• risks inherent in doing business abroad;

• operating hazards related to working offshore;

• dependence on significant customers;

• ability to attract and retain skilled workers;

• general industry conditions;

• environmental matters;

• changes in laws and regulations;

• the effects of resolving claims and variation orders;

• availability of capital resources;

• delays or cancellation of projects included in backlog;

• fluctuations in the prices or demand for oil and gas;

• changes in vessel construction costs and delays in completion of vessels;

• the level of offshore drilling activity; and

• foreign exchange and currency fluctuations.

We believe the items we have outlined above are important factors that could cause our actual results to differ materially from the estimates in our financial statements and those expressed in forward-looking statements made in this report or elsewhere. These factors are not necessarily all the important factors that could affect us. Unpredictable or unknown factors we have not discussed in this report could also have material adverse effects on actual results of matters that are the subject of our forward-looking statements. We do not intend to update our description of important factors each time a potential important factor arises, except as required by applicable securities laws and regulations. We advise existing and potential security holders to be aware that important factors not referred to above could affect the accuracy of our forward-looking statements. For more detailed information regarding risks, see the discussion of risk factors in Item 1A of our Annual Report on Form 10-K for 2007.
The following discussion presents management's discussion and analysis of our financial condition and results of operations. Results of Operations
General
We are a leading offshore construction company offering a comprehensive and integrated range of marine construction and support services in the North America, Latin America, West Africa, the Middle East (including the Mediterranean), and Asia Pacific/India regions. These services include pipeline construction, platform installation and removal, project management,

construction support, diving services, diverless intervention, SURF (subsea equipment, umbilical, riser, and flow line), IRM (inspection, repairs, and maintenance), and decommissioning/plug and abandonment services.
Our results of operations, in terms of revenues, gross profit, and gross profit as a percentage of revenues ("margins"), are principally driven by three factors: (1) our level of offshore construction and subsea activity ("activity"), (2) pricing, which can be affected by contract mix ("pricing"), and (3) operating efficiency on any particular construction project ("productivity").
Our business consists of two principal activities:
• Offshore Construction Services, which include pipeline construction and platform installation and removal services; and

• Subsea Services, which include diving, diverless intervention, SURF, IRM, salvage, and site clearance services.

Offshore Construction Services
The level of our offshore construction activity in any given period has a significant impact on our results of operations. Our results of operations depend heavily upon our ability to obtain, in a very competitive environment, a sufficient quantity of offshore construction contracts with sufficient gross profit margins to recover the fixed costs associated with our offshore construction business. The offshore construction business is capital and personnel intensive, and as a practical matter, many of our costs, including the wages of skilled workers, are effectively fixed in the short run regardless of whether or not our vessels are being utilized in productive service. In general, as activity increases, a greater proportion of these fixed costs are recovered through operating revenues; consequently, gross profit and margins increase. Conversely, as activity decreases, our revenues decline, but our costs do not decline proportionally, thereby constricting our gross profit and margins. Our activity level can be affected by changes in demand due to economic or other conditions in the oil and gas exploration industry, seasonal conditions in certain geographical areas, and our ability to win the bidding for available jobs.
Most of our offshore construction revenues are earned through international contracts which are generally larger, more complex, and of longer duration than our typical domestic contracts. Most of these international contracts require a significant amount of working capital, are generally bid on a lump-sum basis, and are secured by a letter of credit or performance bond. Operating cash flows may be negatively impacted during periods of escalating activity due to the substantial amounts of cash required to initiate these projects and the normal delays between our cash expenditures and cash receipts from the customer. Additionally, lump-sum contracts for offshore construction services are inherently risky and are subject to many unforeseen circumstances and events that may affect productivity and thus, profitability. When productivity decreases with no offsetting decrease in costs or increases in revenues, our contract margins erode compared to our bid margins. In general, we traditionally bear a larger share of project related risks during periods of weak demand for our services and a smaller share of risks during periods of high demand for our services. Consequently, our revenues and margins from offshore construction services are subject to a high degree of variability, even as compared to other businesses in the offshore energy industry. Subsea Services
Most of our subsea revenues are the result of short-term work, involve numerous smaller contracts, and are usually based on a day-rate charge. Financial risks associated with these types of contracts are normally limited due to their short-term and non-lump sum nature. However, some subsea contracts, especially those that utilize dive support vessels ("DSVs"), may involve longer-term commitments that extend from the exploration, design, and installation phases of a field throughout its useful life by providing IRM services. The financial risks which are associated with these commitments remain low in comparison with our offshore construction activities due to the day-rate structure of the contracts. Revenues and margins from our subsea activities tend to be more consistent than from our offshore construction activities.

Quarter Ended September 30, 2008 Compared to Quarter Ended September 30, 2007

                                                 2008                                 2007
                                                            % of                                 % of             % Change
                                      (Thousands)         Revenue          (Thousands)         Revenue          (Unfavorable)
Revenues                             $     218,551           100.0 %      $     203,536           100.0 %                  7.4 %
Cost of operations                         258,736           118.4              146,714            72.1                 (109.5 )
Anticipated contract losses                 48,673            22.3                    -               -                    n/m

Gross profit (loss)                        (88,858 )          40.7               56,822            27.9                 (256.4 )
Loss (gain) on asset disposals
and impairments                              1,640             0.7                   (9 )             -                    n/m
Selling, general and
administrative expenses                     25,439            11.6               20,749            10.2                  (22.6 )

Operating income (loss)                   (115,937 )          53.0               36,082            17.7                 (421.3 )

Interest income                              2,476             1.1                8,450             4.2                  (70.7 )
Interest expense                            (4,148 )           1.9               (3,718 )           1.8                  (11.6 )
Other income (expense), net                   (234 )           0.1                2,327             1.1                 (110.1 )

Income (loss) before taxes                (117,843 )          53.9               43,141            21.2                 (373.2 )
Income tax expense (benefit)               (15,056 )           6.9               11,666             5.7                 (229.1 )

Net income (loss)                    $    (102,787 )          47.0 %      $      31,475            15.5 %               (426.6 %)

Overview - Net loss for the third quarter of 2008 was $102.8 million on revenues of $218.6 million compared with 2007 third quarter net income of $31.5 million on revenues of $203.5 million. Third quarter 2008 diluted loss per share was $0.90 compared to diluted earnings per share of $0.27 in the third quarter 2007. During the third quarter of 2008, the Company continued to experience significant adverse impact on gross profits on two significant projects in Saudi Arabia and Brazil due to productivity and logistical issues, including non-compensated standby and mechanical downtime occurrences, necessitating significant increases to the time and cost estimates required to complete both projects satisfactorily. Third quarter 2008 results therefore include estimates for losses on both the Brazil and Saudi Arabia projects through their estimated completion dates of the first and third quarter 2009, respectively. Revenues and gross profits were also negatively impacted by lower vessel utilization in North America and West Africa.
Revenues - Revenues increased $15.1 million, or 7%, to $218.6 million for the third quarter of 2008 compared to $203.5 million for the third quarter of 2007. Higher activity in the Asia Pacific/India and Latin America segments contributed to the increase for the third quarter of 2008. This increase was partially reduced by lower revenues from West Africa, Middle East, and North America. For further discussion of revenues and income (loss) before taxes for each geographical area see "Segment Information" below.
Gross Profit - Gross profit decreased by $145.7 million, or 256%, to a gross loss of $88.9 million in the third quarter of 2008 compared to a gross profit of $56.8 million in the third quarter of 2007. Significant increases in the estimated costs to complete projects in the Middle East and Latin America as well as decreased activity in West Africa and North America were the primary factors contributing to decreased profitability in the third quarter of 2008. Loss (gain) on asset disposals and impairments - Loss (gain) on asset disposals and impairments, net decreased by $1.6 million to a loss of $1.6 million for the third quarter of 2008 primarily due to a $1.6 million impairment of the Sea Puma, a DSV in West Africa.
Selling, General and Administrative Expenses - Selling, general and administrative expenses increased by $4.7 million, or 23%, to $25.4 million for the third quarter of 2008 compared to $20.7 million for the third quarter of 2007. Increased labor and professional fees, worldwide, as well as infrastructure support costs related to geographical expansion into Brazil and the Middle East were incurred in the third quarter of 2008 compared to the third quarter of 2007.
Interest Income - Interest income decreased by $6.0 million, or 71%, to $2.5 million for the third quarter of 2008 compared to $8.5 million for the third quarter of 2007. Lower interest rates and decreased cash balances in the third quarter of 2008 contributed to lower return on cash balances and short-term investments, compared to the third quarter of 2007.
Interest Expense - Interest expense increased by $0.4 million to $4.1 million for the third quarter of 2008 primarily due to additional interest expense from the issuance of $325.0 million of convertible debentures in July 2007.

Other income (expense), net - Other income (expense), net decreased by $2.5 million from the third quarter of 2007 primarily due to a $1.4 million gain from settlement of a claim for interrupted operations as a result of a 2006 oil spill by a refinery adjacent to our property in Louisiana recorded in third quarter of 2007.
Income Taxes - The Company's effective tax rate for the third quarter of 2008 was 12.8% as compared to 27.0% for the third quarter of 2007. The lower tax rate was due to losses that could not be tax effected and lower margins in tax jurisdictions with a deemed profit tax regime where tax is calculated as a percentage of revenue. This resulted in an income tax benefit on the loss before taxes for the three months ended September 30, 2008 that was lower than if these conditions had not occurred during this period.
Segment Information - The following sections discuss the results of operations for each of our reportable segments during the quarters ended September 30, 2008 and 2007.
North America Offshore Construction Division Revenues were $28.9 million for the third quarter of 2008 compared to $32.0 million for the third quarter of 2007. A decrease of $3.1 million, or 10%, in the third quarter of 2008 compared to the same period in 2007 reflects lower utilization in the third quarter of 2008 primarily from the non-availability of the Cherokee which remained in extended dry-dock for all of July through August 18, 2008. Loss before taxes was $6.7 million for the third quarter of 2008 compared to income before taxes of $4.9 million for the third quarter of 2007. The decrease of $11.6 million was primarily attributable to lower revenues, a period of non-compensated vessel stand-by costs during Hurricanes Gustav and Ike, and productivity issues on certain projects. North America Subsea
Revenues were $43.4 million for the third quarter of 2008 compared to $45.6 million for the third quarter of 2007. A decrease of $2.2 million, or 5%, for the third quarter of 2008 compared to the same period in 2007 was primarily due to weather related project delays. Loss before taxes was $0.5 million during the third quarter of 2008 compared to income before taxes of $22.0 million for the third quarter of 2007. A decrease of $22.5 million between comparable quarters was primarily due to lower margins from low productivity on lump sum projects, lower day rates and higher rental cost on a chartered "flotel" (floating hotel) as compared to day rate projects executed by REM Commander in the 2007 third quarter. Conversion, standby operations and mobilization expenses for the newly acquired Global Orion and Olympic Challenger, also unfavorably impacted the financial results in the third quarter of 2008 compared to the prior year quarter.
Latin America
Revenues were $59.5 million for the third quarter of 2008 compared to $39.4 million for the third quarter of 2007. An increase of $20.1 million, or 51%, in the third quarter of 2008 compared to the same period in 2007 was primarily due to additional revenues from our operations in Brazil. Loss before taxes was $21.9 million for the third quarter of 2008 compared to income before taxes of $10.3 million for the third quarter of 2007. A decrease of $32.2 million was primarily attributable to an increase of approximately $17.5 million in the loss estimate for the Camarupim project in Brazil primarily due to lower than expected productivity and vessel standby delays from mechanical and weather downtime during the third quarter of 2008. Third quarter 2008 results therefore include an estimate for losses on the Camarupim project through the estimated completion date of the 2009 first quarter. West Africa
Revenues were $22.9 million for the third quarter of 2008 compared to $44.6 million for the third quarter of 2007. A decrease of $21.7 million, or 49%, in the third quarter of 2008 compared to the same period in 2007 was primarily due to lower activity in the third quarter of 2008 compared to the third quarter of 2007. While the Company successfully and profitably completed the Vaalco project with the Hercules in Gabon in late July, the idle cost of the Cheyenne and Sea Constructorcontributed to a loss before taxes of $12.3 million for the third quarter of 2008 compared to earnings before taxes of $2.9 million for the third quarter of 2007. The $1.6 million impairment of the Sea Puma, a DSV, in the third quarter of 2008 also contributed to the loss for the current quarter. Due to the lack of visibility on short-term opportunities, increasing uncertainty and challenges surrounding projects in Nigeria and post-hurricane activity in the U.S. Gulf of Mexico the Company decided to relocate two vessels, the Hercules and Sea Constructor to the U.S. Gulf of Mexico. This relocation is expected to be completed in the first quarter of 2009. See also Note 10 of the Notes to Condensed Consolidated Financial Statements for a discussion of challenges related to conducting operations in Nigeria.

Middle East
Revenues were $35.6 million for the third quarter of 2008 compared to $41.5 million for the third quarter of 2007. A decrease of $5.9 million, or 14%, in the third quarter of 2008 compared to the same period in 2007 was attributable to continued delays, low productivity, and cost over-runs on the Berri and Qatif project during the third quarter of 2008. Loss before taxes was $84.9 million for the third quarter of 2008 compared to income before taxes of $2.5 million for the third quarter of 2007. During the 2008 third quarter, the Company eliminated the previously recorded profit estimate and recorded an estimated loss for the Berri and Qatif project in Saudi Arabia which total approximately $83.3 million, as the Company experienced an exceptional loss in productivity and cost over-runs on this project that resulted in a complete re-evaluation and extension of the schedule and additional cost to complete the remaining scope of work. In addition, the Company re-sequenced certain phases of the remaining scope of work to mitigate the risk of excessive equipment and personnel stand-by cost during the previously scheduled regulatory dry-docking of the work barge DLB332. This rescheduling to mitigate those risks necessitates continuous working through the bad weather season in January and February 2009 and the Company has increased the contingencies for estimated future weather downtime during that period. Third quarter 2008 results therefore include an estimate for losses on the Berri and Qatif project through the estimated completion date of the 2009 third quarter. Asia Pacific/India
Revenues were $40.4 million for the third quarter of 2008 compared to $9.0 million for the third quarter of 2007. An increase of $31.4 million, or 349%, in the third quarter of 2008 compared to the same period in 2007 was primarily due to higher activity related to a project in Vietnam and the Seminole being on third party charter in Malaysia during the third quarter of 2008. During the third quarter of 2007, revenues were negatively impacted due to the timing of revenue recognition on a multi-year project. Income before taxes was $9.5 million for the third quarter of 2008 compared to a loss of $6.1 million for the third quarter of 2007. An increase of $15.6 million was due to higher revenues and increased project margins attributable to higher utilization.
Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30,

2007

                                                 2008                                 2007
                                                            % of                                 % of             % Change
                                      (Thousands)         Revenue          (Thousands)         Revenue          (Unfavorable)
Revenues                             $     820,559           100.0 %      $     729,485           100.0 %                 12.5 %
Cost of operations                         795,881            97.0              505,056            69.2                  (67.8 )
Anticipated contract losses                 51,370             6.3                    -               -                    n/m

Gross profit (loss)                        (26,692 )           3.3              224,429            30.8                 (111.9 )
Loss (gain) on asset disposals
and impairments                               (372 )             -               (1,317 )           0.2                  (71.8 )
Selling, general and
administrative expenses                     73,439             8.9               58,777             8.1                  (24.9 )

Operating income (loss)                    (99,759 )          12.2              166,969            22.9                 (159.7 )
Interest income                             12,709             1.5               19,260             2.6                  (34.0 )
Interest expense                            (9,974 )           1.2               (8,491 )           1.2                  (17.5 )
Other income (expense), net                 (1,866 )           0.2                2,933             0.4                 (163.6 )

Income (loss) before taxes                 (98,890 )          12.1              180,671            24.7                  (20.4 )
Income tax expense (benefit)                (9,453 )           1.2               53,611             7.3                 (117.6 )

Net income (loss)                    $     (89,437 )          10.9 %      $     127,060            17.4 %               (170.4 %)

Overview - Net loss for the nine months ended September 30, 2008 was $89.4 million on revenues of $820.6 million compared to net income of $127.1 million on revenues of $729.5 million for the nine months ended September 30, 2007. For the nine months ended September 30, 2008 diluted loss per share was $0.78 compared to diluted earnings per share of $1.08 for the nine months ended September 30, 2007. During the nine months ended September 30, 2008, the Company experienced significant adverse impact on gross profits of two significant projects in Saudi Arabia and Brazil due to productivity and logistical issues, including non-compensated standby and mechanical downtime occurrences. Results for the nine months ended September 30, 2008 therefore include estimates for losses on both the Brazil and Saudi Arabia projects through their estimated completion dates of the first and third quarter, 2009, respectively. Additionally, the Company experienced significant non-availability of vessels undergoing dry docking during the nine months ended September 30, 2008.
Revenues - Revenues increased by $91.1 million, or 13%, to $820.6 million for the nine months ended September 30, 2008 compared to $729.5 million for the nine months ended September 30, 2007. The increase was primarily due to higher activity

in the Middle East, Asia Pacific/India, and Latin America for the nine months ended September 30, 2008. For further discussion of revenues and income
(loss) before taxes for each geographical area, see "Segment Information" below. Gross Profit - Gross profit decreased by $251.1 million, or 112%, to $26.7 million loss for the nine months ended September 30, 2008 compared to $224.4 million profit for the nine months ended September 30, 2007. The decrease primarily reflects the adverse effects of the Berri and Qatif project in Saudi Arabia and Camarupim project in Brazil. Selling, General and Administrative Expenses - Selling, general and administrative expenses increased by $14.6 million, or 25%, to $73.4 million for the nine months ended September 30, 2008 compared to $58.8 million for the nine months ended September 30, 2007. Increased labor and professional fees worldwide and administrative support costs, related to geographical expansion into Brazil and the Middle East were incurred in the nine months ended September 30, 2008, compared to the nine months ended September 30, 2007. Interest Income - Interest income decreased by $6.6 million, or 34%, to $12.7 million for the nine months ended September 30, 2008 compared to $19.3 million for the nine months ended September 30, 2007. Lower interest rates and decreased cash balances in the nine months ended September 30, 2008 contributed to lower return on cash balances and short-term investments, compared to the nine months ended September 30, 2007. Interest Expense - Interest expense increased by $1.5 million, or 18%, to $10.0 million for the nine months ended September 30, 2008 compared to $8.5 million for the nine months ended September 30, 2007, resulting from the issuance of $325.0 million of convertible debentures in July 2007, partially offset by an adjustment recorded in the nine months ended September 30, 2008 for interest expense related to a previous uncertain tax position. Other income (expense), net - Other income (expense), net decreased by $4.8 million from the nine months ended September 30, 2007 primarily resulting from losses on foreign currency exchange rate differences incurred in the nine months ended September 30, 2008 and a $1.4 million gain from settlement of a claim for interrupted operations as a result of a 2006 oil spill in the Gulf of Mexico by a refinery adjacent to our property in Louisiana recognized in the nine months ended September 30, 2007. Income Taxes - The Company's effective tax rate was 9.6% and 29.7%, respectively, for the nine months ended September 30, 2008 and 2007. The lower tax rate was due to losses that could not be tax effected and lower margins in tax jurisdictions with a deemed profit tax regime where tax is calculated as a . . .