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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 001-32108

Hornbeck Offshore Services, Inc.

(Exact Name of Registrant as Specified in Its Charter)

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  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨     No  x

The total number of shares of common stock, par value $.01 per share, outstanding as of May 6, 2004 was 20,774,214.

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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2004

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PART I—FINANCIAL INFORMATION

Item 1—Financial Statements

HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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

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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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

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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

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

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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The accompanying unaudited consolidated financial statements do not include certain information and footnote disclosures required by accounting principles generally accepted in the United States. The interim financial statements and notes are presented as permitted by instructions to 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 financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2003 of Hornbeck Offshore Services, Inc. (together with its subsidiaries, the “Company”). The results of operations for the three month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004. Certain amounts reported in prior periods have been reclassified to conform to the 2004 presentation.

Basic net income per share of common stock was calculated by dividing net income applicable to common stock by the weighted average number of common shares outstanding during the period. Diluted net income per share of common stock was calculated by dividing net income applicable to common stock by the weighted average number of common shares outstanding during the period plus the effect of dilutive stock options. Weighted average number of common shares outstanding was calculated by using the sum of the shares determined on a daily basis divided by the number of days in the period. At March 31, 2004 and 2003 the Company had dilutive stock options of 381 and 218, respectively, which were assumed exercised using the treasury stock method. In the first quarter of 2004, stock options representing 360 shares were excluded from the computation of diluted net income per share of common stock because their exercise price was greater than the market price of the common stock at March 31, 2004.

On March 5, 2004, the Company effected a 1-for-2.5 reverse stock split of its common stock that caused the number of outstanding shares to decrease from 36,320 to 14,528. For all periods, the share amounts and per share data reflected throughout these financial statements have been adjusted to give effect to the reverse stock split. Basic and diluted net income per common share are each calculated based on the weighted average number of shares outstanding during the periods adjusted for the effect of the reverse stock split.

The Company completed an initial public offering of 6,000 shares of its common stock at $13.00 per share, for total gross proceeds of $78 million on March 31, 2004. The Company plans to use the net proceeds of the offering of approximately $71.4 million to fund a portion of the costs of the construction of ocean-going, double-hulled tank barges, the retrofit of certain existing vessels, possible future acquisitions or additional new vessel construction,

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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

and for general corporate purposes. Pending such uses, on March 31, 2004, the Company used a portion of the proceeds to repay the outstanding balance under its revolving credit facility. The Company’s shares of common stock trade on the New York Stock Exchange under the symbol “HOS.”

On July 24, 2001, the Company issued $175,000 in principal amount of 10 ⁵/8% senior notes. The Company realized net proceeds of approximately $165,000, a substantial portion of which was used to repay and fully extinguish all of the then existing credit facilities. The senior notes mature on August 1, 2008 and require semi-annual interest payments at an annual rate of 10 ⁵/8% on February 1 and August 1 of each year until maturity. The effective interest rate on the senior notes is 11.18%. No principal payments are due until maturity. The senior notes are unsecured senior obligations and rank equally in right of payment with other existing and future senior indebtedness and senior in right of payment to any subordinated indebtedness incurred by the Company in the future. The senior notes are guaranteed by all of the Company’s subsidiaries. The Company may, at its option, redeem all or part of the senior notes from time to time at specified redemption prices and subject to certain conditions required by the indenture. The Company is permitted under the terms of the indenture to incur additional indebtedness in the future, provided that certain financial conditions set forth in the indenture are satisfied by the Company. The Company completed an exchange offer on January 18, 2002, whereby the 10 ⁵/8% Series A senior notes, due August 1, 2008, were exchanged for 10 ⁵/8% Series B senior notes with the same terms, the offering of which was publicly registered.

On February 13, 2004, the Company amended and restated its senior secured revolving credit facility to extend its maturity and increase its nominal size to $100,000. The current borrowing base is $60,000. The expiration date of the facility is February 13, 2009. The maturity of this facility will automatically accelerate to March 31, 2008, if by that date the Company has not redeemed its senior notes or refinanced them with debt having a maturity later than July 31, 2009. As of March 31, 2004, the Company had no outstanding balance under the revolving credit facility. As of such date, seven OSVs and four ocean-going tugs and associated personalty collateralized the revolving credit facility. Borrowings under the revolving credit facility accrue interest, at our option, at either (1) the prime rate announced by Citibank, N.A. in New York, plus a margin of up to 1.0%, or (2) the London Interbank Offered Rate, plus a margin of 1.5% to 3.5%. As of March 31, 2004, the weighted average interest rate was 4.19% under such facility. Unused commitment fees are payable quarterly at the annual rate of one-quarter to three-eighths of one percent on the unused but available amounts under the revolving credit facility, based on the leverage ratio as defined in the credit facility agreement.

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

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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Interest expense excludes capitalized interest related to new vessel construction of $0.4 million in the first quarter of 2004 and $0.9 million in the first quarter of 2003.

The Company established an incentive compensation plan that provides the Company with the ability to grant options for a maximum of 3,500 shares of common stock. The purchase price of the stock subject to each option is determined by the Board of Directors of the Company and cannot be less than the fair market value of the stock at the date of grant.

In December 2002, SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—An Amendment of FASB Statement No. 123”, was issued by the FASB and amends SFAS 123, “Accounting for Stock-Based Compensation.” This Statement provides alternative methods of transition for an entity that voluntarily changes to the fair-value-based method of accounting for stock-based employee compensation and amends the disclosure provisions of SFAS 123 to require prominent disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. We have not adopted either of the alternative methods of transition and continue to apply Accounting Principles Board Opinion, APB, No. 25, “Accounting for Stock Issued to Employees.” Additionally, SFAS 148 amends APB No. 28, “Interim Financial Reporting,” to require disclosure about those effects in interim financial information.

SFAS 123 also allows an entity to continue to measure stock-based compensation cost using the intrinsic value method of APB 25. Entities electing to retain the accounting prescribed in APB 25 must make pro forma disclosures of net income assuming dilution as if the fair-value-based method of accounting defined in SFAS 123 had been applied. The Company retained the provisions of APB 25 for expense recognition purposes. Under APB 25, where the exercise price of the Company’s stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

If compensation cost for the Company’s stock options had been determined based on the fair value at the grant date consistent with the method under SFAS 123, the Company’s income available to common stockholders for the three months ended March 31, 2004 and 2003 would have been as indicated below:

Vessel Construction

At March 31, 2004, the Company was committed under vessel construction contracts with a shipyard affiliated with the Company’s former Chairman of the Board and Chief Executive Officer, who currently serves on the Board of Directors, to construct one double-hulled tank barge and with an unrelated third party shipyard for the construction of one additional double-hulled tank barge. At that date, the remaining amount expected to be incurred during 2004 to complete construction with respect to such contracts was approximately $28.3 million. The Company is obligated under the terms of the contracts to remit funds to the shipyards based on vessel construction milestones, which are subject to change during vessel construction.

Contingencies

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

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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company provides marine transportation services through two business segments. The Company operates new generation offshore supply vessels in the U.S. Gulf of Mexico and select international markets through its offshore supply vessel segment. The offshore supply vessels principally support complex exploration and production projects by transporting cargo to offshore drilling rigs and production facilities and provide support for specialty services. The tug and tank barge segment primarily operates ocean-going tugs and tank barges in the northeastern United States and in Puerto Rico. The ocean-going tugs and tank barges provide coastwise transportation of refined and bunker grade petroleum products from one port to another. The following table shows reportable segment information prepared on the same basis as the Company’s unaudited consolidated financial statements.

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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On April 28, 2004, the Company issued an additional 126 shares of its common stock pursuant to the exercise by the underwriters in the initial public offering of an option to purchase additional shares, which resulted in incremental gross proceeds to the Company of approximately $1.6 million.

On April 30, 2004, the Company exercised the first of its three fixed-price options with a shipyard for the construction of one additional double-hulled tank barge. This will be the third vessel to be constructed under the Company’s current tank barge newbuild program, which is based on a proprietary new tank barge design developed in-house by the Company.

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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 and our Annual Report on Form 10-K for the year ended December 31, 2003. 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. In this Form 10-Q, “company,” “we,” “us” and “our” refer to Hornbeck Offshore Services, Inc. and its subsidiaries, except as otherwise indicated. The term “new generation,” when referring to OSVs, mean deepwater-capable vessels subject to the regulations promulgated under the International Convention on Tonnage Measurement of Ships, 1969, which was adopted by the United States and made effective for all U.S.-flagged vessels in 1992.

General

We own and operate a fleet of 23 technologically advanced, new generation OSVs. Currently, 19 of our OSVs are operating in the U.S. Gulf of Mexico, three of our OSVs are operating offshore Trinidad & Tobago and one is working offshore Mexico. We also operate 12 ocean-going tugs and 16 ocean-going tank barges in the northeastern United States, primarily New York Harbor, in Puerto Rico and in the U.S. Gulf of Mexico.

While OSVs service existing oil and gas production platforms as well as exploration and development activities, incremental OSV demand depends primarily upon the level of drilling activity, which can be influenced by a number of factors, including oil and natural gas prices and drilling budgets of exploration and production companies. As a result, utilization rates have historically been tied to oil and natural gas prices and drilling activity. However, the relatively large capital commitments, longer lead times and investment horizons associated with deepwater and deep well projects have diminished the significance of these factors.

Although the current U.S. Gulf of Mexico OSV market remains soft, we believe certain trends could have a favorable impact on this segment. First, certain operators have recently reaffirmed their commitments to continue developing large deepwater and other complex projects in the U.S. Gulf of Mexico for drilling in late-2004 and 2005. Second, there has been an increase in the U.S. Gulf of Mexico drilling permits issued from 59 in February 2004 to 98 in March 2004, a level not seen since April 2002. Third, additional floating production platform installations are expected to commence activity during 2004. Fourth, as we have anticipated, we are beginning to see an accelerated attrition rate of older, conventional 180 ft. supply boats working in the U.S. Gulf of Mexico. Many such vessels are being written off by competitors and are expected to be removed from service. Fifth, in addition to the traditional sources of demand for modern U.S.-flagged vessels, including deep gas and other complex drilling applications, our new generation OSVs have increasingly been working on the shelf supporting conventional drilling projects. Finally, more new generation OSVs are leaving the U.S. Gulf of Mexico for foreign markets. A combination of all of these factors, could suggest improving market conditions in this segment.

The primary demand drivers for our tug and tank barge services are population growth, the strength of the U.S. economy, changes in weather, oil prices and competition from alternate energy sources. The tug and tank barge market, in general, is marked by steady

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demand over time. Results for the first and fourth quarters of a given year are typically higher due to normal seasonal weather patterns that typically result in a drop-off of activity during the second and third quarters. We generally take advantage of this seasonality to prepare the tug and tank barge fleet for peak demand periods by performing our regulatory drydocking and maintenance programs during the second and third quarters. In addition, we continuously evaluate our customers’ needs and often elect to accelerate scheduled drydockings to take advantage of certain market opportunities.

As expected, activity during the first quarter of 2004 was seasonally higher than the fourth quarter of 2003 due to the peak demand caused by winter-related activity. Second quarter 2004 results for this segment should return to their normal, historical levels.

As the peak summer travel season approaches, higher gasoline prices are not expected to decrease demand. In fact, the Energy Information Administration has predicted that daily gasoline use in the United States could be up to 9.3 million barrels in 2004 compared to 9.1 million barrels in 2003. Usage in the summer of 2004 at these projected levels would be a new seasonal record high and reflects that gasoline demand continues to rise annually. In addition, the EIA stated that U.S. spring season gasoline stocks are currently at one of the lowest levels in the last 30 years. These factors support our reason for optimism in this segment.

As the next major Oil Pollution Act of 1990, or OPA 90, milestone approaches on January 1, 2005, customer demand for double-hulled equipment has led to increases in dayrates for this equipment, particularly for tank barges in black oil service. We are actively working to ensure that our fleet is well positioned to take advantage of these opportunities as they develop. In November 2003, we commenced a new double-hulled tank barge newbuild construction program to address our need to replace three single-hulled tank barges that are required under OPA 90 to be retired from service prior to January 1, 2005. Our current newbuild program is based on a proprietary new tank barge design that we have developed in-house to replace and expand our existing fleet of ocean-going tank barges. The design of these vessels is intended to maximize transit speed, improve cargo through-put rates and enhance crew safety features.

Our operating costs are primarily a function of fleet size and utilization levels. The most significant direct operating costs are wages paid to vessel crews, maintenance and repairs and marine insurance. Because most of these expenses remain payable regardless of vessel utilization, our direct operating costs as a percentage of revenues may fluctuate considerably with changes in dayrates and utilization.

In addition to the operating costs described above, we incur fixed charges related to the depreciation of our fleet and costs for routine drydock inspections and maintenance and repairs necessary to ensure compliance with applicable regulations and to maintain certifications for our vessels with the U.S. Coast Guard and various classification societies. The aggregate number of drydockings and other repairs undertaken in a given period determines the level of maintenance and repair expenses and marine inspection amortization charges. We generally capitalize costs incurred for drydock inspection and regulatory compliance and amortize such costs over the period between such drydockings, typically 30 or 60 months.

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Applicable maritime regulations require us to drydock our vessels twice in a five-year period for inspection and routine maintenance and repair. If we undertake a large number of drydockings in a particular fiscal period, comparative results may be affected.

Critical Accounting Policies

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our unaudited consolidated financial statements included in this Form 10-Q. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles. In other circumstances, we are required to make estimates, judgments and assumptions that we believe are reasonable based upon information available. We base our estimates and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions. Our significant accounting policies are discussed in note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2003. There were no significant changes to our critical accounting policies as reported in our Form 10-K during the three months ended March 31, 2004.

Results of Operations

The table below sets forth, by segment, the average dayrates and utilization rates for our vessels and the average number of vessels owned during the periods indicated. These offshore supply vessels and tugs and tank barges generate substantially all of our revenues and operating profit.

In March 2003, the Securities and Exchange Commission, or SEC, adopted rules regulating the use of non-GAAP financial measures, such as EBITDA, in filings with the SEC,

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disclosures and press releases. These rules require non-GAAP financial measures to be presented with and reconciled to the most nearly comparable financial measure calculated and presented in accordance with GAAP.

EBITDA consists of earnings (net income) before interest expense, provision for income taxes, depreciation and amortization. This term, as we define it, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with accounting principles generally accepted in the United States, or GAAP. EBITDA 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. Refer to our Annual Report on Form 10-K for the year ended December 31, 2003 for a description of how management uses, and why we believe investors use, EBITDA in evaluating the Company’s operating performance.

The following table reconciles EBITDA with our net income for each of our business segments and in the aggregate, for the three months ended March 31, 2004 and 2003, respectively (dollars in thousands).

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Summarized financial information is shown below in the following table (dollars in thousands):

Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003

Revenues. Revenues were $31.3 million for the three months ended March 31, 2004, compared to $27.3 million for the same period in 2003, an increase of $4.0 million or 14.7%. This net increase in revenues is primarily the result of the year-over-year growth of our fleet. Our operating fleet grew from an average of 41 vessels during the first quarter of 2003 to an average of 50 vessels during the first quarter of 2004. The additional revenues generated by these nine vessels accounted for $4.5 million of the increase in our revenues. We also experienced a $0.5 million decrease in revenues from our vessels that were in service during each of the quarters ended March 31, 2004 and 2003.

Revenues from our OSV segment increased to $15.6 million for the three months ended March 31, 2004, compared to $13.2 million for the same period in 2003, an increase of $2.4 million or 18.2%. The net increase in segment revenue is due to the addition of 10 new generation OSVs since mid-March 2003. Our OSV utilization rate was 78.4% for the three months ended March 31, 2004, which was lower than the 89.7% utilization rate we achieved in the same period of 2003. The utilization rate was lower for the three months ended March 31, 2004 primarily due to having more OSVs working in the spot market under weak market conditions in the U.S Gulf of Mexico. To a lesser degree, OSV utilization was impacted by the drydocking of vessels, including discretionary modifications to prepare certain vessels for international service, for 65 days out of service compared to 23 days in the 2003 quarter. Spot market contracts are more susceptible to fluctuations in utilization and day rates, particularly in soft market conditions, which we are currently experiencing. Our OSV average dayrates were $9,629 for the three months ended March 31, 2004 compared to

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$12,397 for the same period of 2003, a decrease of $2,768 or 22.3%. Average dayrates for the three months ended March 31, 2004 were lower compared to the same period in 2003 due primarily to continued weak market conditions in the U.S. Gulf of Mexico and the change in the average vessel size of our fleet complement after the mid-2003 acquisition of six 220’ vessels.

Revenues from our tug and tank barge segment totaled $15.8 million for the three months ended March 31, 2004 compared to $14.2 million for the same period in 2003, an increase of $1.6 million or 11.3%. The increase in revenue resulted primarily from the sale of the Energy 5502 in January 2003 and the purchase of the Energy 8001 in February 2003 and weather related demurrage charges. The Energy 5502 was generating bareboat charter revenue during the first quarter of 2003, which was substantially less than the time charter revenue generated by the double-hulled Energy 8001. Revenues for the three months ended March 31, 2004 included $1.4 million derived from in-chartering third-party equipment compared to $1.2 million for the same period in 2003. Our utilization rate increased to 91.2% for the three months ended March 31, 2004, compared to 83.4% for the same period in 2003. The increase in utilization was primarily the result of colder than average weather patterns and having fewer vessels drydocked during the first quarter of 2004 compared to the first quarter of 2003. Our average dayrate of $11,503 for the three months ended March 31, 2004 was roughly flat compared to $11,442 for the same period of 2003, an increase of $61 or 0.5%. The slight increase in dayrates was primarily related to having two months less of bareboat charter revenue from the Energy 5502, which we sold on January 28, 2003

Operating Expense. Our operating expense increased to $14.4 million for the three months ended March 31, 2004, compared to $10.5 million for the same period in 2003, an increase of $3.9 million or 37.1%. The increase in operating expense resulted primarily from the addition to our fleet of 10 new generation OSVs since mid-March 2003 and the addition of one double-hulled tank barge in February 2003.

Operating expense for our OSV segment increased to $6.8 million for the three months ended March 31, 2004, compared to $4.1 million for the same period in 2003, an increase of $2.7 million or 65.9%. This increase was primarily related to having an average of nine additional new generation OSVs in service for the three months ended March 31, 2004 compared to the same period in 2003., Average daily operating costs per vessel for the three months ended March 31, 2004 decreased over the same period in 2003, commensurate with the change in our fleet complement with the addition of six 220’ vessels in mid-2003.

Operating expense for our tug and tank barge segment increased to $7.5 million for the three months ended March 31, 2004 compared to $6.4 million for the same period in 2003, an increase of $1.1 million or 17.2%. Operating expense for the three months ended March 31, 2004 and 2003, respectively, included $0.5 million and $0.8 million, for the cost of in-chartering third-party equipment. Average daily operating costs per vessel, excluding in-chartering expenses, for the three months ended March 31, 2004 increased over the same period of 2003 due primarily to the acquisition of the double-hulled Energy 8001 in February 2003.

Depreciation and Amortization. Our depreciation and amortization expenses of $5.2 million for the three months ended March 31, 2004 increased $1.6 million or 44.4% compared to the $3.6 million for the same period in 2003. Depreciation and amortization were higher in

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2004 as a result of having an average of nine more vessels in our fleet and increased drydocking activity during 2003. These expenses are expected to increase with the delivery of newly constructed vessels and when these vessels undergo their initial 30 and 60 month recertifications.

General and Administrative Expense. Our general and administrative expenses of $3.0 million for the three months ended March 31, 2004 remained fairly constant with $2.9 million reported for the same period in 2003. We expect these costs to increase for the remainder of 2004 to accommodate our increased reporting obligations under federal securities laws and the new corporate governance legislation and regulations.

Interest Expense. Interest expense was $5.1 million for the three months ended March 31, 2004, compared to $4.2 million for the same period in 2003, an increase of $0.9 million or 21.4%. Capitalization of interest costs relating to new vessel construction was approximately $0.4 million for the three months ended March 31, 2004, compared to $0.9 million for the same period in 2003. The average balance outstanding under our revolving credit facility for the first three months of 2004 was $46.5 million compared to $5.4 million for the same period in 2003. The outstanding balance under this facility was fully paid on March 31, 2004.

Interest Income. Interest income was $0.1 million for the three months ended March 31, 2004, and was fairly constant with the same period in 2003. Average cash balances were $27.8 million and $17.5 million for the quarters ended March 31, 2004 and 2003, respectively, which contributed to a slight decrease in interest income during the three months ended March 31, 2004.

Income Tax Expense. Our effective tax rate for the three months ended March 31, 2004 was 37% compared to 38% during the three months ended March 31, 2003. Our income tax expense primarily consists of deferred taxes due to our federal net operating loss carryforwards. Our income tax rate is higher than the federal statutory rate due primarily to expected state and foreign tax liabilities and items not deductible for federal income tax purposes.

Liquidity and Capital Resources

Our capital requirements have historically been financed with cash flow from operations, issuances of our common equity and debt securities, and borrowings under our credit facilities. We require capital to fund ongoing operations, the construction of new vessels, acquisitions, vessel recertifications, discretionary capital expenditures and debt service. The nature of our capital requirements and the types of our financing sources are not expected to significantly change during 2004.

Pursuant to an amendment and restatement of our revolving credit facility on February 13, 2004, we have a five-year $100 million senior secured revolving credit facility with a borrowing base of $60 million. As of December 31, 2003, we had $40 million outstanding and $20 million of available borrowing capacity under the then-existing facility. As of March 31, 2004, following the closing of our initial public offering, and pending other uses described in the related prospectus, our outstanding balance on the revolving credit facility was paid and we had $60 million of credit immediately available under such facility. We have

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made, and may make additional, short-term draws on our revolving credit facility from time to time to satisfy scheduled capital expenditure requirements or for other corporate purposes. Any liquidity in excess of our planned capital expenditures will be utilized to repay debt or finance the implementation of our growth strategy, which includes expanding our fleet through the construction, retrofit of existing or acquisition of additional vessels, including OSVs and ocean-going tugs and tank barges, as needed to take advantage of the demand for such vessels. The three double-hulled tank barges currently being constructed will replace single-hulled vessels that are required to be retired under OPA 90 prior to January 1, 2005.

We believe that our current working capital, projected cash flow from operations and available capacity under our revolving credit facility, will be sufficient to meet our cash requirements for the foreseeable future. Although we expect to continue generating positive working capital through our operations, events beyond our control, such as mild winter conditions, a reduction in domestic consumption of refined petroleum products, or declines in expenditures for exploration, development and production activity may affect our financial condition or results of operations. The net proceeds generated by our initial public offering in March 2004 will allow us to further implement our growth strategy. However, depending on the market demand for OSVs, tugs and tank barges and other growth opportunities that may arise, we may require additional debt or equity financing.

Operating Activities. We rely primarily on cash flows from operations to provide working capital for current and future operations. Cash flows from operating activities totaled $6.2 million for the three months ended March 31, 2004 compared to $3.6 million for the same period in 2003. The increase in operating cash flows during these periods was primarily due to the growth of our fleet. Our cash flow from operations for 2004 should reflect a full year of revenue contribution from the nine vessels we added to our fleet in 2003 and nine months of activity for one OSV that entered service in March 2004. However, continued soft market conditions in the U.S. Gulf of Mexico could temper cash flows from operations. Cash flows from operations were also impacted by cash outlays for drydock recertification activity during the three months ended March 31, 2004. During calendar 2004, we expect to drydock a total of eight OSVs, six tugs, and eight tank barges for recertification and/or discretionary vessel enhancements at an estimated total cost of approximately $12.8 million.

As of December 31, 2003, we had federal tax net operating loss carryforwards of approximately $37.4 million available through 2018 to offset future taxable income. These tax net operating losses were generated primarily through accelerated tax depreciation applied to our vessels. Our use of these federal tax net operating losses and additional tax benefits may be limited due to U.S. tax laws. Based on the age and composition of our current fleet, however, we expect to continue generating federal tax net operating losses over the near term.

Investing Activities. Net cash used in investing activities was $9.0 million for the three months ended March 31, 2004 compared to $20.4 million for the same period in 2003. Cash utilized in investing activities for both periods were primarily for the construction of new vessels and miscellaneous capital expenditures, and, for the three months ended March 31, 2003, the acquisition of a double-hulled tank barge, offset by $1.7 million in cash proceeds from the sale of a single-hulled tank barge during such period. For the remainder of 2004,

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investing activities are anticipated to include costs for new vessel construction related to three double-hulled tank barges, the purchase of two tugs and capital expenditures comprised of vessel modifications and miscellaneous corporate equipment purchases, as well as the potential construction or acquisition of additional vessels.

Financing Activities. Net cash provided by financing activities was $32.6 million for the three months ended March 31, 2004, primarily relating to net proceeds from our initial public offering of common stock that was completed on March 31, 2004 after payment of our outstanding borrowings under our revolving credit facility. For the three months ended March 31, 2003, net cash provided by financing activities was $7.4 million, which primarily resulted from the proceeds of borrowings under our revolving credit facility for the purchase of a double-hulled tank barge. On April 28, 2004, we received net proceeds of $1.5 million from the issuance of additional shares of common stock pursuant to the exercise of an option by the underwriters related to our initial public offering. For the remainder of 2004, we expect to generate cash from financing activities resulting from borrowings under our revolving credit facility as needed.

Contractual Obligations

We have a $100 million revolving credit facility with a borrowing base of $60 million. As of March 31, 2004, the weighted average interest rate was 4.19% under such facility. As of March 31, 2004, we had no outstanding balance, as we used a portion of the net proceeds from our initial public offering to pay all borrowings thereunder, and thus we have $60.0 million of borrowing capacity immediately available under the facility.

As of March 31, 2004, we had outstanding debt of $172.8 million, net of original issue discount, under our unsecured senior notes. The effective interest rate on the senior notes is 11.18% and is payable semi-annually each February 1 and August 1. The senior notes do not require any payments of principal prior to their stated maturity on August 1, 2008, but pursuant to the indenture under which the senior notes are issued, we are required to make offers to purchase the senior notes upon the occurrence of specified events, such as certain asset sales or a change in control. For additional information with respect to our revolving credit facility and our senior notes, please refer to note 4 of our unaudited consolidated financial statements included herein.

As of December 31, 2003, we were committed under vessel construction contracts to complete construction of one new generation OSV under our most recent OSV newbuild program, and two double-hulled tank barges under our current tank barge newbuild program. During the three months ended March 31, 2004, we expended $5.9 million for new vessel construction, before allocation of construction period interest, which was comprised of $1.5 million for the OSV and $4.4 million for the tank barge newbuild program. Aggregate construction costs before allocation of construction period interest for the four OSVs constructed under our most recent OSV newbuild program was $52.2 million or $0.8 million less than our original $53 million estimate for this program. We recently announced the exercise of an option with a shipyard for the construction of a third double-hulled tank barge under our current tank barge newbuild program. The three barges now under construction, along with two higher horsepower tugs that we expect to purchase this year as power sources

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for these larger barges, are expected to cost approximately $64.0 million in the aggregate, of which about $7.9 million has already been incurred and paid during the fourth quarter of 2003 and the first quarter of 2004. We expect to incur the remaining balance of $56.1 million as follows: $49.2 million during the remainder of 2004 and $6.9 million in 2005. The timing of the incurrence of these costs is subject to change among periods based on the achievement of shipyard milestones and the actual acquisition date of the tugs. However, the amounts are not expected to change materially in the aggregate.

During the three months ended March 31, 2004, we expended approximately $3.3 million for drydocking-related expenses for vessels, of which $1.9 million was accounted for as deferred charges and $1.4 million for other vessel capital improvements. During the three months ended March 31, 2004, we also expended approximately $0.3 million for miscellaneous non-vessel related additions to property, plant and equipment.

Forward Looking Statements

We make forward-looking statements in this Form 10-Q, including certain information set forth in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have based these forward-looking statements on our current views and assumptions about future events and our future financial performance. You can generally identify forward-looking statements by the appearance in such a statement of words like “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should” or “will” or other comparable words or the negative of these words. When you consider our forward-looking statements, you should keep in mind the risk factors we describe and other cautionary statements we make in this Form 10-Q.

Among the risks, uncertainties and assumptions to which these forward-looking statements may be subject are:

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Our forward-looking statements are only predictions based on expectations that we believe are reasonable. Actual events or results may differ materially from those described in any forward-looking statement. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. To the extent these risks, uncertainties and assumptions give rise to events that vary from our expectations, the forward-looking events discussed in this Form 10-Q may not occur.

Item 3—Quantitative and Qualitative Disclosures About Market Risk

We have not entered into any derivative financial instrument transactions to manage or reduce market risk or for speculative purposes.

We are subject to interest rate risk on our long-term fixed interest rate senior notes. In general, the fair market value of debt with a fixed interest rate will increase as interest rates fall. Conversely, the fair market value of debt will decrease as interest rates rise. The senior notes accrue interest at the rate of 10 5/8% per annum and mature on August 1, 2008. Our revolving credit facility has a variable interest rate and, therefore, is not subject to interest rate risk. As of March 31, 2004, we had no drawings under such facility.

Our operations are primarily conducted between U.S. ports, including along the coast of Puerto Rico, and historically we have not been exposed to significant foreign currency fluctuation. However, as we expand our operations in international markets, our exposure to certain risks typically associated with foreign currency fluctuation is expected to increase. To date, we have not hedged against any foreign currency rate fluctuations associated with foreign currency VAT payments or other foreign currency denominated transactions arising in the normal course of business. We continually monitor the currency exchange risks associated with conducting international operations. As of March 31, 2004, there were no material changes in our market or interest rate risk or material gains or losses associated with currency fluctuations since last reported on our Annual Report on Form 10-K for the period ended December 31, 2003.

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

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effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Internal Control Over Financial Reporting

We also maintain a system of internal accounting controls that are designed to provide reasonable assurance that our books and records accurately reflect our transactions and that our policies and procedures are followed. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1—Legal Proceedings

We are not currently a party to any material legal proceedings, although we may from time to time be subject to various legal proceedings and claims that arise in the ordinary course of business.

Item 2—Changes in Securities and Use of Proceeds

In September 2003 we filed a Registration Statement on Form S-1 (Registration No. 333-108943) (as amended, the “Registration Statement”), in connection with our initial public offering of common stock. The SEC declared the Registration Statement effective on March 25, 2004. On March 31, 2004, we completed the initial public offering of 6,000,000 shares of common stock at $13.00 per share for gross proceeds of $78 million. The lead managing underwriters were Goldman, Sachs & Co. and Jefferies & Company, Inc. The net proceeds to us from the initial public offering, after deducting $6.6 million in underwriting commissions and discounts and our estimated offering expenses, were approximately $71.4 million. The Company plans to use the net proceeds of the offering to fund a portion of the costs of the construction of ocean-going, double-hulled tank barges, the retrofit of certain existing vessels, possible future acquisitions or additional new vessel construction, and for general corporate purposes. Pending such uses, we used a portion of the net proceeds of the offering to repay the outstanding balance under our revolving credit facility on March 31, 2004.

In March 2004, we issued 120,000 shares of our common stock to certain holders of options granted under our Incentive Compensation Plan upon exercise of such options. The total amount of consideration we received for the issuance of these shares was approximately $795,000, net of taxes. The issuance of these shares of our common stock was exempt from registration under Rule 701 promulgated under the Securities Act of 1933.

Item 3—Defaults Upon Senior Securities

None.

Item 4—Submission of Matters to a Vote of Security Holders

None.

Item 5—Other Information

Recent Developments

On April 28, 2004, the Company issued an additional 126,400 shares of its common stock to the underwriters pursuant to the exercise of an option to purchase additional shares, which resulted in incremental gross proceeds from its initial public offering of approximately $1.6 million.

On April 30, 2004, the Company exercised one of its three fixed-price options with a shipyard for the construction of one additional double-hulled tank barge. This will be the third vessel to be constructed under the Company’s current tank barge newbuild program, which is based on a proprietary new tank barge design developed in-house by the Company.

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Item 6—Exhibits and Reports on Form 8-K

(a) Exhibits:

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(b) Reports on Form 8-K.

During the quarter for which this report is filed, the registrant filed one Current Report on Form 8-K, as follows:

On February 19, 2004, we furnished a report on Form 8-K announcing that we had issued a press release that reported fourth quarter 2003 results, the delivery of the 240 ED class HOS Silverstar and the amendment and restatement of our revolving credit facility.

Since the end of the quarter for which this report is filed, the registrant filed one Current Report on Form 8-K, as follows:

On May 6, 2004, we furnished a report on Form 8-K announcing that we had issued a press release that reported first quarter 2004 results, the completion of our initial public offering and the construction of an additional double-hulled tank barge.

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SIGNATURE

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

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Exhibits Index

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* Filed herewith

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