UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Mark One)

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

For the quarterly period ended September 30, 2007

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

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 October 31, 2007 was 15,006,944.

TRICO MARINE SERVICES, INC.

REPORT FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2007

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

as of September 30, 2007 and December 31, 2006

(Dollars in thousands, except share and per share amounts)

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

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except share and per share amounts)

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

2

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except share and per share amounts)

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

3

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)

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

4

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity and Comprehensive Income

(Dollars in thousands, except share amounts)

(Unaudited)

5

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 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 nine-month period ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ended December 31, 2007.

2.

Comprehensive Income:

Comprehensive income for the three and nine month periods ended September 30, 2007 and 2006 (in thousands) is as follows:

3.

 Common Stock Repurchase Program:

In July 2007, the Company’s Board of Directors authorized the repurchase up to $100.0 million of the Company’s common stock in open-market transactions, including block purchases, or in privately negotiated transactions (the “Repurchase Program”).   For the three and nine month periods ended September 30, 2007, the Company expended $17.6 million for the repurchase of 570,207 common shares, at an average price paid per common share of $30.87.  Other than shared purchased pursuant to the agreement described below, all shares were repurchased in open market transactions.

On August 9, 2007, the Company entered into a stock purchase agreement (the “Agreement”) with Kistefos AS, a Norwegian stock company (“Kistefos”), pursuant to which the Company may purchase up to $20.0 million of shares (the “Shares”) of the Company’s common stock, par value $0.01 per share from Kistefos from time to time in conjunction with the Company’s $100 million share repurchase program that was authorized by the Company’s Board of Directors on July 30, 2007 (the “Repurchase Program”) during the period beginning August 9, 2007 and ending on the earlier of (i) the date the Company has acquired $20.0 million of Shares from Kistefos, (ii) the date the Company publicly announces the termination or expiration of the Company’s Repurchase Program or (iii) the date on which Kistefos ceases to hold any Shares.

On any day on which the Company purchases shares of its common stock pursuant to the Repurchase Program from other stockholders (the “Other Purchases”), the Company will purchase from Kistefos an amount equal to the number of Kistefos’ Shares which could be sold so that (upon completion of the Other Purchases and the purchase from Kistefos) Kistefos’ percentage ownership of the Company’s common stock will remain unchanged.  The purchase price that the Company will pay Kistefos for any such purchases will equal the volume weighted average price for all Shares purchased in the Other Purchases on the applicable purchase date.

6

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

If Kistefos is engaged in a “distribution” of Shares (as such term is defined under Regulation M promulgated by the Securities and Exchange Commission), then Kistefos’ obligation to sell, and the Company’s right to purchase from Kistefos will be suspended during the applicable “restricted period” (as defined in Regulation M).  When any restricted period is terminated, the number of Shares that the Company may purchase will be adjusted so that, on a day the Company makes Other Purchases, the Company will purchase the number of Kistefos’ Shares which could be sold so that (upon completion of the Other Purchases and the purchase from Kistefos), Kistefos will beneficially own not less than the percentage of the outstanding shares of the Company’s common stock that Kistefos beneficially owned at the end of the most recent restricted period.

According to amendment 12 to Schedule 13D filed by Kistefos on July 31, 2007, as of the date of the Agreement, Kistefos beneficially owned 3,000,000 shares of the Company’s outstanding shares of common stock, par value $0.01 per share, or approximately 20.0% of the outstanding shares.  Of the 570,207 common shares purchased by the Company pursuant to the Repurchase Program, 114,042 were purchased from Kistefos pursuant to the Agreement.

All of the shares repurchased in the Repurchase Program through September 30, 2007, are held as treasury stock.  The Company records treasury stock repurchases under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock.

4.

Other Assets:

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

5.

Sales of vessels:

In the first quarter of 2007, three supply vessels and one crew boat were sold for $4.5 million in net proceeds with a corresponding aggregate gain of $2.8 million.

The Company has two remaining cold stacked vessels included in assets held for sale as of September 30, 2007. In the third quarter of 2006, the Company recorded an impairment of $3.2 million partially offset by $0.6 million in insurance recoveries received during 2006 to reflect these assets at their fair value less estimated costs to sell. These assets continue to be actively marketed at a price that the Company believes to be reasonable based on current market conditions.

7

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

6.

Earnings per share:

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

For the three and nine months ended September 30, 2007, options to purchase 96,700 shares of common stock at prices ranging from $33.75 to $39.18 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 and nine months ended September 30, 2007, 3,453,240 shares of common stock related to the potential conversion of the Company’s 3.00% senior convertible debentures (the “Senior Debentures”) were excluded from the computation of diluted earnings per share because the proceeds from the Senior Debentures exceeded the average stock price and inclusion of these shares would have been antidilutive.

For the three and nine months ended September 30, 2006, options to purchase 47,500 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.

8

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

7.

Equity-based compensation:

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

For the nine months ended September 30, 2007, pursuant to the terms and conditions of the 2004 Plan, the Company granted 134,812 shares of restricted stock.   A summary of the restricted shares granted for the nine months ended September 30, 2007 is presented below:

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

^{(2) The officers to whom these shares were granted does not include the current Chief Executive Officer.}

^{(3) The forfeiture restrictions relating to 25,000 shares of the restricted stock lapsed one month after date of grant, and the forfeiture restrictions relating to the remaining 25,000 shares of restricted stock granted expire three years after date of grant.}

^{(4) The forfeiture restrictions relating to the restricted stock lapsed one month after date of grant.}

In connection with the 2004 Plan, the Company issued stock options to purchase 93,900 shares of the Company’s common stock. A summary of the options granted for the nine months ended September 30, 2007 is presented below:

⁽¹⁾

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

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes value method of option pricing with the following weighted-average assumptions:

^{(1) The volatility assumption is based on the average volatility of a peer group.}

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

For the three months ended September 30, 2007 and 2006, the Company recognized approximately $0.5 million and $0.1 million, respectively, of share-based compensation expense related to stock options and approximately $0.9 million and $0.3 million, respectively, of share-based compensation expense related to restricted shares. For the nine months ended September 30, 2007 and 2006, the Company recognized approximately $0.9 million and $0.4 million, respectively, of share-based compensation expense related to stock options and approximately $2.3 million and $1.1 million, respectively, of share-based compensation expense related to restricted shares. 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 and stock options issued and outstanding as of  September 30, 2007 will be recognized in future periods as follows, (in thousands):

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

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

10

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

8.

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.

9.

Taxes:

The Company’s income tax expense for the three month periods ended September 30, 2007 and 2006 is $9.9 million and $10.0 million, respectively.  The Company’s deferred income tax for the three month periods ended September 30, 2007 and 2006 is $9.0 million and $9.6 million, respectively. The Company’s income tax expense for the nine months ended September 30, 2007 and 2006 is comprised of income tax expenses of $22.3 million and $24.9 million, respectively.  The Company’s deferred income tax for the nine months ended September 30, 2007 and 2006 is $19.3 million and $23.0 million, respectively. The income tax expense for each period is primarily associated with the Company’s U.S., alternative minimum tax, state and foreign taxes. The Company’s effective tax rate of 42.7% and 38% for the periods ending September 30, 2007 and 2006 differs from the statutory rate primarily due to state and foreign taxes, alternative minimum tax and the change in the FIN 48 tax reserve discussed below.

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 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”).  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 $25.7 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.  As of September 30, 2007, the remaining net operating loss was approximately $96.8 million.

Although the Company recorded a profit from operations during the first three 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 September 30, 2007. The Company will use cumulative profitability and future income projections as key indicators 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

11

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

Company continues to be profitable, it is possible we will release the valuation allowance at some future date.

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 nine months ended September 30, 2007, the Company recognized $0.9 million in uncertain tax positions and $0.5 million in penalties and interest. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As a result of an ongoing tax examination in Mexico, the Company has determined that a previously recognized tax position is no longer more likely than not to be sustained.  The taxing authority and Company are in current discussions; however, the Company does not anticipate resolution at the audit level and may have to revert to the court system for relief.  As such, the Company has recognized $0.5 million in uncertain tax positions and $0.4 million in interest and penalties during the third quarter related to the aforementioned change in judgment. Management does not expect any material changes to the total amount of unrecognized tax benefits in the next twelve months.

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.

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 ($13.7 million at September 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 ($1.5 million at September 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.

12

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

On September 7, 2007, the Norwegian Government announced a new proposal for taxation of Norwegian ship-owning companies under the Norwegian tonnage tax regime.  The proposal was presented to Parliament on October 5, 2007 as part of the 2008 National Budget.  The new tonnage tax regime, as proposed, is based on the European Union model and would be applied retroactively to January 1, 2007. As a result, all shipping and certain related income, but not financial income, would be exempt from ordinary corporate income tax and subjected to a tonnage based tax. Unlike the current regime, where the taxation was only due upon a distribution of profits or an outright exit from the regime, the new regime provides for a tax exemption on profits earned after January 1, 2007.  Companies that are in the current regime, and enter into the new regime, will be subject to tax at 28% for all non-taxed retained earnings generated between 1996 through December 31, 2006 in the tonnage tax company.

Trico's policy under the current regime has been to recognize the deferred taxes associated with the earnings of our Norwegian Shipping tax regime subsidiary based on the 28% Norwegian statutory rate, which as of December 31, 2006, totaled NOK 394 million ($72.8 million).  If the new proposal is enacted, all or a portion of the tax liability accrued through December 31, 2006 could become payable over a ten year period, although one-third of the amount may be set off to an environmental fund and be exempted from taxation.  In addition, the Company continues to recognize taxes on its 2007 earnings of the Norwegian Shipping tax regime subsidiary ($10.3 million as of September 30, 2007) and will continue to do so consistent with our current policy.  Should the new legislation be enacted as proposed, the deferred taxes recognized on earnings generated after January 1, 2007 and through the date of enactment would be exempt from taxation requiring the Company to reverse the associated deferred tax liability.  The reversal of the deferred tax liability would result in a reduction to income tax expense in the period the new legislation is enacted.   The Company will continue to monitor the proposal as it is considered in Parliament and will report the impact, if any, upon final resolution.

On October 1, 2007, the Mexican Government enacted substantial changes to its tax system.  The new tax law generally takes effect on January 1, 2008.  Of particular importance is the law’s introduction of a flat tax (known as IETU), which replaces Mexico’s asset tax and will apply to taxpaying entities along with Mexico’s regular income tax.  The Company believes that this flat tax is an income tax and should be accounted for under FASB Statement No. 109, Accounting for Income Taxes.  The Company has not completed its analysis and will report the impact, if any, of the new tax law in its consolidated financial statements in the fourth quarter of 2007.

10.

Debt:

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

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 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 June 25, 2007, EMSL, a jointly owned subsidiary of the Company, entered into a loan agreement (“Credit Facility Agreement”).  The Credit Facility Agreement is a secured revolving/term loan that will allow EMSL to borrow up to $5.0 million for financing of general working capital requirements. It is collateralized by a first preferred mortgage on one vessel and bears an annual interest rate of Libor plus a 0.08% margin. The maturity date of the facility agreement is June 25, 2010.  On August 28, 2007, EMSL made a $2.0 million draw on the Credit Facility Agreement to augment its liquidity. The interest rate on the draw was set at 6.23% and matures on February 28, 2008.

In February 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 are convertible 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), if the last reported sale price of our common stock is greater than or equal to $54.30 (subject to adjustment) 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. For the period ending September 30, 2009, the Senior Debentures were nonconvertible.

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

The Senior Debentures bear interest at a rate of 3.00% per year payable semiannually in arrears on January 15 and July 15 of each year.  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 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. We have filed a shelf registration statement under which resales of the Senior Debentures and shares of the common stock issuable upon the conversion of the Senior Debentures have been registered under the Securities Act of 1933.  

11.

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 and nine months ended September 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 $0.3 million and $0.1 million, respectively.

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

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

12.

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. Plaintiffs moved for reargument of the Court's decision and on January 16, 2007 the Bankruptcy Court denied that motion.  

A limited evidentiary hearing was held on May 21, 2007.  On August 23, 2007, the Court held that the Debtors did not provide any inaccurate information to the Court, and dismissed all of plaintiff’s claims on the merits.  Plaintiffs are appealing the decision.

We believe that the plaintiffs’ allegations are without merit as the Court has already held, and we intend to defend the appeal 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.

13.

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 several West Africa countries; and the Other includes primarily the Company’s operations in Mexico, Brazil and China which are currently combined due to immateriality.

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

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

(1)  Includes amortization of non-cash deferred revenues of $0.2 million and $1.1 million for the three months ended September 30, 2007 and 2006, respectively.

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

(1)  Includes amortization of non-cash deferred revenues of $0.7 million and $3.7 million for the nine months ended September 30, 2007 and 2006, respectively.

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

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

14.

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 nine months ended September 30, 2007, the partner’s share of EMSL’s loss was approximately $0.2 million and $2.9 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 nine months ended September 30, 2007, the partner’s share of NAMESE’s profits was approximately $0.2 million and $0.7 million, respectively, which reduced “Noncontrolling interest in loss of a consolidated subsidiary” on the Company’s Condensed Consolidated Statement of Income.

15.

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 statements.

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 statements.

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 offshore 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:

·

continued high 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;

·

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

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

·

seasonal weather conditions in the North Sea and the Gulf of Mexico and their impact on offshore oil and gas operations.

In the future, we expect that emerging international markets such as West Africa and Southeast Asia, among other regions and subsea activity 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 which can benefit from the growth in subsea activity 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 shelf region 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, reducing exposure to the volatility of the non-term charter portion of the U.S. Gulf of Mexico market.  As the Company invests in the delivery of services in the subsea market, the Company expects to further reduce the volatility of non-term charter revenue by entering into longer term contracts in higher growth markets.

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 & 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.

20

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

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

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

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

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.  

(1)

Anchor handling, towing and supply vessels.

(2)

Effective May 2007, five of our Gulf Class Supply vessels entered into bareboat contracts which decreased average Supply vessel day rates.  Including the five vessels under bareboat agreements, our average day rates were $7,985, $8,429, $11,639, $8,994 and $11,189 for the period from October 1, 2007 through October 26, 2007, the three month periods ended September 30, 2007 and 2006 and the nine month periods ended September 30, 2007 and 2006, respectively.

(3)

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 75%, 87%, 91%, 83%, 89%, for the period from October 1, 2007 through October 26, 2007, the three month periods ended September 30, 2007 and 2006, and the nine months periods ended September 30, 2007 and 2006, respectively.

Comparison of day rates and utilization during the three and nine months ended September 30, 2007 and 2006

For our North Sea class PSVs and AHTSs, average day rates increased 23% and 33% for the three and nine months ended September 30, 2007, respectively, compared to the same periods in 2006. Utilization remained relatively flat for the periods presented.  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 three and nine months ended September 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.  

For the Gulf class supply vessels, average day rates decreased 16% and 13% with utilization increasing 13% and 10% for the three and nine months ended September 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 increased business in 2006 from hurricanes Rita and Katrina. The increase in utilization is primarily a result of destacking vessels to deploy them internationally.

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

Day rates for our crew boats and line handler increased 7% and 26% with utilization decreasing 6% and 7% for the three and nine months ended September 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.

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