All forward-looking statements we make in this quarterly report on Form 10-Q, including, without limitation, statements regarding our expectations about 2009 net income, cash flows and segment results, our plans for future operations (including planned additions to our ROV fleet), the adequacy of our working capital, our anticipated tax rates and industry conditions, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks, uncertainties and assumptions, including those we have referred to under the headings "Risk Factors" and "Cautionary Statement Concerning Forward-Looking Statements" in Part I of our annual report on Form 10-K for the year ended December 31, 2008. Although we believe that the expectations reflected in such forward-looking statements are reasonable, because of the inherent limitations in the forecasting process, as well as the relatively volatile nature of the industries in which we operate, we can give no assurance that those expectations will prove to be correct. Accordingly, evaluation of our future prospects must be made with caution when relying on forward-looking information.

The following discussion should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operation" included in our annual report on Form 10-K for the year ended December 31, 2008.

Executive Overview

We generate 90% of our revenue and substantially all of our operating income before Unallocated Expenses from our services and products provided to the oil and gas industry. Our net income for the three-month period ended March 31, 2009 was higher than any first quarter in our history. Compared to the fourth quarter of 2008, our quarterly net income decreased due to seasonal reductions from our Subsea Projects and Remotely Operated Vehicles ("ROV") revenue and lower remotely operated vehicle tooling and umbilical revenue in our Subsea Products segment.

For the full year of 2009, we anticipate our diluted earnings per share to be in the range of $3.10 to $3.60, as compared to $3.56 in 2008 (as restated to comply with FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, see Note 5 of our Notes to Consolidated Financial Statements contained in Item 1 of this quarterly report on Form 10-Q), with an increase in ROV operating income and decreases in our other oilfield segments' operating results.

Looking forward, we face uncertainties in the global economy, the level of our customers' capital spending on deepwater exploration and development and the timing of approved projects. We believe our 2009 earnings will be led by an increase in our ROV segment. We anticipate that we will add 24 to 30 ROVs in 2009. We forecast a decline in our Subsea Products results from lower demand, partially offset by efficiency gains through manufacturing process improvements.

Critical Accounting Policies and Estimates

For information about our Critical Accounting Policies and Estimates, please refer to the discussion in our annual report on Form 10-K for the year ended December 31, 2008 under the heading "Critical Accounting Policies and Estimates" in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operation.

New Accounting Standards

For a discussion of new accounting standards applicable to us, see the discussion in Notes 5 and 10 to the Consolidated Financial Statements contained in Item 1 of this quarterly report on Form 10-Q.

Liquidity and Capital Resources

We consider our liquidity and capital resources adequate to support our existing operations and capital commitments. At March 31, 2009, we had working capital of $407 million, including $25 million of cash and cash equivalents. Additionally, we had $200 million of borrowing capacity available under our revolving credit facility.

Our capital expenditures, including business acquisitions, were $45 million during the first three months of 2009, as compared to $88 million during the corresponding period of last year. We added six new ROVs to our fleet during the three months ended March 31, 2009, resulting in a total of 233 ROVs in the fleet. We plan to add 18 to 24 more ROVs during the rest of 2009 and these are in the process of being built or installed. Our total ROV segment

capital expenditures were $37 million for the first three months of 2009. Our capital expenditures in the three months ended March 31, 2008 included $31 million in our ROV segment and $49 million within our Subsea Products segment, of which approximately $40 million was for the acquisition of GTO Subsea AS ("GTO"). GTO is a rental provider of specialized subsea dredging and excavation equipment, including ROV-deployed units, to the offshore oil and gas industry.

We have chartered a deepwater vessel, the Ocean Intervention III,for an initial term ending in May 2010, with extension options for up to six additional years. We have also chartered an additional deepwater vessel, the Olympic Intervention IV, for an initial five-year term ending in July 2013. We have outfitted each of these deepwater vessels with two of our high-specification work-class ROVs, and we expect to utilize these vessels to perform subsea hardware installation and inspection, repair and maintenance projects, and to conduct well intervention services in the ultra-deep waters of the Gulf of Mexico.

We had no material contractual commitments for capital expenditures at March 31, 2009. We currently estimate that our total capital expenditures, including business acquisitions, will be approximately $175 million for 2009. We believe our cash provided from operating activities will exceed our capital expenditures in 2009.

At March 31, 2009, we had long-term debt of $200 million and a 16% debt-to-total capitalization ratio. We have $40 million of Senior Notes outstanding, to be repaid in 2009 and 2010, $60 million under our term loan agreement, which is scheduled to mature in September 2009, and $100 million outstanding under our $300 million revolving credit facility, which is scheduled to expire in January 2012. The term loan and revolving credit facility have short-term interest rates that float with market rates, plus applicable spreads. The amount available under the revolving credit facility can be increased to $450 million upon our agreement with the existing or additional lenders, although we believe this is unlikely in the near-term due to the current condition of the credit markets. In September 2008, we entered into a one-year, unsecured, $85 million term loan agreement. In October, we borrowed the entire $85 million available under the agreement and applied the proceeds to repay borrowings under our revolving credit agreement. During the quarter ended March 31, 2009, we prepaid $25 million of the term loan. We have not guaranteed any debt not reflected on our consolidated balance sheet and do not have any off-balance sheet arrangements, as defined by SEC rules.

In the three-month period ended March 31, 2009, we generated $86 million in cash from operating activities, used $44 million of cash in investing activities and used $28 million of cash in financing activities. The cash used in investing activities was used for the capital expenditures described above. The cash used in financing activities was used to repay debt.

Results of Operations

We operate in six business segments. The segments are contained within two businesses - services and products provided to the oil and gas industry ("Oil and Gas") and all other services and products ("Advanced Technologies"). Our Unallocated Expenses are those not associated with a specific business segment.

Consolidated revenue and margin information is as follows:

                          For the Three Months Ended
                     Mar. 31,      Mar. 31,      Dec. 31,
                       2009          2008          2008
                            (dollars in thousands)
Revenue              $ 435,100     $ 435,815     $ 525,691
Gross margin           105,802        98,666       120,248
Operating income        69,380        64,770        81,626
Gross margin %              24 %          23 %          23 %
Operating income %          16 %          15 %          16 %

We generate a material amount of our consolidated revenue from contracts for services in the Gulf of Mexico and North Sea, which are usually more active from April through October, as compared to the rest of the year. In the three-month periods ended March 31, 2009 and December 31, 2008, Subsea Projects had higher-than-normal revenue due to work made necessary by the 2008 hurricanes, Gustav and Ike, in the Gulf of Mexico. Revenue in our ROV segment is slightly seasonal, with our first quarter generally being the low quarter of the year. The level of

our ROV seasonality depends on the number of ROVs we have in construction support, which is more seasonal than drilling support. Revenue in each of our Subsea Products, Mobile Offshore Production Systems and Advanced Technologies segments has generally not been seasonal.

Oil and Gas

The table that follows sets forth our revenues and margins for our Oil and Gas business for the periods indicated.

                                          For the Three Months Ended
                                     Mar. 31,      Mar. 31,      Dec. 31,
                                       2009          2008          2008
                                            (dollars in thousands)
Remotely Operated Vehicles
Revenue                              $ 155,598     $ 144,729     $ 160,253
Gross margin                            55,704        48,629        60,809
Gross margin %                              36 %          34 %          38 %
Operating income                        48,796        41,497        52,891
Operating income %                          31 %          29 %          33 %
Days available                          20,671        19,232        20,649
Utilization %                               80 %          80 %          82 %

Subsea Products
Revenue                                114,924       138,518       171,129
Gross margin                            29,511        32,594        35,356
Gross margin %                              26 %          24 %          21 %
Operating income                        15,788        20,717        22,189
Operating income %                          14 %          15 %          13 %

Subsea Projects
Revenue                                 62,997        47,614        90,312
Gross margin                            19,394        14,040        26,735
Gross margin %                              31 %          29 %          30 %
Operating income                        17,160        12,133        24,034
Operating income %                          27 %          25 %          27 %

Inspection
Revenue                                 49,073        59,551        56,253
Gross margin                            10,351        11,587        10,275
Gross margin %                              21 %          19 %          18 %
Operating income                         6,630         7,537         5,973
Operating income %                          14 %          13 %          11 %

Mobile Offshore Production Systems
Revenue                                  8,766        10,033         9,389
Gross margin                             2,719         2,670        (2,049 )
Gross margin %                              31 %          27 %         -22 %
Operating income                         2,333         2,254        (2,418 )
Operating income %                          27 %          22 %         -26 %

Total Oil and Gas
Revenue                              $ 391,358     $ 400,445     $ 487,336
Gross margin                           117,679       109,520       131,126
Gross margin %                              30 %          27 %          27 %
Operating income                        90,707        84,138       102,669
Operating income %                          23 %          21 %          21 %

In general, our Oil and Gas business focuses on supplying services and products to the deepwater sector of the offshore market. In the past few years, we have had a high level of demand due to historically high hydrocarbon prices and damage to the oil and gas producing infrastructure in the Gulf of Mexico caused by hurricanes in 2004 and 2005. In 2008, we experienced a decline in hurricane damage-related repair work in our Subsea Projects segment as we completed these projects, then an increase in this type work in the fourth quarter of 2008 after Hurricanes Gustav and Ike. The damage repair work from the 2008 hurricanes continued into 2009, mitigating our normal first quarter seasonal decline in our Subsea Projects work and results.

Our ROV segment revenue reflects the utilization percentages, fleet sizes and average pricing of the respective periods. Operating income was favorably impacted in the three-month period of 2009 compared to the corresponding period of the prior year by a decrease in the average operating cost per day of ROV utilization and an increase in the number of days on hire from a larger fleet size. Our operating income declined in the quarter ended March 31, 2009 compared to the immediately preceding quarter from a seasonal reduction in construction activity. We expect our full-year 2009 ROV operating income to be more than 2008 due to an increase in fleet size and days on hire.

Our Subsea Products operating margin percentages for the periods presented were relatively consistent. For the quarter ended March 31, 2009 compared to the other periods presented, revenue declined from lower umbilical plant throughput; however, the operating income declines were primarily due to changes in the mix of our specialty products. Umbilical operations operating income also declined, but the effect was mitigated by work force reductions in our Scotland and U.S. plants and improved umbilical manufacturing processes. Our Subsea Products backlog was $282 million at March 31, 2009 compared to $298 million at December 31, 2008.

Our Subsea Projects operating income was higher in the three-month period ended March 31, 2009 compared to the corresponding period of the prior year from:
higher demand for our shallow water vessel and diving services after Hurricanes Gustav and Ike; more deepwater vessel installation services; and lower drydock expenses. In the first quarter of 2008 we incurred drydock expenses on four vessels compared to one in the first quarter of 2009. Compared to the immediately preceding quarter, the first quarter of 2009 had lower revenue and operating income from the normal seasonal decline in demand following an exceptionally good fourth quarter of 2008, where we were performing higher levels of hurricane repair work.

Our Inspection margin percentage was slightly higher in the quarter ended March 31, 2009 than the other periods presented due to a better service mix and reduced overhead expenses in our West Africa operations. Revenue decreased in the quarter ended March 31, 2009 as a result of a stronger U.S. dollar relative to the U.K. pound sterling.

In our Mobile Offshore Production Systems segment, we incurred an impairment charge of $5.7 million in the fourth quarter of 2008. Otherwise, its results were fairly consistent in the periods presented.

Advanced Technologies

Revenue and margin information is as follows:



                          For the Three Months Ended
                     Mar. 31,      Mar. 31,      Dec. 31,
                       2009          2008          2008
                            (dollars in thousands)
Revenue              $  43,742     $  35,370     $  38,355
Gross margin             4,949         4,934         4,433
Gross margin %              11 %          14 %          12 %
Operating income         2,053         2,105         1,450
Operating income %           5 %           6 %           4 %

The growth in Advanced Technologies segment revenue in the first quarter of 2009 was attributable to a contract with a large cost pass-through component with minimal mark-up.

Unallocated Expenses

Our Unallocated Expenses, i.e., those not associated with a specific business segment, within gross margin consist of expenses related to our incentive and deferred compensation plans, including restricted stock units, performance units and bonuses, as well as other general expenses. Our Unallocated Expenses within operating income consist of those within gross margin plus general and administrative expenses related to corporate functions.

The table that follows sets forth our Unallocated Expenses for the periods indicated.

                                 For the Three Months Ended
                            Mar. 31,      Mar. 31,      Dec. 31,
                              2009          2008          2008
                                   (dollars in thousands)
Gross margin expenses       $  16,826     $  15,788     $  15,311
% of revenue                        4 %           4 %           3 %
Operating income expenses      23,380        21,473        22,493
% of revenue                        5 %           5 %           4 %

Other

The table that follows sets forth our significant financial statement items
below the income from operations line.



                                          For the Three Months Ended
                                     Mar. 31,      Mar. 31,      Dec. 31,
                                       2009          2008          2008
                                                (in thousands)
Interest income                      $     135     $     131     $     395
Interest expense, net of amounts
capitalized                             (2,381 )      (3,309 )      (3,603 )
Equity earnings of Medusa Spar LLC         883           841            22
Other income, net                          206         1,074           597
Provision for income taxes              23,878        22,228        28,028

We own a 50% equity interest in Medusa Spar LLC, which owns a 75% interest in the Medusa Spar production platform in the Gulf of Mexico. Medusa Spar LLC earns revenue on a tariff basis on oil and gas production throughput processed by the spar from the Medusa field and other surrounding areas. The throughput processed by the Medusa spar facility in the three months ended December 31, 2008 was adversely affected by Hurricanes Gustav and Ike in 2008.

Interest expense for the periods presented reflects lower average interest rates on slightly lower average debt levels in 2009.

Foreign currency gains of $1.5 million for the three-month period ended March 31, 2008 are included in other income and related primarily to the strengthening of the Brazilian real against the U.S. dollar.

The provisions for income taxes were related to U.S. income taxes that we provided at estimated annual effective rates using assumptions as to earnings and other factors that would affect the tax calculation for the remainder of the year and to the operations of foreign branches and subsidiaries that were subject to local income and withholding taxes. We anticipate our effective tax rate for 2009 will be 35%.