##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
    SECURITIES EXCHANGE ACT of 1934    
|          
|           |  | for the fiscal year ended December 31, 2004                                                 
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
    SECURITIES EXCHANGE ACT of 1934

Commission File Number 001-16857





Horizon Offshore, Inc.


(Exact name of registrant as specified in its charter)


|                                                                                                   |  |                                         
|-------------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                           |  | 76-0487309                              
|(State or other jurisdiction of
    incorporation or organization)                                 |  | (I.R.S. Employer
    Identification No.)
|                                                                                                  
|2500 City West Boulevard
    Suite 2200
    Houston, Texas(Address of principal executive offices) |  | 77042(Zip Code)                         

Registrants telephone number, including area code:


(713) 361-2600


Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:






þ o


þ


þ o






DOCUMENTS INCORPORATED BY REFERENCE












---










HORIZON OFFSHORE, INC.


ANNUAL REPORT ON FORM 10-K


For the Year Ended December 31, 2004


TABLE OF CONTENTS


|                                      |  |                                                                                                                      |  |      |    | 
|------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                      |  |                                                                                                                      |  | Page |   
|                                      |  |                                                                                                                      |  |      |   
|PART I                               
|Items 1. and 2.                       |  | Business and Properties                                                                                              |  |      | 3  | 
|Item 3.                               |  | Legal Proceedings                                                                                                    |  |      | 18 | 
|Item 4.                               |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |      | 19 | 
|PART II                              
|Item 5.                               |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |      | 19 | 
|Item 6.                               |  | Selected Financial Data                                                                                              |  |      | 20 | 
|Item 7.                               |  | Managements Discussion and Analysis
    of Financial Condition and
    Results of Operations                        |  |      | 23 | 
|Item 7A.                              |  | Quantitative and Qualitative Disclosure
    About Market Risk                                                        |  |      | 43 | 
|Item 8.                               |  | Financial Statements and Supplementary
    Data                                                                      |  |      | 44 | 
|Item 9.                               |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |      | 44 | 
|Item 9A.                              |  | Controls and Procedures                                                                                              |  |      | 44 | 
|Item 9B.                              |  | Other Information                                                                                                    |  |      | 44 | 
|PART III                             
|Item 10.                              |  | Directors and Executive Officers of the
    Registrant                                                               |  |      | 44 | 
|Item 11.                              |  | Executive Compensation                                                                                               |  |      | 45 | 
|Item 12.                              |  | Security Ownership of Certain Beneficial
    Owners and Management and
    Related Stockholder Matters               |  |      | 45 | 
|Item 13.                              |  | Certain Relationships and Related
    Transactions                                                                   |  |      | 45 | 
|Item 14.                              |  | Principal Accountant Fees and Services                                                                               |  |      | 45 | 
|PART IV                              
|Item 15.                              |  | Exhibits, Financial Statement Schedules                                                                              |  |      | 46 | 
|                                      |  | Financial Statements                                                                                                 |  |      | 51 | 
|                                      |  | Signatures                                                                                                           |  |      | 88 | 
|                                      |  | Exhibit Index                                                                                                        |  |      | 89 | 
|Subsidiaries of the Company          
|Consent of Grant Thornton LLP        
|Consent of PricewaterhouseCoopers LLP
|Certification Pursuant to Section 302
|Certification Pursuant to Section 302
|Certification Pursuant to Section 906
|Certification Pursuant to Section 906



2



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PART I







|                |                        
|--------------- | -----------------------
|Items 1. and 2. | Business and Properties

General








| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | installing pipelines;                                                     
|
| |  | providing pipebury, hook-up and commissioning services;                   
|
| |  | installing production platforms and other structures; and                 
|
| |  | disassembling and salvaging production platforms and other
    structures.

Developments


Gulf Horizon






3



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Scope of Operations






|                      |  |                       |  |        |     |         |        |  |         |          |  |  |    | 
|--------------------- |  | --------------------- |  | ------ | --- | ------- | ------ |  | ------- | -------- |  |  | -- | 
|                      |  |                       |  |        |     | Maximum |        |  | Maximum |         
|                      |  |                       |  |        |     | Derrick |        |  | Pipelay |         
|                      |  |                       |  | Length |     |         | Lift   |  |         | Diameter | 
|Vessel                |  | Vessel Type           |  | (feet) |     |         | (tons) |  |         | (inches) | 
|                      |  |                       |  |        |     |         |        |  |         |          | 
|American Horizon      |  | Pipelay/Pipebury      |  |        | 180 |         |        |  |        |          |  |  | 18 | 
|Lone Star Horizon     |  | Pipelay/Pipebury      |  |        | 320 |         |        |  |        |          |  |  | 39 | 
|Brazos Horizon        |  | Pipelay/Pipebury      |  |        | 210 |         |        |  |        |          |  |  | 18 | 
|Pecos Horizon         |  | Pipelay/Pipebury      |  |        | 250 |         |        |  |        |          |  |  | 24 | 
|Cajun Horizon(1)      |  | Pipelay/Pipebury      |  |        | 140 |         |        |  |        |          |  |  | 12 | 
|Gulf Horizon(1)       |  | Pipelay/Pipebury      |  |        | 350 |         |        |  |        |          |  |  | 36 | 
|Canyon Horizon        |  | Pipebury              |  |        | 330 |         |        |  |        |          |  |  |   | 
|Pearl Horizon(2)      |  | Diving Support Vessel |  |        | 184 |         |        |  |        |          |  |  |   | 
|Stephaniturm(1)(2)    |  | Diving Support Vessel |  |        | 230 |         |        |  |        |          |  |  |   | 
|Atlantic Horizon      |  | Derrick Barge         |  |        | 420 |         |        |  | 550     |          |  |  |   | 
|Pacific Horizon       |  | Derrick Barge         |  |        | 350 |         |        |  | 1,000   |          |  |  |   | 
|Phoenix Horizon(1)(2) |  | Derrick Barge         |  |        | 300 |         |        |  | 250     |          |  |  |   | 
|Sea Horizon           |  | Derrick/Pipelay       |  |        | 360 |         |        |  | 1,200   |          |  |  | 36 | 






|    |                                                      
|--- | -----------------------------------------------------
|(1) | These vessels are not currently operational.         
|   
|(2) | These vessels are classified as assets held for sale.

4



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Canyon Horizon, Canyon
Horizon Canyon Horizon


Pacific Horizon Atlantic Horizon Sea Horizon, Sea Horizon








5



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Marine Equipment






Safety and Quality Assurance




Gulf
Horizon




Seasonality, Cyclicality and Factors Affecting Demand




6



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| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | the price of oil and gas and industry perception of future
    prices;           
|
| |  | the ability of the oil and gas industry to access capital;                       
|
| |  | expectations about future demand and prices;                                     
|
| |  | the cost of exploring for, producing and developing oil and gas
    reserves;    
|
| |  | sale and expiration dates of offshore leases in the United
    States and abroad;
|
| |  | discovery rates of new oil and gas reserves in offshore areas;                   
|
| |  | local and international political and economic conditions;                       
|
| |  | governmental regulations; and                                                    
|
| |  | the availability and cost of capital.                                            

Working Capital Requirements for Project Start-up Costs




Customers and Geographic Information




|         |  |      |    |   |      |  |    |      |  |  |    |  
|-------- |  | ---- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|         |  | 2004 |    |   | 2003 |  |    | 2002 | 
|         |  |      |    |   |      |  |    |      | 
|Domestic |  |      | 29 | % |      |  | 75 | %    |  |  | 55 | %
|Foreign  |  |      | 71 | % |      |  | 25 | %    |  |  | 45 | %

7



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|                                   |  |      |    |   |      |  |    |      |  |  |    |  
|---------------------------------- |  | ---- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|                                   |  | 2004 |    |   | 2003 |  |    | 2002 | 
|                                   |  |      |    |   |      |  |    |      | 
|Israel Electric Corporation        |  |      | 36 | % |      |  |   |      |  |  |   |  
|Petróleos Mexicanos                |  |      | 23 | % |      |  | 1  | %    |  |  | 31 | %
|Iroquois Gas Transmission LP       |  |      |   |   |      |  | 25 | %    |  |  | 20 | %
|Algonquin Gas Transmission Company |  |      |   |   |      |  | 15 | %    |  |  |   |  
|Brunei Shell Petroleum Company     |  |      |   |   |      |  | 10 | %    |  |  |   |  



Backlog




Insurance








Gulf Horizon


8



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Competition








Regulation








9



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Environmental Regulation




Employees






Company Information and Website




10



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Properties






Cautionary Statements






| |   |                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our business plans or strategies, and projected or anticipated
    benefits or other consequences of such plans or strategies;                     
|
| |  | our objectives;                                                                                                                                    
|
| |  | projected or anticipated benefits from future or past
    acquisitions;                                                                            
|
| |  | projections involving anticipated capital expenditures or
    revenues, earnings or other aspects of capital projects or
    operating results; and
|
| |  | financing.                                                                                                                                         







| |   |                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to complete the recapitalization transactions
    contemplated by the Recapitalization Agreement;                                                                                          
|
| |  | our substantial current indebtedness continues to adversely
    affect our financial condition and the availability of cash to
    fund our working capital needs;                                     
|
| |  | our ability to comply with our financial covenants in the future;                                                                                                                                      
|
| |  | our ability to meet our obligations under the terms of our
    indebtedness;                                                                                                                           
|
| |  | we will need additional financing in the future;                                                                                                                                                       
|
| |  | the potential receipt of an audit opinion with a going
    concern explanatory paragraph from our independent
    registered public accounting firm would likely adversely affect
    our operations;

11



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| |   |                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we have had operating losses for 2002, 2003 and 2004, and there
    can be no assurance that we will generate operating income in
    the future;                                                                                                                                                                                      
|
| |  | the outcome of the anticipated arbitration of our claims against
    Pemex;                                                                                                                                                                                                                                                            
|
| |  | the outcome of litigation with Williams;                                                                                                                                                                                                                                                                                               
|
| |  | the outcome of litigation with the underwriter of the insurance
    coverage on the Gulf Horizon;                                                                                                                                                                                                                                      
|
| |  | our common stock will be delisted from the NASDAQ National
    Market, effective as of the close of business on April 1,
    2005;                                                                                                                                                                                                     
|
| |  | industry volatility, including the level of capital expenditures
    by oil and gas companies due to fluctuations in the price, and
    perceptions of the future price of oil and gas;                                                                                                                                                
|
| |  | contract bidding risks, including those involved in performing
    projects on a fixed-price basis and extra work outside the
    original scope of work, and the successful negotiation and
    collection of such contract claims;                                                                                                   
|
| |  | our ability to obtain performance bonds and letters of credit if
    required to secure our performance under new international
    contracts;                                                                                                                                                                                         
|
| |  | the highly competitive nature of the marine construction
    business;                                                                                                                                                                                                                                                                 
|
| |  | operating hazards, including the unpredictable effect of natural
    occurrences on operations and the significant possibility of
    accidents resulting in personal injury and property damage;                                                                                                                                      
|
| |  | the seasonality of the offshore construction industry in the
    U.S. Gulf of Mexico;                                                                                                                                                                                                                                                  
|
| |  | the risks involved in the expansion of our operations into
    international offshore oil and gas producing areas, where we
    have previously not been operating;                                                                                                                                                                    
|
| |  | our dependence on the continued strong working relationships
    with significant customers operating in the U.S. Gulf of
    Mexico;                                                                                                                                                                                                  
|
| |  | percentage-of-completion accounting;                                                                                                                                                                                                                                                                                                   
|
| |  | the continued active participation of our executive officers and
    key operating personnel;                                                                                                                                                                                                                                          
|
| |  | the effect on our performance of regulatory programs and
    environmental matters;                                                                                                                                                                                                                                                    
|
| |  | the risks involved in joint venture operations required from
    time to time on major international projects;                                                                                                                                                                                                                         
|
| |  | our compliance with the Sarbanes-Oxley Act of 2002 and the
    significant expansion of securities law regulation of corporate
    governance, accounting practices, reporting and disclosure that
    affects publicly traded companies, particularly related to
    Section 404 dealing with our system of internal
    controls; and
|
| |  | a possible terrorist attack or armed conflict could harm our
    business.                                                                                                                                                                                                                                                             







| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | We will need to consummate the recapitalization
    transactions contemplated by the Recapitalization
    Agreement



12



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| |                                                                             
| | ----------------------------------------------------------------------------
| | Our substantial indebtedness could adversely affect our
    financial health







| |   |                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | inability of our current cash generation level to support future
    interest and principal payments on this high level of debt;                                                                                                                                    
|
| |  | inadequate cash for other purposes, such as capital expenditures
    and other business activities, since we will need to use a
    significant portion of our operating cash flow to pay principal
    and interest on our outstanding debt;                       
|
| |  | increase our vulnerability to general adverse economic and
    industry conditions, including the continued difficult economic
    environment and depressed market in the marine construction
    industry on the U.S. continental shelf in the Gulf of
    Mexico;
|
| |  | limit our flexibility in planning for, or reacting to, changes
    in demand for our services in international areas, including
    mobilizing vessels between market areas;                                                                                        
|
| |  | place us at a greater competitive disadvantage compared to our
    competitors that have less debt; and                                                                                                                                                             
|
| |  | limit, along with the financial and other restrictive covenants
    in our indebtedness, among other things, our ability to borrow
    additional funds, refinance debt maturing in 2006, or dispose of
    assets.                                                 





| |                                                                    
| | -------------------------------------------------------------------
| | We may not be able to obtain additional financing, if
    necessary



13



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| |                                                                           
| | --------------------------------------------------------------------------
| | We may not be in compliance with our financial covenants
    in the future





| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | Receiving a going concern explanatory
    paragraph to our audit opinion would adversely affect our
    operations







| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | We have had three consecutive years of operating losses
    and may incur additional operating losses in the future





| |                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The outcome of our anticipated arbitration with Pemex,
    litigation with Williams, litigation with the underwriter of the
    insurance coverage on the Gulf Horizon, and any future
    arbitration and litigation proceedings may adversely affect our
    liquidity



14



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Gulf Horizon




| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | Our common stock will be delisted from the NASDAQ National
    Market which could make it more difficult to sell our common
    stock





| |                                                                   
| | ------------------------------------------------------------------
| | Industry volatility may adversely affect results of
    operations





| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | We incur risks associated with contract bidding and the
    performance of extra work outside the original scope of
    work



15



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| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our ability to obtain performance bonds and letters of
    credit required to secure our performance under contracts may
    affect our ability to bid and obtain contract awards





| |                                            
| | -------------------------------------------
| | We operate in a highly competitive industry





| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Operating hazards may increase our operating costs; we
    have limited insurance coverage



Gulf Horizon Gulf
Horizon




| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | The seasonality of the marine construction industry may
    adversely affect our operations



16



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| |                                                                  
| | -----------------------------------------------------------------
| | Our international operations are subject to significant
    risks





| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | political, social, and economic instability;                              
|
| |  | potential seizure or nationalization of assets;                           
|
| |  | increased operating costs;                                                
|
| |  | modification or renegotiating of contracts;                               
|
| |  | import-export quotas;                                                     
|
| |  | other forms of government regulation which are beyond our
    control; and
|
| |  | war or terrorist activity.                                                







| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | the awarding of contracts to local contractors;                                                                                              
|
| |  | the employment of local citizens; and                                                                                                        
|
| |  | the establishment of foreign subsidiaries with significant
    ownership positions reserved by the foreign government for local
    citizens.





| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | We are dependent upon continued working relationships with
    significant customers in the U.S. Gulf of Mexico





| |                                               
| | ----------------------------------------------
| | We utilize percentage-of-completion accounting





| |                                  
| | ---------------------------------
| | We are dependent on key personnel



17



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| |                                                                                 
| | --------------------------------------------------------------------------------
| | We may incur additional expenditures to comply with
    governmental regulations







| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Recently enacted and proposed regulatory changes may cause
    us to incur increased costs







| |                                                                          
| | -------------------------------------------------------------------------
| | A possible terrorist attack or armed conflict could harm
    our business








|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings



18



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Gulf Horizon, Gulf Horizon











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






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities





|               |  |      |      |  |      |   |      |      |  |   |      |  |  |   |      | 
|-------------- |  | ---- | ---- |  | ---- | - | ---- | ---- |  | - | ---- |  |  | - | ---- | 
|               |  | 2004 |      |  | 2003 |  
|               |  |      |      |  |      |  
|Fiscal Quarter |  | High |      |  | Low  |   |      | High |  |   | Low  | 
|               |  |      |      |  |      |   |      |      |  |   |      | 
|First          |  | $    | 4.80 |  |      | $ | 2.55 |      |  | $ | 5.05 |  |  | $ | 2.88 | 
|Second         |  | $    | 3.00 |  |      | $ | 0.79 |      |  | $ | 5.71 |  |  | $ | 3.31 | 
|Third          |  | $    | 1.10 |  |      | $ | 0.50 |      |  | $ | 5.03 |  |  | $ | 3.37 | 
|Fourth         |  | $    | 2.87 |  |      | $ | 0.21 |      |  | $ | 5.00 |  |  | $ | 3.50 | 

19



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| |                                     
| | ------------------------------------
| | Equity Compensation Plan Information



|                                                              |  |                   |           |  |                  |                      |      |                       |  |  |           | 
|------------------------------------------------------------- |  | ----------------- | --------- |  | ---------------- | -------------------- | ---- | --------------------- |  |  | --------- | 
|                                                              |  |                   |           |  |                  | Number of Securities |     
|                                                              |  | Number of         |           |  | Weighted-        |                      |      | Remaining Available   | 
|                                                              |  | Securities to be  |           |  | Average Exercise |                      |      | For Future Issuance   | 
|                                                              |  | Issued Upon       |           |  | Price of         |                      |      | Under Equity          | 
|                                                              |  | Exercise of       |           |  | Outstanding      |                      |      | Compensation Plans    | 
|                                                              |  | Outstanding       |           |  | Options,         |                      |      | (excluding securities | 
|                                                              |  | Options, Warrants |           |  | Warrants and     |                      |      | reflected in          | 
|Plan Category                                                 |  | and Rights (a)    |           |  | Rights (b)       |                      |      | column (a))(c)(2)     | 
|                                                              |  |                   |           |  |                  |                      |      |                       | 
|Equity compensation plans approved by security holders        |  |                   | 3,261,230 |  |                  | $                    | 7.04 |                       |  |  | 1,775,990 | 
|Equity compensation plans not approved by security holders(1) |  |                   |          |  |                  |                      |     |                       |  |  |          | 
|                                                              |  |                   |           |  |                  |                      |      |                       | 
|Total                                                         |  |                   | 3,261,230 |  |                  | $                    | 7.04 |                       |  |  | 1,775,990 | 
|                                                              |  |                   |           |  |                  |                      |      |                       | 






|    |                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our equity compensation program does not include any equity
    compensation plans (including individual compensation
    arrangements) under which common stock is authorized for
    issuance that was adopted without the approval of stockholders.                                       
|   
|(2) | Of the shares remaining for issuance under our equity
    compensation plans, no more than 200,000 shares may be
    issued as restricted stock or other stock based awards (which
    awards are valued in whole or in part on the value of the shares
    of common stock under each plan).



| |                                      
| | -------------------------------------
| | Issuer Purchases Of Equity Securities








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



20



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|                                                                                     |                                             |                                       |         |         |      |   |         |         |   |   |         |        |   |      |         |        |   |   |         |        |  
|------------------------------------------------------------------------------------ | ------------------------------------------- | ------------------------------------- | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------ | - | ---- | ------- | ------ | - | - | ------- | ------ | -
|                                                                                     |                                             | Year Ended December 31,               |        
|                                                                                     |                                             |                                       |        
|                                                                                     |                                             | 2004                                  |         |         | 2003 |   |         | 2002    |   |   | 2001    |        |   | 2000 |        
|                                                                                     |                                             |                                       |         |         |      |   |         |         |   |   |         |        |   |      |        
|                                                                                     |                                             | (In thousands, except per share data) |        
|INCOME STATEMENT DATA(1):                                                            |                                             |                                       |         |         |      |   |         |         |   |   |         |        |   |      |         |        |   |   |         |       
|Contract revenues                                                                    |                                             | $                                     | 254,209 |         |      | $ | 270,313 |         |   | $ | 283,410 |        |   | $    | 272,208 |        |   | $ | 160,532 |       
|Cost of contract revenues                                                            |                                             |                                       | 226,391 |         |      |   | 263,812 |         |   |   | 253,016 |        |   |      | 237,175 |        |   |   | 136,146 |       
|                                                                                     |                                             |                                       |         |         |      |   |         |         |   |   |         |        |   |      |        
|                                                                                     | Gross profit                                |                                       |         | 27,818  |      |   |         | 6,501   |   |   |         | 30,394 |   |      |         | 35,033 |   |   |         | 24,386 |  
|Selling, general and administrative expenses                                         |                                             |                                       | 30,687  |         |      |   | 21,749  |         |   |   | 21,845  |        |   |      | 13,771  |        |   |   | 9,401   |       
|Reserve for claims and receivables                                                   |                                             |                                       | 5,692   |         |      |   | 33,092  |         |   |   |        |        |   |      |        |        |   |   |        |       
|Impairment of property, equipment and intangibles                                    |                                             |                                       | 13,295  |         |      |   | 21,332  |         |   |   | 9,852   |        |   |      |        |        |   |   |        |       
|Impairment loss on assets held for sale                                              |                                             |                                       | 3,268   |         |      |   |        |         |   |   |        |        |   |      |        |        |   |   |        |       
|                                                                                     |                                             |                                       |         |         |      |   |         |         |   |   |         |        |   |      |        
|                                                                                     | Operating income (loss)                     |                                       |         | (25,124 | )    |   |         | (69,672 | ) |   |         | (1,303 | ) |      |         | 21,262 |   |   |         | 14,985 |  
|Other:                                                                               |                                             |                                       |         |         |      |   |         |         |   |   |         |        |   |      |         |        |   |   |         |       
|                                                                                     | Interest expense, net of amount capitalized |                                       |         | (25,995 | )    |   |         | (9,542  | ) |   |         | (4,585 | ) |      |         | (5,381 | ) |   |         | (7,730 | )
|                                                                                     | Interest income                             |                                       |         | 286     |      |   |         | 67      |   |   |         | 91     |   |      |         | 403    |   |   |         | 718    |  
|                                                                                     | Loss on debt extinguishment                 |                                       |         | (1,719  | )    |   |         | (868    | ) |   |         |       |   |      |         | (874   | ) |   |         |       |  
|                                                                                     | Gain (loss) on sale of assets               |                                       |         |        |      |   |         |        |   |   |         |       |   |      |         | (22    | ) |   |         | 6      |  
|                                                                                     | Other income (expense), net                 |                                       |         | 152     |      |   |         | (88     | ) |   |         | (2,831 | ) |      |         | (184   | ) |   |         | (84    | )
|                                                                                     |                                             |                                       |         |         |      |   |         |         |   |   |         |        |   |      |        
|Net income (loss) before income taxes and cumulative effect of
    accounting change |                                             |                                       | (52,400 | )       |      |   | (80,103 | )       |   |   | (8,628  | )      |   |      | 15,204  |        |   |   | 7,895   |       
|Income tax provision (benefit)                                                       |                                             |                                       | 2,103   |         |      |   | (7,599  | )       |   |   | (3,079  | )      |   |      | 4,511   |        |   |   | 2,902   |       
|                                                                                     |                                             |                                       |         |         |      |   |         |         |   |   |         |        |   |      |        
|Net income (loss) before cumulative effect of accounting change                      |                                             |                                       | (54,503 | )       |      |   | (72,504 | )       |   |   | (5,549  | )      |   |      | 10,693  |        |   |   | 4,993   |       
|Cumulative effect of accounting change, net of taxes of $743                         |                                             |                                       |        |         |      |   |        |         |   |   |        |        |   |      |        |        |   |   | 1,381   |       
|                                                                                     |                                             |                                       |         |         |      |   |         |         |   |   |         |        |   |      |        
|Net income (loss)                                                                    |                                             | $                                     | (54,503 | )       |      | $ | (72,504 | )       |   | $ | (5,549  | )      |   | $    | 10,693  |        |   | $ | 6,374   |       
|                                                                                     |                                             |                                       |         |         |      |   |         |         |   |   |         |        |   |      |        
|Earnings per share  basic:                                                          |                                             |                                       |         |         |      |   |         |         |   |   |         |        |   |      |         |        |   |   |         |       
|Net income (loss) before cumulative effect of accounting change                      |                                             | $                                     | (2.00   | )       |      | $ | (2.74   | )       |   | $ | (0.22   | )      |   | $    | 0.48    |        |   | $ | 0.27    |       
|Cumulative effect of accounting change                                               |                                             |                                       |        |         |      |   |        |         |   |   |        |        |   |      |        |        |   |   | 0.07    |       
|                                                                                     |                                             |                                       |         |         |      |   |         |         |   |   |         |        |   |      |        
|Net income (loss)  basic                                                            |                                             | $                                     | (2.00   | )       |      | $ | (2.74   | )       |   | $ | (0.22   | )      |   | $    | 0.48    |        |   | $ | 0.34    |       
|                                                                                     |                                             |                                       |         |         |      |   |         |         |   |   |         |        |   |      |        
|Earnings per share  diluted:                                                        |                                             |                                       |         |         |      |   |         |         |   |   |         |        |   |      |         |        |   |   |         |       
|Net income (loss) before cumulative effect of accounting change                      |                                             | $                                     | (2.00   | )       |      | $ | (2.74   | )       |   | $ | (0.22   | )      |   | $    | 0.46    |        |   | $ | 0.26    |       
|Cumulative effect of accounting change                                               |                                             |                                       |        |         |      |   |        |         |   |   |        |        |   |      |        |        |   |   | 0.07    |       
|                                                                                     |                                             |                                       |         |         |      |   |         |         |   |   |         |        |   |      |        
|Net income (loss)  diluted                                                          |                                             | $                                     | (2.00   | )       |      | $ | (2.74   | )       |   | $ | (0.22   | )      |   | $    | 0.46    |        |   | $ | 0.33    |       
|                                                                                     |                                             |                                       |         |         |      |   |         |         |   |   |         |        |   |      |        
|STATEMENT OF CASH FLOW DATA:                                                         |                                             |                                       |         |         |      |   |         |         |   |   |         |        |   |      |         |        |   |   |         |       
|Net cash provided by (used in) operating activities                                  |                                             | $                                     | 2,095   |         |      | $ | (53,065 | )       |   | $ | 48,487  |        |   | $    | (43,994 | )      |   | $ | 8,723   |       
|Net cash used in investing activities                                                |                                             |                                       | (4,776  | )       |      |   | (14,683 | )       |   |   | (59,752 | )      |   |      | (53,223 | )      |   |   | (18,178 | )     
|Net cash provided by financing activities                                            |                                             |                                       | 30,541  |         |      |   | 71,790  |         |   |   | 9,474   |        |   |      | 95,838  |        |   |   | 10,581  |       

21



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|                              |  |                                       |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|----------------------------- |  | ------------------------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                              |  | Year Ended December 31,               |       
|                              |  |                                       |       
|                              |  | 2004                                  |        |  | 2003 |   |        | 2002 |  |   | 2001   |  |  | 2000 |       
|                              |  |                                       |        |  |      |   |        |      |  |   |        |  |  |      |       
|                              |  | (In thousands, except per share data) |       
|OTHER FINANCIAL DATA:         |  |                                       |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|Depreciation and amortization |  | $                                     | 19,702 |  |      | $ | 19,718 |      |  | $ | 15,959 |  |  | $    | 12,935 |  |  | $ | 9,591  | 
|Capital expenditures          |  |                                       | 5,579  |  |      |   | 17,797 |      |  |   | 58,752 |  |  |      | 54,828 |  |  |   | 19,268 | 

|                                                |                   |                 |                                        |         |        |        |         |         |         |        |         |        |        |        |         |        |        |        |         |       |        |        |  
|----------------------------------------------- | ----------------- | --------------- | -------------------------------------- | ------- | ------ | ------ | ------- | ------- | ------- | ------ | ------- | ------ | ------ | ------ | ------- | ------ | ------ | ------ | ------- | ----- | ------ | ------ | -
|                                                |                   | December 31,    |                                       
|                                                |                   |                 |                                       
|                                                |                   | 2004            |                                        |         | 2003   |        |         | 2002    |         |        | 2001    |        |        | 2000   |        
|                                                |                   |                 |                                        |         |        |        |         |         |         |        |         |        |        |        |        
|BALANCE SHEET DATA:                             |                   |                 |                                        |         |        |        |         |         |         |        |         |        |        |        |         |        |        |        |         |      
|Working capital                                 |                   | $               | 29,022                                 |         |        | $      | 26,107  |         |         | $      | 30,385  |        |        | $      | 78,055  |        |        | $      | 9,952   |      
|Property and equipment, net                     |                   |                 | 198,804                                |         |        |        | 239,411 |         |         |        | 257,847 |        |        |        | 221,446 |        |        |        | 176,895 |      
|Total assets                                    |                   |                 | 403,343                                |         |        |        | 409,541 |         |         |        | 420,533 |        |        |        | 393,584 |        |        |        | 239,425 |      
|Long-term debt, net of current maturities       |                   |                 | 170,347                                |         |        |        | 146,886 |         |         |        | 90,062  |        |        |        | 111,414 |        |        |        | 78,415  |      
|Preferred stock subject to mandatory redemption |                   |                 | 416                                    |         |        |        |        |         |         |        |        |        |        |        |        |        |        |        |        |      
|Stockholders equity                            |                   |                 | 102,340                                |         |        |        | 139,811 |         |         |        | 211,675 |        |        |        | 185,690 |        |        |        | 104,035 |      
|NON-GAAP FINANCIAL DATA:                        |                   |                 |                                        |         |        |        |         |         |         |        |         |        |        |        |         |        |        |        |         |      
|Adjusted EBITDA(2)                              |                   | $               | 17,672                                 |         |        | $      | (28,710 | )       |         | $      | 21,677  |        |        | $      | 33,117  |        |        | $      | 24,498  |      
|                                                |                   |                 |                                        |         |        |        |         |         |         |        |         |        |        |        |        
|Adjusted EBITDA calculation is as follows:      |                   |                 |                                        |         |        |        |         |         |         |        |         |        |        |        |         |        |        |        |         |      
|                                                | Net income (loss) |                 | $                                      | (54,503 | )      |        | $       | (72,504 | )       |        | $       | (5,549 | )      |        | $       | 10,693 |        |        | $       | 6,374 |       
|                                                |                   |                 | Cumulative effect of accounting change |         |        |       |         |         |         |       |         |        |        |       |         |        |        |       |         |       |        | (1,381 | )
|                                                |                   |                 | Income tax provision (benefit)         |         |        | 2,103  |         |         |         | (7,599 | )       |        |        | (3,079 | )       |        |        | 4,511  |         |       |        | 2,902  |  
|                                                |                   |                 | Net interest expense                   |         |        | 25,709 |         |         |         | 9,475  |         |        |        | 4,494  |         |        |        | 4,978  |         |       |        | 7,012  |  
|                                                |                   |                 | Depreciation and amortization          |         |        | 19,702 |         |         |         | 19,718 |         |        |        | 15,959 |         |        |        | 12,935 |         |       |        | 9,591  |  
|                                                |                   |                 | Loss on debt extinguishment            |         |        | 1,719  |         |         |         | 868    |         |        |        |       |         |        |        |       |         |       |        |       |  
|                                                |                   |                 | Non-cash impairments                   |         |        | 22,942 |         |         |         | 21,332 |         |        |        | 9,852  |         |        |        |       |         |       |        |       |  
|                                                |                   |                 |                                        |         |        |        |         |         |         |        |         |        |        |        |        
|                                                |                   | Adjusted EBITDA |                                        | $       | 17,672 |        |         | $       | (28,710 | )      |         | $      | 21,677 |        |         | $      | 33,117 |        |         | $     | 24,498 |       
|                                                |                   |                 |                                        |         |        |        |         |         |         |        |         |        |        |        |        






|    |                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We have recorded reserves for claims and receivables and
    impairment losses on vessels and related equipment, inventory
    and goodwill during 2004, 2003, and 2002, which are included in
    the following financial statement captions in our consolidated
    statements of operations (in thousands). No reserves or
    impairments were recorded in 2001 and 2000.

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|                                                   |                                                    |                                                           |        |        |        |   |        |        |        |   |       |       |       |   |   |   |   |   |   |   |   | 
|-------------------------------------------------- | -------------------------------------------------- | --------------------------------------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ----- | ----- | ----- | - | - | - | - | - | - | - | - | 
|                                                   |                                                    | Year Ended December 31,                                  
|                                                   |                                                    |                                                          
|                                                   |                                                    | 2004                                                      |        |        | 2003   |   |        | 2002   |        |   | 2001  |       | 2000 
|                                                   |                                                    |                                                           |        |        |        |   |        |        |        |   |       |       |      
|INCOME STATEMENT CAPTION:                          |                                                    |                                                           |        |        |        |   |        |        |        |   |       |       |       |   |   |   |   |   |   |  
|Cost of contract revenues:                         |                                                    |                                                           |        |        |        |   |        |        |        |   |       |       |       |   |   |   |   |   |   |  
|                                                   | Impairment of inventory                            |                                                           | $      | 6,379  |        |   | $      |       |        |   | $     |      |       |   | $ |  |   |   | $ |  |  
|                                                   |                                                    |                                                           |        |        |        |   |        |        |        |   |       |       |       |   |  
|Reserve for claims and receivables:                |                                                    |                                                           |        |        |        |   |        |        |        |   |       |       |       |   |   |   |   |   |   |  
|                                                   | Pemex EPC 64                                       |                                                           | $      |       |        |   | $      | 33,092 |        |   | $     |      |       |   | $ |  |   |   | $ |  |  
|                                                   | Iroquois                                           |                                                           |        | 5,692  |        |   |        |       |        |   |       |      |       |   |   |  |   |   |   |  |  
|                                                   |                                                    |                                                           |        |        |        |   |        |        |        |   |       |       |       |   |  
|                                                   |                                                    | $                                                         | 5,692  |        |        | $ | 33,092 |        |        | $ |      |       |       | $ |  |   |   | $ |  |  
|                                                   |                                                    |                                                           |        |        |        |   |        |        |        |   |       |       |       |   |  
|Impairment of property, equipment and intangibles: |                                                    |                                                           |        |        |        |   |        |        |        |   |       |       |       |   |   |   |   |   |   |  
|                                                   | Impairment losses on vessels and related equipment |                                                           | $      | 1,059  |        |   | $      | 21,332 |        |   | $     | 9,852 |       |   | $ |  |   |   | $ |  |  
|                                                   | Impairment loss on the Gulf Horizon                |                                                           |        | 11,236 |        |   |        |       |        |   |       |      |       |   |   |  |   |   |   |  |  
|                                                   | Impairment of goodwill                             |                                                           |        | 1,000  |        |   |        |       |        |   |       |      |       |   |   |  |   |   |   |  |  
|                                                   |                                                    |                                                           |        |        |        |   |        |        |        |   |       |       |       |   |  
|                                                   |                                                    | $                                                         | 13,295 |        |        | $ | 21,332 |        |        | $ | 9,852 |       |       | $ |  |   |   | $ |  |  
|                                                   |                                                    |                                                           |        |        |        |   |        |        |        |   |       |       |       |   |  
|Impairment loss on assets held for sale:           |                                                    |                                                           |        |        |        |   |        |        |        |   |       |       |       |   |   |   |   |   |   |  
|                                                   | Impairment losses on vessels held for sale         |                                                           | $      | 3,268  |        |   | $      |       |        |   | $     |      |       |   | $ |  |   |   | $ |  |  
|                                                   |                                                    |                                                           |        |        |        |   |        |        |        |   |       |       |       |   |  
|                                                   |                                                    | Total reserves for claims and receivables and impairments |        | $      | 28,634 |   |        | $      | 54,424 |   |       | $     | 9,852 |   |   | $ |  |   |   | $ |  | 
|                                                   |                                                    |                                                           |        |        |        |   |        |        |        |   |       |       |       |   |  



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Horizon calculates Adjusted EBITDA (adjusted earnings before
    interest, income taxes, depreciation and amortization) as net
    income or loss excluding income taxes, net interest expense,
    depreciation and amortization, cumulative effect of accounting
    change, loss on debt extinguishment and impairment of inventory,
    property, equipment and intangibles, and assets held for sale.
    Net income or loss includes revenues for services for which
    non-cash consideration is received. Adjusted EBITDA is not
    calculated in accordance with Generally Accepted Accounting
    Principles (GAAP), but is a non-GAAP measure that is derived
    from items in Horizons GAAP financials and is used as a
    measure of operational performance. A reconciliation of the
    non-GAAP measure to Horizons income statement is included.
    Horizon believes Adjusted EBITDA is a commonly applied
    measurement of financial performance by investors. Horizon
    believes Adjusted EBITDA is useful to investors because it gives
    a measure of operational performance without taking into account
    items that Horizon does not believe relate directly to
    operations or that are subject to variations that are not caused
    by operational performance. This non-GAAP measure is not
    intended to be a substitute for GAAP measures, and investors are
    advised to review this non-GAAP measure in conjunction with GAAP
    information provided by Horizon. Adjusted EBITDA should not be
    construed as a substitute for income from operations, net income
    (loss) or cash flows from operating activities (all determined
    in accordance with GAAP) for the purpose of analyzing
    Horizons operating performance, financial position and
    cash flows. Horizons computation of Adjusted EBITDA may
    not be comparable to similar titled measures of other companies.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations



General




23



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| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | installing pipelines;                                                     
|
| |  | providing pipebury, hook-up and commissioning services;                   
|
| |  | installing production platforms and other structures; and                 
|
| |  | disassembling and salvaging production platforms and other
    structures.





| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | the price of oil and gas and industry perception of future
    prices;           
|
| |  | the ability of the oil and gas industry to access capital;                       
|
| |  | expectations about future demand and prices;                                     
|
| |  | the cost of exploring for, producing and developing oil and gas
    reserves;    
|
| |  | sale and expiration dates of offshore leases in the United
    States and abroad;
|
| |  | discovery rates of new oil and gas reserves in offshore areas;                   
|
| |  | local and international political and economic conditions;                       
|
| |  | governmental regulations; and                                                    
|
| |  | the availability and cost of capital.                                            



Overview


Gulf Horizon




24



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Sea Horizon Canyon Horizon Sea Horizon


Lone
Star Horizon Atlantic Horizon Lone Star Horizon Atlantic Horizon




25



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Sea Horizon Brazos Horizon




Gulf Horizon Cajun Horizon Gulf
Horizon Gulf Horizon Cajun Horizon Phoenix Horizon




26



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Critical Accounting Policies And Estimates












| |                    
| | -------------------
| | Revenue Recognition



27



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| |                    
| | -------------------
| | Accounts Receivable







28



---



##### Table of Contents







| |             
| | ------------
| | Other Assets



Canyon Horizon American Horizon Pecos
Horizon








| |                       
| | ----------------------
| | Property and Equipment



29



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Gulf Horizon Cajun Horizon




| |                         
| | ------------------------
| | Stock-Based Compensation





| |                     
| | --------------------
| | Federal Income Taxes



30



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Recent Accounting Pronouncements








| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The modified prospective method, which results in the
    recognition of compensation expense using SFAS 123(R) for
    all share-based awards granted after the effective date and the
    recognition of compensation expense using SFAS 123 for all
    previously granted share-based awards that remain unvested at
    the effective date; or                                                                                                          
|
| |  | The modified retrospective method, which results in applying the
    modified prospective method and restating prior periods by
    recognizing the financial statement impact of share-based
    payments in a manner consistent with the pro forma disclosure
    requirements of SFAS No. 123. The modified
    retrospective method may be applied to all prior periods
    presented or previously reported interim periods of the year of
    adoption.





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Results of Operations




|              |                                |                         |   |       |       |  |   |       |       |  |   |       |       | 
|------------- | ------------------------------ | ----------------------- | - | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|              |                                | Year Ended December 31, |  
|              |                                |                         |  
|              |                                | 2004                    |   |       | 2003  |  |   | 2002  |      
|              |                                |                         |   |       |       |  |   |       |      
|Revenues:     |                                |                         |   |       |       |  |   |       |       |  |   |      
|              | Domestic  U.S. Gulf of Mexico |                         | $ | 69.7  |       |  | $ | 94.1  |       |  | $ | 100.7 |      
|              | Domestic  Other               |                         |   | 3.3   |       |  |   | 107.6 |       |  |   | 55.9  |      
|              | Latin America                  |                         |   | 58.2  |       |  |   | 3.9   |       |  |   | 106.3 |      
|              | West Africa                    |                         |   | 17.4  |       |  |   | 16.2  |       |  |   | 1.4   |      
|              | Southeast Asia/ Mediterranean  |                         |   | 105.6 |       |  |   | 48.1  |       |  |   | 17.3  |      
|              | Other                          |                         |   |      |       |  |   | 0.4   |       |  |   | 1.8   |      
|              |                                |                         |   |       |       |  |   |       |      
|              |                                | Total                   |   | $     | 254.2 |  |   | $     | 270.3 |  |   | $     | 283.4 | 
|              |                                |                         |   |       |       |  |   |       |      
|Gross Profit: |                                |                         |   |       |       |  |   |       |       |  |   |      
|              | Domestic  U.S. Gulf of Mexico |                         | $ | (8.4  | )     |  | $ | (8.4  | )     |  | $ | 7.9   |      
|              | Domestic  Other               |                         |   | 1.8   |       |  |   | 9.2   |       |  |   | 4.5   |      
|              | Latin America                  |                         |   | 11.5  |       |  |   | (0.7  | )     |  |   | 18.4  |      
|              | West Africa                    |                         |   | 0.9   |       |  |   | (1.4  | )     |  |   | (2.8  | )    
|              | Southeast Asia/ Mediterranean  |                         |   | 22.0  |       |  |   | 8.1   |       |  |   | 1.6   |      
|              | Other                          |                         |   |      |       |  |   | (0.3  | )     |  |   | 0.8   |      
|              |                                |                         |   |       |       |  |   |       |      
|              |                                | Total                   |   | $     | 27.8  |  |   | $     | 6.5   |  |   | $     | 30.4  | 
|              |                                |                         |   |       |       |  |   |       |      

32



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Year Ended December 31, 2004 Compared To The Year Ended
December 31, 2003




| |                   
| | ------------------
| | Contract Revenues.

Sea Horizon Gulf Horizon




| |              
| | -------------
| | Gross Profit.

Sea Horizon




| |                                              
| | ---------------------------------------------
| | Selling, General and Administrative Expenses.

Gulf Horizon


33



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| |                                    
| | -----------------------------------
| | Reserve for Claims and Receivables.







| |                                                   
| | --------------------------------------------------
| | Impairment of Property, Equipment and Intangibles.

Gulf Horizon Cajun Horizon Phoenix Horizon,






| |                                         
| | ----------------------------------------
| | Impairment Loss on Assets Held for Sale.

Phoenix Horizon




| |                  
| | -----------------
| | Interest Expense.



34



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| |                 
| | ----------------
| | Interest Income.





| |                             
| | ----------------------------
| | Loss on Debt Extinguishment.



Sea Horizon




| |                        
| | -----------------------
| | Other Income (Expense).





| |                        
| | -----------------------
| | Income Taxes (Benefit).





| |          
| | ---------
| | Net Loss.



35



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##### Table of Contents



Year Ended December 31, 2003 Compared To The Year Ended
December 31, 2002




| |                   
| | ------------------
| | Contract Revenues.





| |              
| | -------------
| | Gross Profit.





| |                                              
| | ---------------------------------------------
| | Selling, General and Administrative Expenses.





| |                                    
| | -----------------------------------
| | Reserve for Claims and Receivables.





| |                                      
| | -------------------------------------
| | Impairment of Property and Equipment.

Phoenix Horizon, Phoenix Horizon Phoenix Horizon


36



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| |                  
| | -----------------
| | Interest Expense.





| |                 
| | ----------------
| | Interest Income.





| |                             
| | ----------------------------
| | Loss on Debt Extinguishment.

Sea Horizon




| |                        
| | -----------------------
| | Other Income (Expense).



Lone Star
Horizon,




| |                        
| | -----------------------
| | Income Taxes (Benefit).



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| |            
| | -----------
| | Net Income.



Liquidity and Capital Resources




| |        
| | -------
| | General

Gulf Horizon




| |              
| | -------------
| | Recent Events





38



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Gulf Horizon




39



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| |           
| | ----------
| | Cash Flows



Sea Horizon Sea Horizon,






| |                
| | ---------------
| | Working Capital





| |             
| | ------------
| | Indebtedness



40



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41



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| |                      
| | ---------------------
| | Claims and Litigation







Gulf
Horizon






| |                               
| | ------------------------------
| | Off-Balance Sheet Arrangements



42



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| |                                                 
| | ------------------------------------------------
| | Contractual Obligations and Capital Expenditures



|                                        |  |      |        |  |      |   |        |      |  |   |         |  |  |      |       |  |            |   |       |       |  |   |        |  |  |   |         | 
|--------------------------------------- |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------- |  |  | ---- | ----- |  | ---------- | - | ----- | ----- |  | - | ------ |  |  | - | ------- | 
|                                        |  | 2005 |        |  | 2006 |   |        | 2007 |  |   | 2008    |  |  | 2009 |       |  | Thereafter |   |       | Total | 
|                                        |  |      |        |  |      |   |        |      |  |   |         |  |  |      |       |  |            |   |       |       | 
|Principal and interest payments on debt |  | $    | 46,449 |  |      | $ | 54,294 |      |  | $ | 169,741 |  |  | $    | 5,792 |  |            | $ | 5,574 |       |  | $ | 19,699 |  |  | $ | 301,549 | 
|Operating leases                        |  |      | 2,757  |  |      |   | 2,537  |      |  |   | 2,491   |  |  |      | 2,288 |  |            |   | 153   |       |  |   | 269    |  |  |   | 10,495  | 
|                                        |  |      |        |  |      |   |        |      |  |   |         |  |  |      |       |  |            |   |       |       | 
|                                        |  | $    | 49,206 |  |      | $ | 56,831 |      |  | $ | 172,232 |  |  | $    | 8,080 |  |            | $ | 5,727 |       |  | $ | 19,968 |  |  | $ | 312,044 | 
|                                        |  |      |        |  |      |   |        |      |  |   |         |  |  |      |       |  |            |   |       |       | 








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures about Market
    Risk











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|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Disclosure Controls and Procedures




Managements Report on Internal Control over Financial
Reporting and Report of Independent Registered Public Accounting
Firm on Internal Control over Financial Reporting




Changes in Internal Control over Financial Reporting









|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant



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|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services



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PART IV







|         |                                        
|-------- | ---------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules








| |                              
| | -----------------------------
| | (1)      Financial Statements

| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Managements Report on Internal Controls Over Financial
    Reporting                                   
| | Report of Independent Registered Public Accounting Firm                                                 
| | Report of Independent Registered Public Accounting Firm                                                 
| | Report of Independent Registered Public Accounting Firm                                                 
| | Consolidated Balance Sheets as of December 31, 2004 and 2003                                            
| | Consolidated Statements of Operations for the Years Ended
    December 31, 2004, 2003 and 2002          
| | Consolidated Statements of Stockholders Equity for the
    Years Ended December 31, 2004, 2003 and 2002
| | Consolidated Statements of Cash Flows for the Years Ended
    December 31, 2004, 2003 and 2002          
| | Notes to Consolidated Financial Statements                                                              



| |                                                 
| | ------------------------------------------------
| | (2)     Financial Statement
    Schedules  None



| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Schedules have not been included because they are not
    applicable, immaterial or the information required has been
    included in the financial statements or notes thereto.



| |                 
| | ----------------
| | (3)     Exhibits



| |                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | See Index to Exhibits on page 87. The Company will furnish
    to any eligible stockholder, upon written request, a copy of any
    exhibit listed upon payment of a reasonable fee equal to our
    expenses in furnishing such exhibit.

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MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING




Internal Control  Integrated Framework






|                            | 
|--------------------------- | 
|/s/ Richard A. Sebastiao    | 
|                            | 
|Richard A. Sebastiao        | 
|Principal Executive Officer | 
|                           
|/s/ David W. Sharp          | 
|                            | 
|David W. Sharp              | 
|Principal Financial Officer | 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM










Internal Control 
Integrated Framework




Grant Thornton LLP






48



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




Internal Control 
Integrated Framework












Grant Thornton LLP






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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








PricewaterhouseCoopers
LLP






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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


(In thousands, except share data)


|                                                |                                                                                                                                                     |                                  |                            |          |        |         |         |         |         |         | 
|----------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------- | -------------------------- | -------- | ------ | ------- | ------- | ------- | ------- | ------- | 
|                                                |                                                                                                                                                     | December 31,                     |                           
|                                                |                                                                                                                                                     |                                  |                           
|                                                |                                                                                                                                                     | 2004                             |                            |          | 2003   |        
|                                                |                                                                                                                                                     |                                  |                            |          |        |        
|ASSETS                                         
|CURRENT ASSETS:                                 |                                                                                                                                                     |                                  |                            |          |        |         |         |        
|                                                | Cash and cash equivalents                                                                                                                           |                                  | $                          | 37,975   |        |         | $       | 10,115  |        
|                                                | Accounts receivable                                                                                                                                |                                  |                            |          |        |         |         |         |        
|                                                |                                                                                                                                                     | Contract receivables, net        |                            |          | 82,126 |         |         |         | 101,153 |        
|                                                |                                                                                                                                                     | Costs in excess of billings, net |                            |          | 24,058 |         |         |         | 34,697  |        
|                                                |                                                                                                                                                     | Affiliated parties               |                            |          | 3      |         |         |         | 170     |        
|                                                |                                                                                                                                                     | Income tax refund receivable     |                            |          | 78     |         |         |         | 200     |        
|                                                | Other current assets                                                                                                                                |                                  |                            | 5,079    |        |         |         | 2,616   |        
|                                                | Assets held for sale                                                                                                                                |                                  |                            | 8,632    |        |         |         |        |        
|                                                |                                                                                                                                                     |                                  |                            |          |        |        
|                                                |                                                                                                                                                     |                                  | Total current assets       |          |        | 157,951 |         |         |         | 148,951 | 
|PROPERTY AND EQUIPMENT, NET                     |                                                                                                                                                     |                                  | 198,804                    |          |        |         | 239,411 |        
|RESTRICTED CASH                                 |                                                                                                                                                     |                                  | 9,247                      |          |        |         |        |        
|INVENTORY                                       |                                                                                                                                                     |                                  | 1,415                      |          |        |         | 8,250   |        
|INSURANCE RECEIVABLE                            |                                                                                                                                                     |                                  | 9,255                      |          |        |         |        |        
|OTHER ASSETS                                    |                                                                                                                                                     |                                  | 26,671                     |          |        |         | 12,929  |        
|                                                |                                                                                                                                                     |                                  |                            |          |        |        
|                                                |                                                                                                                                                     | $                                | 403,343                    |          |        | $       | 409,541 |        
|                                                |                                                                                                                                                     |                                  |                            |          |        |        
|LIABILITIES AND STOCKHOLDERS EQUITY           
|CURRENT LIABILITIES:                            |                                                                                                                                                     |                                  |                            |          |        |         |         |        
|                                                | Accounts payable                                                                                                                                    |                                  | $                          | 35,267   |        |         | $       | 31,271  |        
|                                                | Accrued liabilities                                                                                                                                 |                                  |                            | 9,181    |        |         |         | 3,321   |        
|                                                | Accrued job costs                                                                                                                                   |                                  |                            | 31,152   |        |         |         | 56,346  |        
|                                                | Billings in excess of costs                                                                                                                         |                                  |                            | 9,900    |        |         |         | 5,834   |        
|                                                | Current maturities of long-term debt                                                                                                                |                                  |                            | 42,243   |        |         |         | 9,651   |        
|                                                | Related party debt                                                                                                                                  |                                  |                            |         |        |         |         | 15,000  |        
|                                                | Current taxes payable                                                                                                                               |                                  |                            | 1,186    |        |         |         | 1,421   |        
|                                                |                                                                                                                                                     |                                  |                            |          |        |        
|                                                |                                                                                                                                                     |                                  | Total current liabilities  |          |        | 128,929 |         |         |         | 122,844 | 
|LONG-TERM DEBT, net of current maturities       |                                                                                                                                                     |                                  | 81,379                     |          |        |         | 146,886 |        
|SUBORDINATED NOTES, net of discount             |                                                                                                                                                     |                                  | 88,968                     |          |        |         |        |        
|OTHER LIABILITIES                               |                                                                                                                                                     |                                  | 1,311                      |          |        |         |        |        
|PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION |                                                                                                                                                     |                                  | 416                        |          |        |         |        |        
|                                                |                                                                                                                                                     |                                  |                            |          |        |        
|                                                |                                                                                                                                                     |                                  | Total liabilities          |          |        | 301,003 |         |         |         | 269,730 | 
|COMMITMENTS AND CONTINGENCIES                   |                                                                                                                                                     |                                  |                            |          |        |         |         |        
|STOCKHOLDERS EQUITY:                           |                                                                                                                                                     |                                  |                            |          |        |         |         |        
|                                                | Preferred stock, $1 par value, 5,000,000 shares
    authorized, 1,400 and no mandatorily redeemable shares issued
    and outstanding, respectively |                                  |                            |         |        |         |         |        |        
|                                                | Common stock, $1 par value, 100,000,000 shares
    authorized, 32,583,882 and 27,290,582 shares issued,
    respectively                            |                                  |                            | 21,877   |        |         |         | 16,583  |        
|                                                | Subscriptions receivable                                                                                                                            |                                  |                            | (42      | )      |         |         |        |        
|                                                | Additional paid-in capital                                                                                                                          |                                  |                            | 191,759  |        |         |         | 182,687 |        
|                                                | Accumulated deficit                                                                                                                                 |                                  |                            | (108,654 | )      |         |         | (54,151 | )      
|                                                | Treasury stock, 396,458 and 809,269 shares, respectively                                                                                            |                                  |                            | (2,600   | )      |         |         | (5,308  | )      
|                                                |                                                                                                                                                     |                                  |                            |          |        |        
|                                                |                                                                                                                                                     |                                  | Total stockholders equity |          |        | 102,340 |         |         |         | 139,811 | 
|                                                |                                                                                                                                                     |                                  |                            |          |        |        
|                                                |                                                                                                                                                     | $                                | 403,343                    |          |        | $       | 409,541 |        
|                                                |                                                                                                                                                     |                                  |                            |          |        |        



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except share and per share data)


|                                                              |                   |                                        |                                             |            |       |         |         |            |       |         |         |            |       |        |  
|------------------------------------------------------------- | ----------------- | -------------------------------------- | ------------------------------------------- | ---------- | ----- | ------- | ------- | ---------- | ----- | ------- | ------- | ---------- | ----- | ------ | -
|                                                              |                   | Year Ended December 31,                |                                            
|                                                              |                   |                                        |                                            
|                                                              |                   | 2004                                   |                                             |            | 2003  |         |         | 2002       |      
|                                                              |                   |                                        |                                             |            |       |         |         |            |      
|CONTRACT REVENUES                                             |                   | $                                      | 254,209                                     |            |       | $       | 270,313 |            |       | $       | 283,410 |           
|COST OF CONTRACT REVENUES                                     |                   |                                        | 226,391                                     |            |       |         | 263,812 |            |       |         | 253,016 |           
|                                                              |                   |                                        |                                             |            |       |         |         |            |      
|                                                              |                   |                                        | Gross profit                                |            |       | 27,818  |         |            |       | 6,501   |         |            |       | 30,394 |  
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                  |                   |                                        | 30,687                                      |            |       |         | 21,749  |            |       |         | 21,845  |           
|RESERVE FOR CLAIMS AND RECEIVABLES                            |                   |                                        | 5,692                                       |            |       |         | 33,092  |            |       |         |        |           
|IMPAIRMENT OF PROPERTY, EQUIPMENT AND INTANGIBLES             |                   |                                        | 13,295                                      |            |       |         | 21,332  |            |       |         | 9,852   |           
|IMPAIRMENT LOSS ON ASSETS HELD FOR SALE                       |                   |                                        | 3,268                                       |            |       |         |        |            |       |         |        |           
|                                                              |                   |                                        |                                             |            |       |         |         |            |      
|                                                              |                   |                                        | Operating loss                              |            |       | (25,124 | )       |            |       | (69,672 | )       |            |       | (1,303 | )
|OTHER:                                                        |                   |                                        |                                             |            |       |         |         |            |       |         |         |           
|                                                              |                   |                                        | Interest expense, net of amount capitalized |            |       | (25,995 | )       |            |       | (9,542  | )       |            |       | (4,585 | )
|                                                              |                   |                                        | Interest income                             |            |       | 286     |         |            |       | 67      |         |            |       | 91     |  
|                                                              |                   |                                        | Loss on debt extinguishment                 |            |       | (1,719  | )       |            |       | (868    | )       |            |       |       |  
|                                                              |                   |                                        | Other income (expense), net                 |            |       | 152     |         |            |       | (88     | )       |            |       | (2,831 | )
|                                                              |                   |                                        |                                             |            |       |         |         |            |      
|NET LOSS BEFORE INCOME TAXES                                  |                   |                                        | (52,400                                     | )          |       |         | (80,103 | )          |       |         | (8,628  | )         
|INCOME TAX PROVISION (BENEFIT)                                |                   |                                        | 2,103                                       |            |       |         | (7,599  | )          |       |         | (3,079  | )         
|                                                              |                   |                                        |                                             |            |       |         |         |            |      
|NET LOSS                                                      |                   | $                                      | (54,503                                     | )          |       | $       | (72,504 | )          |       | $       | (5,549  | )         
|                                                              |                   |                                        |                                             |            |       |         |         |            |      
|EARNINGS (LOSS) PER SHARE  BASIC AND DILUTED:                |                   |                                        |                                             |            |       |         |         |            |       |         |         |           
|                                                              |                   | Net loss per share  basic and diluted |                                             | $          | (2.00 | )       |         | $          | (2.74 | )       |         | $          | (0.22 | )     
|                                                              |                   |                                        |                                             |            |       |         |         |            |      
|WEIGHTED AVERAGE SHARES USED IN COMPUTING EARNINGS PER SHARE: |                   |                                        |                                             |            |       |         |         |            |       |         |         |           
|                                                              | BASIC AND DILUTED |                                        |                                             | 27,233,280 |       |         |         | 26,429,014 |       |         |         | 25,573,326 |      



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


(In thousands)


|                           |                                                 |              |        |       |               |   |            |            |  |          |              |     |                |          |         |        |               |   |          |         |   |  |        |      |   |   |        |       |  |   |         |         |  
|-------------------------- | ----------------------------------------------- | ------------ | ------ | ----- | ------------- | - | ---------- | ---------- |  | -------- | ------------ | --- | -------------- | -------- | ------- | ------ | ------------- | - | -------- | ------- | - |  | ------ | ---- | - | - | ------ | ----- |  | - | ------- | ------- | -
|                           |                                                 |              |        |       |               |   |            | Retained   |  |          |              |     |               
|                           |                                                 | Common Stock |        |       |               |   | Additional |            |  | Earnings |              |     | Treasury Stock |          |         | Total  |              
|                           |                                                 |              |        |       | Subscriptions |   |            | Paid-In    |  |          | (Accumulated |     |                |          |         |        | Stockholders |  
|                           |                                                 | Shares       |        |       | Amount        |   |            | Receivable |  |          | Capital      |     |                | Deficit) |         |        | Shares        |   |          | Amount  |   |  | Equity |     
|                           |                                                 |              |        |       |               |   |            |            |  |          |              |     |                |          |         |        |               |   |          |         |   |  |        |     
|BALANCE, DECEMBER 31, 2001 |                                                 |              | 24,244 |       |               | $ | 13,537     |            |  | $        |             |     |                | $        | 154,636 |        |               | $ | 23,902   |         |   |  | 974    |      |   | $ | (6,385 | )     |  | $ | 185,690 |        
|                           | Issuance of common stock, net of offering costs |              |        | 3,000 |               |   |            | 3,000      |  |          |              |    |                |          |         | 27,844 |               |   |          |        |   |  |        |     |   |   |        |      |  |   |         | 30,844  |  
|                           | Stock options exercised                         |              |        | 46    |               |   |            | 46         |  |          |              |    |                |          |         | 238    |               |   |          |        |   |  |        |     |   |   |        |      |  |   |         | 284     |  
|                           | 401(k) contributions in company stock           |              |        |      |               |   |            |           |  |          |              |    |                |          |         | 4      |               |   |          |        |   |  |        | (62  | ) |   |        | 402   |  |   |         | 406     |  
|                           | Net loss                                        |              |        |      |               |   |            |           |  |          |              |    |                |          |         |       |               |   |          | (5,549  | ) |  |        |     |   |   |        |      |  |   |         | (5,549  | )
|                           |                                                 |              |        |       |               |   |            |            |  |          |              |     |                |          |         |        |               |   |          |         |   |  |        |     
|BALANCE, DECEMBER 31, 2002 |                                                 |              | 27,290 |       |               |   | 16,583     |            |  |          |             |     |                |          | 182,722 |        |               |   | 18,353   |         |   |  | 912    |      |   |   | (5,983 | )     |  |   | 211,675 |        
|                           | 401(k) contributions in company stock           |              |        |      |               |   |            |           |  |          |              |    |                |          |         | (247   | )             |   |          |        |   |  |        | (103 | ) |   |        | 675   |  |   |         | 428     |  
|                           | Stock compensation expense                      |              |        |      |               |   |            |           |  |          |              |    |                |          |         | 212    |               |   |          |        |   |  |        |     |   |   |        |      |  |   |         | 212     |  
|                           | Net loss                                        |              |        |      |               |   |            |           |  |          |              |    |                |          |         |       |               |   |          | (72,504 | ) |  |        |     |   |   |        |      |  |   |         | (72,504 | )
|                           |                                                 |              |        |       |               |   |            |            |  |          |              |     |                |          |         |        |               |   |          |         |   |  |        |     
|BALANCE, DECEMBER 31, 2003 |                                                 |              | 27,290 |       |               |   | 16,583     |            |  |          |             |     |                |          | 182,687 |        |               |   | (54,151  | )       |   |  | 809    |      |   |   | (5,308 | )     |  |   | 139,811 |        
|                           | 401(k) contributions in company stock           |              |        |      |               |   |            |           |  |          |              |    |                |          |         | (2,290 | )             |   |          |        |   |  |        | (413 | ) |   |        | 2,708 |  |   |         | 418     |  
|                           | Issuance of warrants, net of offering costs     |              |        |      |               |   |            |           |  |          |              |    |                |          |         | 16,593 |               |   |          |        |   |  |        |     |   |   |        |      |  |   |         | 16,593  |  
|                           | Warrants exercised                              |              |        | 5,294 |               |   |            | 5,294      |  |          |              | (42 | )              |          |         | (5,231 | )             |   |          |        |   |  |        |     |   |   |        |      |  |   |         | 21      |  
|                           | Net loss                                        |              |        |      |               |   |            |           |  |          |              |    |                |          |         |       |               |   |          | (54,503 | ) |  |        |     |   |   |        |      |  |   |         | (54,503 | )
|                           |                                                 |              |        |       |               |   |            |            |  |          |              |     |                |          |         |        |               |   |          |         |   |  |        |     
|BALANCE, DECEMBER 31, 2004 |                                                 |              | 32,584 |       |               | $ | 21,877     |            |  | $        | (42          | )   |                | $        | 191,759 |        |               | $ | (108,654 | )       |   |  | 396    |      |   | $ | (2,600 | )     |  | $ | 102,340 |        
|                           |                                                 |              |        |       |               |   |            |            |  |          |              |     |                |          |         |        |               |   |          |         |   |  |        |     



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


|                                                     |                                                                                            |                                                                                                                                  |                               |                                                     |        |         |        |         |        |         |         |          |        |        |         |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | --------------------------------------------------- | ------ | ------- | ------ | ------- | ------ | ------- | ------- | -------- | ------ | ------ | ------- | -
|                                                     |                                                                                            | Year Ended December 31,                                                                                                          |                              
|                                                     |                                                                                            |                                                                                                                                  |                              
|                                                     |                                                                                            | 2004                                                                                                                             |                               |                                                     | 2003   |         |        | 2002    |       
|                                                     |                                                                                            |                                                                                                                                  |                               |                                                     |        |         |        |         |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                                                            |                                                                                                                                  |                               |                                                     |        |         |        |         |        |         |         |         
|                                                     | Net loss                                                                                   |                                                                                                                                  | $                             | (54,503                                             | )      |         | $      | (72,504 | )      |         | $       | (5,549   | )     
|                                                     |                                                                                            | Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities  Depreciation and
    amortization |                               |                                                     | 19,702 |         |        |         | 19,718 |         |         |          | 15,959 |       
|                                                     |                                                                                            | Reserve for claims and receivables                                                                                               |                               |                                                     | 5,692  |         |        |         | 33,092 |         |         |          |       |       
|                                                     |                                                                                            | Impairment of inventory                                                                                                          |                               |                                                     | 6,379  |         |        |         |       |         |         |          |       |       
|                                                     |                                                                                            | Impairment of property, equipment and intangibles                                                                                |                               |                                                     | 13,295 |         |        |         | 21,332 |         |         |          | 9,852  |       
|                                                     |                                                                                            | Impairment loss on assets held for sale                                                                                          |                               |                                                     | 3,268  |         |        |         |       |         |         |          |       |       
|                                                     |                                                                                            | Net gain on sale of assets                                                                                                       |                               |                                                     | (32    | )       |        |         |       |         |         |          |       |       
|                                                     |                                                                                            | Deferred income tax benefit                                                                                                      |                               |                                                     |       |         |        |         | (9,072 | )       |         |          | (3,718 | )     
|                                                     |                                                                                            | Paid in-kind interest on subordinated notes                                                                                      |                               |                                                     | 11,217 |         |        |         |       |         |         |          |       |       
|                                                     |                                                                                            | Amortization of subordinated debt discount recorded as interest
    expense                                                      |                               |                                                     | 5,068  |         |        |         |       |         |         |          |       |       
|                                                     |                                                                                            | Amortization of deferred loan fees recorded as interest expense                                                                  |                               |                                                     | 3,434  |         |        |         | 1,240  |         |         |          | 726    |       
|                                                     |                                                                                            | Adjustment of mandatorily redeemable preferred stock charged to
    interest expense                                             |                               |                                                     | (1,605 | )       |        |         |       |         |         |          |       |       
|                                                     |                                                                                            | Expense recognized for issuance of treasury stock for 401(k)
    plan contributions                                              |                               |                                                     | 418    |         |        |         | 428    |         |         |          | 406    |       
|                                                     |                                                                                            | Stock compensation expense                                                                                                       |                               |                                                     |       |         |        |         | 212    |         |         |          |       |       
|                                                     |                                                                                            | Loss on debt extinguishment                                                                                                      |                               |                                                     | 1,719  |         |        |         | 868    |         |         |          |       |       
|                                                     |                                                                                            | Changes in operating assets and liabilities                                                                                     |                               |                                                     |        |         |        |         |        |         |         |          |        |       
|                                                     |                                                                                            |                                                                                                                                  | Restricted cash               |                                                     |        | (9,247  | )      |         |        |        |         |          |        |       |        
|                                                     |                                                                                            |                                                                                                                                  | Accounts receivable           |                                                     |        | 13,435  |        |         |        | (52,105 | )       |          |        | (7     | )      
|                                                     |                                                                                            |                                                                                                                                  | Costs in excess of billings   |                                                     |        | 10,639  |        |         |        | 10,705  |         |          |        | 17,939 |        
|                                                     |                                                                                            |                                                                                                                                  | Billings in excess of costs   |                                                     |        | 4,066   |        |         |        | 5,232   |         |          |        | (1,258 | )      
|                                                     |                                                                                            |                                                                                                                                  | Inventory                     |                                                     |        | 456     |        |         |        | (434    | )       |          |        | (6,111 | )      
|                                                     |                                                                                            |                                                                                                                                  | Other assets                  |                                                     |        | (17,469 | )      |         |        | (6,260  | )       |          |        | (7,492 | )      
|                                                     |                                                                                            |                                                                                                                                  | Accounts payable              |                                                     |        | 5,996   |        |         |        | (3,659  | )       |          |        | 23,432 |        
|                                                     |                                                                                            |                                                                                                                                  | Accrued and other liabilities |                                                     |        | 5,596   |        |         |        | (4,336  | )       |          |        | (1,182 | )      
|                                                     |                                                                                            |                                                                                                                                  | Accrued job costs             |                                                     |        | (25,194 | )      |         |        | 1,480   |         |          |        | 5,067  |        
|                                                     |                                                                                            |                                                                                                                                  | Current taxes payable         |                                                     |        | (235    | )      |         |        | 998     |         |          |        | 423    |        
|                                                     |                                                                                            |                                                                                                                                  |                               |                                                     |        |         |        |         |       
|                                                     |                                                                                            |                                                                                                                                  |                               | Net cash provided by (used in) operating activities |        |         | 2,095  |         |        |         | (53,065 | )        |        |        | 48,487  |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                                                            |                                                                                                                                  |                               |                                                     |        |         |        |         |        |         |         |         
|                                                     | Purchases and additions to property, equipment and intangibles                             |                                                                                                                                  |                               | (5,579                                              | )      |         |        | (17,797 | )      |         |         | (59,752  | )     
|                                                     | Proceeds from sale of assets                                                               |                                                                                                                                  |                               | 803                                                 |        |         |        |        |        |         |         |         |       
|                                                     | Proceeds from casualty insurance claim                                                     |                                                                                                                                  |                               |                                                    |        |         |        | 3,114   |        |         |         |         |       
|                                                     |                                                                                            |                                                                                                                                  |                               |                                                     |        |         |        |         |       
|                                                     |                                                                                            |                                                                                                                                  |                               | Net cash used in investing activities               |        |         | (4,776 | )       |        |         | (14,683 | )        |        |        | (59,752 | )
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                                                            |                                                                                                                                  |                               |                                                     |        |         |        |         |        |         |         |         
|                                                     | Borrowings under term debt                                                                 |                                                                                                                                  |                               |                                                    |        |         |        | 21,362  |        |         |         | 4,045    |       
|                                                     | Principal payments on term debt                                                            |                                                                                                                                  |                               | (9,615                                              | )      |         |        | (8,967  | )      |         |         | (8,040   | )     
|                                                     | Borrowings on revolving credit facilities                                                  |                                                                                                                                  |                               | 30,550                                              |        |         |        | 142,516 |        |         |         | 131,424  |       
|                                                     | Payments on revolving credit facilities                                                    |                                                                                                                                  |                               | (53,850                                             | )      |         |        | (97,267 | )      |         |         | (148,200 | )     
|                                                     | Borrowings under related party debt                                                        |                                                                                                                                  |                               |                                                    |        |         |        | 15,000  |        |         |         |         |       
|                                                     | Proceeds from issuance of subordinated notes                                               |                                                                                                                                  |                               | 55,237                                              |        |         |        |        |        |         |         |         |       
|                                                     | Proceeds from issuance of subordinated notes allocable to
    warrants                     |                                                                                                                                  |                               | 16,593                                              |        |         |        |        |        |         |         |         |       
|                                                     | Principal payments on subordinated notes                                                   |                                                                                                                                  |                               | (4,472                                              | )      |         |        |        |        |         |         |         |       
|                                                     | Deferred loan fees                                                                         |                                                                                                                                  |                               | (3,924                                              | )      |         |        | (854    | )      |         |         | (883     | )     
|                                                     | Proceeds from issuance of common and preferred stock, net                                  |                                                                                                                                  |                               | 1                                                   |        |         |        |        |        |         |         | 30,844   |       
|                                                     | Stock option and warrant transactions and other                                            |                                                                                                                                  |                               | 21                                                  |        |         |        |        |        |         |         | 284      |       
|                                                     |                                                                                            |                                                                                                                                  |                               |                                                     |        |         |        |         |       
|                                                     |                                                                                            |                                                                                                                                  |                               | Net cash provided by financing activities           |        |         | 30,541 |         |        |         | 71,790  |          |        |        | 9,474   |  
|                                                     |                                                                                            |                                                                                                                                  |                               |                                                     |        |         |        |         |       
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                                            |                                                                                                                                  | 27,860                        |                                                     |        |         | 4,042  |         |        |         | (1,791  | )       
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR       |                                                                                            |                                                                                                                                  | 10,115                        |                                                     |        |         | 6,073  |         |        |         | 7,864   |         
|                                                     |                                                                                            |                                                                                                                                  |                               |                                                     |        |         |        |         |       
|CASH AND CASH EQUIVALENTS AT END OF YEAR             |                                                                                            | $                                                                                                                                | 37,975                        |                                                     |        | $       | 10,115 |         |        | $       | 6,073   |         
|                                                     |                                                                                            |                                                                                                                                  |                               |                                                     |        |         |        |         |       
|SUPPLEMENTAL DISCLOSURES:                            |                                                                                            |                                                                                                                                  |                               |                                                     |        |         |        |         |        |         |         |         
|                                                     | Cash paid for interest                                                                     |                                                                                                                                  | $                             | 8,000                                               |        |         | $      | 7,948   |        |         | $       | 5,449    |       
|                                                     | Cash paid for income taxes, net of refunds received                                        |                                                                                                                                  | $                             | 2,195                                               |        |         | $      | 675     |        |         | $       | 216      |       
|NON-CASH INVESTING AND FINANCING ACTIVITIES:         |                                                                                            |                                                                                                                                  |                               |                                                     |        |         |        |         |        |         |         |         
|                                                     | Capital expenditures for property and equipment included in
    accrued liabilities        |                                                                                                                                  | $                             | 353                                                 |        |         | $      | 778     |        |         | $       | 3,762    |       
|                                                     | Repayment of debt with proceeds of subordinated notes and
    additional term debt         |                                                                                                                                  | $                             | 15,000                                              |        |         | $      | 14,069  |        |         | $       |         |       
|                                                     | Payment of deferred loan fees and warrant issuance with proceeds
    of subordinated notes |                                                                                                                                  | $                             | 8,905                                               |        |         | $      |        |        |         | $       |         |       
|                                                     | Insurance receivable recorded upon involuntary conversion of
    assets from fire          |                                                                                                                                  | $                             | 9,255                                               |        |         | $      |        |        |         | $       |         |       



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2004




|   |                                                                 
|-- | ----------------------------------------------------------------
|1. | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES:



| |                                       
| | --------------------------------------
| | Organization and Basis of Presentation





| |                  
| | -----------------
| | Status of Horizon

Gulf Horizon






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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








| |               
| | --------------
| | Business Risks







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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                                              
| | ---------------------------------------------
| | Segment Information and Significant Customers



|                                   |  |      |    |   |      |  |    |      |  |  |    |  
|---------------------------------- |  | ---- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|                                   |  | 2004 |    |   | 2003 |  |    | 2002 | 
|                                   |  |      |    |   |      |  |    |      | 
|Israel Electric Corporation        |  |      | 36 | % |      |  |   |      |  |  |   |  
|Petróleos Mexicanos                |  |      | 23 | % |      |  | 1  | %    |  |  | 31 | %
|Iroquois Gas Transmission LP       |  |      |   |   |      |  | 25 | %    |  |  | 20 | %
|Algonquin Gas Transmission Company |  |      |   |   |      |  | 15 | %    |  |  |   |  
|Brunei Shell Petroleum Company     |  |      |   |   |      |  | 10 | %    |  |  |   |  





| |                             
| | ----------------------------
| | Concentration of Credit Risk





| |                            
| | ---------------------------
| | Principles of Consolidation





| |                 
| | ----------------
| | Use of Estimates



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                    
| | -------------------
| | Revenue Recognition







| |                 
| | ----------------
| | Cost Recognition





| |                                          
| | -----------------------------------------
| | Interest Expense and Capitalized Interest





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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                    
| | -------------------
| | Accounts Receivable







| |             
| | ------------
| | Other Assets



Canyon Horizon American Horizon Pecos Horizon Gulf Horizon


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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










| |          
| | ---------
| | Inventory





| |                
| | ---------------
| | Restricted Cash



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                       
| | ----------------------
| | Property and Equipment





|                               |  |           
|------------------------------ |  | ----------
|Buildings                      |  | 15 years  
|Machinery and equipment        |  | 8-15 years
|Office furniture and equipment |  | 3-5 years 
|Leasehold improvements         |  | 3-10 years



|                                             |  |              |        |  |      |   |        |      |  |   |        | 
|-------------------------------------------- |  | ------------ | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                             |  | December 31, |       
|                                             |  |              |       
|                                             |  | 2004         |        |  | 2003 |   |        | 2002 | 
|                                             |  |              |        |  |      |   |        |      | 
|Cost of contract revenues                    |  | $            | 12,444 |  |      | $ | 12,839 |      |  | $ | 10,851 | 
|Selling, general and administrative expenses |  |              | 1,464  |  |      |   | 1,380  |      |  |   | 619    | 
|                                             |  |              |        |  |      |   |        |      | 
|                                             |  | $            | 13,908 |  |      | $ | 14,219 |      |  | $ | 11,470 | 
|                                             |  |              |        |  |      |   |        |      | 





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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                         
| | ------------------------
| | Stock-Based Compensation



|                                                                                                                                           |  |                         |         |   |      |   |         |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                                                                                           |  | Year Ended December 31, |        
|                                                                                                                                           |  |                         |        
|                                                                                                                                           |  | 2004                    |         |   | 2003 |   |         | 2002 | 
|                                                                                                                                           |  |                         |         |   |      |   |         |      | 
|Net loss, as reported                                                                                                                      |  | $                       | (54,503 | ) |      | $ | (72,504 | )    |  | $ | (5,549 | )
|Add: Total stock-based compensation cost, net of related tax
    effects, included in net loss                                             |  |                         |        |   |      |   | 212     |      |  |   |       |  
|Deduct: Total stock-based compensation expense determined under
    fair value based method for all awards, net of related tax
    effects |  |                         | (987    | ) |      |   | (2,648  | )    |  |   | (3,128 | )
|                                                                                                                                           |  |                         |         |   |      |   |         |      | 
|Pro forma net loss                                                                                                                         |  | $                       | (55,490 | ) |      | $ | (74,940 | )    |  | $ | (8,677 | )
|                                                                                                                                           |  |                         |         |   |      |   |         |      | 

|                           |                                 |                         |   |       |      |  |   |       |   |  |   |       |  
|-------------------------- | ------------------------------- | ----------------------- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                           |                                 | Year Ended December 31, |  
|                           |                                 |                         |  
|                           |                                 | 2004                    |   |       | 2003 |  |   | 2002  |  
|                           |                                 |                         |   |       |      |  |   |       |  
|Earnings (loss) per share: |                                 |                         |   |       |      |  |   |       |   |  |   |      
|                           | Basic and Diluted  as reported |                         | $ | (2.00 | )    |  | $ | (2.74 | ) |  | $ | (0.22 | )
|                           |                                 |                         |   |       |      |  |   |       |  
|                           | Basic and Diluted  pro forma   |                         | $ | (2.04 | )    |  | $ | (2.84 | ) |  | $ | (0.34 | )
|                           |                                 |                         |   |       |      |  |   |       |  

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                |  |      |      |   |      |  |      |      |  |  |      |  
|------------------------------- |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                |  | 2004 |      |   | 2003 |  |      | 2002 | 
|                                |  |      |      |   |      |  |      |      | 
|Expected option life (in years) |  |      | 7    |   |      |  | 7    |      |  |  | 7    |  
|Expected volatility             |  |      | 78.8 | % |      |  | 76.1 | %    |  |  | 77.8 | %
|Risk-free interest rate         |  |      | 4.03 | % |      |  | 3.51 | %    |  |  | 4.77 | %



| |                     
| | --------------------
| | Federal Income Taxes





| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments





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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                   
| | ------------------
| | Earnings Per Share





| |                         
| | ------------------------
| | Other Comprehensive Loss





| |                  
| | -----------------
| | Reclassifications





| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The modified prospective method, which results in the
    recognition of compensation expense using SFAS 123(R) for
    all share-based awards granted after the effective date and the
    recognition of compensation expense using SFAS 123 for all
    previously granted share-based awards that remain unvested at
    the effective date; or                                                                                                          
|
| |  | The modified retrospective method, which results in applying the
    modified prospective method and restating prior periods by
    recognizing the financial statement impact of share-based
    payments in a manner consistent with the pro forma disclosure
    requirements of SFAS No. 123. The modified
    retrospective method may be applied to all prior periods
    presented or previously reported interim periods of the year of
    adoption.



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)












|   |                                                      
|-- | -----------------------------------------------------
|2. | CONTRACT RECEIVABLES AND COSTS IN EXCESS OF BILLINGS:





|                                      |  |              |        |   |      |   |         | 
|------------------------------------- |  | ------------ | ------ | - | ---- | - | ------- | 
|                                      |  | December 31, |       
|                                      |  |              |       
|                                      |  | 2004         |        |   | 2003 |  
|                                      |  |              |        |   |      |  
|Completed contracts                   |  | $            | 31,413 |   |      | $ | 3,406   | 
|Contracts in progress                 |  |              | 45,185 |   |      |   | 85,825  | 
|Retained                              |  |              | 11,220 |   |      |   | 11,922  | 
|Less: Allowance for doubtful accounts |  |              | (5,692 | ) |      |   |        | 
|                                      |  |              |        |   |      |  
|                                      |  | $            | 82,126 |   |      | $ | 101,153 | 
|                                      |  |              |        |   |      |  

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                                                          |                                  |              |          |        |      |   |          |        |  
|------------------------------------------------------------------------- | -------------------------------- | ------------ | -------- | ------ | ---- | - | -------- | ------ | -
|                                                                          |                                  | December 31, |         
|                                                                          |                                  |              |         
|                                                                          |                                  | 2004         |          |        | 2003 |  
|                                                                          |                                  |              |          |        |      |  
|Costs incurred to date                                                    |                                  | $            | 428,630  |        |      | $ | 437,891  |       
|Estimated earnings to date                                                |                                  |              | 71,401   |        |      |   | 54,193   |       
|                                                                          |                                  |              |          |        |      |  
|                                                                          |                                  |              | 500,031  |        |      |   | 492,084  |       
|Less: Billings to date                                                    |                                  |              | (452,781 | )      |      |   | (430,129 | )     
|Less: Allowance for doubtful costs in excess of billings                  |                                  |              | (33,092  | )      |      |   | (33,092  | )     
|                                                                          |                                  |              |          |        |      |  
|                                                                          |                                  | $            | 14,158   |        |      | $ | 28,863   |       
|                                                                          |                                  |              |          |        |      |  
|Included in accompanying balance sheets under the following
    captions: |                                  |              |          |        |      |   |          |       
|                                                                          | Costs in excess of billings, net |              | $        | 24,058 |      |   | $        | 34,697 |  
|                                                                          | Billings in excess of costs      |              |          | (9,900 | )    |   |          | (5,834 | )
|                                                                          |                                  |              |          |        |      |  
|                                                                          |                                  | $            | 14,158   |        |      | $ | 28,863   |       
|                                                                          |                                  |              |          |        |      |  









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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








|   |                        
|-- | -----------------------
|3. | PROPERTY AND EQUIPMENT:



|                                      |  |              |         |   |      |   |         |  
|------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                      |  | December 31, |        
|                                      |  |              |        
|                                      |  | 2004         |         |   | 2003 |  
|                                      |  |              |         |   |      |  
|Barges, vessels and related equipment |  | $            | 222,036 |   |      | $ | 256,653 |  
|Land and buildings                    |  |              | 19,642  |   |      |   | 19,732  |  
|Machinery and equipment               |  |              | 245     |   |      |   | 245     |  
|Office furniture and equipment        |  |              | 6,232   |   |      |   | 6,116   |  
|Leasehold improvements                |  |              | 4,213   |   |      |   | 4,191   |  
|                                      |  |              |         |   |      |  
|                                      |  |              | 252,368 |   |      |   | 286,937 |  
|Less-Accumulated depreciation         |  |              | (53,564 | ) |      |   | (47,526 | )
|                                      |  |              |         |   |      |  
|Property and equipment, net           |  | $            | 198,804 |   |      | $ | 239,411 |  
|                                      |  |              |         |   |      |  

Sea Horizon Canyon Horizon Pecos
Horizon.


Gulf Horizon Gulf Horizon Gulf Horizon


Cajun Horizon. Phoenix Horizon,


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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                     
| | --------------------
| | Assets Held For Sale

Phoenix Horizon




|   |                                          
|-- | -----------------------------------------
|4. | DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:



|                           |  |              |        |  |      |   |        | 
|-------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                           |  | December 31, |       
|                           |  |              |       
|                           |  | 2004         |        |  | 2003 |  
|                           |  |              |        |  |      |  
|Capitalized dry-dock costs |  | $            | 17,007 |  |      | $ | 11,378 | 
|Goodwill                   |  |              |       |  |      |   | 1,000  | 
|Prepaid loan fees          |  |              | 8,548  |  |      |   | 144    | 
|Deposits                   |  |              | 294    |  |      |   | 287    | 
|Other                      |  |              | 822    |  |      |   | 120    | 
|                           |  |              |        |  |      |  
|                           |  | $            | 26,671 |  |      | $ | 12,929 | 
|                           |  |              |        |  |      |  



|                                |  |              |       |  |      |   |       | 
|------------------------------- |  | ------------ | ----- |  | ---- | - | ----- | 
|                                |  | December 31, |      
|                                |  |              |      
|                                |  | 2004         |       |  | 2003 |  
|                                |  |              |       |  |      |  
|Payroll and other compensation  |  | $            | 3,758 |  |      | $ | 1,027 | 
|Foreign value added tax payable |  |              | 2,390 |  |      |   |      | 
|Accrued capital expenditures    |  |              | 353   |  |      |   | 778   | 
|Other                           |  |              | 2,679 |  |      |   | 1,516 | 
|                                |  |              |       |  |      |  
|                                |  | $            | 9,180 |  |      | $ | 3,321 | 
|                                |  |              |       |  |      |  

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|   |               
|-- | --------------
|5. | NOTES PAYABLE:



|                                                                                                                                                                                                                                                                                                                                                  |  |              |        |  |      |   |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                                                                                                                                                                                                                                                                                                                                                  |  | December 31, |       
|                                                                                                                                                                                                                                                                                                                                                  |  |              |       
|                                                                                                                                                                                                                                                                                                                                                  |  | 2004         |        |  | 2003 |  
|                                                                                                                                                                                                                                                                                                                                                  |  |              |        |  |      |  
|Revolving credit facility to Southwest Bank due
    February 28, 2005 and repaid in February 2005,
    collateralized by accounts receivable. Interest at Southwest
    Banks prime rate plus 1.75% (7.00% and 4.75% at
    December 31, 2004 and 2003, respectively)                                                                            |  | $            | 21,000 |  |      | $ | 30,000 | 
|Revolving credit facility to Southwest Bank due
    February 18, 2005 and repaid in February 2005,
    collateralized by accounts receivable. Interest at Southwest
    Banks prime rate plus 2% (7.25% and 5.00% at
    December 31, 2004 and 2003, respectively)                                                                               |  |              | 6,300  |  |      |   | 20,000 | 
|Revolving credit facility to CIT Group, due May 10, 2005,
    collateralized by mortgages on certain vessels. Interest at
    Libor plus 3.25% (5.54% and 4.42% at December 31, 2004 and
    2003, respectively)                                                                                                                                  |  |              | 25,573 |  |      |   | 26,173 | 
|Term loan payable to GE Capital Corporation (purchased from
    Boeing Capital Corporation), due in 84 monthly principal
    installments of $238, plus interest, maturing June 30,
    2010, collateralized by a mortgage on the Sea Horizon.
    Interest at Libor plus 4.80% (6.81% and 5.95% at
    December 31, 2004 and 2003, respectively) |  |              | 30,714 |  |      |   | 33,571 | 
|Term loan payable to CIT Group due in 84 monthly principal
    installments of $411, plus interest, maturing March 31,
    2006, collateralized by mortgages on certain vessels. Interest
    at Libor plus 2.65% (4.75% and 3.77% at December 31, 2004
    and 2003, respectively)                                                               |  |              | 24,603 |  |      |   | 29,536 | 
|Term loan payable to GE Capital Corporation due in
    120 monthly installments of $115, including interest,
    maturing January 1, 2012, collateralized by a mortgage on
    the Pecos Horizon. Interest at the one-month commercial
    paper rate plus 2.45% (4.46% and 3.47% at December 31, 2004
    and 2003, respectively)                |  |              | 8,213  |  |      |   | 9,268  | 
|Term loan payable to SouthTrust Bank due in 60 monthly
    installments of $72, including interest, maturing
    August 31, 2006, collateralized by the Port Arthur marine
    base. Interest at SouthTrust Banks prime rate plus 1/2%
    (5.75% and 4.50% at December 31, 2004 and 2003,
    respectively)                                     |  |              | 5,890  |  |      |   | 6,454  | 
|Term loan payable to Southwest Bank due in 60 monthly
    principal installments of $15, plus interest, maturing
    November 1, 2006, collateralized by property located in
    Port Arthur. Interest at Southwest Banks prime rate (5.25%
    and 4.00% at December 31, 2004 and 2003, respectively)                                           |  |              | 1,283  |  |      |   | 1,463  | 
|Term loan payable to ABN Amro Bank due in 60 monthly
    installments of $1, plus interest, maturing September 19,
    2006. Interest at 4.93%                                                                                                                                                                                                    |  |              | 28     |  |      |   | 44     | 
|Term loan payable to ABN Amro Bank due in 60 monthly
    installments of $1, plus interest, maturing December 20,
    2006. Interest at 4.93%                                                                                                                                                                                                     |  |              | 19     |  |      |   | 28     | 
|16% Subordinated Secured Notes due March 31, 2007, net
    of discount, interest payable in-kind quarterly                                                                                                                                                                                                                                        |  |              | 64,411 |  |      |   |       | 
|18% Subordinated Secured Notes due March 31, 2007, net
    of discount, interest payable in-kind quarterly                                                                                                                                                                                                                                        |  |              | 24,556 |  |      |   |       | 

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NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


|                                                                                                                                                                                                                 |  |              |         |  |      |   |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- |  | ---- | - | ------- | 
|                                                                                                                                                                                                                 |  | December 31, |        
|                                                                                                                                                                                                                 |  |              |        
|                                                                                                                                                                                                                 |  | 2004         |         |  | 2003 |  
|                                                                                                                                                                                                                 |  |              |         |  |      |  
|Term loan payable to Elliott Associates, L.P., originally due
    June 30, 2004 and repaid with proceeds from the issuance of
    16% Subordinated Notes in March 2004. Interest at 18% at
    December 31, 2003 |  |              |        |  |      | $ | 15,000  | 
|                                                                                                                                                                                                                 |  |              |         |  |      |  
|Total debt, net of discount                                                                                                                                                                                      |  | $            | 212,590 |  |      | $ | 171,537 | 
|                                                                                                                                                                                                                 |  |              |         |  |      |  
|Current maturities of long-term debt                                                                                                                                                                             |  | $            | 42,243  |  |      | $ | 9,651   | 
|                                                                                                                                                                                                                 |  |              |         |  |      |  
|Current related party debt                                                                                                                                                                                       |  | $            |        |  |      | $ | 15,000  | 
|                                                                                                                                                                                                                 |  |              |         |  |      |  
|Long-term debt, net of current maturities                                                                                                                                                                        |  | $            | 81,379  |  |      | $ | 146,886 | 
|                                                                                                                                                                                                                 |  |              |         |  |      |  
|Subordinated notes, net of discount                                                                                                                                                                              |  | $            | 88,968  |  |      | $ |        | 
|                                                                                                                                                                                                                 |  |              |         |  |      |  



| |                
| | ---------------
| | Loan Facilities







|                   |  |             |                        |      |       |     |       |          |       |         |         |         |           |         |      |       |      |   |       |          |  |   |      |   |  |   |      | 
|------------------ |  | ----------- | ---------------------- | ---- | ----- | --- | ----- | -------- | ----- | ------- | ------- | ------- | --------- | ------- | ---- | ----- | ---- | - | ----- | -------- |  | - | ---- | - |  | - | ---- | 
|                   |  |             |                        |      |       |     |       |          |       |         |         | Consent |           |         |     
|                   |  |             |                        |      |       | 20% |       |          | Costs |         |         |         |           | and     |      |       |     
|                   |  |             |                        | Face |       |     | Debt  |          |       | Paid At |         |         | Repayment |         |      | Other |      |   | Net   |         
|Date of Issuance   |  | Description |                        |      | Value |     |       | Discount |       |         | Closing |         |           | of Debt |      |       | Fees |   |       | Proceeds | 
|                   |  |             |                        |      |       |     |       |          |       |         |         |         |           |         |      |       |      |   |       |          | 
|March 11, 2004     |  |             | 16% Subordinated Notes |      |       | $   | 65.4  |          |       | $       |        |         |           | $       | (3.1 | )     |      | $ | (15.0 | )        |  | $ | (2.4 | ) |  | $ | 44.9 | 
|May 27, 2004       |  |             | 16% Subordinated Notes |      |       |     | 3.4   |          |       |         |        |         |           |         |     |       |      |   |      |          |  |   | (3.4 | ) |  |   |     | 
|May 27, 2004       |  |             | 18% Subordinated Notes |      |       |     | 18.75 |          |       |         | (3.8    | )       |           |         |     |       |      |   |      |          |  |   |     |   |  |   | 15.0 | 
|September 17, 2004 |  |             | 18% Subordinated Notes |      |       |     | 5.3   |          |       |         | (1.1    | )       |           |         |     |       |      |   |      |          |  |   |     |   |  |   | 4.2  | 
|November 4, 2004   |  |             | 18% Subordinated Notes |      |       |     | 9.625 |          |       |         | (1.9    | )       |           |         |     |       |      |   |      |          |  |   |     |   |  |   | 7.7  | 
|                   |  |             |                        |      |       |     |       |          |       |         |         |         |           |         |      |       |      |   |       |          | 
|                   |  |             |                        |      |       | $   | 102.5 |          |       | $       | (6.8    | )       |           | $       | (3.1 | )     |      | $ | (15.0 | )        |  | $ | (5.8 | ) |  | $ | 71.8 | 
|                   |  |             |                        |      |       |     |       |          |       |         |         |         |           |         |      |       |      |   |       |          | 

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NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)
















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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


Pecos Horizon,








| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a ratio of current assets to current liabilities, as defined, of
    1.10 to 1 for the period ending December 31, 2004 (actual
    was 1.23 at December 31, 2004), and 1.10 to 1 for the
    period ending March 31, 2005 and each period thereafter,
    each computed by excluding our revolving credit facilities from
    current liabilities;                                                                                                                                                                                                                                               
|
| |  | a fixed charge coverage ratio, as defined, of 1.40 to 1 for the
    six-month period ending December 31, 2004, (actual was 2.32
    to 1 at December 31, 2004), 1.33 to 1 for the nine-month
    period ending March 31, 2005, and 1.33 to 1 for each period
    thereafter on a rolling four quarter basis;                                                                                                                                                                                                                                                                                     
|
| |  | a tangible net worth, as defined, in an amount not less than the
    sum of $110 million plus 75% of our consolidated net income
    for each fiscal quarter which has been completed as of the date
    of calculation, commencing with the fiscal quarter ending
    March 31, 2004 plus 90% of the net proceeds of any common
    stock or other equity issued after December 31, 2003
    (actual was $117 million at December 31,
    2004); and                                                                                                                                            
|
| |  | the sum of our net income before gains and losses on sales of
    assets (to the extent such gains and losses are included in
    earnings), plus interest expense, plus tax expense, plus
    depreciation and amortization, as defined, plus restructuring
    charges, (including costs of our and our lenders or other
    creditors professional advisors not to exceed
    $3.0 million for the fiscal year ended December 31,
    2004) to be greater than positive $20 million for the year
    ending December 31, 2004, (actual was positive
    $20.9 million at December 31, 2004).

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|           |  |   |         | 
|---------- |  | - | ------- | 
|2005       |  | $ | 42,243  | 
|2006       |  |   | 42,524  | 
|2007       |  |   | 100,708 | 
|2008       |  |   | 4,035   | 
|2009       |  |   | 4,089   | 
|Thereafter |  |   | 18,991  | 
|           |  |   |        
|           |  | $ | 212,590 | 
|           |  |   |        



|   |              
|-- | -------------
|6. | INCOME TAXES:



|         |              |                         |       |       |       |   |        |        |        |   |        |        |        |  
|-------- | ------------ | ----------------------- | ----- | ----- | ----- | - | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|         |              | Year Ended December 31, |      
|         |              |                         |      
|         |              | 2004                    |       |       | 2003  |   |        | 2002   |       
|         |              |                         |       |       |       |   |        |        |       
|Current  |              |                         |       |       |       |   |        |        |        |   |        |       
|         | State        |                         | $     | 10    |       |   | $      | 165    |        |   | $      | 98     |       
|         | U.S. Federal |                         |       | (784  | )     |   |        |       |        |   |        |       |       
|         | Foreign      |                         |       | 2,877 |       |   |        | 1,308  |        |   |        | 541    |       
|         |              |                         |       |       |       |   |        |        |       
|         |              | Total current           |       |       | 2,103 |   |        |        | 1,473  |   |        |        | 639    |  
|         |              |                         |       |       |       |   |        |        |       
|Deferred |              |                         |       |       |       |   |        |        |        |   |        |       
|         | U.S. Federal |                         |       |      |       |   |        | (9,072 | )      |   |        | (3,718 | )     
|         |              |                         |       |       |       |   |        |        |       
|         |              | Total deferred          |       |       |      |   |        |        | (9,072 | ) |        |        | (3,718 | )
|         |              |                         |       |       |       |   |        |        |       
|         |              | $                       | 2,103 |       |       | $ | (7,599 | )      |        | $ | (3,079 | )     
|         |              |                         |       |       |       |   |        |        |       



|              |  |                         |         |   |      |   |         |      |  |   |        |  
|------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|              |  | Year Ended December 31, |        
|              |  |                         |        
|              |  | 2004                    |         |   | 2003 |   |         | 2002 | 
|              |  |                         |         |   |      |   |         |      | 
|United States |  | $                       | (51,399 | ) |      | $ | (83,770 | )    |  | $ | (7,848 | )
|Foreign       |  |                         | (1,001  | ) |      |   | 3,667   |      |  |   | (780   | )
|              |  |                         |         |   |      |   |         |      | 
|              |  | $                       | (52,400 | ) |      | $ | (80,103 | )    |  | $ | (8,628 | )
|              |  |                         |         |   |      |   |         |      | 

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                                     |  |                         |         |   |      |  |       |      |  |   |         |   |  |  |       |    |  |   |        |   |  |  |       |   
|---------------------------------------------------- |  | ----------------------- | ------- | - | ---- |  | ----- | ---- |  | - | ------- | - |  |  | ----- | -- |  | - | ------ | - |  |  | ----- | --
|                                                     |  | Year Ended December 31, |        
|                                                     |  |                         |        
|                                                     |  | 2004                    |         |   | 2003 |  |       | 2002 | 
|                                                     |  |                         |         |   |      |  |       |      | 
|Expense (benefit) computed at federal statutory rate |  | $                       | (17,816 | ) |      |  | (34.0 | )%   |  | $ | (27,235 | ) |  |  | (34.0 | )% |  | $ | (2,934 | ) |  |  | (34.0 | )%
|Increase (decrease) in provision from:               |  |                         |         |   |      |  |       |      |  |   |         |   |  |  |       |    |  |   |        |   |  |  |       |   
|State income tax net of federal benefit              |  |                         | 1       |   |      |  | 0.0   |      |  |   | 109     |   |  |  | 0.1   |    |  |   | 65     |   |  |  | 0.7   |   
|Foreign taxes                                        |  |                         | 3,217   |   |      |  | 6.1   |      |  |   | (275    | ) |  |  | (0.3  | )  |  |   | 275    |   |  |  | 3.2   |   
|Foreign income exclusion                             |  |                         | (2,071  | ) |      |  | (3.9  | )    |  |   | (40     | ) |  |  | (0.0  | )  |  |   | (646   | ) |  |  | (7.5  | ) 
|Nondeductible expenses                               |  |                         | 417     |   |      |  | 0.8   |      |  |   | 114     |   |  |  | 0.1   |    |  |   | 161    |   |  |  | 1.9   |   
|Research and development credit                      |  |                         | (486    | ) |      |  | (0.9  | )    |  |   | (3,421  | ) |  |  | (4.3  | )  |  |   |       |   |  |  |      |   
|Alternative minimum tax credit refund                |  |                         | (784    | ) |      |  | (1.5  | )    |  |   |        |   |  |  |      |    |  |   |       |   |  |  |      |   
|Other                                                |  |                         | 378     |   |      |  | 0.7   |      |  |   |        |   |  |  |      |    |  |   |       |   |  |  |      |   
|Deferred tax asset valuation allowance               |  |                         | 19,247  |   |      |  | 36.7  |      |  |   | 23,149  |   |  |  | 28.9  |    |  |   |       |   |  |  |      |   
|                                                     |  |                         |         |   |      |  |       |      |  |   |         |   |  |  |       |    |  |  
|                                                     |  | $                       | 2,103   |   |      |  | 4.0   | %    |  | $ | (7,599  | ) |  |  | (9.5  | )% |  | $ | (3,079 | ) |  |  | (35.7 | )%
|                                                     |  |                         |         |   |      |  |       |      |  |   |         |   |  |  |       |    |  |  



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|              |                                          |              |   |         |      |   |   |         |  
|------------- | ---------------------------------------- | ------------ | - | ------- | ---- | - | - | ------- | -
|              |                                          | December 31, |  
|              |                                          |              |  
|              |                                          | 2004         |   |         | 2003 |  
|              |                                          |              |   |         |      |  
|Assets       |                                          |              |   |         |      |   |   |        
|              | Net operating loss carryforwards         |              | $ | 59,781  |      |   | $ | 49,284  |  
|              | Gain on asset sales                      |              |   | 967     |      |   |   | 967     |  
|              | Accrued expense not currently deductible |              |   | 1,494   |      |   |   | 88      |  
|              | Contributions carryover                  |              |   | 64      |      |   |   | 59      |  
|              | Fixed asset basis difference             |              |   | 15,764  |      |   |   | 9,690   |  
|              | Research and development credit          |              |   | 3,907   |      |   |   | 3,421   |  
|              | Allowance for doubtful accounts          |              |   | 13,187  |      |   |   | 11,251  |  
|              | Alternative minimum tax carryforwards    |              |   | 133     |      |   |   | 917     |  
|              | Other                                    |              |   | 460     |      |   |   |        |  
|              |                                          |              |   |         |      |  
|              | Total gross deferred tax assets          |              |   | 95,757  |      |   |   | 75,677  |  
|Liabilities  |                                          |              |   |         |      |   |   |        
|              | Book/tax depreciation difference         |              |   | 53,361  |      |   |   | 52,528  |  
|              |                                          |              |   |         |      |  
|              | Net deferred tax assets                  |              |   | 42,396  |      |   |   | 23,149  |  
|              | Valuation allowance                      |              |   | (42,396 | )    |   |   | (23,149 | )
|              |                                          |              |   |         |      |  
|              |                                          | $            |  |         |      | $ |  |        
|              |                                          |              |   |         |      |  





|   |                               
|-- | ------------------------------
|7. | COMMITMENTS AND CONTINGENCIES:



| |                                    
| | -----------------------------------
| | Contractual Disputes and Litigation



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




Gulf
Horizon








| |                                                    
| | ---------------------------------------------------
| | Stock Purchases by Certain 401(k) Plan Participants



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








| |       
| | ------
| | Leases



|           |  |   |        | 
|---------- |  | - | ------ | 
|2005       |  | $ | 2,757  | 
|2006       |  |   | 2,537  | 
|2007       |  |   | 2,491  | 
|2008       |  |   | 2,288  | 
|2009       |  |   | 153    | 
|Thereafter |  |   | 269    | 
|           |  |   |       
|           |  | $ | 10,495 | 
|           |  |   |       



| |          
| | ---------
| | Insurance





| |                      
| | ---------------------
| | Employment Agreements



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|   |                                
|-- | -------------------------------
|8. | LOSS ON EXTINGUISHMENT OF DEBT:

Sea
Horizon




|   |                   
|-- | ------------------
|9. | SEVERANCE CHARGES:







|                                    |  |   |       |  
|----------------------------------- |  | - | ----- | -
|Balance, December 31, 2002          |  | $ |      |  
|Severance and restructuring expense |  |   | 382   |  
|Payments                            |  |   | (151  | )
|                                    |  |   |      
|Balance, December 31, 2003          |  |   | 231   |  
|Severance and restructuring expense |  |   | 2,266 |  
|Payments                            |  |   | (168  | )
|Adjustments                         |  |   | (131  | )
|                                    |  |   |      
|Balance, December 31, 2004          |  | $ | 2,198 |  
|                                    |  |   |      

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |                      
|--- | ---------------------
|10. | INSURANCE RECEIVABLE:

Gulf Horizon, Gulf Horizon Gulf Horizon Gulf Horizon Gulf Horizon




|    |                       
|--- | ----------------------
|11. | EMPLOYEE BENEFIT PLAN:







|    |                      
|--- | ---------------------
|12. | STOCKHOLDERS EQUITY:



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                   
| | ------------------
| | Earnings Per Share



|                                                                 |  |      |         |   |      |   |         |      |  |   |        |  
|---------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                 |  | 2004 |         |   | 2003 |   |         | 2002 | 
|                                                                 |  |      |         |   |      |   |         |      | 
|Net loss                                                         |  | $    | (54,503 | ) |      | $ | (72,504 | )    |  | $ | (5,549 | )
|Average common shares outstanding                                |  |      | 27,233  |   |      |   | 26,429  |      |  |   | 25,573 |  
|                                                                 |  |      |         |   |      |   |         |      | 
|Basic earnings (loss) per share                                  |  | $    | (2.00   | ) |      | $ | (2.74   | )    |  | $ | (0.22  | )
|                                                                 |  |      |         |   |      |   |         |      | 
|Average common and dilutive potential common shares outstanding: |  |      |         |   |      |   |         |      |  |   |        |  
|Average common shares outstanding                                |  |      | 27,233  |   |      |   | 26,429  |      |  |   | 25,573 |  
|Assumed exercise of stock options                                |  |      |        |   |      |   |        |      |  |   |       |  
|                                                                 |  |      |         |   |      |   |         |      | 
|                                                                 |  |      | 27,233  |   |      |   | 26,429  |      |  |   | 25,573 |  
|                                                                 |  |      |         |   |      |   |         |      | 
|Diluted earnings (loss) per share                                |  | $    | (2.00   | ) |      | $ | (2.74   | )    |  | $ | (0.22  | )
|                                                                 |  |      |         |   |      |   |         |      | 





| |         
| | --------
| | Warrants





|                        |  |        
|----------------------- |  | -------
|Warrant life            |  | 5 years
|Expected volatility     |  | 76.6%  
|Risk-free interest rate |  | 2.66%  



80



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                                       
| | --------------------------------------
| | Mandatorily Redeemable Preferred Stock







| |                                 
| | --------------------------------
| | Public Offerings of Common Stock





| |                          
| | -------------------------
| | Stockholders Rights Plan



81



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |              
| | -------------
| | Stock Options





|                                 |  |        |           |          |               |   |      | 
|-------------------------------- |  | ------ | --------- | -------- | ------------- | - | ---- | 
|                                 |  |        |           | Weighted |              
|                                 |  | Shares |           |          | Average Price |  
|                                 |  |        |           |          |               |  
|Outstanding at December 31, 2001 |  |        | 1,876,170 |          |               | $ | 9.34 | 
|Granted                          |  |        | 916,000   |          |               | $ | 6.90 | 
|Forfeited                        |  |        | (27,966   | )        |               | $ | 7.52 | 
|Exercised                        |  |        | (45,984   | )        |               | $ | 6.17 | 
|                                 |  |        |           |          |               |  
|Outstanding at December 31, 2002 |  |        | 2,718,220 |          |               | $ | 8.59 | 
|Granted                          |  |        | 885,668   |          |               | $ | 3.58 | 
|Forfeited                        |  |        | (181,204  | )        |               | $ | 7.77 | 
|Exercised                        |  |        |          |          |               |   |     | 
|                                 |  |        |           |          |               |  
|Outstanding at December 31, 2003 |  |        | 3,422,684 |          |               | $ | 7.34 | 
|Granted                          |  |        | 115,000   |          |               | $ | 1.51 | 
|Forfeited                        |  |        | (276,454  | )        |               | $ | 8.42 | 
|Exercised                        |  |        |          |          |               |   |     | 
|                                 |  |        |           |          |               |  
|Outstanding at December 31, 2004 |  |        | 3,261,230 |          |               | $ | 7.04 | 

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                         |  |                     |           |                  |                  |  |                     |                  |  |   |             |  |  |                  |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ---------------- | ---------------- |  | ------------------- | ---------------- |  | - | ----------- |  |  | ---------------- | --------- |  |  | - | ----- | 
|                         |  | Options Outstanding |           |                  |                  |  | Options Exercisable |                 
|                         |  |                     |           |                  |                  |  |                     |                 
|                         |  |                     |           | Weighted Average |                  |  |                     |                  | 
|                         |  | Shares              |           |                  | Remaining        |  |                     | Weighted Average |  |   | Shares      |  |  | Weighted Average |          
|Range of Exercise Prices |  | Outstanding         |           |                  | Contractual Life |  |                     | Exercise Price   |  |   | Exercisable |  |  | Exercise Price   |          
|                         |  |                     |           |                  |                  |  |                     |                  |  |   |             |  |  |                  |          
|$15.80 to $23.28         |  |                     | 114,000   |                  |                  |  | 6.15                |                  |  | $ | 18.68       |  |  |                  | 114,000   |  |  | $ | 18.68 | 
|$8.30 to $15.79          |  |                     | 565,011   |                  |                  |  | 4.01                |                  |  | $ | 12.44       |  |  |                  | 551,675   |  |  | $ | 12.51 | 
|$4.30 to $8.29           |  |                     | 1,812,921 |                  |                  |  | 5.87                |                  |  | $ | 6.27        |  |  |                  | 1,755,578 |  |  | $ | 6.30  | 
|$2.47 to $4.29           |  |                     | 679,298   |                  |                  |  | 8.25                |                  |  | $ | 3.46        |  |  |                  | 289,715   |  |  | $ | 3.47  | 
|$0.80 to $2.46           |  |                     | 90,000    |                  |                  |  | 9.55                |                  |  | $ | 0.92        |  |  |                  |          |  |  | $ |      | 
|                         |  |                     |           |                  |                  |  |                     |                  |  |   |             |  |  |                  |          
|$0.80 to $23.28          |  |                     | 3,261,230 |                  |                  |  | 6.16                |                  |  | $ | 7.04        |  |  |                  | 2,710,968 |  |  | $ | 7.78  | 
|                         |  |                     |           |                  |                  |  |                     |                  |  |   |             |  |  |                  |          



| |               
| | --------------
| | Treasury Stock





|    |                            
|--- | ---------------------------
|13. | RELATED PARTY TRANSACTIONS:



|                         |  |      |      |  |      |   |      |      |  |   |      | 
|------------------------ |  | ---- | ---- |  | ---- | - | ---- | ---- |  | - | ---- | 
|                         |  | 2004 |      |  | 2003 |   |      | 2002 | 
|                         |  |      |      |  |      |   |      |      | 
|Amount billed to Horizon |  | $    | 10.3 |  |      | $ | 17.1 |      |  | $ | 18.3 | 
|Amount paid to Odyssea   |  | $    | 7.9  |  |      | $ | 20.2 |      |  | $ | 14.7 | 





|                   |  |       |                        |              |        |   |                         |                   |  |   |      | 
|------------------ |  | ----- | ---------------------- | ------------ | ------ | - | ----------------------- | ----------------- |  | - | ---- | 
|                   |  |       |                        | Total Amount |        |   | Amount Purchased by the |                  
|Date               |  | Notes |                        |              | Issued |   |                         | Elliott Companies | 
|                   |  |       |                        |              |        |   |                         |                   | 
|March 11, 2004     |  |       | 16% Subordinated Notes |              |        | $ | 65.5                    |                   |  | $ | 15.0 | 
|May 27, 2004       |  |       | 16% Subordinated Notes |              |        | $ | 3.4                     |                   |  | $ | 0.8  | 
|May 27, 2004       |  |       | 18% Subordinated Notes |              |        | $ | 18.75                   |                   |  | $ | 5.3  | 
|September 17, 2004 |  |       | 18% Subordinated Notes |              |        | $ | 5.3                     |                   |  | $ | 1.6  | 
|November 4, 2004   |  |       | 18% Subordinated Notes |              |        | $ | 9.625                   |                   |  | $ | 3.3  | 

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|    |                        
|--- | -----------------------
|14. | GEOGRAPHIC INFORMATION:



|              |                               |                         |   |       |       |  |   |       |       |  |   |       |       | 
|------------- | ----------------------------- | ----------------------- | - | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|              |                               | Year Ended December 31, |  
|              |                               |                         |  
|              |                               | 2004                    |   |       | 2003  |  |   | 2002  |      
|              |                               |                         |   |       |       |  |   |       |      
|Revenues:     |                               |                         |   |       |       |  |   |       |       |  |   |      
|              | Domestic                      |                         | $ | 73.0  |       |  | $ | 201.7 |       |  | $ | 156.6 |      
|              | Latin America                 |                         |   | 58.2  |       |  |   | 3.9   |       |  |   | 106.3 |      
|              | West Africa                   |                         |   | 17.4  |       |  |   | 16.2  |       |  |   | 1.4   |      
|              | Southeast Asia/ Mediterranean |                         |   | 105.6 |       |  |   | 48.1  |       |  |   | 17.3  |      
|              | Other                         |                         |   |      |       |  |   | 0.4   |       |  |   | 1.8   |      
|              |                               |                         |   |       |       |  |   |       |      
|              |                               | Total                   |   | $     | 254.2 |  |   | $     | 270.3 |  |   | $     | 283.4 | 
|              |                               |                         |   |       |       |  |   |       |      
|Gross Profit: |                               |                         |   |       |       |  |   |       |       |  |   |      
|              | Domestic                      |                         | $ | (6.6  | )     |  | $ | 0.8   |       |  | $ | 12.4  |      
|              | Latin America                 |                         |   | 11.5  |       |  |   | (0.7  | )     |  |   | 18.4  |      
|              | West Africa                   |                         |   | 0.9   |       |  |   | (1.4  | )     |  |   | (2.8  | )    
|              | Southeast Asia/ Mediterranean |                         |   | 22.0  |       |  |   | 8.1   |       |  |   | 1.6   |      
|              | Other                         |                         |   |      |       |  |   | (0.3  | )     |  |   | 0.8   |      
|              |                               |                         |   |       |       |  |   |       |      
|              |                               | Total                   |   | $     | 27.8  |  |   | $     | 6.5   |  |   | $     | 30.4  | 
|              |                               |                         |   |       |       |  |   |       |      

|                      |                               |                    |   |       |       |  |   |       |       | 
|--------------------- | ----------------------------- | ------------------ | - | ----- | ----- |  | - | ----- | ----- | 
|                      |                               | As of December 31, |  
|                      |                               |                    |  
|                      |                               | 2004               |   |       | 2003  | 
|                      |                               |                    |   |       |       | 
|Long-lived assets(1): |                               |                    |   |       |       |  |   |      
|                      | Domestic                      |                    | $ | 119.9 |       |  | $ | 171.7 |      
|                      | Latin America                 |                    |   | 0.1   |       |  |   | 0.2   |      
|                      | West Africa                   |                    |   | 18.8  |       |  |   | 19.7  |      
|                      | Southeast Asia/ Mediterranean |                    |   | 60.0  |       |  |   | 40.1  |      
|                      | Other                         |                    |   |      |       |  |   | 7.7   |      
|                      |                               |                    |   |       |       | 
|                      |                               | Total              |   | $     | 198.8 |  |   | $     | 239.4 | 
|                      |                               |                    |   |       |       | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Property and equipment includes vessels, property and related
    marine equipment. Amounts reflect the location of the assets at
    December 31, 2004 and 2003. Equipment location changes as
    necessary to meet working requirements. Other identifiable
    assets include inventory and other long-term assets, and are
    primarily located in the domestic region. During the fourth
    quarter of 2004, we recognized a $1.0 million impairment
    charge for the remaining book value of goodwill related to one
    of our inactive Mexican subsidiaries. Goodwill of
    $1.0 million is associated with the Latin American region
    as of December 31, 2003.

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |                                             
|--- | --------------------------------------------
|15. | QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):





|                                   |                   |                                        |         |        |         |   |         |              |        |   |             |        |        |   |         |        |        |  
|---------------------------------- | ----------------- | -------------------------------------- | ------- | ------ | ------- | - | ------- | ------------ | ------ | - | ----------- | ------ | ------ | - | ------- | ------ | ------ | -
|                                   |                   | Quarter Ended                          |        
|                                   |                   |                                        |        
|                                   |                   | March 31                               |         |        | June 30 |   |         | September 30 |        |   | December 31 |       
|                                   |                   |                                        |         |        |         |   |         |              |        |   |             |       
|2004                               |                   |                                        |         |        |         |   |         |              |        |   |             |        |        |   |         |       
|Contract revenues                  |                   | $                                      | 42,483  |        |         | $ | 44,932  |              |        | $ | 94,600      |        |        | $ | 72,194  |       
|Gross profit (loss)(1)             |                   |                                        | (124    | )      |         |   | (1,031  | )            |        |   | 15,940      |        |        |   | 13,033  |       
|Operating loss(2)                  |                   |                                        | (5,965  | )      |         |   | (9,032  | )            |        |   | (4,219      | )      |        |   | (5,908  | )     
|Net loss(1)(2)(3)                  |                   |                                        | (10,698 | )      |         |   | (16,195 | )            |        |   | (14,061     | )      |        |   | (13,549 | )     
|                                   |                   |                                        |         |        |         |   |         |              |        |   |             |       
|EARNINGS (LOSS) PER SHARE:         |                   |                                        |         |        |         |   |         |              |        |   |             |        |        |   |         |       
|                                   |                   | Net loss per share  basic and diluted |         | $      | (0.40   | ) |         | $            | (0.60  | ) |             | $      | (0.52  | ) |         | $      | (0.48  | )
|Shares used in computing net loss: |                   |                                        |         |        |         |   |         |              |        |   |             |        |        |   |         |       
|                                   |                   | Basic and Diluted                      |         |        | 26,543  |   |         |              | 27,088 |   |             |        | 27,206 |   |         |        | 28,088 |  
|2003                               |                   |                                        |         |        |         |   |         |              |        |   |             |        |        |   |         |       
|Contract revenues                  |                   | $                                      | 67,061  |        |         | $ | 57,928  |              |        | $ | 79,770      |        |        | $ | 65,554  |       
|Gross profit (loss)                |                   |                                        | 2,534   |        |         |   | (750    | )            |        |   | 7,469       |        |        |   | (2,752  | )     
|Operating income (loss)(4)         |                   |                                        | (2,884  | )      |         |   | (7,231  | )            |        |   | 2,071       |        |        |   | (61,628 | )     
|Net loss(4)(5)                     |                   |                                        | (2,948  | )      |         |   | (4,057  | )            |        |   | (289        | )      |        |   | (65,210 | )     
|                                   |                   |                                        |         |        |         |   |         |              |        |   |             |       
|EARNINGS (LOSS) PER SHARE:         |                   |                                        |         |        |         |   |         |              |        |   |             |        |        |   |         |       
|                                   |                   | Net loss per share  basic and diluted |         | $      | (0.11   | ) |         | $            | (0.15  | ) |             | $      | (0.01  | ) |         | $      | (2.46  | )
|Shares used in computing net loss: |                   |                                        |         |        |         |   |         |              |        |   |             |        |        |   |         |       
|                                   | Basic and Diluted |                                        |         | 26,388 |         |   |         | 26,417       |        |   |             | 26,443 |        |   |         | 26,467 |       






|    |                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes a pretax $6.4 million impairment loss on our
    inventory of production platforms and other structures included
    in cost of contract revenues during the fourth quarter of 2004.                                                                     
|   
|(2) | Includes a pretax $5.7 million reserve for settlement of
    the Iroquois litigation and claims, $13.3 million
    impairment loss on property, equipment and intangibles and
    $3.3 million loss on assets held for sale during the fourth
    quarter of 2004.
|   
|(3) | Includes a $19.6 million valuation allowance to fully
    offset the net deferred tax asset recorded during 2004.                                                                                                                                                 

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Includes a pretax $21.3 million impairment loss related to
    several marine vessels and related marine equipment recorded
    during the fourth quarter of 2003 and a $33.1 million
    reserve for unapproved claims against Pemex recorded during the
    fourth quarter of 2003.
|   
|(5) | Includes a $23.1 million valuation allowance to fully
    offset the net deferred tax asset recorded during the fourth
    quarter of 2003.                                                                                                                                          



|    |                   
|--- | ------------------
|16. | SUBSEQUENT EVENTS:







86



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








Gulf Horizon






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SIGNATURES






| |                       
| | ----------------------
| | HORIZON OFFSHORE, INC.



| |     |                   
| | --- | ------------------
| | By: | /s/ DAVID W. SHARP

| |                             
| | ----------------------------
| |                             
| | David W. Sharp              
| | Executive Vice President and
| | Chief Financial Officer     





|                                                 |  |                                                                          |  |               
|------------------------------------------------ |  | ------------------------------------------------------------------------ |  | --------------
|Signature                                        |  | Title                                                                    |  | Date          
|                                                 |  |                                                                          |  |               
|                                                
|/s/ JOHN T. MILLSJohn
    T. Mills               |  | Chairman of the Board                                                    |  | March 31, 2005
|                                                
|/s/ RICHARD A. SEBASTIAORichard
    A. Sebastiao |  | Chief Restructuring Officer
    (Principal Executive Officer)            |  | March 31, 2005
|                                                
|/s/ DAVID W. SHARPDavid
    W. Sharp             |  | Chief Financial Officer (Principal Financial and Accounting
    Officer) |  | March 31, 2005
|                                                
|/s/ MICHAEL R. LATINAMichael
    R. Latina       |  | Director                                                                 |  | March 31, 2005
|                                                
|/s/ KEN R. LESUERKen
    R. Lesuer               |  | Director                                                                 |  | March 31, 2005
|                                                
|/s/ EDWARD L. MOSES, JR.Edward
    L. Moses, Jr. |  | Director                                                                 |  | March 31, 2005
|                                                
|/s/ CHARLES O. BUCKNERCharles
    O. Buckner     |  | Director                                                                 |  | March 31, 2005
|                                                
|/s/ J. LOUIS FRANKJ.
    Louis Frank             |  | Director/Chairman, Emeritus                                              |  | March 31, 2005
|                                                
|/s/ RAYMOND L. STEELERaymond
    L. Steele       |  | Director                                                                 |  | March 31, 2005
|                                                
|/s/ HARRY L. MAX, JR.Harry
    L. Max, Jr.       |  | Director                                                                 |  | March 31, 2005

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EXHIBIT INDEX


|        |    |     |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | -- | --- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |  
|Number  |    |     |  |  
|        |    |     |  |  
|        | 3  | .1  |  |  |  | Amended and Restated Certificate of Incorporation of the
    Company(1)                                                                                                                                                                                                                                                                                                                                         
|        | 3  | .2  |  |  |  | Bylaws of the Company(1)                                                                                                                                                                                                                                                                                                                                                                                        
|        | 3  | .3  |  |  |  | Certificate of Amendment to the Amended and Restated Certificate
    of Incorporation of the Company(21)                                                                                                                                                                                                                                                                                                        
|        | 4  | .1  |  |  |  | Specimen Common Stock certificate(1)                                                                                                                                                                                                                                                                                                                                                                            
|        | 4  | .2  |  |  |  | Rights Agreement, dated as of January 11, 2002, between
    Horizon Offshore, Inc. and Mellon Investor Services LLC, as
    Rights Agent, including (i) as Exhibit A 
    the Form of Certificate of Designations, (ii) as
    Exhibit B  the Forms of Rights Certificate,
    Assignment and Election to Purchase, and (iii) as
    Exhibit C  the Summary Description of the
    Stockholder Rights Plan(7)
|        | 4  | .3  |  |  |  | Form of Warrant(18)                                                                                                                                                                                                                                                                                                                                                                                             
|        | 4  | .4  |  |  |  | Certificate of Designation, Preferences and Rights of the
    Companys Series A Redeemable Participating Preferred
    Stock(24)                                                                                                                                                                                                                                                                               
|        | 10 | .1  |  |  |  | Form of Indemnity Agreement by and between the Company and each
    of its directors(1)                                                                                                                                                                                                                                                                                                                         
|        | 10 | .2  |  |  |  | The Companys Stock Incentive Plan(1)*                                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .3  |  |  |  | Form of Stock Option Agreement under the Companys Stock
    Incentive Plan(1)*                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .4  |  |  |  | Registration Rights Agreement dated as of December 4, 1997
    among the Company, Highwood Partners, L.P., and Westgate
    International, L.P.(1)                                                                                                                                                                                                                                                              
|        | 10 | .5  |  |  |  | Loan Agreement dated December 30, 1998 among Horizon
    Vessels, Inc., Horizon Offshore Contractors, Inc., The CIT
    Group/Equipment Financing, Inc., as agent, and the other lenders
    specified therein(6)                                                                                                                                                                                               
|        | 10 | .6  |  |  |  | Amendment No. 1 to Loan Agreement dated as of
    January 30, 1999 among Horizon Vessels, Inc., Horizon
    Offshore Contractors, Inc., The CIT Group/Equipment Financing,
    Inc., as agent, and the other lenders specified therein(5)                                                                                                                                                                       
|        | 10 | .7  |  |  |  | Amendment No. 2 to Loan Agreement dated as of May 25,
    1999 among Horizon Vessels, Inc., Horizon Offshore Contractors,
    Inc., The CIT Group/Equipment Financing, Inc., as agent, and the
    other lenders specified therein(5)                                                                                                                                                                           
|        | 10 | .8  |  |  |  | Amendment No. 3 to Loan Agreement dated as of
    November 30, 1999 among Horizon Vessels, Inc., Horizon
    Offshore Contractors, Inc., The CIT Group/Equipment Financing,
    Inc., as agent, and the other lenders specified therein(5)                                                                                                                                                                      
|        | 10 | .9  |  |  |  | Amendment No. 4 to Loan Agreement dated as of
    January 31, 2000 among Horizon Vessels, Inc., Horizon
    Offshore Contractors, Inc., The CIT Group/Equipment Financing,
    Inc., as agent, and the other lenders specified therein(5)                                                                                                                                                                       
|        | 10 | .10 |  |  |  | Amendment No. 5 to the Loan Agreement dated as of
    June 30, 2000 among Horizon Vessels, Inc., Horizon Offshore
    Contractors, Inc., The CIT Group/Equipment Financing Inc., as
    agent, and the other lenders specified therein(3)                                                                                                                                                                       
|        | 10 | .11 |  |  |  | Loan Agreement, dated March 26, 2001 between Horizon
    Offshore Contractors, Inc., Horizon Subsea Services, Inc.,
    Horizon Vessels, Inc. and Southwest Bank of Texas, N.A.(8)                                                                                                                                                                                                                              
|        | 10 | .12 |  |  |  | Loan Agreement dated June 29, 2001, between Horizon
    Vessels, Inc. and General Electric Capital Corporation(9)                                                                                                                                                                                                                                                                                               
|        | 10 | .13 |  |  |  | Credit Agreement dated May 10, 2001, among Horizon Vessels,
    Inc., Horizon Offshore Contractors, Inc., Horizon Offshore, Inc.
    and The CIT Group/Equipment Financing, Inc.(9)                                                                                                                                                                                                                             
|        | 10 | .14 |  |  |  | Employment Agreement and Non-Competition Agreement dated
    June 1, 2001 between the Company and Bill Lam(11)*                                                                                                                                                                                                                                                                                                 
|        | 10 | .15 |  |  |  | Loan Agreement dated June 29, 2001, among Horizon Vessels,
    Inc., Horizon Offshore, Inc., Horizon Offshore Contractors, Inc.
    and SouthTrust Bank(11)                                                                                                                                                                                                                                                     
|        | 10 | .16 |  |  |  | Loan Agreement dated August 31, 2001, between Horizon
    Vessels International Ltd. and GMAC Business Credit, LLC(10)                                                                                                                                                                                                                                                                                          

89



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|        |    |     |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                              
|------- | -- | --- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |   | 
|Number  |    |     |  |   | 
|        |    |     |  |   | 
|        | 10 | .17 |  |  |  | Loan Agreement dated August 15, 2001, among Horizon
    Offshore Contractors, Inc., Horizon Subsea Services, Inc.,
    Horizon Vessels, Inc., HorizEn, L.L.C. and Southwest Bank of
    Texas, N.A.(10)                                                                                                                                                                                      
|        | 10 | .18 |  |  |  | First Amendment to Loan Agreement dated as of April 17,
    2002 among Horizon Offshore Contractors, Inc., Horizon Subsea
    Services, Inc., Horizon Vessels, Inc. and Southwest Bank of
    Texas, N.A., as Agent(12)                                                                                                                                                                      
|        | 10 | .19 |  |  |  | First Amendment to EXIM Guaranteed Loan Agreement dated as of
    April 17, 2002 among Horizon Offshore Contractors, Inc.,
    Horizon Subsea Services, Inc., Horizon Vessels, Inc., HorizEn,
    L.L.C. and Southwest Bank of Texas, N.A., as Agent(12)                                                                                                                                     
|        | 10 | .20 |  |  |  | Horizon Offshore, Inc. 2002 Stock Incentive Plan(13)*                                                                                                                                                                                                                                                                                                                                        
|        | 10 | .21 |  |  |  | Fourth Amendment to Loan Agreement dated as of
    September 30, 2002, among Horizon Offshore Contractors,
    Inc., Horizon Subsea Services, Inc., Horizon Vessels, Inc. and
    Southwest Bank of Texas, N.A.(14)                                                                                                                                                                          
|        | 10 | .22 |  |  |  | Third Amendment to EXIM Guaranteed Loan Agreement dated as of
    September 30, 2002, among Horizon Offshore Contractors,
    Inc., Horizon Subsea Services, Inc., Horizon Vessels, Inc.,
    HorizEn, L.L.C., and Southwest Bank of Texas, N.A.(14)                                                                                                                                         
|        | 10 | .23 |  |  |  | Fifth Amendment to Loan Agreement dated as of March 6,
    2003, among Horizon Offshore Contractors, Inc., Horizon Subsea
    Services, Inc., Horizon Vessels, Inc. and Southwest Bank of
    Texas, N.A.(15)                                                                                                                                                                                
|        | 10 | .24 |  |  |  | Fourth Amendment to EXIM Guaranteed Loan Agreement dated as of
    March 6, 2003, among Horizon Offshore Contractors, Inc.,
    Horizon Subsea Services, Inc., Horizon Vessels, Inc., HorizEn,
    L.L.C., and Southwest Bank of Texas, N.A.(15)                                                                                                                                             
|        | 10 | .25 |  |  |  | Employment and Non-Competition Agreement dated May 31, 2002
    between the Company and
    J. Louis Frank(15)*                                                                                                                                                                                                                                                                              
|        | 10 | .26 |  |  |  | Amended and Restated Employment Agreement dated January 1,
    2003 between the Company and James Devine(15)*                                                                                                                                                                                                                                                                                
|        | 10 | .27 |  |  |  | Amendment No. 8 to Loan Agreement dated as of May 13,
    2003, among Horizon Vessels, Inc., Horizon Offshore Contractors,
    Inc., Horizon Offshore, Inc., The CIT Group/Equipment Financing
    Inc., as agent, and the other lenders specified therein(16)                                                                                                                               
|        | 10 | .28 |  |  |  | Loan Agreement dated June 4, 2003, between Horizon Vessels,
    Inc., as borrower and Elliott Associates, L.P., as lender(17)                                                                                                                                                                                                                                                                
|        | 10 | .29 |  |  |  | Amendment No. 1 dated as of June 30, 2003 to Loan
    Agreement dated June 4, 2003, between Horizon Vessels,
    Inc., as borrower and Elliott Associates, L.P., as lender(17)                                                                                                                                                                                                               
|        | 10 | .30 |  |  |  | Loan Agreement dated June 30, 2003, between Horizon Vessels
    International, Ltd., as borrower and Boeing Capital Corporation,
    as lender(17)                                                                                                                                                                                                                                           
|        | 10 | .31 |  |  |  | Amendment No. 2 dated as of June 30, 2003 to Credit
    Agreement dated May 10, 2001, among Horizon Vessels, Inc.,
    as borrower, Horizon Offshore Contractors, Inc. and Horizon
    Offshore, Inc., as guarantors and The CIT Group/Equipment
    Financing, Inc., as lender(17)                                                                                                          
|        | 10 | .32 |  |  |  | Employment and Non-Competition Agreement dated July 1, 2003
    between the Company and
    David W. Sharp(17)*                                                                                                                                                                                                                                                                              
|        | 10 | .33 |  |  |  | Employment and Non-Competition Agreement dated July 1, 2003
    between the Company and William B. Gibbens(17)*                                                                                                                                                                                                                                                                              
|        | 10 | .34 |  |  |  | Consulting Agreement dated December 4, 2003 between the
    Company and Edward L. Moses(18)*                                                                                                                                                                                                                                                                                                 
|        | 10 | .35 |  |  |  | Purchase Agreement dated as of March 11, 2004 among Horizon
    Offshore, Inc., as issuer, Horizon Vessels, Inc., Horizon
    Offshore Contractors, Inc., Horizon Subsea Services, Inc.,
    Horizon Vessels International, Ltd., HorizEn L.L.C., ECH
    Offshore, S. de R.L. de C.V., and HOC Offshore, S. de R.L. de
    C.V., as guarantors, and the initial purchasers named therein(18)
|        | 10 | .36 |  |  |  | Amendment No. 1 dated March 11, 2004 to the
    Registration Rights Agreement dated as of December 4, 1997
    among Horizon Offshore, Inc., Highwood Partners, L.P. and
    Westgate International, L.P.(18)                                                                                                                                                                                

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##### Table of Contents



|        |    |     |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | -- | --- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |   | 
|Number  |    |     |  |   | 
|        |    |     |  |   | 
|        | 10 | .37 |  |  |  | Registration Rights Agreement dated as of March 11, 2004
    among Horizon Offshore, Inc., as issuer, Horizon Vessels, Inc.,
    Horizon Offshore Contractors, Inc., Horizon Subsea Services,
    Inc., Horizon Vessels International, Ltd., HorizEn L.L.C., ECH
    Offshore, S. de R.L. de C.V., and HOC Offshore, S. de R.L. de
    C.V., as guarantors, and the initial purchasers named therein(18)
|        | 10 | .38 |  |  |  | Sixth Amendment to Loan Agreement dated as of January 30,
    2004, among Horizon Offshore Contractors, Inc., Horizon Subsea
    Services, Inc., Horizon Vessels, Inc., and Southwest Bank of
    Texas, N.A., as agent(18)                                                                                                                                                                             
|        | 10 | .39 |  |  |  | Fifth Amendment to EXIM Guaranteed Loan Agreement dated as of
    January 30, 2004, among Horizon Offshore Contractors, Inc.,
    Horizon Subsea Services, Inc., Horizon Vessels, Inc., HorizEn,
    L.L.C. and Southwest Bank of Texas, N.A., as agent(18)                                                                                                                                             
|        | 10 | .40 |  |  |  | Seventh Amendment to Loan Agreement dated as of March 11,
    2004, among Horizon Offshore Contractors, Inc., Horizon Subsea
    Services, Inc., Horizon Vessels, Inc., and Southwest Bank of
    Texas, N.A., as agent(18)                                                                                                                                                                             
|        | 10 | .41 |  |  |  | Sixth Amendment to EXIM Guaranteed Loan Agreement dated as of
    March 11, 2004, among Horizon Offshore Contractors, Inc.,
    Horizon Subsea Services, Inc., Horizon Vessels, Inc., HorizEn,
    L.L.C., and Southwest Bank of Texas, N.A., as agent(18)                                                                                                                                              
|        | 10 | .42 |  |  |  | First Amendment to Loan Agreement dated as of March 10,
    2004, among Horizon Vessels International, Ltd. and Boeing
    Capital Corporation(18)                                                                                                                                                                                                                                                      
|        | 10 | .43 |  |  |  | Amendment No. 9 to Loan Agreement dated as of
    March 11, 2004, among Horizon Vessels, Inc., Horizon
    Offshore Contractors, Inc., Horizon Offshore, Inc., The CIT
    Group/Equipment Financing Inc., as agent, and the other lenders
    specified therein(18)                                                                                                                                    
|        | 10 | .44 |  |  |  | Loan Agreement dated June 29, 2001, as amended and restated
    as of March 11, 2004, among Horizon Vessels, Inc., Horizon
    Offshore, Inc., Horizon Offshore Contractors, Inc. and
    SouthTrust Bank(18)                                                                                                                                                                                           
|        | 10 | .45 |  |  |  | Amendment No. 3 dated as of March 11, 2004 to Credit
    Agreement dated as of May 10, 2001, as amended, among
    Horizon Vessels, Inc. Horizon Offshore Contractors, Inc.,
    Horizon Offshore, Inc., and The CIT Group/Equipment Financing,
    Inc., as the lender(18)                                                                                                                             
|        | 10 | .46 |  |  |  | First Amendment dated May 1, 2004 to Consulting Agreement
    between the Company and
    Edward L. Moses dated December 4, 2003(19)*                                                                                                                                                                                                                                                                   
|        | 10 | .47 |  |  |  | Purchase Agreement, dated as of May 27, 2004, among Horizon
    Offshore, Inc., as issuer, Horizon Vessels, Inc., Horizon
    Offshore Contractors, Inc., Horizon Subsea Services, Inc.,
    Horizon Vessels International, Ltd., HorizEn L.L.C., ECH
    Offshore, S. de R.L. de C.V., and HOC Offshore, S. de R.L. de
    C.V., as guarantors, and the initial purchasers named therein(22)           
|        | 10 | .48 |  |  |  | Amendment No. 1 and Waiver dated May 27, 2004 to
    Purchase Agreement, dated as of March 11, 2004, among
    Horizon Offshore, Inc., and the holders listed on the signature
    pages thereto(22)                                                                                                                                                                                                    
|        | 10 | .49 |  |  |  | Amendment No. 1 dated September 3, 2004 to Employment
    and Non-Competition Agreement between the Company and J. Louis
    Frank Dated May 1, 2002(23)*                                                                                                                                                                                                                                               
|        | 10 | .50 |  |  |  | Amendment No. 1 dated September 14, 2004 to Employment
    and Non-Competition Agreement between the Company and Bill J.
    Lam Dated June 1, 2001(23)*                                                                                                                                                                                                                                                
|        | 10 | .51 |  |  |  | Amendment No. 1 to May Purchase Agreement, dated as of
    November 4, 2004, by and among Horizon Offshore, Inc., the
    guarantors specified therein and the purchasers specified
    therein(24)                                                                                                                                                                                                     
|        | 10 | .52 |  |  |  | Preferred Stock Purchase Agreement, dated as of November 4,
    2004, by and among Horizon Offshore, Inc. and the purchasers
    specified therein (including the form of warrant certificate and
    registration rights agreement attached thereto)(24)                                                                                                                                               
|        | 10 | .53 |  |  |  | Recapitalization Letter Agreement, dated as of October 29,
    2004, by and among Horizon Offshore, Inc. and the holders of
    subordinated notes specified therein(24)                                                                                                                                                                                                                                
|        | 10 | .54 |  |  |  | Amendment No. 2, dated as of November 4, 2004, to
    Employment and Non-Competition Agreement dated May 31, 2002
    between the Company and J. Louis Frank, as amended on
    September 3, 2004(24)*                                                                                                                                                                                                  

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##### Table of Contents



|        |    |     |  |   |  |                                                                                                                                                                                                                                                                                                                                                  
|------- | -- | --- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |   | 
|Number  |    |     |  |   | 
|        |    |     |  |   | 
|        | 10 | .55 |  |  |  | Seventh Amendment to EXIM Guaranteed Loan Agreement, dated as of
    November 4, 2004, among Horizon Offshore Contractors, Inc.,
    Horizon Subsea Services, Inc., Horizon Vessels, Inc., HorizEn,
    L.L.C., and Southwest Bank of Texas, N.A., as agent, and the
    other lenders specified therein(24)                                     
|        | 10 | .56 |  |  |  | Eighth Amendment to Loan Agreement, dated as of November 4,
    2004, among Horizon Offshore Contractors, Inc., Horizon Subsea
    Services, Inc., Horizon Vessels, Inc., and Southwest Bank of
    Texas, N.A., as agent, and the other lenders specified
    therein(24)                                                                       
|        | 10 | .57 |  |  |  | Amendment No. 4 to Credit Agreement, dated as of
    November 4, 2004, to the Credit Agreement, dated as of
    May 10, 2001, as amended, among Horizon Vessels, Inc.,
    Horizon Contractors, Inc., Horizon Offshore, Inc. and The CIT
    Group/Equipment Financing, Inc., as the lender(24)                                                  
|        | 10 | .58 |  |  |  | Amendment No. 10 to Loan Agreement, dated as of
    November 4, 2004, to the Loan Agreement, dated as of
    December 30, 1998, as amended, among Horizon Vessels, Inc.,
    Horizon Offshore Contractors, Inc., Horizon Offshore, Inc., The
    CIT Group/Equipment Financing, Inc, as agent and for the other
    lenders specified therein(24)
|        | 10 | .59 |  |  |  | First Amendment to Amended and Restated Loan Agreement, dated as
    of November 4, 2004, among Horizon Vessels, Inc., Horizon
    Offshore, Inc., Horizon Off shore Contractors, Inc. and
    SouthTrust Bank(24)                                                                                                                               
|        | 10 | .60 |  |  |  | Second Amendment to Loan Agreement, dated as of October 29,
    2004, among Horizon Vessels International, Ltd. and General
    Electric Capital Corporation of Tennessee(24)                                                                                                                                                                    
|        | 10 | .61 |  |  |  | Second Amendment dated November 8, 2004 to the Consulting
    between the Company and
    Edward  L. Moses dated December 4, 2003, as amended
    May 1, 2004(25)*                                                                                                                                                                               
|        | 10 | .62 |  |  |  | Amended and Restated Employment Agreement between the Company
    and George G. Reuter dated July 1, 2003(26)*                                                                                                                                                                                                                                   
|        | 10 | .63 |  |  |  | Eighth Amendment to EXIM Guaranteed Loan Agreement, dated as of
    January 20, 2005 among Horizon Offshore Contractors, Inc.,
    Horizon Subsea Services, Inc., Horizon Vessels, Inc., HorizEn,
    L.L.C., and Southwest Bank of Texas, N.A., as agent, and the
    other lenders specified therein(27)                                       
|        | 10 | .64 |  |  |  | Ninth Amendment to Loan Agreement, dated as of January 20,
    2005, among Horizon Offshore Contractors, Inc., Horizon Subsea
    Services, Inc., Horizon Vessels, Inc., and Southwest Bank of
    Texas, N.A., as agent, and the other lenders specified
    therein(27)                                                                        
|        | 10 | .65 |  |  |  | Ninth Amendment to EXIM Guaranteed Loan Agreement, dated as of
    February 11, 2005 among Horizon Offshore Contractors, Inc.,
    Horizon Subsea Services, Inc., Horizon Vessels, Inc., HorizEn,
    L.L.C., and Southwest Bank of Texas, N.A., as agent, and the
    other lenders specified therein(28)                                       
|        | 10 | .66 |  |  |  | Tenth Amendment to EXIM Guaranteed Loan Agreement, dated as of
    February 18, 2005 among Horizon Offshore Contractors, Inc.,
    Horizon Subsea Services, Inc., Horizon Vessels, Inc., HorizEn,
    L.L.C., and Southwest Bank of Texas, N.A., as agent, and the
    other lenders specified therein(29)                                       
|        | 14 | .1  |  |  |  | Code of Ethics and Business Conduct(18)                                                                                                                                                                                                                                                                                                          
|        | 16 | .1  |  |  |  | Letter Regarding Change in Certifying Accountant dated
    June 18, 2004(20)                                                                                                                                                                                                                                                                     
|        | 21 | .1  |  |  |  | Subsidiaries of the Company(30)                                                                                                                                                                                                                                                                                                                  
|        | 23 | .1  |  |  |  | Consent of Grant Thornton LLP(30)                                                                                                                                                                                                                                                                                                                
|        | 23 | .2  |  |  |  | Consent of PricewaterhouseCoopers LLP(30)                                                                                                                                                                                                                                                                                                        
|        | 31 | .1  |  |  |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002(30)                                                                                                                                                                                                                                                                  
|        | 31 | .2  |  |  |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002(30)                                                                                                                                                                                                                                                                  
|        | 32 | .1  |  |  |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002(30)                                                                                                                                                                                                                                                                  
|        | 32 | .2  |  |  |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002(30)                                                                                                                                                                                                                                                                  






|    |                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the Companys Registration
    Statement on Form S-1 (Registration Statement
    No. 333-43965).
|   
|(2) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for the quarter ended March 31, 2000.           

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##### Table of Contents





|    |                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for the quarter ended June 30, 2000.                                                            
|   
|(4) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for the quarter ended September 30, 2000.                                                       
|   
|(5) | Incorporated by reference to the Companys Annual Report on
    Form 10-K for the year ended December 31, 1999.                                                              
|   
|(6) | Incorporated by reference to the Companys Annual Report on
    Form 10-K for the year ended December 31, 1998.                                                              
|   
|(7) | Incorporated herein by reference to Exhibits 1, 2, 3
    and 4 to the Companys Registration Statement on
    Form 8-A12B, filed with the Commission on January 18,
    2002.
|   
|(8) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for the quarter ended March 31, 2001.                                                           
|   
|(9) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for the quarter ended June 30, 2001.                                                            



|     |                                                                                                                       
|---- | ----------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for the quarter ended September 30, 2001.
|    
|(11) | Incorporated by reference to the Companys Annual Report on
    Form 10K-405 for the year ended December 31, 2001.    
|    
|(12) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for the quarter ended March 31, 2002.    
|    
|(13) | Incorporated by reference to Exhibit A to our Definitive
    Schedule 14A filed on April 8, 2002.                     
|    
|(14) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for the quarter ended September 30, 2002.
|    
|(15) | Incorporated by reference to the Companys Annual Report on
    Form 10-K for the year ended December 31, 2002.       
|    
|(16) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for the quarter ended March 31, 2003.    
|    
|(17) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for the quarter ended June 30, 2003.     
|    
|(18) | Incorporated by reference to the Companys Annual Report on
    Form 10-K for the year ended December 31, 2004.       
|    
|(19) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for the quarter ended March 31, 2004.    
|    
|(20) | Incorporated by reference to the Companys Current Report
    on Form 8-K dated June 18, 2004.                        
|    
|(21) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for the quarter ended June 30, 2004.     
|    
|(22) | Incorporated by reference to the Companys Current Report
    on Form 8-K dated July 14, 2004.                        
|    
|(23) | Incorporated by reference to the Companys Current Report
    on Form 8-K dated September 21, 2004.                   
|    
|(24) | Incorporated by reference to the Companys Current Report
    on Form 8-K dated November 5, 2004.                     
|    
|(25) | Incorporated by reference to the Companys Current Report
    on Form 8-K dated November 8, 2004.                     
|    
|(26) | Incorporated by reference to the Companys Current Report
    on Form 8-K dated December 16, 2004.                    
|    
|(27) | Incorporated by reference to the Companys Current Report
    on Form 8-K dated January 20, 2005.                     
|    
|(28) | Incorporated by reference to the Companys Current Report
    on Form 8-K dated February 10, 2005.                    
|    
|(29) | Incorporated by reference to the Companys Current Report
    on Form 8-K dated February 18, 2005.                    
|    
|(30) | Filed herewith.                                                                                                       



| |   |                                                         
| | - | --------------------------------------------------------
| | * | Management Contract or Compensatory Plan or Arrangement.

93