The following management's discussion and analysis should be read in conjunction with our historical consolidated financial statements and their accompanying notes included elsewhere in this quarterly report on Form 10-Q, and the consolidated financial statements and their accompanying notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations, and Business and Properties sections included in our 2011 Form 10-K. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth under Part I, Item 1A., "Risk Factors" included in our 2011 Form 10-K and elsewhere herein.

Overview

Financial Performance

We generated a loss of $5.7 million, or $0.06 per diluted share, for the three months ended June 30, 2012 compared to a loss of $5.0 million, or $0.05 per diluted share, for the same period in 2011. Our second quarter 2012 results were significantly affected by Tropical Storm Debby, which moved through the Gulf of Mexico during the latter half of June and caused over half of our active fleet to be idled during this time.

We generated a loss of $30.0 million, or $0.32 per diluted share, for the six months ended June 30, 2012 compared to a loss of $23.8 million, or $0.26 per diluted share, for the same period in 2011. The results for the first six months of 2012 were impacted by the typical winter seasonality and the required regulatory drydock schedule of three of our most profitable assets during the first quarter of 2012 as well as the negative effects on our operations resulting from Tropical Storm Debby as noted above.

Business and Outlook

We continue to experience a challenging market and pressure on pricing for our services (both day rate and lump sum projects) at current demand levels. While our utilization is improving, we do not expect to see improvement in pricing until we experience sustained improvements in demand and utilization levels. Also, since the Macondo well blowout in 2010, there continues to be a significant amount of uncertainty in the market regarding the U.S. regulatory environment for our industry. We believe this uncertainty, coupled with reduced natural gas prices, will continue to affect our customers' spending levels in the U.S. Gulf of Mexico for the near term. Although it is unclear how long the challenging market conditions will continue, we believe the intermediate and long-term outlook for our business remains favorable in domestic markets as capital spending will be required to replenish offshore oil and natural gas production. For example, the permitting activity in the U.S. Gulf of Mexico, which affects all phases of our business, is improving. Additionally, domestic operators will be required to satisfy "idle iron" regulations and other directives promulgated by the Bureau of Safety and Environmental Enforcement regarding the decommissioning of platforms and pipelines in the U.S. Gulf of Mexico, which should drive long-term demand for our services.

Internationally, we continue to believe the markets we currently serve are improving. We have completed several large projects in various international regions during 2012 and believe additional large projects will be awarded during the remainder of the year.

Backlog

As of June 30, 2012, our backlog supported by written agreements or contract awards totaled approximately $238 million, compared to approximately $178 million as of December 31, 2011 and $176.1 million at June 30, 2011. Approximately 71% of our current backlog is expected to be performed during 2012, and the remainder is expected to be performed in 2013 and beyond. The contracts included in our backlog are cancellable without penalty in most cases. Backlog is not a reliable indicator of total annual revenues because it does not include the substantial portion of our revenues that is derived from the spot market.

Vessel Utilization

We believe vessel utilization is one of the most important performance measurements for our business. Utilization is a strong indicator of demand for our vessels and, as a result, the contract rates we may charge for our services. As a marine contractor with significant operations in the Gulf of Mexico, our vessel utilization is typically lower during the winter and early spring due to unfavorable weather conditions in the Gulf of Mexico. Accordingly, we attempt to schedule our drydock inspections and other routine and preventative maintenance programs during this period. From time to time, we temporarily remove from service certain vessels based on current market conditions. The bid and award process during the first two quarters typically leads to the commencement of construction activities during the second and third quarters.

During the second quarter of 2012, our vessel utilization was affected by Tropical Storm Debby which moved through the Gulf of Mexico during the latter half of June and idled over half of our active vessels during this time. This resulted in a decrease of 83 total days of vessel utilization, or 3%, across our fleet for the second quarter of 2012 based on the number of days these vessels were idled compared to the days they were expected to work. These vessles were mobilized back to the job site prior to the start of the third quarter.

The following table shows the effective utilization of our vessels during the three and six months ended June 30, 2012 and 2011:

                                                                 Three Months Ended June 30,                         Six Months Ended June 30,
                                                              2012                        2011                  2012                          2011
                                                         Utilization(1)              Utilization(1)        Utilization(1)                Utilization(1)
Saturation Diving                                                      72 %                        60 %                  63 %                           54 %
Surface and Mixed Gas Diving                                           41 %                        46 %                  32 %                           40 %
Construction Barges                                                    39 %                        27 %                  30 %                           21 %
Entire Fleet                                                           48 %                        43 %                  38 %                           37 %

(1) 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 period, including those temporarily removed from service, but excluding vessels permanently removed from service or while in drydock.

Results of Operations

Revenues and Gross Profit (Loss)

                          Three Months Ended                                                     Six Months Ended
                               June 30,                     Increase/(Decrease)                      June 30,                    Increase/(Decrease)
                         2012             2011                 2012 to 2011                    2012             2011                 2012 to 2011
                       (in thousands, except %)          (in thousands, except %)            (in thousands, except %)          (in thousands, except %)
Revenues               $    120,321      $ 124,040       $         (3,719 )         (3 )%    $    180,338      $ 219,471       $       (39,133 )        (18 )%
Gross profit (loss)             153          1,654                 (1,501 )        (91 )%         (16,267 )       (5,572 )             (10,695 )       (192 )%

Revenues for the three months ended June 30, 2012 decreased slightly compared to the same period in 2011 primarily due to the impact of Tropical Storm Debby, which idled over half of our active vessels during the latter half of June as the storm moved through the Gulf of Mexico. Revenues for the six months ended June 30, 2012 decreased compared to the same period in 2011 as three of our most profitable assets were in regulatory drydock for most of the first quarter of 2012 and did not generate significant revenue as compared to the same period in 2011.

Gross profit for the three months ended June 30, 2012 decreased compared to the same period in 2011 due to the affects of Tropical Storm Debby discussed above. The gross loss recorded for the six months ended June 30, 2012 includes the negative impact from the first quarter of 2012 of the regulatory drydock of our three most profitable assets.

Selling and administrative expenses

                         Three Months Ended                                                     Six Months Ended
                              June 30,                     Increase/(Decrease)                      June 30,                     Increase/(Decrease)
                        2012             2011                 2012 to 2011                    2012             2011                 2012 to 2011
                      (in thousands, except %)          (in thousands, except %)            (in thousands, except %)          (in thousands, except %)
Selling and
administrative
expenses               $    12,846       $ 16,883       $        (4,037 )         (24 )%    $     26,338       $ 32,836       $         (6,498 )        (20 )%
Selling and
administrative
expenses as a
percentage of
revenues                        11 %           14 %                  (3 )%          -                 15 %           15 %                    0 %          -

Selling and administrative expenses for the three and six months ended June 30, 2012 decreased from the same periods ended June 30, 2011 by $4.0 million, or 24%, and $6.5 million, or 20%, respectively. The decrease from 2011 was due to our cost saving initiatives, including headcount reductions in 2011.

Asset impairment

                       Three Months Ended                                                     Six Months Ended
                            June 30,                      Increase/(Decrease)                     June 30,                     Increase/(Decrease)
                     2012              2011                  2012 to 2011                   2012             2011                 2012 to 2011
                         (in thousands)                (in thousands, except %)                (in thousands)               (in thousands, except %)

During the first quarter of 2012 we incurred $1.4 million in impairment charges relating to a non-core asset, reducing the fair value of the asset to zero.

(Gain) on sales of assets and other (income) expense, net

                     Three Months Ended                                             Six Months Ended
                          June 30,                  Increase/(Decrease)                 June 30,                 Increase/(Decrease)
                      2012          2011                2012 to 2011                2012         2011                2012 to 2011
                       (in thousands)             (in thousands, except %)           (in thousands)            (in thousands, except %)
(Gain) on sale
of assets and
other               $    (3,522 )   $  (487 )     $         3,035          623 %   $ (3,333 )   $ (3,319 )     $         14               -
Other (income)
expense, net                144          14                   130          929 %       (197 )        162                359             222 %

During the three months ended June 30, 2012, we sold our Singapore facility for net proceeds of $6.4 million and other assets, including a construction barge, for net proceeds of $4.3 million. We recognized a net gain of $3.5 million on the sales. The net gain for the first six months of 2012 includes a loss of $0.1 million we recognized on the sale of a dive support vessel in the first quarter of 2012 for net proceeds of $9.9 million. The dive support vessel and our Singapore facility were recorded in other current assets on our consolidated balance sheet at December 31, 2011.

During the three months ended June 30, 2011, we sold our Sabine Pass facility, one of our barges that was previously damaged by fire and miscellaneous equipment to various third parties for $3.9 million, and we recognized a net gain on the sales of $0.5 million. During the first quarter of 2011, we received an insurance settlement in the amount of $2.8 million for a specific claim incurred in a prior year related to a fire that damaged one of our barges.

Other (income) expense is primarily from foreign currency gains and losses on transactions conducted in currencies other than the U.S. dollar.

(Recovery of) doubtful accounts

                        Three Months Ended                                                    Six Months Ended
                             June 30,                      Increase/(Decrease)                    June 30,                    Increase/(Decrease)
                     2012             2011                    2012 to 2011                  2012           2011                  2012 to 2011
                          (in thousands)                (in thousands, except %)               (in thousands)              (in thousands, except %)
(Recovery of)
doubtful

No provision for doubtful accounts was recorded during the three and six months ended June 30, 2012. The recovery of doubtful accounts during the second quarter of 2011 was due to a collection of a receivable previously reserved as bad debt on a West Africa project in 2009.

Interest expense, net

                          Three Months Ended                                               Six Months Ended
                               June 30,                   Increase/(Decrease)                  June 30,                  Increase/(Decrease)

The increase in interest expense, net for the three and six months ended June 30, 2012 from the same period in 2011 is primarily due to an increase in the applicable margin of our variable interest rate debt and an increase in the average amount outstanding on our revolving credit facility during the first six months of 2012.

Income tax benefit

                       Three Months Ended                                             Six Months Ended
                            June 30,                  Increase/(Decrease)                 June 30,                  Increase/(Decrease)
                        2012          2011               2012 to 2011                2012          2011                 2012 to 2011
Income tax expense

Our effective tax benefit rate was 38.4% and 28.8% for the three and six months ended June 30, 2012, respectively, compared to an effective tax benefit rate of 66.2% and 36.4% for the three and six months ended June 30, 2011, respectively. The effective tax benefit rate for the six months ended June 30, 2012 differs from the statutory rate primarily due to the mix of pre-tax profit or loss between U.S. and international taxing jurisdictions with varying statutory rates. The effective tax benefit rate for the six months ended June 30, 2011 differs from the statutory rate and was significantly higher primarily due to a one time change in the management structure of certain foreign operations and the pricing agreement between the U.S. and certain foreign subsidiaries.

For the three and six months ended June 30, 2011, we determined that a reliable estimate of our annual effective tax rate could not be determined for the year ended December 31, 2011 based on the volatility in pretax income or loss and its impact on estimating the annual effective tax rate for the year. Therefore, the interim effective tax benefit rate at June 30, 2011 was based on the actual year-to-date results. Our income tax benefit rate for the three and six months ended June 30, 2012 was computed by applying estimated annual effective tax rates to income before income taxes for the interim period.

Loss attributable to Cal Dive

                       Three Months Ended                                                  Six Months Ended
                            June 30,                    Increase/(Decrease)                    June 30,                    Increase/(Decrease)
                        2012           2011                2012 to 2011                   2012           2011                 2012 to 2011
                      (in thousands, except                                              (in thousands, except
                         per share data)             (in thousands, except %)               per share data)             (in thousands, except %)
Loss attributable
to Cal Dive            $   (5,699 )   $ (5,014 )     $          (685 )         (14 )%    $  (30,004 )   $ (23,759 )     $         (6,245 )        (26 )%
Weighted average
diluted shares
outstanding                92,678       91,659                 1,019             1 %         92,699        91,674                  1,025            1 %
Diluted loss per
share                  $    (0.06 )   $  (0.05 )     $         (0.01 )         (20 )%    $    (0.32 )   $   (0.26 )     $          (0.06 )        (23 )%

Loss for the three and six months ended June 30, 2012 increased from the same periods ended June 30, 2011 by $0.7 million, or 14%, and $6.2 million, or 26%, respectively, as a result of the factors described above.

Liquidity and Capital Resources

We require capital to fund ongoing operations, organic growth initiatives and pursue joint ventures or acquisitions. Our primary sources of liquidity are cash flows generated from our operations, available cash and cash equivalents and availability under our revolving credit facility. We use, and intend to continue using, 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 and joint venture opportunities, including vessels and marine contracting businesses. We expect to be able to fund our activities for the next 12 months with cash flows generated from our operations, available cash and cash equivalents and available borrowing under our revolving credit facility. Our access to liquidity to fund our business activities and achieve our near-term and long-term growth objectives depends on the availability of financing in the capital markets which have recently experienced significant volatility. Given the current market conditions and our reliance on our revolving credit facility, further deterioration in the market conditions could adversely affect our liquidity position.

At June 30, 2012, we had $10.1 million of cash on hand and $106.9 million available for borrowing under our revolving credit facility. With the execution of Amendment No. 2, discussed below, we received a waiver of our consolidated leverage ratio covenant for the June 30, 2012 quarterly determination, which provided almost full access to our revolving credit facility. Absent this waiver, the effective availability under our revolving credit facility would have been $10.2 million at June 30, 2012 due to the limitation imposed by the leverage ratio covenant. At June 30, 2012, we had $27.0 million borrowed and $14.8 million of letters of credit issued and outstanding under our revolving credit facility. Outstanding warranty and bid bonds at June 30, 2012 were $2.6 million. The availability under our revolving credit facility is reduced by outstanding borrowings and letters of credit, and can be limited by our consolidated leverage (debt to earnings before interest, income taxes and depreciation and amortization) ratio covenant and our collateral coverage sublimit.

On July 18, 2012, we issued $86.25 million aggregate principal amount of 5.0% convertible senior notes due 2017. The Notes mature July 15, 2017. We received approximately $83.0 million of net proceeds, after deducting the initial purchasers' discounts and commissions and transaction expenses. We used all of the net proceeds to repay a portion of the term loan under our senior secured credit facility. The term loan balance is approximately $48.8 million after this repayment. See note 12 to the financial statements contained herein for further details. With the reduction of our term loan and the exclusion of the notes from our consolidated leverage ratio (discussed below), we have greater access to the full capacity of our revolving credit facility. This increased capacity provides additional liquidity during periods of high working capital demands. Additionally, with the repayment of a portion of our term loan, the required quarterly principal payments have been reduced to $0.7 million through June 30, 2013, increasing to $1.4 million for the duration of the remaining term of the Credit Agreement.

Capital Expenditures

For 2012, we expect capital expenditures, excluding acquisitions or investments in joint ventures, to approximate $36.1 million for vessel improvements and replacements, and $8.4 million for regulatory drydock costs, of which $33.7 million and $8.4 million, respectively, had been incurred through June 30, 2012. Our capital expenditure program for 2012 is subject to market conditions, including activity levels, commodity prices and industry capacity. We currently anticipate funding our remaining 2012 capital expenditures through a combination of cash on hand and borrowings under our revolving credit facility.

Credit Facility

We have a senior secured credit facility, consisting of a variable-interest term loan and a variable-interest $150 million revolving credit facility, with certain financial institutions, which matures on April 26, 2016. At June 30, 2012, we had outstanding debt of $131.8 million under our term loan, including current maturities, and $27.0 million outstanding under our revolving credit facility. The revolving credit facility and the term loan mature on April 26, 2016. We may prepay all or any portion of the outstanding balance of the term loan without prepayment penalty. We may borrow from or repay the revolving credit facility as business needs merit. At June 30, 2012, we were in compliance with all debt covenants under our Credit Agreement.

By Amendment No. 1, we amended the Credit Agreement to, among other things, (i) permanently reduce the size of the revolving credit facility from $300 million to $150 million and temporarily remove the $100 million accordion feature; (ii) require the maximum permitted leverage ratio to not be greater than 5.75x for the quarter ended June 30, 2012, 4.25x for the quarter ended September 30, 2012, 4.00x for the quarter ended December 31, 2012, and 3.75x for each quarter thereafter; (iii) eliminate the EBITDA to interest financial covenant effective immediately, and, beginning in the fiscal quarter ended June 30, 2012, replace it with a fixed charge coverage ratio covenant of not less than 1.25x; and (iv) temporarily add a collateral coverage sublimit on the amount available for borrowing under the revolving credit facility.

Effective July 9, 2012, we entered into Amendment No. 2 to: (i) allow us to issue convertible senior notes that may be converted into cash, common stock or a combination thereof; (ii) exclude the unsecured indebtedness evidenced by any convertible senior notes from the definition of "Consolidated Funded Indebtedness" (as defined in the Credit Agreement), which, as a result, excludes such unsecured indebtedness from the calculation of the consolidated leverage ratio; (iii) require us to maintain a threshold of $25 million in liquidity in certain circumstances; (iv) remove the requirement that we maintain a consolidated leverage ratio for the quarter ended June 30, 2012 of not more than 5.75x; and (v) remove the requirement that we maintain a consolidated fixed charge coverage ratio for the quarter ended June 30, 2012 of not less than 1.25x.

Cash Flows

Our cash flows depend on the level of spending by oil and natural gas companies
for marine contracting services. Certain sources and uses of cash, such as the
level of discretionary capital expenditures, issuance and repurchases of debt
and of our common stock, are within our control and are adjusted as necessary
based on market conditions. The following is a discussion of our cash flows for
the six months ended June 30, 2012 and 2011.

                                                                  Six Months Ended
                                                                      June 30,
                                                                 2012          2011
Net cash provided by (used in):
Operating
activities                                                     $  (8,831 )   $ (25,244 )
Investing
activities                                                        (5,533 )     (16,767 )
Financing
activities                                                         8,832        18,964
Effect of exchange rate changes on cash and cash equivalents           -            71
Net decrease in cash and cash
equivalents                                                    $  (5,532 )   $ (22,976 )

Operating Activities. Net cash used in operating activities totaled $8.8 million during the first six months of 2012 compared to net cash used of $25.2 million in the first six months of 2011. Cash used in operations for 2012 was primarily driven by our loss recorded (adjusted for non-cash items, such as depreciation and amortization and stock-based compensation).

Investing Activities. Net cash used in investing activities was $5.5 million during the first six months of 2012 compared to $16.8 million in the first six months of 2011. During the first six months of 2012 and 2011, capital expenditures were $26.2 million and $23.5 million, respectively. Cash generated . . .