UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2007

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

Commission File Number: 0-28316

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  ¨  Accelerated Filer x  Non-accelerated filer ¨  

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

Yes o No x

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

The number of shares of the registrant’s common stock, $0.01 par value per share, outstanding at July 21, 2007 was     14,949,144.

TRICO MARINE SERVICES, INC.

REPORT FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2007

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.    Financial Statements.

1

2

3

4

5

6

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

(Unaudited)

1.   Financial statement presentation:

The accompanying unaudited condensed consolidated financial statements do not include certain information and footnote disclosures required by United States generally accepted accounting principles, or GAAP. The interim financial statements and notes are presented as permitted by instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements have been included and consist only of normal recurring items. The quarterly financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K of Trico Marine Services, Inc. (the “Company”) for the year ended December 31, 2006. The results of operations for the three-month period and six-month period ended June 30, 2007 are not necessarily indicative of the results that may be expected for the year ended December 31, 2007.

The consolidated balance sheet at December 31, 2006 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by United States GAAP for complete financial statements.  

2.

Comprehensive Income

Comprehensive income for the three and six month period ended June 30, 2007 and 2006 (in thousands)

3.

Other Assets

The Company’s other assets consist of the following at June 30, 2007 and December 31, 2006 (in thousands):

4.

Assets held for sale and sales of vessels:

The cold stacked vessel is included in assets held for sale at its book value, as the estimated fair value less costs to sell exceed the book value.

7

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

(Unaudited)

Even though the SWATH has been classified as held for sale for over a year, management has concluded that the SWATH continues to meet the requirements of an asset held for sale per Statement of Financial Accounting Standards No. 144 (“SFAS 144”), Accounting for the Impairment or Disposal of Long-Lived Assets. During this time, the Company has actively solicited, but did not receive any reasonable offers to purchase the SWATH; therefore, in the third quarter of 2006, the Company recorded an additional impairment of $3.2 million partially offset by $0.6 million in insurance recoveries received during 2006. The SWATH continues to be actively marketed at a price that the Company believes to be reasonable based on current market conditions.

In the first quarter of 2007, three supply vessels and one crew boat were sold for $4.7 million in net proceeds with a corresponding aggregate gain of $2.8 million.

5.

Earnings per share:

The following is a reconciliation of basic and diluted earnings per share (“EPS”) computations for the three month period ending June 30, 2007 and 2006 (in thousands, except share and per share data).

For the three months ended June 30, 2007, options to purchase 62,900 shares of common stock at prices ranging from $33.75 to $37.01 were excluded from the computation of diluted earnings per share because the proceeds from the exercise of these options, including the unrecognized compensation, exceeded the average stock price and inclusion of these shares would have been antidilutive.

For the three months ended June 30, 2006, options to purchase 49,500 shares of common stock at prices ranging from $27.13 to $33.75 were excluded from the computation of diluted earnings per share because the proceeds from the exercise of these options, including the unrecognized compensation, exceeded the average stock price and inclusion of these shares would have been antidilutive.

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share (“EPS”) computations for the six month period ending June 30, 2007 and 2006 (in thousands, except share and per share data).

8

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

(Unaudited)

For the six months ended June 30, 2007, options to purchase 62,900 shares of common stock at prices ranging from $33.75 to $37.01 were excluded from the computation of diluted earnings per share because the proceeds from the exercise of these options, including the unrecognized compensation, exceeded the average stock price and inclusion of these shares would have been antidilutive.

For the six months ended June 30, 2006, options to purchase 49,500 shares of common stock at prices ranging $27.13 to $33.75 were excluded from the computation of diluted earnings per share because the proceeds from the exercise of these options, including the unrecognized compensation, exceeded the average stock price and inclusion of these shares would have been antidilutive.

6.

Equity-based compensation:

The Company recognizes expense for its share-based payments in accordance with SFAS 123 (revised), Share-Based Payment (“SFAS 123R”).

On March 21, 2007, pursuant to the terms and conditions of the 2004 Plan, the Company granted 84,812 shares of restricted stock.  The table below lists the shares and recipients of the March 21, 2007 restricted stock grant.

^{(1) The forfeiture restrictions relating to the shares of restricted stock granted expire three years after date of grant.}

^{(2) The forfeiture restrictions relating to the restricted stock lapsed one month after date of grant.}

9

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

(Unaudited)

In connection with the 2004 Plan, the Company issued stock options to purchase 43,900 shares of the Company’s common stock.  The table below lists the shares and recipients of the stock options granted on March 21, 2007:

⁽¹⁾

^{The forfeiture restrictions relating to the shares of stock options issued vest ratably over three years beginning at the date of grant.}

For the three months ended June 30, 2007 and 2006, the Company recognized approximately $0.2 million and $0.1 million, respectively, of share-based compensation expense related to stock options and approximately $0.9 million and $0.8 million, respectively, of share-based compensation expense related to restricted shares and restricted share units. For the six months ended June 30, 2007 and 2006, the Company recognized approximately $0.3 million and $0.3 million, respectively, of share-based compensation expense related to stock options and approximately $1.4 million and $0.9 million, respectively, of share-based compensation expense related to restricted shares and restricted share units. No net tax benefits were recorded for the options since the Company provides for a full valuation allowance against its U.S. deferred tax assets.  

The unamortized compensation expense, net of estimated forfeitures, related to restricted shares, restricted share units and stock options issued and outstanding as of  June 30, 2007 will be recognized in future periods as follows:

A summary of the changes to the Company’s stock options during the six months ended June 30, 2007 is presented below:

10

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

(Unaudited)

A summary of the changes to the Company’s restricted stock as of June 30, 2007 is presented below:

On July 9, 2007, the Company granted 50,000 restricted stock shares and issued 50,000 stock options to purchase shares of the Company’s common stock concurrent with senior management changes.  Of the 50,000 restricted shares granted, 25,000 shares will vest one month after date of grant, and the remaining 25,000 will vest on July 9, 2010.  The forfeiture restrictions related to the shares of stock options issued vest ratably over three years.

Stockholder Rights Plan

On April 9, 2007, the Company’s Board of Directors adopted a Stockholder Rights Plan, the (“Rights Plan”).  Under the Rights Plan, the Company declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of common stock held by stockholders of record as of the close of business on April 19, 2007.  Each Right initially entitles stockholders to purchase a fractional share of the Company’s preferred stock at $52 per share.  However, the Rights are not immediately exercisable and will become exercisable only upon the occurrence of certain events.  If a person or group acquires or announces a tender or exchange offer that would result in the acquisition of 15% or more of the Company’s common stock while the Rights Plan remains in place, then, unless the Rights are redeemed by the Company, the Rights will become exercisable by all holders of the Rights except the acquiring person or group for shares of the Company or the third party acquirer having a value of twice the Right’s then-current exercise price. Existing holders of more than 15 percent of the Company’s common stock will not trigger the rights plan so long as the holders do not acquire beneficial ownership of additional shares in an amount that exceeds 0.1% of the then outstanding common stock.  The Rights Plan will expire on April 9, 2010.  Notwithstanding the foregoing, the Rights Plan will expire at the close of business on the date that the Company’s 2008 annual meeting of stockholders has finally adjourned unless the Rights Plan is approved by the vote of the holders of a majority of Disinterested Shares (as defined in the Rights Plan) present in person or by proxy at such meeting.

7.

Taxes:

The Company’s income tax expense for the three months ended June 30, 2007 and 2006 is comprised of income tax expenses of $3.5 million and $8.1 million, respectively.  The Company’s income tax expense for the six months ended June 30, 2007 and 2006 is comprised of income tax expenses of $12.4 million and $15.0 million, respectively. Income tax expense for each period is primarily associated with the Company’s U.S. and foreign operations. The Company’s June 30, 2007 effective tax rate of 42% differs from the statutory rate primarily due to alternative minimum tax, state and foreign tax and U.S. tax on foreign sourced income.  In accordance with SOP 90-7 related to fresh-start accounting, the Company is providing no tax benefit from the utilization of pre-reorganization net operating loss (“NOL”) carryforwards for which a valuation allowance had previously been established.  The Company’s June 30, 2006 effective tax rate of 38% differs slightly from the statutory rate primarily due to state and foreign taxes.  

11

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

(Unaudited)

As of December 31, 2005, the Company had approximately $325 million in pre-reorganization net operating loss (the “NOL”) carryforwards and $6.0 million in post-reorganization NOL carryforwards that were scheduled to expire at various periods through 2024.  Upon reorganization, the Company recognized cancellation of debt income of $166.5 million when our $250.0 million 8 7/8% senior notes due 2012 (the “Senior Notes”) were converted to equity. Pursuant to applicable tax law, approximately $76.0 million of this cancellation of debt and $68.0 million of disallowed interest expense reduced the NOL carryforward.  Additionally, a change in ownership, may limit the ultimate utilization of our NOLs pursuant to Section 382 of the Internal Revenue Code (“Section 382”).  An ownership change may result from, among other things, transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period.  

The Company’s reorganization created a change in ownership.  Accordingly, the rules of Section 382 will limit the utilization of NOLs.  In the 2005 income tax return, the Company had the option to compute the limitation pursuant to the following two alternatives:

1.

Forego any annual limitation on the utilization of the NOL carryforward by reducing such NOL carryforward by the amount of interest paid or accrued over the past three years by the predecessor corporation on indebtedness that was converted to equity.  Under this option, if another ownership change were to have occurred before March 15, 2007, the entire NOL carryforward would be reduced to zero,  or  

2.

Elect to apply an annual limitation on the utilization of the NOL.  Under this alternative election, past interest expense would not reduce the NOL carryforward and future ownership changes would not eliminate the NOL carryforward completely.  However, the NOL carryforward would be significantly limited on an annual basis.

In the 2005 income tax return filed in April 2007, the Company elected to forego the annual NOL limitation.  There was no change in ownership before March 15, 2007; thus, the NOL will not be reduced to zero.

A valuation allowance was provided against the Company’s U.S. net deferred tax asset as of the reorganization date. Fresh-start accounting rules require that release of the valuation allowance recorded against pre-confirmation net deferred tax assets is reflected as an increase to additional paid-in capital.  To date, the Company has released approximately $21.6 million of the valuation allowance related to the pre-confirmation net deferred tax asset, which has increased the Company’s additional paid-in-capital account.

Although the Company had profitable operations during the first two quarters of 2007, all four quarters in 2006 and during the fourth quarter of 2005 from its U.S. operations, the history of negative earnings from these operations in the recent past constitutes significant negative evidence substantiating the need for a full valuation allowance against the U.S. net deferred tax assets as of June 30, 2007. The Company will use cumulative profitability as a key indicator to substantiate the release of the valuation allowance. This will result in an increase in additional paid in capital at the time the valuation allowance is reduced.   If the Company continues to be profitable, it may become appropriate for the valuation allowance to be released in 2007.

The Company adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes", on January 1, 2007.  As a result of adoption, we recognized approximately $0.1 million to the January 1, 2007 retained earnings balance.  During the three months ended June 30, 2007, the Company recognized $0.1 million in uncertain tax positions and $0.1 million in penalties and interest. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.  

We conduct business globally and, as a result, one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions.  In the normal course of business we are subject to examination by taxing authorities worldwide, including such major jurisdictions as Norway, Mexico, Brazil, Nigeria, Angola, Hong Kong, China, and the United States. The tax years 2003-2006 remain open to examination by the major taxing jurisdictions to which we are subject.

12

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

(Unaudited)

On March 22, 2002, the Company’s Brazilian subsidiary received a non-income tax assessment from a Brazilian State tax authority for approximately 25.1 million Reais ($13.0 million at June 30, 2007).  The tax assessment is based on the premise that certain services provided in Brazilian federal waters are considered taxable by certain Brazilian states as transportation services.  The Company filed a timely defense at the time of the assessment.  In September 2003, an administrative court upheld the assessment.  In response, the Company filed an administrative appeal in the Rio de Janeiro administrative tax court in October 2003.  In November 2005, the Company’s appeal was submitted to the Brazilian State attorneys for their response.  The Company is currently waiting for a ruling on its appeal and is under no obligation to pay the assessment unless and until such time as all appropriate appeals are exhausted.  The Company intends to vigorously challenge the imposition of this tax. Many of our competitors in the marine industry have also received similar non-income tax assessments. Broader industry actions have been taken against the tax in the form of a suit filed at the Brazilian federal Supreme Court seeking a declaration that the state statute attempting to tax the industry’s activities is unconstitutional. This assessment is not income tax based and is therefore not accounted for under FIN 48. The Company has not accrued for the assessment of the liability as it is not considered “probable” as defined by SFAS No. 5.

During the third quarter of 2004, the Company received a separate non-income tax assessment from the same Brazilian State tax authority for approximately 2.7 million Reais ($1.4 million at June 30, 2007).  This tax assessment is based on the same premise as noted above. The Company filed a timely defense in October 2004.  In January 2005, an administrative court upheld the assessment.  In response, the Company filed an administrative appeal in the Rio de Janeiro administrative tax court in February 2006.  This assessment is not income tax based and is therefore not accounted for under FIN 48.  The Company has not accrued for the assessment of the liability as it is not considered “probable” as defined by SFAS No. 5.

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

The Company’s Norwegian subsidiary is a member of the Norwegian shipping tax regime, which enables the indefinite deferral of the payment of income taxes as long as certain criteria are met.  If the Company fails to meet these criteria, the subsidiary may be deemed to have exited the shipping tax regime and, as a result, a portion of the deferred tax liability may become due and payable.  The Company currently believes that it is in good standing with the Norwegian shipping tax regime.

8.

Debt:

The Company’s debt consists of the following at June 30, 2007 and December 31, 2006 (in thousands):

13

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

(Unaudited)

Maturities on debt for the remainder of 2007, the next five subsequent years and thereafter are as follows (in thousands):

(1)

During the application of fresh-start accounting, the Company recorded a fair-value adjustment to its fixed rate 6.11% Notes and its then outstanding 6.08% Notes of approximately $0.5 million as a result of current interest rates being lower than the Company’s stated interest rates on its fixed-rate debt.  Fair value was determined using discounted future cash flows based on quoted market prices, where available, on its current incremental borrowing rates for similar types of borrowing arrangements as of March 15, 2005, the date we exited bankruptcy (the “Exit Date”).  This premium will be amortized over the remaining life of the debt using the effective interest rate method, which will lower future interest expense.

On February 7, 2007, we issued $125.0 million of 3.00% senior convertible debentures due in 2027 (the “Senior Debentures”).  On February 12, 2007 the purchasers of the Senior Debentures exercised the purchase option for an additional $25.0 million of Senior Debentures.

The Senior Debentures will be exchangeable into cash and, if applicable, shares of our common stock, par value $.01 per share, based on an initial conversion rate of 23.0216 shares of common stock per $1,000 principal amount of Senior Debentures (which is equal to an initial conversion price of approximately $43.44 per share), subject to adjustment and certain limitations.  If converted, holders will receive cash up to the principal amount, and, if applicable, excess conversion value will be delivered in common shares.  Holders may convert their Senior Debentures at their option at any time prior to the close of business on the business day immediately preceding the maturity date only under the following circumstances: (1) prior to January 15, 2025, on any date during any fiscal quarter (and only during such fiscal quarter) commencing after March 31, 2007, if the last reported sale price of our common stock is greater than or equal to 125% of the base conversion price of the Senior Debentures for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter; (2) during the five business-day period after any 10 consecutive trading-day period (the “measurement period”) in which the trading price of $1,000 principal amount of Senior Debentures for each trading day in the measurement period was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on such trading day; (3) if the Senior Debentures have been called for redemption; or (4) upon the occurrence of specified corporate transactions set forth in the indenture governing the Senior Debentures (the “Indenture”).  Holders may also convert their Senior Debentures at their option at any time beginning on January 15, 2025, and ending at the close of business on the business day immediately preceding the maturity date.  The conversion rate will be subject to adjustments in certain circumstances.  In addition, following certain corporate transactions that also constitute a fundamental change (as defined in the Indenture), we will increase the conversion rate for a holder who elects to convert its Senior Debentures in connection with such corporate transactions in certain circumstances.

The Senior Debentures will bear interest at a rate of 3.00% per year payable semiannually in arrears on January 15 and July 15 of each year beginning July 15, 2007.  The Senior Debentures will mature on January 15, 2027, unless earlier converted, redeemed or repurchased.

14

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

(Unaudited)

We may not redeem the Senior Debentures before January 15, 2012.  On or after January 15, 2012, we may redeem for cash all or a portion of the Senior Debentures at a redemption price of 100% of the principal amount of the Senior Debentures to be redeemed plus accrued and unpaid interest to, but not including, the redemption date.  In addition, holders may require us to purchase all or a portion of their Senior Debentures on each of January 15, 2014, January 15, 2017 and January 15, 2022.  In addition, if we experience specified types of corporate transactions, holders may require us to purchase all or a portion of their Senior Debentures.  Any repurchase of the Senior Debentures pursuant to these provisions will be for cash at a price equal to 100% of the principal amount of the Senior Debentures to be purchased plus accrued and unpaid interest to the date of repurchase.

The Senior Debentures are senior unsecured obligations of the Company and rank equally in right of payment to all of the Company’s other existing and future senior indebtedness.  The Senior Debentures are effectively subordinated to all of our existing and future secured indebtedness to the extent of the value of our assets collateralizing such indebtedness and any liabilities of our subsidiaries. The Senior Debentures and shares of the common stock, assumable in certain circumstances upon the conversion of the Senior Debentures have been registered under the Securities Act of 1933.  We sold the debentures to the initial purchasers in reliance on the exemption from registration provided by Section 4(2) of the Securities Act.  The initial purchasers then sold the Senior Debentures to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A under the Securities Act.  We relied on these exemptions from registration based in part on representations made by the initial purchasers in the purchase agreement.

9.

Employee benefit plans:

Substantially all of the Company’s Norwegian and United Kingdom employees are covered by a number of non-contributory, defined benefit pension plans. Benefits are based primarily on participants’ compensation and years of credited service. The Company uses a December 31 measurement date for Norwegian pension plans.  The Company’s policy is to fund contributions to the plans based upon actuarial computations.  

The Company made funding contributions as follows for the three months ended June 30, 2007 and 2006 (in thousands):  

The Company made funding contributions as follows for the six months ended June 30, 2007 and 2006 (in thousands):
 

The remainder of 2007 estimated funding contributions for the Norwegian Pension Plan and the United Kingdom Defined Benefits plan are approximately $0.2 million and $0.6 million, respectively.

15

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

(Unaudited)

Components of net periodic benefit cost are as follows for the three months ended June 30, 2007 and 2006 (in thousands):

Components of net periodic benefit cost are as follows for the six months ended June 30, 2007 and 2006 (in thousands):

10.

Contingent litigation:

As reported in our Form 10-K for the year ended December 31, 2006, on December 21, 2004 (the “Commencement Date”), Trico Marine Services, Inc. and two of its U.S. subsidiaries, Trico Marine Assets, Inc. and Trico Marine Operators, Inc., (collectively, the “Debtors”) filed “prepackaged” voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) under case numbers 04-17985 through 04-17987.  The reorganization was being jointly administered under the caption “In re Trico Marine Services, Inc., et al., Case No. 04-17985.”  On March 15, 2005, we satisfied all conditions to the effectiveness of the plan of reorganization and emerged from protection of Chapter 11.  In July 2005, Steven and Gloria Salsberg, two holders of our warrants to purchase common stock, commenced an adversary proceeding against the Debtors in the Bankruptcy Court under proceeding number 05-02313 seeking revocation of the Debtors’ confirmed and substantially consummated plan of reorganization.  The basis of their complaint was that the plan was approved based on inaccurate information provided by the Company.  On January 6, 2006, the Bankruptcy Court granted our motion to dismiss the adversary proceeding.  The Bankruptcy Court did grant the plaintiffs leave to amend their complaint to assert claims that do not seek revocation of the plan of reorganization.  On January 23, 2006, plaintiffs filed additional pleadings asking the Bankruptcy Court to reconsider its dismissal of the proceedings.  The Debtors filed their response on February 6, 2006.  The Bankruptcy Court declined to vacate its order of dismissal while it deliberated on the plaintiffs’ request for reconsideration.

On May 5, 2006, the court reaffirmed its prior ruling dismissing the adversary complaint and allowing plaintiffs to file an amended complaint.  On June 5, 2006, plaintiffs filed an amended complaint and on June 16, 2006, plaintiffs moved to amend their amended complaint.  On November 22, 2006, the Bankruptcy Court denied plaintiff's motion. Plaintiff's moved for reargument of the Court's decision and on January 16, 2007 the Bankruptcy Court denied that motion.  An evidentiary hearing on certain limited issues was set for April 18, 2007.  

16

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

(Unaudited)

A limited evidentiary hearing was held on May 21, 2007.  The parties are now submitting post-trial briefs and the matter will be under judgment by the court on July 31, 2007.  

We believe that the plaintiffs’ allegations are without merit, and we intend to defend the action vigorously.

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

11.

Segment and geographic information:

The U.S. segment represents the domestic operations; the North Sea segment includes operations in Norway and the United Kingdom; the West Africa segment represents operations in West Africa; and Other includes primarily the Company’s operations in Mexico, Brazil and China which are currently combined due to materiality.

Financial information for the three months ended June 30, 2007 and 2006 by segment and other is as follows:

(1)  Includes amortization of non-cash deferred revenues of $0.2 million and $1.3 million for the three months ended June 30, 2007 and 2006, respectively.

Financial information for the six months ended June 30, 2007 and 2006 by segment and other is as follows:

(1)  Includes amortization of non-cash deferred revenues of $0.4 million and $2.6 million for the six months ended June 30, 2007 and 2006, respectively.

17

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

(Unaudited)

A reconciliation of segment data to consolidated data as of June 30, 2007 and 2006 is as follows (in thousands):

12.

Minority owned consolidated subsidiary:

On June 30, 2006, the Company entered into a long term shareholders agreement with a wholly owned subsidiary of China Oilfield Services Limited (“COSL”) for the purpose of providing marine transportation services for offshore oil and gas exploration, production and related construction and pipeline projects mainly in Southeast Asia.  As a result of this agreement, the companies formed a limited liability company, Eastern Marine Services Limited ("EMSL"), located in Hong Kong.  The Company owns a 49% interest in EMSL, and COSL owns a 51% interest.

The Company followed the guidance in FASB issued Interpretation No. 46R (revised December 2003), “Consolidation of Variable Interest Entities” (“FIN 46R”) and has determined that EMSL should be consolidated by the Company.  The focus of FIN 46R is on controlling financial interests that may be achieved through arrangements that do not involve voting interests.  FIN 46R concludes that in the absence of clear control through voting interest, a company’s exposure (variable interest) to the economic risks and potential rewards from the variable interest entity are the best evidence of control.  The entity that holds the majority interest in the variable interest entity is considered the primary beneficiary and is required to consolidate the variable interest entity.

The Company has determined that EMSL is a variable interest entity and has concluded that at inception it was the primary beneficiary based on terms in the shareholders agreement. For the three and six months ended June 30, 2007, the partner’s share of EMSL’s loss was approximately $0.7 million and $2.6 million, respectively, which increased “Noncontrolling interest in loss of a consolidated subsidiary” on the Company’s Condensed Consolidated Statement of Income.

The Company has a 49% variable interest in a Mexican subsidiary, Naviera Mexicana de Servicios, S. de R.L de C.V. (“NAMESE”), which it consolidates.  The Company has been determined to be the primary beneficiary of the entity because all operating decisions are made by the Company; thus, consolidation is appropriate under FIN 46(R).  For the three and six months ended June 30, 2007, the partner’s share of NAMESE’s profits was approximately $0.2 million and $0.5 million, respectively, which reduced “Noncontrolling interest in loss of a consolidated subsidiary” on the Company’s Condensed Consolidated Statement of Income.

18

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

(Unaudited)

13.

New Accounting Standards

Accounting standards yet to be adopted:

During September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”).   SFAS No. 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities.  SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement and therefore should be determined based on the assumptions that market participants would use in pricing an asset or liability.  SFAS No. 157 sets out a fair value hierarchy and requires companies to disclose fair value measurements within that hierarchy.  SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact SFAS No. 157 may have on its consolidated financial position or results of operations.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”).   This statement, which is expected to expand fair value measurement, permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 will be effective for us beginning in the first quarter of 2008.  The Company is currently assessing the impact SFAS No. 159 may have on its consolidated financial position or results of operations.

Adopted Accounting standards:

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”).  This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. The interpretation prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 as of January 1, 2007, as required.  The cumulative effect of adopting FIN 48 was $0.1 million recorded in retained earnings.

In February 2006, the FASB issued Statement of Financial Accounting Standard No. 155, Accounting for Certain Hybrid Financial Instruments – An Amendment of FASB Statements No. 133 and 140 (“SFAS No. 155”).  SFAS No. 155 simplifies the accounting for certain hybrid financial instruments, eliminates the interim FASB guidance which provides that beneficial interests in securitized financial assets are not subject to the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and eliminates the restriction on the passive derivative instruments that a qualifying special-purpose entity may hold.  SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006.  The adoption of SFAS No. 155 resulted in no significant impact on the Company’s consolidated financial position or results of operations.

14.

Subsequent Events

Resignation of Chief Executive Officer. On July 9, 2007, Trevor Turbidy, the Company’s Chief Executive Officer, resigned his position as President and Chief Executive Officer and as a director of the Company. Mr. Turbidy also resigned from his various positions at the Company’s subsidiaries.

Appointment of new Chief Executive Officer. On July 9, 2007, Joseph S. Compofelice, the Company's Executive Chairman, was appointed President and Chief Executive Officer of the Company.  Mr. Compofelice’s appointment as Chief Executive Officer is for a term of one year, and he is retaining his position as Chairman of the Board of the Company.

Resignation of Senior Vice President, Operations. On July 9, 2007, Larry D. Francois, the Company’s Senior Vice President, Operations, resigned his position as Senior Vice President, Operations, effective August 20, 2007.

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ITEM 2.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

Primary Factors Affecting our Results of Operations

Our financial condition and results of operations are impacted primarily by “day rates” and “vessel utilization.” Typically, marine support vessels are priced to the customer on the basis of a daily rate, or “day rate,” regardless of whether a charter contract is for several days or several years.  The “average day rate” of a vessel, or class of vessel, is calculated by dividing its revenues by the total number of days such vessel was under contract during a given period.  A vessel’s utilization is the number of days in a period the vessel is under contract as a percentage of the total number of days in such period.

Day Rates and Utilization. Our results of operations are affected primarily by our day rates and vessel utilization. Day rates and utilization are primarily driven by:

·

demand for our vessels;

·

increase in new vessels;

·

customer requirements;

·

our available vessels, and;

·

competition.

The level of offshore oil and gas drilling activity primarily determines the demand for our vessels, which is typically influenced by exploration and development budgets of oil and gas companies.  The number of drilling rigs in our market areas is a leading indicator of drilling activity.  

Overall, the size, configuration, age and capabilities of our fleet, relative to our competitors and customer requirements, determine our day rates and utilization.  In the case of supply vessels and large capacity platform supply vessels, or PSVs, their deck space and liquid mud and dry bulk cement capacities are important attributes.  In certain markets and for certain customers, horsepower, dynamic positioning systems, and fire-fighting systems are also important requirements.  For crew boats, size and speed are important factors.

Our industry is highly competitive and our day rates and utilization are also affected by the supply of other vessels with similar configurations and capabilities available in a given market area.  Competition in the marine support services industry primarily involves:

·

price, service, capability of providing services worldwide, reputation of vessel operators, safety record and crews; and

·

the age, quality and availability of vessels of the type and size required by the customer.

Operating Costs. Our operating costs are primarily a function of the active fleet size, which excludes our cold-stacked vessels.  The most significant direct operating costs are wages paid to vessel crews, maintenance and repairs, marine inspection and classification costs, supplies and marine insurance.  When we charter vessels, we are typically responsible for normal operating expenses, repairs, wages and insurance, while our customers are typically responsible for mobilization expenses, including fuel costs.

Management’s Outlook

We believe the following trends should impact our earnings:

·

increasing demand from West Africa, Mexico,  Southeast Asia and other emerging markets;

·

the reliability of supply in major oil producing nations such as the United States, the Middle East and Nigeria, as affected by weather, geopolitical instability and other threats;

·

increasing demand for vessels due to increased activity in areas ancillary to existing markets; and

·

seasonal weather conditions in the North Sea and their impact on offshore development operations.

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In the future, we expect that emerging international markets such as West Africa and Southeast Asia, among other regions and subsea activity in the Gulf of Mexico, will command a higher percentage of worldwide oil and gas exploration, development, production and related spending and will result in greater demand for our vessels.  To capitalize on this long-term growth potential, we intend to invest in new vessels and to deploy additional existing vessels to these regions as market conditions warrant or opportunities arise.

Sustained high oil and gas prices, increasing energy demand from China and other emerging markets, and threatened reliability of supply in major oil producing nations have resulted in increased offshore drilling, construction and repair activity worldwide by independents, major international energy companies and national oil companies.  We expect international offshore drilling, exploration and production activity to remain strong for the remainder of 2007.  However, it is unknown how much U.S. based vessel demand will be affected by the reduced number of jack-up rigs which service offshore drilling and exploration in the U.S. Gulf of Mexico.  The Company has diversified its fleet to international markets, thereby reducing its Gulf of Mexico fleet size and, as a result, reduced its exposure to the volatility of the non term charter portion of the U.S. Gulf of Mexico market.

Non-GAAP Financial Measures

We disclose and discuss adjusted EBITDA as a Non-GAAP financial measure in our public releases, including quarterly earnings releases, investor conference calls and other filings with the Securities Exchange Commission, or the Commission. We define adjusted EBITDA as earnings (net income) before interest, income taxes, depreciation and amortization, gains (loss) on sales of assets, stock based compensation, other income (loss) and noncontrolling interest in loss of a consolidated subsidiary.  Our measure of adjusted EBITDA may not be comparable to similarly titled measures presented by other companies.  Other companies may calculate adjusted EBITDA differently than we do, which may limit its usefulness as a comparative measure.

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

Adjusted EBITDA is widely used by investors and other users of our financial statements as a supplemental financial measure that, when viewed with our GAAP results and the accompanying reconciliation, we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our ability to maintain or improve equipment, invest in new vessels, provide working capital to support our operating activities and service debt.  

Adjusted EBITDA is also one of the financial metrics used by management (i) as a supplemental internal measure for planning and forecasting overall expectations and for evaluating actual results against such expectations; (ii) as a significant criterion for annual incentive cash bonuses paid to our executive officers and other shore-based employees; and (iii) to assess our ability to service existing fixed charges, incur additional indebtedness and execute our growth strategy.

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The following table provides the detailed components of adjusted EBITDA, as we define that term, for the three months and six months ended June 30, 2007 and 2006, respectively (in thousands).

The following table reconciles adjusted EBITDA to operating income for the three and six months ended June 30, 2007 and 2006, respectively (in thousands).

Results of Operations

The table below sets forth by vessel class, the average day rates and utilization for our vessels and the average number of vessels we operated during the periods indicated.  Average day rates are calculated before the effect of amortization of deferred revenue on unfavorable contracts.  

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(1)

Anchor handling, towing and supply vessels.

(2)

Stacked vessels for the Gulf of Mexico supply vessel class are included in the average number of vessels and the calculation of utilization.  Excluding stacked vessels, our utilization was 91%, 81%, 87%, 82%, 87%, for the period from July 1, 2007 through July 27, 2007 and the three month periods ended June 30, 2007 and 2006, and the six months ended June 30, 2007 and 2006, respectively.

(3)

Effective May 2007, five of our GOM Supply vessels entered into bareboat contracts which decreased average Supply vessel day rates. Including the five vessels under bareboat agreements in 2007, our average day rates were $8,349, $8,976, and $9,334 with utilization of 90%, 75%, and 73% for the period from July 1, 2007 through July 27, 2007, the three month period ended June 30, 2007, and the six months ended June 30, 2007 respectively.

Comparison of day rates and utilization during the three and six months ended June 30, 2007 and 2006

For our North Sea class PSVs and AHTSs, average day rates increased 24% and 38% and utilization decreased 7% and 5% for the three and six months ended June 30, 2007, respectively, compared to the same periods in 2006.  The increased average day rates can be attributed to increased demand for North Sea vessels during 2007 caused by shortages in the supply of vessels and increased exploration and production activities worldwide.  The impact of strong market conditions in the North Sea for the six and three months ended June 30, 2007 was partially offset by the fact that we have a majority of our North Sea vessels under medium or long-term contracts at day rates below current market prices.  The decrease in utilization can be attributed to an increase in maintenance and classification work.

For the Gulf class supply vessels, average day rates decreased 17% and 11% from the peak rates in the first and second quarter of 2007, respectively; however, utilization increased 9% and 8% for the three and six months ended June 30, 2007, respectively, compared to the same periods in 2006. The decrease in day rates can be attributed to a softening in the market for shallow water activity and the absence of the increase business in the second half of 2006 from hurricanes Rita and Katrina. The increase in utilization is primarily a result of destacking vessels to deploy them internationally.

Day rates for our crew boats and line handler increased 15% and 36% and utilization decreased 13% and 8% for the three and six months ended June 30, 2007, respectively, compared to the same periods in 2006.    The increase in day rates can be attributed to the sale of vessels that were operated under bareboat agreements in 2006.  The decrease in utilization can be attributed to an increase in maintenance and classification work.

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Comparison of the Results for the three months ended June 30, 2007 and 2006

Charter Hire Revenues.  Our charter hire revenues decreased $2.0 million primarily due to decreased day rates and utilization discussed previously above partially offset by a weaker U.S. Dollar relative to the Norwegian Kroner, which caused a $1.1 million positive impact on revenue.  

Amortization of Non-Cash Deferred Revenues.  Amortization of non-cash deferred revenues decreased $1.1 million primarily due to the expiration in 2006 of certain unfavorable contracts recorded at the Exit Date.  This amortization was required after several of our contracts were deemed to be unfavorable compared to market conditions on the Exit Date, thus creating a liability required to be amortized as revenue over the remaining contract periods.

Direct Operating Expenses.   Direct vessel operating expenses increased $8.0 million primarily due to:

·

increased  costs of $3.5 million primarily attributable to the mobilization cost of five vessels to Southeast Asia, increased fuel costs and a new Norwegian emissions tax;

·

increased labor cost of $2.1 million as a result of increased crew labor rates; and,

·

increased maintenance and classification costs of $1.6 million primarily attributable to an increase in the average shipyard costs in the North Sea and one additional North Sea vessel on dry dock.

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General & Administrative Expenses. General and administrative expenses increased $3.6 million primarily due to:

·

increased professional fees of $1.8 million related to a successful proxy contest and the pursuit of acquisition opportunities that did not result in a completed transaction;

·

 $0.5 million to expand and relocate operations in West Africa with heightened security measures; and

·

increased non-cash stock and cash compensation expense of $0.8 million.

Insurance Recovery from a Loss on Assets Held for Sale. In 2006, the Company recognized $0.6 million in insurance recoveries as a result of greater than anticipated insurance recoveries on assets that were damaged in 2005.

Interest Expense. Interest expense increased $0.6 million primarily due to accrued interest on our 3% Senior Convertible Debentures issued February 7, 2007.

Interest income. Interest income increased $3.2 million primarily due to an increase in cash equivalents and available for sale securities.

Income tax expense. Consolidated income tax expense in the second quarter of 2007 was $3.4 million, which is primarily related to the income generated by our U.S and Norwegian operations.  The Company’s second quarter 2007 effective tax rate of 47% differs from the statutory rate of 35% primarily due to the alternative minimum tax, state and foreign taxes and U.S. tax on foreign sourced income. Included in the $3.4 million of income tax expense, is a $0.5 million deferred tax charge with an offset to additional paid-in-capital due to the utilization of net operating loss that existed at the fresh-start date.  We recorded income tax of $8.1 million in the second quarter of 2006, which was primarily related to income generated by our U.S. and Norwegian operations.  The Company’s second quarter 2006 effective tax rate of 40% differs from the statutory rate of 35% primarily due to state and foreign taxes. Included in the $8.1 million of income tax expense is a $4.8 million deferred tax charge with an offset to additional paid-in-capital due to the utilization of net operating loss that existed at the fresh-start date.

Noncontrolling interest in loss of consolidated subsidiary. The noncontrolling interest in loss of consolidated subsidiary of $0.5 million for the second quarter of 2007 primarily represents the noncontrolling interest’s share of EMSL’s loss partially offset by the noncontrolling interest’s share of our Mexican partnership’s income.  The loss in EMSL is a primary result of the mobilization of five cold-stacked vessels contributed to the partnership.

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Comparison of the Results for the six months ended June 30, 2007 and 2006

Charter Hire Revenues.  Our charter hire revenues increased $8.2 million primarily due to increased day rates and a weaker U.S. Dollar relative to the Norwegian Kroner, which caused a $3.1 million positive impact on revenue.  

Amortization of Non-Cash Deferred Revenues.  Amortization of non-cash deferred revenues decreased $2.2 million primarily due to the expiration in 2006 of certain unfavorable contracts recorded at the Exit Date.  This amortization was required after several of our contracts were deemed to be unfavorable compared to market conditions on the Exit Date, thus creating a liability required to be amortized as revenue over the remaining contract periods.

Other Vessel Income.  Other vessel income increased $1.4 million primarily resulting from revenue generated through the early termination of a charter hire contract.

Direct Operating Expenses.   Direct vessel operating expenses increased $18.2 million primarily due to:

·

increased costs of $7.9 million which is primarily due to the mobilization cost of five vessels to Southeast Asia and increased fuel costs;

·

increased labor cost of $5.6 million as a result of increased crew labor rates and pension expense;

·

increased maintenance and classification costs of $2.2 million primarily attributable to an increase in the average shipyard costs in the North Sea and one additional North Sea vessel on dry dock; and,

·

increased maintenance and repairs of $2.2 million primarily due to vessels in the North Sea.

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General & Administrative Expenses. General and administrative expenses increased $5.0 million primarily due to:

·

increased  professional fees of $1.6 million due to costs associated with a successful proxy contest and the pursuit of acquisition opportunities that did not result in a completed transaction;

·

increased costs of $0.8 million expand and relocate operations in West Africa with heightened security measures;

·

increased non-cash stock compensation expense of $0.7 million;

·

increased accounting fees of $0.6 million primarily related to the adoption of FIN 46 and other tax compliance services; and,

·

increased salaries of $0.5 million related to senior management changes.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased $0.9 million primarily related to the reduction of our fleet through vessel sales.  

Gain on Sale of Assets. Gain on sale of assets increased $1.7 million primarily due the sale of four vessels in the first quarter of 2007.

Interest Expense. Interest expense increased $0.9 million primarily due to accrued interest on our 3% Senior Convertible Debentures issued February 7, 2007.

Interest income. Interest income increased $5.3 million primarily due to an increase in cash equivalents and available for sale securities.

Income tax expense. Consolidated income tax expense for the six months ended June 30, 2007 was $12.4 million, which is primarily related to the income generated by our U.S and Norwegian operations.  The Company’s June 30, 2007 effective tax rate of 42% differs from the statutory rate of 35% primarily due to the alternative minimum tax, state and foreign tax and U.S. tax on foreign sourced income. Included in the $12.4 million of income tax expense, is a $4.8 million deferred tax charge with an offset to additional paid-in-capital due to the utilization of net operating loss that existed at the fresh-start date.  We recorded income tax expense in the first six months of 2006 of $15.0 million, which was primarily related to income generated by our U.S. and Norwegian operations.  The Company’s June 30, 2006 effective tax rate of 38% differs from the statutory rate of 35% primarily due to state and foreign taxes.  Included in the $15.0 million of income tax expense is an $8.9 million deferred tax charge with an offset to additional paid-in-capital due to the utilization of net operating loss that existed at the fresh-start date.

Noncontrolling interest in loss of consolidated subsidiary. The noncontrolling interest in loss of consolidated subsidiary of $2.1 million for the first six months of 2007 primarily represents the noncontrolling interest’s share of EMSL’s loss partially offset by the noncontrolling interest’s share of our Mexican partnership’s income.  The loss in EMSL is a primary result of the dry-dock completion and mobilization of five cold-stacked vessels contributed to the partnership.

Our Liquidity and Capital Resources

Description of Indebtedness

Senior Convertible Debentures

On February 7, 2007, we issued $125.0 million of our Senior Debentures.  On February 12, 2007, the initial purchasers of the Senior Debentures exercised in full their purchase option for an additional $25.0 million in Senior Debentures.

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The Senior Debentures will be exchangeable into cash and, if applicable, shares of the our common stock, par value $.01 per share, based on an initial conversion rate of 23.0216 shares of common stock per $1,000 principal amount of debentures (which is equal to an initial conversion price of approximately $43.44 per share), subject to adjustment and certain limitations.  If converted, holders will receive cash up to the principal amount, and, if applicable, excess conversion value will be delivered in common shares.  Holders may convert their Senior Debentures at their option at any time prior to the close of business on the business day immediately preceding the maturity date only under the following circumstances: (1) prior to January 15, 2025, on any date during any fiscal quarter (and only during such fiscal quarter) commencing after March 31, 2007, if the last reported sale price of our common stock is greater than or equal to 125% of the base conversion price of the Senior Debentures for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter; (2) during the five business-day period after any 10 consecutive trading-day period (the “measurement period”) in which the trading price of $1,000 principal amount of Senior Debentures for each trading day in the measurement period was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on such trading day; (3) if the Senior Debentures have been called for redemption; or (4) upon the occurrence of specified corporate transactions set forth in the Indenture.  Holders may also convert their Senior Debentures at their option at any time beginning on January 15, 2025, and ending at the close of business on the business day immediately preceding the maturity date.  The conversion rate will be subject to adjustments in certain circumstances.  In addition, following certain corporate transactions that also constitute a fundamental change (as defined in the Indenture), we will increase the conversion rate for a holder who elects to convert its Senior Debentures in connection with such corporate transactions in certain circumstances.

The Senior Debentures will bear interest at a rate of 3.00% per year payable semiannually in arrears on January 15 and July 15 of each year beginning July 15, 2007.  The Senior Debentures will mature on January 15, 2027, unless earlier converted, redeemed or repurchased.

We may not redeem the Senior Debentures before January 15, 2012.  On or after January 15, 2012, we may redeem for cash all or a portion of the Senior Debentures at a redemption price of 100% of the principal amount of the debentures to be redeemed plus accrued and unpaid interest to, but not including, the redemption date.  In addition, holders may require us to purchase all or a portion of their Senior Debentures on each of January 15, 2014, January 15 2017 and January 15, 2022.  In addition, if we experience specified types of corporate transactions, holders may require us to purchase all or a portion of their Senior Debentures.  Any repurchase of the Senior Debentures pursuant to these provisions will be for cash at a price equal to 100% of the principal amount of the debentures to be purchased plus accrued and unpaid interest to the date of repurchase.

The Senior Debentures are senior unsecured obligations of the Company and rank equally in right of payment to all of the Company’s other existing and future senior indebtedness.  The Senior Debentures are effectively subordinated to all of our existing and future secured indebtedness to the extent of the value of our assets collateralizing such indebtedness and any liabilities of our subsidiaries.  The Senior Debentures and shares of the common stock, assumable in certain circumstances upon the conversion of the Senior Debentures have been registered under the Securities Act of 1933.  We sold the Senior Debentures to the initial purchasers in reliance on the exemption from registration provided by Section 4(2) of the Securities Act.  The initial purchasers then sold the Senior Debentures to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A under the Securities Act.  We relied on these exemptions from registration based in part on representations made by the initial purchasers in the purchase agreement.

NOK Revolver

We entered into our Norwegian Kroner (“NOK) revolving credit facility (the “NOK Revolver”) in June 1998.  In April 2002, we amended the NOK 650 million ($110.3 million) credit facility by increasing the capacity to NOK 800 million ($135.7 million) and revising reductions to the facility amount to provide for NOK 40 million ($6.8 million) reductions every six months starting in March 2003.  The NOK Revolver provides for a NOK 280 million ($47.5 million) balloon payment in September of 2009.  Amounts borrowed under the NOK Revolver bear interest at the Norwegian interbank offer rate, or NIBOR, plus 1.0% beginning January 2007.  At June 30, 2007, the NOK Revolver had a total facility amount of NOK 406 million ($68.9 million) with no outstanding balance.

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Currently, the NOK Revolver is collateralized by mortgages on nine North Sea class vessels and contains covenants that require the North Sea operating unit to maintain certain financial ratios and places limits on the operating unit’s ability to create liens, or merge or consolidate with other entities.  Our NOK Revolver provides for other covenants, including affirmative and negative covenants with respect to furnishing financial information, insuring our vessels, maintaining the class of our vessels, mortgaging or selling our vessels, borrowing or guaranteeing loans, complying with certain safety and pollution codes, paying dividends, managing our vessels, transacting with affiliates, flagging our vessels and depositing, assigning or pledging our earnings.  The availability of the NOK Revolver was reduced by NOK 34 million ($5.8 million) on April 20, 2006 as a result of the sale of two AHTS vessels and two PSV vessels to EMSL.  We are currently in compliance with the financial covenants in the NOK Revolver.

MARAD Bonds

In 1999, Trico Marine International, Inc. a special purpose subsidiary, issued $18.9 million of 6.11% notes due 2014, of which $8.8 million was outstanding at June 30, 2007.  The special purpose subsidiary is 100% owned by a subsidiary of the Company and is consolidated in our financial statements.  The note is guaranteed by the Company and the U.S. Maritime Administration.  

Our Capital Requirements

We believe that our current working capital and projected cash flows from operations will be sufficient to meet our cash requirements for the foreseeable future and will fund our previously announced vessel new builds.

As a regular part of our business, we review opportunities for, and engage in discussions and negotiations concerning, the acquisition of  Offshore Supply Vessels (“OSV”) or other oilfield service assets and interests in OSV or other oilfield service companies and related businesses, and acquisitions of, or combinations with, such companies and related businesses. When we believe that these opportunities are consistent with our growth plans, our acquisition criteria and are more likely than not to enhance shareholder value, we will make bids or proposals and/or enter into letters of intent and other similar agreements, which may be binding or nonbinding, that are customarily subject to a variety of conditions and usually permit us to terminate the discussions and any related agreement if, among other things, we are not satisfied with the results of our due diligence investigation. Any acquisition opportunities we pursue could materially affect our liquidity and capital resources and may require us to incur indebtedness, seek equity capital or both. There can be no assurance that additional financing will be available on terms acceptable to us, or at all.

Our ongoing capital requirements arise primarily from our need to maintain or improve equipment, invest in new vessels, provide working capital to support our operating activities and service debt.  

The net proceeds received from the sales of the Senior Debentures were approximately $145.2 million.  We intend to use the net proceeds of this offering for general corporate purposes, which may include pursuing opportunities in emerging markets, further augmenting our fleet renewal program, expanding our service offering and pursuing strategic acquisition opportunities that may arise.

At June 30, 2007, we had approximately $257.4 million in cash and $12.9 million in restricted cash.  Of the approximately $257.4 million in cash, $4.3 million is dedicated to fund the operations of EMSL.  Pursuant to the shareholders agreement, the Company will be required to fund start-up costs in accordance with its equity ownership to the extent that these start-up costs exceed EMSL’s available cash.  The Company will bareboat five of the vessels contributed to the EMSL partnership for at least the next six months.  The bareboat rate will allow the Company to maintain the same operating margins prior to contribution of vessels.

Of the 14 vessels contributed to EMSL, five vessels, which were previously stacked, have been mobilized to Southeast Asia.  Funds and bills of sale for four vessels that will not be contributed until early 2008 are held in escrow pending the December 2008 closing.

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In addition to cash on hand, our NOK Revolver has a total facility amount of NOK 406 million ($68.9 million).   Until December 31, 2007, the Funded Debt to EBITDA ratio should not exceed 5.5, and thereafter through the Loan Period the Funded Debt to EBITDA ratio should not exceed 5 times the level of operating income plus depreciation and amortization of our North Sea operations on a trailing twelve month basis.  The NOK Revolver availability reduces by NOK 40 million ($6.8 million) every March and September.  If earnings were to decrease on a rolling twelve month basis, the facility’s availability would be further restricted.  

In December 2006, $32.0 million in cash was repatriated from one of our Norwegian subsidiaries to its parent company, Trico Marine Cayman L.P.  There were no adverse tax consequences related to this repatriation of cash.  We do not anticipate repatriating funds from our Cayman Island Subsidiary to the U.S. We plan to use the funds in the Cayman Islands for future international expansion.  It is not anticipated that we will need to repatriate any additional funds from Norway in the near future to fund U.S. operations or domestic and international expansion.