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, 2008

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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[form10q093008001.jpg]

CAL DIVE INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)



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|Delaware                                                                                   |  | 61-1500501                          
|(State or other jurisdiction of
incorporation or organization)                             |  | (I.R.S. Employer
Identification No.)
|                                                                                           |  |                                     
|2500 CityWest Boulevard, Suite 2200
Houston, 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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.Seethe definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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|Large accelerated filer o                                             | Accelerated filer þ        
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|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 30, 2008, the Registrant had 105,920,762 shares of Common Stock, $.01 par value per share, outstanding.









CAL DIVE INTERNATIONAL, INC.



TABLE OF CONTENTS







|                               |                                                                                                                             |   
|------------------------------ | --------------------------------------------------------------------------------------------------------------------------- | --
|                               | Page                                                                                                                       
|PART I - FINANCIAL INFORMATION | 1                                                                                                                          
|                               | Item 1.
Financial Statements                                                                                                | 1 
|                               | Condensed Consolidated Balance Sheets as of September 30, 2008 (unaudited) and December 31, 2007 (audited)                  | 1 
|                               | Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2008 and 2007 | 2 
|                               | Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2008 and 2007           | 3 
|                               | Notes to Condensed Consolidated Financial Statements (unaudited)                                                            | 4 
|                               | Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations                               | 11
|                               | Item 3.
Quantitative and Qualitative Disclosures About Market Risk                                                          | 17
|                               | Item 4.
Controls and Procedures                                                                                             | 18
|PART II - OTHER INFORMATION    | 18                                                                                                                         
|                               | Item 1A.
Risk Factors                                                                                                       | 18
|                               | Item 6.
Exhibits                                                                                                            | 19
|SIGNATURES                     | 20                                                                                                                         
|EXHIBIT INDEX                  | 21                                                                                                                         







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







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PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

Cal Dive International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except per share par value)



|                                                                                                                           |                    |           |                   |   |          
|-------------------------------------------------------------------------------------------------------------------------- | ------------------ | --------- | ----------------- | - | ---------
|                                                                                                                           | September 30,
2008 |           | December 31,
2007
|ASSETS                                                                                                                     | (unaudited)        |           |                   |  
|Current assets:                                                                                                            |                    |           |                   |   |          
|Cash and cash equivalents                                                                                                  | $                  | 22,921    |                   | $ | 61,287   
|Accounts receivable -                                                                                                      |                    |           |                   |   |          
|Trade, net of allowance for doubtful accounts of $4,006 and $1,400, respectively                                           |                    | 199,913   |                   |   | 210,813  
|Unbilled revenue                                                                                                           |                    | 23,187    |                   |   | 8,775    
|Costs in excess of billings                                                                                                |                    | 38,815    |                   |   | 39,683   
|Helix, net                                                                                                                 |                    | 21,040    |                   |   |         
|Income tax receivable                                                                                                      |                    |          |                   |   | 11,142   
|Deferred income taxes                                                                                                      |                    | 7,441     |                   |   | 8,246    
|Other current assets                                                                                                       |                    | 22,381    |                   |   | 19,744   
|Total current assets                                                                                                       |                    | 335,698   |                   |   | 359,690  
|Property and equipment                                                                                                     |                    | 717,375   |                   |   | 654,281  
|Less - Accumulated depreciation                                                                                            |                    | (122,945) |                   |   | (91,963) 
|                                                                                                                           |                    | 594,430   |                   |   | 562,318  
|Other assets:                                                                                                              |                    |           |                   |   |          
|Goodwill                                                                                                                   |                    | 284,144   |                   |   | 284,141  
|Deferred drydock costs                                                                                                     |                    | 28,682    |                   |   | 27,075   
|Other assets, net                                                                                                          |                    | 15,420    |                   |   | 40,826   
|Total assets                                                                                                               | $                  | 1,258,374 |                   | $ | 1,274,050
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                       |                    |           |                   |   |          
|Current liabilities:                                                                                                       |                    |           |                   |   |          
|Accounts payable -                                                                                                         |                    |           |                   |   |          
|Trade                                                                                                                      | $                  | 84,413    |                   | $ | 107,117  
|Billings in excess of costs                                                                                                |                    | 2,009     |                   |   | 15,121   
|Net payable to Helix                                                                                                       |                    |          |                   |   | 8,403    
|Accrued liabilities                                                                                                        |                    | 54,545    |                   |   | 63,687   
|Income tax payable                                                                                                         |                    | 9,274     |                   |   |         
|Current maturities of long-term debt                                                                                       |                    | 80,000    |                   |   | 60,000   
|Total current liabilities                                                                                                  |                    | 230,241   |                   |   | 254,328  
|Long-term debt                                                                                                             |                    | 255,000   |                   |   | 315,000  
|Long-term payable to Helix                                                                                                 |                    | 3,102     |                   |   | 5,756    
|Deferred income taxes                                                                                                      |                    | 108,481   |                   |   | 109,028  
|Other long term liabilities                                                                                                |                    | 1,343     |                   |   | 2,031    
|Total liabilities                                                                                                          |                    | 598,167   |                   |   | 686,143  
|Commitments and contingencies                                                                                              |                    |           |                   |   |         
|Stockholders equity:                                                                                                      |                    |           |                   |   |          
|Common stock, 240,000 shares authorized, $0.01 par value, issued and outstanding: 105,916 and 105,159 shares, respectively |                    | 1,059     |                   |   | 1,051    
|Capital in excess of par value of common stock                                                                             |                    | 487,603   |                   |   | 479,236  
|Accumulated other comprehensive income                                                                                     |                    | 522       |                   |   |         
|Retained earnings                                                                                                          |                    | 171,023   |                   |   | 107,620  
|Total stockholders equity                                                                                                 |                    | 660,207   |                   |   | 587,907  
|Total liabilities and stockholders equity                                                                                 | $                  | 1,258,374 |                   | $ | 1,274,050



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



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Cal Dive International, Inc. and Subsidiaries



Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except per share amounts)



|                                     |                                  |         |                                 |   |         |  |      |          |  |   |         
|------------------------------------ | -------------------------------- | ------- | ------------------------------- | - | ------- |  | ---- | -------- |  | - | --------
|                                     | Three Months Ended
September 30, |         | Nine Months Ended
September 30,
|                                     | 2008                             |         | 2007                            |   | 2008    |  | 2007
|Net revenues                         | $                                | 278,709 |                                 | $ | 176,928 |  | $    | 595,250  |  | $ | 461,412 
|Cost of sales                        |                                  | 186,166 |                                 |   | 106,989 |  |      | 430,761  |  |   | 287,956 
|Gross profit                         |                                  | 92,543  |                                 |   | 69,939  |  |      | 164,489  |  |   | 173,456 
|Gain (loss) on sale of assets        |                                  | (23)    |                                 |   | 158     |  |      | 186      |  |   | 1,852   
|Selling and administrative expenses  |                                  | 19,801  |                                 |   | 13,104  |  |      | 54,910   |  |   | 33,870  
|Income from operations               |                                  | 72,719  |                                 |   | 56,993  |  |      | 109,765  |  |   | 141,438 
|Equity in earnings of investment     |                                  |        |                                 |   |        |  |      |         |  |   | (10,841)
|Net interest income (expense)        |                                  | (5,156) |                                 |   | (2,082) |  |      | (16,887) |  |   | (7,040) 
|Income before income taxes           |                                  | 67,563  |                                 |   | 54,911  |  |      | 92,878   |  |   | 123,557 
|Provision for income taxes           |                                  | 21,630  |                                 |   | 17,369  |  |      | 29,475   |  |   | 44,387  
|Net income                           | $                                | 45,933  |                                 | $ | 37,542  |  | $    | 63,403   |  | $ | 79,170  
|                                     |                                  |         |                                 |   |         |  |      |          |  |   |         
|Net earnings per common share:       |                                  |         |                                 |   |         |  |      |          |  |   |         
|Basic                                | $                                | 0.44    |                                 | $ | 0.45    |  | $    | 0.61     |  | $ | 0.95    
|Fully diluted                        | $                                | 0.44    |                                 | $ | 0.45    |  | $    | 0.61     |  | $ | 0.94    
|                                     |                                  |         |                                 |   |         |  |      |          |  |   |         
|Weighted average shares outstanding: |                                  |         |                                 |   |         |  |      |          |  |   |         
|Basic                                |                                  | 104,521 |                                 |   | 83,680  |  |      | 104,409  |  |   | 83,680  
|Fully diluted                        |                                  | 104,817 |                                 |   | 83,850  |  |      | 104,767  |  |   | 83,790  
|                                     |                                  |         |                                 |   |         |  |      |          |  |   |         



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





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Cal Dive International, Inc. and Subsidiaries



Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)



|                                                                                  |                                 |           |      |   |         
|--------------------------------------------------------------------------------- | ------------------------------- | --------- | ---- | - | --------
|                                                                                  | Nine Months Ended
September 30,
|                                                                                  | 2008                            |           | 2007
|Cash Flows From Operating Activities:                                             |                                 |           |      |   |         
|Net income                                                                        | $                               | 63,403    |      | $ | 79,170  
|Adjustments to reconcile net income to net cash provided by operating activities: |                                 |           |      |   |         
|Depreciation and amortization                                                     |                                 | 52,160    |      |   | 28,702  
|Stock compensation expense                                                        |                                 | 4,399     |      |   | 2,501   
|Equity in losses of investment                                                    |                                 |          |      |   | 10,841  
|Deferred income tax expense                                                       |                                 | 12,029    |      |   | 7,633   
|Gain on sale of assets                                                            |                                 | (186)     |      |   | (1,852) 
|Changes in operating assets and liabilities:                                      |                                 |           |      |   |         
|Accounts receivable, net                                                          |                                 | 8,980     |      |   | (25,624)
|Assets held for sale                                                              |                                 |          |      |   | 698     
|Other current assets                                                              |                                 | (1,205)   |      |   | (1,618) 
|Deferred drydock costs                                                            |                                 | (15,361)  |      |   | (18,444)
|Accounts payable and accrued liabilities                                          |                                 | (53,906)  |      |   | 31,585  
|Other noncurrent, net                                                             |                                 | 293       |      |   | (10,080)
|Net cash provided by operating activities                                         |                                 | 70,606    |      |   | 103,512 
|                                                                                  |                                 |           |      |   |         
|Cash Flows From Investing Activities:                                             |                                 |           |      |   |         
|Capital expenditures                                                              |                                 | (70,750)  |      |   | (26,390)
|Proceeds from sales of property                                                   |                                 | 1,778     |      |   | 517     
|Net cash used in investing activities                                             |                                 | (68,972)  |      |   | (25,873)
|                                                                                  |                                 |           |      |   |         
|Cash Flows From Financing Activities:                                             |                                 |           |      |   |         
|Repayments on credit facility                                                     |                                 | (101,100) |      |   | (84,000)
|Draws on credit facility                                                          |                                 | 61,100    |      |   |        
|Net cash used in financing activities                                             |                                 | (40,000)  |      |   | (84,000)
|                                                                                  |                                 |           |      |   |         
|Net decrease in cash and cash equivalents                                         |                                 | (38,366)  |      |   | (6,361) 
|Cash and cash equivalents:                                                        |                                 |           |      |   |         
|Balance, beginning of period                                                      |                                 | 61,287    |      |   | 22,655  
|Balance, end of period                                                            | $                               | 22,921    |      | $ | 16,294  
|                                                                                  |                                 |           |      |   |         
|Supplemental Cash Flow Information:                                               |                                 |           |      |   |         
|Interest paid                                                                     | $                               | 16,135    |      | $ | 7,873   
|Income taxes paid, (refunded), net                                                | $                               | (2,854)   |      | $ | 26,854  



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









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Cal Dive International, Inc. and Subsidiaries



Notes to Condensed Consolidated Financial Statements (unaudited)



1.   Preparation of Interim Financial Statements and Significant Accounting Policies

Preparation of Interim Financial Statements

Prior to December 14, 2006, we were wholly-owned by Helix Energy Solutions Group, Inc. (Helix). On February 27, 2006, Helix announced a plan to transfer its shallow water marine contracting business into a separate company. As part of the plan, on December 11, 2006, Helix and its subsidiaries contributed and transferred to us all of the assets and liabilities of the shallow water marine contracting business, and on December 14, 2006 we, through an initial public offering (IPO), issued approximately 22.2 million shares of common stock representing approximately 27% of our common stock. Following the contribution and transfer by Helix, we owned and operated a diversified fleet of 26 vessels, including 23 surface and saturation diving support vessels capable of operating in water depths of up to 1,000 feet, as well as three shallow water pipelay vessels.  As of December 31, 2007 and September 30, 2008, Helix owned approximately 58.5% and 58.1%, respectively, of our common stock.

On December 11, 2007, we completed our acquisition of Horizon Offshore, Inc. (Horizon), following which Horizon became our wholly-owned subsidiary.  Upon completion of the acquisition, each share of common stock, par value $0.00001 per share, of Horizon was converted into the right to receive $9.25 in cash and 0.625 shares of our common stock.  All shares of Horizon restricted stock that had been issued but had not vested prior to the effective time of the merger became fully vested at the effective time of the merger and converted into the right to receive the merger consideration.  We issued an aggregate of approximately 20.3 million shares of common stock and paid approximately $300 million in cash to the former Horizon stockholders upon completion of the acquisition.  The cash portion of the merger consideration was paid from cash on hand and from borrowings of $375 million under our $675 million credit facility, which consists of a $375 million senior secured term loan and a $300 million senior secured revolving credit facility.  See Notes 3 - Acquisition of Horizon Offshore, Inc. and 6 - Long-term Debt.

As a result of the Horizon acquisition in December 2007 and vessel divestitures during 2007 and 2008, as of September 30, 2008 we owned and operated a diversified fleet of 31 vessels, including 21 surface and saturation diving support vessels, six pipelay/pipebury barges, one dedicated pipebury barge, one combination derrick/pipelay barge and two derrick barges.

For purposes of financial statement presentation, the costs of certain administrative and operational services of Helix have been allocated to us based on actual direct costs incurred, or allocated based on headcount, work hours and revenues. See Note 2  Related Party Transactions.

These interim condensed 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.

The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles and are consistent in all material respects with those applied in our annual report on Form 10-K for the year ended December 31, 2007.  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 condensed consolidated balance sheets, results of operations and cash flows, as applicable.  Our balance sheet as of December 31, 2007 included herein has been derived from the audited balance sheet as of December 31, 2007 included in our 2007 Annual Report on Form 10-K.  These condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto included in our 2007 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 impact our reported net income or stockholders equity.



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Our revenues and cost of sales are typically lower in the winter and early spring due to weather conditions in the Gulf of Mexico.  Seasonal trends may be less cyclical after major hurricanes in the Gulf of Mexico as a result of increased demand for inspection and repairs on offshore exploration and production infrastructure.  Interim results should not be taken as indicative of the results that may be expected for the year ending December 31, 2008.

Significant Accounting Policies

The information below provides an update to the significant accounting policies and accounting pronouncements issued but not yet adopted discussed in our 2007 Annual Report on Form 10-K.

Interest Rate Swap and Hedging Activities

To reduce the impact of changes in interest rates on our variable rate term loan, in April 2008 we entered into a two-year interest rate swap with a notional amount of $100 million that converts a portion of our anticipated variable-rate interest payments under our term loan to fixed-rate interest payments of 4.88%.  This interest rate swap qualifies as a cash flow hedge under hedge accounting and is reflected as an asset in our balance sheet at its fair value of $0.8 million at September 30, 2008.

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 relations between 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.

Recently Issued Accounting Policies

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (SFAS 157).  SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements.  Our adoption of SFAS 157 effective January 1, 2008 did not have a material impact on our results of operations or financial position.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133 (SFAS 161).  SFAS 161 is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entitys derivative instruments and hedging activities and their effects on the entitys financial position, financial performance, and cash flows.  SFAS 161 applies to all derivative instruments within the scope of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133).  It also applies to non-derivative hedging instruments and all hedged items designated and qualifying as hedges under SFAS 133.  The provisions of SFAS No. 161 are effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.  We are currently evaluating the impact, if any, this standard will have on our financial statements.

In June 2008, the FASB issued FSP Emerging Issues Task Force 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1).  This FSP would require unvested share-based payment awards containing non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) to be included in the computation of basic EPS according to the two-class method.  The effective date of FSP EITF 03-6-1 is for fiscal years beginning after December 15, 2008 and requires all prior-period EPS data presented to be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of this FSP.  FSP EITF 03-6-1 does not permit early application.  This FSP changes our calculation of basic and diluted EPS and will lower previously reported basic and diluted EPS as weighted-average shares outstanding used in the EPS calculation will increase.  We are currently evaluating the impact of this statement on our consolidated financial statements.



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2.   Related Party Transactions

In the ordinary course of business, we provided marine contracting services to Helix and recognized revenues of $28.3 million and $61.7 million in the three and nine months ended September 30, 2008, respectively, and $24.9 million and $49.0 million in the three and nine months ended September 30, 2007, respectively.  Helix provided ROV services to us, and we recognized operating expenses of $11.2 million and $18.8 million in the three and nine months ended September 30, 2008, respectively, and $1.9 million and 5.2 million for the three and nine months ended September 30, 2007, respectively.

Helix has provided to us certain administrative services including: (i) internal audit, tax, treasury and other financial services; (ii) information systems, network and communication services; and (iii) corporate facilities management services. Total allocated costs from Helix for such services were approximately $0.8 million and $2.4 million for the three and nine months ended September 30, 2008, respectively, and $1.0 million and $2.7 million for the three and nine months ended September 30, 2007, respectively.

In prior periods, we have provided to Helix operational and field support services including: (i) training and quality control services; (ii) marine administration services; (iii) supply chain and base operation services; (iv) environmental, health and safety services; (v) operational facilities management services; and (vi) human resources services. Total allocated costs to Helix for such services were approximately $1.0 million and $2.7 million for the three and nine months ended September 30, 2007, respectively.  No costs were allocated to Helix for the three and nine months ended September 30, 2008.  Historically, these costs have been allocated based on headcount, work hours and revenues, as applicable.

In contemplation of our IPO, we entered into several agreements with Helix addressing the rights and obligations of each respective company, including a Master Agreement, a Corporate Services Agreement, an Employee Matters Agreement, a Registration Rights Agreement and a Tax Matters Agreement.

Pursuant to the Tax Matters Agreement, for a period of up to ten years, we are required to make aggregate payments totaling $11.3 million 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.  As of September 30, 2008, the current and long-term tax benefits payable to Helix were $5.1 million.

Including the current tax benefit payable to Helix resulting from the tax step-up benefit, noted above, net amounts payable to and receivable from Helix are settled with cash periodically.  At September 30, 2008 the net current amount due from Helix was $21.0 million.

3.   Acquisition of Horizon Offshore, Inc.

On December 11, 2007, we acquired 100% of Horizon, a marine construction services company headquartered in Houston, Texas. Upon consummation of the merger, each share of Horizon common stock, par value $0.00001 per share, was converted into the right to receive $9.25 in cash and 0.625 shares of CDIs common stock.  All shares of Horizon restricted stock that had been issued but had not vested prior to the effective time of the merger became fully vested at the effective time of the merger and converted into the right to receive the merger consideration.  CDI issued an aggregate of approximately 20.3 million shares of common stock and paid approximately $300 million in cash to the former Horizon stockholders upon completion of the acquisition.  The cash portion of the merger consideration was paid from cash on hand and from borrowings of $375 million under our $675 million credit facility, which consists of a $375 million senior secured term loan and a $300 million senior secured revolving credit facility.  See Note 6 - Long-term Debt.

The aggregate purchase price, including transaction costs of $7.7 million, was approximately $630 million, consisting of $308 million of cash and $322 million of stock.  We also assumed and repaid approximately $104 million in Horizon debt, including accrued interest and prepayment penalties, and acquired $171 million of cash.  Through the acquisition, we acquired nine construction vessels, including four pipelay/pipebury barges, one dedicated pipebury barge, one dive support vessel, one combination derrick/pipelay barge and two derrick barges.



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The acquisition was accounted for as a business combination with the acquisition price allocated to the assets acquired and liabilities assumed based upon their estimated fair values.  The following table summarizes the current adjusted preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

|                              |   |          
|----------------------------- | - | ---------
|Cash                          | $ | 170,607  
|Other current assets          |   | 165,623  
|Property and equipment        |   | 336,147  
|Other long-term assets        |   | 15,270   
|Goodwill                      |   | 257,343  
|Intangible assets             |   | 9,510    
|Total assets acquired         |   | 954,500  
|Current liabilities           |   | (180,846)
|Deferred income taxes         |   | (55,789) 
|Long-term debt                |   | (87,641) 
|Other non-current liabilities |   | (100)    
|Total liabilities assumed     |   | (324,376)
|Net assets acquired           | $ | 630,124  
|                              |   |          

The intangible assets relate to the fair value of contract backlog, customer relationships and non-compete agreements between us and certain members of Horizons senior management as follows (in thousands):

|                       |            |       |                     |          
|---------------------- | ---------- | ----- | ------------------- | ---------
|                       | Fair Value |       | Amortization
Period
|Customer relationships | $          | 3,060 |                     | 5 years  
|Contract backlog       |            | 2,960 |                     | 1.5 years
|Non-compete agreements |            | 3,000 |                     | 1 year   
|Trade name             |            | 490   |                     | 7 years  
|                       | $          | 9,510 |                     |          
|                       |            |       |                     |          

At September 30, 2008, the net carrying amount for these intangible assets was $5.7 million.

The allocation of the purchase price was based upon preliminary valuations. Estimates and assumptions are subject to change upon the receipt and managements review of the final valuations. The primary area of the purchase price allocation that is not yet finalized relates to post-closing purchase price adjustments and the receipt of final valuations. The final valuation of net assets is expected to be completed no later than one year from the acquisition date. The results of Horizon are included in the accompanying consolidated statements of operations since the date of purchase.

The following unaudited pro forma combined operating results of us and Horizon for the three and nine months ended September 30, 2007 is presented as if the acquisition had occurred on January 1, 2007 (in thousands, except per share data):

|                                              |                                        |                                       |   |        
|--------------------------------------------- | -------------------------------------- | ------------------------------------- | - | -------
|                                              | Three Months 
Ended
September 30,
2007 | Nine Months 
Ended
September 30,
2007
|Pro forma revenue                             | $                                      | 311,049                               | $ | 790,991
|Pro forma net income                          |                                        |                                       |   |        
|Pro forma basic net income per common share   | $                                      | 0.53                                  | $ | 0.84   
|Pro forma diluted net income per common share | $                                      | 0.53                                  | $ | 0.84   
|Pro forma shares used in calculation:         |                                        |                                       |   |        
|Basic                                         |                                        | 103,979                               |   | 103,979
|Diluted                                       |                                        | 104,149                               |   | 104,089



For the three and nine months ended September 30, 2007, we recorded revenues of $13.7 million and $22.3 million, respectively, related to services provided to Horizon. We have eliminated the sales and related operating expenses between us and Horizon in the pro forma operating results.  In addition, the pro forma operating results



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reflect adjustments for the increases in depreciation related to the step-up of the acquired assets to their fair value and to reflect depreciation calculations under the straight-line method instead of the units-of-production method used by Horizon. Pro forma results include the amortization of identifiable intangible assets. We estimated interest expense based upon increases in long-term debt to fund the cash portion of the purchase price at estimated annual interest rate of 7.55% for the three and nine months ended September 30, 2007, based upon the terms of the new term loan of three month LIBOR plus 2.25%. The pro forma adjustment to income tax reflects the statutory federal and state income tax impacts of the pro forma adjustments to our pretax income with an applied tax rate of 35%. Pro forma weighted average shares outstanding have been adjusted to reflect the conversion of Horizons outstanding common stock to shares of CDI common stock (at a rate of one Horizon share for 0.625 CDI share) assuming the transaction was consummated at the beginning of the period presented. The unaudited pro forma combined results of operations are not indicative of the actual results had the acquisition occurred on January 1, 2007 or of future operations of the combined companies.

4.   Details of Certain Accounts

Other current assets consisted of the following as of September 30, 2008 and December 31, 2007 (in thousands):

|                                   |               |        |              |   |       
|---------------------------------- | ------------- | ------ | ------------ | - | ------
|                                   | September 30, |        | December 31,
|                                   | 2008          |        | 2007        
|Insurance claims to be reimbursed  | $             | 7,611  |              | $ | 7,039 
|Prepaid insurance                  |               | 520    |              |   | 3,175 
|Supplies and spare parts inventory |               | 2,922  |              |   | 3,109 
|Other receivables                  |               | 2,628  |              |   | 3,357 
|Other current assets               |               | 8,700  |              |   | 3,064 
|                                   | $             | 22,381 |              | $ | 19,744
|                                   |               |        |              |   |       

Other long-term assets, net, consisted of the following as of September 30, 2008 and December 31, 2007 (in thousands):

|                                           |               |        |              |   |       
|------------------------------------------ | ------------- | ------ | ------------ | - | ------
|                                           | September 30, |        | December 31,
|                                           | 2008          |        | 2007        
|Intangible assets with definite lives, net | $             | 8,004  |              | $ | 11,615
|Contract receivables                       |               |       |              |   | 14,635
|Deferred financing costs                   |               | 4,982  |              |   | 5,789 
|Equipment deposits and other               |               | 2,434  |              |   | 8,787 
|                                           | $             | 15,420 |              | $ | 40,826

Accrued liabilities consisted of the following as of September 30, 2008 and December 31, 2007 (in thousands):

|                                     |               |        |              |   |       
|------------------------------------ | ------------- | ------ | ------------ | - | ------
|                                     | September 30, |        | December 31,
|                                     | 2008          |        | 2007        
|Accrued payroll and related benefits | $             | 17,150 |              | $ | 18,709
|Insurance claims to be reimbursed    |               | 7,611  |              |   | 7,039 
|Accrued severance                    |               |       |              |   | 14,786
|Accrued insurance                    |               | 9,905  |              |   | 7,077 
|Other                                |               | 19,879 |              |   | 16,076
|                                     | $             | 54,545 |              | $ | 63,687

5.   Equity Investment

We have a 40% minority ownership interest in Offshore Technology Solutions Limited, or OTSL, which provides marine construction services to the oil and gas industry in and around Trinidad and Tobago.

We recorded equity earnings in OTSL of $1.0 million for the three months ended March 31, 2007.  During the second quarter of 2007, we determined that there was an other than temporary impairment in OTSL and the full value of our investment of $11.8 million was impaired.



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6.   Long-term Debt

In December 2007, we entered into a secured credit facility with certain financial institutions, consisting of a $375 million term loan, and a $300 million revolving credit facility.  This credit facility replaced the revolving credit facility we entered into in November 2006 prior to our initial public offering.  On December 11, 2007, we borrowed $375 million under the term loan to fund the cash portion of the merger consideration in connection with our acquisition of Horizon and to retire our and Horizons existing debt. At September 30, 2008, we had outstanding debt of $335 million under this credit facility.

At September 30, 2008 and December 31, 2007, we were in compliance with all debt covenants.  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 65% of the stock of two of our foreign subsidiaries, and a security interest in, among other things, all of our equipment, inventory, accounts receivable and general tangible assets.

7.   Income Taxes

The effective tax rate was 32.0% and 31.7% for the three and nine months ended September 30, 2008, respectively, compared to 31.6% and 35.9% for the respective periods in 2007.  The rate decrease for the nine months ended September 30, 2008 compared to the previous period is primarily attributable to the prior period non-cash equity losses and related impairment charge in connection with our investment in OTSL, for which minimal tax benefit was recorded, and a nondeductible cash settlement of $2 million paid for a civil claim by the Department of Justice related to the consent decree we entered into in connection with the Acergy and Torch acquisitions in 2005. This decrease was also attributable to a higher percentage of profits being derived from foreign tax jurisdictions with lower income tax rates.

We believe our recorded tax assets and liabilities are reasonable; however, tax laws and regulations are subject to interpretation and tax litigation is inherently uncertain; therefore, our assessments can involve a series of complex judgments about future events and rely heavily on estimates and assumptions.  See Note 8  Commitments and Contingencies  Tax Assessment.

8.   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 condensed consolidated balance sheets.  Such amounts were $7.6 million and $7.0 million as of September 30, 2008 and December 31, 2007, respectively.  We have not historically incurred significant losses as a result of claims denied by our insurance carriers.

We sustained damage to certain of our facilities, equipment and two vessels in hurricanes Gustav and Ike during the third quarter of 2008.  We estimate future total repairs resulting from the hurricanes will range from $8.0 million to $9.0 million before expected insurance reimbursements (subject to an apportioned aggregate deductible of approximately $0.3 million).  These costs will be recorded as incurred and are expected to be paid out over the next year.  Insurance reimbursements will be recorded when the realization of the claim for recovery of a loss is deemed probable.  As of September 30, 2008, we recorded $1.2 million of hurricane-related repair expense and had not yet recorded any insurance reimbursements.

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 have the potential of significant additional liability, we believe the outcome of all such matters and proceedings will not have



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a material adverse effect on our condensed consolidated financial position, results of operations or cash flows. Pursuant to the terms of the Master Agreement, we assumed and will indemnify Helix for liabilities related to our business.

Tax Assessment

During the fourth quarter of 2006, Horizon received a tax assessment from the Servicio de Administracion Tributaria (SAT), the Mexican taxing authority, for approximately $23 million related to fiscal 2001, including penalties, interest and monetary correction.  The SATs assessment claims unpaid taxes related to services performed among our subsidiaries.  We believe under the Mexico and United States double taxation treaty that these services are not taxable and that the tax assessment itself is invalid.  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 consolidated financial position and results of operations.  Horizons 2002 through 2007 tax years remain subject to examination by the appropriate governmental agencies for Mexico tax purposes, with 2002 through 2004 currently under audit.

9.   Stock-Based Compensation Plans

Under an incentive plan adopted by us on December 9, 2006, as amended and restated and approved by our stockholders on May 7, 2007, up to 9,000,000 shares of our common stock may be issued to key personnel and non-employee directors.  Compensation cost is recognized over the respective vesting periods on a straight-line basis.  For the three and nine months ended September 30, 2008, compensation expense related to restricted shares was $1.1 million and $3.5 million, respectively.  Future compensation cost associated with unvested restricted stock awards at September 30, 2008 totaled approximately $14.3million.  During the nine months ended September 30, 2008, we granted 419,875 shares of restricted stock at a weighted average fair market value of $10.47and generally with a vesting period of 20% per year over five years.

On December 9, 2006, we also adopted the Cal Dive International, Inc. Employee Stock Purchase Plan (CDI ESPP), which allows employees to acquire shares of common stock through payroll deductions over a six-month period.  The purchase price is equal to 85% of the fair market value of our common stock on either the first or the last day of the subscription period, whichever is lower.  Purchases under the plan are limited to 10% of an employees base salary.  We may issue a total of 1,500,000 shares of common stock under the plan.  Our employees first participated in the plan for the subscription period that commenced on July 1, 2007.  We recognized compensation expense related to stock purchases under the CDI ESPP of $0.3 million and $0.9million during the three and nine months ended September 30, 2008, respectively.  During the nine months ended September 30, 2008, we issued 417,826 shares of common stock under the plan.

10.   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 of $54.6million and $173.0million for the three and nine months ended September 30, 2008, respectively, and $35.2 million and $100.9 million for the three and nine months ended September 30, 2007, respectively, from foreign locations. Net property and equipment in foreign locations were $159.2 million at September 30, 2008.  The remainder of our revenues were generated in the U.S. Gulf of Mexico and other U.S. waters.

11.   Earnings Per Share

Basic earnings per share (EPS) is computed by dividing the net income available to common stockholders by the weighted-average shares of outstanding common stock.  The calculation of diluted EPS is similar to basic EPS, except that the denominator includes dilutive common stock equivalents and the income included in the numerator excludes the effects of the impact of dilutive common stock equivalents, if any.  The computation of basic and diluted EPS amounts for the three and nine months ended September 30, 2008 and 2007 were as follows (in thousands):



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|                                               |                                       |        |                                      |         |        |   |        |  |        
|---------------------------------------------- | ------------------------------------- | ------ | ------------------------------------ | ------- | ------ | - | ------ |  | -------
|                                               | Three Months Ended
September 30, 2008 |        | Nine Months Ended
September 30, 2008
|                                               | Income                                |        | Shares                               |         | Income |   | Shares
|Earnings applicable per common share - basic   | $                                     | 45,933 |                                      | 104,521 |        | $ | 63,403 |  | 104,409
|Restricted shares and ESPP dilution            |                                       |       |                                      | 296     |        |   |       |  | 358    
|Earnings applicable per common share - diluted | $                                     | 45,933 |                                      | 104,817 |        | $ | 63,403 |  | 104,767



|                                               |                                       |        |                                      |        |        |   |        |  |       
|---------------------------------------------- | ------------------------------------- | ------ | ------------------------------------ | ------ | ------ | - | ------ |  | ------
|                                               | Three Months Ended
September 30, 2007 |        | Nine Months Ended
September 30, 2007
|                                               | Income                                |        | Shares                               |        | Income |   | Shares
|Earnings applicable per common share - basic   | $                                     | 37,542 |                                      | 83,680 |        | $ | 79,170 |  | 83,680
|Restricted shares and ESPP dilution            |                                       |       |                                      | 170    |        |   |       |  | 110   
|Earnings applicable per common share - diluted | $                                     | 37,542 |                                      | 83,850 |        | $ | 79,170 |  | 83,790



Item 2.

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

Overview

Business and Financial Market Outlook

The recent volatility in the equity and financial markets has led to increased uncertainty regarding the outlook for the global economy.  Due to the deterioration of the credit markets and the failure of many financial institutions, businesses have intensified their focus on liquidity and access to capital.  The heightened uncertainty and the possibility of a worldwide decrease in hydrocarbon demand has led to declining commodity prices, which may negatively impact our operations as these factors may cause many oil and gas companies to curtail capital spending.  Leading into this unprecedented financial market turmoil there was high demand for our services as reflected in our third quarter results.  Additionally, we are now experiencing an increase in demand driven by the need for inspection, repair and salvage of damaged platforms and infrastructure following hurricanes Gustav and Ike, which hit the Gulf of Mexico this September.  Given the volatility and uncertainty in the macro economic environment coupled with the otherwise favorable demand indicators for our business, it is difficult to predict to what extent these events will affect our overall activity level in 2009.  Our outlook remains positive through the fourth quarter in both domestic and international markets; however, we do expect some seasonality impact due to winter weather conditions.  Generally, tendering activity remains solid and the long-term outlook for our business remains favorable as the required continuity of capital spending to replenish oil and gas production should drive long-term demand for our services.

Year-to-Date Performance

We earned net income of $45.9 million and $63.4 million for the three and nine months ended September 30, 2008, respectively, compared to $37.5 million and $79.2 million for the same periods in 2007, respectively.  The harsh weather conditions in the Gulf of Mexico experienced in the first quarter of 2008 continued into the first two months of the second quarter of 2008.  These offshore conditions adversely impacted our overall U.S. fleet utilization, particularly our construction barges and our surface diving fleet.  However, the majority of the U.S. fleet returned to work offshore in June and our effective vessel utilization increased from 60% during the second quarter of 2008 to 80% during the third quarter of 2008.  These expected activity levels in the third quarter produced record financial performance despite the substantial work interruptions caused by hurricanes Gustav and Ike.  The increased demand from the hurricanes coupled with the otherwise strong domestic and international tendering activity referred to above is evidenced by our growing backlog of awarded work, which is $506 million at September 30, 2008.  This compares favorably to $484 million at June 30, 2008 and $175 million at December 31, 2007.

Backlog

As of September 30, 2008, our backlog supported by written agreements or contract awards totaled approximately $506 million, compared to approximately $175 million as of December 31, 2007.  Prior to our acquisition of Horizon, our backlog had not been significant.  Approximately one-third of our backlog is expected to



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be performed during 2008.  Because of the significant percentage of our revenues derived from the spot market, contract lead times, project durations, and seasonal issues, we do not consider backlog amounts to be a reliable indicator of annual revenues.

Recent Acquisitions

On December 11, 2007, we completed an acquisition of Horizon, following which Horizon became our wholly-owned subsidiary.  Upon completion of the acquisition, each share of common stock, par value $0.00001 per share, of Horizon was converted into the right to receive $9.25 in cash and 0.625 shares of our common stock.  All shares of Horizon restricted stock that had been issued but had not vested prior to the effective time of the merger became fully vested at the effective time of the merger and converted into the right to receive the merger consideration.  We issued an aggregate of approximately 20.3 million shares of common stock and paid approximately $300 million in cash to the former Horizon stockholders upon completion of the acquisition.  The cash portion of the merger consideration was paid from cash on hand and from borrowings of $375 million under our $675 million credit facility, which consists of a $375 million senior secured term loan and a $300 million senior secured revolving credit facility.  See Liquidity and Capital Resources  Credit Facility.

Vessel Utilization

We believe vessel utilization is one of the most important performance measurements for our business.  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.  From 2005 through the first three quarters of fiscal 2007, we did not experience the typical seasonal trends in our business due to the impact of hurricanes Ivan, Katrina and Rita in the Gulf of Mexico.  However, beginning in the fourth quarter of 2007 we began to experience a return to customary seasonal conditions as the amount of hurricane-related repair activity decreased.  The damage resulting from hurricanes Gustav and Ike may lead to higher vessel utilization during the winter and early spring of 2009 than we would experience under more customary seasonal conditions.

The following table shows the size of our fleet and effective utilization of our vessels during the three and nine months ended September 30, 2008 and 2007:

|                             |                                  |                 |                                 |                 |      |                       |                 |                       |                
|---------------------------- | -------------------------------- | --------------- | ------------------------------- | --------------- | ---- | --------------------- | --------------- | --------------------- | ---------------
|                             | Three Months Ended September 30, |                 | Nine Months Ended September 30,
|                             | 2008                             | 2007            |                                 | 2008            | 2007
|                             | Number of
Vessels (1)            | Utilization
(2) | Number of
Vessels (1)           | Utilization
(2) |      | Number of
Vessels (1) | Utilization
(2) | Number of
Vessels (1) | Utilization
(2)
|Saturation Diving            | 8                                | 95%             | 7                               | 95%             |      | 8                     | 86%             | 7                     | 94%            
|Surface and Mixed Gas Diving | 13                               | 80%             | 16                              | 67%             |      | 13                    | 56%             | 16                    | 67%            
|Construction Barges          | 10                               | 70%             | 2                               | 98%             |      | 10                    | 44%             | 2                     | 97%            
|Total Fleet                  | 31                               | 80%             | 25                              | 78%             |      | 31                    | 59%             | 25                    | 77%            



(1)

As of the end of the period and excludes acquired vessels prior to their in-service dates, and vessels taken out of service.



(2)

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 quarter and does not reflect acquired vessels prior to their in-service dates, vessels in drydocking, and vessels taken out of service for upgrades.



Our Relationship with Helix

Certain administrative and operational services of Helix have been shared between us and other Helix business segments for all periods presented. For purposes of financial statement presentation, the costs included in our condensed consolidated statements of operations for these shared services have been allocated to us based on actual direct costs incurred, headcount, work hours or revenues. We and Helix consider these allocations to be a reasonable reflection of our respective utilization of services provided. Pursuant to the Corporate Services Agreement between Helix and us, we are required to utilize these services from Helix in the conduct of our business until such time as Helix owns less than 50% of the total voting power of our common stock, or earlier, if mutually agreed between Helix and us.



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We believe the assumptions underlying the condensed consolidated financial statements are reasonable. However, the effect of these assumptions and the separation from Helix could impact our results of operations and financial position prospectively by increasing expenses in areas that include but are not limited to compliance with the Sarbanes-Oxley Act and other corporate compliance matters, insurance and claims management and the related cost of insurance, as well as general overall purchasing power.

Critical Accounting Estimates and Policies

Our accounting policies are described in the notes to our audited consolidated financial statements included in our 2007 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 2007 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 2007 Annual Report on Form 10-K.

Recently Issued Accounting Principles

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements(SFAS 157).  SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements.  Our adoption of SFAS 157 effective January 1, 2008 did not have a material impact on our results of operations or financial position.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133 (SFAS 161).  SFAS 161 is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entitys derivative instruments and hedging activities and their effects on the entitys financial position, financial performance, and cash flows.  SFAS 161 applies to all derivative instruments within the scope of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133).  It also applies to non-derivative hedging instruments and all hedged items designated and qualifying as hedges under SFAS 133.  The provisions of SFAS No. 161 are effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.  We are currently evaluating the impact, if any, this standard will have on our financial statements.

In June 2008, the FASB issued FSP Emerging Issues Task Force 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1).  This FSP would require unvested share-based payment awards containing non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) to be included in the computation of basic EPS according to the two-class method.  The effective date of FSP EITF 03-6-1 is for fiscal years beginning after December 15, 2008 and requires all prior-period EPS data presented to be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of this FSP.  FSP EITF 03-6-1 does not permit early application.  This FSP changes our calculation of basic and diluted EPS and will lower previously reported basic and diluted EPS as weighted-average shares outstanding used in the EPS calculation will increase.  We are currently evaluating the impact of this statement on our consolidated financial statements.

Results of Operations

Comparison of Three Months Ended September 30, 2008 and 2007

Revenues.  For the three months ended September 30, 2008, our revenues increased $101.8 million, or 58%, to $278.7 million, compared to $176.9 million for the three months ended September 30, 2007. This increase was primarily a result of revenue contributions from certain Horizon assets acquired in December 2007.  This increase was partially offset by adverse weather downtime due to the impact of hurricanes Gustav, Hanna and Ike in the U.S. Gulf of Mexico.



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Gross profit.  Gross profit for the three months ended September 30, 2008 increased $22.6 million, or 32%, to $92.5 million, compared to $69.9 million for the three months ended September 30, 2007. This increase was attributable to gross profit contributions from certain Horizon assets acquired in December 2007 partially offset by lower vessel utilization and due to adverse weather conditions discussed above and increased depreciation and amortization.  Cost of sales related depreciation and amortization increased to $15.8 million for the three months ended September 30, 2008 from $8.5 million for the same period in 2007 due primarily to assets purchased in the Horizon acquisition.

Selling and administrative expenses.  Selling and administrative expenses of $19.8 million for the three months ended September 30, 2008 were $6.7 million higher than the $13.1 million incurred in the three months ended September 30, 2007 primarily due to the Horizon acquisition, including non-cash amortization of related intangible assets, increased employee benefits costs and increased information technology costs.

Net interest expense.Net interest expense in the third quarter of 2008 was $5.2 million as compared to $2.1 million in the third quarter of 2007. This increase was due to increased borrowings in December 2007 in conjunction with the Horizon acquisition.

Income taxes.  Income taxes were $21.6 million and $17.4 million for the three months ended September 30, 2008 and 2007, respectively. The effective tax rate for the respective periods was 32.0%for 2008 and 31.6% for 2007.

Net income.Net income of $45.9 million for the three months ended September 30, 2008 was $8.4 million more than net income of $37.5 million for the three months ended September 30, 2007 as a result of the factors described above.

Comparison of Nine Months Ended September 30, 2008 and 2007

Revenues.  For the nine months ended September 30, 2008, our revenues increased $133.9 million, or 29%, to $595.3 million, compared to $461.4 million for the nine months ended September 30, 2008. This increase was primarily a result of the revenue contributions from certain Horizon assets acquired in December 2007.  This increase was partially offset by lower vessel utilization related to winter seasonality and harsh weather conditions which continued into May 2008, and adverse weather downtime related to hurricanes Gustav, Hanna and Ike.

Gross profit.  Gross profit for the nine months ended September 30, 2008 decreased $9.0 million, or 5%, to $164.5million, compared to $173.5 million for the nine months ended September 30, 2007. This decrease was attributable to lower vessel utilization referred to above and increased depreciation and amortization.  The utilization impact from continued harsh weather in the Gulf of Mexico during the first five months of 2008 and adverse weather conditions thereafter was compounded by our increased exposure in terms of fleet size following the Horizon acquisition. Cost of sales related depreciation and amortization increased to $48.0million for the nine months ended September 30, 2008 from $26.3million for the same period in 2007 due primarily to assets purchased in the Horizon acquisition.

Selling and administrative expenses.  Selling and administrative expenses of $54.9 million for the nine months ended September 30, 2008 were $21.0 million higher than the $33.9 million incurred in the nine months ended September 30, 2007. This increase was primarily due to the Horizon acquisition, including non-cash amortization of related intangible assets and one-time integration costs, increased employee benefit costs and increased information technology costs.  Included in the nine months ended September 30, 2007 is a $2 million settlement with the Department of Justice related to a civil claim.

Equity in earnings (loss) of investment. During the second quarter 2007, we determined there was an other than temporary impairment in OTSL and the full value of our investment of $11.8 million was impaired.

Net interest expense.Net interest expense in the first nine months of 2008 was $16.9 million as compared to $7.0 million in the first nine months of 2007.  The increase in interest expense is related to increased debt assumed in December 2007 in connection with the Horizon acquisition.



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Income taxes.  Income taxes were $29.5 million and $44.4 million for the nine months ended September 30, 2008 and 2007, respectively. The effective tax rate for the respective periods was 31.7% for 2008 and 35.9% for 2007.  The rate decrease was primarily due to minimal tax benefit relating to equity in losses and the impairment of our investment in OTSL in 2007, no tax benefit from the $2.0 million settlement with the Department of Justice during 2007, and a higher percentage of profits being derived from foreign tax jurisdictions with lower tax rates in the 2008 period.

Net income.Net income of $63.4 million for the nine months ended September 30, 2008 was $15.8 million less than net income of $79.2 million for the nine months ended September 30, 2007 as a result of the factors described above.

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 a revolving credit facility we secured in connection with our acquisition of Horizon.  We intend to use these sources of liquidity to fund our working capital requirements, maintenance capital expenditures, strategic investments and acquisitions.In connection with our business strategy, we regularly evaluate acquisition opportunities, including vessels and marine contracting businesses. We believe that our liquidity, along with other financing alternatives, will provide the necessary capital to fund these transactions and achieve our long-term growth objectives. We expect to be able to fund our activities for the remainder of 2008 and 2009 with cash flows generated from our operations and available borrowings under our revolving credit facility.

In December 2007, we entered into a five-year $675 million credit facility, which consists of a $375 million term loan and a $300 million revolving credit facility, with certain financial institutions.  The revolving and term loans under this facility mature in December 2012 with quarterly principal payments of $20 million being payable on the term loan.  On December 11, 2007, we borrowed $375 million under the term loan and used those proceeds, along with cash on hand, to fund the cash portion of the merger consideration in connection with our acquisition of Horizon and to retire Horizons and our existing debt.  At September 30, 2008, we had outstanding debt of $335 million under this credit facility, $22.9 million of cash on hand, and $293.8million available under our revolving credit facility.  We may pay down or borrow from the revolving credit facility as business needs merit.  See Credit Facility below.

At September 30, 2008, we had issued outstanding letters of credit of $6.2 million under our revolving credit facility and $12.5 million on an unsecured basis with another financial institution.

We are closely monitoring the relatively recent and ongoing volatility and uncertainty in the financial markets and have intensified our internal focus on liquidity, planned spending and access to capital.  Externally we have also been engaged with our clients and the lending institutions in our credit facility as they go through the same exercise.  It is too early to predict to what extent these current events may affect our overall activity levels in 2009.  As of today our lenders have not made us aware that they would not be able to fund any commitments under our revolving credit facility.  Additionally, despite the uncertainty, we also have reasonable visibility of our prospective cash flows supported by our backlog and the recent increased demand for our services following hurricanes Gustav and Ike, which should be sufficient to fund our operations over the near term.

Cash Flows

During the nine months ended September 30, 2008 and 2007, we generated positive operating cash flow of approximately $70.6 million and $103.5 million, respectively  We utilized our operating cash flow to fund capital expenditures and recertification costs and to reduce our debt obligations.  For the nine months ended September 30, 2008 and 2007, our cash flows are summarized as follows (in thousands):



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|                                                       |                                       |           |                                       |   |          
|------------------------------------------------------ | ------------------------------------- | --------- | ------------------------------------- | - | ---------
|                                                       | Nine Months 
Ended
September 30,
2008 |           | Nine Months 
Ended
September 30,
2007
|Cash flow operations:                                  |                                       |           |                                       |   |          
|Net income                                             | $                                     | 63,403    |                                       | $ | 79,170   
|Other non-cash income adjustments                      |                                       | 68,402    |                                       |   | 47,825   
|Change in accounts receivable and other current assets |                                       | 7,775     |                                       |   | (26,544) 
|Change in accounts payable and accrued liabilities     |                                       | (53,906)  |                                       |   | 31,585   
|Additions to deferred drydock costs                    |                                       | (15,361)  |                                       |   | (18,444) 
|Other noncurrent, net                                  |                                       | 293       |                                       |   | (10,080) 
|Total cash flow from operations                        |                                       | 70,606    |                                       |   | 103,512  
|                                                       |                                       |           |                                       |   |          
|Other cash inflows:                                    |                                       |           |                                       |   |          
|Net proceeds from drawdowns on credit facility         |                                       | 61,100    |                                       |   |         
|Proceeds from sales of assets                          |                                       | 1,778     |                                       |   | 517      
|Total other cash inflows                               |                                       | 62,878    |                                       |   | 517      
|                                                       |                                       |           |                                       |   |          
|Other cash outflows:                                   |                                       |           |                                       |   |          
|Capital expenditures                                   |                                       | (70,750)  |                                       |   | (26,390) 
|Repayment on credit facility                           |                                       | (101,100) |                                       |   | (84,000) 
|Total other cash outflows                              |                                       | (171,850) |                                       |   | (110,390)
|                                                       |                                       |           |                                       |   |          
|Net change in cash                                     | $                                     | (38,366)  |                                       | $ | (6,361)  
|                                                       |                                       |           |                                       |   |          

Capital Expenditures

We incur capital expenditures for recertification costs relating to regulatory drydocks as well as costs for major replacements and improvements, which extend the vessels economic useful life. Total capital expenditures planned for 2008 include $36.1 million for recertification costs and $79.3million for vessel improvements, equipment purchases and operating lease improvements.  We also incur capital expenditures for strategic investments and acquisitions. During the nine months ended September 30, 2008, we incurred $16.1million for recertification costs and $82.7million for vessel improvements, equipment purchases and operating lease improvements.

Credit Facility

In December 2007, we entered into a secured credit facility with certain financial institutions consisting of a $375 million term loan and a $300 million revolving credit facility.  This credit facility replaced the revolving credit facility we entered into in November 2006 prior to our initial public offering.  The following is a summary description of the terms of the credit agreement and other loan documents.

The term loans and the revolving loans may consist of loans bearing interest in relation to the Federal Funds Rate or to the lenders base rate, known as Base Rate Loans, and loans bearing interest in relation to a LIBOR rate, known as Eurodollar Rate Loans, in each case plus an applicable margin.  The margins on the revolving loans range from 0.75% to 1.50% on Base Rate Loans and 1.75% to 2.50% on Eurodollar Rate Loans.  The margins on the term loan are 1.25% on Base Rate Loans and 2.25% on Eurodollar Rate Loans.  The revolving loans and the term loan mature on December 11, 2012, with quarterly principal payments of $20 million being payable on the term loan. We may prepay all or any portion of the outstanding balance of the term loan without prepayment penalty. In addition, a commitment fee ranging from 0.375% to 0.50% will be payable on the portion of the lenders aggregate commitment which from time to time is not used for a borrowing or a letter of credit. Margins on the revolving loans and the commitment fee will fluctuate in relation to our consolidated leverage ratio as provided in the credit agreement.

The credit agreement and the other documents entered into in connection with the credit facility include terms and conditions, including covenants, that we consider customary for this type of transaction. The covenants include restrictions on our and our subsidiaries ability to grant liens, incur indebtedness, make investments, merge or



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consolidate, sell or transfer assets and pay dividends. In addition, the credit agreement obligates us to meet minimum financial requirements specified in the agreement.  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 65% of the stock of two of our foreign subsidiaries, and a security interest in, among other things, all of our equipment, inventory, accounts receivable and general intangible assets.  At September 30, 2008, we were in compliance with all debt covenants.

On December 11, 2007, we borrowed $375 million under the term loan and used those proceeds to fund the cash portion of the merger consideration in connection with our acquisition of Horizon and to retire Horizons and our existing debt.  On February 19, 2008, we used a portion of cash on hand to make an optional prepayment on the term loan in the amount of $40 million resulting in an outstanding balance of $335 million.  As a result of the prepayment, our next quarterly installment of $20 million is due on December 31, 2008.  We had no borrowings outstanding, and letters of credit totaling $6.2 million to secure performance bonds outstanding, under our revolving credit facility at September 30, 2008.  At September 30, 2008 there was $293.8million available under the revolving credit facility.  We expect to use the remaining availability under the revolving credit facility for working capital and other general corporate purposes.

Contractual and Other Obligations

At September 30, 2008, our contractual obligations for long-term debt, payables and operating leases were as follows (in thousands):

|                                            |                        |         |                  |   |           |  |           |         |                   |   |         |  |   |      
|------------------------------------------- | ---------------------- | ------- | ---------------- | - | --------- |  | --------- | ------- | ----------------- | - | ------- |  | - | -----
|                                            | Payments Due by Period
|                                            | Total                  |         | Less than
1 Year |   | 1-3 Years |  | 3-5 Years |         | More than
5 Years
|Payable to Helix                            | $                      | 5,143   |                  | $ | 2,143     |  | $         | 2,039   |                   | $ | 754     |  | $ | 207  
|Noncancelable operating leases and charters |                        | 22,617  |                  |   | 4,277     |  |           | 5,262   |                   |   | 4,594   |  |   | 8,484
|Long-term financing obligations:            |                        |         |                  |   |           |  |           |         |                   |   |         |  |   |      
|Principal                                   |                        | 335,000 |                  |   | 80,000    |  |           | 160,000 |                   |   | 95,000  |  |   |     
|Interest(1)                                 |                        | 52,930  |                  |   | 24,883    |  |           | 23,640  |                   |   | 4,407   |  |   |     
|Total contractual obligations               | $                      | 415,690 |                  | $ | 111,303   |  | $         | 190,941 |                   | $ | 104,755 |  | $ | 8,691



(1)

Assumes an interest rate based on three month LIBOR at September 30, 2008 plus a margin of 2.25%.

Off-Balance Sheet Arrangements

As of September 30, 2008, 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 2007 Form 10-K.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Market Risk Management

We could be exposed to market risk related to interest rates in the future. We have approximately $335.0 million outstanding under our credit facility as of September 30, 2008. Changes based on the floating interest rates under this facility could result in an increase or decrease in our annual interest expense and related cash outlay.  The impact of this market risk is estimated using a hypothetical increase in interest rates by 100 basis points.  Based on the amount outstanding under our credit facility at September 30, 2008 and this hypothetical assumption, we would have incurred an additional $0.8 million and $2.5million in interest expense for the three and nine months ended September 30, 2008, respectively.

In April 2008, we entered into a two year 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 30% as of September 30, 2008, at 4.88%.  This derivative is accounted for as a cash flow hedge.



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We have operations in foreign locations that subject us to market risk from changes in foreign currency exchange rates as well as weak economic conditions in foreign markets.  Historically, we have not entered into foreign currency derivative instruments but may decide to mitigate our foreign currency risk with derivative instruments in the future.

Credit Risk

We are subject to credit risk related to our accounts receivable.  Credit risk relates to the risk of loss we would incur as a result of our customers not paying us for work performed under the terms of our contractual agreements.  We maintain credit policies with regard to our customers to minimize overall credit risk.

Item 4.

Controls and Procedures

Disclosure Controls and Procedures

The term disclosure controls and procedures is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934.  The rules refer to controls and other procedures designed to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified.  As of September 30, 2008, the Companys management, including the CEO and CFO, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on this evaluation, management, including the CEO and CFO, concluded that as of September 30, 2008, our disclosure controls and procedures were effective at ensuring that material information related to us or our consolidated subsidiaries is made known to them and is disclosed on a timely basis in our reports filed under the Exchange Act.

Changes in Internal Control over Financial Reporting

We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.  Based on the most recent evaluation, we have concluded that no change in our internal control over financial reporting occurred during the last fiscal quarter that materially affected or is reasonably likely to materially affect our internal control over financial reporting.  On December 11, 2007, we completed the acquisition of Horizon.  We continue to integrate Horizons historical internal controls over financial reporting into our own internal controls over financial reporting within our overall control structure.  This ongoing integration may lead to our making additional changes in our internal controls over financial reporting in future fiscal periods.

PART II - OTHER INFORMATION

Item 1A.

Risk Factors

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

This quarterly report contains 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: changes in the level of offshore exploration, development and production activity in the oil and natural gas industry, 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, risks associated with our relationship with



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Helix, our controlling stockholder, and other risks detailed in Part I, Item 1A - Risk Factors in our 2007 Annual Report on Form 10-K.  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.

Information regarding risk factors appears in Part I, Item 2 Managements Discussion and Analysis of this Form 10-Q and in Part I, Item 1A Risk Factors of our 2007 Annual Report on Form 10-K.  There have been no material changes to the risk factors previously disclosed in our 2007 Annual Report on Form 10-K.

Item 6.

Exhibits

Exhibits filed as part of this quarterly report are listed in the Exhibit Index appearing on page 21.



Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.



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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 on October 31, 2008.

| |                              |                                                                                  
| | ---------------------------- | ---------------------------------------------------------------------------------
| | CAL DIVE INTERNATIONAL, INC.
| |                              |                                                                                  
| |                              |                                                                                  
| |                              |                                                                                  
| | By:                          | /s/ Quinn J. Hébert                                                              
| |                              | Quinn J. Hébert
President and Chief Executive Officer                            
| |                              |                                                                                  
| |                              |                                                                                  
| |                              |                                                                                  
| | By:                          | /s/ G. Kregg Lunsford                                                            
| |                              | G. Kregg Lunsford
Executive Vice President,
Chief Financial Officer and Treasurer





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EXHIBIT INDEX

|               |                                                                                                                                  |                           |            |            |         |  | 
|-------------- | -------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ---------- | ---------- | ------- |  | 
|               |                                                                                                                                  | Filed
with this
Form 10-Q |            |            |        
|Exhibit
Number |                                                                                                                                  | Incorporated by Reference
|Exhibit Title  | Form                                                                                                                             | File No.                  | Date Filed
|3.1            | Amended and Restated Certificate of Incorporation of Cal Dive International, Inc.                                                |                           | 10-K       | 000-33206  | 3/1/07 
|3.2            | Amended and Restated Bylaws of Cal Dive International, Inc.                                                                      |                           | 10-K       | 000-33206  | 3/1/07 
|4.1            | Specimen Common Stock certificate of Cal Dive International, Inc.                                                                |                           | S-1        | 333-134609 | 5/31/06
|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 G. Kregg Lunsford, Chief Financial Officer | X                         |            |            |        
|32.1           | Section 1350 Certification by Chief Executive Officer and Chief Financial Officer                                                | X                         |            |            |        







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