##### 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, 2005                                                 
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition
    period           to                                                  

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                                            |  | 77042                                   
|Suite 2200                                                          |  | (Zip Code)                              
|Houston, Texas                                                      |  |                                         
|(Address of principal executive offices)                            |  |                                         

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:




o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2


o þ o


12b-2 o þ






DOCUMENTS INCORPORATED BY REFERENCE












---



##### 










HORIZON OFFSHORE, INC.


ANNUAL REPORT ON
FORM 10-K


For the Year Ended December 31, 2005


TABLE OF CONTENTS


|                                      |  |                                                                                                                      |  |                      |    |  |    | 
|------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | -------------------- | -- |  | -- | 
|                                      |  |                                                                                                                      |  | Page                
|                                      |  |                                                                                                                      |  |                     
|PART I                               
|Item 1.                               |  | Business                                                                                                             |  |                      | 3  | 
|Item 1A.                              |  | Risk Factors                                                                                                         |  |                      | 11 | 
|Item 1B.                              |  | Unresolved Staff Comments                                                                                            |  |                      | 20 | 
|Item 2.                               |  | Properties                                                                                                           |  |                      | 20 | 
|Item 3.                               |  | Legal Proceedings                                                                                                    |  |                      | 20 | 
|Item 4.                               |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |                      | 21 | 
|                                     
|PART II                              
|Item 5.                               |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |                      | 21 | 
|Item 6.                               |  | Selected Financial Data                                                                                              |  |                      | 23 | 
|Item 7.                               |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |                      | 26 | 
|Item 7A.                              |  | Quantitative and Qualitative Disclosure
    About Market Risk                                                        |  |                      | 41 | 
|Item 8.                               |  | Financial Statements and Supplementary
    Data                                                                      |  |                      | 42 | 
|Item 9.                               |  | Changes in and Disagreements With
    Accountants on Accounting and Financial Disclosure                             |  |                      | 42 | 
|Item 9A.                              |  | Controls and Procedures                                                                                              |  |                      | 42 | 
|Item 9B.                              |  | Other Information                                                                                                    |  |                      | 43 | 
|                                     
|PART III                             
|Item 10.                              |  | Directors and Executive Officers of the
    Registrant                                                               |  |                      | 43 | 
|Item 11.                              |  | Executive Compensation                                                                                               |  |                      | 45 | 
|Item 12.                              |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |                      | 49 | 
|Item 13.                              |  | Certain Relationships and Related
    Transactions                                                                   |  |                      | 51 | 
|Item 14.                              |  | Principal Accounting Fees and Services                                                                               |  |                      | 53 | 
|                                     
|PART IV                              
|Item 15.                              |  | Exhibits, Financial Statement Schedules                                                                              |  |                      | 54 | 
|                                      |  |                                                                                                                      |  | Financial Statements |    |  | 55 | 
|                                      |  |                                                                                                                      |  | Signatures           |    |  | 95 | 
|                                      |  |                                                                                                                      |  | Index to Exhibits    |    |  | 96 | 
|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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##### Table of Contents






PART I







|        |         
|------- | --------
|Item 1. | Business

General








| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | laying, burying or repairing marine pipelines;                            
|
| |  | providing hook-up and
    commissioning services;                         
|
| |  | installing production platforms and other structures; and                 
|
| |  | disassembling and salvaging production platforms and other
    structures.

Recapitalization


Gulf Horizon






3



---



##### Table of Contents



in-kind








Scope of Operations




Texas Horizon, Gulf Horizon


|                  |  |                                                   |  |        |     |         |  |          |       |  |  |  |    | 
|----------------- |  | ------------------------------------------------- |  | ------ | --- | ------- |  | -------- | ----- |  |  |  | -- | 
|                  |  |                                                   |  |        |     | 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 | 
|Canyon Horizon    |  | Pipebury                                          |  |        | 330 |         |  |          |      |  |  |  |   | 
|Atlantic Horizon  |  | Derrick                                           |  |        | 420 |         |  |          | 550   |  |  |  |   | 
|Pacific Horizon   |  | Derrick                                           |  |        | 350 |         |  |          | 1,000 |  |  |  |   | 
|Sea Horizon       |  | Derrick/Pipelay                                   |  |        | 360 |         |  |          | 1,200 |  |  |  | 36 | 
|Texas Horizon     |  | Diving Support/Pipelay and Dynamically Positioned |  |        | 341 |         |  |          |      |  |  |  | 10 | 

S-lay


4



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Canyon
Horizon, Canyon Horizon Canyon
Horizon


Pacific Horizon Atlantic Horizon 550-ton


Sea Horizon, 360-foot 100-foot Sea Horizon


Texas Horizon






5



---



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Marine Equipment






Safety and Quality Assurance




OHSAS-18001 ISO-9001/2000 ISO-14001


Seasonality, Cyclicality and Factors Affecting Demand






6



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

Working Capital Requirements for Project
Start-up Costs


start-up start-up start-up


Customers and Geographic Information




|         |  |      |    |   |      |  |    |      |  |  |    |  
|-------- |  | ---- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|         |  | 2005 |    |   | 2004 |  |    | 2003 | 
|         |  |      |    |   |      |  |    |      | 
|Domestic |  |      | 55 | % |      |  | 29 | %    |  |  | 75 | %
|Foreign  |  |      | 45 | % |      |  | 71 | %    |  |  | 25 | %



7



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|           |  |      |    |   |      |  |    |      |  |  |    |  
|---------- |  | ---- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|           |  | 2005 |    |   | 2004 |  |    | 2003 | 
|           |  |      |    |   |      |  |    |      | 
|Customer A |  |      | 24 | % |      |  |   |      |  |  |   |  
|Customer B |  |      | 14 | % |      |  |   |      |  |  |   |  
|Customer C |  |      | 10 | % |      |  | 23 | %    |  |  | 1  | %
|Customer D |  |      | 9  | % |      |  | 36 | %    |  |  |   |  
|Customer E |  |      |   |   |      |  |   |      |  |  | 25 | %
|Customer F |  |      |   |   |      |  |   |      |  |  | 15 | %
|Customer G |  |      |   |   |      |  |   |      |  |  | 10 | %



Backlog




Insurance






8



---



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Competition












9



---



##### Table of Contents





Regulation










Environmental Regulation




Employees






10



---



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Company Information and Website


361-2600.







|         |             
|-------- | ------------
|Item 1A. | Risk Factors





| |   |                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to meet our significant debt service and other
    obligations;                                                                                                                                                                                                         
|
| |  | our ability to finance our capital requirements;                                                                                                                                                                                                                                    
|
| |  | our ability to obtain additional financing needed in the future;                                                                                                                                                                                                                    
|
| |  | our substantial debt continues to adversely affect our financial
    condition;                                                                                                                                                                                                     
|
| |  | our ability to comply with our financial and other covenants in
    the future;                                                                                                                                                                                                     
|
| |  | the potential impairment of our assets in the future;                                                                                                                                                                                                                               
|
| |  | our potential to incur operating losses in the future;                                                                                                                                                                                                                              
|
| |  | the outcome of the arbitration of our claims against Pemex;                                                                                                                                                                                                                         
|
| |  | the outcome of litigation with the underwriters of the insurance
    coverage on the Gulf Horizon;                                                                                                                                                                                  
|
| |  | the delisting of our common stock from the Nasdaq Stock Market,
    which became effective as of the close of business on
    April 1, 2005;                                                                                                                                        
|
| |  | our largest stockholders continuing to have a significant degree
    of influence over us;                                                                                                                                                                                          
|
| |  | 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;                                                                                            
|
| |  | our ability to obtain performance bonds and letters of credit if
    required to secure our performance under new international
    contracts;                                                                                                                                      
|
| |  | contract bidding risks, including those involved in performing
    projects on a fixed-price basis and extra work performed outside
    the original scope of work, and the successful negotiation and
    collection of such contract claims;                                      
|
| |  | the highly competitive nature of the marine construction
    business;                                                                                                                                                                                                              
|
| |  | operating hazards, including the unpredictable effect of natural
    occurrences on operations, such as hurricanes and other hazards
    associated with maritime activities, and the significant
    possibility of accidents resulting in personal injury and
    property damage;
|
| |  | seasonality of the offshore construction industry in the
    U.S. Gulf of Mexico;                                                                                                                                                                                                   

11



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| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 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;                                                                  
|
| |  | our ability to obtain and retain highly skilled personnel;                                                                                                     
|
| |  | the effect on our performance of regulatory programs and
    environmental matters;                                                                            
|
| |  | the risks involved in joint venture operations required from the
    time to time on major international projects; and                                         
|
| |  | a possible terrorist attack or armed conflict.                                                                                                                 



Risks Relating to our Financial Condition




| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our ability to finance our debt obligations and capital
    requirements depends on sufficient cash flow from our operations
    and obtaining additional external sources of financing







| |                                                             
| | ------------------------------------------------------------
| | Our ability to finance capital requirements is
    uncertain



12



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





| |   |                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our inability to generate adequate levels of cash to support
    future interest and principal payments on our high level of debt;                                                                                                                                       
|
| |  | inadequate cash available for purposes other than debt service,
    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;
|
| |  | an increase in our vulnerability to general adverse economic and
    industry conditions, including reduced levels of demand for
    marine construction services on the outer continental shelf of
    the U.S. 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 or dispose of assets.                                                                                            



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | We had operating losses in 2003 and 2004 and may incur
    additional operating losses in the future





| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | Our future financial results could be adversely impacted
    by asset impairments or other charges





| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | Our credit facilities contain covenants that we may not be
    able to comply with in the future and that limit many aspects of
    our operations



13



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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





| |                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The outcome of our arbitration with Pemex, litigation with
    the underwriters of the insurance coverage of the Gulf Horizon,
    and the outcome of any future arbitration and litigation may
    adversely affect our liquidity and financing requirements

Gulf Horizon


Risks Relating to Our Securities




| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | The price of our common stock has been highly volatile due
    to factors that will continue to affect the price of our
    stock

over-the




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | fluctuations in our quarterly revenue and operating results;                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | announcements of project awards by us or our competitors;                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | market perceptions regarding the outlook for operations in the
    U.S. Gulf of Mexico; and                                                                                                                                                                                                                                                                                                                                      
|
| |  | the increase in outstanding shares of our common stock issued
    (i) upon the conversion or exchange of our Series B
    preferred stock, (ii) in the completion of the Private
    Placement of our common stock, (iii) as a result of the
    exchange of a portion of our 8% Subordinated Notes and
    (iv) any additional issuances of common stock we may make
    to repay our existing debt or raise additional capital.





| |                                                                                
| | -------------------------------------------------------------------------------
| | Our common stock is considered a penny stock
    and may be difficult to sell



14



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| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | Our largest stockholders may continue to have a
    significant degree of influence over us and they may make
    decisions with which you disagree





| |   |                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | elections to our board of directors;                                                                                                                                                                       
|
| |  | amendments to our certificate of incorporation;                                                                                                                                                            
|
| |  | the outcome of any corporate transaction or other matter
    submitted to our stockholders for approval, including mergers,
    consolidations and the sale of all or substantially all our
    assets; and
|
| |  | a change in control of our company (which may have the effect of
    discouraging third party offers to acquire our company).                                                                              



| |                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The conversion and earlier exchange of our Series B
    Preferred Stock, the completion of the Private Placement and the
    shares of our common stock issued as a result of the exchange of
    a portion of our 8% Subordinated Notes resulted in
    significant and immediate dilution of our existing stockholders
    and the book value of their common stock





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On June 10, 2005, we issued 60,000,015 shares of our
    common stock and one million shares of our Series B
    Preferred Stock in exchange for approximately $85 million
    of our Subordinated Notes and 1,400 shares of our
    Series A Preferred Stock;                                                                                                                                                                                                   
|
| |  | On October 27, 2005, we issued 95,084,105 shares of
    our common stock in exchange for 171,589 shares of our
    Series B Preferred Stock;                                                                                                                                                                                                                                                                                                                     
|
| |  | On December 12, 2005, the remaining 828,411 shares of
    our Series B Preferred Stock converted into
    459,055,251 shares of our common stock;                                                                                                                                                                                                                                                                                                                
|
| |  | On December 19, 2005, we issued 52,650,000 shares of
    our common stock in the Private Placement, and we also completed
    the exchange of approximately $8 million in aggregate
    principal amount (including accrued and unpaid interest) of our
    8% Subordinated Notes for subordinated convertible notes
    due March 31, 2010, which were subsequently converted into
    21,052,632 shares of our common stock prior to
    December 31, 2005; and
|
| |  | On December 23, 2005, we exchanged an additional
    $5.2 million aggregate principal amount (including accrued
    and unpaid interest) of our 8% Subordinated Notes, which
    resulted in the issuance of 13,829,169 shares of our common
    stock.                                                                                                                                                                                                          





| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | Our common stock was delisted from the Nasdaq Stock
    Market, which could make it more difficult to sell our common
    stock

over-the


15



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one-for (1-for


Risks Relating to Our Business




| |                                                                   
| | ------------------------------------------------------------------
| | 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



16



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







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



Gulf Horizon Gulf
Horizon






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



17



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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, renegotiation or nullification of contracts;                                                                           
|
| |  | import-export quotas;                                                                                                                
|
| |  | other forms of government regulation which are beyond our
    control;                                                               
|
| |  | war or terrorist activity; and                                                                                                       
|
| |  | fluctuating currency values, hard currency shortages and
    controls on currency exchange and repatriation of income or
    capital.







| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 utilize
    percentage-of-completion
    accounting

percentage-of




| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | Estimates and assumptions that we use to prepare our
    financial statements could differ materially from actual future
    results





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



18



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| |                                    
| | -----------------------------------
| | We require highly skilled personnel







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







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



Cautionary Statements






19



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| |   |                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                                                         








|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments








|        |           
|------- | ----------
|Item 2. | Properties



month-to







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



Gulf
Horizon Gulf Horizon


20



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

14c-2(b)





PART II







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

over-the over-the


|               |  |      |      |  |      |   |      |      |  |   |      |  |  |   |      | 
|-------------- |  | ---- | ---- |  | ---- | - | ---- | ---- |  | - | ---- |  |  | - | ---- | 
|               |  | 2005 |      |  | 2004 |  
|               |  |      |      |  |      |  
|Fiscal Quarter |  | High |      |  | Low  |   |      | High |  |   | Low  | 
|               |  |      |      |  |      |   |      |      |  |   |      | 
|First          |  | $    | 2.24 |  |      | $ | 0.39 |      |  | $ | 4.80 |  |  | $ | 2.55 | 
|Second         |  | $    | 0.51 |  |      | $ | 0.24 |      |  | $ | 3.00 |  |  | $ | 0.79 | 
|Third          |  | $    | 0.83 |  |      | $ | 0.27 |      |  | $ | 1.10 |  |  | $ | 0.50 | 
|Fourth         |  | $    | 0.74 |  |      | $ | 0.35 |      |  | $ | 2.87 |  |  | $ | 0.21 | 





21



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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          | 
|                                                              |  | and Rights        |           |  | Rights           |                      |      | column (a))(2)        | 
|Plan Category                                                 |  | (a)               |           |  | (b)              |                      |      | (c)                   | 
|                                                              |  |                   |           |  |                  |                      |      |                       | 
|Equity compensation plans approved by security holders        |  |                   | 2,125,600 |  |                  | $                    | 7.34 |                       |  |  | 42,826,429 | 
|Equity compensation plans not approved by security holders(1) |  |                   |          |  |                  |                      |     |                       |  |  |           | 
|                                                              |  |                   |           |  |                  |                      |      |                       | 
|Total                                                         |  |                   | 2,125,600 |  |                  | $                    | 7.34 |                       |  |  | 42,826,429 | 






|    |                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 7,826,429 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).

22



---



##### Table of Contents





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








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



|                                                    |                                             |                                       |         |         |      |   |         |         |   |   |         |         |   |      |         |        |   |   |         |        |  
|--------------------------------------------------- | ------------------------------------------- | ------------------------------------- | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | - | ---- | ------- | ------ | - | - | ------- | ------ | -
|                                                    |                                             | Year Ended December 31,               |        
|                                                    |                                             |                                       |        
|                                                    |                                             | 2005                                  |         |         | 2004 |   |         | 2003    |   |   | 2002    |         |   | 2001 |        
|                                                    |                                             |                                       |         |         |      |   |         |         |   |   |         |         |   |      |        
|                                                    |                                             | (In thousands, except per share data) |        
|INCOME STATEMENT DATA(1):                           |                                             |                                       |         |         |      |   |         |         |   |   |         |         |   |      |         |        |   |   |         |       
|Contract revenues                                   |                                             | $                                     | 325,044 |         |      | $ | 254,209 |         |   | $ | 270,313 |         |   | $    | 283,410 |        |   | $ | 272,208 |       
|Cost of contract revenues                           |                                             |                                       | 268,280 |         |      |   | 226,391 |         |   |   | 263,812 |         |   |      | 253,016 |        |   |   | 237,175 |       
|                                                    |                                             |                                       |         |         |      |   |         |         |   |   |         |         |   |      |        
|                                                    | Gross profit                                |                                       |         | 56,764  |      |   |         | 27,818  |   |   |         | 6,501   |   |      |         | 30,394 |   |   |         | 35,033 |  
|Selling, general and administrative expenses        |                                             |                                       | 30,922  |         |      |   | 30,687  |         |   |   | 21,749  |         |   |      | 21,845  |        |   |   | 13,771  |       
|Reserve for claims and receivables                  |                                             |                                       | 1,711   |         |      |   | 5,692   |         |   |   | 33,092  |         |   |      |        |        |   |   |        |       
|Impairment of property, equipment and intangibles   |                                             |                                       |        |         |      |   | 22,361  |         |   |   | 21,332  |         |   |      | 9,852   |        |   |   |        |       
|Impairment loss on assets held for sale             |                                             |                                       | 2,261   |         |      |   | 3,268   |         |   |   |        |         |   |      |        |        |   |   |        |       
|                                                    |                                             |                                       |         |         |      |   |         |         |   |   |         |         |   |      |        
|                                                    | Operating income (loss)                     |                                       |         | 21,870  |      |   |         | (34,190 | ) |   |         | (69,672 | ) |      |         | (1,303 | ) |   |         | 21,262 |  
|Other:                                              |                                             |                                       |         |         |      |   |         |         |   |   |         |         |   |      |         |        |   |   |         |       
|                                                    | Interest expense, net of amount capitalized |                                       |         | (67,572 | )    |   |         | (25,995 | ) |   |         | (9,542  | ) |      |         | (4,585 | ) |   |         | (5,381 | )
|                                                    | Interest income                             |                                       |         | 777     |      |   |         | 286     |   |   |         | 67      |   |      |         | 91     |   |   |         | 403    |  
|                                                    | Loss on debt extinguishment                 |                                       |         | (23,138 | )    |   |         | (1,719  | ) |   |         | (868    | ) |      |         |       |   |   |         | (874   | )
|                                                    | Other income (expense), net                 |                                       |         | 53      |      |   |         | 152     |   |   |         | (88     | ) |      |         | (2,831 | ) |   |         | (206   | )
|                                                    |                                             |                                       |         |         |      |   |         |         |   |   |         |         |   |      |        
|Net income (loss) before income taxes               |                                             |                                       | (68,010 | )       |      |   | (61,466 | )       |   |   | (80,103 | )       |   |      | (8,628  | )      |   |   | 15,204  |       
|Income tax provision (benefit)                      |                                             |                                       | 3,046   |         |      |   | 2,103   |         |   |   | (7,599  | )       |   |      | (3,079  | )      |   |   | 4,511   |       
|                                                    |                                             |                                       |         |         |      |   |         |         |   |   |         |         |   |      |        
|Net income (loss)                                   |                                             | $                                     | (71,056 | )       |      | $ | (63,569 | )       |   | $ | (72,504 | )       |   | $    | (5,549  | )      |   | $ | 10,693  |       
|                                                    |                                             |                                       |         |         |      |   |         |         |   |   |         |         |   |      |        
|Net income (loss) per share  basic                 |                                             | $                                     | (0.64   | )       |      | $ | (2.06   | )       |   | $ | (2.74   | )       |   | $    | (0.22   | )      |   | $ | 0.48    |       
|                                                    |                                             |                                       |         |         |      |   |         |         |   |   |         |         |   |      |        
|Net income (loss) per share  diluted               |                                             | $                                     | (0.64   | )       |      | $ | (2.06   | )       |   | $ | (2.74   | )       |   | $    | (0.22   | )      |   | $ | 0.46    |       
|                                                    |                                             |                                       |         |         |      |   |         |         |   |   |         |         |   |      |        
|STATEMENT OF CASH FLOW DATA:                        |                                             |                                       |         |         |      |   |         |         |   |   |         |         |   |      |         |        |   |   |         |       
|Net cash provided by (used in) operating activities |                                             | $                                     | (2,338  | )       |      | $ | 2,095   |         |   | $ | (53,065 | )       |   | $    | 48,487  |        |   | $ | (43,994 | )     
|Net cash provided by (used in) investing activities |                                             |                                       | 4,478   |         |      |   | (4,776  | )       |   |   | (14,683 | )       |   |      | (59,752 | )      |   |   | (53,223 | )     
|Net cash provided by financing activities           |                                             |                                       | 2,845   |         |      |   | 30,541  |         |   |   | 71,790  |         |   |      | 9,474   |        |   |   | 95,838  |       
|OTHER FINANCIAL DATA:                               |                                             |                                       |         |         |      |   |         |         |   |   |         |         |   |      |         |        |   |   |         |       
|Depreciation and amortization                       |                                             | $                                     | 21,661  |         |      | $ | 19,702  |         |   | $ | 19,718  |         |   | $    | 15,959  |        |   | $ | 12,935  |       
|Capital expenditures                                |                                             |                                       | 2,458   |         |      |   | 5,579   |         |   |   | 17,797  |         |   |      | 58,752  |        |   |   | 54,828  |       

23



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##### Table of Contents



|                                                |                   |                 |                                       |         |        |        |         |         |        |        |         |         |         |        |         |        |        |        |         |        |        |        | 
|----------------------------------------------- | ----------------- | --------------- | ------------------------------------- | ------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | ------- | ------- | ------ | ------- | ------ | ------ | ------ | ------- | ------ | ------ | ------ | 
|                                                |                   | December 31,    |                                      
|                                                |                   |                 |                                      
|                                                |                   | 2005            |                                       |         | 2004   |        |         | 2003    |        |        | 2002    |         |         | 2001   |        
|                                                |                   |                 |                                       |         |        |        |         |         |        |        |         |         |         |        |        
|                                                |                   | (In thousands)  |                                      
|BALANCE SHEET DATA:                             |                   |                 |                                       |         |        |        |         |         |        |        |         |         |         |        |         |        |        |        |         |       
|Working capital                                 |                   | $               | 74,119                                |         |        | $      | 29,022  |         |        | $      | 26,107  |         |         | $      | 30,385  |        |        | $      | 78,055  |       
|Property and equipment, net                     |                   |                 | 186,416                               |         |        |        | 198,804 |         |        |        | 239,411 |         |         |        | 257,847 |        |        |        | 221,446 |       
|Total assets                                    |                   |                 | 402,721                               |         |        |        | 394,277 |         |        |        | 409,541 |         |         |        | 420,533 |        |        |        | 393,584 |       
|Long-term debt, net of current maturities       |                   |                 | 103,979                               |         |        |        | 170,347 |         |        |        | 146,886 |         |         |        | 90,062  |        |        |        | 111,414 |       
|Preferred stock subject to mandatory redemption |                   |                 |                                      |         |        |        | 416     |         |        |        |        |         |         |        |        |        |        |        |        |       
|Stockholders equity                            |                   |                 | 183,486                               |         |        |        | 93,274  |         |        |        | 139,811 |         |         |        | 211,675 |        |        |        | 185,690 |       
|NON-GAAP FINANCIAL DATA:                        |                   |                 |                                       |         |        |        |         |         |        |        |         |         |         |        |         |        |        |        |         |       
|Adjusted EBITDA(2)                              |                   | $               | 50,696                                |         |        | $      | 17,672  |         |        | $      | (28,710 | )       |         | $      | 21,677  |        |        | $      | 33,117  |       
|                                                |                   |                 |                                       |         |        |        |         |         |        |        |         |         |         |        |        
|Adjusted EBITDA calculation is as follows:      |                   |                 |                                       |         |        |        |         |         |        |        |         |         |         |        |         |        |        |        |         |       
|                                                | Net income (loss) |                 | $                                     | (71,056 | )      |        | $       | (63,569 | )      |        | $       | (72,504 | )       |        | $       | (5,549 | )      |        | $       | 10,693 |       
|                                                |                   |                 | Income tax provision (benefit)        |         |        | 3,046  |         |         |        | 2,103  |         |         |         | (7,599 | )       |        |        | (3,079 | )       |        |        | 4,511  | 
|                                                |                   |                 | Net interest expense                  |         |        | 66,795 |         |         |        | 25,709 |         |         |         | 9,475  |         |        |        | 4,494  |         |        |        | 4,978  | 
|                                                |                   |                 | Depreciation and amortization         |         |        | 21,661 |         |         |        | 19,702 |         |         |         | 19,718 |         |        |        | 15,959 |         |        |        | 12,935 | 
|                                                |                   |                 | Amortization of deferred compensation |         |        | 4,167  |         |         |        |       |         |         |         |       |         |        |        |       |         |        |        |       | 
|                                                |                   |                 | Loss on debt extinguishment           |         |        | 23,138 |         |         |        | 1,719  |         |         |         | 868    |         |        |        |       |         |        |        |       | 
|                                                |                   |                 | Non-cash impairments                  |         |        | 2,945  |         |         |        | 32,008 |         |         |         | 21,332 |         |        |        | 9,852  |         |        |        |       | 
|                                                |                   |                 |                                       |         |        |        |         |         |        |        |         |         |         |        |        
|                                                |                   | Adjusted EBITDA |                                       | $       | 50,696 |        |         | $       | 17,672 |        |         | $       | (28,710 | )      |         | $      | 21,677 |        |         | $      | 33,117 |       
|                                                |                   |                 |                                       |         |        |        |         |         |        |        |         |         |         |        |        






|    |                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We have recorded reserves for claims and receivables and
    impairment losses on vessels and related equipment, inventory
    and goodwill during 2005, 2004, 2003 and 2002, which are
    included in the following financial statement captions in our
    consolidated statements of operations. No reserves or
    impairments were recorded in 2001.

24



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##### Table of Contents



|                                                   |                                                    |                                                           |       |       |       |  |        |        |        |  |        |        |        |      |       |       |       |  |   |   |   | 
|-------------------------------------------------- | -------------------------------------------------- | --------------------------------------------------------- | ----- | ----- | ----- |  | ------ | ------ | ------ |  | ------ | ------ | ------ | ---- | ----- | ----- | ----- |  | - | - | - | 
|                                                   |                                                    | Year Ended December 31,                                  
|                                                   |                                                    |                                                          
|                                                   |                                                    | 2005                                                      |       |       | 2004  |  |        | 2003   |        |  | 2002   |        |        | 2001
|                                                   |                                                    |                                                           |       |       |       |  |        |        |        |  |        |        |        |     
|                                                   |                                                    | (In thousands)                                           
|INCOME STATEMENT CAPTION:                          |                                                    |                                                           |       |       |       |  |        |        |        |  |        |        |        |      |       |       |       |  |   |  
|Cost of contract revenues:                         |                                                    |                                                           |       |       |       |  |        |        |        |  |        |        |        |      |       |       |       |  |   |  
|                                                   | Impairment of inventory                            |                                                           | $     | 684   |       |  | $      | 6,379  |        |  | $      |       |        |      | $     |      |       |  | $ |  |  
|                                                   |                                                    |                                                           |       |       |       |  |        |        |        |  |        |        |        |      |      
|Reserve for claims and receivables:                |                                                    |                                                           |       |       |       |  |        |        |        |  |        |        |        |      |       |       |       |  |   |  
|                                                   | Pemex EPC 64                                       |                                                           |       |      |       |  |        |       |        |  |        | 33,092 |        |      |       |      |       |  |   |  |  
|                                                   | Iroquois Gas Transmission LP                       |                                                           |       |      |       |  |        | 5,692  |        |  |        |       |        |      |       |      |       |  |   |  |  
|                                                   | Williams Oil Gathering LLC                         |                                                           |       | 1,711 |       |  |        |       |        |  |        |       |        |      |       |      |       |  |   |  |  
|                                                   |                                                    |                                                           |       |       |       |  |        |        |        |  |        |        |        |      |      
|                                                   |                                                    |                                                           | 1,711 |       |       |  | 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                |                                                           |       |      |       |  |        | 20,302 |        |  |        |       |        |      |       |      |       |  |   |  |  
|                                                   | Impairment of goodwill                             |                                                           |       |      |       |  |        | 1,000  |        |  |        |       |        |      |       |      |       |  |   |  |  
|                                                   |                                                    |                                                           |       |       |       |  |        |        |        |  |        |        |        |      |      
|                                                   |                                                    |                                                           |      |       |       |  | 22,361 |        |        |  | 21,332 |        |        |      | 9,852 |       |       |  |  |  
|                                                   |                                                    |                                                           |       |       |       |  |        |        |        |  |        |        |        |      |      
|Impairment loss on assets held for sale:           |                                                    |                                                           |       |       |       |  |        |        |        |  |        |        |        |      |       |       |       |  |   |  
|                                                   | Impairment losses on vessels held for sale         |                                                           |       | 2,261 |       |  |        | 3,268  |        |  |        |       |        |      |       |      |       |  |   |  |  
|                                                   |                                                    |                                                           |       |       |       |  |        |        |        |  |        |        |        |      |      
|                                                   |                                                    | Total reserves for claims and receivables and impairments |       | $     | 4,656 |  |        | $      | 37,700 |  |        | $      | 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, amortization of deferred
    compensation, loss on debt extinguishment and non-cash
    impairments. Net income or loss includes revenues for services
    for which non-cash consideration is received. Horizon has
    separately identified non-cash charges which are non-recurring,
    infrequent, unusual, or isolated or the result of special
    circumstances and has excluded these non-cash charges from the
    calculation of Adjusted EBITDA. Horizon has aligned the
    disclosure of Adjusted EBITDA with the financial covenants in
    our material credit agreements with various lenders, which
    includes ratios requiring a determination of EBITDA, as defined.
    Horizon believes that Adjusted EBITDA is a material component of
    the financial covenants in our credit agreements and
    non-compliance with the covenants could result in the
    acceleration of indebtedness. 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.

25



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##### Table of Contents






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




General








| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | laying, burying or repairing marine pipelines;                            
|
| |  | providing 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;                                               
|
| |  | expectations about future demand and prices;                                                                         
|
| |  | the ability of the oil and gas industry to access capital;                                                           
|
| |  | the cost of exploring for, producing and developing oil and gas
    reserves;                                        
|
| |  | discovery rates of new oil and gas reserves in offshore areas;                                                       
|
| |  | sale and expiration dates of offshore leases in the United
    States and abroad;                                    
|
| |  | local and international political and economic conditions;                                                           
|
| |  | governmental regulations;                                                                                            
|
| |  | the availability and cost of capital; and                                                                            
|
| |  | damage to structures and pipelines caused by hurricanes and
    severe weather conditions in the U.S. Gulf of Mexico.



Overview




26



---



##### Table of Contents













27



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##### Table of Contents



Results of Operations




|                 |                                |                         |   |       |       |  |   |       |       |  |   |       |       | 
|---------------- | ------------------------------ | ----------------------- | - | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                 |                                | Year Ended December 31, |  
|                 |                                |                         |  
|                 |                                | 2005                    |   |       | 2004  |  |   | 2003  |      
|                 |                                |                         |   |       |       |  |   |       |      
|Revenues:        |                                |                         |   |       |       |  |   |       |       |  |   |      
|                 | Domestic  U.S. Gulf of Mexico |                         | $ | 180.2 |       |  | $ | 69.7  |       |  | $ | 94.1  |      
|                 | Domestic  Other               |                         |   |      |       |  |   | 3.3   |       |  |   | 107.6 |      
|                 | Latin America                  |                         |   | 33.3  |       |  |   | 58.2  |       |  |   | 3.9   |      
|                 | West Africa                    |                         |   | 76.8  |       |  |   | 17.4  |       |  |   | 16.2  |      
|                 | Southeast Asia/ Mediterranean  |                         |   | 34.7  |       |  |   | 105.6 |       |  |   | 48.1  |      
|                 | Other                          |                         |   |      |       |  |   |      |       |  |   | 0.4   |      
|                 |                                |                         |   |       |       |  |   |       |      
|                 |                                | Total                   |   | $     | 325.0 |  |   | $     | 254.2 |  |   | $     | 270.3 | 
|                 |                                |                         |   |       |       |  |   |       |      
|Gross Profit(1): |                                |                         |   |       |       |  |   |       |       |  |   |      
|                 | Domestic  U.S. Gulf of Mexico |                         | $ | 49.0  |       |  | $ | (8.4  | )     |  | $ | (8.4  | )    
|                 | Domestic  Other               |                         |   |      |       |  |   | 1.8   |       |  |   | 9.2   |      
|                 | Latin America                  |                         |   | 0.4   |       |  |   | 11.5  |       |  |   | (0.7  | )    
|                 | West Africa                    |                         |   | 7.9   |       |  |   | 0.9   |       |  |   | (1.4  | )    
|                 | Southeast Asia/ Mediterranean  |                         |   | (0.5  | )     |  |   | 22.0  |       |  |   | 8.1   |      
|                 | Other                          |                         |   |      |       |  |   |      |       |  |   | (0.3  | )    
|                 |                                |                         |   |       |       |  |   |       |      
|                 |                                | Total                   |   | $     | 56.8  |  |   | $     | 27.8  |  |   | $     | 6.5   | 
|                 |                                |                         |   |       |       |  |   |       |      






|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|(1) | Gross profit for each geographic segment includes costs incurred
    related to idle and stacked equipment.

Year Ended December 31, 2005 Compared To The Year Ended
December 31, 2004




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





28



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##### Table of Contents







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







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





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







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

Gulf Horizon Cajun Horizon


29



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##### Table of Contents







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

Phoenix Horizon




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



|                                                                                  |  |              |      |  |      |   |      |  
|--------------------------------------------------------------------------------- |  | ------------ | ---- |  | ---- | - | ---- | -
|                                                                                  |  | Year Ended   |     
|                                                                                  |  | December 31, |     
|                                                                                  |  |              |     
|                                                                                  |  | 2005         |      |  | 2004 |  
|                                                                                  |  |              |      |  |      |  
|Cash paid for interest                                                            |  | $            | 11.7 |  |      | $ | 8.0  |  
|Interest paid in-kind                                                             |  |              | 7.0  |  |      |   | 11.2 |  
|Accretion in the fair value of the Series A and
    Series B Preferred Stock      |  |              | 1.9  |  |      |   | (1.6 | )
|Amortization of beneficial conversion feature of the
    Series B Preferred Stock |  |              | 40.0 |  |      |   |     |  
|Other non-cash charges, net                                                       |  |              | 7.0  |  |      |   | 8.4  |  
|                                                                                  |  |              |      |  |      |  
|                                                                                  |  | $            | 67.6 |  |      | $ | 26.0 |  
|                                                                                  |  |              |      |  |      |  





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





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





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



30



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

pre-change




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



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




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

Sea Horizon Gulf Horizon


31



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

Sea Horizon




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

Gulf Horizon




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







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

Gulf Horizon Cajun Horizon Phoenix Horizon,


32



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

Phoenix Horizon




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





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





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



Sea Horizon


33



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





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





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



Liquidity and Capital Resources




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



Gulf Horizon


34



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| |                 
| | ----------------
| | Recapitalization





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



Sea Horizon




35



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##### Table of Contents







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





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









36



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





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





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



|                                        |  |      |        |  |      |   |        |      |  |   |        |  |  |      |        |  |            |   |        |       |  |   |        |  |  |   |         | 
|--------------------------------------- |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  | ---------- | - | ------ | ----- |  | - | ------ |  |  | - | ------- | 
|                                        |  | 2006 |        |  | 2007 |   |        | 2008 |  |   | 2009   |  |  | 2010 |        |  | Thereafter |   |        | Total | 
|                                        |  |      |        |  |      |   |        |      |  |   |        |  |  |      |        |  |            |   |        |       | 
|Principal and interest payments on debt |  | $    | 30,236 |  |      | $ | 18,138 |      |  | $ | 13,985 |  |  | $    | 13,709 |  |            | $ | 44,309 |       |  | $ | 36,331 |  |  | $ | 156,708 | 
|Operating leases                        |  |      | 2,729  |  |      |   | 2,471  |      |  |   | 2,268  |  |  |      | 136    |  |            |   | 136    |       |  |   | 96     |  |  |   | 7,836   | 
|                                        |  |      |        |  |      |   |        |      |  |   |        |  |  |      |        |  |            |   |        |       | 
|                                        |  | $    | 32,965 |  |      | $ | 20,609 |      |  | $ | 16,253 |  |  | $    | 13,845 |  |            | $ | 44,445 |       |  | $ | 36,427 |  |  | $ | 164,544 | 
|                                        |  |      |        |  |      |   |        |      |  |   |        |  |  |      |        |  |            |   |        |       | 

Texas Horizon Texas Horizon


37



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Critical Accounting Policies And Estimates










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

percentage-of percentage-of percentage-of


38



---



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

percentage-of






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







39



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

units-of






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





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



40



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Recent Accounting Pronouncements


,
Accounting Changes and Error Corrections  a
replacement of APB No. 20 and FAS No. 3







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



41



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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


13a-15(b) 13a-15(e)




42



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##### Table of Contents



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


13a-15(d)







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






PART III







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



|                   |  |     |    |          |  |                                                 |  |         |      |  |  |  |      | 
|------------------ |  | --- | -- | -------- |  | ----------------------------------------------- |  | ------- | ---- |  |  |  | ---- | 
|                   |  |     |    |          |  | Director                                        |  | Term   
|Name               |  | Age |    | Position |  | Since                                           |  | Expires
|                   |  |     |    |          |  |                                                 |  |        
|John T. Mills      |  |     | 58 |          |  | Chairman of the Board                           |  |         | 2002 |  |  |  | 2006 | 
|Charles O. Buckner |  |     | 61 |          |  | Director                                        |  |         | 2003 |  |  |  | 2006 | 
|Ken R. LeSuer      |  |     | 70 |          |  | Director                                        |  |         | 2003 |  |  |  | 2006 | 
|Raymond L. Steele  |  |     | 70 |          |  | Director                                        |  |         | 2004 |  |  |  | 2006 | 
|David W. Sharp(1)  |  |     | 52 |          |  | Director, President and Chief Executive Officer |  |         | 2005 |  |  |  | 2006 | 






|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|(1) | Information regarding Mr. Sharp is set forth below under
    information about our executive officers.

John T. Mills


Charles O. Buckner


Ken R. LeSuer


Raymond L. Steele


43



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##### Table of Contents







|                        |  |     |    |  |              |                                                     
|----------------------- |  | --- | -- |  | ------------ | ----------------------------------------------------
|Name                    |  | Age |    |  | Offices Held
|                        |  |     |    |  |             
|David W. Sharp          |  |     | 52 |  |              | President, Chief Executive Officer and Director     
|George G. Reuter        |  |     | 50 |  |              | Executive Vice President and Chief Operating Officer
|William B. Gibbens, III |  |     | 57 |  |              | Executive Vice President and General Counsel        
|Ronald D. Mogel         |  |     | 54 |  |              | Vice President and Chief Financial Officer          



David W. Sharp


George G. Reuter


William B. Gibbens, III


Ronald D. Mogel


Audit Committee and Audit Committee Financial Experts




Section 16(a) Beneficial Ownership Reporting
Compliance




44



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##### Table of Contents





Code of Ethics and Business Conduct









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

Compensation




Summary Compensation Table


|                            |                              |      |      |                     |            |              |         |           |              |        |         |          |  |        |              |         |     |   |           |        |  |  |   |        |  |   |       |        | 
|--------------------------- | ---------------------------- | ---- | ---- | ------------------- | ---------- | ------------ | ------- | --------- | ------------ | ------ | ------- | -------- |  | ------ | ------------ | ------- | --- | - | --------- | ------ |  |  | - | ------ |  | - | ----- | ------ | 
|                            |                              |      |      |                     |            |              |         |           |              | Awards |         |          | 
|                            |                              |      |      |                     |            |              |         |           |             
|                            |                              |      |      | Annual Compensation |            |              |         |           | Securities   |        |         |         
|                            |                              |      |      |                     |            |              |         |           | Underlying   |        |         |         
|                            |                              |      |      |                     |            | Other Annual |         |           | Restricted   |        |         | Options/ |  |        | All Other    |        
|                            |                              |      |      |                     |            | Compensation |         |           | Stock Awards |        |         | SARs    |  |        | Compensation |        
|Name and Principal Position |                              | Year |      |                     | Salary ($) |              |         | Bonus ($) |              |        | ($)(1)  |          |  | ($)(2) |              |         | (#) |   |           | ($)(3) | 
|                            |                              |      |      |                     |            |              |         |           |              |        |         |          |  |        |              |         |     |   |           |        | 
|David W. Sharp              |                              |      | 2005 |                     |            | $            | 379,374 |           |              | $      | 626,800 |          |  | $      | 59,800       | (5)     |     | $ | 2,882,563 |        |  |  |  |        |  | $ | 9,090 |       
|                            | President and Chief          |      |      | 2004                |            |              |         | 256,000   |              |        |         | 50,000   |  |        |              |        |     |   |           |       |  |  |   |       |  |   |       | 10,027 | 
|                            | Executive Officer(4)         |      |      | 2003                |            |              |         | 228,000   |              |        |         |         |  |        |              |        |     |   |           |       |  |  |   | 35,000 |  |   |       | 8,780  | 
|Richard A. Sebastiao        |                              |      | 2005 |                     |            | $            |        |           |              | $      |        |          |  | $      | 276,685      | (7)     |     | $ |          |        |  |  |  |        |  | $ |      |       
|                            | Former Chief                 |      |      | 2004                |            |              |         |          |              |        |         |         |  |        |              | 547,074 | (7) |   |           |       |  |  |   |       |  |   |       |       | 
|                            | Restructuring Officer(6)     |      |      | 2003                |            |              |         |          |              |        |         |         |  |        |              |        |     |   |           |       |  |  |   |       |  |   |       |       | 
|George G. Reuter            |                              |      | 2005 |                     |            | $            | 275,000 |           |              | $      | 434,300 |          |  | $      |             |         |     | $ | 2,882,563 |        |  |  |  |        |  | $ | 6,245 |       
|                            | Executive Vice President and |      |      | 2004                |            |              |         | 236,333   |              |        |         | 50,000   |  |        |              |        |     |   |           |       |  |  |   |       |  |   |       | 5,582  | 
|                            | Chief Operating Officer(8)   |      |      | 2003                |            |              |         | 191,500   |              |        |         |         |  |        |              |        |     |   |           |       |  |  |   | 17,500 |  |   |       | 5,070  | 
|William B. Gibbens, III     |                              |      | 2005 |                     |            | $            | 256,000 |           |              | $      | 424,800 |          |  | $      |             |         |     | $ | 2,882,563 |        |  |  |  |        |  | $ | 4,574 |       
|                            | Executive Vice President     |      |      | 2004                |            |              |         | 256,000   |              |        |         | 50,000   |  |        |              |        |     |   |           |       |  |  |   |       |  |   |       | 4,172  | 
|                            | and General Counsel(9)       |      |      | 2003                |            |              |         | 240,500   |              |        |         |         |  |        |              |        |     |   |           |       |  |  |   | 30,000 |  |   |       | 3,370  | 
|Ronald D. Mogel             |                              |      | 2005 |                     |            | $            | 225,518 |           |              | $      | 43,750  |          |  | $      |             |         |     | $ |          |        |  |  |  |        |  | $ | 7,530 |       
|                            | Vice President and           |      |      | 2004                |            |              |         | 201,250   |              |        |         | 5,000    |  |        |              |        |     |   |           |       |  |  |   |       |  |   |       | 6,687  | 
|                            | Chief Financial Officer(10)  |      |      | 2003                |            |              |         | 201,250   |              |        |         |         |  |        |              |        |     |   |           |       |  |  |   |       |  |   |       | 6,509  | 






| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | For years in which no amounts are disclosed in this column,
    perquisites and other personal benefits paid to such executive
    officer in that year did not exceed the lesser of $50,000 or 10%
    of such executive officers salary and bonus for that year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (2) | Represents the dollar value of 6,266,442 shares of
    restricted stock issued to each of Mr. Sharp,
    Mr. Reuter and Mr. Gibbens on September 15, 2005,
    multiplied by the closing price of $0.46 as of the grant date.
    Mr. Sebastiao and Mr. Mogel were not issued restricted
    stock. As of December 31, 2005, the end of our most
    recently completed fiscal year, the aggregate number of shares
    of restricted stock held by each of Mr. Sharp,
    Mr. Reuter and Mr. Gibbens was 5,852,074 shares.
    Based on the closing price of our common stock on
    December 31, 2005 of $0.66, these shares of restricted
    stock are valued at $3,862,369. The shares issued to these
    executive officers vest in four equal installments on Septem-

45



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| |     |                                                                                                                                                                                                                                                         
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | ber 30, 2005 and July 6, 2006, 2007 and 2008.
    Dividends will be paid on the restricted stock to the extent
    dividends are paid on any of our common stock.                                                                                       
|
| | (3) | Comprised of (i) matching contributions to our 401(k) Plan
    and (ii) premiums that we paid on term life insurance
    policies that we maintain for these executive officers for which
    we are not the named beneficiary, in each case as follows:

|            |  |      |      |             |               |   |                |          |  |   |       | 
|----------- |  | ---- | ---- | ----------- | ------------- | - | -------------- | -------- |  | - | ----- | 
|            |  |      |      | 401(k) Plan |               |   | Life Insurance |         
|Name        |  | Year |      |             | Contributions |   |                | Premiums | 
|            |  |      |      |             |               |   |                |          | 
|Mr. Sharp   |  |      | 2005 |             |               | $ | 4,200          |          |  | $ | 4,890 | 
|            |  |      | 2004 |             |               |   | 3,900          |          |  |   | 6,127 | 
|            |  |      | 2003 |             |               |   | 3,600          |          |  |   | 5,180 | 
|Mr. Reuter  |  |      | 2005 |             |               | $ | 5,250          |          |  | $ | 995   | 
|            |  |      | 2004 |             |               |   | 4,875          |          |  |   | 707   | 
|            |  |      | 2003 |             |               |   | 4,500          |          |  |   | 570   | 
|Mr. Gibbens |  |      | 2005 |             |               | $ | 2,800          |          |  | $ | 1,774 | 
|            |  |      | 2004 |             |               |   | 2,600          |          |  |   | 1,572 | 
|            |  |      | 2003 |             |               |   | 2,400          |          |  |   | 970   | 
|Mr. Mogel   |  |      | 2005 |             |               | $ | 6,000          |          |  | $ | 1,530 | 
|            |  |      | 2004 |             |               |   | 5,250          |          |  |   | 1,437 | 
|            |  |      | 2003 |             |               |   | 5,143          |          |  |   | 1,366 | 



| |     |                                                                                                                                                                                                                                                                                                                                
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (4) | Mr. Sharp was elected our President and Chief Executive
    Officer on April 30, 2005.                                                                                                                                                                                                                                         
|
| | (5) | Of this aggregate amount, $50,000 is attributable to a
    membership fee for a country club.                                                                                                                                                                                                                                  
|
| | (6) | Mr. Sebastiao served as our Chief Restructuring Officer and
    principal executive officer from August 30, 2004 until
    April 30, 2005 pursuant to a management consulting
    agreement that we entered into with RAS Management Advisors,
    Inc., of which Mr. Sebastiao is President.                                  
|
| | (7) | This amount represents payments to RAS Management Advisors,
    Inc., pursuant to the management consulting agreement that we
    entered into with it for services performed by
    Mr. Sebastiao as our Chief Restructuring Officer and
    principal executive officer and other agents of RAS Management
    Advisors, Inc.
|
| | (8) | Mr. Reuter became an executive officer on December 15,
    2004.                                                                                                                                                                                                                                                               
|
| | (9) | Mr. Gibbens became an executive officer on July 1,
    2003.                                                                                                                                                                                                                                                                   



|     |                                                             
|---- | ------------------------------------------------------------
|(10) | Mr. Mogel became an executive officer on April 30,
    2005.

Aggregate Options


in-the


Options at December 31, 2005


|                        |  |                        |                | 
|----------------------- |  | ---------------------- | -------------- | 
|                        |  | Number of Securities   |               
|                        |  | Underlying Unexercised |               
|                        |  | Options/SARs at        |               
|                        |  | Fiscal Year End (#)    |               
|                        |  | Exercisable/           |               
|Name                    |  | Unexercisable          |               
|                        |  |                        |               
|David W. Sharp          |  |                        | 156,332/11,668 | 
|Richard A. Sebastiao    |  |                        | /            | 
|George G. Reuter        |  |                        | 49,166/5,834   | 
|William B. Gibbens, III |  |                        | 78,000/10,000  | 
|Ronald D. Mogel         |  |                        | 28,000/2,000   | 

46



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Director Compensation




14c-2(b)




Executive Employment Agreements








47



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Compensation Committee Interlocks and Insider
Participation




48



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

Equity Compensation Plan




Common Stock Ownership of Principal Stockholders


13d-3


|                                             |                                                                        |               |             |         |       |  |       |  | 
|-------------------------------------------- | ---------------------------------------------------------------------- | ------------- | ----------- | ------- | ----- |  | ----- |  | 
|                                             |                                                                        |               |             | Percent |      
|                                             |                                                                        |               |             | of      |      
|Name and Address of Beneficial Owner         |                                                                        | No. of Shares |             |         | Class | 
|                                             |                                                                        |               |             |         |       | 
|Falcon Mezzanine Investments, LLC(1)         |                                                                        |               | 80,014,385  |         |       |  | 10.5% | 
|                                             | 21 Custom House Street, 10th Floor
    Boston, MA 02110                |               |             |         |       |  |       |  | 
|Elliott Associates, L.P.(2)                  |                                                                        |               | 151,522,184 |         |       |  | 20.0% | 
|                                             | 712 Fifth Avenue, 36th Floor
    New York, NY 10019                    |               |             |         |       |  |       |  | 
|Elliott International, L.P.(3)               |                                                                        |               | 98,630,797  |         |       |  | 13.0% | 
|                                             | 712 Fifth Avenue, 36th Floor
    New York, NY 10019                    |               |             |         |       |  |       |  | 
|Highland Crusader Offshore Partners, L.P.(4) |                                                                        |               | 56,083,170  |         |       |  | 7.4%  | 
|                                             | Two Galleria Tower
    13455 Noel Road, Suite 800
    Dallas, TX 75240 |               |             |         |       |  |       |  | 
|Lloyd I. Miller, III(5)                      |                                                                        |               | 133,821,916 |         |       |  | 17.6% | 
|                                             | 4550 Gordon Drive
    Naples, FL 34102                                 |               |             |         |       |  |       |  | 
|Bryant R. Riley(6)                           |                                                                        |               | 65,315,211  |         |       |  | 8.6%  | 
|                                             | 11100 Santa Monica Blvd.
    Suite 800
    Los Angeles, CA 90025       |               |             |         |       |  |       |  | 
|Trafelet & Company, LLC(7)                   |                                                                        |               | 42,963,000  |         |       |  | 5.7%  | 
|                                             | 900 Third Avenue, 5th Floor
    New York, NY 10022                     |               |             |         |       |  |       |  | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In its Schedule 13D/A filed December 21, 2005, Falcon
    Mezzanine Investments, LLC reported it has shared voting and
    dispositive power with respect to all reported shares with
    Falcon Mezzanine Partners, LP, of which Falcon Mezzanine
    Investments, LLC is the general partner, and Falcon Investment
    Advisors, LLC, which manages Falcon Mezzanine Partners, L.P.
    Falcon Mezzanine Investments, LLC is a wholly-owned subsidiary
    of Falcon Partners Holdings, LLC, which is controlled by
    Mr. Sandeep D. Alva.
|   
|(2) | In its Form 4 filed December 30, 2005, Elliott
    Associates, L.P. reported direct ownership of
    59,310,942 shares and indirect ownership of
    92,211,242 shares through its wholly owned subsidiary,
    Manchester Securities Corp. On March 9, 2006, Manchester
    Securities Corp. transferred their shares of common stock to
    Elliott Associates, L.P. Paul E. Singer and an entity controlled
    by him are the general partners of Elliott Associates, L.P.                                                                 

49



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | In its Form 4 filed December 14, 2005, Elliott
    International, L.P. reported direct ownership of
    98,630,797 shares. The general partner of Elliott
    International, L.P. is an entity controlled by Paul E. Singer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(4) | In its Schedule 13D/A filed January 17, 2006, Highland
    Crusader Offshore Partners, L.P. reported it has shared and
    dispositive power with respect to all reported shares with
    Highland Capital Management, L.P., the general partner of
    Highland Crusader Offshore Partners, L.P. and Strand Advisors,
    Inc., which is the general partner of Highland Capital
    Management, L.P., and is owned by James Dondero, the President
    and Director of Strand Advisors, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(5) | Based on information provided from his Schedule 13G/A filed
    February 13, 2006, Lloyd I. Miller, III reported that
    he has: (i) sole voting and dispositive power with respect
    to 78,462,193 of these shares as an individual, a manager of a
    limited liability company that is the general partner of certain
    limited partnerships, the trustee to certain generation skipping
    trusts and the custodian to an account set up under the Florida
    Uniform Gifts to Minors Act; and (ii) shared voting and
    dispositive power with respect to 55,359,723 of these shares as
    an investment advisor to the trustee of certain family trusts
    and as an authorized person with respect to a certain family
    custody account.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(6) | In his Schedule 13D/A filed December 21, 2005, Bryant
    R. Riley reported that he has shared voting and dispositive
    power with respect to 65,315,211 shares; SACC Partners, LP
    reported that it has shared voting and dispositive power with
    respect to 58,523,119 of these shares with Riley Investment
    Management LLC, which has sole voting and investment power over
    SACCs security holdings and of which Bryant Riley is the
    sole manager; B. Riley & Co., Inc. has shared voting
    and dispositive power with respect to 5,419,175 of these shares
    with Bryant Riley who has sole voting and investment power over
    B. Riley & Co., Inc.s security holdings; B.
    Riley & Co. Retirement Trust has shared voting and
    dispositive power with respect to 797,974 of these shares with
    Bryant Riley, who has sole voting and investment power over B.
    Riley & Co. Retirement Trusts security holdings;
    Bryant and Carleen Riley have shared voting and dispositive
    power with respect to 574,943 of these shares which are held in
    their joint account; and Richard Riley has sole voting and
    dispositive power with respect to 508,067 of these shares.
|   
|(7) | In its Schedule 13G filed January 24, 2006,
    Trafelet & Company, LLC, reported that it has shared
    voting and dispositive power with respect to all reported shares
    with Remy W. Trafelet, the managing member of
    Trafelet & Company, LLC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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Common Stock Ownership of Management




|                                                            |  |           |            |               |         |  |         |            |  |  |     |  
|----------------------------------------------------------- |  | --------- | ---------- | ------------- | ------- |  | ------- | ---------- |  |  | --- | -
|                                                            |  |           |            | No. of Shares |         |  |        
|                                                            |  |           |            | Acquirable    |         |  |        
|                                                            |  |           |            | Through       |         |  |        
|                                                            |  | No. of    |            |               | Stock   |  |         | Percent of | 
|Name of Beneficial Owner(1)                                 |  | Shares(2) |            |               | Options |  |         | Class      | 
|                                                            |  |           |            |               |         |  |         |            | 
|David W. Sharp                                              |  |           | 5,862,074  |               |         |  | 168,000 |            |  |  | *   |  
|George G. Reuter                                            |  |           | 5,852,074  |               |         |  | 52,500  |            |  |  | *   |  
|William B. Gibbens, III                                     |  |           | 5,855,074  |               |         |  | 88,000  |            |  |  | *   |  
|Ronald D. Mogel                                             |  |           |           |               |         |  | 30,000  |            |  |  | *   |  
|John T. Mills                                               |  |           | 55,000     |               |         |  | 20,000  |            |  |  | *   |  
|Charles O. Buckner                                          |  |           |           |               |         |  | 20,000  |            |  |  | *   |  
|Ken R. LeSuer                                               |  |           | 10,000     |               |         |  | 25,000  |            |  |  | *   |  
|Raymond L. Steele                                           |  |           |           |               |         |  | 10,000  |            |  |  | *   |  
|All executive officers and directors as a group (8 persons) |  |           | 17,634,222 |               |         |  | 413,500 |            |  |  | 2.4 | %






|  |              
|- | -------------
|* | Less than 1%.



|    |                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The address for the directors and executive officers is 2500
    CityWest Boulevard, Suite 2200, Houston, Texas 77042.                                        
|   
|(2) | Excludes shares subject to options that will be exercisable
    within 60 days of March 3, 2006, which shares are set
    forth separately in the next column.








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









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|                                |  |              |             |             |                 |  |       | 
|------------------------------- |  | ------------ | ----------- | ----------- | --------------- |  | ----- | 
|                                |  |              |             | % of        |                
|                                |  |              |             | Outstanding |                
|                                |  | Total Shares |             |             | Common Stock    | 
|                                |  | of Common    |             |             | on December 31, | 
|                                |  | Stock        |             |             | 2005            | 
|                                |  |              |             |             |                 | 
|Elliott Entities                |  |              | 250,152,981 |             |                 |  | 32.9% | 
|Miller                          |  |              | 133,821,916 |             |                 |  | 17.6% | 
|Falcon                          |  |              | 80,014,385  |             |                 |  | 10.5% | 
|Riley                           |  |              | 65,315,211  |             |                 |  | 8.6%  | 
|Highland                        |  |              | 56,083,170  |             |                 |  | 7.4%  | 
|Other Subordinated Note holders |  |              | 63,633,509  |             |                 |  | 8.4%  | 
|                                |  |              |             |             |                 | 
|                                |  |              | 649,021,172 |             |                 |  | 85.5% | 
|                                |  |              |             |             |                 | 







|                 |  |        |      | 
|---------------- |  | ------ | ---- | 
|                 |  | Amount |     
|                 |  |        |     
|Elliott Entities |  | $      | 4.6  | 
|Miller           |  |        | 3.4  | 
|Falcon           |  |        | 4.8  | 
|                 |  |        |     
|                 |  | $      | 12.8 | 
|                 |  |        |     

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



|                   |  |               |         |     |      |   |         |    
|------------------ |  | ------------- | ------- | --- | ---- | - | ------- | ---
|                   |  | Amount Billed |        
|                   |  |               |        
|                   |  | 2004          |         |     | 2005 |  
|                   |  |               |         |     |      |  
|Audit Fees         |  | $             | 718,181 | (1) |      | $ | 660,400 |    
|Audit-Related Fees |  |               | 74,000  | (2) |      |   | 33,600  | (3)
|Tax Fees(4)        |  |               |        |     |      |   |        |    
|All Other Fees(4)  |  |               |        |     |      |   |        |    
|                   |  |               |         |     |      |  
|Total              |  | $             | 792,181 |     |      | $ | 694,000 |    
|                   |  |               |         |     |      |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Of this aggregate amount, $50,510 is attributable to fees billed
    by PwC for services in connection with its review of our interim
    financial statements for the first quarter of 2004. The balance
    of such amount is attributable to fees billed by Grant Thornton
    for audit services in connection with its review of our interim
    financial statements for the second and third quarters of fiscal
    year 2004 and the fiscal 2004 year-end audit.
|   
|(2) | Of this aggregate amount, $50,000 is attributable to fees billed
    by PwC for services in connection with its review of our
    internal controls. The remaining amount of $24,000 is for fees
    billed by Grant Thornton for services in connection with their
    audit of our December 31, 2003 401(k) plan in 2004.                                                                                                                                             
|   
|(3) | This amount is for fees billed by Grant Thornton for services in
    connection with their audit of our December 31, 2004 401(k)
    plan in 2005.                                                                                                                                                                                                                                                                                                                      
|   
|(4) | For the fiscal years 2004 and 2005, PwC and Grant Thornton did
    not provide us with any tax services or other services.                                                                                                                                                                                                                                                                                                                                              

Audit Committee Pre-Approval Policy




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PART IV







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





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

| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Managements Report on Internal Control 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, 2005 and 2004                                            
| | Consolidated Statements of Operations for the Years Ended
    December 31, 2005, 2004 and 2003          
| | Consolidated Statements of Stockholders Equity for the
    Years Ended December 31, 2005, 2004 and 2003
| | Consolidated Statements of Cash Flows for the Years Ended
    December 31, 2005, 2004 and 2003          
| | 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 96. 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


13a-15(f)


Internal Control  Integrated Framework








|                                           | 
|------------------------------------------ | 
|/s/ David W. Sharp                         | 
|                                           | 
|David W. Sharp                             | 
|President and Chief Executive Officer      | 
|                                          
|/s/ Ronald D. Mogel                        | 
|                                           | 
|Ronald D. Mogel                            | 
|Vice President and Chief Financial Officer | 

55



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM










Internal Control 
Integrated Framework




|                       | 
|---------------------- | 
|/s/ Grant Thornton LLP | 
|                      
|Houston, Texas         | 
|March 9, 2006          | 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




Internal Control 
Integrated Framework








Internal
Control  Integrated Framework Internal Control  Integrated Framework




Grant Thornton LLP






57



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






10-K


PricewaterhouseCoopers
LLP






58



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


(In thousands, except share data)


|                                                |                                                                                                                                                                       |                                  |                            |          |        |         |         |          |        |         | 
|----------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------- | -------------------------- | -------- | ------ | ------- | ------- | -------- | ------ | ------- | 
|                                                |                                                                                                                                                                       | December 31,                     |                           
|                                                |                                                                                                                                                                       |                                  |                           
|                                                |                                                                                                                                                                       | 2005                             |                            |          | 2004   |        
|                                                |                                                                                                                                                                       |                                  |                            |          |        |        
|ASSETS                                         
|CURRENT ASSETS:                                 |                                                                                                                                                                       |                                  |                            |          |        |         |         |         
|                                                | Cash and cash equivalents                                                                                                                                             |                                  | $                          | 42,960   |        |         | $       | 37,975   |       
|                                                | Restricted cash                                                                                                                                                       |                                  |                            | 4,055    |        |         |         |         |       
|                                                | Accounts receivable                                                                                                                                                  |                                  |                            |          |        |         |         |          |       
|                                                |                                                                                                                                                                       | Contract receivables, net        |                            |          | 43,423 |         |         |          | 81,861 |        
|                                                |                                                                                                                                                                       | Costs in excess of billings, net |                            |          | 90,229 |         |         |          | 24,058 |        
|                                                |                                                                                                                                                                       | Other                            |                            |          | 1,209  |         |         |          | 346    |        
|                                                | Other current assets                                                                                                                                                  |                                  |                            | 6,622    |        |         |         | 5,079    |       
|                                                | Assets held for sale                                                                                                                                                  |                                  |                            |         |        |         |         | 8,632    |       
|                                                |                                                                                                                                                                       |                                  |                            |          |        |        
|                                                |                                                                                                                                                                       |                                  | Total current assets       |          |        | 188,498 |         |          |        | 157,951 | 
|PROPERTY AND EQUIPMENT, NET                     |                                                                                                                                                                       |                                  | 186,416                    |          |        |         | 198,804 |         
|RESTRICTED CASH                                 |                                                                                                                                                                       |                                  | 7,967                      |          |        |         | 9,247   |         
|INVENTORY                                       |                                                                                                                                                                       |                                  | 167                        |          |        |         | 1,415   |         
|OTHER ASSETS                                    |                                                                                                                                                                       |                                  | 19,673                     |          |        |         | 26,860  |         
|                                                |                                                                                                                                                                       |                                  |                            |          |        |        
|                                                |                                                                                                                                                                       | $                                | 402,721                    |          |        | $       | 394,277 |         
|                                                |                                                                                                                                                                       |                                  |                            |          |        |        
|                                               
|LIABILITIES AND STOCKHOLDERS EQUITY           
|CURRENT LIABILITIES:                            |                                                                                                                                                                       |                                  |                            |          |        |         |         |         
|                                                | Accounts payable                                                                                                                                                      |                                  | $                          | 15,474   |        |         | $       | 35,267   |       
|                                                | Accrued liabilities                                                                                                                                                   |                                  |                            | 6,617    |        |         |         | 9,181    |       
|                                                | Accrued job costs                                                                                                                                                     |                                  |                            | 56,085   |        |         |         | 31,152   |       
|                                                | Billings in excess of costs                                                                                                                                           |                                  |                            | 7,386    |        |         |         | 9,900    |       
|                                                | Current maturities of long-term debt                                                                                                                                  |                                  |                            | 26,130   |        |         |         | 42,243   |       
|                                                | Current taxes payable                                                                                                                                                 |                                  |                            | 2,687    |        |         |         | 1,186    |       
|                                                |                                                                                                                                                                       |                                  |                            |          |        |        
|                                                |                                                                                                                                                                       |                                  | Total current liabilities  |          |        | 114,379 |         |          |        | 128,929 | 
|LONG-TERM DEBT, net of current maturities       |                                                                                                                                                                       |                                  | 27,340                     |          |        |         | 81,379  |         
|RELATED PARTY TERM DEBT                         |                                                                                                                                                                       |                                  | 63,794                     |          |        |         |        |         
|SUBORDINATED NOTES, net of discount             |                                                                                                                                                                       |                                  | 12,845                     |          |        |         | 88,968  |         
|OTHER LIABILITIES                               |                                                                                                                                                                       |                                  | 877                        |          |        |         | 1,311   |         
|PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION |                                                                                                                                                                       |                                  |                           |          |        |         | 416     |         
|                                                |                                                                                                                                                                       |                                  |                            |          |        |        
|                                                |                                                                                                                                                                       |                                  | Total liabilities          |          |        | 219,235 |         |          |        | 301,003 | 
|COMMITMENTS AND CONTINGENCIES                   |                                                                                                                                                                       |                                  |                            |          |        |         |         |         
|STOCKHOLDERS EQUITY:                           |                                                                                                                                                                       |                                  |                            |          |        |         |         |         
|                                                | Preferred stock, $0.00001 and $1.00 par value,
    5,000,000 shares authorized, none and 1,400 mandatorily
    redeemable shares issued and outstanding, respectively |                                  |                            |         |        |         |         |         |       
|                                                | Common stock, $0.00001 and $1.00 par value, 1,500,000,000
    and 100,000,000 shares authorized, 759,621,773 and
    32,583,882 shares issued, respectively           |                                  |                            | 8        |        |         |         | 21,877   |       
|                                                | Deferred compensation                                                                                                                                                 |                                  |                            | (8,333   | )      |         |         |         |       
|                                                | Subscriptions receivable                                                                                                                                              |                                  |                            |         |        |         |         | (42      | )     
|                                                | Additional paid-in capital                                                                                                                                            |                                  |                            | 382,231  |        |         |         | 191,759  |       
|                                                | Accumulated deficit                                                                                                                                                   |                                  |                            | (188,776 | )      |         |         | (117,720 | )     
|                                                | Treasury stock, 250,757 and 396,458 shares, respectively                                                                                                              |                                  |                            | (1,644   | )      |         |         | (2,600   | )     
|                                                |                                                                                                                                                                       |                                  |                            |          |        |        
|                                                |                                                                                                                                                                       |                                  | Total stockholders equity |          |        | 183,486 |         |          |        | 93,274  | 
|                                                |                                                                                                                                                                       |                                  |                            |          |        |        
|                                                |                                                                                                                                                                       | $                                | 402,721                    |          |        | $       | 394,277 |         
|                                                |                                                                                                                                                                       |                                  |                            |          |        |        



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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,                |                                            
|                                                                         |                                 |                                        |                                            
|                                                                         |                                 | 2005                                   |                                             |             | 2004  |         |         | 2003       |      
|                                                                         |                                 |                                        |                                             |             |       |         |         |            |      
|CONTRACT REVENUES                                                        |                                 | $                                      | 325,044                                     |             |       | $       | 254,209 |            |       | $       | 270,313 |           
|COST OF CONTRACT REVENUES                                                |                                 |                                        | 268,280                                     |             |       |         | 226,391 |            |       |         | 263,812 |           
|                                                                         |                                 |                                        |                                             |             |       |         |         |            |      
|                                                                         |                                 |                                        | Gross profit                                |             |       | 56,764  |         |            |       | 27,818  |         |            |       | 6,501   |  
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                             |                                 |                                        | 30,922                                      |             |       |         | 30,687  |            |       |         | 21,749  |           
|RESERVE FOR CLAIMS AND RECEIVABLES                                       |                                 |                                        | 1,711                                       |             |       |         | 5,692   |            |       |         | 33,092  |           
|IMPAIRMENT OF PROPERTY, EQUIPMENT AND INTANGIBLES                        |                                 |                                        |                                            |             |       |         | 22,361  |            |       |         | 21,332  |           
|IMPAIRMENT LOSS ON ASSETS HELD FOR SALE                                  |                                 |                                        | 2,261                                       |             |       |         | 3,268   |            |       |         |        |           
|                                                                         |                                 |                                        |                                             |             |       |         |         |            |      
|                                                                         |                                 |                                        | Operating income (loss)                     |             |       | 21,870  |         |            |       | (34,190 | )       |            |       | (69,672 | )
|OTHER:                                                                   |                                 |                                        |                                             |             |       |         |         |            |       |         |         |           
|                                                                         |                                 |                                        | Interest expense, net of amount capitalized |             |       | (67,572 | )       |            |       | (25,995 | )       |            |       | (9,542  | )
|                                                                         |                                 |                                        | Interest income                             |             |       | 777     |         |            |       | 286     |         |            |       | 67      |  
|                                                                         |                                 |                                        | Loss on debt extinguishment                 |             |       | (23,138 | )       |            |       | (1,719  | )       |            |       | (868    | )
|                                                                         |                                 |                                        | Other income (expense), net                 |             |       | 53      |         |            |       | 152     |         |            |       | (88     | )
|                                                                         |                                 |                                        |                                             |             |       |         |         |            |      
|NET LOSS BEFORE INCOME TAXES                                             |                                 |                                        | (68,010                                     | )           |       |         | (61,466 | )          |       |         | (80,103 | )         
|INCOME TAX PROVISION (BENEFIT)                                           |                                 |                                        | 3,046                                       |             |       |         | 2,103   |            |       |         | (7,599  | )         
|                                                                         |                                 |                                        |                                             |             |       |         |         |            |      
|NET LOSS                                                                 |                                 | $                                      | (71,056                                     | )           |       | $       | (63,569 | )          |       | $       | (72,504 | )         
|                                                                         |                                 |                                        |                                             |             |       |         |         |            |      
|EARNINGS (LOSS) PER SHARE  BASIC AND DILUTED:                           |                                 |                                        |                                             |             |       |         |         |            |       |         |         |           
|                                                                         |                                 | Net loss per share  basic and diluted |                                             | $           | (0.64 | )       |         | $          | (2.06 | )       |         | $          | (2.74 | )      
|                                                                         |                                 |                                        |                                             |             |       |         |         |            |      
|WEIGHTED AVERAGE SHARES USED IN COMPUTING EARNINGS
    (LOSS) PER SHARE: |                                 |                                        |                                             |             |       |         |         |            |       |         |         |           
|                                                                         | BASIC AND DILUTED (See Note 11) |                                        |                                             | 110,433,532 |       |         |         | 30,889,021 |       |         |         | 26,429,014 |      



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


(In thousands)


|                           |                                                                                                  |              |         |         |          |   |        |               |            |          |            |          |   |              |                |     |          |       |         |               |   |   |          |         |   |        |     |      |   |   |        |       |  |   |         |         |  
|-------------------------- | ------------------------------------------------------------------------------------------------ | ------------ | ------- | ------- | -------- | - | ------ | ------------- | ---------- | -------- | ---------- | -------- | - | ------------ | -------------- | --- | -------- | ----- | ------- | ------------- | - | - | -------- | ------- | - | ------ | --- | ---- | - | - | ------ | ----- |  | - | ------- | ------- | -
|                           |                                                                                                  |              |         |         |          |   |        |               |            | Retained |            |          |   |              |               
|                           |                                                                                                  | Common Stock |         |         |          |   |        |               | Additional |          |            | Earnings |   |              | Treasury Stock |     |          | Total |        
|                           |                                                                                                  |              |         |         | Deferred |   |        | Subscriptions |            |          | Paid-In    |          |   | (Accumulated |                |     |          |       |         | Stockholders |  
|                           |                                                                                                  | Shares       |         |         | Amount   |   |        | Compensation  |            |          | Receivable |          |   | Capital      |                |     | Deficit) |       |         | Shares        |   |   | Amount   |         |   | Equity |    
|                           |                                                                                                  |              |         |         |          |   |        |               |            |          |            |          |   |              |                |     |          |       |         |               |   |   |          |         |   |        |    
|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 of $722                                              |              |         |        |          |   |        |              |            |          |            |         |   |              |                |    |          |       |         | 16,593        |   |   |          |        |   |        |     |     |   |   |        |      |  |   |         | 16,593  |  
|                           | Warrants exercised                                                                               |              |         | 5,294   |          |   |        | 5,294         |            |          |            |         |   |              |                | (42 | )        |       |         | (5,231        | ) |   |          |        |   |        |     |     |   |   |        |      |  |   |         | 21      |  
|                           | Net loss                                                                                         |              |         |        |          |   |        |              |            |          |            |         |   |              |                |    |          |       |         |              |   |   |          | (63,569 | ) |        |     |     |   |   |        |      |  |   |         | (63,569 | )
|                           |                                                                                                  |              |         |         |          |   |        |               |            |          |            |          |   |              |                |     |          |       |         |               |   |   |          |         |   |        |    
|BALANCE, DECEMBER 31, 2004 |                                                                                                  |              | 32,584  |         |          | $ | 21,877 |               |            | $        |           |          |   | $            | (42            | )   |          | $     | 191,759 |               |   | $ | (117,720 | )       |   |        | 396 |      |   | $ | (2,600 | )     |  | $ | 93,274  |        
|                           | 401(k) contributions in company stock                                                            |              |         |        |          |   |        |              |            |          |            |         |   |              |                |    |          |       |         | (858          | ) |   |          |        |   |        |     | (145 | ) |   |        | 956   |  |   |         | 98      |  
|                           | Issuance of common stock in exchange for subordinated notes, net
    of offering costs of $1,027 |              |         | 94,882  |          |   |        | 60,000        |            |          |            |         |   |              |                |    |          |       |         | (2,295        | ) |   |          |        |   |        |     |     |   |   |        |      |  |   |         | 57,705  |  
|                           | Cancellation of common stock                                                                     |              |         | (10     | )        |   |        | (10           | )          |          |            |         |   |              |                | 10  |          |       |         |              |   |   |          |        |   |        |     |     |   |   |        |      |  |   |         |        |  
|                           | Retirement of common stock                                                                       |              |         | (1,797  | )        |   |        | (1            | )          |          |            |         |   |              |                |    |          |       |         | (519          | ) |   |          |        |   |        |     |     |   |   |        |      |  |   |         | (520    | )
|                           | Reduction in par value of common stock to $0.00001 per share                                     |              |         |        |          |   |        | (81,891       | )          |          |            |         |   |              |                |    |          |       |         | 81,891        |   |   |          |        |   |        |     |     |   |   |        |      |  |   |         |        |  
|                           | Subscription receivable payment                                                                  |              |         |        |          |   |        |              |            |          |            |         |   |              |                | 32  |          |       |         |              |   |   |          |        |   |        |     |     |   |   |        |      |  |   |         | 32      |  
|                           | Issuance of restricted stock                                                                     |              |         | 27,174  |          |   |        | 27            |            |          |            | (12,500  | ) |              |                |    |          |       |         | 12,473        |   |   |          |        |   |        |     |     |   |   |        |      |  |   |         |        |  
|                           | Issuance of common stock for conversion of Series B
    Preferred Stock                          |              |         | 554,139 |          |   |        | 5             |            |          |            |         |   |              |                |    |          |       |         | 81,002        |   |   |          |        |   |        |     |     |   |   |        |      |  |   |         | 81,007  |  
|                           | Issuance of common stock in private placement, net of offering
    costs of $1,229               |              |         | 52,650  |          |   |        | 1             |            |          |            |         |   |              |                |    |          |       |         | 18,778        |   |   |          |        |   |        |     |     |   |   |        |      |  |   |         | 18,779  |  
|                           | Amortization of deferred compensation                                                            |              |         |        |          |   |        |              |            |          |            | 4,167    |   |              |                |    |          |       |         |              |   |   |          |        |   |        |     |     |   |   |        |      |  |   |         | 4,167   |  
|                           | Net loss                                                                                         |              |         |        |          |   |        |              |            |          |            |         |   |              |                |    |          |       |         |              |   |   |          | (71,056 | ) |        |     |     |   |   |        |      |  |   |         | (71,056 | )
|                           |                                                                                                  |              |         |         |          |   |        |               |            |          |            |          |   |              |                |     |          |       |         |               |   |   |          |         |   |        |    
|BALANCE, DECEMBER 31, 2005 |                                                                                                  |              | 759,622 |         |          | $ | 8      |               |            | $        | (8,333     | )        |   | $            |               |     |          | $     | 382,231 |               |   | $ | (188,776 | )       |   |        | 251 |      |   | $ | (1,644 | )     |  | $ | 183,486 |        
|                           |                                                                                                  |              |         |         |          |   |        |               |            |          |            |          |   |              |                |     |          |       |         |               |   |   |          |         |   |        |    



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


|                                               |                                                                                            |                                                                                                                                            |                               |                                                     |        |         |        |         |        |         |        |         |        |         |         |  
|---------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------- | --------------------------------------------------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------- | -
|                                               |                                                                                            | Year Ended December 31,                                                                                                                    |                              
|                                               |                                                                                            |                                                                                                                                            |                              
|                                               |                                                                                            | 2005                                                                                                                                       |                               |                                                     | 2004   |         |        | 2003    |       
|                                               |                                                                                            |                                                                                                                                            |                               |                                                     |        |         |        |         |       
|CASH FLOWS FROM OPERATING ACTIVITIES:          |                                                                                            |                                                                                                                                            |                               |                                                     |        |         |        |         |        |         |        |        
|                                               | Net loss                                                                                   |                                                                                                                                            | $                             | (71,056                                             | )      |         | $      | (63,569 | )      |         | $      | (72,504 | )     
|                                               |                                                                                            | Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities                                              |                               |                                                     |        |         |        |         |        |         |        |         |        |        
|                                               |                                                                                            | Depreciation and amortization                                                                                                              |                               |                                                     | 21,661 |         |        |         | 19,702 |         |        |         | 19,718 |        
|                                               |                                                                                            | Reserve for claims and receivables                                                                                                         |                               |                                                     | 1,711  |         |        |         | 5,692  |         |        |         | 33,092 |        
|                                               |                                                                                            | Impairment of inventory                                                                                                                    |                               |                                                     | 684    |         |        |         | 6,379  |         |        |         |       |        
|                                               |                                                                                            | Impairment of property, equipment and intangibles                                                                                          |                               |                                                     |       |         |        |         | 22,361 |         |        |         | 21,332 |        
|                                               |                                                                                            | Impairment loss on assets held for sale                                                                                                    |                               |                                                     | 2,261  |         |        |         | 3,268  |         |        |         |       |        
|                                               |                                                                                            | Net gain on sale of assets                                                                                                                 |                               |                                                     | (41    | )       |        |         | (32    | )       |        |         |       |        
|                                               |                                                                                            | Deferred income tax benefit                                                                                                                |                               |                                                     |       |         |        |         |       |         |        |         | (9,072 | )      
|                                               |                                                                                            | Paid in-kind interest on subordinated notes and related party
    term debt                                                                |                               |                                                     | 6,977  |         |        |         | 11,217 |         |        |         |       |        
|                                               |                                                                                            | Amortization of subordinated debt discount recorded as interest
    expense                                                                |                               |                                                     | 3,321  |         |        |         | 5,068  |         |        |         |       |        
|                                               |                                                                                            | Amortization of deferred loan fees recorded as interest expense                                                                            |                               |                                                     | 3,195  |         |        |         | 3,434  |         |        |         | 1,240  |        
|                                               |                                                                                            | Amortization of beneficial conversion feature and adjustment of
    mandatorily redeemable preferred stock charged to interest
    expense |                               |                                                     | 41,863 |         |        |         | (1,605 | )       |        |         |       |        
|                                               |                                                                                            | Expense recognized for issuance of treasury stock for 401(k)
    plan contributions                                                        |                               |                                                     | 98     |         |        |         | 418    |         |        |         | 428    |        
|                                               |                                                                                            | Stock compensation expense (including amortization of deferred
    compensation)                                                           |                               |                                                     | 4,167  |         |        |         |       |         |        |         | 212    |        
|                                               |                                                                                            | Loss on debt extinguishment                                                                                                                |                               |                                                     | 23,138 |         |        |         | 1,719  |         |        |         | 868    |        
|                                               |                                                                                            | Changes in operating assets and liabilities                                                                                               |                               |                                                     |        |         |        |         |        |         |        |         |        |        
|                                               |                                                                                            |                                                                                                                                            | Restricted cash               |                                                     |        | (2,775  | )      |         |        | (9,247  | )      |         |        |        |        
|                                               |                                                                                            |                                                                                                                                            | Accounts receivable           |                                                     |        | 35,864  |        |         |        | 13,624  |        |         |        | (52,105 | )      
|                                               |                                                                                            |                                                                                                                                            | Costs in excess of billings   |                                                     |        | (66,171 | )      |         |        | 10,639  |        |         |        | 10,705  |        
|                                               |                                                                                            |                                                                                                                                            | Billings in excess of costs   |                                                     |        | (2,514  | )      |         |        | 4,066   |        |         |        | 5,232   |        
|                                               |                                                                                            |                                                                                                                                            | Inventory                     |                                                     |        | 564     |        |         |        | 456     |        |         |        | (434    | )      
|                                               |                                                                                            |                                                                                                                                            | Other assets                  |                                                     |        | (8,905  | )      |         |        | (17,658 | )      |         |        | (6,260  | )      
|                                               |                                                                                            |                                                                                                                                            | Accounts payable              |                                                     |        | (19,793 | )      |         |        | 5,996   |        |         |        | (3,659  | )      
|                                               |                                                                                            |                                                                                                                                            | Accrued and other liabilities |                                                     |        | (3,021  | )      |         |        | 5,596   |        |         |        | (4,336  | )      
|                                               |                                                                                            |                                                                                                                                            | Accrued job costs             |                                                     |        | 24,933  |        |         |        | (25,194 | )      |         |        | 1,480   |        
|                                               |                                                                                            |                                                                                                                                            | Current taxes payable         |                                                     |        | 1,501   |        |         |        | (235    | )      |         |        | 998     |        
|                                               |                                                                                            |                                                                                                                                            |                               |                                                     |        |         |        |         |       
|                                               |                                                                                            |                                                                                                                                            |                               | Net cash provided by (used in) operating activities |        |         | (2,338 | )       |        |         | 2,095  |         |        |         | (53,065 | )
|CASH FLOWS FROM INVESTING ACTIVITIES:          |                                                                                            |                                                                                                                                            |                               |                                                     |        |         |        |         |        |         |        |        
|                                               | Purchases and additions to property and equipment                                          |                                                                                                                                            |                               | (2,458                                              | )      |         |        | (5,579  | )      |         |        | (17,797 | )     
|                                               | Proceeds from sale of assets                                                               |                                                                                                                                            |                               | 6,936                                               |        |         |        | 803     |        |         |        |        |       
|                                               | Proceeds from casualty insurance claim                                                     |                                                                                                                                            |                               |                                                    |        |         |        |        |        |         |        | 3,114   |       
|                                               |                                                                                            |                                                                                                                                            |                               |                                                     |        |         |        |         |       
|                                               |                                                                                            |                                                                                                                                            |                               | Net cash provided by (used in) investing activities |        |         | 4,478  |         |        |         | (4,776 | )       |        |         | (14,683 | )
|CASH FLOWS FROM FINANCING ACTIVITIES:          |                                                                                            |                                                                                                                                            |                               |                                                     |        |         |        |         |        |         |        |        
|                                               | Borrowings under term debt                                                                 |                                                                                                                                            |                               |                                                    |        |         |        |        |        |         |        | 21,362  |       
|                                               | Principal payments on term debt                                                            |                                                                                                                                            |                               | (17,279                                             | )      |         |        | (9,615  | )      |         |        | (8,967  | )     
|                                               | Borrowings on revolving credit facilities                                                  |                                                                                                                                            |                               |                                                    |        |         |        | 30,550  |        |         |        | 142,516 |       
|                                               | Payments on revolving credit facilities                                                    |                                                                                                                                            |                               | (27,299                                             | )      |         |        | (53,850 | )      |         |        | (97,267 | )     
|                                               | Borrowings under related party term debt                                                   |                                                                                                                                            |                               | 44,233                                              |        |         |        |        |        |         |        | 15,000  |       
|                                               | Principal payments on related party term debt                                              |                                                                                                                                            |                               | (7,845                                              | )      |         |        |        |        |         |        |        |       
|                                               | Proceeds from issuance of subordinated notes                                               |                                                                                                                                            |                               |                                                    |        |         |        | 55,237  |        |         |        |        |       
|                                               | Proceeds from issuance of subordinated notes allocable to
    warrants                     |                                                                                                                                            |                               |                                                    |        |         |        | 16,593  |        |         |        |        |       
|                                               | Principal payments on subordinated notes                                                   |                                                                                                                                            |                               | (3,481                                              | )      |         |        | (4,472  | )      |         |        |        |       
|                                               | Deferred loan fees                                                                         |                                                                                                                                            |                               | (3,267                                              | )      |         |        | (3,924  | )      |         |        | (854    | )     
|                                               | Proceeds from issuance of common and preferred stock, net                                  |                                                                                                                                            |                               | 17,751                                              |        |         |        | 1       |        |         |        |        |       
|                                               | Stock option and warrant transactions and other                                            |                                                                                                                                            |                               | 32                                                  |        |         |        | 21      |        |         |        |        |       
|                                               |                                                                                            |                                                                                                                                            |                               |                                                     |        |         |        |         |       
|                                               |                                                                                            |                                                                                                                                            |                               | Net cash provided by financing activities           |        |         | 2,845  |         |        |         | 30,541 |         |        |         | 71,790  |  
|                                               |                                                                                            |                                                                                                                                            |                               |                                                     |        |         |        |         |       
|NET INCREASE IN CASH AND CASH EQUIVALENTS      |                                                                                            |                                                                                                                                            | 4,985                         |                                                     |        |         | 27,860 |         |        |         | 4,042  |        
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |                                                                                            |                                                                                                                                            | 37,975                        |                                                     |        |         | 10,115 |         |        |         | 6,073  |        
|                                               |                                                                                            |                                                                                                                                            |                               |                                                     |        |         |        |         |       
|CASH AND CASH EQUIVALENTS AT END OF YEAR       |                                                                                            | $                                                                                                                                          | 42,960                        |                                                     |        | $       | 37,975 |         |        | $       | 10,115 |        
|                                               |                                                                                            |                                                                                                                                            |                               |                                                     |        |         |        |         |       
|SUPPLEMENTAL DISCLOSURES:                      |                                                                                            |                                                                                                                                            |                               |                                                     |        |         |        |         |        |         |        |        
|                                               | Cash paid for interest                                                                     |                                                                                                                                            | $                             | 11,700                                              |        |         | $      | 8,000   |        |         | $      | 7,948   |       
|                                               | Cash paid for income taxes                                                                 |                                                                                                                                            | $                             | 1,561                                               |        |         | $      | 3,123   |        |         | $      | 675     |       
|                                               | Cash refund for income taxes                                                               |                                                                                                                                            | $                             | 16                                                  |        |         | $      | 928     |        |         | $      |        |       
|NON-CASH INVESTING AND FINANCING ACTIVITIES:   |                                                                                            |                                                                                                                                            |                               |                                                     |        |         |        |         |        |         |        |        
|                                               | Repayment of debt with proceeds of additional debt                                         |                                                                                                                                            | $                             | 25,573                                              |        |         | $      | 15,000  |        |         | $      | 14,069  |       
|                                               | Capital expenditures for property and equipment included in
    accrued liabilities        |                                                                                                                                            | $                             | 48                                                  |        |         | $      | 353     |        |         | $      | 778     |       
|                                               | Payment of deferred loan fees and warrant issuance with proceeds
    of subordinated notes |                                                                                                                                            | $                             |                                                    |        |         | $      | 8,905   |        |         | $      |        |       
|                                               | Exchange of debt for equity                                                                |                                                                                                                                            | $                             | 98,228                                              |        |         | $      |        |        |         | $      |        |       



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




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



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

hook-up




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



|           |  |      |    |   |      |  |    |      |  |  |    |  
|---------- |  | ---- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|           |  | 2005 |    |   | 2004 |  |    | 2003 | 
|           |  |      |    |   |      |  |    |      | 
|Customer A |  |      | 24 | % |      |  |   |      |  |  |   |  
|Customer B |  |      | 14 | % |      |  |   |      |  |  |   |  
|Customer C |  |      | 10 | % |      |  | 23 | %    |  |  | 1  | %
|Customer D |  |      | 9  | % |      |  | 36 | %    |  |  |   |  
|Customer E |  |      |   |   |      |  |   |      |  |  | 25 | %
|Customer F |  |      |   |   |      |  |   |      |  |  | 15 | %
|Customer G |  |      |   |   |      |  |   |      |  |  | 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

percentage-of percentage-of percentage-of






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



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




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







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





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

percentage-of






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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                 |  |   |      |  
|-------------------------------- |  | - | ---- | -
|Balance, December 31, 2003       |  | $ |     |  
|Reserve for contract receivables |  |   | 5.7  |  
|Write-off of receivables         |  |   | (   | )
|                                 |  |   |     
|Balance, December 31, 2004       |  |   | 5.7  |  
|Reserve for contract receivables |  |   | 1.7  |  
|Write-off of receivables         |  |   | (7.4 | )
|                                 |  |   |     
|Balance, December 31, 2005       |  | $ |     |  
|                                 |  |   |     



|                                        |  |   |      |  
|--------------------------------------- |  | - | ---- | -
|Balance, December 31, 2002              |  | $ |     |  
|Reserve for costs in excess of billings |  |   | 33.1 |  
|Write-off of receivables                |  |   | (   | )
|                                        |  |   |     
|Balance, December 31, 2003              |  | $ | 33.1 |  
|                                        |  |   |     



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



Sea Horizon Pacific Horizon 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

18-month




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

units-of


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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




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



|                                             |  |              |        |  |      |   |        |      |  |   |        | 
|-------------------------------------------- |  | ------------ | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                             |  | December 31, |       
|                                             |  |              |       
|                                             |  | 2005         |        |  | 2004 |   |        | 2003 | 
|                                             |  |              |        |  |      |   |        |      | 
|Cost of contract revenues                    |  | $            | 12,838 |  |      | $ | 12,444 |      |  | $ | 12,839 | 
|Selling, general and administrative expenses |  |              | 1,246  |  |      |   | 1,464  |      |  |   | 1,380  | 
|                                             |  |              |        |  |      |   |        |      | 
|                                             |  | $            | 14,084 |  |      | $ | 13,908 |      |  | $ | 14,219 | 
|                                             |  |              |        |  |      |   |        |      | 

units-of






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



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|                                                                                                                                           |                                 |                         |         |       |      |   |         |       |   |   |         |       |  
|------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------- | ----------------------- | ------- | ----- | ---- | - | ------- | ----- | - | - | ------- | ----- | -
|                                                                                                                                           |                                 | Year Ended December 31, |        
|                                                                                                                                           |                                 |                         |        
|                                                                                                                                           |                                 | 2005                    |         |       | 2004 |   |         | 2003  |  
|                                                                                                                                           |                                 |                         |         |       |      |   |         |       |  
|Net loss, as reported                                                                                                                      |                                 | $                       | (71,056 | )     |      | $ | (63,569 | )     |   | $ | (72,504 | )    
|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 |                                 |                         | (286    | )     |      |   | (987    | )     |   |   | (2,648  | )    
|                                                                                                                                           |                                 |                         |         |       |      |   |         |       |  
|Pro forma net loss                                                                                                                         |                                 | $                       | (71,342 | )     |      | $ | (64,556 | )     |   | $ | (74,940 | )    
|                                                                                                                                           |                                 |                         |         |       |      |   |         |       |  
|Earnings (loss) per share:                                                                                                                 |                                 |                         |         |       |      |   |         |       |   |   |         |      
|                                                                                                                                           | Basic and Diluted  as reported |                         | $       | (0.64 | )    |   | $       | (2.06 | ) |   | $       | (2.74 | )
|                                                                                                                                           |                                 |                         |         |       |      |   |         |       |  
|                                                                                                                                           | Basic and Diluted  pro forma   |                         | $       | (0.65 | )    |   | $       | (2.09 | ) |   | $       | (2.84 | )
|                                                                                                                                           |                                 |                         |         |       |      |   |         |       |  

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




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



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







72



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






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







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





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





| |                 
| | ----------------
| | Foreign Currency





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





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

,
Accounting Changes and Error Corrections  a
replacement of APB No. 20 and FAS No. 3


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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, |       
|                                      |  |              |       
|                                      |  | 2005         |        |  | 2004 |  
|                                      |  |              |        |  |      |  
|Completed contracts                   |  | $            | 2,419  |  |      | $ | 31,148 |  
|Contracts in progress(1)              |  |              | 30,458 |  |      |   | 45,185 |  
|Retention                             |  |              | 10,546 |  |      |   | 11,220 |  
|Less: Allowance for doubtful accounts |  |              |       |  |      |   | (5,692 | )
|                                      |  |              |        |  |      |  
|                                      |  | $            | 43,423 |  |      | $ | 81,861 |  
|                                      |  |              |        |  |      |  






|    |                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes receivables under certain contracts in progress related
    to work pursuant to contracts performed on a day rate basis for
    which we have no further performance obligations through the
    date of the billing.



|                                                                          |                                  |              |          |        |      |   |          |        |  
|------------------------------------------------------------------------- | -------------------------------- | ------------ | -------- | ------ | ---- | - | -------- | ------ | -
|                                                                          |                                  | December 31, |         
|                                                                          |                                  |              |         
|                                                                          |                                  | 2005         |          |        | 2004 |  
|                                                                          |                                  |              |          |        |      |  
|Costs incurred to date                                                    |                                  | $            | 397,352  |        |      | $ | 428,630  |       
|Estimated earnings to date                                                |                                  |              | 81,828   |        |      |   | 71,401   |       
|                                                                          |                                  |              |          |        |      |  
|                                                                          |                                  |              | 479,180  |        |      |   | 500,031  |       
|Less: Billings to date                                                    |                                  |              | (363,245 | )      |      |   | (452,781 | )     
|Less: Allowance for doubtful costs in excess of billings                  |                                  |              | (33,092  | )      |      |   | (33,092  | )     
|                                                                          |                                  |              |          |        |      |  
|                                                                          |                                  | $            | 82,843   |        |      | $ | 14,158   |       
|                                                                          |                                  |              |          |        |      |  
|Included in accompanying balance sheets under the following
    captions: |                                  |              |          |        |      |   |          |       
|                                                                          | Costs in excess of billings, net |              | $        | 90,229 |      |   | $        | 24,058 |  
|                                                                          | Billings in excess of costs      |              |          | (7,386 | )    |   |          | (9,900 | )
|                                                                          |                                  |              |          |        |      |  
|                                                                          |                                  | $            | 82,843   |        |      | $ | 14,158   |       
|                                                                          |                                  |              |          |        |      |  



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










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



|                                      |  |              |         |   |      |   |         |  
|------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                      |  | December 31, |        
|                                      |  |              |        
|                                      |  | 2005         |         |   | 2004 |  
|                                      |  |              |         |   |      |  
|Barges, vessels and related equipment |  | $            | 223,232 |   |      | $ | 222,036 |  
|Land and buildings                    |  |              | 19,694  |   |      |   | 19,642  |  
|Machinery and equipment               |  |              | 245     |   |      |   | 245     |  
|Office furniture and equipment        |  |              | 6,509   |   |      |   | 6,232   |  
|Leasehold improvements                |  |              | 4,192   |   |      |   | 4,213   |  
|                                      |  |              |         |   |      |  
|                                      |  |              | 253,872 |   |      |   | 252,368 |  
|Less-Accumulated depreciation         |  |              | (67,456 | ) |      |   | (53,564 | )
|                                      |  |              |         |   |      |  
|Property and equipment, net           |  | $            | 186,416 |   |      | $ | 198,804 |  
|                                      |  |              |         |   |      |  

Sea 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





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



|                           |  |              |        |  |      |   |        | 
|-------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                           |  | December 31, |       
|                           |  |              |       
|                           |  | 2005         |        |  | 2004 |  
|                           |  |              |        |  |      |  
|Capitalized dry-dock costs |  | $            | 15,770 |  |      | $ | 17,007 | 
|Prepaid loan fees          |  |              | 2,408  |  |      |   | 8,548  | 
|Deposits                   |  |              | 276    |  |      |   | 294    | 
|Other                      |  |              | 1,219  |  |      |   | 1,011  | 
|                           |  |              |        |  |      |  
|                           |  | $            | 19,673 |  |      | $ | 26,860 | 
|                           |  |              |        |  |      |  



|                               |  |              |       |  |      |   |       | 
|------------------------------ |  | ------------ | ----- |  | ---- | - | ----- | 
|                               |  | December 31, |      
|                               |  |              |      
|                               |  | 2005         |       |  | 2004 |  
|                               |  |              |       |  |      |  
|Payroll and other compensation |  | $            | 3,327 |  |      | $ | 3,758 | 
|Other                          |  |              | 3,290 |  |      |   | 5,423 | 
|                               |  |              |       |  |      |  
|                               |  | $            | 6,617 |  |      | $ | 9,181 | 
|                               |  |              |       |  |      |  



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



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |              |        |  |      |   |   | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------ |  | ---- | - | - | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | December 31,
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | 2005         |        |  | 2004
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |              |        |  |     
|Senior secured term loan A payable to Manchester Securities
    Corp. due in current monthly installments of $25, plus interest,
    maturing on March 31, 2007, collateralized by equity
    interests in our subsidiaries, cash securing the letter of
    credit under the IEC contract, accounts receivable, first or
    second mortgages on all vessels, second liens on marine
    facilities and Pemex claims and receivables. Interest payable
    10% in cash and 5% payable in-kind monthly. Refinanced
    March 9, 2006, see Note 15 |  | $            | 24,178 |  |      | $ |  | 
|Senior secured term loan B payable to Manchester Securities
    Corp. due March 31, 2007, collateralized by a secondary
    claim in the collateral of term loan A. Interest payable 8%
    in cash and 2% payable in-kind monthly. Refinanced March 9,
    2006, see Note 15                                                                                                                                                                                                                                                                     |  |              | 39,615 |  |      |   |  | 

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


|                                                                                                                                                                                                                                                                                                                                                             |  |              |         |  |      |   |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------- |  | ---- | - | ------- | 
|                                                                                                                                                                                                                                                                                                                                                             |  | December 31, |        
|                                                                                                                                                                                                                                                                                                                                                             |  |              |        
|                                                                                                                                                                                                                                                                                                                                                             |  | 2005         |         |  | 2004 |  
|                                                                                                                                                                                                                                                                                                                                                             |  |              |         |  |      |  
|Term loan payable to GE Capital Corporation of Tennessee
    (formerly with 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% (8.82% and
    6.81% at December 31, 2005 and 2004, respectively) |  |              | 27,857  |  |      |   | 30,714  | 
|Term loan payable to CIT Group due in 84 monthly principal
    installments of $500, plus interest, maturing March 31,
    2006, collateralized by mortgages on certain vessels. Interest
    at Libor plus 6.0% and 2.65%, respectively (10.12% and 4.75% at
    December 31, 2005 and 2004, respectively). Refinanced
    March 9, 2006, see Note 15       |  |              | 11,824  |  |      |   | 24,603  | 
|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% (6.29% and 4.46% at December 31, 2005
    and 2004, respectively)                           |  |              | 7,260   |  |      |   | 8,213   | 
|Term loan payable GE Capital Corporation (formerly with
    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% (7.75% and 5.75% at
    December 31, 2005 and 2004, respectively)            |  |              | 5,405   |  |      |   | 5,890   | 
|Term loan payable to Amegy Bank, N.A. (formerly Southwest Bank
    of Texas N.A.) (Amegy) due in 60 monthly principal
    installments of $15, plus interest, maturing November 1,
    2006, collateralized by the Sabine Pass marine base. Interest at
    Amegys prime rate (7.25% and 5.25% at December 31,
    2005 and 2004, respectively)             |  |              | 1,103   |  |      |   | 1,283   | 
|Other term debt                                                                                                                                                                                                                                                                                                                                              |  |              | 22      |  |      |   | 47      | 
|8% Subordinated Unsecured Notes due on March 31, 2010,
    interest payable in-kind quarterly                                                                                                                                                                                                                                                                |  |              | 12,845  |  |      |   |        | 
|16% Subordinated Secured Notes net of discount, interest
    payable in-kind quarterly                                                                                                                                                                                                                                                                       |  |              |        |  |      |   | 64,411  | 
|18% Subordinated Secured Notes net of discount, interest
    payable in-kind quarterly                                                                                                                                                                                                                                                                       |  |              |        |  |      |   | 24,556  | 
|Revolving credit facility to Southwest Bank of Texas N.A.
    (interest was 7.00% at December 31, 2004)                                                                                                                                                                                                                                                      |  |              |        |  |      |   | 21,000  | 
|Revolving credit facility to Southwest Bank of Texas N.A.
    (interest was 7.25% at December 31, 2004)                                                                                                                                                                                                                                                      |  |              |        |  |      |   | 6,300   | 
|Revolving credit facility to CIT Group (interest was 5.54% at
    December 31, 2004)                                                                                                                                                                                                                                                                         |  |              |        |  |      |   | 25,573  | 
|                                                                                                                                                                                                                                                                                                                                                             |  |              |         |  |      |  
|Total debt, net of discount                                                                                                                                                                                                                                                                                                                                  |  | $            | 130,109 |  |      | $ | 212,590 | 
|                                                                                                                                                                                                                                                                                                                                                             |  |              |         |  |      |  
|Current maturities of long-term debt                                                                                                                                                                                                                                                                                                                         |  | $            | 26,130  |  |      | $ | 42,243  | 
|                                                                                                                                                                                                                                                                                                                                                             |  |              |         |  |      |  
|Long-term debt, net of current maturities                                                                                                                                                                                                                                                                                                                    |  | $            | 27,340  |  |      | $ | 81,379  | 
|                                                                                                                                                                                                                                                                                                                                                             |  |              |         |  |      |  
|Related party term debt                                                                                                                                                                                                                                                                                                                                      |  | $            | 63,794  |  |      | $ |        | 
|                                                                                                                                                                                                                                                                                                                                                             |  |              |         |  |      |  
|Subordinated notes, net of discount                                                                                                                                                                                                                                                                                                                          |  | $            | 12,845  |  |      | $ | 88,968  | 
|                                                                                                                                                                                                                                                                                                                                                             |  |              |         |  |      |  

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




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













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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








|           |  |   |         | 
|---------- |  | - | ------- | 
|2006       |  | $ | 26,130  | 
|2007       |  |   | 10,689  | 
|2008       |  |   | 11,129  | 
|2009       |  |   | 11,199  | 
|2010       |  |   | 38,285  | 
|Thereafter |  |   | 32,677  | 
|           |  |   |        
|           |  | $ | 130,109 | 
|           |  |   |        



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



|         |              |                         |       |       |       |   |       |       |       |   |        |        |        |  
|-------- | ------------ | ----------------------- | ----- | ----- | ----- | - | ----- | ----- | ----- | - | ------ | ------ | ------ | -
|         |              | Year Ended December 31, |      
|         |              |                         |      
|         |              | 2005                    |       |       | 2004  |   |       | 2003  |      
|         |              |                         |       |       |       |   |       |       |      
|Current  |              |                         |       |       |       |   |       |       |       |   |        |       
|         | State        |                         | $     | 24    |       |   | $     | 10    |       |   | $      | 165    |       
|         | U.S. Federal |                         |       |      |       |   |       | (784  | )     |   |        |       |       
|         | Foreign      |                         |       | 3,022 |       |   |       | 2,877 |       |   |        | 1,308  |       
|         |              |                         |       |       |       |   |       |       |      
|         |              | Total current           |       |       | 3,046 |   |       |       | 2,103 |   |        |        | 1,473  |  
|         |              |                         |       |       |       |   |       |       |      
|Deferred |              |                         |       |       |       |   |       |       |       |   |        |       
|         | U.S. Federal |                         |       |      |       |   |       |      |       |   |        | (9,072 | )     
|         |              |                         |       |       |       |   |       |       |      
|         |              | Total deferred          |       |       |      |   |       |       |      |   |        |        | (9,072 | )
|         |              |                         |       |       |       |   |       |       |      
|         |              | $                       | 3,046 |       |       | $ | 2,103 |       |       | $ | (7,599 | )     
|         |              |                         |       |       |       |   |       |       |      



|              |  |                         |         |   |      |   |         |      |  |   |         |  
|------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|              |  | Year Ended December 31, |        
|              |  |                         |        
|              |  | 2005                    |         |   | 2004 |   |         | 2003 | 
|              |  |                         |         |   |      |   |         |      | 
|United States |  | $                       | (66,000 | ) |      | $ | (60,465 | )    |  | $ | (83,770 | )
|Foreign       |  |                         | (2,010  | ) |      |   | (1,001  | )    |  |   | 3,667   |  
|              |  |                         |         |   |      |   |         |      | 
|              |  | $                       | (68,010 | ) |      | $ | (61,466 | )    |  | $ | (80,103 | )
|              |  |                         |         |   |      |   |         |      | 

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                                     |  |                         |         |   |      |  |       |      |  |   |         |   |  |  |       |    |  |   |         |   |  |  |       |   
|---------------------------------------------------- |  | ----------------------- | ------- | - | ---- |  | ----- | ---- |  | - | ------- | - |  |  | ----- | -- |  | - | ------- | - |  |  | ----- | --
|                                                     |  | Year Ended December 31, |        
|                                                     |  |                         |        
|                                                     |  | 2005                    |         |   | 2004 |  |       | 2003 | 
|                                                     |  |                         |         |   |      |  |       |      | 
|Expense (benefit) computed at federal statutory rate |  | $                       | (23,123 | ) |      |  | (34.0 | )%   |  | $ | (20,898 | ) |  |  | (34.0 | )% |  | $ | (27,235 | ) |  |  | (34.0 | )%
|Increase (decrease) in provision from:               |  |                         |         |   |      |  |       |      |  |   |         |   |  |  |       |    |  |   |         |   |  |  |       |   
|State income tax net of federal benefit              |  |                         | 16      |   |      |  | 0.0   |      |  |   | 1       |   |  |  | 0.0   |    |  |   | 109     |   |  |  | 0.1   |   
|Foreign taxes                                        |  |                         | 3,706   |   |      |  | 5.4   |      |  |   | 3,217   |   |  |  | 5.2   |    |  |   | (275    | ) |  |  | (0.3  | ) 
|Foreign income inclusion/(exclusion)                 |  |                         | 211     |   |      |  | 0.3   |      |  |   | (2,071  | ) |  |  | (3.4  | )  |  |   | (40     | ) |  |  | (0.0  | ) 
|Nondeductible expenses                               |  |                         | 212     |   |      |  | 0.3   |      |  |   | 417     |   |  |  | 0.7   |    |  |   | 114     |   |  |  | 0.1   |   
|Research and development credit                      |  |                         |        |   |      |  |      |      |  |   | (486    | ) |  |  | (0.8  | )  |  |   | (3,421  | ) |  |  | (4.3  | ) 
|Alternative minimum tax credit refund                |  |                         |        |   |      |  |      |      |  |   | (784    | ) |  |  | (1.2  | )  |  |   |        |   |  |  |      |   
|Book/tax difference on debt for equity exchange      |  |                         | 1,675   |   |      |  | 2.5   |      |  |   |        |   |  |  |      |    |  |   |        |   |  |  |      |   
|Other                                                |  |                         | 297     |   |      |  | 0.4   |      |  |   | 378     |   |  |  | 0.6   |    |  |   |        |   |  |  |      |   
|Write-off of deferred tax assets                     |  |                         | 65,201  |   |      |  | 95.9  |      |  |   |        |   |  |  |      |    |  |   |        |   |  |  |      |   
|Change in deferred tax asset valuation allowance     |  |                         | (45,149 | ) |      |  | (66.3 | )    |  |   | 22,329  |   |  |  | 36.3  |    |  |   | 23,149  |   |  |  | 28.9  |   
|                                                     |  |                         |         |   |      |  |       |      |  |   |         |   |  |  |       |    |  |  
|                                                     |  | $                       | 3,046   |   |      |  | 4.5   | %    |  | $ | 2,103   |   |  |  | 3.4   | %  |  | $ | (7,599  | ) |  |  | (9.5  | )%
|                                                     |  |                         |         |   |      |  |       |      |  |   |         |   |  |  |       |    |  |  



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|              |                                          |              |   |        |      |   |   |         |  
|------------- | ---------------------------------------- | ------------ | - | ------ | ---- | - | - | ------- | -
|              |                                          | December 31, |  
|              |                                          |              |  
|              |                                          | 2005         |   |        | 2004 |  
|              |                                          |              |   |        |      |  
|Assets       |                                          |              |   |        |      |   |   |        
|              | Net operating loss carryforwards         |              | $ | 23,549 |      |   | $ | 59,781  |  
|              | Gain on asset sales                      |              |   |       |      |   |   | 967     |  
|              | Accrued expense not currently deductible |              |   | 980    |      |   |   | 1,494   |  
|              | Contributions carryover                  |              |   | 69     |      |   |   | 64      |  
|              | Research and development credit          |              |   |       |      |   |   | 3,907   |  
|              | Allowance for doubtful accounts          |              |   | 11,251 |      |   |   | 13,187  |  
|              | Alternative minimum tax carryforwards    |              |   | 133    |      |   |   | 133     |  
|              | Foreign tax credit                       |              |   | 1,495  |      |   |   |        |  
|              | Other                                    |              |   | 1,097  |      |   |   | 460     |  
|              |                                          |              |   |        |      |  
|              | Total gross deferred tax assets          |              |   | 38,574 |      |   |   | 79,993  |  
|Liabilities  |                                          |              |   |        |      |   |   |        
|              | Book/tax depreciation difference         |              |   | 38,245 |      |   |   | 34,515  |  
|              |                                          |              |   |        |      |  
|              | Net deferred tax assets                  |              |   | 329    |      |   |   | 45,478  |  
|              | Valuation allowance                      |              |   | (329   | )    |   |   | (45,478 | )
|              |                                          |              |   |        |      |  
|              |                                          | $            |  |        |      | $ |  |        
|              |                                          |              |   |        |      |  





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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






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



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



Gulf Horizon, Gulf Horizon






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



|           |  |   |       | 
|---------- |  | - | ----- | 
|2006       |  | $ | 2,729 | 
|2007       |  |   | 2,471 | 
|2008       |  |   | 2,268 | 
|2009       |  |   | 136   | 
|2010       |  |   | 136   | 
|Thereafter |  |   | 96    | 
|           |  |   |      
|           |  | $ | 7,836 | 
|           |  |   |      



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






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





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





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



|                                                                    |                    |                         |        |        |      |   |       |      |  |   |     |     | 
|------------------------------------------------------------------- | ------------------ | ----------------------- | ------ | ------ | ---- | - | ----- | ---- |  | - | --- | --- | 
|                                                                    |                    | Year Ended December 31, |       
|                                                                    |                    |                         |       
|                                                                    |                    | 2005                    |        |        | 2004 |   |       | 2003 | 
|                                                                    |                    |                         |        |        |      |   |       |      | 
|Exchange Transaction                                                |                    |                         |        |        |      |   |       |      |  |   |     |    
|                                                                    | Deferred loan fees |                         | $      | 5,475  |      |   | $     |     |  |   | $   |    | 
|                                                                    | Debt discount      |                         |        | 16,400 |      |   |       |     |  |   |     |    | 
|                                                                    |                    |                         |        |        |      |   |       |      | 
|                                                                    |                    |                         | 21,875 |        |      |   |      |      |  |   |    |    
|                                                                    |                    |                         |        |        |      |   |       |      | 
|Prepayments on 18% Subordinated Notes                               |                    |                         |        |        |      |   |       |      |  |   |     |    
|                                                                    | Deferred loan fees |                         |        | 759    |      |   |       | 800  |  |   |     |    | 
|                                                                    | Debt discount      |                         |        | 504    |      |   |       | 754  |  |   |     |    | 
|                                                                    |                    |                         |        |        |      |   |       |      | 
|                                                                    |                    |                         | 1,263  |        |      |   | 1,554 |      |  |   |    |    
|                                                                    |                    |                         |        |        |      |   |       |      | 
|Early payment of related party debt                                 |                    |                         |        |        |      |   |       |      |  |   |     |    
|                                                                    | Deferred loan fees |                         |        |       |      |   |       | 165  |  |   |     |    | 
|                                                                    |                    |                         |        |        |      |   |       |      | 
|Early payment of debt due to the refinancing of the Sea
    Horizon |                    |                         |        |        |      |   |       |      |  |   |     |    
|                                                                    | Prepayment penalty |                         |        |       |      |   |       |     |  |   |     | 569 | 
|                                                                    | Deferred loan fees |                         |        |       |      |   |       |     |  |   |     | 299 | 
|                                                                    |                    |                         |        |        |      |   |       |      | 
|                                                                    |                    |                         |       |        |      |   |      |      |  |   | 868 |    
|                                                                    |                    |                         |        |        |      |   |       |      | 
|                                                                    |                    | $                       | 23,138 |        |      | $ | 1,719 |      |  | $ | 868 |    
|                                                                    |                    |                         |        |        |      |   |       |      | 

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




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



|                           |  |   |        |  
|-------------------------- |  | - | ------ | -
|Balance, December 31, 2002 |  | $ |       |  
|Severance expense          |  |   | 382    |  
|Payments                   |  |   | (151   | )
|                           |  |   |       
|Balance, December 31, 2003 |  |   | 231    |  
|Severance expense          |  |   | 2,266  |  
|Payments                   |  |   | (168   | )
|Adjustments                |  |   | (131   | )
|                           |  |   |       
|Balance, December 31, 2004 |  |   | 2,198  |  
|Severance expense          |  |   | 443    |  
|Payments                   |  |   | (2,534 | )
|Adjustments                |  |   |       |  
|                           |  |   |       
|Balance, December 31, 2005 |  | $ | 107    |  
|                           |  |   |       



|    |                       
|--- | ----------------------
|10. | EMPLOYEE BENEFIT PLAN:





|                        |  |                   |     |  
|----------------------- |  | ----------------- | --- | -
|Years of Vested Service |  | Vested Percentage
|                        |  |                  
|Less than 2             |  |                   | 0   | %
|2                       |  |                   | 20  |  
|3                       |  |                   | 40  |  
|4                       |  |                   | 60  |  
|5                       |  |                   | 80  |  
|6                       |  |                   | 100 |  





|    |                      
|--- | ---------------------
|11. | STOCKHOLDERS EQUITY:



| |                  
| | -----------------
| | Authorized Shares



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |          
| | ---------
| | Par Value

14c-2(b)




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



|                                                                 |  |      |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                 |  | 2005 |         |   | 2004 |   |         | 2003 | 
|                                                                 |  |      |         |   |      |   |         |      | 
|Net loss                                                         |  | $    | (71,056 | ) |      | $ | (63,569 | )    |  | $ | (72,504 | )
|Average common shares outstanding                                |  |      | 110,434 |   |      |   | 30,889  |      |  |   | 26,429  |  
|                                                                 |  |      |         |   |      |   |         |      | 
|Basic earnings (loss) per share                                  |  | $    | (0.64   | ) |      | $ | (2.06   | )    |  | $ | (2.74   | )
|                                                                 |  |      |         |   |      |   |         |      | 
|Average common and dilutive potential common shares outstanding: |  |      |         |   |      |   |         |      |  |   |         |  
|Average common shares outstanding                                |  |      | 110,434 |   |      |   | 30,889  |      |  |   | 26,429  |  
|Assumed exercise of stock options                                |  |      |        |   |      |   |        |      |  |   |        |  
|                                                                 |  |      |         |   |      |   |         |      | 
|                                                                 |  |      | 110,434 |   |      |   | 30,889  |      |  |   | 26,429  |  
|                                                                 |  |      |         |   |      |   |         |      | 
|Diluted earnings (loss) per share                                |  | $    | (0.64   | ) |      | $ | (2.06   | )    |  | $ | (2.74   | )
|                                                                 |  |      |         |   |      |   |         |      | 



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                 
| | ----------------
| | Restricted Stock





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





| |                            
| | ---------------------------
| | Exchange of Debt for Equity







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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


Mandatorily Redeemable
Preferred Stock




00-27, 00-27), 00-27, paid-in




| |                                  
| | ---------------------------------
| | Private Placement of Common Stock





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





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



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|                                 |  |        |            |               |  |   |      | 
|-------------------------------- |  | ------ | ---------- | ------------- |  | - | ---- | 
|                                 |  |        |            | Weighted     
|                                 |  | Shares |            | Average Price
|                                 |  |        |            |              
|Outstanding at December 31, 2002 |  |        | 2,718,220  |               |  | $ | 8.59 | 
|Granted                          |  |        | 885,668    |               |  | $ | 3.58 | 
|Forfeited                        |  |        | (181,204   | )             |  | $ | 7.77 | 
|                                 |  |        |            |               |  |   |      | 
|Outstanding at December 31, 2003 |  |        | 3,422,684  |               |  | $ | 7.34 | 
|Granted                          |  |        | 115,000    |               |  | $ | 1.51 | 
|Forfeited                        |  |        | (276,454   | )             |  | $ | 8.42 | 
|                                 |  |        |            |               |  |   |      | 
|Outstanding at December 31, 2004 |  |        | 3,261,230  |               |  | $ | 7.04 | 
|Forfeited                        |  |        | (1,135,630 | )             |  | $ | 6.47 | 
|                                 |  |        |            |               |  |   |      | 
|Outstanding at December 31, 2005 |  |        | 2,125,600  |               |  | $ | 7.34 | 
|                                 |  |        |            |               |  |   |      | 



|                         |  |                     |           |                  |  |                     |      |             |  |                  |       |  |  |  |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ---------------- |  | ------------------- | ---- | ----------- |  | ---------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                         |  | 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         |  |                     | 108,900   |                  |  |                     | 5.14 |             |  | $                | 18.57 |  |  |  | 108,900   |  |  | $ | 18.57 | 
|$8.30 to $15.79          |  |                     | 435,011   |                  |  |                     | 2.79 |             |  | $                | 12.64 |  |  |  | 435,011   |  |  | $ | 12.64 | 
|$4.30 to $8.29           |  |                     | 1,024,840 |                  |  |                     | 5.15 |             |  | $                | 6.19  |  |  |  | 1,015,838 |  |  | $ | 6.20  | 
|$2.47 to $4.29           |  |                     | 486,849   |                  |  |                     | 7.26 |             |  | $                | 3.45  |  |  |  | 327,816   |  |  | $ | 3.44  | 
|$0.80 to $2.46           |  |                     | 70,000    |                  |  |                     | 8.58 |             |  | $                | 0.80  |  |  |  | 70,000    |  |  | $ | 0.80  | 
|                         |  |                     |           |                  |  |                     |      |             |  |                  |       |  |  |  |           |  |  |   |       | 
|$0.80 to $23.28          |  |                     | 2,125,600 |                  |  |                     | 5.26 |             |  | $                | 7.34  |  |  |  | 1,957,565 |  |  | $ | 7.67  | 
|                         |  |                     |           |                  |  |                     |      |             |  |                  |       |  |  |  |           |  |  |   |       | 





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



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|    |                            
|--- | ---------------------------
|12. | RELATED PARTY TRANSACTIONS:



|                         |  |      |      |  |      |   |      |      |  |   |      | 
|------------------------ |  | ---- | ---- |  | ---- | - | ---- | ---- |  | - | ---- | 
|                         |  | 2005 |      |  | 2004 |   |      | 2003 | 
|                         |  |      |      |  |      |   |      |      | 
|Amount billed to Horizon |  | $    | 15.3 |  |      | $ | 10.3 |      |  | $ | 17.1 | 
|Amount paid to Odyssea   |  | $    | 12.9 |  |      | $ | 7.9  |      |  | $ | 20.2 | 







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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                |  |              |             |             |                 |  |      |  
|------------------------------- |  | ------------ | ----------- | ----------- | --------------- |  | ---- | -
|                                |  |              |             | % of        |                
|                                |  |              |             | Outstanding |                
|                                |  | Total        |             |             | Common Stock    | 
|                                |  | Shares of    |             |             | on December 31, | 
|                                |  | Common Stock |             |             | 2005            | 
|                                |  |              |             |             |                 | 
|Elliott Entities                |  |              | 250,152,981 |             |                 |  | 32.9 | %
|Miller                          |  |              | 133,821,916 |             |                 |  | 17.6 | %
|Falcon                          |  |              | 80,014,385  |             |                 |  | 10.5 | %
|Riley                           |  |              | 65,315,211  |             |                 |  | 8.6  | %
|Highland                        |  |              | 56,083,170  |             |                 |  | 7.4  | %
|Other Subordinated Note holders |  |              | 63,633,509  |             |                 |  | 8.4  | %
|                                |  |              |             |             |                 | 
|                                |  |              | 649,021,172 |             |                 |  | 85.5 | %
|                                |  |              |             |             |                 | 







|                 |  |        |      | 
|---------------- |  | ------ | ---- | 
|                 |  | Amount |     
|                 |  |        |     
|Elliott Entities |  | $      | 4.6  | 
|Miller           |  |        | 3.4  | 
|Falcon           |  |        | 4.8  | 
|                 |  |        |     
|                 |  | $      | 12.8 | 
|                 |  |        |     

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |                        
|--- | -----------------------
|13. | GEOGRAPHIC INFORMATION:



|                 |                               |                         |   |       |       |  |   |       |       |  |   |       |       | 
|---------------- | ----------------------------- | ----------------------- | - | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                 |                               | Year Ended December 31, |  
|                 |                               |                         |  
|                 |                               | 2005                    |   |       | 2004  |  |   | 2003  |      
|                 |                               |                         |   |       |       |  |   |       |      
|Revenues:        |                               |                         |   |       |       |  |   |       |       |  |   |      
|                 | Domestic                      |                         | $ | 180.2 |       |  | $ | 73.0  |       |  | $ | 201.7 |      
|                 | Latin America                 |                         |   | 33.3  |       |  |   | 58.2  |       |  |   | 3.9   |      
|                 | West Africa                   |                         |   | 76.8  |       |  |   | 17.4  |       |  |   | 16.2  |      
|                 | Southeast Asia/ Mediterranean |                         |   | 34.7  |       |  |   | 105.6 |       |  |   | 48.1  |      
|                 | Other                         |                         |   |      |       |  |   |      |       |  |   | 0.4   |      
|                 |                               |                         |   |       |       |  |   |       |      
|                 |                               | Total                   |   | $     | 325.0 |  |   | $     | 254.2 |  |   | $     | 270.3 | 
|                 |                               |                         |   |       |       |  |   |       |      
|Gross Profit(1): |                               |                         |   |       |       |  |   |       |       |  |   |      
|                 | Domestic                      |                         | $ | 49.0  |       |  | $ | (6.6  | )     |  | $ | 0.8   |      
|                 | Latin America                 |                         |   | 0.4   |       |  |   | 11.5  |       |  |   | (0.7  | )    
|                 | West Africa                   |                         |   | 7.9   |       |  |   | 0.9   |       |  |   | (1.4  | )    
|                 | Southeast Asia/ Mediterranean |                         |   | (0.5  | )     |  |   | 22.0  |       |  |   | 8.1   |      
|                 | Other                         |                         |   |      |       |  |   |      |       |  |   | (0.3  | )    
|                 |                               |                         |   |       |       |  |   |       |      
|                 |                               | Total                   |   | $     | 56.8  |  |   | $     | 27.8  |  |   | $     | 6.5   | 
|                 |                               |                         |   |       |       |  |   |       |      

|                      |                              |                    |   |       |       |  |   |       |       | 
|--------------------- | ---------------------------- | ------------------ | - | ----- | ----- |  | - | ----- | ----- | 
|                      |                              | As of December 31, |  
|                      |                              |                    |  
|                      |                              | 2005               |   |       | 2004  | 
|                      |                              |                    |   |       |       | 
|Long-lived assets(2): |                              |                    |   |       |       |  |   |      
|                      | Domestic                     |                    | $ | 109.6 |       |  | $ | 119.9 |      
|                      | Latin America                |                    |   | 0.1   |       |  |   | 0.1   |      
|                      | West Africa                  |                    |   | 58.2  |       |  |   | 18.8  |      
|                      | Southeast Asia/Mediterranean |                    |   | 18.5  |       |  |   | 60.0  |      
|                      |                              |                    |   |       |       | 
|                      |                              | Total              |   | $     | 186.4 |  |   | $     | 198.8 | 
|                      |                              |                    |   |       |       | 






|    |                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Gross profit for each geographic segment includes costs incurred
    related to idle and stacked equipment.                                                                                                                                                                                                                                                                  
|   
|(2) | Property and equipment includes vessels, property and related
    marine equipment. Amounts reflect the location of the assets at
    December 31, 2005 and 2004. 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.



|    |                                             
|--- | --------------------------------------------
|14. | QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):



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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|                                                      |                   |                                        |         |        |         |   |         |              |       |   |             |         |       |   |         |         |       |  
|----------------------------------------------------- | ----------------- | -------------------------------------- | ------- | ------ | ------- | - | ------- | ------------ | ----- | - | ----------- | ------- | ----- | - | ------- | ------- | ----- | -
|                                                      |                   | Quarter Ended                          |        
|                                                      |                   |                                        |        
|                                                      |                   | March 31                               |         |        | June 30 |   |         | September 30 |       |   | December 31 |        
|                                                      |                   |                                        |         |        |         |   |         |              |       |   |             |        
|2005                                                  |                   |                                        |         |        |         |   |         |              |       |   |             |         |       |   |         |        
|Contract revenues                                     |                   | $                                      | 37,346  |        |         | $ | 70,504  |              |       | $ | 92,805      |         |       | $ | 124,389 |        
|Gross profit(1)                                       |                   |                                        | 2,596   |        |         |   | 9,124   |              |       |   | 20,980      |         |       |   | 24,064  |        
|Operating income (loss)(1)(2)                         |                   |                                        | (2,972  | )      |         |   | 419     |              |       |   | 8,838       |         |       |   | 15,585  |        
|Net income (loss)(1)(2)(3)(4)                         |                   |                                        | (15,473 | )      |         |   | (27,738 | )            |       |   | 3,080       |         |       |   | (30,925 | )      
|                                                      |                   |                                        |         |        |         |   |         |              |       |   |             |        
|EARNINGS (LOSS) PER SHARE:                            |                   |                                        |         |        |         |   |         |              |       |   |             |         |       |   |         |        
|                                                      |                   | Net income (loss) per share  basic    |         | $      | (0.48   | ) |         | $            | (0.61 | ) |             | $       | 0.03  |   |         | $       | (0.11 | )
|                                                      |                   | Net income (loss) per share  diluted  |         | $      | (0.48   | ) |         | $            | (0.61 | ) |             | $       | 0.00  |   |         | $       | (0.11 | )
|Shares used in computing net income (loss) per share: |                   |                                        |         |        |         |   |         |              |       |   |             |         |       |   |         |        
|                                                      | Basic             |                                        |         | 32,219 |         |   |         | 45,510       |       |   |             | 92,323  |       |   |         | 269,276 |      
|                                                      | Diluted           |                                        |         | 32,219 |         |   |         | 45,510       |       |   |             | 649,785 |       |   |         | 269,276 |      
|2004                                                  |                   |                                        |         |        |         |   |         |              |       |   |             |         |       |   |         |        
|Contract revenues                                     |                   | $                                      | 42,483  |        |         | $ | 44,932  |              |       | $ | 94,600      |         |       | $ | 72,194  |        
|Gross profit (loss)(5)                                |                   |                                        | (124    | )      |         |   | (1,031  | )            |       |   | 15,940      |         |       |   | 13,033  |        
|Operating loss(5)(6)(7)                               |                   |                                        | (5,965  | )      |         |   | (9,032  | )            |       |   | (13,285     | )       |       |   | (5,908  | )      
|Net loss(5)(6)(7)(8)                                  |                   |                                        | (10,698 | )      |         |   | (16,195 | )            |       |   | (23,127     | )       |       |   | (13,549 | )      
|                                                      |                   |                                        |         |        |         |   |         |              |       |   |             |        
|LOSS PER SHARE:                                       |                   |                                        |         |        |         |   |         |              |       |   |             |         |       |   |         |        
|                                                      |                   | Net loss per share  basic and diluted |         | $      | (0.39   | ) |         | $            | (0.51 | ) |             | $       | (0.72 | ) |         | $       | (0.42 | )
|Shares used in computing net loss per share:          |                   |                                        |         |        |         |   |         |              |       |   |             |         |       |   |         |        
|                                                      | Basic and Diluted |                                        |         | 27,656 |         |   |         | 31,831       |       |   |             | 31,945  |       |   |         | 32,099  |      






|    |                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes a pretax $0.7 million impairment loss on our
    inventory of production platforms included in cost of contract
    revenues during the fourth quarter of 2005.                                                                                                                                            
|   
|(2) | Includes a pretax $1.7 million reserve for the settlement
    of the Williams claim during the second quarter of 2005 and a
    $2.3 million impairment loss on assets held for sale during
    the third quarter of 2005.                                                                                          
|   
|(3) | Includes a pretax loss on debt extinguishment of
    $23.1 million, primarily related to the Exchange
    Transaction during the second quarter of 2005, and the
    amortization of the $40.0 million debt discount for the
    beneficial conversion feature of our Series B Preferred
    Stock in December 2005.
|   
|(4) | Includes a $0.3 million valuation allowance to fully offset
    the net deferred tax asset at December 31, 2005.                                                                                                                                                                                                    
|   
|(5) | Includes a pretax $6.4 million impairment loss on our
    inventory of production platforms included in cost of contract
    revenues during the fourth quarter of 2004.                                                                                                                                            
|   
|(6) | Includes a pretax $20.3 million impairment loss on
    property, equipment and intangibles for the Gulf Horizondue to a fire recorded during the third quarter of 2004.                                                                                                                                             

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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(7) | Includes a pretax $5.7 million reserve for settlement of
    the Iroquois litigation and claims, $2.1 million impairment
    loss on property, equipment and intangibles and
    $3.3 million loss on assets held for sale during the fourth
    quarter of 2004.
|   
|(8) | Includes a $22.3 million valuation allowance to fully
    offset the net deferred tax asset recorded during 2004.                                                                                                                                                



|    |                   
|--- | ------------------
|15. | SUBSEQUENT EVENTS:

Texas Horizon


Gulf Horizon




(1-for


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HORIZON OFFSHORE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


14c-2(b)


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SIGNATURES






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



| |     |                    
| | --- | -------------------
| | By: | /s/ RONALD D. MOGEL

| |                        
| | -----------------------
| |                        
| | Ronald D. Mogel        
| | Vice President and     
| | Chief Financial Officer





|                                         |  |                                                 |  |                |  | 
|---------------------------------------- |  | ----------------------------------------------- |  | -------------- |  | 
|Signature                                |  | Title                                           |  | Date          
|                                         |  |                                                 |  |               
|                                        
|/s/ DAVID W. SHARPDavid W. Sharp         |  | President, Chief Executive Officer and Director |  | March 14, 2006
|                                        
|/s/ RONALD D. MOGELRonald D. Mogel       |  | Vice President and Chief Financial Officer      |  | March 14, 2006
|                                        
|/s/ JOHN T. MILLSJohn T. Mills           |  | Chairman of the Board                           |  | March 14, 2006
|                                        
|/s/ CHARLES O. BUCKNERCharles O. Buckner |  | Director                                        |  | March 14, 2006
|                                        
|/s/ KEN R. LESUERKen R. LeSuer           |  | Director                                        |  | March 14, 2006
|                                        
|/s/ RAYMOND L. STEELERaymond L. Steele   |  | Director                                        |  | March 14, 2006

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##### Table of Contents






INDEX TO EXHIBITS


|        |    |    |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | -- | -- |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |    |  |  
|Number  |    |    |  |  
|        |    |    |  |  
|        | 4  | .1 |  |  |  | Amended and Restated Certificate of Incorporation of the Company
    (Incorporated by reference to the Companys Current Report
    on Form 8-K filed September 19, 2005)                                                                                                                                                                                                                                                                                                                                                    
|        | 4  | .2 |  |  |  | Bylaws of the Company (Incorporated by reference to the
    Companys Current Report on Form 8-K filed
    September 19, 2005)                                                                                                                                                                                                                                                                                                                                                                                               
|        | 4  | .3 |  |  |  | Specimen Common Stock certificate (Incorporated by reference to
    the Companys Registration Statement on
    Form S-1  Registration Statement
    No. 333-43965)                                                                                                                                                                                                                                                                                                                                                         
|        | 4  | .4 |  |  |  | Certificate of Amendment to the Amended and Restated Certificate
    of Incorporation of the Company (Incorporated by reference to
    the Companys Current Report on Form 8-K filed
    December 12, 2005)                                                                                                                                                                                                                                                                                                                 
|        | 4  | .6 |  |  |  | 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 (Incorporated by reference to the Companys Annual
    Report on Form 10-K for the year ended December 31,
    2003)
|        | 4  | .7 |  |  |  | Amended and Restated Registration Rights Agreement, dated as of
    December 19, 2005, among the Company and the initial
    holders named therein (Incorporated by reference to the
    Companys Current Report on Form 8-K filed
    December 22, 2005)                                                                                                                                                                                                                                                                   
|        | 4  | .8 |  |  |  | Form of Subscription and Registration Rights Agreement
    (Incorporated by reference to the Companys Current Report
    on Form 8-K filed December 22, 2005)                                                                                                                                                                                                                                                                                                                                                               
|        | 10 | .1 |  |  |  | Loan Agreement dated June 29, 2001, between Horizon
    Vessels, Inc. and General Electric Capital Corporation
    (Incorporated by reference to the Companys Quarterly
    Report on Form 10-Q for the quarter ended June 30,
    2001)                                                                                                                                                                                                                                                                                    
|        | 10 | .2 |  |  |  | Loan Agreement dated June 30, 2003, between Horizon Vessels
    International, Ltd., as borrower and Boeing Capital Corporation,
    as lender (Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 2003)                                                                                                                                                                                                                                                        
|        | 10 | .3 |  |  |  | First Amendment to Loan Agreement dated as of March 10,
    2004, among Horizon Vessels International, Ltd. and Boeing
    Capital Corporation (Incorporated by reference to the
    Companys Annual Report on Form 10-K for the year
    ended December 31, 2003)                                                                                                                                                                                                                                                          
|        | 10 | .4 |  |  |  | Second Amendment to Loan Agreement, dated as of October 29,
    2004, among Horizon Vessels International, Ltd. and General
    Electric Capital Corporation of Tennessee (Incorporated by
    reference to the Companys Current Report on Form 8-K
    filed November 5, 2004)                                                                                                                                                                                                                                             
|        | 10 | .5 |  |  |  | Third Amendment to Loan Agreement, dated March 31, 2005, by
    and between Horizon Vessels International, Ltd. and General
    Electric Capital Corporation of Tennessee (Incorporated by
    reference to the Companys Current Report on Form 8-K
    filed April 5, 2005)                                                                                                                                                                                                                                                
|        | 10 | .6 |  |  |  | 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 (Incorporated by reference to the Companys
    Annual Report on Form 10-K for the year ended
    December 31, 2003)                                                                                                                                                                                               
|        | 10 | .7 |  |  |  | First Amendment to Amended and Restated Loan Agreement, dated as
    of November 4, 2004, among Horizon Vessels, Inc., Horizon
    Offshore, Inc., Horizon Offshore Contractors, Inc. and
    SouthTrust Bank (Incorporated by reference to the Companys
    Current Report on Form 8-K filed November 5, 2004)                                                                                                                                                                                                             
|        | 10 | .8 |  |  |  | Second Amendment to Amended and Restated Loan Agreement, dated
    March 31, 2005, by and among the Company, Horizon Vessels,
    Inc., Horizon Offshore Contractors, Inc., and Wachovia Bank,
    National Association (as successor to SouthTrust Bank)
    (Incorporated by reference to the Companys Current Report
    on Form 8-K filed April 5, 2005)                                                                                                                                                                

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##### Table of Contents



|        |    |     |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- | -- | --- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |  
|Number  |    |     |  |  
|        |    |     |  |  
|        | 10 | .9  |  |  |  | Term Loan, Guaranty and Security Agreement, dated as of
    February 17, 2006, between General Electric Capital
    Corporation, as lender, Horizon Vessels, Inc., as borrower and
    Horizon Offshore, Inc., as Guarantor (Incorporated by reference
    to the Companys Current Report on Form 8-K filed
    February 17, 2006)                                                                                                                                                                                        
|        | 10 | .10 |  |  |  | Amended and Restated Purchase Agreement, dated as of
    April 30, 2005, among the Company, the guarantors listed on
    the signature pages thereto, the holders of the Companys
    16% Subordinated Secured Notes due March 31, 2007
    listed on the signature pages thereto and each other person that
    may hereafter become a registered holder of the
    16% Subordinated Secured Notes due March 31, 2007
    (Incorporated by reference to the Companys Current Report
    on Form 8-K filed June 16, 2005)
|        | 10 | .11 |  |  |  | Amended and Restated Purchase Agreement, dated as of
    April 30, 2005, among the Company, the guarantors listed on
    the signature pages thereto, the holders of the Companys
    18% Subordinated Secured Notes due March 31, 2007
    listed on the signature pages thereto and each other person that
    may hereafter become a registered holder of the
    18% Subordinated Secured Notes due March 31, 2007
    (Incorporated by reference to the Companys Current Report
    on Form 8-K filed June 16, 2005)
|        | 10 | .12 |  |  |  | Recapitalization Letter Agreement, dated as of October 29,
    2004, by and among Horizon Offshore, Inc. and the holders of
    subordinated notes specified therein (Incorporated by reference
    to the Companys Current Report on Form 8-K filed
    November 5, 2004)                                                                                                                                                                                                                                                
|        | 10 | .13 |  |  |  | Recapitalization Letter Agreement, dated March 31, 2005, by
    and among the Company and the holders of the 16% and
    18% Subordinated Secured Notes due March 31, 2007 and
    Series A Redeemable Participating Preferred Stock
    (Incorporated by reference to the Companys Current Report
    on Form 8-K filed April 5, 2005)                                                                                                                                                                                   
|        | 10 | .14 |  |  |  | Form of Indemnity Agreement by and between the Company and each
    of its directors (Incorporated by reference to the
    Companys Registration Statement on
    Form S-1  Registration Statement
    No. 333-43965)                                                                                                                                                                                                                                                                                                    
|        | 10 | .15 |  |  |  | Indemnity Agreement, made as of April 27, 2005 and
    effective as of April 30, 2005, by and between the Company
    and David W. Sharp (Incorporated by reference to the
    Companys Current Report on Form 8-K filed
    April 27, 2005)                                                                                                                                                                                                                                                                              
|        | 10 | .16 |  |  |  | Employment Agreement, dated July 6, 2005 between the
    Company and Ronald D. Mogel (Incorporated by reference to
    the Companys Current Report on Form 8-K filed
    July 7, 2005)*                                                                                                                                                                                                                                                                                                                                   
|        | 10 | .17 |  |  |  | Employment Agreement, dated July 6, 2005 between the
    Company and William B. Gibbens, III (Incorporated by
    reference to the Companys Current Report on Form 8-K
    filed July 7, 2005)*                                                                                                                                                                                                                                                                                                                           
|        | 10 | .18 |  |  |  | Employment Agreement, dated July 6, 2005 between the
    Company and George G. Reuter (Incorporated by reference to
    the Companys Current Report on Form 8-K filed
    July 7, 2005)*                                                                                                                                                                                                                                                                                                                                  
|        | 10 | .19 |  |  |  | Employment Agreement, dated July 6, 2005 between the
    Company and David W. Sharp (Incorporated by reference to
    the Companys Current Report on Form 8-K filed
    July 7, 2005)*                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .20 |  |  |  | The Companys 1998 Stock Incentive Plan (Incorporated by
    reference to the Companys Registration Statement on
    Form S-1  Registration Statement
    No. 333-43965)*                                                                                                                                                                                                                                                                                                                                                
|        | 10 | .21 |  |  |  | Form of Stock Option Agreement under the Companys 1998
    Stock Incentive Plan (Incorporated by reference to the
    Companys Registration Statement on
    Form S-1  Registration Statement
    No. 333-43965)*                                                                                                                                                                                                                                                                                                       
|        | 10 | .22 |  |  |  | Horizon Offshore, Inc. 2002 Stock Incentive Plan (Incorporated
    by reference to Exhibit A to the Companys Definitive
    Schedule 14A filed April 8, 2002)*                                                                                                                                                                                                                                                                                                                                                            
|        | 10 | .23 |  |  |  | Horizon Offshore, Inc. 2005 Stock Incentive Plan (Incorporated
    by reference to Exhibit A to the Companys Definitive
    Schedule 14A filed August 22, 2005)*                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .24 |  |  |  | Horizon Offshore, Inc. 2005 Annual Incentive Bonus Plan
    (Incorporated by reference to the Companys Current Report
    on Form 8-K filed July 20, 2005)*                                                                                                                                                                                                                                                                                                                                                               
|        | 10 | .25 |  |  |  | Form of Restricted Stock Agreement under the 2005 Stock
    Incentive Plan (Incorporated by reference to the Companys
    Current Report on Form 8-K filed September 19, 2005)*                                                                                                                                                                                                                                                                                                                                           

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##### Table of Contents



|        |    |     |  |   |  |                                                                                                                                                                                                                                                                                              
|------- | -- | --- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |  
|Number  |    |     |  |  
|        |    |     |  |  
|        | 10 | .26 |  |  |  | Purchase and Sale Agreement of Sea Wrangler, dated as of
    January 31, 2006, by and between Louisiana
    Pipelaying I, L.L.C. and Horizon Vessels, Inc.
    (Incorporated by reference to the Companys Current Report
    on Form 8-K filed February 6, 2006)                            
|        | 10 | .27 |  |  |  | Loan Agreement among The CIT Group/Equipment Financing Inc., as
    agent, and the other lenders specified therein, and Horizon
    Vessels, Inc, as borrower, dated as of March 9, 2006
    (Incorporated by reference to the Companys Current Report
    on Form 8-K filed March 13, 2006)
|        | 10 | .28 |  |  |  | Form of Guaranty (Incorporated by reference to the
    Companys Current Report on Form 8-K filed March 13,
    2006)                                                                                                                                                                        
|        | 14 | .1  |  |  |  | Code of Ethics and Business Conduct (Incorporated by reference
    to the Companys Annual Report on Form 10-K for the
    year ended December 31, 2003)                                                                                                                                     
|        | 16 | .1  |  |  |  | Letter Regarding Change in Certifying Accountant dated
    June 18, 2004 (Incorporated by reference to the
    Companys Current Report on Form 8-K dated
    June 18, 2004)                                                                                                                 
|        | 21 | .1  |  |  |  | Subsidiaries of the Company (Filed herewith)                                                                                                                                                                                                                                                 
|        | 23 | .1  |  |  |  | Consent of Grant Thornton LLP (Filed herewith)                                                                                                                                                                                                                                               
|        | 23 | .2  |  |  |  | Consent of PricewaterhouseCoopers LLP (Filed herewith)                                                                                                                                                                                                                                       
|        | 31 | .1  |  |  |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002 (Filed herewith)                                                                                                                                                                                                 
|        | 31 | .2  |  |  |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002 (Filed herewith)                                                                                                                                                                                                 
|        | 32 | .1  |  |  |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002 (Filed herewith)                                                                                                                                                                                                 
|        | 32 | .2  |  |  |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002 (Filed herewith)                                                                                                                                                                                                 






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

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