For the three-month period ending March 31, 2003, options to purchase 2,093,968 shares of common stock at prices ranging from $0.91 to $23.13 have been excluded from the computation of diluted loss per share because inclusion of these shares would have been antidilutive. During the three months ended March 31, 2002 options to purchase 2,110,468 shares of common stock at prices ranging from $0.91 to $23.13 were not included in the computation of diluted loss per share because inclusion of these shares would have been antidilutive.

Stock Based Compensation

At March 31, 2003, the Company had two stock-based employee compensation plans. Please refer to the Company’s December 31, 2002 Annual Report on Form 10-K for a description of the plans. The Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and has adopted the disclosure-only provisions of Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation –Transition and Disclosure –an Amendment of FASB Statement No. 123." No stock-based employee compensation cost is reflected in net earnings, as all options granted under these plans had an exercise price equal to or greater than the market value of the underlying common stock on the grant date. The following table illustrates the effect on net loss and net loss per share if t he Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation (in thousands, except per share data).

 

3.    Income Taxes:

Income tax benefit for the three months ended March 31, 2003 is comprised of a tax benefit of $1.1 million associated with our Norwegian operations. In accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes," no tax benefit was recorded on the financial statements on the Company’s first quarter 2003 U.S. net operating loss as management does not consider the benefit to be more likely than not to be realized. The Company’s effective income tax rate for the three-month period ended March 31, 2002 was 34%. The variance from the Company’s statutory rate was primarily due to income contributed by the Company’s Norwegian subsidiary for which income taxes were provided at the Norwegian statutory rate of 28%. The Company intends to reinvest the unremitted Norwegian earnings and postpone their repatriation indefinitely.

The Company’s Brazilian subsidiary received a tax assessment from a Brazilian State tax authority for Reais 14,764,761 (approximately $4.4 million at March 31, 2003). The tax assessment is based on the premise that certain services provided in Brazilian federal waters are considered taxable by certain Brazilian states as transportation services and are subject to a state tax. The Company has filed a timely defense and is currently under no obligation to pay the assessment unless and until such time as all appropriate appeals are exhausted. The Company intends to vigorously challenge the imposition of this tax. Broader industry actions have been taken against the tax in the form of a suit filed at the Brazilian federal supreme court seeking a declaration that the state statue attempting to tax the industry’s activities is unconstitutional. If the Company’s challenge to the imposition of the tax proves unsuccessful, which Brazilian counsel and the Company believe improbable, current contrac t provisions and other factors could potentially mitigate the Company’s tax exposure.

4.    Segment and Geographic Information:

The Company is a provider of marine support services to the oil and gas industry. Revenues primarily result from the charter of vessels owned by the Company. As of March 31, 2003, the Company had three crew boats under long-term lease. The Company’s three reportable segments are based on geographic area, consistent with the Company’s management structure. The accounting policies of the segments are the same, except for purposes of income taxes and intercompany transactions and balances. The North Sea segment provides for a flat tax, in addition to taxes on equity and net financial income, at a rate of 28%, which is the Norwegian statutory tax rate. Additionally, segment data includes intersegment revenues, receivables and payables, and investments in consolidated subsidiaries (excluding equity in earnings of consolidated subsidiaries). The Company evaluates performance based on net income (loss). The U.S. segment represents the Company’s domestically managed operations and reflect s interest expense including that on long-term debt associated with the acquisitions of foreign subsidiaries. The North Sea segment includes those vessels that are managed by our North Sea offices and may, from time to time, include work performed in other geographic areas. The Other segment represents the Company’s Brazilian, Caribbean and West African operations. Segment data for the three-month periods ended March 31, 2003 and 2002 are as follows (in thousands):

4.     Segment and Geographic Information, continued:

 

A reconciliation of segment data to consolidated data as of March 31, 2003 and 2002 is as follows (in thousands):

 

5.   Sale of Crewboats:

In February 2003 the Company sold one of its crew boats for approximately $617,500 and recognized a gain of approximately $477,000 on the transaction. In February 2002, the Company sold one of its crewboats for approximately $725,000 and recognized a gain of approximately $496,000 from the sale. The proceeds from both sales were used for working capital.

6.   New Accounting Standards:

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations," which requires companies to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 on January 1, 2003 did not have a material impact on the Company’s net income, cash flows or financial position.

In May 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS 13, and Technical Corrections as of April 2002." This Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment to that Statement, FASB Statement No. 64 "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." SFAS No. 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. SFAS No. 145 is effective for financial statements issued for fiscal years beginning after May 15, 2002. SFAS No. 145 is not expected to affect our results of operations, liquidity or financial position except for the reclassification of extraordinary items for debt extinguishment.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by this guidance include termination benefits provided to current employees that are involuntarily terminated under the terms of a benefit arrangement that, in substance, is not an ongoing benefit arrangement or an individual deferred compensation contract, costs to terminate a contract that is not a capital lease, and costs to consolidate facilities or relocate employees. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The adoption of SFAS No. 146 did not have an impact on the Company’s current financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148,  "Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB Statement No. 123,"  to provide alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This statement also requires that those effects be disclosed more prominently by specifying the form, content and location of those disclosures. SFAS No. 148 improves the prominence and clarity of the pro forma disclosures required by SFAS No. 123 by prescribing a specific tabular format and by requiring disclosure in the Summary of Significant Accounting Policies or its equivalent. In addition, this statemen t improves the timeliness of those disclosures by requiring their inclusion in financial reports for interim periods. This statement is effective for financial statements for fiscal years ending after December 15, 2002 and is effective for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002 with earlier application permitted. The Company adopted the disclosure provisions of SFAS No. 148 as of December 31, 2002 and has presented the pro forma effects of SFAS No. 123 in footnote 2 to the financial statements.

On November 25, 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34." FIN 45 clarifies the requirements of SFAS No. 5, "Accounting for Contingencies," relating to the guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. The disclosure provisions of FIN 45 are effective for financial statements of interim or annual periods that end after December 15, 2002. However, the provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of a guarantor's year-end. The adoption of FIN 45 on January 1, 2003 did not have an impact on the Company's current financial position or results of operations.

On January 17, 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities." FIN 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. FIN 46 applies to public enterprises as of the beginning of the applicable interim or annual period. The Company believes that the adoption of the provisions of FIN 46 will have no impact upon its financial position or results of operations.

On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, except as stated below and for hedging relationships designated after June 30, 2003. In addition, except as stated below, all provisions of this Statement are to be applied prospectively. The provisions of SFAS No. 149 that relate to SFAS No. 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003 will continue to be applied in accordance with their respective effective dates. In addition, paragraphs 7(a) and 23(a ) of SFAS No. 149, which relate to forward purchases or sales of when-issued securities or other securities that do not yet exist, will be applied to both existing contracts and new contracts entered into after June 30, 2003. The adoption of SFAS No. 149 is not expected to impact the Company’s existing operating results or current financial position.

In June 2001, the Accounting Standards Executive Committee of the AICPA, ("AcSEC"), issued an exposure draft of a proposed Statement of Position ("SOP"), "Accounting for Certain Costs and Activities Related to Property, Plant, and Equipment." This SOP provides guidance on accounting for certain costs and activities relating to property, plant, and equipment ("PP&E"). For purposes of this SOP, a project stage or timeline framework is used and PP&E assets are accounted for at a component level. Costs incurred for PP&E are classified into four stages: preliminary, preacquisition, acquisition-or-construction and in-service. The SOP requires, among other things, that preliminary, preacquisition and acquisition-or-construction stage costs, except for payments to obtain an option to acquire PP&E, should be charged to expense as incurred. Costs related to PP&E that are incurred during the in-service stage, including costs of normal, recurring, or periodic repairs and main tenance activities, should be charged to expense as incurred unless the costs are incurred for acquisition of additional PP&E or components of PP&E or the replacement of existing PP&E or components of PP&E. Costs of planned major maintenance activities are not a separate PP&E asset or component. Those costs should be charged to expense, except for acquisitions or replacements of components that are capitalizable under the in-service stage guidance of this SOP. The AcSEC is currently reviewing comment letters on the subject SOP and is expected to present the SOP to the Financial Accounting Standards Board by mid-year 2003. The proposed SOP is subject to change. However, if the proposed SOP is adopted in its current form, the Company will have to write-off its net capitalized deferred marine inspection costs, which totaled $23.5 million at March 31, 2003. This write-off would be accounted for as a cumulative effect of a change in accounting principle as of the beginning of the year of adoption. Further evaluation is required by the Company to fully quantify the impact of this proposed pronouncement, if adopted.

7.   Separate Financial Statements for Subsidiary Guarantors:

The following presents the unaudited condensed consolidating historical financial statements as of March 31, 2003, and December 31, 2002, and for the three-month periods ended March 31, 2003 and 2002, for the subsidiaries of the Company that serve as guarantors of the 8.875% senior notes and for the Company’s subsidiaries that do not serve as guarantors. The guarantor subsidiaries are 100% owned by the parent company and their guarantees are full and unconditional and joint and several.