<PAGE>   1

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-K/A

[MARK ONE]
      [X]              AMENDED ANNUAL REPORT PURSUANT TO
                              SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1999

                                       OR

      [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE TRANSITION PERIOD ______ TO ______

                         COMMISSION FILE NO.: 000-23225

                       TRANSCOASTAL MARINE SERVICES, INC.
            (Exact name of Registrant as specified in its charter.)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      72-1353528
       (State or other jurisdiction of                         (IRS Employer
        incorporation or organization)                      Identification No.)

           4900 WOODWAY, SUITE 500                                 77056
                HOUSTON, TEXAS                                   (Zip code)
   (Address of principal executive offices)
</TABLE>

                                 (713) 626-8899
              (Registrant's telephone number, including area code)

       Securities Registered Pursuant to Section 12(b) of the Act: NONE.

          Securities Registered Pursuant to Section 12(g) of the Act:

<TABLE>
<CAPTION>
                                                           NAME OF EACH EXCHANGE
             TITLE OF EACH CLASS                            ON WHICH REGISTERED
             -------------------                           ---------------------
<S>                                            <C>
   Common Stock, par value $.001 per share                 Nasdaq National Market
</TABLE>

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]

     As of April 10, 2000, there were 11,248,441 shares of common stock, par
value of $.001 per share, of the Registrant issued and outstanding, 9,848,441 of
which, having an aggregate market value of $12,005,250 based on the closing
price per share of the common stock of the Registrant reported on the Nasdaq
National Market on that date, were held by non-affiliates of the Registrant. For
purposes of the above statement only, all directors and executive officers of
the Registrant are assumed to be affiliates.

                      DOCUMENTS INCORPORATED BY REFERENCE:

     The Company's proxy statement in connection with the Annual Meeting is
incorporated by reference into Part III of this Form 10-K.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
                                   PART I

Item 1.   Business....................................................

Item 2.   Properties..................................................

Item 3.   Legal Proceedings...........................................

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

                                  PART II

Item 5.   Market for the Registrant's Common Equity and Related
          Stockholder Matters.........................................

Item 6.   Selected Financial Data.....................................

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

Item 7a.  Quantitative and Qualitative Disclosures about Market
          Risk........................................................

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

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

                                  PART III

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

Item 11.  Executive Compensation......................................

Item 12   Security Ownership of Certain Beneficial Owners and
          Management..................................................

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

                                  PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form
          8-K.........................................................
</TABLE>
<PAGE>   3

                                     PART I

ITEM 1. BUSINESS.

GENERAL

     TransCoastal Marine Services, Inc. ("the Company") is a marine construction
company with worldwide operations onshore, in the transition zone and offshore
(up to 800 feet). The Company has two operating groups: the Pipeline and Marine
Group and the Fabrication and Offshore Group. The Pipeline and Marine Group
performs pipeline installation and repair worldwide utilizing a fleet of
company-owned vessels. This group also provides construction support services,
including hydrostatic testing and commissioning of pipelines. The Fabrication
and Offshore Group fabricates, refurbishes, and installs production platforms,
offshore drilling rigs, barges and performs other related fabrication services.

     The Company currently conducts operations from port facilities and
fabrication yards strategically positioned along the U.S. Gulf Coast. In order
to conduct its international activities, the Company currently has offices in
West Africa, Venezuela and Mexico. The Company's principal executive offices are
located at 4900 Woodway, Suite 500, Houston, Texas 77056, and its telephone
number is (713) 626-8899.

PIPELINE AND MARINE GROUP

     The efficient development of an offshore oil and gas field frequently
involves the addition or extension of an infrastructure of gathering lines and
trunklines (large diameter pipelines). The Pipeline and Marine Group performs
pipeline installation and repair onshore, in the transition zone and in water
depths up to 800 feet utilizing a fleet of company-owned vessels and equipment.

     This group also conducts onshore and offshore hydrostatic testing and
commissioning of pipelines for oil and gas producers and pipeline construction
companies. During hydrostatic testing, water is pumped into a newly installed or
existing pipeline to increase the internal pressure beyond the designed capacity
of the pipeline in order to test its structural integrity. Pipeline
commissioning involves final preparation of a completed and successfully tested
pipeline for operation in accordance with applicable regulatory standards. In
connection with its hydrostatic testing and commissioning services, the Pipeline
and Marine Group also performs pipeline cleaning, drying and dehydration
services. This group also manufactures amphibious undercarriages for marine
construction equipment used in transition zone waters.

     Prior to 1998, the Pipeline and Marine Group's traditional market was the
water region along the U.S. Gulf Coast. During 1998, this group expanded its
activities into international offshore markets including West Africa, the
Caribbean and Mexico. Management believes the Company is the only company
providing pipeline installation and repair services and hydrostatic testing and
commissioning services from water depths of 800 feet through the transition zone
and to onshore gathering and processing facilities in the markets it serves.

     The Company's fleet includes: (i) four anchor barges and three multipurpose
vessels (used in both pipeline installation and repair and hydrostatic testing,
commissioning and related operations), primarily operated in water depths beyond
20 feet, and (ii) 15 spud barges and ancillary equipment, operated in water
depths of up to 20 feet. The Company also owns specialized equipment for
offshore pipeline jetting (a specialized pipeline burying technique) and testing
services, marine dredging and trench digging. See Item 2. Properties, for a
listing of the Company's significant vessels and equipment.

FABRICATION AND OFFSHORE GROUP

     The Company's Fabrication and Offshore Group fabricates and refurbishes (i)
structural components of fixed platforms for use in the offshore development and
production of oil and gas and (ii) structural components, primarily deck
structures, for offshore drilling rigs and barge drilling rigs. These services
are contracted for by customers with worldwide exploration and production
operations.

                                        1
<PAGE>   4

INDUSTRY OVERVIEW

     The current state of the oil and gas services industry in which the Company
operates has been adversely impacted by the uncertainty and volatility in oil
and natural gas commodity prices. These factors have adversely impacted the
major and independent oil and gas companies during 1998 and the first half of
1999, which comprise the Company's customer base. The Company's customers have
reacted to this environment by reducing capital spending on oil and gas
exploration projects. The Company continued to be affected by these industry
factors throughout 1999 and into 2000. The Company expects this environment to
improve during 2000 and believes the current recovery in energy commodity prices
will begin to have a positive impact on the oil and gas services sector and on
the Company's operations. The market for offshore pipeline installation and
related services and for fabrication services is primarily dependent on the
levels of oil and gas exploration, development and production activities and
pipeline capacity utilization in the markets in which the Company is active.

MATERIALS

     The principal materials used by the Company in its business are carbon and
alloy steel in various forms, welding supplies, fuel oil, gasoline and paint,
which are currently available in adequate supply from many sources. The Company
does not depend on any single supplier or source. Pipe used in the Company's
pipeline construction operations is generally provided by the Company's
customers.

SAFETY AND QUALITY ASSURANCE

     The safety and health of the Company's employees is a high priority for the
Company's management. The Company maintains a stringent safety assurance program
to reduce the possibility of accidents. Additionally, the Company has
established guidelines to ensure compliance with all applicable state and
federal safety regulations, and provides ongoing training and safety education.
The Company has a comprehensive drug-testing program and conducts periodic
employee health screenings.

     The Company's operations are conducted in compliance with the applicable
standards of the American Petroleum Institute, the American Welding Society and
the American Society of Mechanical Engineers, as well as customer
specifications. Training programs have been instituted to upgrade the skills of
the Company's personnel and maintain high-quality standards. Management believes
these programs enhance the quality of its services and reduce the total cost of
work performed.

CUSTOMERS AND CONTRACTS

     The Company's primary customers are major and independent oil and gas
exploration and production companies, drilling contractors, hydrocarbon
transportation companies and other marine construction companies. The level of
construction services required by any one customer depends on the amount of that
customer's capital expenditure budget allocated to marine construction in any
single year. Consequently, customers that account for a significant portion of
revenue in one fiscal year may represent an immaterial portion of revenue in
subsequent fiscal years. The Company had two customers that represented more
than 10 percent of its revenues in fiscal 1999 and only one customer in 1998
that represented more than 10 percent of the Company's revenues. While the
Company is not dependent on any one customer, the loss of one of its significant
customers could, at least on a short-term basis, have an adverse effect on the
Company's results of operations.

     The Company's contracts are typically of short duration, being completed in
one to nine months. A substantial number of the Company's projects are performed
on a fixed-price basis, although some projects are performed on an
alliance/partnering or cost-plus basis. Under a fixed-price contract, the
Company receives the price fixed in the contract, subject to adjustment only for
change orders placed by the customer. As a result, the Company is responsible
for all cost overruns under items included in fixed-price contracts. Under a
typical alliance/partnering arrangement, the Company and the customer agree in
advance to a target price that includes specified levels of labor and material
costs and profit margins. If the project is completed at less than the cost
levels targeted in the contract, the contract price is reduced by a portion of
the savings. If the
                                        2
<PAGE>   5

completed cost is greater than the targeted costs, the contract price is
increased, but generally to the target price plus the actual incremental cost of
material and direct labor. Accordingly, under an alliance/partnering
arrangement, the Company has some protection against cost overruns but must
share a portion of any cost savings with the customer. Under cost-plus
arrangements, the Company receives a specified fee in excess of its direct labor
and material cost and therefore is protected against cost overruns. Revenue,
costs, and gross profit realized on a contract will often vary from the
estimated amounts on which such contracts were originally based due to a variety
of reasons including: changes in the availability and cost of labor and
material; variations in productivity from the original estimates; and errors in
estimates or bidding. These variations and the risks inherent in the marine
construction industry may result in revenue and gross profit that differ from
those originally estimated. This can result in reduced profitability or losses
on projects. Depending on the size of a project, variations from estimated
contract performance can have a significant impact on the Company's operating
results for any particular fiscal quarter or year.

COMPETITION

     The marine construction business is highly competitive and in recent years
has been characterized by over-capacity, which has resulted in substantial
pressure on pricing and operating margins. The Company expects the over-capacity
in the industry to reoccur from time to time in the future. Contracts for marine
construction services are usually awarded on a competitive bid basis. In
selecting a contractor the Company believes customers consider, among other
things, the availability and technical capabilities of equipment, personnel,
efficiency, condition of equipment, safety record and reputation. However, price
is currently a primary factor in determining which qualified contractor with
available equipment is awarded a contract. Some of the Company's competitors are
larger and have financial and other resources that are greater than those of the
Company.

     The Company generally focuses on projects from the transition zone to 800
feet of water. In the U.S. Gulf of Mexico waters, several companies with one or
more derrick or pipelaying barges compete with the Company for transition zone
and shallow water projects. The Company believes that it is the largest
transition zone marine construction company focused on the U.S. Gulf Coast.
Internationally, where the Company competes for projects from the transition
zone to 800 feet of water, the Company believes that Global Industries, Ltd.,
Horizon Offshore, Inc. and J. Ray McDermott, S.A., and several other
international contractors are its primary competitors.

     In its Fabrication and Offshore Group, the Company has numerous
competitors. Some of these competitors are larger and have financial and other
resources that are greater than those of the Company.

BACKLOG

     As of December 31, 1999, the Company's unfilled contracts and backlog
orders (including verbal orders) amounted to approximately $24.5 million.
However, the Company does not consider its backlog amounts to be a reliable
indicator of future revenue because most of the Company's projects are awarded
and performed within a relatively short period of time. The Company's backlog
fluctuates significantly based on the timing of contract awards and varying
levels of operating activity throughout the year. The Company is generally able
to complete its projects within a 12-month period.

FLUCTUATIONS IN OPERATING RESULTS

     The Company's operating results may fluctuate significantly from quarter to
quarter or year to year because of a number of factors, including: the demand
for oil and gas, seasonal fluctuations in the demand for marine construction
services (particularly during the winter months), acquisitions, and competitive
factors. Accordingly, quarterly comparisons of the Company's revenue and
operating results should not be relied upon as an indication of future
performance. Additionally, the results of any quarterly period may not be
indicative of results to be expected for a full year. The Company recognizes
substantially all of its contract revenue on a percentage-of-completion basis.
Contract price and cost estimates are reviewed periodically as the work
progresses, and adjustments proportionate to the percentage of completion are
reflected in income in the

                                        3
<PAGE>   6

period when the facts giving rise to a revised estimate become known. To the
extent that these adjustments result in a reduction or elimination of previously
reported profits with respect to a project, the Company would recognize a charge
against current earnings, which could be material. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Business -- Customers and Contracts."

GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS

  General

     Many aspects of the Company's operations are subject to governmental
regulation, including regulation by the U.S. Coast Guard, the National
Transportation Safety Board, the U.S. Customs Service and the Occupational
Safety and Health Administration, as well as by private industry organizations
such as the American Bureau of Shipping. The Coast Guard and the National
Transportation Safety Board set safety standards and are authorized to
investigate vessel accidents and recommend improved safety standards relating to
vessels. The Occupational Safety and Health Administration performs similar
functions with respect to the Company's onshore facilities and operations. In
addition, the Company depends on the demand for its services from the oil and
gas industry and, therefore, the Company's business is affected by the laws and
regulations, as well as changing taxes and governmental policies, relating to
the oil and gas industry generally.

     Certain of the Company's barges and vessels are subject to safety and
classification standards imposing requirements for periodic inspections and the
maintenance of certain certificates and insurance coverage, generally depending
on the type, size and service performed by the barge or vessel. In addition, in
order for a vessel to engage in the U.S. Coastwise Trade (providing
transportation services between the states), the vessel must have been built in
the United States. All the Company's barges and vessels are eligible for service
in the U.S. Coastwise Trade, except for the M/V Discovery, a Panamanian flagged
vessel. As a multi-purpose construction vessel providing non-transportation
services to the offshore oil and gas industry, the Company believes the market
for the services performed by the M/V Discovery is not materially limited by its
Panamanian registration.

     The Company is required by various governmental and quasi-governmental
agencies to obtain certain permits, licenses and certificates with respect to
its operations. The Company believes that it has obtained all permits, licenses
and certificates necessary to the conduct of its business.

     In addition to governmental regulation, various private industry
organizations, such as the American Petroleum Institute, the American Society of
Mechanical Engineers and the American Welding Society, promulgate technical
standards that must be adhered to during the course of the Company's fabrication
operations.

  Environmental

     The operations of the Company are also affected by numerous federal, state
and local laws and regulations relating to protection of the environment. The
requirements of these laws and regulations have become more complex, stringent
and expensive in recent years, and may, in certain circumstances, impose strict
liability, rendering a company liable for environmental damages and remediation
costs without regard to negligence or fault on the part of such party. Aside
from possible liability for damages and costs associated with releases of
hazardous materials including oil into the environment, such laws and
regulations may expose the Company to liability for the conduct of or conditions
caused by others or acts of the Company that were in compliance with all
applicable laws at the time such acts were performed. Sanctions for
noncompliance with these laws and regulations may include revocation of permits,
corrective action orders, administrative or civil penalties, and criminal
prosecution. The Company is not aware of any noncompliance with applicable
environmental laws and regulations that would likely have a material adverse
effect on the Company's business or financial conditions, and the Company does
not currently anticipate any material adverse effect on its business or
consolidated financial position as a result of future compliance with existing
environmental laws and regulations controlling the discharge of materials into
the environment or otherwise relating to the protection of the environment.
However, it is possible that changes in the environmental laws and regulations
and enforcement policies thereunder, or claims for damages to persons, property,
natural resources or the

                                        4
<PAGE>   7

environment could result in substantial costs and liabilities to the Company.
Thus, there can be no assurance that the Company will not incur significant
environmental compliance costs in the future. The Company's insurance policies
provide liability coverage for sudden and accidental occurrences of pollution,
and cleanup and containment of the foregoing in amounts the Company believes are
comparable to policy limits carried by other construction contractors in the
offshore industry.

     The Oil Pollution Act of 1990 ("OPA"), as amended, and regulations
promulgated pursuant thereto impose a variety of regulations on "responsible
parties" related to the prevention of oil spills and liability for damages
resulting from such spills. A "responsible party" includes the owner or operator
of an onshore facility, pipeline, or vessel, or the lessee or permittee of the
area in which an offshore facility is located. The OPA assigns liability to each
responsible party for oil removal costs and a variety of public and private
damages. Vessels subject to OPA other than tank vessels are subject to liability
limits of the greater of $500,000 or $600 per gross ton. A party cannot take
advantage of liability limits if the spill was caused by gross negligence or
willful misconduct or resulted from violation of a federal safety, construction,
or operating regulation. If the party fails to report a spill or to cooperate
fully in the cleanup, the liability limits likewise do not apply. Few defenses
exist to the liability imposed under OPA. The OPA also imposes ongoing
requirements on a responsible party including preparation of an oil spill
contingency plan and proof of financial responsibility (to cover at least some
costs in a potential spill) for vessels in excess of 300 gross tons. The Company
believes that it currently has in place appropriate spill contingency plans and
has established adequate proof of financial responsibility for its vessels.

     The Outer Continental Shelf Lands Act ("OCSLA") provides the federal
government with broad discretion in regulating the release of offshore resources
of oil and gas production. Because the Company's operations rely on offshore oil
and gas exploration and production, if the government were to exercise its
authority under OCSLA to restrict the availability of offshore oil and gas
leases, such an action could have a material adverse effect on the Company's
financial condition and the results of operations.

     The Comprehensive Environmental Response, Compensation, and Liability Act
of 1980 ("CERCLA"), as amended, and comparable state laws impose liability for
releases of hazardous substances into the environment. CERCLA currently exempts
crude oil from the definition of hazardous substances for purposes of the
statute, but the Company's operations may involve the use or handling of other
materials that may be classified as hazardous substances. CERCLA assigns strict
liability to each responsible party for all response and remediation costs, as
well as natural resource damages. Few defenses exist to the liability imposed by
CERCLA. The Company believes that it is in compliance with CERCLA and currently
is not aware of any events that, if brought to the attention of regulatory
authorities, would lead to the imposition of CERCLA liability against the
Company.

  Health and Safety

     The Company's operations are also governed by laws and regulations relating
to workplace and worker health, primarily the Occupational Safety and Health Act
and the regulations promulgated thereunder. In addition, various other
governmental and quasi-governmental agencies require the Company to obtain
certain permits, licenses and certificates from time to time with respect to its
operations. The Company believes it has all material permits, licenses and
certificates necessary to the conduct of its existing business.

     Certain employees of the Company are covered by provisions of the Jones
Act, the Death on the High Seas Act and general maritime law, which laws operate
to make the liability limits established by state workers' compensation laws
inapplicable to these employees and, instead, permit them or their
representatives to pursue actions against the Company for damages or job-related
injuries, with generally no limitations on the Company's potential liability.
The Company's ownership and operation of vessels can give rise to large and
varied liability risks, such as risks of collisions with other vessels or
structures, sinking, spills, fires and other marine casualties, which can result
in significant claims for damages against both the Company and third parties
for, among other things, personal injury, death, property and natural resource
damage, pollution and loss of business.

                                        5
<PAGE>   8

RISK MANAGEMENT

     The Company's operations are subject to inherent risks of offshore and
inland marine activity, including hazards such as vessels capsizing, sinking,
grounding, colliding and sustaining damage from severe weather conditions. These
hazards can cause personal injury or loss of life, severe damage to and
destruction of property and equipment, pollution or environmental damage and
suspension of operations. The Company maintains such insurance protection as it
deems prudent, including hull insurance. However, certain risks are either not
insurable or insurance is available only at rates that the Company considers to
be economically infeasible. There can be no assurance that insurance carried by
the Company will be sufficient or effective under all circumstances or against
all hazards to which the Company may be subject. A successful claim for which
the Company is not fully insured could have a material adverse effect on the
Company. Moreover, no assurance can be given that the Company will be able to
maintain adequate insurance in the future at rates it considers reasonable.

INTELLECTUAL PROPERTY

     Although the Company's intellectual property rights are, in the aggregate,
important to the Company's business, the Company believes its technical
knowledge and experience, reputation and customer relationships are more
important to its competitive position than any patents, licenses, trademarks or
other intellectual property rights.

EMPLOYEES

     The size of the Company's work force, other than its clerical and
administrative personnel, is variable and depends on the Company's workload at
any particular time. Many workers are hired by the Company on a contract basis
for short periods of time. As of February 29, 2000, the Company had
approximately 693 employees. None of the Company's employees are covered by a
collective bargaining agreement.

FORWARD-LOOKING STATEMENTS

     The Annual Report on Form 10-K includes certain statements that may be
deemed to be "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical facts,
included in this Annual Report on Form 10-K that relate to business plans or
strategies, projected or anticipated benefits or other consequences of such
plans or strategies, projected or anticipated benefits from acquisitions made by
or to be made by the Company, or projections involving anticipated revenues,
earnings, or other aspects of operating results are forward-looking statements.
The Company cautions readers that such statements are not guarantees of future
performance or events and are subject to a number of factors that may tend to
influence the accuracy of the statements and the projections upon which the
statements are based. As noted elsewhere in this report, all phases of the
Company's operations are subject to a number of uncertainties, risks and other
influences, many of which are outside the control of the Company, and any one of
which, or a combination of which, could materially affect the results of the
Company's operations and whether forward-looking statements made by the Company
ultimately prove to be accurate.

ITEM 2. PROPERTIES.

MARINE VESSELS AND EQUIPMENT

     The Company's fleet includes three multi-purpose vessels, four anchor
barges and 15 spud barges. During February 1998, the Company expanded its oil
and gas pipeline installation capabilities with the acquisition of the Vermilion
Bay (formerly the LB 207) a Vanuatu flagged pipe laying barge. The Company
further expanded its oil and gas pipeline installation capabilities in April
1998, with the acquisition and refurbishment of the Atchafalaya Bay(formerly the
BB 356) a United States flagged barge to be used as a dedicated pipe bury barge.
The Atchafalaya Bay was placed in service in the second quarter of 1999.

                                        6
<PAGE>   9

     The following table describes the Company's principal marine vessels and
construction equipment:

<TABLE>
<CAPTION>
                                                     DIMENSIONS
NAME                              TYPE                 (FEET)               FUNCTION
----                              ----               ----------             --------
<S>                      <C>                       <C>               <C>
M/V Discovery..........  Multi-purpose             270 (LOGO) 42     Hydrostatic testing,
                         Construction Ship         (LOGO) 19         pipeline jetting,
                         (Panamanian flagged)                        diving support, coring
                                                                     support; 8 point
                                                                     mooring system; dynamic
                                                                     positioning system;
                                                                     accommodations for 54
                                                                     persons
M/V Sea Level 21.......  Multi-purpose             165 (LOGO) 40     Hydrostatic testing,
                         Construction Ship (U.S.   (LOGO) 12         diving support, coring
                         flagged)                                    support; 4 point
                                                                     mooring system;
                                                                     accommodations for 28
                                                                     persons
M/V Sand Queen.........  Multi-purpose Utility     96 (LOGO) 24      Hydrostatic testing and
                         Vessel (U.S. flagged)     (LOGO) 7          diving support;
                                                                     accommodations for 19
                                                                     persons
Atchafalaya Bay........  Anchor Barge (U.S.        256.5 (LOGO) 72   Pipe burying (2"-48"
                         flagged)                  (LOGO) 16         diameter pipe) in 10'
                                                                     to 300' water depths; 8
                                                                     point mooring system;
                                                                     accommodations for 80
                                                                     persons
Vermilion Bay..........  Anchor Barge (Vanuatu     350 (LOGO) 60     Pipe laying (2"-48"
                         flagged)                  (LOGO) 22.5       diameter pipe) in 10'
                                                                     to 300' water depths; 8
                                                                     point mooring system;
                                                                     accommodations for 211
                                                                     persons
Mobile Bay (formerly
  BH-400)..............  Anchor Barge (U.S.        260 (LOGO) 72     Pipe laying (2"-36"
                         flagged)                  (LOGO) 16         diameter pipe) in 10'
                                                                     to 300' water depths; 8
                                                                     point mooring system;
                                                                     accommodations for 90
                                                                     persons
BH-300.................  Anchor Barge              185 (LOGO) 45     Pipe laying (2"-36"
                                                   (LOGO) 9          diameter pipe) in 5' to
                                                                     40' water depths; 4
                                                                     point mooring system
                                                                     and spuds
BH-203.................  Spud/Utility Barge        90 (LOGO) 26      Pipeline repair;
                                                   (LOGO) 5          pipeline burial in 4'
                                                                     to 25' water depths
BH-202.................  Spud/Bury Barge           100 (LOGO) 32     Pipeline jetting;
                                                   (LOGO) 5          dredging in 5' to 25'
                                                                     water depths
BH-200.................  Spud/Bury Barge           120 (LOGO) 30     Pipeline jetting;
                                                   (LOGO) 7          dredging in 5' to 25'
                                                                     water depths
</TABLE>

                                        7
<PAGE>   10

<TABLE>
<CAPTION>
                                                     DIMENSIONS
NAME                              TYPE                 (FEET)               FUNCTION
----                              ----               ----------             --------
<S>                      <C>                       <C>               <C>
BH-105.................  Spud/Anchor Barge         150 (LOGO) 40     Pipe laying (2"-20"
                                                   (LOGO) 8          diameter pipe),
                                                                     dredging; pile driving
                                                                     in 5' to 100' water
                                                                     depths
BH-104.................  Spud Barge                110 (LOGO) 34     Pipe laying (2"-20"
                                                   (LOGO) 6          diameter pipe);
                                                                     dredging; pile driving
                                                                     in 4' to 25' water
                                                                     depths
BH 103.................  Spud Barge                120 (LOGO) 38     Pipe laying (2"-20"
                                                   (LOGO) 8          diameter pipe);
                                                                     dredging; pile driving
                                                                     in 4' to 25' water
                                                                     depths
BH 101.................  Spud Barge                120 (LOGO) 36     Pipe laying (2"-20"
                                                   (LOGO) 7          diameter pipe);
                                                                     dredging; pile driving
                                                                     in 4' to 25' water
                                                                     depths
BH 100.................  Spud Barge                110 (LOGO) 34     Pipe laying (2"-20"
                                                   (LOGO) 6.5        diameter pipe);
                                                                     dredging; pile driving
                                                                     in 4' to 25' water
                                                                     depths
Woodson Marsh Pipelay
  Spread...............  Three Interconnected      140 (LOGO) 38     Pipe laying (2"-48"
                         Spud Barges               (LOGO) 7          diameter pipe) in 1' to
                                                   140 (LOGO) 36     40' water depths
                                                   (LOGO) 7
                                                   140 (LOGO) 36
                                                   (LOGO) 7
</TABLE>

FACILITIES

     Administration. The Company owns administrative buildings in Lafayette and
Belle Chasse, Louisiana, and leases office space in Houston, Texas.

     Pipeline and Marine Group. This Group's marine construction activities are
supported by three onshore bases which provide administrative functions for
projects and dock space for the Company's floating equipment with the ability to
supply the vessels with provisions and fuel, and to perform maintenance and
repairs to vessels and equipment. The facility located in Belle Chasse,
Louisiana is owned by the Company. The facilities and dock frontage at Amelia
and Delcambre, Louisiana are leased, with remaining lease terms ranging from 10
to 15 years. The Company also has a leased office in Mexico to support its
operations there.

     Fabrication and Offshore Group. The Company's fabrication operations are
primarily conducted from four locations in Louisiana, one in New Iberia and
three in the greater New Orleans area. The New Iberia fabrication facility
includes approximately 14 acres of leased land and a 23,200 square foot
fabrication shop that is supplied with automatic welding, heavy fabrication and
material handling equipment. This fabrication yard, with waterfront docking and
direct, deep channel access to the Gulf of Mexico, has specially designed
concrete reinforcements and approximately 700 linear feet of water frontage. The
Company has improved the fabrication yard to provide it with the ability to load
out structures weighing up to 5,000 tons. The fabrication yard also has a rail
spur which provides it direct access to rail transportation.

     During the first quarter of 1998, the Company expanded its fabrication
operations through two separate lease transactions. Long-term lease rights were
secured to a shipyard in New Orleans capable of servicing deep-water drilling
rigs, jack-ups, semi-submersibles and drill ships in January 1998. This 29-acre
yard is located at the intersection of the Intracoastal Waterway and the Michoud
Canal. A 32-foot water depth is

                                        8
maintained at the site, which has no height or width restrictions and a maximum
3,000 feet of bulkhead dock space. During February 1998, the Company signed a
long-term lease for a fabrication facility located on an 18-acre site on the
Inner Harbor Navigation Canal in eastern New Orleans. The site has 1,400 feet of

                                        9
<PAGE>   11

waterfront and includes a covered, 68,000 square foot fabrication shop with eave
height exceeding 40 feet and overhead crane capacity totaling 75 tons with a
hook height of 28 feet. With the acquisition of Dickson in the third quarter of
1998, the Company acquired a 10-acre fabrication yard with 900 feet of water
frontage on the Mississippi River Gulf Outlet. The Company can fabricate
structures as large as 6,500 tons at this location.

     The Company also owns a 18,000 square foot fabrication facility situated on
approximately two acres of land in Lafayette, Louisiana, and a 20,000 square
foot fabrication facility with a 2,000 square foot warehouse on approximately
3.5 acres of land in Belle Chasse, Louisiana. The fabrication facility in Belle
Chasse, Louisiana also includes 8,000 square feet of office space.

ITEM 3. LEGAL PROCEEDINGS.

     In December 1999, Chevron Global Technologies Services Company ("Chevron")
informed the Company of its intention to seek reimbursements totaling
approximately $27.0 million for various disputed billings associated with
certain fabrication projects (the "Chevron Claims"). The Company believes that
the claims made by Chevron are without merit and intends to vigorously contest
the Chevron Claims. At December 31, 1999, the Company had outstanding two
letters of credit, totaling $8.6 million, issued in favor of Chevron. If Chevron
were to prevail, it would have a significant impact on the operations of the
Company's subsidiary, TransCoastal Fabrication & Offshore Group, Inc. (formerly
Dickson GMP International, Inc.) and the Company.

     The Company is involved in various lawsuits arising in the ordinary course
of business. While the outcome of these lawsuits cannot be predicted with
certainty, management believes these matters will not have a material adverse
effect on the consolidated financial position or results of operations of the
Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     None

                                       10
<PAGE>   12

                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS.

     Since October 30, 1997, the common stock of the Company (the "Common
Stock") has been listed for trading on the Nasdaq National Market under the
symbol "TCMS." The following table sets forth the range of high and low sale
prices for the Common Stock for the periods indicated:

<TABLE>
<CAPTION>
                                                              HIGH      LOW
                                                              ----      ---
<S>                                                           <C>       <C>
1998
  First quarter.............................................  $14 1/2   $8 13/16
  Second quarter............................................   13        5 1/2
  Third quarter.............................................    7        4 1/4
  Fourth quarter............................................    5 7/8    2 5/8
1999
  First quarter.............................................  $ 4 3/8   $2 3/32
  Second quarter............................................    5 3/8    2 3/8
  Third quarter.............................................    7        4 1/8
  Fourth quarter............................................    6 1/4    2 1/2
2000
  First quarter.............................................  $ 3 15/16 $1
</TABLE>

     At February 29, 2000, there were approximately 2,200 stockholders of record
of the Company's Common Stock. On April 10, 2000, the closing sale price of the
Common Stock on the Nasdaq National Market was $1.22 per share.

DIVIDENDS

     TCMS currently intends to retain its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions. The Company does not anticipate paying any cash dividends on its
Common Stock for the foreseeable future. Any future dividends will be at the
discretion of the Board of Directors, after taking into account various factors,
including, among other things: the Company's financial condition, results of
operations, cash flows from operations, current and anticipated cash needs and
expansion plans, the income tax laws then in effect, the requirements of
Delaware law, the restrictions currently imposed by the "Credit Facility" and
any restrictions that may be imposed by the Company's future credit
arrangements. See Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

SALE OF UNREGISTERED SECURITIES

     The following information relates to securities of the Company issued or
sold by the Company during the past three years which were not registered under
the Securities Act:

          (i) 2,142,441 shares of Common Stock were issued to the Founding
     Companies on closing of the Acquisitions and the initial public offering
     (the "Offering"). Shareholders of the Founding Companies have certain
     registration rights with respect to 1,975,775 shares of Common Stock
     received by them in the Acquisitions, and

          (ii) 1,256,000 shares of Common Stock which were issued to founders of
     TCMS and certain of its executive officers and consultants in conjunction
     with the Offering, and

          (iii) 1,300,000 shares of Common Stock were issued to the stockholders
     of Dickson GMP International, Inc. and four affiliated companies,
     ("Dickson") on closing of the acquisition on September 1, 1998. The former
     Dickson stockholders have certain registration rights with respect to
     1,300,000 shares of Common Stock received by them in the acquisitions of
     Dickson by the Company, and

                                       11
<PAGE>   13

          (iv) 400,000 shares of Common Stock; 1,680 shares of Series B 5%
     cumulative convertible preferred stock ("Series B"); and 140 shares of
     Series A 7% redeemable cumulative preferred stock were issued on May 19,
     1999. The shares were issued to the former stockholders of Dickson as final
     settlement of the earn-out provision of the acquisition agreement between
     the Company and Dickson.

          (v) at the Annual Meeting of the Stockholders on May 26, 1999 the
     stockholders approved the issuance of 400,000 shares of common stock to
     which the Series B was convertible. The Series B was subsequently converted
     to the 400,000 shares of common stock.

     All of the aforementioned shares, as well as: (1) an aggregate of 50,000
shares issuable pursuant to a warrant (the "MG Warrant") issued by TCMS to
McFarland, Grossman & Company, Inc. ("MGCO"), a financial advisory firm that
assisted the Company in connection with the acquisitions of four privately owned
construction companies and in arranging a credit agreement, and (2) an aggregate
of 408,000 shares issuable pursuant to two warrants (the "Lender Warrants")
issued by the Company to Joint Energy Development Investments, Limited
Partnership, an affiliate of Enron Capital & Trade Resources Corp., in
connection with the Credit Agreement, may be resold publicly only following
their effective registration under the Securities Act or pursuant to an
exemption from the registration requirements of that act, such as Rule 144
thereunder.

ITEM 6. SELECTED FINANCIAL DATA.

     In accordance with the applicable accounting rules of the Securities and
Exchange Commission (the "Commission"), Woodson Construction Company
(collectively with three affiliated companies, "Woodson"), one of the Founding
Companies, was identified as the "accounting acquiror" for financial statement
presentation purposes. Consequently, the Company's historical financial
statements for periods ended on or before October 31, 1997, the effective date
of the acquisitions of the Founding Companies for accounting purposes, are the
consolidated historical financial statements of Woodson. As used in this
discussion, the "Company" means (i) Woodson prior to October 31, 1997 and (ii)
TCMS and its consolidated subsidiaries on that date and thereafter. The
following selected historical financial information has been derived from the
audited financial statements of the Company for each of the years presented. The
summary financial information below should be read in conjunction with the
historical financial statements and notes thereto included elsewhere herein.

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                      -----------------------------------------------------------
                                       1995        1996         1997       1998(3)        1999
                                      -------     -------     --------     --------     ---------
<S>                                   <C>         <C>         <C>          <C>          <C>
HISTORICAL STATEMENT OF OPERATIONS:
  Revenues..........................  $18,075     $17,933     $ 57,517     $188,878     $ 146,975
  Cost of revenues..................   12,716      13,561       46,507      154,076       143,458
  Selling, general and
     administrative expenses........    2,672       2,968        6,309(1)    13,202        11,778
  Depreciation and amortization.....      574         562        2,102        9,828        12,925
  Restructuring and special
     charges........................       --          --           --        2,418         1,655
  Loss on asset impairment..........       --          --           --           --        96,562
                                      -------     -------     --------     --------     ---------
  Operating income (loss)...........    2,113         842        2,599        9,354      (119,403)
  Interest income (expense), net....      (84)         51         (530)      (4,376)       (7,159)
  Other income (expense), net.......       69         357          475         (662)          484
                                      -------     -------     --------     --------     ---------
  Income (loss) before income
     taxes..........................    2,098       1,250        2,544        4,316      (126,078)
  Provision (benefit) for income
     taxes..........................      839(2)      500(2)     1,194(2)     1,511       (21,729)
                                      -------     -------     --------     --------     ---------
          Net income (loss).........  $ 1,259     $   750     $  1,350     $  2,805     $(104,349)
                                      =======     =======     ========     ========     =========
BALANCE SHEET DATA:
  Working capital...................  $ 4,628     $ 3,803     $  3,439     $ 15,516     $ (66,579)(4)
  Total assets......................    9,007       9,157      171,817      236,597       129,874
  Total debt, including current
     portion........................       19         679       15,991       61,114        69,425
  Stockholders' equity..............  $ 7,616     $ 7,718     $115,145     $120,228     $  19,529
</TABLE>

                                       12
<PAGE>   14

---------------

(1) Includes a $2.2 million non-cash compensation charge related to the issuance
    of shares of Common Stock to management of the Company.

(2) Represents pro forma provision for income taxes. See Note 2 to the
    consolidated financial statements.

(3) 1998 Statement of Operations data includes the operating results of Dickson
    from the date of acquisition, September 1, 1998, through December 31, 1998.

(4) Negative working capital is primarily the result of reclassifying $57.6
    million of long-term debt to current due to defaults on the Revolving
    Facility, Term Loan, and Subordinated Debt. See Note 1 to the consolidated
    financial statements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

     The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto and "Selected
Financial Data" appearing elsewhere in this Annual Report on Form 10-K. The
following information contains forward-looking statements. For a discussion of
certain limitations inherent in such statements, see
"Business -- Forward-Looking Statements".

INTRODUCTION

     The Company's revenues are primarily derived from providing services
related to pipeline installation and repair, hydrostatic testing and
commissioning of pipelines, and fabrication and refurbishment of components for
oil and gas production platforms and drilling rigs.

     The majority of services provided by the Company are under fixed-priced
contracts, which are generally completed within one year. These contracts are
usually accounted for using the percentage-of-completion method of accounting.
Under this method, the percentage-of-completion is determined by comparing
contract costs incurred to date with total estimated contract costs. Any
significant revision in cost and income estimates is reflected in the accounting
period in which the facts that require the revision become known. Income is
recognized by applying the percentage completed to the projected total income
for each contract in progress. Cost of revenues consists of direct material,
labor and subcontracting costs and indirect costs related to contract
performance, such as indirect labor, supplies and tools. Selling, general and
administrative expenses consist primarily of compensation of sales and
administrative employees, fees for professional services and other general
office expenses.

     The marine construction industry along the U.S. Gulf Coast is highly
seasonal as a result of the timing of capital expenditures by oil and gas
companies, weather conditions, and the availability of daylight hours.
Historically, the Company has performed a substantial portion of its pipeline
construction support services during the period from March through November and,
therefore, a disproportionate portion of these contract revenues, gross profit
and net income generally has been earned during the second and third quarters of
the calendar year. Because of this seasonality, the Company's future full year
results are not likely to be a direct multiple of any particular quarter or
combination of quarters.

     Additionally, the Company's results of operations will also be affected by
the level of oil and gas exploration and development activity maintained by oil
and gas companies in the Gulf of Mexico. The level of exploration and
development activity is related to several factors, including trends of oil and
gas prices, exploration and production companies' expectations of future oil and
gas prices, and changes in technology which reduce costs and improve expected
returns on investment.

     Certain risks are inherent under contracts that are priced on a fixed-price
basis. The revenues, costs and gross profit realized on a contract will often
vary from the estimated amounts for various reasons including changes in the
availability and cost of labor and material, weather delays and variations in
productivity from the original estimates and errors in estimates or bidding.
These variations and the risks inherent in the marine construction industry may
result in revenues and gross profits different from those originally estimated
and can result in reduced profitability or losses on projects.

                                       12
<PAGE>   15

     In accordance with the applicable accounting rules of the Commission,
Woodson was identified as the "accounting acquiror" for financial statement
presentation purposes. Consequently, the Company's historical financial
statements for periods ended on or before October 31, 1997, the effective date
of the acquisitions of the Founding Companies for accounting purposes, are the
consolidated historical financial statements of Woodson. As used in this
discussion, the "Company" means (i) Woodson prior to October 31, 1997 and (ii)
TCMS and its consolidated subsidiaries on that date and thereafter.

RESULTS OF OPERATIONS -- THE COMPANY

     The current state of the oil and gas services industry in which the Company
operates has been adversely impacted by the uncertainty and volatility in oil
and natural gas commodity prices. These factors have adversely impacted the
major and independent oil and gas companies, which comprise the Company's
customer base. The Company's customers have reacted to this environment by
reducing capital spending on oil and gas exploration projects. The Company
continued to be affected by these industry factors throughout 1999 and into
2000. The Company expects this environment to improve during 2000 and believes
the current recovery in energy commodity prices will begin to have a positive
impact on the oil and gas services sector, and on the Company's operations.

     The operating results for the year ended December 31, 1999 included the
operating results of all the Founding Companies and Dickson for the entire
period. The Company's operating results for 1998 include all the Founding
Companies' results for the entire year and the Dickson operating results for the
last four months during the period. Revenues, cost of revenues and selling,
general and administrative expense levels were significantly lower for the year
ended December 31, 1999 as compared to the year ended December 31, 1998. The
operating results for 1997 are the results of operations of Woodson for the
entire year and the other Founding Companies for the final two months of 1997.

     The following table sets forth certain selected financial data of the
Company and that data as a percentage of the Company's revenues for the periods
indicated (dollars in thousands):

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                           -----------------------------------------------------
                                                1997              1998               1999
                                           --------------   ----------------   -----------------
<S>                                        <C>       <C>    <C>        <C>     <C>         <C>
Revenues.................................  $57,517   100.0% $188,878   100.0%  $ 146,975   100.0%
Cost of revenues.........................   46,507   80.9%   154,076    81.6%    143,458    97.6%
Selling, general and administrative
  expenses...............................    6,309   11.0%    13,202     7.0%     11,778     8.0%
Depreciation and amortization............    2,102    3.6%     9,828     5.2%     12,925     8.8%
Restructuring & special charges..........       --     --      2,418     1.3%      1,655     1.1%
Loss on asset impairment.................       --     --         --      --      96,562    65.7%
                                           -------   ----   --------   -----   ---------   -----
Operating income (loss)..................    2,599    4.5%     9,354     4.9%   (119,403)  (81.2)%
Interest income (expense), net...........     (530)  (0.9)%   (4,376)   (2.3)%    (7,159)   (4.9)%
Other income (expense), net..............      475    0.8%      (662)   (0.3)%       484     0.3%
                                           -------   ----   --------   -----   ---------   -----
Income (loss) before income taxes........    2,544    4.4%     4,316     2.3%   (126,078)  (85.8)%
Provision (benefit) for income
  taxes(1)...............................    1,194    2.1%     1,511     0.8%    (21,729)  (14.8)%
                                           -------   ----   --------   -----   ---------   -----
          Net income (loss)..............  $ 1,350    2.3%  $  2,805     1.5%  $(104,349)  (71.0)%
                                           =======   ====   ========   =====   =========   =====
</TABLE>

---------------

(1) The provision for income taxes for the year ended December 31, 1997
    represents pro forma provisions for income taxes. See Note 2 to the
    consolidated financial statements.

  Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

     Revenues. Revenues decreased $41.9 million, or 22.2%, from $188.9 million
for the year ended December 31, 1998 to $147.0 million for the year ended
December 31, 1999. The Pipeline and Marine Group's revenues decreased $53.6
million, or 48.3%, from $110.9 million for the year ended December 31, 1998 to
$57.3 million for the year ended December 31, 1999. The decline in revenue for
the Pipeline and Marine Group was the result of delays in pipeline construction
projects due to decreased capital expenditure

                                       13
<PAGE>   16

budgets in 1999 by the Company's customers as a result of the fall of oil and
gas prices in 1998. The Fabrication and Offshore Group's revenues increased
$12.2 million, or 15.8%, from $77.4 million for the year ended December 31, 1998
to $89.6 million for the year ended December 31, 1999. The increase in revenue
for the Fabrication and Offshore Group was primarily the result of a $86.0
million time and material project that began in 1998 and was completed in July
of 1999. The increase in revenues for the Fabrication and Offshore Group were
partially offset by reduced activities due to delays in oilfield fabrication
projects resulting from decreased capital expenditure budgets in 1999 by the
Company's customers as a result of the fall of oil and gas prices in 1998.

     Cost of revenues. Cost of revenues decreased $10.6 million, or 6.9%, from
$154.1 million for the year ended December 31, 1998 to $143.5 million for the
year ended December 31, 1999. The Pipeline and Marine Group's cost of revenues
decreased $35.8 million, or 41.7%, from $85.9 million for the year ended
December 31, 1998 to $50.1 million for the year ended December 31, 1999. Cost of
revenues as a percentage of revenues increased from 81.6% of revenues in 1998 to
97.6% of revenues in 1999. This decline in gross profit percentage in 1999 as
compared to 1998 was primarily due to increased competition for fewer pipeline
installation projects and lower utilization of capital equipment. The
Fabrication and Offshore Group's cost of revenues increased $16.0 million, or
23.5%, from $68.2 million for the year ended December 31, 1998 to $84.2 million
for the year ended December 31, 1999. Cost of revenues as a percentage of
revenues for the Fabrication and Offshore Group increased from 88.1% of revenues
in 1998 to 94.0% of revenues in 1999. This decrease in gross profit percentage
in 1999 as compared to 1998 was primarily due to two factors. First, a
significantly greater percentage of the Fabrication and Offshore Group's
revenues were generated from time and material projects which have lower margins
as the Company assumes less financial risk in completing the projects. Second,
the group experienced lower overall utilization of its fabrication facilities in
the second half of 1999 as compared to 1998 due to reduced levels of contracts
being awarded.

     Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $1.4 million, or 10.8%, for the year ended
December 31, 1999 compared to the 1998 period. The decrease was primarily due to
reductions in the headcount of the administrative staff and in the use of third
party services. As a percentage of revenues, selling, general and administrative
expenses were 7.0% during 1998, as compared to 8.0% during 1999.

     Depreciation and amortization. Depreciation and amortization expenses
increased $3.1 million, or 31.6%, from $9.8 million for the year ended December
31, 1998 to $12.9 million for the year ended December 31, 1999. The increase was
primarily due to $36.0 million of capital expenditures in 1998, the majority of
which were placed in service late in the third quarter 1998, and a full year of
depreciation and amortization of goodwill associated with the acquisition of
Dickson effective September 1, 1998.

     Restructuring and special charges. During 1999, the Company completed a
review of its Fabrication and Offshore Group's operations and foreign and
domestic facilities. As a result of the review, the Company recorded a special
charge in the amount of $1.7 million. The components of the charge consists of:
(a) $1.2 million severance costs related to former employees terminated as a
result of the Company's headcount reduction initiative and (b) $0.5 million in
costs associated with the closing of foreign facilities and reduction in
operations in Nigeria and South America. During 1998 the Company recorded a
special charge in the amount of $2.4 million. The components of the charge
consisted of: (1) $1.8 million severance costs related to former officers and
employees terminated as a result of the Company's headcount reduction initiative
and (2) $0.6 million for the sale of facilities resulting from the planned
consolidation of certain operating facilities.

     Loss on asset impairment. During 1999, the Company recognized a loss of
$96.6 million on the impairment of certain long-lived assets after reviewing
their respective carrying amounts compared to appraisals and discounted future
cash flows. The write-off of goodwill, which was primarily recorded at the time
of the formation of the Company, accounted for $86.3 million of the impairment
loss. The remainder of the loss of $10.3 million related principally to the
Company's vessels, barges and certain leasehold improvements.

     Interest income (expense), net. Interest expense, net of interest income,
totaled $7.2 million during the year ended December 31, 1999, as compared to net
interest expense of $4.4 million during 1998. The increase

                                       14
<PAGE>   17

was due to higher average debt levels in 1999 compared to 1998 and an increase
in the weighted average interest rate in 1999 as compared to 1998, from 8.75% to
9.99%. See "Liquidity and Capital Resources -- The Company" below for discussion
of credit agreement and related financings.

     Other income (expense), net. During 1999 other income (expense), net
consisted primarily of settlement of insurance claims. During 1998 other income
(expense), net consisted primarily of expenses incurred associated with the
settlement of outstanding litigation.

  Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

     Revenues. Revenues increased $131.4 million, or 228.4%, from $57.5 million
for the year ended December 31, 1997 to $188.9 million for the year ended
December 31, 1998. The Pipeline and Marine Group's revenues increased $57.7
million, or 108.5%, from $53.2 million for the year ended December 31, 1997 to
$110.9 million for the year ended December 31, 1998. The inclusion of the
Founding Companies' operations (other than Woodson) for the entire year of 1998
versus the last two months of 1997 accounted for $52.2 million of the increase
in revenues. The Fabrication and Offshore Group's revenues increased $73.1
million, or 1690.0%, from $4.3 million for the year ended December 31, 1997 to
$77.4 million for the year ended December 31, 1998. The acquisition of Dickson
in September 1998 accounted for $42.9 million of the increase in revenues for
the year. The inclusion of a Founding Company's operations for the entire year
of 1998 versus the last two months of 1997 accounted for an additional $9.5
million of the increase in revenues for 1998. The remaining increase in revenues
of $20.7 million was the result of the Fabrication and Offshore Group obtaining
larger projects than it had historically been able to obtain due to its expanded
resources and capabilities as a result of the TCMS merger and initial public
offering.

     Cost of revenues. Cost of revenues increased $107.6 million, or 231.4%,
from $46.5 million for the year ended December 31, 1997 to $154.1 million for
the year ended December 31, 1998. The Pipeline and Marine Group's cost of
revenues increased $42.4 million, or 97.4%, from $43.5 million for the year
ended December 31, 1997 to $85.9 million for the year ended December 31, 1998.
The inclusion of the Founding Companies' operations (other than Woodson) for the
entire year of 1998 versus the last two months of 1997 accounted for $35.3
million of the increase in cost of revenues. Cost of revenues as a percentage of
revenues decreased from 81.8% of revenues in 1997 to 77.1% of revenues in 1998.
This improvement in gross profit percentage in 1998 as compared to 1997 was
primarily due to three factors. In 1998, the Company experienced: (a) higher
utilization of equipment, (b) a higher percentage of work performed offshore
which were higher margin projects, and (c) a greater percentage of revenues
being generated from projects outside the United States which were also at
higher margins. The Fabrication and Offshore Group's cost of revenues increased
$65.2 million, or 2173.3%, from $3.0 million for the year ended December 31,
1997 to $68.2 million for the year ended December 31, 1998. The acquisition of
Dickson in September 1998 accounted for $38.1 million of the increase in cost of
revenues in 1998 as compared to 1997. The inclusion of a Founding Company's
operations for the entire year of 1998 versus the last two months of 1997
accounted for $7.4 million of the increase in cost of revenues. The balance of
the increase in cost of revenues was consistent with the increase in revenues
experienced by the Fabrication and Offshore Group. Cost of revenues as a
percentage of revenues for the Fabrication and Offshore Group increased from
70.1% of revenues in 1997 to 88.1% of revenues in 1998. This decrease in gross
profit percentage in 1998 as compared to 1997 was primarily due to a significant
percentage of the Dickson revenues being generated from time and material
projects which have lower margins as the Company assumes less financial risk in
completing the projects.

     Selling, general and administrative expenses. Selling, general and
administrative expenses increased $6.9 million, or 109.3%, for the year ended
December 31, 1998 compared to the 1997 period. As a percentage of revenues,
selling, general and administrative expenses (exclusive of the non-cash
compensation charge related to the issuance of shares of Common Stock to
management of the Company) were 7.1% during 1997, as compared to 7.0% during
1998. The percentage increase was primarily due to short-term expenses incurred
during the initial consolidation of the Founding Companies and the integration
of Dickson into the Company.

     Depreciation and amortization. Depreciation and amortization expenses
increased $7.7 million, or 367.6%, from $2.1 million for the year ended December
31, 1997 to $9.8 million for the year ended December 31, 1998. The increase was
due to: (1) additional depreciation on $36.0 million of equipment
                                       15
<PAGE>   18

placed in service during 1998, (2) a full year's depreciation on the equipment
owned by the Founding Companies and amortization of goodwill recorded under the
purchase method of accounting as compared to two months of depreciation and
amortization in 1997, and (3) the additional depreciation and amortization of
goodwill associated with the acquisition of Dickson effective September 1, 1998.

     Restructuring charges. During the fourth quarter of 1998 the Company
recorded a special charge in the amount of $2.4 million. The components of the
charge consisted of: (1) $1.8 million severance costs related to former officers
and employees terminated as a result of the Company's headcount reduction
initiative and (2) $0.6 million for the sale of facilities resulting from the
planned consolidation of certain operating facilities.

     Interest income (expense), net. Interest expense, net of interest income
totaled $4.4 million during the year ended December 31, 1998, as compared to net
interest expense of $0.5 million during 1997. The significant increase was due
to higher average debt levels in 1998 compared to 1997. See "Liquidity and
Capital Resources -- The Company" below for discussion of credit agreement and
related financings.

     Other income (expense), net. During 1998 other income (expense), net
consisted primarily of expenses incurred associated with the settlement of
outstanding litigation. During 1997 other income (expense), net consisted
primarily of gains recognized on the sale of available-for-sale securities.

LIQUIDITY AND CAPITAL RESOURCES -- THE COMPANY

     Uncertainty and volatility in oil and natural gas commodity pricing during
1999 and 2000 caused the Company's Customer Base to significantly reduce capital
spending. As a result, the Company experienced significantly reduced revenues
and operating cash flows. Revenues for 1999 decreased 22.2% while costs of
revenues decreased 6.9%. Additionally, the Company's earnings before interest,
taxes, depreciation and amortization (EBITDA) declined by over $16 million. The
decline in cash flow combined with the delayed collection on a foreign
receivable (the "Foreign Receivable") discussed below negatively impacted the
Company's liquidity. The uncertainty surrounding collection of the Foreign
Receivable and the Chevron Claim materially impacted the Company's ability to
obtain additional financing to remedy the liquidity issues and to satisfy the
requirements to raise additional equity contained in the agreements with the
Company's lenders. As a result, the Company currently is in default under its
Credit Facility and has received notification from its Lenders of the default.
In the absence of collecting a significant amount on the Foreign Receivable, or
a recapitalization and a waiver or amendment to its agreements with the banks,
the Company may not continue as a going concern.

     At December 31, 1999, the Company has a contract receivable in the amount
of $19.8 million with a foreign joint venture in financial difficulty. The
Company has continued to negotiate with the joint venture and subsequent to year
end received assurances regarding future payments. The Company has provided a
reserve for management's estimate of amounts which may not be collected. In
addition, the Company has two letters of credit outstanding issued in the favor
of Chevron Global Technologies Services Company ("Chevron") in lieu of retainage
on two fabrication projects totaling $8.6 million. In December of 1999, Chevron
informed the Company that it had approximately $27.0 million in billing disputes
on the two fabrication contracts. If Chevron were to call on either of the two
letters of credit or the Company was unable to collect on the $19.8 million
receivable from the foreign joint venture, it would have a material adverse
impact on the Company's operations, financial position, and cash flow.

     In January 1999, the Company entered into a Credit Facility with financial
institutions, replacing the existing credit agreement with an aggregate credit
facility of $70 million. The Credit Facility is a $10 million increase in
borrowing capacity over the credit facility in place at December 31, 1998. The
Credit Facility is comprised of three separate credit agreements: (a) a
three-year revolving credit agreement ("Revolving Facility") for up to $15.0
million; (b) a seven-year term credit agreement ("Term Loan") for $35.0 million;
and (c) a five-year subordinated debt agreement ("Subordinated Debt") for $20.0
million.

     At December 31, 1999, the Company had a working capital deficit of $66.6
million, which represented an $82.1 million decrease from the $15.5 million in
working capital at December 31, 1998. The indebtedness of the Company at
December 31, 1999, consisted of $7.5 million of borrowings under the Revolving
Facility,

                                       16
<PAGE>   19

$37.3 million of borrowings under the Term Loan, $20.0 million of borrowings
under the Subordinated Debt, and $4.6 million of borrowings under other term
loans. This indebtedness totaled approximately $69.4 million as of December 31,
1999, of which $67.3 million has been classified as a current liability in the
accompanying financial statements due to various debt covenant violations.
Subsequent to year end the Company has failed to meet the debt service
requirements of the Revolving Facility and the Term Loan.

     In November 1999, the Company amended the Revolving Facility and the Term
Loan by reducing the borrowing capacity under the Revolving Facility by $5.0
million and increasing the current borrowings under the Term Loan by $5.0
million. The Company at this time also amended the financial covenants in the
Credit Facility to take into consideration current operating results and the
current market environment in which the Company operates. The revised financial
covenants required a $7.5 million equity investment by January 31, 2000 and
either an additional $7.5 million equity infusion or increased earnings of a
similar amount in the first quarter of the year 2000. The Company has not
secured any commitments for additional financing and is currently in default of
the financial covenants of the Credit Facility. The Company is currently
pursuing new third party equity investments, waivers of covenant failures,
amendments to the debt covenants or forbearance from its lenders as well as
other recapitalization opportunities that might become available and has
retained an investment bank to assist in these endeavors.. There is no assurance
that the Company will actually complete any financial recapitalization.
Subsequent to March 30, 2000, the Company has failed to meet the debt service
requirements of the Revolving Facility and the Term Loan. See Notes 1 and 6 to
the consolidated financial statements.

     Net cash used in operating activities during the year ended December 31,
1999 was $4.0 million. Net cash used in investing activities during the twelve
months ended December 31, 1999 was $11.5 million. Investment activities' cash
expenditures were primarily for capital expenditures of $6.8 million and $4.7
million for the final settlement on the Dickson earn-out. Net cash consumed by
investing activities were funded through additional borrowings on the revolving
credit facility. During 1999, the net Revolving Facility and Term Loan
borrowings were $8.8 million resulting in an outstanding Revolving Facility and
Term Loan balance of $44.8 million at December 31, 1999. Additional borrowing
capacity under the Company's revolver and term loan facility at December 31,
1999 totaled $2.5 million.

YEAR 2000

     The Company successfully completed its program to prepare its computer
systems and applications for the Year 2000 and experienced no significant system
or application failures. Based on present information, management does not
believe there are any ongoing business risks associated with processing of
date-sensitive data by the Company's computerized information systems and
equipment as it relates to the Year 2000. The Company was able to complete the
Year 2000 conversion tasks within the total projected cost of approximately
$750,000.

INFLATION

     Inflation has not had a material impact on the Company's results of
operations for the last three years.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     In the normal course of business, the Company is exposed to market risk,
primarily from changes in interest rates. The Company continually monitors
exposure to market risk and develops appropriate strategies to manage this risk.
Accordingly, the Company may enter into certain derivative financial instruments
such as interest rate swap agreements. The Company does not use derivative
financial instruments for trading or to speculate on changes in interest rates.

                                       17
<PAGE>   20

  Interest Rate Exposure

     The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's long-term debt. At December 31, 1999, $64.8 million
of the Company's indebtedness was subject to variable interest rates with a
weighted average effective interest rate of 9.9% for the year then ended. The
detrimental effect of a hypothetical 100 basis point increase in interest rates
would be to reduce income before taxes by $0.6 million. At December 31, 1999,
the fair value of the Company's fixed rate debt is approximately $4.6 million
based upon discounted future cash flows using current market prices.

  Foreign Currency Exposure

     The Company believes its exposure to foreign currency fluctuations is
minimal in that contracts for work performed in or to be delivered to countries
outside the United States ("Foreign Contracts") are primarily denominated in
U.S. dollars. It is Company policy to limit the portion of any Foreign Contracts
denominated in local currency to that portion of the total revenue required to
be spent in country to complete the project. The Company's operations outside
the United States currently are in Latin America and West Africa and all current
Foreign Contracts are denominated in U.S. dollars.

                                       18
<PAGE>   21

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                             INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                               PAGE
                                                               ----
<S>                                                            <C>
Report of Independent Public Accountants....................    20
Consolidated Balance Sheets.................................    21
Consolidated Statements of Operations and Comprehensive
  Income (Loss).............................................    22
Consolidated Statements of Stockholders' Equity.............    23
Consolidated Statements of Cash Flows.......................    24
Notes to Consolidated Financial Statements..................    25
</TABLE>

                                       19
<PAGE>   22

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To TransCoastal Marine Services, Inc.:

     We have audited the accompanying consolidated balance sheets of
TransCoastal Marine Services, Inc. (a Delaware corporation) and subsidiaries as
of December 31, 1998 and 1999, and the related consolidated statements of
operations and other comprehensive income (loss), stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TransCoastal
Marine Services, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.

     The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has experienced recent
operating losses, negative cash flows, debt covenant violations, significantly
decreased liquidity and in 2000, has failed to meet debt service requirements of
certain of its debt agreements. Additionally, as discussed in Notes 1 and 11,
should there be an adverse outcome related to the collection of a receivable
from a Mexican joint venture or should significant payments be required to
resolve existing disputes with a customer, the Company's liquidity and viability
would be further negatively impacted. The Company is expected to continue to
experience negative cash flows as it pursues its business strategy which will
necessitate additional financing. The Company has not secured any commitments
for any such additional financing requirements, and there can be no assurance
that the Company will be able to meet its obligations as they become due or be
able to restructure the debt with its lenders and other creditors. These matters
raise substantial doubt as to the Company's ability to continue as a going
concern. Management's plans with regard to these matters are also described in
Note 1. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.

                                            ARTHUR ANDERSEN LLP

Houston, Texas
April 7, 2000

                                       20
<PAGE>   23

              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1998       1999
                                                              --------   --------
<S>                                                           <C>        <C>
                                     ASSETS

CURRENT ASSETS:
  Cash and cash equivalents.................................  $  9,020   $    443
  Contracts and accounts receivable, net of allowance of
     $1,182 and $4,960, respectively........................    31,470     28,779
  Costs and estimated earnings in excess of billings on
     uncompleted contracts..................................     6,629      4,039
  Other current assets......................................     7,941      8,206
                                                              --------   --------
          Total current assets..............................    55,060     41,467
PROPERTY AND EQUIPMENT, net.................................    96,135     82,075
GOODWILL, net of amortization and write-down of $2,195 and
  $90,659, respectively.....................................    80,430         --
OTHER NONCURRENT ASSETS.....................................     4,972      6,332
                                                              --------   --------
          Total assets......................................  $236,597   $129,874
                                                              ========   ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current maturities of long-term debt and notes payable....  $  6,018   $ 47,272
  Subordinated debt.........................................        --     20,000
  Accounts payable..........................................    16,949     15,379
  Accrued expenses..........................................     9,836     21,798
  Billings in excess of costs and estimated earnings on
     uncompleted contracts..................................     6,741      3,597
                                                              --------   --------
          Total current liabilities.........................    39,544    108,046
LONG-TERM DEBT, net of current maturities...................    35,096      2,153
SUBORDINATED DEBT...........................................    20,000         --
DEFERRED INCOME TAXES.......................................    21,729         --
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK, Series A 7% cumulative, $.001
  par value, 140 shares authorized, issued and outstanding
  at December 31, 1999, carried at $1,000 per share
  redemption value plus accrued dividends...................        --        146
STOCKHOLDERS' EQUITY:
  Preferred stock, $.001 par value, 2,000,000 shares
     authorized, none issued and outstanding................        --         --
  Common stock, $.001 par value, 20,000,000 shares
     authorized, 10,198,441 and 11,248,441 shares issued and
     outstanding at December 31, 1998 and 1999,
     respectively...........................................        10         11
  Restricted common stock, $.001 par value, 3,000,000 shares
     authorized, 250,000 and 0 shares issued and outstanding
     at December 31, 1998 and 1999, respectively............        --         --
  Additional paid-in capital................................   133,899    137,566
  Accumulated deficit.......................................   (13,699)  (118,048)
  Accumulated other comprehensive income....................        18         --
                                                              --------   --------
          Total stockholders' equity........................   120,228     19,529
                                                              --------   --------
          Total liabilities and stockholders' equity........  $236,597   $129,874
                                                              ========   ========
</TABLE>

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

                                       21
<PAGE>   24

              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

     CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                               1997       1998       1999
                                                              -------   --------   ---------
<S>                                                           <C>       <C>        <C>
REVENUES....................................................  $57,517   $188,878   $ 146,975
COSTS AND EXPENSES:
  Cost of revenues..........................................   46,507    154,076     143,458
  Selling, general and administrative.......................    6,309     13,202      11,778
  Depreciation and amortization.............................    2,102      9,828      12,925
  Restructuring and special charges.........................       --      2,418       1,655
  Loss on asset impairment..................................       --         --      96,562
                                                              -------   --------   ---------
          Operating income..................................    2,599      9,354    (119,403)
OTHER INCOME (EXPENSE), net:
  Interest expense, net.....................................     (530)    (4,376)     (7,159)
  Other income(expense), net................................      475       (662)        484
                                                              -------   --------   ---------
INCOME (LOSS) BEFORE INCOME TAXES...........................    2,544      4,316    (126,078)
PROVISION (BENEFIT) FOR INCOME TAXES........................      527      1,511     (21,729)
                                                              -------   --------   ---------
NET INCOME (LOSS)...........................................  $ 2,017   $  2,805   $(104,349)
                                                              =======   ========   =========
COMPREHENSIVE INCOME:
  Net Income (Loss).........................................  $ 2,017   $  2,805   $(104,349)
  Unrealized holding gains (losses) arising during the
     period net of tax (benefit) of $187, $(11) and $0......      281        (20)        (18)
                                                              -------   --------   ---------
COMPREHENSIVE INCOME (LOSS).................................  $ 2,298   $  2,785   $(104,367)
                                                              =======   ========   =========
INCOME (LOSS) PER SHARE:
  Basic.....................................................  $    --   $   0.29   $   (9.53)
  Diluted...................................................  $    --   $   0.29   $   (9.53)
PRO FORMA INFORMATION (UNAUDITED):
  Income before income taxes................................  $ 2,544   $     --   $      --
  Pro forma income taxes....................................    1,194         --          --
                                                              -------   --------   ---------
  Pro forma net income......................................  $ 1,350   $     --   $      --
                                                              =======   ========   =========
PRO FORMA INCOME (LOSS) PER SHARE (UNAUDITED):
  Basic.....................................................  $  0.40   $     --   $      --
  Diluted...................................................  $  0.40   $     --   $      --
NUMBER OF SHARES USED IN PER SHARE COMPUTATIONS:
  Basic.....................................................    3,363      9,583      10,951
  Diluted...................................................    3,393      9,583      10,951
</TABLE>

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

                                       22
<PAGE>   25

              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                                        ACCUMULATED
                                                             RESTRICTED                                    OTHER
                                       COMMON STOCK         COMMON STOCK      ADDITIONAL   RETAINED    COMPREHENSIVE
                                    -------------------   -----------------    PAID-IN     EARNINGS       INCOME
                                      SHARES     AMOUNT    SHARES    AMOUNT    CAPITAL     (DEFICIT)      (LOSS)         TOTAL
                                    ----------   ------   --------   ------   ----------   ---------   -------------   ---------
<S>                                 <C>          <C>      <C>        <C>      <C>          <C>         <C>             <C>
Balance at December 31, 1996......   2,006,331    $ 2           --    $ --     $    122    $   7,275       $ 319       $   7,718
  Issuance of common shares to
    management....................     275,000     --           --      --        2,200           --          --           2,200
  Issuance of common shares to
    consultants...................       6,000     --           --      --           44           --          --              44
  Initial Public Offering, net of
    offering costs................   5,750,000      6                   --       94,733           --          --          94,739
  Share exchange (Note 8).........    (250,000)    --      250,000      --
  Acquisitions of Founding
    Companies.....................   1,111,110      1           --      --       15,999           --          --          16,000
  Revaluation of Founders' shares
    in connection with
    acquisitions (Note 3).........          --     --           --      --       14,039           --          --          14,039
  Issuance of MGCO Warrant and
    Lender Warrant................          --     --           --      --        1,238           --          --           1,238
  Dividends.......................          --     --           --      --           --       (2,733)         --          (2,733)
  Distributions to Woodson
    stockholders..................          --     --           --      --           --      (19,836)         --         (19,836)
  Net income......................          --     --           --      --           --        2,017          --           2,017
  Change in valuation allowance
    for net unrealized loss on
    available-for-sale
    securities....................          --     --           --      --           --           --        (281)           (281)
                                    ----------    ---     --------    ----     --------    ---------       -----       ---------
Balance at December 31, 1997......   8,898,441      9      250,000      --      128,375      (13,277)         38         115,145
  Acquisition of Dickson..........   1,300,000      1           --      --        5,524           --          --           5,525
  Distributions to Woodson
    stockholders..................          --     --           --      --           --       (3,227)         --          (3,227)
  Net income......................          --     --           --      --           --        2,805          --           2,805
  Change in valuation allowance
    for net unrealized loss on
    available-for-sale
    securities....................          --     --           --      --           --           --         (20)            (20)
                                    ----------    ---     --------    ----     --------    ---------       -----       ---------
Balance at December 31, 1998......  10,198,441     10      250,000              133,899      (13,699)         18         120,228
  Shares issued in settlement of
    Dickson earn-out..............     800,000      1           --      --        2,949           --          --           2,950
  Issuance of stock options in
    lieu of cash expenses.........          --     --           --      --           50           --          --              50
  Issuance of warrants to a
    lender........................          --     --           --      --          668           --          --             668
  Transfer of restricted shares to
    common shares.................     250,000     --     (250,000)     --           --           --          --              --
  Net loss........................          --     --           --      --           --     (104,349)         --        (104,349)
  Change in valuation allowance
    for net unrealized loss on
    available-for-sale
    securities....................          --     --           --      --           --           --         (18)            (18)
                                    ----------    ---     --------    ----     --------    ---------       -----       ---------
Balance at December 31, 1999......  11,248,441    $11           --    $ --     $137,566    $(118,048)      $  --       $  19,529
                                    ==========    ===     ========    ====     ========    =========       =====       =========
</TABLE>

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

                                       23
<PAGE>   26

              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                              -------------------------------
                                                                1997       1998       1999
                                                              --------   --------   ---------
<S>                                                           <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss).........................................  $  2,017   $  2,805   $(104,349)
  Adjustments to reconcile net income to net cash provided
    by operating activities --
    Depreciation and amortization...........................     2,102      9,828      12,925
    Gain on sale of investments.............................      (281)       (26)        (29)
    Allowance for doubtful accounts.........................        --      1,182       3,778
    Compensation expense on stock issuance to senior
     management.............................................     2,200         --          --
    Deferred income taxes...................................      (139)     1,219     (21,729)
    Loss on asset impairment................................        --         --      96,562
    Amortization of debt issuance cost......................        --      1,553       1,016
    Stock options and warrants issued in lieu of cash
     expenses...............................................        --         --         336
    Other...................................................       448        560        (326)
  Changes in operating assets and liabilities --
    (Increase) decrease in --
      Contracts and accounts receivable, net................   (17,796)    (9,187)     (1,087)
      Costs and estimated earnings in excess of billings on
       uncompleted contracts................................    (3,272)    (1,301)      2,590
      Other current assets..................................    (1,729)    (1,223)       (265)
      Other noncurrent assets...............................      (446)    (1,206)       (546)
    Increase (decrease) in --
      Accounts payable and accrued expenses.................    19,205     (1,107)     10,392
      Billings in excess of costs and estimated earnings on
       uncompleted contracts................................     1,651      2,186      (3,144)
      Other current liabilities.............................       291         --          --
      Deferred income taxes.................................     1,510        596          --
                                                              --------   --------   ---------
        Net cash provided by (used in) operating
        activities..........................................     5,761      5,879      (3,876)
                                                              --------   --------   ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of property and equipment..............        --        677          48
  Capital expenditures......................................    (6,759)   (36,084)     (6,873)
  Purchase of investments and annuity contract..............    (3,000)        --          --
  Proceeds from sale of investments.........................     1,472         76          --
  Cash paid for acquisitions including related costs, net of
    cash acquired of $1,726, $4,676 and $0 in 1997, 1998 and
    1999, respectively......................................   (67,341)    (5,840)     (4,739)
  Distribution to Woodson stockholders......................   (19,836)    (3,227)         --
  Other.....................................................      (696)        --          --
                                                              --------   --------   ---------
        Net cash used in investing activities...............   (96,160)   (44,398)    (11,564)
                                                              --------   --------   ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings on Credit Agreement............................    10,000     46,000       7,500
  Proceeds from notes payable...............................        --      2,464          48
  Principal payments on notes payable.......................      (229)    (1,682)       (539)
  Principal payments on notes payable to stockholders.......      (450)        --          --
  Borrowings on long-term debt..............................     3,432         --       7,000
  Principal payments on long-term debt......................   (11,053)    (1,659)     (5,698)
  Payment of dividends to stockholders......................    (2,733)        --          --
  Issuance of Common Stock to consultants...................        44         --          --
  Issuance of Common Stock, net of offering costs...........    94,739         --          --
  Debt issuance costs.......................................    (2,052)        --      (1,448)
                                                              --------   --------   ---------
        Net cash provided by financing activities...........    91,698     45,123       6,863
                                                              --------   --------   ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........     1,299      6,604      (8,577)
CASH AND CASH EQUIVALENTS, beginning of year................     1,117      2,416       9,020
                                                              --------   --------   ---------
CASH AND CASH EQUIVALENTS, end of year......................  $  2,416   $  9,020   $     443
                                                              ========   ========   =========
</TABLE>

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

                                       24
<PAGE>   27

              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION AND FINANCIAL CONDITION

  Business and Organization

     TransCoastal Marine Services, Inc. ("TCMS") was organized in April 1996, to
create a fully integrated marine construction company focusing on transition
zone and shallow water regions of the U.S. Gulf Coast. On November 4, 1997, TCMS
acquired, simultaneously with the closing of its initial public offering (the
"Offering"), four privately owned marine construction businesses (the "Founding
Companies") and certain real properties used in the businesses of the Founding
Companies in exchange for consideration consisting of cash, common stock of TCMS
(the "Common Stock") and debt assumption. Unless otherwise indicated, all
references herein to the "Company" mean TransCoastal Marine Services, Inc.,
after the Offering, and references to "TCMS" mean TransCoastal Marine Services,
Inc., prior to the consummation of the acquisitions of the Founding Companies.

     The Woodson Companies ("Woodson"), one of the Founding Companies, was
identified as the "accounting acquiror" for financial statement presentation
purposes. The acquisitions of the remaining Founding Companies were accounted
for using the purchase method of accounting, with the results of operations
included from October 31, 1997, the effective closing date of the acquisitions
for accounting purposes. The allocation of purchase price to the assets acquired
and liabilities assumed was assigned and recorded based on fair value of the
assets acquired and liabilities assumed.

  Financial Condition

     The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. For the year ended
December 31, 1999, the Company incurred a net loss of $104.3 million and also
had a working capital deficit at December 31, 1999 of $66.6 million due to the
classification of long-term debt as current as a result of covenant violations
on the debt. The Company has also experienced negative operating cash flows,
failed to comply with certain debt covenants and in 2000, has failed to meet
debt service requirements of certain of its debt agreements. Additionally,
should there be an adverse outcome related to the collection of a receivable
from a Mexican joint venture (see Note 11) or should significant payments be
required to resolve existing disputes with a customer (see Note 11), the
Company's liquidity and viability would be further negatively impacted. The
Company is expected to continue to experience negative cash flows as it pursues
its business strategy, which will necessitate additional financing. The Company
has not secured any commitments for additional financing and there can be no
assurance that the Company will be able to meet its obligations as they become
due or be able to restructure the debt with its lenders. The debt covenant
violations could cause the lenders to seek remedies including asset seizure
and/or asset liquidation. These matters raise substantial doubt as to the
Company's ability to continue as a going concern. The consolidated financial
statements do not reflect any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern. Management is currently pursuing new third party equity
investments, waivers of covenant violations, amendments to the debt covenants or
forbearance from its lenders as well as other recapitalization opportunities
that might become available. There is no assurance that the Company will
actually complete any financial recapitalization. In the absence of a
satisfactory recapitalization, the Company anticipates its liquidity problems
will likely continue, and the Company may be forced to seek protection from its
creditors through bankruptcy.

     The current state of the oil and gas services industry in which the Company
operates has been adversely impacted by the uncertainty and volatility in oil
and natural gas commodity prices. These factors have adversely impacted the
major and independent oil and gas exploration and production companies, certain
drilling contractors, hydrocarbon transportation companies and other marine
construction companies (collectively, the Company's "Customer Base"). The
Company's customer base has reacted to this environment by reducing capital
spending on oil and gas exploration projects. The Company continues to be
affected by these industry factors into 2000.

                                       25
<PAGE>   28
              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Principles of Consolidation

     The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.

     Pro forma net income for 1997 consists of the historical net income of the
Company, including two S Corporations, adjusted for income taxes that would have
been recorded had each company operated as a C Corporation for all of 1997.

  Use of Estimates

     The Company's financial statements are prepared in accordance with
generally accepted accounting principles ("GAAP"). Financial statements prepared
in accordance with GAAP require the use of management estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Additionally, management estimates affect the reported amounts of revenues and
expenses during the reporting period (see revenue recognition policy). Actual
results could differ from those estimates.

  Cash and Cash Equivalents

     The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents excluding certain
restricted amounts.

  Property and Equipment

     Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets ranging from 3 years to 31.5 years. Leasehold
improvements are capitalized and amortized over the shorter of the lives of the
leases or the estimated useful lives of the assets. The Company reviews the
carrying value of property and equipment for impairment whenever factors
indicate that the carrying value of an asset may not be realizable. Impairment
losses would be recorded when an asset's carrying value exceeds its fair value.
Fair value is generally based on third party appraisals, discounted cash flows
or management's estimates. (See Note 5 regarding a $10.3 million loss on asset
impairment recorded in 1999.)

     Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated.

  Goodwill

     Goodwill represents the excess of the aggregate purchase price paid by the
Company over the fair market value of the net tangible assets acquired. Goodwill
is being amortized on a straight-line basis over 40 years, which represents
management's estimation of the related benefit to be derived from the acquired
businesses. The Company periodically evaluates whether events and circumstances
after the acquisition date indicate that the remaining balance of goodwill may
not be recoverable. If factors indicate that goodwill should be evaluated for
possible impairment, the Company would compare estimated undiscounted future
cash flow from the related operations to the carrying amount of goodwill. If the
carrying amount of goodwill was greater than undiscounted future cash flow, an
impairment loss would be recognized. Any impairment loss would be computed as
the excess of the carrying amount of goodwill over the estimated fair value of
the goodwill (calculated based on discounting estimated future cash flows).
Accumulated amortization of goodwill was

                                       26
<PAGE>   29
              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$0.3 million, $2.2 million and $90.7 million as of December 31, 1997, 1998 and
1999, respectively. (See Note 5 regarding an $86.3 million loss on goodwill
impairment recorded in 1999.)

  Dry-dock Costs

     Dry-dock costs are third-party costs associated with scheduled maintenance
on the Company's marine construction vessels. Costs incurred in connection with
dry-docking are capitalized and amortized over the period to the next scheduled
dry-docking.

  Mobilization Costs

     Mobilization costs incurred on moving marine vessels and associated
equipment to their contractual locations to commence operations are capitalized
and amortized over the contract term.

  Debt Issuance Costs

     Debt issuance costs are included in other noncurrent assets and are
amortized to interest expense over the scheduled maturity of the debt. As of
December 31, 1998 and 1999, debt issuance costs, net of accumulated
amortization, were $1.5 million and $2.3 million, respectively.

  Revenue Recognition

     Revenues from construction contracts, which are typically less than twelve
months in duration, are recognized on the percentage-of-completion method. Under
this method, the percentage of completion is determined by comparing contract
costs incurred to date with total estimated contract costs. Income is recognized
by applying the percentage complete to the projected total income for each
contract in progress. Contract costs include all direct material, labor and
subcontract costs and those indirect costs related to contract performance, such
as indirect labor, supplies and tools. Revisions in cost and income estimates
are reflected in the accounting period in which the facts requiring revision
become known. In addition, anticipated losses to be incurred on contracts in
progress are charged to income in the period such losses are determined. With
regard to pipeline testing services performed, the Company recognizes revenues
as services are provided.

  Fair Value of Financial Instruments

     The Company considers the fair value of all financial instruments to not be
materially different from their carrying values at each year-end based on
management's estimate of the Company's ability to borrow funds under terms and
conditions similar to those applicable to the Company's existing debt.

  Income Taxes

     The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been recognized differently in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the differences between the financial
statement carrying amounts and tax bases of assets and liabilities using enacted
tax rates and laws in effect in the years in which the differences are expected
to reverse. Deferred tax assets are evaluated for realization based on a
more-likely-than-not criteria in determining if a valuation allowance should be
provided. Income tax expense is the tax payable for the year and the change
during the year in deferred tax assets and liabilities.

     Two of the three companies comprising the Woodson Companies elected to be
taxed as S Corporations for federal and state income tax purposes whereby
shareholders are liable for individual federal and state income taxes on their
allocated portions of the applicable entity's taxable income. Upon the closing
of the Offering, the S Corporation status was changed to that of a C
Corporation. Accordingly, the historical

                                       27
<PAGE>   30
              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

financial statements as they relate to the period prior to the Offering do not
include provisions for income taxes relating to those entities.

  Concentrations of Credit

     The Company's Customer Base potentially exposes the Company to
concentrations of credit risk. The Company performs ongoing credit evaluation of
its customers and requires posting of collateral or lien rights when deemed
appropriate. The Company provides allowances for possible credit losses when
necessary.

  Income (Loss) Per Share

     Basic income (loss) per share excludes dilution and is computed by dividing
net income (loss) by the weighted average number of common shares outstanding
for the period. Diluted income (loss) per share reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.

     The weighted average number of common shares outstanding used to compute
basic and diluted income (loss) per share for the year ended December 31, 1997
were 3,363,000 and 3,393,000, respectively. The weighted average number of
common shares outstanding used to compute basic and diluted income (loss) per
share for years ended December 31, 1998 and 1999 were 9,583,000 and 10,951,000,
respectively. Calculation of diluted earnings (loss) per share is similar to
basic income (loss) per share except that the denominator includes dilutive
common stock equivalents such as stock options and warrants. Common stock
equivalents are excluded from fully diluted calculations in those periods in
which a net loss is reported as they would be anti-dilutive. Weighted average
shares outstanding for calculation of diluted income (loss) per share totaled
3,393,000, 9,583,000, and 10,951,000 for 1997, 1998 and 1999, respectively.
Weighted average diluted shares outstanding at December 31, 1997 included 30,000
shares related to a warrant issued to a financial advisory firm that provided
services in conjunction with the Acquisitions (see Note 3).

  Reclassifications

     The accompanying consolidated financial statements for prior years contain
certain reclassifications to conform with current year presentation.

3. BUSINESS COMBINATIONS

     On November 4, 1997, TCMS acquired in separate transactions (collectively,
the "Acquisitions"), simultaneously with the closing of the Offering, the
Founding Companies and certain real properties used in the businesses of the
Founding Companies. The Acquisitions have been accounted for under the purchase
method of accounting. The aggregate consideration paid for the Acquisitions was
$85.7 million in cash, issuance of $3.0 million in 8% notes payable over a
ten-year term ending in 2007, and 2,142,441 shares of Common Stock. Funding of
the cash portion of the consideration was provided by funds raised through the
Offering. The purchase price allocations resulted in goodwill recognized of
$71.5 million representing the excess of purchase price over fair value of the
net assets acquired. The goodwill allocation includes $14.0 million of excess
purchase price attributable to the 975,000 shares of Common Stock issued to the
founders of TCMS during 1996 which were revalued to a fair market value of
$14.40 per share.

     On September 1, 1998, the Company consummated the acquisition of Dickson
GMP International, Inc. and four affiliated companies ("Dickson") for $10
million in cash and 1,300,000 shares of Common Stock of the Company and an
earn-out. In May, 1999, in final settlement of the earn-out with Dickson, the
Company paid an additional $4.7 million in cash, issued 800,000 shares of common
stock to the former stockholders of Dickson.

                                       28
<PAGE>   31
              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Set forth below are unaudited pro forma combined revenues and income data
reflecting the pro forma effect of the acquisition of Dickson on the Company's
results from operations for the year ended December 31, 1998. The unaudited pro
forma data presented below consist of the income statement data from operations
as presented in these consolidated financial statements plus the Dickson income
statement data from operations for the eight months ended August 31, 1998 (in
thousands, except per share amounts). These pro forma results are not
necessarily indicative of the results that would actually have occurred if the
acquisition of Dickson had taken place at the beginning of 1998, nor are they
necessarily indicative of future results. The Company made no acquisitions in
1999.

<TABLE>
<CAPTION>
                                                           YEAR ENDED
                                                        DECEMBER 31, 1998
                                                        -----------------
                                                           (UNAUDITED)
<S>                                                     <C>
Revenues..............................................      $218,698
Net income............................................      $  3,233
Diluted earnings per share............................      $   0.31
</TABLE>

4. RESTRUCTURING AND SPECIAL CHARGES

     In September of 1999, the Company completed a functional review of its
Fabrication & Offshore Group's operations and foreign and domestic facilities.
As a result of this review, the Company recorded a special charge in the amount
of $1.7 million ($1.0 million, net of tax, or $0.09 per diluted share for year
ended December 31, 1999). The components of the charge consists of: (a) $1.2
million severance costs related to former employees terminated as a result of
the Company's 1999 headcount reduction initiative and (b) $0.5 million in costs
associated with the closing of foreign facilities and reduction in operations in
Nigeria and South America.

     In December 1998, under direction of the Company's new chief executive
officer appointed in November 1998, the Company's management undertook a
comprehensive review of its operations, properties and lease commitments and
personnel. As a result of this review, the Company recorded a special charge in
the amount of $2.4 million ($1.6 million, net of tax, or $0.17 per diluted
share). The components of the charge consist of: (a) $1.8 million severance
costs related to former officers and employees terminated as a result of the
Company's 1998 headcount reduction initiative and (b) $0.6 million for the
estimated loss on the planned sale of facilities resulting from the planned
consolidation of certain operating facilities. These actions were completed in
1999.

     At December 31, 1998 and 1999, the net realizable value of the land,
buildings, and improvements held for sale totaled $3.4 million, and has been
included in other current assets in the accompanying 1998 and 1999 balance
sheets. Additionally, accrued liabilities totaling approximately $1.3 million
and $2.2 million as of December 31, 1998 and 1999, respectively, have been
recorded for severance and other costs related to the change in the Company's
operating plan. For 1999, these amounts are preliminary in nature pending the
ultimate sale of identified facilities.

5. LOSS ON ASSET IMPAIRMENT

     As described in Note 1, the Company's Customer Base has been adversely
impacted by the uncertainty and volatility in oil and natural gas commodity
prices, which has adversely impacted the Company's operations, resulting in
negative cash flows, operating losses, debt covenant violations and
significantly decreased liquidity, all of which have continued in 2000. These
factors have caused the Company's future to be uncertain and management to
evaluate the realization of the Company's long-lived assets, including property,
equipment and goodwill.

     In accordance with the Company's policies for evaluating impairment, and
based on forecasts and other objective data, management believes it is unlikely
that the Company will recover any of the carrying value of

                                       29
<PAGE>   32
              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

goodwill. The entire $86.3 million balance of goodwill as of December 31, 1999,
has been impaired and accordingly is being written-off.

     The Company also recorded an impairment write-off of approximately $10.3
million related primarily to the Company's vessels, barges and certain leasehold
improvements. The impairment was in part based on current forecasts as well as
independent appraisals on specific assets. After recording the total of $96.6
million in impairment allowances, the Company's remaining net book value
approximates the Company's current market capitalization, further supporting
management's decision.

     Although the Company's Customer Base has been adversely impacted by
uncertainty and volatility for several years, the Company had generated income
and positive cash flow from operations for the years ended December 31, 1997 and
1998. Based on management's prior assessments of the realization of the
Company's assets, no impairment was considered necessary in prior years. The
prolonged nature and severity of the adverse industry conditions resulted in the
Company's financial difficulties as previously described. The Company's
financial difficulties became critical in the latter half of 1999 and have
continued into 2000. Management believes the impairments were appropriately
recorded in the fourth quarter of 1999.

6. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS

     Contracts and accounts receivable consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                            -----------------
                                                             1998      1999
                                                            -------   -------
<S>                                                         <C>       <C>
Completed contracts, net of allowance.....................  $14,720   $25,896
Contracts in progress -- Current..........................   13,531     2,796
Retainage due within one year.............................    2,889        87
Accounts receivable.......................................      330        --
                                                            -------   -------
                                                            $31,470   $28,779
                                                            =======   =======
</TABLE>

     Information with respect to uncompleted contracts is as follows (in
thousands):

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          -------------------
                                                            1998       1999
                                                          --------   --------
<S>                                                       <C>        <C>
Costs incurred on uncompleted fixed costs contracts.....  $ 19,209   $ 24,973
Estimated profit earned to date.........................     7,842      1,868
                                                          --------   --------
                                                            27,051     26,841
Less -- Billings to date................................   (25,915)   (26,811)
                                                          --------   --------
                                                             1,136         30
Unbilled costs and earnings on time and materials
  contracts.............................................     4,078        412
Billings in excess of costs and earnings on time and
  materials contracts...................................    (5,326)        --
                                                          --------   --------
                                                          $   (112)  $    442
                                                          ========   ========
</TABLE>

                                       30
<PAGE>   33
              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The above amounts are included in the accompanying balance sheets under the
following captions (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                            -----------------
                                                             1998      1999
                                                            -------   -------
<S>                                                         <C>       <C>
Costs and estimated earnings in excess of billings on
  uncompleted contracts...................................  $ 6,629   $ 4,039
Billings in excess of costs and estimated earnings on
  uncompleted contracts...................................   (6,741)   (3,597)
                                                            -------   -------
                                                            $  (112)  $   442
                                                            =======   =======
</TABLE>

     Other current assets consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              ---------------
                                                               1998     1999
                                                              ------   ------
<S>                                                           <C>      <C>
Land and buildings held for sale............................  $3,401   $3,371
Prepaid insurance...........................................   2,487    2,372
Other.......................................................   2,053    2,463
                                                              ------   ------
                                                              $7,941   $8,206
                                                              ======   ======
</TABLE>

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

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          -------------------
                                                            1998       1999
                                                          --------   --------
<S>                                                       <C>        <C>
Land....................................................  $    202   $    202
Marine vessels and transportation equipment.............    74,244     74,156
Buildings and improvements..............................     5,985      6,709
Furniture and fixtures..................................     1,351      1,709
Machinery and equipment.................................    27,717     26,504
Construction in progress................................       439        756
                                                          --------   --------
                                                           109,938    110,036
Less: Accumulated depreciation and amortization.........   (13,803)   (27,961)
                                                          --------   --------
                                                          $ 96,135   $ 82,075
                                                          ========   ========
</TABLE>

     Other noncurrent assets consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              ---------------
                                                               1998     1999
                                                              ------   ------
<S>                                                           <C>      <C>
Restricted annuity investment collateralizing note
  Payable...................................................  $2,650   $2,350
Debt issuance costs, net....................................   1,513    2,327
Other.......................................................     809    1,655
                                                              ------   ------
                                                              $4,972   $6,332
                                                              ======   ======
</TABLE>

                                       31
<PAGE>   34
              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Accrued expenses consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                             ----------------
                                                              1998     1999
                                                             ------   -------
<S>                                                          <C>      <C>
Interest...................................................  $   --   $ 1,490
Accrued accounts payable...................................   4,052     5,019
Federal and state income tax payable.......................     701        --
Payroll, payroll taxes and employee benefits...............   1,454       574
Restructuring accrual......................................   1,295     2,249
Retainage payable..........................................     844       210
Accrued liabilities........................................     900    11,335
State sales tax............................................     390        50
Other......................................................     200       871
                                                             ------   -------
                                                             $9,836   $21,798
                                                             ======   =======
</TABLE>

7. SUMMARY OF FINANCING ARRANGEMENTS

     Long-term debt at December 31, 1998 and 1999 consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           ------------------
                                                            1998       1999
                                                           -------   --------
<S>                                                        <C>       <C>
Credit Facility: (see below)
  Revolving facility.....................................  $    --   $  7,500
  Term loan..............................................       --     37,302
  Subordinated debt......................................       --     20,000
  Credit Agreement.......................................   56,000         --
Note payable to a Founding Company, interest at 8%, due
  over ten-year term ending in 2007, secured by insurance
  annuity................................................    2,650      2,350
Various notes to finance companies payable in aggregate
  monthly installments of $279,000 including interest at
  6.5% to 9.0%, maturing through July 2002, secured by
     equipment, land and buildings.......................    2,464      2,273
                                                           -------   --------
                                                            61,114     69,425
Less -- Current maturities...............................   (6,018)   (67,272)
                                                           -------   --------
                                                           $55,096   $  2,153
                                                           =======   ========
</TABLE>

  Credit Facility

     In January 1999, the Company entered into a "Credit Facility" with
financial institutions, replacing the existing credit agreement with an
aggregate credit facility of $70 million. The Credit Facility is comprised of
three separate credit agreements: (a) a three year revolving credit agreement
("Revolving Facility") for up to $15.0 million; (b) a seven year term credit
agreement ("Term Loan") for $35.0 million, and (c) a five year subordinated debt
agreement ("Subordinated Debt") of $20.0 million.

     In November 1999 the Company renegotiated the terms of its Revolving
Facility to reduce the facility to $10.0 million and amend the financial
covenants. At that time the Company also obtained waivers for financial covenant
defaults at September 1999. Borrowings under the Revolving Facility bear
interest on a sliding scale of 175 to 275 basis points over either the Base Rate
or LIBOR, depending upon the ratio of senior funded debt to the Company's
earnings before interest, taxes, depreciation, and amortization (EBITDA). The
choice of using the Base Rate or the LIBOR rate is at the option of the Company.
The Base Rate is defined as the

                                       32
<PAGE>   35
              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

higher of the federal funds rate plus 50 basis points or the prime rate.
Interest is payable monthly. At December 31, 1999, the average interest rate on
borrowings under the Revolving Facility was 9%. The borrowing capacity under the
Revolving Facility is calculated using a borrowing base that includes accounts
receivable and inventory. At December 31, 1999, the Company was in default with
regard to certain financial and other covenants. The Company is currently
seeking waivers for these defaults. However, there can be no assurance that the
Company will be able to obtain such waivers. Therefore, the outstanding balance
of $7.5 million at December 31, 1999, has been classified as current in the
accompanying financial statements.

     In November 1999 the Company renegotiated the terms of its Term Loan to
increase the then outstanding balance of the facility by $5.0 million and
amended the financial and other covenants. At that time the Company also
obtained waivers for financial covenant defaults at September 1999. Borrowings
under the Term Loan Facility bear interest at LIBOR plus 250 basis points. At
December 31, 1999, the interest rate on borrowings under the Term Loan was 8.6%.
Principal and interest are due monthly beginning January 1, 2000 with the first
principal payment being in the amount of $1,083,000. The remaining balance is to
be paid in 46 payments of approximately $542,000 plus interest; 25 payments of
approximately $437,000 plus interest, and the final payment for the then
outstanding balance plus interest. At December 31, 1999, the Company is in
default with regard to certain financial and other covenants and subsequent to
year-end has failed to meet the scheduled debt service payment requirements of
the Term Loan. The Company is currently seeking waivers for these defaults.
However, there can be no assurance that the Company will be able to obtain such
waivers. Therefore, the outstanding balance of $37.3 million at December 31,
1999 has been classified as current in the accompanying financial statements.

     In November 1999 the Company re-negotiated the terms of its Subordinated
Debt and amended the financial covenants. At that time the Company also obtained
waivers for financial and other covenant defaults at September 1999. Borrowings
under the Subordinated Debt bear interest on a sliding scale of 275 to 575 basis
points over the Prime Rate depending upon the ratio of senior funded debt to the
Company's earnings before EBITDA. The Prime Rate is defined as the higher of the
federal funds rate plus 50 basis points or the prime rate. At December 31, 1999,
the interest rate on borrowings under the Subordinated Debt was 14.3%. Interest
is payable quarterly beginning March 31, 1999, with principal due upon maturity
on the fifth anniversary of the subordinated debt agreement. At December 31,
1999, the Company is in default with regard to certain financial and other
covenants. The Company is currently seeking waivers for these defaults. However,
there can be no assurance that the Company will be able to obtain such waivers.
Therefore, the outstanding balance of $20.0 million at December 31, 1999 has
been classified as current in the accompanying financial statements.

     Commitment fees on the daily average unused commitment under the Revolving
Facility are payable monthly at an annual rate ranging from 0.25% to .375%.
Borrowings under the Credit Facility are secured by liens on substantially all
of the Company's assets (including accounts receivable and subsequently acquired
property) and a pledge of the capital stock of all subsidiaries. The Credit
Facility requires the Company to comply with various loan covenants, including
(a) maintenance of certain financial ratios, (b) restrictions on additional
indebtedness and (c) restrictions on liens, guarantees, advances and dividends.
In connection with the Subordinated Debt, the Company issued to the subordinated
lender a warrant to acquire 233,000 shares of Common Stock at an exercise price
of $3.12 per share and cancelled the previously issued warrant to acquire
175,000 shares of Common Stock issued in conjunction with the 1997 credit
agreement. In November 1999 the Company issued the subordinated lender an
additional warrant to acquire 175,000 shares of Common Stock at an exercise
price of $3.69 per share in conjunction with obtaining the waiver of the
September 1999 defaults and amendment to the financial covenants. The warrants
are exercisable for five years from the date of issuance. Upon issuance, the
408,000 warrants were valued at $668,000 based on fair market value as
determined by management and use of the Black-Scholes pricing mode.

                                       33
<PAGE>   36
              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Annual maturities of long-term debt at December 31, 1999, after giving
effect to acceleration due to debt covenant violations, are as follows (in
thousands):

<TABLE>
<CAPTION>
                 YEAR ENDING DECEMBER 31,
                 ------------------------
<S>                                                          <C>
2000......................................................   $67,272
2001......................................................       377
2002......................................................       326
2003......................................................       300
2004......................................................       300
Thereafter................................................       850
                                                             -------
                                                             $69,425
                                                             =======
</TABLE>

8. STOCKHOLDERS' EQUITY

  Common Stock

     On November 4, 1997, TCMS completed the Offering, which involved the
issuance of 5,750,000 shares of Common Stock at a price of $18.00 per share
(before deducting underwriting discounts and commissions), including 750,000
shares pursuant to an over-allotment option granted by the Company to the
underwriters in connection with the Offering. The net proceeds to TCMS after
deducting underwriter discounts and commissions totaled $94.7 million.

     In March and April 1997, 175,000 shares and 100,000 shares of Common Stock,
respectively, were sold to management at $.001 per share. TCMS recorded a
non-recurring, non-cash compensation charge of $2.2 million effective with the
closing of the Offering, representing the difference between the amount paid for
the shares and the estimated fair value of the shares on the date of sale of
such Common Stock.

     In April 1997, TCMS issued 3,000 shares of Common Stock to a consultant for
services performed in connection with the Offering. The difference of $12,200
between the amount paid and the estimated fair market value of the shares on the
date of issue was recorded as deferred offering costs in the second quarter of
1997. In July 1997, an additional 3,000 shares of Common Stock were issued with
the same terms to another consultant for services performed in connection with
the Offering. An additional $32,000 was recorded as deferred offering costs in
the third quarter of 1997. Such costs were charged to additional paid-in capital
upon consummation of the Offering.

     In September 1998, the Company issued 1,300,000 shares of Common Stock to
the former stockholders of Dickson as partial consideration for all the
outstanding stock of Dickson. The Company valued the shares at $5.5 million or
$4.25 per share, which was the quoted closing price of the stock on the day
preceding the closing of the acquisition.

     On May 19, 1999, the Company issued 400,000 shares of Common Stock to the
former stockholders of Dickson. The shares were issued in partial consideration
of the earn-out portion of the acquisition price of all the outstanding stock of
Dickson.

  Preferred Stock

     On May 19, 1999, the Company issued 1,680 shares of Series B 5% cumulative
convertible preferred stock and 140 shares of Series A 7% redeemable cumulative
preferred stock (Series A Preferred Stock) to the former stockholders of
Dickson. The shares were issued in partial consideration of the earn-out portion
of the acquisition price of all the outstanding stock of Dickson. On May 26,
1999, the 1,680 shares of Series B 5% cumulative convertible preferred stock
were automatically converted into 400,000 shares of Common Stock upon the
approval by the stockholders of the Company. The approval of the issuance of the
Common Stock

                                       34
<PAGE>   37
              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(as part of the acquisition of Dickson) by the stockholders was required in
accordance with the rules and regulations of Nasdaq National Market.

     The Series A Preferred Stock vote as a single class on matters which
adversely affect any right, preference, privilege, or voting power of the Series
A Preferred Stock. The Series A Preferred Stock votes as a class on the issuance
of additional shares of Series A Preferred Stock or the creation of a class or
series of preferred stock which is senior to the Series A Preferred Stock. The
Series A Preferred Stock, as presented in the accompanying balance sheets, has a
redemption price of $1,000 per share, together with accrued and unpaid dividends
thereon. Redemption is at the option of the holders for any or all the
outstanding shares after May 19, 2004 or at the option of the Company after May
19, 2005. In the event of any liquidation, dissolution or winding up of the
affairs of the Company, holders of the Series A Preferred Stock shall be paid
the redemption price plus all accrued dividends to the date of liquidation,
dissolution or winding up of affairs before any payment to other stockholders.

  Restricted Common Stock

     All outstanding shares of Restricted Common Stock were converted into
shares of Common Stock during 1999.

  Dividends and Distributions to Woodson Stockholders

     Dividends recorded in the consolidated statements of stockholders' equity
and cash flows represent amounts paid to Woodson stockholders prior to the
Offering.

     Distributions to Woodson stockholders recorded in the consolidated
statements of stockholders' equity and cash flows represent the cash portion of
the purchase price paid to the Woodson stockholders for the acquisition of
Woodson.

  Stock Options

     In August 1997, the Board of Directors and the stockholders of TCMS
approved the 1997 Stock Option Plan (the "Plan"). The Plan provides for the
granting of stock options to directors, executive officers, certain other
employees and certain non-employee consultants of the Company. The Plan, which
was amended during 1998 to permit up to 950,000 shares of Common Stock to be
issued, terminates in August 2007. In general, the terms of the option awards
provide for vesting up to 5 years and expire 10 years from date of grant.

     In December 1998, the Board of Directors approved the Transcoastal Marine
Services, Inc. 1998 Stock Option Plan (the "1998 Plan"). The 1998 Plan provides
for granting of stock options to the Chairman and CEO and the Executive Vice
President necessary to fulfill the Company's obligations under their respective
employment agreements. The 1998 Plan terminates in November 2001. In general,
that the terms of the option awards provide for vesting up to 5 years and expire
10 years from date of grant.

                                       35
<PAGE>   38
              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes activity under the Plan for the years ended
December 31, 1997, 1998 and 1999:

<TABLE>
<CAPTION>
                                                                          WEIGHTED
                                                                          AVERAGE
                                                                          EXERCISE
                                                               SHARES      PRICE
                                                              ---------   --------
<S>                                                           <C>         <C>
Outstanding at December 31, 1996............................         --    $   --
  Granted...................................................    444,325    $18.00
  Exercised.................................................         --        --
  Canceled/expired..........................................    (16,167)   $18.00
                                                              ---------
Outstanding at December 31, 1997............................    428,158    $18.00
  Granted...................................................  1,262,500    $ 4.02
  Exercised.................................................         --        --
  Canceled/expired..........................................   (128,753)   $16.09
                                                              ---------
Outstanding at December 31, 1998............................  1,561,905    $ 5.82
  Granted...................................................    801,613    $ 3.74
  Exercised.................................................         --        --
  Canceled..................................................    (16,600)   $ 3.25
                                                              ---------
Outstanding at December 31, 1999............................  2,346,918    $ 5.13
                                                              =========
</TABLE>

     The following table summarizes certain information about stock options
outstanding at December 31, 1999:

<TABLE>
<CAPTION>
                                                           WEIGHTED
                                        NUMBER             AVERAGE           WEIGHTED
            RANGE OF                OUTSTANDING AT        REMAINING          AVERAGE
         EXERCISE PRICES           DECEMBER 31, 1999   CONTRACTUAL LIFE   EXERCISE PRICE
         ---------------           -----------------   ----------------   --------------
<S>                                <C>                 <C>                <C>
$2.25-$4.125.....................      2,005,780          9.2 years           $ 3.42
$6.00-$11.00.....................        121,000          8.4 years           $10.01
$18.00...........................        220,138          7.7 years           $18.00
                                       ---------
                                       2,346,918          9.0 years           $ 5.13
                                       =========
</TABLE>

     At December 31, 1997, 1998 and 1999, exercisable option shares were 0,
767,131 and 1,371,329, respectively. Unexercised options expire during the years
2007 through 2009.

     Entities are permitted to choose between a fair value-based method of
accounting for employee stock options or similar equity instruments and the
intrinsic, value-based method of accounting. The Company has elected the
intrinsic, value-based method and accordingly must make pro forma disclosures of
net income and income (loss) per share as if the fair value method of accounting
had been applied. Since options have been issued at fair market value, no
deferred compensation expense has been recorded in the accompanying financial
statements.

                                       36
<PAGE>   39
              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following pro forma summary of the Company's consolidated results of
operations have been prepared as if the fair value based method of accounting
for stock based compensation had been applied (in thousands, except per share
amounts):

<TABLE>
<CAPTION>
                                                               YEAR ENDED
                                                              DECEMBER 31,
                                                           ------------------
                                                            1998      1999
                                                           ------   ---------
<S>                                                        <C>      <C>
Net income (loss), as reported...........................  $1,127   $(104,349)
Pro forma net income attributable to common
  Stockholders...........................................  $1,127   $(106,426)
Diluted net income (loss) per share
  As reported............................................  $ 0.12   $   (9.53)
  Pro forma..............................................  $ 0.12   $   (9.72)
</TABLE>

     Fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1998 and 1999.

<TABLE>
<CAPTION>
                                                               YEAR ENDED
                                                              DECEMBER 31,
                                                          ---------------------
                                                            1998        1999
                                                          ---------   ---------
<S>                                                       <C>         <C>
Risk-free interest rate.................................        5.0%       5.31%
Dividend yield..........................................         --          --
Volatility factor.......................................       44.0%       44.8%
Weighted average expected life..........................  7.7 years   7.5 years
</TABLE>

  Common Stock Warrants

     During the first quarter of 1997, TCMS entered into an advisory agreement
with an investment banking firm which provided for the issuance of a warrant to
acquire 50,000 shares of Common Stock at a per share exercise price equal to
$8.00. The warrant may be exercised in whole or, from time to time, in part, at
any time during the five-year period beginning six months after the Offering
closes. In connection with the warrant, TCMS granted certain registration rights
to the firm. Additionally, in connection with the Credit Agreement, the Company
issued to its subordinated lender warrants to acquire 233,000 and 175,000 shares
of Common Stock at an exercise price of $3.12 and $3.69, respectively (See Note
7 regarding cancellation of warrant in 1999). As of December 31, 1997, 1998 and
1999, no warrants had been exercised. These warrants were valued by management,
using the Black-Scholes pricing model, at approximately $0.7 million.

9. LEASES

     The Company leases facilities under noncancellable operating leases. The
following represents future minimum rental payments under noncancellable
operating leases (in thousands):

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S>                                                           <C>
2000.......................................................   $  998
2001.......................................................      786
2002.......................................................      502
2003.......................................................      344
2004.......................................................      230
Thereafter.................................................    1,516
                                                              ------
                                                              $4,376
                                                              ======
</TABLE>

                                       37
<PAGE>   40
              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Rental expense for the years ended December 31, 1997, 1998 and 1999 was
approximately $163,000, $1,173,000 and $1,037,000, respectively. Included in
these amounts are rent expenses and commissions paid to related parties for the
years ended December 31, 1997, 1998 and 1999 of approximately $90,000, $8,000
and $0, respectively.

10. INCOME TAXES

     Federal and state income tax provisions (benefits) are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                                    -------------------------
                                                    1997     1998      1999
                                                    -----   ------   --------
<S>                                                 <C>     <C>      <C>
Federal
  Current.........................................  $ 583   $   59   $     --
  Deferred........................................   (127)   1,409    (17,947)
State
  Current.........................................     71       43         --
  Deferred........................................     --       --     (3,782)
                                                    -----   ------   --------
                                                    $ 527   $1,511   $(21,729)
                                                    =====   ======   ========
</TABLE>

     Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34% to income before
income tax as follows (in thousands):

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                                    -------------------------
                                                    1997     1998      1999
                                                    -----   ------   --------
<S>                                                 <C>     <C>      <C>
Income tax expense at the statutory rate..........  $ 865   $1,467   $(42,864)
Increase (decrease) resulting from:
  State income taxes, net of related federal tax
     effect.......................................     71       43     (3,782)
  Woodson S Corp. income..........................   (667)      --         --
  Nondeductible goodwill, net.....................     94      256     24,398
  Other...........................................    164     (255)       519
                                                    -----   ------   --------
                                                    $ 527   $1,511   $(21,729)
                                                    =====   ======   ========
</TABLE>

                                       38
<PAGE>   41
              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Deferred income tax provisions result from temporary differences in the
recognition of revenues and expenses for financial reporting purposes and for
tax purposes. The tax effects of these temporary differences representing
deferred assets and liabilities result principally from the following (in
thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           ------------------
                                                             1998      1999
                                                           --------   -------
<S>                                                        <C>        <C>
Deferred tax assets:
  Net operating loss carryforwards.......................  $     --   $17,281
  Write-off of bad debts.................................       472     1,984
                                                           --------   -------
          Total gross deferred tax assets................       472    19,265
  Less -- Valuation allowance............................        --    (9,284)
                                                           --------   -------
          Net deferred tax assets........................       472     9,981
Deferred tax liabilities:
  Tax depreciation in excess of book depreciation........    18,466     9,981
  Other..................................................     3,735        --
                                                           --------   -------
          Total..........................................    22,201     9,981
                                                           --------   -------
          Net deferred income tax liabilities............  $(21,729)  $   (--)
                                                           ========   =======
</TABLE>

     As of December 31, 1999, the Company had a net operating loss (NOL) of
approximately $42.0 million which is available to offset future taxable income.
Due to uncertainties regarding the Company's ability to fully utilize the NOL
during the carryforward period, the Company has provided a valuation allowance
of approximately $9.3 million at December 31, 1999.

11. COMMITMENTS AND CONTINGENCIES

  Chevron Dispute

     In December 1999, Chevron Global Technologies Services Company ("Chevron")
informed the Company of its intention to seek reimbursements totaling
approximately $27.0 million for various disputed billings associated with
certain fabrication projects. The Company has begun proceedings with Chevron in
order to bring a resolution to the matters regarding the disputed billings. At
December 31, 1999, the Company had outstanding two letters of credit, totalling
$8.6 million, issued in favor of Chevron. While the Company is unable to
estimate precisely the ultimate dollar amount of exposure, if any, related to
this matter, it has made accruals for management's estimate of the exposure. Due
to the evolving nature of the disputed items with Chevron, the inherent
shortcomings of the estimation process and other factors, amounts accrued could
vary significantly from amounts required to be paid, if any. If Chevron were to
prevail, it would have a significant impact on the operations of the Company's
subsidiary, TransCoastal Fabrication & Offshore Group, Inc. (formerly Dickson
GMP International, Inc.) and the Company.

  Contract Receivable

     During 1999, the Company was informed that the Mexican joint venture, also
the general contractor, of one of the Company's major vessel charter contracts
was in poor financial condition and would cease to perform construction in the
Gulf of Mexico. At December 31, 1999, the contract receivable outstanding was
$19.8 million. The Company has continued to negotiate with the joint venture as
to future payments. While the Company is unable to estimate precisely the
ultimate amount that may be collected, it has provided a reserve for
management's estimate of amounts which may not be collected. The Company
believes that the current reserve is adequate to cover any uncollectable portion
of the contract receivable and expects final resolution of this matter will
occur during the second or third quarter of 2000.

                                       39
<PAGE>   42
              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Litigation

     During 1998, the Company was involved in two class action lawsuits for
unspecified personal injury and property damages arising from events in October
1991 and January 1992 during the course of a pipeline installation project for a
third party gas transmission company. One of the class actions, involving
approximately 9,840 class members, entitled Rivera v. United Gas Pipeline Co.,
No. 28738, was instituted against Woodson Construction Company, Inc. on October
29, 1991 in the 40th Judicial District Court, Parish of St. John the Baptist,
State of Louisiana. This lawsuit was settled during 1998. The Company's
contribution towards the settlement was approximately $50,000, and was expensed
in 1998. The second class action lawsuit, involving approximately 7,858 class
members, entitled Husseiney v. United Gas Pipeline Co., No. 29089, was
instituted on January 27, 1992 against Woodson Construction Company, Inc. in the
40th Judicial District Court, Parish of St. John the Baptist, State of
Louisiana. This lawsuit was settled during 1999. The Company's contribution
towards the settlement was approximately $600,000, and was expensed in 1998.

     The Company is involved in various other lawsuits arising in the ordinary
course of business, some of which involve substantial claims for damages. While
the outcome of these other lawsuits cannot be predicted with certainty,
management believes these other matters will not have a material adverse effect
on the consolidated financial position or results of operations of the Company.

  Consulting Agreements

     During February 1997, TCMS entered into a consulting and financial advisory
agreement (the "Consulting Agreement") with a promoter of TCMS ("J&D"). The
Consulting Agreement provided for a monthly fee of $12,500 through the closing
of the Offering and was to provide for a monthly consulting fee and
non-qualified stock options under the 1997 Stock Option Plan. Shortly after the
Offering, the Consulting Agreement was terminated in exchange for the payment to
J&D of approximately $800,000. In connection with the Consulting Agreement, a
total of 36,667 options were issued to J&D. The options expired concurrent with
the termination of the Consulting Agreement.

     In April 1997, TCMS entered into consulting services agreements with
certain officers of the Company. Pursuant to these agreements, the officers
provided executive services in connection with the formation of TCMS and the
closing of the Offering. Expenses related to these contract services totaled
$64,000 through the closing of the Offering, at which time these agreements
terminated.

  Employment Agreements

     Members of the management team have executed employment agreements that
extend through November 2001 which provide for compensation of $590,000 and
$560,000 in 2000 and 2001, respectively.

12. EMPLOYEE BENEFIT PLANS

     The Company has a 401(K) Plan (the "Plan") which provides for certain
contributions of up to 10 percent of the annual compensation of each
participant. The Plan includes employees of at least 21 years of age with 6
months of completed service. The Company obtained a favorable tax determination
letter from the Internal Revenue Service with respect to the Plan. The Company
has agreed to fund 50% per dollar of contribution by an eligible employee, up to
contributions totaling 6% of the employee's annual salary. The Company made
contributions to the Plan of $59,000, $359,000 and $447,000 in 1997, 1998 and
1999, respectively.

                                       40
<PAGE>   43
              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. SALES TO MAJOR CUSTOMERS

     The customer base for the Company is primarily concentrated in the oil and
gas industry. The revenues earned from each customer vary from year to year
based on the contracts awarded. Sales to customers comprising 10% or more of the
Company's total revenues are summarized as follows:

<TABLE>
<CAPTION>
                                                               YEAR ENDED
                                                              DECEMBER 31,
                                                           ------------------
                                                           1997   1998   1999
                                                           ----   ----   ----
<S>                                                        <C>    <C>    <C>
Customer A...............................................  34.5%    --     --
Customer B...............................................  32.2%    --     --
Customer C...............................................    --   21.2%  32.0%
Customer D...............................................    --     --   11.3%
</TABLE>

14. SEGMENT INFORMATION

  Operating Segments

     The Company has two primary operating segments the Pipeline & Marine Group
and the Fabrication & Offshore Group. The Pipeline & Marine Group's operations
focus on the construction, burial and testing of pipelines onshore, in the
transition zone and in water depths up to 800 feet. The Fabrication & Offshore
Group's primary operations focus on the fabrication of shallow water barges,
drilling rigs and oil and gas production platforms. The two segments are managed
separately because each business requires different technology and marketing
strategies. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies except that certain
corporate expenses such as amortization of goodwill as well as interest expense,
interest income and income taxes are not allocated between the segments in the
Company's evaluation of segment profit or loss.

                                       41
<PAGE>   44
              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following shows segment information for the reportable segments for the
three years in the period ended December 31, 1999 (in thousands):

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                              -------------------------------
                                                1997       1998       1999
                                              --------   --------   ---------
<S>                                           <C>        <C>        <C>
Sales to unaffiliated customers:
  Pipeline & Marine.........................  $ 53,193   $110,880   $  57,309
  Fabrication & Offshore....................     4,324     77,401      89,645
  Other.....................................        --        597          21
                                              --------   --------   ---------
                                              $ 57,517   $188,878   $ 146,975
                                              ========   ========   =========
Net income:
  Pipeline & Marine.........................  $  4,867   $  4,961   $ (12,545)
  Fabrication & Offshore....................       831      2,875     (32,835)
  Other.....................................    (4,348)    (5,031)    (58,969)
                                              --------   --------   ---------
                                              $  1,350   $  2,805   $(104,349)
                                              ========   ========   =========
Identifiable assets:
  Pipeline & Marine.........................  $ 87,181   $113,551   $  97,981
  Fabrication & Offshore....................     7,946     40,747      20,073
  Other.....................................    76,690     82,299      11,820
                                              --------   --------   ---------
                                              $171,817   $236,597   $ 129,874
                                              ========   ========   =========
Depreciation and amortization:
  Pipeline & Marine.........................  $  1,979   $  7,715   $   9,440
  Fabrication & Offshore....................        57      1,755       3,140
  Other.....................................        66        358         345
                                              --------   --------   ---------
                                              $  2,102   $  9,828   $  12,925
                                              ========   ========   =========
Capital expenditures:
  Pipeline & Marine.........................  $  6,759   $ 28,598   $   5,819
  Fabrication & Offshore....................        --      6,784         734
  Other.....................................        --        702         320
                                              --------   --------   ---------
                                              $  6,759   $ 36,084   $   6,873
                                              ========   ========   =========
Export sales -- United States:
  To Venezuela..............................  $     --   $ 24,234   $  40,241
  To all other..............................        --      2,127          --
                                              --------   --------   ---------
                                              $     --   $ 26,361   $  40,241
                                              ========   ========   =========
</TABLE>

     During 1999, the Company operated in principally four geographic segments:
the United States, Venezuela, Mexico, and Nigeria. Revenues derived from sales
generated in Venezuela and export sales to Venezuela for the two years ended
December 31, 1999 were approximately 12.8% and 27.4% of total revenues. Revenues
generated from services provided in Mexico represented approximately 2.4% and
11.3% of total revenues for the years ended December 31, 1998, and 1999,
respectively. Revenues generated from services provided in Nigeria represented
approximately 1.0% and 7.4% of total revenues for the years ended December 31,
1998, and 1999, respectively. Prior to 1998, export sales or revenue generated
in foreign countries was not significant to the Company's operations. In 1997
approximately 4.3% of its revenues were generated outside the United States. All
of the Company's contracts are denominated in U.S. Dollars.

                                       42
<PAGE>   45
              TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company's foreign operations and sales to foreign locations are subject
to local government regulations and to uncertainties of economics and political
conditions of those areas. In addition, because of the impact of local laws, the
Company also conducts some of its foreign projects pursuant to arrangements in
which local entities participate in the project. Revisions to project revenues
or costs, including those arising from changes or revisions to foreign
regulatory requirements and revisions to arrangements with local entities, are
recognized in the period in which the revisions are determined.

     The following shows geographic segment information for the three years in
the period ended December 31, 1999 (in thousands):

<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31
                                                -----------------------------
                                                 1997       1998       1999
                                                -------   --------   --------
<S>                                             <C>       <C>        <C>
Sales to unaffiliated customers:
  United States...............................  $55,017   $139,212   $ 79,353
  Venezuela...................................       --     24,234     40,241
  Mexico......................................       --      4,579     16,545
  Nigeria.....................................       --      1,835     10,836
Other Foreign.................................    2,500     19,018         --
                                                -------   --------   --------
                                                $57,517   $188,878   $146,975
                                                =======   ========   ========
Identifiable long-lived assets:
  United States...............................  $66,907   $ 99,536   $ 85,446
  Venezuela...................................       --         --         --
  Mexico......................................       --         --         --
  Nigeria.....................................       --         --         --
Other Foreign.................................       --         --         --
                                                -------   --------   --------
                                                $66,907   $ 99,536   $ 85,446
                                                =======   ========   ========
</TABLE>

15. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

     Supplemental cash flow information for each of the three years in the
period ended December 31, 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                                    -------------------------
                                                     1997      1998     1999
                                                    -------   ------   ------
<S>                                                 <C>       <C>      <C>
Cash Paid For:
  Interest........................................  $   370   $3,620   $4,765
  Income taxes....................................  $   420   $  629   $   29
Non-cash Investing and Financing Activities:
  Assumption of long-term debt in connection with
     acquisitions.................................  $10,612   $  617   $   --
  Issuance of Series A Preferred Stock in
     connection with Dickson earn-out.............  $    --   $   --   $  140
  Issuance of Common Stock in connection with
     Dickson earn-out.............................  $    --   $   --   $2,950
  Issuance of stock options in lieu of cash
     expenses.....................................  $    --   $   --   $   50
  Issuance of warrants to lender..................  $    --   $   --   $  668
</TABLE>

                                       43
<PAGE>   46

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

BOARD OF DIRECTORS

     Nathan M. Avery, Chairman -- 65 years of age. Mr. Avery became a director
of the Company on the closing of the initial public offering (the "Offering") in
November 1997. As of November 16, 1998, Mr. Avery became Chief Executive Officer
and Chairman of the Company. Mr. Avery also became President of the Company on
December 16, 1998. Since 1972, Mr. Avery has served as Chairman of the Board,
President and Chief Executive Officer of Galveston-Houston Company, a company
specializing in manufacturing oilfield service products. He has been active in
the oil and gas industry since the 1960's. He is also a director of Cooper
Cameron Corporation. Mr. Avery was Chairman of the Board of Directors of Bettis
Corporation until December 1996. He was a director of Daniel Industries, Inc.
from 1996 to the date of the Daniel's acquisition by Emerson Electric Company .

     Patrick B. Collins -- 71 years of age. Mr. Collins was elected to the Board
of Directors in September 1997. He is also a member of the Audit Committee. From
1967 to 1991, Mr. Collins was a partner with Coopers & Lybrand LLP. Since 1991,
Mr. Collins has been an independent business consultant specializing in
financial and accounting matters. Mr. Collins is currently serving on the Board
of Directors of HCC Insurance Holdings, Inc., a property and casualty insurance
company based in Houston, Texas.

     Monroe M. Luther -- 60 years of age. Mr. Luther was elected to the Board of
Directors in February 2000. Mr. Luther also has served as a member of the Audit
Committee since his election to the Board of Directors. Mr. Luther founded Eagle
Management & Trust Company, an investment management company, in 1969 and served
as its Chief Executive Officer until it was acquired by Boatmen's Bank in 1996.
Mr. Luther is currently serving on the Board of Directors of Texas Capital
Network, Opportunity International, and the Prague Post Foundation.

     Jean Savoy -- 51 years of age. Mr. Savoy was elected to the Board of
Directors in September 1997. He is also a member of the Executive, Audit and
Compensation Committees. Mr. Savoy was previously a member and manager of J&D
Capital, L.C., a consulting and financial services company based in Lafayette,
Louisiana. For over 25 years, Mr. Savoy has served as an independent directional
and horizontal drilling consultant for independent and major oil and gas
companies and various directional drilling concerns.

     Richard O. Wilson -- 70 years of age. Mr. Wilson was elected to the Board
of Directors in September 1999. Mr. Wilson has over 40 years of experience in
the construction and oilfield services industries. From 1964 to 1979 he served
in various senior management positions within the Brown & Root companies both
domestically and internationally. Mr. Wilson has served in the past on the Board
of Directors of Brown & Root Inc., Halliburton Services, Dolphin Drilling A/S,
and AOC international and OGC international PLC. Currently, Mr. Wilson is
serving as a director for Callon Petroleum, Inc.

     Directors elected at the Annual Meeting will hold office for a one-year
term.

EXECUTIVE OFFICERS

     Set forth below is the age (as of March 31, 2000), positions held with the
Company and certain other business experience information for each of the
Company's executive officers.

     Nathan M. Avery, 65, has served as Chairman of the Board and Chief
Executive Officer of the Company since November 1998. He was also elected to the
office of President of the Company effective December 16, 1998. Biographical
information regarding Mr. Avery is set forth above, under the Directors'
section.

                                       44
<PAGE>   47

     Pamela L. Reiland, 46, has served as Executive Vice President of the
Company since November 1998. Ms. Reiland has over fifteen years of corporate
finance experience including experience as Chief Financial Officer of a NYSE
public company. She served as Vice-President and Treasurer of Galveston-Houston
Company from 1986 to 1993 and thereafter, through the present, as a consultant
and director of such company. Prior to that date, she served as Vice-President
of Avery Investment Company, a private company with holdings in oilfield supply
vessels and Coca-Cola bottling franchises.

     Warren L. Williams, 44, has served as Treasurer since March 1999, Vice
President since September 1999, Chief Financial Officer since December 1999, and
Secretary since February 2000. From May 11, 1998 to December 1999, Mr. Williams
held the title of Director of Finance. From 1994 to joining the Company, he
served as a consultant and Partner of WJG Capital, LLC, a private investment
company. Prior to 1994, Mr. Williams had been with Ernst & Young for 14 years,
the last four years as a Partner.

ITEM 11. EXECUTIVE COMPENSATION.

     The following table sets forth the annual salary, bonus, and other
compensation for the fiscal year ended December 31, 1999 awarded to or earned by
the Company's executive officers (the "Named Officers").

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                   LONG-TERM
                                                                              COMPENSATION AWARDS
                                             ANNUAL COMPENSATION            -----------------------
                                    -------------------------------------   RESTRICTED   SECURITIES
NAME AND PRINCIPAL POSITION                                OTHER ANNUAL       STOCK      UNDERLYING    ALL OTHER
WITH THE COMPANY             YEAR    SALARY    BONUS(1)   COMPENSATION(2)     AWARDS      OPTIONS     COMPENSATION
---------------------------  ----   --------   --------   ---------------   ----------   ----------   ------------
<S>                          <C>    <C>        <C>        <C>               <C>          <C>          <C>
Nathan M. Avery(3).........  1999   $     --   $200,000          --             --         387,097          N/A
  Chairman of the Board,     1998         --        N/A          --             --       1,000,000          N/A
  Chief Executive Officer
  and President
Pamela L. Reiland(3).......  1999   $104,166   $     --          --             --          64,516          N/A
  Executive Vice President   1998     12,500        N/A          --             --          50,000          N/A
Warren L. Williams(4)......  1999   $127,166   $ 18,000          --             --          38,000          N/A
  Vice President, Chief      1998     81,173   $ 10,000          --             --          17,500          N/A
  Financial Officer and
  Treasurer
Johnnie W. Domingue........  1999   $ 29,167   $     --          --             --              --          N/A
  Chief Financial Officer    1998    180,000   $     --          --             --          10,000      270,000
                             1997     90,098   $100,000          --             --          25,000        6,825
</TABLE>

---------------

(1) Represents bonuses received upon closing of the Offering.

(2) Perquisites and other personal benefits received during the year by each
    executive officer were individually less than (a) $50,000 and (b) 10% of the
    sum of salaries and bonuses paid to the executive officer.

(3) Mr. Avery and Ms. Reiland joined the Company in November 1998.

(4) Mr. Williams joined the Company in May 1998.

(5) Mr. Domingue received a total cash severance in the amount of $270,000 upon
    his resignation effective February 22, 1999. The severance is payable in
    equal semi-monthly installments over an 18-month period from the effective
    date. This amount was in settlement of the Company's obligation under its
    employment agreement with Mr. Domingue.

                                       45
<PAGE>   48

                             OPTION GRANTS IN 1999

     The following table sets forth, as to the Named Officers, information
concerning stock options granted during the fiscal year ended December 31, 1999.

<TABLE>
<CAPTION>
                                             INDIVIDUAL GRANTS                         POTENTIAL
                             -------------------------------------------------    REALIZABLE VALUE AT
                                          PERCENT OF                                ASSUMED ANNUAL
                                            TOTAL                                   RATES OF STOCK
                             NUMBER OF     OPTIONS      EXERCISE                  PRICE APPRECIATION
                              OPTIONS     GRANTED TO      PRICE                   FOR OPTION TERM(3)
                              GRANTED    EMPLOYEES IN      PER      EXPIRATION   ---------------------
NAME                          IN 1999      1999(1)        SHARE      DATE(2)        5%         10%
----                         ---------   ------------   ---------   ----------   --------   ----------
<S>                          <C>         <C>            <C>         <C>          <C>        <C>
Nathan M. Avery(4).........   387,097       48.3%        $3.875      11/15/09    $943,342   $2,390,615
Pamela L. Reiland(5).......    64,516        8.0%        $3.875      11/15/09    $157,223   $  398,435
Warren L. Williams.........    18,000        2.2%        $4.000      03/30/09    $ 45,280   $  114,749
Warren L. Williams.........    20,000        2.5%        $3.188      11/30/09    $ 40,098   $  101,617
</TABLE>

---------------

(1) The Company granted options to purchase 801,613 shares of Common Stock to
    employees, including executive officers, during 1998.

(2) The options in this table may terminate before their expiration as a result
    of the termination of optionee's status as an employee or upon the
    optionee's disability or death.

(3) Under rules promulgated by the SEC, the amounts in these columns represent
    the hypothetical gain or "option spread" that would exist for the options in
    this table based on assumed stock price appreciation from the date of grant
    until the end of such options' 10-year term at assumed annual rates of 5%
    and 10%. The 5% and 10% assumed annual rates of appreciation are specified
    in SEC rules and do not represent the Company's estimate or projection of
    future stock price growth. There can be no assurance that the actual stock
    price appreciation over the 10-year option term will be at the assumed 5%
    and 10% annual rates of compounded stock appreciation or at any other
    defined rate.

(4) The options in this table are in lieu of salary and vest at a rate of
    1/12th per month from date of grant.

(5) The options in this table are in lieu of bonus and vest at a rate of 1/12th
    per month from dated of grant.

              AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                         FISCAL YEAR-END OPTION VALUES

     The following table sets forth, as to the Named Officers, certain stock
option information concerning the number of shares subject to both exercisable
and unexercisable stock options and the value of such options as of December 31,
1999.

<TABLE>
<CAPTION>
                                                   NUMBER OF SECURITIES          VALUE OF UNEXERCISED
                                                  UNDERLYING UNEXERCISED        IN-THE-MONEY OPTIONS AT
                                                OPTIONS AT FISCAL YEAR-END       FISCAL YEAR-END($)(1)
                                                ---------------------------   ---------------------------
NAME                                            EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
----                                            -----------   -------------   -----------   -------------
<S>                                             <C>           <C>             <C>           <C>
Nathan M. Avery...............................    870,258        511,839          --             --
Pamela L. Reiland.............................     38,676         75,840          --             --
Warren L. Williams............................      7,500         48,000          --             --
Johnnie W. Domingue...........................     35,000             --          --             --
</TABLE>

---------------

(1) Based on the fair market value of the Company's Common Stock at fiscal
    year-end less the exercise price payable for such shares.

                                       46
<PAGE>   49

         REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

     The Compensation Committee, which is composed only of outside directors,
administers the compensation program for executive officers of the Company. The
Compensation Committee, with the aid of internal staff and independent
compensation consultants, reviews and evaluates the Company's compensation
program to determine its effectiveness in attracting, motivating and retaining
highly skilled executive officers.

     Compensation Philosophy. The objectives of the Company's executive
compensation policies are to attract, retain and reward highly-skilled executive
officers who contribute to the Company's success, to align the financial
interests of executive officers with the performance of the Company, to
strengthen the relationship between executive pay and stockholder value, to
motivate executive officers to achieve the Company's business objectives and to
reward individual performance. The Board of Directors believes that a
substantial portion of the annual compensation of each executive officer should
be influenced by the performance of the Company, as well as the individual
contribution of each executive officer and the responsibility and authority of
each position relative to other positions within the Company.

     Compensation Components. During 1999, the Company used base salary and
stock option grants to achieve the objectives outlined above. Subsequent to the
Offering, the Company employed independent consultants to design an appropriate
compensation plan for all management employees, including executive officers. A
critical component of the entire compensation plan, namely the cash performance
bonus plan, was approved by the Board of Directors during the first quarter of
1998 and is effective for the 2000 fiscal year.

     The Company's executive compensation program has three primary components:
base salary, cash performance bonus and long-term incentives. Each of these
three components is described below.

     Base Salary Program. The level of base salary paid to executive officers is
determined on the basis of performance, experience and such other factors as may
be appropriately considered by the Compensation Committee. Based upon a review
of comparable organizations, including certain of the companies in the Company's
peer group index used for the performance graph contained elsewhere herein, the
base salaries were negotiated and established for the executive officers.

     Cash Performance Bonus Program. The cash performance bonus plan (the "Bonus
Plan") is an annual incentive plan established by the Committee each year to
commence on January 1. The purpose of the Bonus Plan is to encourage
participants to think in broad business and managerial terms to: (1) encourage
the profitability of the Company as a whole, (2) encourage the cooperation and
support of the leadership and employees of the subsidiary companies, (3)
emphasize the need for each participant to strive to achieve the Company's
business strategies, and (4) emphasize the necessity of integrity, safety, and
quality in all of the Company's operations.

     The individuals chosen for participation in the Bonus Plan are selected
annually by management and supported by the Compensation Committee of the Board
of Directors. The goals and plans for each plan year shall be communicated to
participants not later than the end of the second quarter of each calendar year.
The plan year shall mean the calendar year ending December 31, 1999, and each
subsequent calendar year thereafter. Key management selected to participate in
2000 may or may not be selected in future years. If after the beginning of the
plan year, a person is newly hired, promoted, or transferred into a key
position, management may designate such person as a participant in the Bonus
Plan for the balance of the year, on a prorated basis. Due to industry
conditions and the Company's financial performance, no bonuses were awarded
during 2000 under the Bonus Plan.

     The Bonus Plan is based on three principal components, the Company's
overall financial performance, the financial performance of each business unit,
and the performance of the individual employee.

     Long-Term Incentive Plan. In August 1997, the Board of Directors and the
stockholders of the Company approved the 1997 Stock Option Plan (the "Plan").
The Plan was then amended at the 1998 Annual Meeting of the Shareholders to
increase the number of shares authorized for issuance under the Plan. The Plan
provides for the granting of stock options to directors, executive officers,
certain other employees and certain non-employee consultants of the Company.
Additionally, in December 1998, the Board of Directors

                                       47
<PAGE>   50

approved the TransCoastal Marine Services, Inc. 1998 Stock Option Plan (the
"1998 Plan"). The 1998 Plan provides for granting of stock options to the
Chairman and CEO and the Executive Vice President necessary to fulfill the
Company's obligations under their respective employment agreements. The 1998
Plan terminates in November 2001. In general, the 1998 Plan provides that the
terms of the option awards (including vesting schedules) are established by the
Compensation Committee of the Company's Board of Directors. During the year
ended December 31, 1998, 1,275,000 stock options were granted, including
1,134,000 stock options granted to executive officers.

     Deductibility. Internal Revenue Code Section 162(m) precludes a public
corporation from taking a compensation deduction in excess of $1 million for its
chief executive officer or its four other highest paid officers.
Performance-based compensation meeting criteria in Section 162(m), however, is
specifically exempt from the deduction limit. The Company's 1997 Stock Option
Plan has been designed to qualify long-term incentive grants to executive
officers as exempt performance-based compensation. The Company has not taken
actions necessary to qualify its annual cash incentive plan for the exclusion to
Section 162(m), because no executive officer's annual cash compensation exceeded
the Section 162(m) limit in fiscal 1998. While the Company intends to pursue a
strategy of maximizing the deductibility of compensation paid to executive
officers in fiscal 2000, it also intends to maintain the flexibility to take
actions that it considers to be in the Company's best interests and to take into
consideration factors other than tax deductibility.

     Compensation Policies for the Chief Executive Officer. Nathan M. Avery has
served as the Chief Executive Officer of the Company since November 1998. At
that time, he entered into a three-year employment agreement. The agreement
provides that during the first year of his employment, Mr. Avery is entitled to
receive equity compensation comprised of options to purchase 500,000 shares of
Common Stock vesting one-twelfth per month to achieve full vesting at the end of
this year. During the second and third years of the agreement, Mr. Avery is
entitled to a minimum base salary of $300,000 which he may elect to take as
Common Stock options in lieu of cash. Such options would have an exercise price
equal to the fair market value of the Common Stock on the first day of the
relevant year of the agreement and would vest one-twelfth per month over the
twelve months. The number of options granted in lieu of base salary will be
calculated such that the aggregate exercise price of such options equals five
times the substituted base salary amount. The agreement provides that Mr. Avery
will receive an annual bonus starting in January 2000 of $200,000 with a bonus
target for subsequent annual bonuses equal to 80% of base salary. This
compensation package is a function of a combination of experience, performance
and industry factors as determined by the Committee with the aid of independent
compensation consultants.

                                            THE COMPENSATION COMMITTEE

                                            Jean Savoy
                                            Patrick B. Collins

                                       48
<PAGE>   51

                       AGREEMENTS WITH EXECUTIVE OFFICERS

     Nathan M. Avery entered into a three-year employment agreement with the
Company effective November 16, 1998. During the first year of the agreement, Mr.
Avery is entitled to receive equity compensation comprised of options to
purchase 500,000 shares of Common Stock vesting one-twelfth per month to achieve
full vesting at the end of this year. During the second and third years of the
agreement, Mr. Avery is entitled to a minimum base salary of $300,000 which he
may elect to take as Common Stock options in lieu of cash. Such options would
have an exercise price equal to the fair market value of the Common Stock on the
first day of the relevant year of the agreement and would vest one-twelfth per
month over the twelve months. The number of options granted in lieu of base
salary will be calculated such that the aggregate exercise price of such options
equals five times the substituted base salary amount. The agreement provides
that Mr. Avery will receive an annual bonus starting in January 2000 of $200,000
with a bonus target for subsequent annual bonuses equal to 80% of base salary.
In connection with executing the agreement, Mr. Avery received a grant of
500,000 options to purchase shares of Common Stock, one-third of which are
immediately exercisable. The remaining two-thirds of the options will vest over
a two-year period. The agreement provides that in the case of a termination of
Mr. Avery's employment following a change of control, he will receive: (a) lump
sum payment equal to the unpaid base salary for the remaining term of
employment, (b) a bonus equal to the greater of the highest annual bonus award
during any prior year and the target bonus for the year in which the change of
control occurs, and (c) all unvested options will accelerate and become
immediately exercisable. Additionally, in the event of a change of control, Mr.
Avery may elect to receive a lump sum cash payment, in exchange for cancellation
of all of his options, equal to two times the difference in the price paid for
the Company's stock in the change of control transaction and the exercise price
of the options. In addition, in the case of a change of control, Mr. Avery is
entitled to receive a payment equal to one percent of the total consideration
received by the stockholders of the Company in such transaction. The agreement
also contains other customary benefits and perquisites.

     Pamela L. Reiland entered into a three-year employment agreement with the
Company effective November 16, 1998. The agreement entitles Ms. Reiland to an
initial base salary of $100,000 per annum which was increased to $150,000 in
December, 1999. The agreement provides that Ms. Reiland will receive an annual
bonus starting in January 2000 equal to the greater of $50,000 or 50% of her
base salary. Ms. Reiland may, at her option, receive options to purchase shares
of Common Stock in lieu of cash bonus payments. Such options would have an
exercise price equal to the fair market value of the Common Stock on the first
day of the relevant year for which the bonus is payable and would vest
one-twelfth per month over the subsequent twelve months. The number of options
granted in lieu of base salary will be calculated such that the aggregate
exercise price of such options equals five times the substituted bonus amount.
In connection with executing the agreement, Ms. Reiland received a grant of
50,000 options to purchase shares of Common Stock, one-third of which are
immediately exercisable. The remaining two-thirds of the options will vest over
a two-year period. The agreement provides that in case of a termination of Ms.
Reiland's employment following a change of control, she will receive the
following benefits: (a) lump sum payment equal to the unpaid base salary for the
remaining term of the employment agreement; (b) a bonus equal to the greater of
the highest annual bonus award during any prior year and the target bonus for
the year in which the change of control occurs, and (c) all unvested options
will accelerate and become immediately exercisable. Additionally, in the event
of a change of control, Ms. Reiland may elect to receive a lump sum cash
payment, in exchange for cancellation of all of her options, equal to two times
the difference in the price paid for the Company's stock in the change of
control transaction and the exercise price of the options. The agreement also
contains other customary benefits and perquisites.

     Warren L. Williams entered into an employment agreement with the Company
effective May 11, 1998. The agreement entitles Mr. Williams to an initial base
salary of $126,000 per annum which was increased to $140,000 in December 1999,
when he became the Chief Financial Officer. The agreement provides that Mr.
Williams will receive an annual bonus as determined by the Board of Directors of
the Company. The agreement, as amended in March of 2000, provides that in case
of a termination of Mr. Williams' employment following a change of control he
will receive a lump sum payment equal to the present value of his annual base

                                       49
<PAGE>   52

salary in effect immediately prior to the change of control. Additionally, all
unvested options will accelerate and become immediately exercisable. The
agreement also contains other customary benefits and perquisites.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of March 31, 2000 as to (i) each
person or entity known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock (a "5% Stockholder"), (ii) each of the
Company's current directors, (iii) each of the executive officers of the
Company, and (iv) all directors and executive officers as a group.

<TABLE>
<CAPTION>
                                                                 SHARES        PERCENT
                                                              BENEFICIALLY   BENEFICIALLY
STOCKHOLDER                                                     OWNED(1)       OWNED(1)
-----------                                                   ------------   ------------
<S>                                                           <C>            <C>
Fred E. Gallander, Jr. .....................................   1,492,000         10.5%
Heartland Advisors, Inc. ...................................   1,046,000          9.3%
Nathan M. Avery(4)..........................................     967,032          8.6%
Wellington Management Company, LLP..........................     675,900          6.0%
Dimensional Fund Advisors, Inc. ............................     649,300          5.8%
Pamela L. Reiland(3)........................................      57,605          *
Jean Savoy(2)...............................................      56,250          *
Patrick B. Collins(2).......................................      54,750          *
Monroe M. Luther(5).........................................      20,000          *
Warren L. Williams(6).......................................      12,000          *
Richard O. Wilson(5)........................................      11,300          *
All executive officers and directors as a group (10
  Persons)..................................................   2,670,937         23.7%
</TABLE>

---------------

 *  Less than one percent of the Company's Common Stock.

(1) The number and percentage of shares beneficially owned is determined in
    accordance with Rule 13d-3 of the Exchange Act and the information is not
    necessarily indicative of beneficial ownership for any other purpose. Under
    such rule, beneficial ownership includes any shares as to which the
    individual or entity has voting power or investment power and any shares
    which the individual has the right to acquire within 60 days of March 31,
    2000 through the exercise of any stock option or other right. Unless
    otherwise indicated in the footnotes, each person or entity has sole voting
    and investment power (or shares such powers with his/her spouse) with
    respect to the shares shown as beneficially owned.

(2) Includes the right to acquire 51,000 shares of Common Stock within 60 days
    upon the exercise of outstanding stock options.

(3) Includes the right to acquire 54,805 shares of Common Stock within 60 days
    upon the exercise of outstanding stock options and 2,800 shares over which
    Ms. Reiland is the trustee.

(4) Includes the right to acquire 967,032 shares of Common Stock within 60 days
    upon the exercise of outstanding stock options.

(5) Includes the right to acquire 5,000 shares of Common Stock within 60 days
    upon the exercise of outstanding stock options.

(6) Includes the right to acquire 12,000 shares of Common Stock within 60 days
    upon the exercise of outstanding stock options.

                                       50
<PAGE>   53


The address of each 5% Stockholder is as follows:



<TABLE>
<CAPTION>
5% STOCKHOLDER                                     ADDRESS
--------------                                     -------
<S>                                     <C>
Fred E. Gallander, Jr. ...............  6 Rosedown Court
                                        New Orleans, LA 70131
Heartland Advisors, Inc. .............  789 North Water Street
                                        Milwaukee, WI 53202
Wellington Management Company, LLP....  75 State Street, 19th Floor
                                        Boston, MA 02109
Dimensional Fund Advisors, Inc. ......  1299 Ocean Avenue, 11th Floor
                                        Santa Monica, CA 90401
Nathan M. Avery ......................  4900 Woodway, Suite 500
                                        Houston, TX 77056
</TABLE>



            SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE



     Based solely upon a review of reports on Forms 3 and 4 and amendments
thereto furnished to the Company during its most recent fiscal year and reports
on Form 5 and amendments thereto furnished to the Company with respect to its
most recent fiscal year, and written representations from certain reporting
persons that no Form 5 was required, the Company believes that all filing
requirements applicable to its officers, directors and beneficial owners under
Section 16(a) of the Exchange Act were complied with during fiscal 1999.



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.



     On January 12, 1999, the Company entered into a Settlement and Release
Agreement with Yvette B. Hargett, individually and as the duly appointed
Testamentary Executrix of Daniel N. Hargett, Sr., Deceased. Mr. Hargett died on
May 29, 1998, and the Company paid $425,000 to Mr. Hargett's Estate pursuant to
the terms of the agreement and in settlement of the Company's obligations under
its employment agreement with Mr. Hargett.



     On February 22, 1999, the Company entered into a Separation and Release
Agreement with Johnnie W. Domingue who resigned from the Company effective
February 22, 1999. Pursuant to the terms of the agreement and in settlement of
the Company's obligations under its employment agreement with Mr. Domingue, the
Company agreed to pay Mr. Domingue $270,000 in equal semi-monthly installments
over an eighteen-month period, fully vested him in his options and restricted
stock under his Stock Repurchase Agreement and agreed to provide medical
benefits for a period of time.



     The Red Fox Companies of New Iberia, Inc., a wholly owned subsidiary of the
Company, was paid $523,693 for services provided in 1998 to Red Fox
Environmental, Inc., a company owned by Beldon E. Fox, Jr. and D. Glenn
Richardson, both of which were directors of the Company until their resignation
in February 2000. These revenues were less than half of one percent of the
overall gross revenues of the Company in 1999.



     Richard O. Wilson, a director of the Company, received $90,000 during 1999
in payment for consulting services provided to the Company.


                                       51
<PAGE>   54

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

     (a) Exhibits

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
          3.1            -- Amended and Restated Certificate of Incorporation of
                            TCMS. (Incorporated by reference to Exhibit 3.1 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
          3.2            -- Bylaws of TCMS. (Incorporated by reference to Exhibit 3.2
                            of the Company's Registration Statement on Form S-1)
                            (File #333-34603).
          4.1            -- Form of Certificate representing Common Stock.
                            (Incorporated by Reference to Exhibit 4.1 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
          4.2            -- Form of Share Exchange Agreement among TCMS, J&D Capital
                            Investments, L.C., James B. Thompson and Beldon E. Fox,
                            Jr. (Incorporated by reference to Exhibit 4.2 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
          4.3            -- Form of Secured Promissory Note to be issued in the
                            acquisition of RFCNI. (Incorporated by reference to
                            Exhibit 4.3 of the Company's Registration Statement on
                            Form S-1) (File #333-34603).
         10.1            -- TCMS 1997 Stock Option Plan. (Incorporated by reference
                            to Exhibit 10.1 of the Company's Registration Statement
                            on Form S-1) (File #333-34603).
         10.2            -- Employment Agreement dated as of August 6, 1997, between
                            TCMS and Bill E. Stallworth. (Incorporated by reference
                            to Exhibit 10.2 of the Company's Registration Statement
                            on Form S-1) (File #333-34603).
         10.3            -- Employment Agreement dated as of August 6, 1997, between
                            TCMS and Thad Smith. (Incorporated by reference to
                            Exhibit 10.3 of the Company's Registration Statement on
                            Form S-1) (File #333-34603).
         10.4            -- Employment Agreement dated as of August 6, 1997, between
                            TCMS and Johnnie W. Domingue. (Incorporated by reference
                            to Exhibit 10.4 of the Company's Registration Statement
                            on Form S-1) (File #333-34603).
         10.5            -- Stock Repurchase Agreement dated as of March 24, 1997,
                            between TCMS and Bill E. Stallworth. (Incorporated by
                            reference to Exhibit 10.5 of the Company's Registration
                            Statement on Form S-1) (File #333-34603).
         10.6            -- Stock Repurchase Agreement dated as of April 25, 1997,
                            between TCMS and Thad Smith. (Incorporated by reference
                            to Exhibit 10.6 of the Company's Registration Statement
                            on Form S-1) (File #333-34603).
         10.7            -- Stock Repurchase Agreement dated as of March 24, 1997,
                            between TCMS and Johnnie W. Domingue. (Incorporated by
                            reference to Exhibit 10.7 of the Company's Registration
                            Statement on Form S-1) (File #333-34603).
         10.8            -- Form of Employment Agreement between HBH, Inc. and H.
                            Daniel Hughes II. (Incorporated by reference to Exhibit
                            10.8 of the Company's Registration Statement on Form S-1)
                            (File #333-34603).
         10.9            -- Form of Employment Agreement between CSI Hydrostatic
                            Testers, Inc. and Daniel N. Hargett, Sr. (Incorporated by
                            reference to Exhibit 10.9 of the Company's Registration
                            Statement on Form S-1) (File #333-34603).
</TABLE>

                                       52
<PAGE>   55

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.10           -- Agreement for Consulting Services dated April 14, 1997,
                            between TCMS and Stallworth, Frankhouser & Associates, as
                            amended August 6, 1997. (Incorporated by reference to
                            Exhibit 10.10 of the Company's Registration Statement on
                            Form S-1) (File #333-34603).
         10.11           -- Employment Letter dated April 21, 1997, between TCMS and
                            Johnnie W. Domingue, as amended August 6, 1997.
                            (Incorporated by reference to Exhibit 10.11 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
         10.12           -- Form of warrant issued to McFarland, Grossman & Company,
                            Inc. (Incorporated by reference to Exhibit 10.12 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
         10.13           -- Purchase and Sale Agreement dated as of August 28, 1997,
                            by and among TCMS, Laine Construction Company, Inc.,
                            Paula Woodson, Linda Woodson and Cheryl Woodson.
                            (Incorporated by reference to Exhibit 10.13 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
         10.14           -- Agreement and Plan of Merger dated as of August 28, 1997,
                            by and Among TCMS, Woodson Acquisition Corp., Woodson
                            Construction Company, Inc. and Louis Woodson.
                            (Incorporated by reference to Exhibit 10.14 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
         10.15           -- Agreement and Plan of Merger dated August 28, 1997, by
                            and among TCMS, Kori Acquisition Corp., Kori Corporation,
                            Paula Woodson, Linda Woodson and Cheryl Woodson.
                            (Incorporated by reference to Exhibit 10.15 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
         10.16           -- Agreement and Plan of Merger dated as of August 28, 1997,
                            by and among TCMS, Enviro Acquisition Corp.,
                            Envirosystems, Inc., Paula Woodson, Linda Woodson and
                            Cheryl Woodson. (Incorporated by reference to Exhibit
                            10.16 of the Company's Registration Statement on Form
                            S-1) (File #333-34603).
         10.17           -- Purchase and Sale Agreement dated as of August 28, 1997,
                            among TCMS, CSI Hydrostatic Testers, Inc., Hargett
                            Mooring and Marine, Inc., Daniel N. Hargett, Sr., Yvette
                            Hargett and Richard Hargett. (Incorporated by reference
                            to Exhibit 10.17 of the Company's Registration Statement
                            on Form S-1) (File #333-34603).
         10.18           -- Purchase and Sale Agreement dated as of August 20, 1997,
                            by and among TCMS, HBH, Inc. and the Succession of
                            Herbert D. Hughes. (Incorporated by reference to Exhibit
                            10.18 of the Company's Registration Statement on Form
                            S-1) (File #333-34603).
         10.19           -- Agreement and Plan of Merger dated as of August 27, 1997,
                            by and Among TCMS, RNI Acquisition Corp., The Red Fox
                            Companies of New Iberia, Inc. and The Beldon E. Fox, Sr.
                            Grandchildren's Trust No. 1. (Incorporated by reference
                            to Exhibit 10.19 of the Company's Registration Statement
                            on Form S-1) (File #333-34603).
         10.20           -- Form of Agreement to Purchase and Sell dated as of August
                            28, 1997, by and among TCMS and Linda Woodson, Cheryl
                            Woodson and Paula Woodson. (Incorporated by reference to
                            Exhibit 10.20 of the Company's Registration Statement on
                            Form S-1) (File #333-34603).
</TABLE>

                                       53
<PAGE>   56

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.21           -- Agreement to Purchase and Sell dated as of August 20,
                            1997, by and between TCMS and the Succession of Herbert
                            D. Hughes. (Incorporated by reference to Exhibit 10.21 of
                            the Company's Registration Statement on Form S-1) (File
                            #333-34603).
         10.22           -- Leasehold Purchase Agreement dated as of August 11, 1997,
                            by and between TCMS and The Beldon E. Fox, Sr.
                            Grandchildren's Trust No. 1. (Incorporated by reference
                            to Exhibit 10.22 of the Company's Registration Statement
                            on Form S-1) (File #333-34603).
         10.23           -- Amendment and Restated Consulting and Financial Advisory
                            Services Agreement dated September 24, 1997, between TCMS
                            and J&D Capital Investments, L.C. (Incorporated by
                            reference to Exhibit 10.23 of the Company's Registration
                            Statement on Form S-1) (File #333-34603).
         10.24           -- Form of Senior Revolving Credit Agreement by and among
                            TCMS and Joint Energy Development Investments, Limited
                            Partnership, and the Lenders Signatory thereto.
                            (Incorporated by reference to Exhibit 10.24 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
         10.25           -- Form of Subordinated Credit Agreement by and among TCMS
                            and Joint Energy Development Investments, Limited
                            Partnership, and the Lenders Signatory thereto.
                            (Incorporated by reference to Exhibit 10.25 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
         10.26           -- Form of Warrant Agreement by and between TCMS and Joint
                            Energy Development Investments, Limited Partnership.
                            (Incorporated by reference to Exhibit 10.26 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
         10.27           -- Lease Agreement by and between Red Fox Companies of New
                            Iberia, Inc., a division of TransCoastal Marine Services,
                            Inc., and Delta Terminal, Inc. for approximately 29.311
                            acres of land for a fabrication facility. (Incorporated
                            by reference to Exhibit 10.27 of the Company's Annual
                            Report for fiscal year ended December 31, 1997 filed on
                            Form 10-K).
         10.28           -- Lease Agreement by and between Red Fox Companies of New
                            Iberia, Inc., a division of Transcoastal Marine Services,
                            Inc., and the Board of Commissioners of the Port of New
                            Orleans for approximately 15.7 Acres of land including
                            approximately 68,000 square feet of fabricating building
                            space and 2,600 square feet of office space.
                            (Incorporated by reference to Exhibit 10.27 of the
                            Company's Annual Report for fiscal year ended December
                            31, 1997 filed on Form 10-K).
         10.29           -- Form of Subordinated Credit Agreement by and among the
                            Company and Joint Energy Development Investments II
                            Limited Partnership, and the Lender's Signatory thereto.
                            (Incorporated by reference to Exhibit 10.29 of the
                            Company's Annual Report for fiscal year ended December
                            31, 1998 filed on Form 10-K).
         10.30           -- Form of Credit Agreement by and among the Company and
                            Heller Financial Leasing, Inc. and the Lender's Signatory
                            thereto. (Incorporated by reference to Exhibit 10.30 of
                            the Company's Annual Report for fiscal year ended
                            December 31, 1998 filed on Form 10-K).
         10.31           -- Form of Senior Revolving Credit Agreement by and among
                            the Company and Bank One Texas, National Association, and
                            the Lender's Signatory thereto. (Incorporated by
                            reference to Exhibit 10.31 of the Company's Annual Report
                            for fiscal year ended December 31, 1998 filed on Form
                            10-K).
</TABLE>

                                       54
<PAGE>   57

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.32           -- Employment Agreement dated December 14, 1998 between the
                            Company and Nathan M. Avery. (Incorporated by reference
                            to Exhibit 10.32 of the Company's Annual Report for
                            fiscal year ended December 31, 1998 filed on Form 10-K).
         10.33           -- Employment Agreement dated December 14, 1998 between the
                            Company and Pamela L. Reiland. (Incorporated by reference
                            to Exhibit 10.33 of the Company's Annual Report for
                            fiscal year ended December 31, 1998 filed on Form 10-K).
         10.34           -- Stock Purchase and Merger Agreement between the Company
                            and Dickson GMP International, Inc. and affiliates
                            (Incorporated by reference to Exhibit 10.3 of the
                            Company's 8-K filed on September 15, 1998).
         10.35           -- First Amendment to Stock Purchase and Merger Agreement
                            between the Company and Dickson GMP International, Inc.
                            and affiliates (Incorporated by reference to Exhibit 10.4
                            of the Company's 8-K filed on September 15, 1998).
         10.36           -- Transcoastal Marine Services, Inc. 1998 Stock Option
                            Plan. (Incorporated by reference to Exhibit 10.36 of the
                            Company's Annual Report for fiscal year ended December
                            31, 1998 filed on Form 10-K).
         21.1            -- List of Subsidiaries of the Company. (Incorporated by
                            reference to Exhibit 21.1 of the Company's Registration
                            Statement on Form S-1) (File #333-34603).
         27.1            -- Financial Data Schedule.
</TABLE>

     (b) Financial Statement Schedules

     All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.

     (c) Reports on Form 8-K.

     None

                                       55
<PAGE>   58

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

                                            TRANSCOASTAL MARINE SERVICES, INC.

                                            By:   /s/ WARREN L. WILLIAMS
                                              ----------------------------------
                                                      Warren L. Williams
                                                   Chief Financial Officer

April 27, 2000

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed by the following persons on behalf of
the registrant and in the capacities and on the date indicated.

<TABLE>
<CAPTION>
                      SIGNATURE                                             TITLE
                      ---------                                             -----
<C>                                                      <S>

                 /s/ NATHAN M. AVERY                     Chairman of the Board of Directors and Chief
-----------------------------------------------------      Executive Officer (Principal Executive
                   Nathan M. Avery                         Officer)

                /s/ PAMELA L. REILAND                    Executive Vice President
-----------------------------------------------------
                  Pamela L. Reiland

               /s/ WARREN L. WILLIAMS                    Chief Financial Officer
-----------------------------------------------------
                 Warren L. Williams

                   /s/ JEAN SAVOY                        Director
-----------------------------------------------------
                     Jean Savoy

               /s/ PATRICK B. COLLINS                    Director
-----------------------------------------------------
                 Patrick B. Collins

                  /s/ MONROE LUTHER                      Director
-----------------------------------------------------
                    Monroe Luther

                /s/ RICHARD O. WILSON                    Director
-----------------------------------------------------
                  Richard O. Wilson
</TABLE>

                                       56
<PAGE>   59

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
          3.1            -- Amended and Restated Certificate of Incorporation of
                            TCMS. (Incorporated by reference to Exhibit 3.1 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
          3.2            -- Bylaws of TCMS. (Incorporated by reference to Exhibit 3.2
                            of the Company's Registration Statement on Form S-1)
                            (File #333-34603).
          4.1            -- Form of Certificate representing Common Stock.
                            (Incorporated by Reference to Exhibit 4.1 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
          4.2            -- Form of Share Exchange Agreement among TCMS, J&D Capital
                            Investments, L.C., James B. Thompson and Beldon E. Fox,
                            Jr. (Incorporated by reference to Exhibit 4.2 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
          4.3            -- Form of Secured Promissory Note to be issued in the
                            acquisition of RFCNI. (Incorporated by reference to
                            Exhibit 4.3 of the Company's Registration Statement on
                            Form S-1) (File #333-34603).
         10.1            -- TCMS 1997 Stock Option Plan. (Incorporated by reference
                            to Exhibit 10.1 of the Company's Registration Statement
                            on Form S-1) (File #333-34603).
         10.2            -- Employment Agreement dated as of August 6, 1997, between
                            TCMS and Bill E. Stallworth. (Incorporated by reference
                            to Exhibit 10.2 of the Company's Registration Statement
                            on Form S-1) (File #333-34603).
         10.3            -- Employment Agreement dated as of August 6, 1997, between
                            TCMS and Thad Smith. (Incorporated by reference to
                            Exhibit 10.3 of the Company's Registration Statement on
                            Form S-1) (File #333-34603).
         10.4            -- Employment Agreement dated as of August 6, 1997, between
                            TCMS and Johnnie W. Domingue. (Incorporated by reference
                            to Exhibit 10.4 of the Company's Registration Statement
                            on Form S-1) (File #333-34603).
         10.5            -- Stock Repurchase Agreement dated as of March 24, 1997,
                            between TCMS and Bill E. Stallworth. (Incorporated by
                            reference to Exhibit 10.5 of the Company's Registration
                            Statement on Form S-1) (File #333-34603).
         10.6            -- Stock Repurchase Agreement dated as of April 25, 1997,
                            between TCMS and Thad Smith. (Incorporated by reference
                            to Exhibit 10.6 of the Company's Registration Statement
                            on Form S-1) (File #333-34603).
         10.7            -- Stock Repurchase Agreement dated as of March 24, 1997,
                            between TCMS and Johnnie W. Domingue. (Incorporated by
                            reference to Exhibit 10.7 of the Company's Registration
                            Statement on Form S-1) (File #333-34603).
         10.8            -- Form of Employment Agreement between HBH, Inc. and H.
                            Daniel Hughes II. (Incorporated by reference to Exhibit
                            10.8 of the Company's Registration Statement on Form S-1)
                            (File #333-34603).
         10.9            -- Form of Employment Agreement between CSI Hydrostatic
                            Testers, Inc. and Daniel N. Hargett, Sr. (Incorporated by
                            reference to Exhibit 10.9 of the Company's Registration
                            Statement on Form S-1) (File #333-34603).
         10.10           -- Agreement for Consulting Services dated April 14, 1997,
                            between TCMS and Stallworth, Frankhouser & Associates, as
                            amended August 6, 1997. (Incorporated by reference to
                            Exhibit 10.10 of the Company's Registration Statement on
                            Form S-1) (File #333-34603).
</TABLE>
<PAGE>   60

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.11           -- Employment Letter dated April 21, 1997, between TCMS and
                            Johnnie W. Domingue, as amended August 6, 1997.
                            (Incorporated by reference to Exhibit 10.11 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
         10.12           -- Form of warrant issued to McFarland, Grossman & Company,
                            Inc. (Incorporated by reference to Exhibit 10.12 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
         10.13           -- Purchase and Sale Agreement dated as of August 28, 1997,
                            by and among TCMS, Laine Construction Company, Inc.,
                            Paula Woodson, Linda Woodson and Cheryl Woodson.
                            (Incorporated by reference to Exhibit 10.13 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
         10.14           -- Agreement and Plan of Merger dated as of August 28, 1997,
                            by and Among TCMS, Woodson Acquisition Corp., Woodson
                            Construction Company, Inc. and Louis Woodson.
                            (Incorporated by reference to Exhibit 10.14 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
         10.15           -- Agreement and Plan of Merger dated August 28, 1997, by
                            and among TCMS, Kori Acquisition Corp., Kori Corporation,
                            Paula Woodson, Linda Woodson and Cheryl Woodson.
                            (Incorporated by reference to Exhibit 10.15 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
         10.16           -- Agreement and Plan of Merger dated as of August 28, 1997,
                            by and among TCMS, Enviro Acquisition Corp.,
                            Envirosystems, Inc., Paula Woodson, Linda Woodson and
                            Cheryl Woodson. (Incorporated by reference to Exhibit
                            10.16 of the Company's Registration Statement on Form
                            S-1) (File #333-34603).
         10.17           -- Purchase and Sale Agreement dated as of August 28, 1997,
                            among TCMS, CSI Hydrostatic Testers, Inc., Hargett
                            Mooring and Marine, Inc., Daniel N. Hargett, Sr., Yvette
                            Hargett and Richard Hargett. (Incorporated by reference
                            to Exhibit 10.17 of the Company's Registration Statement
                            on Form S-1) (File #333-34603).
         10.18           -- Purchase and Sale Agreement dated as of August 20, 1997,
                            by and among TCMS, HBH, Inc. and the Succession of
                            Herbert D. Hughes. (Incorporated by reference to Exhibit
                            10.18 of the Company's Registration Statement on Form
                            S-1) (File #333-34603).
         10.19           -- Agreement and Plan of Merger dated as of August 27, 1997,
                            by and Among TCMS, RNI Acquisition Corp., The Red Fox
                            Companies of New Iberia, Inc. and The Beldon E. Fox, Sr.
                            Grandchildren's Trust No. 1. (Incorporated by reference
                            to Exhibit 10.19 of the Company's Registration Statement
                            on Form S-1) (File #333-34603).
         10.20           -- Form of Agreement to Purchase and Sell dated as of August
                            28, 1997, by and among TCMS and Linda Woodson, Cheryl
                            Woodson and Paula Woodson. (Incorporated by reference to
                            Exhibit 10.20 of the Company's Registration Statement on
                            Form S-1) (File #333-34603).
         10.21           -- Agreement to Purchase and Sell dated as of August 20,
                            1997, by and between TCMS and the Succession of Herbert
                            D. Hughes. (Incorporated by reference to Exhibit 10.21 of
                            the Company's Registration Statement on Form S-1) (File
                            #333-34603).
</TABLE>
<PAGE>   61

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.22           -- Leasehold Purchase Agreement dated as of August 11, 1997,
                            by and between TCMS and The Beldon E. Fox, Sr.
                            Grandchildren's Trust No. 1. (Incorporated by reference
                            to Exhibit 10.22 of the Company's Registration Statement
                            on Form S-1) (File #333-34603).
         10.23           -- Amendment and Restated Consulting and Financial Advisory
                            Services Agreement dated September 24, 1997, between TCMS
                            and J&D Capital Investments, L.C. (Incorporated by
                            reference to Exhibit 10.23 of the Company's Registration
                            Statement on Form S-1) (File #333-34603).
         10.24           -- Form of Senior Revolving Credit Agreement by and among
                            TCMS and Joint Energy Development Investments, Limited
                            Partnership, and the Lenders Signatory thereto.
                            (Incorporated by reference to Exhibit 10.24 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
         10.25           -- Form of Subordinated Credit Agreement by and among TCMS
                            and Joint Energy Development Investments, Limited
                            Partnership, and the Lenders Signatory thereto.
                            (Incorporated by reference to Exhibit 10.25 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
         10.26           -- Form of Warrant Agreement by and between TCMS and Joint
                            Energy Development Investments, Limited Partnership.
                            (Incorporated by reference to Exhibit 10.26 of the
                            Company's Registration Statement on Form S-1) (File
                            #333-34603).
         10.27           -- Lease Agreement by and between Red Fox Companies of New
                            Iberia, Inc., a division of TransCoastal Marine Services,
                            Inc., and Delta Terminal, Inc. for approximately 29.311
                            acres of land for a fabrication facility. (Incorporated
                            by reference to Exhibit 10.27 of the Company's Annual
                            Report for fiscal year ended December 31, 1997 filed on
                            Form 10-K).
         10.28           -- Lease Agreement by and between Red Fox Companies of New
                            Iberia, Inc., a division of Transcoastal Marine Services,
                            Inc., and the Board of Commissioners of the Port of New
                            Orleans for approximately 15.7 Acres of land including
                            approximately 68,000 square feet of fabricating building
                            space and 2,600 square feet of office space.
                            (Incorporated by reference to Exhibit 10.27 of the
                            Company's Annual Report for fiscal year ended December
                            31, 1997 filed on Form 10-K).
         10.29           -- Form of Subordinated Credit Agreement by and among the
                            Company and Joint Energy Development Investments II
                            Limited Partnership, and the Lender's Signatory thereto.
                            (Incorporated by reference to Exhibit 10.29 of the
                            Company's Annual Report for fiscal year ended December
                            31, 1998 filed on Form 10-K).
         10.30           -- Form of Credit Agreement by and among the Company and
                            Heller Financial Leasing, Inc. and the Lender's Signatory
                            thereto. (Incorporated by reference to Exhibit 10.30 of
                            the Company's Annual Report for fiscal year ended
                            December 31, 1998 filed on Form 10-K).
         10.31           -- Form of Senior Revolving Credit Agreement by and among
                            the Company and Bank One Texas, National Association, and
                            the Lender's Signatory thereto. (Incorporated by
                            reference to Exhibit 10.31 of the Company's Annual Report
                            for fiscal year ended December 31, 1998 filed on Form
                            10-K).
         10.32           -- Employment Agreement dated December 14, 1998 between the
                            Company and Nathan M. Avery. (Incorporated by reference
                            to Exhibit 10.32 of the Company's Annual Report for
                            fiscal year ended December 31, 1998 filed on Form 10-K).
</TABLE>
<PAGE>   62


<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.33           -- Employment Agreement dated December 14, 1998 between the
                            Company and Pamela L. Reiland. (Incorporated by reference
                            to Exhibit 10.33 of the Company's Annual Report for
                            fiscal year ended December 31, 1998 filed on Form 10-K).
         10.34           -- Stock Purchase and Merger Agreement between the Company
                            and Dickson GMP International, Inc. and affiliates
                            (Incorporated by reference to Exhibit 10.3 of the
                            Company's 8-K filed on September 15, 1998).
         10.35           -- First Amendment to Stock Purchase and Merger Agreement
                            between the Company and Dickson GMP International, Inc.
                            and affiliates (Incorporated by reference to Exhibit 10.4
                            of the Company's 8-K filed on September 15, 1998).
         10.36           -- Transcoastal Marine Services, Inc. 1998 Stock Option
                            Plan. (Incorporated by reference to Exhibit 10.36 of the
                            Company's Annual Report for fiscal year ended December
                            31, 1998 filed on Form 10-K).
         21.1            -- List of Subsidiaries of the Company. (Incorporated by
                            reference to Exhibit 21.1 of the Company's Registration
                            Statement on Form S-1) (File #333-34603).
         27.1            -- Financial Data Schedule. (Incorporated by reference to
                            Exhibit 27.1 of the Company's Annual Report for fiscal
                            year ended December 31, 1999 filed on Form 10-K).
</TABLE>


     However, an unfavorable outcome in the Company's billing dispute with
Chevron Global Technologies Services Company ("Chevron") could have a materially
adverse impact on the operations of the Company's wholly-owned subsidiary,
TransCoastal Fabrication & Offshore Group, Inc. (formerly Dickson GMP
International, Inc.). See discussion in Note 11 to the Consolidated Financial
Statements of the Company.