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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 March 31, 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 May 3, 2002 was 26,384,377.

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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)

|                                          |                                                                                                                                          | March 31,
2002              |                            | December 31,
2001 |        
|----------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | -------------------------- | ----------------- | -------
|
|ASSETS                                    |                                                                                                                                         
|CURRENT ASSETS:                           |                                                                                                                                          |                             |                            |                   |        
|                                          | Cash and cash equivalents                                                                                                                |                             | $                          | 2,910             |        
|                                          | Accounts receivable                                                                                                                     |                             |                            |                   |        
|                                          |                                                                                                                                          | Contract receivables        |                            |                   | 40,448 
|                                          |                                                                                                                                          | Costs in excess of billings |                            |                   | 110,869
|                                          |                                                                                                                                          | Affiliated parties          |                            |                   | 152    
|                                          | Other current assets                                                                                                                     |                             |                            | 5,058             |        
|                                          |                                                                                                                                          |                             |                            |                   |        
|                                          |                                                                                                                                          |                             | Total current assets       |                   |        
|PROPERTY AND EQUIPMENT, net               |                                                                                                                                          |                             | 232,265                    |                   |        
|INVENTORY                                 |                                                                                                                                          |                             | 1,705                      |                   |        
|OTHER ASSETS                              |                                                                                                                                          |                             | 10,488                     |                   |        
|                                          |                                                                                                                                          |                             |                            |                   |        
|                                          |                                                                                                                                          | $                           | 403,895                    |                   | $      
|                                          |                                                                                                                                          |                             |                            |                   |        
|LIABILITIES AND STOCKHOLDERS' EQUITY      |                                                                                                                                         
|CURRENT LIABILITIES:                      |                                                                                                                                          |                             |                            |                   |        
|                                          | Accounts payable                                                                                                                         |                             | $                          | 17,531            |        
|                                          | Accrued liabilities                                                                                                                      |                             |                            | 12,680            |        
|                                          | Accrued job costs                                                                                                                        |                             |                            | 54,446            |        
|                                          | Billings in excess of costs                                                                                                              |                             |                            | 4,732             |        
|                                          | Current maturities of long-term debt                                                                                                     |                             |                            | 7,737             |        
|                                          |                                                                                                                                          |                             |                            |                   |        
|                                          |                                                                                                                                          |                             | Total current liabilities  |                   |        
|LONG-TERM DEBT, net of current maturities |                                                                                                                                          |                             | 107,494                    |                   |        
|DEFERRED INCOME TAXES                     |                                                                                                                                          |                             | 12,959                     |                   |        
|                                          |                                                                                                                                          |                             |                            |                   |        
|                                          |                                                                                                                                          |                             | 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, 24,269,012 shares issued at March 31, 2002 and 24,244,598 at December 31, 2001 |                             |                            | 13,562            |        
|                                          | Additional paid-in capital                                                                                                               |                             |                            | 154,785           |        
|                                          | Retained earnings                                                                                                                        |                             |                            | 24,279            |        
|                                          | Treasury stock, 962,103 shares at March 31, 2002 and 973,505 at December 31, 2001                                                        |                             |                            | (6,310            | )      
|                                          |                                                                                                                                          |                             |                            |                   |        
|                                          |                                                                                                                                          |                             | Total stockholders' equity |                   |        
|                                          |                                                                                                                                          |                             |                            |                   |        
|                                          |                                                                                                                                          | $                           | 403,895                    |                   | $      
|                                          |                                                                                                                                          |                             |                            |                   |        

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
March 31, |       
|--------------------------------------------------------------- | ------------------------------------ | ---------------------------- | ------
|
|CONTRACT REVENUES                                               |                                      | $                            | 66,103
|COST OF CONTRACT REVENUES                                       |                                      |                              | 61,056
|                                                                |                                      |                              |       
|                                                                | Gross profit                         |                              |       
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                    |                                      |                              | 3,501 
|                                                                |                                      |                              |       
|                                                                | Operating income                     |                              |       
|OTHER:                                                          |                                      |                              |       
|                                                                | Interest expense                     |                              |       
|                                                                | Interest income                      |                              |       
|                                                                | Other income (expense)               |                              |       
|                                                                |                                      |                              |       
|NET INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS           |                                      |                              | 546   
|INCOME TAX PROVISION                                            |                                      |                              | 169   
|                                                                |                                      |                              |       
|NET INCOME BEFORE EXTRAORDINARY LOSS                            |                                      |                              | 377   
|EXTRAORDINARY LOSS, NET OF TAXES OF $306                        |                                      |                              |      
|                                                                |                                      |                              |       
|NET INCOME                                                      |                                      | $                            | 377   
|                                                                |                                      |                              |       
|EARNINGS PER SHAREBASIC:                                       |                                      |                              |       
|                                                                | Net income before extraordinary loss |                              | $     
|                                                                | Extraordinary loss                   |                              |       
|                                                                |                                      |                              |       
|Net IncomeBASIC                                                |                                      | $                            | 0.02  
|                                                                |                                      |                              |       
|EARNINGS PER SHAREDILUTED:                                     |                                      |                              |       
|                                                                | Net income before extraordinary loss |                              | $     
|                                                                | Extraordinary loss                   |                              |       
|                                                                |                                      |                              |       
|Net incomeDILUTED                                              |                                      | $                            | 0.02  
|                                                                |                                      |                              |       
|WEIGHTED AVERAGE SHARES USED IN COMPUTING NET INCOME PER SHARE: |                                      |                              |       
|                                                                | BASIC                                |                              |       
|                                                                | DILUTED                              |                              |       

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)

|                                                     |                                                                                             | Three Months Ended
March 31,                                                    |                            
|---------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ---------------------------
|
|CASH FLOW 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 assets                                                    |                            
|                                                     |                                                                                             | 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 current assets       
|                                                     |                                                                                             |                                                                                 | Accounts payable           
|                                                     |                                                                                             |                                                                                 | Accrued liabilities        
|                                                     |                                                                                             |                                                                                 | Accrued job costs          
|                                                     |                                                                                             |                                                                                 |                            
|                                                     |                                                                                             |                                                                                 |                            
|CASH FLOW FROM INVESTING ACTIVITIES:                 |                                                                                             |                                                                                 |                            
|                                                     | Purchases and additions to equipment                                                        |                                                                                 |                            
|                                                     | Drydock costs                                                                               |                                                                                 |                            
|                                                     | Proceeds from sale of fixed assets                                                          |                                                                                 |                            
|                                                     |                                                                                             |                                                                                 |                            
|                                                     |                                                                                             |                                                                                 |                            
|CASH FLOW 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 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                                             |                                                                                 | (4,954                     
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     |                                                                                             |                                                                                 | 7,864                      
|                                                     |                                                                                             |                                                                                 |                            
|CASH AND CASH EQUIVALENTS AT END OF PERIOD           |                                                                                             | $                                                                               | 2,910                      
|                                                     |                                                                                             |                                                                                 |                            
|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.    BUSINESS 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 necessary for a fair presentation of the financial position as of March 31, 2002, the statements of operations for
each of the three month periods ended March 31, 2002 and 2001, and the statements of cash flows for the three months ended March 31, 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 three months ended March 31, 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.

Business

Horizon provides offshore construction services to the 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 offshore oil and gas companies. Our largest
customer during the first quarter was Petróleos Mexicanos (Pemex). Pemex accounted for 40% of consolidated revenues for the three months ended March 31, 2002, compared with 45%
for the three months ended March 31, 2001. Revenues recognized to date on the projects in Mexico total $226 million as of March 31, 2002, including
$47 million of claims. We believe the amount received on these claims will be at least this amount. The level of construction services required by a customer depends on the size of their
capital expenditure budget for construction for the year and our ability to bid for and be awarded their 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. Our international construction projects typically have longer lead times with extended job durations of up to one or two years.

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 capitalized using an effective rate based on related debt until the equipment is placed into service. Interest expense for the three month period ended
March 31, 2002 is net of $523,000 of capitalized interest. Interest capitalized during the three month period ended March 31, 2001 was $21,000.

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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 the inventory.

2.    PROPERTY AND EQUIPMENT:

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

March 31,
2002

December 31,
2001Barges, boats and related equipment

$
236,844

$
226,704Land and buildings


18,543


16,509Machinery and equipment


245


245Office furniture and equipment


4,675


3,908Leasehold improvements


2,726


2,498263,033


249,864LessAccumulated depreciation


(30,768
)

(28,418
)Property and equipment, net

$
232,265

$
221,446


During
the three months ended March 31, 2002, we incurred $13.2 million of capital expenditures primarily related to the upgrade of the Sea Horizon,the upgrade of thePecos
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.

3.    STOCKHOLDERS' EQUITY

Stock Offering

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 will be 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, a 256' dedicated bury barge. 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.

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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 March 31, 2002, we had outstanding options covering an aggregate of 2,573,490 shares of common stock, of which 1,572,024
shares were exercisable. Options to purchase approximately 755,145 shares of common stock at a weighted average price of $13.93 per share were outstanding as of March 31, 2002, but were not
included in the computation of diluted earnings per share, as they would be anti-dilutive.

Treasury Stock

During the three months ended March 31, 2002, we contributed 11,402 shares of treasury stock to our 401(k) Plan. As of March 31, 2002, our treasury
stock consisted of 962,103 shares at a cost of $6.3 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
$0.6 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., to charter certain marine vessels on an as-needed basis from Odyssea. As of March 31, 2002, Horizon had an outstanding balance payable to Odyssea of
$1.0 million. During the three months ended March 31, 2002, Odyssea billed Horizon $4.4 million and we paid Odyssea $3.9 million for services rendered under the agreement.
Odyssea billed Horizon $4.0 million and we paid Odyssea $4.1 million during the three months ended March 31, 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 March 31, 2002, we had approximately $115.2 million of total outstanding debt. This represents an approximate net decrease of
$3.9 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 $115.2 million of outstanding debt, $41.7 million represents borrowings on our three revolving credit facilities and $73.5 million represents
borrowing on six term-debt facilities. At March 31, 2002, we had $18.1 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 4.76% at March 31, 2002, and our term-debt borrowings currently require $640,042 in monthly principal payments.

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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, most of which are performed on the outer continental shelf in the U.S. Gulf of Mexico, 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 nine 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.

Results of Operations

The discussion below describes our results of operations. Our first quarter results reflect the competitive nature of the 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 first quarter due to reduced industry demand for our services as a result of
customer concerns over U.S. natural gas pricing trends.

Revenues
increased for the first quarter of 2002 compared with 2001 primarily in response to our continued operations offshore Mexico for Pemex and other international projects. Work for
Pemex during the first quarter of 2002 included operations utilizing theAtlantic Horizon, Gulf Horizonand other chartered vessels. Pemex accounted for
40% of our revenues for the first quarter compared with 45% for the same period in 2001. Revenues recognized to date on the projects in Mexico total $226 million as of March 31, 2002,
including $47 million of claims. We believe the amount received on these claims will be at least this amount. Our current project in Mexico is slated for completion during the second quarter of
2002; however, we have been awarded additional work on this project. At March 31, 2002, we had costs in excess of billings of $89 million and contract receivables of $9.3 million
related to our projects in Mexico. Subsequent to March 31, 2002, we have billed an additional $3.8 million. In April and May, we collected all of our $13.1 million in contract
receivables from Pemex. We anticipate that we will bill the remaining $85.2 million in costs in excess of billings throughout the second and third quarters of 2002 based upon milestones and
customer requirements.

8

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The Sea Horizonmobilized in February 2002 to perform a pipelay and platform installation project in Indonesian waters. During the
quarter, we performed work in both Venezuela and Ecuador. We will continue to pursue international construction projects in Mexico, Central and South America, Southeast Asia and West Africa. As of
April 26, 2002, our backlog totaled approximately $140 million compared to our backlog at December 31, 2001 of approximately $63 million.

Quarter Ended March 31, 2002 Compared to the Quarter Ended March 31, 2001

Contract Revenues.Contract revenues were $66.1 million for the quarter ended March 31, 2002, compared to
$54.1 million for the quarter ended March 31, 2001. Revenues increased due to our ongoing projects offshore Mexico and other international projects. Our projects in Mexico contributed
approximately $25.5 million in revenues during the first quarter of 2002, compared with $24.0 million during the first quarter of 2001.

Gross Profit.Gross profit was $5.0 million (7.6% of contract revenues) for the quarter ended March 31, 2002
compared to gross profit of $9.5 million (17.6% of contract revenues) for the quarter ended March 31, 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 in such events, lower the overall profit margin.

Selling, General and Administrative Expenses.Selling, general and administrative expenses were $3.5 million (5.3% of
contract revenues) for the three months ended March 31, 2002, compared with $3.6 million (6.6% of contract revenues) for the same period in 2001. The percentage decrease was primarily
due to the increase in revenues with a lower corresponding increase in selling, general and administrative expenses.

Interest Expense.Interest expense was $1.0 million for the three months ended March 31, 2002, net of
$0.5 million interest capitalized, and $2.1 million for the same period last year, net of $21,000 interest capitalized. Our total outstanding debt was $115.2 million at
March 31, 2002, compared to $44.6 million at March 31, 2001. The decrease in interest expense was due to both lower average interest rates and lower average outstanding balances
on our debt.

Interest Income.Interest income on cash investments for the three months ended March 31, 2002 was $25,000 compared to
$0.3 million for the first quarter in 2001. The decrease was primarily due to lower interest rates and lower average cash balances for 2002.

Other Income (Expense).Other income (expense) for the three months ended March 31, 2002 primarily consisted of
approximately $3,000 of foreign currency gain, other expense of approximately $32,000 related to our Cal Dive joint venture and approximately $27,000 other income related to administrative fees
related to our Cal Dive joint venture.

Income Taxes.We use the liability method of accounting for income taxes. For the quarter ended March 31, 2002, we
recorded a federal income tax provision of $0.2 million, at a net effective rate of 31.0% on pre-tax net income of $0.5 million. For the quarter ended March 31, 2001,
we recorded a federal income tax provision of $1.5 million, at a net effective rate of 36.1% on pre-tax net income of $4.2 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 March 31, 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 March 31, 2002 was $0.4 million, or $0.02 per share-diluted. This
compares with net income of $2.1 million, or $0.10 per share for the quarter ended March 31,

9

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2001, 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 is being 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, a 256' dedicated bury barge. The
remainder was used for general corporate purposes, including funding capital expenditures to expand our operating capabilities, and 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 $62.3 million of working
capital at March 31, 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 before issuing progress billings. At March 31, 2002,
we had costs in excess of billings of $89 million and contract receivables of $9.3 million related to our current Pemex projects. Subsequent to March 31, 2002, we billed an
additional $3.8 million. We also collected $13.1 million in contract receivables from Pemex during April and May of 2002. We anticipate that we will bill the remaining
$85.2 million in costs in excess of billings throughout the second and third quarters of 2002 based upon milestones and customer requirements. Cash provided by operations was
$15.0 million for the three months ended March 31, 2002, compared to $10.3 million of cash used in operations for the three months ended March 31, 2001.

At
March 31, 2002, we had approximately $115.2 million total outstanding debt. This represents an approximate decrease of $3.9 million from December 31, 2001.
Of the $115.2 million of outstanding debt, $41.7 million represents borrowings on our three revolving credit facilities and $73.5 million represents borrowing on six
term-debt facilities. At March 31, 2002, we had $18.1 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 4.76% at March 31, 2002, and our term-debt borrowings currently require $640,042 in monthly principal payments. In April 2002, we used
$20.0 million to reduce indebtedness under our revolving credit facilities.

Our
loans require that certain conditions be met in order for us to obtain advances. Our loans are secured by mortgages on our vessels, accounts receivable, and cost in excess of
billings. Advances under our revolving credit facilities may be obtained in accordance with a borrowing base defined as a percentage of accounts receivable balances and cost 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 March 31, 2002.

Current
maturities of long-term debt were $7.7 million as of March 31, 2002. We believe that cash generated from operations and the offering, together with
available borrowings under our revolving credit facilities, will be sufficient 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 $22 million. Of the $22 million, a substantial amount is project related. 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

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our market share in those areas, we may require additional equity or debt financing depending on the size of any transaction.

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:



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 three months ended March 31, 2002. Our exposure to market risk as
discussed below includes "forward-looking statements" and represents estimates of possible changes in fair values, future

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earnings or cash flows that would occur assuming hypothetical future movements in foreign currency exchange rates or interest rates.

As
of March 31, 2002 the carrying value of our long-term variable rate debt, including accrued interest, was approximately $107.5 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 March 31, 2002 would increase annual interest expense by approximately $1.1 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 contract with Pemex is denominated in
U.S. Dollars. We receive payment in 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 their 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 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: May 15, 2002 |  | By:                   

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