Trico Marine Services (TRMA)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Commission File Number: 0-28316

Trico Marine Services, Inc.

(Exact name of registrant as specified in its charter)

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

Securities registered pursuant to Section 12(b) of the Act:

None.

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value per share

      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 o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      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 o

      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 filer” in Rule 12b-2 of Exchange Act.     Large Accelerated Filer o          Accelerated Filer x          Non-accelerated Filer o

      Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes o          No x

      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act.     Yes o          No x

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

      The aggregate market value of the voting stock held by non-affiliates of the Registrant at June 30, 2005 based on the average bid and asked price of such voting stock on that date was $191,715,212.

      The number of shares of the Registrant’s common stock, $0.01 par value per share, outstanding at February 27, 2006 was 14,638,103.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant’s definitive proxy statement, to be filed electronically no later than 120 days after the end of the fiscal year, are incorporated by reference in Part III.

TRICO MARINE SERVICES, INC.

ANNUAL REPORT ON FORM 10-K FOR THE

YEAR ENDED DECEMBER 31, 2005

TABLE OF CONTENTS

PART I

General

      We are a provider of marine support vessels to the offshore oil and gas industry, primarily in the North Sea, Gulf of Mexico, and to a lesser extent, West Africa, Mexico and Brazil. As of January 31, 2006, our fleet consisted of 72 vessels, including ten large capacity platform supply vessels, six large anchor handling, towing and supply vessels, 45 supply vessels, ten crew boats, and one line handling (utility) vessel. Our diversified fleet of vessels provides a broad range of services to offshore oil and gas operators, including the transportation of drilling materials, supplies and crews to drilling rigs and other offshore facilities; towing drilling rigs and equipment from one location to another; and support for the construction, installation, repair and maintenance of offshore facilities. Using our larger and more sophisticated vessels, we also provide support for deepwater ROVs (remotely operated vehicles), well stimulation, sea floor cable laying and trenching services.

      We generate the majority of our revenues by chartering our vessels on a day rate basis. A charter is a contract that can either be for a fixed term or taken from the spot market (a relatively short, indefinite term). We typically retain operational control over the vessel and are responsible for normal operating expenses, repairs, wages and insurance, while our customers are typically responsible for mobilization expenses, including fuel costs.

      We are a Delaware holding company formed in 1993. We provide all of our services through our direct and indirect subsidiaries in each of the markets in which we operate. Our domestic subsidiaries include Trico Marine Assets, Inc., which owns the majority of our vessels operating in the Gulf of Mexico and other international regions excluding the North Sea, and Trico Marine Operators, Inc., which operates all of our vessels in the Gulf of Mexico. In addition to our domestic operations, we operate internationally through a number of foreign subsidiaries, including Trico Shipping AS, which owns our vessels based in the North Sea.

      Our principal executive offices are located at 2401 Fountainview Dr., Suite 920, Houston, Texas 77057. Our website address is www.tricomarine.com where all of our public filings are available, free of charge, through website linkage to the Securities and Exchange Commission. The information contained on our website is not part of this annual report. Unless the context represents otherwise, references to “we,” “us,” “our,” “the Company” or “Trico” are intended to mean the consolidated business of Trico Marine Services, Inc.

Business Strategy

      Our primary business strategy focuses on the following:

2005 Events

      Termination of Our U.S. Credit Facility. On November 22, 2005, we entered into an agreement (the “Termination Agreement”) among Trico Marine Operators, Inc., Trico Marine Assets, Inc., and Bear Stearns Corporate Lending, Inc., the Administrative Agent of our $75 million secured credit facility (the “U.S. Credit Facility”), to repay all of the liabilities, obligations and indebtedness outstanding under the U.S. Credit Facility. Under the terms of the Termination Agreement, we agreed to pay to the Administrative Agent $58.1 million, the amount necessary to pay all obligations, together with accrued interest and a prepayment premium of $3.1 million. Upon receipt of the funds by the Administrative Agent, the U.S. Credit Facility, together with all of the obligations, covenants, and liens of the facility were automatically terminated.

      Equity Offering. On October 7, 2005, we announced the commencement of an underwritten public offering of 3,900,000 shares of our common stock. On October 18, 2005, we entered into an underwriting agreement with Lehman Brothers Inc., as representative of the several underwriters named therein with respect to the sale of 3,900,000 shares of our common stock and an over-allotment option to purchase up to an additional 585,000 shares of our common stock. On October 24, 2005, we received $95.3 million in net proceeds from the sale of 4,273,500 shares of our common stock, including 373,500 shares issued pursuant to the underwriters’ partial exercise of their over-allotment option at a public offering price of $24.00 per share. The remaining 211,500 shares of common stock available under the purchase option to cover over-allotments expired on November 18, 2005 without any additional exercises.

      Hurricanes. None of our vessels, nor our operating base in Houma, Louisiana, sustained any significant damage from Hurricanes Katrina or Rita.

      Executive Management Changes. On August 31, 2005, we announced that our Board of Directors appointed Trevor Turbidy to serve as our President and Chief Executive Officer. Mr. Turbidy replaced Mr. Joseph S. Compofelice who served as Interim Chief Executive Officer since March 31, 2005 following the resignation of Thomas Fairley. Mr. Turbidy was also elected to our board of directors for a term expiring in 2006. We also announced the promotion of Geoff Jones to Vice President and Chief Financial Officer, replacing Mr. Turbidy.

      Our Reorganization. On March 15, 2005 (the “Exit Date”), we emerged from bankruptcy proceedings. These proceedings were initiated on December 21, 2004, when we filed “prepackaged” voluntary petitions for reorganization under Chapter 11. The bankruptcy filing was a result of us commencing a process in May 2004 to realign our capital structure with our present and future operating prospects and, together with operational changes made during the same period, provide us with greater liquidity and a lower cost structure. Concurrently with our financial reorganization, the majority of our Board of Directors were replaced.

The Industry

      Marine support vessels are used primarily to transport equipment, supplies, and personnel to drilling rigs, to tow drilling rigs and equipment and to support the construction, installation, repair and maintenance of offshore oil and gas production platforms. The principal types of vessels that we operate can be summarized as follows:

      Platform Supply Vessels. Platform supply vessels, or PSVs, are used primarily for certain international markets and deepwater operations. PSVs serve drilling and production facilities and support offshore construction, repair, maintenance and subsea work. PSVs are differentiated from other offshore support vessels by their larger deck space and cargo handling capabilities. Utilizing space on and below-deck, PSVs are used to transport supplies such as fuel, water, drilling products, equipment and provisions. Our PSVs range in size from 200 feet to more than 300 feet in length and are particularly suited for supporting large concentrations of offshore production locations because of their large deck space and below-deck capacities.

      Anchor Handling, Towing and Supply Vessels. Anchor handling, towing and supply vessels, or AHTSs, are used to set anchors for drilling rigs and tow mobile drilling rigs and equipment from one location to another. In addition to these capabilities, AHTSs can be used in supply, oil spill recovery, tanker lifting and floating production, storage and offloading, or FPSO, support roles when they are not performing anchor handling and towing services. AHTSs are characterized by large horsepower (generally averaging between 8,000 - 18,000 horsepower), shorter afterdecks and special equipment such as towing winches.

      Supply Vessels. Supply vessels generally are at least 165 feet in length and are constructed primarily for operations to serve drilling and production facilities and support offshore construction, repair and maintenance work. Supply vessels are differentiated from other types of vessels by cargo flexibility and capacity. In addition to transporting deck cargo, such as pipe, other drilling equipment or drummed materials, supply vessels transport liquid and dry bulk drilling products, potable and drill water and diesel fuel.

      Crew Boats. Crew boats generally are at least 100 feet in length and are used primarily for the transportation of personnel and light cargo, including food and supplies, to and among drilling rigs, production

platforms and other offshore installations. Crew boats are constructed from aluminum and as a result, they generally require less maintenance and have a longer useful life without refurbishment than steel-hulled supply vessels. All of our crew boats range from 110 to 155 feet in length.

      Line Handling Vessel. The line handling vessel is outfitted with special equipment to assist tankers while they load from single buoy mooring systems. This vessel supports oil off-loading operations from production and storage facilities to tankers and transport supplies and materials to and among offshore facilities.

Market Areas

      We operate primarily in the North Sea, the Gulf of Mexico, and to a lesser extent, West Africa, Mexico and Brazil. We are currently evaluating the desired vessel composition and level of operations in each of these regions. We are also evaluating certain other market areas for possible future strategic development.

      Financial data, including revenues, expenses and assets, of our primary market area/operating segments are detailed in Note 23

      North Sea. The North Sea market area consists of offshore Norway, Great Britain, Denmark, the Netherlands, Germany and Ireland, and the area west of the Shetland Islands. Historically, it has been the most demanding of all offshore areas due to harsh weather, erratic sea conditions, significant water depth and long sailing distances. The entire North Sea has strict vessel requirements which prevent many vessels from migrating to the area. Contracting in the region is generally for term work, often for multiple years. As of January 31, 2006, we had nine PSVs and five AHTSs actively marketed in the North Sea. Local state oil companies and European major international oil companies historically predominated drilling and production activities in the North Sea. Over the past few years, a number of new, smaller entrants have purchased existing properties from the traditional participants or acquired leases, which is leading to an increase in drilling and construction.

      Gulf of Mexico. The Gulf of Mexico is one of the most actively drilled offshore basins in the world and is home to approximately 4,000 production platforms. Shallow water drilling primarily targets natural gas, and deepwater activity is split between natural gas and oil. The weather is generally benign, and harsh environment capable equipment is unnecessary. The Jones Act requires all vessels working in coastwise trade in the Gulf of Mexico to be U.S. built, owned, flagged and crewed. As of January 31, 2006, we had a total of 30 actively marketed vessels in the Gulf of Mexico, including 26 supply vessels and four crew boats. Independent oil companies have become the most active operators in the shallow water Gulf of Mexico while independents and major international oil companies are more active in the deeper water regions. We believe that drilling activity in the shallow water Gulf of Mexico has increased due to sustained high oil and gas prices, the stability of the U.S. market and the existence of subsea infrastructure to transport new production onshore. Construction and repair activity in the Gulf of Mexico has increased to support this drilling and to repair platforms and rigs affected by hurricanes.

      West Africa. We have developing operations in West Africa that are based in Port Harcourt, Nigeria. Several operators have scheduled large scale offshore projects, and we believe that vessel demand in this market will continue to grow. As of January 31, 2006, we had one AHTS, one crew boat, and four supply vessels actively marketed in West Africa. West Africa has become an area of increasing importance for new offshore exploration for the major international oil companies and large independents due to the prospects for large field discoveries in the region. We expect drilling and construction activity in this region to expand over the coming years.

      Mexico. We have operations from several ports in Mexico that are managed from our office in Ciudad del Carmen. This market is characterized primarily by term work, and recently has experienced modest increases in day rates. As of January 31, 2006, we had four crew boats and three supply vessels actively marketed in Mexico. Petróleos Mexicanos, or Pemex, the state-owned oil company of Mexico, is the sole oil and gas operator in this market, is the world’s third largest crude oil producer, and is pursuing a federal plan to increase offshore oil and gas production, including the construction of over 40 new platforms and over

100 miles of pipeline. Construction work to support this growth is performed by numerous local and U.S. contractors. We principally serve the construction market and are seeking to increase our service directly to Pemex.

      Brazil. Offshore exploration and production activity in Brazil is concentrated in the deepwater Campos Basin, located 60 to 100 miles from the Brazilian coast. On May 5, 2005 the Company entered into an agreement to sell five of the six line handler vessels in Brazil. During November 2005, the charterer approved the sale, and the sale was completed in December 2005. Our remaining line handler vessel is contracted to Petróleo Brasileiro SA, or Petrobras, the state-owned oil company and the largest operator in Brazil.

Our Fleet

      Existing Fleet. The following table sets forth information regarding the vessels operated by us as of January 31, 2006:

      As of January 31, 2006, the average age of our vessels was 18 years. A vessel’s age is determined based on the date of construction, provided that the vessel has not undergone a substantial refurbishment. However, if a major refurbishment is performed that significantly increases the estimated life of the vessel, we calculate the vessel’s age based on an average of the construction date and the refurbishment date. We believe that our upgrade and refurbishment program, completed in the first half of 1999, has significantly extended the service life of most of our Gulf class supply vessels.

      Included in Item 7 is an internal allocation of our charter revenues among vessel classes for each of the past three fiscal years.

      Vessel Maintenance. We incur routine dry-dock inspection, maintenance and repair costs under U.S. Coast Guard Regulations and to maintain American Bureau of Shipping, Det Norske Veritas or other certifications for our vessels. In addition to complying with these requirements, we also have our own comprehensive vessel maintenance program that we believe allows us to continue to provide our customers with well maintained, reliable vessels. We incurred approximately $8.5 million, $11.4 million, and $10.8 million in dry-docking and marine inspection costs in the years ended December 31, 2005, 2004 and 2003, respectively.

      On the Exit Date, we elected to change our accounting policy to record all marine inspection costs as expenses in the period in which the costs are incurred. The Company believes that this change is preferable because it provides a better representation of operating expenses and earnings during a given period. For all periods prior to the Exit Date, we recorded the cost of major scheduled dry-dockings in connection with regulatory marine inspections for our vessels as deferred charges. Under this method of accounting, deferred marine inspection costs were amortized over the expected periods of benefit, which typically ranged from two to five years.

      Non-regulatory dry-docking expenditures that are considered major modifications, such as lengthening a vessel, installing new equipment or technology, and performing other procedures which extend the useful life of the marine vessel, are capitalized and depreciated over the estimated useful life. All other non-regulatory dry-docking expenditures are expensed in the period in which they are incurred.

Dispositions of assets

      During the past few years, we began to market some of our older, less utilized assets for sale in an effort to streamline and focus our operations on our core assets. This process resulted in the sale of three cold stacked vessels, one crew boat, five line handler vessels and the decision to market the SWATH crew boat in the fourth quarter of 2005. We also sold three older PSVs, one of which was sold in 2004 and the remaining two vessels were sold in the first and second quarter of 2005. In addition to the sale of vessels, we entered into a sale-leaseback transaction in the fourth quarter of 2004 for our 14,000 square foot primary office in the North Sea to provide additional liquidity. The sale generated approximately $2.8 million of cash proceeds. We entered into a 10-year lease for the use of the facility, with annual rent payments of approximately $0.3 million.

Operations Bases

      Our principal executives operate from our leased headquarters office in Houston, Texas. We support our Gulf operations from an owned 62.5-acre docking, maintenance and office facility in Houma, Louisiana located on the Intracoastal Waterway that provides direct access to the Gulf. Our North Sea operations are supported from leased offices in Fosnavag, Norway and Aberdeen, Scotland. We also have leased sales and operational offices in Port Harcourt, Nigeria and Ciudad del Carmen, Mexico. Our Brazilian operations are supported from an owned maintenance and administrative facility in Macae, Brazil.

Customers and Charter Terms

      Our principal customers in the North Sea are major integrated oil companies and large independent oil and gas companies as well as foreign government owned or controlled companies that provide logistics, construction and other services to such oil companies and foreign government organizations. The charters with these customers are industry standard time charters. Current charters in the North Sea include periods ranging from spot contracts of just a few days or months to long-term contracts of several years.

      We have entered into master service agreements with substantially all of the major and independent oil companies operating in the Gulf. Most of our charters in the Gulf are short-term contracts (60 to 90 days) or spot contracts (less than 30 days) and are cancelable upon short notice. Because of frequent renewals, the stated duration of charters frequently has little relationship to the actual time vessels are chartered to a particular customer.

      As of December 31, 2005, a portion of our fleet is committed under term contracts of various length. Some contracts contain options, at the customer’s sole discretion, to extend the contract for a specified length of time at a specified rate, while other contracts do not contain such option periods. The table below shows our contract coverage if none of the option periods are ratified by our customers (without options) and if all of the option periods are ratified by our customers (with options). A summary of the average terms of those contracts are as follows:

      Due to changes in market conditions since the commencement of the contracts, average contracted day rates could be more or less favorable than market rates at any one point in time.

      Charters are obtained through competitive bidding or, with certain customers, through negotiation. The percentage of revenues attributable to an individual customer varies from time to time, depending on the level of exploration and development activities undertaken by a particular customer, the availability and suitability of our vessels for the customer’s projects, and other factors, many of which are beyond our control.

      No individual customer represented more than 10% of consolidated revenues during 2005, 2004 or 2003, respectively.

Competition

      Competition in the marine support services industry primarily involves factors such as price, service, safety record, reputation of vessel operators and crews, and availability and quality of vessels of the type and size required by the customer. We have several global competitors with operations in most or all of our market areas, and various other regional competitors in each market area. Although a few of our competitors are larger and many have greater financial resources and international experience than us, we believe that our operating capabilities and reputation enable us to compete with other fleets in the market areas in which we operate.

Regulation

      Our operations are significantly affected by federal, state and local regulations, as well as certain international conventions, private industry organizations and laws and regulations in jurisdictions where our vessels operate and are registered. These regulations govern worker health and safety and the manning, construction and operation of vessels. For example, we are subject to the jurisdiction of the U.S. Coast Guard, the National Transportation Safety Board, the U.S. Customs Service and the Maritime Administration of the U.S. Department of Transportation, as well as private industry organizations such as the American Bureau of Shipping and Det Norske Veritas. The latter two organizations establish safety criteria and are authorized to investigate vessel accidents and recommend improved safety standards. In addition, we are subject to regulation in other areas in which we operate.

      The U.S. Coast Guard regulates and enforces various aspects of marine offshore vessel operations, such as classification, certification, routes, dry-docking intervals, manning requirements, tonnage requirements and restrictions, hull and shafting requirements and vessel documentation. U.S. Coast Guard regulations, as well as class and other flag state regulations, as applicable, require that most of our vessels be dry-docked for inspection at least twice within a five-year period, while some U.S. flagged crew boats require dry-docking every two years. We believe we are in compliance in all material respects with all U.S. Coast Guard, flag and port state regulations, as applicable.

      Certifications are required under the newly implemented national maritime security regulations of the Marine Transportation Security Act (the “MTSA”) and the international security regulations of the International Ship and Port Facility Security Code (the “ISPS Code”). The regulations require security assessments and plans to be approved by the U.S. Coast Guard or applicable classification society for all

vessels. Security equipment must also be installed where required. Security training, security audits and vessel security certifications must be completed to ensure the Company is in compliance with the MTSA and ISPS Code, and to ensure the safety of our crew and vessels.

      Under U.S. law, when our vessels are operating between U.S. ports, all licensed personnel must be U.S. citizens and unlicensed seamen must be U.S. citizens or lawfully admitted resident aliens, with the latter not to exceed 25% of the total crew. In addition, under the citizenship provisions of the Merchant Marine Act of 1920 and the Shipping Act of 1916, we can not engage in U.S. coastwise trade if more than 25% of our outstanding stock is owned by non-U.S. citizens. If we should fail to comply with these requirements, during the period of such noncompliance we would not be permitted to continue operating our vessels in coastwise trade.

      Our U.S. operations are also subject to a variety of federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Included among these statutes are the Clean Water Act, the Resource Conservation and Recovery Act (“RCRA”), the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the Outer Continental Shelf Lands Act (“OCSLA”) and the Oil Pollution Act of 1990 (“OPA”). Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations, and even the issuance of injunctive relief. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent and costly waste handling, disposal or cleanup requirements may have an adverse effect on our operations. While we believe that we are in substantial compliance with current environmental laws and regulations and that continued compliance with existing requirements would not materially affect us, there is no assurance that this trend will continue in the future.

      The Clean Water Act imposes strict controls on the discharge of pollutants into the navigable waters of the U.S., and imposes potential liability for the costs of remediating releases of petroleum and other substances. The Clean Water Act provides for civil, criminal and administrative penalties for any unauthorized discharge of oil and other hazardous substances in reportable quantities and imposes substantial potential liability for the costs of removal and remediation. Many states have laws that are analogous to the Clean Water Act and also require remediation of accidental releases of pollutants in reportable quantities. Our vessels routinely transport diesel fuel to offshore rigs and platforms, and also carry diesel fuel for their own use. Our supply vessels transport bulk chemical materials used in drilling activities, and also transport liquid mud which contains oil and oil by-products. All offshore companies operating in the U.S. are required to have vessel response plans to deal with potential oil spills.

      RCRA regulates the generation, transportation, storage, treatment and disposal of onshore hazardous and non-hazardous wastes, and requires states to develop programs to ensure the safe disposal of wastes. We generate non-hazardous wastes and small quantities of hazardous wastes in connection with routine operations. We believe that all of the wastes that we generate are handled in compliance with RCRA and analogous state statutes.

      CERCLA contains provisions dealing with remediation of releases of hazardous substances into the environment and imposes strict, joint and several liability for the costs of remediating environmental contamination upon owners and operators of contaminated sites where the release occurred and those companies who transport, dispose of or who arrange for disposal of hazardous substances released at the sites. Under CERCLA, persons may incur liability for hydrocarbons or other wastes that may have been disposed of or released on or under properties that we own or operate or under other locations where such wastes have been taken for disposal. Under these laws, we could be required to remove previously disposed wastes, remediate environmental contamination, restore affected properties, or undertake measures to prevent future contamination. Although we handle hazardous substances in the ordinary course of business, we are not aware of any hazardous substance contamination for which we may be liable.

      OCSLA provides the federal government with broad discretion in regulating the leasing and development of submerged outer continental shelf lands for oil and gas production. If the government were to exercise its

authority under OCSLA to restrict the availability of offshore oil and gas leases, this could reduce demand for our Gulf class vessels and adversely affect utilization and day rates.

      OPA contains provisions specifying responsibility for removal costs and damages resulting from discharges of oil into navigable waters or onto the adjoining shorelines. Among other requirements, OPA requires owners and operators of vessels over 300 gross tons to provide the U.S. Coast Guard with evidence of financial responsibility to cover the costs of cleaning up oil spills from such vessels. We have provided satisfactory evidence of financial responsibility to the U.S. Coast Guard for all of our Gulf class vessels over 300 tons.

      Our operations outside the U.S. are potentially subject to similar foreign governmental controls and restrictions pertaining to the environment. We believe that our foreign operations are in substantial compliance with existing environmental requirements of such governmental bodies and that compliance has not had a material adverse effect on our operations.

Insurance

      The operation of our vessels is subject to various risks representing threats to the safety of our crews, and to the safety of our vessels and cargo. For our vessels, we maintain insurance coverage against risks such as catastrophic marine disaster, adverse weather conditions, mechanical failure, crew negligence, collision and navigation errors, all of which management considers to be customary in the industry. Also, we maintain insurance coverage against personal injuries to our crew and third parties, as well as insurance coverage against pollution and terrorist acts. We believe that our insurance coverage is adequate and we have not experienced a loss in excess of our policy limits. However, there can be no assurance that we will be able to maintain adequate insurance at rates that we consider commercially reasonable, nor can there be any assurance that such coverage will be adequate to cover all claims that may arise. In recent years, our insurance costs have increased with higher deductibles and retention amounts.

Employees

      As of January 31, 2006, we had 836 employees worldwide, including 734 operating personnel and 102 corporate, administrative and management personnel. We believe our relationship with our employees is satisfactory. To date, strikes, work stoppages, boycotts or slowdowns have not interrupted our operations.

      Our U.S. employees have not chosen to be represented by a labor union and are not covered by a collective bargaining agreement. We, together with other providers of marine support vessels, have in the past been targeted by maritime labor unions in an effort to unionize our Gulf Coast employees.

      Our Norwegian seamen are covered by three union contracts with three separate Norwegian unions. Our United Kingdom seamen are covered by two union contracts with two separate unions. We believe our relationships with our employees in Norway and the United Kingdom are satisfactory.

      Our seamen in Brazil are covered by separate collective bargaining agreements. We believe our relationships with our employees in Brazil are satisfactory.

Cautionary Statements

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

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

Item 1A. Risk Factors

      All phases of our operations are subject to a number of uncertainties, risks and other influences, many of which are beyond our ability to control or predict. Any one of such influences, or a combination, could materially affect the results of our operations and the accuracy of forward-looking statements made by us. Some important risk factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in our forward-looking statements include the following:

Risks Relating to our Business

Our fleet includes many older vessels that may require increased levels of maintenance and capital expenditures to maintain them in good operating condition and the fleet may be subject to a higher likelihood of mechanical failure, inability to economically return to service or requirement to be scrapped.

      As of January 31, 2006, the average age of our vessels was 18 years. The age of many of our competitors’ fleets is substantially younger than ours. Our older fleet is generally less technologically advanced than many newer fleets, is not capable of serving all markets, may require additional maintenance and capital expenditures to be kept in good operating condition, and as a consequence may be subject to longer or more frequent periods of unavailability. For all of these reasons, our existing fleet may be impacted by a downturn in demand for offshore supply vessels more significantly than many of our competitors, which may have a material adverse impact on our financial condition and results of operations.

The cost and availability of dry-dock services may impede our ability to return stacked vessels to the market in a timely manner.

      As of January 31, 2006, we had 12 cold-stacked vessels on which we will have to spend substantial sums in order to return them to service, or to contribute those assets to potential joint ventures in growing international markets. A critical element of our strategy is the redeployment of cold-stacked vessels to growing international markets, as well as to more mature markets such as the Gulf of Mexico when we believe that sustained higher day rates justify such spending. If the cost to dry-dock these vessels should increase, or if the availability of shipyards to perform dry-dock services should decline, then our ability to destack vessels in a timely manner to work at sustained higher day rates, or at all, could be materially affected, which may materially adversely affect our financial condition and results of operations.

Our inability to upgrade our fleet successfully could adversely affect our financial condition and results of operations.

      Our ability to upgrade our fleet depends on our ability to order the construction of new vessels ourselves, or the availability in the market of newer, more technologically advanced vessels with the capabilities to meet our customers’ increasing requirements. In addition, we plan to finance our acquisition of new vessels in part by the sale of some of our existing vessels, which are older than the vessels we intend to build or acquire.

However, a number of markets in which we operate, as well as other markets in which we desire to operate, have age limitations, which could adversely affect our ability to successfully market our older vessels. If we are unable to successfully market our older vessels, then our ability to build or acquire newer vessels and upgrade our fleet may be adversely affected. If we cannot purchase or construct new vessels (including existing contracts for vessels under construction), then our customers may hire our competitors’ vessels, and our financial condition and results of operations could be materially adversely affected.

Increases in size, quality and quantity of the offshore vessel fleet in areas where we operate could increase competition for charters and lower day rates and/or utilization, which would adversely affect our revenues and profitability.

      Charter rates for marine support vessels in our market areas depend on the supply of vessels. Excess vessel capacity in the offshore support vessel industry is primarily the result of either construction of new vessels or the mobilization of existing vessels into fully saturated markets. There are a large number of vessels currently under construction and our competitors have recently placed a large number of orders for new vessels to be delivered over the next few years. In recent years, we have been subject to increased competition from both new vessel constructions, particularly in the North Sea and the Gulf of Mexico, as well as vessels mobilizing into regions in which we operate. For example, certain of our competitors have constructed and have plans to construct additional new U.S.-flagged offshore supply vessels and foreign-flagged offshore supply vessels. A remobilization to the Gulf of Mexico of U.S.-flagged offshore supply vessels operating in other regions or a repeal or significant modification of the Jones Act or the administrative erosion of its benefits, permitting offshore supply vessels that are either foreign-flagged, foreign-built, foreign-owned or foreign-operated to engage in the U.S. coastwise trade, would also result in an increase in capacity. Any increase in the supply of offshore supply vessels, whether through new construction, refurbishment or conversion of vessels from other uses, remobilization or changes in law or its application, could increase competition for charters and lower day rates and/or utilization, which would adversely affect our revenues and profitability.

Operating internationally poses uncertain hazards that increase our operating expenses.

      Our international operations are subject to a number of risks inherent to any business operating in foreign countries, and especially in developing countries. These risks include, among others:

      We cannot predict the nature and the likelihood of any such events. However, if any of these or other similar events should occur, it could have a material adverse effect on our financial condition and results of operations.

As a U.S. corporation, we are subject to the Foreign Corrupt Practices Act, and a determination that we violated this act may affect our business and operations adversely.

      As a U.S. corporation, we are subject to the regulations imposed by the Foreign Corrupt Practices Act (FCPA), which generally prohibits U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business. Any determination that we have violated the FCPA could have a material adverse effect on our business and results of operations.

Our marine operations are seasonal and depend, in part, on weather conditions. As a result, our results of operations will vary throughout the year.

      In the North Sea, adverse weather conditions during the winter months impact offshore development operations. In the Gulf of Mexico, we historically have enjoyed our highest utilization rates during the second and third quarters, as mild weather provides favorable conditions for offshore exploration, development and construction. Activity in the Gulf of Mexico may also be subject to stoppages for hurricanes, particularly during the period ranging from June to November. Accordingly, the results of any one quarter are not necessarily indicative of annual results or continuing trends.

Our operations are subject to operating hazards and unforeseen interruptions for which we may not be adequately insured.

      Marine support vessels are subject to operating risks such as catastrophic marine disasters, natural disasters (including hurricanes), adverse weather conditions, mechanical failure, crew negligence, collisions, oil and hazardous substance spills and navigation errors. The occurrence of any of these events may result in damage to or loss of our vessels and our vessels’ tow or cargo or other property and in injury to passengers and personnel. Such occurrences may also result in a significant increase in operating costs or liability to third parties. We maintain insurance coverage against certain of these risks, which our management considers to be customary in the industry. We can make no assurances that we can renew our existing insurance coverage at commercially reasonable rates or that such coverage will be adequate to cover future claims that may arise. In addition, concerns about terrorist attacks, as well as other factors, have caused significant increases in the cost of our insurance coverage.

Our operations are subject to federal, state, local and other laws and regulations that could require us to make substantial expenditures.

      We must comply with federal, state and local regulations, as well as certain international conventions, the rules and regulations of certain private industry organizations and agencies, and laws and regulations in jurisdictions in which our vessels operate and are registered. These regulations govern, among other things, worker health and safety and the manning, construction and operation of vessels. These organizations establish safety criteria and are authorized to investigate vessel accidents and recommend approved safety standards. If we fail to comply with the requirements of any of these laws or the rules or regulations of these agencies and organizations, we could be subject to substantial administrative, civil and criminal penalties, the imposition of remedial obligations, and the issuance of injunctive relief.

      Our operations also are subject to federal, state and local laws and regulations that control the discharge of pollutants into the environment and that otherwise relate to environmental protection. While our insurance policies provide coverage for accidental occurrence of seepage and pollution or clean up and containment of the foregoing, pollution and similar environmental risks generally are not fully insurable. We may incur substantial costs in complying with such laws and regulations, and noncompliance can subject us to substantial liabilities. The laws and regulations applicable to us and our operations may change. If we violate any such laws or regulations, this could result in significant liability to us. In addition, any amendment to such laws or regulations that mandates more stringent compliance standards would likely cause an increase in our vessel operating expenses.

Our U.S. employees are covered by federal laws that may subject us to job-related claims in addition to those provided by state laws.

      Some of our employees are covered by provisions of the Jones Act, the Death on the High Seas Act and general maritime law. These laws preempt state workers’ compensation laws and permit these employees and their representatives to pursue actions against employers for job-related incidents in federal courts. Because we are not generally protected by the limits imposed by state workers’ compensation statutes, we may have greater exposure for any claims made by these employees or their representatives.

The loss of a key customer could have an adverse impact on our financial results.

      Our operations, particularly in the North Sea, West Africa, Mexico and Brazil, depend on the continuing business of a limited number of key customers. For the year ended December 31, 2005, our largest customer comprised approximately 8.5% of our total revenues. Our results of operations could be materially adversely affected if any of our key customers in these regions terminates its contracts with us, fails to renew our existing contracts or refuses to award new contracts to us.

We are exposed to the credit risks of our key customers, and nonpayment by our customers could adversely affect our financial condition or results of operations.

      We are subject to risks of loss resulting from nonpayment or nonperformance by our customers. Any material nonpayment or nonperformance by our key customers could adversely affect our financial condition, results of operations, and could reduce our ability to pay interest on, or the principal of, our credit facilities. If any of our key customers default on its obligations to us, our financial results could be adversely affected. Furthermore, some of our customers may be highly leveraged and subject to their own operating and regulatory risks.

The loss of key personnel may reduce operational efficiency and negatively impact our results of operations.

      We depend on the continued services of our executive officers and other key management personnel, the loss of any of whom could result in inefficiencies in our operations, lost business opportunities or the loss of one or more customers. We do not maintain key-man insurance. If we lose key personnel, then our ability to operate our business efficiently may be impaired and our results of operations may be negatively impacted.

The loss of crewmembers without replacements in a timely manner may reduce operational efficiency and negatively impact our results of operations.

      We depend on the continued service of our crewmembers to effectively and safely operate our vessels worldwide. As competition increases in each of the markets in which we operate, including the Gulf of Mexico, we are vulnerable to crewmember departures without trained replacements to take their place. Should we experience a significant increase in such departures and be unable to replace them with suitably trained crewmembers, our results of operations will be negatively impacted.

Unionization efforts could increase our costs, limit our flexibility or increase the risk of a work stoppage.

      On December 31, 2005, approximately 40% of our employees worldwide were working under collective bargaining agreements, all of whom were working in Norway, the United Kingdom and Brazil. Efforts have been made from time to time to unionize other portions of our workforce, including workers in the Gulf of Mexico. Any such unionization could increase our costs, limit our flexibility or increase the risk of a work stoppage.

The removal or reduction of the reimbursement of labor costs by the Norwegian government may adversely affect our costs to operate our vessels in the North Sea.

      During July 2003, the Norwegian government began partially reimbursing us for labor costs associated with the operation of our vessels. These reimbursements totaled $5.6 million and $5.5 million in 2005 and 2004, respectively. If this benefit is reduced or removed entirely, our direct operating costs will increase substantially and negatively impact our profitability.

Risks Relating to our Industry

We are dependent on the oil and gas industry. Changes in the level of exploration and production expenditures and in oil and gas prices and industry perceptions about future oil and gas prices could materially decrease our cash flows and reduce our ability to service our credit facilities.

      Our revenues are primarily generated from entities operating in the oil and gas industry in the North Sea, the Gulf of Mexico, West Africa, Mexico and Brazil. Since our revenues are generated primarily from customers having similar economic interests, our operations are susceptible to market volatility resulting from economic or other changes to the oil and gas industry (including the impact of hurricanes). Changes in the level of exploration and production expenditures and in oil and gas prices and industry perceptions about future oil and gas prices could materially decrease our cash flows and reduce our ability to service our credit facilities.

      Demand for our services depends heavily on activity in offshore oil and gas exploration, development and production. The level of exploration and development typically is tracked by the “rig count” in our market areas. The offshore rig count is ultimately the driving force behind the day rates and utilization in any given period. Depending on when we enter into long-term contracts, and their duration, the positive impact on us of an increase in day rates could be mitigated or delayed, and the negative impact on us of a decrease in day rates could be exacerbated or prolonged. This is particularly relevant to the North Sea market, where contracts tend to be longer in duration. A decrease in activity in the Gulf of Mexico and other areas in which we operate could adversely affect the demand for our marine support services, and may reduce our revenues and negatively impact our cash flows. If market conditions were to decline in market areas in which we operate, it could require us to evaluate the recoverability of our long-lived assets, which may result in write-offs or write-downs on our vessels that may be material individually or in the aggregate.

If our competitors are able to supply services to our customers at a lower price, then we may have to reduce our day rates, which would reduce our revenues.

      Certain of our competitors have significantly greater financial resources than we have and more experience operating in international areas. Competition in the marine support services industry primarily involves factors such as:

      Any reduction in day rates offered by our competitors may cause us to reduce our day rates and may negatively impact the utilization of our vessels, which will negatively impact our results of operations.

Risks Relating to our Capital Structure

Our business is highly cyclical in nature due to our dependency on the levels of offshore oil and gas drilling activity. If we are unable to stabilize our cash flow during depressed markets, we may not be able to meet our obligations under credit facilities and we may not be able to secure financing or have sufficient capital to support our operations.

      In depressed markets, our ability to pay debt service and other contractual obligations will depend on improving our future performance and cash flow generation, which in turn will be affected by prevailing economic and industry conditions and financial, business and other factors, many of which are beyond our control. If we have difficulty providing for debt service or other contractual obligations in the future, we will be forced to take actions such as reducing or delaying capital expenditures, reducing costs, selling assets, refinancing or reorganizing our debt or other obligations and seeking additional equity capital, or any combination of the above. We may not be able to take any of these actions on satisfactory terms, or at all.

We may not be able to repatriate funds from Norway to the U.S., which could negatively impact our operational flexibility.

      Our Norwegian subsidiaries generated the majority of our profits and our cash flow from operations during 2005 and prior periods, and from time to time we generate substantial liquidity from these subsidiaries. Our ability to repatriate funds depends on a number of factors, including:

      Assuming that we are otherwise able to repatriate funds from Norway to the U.S., in order to do so in a tax-efficient manner we would also be required to:

      We may not be able to satisfy one or more of these conditions, and as a result we may not be able to repatriate funds from our Norwegian subsidiaries in a tax-efficient manner, or at all. This inability could materially and adversely affect our U.S. cash and liquidity position.

We may face material tax consequences or assessments in countries in which we operate. If we are required to pay material tax assessments, our financial condition may be materially adversely affected.

      We have received tax assessments in Brazil during the past three years, and may receive additional assessments in the future. Our Brazilian subsidiary received tax assessments from Brazilian state tax authorities starting in March of 2002 totaling approximately 27.8 million Reais ($11.9 million at December 31, 2005) in the aggregate. The tax assessments are based on the premise that certain services provided in Brazilian federal waters are considered taxable by certain Brazilian states as transportation services and are subject to a state tax. If the courts in these jurisdictions uphold the assessments, it would have a material adverse affect on our net income, liquidity and operating results. We do not believe any liability in connection with these matters is probable and, accordingly have not accrued for these assessments or any potential interest charges for the potential liabilities.

      In addition, our 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 we fail to meet these criteria, we 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. This could have a material adverse affect on our financial condition. As of December 31, 2005, our Norwegian Shipping tax regime subsidiary has a recognized deferred income tax liability of NOK 311 million ($46.1 million).

Our ability to utilize certain net operating loss carryforwards or investment tax credits may be limited by certain events which could have an adverse impact on our financial results.

      Our ability to utilize certain net operating loss carryforwards may be limited by certain events. At March 15, 2005, we had estimated net operating loss carryforwards (“NOLs”) of $337 million for federal income tax purposes that were set to expire through 2024. Upon reorganization, we recognized cancellation of debt income of $166.5 million when our $250 million 8⁷/8% senior notes due 2012 (the “Senior Notes”) were converted to equity. Due to the change in our ownership, the ultimate utilization of our NOLs may be limited as described below. Section 382 of the Internal Revenue Code (“Section 382”) imposes limitations on a

corporation’s ability to utilize NOLs if it experiences an “ownership change.” 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. In the event of an ownership change, utilization of our NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of our stock immediately before the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation may be carried over to later years. The amount of the limitation may under certain circumstances be increased by the built-in gains in assets held by us at the time of the change that are recognized in the five-year period after the change.

      Our reorganization created a change in ownership limitation on the utilization of our NOLs. As a result, we will be limited in the utilization of our NOLs to offset approximately $4.7 million of post-reorganization taxable income per year. The Company does have the option to forego the annual NOL limitation by reducing the 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, provided no change of control occurs within two years of the Exit Date.

      If another ownership change was to occur in the future, our NOL utilization might be further limited or eliminated completely, which may have a material adverse impact on our future cash flows.

Our business segments have been capitalized and are financed on a stand-alone basis, which may hinder efficient utilization of available financial resources.

      In general, we operate through two primary operating segments, the North Sea and the Gulf of Mexico. These business segments have been capitalized and are financed on a stand-alone basis. Debt covenants and the Norwegian shipping tax regime preclude us from effectively transferring the financial resources from one segment for the benefit of the other. Over the past three years, our Gulf of Mexico operating segment has incurred significant losses while operating under a significant debt burden and has not been able to fully utilize the financial resources of our North Sea operating segment, which carried a lower level of debt during that time period.

      We have initiated the process of implementing a method to repatriate funds from Norway; however, there are substantial obstacles that we must overcome to achieve a funds transfer in a tax-efficient manner, and there can be no assurance as to the success of such efforts. For a discussion of the difficulties of repatriating funds from Norway, please read “We may not be able to repatriate funds from Norway to the U.S., which could negatively impact our cash flows and limit our operational flexibility” above.

Financial statements for periods subsequent to our emergence from bankruptcy will not be comparable to those of prior periods, which will make it difficult for stockholders to assess our performance in relation to prior periods.

      The amounts reported in financial statements for periods subsequent to the date we emerged from Chapter 11 have materially changed. These changes are due primarily to:

      For example, as part of our fresh-start accounting adjustments, our long-lived assets have been reduced based on the fair market values assigned to our reorganized liabilities and current assets, and based upon a total equity value of $110.0 million as of March 15, 2005. Changes in accounting principles required under generally accepted accounting principles within twelve months of emerging from bankruptcy were required to be adopted as of the date of emergence from Chapter 11 bankruptcy protection. Additionally, we elected to make other changes in accounting practices and policies effective as of March 15, 2005. For all these reasons,

our financial statements for periods subsequent to March 15, 2005 are not comparable to those of prior periods which will make it difficult for stockholders to assess our performance in relation to prior periods.

Currency fluctuations could adversely affect our financial condition and results of operations.

      Due to the size of our international operations, a significant percentage of our business is conducted in currencies other than the U.S. Dollar. We primarily are exposed to fluctuations in the foreign currency exchange rates of the Norwegian Kroner, the British Pound, the Brazilian Real and the Nigerian Naira. Changes in the value of these currencies relative to the U.S. Dollar could result in translation adjustments reflected as comprehensive income or losses on our balance sheet. Due to the fluctuation of these currencies, primarily the NOK, we incurred a favorable accumulated foreign currency translation adjustment of $17.7 million and $10.6 million in 2004 and 2003, respectively, and we incurred a combined unfavorable accumulated foreign currency translation adjustment of $9.5 million for the combined twelve months ended December 31, 2005. In addition, translation gains and losses could contribute to fluctuations in our results of operations. We recognized foreign exchange losses of $0.3 million and $0.9 million for 2004 and 2003, respectively, and we recognized foreign exchange gains of $0.2 million for the twelve months ended December 31, 2005. Future fluctuations in these and other foreign currencies may result in additional foreign exchange gains or losses, and could have a material adverse impact on our financial position.

Our ability to issue primary shares in the equity capital markets for our benefit could be limited by the terms of our registration rights agreement with certain of our existing common stockholders. Additionally, these stockholders may sell a large number of shares of common stock in the public market, which may depress the market price of our stock.

      Pursuant to our registration rights agreement with some of our stockholders, we have registered 6,996,200 shares of our common stock held by them. Under the terms of the registration rights agreement, we may be prohibited from effecting certain transactions in our common stock, including any public offering of our common stock, while these stockholders are effecting an underwritten offering of their common stock. As a result, our ability to access the equity capital markets at times when we believe the market is favorable could be limited, and we may have to access other sources of liquidity, such as our NOK Revolver, even if those sources are less attractive to us than selling primary shares of our common stock in the market. Additionally, these stockholders will have the ability to sell a substantial number of shares of common stock in the market during a short time period. Sales of a substantial number of shares of common stock in the trading markets, whether in a single transaction or series of transactions, or the possibility that these sales may occur, could reduce the market price of our outstanding common stock.

Risks Relating to the Ownership of our Common Stock

Our charter documents include provisions limiting the rights of foreign owners of our capital stock.

      Our restated certificate of incorporation provides that no shares held by or for the benefit of persons who are non-U.S. citizens that are determined, collectively with all other shares so held, to be in excess of 24.99% of our outstanding capital stock (or any class thereof) are entitled to vote or to receive or accrue rights to any dividends or other distributions of assets paid or payable to the other holders of our capital stock. Those shares determined to be in excess of 24.99% shall be the shares determined by our board of directors to have become so owned most recently. In addition, our restated certificate of incorporation provides that, at the option of our board, we may redeem such excess shares for cash or for promissory notes of our company with maturities not to exceed ten years and bearing interest at the then-applicable rate for U.S. treasury instruments of the same tenor. U.S. law currently requires that less than 25% of the capital stock of our company (or of any other provider of domestic maritime support vessels) may be owned directly or indirectly by persons who are non-U.S. citizens. If this charter provision is ineffective, then ownership of 25% or more of our capital stock by non-U.S. citizens could result in the loss of our permits to engage in coastwise trade, which would negatively affect our Gulf of Mexico business.

Some anti-takeover provisions contained in our charter could hinder a takeover attempt.

      Our restated certificate of incorporation and bylaws contain provisions relating to the limitations of liability and indemnification of our directors and officers, dividing our board of directors into classes of directors and providing that our stockholders can take action only at a duly called annual or special meeting of stockholders. These provisions also may have the effect of deterring hostile takeovers and preventing you from getting a premium for your shares that would have otherwise been offered or delaying, deferring or preventing a change in control of our Company.

      None.

      Leif Weizman v. Trico Marine Services, Inc., Thomas E. Fairley, and Ronald O. Palmer; U.S. District Court, Eastern District of Louisiana. On June 4, 2004, a punitive class-action lawsuit was filed against the Company, Thomas E. Fairley, the Company’s former Chief Executive Officer, and Ronald O. Palmer, the Company’s former Chairman of the Board of Directors, in the United States District Court for the Eastern District of Louisiana (the “District Court”). The lawsuit asserts a claim under section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder for an unasserted amount of damages on behalf of a class of individuals who purchased Company common stock between May 6, 2003 and May 10, 2004. Plaintiffs alleged that the Company and the individual defendants made misstatements and omissions concerning the Company’s future earnings prospects. Although the Company denies these allegations, the Company entered negotiations to settle the lawsuit to avoid distractions to management and to reduce legal fees in future periods. During April 2005, the District Court preliminarily approved a settlement which involves the creation of a settlement fund in the amount of $0.6 million and requires the Company to implement certain other corporate governance related enhancements. On August 23, 2005, the District Court issued a final judgment order dismissing the lawsuit against the Company, the Company’s former Chief Executive Officer and the Company’s former Chairman of the Board of Directors with prejudice. In addition, the District Court approved the terms of the settlement described above and ordered the settling parties to consummate the terms and provisions of the settlement.

      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. For further information on our Chapter 11 proceedings and information on the plan of reorganization, please refer to Items 1 and 2 “Business and Properties - 2005 Events” of this Form 10-K. In July 2005, Steven and Gloria Salsberg, two holders of warrants to purchase our common stock, commenced an adversary proceeding against the Debtors in the Bankruptcy Court under proceeding number 05-02313-smb 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 deliberates on the plaintiffs’ request for reconsideration. We believe that plaintiffs’ allegations are without merit, and we intend to defend the actions vigorously.

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

      None.

PART II

      Between January 1, 2005 and March 14, 2005, our old common stock was traded in the “pink sheets” over the counter market under the symbol “TMARQ.PK”. On March 15, 2005, we exited Chapter 11 bankruptcy, cancelled our old common stock, and issued new common stock. Our new common stock was quoted on the OTC Bulletin Board under the symbol “TRMA” from March 15, 2005 through October 18, 2005, until it was listed for quotation on the NASDAQ National Market on October 19, 2005. At January 31, 2006, we had 5 holders of record of our common stock.

      The following table sets forth (i) the range of high and low bid prices of our old common stock between January 1, 2004 and March 15, 2005, and (ii) the range of high and low bid prices of our new common stock between March 22, 2005 and January 31, 2006, such prices as reported by the NASDAQ National Market or over-the-counter sources for the periods indicated.

Predecessor Company(1)

Successor Company(1)

      We have not paid any cash dividends on our common stock during the past two years and have no immediate plans to pay dividends in the future.

Equity Compensation Plan Information

      Pursuant to the Plan of Reorganization, all equity compensation plans outstanding at December 31, 2004 were terminated as part of our reorganization. As of March 15, 2005, we adopted the Trico Marine Services, Inc. 2004 Stock Incentive Plan (the “2004 Plan”). Under the 2004 Plan, we are authorized to issue up to 750,000 shares of new common stock pursuant to “Awards” granted as incentive stock options, non-qualified stock options, restricted stock, stock awards, or any combination of such Awards. In 2005, we granted Awards with respect to 803,000 shares of new common stock. The authorized shares under the 2004 Plans differs from the granted Awards due to forfeitures in 2005.

      The table below reflects equity compensation plans approved by the Bankruptcy Court or approved by security holders as of December 31, 2005.

      On November 12, 2004, the Company and its two primary U.S. subsidiaries, Trico Marine Assets, Inc., and Trico Marine Operators, Inc, announced that they had commenced soliciting consents from the holders of the Company’s the Senior Notes to approve a “prepackaged” plan of reorganization (the “Plan”) under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). Bankruptcy proceedings were initiated on December 21, 2004.

      On January 19, 2005 the Company announced that the Bankruptcy Court entered an order confirming the Plan. The Plan confirmation affirmed that all reorganization requirements had been met under the Bankruptcy Code and cleared the way for the Company to emerge from Chapter 11 protection.

      On March 15, 2005, (the “Effective Date”), the Company satisfied all conditions to effectiveness of the Plan and emerged from Chapter 11.

      Holders of the Company’s Senior Notes received in exchange for their total claims (including principal and accrued and unpaid interest), 10,000,000 shares of the new common stock, representing 100% of the fully-diluted common stock of the reorganized Company before giving effect to (i) the exercise of the Warrants (as defined below) to be distributed to holders of old common stock (as defined below) pursuant to the Plan (ii) a long-term incentive plan and (iii) stock issued to advisors. New common stock was issued pursuant to the Company’s newly-adopted Second Amended and Restated Certificate of Incorporation, under which the Company is authorized to issue an aggregate 30,000,000 shares of capital stock, par value $0.01 per share, which consists of 25,000,000 shares of new common stock and 5,000,000 shares of preferred stock.

      Holders of the old common stock received, on a pro rata basis, warrants (the “Warrant”) that are exercisable for, in the aggregate, 10% of the issued and outstanding shares of new common stock of the reorganized Company (before giving effect to the long-term incentive plan). The Warrants were issued in two series, the “Series A Warrants” and the “Series B Warrants”. The Warrants have the following terms:

      Series A Warrants. The Series A Warrants are exercisable for a period of five years after the Effective Date for an aggregate of 499,429 shares of new common stock of the reorganized Company, with a per share exercise price of $18.75. 496,579 Series A Warrants remain outstanding as of December 31, 2005.

      Series B Warrants. The Series B Warrants are exercisable for a period of three years after the Effective Date for an aggregate of 499,429 shares of new common stock of the reorganized Company, with an exercise price of $25.00. 497,438 Series B Warrants remain outstanding as of December 31, 2005.

      Based upon the 36,960,537 shares of old common stock outstanding as of March 15, 2005, the holders of the old common stock are entitled to receive one Series A Warrant and one Series B Warrant in exchange for every 74 shares they hold. The exchange ratio is derived from the product of 36,960,537 (the number of shares of old common stock outstanding as of March 15, 2005) divided by 500,000 (the total number of warrants in each series available for issuance). Holders of old common stock will not be issued fractional Warrants and any fraction will be rounded down to the proceeding whole number of a Warrant or Warrants. In other words, if an existing holder on old common stock owned less than 74 shares of the old common stock on the Record Date, then such a holder would not be entitled to receive any Warrants.

      Pursuant to the terms of a registration rights agreement (the “Registration Rights Agreement”) entered into in the connection with the Plan, the Company agreed, subject to certain specified limitations and conditions, to register up to 10,000,000 shares of new common stock held by former holders of its Notes (the “Selling Stockholders”).

      Pursuant to the terms of the Registration Rights Agreement, on April 29, 2005, the Company filed a shelf registration statement with the Securities and Exchange Commission, or the “SEC”, which was declared effective by the SEC on May 20, 2005 (the “Initial Shelf Registration Statement”). The Initial Shelf Registration Statement covers the offer and sale from time to time: (1) by the Company of 2,000,000 shares of its common stock, and (2) by the selling stockholders named in the Initial Shelf Registration Statement of up to 6,996,200 shares of the Company’s common stock. On September 9, 2005, the Company filed an additional shelf registration statement (the “Additional Shelf Registration Statement”) with the SEC in order to increase the number of shares of common stock of the Company which the Company can sell under the Initial Shelf Registration Statement from 2,000,000 to 4,500,000. The Additional Shelf Registration Statement was declared effective by the SEC on September 28, 2005.

      Once the Initial Shelf Registration Statement expires or ceases to be effective for a period covering ninety (90) days, the Selling Stockholders may request that the Company file a shelf registration statement covering the Selling Stockholders’ unsold new common stock (the “Demand Rights”). Additionally, if the Company proposes to register any of its securities for sale at a time when a registration covering the new common stock held by the Selling Stockholders is not effective, then the Company has agreed to provide the Selling Stockholders with an opportunity to have their new common stock included in the registration statement (the “Piggy Back Rights”). Pursuant to the terms of Registration Rights Agreement, the Selling Stockholders are allowed up to three Demand Rights and unlimited Piggy Back Rights. The Company has agreed to pay all of the expenses associated with the filing of the foregoing registration statements, subject to certain specified limitations and conditions contained in the Registration Rights Agreement.

      Under the terms of the Registration Rights Agreement, the Company may be prohibited from effecting certain transactions in the new common stock, including any public offering in the new common stock, while the Selling Stockholders are effecting an underwritten offering on their new common stock.

      The selected financial data presented below for the five years ended December 31, 2005 is derived from our audited consolidated financial statements. You should read this information in conjunction with the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 and our consolidated financial statements and notes thereto included in Item 8 of this report on Form 10-K.

      Our revenues, operating income (loss), and net earnings (loss) are directly impacted by changes in vessel day rates and fleet utilization. A discussion of those changes for the years ended December 31, 2005, 2004 and 2003 can be found in the “Our Results of Operations” section of Item 7 of this report on Form 10-K.

Overview of the Year Ended December 31, 2005

      On March 15, 2005, we emerged from bankruptcy proceedings with a Bankruptcy Court-approved plan of reorganization including the U.S. Credit Facility. These proceedings were initiated on December 21, 2004, when we filed “prepackaged” voluntary petitions for reorganization under Chapter 11. The bankruptcy filing was the culmination of a process that began in May 2004 to realign our capital structure with our present and future operating prospects and, together with operational changes made during the same period, provide us with greater liquidity and a lower cost structure. Concurrently with our financial reorganization, the majority of our Board of Directors was replaced.

      During early 2005, we began to see signs that the markets for our vessels were improving. Day rates and utilization levels steadily increased for each of our major vessel classes. AHTS vessels working in the spot market achieved near-record day rates at certain points throughout 2005, which in turn positively affected the rates achieved when our vessels with term contracts were renegotiated. In addition to the continued strengthening in the North Sea, day rates in the Gulf of Mexico increased significantly during August and September due to the impact of hurricanes in the Gulf of Mexico. During the fourth quarter of 2005, we experienced our highest average day rates ever in the Gulf of Mexico and experienced near-capacity utilization levels for our active vessels.

      In addition to our reorganization in March, we completed an underwritten public offering of 4,273,500 shares of common stock during October 2005 which raised a total of $95.3 million after expenses. With a portion of the net proceeds, we repaid and retired all amounts owed under our U.S. Credit Facility, including $6.0 million owed under our revolving credit facility and the $54.6 million term loan. As of December 31, 2005, we have total debt of $46.5 million and total cash, net of debt, of $4.7 million.

Primary Factors Affecting our Results of Operations

      Day Rates and Utilization. Our results of operations are affected primarily by the day rates we receive and our fleet utilization. Day rates and utilization are primarily driven by four key factors:

      Demand for our vessels is primarily impacted by the level of offshore oil and gas drilling activity, 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. Our day rates and utilization rates are also affected by the size, configuration, age and capabilities of our fleet. In the case of supply vessels and PSVs,

their deck space and liquid mud and dry bulk cement capacities are important attributes. In certain markets and for certain customers, horsepower and dynamic positioning 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 capabilities available in a given market area. Competition in the marine support services industry primarily involves factors such as:

      Operating Costs. Our operating costs are primarily a function of active fleet size. The most significant direct operating costs are wages paid to vessel crews, maintenance and repairs, marine inspection 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. For periods prior to our reorganization, costs incurred for dry-dockings related to marine inspections and regulatory compliance were capitalized and amortized over the period between such inspections, typically two to five years. Following our reorganization, costs associated with marine inspections have been expensed as incurred. Generally, increases or decreases in vessel utilization do not significantly affect our direct operating costs incurred when the vessels are active.

Management’s Outlook

      The oil and gas industry continues to experience strong growth due to increased demand for energy worldwide. We believe the following trends should benefit our operations and have a positive impact on our earnings:

      Sustained higher oil and gas prices, driven by global economic recovery, increasing demand from China and other emerging markets, and threatened reliability of supply in major oil producing nations has resulted in increased offshore drilling, construction and repair activity worldwide by independents, major international energy companies and national oil companies. The markets in which we operate have responded to the increase in oil and gas activity, resulting generally in higher utilization and day rates through 2005. We expect drilling activity will continue to be robust for 2006, which should continue to provide us with attractive day rates and productive utilization levels for our vessels.

      In the future, we expect that international markets such as West Africa and Southeast Asia, among other regions, will command a higher percentage of worldwide oil and gas exploration, development, production and related spending and result in greater demand for our vessels. To capitalize on these long-term growth opportunities, we intend to deploy existing active and stacked vessels, as well as new vessels, to these regions.

Primary Measures Used by Management to Evaluate Our Results of Operations

      As our reorganization progressed in 2004 and 2005, we focused primarily on cash flow from operations and our net changes in cash and cash equivalents in order to fund operations, maintain our fleet and service our debt. With regard to our operations, we primarily monitor operating profit, day rates and utilization levels of our vessels in our primary markets. We also monitor our competitors’ performance in other regions around the world.

Our 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 owned during the periods indicated.

      Set forth below is our charter revenues among vessel classes for each of the periods indicated (dollars in thousands).

      For our North Sea class PSVs and AHTSs, average day rates increased 50% from $10,875 in 2004 to $16,300 in 2005. Utilization increased from 82% in 2004 to 92% in 2005. The significant increase was due to strengthened demand for North Sea vessels during 2005 from strong exploration and production activities due to more attractive oil and gas prices and only a modest increase in vessel count in the North Sea. The impact of very strong market conditions in the North Sea during 2005 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 increased 45% from $4,479 in 2004 to $6,493 in 2005. Utilization also increased for these vessels from 48% in the 2004 to 60% in 2005, inclusive of our stacked vessel fleet. The increase in both day rates and utilization is a result of the increased demand due to increased drilling activities and construction work particularly related to assessment and repairs from hurricane damage in the late summer months of 2005.

      Day rates and utilization for our crew boats and line handlers remained relatively flat in 2005 compared to 2004. Day rates decreased slightly from $2,522 in 2004 to $2,402 in 2005, while utilization increased from 89% in 2004 to 90% in 2005. Day rates for our crew boats and line handlers may not be comparable to those of our competitors because five of our vessels were under bareboat charter contracts, which significantly reduce the average day rate for the class.

      The following financial information and discussion reflects the Predecessor and Successor companies’ combined financial statements for the year ended December 31, 2005 compared to the same period in 2004 (in thousands). The combined results for the year ended December 31, 2005 represent a non-GAAP financial measure due to our reorganization; however, we find combining the Predecessor and Successor Companies’ results for the two periods to be useful when analyzing fluctuations. For those line items that are not comparable, we have included additional analysis so that the discussion is complete. The following income statement line items are not comparable to prior years due to our reorganization and fresh-start adjustments, or due to the election to change accounting policies upon our emergence from bankruptcy:

      Charter Hire Revenues. Our charter hire revenues for 2005 were $171.8 million compared to $112.3 million in 2004, an increase of $59.5 million or 53%. In addition to the day rate and utilization increases discussed previously, a weaker U.S. Dollar relative to the Norwegian Kroner caused a $4.0 million favorable impact on revenues when comparing 2005 to 2004.

      Amortization of Non-Cash Deferred Revenues. During 2005, we recorded $10.1 million of amortization of non-cash deferred revenue on unfavorable contracts. This amortization is required after several of our contracts were deemed to be unfavorable compared to market conditions on the Exit Date, thus creating a liability which is required to be amortized as revenue over the contract periods.

      Direct Operating Expenses. Direct vessel operating expenses increased 6% from $80.7 million in 2004 to $85.3 million in 2005. A weaker U.S. Dollar relative to the Norwegian Kroner caused a $1.5 million increase in direct vessel operating expenses when comparing 2005 to 2004. The remaining increase is primarily due to $7.2 million of marine inspection costs included in operating costs in 2005, partially offset by decreased labor costs of $2.0 million, decreased supplies and miscellaneous expense of $1.1 million and decreased maintenance and repairs costs of $0.7 million. On March 15, 2005, we changed our method of accounting for marine inspection costs from the “defer and amortize” method to the “expense as incurred” method. Therefore, in all periods after March 15, 2005, marine inspection costs have been expensed as incurred. In future periods, because of our change in accounting methods related to marine inspection costs, our expenses in a given period may vary dramatically based on the timing and the number of marine inspections. Expenditures for marine inspections decreased from $11.4 million in 2004 to $8.5 million in 2005 due to a reduction in the number of marine inspections occurring during 2005. Decreased labor costs are primarily due to the reduction of pension costs of $0.6 million and a reduced workforce from the sale of vessels in 2005. Decreased supplies and miscellaneous expenses and maintenance and repair costs are primarily due to the reduction in vessels operated in 2005.

      General and Administrative Expenses. General and administrative expenses increased 51% from $16.8 million to $25.4 million when comparing 2004 to 2005. Increased general and administrative expenses can be attributed to costs associated with recruiting and compensating our new management team as well as our new Board of Directors. In addition, general and administrative expense also increased due to the adoption of an annual worldwide incentive plan, for which $2.1 million was accrued, and due to increased infrastructure in West Africa of $0.9 million, higher consulting, legal and accounting fees of $1.2 million, higher severance related costs of $0.8 million and currency translation effects of $0.3 million. The increase in general and administrative expenses also is partially related to the recognition of $1.3 million of non-cash compensation expense related to stock option grants since the Exit Date. We adopted the expense recognition provisions of SFAS No. 123R on the Exit Date in accordance with accounting guidance for companies emerging from bankruptcy.

      Depreciation and Amortization Expense. Depreciation and amortization expense decreased $5.8 million from $32.9 million in 2004 to $27.1 million in 2005. The depreciation decrease is related to the overall reduction in the net book value of our long-lived assets which was recorded when the negative goodwill was allocated to our long-lived assets as a result of fresh-start accounting on March 15, 2005. In addition, depreciation expense also decreased due to the sale of assets in 2005, partially offset by the sale of a PSV early in the third quarter of 2004.

      Impairment Charges. During the quarter ended June 30, 2004, we evaluated our long-lived assets held for use for potential impairment and recorded an impairment charge of $8.6 million. We did not record any impairment charges on assets held for use during 2005.

      Loss on Asset Held for Sale. During the fourth quarter of 2005, we committed to a plan to sell the Stillwater River vessel, a high-speed small waterplane area twin-hull, also known as our SWATH crew boat. We completed an evaluation of the estimated selling price and recorded an impairment of $2.2 million and reclassed the remaining book value of the SWATH crew boat to assets held for sale in December 2005. During the second quarter of 2004, we initiated steps to actively market and sell three of our older North Sea class PSVs, selling one of the vessels in July 2004, another vessel in April 2005 and the last vessel in July 2005. During 2004, we recorded impairments totaling $10.7 million as a result of the book values being higher than the estimated selling price for these PSVs.

      Gain on the Sale of Assets. During 2005, we recognized a $2.5 million gain on sale of assets during 2005 after completing the sales of three cold stacked vessels, five line handlers and the two PSVs.

      Reorganization Expense. From April 2004 until March 15, 2005, we incurred expenses associated with our reorganization effort, primarily comprised of fees to legal and financial advisors. During 2005 and 2004, we expensed $6.7 million and $8.6 million in fees related to the restructuring effort, respectively.

      Gain on Debt Discharge. During 2005, we recognized a gain of $166.5 million on debt discharge due to the reorganization of our capital structure and the discharge of the Senior Notes and the related accrued interest.

      Fresh-start adjustments. Upon our reorganization, the excess of fair value of net assets over reorganization value (“negative goodwill”) was allocated on a pro-rata basis and reduced our non-current assets, with the exception of financial instruments, in accordance with SFAS No. 141. These fresh-start adjustments resulted in a charge of $219.0 million during 2005.

      Interest Expense. Interest expense decreased $25.0 million from $33.4 million in 2004 to $8.4 million in 2005. We ceased accruing interest on the Senior Notes on the Commencement Date of our bankruptcy. We recorded approximately $22.3 million of interest expense during 2004 related to our Senior Notes. Also in the second quarter of 2004, we recorded a one-time charge of $2.8 million to accelerate the amortization of unamortized debt discounts on our Senior Notes and 2004 Term Loan. The amortization was accelerated during the second quarter since an event of default occurred under both the Senior Notes and the $55.0 million term loan entered into by Company’s two primary U.S. subsidiaries on February 12, 2004 (the “2004 Term Loan”), and the debt was payable upon demand. In addition, in exchange for modifications to our Norwegian credit agreements, our effective applicable margin increased 1% on each Norwegian credit facility effective for the first quarter of 2005.

      Amortization of Deferred Financing Costs. Amortization of deferred financing costs decreased approximately $7.5 million when comparing 2005 to 2004. During the second quarter of 2004, as a result of the Senior Notes and 2004 Term Loan balances being due and payable upon demand, we accelerated the amortization on our deferred financing costs to expense the remaining unamortized balance. The acceleration resulted in a charge of $7.2 million, which was included in amortization of deferred financing charges during 2004.

      Loss on early retirement of debt. After completing the equity offering in October 2005, we subsequently repaid and retired all outstanding amounts under the U.S. Credit Facility in November 2005. As a result of the prepayment penalties contained in the agreement and unamortized issuance costs, we recorded a loss of $4.0 million on the retirement of the facility. During February 2004, we refinanced a portion of our U.S. debt and recorded a loss of $0.6 million in 2004 related to fees and the write-off of unamortized issuance costs related to our previous debt.

      Income Tax Expense/Benefit. We recorded a consolidated income tax expense in 2005 of $12.3 million, which is primarily related to the income generated by our Norwegian operations. We recorded an income tax benefit in 2004 of $3.1 million, also primarily related to our Norwegian operations. We have booked a full valuation allowance against our net deferred tax assets during 2004 and 2005.

      Revenues. Our revenues in 2004 were $112.5 million compared to $123.5 million in 2003. The 9% decrease in revenues during the year was a result of lower average vessel day rates and utilizations, specifically for the Gulf class supply vessels and lower average vessel day rates for the North Sea class PSVs and AHTSs. To a lesser extent, revenues in 2004 were impacted by the full year effect of the sale of a large North Sea class AHTS vessel during September 2003 and the sale of an older PSV early in the third quarter of 2004. These decreases in revenues more than offset the favorable foreign currency translation impact related to our North Sea operations.

      For the Gulf class supply vessels, average day rates decreased 10% from $4,954 in 2003 to $4,479 in 2004. Utilization also decreased for these vessels from 51% in 2003 to 48% in 2004. The decrease in both day rates and utilization is a direct result of the sustained low level of Gulf of Mexico exploration and development activity, particularly during the first half of 2004.

      For our North Sea class PSVs and AHTSs, average day rates decreased 4% from $11,295 in 2003 to $10,875 in 2004. Utilization remained flat at 82% in both 2004 and 2003. The decrease in day rates was a result of continued market pressure from competition and low levels of drilling activity, particularly in the first half of 2004.

      Our crew boats and line handlers also experienced decreased average day rates and utilization in 2004 compared to 2003. Day rates decreased 13% from $2,897 in 2003 to $2,522 in 2004, while utilization increased from 74% in 2003 to 89% in 2004. The reduction in day rates and increase in utilization is largely due to three vessels bareboat chartered on a long-term basis during the third quarter of 2003.

      Direct Operating Expenses. Direct vessel operating expenses decreased 1% from $81.2 million in 2003 to $80.7 million in 2004. The decrease is primarily due to reductions in labor and payroll expenses and insurance costs, offset by increases to vessel repair and maintenance and supplies costs during 2004. The reduction in labor costs is a result of a reduction in U.S. headcount, and the full-year effect of an increase in the Norwegian government’s partial reimbursement of labor costs starting in July 2003. In addition, operating costs during 2004 were lower due to the sale of a large North Sea class AHTS vessel in September 2003. Direct vessel operating costs also increased due to the currency translation effect from 2003 to 2004 related to our North Sea operations.

      General and Administrative Expense. General and administrative expenses increased 8% from $15.5 million to $16.8 million when comparing 2003 to 2004. Increases in salary and related costs, particularly for severance amounts, and increased insurance, legal and accounting related costs to comply with the Sarbanes-Oxley Act of 2002 and costs associated with a new operations office in Nigeria more than offset cost decreases related to reductions in force in the Gulf and the North Sea, resulting in a net increase in general and administrative expense during 2004. The legal and financial advisory costs associated with the reorganization initiative have been segregated from recurring legal and advisory costs included in general and administrative expense, which are discussed below.

      Marine Inspection Costs. Amortization of marine inspection costs increased $0.7 million or 6% from $10.8 million in the 2003 to $11.4 million in 2004. This increase is due to increased expenditures on classification costs in recent years.

      Depreciation and Amortization. Our depreciation and amortization expense decreased $0.5 million or 1% from $33.4 million in 2003 to $32.9 million in 2004. The decrease is primarily related to the depreciation recorded during the first six months of 2003 on the large North Sea class vessel sold in September 2003 offset partially by the sale of a PSV early in the third quarter of 2004.

      Impairment Charges. During the second quarter of 2003, we recorded a $28.6 million impairment charge related to our goodwill balance in accordance with SFAS No. 142. The majority of the charge related to the goodwill of our North Sea subsidiary, which we acquired in 1997. After continued deterioration in market conditions in the North Sea during the third and fourth quarters of 2003, we determined that an additional interim test of impairment was necessary as of December 31, 2003, and recorded an impairment charge on the remaining goodwill balance of approximately $84.4 million.

      During the quarter ended June 30, 2004, we evaluated our long-lived assets held for use for potential impairment and recorded an impairment charge of $8.6 million. We did not record any impairment charges during 2003.

      During the second quarter of 2004, we initiated steps to actively market and sell three of our older North Sea class PSVs, and sold one of the vessels in July 2004. We performed an analysis of the assets at June 30, 2004, and determined that, based on the estimated selling prices less costs to sell, it was necessary to reduce the book values of the three North Sea class PSVs and we recorded a loss of $8.7 million during the second quarter of 2004. During the fourth quarter of 2004, we analyzed the remaining two PSVs being held for sale and recorded an additional impairment of $2.0 million based upon revisions to the estimated selling prices of the vessels, bringing the total loss on assets held for sale to $10.7 million. During 2003, we recorded total charges of $6.2 million in association with the sale of one of our larger North Sea AHTS vessels, and the sale of our investment in a construction project in Brazil.

      Gain on Sale of Assets. During 2003, we sold two crew boats and one supply vessel, which resulted in gains of $1.0 million in the aggregate.

      Reorganization Expense. During 2004, we expensed $8.6 million related to the reorganization effort, which includes fees to financial and legal advisors and accruals under the key employee retention program adopted in September 2004.

      Interest Expense. Interest expense increased $3.2 million, or 11%, from $30.2 million in 2003 to $33.4 million in 2004. Included in interest expense during 2004 is a charge of $2.8 million to accelerate the amortization of debt discounts on our Senior Notes and 2004 Term Loan. The amortization was accelerated during the second quarter because we defaulted in the payments under both the Senior Notes and the 2004 Term Loan, which resulted in the debt becoming immediately due and payable upon demand. In addition, for the majority of the second and third quarters of 2004, we were accruing interest on past-due amounts on the Senior Notes, and accruing and paying default interest premiums under the 2004 Term Loan. During 2004, we benefited from lower average interest rates on our NOK based debt. We ceased accruing interest on the Senior Notes on the Commencement Date because the Senior Notes represent an under-secured liability. Interest expense related to our other debt facilities totaled $8.3 million during 2004.

      Amortization of Deferred Financing Costs. As a result of the Senior Notes and 2004 Term Loan balances being due and payable upon demand, we accelerated the amortization of our deferred financing costs, included in other assets, to expense the remaining unamortized balance during the second quarter of 2004. The acceleration resulted in a charge of $7.2 million, which is included in amortization of deferred financing charges during 2004.

      Loss on Early Retirement of Debt. We refinanced a portion of our U.S. Dollar debt during February 2004 and recorded a loss of $0.6 million related to fees and the write-off of unamortized issuance costs related to our previous debt.

      Income Tax Benefit. We recorded a consolidated income tax benefit in 2004 of $3.1 million, which primarily related to our Norwegian operations. Our income tax benefit in 2003 was $2.9 million, also primarily related to our Norwegian operations. We provided a full valuation allowance against our U.S. net deferred tax assets during 2003 and 2004 because it was not likely that the related tax benefits would be realized.

Liquidity and Capital Resources

      Our ongoing capital requirements arise primarily from our need to service debt, maintain or improve equipment, invest in new vessels and provide working capital to support our operating activities. Currently, we have a positive balance of unrestricted cash of $4.7 million in excess of debt.

      On November 22, 2005, the Company entered into a Termination Agreement among Trico Marine Operators, Inc., Trico Marine Assets, Inc., and Bear Stearns Corporate Lending, Inc., the Administrative Agent, of the “U.S. Credit Facility”, to repay all of the liabilities, obligations and indebtedness outstanding under the facility. Under the terms of the Termination Agreement, we agreed to pay to the Administrative Agent $58.1 million, the amount necessary to pay all obligations together with accrued interest and a prepayment premium of $3.1 million. Upon receipt of the funds by the Administrative Agent, the U.S. Credit Facility, together with all of the obligations, covenants, and liens of the facility were automatically terminated.

      On October 7, 2005, we announced the commencement of an underwritten public offering of 3,900,000 shares of our common stock. On October 18, 2005, we entered into an underwriting agreement with Lehman Brothers Inc., as representative of the several underwriters named therein with respect to the sale of 3,900,000 shares of our common stock and an over-allotment option to purchase up to an additional 585,000 shares of our common stock. On October 24, 2005, we received $95.3 million in net proceeds from the sale of 4,273,500 shares of our common stock, including 373,500 shares issued pursuant to the underwriters’ partial exercise of their over-allotment option, at a public offering price of $24.00 per share. The remaining 211,500 shares of common stock available under the purchase option to cover over-allotments expired November 18, 2005 without any additional exercises.

      On June 26, 2003, we entered into the NOK Term Loan in the amount of NOK 150.0 million ($22.2 million). Amounts borrowed under the NOK Term Loan bear interest at NIBOR (Norwegian Interbank Offered Rate) plus 2.0% (4.6% at December 31, 2005). The NOK Term Loan is required to be repaid in five semi-annual repayments of NOK 7.5 million ($1.1 million), with the first payment having occurred on June 30, 2004, and a final payment of NOK 112.5 million ($16.7 million) on June 30, 2006. Borrowings under the NOK Term Loan are collateralized by mortgages on two of our North Sea vessels. The NOK Term Loan contains a subjective acceleration clause (material adverse change clause), which if exercised by the lenders, could accelerate the maturity of the loan. As of December 31, 2005, the outstanding balance on the NOK Term Loan was NOK 120 million ($17.8 million).

      Our NOK Term Loan provides for certain financial and 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 assigning or pledging our earnings.

      During December 2004, we and our Norwegian lenders agreed on terms to amend several covenants of the NOK Term Loan and the NOK Revolver (described below) to exclude intercompany notes from the definition of funded debt, and to increase the maximum ratio of funded debt to operating income plus depreciation and amortization from 5.0 to 5.5. These covenant modifications increased our ability at that time to repatriate cash from Norway without incurring a default under the NOK Revolver or the NOK Term Loan. As a result of the modifications, our effective interest rate increased by 1% on both facilities. These covenant modifications were effective as of December 31, 2004. We are currently in compliance with the financial covenants in the NOK Term Loan.

      We entered into the NOK Revolver in June 1998. In April 2002, we amended the NOK 650 million ($96.4 million) credit facility by increasing the capacity to NOK 800 million ($118.6 million) and revising reductions to the facility amount to provide for NOK 40 million ($5.9 million) reductions every six months starting in March 2003. The NOK Revolver provides for a NOK 280 million ($41.5 million) balloon payment in September of 2009. Amounts borrowed under the NOK Revolver bear interest at NIBOR plus 2.0% (4.6% at December 31, 2005). At December 31, 2005, we had NOK 110 million ($16.3 million) outstanding under this facility.

      The NOK Revolver is collateralized by mortgages on 11 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, depositing, assigning or pledging our earnings. We are currently in compliance with the financial covenants in the NOK Revolver.

      In 1998, Trico Marine International, Inc., our special-purpose subsidiary, issued $10.0 million of 6.08% notes due 2006, of which $1.3 million are outstanding at December 31, 2005. In 1999, the subsidiary issued $18.9 million of 6.11% notes due 2014, of which $10.7 million is outstanding at December 31, 2005. The special-purpose subsidiary is 100% owned by a subsidiary of the Company and is consolidated in our financial statements. Both notes are guaranteed by the Company and the U.S. Maritime Administration.

      Our SWATH crew boat, currently being marketed for sale, is the primary collateral for the 6.08% note. We will be required to repay the outstanding portion of the 6.08% note if the SWATH crew boat is sold.

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

      In October 2005, we received $95.3 million in net proceeds from the sale of 4,273,500 shares of our common stock. In November 2005, we used $58.1 million of the net proceeds to repay our U.S. Credit Facility, which included accrue interest and prepayment premium.

      At December 31, 2005, we had approximately $59.0 million in cash, of which $51.2 million was unrestricted. In addition to cash on hand, our NOK Revolver has a total facility amount of NOK 560 million ($83.0 million) of which NOK 110 million ($16.3 million) was outstanding as of December 31, 2005. However, due to liquidity and other restrictions, we had NOK 414 million ($61.3 million) of remaining available capacity under the NOK Revolver at December 31, 2005. We are not currently restricted by our financial covenant restricting funded debt to 5.5 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 ($5.9 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 accordance with U.S. generally accepted accounting principles, or GAAP, we have classified the NOK Revolver as a current liability in the December 31, 2005 and December 31, 2004 consolidated balance sheets. For future cash flow planning purposes, we consider the NOK Revolver to be a long-term source of funds since advances can be re-financed until the facility reduces over time, concluding in September 2009. As long as we are in compliance with the covenants of the NOK Revolver, and the lender does not exercise the subjective acceleration clause, we are not obligated to repay and retire any amounts outstanding under the facility during the next twelve months. We had NOK 110 million ($16.3 million) and NOK 340 million ($55.9 million) outstanding under this facility as of December 31, 2005 and December 31, 2004, respectively. The NOK Revolver has a final maturity of September 2009. One of our Norwegian subsidiaries, Trico Shipping AS, is the borrower under this facility.

      Currently, we do not expect to repatriate cash from our Norwegian subsidiary in 2006 to fund our U.S. operations. We expect, barring any unexpected event that would materially and adversely affect our financial condition, that cash on hand and cash generated from operations will be sufficient to fund our operations and repay our maturing indebtedness during 2006.

      We are preparing to reduce the paid-in-capital in one of our Norwegian subsidiaries in order to provide us with the flexibility to repatriate cash from Norway in the future. In general, in order to repatriate funds from Norway to the U.S. in a tax-efficient manner, we would be required to reduce the paid-in-capital in one of our Norwegian subsidiaries and put an intercompany note in place. As of December 31, 2005, we have not effectuated a reduction of paid-in-capital and therefore are unable to repatriate funds in a tax efficient manner. Our ability to complete this reduction in paid-in-capital depends on a number of factors, including:

      All of these factors will be required to be completed or resolved to enable us to repatriate funds from Norway in a tax efficient manner.

      In 2004, we and our Norwegian lender agreed on terms to amend several covenants of the NOK Term Loan and NOK Revolver to exclude intercompany notes from the definition of funded debt, and to increase the maximum ratio of funded debt to operating income plus depreciation and amortization from 5.0x to 5.5x effective as of December 31, 2004. With these covenant modifications, we believe that we will be able to repatriate cash tax-efficiently from Norway without incurring a default under the NOK Revolver or the NOK Term Loan. In exchange for these and other modifications to the credit agreements, our effective applicable margin increased 1% on each facility.

      If we were able to reduce the paid-in capital, we would be able to repatriate funds from Norway up to the amount of the approved reduction without incurring withholding or other taxes, by putting an intercompany note in place for a similar amount. This ability would allow us to improve working capital in the U.S. and allow us to utilize the resources for other corporate purposes. Currently, we do not plan on repatriating funds from Norway to the U.S., but we may reduce the paid in capital to provide for more flexibility in the future.

      The following financial information and discussion reflects the Predecessor and Successor Companies’ actual combined statements of cash flows for the year-ended December 31, 2005 compared to the same period in 2004 (in thousands). The combined results for the year-ended December 31, 2005 represent a non-GAAP financial measure due to our reorganization; however, we find combining the Predecessor and Successor Companies’ cash flow for the two periods to be useful when analyzing fluctuations. For those line items that are not comparable, we have included additional analysis so that the discussion is complete. The following cash flow line items are not comparable to prior years due to our reorganization and fresh-start adjustments, or due to the election to change accounting policies upon our emergence from bankruptcy:

      During 2005, $36.3 million in funds were provided by operating activities compared to $14.8 million used in operating activities during 2004. Operating cash flows increased by $51.1 million, primarily due to a $55.1 million reduction in net loss, offset by cash flow changes in working capital. The working capital changes primarily relate to increased accounts receivables related to the revenue increase. In 2004, we experienced a large increase in accounts payable and accrued expenses which was caused by the 2004 accrual and nonpayment of $22.3 million of interest expense due under the Senior Notes.

      In 2005, $3.6 million was provided by investing activities, compared with $5.1 million used in investing activities in 2004. Capital expenditures decreased by $3.4 million, primarily due to the lack of major capital projects during 2005. Additionally, we continued our program of selling older less utilized vessels in 2005, which provided $7.0 million in 2005 compared to $3.8 million in 2004. The 2004 use of cash was primarily a result of the February 2004 refinancing of our $50 million secured revolving credit facility (the “Bank Credit Facility”), which required us to cash collateralize our outstanding letters of credit, resulting in a use of $5.7 million of cash that was previously unrestricted.

      Cash used by financing activities was $1.3 million in 2005 compared to $7.0 million provided by financing activities in 2004. In 2005, we received $95.3 million in net proceeds from our common stock offering, which was partially offset by $58.1 million paid to retire our U.S. Credit Facility. In addition, excess cash on hand in the North Sea during 2005 was used to repay approximately $37.8 million of the outstanding balance under the NOK Revolver and NOK Term Loan. Also in 2005, we refinanced the $54.6 million outstanding balance under the 2004 Term Loan with our $75 million secured super-priority debtor-in-possession credit agreement entered into on December 22, 2004 (the “DIP Credit Facility”) and approved by the Bankruptcy Court on January 19, 2005 and later refinanced the DIP Credit Facility with the U.S. Credit Facility on the Exit Date. In the aggregate, this is presented as both repayments of and proceeds from debt of $109.1 million in the combined cash flow results for 2005. In 2004, we refinanced our Bank Credit Facility in the U.S. with the 2004 Term Loan, which generated $20.4 million in net proceeds.

      In general, we operate through two primary operating segments, the North Sea and the Gulf of Mexico. These business segments have been capitalized and are financed on a stand-alone basis. Debt covenants and the Norwegian shipping tax regime make it difficult for us to effectively transfer the financial resources from one segment for the benefit of the other. During the three year period preceding the reorganization, our U.S. Gulf of Mexico operating segment incurred significant losses while operating under a significant debt burden, and had not been able to utilize the financial resources of our North Sea operating segment, which carried a lower level of debt.

      The following table summarizes our contractual commitments as of December 31, 2005 (in thousands):

      We have issued standby letters of credit totaling $6.9 million as of December 31, 2005. As a result of the provisions within the letter of credit agreements and the retirement of the Bank Credit Facility, we posted the

entire balance of standby letters of credit plus 5% ($7.3 million) into an escrow account. In addition, we deposited $1.7 million cash with General Electric Capital Corporation, or GECC, in June 2004, which is included in “Other assets.”

      At December 31, 2005, we have estimated capital expenditures of $3.6 million during the following twelve months, which will primarily be used to fund improvements to aging vessels and fund the implementation of an IT improvement project. These planned capital improvement levels could increase considerably if a fleet renewal program is adopted in 2006. In addition, we anticipate spending approximately $11.9 million to fund upcoming vessel marine inspections during 2006. Marine inspection costs are included in direct operating expenses in all periods after our Reorganization.

      As the age of the Company’s fleet increases, more funds will need to be devoted to ongoing maintenance in order to keep the fleet in good operating condition. The Company currently has 72 vessels with an average age of 18 years. Maintenance and repair costs are expected to increase as the Company’s vessels become older with time.

Our Critical Accounting Policies

      Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to bad debts, fixed assets, accruals, inventories, income taxes, pension liabilities, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

      We consider certain accounting policies to be critical policies due to the significant judgment, estimation processes and uncertainty involved for each in the preparation of our consolidated financial statements. We believe the following represent our critical accounting policies.

      Financial reporting by entities in reorganization. While under Chapter 11 of the bankruptcy code, the financial statements are prepared in accordance with the American Institute of Certified Public Accountant’s Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (“SOP 90-7”). SOP 90-7 required us to, among other things, (1) identify transactions that are directly associated with the bankruptcy proceedings from those events that occur during the normal course of business, (2) identify pre-petition liabilities subject to compromise separately from those that are not subject to compromise or are post-petition liabilities and (3) apply “fresh-start” accounting rules upon emergence from Bankruptcy. According to our confirmed plan of reorganization, only our Senior Notes and the related accrued interest were subject to compromise. In addition, we discontinued accruing interest on the Senior Notes as of December 21, 2004 (the “Commencement Date”). Upon confirmation of the plan of reorganization by the Bankruptcy Court, we adopted “fresh-start” accounting as required by SOP 90-7 on the effective date of the reorganization.

      The most significant assumption impacting our reorganized balance sheet on the Exit Date relates to the determination of the reorganization value of the Company. To facilitate the calculation of the reorganization value of the Successor Company, we developed a set of financial projections. Based on these financial projections, we determined the reorganization value of the Company, with the assistance of its financial advisors, using various valuation methods, including (i) a comparable company analysis which estimates the value of the Company based on the implied valuations of other similar companies that are publicly traded; (ii) a discounted cash flow analysis which estimates the value of the Company by determining the current value of estimated future cash flows to be generated; and (iii) a net operating loss carryforwards (“NOL”) valuation analysis which estimated the present value of the tax savings the NOLs would provide relative to the taxes the reorganized Debtors would pay absent the application of such NOLs. The future enterprise value is

highly dependent upon achieving the projected financial results set forth in the projections as well as the realization of certain other assumptions which are beyond our control. As confirmed by the Bankruptcy Court, the estimated reorganization value of the Company was determined to be approximately $110 million. After determining the reorganization value, other significant assumptions related to the fair values attributed to our long-lived assets, which were generally obtained by use of independent third party appraisals. The application of fresh-start accounting resulted in negative goodwill of $155.1 million, which was allocated on a pro-rata basis to reduce the value of long lived assets, primarily marine vessels.

      Revenue recognition. We earn and recognize revenues primarily from the time, and to a lesser degree, bareboat chartering of vessels to customers based upon daily rates of hire. A time charter is a lease arrangement under which we provide a vessel to a customer and are responsible for all crewing, insurance and other operating expenses. In a bareboat charter, we provide only the vessel to the customer, and the customer assumes responsibility to provide for all of the vessel’s operating expenses and generally assumes all risk of operation. Vessel charters may range from several days to several years. Our other vessel income is generally related to billings for bunks, meals and other expenses incurred on behalf of a customer.

      Direct Vessel Operating Expenses. Direct vessel operating expenses principally include crew costs, marine inspection costs, insurance, repairs and maintenance, supplies and casualty losses. Operating costs are expensed as incurred. Operating costs are reduced by the amount of partial reimbursements of labor costs received from the Norwegian government beginning during July 2003. The labor reimbursements totaled $5.6 million, $5.5 million, and $4.0 million for 2005, 2004, and 2003, respectively.

      Accounting for long-lived assets. We have approximately $225.6 million in net property and equipment (excluding assets held for sale) at December 31, 2005, which comprises approximately 66% of our total assets. In addition to the original cost of these assets, their recorded value is impacted by a number of policy elections, including the estimation of useful lives, residual values and when necessary, impairment charges (see below for discussion of impairment policy) and the application of fresh-start accounting described in Note 3 to the financial statements in Item 8.

      On the Exit Date, we recorded our vessels at their estimated fair values, reduced by the pro-rata application of negative goodwill as discussed previously. Prior to the Exit Date, we recorded vessels at acquisition cost. Depreciable life is determined through economic analysis, reviewing existing fleet plans, and comparing estimated lives to competitors that operate similar fleets. Depreciation for financial statement purposes is provided on the straight-line method, assuming a salvage value of between zero and 10% for marine vessels. Residual values are estimated based on our historical experience as to the sale of both vessels and spare parts, and are established in conjunction with the estimated useful lives of the vessel. Marine vessels are depreciated over useful lives ranging from 15 to 35 years from the date of original acquisition, estimated based on historical experience for the particular vessel type. Major modifications, which extend the useful life of marine vessels, are capitalized and amortized over the adjusted remaining useful life of the vessel. Buildings and improvements are depreciated over a useful life of 15 to 40 years. Transportation and other equipment are depreciated over a useful life of five to ten years. Upon our emergence from bankruptcy, we reset the remaining lives of our long-lived assets and began to depreciate the new book values over those remaining useful lives, which ranged from 3 years to 27 years. When assets are retired or disposed, the cost and accumulated depreciation thereon are removed, and any resultant gains or losses are recognized in current operations. We utilize our judgment in (i) determining whether an expenditure is a maintenance expense or a capital asset; (ii) determining the estimated useful lives of assets; (iii) determining the salvage values to be assigned to assets; and (iv) determining if or when an asset has been impaired. The accuracy of these estimates affects how much depreciation expense we recognize in our income statement, whether we have a gain or loss on the disposal of an asset, and whether or not we record an impairment loss related to an asset.

      Impairment of long-lived assets other than goodwill. In accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets,” we review long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of any such asset or asset group may not be recoverable. We record impairment losses on long-lived assets used in operations when the net undiscounted cash flows estimated to be generated by those assets or asset groups are

less than the carrying amount of those items. We have grouped assets together for impairment testing purposes if they are determined to be interchangeable within their asset class. Cold-stacked vessels are grouped with other like active vessels for impairment review if the cold-stacked vessel is determined to be capable of returning to service without an economic burden to the Company, and is expected to be marketable once it returns. For grouped classes, we have not considered individual assets on a stand-alone basis for review, unless that vessel is considered withdrawn from service. As of December 31, 2005, we had approximately 12 cold-stacked vessels. We have concluded that none of these vessels will be withdrawn from service in the next twelve months; however a decision has been made to market and sell one of these cold-stacked vessels. We have evaluated the estimated selling price of the cold-stacked vessel and determined impairment of the vessel to be unwarranted. For assets held for sale, impairment losses are recorded when the carrying amount of the asset exceeds the fair value of the asset less transaction costs. Our cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market rates, utilization, operating performance and other factors. Our estimates of cash flows may differ from actual cash flows due to changes in economic conditions or changes in an asset’s operating performance, among other things. If the undiscounted value of the cash flows is less than the carrying value, we recognize an impairment loss, measured as the amount by which the carrying value exceeds the net discounted cash flows. While we believe that our estimates of future cash flows are reasonable, different assumptions regarding future market rates, utilization and operating performance could materially affect our evaluations.

      Restricted cash. We segregate restricted cash due to legal or other restrictions regarding its use. At December 31, 2005, the majority of the total restricted cash balance of $7.8 million relates to cash held in escrow for outstanding letters of credit, as prescribed following our retirement of the Bank Credit Facility in February 2004. Since the cash held in escrow for outstanding letters of credit will not be used to offset currently maturing liabilities, the balance of $7.3 million has been classified as “Restricted cash - noncurrent” in the accompanying consolidated financial statements. To a lesser extent, we have statutory requirements in Norway which require a subsidiary to segregate cash that will be used to pay tax withholdings in following periods, and other cash amounts held in escrow for specific purposes aggregating $0.6 million at December 31, 2005, which are classified as current assets.

      Losses on insured claims. The Company limits its exposure to losses on insurance claims by maintaining liability coverages subject to specific and aggregate liability deductibles. Self-insurance losses for claims filed and claims incurred but not reported are accrued based upon our historical loss experience and valuations provided by independent third-party consultants. To the extent that estimated self-insurance losses differ from actual losses realized, our insurance reserves could differ significantly and may result in either higher or lower insurance expense in future periods.

      Deferred tax valuation allowance. Income taxes are determined in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires recognition of deferred income tax liabilities and assets for the expected future tax consequences of events that have been included in the condensed consolidated financial statements or tax returns. Under this method, deferred income tax liabilities and assets are determined based on the difference between the financial statement and tax bases of liabilities and assets using enacted tax rates in effect for the year in which the differences are expected to reverse. SFAS No. 109 also provides for the recognition of deferred tax assets if it is more likely than not that the assets will be realized in future years. A valuation allowance was established in the third quarter of 2002 associated with the U.S. net deferred tax asset because it was not likely that this benefit would be realized. Because we have not yet seen sustained long-term positive results from our U.S. operations, we have continued to maintain this valuation allowance against all U.S. net deferred tax assets. Although taxes are not currently owed, we provide for and classify as deferred the future tax liability on the earnings of our Norwegian subsidiary which operates under the Norwegian shipping tax regime.

      Marine inspection costs. On the Exit Date, we elected to change our accounting policy to record all marine inspection costs as expenses in the period in which the costs are incurred. The Company believes that this change is preferable because it provides a better presentation of operating expenses and earnings during a given period. For all periods prior to the Exit Date, we recorded the cost of major scheduled dry-dockings in connection with regulatory marine inspections for our vessels as deferred charges. Under this method of

accounting, deferred marine inspection costs were amortized over the expected periods of benefit, which typically ranged from two to five years.

      Non-regulatory dry-docking expenditures that are considered major modifications, such as lengthening a vessel, installing new equipment or technology, and performing other procedures which extend the useful life of the marine vessel, are capitalized and depreciated over the estimated useful life. All other non-regulatory dry-docking expenditures are expensed in the period in which they are incurred.

      Equity-based compensation. Following the accounting guidance set forth SOP 90-7, we adopted SFAS No. 123R upon emerging from bankruptcy on the Exit Date. Among other things, SFAS No. 123R requires the fair-value based method of accounting for equity-based compensation to employees. Under this method, we will measure the fair value of equity-based awards issued to employees at the grant date and amortize the cost of that award over the period in which service is rendered. As a result of issuing stock options in connection with the emergence of bankruptcy, some of which were immediately vested, we recorded approximately $1.3 million of non-cash compensation expense related to the adoption of SFAS No. 123R during 2005.

      Deferred revenue on unfavorable contracts. During the application of fresh-start accounting, the Company was required to refer to the guidance in SFAS No. 141, “Business Combinations” to determine the fair value of its assets and liabilities before the application of negative goodwill. SFAS No. 141 requires the Company to record all contracts that are in-process at the Exit Date at fair market value based on estimated normal profit margins at that date. As such, an asset for favorable contracts or a liability for unfavorable contracts is required to be recorded. These assets or liabilities are then required to be amortized based on revenues recorded over the remaining contract lives, effectively resulting in the recognition of a normal profit margin on contract activity performed subsequent to the acquisition. As required, the Company performed an evaluation of its contracts and determined that, as a result of recent market improvements in the North Sea, several of its contracts were unfavorable compared to market conditions as of the Exit Date. As a result, the Company recorded deferred revenues of NOK 101.9 million ($16.7 million at March 15, 2005) related to its charter hire contracts in the North Sea, representing the unfavorable contract amounts discounted to present values. Significant assumptions in determining the unfavorable contract value included estimates of current market rates for similar term contracts and estimates of the likelihood of our option periods under the contracts being exercised by the charterer. Accordingly, the Company is required to amortize the deferred revenue on unfavorable contracts liability by increasing revenues related to the identified contracts over the remaining terms of the charters. Although no additional cash benefit will be recognized by the Company, the reversal of deferred revenue on unfavorable contracts will have a positive impact on the Company’s stated revenues and operating income during future periods, particularly the remainder of 2005 and 2006. During the period from March 15, 2005 to December 31, 2005, the Company recorded approximately NOK 65.6 million ($10.1 million) of non-cash revenues related to the reversal of deferred contract revenues. The remaining liability of NOK 36.3 million ($5.4 million at December 31, 2005) is included in “Deferred revenues on unfavorable contracts” in the consolidated balance sheet at December 31, 2005.

New Accounting Standards:

      In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29.” SFAS No. 153 amends APB Opinion No. 29, “Accounting for Nonmonetary Transactions” to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The adoption of SFAS No. 153 is not expected to have an impact on our financial position or results of operations.

      In May 2005, the FASB issued FAS No. 154, “Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FAS No. 3.” This statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting

principle. This statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. Retrospective application is defined as reporting results as if that principle had always been used or as the adjustment of previously issued financial statements to reflect a change in the reporting entity. This statement shall be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of this statement is not expected to have a material impact on the Company’s financial statements or results of operations unless a future change in accounting principle is made.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

      Our market risk exposures primarily include interest rate and exchange rate fluctuations on financial instruments as detailed below. Our market risk sensitive instruments are classified as “other than trading.” The following sections address the significant market risks associated with our financial activities during 2005. Our exposure to market risk as discussed below includes “forward-looking statements” and represents estimates of possible changes in fair values, future earnings or cash flows that would occur assuming hypothetical future movements in foreign currency exchange rates or interest rates. Our views on market risk are not necessarily indicative of actual results that may occur and do not represent the maximum possible gains and losses that may occur, since actual gains and losses will differ from those estimated, based upon actual fluctuations in foreign currency exchange rates, interest rates and the timing of transactions.

Interest Rate Sensitivity

      We have entered into a number of variable and fixed rate debt obligations, denominated in both the U.S. Dollar and the Norwegian Kroner (Norwegian debt payable in Norwegian Kroner), as detailed in Note 13 to our consolidated financial statements in Item 8. These instruments are subject to interest rate risk.

      As of December 31, 2005 and 2004, we had $34.1 million and $132.7 million, respectively, in variable rate debt. As of December 31, 2005 and 2004, the carrying value of our long-term variable rate debt, including accrued interest, was approximately $34.2 million and $133.0 million, respectively. The fair value of this debt approximates the carrying value because the interest rates are based on floating rates identified by reference to market rates. A hypothetical 1% increase in the applicable interest rates as of December 31, 2005 and 2004 would increase annual interest expense by approximately $0.3 million and $1.3 million, respectively.

      As of December 31, 2005, the carrying value of our long-term fixed rate debt, including accrued interest, was $12.6 million, which includes our 6.08% MARAD bonds ($1.3 million), 6.11% MARAD bonds ($10.7 million) and a fresh-start premium of ($0.5 million). As of December 31, 2004, the carrying value of our long-term fixed rate debt, including accrued interest, was $14.5 million. The fair value of our long-term fixed rate debt as of December 31, 2005 and 2004 was approximately $12.2 million and $13.3 million, respectively. Fair value was determined using discounted future cash flows based on quoted market prices, where available, on our current incremental borrowing rates for similar types of borrowing arrangements as of the balance sheet dates. A hypothetical 1% increase in the applicable interest rates would decrease the fair value of our long-term fixed rate debt as of December 31, 2005 and 2004 by approximately $0.4 million and $0.4 million, respectively. The hypothetical fair values are based on the same assumptions utilized in computing fair values.

Foreign Currency Exchange Rate Sensitivity

      We have substantial operations located outside the United States We are primarily exposed to fluctuations in the foreign currency exchange rates of the Norwegian Kroner, the British Pound, the Brazilian Real and the Nigerian Naira. As a result, the reported amount of our assets and liabilities related to our non-U.S. operations and, therefore, our consolidated financial statements, will fluctuate based upon changes in currency exchange rates.

      We manage foreign currency risk by attempting to contract as much foreign revenue as possible in U.S. Dollars. To the extent that our foreign subsidiaries revenues are denominated in U.S. Dollars, changes in

foreign currency exchange rates impact our earnings. This is somewhat mitigated by the amount of foreign subsidiary expenses that are also denominated in U.S. Dollars. In order to further mitigate this risk, we may utilize foreign currency forward contracts to better match the currency of our revenues and associated costs. We do not use foreign currency forward contracts for trading or speculative purposes. The counterparties to these contracts would be limited to major financial institutions, which would minimize counterparty credit risk.

      There were no foreign exchange forward contracts outstanding during 2005 or 2004.

      In accordance with SFAS No. 52, “Foreign Currency Translation,” all assets and liabilities of our foreign subsidiaries are translated into U.S. Dollars at the exchange rate in effect at the end of the period, and revenues and expenses are translated at average exchange rates prevailing during the period. The resulting translation adjustments are reflected in a separate component of stockholders’ equity. We recorded other comprehensive losses of $9.5 million as of December 31, 2005 and other comprehensive gains of $17.7 million and $10.6 million for the years ended December 31, 2004 and 2003, respectively, as a result of the net increase or decrease in the value of the NOK and other currencies against the U.S. Dollar. As a result of fresh-start accounting, we effectively recognized $35.1 million in currency translation adjustments during our reorganization as a fresh-start adjustment, which were previously a component of other comprehensive income.

      As described above, at December 31, 2005, 2004, and 2003, we had the equivalent of $34.2 million, $78.5 million and $84.6 million, respectively, of outstanding NOK-denominated indebtedness, including accrued interest. The potential increase in the U.S. Dollar equivalent of the principal amount outstanding resulting from a hypothetical 10% adverse change in exchange rates at such date would be approximately $3.8 million, $8.7 million and $9.3 million at December 31, 2005, 2004, and 2003, respectively.

Index to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Trico Marine Services, Inc.:

      We have completed an integrated audit of Trico Marine Services, Inc.’s 2005 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audit, are presented below.

Consolidated financial statements and financial statement schedule

      In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Trico Marine Services, Inc. and its subsidiaries (Successor Company) at December 31, 2005 and the results of their operations and their cash flows for the period from March 15, 2005 to December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

      As discussed in Notes 1, 2 and 3 to the consolidated financial statements, the United States Bankruptcy Court for the Southern District of New York confirmed the Company’s reorganization plan (the “plan”) on March 15, 2005. Confirmation of the plan resulted in the discharge of certain claims against the Company that arose before March 15, 2005 and substantially alters rights and interests of equity security holders as provided for in the plan. The plan was substantially consummated on March 15, 2005 and the Company emerged from bankruptcy. In connection with its emergence from bankruptcy, the Company adopted fresh start accounting as of March 15, 2005.

      As discussed in Notes 2 and 3 to the consolidated financial statements, in connection with the emergence from bankruptcy, the Company changed its method of accounting for marine inspection costs from the “defer and amortize” method to the “expense as incurred” method and adopted the revised version of SFAS No. 123, “Accounting for Stock-Based Compensation” entitled “Share-Based Payment” (“SFAS No. 123R”) as of March 15, 2005.

Internal control over financial reporting

      Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over

financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

New Orleans, Louisiana

February 24, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Trico Marine Services, Inc.:

      In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Trico Marine Services, Inc. and its subsidiaries (Predecessor Company) at December 31, 2004 and the results of their operations and their cash flows for the period from January 1, 2005 to March 14, 2005, and for each of the two years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      As discussed in Notes 1, 2 and 3 to the consolidated financial statements, the Company filed a petition on December 21, 2004 with the United States Bankruptcy Court for the Southern District of New York for reorganization under the provisions of Chapter 11 of the Bankruptcy Code. The Company’s reorganization plan was substantially consummated on March 15, 2005 and the Company emerged from bankruptcy. In connection with its emergence from bankruptcy, the Company adopted fresh start accounting.

/s/ PricewaterhouseCoopers LLP

New Orleans, Louisiana

February 24, 2006

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

as of December 31, 2005 and December 31, 2004

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

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

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

for the Period from March 15, 2005 through December 31, 2005 and for the Period from January 1, 2005 through March 14, 2005 and the Years Ended December 31, 2004 and 2003

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