0001330849
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HERCULES OFFSHORE, INC.
0001330849
--12-31
No
No
Yes
Accelerated Filer
10-Q
false
2011-09-30
Q3
2011
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<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 1 - us-gaap:BasisOfPresentationAndSignificantAccountingPoliciesTextBlock-->
<!-- xbrl,ns -->
<!-- xbrl,nx -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt"><b></b>
</div>
<div align="left">
</div>
<div align="center" style="font-size: 10pt"><b></b></div>
<div align="center" style="font-size: 10pt"><b></b></div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>1. General</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Hercules Offshore, Inc., a Delaware corporation, and its majority owned subsidiaries (the
“Company”) provide shallow-water drilling and marine services to the oil and natural gas
exploration and production industry globally through its Domestic Offshore, International Offshore,
Inland, Domestic Liftboats and International Liftboats segments (See Note 12). At September 30,
2011, the Company owned a fleet of 49 jackup rigs, 17 barge rigs, two
submersible rigs, one platform
rig, and 60 liftboat vessels and operated an additional five liftboat vessels owned by a third party.
The Company’s diverse fleet is capable of providing services such as oil and gas exploration and
development drilling, well service, platform inspection, maintenance and decommissioning operations
in several key shallow water provinces around the world.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In May 2011, the Company completed the sale of substantially all of Delta Towing’s assets and
certain liabilities (See Note 5). Accordingly, the Company has recast certain prior period
financial information to reflect the results of operations of the Delta Towing assets as
discontinued operations for all periods presented.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In February 2011, the Company entered into an asset purchase agreement (the “Asset Purchase
Agreement”) with Seahawk Drilling, Inc. and certain of its subsidiaries (“Seahawk”), pursuant to
which Seahawk agreed to sell the Company 20 jackup rigs and related assets, accounts receivable,
accounts payable and certain contractual rights (“Seahawk Transaction”). On April 27, 2011, the
Company completed the Seahawk Transaction (See Note 4).
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The consolidated financial statements of the Company are unaudited; however, they include all
adjustments of a normal recurring nature which, in the opinion of management, are necessary to
present fairly the Company’s Consolidated Balance Sheet at September 30, 2011, Consolidated
Statements of Operations and Consolidated Statements of Comprehensive Loss for the three and nine
months ended September 30, 2011 and 2010, and Consolidated Statements of Cash Flows for the nine
months ended September 30, 2011 and 2010. Although the Company believes the disclosures in these
financial statements are adequate to make the interim information presented not misleading, certain
information relating to the Company’s organization and footnote disclosures normally included in
financial statements prepared in accordance with U.S. generally accepted accounting principles have
been condensed or omitted in this Form 10-Q pursuant to Securities and Exchange Commission rules
and regulations. These financial statements should be read in conjunction with the audited
consolidated financial statements for the year ended December 31, 2010 and the notes thereto
included in the Company’s Annual Report on Form 10-K, as amended on Form 8-K filed July 8, 2011.
The results of operations for the three and nine months ended September 30, 2011 are not
necessarily indicative of the results expected for the full year.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenue and expenses during the reporting
period. On an ongoing basis, the Company evaluates its estimates, including those related to bad
debts, investments, derivatives, property and equipment, income taxes, insurance,
percentage-of-completion, employment benefits and contingent liabilities. The Company bases its
estimates on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results could differ from those estimates.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Investigations</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     On April 4, 2011, the Company received a subpoena issued by the Securities and Exchange
Commission (“SEC”) requesting the delivery of certain documents to the SEC in connection with its
investigation into possible violations of the securities laws, including possible violations of the
Foreign Corrupt Practices Act (“FCPA”) in certain international jurisdictions where the Company
conducts operations. The Company was also notified by the Department of Justice (“DOJ”) on April 5,
2011, that certain of the Company’s activities are under review by the DOJ.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company, through the Audit Committee of the Board of Directors, has engaged an outside law
firm with significant experience in FCPA-related matters to conduct an internal review, and intends
to continue to cooperate with the SEC and DOJ in their investigations. At this time, it is not possible to
predict the outcome of the investigations, the expenses the Company will incur associated with these matters, or the impact on the price of the Company’s common stock or
other securities as a result of these investigations.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Recent Events</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     On September 18, 2011, the Company was conducting a required annual spud can inspection on the
<i>Hercules 185 </i>in protected waters offshore Angola. While conducting the inspection, it was
determined that the spud can on the starboard leg had detached from the leg. While preparing the
rig for heavy-lift transport to a shipyard in Pascagoula, Mississippi to conduct the spud can
repairs, additional leg damage was identified. The additional damage must be repaired before the
rig can be transported to the shipyard in Mississippi. The Company is currently in the process of
repairing the additional leg damage and preparing the rig for the transport to Pascagoula,
Mississippi. Until a full inspection of the rig is completed, it is impossible to determine the
full extent of the damage, the scope and cost of the repairs necessary to return the rig to service
and the anticipated time needed to complete the required repairs. However, the Company currently
estimates that the rig will be out of service for approximately six months. During this period,
the rig will be at zero dayrate pursuant to its contract with Cabinda Gulf Oil Company (“Cabinda
Gulf”). The Company has discussed the expected downtime of the rig with Cabinda Gulf and Cabinda
Gulf has indicated that it intends to accept the rig after the completion of the
repairs and to continue the contract, although Cabinda Gulf may have the right to terminate the
contract and be paid $1.0 million by the Company for liquidated damages. The Company expects to be
insured for damage to the rig up to the insured value of $35.0 million, subject to a $3.5 million
deductible and other customary limitations and exclusions. The Company has incurred approximately $2.0 million
during the three months ended September 30, 2011 related to rig repairs, inspections and other costs, of which all
or a portion of these costs will be applied to the deductible associated with this claim. In addition, the rig had a net book value of $52.3
million as of September 30, 2011.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     On September 30, 2011, the <i>Starfish</i>, a 140 class liftboat (the “Vessel”), was underway in the
Gulf of Mexico in Ship Shoal Block 116 when it was hit by a series of waterspouts and capsized. The
Vessel has been anchored and secured by a salvage company retained by the Company. The Company
anticipates salvaging the Vessel when weather conditions are favorable. The Company’s underwriters
have determined that the Vessel is considered to be a constructive total loss and, therefore, the
Company will receive the full insured value of the Vessel, $2.5 million. The Company carries
removal of wreck insurance adequately covering the salvage operation, subject to a $250,000
deductible. Additionally, the Company carries pollution insurance, subject to a $3 million
deductible and other customary limitations. The Vessel had a net book
value of $0.7 million.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Permanent Importation</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     On May 16, 2011, the Company initiated the permanent importation of <i>Rig 3, </i>its platform rig
under contract in Mexico, and related equipment and spares into Mexico, at a net cost of
approximately $8 million. The net cost consists of a cash payment of approximately $13 million,
including approximately $5 million of value added tax, which the Company expects to fully recover
as provided by Mexican law.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Revenue Recognition</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Revenue generated from the Company’s contracts is recognized as services are performed, as
long as collectability is reasonably assured. For certain contracts, the Company may receive
lump-sum fees for the mobilization of equipment and personnel. Mobilization fees received and costs
incurred to mobilize a rig from one market to another under contracts longer than ninety days are
recognized as services are performed over the term of the related drilling contract. Additionally,
the initial fair value of the warrants and 500,000 shares issued from Discovery Offshore have been
recorded to deferred revenue to be amortized over 30 years, the estimated useful life of the two
new-build Discovery Offshore rigs (See Note 3). Amounts related to deferred revenue, including
revenue deferred related to the Company’s construction management agreements with Discovery
Offshore as well as the warrants and 500,000 additional shares received from Discovery Offshore,
and deferred expenses are summarized below (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Three Months Ended September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Nine Months Ended September 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Revenue deferred
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">8,042</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">34,067</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">600</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Expense deferred
</div></td>
<td> </td>
<td> </td>
<td align="right">5,729</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">9,227</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Deferred Revenue recognized
</div></td>
<td> </td>
<td> </td>
<td align="right">6,712</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,892</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">17,487</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">15,114</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Deferred Expense recognized
</div></td>
<td> </td>
<td> </td>
<td align="right">1,297</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">276</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,516</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,037</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     For certain contracts, the Company may receive fees from its customers for capital
improvements to its rigs. Such fees are deferred and recognized as services are performed over the
term of the related contract. The Company capitalizes such capital improvements and depreciates
them over the useful life of the asset.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The balances related to the Company’s Deferred Costs and Deferred Revenue are as follows (in
thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="64%"> </td>
<td width="5%"> </td>
<td width="7%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>As of</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>As of</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center"><b>Balance Sheet</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>Classification</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Assets:</b>
</div></td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top"> </td>
<td valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top"> </td>
<td valign="top"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Deferred Expense-Current Portion
</div></td>
<td> </td>
<td align="left" valign="top">Other</td>
<td> </td>
<td align="left" valign="top">$</td>
<td align="right" valign="top">8,342</td>
<td valign="top"> </td>
<td> </td>
<td align="left" valign="top">$</td>
<td align="right" valign="top">1,824</td>
<td valign="top"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Deferred Expense-Non-Current Portion
</div></td>
<td> </td>
<td align="left" valign="top" nowrap="nowrap">Other Assets, Net</td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">3,365</td>
<td valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">3,172</td>
<td valign="top"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Liabilities:</b>
</div></td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top"> </td>
<td valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top"> </td>
<td valign="top"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Deferred Revenue-Current Portion
</div></td>
<td> </td>
<td align="left" valign="top" nowrap="nowrap">Other Current Liabilities</td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">14,637</td>
<td valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">12,628</td>
<td valign="top"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Deferred Revenue-Non-Current Portion
</div></td>
<td> </td>
<td align="left" valign="top">Other Liabilities</td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">14,571</td>
<td valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">—</td>
<td valign="top"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Percentage-of-Completion</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company is using the percentage-of-completion method of accounting for its revenue and
related costs associated with its construction management agreements with Discovery Offshore,
combining the construction management agreements, based on a cost-to-cost method. Any revisions in
revenue, cost or the progress towards completion, will be treated as a change in accounting
estimate and will be accounted for using the cumulative catch-up
method. During the nine months ended September 30, 2011, $14.0
million has been recorded as deferred revenue and $12.5 million was
outstanding at September 30, 2011. The Company recognized $0.8 million and $1.5
million as revenue during the three and nine months ended September 30, 2011,
respectively, under the percentage-of-completion method of accounting. Additionally, $0.7 million
and $1.3 million in cost was recognized during the three and nine months ended September 30, 2011,
respectively, under the percentage-of-completion method of accounting related to activities
associated with the performance of contract obligations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Accounts Receivable and Allowance for Doubtful Accounts</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Accounts receivable are stated at the historical carrying amount net of write-offs and
allowance for doubtful accounts. Management of the Company monitors the accounts receivable from
its customers for any collectability issues. An allowance for doubtful accounts is established
based on reviews of individual customer accounts, recent loss experience, current economic
conditions, and other pertinent factors. Accounts deemed uncollectible are charged to the
allowance. The Company had an allowance of $12.9 million and $29.8 million at September 30, 2011
and December 31, 2010, respectively. The change in the Company’s allowance during the nine months
ended September 30, 2011 related primarily to payments received from a customer in its
International Offshore segment.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Other Assets</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Other assets consist of drydocking costs for marine vessels, a derivative asset, deferred income taxes, deferred operating expenses, financing fees, investments
and deposits. Drydocking costs are capitalized at cost and amortized on the straight-line method
over a period of 12 months. Drydocking costs, net of accumulated amortization, at September 30,
2011 and December 31, 2010, were $6.4 million and $5.9 million, respectively. Amortization expense
for drydocking costs was $4.2 million and $12.1 million for the three and nine months ended September 30, 2011 and $3.0 million and
$10.6 million for the three and nine months ended September 30, 2010, respectively.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Financing fees are deferred and amortized over the life of the applicable debt instrument.
However, in the event of an early repayment of debt or certain debt amendments, the related
unamortized deferred financing fees are expensed in connection with the repayment or amendment (See
Note 6). Unamortized deferred financing fees at September 30, 2011 and December 31, 2010 were $10.1
million and $11.4 million, respectively. Amortization expense for financing fees was $1.0 million
and $2.9 million for the three and nine months ended September 30, 2011, respectively and $0.8
million and $2.5 million for the three and nine months ended September 30, 2010, respectively, and
is included in Interest Expense on the Consolidated Statements of Operations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Cash and Cash Equivalents</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Cash and cash equivalents include cash on hand, demand deposits with banks and all highly
liquid investments with original maturities of three months or less.
</div>
<!-- Folio -->
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</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Restricted Cash</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company’s restricted cash balance supports surety bonds related to the Company’s Mexico
and U.S. operations.
</div>
</div>
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<!-- Begin Block Tagged Note 2 - us-gaap:EarningsPerShareTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>2. Earnings Per Share</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company calculates basic earnings per share by dividing net income by the weighted average
number of shares outstanding. Diluted earnings per share is computed by dividing net income by the
weighted average number of shares outstanding during the period as adjusted for the dilutive effect
of the Company’s stock option and restricted stock awards. The effect of stock option and
restricted stock awards is not included in the computation for periods in which a net loss occurs,
because to do so would be anti-dilutive. Stock equivalents of
5.7 million and 6.5 million were
anti-dilutive and are excluded from the calculation of the dilutive effect of stock equivalents for
the diluted earnings per share calculations for the three and nine months ended September 30, 2011,
respectively. Stock equivalents of 6.6 million and 6.2 million were anti-dilutive and are excluded
from the calculation of the dilutive effect of stock equivalents for the diluted earnings per share
calculations for the three and nine months ended September 30, 2010, respectively. There were no
stock equivalents to exclude from the calculation of the dilutive effect of stock equivalents for
the diluted earnings per share calculations for either the three and nine months ended September
30, 2011 and 2010, respectively, related to the assumed conversion of the 3.375% Convertible Senior
Notes under the if-converted method as there was no excess of conversion value over face value in
any of these periods.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 3 - us-gaap:EquityMethodInvestmentsDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>3. Equity Investment</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In January 2011, the Company made an initial investment of $10 million to purchase 5.0 million
shares of a new entity incorporated in Luxembourg, Discovery Offshore S.A. (“Discovery Offshore”).
Discovery Offshore has ordered two new-build ultra high specification harsh environment jackup
drilling rigs (collectively the “Rigs” or individually “Rig”) and they hold options to purchase two
additional rigs of the same specifications. Although these options were set to expire in late October 2011, Discovery Offshore is currently in discussions with the shipyard to extend the exercise date on these two options. The Company also executed a construction management agreement (the
“Construction Management Agreement”) and a services agreement (the “Services Agreement”) with
Discovery Offshore with respect to each of the Rigs. Under the Construction Management Agreements,
the Company will plan, supervise and manage the construction and commissioning of the Rigs in
exchange for a fixed fee of $7.0 million per Rig, which the Company received in February 2011.
Pursuant to the terms of the Services Agreements, the Company will market, manage, crew and operate
the Rigs and any other rigs that Discovery Offshore subsequently acquires or controls, in exchange
for a fixed daily fee of $6,000 per Rig plus five percent of Rig-based EBITDA (EBITDA excluding
SG&A expense) generated per day per Rig, which commences once the Rigs are completed and operating.
Under the Services Agreements, Discovery Offshore will be responsible for operational and capital
expenses for the Rigs. The Company is entitled to a minimum fee of $5 million per Rig in the event
Discovery Offshore terminates a Services Agreement in the absence of a breach of
contract by Hercules Offshore. The Company has no other financial obligations or commitments
with respect to the Rigs or its ownership in Discovery Offshore. Two of the Company’s officers are
on the Board of Directors of Discovery Offshore.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company’s total equity investment in Discovery Offshore was $34.9 million, or 28%, as of
September 30, 2011, which includes the initial cash investment of $10.0 million, additional equity
interest of $1.0 million related to 500,000 Discovery Offshore shares awarded to the Company for
reimbursement of costs incurred and efforts expended in forming Discovery Offshore, additional
purchases of Discovery Offshore shares on the open market totaling $24.2 million, or 12.9 million
shares for the nine months ended September 30, 2011, which includes
$12.3 million, or 7.5 million shares for the three months ended
September 30, 2011, as well as the Company’s proportionate share of Discovery Offshore’s losses. This
investment is being accounted for using the equity method of accounting as the Company has the
ability to exert significant influence, but not control, over operating and financial policies. The
Company was issued warrants to purchase up to 5.0 million additional shares of Discovery Offshore,
additional compensation for its costs incurred and efforts expended in forming Discovery Offshore,
that, if exercised, would be recorded as an increase in the Company’s equity investment in
Discovery Offshore (See Notes 1, 7 and 8).
</div>
</div>
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<!-- Begin Block Tagged Note 4 - us-gaap:BusinessCombinationDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>4. Business Combination</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     On April 27, 2011, the Company completed its acquisition of 20 jackup rigs and related assets,
accounts receivable, accounts payable and certain contractual rights from Seahawk for total
consideration of approximately $150.3 million consisting of $25.0 million of cash and 22.1 million
shares of Hercules common stock, net of a working capital adjustment. Seahawk operated a jackup rig
business that provided contract drilling services to the oil and natural gas exploration and
production industry in the Gulf of Mexico.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Seahawk Transaction expanded the Company’s jackup fleet and further strengthened the
Company’s position as a leading shallow-water drilling provider. The fair value of the shares
issued was determined using the closing price of the Company’s common stock of $5.68 on April 27,
2011. The results of Seahawk are included in the Company’s results from the date of acquisition.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company accounted for this transaction as a business combination and accordingly the total
consideration was allocated to Seahawk’s net tangible assets based on their estimated fair values.
The Company is in the process of finalizing valuations of the property and equipment. Therefore,
the valuations of property and equipment are preliminary and are subject to change upon the receipt
and management’s review of the final valuations. In addition, certain of the Company’s tax
positions are also being reviewed and the valuation of the Company’s deferred taxes are preliminary
and are subject to change (See Note 11). The Company has recorded the accounts receivable at
estimated fair value which does not include an allowance for doubtful accounts. Upon final
valuation of net assets, the excess, if any, of the purchase price over the net assets will be
recorded as goodwill, and conversely, if the purchase price is less than the fair value of the net
assets, a gain from a bargain purchase will be recorded.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The preliminary allocation of the consideration is as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="88%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>April 27, 2011</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>(In thousands)</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>(Unaudited)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Accounts Receivable
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">15,366</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Property and Equipment, Net
</div></td>
<td> </td>
<td> </td>
<td align="right">145,404</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total Assets
</div></td>
<td> </td>
<td> </td>
<td align="right">160,770</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Accounts Payable
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(10,441</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total Preliminary Purchase Price
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">150,329</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The following presents the consolidated financial information for the Company on a pro forma
basis assuming the Seahawk Transaction had occurred as of the beginning of the periods presented.
The historical financial information has been adjusted to give effect to pro forma items that are
directly attributable to the acquisition, factually supportable and with respect to income, are
expected to have a continuing impact on consolidated results. These items include adjustments to
record the incremental depreciation expense related to the increase in fair value of the acquired
assets, the elimination of amounts related to the operations of Seahawk that were not purchased in
the transaction as well as the elimination of directly related transaction costs.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The unaudited financial information set forth below has been compiled from historical
financial statements and other information, but is not necessarily indicative of the results that
actually would have been achieved had the transaction occurred on the dates indicated or that may
be achieved in the future:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Nine Months Ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10">(In millions, except per share amounts)</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">163.0</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">176.2</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">526.0</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">519.0</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Net Loss
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(16.6</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(35.2</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(52.8</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(80.4</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Basic loss per share
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(0.12</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(0.26</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(0.38</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(0.59</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Diluted loss per share
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(0.12</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(0.26</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(0.38</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(0.59</td>
<td nowrap="nowrap">)</td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The amount of revenue and net income related to the net assets acquired from Seahawk included
in the Company’s Consolidated Statements of Operations for the three and nine months ended
September 30, 2011 is as follows (in millions):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Three months</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>April 27, 2011</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>through</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>September</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>September</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>30, 2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>30, 2011</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">24.8</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">42.0</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Net income
</div></td>
<td> </td>
<td> </td>
<td align="right">1.1</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2.7</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company incurred transaction costs in the amount of $0.5 million and $3.6 million for the
three and nine months ended September 30, 2011 related to the Seahawk Transaction of which $0.5
million and $3.4 million in the same periods, respectively, are included in General and Administrative on the
Consolidated Statements of Operations. The remaining $0.2 million in transaction costs are included
in Operating Expenses on the Consolidated Statements of Operations for the nine months ended
September 30, 2011.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 5 - us-gaap:DisposalGroupsIncludingDiscontinuedOperationsDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>5. Dispositions and Discontinued Operations</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Dispositions</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     From time to time the Company enters into agreements to sell assets. The following table
provides information related to the sale of several of the Company’s assets during the nine months
ended September 30, 2011 and 2010 (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="32%"> </td>
<td width="5%"> </td>
<td width="27%"> </td>
<td width="5%"> </td>
<td width="7%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="6%"> </td>
<td width="1%"> </td>
<td width="2%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>Rig</b></td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>Segment</b></td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>Period of Sale</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Proceeds</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Gain/(Loss)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2011:
</div></td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top"> </td>
<td valign="top"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px"><i>Hercules 78</i>
</div></td>
<td> </td>
<td align="left" valign="top">Domestic Offshore</td>
<td> </td>
<td align="left" valign="top">May 2011</td>
<td> </td>
<td align="left" valign="top">$</td>
<td align="right" valign="top">1,700</td>
<td> </td>
<td align="left" valign="top">$</td>
<td align="right" valign="top">20</td>
<td valign="top"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Various(a)
</div></td>
<td> </td>
<td align="left" valign="top">Delta Towing</td>
<td> </td>
<td align="left" valign="top">May 2011</td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">30,000</td>
<td> </td>
<td nowrap="nowrap" align="left" valign="top"> </td>
<td align="right" valign="top">(13,359</td>
<td nowrap="nowrap" valign="top">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px"><i>Hercules 152</i>
</div></td>
<td> </td>
<td align="left" valign="top">Domestic Offshore</td>
<td> </td>
<td align="left" valign="top">July 2011</td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">5,000</td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">271</td>
<td valign="top"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px"><i>Hercules 190</i>
</div></td>
<td> </td>
<td align="left" valign="top">Domestic Offshore</td>
<td> </td>
<td align="left" valign="top" nowrap="nowrap">September 2011</td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">2,000</td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">1,440</td>
<td valign="top"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px"><i>Hercules 254</i>
</div></td>
<td> </td>
<td align="left" valign="top">Domestic Offshore</td>
<td> </td>
<td align="left" valign="top">September 2011</td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">2,054</td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">369</td>
<td valign="top"> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" valign="top" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" valign="top" style="border-top: 1px solid #000000"> </td>
<td valign="top"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td align="left" valign="top">$</td>
<td align="right" valign="top">40,754</td>
<td> </td>
<td nowrap="nowrap" align="left" valign="top">$</td>
<td align="right" valign="top">(11,259</td>
<td nowrap="nowrap" valign="top">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" valign="top" style="border-top: 3px double #000000"> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" valign="top" style="border-top: 3px double #000000"> </td>
<td valign="top"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2010:
</div></td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top"> </td>
<td valign="top"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Various(b)
</div></td>
<td> </td>
<td align="left" valign="top">Inland</td>
<td> </td>
<td align="left" valign="top">March 2010</td>
<td> </td>
<td align="left" valign="top">$</td>
<td align="right" valign="top">2,200</td>
<td> </td>
<td align="left" valign="top">$</td>
<td align="right" valign="top">1,753</td>
<td valign="top"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Various(b)
</div></td>
<td> </td>
<td align="left" valign="top">Inland</td>
<td> </td>
<td align="left" valign="top">April 2010</td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">800</td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">410</td>
<td valign="top"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px"><i>Hercules 191</i>
</div></td>
<td> </td>
<td align="left" valign="top">Domestic Offshore</td>
<td> </td>
<td align="left" valign="top">April 2010</td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">5,000</td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">3,067</td>
<td valign="top"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px"><i>Hercules 255</i>
</div></td>
<td> </td>
<td align="left" valign="top">Domestic Offshore</td>
<td> </td>
<td align="left" valign="top">September 2010</td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">5,000</td>
<td> </td>
<td align="left" valign="top"> </td>
<td align="right" valign="top">3,180</td>
<td valign="top"> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" valign="top" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" valign="top" style="border-top: 1px solid #000000"> </td>
<td valign="top"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td align="left" valign="top">$</td>
<td align="right" valign="top">13,000</td>
<td> </td>
<td align="left" valign="top">$</td>
<td align="right" valign="top">8,410</td>
<td valign="top"> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" valign="top" style="border-top: 3px double #000000"> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" valign="top" style="border-top: 3px double #000000"> </td>
<td valign="top"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left">
<div style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000"> 
</div>
</div>
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td width="96%"></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left">(a)</td>
<td> </td>
<td>The Company completed the sale of substantially all of Delta Towing’s assets.</td>
</tr>
<tr style="font-size: 3pt">
<td> </td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left">(b)</td>
<td> </td>
<td>The Company entered into an agreement to sell six of its retired barges for $3.0 million.
The sale of 3 barges closed in each of March and April 2010.</td>
</tr>
</table>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Discontinued Operations</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In May 2011, the Company completed the sale of substantially all of Delta Towing’s assets and
certain liabilities for aggregate consideration of $30 million in cash (the “Delta Towing Sale”)
and recognized a loss on the sale of approximately $13 million. The Company retained the working
capital of its Delta Towing business which was approximately $6 million at the date of sale. The
results of operations of the Delta Towing segment are reflected in the Consolidated Statements
of Operations for the three and nine months ended September 30, 2011 and 2010 as discontinued
operations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Interest charges have been allocated to the discontinued operations of the Delta Towing
segment in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 205-20, <i>Discontinued Operations</i>. The interest
was allocated based on a pro rata calculation of the net Delta Towing assets sold to the Company’s
consolidated net assets. Interest allocated to discontinued operations was $0.8 million for the
nine months ended September 30, 2011, and $0.6 million and $1.9 million for the three and nine
months ended September 30, 2010, respectively.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Operating results of the Delta Towing segment were as follows (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Nine Months Ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">10,875</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">9,822</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">25,161</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Income (Loss) Before Income Taxes
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">84</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,800</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(15,703</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(733</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Income Tax (Provision) Benefit
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(32</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(724</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">6,052</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">294</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Income (Loss) from Discontinued Operations, Net of Taxes
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">52</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,076</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(9,651</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(439</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The carrying value of the assets included in the Delta Towing Sale are as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>May 13,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Property and Equipment, Net and Related Assets
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">43,359</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">44,249</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The nine months ended September 30, 2011 includes a loss of $13.4 million, or $8.2 million net
of taxes, in connection with the Delta Towing Sale.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 6 - us-gaap:DebtDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>6. Debt</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Debt is comprised of the following (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Term Loan Facility, due July 2013
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">456,541</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">475,156</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 10.5% Senior Secured Notes, due October 2017
</div></td>
<td> </td>
<td> </td>
<td align="right">293,483</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">292,935</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 3.375% Convertible Senior Notes, due June 2038
</div></td>
<td> </td>
<td> </td>
<td align="right">89,245</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">86,488</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 7.375% Senior Notes, due April 2018
</div></td>
<td> </td>
<td> </td>
<td align="right">3,511</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,511</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total Debt
</div></td>
<td> </td>
<td> </td>
<td align="right">842,780</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">858,090</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Less Short-term Debt and Current Portion of Long-term Debt
</div></td>
<td> </td>
<td> </td>
<td align="right">4,768</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,924</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total Long-term Debt, Net of Current Portion
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">838,012</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">853,166</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The unamortized discount of the 10.5% Senior Secured Notes and 7.375% Senior Notes is
being amortized to interest expense over the life of the respective debt instrument. The
unamortized discount of the 3.375% Convertible Senior Notes is being amortized to interest expense
over their expected life which ends June 1, 2013.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="28%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>September 30, 2011</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>December 31, 2010</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Notional</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unamortized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Carrying</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Notional</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unamortized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Carrying</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>Liability Component</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Amount</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Discount</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Amount</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Discount</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>(in millions)</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>(in millions)</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">10.5% Senior Secured Notes, due October 2017
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">300.0</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(6.5</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">293.5</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">300.0</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(7.1</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">292.9</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">3.375% Convertible Senior Notes, due June 2038*
</div></td>
<td> </td>
<td> </td>
<td align="right">95.9</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(6.7</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">89.2</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">95.9</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(9.4</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">86.5</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">7.375% Senior Notes, due April 2018
</div></td>
<td> </td>
<td> </td>
<td align="right">3.5</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3.5</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3.5</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3.5</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left">
<div style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000"> 
</div>
</div>
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td width="96%"></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left">*</td>
<td> </td>
<td>The carrying amount of the equity component was $30.1 million at both September 30, 2011 and
December 31, 2010.</td>
</tr>
</table>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="20%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="30" style="border-bottom: 1px solid #000000"><b>Three Months Ended September 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td style="border-bottom: 0px solid #000000"> </td>
<td style="border-bottom: 0px solid #000000"> </td>
<td> </td>
<td> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 0px solid #000000"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Coupon</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Discount</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Total</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Effective</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Coupon</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Discount</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Total</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Effective</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Interest</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Amortization</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Interest</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Rate</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Interest</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Amortization</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Interest</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Rate</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10"><b>(in millions)</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10"><b>(in millions)</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 10.5% Senior Secured Notes, due October 2017
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">7.9</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.2</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">8.1</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">11.00</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td align="left">$</td>
<td align="right">7.8</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.2</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">8.0 </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">11.00</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 3.375% Convertible Senior Notes, due June
2038
</div></td>
<td> </td>
<td> </td>
<td align="right">0.9</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">0.9</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1.8</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">7.93</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">0.8</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">0.9</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1.7</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">7.93</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 7.375% Senior Notes, due April 2018
</div></td>
<td> </td>
<td> </td>
<td align="right">0.1</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">0.1</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">7.38</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">0.1</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">0.1</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">7.38</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="20%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="30" style="border-bottom: 1px solid #000000"><b>Nine Months Ended September 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td style="border-bottom: 0px solid #000000"> </td>
<td style="border-bottom: 0px solid #000000"> </td>
<td> </td>
<td> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 0px solid #000000"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Coupon</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Discount</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Total</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Effective</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Coupon</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Discount</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Total</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Effective</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Interest</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Amortization</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Interest</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Rate</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Interest</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Amortization</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Interest</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Rate</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10"><b>(in millions)</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10"><b>(in millions)</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 10.5% Senior Secured Notes, due October 2017
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">23.6</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.6</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">24.2</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">11.00</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td align="left">$</td>
<td align="right">23.5</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.5</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">24.0</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">11.00</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 3.375% Convertible Senior Notes, due June
2038
</div></td>
<td> </td>
<td> </td>
<td align="right">2.5</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2.7</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5.2</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">7.93</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2.4</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2.6</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5.0</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">7.93</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 7.375% Senior Notes, due April 2018
</div></td>
<td> </td>
<td> </td>
<td align="right">0.2</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">0.2</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">7.38</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">0.2</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">0.2</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">7.38</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Senior Secured Credit Agreement</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company has a $596.5 million credit facility, consisting of a $456.5 million term loan
facility and a $140.0 million revolving credit facility. The availability under the $140.0 million
revolving credit facility must be used for working capital, capital expenditures and other general
corporate purposes and cannot be used to prepay the term loan. The interest rates on borrowings
under the Credit Facility are 5.50% plus LIBOR for Eurodollar Loans and 4.50% plus the Alternate
Base Rate for ABR Loans. The minimum LIBOR is 2.00% for Eurodollar Loans, or a minimum base rate of
3.00% with respect to ABR Loans. Under the credit agreement, as amended, which governs the credit
facility (the “Credit Agreement”), the Company must among other things:
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Maintain a total leverage ratio for any test period calculated as the ratio of
consolidated indebtedness on the test date to consolidated EBITDA for the trailing twelve
months, all as defined in the Credit Agreement according to the following schedule:</td>
</tr>
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="88%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Maximum Total</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><b>Test Date</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Leverage Ratio</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="5" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">September 30, 2011
</div></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">7.50 to 1.00</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">December 31, 2011
</div></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">7.75 to 1.00</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">March 31, 2012
</div></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">7.50 to 1.00</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">June 30, 2012
</div></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">7.25 to 1.00</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">September 30, 2012
</div></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">6.75 to 1.00</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">December 31, 2012
</div></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">6.25 to 1.00</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">March 31, 2013
</div></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">6.00 to 1.00</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">June 30, 2013
</div></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">5.75 to 1.00</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left">
<div style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000"> 
</div>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left">—</td>
<td width="1%"> </td>
<td>      At September 30,
2011, the Company’s total leverage ratio was 5.03 to 1.00.</td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Maintain a minimum level of liquidity, measured as the amount of unrestricted cash and
cash equivalents on hand and availability under the revolving credit facility, of i) $75.0
million during calendar year 2011 and ii) $50.0 million thereafter. As of September 30,
2011, as calculated pursuant to the Credit Agreement, the Company’s total liquidity was
$265.5 million.</td>
</tr>
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Maintain a minimum fixed charge coverage ratio according to the following schedule:</td>
</tr>
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="34%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="37%"> </td>
<td width="5%"> </td>
<td width="7%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center"><b>Fixed Charge</b></td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>Period</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 0px solid #000000"> </td>
<td nowrap="nowrap" align="right" style="border-bottom: 1px solid #000000"><b>Coverage Ratio</b></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td valign="top">
<div style="margin-left:0px; text-indent:-0px">July 1, 2009
</div></td>
<td> </td>
<td align="left" valign="top">—
</td>
<td> </td>
<td align="left" valign="top">December 31, 2011
</td>
<td> </td>
<td align="center" valign="top">1.00 to 1.00</td>
</tr>
<tr valign="bottom">
<td valign="top">
<div style="margin-left:0px; text-indent:-0px">January 1, 2012
</div></td>
<td> </td>
<td align="left" valign="top">—
</td>
<td> </td>
<td align="left" valign="top">March 31, 2012
</td>
<td> </td>
<td align="center" valign="top">1.05 to 1.00</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td valign="top">
<div style="margin-left:0px; text-indent:-0px">April 1, 2012
</div></td>
<td> </td>
<td align="left" valign="top">—
</td>
<td> </td>
<td align="left" valign="top">June 30, 2012
</td>
<td> </td>
<td align="center" valign="top">1.10 to 1.00</td>
</tr>
<tr valign="bottom">
<td valign="top">
<div style="margin-left:0px; text-indent:-0px">July 1, 2012 and thereafter
</div></td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td align="left" valign="top"> </td>
<td> </td>
<td align="center" valign="top">1.15 to 1.00</td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left">—</td>
<td width="1%"> </td>
<td>The consolidated fixed charge coverage ratio for any test period is
defined as the sum of consolidated EBITDA for the test period plus an
amount that may be added for the purpose of calculating the ratio for
such test period, not to exceed $130.0 million in total during the
term of the credit facility, to consolidated fixed charges for the
test period adjusted by an amount not to exceed $110.0 million during
the term of the credit facility to be deducted from capital
expenditures, all as defined in the Credit Agreement. As of September
30, 2011, the Company’s fixed charge coverage ratio was 1.35 to 1.00.</td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Make mandatory prepayments of debt outstanding under the Credit Agreement with 50% of
excess cash flow as defined in the Credit Agreement for the fiscal years ending December
31, 2011 and 2012, and with proceeds from:</td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left">—</td>
<td width="1%"> </td>
<td>unsecured debt issuances, with the exception of refinancing;</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left">—</td>
<td width="1%"> </td>
<td>secured debt issuances;</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left">—</td>
<td width="1%"> </td>
<td>casualty events not used to repair damaged property;</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left">—</td>
<td width="1%"> </td>
<td>sales of assets in excess of $25 million annually; and</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left">—</td>
<td width="1%"> </td>
<td>unless the Company has achieved a specified leverage ratio, 50% of
proceeds from equity issuances, excluding those for permitted
acquisitions or to meet the minimum liquidity requirements.</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company’s obligations under the Credit Agreement are secured by liens on a majority of its
vessels and substantially all of its other personal property. Substantially all of the Company’s
domestic subsidiaries, and several of its international subsidiaries, guarantee the obligations
under the Credit Agreement and have granted similar liens on the majority of their vessels and
substantially all of their other personal property.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Other covenants contained in the Credit Agreement restrict, among other things, asset
dispositions, mergers and acquisitions, dividends, stock repurchases and redemptions, other
restricted payments, debt issuances, liens, investments, convertible notes repurchases and
affiliate transactions. The Credit Agreement also contains a provision under which an event of
default on any other indebtedness exceeding $25.0 million would be considered an event of default
under the Company’s Credit Agreement.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Credit Agreement requires that the Company meet certain financial ratios and tests, which
it met as of September 30, 2011. The Company’s failure to comply with such covenants would result
in an event of default under the Credit Agreement. Additionally, in order to maintain compliance
with the Company’s financial covenants, borrowings under the Company’s revolving credit facility
may be limited to an amount less than the full amount of remaining availability after outstanding
letters of credit. An event of default could prevent the Company from borrowing under the revolving
credit facility, which would in turn have a material adverse effect on the Company’s available
liquidity. Furthermore, an event of default could result in the Company having to immediately
repay all amounts outstanding under the credit facility, the 10.5% Senior Secured Notes and the
3.375% Convertible Senior Notes and in the foreclosure of liens on its assets.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Other than the required prepayments as outlined previously, the principal amount of the term
loan amortizes in equal quarterly installments of approximately $1.2 million, with the balance due
on July 11, 2013. All borrowings under the revolving credit facility mature on July 11, 2012.
Interest payments on both the revolving and term loan facility are due at least on a quarterly
basis and in certain instances, more frequently. In addition to its scheduled payments, during the
second quarter of 2011, the Company used a portion of the net proceeds from the sale of the Delta Towing assets to retire $15.0 million
of the outstanding balance on the Company’s term loan facility.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     As of September 30, 2011, no amounts were outstanding and $1.8 million in standby letters of
credit had been issued under the revolving credit facility, therefore the remaining availability
under this revolving credit facility was $138.2 million. As of September 30, 2011, $456.5 million
was outstanding on the term loan facility and the interest rate was 7.5%. The annualized effective
rate of interest was 7.60% for the nine months ended September 30, 2011 after giving consideration
to revolver fees.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In connection with the amendment of the Credit Agreement in March 2011 (“2011 Credit
Amendment”), the Company agreed to pay consenting lenders an upfront fee of 0.25% on their
commitment, or approximately $1.4 million. Including agent bank fees and expenses the Company’s
total cost was approximately $2.0 million. The Company recognized a pretax charge of $0.5 million,
$0.3 million net of tax, related to the write off of certain unamortized issuance costs and the
expense of certain fees in connection with the 2011 Credit Amendment.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>10.5% Senior Secured Notes due 2017</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The 10.5% Senior Secured Notes are guaranteed by all of the Company’s existing and future
restricted subsidiaries that incur or guarantee indebtedness under a credit facility, including the
Company’s existing credit facility. The notes are secured by liens on all collateral that secures
the Company’s obligations under its secured credit facility, subject to limited exceptions. The
liens securing the notes share on an equal and ratable first priority basis with liens securing the
Company’s credit facility. Under the intercreditor agreement, the collateral agent for the lenders
under the Company’s secured credit facility is generally entitled to sole control of all decisions
and actions.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     All the liens securing the notes may be released if the Company’s secured indebtedness, other
than these notes, does not exceed the lesser of $375.0 million and 15.0% of the Company’s
consolidated tangible assets. The Company refers to such a release as a “collateral suspension.”
If a collateral suspension is in effect, the notes and the guarantees will be unsecured, and will
effectively rank junior to the Company’s secured indebtedness to the extent of the value of the
collateral securing such indebtedness. If, after any such release of liens on collateral, the
aggregate principal amount of the Company’s secured indebtedness, other than these notes, exceeds
the greater of $375.0 million and 15.0% of its consolidated tangible assets, as defined in the
indenture, then the collateral obligations of the Company and guarantors will be reinstated and
must be complied with within 30 days of such event.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The indenture governing the notes contains covenants that, among other things, limit the
Company’s ability and the ability of its restricted subsidiaries to:
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>incur additional indebtedness or issue certain preferred stock;</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>pay dividends or make other distributions;</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>make other restricted payments or investments;</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>sell assets;</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>create liens;</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>enter into agreements that restrict dividends and other payments by restricted
subsidiaries;</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>engage in transactions with its affiliates; and</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>consolidate, merge or transfer all or substantially all of its assets.</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The indenture governing the notes also contains a provision under which an event of default by
the Company or by any restricted subsidiary on any other indebtedness exceeding $25.0 million would
be considered an event of default under the indenture if such default: a) is caused by failure to
pay the principal at final maturity, or b) results in the acceleration of such indebtedness prior
to maturity.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>3.375% Convertible Senior Notes due 2038</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The 3.375% Convertible Senior Notes will be convertible under certain circumstances into
shares of the Company’s common stock (“Common Stock”) at an initial conversion rate of 19.9695
shares of Common Stock per $1,000 principal amount of notes, which is equal to an initial
conversion price of approximately $50.08 per share. Upon conversion of a note, a holder will
receive, at the Company’s election, shares of Common Stock, cash or a combination of cash and
shares of Common Stock. At September 30, 2011, the number of conversion shares potentially issuable
in relation to the 3.375% Convertible Senior Notes was 1.9 million.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The indenture governing the 3.375% Convertible Senior Notes contains a provision under which
an event of default by the Company or by any subsidiary on any other indebtedness exceeding $25.0
million would be considered an event of default under the indenture if such default: a) is caused
by failure to pay the principal at final maturity, or b) results in the acceleration of such
indebtedness prior to maturity.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company determined that upon maturity or redemption it has the intent and ability to
settle the principal amount of its 3.375% Convertible Senior Notes in cash, and any additional
conversion consideration spread (the excess of conversion value over face value) in shares of the
Company’s Common Stock.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Other debt</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In connection with the TODCO acquisition in July 2007, one of the Company’s domestic
subsidiaries assumed approximately $3.5 million of 7.375% Senior Notes due in April 2018. There are
no financial or operating covenants associated with these notes.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 7 - us-gaap:DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>7. Derivative Instruments</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company was issued warrants to purchase up to 5.0 million additional shares of Discovery
Offshore stock at a strike price of 11.5 Norwegian Kroner (“NOK”) per share which is exercisable in
the event that the Discovery Offshore stock price reaches an average equal to or higher than 23
Norwegian Kroner per share, which approximated $4.00 per share as of September 30, 2011, for 30
consecutive trading days. The warrants are being accounted for as a derivative instrument as the
underlying security is readily convertible to cash. Subsequent changes in the fair value of the
warrants are recognized to other income (expense). The fair value of the Discovery Offshore
warrants was determined using a Monte Carlo simulation (See Note 8).
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table provides the fair values of the Company’s derivatives (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="88%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="center" colspan="4" style="border-bottom: 1px solid #000000"><b>September 30, 2011</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><b>Balance Sheet</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>Classification</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Derivatives:</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Warrants
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,980</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:45px; text-indent:-15px">Other Assets, Net
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,980</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table provides the effect of the Company’s derivatives on the Consolidated
Statements of Operations (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="15%"> </td>
<td width="1%"> </td>
<td width="15%"> </td>
<td width="1%"> </td>
<td width="14%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="4%"> </td>
<td width="1%"> </td>
<td width="14%"> </td>
<td width="1%"> </td>
<td width="6%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="17" style="border-bottom: 1px solid #000000"><b>Three Months Ended September 30,</b></td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td style="border-bottom: 0px solid #000000"> </td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td style="border-bottom: 0px solid #000000"> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2010</b></td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>Derivatives</b></td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>I.</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="5" style="border-bottom: 1px solid #000000"><b>II.</b></td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>III.</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px solid #000000"><b>IV.</b></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td valign="top" nowrap="nowrap">
<div style="margin-left:0px; text-indent:-0px">Interest rate contracts
</div></td>
<td> </td>
<td align="center" valign="top" nowrap="nowrap">Interest Expense
</td>
<td> </td>
<td align="left" valign="top">$              —
</td>
<td> </td>
<td nowrap="nowrap" align="right" valign="top">$</td>
<td align="right" valign="top">(2,711</td>
<td nowrap="nowrap" valign="top">)</td>
<td> </td>
<td align="left" valign="top" nowrap="nowrap">Interest Expense
</td>
<td> </td>
<td nowrap="nowrap" align="left" valign="top">$</td>
<td align="right" valign="top">—</td>
<td nowrap="nowrap" valign="top"> </td>
<td> </td>
<td nowrap="nowrap" align="right" valign="top">$</td>
<td align="right" valign="top">(5</td>
<td nowrap="nowrap" valign="top">)</td>
</tr>
<tr valign="bottom">
<td valign="top">
<div style="margin-left:0px; text-indent:-0px">Warrants
</div></td>
<td> </td>
<td align="center" valign="top">N/A
</td>
<td> </td>
<td align="left" valign="top">                —
</td>
<td> </td>
<td nowrap="nowrap" align="right" valign="top"> </td>
<td align="right" valign="top">—</td>
<td nowrap="nowrap" valign="top"> </td>
<td> </td>
<td align="left" valign="top" nowrap="nowrap">Other Income
(Expense)
</td>
<td> </td>
<td nowrap="nowrap" align="right" valign="top"> </td>
<td align="right" valign="top">(1,845</td>
<td nowrap="nowrap" valign="top">)</td>
<td> </td>
<td nowrap="nowrap" align="right" valign="top"> </td>
<td align="right" valign="top">—</td>
<td nowrap="nowrap" valign="top"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="15%"> </td>
<td width="1%"> </td>
<td width="15%"> </td>
<td width="1%"> </td>
<td width="14%"> </td>
<td width="1%"> </td>
<td width="14%"> </td>
<td width="1%"> </td>
<td width="14%"> </td>
<td width="1%"> </td>
<td width="14%"> </td>
<td width="1%"> </td>
<td width="14%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="11" style="border-bottom: 1px solid #000000"><b>Nine Months Ended September 30,</b></td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td style="border-bottom: 0px solid #000000"> </td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td style="border-bottom: 0px solid #000000"> </td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>2010</b></td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>Derivatives</b></td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>I.</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>II.</b></td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>III.</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>IV.</b></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td nowrap="nowrap">
<div style="margin-left:15px; text-indent:-15px">Interest rate contracts
</div></td>
<td> </td>
<td align="center" valign="top" nowrap="nowrap">Interest Expense</td>
<td> </td>
<td align="left" valign="top">$           —</td>
<td> </td>
<td align="center" valign="top">      $(8,881)</td>
<td> </td>
<td align="left" valign="top" nowrap="nowrap">Interest Expense</td>
<td> </td>
<td align="left" valign="top">$              —</td>
<td> </td>
<td align="center" valign="top">$(264)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Warrants
</div></td>
<td> </td>
<td align="center" valign="top">N/A</td>
<td> </td>
<td align="left" valign="top">             —</td>
<td> </td>
<td align="center" valign="top">             —</td>
<td> </td>
<td align="left" valign="top" nowrap="nowrap">Other Income (Expense)</td>
<td> </td>
<td align="center" valign="top">(3,065)</td>
<td> </td>
<td align="left" valign="top">         —</td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left">
<div style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000"> 
</div>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" nowrap="nowrap" align="left"><b>I.</b></td>
<td width="1%"> </td>
<td><b>Classification of Gain (Loss) Reclassified from Accumulated Other
Comprehensive Income (Loss) into Income (Loss) (Effective Portion)</b></td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" nowrap="nowrap" align="left"><b>II.</b></td>
<td width="1%"> </td>
<td><b>Amount of Gain (Loss) Reclassified from Accumulated Other
Comprehensive Income (Loss) into Income (Loss) (Effective Portion)</b></td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" nowrap="nowrap" align="left"><b>III.</b></td>
<td width="1%"> </td>
<td><b>Classification of Gain (Loss) Recognized in Income (Loss) on Derivative</b></td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" nowrap="nowrap" align="left"><b>IV.</b></td>
<td width="1%"> </td>
<td><b>Amount of Gain (Loss) Recognized in Income (Loss) on Derivative</b></td>
</tr>
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 8 - us-gaap:FairValueDisclosuresTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>8. Fair Value Measurements</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     FASB ASC Topic 820-10, <i>Fair Value Measurements and Disclosures </i>(“ASC Topic 820-10”) defines
fair value, establishes a framework for measuring fair value under generally accepted accounting
principles and expands disclosures about fair value measurements; however, it does not require any
new fair value measurements, rather, its application is made pursuant to other accounting
pronouncements that require or permit fair value measurements.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Fair value measurements are generally based upon observable and unobservable inputs.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs
reflect the Company’s view of market assumptions in the absence of observable market information.
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize
the use of unobservable inputs. ASC Topic 820-10 includes a fair value hierarchy that is intended
to increase consistency and comparability in fair value measurements and related disclosures. The
fair value hierarchy consists of the following three levels:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="10%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
<td width="79%"> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom">
<td valign="top">
<div style="margin-left:0px; text-indent:-0px">Level 1
</div></td>
<td> </td>
<td align="center" valign="top">—
</td>
<td> </td>
<td align="left" valign="top">Inputs are quoted prices in active markets for identical assets or liabilities.</td>
</tr>
<tr style="font-size: 6pt">
<td> </td>
</tr>
<tr valign="bottom">
<td valign="top">
<div style="margin-left:0px; text-indent:-0px">Level 2
</div></td>
<td> </td>
<td align="center" valign="top">—
</td>
<td> </td>
<td align="left" valign="top">Inputs are quoted prices for similar assets or liabilities in an active
market, quoted prices for identical or similar assets or liabilities in
markets that are not active, inputs other than quoted prices that are
observable and market-corroborated inputs which are derived principally from
or corroborated by observable market data.</td>
</tr>
<tr style="font-size: 6pt">
<td> </td>
</tr>
<tr valign="bottom">
<td valign="top">
<div style="margin-left:0px; text-indent:-0px">Level 3
</div></td>
<td> </td>
<td align="center" valign="top">—
</td>
<td> </td>
<td align="left" valign="top">Inputs are derived from valuation techniques in which one or more significant
inputs or value drivers are unobservable.</td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     As of September 30, 2011 the fair value of the warrants issued by Discovery Offshore was $2.0
million. The fair value of the warrants was determined using a Monte Carlo simulation based on the
following assumptions:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="88%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>September 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Strike Price (NOK)
</div></td>
<td> </td>
<td> </td>
<td align="right">11.50</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Target Price (NOK)
</div></td>
<td> </td>
<td> </td>
<td align="right">23.00</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Stock Value (NOK)
</div></td>
<td> </td>
<td> </td>
<td align="right">8.75</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected Volatility (%)
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">50.0</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Risk-Free Interest Rate (%)
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">0.96</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected Life of Warrants (years)
</div></td>
<td> </td>
<td> </td>
<td align="right">5.0</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Number of Warrants
</div></td>
<td> </td>
<td> </td>
<td align="right">5,000,000</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company used the historical volatility of companies similar to that of Discovery Offshore
to estimate volatility. The risk-free interest rate assumption was based on observed interest rates
consistent with the approximate life of the warrants. The stock price represents the closing stock
price of Discovery Offshore stock at September 30, 2011. The strike price, target price, expected
life and number of warrants are all contractual based on the terms of the warrant agreement.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table represents the Company’s derivative asset measured at fair value on a
recurring basis as of September 30, 2011 (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Quoted Prices in</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Total</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Active Markets for</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Identical Asset or</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Significant Other</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Significant</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Measurement</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Liability</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Observable Inputs</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unobservable Inputs</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>September 30, 2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>(Level 1)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>(Level 2)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>(Level 3)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Warrants
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,980</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,980</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     There were no derivative assets or liabilities outstanding at December 31, 2010.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table represents the Company’s assets measured at fair value on a non-recurring
basis for which an impairment measurement was made as of December 31, 2010 (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="40%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Total</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Quoted Prices in</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Significant</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Active Markets for</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Other</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Significant</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Measurement</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Identical Asset or</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Observable</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unobservable</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Liability</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Inputs</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Inputs</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Total</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>(Level 1)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>(Level 2)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>(Level 3)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Gain (Loss)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="21" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Property and Equipment, Net
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">27,848</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">27,848</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(125,136</td>
<td nowrap="nowrap">)</td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company incurred $125.1 million ($81.3 million, net of tax) in impairment of property and
equipment charges related to certain of its assets of which $2.4 million ($1.5 million, net of tax)
related to the discontinued operations of its Delta Towing segment. The property and equipment was
valued based on the discounted cash flows associated with the assets which included management’s
estimate of sales proceeds less costs to sell.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The carrying value and fair value of the Company’s equity investment in Discovery Offshore was
$34.9 million and $27.4 million at September 30, 2011, respectively. The fair value was calculated
using the closing price of Discovery Offshore shares converted to U.S. dollars using the exchange
rate at September 30, 2011.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Fair Value of Financial Instruments</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The carrying amounts of the Company’s financial instruments, which include cash and cash
equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities,
approximate fair values because of the short-term nature of the instruments.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The fair value of the Company’s 3.375% Convertible Senior Notes, 10.5% Senior Secured Notes
and term loan facility is estimated based on quoted prices in active markets. The fair value of the
Company’s 7.375% Senior Notes is estimated based on discounted cash flows using inputs from quoted
prices in active markets for similar debt instruments. The following table provides the carrying
value and fair value of the Company’s long-term debt instruments:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 30, 2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>December 31, 2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Carrying</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Carrying</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">(in millions)</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Term Loan Facility, due July 2013
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">456.5</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">436.8</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">475.2</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">443.7</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">10.5% Senior Secured Notes, due October 2017
</div></td>
<td> </td>
<td> </td>
<td align="right">293.5</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">287.8</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">292.9</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">245.1</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">3.375% Convertible Senior Notes, due June
2038
</div></td>
<td> </td>
<td> </td>
<td align="right">89.2</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">81.5</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">86.5</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">69.1</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">7.375% Senior Notes, due April 2018
</div></td>
<td> </td>
<td> </td>
<td align="right">3.5</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2.9</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3.5</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2.2</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>9. Long-Term Incentive Awards</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Stock-based Compensation</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company’s 2004 Long-Term Incentive Plan (the “2004 Plan”) provides for the granting of
stock options, restricted stock, performance stock awards and other stock-based awards to selected
employees and non-employee directors of the Company. At September 30, 2011, approximately 6.9
million shares were available for grant or award under the 2004 Plan, as amended in May 2011.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     During the nine months ended September 30, 2011, the Company granted 1.1 million time-based
restricted stock awards with a weighted average grant-date fair value per share of $5.01. There
were no stock options granted during the nine months ended September 30, 2011. The Company
recognized $1.2 million and $3.9 million in stock-based compensation expense during the three and
nine months ended September 30, 2011, respectively. The Company recognized $1.0 million and $2.8
million in stock-based compensation expense during the three and nine months ended September 30,
2010, respectively, which includes a reduction of $0.8 million and $2.8 million due to a change in
the Company’s estimated forfeiture rate, respectively.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     On March 6, 2011, the Compensation Committee of the Company’s Board of Directors approved
equity grants for certain of its executive officers which consisted of a time-based vesting
restricted stock award and a performance based restricted stock award. The grants vest one-third
per year on each of the first three anniversaries of the grant date; however, the vesting of the
performance grant is contingent upon meeting the established consolidated safety and EBITDA metrics
at a weighting of 50% each, with vesting prorated between threshold, target and maximum levels.
Threshold, target and maximum performance objectives have been established for each metric, with
the officer vesting 33% more shares at the maximum level, 33% less shares at the threshold level,
with vesting pro rated between levels, and no shares will be issued with respect to a particular
metric if the threshold performance objective is not met with respect to such metric. The target
number of performance-based restricted stock issuable under this award if conditions for
vesting are met is 479,183 shares. The fair value of these awards was based on the closing
price of the Company’s stock on the date of grant.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The unrecognized compensation cost related to the Company’s unvested stock options and
restricted stock grants, including performance-based restricted stock grants as of September 30,
2011, was $1.2 million and $5.8 million, respectively, and is expected to be recognized over a
weighted-average period of 0.8 years and 2.0 years, respectively.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Liability Retention Awards</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In December 2010, the Compensation Committee of the Company’s Board of Directors approved
retention and incentive arrangements for the Company’s Chief Executive Officer, consisting of three
separate awards.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Vesting under each award is conditioned upon continuous employment with the Company from the
date of grant until the earlier of a specified vesting date or a change in control of the Company.
Subject to the satisfaction of all vesting requirements, awards are payable in cash based on the
product of the number of shares of Common Stock specified in the award, the percentage of that
number of shares that vest under the award and the average price of the Common Stock for the 90
days prior to the date of vesting (“Average Share Price”).
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The grant date of each of the three awards is January 1, 2011. Vesting of any award and the
amount payable under any vested award do not affect vesting or the amount payable under any of the
other awards. Subject to vesting, all awards are payable in cash within thirty days of vesting. No
shares of common stock are issuable under any of the awards. These awards are accounted for under
stock-compensation principles of accounting as liability instruments. The fair value of these
awards is remeasured based on the awards’ estimated fair value at the end of each reporting period
and will be recorded to expense over the vesting period. At September 30, 2011, the Company’s
liability related to these awards was $0.6 million and is included in Other Liabilities on the
Consolidated Balance Sheets. Additionally, compensation expense of $0.6 million was recognized for
the nine months ended September 30, 2011. The three months ended September 30, 2011 included a
reduction to compensation expense of $0.1 million based on the fair value measurement at September
30, 2011. The unrecognized compensation cost related to these awards as of September 30, 2011 was
$1.8 million and is expected to be recognized over a weighted-average period of 2.3 years.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The first award is a Special Retention Agreement (the “Agreement”), which provides for a cash
payment based on 500,000 shares of the Company’s common stock, subject to vesting. Upon
satisfaction of vesting requirements, 100% of the amount under the Agreement becomes vested on
December 31, 2013 and the payout will equal the product of 500,000 and the lesser of the Average
Share Price and $10.00. If all of the requirements necessary for vesting of this award are not met,
no amounts become vested and no amount is payable. The fair value of this award is based on the
average price of the Common Stock for the 90 days prior to the end of the quarter or date of
vesting.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The second and third awards are performance awards under the 2004 Plan (“Performance Awards”).
Each Performance Award provides for a cash payment, subject to vesting, based on 250,000 shares of
the Company’s common stock. Upon satisfaction of vesting requirements, 100% of the first
Performance Award will vest on December 31, 2013, and 100% of the second Performance Award will
vest on March 31, 2014. Under each Performance Award, vesting is subject to the further requirement
that the Average Share Price is at least $5.00. Subject to the satisfaction of the vesting
requirements, the payout of each Performance Award shall be equal to the product of (1) 250,000,
(2) the Average Share Price or $10.00, whichever is less, divided by $10.00, and (3) the lesser of
the Average Share Price or $10.00. If the requirements necessary for vesting of a Performance Award
are met, the amount payable in cash under each of the Performance Awards shall be not less than
$625,000 and not more than $2,500,000. The fair value of these awards was determined at September
30, 2011 using a Monte Carlo simulation based on the following weighted-average assumptions:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="88%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>September 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Dividend Yield
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected Price Volatility
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">50</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Risk-Free Interest Rate
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">0.3</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Stock Price
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2.91</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Fair Value
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">0.74</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company used the historical volatility of its common stock to estimate volatility. The
dividend yield assumption was based on historical and anticipated dividend payouts. The risk-free
interest rate assumption was based on observed interest rates consistent with the approximate
vesting period. The stock price represents the closing price of the Company’s common stock at
September 30, 2011.
</div>
</div>
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>10. Supplemental Cash Flow Information</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company had non-cash investing activities related to its equity investment in Discovery
Offshore as 500,000 shares of Discovery Offshore valued at $1.0 million were received by the
Company as reimbursement for costs incurred and efforts expended in forming Discovery Offshore.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The following summarizes investing activities relating to the Seahawk Transaction integrated
into the Company’s operations for the period shown (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="88%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Nine Months</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>September 30, 2011</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Fair Value of Assets
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">160,770</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Common Stock Issuance
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(125,329</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total Liabilities
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(10,441</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash Consideration
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">25,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Nine Months Ended September 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">(In thousands)</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash paid (received), net during the period for:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Interest
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">41,972</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">40,210</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Income taxes
</div></td>
<td> </td>
<td> </td>
<td align="right">3,338</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">19,364</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>11. Income Tax</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company, directly or through its subsidiaries, files income tax returns in the United
States, and multiple state and foreign jurisdictions. The Company’s tax returns for 2005 through
2010 remain open for examination by the taxing authorities in the respective jurisdictions where
those returns were filed. Although, the Company believes that its estimates are reasonable, the
final outcome in the event that the Company is subjected to an audit could be different from that
which is reflected in its historical income tax provision and accruals. Such differences could have
a material effect on the Company’s income tax provision and net income in the period in which such
determination is made. In addition, certain tax returns filed by TODCO and its subsidiaries are
open for years prior to 2004, however TODCO tax obligations from periods prior to its initial
public offering in 2004 are indemnified by Transocean under the tax sharing agreement, except for
the Trinidad and Tobago jurisdiction. The Company’s Trinidadian tax returns are open for
examination for the years 2005 through 2010.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In January 2008, SENIAT, the national Venezuelan tax authority, commenced an audit for the
2003 calendar year, which was completed in the fourth quarter of 2008. The Company has not yet
received any proposed adjustments from SENIAT for that year.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In March 2007, a subsidiary of the Company received an assessment from the Mexican tax
authorities related to its operations for the 2004 tax year. This assessment contested the
Company’s right to certain deductions and also claimed it did not remit withholding tax due on
certain of these deductions. In 2008, the Mexican tax authorities commenced an audit for the 2005
tax year. During 2010, the Company effectively reached a compromise settlement of all issues for
2004—2007. The Company paid $11.6 million and reversed i) previously provided reserves and ii) an
associated tax benefit in the year ended December 31, 2010 which totaled $5.8 million.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Effective April 27, 2011 the Company completed the Seahawk Transaction. The Company’s
financial statements have been prepared assuming that this transaction should be characterized as a
purchase of assets for income tax purposes. Seahawk is currently in a Chapter 11 proceeding in
United States Bankruptcy Court. The resolution of the bankruptcy and future actions taken in the
reorganization of Seahawk’s operations may require that the transaction is instead treated by the
Company as a reorganization pursuant to IRC §368(a)(1)(G). Any resulting change, which is currently
indeterminable, to the Company’s financial position would be reflected in its financial statements
at that future date.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     As of September 30, 2011, the Company was in a net income tax payable position of $6.2
million which is included in Taxes Payable on the Consolidated Balance Sheets and as of December
31, 2010, the Company was in a net income tax receivable position of $5.6 million which is
included in Other on the Consolidated Balance Sheets.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 12 - us-gaap:SegmentReportingDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>12. Segments</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company reports its business activities in five business segments: (1) Domestic Offshore,
(2) International Offshore, (3) Inland, (4) Domestic Liftboats and (5) International Liftboats. The
financial information of the Company’s discontinued operations is not included in the results of
operations presented for the Company’s reporting segments (See Note 5). The Company eliminates
inter-segment revenue and expenses, if any.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The following describes the Company’s reporting segments as of September 30, 2011:
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Domestic Offshore </i>— includes 41 jackup rigs and two submersible rigs in the U.S. Gulf of
Mexico that can drill in maximum water depths ranging from 80 to 350 feet. Seventeen of the jackup
rigs are either working on short-term contracts or available for contracts, one is in the shipyard
and twenty-three are cold stacked. Both submersibles are cold stacked.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>International Offshore </i>— includes eight jackup rigs and one platform rig outside of the U.S.
Gulf of Mexico. The Company has two jackup rigs contracted offshore in Saudi Arabia, one jackup rig
contracted offshore in Vietnam, one jackup rig contracted offshore in India, one jackup rig
contracted offshore in the Democratic Republic of Congo and one platform rig under contract in
Mexico. The Company has one jackup rig contracted in Angola, however, it is currently preparing to
be transported to a shipyard in Mississippi to undergo repairs and is estimated to be out of
service for approximately six months. The Company has one jackup rig warm stacked and one jackup
rig cold stacked in Bahrain. In addition to owning and operating its own rigs, the Company has a
Construction Management Agreement and the Services Agreement with Discovery Offshore with respect
to each of the Rigs (See Note 3).
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Inland </i>— includes a fleet of six conventional and eleven posted barge rigs that operate
inland in marshes, rivers, lakes and shallow bay or coastal waterways along the U.S. Gulf Coast.
Three of the inland barges are either operating on short-term contracts or available and fourteen
are cold stacked.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Domestic Liftboats </i>— includes 41 liftboats in the U.S. Gulf of Mexico. Thirty-five are
operating or available and six are cold stacked.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>International Liftboats </i>— includes 24 liftboats. Twenty-one are operating or available for
contracts offshore West Africa, including five liftboats owned by a third party, one is cold
stacked offshore West Africa and two are operating or available for contracts in the Middle East
region.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company’s jackup rigs, submersible rigs and platform rigs are used primarily for
exploration and development drilling in shallow waters. The Company’s liftboats are self-propelled,
self-elevating vessels with a large open deck space, which provides a versatile, mobile and stable
platform to support a broad range of offshore maintenance and construction services throughout the
life of an oil or natural gas well.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Information regarding reportable segments is as follows (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="28%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px solid #000000"><b>Three Months Ended September 30, 2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px solid #000000"><b>Nine Months Ended September 30, 2011</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Income (Loss)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Depreciation</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Income (Loss)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Depreciation</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>from</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>&</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>from</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>&</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Revenue</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Operations</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Amortization</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Revenue</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Operations</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Amortization</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Domestic Offshore
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">60,246</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(12,824</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">17,977</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">142,688</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(55,121</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">49,920</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">International
Offshore
</div></td>
<td> </td>
<td> </td>
<td align="right">48,965</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">12,946</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">12,913</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">196,131</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">63,827</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">39,469</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Inland
</div></td>
<td> </td>
<td> </td>
<td align="right">8,124</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">923</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,310</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,251</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(7,649</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">11,338</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Domestic Liftboats
</div></td>
<td> </td>
<td> </td>
<td align="right">16,718</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">615</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,136</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">44,209</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(844</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">11,637</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">International
Liftboats
</div></td>
<td> </td>
<td> </td>
<td align="right">28,938</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">8,523</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,905</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">88,291</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">26,084</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">14,379</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td align="right">162,991</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">10,183</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">43,241</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">492,570</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">26,297</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">126,743</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(13,216</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">654</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(34,910</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">1,956</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total Company
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">162,991</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(3,033</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">43,895</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">492,570</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(8,613</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">128,699</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="28%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px solid #000000"><b>Three Months Ended September 30, 2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px solid #000000"><b>Nine Months Ended September 30, 2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Income (Loss)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Depreciation</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Income (Loss)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Depreciation</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>from</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>&</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>from</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>&</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Revenue</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Operations</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Amortization</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Revenue</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Operations</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Amortization</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Domestic Offshore
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">25,058</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(32,066</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">17,277</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">88,163</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(82,712</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">50,986</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">International
Offshore
</div></td>
<td> </td>
<td> </td>
<td align="right">74,429</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">26,893</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">14,404</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">221,364</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">73,616</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">43,808</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Inland
</div></td>
<td> </td>
<td> </td>
<td align="right">5,745</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(8,628</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">4,991</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">15,676</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(21,663</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">18,736</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Domestic Liftboats
</div></td>
<td> </td>
<td> </td>
<td align="right">24,612</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">9,424</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,314</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">53,950</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">9,851</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">11,182</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">International
Liftboats
</div></td>
<td> </td>
<td> </td>
<td align="right">27,765</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">9,431</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,199</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">80,914</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,227</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">13,258</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td align="right">157,609</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,054</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">44,185</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">460,067</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">319</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">137,970</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(8,895</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">797</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(28,855</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">2,412</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total Company
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">157,609</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(3,841</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">44,982</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">460,067</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(28,536</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">140,382</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Total Assets</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Domestic Offshore
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">891,593</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">772,950</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">International Offshore
</div></td>
<td> </td>
<td> </td>
<td align="right">740,054</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">712,988</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Inland
</div></td>
<td> </td>
<td> </td>
<td align="right">121,283</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">136,229</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Domestic Liftboats
</div></td>
<td> </td>
<td> </td>
<td align="right">84,064</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">86,013</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">International Liftboats
</div></td>
<td> </td>
<td> </td>
<td align="right">161,691</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">167,561</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Delta Towing
</div></td>
<td> </td>
<td> </td>
<td align="right">2,605</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">56,631</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate
</div></td>
<td> </td>
<td> </td>
<td align="right">52,735</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">62,937</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total Company
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,054,025</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,995,309</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
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<!-- Begin Block Tagged Note 13 - us-gaap:CommitmentsAndContingenciesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>13. Commitments and Contingencies</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Legal Proceedings</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company is involved in various claims and lawsuits in the normal course of business. As of
September 30, 2011, management did not believe any accruals were necessary in accordance with FASB
ASC 450-20, <i>Contingencies — Loss Contingencies</i>.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In connection with the July 2007 acquisition of TODCO, the Company assumed certain material
legal proceedings from TODCO and its subsidiaries.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In October 2001, TODCO was notified by the U.S. Environmental Protection Agency (“EPA”) that
the EPA had identified a subsidiary of TODCO as a potentially responsible party under CERCLA in
connection with the Palmer Barge Line superfund site located in Port Arthur, Jefferson County,
Texas. Based upon the information provided by the EPA and the Company’s review of its internal
records to date, the Company disputes the Company’s designation as a potentially responsible party
and does not expect that the ultimate outcome of this case will have a material adverse effect on
its consolidated results of operations, financial position or cash flows. The Company continues to
monitor this matter.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Robert E. Aaron et al. vs. Phillips 66 Company et al. Circuit Court, Second Judicial District,
Jones County, Mississippi. </i>This is the case name used to refer to several cases that have been
filed in the Circuit Courts of the State of Mississippi involving 768 persons that allege personal
injury or whose heirs claim their deaths arose out of asbestos exposure in the course of their
employment by the defendants between 1965 and 2002. The complaints name as defendants, among
others, certain of TODCO’s subsidiaries and certain subsidiaries of TODCO’s former parent to whom
TODCO may owe indemnity, and other unaffiliated defendant companies, including companies that
allegedly manufactured drilling related products containing asbestos that are the subject of the
complaints. The number of unaffiliated defendant companies involved in each complaint ranges from
approximately 20 to 70. The complaints allege that the defendant drilling contractors used
asbestos-containing products in offshore drilling operations, land based drilling operations and in
drilling structures, drilling rigs, vessels and other equipment and assert claims based on, among
other things, negligence and strict liability, and claims authorized under the Jones Act. The
plaintiffs seek, among other things, awards of unspecified compensatory and punitive damages. All
of these cases were assigned to a special master who has approved a form of questionnaire to be
completed by plaintiffs so that claims made would be properly served against specific defendants.
Approximately 700 questionnaires were returned and the remaining plaintiffs, who did not submit a
questionnaire reply, have had their suits dismissed without prejudice. Of the respondents,
approximately 100 shared periods of employment by TODCO and its former parent which could lead to
claims against either company, even though many of these plaintiffs did not state in their
questionnaire answers that the employment actually involved exposure to asbestos. After providing
the questionnaire, each plaintiff was further required to file a separate and individual amended
complaint naming only those defendants against whom they had a direct claim as identified in the
questionnaire answers. Defendants not identified in the amended complaints were dismissed from the
plaintiffs’ litigation. To date, three plaintiffs named TODCO as a defendant in their amended
complaints. It is possible that some of the plaintiffs who have filed amended complaints and have
not named TODCO as a defendant may attempt to add TODCO as a defendant in the future when case
discovery begins and greater attention is given to each individual plaintiff’s employment
background. The Company has not determined which entity would be responsible for such claims under
the Master Separation Agreement between TODCO and its former parent. More than three years has
passed since the court ordered that amended complaints be filed by each individual plaintiff, and
the original complaints. No additional plaintiffs have attempted to name TODCO as a defendant and
such actions may now be time-barred. The Company intends to defend vigorously and does not expect
the ultimate outcome of these lawsuits to have a material adverse effect on its consolidated
results of operations, financial position or cash flows.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Shareholder Derivative Suits</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <u><b>FCPA Litigation</b></u>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     On April 27, 2011, a shareholder derivative action was filed in the District Court of Harris
County, Texas, allegedly on behalf of and for the benefit of the Company, naming the Company as a
nominal defendant and certain of its officers and directors as defendants alleging, among other
claims, breach of fiduciary duty, abuse of control, waste of corporate assets, and unjust
enrichment. The petition alleges that the individual defendants allowed the Company to violate the
U.S. Foreign Corrupt Practices Act (“FCPA”) and failed to maintain internal controls and accounting
systems for compliance with the FCPA. Plaintiffs seek damages, restitution and injunctive and/or
equitable relief purportedly on behalf of the Company, certain corporate actions, and an award of
their costs and attorney’s fees.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     On October 19, 2011, the District
Court sustained special exceptions filed by the Company and the other defendants (collectively “Defendants”). The special exceptions
filed by the Defendants sought the dismissal of the action due to the plaintiff’s failure to plead sufficient facts giving rise to
a cause of action. The District Court ordered the action will be dismissed with prejudice if the plaintiff fails to amend his petition
by November 4, 2011 and plead sufficient facts giving rise to a cause of action against the Defendants.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <u><b>Say-on-Pay Litigation</b></u>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In June, two separate shareholder derivative actions were filed against the Company in
response to the Company’s failure to receive a majority advisory vote in favor of its 2010
executive compensation. On June 8, 2011, the first action was filed in the District Court of Harris
County, Texas, and on June 23, 2011, the second action was filed in the United States District
Court for the District of Delaware. Subsequently, on July 21, 2011, the plaintiff in the Harris County action filed a
concurrent action in the Federal District Court for the Southern District of Texas. Each action was
ostensibly filed on behalf of and for the benefit of the Company, naming the Company as a nominal
defendant and certain of its officers and directors, as well as its compensation consultant, as
defendants alleging, among other claims, breach of fiduciary duty and unjust enrichment. The
petitions allege that pay increases to the Company’s
executive officers in 2010 were unwarranted and violated Company policy. The plaintiffs in each
matter seek damages, injunctive and/or equitable relief purportedly on behalf of the Company,
certain corporate actions, and an award of their costs and attorney’s fees.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company does not expect the ultimate outcome of any of these shareholder derivative
lawsuits to have a material adverse effect on its consolidated results of operations, financial
position or cash flows.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company and its subsidiaries are involved in a number of other lawsuits, all of which have
arisen in the ordinary course of business. The Company does not believe that ultimate liability, if
any, resulting from any such other pending litigation will have a material adverse effect on its
business or consolidated financial statements.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company cannot predict with certainty the outcome or effect of any of the litigation
matters specifically described above or of any other pending litigation. There can be no assurance
that the Company’s belief or expectations as to the outcome or effect of any lawsuit or other
litigation matter will prove correct, and the eventual outcome of these matters could materially
differ from management’s current estimates.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Insurance</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company is self-insured for the deductible portion of its insurance coverage. Management
believes adequate accruals have been made on known and estimated exposures up to the deductible
portion of the Company’s insurance coverage. Management believes that claims and liabilities in
excess of the amounts accrued are adequately insured. However, the Company’s insurance is subject
to exclusions and limitations, and there is no assurance that such coverage will adequately protect
the Company against liability from all potential consequences. In addition, there is no assurance
of renewal or the ability to obtain coverage acceptable to the Company.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company maintains insurance coverage that includes coverage for physical damage, third
party liability, workers’ compensation and employer’s liability, general liability, vessel
pollution and other coverages.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">     In April 2011, the Company completed the annual renewal of all of its key insurance policies.
The Company’s primary marine package provides for hull and machinery coverage for substantially all
of the Company’s rigs and liftboats up to a scheduled value of each asset. The total maximum amount
of coverage for these assets is $1.6 billion, including the newly acquired Seahawk units. The
marine package includes protection and indemnity and maritime employer’s liability coverage for
marine crew personal injury and death and certain operational liabilities, with primary coverage
(or self-insured retention for maritime employer’s liability coverage) of $5.0 million per
occurrence with excess liability coverage up to $200.0 million. The marine package policy also
includes coverage for personal injury and death of third parties with primary and excess coverage
of $25 million per occurrence with additional excess liability coverage up to $200 million, subject
to a $250,000 per-occurrence deductible. The marine package also provides coverage for cargo and
charterer’s legal liability. The marine package includes limitations for coverage for losses caused
in U.S. Gulf of Mexico named windstorms, including an annual aggregate limit of liability of $75.0
million for property damage and removal of wreck liability coverage. The Company also procured an
additional $75.0 million excess policy for removal of wreck and certain third-party liabilities
incurred in U.S. Gulf of Mexico named windstorms. Deductibles for events that are not caused by a
U.S. Gulf of Mexico named windstorm are 12.5% of the insured drilling rig values per occurrence,
subject to a minimum of $1.0 million, and $1.0 million per occurrence for liftboats. The deductible
for drilling rigs and liftboats in a U.S. Gulf of Mexico named windstorm event is $25.0 million.
Vessel pollution is covered under a Water Quality Insurance Syndicate policy (“WQIS Policy”)
providing limits as required by applicable law, including the Oil Pollution Act of 1990. The WQIS
Policy covers pollution emanating from the Company’s vessels and drilling rigs, with primary limits
of $5 million (inclusive of a $3.0 million per-occurrence deductible) and excess liability coverage
up to $200 million.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">     Control-of-well events generally include an unintended flow from the well that cannot be
contained by equipment on site (e.g., a blow-out preventer), by increasing the weight of the
drilling fluid or that does not naturally close itself off through what is typically described as
bridging over. The Company carries a contractor’s extra expense policy with $25.0 million primary
liability coverage for well control costs, expenses incurred to redrill wild or lost wells and
pollution, with excess liability coverage up to $200 million for pollution liability that is
covered in the primary policy. The policies are subject to exclusions, limitations, deductibles,
self-insured retention and other conditions. In addition to the marine package, the Company has
separate policies providing coverage for onshore foreign and domestic general liability, employer’s
liability, auto liability and non-owned aircraft liability, with customary deductibles and
coverage.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company’s drilling contracts provide for varying levels of indemnification from its
customers and in most cases, may require the Company to indemnify its customers for certain
liabilities. Under the Company’s drilling contracts, liability with respect to personnel and
property is customarily assigned on a “knock-for-knock” basis, which means that the Company and its
customers assume liability for the Company’s respective personnel and property, regardless of how
the loss or damage to the personnel and property may be caused. The Company’s customers typically
assume responsibility for and agree to indemnify the Company from any loss or liability resulting
from pollution or contamination, including clean-up and removal and third-party damages arising
from operations under the contract and originating below the surface of the water, including as a
result of blow-outs or cratering of the well (“Blowout Liability”). The customer’s assumption for
Blowout Liability may, in certain circumstances, be limited or could be determined to be
unenforceable in the event of the gross negligence, willful misconduct or other egregious conduct
of the Company. The Company generally indemnifies the customer for the consequences of spills of
industrial waste or other liquids originating solely above the surface of the water and emanating
from its rigs or vessels.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">     In 2011, in connection with the renewal of certain of its insurance policies, the Company
entered into an agreement to finance a portion of its annual insurance premiums. Approximately
$25.8 million was financed through this arrangement, of which $13.0 million was outstanding as of
September 30, 2011. The interest rate on the note is 3.59% and it is scheduled to mature in March
2012.
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<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Surety Bonds, Bank Guarantees and Unsecured Letters of Credit</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company had $17.6 million outstanding related to surety bonds at September 30, 2011. The
surety bonds guarantee the Company’s performance as it relates to its drilling contracts and other
obligations in various jurisdictions. These obligations could be called at any time prior to the
expiration dates. The obligations that are the subject of the surety bonds are geographically
concentrated in Mexico and the U.S.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company had $1.0 million in unsecured bank guarantees and a $0.1 million unsecured letter
of credit outstanding at September 30, 2011.
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<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Sales Tax Audits</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Certain of the Company’s legal entities obtained in the TODCO acquisition are under audit by
various taxing authorities for several prior-year periods. These audits are ongoing and the Company
is working to resolve all relevant issues, however, the Company has accrued approximately $5.9
million, which is included in Accrued Liabilities on the Consolidated Balance Sheets, as of
September 30, 2011 and December 31, 2010, respectively, while the Company provides additional
information and responds to auditor requests.
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<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>14. Accounting Pronouncements</b>
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<div align="left" style="font-size: 10pt; margin-top: 6pt">     In May 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-04, <i>Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs </i>(“ASU
2011-04”) which changes the wording used to describe many of the requirements in U.S. GAAP for
measuring fair value and disclosing information about fair value measurements. Some of the
amendments clarify the FASB’s intent about the application of existing fair value measurement
requirements while other amendments change a particular principle or requirement for measuring fair
value or for disclosing information about fair value measurements. The amendments in this ASU are
effective prospectively for interim and annual periods beginning after December 15, 2011, with no
early adoption permitted. The Company does not expect the adoption of this standard to have a
material impact on its consolidated financial statements.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">     In June 2011, the FASB issued ASU No. 2011-05, <i>Presentation of Comprehensive Income </i>(“ASU
2011-05”), which eliminates the option to present components of other comprehensive income as part
of the statement of changes in stockholders’ equity. The amendments in this standard require that
an entity present the total of comprehensive income, the components of net income, and the
components of other comprehensive income in a single continuous statement of comprehensive income
or in two separate but consecutive statements. Under either method, the entity is required to
present on the face of the financial statements reclassification adjustments for items that are
reclassified from other comprehensive income to net income in the statement(s) where the components
of net income and the components of other comprehensive income are presented. For public entities,
the amendments in this ASU are effective for fiscal years, and interim periods within those years,
beginning after December 15, 2011 and are to be applied retrospectively, with early adoption
permitted. The Company does not expect the adoption of this standard to have a material impact on
its consolidated financial statements.
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