UNITED STATES

SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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|- | ---------------------------------------------------------------------------------------
|þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly
period ended September 30, 2010

or

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|- | ----------------------------------------------------------------------------------------
| ̈ | 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:  001-33206

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CAL DIVE INTERNATIONAL,
INC.

(Exact name of
registrant as specified in its charter)

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|                                                                                          |  |                                    
|----------------------------------------------------------------------------------------- |  | -----------------------------------
|                                                                                          |  |                                    
|Delaware                                                                                  |  | 61-1500501                         
|(State or other jurisdiction ofincorporation or
organization)                             |  | (I.R.S. EmployerIdentification No.)
|                                                                                          |  |                                    
|2500 CityWest Boulevard, Suite 2200Houston,
Texas(Address of principal
executive offices) |  | 77042(Zip
Code)                    



(713) 361-2600

(Registrants telephone number, including
area code)

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Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  YesþNoo

Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).  YesoNoo

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.

|                                                                      |                            
|--------------------------------------------------------------------- | ---------------------------
|Large accelerated filer o                                             | Accelerated filer þ        
|                                                                      |                            
|Non-accelerated filer o (Do not
check if a smaller reporting company) | Smaller reporting company o

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).  YesoNoþ

As of October 29, 2010,
the Registrant had issued and outstanding 94,195,113 shares of Common Stock,
$.01 par value per share.









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CAL DIVE INTERNATIONAL, INC.



TABLE OF CONTENTS







|                               |                                                                                                                                                   |   
|------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------- | --
|                               | Page                                                                                                                                             
|PART I - FINANCIAL INFORMATION | 1                                                                                                                                                
|                               | Item
1.
Financial
Statements                                                                                                                      | 1 
|                               | Consolidated
Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009
(audited)                                                  | 1 
|                               | Consolidated
Statements of Operations (unaudited) for the three and nine months ended
September 30, 2010 and 2009                                 | 2 
|                               | Consolidated
Statements of Stockholders Equity and Comprehensive Income (Loss)
(unaudited) for the nine months ended September 30, 2010 and 2009 | 3 
|                               | Consolidated
Statements of Cash Flows (unaudited) for the nine months ended September
30, 2010 and 2009                                           | 4 
|                               | Notes
to Consolidated Financial Statements (unaudited)                                                                                            | 5 
|                               | Item
2.
Managements
Discussion and Analysis of Financial Condition and Results of
Operations                                                     | 13
|                               | Item
3.
Quantitative
and Qualitative Disclosures About Market Risk                                                                                | 22
|                               | Item
4.
Controls
and Procedures                                                                                                                   | 22
|PART II - OTHER INFORMATION    | 22                                                                                                                                               
|                               | Item
1A.    Risk Factors                                                                                                                          | 22
|                               | Item
2.
Unregistered Sales of Equity Securities and Use of
Proceeds                                                                               | 23
|                               | Item
6.
Exhibits                                                                                                                                  | 23
|SIGNATURES                     | 24                                                                                                                                               
|EXHIBIT INDEX                  | 25                                                                                                                                               







When we refer to us, we, our, ours, the Company or
CDI, we are describing Cal Dive International, Inc. and/or its
subsidiaries.







i





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PART I -
FINANCIAL INFORMATION

Item 1.

Financial Statements.



Cal Dive International, Inc. and
Subsidiaries

Consolidated Balance Sheets

(in thousands, except per share par
value)



|                                                                                                                          |                   |           |                  |   |          
|------------------------------------------------------------------------------------------------------------------------- | ----------------- | --------- | ---------------- | - | ---------
|                                                                                                                          | September 30,2010 |           | December 31,2009
|ASSETS                                                                                                                    | (unaudited)       |           |                  |  
|Current assets:                                                                                                           |                   |           |                  |   |          
|Cash and
cash equivalents                                                                                                 | $                 | 12,987    |                  | $ | 52,413   
|Accounts
receivable -                                                                                                     |                   |           |                  |   |          
|Trade,
net of allowance for doubtful accounts of $5,895 and $7,286,
respectively                                          |                   | 99,534    |                  |   | 119,499  
|Contracts
in progress                                                                                                     |                   | 32,985    |                  |   | 24,511   
|Income tax
receivable                                                                                                     |                   | 12,835    |                  |   | 2,173    
|Deferred
income taxes                                                                                                     |                   | 2,190     |                  |   | 3,183    
|Other
current assets                                                                                                      |                   | 22,734    |                  |   | 22,929   
|Total
current assets                                                                                                      |                   | 183,265   |                  |   | 224,708  
|                                                                                                                          |                   |           |                  |   |          
|Property and equipment                                                                                                    |                   | 799,786   |                  |   | 797,387  
|Less -
Accumulated depreciation                                                                                           |                   | (225,021) |                  |   | (188,154)
|Net
property and equipment                                                                                                |                   | 574,765   |                  |   | 609,233  
|                                                                                                                          |                   |           |                  |   |          
|Other assets:                                                                                                             |                   |           |                  |   |          
|Goodwill                                                                                                                  |                   |          |                  |   | 292,469  
|Deferred
drydock costs                                                                                                    |                   | 15,858    |                  |   | 16,976   
|Other
assets, net                                                                                                         |                   | 10,329    |                  |   | 12,593   
|Total
assets                                                                                                              | $                 | 784,217   |                  | $ | 1,155,979
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                      |                   |           |                  |   |          
|Current liabilities:                                                                                                      |                   |           |                  |   |          
|Accounts
payable                                                                                                          | $                 | 62,907    |                  | $ | 49,680   
|Advanced
billings on contracts                                                                                            |                   | 1,554     |                  |   | 3,512    
|Current
maturities of long-term debt                                                                                      |                   | 59,328    |                  |   | 80,000   
|Accrued
liabilities                                                                                                       |                   | 29,785    |                  |   | 39,668   
|Income tax
payable                                                                                                        |                   |          |                  |   | 6,025    
|Total
current liabilities                                                                                                 |                   | 153,574   |                  |   | 178,885  
|                                                                                                                          |                   |           |                  |   |          
|Long-term debt                                                                                                            |                   | 125,840   |                  |   | 155,000  
|Deferred income taxes                                                                                                     |                   | 112,517   |                  |   | 121,973  
|Other long term
liabilities                                                                                               |                   | 3,547     |                  |   | 5,323    
|Total
liabilities                                                                                                         |                   | 395,478   |                  |   | 461,181  
|                                                                                                                          |                   |           |                  |   |          
|Commitments and contingencies
(Note 6)                                                                                    |                   |          |                  |   |         
|                                                                                                                          |                   |           |                  |   |          
|Stockholders equity:                                                                                                     |                   |           |                  |   |          
|Common
stock, 240,000 shares authorized, $0.01 par value, issued and outstanding:
 94,180 and 93,933 shares, respectively |                   | 942       |                  |   | 939      
|Capital in excess of par value
of common stock                                                                            |                   | 405,996   |                  |   | 399,199  
|Accumulated other
comprehensive income                                                                                    |                   | 1,522     |                  |   | 914      
|Retained (deficit)
earnings                                                                                               |                   | (19,721)  |                  |   | 293,746  
|Total
stockholders equity                                                                                                |                   | 388,739   |                  |   | 694,798  
|Total
liabilities and stockholders equity                                                                                | $                 | 784,217   |                  | $ | 1,155,979



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







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Cal Dive International, Inc. and
Subsidiaries



Consolidated Statements of Operations
(unaudited)

(in thousands, except per share
amounts)



|                                        |                                 |           |                                |   |         |  |      |           |  |   |        
|--------------------------------------- | ------------------------------- | --------- | ------------------------------ | - | ------- |  | ---- | --------- |  | - | -------
|                                        | Three Months EndedSeptember 30, |           | Nine Months EndedSeptember 30,
|                                        | 2010                            |           | 2009                           |   | 2010    |  | 2009
|Revenues                                | $                               | 193,793   |                                | $ | 214,597 |  | $    | 375,428   |  | $ | 681,966
|Cost of sales                           |                                 | 147,072   |                                |   | 144,466 |  |      | 336,659   |  |   | 502,269
|Gross profit                            |                                 | 46,721    |                                |   | 70,131  |  |      | 38,769    |  |   | 179,697
|Goodwill impairment                     |                                 | 292,469   |                                |   |        |  |      | 292,469   |  |   |       
|Fixed assets impairment                 |                                 | 23,151    |                                |   |        |  |      | 23,151    |  |   |       
|Selling and administrative
expenses     |                                 | 15,121    |                                |   | 17,629  |  |      | 45,260    |  |   | 53,724 
|Gain on sale of assets                  |                                 | 6         |                                |   |        |  |      | 1,313     |  |   | 400    
|Provision for doubtful
accounts         |                                 |          |                                |   | 202     |  |      | (167)     |  |   | 6,477  
|Income (loss) from operations           |                                 | (284,014) |                                |   | 52,300  |  |      | (320,631) |  |   | 119,896
|Interest expense, net                   |                                 | 2,544     |                                |   | 3,234   |  |      | 6,835     |  |   | 10,598 
|Other income (expense),
net             |                                 | (192)     |                                |   | 191     |  |      | (124)     |  |   | (794)  
|Income (loss) before income
taxes       |                                 | (286,750) |                                |   | 49,257  |  |      | (327,590) |  |   | 108,504
|Income tax expense
(benefit)            |                                 | (3,378)   |                                |   | 16,349  |  |      | (14,123)  |  |   | 34,717 
|Net income
(loss)                       | $                               | (283,372) |                                | $ | 32,908  |  | $    | (313,467) |  | $ | 73,787 
|                                        |                                 |           |                                |   |         |  |      |           |  |   |        
|Earnings (loss) per common
share:       |                                 |           |                                |   |         |  |      |           |  |   |        
|Basic
earnings (loss) per share         | $                               | (3.11)    |                                | $ | 0.35    |  | $    | (3.44)    |  | $ | 0.78   
|Fully-diluted
earnings (loss) per share | $                               | (3.11)    |                                | $ | 0.35    |  | $    | (3.44)    |  | $ | 0.77   
|                                        |                                 |           |                                |   |         |  |      |           |  |   |        
|Weighted average shares
outstanding:    |                                 |           |                                |   |         |  |      |           |  |   |        
|Basic                                   |                                 | 91,065    |                                |   | 90,287  |  |      | 91,042    |  |   | 92,391 
|Fully-diluted                           |                                 | 91,065    |                                |   | 90,913  |  |      | 91,042    |  |   | 92,707 
|                                        |                                 |           |                                |   |         |  |      |           |  |   |        



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



2





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Cal Dive International, Inc. and
Subsidiaries



Consolidated Statements of Stockholders
Equity and Comprehensive Income (Loss) (unaudited)

(in thousands)







|                                                                             |              |  |   |           |  |   |         |  |   |             |  |   |               |  |   |          
|---------------------------------------------------------------------------- | ------------ |  | - | --------- |  | - | ------- |  | - | ----------- |  | - | ------------- |  | - | ---------
|                                                                             |              |  |   |           |  |   |         |  |   | Accumulated |  |   |               |  |   |          
|                                                                             |              |  |   |           |  |   |         |  |   | Other       |  |   |               |  |   |          
|                                                                             |              |  |   |           |  |   | Capital |  |   | Compre-     |  |   | Retained      |  |   | Total    
|                                                                             | Common Stock |  |   | in Excess |  |   | hensive |  |   | Earnings    |  |   | Stockholders
|                                                                             | Shares       |  |   | Par value |  |   | of Par  |  |   | Income      |  |   | (Deficit)     |  |   | Equity   
|Balances
at December 31, 2009                                                | 93,933       |  | $ | 939       |  | $ | 399,199 |  | $ | 914         |  | $ | 293,746       |  | $ | 694,798  
|Net
loss                                                                     |              |  |   |           |  |   |         |  |   |             |  |   | (313,467)     |  |   | (313,467)
|Foreign
currency translation adjustment                                      |              |  |   |           |  |   |         |  |   | 374         |  |   |               |  |   | 374      
|Decrease
in unrealized loss from cash flow hedge (net of income tax of $126) |              |  |   |           |  |   |         |  |   | 234         |  |   |               |  |   | 234      
|Comprehensive
loss                                                           |              |  |   |           |  |   |         |  |   |             |  |   |               |  |   | (312,859)
|Stock-based
compensation plans                                               | 247          |  |   | 3         |  |   | 6,797   |  |   |             |  |   |               |  |   | 6,800    
|Balances
at September 30, 2010                                               | 94,180       |  | $ | 942       |  | $ | 405,996 |  | $ | 1,522       |  | $ | (19,721)      |  | $ | 388,739  
|                                                                             |              |  |   |           |  |   |         |  |   |             |  |   |               |  |   |          









|                                                                             |              |  |   |           |  |   |          |  |   |               |  |   |               |  |   |          
|---------------------------------------------------------------------------- | ------------ |  | - | --------- |  | - | -------- |  | - | ------------- |  | - | ------------- |  | - | ---------
|                                                                             |              |  |   |           |  |   |          |  |   | Accumulated   |  |   |               |  |   |          
|                                                                             |              |  |   |           |  |   |          |  |   | Other         |  |   |               |  |   |          
|                                                                             |              |  |   |           |  |   | Capital  |  |   | Compre-       |  |   |               |  |   | Total    
|                                                                             | Common Stock |  |   | in Excess |  |   | hensive  |  |   | Retained      |  |   | Stockholders
|                                                                             | Shares       |  |   | Par value |  |   | of Par   |  |   | Income (Loss) |  |   | Earnings      |  |   | Equity   
|Balances
at December 31, 2008                                                | 107,498      |  | $ | 1,075     |  | $ | 488,841  |  | $ | (1,338)       |  | $ | 217,119       |  | $ | 705,697  
|Net
income                                                                   |              |  |   |           |  |   |          |  |   |               |  |   | 73,787        |  |   | 73,787   
|Foreign
currency translation adjustment                                      |              |  |   |           |  |   |          |  |   | 1,396         |  |   |               |  |   | 1,396    
|Decrease
in unrealized loss from cash flow hedge (net of income tax of $190) |              |  |   |           |  |   |          |  |   | 352           |  |   |               |  |   | 352      
|Comprehensive
income                                                         |              |  |   |           |  |   |          |  |   |               |  |   |               |  |   | 75,535   
|Repurchase
and retirement of stock from Helix                                | (15,212)     |  |   | (152)     |  |   | (99,848) |  |   |               |  |   |               |  |   | (100,000)
|Stock-based
compensation plans                                               | 672          |  |   | 7         |  |   | 9,296    |  |   |               |  |   |               |  |   | 9,303    
|Balances
at September 30, 2009                                               | 92,958       |  | $ | 930       |  | $ | 398,289  |  | $ | 410           |  | $ | 290,906       |  | $ | 690,535  
|                                                                             |              |  |   |           |  |   |          |  |   |               |  |   |               |  |   |          











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





3





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Cal Dive International, Inc. and
Subsidiaries



Consolidated Statements of Cash Flows
(unaudited)

(in thousands)



|                                                                                  |                                |           |      |   |          
|--------------------------------------------------------------------------------- | ------------------------------ | --------- | ---- | - | ---------
|                                                                                  | Nine Months EndedSeptember 30,
|                                                                                  | 2010                           |           | 2009
|Cash
Flows From Operating Activities:                                             |                                |           |      |   |          
|Net
income (loss)                                                                 | $                              | (313,467) |      | $ | 73,787   
|Adjustments
to reconcile net income to net cash provided by operating
activities: |                                |           |      |   |          
|Depreciation
and amortization                                                     |                                | 51,953    |      |   | 57,844   
|Stock
compensation expense                                                        |                                | 5,366     |      |   | 5,329    
|Deferred
income tax expense (benefit)                                             |                                | (10,259)  |      |   | 5,129    
|Provision
for doubtful accounts                                                   |                                | (167)     |      |   | 6,477    
|(Gain)
on sale of assets                                                          |                                | (1,313)   |      |   | (400)    
|Deferred
financing costs                                                          |                                | 1,042     |      |   | 879      
|Goodwill
impairment                                                               |                                | 292,469   |      |   |         
|Fixed
assets impairment                                                           |                                | 23,151    |      |   |         
|Changes
in operating assets and liabilities:                                      |                                |           |      |   |          
|Accounts
receivable, net                                                          |                                | 11,687    |      |   | 64,527   
|Income
tax receivable and payable, net                                            |                                | (16,565)  |      |   | (1,228)  
|Other
current assets                                                              |                                | 178       |      |   | (3,557)  
|Deferred
drydock costs                                                            |                                | (6,174)   |      |   | (10,714) 
|Accounts
payable and accrued liabilities                                          |                                | 3,843     |      |   | (24,247) 
|Other
noncurrent assets and liabilities, net                                      |                                | 83        |      |   | (1,269)  
|Net
cash provided by operating activities                                         |                                | 41,827    |      |   | 172,557  
|                                                                                  |                                |           |      |   |          
|Cash
Flows From Investing Activities:                                             |                                |           |      |   |          
|Additions
to property and equipment                                               |                                | (36,079)  |      |   | (49,131) 
|Proceeds
from sales of property and equipment and equity investment               |                                | 4,480     |      |   | 400      
|Net cash
used in investing activities                                             |                                | (31,599)  |      |   | (48,731) 
|                                                                                  |                                |           |      |   |          
|Cash
Flows From Financing Activities:                                             |                                |           |      |   |          
|Repayments
on term loan                                                           |                                | (74,832)  |      |   | (60,000) 
|Draws
on revolving credit facility                                                |                                | 25,000    |      |   | 100,000  
|Repurchase
of common stock                                                        |                                |          |      |   | (100,000)
|Net
cash used in financing activities                                             |                                | (49,832)  |      |   | (60,000) 
|                                                                                  |                                |           |      |   |          
|Effect
of exchange rate changes on cash and cash equivalents                      |                                | 178       |      |   | 204      
|Net
increase (decrease) in cash and cash equivalents                              |                                | (39,426)  |      |   | 64,030   
|Cash
and cash equivalents:                                                        |                                |           |      |   |          
|Balance,
beginning of period                                                      |                                | 52,413    |      |   | 60,556   
|Balance,
end of period                                                            | $                              | 12,987    |      | $ | 124,586  
|                                                                                  |                                |           |      |   |          
|Supplemental
Cash Flow Information:                                               |                                |           |      |   |          
|Interest
paid, net of capitalized interest                                        | $                              | 5,384     |      | $ | 9,234    
|Income
taxes paid, net                                                            | $                              | 13,059    |      | $ | 32,520   



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









4





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Cal Dive International, Inc. and
Subsidiaries



Notes to Consolidated Financial
Statements (unaudited)



|   |                                                                                
|-- | -------------------------------------------------------------------------------
|1. | Preparation of Interim Financial Statements and
Significant Accounting Policies



Organization

We are a marine contractor that provides manned diving, pipelay
and pipe burial, platform installation and platform salvage services to a
diverse customer base in the offshore oil and natural gas industry.  We
offer our customers these complementary services on an integrated basis for more
complex subsea projects, which provides them with greater efficiency in the
completion of their work, while enhancing the utilization of our fleet.
 Our headquarters are located in Houston, Texas.

Our global footprint encompasses operations in the Gulf of Mexico
Outer Continental Shelf, or OCS, the Northeastern U.S., Latin America, Southeast
Asia, China, Australia, the Middle East, India and the Mediterranean.  We
currently own and operate a diversified fleet of 29 vessels, including 19
surface and saturation diving support vessels, six pipelay/pipebury barges, one
dedicated pipebury barge, one combination derrick/pipelay barge and two derrick
barges.

Preparation
of Interim Financial Statements

These interim consolidated financial statements are unaudited and
have been prepared pursuant to instructions for quarterly reporting required to
be filed with the Securities and Exchange Commission (SEC) and do not include
all information and footnotes normally included in annual financial statements
prepared in accordance with U.S. generally accepted accounting principles
(GAAP).

The accompanying consolidated financial statements have been
prepared in conformity with GAAP, and our application of GAAP for purposes of
preparing the accompanying consolidated financial statements is consistent in
all material respects with the manner applied to the consolidated financial
statement included in our annual report on Form 10-K for the year ended December
31, 2009 (our 2009 Annual Report on Form 10-K).  The preparation of these
financial statements requires us to make estimates and judgments that affect the
amounts reported in the financial statements and the related disclosures.
 Actual results may differ from our estimates.  Management has
reflected all adjustments (which were normal recurring adjustments unless
otherwise disclosed herein) that it believes are necessary for a fair
presentation of the consolidated balance sheets, results of operations and cash
flows, as applicable.

Our balance sheet at December 31, 2009 included herein has been
derived from the audited balance sheet at December 31, 2009 included in our 2009
Annual Report on Form 10-K.  These consolidated financial statements should
be read in conjunction with the annual consolidated financial statements and
notes thereto included in our 2009 Annual Report on Form 10-K, which contains a
summary of our significant accounting policies and other disclosures.
 Additionally, our financial statements for prior periods include
reclassifications that were made to conform to current period presentation and
did not affect our reported net income or stockholders equity.  Interim
results should not be taken as indicative of the results that may be expected
for the year ending December 31, 2010.

Subsequent
Events

We conducted our subsequent events review through the date these
interim consolidated financial statements were filed with the SEC.

Seasonality

As a marine contractor with significant operation in the Gulf of
Mexico, our vessel utilization is typically lower during the winter and early
spring due to unfavorable weather conditions in the Gulf of Mexico.



5





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Significant
Accounting Policies

The information below provides an update to the significant
accounting policies discussed in our 2009 Annual Report on Form 10-K and
accounting pronouncements issued but not yet adopted.

Goodwill and
Fixed Assets Impairment

Under Accounting
Standards Codification (ASC) Topic 350, Intangibles  Goodwill and Other(formerly SFAS No. 142, Goodwill and Other Intangible Assets) and ASC Topic
360, Property, Plant and Equipment (formerly SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets), we perform an annual
impairment test of goodwill and long-lived assets.  We elected
November 1st as our annual impairment assessment date for goodwill and other
intangible assets.  In certain circumstances, we also test for
impairment of goodwill between annual tests if a triggering event occurs, such
as significant adverse change in the business climate, unexpected significant
declines in operating results, an adverse action by a regulator, emergence of
unanticipated competition, loss of key personnel or a decline in market
capitalization.  Our goodwill impairment test is based on our single
operating and reporting unit and involves a comparison of the fair value of the
unit with its carrying amount. The fair value is determined using market-related
valuation models and discounted cash flows.



During the third quarter
of 2010, our market capitalization declined significantly by approximately 22%
from $551.2 million at June 30, 2010 to $430.4 million at August 31, 2010, which
was lower by $256.4 million, or 37%, than our equity book value at August 31,
2010.  The Macondo well disaster has significantly and adversely disrupted
oil and gas exploration activities in the Gulf of Mexico and there is increased
uncertainty in the market and regulatory environment for our industry which has
had a negative effect on our customers spending levels.  The duration that
this disruption will continue is currently unknown and this has negatively
impacted the outlook for activity levels in the Gulf of Mexico.  We believe
these uncertain market conditions contributed to the significant decline in our
stock price and market capitalization, and this prompted us to conclude that a
triggering event had occurred requiring us to perform an interim impairment
test.  As a result, we commenced an interim assessment of our goodwill,
which we completed as of August 31, 2010.  Goodwill impairment is
determined using a two-step process.  In the first step, if the fair
value of our reporting unit exceeds its carrying amount, goodwill of the
reporting unit is not considered to have a potential impairment and the second
step of the impairment test is not necessary.  However, if the
carrying amount of our reporting unit exceeds its fair value, the second step of
the process is performed to determine if goodwill is impaired and to measure the
amount of impairment loss to recognize, if any.



Under the first step of
the process, we estimate the fair value of our reporting unit using both a
market-related and discounted cash flow valuation approach.  Under the
market-related approach, the fair value of our reporting unit is calculated by
applying an average peer total invested capital to EBITDA (defined as earnings
before interest, income taxes and depreciation and amortization) multiple to
forecasted EBITDA for the reporting unit.  We exercise our judgment in
selecting peer companies that operate in the same or similar lines of business
as ours and are potentially subject to similar market risks.Under the income approach, a
discounted cash flow analysis is performed requiring us to make various
assumptions about our discount rate, future revenue, operating margins, capital
expenditures and growth rates.  These assumptions are based on
historical operating results, long-term business plans, economic projections,
anticipated future cash flows and marketplace data.  These fair value
measurements fall within Level 3 under ASC Topic 820, Fair Value Measurements
and Disclosures.



The second step of the
process compares the implied fair value of goodwill with the carrying amount of
goodwill.  To the extent that our reporting units carrying amount
exceeds the implied fair value of its goodwill, an impairment loss is recognized
in an amount equal to that excess.   The implied fair value of
goodwill is determined in the same manner as the amount of goodwill recognized
in a business combination, through allocation of the fair value of the reporting
unit to all of the assets and liabilities, including any unrecognized intangible
assets, as if the reporting unit had been acquired in a business combination.



Based on the first step
calculation of our goodwill impairment test, the carrying amount of our
reporting unit exceeded its fair value, which required us to perform the
second step of the impairment test.  In the second step, the fair
value of goodwill and fixed assets was generally estimated using an income
valuation approach.  Based on our 2010 goodwill impairment analysis, we
recorded $292.5 million of pre-tax goodwill impairment expense.



6





---







In connection with the
above, we also performed an impairment test on four idle construction barges and
determined that they were subject to impairment indicators resulting from the
uncertain outlook regarding their future utilization.  The fair values of
three of the barges were determined using the income valuation approach and the
fair value of the fourth barge was based on its scrap value.  As a result
we recorded $23.2 million of pre-tax fixed assets impairment expense.



Interest Rate Swap and Hedging
Activities

To reduce the impact of changes in interest rates on our variable
rate term loan, in August 2010 we entered into a one-year interest rate swap
with a notional amount of $100 million that converts a portion of our
anticipated variable-rate interest payments, beginning in January 2011, under
our term loan to fixed-rate interest payments at 0.645% plus the current average
applicable loan margin of approximately 2.5%.  This interest rate swap
qualifies as a cash flow hedge under hedge accounting and is reflected as a
liability on our balance sheet at its fair value of $0.3 million at September
30, 2010.

Changes in the interest rate swap fair value are deferred to the
extent it is effective and are recorded as a component of accumulated other
comprehensive income until the anticipated interest payments occur and are
recognized in interest expense.  The ineffective portion of the interest
rate swap, if any, will be recognized immediately in earnings.

We formally document all hedging instruments and hedged items, as
well as our risk management objectives, strategies for undertaking various hedge
transactions and our methods for assessing and testing correlation and hedge
ineffectiveness.  We also assess, both at inception of the hedge and on an
on-going basis, whether the derivatives that are used in our hedging
transactions are highly effective in offsetting changes in cash flows of the
hedged items.  Changes in the assumptions used could impact whether the
fair value change in the interest rate swap is charged to earnings or
accumulated other comprehensive income.

Recertification
Costs and Deferred Drydock Charges

Our vessels are required by the various regulatory authorities in
the jurisdictions in which we operate to be recertified from time to time, which
requires the drydocking of the vessel. We incur recertification costs during the
period when a vessel is in drydock. In addition, while the vessel is in drydock,
routine repairs and maintenance of the vessel and, if necessary, major
replacements and improvements, are performed. We expense routine repairs and
maintenance costs when they are incurred. We defer and amortize drydock and
related recertification costs over the period for which the certificate issued
is valid, which ranges from 24 months to 60 months. A drydock and related
recertification process typically takes between one to two months, a period
during which the vessel is not available to earn revenue. Major replacements and
improvements that extend the vessels economic useful life or functional
operating capability, are capitalized as property and equipment and depreciated
over the remaining estimated economic useful life of the vessel. Inherent in
this process are estimates we make regarding the specific cost incurred and the
period that the incurred cost will benefit the vessel and its operations.

Prior to January 1, 2010, we generally amortized drydock and
recertification costs over 30 months.  Effective January 1, 2010, we
changed the period for amortization of these costs to commence with the date the
vessel returned to service following completion of the drydock process to the
next certificate expiry date, which typically ranges from 24 months to 60
months.  The change in this amortization period was based on managements
assessment that the period for which the certificate is valid is a better
measure of the length of time for which we expect to receive future benefits
from the recertification and drydock process.  This change in the estimated
service life of our drydock and recertification costs had the effect of
lengthening the amortization period for these costs, which decreased our loss
from operations by $0.9 million ($0.01 per common share) and $2.5 million ($0.03
per common share) for the three and nine months ended September 30, 2010,
respectively.  This change in estimate had no impact on our cash flows for
the nine month period ended September 30, 2010.

Recently Issued
Accounting Policies

Each reporting period we
consider all newly issued but not yet adopted accounting and reporting guidance
applicable to our operations and the preparation of our consolidated financial
statements.  We do not believe that any issued accounting and reporting
guidance we have not yet adopted will have a material impact on our financial
statements at the time they may be adopted.



7





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|   |                           
|-- | --------------------------
|2. | Related Party
Transactions



Prior to December 2006,
we were wholly-owned by Helix Energy Solutions Group, Inc. (Helix).  In
December 2006, Helix and its subsidiaries contributed and transferred to us all
of the assets and liabilities of its shallow water marine contracting business,
including 23 surface and diving support vessels capable of operating in water
depths of up to 1,000 feet and three shallow water pipelay vessels, and then we,
through an initial public offering (IPO), became a separate reporting company
although still a majority-owned subsidiary of Helix. As of December 31, 2008,
Helix owned 61,506,691 shares, or 57.2% of our common stock.  During 2009,
Helix reduced its ownership interest to 500,000 shares, or less than 1% of our
common stock at December 31, 2009, by completing the following transactions:



·

We repurchased and retired approximately 15.2 million shares of
our common stock from Helix in two separate transactions for $100 million, or a
weighted average price of $6.57 per share.  We funded the share repurchase
by borrowing $100 million under our revolving credit facility.

·

Helix sold 45.8 million shares of our common stock to third
parties in two separate secondary public offerings.  We did not receive any
proceeds from Helixs sale of our common stock.

In contemplation of our IPO, we entered into several agreements
with Helix addressing the rights and obligations of each respective company.
  As a result of the reduction in Helixs ownership of our common
stock described above, we ceased to be a majority-owned subsidiary of Helix in
June 2009, which changed or eliminated most, but not all, of the rights and
obligations contained in these agreements.

Pursuant to a tax matters agreement between us and Helix, Helix is
generally responsible for all federal, state, local and foreign income taxes
that are attributable to us for all tax periods ending on or before the IPO
date, and we are generally responsible for all such taxes beginning after the
IPO date.  In addition, the agreement provides that for a period of up to
ten years from the IPO date, we are required to make aggregate payments to Helix
equal to 90% of tax benefits derived by us from tax basis adjustments resulting
from the taxable gain recognized by Helix as a result of the distributions made
to Helix as part of the IPO transaction, which amount was agreed to be
approximately $11.3 million.  As of September 30, 2010, the current and
long-term tax benefits payable to Helix were $1.0 million and $1.0 million,
respectively.  The reduction in Helixs percentage ownership of our common
stock had no effect on this obligation.

Pursuant to a corporate services agreement that was terminated in
the third quarter of 2009, Helix provided us with certain administrative
services, including insurance, financial services and information technology
services, based on direct costs incurred, headcount, work hours and revenues.
 The costs allocated to us for these services were less than $0.1 million
and $0.9 million for the three and nine months ended September 30, 2009,
respectively.

In the ordinary course
of business, we provided marine contracting services to Helix and recognized
revenues of $11.3 million and $33.0 million in the three and nine months ended
September 30, 2009, respectively.  Helix also provided remotely operated
vehicle services to us and we recognized operating expenses of $4.2 million and
$9.7 million in the three and nine months ended September 30, 2009,
respectively.  These services were performed at prevailing market rates.
 After we ceased to be an affiliate of Helix on September 23, 2009, we
discontinued reporting transactions with Helix as related party
transactions.





8





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|   |                            
|-- | ---------------------------
|3. | Details of Certain
Accounts



Other current assets consisted of the following as of September
30, 2010 and December 31, 2009 (in thousands):

|                                   |               |        |              |   |       
|---------------------------------- | ------------- | ------ | ------------ | - | ------
|                                   | September 30, |        | December 31,
|                                   | 2010          |        | 2009        
|Insurance
claims to be reimbursed  | $             | 1,823  |              | $ | 5,201 
|Prepaid
job costs                  |               | 3,417  |              |   | 3,039 
|Prepaid
insurance                  |               | 5,988  |              |   | 5,023 
|Prepaid
other                      |               | 522    |              |   | 644   
|Supplies
and spare parts inventory |               | 2,467  |              |   | 2,610 
|Other
receivables                  |               | 5,274  |              |   | 4,541 
|Other                              |               | 3,243  |              |   | 1,871 
|                                   | $             | 22,734 |              | $ | 22,929
|                                   |               |        |              |   |       

Other long-term assets, net, consisted of the following as of
September 30, 2010 and December 31, 2009 (in thousands):

|                                           |               |        |              |   |       
|------------------------------------------ | ------------- | ------ | ------------ | - | ------
|                                           | September 30, |        | December 31,
|                                           | 2010          |        | 2009        
|Intangible assets with definite lives, net | $             | 3,061  |              | $ | 3,918 
|Deferred financing costs                   |               | 4,099  |              |   | 3,517 
|Equipment deposits                         |               | 483    |              |   | 1,492 
|Other                                      |               | 2,686  |              |   | 3,666 
|                                           | $             | 10,329 |              | $ | 12,593

Accrued liabilities consisted of the following as of September 30,
2010 and December 31, 2009 (in thousands):

|                                     |               |        |              |   |       
|------------------------------------ | ------------- | ------ | ------------ | - | ------
|                                     | September 30, |        | December 31,
|                                     | 2010          |        | 2009        
|Accrued payroll and related benefits | $             | 11,884 |              | $ | 18,548
|Insurance claims to be reimbursed    |               | 1,823  |              |   | 5,201 
|Accrued insurance                    |               | 8,105  |              |   | 6,774 
|Interest rate swap                   |               | 267    |              |   | 627   
|Accrued taxes other than income      |               | 2,113  |              |   | 847   
|Note payable                         |               |       |              |   | 1,585 
|Other                                |               | 5,593  |              |   | 6,086 
|                                     | $             | 29,785 |              | $ | 39,668



|   |               
|-- | --------------
|4. | Long-term Debt



We have a senior secured credit facility with certain financial
institutions, consisting of a term loan and a $300 million revolving credit
facility, both of which mature on December 11, 2012.  As of September 30,
2010, we had outstanding debt of $180.2 million under the term loan with a
weighted-average interest rate of 3.3%, with quarterly principal payments of
$14.8 million, and a final payment of $61.5 million due on maturity.
 Additionally, as of September 30, 2010, we had outstanding $5.0 million
under the revolving credit facility through our swing line option with a
weighted average interest rate of 1.8%, with approximately $229.2 million
available for borrowings.  The amount we can borrow under our $300 million
revolver is limited by outstanding borrowings, letters of credit, and our
consolidated leverage (debt to EBITDA) ratio covenant.  At September 30,
2010, we had $0.1 million of issued and outstanding letters of credit under our
revolving credit facility and approximately $6.1 million of outstanding warranty
and bid bonds.



9





---





Effective July 19, 2010, we amended the credit facility to, among
other things, (i) increase our permitted consolidated leverage ratio covenant,
(ii) amend the amortization of a portion of our term loan, and (iii) permit us
to transfer in the future two of our saturation diving vessels operating
internationally (the Eclipse and the Texas) to one of our
international subsidiaries and to release such vessels as collateral upon any
such future transfer.  Under the amendment, the permitted debt to EBITDA
leverage ratio was increased from 3.75x to 4.75x for the period through June 30,
2011, decreasing to 4.25x through September 30, 2011 and thereafter returning to
3.75x.  Also as a result of the amendment, the amortization of a portion of
the debt outstanding under the term loan was deferred until the maturity date,
reducing our quarterly principal payments on the term loan from $20.0 million to
$14.8 million, with a final payment of $61.5 million due on the maturity date.
 For lenders who agreed to forgo their quarterly term loan payment, the
margin on their term loan commitments is now subject to a pricing grid, while
those lenders who did not grant such consent had their term loan margin remain
fixed at 2.25%.  The interest rate margin on the revolving loan also
increased but remains subject to fluctuation in relation to our consolidated
leverage ratio as provided in the credit agreement.

At September 30, 2010 and December 31, 2009, we were in compliance
with all debt covenants contained in our credit facility.  The credit
facility is secured by vessel mortgages on all of our vessels (except for the
Sea Horizon), a pledge of all of the stock of all of our domestic
subsidiaries and 66% of the stock of three of our foreign subsidiaries, and a
security interest in, among other things, all of our equipment, inventory,
accounts receivable and general tangible assets.

|   |             
|-- | ------------
|5. | Income Taxes



Our effective tax rate
was 1.2% for the three months ended September 30, 2010 and 4.3% for the nine
months ended September 30, 2010, compared to 33.2% and 32.0% for the same period
in 2009.  Excluding the fixed assets impairment charges, our effective tax
rate was 33.7% and 8.6% for the three and nine months ended September 30, 2010,
respectively.



As of December 31, 2009, we had $2.7 million recorded as a
long-term liability for uncertain tax benefits, interest and penalty.  In
the first quarter, following a final settlement of uncertain tax positions with
the relevant tax authority, we reduced the long-term liability for uncertain tax
benefits, interest and penalties by $1.7 million to $1.0 million at September
30, 2010.

Our income tax expense for the three and nine month periods ended
September 30, 2009 was computed by applying estimated annual effective tax rates
to income before income taxes for the interim period.  At June 30, 2010,
the Company determined a reliable estimate of its annual effective tax rate
could not be determined for the year ending December 31, 2010 based on the
current volatility in pretax income or loss and its impact on estimating our
annual effective tax rate for the year.  Therefore, the interim effective
tax rate at September 30, 2010 was based on the actual year-to-date results.
 In addition, non-recurring or discrete items were recorded during the
period in which they occurred under both methods of calculating income tax
expense (benefit).

Tax
Assessment

In the fourth quarter of 2007, we completed our acquisition of
Horizon Offshore, Inc. (Horizon), following which Horizon became our
wholly-owned subsidiary.  During the fourth quarter of 2006, Horizon
received a tax assessment related to fiscal 2001 from the Servicio de
Administracion Tributaria (SAT), the Mexican taxing authority, for
approximately $283.5 million pesos, translated to approximately $24.5 million
using the foreign exchange rate at September 30, 2010, including penalties and
interest.  The SATs assessment claims unpaid taxes related to services
performed among our subsidiaries, as well as penalties and accrued interest.
 We have consulted with our Mexican counsel and believe that under the
Mexico and United States double taxation treaty these services are not taxable
and the tax assessment itself is invalid.  Accordingly, we have not
recorded a liability for the SATs assessment for the 2001 tax year in our
consolidated financial statements.  On February 14, 2008, we received
notice from the SAT upholding the original assessment.  On April 21, 2008,
we filed a petition in Mexico tax court disputing the assessment.  We
believe that our position is supported by law and intend to vigorously defend
our position.  However, the ultimate outcome of this litigation and our
potential liability from this assessment, if any, cannot be determined at this
time. Nonetheless, an unfavorable outcome with respect to the Mexico tax
assessment could have a material adverse effect on our financial position,
results of operations and cash flows.



10





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The SAT also claimed unpaid taxes related to services performed
among our subsidiaries for Horizons 2002 through 2007 taxable years.
 During 2009, we successfully completed negotiations with the SAT with
respect to their claim of unpaid taxes related to Horizons 2002 through 2007
taxable years, and paid an aggregate of approximately $3.3 million in settlement
of these periods.  Horizons 2002 through 2004 tax audits were closed in
2009, settling this particular claim by the SAT.  In 2009 we also filed
amendments for tax years 2005 through 2007 using the same methodology used in
the settlement for the 2002 through 2004 years.  The amended returns were
accepted by the Mexican tax authority in March 2010, effectively settling this
particular claim.  Even though we have settled this issue for these years,
under Mexican tax law there is a five-year statute of limitations, so our tax
years 2005 through 2009 remain open for examination in Mexico.

While we believe our
recorded tax assets and liabilities are reasonable, tax laws and regulations are
subject to interpretation and tax litigation is inherently uncertain.  As a
result, our assessments involve a series of complex judgments about future
events and rely heavily on estimates and assumptions.



|   |                              
|-- | -----------------------------
|6. | Commitments and
Contingencies



Insurance



We incur maritime
employers liability, workers compensation and other insurance claims in the
normal course of business, which management believes are covered by insurance.
We analyze each claim for potential exposure and estimate the ultimate liability
of each claim.  Amounts due from insurance companies, above the applicable
deductible limits, are reflected in other current assets in the consolidated
balance sheets.  Such amounts were $1.8 million and $5.2 million as of
September 30, 2010 and December 31, 2009, respectively.  We have not
historically incurred significant losses as a result of claims denied by our
insurance carriers.





11





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Litigation
and Claims

We are involved in various legal proceedings, primarily involving
claims for personal injury under the General Maritime Laws of the United States
and the Jones Act as a result of alleged negligence. In addition, we from time
to time incur other claims, such as contract disputes, in the normal course of
business. Although these matters expose us to potential significant additional
liability, we believe the outcome of all such matters and proceedings will not
have a material adverse effect on our consolidated financial position, results
of operations or cash flows. Pursuant to the terms of a master agreement we
entered into with Helix in contemplation of our IPO, we assumed and will
indemnify Helix for liabilities related to our business, other than tax
liabilities relating to our pre-IPO operations.

|   |                             
|-- | ----------------------------
|7. | Business Segment
Information



We have one reportable segment, Marine Contracting. We perform a
portion of our marine contracting services in foreign waters. We derived
revenues from foreign locations of $32.2million and $60.2million
for the three and nine months ended September 30, 2010, respectively, and $62.7
million and $238.4 million for the three and nine months ended September 30,
2009, respectively.  The remainder of our revenues were generated in the
U.S. Gulf of Mexico and other U.S. waters.  Net property and equipment in
foreign locations were $172.0 million and $179.3 million at September 30, 2010
and December 31, 2009, respectively.



12





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|   |                          
|-- | -------------------------
|8. | Earnings (Loss) Per
Share



Basic earnings (loss) per share (EPS) is computed by dividing
net income (loss) attributable to common shares by the weighted-average shares
of outstanding common stock.  The calculation of diluted EPS is similar to
basic EPS, except the denominator includes dilutive common stock equivalents.
 The components of basic and diluted EPS for common shares for the three
and nine months ended September 30, 2010 and 2009 were as follows (in thousands,
except per share amounts):

|                                                        |                                 |           |                                |   |        |  |      |           |  |   |       
|------------------------------------------------------- | ------------------------------- | --------- | ------------------------------ | - | ------ |  | ---- | --------- |  | - | ------
|                                                        | Three Months EndedSeptember 30, |           | Nine Months EndedSeptember 30,
|                                                        | 2010                            |           | 2009                           |   | 2010   |  | 2009
|Numerator:                                              |                                 |           |                                |   |        |  |      |           |  |   |       
|Net
income (loss)                                       | $                               | (283,372) |                                | $ | 32,908 |  | $    | (313,467) |  | $ | 73,787
|Less:
Net income allocated to unvested restricted stock |                                 |          |                                |   | 941    |  |      |          |  |   | 2,089 
|Net
income (loss) attributable to common shares         | $                               | (283,372) |                                | $ | 31,967 |  | $    | (313,467) |  | $ | 71,698
|                                                        |                                 |           |                                |   |        |  |      |           |  |   |       
|Denominator:                                            |                                 |           |                                |   |        |  |      |           |  |   |       
|Basic
weighted-average shares outstanding               |                                 | 91,065    |                                |   | 90,287 |  |      | 91,042    |  |   | 92,391
|Dilutive
share-based employee compensation plan (1)     |                                 |          |                                |   | 626    |  |      |          |  |   | 316   
|Diluted
weighted-average shares outstanding             |                                 | 91,065    |                                |   | 90,913 |  |      | 91,042    |  |   | 92,707
|                                                        |                                 |           |                                |   |        |  |      |           |  |   |       
|Earnings
(loss) per share:                              |                                 |           |                                |   |        |  |      |           |  |   |       
|Total
basic                                             | $                               | (3.11)    |                                | $ | 0.35   |  | $    | (3.44)    |  | $ | 0.78  
|Total
diluted                                           | $                               | (3.11)    |                                | $ | 0.35   |  | $    | (3.44)    |  | $ | 0.77  
|                                                        |                                 |           |                                |   |        |  |      |           |  |   |       

____________________







(1)

No losses were
allocated to unvested restricted shares outstanding in the computation of
diluted earnings per share because to do so would be anti-dilutive.



|   |                        
|-- | -----------------------
|9. | Performance Share
Units



In December 2009, we granted to certain of our officers a total of
403,206 performance share units, which constitute restricted stock units under
an incentive plan adopted by us in December 2006.  Each performance share
unit represents a contingent right to receive the cash value of one share of our
common stock dependent upon our total shareholder return relative to a peer
group of companies over a three-year performance period ending on December 31,
2012.  The awards vest 100% on December 31, 2012 and are payable in cash
unless the compensation committee determines to pay in stock.  A maximum of
200% of the number of performance shares granted may be earned if performance at
the maximum level is achieved.  The fair value of the performance units
decreased to $1.9 million as of September 30, 2010.  As a result, we did
not have any compensation expense for the three months ended September 30, 2010.
 For the nine months ended September 30, 2010, compensation expense related
to the performance share units was $0.5 million.

Item
2.

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

The following managements discussion and analysis should be
read in conjunction with our historical consolidated financial statements
and their accompanying notes included elsewhere in this quarterly report
on Form 10-Q, and the consolidated financial statements and their accompanying
footnotes, Managements Discussion and Analysis of Financial Condition and
Results of Operations, Business and Properties sections included in our 2009
Annual Report on Form 10-K. This discussion contains forward-looking statements
that reflect our current views with respect to future events and
financial performance. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of
certain factors, such as those set forth under Item 1A, Risk
Factors.



13





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Overview

Potential
Effects from the Macondo Well Blowout in the Gulf of Mexico

As has been widely publicized, in April 2010, the Deepwater
Horizon rig, engaged in deepwater drilling operations at the Macondo well in
the Gulf of Mexico off the coast of Louisiana, sank after an explosion and fire
resulting in the death of 11 workers.  Following the explosion, the well
immediately began to discharge hydrocarbons into the Gulf of Mexico until July
15, 2010, when a temporary cap stopped the oil flow.  Efforts to
permanently seal the well were completed on September 17, 2010.

The ultimate effects of the Macondo well disaster, and the
governmental and industry response to these events, could have a significant
impact on the offshore oil and natural gas industry and other companies like
ours that serve this industry and its infrastructure. As discussed in greater
detail below, our operating environment and business outlook was adversely
affected by the Macondo well disaster, as the six-month moratorium and new rules
and regulations imposed by the Department of Interiors Bureau of Ocean Energy
Management, Regulation and Enforcement (BOEMRE, formerly Minerals Management
Service), created significant uncertainty among our customers.  On October
12, 2010, the United States Government lifted the moratorium on deep water
permitting and drilling.  However, with the enhanced safety regulations and
inspection requirements of the BOEMRE, there continues to be uncertainty
surrounding the requirements for and pace of issuance of permits on the OCS.
 There were certain positive short-term results due to the response to this
disaster.  Through a significant portion of the third quarter of 2010, we
successfully placed three barges on dayrate charter and deployed two utility
vessels to provide services in connection with oil spill remediation efforts.
 We also provided support to a significant number of third party vessels in
connection with oil skimming operations.  Until the ultimate regulatory
response to this disaster becomes more certain, we cannot accurately predict the
effect of this event on our customers and similarly, its longer term impact on
our core business.  Any regulatory response that has the effect of
materially curtailing offshore activity in the Gulf of Mexico will ultimately
adversely affect our operations in this region.

Financial
Performance

We generated a net loss of $11.0 million for the nine months ended
September 30, 2010, excluding $315.7 million of non-cash, pre-tax impairment
charges related to goodwill and four idle construction barges, compared to net
income of $73.8 million for the same period in 2009.  Including the
impairment charges, our net loss for the nine months ended September 30, 2010
was $313.5 million.  Our financial results for the nine months of 2010
decreased over the prior year period for the following reasons:

·

fewer large integrated construction projects utilizing multiple
vessels performed in 2010 as compared to the projects that occurred during the
first nine months of 2009;

·

reduced new construction work due to significantly less drilling
activity in 2009 and the first nine months of 2010, partially offset by work
relating to cleanup efforts for the oil spill as a result of the Macondo well
blowout;

·

reduced urgency by customers in completing the remaining hurricane
repair and salvage work in the Gulf of Mexico; and

·

lower than expected utilization during the first six months of
2010 and significantly reduced day rates during the nine months ended September
30, 2010;

In the third quarter we generated revenues of $193.8 million and
net income of $19.1 million, excluding the non-cash impairment charges, as
compared to revenues of $214.6 million and net income of $32.9 million generated
in the same period in 2009.  Including the impairment charges, our net loss
for the three months ended September 30, 2010 was $283.4 million.  Although
our utilization across our entire fleet was 4% higher during the third quarter
of 2010 than during the same period in 2009, the day rates for key assets were
significantly lower due to market conditions.



14





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Business and
Outlook

The onset of the global recession in the fall of 2008 and the
resulting decrease in worldwide demand for hydrocarbons caused many oil and
natural gas companies to curtail capital spending for exploration and
development.  Despite this financial market and economic environment, we
experienced steady demand for our services during the first three quarters of
2009.  This demand was driven in part by the need for inspection, repair
and salvage of damaged platforms and infrastructure following hurricanes
Gustav and Ike, which passed through the Gulf of Mexico in the
third quarter 2008, and increased domestic and international new construction
activities, the capital budgets for many of which had already been committed
prior to the end of 2008.

Although there is some evidence that the worldwide economy has
improved, we still expect challenging market conditions for the remainder of
2010 and the first half of 2011.  The Macondo well disaster has
significantly and adversely disrupted oil and gas exploration activities in the
Gulf of Mexico and there is increased uncertainty in the market and regulatory
environment for our industry which will likely have a negative effect on our
customers spending levels for some time.  The duration that this
disruption will continue is currently unknown.  We believe these uncertain
market conditions have contributed to the decline in our stock price and our
market capitalization relative to our equity book value during 2010.  In
the third quarter of 2010, the further decline in our stock price and continued
uncertainty described above prompted us to conclude that a triggering event had
occurred that required us to perform an interim impairment test, which resulted
in our recording $315.7 million of pre-tax impairment expenses ($292.5 million
of pre-tax goodwill impairment expense and $23.2 million of pre-tax fixed assets
impairment expense).  Generally, we believe the long-term outlook for our
business remains favorable in both domestic and international markets as capital
spending will be required to replenish oil and natural gas production, which
should drive long-term demand for our services.

Backlog

As of September 30, 2010, our backlog supported by written
agreements or contract awards totaled approximately $233.4 million, compared to
approximately $183 million as of December 31, 2009 and $213 million as of
September 30, 2009.  Approximately 48% of our backlog is expected to be
performed during the remainder of 2010 and the remainder is expected to be
performed in 2011 and beyond.  These backlog contracts are cancellable
without penalty in most cases.  Backlog is not a reliable indicator of
total annual revenues because it does not include the substantial portion of our
revenues that is derived from the spot market.

Vessel
Utilization

We believe vessel utilization is one of the most important
performance measurements for our business.  Utilization provides a good
indication of demand for our vessels and, as a result, the contract rates we may
charge for our services.  As a marine contractor, our vessel utilization is
typically lower during the winter and early spring due to weather conditions in
the Gulf of Mexico.  Accordingly, we attempt to schedule our drydock
inspections and routine and preventative maintenance programs during this
period.  The seasonal trend for vessel utilization can be disrupted by
hurricanes, which have the ability to cause severe offshore damage and generate
significant demand for our services from oil and natural gas companies to
restore shut-in production.  This production restoration focus has led to
increased demand for our services for prolonged periods following hurricanes, as
was the case in the first half of 2009 following hurricanes Gustav and
Ike in 2008.  Beginning in the fourth quarter of 2009, and reflected
in our results for the nine month period ended September 30, 2010, we once again
returned to more customary seasonal conditions in the Gulf of Mexico.  The
effect of this return to customary seasonal conditions on our utilization in
these already historically slow periods was exacerbated by particularly weak
demand for our service during the first half of 2010, resulting in a 17%
decrease in vessel utilization across our entire fleet for the nine month period
ended September 30, 2010 as compared to the same period in 2009.  Vessel
utilization across our fleet increased slightly by 4% for the three month period
ended September 20, 2010 as compared to the same period in 2009; however, this
was offset by decreased day rates during the 2010 period.



15





---





The following table shows the size of our fleet and effective
utilization of our vessels during the three and nine months ended September 30,
2010 and 2009:

|                             |                                  |                |                                 |                |      |                  |                |                  |               
|---------------------------- | -------------------------------- | -------------- | ------------------------------- | -------------- | ---- | ---------------- | -------------- | ---------------- | --------------
|                             | Three Months Ended September 30, |                | Nine Months Ended September 30,
|                             | 2010                             | 2009           |                                 | 2010           | 2009
|                             | Number ofVessels                 | Utilization(1) | Number ofVessels                | Utilization(1) |      | Number ofVessels | Utilization(1) | Number ofVessels | Utilization(1)
|Saturation
Diving            | 8                                | 88%            | 8                               | 84%            |      | 8                | 64%            | 8                | 88%           
|Surface and
Mixed Gas Diving | 11                               | 75%            | 13                              | 63%            |      | 11               | 52%            | 13               | 65%           
|Construction
Barges          | 10                               | 46%            | 10                              | 54%            |      | 10               | 27%            | 10               | 45%           
|Total
Fleet                  | 29                               | 69%            | 31                              | 65%            |      | 29               | 47%            | 31               | 64%           

____________________

(1)

Effective vessel
utilization is calculated by dividing the total number of days the vessels
generated revenues by the total number of days the vessels were available for
operation in each period and does not reflect vessels in drydocking or taken out
of service for upgrades.



| |  | 
| |  | 
| |  | 
| |  | 



Results of
Operations

Operating
Results

|                    |                                |         |                          |   |                               |  |                          |          |      |       |              |   |         |  |   |         |  |   |           |  |      
|------------------- | ------------------------------ | ------- | ------------------------ | - | ----------------------------- |  | ------------------------ | -------- | ---- | ----- | ------------ | - | ------- |  | - | ------- |  | - | --------- |  | -----
|                    | Three Months EndedSeptember 30 |         | Increase/(Decrease)      |   | Nine Months EndedSeptember 30 |  | Increase/(Decrease)     
|                    | 2010                           |         | 2009                     |   | 2010 to 2009                  |  | 2010                     |          | 2009 |       | 2010 to 2009
|                    | (in
thousands, except %)       |         | (in
thousands, except %) |   | (in
thousands, except %)      |  | (in
thousands, except %)
|Revenues            | $                              | 193,793 |                          | $ | 214,597                       |  | $                        | (20,804) |      | (10%) |              | $ | 375,428 |  | $ | 681,966 |  | $ | (306,538) |  | (45%)
|Gross
profit (loss) |                                | 46,721  |                          |   | 70,131                        |  |                          | (23,410) |      | (33%) |              |   | 38,769  |  |   | 179,697 |  |   | (140,928) |  | (78%)
|                    |                                |         |                          |   |                               |  |                          |          |      |       |              |   |         |  |   |         |  |   |           |  |      
|Vessel
Utilization  |                                | 69%     |                          |   | 65%                           |  |                          | 4%       |      |      |              |   | 47%     |  |   | 64%     |  |   | (17%)     |  |     



| |  | 
| |  | 
| |  | 
| |  | 



Revenues for the three months ended September 30, 2010 decreased
from the same period ended September 30, 2009 by $20.8 million, or 10%.
 Revenues for the nine months ended September 30, 2010 decreased from the
same period ended September 30, 2009 by $306.5 million, or 45%.

Gross profit for the three months ended September 30, 2010
decreased from the same period ended September 30, 2009 by $23.4 million, or
33%. Gross profit for the nine months ended September 30, 2010 decreased from
the same period ended September 30, 2009 by $140.9 million, or 78%.

The decreases in revenues and gross profit were due to (i) the
fact that we had fewer large integrated construction projects with higher
profitability utilizing multiple vessels, as compared to a liquefied natural gas
project located offshore Boston and two significant pipelay projects in China
and Mexico which were ongoing during the first nine months of 2009, (ii)
decreased demand for hurricane related repair work and salvage activity and
(iii) significantly lower day rates.  During the nine month period ended
September 30, 2009, we experienced increased repair and salvage activity as a
result of hurricanes Gustav and Ike that passed through the Gulf of Mexico in
the third quarter of 2008.  Despite increased utilization for our
saturation diving vessels during the three months ended September 30, 2010, day
rates for these assets were significantly lower compared to the three months
ended September 30, 2009 due to market conditions.  In addition, one of our
dynamically positioned saturation diving vessels, which normally generates
significant revenues and profits, experienced unexpected mechanical down time,
which negatively impacted revenues and profits for the three months ended
September 30, 2010.  These decreases in revenues and gross profit were
partially offset by work relating to cleanup efforts for the oil spill as a
result of the Macondo well blowout.



16





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Goodwill
impairment

|                    |                                |         |                          |   |                               |  |                          |         |      |      |              |   |         |  |   |   |  |   |         |  |     
|------------------- | ------------------------------ | ------- | ------------------------ | - | ----------------------------- |  | ------------------------ | ------- | ---- | ---- | ------------ | - | ------- |  | - | - |  | - | ------- |  | ----
|                    | Three Months EndedSeptember 30 |         | Increase/(Decrease)      |   | Nine Months EndedSeptember 30 |  | Increase/(Decrease)     
|                    | 2010                           |         | 2009                     |   | 2010 to 2009                  |  | 2010                     |         | 2009 |      | 2010 to 2009
|                    | (in
thousands, except %)       |         | (in
thousands, except %) |   | (in
thousands, except %)      |  | (in
thousands, except %)
|Goodwill
impairment | $                              | 292,469 |                          | $ |                              |  | $                        | 292,469 |      | 100% |              | $ | 292,469 |  | $ |  |  | $ | 292,469 |  | 100%



| |  | 
| |  | 
| |  | 
| |  | 



During the third quarter
of 2010 we incurred $292.5 million of goodwill impairment charges following our
impairment test prompted by the significant decline in market capitalization,
adverse change in the business climate and significant declines in operating
results.  There were no comparable impairment charges during the same
period of 2009.



Fixed assets impairment



|                        |                                |        |                          |   |                               |  |                          |        |      |      |              |   |        |  |   |   |  |   |        |  |     
|----------------------- | ------------------------------ | ------ | ------------------------ | - | ----------------------------- |  | ------------------------ | ------ | ---- | ---- | ------------ | - | ------ |  | - | - |  | - | ------ |  | ----
|                        | Three Months EndedSeptember 30 |        | Increase/(Decrease)      |   | Nine Months EndedSeptember 30 |  | Increase/(Decrease)     
|                        | 2010                           |        | 2009                     |   | 2010 to 2009                  |  | 2010                     |        | 2009 |      | 2010 to 2009
|                        | (in
thousands, except %)       |        | (in
thousands, except %) |   | (in
thousands, except %)      |  | (in
thousands, except %)
|Fixed
assets impairment | $                              | 23,151 |                          | $ |                              |  | $                        | 23,151 |      | 100% |              | $ | 23,151 |  | $ |  |  | $ | 23,151 |  | 100%



| |  | 
| |  | 
| |  | 
| |  | 



During the third quarter
of 2010 we incurred $23.2 million of impairment charges related to certain fixed
assets, consisting of four idle construction barges for which the outlook for
their future utilization is uncertain.  There were no comparable impairment
charges during the same period of 2009.



Selling and
administrative expenses

|                                                                |                                |        |                          |   |                               |  |                          |         |      |       |              |   |        |  |   |        |  |   |         |  |      
|--------------------------------------------------------------- | ------------------------------ | ------ | ------------------------ | - | ----------------------------- |  | ------------------------ | ------- | ---- | ----- | ------------ | - | ------ |  | - | ------ |  | - | ------- |  | -----
|                                                                | Three Months EndedSeptember 30 |        | Increase/(Decrease)      |   | Nine Months EndedSeptember 30 |  | Increase/(Decrease)     
|                                                                | 2010                           |        | 2009                     |   | 2010 to 2009                  |  | 2010                     |         | 2009 |       | 2010 to 2009
|                                                                | (in
thousands, except %)       |        | (in
thousands, except %) |   | (in
thousands, except %)      |  | (in
thousands, except %)
|Selling
and administrative expenses                             | $                              | 15,121 |                          | $ | 17,629                        |  | $                        | (2,508) |      | (14%) |              | $ | 45,260 |  | $ | 53,724 |  | $ | (8,464) |  | (16%)
|Selling
and administrative expenses
as a percentage of revenues |                                | 8%     |                          |   | 8%                            |  |                          |        |      |      |              |   | 12%    |  |   | 8%     |  |   | 4%      |  |     



| |  | 
| |  | 
| |  | 
| |  | 



Selling and administrative expenses for the three months ended
September 30, 2010 decreased from the same periods ended September 30, 2009 by
$2.5 million, or 14%.  Selling and administrative expenses for the nine
months ended September 30, 2010 decreased from the same periods ended September
30, 2009 by $8.5 million, or 16%.

The decreases were primarily due to lower incentive cash
compensation at September 30, 2010.  Additionally, there were cost control
measures initiated by management in the fourth quarter of 2009 in response to
the downturn in business activity and lower amortization expense for certain
intangible assets recognized as part of the Horizon acquisition, which became
fully amortized in the second quarter of 2009.  Selling and administrative
expenses as a percentage of revenue for the three months ended September 30,
2010 as compared to the same period in 2009 did not change primarily because
revenues generated during the third quarter of 2010 were not significantly lower
from revenues generated during the same period in 2009.  Selling and
administrative expenses as a percentage of revenue for the nine months ended
September 30, 2010 increased significantly from the same period ended September
30, 2009 due to the significant decrease in revenues as described above.



17





---





Provision
for doubtful accounts

|                                |                                |   |                          |   |                               |  |                          |       |      |        |              |   |       |  |   |       |  |   |         |  |       
|------------------------------- | ------------------------------ | - | ------------------------ | - | ----------------------------- |  | ------------------------ | ----- | ---- | ------ | ------------ | - | ----- |  | - | ----- |  | - | ------- |  | ------
|                                | Three Months EndedSeptember 30 |   | Increase/(Decrease)      |   | Nine Months EndedSeptember 30 |  | Increase/(Decrease)     
|                                | 2010                           |   | 2009                     |   | 2010 to 2009                  |  | 2010                     |       | 2009 |        | 2010 to 2009
|                                | (in
thousands)                 |   | (in
thousands, except %) |   | (in
thousands)                |  | (in
thousands, except %)
|Provision
for doubtful accounts | $                              |  |                          | $ | 202                           |  | $                        | (202) |      | (100%) |              | $ | (167) |  | $ | 6,477 |  | $ | (6,644) |  | (103%)



| |  | 
| |  | 
| |  | 
| |  | 



No provision for doubtful accounts was recorded during the three
and nine months ended September 30, 2010.  The reversal of provision for
doubtful accounts recorded during the first quarter of 2010 resulted from the
collection of trade receivables from the court administering the bankruptcy of a
previous customer.  The provision for doubtful accounts recorded for the
nine months ended September 30, 2009 was comprised of $6.5 million reserved for
customer disputes, of which $3.4 million is from accounts receivable acquired in
connection with the Horizon acquisition.  We intend to pursue all
commercial and legal avenues for collection of the receivables currently
reserved for in our allowance for doubtful accounts.

Gain on
sales of assets and other income (expense), net

|                              |                                |       |                          |   |                               |  |                          |       |      |        |              |   |       |  |   |       |  |   |     |  |     
|----------------------------- | ------------------------------ | ----- | ------------------------ | - | ----------------------------- |  | ------------------------ | ----- | ---- | ------ | ------------ | - | ----- |  | - | ----- |  | - | --- |  | ----
|                              | Three Months EndedSeptember 30 |       | Increase/(Decrease)      |   | Nine Months EndedSeptember 30 |  | Increase/(Decrease)     
|                              | 2010                           |       | 2009                     |   | 2010 to 2009                  |  | 2010                     |       | 2009 |        | 2010 to 2009
|                              | (in
thousands)                 |       | (in
thousands, except %) |   | (in
thousands)                |  | (in
thousands, except %)
|Gain
(loss) on sale of assets | $                              | 6     |                          | $ |                              |  | $                        | 6     |      | 100%   |              | $ | 1,313 |  | $ | 400   |  | $ | 913 |  | 228%
|Other
income (expense), net   |                                | (192) |                          |   | 191                           |  |                          | (383) |      | (201%) |              |   | (124) |  |   | (794) |  |   | 670 |  | 84% 



| |  | 
| |  | 
| |  | 
| |  | 



We did not sell any significant assets during the three month
periods ended September 30, 2010 and 2009.   During the first quarter
of 2010, we sold a portable saturation system to a third party for cash proceeds
totaling $3.7 million and recognized a gain on the sale of $1.1 million.
 During the second quarter of 2010 we sold two utility vessels to different
third parties for $0.6 million and recognized a gain on the sale of $0.1
million.  During the first quarter of 2009, we sold our equity interest in
Offshore Technology Solutions Limited, an investment that had previously been
fully impaired, to a third party for $0.4 million.

Other income (expense) is primarily from foreign currency gains
and losses on transactions conducted in currencies other than the U.S. dollar.

Interest
expense, net

|                      |                                |       |                          |   |                               |  |                          |       |      |       |              |   |       |  |   |        |  |   |         |  |      
|--------------------- | ------------------------------ | ----- | ------------------------ | - | ----------------------------- |  | ------------------------ | ----- | ---- | ----- | ------------ | - | ----- |  | - | ------ |  | - | ------- |  | -----
|                      | Three Months EndedSeptember 30 |       | Increase/(Decrease)      |   | Nine Months EndedSeptember 30 |  | Increase/(Decrease)     
|                      | 2010                           |       | 2009                     |   | 2010 to 2009                  |  | 2010                     |       | 2009 |       | 2010 to 2009
|                      | (in
thousands)                 |       | (in
thousands, except %) |   | (in
thousands)                |  | (in
thousands, except %)
|Interest
expense, net | $                              | 2,544 |                          | $ | 3,234                         |  | $                        | (690) |      | (21%) |              | $ | 6,835 |  | $ | 10,598 |  | $ | (3,763) |  | (36%)



| |  | 
| |  | 
| |  | 
| |  | 



The decrease in interest expense, net from the three and nine
months ended September 30, 2009 to the same periods in 2010 is primarily due to
repayments on our term loan and revolving credit facility.  Our debt level
under our credit facility has been reduced from $355.0 million as of September
30, 2009 to $185.2 million as of September 30, 2010.



18





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Income tax
expense (benefit)

|                                                                                    |                                |         |                        |   |                               |  |                        |          |      |  |              |   |          |  |   |        |  |   |          |  | 
|----------------------------------------------------------------------------------- | ------------------------------ | ------- | ---------------------- | - | ----------------------------- |  | ---------------------- | -------- | ---- |  | ------------ | - | -------- |  | - | ------ |  | - | -------- |  | 
|                                                                                    | Three Months EndedSeptember 30 |         | Increase/(Decrease)(1) |   | Nine Months EndedSeptember 30 |  | Increase/(Decrease)(1)
|                                                                                    | 2010                           |         | 2009                   |   | 2010 to 2009                  |  | 2010                   |          | 2009 |  | 2010 to 2009
|Income
tax expense (benefit)  including goodwill and fixed asset impairment
charges | $                              | (3,378) |                        | $ | 16,349                        |  | $                      | (19,727) |      |  |              | $ | (14,123) |  | $ | 34,717 |  | $ | (48,840) |  | 
|Effect
of the goodwill and fixed asset impairment charges                           |                                | 13,090  |                        |   |                              |  |                        | 13,090   |      |  |              |   | 13,090   |  |   |       |  |   | 13,090   |  | 
|Income
tax expense (benefit) excluding goodwill and fixed asset impairment
charges  |                                | 9,712   |                        |   | 16,349                        |  |                        | (6,637)  |      |  |              |   | (1,033)  |  |   | 34,717 |  |   | (35,750) |  | 
|_____________________________                                                       |                                |         |                        |   |                               |  |                        |          |      |  |              |   |          |  |   |       
|(1)
Percentage
comparison is not meaningful.                                        |                                |         |                        |   |                               |  |                        |          |      |  |              |   |          |  |   |       



| |  | 
| |  | 
| |  | 
| |  | 



Our effective tax rate was33.2% and 32.0%for the
three and nine months ended September 30, 2009, respectively, and 1.2% and 4.3%
for the three and nine months ended September 30, 2010, respectively.
 Since we generated a pre-tax loss for the nine months ended September 30,
2010, the lower effective tax rate results in a lower tax benefit realized.
 The change in our effective tax rate during the nine months ended
September 30, 2010 compared to the prior year nine month period was primarily
due to the impairment charges related to non-deductible goodwill, which
decreased our year to date effective tax rate by 29.7%.

At December 31, 2009, we had $2.7 million recorded as a long-term
liability for uncertain tax benefits, interest and penalty. Following a final
settlement of uncertain tax positions with the relevant tax authority in the
first quarter of 2010, we reduced the long-term liability for uncertain tax
benefits, interest and penalties by $1.7 million to $1.0 million at September
30, 2010.

Our income tax expense for the three and nine month periods ended
September 30, 2009 was computed by applying estimated annual effective tax rates
to income before income taxes for the interim period.  At June 30, 2010,
the Company determined a reliable estimate of its annual effective tax rate
could not be determined for the year ending December 31, 2010 based on the
current volatility in pretax income or loss and its impact on estimating our
annual effective tax rate for the year.  Therefore, the interim effective
tax rate at September 30, 2010 was based on the actual year-to-date results.
 In addition, non-recurring or discrete items were recorded during the
period in which they occurred under both methods of calculating income tax
expense (benefit).

Net
Income

|                                                  |                                       |           |                          |   |                                       |  |                          |           |      |        |              |   |           |  |   |        |  |   |           |  |       
|------------------------------------------------- | ------------------------------------- | --------- | ------------------------ | - | ------------------------------------- |  | ------------------------ | --------- | ---- | ------ | ------------ | - | --------- |  | - | ------ |  | - | --------- |  | ------
|                                                  | Three Months EndedSeptember 30        |           | Increase/(Decrease)      |   | Nine Months EndedSeptember 30         |  | Increase/(Decrease)     
|                                                  | 2010                                  |           | 2009                     |   | 2010 to 2009                          |  | 2010                     |           | 2009 |        | 2010 to 2009
|                                                  | (in
thousands, except per share data) |           | (in
thousands, except %) |   | (in
thousands, except per share data) |  | (in
thousands, except %)
|Net
income (loss)                                 | $                                     | (283,372) |                          | $ | 32,908                                |  | $                        | (316,280) |      | (961%) |              | $ | (313,467) |  | $ | 73,787 |  | $ | (387,254) |  | (525%)
|Weighted
average fully-diluted shares outstanding |                                       | 91,065    |                          |   | 90,913                                |  |                          | 152       |      | 0%     |              |   | 91,042    |  |   | 92,707 |  |   | (1,665)   |  | (2%)  
|Fully-diluted
earnings per share                  | $                                     | (3.11)    |                          | $ | 0.35                                  |  | $                        | (3.46)    |      | (989%) |              | $ | (3.44)    |  | $ | 0.77   |  | $ | (4.21)    |  | (547%)
|                                                  |                                       |           |                          |   |                                       |  |                          |           |      |        |              |   |           |  |   |        |  |   |           |  |       



| |  | 
| |  | 
| |  | 



19





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Net income for the three months ended September 30, 2010 decreased
from the same period ended September 30, 2009 by $316.3 million, or 961%,
including the impairment charges.  Net income for the nine months ended
September 30, 2010 decreased from the same period ended September 30, 2009 by
$387.3 million, or 525%, including the impairment charges.

Fully-diluted earnings per share decreased for the three months
ended September 30, 2010 by $3.46 per share, or 989% from the same period ended
September 30, 2009, including the impairment charges.  Fully-diluted
earnings per share decreased for the nine months ended September 30, 2010 by
$4.21 per share, or 547% from the same period ended September 30, 2009,
including the impairment charges.

Partially offsetting the decrease in fully-diluted earnings per
share was a 2% reduction in weighted average shares outstanding from the nine
months of 2009 to the nine months of 2010, primarily as a result of the
repurchase from Helix and retirement of 15.2 million shares of our common stock
during 2009.

Liquidity and
Capital Resources

We require capital to fund ongoing operations, organic growth
initiatives and acquisitions. Our primary sources of liquidity are cash flows
generated from our operations, available cash and cash equivalents and
availability under our revolving credit facility.  We use, and intend to
continue using, these sources of liquidity to fund our working capital
requirements, maintenance capital expenditures, strategic investments and
acquisitions.  For 2010, we anticipate capital expenditures, excluding
acquisitions, for replacements and vessel improvements and regulatory drydock
costs of approximately$68.0million.  In connection with our
business strategy, we regularly evaluate acquisition opportunities, including
vessels and marine contracting businesses. We believe that our liquidity will
provide the necessary capital to fund our business activities and achieve our
near-term and long-term growth objectives. We expect to be able to fund our
activities for the next twelve months with cash flows generated from our
operations and available borrowings under our revolving credit facility.

We have a credit facility, which consists of a variable-interest
term loan and a variable-interest $300 million revolving credit facility, with
certain financial institutions.  At September 30, 2010, we had outstanding
debt of $180.2 million under the term loan, including current maturities, and
$5.0 million outstanding under the revolving credit facility.  The
revolving credit facility and the term loan mature on December 11, 2012, with
quarterly principal payments of $14.8 million payable on the term loan and a
final payment of $61.5 million due on maturity.  We may prepay all or any
portion of the outstanding balance of the term loan without prepayment penalty.
 We may borrow from or repay the revolving credit facility as business
needs merit.  At September 30, 2010, we were in compliance with all debt
covenants under our credit facility.

As of September 30, 2010, we had $13.0 million of cash on hand,
issued and outstanding letters of credit of $0.1 million under our revolving
credit facility and $6.1 million of outstanding warranty and bid bonds.

Effective July 19, 2010, we amended the credit facility to, among
other things, (i) increase our permitted consolidated leverage ratio covenant,
(ii) amend the amortization of a portion of our term loan, and (iii) permit us
to transfer in the future two of our saturation diving vessels operating
internationally (the Eclipse and the Texas) to one of our
international subsidiaries and to release such vessels as collateral upon any
such future transfer.  Under the amendment, the permitted debt to EBITDA
leverage ratio was increased from 3.75x to 4.75x for the period through June 30,
2011, decreasing to 4.25x through September 30, 2011, and thereafter returning
to 3.75x.  Also, as a result of the amendment, the amortization of a
portion of the debt outstanding under the term loan was deferred until the
maturity date, reducing our quarterly principal payments on the term loan from
$20.0 million to $14.8 million, with a final payment of $61.5 million due on
December 11, 2012.  As a result of the amendment, our current blended total
interest rate is approximately 3.3% for the term loan and 1.8% for the revolving
loan.

Although we were not in breach of the leverage ratio covenant, nor
did we anticipate breach of such covenant in the future, we took the proactive
measure to secure the amendment to enhance our access to cash and liquidity in
the future.  The impairment charges related to goodwill and the four idle
construction barges have no effect on our debt covenants under our credit
facility.  The amended consolidated leverage ratio increased our access
under the $300 million revolving credit facility as of September 30, 2010.
 Based on our consolidated leverage ratio and outstanding borrowings
and letters of credit as of September 30, 2010, we have $229.2 million available
for borrowing under the revolving credit facility.



20





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Cash
Flows

Our cash flows depend on the level of spending by oil and natural
gas companies for marine contracting services. Certain sources and uses of cash,
such as the level of discretionary capital expenditures, issuance and
repurchases of debt and of our common stock, are within our control and are
adjusted as necessary based on market conditions.  The following is a
discussion of our cash flows for the nine months ended September 30, 2010 and
2009 (in thousands):

|                                                             |                                |          |      |   |         
|------------------------------------------------------------ | ------------------------------ | -------- | ---- | - | --------
|                                                             | Nine Months EndedSeptember 30,
|                                                             | 2010                           |          | 2009
|Net cash provided by (used
in):                              |                                |          |      |   |         
|Operating
activities                                         | $                              | 41,827   |      | $ | 172,557 
|Investing
activities                                         |                                | (31,599) |      |   | (48,731)
|Financing
activities                                         |                                | (49,832) |      |   | (60,000)
|Effect of exchange rate changes on
cash and cash equivalents |                                | 178      |      |   | 204     
|Net increase (decrease) in cash and
cash equivalents         | $                              | (39,426) |      | $ | 64,030  
|                                                             |                                |          |      |   |         

Operating Activities.  Net cash provided by operating
activities totaled $41.8 million for the nine months ended September 30, 2010
compared to $172.6 million for the nine months ended September 30, 2009.
 The primary reason for the decrease in cash flows from operating
activities is the net loss of $313.5 million generated during the nine month
period ended September 30, 2010 compared to net income of $73.8 million
generated during the same period in 2009.  Net income (loss) adjusted for
non-cash items, such as depreciation and amortization, stock-based compensation,
goodwill and fixed assets impairment charges and deferred income tax expense,
provided $362.2 million and $75.3 million of cash, respectively, and net changes
in our working capital and other balance sheet accounts used $6.9 million and
provided $23.5 million of cash, respectively, for the nine months ended
September 30, 2010 and 2009.

Investing Activities.  Net cash used for investing
activities was $31.6 million for the nine months ended September 30, 2010
compared to $48.7 million for the nine months ended September 30, 2009.
 During the nine month period ended September 30, 2010 and 2009, cash used
for capital expenditures was $36.1 million and $49.1 million, respectively, and
cash provided by sales of assets was $4.5 million and $0.4 million,
respectively.

Financing Activities.  Net cash used for financing
activities was $49.8 million for the nine months ended September 30, 2010
compared to $60.0 million for the nine months ended September 30, 2009.
 During the nine month period ended September 30, 2010, we made scheduled
payments of $74.8 million under our term loan and borrowed $25.0 million under
our revolving credit facility.  During the nine month period ended
September 30, 2009, we borrowed $100 million under our revolving credit
facility, primarily to fund the $86 million repurchase of our common stock from
Helix, and we made scheduled payments of $60 million under our term loan.

Off-Balance
Sheet Arrangements

As of September 30, 2010, we have no off-balance sheet
arrangements. For information regarding our principles of consolidation, see
Note 2 to our consolidated financial statements contained in our 2009
Annual Report on Form 10-K.

Critical
Accounting Estimates and Policies

Our accounting policies are described in the notes to our audited
consolidated financial statements included in our 2009 Annual Report on Form
10-K. We prepare our financial statements in conformity with GAAP. Our results
of operations and financial condition, as reflected in our financial statements
and related notes, are subject to managements evaluation and interpretation of
business conditions, changing capital market conditions and other factors that
could affect the ongoing viability of our business and our customers.  We
believe the most critical accounting policies in this regard are those described
in our 2009 Annual Report on Form 10-K. While these issues require us to make
judgments that are somewhat subjective, they are generally based on a
significant amount of historical data and current market data.  There have
been no material changes or developments in authoritative accounting
pronouncements or in our evaluation of the accounting estimates and the
underlying assumptions or methodologies that we believe to be critical
accounting policies and estimates as disclosed in our 2009 Annual Report on Form
10-K, other than performance of our annual goodwill impairment test at an
earlier date, and related impairment charges, hedge accounting for interest rate
swap, and the change in service life of drydock and recertification costs as
more fully described in Note 1 to our consolidated financial statements included
in this quarterly report on Form 10-Q.



21





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Item
3.

Quantitative and Qualitative Disclosures About Market
Risk.

Market Risk
Management

We are exposed to market risks in our normal business activities.
 Market risk is the potential loss that may result from market changes
associated with existing or forecasted financial transactions.  The types
of market risks to which we are exposed are credit risk, interest rate risk and
foreign currency exchange rate risk.  There have been no material changes
in our market risk during the nine months ended September 30, 2010 from those
reported under Part II, Item 7A of our 2009 Annual Report on Form 10-K.

In August 2010, we
entered into a twelve-month interest rate swap with a notional amount of $100
million to convert a portion of our anticipated variable-rate interest payments
under our term loan to fixed-rate interest payments. We expect this interest
rate swap to effectively fix our variable interest payments made on $100 million
of our term loan, or approximately 56% as of September 30, 2010, at 0.645% plus
the current average applicable loan margin of approximately 2.5% for a total
interest rate of 3.3%.  This derivative is accounted for as a cash flow
hedge.



Item
4.

Controls and Procedures.

Disclosure
Controls and Procedures

Our CEO and CFO, with the participation of management, have
evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934) as of the end of the period covered by this quarterly report on Form 10-Q.
 Based on their evaluation, they have concluded that our disclosure
controls and procedures are effective as of the end of the period covered by
this report.

Changes in
Internal Control over Financial Reporting

There has been no change in our internal control over financial
reporting that occurred during the quarter ended September 30, 2010 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

PART II - OTHER
INFORMATION

Cautionary
Statement for Purposes of the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995

This quarterly report contains or incorporates by reference
statements that constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995.  These
forward-looking statements may involve risk and uncertainties.  Our
forward-looking statements express our current expectations or forecasts of
possible future results or events, including projections of future performance,
statements regarding our future financial position, business strategy, budgets,
projected costs and savings, forecasts of trends, and statements of managements
plans and objectives and other matters.  These forward-looking statements
do not relate strictly to historic or current facts and often use words such as
may, will, expect, intend, estimate, anticipate, believe or
continue and other words and expressions of similar meaning. Although we
believe that the expectations reflected in such forward-looking statements are
reasonable, we give no assurance that such expectations will be realized or
achieved in the future. Important factors that could cause actual results to
differ materially from our expectations include: current economic and financial
market conditions, changes in commodity prices for natural gas and oil and in
the level of offshore exploration, development and production activity in the
oil and natural gas industry, the impact on the market and regulatory
environment in the U.S. Gulf of Mexico resulting from the Macondo well blowout,
our inability to obtain contracts with favorable pricing terms if there is a
downturn in our business cycle, intense competition in our industry, the
operational risks inherent in our business, and other risks detailed in Part I
Item 1A, of our 2009 Annual Report on Form 10-K and in Item 1A Risk Factors of
this quarterly report on Form 10-Q.  Forward-looking statements speak only
as of the date of this quarterly report and we undertake no obligation to update
or revise such forward-looking statements to reflect new circumstances or
unanticipated events as they occur.

Item
1A.

**Risk Factors.**

There have been no material changes during the three months ended
September 30, 2010 to the risk factors previously disclosed in our 2009 Annual
Report on Form 10-K, except as set forth below.

22





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Risks Relating
to our Business

The recent
Macondo well blowout in the Gulf of Mexico could have a significant impact on
exploration and production activities in United States coastal waters that could
adversely affect demand for our services.

As has been widely publicized, in April 2010, the Deepwater
Horizon rig, engaged in deepwater drilling operations at the Macondo well in
the Gulf of Mexico off the coast of Louisiana, sank after an explosion and fire
resulting in the death of 11 workers. Following the explosion, the Macondo well
immediately began to discharge hydrocarbons into the Gulf of Mexico until July
15, 2010, when a temporary cap stopped the oil flow.  Efforts to
permanently seal the well were completed on September 17, 2010.

The catastrophic explosion and the related oil spill in the U.S.
Gulf of Mexico has significantly and adversely disrupted oil and gas exploration
activities in the Gulf of Mexico, and the duration that this disruption will
continue is currently unknown. The President has appointed a commission that is
studying the causes of the catastrophe for the purpose of recommending to the
President what legislative or regulatory measures should be taken in order to
minimize the possibility of a reoccurrence of a disastrous oil spill.  On
October 12, 2010, the United States Government lifted the moratorium on deep
water permitting and drilling.  However, with the enhanced safety
regulations and inspection requirements of the BOEMRE, there continues to be
uncertainty surrounding the requirements for and pace of issuance of permits on
the OCS.  Although exploration activity in the shallow waters of the Gulf
of Mexico has been allowed to re-commence, a de facto moratorium has existed in
that market as well, as new safety and permitting requirements have been imposed
on shallow water operators, and only a limited number of new drilling permits
have been issued to shallow water operators since the spill. At the same time,
various bills are being considered by Congress which, if enacted, could either
significantly increase the costs of conducting drilling and exploration
activities in the Gulf of Mexico, particularly in deep waters, or worst case,
could drive a substantial portion of drilling and operation activity out of the
Gulf of Mexico.

Among the uncertainties that confront the industry is whether
Congress will repeal the $75 million cap on non-reclamation liabilities under
the Oil Pollution Act of 1990, whether insurance will continue to be available
at a reasonable cost and with reasonable policy limits to support drilling and
exploration activity in the Gulf of Mexico, and whether the overall legislative
and regulatory response to the disaster will discourage investment in oil and
gas exploration in the Gulf of Mexico.

Any one or more of these developments could reduce demand for our
services and adversely affect our operations in the Gulf of Mexico. However,
until the ultimate regulatory response to this disaster becomes more certain, we
cannot accurately predict the effect of this event on our customers and
similarly, the longer term impact on our core business.  Any regulatory
response that has the effect of materially curtailing drilling and exploration
activity in the Gulf of Mexico will ultimately adversely affect our domestic
operations in this region.



















Item
2.

Unregistered Sales of Equity Securities and Use of
Proceeds.

The table below summarizes the repurchases of our common stock in
the third quarter of 2010:

|                                  |                                  |                              |                                                                          |                                                                                                           
|--------------------------------- | -------------------------------- | ---------------------------- | ------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------
|Period                            | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of a Publicly
Announced Program | Maximum Number or Approximate Dollar Value of Shares that
May Yet Be Purchased Under the Plans or Programs
|                                  |                                  |                              |                                                                          | (in thousands)                                                                                            
|July 1 to July 31,
2010(1)        | 668                              | $5.72                        |                                                                         | N/A                                                                                                       
|August 1 to August 31,
2010(1)    | 4,374                            | $4.76                        |                                                                         | N/A                                                                                                       
|September 1 to September 30,
2010 |                                 |                             |                                                                         | N/A                                                                                                       
|                                  | 5,042                            | $4.89                        |                                                                         | N/A                                                                                                       

_______________________

(1)

Represents shares
surrendered to us by employees in order to satisfy tax withholding obligations
upon vesting of restricted shares.



| |  | 
| |  | 
| |  | 
| |  | 



Item
6.

Exhibits.

Exhibits filed as part
of this quarterly report are listed in the Exhibit Index appearing on page
24.



Items 1, 3, 4, and 5 are not applicable and have been
omitted.





23





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SIGNATURES

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.

|                        |                              |                                                                             
|----------------------- | ---------------------------- | ----------------------------------------------------------------------------
|                        | CAL DIVE INTERNATIONAL, INC.
|                        |                              |                                                                             
|                        |                              |                                                                             
|                        |                              |                                                                             
|Date:  October 29, 2010 | By:                          | /s/ Quinn J. Hébert                                                         
|                        |                              | Quinn J. HébertChairman,
President
and Chief Executive Officer              
|                        |                              |                                                                             
|                        |                              |                                                                             
|                        |                              |                                                                             
|Date:  October 29, 2010 | By:                          | /s/ Brent D. Smith                                                          
|                        |                              | Brent D. SmithExecutive Vice
President,Chief Financial Officer and
Treasurer





24





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EXHIBIT
INDEX

|                                                                     |  |                                                                                                                                                                                                                                                                  |   |                         |            |                           |  |           |  |  |            |  | 
|-------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------------------- | ---------- | ------------------------- |  | --------- |  |  | ---------- |  | 
|                                                                     |  |                                                                                                                                                                                                                                                                  |   |                         |            |                           |  |           |  |  |            | 
|                                                                     |  |                                                                                                                                                                                                                                                                  |   |                         |            | Incorporated by Reference
|Exhibit
Number                                                       |  | Exhibit
Title                                                                                                                                                                                                                                                    |   | File with thisForm 10-Q |            | Form                      |  | File No.  |  |  | Date
Filed
|3.1                                                                  |  | Amended and
Restated Certificate of Incorporation of Cal Dive
International,
Inc.                                                                                                                                                                                |   |                         |            | 10-K                      |  | 001-33206 |  |  | 3/1/07     | 
|3.2                                                                  |  | Amended and
Restated Bylaws of Cal Dive International, Inc.                                                                                                                                                                                                      |   | 8-K                     | 001-33206  | 8/31/10                  
|4.1                                                                  |  | Specimen Common
Stock certificate of Cal Dive International, Inc.                                                                                                                                                                                                |   | S-1                     | 333-134609 | 5/31/06                  
|10.1                                                                 |  | Amendment No. 3
to Credit Agreement, dated as of July 19, 2010, among Cal Dive
International, Inc., CDI Vessel Holdings LLC and Bank of America, N.A., as
Administrative Agent, Swing Line Lender and L/C Issuer, together with the
other lenders parties hereto |   | 8-K                     | 001-33206  | 7/23/10                  
|10.2*                                                                |  | Severance and
Change of Control Agreement, dated as of August 25, 2010, by and between
Cal Dive International, Inc. and Brent D. Smith                                                                                                                           |   | 8-K                     | 001-33206  | 8/31/10                  
|10.3*                                                                |  | Form of
Amendment No. 2 to Severance and Change of Control Agreement, dated as of
September 10, 2010, by and between Cal Dive International, Inc. and each
of Quinn J. Hébert, Scott T. Naughton and Lisa M. Buchanan                                            |   | 8-K                     | 001-33206  | 9/16/10                  
|31.1                                                                 |  | Certification
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 by
Quinn J. Hébert, Chief Executive Officer                                                                                                                                   | X |                         |            |                          
|31.2                                                                 |  | Certification
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 by
Brent D. Smith, Chief Financial Officer                                                                                                                                    | X |                         |            |                          
|32.1                                                                 |  | Section 1350
Certification by Chief Executive Officer and Chief Financial
Officer                                                                                                                                                                                | X |                         |            |                          
|_______________________                                              |  |                                                                                                                                                                                                                                                                  |   |                        
|*
Indicates management contract or
compensatory plan or arrangement.





25