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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|ý                                            | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 
|-------------------------------------------- | ----------------------------------------------------------------------------------------
|For the quarterly period ended June 30, 2002
|or                                          
|o                                            | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-23653

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HORIZON OFFSHORE, INC.

(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction
of incorporation or organization)

76-0487309(I.R.S. employer
identification no.)


2500 CityWest Boulevard, Suite 2200
Houston, Texas 77042(Address of principal executive offices)
(Zip code)

(713) 361-2600(Registrant's telephone number, including area code)

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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

The
number of shares of the registrant's common stock outstanding as of August 9, 2002 was 26,346,067.

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PART IFINANCIAL INFORMATION

Item 1.Financial Statements

HORIZON OFFSHORE, INC. AND SUBSIDIARIES    CONSOLIDATED BALANCE SHEETS    (In thousands, except share data)

|                                          |                                                                                                                 | June 30,
2002               |                            | December 31,
2001 |       
|----------------------------------------- | --------------------------------------------------------------------------------------------------------------- | --------------------------- | -------------------------- | ----------------- | ------
|
|ASSETS                                    |                                                                                                                
|CURRENT ASSETS:                           |                                                                                                                 |                             |                            |                   |       
|                                          | Cash and cash equivalents                                                                                       |                             | $                          | 3,305             |       
|                                          | Accounts receivable                                                                                            |                             |                            |                   |       
|                                          |                                                                                                                 | Contract receivables        |                            |                   | 51,074
|                                          |                                                                                                                 | Costs in excess of billings |                            |                   | 89,239
|                                          |                                                                                                                 | Affiliated parties          |                            |                   | 158   
|                                          | Other current assets                                                                                            |                             |                            | 5,317             |       
|                                          |                                                                                                                 |                             |                            |                   |       
|                                          |                                                                                                                 |                             | Total current assets       |                   |       
|PROPERTY AND EQUIPMENT, net               |                                                                                                                 |                             | 246,328                    |                   |       
|INVENTORY                                 |                                                                                                                 |                             | 3,262                      |                   |       
|OTHER ASSETS                              |                                                                                                                 |                             | 10,178                     |                   |       
|                                          |                                                                                                                 |                             |                            |                   |       
|                                          |                                                                                                                 | $                           | 408,861                    |                   | $     
|                                          |                                                                                                                 |                             |                            |                   |       
|LIABILITIES AND STOCKHOLDERS' EQUITY      |                                                                                                                
|CURRENT LIABILITIES:                      |                                                                                                                 |                             |                            |                   |       
|                                          | Accounts payable                                                                                                |                             | $                          | 35,445            |       
|                                          | Accrued liabilities                                                                                             |                             |                            | 14,121            |       
|                                          | Accrued job costs                                                                                               |                             |                            | 31,079            |       
|                                          | Billings in excess of costs                                                                                     |                             |                            | 1,656             |       
|                                          | Current maturities of long-term debt                                                                            |                             |                            | 8,190             |       
|                                          |                                                                                                                 |                             |                            |                   |       
|                                          |                                                                                                                 |                             | Total current liabilities  |                   |       
|LONG-TERM DEBT, net of current maturities |                                                                                                                 |                             | 84,226                     |                   |       
|DEFFERED INCOME TAXES                     |                                                                                                                 |                             | 14,134                     |                   |       
|                                          |                                                                                                                 |                             |                            |                   |       
|                                          |                                                                                                                 |                             | Total liabilities          |                   |       
|COMMITMENTS AND CONTINGENCIES             |                                                                                                                 |                             |                            |                   |       
|STOCKHOLDERS' EQUITY:                     |                                                                                                                 |                             |                            |                   |       
|                                          | Preferred stock, $1 par value, 5,000,000 shares authorized, none issued and outstanding                         |                             |                            |                  |       
|                                          | Common stock, $1 par value, 35,000,000 shares authorized, 27,289,782 and 24,244,598 shares issued, respectively |                             |                            | 16,583            |       
|                                          | Additional paid-in capital                                                                                      |                             |                            | 182,770           |       
|                                          | Retained earnings                                                                                               |                             |                            | 26,893            |       
|                                          | Treasury stock, 950,768 and 973,505 shares, respectively                                                        |                             |                            | (6,236            | )     
|                                          |                                                                                                                 |                             |                            |                   |       
|                                          |                                                                                                                 |                             | Total stockholders' equity |                   |       
|                                          |                                                                                                                 |                             |                            |                   |       
|                                          |                                                                                                                 | $                           | 408,861                    |                   | $     
|                                          |                                                                                                                 |                             |                            |                   |       

The
accompanying notes are an integral part of these consolidated financial statements.

2

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES    CONSOLIDATED STATEMENTS OF OPERATIONS    (Unaudited)  (In thousands, except share and per share data)

|                                                                |                                      | Three Months Ended
June 30, |        | Six Months Ended
June 30, |  
|--------------------------------------------------------------- | ------------------------------------ | --------------------------- | ------ | ------------------------- | -
|
|CONTRACT REVENUES                                               |                                      | $                           | 64,291 |                           | $
|COST OF CONTRACT REVENUES                                       |                                      |                             | 54,751 |                           |  
|                                                                |                                      |                             |        |                           |  
|                                                                | Gross profit                         |                             |        | 9,540                     |  
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                    |                                      |                             | 4,391  |                           |  
|                                                                |                                      |                             |        |                           |  
|                                                                | Operating income                     |                             |        | 5,149                     |  
|OTHER:                                                          |                                      |                             |        |                           |  
|                                                                | Interest expense                     |                             |        | (960                      | )
|                                                                | Interest income                      |                             |        | 28                        |  
|                                                                | Loss on sale of fixed asset          |                             |        |                          |  
|                                                                | Other income (expense)               |                             |        | (428                      | )
|                                                                |                                      |                             |        |                           |  
|NET INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS           |                                      |                             | 3,789  |                           |  
|INCOME TAX PROVISION                                            |                                      |                             | 1,175  |                           |  
|                                                                |                                      |                             |        |                           |  
|NET INCOME BEFORE EXTRAORDINARY LOSS                            |                                      |                             | 2,614  |                           |  
|EXTRAORDINARY LOSS, NET OF TAXES OF $306                        |                                      |                             |       |                           |  
|                                                                |                                      |                             |        |                           |  
|NET INCOME                                                      |                                      | $                           | 2,614  |                           | $
|                                                                |                                      |                             |        |                           |  
|EARNINGS PER SHAREBASIC:                                       |                                      |                             |        |                           |  
|                                                                | Net income before extraordinary loss |                             | $      | 0.10                      |  
|                                                                | Extraordinary loss                   |                             |        |                          |  
|                                                                |                                      |                             |        |                           |  
|Net incomeBASIC                                                |                                      | $                           | 0.10   |                           | $
|                                                                |                                      |                             |        |                           |  
|EARNINGS PER SHAREDILUTED:                                     |                                      |                             |        |                           |  
|                                                                | Net income before extraordinary loss |                             | $      | 0.10                      |  
|                                                                | Extraordinary loss                   |                             |        |                          |  
|                                                                |                                      |                             |        |                           |  
|Net incomeDILUTED                                              |                                      | $                           | 0.10   |                           | $
|                                                                |                                      |                             |        |                           |  
|WEIGHTED AVERAGE SHARES USED IN COMPUTING NET INCOME PER SHARE: |                                      |                             |        |                           |  
|                                                                | BASIC                                |                             |        | 26,260,395                |  
|                                                                | DILUTED                              |                             |        | 26,925,664                |  

The
accompanying notes are an integral part of these consolidated financial statements.

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES    CONSOLIDATED STATEMENTS OF CASH FLOWS    (Unaudited)    (In thousands)

|                                                 |                                                                                             | Six Months Ended
June 30,                                                       |                            
|------------------------------------------------ | ------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ---------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:            |                                                                                             |                                                                                 |                            
|                                                 | Net income                                                                                  |                                                                                 | $                          
|                                                 | Adjustments to reconcile net income to net cash provided by (used in) operating activities |                                                                                 |                            
|                                                 |                                                                                             | Depreciation and amortization                                                   |                            
|                                                 |                                                                                             | Deferred income taxes                                                           |                            
|                                                 |                                                                                             | Loss on sale of fixed asset                                                     |                            
|                                                 |                                                                                             | Expense recognized for issuance of treasury stock for 401(k) plan contributions |                            
|                                                 |                                                                                             | Changes in operating assets and liabilities                                    |                            
|                                                 |                                                                                             |                                                                                 | Accounts receivable        
|                                                 |                                                                                             |                                                                                 | Costs in excess of billings
|                                                 |                                                                                             |                                                                                 | Billings in excess of costs
|                                                 |                                                                                             |                                                                                 | Inventory                  
|                                                 |                                                                                             |                                                                                 | Other assets               
|                                                 |                                                                                             |                                                                                 | Accounts payable           
|                                                 |                                                                                             |                                                                                 | Accrued liabilities        
|                                                 |                                                                                             |                                                                                 | Accrued job costs          
|                                                 |                                                                                             |                                                                                 |                            
|                                                 |                                                                                             |                                                                                 |                            
|CASH FLOWS FROM INVESTING ACTIVITIES:            |                                                                                             |                                                                                 |                            
|                                                 | Purchases and additions to equipment                                                        |                                                                                 |                            
|                                                 |                                                                                             |                                                                                 |                            
|                                                 |                                                                                             |                                                                                 |                            
|CASH FLOWS FROM FINANCING ACTIVITIES:            |                                                                                             |                                                                                 |                            
|                                                 | Borrowings under long-term debt                                                             |                                                                                 |                            
|                                                 | Loan fees                                                                                   |                                                                                 |                            
|                                                 | Principal payments on long-term debt                                                        |                                                                                 |                            
|                                                 | Stock option transactions and other                                                         |                                                                                 |                            
|                                                 | Issuance of common stock                                                                    |                                                                                 |                            
|                                                 |                                                                                             |                                                                                 |                            
|                                                 |                                                                                             |                                                                                 |                            
|                                                 |                                                                                             |                                                                                 |                            
|NET DECREASE IN CASH AND CASH EQUIVALENTS        |                                                                                             |                                                                                 | (4,559                     
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |                                                                                             |                                                                                 | 7,864                      
|                                                 |                                                                                             |                                                                                 |                            
|CASH AND CASH EQUIVALENTS AT END OF PERIOD       |                                                                                             | $                                                                               | 3,305                      
|                                                 |                                                                                             |                                                                                 |                            
|SUPPLEMENTAL DISCLOSURES:                        |                                                                                             |                                                                                 |                            
|                                                 | Cash paid for interest                                                                      |                                                                                 | $                          

The
accompanying notes are an integral part of these consolidated financial statements.

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The consolidated interim financial statements included herein have been prepared by Horizon Offshore, Inc. (a Delaware corporation) and its subsidiaries
(Horizon), and are unaudited, except for the balance sheet at December 31, 2001, which has been prepared from the audited consolidated financial statements. In the opinion of management, the
unaudited consolidated interim financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position as of
June 30, 2002, the statements of operations for each of the three and six month periods ended June 30, 2002 and 2001, and the statements of cash flows for the six months ended
June 30, 2002 and 2001. Although management believes the unaudited interim related disclosures in these consolidated interim financial statements are adequate to make the information presented
not misleading, certain information and footnote disclosures normally included in annual audited financial statements prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules of the Securities and Exchange Commission. The results of operations for the six months ended June 30, 2002 are not necessarily indicative of the
results to be expected for the entire year ending December 31, 2002. The consolidated interim financial statements included herein should be read in conjunction with the audited consolidated
financial statements and notes thereto included in our 2001 Annual Report on Form 10-K.

Organization

Horizon provides marine construction services to the offshore oil and gas industry. These services generally consist of laying and burying marine pipelines for
the transportation of oil and gas, and installing and salvaging production platforms and other marine structures. Work is performed primarily on a fixed-price or day-rate basis or a
combination thereof.

Customers

We have domestic and international operations in one industry segment, the marine construction service industry to off shore oil and gas companies. Our largest
customer during the second quarter was Petróleos Mexicanos (Pemex). Pemex accounted for 39% of consolidated revenues for both the three and six month periods ended June 30, 2002,
compared with 63% and 56% for the three and six month periods ended June 30, 2001, respectively. Cumulative revenues recognized to date on the Pemex projects in Mexico total
$251.7 million as of June 30, 2002, including $55.0 million of claims related to interferences, interruptions, and other delays. Of the $55.0 million of claims,
$7.9 million was recognized in the second quarter of 2002. We have not billed the customer for these claims, which we believe are permitted under our contract, and believe the amount to be
received on these claims will be at least the amount recognized.

The
level of construction services required by a customer depends on the size of its capital expenditure budget for construction for the year and our ability to bid for and be awarded
its projects. Consequently, customers that account for a significant portion of contract revenues in one year may represent an immaterial portion of contract revenues in subsequent years. Most of our
U.S. contracts are typically of short duration, being completed in periods as short as several days to several months. Many of our international construction projects have longer lead times and job
durations.

Interest Capitalization

Interest is capitalized on the average amount of accumulated expenditures for equipment that is undergoing major modifications and refurbishment prior to being
placed into service. Interest is

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capitalized using an effective rate based on related debt until the equipment is placed into service. Interest expense for the three and six month periods ended June 30, 2002 was net of
$490,000 and $1,013,000 of capitalized interest, respectively. Interest expense for the three and six month periods ended June 30, 2001 was net of $181,000 and $202,000 of capitalized interest,
respectively.

Inventory

Inventory consists of structures held for resale from derrick salvage services. The inventory is reported at the lower of cost or market value. Horizon
periodically assesses the net realizable value of its inventory items. Inventory is classified as long-term due to the uncertain timing of the sale of inventory. Subsequent to
June 30, 2002, we sold one of our inventory structures for $0.6 million.

Reclassifications

Certain prior period amounts have been reclassified to conform with the presentation shown in the interim consolidated financial statements. These
reclassifications had no effect on net income or total stockholders' equity, but cash used in operating activities were increased by $4.4 million, cash used in investing activities were reduced
by $3.5 million and cash provided by financing activities were increased by $0.9 million for the period ended June 30, 2001.

2.    PROPERTY AND EQUIPMENT:

Property and equipment consists of the following (in thousands):

June 30,
2002

December 31,
2001Barges, boats and related equipment

$
252,400

$
226,704Land and buildings


19,149


16,509Machinery and equipment


245


245Office furniture and equipment


5,165


3,908Leasehold improvements


2,865


2,498279,824


249,864LessAccumulated depreciation


(33,496
)

(28,418
)Property and equipment, net

$
246,328

$
221,446


During
the six months ended June 30, 2002, we incurred $30.0 million of capital expenditures, including capitalized interest, primarily related to the
upgrade of theSea Horizon,Pecos Horizon, Brazos Horizon, andGulf
Horizon, various vessel improvements and continued work on the spool base at our Port Arthur facility and our Sabine facility.

We
use the units-of-production method for depreciation on our major barges and vessels. We believe that the units-of-production method is
best suited to reflect the actual deterioration and normal wear and tear of our marine equipment. Depreciation expense calculated under the units-of-production method may be
different than depreciation expense calculated under the straight-line method in any period. The annual depreciation based on utilization of each vessel will not be less than 25% of annual
straight-line depreciation, and the cumulative depreciation based on utilization of each vessel will not be less than 50% of cumulative straight-line depreciation.

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3.    STOCKHOLDERS' EQUITY

Stock Offerings

In April 2002, we sold 3,000,000 shares of common stock in a public offering. We received $30.8 million after deducting the underwriting discount
and expenses. We used $20.0 million to reduce indebtedness under our revolving credit facilities and the remainder was used for general corporate purposes.

In
February 2001, we sold 3,800,000 shares of common stock in a public offering. We received $66.0 million after deducting the underwriting discount and expenses. We used
$30.0 million to reduce indebtedness and $5.6 million for the initial purchase of thePecos Horizon. The remainder was used for general
corporate purposes, including funding capital expenditures to expand our operating capabilities, vessel upgrades, and to support our joint venture with Cal Dive International.

Earnings Per Share

Earnings per share data for all periods presented has been computed pursuant to Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share" that requires a presentation of basic earnings per share (basic EPS) and diluted earnings per share (diluted EPS). Basic EPS excludes dilution and is determined by dividing income available to
common stockholders by the weighted
average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities and other contracts to issue common stock were exercised or
converted into common stock. As of June 30, 2002, we had outstanding options covering an aggregate of 2,633,220 shares of common stock, of which 1,618,547 shares were exercisable. Excluded from
the computation of diluted EPS are options to purchase 760,145 shares of common stock, as of June 30, 2002, at a weighted average price of $14.11 per share and 44,000 shares of common stock, as
of June 30, 2001, at a weighted average price of $21.92 per share, as they would be anti-dilutive.

Treasury Stock

During the six month period ended June 30, 2002, we contributed 22,737 shares of treasury stock to our 401(k) Plan. As of June 30, 2002, our
treasury stock consisted of 950,768 shares at a cost of $6.2 million.

4.    LOSS ON EXTINGUISHMENT OF DEBT

In March 2001, we paid $30.0 million to reduce the outstanding principal balance under our term loan, which was subject to a penalty of
$0.9 million ($0.6 million net of taxes of $0.3 million), or $0.02 per share-diluted, for the early extinguishment of debt.

5.    RELATED PARTY TRANSACTIONS

In August 1998, we entered into a master service agreement with Odyssea Marine, Inc. (Odyssea), an entity wholly-owned by Elliott Associates, L.P.
and Elliott International, L.P., our two largest stockholders, to charter certain marine vessels on an as-needed basis from Odyssea. As of June 30, 2002, Horizon had an outstanding
balance payable to Odyssea of $2.6 million. During the six month period ended June 30, 2002, Odyssea billed Horizon $9.6 million and we paid Odyssea $7.6 million for
services rendered under the agreement. Odyssea billed Horizon $8.5 million and we paid Odyssea $7.4 million during the six month

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period ended June 30, 2001. In management's opinion, the transactions were effected on terms similar to those which could have been obtained from unaffiliated third parties.

6.    NOTES PAYABLE

As of June 30, 2002, we had approximately $92.4 million of total outstanding debt. This represents an approximate net decrease of
$26.7 million from December 31, 2001. We used $20.0 million of the $30.8 million net proceeds from a public offering in April 2002, to reduce indebtedness under our
revolving credit facilities. Of the $92.4 million of outstanding debt, $20.9 million represents borrowings on our three revolving credit facilities and $71.5 million represents
borrowings on six term-debt facilities. At June 30, 2002, we had $56.6 million available under our three revolving credit facilities. Interest rates vary from Prime less 0.5%
to LIBOR plus 2.95%. Our average interest rate was 4.64% at June 30, 2002, and our term-debt borrowings currently require $682,913 in monthly principal payments.

7.    RECENT ACCOUNTING PRONOUNCEMENTS

In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 144, "Accounting for the Impairment of Long-Lived
Assets." The FASB's new rules on asset impairment supersede SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," and was effective for our fiscal year beginning January 1, 2002. The adoption of this standard did not impact our consolidated financial statements.

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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with Horizon's consolidated financial statements and notes thereto and
the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2001 Annual Report on Form 10-K. The following
information contains forward-looking statements, which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, actual results may differ from those
expressed or implied by the forward-looking statements.

General

We provide marine construction services to the offshore oil and gas industry. We now operate primarily in the U.S. Gulf of Mexico, offshore Mexico and have
recently expanded our operations to Central and South America, and Southeast Asia. Our marine fleet consists of thirteen vessels, twelve of which are currently operational. We have also established a
joint venture with Cal Dive to participate in the ultra-deepwater market.

The
primary services we provide include:



Our
operating results are directly tied to industry demand for our services, and to a lesser degree, seasonal impact. Demand for our services is primarily a function of the level of oil
and gas activity in
our market areas. Due to the time required to drill a well and fabricate a production platform, demand for our services usually lags exploratory drilling by six to eighteen months and sometimes
longer. We believe our operating results are significantly affected by current market conditions, our enhanced fleet capabilities and our management expertise.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those
related to bad debts, costs in excess of billings, fixed assets, deferred expenses, income taxes, accrued costs, billings in excess of costs, contingencies and litigation. We base our estimates on
historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We
consider certain accounting policies to be critical policies due to the significant judgments, estimation processes and uncertainties involved for each in the preparation of our
consolidated financial statements. We believe the following represent our critical accounting policies.

Revenue Recognition

Contract revenues are recognized on the percentage-of-completion method, measured by the percentage of costs incurred to date to the total
estimated costs at completion for each contract. This percentage is applied to the estimated revenue at completion to calculate revenues earned to date. We

9

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consider the percentage-of-completion method to be the best available measure of progress on these contracts. Changes in job performance, job conditions and estimated
profitability, including those arising from final contract settlements, may result in revisions to estimated costs and revenues and are recognized in the period in which the revisions are determined.
Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.

Accounts Receivable

We have significant investments in billed and unbilled receivables as of June 30, 2002. We have historically not experienced any significant losses on
receivables, but significant losses could be material to our financial position and results of operations. We believe our receivables are realizable, however any changes will be recognized in the
period in which they are determined.

Cost Recognition

Costs of contract revenues include all direct material and labor costs and certain indirect costs, such as supplies, tools, repairs and depreciation, which are
allocated to contracts based on asset utilization. Selling, general and administrative costs are charged to expense as incurred.

Property and Equipment

We use the units-of-production method to calculate depreciation on our major barges and vessels to accurately reflect the wear and tear of
normal use. The annual depreciation based on utilization of each vessel will not be less than 25% of annual straight-line depreciation, and the cumulative depreciation based on utilization
of each vessel will not be less than 50% of cumulative straight-line depreciation. Major additions and improvements to barges, boats and related equipment are capitalized and depreciated
over the useful life of the vessel. Maintenance and repairs are expensed as incurred. When equipment is sold or otherwise disposed of, the cost of the equipment and accumulated depreciation are
removed from the accounts and any gain or loss is reflected in income.

We
review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. We record
impairment losses on long-lived assets used in operations when the cash flows estimated to be generated by those assets are less than the carrying amount of those items. The net carrying
value of assets not fully recoverable is reduced to fair value. Our estimate of fair value represents our best estimate based on industry trends and reference to market transactions and is subject to
variability.

Results of Operations

The discussion below describes our results of operations. Our second quarter results reflect the ongoing competitive nature of marine construction services in the
U.S. Gulf of Mexico. We believe our profit margins in the U.S. Gulf of Mexico remained under competitive pressure during the second quarter due to reduced industry demand for our services as a result
of customer concerns over U.S. natural gas
pricing trends. Work in the international sector continues to grow and provide improvement in profit margins.

Work
for Pemex during the second quarter of 2002 included operations utilizing theAtlantic Horizon, Pearl Horizon, Lone Star Horizon,and
other chartered vessels. Pemex accounted for 39% of consolidated revenues for both the three and six month periods ended June 30, 2002, compared with 63% and 56% for the same periods in 2001,
respectively. Cumulative revenues recognized to date on the Pemex projects in Mexico total $251.7 million as of June 30, 2002, including $55.0 million of claims related to
interferences, interruptions, and other delays. Of the $55.0 million of claims, $7.9 million was recognized in the second quarter. We have not billed the customer for these claims, which
we believe are permitted under our contract, and believe the amount to be received on these claims will be at least the amount recognized.

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One of our large projects in Mexico is near completion; however, we have been awarded additional work in Mexico from Pemex for the construction of a 24-km, 8-inch pipeline and
associated platform piping, which will commence operations in the fourth quarter of 2002, and the rehabilitation of several pipelines in the Cantarell field, which is slated for completion during the
third quarter. At June 30, 2002, we had costs in excess of billings of $81.4 million, of which $55.0 million relates to claims, and contract receivables of $21.9 million
related to our projects in Mexico. Subsequent to June 30, 2002, we billed $4.8 million of the previously unbilled amount related to our projects in Mexico. We collected
$12.3 million in July and we expect to collect the remaining $14.4 million in contract receivables from Pemex during the third quarter. We anticipate that we will bill the remaining
$76.6 million in costs in excess of billings throughout the third and fourth quarters of 2002 based upon milestones and customer requirements.

TheSea Horizon,mobilized in February 2002, successfully completed a pipelay and platform installation project in Indonesian
waters during the second quarter. TheSea Horizonalso completed a pipelay project off the coast of Australia during the second quarter. During the
quarter, we successfully completed the construction of an offshore loading terminal in Venezuela and a pipelay project in Ecuador. We will continue to pursue international construction projects in
Mexico, Central and South America, Southeast Asia and West Africa. In the domestic sector, preparation for a pipeline installation and burial project in Long Island Sound, New York, began in
May 2002, and mobilization of theGulf Horizonfor this project will begin in September 2002. As of July 30, 2002, our backlog
totaled approximately $165 million compared to our backlog at December 31, 2001 of approximately $63 million.

Quarter Ended June 30, 2002 Compared to the Quarter Ended June 30, 2001

Contract Revenues.Contract revenues were $64.3 million for the quarter ended June 30, 2002, compared to
$83.3 million for the quarter ended June 30, 2001. Revenues decreased due to reduced demand for offshore construction services in the U.S. Gulf of Mexico and as we are in the final
stages of one of our large projects in Mexico. We have been awarded several additional projects, both international and domestic, which are in the preliminary stages. Our projects in Mexico
contributed approximately
$24.6 million in revenues during the second quarter of 2002, compared with $52.2 million during the second quarter of 2001.

Gross Profit.Gross profit was $9.5 million (14.8% of contract revenues) for the quarter ended June 30, 2002,
compared to gross profit of $13.0 million (15.6% of contract revenues) for the quarter ended June 30, 2001. Gross profit as a percentage of revenues decreased due to lower margins bid on
jobs as a result of the competitive market conditions.

Selling, General and Administrative Expenses.Selling, general and administrative expenses were $4.4 million (6.8% of
contract revenues) for the three month period ended June 30, 2002, compared with $3.5 million (4.2% of contract revenues) for the same period in 2001. The increase was primarily due to
our international expansion as we invest in becoming an international marine construction company.

Interest Expense.Interest expense was $1.0 million for the three month period ended June 30, 2002, net of
$0.5 million interest capitalized, and $1.0 million for the same period last year, net of $0.2 million interest capitalized. Our total outstanding debt was $92.4 million at
June 30, 2002, compared to $80.6 million at June 30, 2001. Interest expense decreased slightly though outstanding debt increased due to lower average interest rates and an
increase in interest capitalization in 2002 related to our increased capital spending.

Interest Income.Interest income on cash investments for the three month period ended June 30, 2002 was $28,000 while
there was no interest income for the three month period ended June 30, 2001.

Other Income (Expense).Other income (expense) for the three month period ended June 30, 2002 primarily consisted of
approximately $414,000 of foreign currency loss due to activity in Mexico

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denominated in Mexican pesos and a decline of the U.S. dollar compared to the Mexican peso. Also included in other expense is approximately $14,000 related to our Cal Dive joint venture.

Income Taxes.We use the liability method of accounting for income taxes. For the quarter ended June 30, 2002, we
recorded a federal income tax provision of $1.2 million, at a net effective rate of 31.0% on pre-tax net income of $3.8 million. For the quarter ended June 30, 2001,
we recorded a federal income tax provision of $3.0 million, at a net effective rate of 35.6% on pre-tax net income of $8.4 million. The decrease in our effective tax rate is
due to the application of the extraterritorial income exclusion for income earned primarily in Mexico from April 1, 2002 to June 30, 2002. The exclusion allows us to exclude a portion of
income earned outside the United States for tax purposes. The impact of this exclusion on future periods will vary depending upon the amount of income earned outside the United States.

Net Income.Net income for the quarter ended June 30, 2002 was $2.6 million, or $0.10 per share-diluted. This
compares with net income of $5.4 million, or $0.23 per share-diluted for the quarter ended June 30, 2001.

Six Months Ended June 30, 2002 Compared to the Six Months Ended June 30, 2001

Contract Revenues.Contract revenues were $130.4 million for the six month period ended June 30, 2002, compared
to $137.4 million for the six month period ended June 30, 2001. Revenues decreased due to reduced demand for offshore construction services in the U.S. Gulf of Mexico and as we are in
the final stages of one of our large projects in Mexico. We have been awarded several additional projects, both international and domestic, which are in the preliminary stages. Our projects in Mexico
contributed approximately $51.6 million in revenues during the six month period ended June 30, 2002, compared with $76.6 million during the same period last year.

Gross Profit.Gross profit was $14.6 million (11.2% of contract revenues) for the six month period ended
June 30, 2002, compared to gross profit of $22.5 million (16.4% of contract revenues) for the same period of 2001. Gross profit as a percentage of revenues decreased due to lower margins
bid on jobs as a result of the competitive market conditions. In addition, weather delays, and resulting revenues recorded for such events, lowered the overall profit margin as a greater proportion of
2002 revenues were related to such events.

Selling, General and Administrative Expenses.Selling, general and administrative expenses were $7.9 million (6.1% of
contract revenues) for the six month period ended June 30, 2002, compared to $7.1 million (5.2% of contract revenues) for the same period of 2001. The increase was primarily due to our
international expansion as we invest in becoming an international marine construction company.

Interest Expense.Interest expense for the six month period ended June 30, 2002 was $2.0 million net of
$1.0 million of interest capitalized. Interest expense was $3.1 million for the six month period ended June 30, 2001, net of $0.2 million of interest capitalized. Our total
outstanding debt was $92.4 million at June 30, 2002, compared to $80.6 million at June 30, 2001. The decrease in interest expense was due to lower average interest rates
and an increase in interest capitalization in 2002 related to our increased capital spending.

Interest Income.Interest income on cash investments for the six month periods ended June 30, 2002 and 2001 was
$53,000 and $293,000, respectively. The decrease was primarily due to lower interest rates and lower average cash balances for 2002.

Other Income (Expense).Included in other income (expense) for the six month period ended June 30, 2002 is $411,000 of
foreign currency loss due to activity in Mexico denominated in Mexican pesos and a decline of the U.S. dollar compared to the Mexican peso. Also included in other expense is approximately $46,000
related to our Cal Dive joint venture and $27,000 other income related to administrative fees related to our Cal Dive joint venture.

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Income Taxes.We use the liability method of accounting for income taxes. For the six month period ended June 30,
2002, we recorded a federal income tax provision of $1.3 million, at a net effective rate of 31.0% on pre-tax net income of $4.3 million. For the six month period ended
June 30, 2001, we recorded a federal income tax provision of $4.5 million, at a net effective rate of 35.8% on pre-tax net income of $12.6 million. The decrease in our
effective tax rate is due to the application of the extraterritorial income exclusion for income earned primarily in Mexico from January 1, 2002 to June 30, 2002. The exclusion allows us
to exclude a portion of income earned outside the United States for tax purposes. The impact of this exclusion on future periods will vary depending upon the amount of income earned outside the United
States.

Extraordinary Loss.For the six month period ended June 30, 2001, we recorded an extraordinary loss of
$0.6 million net of taxes of $0.3 million, or $0.02 per share-diluted, related to a penalty on the early extinguishment of debt. See Note 4 of the notes to consolidated financial
statements.

Net Income.Net income was $3.0 million, or $0.12 per share-diluted, for the six month period ended June 30,
2002, compared to net income for the six month period ended June 30, 2001 of $7.5 million, or $0.33 per share-diluted, which includes the effect of an extraordinary loss of
$0.6 million, or $0.02 per share-diluted, related to the early extinguishment of debt.

Liquidity and Capital Resources

In April 2002, we sold 3,000,000 shares of common stock in a public offering. We received $30.8 million after deducting the underwriting discount
and expenses. We used $20.0 million to reduce indebtedness under our revolving credit facilities and the remainder was used for general corporate purposes.

In
February 2001, we sold 3,800,000 shares of common stock in a public offering. We received $66.0 million after deducting the underwriting discount and expenses. We used
$30.0 million to reduce indebtedness and $5.6 million for the initial purchase of thePecos Horizon. The remainder was used for general
corporate purposes, including funding capital expenditures to expand our operating capabilities, vessel upgrades, and to support our joint venture with Cal Dive International.

Our
primary liquidity needs are to fund acquisitions and improvements to the fleet necessary to expand operations and to provide working capital. We had $58.6 million of working
capital at June 30, 2002, compared to $78.1 million of working capital at December 31, 2001. The decrease in working capital was attributable to an increase in accounts payable
and accrued liabilities and the reduction of our long-term debt. Our contracts with Pemex require us to reach certain milestones and satisfy customer requirements before issuing progress
billings. At June 30, 2002, we had costs in excess of billings of $81.4 million and contract receivables of $21.9 million related to our current Pemex projects. Subsequent to
June 30, 2002, we billed $4.8 million of the previously unbilled amount related to our Pemex projects. We collected $12.3 million in July and we expect to collect the remaining
$14.4 million in contract receivables from Pemex during the third quarter. We anticipate that we will bill the remaining $76.6 million in costs in excess of billings throughout the third
and fourth quarters of 2002 based upon milestones and customer requirements. Cash provided by operations was $21.1 million for the six month period ended June 30, 2002, compared to
$45.8 million of cash used in operations for the six month period ended June 30, 2001 due to billing and subsequent collection of accounts receivable related to Pemex.

At
June 30, 2002, we had approximately $92.4 million total outstanding debt. This represents an approximate decrease of $26.7 million from December 31, 2001
primarily due to the use of $20.0 million in equity offering proceeds to pay down our loans. Of the $92.4 million of outstanding debt, $20.9 million represents borrowings on our
three revolving credit facilities and $71.5 million represents borrowings on six term-debt facilities. At June 30, 2002, we had $56.6 million available under our three
revolving credit facilities. Interest rates vary from Prime less 0.5% to LIBOR plus 2.95%. Our average interest rate was

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4.64% at June 30, 2002, and our term-debt borrowings currently require $682,913 in monthly principal payments.

Our
loans require that certain conditions be met in order for us to obtain advances. Our loans are secured by mortgages on our vessels and accounts receivable. Advances under our
revolving credit facilities may be obtained in accordance with a borrowing base defined as a percentage of accounts receivable balances and costs in excess of billings. The loans contain customary
defaults and some require us to maintain certain financial ratios. The loan agreements also contain certain covenants that limit our ability to incur additional debt, pay dividends, create certain
liens, sell assets and make capital expenditures. We were in compliance with all loan covenants as of June 30, 2002.

Current
maturities of long-term debt were $8.2 million as of June 30, 2002. We believe that cash generated from operations, together with available borrowings
under our revolving credit facilities, will be sufficient to meet these debt maturities and to fund the planned capital projects and working capital requirements into 2003. Planned capital
expenditures for the remainder of 2002 are estimated to total approximately $21.9 million. Our strategy, however, is to make other acquisitions, to expand our operating capabilities and expand
into additional selected international areas. To the extent we are successful in identifying acquisition and expansion opportunities and have expanded our market share in those areas, we may require
additional equity or debt financing depending on the size of any transaction.

We
have fixed debt service and lease payment obligations under notes payable and operating leases for which we have material contractual cash obligations. Interest rates on our debt vary
from Prime less 0.5% to LIBOR plus 2.95%. The following table summarizes our long-term material contractual cash obligations (in millions):

|                                        |  | Rest of
2002 |     | 2003 |   | 2004 |  | 2005 |      | 2006 |   | Thereafter
|--------------------------------------- |  | ------------ | --- | ---- | - | ---- |  | ---- | ---- | ---- | - | ----------
|Principal and interest payments on debt |  | $            | 6.2 |      | $ | 12.1 |  | $    | 32.1 |      | $ | 25.3      
|Operating leases                        |  |              | 1.0 |      |   | 1.8  |  |      | 1.8  |      |   | 1.8       
|                                        |  |              |     |      |   |      |  |      |      |      |   |           
|                                        |  | $            | 7.2 |      | $ | 13.9 |  | $    | 33.9 |      | $ | 27.1      
|                                        |  |              |     |      |   |      |  |      |      |      |   |           

Forward-Looking Statements

In addition to historical information, Management's Discussion and Analysis of Financial Condition and Results of Operations includes certain forward-looking
statements regarding events and financial trends that may affect our future operating results and financial position. Some important factors that could
cause actual results to differ materially from the anticipated results or other expectations expressed in our forward-looking statements include the following:



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Many
of these factors are beyond our ability to control or predict. We caution investors not to place undue reliance on forward-looking statements. We disclaim any intent or obligation
to update the forward-looking statements contained in this report, whether as a result of receiving new information, the occurrence of future events or otherwise.

These
and other uncertainties related to the business are described in detail under the heading "Cautionary Statement" in our 2001 Annual Report on Form 10-K.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Our market risk exposures primarily include interest rate and exchange rate fluctuation on derivative and financial instruments as detailed below. Our market risk
sensitive instruments are classified as "other than trading." The following sections address the significant market risks associated with our financial activities during the six month period ended
June 30, 2002. Our exposure to market risk as discussed below includes "forward-looking statements" and represents estimates of possible changes in fair values, future earnings or cash flows
that would occur assuming hypothetical future movements in foreign currency exchange rates or interest rates.

As
of June 30, 2002 the carrying value of our long-term variable rate debt, including accrued interest, was approximately $84.3 million. The fair value of this
debt approximates the carrying value because the interest rates are based on floating rates identified by reference to market rates. Fair value was determined as noted above. A hypothetical 1%
increase in the applicable interest rates as of June 30, 2002 would increase annual interest expense by approximately $0.8 million.

In
Mexico, we collect revenues and pay expenses in foreign currency. We monitor the exchange rate of our foreign currencies in order to mitigate the risk from foreign currency
fluctuations. We also manage foreign currency risk by attempting to contract as much foreign revenue as possible in U.S. dollars. Approximately 75% of our current contracts with Pemex are denominated
in U.S. dollars. We receive payment in Mexican pesos equivalent to the U.S. dollars billed, which is converted to U.S. dollars that day or the following day.

The
level of construction services required by a customer depends on the size of its capital expenditure budget for construction for the year. Consequently, customers that account for a
significant portion of contract revenues in one year may represent an immaterial portion of contract revenues in subsequent years.

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PART IIOTHER INFORMATION

Item 4.Submission of Matters to a Vote of Security Holders



For

Withhold AuthorityMichael R. Latina

19,359,756

1,828,007Derek Leach

19,363,096

1,824,667




Votes For

Votes Against

Votes Abstain

Broker Non Vote12,938,746

4,986,507

8,292

3,254,218


Item 6.Exhibits and Reports on Form 8-K





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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                      |  | HORIZON OFFSHORE, INC.
|--------------------- |  | ----------------------
|Date: August 14, 2002 |  | By:                   

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