UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~September~~June 30, ~~2017~~2018



☐	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		72-1375844
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

103 NORTHPARK BOULEVARD, SUITE 300

COVINGTON, LA 70433

(Address of Principal Executive Offices) (Zip Code)

(985) 727-2000

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer ☐		Accelerated filer ☒

Non-accelerated filer ☐ (Do not check if a smaller reporting company)		Smaller reporting company ☐

		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The total number of shares of common stock, par value $.01 per share, outstanding as of ~~October~~July 31, ~~2017~~2018 was ~~37,050,416.~~37,595,348.

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED ~~SEPTEMBER~~JUNE 30, ~~2017~~2018

TABLE OF CONTENTS

Table of Contents

PART 1—FINANCIAL INFORMATION

Item 1—Financial Statements

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)


	September 30, 2017		December 31, 2016		June 30, 2018			December 31, 2017
	(Unaudited)				(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	112,836	$	217,027	$	109,065		$	186,849
Accounts receivable, net of allowance for doubtful accounts of $6,052 and $2,120, respectively	50,229		36,550
Accounts receivable, net of allowance for doubtful accounts of $6,103 and $6,054, respectively					57,073			44,702
Other current assets	13,152		16,978		16,006			16,890
Total current assets	176,217		270,555		182,144			248,441
Property, plant and equipment, net	2,522,042		2,578,388		2,482,733			2,501,013
Deferred charges, net	12,760		19,077		17,846			12,812
Other assets	10,169		10,255		6,436			6,612
Total assets	$	2,721,188	$	2,878,275	$	2,689,159		$	2,768,878
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	15,023	$	11,774	$	19,615		$	16,196
Accrued interest	13,709		14,763		15,790			14,734
Accrued payroll and benefits	9,275		8,596		12,364			9,475
Other accrued liabilities	10,756		10,010		13,018			8,457
Total current liabilities	48,763		45,143		60,787			48,862
Long-term debt, including deferred gain of $19,689 and $0, and net of original issue discount of $7,598 and $31,093 and deferred financing costs of $10,971 and $10,197, respectively	1,014,031		1,083,710
Long-term debt, including deferred gain of $17,457 and $18,911, and net of original issue discount of $5,822 and $7,862 and deferred financing costs of $8,452 and $10,134, respectively					1,083,094			1,080,826
Deferred tax liabilities, net	308,717		343,020		179,124			197,465
Other liabilities	3,996		3,406		2,522			3,801
Total liabilities	1,375,507		1,475,279		1,325,527			1,330,954
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; 37,028 and 36,467 shares issued and outstanding, respectively	370		365
Common stock: $0.01 par value; 100,000 shares authorized; 37,595 and 37,144 shares issued and outstanding, respectively					376			371
Additional paid-in-capital	758,690		754,394		760,939			760,278
Retained earnings	574,840		637,992		604,855			668,598
Accumulated other comprehensive income	11,781		10,245
Accumulated other comprehensive income (loss)					(2,538		)	8,677
Total stockholders’ equity	1,345,681		1,402,996		1,363,632			1,437,924
Total liabilities and stockholders’ equity	$	2,721,188	$	2,878,275	$	2,689,159		$	2,768,878

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

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
	(Unaudited)						(Unaudited)						(Unaudited)						(Unaudited)
Revenues:
Vessel revenues	$	45,637		$	43,670		$	110,825		$	157,170		$	49,481		$	29,339		$	82,615		$	65,188
Non-vessel revenues	8,029			8,257			24,346			25,250			8,950			8,087			17,403			16,317
	53,666			51,927			135,171			182,420			58,431			37,426			100,018			81,505
Costs and expenses:
Operating expenses	30,082			29,375			89,385			104,134			34,858			31,368			70,827			59,303
Depreciation	24,682			23,467			74,038			68,298			24,630			24,679			49,278			49,356
Amortization	2,473			4,580			9,463			16,675			2,256			3,266			4,248			6,990
General and administrative expenses	12,899			9,031			36,573			30,084			12,246			9,432			25,121			23,674
	70,136			66,453			209,459			219,191			73,990			68,745			149,474			139,323
Gain (loss) on sale of assets	(197		)	81			(178		)	36			(13		)	1			30			19
Operating loss	(16,667		)	(14,445		)	(74,466		)	(36,735		)	(15,572		)	(31,318		)	(49,426		)	(57,799		)
Other income (expense):
Gain on early extinguishment of debt	—			—			15,478			—			—			15,478			—			15,478
Interest income	447			401			1,312			1,164			519			464			1,163			865
Interest expense	(11,956		)	(12,820		)	(39,194		)	(34,888		)	(16,401		)	(13,429		)	(30,346		)	(27,238		)
Other income (expense), net	106			1,592			(163		)	2,048			(72		)	54			(63		)	(269		)
	(11,403		)	(10,827		)	(22,567		)	(31,676		)	(15,954		)	2,567			(29,246		)	(11,164		)
Loss before income taxes	(28,070		)	(25,272		)	(97,033		)	(68,411		)	(31,526		)	(28,751		)	(78,672		)	(68,963		)
Income tax benefit	(9,120		)	(8,769		)	(30,696		)	(23,808		)	(6,438		)	(9,262		)	(14,929		)	(21,576		)
Net loss	$	(18,950	)	$	(16,503	)	$	(66,337	)	$	(44,603	)	$	(25,088	)	$	(19,489	)	$	(63,743	)	$	(47,387	)
Loss per share:
Basic loss per common share	$	(0.51	)	$	(0.45	)	$	(1.80	)	$	(1.23	)	$	(0.67	)	$	(0.53	)	$	(1.70	)	$	(1.29	)
Diluted loss per common share	$	(0.51	)	$	(0.45	)	$	(1.80	)	$	(1.23	)	$	(0.67	)	$	(0.53	)	$	(1.70	)	$	(1.29	)
Weighted average basic shares outstanding	37,013			36,338			36,794			36,205			37,496			36,769			37,419			36,683
Weighted average diluted shares outstanding	37,013			36,338			36,794			36,205			37,496			36,769			37,419			36,683

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

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
	(Unaudited)						(Unaudited)						(Unaudited)						(Unaudited)
Net loss	$	(18,950	)	$	(16,503	)	$	(66,337	)	$	(44,603	)	$	(25,088	)	$	(19,489	)	$	(63,743	)	$	(47,387	)
Other comprehensive income:
Foreign currency translation income (loss)	2,743			(908		)	1,536			19,770
Other comprehensive income (loss):
Foreign currency translation loss													(10,916		)	(2,976		)	(11,215		)	(1,207		)
Total comprehensive loss	$	(16,207	)	$	(17,411	)	$	(64,801	)	$	(24,833	)	$	(36,004	)	$	(22,465	)	$	(74,958	)	$	(48,594	)

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

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2018			2017
	(Unaudited)						(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(66,337	)	$	(44,603	)	$	(63,743	)	$	(47,387	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation	74,038			68,298			49,278			49,356
Amortization	9,463			16,675			4,248			6,990
Stock-based compensation expense	5,740			6,557			4,753			3,014
Gain on early extinguishment of debt	(15,478		)	—			—			(15,478		)
Provision for bad debts	3,932			(719		)	49			4,032
Deferred tax benefit	(33,766		)	(21,097		)	(15,360		)	(24,243		)
Amortization of deferred financing costs and deferred gain	7,013			8,131
(Gain) loss on sale of assets	178			(36		)
Amortization of deferred financing costs							2,217			6,137
Gain on sale of assets							(30		)	(19		)
Changes in operating assets and liabilities:
Accounts receivable	(23,898		)	50,321			(19,639		)	(6,199		)
Other current and long-term assets	4,062			591			1,038			(3,127		)
Deferred drydocking charges	(6,950		)	(3,214		)	(3,351		)	(5,955		)
Accounts payable	11,157			(8,406		)	9,427			9,124
Accrued liabilities and other liabilities	2,697			(14,073		)	2,405			631
Accrued interest	(1,054		)	(1,264		)	1,055			(1,002		)
Net cash provided by (used in) operating activities	(29,203		)	57,161
Net cash used in operating activities							(27,653		)	(24,126		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Costs incurred for acquisition of offshore supply vessels							(40,868		)	—
Costs incurred for OSV newbuild program	(12,363		)	(73,198		)	(2,757		)	(7,063		)
Net proceeds from sale of assets	34			506			57			33
Vessel capital expenditures	(1,299		)	(18,706		)	(5,482		)	(485		)
Non-vessel capital expenditures	(1,468		)	(414		)	(81		)	(548		)
Net cash used in investing activities	(15,096		)	(91,812		)	(49,131		)	(8,063		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from first-lien credit facility	980			—
Repurchase of senior notes	(5,057		)	—
Proceeds from Credit Facility							—			980
Repurchase of senior notes due 2020							—			(5,057		)
Repurchase of convertible notes	(49,631		)	—			—			(49,631		)
Deferred financing costs	(5,636		)	(1,102		)	—			(5,636		)
Shares withheld for payment of employee withholding taxes	(575		)	(450		)	(536		)	(573		)
Net cash proceeds from other shares issued	258			732			260			258
Net cash used in financing activities	(59,661		)	(820		)	(276		)	(59,659		)
Effects of exchange rate changes on cash	(231		)	1,131			(724		)	(396		)
Net decrease in cash and cash equivalents	(104,191		)	(34,340		)	(77,784		)	(92,244		)
Cash and cash equivalents at beginning of period	217,027			259,801			186,849			217,027
Cash and cash equivalents at end of period	$	112,836		$	225,461		$	109,065		$	124,783
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES:
Cash paid for interest	$	40,028		$	38,871		$	29,304		$	26,199
Cash paid for income taxes	$	1,044		$	2,688		$	650		$	710
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:
Exchange of convertible notes for first-lien term loan	$	127,096		$	—		$	—		$	127,096

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

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited consolidated financial statements do not include certain information and footnote disclosures required by United States generally accepted accounting principles, or GAAP. The interim financial statements and notes are presented as permitted by instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements have been included and consist only of normal recurring items. The unaudited quarterly financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Annual Report on Form 10-K of Hornbeck Offshore Services, Inc. (together with its subsidiaries, the “Company”) for the year ended December 31, ~~2016.~~2017. The results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017. Certain reclassifications have been made to prior period results to conform to current year presentation.~~2018.

The consolidated balance sheet at December 31, ~~2016~~2017 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

2. Recent Accounting Pronouncements

~~The following table provides a brief description of recent accounting pronouncements that could have a material effect on our financial statements:~~



Standard	Description	Required Date of Adoption	Effect on the financial statements and other significant matters
Standards that have been adopted
ASU No. 2014-09, "Revenue from Contracts with Customers" (Topic 606)
~~Accounting Standards Update (ASU) No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting"~~	This standard ~~simplifies several aspects~~requires entities to recognize revenues in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the ~~accounting~~consideration which the entity expects to be entitled to in exchange for ~~share-based payment transactions, including the income tax consequences, classification of awards as either equity~~those goods or ~~liabilities, forfeitures and classification of related amounts within the statement of cash flows.~~ services. ASU 2014-09 requires retrospective application.	January 1, ~~2017~~2018	~~The adoption of this~~This ASU ~~had the following impact on our consolidated financial statements: 1)~~replaces most existing revenue recognition guidance in U.S. GAAP. The Company ~~recorded a $3.2 million~~adopted ASU 2014-09 on January 1, 2018 under the modified retrospective method. Based on the Company's review of its open revenue-related contracts on the date of adoption, it was determined that there was no cumulative effect of applying the new standard and therefore no adjustment to ~~equity to recognize excess tax deductions related to stock based compensation expense~~the opening retained earnings balance was needed as of January 1, 2018. See Note 3 - Revenues from ~~prior years. The prior period presentation has not been restated. 2) The Company recorded $1.9 million of tax shortfall in its provision~~Contracts with Customers for income taxes rather than as a decrease to equity. The prior period presentation has not been restated. 3) The Company recorded $0.6 million related to employee withholding taxes paid as a financing activity in the nine months ended September 30, 2017. The prior year statement of cash flows was restated to reflect $0.5 million related to employee taxes paid. There was no impact on the calculation of earnings per share as all outstanding stock options were anti-dilutive at September 30, 2017. In addition, the Company has elected to continue estimating the forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period.additional information.

~~Table of Contents~~

~~HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~



~~Standard~~	~~Description~~	~~Required Date of Adoption~~	~~Effect on the financial statements and other significant matters~~
~~Standards that have not been adopted~~
~~ASU No. 2017-04, "Simplifying the Accounting for Goodwill Impairment"~~	The standard removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 requires prospective application. Early adoption is permitted for any impairment tests performed after January 1, 2017.	~~January 1, 2020~~	~~The Company believes that the implementation of this new guidance will not have a material impact on its consolidated financial statements.~~
ASU No. 2017-01, "Business Combinations" (Topic 805): Clarifying the Definition of a Business	This standard provides guidance to assist entities with evaluating when a set of transferred assets and activities is a business. ASU 2017-01 requires prospective application.	January 1, 2018	The Company ~~believes that~~adopted ASU No. 2017-01 on January 1, 2018 under the ~~implementation of this new guidance will not have a material~~prospective application. This adoption had no impact on its consolidated financial statements.

~~ASU No. 2016-16, "Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory"~~

The standard requires the recognition of the tax effects of an intra-entity asset transfer in the period in which the transfer takes place. The new guidance does not apply to intra-entity transfers of inventory. ASU No. 2016-16 requires a modified retrospective approach. Early adoption is permitted.

~~January 1, 2018~~

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

~~ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments"~~

The standard clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The new guidance also clarifies how the predominance principle should be applied when cash receipts and cash paymentsStandards that have ~~aspects of more than one class of cash flows. ASU No. 2016-15 requires retrospective application. Early adoption is permitted.~~

~~January 1, 2018~~

~~The Company believes that the implementation of this new guidance will~~ not ~~have a material impact on its consolidated financial statements.~~

been adopted

ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments"

This standard requires measurement and recognition of expected credit losses for financial assets held. ASU No. 2016-13 requires modified retrospective application. Early adoption is permitted.

January 1, 2020

The Company believes that the implementation of this new guidance will not have a material impact on its consolidated financial statements.

ASU No. 2016-02, "Leases" (Topic 842)

This standard requires lessees to recognize a lease liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. ASU 2016-02 requires a modified retrospective application. Early adoption is permitted.

January 1, 2019

~~While the~~The Company ~~is continuing~~continues to evaluate the ~~effect~~impact this new ~~standard~~guidance will have on its consolidated financial ~~statements~~statements. See further discussion below.

ASU No. 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income"

This standard allows companies to reclassify items in accumulated other comprehensive income to retained earnings for stranded tax effects resulting form The Tax Cuts and ~~related disclosures, it has identified long-term operating leases, which under~~Jobs Act.

January 1, 2019

The Company continues to evaluate the impact this new guidance will have on its consolidated financial statements.

ASU No. 2018-11, "Leases" (Topic 842): Targeted Improvements

This standard provides for the election of transition methods between the modified retrospective method and the optional transition relief method. The modified retrospective method is applied to all prior reporting periods presented with a cumulative-effect adjustment recorded in the earliest comparative period while the optional transition relief method is applied beginning in the period of adoption with a cumulative-effect adjustment recorded in such period. Also, this standard allows lessors to elect to not separate non-lease components from the associated lease components if certain criteria are met.

January 1, 2019

The Company continues to evaluate the impact this new guidance will ~~be treated as capital leases~~have on ~~date of adoption.~~

its consolidated financial statements. See further discussion below.

ASC 842, Leases

Lessor Accounting

In July 2018, the Financial Accounting Standards Board, or FASB, issued ASU 2018-11 that allows for 1) a transition option that will allow companies to not apply the new lease standard in the comparative periods presented in their financial statements in the year of adoption and will allow the Company to continue to apply legacy guidance, ASC 840 Leases, including its disclosure requirements, for comparative periods presented, and 2) an option for lessors to combine lease and non-lease components contained within the same agreement when certain criteria are met. The Company does not expect a change in the timing or amounts of revenues recognized upon the adoption of this standard.

Lessee Accounting

The primary difference between current accounting standards and ASC 842 is the recognition of right-of-use assets and corresponding liabilities by lessees for those leases classified as operating leases under current accounting standards. The estimated impact of the adoption of this ASC based on the lease arrangements for

which the Company is the lessee as of June 30, 2018, will be an increase to assets and liabilities on the Company's financial statements to reflect the right-of-use assets and lease obligations in a range from $27.0

million to $30.0 million. The adoption of the new standard is not expected to result in a change in the amount of lease expense currently being recognized.

3. Revenues from Contracts with Customers

Effective January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers using the modified retrospective method. The adoption of this standard did not have a material impact on the Company's financial position or results of operations. Accordingly, the Company did not make an adjustment to the opening balance of retained earnings in order to account for the implementation of the new requirements of this standard, and it did not restate prior period information for the effects of the new standard.

The services that are provided by the Company represent a single performance obligation under our contracts that are satisfied at a point in time or over time. Revenues are earned primarily by (1) chartering the Company's vessels, including operation of such vessels, (2) providing vessel management services to third party vessel owners, and (3) providing shore-based port facility services, including rental of land. These revenue streams are provided to customers based upon contracts that include fixed or determinable prices and do not generally include right of return or other significant post-delivery obligations. The Company's vessel revenues, vessel management revenues and port facility revenues are recognized either at a point in time or over the passage of time when the customer has received or is receiving the benefit from the applicable service. Revenues are recognized when the performance obligations are satisfied in accordance with contractual terms and in an amount that reflects the consideration that the Company expects to be entitled to in exchange for the services rendered or rentals provided. Revenues are recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Invoices are typically billed to our customers on a monthly basis and payment terms on customer invoices typically range 30 to 60 days.

A performance obligation under contracts with the Company's customers to render services is the unit of account under Topic 606. The Company accounts for services rendered separately if they are distinct and the service is separately identifiable from other items provided to a customer and if a customer can benefit from the services rendered provided on its own or with other resources that are readily available to the customer. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

As of June 30, 2018, the Company has certain remaining performance obligations representing contracted vessel revenues for which work has not been performed and such contracts have an original expected duration of more than one year. As of June 30, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations for such contracts was $16.4 million, of which $15.8 million and $0.6 million are expected to be recognized in 2018 and 2019, respectively. The Company has elected to apply the optional exemption for the disclosure of the remaining performance obligations for any of its revenue streams that are expected to have a duration of one year or less and, therefore, such amounts have not been disclosed.

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Disaggregation of Revenues

For the three and six months ended June 30, 2018 and 2017, the Company recognized revenues as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Vessel revenues	$	49,481	$	29,339	$	82,615	$	65,188
Vessel management revenues	7,974		7,320		15,733		14,773
Shore-based facility revenues	976		767		1,670		1,544
	$	58,431	$	37,426	$	100,018	$	81,505

3.4. Loss Per Share

Basic loss per common share was calculated by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted loss per common share was calculated by dividing net loss by the weighted average number of common shares outstanding during the year plus the effect of dilutive stock options and restricted stock unit awards. When reporting a net loss, the Company uses weighted average basic shares outstanding to calculate diluted earnings per share. 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 loss per share (in thousands, except for per share data):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Net loss	$	(18,950	)	$	(16,503	)	$	(66,337	)	$	(44,603	)	$	(25,088	)	$	(19,489	)	$	(63,743	)	$	(47,387	)
Weighted average number of shares of common stock outstanding	37,013			36,338			36,794			36,205			37,496			36,769			37,419			36,683
Add: Net effect of dilutive stock options and unvested restricted stock (1)(2)(3)	—			—			—			—			—			—			—			—
Weighted average number of dilutive shares of common stock outstanding	37,013			36,338			36,794			36,205			37,496			36,769			37,419			36,683
Loss per common share:
Basic loss per common share	$	(0.51	)	$	(0.45	)	$	(1.80	)	$	(1.23	)	$	(0.67	)	$	(0.53	)	$	(1.70	)	$	(1.29	)
Diluted loss per common share	$	(0.51	)	$	(0.45	)	$	(1.80	)	$	(1.23	)	$	(0.67	)	$	(0.53	)	$	(1.70	)	$	(1.29	)

(1)

Due to a net loss, the Company excluded from the calculation of loss per share the effect of equity awards representing the rights to acquire ~~990~~529 and 639 shares of common stock for the three and six months ended June 30, 2018 and 992 and 988 shares of common stock for the three and ~~nine~~six months ended ~~September~~June 30, 2017, ~~and 988 and 974 shares of common stock for the three and nine months ended September 30, 2016,~~ respectively.

(2)

For the ~~three and nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, the 2019 convertible senior notes 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 its 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.


(3)	Dilutive unvested restricted stock units are expected to fluctuate from quarter to quarter depending on the Company’s performance compared to a predetermined set of performance criteria. See Note 67 to these financial statements for further information regarding certain of the Company’s restricted stock grants.

4.5. Property, Plant and Equipment

Asset Impairment Assessment

In accordance with ASC 360, the Company periodically reviews long-lived asset valuations when events or changes in circumstances indicate that an asset’s carrying value may not be recoverable. If indicators of impairment exist, the Company assesses the recoverability of its long-lived assets by comparing the projected future undiscounted cash flows associated with the related long-lived asset group over their remaining estimated useful lives. If the sum of the estimated undiscounted cash flows are less than the carrying amounts of the asset group, the assets are written down to their estimated fair values based on the expected discounted

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~~of the asset group, the assets are written down to their estimated fair values based on the expected discounted~~ future cash flows or appraised values attributable to the assets. The future cash flows are subjective and are based on the Company’s current assumptions regarding future dayrates, utilization, operating expense, G&A expense and recertification costs that could differ from actual results.

During the second quarter of 2016, the Company determined that it observed indicators of impairment related to its vessels. This resulted from the rapid deterioration of its second quarter 2016 operating results, as well as the uncertainty regarding future market conditions and the related impact on the Company's projected operating results. ~~As a result,~~For the purposes of calculating the undiscounted cash flows, the Company ~~calculated the~~grouped its vessels into two groups, OSVs and MPSVs, and used a probability-weighted undiscounted cash ~~flows for its two vessel groups, OSVs and MPSVs,~~flow projection to test for recoverability. After reviewing the results of this calculation, the Company determined that each of its asset groups had sufficient projected undiscounted cash flows to recover the remaining book value of the Company's long-lived assets within such groups. While the Company has not observed any new impairment indicators since the second quarter of 2016, the Company ~~does review~~has reviewed and ~~update,~~updated, as necessary, the assumptions used in determining its undiscounted cash flow projections for each asset group to reflect current market conditions. After reviewing the ~~result~~results of these updated projections, the Company determined that each of its asset groups ~~has~~continue to have sufficient projected undiscounted cash flows to recover the remaining book value of the Company's long-lived assets within such group.

5.6. Long-Term Debt

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

September 30,
2017 December 31,
2016
5.875% senior notes due 2020, net of deferred financing costs of $2,286 and $3,025 $ 364,656
$ 371,975
5.000% senior notes due 2021, net of deferred financing costs of $3,384 and $4,111 446,616
445,889
1.500% convertible senior notes due 2019, net of original issue discount of $7,579 and $31,093 and deferred financing costs of $1,698 and $3,061 90,370
265,846
First-lien credit facility due 2023, including deferred gain of $19,689 and $0, and net of original issue discount of $19 and $0, and deferred financing costs of $3,603 and $0 112,389
—
$ 1,014,031
$ 1,083,710



	June 30, 2018		December 31, 2017
5.875% senior notes due 2020, net of deferred financing costs of $1,611 and $2,061	$	365,331	$	364,881
5.000% senior notes due 2021, net of deferred financing costs of $2,657 and $3,142	447,343		446,858
1.500% convertible senior notes due 2019, net of original issue discount of $4,707 and $6,634 and deferred financing costs of $1,055 and $1,486	93,885		91,527
First-lien credit facility due 2023, including deferred gain of $17,457 and $18,911, and net of original issue discount of $1,115 and $1,228, and deferred financing costs of $3,129 and $3,445	176,535		177,560
	$	1,083,094	$	1,080,826

The table below summarizes the Company's cash interest payments (in thousands):

Cash Interest Payments

Payment Dates

Cash Interest Payments

Payment Dates

5.875% senior notes due 2020

10,779

April 1 and October 1

10,779

April 1 and October 1

5.000% senior notes due 2021

11,250

March 1 and September 1

11,250

March 1 and September 1

1.500% convertible senior notes due 2019

747

March 1 and September 1

747

March 1 and September 1

First-lien credit facility due 2023 (1)

581

Variable

1,202

Variable


(1)	The interest rate on the ~~first-lien credit facility~~Credit Facility is variable based on the Company's election. The amount reflected in this table is the monthly amount payable based on the 30-day LIBOR interest rate that was elected and in effect on ~~September~~June 30, ~~2017.~~2018. Please see further discussion of the variable interest rate below.

First-Lien Credit Facility

~~On June 15, 2017, the Company closed on a new~~The Company's $300 million first-lien ~~delayed-draw term loan~~ credit facility, ~~by and among the Company, as Parent Borrower, Hornbeck Offshore Services, LLC,~~ or HOS, as Co-Borrower, certain holders of the Company’s outstanding notes, or the Initial Lenders, and Wilmington Trust, National Association, as Administrative Agent and Collateral Agent for the lenders, or the New Credit Facility. The Company concurrently terminated its then-existing $200 million senior secured revolving credit facility,

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~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~dated February 6, 2015 as subsequently amended, or the Old Credit Facility. The New~~ Credit Facility, matures in June 2023 and currently provides for $136.7 million of additional available liquidity, $68.0 million of which is ~~guaranteed~~required to be drawn by December 31, 2018 with the ~~Parent Borrower’s significant domestic subsidiaries other than HOS. The six-year term of the New Credit Facility extended the February 2020 maturity that was applicable under the Old Credit Facility~~remaining balance required to ~~June 2023.~~

~~The New Credit Facility enhanced the Company’s financial flexibility~~be drawn by (i) increasing liquidity from the then-applicable borrowing base of $75.0 million under the Old Credit Facility, (ii) extending the maturity date that existed under the Old Credit Facility by over three years, and (iii) eliminating all of the existing financial ratio maintenance covenants and the anti-cash hoarding provision of the Old Credit Facility. The New Credit Facility contains customary representations and warranties, covenants and events of default.

September 1, 2019. The Company can use ~~the amounts it~~ draws under the ~~New Credit Facility~~facility for working capital and general corporate purposes, including the acquisition of distressed assets and/or the refinancing of existing debt, subject to, among other things, compliance with certain covenants requiring the Company to maintain access to liquidity (cash and credit availability) of $25.0 million at all times. The minimum liquidity level required for prepayment of the Company’s existing ~~indebtedness and/or certain other restricted payments is $65.0 million.~~

The Company is required to draw on a cumulative basis (i) at least $68.0 million of the delayed-draw commitments under the New Credit Facility by December 31, 2017, (ii) at least $136.0 million of such commitments by December 31, 2018, and (iii) the full amount of the remaining $203.7 million of such commitments by September 1, 2019. The right to borrow any amount of the delayed-draw commitments not drawn by the respective minimum funding dates will be terminated.

The New Credit Facility is collateralized by 51 domestic high-spec OSVs and MPSVs, including a security interest in two pending MPSV newbuilds, and associated personalty, as well as by certain deposit and securities accounts, or the Collateral. Subject to the foregoing and certain limitations, the Company’s other assets that do not arise from, are not required for use in connection with, and are not necessary for, the operation of mortgaged vessels are unencumbered by liens, including ten low-spec domestic OSVs and eleven foreign-flagged vessels.

~~Borrowings under the New Credit Facility accrue interest, at the Company’s option, at either:~~

an adjusted London Interbank Offered Rate (subject to a 1.00% floor) plus (a) 6.00% during the first year of the New Credit Facility, (b) 6.50% during the second year of the New Credit Facility, (c) 7.00% during the third year of the New Credit Facility, (d) 7.25% during the fourth year of the New Credit Facility, and (e) 7.50% thereafter; or

•

~~the greatest of (a) the prime rate announced by The Wall Street Journal, (b) the Federal Funds Effective Rate in effect on such day plus~~1/2 of 1%, and (c) the London Interbank Offered Rate plus, 1%, plus, for either (a), (b), or (c), a margin of (i) 5.00% during the first year of the New Credit Facility, (ii) 5.50% during the second year of the New Credit Facility, (iii) 6.00% during the third year of the New Credit Facility, (iv) 6.25% during the fourth year of the New Credit Facility, and (v) 6.50% thereafter.

The Company also has the option, exercisable anytime or from time-to-time during the six-year term of the loan, of paying interest on the New Credit Facility “in-kind” (accruing to the outstanding principal of the loan, or PIK Interest), subject to a 100 basis-point step-up in interest rate and a minimum 3% cash-pay coupon for so long as the Company elects to pay PIK Interest, subject to any and all debt incurrence and permitted lien restrictions then in effect under any outstanding loan agreements or bond indentures as of the time of such increase in principal.

The New Credit Facility may be prepaid at (i) 102% of the principal amount repaid if such repayment occurs on or prior to June 15, 2018, (ii) at 101% of the principal amount repaid if such repayment occurs after June 15, 2018 but on or prior to June 15, 2019, and (iii) at par of the principal repaid thereafter.

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~~Upon closing the New~~indebtedness and/or certain other restricted payments is $65.0 million. The Credit Facility ~~$95.3 million~~is collateralized by 55 domestic high-spec OSVs and MPSVs, including a security interest in two pending MPSV newbuilds, and associated personalty, as well as by certain deposit and securities accounts. Borrowings accrue interest, at the Company’s option, at either an adjusted London Interbank Offered Rate (subject to a 1.00% floor) plus an applicable margin or the greatest of ~~borrowings under~~(a) the prime rate announced by The Wall Street Journal, (b) the Federal Funds Effective Rate in effect on such ~~facility were exchanged for $127.1 million in face value~~day plus 1/2 of ~~its 2019 convertible senior notes. In accordance with~~1%, and (c) the London Interbank Offered Rate plus, 1%, plus, an applicable ~~accounting guidance, this debt-for-debt exchange has been accounted for as~~ a ~~debt modification, requiring~~margin.

On March 27, 2018, the Company entered into an amendment with its first-lien lenders to ~~defer~~clarify various provisions in and made certain technical revisions to the ~~$31.8 million gain. Such gain was reduced by $11.1 million of original issue discount that was associated~~Credit Facility, primarily dealing with the ~~2019 convertible senior notes that were exchanged. The net credit of $20.7 million has been deferred~~administerial permissabilities regarding vessel reflagging transactions and ~~will be amortized prospectively as a yield adjustment to interest expense over the life of the New Credit Facility.~~permitted acquisition indebtedness, among other matters.

The agreement governing the ~~New~~ Credit Facility and the indentures governing the Company's 2020 senior notes and 2021 senior notes impose certain restrictions on the Company. Such restrictions affect, and in many cases limit or prohibit, among other things, the Company's ability to incur additional indebtedness, make capital expenditures, redeem equity, create liens, sell assets and make dividend or other restricted payments.

~~Convertible Note and Senior Note Repurchases~~

Concurrently with the closing of the New Credit Facility, the Company arranged for the repurchase of $73.3 million of its outstanding 2019 convertible senior notes and $8.1 million of its outstanding 2020 senior notes for an aggregate total of $54.1 million of cash. The Company recorded a gain on early extinguishment of debt of $15.5 million ($10.5 million or $0.29 per diluted share after-tax), which was comprised of a $27.2 million gain on the repurchase of the 2019 convertible senior notes and the 2020 senior notes, offset in part by the write-off of $2.3 million in deal costs and unamortized financing costs related to the credit facilities and $9.4 million of original issue discount, deal costs and unamortized financing costs related to the notes repurchased.

The Company estimates the fair value of its 2020 senior notes, 2021 senior notes, 2019 convertible senior notes and ~~New~~ Credit Facility by primarily using quoted market prices. Given the observability of the inputs to these estimates, the Company has assigned a Level 2 of the three-level valuation hierarchy for such outstanding notes.

As of the dates indicated below, the Company had the following face values, carrying values and fair values (in thousands):


	September 30, 2017						December 31, 2016						June 30, 2018						December 31, 2017
	Face Value		Carrying Value		Fair Value		Face Value		Carrying Value		Fair Value		Face Value		Carrying Value		Fair Value		Face Value		Carrying Value		Fair Value
5.875% senior notes due 2020	$	366,942	$	364,656	$	239,668	$	375,000	$	371,975	$	270,938	$	366,942	$	365,331	$	274,289	$	366,942	$	364,881	$	244,714
5.000% senior notes due 2021	450,000		446,616		226,125		450,000		445,889		301,343		450,000		447,343		295,313		450,000		446,858		236,250
1.500% convertible senior notes due 2019	99,647		90,370		78,970		300,000		265,846		216,195		99,647		93,885		77,167		99,647		91,527		74,486
First-lien credit facility due 2023 (1)	96,322		112,389		96,201		—		—		—		163,322		176,535		162,718		163,322		177,560		162,505
	$	1,012,911	$	1,014,031	$	640,964	$	1,125,000	$	1,083,710	$	788,476	$	1,079,911	$	1,083,094	$	809,487	$	1,079,911	$	1,080,826	$	717,955


(1)	The carrying value of the ~~first-lien credit facility~~Credit Facility due 2023 includes a deferred gain of ~~$19,689~~$17,457 less original issue discount and deferred financing costs of ~~$3,622.~~$4,244.

Capitalized Interest

During the three ~~and~~ ~~nine~~ months ended ~~September~~June 30, ~~2017~~2018, the Company did not capitalize any of its interest costs. During the six months ended June 30, 2018, the Company capitalized approximately ~~$2.7~~$2.3 million ~~and $7.6 million, respectively,~~ of interest costs related to the construction of vessels. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017, the Company capitalized approximately ~~$4.2~~$2.5 million and ~~$14.3~~$4.9 million, respectively, of interest costs related to the construction of vessels.

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~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

6.7. Incentive Compensation

Stock-Based Incentive Compensation Plan

The Company’s stock-based incentive compensation plan 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

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

employees and directors. As of ~~September~~June 30, ~~2017,~~2018, the Company has granted awards covering ~~4.86~~4.68 million shares of common stock under such plan.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, the Company granted 1,527,102 time-based and 939,391 performance-based phantom restricted stock ~~units, time-based restricted stock units and fully-vested common stock as noted in the table below.~~



	~~Directors~~	~~Executive Officers~~	~~Certain Managers~~
~~Performance-based~~units. The phantom ~~restricted stock units~~		X
~~Time-based phantom restricted stock units~~		X	X
~~Time-based restricted stock units~~		X
~~Fully-vested common stock~~	X

~~The~~ shares to be received under the performance-based phantom restricted stock units are calculated based on the Company's performance compared to two pre-determined criteria, as defined by the phantom restricted stock unit agreements governing such awards. The actual number of shares that could be received by the award recipients can range from 0% to 150% of the awards granted depending on the Company's performance. ~~During the~~ ~~nine months ended September 30, 2017, the Company granted 341,136 time-based restricted stock units, 394,027 time-based and 454,849 performance-based phantom restricted stock units and 246,999 shares of fully-vested common stock.~~

The fair value of the Company’s ~~performance-based restricted stock units and~~ performance-based phantom restricted stock units, which is the stock price on the date of grant, is applied to the total shares that are expected to fully vest and is amortized over the vesting period, which is generally three years, based on the Company’s internal performance measured against the pre-determined criteria, as applicable. The compensation expense related to time-based ~~restricted stock units and time-based~~ phantom restricted stock units are 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. ~~In addition, all~~All phantom restricted stock units are re-measured quarterly and classified as a liability, due to the settlement of these awards in cash. In addition to the phantom restricted stock units granted in ~~2017,~~2018, the Company granted performance-based and time-based restricted stock units and phantom restricted stock units in prior years. During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, the Company issued ~~561,466~~426,896 shares ~~in the aggregate,~~ of common stock due ~~to: 1)~~to vestings of restricted stock units 2)and employee purchases under the Company's Employee Stock Purchase ~~Plan and 3) the issuance of fully-vested common stock.~~Plan.

The impact of stock-based compensation expense charges on the Company’s operating results are reflected in the table below (in thousands, except for per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Income before taxes	$	2,726	$	2,341	$	5,740	$	6,557
Net income	$	1,840	$	1,529	$	3,924	$	4,275
Loss before income taxes									$	1,885	$	972	$	4,753	$	3,014
Net loss									$	1,500	$	659	$	3,850	$	2,071
Earnings per common share:
Basic earnings per common share	$	0.05	$	0.04	$	0.11	$	0.12	$	0.04	$	0.02	$	0.10	$	0.06
Diluted earnings per common share	$	0.05	$	0.04	$	0.11	$	0.12	$	0.04	$	0.02	$	0.10	$	0.06

8. Commitments and Contingencies

Vessel Construction

During the first quarter of 2018, the Company notified the shipyard that it was terminating the construction contracts for the final two vessels in the Company's fifth OSV newbuild program due to performance issues at the shipyard. The Company is working with the issuer of the shipyard's performance bonds in order to complete the construction of the vessels at a completion yard. The cost of this nearly completed 24-vessel newbuild program, before construction period interest, is expected to be approximately $1,335.0 million, of which $17.0 million, and $44.8 million are currently expected to be incurred in the remainder of 2018 and fiscal 2019, respectively. However, the timing of these remaining construction draws remains subject to change commensurate with any potential further delays in the delivery dates of the final two newbuild vessels. From the inception of this program through June 30, 2018, the Company had incurred $1,273.2 million, or 95.4%, of total expected project costs.

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Vessel Acquisitions

~~7. Commitments~~On May 18, 2018, the Company completed the acquisition of four high-spec Jones Act-qualified OSVs and ~~Contingencies~~

~~Vessel Construction~~

~~The remaining~~related equipment from Aries Marine Corporation and certain of its affiliates for $40.9 million in cash, inclusive of $4.0 million related to a non-compete intangible asset that will be amortized over the life of such asset, or two ~~vessels under~~years. Also included in this transaction was the ~~Company's fifth OSV newbuild program are expected to be delivered in 2018. The aggregate~~ cost of ~~this nearly completed 24-vessel newbuild program, before construction period interest, is expected to be approximately $1,335.0 million,~~fuel and lube inventory and transactions fees. The acquired vessels are all U.S.-flagged and are comprised of ~~which $4.8 million,~~two 300 class OSVs and ~~$60.7 million~~two 280 class OSVs. The Company determined that substantially all of the fair value of the assets acquired are ~~expected to be incurred~~concentrated in ~~the remainder~~a group of ~~2017~~similar identifiable assets and, ~~fiscal 2018 respectively. From the inception of this program through September 30, 2017, the Company had incurred $1,269.5 million, or 95.1%, of total expected project costs.~~therefore, has accounted for such transaction as an asset acquisition under ASU 2017-01.

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 the Company's 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.

~~During 2013,~~

9. Other Accrued Liabilities

Other accrued liabilities include the following (in thousands):



	June 30, 2018		December 31, 2017
Accrued lease expense	$	5,278	$	5,142
Deferred revenues	2,122		460
Other	5,618		2,855
Total	$	13,018	$	8,457

10. Income Taxes

The Tax Cuts and Jobs Act, or the Act, was signed into law on December 22, 2017. The primary impact of this legislation was a reduction of the U.S. federal corporate tax rate from 35% to 21% generally effective January 1, 2018. As of December 31, 2017, the Company ~~commenced~~included in its income tax benefit rate a preliminary estimate related to executive compensation, alternative minimum tax refundable credits, taxation in its foreign jurisdictions, and re-measurement of its deferred taxes. As of June 30, 2018, the ~~process~~Company has not identified or recorded any revisions to its provisional amounts and has not completed its accounting for the tax effects of ~~assigning the in-country vessel management services for its four vessels then operating in Brazil from a third-party provider to a wholly-owned subsidiary~~enactment of the ~~Company. As a result, this assignment has been interpreted by local authorities~~Act; however, in certain cases, as ~~a new importation of these vessels resulting in an importation assessment. The~~described below, the Company disagrees with this interpretation. During the third quarter of 2015, the Brazilian court ruled in the Company's favor related to these claims and this decision was appealed by local authorities to another court. During the third quarter of 2017, the Brazilian court made ~~a final ruling in the Company's favor relating to the importation of three~~reasonable estimates of the ~~vessels. As of September 30, 2017, no decision has been made~~effects and recorded provisional amounts. The Company's provisional estimates on Global Intangible Low Taxed Income, Foreign Derived Intangible Income, Base Erosion and Anti-Abuse, and the ~~fourth vessel which could result in an assessment ranging from $0.5 million to $1.0 million. This potential assessment has~~IRC Section 163(j) interest limitation did not ~~been assessed or recorded in~~materially impact its effective tax benefit rate for the Company's 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.

~~During 2012, a customer, ATP Oil and Gas, Inc., initiated a reorganization proceeding under Chapter 11 of the United States Bankruptcy Code, which in~~three months ended June 2014 was converted to a Chapter 7 case. The Company believes its receivables from ATP, of $4.8 million, are secured under the Louisiana Oil Well Lien Act. A legal challenge related to the Company's liens was raised in the bankruptcy proceedings by parties whose interests are affected by the liens. The Company pursued this claim in Bankruptcy Court and during the first quarter of 2017 a district court judge ruled that the Company's claim is not secured. That ruling has been appealed by the Company. As a result of such ruling, the Company increased its reserve related to this receivable to $4.8 million.

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~~8. Other Accrued Liabilities~~30, 2018. The Company will continue to refine its calculations as additional tax guidance becomes available and its internal analysis is completed. The accounting for the tax effects of the Act will be completed in 2018 as allowed under Staff Accounting Bulletin 118, which was issued by the Securities and Exchange Commission on December 22, 2017.

~~Other accrued liabilities include~~The effective tax benefit rate for the ~~following (in thousands):~~

September 30, 2017 December 31, 2016
Accrued lease expense $ 5,049
$ 4,763
Deferred revenue 1,156
2,245
Other 4,551
3,002
Total $ 10,756
$ 10,010

six months ended June 30, 2018 and 2017 was 19.0% and 31.3%, respectively. The lower benefit rate for the quarter ended June 30, 2018 was primarily due to the reduction of the statutory corporate income tax rate from 35% to 21% resulting from the Act. In addition, the Company established valuation allowances in 2017 for foreign tax credit carryforwards based upon management's conclusion that it is more likely than not such losses and credits will not be realized by their expiration dates.

9.11. Condensed Consolidating Financial Statements of Guarantors

The following tables present the condensed consolidating balance sheets as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the condensed consolidating statements of operations, ~~and~~ the condensed consolidating statements of comprehensive income (loss) ~~for the three~~ and ~~nine months ended September 30, 2017 and 2016 and the~~ condensed consolidating statements of cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, for the domestic subsidiaries of the Company that serve as co-borrower and/or guarantors of the Company's 2019 convertible senior notes, 2020 senior notes, 2021 senior notes and the ~~New~~ Credit Facility, ~~and~~as well as the financial results for the Company's subsidiaries that do not serve as guarantors. The co-borrower and/or guarantor subsidiaries of the 2019 convertible senior notes, 2020 senior notes, 2021 senior notes and the ~~New~~ Credit Facility are 100% owned, directly or indirectly, by ~~the Company.~~Hornbeck Offshore Services, Inc. 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.

1311

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Balance Sheet

(In thousands, except per share data)


	As of September 30, 2017													As of June 30, 2018
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries				Consolidating			Consolidated		Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Consolidating			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	22	$	103,497	$	9,317			$	—		$	112,836	$	7	$	103,862	$	5,196		$	—		$	109,065
Accounts receivable, net of allowance for doubtful accounts of $6,052	—		45,983		4,331				(85		)	50,229
Accounts receivable, net of allowance for doubtful accounts of $6,103														—		51,970		5,188			(85		)	57,073
Other current assets	45		12,228		879				—			13,152		53		14,866		1,087			—			16,006
Total current assets	67		161,708		14,527				(85		)	176,217		60		170,698		11,471			(85		)	182,144
Property, plant and equipment, net	—		2,394,845		127,197				—			2,522,042		—		2,285,189		197,544			—			2,482,733
Deferred charges, net	—		11,188		1,572				—			12,760		—		15,967		1,879			—			17,846
Intercompany receivable	1,715,528		644,733		41,814			��	(2,402,075		)	—		1,782,674		758,505		220,164			(2,761,343		)	—
Investment in subsidiaries	684,734		8,602		—				(693,336		)	—		721,406		8,602		—			(730,008		)	—
Other assets	1,743		6,096		2,330				—			10,169		—		5,890		546			—			6,436
Total assets	$	2,402,072	$	3,227,172	$	187,440			$	(3,095,496	)	$	2,721,188	$	2,504,140	$	3,244,851	$	431,604		$	(3,491,436	)	$	2,689,159
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	13,861	$	1,162			$	—		$	15,023	$	—	$	18,657	$	958		$	—		$	19,615
Accrued interest	13,709		—		—				—			13,709		15,790		—		—			—			15,790
Accrued payroll and benefits	—		8,732		543				—			9,275		—		11,712		652			—			12,364
Other accrued liabilities	—		10,328		513				(85		)	10,756		—		12,555		548			(85		)	13,018
Total current liabilities	13,709		32,921		2,218				(85		)	48,763		15,790		42,924		2,158			(85		)	60,787
Long-term debt, including deferred gain of $19,689, and net of original issue discount of $7,598 and deferred financing costs of $10,971	1,014,031		—		—				—			1,014,031
Long-term debt, including deferred gain of $17,457, and net of original issue discount of $5,822 and deferred financing costs of $8,452														1,083,094		—		—			—			1,083,094
Deferred tax liabilities, net	—		302,373		6,344				—			308,717		—		177,433		1,691			—			179,124
Intercompany payables	40,432		2,176,490		193,755				(2,410,677		)	—		39,509		2,264,292		466,567			(2,770,368		)	—
Other liabilities	—		3,996		—				—			3,996		—		2,479		43			—			2,522
Total liabilities	1,068,172		2,515,780		202,317				(2,410,762		)	1,375,507		1,138,393		2,487,128		470,459			(2,770,453		)	1,325,527
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; 37,028 shares issued and outstanding	370		—		—				—			370
Common stock: $0.01 par value; 100,000 shares authorized; 37,595 shares issued and outstanding														376		—		—			—			376
Additional paid-in capital	758,693		37,977		8,600				(46,580		)	758,690		760,939		37,978		8,602			(46,580		)	760,939
Retained earnings	574,837		673,415		(35,258		)		(638,154		)	574,840		604,432		719,745		(44,919		)	(674,403		)	604,855
Accumulated other comprehensive income	—		—		11,781				—			11,781
Accumulated other comprehensive loss														—		—		(2,538		)	—			(2,538		)
Total stockholders’ equity	1,333,900		711,392		(14,877		)		(684,734		)	1,345,681		1,365,747		757,723		(38,855		)	(720,983		)	1,363,632
Total liabilities and stockholders’ equity	$	2,402,072	$	3,227,172	$	187,440			$	(3,095,496	)	$	2,721,188	$	2,504,140	$	3,244,851	$	431,604		$	(3,491,436	)	$	2,689,159

1412

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Balance Sheet

(In thousands, except per share data)


	As of December 31, 2016												As of December 31, 2017
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Consolidating			Consolidated		Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Consolidating			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	9	$	212,196	$	4,822		$	—		$	217,027	$	4	$	178,746	$	8,099		$	—		$	186,849
Accounts receivable, net of allowance for doubtful accounts of $2,120	—		30,846		5,704			—			36,550
Accounts receivable, net of allowance for doubtful accounts of $6,054													—		40,407		4,295			—			44,702
Other current assets	15		16,176		787			—			16,978		29		16,051		810			—			16,890
Total current assets	24		259,218		11,313			—			270,555		33		235,204		13,204			—			248,441
Property, plant and equipment, net	—		2,449,473		128,915			—			2,578,388		—		2,379,097		121,916			—			2,501,013
Deferred charges, net	2,581		15,724		772			—			19,077		—		11,408		1,404			—			12,812
Intercompany receivable	1,779,872		680,663		107,038			(2,567,573		)	—		1,778,711		648,920		39,445			(2,467,076		)	—
Investment in subsidiaries	768,718		8,602		(4,283		)	(773,037		)	—		790,734		8,602		—			(799,336		)	—
Other assets	1,744		6,239		2,272			—			10,255		—		5,984		628			—			6,612
Total assets	$	2,552,939	$	3,419,919	$	246,027		$	(3,340,610	)	$	2,878,275	$	2,569,478	$	3,289,215	$	176,597		$	(3,266,412	)	$	2,768,878
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	11,325	$	449		$	—		$	11,774	$	—	$	15,643	$	553		$	—		$	16,196
Accrued interest	14,763		—		—			—			14,763		14,734		—		—			—			14,734
Accrued payroll and benefits	—		8,104		492			—			8,596		—		8,458		1,017			—			9,475
Other accrued liabilities	—		8,463		1,547			—			10,010		—		8,129		328			—			8,457
Total current liabilities	14,763		27,892		2,488			—			45,143		14,734		32,230		1,898			—			48,862
Long-term debt, net of original issue discount of $31,093 and deferred financing costs of $10,197	1,083,710		—		—			—			1,083,710
Long-term debt, including deferred gain of $18,911, and net of original issue discount of $7,862 and deferred financing costs of $10,134													1,080,826		—		—			—			1,080,826
Deferred tax liabilities, net	—		337,503		5,517			—			343,020		—		192,793		4,672			—			197,465
Intercompany payables	61,715		2,264,900		245,276			(2,571,891		)	—		140,019		2,240,832		190,177			(2,571,028		)	—
Other liabilities	—		3,416		(10		)	—			3,406		—		3,802		(1		)	—			3,801
Total liabilities	1,160,188		2,633,711		253,271			(2,571,891		)	1,475,279		1,235,579		2,469,657		196,746			(2,571,028		)	1,330,954
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; 36,467 shares issued and outstanding	365		—		—			—			365
Common stock: $0.01 par value; 100,000 shares authorized; 37,144 shares issued and outstanding													371		—		—			—			371
Additional paid-in capital	754,394		37,978		4,319			(42,297		)	754,394		758,690		37,975		8,602			(44,989		)	760,278
Retained earnings	637,992		748,080		(21,658		)	(726,422		)	637,992		574,838		781,583		(37,428		)	(650,395		)	668,598
Accumulated other comprehensive income	—		150		10,095			—			10,245		—		—		8,677			—			8,677
Total stockholders’ equity	1,392,751		786,208		(7,244		)	(768,719		)	1,402,996		1,333,899		819,558		(20,149		)	(695,384		)	1,437,924
Total liabilities and stockholders’ equity	$	2,552,939	$	3,419,919	$	246,027		$	(3,340,610	)	$	2,878,275	$	2,569,478	$	3,289,215	$	176,597		$	(3,266,412	)	$	2,768,878

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Operations

(In thousands)



	Three Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating		Consolidated
Revenues	$	—		$	57,963		$	468		$	—	$	58,431
Costs and expenses:
Operating expenses	—			32,209			2,649			—		34,858
Depreciation	—			22,874			1,756			—		24,630
Amortization	—			1,939			317			—		2,256
General and administrative expenses	82			11,456			708			—		12,246
	82			68,478			5,430			—		73,990
Loss on sale of assets	—			(13		)	—			—		(13		)
Operating loss	(82		)	(10,528		)	(4,962		)	—		(15,572		)
Other income (expense):
Interest income	—			457			62			—		519
Interest expense	(16,401		)	—			—			—		(16,401		)
Equity in earnings (losses) of consolidated subsidiaries	(8,605		)	—			—			8,605		—
Other income (expense), net	—			(2,036		)	1,964			—		(72		)
	(25,006		)	(1,579		)	2,026			8,605		(15,954		)
Income (loss) before income taxes	(25,088		)	(12,107		)	(2,936		)	8,605		(31,526		)
Income tax expense (benefit)	—			(6,555		)	117			—		(6,438		)
Net income (loss)	$	(25,088	)	$	(5,552	)	$	(3,053	)	$	8,605	$	(25,088	)

Condensed Consolidating Statement of Comprehensive Income (Loss)

(In thousands)



	Three Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating		Consolidated
Net income (loss)	$	(25,088	)	$	(5,552	)	$	(3,053	)	$	8,605	$	(25,088	)
Other comprehensive income:
Foreign currency translation loss	—			—			(10,916		)	—		(10,916		)
Total comprehensive income (loss)	$	(25,088	)	$	(5,552	)	$	(13,969	)	$	8,605	$	(36,004	)

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Operations

(In thousands)



	Six Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating			Consolidated
Revenues	$	—		$	98,278		$	1,797		$	(57	)	$	100,018
Costs and expenses:
Operating expenses	—			66,194			4,687			(54		)	70,827
Depreciation	—			46,180			3,098			—			49,278
Amortization	—			3,738			510			—			4,248
General and administrative expenses	138			23,825			1,161			(3		)	25,121
	138			139,937			9,456			(57		)	149,474
Gain on sale of assets	—			30			—			—			30
Operating loss	(138		)	(41,629		)	(7,659		)	—			(49,426		)
Other income (expense):
Interest income	—			1,026			137			—			1,163
Interest expense	(30,346		)	—			—			—			(30,346		)
Equity in earnings (losses) of consolidated subsidiaries	(33,259		)	—			—			33,259			—
Other income (expense), net	—			(20		)	(43		)	—			(63		)
	(63,605		)	1,006			94			33,259			(29,246		)
Income (loss) before income taxes	(63,743		)	(40,623		)	(7,565		)	33,259			(78,672		)
Income tax expense (benefit)	—			(14,854		)	(75		)	—			(14,929		)
Net income (loss)	$	(63,743	)	$	(25,769	)	$	(7,490	)	$	33,259		$	(63,743	)

Condensed Consolidating Statement of Comprehensive Income (Loss)

(In thousands)



	Six Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating		Consolidated
Net income (loss)	$	(63,743	)	$	(25,769	)	$	(7,490	)	$	33,259	$	(63,743	)
Other comprehensive income:
Foreign currency translation gain (loss)	—			—			(11,215		)	—		(11,215		)
Total comprehensive income (loss)	$	(63,743	)	$	(25,769	)	$	(18,705	)	$	33,259	$	(74,958	)

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Operations

(In thousands)


	Three Months Ended September 30, 2017														Three Months Ended June 30, 2017
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating		Consolidated			Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating			Consolidated
Revenues	$	—		$	53,564		$	102		$	—	$	53,666		$	—		$	36,325		$	1,406		$	(305	)	$	37,426
Costs and expenses:
Operating expenses	—			27,427			2,655			—		30,082			—			28,337			3,338			(307		)	31,368
Depreciation	—			23,355			1,327			—		24,682			—			23,368			1,311			—			24,679
Amortization	—			2,245			228			—		2,473			—			2,903			363			—			3,266
General and administrative expenses	—			12,259			640			—		12,899			74			8,734			633			(9		)	9,432
	—			65,286			4,850			—		70,136			74			63,342			5,645			(316		)	68,745
Gain on sale of assets	—			(198		)	1			—		(197		)	—			1			—			—			1
Operating income (loss)	—			(11,920		)	(4,747		)	—		(16,667		)	(74		)	(27,016		)	(4,239		)	11			(31,318		)
Other income (expense):
Gain on early extinguishment of debt	—			—			—			—		—			15,478			—			—			—			15,478
Interest income	—			351			96			—		447			—			363			101			—			464
Interest expense	(11,956		)	—			—			—		(11,956		)	(13,429		)	—			—			—			(13,429		)
Equity in earnings (losses) of consolidated subsidiaries	(6,994		)	—			—			6,994		—			(21,464		)	—			—			21,464			—
Other income (expense), net	—			(222		)	328			—		106			—			1,023			(958		)	(11		)	54
	(18,950		)	129			424			6,994		(11,403		)	(19,415		)	1,386			(857		)	21,453			2,567
Income (loss) before income taxes	(18,950		)	(11,791		)	(4,323		)	6,994		(28,070		)	(19,489		)	(25,630		)	(5,096		)	21,464			(28,751		)
Income tax expense (benefit)	—			(9,393		)	273			—		(9,120		)	—			(9,611		)	349			—			(9,262		)
Net income (loss)	$	(18,950	)	$	(2,398	)	$	(4,596	)	$	6,994	$	(18,950	)	$	(19,489	)	$	(16,019	)	$	(5,445	)	$	21,464		$	(19,489	)

Condensed Consolidating Statement of Comprehensive Income (Loss)

(In thousands)


	Three Months Ended September 30, 2017														Three Months Ended June 30, 2017
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating		Consolidated			Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating		Consolidated
Net income (loss)	$	(18,950	)	$	(2,398	)	$	(4,596	)	$	6,994	$	(18,950	)	$	(19,489	)	$	(16,019	)	$	(5,445	)	$	21,464	$	(19,489	)
Other comprehensive income:
Foreign currency translation gain	—			—			2,743			—		2,743
Foreign currency translation gain (loss)															—			—			(2,976		)	—		(2,976		)
Total comprehensive income (loss)	$	(18,950	)	$	(2,398	)	$	(1,853	)	$	6,994	$	(16,207	)	$	(19,489	)	$	(16,019	)	$	(8,421	)	$	21,464	$	(22,465	)

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Operations

(In thousands)


	Nine Months Ended September 30, 2017															Six Months Ended June 30, 2017
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating			Consolidated			Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating			Consolidated
Revenues	$	—		$	123,611		$	11,823		$	(263	)	$	135,171		$	—		$	70,047		$	11,721		$	(263	)	$	81,505
Costs and expenses:
Operating expenses	—			80,293			9,359			(267		)	89,385			—			52,866			6,704			(267		)	59,303
Depreciation	—			70,077			3,961			—			74,038			—			46,722			2,634			—			49,356
Amortization	—			8,460			1,003			—			9,463			—			6,215			775			—			6,990
General and administrative expenses	110			34,579			1,891			(7		)	36,573			110			22,320			1,251			(7		)	23,674
	110			193,409			16,214			(274		)	209,459			110			128,123			11,364			(274		)	139,323
Gain on sale of assets	—			(180		)	2			—			(178		)	—			18			1			—			19
Operating income (loss)	(110		)	(69,978		)	(4,389		)	11			(74,466		)	(110		)	(58,058		)	358			11			(57,799		)
Other income (expense):
Gain on early extinguishment of debt	15,478			—			—			—			15,478			15,478			—			—			—			15,478
Interest income	—			1,039			273			—			1,312			—			688			177			—			865
Interest expense	(39,194		)	—			—			—			(39,194		)	(27,238		)	—			—			—			(27,238		)
Equity in earnings of consolidated subsidiaries	(42,511		)	—			—			42,511			—
Other income (expense), net	—			3,424			(3,576		)	(11		)	(163		)
Equity in earnings (losses) of consolidated subsidiaries																(35,517		)	—			—			35,517			—
Other income(expense), net																—			3,646			(3,904		)	(11		)	(269		)
	(66,227		)	4,463			(3,303		)	42,500			(22,567		)	(47,277		)	4,334			(3,727		)	35,506			(11,164		)
Income (loss) before income taxes	(66,337		)	(65,515		)	(7,692		)	42,511			(97,033		)	(47,387		)	(53,724		)	(3,369		)	35,517			(68,963		)
Income tax expense (benefit)	—			(31,488		)	792			—			(30,696		)	—			(22,095		)	519			—			(21,576		)
Net income (loss)	$	(66,337	)	$	(34,027	)	$	(8,484	)	$	42,511		$	(66,337	)	$	(47,387	)	$	(31,629	)	$	(3,888	)	$	35,517		$	(47,387	)

Condensed Consolidating Statement of Comprehensive Income (Loss)

(In thousands)


	Nine Months Ended September 30, 2017														Six Months Ended June 30, 2017
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating		Consolidated			Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating		Consolidated
Net income (loss)	$	(66,337	)	$	(34,027	)	$	(8,484	)	$	42,511	$	(66,337	)	$	(47,387	)	$	(31,629	)	$	(3,888	)	$	35,517	$	(47,387	)
Other comprehensive income:
Foreign currency translation gain (loss)	—			(149		)	1,685			—		1,536			—			(149		)	(1,058		)	—		(1,207		)
Total comprehensive income (loss)	$	(66,337	)	$	(34,176	)	$	(6,799	)	$	42,511	$	(64,801	)	$	(47,387	)	$	(31,778	)	$	(4,946	)	$	35,517	$	(48,594	)

~~Table of Contents~~

~~HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Condensed Consolidating Statement of Operations~~

~~(In thousands)~~

Three Months Ended September 30, 2016
Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Consolidating Consolidated
Revenues $ —
$ 50,798
$ 1,467
$ (338 ) $ 51,927
Costs and expenses:
Operating expenses —
26,282
3,414
(321 ) 29,375
Depreciation —
22,188
1,279
—
23,467
Amortization —
4,269
311
—
4,580
General and administrative expenses 36
7,542
1,468
(15 ) 9,031
36
60,281
6,472
(336 ) 66,453
Gain on sale of assets —
81
—
—
81
Operating loss (36 ) (9,402 ) (5,005 ) (2 ) (14,445 )
Other income (expense):
Interest income —
259
142
—
401
Interest expense (12,820 ) —
—
—
(12,820 )
Equity in earnings (losses) of consolidated subsidiaries (3,647 ) —
—
3,647
—
Other income (expense), net —
(790 ) 2,381
1
1,592
(16,467 ) (531 ) 2,523
3,648
(10,827 )
Income (loss) before income taxes (16,503 ) (9,933 ) (2,482 ) 3,646
(25,272 )
Income tax benefit —
(7,279 ) (1,490 ) —
(8,769 )
Net income (loss) $ (16,503 ) $ (2,654 ) $ (992 ) $ 3,646
$ (16,503 )

~~Condensed Consolidating Statement of Comprehensive Income (Loss)~~

~~(In thousands)~~

Three Months Ended September 30, 2016
Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Consolidating Consolidated
Net income (loss) $ (16,503 ) $ (2,654 ) $ (992 ) $ 3,646
$ (16,503 )
Other comprehensive income:
Foreign currency translation loss —
(3 ) (905 ) —
(908 )
Total comprehensive income (loss) $ (16,503 ) $ (2,657 ) $ (1,897 ) $ 3,646
$ (17,411 )

~~Table of Contents~~

~~HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Condensed Consolidating Statement of Operations~~

~~(In thousands)~~

Nine Months Ended September 30, 2016
Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Consolidating Consolidated
Revenues $ —
$ 171,034
$ 9,386
$ 2,000
$ 182,420
Costs and expenses:
Operating expenses —
89,666
12,525
1,943
104,134
Depreciation —
65,040
3,258
—
68,298
Amortization —
15,671
1,004
—
16,675
General and administrative expenses 148
26,978
2,901
57
30,084
148
197,355
19,688
2,000
219,191
Gain on sale of assets —
36
—
—
36
Operating loss (148 ) (26,285 ) (10,302 ) —
(36,735 )
Other income (expense):
Interest income —
732
432
—
1,164
Interest expense (34,886 ) —
(2 ) —
(34,888 )
Equity in earnings (losses) of consolidated subsidiaries (9,655 ) —
—
9,655
—
Other income —
(560 ) 2,523
85
2,048
(44,541 ) 172
2,953
9,740
(31,676 )
Income (loss) before income taxes (44,689 ) (26,113 ) (7,349 ) 9,740
(68,411 )
Income tax benefit —
(22,803 ) (1,005 ) —
(23,808 )
Net income (loss) $ (44,689 ) $ (3,310 ) $ (6,344 ) $ 9,740
$ (44,603 )

~~Condensed Consolidating Statement of Comprehensive Income (Loss)~~

~~(In thousands)~~

Nine Months Ended September 30, 2016
Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Consolidating Consolidated
Net income (loss) $ (44,689 ) $ (3,310 ) $ (6,344 ) $ 9,740
$ (44,603 )
Other comprehensive income:
Foreign currency translation gain —
31
19,739
—
19,770
Total comprehensive income (loss) $ (44,689 ) $ (3,279 ) $ 13,395
$ 9,740
$ (24,833 )

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Cash Flows

(In thousands)


	Nine Months Ended September 30, 2017														Six Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating		Consolidated			Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities	$	59,674		$	(93,378	)	$	4,501		$	—	$	(29,203	)	$	279		$	(26,825	)	$	(1,107	)	$	—	$	(27,653	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Costs incurred for acquisition of offshore supply vessels															—			(40,868		)	—			—		(40,868		)
Costs incurred for OSV newbuild program #5	—			(12,755		)	392			—		(12,363		)	—			(2,757		)	—			—		(2,757		)
Net proceeds from sale of assets	—			33			1			—		34			—			57			—			—		57
Vessel capital expenditures	—			(998		)	(301		)	—		(1,299		)	—			(4,394		)	(1,088		)	—		(5,482		)
Non-vessel capital expenditures	—			(1,451		)	(17		)	—		(1,468		)	—			(97		)	16			—		(81		)
Net cash provided by (used in) investing activities	—			(15,171		)	75			—		(15,096		)
Net cash used in investing activities															—			(48,059		)	(1,072		)	—		(49,131		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from first-lien credit facility	980			—			—			—		980
Repurchase of senior notes	(5,057		)	—			—			—		(5,057		)
Repurchase of convertible notes	(49,631		)	—			—			—		(49,631		)
Deferred financing costs	(5,636		)	—			—			—		(5,636		)
Shares withheld for employee withholding taxes	(575		)	—			—			—		(575		)	(536		)	—			—			—		(536		)
Net cash proceeds from other shares issued	258			—			—			—		258			260			—			—			—		260
Net cash used in financing activities	(59,661		)	—			—			—		(59,661		)	(276		)	—			—			—		(276		)
Effects of exchange rate changes on cash	—			(150		)	(81		)	—		(231		)	—			—			(724		)	—		(724		)
Net increase (decrease) in cash and cash equivalents	13			(108,699		)	4,495			—		(104,191		)	3			(74,884		)	(2,903		)	—		(77,784		)
Cash and cash equivalents at beginning of period	9			212,196			4,822			—		217,027			4			178,746			8,099			—		186,849
Cash and cash equivalents at end of period	$	22		$	103,497		$	9,317		$	—	$	112,836		$	7		$	103,862		$	5,196		$	—	$	109,065
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES:
Cash paid for interest	$	40,028		$	—		$	—		$	—	$	40,028		$	29,304		$	—		$	—		$	—	$	29,304
Cash paid for income taxes	$	—		$	463		$	581		$	—	$	1,044		$	—		$	426		$	224		$	—	$	650
SUPPLEMENTAL DISCLOUSURES OF NON-CASH FINANCING ACTIVITIES:
Exchange of convertible notes for term loan	$	127,096		$	—		$	—		$	—	$	127,096

2018

Table of Contents

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Cash Flows

(In thousands)


	Nine Months Ended September 30, 2016														Six Months Ended June 30, 2017
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating		Consolidated			Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities	$	827		$	54,277		$	2,057		$	—	$	57,161
Net cash provided by (used in) operating activities															$	59,666		$	(91,432	)	$	7,640		$	—	$	(24,126	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Costs incurred for OSV newbuild program #5	—			(72,584		)	(614		)	—		(73,198		)	—			(7,455		)	392			—		(7,063		)
Net proceeds from sale of assets	—			506			—			—		506			—			33			—			—		33
Vessel capital expenditures	—			(18,282		)	(424		)	—		(18,706		)	—			(243		)	(242		)	—		(485		)
Non-vessel capital expenditures	—			(473		)	59			—		(414		)	—			(531		)	(17		)	—		(548		)
Net cash used in investing activities	—			(90,833		)	(979		)	—		(91,812		)
Net cash provided by (used in) investing activities															—			(8,196		)	133			—		(8,063		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Credit Facility															980			—			—			—		980
Repurchase of senior notes due 2020															(5,057		)	—			—			—		(5,057		)
Repurchase of convertible notes															(49,631		)	—			—			—		(49,631		)
Deferred financing costs	(1,102		)	—			—			—		(1,102		)	(5,636		)	—			—			—		(5,636		)
Shares withheld for employee withholding taxes	(450		)	—			—			—		(450		)	(573		)	—			—			—		(573		)
Net cash proceeds from other shares issued	732			—			—			—		732			258			—			—			—		258
Net cash provided by financing activities	(820		)	—			—			—		(820		)
Net cash used in financing activities															(59,659		)	—			—			—		(59,659		)
Effects of exchange rate changes on cash	—			31			1,100			—		1,131			—			(150		)	(246		)	—		(396		)
Net increase (decrease) in cash and cash equivalents	7			(36,525		)	2,178			—		(34,340		)	7			(99,778		)	7,527			—		(92,244		)
Cash and cash equivalents at beginning of period	10			252,651			7,140			—		259,801			9			212,196			4,822			—		217,027
Cash and cash equivalents at end of period	$	17		$	216,126		$	9,318		$	—	$	225,461		$	16		$	112,418		$	12,349		$	—	$	124,783
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES:
Cash paid for interest	$	38,871		$	—		$	—		$	—	$	38,871		$	26,199		$	—		$	—		$	—	$	26,199
Cash paid for income taxes	$	—		$	484		$	2,204		$	—	$	2,688		$	—		$	331		$	379		$	—	$	710
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:
Exchange of convertible notes for first-lien term loan															$	127,096		$	—		$	—		$	—	$	127,096

Item 2—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 together with our unaudited consolidated financial statements and notes to unaudited consolidated financial statements in this Quarterly Report on Form 10-Q and our audited financial statements and notes thereto included in our Annual Report on Form 10-K as of and for the year ended December 31, ~~2016.~~2017. 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. See “Forward Looking Statements” for additional discussion regarding risks associated with forward-looking statements. In this Quarterly Report on Form 10-Q, “company,” “we,” “us,” “our” or like terms refer to Hornbeck Offshore Services, Inc. and its subsidiaries, except as otherwise indicated. Please refer to Item 5—Other Information for a glossary of terms used throughout this Quarterly Report on Form 10-Q.

In this Quarterly Report on Form 10-Q, we rely on and refer to information regarding our industry from the BOEM, EIA and IHS-Petrodata, Inc. These organizations are not affiliated with us and are not aware of and have not consented to being named in this Quarterly Report on Form 10-Q. We believe this information is reliable. In addition, in many cases we have made statements in this Quarterly Report on Form 10-Q regarding our industry and our position in the industry based on our experience in the industry and our own evaluation of market conditions.

General

~~Oil~~While oil prices have recently increased from previous lows experienced earlier in this downcycle, they still remain ~~at low levels compared to~~below the average prices ~~that prevailed~~ between 2005 and late 2014. ~~These lower oil prices have~~This commodity price driven industry downturn has caused major, international and independent oil companies with deepwater operations to significantly reduce their offshore capital spending budgets ~~which are~~for the ~~principal demand drivers for our services.~~worldwide exploration or production of oil. Less spending by our customers combined with a global oversupply of OSVs for current market conditions, including high-spec OSVs in our core markets, have resulted in significant reductions in our dayrates and utilization.

The principal ~~issue~~question facing the offshore oilfield-related industry is the ~~ultimate~~ duration of the current ~~downturn.~~ downturn in offshore activities. Our current view is that market conditions will remain weak for all of 2018. However, given the recent improvement in oil prices, global economic improvement, growth in oil demand and lower exploration and development costs achieved by our customers, we believe that the necessary elements for improved conditions in our market may be taking shape. While impossible to predict with assurance, this market improvement may begin to take-hold as early as 2019. However, a loss of confidence in the oil price recovery or an inability by our customers to sustain cost improvements could derail or postpone a recovery. Additionally, global economic uncertainty resulting from the escalation in trade barriers, such as the recently announced tariffs, could have a negative impact on global economic growth or on oil markets.

While we have taken extensive measures to reduce costs, these reductions alone will not be sufficient to mitigate the full impact of ~~revenue loss~~revenues lost over an extended period of time. Even in light of our currently depressed operating levels, we believe cash generated from operations together with cash on hand and availability under the ~~New~~ Credit Facility should be sufficient to fund our operations and commitments through at least the end of 2019. However, absent the combination of a significant recovery of market conditions such that cash ~~flows~~flow from operations were to increase materially from projected levels coupled with a refinancing and/or further management of our funded debt obligations, we do not currently expect to have sufficient liquidity to repay the full amount of our remaining tranches of 2020 senior notes and 2021 senior notes when they mature in fiscal years 2020 and 2021, respectively. The ~~New~~ Credit Facility was the first step in addressing the maturities of our unsecured notes. We remain fully cognizant of the challenges currently facing the offshore oil and gas industry and continue to review our capital structure and assess our strategic options.

In the GoM, ~~four~~two high-spec OSVs have been delivered into the domestic market ~~during 2017.~~so far this year. We expect an additional ~~nine~~six high-spec OSVs to be delivered into domestic service through ~~2018.~~2019. We do not anticipate significant growth in the supply of high-spec OSVs beyond the currently anticipated level of ~~199~~191 of such vessels by the end of ~~2018.~~2019. During the ~~third~~second quarter of ~~2017,~~2018, there was an average of roughly 3231 floating rigs available in the GoM, while an average of ~~20.6~~21.0 were working. The average number of floating rigs working in the GoM has remained in the low-twenties for eight consecutive quarters. As of ~~November~~August 1, ~~2017,~~2018, there were 3230 floating rigs available ~~and 21~~in the GoM, 20 of which were working. ~~However, seven~~Six floating rigs have contracts that will expire during the remainder of ~~2017. We~~2018, and we do not know whether ~~the remaining~~these or other idle rigs will receive contract awards or renewals for operations in the GoM. ~~We expect one new rig to arrive~~Absent additional fixtures for rigs in the GoM, ~~during~~ the ~~fourth quarter~~number of ~~2017 and another rig to arrive during~~working rigs may decline in the ~~first quarter~~second half of 2018. ~~We expect three rigs to depart from the GoM during the fourth quarter of 2017 and another rig to depart during the first quarter of 2018. Once a rig arrives in the GoM, it can take s~~

~~everal months to commence work and, therefore, we do not know the timing of when operations of newly arrived rigs will begin, if at all.~~ Given these market conditions, we ~~anticipate~~expect to see continued challenges in our ~~average~~ability to increase dayrates and utilization ~~levels will continue~~in a substantial manner. However, given the overall reduction in active OSVs in the GoM that has resulted from stacking activities, we believe that we may see increased periods of market tightening caused by seasonal increases in activity by our customers or by other factors that may effect vessel supply, such as foreign deployments. Such increases, however, are expected to be ~~depressed for the foreseeable future. However, the~~temporary in nature. The GoM is one of the premier deepwater markets in the world and we are committed to supporting our customers in this market. We believe that once the current supply and demand fundamentals return to more normal conditions, our results from operations will improve. Due to a seasonal increase in demand, we experienced improved market conditions for our MPSVs in the second quarter of 2018. Some of the charters for our MPSVs have recently concluded and, unless we secure additional work for them, MPSV utilization may be negatively impacted in the second half of 2018. These vessels are used for a wide variety of oilfield applications that are not necessarily related to drilling.

In recognition of these weak market conditions, we stacked OSVs and MPSVs on various dates commencing on October 1, 2014. As of ~~September~~June 30, ~~2017,~~2018, we had 4440 OSVs ~~stacked. As~~and one MPSV stacked, all of ~~November~~which were still stacked as of August 1, ~~2017, we had 43 OSVs stacked.~~2018. These 4341 stacked vessels represent ~~61%~~55% of our fleetwide vessel headcount, and ~~44%~~38% of our total OSV and MPSV deadweight tonnage. We may consider stacking additional vessels or reactivating vessels as market conditions warrant. By stacking vessels, we have significantly reduced our on-going cash outlays and lowered our risk profile; however, we also have fewer revenue-producing units in service that can contribute to our results and produce cash flows to cover our fixed costs and commitments. While we may choose to stack additional vessels should market conditions warrant, our current expectation is to retain our active fleet in the market to accept contracts at the best available terms even if such contracts are below our breakeven cash cost of operations. Upon completing the four-vessel acquisition from Aries Marine and certain of its affiliates, we introduced the vessels into our operating fleet and do not currently plan on stacking those vessels.

~~There have been five auctions completed since~~Mexico and Brazil continue to comprise our two core international markets. In Mexico, the opening of its offshore energy prospects to international participants yielded exploratory success, which has spurred further investment in offshore opportunities there. In order to support customer requirements in Mexico, and based on our long-term view that Mexico will continue to invest directly or allow foreign investment in its offshore energy sector, and increasingly in deepwater prospects, we elected to Mexican flag one HOSMAX 300 class OSV along with a 280 class and a 240 class OSV. The recent presidential election in Mexico may negatively impact the prospects for additional energy reform ~~began~~ in Mexico in 2013, including one deepwater and two shallow water tenders. So far, these auctions have yielded 39 contracts with forecasted investment over their lifetime of $48.8 billion. Despite current oil prices, eight of ten blocks were awarded to major and national oil companies during the first deepwater auction held in December 2016. Capital investment commitments made by the winning bidders in the first deepwater auction totaled about $4.0 billion, however, questions remain on the timing of the incremental activity expected in the Mexican deepwater GoMor its attractiveness as a ~~result of this auction. The next deepwater lease auction is scheduled for January 2018 and is expected~~potential market to be comprised of 30 blocks in four areas. As a result of leases awarded during the initial shallow water lease round in 2016, two operators announced major discoveries in mid-July 2017. We recently observed a dispute over resource ownership between the country of Mexico and the new international ~~companies~~companies. However, we believe that have experienced recent drilling success in fields adjacent to PEMEX-owned fields. This dispute may slow down drilling plans until the ownership issue is resolved. We consider Mexico to be a long-term market for our services, especially in light of energy reforms expected to be carried out there. We 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.

current investments will proceed. In Brazil, ~~Petrobras has moved towards an "all Brazilian flag" vessel fleet, which has limited opportunities~~we are seeing modest increases in ~~Brazil for foreign-flagged vessels, except where highly specialized services are required. In January 2016, we placed one~~offshore activity driven, in part, by Brazil's further opening of ~~our newbuild HOSMAX 310 class OSVs into Brazilian registry and have imported that vessel into Brazil. In October 2016, Brazil enacted new legislation that will allow~~its "pre-salt" prospects to international oil companies, ~~to participate as operators~~many of ~~pre-salt offshore developments, reversing a policy that reserved~~which have shown significant interest in such properties to Petrobras, exclusively. By doing so, the Brazilian government has created the possibility that foreign operators might spur additional exploration and development activity that has been dampened by low oil prices and Petrobras' difficulties. Recently, the Brazilian National Petroleum Agency conducted and announced the results of two bid rounds for production sharing in pre-salt areas. The outcome of this bidding process is viewed positively for growing the participation of international oil companies in the Brazilian offshore sector, which is one of our core markets.prospects.

Our Vessels

All of our current vessels are qualified under the Jones Act to engage in U.S. coastwise trade, except for ~~nine~~12 foreign-flagged new generation OSVs and two foreign-flagged MPSVs. As of ~~September~~June 30, ~~2017,~~2018, our 1826 active new generation OSVs, ~~eight~~seven MPSVs and four managed OSVs were operating in domestic and international areas as noted in the following table:

Operating Areas



Domestic
GoM	1918
Other U.S. coastlines (1)	78
	26
Foreign
Other Latin America	5
Trinidad	4
Brazil	1
~~Middle East~~Mexico	1
~~Other Latin America~~	2
	411
Total Vessels (2)	3037


(1)	Includes ~~three~~four owned vessels and four managed vessels supporting the military.


(2)	Excluded from this table are 4440 new generation OSVs and one MPSV that were stacked as of ~~September~~June 30, ~~2017.~~2018.

Critical Accounting Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP. In other circumstances, we are required to make estimates, judgments and assumptions that we believe are reasonable based on 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. Our significant accounting policies and estimates are discussed in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations and in Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017.

Results of Operations

The tables below set forth the average dayrates, utilization rates and effective dayrates for our owned new generation OSVs and the average number and size of vessels owned during the periods indicated. These vessels generate a substantial portion of our revenues and operating profit. Excluded from the OSV information below are the results of operations for our MPSVs, our shore-base facility and vessel management services, including the four non-owned 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, accommodation 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 can 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 eight MPSVs.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Offshore Supply Vessels:
Average number of new generation OSVs (1)	62.0			62.0			62.0			61.9			63.9			62.0			63.0			62.0
Average number of active new generation OSVs (2)	19.0			17.9			19.6			22.0			22.7			20.7			20.4			19.4
Average new generation OSV fleet capacity (DWT)	220,172			221,629			220,172			220,885			228,925			220,172			224,498			220,172
Average new generation OSV capacity (DWT)	3,551			3,575			3,551			3,570			3,583			3,551			3,566			3,551
Average new generation OSV utilization rate (3)	26.3		%	22.0		%	22.8		%	27.0		%	27.0		%	22.3		%	23.9		%	21.0		%
Effective new generation OSV utilization rate (4)	85.8		%	76.3		%	71.9		%	76.0		%	76.0		%	66.6		%	73.9		%	67.0		%
Average new generation OSV dayrate (5)	$	18,483		$	25,639		$	20,709		$	25,488		$	19,566		$	17,202		$	18,895		$	22,129
Effective dayrate (6)	$	4,861		$	5,641		$	4,722		$	6,882		$	5,283		$	3,836		$	4,516		$	4,647


(1)	We owned 6266 new generation OSVs as of ~~September~~June 30, ~~2017.~~2018. Excluded from this data are eight MPSVs owned and operated by the Company as well as four non-owned vessels managed for the U.S. Navy.


(2)	In response to weak market conditions, we elected to stack certain new generation OSVs on various dates since October 1, 2014. Active new generation OSVs represent vessels that are immediately available for service during each respective period.


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


(4)	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.


(5)	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.


(6)	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 Securities and Exchange 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 its usefulness as a comparative measure.

We view EBITDA primarily as a liquidity measure and, as such, we believe that the GAAP financial measure most directly comparable to itthis 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 reconciliations, we believe EBITDA provides additional information that is useful to gain an understanding of the factors and trends affecting our ability to service debt, pay deferred taxes and fund drydocking charges and other maintenance capital expenditures. We also believe the disclosure of EBITDA helps investors meaningfully evaluate and compare our cash flow generating capacity from quarter to quarter and year to year.

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

The following table provides the detailed components of EBITDA as we define that term for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Components of EBITDA:
Net loss	$	(18,950	)	$	(16,503	)	$	(66,337	)	$	(44,603	)	$	(25,088	)	$	(19,489	)	$	(63,743	)	$	(47,387	)
Interest, net
Debt obligations	11,956			12,820			39,194			34,888			16,401			13,429			30,346			27,238
Interest income	(447		)	(401		)	(1,312		)	(1,164		)	(519		)	(464		)	(1,163		)	(865		)
Total interest, net	11,509			12,419			37,882			33,724			15,882			12,965			29,183			26,373
Income tax benefit	(9,120		)	(8,769		)	(30,696		)	(23,808		)	(6,438		)	(9,262		)	(14,929		)	(21,576		)
Depreciation	24,682			23,467			74,038			68,298			24,630			24,679			49,278			49,356
Amortization	2,473			4,580			9,463			16,675			2,256			3,266			4,248			6,990
EBITDA	$	10,594		$	15,194		$	24,350		$	50,286		$	11,242		$	12,159		$	4,037		$	13,756

The following table reconciles EBITDA to cash flows provided by operating activities for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
EBITDA Reconciliation to GAAP:
EBITDA	$	10,594		$	15,194		$	24,350		$	50,286		$	11,242		$	12,159		$	4,037		$	13,756
Cash paid for deferred drydocking charges	(995		)	(897		)	(6,950		)	(3,214		)	(1,381		)	(2,826		)	(3,351		)	(5,955		)
Cash paid for interest	(13,829		)	(13,784		)	(40,028		)	(38,871		)	(14,173		)	(12,443		)	(29,304		)	(26,199		)
Cash paid for taxes	(334		)	(446		)	(1,044		)	(2,688		)	(201		)	(361		)	(650		)	(710		)
Changes in working capital	(3,336		)	13,711			97			45,396			(15,990		)	(2,813		)	(3,157		)	3,433
Stock-based compensation expense	2,726			2,341			5,740			6,557			1,885			972			4,753			3,014
Gain on early extinguishment of debt	—			—			(15,478		)	—			—			(15,478		)	—			(15,478		)
(Gain) loss on sale of assets	197			(81		)	178			(36		)
Gain on sale of assets													13			(1		)	(30		)	(19		)
Changes in other, net	(100		)	(1,573		)	3,932			(719		)	(174		)	284			49			4,032
Net cash flows provided by (used in) operating activities	$	(5,077	)	$	14,465		$	(29,203	)	$	56,711
Net cash flows used in operating activities													$	(18,779	)	$	(20,507	)	$	(27,653	)	$	(24,126	)

In addition, we have also historically made 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 used in certain financial covenants of our credit agreements with various ~~lenders.~~lenders, whenever applicable. We believe that such ratios can, at times, 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 following table provides certain detailed adjustments to EBITDA, as defined in our ~~first-lien credit facility,~~Credit Facility, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Gain on early extinguishment of debt	$	—	$	—	$	15,478	$	—	$	—	$	15,478	$	—	$	15,478
Stock-based compensation expense	2,726		2,341		5,740		6,557		1,885		972		$	4,753	$	3,014
Interest income	447		401		1,312		1,164		519		464		1,163		865

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.

Summarized financial information for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017, respectively, is shown below in the following table (in thousands, except percentage changes):


	Three Months Ended September 30,						Increase (Decrease)						Three Months Ended June 30,						Increase (Decrease)
	2017			2016			$ Change			% Change			2018			2017			$ Change			% Change
Revenues:
Vessel revenues
Domestic	$	29,788		$	34,978		$	(5,190	)	(14.8	)	%	$	43,536		$	23,646		$	19,890		84.1		%
Foreign	15,849			8,692			7,157			82.3		%	5,945			5,693			252			4.4		%
	45,637			43,670			1,967			4.5		%	49,481			29,339			20,142			68.7		%
Non-vessel revenues	8,029			8,257			(228		)	(2.8	)	%	8,950			8,087			863			10.7		%
	53,666			51,927			1,739			3.3		%	58,431			37,426			21,005			56.1		%
Operating expenses	30,082			29,375			707			2.4		%	34,858			31,368			3,490			11.1		%
Depreciation and amortization	27,155			28,047			(892		)	(3.2	)	%	26,886			27,945			(1,059		)	(3.8	)	%
General and administrative expenses	12,899			9,031			3,868			42.8		%	12,246			9,432			2,814			29.8		%
	70,136			66,453			3,683			5.5		%	73,990			68,745			5,245			7.6		%
Gain (loss) on sale of assets	(197		)	81			(278		)	100.0		%	(13		)	1			(14		)	>100		%
Operating loss	(16,667		)	(14,445		)	(2,222		)	15.4		%	(15,572		)	(31,318		)	15,746			(50.3	)	%
Gain on early extinguishment of debt													—			15,478			(15,478		)	100.0		%
Interest expense	11,956			12,820			(864		)	(6.7	)	%	16,401			13,429			2,972			22.1		%
Interest income	447			401			46			11.5		%	519			464			55			11.9		%
Income tax benefit	(9,120		)	(8,769		)	(351		)	4.0		%	(6,438		)	(9,262		)	2,824			(30.5	)	%
Net loss	$	(18,950	)	$	(16,503	)	$	(2,447	)	14.8		%	$	(25,088	)	$	(19,489	)	$	(5,599	)	28.7		%

Three Months Ended ~~September~~June 30, ~~2017~~2018 Compared to Three Months Ended ~~September~~June 30, ~~2016~~2017

Revenues. Revenues for the three months ended ~~September~~June 30, ~~2017~~2018 increased by ~~$1.7~~$21.0 million, or ~~3.3%~~56.1%, to ~~$53.7~~$58.4 million compared to the same period in ~~2016~~2017. Our weighted-average active operating fleet for the three months ended ~~September~~June 30, 2018 and 2017 was 29.9 and ~~2016 was 27.0 and 24.3~~27.6 vessels, respectively.

Vessel revenues increased ~~$2.0~~$20.1 million, or ~~4.5%~~68.7%, to ~~$45.6~~$49.5 million for the three months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$43.7~~$29.3 million for the same period in ~~2016.~~2017. The increase in vessel revenues was primarily due to ~~improved~~seasonally-improved market conditions for our ~~MPSVs. Revenue~~MPSVs and, to a lesser extent, increased revenues from our OSVs. Revenues from our fleet of MPSVs increased by ~~$6.4~~$10.9 million, or ~~55.1%~~140.3%, compared to the same period in ~~2016. The~~2017. This increase was primarily attributable to a seasonal increase in demand for such vessels. These higher revenues were partially offset by weak market conditions worldwide and the repricing or stacking of four OSVs, which concluded long-term contracts that were working at dayrates above current market levels. For the three months ended ~~September~~June 30, ~~2017,~~2018, we had an average of ~~43.0~~42.0 vessels stacked compared to ~~44.1~~42.5 vessels stacked in the prior-year quarter. Average new generation OSV dayrates were ~~$18,483~~$19,566 for the ~~third~~second quarter of ~~2017~~2018 compared to ~~$25,639~~$17,202 for the same period in ~~2016.~~2017. Our new generation OSV utilization was ~~26.3%~~27.0% for the ~~third~~second quarter of ~~2017~~2018 compared to ~~22.0%~~22.3% for the same period in ~~2016.~~2017. Our new generation OSVs were stacked for an aggregate of ~~3,956~~3,749 days during the ~~third~~second quarter of ~~2017~~2018 compared to ~~4,060~~3,757 days for the same period in ~~2016.~~2017. Excluding stacked vessel days, our new generation OSV effective utilization was ~~85.8%~~76.0% and ~~76.3%~~66.6% for the same periods, respectively. Domestic vessel revenues ~~decreased $5.2~~increased $19.9 million from the year-ago quarter primarily due to ~~lower~~higher effective dayrates earned by ~~OSVs operating in~~ our ~~fleet~~MPSVs and OSVs during the three months ended ~~September~~June 30, ~~2017.~~2018. Foreign vessel revenues increased $~~7.2~~0.3 ~~million primarily due to one MPSV working in a foreign market during the three months ended September 30, 2017.~~million. Foreign vessel revenues for the ~~third~~second quarter of ~~2017~~2018 comprised ~~34.7%~~12.0% of our total vessel revenues compared to ~~19.9%~~19.4% for the year-ago period.

Non-vessel revenues ~~decreased $0.2~~increased $0.9 million, or ~~2.8%~~10.7%, to ~~$8.0~~$9.0 million for the three months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$8.2~~$8.1 million for the same period in ~~2016.~~2017. This ~~decrease~~increase is primarily

attributable to ~~a decrease in shorebase activity driven by continued weak market conditions~~higher revenues earned from vessel management services during ~~2017~~2018 compared to the year-ago period.

Operating Expenses. Operating expenses were $~~30.1~~34.9 million, an increase of $~~0.7~~3.5 million, or ~~2.4%~~11.1%, for the three months ended ~~September~~June 30, ~~2017~~2018 compared to $~~29.4~~31.4 million for the same period in ~~2016~~2017. Operating expenses increased primarily due to four vessels that were acquired in the second quarter of 2018 and a higher number of active vessels in our ~~fleet.~~fleet during the three months ended June 30, 2018. Aggregate cash operating expenses for our vessels are projected to be in the approximate annual range of ~~$119.4~~$140.0 million to ~~$124.4~~$150.0 million for the year ending December 31, ~~2017~~2018. 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.

Depreciation and Amortization. Depreciation and amortization expense of ~~$27.2~~$26.9 million was ~~$0.9~~$1.1 million, or ~~3.2%~~3.8%, lower for the three months ended ~~September~~June 30, ~~2017~~2018 compared to the same period in ~~2016~~2017. Depreciation ~~increased by $1.2 million primarily due~~was in-line compared to the ~~addition of two vessels that were placed in service under our fifth OSV newbuild program since June 2016.~~prior-year period. The ~~depreciation increase was more than offset by a~~ decrease in amortization expense of ~~$2.1~~$1.0 million ~~which~~ was mainly driven lower by postponed recertifications for certain of our stacked OSVs. Depreciation expense is expected to increase from current levels as the two remaining vessels under our current newbuild program are placed in service. Amortization expense is expected to decrease as the result of the deferral of regulatory recertification activities for vessels that have been stacked. We expect amortization expense to increase temporarily whenever market conditions warrant reactivation of currently stacked vessels, which will then require us to drydock such vessels, and thereafter to revert back to historical levels.

General and Administrative Expense. G&A expense of ~~$12.9~~$12.2 million was ~~$3.9~~$2.8 million higher during the three months ended ~~September~~June 30, ~~2017~~2018 compared to the same period in ~~2016.~~2017. The increase in G&A expense was attributable to higher professional fees, ~~related to our on-going liability management activities,~~ short-term incentive compensation and long-term incentive compensation ~~and bad debt~~ expense. Long-term incentive compensation was higher due to a "mark to market" adjustment on cash-settled awards to reflect the increase in our stock price during the three months ended ~~September~~June 30, 2018 compared to a decrease in our stock price during the three months ended June 30, 2017. These unfavorable variances were partially offset by lower bad debt reserves.

Operating Loss. Operating loss ~~increased~~decreased by $~~2.2~~15.7 million to ~~$16.7~~$15.6 million during the three months ended ~~September~~June 30, ~~2017~~2018 compared to the same period in ~~2016~~2017 for the reasons discussed above. Operating loss as a percentage of revenues was ~~31.1%~~26.7% for the three months ended ~~September~~June 30, ~~2017~~2018 compared to ~~27.8%~~83.7% for the same period in ~~2016~~2017.

Gain on Early Extinguishment of Debt. On June 15, 2017, we terminated the then existing revolving credit facility and replaced it with a $300 million first-lien credit facility, or Credit Facility. We concurrently arranged for the repurchase of $73.3 million of the 2019 convertible senior notes, and $8.1 million of the 2020 senior notes, for an aggregate total of $54.1 million of cash. We recorded a gain on early extinguishment of debt of approximately $15.5 million ($10.5 million or $0.29 per diluted share after-tax), which was comprised of a $27.2 million gain on the repurchase of the 2019 convertible senior notes and the 2020 senior notes, offset in part by the write-off of $2.3 million in deal costs and unamortized financing costs related to the credit facilities and $9.4 million of original issue discount, deal costs and unamortized financing costs related to the notes repurchased.

Interest Expense. Interest expense of ~~$12.0~~$16.4 million ~~decreased $0.9~~increased $3.0 million during the three months ended September 30, 2017 compared to the same period in 2016 due to the write-off of fees associated with the amendment to our revolving credit facility during the year-ago period and lower interest expense associated with the debt exchange and termination of the then-existing credit facility that was completed during the three months ended June 30, ~~2017. These favorable variances were partially offset by a decrease~~2018 compared to the same period in 2017 due to lower capitalized ~~interest during~~interest. During the ~~three months ended September 30, 2017. We recorded $2.7 million~~second quarter of ~~capitalized~~2018, we did not capitalize any construction period interest ~~or roughly 18.4% of our total interest costs, for the third quarter of 2017~~ compared to ~~$4.2~~$2.5 million, or roughly ~~24.7%~~15.7% of our total interest costs, for the year-ago period.

Interest Income. Interest income was ~~$0.4~~$0.5 million during the three months ended ~~September~~June 30, ~~2017,~~2018, which was flat compared to the same period in ~~2016.~~2017. Our average cash balance decreased to ~~$122.5~~$140.6 million for the three months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$230.1~~$188.4 million for the same period in ~~2016.~~2017. The average interest rate earned on our invested cash balances was ~~1.5%~~0.7% and ~~0.7%~~1.0% during the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017, respectively. The decrease in average cash balance was primarily due to cash outflows associated with the ~~repurchase~~acquisition of ~~a portion of our 2019 convertible senior notes~~four OSVs from Aries Marine and ~~2020 senior notes~~related entities during the second quarter of ~~2017 and cash outflows associated with our fifth OSV newbuild program since September 30, 2016.~~2018.

Income Tax Benefit. Our effective tax benefit rate was ~~32.5%~~20.4% and ~~34.7%~~32.2% for the three months ended ~~September~~June 30, 2018 and 2017, respectively. Our income tax benefit for the second quarter of 2018 was less than the

benefit rate from the second quarter of 2017 due to the rate reduction contained in tax legislation that was enacted in December 2017. The primary impact of this legislation was the reduction of federal corporate income tax rates from 35% to 21%, effective as of January 1, 2018. Additionally, the benefit rate for the current year period and ~~2016, respectively.~~prior year period include the impact of a valuation allowance for certain deferred tax assets that are not expected to be realized by their expiration dates. Our income tax benefit primarily consisted of deferred taxes. Our

income tax rate differs from the federal statutory rate primarily due to expected state tax liabilities and items not deductible for federal income tax purposes.

Net Loss. Net loss increased by ~~$2.4~~$5.6 million for a reported net loss of ~~$19.0~~$25.1 million for the three months ended ~~September~~June 30, ~~2017~~2018 compared to a net loss of ~~$16.5~~$19.5 million for the same period during ~~2016. This year-over-year increase in~~2017. Excluding the gain on early extinguishment of debt, net loss would have been $30.0 million for the ~~third quarter~~three months ended June 30, 2017. This decreased net loss, excluding the gain on early extinguishment of ~~2017~~debt, was primarily driven by ~~higher G&A expense discussed above.~~improved market conditions for our MPSVs.

Summarized financial information for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017, respectively, is shown below in the following table (in thousands, except percentage changes):


	Nine Months Ended September 30,						Increase (Decrease)						Six Months Ended June 30,						Increase (Decrease)
	2017			2016			$ Change			% Change			2018			2017			$ Change			% Change
Revenues:
Vessel revenues
Domestic	$	84,355		$	127,102		$	(42,747	)	(33.6	)	%	$	68,760		$	54,566		$	14,194		26.0		%
Foreign	26,470			30,068			(3,598		)	(12.0	)	%	13,855			10,622			3,233			30.4		%
	110,825			157,170			(46,345		)	(29.5	)	%	82,615			65,188			17,427			26.7		%
Non-vessel revenues	24,346			25,250			(904		)	(3.6	)	%	17,403			16,317			1,086			6.7		%
	135,171			182,420			(47,249		)	(25.9	)	%	100,018			81,505			18,513			22.7		%
Operating expenses	89,385			104,134			(14,749		)	(14.2	)	%	70,827			59,303			11,524			19.4		%
Depreciation and amortization	83,501			84,973			(1,472		)	(1.7	)	%	53,526			56,346			(2,820		)	(5.0	)	%
General and administrative expenses	36,573			30,084			6,489			21.6		%	25,121			23,674			1,447			6.1		%
	209,459			219,191			(9,732		)	(4.4	)	%	149,474			139,323			10,151			7.3		%
Gain (loss) on sale of assets	(178		)	36			(214		)	>(100.0)		%
Gain on sale of assets													30			19			11			57.9		%
Operating loss	(74,466		)	(36,735		)	(37,731		)	>100.0		%	(49,426		)	(57,799		)	8,373			(14.5	)	%
Gain on early extinguishment of debt	15,478			—			15,478			100.0		%	—			(15,478		)	15,478			100.0		%
Interest expense	39,194			34,888			4,306			12.3		%	30,346			27,238			3,108			11.4		%
Interest income	1,312			1,164			148			12.7		%	1,163			865			298			34.5		%
Income tax benefit	(30,696		)	(23,808		)	(6,888		)	28.9		%	(14,929		)	(21,576		)	6,647			(30.8	)	%
Net loss	$	(66,337	)	$	(44,603	)	$	(21,734	)	48.7		%	$	(63,743	)	$	(47,387	)	$	(16,356	)	34.5		%

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2017

Revenues. Revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2017 decreased~~2018 increased by ~~$47.2~~$18.5 million, or ~~25.9%~~22.7%, to ~~$135.2~~$100.0 million compared to the same period in ~~2016~~.2017. Our weighted-average active operating fleet for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 was 28.0 and ~~2016 was 26.6 and 28.1~~25.8 vessels, respectively.

Vessel revenues ~~decreased $46.3~~increased $17.4 million, or ~~29.5%~~26.7%, to ~~$110.8~~$82.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$157.2~~$65.2 million for the same period in ~~2016.~~2017. The ~~decrease~~increase in vessel revenues primarily resulted from ~~weak~~improved market conditions ~~worldwide, which led to~~for our decision to stack an average of 3.5 incremental vessels on various dates from December 31, 2015 through September 30, 2017. For the nine months ended September 30, 2017, we had an average of 43.4 vessels stacked compared to an average of 39.9 vessels stacked in the prior-year period. RevenueMPSVs and OSVs. Revenues from our MPSV fleet ~~decreased $9.7~~increased $17.9 million, or ~~23.6%~~135.3%, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the prior-year period. ~~Average new generation OSV dayrates were $20,709 for the first nine months of 2017 compared to $25,488 for the same~~The prior-year period ~~in 2016, a decrease of $4,779, or 18.8%. Our new generation OSV dayrate includes~~was favorably impacted by a redelivery fee related to the completion of a long-term contract for one of our OSVs that was recognized during the first ~~nine~~six months of 2017. Excluding such ~~revenue,~~redelivery fee, vessel revenues for the six months ended June 30, 2018 would have increased by $26.8 million, or 48.0% compared to the same period in 2017. For the six months ended June 30, 2018, we had an average of 43.0 vessels stacked compared to an average of 44.2 vessels stacked in the prior-year period. Average new generation OSV dayrates were $18,895 for the first six months of 2018 compared to $22,129 for the same period in 2017, a decrease of $3,234, or 14.6%. Excluding the redelivery fee, average new generation OSV dayrates would have been ~~$18,276.~~$18,144 for the first six months of 2017. Our new generation OSV utilization was ~~22.8%~~23.9% for the first ~~nine~~six months of ~~2017~~2018 compared to ~~27.0%~~21.0% for the same period in ~~2016. This decrease in utilization is primarily due to weak market conditions for high-spec OSVs operating in the GoM and the incremental vessels that were stacked during the current-year period.~~2017. Our new generation OSVs incurred ~~139~~88 days of aggregate downtime for regulatory drydockings and were stacked for an aggregate of ~~11,567~~7,705 days during the first ~~nine~~six months of ~~2017.~~2018. Excluding stacked vessel days, our new generation OSV effective utilization was ~~71.9%~~73.9% and ~~76.0%~~67.0% during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. Domestic vessel revenues ~~decreased $42.7~~increased $14.2 million from the year-ago period primarily due to ~~lower~~higher dayrates earned by ~~vessels operating in~~ our ~~fleet~~MPSVs during the ~~nine~~six months ended ~~September~~June 30, ~~2017 and the stacking of vessels since December 2015.~~2018. Foreign vessel revenues

~~decreased $3.6~~ increased $3.2 million primarily due to ~~lower~~higher dayrates earned by ~~vessels~~our OSVs working in foreign regions during the ~~nine~~six months

ended ~~September~~June 30, ~~2017.~~2018. Foreign vessel revenues for the first ~~nine~~six months of ~~2017~~2018 comprised ~~23.9%~~16.8% of our total vessel revenues compared to ~~19.1%~~16.3% for the year-ago period.

Non-vessel revenues ~~decreased $0.9~~increased $1.1 million, or ~~3.6%~~6.7%, ~~to $24.3 million for~~from the ~~nine months ended September 30, 2017 compared to $25.3 million for the same period in 2016. The decrease in non-vessel revenues~~prior-year period. This increase is primarily attributable to ~~a decrease in shorebase activity driven by continued weak market conditions~~higher revenues earned from vessel management services during ~~2017~~the six months ended June 30, 2018 compared to the year-ago period.

Operating Expenses. Operating expenses were ~~$89.4~~$70.8 million, ~~a decrease~~an increase of ~~$14.7~~$11.5 million, or ~~14.2%~~19.4%, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$104.1~~$59.3 million for the same period in ~~2016~~2017. Operating expenses were ~~primarily driven lower by vessels that were removed~~higher due increased activity from our ~~active~~MPSVs along with vessels added to our fleet ~~count through our stacking strategy~~ since ~~December 2015, which resulted in a substantial reduction in mariner headcount, mariner pay cuts and reductions in other operating expenses.~~June 30, 2017.

Depreciation and Amortization. Depreciation and amortization expense of ~~$83.5~~$53.5 million was ~~$1.5~~$2.8 million, or ~~1.7%~~5.0%, lower for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the same period in ~~2016.~~2017. Depreciation ~~increased by $5.7 million primarily due~~was in-line compared to the ~~contribution of four vessels that were placed in service under our fifth OSV newbuild program since December 2015. The depreciation increase was more than offset by a decrease in amortization~~prior-year period. Amortization expense ~~of $7.2~~decreased $2.7 million ~~which was mainly driven by~~due to postponed recertifications for certain of our stacked OSVs. Amortization expense is expected to decrease further in the near term as a result of the deferral of regulatory recertification activities for vessels that have been stacked. We expect amortization expense to increase temporarily whenever market conditions warrant reactivation of currently stacked vessels, which will then require us to drydock such vessels, and thereafter to revert back to historical levels.

General and Administrative Expense. G&A expense of ~~$36.6~~$25.1 million was ~~$6.5~~$1.4 million higher during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the same period in ~~2016~~2017. The increase in G&A expense was primarily attributable to ~~additional~~higher professional fees, long-term incentive compensation expense and short-term incentive compensation expense. Long-term incentive compensation was higher due to a "mark to market" adjustment on cash-settled awards to reflect the increase in our stock price during the six months ended June 30, 2018. These unfavorable variances were partially offset by lower bad debt reserves due to anthe unfavorable ruling in a bankruptcy proceeding related to a receivable from a former customer and, to a lesser extent, higher short-term incentive compensation expense and higher contract services for our on-going liability management activities. These unfavorable variances were partially offset by lower shoreside compensation expense due to workforce reductions that ~~were implemented during fiscal 2016 and lower long-term incentive compensation expense attributable to a "mark-to-market" adjustment on cash settled awards to reflect the decline in our stock price~~was fully reserved during the first ~~nine months~~half of 2017.

Operating Loss. Operating loss ~~increased~~decreased by ~~$37.7~~$8.4 million to an operating loss of ~~$74.5~~$49.4 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the same period in ~~2016~~2017 for the reasons discussed above. Operating loss as a percentage of revenues was ~~55.1%~~49.4% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~20.1%~~70.9% for the same period in ~~2016~~2017.

Gain on Early Extinguishment of Debt. On June 15, 2017, we terminated ~~the Old Credit Facility~~our then existing revolving credit facility and replaced it with the ~~New~~ Credit Facility. We concurrently arranged for the repurchase $73.3 million of the 2019 convertible senior notes and $8.1 million of the 2020 senior notes, for an aggregate total of $54.1 million of cash. We recorded a gain on early extinguishment of debt of approximately $15.5 million ($10.5 million or $0.29 per diluted share after-tax), which was comprised of a $27.2 million gain on the repurchase of the 2019 convertible notes and the 2020 senior notes, offset in part by the write-off of $2.3 million in deal costs and unamortized financing costs related to the credit facilities and $9.4 million of original issue discount, deal costs and unamortized financing costs related to the notes repurchased.

Interest Expense. Interest expense of ~~$39.2~~$30.3 million ~~increased $4.3~~was $3.1 million ~~during the nine months ended September 30, 2017 compared to~~higher than the same period in 2016, primarily due to capitalizing a lower percentage of interest compared to the prior-year period driven by a lower average construction work-in-progress balance in 2017 under our nearly completed newbuild program.2017. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we recorded ~~$7.6~~$2.3 million of capitalized construction period interest, or roughly ~~16.2%~~7.1% of our total interest costs, compared to having capitalized ~~$14.3~~$4.9 million, or roughly ~~29.1%~~15.3% of our total interest costs, for the year-ago period.

Interest Income. Interest income was ~~$1.3~~$1.2 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, which was ~~$0.1~~$0.3 million higher ~~compared to~~than the same period in ~~2016.~~2017. Our average cash balance decreased to ~~$186.8~~$167.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$242.7~~$206.1 million for the same period in ~~2016~~2017. The average interest rate earned on our invested cash balances was ~~0.9%~~1.4% and ~~0.6%~~0.7% during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017, respectively. The decrease in average cash balance was primarily due to cash outflows associated with the repurchase of a portion of our 2019 convertible senior notes and 2020 senior notes during the second quarter of 2017 ~~cash~~and the acquisition of four vessels during the second quarter of 2018. These outflows ~~associated with~~were partially offset by draws under our ~~fifth OSV newbuild program and lower revenues earned by active vessels operating in our fleet during 2017 compared to the prior-year period.~~Credit Facility.

Income Tax Benefit. Our effective tax benefit rate was ~~31.6%~~19.0% and ~~34.8%~~31.3% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017, respectively. Our income tax benefit for the second quarter of 2018 was less than the benefit rate from the second quarter of 2017 due to the rate reduction contained in tax legislation that was enacted in December 2017. The primary impact of this legislation was the reduction of federal corporate income tax rates from 35% to 21% effective as of January 1, 2018. Additionally, the benefit rate for the current year period and prior year period include the impact of a valuation allowance for certain deferred tax assets that are not expected to be realized by their expiration dates. Our income tax benefit primarily consisted of deferred taxes. Our income tax rate differs from the federal statutory rate primarily due to expected state tax liabilities and items not deductible for federal income tax purposes. Our income tax benefit rate for the first nine months of 2017 was below our historical tax rate due to the adoption of a new accounting standard effective January 1, 2017, which requires the tax impact of stock-based compensation arrangements to be recorded as a discrete item within the provision for income taxes, whereas it was previously recorded in additional paid-in capital. This standard will cause volatility in our effective tax rates in the periods when outstanding stock options are exercised or restricted stock awards vest. In addition, our income tax benefit rate was also lower than the historical rate due to the recording of a valuation allowance of $0.9 million related to foreign tax credits expiring in 2020 and 2021, which was recorded during the nine months ended September 30, 2017.

Net Loss. Net loss increased by ~~$21.7~~$16.4 million for a reported net loss of ~~$66.3~~$63.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to a net loss of ~~$44.6~~$47.4 million for the same period during ~~2016. Included in net loss is a $15.5 million gain on early extinguishment of debt.~~2017. Excluding the gain on early extinguishment of debt, net loss would have been ~~$76.8 million.~~$57.9 million for the six months ended June 30, 2017. This increased net loss, ~~for the nine months ended September 30, 2017,~~ excluding the gain on early extinguishment of debt, was primarily driven by higher interest expense and a lower ~~revenues due to weak market conditions discussed above and~~tax benefit rate in the ~~reduction of active vessels in our operating fleet.~~six months ended June 30, 2018.

Liquidity and Capital Resources

~~On June 15, 2017, we terminated the Old~~We have a partially drawn $300 million Credit Facility that matures in June 2023 and ~~replaced it with the New Credit Facility. The New Credit Facility~~ is guaranteed by ~~the Parent Borrower's~~our significant domestic subsidiaries other than Hornbeck Offshore Services, LLC, which is the Co-Borrower. The ~~six-year term of the New Credit Facility extended the February 2020 maturity that was applicable under the Old Credit Facility to June 2023.~~

The New Credit Facility enhanced our financial flexibility by (i) increasing liquidity from the then applicable borrowing base of $75 million under the Old Credit Facility, (ii) extending the maturity date that existed under the Old Credit Facility by over three years, and (iii) eliminating all of the existing financial ratio maintenance covenants and the anti-cash hoarding provision of the Old Credit Facility. The New Credit Facility contains customary representations and warranties, covenants and events of ~~default.~~default, but only one maintenance covenant, which is a $25 million minimum liquidity requirement. See ~~footnote 5~~Note 6 for further discussion of ~~the New Credit Facility.~~

~~As of~~ ~~September 30, 2017~~, we had total liquidity (cash and credit availability) of $316.5 million, comprised of $112.8 million of cash and $203.7 million of availability under the New Credit Facility. As of November 8, 2017, we are in compliance with all applicable covenants under our New Credit Facility.this facility.

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, stock repurchases or the retirement of debt. The nature of our capital requirements and the types of our financing sources are not expected to change significantly for the ~~remainder~~balance of ~~2017 and into~~ 2018.

We ~~have reviewed~~regularly review all of our debt agreements, including the ~~New~~ Credit Facility, as well as our liquidity position and projected future cash needs. Despite ~~depressed oil and natural gas prices,~~volatility in commodity markets, we remain confident

in the long-term viability of our business model upon an improvement in market conditions. Since the fall of 2014, our liquidity has been impacted by low oil and natural gas prices, which together with oil and natural gas being produced in greater volumes onshore, has impacted the extent of offshore exploration and development activities, resulting in lower than normal cash flow from operations. However, we project that, even with the ~~currently~~current depressed operating levels, cash generated from operations together with cash on-hand and remaining undrawn availability under the ~~New~~ Credit Facility should be sufficient to fund our operations and commitments through at least December 31, 2019. 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 with existing sources of liquidity. We have three tranches of funded unsecured debt outstanding that mature in fiscal years 2019, 2020 and 2021, respectively. However, absent the combination of a significant recovery of market conditions such that cash flow from operations were to increase materially from projected levels coupled with a refinancing and/or further management of our funded debt obligations, we do not currently expect to have sufficient liquidity to repay the full amount of the 2020 senior notes and the 2021 senior notes as they mature in fiscal years 2020 and 2021, respectively. The ~~New~~ Credit Facility was the first step in addressing the maturities of our unsecured notes. Refinancing in the current climate is not likely to be achievable on terms that are in-line with our historic cost of debt capital. We remain fully cognizant of the challenges currently facing the offshore oil and gas industry and ~~continue~~are proactively taking steps to ~~review~~protect the business enterprise.

As of June 30, 2018, we had total liquidity (cash and credit availability) of $245.8 million, comprised of $109.1 million of cash and $136.7 million of availability under the Credit Facility. As of August 9, 2018, we are in compliance with all applicable covenants under our ~~capital structure~~Credit Facility.

We may, subject to market conditions and ~~assess~~our other strategic options, from time to time amend, extinguish or repurchase part or all of our outstanding debt securities or exchange them for other debt or equity securities or loans. While we have an authorized share repurchase program, we currently intend, subject to market conditions, to prioritize our cash usage appropriate to the current market cycle, our longer term commitments and our strategic ~~options.~~objectives.

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 offshore exploration, development and production activity, any extended reduction in domestic consumption of refined petroleum products and other reasons discussed under the ~~“Forward~~"Forward Looking ~~Statements”~~Statements" on page ii and ~~the~~ "Item 1A—Risk ~~Factors stated in Item 1A~~Factors" of our Annual Report on Form 10-K, may affect our financial condition, results of operations or cash flows in the future. Should the 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. Historically, we have relied primarily on cash flows from operations to provide working capital for current and future operations. Cash flows used in operating activities were $~~29.2~~27.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to cash flows ~~provided by~~used in operating activities of $~~57.2~~24.1 million for the same period in ~~2016.~~2017. Operating cash flows for the first ~~nine~~six months of ~~2017 were~~2018 continue to be unfavorably affected by weak market conditions for our vessels operating ~~worldwide, which led to a decline in our weighted average active operating fleet from 28.1 to 26.6 vessels.~~worldwide.

Investing Activities. Net cash used in investing activities was $~~15.1~~49.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to $~~91.8~~8.1 million for the same period in ~~2016.~~2017. Cash used during the first ~~nine~~six months of ~~2017~~2018 consisted primarily of the purchase of four high-spec Jones Act-qualified OSVs and ~~2016~~related equipment from Aries Marine Corporation. Cash used during the first six months of 2017 consisted primarily of construction costs paid for our fifth OSV newbuild program.

Financing Activities. Net cash used in financing activities was ~~$59.7~~$0.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$0.8~~$59.7 million net cash used in financing activities for the same period in ~~2016.~~2017. Net cash used in financing activities for the ~~nine~~six months ended ~~September~~June 30, 2018 resulted from shares withheld for payment of taxes due to compensatory restricted stock unit vestings. Net cash used in financing activities for the six months ended June 30, 2017 resulted from the repurchase of a portion of the 2019 convertible senior notes and the 2020 senior notes and related financing costs. Net cash used in financing activities for the nine months ended September 30, 2016 consisted of deferred financing costs related to the amendments of our then-existing revolving credit facility partially offset by net proceeds from common shares issued pursuant to our employee stock-based incentive compensation plans.

Contractual Obligations

Debt

As of ~~September~~June 30, ~~2017,~~2018, the Company had the following outstanding long-term debt (in thousands, except effective interest rate):

Total Debt Effective Interest Rate Cash Interest Payment Payment Dates
5.875% senior notes due 2020, net of deferred financing costs of $2,286 (1) $ 364,656
6.08 % $ 10,779
April 1 and October 1
5.000% senior notes due 2021, net of deferred financing costs of $3,384 (1) 446,616
5.21 % 11,250
March 1 and September 1
1.500% convertible senior notes due 2019, net of original issue discount of $7,579 and deferred financing costs of $1,698 90,370
6.23 % 747
March 1 and September 1
First-lien credit facility due 2023, plus deferred gain of $19,689, net of original issue discount of $19 and deferred financing costs of $3,603 (2) 112,389
7.24 % 581
Variable
$ 1,014,031



	Total Debt		Effective Interest Rate		Cash Interest Payment		Payment Dates
5.875% senior notes due 2020, net of deferred financing costs of $1,611 (1)	$	365,331	6.08	%	$	10,779	April 1 and October 1
5.000% senior notes due 2021, net of deferred financing costs of $2,657 (1)	447,343		5.21	%	11,250		March 1 and September 1
1.500% convertible senior notes due 2019, net of original issue discount of $4,707 and deferred financing costs of $1,055	93,885		6.23	%	747		March 1 and September 1
Credit Facility due 2023, plus deferred gain of $17,457, net of original issue discount of $1,115 and deferred financing costs of $3,129 (2)	176,535		8.60	%	1,202		Variable
	$	1,083,094


(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.

(2)

The interest rate on the ~~first-lien credit facility~~Credit Facility is variable based on the Company's election. The amount reflected in this table is the monthly amount payable based on the 30-day LIBOR interest rate that was elected and in effect on ~~September~~June 30, ~~2017.~~2018. Please see ~~note 5~~Note 6 for further discussion of the variable interest rate included within the ~~first-lien credit facility.~~Credit Facility.

The credit agreement governing the ~~New~~ Credit Facility and the indentures governing our 2020 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 pay dividends or make other restricted payments. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we were in compliance with all applicable financial covenants. We continuously review our debt covenants and report to our Credit Facility lenders our compliance with ~~financial~~all

applicable covenants on a quarterly basis. We also consider such covenants in evaluating ~~proposed~~ transactions that will have an effect on our financial ratios.

Growth Capital Expenditures and Related Commitments

During the first quarter of 2018, the Company notified the shipyard that was constructing the remaining two vessels in the Company's fifth OSV newbuild program that it was terminating the construction contract for such vessels. The Company intends to work with the performance bond surety to find a shipyard that can finish construction and deliver such vessels in 2019. The following table sets forth the amounts incurred for our fifth OSV newbuild program, before construction period interest, during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and since such program’s inception, as well as the estimated total project costs for such program (in millions):


	Nine Months Ended September 30, 2017		Incurred Since Inception		Estimated Program Totals (1)		Projected Delivery Dates (1)	Six Months Ended June 30, 2018		Incurred Since Inception		Estimated Program Totals (1)		Projected Delivery Dates (1)
Growth Capital Expenditures:
OSV newbuild program #5 (2)	$	5.5	$	1,269.5	$	1,335.0	2Q2013-4Q2018	$	0.5	$	1,273.2	$	1,335.0	2Q2013-3Q2019

(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. Actual and projected delivery dates correspond to the first and last vessels that are contracted with shipyards for construction and delivery under our currently active program, respectively.

(2)

Our fifth OSV newbuild program consists of vessel construction contracts with three domestic shipyards to build four 300 class OSVs, five 310 class OSVs, ten 320 class OSVs, three 310 class MPSVs and two 400 class MPSVs. As of ~~November~~August 1, ~~2017,~~2018, we had placed 22 vessels in service under such program. The remaining two vessels under this 24-vessel domestic newbuild program are currently expected to be placed in service in the ~~third~~second and ~~fourth~~third quarters of ~~2018.~~2019.

On May 18, 2018, the Company completed the acquisition of four high-spec Jones Act-qualified OSVs from Aries Marine Corporation and certain of its affiliates for $40.9 million in cash, inclusive of $4.3 million of related vessel equipment, certain intangibles, the cost of fuel and lube inventory and transactions fees. The acquired vessels are all U.S.-flagged and are comprised of two 300 class OSVs and two 280 class OSVs.

Maintenance and Other Capital Expenditures

The following table summarizes the costs incurred, prior to the allocation of construction period interest, for the purposes set forth below for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and a forecast for the fiscal year ending December 31, ~~2017~~2018 (in millions):


	Three Months Ended September 30,					Nine Months Ended September 30,				Year Ended December 31,		Three Months Ended June 30,				Six Months Ended June 30,				Year Ended December 31,
	2017		2016			2017		2016		2017		2018		2017		2018		2017		2018
	Actual		Actual			Actual		Actual		Forecast		Actual		Actual		Actual		Actual		Forecast
Maintenance and Other Capital Expenditures:
Maintenance Capital Expenditures
Deferred drydocking charges (1)	$	1.0	$	0.9		$	7.0	$	3.2	$	9.2	$	1.4	$	2.9	$	3.4	$	6.0	$	13.8
Other vessel capital improvements (2)	0.6		(0.4		)	0.9		5.3		1.3		1.5		0.2		4.1		0.3		8.4
	1.6		0.5			7.9		8.5		10.5		2.9		3.1		7.5		6.3		22.2
Other Capital Expenditures
Commercial-related vessel improvements (3)	0.2		2.6			0.4		13.5		1.8
Miscellaneous non-vessel additions (4)	0.9		0.1			1.4		0.4		1.5
Commercial-related capital expenditures (3)												4.1		0.1		5.4		0.2		5.6
Non-vessel related capital expenditures (4)												0.1		0.4		0.1		0.5		0.3
	1.1		2.7			1.8		13.9		3.3		4.2		0.5		5.5		0.7		5.9
Total	$	2.7	$	3.2		$	9.7	$	22.4	$	13.8	$	7.1	$	3.6	$	13.0	$	7.0	$	28.1


(1)	Deferred drydocking charges for ~~2017~~2018 include the projected recertification costs for 1211 OSVs and ~~four MPSVs.~~one MPSV.


(2)	Other vessel capital improvements include costs for discretionary vessel enhancements, which are typically incurred during a planned drydocking event to meet customer specifications.

(3)

Commercial-related capital expenditures, including vessel improvements ~~include items~~ such as the addition of cranes, ROVs, helidecks, living quarters and other specialized vessel equipment, or the modification of vessel capacities or capabilities, such as DP upgrades and mid-body extensions, which costs are typically included in and offset, in whole or in part, by higher dayrates charged to ~~customers.~~customers; and commercial-related intangibles.


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

Forward Looking Statements

This Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q for a variety of reasons, including ~~sustained low or further declines~~impacts from changes in oil and natural gas prices in the U.S. and worldwide; continued weakness in demand and/or pricing for the Company’s services through and beyond the maturity of any of the Company's long-term debt; unplanned customer suspensions, cancellations, rate reductions or non-renewals of vessel charters, or vessel management contracts, or failures to finalize commitments to charter or manage vessels; ~~sustained~~continued weak or ~~further reductions~~cuts in capital spending ~~budgets~~ by ~~customers;~~customers on offshore exploration and development; the inability to accurately predict vessel utilization levels and dayrates; ~~fewer than anticipated~~sustained weakness in the number of 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; any negative impact on the Company’s ~~inability~~ability 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;~~or on-budget; 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; the impact stemming from the reduction of Petrobras' announced plans for or~~on-hire; administrative barriers to exploration and production activities in Brazil; disruption in the timing and/or extent of Mexican offshore ~~activities;~~activities due to the results of the recent Mexican presidential election or changes in law or policy; age or other restrictions imposed on ~~our~~the Company's 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~~the Company's MPSVs; sustained vessel over capacity for existing demand levels in the markets in which the Company competes; economic and geopolitical risks; weather-related risks; upon a return to improved operating conditions, the shortage of or the inability to attract and retain qualified personnel, when needed, including vessel personnel for active vessels or vessels the Company may reactivate or acquire; any success in unionizing the Company's U.S. fleet personnel; regulatory risks; the repeal or administrative weakening of the Jones Act or adverse changes in the interpretation of the Jones ~~Act ;~~Act; drydocking delays and cost overruns and related risks; vessel accidents, pollution incidents or other events resulting in lost ~~revenue,~~revenues, fines, penalties or other expenses that are unrecoverable from insurance policies or other third parties; unexpected litigation and insurance expenses; other industry risks; 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; the ~~inability~~possible loss or material limitation of the Company's tax net operating loss carryforwards and other attributes due to ~~repatriate foreign-sourced earnings and profits;~~a change in control, as defined in Section 382 of the Internal Revenue Code; or the inability of the Company to refinance or otherwise retire certain funded debt obligations that come due in 2019, 2020 and 2021; or the potential for any impairment charges that could arise in the future and that would reduce the Company’s consolidated net tangible assets which, in turn, would further limit the Company’s ability to grant certain liens, make certain investments, and incur certain debt under the Company’s senior notes indentures and the ~~New~~ Credit Facility. In addition, the Company’s future results may be impacted by adverse economic conditions, such as inflation, deflation, or lack of liquidity in the capital markets, that may negatively affect it or parties with whom it does business resulting in their non-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 lenders to provide funding under the Company’s ~~New~~ Credit Facility, if and when required. Further, the Company can give no assurance regarding when and to what extent it will effect common stock or note 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 the Company's existing indebtedness. Additional factors that you should consider are set forth in detail in the “Risk Factors” section of the Company's most recent 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.

Item 3—Quantitative and Qualitative Disclosures About Market Risk

~~Convertible Note Hedge and Warrant Transactions~~

In connection with a repurchase of $200,353,000 in principal amount of the 2019 convertible senior notes in June 2017, the Company and the applicable counterparties partially terminated at no cost to the Company the convertible note hedge call options and the warrant transactions entered into in August 2012 with each of Barclays Bank PLC, JPMorgan Chase Bank, National Association, London Branch and Wells Fargo Bank, National Association. The call options were ratably terminated based on the dollar amount of the 2019 convertible senior notes repurchased, and remaining call options cover, subject to customary anti-dilution adjustments, the number of shares underlying the 2019 convertible senior notes that remain outstanding at a strike price equal to the conversion price of such notes. Warrants with respect to 3,720,916 shares of our common stock at a strike price of $68.53 per share were terminated leaving a total of 1,850,625 warrants outstanding. For a form of each of the termination agreements described above, see Exhibits 4.21 and 4.22, respectively.

There have been no ~~other~~ material changes to the market risk disclosures set forth in Item 7A in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

Item 4—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.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended ~~September~~June 30, ~~2017~~2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1—Legal Proceedings

None.

Item 1A—Risk Factors

There were no changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2017.

Item 2—Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3—Defaults Upon Senior Securities

None.

Item 4—Mine Safety Disclosures

None.

Item 5—Other Information

Glossary of Terms Currently Used in Our SEC Filings

"2019 convertible senior notes" or "2019 notes" means ~~the Company's~~ 1.500% convertible senior notes due 2019;

"2020 senior notes" or "2020 notes" means ~~the Company's~~ 5.875% senior notes due 2020;

"2021 senior notes" or "2021 notes" means ~~the Company's~~ 5.000% senior notes due 2021;

“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~~revenues 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.~~revenues. For purposes of vessel brokerage arrangements, this calculation excludes that portion of ~~revenue~~revenues 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”~~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;

~~"continental shelf" or "shelf" means offshore areas, generally less than 1,000' in depth;~~

“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);

“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”~~"GAAP" means United States generally accepted accounting principles;

“GoM” means the U.S. Gulf of Mexico;

~~"high-specification"~~“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”~~"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”~~"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 ~~laws~~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 at inception;~~

"low-specification" or “low-spec” means, when referring to new generation OSVs, vessels with cargo-carrying capacity between 1,500 DWT and 2,500 DWT (i.e., 200 class OSV notations), or dynamic-positioning systems with a DP-1 classification or lower;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 Credit Facility" means a new $300 million first-lien delayed-draw term loan credit facility by and among the Company, as Parent Borrower, Hornbeck Offshore Services, LLC as Co-Borrower, certain holders of the Company’s outstanding notes, or the Initial Lenders, and Wilmington Trust, National Association, as Administrative Agent and Collateral Agent for the lenders;

“new generation” means, when referring to OSVs, modern, deepwater-capable vessels ~~with cargo-carrying capacity greater than 1,500 DWT (i.e., 200 class OSV notations or higher) and dynamic-positioning systems with a DP-1 classification or higher,~~ 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;

~~"Old Credit Facility"~~“OPA 90” means the ~~Company’s $200 million previously existing senior secured revolving credit facility, dated as~~Oil Pollution Act of ~~February 6, 2015, as subsequently amended, with Wells Fargo Bank, National Association, as Administrative Agent, and the lenders party thereto;~~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.;

~~"phantom restricted stock units" means cash-settled restricted stock unit awards;~~

“public company OSV peer group” means SEACOR Marine Holdings Inc. (NYSE:~~CKH)~~SMHI), GulfMark Offshore, Inc. (NYSE:GLF), Tidewater Inc. (NYSE:TDW), ~~Farstad Shipping (NO:FAR),~~ Solstad Offshore (NO:SOFF)~~, Deep Sea Supply (NO:DESSC)~~, DOF ASA (NO:DOF), Siem Offshore (NO:SIOFF), Groupe Bourbon SA (GBB:FP), Havila Shipping ASA (NO:HAVI), and/or Eidesvik Offshore (NO:EIOF) ~~and/or Ezra Holdings Ltd (SI:EZRA)~~;

“ROV” means a remotely operated vehicle; ~~and~~

"USCG" means United States Coast Guard;

“ultra-deepwater” means offshore areas, generally more than 5,000’ in ~~depth.~~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 6—Exhibits

Exhibit Index



Exhibit Number		Description of Exhibit

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	—	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).

3.3	—	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).

3.4	—	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).

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).



Exhibit Number		Description of Exhibit

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).

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).



Exhibit Number		Description of Exhibit

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).

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).

4.21*4.21	—	Form of Call Option Termination Agreement dated as of June 2017 by and between Hornbeck Offshore Services, Inc. and the applicable counterparty.

4.22*4.22	—	Form of Warrant Termination Agreement dated as of June 2017 by and between Hornbeck Offshore Services, Inc. and the applicable counterparty.

*4.23	—	Second Supplemental Indenture, dated May 17, 2018 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).

*4.24	—	Second Supplemental Indenture, dated May 17, 2018 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).

*4.25	—	Second Supplemental Indenture, dated May 17, 2018 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).

10.1	—	First Lien Term Loan Agreement dated as of June 15, 2017 by and among the Company, as Parent Borrower, Hornbeck Offshore Services, LLC, as Co-Borrower, Wilmington Trust, National Association, as Administrative Agent, Wilmington Trust, National Association, as Collateral Agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 16, 2017).

10.2	—	First Lien Guaranty and Collateral Agreement dated as of June 15, 2017 by and among the Company, as Parent Borrower, Hornbeck Offshore Services, LLC, as Co-Borrower, Wilmington Trust, National Association, as Collateral Agent, and the obligors signatory thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 16, 2017).

10.3	—	First Amendment to First Lien Term Loan Agreement dated as of June 15, 2017 by and among the Company, as Parent Borrower, Hornbeck Offshore Services, LLC, as Co-Borrower, Wilmington Trust, National Association, as Administrative Agent, Wilmington Trust, National Association, as Collateral Agent, and the lenders party thereto with accompanying Exhibit A (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 29, 2018).

10.40	—	Form of Amended Appendix A to Employment Agreements for Named Executive Officers.

*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.




Exhibit Number		Description of Exhibit
*101	—	Interactive Data File

* Filed herewith.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.



		Hornbeck Offshore Services, Inc.

Date: ~~November 8, 2017~~August 9, 2018		/s/ JAMES O. HARP, JR.
		James O. Harp, Jr.
		Executive Vice President and Chief Financial Officer

4645



	Three Months Ended September 30, 2016
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating			Consolidated
Revenues	$	—		$	50,798		$	1,467		$	(338	)	$	51,927
Costs and expenses:
Operating expenses	—			26,282			3,414			(321		)	29,375
Depreciation	—			22,188			1,279			—			23,467
Amortization	—			4,269			311			—			4,580
General and administrative expenses	36			7,542			1,468			(15		)	9,031
	36			60,281			6,472			(336		)	66,453
Gain on sale of assets	—			81			—			—			81
Operating loss	(36		)	(9,402		)	(5,005		)	(2		)	(14,445		)
Other income (expense):
Interest income	—			259			142			—			401
Interest expense	(12,820		)	—			—			—			(12,820		)
Equity in earnings (losses) of consolidated subsidiaries	(3,647		)	—			—			3,647			—
Other income (expense), net	—			(790		)	2,381			1			1,592
	(16,467		)	(531		)	2,523			3,648			(10,827		)
Income (loss) before income taxes	(16,503		)	(9,933		)	(2,482		)	3,646			(25,272		)
Income tax benefit	—			(7,279		)	(1,490		)	—			(8,769		)
Net income (loss)	$	(16,503	)	$	(2,654	)	$	(992	)	$	3,646		$	(16,503	)

~~Standard~~

~~Description~~

~~Required Date of Adoption~~

~~Effect on the financial statements and other significant matters~~

~~Standards that have not been adopted~~

~~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 which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 requires retrospective application.

~~January 1, 2018~~

The Company has performed an initial evaluation of this standard and its impact on the financial statements. This included tasks such as identifying contracts, identifying performance obligations and reviewing the applicable revenue streams. In this review, nothing has been identified that would require a significant change in the current accounting for revenue. The Company will continue to review these new requirements including the new revenue disclosure requirements prior to implementation which is expected under the modified retrospective method.