Overview

Year-to-Date Performance and Outlook

We earned net income of $17.5 million for the six months ended June 30, 2008 compared to $41.6 million for the same period in 2007. The harsh weather conditions in the Gulf of Mexico experienced in the first quarter of 2008 continued into the first two months of the second quarter of 2008. These offshore conditions adversely impacted our overall U.S. fleet utilization, particularly our construction barges and our surface diving fleet. The majority of the U.S. fleet returned to work offshore in June and we expect higher vessel utilization during the second half of the year. Our tendering activity levels remain strong, both U.S. and internationally, as evidenced by our growing backlog of awarded work from $450 million at April 30, 2008 to $484 million at June 30, 2008. The underlying fundamentals which support our business model, in particular the present commodity price environment and our customers' expected upstream capital spending levels, remain strong.

Backlog

As of June 30, 2008, our backlog supported by written agreements or contract awards totaled approximately $484 million, compared to approximately $175 million as of December 31, 2007. Prior to our acquisition of Horizon, our backlog had not been significant. Approximately 70% of our backlog is expected to be performed during 2008. As we secure additional international projects, which tend to have longer lead times and result in earlier awards, our backlog may increase. Because of the significant percentage of our revenues derived from the spot market, contract lead times, project durations, and seasonal issues, we do not consider backlog amounts to be a reliable indicator of annual revenues.

Recent Acquisitions

On December 11, 2007, we completed an acquisition of Horizon, following which Horizon became our wholly-owned subsidiary. Upon completion of the acquisition, each share of common stock, par value $0.00001 per share, of Horizon was converted into the right to receive $9.25 in cash and 0.625 shares of our common stock. All shares of Horizon restricted stock that had been issued but had not vested prior to the effective time of the merger became fully vested at the effective time of the merger and converted into the right to receive the merger consideration. We issued an aggregate of approximately 20.3 million shares of common stock and paid approximately $300 million in cash to the former Horizon stockholders upon completion of the acquisition. The cash portion of the merger

Vessel Utilization

We believe vessel utilization is one of the most important performance measurements for our business. As a marine contractor, our vessel utilization is typically lower during the winter and early spring due to weather conditions in the Gulf of Mexico. From 2005 through the first three quarters of fiscal 2007, we did not experience the typical seasonal trends in our business due to the impact of Hurricanes Ivan, Katrina and Rita in the Gulf of Mexico. However, market conditions in the Gulf of Mexico have slowed from the peak levels experienced in recent periods as the amount of hurricane-related repair activity decreases. Beginning in the fourth quarter of 2007 we began to experience a return to customary seasonal conditions.

The following table shows the size of our fleet and effective utilization of our vessels during the three and six months ended June 30, 2008 and 2007:

                             Three Months Ended June 30,                        Six Months Ended June 30,
                            2008                    2007                      2008                    2007
                    Number of  Utilization  Number of  Utilization    Number of  Utilization  Number of  Utilization
                   Vessels (1)     (2)     Vessels (1)     (2)       Vessels (1)     (2)     Vessels (1)     (2)
Saturation Diving  8           92%         7           90%           8           80%         7           94%
Surface and Mixed  13          63%         16          71%           13          45%         16          67%
Gas Diving
Construction       10          39%         2           98%           10          30%         2           97%
Barges
Total Fleet        31          60%         25          77%           31          47%         25          76%

As of the end of the period and excludes acquired vessels prior to their in-service dates, vessels taken out of service and vessels jointly owned with a third party.

Effective vessel utilization is calculated by dividing the total number of days the vessels generated revenues by the total number of days the vessels were available for operation in each quarter and does not reflect acquired vessels prior to their in-service dates, vessels in drydocking, vessels taken out of service for upgrades and vessels jointly owned with a third party.

Our Relationship with Helix

Certain administrative and operational services of Helix have been shared between us and other Helix business segments for all periods presented. For purposes of financial statement presentation, the costs included in our condensed consolidated statements of operations for these shared services have been allocated to us based on actual direct costs incurred, headcount, work hours or revenues. We and Helix consider these allocations to be a reasonable reflection of our respective utilization of services provided. Pursuant to the Corporate Services Agreement between Helix and us, we are required to utilize these services from Helix in the conduct of our business until such time as Helix owns less than 50% of the total voting power of our common stock, or earlier, if mutually agreed between Helix and us.

We believe the assumptions underlying the condensed consolidated financial statements are reasonable. However, the effect of these assumptions and the separation from Helix could impact our results of operations and financial position prospectively by increasing expenses in areas that include but are not limited to compliance with the Sarbanes-Oxley Act and other corporate compliance matters, insurance and claims management and the related cost of insurance, as well as general overall purchasing power.

Critical Accounting Estimates and Policies

Our accounting policies are described in the notes to our audited consolidated financial statements included in our 2007 Annual Report on Form 10-K. We prepare our financial statements in conformity with GAAP. Our results of operations and financial condition, as reflected in our financial statements and related notes, are subject to management's evaluation and interpretation of business conditions, changing capital market conditions and other factors that could affect the ongoing viability of our business and our customers. We believe the most critical

Recently Issued Accounting Principles

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. Our adoption of SFAS 157 effective January 1, 2008 did not have a material impact on our results of operations or financial position.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133 ("SFAS 161"). SFAS 161 is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity's derivative instruments and hedging activities and their effects on the entity's financial position, financial performance, and cash flows. SFAS 161 applies to all derivative instruments within the scope of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). It also applies to non-derivative hedging instruments and all hedged items designated and qualifying as hedges under SFAS 133. The provisions of SFAS No. 161 are effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. We are currently evaluating the impact, if any, this standard will have on our financial statements.

In June 2008, the FASB issued FSP Emerging Issues Task Force 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ("FSP EITF 03-6-1"). This FSP would require unvested share-based payment awards containing non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) to be included in the computation of basic EPS according to the two-class method. The effective date of FSP EITF 03-6-1 is for fiscal years beginning after December 15, 2008 and requires all prior-period EPS data presented to be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of this FSP. FSP EITF 03-6-1 does not permit early application. This FSP changes our calculation of basic and diluted EPS and will lower previously reported basic and diluted EPS as weighted-average shares outstanding used in the EPS calculation will increase. We are currently evaluating the impact of this statement on our consolidated financial statements.

Results of Operations

Comparison of Three Months Ended June 30, 2008 and 2007

Revenues. For the three months ended June 30, 2008, our revenues increased $36.7 million, or 27%, to $172.0 million, compared to $135.3 million for the three months ended June 30, 2007. This increase was primarily a result of the revenue contributions from certain Horizon assets acquired in December 2007. This increase was partially offset by lower vessel utilization related to winter seasonality and harsh weather conditions, which continued into May 2008.

Gross profit. Gross profit for the three months ended June 30, 2008 increased $1.7 million, or 4%, to $47.3 million, compared to $45.6 million for the three months ended June 30, 2007. This increase was attributable to gross profit contributions from certain Horizon assets acquired in December 2007 partially offset by lower vessel utilization discussed above and increased depreciation and amortization. Cost of sales related depreciation and amortization increased to $16.6 million for the three months ended June 30, 2008 from $9.1 million for the same period in 2007 due primarily to assets purchased in the Horizon acquisition. Additionally, we expect to realize lower gross margins subsequent to the acquisition of Horizon with our expansion into the pipelay and derrick barge contracting business, which typically has lower gross margins compared to our historical diving services.

Selling and administrative expenses. Selling and administrative expenses of $18.0 million for the three months ended June 30, 2008 were $6.9 million higher than the $11.1 million incurred in the three months ended June 30, 2007 primarily due to the Horizon acquisition, including non-cash amortization of related intangible assets,

Equity in earnings (loss) of investment. During the second quarter 2007, we determined there was an other than temporary impairment in OTSL and the full value of our investment of $11.8 million was impaired.

Net interest expense. Net interest expense in the second quarter of 2008 was $5.0 million as compared to $2.4 million in the second quarter of 2007. This increase was due to increased borrowings in December 2007 in conjunction with the Horizon acquisition.

Income taxes. Income taxes were $7.6 million and $10.4 million for the three months ended June 30, 2008 and 2007, respectively. The effective tax rate for the respective periods was 31.0% for 2008 and 47.3% for 2007. The rate decrease was primarily due to minimal tax benefit relating to equity in losses and the impairment of our investment in OTSL in 2007, no tax benefit from the 2007 settlement with the Department of Justice, and a higher percentage of profits being derived from foreign tax jurisdictions with lower tax rates in the 2008 period.

Net income. Net income of $16.9 million for the three months ended June 30, 2008 was $5.3 million higher than net income of $11.6 million for the three months ended June 30, 2007 as a result of the factors described above.

Comparison of Six Months Ended June 30, 2008 and 2007

Revenues. For the six months ended June 30, 2008, our revenues increased $32.1 million, or 11%, to $316.5 million, compared to $284.5 million for the six months ended June 30, 2007. This increase was primarily a result of the revenue contributions from certain Horizon assets acquired in December 2007. This increase was partially offset by lower vessel utilization related to winter seasonality and harsh weather conditions which continued into May 2008.

Gross profit. Gross profit for the six months ended June 30, 2008 decreased $31.6 million, or 30%, to $71.9 million, compared to $103.5 million for the six months ended June 30, 2007. This decrease was attributable to lower vessel utilization referred to above and increased depreciation and amortization. The utilization impact from continued harsh weather in the Gulf of Mexico during the first five months of 2008 was compounded by our increased exposure in terms of fleet size following the Horizon acquisition. Cost of sales related depreciation and amortization increased to $32.2 million for the six months ended June 30, 2008 from $17.8 million for the same period in 2007 due primarily to assets purchased in the Horizon acquisition.

Selling and administrative expenses. Selling and administrative expenses of $35.1 million for the six months ended June 30, 2008 were $14.3 million higher than the $20.8 million incurred in the six months ended June 30, 2007. This increase was primarily due to the Horizon acquisition, including non-cash amortization of related intangible assets and one-time integration costs, increased employee benefit costs and increased information technology costs.
Included in the six months ended June 30, 2007 is a $2 million settlement with the Department of Justice related to a civil claim.

Equity in earnings (loss) of investment. During the second quarter 2007, we determined there was an other than temporary impairment in OTSL and the full value of our investment of $11.8 million was impaired.

Net interest income (expense). Net interest expense in the first six months of 2008 was $11.7 million as compared to net interest expense of $5.0 million in the first six months of 2007. The increase in interest expense is related to increased debt assumed in December 2007 in connection with the Horizon acquisition.

Income taxes. Income taxes were $7.8 million and $27.0 million for the six months ended June 30, 2008 and 2007, respectively. The effective tax rate for the respective periods was 31.0% for 2008 and 39.4% for 2007. The rate decrease was primarily due to minimal tax benefit relating to equity in losses and the impairment of our investment in OTSL in 2007, no tax benefit from the 2007 settlement with the Department of Justice, and a higher percentage of profits being derived from foreign tax jurisdictions with lower tax rates in the 2008 period.

Net income. Net income of $17.5 million for the six months ended June 30, 2008 was $24.2 million less than net income of $41.6 million for the six months ended June 30, 2007 as a result of the factors described above.

We require capital to fund ongoing operations, organic growth initiatives and acquisitions. Our primary sources of liquidity are cash flows generated from our operations, available cash and cash equivalents and availability under a revolving credit facility we secured in connection with our acquisition of Horizon. We intend to use these sources of liquidity to fund our working capital requirements, maintenance capital expenditures, strategic investments and acquisitions. In connection with our business strategy, we regularly evaluate acquisition opportunities, including vessels and marine contracting businesses. We believe that our liquidity, along with other financing alternatives, will provide the necessary capital to fund these transactions and achieve our planned growth. We expect to be able to fund our activities for 2008 with cash flows generated from our operations and available borrowings under our revolving credit facility.

In December 2007, we entered into a five-year $675 million credit facility, which consists of a $375 million term loan and a $300 million revolving credit facility, with certain financial institutions. The loans mature in December 2012. On December 11, 2007, we borrowed $375 million under the term loan and used those proceeds, along with cash on hand, to fund the cash portion of the merger consideration in connection with our acquisition of Horizon and to retire Horizon's and our existing debt. At June 30, 2008, we had outstanding debt of $344.5 million and accrued interest of $0.4 million under this credit facility, and had $5.9 million of cash on hand and $280.8 million available under our revolving credit facility. We may pay down or borrow from the revolving credit facility as business needs merit. See "Credit Facility" below.

Cash Flows

Operating activities. Cash flow from operating activities in the first six months of 2008 was $15.2 million, a decrease of $38.5 million from the $53.8 million provided during the six months ended June 30, 2007. The primary driver for this decrease as compared to the prior year six-month period was a decrease in net income of $24.2 million coupled with a $15.5 million increase in cash outlays for deferred drydock costs.

Investing Activities. Net cash used in investing activities was $40.1 million and $11.8 million for the six months ended June 30, 2008 and 2007, respectively, and consisted primarily of capital expenditures for vessel upgrades, and purchases of saturation diving systems, operations support facilities and equipment.

Financing activities. Net cash used in financing activities was $30.5 million and $61.0 million for the six months ended June 30, 2008 and 2007, respectively, due to the repayment of debt in the respective periods. In December 2007, we entered into a $675 million secured credit facility, which consists of a $375 million term loan and a $300 million revolving credit facility, pursuant to which we borrowed $375 million in connection with the Horizon acquisition. In the second quarter of 2008, we began to utilize the revolving credit facility to fund working capital needs. The balance outstanding under our revolving credit facility was $9.5 million at June 30, 2008. See "Credit Facility."

Capital Expenditures

We incur capital expenditures for recertification costs relating to regulatory drydocks as well as costs for major replacements and improvements, which extend the vessel's economic useful life. Total capital expenditures planned for 2008 include $36.1 million for recertification costs and $79.3 million for vessel improvements, equipment purchases and operating lease improvements. We also incur capital expenditures for strategic investments and acquisitions. During the three and six months ended June 30, 2008, we incurred $11.1 million and $26.6 million, respectively, for recertification costs and $47.6 million and $54.9 million, respectively, for vessel improvements, equipment purchases and operating lease improvements.

Credit Facility

In December 2007, we entered into a secured credit facility with certain financial institutions consisting of a $375 million term loan and a $300 million revolving credit facility. This credit facility replaced the revolving credit facility we entered into in November 2006 prior to our initial public offering.
The following is a summary description of the terms of the credit agreement and other loan documents.

The credit agreement and the other documents entered into in connection with the credit facility include terms and conditions, including covenants, that we consider customary for this type of transaction. The covenants include restrictions on our and our subsidiaries' ability to grant liens, incur indebtedness, make investments, merge or consolidate, sell or transfer assets and pay dividends. In addition, the credit agreement obligates us to meet minimum financial requirements specified in the agreement. The credit facility is secured by vessel mortgages on all of our vessels (except for the Sea Horizon), a pledge of all of the stock of all of our domestic subsidiaries and 65% of the stock of two of our foreign subsidiaries, and a security interest in, among other things, all of our equipment, inventory, accounts receivable and general intangible assets. At June 30, 2008, we were in compliance with all debt covenants.

On December 11, 2007, we borrowed $375 million under the term loan and used those proceeds to fund the cash portion of the merger consideration in connection with our acquisition of Horizon and to retire Horizon's and our existing debt. On February 19, 2008, we used a portion of cash on hand to make an optional prepayment on the term loan in the amount of $40 million resulting in an outstanding balance of $335 million. As a result of the prepayment, our next quarterly installment of $20 million is due on December 31, 2008. We had $9.5 million in borrowings outstanding, and letters of credit totaling $9.7 million to secure performance bonds, under our revolving credit facility outstanding at June 30, 2008. At June 30, 2008 there was $280.8 million available under the revolving credit facility. We expect to use the remaining availability under the revolving credit facility for working capital and other general corporate purposes.

Contractual and Other Obligations

At June 30, 2008, our contractual obligations for long-term debt, payables and
operating leases were as follows:

                                                Payments Due by Period
                                             Less than                     More than
                                     Total    1 Year   1-3 Years 3-5 Years  5 Years
                                                    (in thousands)
 Payable to Helix                  $   5,296  $  1,991 $   2,101 $     924  $    280
 Noncancelable operating leases       25,576     4,200     5,277     5,499    10,600
 and charters
 Long-term financing obligations:
 Principal                           344,500    60,000   160,000   124,500       -
 Interest(1)                          49,203    20,597    20,936     7,670       -
 Total contractual obligations     $ 424,575  $ 86,788 $ 188,314 $ 138,593  $ 10,880

Assumes an interest rate based on three month LIBOR at June 30, 2008 plus a margin of 2.25%.

Off-Balance Sheet Arrangements

As of June 30, 2008, we have no off-balance sheet arrangements. For information regarding our principles of consolidation, see Note 2 to our consolidated financial statements contained in our 2007 Form 10-K.