Overview

Recent Developments

As of December 31, 2008, Helix owned 61,506,691 shares, or 57.2%, of our common stock. During 2009, Helix has reduced its ownership to 500,000 of our shares, or less than 1% of our common stock, at September 30, 2009 through the following transactions:

·

On January 28, 2009, we repurchased and retired approximately 13.6 million shares of our common stock from Helix for approximately $86 million, or $6.34 per share. We funded the share repurchase with borrowings of $100 million under our revolving credit facility.

·

On June 10, 2009, Helix completed a secondary public offering of 20 million shares of our common stock, and simultaneously with the closing of the offering, we repurchased from Helix approximately 1.65 million shares of our common stock for approximately $14 million, or $8.50 per share, the price per share paid by the public investors in the offering and retired such shares. Helix sold an additional 2.6 million shares of common stock on June 18, 2009 upon the exercise of the underwriters' over-allotment option granted by Helix in connection with the secondary offering. We did not receive any proceeds from Helix's sale of our common stock.

·

On September 23, 2009, Helix completed an additional secondary public offering of 20.6 million shares of our common stock for $10.00 per share. Helix sold an additional 2.6 million shares of our common stock on September 25, 2009 upon the exercise of the underwriters' over-allotment option granted by Helix in connection with this secondary offering. We did not receive any proceeds from Helix's sale of our common stock.

Management believes this reduction of Helix's position and diversification of ownership of our shares in the public market is a positive development as it increases the liquidity of our common stock. We expect that Helix will continue to remain an important Gulf of Mexico customer of ours.

On September 30, 2009, we announced that we were awarded a pipe-in-pipe contract for work in the South China Sea. This follows our first contract in China which was awarded in April of this year for pipe lay work in Bohai Bay. The construction contract is expected to generate total revenue of approximately $17.6 million and will utilize the derrick/lay barge Sea Horizon.

We also announced that we have agreed to a three month extension on a long term contract with one of our key customers for continued salvage work in the Gulf of Mexico through December 31, 2009.

Business and Outlook

The onset of the global recession in the fall of 2008 and the resulting decrease in worldwide demand for hydrocarbons caused many oil and gas companies to curtail capital spending. Despite the current financial market

Year-to-Date Performance

We earned net income of $73.8 million for the nine months ended September 30, 2009 compared to $63.4 million for the same period in 2008. The $10.4 million improvement over the same period last year is due to increased domestic and international new construction activities and increased demand for our diving assets for inspection, repair and salvage work following hurricanes Gustav and Ike, as well as lower interest expense resulting from lower variable interest rates on our credit facility. The total fleet effective utilization was 65% and 64%, respectively, for the three and nine months ended September 30, 2009 compared to 80% and 59%, respectively, for the same periods in 2008.

Backlog

As of September 30, 2009, our backlog supported by written agreements or contract awards totaled approximately $213 million, compared to approximately $350 million as of December 31, 2008 and $506 million as of September 30, 2008.
Approximately 53% of our backlog is expected to be performed during the remainder of 2009 and 38% is expected to be performed during 2010. These backlog contracts are cancellable without penalty in most cases. Backlog is not a reliable indicator of our total annual revenues because a substantial portion of our revenues is derived from the spot market, which is not reflected in our backlog.

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. The seasonal impact on utilization during the first half of 2009 was somewhat offset by increased demand for inspection, repair and salvage work as a result of the damage caused by hurricanes Gustav and Ike.

The following table shows the size of our fleet and effective utilization of our vessels during the three and nine months ended September 30, 2009 and 2008:

Three Months Ended September 30, Nine Months Ended September 30, 2009 2008 2009 2008 Number of Utilization Number of Utilization Number of Utilization Number of Utilization

                     Vessels      (1)      Vessels      (1)        Vessels      (1)      Vessels      (1)
Saturation Diving   8             84%     8             95%       8             88%     8             86%
Surface and Mixed   13            63%     13            80%       13            65%     13            56%
Gas Diving

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 vessels in drydocking or vessels taken out of service for upgrades.

Critical Accounting Estimates and Policies

Our accounting policies are described in the notes to our audited consolidated financial statements included in our 2008 Annual Report on Form 10-K. We prepare our financial statements in conformity with GAAP. Our results

Results of Operations

Comparison of Three Months Ended September 30, 2009 and 2008

Revenues. For the three months ended September 30, 2009, our revenues decreased $64.1 million, or 23%, to $214.6 million, compared to $278.7 million for the three months ended September 30, 2008. The decrease was due to decreased new construction activity in the Gulf of Mexico and activity relating to a large LNG offshore terminal project located near the U.S. East Coast, a significant portion of which was performed during the third quarter of 2008. This decrease was partially offset by increased pipelay activity in Mexico and China and increased hurricane repair activity in the Gulf of Mexico following hurricanes Gustav and Ike that passed through the Gulf of Mexico during the third quarter of 2008. The total fleet utilization was 65% for the third quarter of 2009 compared to 80% for the same period in 2008.

Gross profit. Gross profit for the three months ended September 30, 2009 decreased $22.4 million, or 24%, to $70.1 million, compared to $92.5 million for the three months ended September 30, 2008. The decrease was primarily due to decreased vessel utilization as a result of decreased new construction activity, partially offset by increased pipelay activity in Mexico and China.

Selling and administrative expenses. Selling and administrative expenses of $17.6 million for the three months ended September 30, 2009 were $2.2 million lower than the $19.8 million incurred in the three months ended September 30, 2008. Selling and administrative expenses as a percentage of net revenues were 8% for the third quarter of 2009 compared to 7% for the third quarter of 2008.

Provision for doubtful accounts. Provision for doubtful accounts of $0.2 million were recorded in the three months ended September 30, 2009 based on management's judgment that the collection of certain trade receivables recorded on our balance sheet at September 30, 2009 had become doubtful based on changes in current facts and circumstances. No provision for doubtful accounts was recorded during the three months ended September 30, 2008.

Net interest expense. Net interest expense in the third quarter of 2009 was $3.2 million compared to $5.0 million in the third quarter of 2008. The decrease was due to lower variable interest rates associated with our credit facility during the third quarter of 2009 compared to the third quarter of 2008.

Other income (expense), net. Other income, net was $0.2 million in the third quarter of 2009 compared to other expense of $0.2 million in the third quarter of 2008. The increase in other income is primarily due to foreign currency exchange gains on transactions conducted in currencies other than the U.S. dollar.

Income taxes. Income taxes were $16.3 million and $21.6 million for the three months ended September 30, 2009 and 2008, respectively. The effective tax rate for the respective periods was 33.2% for 2009 and 32.0% for 2008. The rate increase was primarily due to a higher percentage of profits being derived from the U.S. tax jurisdiction with a higher tax rate in the 2009 period.

Net income. Net income of $32.9 million for the three months ended September 30, 2009 was $13.0 million less than net income of $45.9 million for the three months ended September 30, 2008 as a result of the factors described above.

Revenues. For the nine months ended September 30, 2009, our revenues increased $86.7 million, or 15%, to $682.0 million, compared to $595.3 million for the nine months ended September 30, 2008. This increase is due to increased domestic and international construction activities and increased demand for hurricane-related repair and salvage activity following hurricanes Gustav and Ike that passed through the Gulf of Mexico in the third quarter of 2008. The total fleet effective utilization was 64% for the first nine months of 2009 compared to 59% for the same period in 2008.

Gross profit. Gross profit for the nine months ended September 30, 2009 increased $15.2 million, or 9%, to $179.7 million, compared to $164.5 million for the nine months ended September 30, 2008. This increase is due to increased domestic and international construction activities and increased demand for hurricane-related repair and salvage activity following hurricanes Gustav and Ike that passed through the Gulf of Mexico in the third quarter of 2008. In addition, we recorded a $6.1 million reduction to cost of sales during the nine months ended September 30, 2009 related to insurance recoveries, net of expenses recorded, for damages incurred to our property and equipment during hurricanes Gustav and Ike and a claim from a prior year incurred during the normal course of business.

Selling and administrative expenses. Selling and administrative expenses of $53.7 million for the nine months ended September 30, 2009 were $1.2 million less than the $54.9 million incurred in the nine months ended September 30, 2008. Selling and administrative expenses as a percentage of net revenues were 8% for the nine months ended September 30, 2009 compared to 9% for the same period in 2008.

Provision for doubtful accounts. Provision for doubtful accounts of $6.5 million were recorded in the nine months ended September 30, 2009 based on management's judgment that the collection of certain trade receivables recorded on our balance sheet at December 31, 2008 had become doubtful based on changes in current facts and circumstances. No provision for doubtful accounts was recorded during the nine months ended September 30, 2008.

Net interest expense. Net interest expense in the first nine months of 2009 was $10.6 million compared to $16.5 million in the first nine months of 2008. This decrease was due to lower variable interest rates associated with our credit facility during the nine months ended September 30, 2009 compared to the same period in 2008.

Other expenses, net. Other expenses, net was $0.4 million for the nine months ended September 30, 2009 and 2008.

Income taxes. Income taxes were $34.7 million and $29.5 million for the nine months ended September 30, 2009 and 2008, respectively. The effective tax rate for the respective periods was 32.0% for 2009 and 31.7% for 2008. The rate increase was primarily due to a higher percentage of profits being derived from the U.S. tax jurisdiction with a higher tax rate in the 2009 period.

Net income. Net income of $73.8 million for the nine months ended September 30, 2009 was $10.4 million more than net income of $63.4 million for the nine months ended September 30, 2008 as a result of the factors described above.

Liquidity and Capital Resources

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 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 opportunities, including vessels and marine contracting businesses. We believe that our liquidity will provide the necessary capital to achieve our near-term and long-term growth objectives. We expect to be able to fund our activities for the remainder of 2009 and 2010 with cash flows generated from our operations and available borrowings under our revolving credit facility.

We have a senior secured credit facility, which consists of a term loan and a $300 million revolving credit facility, with certain financial institutions. At September 30, 2009, we had outstanding debt of $255 million under the term loan and $100 million under the revolving credit facility, $124.6 million of cash on hand, and $189.8

As of October 28, 2009, we had outstanding debt of $355 million under our credit facility, $148.4 million of cash on hand and $189.5 million available under our revolving credit facility.

We remain focused on our liquidity, capital spending and access to capital, as well as the financial wellbeing of our clients, suppliers, and the lending institutions that participate in our credit facility.

Cash Flows

During the nine months ended September 30, 2009 and 2008, we generated positive operating cash flow of approximately $173.2 million and $70.6 million, respectively We utilized our operating cash flow to fund capital expenditures and recertification costs and to reduce our debt obligations. In January 2009, we borrowed $100 million under our revolving credit facility to repurchase and retire $86 million of our common stock from Helix. The remaining $14 million of cash borrowed was used to repurchase and retire additional shares of our common stock from Helix in June 2009. For the nine months ended September 30, 2009 and 2008, our cash flows are summarized as follows (in thousands):

                                                         Nine Months       Nine Months
                                                            Ended             Ended
                                                        September 30,     September 30,
                                                            2009              2008
Cash flow from operations:
Net income                                              $      73,787     $      63,403
Other non-cash income adjustments                              74,779            68,402
Change in accounts receivable and other current assets         61,174             7,775
Change in accounts payable and accrued liabilities            (24,247)          (53,906)
Additions to deferred drydock costs                           (10,714)          (15,361)
Other noncurrent, net                                          (1,618)              293
Total cash flow from operations                               173,161            70,606

Other cash inflows:
Net proceeds from drawdowns on credit facility                100,000            61,100
Proceeds from sales of assets                                      -              1,778
Total other cash inflows                                      100,000            62,878

Other cash outflows:
Capital expenditures                                          (49,131)          (70,750)
Repayment on credit facility                                  (60,000)         (101,100)
Repurchase of common stock from Helix                        (100,000)               -
Total other cash outflows                                    (209,131)         (171,850)

Net change in cash                                      $      64,030     $     (38,366)

Capital Expenditures

We incur capital expenditures for recertification costs relating to regulatory drydocks on our vessels as well as costs for major replacements and improvements, that extend the vessel's economic useful life. Inclusive of accrued costs, total capital expenditures incurred for these activities during the three and nine months ended September 30, 2009 include $2.2 million and $11.7 million, respectively, for recertification costs and $13.5 million and $50.8 million, respectively, relating to steel and equipment replacement, equipment purchases and operating lease improvements. For fiscal 2009, we anticipate capital expenditures, excluding acquisitions, of $78 million for recertification costs for regulatory drydocks and for replacements and vessel improvements. We may also incur capital expenditures for strategic investments and acquisitions.

In December 2007, we entered into a senior secured credit facility with certain financial institutions consisting of a $375 million term loan and a $300 million revolving credit facility. The following is a summary description of the terms of the credit agreement and other loan documents.

The term loans and the revolving loans consist of loans bearing interest in relation to the Federal Funds Rate or to the lenders' base rate, known as Base Rate Loans, and loans bearing interest in relation to a LIBOR rate, known as Eurodollar Rate Loans, in each case plus an applicable margin. The margins on the revolving loans range from 0.75% to 1.50% on Base Rate Loans and 1.75% to 2.50% on Eurodollar Rate Loans. The margins on the term loan are 1.25% on Base Rate Loans and 2.25% on Eurodollar Rate Loans. The revolving loans and the term loan mature on December 11, 2012, with quarterly principal payments of $20 million being payable on the term loan. We may prepay all or any portion of the outstanding balance of the term loan without prepayment penalty. In addition, a commitment fee ranging from 0.375% to 0.50% is payable on the portion of the lenders' aggregate commitment which is not used for a borrowing or a letter of credit. Margins on the revolving loans and the commitment fee fluctuate in relation to our consolidated leverage ratio as provided in the credit agreement.

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 September 30, 2009, we were in compliance with all debt covenants.

On January 26, 2009, we borrowed $100 million under our revolving credit facility, which we used to fund the repurchase from Helix and retirement of approximately 13.6 million shares of our common stock in January 2009 for $6.34 per share, and approximately 1.65 million shares of our common stock in June 2009 for $8.50 per share. At September 30, 2009, we had $255 million outstanding under the term loan, $100 million outstanding under the revolving credit facility and had issued letters of credit totaling $10.2 million to secure performance bonds. At September 30, 2009, we had $189.8 million available under the revolving credit facility. We expect to use the remaining availability under the revolving credit facility for working capital, strategic investments and acquisitions, and other general corporate purposes as needed.

Off-Balance Sheet Arrangements

As of September 30, 2009, 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 2008 Annual Report on Form 10-K.

Item 3.