Hornbeck Offshore Services Inc. Annual Report 2015

FY2015 Annual Report · Hornbeck Offshore Services Inc.

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HORNBECK OFFSHORE SERVICES, INC.

ANNUAL REPORT TO STOCKHOLDERS

For the Year Ended December 31, 2015

EXPLANATORY NOTE

This Annual Report to Stockholders of Hornbeck Offshore Services, Inc. (the "Company") for the year ended

December 31, 2015 includes the Company's previously filed Annual Report on Form 10-K for the year ended
December 31, 2015 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, 2015
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

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

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

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

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

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 $701,294,925.

The number of outstanding shares of Common Stock as of January 31, 2016 is 35,985,010 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive 2016 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, 2015
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 .........................................................................

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 sustained low oil and natural gas prices; significant and sustained or 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, vessel
management contracts, or failures to finalize commitments to charter or manage vessels; sustained or 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 where the Company operates; 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 program on-time and on-budget, which
involves the construction and integration of highly complex vessels and systems; the inability to successfully
market the vessels that the Company owns, is constructing or might acquire; the government's cancellation or
non-renewal of the management, operations and maintenance contracts for 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 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 or other restrictions imposed on our vessels by customers;
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 affecting our MPSVs; the
level of fleet additions by the Company and its competitors that could result in vessel over capacity in the
markets in which the Company competes; economic and geopolitical risks; weather-related risks; the shortage
of or the inability to attract and retain qualified personnel, when needed, including vessel personnel for active
and newly constructed vessels; any success in unionizing the Company's U.S. fleet personnel; 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;
or 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,
ii

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that may negatively affect it or parties with whom it does business resulting in their non-payment or inability to
perform obligations owed to the Company, such as the failure of 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 effect 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 and, if sufficiently severe, could
result in noncompliance with certain covenants of our currently undrawn revolving credit facility. 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 47.

iii

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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 62 OSVs and six MPSVs, after
accounting for the sale of five OSVs in 2014 and 2015. Upon completion of the four vessels currently contracted to be
constructed under this newbuild program in 2016 and 2017, our expected fleet will be comprised of 62 OSVs and ten
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 two of our three core markets and one of the top three operators of such equipment worldwide, based on DWT. Our
fleet is among the youngest in the industry, with a weighted-average age, based on DWT, of seven years and, upon
completion of our current newbuild program in late 2017, we believe that the weighted-average age of our fleet will be
eight years.

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 Latin America, including Nicaragua, Guyana, Trinidad and
recently Argentina. 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. In addition, we provide vessel management services for other vessel owners, such as
crewing, daily operational management and maintenance activities. 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.

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 but one of the vessels being constructed under our fifth OSV newbuild program
are eligible 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 seven Jones Act-qualified OSVs to Mexican and other flags,
including recently one under Brazilian registry. Once a Jones Act-qualified vessel is reflagged or a new vessel is foreign
flagged, it permanently loses the right to engage in 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.

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
to the seafloor. 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
oil equivalent barrels over 30 years. Consequently, short term fluctuations in oil and gas prices typically do not have the
same impact on sanctioned deepwater projects as such fluctuations may have on other on-shore and continental shelf
projects. As a result of the current on-going commodity price declines, we are observing that some previously sanctioned
deepwater projects are being deferred.

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 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.

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In addition, these reforms are intended to expand competition, increase foreign investment in Mexico's energy sector and
improve the operational efficiency of PEMEX. During 2015, Mexico hosted the first two auctions for offshore oil and
natural gas blocks allowed by the energy reforms. Mexico has not yet held a deepwater auction; however, the first is
expected to occur in 2016.

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 previously announced plans to spend
$220 billion in order to achieve its aggressive goals; however, recent declines in the price of oil combined with a wide
reaching corruption probe involving Petobras has resulted in a significant pull-back in planned deepwater spending.
Petrobras' slowed expansion plans might open opportunities in Brazil for other major oil companies to participate on a
larger scale in Brazil's deepwater markets.

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 and represent a significant source of demand for vessel services.

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 four of the remaining MPSVs 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
and related supplies. The OSVs that have been delivered as part of our fifth OSV newbuild program are 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 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

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vessels are DP-1, comprising 10% of our fleet by DWT. The remaining 90% of our fleet is considered high-spec, including
58% of our overall fleet that is 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 through the use of articulated gangways that allow personnel to "walk to work." 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.

370 class MPSVs

We have devised MPSVs that, in addition to the array of services described above, are also capable of being utilized

to transport deck or bulk cargoes in capacities exceeding most 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 USCG 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.

400 class and 310 class MPSVs

Until recently, due to a lack of Jones Act-qualified MPSVs, customers typically chartered an OSV to carry equipment

to location, which was 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 90-100 persons and will be suitable for
two or more work-class ROVs. Moreover, our Jones Act-qualified MPSVs will also be equipped with below-deck cargo
tanks, allowing them to expand their mission utility to include services more typically provided by OSVs.

We recently announced upgrades to the four remaining MPSVs under construction in our ongoing newbuild
program. These four vessels are under construction at two shipyards. The modifications to the first two MPSVs, which
are expected to be delivered in the second and third quarters of 2016, will increase the berthing capacity, expand the
cargo-carrying capabilities and expand the work area for ROVs. The modifications to the other two MPSVs will include
the addition of a 60-foot mid-body plug, installation of an additional crane, increased berthing capacity, expanded cargo-
carrying capacities and expanded work areas for ROVs. These two 400 class MPSVs are scheduled to be delivered in
the second and fourth quarters of 2017. Because all four of these MPSVs are Jones Act-qualified, we expect that they will
enable our customers to transport equipment from shore to the installation site to be installed by the MPSV. We believe
that, once delivered, the 400 class MPSVs will be the largest and most capable Jones Act-qualified MPSVs available on
the market.

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We also outfitted one of our 310 class OSVs that was placed in service under our ongoing newbuild program as a

310 class MPSV in flotel configuration. This new U.S.-flagged, Jones Act-qualified MPSV includes a 35-ton knuckle-boom
crane, a motion-compensated gangway and accommodations for 194 persons. Being Jones Act-qualified will give it
mission flexibility that foreign flag flotels lack in the GoM.

430 class

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
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. The HOS Achiever had previously operated as a flotel, but during the fourth quarter of 2013, the HOS
Achiever's capabilities were expanded with the outfitting of additional accommodations for up to 270 personnel onboard,
including the vessel's marine crew, hotel and catering staff. The increased accommodations 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 in

certain core markets 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 90% 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 17, 2016, regarding our fleet of 62 new generation OSVs,

six MPSVs, four MPSVs yet to be delivered under our fifth OSV newbuild program that we own, and the four new
generation OSVs that we manage for the U.S. Navy.

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)

OWNED VESSELS:
MPSVs
HOS Iron Horse .............................
HOS Achiever................................
HOS Warhorse ..............................
HOS Wild Horse ............................
HOS Centerline .............................
HOS Strongline .............................
HOS Bayou ...................................
HOS Warland ................................
HOS Woodland .............................
HOS Riverbend .............................
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 Bluewater..............................
HOS Gemstone .............................
HOS Greystone .............................
HOS Silverstar...............................
HOS Polestar ................................
HOS Shooting Star ........................
HOS North Star .............................
HOS Lode Star ..............................
HOS Silver Arrow ..........................
HOS Sweet Water .........................

430
430
400ES
400ES
370
370
310
310ES
310ES
300

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

GoM
GoM
TBD
TBD
GoM
GoM
GoM
TBD
TBD
GoM

Nov 2009
Oct 2008
2Q2017 est.(3)
4Q2017 est.(3)
Mar 2009
Mar 2010
Dec 2014
2Q2016 est.(3)
3Q2016 est.(3)
Feb 2014

9,000
8,500
6,200 est
6,200 est.
8,000
8,000
5,600
6,200 est.
6,200 est.
5,500

n/a
n/a
14,100 est.
14,100 est.
32,000
32,000
20,000
20,000 est.
20,000 est.
21,100

8,000
8,000
9,000 est.
9,000 est.
6,000
6,000
7,300
9,000 est.
9,000 est.
6,700

320
320
320
320
320
320
320
320
320
320
310
310
310
310
310
300
300
300
290

265
265
265
265

Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply
Supply (FF)
Supply
Supply
Supply
Supply
Supply

Supply
Stacked
Stacked
Stacked

240
240
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)
Stacked (FF)
Stacked
ROV Support
Stacked
Stacked
Stacked
Stacked
Stacked
Stacked
Stacked
Stacked
Stacked
Stacked
Stacked
Stacked
Stacked

Nov 2013
Feb 2014
Mar 2014
Jul 2014
Aug 2014
Dec 2014
Jan 2015
Feb 2015
Nov 2015
June 2015
Jul 2014
Aug 2014
Oct 2014
Jan 2016
Jan 2016
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
Mar 2003
Jun 2003
Sep 2003
Jan 2004
May 2008
Jul 2008
Nov 2008
Feb 2009
Oct 2009
Dec 2009

Latin America
GoM
GoM
GoM
GoM
GoM
GoM
GoM
GoM
GoM
GoM
GoM
GoM
Latin America
GoM
GoM
GoM
GoM
GoM

Middle East
GoM
GoM
GoM

Mexico
GoM
GoM
GoM
GoM
GoM
GoM
GoM
GoM
GoM
GoM
GoM
GoM
GoM
GoM
Other U.S.
GoM

6,100
6,100
6,100
6,100
6,100
6,100
6,100
6,100
6,100
6,100
6,200
6,200
6,200
6,200
6,200
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
2,850
2,850
2,850
2,850
2,850
2,850
2,850
2,850
2,850
2,850

21,000
21,000
21,000
21,000
21,000
21,000
21,000
21,000
21,000
21,000
21,500
21,500
21,500
21,500
21,500
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

6,100
6,100
6,100
6,100
6,100
6,100
6,100
6,100
6,100
6,100
7,300
7,300
7,300
7,300
7,300
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
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

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

MANAGED VESSELS:
240 class (2,500 to 3,500 DWT)
Black Powder....................................
Westwind ..........................................
Eagleview .........................................
Arrowhead ........................................

FF—foreign-flagged
TBD—to be determined

Current
Service
Function

Current
Location

Stacked
Stacked
Stacked
Stacked
Stacked
Stacked

Stacked
Military
Supply (FF)
Stacked
Stacked
Well Stimulation (FF)
Stacked
Stacked
Supply (FF)
Stacked
Supply (FF)
Supply (FF)
Supply (FF)
Stacked
Stacked
Stacked

GoM
GoM
GoM
GoM
GoM
GoM

GoM
Other U.S.
Mexico
GoM
GoM
Mexico
GoM
GoM
Mexico
GoM
Mexico
Mexico
Mexico
GoM
GoM
GoM

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

In-Service
Date
May 2013(4)
May 2013(4)
Sep 2013(4)
Sep 2013(4)
Nov 2013(4)
Nov 2013(4)

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

250 EDF
250 EDF
250 EDF
250 EDF

Military
Military
Military
Military

Other U.S.
Other U.S.
Other U.S.
Other U.S.

Jun 2009
Jun 2009
Oct 2009
Jan 2009

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

2,900
2,900
2,900
2,900

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

8,300
8,300
8,300
8,300

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

6,000
6,000
6,000
6,000

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

DP-2
DP-2
DP-2
DP-2

(1)

(2)

(3)

(4)

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.
“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 through anchor-less station keeping.
These vessels are currently being constructed under our fifth OSV newbuild construction program with anticipated in-service dates during 2016 and 2017.
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 water rigs in the GoM.
The HOS Port facility has three 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 the rest of Latin America, West Africa, 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,

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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
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 68 floating rigs under construction or
on order on February 17, 2016 and, as of that date, there were options outstanding to build 22 additional floating rigs. In
addition, on that date, there were 123 high-spec jack-up rigs under construction or on order worldwide, and there were
options outstanding to build 45 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, the location of the rig and the size and capacity of the OSVs. During normal operating
conditions, 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 charter was the product of a competitive procurement process conducted by the Military Sealift Command and our
operations and management agreement was a sole source selection 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.

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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
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 being 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
have historically been allowed to employ non-U.S. mariners, often from low-wage nations. 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 that 15 years old. We and other market participants in Mexico, however, have successfully
challenged this restriction, but PEMEX may renew its attempt in the future.

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 17 years with
a weighted-average fleet age, based on DWT, of seven years. In fact, over 60% 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 and domestic new generation OSV fleet is approximately nine 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 to address 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 90% will be DP-2 or DP-3 with a weighted-average fleet age, based on DWT, of eight years in
2017.

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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 impact our ability to manage, maintain
and grow our business. In crewing our vessels, we require skilled employees who can perform physically demanding
work. As the result of our stacking 33 vessels since October 2014, we have reduced our mariner headcount significantly.
When these stacked vessels return to service, we will need to hire and train mariners to operate our vessels.

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, 2015, Royal Dutch Shell plc (including worldwide affiliates) and Seabed Geosolutions
(US) Inc. each 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 $1,100 per gross ton or $939,800. 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 (e.g. natural resources, real or
personal property, subsistence use, reserves, profits and earnings capacity, and public services 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. As required, we have provided satisfactory evidence of financial responsibility to the USCG 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 USCG. In addition, our Tank Vessel Response Plan and Non-Tank Vessel Response Plan
have been approved by the USCG.

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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 not only owners and operators of vessels but also any person who arranged for the disposal or
treatment, or arranged with a transporter for transport for disposal or treatment of hazardous substances, and any person
who accepted hazardous substances for transport to disposal or treatment facilities. 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 USCG 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 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 USCG. Most
of our vessels operating in the GoM are exempt from the ballast water treatment requirements. However, for non-exempt
vessels, ballast water treatment equipment may be required to be utilized on the vessel. As of February 26, 2016, the
USCG has not approved any ballast water treatment systems and, as a result, it has granted extensions for compliance
with such ballast water treatment requirements. We have currently estimated the cost of compliance to be approximately
$250,000 per non-exempt 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
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.

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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, 2015, we had 1,233 employees, including 975 operating personnel and 258 corporate,

administrative and management personnel. Excluded from these personnel totals are 212 third-country nationals that we
contracted to serve on our vessels as of December 31, 2015. These non-U.S. mariners are typically provided by
international crewing agencies. With the exception of 137 employees located 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,

2015

2014

2013

328,262 $

147,808

476,070 $

490,314 $

144,479

634,793 $

415,898

132,247

548,145

The table below presents net property, plant and equipment by geographic region for the past three fiscal years (in

thousands):

United States ................................................................ $
International ..................................................................

2,218,646 $

2,052,145 $

356,015

407,341

2,574,661 $

2,459,486 $

2015

December 31,

2014

2013

1,913,293

212,081

2,125,374

Foreign Operations

Operating in foreign markets presents 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
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.

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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, Proxy Statements
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, titled "Navigating with Integrity," (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.

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 ongoing declines in oil prices that began in late 2014 and have continued through 2015 and into
2016, our clients have reduced and may further 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. This has been the case, beginning in October 2014 through 2015
and continuing in 2016.

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 will likely cancel or curtail
additional 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

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• 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, which in nearing completion, certain of our competitors previously

announced plans to construct new vessels to be deployed in domestic and foreign locations, thus adding to the available
vessel capacity. 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 for such services.

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 contracted with three

domestic shipyards on the Gulf Coast to construct a total of 19 new generation, high-spec OSVs, all of which have already
been delivered, and five 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. 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 $30 billion from 2015 through 2019. 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;

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•

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;

the ability or willingness of the Organization of Petroleum Exporting Countries, or OPEC, to set and maintain
production levels for oil;

•

oil and natural gas production levels by non-OPEC countries;

• weather conditions; and

•

environmental and other regulations 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, that is the source upon which much of our
business activity depends. 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.

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 $1,335 million, excluding capitalized
construction period interest, for the construction of vessels currently under contract, of which $1,201.7 million has been
paid as of December 31, 2015. 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
2017, 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 as they come
due, 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

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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;

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.

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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 USCG, 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 USCG and the National Transportation Safety Board set
safety standards and are authorized to investigate vessel accidents and recommend improved safety standards, while the
USCG 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, specific training, 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
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. 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

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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.
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, we sometimes 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 significant operating risks upon us. We have attempted to challenge these contractual actions in foreign
markets, which entails significant risks.

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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

recent volatility of the oil and gas industry, we have significantly reduced our mariner headcount. Additionally, as a result
of such volatility, vessel employees and potential employees may choose to pursue employment in fields that offer a more
desirable work environment at wage rates that are competitive with ours. Further, unlike the current weak market
conditions, during normal market conditions, we face strong competition within the broader oilfield industry for employees
and 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 have difficulty hiring
employees or finding suitable replacements as needed. Once normal market conditions return, should a reduced pool of
workers arise, it is possible that we would have to raise wage rates to attract workers and to retain our current employees.
In such circumstances, should we not be able to increase our service rates to our customers to compensate for wage-rate
increases or recruit qualified personnel to operate our vessels at full utilization, our financial condition and results of
operations may be adversely affected.

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

Some of our employees are covered by provisions of the Jones Act, the Death on the High Seas Act and general

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

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

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

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

Restrictions contained in the indentures governing our 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

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•

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. In addition, given our recent vessel stackings, our fixed costs are borne by a substantially smaller
active fleet of vessels.

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, such as crew wages, materials and supplies, maintenance and repairs, and insurance
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.

Stacked vessels may introduce additional operational issues.

In recognition of weak market conditions, we have stacked 33 OSVs on various dates since October 1, 2014 and we

may choose to stack additional vessels should market conditions warrant. In connection with such stackings, we have
reduced our mariner headcount significantly. Operationally, we limit the number of persons available to maintain such
stacked vessels. Also, we have fewer revenue-producing units in service that can contribute to our results and contribute
cash flows to cover our fixed costs and commitments. When stacked vessels return to service, we will incur previously
deferred drydocking costs for regulatory recertifications and may incur costs to hire and train mariners to operate such
vessels. Delay in reactivating stacked vessels and the costs and other expenses related to the reactivation of stacked
vessels could have a material adverse effect on our cash flows and results of operations.

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
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.

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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 the change of control
purchase features of our 2020 senior notes and our 2021 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 the Company.

The terms of our 2019 convertible senior notes require us to purchase the notes for cash in the event of a
fundamental change. Upon a change in control, our 2020 senior notes and our 2021 senior notes require us to
repurchase such senior notes at 101% of aggregate principal. A takeover of the Company would trigger the requirement
that we purchase the 2019 convertible senior notes, the 2020 senior notes and the 2021 senior 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 the 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 of such notes 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.

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

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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 2013 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;

•

factors influencing the levels of global oil and natural gas exploration and exploitation activities, such as
the current depressed prices for oil or natural gas;

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• 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 our 2019 convertible senior notes, our 2020 senior notes, or our

2021 senior notes;

•

the ability or willingness of OPEC to set and maintain production levels for oil;

• oil and gas production levels by non-OPEC countries;

• geopolitical risks;

• announcements of strategic developments, acquisitions and other material events by us or by 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, 2015 are as follows:

Location

Description

Area Using Property
Covington, Louisiana, USA ........................................ Corporate Headquarters
Corporate
GoM
Hammond, Louisiana, USA ....................................... Warehouse
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

None.

Item 4—Mine Safety Disclosures

None.

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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 2015 and 2014.

First Quarter ........................................................................ $
Second Quarter .................................................................. $
Third Quarter ...................................................................... $
Fourth Quarter .................................................................... $

25.40 $
25.22 $
20.98 $
17.80 $

17.91 $
18.64 $
13.33 $
8.23 $

49.04 $
47.08 $
47.45 $
33.54 $

38.17
37.44
32.46
19.16

2015

2014

High

Low

High

Low

On January 31, 2016, we had 23 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. Our current intention is to retain all additional cash that our business generates to cover all of our
growth capital expenditures, commercial-related capital expenditures, annually recurring cash debt service, maintenance
capital expenditures and cash income taxes, as well as discretionary share repurchases from time to time and to 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 the 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, 2015, 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 represented roughly 2.5% of our total shares outstanding prior to the commencement of the
program. As of February 26, 2016, no additional shares had been repurchased.

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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, 2015, 2014, 2013,

2012 and 2011, was derived from our audited historical consolidated financial statements prepared in accordance with GAAP.
Certain reclassifications have been made to prior period results to conform to current year presentation. See Note 2 for a
discussion of such reclassifications. 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. In 2013, we closed the sale
of our Downstream segment 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.

Year Ended December 31,
2013

2012

2014

2011

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) (7) ........................................................................................................................
Total stockholders’ equity.......................................................................................................................
Statement of Cash Flows Data:
Net cash provided by (used in) continuing operations:

2015

476,070
219,260
109,029
48,297
44,060
143,544
—
1,525
39,496
1,005
106,578
39,757
66,821
—
66,821

1.87
—
1.87
1.84
—
1.84
35,755
36,302

259,801
278,491
2,574,661
—
2,984,416
—
1,070,281
1,446,163

$
$

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
253,566
2,459,486
—
2,860,935
—
1,057,487
1,370,765

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

215,843
(141,349)
1,023

163,106
(401,515)
(19,664)

Net cash provided by (used in) discontinued operations:

— $
—

2,374
1,638

Other Financial Data (unaudited):
EBITDA(8) ............................................................................................................................................... $
Capital expenditures ..............................................................................................................................
Other Operating Data (unaudited)(9):
Average number of new generation OSVs(10) ........................................................................................
Average number of active new generation OSVs(11) ..............................................................................
Average new generation OSV fleet capacity (DWT)..............................................................................
Average new generation OSV vessel capacity (DWT) ..........................................................................
Average new generation OSV utilization rate(12) ....................................................................................
Effective new generation OSV utilization rate (13) ..................................................................................
Average new generation OSV dayrate(14) .............................................................................................. $
Effective dayrate(15) ................................................................................................................................ $

253,578
293,349

285,371
408,693

60.0
42.0
206,030
3,436

54.4%
77.8%

57.4
56.6
177,033
3,076

79.6%
80.7%

$
$

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
446,489
2,125,374
759
2,743,015
—
1,045,297
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
360,120
1,643,623
168,487
2,584,971
238,071
833,326
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
397,995
1,431,414
174,371
2,124,656
—
762,179
1,072,988

52,582
(62,889)
228,830

11,068
675

121,852
72,176

51.0
41.8
128,190
2,514

83.7%
84.4%

83.2%
87.8%

71.5%
87.2%

26,278
14,295

$
$

27,416
21,823

$
$

26,605
22,268

$
$

23,445
19,506

$
$

21,121
15,102

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

(3)

(4)

(5)

(6)

(7)

(8)

(9)

For the year ended December 31, 2015, the Company had 322 anti-dilutive stock options. 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. 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 $470, $1,461, $(1,750), and $210 as of December 31, 2014, 2013, 2012 and 2011,
respectively.
Includes total assets from discontinued operations in the amount of $470, $2,337, $176,277, and $183,472 as of December 31, 2014, 2013, 2012, and 2011,
respectively.
Excludes imputed original issue discount associated with our 2026 convertible senior notes in the amount of $11,093 as of December 31, 2012. Also excludes deferred
financing costs associated with our 2026 convertible senior notes in the amount of $836 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 as of December 31, 2011; original issue discount associated with our 2017
senior notes in the amount of $4,771 and $5,571 as of December 31, 2012 and 2011, respectively; imputed original issue discount associated with our 2026 convertible
senior notes in the amount of $23,566 as of December 31, 2011; and imputed original issue discount associated with our 2019 convertible senior notes in the amount of
$41,600, $51,528, $60,908 and $69,699 as of December 31, 2015, 2014, 2013 and 2012, respectively.
Excludes deferred financing costs associated with our 2014 senior notes in the amount of $635 as of December 31, 2011 and deferred financing costs associated with
our 2017 senior notes in the amount of $3,702 and $4,323 as of December 31, 2012 and 2011, respectively, and our 2019 convertible senior notes in the amount of
$4,095, $5,073, $5,996 and $6,801 as of December 31, 2015, 2014, 2013 and 2012, respectively and deferred financing costs associated with our 2020 senior notes in
the amount of $3,944, $4,863, $5,782 and $6,701 as of December 31, 2015, 2014, 2013 and 2012, respectively; and deferred financing costs associated with our 2021
senior notes in the amount of $5,080, $6,049, $7,017 as of December 31, 2015, 2014 and 2013, respectively; and deferred financing costs associated with our 2026
convertible senior notes in the amount of $1,839 as of December 31, 2011.
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 MPSVs.

(10) We owned 60 new generation OSVs as of December 31, 2015. Our average number of new generation OSVs for the years ended December 31, 2015, 2014, 2013,

(11)

2012, and 2011, 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 is one conventional OSV, which is stacked, and 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 and throughout 2015.

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

days due.

(14) 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.

(15) 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, 2015, 2014, 2013, 2012, and 2011 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 .................................................................. $

2015

2014

2013

2012

2011

Year Ended December 31,

66,821 $

87,907 $

64,078 $

34,695 $

(3,520)

39,496

(1,525)
37,971

39,757

82,566

26,463

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

253,578 $

285,371 $

231,197 $

185,456 $

121,852

The following table reconciles EBITDA from continuing operations to cash flows provided by operating activities for the years

ended December 31, 2015, 2014, 2013, 2012, and 2011 respectively (in thousands).

2015

2014

2013

2012

2011

Year Ended December 31,

253,578 $

285,371 $

231,197 $

185,456 $

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 ............................
(Gain) loss on sale of assets ........................................
Loss on early extinguishment of debt ...........................
Changes in other, net ...................................................
Cash flows provided by continuing operations ............. $

(13,267)

(50,492)
(4,808)

65,415

10,293

(44,060)

—
(816)
215,843 $

(43,609)

(50,548)

(5,679)

(32,213)

10,324

(822)

—

282

(35,875)

(53,636)

(4,537)

33,458

11,888

(1,587)

25,776

383

(39,211)

(38,597)

(1,332)

3,571

10,805

350

6,048

1,775

121,852
(16,832)
(43,811)
(1,272)
(13,297)
6,403

(980)

—
519

163,106 $

207,067 $

128,865 $

52,582

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, 2015, 2014, 2013, 2012, and 2011, respectively (in thousands).

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

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

Year Ended December 31,

2015

2014

— $

10,293

1,525

10,324

1,086

2013
25,776 $

11,914

2,515

2012

2011

6,048 $

10,891

2,167

—

6,525
829

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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

During 2015, oil prices have remained in a trading range of $35 to $65 per barrel and an average of $49 with a
more recent price in the $28 to $40 range. The drop in oil price is 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 and OPEC suppliers in the Middle
East and Russia not reducing their output. 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 lower oil prices,
major and independent oil companies with deepwater operations have significantly reduced their capital spending
budgets, which are the principal demand drivers for our services. Less spending by our customers combined with a
global oversupply of OSVs, including high-spec OSVs in our core markets, for the current market conditions, have
resulted in reductions in both our dayrates and utilization.

We believe that the long-term nature of deepwater projects insulates them, somewhat, from a short-term fall in oil

prices and that many 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 and continue to experience
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
have caused 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, to what extent, or when oil prices will improve.

In the GoM, 18 high-spec OSVs have been delivered into the domestic market during 2015, including five of our

own. We expect an additional 18 high-spec OSVs to be delivered into domestic service during 2016 and 2017. We do
not anticipate significant growth in the supply of high-spec OSVs beyond the currently anticipated level of 210 of such
vessels by the first quarter of 2017. During the fourth quarter of 2015, there was an average of roughly 48 floating rigs
available in the GoM, while an average of 39 were working. As of February 17, 2016, there were 50 rigs available and
35 were working. However, ten floating rigs have contracts that will expire during 2016 and one rig is scheduled to
leave the region. We do not know whether the remaining rigs will receive contract renewals for operations in the GoM.
We expect three new rigs to arrive in the GoM during 2016. Once a rig arrives in the GoM, it can take several months
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 2015 and 2014 results. However, the GoM is one of the premier deepwater markets in the world and
we are committed to supporting our customers in this market. We feel that once the current supply and demand
fundamentals return to normal conditions our results from operations will improve.

In recognition of these weak market conditions, we stacked 28 OSVs on various dates from October 1, 2014
through December 31, 2015. Post year-end, we have stacked an additional five new generation OSVs to date. These
33 stacked vessels represent 49% of our fleetwide vessel headcount, but only 33% of our total OSV and MPSV
deadweight tonnage. By stacking vessels, we expect to significantly reduce our cash outlays and lower our risk profile;
however, we will have fewer revenue-producing units in service that can contribute to our results and contribute cash
flows to cover our fixed costs and commitments. We may choose to stack additional vessels should market conditions
warrant.

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. PEMEX budget reductions have
resulted in contract cancellations and slower than expected growth in the market for our vessels in Mexico. We have

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noticed that PEMEX is reviewing its vessel needs and, in certain circumstances, is not exercising options for vessels
that are currently operating in its chartered fleet. We expect that certain of our Mexican-flagged vessels will be
affected and will likely be stacked, if not renewed. Nevertheless, we consider Mexico to be a long-term market for our
services, especially in light of energy reforms being carried out there. Despite current oil prices, we recently observed
improved bidding results from several international companies related to shallow water auctions in Mexico. We will
continue to explore opportunities to place additional vessels into Mexico to support PEMEX in its ongoing shallow
water activity and non-PEMEX customers in support of future shelf and deepwater activity there. In 2014, PEMEX
announced its intention to use only vessels that are less that 15 years old. We and other market participants in
Mexico, however, have successfully challenged this restriction, but PEMEX may renew its attempt in the future.

In Brazil, Petrobras generally appears to be moving towards an "all Brazilian flag" vessel fleet, which will limit

opportunities in Brazil for foreign flag vessels, except where highly specialized services are required. In January 2016,
we placed one of our newbuild HOSMAX 310 class OSVs into Brazilian registry. We will continue to monitor this
market to charter our vessels to Petrobras or other companies operating in that region.

Market conditions

As of February 17, 2016, we had 17% of our new generation OSV vessel-days contracted for the fiscal year

ending December 31, 2016. Our forward OSV contract coverage for the fiscal year ending December 31, 2017
currently stands at 3%. MPSV contract coverage for the fiscal years ending December 31, 2016 and 2017 is
currently 5% 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 seven
foreign-flagged new generation OSVs, two foreign-flagged well-stimulation vessels and two foreign-flagged MPSVs.
As of December 31, 2015, our 32 active new generation OSVs, six MPSVs and four managed OSVs were operating in
domestic and international areas as noted in the following table:

Operating Areas
Domestic

GoM ............................................................................................................................................
Other U.S. coastlines(1) ...............................................................................................................

Foreign

Mexico .........................................................................................................................................
Middle East .................................................................................................................................
Europe .........................................................................................................................................

Total Active Vessels(2)

27
5
32

8
1
1
10
42

(1)

(2)

Includes one owned vessel and four managed vessels that are currently supporting the military.
Excluded from this table are 28 new generation OSVs and one non-core conventional OSV that were stacked as of December 31, 2015.

OSV Newbuild Program #5. Recently, we announced the expansion of our fifth OSV newbuild program to
enhance the four remaining MPSVs to be delivered. These enhancements include additional accommodations,
additional ROV workspaces, additional crane lifting capacities and, for the final two MPSVs, a 60 foot mid-body
section. Our fifth OSV newbuild program now consists of four 300 class OSVs, five 310 class OSVs, ten 320 class
OSVs, three 310 class MPSVs and two 400 class MPSVs. As of February 17, 2016, we had delivered and placed in
service 20 vessels under such newbuild program. Delivery of the four remaining vessels under this 24-vessel domestic
newbuild program is expected to occur on various dates during 2016 and 2017. We expect to own and operate 62 new
generation OSVs as of December 31, 2016, as well as manage four vessels for the U.S. Navy. These aggregate OSV
vessel additions result in a projected average new generation OSV fleet complement of 61.9 and 62.0 for fiscal years
2016 and 2017, respectively. With the addition of the four MPSVs, we expect to own and operate eight and ten
MPSVs as of December 31, 2016 and 2017, respectively. These MPSV additions result in a projected average MPSV
fleet complement of 6.9, 8.7 and 10.0 vessels for the fiscal years 2016, 2017 and 2018, respectively. The aggregate
cost of our fifth OSV newbuild program, excluding construction period interest, is expected to be approximately

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$1,335.0 million, approximately 90% of which has already been incurred. For further information regarding our fifth
OSV newbuild program, please refer to the Capital Expenditures and Related Commitments section.

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. Since October 1, 2014,
we have stacked 33 vessels. By removing these vessels from our active operating fleet, we have been able to
significantly reduce our operating costs, including crew costs. If market conditions worsen, we may elect to stack
additional vessels. Our fixed operating costs are now spread over 29 owned and operated vessels and four vessels
managed for the U.S. Navy.

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 USCG 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, which could delay their return to active 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, 2015, we only had one remaining conventional OSV, which remains cold-
stacked and has a net book value of only $0.4 million. Management has concluded that these groupings are currently
appropriate because our vessels are highly relevant and mobile and are consistent based on the operating and
marketing characteristics desired by our customers. When analyzing asset groups for impairment, we consider 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,

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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. We also consider
recent vessel sales and recent vessel appraisals.

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 2015 or 2014. Our review gave consideration to the current market conditions, which
include the recent commodity price decline, a reduction in certain projected capital budgets for our customers and our
competitors' filings. 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 are the principal markets for our vessel fleet,
to be somewhat insulated from short-term 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 may adversely
affect long-term fleet utilization. We recently updated our analysis of whether a triggering event has occurred and we
concluded that one has not. 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.
In addition, since we consider cyclicality and volatility to be normal for our industry, we do not consider strategically
stacking vessels that we intend to reactivate to be a triggering event. We believe 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 the 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 national oil companies, 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,

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because amounts due from individual customers can be significant, future adjustments to the allowance can be
material if one or more individual customer’s balances are deemed uncollectible.

Income Taxes. We follow accounting standards for income taxes 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. We continue to review our projected operating results related to the realization of
these foreign tax credit carryforwards and if current market conditions persist or worsen through 2018, we may not
realize the full benefit of these carryforwards. 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 units, 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, including the four vessels
managed for the U.S. Navy. 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 six
MPSVs.

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Offshore Supply Vessels:

Years Ended December 31,

2015

2014

2013

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 OSV capacity (DWT)......................
Average new generation OSV utilization rate(3) .....................
Effective new generation OSV utilization rate(4) .....................
Average new generation OSV dayrate(5)................................ $
Effective dayrate(6) ................................................................. $

60.0

42.0

206,030

3,436

54.4%

77.8%

57.4

56.6

177,033

3,076

79.6%

80.7%

26,278

14,295

27,416

21,823

50.7

50.3

132,564

2,609

83.7%

84.4%

26,605

22,268

(1) We owned 60 new generation OSVs as of December 31, 2015. Our average number of new generation OSVs for the year ended December 31, 2015
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 28 new generation OSVs on various dates since October 2014. Subsequent to year-end, we
have stacked an additional five new generation OSVs. Active new generation OSVs represent vessels that are immediately available for service during
each respective period.

(2)

(3) Utilization rates are average rates based on a 365-day year. Vessels are considered utilized when they are generating revenues.
(4)

Effective utilization rate is based on a denominator comprised only of vessel-days available for service by the active fleet, which excludes the impact of
stacked vessel days.
Average new generation OSV 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 revenues.
Effective dayrate represents the average dayrate multiplied by the average utilization rate.

(5)

(6)

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YEAR ENDED DECEMBER 31, 2015 COMPARED TO YEAR ENDED DECEMBER 31, 2014

Summarized financial information for the years ended December 31, 2015 and 2014, respectively, is shown

below in the following table (in thousands, except percentage changes):

Year Ended
December 31,

Increase (Decrease)

2015

2014

$ Change

% Change

Revenues:

Domestic .............................................................. $
Foreign .................................................................

Operating expenses ..........................................................
Depreciation and amortization ..........................................
General and administrative expenses...............................

Gain on sale of assets ......................................................
Operating income .............................................................
Interest expense ...............................................................
Interest income .................................................................
Income tax expense ..........................................................
Income from continuing operations ................................... $
Income from discontinued operations, net of tax ..............
Net income ....................................................................... $

328,262 $
147,808
476,070
219,260
109,029
48,297
376,586
44,060
143,544
39,496
1,525
39,757
66,821 $
—
66,821 $

490,314 $ (162,052)
144,479
3,329
(158,723)
634,793
(77,240)
296,500
(6,421)
115,450
(5,948)
54,245
(89,609)
466,195
43,238
822
(25,876)
169,420
8,763
30,733
1,086
439
(12,610)
52,367
(21,086)
87,907 $
618
(618)
(21,704)
88,525 $

(33.1) %
2.3 %
(25.0) %
(26.1) %
(5.6) %
(11.0) %
(19.2) %
>100.0 %
(15.3) %
28.5 %
40.4 %
(24.1) %
(24.0) %
(100.0) %
(24.5) %

Revenues. Revenues for 2015 decreased by $158.7 million, or 25.0%, to $476.1 million compared to $634.8
million for 2014. Our weighted-average active operating fleet for 2015 was approximately 48 vessels compared to 61
vessels for 2014. The decrease in revenues was primarily due to soft market conditions in the GoM, which led to our
decision to stack 28 new generation OSVs on various dates between October 1, 2014 and December 31, 2015. For
the twelve months ended December 31, 2015, we had an average of 18.0 vessels stacked compared to 0.8 vessels
stacked in the prior-year period. This decrease in revenue was partially offset by $54.0 million in revenue earned from
the full or partial-period contribution of 14 vessels that were placed in service under our fifth OSV newbuild program
since December 2013. Revenue from our MPSV fleet decreased $40.7 million, or 23.2%, for 2015 compared to 2014.
Our new generation OSV average dayrates were $26,278 for 2015 compared to $27,416 for 2014, a decrease of
$1,138, or 4.2%. Our new generation OSV utilization was 54.4% for 2015 compared to 79.6% for 2014. This decrease
in utilization is primarily due to soft market conditions for high-spec OSVs operating in the GoM and the incremental
vessels that were stacked during 2015 compared to 2014. Our new generation OSVs incurred 238 days of aggregate
downtime for regulatory drydockings and were stacked for an aggregate of 6,587 days during the twelve months ended
December 31, 2015. Excluding stacked vessel days, our new generation OSV effective utilization was 77.8% and
80.7% during the twelve months ended December 31, 2015 and 2014, respectively. Domestic revenues decreased by
$162.1 million during 2015 compared to 2014 due to lower dayrates earned by vessels operating in our fleet during the
twelve months ended December 31, 2015 and the stacking of vessels in late 2014 through 2015. Foreign revenues
increased by $3.3 million primarily due to the full or partial-period contribution of 11 OSVs and two MPSVs that
relocated to foreign regions on various dates since 2013. Foreign revenues comprised 31.0% of our total revenues for
2015 compared to 22.8% for 2014.

Operating expenses. Operating expenses were $219.3 million, a decrease of $77.2 million, or 26.1%, for 2015
compared to $296.5 million for 2014. Operating expenses were driven lower by vessels that were removed from our
active fleet count since late 2014, which resulted in a substantial reduction in mariner headcount. This decrease was
partially offset by $25.7 million of operating costs related to the full or partial-period contribution from vessels added to
our fleet since December 2013. Aggregate cash operating expenses are projected to be in the range of $170.0 million
to $185.0 million for 2016. Such cash operating expense estimate is exclusive of any additional repositioning
expenses we may incur in connection with the potential relocation of more of our 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 $6.4 million, or 5.6%, lower for 2015

compared to 2014. Depreciation increased by $11.3 million primarily due to the contribution of 14 vessels that were
placed in service on various dates since December 2013. The depreciation increase was more than offset by a
decrease in amortization expense of $17.7 million, primarily due to $6.8 million of incremental amortization recorded for
the accelerated regulatory drydocking of vessels during 2014 along with lower amortization from the sale of four
vessels to the U.S. Navy in 2015 and the deferral of planned drydockings for stacked vessels. Depreciation and
amortization expense is expected to continue to increase from current levels as the vessels under our current newbuild
program 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 $48.3 million decreased by $5.9

million, or 11.0%, during 2015 compared to 2014. The decrease in G&A expenses was primarily due to lower
shoreside compensation and short-term incentive compensation expense and a reduction in bad debt reserves.
General and administrative expenses as a percentage of revenues were 10.1% for 2015 compared to 8.5% for 2014.
Our general and administrative expenses are expected to be in the approximate range of $47.0 to $52.0 million for
2016.

Gain on Sale of Assets. During 2015, we completed the sale of four 250EDF class OSVs, the HOS Arrowhead,

the HOS Black Powder, the HOS Eagleview and the HOS Westwind, to the U.S. Navy for cash consideration of $152.0
million. The sale resulted in a pre-tax gain of approximately $44.1 million ($27.6 million after-tax or $0.76 per diluted
share). 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).

Operating Income. Operating income decreased by $25.9 million to $143.5 million during 2015 compared to 2014

for the reasons discussed above. Operating income as a percentage of revenues was 30.2% for 2015 compared to
26.7% for 2014. Excluding the gain on sale of assets, our operating income for 2015 would have been $99.5 million, or
20.9% of revenues and for 2014 would have been $168.6 million, or 26.6% of revenues.

Interest Expense. Interest expense increased $8.8 million during 2015 compared to 2014 primarily due to
capitalizing a lower percentage of interest compared to the prior-year period. During 2015, we capitalized interest of
$24.7 million, or roughly 38% of our total interest costs, compared to capitalized interest of $33.2 million, or roughly
52% of our total interest costs, for 2014.

Interest Income. Interest income increased by $0.4 million to $1.5 million for 2015 compared to $1.1 million for

2014. Our average cash balance decreased to $269.9 million for 2015 compared to $307.9 million for 2014. The
average interest rate earned on our invested cash balances was approximately 0.5% and 0.4% during the fiscal years
ended December 31, 2015 and December 31, 2014, respectively. The decrease in average cash balance was
primarily due to cash outflows associated with our fifth OSV newbuild program in 2014 and 2015 and lower revenue
earned by active vessels operating in our fleet. These decreases were partially offset by cash inflows from the sale of
four vessels to the U.S. Navy in 2015.

Income Tax Expense. Our effective tax rate was 37.3% for 2015 and 2014. During 2015 and 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.

Income from Continuing Operations. Operating performance decreased year-over-year by $21.1 million for
reported income from continuing operations of $66.8 million for 2015 compared to $87.9 million for 2014. Excluding
the gain on sale of assets from both periods presented, income from continuing operations would have been $39.2
million for the twelve months ended December 31, 2015 compared to $87.4 million for the same period in 2014. This
decrease in income from continuing operations for the twelve months ended December 31, 2015 was primarily driven
by lower revenues due to soft market conditions discussed above that were partially offset by the gain on the sale of
four vessels to the U.S. Navy in 2015.

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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):

Revenues:

Year Ended
December 31,

Increase (Decrease)

2014

2013

$ Change

% Change

Domestic ...................................................................... $ 490,314 $ 415,898 $
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 ............................................................................... $

144,479
634,793
296,500
115,450
54,245
466,195
822
169,420
—
30,733
1,086
52,367
87,907
618

74,416
12,232
132,247
86,648
548,145
57,261
239,239
29,488
85,962
817
53,428
87,566
378,629
(765)
1,587
(1,683)
171,103
(25,776)
25,776
(16,619)
47,352
(1,429)
2,515
16,047
36,320
23,829
64,078
(46,697)
47,315
88,525 $ 111,393 $ (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. Revenue 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.

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

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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.

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.

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
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,

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

Liquidity and Capital Resources

Year Ended December 31,

2014

2013

12 $

867
555
618

43,318
60,076
74,278
47,315

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
2016.

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 been impacted by
such volatility through lower than normal cash flow from operations. However, including cash on-hand, we expect to
generate sufficient cash flow from operations to cover all of our growth capital expenditures for the remaining four
HOSMAX vessels under construction, commercial-related capital expenditures, and all of our annually recurring cash
debt service, maintenance capital expenditures and cash income taxes through the completion of the newbuild
program, as well as discretionary share repurchases from time to time, without ever having to use our currently
undrawn revolving credit facility. We also believe that we will be able to fund all of the deferred maintenance capital
expenditures that will be required upon reactivation of our stacked vessels when market conditions improve without
having to draw on such facility. We have three tranches of funded unsecured debt outstanding that mature in fiscal
years 2019, 2020 and 2021, respectively.

As of December 31, 2015, we had total cash and cash equivalents of $259.8 million. We also have a $300 million

revolving credit facility, expandable up to $500 million, which is undrawn as of February 26, 2016. On February 6,
2015, we amended and extended the maturity of our existing revolving credit facility to February 2020, provided that, if
the 2019 convertible senior notes remain outstanding on March 1, 2019, the Company is required to maintain a
specified minimum liquidity level until after the redemption or refinancing of the convertible senior notes, which mature
on September 1, 2019. As of December 31, 2015, we had posted letters of credit for $0.5 million and had $299.5
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 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. There were no such repurchases during the twelve months ended December 31, 2015. 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. While we have an authorized share repurchase program, we will
continue to prioritize our usage of cash appropriate to the current market cycle.

Although we expect to continue generating positive working capital through our operations, events beyond our

control, such as sustained low prices for oil and natural gas, a further significant decline in such 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

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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. 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. See further discussion in the Contractual Obligations section below.

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 $215.8 million in 2015, $163.1 million in 2014, and $207.1
million in 2013. Operating cash flows in 2015 were favorably impacted by a reduction in outstanding accounts
receivable balances combined with lower cash outflows for regulatory drydocking expenses compared to the prior year,
partially offset by lower cash inflows from soft market conditions. Cash flows from operations for 2015 reflect full or
partial-period contributions from 14 vessels that were placed in service under our fifth OSV newbuild program on
various dates during 2014 and 2015. Operating cash flows in 2014 included the impact of $43.6 million of costs related
to regulatory recertifications for our vessels. Operating cash flows in 2014 were unfavorably affected by the soft
market conditions for our OSVs operating in the GoM, partially offset by the 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 the increased dayrates for our high-spec OSVs and MPSVs
operating in the GoM and, to a lesser extent, the partial-period contributions from four new generation OSVs that were
delivered under our fifth OSV newbuild program.

Investing Activities. Net cash used in investing activities was $141.3 million in 2015, $401.5 million in 2014, and

$526.6 million in 2013. Cash utilized in 2015 consisted of construction costs incurred for our fifth OSV newbuild
program partially offset by $152.0 million in aggregate proceeds from the sale of four 250EDF class OSVs to the U.S.
Navy. The proceeds from the asset sale have been reinvested in the construction of vessels under our fifth OSV
newbuild program. 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, partially offset by $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, partially offset by $16.0 million in aggregate net cash proceeds from the sale of non-core assets.

Financing Activities. Net cash provided by (used in) financing activities was $1.0 million in 2015, $(19.7) million in

2014, and $(61.3) million in 2013. Net cash provided by financing activities in 2015 resulted from net proceeds from
common shares issued pursuant to our employee stock-based incentive plan, partially offset by deferred financing
costs related to the amendment and extension of our existing $300 million revolving credit facility. 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.

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,
net of transaction costs. In connection with the tender offer, related consent solicitation, and related redemption, we
used $269.3 million of such proceeds to repurchase 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 $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,

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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 and $244.1
million in 2013. 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. See Note 13 for further discussion regarding Discontinued Operations. The proceeds
from the asset sale have been reinvested in the construction of vessels under our fifth OSV newbuild program.

Commitments and Contractual Obligations

The following table sets forth our aggregate contractual obligations as of December 31, 2015 (in thousands).

Total

Contractual Obligations
Vessel construction commitments(1) ................... $ 133,292 $
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) .............................................

240,891
39,790

300,000

375,000

450,000

Less than
1 Year

1-3 Years

3-5 Years

Thereafter

86,358 $

46,934 $

— $

—

49,031

98,063

—

450,000

375,000

300,000

82,547

—

11,250

27,186
Total ............................................................. $ 1,538,973 $ 138,421 $ 149,707 $ 762,409 $ 488,436

3,032

4,710

4,862

(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 $1,335.0 million, excluding capitalized construction period interest. From the inception of this
program through December 31, 2015, we have incurred $1,201.7 million, or 90.0%, 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 and currently include $5,080 of deferred financing costs.
(3) Our 2020 senior notes, with a fixed interest rate of 5.875% per year, mature on April 1, 2020 and currently include $3,944 of deferred financing costs.
(4) Our 2019 convertible senior notes, with a fixed interest rate of 1.500% per year, mature on September 1, 2019 and currently include $41,600 of non-

cash original issue discount and $4,095 of deferred financing costs. 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.
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)

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Debt

As of December 31, 2015, 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, net of deferred financing costs of $3,944 (1) ................. $ 371,056
5.000% senior notes due 2021, net of deferred financing costs of $5,080 (1) .................
444,920
1.500% convertible senior notes due 2019, net of original issue discount of $41,600
and deferred financing costs of $4,095 ............................................................................

254,305

6.08% $
5.21%

11,000
11,300 March 1 and September 1

April 1 and October 1

6.23%

2,300 March 1 and September 1

$1,070,281

(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

certain covenants and reduce the collateral coverage of such facility. The $300.0 million revolving credit facility
remains undrawn as of February 26, 2016. 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. Based on our financial ratios
for the year ended December 31, 2015, the full amount of the undrawn borrowing base under our revolving credit
facility is available to us for all uses of proceeds, including working capital, if necessary. For the quarter ended
December 31, 2015, 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, 2015 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,
2015

Incurred
Since

Inception

Estimated
Program
Totals(1)

Projected
Delivery
Dates(1)

Growth Capital Expenditures:
OSV Newbuild Program #5(2) ............... $

169.3 $

1,201.7 $

1,335.0

2Q2013-4Q2017

(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.
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.

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(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, three 310 class MPSVs and two 400 class MPSVs. As of February 17, 2016, we had placed 20 vessels in service under
such program. The remaining four vessels under this 24-vessel domestic newbuild program are currently expected to be placed in service as follows:
two in the remainder of 2016 and two in 2017. 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, 2015, 2014, and 2013, and a forecast for the fiscal year
ending December 31, 2016 (in millions):

Year Ended December 31,

2016

Forecast

2015

Actual

2014

Actual

2013

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:................................................................. $

11.2 $
10.3
21.5

—
13.0
1.0
14.0
35.5 $

13.3 $
14.7
28.0

43.6 $
23.7
67.3

—
72.1
16.5
88.6

0.1
31.3
9.6
41.0

116.6 $

108.3 $

35.9
10.9
46.8

48.0
14.7
3.9
66.6
113.4

Deferred drydocking charges for 2016 include the projected recertification costs for 16 OSVs and one MPSV.

(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 $9.94 to $12.43 as of December 31, 2015 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, 2015 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%.
The currently outstanding 2021 senior notes accrue interest at the rate of 5.000% per annum and mature on March 1,

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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, $1,070.3 million and $736.4 million, respectively, as of December 31, 2015.

As of December 31, 2015, 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, 2015, we had time charters for 10 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-34 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
external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial

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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, 2015, 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, 2015.

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, 2015 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,
2015, 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, 2015, 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, 2015
and 2014, and the related consolidated statements of operations, comprehensive income, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31, 2015 of Hornbeck Offshore Services, Inc.
and our report dated February 26, 2016 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

New Orleans, Louisiana

February 26, 2016

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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;

"USCG" means United States Coast Guard;

“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 2016
proxy statement anticipated to be filed with the Securities and Exchange Commission within 120 days after December 31,
2015.

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

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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-34 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.

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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, 2015 and 2014 ........................................................................................................

F - 3

Consolidated Statements of Operations for Each of the Three Years in the Period Ended December 31, 2015 .....................................

F - 4

Consolidated Statements of Comprehensive Income for Each of the Three Years in the Period Ended December 31, 2015 ................

F - 5

Consolidated Statements of Changes in Stockholders’ Equity for Each of the Three Years in the Period Ended December 31, 2015 ....

F - 6

Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2015 ....................................

F - 7

Notes to Consolidated Financial Statements ...........................................................................................................................................

F - 8

F - 1

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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, 2015 and 2014, and the related consolidated statements of operations, comprehensive
income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31,
2015. 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, 2015 and 2014, and the
consolidated results of their operations and their cash flows for each of the three years in the period ended December 31,
2015, 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, 2015, 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 26, 2016 expressed an unqualified opinion
thereon.

/s/ Ernst & Young LLP

New Orleans, Louisiana

February 26, 2016

F - 2

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

Current assets:

ASSETS

Cash and cash equivalents ............................................................................... $
Accounts receivable, net of allowance for doubtful accounts of $2,877 and
$3,693 respectively ...........................................................................................
Other current assets ..........................................................................................
Current assets from discontinued operations ....................................................
Total current assets.....................................................................................
Property, plant and equipment, net ...................................................................
Deferred charges, net .......................................................................................
Other assets ......................................................................................................

Total assets ................................................................................................. $

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable .............................................................................................. $
Accrued interest ................................................................................................
Accrued payroll and benefits .............................................................................
Deferred revenue ..............................................................................................
Other accrued liabilities .....................................................................................
Total current liabilities .................................................................................

Long-term debt, net of original issue discount of $41,600 and $51,528 and
deferred financing costs of $13,119 and $15,985, respectively.........................
Deferred tax liabilities, net .................................................................................
Other liabilities ...................................................................................................
Long-term liabilities of discontinued operations .................................................
Total liabilities ..............................................................................................

Stockholders’ equity:

Year Ended December 31,

2015

2014

259,801 $

185,123

91,202
13,033
—
364,036
2,574,661
35,273
10,446
2,984,416 $

35,916 $
14,795
11,222
5,734
17,878
85,545

1,070,281
381,619
808
—
1,538,253

130,969
20,049
470
336,611
2,459,486
52,968
11,870
2,860,935

42,404
14,890
14,830
1,561
9,360
83,045

1,057,487
346,961
1,117
1,560
1,490,170

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; 35,985 and
35,557 shares issued and outstanding, respectively .........................................
Additional paid-in capital ...................................................................................
Retained earnings .............................................................................................
Accumulated other comprehensive loss ............................................................
Total stockholders’ equity............................................................................
Total liabilities and stockholders’ equity ...................................................... $

—

360
748,041
701,838
(4,076)
1,446,163
2,984,416 $

356
736,294
635,017
(902)
1,370,765
2,860,935

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 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,

2015

2014

2013

476,070

634,793

548,145

219,260

82,566

26,463

48,297

376,586

44,060

143,544

—

1,525

(39,496)

1,005

(36,966)

106,578

39,757

66,821

—

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

66,821

88,525

111,393

1.87

—

1.87

1.84

—

1.84

35,755

36,302

2.43

0.02

2.45

2.40

0.01

2.41

36,172

36,692

1.79

1.31

3.10

1.76

1.29

3.05

35,895

36,548

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
(In thousands)

Net income ........................................................................................... $
Other comprehensive income:

Year Ended December 31,

2015

2014

2013

66,821 $

88,525 $

111,393

Foreign currency translation loss ...................................................
Total comprehensive income................................................................ $

(3,174)
63,647 $

(107)
88,418 $

(537)
110,856

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)

Common Stock

Amount

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income

Total
Stockholders
Equity

Balance at January 1, 2013

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

—

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)

—

(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

Excess tax shortfall from sharebased
payments ........................................................

Shares issued under employee benefit
programs ........................................................

Stock-based compensation expense ..............

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

Foreign currency translation loss............

—

428

—

(572)

1,855

10,464

—

66,821

—

(3,174)

(572)

1,859

10,464

66,821

(3,174)

Balance at December 31, 2015

35,985

360

748,041

701,838

(4,076) $

1,446,163

The accompanying notes are an integral part of these consolidated statements

F - 6

Year Ended December 31,

2015

2014

2013

66,821 $

87,907 $

64,078

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...........................................
Addition to (reduction of) provision for bad debts.........................
Deferred tax expense ...................................................................
Amortization of deferred financing costs ......................................
Gain on sale of assets..................................................................
Changes in operating assets and liabilities: .................................
Accounts receivable ............................................................
Other current and long-term 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 ............................................................
Retirement 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:

82,566
26,463
10,293
—
(816)
34,086
9,675
(44,060)

39,743
8,472
(13,267)
(10,486)
6,448
(95)
215,843

(190,070)
152,000
(86,792)
(16,487)
(141,349)

—
—
—
—
—
—
(2,089)
3,112
1,023

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)

Net cash provided by operating activities ...........................................
Net cash provided by 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 ....................................... $

—
—
—
(839)
74,678
185,123
259,801 $

2,374
1,638
4,012
(107)
(254,168)
439,291
185,123 $

SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES:

Cash paid for interest ................................................................... $
Cash paid for income taxes.......................................................... $

50,492 $
4,808 $

50,548 $
5,679 $

53,636
4,537

The accompanying notes are an integral part of these consolidated statements

F - 7

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)

15,368
228,689
244,057
(537)
(137,387)
576,678
439,291

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.

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

3-28 years

See “Considerations Regarding 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.

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.

F - 8

Table of Contents

Mobilization Costs

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 $1.8 million, $1.5 million and $2.7 million during 2015, 2014 and 2013, 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 2014, the Company
recorded an additional $0.1 million related to these state operating losses. During 2015, the total valuation allowance of
$1.0 million on these state operating losses was reversed since the losses were written off upon ceasing to do business in
those particular jurisdictions. If the current market downturn persists for longer than currently expected a valuation
allowance may be required for certain foreign tax credits that will begin to expire in 2019.

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. As of December 31, 2015, one customer represented 25% of the Company's net
accounts receivable balance.

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,

2015

2014

2013

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

3,693 $

3,411 $

(816)

282

2,877 $

3,693 $

3,028

383
3,411

Considerations Regarding 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. The Company reviewed its long-lived assets giving consideration to the current market conditions,
which include the on going commodity price decline, the reduction in certain projected 2016 capital budgets for its
customers and recent competitor public filings. 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
are the principal markets 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 additional cancellations of deepwater
projects, which may adversely affect long-term fleet utilization. No triggering events occurred in 2015, 2014 or 2013 and
the Company did not record any impairment losses related to its long-lived assets during these periods. The Company
will continue to closely monitor market conditions and potential impairment indicators as long as this market downturn
persists.

F - 10

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Recent Accounting Pronouncements

The following table provides a brief description of recent accounting pronouncements that could have a material

effect on our financial statements:

Description

Standard
Standards that are not yet adopted
Accounting Standards
Update (ASU) No. 2014-09,
"Revenue from Contracts
with Customers" (Topic 606)

This standard 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 to in
exchange for those goods or services. ASU
2014-09 requires retrospective application.

Date of
Adoption

Effect on the financial
statements and other
significant matters

January 1, 2018

The Company is evaluating the
effect of this new standard on its
financial statements and related
disclosures.

Standards that were adopted
ASU No. 2015-03, "Interest -
Imputation of Interest -
Simplifying the Presentation
of Debt Issuance
Costs" (Subtopic 835-30).

ASU No. 2015-03 requires that debt issuance
costs related to a recognized debt liability be
presented in the balance sheet as a direct
deduction from the carrying amount of that
debt liability, consistent with debt discounts.
The recognition and measurement guidance
for debt issuance costs are not affected by the
amendments in ASU No. 2015-03.

ASU No. 2015-17, "Balance
Sheet Classification of
Deferred Taxes” (Topic 740)

ASU No. 2015-17 requires companies to
classify all deferred tax assets and liabilities
as noncurrent on the balance sheet instead of
separating deferred taxes into current and
noncurrent amounts. Also, companies will no
longer allocate valuation allowances between
current and noncurrent deferred tax assets
because those allowance also will be
classified as noncurrent.

October 1, 2015

The adoption of this ASU
resulted in reductions in Deferred
charges of $13.1 million and
$16.0 million and corresponding
decreases in Long-term debt as
of December 31, 2015 and 2014,
respectively.

The adoption of this ASU
resulted in reductions of current
assets of $5.3 million and $45.5
million and corresponding
decreases in Deferred tax
liabilities as of December 31,
2015 and 2014, respectively.

F - 11

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,

2015

2014

2013

Income from continuing operations (1) .............................................................................. $
Income from discontinued operations, net of tax (2) ..........................................................
Net income ....................................................................................................................... $

66,821

87,907

—

618

66,821

88,525

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

35,755

547

36,302

36,172

520

36,692

Earnings per common share:

Basic earnings per common share from continuing operations ................................ $

1.87

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

—

1.87

1.84

—

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

1.84

2.43

0.02

2.45

2.40

0.01

2.41

64,078

47,315

111,393

35,895

653

36,548

1.79

1.31

3.10

1.76

1.29

3.05

(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. See
Note 6 for further information regarding the Company’s debt.

(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 322 anti-dilutive stock options for the year ended December 31, 2015. The Company had no anti-dilutive stock options for the years
ended December 31, 2014 and 2013. 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 years ended December 31, 2015, 2014 and 2013, 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.

(4)

(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 unit 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. In response to weak market conditions, the Company temporarily ceased
matching contributions to the 401(k) plan effective January 1, 2015. During the years ended December 31, 2014 and
2013, the Company made contributions to the 401(k) plan of approximately $6.0 million and $5.2 million, respectively.

F - 12

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

132,034

(452,134)

2,089,121

485,540

2,574,661 $

104,789

(390,774)

1,997,898

461,588

2,459,486

December 31,

2015

2014

2,409,221 $

2,283,883

In November 2011, the Company announced, and has since expanded, its fifth OSV newbuild program. On January

31, 2016, this program consisted 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, 2015, the Company had
placed 18 vessels in-service under its fifth newbuild program. Subsequent to year-end, the Company placed in service
two additional vessels under such program. In February 2016, the Company announced plans to enhance the
marketability of the four remaining 310 class MPSVs. The first two of those MPSVs, which are expected to be delivered in
the second and third quarters of 2016, will be enhanced by increasing the berthing capacity, expanding the cargo carrying
capabilities and expanding the work area for ROVs. The functionality of the second two MPSVs will be increased by
adding a 60-foot mid-body plug, installation of an additional crane, increasing the berthing capacity, expanding the cargo-
carrying capacities and expanding the work areas for ROVs. These latter two MPSVs have been upgraded to a 400 class
designation and are scheduled to be delivered in the second and fourth quarters of 2017, respectively. The aggregate
cost of these four conversions will be approximately $70.0 million and will extend the deliveries by an aggregate of 730
additional vessel-days. The Company's fifth OSV newbuild program now consists of four 300 class OSVs, five 310 class
OSVs, ten 320 class OSVs, three 310 class MPSVs and two 400 class MPSVs. Based on current contracts and internal
estimates,the aggregate total cost of this program, before construction period interest, is now expected to be
approximately $1,335.0 million. From the inception of this program through December 31, 2015, the Company has
incurred $1,201.7 million, or 90.0%, of total expected project costs.

During 2015, the Company closed on the sale of four 250EDF class OSVs, the HOS Arrowhead, the HOS Black

Powder, the HOS Eagleview and the HOS Westwind, which were previously chartered to the U.S. Navy, for cash
consideration of $152.0 million. The sale resulted in a pre-tax gain of approximately $44.1 million ($27.6 million after-tax
or $0.76 per diluted share). These vessels are now managed by the Company for the U.S. Navy.

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, net of deferred financing costs of $3,944 and $4,863 ............................... $

371,056

5.000% senior notes due 2021, net of deferred financing costs of $5,080 and $6,049 ...............................

1.500% convertible senior notes due 2019, net of original issue discount of $41,600 and $51,528 and
deferred financing costs of $4,095 and $5,073 ...........................................................................................
Revolving credit facility due 2020 ...............................................................................................................

444,920

254,305

—

370,137

443,951

243,399

—

1,070,281

1,057,487

December 31,

2015

2014

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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):

2016 .................................................................................................................................................... $
2017 ....................................................................................................................................................
2018 ....................................................................................................................................................
2019 ....................................................................................................................................................
2020 ....................................................................................................................................................
Thereafter ...........................................................................................................................................

—

254,305
371,056

444,920

1,070,281

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 the effective interest rate 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 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, including funding for
the acquisition, construction or retrofit of vessels. The 2021 senior notes mature on March 1, 2021 and the effective
interest rate 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
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.

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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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. 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, which 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
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.

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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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
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.

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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

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.

The 2019 convertible senior notes, 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 prior to the fourth quarter of
2015, all of the Company's non-guarantor subsidiaries were minor as defined in the Securities and Exchange Commission
regulations.

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 of $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.

As of December 31, 2015, there were no amounts drawn under the Company’s $300.0 million revolving credit facility

and $0.5 million posted in letters of credit. As of December 31, 2015, 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

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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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. Given the observable nature of the inputs to these estimates, the
fair values presented below for long-term debt have been assigned a Level 2, of the three-level valuation hierarchy. As of
the dates indicated below, the Company had the following face values, carrying values and fair values (in thousands):

December 31, 2015
Carrying
Value

Fair Value

Face
Value

December 31, 2014
Carrying
Value

Fair Value

Face
Value

5.875% senior notes due 2020....................... $ 375,000 $ 371,056 $ 257,813 $ 375,000 $ 370,137 $ 334,688

5.000% senior notes due 2021.......................

1.500% convertible senior notes due 2019 ....

450,000

300,000

444,920

254,305

308,250

170,340

450,000

300,000

443,951

243,399

369,135

251,130

$ 1,125,000 $ 1,070,281 $ 736,403 $ 1,125,000 $ 1,057,487 $ 954,953

Capitalized Interest

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

amount of $24.7 million, $33.2 million, and $31.2 million, for the years ended December 31, 2015, 2014, and 2013,
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 $25.0 million and represent roughly 2.5% of the Company's total shares
outstanding prior to the commencement of the program. The Company has not repurchased any additional shares
subsequent to December 31, 2014.

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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

8. Stock-Based Compensation

Incentive Compensation Plan

In June 2015, the Company received stockholder approval to increase the maximum number of shares available for

issuance under its long-term compensation plan by 750,000. The Company’s stock-based incentive compensation plan
now covers a maximum of 4.95 million shares of common stock that allows the Company to grant restricted stock awards,
restricted stock unit awards, or collectively restricted stock, stock options, stock appreciation rights and fully-vested
common stock to employees and directors. As of December 31, 2015, there were 898,035 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,

2015

2014

2013

10,293 $

6,454 $

10,324 $

6,471 $

11,888

7,581

Basic .............................................................................................. $
Diluted ............................................................................................ $

0.18 $

0.21

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 the impact on cash
flows from financing activities for such excess tax deductions of approximately $(0.2) million, $0.0 million, and $2.7 million
for the years ended December 31, 2015, 2014 and 2013, respectively. Net cash proceeds from the exercise of stock
options were $0.1 million, $1.4 million and $6.2 million for the years ended December 31, 2015, 2014 and 2013,
respectively. The income tax expense (benefit) from stock option exercises and restricted stock vesting was $(1.3) million,
$0.4 million and $4.8 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
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.

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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table represents the Company’s stock option activity for the year ended December 31, 2015 (in

thousands, except per share data and years):

Options outstanding at January 1, 2015 .............................
Grants .................................................................................
Exercised ............................................................................
Forfeited or expired .............................................................
Options outstanding at December 31, 2015........................
Exercisable options outstanding at December 31, 2015 .....

Number of
Shares

Weighted
Average
Exercise Price
27.98
—
22.28
27.27
28.11
28.11

345 $
—
(1)
(40)
304 $
304 $

Weighted-
Average
Remaining
Contractual
Term (years)

Aggregate
Intrinsic
Value

3.7 $
—
n/a
n/a
3.2 $
3.2 $

59
—
2
n/a
—
—

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
—
3.7 $
3.7 $

8,951
—
684
—
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 .....

Restricted Stock

Equity-Settled Restricted Stock

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 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

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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 compared to peers, 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 and in subsequent years. 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 unit 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, 2015, the
Company had unamortized stock-based compensation expense of $10.4 million, which will be recognized on a straight-
line basis over the remaining vesting period, or 1.4 years. In addition, the Company has recorded approximately $9.3
million of compensation expense during the year ended December 31, 2015 associated with restricted stock-based unit
awards.

The following table summarizes the equity-settled restricted stock unit awards activity during the year ended

December 31, 2015 (in thousands, except per share data):

Restricted stock unit awards:

Restricted stock unit awards as of January 1, 2015 .....................................
Granted during the period(1) .........................................................................
Cancellations during the period ...................................................................
Vested ..........................................................................................................
Outstanding, as of December 31, 2015 .......................................................

590 $

479

(104)

(239)

726 $

37.13

21.40

21.84

33.60

30.12

Number of
Shares

Weighted Avg.
Fair Value Per Share

(1)

Includes the full amount of both base and bonus share awards granted during the period, which represents up to150% of the aggregate total of the base

share awards.

F - 21

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the equity-settled restricted stock unit awards activity during the year ended

December 31, 2014 (in thousands, except per share data):

Restricted stock unit awards:

Restricted stock unit awards as of January 1, 2014 .....................................
Granted during the period(1) .........................................................................
Cancellations during the period ...................................................................
Vested ..........................................................................................................
Outstanding, as of December 31, 2014 .......................................................

570 $

274

—

(254)

590 $

31.61

42.61

—

30.68

37.13

Number of
Shares

Weighted Avg.
Fair Value Per Share

(1)

Includes the full amount of both base and bonus share awards granted during the period, which represents up to 150% of the aggregate total of the base
share awards.

The following table summarizes the equity-settled restricted stock unit awards activity during the year ended

December 31, 2013 (in thousands, except per share data):

Restricted stock unit awards:

Restricted stock unit awards as of January 1, 2013 .....................................
Granted during the period ............................................................................
Cancellations during the period ...................................................................
Vested ..........................................................................................................
Outstanding, as of December 31, 2013 .......................................................

660 $

206

(6)

(290)

570 $

25.83

40.11

29.86

24.51

31.61

Number of
Shares

Weighted Avg.
Fair Value Per Share

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 restricted stock unit 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 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 time-based restricted stock unit was granted in 2015, 2014
and 2013. As of December 31, 2015, the Company had unamortized cash-settled restricted stock compensation expense
of $0.5 million, which will be recognized on a straight-line basis over the remaining vesting period, or 1.7 years. In
addition, as a result of its stock price decline in 2015, the Company recorded a reduction to compensation expense of
approximately $0.2 million during the year ended December 31, 2015 associated with cash-settled restricted stock unit
awards.

F - 22

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the cash-settled restricted stock unit awards activity during the year ended

December 31, 2015 (in thousands, except per share data):

Cash-Settled restricted stock unit awards:

Cash-settled restricted stock unit awards as of January 1, 2015 .................
Granted during the period ............................................................................
Cancellations during the period ...................................................................
Vested ..........................................................................................................
Outstanding, as of December 31, 2015 .......................................................

Number of
Shares

Weighted Avg.
Fair Value Per Share(1)

153 $

(1)

(117)

82 $

38.43

21.84

30.87

37.25

30.61

(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 cash-settled restricted stock unit awards activity during the year ended

December 31, 2014 (in thousands, except per share data):

Cash-Settled restricted stock unit awards:

Cash-settled restricted stock unit 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 $

(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 cash-settled restricted stock unit awards activity during the year ended

December 31, 2013 (in thousands, except per share data):

Cash-Settled restricted stock unit awards:

Cash-settled restricted stock unit 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 $

(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.

F - 23

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.
In June 2015, the Company received stockholder approval to increase the maximum number of shares available under
the ESPP by 1,500,000 shares. Under the ESPP, the Company is now authorized to issue up to 2,200,000 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, 2015,
there were 1,299,531 shares available for future issuance to employees under the ESPP. The Company recorded
approximately $1.2 million of compensation expense during the year ended December 31, 2015 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, 2015 and 2014:

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

0 %

61.3 %

0.3 %

4.86

0 %

38.3 %

0.1 %

9.43

2015

2014

F - 24

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

Year Ended December 31,

2015

2014

2013

472,817 $

489,060 $

11,317

484,134

(52,374)

(1,036)

(4,830)

(20,863)

(17,972)

(5,440)

18,013

507,073

(116,676)

(1,330)

(4,246)

(20,863)

(12,332)

(5,676)

418,614

18,501

437,115

(97,817)

(1,228)

(4,128)

(21,437)

(10,404)

(7,067)

(102,515)

(161,123)

(142,081)

—

1,011

912

Total deferred tax liabilities, net ........................................... $

381,619 $

346,961 $

295,946

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

Year Ended December 31,

2015

2014

2013

Current tax expense:

U.S. ............................................................................................... $
Foreign ..........................................................................................
Total current tax expense ..............................................................

— $

5,671

1,927

—

4,000

Deferred tax expense:

U.S. ...............................................................................................
Total tax expense .......................................................................... $

34,086

50,440

39,757 $

52,367 $

32,320

36,320

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

Year Ended December 31,

2015

2014

2013

U.S. ............................................................................................... $
Foreign ..........................................................................................
Total income from continuing operations before income taxes...... $

65,894 $

105,066 $

40,684

35,208

84,591

15,807

106,578 $

140,274 $

100,398

At December 31, 2015, the Company had federal tax net operating loss carryforwards of approximately $154.1
million, which will expire in 2031 through 2032 and foreign tax credit carryforwards of approximately $17.0 million, which
will expire in 2019 through 2025. The Company has state tax net operating loss carryforwards of approximately $36.1
million, which will expire in 2031 through 2032 and can only be utilized if the Company generates taxable income in that
particular jurisdiction.

F - 25

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As a result of the sale of the Downstream segment during 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. Additionally, due to such sale, the Company believed that
certain state operating loss carryforwards might not be realizable and thus recorded a valuation allowance of $0.9 million
for the year ended December 31, 2013. During 2014, the Company recorded an additional $0.1 million related to these
state operating losses. During 2015, the total valuation allowance of $1.0 million was reversed as these state operating
losses were written off upon ceasing to do business in these particular jurisdictions.

The Company is no longer subject to tax audits by federal, state or local taxing authorities for years prior to 2011.
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):

Statutory rate ....................................................................................... $
State taxes, net ....................................................................................
Non-deductible expense ......................................................................
Valuation allowance .............................................................................
Change in deferred tax rate .................................................................
Foreign taxes and other .......................................................................

Year Ended December 31,

2015

2014

2013

37,302 $

49,096 $

35,140

1,066

1,440

(1,011)

—

960

1,403

1,927

—

(158)

39,757 $

52,367 $

1,183

1,688

912

(2,802)

199

36,320

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, three 310 class MPSVs and two 400 class MPSVs. As of December 31, 2015, the
Company had placed 18 vessels in service under such program. Subsequent to year-end, two additional vessels were
placed in service under such program. The four remaining vessels under this 24-vessel domestic newbuild program are
currently expected to be placed in service as follows: two in the remainder of 2016 and two in 2017. Based on current
contracts and internal estimates, the aggregate total cost of this program, before construction period interest, is expected
to be approximately $1,335.0 million. From the inception of this program through December 31, 2015, the Company has
incurred construction costs of approximately $1,201.7 million, or 90.0%, 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 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 estate as an adjacent
addition to HOS Port, its existing shore-base facility located in Port Fourchon, Louisiana. At December 31, 2015, this
latter facility lease had approximately three years remaining on its first renewal option term, with three additional five-year
renewal periods. Rent expense related to operating leases was approximately $4.1 million, $3.9 million and $3.6 million
for the years ending December 31, 2015, 2014 and 2013, respectively.

F - 26

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Future minimum payments under noncancelable leases for years subsequent to 2015 are as follows (in thousands):

Year Ended December 31,
2016 ..................................................................................................................................................... $
2017 .....................................................................................................................................................
2018 .....................................................................................................................................................
2019 .....................................................................................................................................................
2020 .....................................................................................................................................................
Thereafter .............................................................................................................................................
Total ...................................................................................................................................................... $

3,032
2,351
2,359
2,406
2,456
27,186
39,790

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, 2015, 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 - 27

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):

Revolving credit facility deferred financing costs, net of accumulated amortization of
$4,070 and $3,280, respectively ................................................................................. $
Deferred drydocking costs, net of accumulated amortization of $41,784 and
$38,429, respectively ..................................................................................................
Prepaid lease expense, net of amortization of $1,542 and $1,384, respectively ........

Total ...................................................................................................................... $

35,273 $

Year Ended December 31,

2015

2014

3,198 $

1,899

29,228

2,847

48,064

3,005

52,968

12. Major Customers

In the years ended December 31, 2015, 2014, and 2013, revenues from the following customers represent 10% or

more of consolidated revenues:

Customer A ......................................................................
Customer B ......................................................................
Customer C ......................................................................
Customer D ......................................................................

20%

10%
n/a (1)
n/a (1)

14%
n/a (1)
n/a (1)
n/a (1)

12%
n/a (1)
16%

10%

Year Ended December 31,

2015

2014

2013

(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 year 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 - 28

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

As of December 31, 2014, the aggregate components of assets and liabilities classified as discontinued operations

consisted of the following (in thousands):

As of
December 31,
2014

Assets:

Other current assets .................................................................................................................................... $
Total current assets .....................................................................................................................................
Total assets ................................................................................................................................................. $

470
470
470

Liabilities:

Other liabilities ............................................................................................................................................. $
Total liabilities .............................................................................................................................................. $

1,560
1,560

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, 2018 and automatically extends each year thereafter on January 1st, for an
additional year.

F - 29

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

15. Condensed Consolidating Financial Statements of Guarantors

The following tables present the condensed consolidating historical financial statements as of December 31, 2015,

and for the twelve months ended December 31, 2015, for the domestic subsidiaries of the Company that serve as
guarantors of the Company's 2019 convertible senior notes, 2020 senior notes and 2021 senior notes and the financial
results for the Company's subsidiaries that do not serve as guarantors. The guarantor subsidiaries of the 2019
convertible senior notes, 2020 senior notes and 2021 senior notes are 100% owned by the Company. The guarantees
are full and unconditional and joint and several. The non-guarantor subsidiaries of such notes include all of the
Company's foreign subsidiaries.

F - 30

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Condensed Consolidating Balance Sheet
(In thousands, except per share data)

Year ended December 31, 2015

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating Consolidated

Current assets:

ASSETS

Cash and cash equivalents .................................................. $

252,651

7,140

— $

259,801

Accounts receivable, net of allowance for doubtful
accounts of $2,877 ...............................................................

Other current assets .............................................................

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

Property, plant and equipment, net.......................................

—

Deferred charges, net ..........................................................

3,198

Intercompany receivable ......................................................

1,744,880

Investment in subsidiaries ....................................................

785,472

Other assets .........................................................................

1,743

41,962

12,955

307,568

2,472,367

56,022

—

8,602

6,648

54,424

61,630

102,294

27,361

—

2,055

(5,184)

—

(5,184)

91,202

13,033

364,036

—

2,574,661

(51,308)

35,273

(1,744,880)

(794,074)

—

10,446

Total assets .................................................................. $2,535,315

2,851,207

193,340

(2,595,446) $

2,984,416

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable ................................................................. $

— $

97,230

129,840

(191,154) $

Accrued interest ...................................................................

14,795

Accrued payroll and benefits ................................................

Deferred revenue .................................................................

Other accrued liabilities ........................................................

—

10,944

5,222

11,767

Total current liabilities ...................................................

14,795

125,163

Long-term debt, net of original issue discount of $41,600
and deferred financing costs of $13,119...............................

1,070,281

Deferred tax liabilities, net ....................................................

Intercompany payables ........................................................

Other liabilities ......................................................................

—

381,619

1,552,758

808

—

278

512

6,111

136,741

—

14,754

51,308

—

(191,154)

35,916

14,795

11,222

5,734

17,878

85,545

—

1,070,281

381,619

(1,567,512)

(51,308)

—

808

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

1,085,076

2,060,348

202,803

(1,809,974)

1,538,253

Stockholders’ equity:

Preferred stock: $0.01 par value; 5,000 shares authorized;
no shares issued and outstanding ........................................

Common stock: $0.01 par value; 100,000 shares
authorized; 35,985 shares issued and outstanding ..............

Additional paid-in capital ......................................................

Retained earnings ................................................................

Accumulated other comprehensive loss ...............................

—

360

748,041

701,838

—

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

1,450,239

—

37,978

752,762

119

790,859

—

8,602

(13,870)

(4,195)

(9,463)

—

(46,580)

(738,892)

—

360

748,041

701,838

(4,076)

(785,472)

1,446,163

Total liabilities and stockholders’ equity........................ $2,535,315

2,851,207

193,340

(2,595,446) $

2,984,416

F - 31

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Condensed Consolidating Statement of Operations

(In thousands)

Year ended December 31, 2015

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating

Consolidated

Revenues .................................................................................. $

— $

426,419

50,952

(1,301) $

476,070

Costs and expenses:

Operating expenses ..........................................................

Depreciation ......................................................................

Amortization ......................................................................

General and administrative expenses ...............................

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

—

189

—

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

(189)

Other income (expense):

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

—

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

(39,460)

Equity in earnings of consolidated subsidiaries .................

106,798

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

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

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

Income tax expense ..................................................................
Net income ................................................................................ $

—

67,338

67,149

—

178,748

81,522

25,782

44,398

330,450

44,060

140,029

1,125

—

(4,053)

(2,928)

137,101

35,194

41,514

1,044

681

3,861

47,100

—

3,852

400

(36)

—

5,238

5,602

9,454

4,563

(1,002)

219,260

—

(151)

(1,153)

—

(148)

—

(106,798)

(180)

(106,978)

(107,126)

—

82,566

26,463

48,297

376,586

44,060

143,544

1,525

(39,496)

—

1,005

(36,966)

106,578

39,757

66,821

67,149

101,907

4,891

(107,126) $

Condensed Consolidating Statements of Comprehensive Income
(In thousands)

Net income ....................................................... $
Other comprehensive income:

Year Ended December 31, 2015

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating

Consolidated

67,149

101,907

4,891

(107,126) $

66,821

Foreign currency translation loss .....................

—

(81)

(3,093)

—

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

67,149

101,826

1,798

(107,126) $

(3,174)

63,647

F - 32

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Condensed Consolidating Statements of Cash Flows
(In thousands)

Year Ended December 31, 2015

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating Consolidated

CASH FLOWS FROM OPERATING ACTIVITIES:

Net cash provided by (used in) operating activities .................... $ (22,390) $

131,185

107,039

215,843

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:

Deferred financing costs .............................................................
Net cash proceeds from other shares issued .............................
Intercompany ..............................................................................
Net cash provided by (used in) financing activities .....................
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 ............................... $

(2,089)
3,112
21,361
22,384
—
(6)
16
10

SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES:

(120,767)
152,000
(55,724)
(16,211)
(40,702)

—
—
(21,198)
(21,198)
(81)
69,204
183,447
252,651

(69,303)
—
(29,729)
(276)
(99,308)

—
—
(1,493)
(1,493)
(758)
5,480
1,660
7,140

—
—
(1,339)
—
(1,339)

—
—
1,330
1,330
—
—
—
— $

(190,070)
152,000
(86,792)
(16,487)
(141,349)

(2,089)
3,112
—
1,023
(839)
74,678
185,123
259,801

Cash paid for interest ................................................................. $ 50,492
Cash paid for income taxes ........................................................ $

$
— $

— $
$

582

— $
$

4,226

— $
— $

50,492
4,808

F - 33

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

16. 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 2015 and 2014. The operating results for any quarter are not necessarily
indicative of results for any future period.

Fiscal Year 2015(1)(2)

Quarter Ended

Mar 31

Jun 30

Sep 30

Dec 31

Revenues ........................................................................................................... $134,624 $136,446 $116,281 $ 88,719
Operating income(3) ............................................................................................
4,482
(2,671)
Net income (loss)
...............................................................................................
Earnings (loss) per common share:

39,355
19,215

66,898
35,853

32,809
14,424

Basic earnings (loss) per common share .................................................... $
Diluted earnings (loss) per common share .................................................. $

1.01 $
0.99 $

0.54 $
0.53 $

0.40 $
0.40 $

(0.07)
(0.07)

Fiscal Year 2014(1)

Revenues ........................................................................................................... $136,585 $171,099 $166,890 $160,219
Operating income(4)
37,402
............................................................................................
18,769
Income from continuing operations ....................................................................
402
Income (loss) from discontinued operations, net of tax .......................................
19,171
Net income .........................................................................................................
Earnings (loss) per common share: ....................................................................

50,234
26,559
(204)
26,355

56,756
31,225
8
31,233

25,028
11,354
412
11,766

Basic earnings per common share from continuing operations ................... $
Basic earnings (loss) per common share from discontinued operations ......
Basic earnings per common share .............................................................. $
Diluted earnings per common share from continuing operations ................. $
Diluted earnings (loss) 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

The sum of the four quarters may not equal annual results due to rounding.

(1)
(2) Results for the fiscal year 2015 were significantly impacted by a drop in oil price, which resulted in reductions in both the Company's dayrates and

utilization. In recognition of these weak market conditions, the Company stacked 28 OSVs on various dates since October 2014.

(3) During the first quarter of 2015, the Company closed on the sale of three 250EDF class OSVs that were previously chartered to the U.S Navy for cash

consideration of $114.0 million. The sale resulted in a pre-tax gain of approximately $33.1 million ($20.7 million after-tax or $0.57 per diluted share).
During the third quarter of 2015, the Company closed on the sale of one 250EDF class OSV that was previously chartered to the U.S Navy for cash
consideration of $38.0 million. The sale resulted in a pre-tax gain of approximately $11.0 million ($6.7 million after-tax or $0.19 per diluted share). See
Note 5 for further discussion.

(4) 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.

F - 34

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 26, 2016.

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 26, 2016

(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 26, 2016

/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 26, 2016

Table of Contents

Exhibit
Number

Description of Exhibit

Exhibit Index

3.1 — Second Restated Certificate of Incorporation of the Company, as amended (incorporated by reference

to Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended March 31, 2005).

3.2 — 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 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).

4.3 — 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).

4.4 — 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).

4.5 — 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).

4.6 — 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).

4.7 — 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).

4.8 — 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).

4.9 — 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).

4.10 — 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).

4.11 — 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).

4.12 — 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).

4.13 — 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).

E - 1

Table of Contents

Exhibit
Number

Description of Exhibit

4.14 — 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).

4.15 — 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).

4.16 — 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).

4.17 — 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).

4.18 — First Supplemental Indenture, dated October 6, 2015 among Hornbeck Offshore Services, Inc., the

guarantors party thereto and Wells Fargo Bank, National Association, as trustee (to the indenture
governing the 1.5% Convertible Senior Notes due 2019) (incorporated by reference to Exhibit 4.18 to
the Company’s Form 10-Q for the quarter ended September 30, 2015).

4.19 — First Supplemental Indenture, dated October 6, 2015 among Hornbeck Offshore Services, Inc., the

guarantors party thereto and Wells Fargo Bank, National Association, as trustee (to the indenture
governing the 5.875% Senior Notes due 2020) (incorporated by reference to Exhibit 4.19 to the
Company’s Form 10-Q for the quarter ended September 30, 2015).

4.20 — First Supplemental Indenture, dated October 6, 2015 among Hornbeck Offshore Services, Inc., the

guarantors party thereto and Wells Fargo Bank, National Association, as trustee (to the indenture
governing the 5.000% Senior Notes due 2021) (incorporated by reference to Exhibit 4.20 to the
Company’s Form 10-Q for the quarter ended September 30, 2015).

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).

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).

E - 2

Table of Contents

Exhibit
Number

Description of Exhibit

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 — 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).

10.23† — 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).

10.24† — 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).

10.25† — 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).

10.26† — 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).

10.27† — Form of Restricted Stock Unit Agreement for Non-Employee Directors (Time Vesting) (incorporated by

reference to Exhibit 10.8 to the Company’s Form 10-Q for the quarter ended March 31, 2008).

10.28† — 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).

10.29† — 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).

10.30† — Form of Restricted Stock Unit Agreement for Executive Officers (Time Vesting) (incorporated by

reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended March 31, 2009).

E - 3

Table of Contents

Exhibit
Number

Description of Exhibit

10.31† — 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).

10.32 — 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).

10.33 — 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).

10.34 — 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).

10.35 — 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).

10.36 — 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).

10.37 — 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).

10.38 — 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).

10.39 — Amended and Restated Indemnification Agreement effective as of May 7, 2015 by and among the

Company, Hornbeck Family Ranch, LP, Larry D. Hornbeck and Joan M. Hornbeck (incorporated by
reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended March 31, 2015).

10.40† — Fourth Amendment to the Second Amended and Restated Hornbeck Offshore Services, Inc. Incentive

Compensation Plan, effective June 18, 2015 (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed June 24, 2015).

10.41† — First Amendment to the Hornbeck Offshore Services, Inc. 2005 Employee Stock Purchase Plan,

effective June 18, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K filed June 24, 2015).

*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

Table of Contents

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, 2010 (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.

E - 5