UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q


(Mark
One)


x   QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934


For the
quarterly period ended September 30, 2008





 ̈   TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934


For the
transition period from _____ to _____








Commission
File Number: 1-33402





Trico
Marine Services, Inc.


(Exact
name of registrant as specified in its charter)





Delaware
                (State
      or other jurisdiction of incorporation or organization)
              72-1252405
                (I.R.S.
      Employer Identification No.)3200
      Southwest Freeway, Suite 2950, Houston, Texas
                (Address
      of principal executive offices)
              77027
                (Zip
      code)





Registrant’s
telephone number, including area code: (713) 780-9926








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





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):




Large
Accelerated Filer   ̈  Accelerated
Filer x  Non-accelerated
filer  ̈  Smaller
Reporting Company  ̈


(Do not Check if a Smaller Reporting Company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x





Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.  Yes  x  No  ̈





The
number of shares of the registrant’s common stock, $0.01 par value per share,
issued and outstanding at  September  30, 2008 was
15,500,695.







1




TRICO
MARINE SERVICES, INC.


REPORT
FORM 10-Q


FOR
THE QUARTER ENDED September 30, 2008





TABLE
OF CONTENTS





PagePart
      I.
                  Financial
      InformationItem
      1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets – September 30, 2008 and
      December 31, 2007
                  3Condensed Consolidated Statements of Income – Three Months and
      Nine Months Ended September 30, 2008 and 2007
                  4Condensed Consolidated Statements of Cash Flows – Nine Months
      Ended September 30, 2008 and 2007
                  5Notes to the Condensed Consolidated Financial
      Statements
                  6Item 2. Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
                  31Item 3. Quantitative and Qualitative Disclosures About Market
      Risk
                  49Item 4. Controls and Procedures
                  50Part
      II.
                  Other Information
                  50Item 1. Legal Proceedings
                  50Item 1A. Risk Factors
                  51Item 2. Unregistered Sales of Equity Securities and Use of
      Proceeds
                  53Item 3. Defaults upon Senior Securities
                  53Item 4. Submission of Matters to a Vote of Security
      Holders
                  53Item 5. Other Information
                  53Item 6. Exhibits
                  53Signature
                  56




2
 Table of Contents





PART
I – FINANCIAL INFORMATION


Item
1.    FINANCIAL STATEMENTS.





TRICO
MARINE SERVICES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Unaudited)


(In
thousands, except share amounts)




September
      30,
                
                
                December
      31,2008
                
                
                2007ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                95,468
                
                
                $
                131,463Restricted
      cash
                
                
                2,911
                
                
                
                4,747Accounts
      receivable, net
                
                
                207,457
                
                
                
                47,253Prepaid
      expenses and other current assets
                
                
                16,094
                
                
                
                5,023Assets
      held for sale
                
                
                -
                
                
                
                3,786Total
      current assets
                
                
                321,930
                
                
                
                192,272Property
      and equipment:Land
      and buildings
                
                
                334
                
                
                
                117Marine
      vessels and subsea equipment
                
                
                664,513
                
                
                
                285,656Construction-in-progress
                
                
                312,518
                
                
                
                255,749Transportation
      and other
                
                
                4,543
                
                
                
                3,574981,908
                
                
                
                545,096Less
      accumulated depreciation and amortization
                
                
                (106,221
                )
                
                
                (71,482
                )Net
      property and equipment
                
                
                875,687
                
                
                
                473,614Other
      assets, including restricted cash of $3.8 million at December 31,
      2007
                
                
                26,887
                
                
                
                15,858Deferred
      income taxes
                
                
                2,754
                
                
                
                —Other
      intangible assets
                
                
                102,206
                
                
                
                —Goodwill
                
                
                209,398
                
                
                
                —Total
      assets
                
                $
                1,538,862
                
                
                $
                681,744LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Short-term
      and current maturities of debt
                
                $
                80,772
                
                
                $
                3,258Accounts
      payable
                
                
                57,776
                
                
                
                15,480Accrued
      expenses
                
                
                100,825
                
                
                
                22,896Accrued
      interest and insurance reserve
                
                
                14,378
                
                
                
                4,660Norwegian
      tax payable
                
                
                7,467
                
                
                
                4,627Income
      taxes payable
                
                
                4,844
                
                
                
                1,347Total
      current liabilities
                
                
                266,062
                
                
                
                52,268Long-term
      debt
                
                
                753,318
                
                
                
                157,287Derivative
      liability
                
                
                24,567
                
                
                
                —Norwegian
      tax payable
                
                
                56,540
                
                
                
                64,777Deferred
      income taxes
                
                
                1,535
                
                
                
                —Other
      liabilities
                
                
                5,459
                
                
                
                4,312Total
      liabilities
                
                
                1,107,481
                
                
                
                278,644Noncontrolling
      interest
                
                
                17,295
                
                
                
                12,878Commitments
      and contingencies (Note)Stockholders’
      equity:Preferred
      stock, $0.01 par value, 5,000,000 shares authorized and no shares issued
      at September 30, 2008 and December 31, 2007
                
                
                —
                
                
                
                —Common
      stock, $0.01 par value, 50,000,000 shares authorized and 15,500,696 and
      15,013,076 shares issued at September 30, 2008 and December 31, 2007,
      respectively
                
                
                155
                
                
                
                150Warrants
      — Series A
                
                
                1,640
                
                
                
                1,645Warrants
      — Series B
                
                
                —
                
                
                
                632Phantom
      stock units
                
                
                55,588
                
                
                
                —Additional
      paid-in capital
                
                
                262,546
                
                
                
                245,134Retained
      earnings
                
                
                180,474
                
                
                
                141,611Accumulated
      other comprehensive income (loss), net of tax
                
                
                (68,714
                )
                
                
                18,654Treasury
      stock, at cost
                
                
                (17,603
                )
                
                
                (17,604
                )Total
      stockholders’ equity
                
                
                414,086
                
                
                
                390,222Total
      liabilities, noncontrolling interest and stockholders’
    equity
                
                $
                1,538,862
                
                
                $
                681,744




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





3
 Table of Contents




TRICO
MARINE SERVICES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF INCOME


(Unaudited)


(In
thousands, except per share amounts)





Three
      Months Ended September 30,
                    
                    
                    Nine
      Months Ended September 30,2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007Revenues
                    
                    $
                    214,793
                    
                    
                    $
                    70,446
                    
                    
                    $
                    378,260
                    
                    
                    $
                    191,125Operating
      expenses:Direct
      operating expenses
                    
                    
                    155,113
                    
                    
                    
                    29,367
                    
                    
                    
                    258,952
                    
                    
                    
                    97,751General
      and administrative
                    
                    
                    18,804
                    
                    
                    
                    12,561
                    
                    
                    
                    44,511
                    
                    
                    
                    30,059Depreciation
      and amortization
                    
                    
                    21,673
                    
                    
                    
                    6,209
                    
                    
                    
                    41,315
                    
                    
                    
                    17,789(Gain)
      loss on sales of assets
                    
                    
                    10
                    
                    
                    
                    (1
                    )
                    
                    
                    (2,736
                    )
                    
                    
                    (2,858
                    )Total
      operating expenses
                    
                    
                    195,600
                    
                    
                    
                    48,136
                    
                    
                    
                    342,042
                    
                    
                    
                    142,741Operating
      income
                    
                    
                    19,193
                    
                    
                    
                    22,310
                    
                    
                    
                    36,218
                    
                    
                    
                    48,384Interest
      income
                    
                    
                    2,529
                    
                    
                    
                    4,127
                    
                    
                    
                    7,378
                    
                    
                    
                    10,827Interest
      expense, net of amounts capitalized
                    
                    
                    (11,694
                    )
                    
                    
                    (1,314
                    )
                    
                    
                    (18,093
                    )
                    
                    
                    (3,493
                    )Unrealized
      gain on mark to market of embedded derivative
                    
                    
                    31,515
                    
                    
                    
                    —
                    
                    
                    
                    29,205
                    
                    
                    
                    —Other
      income (loss), net
                    
                    
                    (50
                    )
                    
                    
                    (2,091
                    )
                    
                    
                    (1,515
                    )
                    
                    
                    (3,401
                    )Income
      before income taxes and noncontrolling interest in consolidated
      subsidiaries
                    
                    
                    41,493
                    
                    
                    
                    23,032
                    
                    
                    
                    53,193
                    
                    
                    
                    52,317Income
      tax expense
                    
                    
                    7,670
                    
                    
                    
                    9,906
                    
                    
                    
                    9,095
                    
                    
                    
                    22,322Income
      before noncontrolling interest in (income) loss of consolidated
      subsidiary
                    
                    
                    33,823
                    
                    
                    
                    13,126
                    
                    
                    
                    44,098
                    
                    
                    
                    29,995Noncontrolling
      interest in (income) loss of consolidated subsidiaries
                    
                    
                    (2,853
                    )
                    
                    
                    51
                    
                    
                    
                    (5,235
                    )
                    
                    
                    2,200Net
      income
                    
                    $
                    30,970
                    
                    
                    $
                    13,177
                    
                    
                    $
                    38,863
                    
                    
                    $
                    32,195Earnings
      per common share:Basic
                    
                    $
                    2.09
                    
                    
                    $
                    0.90
                    
                    
                    $
                    2.65
                    
                    
                    $
                    2.19Diluted
                    
                    $
                    1.86
                    
                    
                    $
                    0.87
                    
                    
                    $
                    2.45
                    
                    
                    $
                    2.10Weighted
      average shares outstanding:Basic
                    
                    
                    14,827
                    
                    
                    
                    14,562
                    
                    
                    
                    14,684
                    
                    
                    
                    14,719Diluted
                    
                    
                    16,680
                    
                    
                    
                    15,133
                    
                    
                    
                    15,865
                    
                    
                    
                    15,347




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


4
 Table of Contents




TRICO
MARINE SERVICES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


(In
thousands)




Nine
      Months Ended September 30,2008
                
                
                2007Cash flows from operating
      activities:Net
      income
                
                $
                38,863
                
                
                $
                32,195Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                
                
                41,315
                
                
                
                17,789Amortization
      of non-cash deferred revenues
                
                
                (277
                )
                
                
                (663
                )Deferred
      income taxes
                
                
                (327
                )
                
                
                19,264Gain
      on sales of assets
                
                
                (2,736
                )
                
                
                (2,858
                )Provision
      for doubtful accounts
                
                
                566
                
                
                
                424Stock
      based compensation
                
                
                3,120
                
                
                
                3,191Unrealized
      gain on derivative
                
                
                (29,205
                )
                
                
                —Accretion
      of discount on 6.5% convertible debentures
                
                
                3,101
                
                
                
                —Amortization
      of deferred financing costs
                
                
                2,773
                
                
                
                564Noncontrolling
      interest in income (loss) of consolidated subsidiary
                
                
                5,235
                
                
                
                (2,200
                )Change
      in operating assets and liabilities:Accounts
      receivable
                
                
                (23,166
                )
                
                
                (2,679
                )Prepaid
      expenses and other current assets
                
                
                (4,722
                )
                
                
                581Accounts
      payable and accrued expenses
                
                
                40,250
                
                
                
                6,774Other,net
                
                
                (4,037
                )
                
                
                (2,053
                )Net
      cash provided by operating activities
                
                
                70,753
                
                
                
                70,329Cash
      flows from investing activities:Acquisition
      of DeepOcean, net of cash acquired
                
                
                (506,951
                )
                
                
                —Purchases
      of property and equipment
                
                
                (77,472
                )
                
                
                (18,573
                )Proceeds
      from sales of assets
                
                
                7,023
                
                
                
                4,554Settlement
      of derivative instrument
                
                
                8,151
                
                
                
                —Purchases
      of available-for-sale securities
                
                
                —
                
                
                
                (67,530
                )Sales
      of available-for-sale securities
                
                
                —
                
                
                
                23,679Decrease
      in restricted cash
                
                
                2,575
                
                
                
                4,713Net
      cash used in investing activities
                
                
                (566,674
                )
                
                
                (53,157
                )Cash
      flows from financing activities:Net
      proceeds from exercises of warrants and options
                
                
                11,615
                
                
                
                1,810Proceeds
      from issuance of convertible debentures
                
                
                300,000
                
                
                
                150,000Proceeds
      and repayment of revolving credit facilities, net
                
                
                174,106
                
                
                
                1,371Debt
      issuance costs
                
                
                (16,502
                )
                
                
                (4,804
                )Purchases
      of treasury stock, at cost
                
                
                —
                
                
                
                (17,604
                )Net
      cash provided by financing activities
                
                
                469,219
                
                
                
                130,773Effect
      of exchange rate changes on cash and cash equivalents
                
                
                (9,293
                )
                
                
                9,480Net
      (decrease) increase in cash and cash equivalents
                
                
                (35,995
                )
                
                
                157,425Cash
      and cash equivalents at beginning of period
                
                
                131,463
                
                
                
                114,173Cash
      and cash equivalents at end of period
                
                $
                95,468
                
                
                $
                271,598Supplemental
      information:Noncash
      investing and financing activities:Issuance
      of phantom stock units in acquisition of DeepOcean
                
                $
                55,588
                
                
                $
                —





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





5
 Table of Contents




TRICO
MARINE SERVICES, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





1.   ORGANIZATION
AND BASIS OF PRESENTATION





The
condensed consolidated financial statements include the accounts of Trico Marine
Services, Inc. and its consolidated subsidiaries (the Company).  The
consolidated financial statements of the Company include the accounts of those
subsidiaries where the Company directly or indirectly has more than 50% of the
ownership rights and for which the right to participate in significant
management decisions is not shared with other shareholders.  The
Company also consolidates the accounts of its minority owned variable interest
subsidiaries for which the Company has been determined to be the primary
beneficiary.  All significant intercompany balances and transactions
have been eliminated in consolidation.  For comparative purposes,
certain amounts in 2007 have been reclassified to conform to the current
period’s presentation.  These reclassifications had no effect on net
income or operating cash flows.





The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X.  Accordingly, they do not include all of the
information required for complete financial statements under accounting
principles generally accepted in the United States of America.  In the
opinion of management, all adjustments, which consist of normal recurring items
considered necessary for a fair presentation, have been included.  The
results of operations for the interim periods are not necessarily indicative of
results of operations to be expected for the full year.





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires estimates and
assumptions that affect the reported amounts as well as certain
disclosures.  The Company’s financial statements include amounts that
are based on management’s best estimates and judgments.  Actual
results could differ from those estimates.





The
consolidated balance sheet as of December 31, 2007 has been derived from
the audited consolidated financial statements at that date, but does not include
all disclosures required by accounting principles generally accepted in the
United States of America, since certain information and disclosures normally
included in the notes to the financial statements have been condensed or omitted
for interim periods as permitted by the rules and regulations of the Securities
and Exchange Commission.  The accompanying unaudited condensed consolidatedfinancial statements
should be read in conjunction with the consolidated financial statements
contained in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2007.





On May 15, 2008, the Company initiated
a series of transactions that resulted in the acquisition of all the equity
ownership of DeepOcean ASA (DeepOcean).  The financial results of
DeepOcean are consolidated in the Company’s financial results for the three and
nine months ended September 30, 2008.  The Company began consolidating
DeepOcean’s results on May 16, 2008, the date it obtained constructive control
of DeepOcean. The Company’s ownership of DeepOcean ranged from 54% on May 16,
2008 to in excess of 99% on June 30, 2008.  The Company now owns 100%
of DeepOcean.





DeepOcean provides inspection,
maintenance and repair (IMR), survey and light construction support
services.  DeepOcean controls a fleet of 11 vessels equipped with
dynamic positioning (DP) systems and together with its owners has driven the
development of a new type of DP support vessel equipped with heavy weather
launch and recovery systems.   DeepOcean’s wholly-owned
subsidiary, CTC Marine Projects LTD (CTC Marine), operates a fleet of five
marine trenching vessels and a large number of remotely operating vehicles
(ROVs) providing trenching, cable laying and subsea installation
services.  DeepOcean is based in Haugesund, Norway and CTC Marine is
based in Darlington in the United Kingdom.  DeepOcean and CTC Marine
support their overseas operations through facilities in Aberdeen and Norwich in
the United Kingdom, Den Helder in the Netherlands, Ciudad del Carmen in Mexico
and Singapore.





6
 Table of Contents




2.     ACQUISITION
OF DEEPOCEAN





The
Company, through its subsidiary, Trico Shipping AS (Trico Shipping), acquired
all of the outstanding common stock of DeepOcean for Norwegian Kroner (NOK) 32
per share.  Trico Shipping acquired the DeepOcean shares as
follows:





On May 16, 2008, Trico Shipping
acquired an aggregate 55,728,955 shares of DeepOcean’s common stock,
representing 51.5% of the fully diluted capital stock of DeepOcean, pursuant to
the following agreements and arrangements:





·
            Subscription
      to purchase 20,000,000 newly issued DeepOcean shares,
      representing  approximately 18.5% of the fully diluted capital
      stock of DeepOcean directly from DeepOcean for a price of NOK 32 per share
      (approximately $127.6 million);





·
            Acquisition
      of 17,495,055 DeepOcean shares, representing approximately 16.2% of the
      fully diluted capital stock of DeepOcean, in the open market at a price of
      NOK 32 per share (approximately $111.6 million);
  and





·
            Agreements
      between the Company, Trico Shipping and certain members of DeepOcean’s
      management and another DeepOcean shareholder, pursuant to which Trico
      Shipping purchased 18,233,900 DeepOcean shares, representing approximately
      16.9% of the fully diluted capital stock of DeepOcean.  Trico
      Shipping acquired these DeepOcean shares in exchange for a combination of
      cash and phantom stock units issued by the Company with a combined value
      of NOK 32 per share (approximately $116.4
  million).





Subsequent
to May 16, 2008, Trico Shipping purchased an additional 2,700,000 DeepOcean
shares in the open market at a price of NOK 32 per share (approximately $17.2
million), representing approximately 2.5% of the fully diluted capital stock of
DeepOcean.  As a result of the transactions described above, and in
accordance with the Norwegian Securities Trading Act, on May 30, 2008 Trico
Shipping initiated a mandatory cash offer for all the remaining DeepOcean shares
it did not own.  The aggregate value of the mandatory offer price was
NOK 32 per share, including a previously announced NOK 0.50 per share dividend
amount.  On June 13, 2008, Trico Shipping acquired an aggregate of
39,272,000 DeepOcean shares, consisting of all the shares owned by DOF ASA
(DOF), a significant DeepOcean shareholder, as well as an additional 4,050,000
shares purchased in the open market for NOK 32 per share (approximately $246.7
million).  These acquisitions represent approximately 36.3% of
DeepOcean’s
fully diluted shares of capital stock, with the DOF shares representing
approximately 32.6% of the fully diluted capital stock of
DeepOcean.  Following these transactions the Company owned 90.4% of
DeepOcean’s
fully diluted capital stock.The
mandatory cash offer period ended on June 30, 2008, at which time the
Company’s
ownership of DeepOcean’s fully diluted
capital stock increased to 99.7%.  On August 29, 2008, DeepOcean
delisted from the Oslo Bors exchange.  The Company acquired the
remaining 284,965 shares of DeepOcean outstanding at a purchase price of 32 NOK
per share and now owns 100% of DeepOcean.





The
acquisition has been accounted for under the purchase method as required by
Statement of Financial Accounting Standards (SFAS) No. 141, “Business
Combinations.”  To
fund the acquisition, the Company used a combination of its available cash,
borrowings under its existing, new and/or amended revolving credit facilities
(Note 4),  the proceeds from the issuance of $300 million of 6.5%
convertible debentures (Note 3) and the issuance of the Company’s equity
instruments in the form of phantom stock units (Note 5).  Below is a
summary of the acquisition costs as of September 30, 2008 (in
thousands):





Cash
      consideration a
                  
                  $
                  632,905Issuance
      of phantom stock units
                  
                  
                  55,588Acquisition-related
      costs
                  
                  
                  10,806Total
      acquisition costs
                  
                  $
                  699,299





a.
            U.S.
      Dollar investment reflects the conversion of NOK amounts funded using the
      applicable foreign exchange rates in effect on the dates of
      funding.  The total investment in DeepOcean shares was NOK
      3,460,706,976, ($690.1 million) including net cash acquired of NOK
      695,000,000 ($137.3 million) on May 16,
2008.





7
 Table of Contents




2.     ACQUISITION
OF DEEPOCEAN (continued)





In
accordance with SFAS No. 141, the purchase price is allocated to the assets
acquired and liabilities assumed based upon their estimated fair values on the
acquisition dates.  At September 30, 2008, these estimated fair values
are based on preliminary internal estimates and are subject to change as the
Company completes its analysis.  In valuing acquired assets and
assumed liabilities, fair values are based on, but are not limited to: quoted
market prices, where available; expected cash flows; current replacement cost
for similar capacity for certain fixed assets; market rate assumptions for
contractual obligations; and appropriate discount and growth
rates.  The excess of purchase price over the estimated fair value of
the net assets acquired has been recorded as goodwill.  Unanticipated
future declines in levels and earnings of DeepOcean’s future subsea
services and CTC Marine’s trenching
services from those used to estimate the fair value of the acquired assets could
result in impairment to the carrying amounts assigned to property and equipment,
amortizable intangibles and goodwill.





The
Company’s allocation of the purchase price of DeepOcean and CTC Marine is
ongoing but is expected to be completed by year end 2008.  Items that
remain open to complete the Company’s purchase price allocation include:
assessment of the fair value of the pension assets and liabilities as of the
acquisition date, allocation of goodwill to the appropriate reporting units and
finalize the estimated useful lives of the assets acquired.  Below is
a summary of the preliminary purchase price valued on the dates of acquisition
and updated through September 30, 2008 (in thousands):





Preliminary
      Purchase Price AllocationCash
      and cash equivalents
                              
                              $
                              137,320Property
      and equipment, net
                              
                              
                              435,787
                              
                              aGoodwill
      and indefinite-lived intangible assets
                              
                              
                              244,139
                              
                              bAmortizable
      intangible assets and other
                              
                              
                              131,741
                              
                              cNet
      working capital deficit, excluding acquired cash
                              
                              
                              (15,983
                              )
                              dLong-term
      debt assumed
                              
                              
                              (222,230
                              )Other
      long-term liabilities
                              
                              
                              (11,475
                              )
                              eTotal
                              
                              $
                              699,299





a.
            Reflects
      the estimated fair value of the tangible assets of DeepOcean and CTC
      Marine.  The subsea equipment acquired from DeepOcean and CTC
      Marine has preliminary estimated depreciable lives ranging from 2 to 7
      years.  The marine vessels acquired have preliminary estimated
      useful lives approximating 20 to 25
years.


b.
            Includes
      $40.9 million associated with the DeepOcean and CTC Marine trademarks and
      $203.2 million of goodwill, which represents the excess of the purchase
      price over the fair value of the assets acquired and liabilities assumed.
      Goodwill reflects a number of potential strategic and financial benefits
      that are expected to be realized, including but not limited to, synergies,
      growth of subsea services business and our continued expansion into
      international markets.


c.
            Primarily
      reflects value associated with the customer relationships of DeepOcean and
      CTC Marine.  Accumulated amortization related to the intangible
      assets for the period from May 16, 2008 to September 30, 2008 totaled $5.5
      million.  The preliminary estimated useful life of the customer
      relationships is approximately 10 years and is being amortized using the
      straight-line method.


d.
            Includes
      $59.5 million of short-term and current maturities of debt assumed in the
      acquisition.


e.
            Primary
      includes pension liabilities.   The Norwegian companies of
      DeepOcean are required to maintain occupational pension
      plans.   The Company is still in the process of evaluating
      the provisions of these pension plans to establish their fair value as of
      the date of the acquisition.  The Company does not anticipate
      that any difference arising from this evaluation will have a material
      impact on its initial allocation of its purchase price for
      DeepOcean.





As of September 30, 2008, other than
the contingent liabilities indentified in the pro forma financial statements
presented and disclosed below, the Company had not identified any additional
material pre-acquisition contingencies where the related asset and liability or
impairment is probable and the amount of the asset, liability or impairment can
be reasonably estimated.  Prior to the end of the purchase price
allocation period, if information becomes available that an asset existed or
liability had been incurred or an asset had been impaired as of the acquisition
date, and the amounts can be reasonably estimated, these items will be included
in the purchase price allocation.




8
 Table of Contents





2.     ACQUISITION
OF DEEPOCEAN  (continued)





Although
the Company expects to realize benefits in connection with the acquisition of
DeepOcean, there is no assurance that the Company will achieve all or any of
them.   The Company, DeepOcean and CTC Marine may not be able to
execute the combined Company’s overall business
strategy or realize the anticipated benefits of the acquisition.  If
the Company is unable to achieve the expected future benefits from the
acquisition it may not be able to substantiate the carrying value of its
goodwill of $209.4 million, which would require the Company to record an
impairment charge to expense through operating income.  The Company
will assess the carrying value of goodwill for impairment whenever events and
circumstances indicate that the carrying amount of goodwill may not be
recoverable.   Furthermore, the Company will assess its goodwill
for impairment at least once annually, with the first assessment to occur as of
December 31, 2008.





The
following unaudited pro forma information assumes that the Company acquired
DeepOcean and CTC Marine effective January 1, 2008 for the three and nine month
periods ended September 30, 2008 and January 1, 2007 for the three and nine
month periods ended September 30, 2007 (amounts in thousands, except per share
data).





Three
      Months Ended
                
                
                Three
      Months EndedSeptember
      30, 2008
                
                
                September
      30, 2007Historical
                
                
                Pro
      forma
                
                
                Historical
                
                
                Pro
      FormaRevenues
                
                $
                214,793
                
                
                $
                276,665
                
                
                $
                70,446
                
                
                $
                162,527Operating
      income a
                
                
                19,193
                
                
                
                126
                
                
                
                22,310
                
                
                
                27,060Income
      before income taxes and noncontrolling interest in consolidated subsidiary
      b
                
                
                41,493
                
                
                
                16,243
                
                
                
                23,032
                
                
                
                12,053Net
      income
                
                
                30,970
                
                
                
                8,956
                
                
                
                13,177
                
                
                
                6,676Diluted
      net income per share of common stock
                
                $
                1.86
                
                
                $
                0.54
                
                
                $
                0.87
                
                
                $
                0.40Diluted
      weighted average shares outstanding
                
                
                16,680
                
                
                
                16,680
                
                
                
                15,133
                
                
                
                16,635







Nine
      Months Ended
                
                
                Nine
      Months EndedSeptember
      30, 2008
                
                
                September
      30, 2007Historical
                
                
                Pro
      forma
                
                
                Historical
                
                
                Pro
      FormaRevenues
                
                $
                378,260
                
                
                $
                525,690
                
                
                $
                191,125
                
                
                $
                441,349Operating
      income a
                
                
                36,218
                
                
                
                13,097
                
                
                
                48,384
                
                
                
                48,527Income
      before income taxes and noncontrolling interest in consolidated subsidiary
      b
                
                
                53,193
                
                
                
                7,231
                
                
                
                52,317
                
                
                
                10,524Net
      income (loss)
                
                
                38,863
                
                
                
                1,936
                
                
                
                32,195
                
                
                
                4,299Diluted
      net income per share of common stock
                
                $
                2.45
                
                
                $
                0.12
                
                
                $
                2.10
                
                
                $
                0.26Diluted
      weighted average shares outstanding
                
                
                15,865
                
                
                
                15,865
                
                
                
                15,347
                
                
                
                16,849





a.
            Pro
      forma amounts for the three and nine month periods ended September 30,
      2008 include the effect of non- recurring transactions that occurred at
      DeepOcean prior to its acquisition by the Company.   These
      charges include a $16.5 million estimated loss on a contract for services
      in Brazil that resulted following a delay in delivery of a vessel to
      perform the contracted work, a $2.6 million disputed loss with a partner
      for a project in India and $4.3 million of acquisition-related
      costs.


b.
            Pro
      forma amounts include acquisition related debt costs ($5.2 million and
      $18.0 million for the three and nine months ended September 30, 2008,
      respectively and $10.4 million and $31.0 million for the three and nine
      month periods ended September 30, 2007, respectively), including the
      amortization of debt discount on the 6.5% Debentures (Note
      3).  There is no assumed capitalized interest in 2007 as the
      Company did not have any material qualifying assets until the fourth
      quarter of 2007.   The Company determined that
      approximately 50% of its acquisition related interest expense would be
      capitalized in the 2008 pro forma
periods.





9
 Table of Contents




3.     6.5%
CONVERTIBLE DEBENTURES





On May
14, 2008, the Company entered into a securities purchase agreement under which
the Company agreed to sell $300 million aggregate principal amount of its 6.5%
Senior Convertible Debentures (the 6.5% Debentures) due 2028 to certain
institutional investors.  On May 16, 2008, the Company issued $300
million of the 6.5% Debentures in a private placement
transaction.  The 6.5% Debentures are governed by an indenture, dated
as of May 16, 2008, between the Company and Wells Fargo Bank, National
Association, as trustee.  The net proceeds from the 6.5% Debentures
totaled approximately $287 million, net of fees, and were used to partially fund
the acquisition of shares of DeepOcean capital stock (Note 2).





The 6.5%
Debentures are senior unsecured obligations of the Company and rank equally in
right of payment to all of the Company’s other existing and future senior
unsecured indebtedness.  The 6.5% Debentures are effectively
subordinated to all of the Company’s existing and future secured indebtedness to
the extent of the value of the Company’s assets collateralizing this
indebtedness and any liabilities of the Company’s subsidiaries.





The 6.5%
Debentures are convertible, based on an initial conversion rate of 24.74023
shares of common stock per $1,000 principal amount of debentures (which is equal
to an initial conversion price of approximately $40.42 per share), subject to
adjustment.  The conversion rate will be adjusted upon certain events
including (i) stock dividends; (ii) certain subdivisions, combinations or
reclassifications of the Company’s common stock; (iii) certain issuances or
distributions to all or substantially all holders of the Company’s common stock;
and (iv) certain other events.  In addition, in the event of certain
types of fundamental changes, holders of the debentures may elect either to
receive an interest make-whole payment or to cause the Company to increase the
conversion rate by a number of additional shares of the Company’s common stock
(which reflect the approximate value of interest that would have accrued under
the 6.5% Debentures at the applicable interest rate for the period from the
applicable conversion date through May 15, 2013).  Any of these
adjustments to the conversion rate could mean that the number of shares of the
Company’s common stock that are actually issuable upon conversion of all
debentures may increase above the 7,422,069 shares that would be issuable if
holders elected to convert their debentures and the Company decided to settle
the conversion in shares of its common stock (and no cash) at the initial
conversion rate.  There is both a maximum and minimum number of shares
that may ultimately be issued under any adjustment of the conversion rate
pursuant to these specific situations that allow for the modification of the
initial conversion rate.  None of these conditions have occurred as of
September 30, 2008 and there have been no conversions of the 6.5% Debentures by
the holders in 2008.





If
converted, holders will receive, at the Company’s election, cash, shares of the
Company’s common stock or a combination thereof.  Holders may convert
their debentures at their option at any time prior to the close of business on
the business day immediately preceding the maturity date.  Upon any
conversion prior to May 15, 2013, the Company will pay the holder the present
value discounted at the United States Treasury bond rate of the remaining
coupons owed on the principal amount of the debentures converted through and
including May 15, 2013.





Interest
on the 6.5% Debentures is payable semiannually in arrears on May 15 and November
15 of each year beginning November 15, 2008.  The debentures mature on
May 15, 2028, unless earlier converted, redeemed or repurchased.  The
indenture governing the 6.5% Debentures contains negative covenants with respect
to the Company’s incurring any indebtedness that is senior to or equal to the
6.5% Debentures other than the permitted indebtedness, or any liens or
encumbrances other than the permitted liens.





At any
time prior to May 15, 2011, subject to certain conditions, the Company may
redeem up to 50% of the original principal amount of the 6.5% Debentures in
whole or in part for cash, at a price equal to 100% of the principal amount of
the 6.5% Debentures plus accrued and unpaid interest to, but not including, the
redemption date, at any time if the last reported sale price of the Company’s
common stock has exceeded the 6.5% Debentures initial conversion price by 175%,
equating to $70.74 per share, for at least 20 trading days within a period of 30
consecutive trading days ending on the trading day prior to the date of mailing
of the redemption notice.  Beginning on May 15, 2011, the Company may
redeem any outstanding 6.5% Debentures in whole or in part for cash, at a price
equal to 100% of the principal amount of the 6.5% Debentures plus accrued and
unpaid interest to, but not including, the redemption date, at any time if the
last reported sale price of our common stock has exceeded 175% of the initial
conversion price of the 6.5% Debentures for at least 20 trading days within a
period of 30 consecutive trading days ending on the trading day prior to the
date of mailing of the redemption notice.  On or after May 15, 2013,
the Company may redeem for cash all or a portion of the 6.5% Debentures at a
redemption price of 100% of the principal amount of the 6.5% Debentures to be
redeemed plus accrued and unpaid interest to, but
not including, the redemption date.  Holders may require the Company
to purchase all or a portion of their 6.5% Debentures on each of May 15, 2013,
May 15, 2015, May 15, 2018 and May 15, 2023.  In addition, if the
Company experiences specified types of corporate transactions, holders may
require the Company to purchase all or a portion of their 6.5%
Debentures.  Any repurchase of the 6.5% Debentures pursuant to these
provisions will be for cash at a price equal to 100% of the principal amount of
the 6.5% Debentures to be purchased plus accrued and unpaid interest to the date
of repurchase.  Since the issuance of the 6.5% Debentures, at no time
has the Company exceeded the threshold for initiating its right to call the 6.5%
Debentures.





10
 Table of Contents




3.     6.5%
CONVERTIBLE DEBENTURES (continued)








The
conversion features included within the 6.5% Debentures are considered an
embedded derivative as defined in SFAS No. 133 “Accounting for Derivative
Instruments and Hedging Activities.”  Under SFAS No. 133 the Company
is required to bifurcate this embedded derivative from the host debt instrument
and record it at fair value on the date of issuance.  To estimate the
fair value of the embedded derivative, the Company used a Monte Carlo simulation
lattice model to establish the derivative’s fair value in accordance with the
requirements of SFAS No. 157 “Fair Value Measurements” (Note
6).   The estimated fair value of the derivative on the date of
issuance was $53.8 million, which was recorded as a non-current derivative
liability on the balance sheet with the offset recorded as a discount on the
6.5% Debentures. The derivative liability must be marked-to-market each
reporting period with changes in its fair value recorded in the consolidated
statement of operations as other income (loss).  On September 30,
2008, the estimated fair value of the derivative was $24.6 million resulting in
a $31.5 million and a $29.2 million unrealized gain for the three and nine month
periods, respectively, ended September 30, 2008.   The discount
on the 6.5% Debentures is being accreted through an additional non-cash charge
to interest expense over a five year period given that the 6.5% Debentures
include a number of put and call options held by the holder and the Company that
make it probable that the 6.5% Debentures will be redeemed or converted by the
first put option date of May 15, 2013.  The coupon and the
amortization of the discount on the debt will yield an effective interest rate
of approximately 11.2% on these convertible notes.  The derivative
liability will continue to be marked to market each reporting period for the
life of the debt, which, as previously indicated, is expected to be five years
based on the put and call options included within the debt
instrument.





11
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4. LONG
TERM DEBT





Unless
otherwise specified, amounts in these footnotes disclosing U.S. dollar
equivalents for foreign denominated debt amounts are translated at currency
rates in effect at September 30, 2008.  As of September 30, 2008, the
Company had approximately $60 million of additional undrawn borrowing capacity
under its existing credit facilities.   The Company’s debt at
September 30, 2008 and December 31, 2007 consisted of the following (in
thousands):





September 30, 2008
                
                
                December 31, 2007$300
      million face amount, 6.5% Senior Convertible Debentures net of unamortized
      discount of $50.7 million, interest payable semi-annually in arrears,
      maturing on May 15, 2028 (Note 3)
                
                $
                249,329
                
                
                $
                ―3.0%
      Senior Convertible Debentures, payable semi-annually in arrears, maturing
      on January 15, 2027
                
                
                150,000
                
                
                
                150,000$200
      million Revolving Credit Facility(1)
      maturing in May 2013
                
                
                148,589
                
                
                
                ―$100
      million Revolving Credit Facility(1)
      maturing no later than December 2017
                
                
                15,110
                
                
                
                ―$50
      million US Revolving Credit Facility Agreement (1)
      maturing in January 2011
                
                
                46,459
                
                
                
                ―6.11%
      Notes, principal and interest due in 30 semi-annual installments, maturing
      April 2014
                
                
                7,544
                
                
                
                8,174NOK
      260 million ($44.2 million) Short Term Credit Facility interest at 8.3%
      maturing on November 1, 2008
                
                
                13,893
                
                
                
                ―EMSL
      Revolving Credit Facility Agreement, bearing interest at LIBOR plus a
      margin of 0.08%
                
                
                ―
                
                
                
                2,000Debt
      assumed in the acquisition of DeepOcean:NOK
      350 million ($59.4 million) Revolving Credit Facility, maturing December
      1, 2014 (2)
                
                
                63,328
                
                
                
                ―NOK
      230 million($39.1 million) Revolving Credit Facility, maturing June 1,
      2012
                
                
                34,944
                
                
                
                ―23.5
      million Euro ($41.8 million) Revolving Credit Facility,
      maturing             September
      30, 2008
                
                
                19,947
                
                
                
                ―NOK
      150 million ($22.5 million) Additional Term Loan, maturing December 18,
      2011
                
                
                15,207
                
                
                
                ―$18
      million Revolving Credit Facility, maturing December
      5,  2011
                
                
                16,500
                
                
                
                ―8
      million Sterling ($14.2 million) Overdraft Facility, maturity 364 days
      after drawdown
                
                
                16,382
                
                
                
                ―24.2
      million Sterling ($42.2 million) Asset Financing Revolving Credit
      Facility, maturing no later than December 31, 2013
                
                
                18,688
                
                
                
                ―Other
      debt assumed in the acquisition of DeepOcean
                
                
                17,843
                
                
                
                ―Fresh-start
      debt premium
                
                
                327
                
                
                
                371Total
      debt
                
                
                834,090
                
                
                
                160,545Less
      current maturities
                
                
                (80,772
                )
                
                
                (3,258
                )Long-term
      debt, including premium
                
                $
                753,318
                
                
                $
                157,287





(1)
            Interest
      on revolving credit facilities is at London inter-bank offered rate
      (LIBOR) plus an applicable margin ranging from 1.75% to
      2.25%.   The three month LIBOR rate for the period ending
      September 30, 2008 and December 31, 2007 was 3.1 % and 5.0%,
      respectively.




12
 Table of Contents




4.  LONG
TERM DEBT (continued)





Maturities
of debt during the next five years and thereafter based on debt amounts
outstanding as of September 30, 2008 are as follows (in thousands):





At
      September 30, 2008
                          
                          AmountDue
      in one year
                          
                          $
                          80,772Due
      in two years
                          
                          
                          65,088Due
      in three years
                          
                          
                          70,958Due
      in four years
                          
                          
                          73,226Due
      in five years
                          
                          
                          83,492Due
      in over five years
                          
                          
                          510,898
                          
                          a884,434Fresh
      start debt premium
                          
                          
                          327Unamortized
      discount on 6.5% Debentures
                          
                          
                          (50,671
                          )Total
      Debt
                          
                          $
                          834,090


a.
            Includes
      the $300 million of 6.5% Debentures and the $150 million of 3% Debentures
      that may be converted earlier but have stated maturity terms in excess of
      five years.





3%
Senior Convertible Debentures.In February 2007, the
Company issued $150.0 million of 3% senior convertible debentures due in 2027
(the 3% Debentures).  The Company received net proceeds of
approximately $145.2 million after deducting commissions and offering costs of
approximately $4.8 million, which were capitalized as debt issuance costs and
are being amortized over the life of the 3% Debentures.  Net proceeds
of the offering were for the acquisition of Active Subsea ASA, financing of the
Company’s fleet renewal program and for general corporate purposes.




Interest
on the 3% Debentures is payable semiannually in arrears on January 15 and July
15 of each year.  The 3% Debentures will mature on January 15, 2027,
unless earlier converted, redeemed or repurchased.





The 3%
Debentures are senior unsecured obligations of the Company and rank equally in
right of payment to all of the Company’s other existing and future senior
indebtedness.  The 3% Debentures are effectively subordinated to all
of the Company’s existing and future secured indebtedness to the extent of the
value of its assets collateralizing such indebtedness and any liabilities of its
subsidiaries.  The 3% Debentures and shares of the common stock
issuable upon the conversion of the debentures have been registered under the
Securities Act of 1933.





The 3%
Debentures are convertible into cash and, if applicable, shares of our common
stock, par value $0.01 per share, based on an initial conversion rate of 23.0216
shares of common stock per $1,000 principal amount of  the 3%
Debentures (which is equal to an initial conversion price of approximately
$43.44 per share), subject to adjustment and certain limitations.  For
more information regarding our 3% Debentures conversion and redemption options
see Note 8 of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2007.  None of these conditions have been met at
September 30, 2008.





$200
million Revolving Credit Facility.In May 2008, in
connection with financing the acquisition of DeepOcean, Trico Shipping AS and
certain other subsidiaries of the Company entered into a credit agreement (as
amended the $200 Million Credit Agreement) with various lenders.  The
$200 Million Credit Agreement provides the Company with a $200 million, or
equivalent in foreign currency, revolving credit facility, which is guaranteed
by certain of the Company’s subsidiaries, and is collateralized by vessel
mortgages and other security documents.  The commitment under the
facility reduces by $10 million each quarter starting with the quarter ending
September 30, 2008 and continuing through the quarter ending June 30, 2010, at
which time the facility will reduce by $6 million per quarter until March 31,
2013.  The commitment under the facility is currently $170
million.  Interest is payable on the unpaid principal amount
outstanding at a rate applicable to the currency in which the funds are borrowed
(the Eurodollar rate designated by the British Bankers Association for U.S.
dollar denominated loans, or Euro LIBOR, NOK LIBOR or Sterling LIBOR for loans
denominated in Euro, NOK or Sterling, respectively) plus 2.25% (subject to
adjustment based on consolidated leverage ratio).  The $200 million
credit facility matures May 14, 2013.





13
 Table of Contents





4.  LONG
TERM DEBT (continued)




The $200
Million Credit Agreement subjects the Company subsidiaries that are parties to
the credit agreement to certain financial and other covenants including, but not
limited to, affirmative and negative covenants with respect to indebtedness,
minimum liquidity, liens, declaration or payment of dividends, sales of assets,
investments, consolidated leverage ratio, consolidated net worth and collateral
coverage.  Payment under the $200 Million Credit Agreement may be
accelerated following certain events of default including, but not limited to,
failure to make payments when due, noncompliance with covenants, breaches of
representations and warranties, commencement of insolvency proceedings, entry of
judgment in excess of $5 million, defaults by any of the credit parties
under the credit agreement or certain other indebtedness in excess of $10
million and occurrence of certain changes of control.





$100
million Revolving Credit Facility.  In April
2008, Trico Subsea AS entered into an eight-year multi-currency revolving credit
facility (as amended, the $100 Million Credit Agreement) in the amount of $100
million or equivalent in foreign currency, secured by first preferred mortgages
on Trico Subsea AS vessels, refund guarantees related thereto, certain
additional vessel-related collateral, and guarantees from Trico Supply AS, Trico
Subsea Holding AS and each subsidiary of Trico Subsea AS that acquires a
vessel.  The commitment under this multi-currency revolving facility
matures on the earlier of the eighth anniversary of the delivery of the final
vessel and December 31, 2017.  The commitment under this facility
reduces in equal quarterly installments of $3.125 million commencing on the
earlier of the date three months after the delivery of the eighth and final
vessel and June 30, 2010.  Interest is payable on the unpaid principal
amount outstanding at a rate applicable to the currency in which the funds are
borrowed (the Eurodollar rate designated by the British Bankers Association for
U.S. dollar denominated loans, or Euro LIBOR, NOK LIBOR or Sterling LIBOR for
loans denominated in Euro, NOK or Sterling, respectively) plus 2.0% (subject to
adjustment based on consolidated leverage ratio).





The $100
Million Credit Agreement also subjects Trico Supply AS and its subsidiaries to
certain financial and other covenants including, but not limited to, affirmative
and negative covenants with respect to indebtedness. minimum liquidity, liens,
declaration or payment of dividends, sales of collateral, loans, consolidated leverage
ratio, consolidated net worth and collateral coverage.  Payment under the
$100 Million Credit Agreement may be accelerated following certain events of
default, including, but not limited to, failure to make payments when due,
noncompliance with covenants, breaches of representations and warranties,
commencement of insolvency proceedings, entry of judgment in excess of $5
million, defaults by any of the credit parties under the credit agreement or
certain other indebtedness in excess of $10 million and the occurrence of
certain changes in control.





U.S.
Credit Facility.In January 2008, the
Company entered into a $50 million three-year credit facility (as amended and
restated, the U.S. Credit Facility) secured by an equity interest in direct
material domestic subsidiaries, a 65% interest in Trico Marine Cayman, LP, first
preferred mortgage on vessels owned by Trico Marine Assets, Inc. and a pledge on
the intercompany note due from Trico Supply AS to Trico Marine Operators,
Inc.  The commitment under the US Credit Facility reduces to $40
million after one year and $30 million after two years.  Interest is
payable on the unpaid principal amount outstanding at the Eurodollar rate
designated by the British Bankers Association plus 2.25% (subject to adjustment
based on consolidated leverage ratio).    The facility
matures on January 31, 2011.





TheU.SCreditFacilitysubjects the Company’s subsidiaries that
are parties to the credit agreement to certain financial and other covenants
including, but not limited to, affirmative and negative covenants with respect
to indebtedness,minimum liquidity, liens,
declaration or payment of dividends, sales of assets, investments, consolidated
leverage ratio,consolidated net worth and collateral
coverage.  Payment under the U.S. CreditFacilitymay be
accelerated following certain events of default including, but not limited to,
failure to make payments when due, noncompliance with covenants, breaches of
representations and warranties, commencement of insolvency proceedings, entry of
judgment in excess of $5 million, defaults by any of the credit parties under
the credit agreement or certain other indebtedness in excess of $10 million and
occurrence of certain changes of control.





Short
Term Credit Facility.  In May
2008, Trico Shipping entered into a credit facility agreement with Carnegie
Investment Bank AB Norway Branch, as lender (the Short Term Credit
Facility).  The Short Term Credit Facility provides for a NOK 260
million short term credit facility (approximately $44.2 million at September 30,
2008) that Trico Shipping is using for general corporate
purposes.  The facility was scheduled to mature on November 1, 2008,
but the facility agreement has been amended to extend the term of the facility
until February 1, 2009.   Interest on the facility accrued at an
average 9.05% per annum rate until November 1, 2008, at which time the interest
rate increased to 9.9%.





14
 Table of Contents





4.  LONG
TERM DEBT (continued)





EMSL
Credit Facility Agreement.   In June 2007, EMSL,
a jointly owned subsidiary of the Company, entered into a credit facility
agreement (the EMSL Credit Facility).During the first half of 2008, EMSL, using its operating cash flow,
repaid the EMSL Credit Facility in full and it was subsequently
terminated.





NOK 350
million ($59.4 million)  Revolving Credit Facility.  In
December 2007, in connection with the financing of the vessel Deep Endeavour,
DeepOcean entered into this NOK 350 million credit facility (approximately $68.8
million at September 30, 2008).  This multi-currency facility allows
for borrowings to be made in either U.S. Dollars or NOK. The loan is guaranteed
by DeepOcean and is secured with a mortgage on the Deep Endeavor, a portion of
DeepOcean’s inventory and other security documents.   The
commitment under the facility decreases semi-annually by NOK 10 million
(approximately $2.0 million at September 30, 2008) with a balloon payment at its
December 1, 2014 maturity.  Interest accrues on the facility at the
3-month NIBOR rate plus 1.75% for NOK borrowings and the LIBOR rate plus 1.75%
for U.S. Dollar borrowings and is payable quarterly.   The
facility is subject to certain customary financial covenants that DeepOcean was
in compliance with at September 30, 2008.  The facility matures on
December 1, 2014





NOK 230
million ($39.1 million) Revolving Credit Facility.   DeepOcean
entered into this agreement in July 2007. This facility is part of a larger
composite credit facility that once had capacity of approximately NOK 1.0
billion ($169.8 million) but has subsequently been reduced to NOK 585 million
($99.3 million).    This NOK 230 million credit facility is
secured with inventory up to NOK 1.0 billion and other security documents
including the pledge of shares in certain DeepOcean subsidiaries. The facility’s
commitment is subject to semi-annual reductions of NOK 8 million (approximately
$1.4 million at September 30, 2008) with a final NOK 150.7 million ($25.6
million) balloon payment due at the June 1, 2012 maturity
date.   Interest on this facility is at the 3-month NIBOR rate
plus 1.75% and is payable quarterly in arrears.  The facility is
subject to certain customary financial covenants that DeepOcean was in
compliance with at September 30, 2008.  There is also a covenant
requiring DeepOcean to be listed on the Oslo Bors
exchange.   DeepOcean was delisted from the Oslo Bors exchange
pursuant to Norwegian law in August 2008.  To satisfy this covenant,
the Company has obtained a waiver from the lender.





NOK 300
million ($50.9 million) Senior Notes.   In October 2006,
DeepOcean issued NOK 300 million ($50.0 million) of Senior Notes (Notes) due
October 9, 2009.  The Notes proceeds were used in the acquisition of
CTC Marine and for general corporate purposes.  The coupon rate on the
Notes is the 3-month NIBOR rate plus 1.65%, and is payable
quarterly.   The Notes were scheduled to mature in October
2009.  The Notes were subject to a change in control provision that
was triggered when the Company acquired a majority interest in
DeepOcean.   This provision allowed the holders of the Notes to
exercise a put option if exercised within two months following notice of the
change of control of DeepOcean.   The last day for holders to
exercise this put option was July 28, 2008.   Holders of the
Notes exercised their put option for cash of approximately NOK 236 million
pursuant to these put options.  The Company cash settled the remaining
approximate NOK 62 million ($10.5 million) of Notes in the third quarter and no
amounts were outstanding at September 30, 2008.  To settle the
remaining Notes, the Company paid a 1% premium totaling approximately $0.1
million, which is included in interest expense in the accompanying condensed
consolidated statement of income for the three and nine month periods ended
September 30, 2008.





23.5
million Euro ($41.8 million) Revolving Credit
Facility.   In October 2001, a subsidiary of DeepOcean
entered into this multi-currency facility, which provides for Euro and U.S.
Dollar borrowings.  The purpose of this facility was to fund the
construction of the vessel Arbol Grande.  The facility is secured by a
first priority lien on the Arbol Grande.  Interest on the loan is
payable quarterly at LIBOR plus 2.25%.  The facility was scheduled to
mature on September 30, 2008 but the facility has recently been amended and the
facility’s maturity is now November 30, 2008.  The Company is working
on amending this facility, which includes extending its maturity over a longer
term.  The borrower has obtained all necessary waivers to satisfy the
financial covenants that it was not in compliance with at September 30,
2008.





NOK 150
million ($25.5 million) Additional Term Loan.  DeepOcean
entered into this agreement in December 2006.  Like the NOK 230
million ($39.1 million) facility discussed above, this NOK 150 million ($25.5
million) term loan is part of a larger NOK 585 million ($99.3 million) composite
facility.  The borrowings under this facility partially funded the
acquisition of CTC Marine.  This term loan is secured with inventory
up to NOK 1.0 billion ($169.8 million) and other security documents, including
the pledge of shares in certain DeepOcean subsidiaries.  This facility
allows for multi-currency borrowing including NOK, U.S. Dollar, Sterling and
Euro.  The term loan is subject to mandatory NOK 15 million ($2.5
million) semi-annual payments due in June and December every year until December
18, 2011 when the debt matures.  Interest
on the debt accrues at LIBOR plus 1.75% and is payable quarterly. The facility
is subject to standard financial and affirmative and negative
covenants.   DeepOcean was in compliance with these covenants at
September 30, 2008. There is also a covenant requiring DeepOcean to be listed on
the Oslo Bors exchange.   DeepOcean was delisted from the Oslo
Bors exchange pursuant to Norwegian law in August 2008.  To satisfy
this covenant, the Company has obtained a waiver from the
lender.





15
 Table of Contents




4.  LONG
TERM DEBT (continued)




$18
million Revolving Credit Facility.   In
November 2007, DeepOcean entered into this $18 million revolving credit facility
to refinance the original loan used to acquire and upgrade the vessel Atlantic
Challenger.  This facility is secured with a first priority lien on
the Atlantic Challenger.  This facility is subject to a mandatory $0.5
million per quarter payment.  Interest under the facility accrues at
LIBOR plus 2.25% and is payable quarterly.  The facility is subject to
standard financial and affirmative and negative
covenants.   DeepOcean was in compliance with these covenants at
September 30, 2008.  There is also a covenant requiring DeepOcean to
be listed on the Oslo Bors exchange.   DeepOcean was delisted
from the Oslo Bors exchange pursuant to Norwegian law in August
2008.  To satisfy this covenant, the Company has obtained a waiver
from the lender.





8
million Sterling ($14.2 million) Overdraft Facility.  CTC Marine uses
this secured short term overdraft facility in its normal business
operations.  The facility actually has gross capacity of 12 million
Sterling ($21.4 million)  but it is offset by CTC Marine’s cash
accounts. Borrowings under this facility can be made in Sterling, U.S. Dollars,
NOK, Australian Dollars and Euros.  At September 30, 2008, CTC Marine
had cash totaling $6.7 million, which means the net borrowings on the overdraft
facility were $9.7 million.  Interest on the facility accrues at the
lender’s base rate for Sterling borrowings plus 1% and is payable quarterly in
arrears.  The facility is secured by the property and equipment of CTC
Marine.





Asset
Financing Facilities – CTC Marine has two asset facilities totaling 24.1
million Sterling ($42.9 million) to finance new and existing
assets.  The Asset Finance Loan Facility (Existing Assets Facility)
has a commitment of 8.2 million Sterling ($14.7 million), matures on various
dates through 2012 and accrues interest at the 3-month Sterling LIBOR rate plus
2.0%.  As of September 30, 2008, CTC Marine’s outstanding balance on
the Existing Assets Facility totaled approximately 5.4 million Sterling ($9.7
million).  The Asset Finance Loan Facility (New Assets Facility) has a
commitment of 15.9 million Sterling ($28.2 million), matures on various dates
that are six years from the delivery of the financed assets and accrues interest
at the 3-month Sterling LIBOR rate plus 1.65%.  The final asset to be
financed under the New Assets Facility is expected to be delivered in the fourth
quarter of 2008.  As of September 30, 2008, CTC Marine’s outstanding
balance on the New Assets Facility totaled approximately 5.1 million Sterling
($9.0 million).  These asset finance facilities are secured by
mortgages on the assets financed and the property and equipment of CTC Marine
and are partially guaranteed by DeepOcean. These asset finance loan facilities
are subject to certain customary covenants and its outstanding balance cannot
exceed 60% of the net book value of the assets collateralizing the
facility.  These facilities are subject to quarterly reductions of
their borrowings.





Under
certain of the Company’s credit facilities, an event of default will be deemed
to have occurred if there is a change of control of the Company or certain of
its subsidiaries or if a material adverse change occurs to the financial
position of the applicable borrowing entity within the Company.  Also,
certain of the Company’s credit facilities contain a material adverse
change/effect provision that is determined in the reasonable opinion of the
respective lenders and outside the control of the Company.  Additionally,
certain of the Company’s credit facilities contain cross-default provisions that
trigger defaults under other of the Company’s credit facilities.





The
Company’s capitalized interest totaled $6.4 million and $11.6 million for the
three and nine month periods ended September 30, 2008,
respectively.  The Company did not capitalize any interest expense
during the first nine months of 2007 because it did not have any significant
qualifying assets in progress during that period.





16
 Table of Contents




5.    PHANTOM
STOCK UNITS





In
connection with the acquisition of DeepOcean, West Supply IV AS (West Supply), a
significant DeepOcean shareholder, and certain members of DeepOcean management
and their controlled entities were paid cash and issued phantom stock units
(PSUs) by the Company as payment for their DeepOcean shares at NOK 32 per
share.   Each phantom stock unit permits the holder to acquire
one share of the Company’s common stock for no additional consideration upon
exercise, subject to certain vesting restrictions described below, or, at the
Company’s option, it may pay the holder the cash equivalent of such shares of
common stock, based on the weighted average trading price of the Company’s
common stock during the last three trading days prior to each respective
exercise date.  West Supply received 50% of its sale consideration in
PSUs, while the management members received 60% of their sales proceeds in the
form of PSUs.





In
connection with the Company’s acquisition of West Supply’s shares of DeepOcean,
a PSU agreement between the entities resulted in the Company issuing 1,352,558
phantom stock units to West Supply.   The PSUs are not
exercisable until January 11, 2009, which is 181 days after the completion and
settlement of the mandatory tender offer (July 11, 2008) and expires on July 11,
2013, which is the fifth anniversary of the completion and settlement of the
mandatory tender offer.  The PSUs issued to West Supply are subject to
certain U.S. legal restrictions on foreign ownership of U.S. maritime companies,
which are included in the phantom stock unit agreements.   The
shares of common stock that would be issued upon the exercise of the PSUs have
been registered with the Securities and Exchange Commission.





In May
2008, the Company also entered into PSU agreements with certain members of
DeepOcean management and their controlled entities.   Pursuant to
these management PSU agreements, the Company issued an aggregate of 229,344
PSUs.





The PSUs
issued to DeepOcean management and their controlled entities are subject to
certain vesting and exercise periods.  Generally, half of the PSUs
granted to the members of DeepOcean’s management and their controlled entities
vest and may be exercised on July 11, 2009, and the other half vest and may be
exercised on July 11, 2010, the second anniversary of the completion and
settlement of the mandatory tender offer.  These vested PSUs are
exercisable from such dates until July 11, 2013.  All such PSUs will
be fully vested and exercisable upon certain changes of control of the Company
or if DeepOcean’s earnings before interest, taxes, depreciation and amortization
for its fiscal year ended December 31, 2008 is greater than NOK 489,million
($83.0 million).   There are certain other non-service related
vesting provisions for certain senior members of DeepOcean management upon their
retirement from the Company.





The value
of the PSUs issued to West Supply and the members of DeepOcean’s management and
their controlled entities was $35.14 per share calculated based upon the average
trading price of the Company’s stock around the acquisition date.  The
total amount recorded as a component of equity for the issuance of PSUs in
connection with the acquisition was $55.6 million.





6.   FAIR
VALUE MEASUREMENTS





On
January 1, 2008, the Company adopted FASB Statement No. 157, “Fair
Value Measurements”(SFAS No. 157). SFAS No. 157 provides a
definition of “fair value” that applies when accounting principles generally
accepted in the United States of America require an asset or liability to be
measured at fair value, provides a framework for measuring fair value and
expands disclosure about fair value measurements.  SFAS No. 157 does
not expand the use of fair value accounting.




SFAS No.
157 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price).  SFAS No. 157
classifies the inputs used to measure fair value into the following
hierarchy:





17
 Table of Contents





6.   FAIR
VALUE MEASUREMENTS (continued)





Level 1:
Valuations utilizing quoted, unadjusted prices for identical assets or
liabilities in active markets that the Company has the ability to
access.  This is the most reliable evidence of fair value and does not
require a significant degree of judgment.





Level 2: Valuations
utilizing quoted prices in markets that are not considered to be active or
financial instruments for which all significant inputs are observable, either
directly or indirectly, for substantially the full term of the asset or
liability.





Level 3: Valuations
utilizing significant, unobservable inputs. This provides the least objective
evidence of fair value and requires a significant degree of
judgment.  Inputs may be used with internally developed methodologies
and should reflect an entity’s assumptions using the best information available
that market participants would use in pricing an asset or
liability.





As
discussed in Note 3, the Company has an embedded liability within its 6.5%
Debentures that requires valuation under SFAS No. 157.  The Company
has determined that its embedded derivative is a Level 3 financial
liability in the fair value hierarchy.  The estimate of fair value is
based upon various factors that include the Company's stock closing price,
volatility, United States Treasury Bond Rates, risk adjusted rates and the time
value of options.  The calculation of the fair value of the option
contracts requires the use of a Monte Carlo simulation lattice option-pricing
model.  The following table sets forth a reconciliation of changes in
the fair value of the Company’s derivative liability as classified as Level 3 in
the fair value hierarchy:




Balance
      on May 15, 2008 (Note 3)
                  
                  $
                  53,772Unrealized
      loss included in earnings for three months ended June 30,
    2008
                  
                  
                  2,310Balance
      on June 30, 2008
                  
                  
                  56,082Unrealized
      gain included in earnings in three months ended September 30
      2008
                  
                  
                  (31,515
                  )Balance
      on September 30, 2008
                  
                  $
                  24,567





Separately, in June 2008, the Company
settled a foreign currency swap agreement it assumed in its acquisition of
DeepOcean.  Upon settlement, the Company received net proceeds of $8.2
million, which was approximately $2.5 million less than the swap instruments
fair value on May 16, 2008.   This loss was recorded as a
non-operating charge in the accompanying condensed statements of income for the
nine month period ended September 30, 2008.   The unrealized gain
on embedded derivative is recorded as a separate line item in the accompanying
condensed statements of income for the three and nine month periods ended
September 30, 2008.




18
 Table of Contents




7.   EARNINGS PER
SHARE





Earnings
per share of common stock was computed based on the following (in thousands,
except per share amounts):





Three
      months ended
                      September
      30,
                    
                    
                    Nine
      months ended
                      September
      30,2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007Net
      income
                    
                    $
                    30,970
                    
                    
                    $
                    13,177
                    
                    
                    $
                    38,863
                    
                    
                    $
                    32,195Weighted-average
      shares of common stock outstanding:Basic
                    
                    
                    14,827
                    
                    
                    
                    14,562
                    
                    
                    
                    14,684
                    
                    
                    
                    14,719Add
      dilutive effect of:Phantom
      stock units (1)
                    
                    
                    1,582
                    
                    
                    
                    -
                    
                    
                    
                    797
                    
                    
                    
                    -Stock
      options and nonvested restricted stock
                    
                    
                    138
                    
                    
                    
                    204
                    
                    
                    
                    142
                    
                    
                    
                    231Warrants
                    
                    
                    133
                    
                    
                    
                    367
                    
                    
                    
                    242
                    
                    
                    
                    397Diluted
                    
                    
                    16,680
                    
                    
                    
                    15,133
                    
                    
                    
                    15,865
                    
                    
                    
                    15,347Earnings
      per Common Share:Basic
                    
                    $
                    2.09
                    
                    
                    $
                    0.90
                    
                    
                    $
                    2.65
                    
                    
                    $
                    2.19Diluted
                    
                    $
                    1.86
                    
                    
                    $
                    0.87
                    
                    
                    $
                    2.45
                    
                    
                    $
                    2.10(1). Nine
      month ended September 30, 2008 amount reflects the 138-day period that
      phantom stock units were outstanding (Note 5). The phantom stock
      units were outstanding for the entire three months ended September 30,
      2008.





The calculation of diluted earnings per
common share excludes stock options that are antidilutive, which occurs when the
exercise price of the stock options is greater than the average market price of
the common stock for the period or when the results from operations are a net
loss.  Outstanding stock options excluded from the computation of
diluted net income per share are as follows:





Three
      Months Ended
                  
                  Nine
      Months EndedSeptember
      30,
                  
                  September
      30,2008
                  
                  2007
                  
                  2008
                  
                  2007Outstanding
      options (in thousands)
                  
                  
                  109
                  
                  
                  
                  63
                  
                  
                  
                  91
                  
                  
                  
                  63Average
      exercise price
                  
                  $
                  36.02
                  
                  
                  $
                  39.74
                  
                  
                  $
                  37.77
                  
                  
                  $
                  38.03
                  )





There
were no anti-dilutive warrants outstanding during the three month and nine month
periods ended September 30, 2008 and 2007.  Also, the Company’s 3%
Debentures and 6.5% Debentures were not dilutive as the average price of the
Company’s common stock was less than the conversion price for each series of the
debentures during the presented periods they were outstanding (Notes 3 and
4).   Although the Company has the option of settling the
principle amount of 6.5% Debentures in either cash, stock or a combination of
both, management’s current intention is to settle the amounts when converted
with available cash on hand, through borrowings under the Company’s existing
lines of credit or other refinancing as necessary.  Therefore, the
Company has excluded the potential dilutive effect of the principal amount of
these 6.5% Debentures in the calculation of diluted earnings per
share.




8.   WARRANTS
TO PURCHASE COMMON STOCK





Trico
Marine Services, Inc. and two of its U.S. subsidiaries emerged from
Chapter 11 protection on March 15, 2005 (the Exit Date).  On the
Exit Date, the Company issued to each holder of the Company’s old common stock
499,429 Series A Warrants, representing the right to purchase one share of
the Company’s new common stock for $18.75, and 499,429 Series B Warrants,
representing the right to purchase one share of the Company’s new common stock
for $25.00.  There were no warrants exercised during the three months
ended September 30, 2008.   For the nine months ended September
30, 2008, a total of 1,128 Series A Warrants were exercised with the aggregate
proceeds totaling less than $0.1 million.   During the first
quarter of 2008, 471,747 Series B Warrants were exercised for aggregate proceeds
of $11.8 million.  The remaining unexercised Series B Warrants expired on
March 15, 2008.  As of September 30, 2008, 494,120 Series A Warrants
remained outstanding.  On March 17, 2008, the remaining Series B
Warrants expired.  The Series A Warrants will expire on March 15,
2010.





19
 Table of Contents




9.   OTHER
COMPREHENSIVE INCOME (LOSS)





The
components of total comprehensive income (loss) were as follows (in
thousands):





Three
      Months Ended
                  September
      30,
                
                
                Nine
      Months Ended
                  September
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Net
      income
                
                $
                30,970
                
                
                $
                13,177
                
                
                $
                38,863
                
                
                $
                32,195Foreign
      currency translation gain (loss)
                
                
                (102,688
                )
                
                
                14,632
                
                
                
                (87,453
                )
                
                
                22,795Amortization
      of unrecognized actuarial gains
                
                
                ―
                
                
                
                (44
                )
                
                
                85
                
                
                
                (44
                )Total
      comprehensive income (loss)
                
                $
                (71,718
                )
                
                $
                27,765
                
                
                $
                (48,505
                )
                
                $
                54,946





The
components of accumulated other comprehensive income (loss) is as follows (in
thousands):





As
      of
                                
                                
                                As
      ofSeptember
      30,
                                
                                
                                December
      31,2008
                                
                                
                                2007Cumulative
      foreign currency translation gain (loss)
                                $
                                (67,884
                                )
                                
                                $
                                19,569Unrecognized
      actuarial gains
                                
                                (830
                                )
                                
                                
                                (915
                                )Accumulated
      other comprehensive income (loss)
                                $
                                (68,714
                                )
                                
                                $
                                18,654





10.   STOCK-BASED
COMPENSATION





The
Company has stock-based compensation plans, which are described in more detail
in Note 12 to the Notes to Consolidated Financial Statements in the Company’s
2007 Annual Report on Form 10-K.  Net income for the three month and
nine month periods ended September 30, 2008 included $0.7 million and $3.1
million, respectively, of stock-based compensation costs compared to $1.4
million and $3.2 million for the same three and nine month periods of
2007.  The Company records all its stock-based compensation costs as
general and administrative expenses in the accompanying condensed consolidated
statements of income.  As of September 30, 2008, there was $5.3
million of total unrecognized compensation costs related to nonvested
stock-based compensation that is expected to be recognized over a
weighted-average period of 1.63 years.  The Company expects that its
total stock based compensation expense for the year ended December 31, 2008 will
total approximately $4.1 million.





Restricted
Stock





Number
      of Shares Granted
                  
                  Vesting
      Period
                  
                  Grant-Date
      Fair Value Fair Value120,756
                  
                  3
      years (1)
                  
                  $
                  32.16
                  (4)59,477
                  
                  3
      years (subject to market conditions) (2)
                  
                  $
                  20.32
                  (3)3,109
                  
                  30
      days from date of grant (5)
                  
                  $
                  32.16
                  (4)16,140
                  
                  30
      days from date of grant (6)
                  
                  $
                  37.17
                  (4)8,900
                  
                  3
      years (1,7)
                  
                  $
                  24.72
                  (4)208,382




20
 Table of Contents




10.   STOCK-BASED
COMPENSATION (continued)





(1)
            Forfeiture
      restrictions lapse at the end of the three year period ending on the
      anniversary of the date of grant.





(2)
            Forfeiture
      restrictions lapse only upon the occurrence of certain conditions as
      follows:





If the
average three year stock price of the Company over the period ending on the
third anniversary of the date of grant is: (a) less than $34.43, none of the
shares will vest; (b) $34.43 or greater but less than $40.54, from 20% up to a
certain percentage of the shares less than 100% calculated based on linear
interpolation, will vest; and (c) $40.54 or greater, 100% of the shares will
vest, or if the Company’s closing stock price during any consecutive 20-day
period after the first anniversary of the award equals or exceeds $42.53, all
shares become immediately vested.





(3)
            The
      grant-date fair value of the restricted stock was calculated using a
      lattice valuation model which incorporated various
      assumptions.   A derived service period (requisite service
      period) was calculated reflecting a median of 1.31 years for
      vesting.  The valuation also used an assumed volatility rate of
      35.0% and a risk free interest rate of 2.1% to determine the grant-date
      fair value.  There were no dividends assumed in the
      calculation.





(4)
            Grant-date
      fair value of award is based on the Company’s closing stock price on the
      date of grant.





(5)
            Grant
      to a new director upon his election to the Board of Directors of the
      Company.





(6)
            Annual
      grant to Board of Directors of the Company made on April 29,
      2008.





(7)
            Grant
      to a new officer made on August 27,
2008.





Stock
Options





Number
      of  Options Granted
                Vesting
      Period
                Exercise
      Price
                Grant-Date
      Fair Value5,000
                3
      Years
                $32.16
                $10.36





One-third
of these options will vest on each anniversary date of grant beginning February
13, 2009.  The grant-date fair value was estimated using a
Black-Scholes option valuation model which incorporated the following
assumptions:  expected term of 4.5 years; expected volatility of
33.0%; risk-free interest rate of 2.90%; no expected dividend
distributions.  No other stock options have been granted during
2008.





11.    
TAXES





The
Company’s income tax expense for the three and nine months ended September 30,
2008 was $7.7 million and $9.1 million, respectively, compared to $9.9 million
and $22.3 million for the comparable prior year periods.  The income
tax expense for each period is primarily associated with the Company’s U.S.
federal, state and foreign taxes.  The Company’s effective tax rate of
18.5% and 17.1% for the three and nine month periods ending September 30, 2008,
respectively, differs from the statutory rate primarily due to tax benefits
associated with the Norwegian Tonnage Tax Regime, the Company’s permanent
reinvestment of foreign earnings and state and foreign taxes.  Also
impacting the Company’s effective tax rate was a reduction in Norwegian taxes
payable related to a dividend made between related Norwegian entities during the
first quarter of 2008.  The Company’s effective tax rate is subject to
wide variations given its structure and operations.  The Company
operates in many different taxing jurisdictions with differing rates and tax
structures.  Therefore, a change in the Company’s overall plan could
have a significant impact on the estimated rate.  At September 30,
2007, the Company’s effective tax rate of 42.7% differed slightly from the
statutory rate primarily due to alternative minimum tax, state and foreign taxes
and U.S tax on foreign source income.  The Company’s estimated tax expense
recorded for the three and nine month periods ended September 30, 2007 would
have been significantly less had the tax legislation changes made in Norway (see
Note 9 of Company’s 2007 Annual Report on Form 10-K) in the fourth quarter of
2007 been in effect during that reporting period.  The Company
recorded an income tax benefit in the fourth quarter of 2007 to reduce the
effect to the interim period’s tax expense for the enacted tonnage tax
legislation.





21
 Table of Contents




11.
            TAXES
      (continued)




Although
the Company recorded a profit from operations in recent years from its U.S.
operations, the history of negative earnings from these operations constitutes
significant negative evidence substantiating the need for a full valuation
allowance against the U.S. net deferred tax assets as of September 30,
2008.  The Company uses cumulative profitability and future income
projections as key indicators to substantiate the release of the valuation
allowance.   If the Company’s U.S. operations continue to be
profitable, it is possible the Company will release the valuation allowance at
some future date, which would increase the Company’s additional paid-in capital
account.




We
conduct business globally and, as a result, one or more of our subsidiaries
files income tax returns in the U.S. federal jurisdiction and various state and
foreign jurisdictions.  In the normal course of business, we are
subject to examination by taxing authorities worldwide, including such
jurisdictions as Norway, Mexico, United Kingdom, Brazil, Nigeria, Angola, Hong
Kong, China and the United States.  With few exceptions, the Company
is no longer subject to U.S. federal, state and local, or non-U.S. income tax
examinations by tax authorities for years before 2003.





The
Company adopted the provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” on January
1, 2007.  As a result of adoption, we recognized approximately $0.1
million to the January 1, 2007 retained earnings balance.  For the
year ended December 31, 2007, the Company recognized $2.2 million in uncertain
tax positions and $1.1 million in penalties and interest.  During the
nine-month period ended September 30, 2008, the Company recognized $1.1 million
in uncertain tax positions, penalties and
interest.   Additionally, the Company initiated a voluntary
disclosure with the U.S. taxing authorities regarding prior year permanent
establishment issues during the nine month period ended September 30,
2008.  As a result of the filings, which are still subject to audit,
the Company reduced its provision for uncertain tax positions, penalties and
interest by $1.3 million and there was no impact to the Company’s effective tax
rate.  The entire remaining balance of unrecognized tax benefits, if
recognized, would affect the Company’s effective tax rate.  The
Company recognizes interest and penalties related to unrecognized tax benefits
in income tax expense.





Norwegian
Tonnage Tax legislation was enacted as part of the 2008 Norwegian budgetary
process.  This new tonnage tax regime was applied retroactively to
January 1, 2007 and is similar to other European Union tonnage tax
regimes.  As a result, all shipping and certain related income, but
not financial income, is exempt from ordinary corporate income tax and subjected
to a tonnage based tax.  Unlike the previous regime, where the
taxation was only due upon a distribution of profits or an outright exit from
the regime, the new regime provides for a tax exemption on profits earned after
January 1, 2007.





As part
of the legislation, the previous tonnage tax regime covering the period from
1996 through 2006 was repealed.  Companies that are in the current
regime, and enter into the new regime, will be subject to tax at 28% for all
accumulated untaxed shipping profits generated between 1996 through December 31,
2006 in the tonnage tax company.  Two-thirds of the liability (NOK 251
million, $42.6 million at September 30, 2008) is payable in equal installments
over 10 years.  The remaining one-third of the tax liability (NOK 126
million, $21.4 million at September 30, 2008) can be met through qualified
environmental expenditures.  Any remaining portion of the
environmental part of the liability not expended at the end of ten years would
be payable to the Norwegian tax authorities at that time.





The
Company’s policy under the previous regime was to recognize the deferred taxes
associated with the earnings of the Company’s Norwegian Shipping tax regime
subsidiary based on the 28% Norwegian statutory rate, which as of December 31,
2006, totaled NOK 394 million ($66.9 million at September 30,
2008).  As a result of the enactment, the accumulated untaxed shipping
profits were calculated pursuant to the transitional rules and determined to be
NOK 377 million ($64.0 million at September 30, 2008).  In 2007, the
Company adjusted its liability and recognized a foreign tax payable of $69.4
million, the appropriate conversion amount of the NOK 377 million at that time,
and a tax benefit in earnings of $2.8 million related to the
change.





On
October 1, 2007, the Mexican Government enacted substantial changes to its tax
system.  The new tax law became effective on January 1,
2008.  Of particular importance is the law’s introduction of a flat
tax known as IETU, which replaces Mexico’s asset tax and will apply to taxpaying
entities along with Mexico’s regular income tax.  The Company believes
that this flat tax is an income tax and should be accounted for under FASB
Statement No. 109, “Accounting for Income Taxes”.  In addition, the
Company filed a claim with the Mexican judicial system challenging the
constitutionality of this tax.





22
 Table of Contents




12.    
EMPLOYEE BENEFIT PLANS





The
annual costs and liabilities under the Norwegian defined benefit pension plans
are determined each year based on actuarial assumptions.  As discussed
in Note 2, the Norwegian companies of DeepOcean are required to have
occupational pension plans.  The components of net periodic benefit
costs related to the Company’s historical Norwegian defined benefit pension
plans were as follows (in thousands):





Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember
      30,
                  
                  
                  September
      30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Service
      cost
                  
                  $
                  185
                  
                  
                  $
                  189
                  
                  
                  $
                  567
                  
                  
                  $
                  525Interest
      cost
                  
                  
                  71
                  
                  
                  
                  62
                  
                  
                  
                  218
                  
                  
                  
                  171Return
      on plan assets
                  
                  
                  (77
                  )
                  
                  
                  (70
                  )
                  
                  
                  (236
                  )
                  
                  
                  (195
                  )Social
      security contributions
                  
                  
                  17
                  
                  
                  
                  52
                  
                  
                  
                  53
                  
                  
                  
                  145Recognition
      of net actuarial losses
                  
                  
                  13
                  
                  
                  
                  10
                  
                  
                  
                  39
                  
                  
                  
                  30Net
      periodic expense
                  
                  $
                  209
                  
                  
                  $
                  243
                  
                  
                  $
                  641
                  
                  
                  $
                  676





The
Company’s contributions to the Norwegian defined benefit plans totaled $0.4
million and $0.8 million for the three and nine month periods ended September
30, 2008, respectively.  The Company’s contribution for the nine month
period ended September 30, 2007 totaled $0.8 million.  Contributions
to these plans totaled less than $0.1 million for the three months ended
September 30, 2007.





The
Company’s United Kingdom employees are covered by a non-contributory
multi-employer defined benefit plan.  Contributions to this plan were
$0.1 million for each of the three month periods and $0.3 million for each of
the nine month periods ended September 30, 2008 and 2007,
respectively.





13.   COMMITMENTS
and CONTINGINCIES





Plan of Reorganization
Proceeding.  In July 2005, Steven and Gloria Salsberg, two
holders of the Company’s warrants to purchase common stock, commenced an
adversary proceeding against the Company in the United States Bankruptcy Court
for the Southern District of New York (the Bankruptcy Court) under proceeding
number 05-02313 seeking revocation of the Company’s confirmed and substantially
consummated plan of reorganization.  The basis of their complaint was
that the plan was approved based on inaccurate information provided by the
Company.  On January 6, 2006, the Bankruptcy Court granted the
Company’s motion to dismiss the adversary proceeding.  The Bankruptcy
Court then granted the plaintiffs leave to amend their complaint to assert
claims that do not seek revocation of the plan of reorganization.  On
January 23, 2006, plaintiffs filed additional pleadings asking the Bankruptcy
Court to reconsider its dismissal of the proceedings.  The Company
filed its response on February 6, 2006.  The Bankruptcy Court declined
to vacate its order of dismissal while it deliberated on the plaintiffs’ request
for reconsideration.





On
May 5, 2006, the court reaffirmed its prior ruling dismissing the adversary
complaint and allowing plaintiffs to file an amended complaint.  On
June 5, 2006, plaintiffs filed an amended complaint and on June 16, 2006,
plaintiffs moved to amend their amended complaint.  On November 22,
2006, the Bankruptcy Court denied plaintiffs’ motion.  Plaintiffs
moved for reargument of the Court’s decision and on January 16, 2007, the
Bankruptcy Court denied that motion.





A limited evidentiary hearing was held on May 21,
2007.  On August 23, 2007, the Court held that the Debtors did not
provide any inaccurate information to the Court, and dismissed all of the
plaintiff’s claims on the merits.  Plaintiffs filed an appeal in the
United States District Court for the Southern District of New
York.  On February 21, 2008, the U.S. District Court dismissed all of
the plaintiffs’ claims on the merits.   The parties recently
reached an agreement in principle whereby plaintiffs will dismiss their appeal
with prejudice.





23
 Table of Contents




13.      COMMITMENTS
and CONTINGINCIES (continued)





Brazilian Tax
Assessments.On March 22, 2002, the Company’s Brazilian
subsidiary received a non-income tax assessment from a Brazilian State tax
authority for approximately 27.0 million Reais ($14.0 million at September 30,
2008).  The tax assessment is based on the premise that certain
services provided in Brazilian federal waters are considered taxable by certain
Brazilian states as transportation services.  The Company filed a
timely defense at the time of the assessment.  In September 2003, an
administrative court upheld the assessment. In response, the Company filed an
administrative appeal in the Rio de Janeiro administrative tax court in October
2003.  In November 2005, the Company’s appeal was submitted to the
Brazilian State attorneys for their response.  The Company is
currently waiting for a ruling on its appeal and is under no obligation to pay
the assessment unless and until such time as all appropriate appeals are
exhausted.  The Company intends to vigorously challenge the imposition
of this tax.  Many of our competitors in the marine industry have also
received similar non-income tax assessments.  Broader industry actions
have been taken against the tax in the form of a suit filed at the Brazilian
federal Supreme Court seeking a declaration that the state statute attempting to
tax the industry’s activities is unconstitutional.  This assessment is
not income tax based and is therefore not accounted for under FIN
48.  The Company has not accrued any amounts for the assessment of the
liability because it believes the liability is not probable.





During the third quarter of 2004, the Company received a
separate non-income tax assessment from the same Brazilian State tax authority
for approximately 2.9 million Reais ($1.5 million at September 30,
2008).  This tax assessment is based on the same premise as noted
above.  The Company filed a timely defense in October
2004.  In January 2005, an administrative court upheld the
assessment.  In response, the Company filed an administrative appeal
in the Rio de Janeiro administrative tax court in February 2006.  This
assessment is not income tax based and is therefore not accounted for under FIN
48.  The Company has not accrued any amounts for the assessment of the
liability because it believes the liability is not probable.





If the Company’s
challenges to the imposition of these taxes (which may include litigation at the
Rio de Janeiro state court) prove unsuccessful, current contract provisions and
other factors could potentially mitigate the Company’s
exposure.  Nonetheless, an unfavorable outcome with respect to some or
all of the Company’s Brazilian tax assessments could have a material adverse
affect on the Company’s financial position and results of operations if the
potentially mitigating factors also prove unsuccessful.





The Company is routinely involved in litigation,
claims and disputes arising in the ordinary course of its business primarily
related to employment matters or damage claims.  Many of the other
lawsuits to which we are a party are covered by insurance.  Except as
discussed above, the Company does not believe that ultimate liability, if any;
resulting from any such pending litigation or claims will have a material
adverse effect on its financial condition, results of operations or cash
flows.





14.     SEGMENT
INFORMATION





Following
the Company’s acquisition of DeepOcean, consideration was given to how
management reviews the results of the new combined
organization.  Generally, the Company believes its business is now
segregated into three operational units or segments: towing and supply, subsea
services and trenching.  Therefore, segment data has been
retrospectively adjusted to present prior year data in accordance with the new
reportable segments.  The chief operating decision maker of the
Company views operating income as the financial measure most meaningful to
monitor the performance of the operating segments of the
Company.  While the Company is in the process of finalizing the
allocation of the purchase price to the assets acquired and liabilities assumed
in the DeepOcean acquisition, the chief operating decision maker is not
reviewing the assets by segment but rather on a consolidated
basis.  Therefore, total assets by segment have not been
disclosed.





The
towing and supply segment is generally representative of the operations of the
Company prior to its acquisition of DeepOcean.  The subsea services
segment is primarily represented by the DeepOcean operations except for the
trenching segment operations conducted through its wholly-owned subsidiary, CTC
Marine.  The subsea services segment also includes five subsea
platform supply vessels (SPSVs) that the Company had in service prior to the
acquisition of DeepOcean.  The Company is currently constructing eight
multi-purpose platform supply vessels (MPSVs) that when completed and placed in
service will also be included in the subsea services segment.





24
 Table of Contents





14.   SEGMENT
INFORMATION (continued)





Towing
      and Supply
                    
                    
                    Subsea
      Services
                    
                    
                    Trenching
                    
                    
                    Corporate
      and
                      Eliminations
                    
                    
                    Total(In
      thousands)Three Months Ended September 30,
      2008Revenues:Unaffiliated
      customers
                    
                    $
                    58,989
                    
                    
                    $
                    103,311
                    
                    
                    $
                    52,493
                    
                    
                    $
                    -
                    
                    
                    $
                    214,793Intersegment
                    
                    
                    -
                    
                    
                    
                    1,965
                    
                    
                    
                    7,057
                    
                    
                    
                    (9,022
                    )
                    
                    
                    -Direct
      operating expenses
                    
                    
                    (31,530
                    )
                    
                    
                    (87,633
                    )
                    
                    
                    (44,972
                    )
                    
                    
                    9,022
                    
                    
                    
                    (155,113
                    )General
      and administrative expenses
                    
                    
                    (6,223
                    )
                    
                    
                    (3,740
                    )
                    
                    
                    (2,679
                    )
                    
                    
                    (6,162
                    )
                    
                    
                    (18,804
                    )Depreciation
      and amortization
                    
                    
                    (5,825
                    )
                    
                    
                    (9,787
                    )
                    
                    
                    (6,013
                    )
                    
                    
                    (48
                    )
                    
                    
                    (21,673
                    )Loss
      on sale of assets
                    
                    
                    (10
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (10
                    )Operating
      income (loss)
                    
                    
                    15,401
                    
                    
                    
                    4,116
                    
                    
                    
                    5,886
                    
                    
                    
                    (6,210
                    )
                    
                    
                    19,193Interest
      income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,529Interest
      expense, net of capitalized amounts
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (11,694
                    )Change
      in fair value of embedded derivative
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    31,515Other
      loss, net
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (50
                    )Income
      before income taxes and noncontrolling interest in
      subsidiaries
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    41,493Income
      tax expense
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    7,670Income
      before noncontrolling interest in consolidated
subsidiaries
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    33,823Noncontrolling
      interest in income of consolidated subsidiaries
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (2,853
                    )Net
      income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    30,970Three Months Ended September 30,
      2007Revenues:Unaffiliated
      customers
                    
                    $
                    62,543
                    
                    
                    $
                    7,903
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    70,446Direct
      operating expenses
                    
                    
                    (26,741
                    )
                    
                    
                    (2,626
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (29,367
                    )General
      and administrative expenses
                    
                    
                    (4,905
                    )
                    
                    
                    (25
                    )
                    
                    
                    -
                    
                    
                    
                    (7,631
                    )
                    
                    
                    (12,561
                    )Depreciation
      and amortization
                    
                    
                    (5,963
                    )
                    
                    
                    (246
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (6,209
                    )Gain
      on sale of assets
                    
                    
                    1
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1Operating
      income (loss)
                    
                    
                    24,935
                    
                    
                    
                    5,006
                    
                    
                    
                    -
                    
                    
                    
                    (7,631
                    )
                    
                    
                    22,310Interest
      income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    4,127Interest
      expense, net of capitalized amounts
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (1,314
                    )Other
      loss, net
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (2,091
                    )Income
      before income taxes and noncontrolling interest in
      subsidiaries
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    23,032Income
      tax expense
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    9,906Income  before
      noncontrolling interest in consolidated subsidiaries
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    13,126Noncontrolling
      interest in loss of consolidated subsidiaries
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    51Net
      income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    13,177




25
 Table of Contents





14.   
SEGMENT INFORMATION (continued)





Towing
      and Supply
              
              
              Subsea
      Services
              
              
              Trenching
              
              
              Corporate
      and
                Eliminations
              
              
              TotalNine Months Ended September 30,
      2008Revenues:Unaffiliated
      customers
              
              $
              156,789
              
              
              $
              153,514
              
              
              $
              67,957
              
              
              $
              -
              
              
              $
              378,260Intersegment
              
              
              -
              
              
              
              1,990
              
              
              
              7,057
              
              
              
              (9,047
              )
              
              
              -Direct
      operating expenses
              
              
              (86,479
              )
              
              
              (123,278
              )
              
              
              (58,242
              )
              
              
              9,047
              
              
              
              (258,952
              )General
      and administrative expenses
              
              
              (17,639
              )
              
              
              (5,120
              )
              
              
              (4,947
              )
              
              
              (16,805
              )
              
              
              (44,511
              )Depreciation
      and amortization
              
              
              (17,737
              )
              
              
              (15,036
              )
              
              
              (8,441
              )
              
              
              (101
              )
              
              
              (41,315
              )Gain
      on sale of assets
              
              
              2,736
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,736Operating
      income (loss)
              
              
              37,670
              
              
              
              12,070
              
              
              
              3,384
              
              
              
              (16,906
              )
              
              
              36,218Interest
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              7,378Interest
      expense, net of capitalized amounts
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (18,093
              )Change
      in fair value of embedded derivative
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              29,205Other
      loss, net
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,515
              )Income
      before income taxes and noncontrolling interest in
      subsidiaries
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              53,193Income
      tax expense
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              9,095Income
      before noncontrolling interest in consolidated
subsidiaries
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              44,098Noncontrolling
      interest in income of consolidated subsidiaries
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (5,235
              )Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              38,863Nine Months Ended September 30,
      2007Revenues:Unaffiliated
      customers
              
              $
              168,262
              
              
              $
              22,863
              
              
              $
              -
              
              
              $
              -
              
              
              $
              191,125Direct
      operating expenses
              
              
              (83,034
              )
              
              
              (14,717
              )
              
              
              -
              
              
              
              -
              
              
              
              (97,751
              )General
      and administrative expenses
              
              
              (13,908
              )
              
              
              (50
              )
              
              
              -
              
              
              
              (16,101
              )
              
              
              (30,059
              )Depreciation
      and amortization
              
              
              (16,349
              )
              
              
              (1,440
              )
              
              
              -
              
              
              
              -
              
              
              
              (17,789
              )Gain
      on sale of assets
              
              
              2,858
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,858Operating
      income (loss)
              
              
              57,829
              
              
              
              6,656
              
              
              
              -
              
              
              
              (16,101
              )
              
              
              48,384Interest
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,827Interest
      expense, net of capitalized amounts
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,493
              )Other
      loss, net
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,401
              )Income
      before income taxes and noncontrolling interest in
      subsidiaries
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              52,317Income
      tax expense
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              22,322Income
      before noncontrolling interest in consolidated
subsidiaries
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              29,995Noncontrolling
      interest in loss of consolidated subsidiaries
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,200Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              32,195




26
 Table of Contents





14.   SEGMENT INFORMATION
(continued)





The
Company is a worldwide provider of vessels, services and engineering for the
offshore energy and subsea services markets.  The Company’s reportable
business segments generate revenues in the following geographical areas
(i) the North Sea, (ii) West Africa, (iii) Latin America
(primarily comprising Mexico and Brazil), (iv) the U.S. Gulf of Mexico and
(v) Other (including Southeast Asia).  The Company reports its
tangible long-lived assets in the geographic region where the property and
equipment is physically located and is available for conducting business
operations.  Selected geographic information is as follows (in
thousands):





North
      Sea
                                          
                                          
                                          West
      Africa
                                          
                                          Latin
      America
                                          
                                          U.S.
                                          
                                          Other
                                          
                                          TotalThree
      Months Ended September 30, 2008Revenues:Unaffiliated
      customers
                                          
                                          $
                                          135,399
                                          
                                          $
                                          12,876
                                          
                                          $
                                          29,562
                                          
                                          $
                                          10,593
                                          
                                          $
                                          26,363
                                          
                                          $
                                          214,793Intersegment
                                          
                                          
                                          9,022
                                          
                                          
                                          -
                                          
                                          
                                          -
                                          
                                          
                                          -
                                          
                                          
                                          (9,022
                                          )
                                          
                                          -Three
      Months Ended September 30, 2007Revenues:Unaffiliated
      customers
                                          
                                          $
                                          38,197
                                          
                                          $
                                          9,797
                                          
                                          $
                                          3,670
                                          
                                          $
                                          18,510
                                          
                                          $
                                          272
                                          
                                          $
                                          70,446Nine
      Months Ended September 30, 2008Revenues:Unaffiliated
      customers
                                          
                                          $
                                          224,663
                                          
                                          $
                                          34,655
                                          
                                          $
                                          47,981
                                          
                                          $
                                          27,273
                                          
                                          $
                                          43,688
                                          
                                          $
                                          378,260Intersegment
                                          
                                          
                                          9,047
                                          
                                          
                                          -
                                          
                                          
                                          -
                                          
                                          
                                          -
                                          
                                          
                                          (9,047
                                          )
                                          
                                          -Nine Months Ended September 30,
      2007Revenues:Unaffiliated
      customers
                                          
                                          $
                                          97,863
                                          
                                          $
                                          27,657
                                          
                                          $
                                          10,125
                                          
                                          $
                                          55,051
                                          
                                          $
                                          429
                                          
                                          $
                                          191,125




27
 Table of Contents




15.     RECENT
ACCOUNTING STANDARDS





On May 9,
2008, the FASB issued Staff Position APB 14-1, “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement,” (the “FSP” or “ABP 14-1”).  The FASB also decided to add
further disclosures for instruments subject to this guidance.  The new
rules will change the accounting for convertible debt instruments that permit
cash settlement upon conversion, and will apply to the Company’s senior
convertible debentures.  The FSP will require the Company to
separately account for the liability and equity components of its senior
convertible notes in a manner intended to reflect its nonconvertible debt
borrowing rate.  The Company will be required to determine the
carrying amount of the senior convertible note liability by measuring the fair
value as of the issuance date of a similar note without a conversion
feature.  The difference between the proceeds from the sale of the
senior convertible notes and the amount reflected as the senior convertible note
liability will be recorded as additional paid-in
capital.  Effectively, the convertible debt will be required to be
recorded at a discount to reflect its below market coupon interest
rate.  The excess of the principal amount of the senior convertible
notes over their initial fair value (the “discount”) will be accreted to
interest expense over the expected life of the senior convertible
notes.  The Company will be required to record as interest expense not
only the coupon interest payments on the senior convertible notes as currently
required, but also the accretion of the discount on the senior convertible
notes.  The adoption will not have an impact on the Company’s cash
flows.  When issued, ABP 14-1 will be effective for fiscal years
beginning after December 15, 2008, and for interim periods within those fiscal
years, with retrospective application required.  Early adoption will not be
permitted.  The Company anticipates that adoption of ABP 14-1 will affect
its consolidated financial statements for its 3% Debentures although its final
evaluation of such impact is still in progress.





In
September 2006, the FASB issued SFAS No. 157, which establishes a framework for
measuring fair value in accordance with generally accepted accounting principles
(GAAP) and expands disclosures about fair value measurements.  This
statement is effective for financial assets and liabilities as well as for any
assets and liabilities that are carried at fair value on a recurring basis in
financial statements as of the beginning of the entity’s first fiscal year that
begins after November 15, 2007.  In November 2007, the FASB issued a
one-year deferral for non-financial assets and liabilities to comply with SFAS
No. 157 which delayed the effective date for these items until fiscal years
beginning after November 15, 2008.  This deferral will apply to future
business combinations and impairments of long-lived assets both of which are
non-recurring in nature.  The Company partially adopted SFAS No. 157 as of
January 1, 2008, as it relates to financial assets and liabilities.  The
adoption did not impact the consolidated financial statements; however, the
derivative liability associated with the 6.5% Debentures is subject to the
requirements of SFAS 157 (Note 6).





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (SFAS No. 141(R)), which replaces SFAS No. 141, “Business
Combinations.” SFAS No. 141(R) retains the underlying concepts of SFAS No. 141
inasmuch as all business combinations are required to be accounted for at fair
value under the acquisition method of accounting.  However, SFAS No.
141(R) changes the method of applying the acquisition method in a number of
significant aspects.  Acquisition costs will generally be expensed as
incurred; noncontrolling interests will be valued at fair value at the
acquisition date; in-process research and development will be recorded at fair
value as an indefinite-lived intangible asset at the acquisition date;
restructuring costs associated with a business combination will generally be
expensed subsequent to the acquisition date; and changes in deferred tax asset
valuation allowances and income tax uncertainties after the acquisition date
generally will affect income tax expense.  SFAS No. 141(R) is
effective on a prospective basis for all business combinations for which the
acquisition date is on or after the beginning of the first annual period
subsequent to December 15, 2008, with an exception related to the accounting for
valuation allowances on deferred taxes and acquired contingencies related to
acquisitions completed before the effective date.  Beginning January
1, 2009, the Company will apply the provisions of SFAS No. 141(R) to its
accounting for applicable business combinations.  The Company is
currently evaluating what, if any, impact the adoption of SFAS No. 141(R) might
have on its consolidated financial statements.  The Company’s
acquisition of DeepOcean (Note 2) will not be affected by the implementation of
SFAS No. 141 (R) with the possible exception of certain income tax
provisions.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements-amendments of ARB No. 51” (SFAS No.
160).  SFAS No. 160 states that accounting and reporting for minority
interests will be recharacterized as noncontrolling interests and classified as
a component of equity.  SFAS No. 160 applies to all entities that
prepare consolidated financial statements, except not-for-profit organizations,
but will affect only those entities that have an outstanding noncontrolling
interest in one or more subsidiaries or that deconsolidate a
subsidiary.  This statement is effective as of the beginning of an
entity’s first fiscal year beginning after December 15, 2008.  The
Company is currently evaluating what, if any, impact the adoption of SFAS No.
160 might have on its consolidated financial statements.





28
 Table of Contents




15.     RECENT
ACCOUNTING STANDARDS (continued)





In May 2008, the FASB issued SFAS No.
162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS No.
162).  This statement identifies sources of accounting principles and
the framework for selecting the principles to be used in the preparation of
financial statements that are presented in conformity with GAAP in the United
States.  SFAS No. 162 moves the hierarchy of GAAP sources for
non-governmental entities from the auditing literature to the accounting
literature.  This statement will become effective 60 days following
approval by the Securities and Exchange Commission (“SEC”) of amendments made by
the Public Company Accounting Oversight Board to AU Section 411, “The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting
Principles.”  Any effect of applying SFAS No. 162 should be reported
as a change in accounting principle. The Company does not expect this statement
to have any impact on its consolidated financial statements.





In April
2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of
Intangible Assets.”  This Statement is effective for financial
statements issued for periods beginning after December 15, 2008. This statement
conforms certain assumption requirements between SFAS No. 142, “Goodwill and
Intangibles” with SFAS No.141(R), “Business Combinations” with respect to
estimating the useful life of an intangible asset. In addition, the Statement
requires certain additional disclosures about intangible assets. The Company is
evaluating FSP FAS 142-3 and has not determined what, if any, impact it will
have on its consolidated financial statements.





In March
2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133
(SFAS No. 161).  SFAS No. 161 amends and expands the disclosure
requirements for derivative instruments and about hedging activities with the
intent to provide users of financial statements with an enhanced understanding
of how and why an entity uses derivative instruments; how derivative instruments
and related hedged items are accounted for; and how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance, and cash flows.  SFAS No. 161 requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on derivative
instruments and disclosures about credit-risk-related contingent features in
derivative agreements. SFAS No. 161 does not change accounting for
derivative instruments and is effective for financial statements issued for
fiscal years and interim periods beginning after November 15,
2008.





16.  SUBSEQUENT
EVENT





On October 22, 2008, Solstrand Shipyard
AS (Solstrand), filed for bankruptcy in Norway.   The Company had
contracted Solstrand to construct and deliver one vessel to supplement its North
Sea fleet.   This vessel was scheduled for delivery in the fourth
quarter of 2008.  The Company is evaluating alternatives to this
petition for bankruptcy by Solstrand, including, but not limited to, recovering
payments of approximately $5 million made to Solstrand to date for the
vessel or negotiating with trustee to continue as buyer of the
vessel.   The Company cannot at this time predict which of the
preceding alternatives will be available and, if available, will be on terms
favorable to the Company.





29
 Table of Contents





Item
2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS





Management’s
Discussion and Analysis of Financial Condition and Results of Operations should
be read in conjunction with our Annual Report on Form 10-K for the year ended
December 31, 2007 (2007 Form 10-K).  Unless otherwise indicated,
any reference to Notes refers to the Notes to the Condensed Consolidated
Financial Statements included herein.





CAUTIONARY
STATEMENTS





Certain
statements made in this Quarterly Report on Form 10-Q that are not historical
facts are “forward-looking statements” within the meaning of Section 21E of the
Securities Exchange Act of 1934.  Such forward-looking statements may
include statements that relate to:





·
            our
      objectives, business plans or strategies, and projected or anticipated
      benefits or other consequences of such plans or
  strategies;


·
            projected
      or anticipated benefits from acquisitions, including our acquisitions of
      DeepOcean ASA (DeepOcean) and Active Subsea ASA
  (Active);


·
            the
      results, timing, outcome or effect of pending or potential litigation, our
      intentions or expectations of prevailing with respect thereto and the
      availability of insurance coverage in connection therewith;


·
            our
      ability to repatriate cash from foreign operations if and when
      needed;


·
            our
      ability to comply with covenants under existing financing
      agreements;


·
            projections
      involving revenues, operating results, cash provided from operations and
      available borrowings, or our anticipated capital expenditures or other
      capital projects; and


·
            future
      expectations and outlook and any other statements regarding future growth,
      cash needs, operations, business plans, financial results and any other
      statements which are not historical facts.





You can generally identify forward-looking
statements by such terminology as “may,” “will,” “expect,” “believe,”
“anticipate,” “project,” “estimate” or similar expressions.  We
caution you that such statements are only predictions and not guarantees of
future performance or events.  We disclaim any intent or obligation to
update the forward-looking statements contained in this Quarterly Report,
whether as a result of receiving new information, the occurrence of future
events or otherwise, other than as required by law.  We caution
investors not to place undue reliance on forward-looking
statements.





All
phases of our operations are subject to a number of uncertainties, risks and
other influences, many of which are beyond our ability to control or
predict.  Any one of such influences, or a combination, could
materially affect the results of our operations and the accuracy of
forward-looking statements made by us.





Important factors that may cause our actual
results to differ materially from expectations or projections include those
described in this Quarterly Report on Form 10-Q, Part II- Item 1A “Risk Factors”
located in our  Quarterly Report on Form 10-Q for the quarter ended
June 30, 2008 and Item 1A.  “Risk Factors” included in our 2007
Form 10-K.





OVERVIEW





We are an integrated provider of
vessels, services and engineering to the offshore energy and subsea services
markets.  We recently expanded our subsea market presence through the
acquisition of DeepOcean (see “Acquisition of DeepOcean” below), a leader in the
provision of high quality subsea services, including inspection, maintenance and
repair (IMR), survey and light construction support, subsea intervention and
decommissioning.  CTC Marine Project LTD (CTC Marine), a wholly-owned
subsidiary of DeepOcean, is a leader in providing marine trenching, sea floor
cable laying and subsea installation services.  DeepOcean and CTC
Marine operate a well equipped combined fleet of 16 vessels, modern remotely
operated vehicles (ROVs) and trenching, survey and cable laying
equipment.  We also continue to provide a broad range of marine
support services to the oil and gas industry through the use of our diversified
fleet of vessels including the transportation of drilling materials, supplies
and crews to drilling rigs and other offshore facilities; towing drilling rigs
and equipment; and support for the construction, installation, repair and
maintenance of offshore facilities.  We maintain a global presence
with operations primarily in international markets including the North Sea, West
Africa, Mexico, Brazil and Southeast Asia as well as our domestic presence in
the U.S. Gulf of Mexico.





30
 Table of Contents




Following
the acquisition of DeepOcean and CTC Marine, we view our business in three
operating segments: towing and supply, subsea services and trenching (Note
15).   The following information should be read in conjunction
with the consolidated financial statements and notes thereto included in this
Quarterly Report on Form 10-Q.





The revenues for our towing and supply
business are impacted primarily by fleet size and capabilities, day rates and
vessel utilization.  Day rates and vessel utilization are primarily
driven by demand for our vessels, supply of new vessels, our vessel
availability, customer requirements, competition and weather
conditions.  The operating costs for the towing and supply business
are primarily a function of the active fleet size.  The most
significant of our normal direct operating costs include crew compensation,
maintenance and repairs, marine inspection costs, supplies and marine
insurance.  We are typically responsible for normal operating
expenses, while our contracts provide that customers are typically responsible
for mobilization expenses and fuel costs.





The revenues and costs for our
subsea services and trenching businesses are determined by the scope of each
individual project and in certain cases by multi-year contracts for inspection,
maintenance and repairs.  Our projects may utilize any combination of
vessels, both owned and leased, and components of our fleet equipment consisting
of ROV’s, survey equipment, ploughs, water jetters and cutters.   The
complexity of the project will determine what assets will be deployed to service
the project.  Revenues for our subsea services and trenching
businesses include a composite day rate for the utilization of a vessel, the
appropriate equipment for the project and the crew.   These day
rates are variable and are primarily influenced by the specific technical
requirements of the project, the availability of the required vessels and
equipment and the project’s geographic location and competition.  The
operating costs for the subsea services and trenching businesses primarily
reflect the rental costs for our leased vessels and equipment, crew compensation
costs, supplies and marine insurance.   Our customers are
typically responsible for mobilization expenses and fuel
costs.  Variables that may affect our subsea services and trenching
businesses include the scope and complexity of each project and weather or
environmental downtime.  Delays or acceleration of projects will result in
fluctuations of when revenues and costs are incurred but generally it will not
materially affect the amount of total costs.





Generally,
our subsea services and trenching projects last between one to 12 months in
duration.  However, several of our vessel “spreads” (the combination
of the vessel, equipment and crew costs) are under multi-year contracts up to
five years in duration.  For our towing and supply business, 7 vessels
are subject to short-term “spot” market rates whose contracts range from just a
few weeks to a few months in duration.  We have 35 vessels in our
towing and supply business subject to term contracts with durations ranging from
three months to three years.  The subsea services and trenching
businesses are somewhat seasonally driven but they are affected at different
periods than our towing and supply business.  The trenching business
is seasonally driven as it generally needs calm seas to perform the highly
specialized work with its subsea equipment which
tends to lead to stronger operating results in the second and third
quarters.





Our
principal customers are major oil and natural gas exploration, development and
production companies and foreign government-owned or controlled
organizations.  Our results of operations are highly dependent on the
level of capital spending for exploration and development by the energy
industry. The energy industry’s level of capital spending is substantially
related to the demand for natural resources and the prevailing commodity price
of natural gas and crude oil. During periods of current or projected low
commodity prices, the company’s customers may reduce their capital spending
budgets for offshore drilling, exploration and development.





Other
factors that influence the level of capital spending by our customers which are
beyond the control of the company include: worldwide demand for crude oil and
natural gas and the cost of exploring and producing oil and natural gas which
can be affected by environmental regulations, significant weather conditions and
technological advances that affect energy and its usage.





OUR
OUTLOOK





·
            Integrate acquisition of
      DeepOcean and CTC Marine into the Company.  Our
      acquisition of DeepOcean and CTC Marine (see “Acquisition of DeepOcean and
      CTC Marine” below) positions us as a global provider of integrated subsea
      solutions.  Together, the combined Company, referred to as the
      Trico Group, serves 17 of the 20 largest customers for subsea field
      development.   Leveraging our existing global
      infrastructure and DeepOcean’s and CTC Marine’s expertise and equipment,
      we have expanded services provided to customers for subsea field
      development.





31
 Table of Contents




·
            Manage our capital resources
      and liquidity and stabilize cash flows.  Our acquisition
      of DeepOcean and CTC Marine required us to incur and assume a substantial
      amount of indebtedness, which will require us to manage our cash flow to
      maintain flexibility under our debt covenants, meet our capital
      expenditure and debt service requirements, and, over time, reduce our
      borrowings outstanding.  We plan to continue to use a
      centralized and disciplined approach to marketing and contracting our
      vessels and equipment to achieve a balance of spot exposure and term
      contracts.  The expansion of our subsea services activities is
      intended to have a stabilizing influence on our cash flow, resulting from
      the longer-term contracts more prevalent in that market sector as compared
      to our traditional towing and supply
business.




·
            Increase our vessel
      utilization and maximize our service spreads.We
      continue to increase our combined subsea services and trenching fleet
      primarily through chartering of third party vessels. We offer to provide
      our customers a variety of subsea and trenching services using
      combinations of our equipment and personnel to maximize the earnings per
      vessel and to increase the opportunity to offer a differentiated
      technology service package.




·
            Expand our presence in
      additional subsea services markets.  We continually seek to
      acquire or partner with companies providing subsea services by offering
      sophisticated vessels and service packages for subsea work in growing
      markets.   We believe the subsea market is growing at a
      faster rate than our traditional towing and supply business and will
      provide a higher rate of return on our vessels currently being
      constructed.




·
            Invest in growth of our subsea
      fleet.  We continually aim to improve our fleet’s
      capabilities in the subsea services area by focusing on more sophisticated
      next generation subsea vessels with broad customer applicability which can
      be deployed worldwide. We have a specific emphasis on vessels capable of
      supporting a variety of subsea work.  We believe having a
      modern, technologically advanced fleet is critical to our being
      competitive within the subsea services and trenching
      businesses.   The new age of our subsea fleet is 6 years
      and the overall fleet is 16 years.  We intend to continue to
      increase the number of vessels we have working in the subsea market
      by:




o
            chartering
      subsea vessels in return for long-term contracts;
  and




o
            converting
      certain platform supply vessels that can be readily upgraded when current
      charter contracts expire through the addition of cranes, moon pools,
      helidecks and accommodation units to make them more suitable for subsea
      and/or seismicactivities.




·
            Focus on growing
      markets.  We will continue to capitalize on our
      experience, technology, personnel and fleet to expand our presence in
      growing markets.  Our goal is to continue to efficiently deploy
      our vessels and services into profitable operations, including the use of
      joint ventures, and with an emphasis on regions that have strong long-term
      growth fundamentals, favorable contracting terms and lower operating cost
      structures.  Consistent with this strategy, we have reduced the
      number of our towing and supply vessels in the U.S. Gulf of Mexico by more
      than 70% since 2004, including mobilizing three vessels in the first half
      of 2008 and two additional vessels in the third quarter of
      2008.





ACQUISITION
OF DEEPOCEAN AND CTC MARINE




On May 15, 2008, we initiated a series
of events and transactions that resulted in us acquiring 100% of DeepOcean and
its wholly-owned subsidiary CTC Marine (Note 2).  DeepOcean is a
leader in the provision of high quality subsea IMR, survey and light
construction support, subsea intervention and decommissioning
services.  CTC Marine is a supplier of marine trenching and cable
laying services.   DeepOcean controls a fleet of 11 vessels
equipped with dynamic positioning systems and, together with its owners, have
driven the development of a new type of dynamic positioning support vessel
equipped with heavy weather launch and recovery systems. CTC Marine, operates a
fleet of five marine trenching vessels and a large number modern ROVs and
trenching equipment and has pioneered the development of deepwater module
handling systems used to place and install sophisticated equipment on the ocean
seabed.   DeepOcean is based in Haugesund, Norway and CTC Marine
is based in Darlington in the United Kingdom.   DeepOcean and CTC
Marine support their overseas operations through facilities in Aberdeen and
Norwich in the United Kingdom, Den Helder in the Netherlands, Ciudad de Carmen
in Mexico and Singapore.  DeepOcean and CTC Marine combine to employ
over 800 people worldwide.




In assessing the acquisition we
considered a number of potential strategic and financial benefits that are
expected to be realized.  Although we anticipate these future
benefits, we cannot assure you that all or any of them will be
achieved.  Some of these expected benefits include, but are not
limited to, the following:





32
 Table of Contents




·
            Creation
      of what we believe is one of the world’s largest providers of integrated
      subsea services;


·
            Expansion
      of our presence in the growing subsea services market with a global
      platform, which may provide a stage for additional organic
      growth;


·
            Synergies
      expected to arise from an acquisition that is complementary with our
      November 2007 acquisition of Active, a separate Norwegian subsea services
      vessel company;


·
            Ability
      to leverage our existing infrastructure, equipment, vessels and resources
      to provide specialized service offerings to new and existing
      customers;


·
            Addition
      of earnings and cash flow ;


·
            DeepOcean’s
      and CTC Marine’s operational track record and engineering
      expertise;


·
            Addition
      of seasoned management team with specialized knowledge of the subsea
      services and trenching industry;


·
            DeepOcean’s
      and CTC Marine’s fleet of modern subsea capable equipment and vessels;
      and


·
            Expanded
      international diversification, which improves growth prospects and
      stabilizes cash flows.





The acquisition price for DeepOcean
approximated $700 million. To fund the transactions we used available cash,
borrowings under new, existing and/or amended revolving lines of credit and
proceeds from the issuance of $300 million of 6.5% convertible debentures and
the issuance of phantom stock units.  For a discussion of our debt
instruments see Notes 3, 4 and 5 and the section titled “Liquidity and Capital
Resources –Debt” below.





Our financial results will change
significantly with the inclusion of the operating results and cash flows of
DeepOcean and our financing of the acquisition.  Following the
acquisition of DeepOcean and CTC Marine, we now have three operating segments:
towing and supply, represented primarily by our historical operation of vessels;
subsea services, represented primarily by the operations of DeepOcean; and
trenching operations, represented by the operations of CTC
Marine.  For additional information regarding DeepOcean’s and CTC
Marine’s financial information see “Results of Operations” below and Notes 2 and
14.





NON-GAAP
FINANCIAL MEASURES




A non-GAAP financial measure is generally defined by the
Securities and Exchange Commission (“SEC”) as one that purports to measure
historical or future financial performance, financial position or cash flow, but
excludes or includes amounts that would not be so adjusted in the most
comparable GAAP measures.  We define adjusted EBITDA, a non-GAAP
financial measure, which is calculated as earnings (net income) before interest,
income taxes, depreciation and amortization, gains (loss) on sales of assets,
stock based compensation, unrealized gain from mark to market adjustment of our
embedded derivative, other income (loss) and noncontrolling interest in (income)
loss of a consolidated subsidiary.





Our measure of adjusted EBITDA may not be
comparable to similarly titled measures presented by other companies. Other
companies may calculate adjusted EBITDA differently than we do, which may limit
its usefulness as a comparative measure.





We believe that the GAAP financial
measure that our non-GAAP adjusted EBITDA financial measure most directly
compares to is operating income.  Because adjusted EBITDA is not a measure
of financial performance calculated in accordance with GAAP, it should not be
considered in isolation or as a substitute for operating income, net income
(loss), cash flow provided by operating, investing and financing activities, or
other income or cash flow statement data prepared in accordance with
GAAP.





EBITDA
is widely used by investors and other users of our financial statements as a
supplemental financial measure that, when viewed with our GAAP results and the
accompanying reconciliation, we believe provides additional information that is
useful to gain an understanding of the factors and trends affecting our ability
to service debt, pay taxes and fund various capital expenditures.  We also
believe the disclosure of EBITDA helps investors meaningfully evaluate and
compare our cash flow generating capacity.





The
following table provides the detailed components of adjusted EBITDA, as we
define that term (in thousands):





33
 Table of Contents




Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember 30,
                  
                  
                  September
      30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Net
      income
                  
                  $
                  30,970
                  
                  
                  $
                  13,177
                  
                  
                  $
                  38,863
                  
                  
                  $
                  32,195Depreciation
      and amortization
                  
                  
                  21,673
                  
                  
                  
                  6,209
                  
                  
                  
                  41,315
                  
                  
                  
                  17,789Amortization
      of non-cash deferred revenues
                  
                  
                  (93
                  )
                  
                  
                  (234
                  )
                  
                  
                  (277
                  )
                  
                  
                  (663
                  )Interest
      expense, including amortization of deferred financing costs,
      net
                  
                  
                  11,694
                  
                  
                  
                  1,314
                  
                  
                  
                  18,093
                  
                  
                  
                  3,493Income
      tax expense
                  
                  
                  7,670
                  
                  
                  
                  9,906
                  
                  
                  
                  9,095
                  
                  
                  
                  22,322Stock-based
      compensation
                  
                  
                  735
                  
                  
                  
                  1,412
                  
                  
                  
                  3,120
                  
                  
                  
                  3,191(Gain)
      loss on sale of assets
                  
                  
                  10
                  
                  
                  
                  (1
                  )
                  
                  
                  (2,736
                  )
                  
                  
                  (2,858
                  )Interest
      income
                  
                  
                  (2,529
                  )
                  
                  
                  (4,127
                  )
                  
                  
                  (7,378
                  )
                  
                  
                  (10,827
                  )Foreign
      currency exchange loss (gain)
                  
                  
                  25
                  
                  
                  
                  2,068
                  
                  
                  
                  (1,548
                  )
                  
                  
                  3,036Change
      in market value of embedded derivative
                  
                  
                  (31,515
                  )
                  
                  
                  -
                  
                  
                  
                  (29,205
                  )
                  
                  
                  -Other
      loss, net
                  
                  
                  25
                  
                  
                  
                  23
                  
                  
                  
                  3,063
                  (1)
                  
                  
                  365Noncontrolling
      interest in income (loss) of consolidated subsidiary
                  
                  
                  2,853
                  
                  
                  
                  (51
                  )
                  
                  
                  5,235
                  
                  
                  
                  (2,200
                  )Adjusted
      EBITDA
                  
                  $
                  41,518
                  
                  
                  $
                  29,696
                  
                  
                  $
                  77,640
                  
                  
                  $
                  65,843








(1)
            Primarily
      reflects the $2.5 million loss associated with the settlement of a legacy
      DeepOcean foreign currency swap instrument in June
  2008.





The
following table reconciles adjusted EBITDA to operating income (in
thousands):





Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember
      30,
                  
                  
                  September
      30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Adjusted
      EBITDA
                  
                  $
                  41,518
                  
                  
                  $
                  29,696
                  
                  
                  $
                  77,640
                  
                  
                  $
                  65,843Amortization
      of non-cash deferred revenues
                  
                  
                  93
                  
                  
                  
                  234
                  
                  
                  
                  277
                  
                  
                  
                  663Gain
      (loss) on sale of assets
                  
                  
                  (10
                  )
                  
                  
                  1
                  
                  
                  
                  2,736
                  
                  
                  
                  2,858Stock
      based compensation
                  
                  
                  (735
                  )
                  
                  
                  (1,412
                  )
                  
                  
                  (3,120
                  )
                  
                  
                  (3,191
                  )Depreciation
      and amortization
                  
                  
                  (21,673
                  )
                  
                  
                  (6,209
                  )
                  
                  
                  (41,315
                  )
                  
                  
                  (17,789
                  )Operating
      income
                  
                  $
                  19,193
                  
                  
                  $
                  22,310
                  
                  
                  $
                  36,218
                  
                  
                  $
                  48,384





RESULTS
OF OPERATIONS





We acquired a majority interest in
DeepOcean on May 16, 2008 (see “Acquisition of DeepOcean and CTC Marine”
above).   Our ownership interest in DeepOcean totaled
approximately 54% from May 16, 2008 until June 13, 2008, at which time it
increased to approximately 90% (Notes 1 and 2).  On June 30, 2008, our
ownership interest was 99.7%, which increased to 100% on August 29, 2008 upon
the delisting of DeepOcean from the Oslo Bors
Exchange.   Accordingly, for the three and nine month periods
ended September 30, 2008, every component of our operating income was
significantly affected as compared with the three and nine month periods ended
September 30, 2007.  The following table provides the amounts included
in our 2008 results from the acquisition of DeepOcean for the three months ended
September 30, 2008 and for the period from May 16, 2008 to September 30, 2008
(amounts in thousands).





34
 Table of Contents




Three
      Months
                    Ended
                  
                  
                  Period
      from
                    May
      16 ,2008 toSeptember
      30, 2008
                  
                  
                  September
      30, 2008Revenues
                  
                  $
                  146,279
                  
                  
                  $
                  194,392Direct
      operating expenses
                  
                  
                  (117,741
                  )
                  
                  
                  (155,062
                  )General
      and administrative expense
                  
                  
                  (6,416
                  )
                  
                  
                  (10,064
                  )Depreciation
      and amortization
                  
                  
                  (14,819
                  )
                  
                  
                  (20,975
                  )Operating
      income
                  
                  $
                  7,303
                  
                  
                  $
                  8,291





Following
the acquisition of DeepOcean and CTC Marine, we now view our business in three
operating segments: towing and supply, subsea services and trenching (Note
14).  The following information should be read in conjunction with the
condensed consolidated financial statements and notes thereto included in this
Quarterly Report on Form 10-Q.





Towing
and Supply


Our
towing and supply vessels’ average day rates, utilization and average number of
vessels by vessel class, is as follows:





Month
      Ended October 31,
                        
                        
                        Three
      months ended
                          September
      30,
                        
                        
                        Nine
      months ended
                          September
      30,2008
                        
                        
                        2008
                        
                        
                        2007
                        
                        
                        2008
                        
                        
                        2007Average Day RatesAHTSs(1)
                        
                        $
                        34,432
                        
                        
                        $
                        37,476
                        
                        
                        $
                        39,986
                        
                        
                        $
                        36,768
                        
                        
                        $
                        36,275PSVs(2)
                        
                        
                        19,958
                        
                        
                        
                        18,991
                        
                        
                        
                        19,465
                        
                        
                        
                        18,163
                        
                        
                        
                        18,592OSVs(3)
                        
                        
                        8,530
                        
                        
                        
                        7,856
                        
                        
                        
                        8,326
                        
                        
                        
                        7,439
                        
                        
                        
                        8,947UtilizationTowing
      and SupplyAHTSs
                        
                        
                        96
                        %
                        
                        
                        97
                        %
                        
                        
                        95
                        %
                        
                        
                        88
                        %
                        
                        
                        87
                        %PSVs
                        
                        
                        95
                        %
                        
                        
                        96
                        %
                        
                        
                        90
                        %
                        
                        
                        93
                        %
                        
                        
                        92
                        %OSVs
                        
                        
                        88
                        %
                        
                        
                        87
                        %
                        
                        
                        85
                        %
                        
                        
                        82
                        %
                        
                        
                        76
                        %Average number of VesselsTowing
      and SupplyAHTSs
                        
                        
                        6.0
                        
                        
                        
                        6.0
                        
                        
                        
                        6.0
                        
                        
                        
                        6.0
                        
                        
                        
                        6.0PSVs
                        
                        
                        7.0
                        
                        
                        
                        7.0
                        
                        
                        
                        7.0
                        
                        
                        
                        7.0
                        
                        
                        
                        7.0OSVs
                        
                        
                        38.0
                        
                        
                        
                        38.0
                        
                        
                        
                        39.0
                        
                        
                        
                        38.1
                        
                        
                        
                        39.2





(1)
            Anchor
      handling, towing and supply vessels


(2)
            Platform
      Supply Vessels


(3)
            Offshore
      Supply Vessels





35
 Table of Contents




Operating
results for our towing and supply operations follows (in
thousands):





Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember
      30,
                  
                  
                  September
      30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Revenues
                  
                  $
                  58,989
                  
                  
                  $
                  62,543
                  
                  
                  $
                  156,789
                  
                  
                  $
                  168,262Direct
      operating expenses
                  
                  
                  (31,530
                  )
                  
                  
                  (26,741
                  )
                  
                  
                  (86,479
                  )
                  
                  
                  (83,034
                  )General
      and administrative expense
                  
                  
                  (6,223
                  )
                  
                  
                  (4,905
                  )
                  
                  
                  (17,639
                  )
                  
                  
                  (13,908
                  )Depreciation
      and amortization
                  
                  
                  (5,825
                  )
                  
                  
                  (5,963
                  )
                  
                  
                  (17,737
                  )
                  
                  
                  (16,349
                  )Gain
      (loss) on sale of assets
                  
                  
                  (10
                  )
                  
                  
                  1
                  
                  
                  
                  2,736
                  
                  
                  
                  2,858Operating
      income
                  
                  $
                  15,401
                  
                  
                  $
                  24,935
                  
                  
                  $
                  37,670
                  
                  
                  $
                  57,829




Revenues.Charter hire
revenues for our towing and supply vessels totaled $58.5 million and $155.6
million for the three and nine month periods ended September 30, 2008,
respectively, representing decreases of $2.1 million and $10.3 million over
amounts for the three and nine month periods ended September 30, 2007,
respectively.





AHTS
revenues decreased $0.9 million in the three months ended September 30, 2008
compared to the three months ended September 30, 2007 due to a 6% decrease in
average day rates partially offset by a two percentage increase in
utilization.  AHTS revenues increased $1.3 million for the nine months
period ended September 30, 2008 compared to the same period last year reflecting
slightly higher average day rates and utilization in the North
Sea.  PSV revenues increased by $0.5 million in the three month period
ended September 30, 2008 compared to the same period last year reflecting a six
percentage increase in utilization offset by reduced day
rates.   PSV revenues decreased by $0.4 million for the nine
month period ended September 30, 2008 as compared to the same period in 2007
reflecting lower day rates in the North Sea primarily in the first half of
2008.  OSV revenues decreased $1.6 million and $9.3 million for the
three and nine month periods ended September 30, 2008, respectively, compared to
the same periods last year reflecting decreased average day rates during the
periods and higher utilization in the U.S. Gulf of Mexico reflecting the need
for vessels in the wake of the hurricanes that passed through the Gulf in late
August and early September 2008.  The hurricanes have also contributed
to increased average day rates for OSVs which currently has increased to an
average of over $8,600 per day.





Although
we view the increase in utilization and rates for our vessels in the U.S. Gulf
of Mexico as positive, we remain committed and continue to redeploy supply
vessels to emerging international markets to increase utilization and to
stabilize and/or increase our future cash flow.  We mobilized two vessels
formerly operating in the U.S. Gulf of Mexico to Mexico during the third quarter
of 2008, and in the first half of 2008, we mobilized three supply vessels with
two being deployed to Southeast Asia and one to West Africa.





Other
vessel income of $0.5 million and $1.2 million for the three months and nine
month periods ended September 30, 2008, respectively, decreased by $0.5 million
and decreased by $1.2 million compared to amounts for the three and nine month
periods ended September 30, 2007, respectively.




Direct Operating Expenses.Direct vessel operating expenses of $31.5 million and $86.5 million for
the three and nine month periods ended September 30, 2008, respectively, reflect
increases of $4.8 million and $3.4 million over amounts for the three and
nine month periods ended September 30, 2007, respectively.  The
increases primarily reflect the mobilization costs of two vessels
to Mexico in the third quarter of 2008 and the nine month variance
also reflects those mobilization costs partially offset by the costs we incurred
to mobilize three vessels to West Africa and Southeast Asia in the first quarter
of 2008.





General and Administrative Expenses.General and administrative expenses of $6.2 million and $17.6
million for the three months and nine months ended September 30, 2008,
respectively, reflect increases of $1.3 million and $3.7 million over amounts
for the three months and nine months ended September 30, 2007,
respectively.   The increases reflect costs associated with our
expansion of our operations across West Africa and the impact of European
currencies’ strengthening against the U.S. dollar during the first half of 2008,
which was partially offset in third quarter when the U.S. dollar strengthened
against the European currencies.





36
 Table of Contents




Depreciation and Amortization.Depreciation and amortization expense of $5.8 million and $17.7
million for the three and nine month periods ended September 30, 2008,
respectively, decreased $0.1 million and increased by $1.4 million,
respectively, over the same periods in 2007.   The increase for
the nine month period reflects primarily capital improvements related to
existing vessels partially offset by the strengthening of the Norwegian Kroner,
which increased the dollar value of our North Sea vessels and the related
depreciation expense during the first half of 2008. The decrease in depreciation
during the three month periods ended September 30, 2008 and 2007 reflects the
strengthening of the U.S. dollar against the Norwegian Kroner during the quarter
that decreased the value of our North Sea vessels and related depreciation,
which was partially offset by us placing one new vessel in service during the
third quarter of 2008.





Gain (Loss) on Sale of
Assets.Our gain (loss) on the sale of assets totaled $2.7
million for the nine months ended September 30, 2008.  This reflects a
$2.7 million gain from the sale of the land and buildings comprising our Houma,
Louisiana facility in February 2008.    The gain on sale of
assets for the first half of 2007 totaled $2.9 million, reflecting the sale of
four vessels in the first quarter of 2007.





Subsea
Services


We
recently established our subsea services segment following the acquisition of
DeepOcean (see “Acquisition of DeepOcean” above), a leader in the provision of
high quality subsea services including IMR, survey and light construction
support and subsea intervention and decommissioning.  The subsea
services segment includes 11 vessels from DeepOcean and the six subsea platform
supply vessels (SPSVs) currently in service (see below).  This segment
will include the eight multi-purpose service vessels (MPSVs) we acquired in the
Active Subsea acquisition in November 2007 (see Note 3 of our 2007 Form 10-K)
and four additional subsea vessels all of which are currently under
construction.  We expect three of the vessels being constructed to be
delivered over the remainder of 2008, three additional vessels to be delivered
in 2009 and the remaining four vessels to be delivered in the first half of
2010.  The increased results for the three and nine month periods
ended September 30, 2008 from the comparable periods in 2007 reflect the
inclusion of DeepOcean’s results since May 16, 2008.   The
average day rate and utilization of our subsea services vessels were as
follows:





Month
      Ended October 31,
                  
                  
                  Three
      Months Ended
                    September
      30,
                  
                  
                  Nine Months
      Ended
                    September
      30,2008
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Average
      Day RatesSPSVs
                  
                  $
                  24,433
                  
                  
                  $
                  22,422
                  
                  
                  $
                  17,114
                  
                  
                  $
                  20,913
                  
                  
                  $
                  16,525MSVs
      (1)
                  
                  
                  69,988
                  
                  
                  $
                  84,973
                  
                  
                  $
                  70,413
                  
                  
                  $
                  79,311
                  
                  
                  $
                  62,790UtilizationSPSVs
                  
                  
                  85
                  %
                  
                  
                  78
                  %
                  
                  
                  100
                  %
                  
                  
                  83
                  %
                  
                  
                  94
                  %MSVs
      (1)
                  
                  
                  80
                  %
                  
                  
                  80
                  %
                  
                  
                  85
                  %
                  
                  
                  84
                  %
                  
                  
                  85
                  %Average
      Number of VesselsSPSVs
                  
                  
                  6.0
                  
                  
                  
                  5.4
                  
                  
                  
                  5.0
                  
                  
                  
                  5.1
                  
                  
                  
                  5.0MSVs
      (1)
                  
                  
                  9.0
                  
                  
                  
                  9.4
                  
                  
                  
                  9.0
                  
                  
                  
                  9.3
                  
                  
                  
                  9.0





(1) Multi
purpose service vessels.   We purchased DeepOcean in May
2008.   Amounts for nine months ended September 30, 2008 reflect
activity for entire year.   No amounts prior to May 2008 are
included in our consolidated financial results.





The
operating results of our subsea services segment for the three and nine month
periods ended September 30, 2008 follow (in thousands):





37
 Table of Contents




Three
      Months Ended
                    
                    
                    Nine
      Months EndedSeptember
      30,
                    
                    
                    September
      30,2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007Revenues
                    
                    $
                    105,276
                    
                    
                    $
                    7,903
                    
                    
                    $
                    155,504
                    
                    
                    $
                    22,863Direct
      operating expenses
                    
                    
                    (87,633
                    )
                    
                    
                    (2,626
                    )
                    
                    
                    (123,278
                    )
                    
                    
                    (14,717
                    )General
      and administrative expense
                    
                    
                    (3,740
                    )
                    
                    
                    (25
                    )
                    
                    
                    (5,120
                    )
                    
                    
                    (50
                    )Depreciation
      and amortization
                    
                    
                    (9,787
                    )
                    
                    
                    (246
                    )
                    
                    
                    (15,036
                    )
                    
                    
                    (1,440
                    )Operating
      income
                    
                    $
                    4,116
                    
                    
                    $
                    5,006
                    
                    
                    $
                    12,070
                    
                    
                    $
                    6,656




Revenues.   We
took delivery of one new SPSV vessel in August 2008.   This
vessel is currently under contract in the U.S Gulf of Mexico at a day rate
significantly higher than our average rates.   Delivery of a
second similar SPSV is expected to occur in November 2008. During
the third quarter of 2008, we took delivery of one new subsea vessel, the EDDA
Flora, the EDDA Flora is subject to a five-year frame agreement with Statoil,
becoming the third such vessel under similar contracts with
Statoil.




Excluding
the effects of the operations of DeepOcean, revenues from our six SPVSs in
service during 2008 and five in service during 2007 were up $1.5 million and
$2.3 million for the three and nine months periods ended September 30, 2008,
respectively, over the same periods in 2007.   The higher amounts
reflect much stronger day rates during the periods which were partially offset
by lower utilization rates specifically in the second quarter.





Trenching


The
trenching business was established upon the acquisition of CTC Marine, a wholly
owned subsidiary of  DeepOcean (see “Acquisition of DeepOcean and CTC
Marine” above).  CTC Marine operates five vessels and a large fleet of
marine trenching vehicles providing trenching, cable laying and subsea
installation services.  In the third quarter of 2008, CTC Marine took
delivery of a new trenching and cable laying vessel, which includes a spooled
cable laying system designed to speed the installation and burial of
cable.  The current intention is to use this newly delivered vessel to
service customers in the telecommunications business.





The
average day rate and utilization for our trenching vessels and equipment are as
follows:





Month
      Ended October 31,
                  
                  
                  Three
      Months Ended
                    September
      30,
                  
                  
                  Nine Months
      Ended
                    September
      30,2008
                  
                  
                  2008
                  
                  
                  2007
      (1)
                  
                  
                  2008
                  
                  
                  2007
      (1)Day
      Rates
                  
                  $
                  155,055
                  
                  
                  $
                  163,254
                  
                  
                  $
                  133,611
                  
                  
                  $
                  168,791
                  
                  
                  $
                  133,487Utilization
                  
                  
                  88
                  %
                  
                  
                  100
                  %
                  
                  
                  97
                  %
                  
                  
                  92
                  %
                  
                  
                  89
                  %Number
      of Vessels
                  
                  
                  4.2
                  
                  
                  
                  3.7
                  
                  
                  
                  3.2
                  
                  
                  
                  3.2
                  
                  
                  
                  2.7





(1)  We
acquired CTC Marine in May 2008.   Amounts for nine months ended
September 30, 2008 reflect activity for the period from May 16, 2008 to
September 30, 2008.   No amounts prior to May 2008 are included
in our consolidated financial results but are provided for informational
purposes only.





The
operating results of our trenching segment for the three months ended September
30, 2008 and for the period from May 16, 2008 to September 30, 2008 were as
follows (amounts in thousands):





38
 Table of Contents




Three
      Months
                    Ended
                  
                  
                  Period
      from
                    May
      16, 2008 toSeptember
      30, 2008
                  
                  
                  September
      30, 2008Revenues
                  
                  $
                  59,550
                  
                  
                  $
                  75,014Direct
      operating expenses
                  
                  
                  (44,972
                  )
                  
                  
                  (58,242
                  )General
      and administrative expense
                  
                  
                  (2,679
                  )
                  
                  
                  (4,947
                  )Depreciation
      and amortization
                  
                  
                  (6,013
                  )
                  
                  
                  (8,441
                  )Operating
      income
                  
                  $
                  5,886
                  
                  
                  $
                  3,384




Other
Financial Information


General and Administrative Expenses.Our corporategeneral and
administrative expenses totaled $6.2 million and $16.8 million for the three and
nine months periods ended September 30, 2008, respectively, reflecting a
decrease of $1.4 million for the three months and an increase of $0.7 million
for the nine months ended September 30, 2008 over amounts for the same periods
in 2007.  The decrease between the three month 2008 and 2007 periods
primarily reflects lower stock-based compensation costs and reduced legal
fees.   The increase for the similar nine month periods reflects
costs associated with the initiation of integrating DeepOcean and CTC Marine
into our operations, personnel increases, changes in management personnel
throughout the Company, and the impact of European currencies’ strengthening
against the U.S. dollar in the first half of 2008.





Interest Expense.Interest expense of $11.7 million and $18.1 million for the three
and nine month periods ended September 30, 2008, respectively, increased by
$10.4 million and $14.6 million over the same periods in 2007, respectively. The
increase is attributed to the debt incurred in acquiring DeepOcean and CTC
Marine as well as assuming $281.7 million of DeepOcean’s and CTC Marine’s debt
in the acquisition.  Until the incurrence of this new debt and
assumption of the DeepOcean and CTC Marine debt, all of our interest was being
capitalized in connection with the construction of 10 vessels that are in the
process of being made ready for use in our subsea services activities and the
one vessel that was delivered to us  in the third quarter of
2008.Our
capitalized interest amounts totaled $7.3 million and $12.5 million for the
three and nine month periods ended September 30, 2008,
respectively.  We did not capitalize any interest during the nine
months ended September 30, 2007 because we did not have any significant
qualifying assets in progress during that period.





Interest Income.Interest income of $2.5 million and $7.4 million for the three and
nine month periods ended September 30, 2008, respectively, decreased $1.6
million and $3.5 million from the same periods in 2007, respectively, reflecting
our use of available cash to partially fund the acquisition of DeepOcean. 
The 2007 periods reflect interest income on our higher average cash balances
including our investments in available-for-sale securities, which were sold in
late 2007 to partially fund our acquisition of Active Subsea.





Change in fair value of embedded
derivative.We have an embedded derivative within our
6.5% Debentures that requires valuation under SFAS No. 157.   The
estimate of fair value of the embedded derivative will fluctuate based upon
various factors that include our common stock closing price, volatility, United
States Treasury Bond Rates, and the time value of options.  The
calculation of the fair value of the option contracts requires the use of a
Monte Carlo simulation lattice option-pricing model.  On September 30,
2008, the estimated fair value of the derivative was $24.6 million resulting in
a $31.5 million and $29.2 million unrealized gain for the three and nine month
periods ended September 30, 2008, respectively.   For additional
information regarding our embedded derivative see Notes 3 and 6 and “Liquidity
and Capital Resources – Debt – 6.5% Debentures” below.





Other Income (Loss),
net.   In June 2008, we settled a foreign currency swap
agreement that was assumed in the acquisition of DeepOcean.  Upon
settlement, we received net proceeds of $8.2 million, which was approximately
$2.5 million less than the swap instruments fair value on May 16,
2008.   This $2.5 million shortfall was recorded as a charge to
other income (loss) in the accompanying consolidated condensed statements of
income.





39
 Table of Contents




Income Tax
Expense.Consolidated income tax expense for the three and
nine month periods ended September 30, 2008 was $7.7 million and $9.1 million,
respectively, which is primarily related to the income generated by our U.S.,
West African and Norwegian operations.  Our effective tax rate of 18.5% for
the three month and 17.1% for the nine month periods ending September 30, 2008
differs from the statutory rate primarily due to tax benefits associated with
the Norwegian Tonnage Tax Regime, our permanent reinvestment of foreign
earnings, and state and foreign taxes.  Also impacting the our
effective tax rate was a reduction in Norwegian taxes payable related to a
dividend made between related Norwegian entities during the first quarter of
2008.  Our effective tax rate is subject to wide variations given its
structure and operations.  We operate in many different taxing
jurisdictions with differing rates and tax structures.  Therefore, a
change in our overall plan could have a significant impact on the estimated
rate.  At September 30, 2007, our effective tax rate of 42% differed
slightly from the statutory rate primarily due to alternative minimum tax, state
and foreign taxes and U.S tax on foreign source income.  Our 2007 estimated
tax expense was later reduced significantly due to tax legislation changes made
in Norway during the fourth quarter of 2007.





Noncontrolling Interest in
Consolidated Subsidiary.The noncontrolling interest in the
income  of our consolidated subsidiaries was $2.9 million for the
three months and $5.2 million for the nine months ended September 30, 2008,
compared to a loss of ($0.1) million and ($2.2) million, respectively, for the
same periods in 2007.    EMSL’s operations are now
benefiting from the vessels it received in 2007.   In 2007, EMSL
operations resulted in a loss primarily as a result of its receipt of vessels,
including dry-dock completions and mobilization of five cold-stacked
vessels.








LIQUIDITY
AND CAPITAL RESOURCES





Debt.As
previously indicated we incurred and assumed a substantial amount of
indebtedness associated with our acquisition of DeepOcean. Our existing credit
facilities contain financial covenants that are customary in our industry and
our compliance with those covenants is necessary to maintain the facilities in
good standing.  We are in compliance with our debt covenants at
September 30, 2008.  Please see Item 1A “Risk Factors” of Part II –
“Other Information” located in this Quarterly Report on Form 10-Q, and Item 1A
“Risk Factors” of Part II-“Other Information” located in our Quarterly Report on
Form 10-Q for the quarter ended June 30, 2008, for more details about potential
risks involving these facilities.  Amounts in this section reflecting
U.S. dollar equivalents for foreign denominated debt amounts are translated at
currency rates in effect at September 30, 2008.   As of September
30, 2008, we had approximately $60 million of additional undrawn borrowing
capacity under our existing credit facilities and future availability under
existing committed facilities.   Our summarized debt is as
follows (in thousands):





40
 Table of Contents




September 30, 2008
                
                
                December 31, 2007$300
      million face amount, 6.5% Senior Convertible Debentures net of unamortized
      discount of $50.7 million, interest payable semi-annually in arrears,
      maturing on May 15, 2028 (Note 3)
                
                $
                249,329
                
                
                $
                ―3.0%
      Senior Convertible Debentures, payable semi-annually in arrears, maturing
      on January 15, 2027
                
                
                150,000
                
                
                
                150,000$200
      million Revolving Credit Facility(1)
      maturing in May 2013
                
                
                148,589
                
                
                
                ―$100
      million Revolving Credit Facility(1)
      maturing no later than December 2017
                
                
                15,110
                
                
                
                ―$50
      million US Revolving Credit Facility Agreement (1)
      maturing in January 2011
                
                
                46,459
                
                
                
                ―6.11%
      Notes, principal and interest due in 30 semi-annual installments, maturing
      April 2014
                
                
                7,544
                
                
                
                8,174NOK
      260 million ($44.2 million) Short Term Credit Facility interest at 8.3%
      maturing on November 1, 2008
                
                
                13,893
                
                
                
                ―EMSL
      Revolving Credit Facility Agreement, bearing interest at LIBOR plus a
      margin of 0.08%
                
                
                ―
                
                
                
                2,000Debt
      assumed in the acquisition of DeepOcean:NOK
      350 million ($59.4 million) Revolving Credit Facility, maturing December
      1, 2014
                
                
                63,328
                
                
                
                ―NOK
      230 million($39.1 million) Revolving Credit Facility, maturing June 1,
      2012
                
                
                34,944
                
                
                
                ―23.5
      million Euro ($41.8 million) Revolving Credit Facility, maturing September
      30, 2008
                
                
                19,947
                
                
                
                ―NOK
      150 million ($22.5 million) Additional Term Loan, maturing December 18,
      2011
                
                
                15,207
                
                
                
                ―$18
      million Revolving Credit Facility, maturing December
      5,  2011
                
                
                16,500
                
                
                
                ―8
      million Sterling ($14.2 million) Overdraft Facility, maturity 364 days
      after drawdown
                
                
                16,382
                
                
                
                ―24.2
      million Sterling ($42.2 million) Asset Financing Revolving Credit
      Facility, maturing no later than December 31, 2013
                
                
                18,688
                
                
                
                ―Other
      debt assumed in the acquisition of DeepOcean
                
                
                17,843
                
                
                
                ―Fresh-start
      debt premium
                
                
                327
                
                
                
                371Total
      debt
                
                
                834,090
                
                
                
                160,545Less
      current maturities
                
                
                (80,772
                )
                
                
                (3,258
                )Long-term
      debt, including premium
                
                $
                753,318
                
                
                $
                157,287





(1)
              Interest
      on revolving credit facilities is at London inter-bank offered rate
      (LIBOR) plus an applicable margin ranging from 1.75% to
      2.25%.   The three month LIBOR rate for the period ending
      September 30, 2008 and December 31, 2007 was 2.8% and 5.0%,
      respectively.





6.5%
Senior Convertible Debentures.  On May 14, 2008, we entered
into a securities purchase agreement under which we agreed to sell $300 million
aggregate principal amount of our 6.5% Senior Convertible Debentures (the 6.5%
Debentures) due 2028 to certain institutional investors.  On May 16,
2008, we issued $300 million of the 6.5% Debentures in a private placement
transaction.  The 6.5% Debentures are governed by an indenture, dated
as of May 16, 2008, between Wells Fargo Bank, National Association, as trustee
and us.  The net proceeds from the 6.5% Debentures totaled
approximately $287 million net of fees and were used to partially fund the
acquisition of shares of DeepOcean capital stock (Note 2).





The 6.5%
Debentures are senior unsecured obligations of the Company and rank equally in
right of payment to all of our other existing and future senior unsecured
indebtedness.  The 6.5% Debentures are effectively subordinated to all
of our existing and future secured indebtedness to the extent of the value of
our assets collateralizing such indebtedness and any liabilities of our
subsidiaries.





The 6.5%
Debentures are convertible, based on an initial conversion rate of 24.74023
shares of common stock per $1,000 principal amount of debentures (which is equal
to an initial conversion price of approximately $40.42 per share), subject to
adjustment.  The conversion rate will be adjusted upon certain events
including (i) stock dividends; (ii) certain subdivisions, combinations or
reclassifications of our common stock; (iii) certain issuances or distributions
to all or substantially all holders of our common stock; and (iv) certain other
events.  In addition, in the event of certain types of fundamental
changes, holders of the debentures may elect either to receive an interest
make-whole payment or to cause us to increase the conversion rate by a number of
additional shares of our common stock (which reflect the approximate value of
interest that would have accrued under the 6.5% Debentures at the applicable
interest rate for the period from the applicable conversion date through May 15,
2013).  Any of these adjustments to the conversion rate could mean
that the number of shares of our common stock that are actually issuable upon
conversion of all debentures may increase above the 7,422,069 shares that would
be issuable if holders elected to convert their debentures and we decided to
settle the conversion in shares of our common stock (and no cash) at the initial
conversion rate.  There is both a maximum and minimum number of shares
that may ultimately be issued under any adjustment of the conversion rate
pursuant to these specific situations that allow for the modification of the
initial conversion rate. There have been no conversions of the 6.5% Debentures
in 2008.





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If
converted, holders will receive, at our election, cash, shares of the Company’s
common stock or a combination thereof.  Holders may convert their
debentures at their option at any time prior to the close of business on the
business day immediately preceding the maturity date.  Upon any
conversion prior to May 15, 2013, we will pay the holder the present value of
the remaining coupons owed on the principal amount of the debentures converted
through and including May 15, 2013.





Interest
on the 6.5 % Debentures is payable semiannually in arrears on May 15 and
November 15 of each year beginning November 15, 2008.  The debentures
mature on May 15, 2028, unless earlier converted, redeemed or
repurchased.  The indenture governing the 6.5% Debentures contains
negative covenants with respect to our incurring any indebtedness that is senior
to or equal with the 6.5% Debentures other than the permitted indebtedness, or
any liens or encumbrances other than the permitted liens.





At any
time prior to May 15, 2011, subject to certain conditions, we may redeem up to
50% of the original principal amount of the 6.5% Debentures in whole or in part
for cash, at a price equal to 100% of the principal amount of the 6.5%
Debentures plus accrued and unpaid interest to, but not including, the
redemption date, at any time if the last reported sale price of our common stock
has exceeded the 6.5% Debentures initial conversion price by 175%, equating to
$70.74 per share, for at least 20 trading days within a period of 30 consecutive
trading days ending on the trading day prior to the date of mailing of the
redemption notice. Beginning on May 15, 2011, we may redeem any outstanding 6.5%
Debentures in whole or in part for cash, at a price equal to 100% of the
principal amount of the 6.5% Debentures plus accrued and unpaid interest to, but
not including, the redemption date, at any time if the last reported sale price
of our common stock has exceeded 175% of the initial conversion price of the
6.5% Debentures for at least 20 trading days within a period of 30 consecutive
trading days ending on the trading day prior to the date of mailing of the
redemption notice.  On or after May 15, 2013, we may redeem for cash
all or a portion of the 6.5% Debentures at a redemption price of 100% of the
principal amount of the 6.5% Debentures to be redeemed plus accrued and unpaid
interest to, but not including, the redemption date.  Holders may
require us to purchase all or a portion of their 6.5% Debentures on each of May
15, 2013, May 15, 2015, May 15, 2018 and May 15, 2023.  In addition,
if we experience specified types of corporate transactions, holders may require
us to purchase all or a portion of their 6.5% Debentures.  Any
repurchase of the 6.5% Debentures pursuant to these provisions will be for cash
at a price equal to 100% of the principal amount of the 6.5% Debentures to be
purchased plus accrued and unpaid interest to the date of
repurchase.  Since the issuance of the 6.5% Debentures, at no time
have we exceeded the threshold for initiating our right to call the 6.5%
Debentures.





The
conversion features included within the 6.5% Debentures are considered an
embedded derivative as defined in SFAS No. 133 “Accounting for Derivative
Instruments and Hedging Activities.”  Under SFAS 133 we are required
to bifurcate this embedded derivative from the host debt instrument and record
it at fair value on the date of issuance.  To estimate the fair value
of the embedded derivative, we used a Monte Carlo simulation lattice model to
establish the derivative’s fair value in accordance with the requirements of
SFAS No. 157 “Fair Value Measurements.”   The estimated fair
value of the derivative on the date of issuance was $53.8 million, which was
recorded as a non current derivative liability on the balance sheet with the
offset recorded as a discount on the 6.5% Debentures.  The derivative
liability must be marked-to-market each reporting period with changes in its
fair value recorded in the consolidated statement of operations as other income
(loss).  On September 30, 2008, the estimated fair value of the
derivative was $24.6 million resulting in a $31.5 million and $29.2 million
unrealized gain for the three and nine month periods ended September 30, 2008,
respectively.  The discount on the 6.5% Debentures is being accreted
through an additional non-cash charge to interest expense over a five year
period given that the 6.5% Debentures include a number of put and call options
held by the holder and by us that make it probable that the 6.5% Debentures will
be redeemed or converted by the first put option date of May 15,
2013.  The coupon and the amortization of the discount on the debt
will yield an effective interest rate of approximately 11.2% on these
convertible notes.  The derivative liability
will continue to be marked to market each reporting period for the life of the
debt, which, as previously indicated, is expected to be five years based on the
put and call options included within the debt instrument.  Over time, there will be no cumulative effect on our
income statement associated with the combination of the accretion of the debt
discount and the termination of the derivative liability.





42
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3%
Senior Convertible Debentures. In February, 2007, we
issued $150.0 million of 3% senior convertible debentures due in 2027 (the “3%
Debentures”).  We received net proceeds of approximately $145.2
million after deducting commissions and offering costs of approximately $4.8
million, which were capitalized as debt issuance costs and are being amortized
over the life of the 3%  Debentures.  Net proceeds of the
offering were for the acquisition of Active Subsea, financing of our fleet
renewal program and for general corporate purposes.





Interest
on the 3% Debentures is payable semiannually in arrears on January 15 and July
15 of each year.  The 3% Debentures will mature on January 15, 2027,
unless earlier converted, redeemed or repurchased.





The 3% Debentures are senior unsecured obligations
and rank equally in right of payment to all of our other existing and future
senior indebtedness.  The 3% Debentures are effectively subordinated
to all of our existing and future secured indebtedness to the extent of the
value of its assets collateralizing such indebtedness and any liabilities of its
subsidiaries.  The 3% Debentures and shares of the common stock
issuable upon the conversion of the Senior Debentures have been registered under
the Securities Act of 1933.





The 3%
Debentures are convertible into cash and, if applicable, shares of our common
stock, par value $0.01 per share, based on an initial conversion rate of 23.0216
shares of common stock per $1,000 principal amount of 3% Debentures (which is
equal to an initial conversion price of approximately $43.44 per share), subject
to adjustment and certain limitations.  For more information regarding
our 3% Debentures conversion and redemption options, see Note 8 of our 2007
Annual Report on Form 10-K.





$200
million Revolving Credit Facility.In May 2008, in
connection with financing the acquisition of DeepOcean, we entered into a credit
agreement (as amended the $200 Million Credit Agreement) with various
lenders.  The $200 Million Credit Agreement provides the Company with
a $200 million, or equivalent in foreign currency, revolving credit facility,
which is guaranteed by certain of the Company’s subsidiaries, and is
collateralized by vessel mortgages and other security documents.  The
commitment under the facility reduces by $10 million each quarter starting with
the quarter ending September 30, 2008 and continuing through the quarter ending
June 30, 2010, at which time the facility will reduce by $6 million per quarter
until March 31, 2013.  The commitment under the facility is currently
$170 million. Interest is payable on the unpaid principal amount outstanding at
a rate applicable to the currency in which the funds are borrowed (the
Eurodollar rate designated by the British Bankers Association for U.S. dollar
denominated loans, or Euro LIBOR, NOK LIBOR or Sterling LIBOR for loans
denominated in Euro, NOK or Sterling, respectively) plus 2.25% (subject to
adjustment based on consolidated leverage ratio).  The $200 Million
Credit Agreement matures May 14, 2013.





The $200
Million Credit Agreement subjects the Company subsidiaries that are parties to
the credit agreement to certain financial and other covenants including, but not
limited to, affirmative and negative covenants with respect to indebtedness,
minimum liquidity, liens, declaration or payment of dividends, sales of assets,
investments, consolidated leverage ratio, consolidated net worth and collateral
coverage.  Payment under the $200 Million Credit Agreement may be
accelerated following certain events of default including, but not limited to,
failure to make payments when due, noncompliance with covenants, breaches of
representations and warranties, commencement of insolvency proceedings, entry of
judgment in excess of $5 million, defaults by any of the credit parties
under the credit agreement or certain other indebtedness in excess of $10
million and occurrence of certain changes of control.





$100
million Subsea Credit Facility.  In April
2008, we entered into an eight-year multi-currency revolving credit facility (as
amended, the $100 Million Credit Agreement) in the amount of $100 million or
equivalent in foreign currency, secured by first preferred mortgages on Trico
Subsea AS vessels, refund guarantees related thereto, certain additional
vessel-related collateral, and guarantees from Trico Supply AS, Trico Subsea
Holding AS and each subsidiary of Trico Subsea AS that acquires a
vessel.  The commitment under this multi-currency revolving facility
matures on the earlier of the eighth anniversary of the delivery of the final
vessel and December 31, 2017.  The commitment under facility reduces
in equal quarterly installments of $3.125 million commencing on the earlier of
the date three months after the delivery of the eighth and final vessel and June
30, 2010.  Interest is payable on the unpaid principal amount
outstanding at a rate applicable to the currency in which the funds are borrowed
(the Eurodollar rate designated by the British Bankers Association for U.S.
dollar denominated loans, or Euro LIBOR, NOK LIBOR or Sterling LIBOR for loans
denominated in Euro, NOK or Sterling, respectively) plus 2.0% (subject to
adjustment based on consolidated leverage ratio).





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The
$100 Million Credit Agreement also subjects Trico Supply AS and its subsidiaries
to certain financial and other covenants including, but not limited to,
affirmative and negative covenants with respect to indebtedness, minimum
liquidity, liens, declaration or payment of dividends, sales of collateral, loans, consolidated leverage
ratio, consolidated net worth and collateral coverage.  Payment under the
$100 Million Credit Agreement may be accelerated following certain events of
default, including, but not limited to, failure to make payments when due,
noncompliance with covenants, breaches of representations and warranties,
commencement of insolvency proceedings, entry of judgment in excess of $5
million, defaults by any of the credit parties under the credit agreement or
certain other indebtedness in excess of $10 million and the occurrence of
certain changes in control.





U.S.
Credit Facility.In
January  2008, we entered into a $50 million three-year credit
facility ( as amended and restated, the “U.S. Credit Facility”) secured by an
equity interest in direct material domestic subsidiaries, a 65% interest in
Trico Marine Cayman, LP, and a pledge on the intercompany note due from Trico
Supply AS to Trico Marine Operators, Inc.  The commitment under the
U.S. Credit Facility reduces to $40 million after one year and $30 million after
two years.  Interest is payable on the unpaid principal amount
outstanding at a rate applicable to the loan (Eurodollar rate designated by the
British Bankers Association plus 2.25%  (subject to adjustment based
on consolidated leverage ratio)  The U.S Credit Facility matures on
January 31, 2011.





The $50 Million Credit Agreement subjects our
subsidiaries that are parties to the credit agreement to certain financial and
other covenants including, but not limited to, affirmative and negative
covenants with respect to indebtedness,minimum liquidity, liens, declaration or payment of dividends, sales of
assets, investments, consolidated leverage ratio, consolidated net worth and
collateral coverage.  Payment under the U.S. Credit Agreement may be
accelerated following certain events of default including, but not limited to,
failure to make payments when due, noncompliance with covenants, breaches of
representations and warranties, commencement of insolvency proceedings, entry of
judgment in excess of $5 million, defaults by any of the credit parties under
the credit agreement or certain other indebtedness in excess of $10 million and
occurrence of certain changes of control.





Short
Term Credit Facility.   In
May  2008, Trico Shipping entered into a credit facility agreement
with Carnegie Investment Bank AB Norway Branch, as lender (the Short Term Credit
Facility).  The Short Term Credit Facility agreement provides for a
NOK 260 million ($44.2 million) short term credit facility that Trico Shipping
is using for general corporate purposes.  The facility’s maturity date
was recently extended from November 1, 2008 to February 1,
2009.  Interest on any outstanding balance under the facility accrued
at an average rate of 9.05% until November 1, 2008, at which time it increased
to 9.9%.   Interest under the facility is payable
quarterly.





EMSL
Credit Facility Agreement.In June 2007,
EMSL, a jointly owned subsidiary of the Company, entered into a credit facility
agreement (the EMSL Credit Facility).    During the first
half of 2008,  EMSL, using its operating cash flow, repaid the EMSL
Credit Facility in full using it was subsequently terminated.





NOK 350
million (($59.8 million) Revolving Credit Facility.  In
December 2007, in connection with the financing of the vessel Deep Endeavour,
DeepOcean entered into this NOK 350 million credit facility (approximately $59.4
million at September 30, 2008).  This multi-currency facility allows
for borrowings to be made in either U.S. Dollars or NOK.  The loan is
guaranteed by DeepOcean and is secured with a mortgage on the Deep Endeavour, a
portion of DeepOcean’s inventory, and other security
documents.   The commitment under the facility decreases
semi-annually by approximately 10 million NOK (approximately $1.7 million) with
a balloon payment at maturity.  Interest accrues on the facility at
the 3-month NIBOR rate plus 1.75% for NOK borrowings and the LIBOR rate plus
1.75% for U.S. Dollar borrowings and is payable quarterly.   The
facility is subject to certain customary financial covenants, with which
DeepOcean was in compliance at September 30, 2008.  The facility
matures on December 1, 2014.





NOK 230
million ($39.1 million) Revolving Credit Facility.   DeepOcean
entered into this agreement in July 2007.  This facility is part of a
larger composite credit facility that once had capacity of approximately NOK 1.0
billion ($169.8 million) but has subsequently been reduced to NOK 585 million
($99.3 million).   This NOK 230 million credit facility is
secured with inventory up to NOK 1.0 billion and other security documents
including the pledge of shares in certain DeepOcean subsidiaries. The facility’s
commitment is subject to semi-annual reductions of NOK 8 million (approximately
$1.4 million at September 30, 2008) with a final NOK 150.7 million balloon
payment due at the June 1, 2012 maturity date.   Interest on this
facility is at the 3-month NIBOR rate plus 1.75% and is payable quarterly in
arrears.  The facility is subject to certain customary financial
covenants that DeepOcean was in compliance at September 30, 2008. There is also
a covenant requiring DeepOcean to be listed on the Oslo Bors
exchange.   DeepOcean was delisted from the Oslo Bors exchange
pursuant to Norwegian law in August 2008.  To satisfy this covenant,
we have obtained a waiver from the lender.





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NOK 300
million ($41.8 million) Senior Notes.   In October 2006,
DeepOcean issued NOK 300 million ($50.9 million)  of Senior Notes
(Notes) due October 9, 2009. The Note proceeds were used in the acquisition of
CTC Marine and for general corporate purposes.  The coupon rate on the
Notes is the 3-month NIBOR rate plus 1.65%, and is payable
quarterly.   The Notes were scheduled to mature in October
2009.  The Notes were subject to a change in control provision that
was triggered when the Company acquired a majority interest in
DeepOcean.   This provision allowed the holders of the Notes to
exercise a put option if exercised within two months following notice of the
change of control of DeepOcean.   The last day for holders to
exercise this put option was July 28, 2008.   Holders of the
Notes converted approximately NOK 236 million ($40.1 million)  of
these Notes pursuant to these put options.   The Company settled
the approximately NOK 62 million ($10.5 million) of Notes remaining in the third
quarter and no amounts were outstanding at September 30, 2008.  To
settle the remaining Notes, we paid a 1% premium totaling approximately $0.1
million, which is included in interest expense in the accompanying condensed
consolidated statement of income for the three and nine month periods ending
September 30, 2008.





23.5
million Euro ($41.8 million) Revolving Credit
Facility.   In October 2001, a subsidiary of DeepOcean
entered into this multi-currency facility, which provides for Euro and U.S.
Dollar borrowings.  The purpose of this facility was to fund the
construction of the vessel Arbol Grande.  The facility is secured by a
first priority lien on the Arbol Grande.  Interest on the loan is
payable quarterly at LIBOR plus 1.75%.  The facility was scheduled to
mature on September 30, 2008 but it has recently been amended and its maturity
is now November 30, 2008.  We are working on amending this facility,
which includes extending its maturity over a longer term.  The
borrower has obtained all necessary waivers to satisfy the financial covenants
that it was not in compliance with at September 30, 2008.





NOK 150
million ($35.5 million) Additional Term Loan.  DeepOcean
entered into this agreement in December 2006.  Like the NOK 230
million ($39.1 million) facility discussed above this NOK 150 million ($25,5
million) term loan is part of a larger NOK 585 million ($99.3 million) composite
facility.  The borrowings under this facility partially funded the
acquisition of CTC Marine.  This term loan is secured with inventory
up to NOK 1.0 billion ($169.8 million) and other security documents, including
the pledge of shares in certain DeepOcean subsidiaries. This facility allows for
multi-currency borrowing including NOK, U.S. Dollar, Sterling and
Euro.  The term loan is subject to mandatory NOK 15 million ($2.5
million) semi-annual payments due in June and December every year until December
18, 2011 when the debt matures.  Interest on the debt accrues at LIBOR
plus 1.75% and is payable quarterly. The facility is subject to standard
financial and affirmative and negative covenants.   DeepOcean was
in compliance with these covenants at September 30, 2008. There is also a
covenant requiring DeepOcean to be listed on the Oslo Bors
exchange.   DeepOcean was delisted from the Oslo Bors exchange
pursuant to Norwegian law in August 2008.  To satisfy this covenant,
we have obtained a waiver from the lender.





$18
million Revolving Credit Facility.   In
November 2007, DeepOcean entered into this $18 million revolving credit facility
to refinance the original loan used to acquire and upgrade the vessel Atlantic
Challenger.  The loan is secured with a first priority lien on the MV
Atlantic Challenger.  This facility is subject to a mandatory $0.5
million per quarter payment.  Interest under the facility accrues at
LIBOR plus 2.25% and is payable quarterly.  The facility is subject to
standard financial and affirmative and negative
covenants.   DeepOcean was in compliance with these covenants at
September 30, 2008.  There is also a covenant requiring DeepOcean to
be listed on the Oslo Bors exchange.   DeepOcean was delisted
from the Oslo Bors exchange pursuant to Norwegian law in August
2008.  To satisfy this covenant, we have obtained a waiver from the
lender.





8
million Sterling ($14.2 million) Overdraft Facility.  CTC Marine uses
this secured short term overdraft facility in its normal business
operations.  The facility actually has gross capacity of 12 million
Sterling but it is offset by CTC Marine’s cash accounts. Borrowings under this
facility can be made in Sterling, US Dollars, NOK, Australian Dollars and
Euros.  At September 30, 2008, CTC Marine had cash totaling $6.7
million, which means the net borrowings on the overdraft facility were $9.7
million. Interest on the facility accrues at the lender’s base rate for Sterling
borrowings plus 1% and is payable quarterly in arrears.  The facility
is secured by the property and equipment of CTC Marine.





Asset
Financing Facilities – CTC Marine has two asset facilities totaling 24.1
million Sterling ($42.9 million) to finance new and existing
assets.  The Asset Finance Loan Facility (the Existing Assets
Facility) has a commitment of 8.2 million Sterling ($14.7 million), matures on
various dates through 2012 and accrues interest at the 3-month Sterling LIBOR
rate plus 2.0%.  As of September 30, 2008, CTC Marine’s outstanding
balance on the Existing Assets Facility totaled approximately 5.4 million
Sterling ($9.7 million).  The Asset Finance Loan Facility (the New
Assets Facility) has a commitment of 15.9 million Sterling ($28.2 million),
matures on various dates that are six years from the delivery of the financed
assets and accrues interest at the 3-month Sterling LIBOR rate plus
1.65%.  The final asset to be financed under the New Assets Facility
is expected to be delivered in the fourth quarter of 2008.  As of
September 30, 2008, CTC Marine’s outstanding balance on the New Assets Facility
totaled approximately 5.1 million Sterling ($9.0 million).  These
asset finance facilities are secured by mortgages on the assets financed and the
property and equipment of CTC Marine and are partially guaranteed by
DeepOcean.   These asset finance loan facilities are subject to
certain customary covenants and its outstanding balance cannot exceed 60% of the
net book value of the assets collateralizing the facility.  These
facilities are subject to quarterly reductions of their borrowings.





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Under
certain of our credit facilities, an event of default will be deemed to have
occurred if there is a change of control of the Company or certain of its
subsidiaries or if a material adverse change occurs to the financial position of
the applicable borrowing entity within the Company.  Also, certain of our
credit facilities contain a material adverse change/effect provision that is
determined in the reasonable opinion of the respective lenders and outside our
control.  Additionally, certain of our credit facilities contain
cross-default provisions that trigger defaults under other of our credit
facilities.





Capital
Requirements




Our ongoing capital requirements arise primarily
from our need to maintain or improve equipment, fund construction of new vessels
and equipment, lease new vessels and/or purchase additional equipment, provide
working capital to support our operating activities and service debt.  Over
the next twelve months we expect our operating cash flow, current availability
under our existing credit facilities, which approximated $60 million at
September 30, 2008, and future availability under existing committed facilities
will be sufficient to fund our working capital needs, capital expenditure
requirements and service our near-term debt requirements.  Other
sources of operating cash flows which are part of our long-term business
strategy, and could be accelerated if needed, includes selling certain assets
that we do not consider core to our strategic long-term business plan,
potentially refinancing certain assets and/or entering into sale-leaseback
transactions, all of which have been done historically.  Our existing
credit facilities contain financial covenants that are customary in our industry
and our compliance with those covenants are necessary to maintain the facilities
in good standing.  Failure to comply with such covenants would result
in an event of default under one or more facilities and could result in an
acceleration of one or more such facilities.  If any of our existing
debt is accelerated, we may not have sufficient liquidity to satisfy our
repayment obligations.  Additionally, an event of default will be
deemed to have occurred under certain of our credit facilities if there is a
change of control of the Company or certain of its subsidiaries or if a material
adverse change occurs to the financial position of the applicable
borrower.  Under certain of our credit facilities, a material adverse
change/effect is determined in the reasonable opinion of the lender, whose
opinion is outside our control. Additionally, certain of our credit facilities
contain cross-default provisions that trigger defaults under other of our credit
facilities. All of these items make maintaining our good standing under our
credit facilities a high priority to us.   Please see Item 1A
“Risk Factors” of Part II-“Other Information” located elsewhere in our Quarterly
Report on Form 10-Q for the quarter ended June 30, 2008,  for more
details about potential risks involving these
facilities.    As of September 30, 2008, we were in
compliance with all financial covenants under all our existing credit
facilities.





As
a regular part of our business, we review opportunities for the acquisition of
other offshore energy and subsea services assets companies and related
businesses, and acquisitions of, or combinations with, such companies and
related businesses.  Any acquisition opportunities we pursue could
materially affect our liquidity and capital resources and may require us to
incur additional indebtedness, seek equity capital or both.  There can
be no assurance that additional financing will be available on terms acceptable
to us, or at all.





We
operate through three primary operating segments: towing and supply, subsea
services and trenching.  We operate globally with our primary
geographic areas being the North Sea, West Africa, Latin America including
Mexico and Brazil, and Southeast Asia as well as the U.S. Gulf of
Mexico.  The North Sea and the U.S. Gulf of Mexico operations have
been capitalized and are financed on a stand-alone basis.  Debt
covenants and U.S. and Norwegian tax laws make it difficult, to some extent, for
us to effectively transfer the financial resources from one segment for the
benefit of the other.  For additional information regarding our
operating segments see Note 15.





Changes in Norwegian Tax
Laws.  As a result of recent changes in Norwegian tax laws, all
accumulated untaxed shipping profits generated between 1996 and December 31,
2006 in our tonnage tax company will be subject to tax at 28%. Two-thirds of the
liability (NOK 251 million, $42.6 million at September 30, 2008) is payable in
equal installments over 10 years.  The remaining one-third of the tax
liability (NOK 126 million, $21.4 million at September 30, 2008) can be met
through qualified environmental expenditures.  Any remaining portion
of the environmental part of the liability not expended at the end of ten years
would be payable to the Norwegian tax authority at that time.




46
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Contractual
Obligations


The
following table summarizes our material contractual commitments at September 30,
2008 (amounts in thousands).





Total
                
                
                1
      Year or Less
                
                
                2-3
      Years
                
                
                4-5
      Years
                
                
                More
      Than 5 YearsLong-term
      debt obligations a,b
                
                $
                884,434
                
                
                $
                80,772
                
                
                $
                136,046
                
                
                $
                156,718
                
                
                $
                510,898Interest
      on fixed rate debt c
                
                
                473,250
                
                
                
                24,000
                
                
                
                48,000
                
                
                
                48,000
                
                
                
                353,250Vessel
      construction obligations and other capital expenditures d
                
                
                213,900
                
                
                
                138,800
                
                
                
                75,100
                
                
                
                -
                
                
                
                -Time
      charter and equipment leases
                
                
                581,303
                
                
                
                166,060
                
                
                
                255,959
                
                
                
                95,775
                
                
                
                63,509Operating
      lease obligations
                
                
                9,228
                
                
                
                2,275
                
                
                
                2,999
                
                
                
                3,089
                
                
                
                865Norwegian
      taxes payable e
                
                
                64,007
                
                
                
                4,285
                
                
                
                12,801
                
                
                
                8,534
                
                
                
                38,387Pension
      obligations h
                
                
                4,118
                
                
                
                300
                
                
                
                1,022
                
                
                
                409
                
                
                
                2,387Total
                
                $
                2,230,240
                
                
                $
                416,492
                
                
                $
                531,927
                
                
                $
                312,525
                
                
                $
                969,296





a.
            Excludes
      fresh start debt premium and the $50.7 million unamortized discount on the
      6.5% Debentures.


b.
            Does
      not assume any early conversions or redemption for the 6.5% Debentures and
      3% Debentures as each is assumed to reach its originally stated maturity
      date.


c.
            Includes
      the semi-annual interest payments on the 6.5% Debentures and the 3%
      Debentures to their maturities of 2028 and 2027,
    respectively.


d.
            Reflects
      committed expenditures, does not reflect the future capital expenditures
      budgeted for periods presented which are discretionary. Amounts also
      include an uncertain future $22.7 million commitment associated with one
      vessel whose ultimate delivery is uncertain at this time because the
      shipyard constructing the vessel has entered into bankruptcy (Note
      16).


e.
            Norwegian
      tax laws allow for a portion of the accumulated untaxed shipping profits,
      $42.6 million to be paid in equal installments over the next 10
      years.  An additional liability of $21.4 million can be
      satisfied through making qualifying environmental
      expenditures.  Any remaining portion of the environmental part
      of the liability not expended at the end of ten years would be payable to
      the Norwegian tax authorities at that time.   The
      acquisition of DeepOcean did not affect this line item as they did not
      have any accumulated shipping profits that would have qualified for relief
      under this legislation.


f.
            Does
      not reflect the pension plans of DeepOcean as management is still
      evaluating the funding requirements.  As indicated in Note 2, we
      are in the process of establishing the fair value of all of the DeepOcean
      plans at the date of acquisition.  We will update this
      disclosure pending finalization of that evaluation, which we anticipate
      will be prior to year end 2008.





Cash
Flows





Our
primary sources of cash flow during the nine months ended September 30, 2008
were provided by operating activities, proceeds from the issuance of the 6.5%
Debentures, borrowings under our new and existing revolving credit facilities,
the exercise of warrants and asset sales.  The primary uses of cash
were for the acquisition of DeepOcean and CTC Marine and payments for the
purchases of newbuild vessels and ROVs and maintenance of other property and
equipment.  During the nine months ended September 30, 2008, our cash
balance decreased $36.0 million to $95.5 million from $131.5 million at December
31, 2007.





Net cash
provided by operating activities for the nine months ended September 30, 2008
was $70.8 million, a increase of $0.4 million from the same period in
2007.  Significant components of cash provided by operating activities
during the nine months ended September 30, 2008 included net earnings of $38.9
million, adjusted for non-cash items of $23.6 million and changes in working
capital and other asset and liability balances resulting in a source of cash of
$8.3 million.





Net
cash used in investing activities was $566.7 million for the nine months ended
September 30, 2008, compared to $53.2 million for the same period in
2007.  Our investing cash flow in 2008 primarily reflects our
investment in the acquisition of DeepOcean, net of cash acquired of $507.0
million and $77.5 million of additions to property and equipment. We
anticipate that during the remainder of 2008 and in 2009 we will spend
approximately $145 million for additional capital expenditures, including
approximately $68 million associated with construction of vessels acquired from
Active Subsea.  Our investing cash flows also include $7.0 million of
proceeds from the asset sales, proceeds of $8.2 million associated with a
settlement of a derivative contract held by DeepOcean prior to our acquisition
of it, and a $2.5 million decrease in restricted cash related to the transfer of
the remaining four vessels associated with the second closing of EMSL in January
2008.  In the first half of 2007, investing cash outflows was
primarily related to the net purchase of available-for-sale securities of $43.7
million, partially offset by a decrease in restricted cash of $9.0
million.





47
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Net cash provided by financing activities was $469.2 million
for the nine months ended September 30, 2008, compared to $130.8 million for the
same period in 2007.  Our 2008 amount includes $474.1 million in financing
transactions primarily associated with the acquisition of DeepOcean and CTC
Marine, including issuance of $300 million of 6.5% Debentures and $174.1 million
of net borrowings under our existing credit facilities (see “Debt”
above).  Our financings activities during the nine months ended
September 30, 2008 also included the $2.0 million final payment on the EMSL
Credit facility and $11.6 million of net proceeds received from the exercise of
warrants and stock options.  Debt issuance costs associated with the
6.5% Debentures and our bank credit facilities totaled $16.5 million in
2008.  In February 2007, we issued $150.0 million of 3%
Debentures.  We received net proceeds of approximately $145.2 million
after deducting commissions and offering costs of approximately $4.8
million.  Net proceeds of the 3% Debentures were used for the
acquisition of Active Subsea, financing of our fleet renewal program and for
general corporate purposes.  During the three months ended September
30, 2007, we initiated a common stock repurchase program and under that program
acquired approximately 0.6 million shares of our common stock for $17.6
million.





CRITICAL
ACCOUNTING POLICIES





Management’s
Discussion and Analysis of Financial Condition and Results of Operations is
based upon our consolidated financial statements, which have been prepared in
conformity with GAAP in the United States.  The preparation of these
statements requires that we make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses.  We
base these estimates on historical experience and on assumptions that we
consider reasonable under the circumstances; however, reported results could
differ from the current estimates under different assumptions and/or
conditions.  We have disclosed the areas requiring the use of
management’s estimates in Note 2 to our consolidated financial statements
included in our 2007 Form 10-K.  Following the acquisition of
DeepOcean and CTC Marine, we identified the following assumptions and estimates
as additional critical accounting policies and estimates to supplement those
estimates included within Item 7 of our 2007 Form 10-K under the heading “Our
Critical Accounting Policies.”





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Estimate
of Purchase Price Allocation


The
purchase price of DeepOcean and CTC Marine is allocated to the related assets
and liabilities based on their estimated fair values at the May 16, 2008
acquisition date.  At September 30, 2008, the allocation of the
purchase price to assets acquired and liabilities assumed in the DeepOcean
transaction is based on our preliminary valuation estimates.  These
purchase price allocations will be finalized based on valuations and other
studies to be performed by us.  We expect to substantially complete
our fair value assessments by year-end 2008.  As a result, the final
adjusted purchase price and purchase price allocations may differ, possibly
materially, from the amounts recorded at September 30, 2008.





In valuing
acquired assets and assumed liabilities, fair values are based on, but are not
limited to: quoted market prices, where available; expected cash flows; current
replacement cost for similar capacity for certain fixed assets; market rate
assumptions for contractual obligations; and appropriate discount and growth
rates.  The excess of purchase price over the estimated fair value of
the net assets acquired has been recorded as goodwill.  Unanticipated
future declines in levels and earnings of DeepOcean’s future subsea
services and CTC Marine’s trenching
services from those used to estimate the fair value of the acquired assets could
result in impairment to the carrying amounts assigned to property and equipment,
amortizable intangibles and goodwill





Although
we expect to realize benefits in connection with the acquisition of DeepOcean
and CTC Marine, there is no assurance that we will achieve all or any of
them.   We may not be able to execute the combined Company’s overall business
strategy or realize the anticipated benefits of the acquisition.  If
we are unable to achieve the expected future benefits from the acquisition we
may not be able to substantiate the carrying value of our goodwill of $209.4
million, which would require us to record an impairment charge to expense
through operating income.   We will assess the carrying value of
goodwill for impairment whenever events and circumstances indicate that the
carrying amount of goodwill may not be
recoverable.   Furthermore, we will assess our goodwill for
impairment at least once annually, with the first assessment to occur as of
December 31, 2008.





Derivative
Valuation.





Our 6.5%
Debentures have options associated with them that require that we account for
them under SFAS 133 “Accounting for Derivatives and Hedging
Activities.”  These embedded derivatives are not economic hedges and
do not qualify for hedge accounting treatment.  We do not use
derivative instruments for trading purposes. Derivatives are carried at their
fair value on our consolidated balance sheet. We recognize all changes in the
fair value of these contracts in our consolidated statement of income in the
period in which the changes occur.  Because derivative contracts not
designated for hedge accounting are accounted for on a mark-to-market basis, we
are likely to experience significant non-cash volatility in our reported
earnings until our 6.5% Debentures are either converted or
settled.







In
determining the amounts to be recorded for our open derivative contract, we are
required to estimate the fair value of the derivative.  Our estimates
are based upon various factors that include our stock closing price, volatility,
United States Treasury Bond Rates and the time value of options. The calculation
of the fair value of our option contracts requires the use of a Monte Carlo
simulation lattice option-pricing model.





RECENT
ACCOUNTING STANDARDS





See
Note 17 for a listing of recent accounting standards.





Item
3.  QUANTITATIVE and QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.





As a result of our acquisition of
DeepOcean and CTC Marine, the Company’s interest rate market risk has
significantly increased.   The Company’s revolving credit
facilities and other loans (see “Liquidity and Resources - Debt” and Note
4  of the notes to condensed consolidated financial statements include
herein) have variable rates, which exposes the Company to interest rate
risk.  At the present time the Company does not hedge its exposure to
fluctuations in interest rates.   Based on the borrowings
outstanding at September 30, 2008 under variable rate financing arrangements, a
change in 100 basis points in the applicable annual interest rates would have an
approximate $4.3 million annual pre-tax impact on the Company’s results of
operations and cash flows.





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The Company has substantial
international operations and has numerous customer contracts and debt
obligations denominated in several foreign currencies, the majority of which
replicate the functional currency of the legal entity in which they operate, and
for the most part we consider them stable currencies; however, the volume of non
U.S. dollar assets and liabilities exposes the Company’s operating results to
foreign currency risks.  The Company cash flows are subject to
fluctuations resulting from changes in foreign currency exchange
rates.   The Company does not use any hedge contracts to minimize
this risk although it may consider doing so in the
future.   Fluctuations in exchange rates are likely to impact our
business and cash flows in the future.





Except as
discussed above, there have been no other material changes in the Company’s
exposure to market risk during the three months ended September 30,
2008.  See Item 7A, Quantitative and Qualitative Disclosures about
Market Risk contained in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2007 for further discussion.





Item
4.    CONTROLS AND PROCEDURES.




On May 15, 2008, the Company initiated a series of transactions that
resulted in it acquiring 100% of DeepOcean and its wholly-owned subsidiary CTC
Marine.  The total acquisition price for acquiring all of DeepOcean
shares of capital stock was approximately $700 million.  The Company
considers the acquisition of DeepOcean and CTC Marine material to the results of
its operations, financial position and cash flows from the date of acquisition
on May 16, 2008 through September 30, 2008 and believes that the internal
controls and procedures over the operations of DeepOcean and CTC Marine will
have a material effect on the Company’s internal controls over financial
reporting.   The Company is integrating the operations of
DeepOcean and CTC Marine and will report on its assessment within the time
provided by the Sarbanes-Oxley Act and applicable rules relating to business
acquisitions, which provide the Company with a one-year grace period before
requiring it to include DeepOcean and CTC Marine in its year end assessment of
controls over financial reporting.   The Company plans to utilize
this exemption and will start including DeepOcean and CTC Marine in its Sarbanes
Oxley Act Section 404 reporting requirement for the year ending December 31,
2009.





The Company has maintained its
disclosure controls and procedures that were in effect prior to the acquisition
of DeepOcean and CTC Marine; although, it is currently integrating new personnel
that contribute to the Company’s controls over financial
reporting.  The Company does not believe this acquisition will
negatively affect its internal controls over financial reporting.





In addition, as a matter of course, the
Company will continue to update its internal controls over financial reporting
as necessary to accommodate DeepOcean’s business  processes or
accounting procedures.





Our
management, under the supervision of and with the participation of our Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of Trico Marine Services, Inc.’s disclosure controls and procedures, as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered
by this report.  Based on such evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that, as of the end of our fiscal
quarter ended September 30, 2008, our disclosure controls and procedures were
effective to provide reasonable assurance that all material information relating
to us required to be included in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission.





PART
II – OTHER INFORMATION




Item
1.    LEGAL PROCEEDINGS.





Please read Item 3. Legal Proceedings
contained in our Annual Report on Form 10-K for the year ended December 31, 2007
for a description of our material legal proceedings.





In addition, we are a party to routine litigation
incidental to our business, which primarily involves employment matters or
claims for damages to vessels or equipment.  Many of the other
lawsuits to which we are a party are covered by insurance.   We
have established accruals for these other matters, and it is management’s
opinion that the resolution of such litigation will not have a material adverse
effect on our consolidated financial position.  However, a substantial
settlement payment or judgment in excess of our cash accruals could have a
material adverse effect on our consolidated results of operations or cash
flows.





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Item
1A.  RISK FACTORS.





In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part II- Item 1A. Risk Factors contained in
our Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 and in
Item 1A. Risk Factors contained in our Annual Report on Form 10-K for the year
ended December 31, 2007.





The
following risk factors have been updated to reflect the financial obligations
under existing credit facilities and those assumed with the acquisition of
DeepOcean and CTC Marine:





We
incurred significant financial obligations as a result of the acquisition of
DeepOcean common stock and the financing transactions we entered into in
connection with this acquisition.  In addition, we assumed existing
financial obligations under credit facilities at DeepOcean and CTC Marine upon
consummation of the acquisition.  Our inability to satisfy these
obligations could materially and adversely affect our financial results and
financial condition and harm our business.




As the
sole owner of DeepOcean and CTC Marine, we are exposed to each company’s
liabilities, including their  outstanding debt which totaled
$­­­­­­201.8 million on September 30,
2008.  In connection with our acquisition of DeepOcean and CTC Marine
and the related financing transactions, DeepOcean was required to obtain waivers
from its lenders with respect to certain covenants.  If DeepOcean is
unable to maintain such waivers from its lenders, the lenders could require the
immediate repayment of certain indebtedness.  In that case, we could
be required to fund the repayment of such indebtedness which could reduce the
cash flow that may otherwise be available to us to achieve our business
strategy, which could harm our business or we could be unable to repay the
amount and we would be in default, which could result in this and possibly other
indebtedness becoming immediately due to our lenders.





To
finance the acquisition of DeepOcean, Trico Supply and certain of our other
subsidiaries entered into a $200 million credit agreement and we issued $300
million in convertible debentures.  Trico Shipping also entered into a
NOK 260 million short term credit facility (total value $44.2 million, of which
$13.9 million had been drawn at September 30, 2008).  Accordingly, our
borrowings and debt service requirements have increased dramatically in
connection with the acquisition of DeepOcean.  Our inability to
satisfy our debt service requirements could cause us to be in default under one
or more of our credit facilities.  If we default or breach our
obligations under our credit facilities, we could be required to pay a higher
rate of interest on our borrowings.  Our lenders could also accelerate
our repayment obligations or require us to repay all amounts under the credit
facilities.  Accordingly, our default on obligations under our credit
facilities would significantly increase our cash flow requirements and could
cause us to incur substantial damages, which could harm our
business.





Our
acquisition of DeepOcean shares and the financing transactions we entered into
in connection with this acquisition together with the financial obligations
under existing credit facilities at DeepOcean will place a significant debt
burden on us, which could limit our flexibility in managing our business and
expose us to certain risks.





Trico
Shipping’s acquisition of shares of DeepOcean’s common stock involved the
incurrence of substantial additional debt.  We and our subsidiaries
have borrowed or entered into agreements to borrow an aggregate of approximately
$551 million in connection with the DeepOcean acquisition.  In
addition, DeepOcean and its wholly-owned subsidiary, CTC Marine, had an existing
amount of indebtedness of $201.8 million as of September 30, 2008.  As
a result of becoming more leveraged on a consolidated basis, our flexibility in
responding to adverse changes in economic, business or market conditions may be
adversely affected, which could have a material adverse effect on our results of
operations.





Our high
degree of leverage may have important consequences to you, including the
following:





•
            we
      may have difficulty satisfying our obligations under our senior credit
      facilities or other indebtedness and, if we fail to comply with these
      requirements, an event of default could
result;





•
            we
      may be required to dedicate a substantial portion of our cash flow from
      operations to required payments on indebtedness, thereby reducing the
      availability of cash for working capital, capital expenditures and other
      general corporate activities;





•
            covenants
      relating to our indebtedness may limit our ability to obtain additional
      financing for working capital, capital expenditures and other general
      corporate activities;





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•
            covenants
      relating to our indebtedness may limit our flexibility in planning for, or
      reacting to changes in our business and the industry in which we
      operate;





•
            we
      may be more vulnerable to the impact of economic downturns and adverse
      developments in our business; and





•
            we
      may be placed at a competitive disadvantage against any less leveraged
      competitors.





The
occurrence of any one of these events could have a material adverse effect on
our business, financial condition, results of operations, prospects and ability
to satisfy our obligations under our credit facilities.





Global
Economic Conditions Risk Factors





The
recent worldwide financial and credit crisis could lead to an extended worldwide
economic recession and have a material adverse effect on our financial results
and financial condition.





During
recent months, there has been substantial volatility and losses in worldwide
equity markets that could lead to an extended worldwide economic
recession.  Due to this economic condition, there has been a reduction
in demand for energy products that has resulted in declines in oil and gas
prices, which is a significant part of most of our customer’s
business.  In addition, due to the substantial uncertainty in the
global economies, there has been deterioration in the credit and capital markets
and access to financing is uncertain.  These conditions could have an
adverse effect on our industry and our business, including our future operating
results and the ability to recover our assets at their stated values. Our
customers may curtail their capital and operating expenditure programs, which
could result in a decrease in demand for our vessels and a reduction in
day rates and/or utilization. In addition, certain of our customers could
experience an inability to pay suppliers, including us, in the event they are
unable to access the capital markets to fund their business operations.
Likewise, our suppliers may be unable to sustain their current level of
operations, fulfill their commitments and/or fund future operations and
obligations, each of which could adversely affect our operations.





We
may not be able to obtain funding or obtain funding on acceptable terms because
of the deterioration of the credit and capital markets. This may hinder or
prevent us from meeting our future capital needs.





Global
financial markets and economic conditions have been, and continue to be,
disrupted and volatile. The debt and equity capital markets have been
exceedingly distressed. The re-pricing of credit risk and the current weak
economic conditions have made, and will likely continue to make, it difficult to
obtain funding on acceptable terms.





In
particular, the cost of raising money in the debt and equity capital markets has
increased substantially while the availability of funds from those markets has
diminished significantly. Also, as a result of concerns about the stability of
financial markets generally and the solvency of counterparties specifically, the
cost of obtaining money from the credit markets has increased as many lenders
and institutional investors have increased interest rates, enacted tighter
lending standards, refused to refinance existing debt at maturity at all or on
terms similar to our current debt and reduced and, in some cases, ceased to
provide funding to borrowers. Moreover, even if lenders and institutional
investors are willing and able to provide adequate funding, interest rates may
rise in the future and therefore increase the cost of borrowing we incur on any
of our floating rate debt.





In
addition, we may be unable to obtain adequate funding under our current credit
facilities because  our lending counterparties may be unwilling or
unable to meet their funding obligations or our borrowing base may decrease as a
result of lower oil or natural gas prices, operating difficulties, lending
requirements or regulations, or for any other reason.





Due to
these factors, we cannot be certain that funding will be available if needed,
and to the extent required, on acceptable terms. If funding is not available
when needed, or is available only on unfavorable terms, we may be unable to meet
our obligations as they come due.





52
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PART
II – OTHER INFORMATION (continued)





Item 2.
            UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS


None







Item 3.
            DEFAULTS UPON SENIOR
SECURITIES


None.







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


A special
meeting of the stockholders of the Company (the “Special Meeting”) was held on
August 12, 2008.





(a)
            At
      the Special Meeting,  holders of shares of the Company’s common
      stock approved for purposes of NASDAQ Marketplace Rule 4350 (i)(1) (C),
      the issuance of all shares of the Company’s common stock, that may be
      issued upon the conversion and exercise of convertible securities issued
      by the Company in connection with the acquisition of DeepOcean
      shares.  The number of votes cast on this proposal are set forth
      below:





For
              
              Against
              
              Abstain12,915,443
              
              54,506
              
              241,447





(b)
            At
      the Special Meeting, holders of shares of the Company’s common stock
      approved an amendment to the Company’s Second Amended and Restated
      Certificate of Incorporation to increase the total number of authorized
      shares of the Company’s common stock from 25,000,000 shares to 50,000,000
      shares. The number of votes cast on this proposal are set forth
      below:





For
              
              Against
              
              Abstain12,388,694
              
              580,549
              
              242,153













Item 5.
            OTHER INFORMATION




On
November 3, 2008, Trico Supply AS, a Norwegian limited company ("Holdings"),
Trico Subsea Holding AS, a Norwegian limited company ("Trico Subsea Holding"),
Trico Subsea AS, a Norwegian limited company ("Trico Subsea"), Trico Shipping
AS, a Norwegian limited company and wholly-owned subsidiary of Holdings ("Trico
Shipping," and together with Holdings, Trico Subsea Holding, and Trico Subsea,
the "Trico Parties"), the various lenders party thereto and Nordea Bank Finland
PLC, New York Branch ("Nordea"), as Administrative Agent, executed the First
Amendment to Credit Agreement (the "First Amendment") amending the $200 million
credit agreement, dated as of May 14, 2008 (as amended, the "$200 million Credit
Agreement"), among the Trico Parties, the lenders party thereto and
Nordea.
 
 Additionally,
on November 3, 2008, the Trico Parties, the various lenders party thereto and
Nordea executed the Second Amendment to Credit Agreement (the "Second
Amendment") amending the $100 million credit agreement, dated as of April 24,
2008 (as amended, the "$100 million Credit Agreement," and together with the
$200 million Credit Agreement, the "Credit Agreements"), among the Trico
Parties, the lenders party thereto and Nordea.
 
 The First
Amendment and the Second Amendment amended the Credit Agreements by permitting
Holdings to create, incur, assume or suffer to exist Liens securing Indebtedness
in a principal amount not to exceed NOK 82,000,000 in the case of the equity
interests of DeepOcean prior to the later of the completion of the mandatory
general offering portion of the DeepOcean Acquisition and December 31, 2008; The
First Amendment further amended the $200 million Credit Agreement by
substituting Holdings for Borrower in the definition of Free Liquidity in
Section 1 and in the Free Liquidity covenant in Section 9.08.
 
 Additionally,
the effectiveness of the First Amendment is contingent on there being no further
draws under the Carnegie Loan Agreement.
 
 The First
Amendment and the Second Amendment are effective as of September 30,
2008.





Item
      6.
            EXHIBITS





(a)
Exhibits:




Exhibit
      Number3.1
                    
                    Second
      Amended and Restated Certificate of Incorporation of the Company
      (incorporated by reference to Exhibit 3.1 to our Current Report on Form
      8-K filed March 16, 2005).3.2
                    
                    Certificate
      of Designation of Series A Junior Participating Preferred Stock of the
      Company (incorporated by reference to Exhibit 3.1 to our Current Report on
      Form 8-K filed April 10, 2007).3.3
                    
                    Certificate
      of Elimination of Series A Junior Participating Preferred Stock of the
      Company (incorporated by reference to Exhibit 3.1 to our Current Report on
      Form 8-K filed April 29, 2008.3.4
                    
                    Seventh
      Amended and Restated Bylaws of the company (incorporated by reference to
      Exhibit 3.1 to our Current Report on Form 8-K filed August 12,
      2008).4.1
                    
                    Specimen
      Common Stock Certificate (incorporated by reference to Exhibit 4.1 to our
      Annual Report on Form 10-K filed March 16, 2005).4.2
                    
                    Registration
      Rights Agreement, dated as of March 16, 2005, by and among the Company and
      the Holders named therein (incorporated by reference to Exhibit 4.1 to our
      Current Report on Form 8-K filed March 16,
  2005).
  53
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  4.3
                  
                  Warrant
      Agreement, dated March 16, 2005 (incorporated by reference to Exhibit 4.2
      to the Company's Current Report on Form 8-K filed March 16,
      2005).4.4
                  
                  Form
      of Series A Warrant (incorporated by reference to Exhibit 4.3 to the
      Company's Current Report on Form 8-K/A filed March 21,
    2005).4.5
                  
                  Indenture
      of Trico Marine Services, Inc. and Wells Fargo Bank, National Association,
      as Trustee, dated February 7, 2007 (incorporated by reference to Exhibit
      10.18 to our Annual Report on Form 10-K filed March 2,
    2007).4.6
                  
                  Registration
      Rights Agreement by and among Trico Marine Services, Inc. and the Initial
      Purchasers, dated February 7, 2007 (incorporated by reference to Exhibit
      10.19 to our Annual Report on Form 10-K filed March 1,
    2007).4.7
                  
                  Rights
      Agreement dated as of April 9, 2007, between Trico Marine Services, Inc.
      and Mellon Investor Services LLC, as Rights Agent, including the form of
      Certificate of Designation of Series A Junior Participating Preferred
      Stock of Trico Marine Services, Inc. attached thereto as Exhibit A, the
      form of Rights Certificate attached thereto as Exhibit B and the Summary
      of Rights to Purchase Preferred Shares attached thereto as Exhibit C
      (incorporated by reference to Exhibit 4.1 to our Current Report on Form
      8-K filed April 10, 2007).4.8
                  
                  First
      Amendment to Rights Agreement dated April 28, 2008, between Trico Marine
      Services, Inc. and Mellon Investor Services LLC (incorporated by reference
      to Exhibit 4.1 to our Current Report on Form 8-K filed April 29,
      2008).4.9
                  
                  Indenture
      of Trico Marine Services, Inc. and Wells Fargo Bank, National Association,
      as Trustee, dated May 16, 2008 (incorporated by reference to Exhibit 4.2
      to our Current Report on Form 8-K/A filed May 19,
2008).4.10
                  
                  Registration Rights Agreement,
      dated May 16, 2008, among Trico Marine Services, Inc. and the
      purchasers named therein (incorporated by reference to Exhibit 4.3 to our
      Current Report on Form 8-K filed May 16, 2008).4.11
                  
                  Share
      Purchase Agreement, dated May 15, 2008, by and among Trico Marine
      Services, Inc., Trico Shipping AS, and West Supply IV AS (incorporated by
      reference to Exhibit 2.1 to our Current Report on Form 8-K filed May 16,
      2008).4.12
                  
                  Phantom
      Stock Units Agreement, dated May 22, 2008, between Trico Marine
      Services, Inc. and West Supply IV AS (incorporated by reference to Exhibit
      10.3 to our Current Report on Form 8-K filed June 16,
    2008).4.13
                  
                  Registration
      Rights Agreement, dated May 22, 2008, between Trico Marine Services,
      Inc. and West Supply IV AS (incorporated by reference to Exhibit 10.4 to
      our Current Report on Form 8-K filed June 16, 2008).4.14
                  
                  Form
      of Management Share Purchase Agreement, dated May 15, 2008, by and
      among Trico Marine Services, Inc., Trico Shipping AS, and certain members
      of management of DeepOcean (incorporated by reference to Exhibit 2.2
      to our Current Report on Form 8-K filed May 16, 2008).4.15
                  
                  Form
      of Phantom Stock Units Agreement, dated May 15, 2008, by and between
      Trico Marine Services, Inc. and certain members of management (and their
      controlled entities) of DeepOcean (incorporated by reference to Exhibit
      10.2 to our Current Report on Form 8-K filed May 16,
  2008).4.16
                  
                  Share
      Purchase Agreement, entered into on June 13, 2008, by and between DOF ASA,
      as Seller, and Trico Shipping AS, as Purchaser (incorporated by reference
      to Exhibit 2.1 to our Current Report on Form 8-K filed June 13,
      2008).10.1
                  
                  Amended
      and Restated Employment Agreement, dated July 23, 2008, by and between
      Joseph S. Compofelice and Trico Marine Services Inc. (incorporated by
      reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the
      period ending June 30, 2008).*10.2
                  
                  The
      Second Amendment to Retirement Agreement, dated July 23, 2008, by and
      between Joseph S. Compofelice and Trico Marine Services Inc. (incorporated
      by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the
      period ending June 30, 2008).*
  54
 Table of Contents
  10.3
                        
                        Credit
      Agreement dated April 24, 2008, by and among Trico Supply AS, Trico Subsea
      Holding AS, Trico Subsea AS, as borrower, Nordea Bank Finland PLC, New
      York Branch, as Administrative Agent, Book Runner and Joint Lead Arranger,
      Bayerische Hypo-Und Vereinsbank AG, as Joint Lead Arrranger, Nordea Bank
      Norge ASA, Grand Cayman Branch and various lenders party thereto from time
      to time (incorporated by reference to Exhibit 10.1 to our Current Report
      on Form 8-K filed April 29, 2008).10.4
                        
                        First
      Amendment to Credit Agreement, dated as of June 24, 2008, to the Credit
      Agreement dated as of April 24, 2008. (1)10.5
                        
                        Second
      Amendment to Credit Agreement, dated November 3, 2008, to the Credit
      Agreement dated as of April 24, 2008.  (1)10.6
                        
                        Credit
      Agreement, dated as of May 14, 2008, among Trico Supply AS, Trico
      Subsea Holding AS, Trico Subsea AS, Trico Shipping AS, the lenders party
      thereto from time to time, and Nordea Bank Finland PLC, New York Branch,
      as Administrative Agent and as Collateral Agent (incorporated by reference
      to Exhibit 10.4 to our Current Report on Form 8-K filed May 16,
      2008).10.7
                        
                        First
      Amendment to Credit Agreement, dated November 3, 2008 to the Credit
      Agreement dated as of May 14, 2008. (1)10.8
                        
                        Amended
      and Restated Credit Agreement, dated as of August 29, 2008, among Trico
      Marine Services Inc., a Delaware corporation, Trico Marine Assets Inc., a
      Delaware corporation, and Trico Marine Operators, Inc., a Louisiana
      corporation, the Lenders party thereto from time to time, and Nordea Bank
      Finland PLC, New York Branch, as Administrative Agent and Lead Arranger
      for the Lenders. (1)10.9
                        
                        Credit
      Facility, entered into on May 28, 2008, between Trico Shipping AS, as
      Borrower, and Carnegie Investment Bank AB Norway Branch, as Lender
      (incorporated by reference to Exhibit 10.1 to our Current Report on Form
      8-K filed June 3, 2008).10.10
                        
                        Pledge
      of Shares, entered into on May 28, 2008, between Trico Shipping AS, as
      Pledgor, and Carnegie Investment Bank AB Norway Branch, as Pledgeee
      (incorporated by reference to Exhibit 10.2 to our Current Report on Form
      8-K filed June 3, 2008).10.11
                        
                        NOK
      1,005,000 Facility Agreement, dated June 5, 2007, by and between DeepOcean
      ASA, as borrower and Sparebank 1 SR Bank, as Lender and Agent
      (incorporated by reference to Exhibit 10.7 to our Quarterly Report on Form
      10-Q for the period ending June 30, 2008).10.12
                        
                        NOK
      350,000,000 Loan Agreement, dated December 21, 2007, by and between
      DeepOcean Shipping AS and Sparebank 1 SR Bank, as Lender and Agent
      (incorporated by reference to Exhibit 10.8 to our Quarterly Report on Form
      10-Q for the period ending June 30, 2008).10.13
                        
                        Credit
      Facility Agreement dated November 19, 2007 among DeepOcean Shipping AS, as
      Borrower, DeepOcean ASA, as Guarantor, and Nordea Bank Norge ASA, as Agent
      and for Lead Arranger for the Lenders.31.1
                        
                        Chief
      Executive Officer's Certification under Section 302 of the Sarbanes-Oxley
      Act of 2002. (1)31.2
                        
                        Chief
      Financial Officer's Certification under Section 302 of the Sarbanes-Oxley
      Act of 2002. (1)32.1
                        
                        Officers'
      certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
      (1)




_____________


*  Management
Contract or Compensation Plan or Agreement


(1)
            Filed
      herewith.





55
 Table of Contents




SIGNATURE





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





TRICO
      MARINE SERVICES, INC.(Registrant)By:  /s/  Geoff
      JonesGeoff
      JonesChief
      Financial Officer(Authorized
      Signatory and Principal Financial Officer)Date:  November
      7, 2008







56