the issuance of our 2019 convertible senior notes.
On March 2, 2012, we commenced a tender offer and solicitation of consents relating to the repurchase of our
existing 2014 senior notes. The tender offer expired on March 29, 2012. On March 2, 2012, we also completed the
private placement of our 2020 senior notes, resulting in offering proceeds of approximately $367.4 million, net of
estimated transaction costs. In connection with the tender offer and related consent solicitation, we used $259.9 million
of such proceeds to repurchase approximately 84% of our outstanding $300 million aggregate principal amount of
2014 senior notes. The $47.8 million of remaining 2014 senior notes were redeemed on April 30, 2012. The remaining
net proceeds were used for shipyard milestones relating to our 200 class OSV retrofit program and our fifth OSV
newbuild program. As a result of the repurchase of the 2014 senior notes, we recorded a pre-tax loss on early
extinguishment of debt of approximately $6.0 million ($3.7 million after-tax or $0.11 per diluted share).
On August 13, 2012, we completed the private placement of $300.0 million in aggregate principal amount of 2019
convertible senior notes, which generated net cash proceeds of $266.0 million. These 2019 convertible senior notes
have a cash coupon of 1.500% and a conversion price of 37.5% higher than the closing stock price on August 7, 2012
of $39.16. In conjunction with this offering, we also entered into separate convertible senior note hedge transactions
that increased the conversion price from $53.85 to $68.53. After funding the 2019 convertible senior note hedge
transactions, the remaining proceeds, along with other available sources of cash, were used to retire the outstanding
2026 convertible senior notes that were called by the Company in November 2013.
On March 14, 2013, we commenced a tender offer and solicitation of consents relating to the repurchase of our
existing 2017 senior notes. The tender offer expired on April 10, 2013. On March 28, 2013, we also completed the
private placement of $450 million of 2021 senior notes, resulting in offering proceeds of approximately $442.4 million,
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net of estimated transaction costs. In connection with the tender offer, related consent solicitation, and related
redemption, we used $269.3 million of such proceeds to repurchase approximately all of our outstanding $250 million
aggregate principal amount of 2017 senior notes. As a result of the repurchase of the 2017 senior notes, we recorded a
pre-tax loss on early extinguishment of debt of approximately $25.8 million ($16.1 million after-tax or $0.44 per diluted
share).
On November 15, 2013, we completed the conversion and redemption of all of our outstanding $250 million
aggregate principal amount of 2026 convertible senior notes. We elected to redeem the 2026 convertible senior notes
on November 15, 2013, or the Redemption Date, at a redemption price of 100% of the principal amount thereof and
accrued and unpaid interest to, but excluding, the Redemption Date. Holders of approximately $249.6 million in
aggregate principal amount of the 2026 convertible senior notes elected to convert prior to the previously announced
redemption date of November 15, 2013. The conversions of the 2026 convertible senior notes were settled based on
the applicable conversion rate of 20.6260 shares of our common stock per $1,000 principal amount of notes, which
equates to a conversion price of $48.48 per share, and on the volume-weighted average price of our common stock
during the Observation Period (as defined in the Indenture governing the 2026 convertible senior notes) of October 8,
2013 through November 11, 2013. We satisfied our conversion obligations to holders by paying cash equal to the
aggregate principal amount of the 2026 convertible senior notes converted and delivering shares of our common stock
in settlement of all conversion obligations in excess of the principal amount (except that we paid cash in lieu of issuing
fractional shares). In total, we delivered 728,411 shares of our common stock to the converting holders, which were
provided to us by the counterparties to the previously disclosed convertible note hedge transactions entered into in
2006 concurrently with the pricing of the 2026 convertible senior notes. This prevented the equity dilution that would
otherwise have resulted from the share delivery requirements of the conversion. The number of shares of our common
stock outstanding after the conversion was the same as immediately prior to the conversion. The remaining $0.4
million in aggregate principal amount of the 2026 convertible senior notes was redeemed on November 15, 2013 at a
redemption price of 100% of the principal amount thereof plus accrued and unpaid interest to, but excluding, the
Redemption Date. The cash payment obligations related to the conversion and redemption were funded with cash on-
hand.
Discontinued Operations. Net cash provided by discontinued operations was $4.0 million in 2014, $244.1 million
in 2013, and $12.1 million in 2012. Net cash provided by discontinued operations in 2014 primarily resulted from the
sale of our final three older, lower-horsepower tugs. Net cash provided by discontinued operations in 2013 primarily
resulted from the sale of substantially all of the assets related to the Downstream segment to Genesis Marine, LLC for
approximately $230 million in gross cash proceeds. The proceeds from the asset sale have been reinvested in the
construction of vessels under our fifth OSV newbuild program. Net cash provided by discontinued operations in 2012
primarily resulted from operations of the Downstream segment.
Commitments and Contractual Obligations
The following table sets forth our aggregate contractual obligations as of December 31, 2014 (in thousands).
Less than
1 Year
Total
Contractual Obligations
Vessel construction commitments(1) ................... $ 232,609 $ 198,706 $
5.000% senior notes due 2021(2)........................
5.875% senior notes due 2020(3)........................
1.500% convertible senior notes due 2019(4) .....
Interest payments(5) ............................................
Operating leases(6) .............................................
289,923
41,958
450,000
375,000
300,000
49,031
2,928
—
—
—
1-3 Years
3-5 Years
Thereafter
33,903 $
— $
—
—
—
—
98,063
—
—
300,000
98,063
450,000
375,000
—
44,766
29,642
Total ............................................................. $ 1,689,490 $ 250,665 $ 136,589 $ 402,828 $ 899,408
4,623
4,765
(1)
Vessel construction commitments reflect contractual milestone payments for our fifth OSV newbuild program. The total project costs for the currently
contracted 24-vessel program are expected to be $1,265.0 million, excluding capitalized construction period interest. From the inception of this
program through December 31, 2014, we have incurred $1,032.4 million, or 81.6%, of total expected project costs.
(2) Our 2021 senior notes, with a fixed interest rate of 5.000% per year, mature on March 1, 2021.
(3) Our 2020 senior notes, with a fixed interest rate of 5.875% per year, mature on April 1, 2020.
(4) Our 2019 convertible senior notes, with a fixed interest rate of 1.500% per year, mature on September 1, 2019 and currently include $51,528 of non-
cash original issue discount. Holders of the convertible senior notes may require that such notes be repurchased at their option pursuant to certain
types of corporate transactions described in Note 6 of our consolidated financial statements included herein. The debt maturities reflected in the table
above assume that the holders of our convertible senior notes do not require that such notes be repurchased prior to their maturity in September 2019.
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Interest payments relate to our 2021 senior notes due March 1, 2021, our 2020 senior notes due April 1, 2020 and our 2019 convertible senior notes
due September 1, 2019 with semi-annual interest payments of $11.3 million payable March 1 and September 1, $11.0 million payable April 1 and
October 1, and $2.3 million payable March 1 and September 1, respectively. Non-cash interest expense has been excluded from the table above.
Included in operating leases are commitments for a shore-base port facility, office space, office equipment and vehicles. See “Item 2—Properties” for
additional information regarding our leased office space and other facilities.
(5)
(6)
Debt
As of December 31, 2014, the Company had the following outstanding long-term debt (in thousands, except
effective interest rate):
Total Debt
Effective
Interest
Rate
Semi-
Annual
Cash
Interest
Payment
Payment Dates
5.875% senior notes due 2020 (1) ................................................................................ $ 375,000
450,000
5.000% senior notes due 2021 (1) ................................................................................
248,472
1.500% convertible senior notes due 2019, net of original issue discount of $51,528 ..
6.08% $ 11,000
11,300
5.21%
2,300
6.23%
April 1 and October 1
March 1 and September 1
March 1 and September 1
$1,073,472
(1) The senior notes do not require any payments of principal prior to their stated maturity dates, but pursuant to the indentures under which the 2020 and
2021 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.
On February 6, 2015, we amended and extended our revolving credit facility to extend the maturity date,
modify covenants and reduce the collateral coverage of such facility. The $300.0 million revolving credit facility remains
undrawn as of February 11, 2015. With the revolving credit facility, we have the option of borrowing at a variable rate of
interest equal to (i) London Interbank Offered Rate, or LIBOR, plus a margin of 2.0% to 3.0% or (ii) the greatest of the
Prime Rate, the Federal Funds Effective Rate plus 1/2 of 1% or LIBOR, plus 1.0%; plus in each case an applicable
margin. The applicable margin for each base rate is determined by a pricing grid, which is based on a new total debt-
to-capitalization ratio, as defined in the credit agreement governing the revolving credit facility, as amended. The
applicable LIBOR margin for the amended revolving credit facility ranges from 200 to 300 basis points. Unused
commitment fees are payable quarterly at the annual rate of 37.5 to 50.0 basis points of the unused portion of the
borrowing base of the new revolving credit facility, based on the defined total debt-to-capitalization ratio. For additional
information with respect to our revolving credit facility, our 2020 senior notes, our 2021 senior notes, and our 2019
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 2020 senior notes
and 2021 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. For the quarter ended
December 31, 2014, we were in compliance with all of our debt covenants. We continuously review our debt covenants
and report to our lenders 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.
Capital Expenditures and Related Commitments
The following table sets forth the amounts incurred for our fifth OSV newbuild program, before construction period
interest, during the year ended December 31, 2014 and since such program’s inception, as well as the estimated total
project costs for such program (in millions):
For the Year
Ended
December 31,
2014
Incurred
Since
Inception
Estimated
Program
Totals(1)
Projected
Delivery
Dates(1)
Growth Capital Expenditures:
OSV Newbuild Program #5(2) ............... $
315.9 $
1,032.4 $
1,265.0
2Q2013-4Q2016
(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 program represent estimated cash outlays and do not include any allocation of capitalized construction period interest.
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Projected delivery dates correspond to the first and last vessels that are contracted with shipyards for construction and delivery under our currently
active program, respectively.
(2) Our fifth OSV newbuild program consists of vessel construction contracts with three domestic shipyards to build four 300 class OSVs, five 310 class
OSVs, ten 320 class OSVs and five 310 class MPSVs. As of February 11, 2015, we had placed 16 vessels in service under such program. The
remaining eight vessels under this 24-vessel domestic newbuild program are currently expected to be placed in service as follows: five in the
remainder of 2015 and three in 2016. Please refer to Our Vessels on page 6 of this Form 10-K for more information about vessel names and placed-
in-service dates.
The following table summarizes the costs incurred, prior to the allocation of construction period interest, for the
purposes set forth below for the years ended December 31, 2014, 2013, and 2012, and a forecast for the fiscal year
ending December 31, 2015 (in millions):
Year Ended December 31,
2015
Forecast
2014
Actual
2013
Actual
2012
Actual
Maintenance and Other Capital Expenditures:
Maintenance Capital Expenditures
Deferred drydocking charges(1) .............................. $
Other vessel capital improvements(2)......................
Other Capital Expenditures
200 class OSV retrofit program(3) ...........................
Commercial-related vessel improvements(4)...........
Miscellaneous non-vessel additions(5) ....................
Total: ................................................................. $
19.6 $
6.2
25.8
—
35.7
30.9
66.6
92.4 $
43.6 $
23.7
67.3
35.9 $
10.9
46.8
0.1
31.3
9.6
41.0
48.0
14.7
3.9
66.6
108.3 $
113.4 $
39.2
9.2
48.4
2.3
3.1
3.3
8.7
57.1
Deferred drydocking charges for 2015 include the projected recertification costs for 9 OSVs.
(1)
(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) Our 200 class OSV retrofit program consisted of a vessel construction contract with a domestic shipyard to upgrade and stretch six of our Super 200
class DP-1 OSVs converting them into 240 class DP-2 OSVs. The total project costs for such program, which commenced in December 2012 and was
completed in November 2013, was $50.4 million. These vessel improvement costs have resulted in higher dayrates charged to customers.
(4) Commercial-related vessel improvements include items, such as cranes, ROVs, helidecks, living quarters, and other specialized vessel equipment
which costs are typically included in and offset, in whole or in part, by higher dayrates charged to customers.
(5) Non-vessel capital expenditures are primarily related to information technology and shore-side support initiatives.
Inflation
To date, general inflationary trends have not had a material effect on our operating revenues or expenses.
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 offerings in August 2012. 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 $24.97 to $31.21 as of December 31, 2014 would not have had an impact on such warrant transactions because
the strike price of the warrants associated with the convertible notes is $68.53.
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, 2014 would have had no
material impact on such investments, interest income or interest expense.
Changes in interest rates would not impact the interest expense for our long-term fixed interest rate 2020 senior
notes, 2021 senior notes, and 2019 convertible senior notes. However, changes in interest rates would impact the fair
market value of such notes. In general, the fair value of debt with a fixed interest rate will increase as interest rates fall.
Conversely, the fair value of debt will decrease as interest rates rise. The currently outstanding 2020 senior notes accrue
interest at a rate of 5.875% per annum and mature on April 1, 2020 and the effective interest rate on such notes is 6.08%.
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The currently outstanding 2021 senior notes accrue interest at the rate of 5.000% per annum and mature on March 1,
2021 and the effective interest rate on such notes is 5.21%. Our outstanding 2019 convertible senior notes accrue interest
at the rate of 1.500% and mature on September 1, 2019. The effective interest rate on such notes, after taking into
account the accretion of imputed original issue discount, is 6.23%.
In connection with our 2019 convertible senior notes, we are a party to outstanding convertible note hedge
transactions with respect to our common stock. The counterparties to such transactions are Barclays Bank PLC; JP
Morgan Chase Bank, National Association, London Branch; and Wells Fargo Bank, National Association. We are not
currently aware of any collection issues with regard to any of these counterparties.
We estimate the fair value of our 2020 senior notes, 2021 senior notes and 2019 convertible senior notes, all of
which are publicly traded, by using quoted market prices. The fair value of our undrawn 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 $1,125.0 million, $1,073.5 million and $955.0 million, respectively, as of December 31, 2014.
As of December 31, 2014, we had no amounts outstanding under our variable interest rate revolving credit facility.
Therefore it is not subject to interest rate risk.
We have operations in international markets, which include two of our primary geographic regions of Brazil and
Mexico. As of December 31, 2014, we had time charters for 19 of our vessels working in foreign markets. Although most
of our time charter contracts are denominated U.S. Dollars, we do collect time charter payments and value added tax, or
VAT, payments in local currencies for four vessels, which creates an exchange risk related to currency fluctuations. We
also 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. However, as we further expand our operations in
international markets, we may become exposed to certain risks typically associated with foreign currency fluctuation.
Item 8—Financial Statements and Supplementary Data
The financial statements and supplementary information required by this Item appear on pages F-1 through F-29 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.
Management’s Report on 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
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external purposes in accordance with U.S. generally accepted accounting principles. Internal control 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, 2014, utilizing the criteria set forth in the report entitled Internal Control—Integrated Framework issued in
2013 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, 2014.
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 year ended
December 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Hornbeck Offshore Services, Inc.
We have audited Hornbeck Offshore Services, Inc.’s internal control over financial reporting as of December 31,
2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (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’s 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 pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; 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 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, 2014, 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 Offshore Services, Inc. and subsidiaries as of December 31, 2014
and 2013, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders'
equity and cash flows for each of the three years in the period ended December 31, 2014 of Hornbeck Offshore Services,
Inc. and our report dated February 25, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
New Orleans, Louisiana
February 25, 2015
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Item 9B—Other Information
Glossary of Terms
"2014 senior notes" or "2014 notes" means 6.125% senior notes due 2014;
"2017 senior notes" or "2017 notes" means 8.000% senior notes due 2017;
"2019 convertible senior notes" or "2019 notes" means 1.500% convertible senior notes due 2019;
"2020 senior notes" or "2020 notes" means 5.875% senior notes due 2020;
"2021 senior notes" or "2021 notes" means 5.000% senior notes due 2021;
"2026 convertible senior notes" or "2026 notes" means 1.625% convertible senior notes due 2026;
“AHTS” means anchor-handling towing supply;
“ASC” means Financial Accounting Standards Board Accounting Standards Codification;
“average dayrate” means, when referring to OSVs or MPSVs, 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 or MPSVs,
as applicable, generated revenue. For purposes of vessel brokerage arrangements, this calculation excludes that portion
of revenue that is equal to the cost of in-chartering third-party equipment paid by customers;
"BOEM" means the Bureau of Ocean Energy Management;
"BSEE" means the Bureau of Safety and Environmental Enforcement;
"cabotage laws" means laws pertaining to the privilege of operating vessels in the navigable waters of a nation;
“coastwise trade” means the transportation of merchandise or passengers by water, or by land and water, between
points in the United States, either directly or via a foreign port;
“conventional” means, when referring to OSVs, vessels that are at least 30 years old, are generally less than 200’ in
length or carry less than 1,500 deadweight tons of cargo when originally built and primarily operate, when active, on the
continental shelf;
“deepwater” means offshore areas, generally 1,000’ to 5,000’ in depth;
“Deepwater Horizon incident” means the subsea blowout and resulting oil spill at the Macondo well site in the GoM
in April 2010 and subsequent sinking of the Deepwater Horizon drilling rig;
“deep-well” means a well drilled to a true vertical depth of 15,000’ or greater, regardless of whether the well was
drilled in the shallow water of the Outer Continental Shelf or in the deepwater or ultra-deepwater;
“DOI” means U.S. Department of the Interior and all its various sub-agencies, including effective October 1, 2011 the
Bureau of Ocean Energy Management (“BOEM”), which handles offshore leasing, resource evaluation, review and
administration of oil and gas exploration and development plans, renewable energy development, National Environmental
Policy Act analysis and environmental studies, and the Bureau of Safety and Environmental Enforcement (“BSEE”) which
is responsible for the safety and enforcement functions of offshore oil and gas operations, including the development and
enforcement of safety and environmental regulations, permitting of offshore exploration, development and production
activities, inspections, offshore regulatory programs, oil spill response and newly formed training and environmental
compliance programs; BOEM and BSEE being successor entities to the Bureau of Ocean Energy Management,
Regulation and Enforcement (“BOEMRE”), which effective June 2010 was the successor entity to the Minerals
Management Service;
“domestic public company OSV peer group” includes Gulfmark Offshore, Inc. (NYSE:GLF), SEACOR Holdings Inc.
(NYSE:CKH) and Tidewater Inc. (NYSE:TDW);
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“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 through anchor-less station-keeping;
“DWT” means deadweight tons;
“effective dayrate” means the average dayrate multiplied by the average utilization rate;
“EIA” means the U.S. Energy Information Administration;
"EPA" means United States Environmental Protection Agency;
“flotel” means on-vessel accommodations services, such as lodging, meals and office space;
"GAAP" means United States generally accepted accounting principles;
“GoM” means the U.S. Gulf of Mexico;
“high-specification” or “high-spec” means, when referring to new generation OSVs, vessels with cargo-carrying
capacity of greater than 2,500 DWT (i.e., 240 class OSV notations or higher), and dynamic-positioning systems with a
DP-2 classification or higher; and, when referring to jack-up drilling rigs, rigs capable of working in 400-ft. of water depth
or greater, with hook-load capacity of 2,000,000 lbs. or greater, with cantilever reach of 70-ft. or greater; and minimum
quarters capacity of 150 berths or more and dynamic-positioning systems with a DP-2 classification or higher;
"IHS-CERA" means the division of IHS Inc. focused on providing knowledge and independent analysis on energy
markets, geopolitics, industry trends and strategy;
"IHS-Petrodata" means the division of IHS Inc. focused on providing data, information, and market intelligence to the
offshore energy industry;
“IRM” means inspection, repair and maintenance, also known as “IMR,” or inspection, maintenance and repair,
depending on regional preference;
“Jones Act” means the U.S. cabotage law known as the Merchant Marine Act of 1920, as amended;
“Jones Act-qualified” means, when referring to a vessel, a U.S.-flagged vessel qualified to engage in domestic
coastwise trade under the Jones Act;
“long-term contract” means a time charter of one year or longer in duration;
“Macondo” means the well site location in the deepwater GoM where the Deepwater Horizon incident occurred as
well as such incident itself;
“MPSV” means a multi-purpose support vessel;
“MSRC” means the Marine Spill Response Corporation;
“new generation” means, when referring to OSVs, 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;
“OPA 90” means the Oil Pollution Act of 1990;
“OSV” means an offshore supply vessel, also known as a “PSV,” or platform supply vessel, depending on regional
preference;
“PEMEX” means Petroleos Mexicanos;
“Petrobras” means Petroleo Brasileiro S.A.;
“public company OSV peer group” means SEACOR Holdings Inc. (NYSE:CKH), GulfMark Offshore, Inc.
(NYSE:GLF), Tidewater Inc. (NYSE:TDW), Farstad Shipping (NO:FAR), Solstad Offshore (NO:SOFF), Deep Sea Supply
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(NO:DESSC), DOF ASA (NO:DOF), Siem Offshore (NO:SIOFF), Groupe Bourbon SA (GBB:FP), Havila Shipping ASA
(NO:HAVI), Eidesvik Offshore (NO:EIOF) and/or Ezra Holdings Ltd (SI:EZRA);
“ROV” means a remotely operated vehicle;
“ultra-deepwater” means offshore areas, generally more than 5,000’ in depth; and
“ultra high-specification” or “ultra high-spec” means, when referring to new generation OSVs, vessels with cargo-
carrying capacity of greater than 5,000 DWT (i.e., 300 class OSV notations or higher), and dynamic-positioning systems
with a DP-2 classification or higher.
Item 10—Directors, Executive Officers and Corporate Governance
PART III
The information required under this item is incorporated by reference herein from the Company’s definitive 2015
proxy statement anticipated to be filed with the Securities and Exchange Commission within 120 days after December 31,
2014.
Item 11—Executive Compensation
The information required under this item is incorporated by reference herein from the Company’s definitive 2015
proxy statement anticipated to be filed with the Securities and Exchange Commission within 120 days after December 31,
2014.
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 2015
proxy statement anticipated to be filed with the Securities and Exchange Commission within 120 days after December 31,
2014.
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 2015
proxy statement anticipated to be filed with the Securities and Exchange Commission within 120 days after December 31,
2014.
Item 14—Principal Accounting Fees and Services
The information required under this item is incorporated by reference herein from the Company’s definitive 2015
proxy statement anticipated to be filed with the Securities and Exchange Commission within 120 days after December 31,
2014.
51
Table of Contents
Item 15—Exhibits and Financial Statement Schedules
(a) The following items are filed as part of this report:
PART IV
1. Financial Statements. The financial statements and information required by Item 8 appear on pages
F-1 through F-29 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.
52
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS OF HORNBECK OFFSHORE SERVICES, INC.:
Page
Report of Independent Registered Public Accounting Firm .....................................................................................................................
F - 2
Consolidated Balance Sheets as of December 31, 2014 and 2013 ........................................................................................................
F - 3
Consolidated Statements of Operations for Each of the Three Years in the Period Ended December 31, 2014 .....................................
F - 4
Consolidated Statements of Comprehensive Income (Loss) for Each of the Three Years in the Period Ended December 31, 2014 .....
F - 5
Consolidated Statements of Changes in Stockholders’ Equity for Each of the Three Years in the Period Ended December 31, 2014 ....
F - 6
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2014 ....................................
F - 7
Notes to Consolidated Financial Statements ...........................................................................................................................................
F - 8
F - 1
Table of Contents
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, 2014 and 2013, and the related consolidated statements of operations, comprehensive
income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2014. 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
financial position of Hornbeck Offshore Services, Inc. and subsidiaries at December 31, 2014 and 2013, and the
consolidated results of their operations and their cash flows for each of the three years in the period ended December 31,
2014, 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, 2014, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (2013 framework) and our report dated February 25, 2015 expressed an unqualified opinion
thereon.
/s/ Ernst & Young LLP
New Orleans, Louisiana
February 25, 2015
F - 2
Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
Year Ended December 31,
2014
2013
185,123 $
439,291
Current assets:
ASSETS
Cash and cash equivalents ............................................................................... $
Accounts receivable, net of allowance for doubtful accounts of $3,693 and
$3,411 respectively ...........................................................................................
Deferred tax assets, net ....................................................................................
Other current assets ..........................................................................................
Current assets from discontinued operations ....................................................
Total current assets.....................................................................................
Property, plant and equipment, net ...................................................................
Deferred charges, net .......................................................................................
Other assets ......................................................................................................
Long-term assets from discontinued operations ................................................
130,969
45,531
20,049
470
382,142
2,459,486
68,953
11,870
—
Total assets ................................................................................................. $
2,922,451 $
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable .............................................................................................. $
Accrued interest ................................................................................................
Accrued payroll and benefits .............................................................................
Deferred revenue ..............................................................................................
Other accrued liabilities .....................................................................................
Current liabilities from discontinued operations .................................................
Total current liabilities .................................................................................
Long-term debt, net of original issue discount of $51,528 and $60,908,
respectively .......................................................................................................
Deferred tax liabilities, net .................................................................................
Other liabilities ...................................................................................................
Long-term liabilities of discontinued operations .................................................
Total liabilities ..............................................................................................
42,404 $
14,890
14,830
1,561
9,359
1
83,045
1,073,472
392,492
1,117
1,560
1,551,686
Stockholders’ equity:
93,512
72,470
13,779
1,578
620,630
2,125,374
74,075
13,442
759
2,834,280
52,930
14,890
13,451
8,786
11,497
117
101,671
1,064,092
368,416
4,367
306
1,538,852
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; 35,557 and
36,095 shares issued and outstanding, respectively .........................................
Additional paid-in capital ...................................................................................
Retained earnings .............................................................................................
Accumulated other comprehensive loss ............................................................
Total stockholders’ equity............................................................................
Total liabilities and stockholders’ equity ...................................................... $
—
—
356
736,294
635,017
(902)
1,370,765
2,922,451 $
361
724,379
571,483
(795)
1,295,428
2,834,280
The accompanying notes are an integral part of these consolidated statements
F - 3
Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Revenues
Costs and expenses:
Operating expenses ..............................................................................
Depreciation ..........................................................................................
Amortization ..........................................................................................
General and administrative expenses ....................................................
Gain (loss) on sale of assets ..................................................................
Operating income ..................................................................................
Other income (expense):
Loss on early extinguishment of debt .....................................................
Interest income ......................................................................................
Interest expense ....................................................................................
Other income (expense), net
.................................................................
Income before income taxes .........................................................................
Income tax expense ......................................................................................
Income from continuing operations ...............................................................
Income from discontinued operations, net of tax ...........................................
Net income ................................................................................................... $
Earnings per share:
Basic earnings per common share from continuing operations ..................... $
Basic earnings per common share from discontinued operations .................
Basic earnings per common share ................................................................ $
Diluted earnings per common share from continuing operations ................... $
Diluted earnings per common share from discontinued operations ...............
Diluted earnings per common share ............................................................. $
Weighted average basic shares outstanding .................................................
Weighted average diluted shares outstanding ..............................................
Year Ended December 31,
2014
2013
2012
$
634,793
$
548,145
$
463,309
296,500
71,301
44,149
54,245
466,195
822
169,420
—
1,086
(30,733)
501
(29,146)
140,274
52,367
87,907
618
239,239
55,332
30,630
53,428
378,629
1,587
171,103
(25,776)
2,515
(47,352)
(92)
(70,705)
100,398
36,320
64,078
47,315
88,525
$
111,393
$
2.43
0.02
2.45
2.40
0.01
2.41
$
$
$
$
1.79
1.31
3.10
1.76
1.29
3.05
$
$
$
$
36,172
36,692
35,895
36,548
226,462
52,005
21,670
45,178
345,315
(350)
117,644
(6,048)
2,167
(57,869)
185
(61,565)
56,079
21,384
34,695
2,322
37,017
0.98
0.07
1.05
0.97
0.06
1.03
35,311
36,080
The accompanying notes are an integral part of these consolidated statements
F - 4
Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Net income ........................................................................................... $
Other comprehensive income (loss), net of tax:
Year Ended December 31,
2014
2013
2012
88,525 $
111,393 $
37,017
Foreign currency translation loss ...................................................
Total comprehensive income................................................................ $
(107)
88,418 $
(537)
110,856 $
(179)
36,838
The accompanying notes are an integral part of these consolidated statements
F - 5
Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
Balance at January 1, 2012
35,013
$
350
$
649,644
$
423,073
$
(79) $
1,072,988
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Stockholders
Equity
Excess tax shortfall from sharebased
payments ........................................................
Purchase of hedge on convertible senior
notes ..............................................................
Sale of common stock warrants .....................
Allocation of fair value of equity component
of convertible notes, net of allocated
issuance costs ................................................
Shares issued under employee benefit
programs ........................................................
Stock-based compensation expense ..............
Equity offering costs .......................................
Net income .............................................
Foreign currency translation loss............
—
—
—
—
466
—
—
—
—
—
—
—
—
5
—
—
—
—
(46)
(73,032)
48,237
70,615
732
9,688
(180)
—
—
—
—
—
—
—
—
—
37,017
—
—
—
—
—
—
—
—
—
(179)
(46)
(73,032)
48,237
70,615
737
9,688
(180)
37,017
(179)
Balance at December 31, 2012
35,479
$
355
$
705,658
$
460,090
$
(258) $
1,165,845
Excess tax benefit from sharebased
payments ........................................................
Shares issued under employee benefit
programs ........................................................
Stock-based compensation expense ..............
Net income .............................................
Foreign currency translation loss............
—
616
—
—
—
—
6
—
—
—
4,501
5,400
8,820
—
—
—
—
—
111,393
—
—
—
—
—
(537)
4,501
5,406
8,820
111,393
(537)
Balance at December 31, 2013
36,095
$
361
$
724,379
$
571,483
$
(795) $
1,295,428
Excess tax benefit from sharebased
payments ........................................................
Shares issued under employee benefit
programs ........................................................
Stock repurchased and retired .......................
Stock-based compensation expense ..............
Net income .............................................
Foreign currency translation loss............
—
353
(891)
—
—
—
—
4
(9)
—
—
—
292
2,182
—
9,441
—
—
—
—
(24,991)
—
88,525
—
—
—
—
—
—
(107)
292
2,186
(25,000)
9,441
88,525
(107)
Balance at December 31, 2014
35,557
$
356
$
736,294
$
635,017
$
(902) $
1,370,765
The accompanying notes are an integral part of these consolidated statements
F - 6
Year Ended December 31,
2014
2013
2012
87,907 $
64,078 $
34,695
Table of Contents
HORNBECK OFFSHORE SERVICES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations ..................................................... $
Adjustments to reconcile income from continuing operations to net
cash provided by operating activities:
Depreciation .................................................................................
Amortization .................................................................................
Stock-based compensation expense ...........................................
Loss on early extinguishment of debt...........................................
Provision for bad debts ................................................................
Deferred tax expense ...................................................................
Amortization of deferred financing costs ......................................
(Gain) loss on sale of assets ........................................................
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:
Costs incurred for OSV newbuild program #5 ....................................
Net proceeds from sale of assets .......................................................
Vessel capital expenditures ................................................................
Non-vessel capital expenditures .........................................................
Net cash used in investing activities ...................................................
CASH FLOWS FROM FINANCING ACTIVITIES:
Tax benefit from share-based payments.............................................
Repayment of senior notes .................................................................
Proceeds from the issuance of senior notes .......................................
Redemption premium on the retirement of debt .................................
Repurchase of common stock ............................................................
Payments for public offerings of common stock..................................
Purchase of hedge on convertible senior notes ..................................
Sale of common stock warrants ..........................................................
Retirement of convertible senior notes ...............................................
Proceeds from the issuance of convertible senior notes.....................
Deferred financing costs .....................................................................
Net cash proceeds from other shares issued .....................................
Net cash provided by (used in) financing activities .............................
CASH FLOWS FROM DISCONTINUED OPERATIONS:
71,301
44,149
10,324
—
282
50,440
8,154
(822)
(38,500)
(8,393)
(43,609)
(4,146)
(13,981)
—
163,106
(343,989)
7,178
(55,089)
(9,615)
(401,515)
292
—
—
—
(25,000)
—
—
—
—
—
—
5,044
(19,664)
55,332
30,630
11,888
25,776
383
32,320
16,826
(1,587)
9,793
8,956
(35,875)
1,073
(12,626)
100
207,067
(465,165)
16,021
(73,593)
(3,893)
(526,630)
4,501
(250,000)
450,000
(17,658)
—
—
—
—
(250,000)
—
(7,807)
9,620
(61,344)
Net cash provided by operating activities ...........................................
Net cash provided by (used in) investing activities .............................
Net cash provided by discontinued operations ...................................
Effects of exchange rate changes on cash .........................................
Net increase (decrease) in cash and cash equivalents.......................
Cash and cash equivalents at beginning of period .............................
Cash and cash equivalents at end of period ....................................... $
2,374
1,638
4,012
(107)
(254,168)
439,291
185,123 $
15,368
228,689
244,057
(537)
(137,387)
576,678
439,291 $
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES:
Cash paid for interest ................................................................... $
Cash paid for income taxes.......................................................... $
50,548 $
5,679 $
53,636 $
4,537 $
The accompanying notes are an integral part of these consolidated statements
F - 7
52,005
21,670
10,805
6,048
1,775
20,368
17,192
350
(18,830)
(110)
(39,211)
2,230
14,043
5,835
128,865
(240,526)
3,002
(14,549)
(3,250)
(255,323)
—
(300,000)
375,000
(3,692)
—
(180)
(73,032)
48,237
—
300,000
(16,186)
4,244
334,391
13,847
(1,772)
12,075
(179)
219,829
356,849
576,678
38,597
1,332
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Table of Content
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, Latin America and select international markets. All
significant intercompany accounts and transactions have been eliminated. Certain reclassifications associated with
discontinued operations have been made to prior period results to conform to current year presentation. As discussed
further in Note 13, the Company sold substantially all of its Downstream assets in August 2013.
2. Summary of Significant Accounting Policies
Revenue Recognition
The Company charters its OSVs and MPSVs 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.
Deferred revenue represents payments received from customers or billings submitted to customers in advance of
providing vessel access through time charters or other contracted arrangements.
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 and amounts to be rebilled to customers.
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, 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 new generation marine equipment are estimated to be 25% of the originally recorded cost.
The estimated useful lives by classification are as follows:
Offshore supply vessels .................................................................................................................................
Multi-purpose support vessels ........................................................................................................................
Non-vessel related property, plant and equipment .........................................................................................
25 years
25 years
3-28 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 expenditures (generally 30 months). Financing charges are amortized
over the term of the related debt.
F - 8
Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
Mobilization Costs
The Company incurs mobilization costs to transit its vessels to and from certain regions and/or for long-term
contracts. These costs, which are typically expensed as incurred, include, but are not limited to, fuel, crew wages, vessel
modification and pre-positioning expenses, materials and supplies and importation taxes. The Company incurred
mobilization costs of $1.5 million, $2.7 million and $1.4 million during 2014, 2013 and 2012, respectively, associated with
the mobilization and pre-positioning of vessels to or from different geographic locations.
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. Interest and penalties relating
to uncertain tax positions are recorded as general and administrative expenses. In addition, the Company provides a
valuation allowance for deferred tax assets if it is more likely than not that such items will either expire before the
Company is able to realize the benefit or the future deductibility is uncertain. As a result of the sale of the Downstream
segment during the third quarter of 2013, the Company believed that certain state operating loss carryforwards would not
be realizable and thus recorded a valuation allowance of $0.9 million for the year ended December 31, 2013. During the
third quarter of 2014, the Company recorded an additional $0.1 million related to these state operating losses. No
valuation allowances were recorded for the year ended December 31, 2012.
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.
Legal Liabilities
In the ordinary course of business, the Company may become party to lawsuits, administrative proceedings, or
governmental investigations. These matters may involve large or unspecified damages or penalties that may be sought
from the Company and may require years to resolve. The Company records a liability related to a loss contingency to
such legal matters in accrued liabilities if the Company determines the loss to be both probable and estimable. The liability
is recorded for an amount that is management’s best estimate of the loss, or when a best estimate cannot be made, the
minimum loss amount of a range of possible outcomes. Significant judgment is required in estimating such liabilities, the
results of which can vary significantly from the actual outcomes of lawsuits, administrative proceedings or governmental
investigations.
Concentration of Credit Risk
Customers are primarily major and independent, domestic and international, oil and oil service companies, as well
as national oil companies and the U.S. military. 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 the relative age of customer
balances, historical losses, current economic conditions and individual evaluations of each customer to make adjustments
to the allowance for doubtful accounts.
F - 9
Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table represents the allowance for doubtful accounts (in thousands):
December 31,
2014
2013
2012
Balance, beginning of year ................................................................. $
Changes to provision ..........................................................................
Balance, end of year ........................................................................... $
3,411 $
3,028 $
282
383
3,693 $
3,411 $
1,253
1,775
3,028
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. No triggering events occurred in 2014, 2013 or 2012 and the Company did not record any
impairment losses related to its long-lived assets during these periods. The Company's review gave consideration to the
current market conditions, which include the recent commodity price decline and reduction in certain projected 2015
capital budgets for its customers. While the Company expects this environment to have a negative impact on vessel
utilization and dayrates, the Company views the deepwater and ultra deepwater projects of its customers, which is the
principal market for its vessel fleet, to be somewhat insulated from commodity price cycles compared to onshore shale
and shallow shelf offshore exploration and production activities. However, continued commodity price declines or
protracted extensions of the current price cycle could result in additional delays or cancellations of deepwater projects,
which is a major indicator of fleet utilization. Should this occur, the Company will update its analysis of whether a
triggering event has occurred.
Recent Accounting Pronouncements
On May 28, 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update (ASU)
No. 2014-09, "Revenue from Contracts with Customers" (Topic 606), which supersedes the revenue recognition
requirements in FASB Accounting Standard Codification (ASC) Topic 605, "Revenue Recognition." ASU No. 2014-09
requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
ASU 2014-09 requires retrospective application and will be effective for financial statements issued for fiscal years
beginning after December 15, 2016, and interim periods within those fiscal years. Early application is not permitted. The
Company is evaluating the effect of this new standard on its financial statements.
F - 10
Table of Contents
3. Earnings Per Share
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 securities.
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,
2014
2013
2012
Income from continuing operations (1) .............................................................................. $
Income from discontinued operations, net of tax (2) ..........................................................
Net income ....................................................................................................................... $
87,907
$
64,078
$
618
47,315
88,525
$
111,393
$
Weighted average number of shares of common stock outstanding ................................
Add: Net effect of dilutive stock options and unvested restricted stock (3)(4)(5) ...................
Weighted average number of dilutive shares of common stock outstanding ....................
36,172
520
36,692
35,895
653
36,548
Earnings per common share:
Basic earnings per common share from continuing operations ................................ $
Basic earnings per common share from discontinued operations ............................
Basic earnings per common share ........................................................................... $
Diluted earnings per common share from continuing operations .............................. $
Diluted earnings per common share from discontinued operations ..........................
Diluted earnings per common share ......................................................................... $
2.43
0.02
2.45
2.40
0.01
2.41
$
$
$
$
1.79
1.31
3.10
1.76
1.29
3.05
$
$
$
$
34,695
2,322
37,017
35,311
769
36,080
0.98
0.07
1.05
0.97
0.06
1.03
(1)
Income from continuing operations for the year ended December 31, 2013 includes a pre-tax loss on early extinguishment of debt of $25.8 million. Income
from continuing operations for the year ended December 31, 2012 includes a pre-tax loss on early extinguishment of debt of $6.0 million. See Note 6 for
further information regarding the Company’s debt.
(4)
(2) On August 29, 2013, the Company closed the sale of its Downstream segment. See Note 13 for further discussion of this transaction.
(3)
The Company had no anti-dilutive stock options for the years ended December 31, 2014, 2013 and 2012. 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.
For the year ended December 31, 2012, the 2026 convertible senior notes retired in November 2013 were not dilutive and for the years ended
December 31, 2014, 2013 and 2012 the 2019 convertible senior notes issued in August 2012 were not dilutive, as the average price of the Company’s
stock was less than the effective conversion price of such notes. It is the Company's stated intention to redeem the principal amount of our 2019
convertible senior notes in cash and the Company has used the treasury method for determining potential dilution in the diluted earnings per share
computation. See Note 6 for further information.
(5) Dilutive restricted stock is expected to fluctuate from quarter to quarter depending on 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, 2014, 2013 and 2012, the Company
made contributions to the 401(k) plan of approximately $6.0 million, $5.2 million, and $4.0 million, respectively. In
response to weak market conditions, the Company temporarily ceased matching contributions to the 401(k) plan effective
January 1, 2015.
F - 11
Table of Contents
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):
Offshore supply vessels and multi-purpose support vessels ................................ $
Non-vessel related property, plant and equipment................................................
Less: Accumulated depreciation ...........................................................................
Construction in progress .......................................................................................
104,789
(390,774)
1,997,898
461,588
$
2,459,486 $
102,136
(324,630)
1,531,918
593,456
2,125,374
December 31,
2014
2013
2,283,883 $
1,754,412
In November 2011, the Company announced, and has since expanded, its fifth OSV newbuild program. The
program consists of vessel construction contracts with three domestic shipyards to build four 300 class OSVs, five 310
class OSVs, ten 320 class OSVs and five 310 class MPSVs. As of December 31, 2014, the Company has placed 14
vessels in-service under its fifth newbuild program. Subsequent to year-end, the Company placed in service two additional
vessels under such program. The eight remaining vessels under this 24-vessel domestic newbuild program are currently
expected to be placed in service as follows: five in the remainder of 2015 and three in 2016. Based on current contracts
and internal estimates,the aggregate total cost of this program, before construction period interest, is expected to be
approximately $1,265.0 million. From the inception of this program through December 31, 2014, the Company has
incurred $1,032.4 million, or 81.6%, of total expected project costs.
In February 2015, the Company agreed to sell four of its 250EDF class OSVs currently chartered to the U.S. Navy
and to subsequently operate such vessels for the Navy under an operations and maintenance (O&M) contract, which
contains an initial term and annual renewal options spanning a 10-year operating period. These arrangements are subject
to final documentation. In order for the Navy to continue receiving the unique capabilities of these vessels, Congress has
required their purchase from the Company, provided an agreement could be reached. The details of this transaction are
currently being finalized and are expected to be completed in late-February with the O&M contract beginning immediately
upon closing of each respective vessel sale. However, the currently negotiated sales price for the vessels is greater than
their gross book values as of December 31, 2014.
6. Long-Term Debt
As of the dates indicated below, the Company had the following outstanding long-term debt (in thousands):
5.875% senior notes due 2020 ................................................................................................................... $
375,000
$
5.000% senior notes due 2021 ...................................................................................................................
1.500% convertible senior notes due 2019, net of original issue discount of $51,528 and $60,908 ...........
Revolving credit facility due 2020 ...............................................................................................................
450,000
248,472
—
375,000
450,000
239,092
—
$
1,073,472
$
1,064,092
December 31,
2014
2013
F - 12
Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The table below summarizes the Company's cash interest payments (in thousands):
5.875% senior notes due 2020 ......................................................... $
5.000% senior notes due 2021 .........................................................
1.500% convertible senior notes due 2019 .......................................
Semi-Annual Cash
Interest Payment
11,000
Payment Dates
April 1 and October 1
11,300 March 1 and September 1
2,300 March 1 and September 1
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):
2015 .................................................................................................................................................... $
2016 ....................................................................................................................................................
2017 ....................................................................................................................................................
2018 ....................................................................................................................................................
2019 ....................................................................................................................................................
Thereafter ...........................................................................................................................................
—
—
—
—
248,472
825,000
$
1,073,472
2020 Senior Notes
On March 2, 2012, the Company issued $375.0 million in aggregate principal amount of 2020 senior notes,
governed by an indenture, or the 2012 indenture. The net proceeds to the Company from the offering were approximately
$367.4 million, net of transaction costs. The Company used $259.9 million of proceeds on March 16, 2012 to repurchase
approximately 84% of its outstanding 2014 senior notes pursuant to its tender offer for such notes. The Company used
$49.5 million of proceeds on April 30, 2012 to redeem the remaining 16% of the outstanding 2014 senior notes. The
repurchase and redemption of the 2014 senior notes resulted in a loss on early extinguishment of debt of approximately
$6.0 million in 2012. The remaining proceeds were used for the construction of vessels under our fifth OSV newbuild
program. The 2020 senior notes mature on April 1, 2020 and require semi-annual interest payments at a fixed annual rate
of 5.875%, or $11.0 million semi-annually, on April 1 and October 1 of each year until maturity. The effective interest rate
on the 2020 senior notes is 6.08%. No principal payments are due until maturity. Pursuant to a registered exchange offer,
the 2020 senior notes issued in March 2012 that were initially sold pursuant to a private placement were exchanged by
the holders for 2020 senior notes with substantially the same terms, except that the issuance of the 2020 senior notes in
the exchange offer was registered under the Securities Act. The original 2020 senior notes and the similar notes
exchanged were issued under and are entitled to the benefits of the same 2012 indenture.
2021 Senior Notes
On March 14, 2013, the Company issued $450.0 million in aggregate principal amount of 2021 senior notes,
governed by an indenture, or the 2013 indenture. The net proceeds to the Company from the offering were approximately
$442.4 million, net of estimated transaction costs. The Company used $252.7 million of such proceeds to repurchase
approximately 94% of the outstanding 2017 senior notes pursuant to its tender offer for such notes. The Company used
approximately $16.6 million of proceeds on May 13, 2013 to redeem the remaining 6% of the outstanding 2017 senior
notes. The repurchase and redemption of the 2017 senior notes resulted in a loss on early extinguishment of debt of
approximately $25.8 million in 2013. The remaining proceeds have been available for general corporate purposes, which
may include funding for the acquisition, construction or retrofit of vessels. The 2021 senior notes mature on March 1, 2021
and require semi-annual interest payments at a fixed annual rate of 5.000%, or $11.3 million due and payable each March
1 and September 1 of each year until maturity, commencing September 1, 2013. The effective interest rate on the new
senior notes is 5.21%. No principal payments are due until maturity. Pursuant to a registered exchange offer, the 2021
senior notes issued in March 2013 that were initially sold pursuant to a private placement were exchanged by the holders
F - 13
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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
for 2021 senior notes with substantially the same terms, except that the issuance of the 2021 senior notes in the
exchange offer was registered under the Securities Act. The original 2021 senior notes and the similar notes exchanged
were issued under and are entitled to the benefits of the same 2013 indenture.
The 2020 senior notes and 2021 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. The 2020 senior notes and the 2021 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 regulations.
Hornbeck Offshore Services, Inc., as the parent company issuer of the 2020 senior notes and the 2021 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. The Company may, at its option, redeem all or part of the 2020 senior notes or 2021
senior notes from time to time at specified redemption prices and subject to certain conditions required by the indentures.
The Company is permitted under the terms of the indentures to incur additional indebtedness in the future, provided that
certain financial conditions set forth in the indentures are satisfied by the Company.
2019 Convertible Senior Notes
On August 13, 2012, the Company issued $300.0 million of 2019 convertible senior notes. The 2019 convertible
senior notes bear interest at a fixed annual rate of 1.500%, or $2.3 million semi-annually, which started accruing from
August 13, 2012, and are payable semi-annually on March 1 and September 1 of each year, commencing on March 1,
2013. The 2019 convertible senior notes mature on September 1, 2019.
Because the 2019 convertible senior notes are considered to be cash convertible debt, the Company has separately
accounted for the liability and equity components of the 2019 convertible senior notes by allocating the $300.0 million in
proceeds from the issuance between the liability component and the embedded conversion option, or the equity
component. The allocation was conducted by estimating an interest rate at the time of issuance of the 2019 convertible
senior notes for similar debt instruments that do not include an embedded conversion feature. A non-convertible interest
rate of 5.75% was used to compute the initial fair value of the liability component of $227.6 million. For purposes of the fair
value measurement, the Company determined that the valuation of the 2019 convertible senior notes falls under Level 2
of the fair value hierarchy. The excess of the $300.0 million of proceeds from the issuance of the 2019 convertible senior
notes over the $227.6 million initial amount allocated to the liability component, or $72.4 million, was allocated to the
embedded conversion option, or equity component. This excess was treated as an imputed original issue discount and is
being amortized through interest expense, using the effective interest method, over the seven-year term of the 2019
convertible senior notes, which runs through September 1, 2019. The effective interest rate for these notes is 6.23%.
The initial conversion rate of the 2019 convertible senior notes is 18.5718 shares per $1,000 principal amount of
notes, which equates to a conversion price of approximately $53.85 per share. The conversion rate was based on the last
reported sale price of the Company’s common shares on the New York Stock Exchange of $39.16 on August 7, 2012.
The conversion rate will be subject to adjustment in some events but will not be adjusted for accrued interest. In addition,
following certain corporate transactions that constitute “fundamental changes” (as defined in the indenture for the 2019
convertible senior notes), the conversion rate will be increased for holders who elect to convert notes in connection with
such corporate transactions in certain circumstances.
The 2019 convertible senior notes are convertible based on the applicable conversion rate only under the following
circumstances:
•
•
prior to June 1, 2019, during any fiscal quarter (and only during that fiscal quarter) commencing after
December 31, 2012, if the last reported sale price of the Company’s common stock is greater than or equal to
135% of the conversion price for at least 20 trading days in the period of 30 consecutive trading days ending on
the last trading day of the preceding fiscal quarter; or
prior to June 1, 2019, during the 5 business-day period after any 10 consecutive trading-day period (the
“measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day in the
F - 14
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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
measurement period was less than 95% of the product of the last reported sale price of the Company’s common
stock and the conversion rate on such trading day; or
upon the occurrence of specified corporate transactions, as defined in the indenture governing the 2019
convertible senior notes; or
beginning on June 1, 2019 until the close of business on the second scheduled trading day preceding the maturity
date.
•
•
Upon conversion, the Company will satisfy its conversion obligation by paying or delivering, as the case may be,
cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election.
If the holders of the 2019 convertible senior notes exercise the conversion provisions of the 2019 convertible senior
notes and the Company elects to settle such conversions partially in cash (which it presently intends to do at least up to
the principal amount of the notes), the Company will need to remit such cash amount to the converting holders. For that
reason, in any period during which the 2019 convertible senior notes are convertible as provided above, the Company
would classify the entire principal amount of the outstanding 2019 convertible senior notes as a current liability in the
respective quarter. This evaluation of the classification of amounts outstanding associated with the 2019 convertible
senior notes will occur every calendar quarter.
The 2019 convertible senior notes are not redeemable at the option of the Company prior to their maturity. No
sinking fund is provided for the 2019 convertible senior notes and the 2019 convertible senior notes are not subject to
legal defeasance. If the Company experiences specified types of corporate transactions, including certain change of
control events or a de-listing of the Company’s common stock, holders of the 2019 convertible senior notes may require
the Company to purchase all or a portion of their 2019 convertible senior notes. Any repurchase of the convertible senior
notes pursuant to these provisions will be for cash at a price equal to 100% of the principal amount of the notes to be
purchased plus any accrued and unpaid interest to, but excluding, the purchase date.
In connection with the sale of the 2019 convertible senior notes, the Company entered into convertible senior note
hedge transactions with respect to its common stock with affiliates of the initial purchasers of the notes, Barclays, Inc., JP
Morgan Chase and Wells Fargo Bank, or the counterparties. Each of the 2019 convertible senior note hedge transactions
is a privately-negotiated transaction that is economically equivalent to the purchase of call options on the Company’s
common stock with strike prices equal to the conversion price of the 2019 convertible senior notes, and is intended to
mitigate dilution to the Company’s stockholders and/or offset cash payment due upon the potential future conversion of
the 2019 convertible senior notes. Under the 2019 convertible senior note hedge transactions, subject to customary anti-
dilution provisions, the counterparties are required to deliver to the Company the approximate number of shares of the
Company’s common stock and/or an amount of cash that the Company is obligated to deliver to the holders of the 2019
convertible senior notes assuming the conversion of such notes.
The Company also entered into separate privately-negotiated warrant transactions, whereby the Company sold to
each of the counterparties call options to acquire approximately the same number of shares of its common stock
underlying the convertible senior note hedge transactions, subject to customary anti-dilution adjustments, at a strike price
of $68.53 per share of common stock, which represented a 75.0% premium over the closing price of the Company’s
shares of common stock on August 7, 2012. Upon the exercise of the warrants, if the market price of the common stock
exceeds the strike price of the warrants on any day within the valuation period, the Company will be required to deliver the
corresponding value to the counterparties, at its option in cash or shares of its common stock. The 2019 convertible senior
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 2019 convertible senior notes.
For income tax reporting purposes, the Company has elected to integrate the 2019 convertible senior notes and the
note hedge transactions. Integration of the 2019 convertible senior note hedge with the 2019 convertible senior notes
creates an in-substance original issue debt discount for income tax reporting purposes and, therefore, the cost of the 2019
convertible senior note hedge is accounted for as interest expense over the term of the 2019 convertible senior notes for
income tax reporting purposes. The associated income tax deductions will be recognized in the period that the deduction
F - 15
Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 $290.8 million in net proceeds of the 2019 convertible senior notes offering,
along with a portion of the $48.2 million in proceeds from the sale of warrants, to fund the $73.0 million cost of convertible
senior note hedge transactions. The Company used a portion of the remaining net proceeds of approximately $266.0
million from the sale of the 2019 convertible senior notes and the sale of the warrants to retire its 2026 convertible senior
notes, which were converted or redeemed by the Company in November 2013.
The Company incurred $9.3 million of fees and other costs related to the issuance of the 2019 convertible senior
notes. These fees and other origination costs have been allocated to the liability and equity components of the 2019
convertible senior notes in proportion to their allocated values. Approximately $2.2 million of these fees and other
origination costs were recorded as a reduction in additional paid-in capital. The remaining $7.1 million of fees and other
costs are being amortized as interest expense over the seven-year term of the 2019 convertible senior notes, which runs
through September 1, 2019.
The 2019 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 the
Securities and Exchange Commission, or Commission, regulations. Hornbeck Offshore Services, Inc., as the parent
company issuer of the 2019 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. The 2019 convertible senior 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 2020 and 2021 senior notes.
Revolving Credit Facility
On February 6, 2015, the Company amended and restated its revolving credit facility. The key changes to the
Company’s revolving credit facility were effective commencing with the fiscal quarter ended December 31, 2014 and are
noted below:
•
•
•
•
•
•
extend the maturity from November 2016 to February 2020, unless the Company’s 2020 senior notes remain
outstanding on October 1, 2019, in which case the facility would mature on such date;
provide that, if the Company's 2019 convertible senior notes remain outstanding on March 1, 2019, the
Company is required to maintain a specified minimum liquidity until after redemption or refinancing of the
convertible senior notes;
substitute new vessels as collateral and reduce the number of vessels pledged from 23 OSVs valued in
excess of $600 million to 10 OSVs valued in excess $450 million, in accordance with a reduction in the
minimum collateral-to-loan value ratio from 200% of the borrowing base to 150% of the borrowing base;
replace the prior debt-to-EBITDA leverage ratios with a new total debt-to-capitalization ratio, as defined, as a
financial covenant and for pricing determination;
set the maximum total debt-to-capitalization ratio, as defined, at 55% for the first nine fiscal quarters beginning
with the quarter ended December 31, 2014 and stepping down to 50% for each fiscal quarter thereafter;
increase the aggregate amount of restricted payments, as defined, that may be made by the Company from
$37.5 million to $125.0 million plus 50% of the Company’s cumulative consolidated net income from January
1, 2006 to the end of the most recently ended fiscal quarter for which internal financial statements are
available at the time of such restricted payment, as defined, subject to cash or cash equivalents or availability
maintenance requirements.
Other than these key changes, all other definitions and substantive terms in the Company’s credit agreement
governing its revolving credit facility were unchanged with the February 2015 amendment and remain in effect through the
remaining life of the facility.
F - 16
Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, 2014, there were no amounts drawn under the Company’s $300.0 million revolving credit facility
and $0.8 million posted in letters of credit. As of December 31, 2014, the Company was in compliance with all financial
covenants contained in its amended revolving credit facility.
The credit agreement governing the amended revolving credit facility and the indentures governing the Company’s
2020 senior notes and 2021 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 2020 senior notes, 2021 senior notes and 2019 convertible senior notes
by primarily 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 $1,125.0 million, $1,073.5 million and $955.0 million, respectively, as of December 31, 2014. Given the
observable nature of the inputs to these estimates, the fair values presented for long-term debt have been assigned a
Level 2, of the three-level valuation hierarchy.
Capitalized Interest
Interest expense excludes capitalized interest related to the construction or conversion of vessels in the approximate
amount of $33.2 million, $31.2 million, and $11.0 million, for the years ended December 31, 2014, 2013, and 2012,
respectively.
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
On July 1, 2013, the Company’s Board of Directors implemented a stockholder rights plan 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 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. This
stockholder rights plan is substantially similar to the Company's prior stockholder rights plan that expired on June 17,
2013.
Repurchases of Common Stock
On October 28, 2014, the Company's Board of Directors authorized the Company to repurchase up to $150.0 million
in shares of its common stock using different methods including, but not limited to, open-market purchases, privately
negotiated transactions, accelerated share repurchases and Rule 10b5-1 trading plans. The timing and amount of the
repurchases will depend on several factors, such as market conditions, applicable legal requirements, available liquidity,
the discretion of management and other appropriate factors. The repurchase program does not obligate the Company to
acquire any particular amount of common stock and may be modified, suspended or discontinued at any time. As of
December 31, 2014, the Company had repurchased and retired 891,396 shares at an average price of $28.05 per share.
The repurchased shares cost a total of $25 million and represent roughly 2.5% of the Company's total shares outstanding
prior to the commencement of the program.The following table provides information with respect to purchases of common
stock under the repurchase program during the year ended December 31, 2014 (in thousands, except for per share data):
F - 17
Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Period
Total Number
of Shares
Purchased
Average
Price Paid
per Share
Total Number
of Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs
Maximum
Number (or
Approximate
Dollar Value)
of Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
October 1, 2014 - October 31, 2014 ............................
November 1, 2014 - November 30, 2014 ....................
December 1, 2014 - December 31, 2014 ....................
—
618 $
273 $
—
28.92
26.06
— $
618 $
891 $
150,000
132,117
125,000
8. Stock-Based Compensation
Incentive Compensation Plan
The Company’s stock-based incentive compensation plan covers a maximum of 4.2 million shares of common stock
that allows the Company to grant restricted stock awards, restricted stock unit awards, or collectively restricted stock,
stock options and stock appreciation rights to employees and directors. As of December 31, 2014, there were 424,587
shares available for future issuance to employees under the incentive compensation plan. 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 financial impact of stock-based compensation expense related to the Company’s incentive compensation plan
on its operating results are reflected in the table below (in thousands, except for per share data):
Income before taxes ............................................................................. $
Net income ........................................................................................... $
Earnings per common share:
Year Ended December 31,
2014
2013
2012
10,324 $
6,471 $
11,888 $
7,581 $
10,805
6,695
Basic .............................................................................................. $
Diluted ............................................................................................ $
0.18 $
0.18 $
0.21 $
0.21 $
0.19
0.19
The accounting rules also require 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 $0.0 million, $2.7 million, and $0.9 million for the years ended
December 31, 2014, 2013, and 2012, respectively. Net cash proceeds from the exercise of stock options were $1.4
million, $6.2 million, and $1.8 million for the years ended December 31, 2014, 2013, and 2012, respectively. The income
tax benefit from stock option exercises and restricted stock vesting was $0.4 million, $4.8 million, and $3.0 million for the
respective periods.
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 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 expire ten years after the date of grant, have an exercise price equal to or greater than the actual or
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Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
estimated market price of the Company’s stock on the date of grant and vest over a three-year period. The Company has
not granted stock options to any directors, executive officers or employees since 2011.
The following table represents the Company’s stock option activity for the year ended December 31, 2014 (in
thousands, except per share data and years):
Options outstanding at January 1, 2014 .............................
Grants .................................................................................
Exercised ............................................................................
Forfeited or expired .............................................................
Options outstanding at December 31, 2014........................
Exercisable options outstanding at December 31, 2014 .....
Number of
Shares
Weighted
Average
Exercise Price
27.16
—
22.49
—
27.98
27.98
405 $
—
(60)
—
345 $
345 $
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
4.2 $
—
n/a
n/a
3.7 $
3.7 $
8,951
—
684
n/a
59
59
The following table represents the Company’s stock option activity for the year ended December 31, 2013 (in
thousands, except per share data and years):
Options outstanding at January 1, 2013 .............................
Grants .................................................................................
Exercised ............................................................................
Forfeited or expired .............................................................
Options outstanding at December 31, 2013........................
Exercisable options outstanding at December 31, 2013 .....
Number of
Shares
Weighted
Average
Exercise Price
23.30
—
18.57
27.90
27.16
27.59
737 $
—
(331)
(1)
405 $
342 $
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
3.6 $
—
n/a
n/a
4.2 $
3.6 $
8,144
—
10,119
n/a
8,951
7,405
The following table represents the Company’s stock option activity for the year ended December 31, 2012 (in
thousands, except per share data and years):
Number of
Shares
Weighted
Average
Exercise Price
21.96
—
14.25
25.16
23.30
22.98
888 $
—
(129)
(22)
737 $
610 $
Options outstanding at January 1, 2012 .............................
Grants .................................................................................
Exercised ............................................................................
Forfeited or expired .............................................................
Options outstanding at December 31, 2012........................
Exercisable options outstanding at December 31, 2012 .....
F - 19
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
4.2 $
—
n/a
n/a
3.6 $
2.7 $
8,411
—
3,194
n/a
8,144
6,942
Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table represents the Company’s nonvested stock option activity for the year ended December 31, 2014
(in thousands, except per share data):
Nonvested stock options at January 1, 2014 ...................................................
Grants .............................................................................................................
Vested .............................................................................................................
Forfeited ..........................................................................................................
Nonvested stock options at December 31, 2014 .............................................
Number of
Shares
Weighted-Average
Grant-Date Fair Value
12.21
—
12.21
—
—
63 $
—
(63)
—
— $
As of December 31, 2014, the Company had no unamortized stock-based compensation expense and had recorded
approximately $0.1 million of compensation expense during 2014, associated with stock options.
Restricted Stock
Equity-Settled 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, or market based 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
stock price performance relative to a peer group, as defined by the restricted stock unit agreements governing such
awards. Compensation expense for such types of awards has historically been measured using a Monte Carlo simulation
to project the change in the Company's stock price against a peer group to determine fair value, which is amortized over
the vesting period of three years. 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 prior to 2012. The second type of
performance-based restricted stock unit award, calculates the shares to be received based on the Company’s
achievement of certain internal performance criteria over a three-year period as defined by the restricted stock unit
agreement governing such awards. Performance for these types of awards has historically been measured by a number
of factors that may differ from year to year, including such examples as the Company achieving a targeted return on
invested capital, Upstream operating profit margin, and safety record. The actual number of shares that could be received
by the award recipients for the years in question can range from 0% to 150% of the Company’s base share awards
depending on the number and/or extent of performance goals attained by the Company. This type of performance-based
restricted stock unit was granted in 2012, 2013 and 2014. Compensation expense related to performance-based restricted
stock unit awards, which use internal performance criteria, is recognized over the period the restrictions lapse, from one to
three years, based on the market price of the Company's stock on the date of grant applied to the shares that are
expected to vest. The compensation expense related to time-based restricted stock awards, which is amortized over a
one to three-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, 2014, the Company had unamortized
stock-based compensation expense of $10.6 million, which will be recognized on a straight-line basis over the remaining
vesting period, or 1.6 years. In addition, the Company has recorded approximately $9.0 million of compensation expense
during the year ended December 31, 2014 associated with restricted stock-based unit awards.
F - 20
Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes the equity-settled restricted stock awards activity during the year ended
December 31, 2014 (in thousands, except per share data):
Restricted stock awards:
Restricted stock awards as of January 1, 2014 ...........................................
Granted during the period ............................................................................
Cancellations during the period ...................................................................
Vested ..........................................................................................................
Outstanding, as of December 31, 2014 .......................................................
Number of
Shares
Weighted Avg.
Fair Value Per Share
570 $
238
—
(254)
554 $
31.61
42.57
—
30.68
36.76
The following table summarizes the equity-settled restricted stock awards activity during the year ended
December 31, 2013 (in thousands, except per share data):
Restricted stock awards:
Restricted stock awards as of January 1, 2013 ...........................................
Granted during the period ............................................................................
Cancellations during the period ...................................................................
Vested ..........................................................................................................
Outstanding, as of December 31, 2013 .......................................................
Number of
Shares
Weighted Avg.
Fair Value Per Share
660 $
206
(6)
(290)
570 $
25.83
40.11
29.86
24.51
31.61
The following table summarizes the equity-settled restricted stock awards activity during the year ended
December 31, 2012 (in thousands, except per share data):
Restricted stock awards:
Restricted stock awards as of January 1, 2012 ......................................
Granted during the period ......................................................................
Cancellations during the period(1) ...........................................................
Vested ....................................................................................................
Outstanding, as of December 31, 2012 ..................................................
Number of
Shares
Weighted Avg.
Fair Value Per Share
800 $
251
(51)
(340)
660 $
20.72
25.94
25.11
22.47
25.83
(1)
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.
Cash-Settled Restricted Stock
The Company’s incentive compensation plan allows the Company to issue restricted stock units with cash-settled
vesting provisions. The compensation expense related to cash-settled phantom restricted stock awards is amortized over
a vesting period of up to three years, as applicable, and 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. The cash-settled phantom restricted stock
units are re-measured quarterly based on the period-end market price of the Company's common stock and are classified
as a liability, due to the settlement of these awards in cash. This type of phantom time-based restricted stock unit was
granted in 2014 and 2013. As of December 31, 2014, the Company had unamortized cash-settled phantom compensation
F - 21
Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
expense of $0.9 million, which will be recognized on a straight-line basis over the remaining vesting period, or 1.5 years.
In addition, as a result of its stock price decline in 2014, the Company recorded a reduction to compensation expense of
approximately $0.1 million during the year ended December 31, 2014 associated with cash-settled phantom awards.
The following table summarizes the phantom cash-settled restricted stock awards activity during the year ended
December 31, 2014 (in thousands, except per share data):
Cash-settled restricted stock awards:
Phantom cash-settled restricted stock awards as of January 1, 2014 .........
Granted during the period ............................................................................
Cancellations during the period ...................................................................
Vested ..........................................................................................................
Outstanding, as of December 31, 2014 .......................................................
Number of
Shares
Weighted Avg.
Fair Value Per Share
(1)
139 $
35
(3)
(18)
153 $
37.25
43.00
39.14
37.88
38.43
(1)
The weighted average fair value per share is determined by the stock price on the date of grant for time-based shares.
The following table summarizes the phantom cash-settled restricted stock awards activity during the year ended
December 31, 2013 (in thousands, except per share data):
Cash-Settled restricted stock awards:
Phantom cash-settled restricted stock awards as of January 1, 2013 .........
Granted during the period ............................................................................
Cancellations during the period ...................................................................
Vested ..........................................................................................................
Outstanding, as of December 31, 2013 .......................................................
Number of
Shares
Weighted Avg.
Fair Value Per Share(1)
135 $
22
(6)
(12)
139 $
36.92
39.31
37.77
36.98
37.25
(1)
The weighted average fair value per share is determined by the stock price on the date of grant for time-based shares.
The following table summarizes the phantom cash-settled restricted stock awards activity during the year ended
December 31, 2012 (in thousands, except per share data):
Cash-Settled restricted stock awards:
Phantom cash-settled restricted stock awards as of January 1, 2012....
Granted during the period ......................................................................
Cancellations during the period ..............................................................
Vested ....................................................................................................
Outstanding, as of December 31, 2012 ..................................................
Number of
Shares
Weighted Avg.
Fair Value Per Share(1)
— $
140
(5)
—
135 $
—
36.92
36.90
—
36.92
(1)
The weighted average fair value per share is determined by the stock price on the date of grant for time-based shares.
F - 22
Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 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, 2014, there were 45,899 shares available for
future issuance to employees under the ESPP. The Company has recorded approximately $1.2 million of compensation
expense during the year ended December 31, 2014 associated with 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, 2014 and 2013:
Dividend yield ............................................................................................................
Expected volatility ......................................................................................................
Risk-free interest rate ................................................................................................
Expected term (months) ............................................................................................
Weighted-average grant-date fair value per share ..................................................... $
0 %
38.3 %
0.1 %
6
9.43
$
0 %
32.4 %
0.1 %
6
9.94
2014
2013
F - 23
Table of Contents
9. Income Taxes
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The net long-term deferred tax liabilities in the accompanying consolidated balance sheets include the following
components (in thousands):
Deferred tax liabilities:
Fixed assets .............................................................................. $
Deferred charges and other liabilities ........................................
Total deferred tax liabilities ..................................................
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 ...................................................................
Total deferred tax liabilities, net ........................................... $
Current deferred tax assets, net ....................................................... $
Long-term deferred tax liabilities, net ...............................................
Year Ended December 31,
2014
2013
2012
489,060 $
418,614 $
18,013
507,073
(116,676)
(1,330)
(4,246)
(20,863)
(12,332)
(5,676)
18,501
437,115
(97,817)
(1,228)
(4,128)
(21,437)
(10,404)
(7,067)
444,733
17,346
462,079
(181,445)
(1,099)
(4,763)
(20,863)
(6,426)
(5,725)
(161,123)
(142,081)
(220,321)
1,011
912
346,961 $
295,946 $
45,531 $
72,470 $
392,492
368,416
—
241,758
28,720
270,478
241,758
Total deferred tax liabilities, net ................................................. $
346,961 $
295,946 $
The components of the income tax expense follow (in thousands):
Year Ended December 31,
2014
2013
2012
Current tax expense:
U.S. ............................................................................................... $
Foreign ..........................................................................................
Total current tax expense ..............................................................
— $
— $
1,927
1,927
4,000
4,000
—
1,016
1,016
Deferred tax expense:
U.S. ...............................................................................................
Total tax expense .......................................................................... $
50,440
32,320
52,367 $
36,320 $
20,368
21,384
Income from continuing operations before income taxes, based on jurisdiction earned, was as follows (in thousands):
U.S. ..................................................................................................... $
Foreign ................................................................................................
105,066 $
84,591 $
35,208
15,807
Total income from continuing operations before income taxes...... $
140,274 $
100,398 $
40,175
15,904
56,079
Year Ended December 31,
2014
2013
2012
F - 24
Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
At December 31, 2014, the Company had federal tax net operating loss carryforwards of approximately $329.4
million, which will expire in 2030 through 2032 and foreign tax credit carryforwards of approximately $12.3 million, which
will expire in 2019 through 2024. The amount of net operating loss carryforwards expected to be used in 2015 have been
included as a current deferred tax asset as of December 31, 2014. The Company has state tax net operating loss
carryforwards of approximately $96.0 million, which will expire in 2025 through 2032 and can only be utilized if the
Company generates taxable income in particular tax jurisdictions.
Based on historical and projected operating results, the Company believed that no valuation allowance was
necessary for its deferred tax assets prior to 2013. As a result of the sale of the Downstream segment during the third
quarter of 2013, the Company believes that certain state operating loss carryforwards may not be realizable and thus
recorded a valuation allowance of $0.9 million as of December 31, 2013. During the third quarter of 2014, the Company
recorded an additional $0.1 million related to these state operating losses. In the third quarter of 2013, the Company
changed its deferred tax rate to reflect that it will not have future operations in certain states where the Downstream
segment operated, resulting in a favorable tax adjustment of $2.8 million.
The Company is no longer subject to tax audits by federal, state or local taxing authorities for years prior to 2010.
The Company has ongoing examinations by various foreign tax authorities but does not believe that the results of these
examinations will have a material adverse effect on the Company’s financial position or results of operations.
The following table reconciles the difference between the Company’s income tax provision calculated at the federal
statutory rate of 35% and the actual income tax provision (in thousands):
Year Ended December 31,
2014
2013
2012
Statutory rate ....................................................................................... $
State taxes, net ....................................................................................
Non-deductible expense ......................................................................
Valuation allowance .............................................................................
Change in deferred tax rate .................................................................
Foreign taxes and other .......................................................................
49,096 $
35,140 $
1,403
1,927
99
—
(158)
1,183
1,688
912
(2,802)
199
19,627
729
1,043
—
—
(15)
$
52,367 $
36,320 $
21,384
10. Commitments and Contingencies
Vessel Construction
In November 2011, the Company announced, and has since expanded, its fifth OSV newbuild program. The program
now consists of vessel construction contracts with three domestic shipyards to build four 300 class OSVs, five 310 class
OSVs, ten 320 class OSVs and five 310 class MPSVs. As of December 31, 2014, the Company had placed 14 vessels in
service under such program. Subsequent to year-end, two additional vessels were placed in service under such program.
The eight remaining vessels under this 24-vessel domestic newbuild program are currently expected to be placed in
service as follows: five in the remainder of 2015 and three in 2016. Based on current contracts and internal estimates, the
aggregate total cost of this program, before construction period interest, is expected to be approximately $1,265.0 million.
From the inception of this program through December 31, 2014, the Company has incurred construction costs of
approximately $1,032.4 million, or 81.6%, of total expected project costs.
Operating Leases
The Company is obligated under certain operating leases for office space and shore-base facilities. The Covington
facility lease commenced on July 1, 2012 and provides for an initial term expiring in September 2025 with three additional
five-year renewal period options. 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
F - 25
Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
estate as an adjacent addition to HOS Port, its existing shore-base facility located in Port Fourchon, Louisiana. At
December 31, 2014, this latter facility lease had approximately four years remaining on its first renewal option term, with
three additional five-year renewal periods. Rent expense related to operating leases was approximately $3.9 million, $3.6
million and $2.6 million for the years ending December 31, 2014, 2013 and 2012, respectively.
Future minimum payments under noncancelable leases for years subsequent to 2014 are as follows (in thousands):
Year Ended December 31,
2015 ..................................................................................................................................................... $
2016 .....................................................................................................................................................
2017 .....................................................................................................................................................
2018 .....................................................................................................................................................
2019 .....................................................................................................................................................
Thereafter .............................................................................................................................................
Total ...................................................................................................................................................... $
2,928
2,289
2,334
2,359
2,406
29,642
41,958
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. The Company provides reserves for 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 claims 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.
Vessel charters with Petrobras include limitations regarding fuel consumption. Petrobras has asserted claims against
the Company relating to excess fuel consumption. The Company’s exposure for these assessments, net of amounts
accrued, is in the range of approximately $0.5 million to $3.0 million. The Company disagrees with a majority of these
assessments. While the Company cannot currently estimate the amounts or timing of the resolution of these matters, the
Company believes that the outcome will not have a material impact on its liquidity or financial position, but the ultimate
resolution could have a material impact on its interim or annual results of operations.
During 2013, the Company commenced the process of assigning the in-country vessel management services for its
four vessels operating in Brazil from a third party provider to a wholly-owned subsidiary of the Company. As a result, this
assignment may be interpreted by local authorities as a new importation of these vessels resulting in an importation
assessment ranging from $0.5 million to $3.5 million. The Company disagrees with this interpretation and, as of
December 31, 2014, these potential duties have not been assessed or recorded in its financial statements. While the
Company cannot estimate the amounts or timing of the resolution of this matter, the Company believes that the outcome
will not have a material impact on its liquidity or financial position, but the ultimate resolution could have a material impact
on its interim or annual results of operations.
During 2012, an Upstream customer, ATP Oil and Gas, Inc., initiated a reorganization proceeding under Chapter 11
of the United States Bankruptcy Code. Pre-petition receivables from ATP were $4.8 million and the Company has
recorded $0.9 million in reserves. While the Company believes that the net receivables are collectible, it will continue to
monitor the proceedings, which may result in actual collections that may differ from the current estimate.
F - 26
Table of Contents
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 $9,586 and $5,805,
respectively ................................................................................................................. $
Deferred drydocking costs, net of accumulated amortization of $38,429 and
$36,408, respectively ..................................................................................................
Prepaid lease expense, net of amortization of $1,384 and $1,226, respectively ........
Total ...................................................................................................................... $
68,953 $
Year Ended December 31,
2014
2013
17,884 $
21,763
48,064
3,005
49,149
3,163
74,075
12. Major Customers
In the years ended December 31, 2014, 2013, and 2012, revenues from the following customers represent 10% or
more of consolidated revenues:
Year Ended December 31,
2014
2013
2012
Customer A ......................................................................
Customer B ......................................................................
Customer C ......................................................................
Customer D ......................................................................
Customer E ......................................................................
14%
n/a (1)
n/a (1)
n/a (1)
n/a (1)
12%
16%
10%
n/a (1)
n/a (1)
n/a (1)
n/a (1)
n/a (1)
19%
14%
(1) Customers represent less than 10% of consolidated revenue in each such year.
13. Discontinued Operations
On August 29, 2013, the Company closed the sale of substantially all of the assets and business of its Downstream
segment's tug and tank barge fleet to Genesis Marine, LLC, an affiliate of Genesis Energy L.P. (NYSE:GEL), for net cash
proceeds of approximately of $227.5 million, after deal costs. The sale resulted in a gain of $60.0 million ($38.1 million
after-tax or $1.04 per diluted share). Excluded from the sale were three older, lower-horsepower tugs considered to be
non-core assets. During the twelve months ended December 31, 2014, the remaining tugs were sold for net cash
proceeds of $1.6 million. These sales resulted in a pre-tax gain of approximately $0.9 million ($0.6 million after-tax or
$0.02 per diluted share.) The historical results for the Downstream segment and the gain on the sale thereof have been
presented as discontinued operations for all periods in the accompanying condensed consolidated financial statements.
F - 27
Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Summarized results of the Downstream segment from discontinued operations are as follows (in thousands):
Revenue .......................................................................................................... $
Gain on sale of assets .....................................................................................
Operating Income ............................................................................................
Income before income taxes ............................................................................
Income tax expense .........................................................................................
Income from discontinued operations ..............................................................
Year Ended December 31,
2014
12
867
555
966
348
618
2013
$ 43,318
60,076
74,278
74,280
26,965
47,315
2012
$ 49,429
624
3,663
3,664
1,342
2,322
As of December 31, 2014 and December 31, 2013, the aggregate components of assets and liabilities classified as
discontinued operations consisted of the following (in thousands):
As of
December 31,
2014
As of
December 31,
2013
Assets:
Other current assets ......................................................................................................... $
Total current assets ...........................................................................................................
Property, plant and equipment, net ...................................................................................
Total assets ....................................................................................................................... $
470
470
—
470
$
$
1,578
1,578
759
2,337
Liabilities:
Accrued payroll and benefits ............................................................................................. $
Other accrued liabilities .....................................................................................................
Total current liabilities ........................................................................................................
Other liabilities ..................................................................................................................
Total liabilities .................................................................................................................... $
— $
1
1
1,560
1,561
$
2
115
117
306
423
At the closing of the sale, the Company entered into transition service agreements with Genesis to facilitate the
transition of the sale of the business, including ship management agreements and a crew management agreement,
pursuant to which the Company provides services related to the operation and management of the vessels as well as
supplying some of the marine crews for those vessels during the transition period. As of December 31, 2014, all of the
transition service agreements had terminated.
14. 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, an Operating Margin target and a Safety target, as well as a discretionary component,
established by the Compensation Committee of the Company’s Board of Directors, 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. The current term of these employment
agreements expires on December 31, 2017 and automatically extends each year thereafter on January 1st, for an
additional year.
F - 28
Table of Contents
HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
15. 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 2014 and 2013. The operating results for any quarter are not necessarily
indicative of results for any future period.
Fiscal Year 2014(1)
Quarter Ended
Mar 31
Jun 30
Sep 30
Dec 31
Revenues ................................................................................................ $136,585 $171,099 $166,890 $160,219
Operating income (2) ................................................................................
37,402
18,769
Income from continuing operations .........................................................
402
Income from discontinued operations, net of tax ....................................
Net income ..............................................................................................
19,171
Earnings (loss) per common share: ........................................................
50,234
26,559
(204)
26,355
25,028
11,354
412
11,766
56,756
31,225
8
31,233
Basic earnings per common share from continuing operations ........ $
Basic earnings per common share from discontinued operations ....
Basic earnings per common share ................................................... $
Diluted earnings per common share from continuing operations...... $
Diluted earnings per common share from discontinued operations..
Diluted earnings per common share ................................................. $
0.32 $
0.01
0.33 $
0.31 $
0.01
0.32 $
0.86 $
—
0.86 $
0.85 $
—
0.85 $
0.73 $
(0.01)
0.72 $
0.72 $
(0.01)
0.71 $
0.52
0.02
0.54
0.52
0.01
0.53
Fiscal Year 2013(1)(3)
Revenues ................................................................................................ $132,526 $137,811 $132,915 $144,893
43,650
Operating income ...................................................................................
Income from continuing operations(4) ......................................................
22,087
Income from discontinued operations, net of tax(5)..................................
153
Net income ..............................................................................................
22,240
Earnings per common share:
43,817
3,928
2,231
6,159
37,188
17,796
41,368
59,164
46,448
20,266
3,564
23,830
Basic earnings per common share from continuing operations ........ $
Basic earnings per common share from discontinued operations ....
Basic earnings per common share ................................................... $
Diluted earnings per common share from continuing operations...... $
Diluted earnings per common share from discontinued operations..
Diluted earnings per common share ................................................. $
0.11 $
0.06
0.17 $
0.11 $
0.06
0.17 $
0.56 $
0.10
0.66 $
0.55 $
0.10
0.65 $
0.49 $
1.15
1.64 $
0.49 $
1.12
1.61 $
0.62
—
0.62
0.61
—
0.61
The sum of the four quarters may not equal annual results due to rounding.
(1)
(2) Results for the quarter ended June 30, 2014 were favorably impacted by record effective dayrates achieved by the Company's MPSV fleet and
contributions from vessels delivered under the Company's fifth OSV newbuild program. The results for the quarter ended December 31, 2014 were
unfavorably impacted by soft market conditions for OSVs in the GoM.
(3) Results for the quarter ended September 30, 2013 were unfavorably impacted by the mobilization of four 240 class vessels from Brazil to the GoM. During
the third quarter of 2013, the Company recorded mobilization expenses of approximately $2.3 million for such vessels. Results for the quarter ended
December 31, 2013 were favorably impacted by then improved market conditions for the Company's MPSVs and three vessels working in Latin America.
Also, the results for the quarter ended December 31, 2013 includes deliveries of three vessels under the Company's fifth OSV newbuild program.
(4) During the first quarter of 2013, the Company recorded a loss on early extinguishment of debt of approximately $24.3 million ($15.2 million after-tax or
$0.42 per diluted share) due to the tender offer purchase of approximately 94% of its 2017 senior notes. See Note 6 for further discussion.
(5) On August 29, 2013, the Company closed the sale of substantially all of the assets and business of its Downstream segment's tug and tank barge fleet to
Genesis Marine, LLC, an affiliate of Genesis Energy L.P. (NYSE:GEL), for net cash proceeds of approximately of $227.5 million, after deal costs. The sale
resulted in a gain of $60.0 million ($38.1 million after-tax or $1.04 per diluted share).
F - 29
Table of Contents
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 February 25, 2015.
SIGNATURES
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
Chairman of the Board, President, and Chief Executive
February 25, 2015
(Todd M. Hornbeck)
Officer (Principal Executive Officer)
/S/ JAMES O. HARP, JR.
(James O. Harp, Jr.)
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
February 25, 2015
/S/ LARRY D. HORNBECK
Director
(Larry D. Hornbeck)
/S/ BRUCE W. HUNT
Director
(Bruce W. Hunt)
/S/ STEVEN W. KRABLIN
Director
(Steven W. Krablin)
/S/ PATRICIA B. MELCHER
Director
(Patricia B. Melcher)
/S/ KEVIN O. MEYERS
Director
(Kevin O. Meyers)
/S/ JOHN T. RYND
Director
(John T. Rynd)
/S/ BERNIE W. STEWART
Director
(Bernie W. Stewart)
/S/ NICHOLAS L. SWYKA JR.
Director
(Nicholas L. Swyka, Jr.)
S - 1
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
Table of Contents
Exhibit
Number
Description of Exhibit
Exhibit Index
2.1 — Asset Purchase Agreement dated as of July 22, 2013, between Hornbeck Offshore Transportation, LLC
and Genesis Marine, LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on
Form 8-K filed July 25, 2013).
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 — Amended and Restated Certificate of Designation of Series A Junior Participating Preferred Stock filed
with the Secretary of State of the State of Delaware on July 2, 2013 (incorporated by reference to Exhibit
3.1 to the Company’s Current Report on Form 8-K filed July 3, 2013).
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).
3.4 — Amendment No. 1 to Fourth Restated Bylaws of the Company adopted June 21, 2012 (incorporated by
reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed June 27, 2012).
4.1 — Specimen stock certificates for the Company’s common stock, $0.01 par value (for U.S. citizens and non-
U.S. citizens) (incorporated by reference to Exhibit 4.4 to the Company’s Form 8-A/A filed July 3, 2013,
Registration No. 001-32108).
4.2 — 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).
4.3 — Indenture, dated March 16, 2012 among Hornbeck Offshore Services, Inc., as issuer, the guarantors party
thereto and Wells Fargo Bank, National Association, as trustee (including form of 5.875% Senior Notes
due 2020) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed
March 21, 2012).
4.4 — First Supplemental Indenture, dated March 30, 2012 among Hornbeck Offshore Services, Inc., the
guarantors party thereto and Wells Fargo Bank, National Association, as trustee (to the indenture
governing the 8.000% Senior Notes due 2017) (incorporated by reference to Exhibit 4.3 to the Company’s
Current Report on Form 8-K filed April 4, 2012).
4.5 — Indenture dated as of August 13, 2012 by and among Hornbeck Offshore Services, Inc., the guarantors
named therein, and Wells Fargo Bank, National Association, as Trustee (including form of 1.500%
Convertible Senior Notes due 2019) (incorporated by reference to Exhibit 4.1 to the Company’s Current
Report on Form 8-K filed on August 13, 2012).
4.6 — Confirmation of Base Call Option Transaction dated as of August 7, 2012 by and between Hornbeck
Offshore Services, Inc. and Barclays Bank PLC (incorporated by reference to Exhibit 4.2 to the
Company’s Current Report on Form 8-K filed on August 13, 2012).
4.7 — Confirmation of Base Call Option Transaction dated as of August 7, 2012 by and between Hornbeck
Offshore Services, Inc. and JPMorgan Chase Bank, National Association, London Branch (incorporated
by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on August 13, 2012).
4.8 — Confirmation of Base Call Option Transaction dated as of August 7, 2012 by and between Hornbeck
Offshore Services, Inc. and Wells Fargo Bank, National Association (incorporated by reference to Exhibit
4.4 to the Company’s Current Report on Form 8-K filed on August 13, 2012).
4.9 — Confirmation of Additional Base Call Option Transaction dated as of August 8, 2012 by and between
Hornbeck Offshore Services, Inc. and Barclays Bank PLC (incorporated by reference to Exhibit 4.5 to the
Company’s Current Report on Form 8-K filed on August 13, 2012).
4.10 — Confirmation of Additional Base Call Option Transaction dated as of August 8, 2012 by and between
Hornbeck Offshore Services, Inc. and JPMorgan Chase Bank, National Association, London Branch
(incorporated by reference to Exhibit 4.6 to the Company’s Current Report on Form 8-K filed on
August 13, 2012).
4.11 — Confirmation of Additional Base Call Option Transaction dated as of August 8, 2012 by and between
Hornbeck Offshore Services, Inc. and Wells Fargo Bank, National Association (incorporated by reference
to Exhibit 4.7 to the Company’s Current Report on Form 8-K filed on August 13, 2012).
4.12 — Confirmation of Base Warrant dated as of August 7, 2012 by and between Hornbeck Offshore Services,
Inc. and Barclays Bank PLC (incorporated by reference to Exhibit 4.8 to the Company’s Current Report on
Form 8-K filed on August 13, 2012).
E - 1
Table of Contents
Exhibit
Number
Description of Exhibit
4.13 — Confirmation of Base Warrant dated as of August 7, 2012 by and between Hornbeck Offshore Services,
Inc. and JPMorgan Chase Bank, National Association, London Branch (incorporated by reference to
Exhibit 4.9 to the Company’s Current Report on Form 8-K filed on August 13, 2012).
4.14 — Confirmation of Base Warrant dated as of August 7, 2012 by and between Hornbeck Offshore Services,
Inc. and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.10 to the
Company’s Current Report on Form 8-K filed on August 13, 2012).
4.15 — Confirmation of Additional Warrants dated as of August 8, 2012 by and between Hornbeck Offshore
Services, Inc. and Barclays Bank PLC (incorporated by reference to Exhibit 4.11 to the Company’s
Current Report on Form 8-K filed on August 13, 2012).
4.16 — Confirmation of Additional Warrants dated as of August 8, 2012 by and between Hornbeck Offshore
Services, Inc. and JPMorgan Chase Bank, National Association, London Branch (incorporated by
reference to Exhibit 4.12 to the Company’s Current Report on Form 8-K filed on August 13, 2012).
4.17 — Confirmation of Additional Warrants dated as of August 8, 2012 by and between Hornbeck Offshore
Services, Inc. and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.13 to
the Company’s Current Report on Form 8-K filed on August 13, 2012).
4.18 — Second Supplemental Indenture with respect to the 8.000% Notes Indenture, dated March 27, 2013
among Hornbeck Offshore Services, Inc., the guarantors party thereto and Wells Fargo Bank, National
Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on
Form 8-K filed on March 28, 2013).
4.19 — Indenture governing the 5.000% Notes, dated March 28, 2013 among Hornbeck Offshore Services, Inc.,
as issuer, the guarantors party thereto and Wells Fargo Bank, National Association, as trustee (including
form of 5.000% Senior Notes due 2021) (incorporated by reference to Exhibit 4.2 to the Company’s
Current Report on Form 8-K filed on March 28, 2013).
4.20 — Exchange and Registration Rights Agreement, dated as of March 28, 2013, among Hornbeck Offshore
Services, Inc., the guarantors party thereto and Barclays Capital Inc., as representative of the Initial
Purchasers (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed
on March 28, 2013).
4.21 — Rights Agreement dated as of July 1, 2013 between Hornbeck Offshore Services, Inc. and
Computershare Inc., as Rights Agent, which includes as Exhibit A the Amended and Restated Certificate
of Designation of Series A Preferred Stock, as Exhibit B the form of Right Certificate and as Exhibit C the
form of Summary of Rights to Purchase Shares (incorporated by reference to Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed July 3, 2013).
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, 2012 (incorporated by reference to
Exhibit 10.2 to the Company’s Form 10-K for the period ended December 31, 2011).
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, dated
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).
10.6† — Second Amendment to the Second Amended and Restated Hornbeck Offshore Services, Inc. Incentive
Compensation Plan, dated effective June 24, 2010 (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed June 30, 2010).
10.7† — 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).
10.8† — 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).
E - 2
Table of Contents
Exhibit
Number
Description of Exhibit
10.9† — 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).
10.10† — 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).
10.11† — 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).
10.12† — 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).
10.13† — Second Amendment to Amended and Restated Senior Employment Agreement dated effective
December 31, 2009 by and between Todd M. Hornbeck and the Company (incorporated by reference
to Exhibit 10.12 to the Company’s Form 10-K for the period ended December 31, 2009).
10.14† — Second Amendment to Amended and Restated Employment Agreement dated effective December 31,
2009 by and between Carl G. Annessa and the Company (incorporated by reference to Exhibit 10.13
to the Company’s Form 10-K for the period ended December 31, 2009).
10.15† — Second Amendment to Amended and Restated Employment Agreement dated effective December 31,
2009 by and between James O. Harp, Jr. and the Company (incorporated by reference to Exhibit
10.14 to the Company’s Form 10-K for the period ended December 31, 2009).
10.16† — Employment Agreement dated effective January 1, 2011 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 period ended
June 30, 2011).
10.17† — 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).
10.18† — Employment Agreement dated effective January 1, 2013 by and between John S. Cook and the
Company (incorporated by reference to Exhibit 10.18 to the Company's Form 10-K for the period
ended December 31, 2012).
10.19† — 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).
10.20† — Amendment to Change in Control Agreement dated effective December 31, 2009 by and between
John S. Cook and the Company (incorporated by reference to Exhibit 10.19 to the Company’s Form
10-K for the period ended December 31, 2009).
10.21† — Amendment to Change in Control Agreement dated effective December 31, 2009 by and between
Samuel A. Giberga and the Company (incorporated by reference to Exhibit 10.18 to the Company’s
Form 10-K for the period ended December 31, 2009).
10.22 — Amended and Restated Credit Agreement dated as of November 2, 2011, 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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2011).
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).
E - 3
Table of Contents
Exhibit
Number
Description of Exhibit
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).
10.32† — 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, 2010).
10.33 — Vessel Construction Agreement dated November 14, 2011 by and between Hornbeck Offshore
Services, Inc. and VT Halter Marine, Inc. (incorporated by reference to Exhibit 10.41 to the Company’s
Form 10-K for the period ended December 31, 2011). (portions of this exhibit have been omitted
pursuant to a request for confidential treatment filed with the Securities and Exchange Commission).
10.34 — Consulting Agreement dated February 14, 2012 by and between Hornbeck Offshore Services, Inc. and
Larry D. Hornbeck (incorporated by reference to Exhibit 10.43 to the Company’s Form 10-K for the
period ended December 31, 2011).
10.35 — Amendment No. 3 to the Second Amended and Restated Hornbeck Offshore Services, Inc. Incentive
Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed June 24, 2013).
10.36 — Purchase Agreement dated March 14, 2013 by and among Hornbeck Offshore Services, Inc., Energy
Services Puerto Rico, LLC, Hornbeck Offshore Operators, LLC, Hornbeck Offshore Services, LLC,
Hornbeck Offshore Transportation, LLC, Hornbeck Offshore Trinidad & Tobago, LLC, HOS-IV, LLC
and HOS Port, LLC and Barclays Capital Inc., as representative of the Initial Purchasers named
therein (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed
on March 15, 2013).
10.37 — Form of Amended Appendix A to Employment Agreements for Executive Officers (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended March 31, 2014).
10.38 — Second Amended and Restated Credit Agreement dated as of February 6, 2015 by and among the
Company and one of its subsidiaries, Hornbeck Offshore Services, LLC, each of the lenders and
guarantors signatory thereto, and Wells Fargo Bank, National Association, as administrative agent for
the lenders (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on February 12, 2015).
10.39 — Second Amended and Restated Guaranty and Collateral Agreement dated as of February 6, 2015 by
and among the Company, one of its subsidiaries, Hornbeck Offshore Services, LLC, each of the
guarantors signatory thereto, and Wells Fargo Bank, National Association, as administrative agent for
the lenders (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on February 12, 2015).
10.40 — Form of Amended Appendix A to Employment Agreements for Executive Officers (incorporated by
reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended March 31, 2014).
*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.
*101 — Interactive Data File
*
†
Filed herewith.
Compensatory plan or arrangement under which executive officers or directors of the Company may
participate.
E - 4
Subsidiaries of Hornbeck Offshore Services, Inc.
EXHIBIT 21
Subsidiary Name
Hornbeck Offshore Services, LLC
Hornbeck Offshore Operators, LLC
HOS Port, LLC
State or Country
of Incorporation
Delaware
Delaware
Delaware
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
Consent of Independent Registered Public Accounting Firm
Registration Statement (Form S-8 No. 333-119109) and Registration Statement (Form S-8 No. 333-168908)
pertaining to the Incentive Compensation Plan of Hornbeck Offshore Services, Inc.;
Registration Statement (Form S-8 No. 333-124698) pertaining to the Employee Stock Purchase Plan of Hornbeck
Offshore Services, Inc.; and
Registration Statement (Form S-4 No. 333-183777) of Hornbeck Offshore Services, Inc.
of our reports dated February 25, 2015, with respect to the consolidated financial statements of Hornbeck Offshore
Services, Inc., and the effectiveness of internal control over financial reporting of Hornbeck Offshore Services, Inc.,
included in this Annual Report (Form 10-K) of Hornbeck Offshore Services, Inc. for the year ended December 31, 2014.
New Orleans, Louisiana
February 25, 2015
/s/ Ernst & Young LLP
I, Todd M. Hornbeck, certify that:
CERTIFICATION
EXHIBIT 31.1
1.
I have reviewed this Annual Report on Form 10-K of Hornbeck Offshore Services, Inc.;
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: February 25, 2015
/s/ Todd M. Hornbeck
Todd M. Hornbeck
Chief Executive Officer
(Principal Executive Officer)
I, James O. Harp, Jr., certify that:
CERTIFICATION
EXHIBIT 31.2
1.
I have reviewed this Annual Report on Form 10-K of Hornbeck Offshore Services, Inc.;
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: February 25, 2015
/s/ James O. Harp, Jr
James O. Harp, Jr.
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report of Hornbeck Offshore Services, Inc., a Delaware corporation (the
“Company”), on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, Todd M. Hornbeck, Chairman, President and Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
Information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: February 25, 2015
/s/ Todd M. Hornbeck
Todd M. Hornbeck
Chairman, President and Chief Executive Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report of Hornbeck Offshore Services, Inc., a Delaware corporation (the “Company”),
on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), I, James O. Harp, Jr., Executive Vice President and Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
Information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Dated: February 25, 2015
/s/ James O. Harp, Jr.
James O. Harp, Jr.
Executive Vice President and Chief 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,
2009 (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
$350
$300
$250
$200
$150
$100
$50
$0
12/31/2009
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31/2014