We provide marine support and transportation services to companies involved in the offshore exploration and production of oil and natural gas. Our vessels transport drilling materials, supplies and personnel to offshore facilities, as well as move and position drilling structures. A substantial portion of our operations are international. Our fleet has grown in both size and capability, to our present number of 87 active vessels, through strategic acquisitions and the new construction of technologically advanced vessels, partially offset by dispositions of certain older, less profitable vessels. At July 24, 2012, our active fleet includes 71 owned vessels and 16 managed vessels.

Our results of operations are affected primarily by day rates, fleet utilization and the number and type of vessels in our fleet. Utilization and day rates, in turn, are influenced principally by the demand for vessel services from the offshore exploration and production sectors of the oil and natural gas industry. The supply of vessels to meet this fluctuating demand is related directly to the perception of future activity in both the drilling and production phases of the oil and natural gas industry as well as the availability of capital to build new vessels to meet the changing market requirements. From time to time, we bareboat charter vessels with revenue and operating expenses reported in the same income and expense categories as our owned vessels. The chartered vessels, however, incur bareboat charter fees instead of depreciation expense. Bareboat charter fees are generally higher than the depreciation expense on owned vessels of similar age and specification. The operating income realized from these vessels is therefore adversely affected by the higher costs associated with the bareboat charter fees. These vessels are included in calculating fleet day rates and utilization in the applicable periods.

We also provide management services to other vessel owners for a fee. We do not include charter revenue and vessel expenses of these vessels in our operating results; however, management fees are included in operating revenue. These vessels are excluded for purposes of calculating fleet rates per day worked and utilization in the applicable periods.

The operations of our fleet may be subject to seasonal factors. Operations in the North Sea are often at their highest levels from April to August and at their lowest levels from November to February. Operations in our other areas, although involving some seasonal factors, tend to remain more consistent throughout the year.

Our operating costs are primarily a function of fleet configuration. The most significant direct operating cost is wages paid to vessel crews, followed by maintenance and repairs and insurance. Generally, fluctuations in vessel utilization have little effect on direct operating costs in the short term and, as a result, direct operating costs as a percentage of revenue may vary substantially due to changes in day rates and utilization.

In addition to direct operating costs, we incur fixed charges related to (i) the depreciation of our fleet, (ii) costs for routine drydock inspections,
(iii) modifications designed to ensure compliance with applicable regulations, and (iv) maintaining certifications for our vessels with various international classification societies. The number of drydockings and other repairs undertaken in a given period generally determines our maintenance and repair expenses. The demands of the market, the expiration of existing contracts, the start of new contracts, seasonal factors and customer preferences influence the timing of drydocks. During the first six months of 2012, we completed 317 drydock days, compared to 319 drydock days completed in the same period last year.

Critical Accounting Policies

There have been no changes to the critical accounting policies used in our reporting of results of operations and financial position. For a discussion of our critical accounting policies see Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended December 31, 2011.

Results of Operations

The table below sets forth, by region, the average day rates and utilization for
our vessels and the average number of vessels owned or chartered during the
periods indicated. This fleet generates substantially all of our revenues and
operating profit. We use the information that follows to evaluate the
performance of our business.



                                        Three Months Ended            Six Months Ended
                                             June 30,                     June 30,
                                        2012           2011          2012          2011
    Revenues by Region (000's) (a):
    North Sea Based Fleet (c)         $  45,376      $ 43,836      $ 83,039      $ 79,235
    Southeast Asia Based Fleet           15,041        15,678        29,266        31,213
    Americas Based Fleet                 44,467        37,397        80,014        67,752

    Rates Per Day Worked (a) (b):
    North Sea Based Fleet (c)         $  21,231      $ 20,014      $ 20,318      $ 18,951
    Southeast Asia Based Fleet           14,110        15,228        14,219        15,238
    Americas Based Fleet                 16,761        14,217        16,239        14,207

    Overall Utilization (a) (b):
    North Sea Based Fleet                  93.0 %        94.1 %        90.4 %        90.6 %
    Southeast Asia Based Fleet             80.5 %        83.0 %        79.3 %        83.1 %
    Americas Based Fleet                   90.2 %        84.3 %        81.9 %        77.4 %

    Average Owned Vessels (a) (d):
    North Sea Based Fleet (c)              24.0          25.0          24.0          25.0
    Southeast Asia Based Fleet             15.0          14.0          14.7          14.0
    Americas Based Fleet                   32.7          35.0          33.5          35.0

    Total                                  71.7          74.0          72.2          74.0

(a) Owned vessels.

(b) Rate per day worked is defined as total charter revenues divided by number of days worked. Utilization rate is defined as the total days worked divided by total days of availability in the period.

(c) Revenues for vessels in the North Sea based fleet are primarily earned in Pound Sterling (GBP), Norwegian Kroner (NOK) and Euros, and have been converted to U.S. Dollars (US$) at the average exchange rate for the period. See Currency Fluctuations and Inflation below for exchange rates.

(d) Average number of vessels is calculated based on the aggregate number of vessel days available during each period divided by the number of calendar days in such period. Includes owned and bareboat vessels only, and is adjusted for vessel additions and dispositions occurring during each period.

Comparison of the Three Months Ended June 30, 2012 with the Three Months Ended June 30, 2011

For the quarter ended June 30, 2012, net income was $14.1 million, or $0.53 per diluted share on revenues of $104.9 million. For the same 2011 period, net income was $13.3 million, or $0.51 per diluted share on revenues of $96.9 million.

Our revenues for the quarter ended June 30, 2012 increased $8.0 million or 8.2% compared to the second quarter of 2011. An increase in average day rates from $16,508 in the second quarter of 2011 to $17,821 in the current year quarter increased revenue by $11.3 million, which was offset by currency effects that negatively impacted revenue by $1.8 million. Increased capacity during the quarter contributed an additional $0.3 million. Overall utilization increased from 87.4% in the prior year quarter to 89.1% in the current year quarter, however due to the mix of days worked associated with vessels with lower day rates revenue was negatively impacted by $1.8 million.

Operating income for the period was $25.2 million compared to $20.4 million for the prior year quarter. The increase is due primarily to the increase in revenue, offset by higher direct operating cost and higher drydock expense. Adding to the increase in quarterly income was the gain on sale related to two vessels of approximately $3.7 million. General and administrative expense was higher than the 2011 quarter by $1.1 million, due mainly to an increase in salaries and benefits and higher professional fees.

North Sea

Revenues in the North Sea region increased by $1.5 million, or 3.5%, to $45.4 million in the second quarter of 2012 compared to the same period of 2011. Approximately $4.7 million of the increase was a result of increased dayrates from $20,014 in 2011 to $21,231 in the current year quarter. The strengthening of the U.S. Dollar decreased revenue by $1.7 million. In addition utilization rates decreased slightly from 94.1% in the second quarter of 2011 to 93.0% in the current year quarter, which decreased revenue by $0.5 million. Capacity also had a negative impact to revenue of $1.0 million, resulting from the effect of a sale of a vessel in 2011. Operating income increased by $1.3 million compared to the prior year quarter due to the increase in revenue. Drydock and direct operating expenses in the second quarter of 2012 were essentially unchanged from the prior year quarter. General and administrative expense increased by $0.7 million due to mainly higher salaries and benefits.

Southeast Asia

Revenues for our Southeast Asia region decreased from the prior year quarter by $0.6 million, or 4.1%, to $15.0 million. The decrease was primarily attributable to a decrease in day rates from $15,228 in the prior year quarter to $14,110 in the current quarter, which reduced revenue by $0.3 million. Utilization for the second quarter of 2012 decreased from 83.0% to 80.5% in the current quarter reducing revenue by $1.8 million. Capacity increased revenue by $1.5 million as a result of the arrival of one vessel from our Americas region in the current quarter. Operating income for the region was $7.0 million in the second quarter of 2012 compared to $7.8 million in the prior year quarter. The decrease is due mainly to the decline in revenue coupled with an increase in direct operating expense due to the costs associated with mobilizing the vessel from our Americas region. This is offset by a decrease in drydock expense due to fewer drydock days incurred during the current year quarter. General and administrative expense was slightly higher from the prior year quarter.

Americas

Revenues in the Americas region increased by $7.1 million, or 18.9%, to $44.5 million in the second quarter of 2012 compared to the same prior year quarter. Day rates increased from $14,217 in 2011 to $16,761 in the current quarter, which increased revenue by $6.7 million. Utilization for the second quarter of 2012 increased from 84.3% to 90.2% increasing revenue by $2.6 million. Capacity decreased revenue by $2.2 million as a result of the departure of one vessel to our Southeast Asia region and the net effect of vessel purchases and sales in the second quarter of 2012. Operating income for the region was $9.8 million in the second quarter of 2012 compared to $5.5 million in the prior year quarter. The increase is due mainly to the increase in revenue coupled with the gain on the sale of two vessels in the region. This increase was offset by an increase in drydock expense due to more drydock days incurred during the current year quarter. General and administrative expense increased by $0.6 million from the prior year quarter due mainly to higher salaries, benefits and professional fees.

Other

Other expenses in the second quarter of 2012 increased by $2.6 million compared to the prior year quarter. The increase was due primarily to the $1.7 million loss on the early extinguishment of the Old Notes and foreign currency losses of $1.6 million offset by the decrease in interest expense resulting from higher capitalized interest.

Income Taxes

Our effective tax rate for the second quarter of 2012 was 15.8% excluding unusual items. This compares to an 8.4% effective tax rate in the second quarter of 2011, excluding unusual items. The change in the effective tax rate from the prior year was primarily attributable to a change in the mix of earnings between our higher and lower tax jurisdictions.

Comparison of the Six Months Ended June 30, 2012 with the Six Months Ended June 30, 2011

For the six months ended June 30, 2012 net income was $11.2 million, or $0.42 per diluted share on revenues of $192.3 million. During the same period in 2011, net income was $12.1 million or $0.46 per diluted share, on revenues of $178.2 million.

Revenue increased $14.1 million period over period due mainly to higher dayrates of $17,308 in 2012 compared to $16,153 in 2011 which had a positive impact to revenue of $15.9 million. Capacity also had a positive impact to revenue of $1.1 million as we incurred one more work day in the year and the net effect of the purchase and sale of vessels. The strengthening of the U.S. Dollar negatively impacted revenue by $2.3 million. Average utilization rates increased overall from 83% in 2011 to 84.2% in 2012, however due to the mix of days worked associated with vessels with lower day rates the effect reduced revenue by $0.6 million.

Operating income for the six-month period ended June 30, 2012 was $31.7 million compared to $24.8 million in 2011. The increase is primarily due to increased revenue and a $4.8 million gain on three vessel sales, offset by higher direct operating expenses and drydock expense. General and administrative expense was higher by $1.8 million than the 2011 period due primarily to higher salaries and benefits.

North Sea

North Sea revenue increased by $3.8 million, or 4.8%, in the first six months of 2012 compared to 2011. The increase in average day rates from $18,951 in 2011 to $20,318 in 2012, offset by the currency effects of the strengthening U.S. Dollar, contributed $5.0 million to the increase in revenue. In addition, average utilization rates decreased from 90.6% in 2011 to 90.4% in 2012, however the impact to revenue was positive by $0.4 million due to the mix of days worked associated with vessels with higher day rates. A reduction in capacity due to the 2011 vessel sale decreased revenue by $1.6 million compared to the prior period. Operating income increased by $3.3 million resulting primarily from the increased revenue coupled with the decrease in direct operating expenses and depreciation expense. Drydock expense increased by $0.3 million from the 2011 period due to higher drydock costs per day. General and administrative expense was higher by $1.1 million than the 2011 period due mainly to higher salaries and benefits.

Southeast Asia

Revenue for our Southeast Asia based fleet decreased by $1.9 million, or 6.2%, from $31.2 million in the first six months of 2011 to $29.3 million in 2012. The decrease was attributable to a decrease in average day rates from $15,238 in 2011 to $14,219 in 2012, which decreased revenue by $1.1 million. Utilization also decreased from 83.1% in 2011 to 79.3% in the current year, negatively impacting revenue by $2.4 million. The increase in fleet size as a result of the arrival of one vessel from the Americas region in 2012 positively contributed $1.6 million to revenue. Operating income decreased from $17.2 million in 2011 to $11.8 million this year. The decrease resulted mainly from the lower revenues coupled with higher direct operating and depreciation expense due to the arrival of the additional vessel, and higher drydock costs, as a result of higher drydock costs per day. General and administrative expense increased slightly from the 2011 period, due mainly to higher salaries and benefits.

Americas

Our Americas region revenue increased $12.3 million, or 18.1%, from $67.8 million in 2011 to $80.0 million in 2012. The increase was due mainly to the increase in average day rates from $14,207 in 2011 to $16,239 in 2012, contributing $9.9 million to revenue. Utilization also increased from 77.4% to 81.9% in the current year resulting in a $6.1 million increase in revenues. Capacity negatively impacted revenue by $3.7 million due to the departure of one vessel to our Southeast Asia region in the first quarter, partially offset by the net effect of a vessel purchase and vessel sales in the year. Operating income of $11.3 million increased $8.9 million from the 2011 period. The increase is due primarily to the increase in revenue coupled with the gains recognized from the sale of three vessels in the region during 2012. This was offset by higher direct operating expenses, mainly crew salaries and benefits and higher drydock expense as a result of more drydock days. General and administrative expense also increased by $0.9 million due primarily to the increase in salaries and benefits.

Other

In the six months ended June 30, 2012, other expenses totaled $18.2 million, an increase of $7.0 million from 2011. The increase was due primarily to the $3.6 million loss on the early extinguishment of the Old Notes and increased interest expense of $2.3 million due mainly to the acceleration of recognition of our unrealized losses in OCI related to interest rate swaps into earnings partially offset by higher capitalized interest. Foreign currency losses were higher by $1.0 million compared to the prior year period.

Income Taxes

Our effective tax rate for the first half of 2012 was 16.8% excluding unusual items. This compares to an 8.3% effective tax rate for the first six months of 2011. The change in the effective tax rate from the prior year was primarily attributable to a change in the mix of earnings between our higher and lower tax jurisdictions.

Liquidity, Capital Resources and Financial Condition

Our ongoing liquidity requirements are generally associated with our need to service debt, fund working capital, maintain our fleet, finance the construction of new vessels and acquire or improve equipment or vessels. We plan to continue to be active in the acquisition of additional vessels through both the resale market and new construction. Bank financing, equity capital and internally generated funds have historically provided funding for these activities. Internally generated funds are directly related to fleet activity and vessel day rates, which are generally dependent upon the demand for our vessels which is ultimately determined by the supply and demand for offshore drilling for crude oil and natural gas.

In the first quarter of 2012, we issued $300.0 million of 6.375% Senior Notes due in 2022. The Senior Notes will pay interest on March 15 and September 15. The proceeds from this debt issuance were used to pay down borrowings under the Old Notes and the Facility Agreement. The issuance of Senior Notes has allowed us to extend a substantial portion of our debt maturities for ten years and to require only interest payments in the interim.

In the third quarter of 2011, our Board of Directors approved the initiation of a new-build construction program. We began the program in the North Sea region where we contracted with three shipyards to build a total of six new platform supply vessels ("PSV"). In late 2011, we exercised an option with one of the shipyards to build an additional PSV. The estimated cost of these seven PSV's is $288.0 million. In June 2012, we signed an agreement with a U.S. shipyard to build two U.S. flagged PSVs for the U.S. Gulf of Mexico. In July 2012, we signed agreements with another U.S. shipyard to build an additional two U.S. flagged PSV's. The estimated total cost of these four PSV's is approximately $168.0 million.

We are required to make expenditures for the certification and maintenance of our vessels. We expect our drydocking expenditures to be approximately $29.0 million in 2012, of which we have expensed $13.8 million in the first half of 2012.

Net working capital at June 30, 2012, was $202.7 million. Net cash provided by operating activities was $32.6 million for the three months ended June 30, 2012. Net cash used in investing activities was $28.1 million. Net cash used in financing activities was $79.1 million.

Net cash provided by operating activities was $44.0 million for the six months ended June 30, 2012. Net cash used in investing activities was $57.4 million. Net cash provided by financing activities was $30.8 million.

At June 30, 2012, we had approximately $ 146.5 million of cash on hand and $6.7 million drawn under our Secured Reducing Revolving Loan Facility, $40.0 million outstanding under our Facility Agreement and $300.0 million outstanding on our newly issued Senior Notes. At June 30, 2012, we had approximately $138.3 million of borrowing capacity under our Secured Reducing Revolving Credit Facility.

As of June 30, 2012, approximately 84% of our cash and cash equivalents were held by our foreign subsidiaries. It is our intention to permanently reinvest all of our earnings generated outside the U.S. prior to December 31, 2011 that through that date had not been remitted (unremitted earnings), and as such we have not provided for U.S. income tax expense on these unremitted earnings.

In recent years, we repatriated cash from our foreign subsidiaries from current year foreign earnings and recognized U.S. tax expense, net of available credits, on those occasions. The incremental tax rate associated with these repatriations is approximately 30% with no U.S. cash tax requirement due to utilization of U.S. net operating losses. If any portion of the unremitted earnings were ever foreseen to not be permanently reinvested outside the U.S., or if we elect to repatriate a portion of current year foreign earnings, U.S. income tax expense would be required to be recognized and that expense could be material. Although subject to certain limitations, our U.S. net operating loss carryforwards and foreign tax credit carryforwards could be used to reduce a portion or all of the U.S. cash tax requirements of any such future foreign cash repatriations.

We anticipate that cash on hand, future cash flow from operations for 2012, and access to our revolving credit facility will be adequate to fund our new-build construction program, to repay our debts due and payable during such period, to complete scheduled drydockings, to make normal recurring capital additions and improvements and to meet operating and working capital requirements. This expectation, however, is dependent upon the success of our operations.

Currency Fluctuations and Inflation

A majority of our operations are international; therefore we are exposed to currency fluctuations and exchange rate risks. In areas where currency risks are potentially high, we normally accept only a small percentage of charter hire in local currency, with the remainder paid in U.S. Dollars. Operating costs are substantially denominated in the same currency as charter hire in order to reduce the risk of currency fluctuations. Charters for vessels in our North Sea fleet are primarily denominated in Pounds Sterling (GBP), with a portion denominated in Norwegian Kroner (NOK) or Euros. The North Sea fleet generated 43.3% of our total consolidated revenue and $14.3 million in operating income for the three months ended June 30, 2012, and 43.2% of our total consolidated revenue and $20.0 million in operating income for the six months ended June 30, 2012. Charters in our Americas fleet can be denominated in Brazilian Reais (BRL) and charters in our Southeast Asia fleet can be denominated in Singapore Dollars (SGD). In the second quarter of 2012, the exchange rates of GBP, NOK, Euros, BRL and SGD against the U.S. Dollar averaged as follows:

                            Three Months Ended          Six Months Ended
                                 June 30,                   June 30,
                             2012          2011         2012         2011
                                  1 US$=                     1 US$=
                   GBP         0.632        0.613         0.634       0.618
                   NOK         5.892        5.437         5.838       5.577
                   Euro        0.790        0.695         0.771       0.712
                   BRL         1.958        1.594         1.857       1.630
                   SGD         1.264        1.216         1.264       1.258

Our outstanding debt is denominated in U.S. Dollars, but a substantial portion of our revenue is generated in currencies other than the U.S. Dollar. We have evaluated these conditions and have determined that it is not in our best interest to use any financial instruments to hedge this exposure under present conditions. Our strategy is in part based on a number of factors including the following:

• the cost of using hedging instruments in relation to the risks of currency fluctuations;

• the propensity for adjustments in these foreign currency denominated vessel day rates over time to compensate for changes in the purchasing power of these currencies as measured in U.S. Dollars;

• the level of U.S. Dollar-denominated borrowings available to us; and

• the conditions in our U.S. Dollar-generating regional markets.

One or more of these factors may change and, in response, we may begin to use financial instruments to hedge risks of currency fluctuations. We will from time to time hedge known liabilities denominated in foreign currencies to reduce the effects of exchange rate fluctuations on our financial results, such as a fair value hedge associated with the construction of vessels. In this regard, in June 2012, we entered into forward currency contracts to specifically hedge the foreign currency exposure related to firm contractual commitments in the form of future payments for the construction of new vessels. As a result, by design, there was exact offset between the gain or loss exposure in the related underlying contractual commitment. There was a $0.3 million outstanding liability on these contracts at June 30, 2012. We do not use foreign currency forward contracts for trading or speculative purposes.

Reflected in the accompanying consolidated balance sheet at June 30, 2012, is $34.5 million in accumulated OCI primarily relating to the change in exchange rates at June 30, 2012 in comparison with the exchange rates when we invested capital in these markets. Accumulated OCI related to the changes in foreign currency exchange rates was $34.6 million at June 30, 2012 and also included a loss of $0.1 million related to our cash flow hedges. Changes in accumulated OCI are non-cash items that are primarily attributable to investments in vessels and U.S. Dollar based capitalization between our parent company and our foreign subsidiaries. The current year activity reflects the changes in the U.S. Dollar compared to the functional currencies of our major operating subsidiaries, particularly in the U.K. and Norway.

To date, general inflationary trends have not had a material effect on our operating revenues or expenses.

Off-Balance Sheet Arrangements

We have evaluated our off-balance sheet arrangements, and have concluded that we . . .