construction. Analysts have reported some offshore vessel construction contract cancellations as a result of  the foregoing factors, which may reduce the ultimate number of vessels built and delivered.  The company’s revenues in both the International and United States segments are driven primarily by the  company’s fleet size, vessel utilization and day rates. Because a sizeable portion of the company’s  operating costs and its depreciation does not change proportionally with changes in revenue, the company’s  operating profit is largely dependent on revenue levels. Operating costs consist primarily of crew costs, repair and maintenance, insurance and loss reserves, fuel,  lube oil and supplies and vessel operating lease expense. Fleet size, fleet composition, geographic areas of operation and the supply and demand for marine  personnel are the major factors which affect overall crew costs in both the International and United States  segments. In addition, the company’s newer, more technologically sophisticated anchor handling towing  supply vessels and platform supply vessels generally require a greater number of specially trained fleet  personnel than the company’s older, smaller vessels. The company believes that competition for skilled  crew personnel may again intensify, particularly in international markets, as new-build support vessels  currently under construction enter the worldwide vessel population. If competition for personnel intensifies,  the company’s crew costs will likely increase.  The timing and amount of repair and maintenance costs are influenced by customer demand, vessel age  and safety and inspection drydockings mandated by regulatory agencies. A certain number of drydockings  are required within a given period to meet regulatory requirements. Drydocking costs are incurred only if the  company believes a drydocking can be justified economically, taking into consideration the vessel’s age,  physical condition and future marketability. If the company elects to forego a required drydocking, the  company will stack and possibly sell the vessel, as it is not permitted to work without currently valid  regulatory certifications. When the company drydocks a productive vessel, the company not only foregoes  vessel revenues and incurs drydocking cost, but also continues to incur vessel operating costs and vessel  depreciation. In any given period, downtime associated with drydockings and major repairs and maintenance can have a significant effect on the company’s revenues and operating costs. At times, drydockings take on an increased importance to the company and its financial performance. The  company’s older vessels require more frequent and more expensive repair and drydockings, while some of  its vessels built after 2000 are now experiencing their first or second required regulatory drydockings. Size  and complexities of many of the new vessels also result in expensive drydocking costs, even in the early  years of the vessels lives. Conversely, when the company stacks vessels, the number of drydockings in any  period could decline. The combination of these factors can affect drydocking costs and can incrementally  increase the volatility of the company’s operating revenues and operating costs, thus making period-to- period comparisons more difficult. Although the company attempts to efficiently manage its fleet drydocking  schedule to minimize any disruptive effect on its revenues and costs, inflationary pressures on shipyard  pricing experienced in recent years, and the heavy workloads at the shipyards, resulted in increased  drydocking costs and increased days off hire at shipyards (thereby, increasing the company’s loss of  revenue on the drydocked vessel). The company cannot predict if the drydocking situation will improve in  the foreseeable future. If there is no improvement, the company expects that the timing of drydockings in the  future will result in continued quarterly volatility in repair and maintenance costs and loss in revenue. Fuel  and lube costs can also fluctuate in any given period depending on the number and distance of vessel  mobilizations that occur.  Insurance and loss reserves costs are dependent on a variety of factors, including the company’s safety  record and the cost of insurance, and can fluctuate from time to time. The company's vessels are generally  insured for up to estimated fair market value in order to cover damage or loss resulting from marine  casualties, adverse weather conditions, mechanical failure, collisions, and property losses to the vessel. The company also incurs vessel operating costs which are aggregated under the “other” vessel operating  cost heading. These costs consist of brokers’ commissions, training costs and other miscellaneous costs.  Principal Factors That Drive Our Revenues Principal Factors That Drive Our Operating Costs  -32- 