ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

Forward Looking Information and Cautionary Statement

In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the company notes that this Quarterly Report on Form 10-Q and the information incorporated herein by reference contain certain forward-looking statements which reflect the company’s current view with respect to future events and financial performance. Any such forward-looking statements are subject to risks and uncertainties, and the company’s future results of operations could differ materially from its historical results or current expectations. Some of these risks are discussed in this report and include, without limitation, fluctuations in worldwide energy demand and oil and gas prices; fleet additions by competitors and industry overcapacity; changes in capital spending by customers in the energy industry for offshore exploration, development and production; changing customer demands for different vessel specifications, which may make some of our older vessels technologically obsolete for certain customer projects or in certain markets; instability of global financial markets and difficulty in accessing credit or capital; acts of terrorism; significant weather conditions; unsettled political conditions, war, civil unrest and governmental actions, especially in higher risk countries of operations; foreign currency fluctuations; and enforcement of laws related to the environment, labor and foreign corrupt practices.

Forward-looking statements, which can generally be identified by the use of such terminology as “may,” “expect,” “anticipate,” “estimate,” “forecast,” “believe,” “think,” “could,” “continue,” “intend,” “seek,” “plan,” and similar expressions contained in this report, are predictions and not guarantees of future performance or events. Any forward-looking statements are based on current industry, financial and economic information, which the company has assessed but which by its nature is dynamic and subject to rapid and possibly abrupt changes. The company’s actual results could differ materially from those stated or implied by such forward-looking statements due to risks and uncertainties associated with our business. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate especially considering the effects the distress in credit and capital markets will have on our customers and the global economy and the uncertainties surrounding the potential for a prolonged global recession. The forward-looking statements should be considered in the context of the risk factors listed above and discussed in Items 1, 1A, 2 and 7 included in the company’s Annual Report on Form 10-K for the year ended March 31, 2008, filed with the Securities and Exchange Commission (SEC) on May 30, 2008 and elsewhere in the Form 10-Q. Investors and prospective investors are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. Management disclaims any obligation to update or revise the forward-looking statements contained herein to reflect new information, future events or developments.

In addition, in certain places in this report, we refer to published reports of analysts that purport to describe trends or developments in energy production and drilling and exploration activity. The company does so for the convenience of our stockholders and in an effort to provide information available in the market that will assist the company’s investors in a better understanding of the market environment in which the company operates. However, the company specifically disclaims any responsibility for the accuracy and completeness of such information and undertakes no obligation to update such information.

Overview

The company provides services and equipment to the global offshore energy industry through the operation of a diversified fleet of marine service vessels. Revenues, net earnings and cash flows from operations are dependent upon the activity level of the vessel fleet and vessel day rates, which are, among other things, dependent upon oil and natural gas prices and ultimately the supply/demand relationship for crude oil and natural gas. The following information contained in this Form 10-Q should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report and related disclosures and the company’s Annual Report on Form 10-K for the year ended March 31, 2008, filed with the SEC on May 30, 2008.

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General Market Conditions and Results of Operations

During the last half of calendar 2008, worldwide demand for oil and gas dropped precipitously and energy prices sharply declined as a result of a global recession. The company is assessing the possible impacts on its operations and financial condition of various scenarios, including the potential for a prolonged global recession. In particular, the company continues to evaluate how a prolonged global recession might impact development plans of exploration and production companies and global demand for offshore vessels. Among other things, the company is also uncertain of the impact a prolonged global recession and the related distress in credit and capital markets will have on the ability of shipyards to meet their scheduled deliveries of new vessels or the ability of the company to renew its fleet through new vessel construction or acquisitions. Also unknown is the potential effect that the recession may have on the company’s more highly-leveraged competitors, including those companies’ abilities to continue to fund their construction commitments. At present, the financial and commodity markets are still too unstable to assess the situation with a high degree of confidence. For the quarter and the nine-month period ended December 31, 2008, the company did not experience any significant negative effects from the current financial crisis and credit market tightening.

Given the foregoing uncertainties, the company continues to re-assess its stated strategies and investment plans. All statements made herein of the previously stated plans or the “current” plan or expectation of such should be considered in the light of the potential effects discussed in the preceding paragraph. While the magnitude of any change in plans, including investment plans, cannot be predicted at this time, it is likely that some adjustments will be necessary due to the global recession, the recent dramatic reduction in commodity prices, and the lack of liquidity in financial markets.

The company operates in a highly competitive business environment that has many risks. Critical risk factors that affect, or may affect, the company and the offshore marine service industry include the absolute level and volatility of crude oil and natural gas prices, changes in the level of capital spending by the company’s customers, the number of available drilling rigs (as discussed below) and the potential overcapacity in the offshore vessel market. A full discussion of each of these risk factors (in addition to several other risk factors) is disclosed in Item 1A in the company’s Annual Report on Form 10-K for the year ended March 31, 2008, filed with the Securities and Exchange Commission on May 30, 2008.

The company’s offshore service vessels provide a diverse range of services and equipment to the energy industry. The company’s revenues and operating profit are driven primarily by the company’s fleet size, vessel utilization and day rates because a sizeable portion of the company’s operating costs (including depreciation) do not change proportionally with changes in revenue. Operating costs consist primarily of crew costs, repair and maintenance, insurance and loss reserves, fuel, lube oil and supplies and vessel operating lease expense. Fleet size, fleet composition, geographic areas of operation and the supply and demand for marine personnel are the major factors which affect overall crew costs.

The timing and amount of repair and maintenance costs are influenced by customer demands, vessel age and drydockings to satisfy safety and inspection requirements mandated by regulatory agencies. A certain number of drydockings are required over a given period to meet regulatory requirements. Drydocking costs are incurred only if economically justified, taking into consideration the vessel’s age, physical condition and future marketability. If a required drydocking is not performed, the company will either stack or sell the vessel as it is not permitted to work without the proper certifications. When the company takes a productive vessel out of service for drydocking, the company incurs not only the drydocking cost but also continues to incur operating costs and depreciation on the vessel and loses revenue from that vessel during the drydock period. In any given period, downtime associated with drydockings and major repairs and maintenance can have a significant effect on the company’s revenues. In the current environment of record dayrates in international markets, drydockings have taken on an increasing importance to the company and its financial performance. The company’s older vessels, for which demand remains relatively strong, require more frequent repair and drydockings, while some of the newer vessels built over the last eight years are now experiencing their first and second required regulatory drydockings. The combination of these factors has led to increased levels of expenditures for drydockings and incremental volatility in operating revenues, thus making period-to-period comparisons more difficult. Although the company attempts to efficiently manage its fleet drydocking schedule to minimize the disruptive effect, inflationary pressures in shipyard pricing experienced in recent years and the heavy workloads at the shipyards resulted in increased drydocking costs, increased days off hire at shipyards,

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and therefore, increased loss of revenue. Due to the global recession, it is unknown if the shipyard situation will improve in the foreseeable future. Should no improvement occur, the company expects that the timing of drydockings in the future will result in continued quarterly volatility in repair and maintenance costs and loss in revenue. Fuel and lube costs can also fluctuate in any given period depending on the number of vessel mobilizations that occur.

The company also incurs vessel operating costs which are aggregated under the “other” vessel operating cost heading. These costs consist of brokers’ commissions, training costs and other type costs. Brokers’ commission costs are incurred primarily in the company’s international operations where brokers assist in obtaining work for the company’s vessels. Brokers are paid a percentage of day rates and, accordingly, as revenues increase so do commissions paid to brokers. Other type costs include, but are not limited to, satellite communication fees, agent fees, port fees, canal transit fees, vessel certification fees and temporary vessel importation fees.

The following table compares revenues and operating expenses (excluding general and administrative expense, depreciation expense and gain on sales of assets) for the company’s vessel fleet and the related percentage of total revenue for the quarters and the nine-month periods ended December 31, 2008 and 2007 and for the quarter ended September 30, 2008. Vessel revenues and operating costs relate to vessels owned and operated by the company, while other marine services relate to third-party activities of the company’s shipyards, brokered vessels and other miscellaneous marine-related activities.

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The following table subdivides vessel operating costs presented above by the company’s United States and International segments for the quarters and the nine-month periods ended December 31, 2008 and 2007 and for the quarter ended September 30, 2008.

As a result of the uncertainty of a certain customer to make payment of vessel charter hire, the company has deferred the recognition of approximately $5.6 million of billings as of December 31, 2008 ($5.7 million of billings as of March 31, 2008), which would otherwise have been recognized as revenue. The company will recognize the amounts as revenue as cash is collected or at such time as the uncertainty has been significantly reduced.

The company’s consolidated net earnings for the nine months ended December 31, 2008 increased approximately 13%, or $33.8 million, compared to the net earnings achieved during the same period in fiscal 2008 primarily due to higher average day rates. The company’s United States (U.S.) revenues decreased approximately 5%, or $5.7 million, during the nine months ended December 31, 2008, as compared to the same period in fiscal 2008, while the company’s international revenues increased $127.0 million, or approximately 16%, during the same comparative period. Domestic-based vessel operating costs decreased approximately 15%, or $11.4 million, during the nine months ended December 31, 2008, as compared to the same period in fiscal 2008, while the company’s international-based vessel operating costs increased approximately 27%, or $95.2 million, during the same comparative period. A significant portion of the company’s operations are conducted internationally. For the nine months ended December 31, 2008, revenues generated from international operations as a percentage of the company’s total revenues were 87%.

The company’s U.S.-based revenues decreased approximately 5% during the nine months ended December 31, 2008, as compared to the same period in fiscal 2008, primarily due to a decrease in the number of vessels operating in the U.S.-based portion of the Gulf of Mexico (GOM) and to lower utilization on the remaining U.S.-based vessels despite an approximate 11% increase in average day rates. Demand for vessels in the shallow water GOM offshore vessel market diminished as numerous drilling rigs relocated to international areas. The number of operating drilling rigs in the U.S. offshore market is generally the primary driver of the company’s expected activity levels and future profitability in the U.S. market. At present, the offshore rig count in the GOM remains at historically low levels. The strength of the international drilling market attracted offshore rigs from the U.S. market over the past few years. Over the longer term, the company’s U.S.-based fleet should be affected more by the active offshore rig count in the United States than by any other single outside influence. In addition, consolidation could result in the absorption of an oil and gas company with which the company has a strong commercial relationship into another company with which the company does not have such a relationship.

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During the summer of 2008, vessel day rates trended higher as the supply/demand fundamentals in the GOM offshore vessel market tightened due to an increase in exploration and production (E&P) drilling activity resulting from high natural gas prices, which reached the $13.00 per Mcf range in July 2008 and which have since deflated to the $5.00 to $6.00 per Mcf range. In September 2008, Hurricanes Gustav and Ike hit the Louisiana and Texas coasts. The U.S. Minerals Management Service reported that the damage caused by the two storms to the energy industry infrastructure in the U.S. GOM and along the U.S. Gulf Coast was not as extensive as the damage caused by Hurricanes Katrina and Rita in calendar year 2005 and indicated that the damage that was sustained would take several months to repair. The market for offshore support vessels was tight prior to the two storms, and drilling operators discovered shortages in available-for-work offshore vessels operating in the U.S. GOM. The GOM supply boat market had a significant number of vessels stacked that could resume active status, but only after expenditures to drydock and re-certify the vessels. Prior to the storms, all of the company’s available-for-work U.S.-based vessels were working at relatively full utilization and, since the storms, two of the company’s stacked vessels underwent a drydock and recertification in order to meet increased post-hurricane market demand. Demand for the company’s vessels was brisk for the majority of the quarter ended December 31, 2008, but demand has waned in the last weeks of the quarter due to normal winter slowdowns and the winding down of repair work on the offshore energy infrastructure.

During the quarter ended September 30, 2008, both U.S. President Bush and the U.S. Congress allowed the moratorium on offshore drilling in federal waters along the U.S. Pacific and Atlantic coasts to expire effective October 1, 2008. Although the lifting of the moratorium will not result in immediate drilling, the prospects for the future of offshore drilling in the new regions of the U.S. could be promising; however, in January 2009, U.S. President Obama took office, and it is not yet clear what the energy policy of his administration will be or what impact such policy will have on the offshore energy industry.

The deepwater offshore energy market is a growing segment of the energy market. Worldwide rig construction escalated in the past few years as rig owners capitalized on the high worldwide demand for drilling. Reports published during the most recently completed quarter suggest that over the next four years, the worldwide moveable drilling rig count will increase as new-build rigs currently on order and under construction stand at approximately 175 rigs, which will supplement the current approximate 740 movable rigs worldwide. In addition, investment is also being made in the floating production market where approximately 68 new floating production units are currently under construction and are expected to be delivered over the next four years to supplement the current approximate 308 floating production units worldwide.

Approximately 700 new-build vessels (platform supply vessels and anchor handlers only) are currently under construction and are expected to be delivered to the worldwide offshore vessel market over the next four years as reported by ODS-Petrodata. The current worldwide fleet of these classes of vessels approximates 2,000 vessels. An increase in vessel capacity could have the effect of lowering charter rates. However, the worldwide offshore marine vessel industry has a large number of aging vessels that are nearing or exceeding original expectations of estimated economic lives. These older vessels could potentially retire from the market within the next few years if the cost of extending the vessels’ lives is not economically justifiable. Although the future attrition rate of these aging vessels cannot be accurately predicted, the company believes that the retirement of a portion of these aging vessels would likely mitigate the potential effects of new-build vessels being delivered into the market. Additional vessel demand should be created with the addition of new drilling rigs and floating production units over the next few years, which should help minimize the effects of 700 new-build vessels (platform supply vessels and anchor handlers only) being added to the offshore support vessel fleet. However, it is unknown at this time how the global recession will influence the utilization of equipment currently in existence and ultimate delivery of new drilling rigs, floating production units and vessels currently under construction.

Commodity prices, and particularly the price of crude oil and natural gas, are critical factors in E&P companies’ decisions to retain their drilling rigs in the GOM market or mobilize the rigs to more profitable international markets. Prices for crude oil and natural gas have fallen dramatically from their respective peaks achieved in calendar year 2008 due to a global recession that resulted in a marked decline in worldwide demand for oil and gas. Inventory levels for natural gas rose higher than expected over the summer and were near full capacity at the end of the season as was the case during calendar years 2006 and 2007. Production shut-ins in the offshore drilling market caused by Hurricanes Gustav and Ike eased some of the production growth in natural gas but were insufficient to offset strong land-based natural gas drilling. Analysts estimate

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that inventory levels for natural gas will remain high even during the winter drawdown season due to the strong supply growth and declining demand resulting from the economic recession. High inventory levels for natural gas and low demand do not bode well for future increases in natural gas pricing. Given the historical strong correlation between commodity prices, drilling and exploration activity and demand for the company’s vessels in the GOM, if gas prices remain weak during calendar year 2009, the company would expect that its ability to maintain the utilization rates and day rates for its vessels in that market will be under stress. However, because gas pricing and gas demand have been extremely volatile, as evidenced by the sharp increases and declines experienced during calendar year 2008, management is unable to predict with confidence what the company’s actual experience will be in calendar year 2009.

The company’s assets are highly mobile. Should the U.S. market weaken, the company has the ability to redeploy some of its vessels to international markets where, market conditions permitting, the vessels may benefit from stronger average day rates and statutory income tax rates that are typically lower than in the United States. The company will continue to assess the demand for vessels in the Gulf of Mexico and in the various international markets and consider relocating additional vessels to international areas, although the ability of the company to continue to mobilize vessels among international markets will be subject to global market demand. The cost of mobilizing vessels to a different market are sometimes for the account of the company and sometimes for the account of a contracting customer.

Oil and gas industry analysts are reporting in their 2009 E&P expenditures (both land-based and offshore) surveys that global capital expenditures budgets for E&P are forecast to decrease by approximately 12% over calendar year 2008 levels. The surveys forecast that international capital spending budgets will decline a modest 6% while North American capital spending budgets are forecast to decrease approximately 26% due to the uncertainty in commodity pricing, tight credit markets and the global recession. These budgets were based on an approximate $58 average price per barrel of oil and an approximate $6.35 per mcf average natural gas price for calendar 2009. Additionally, the International Energy Agency announced in January 2009 that it decreased its forecast of oil demand by 11.7% from its October 2008 forecast.

The strength in the company’s international-based revenues during the nine months ended December 31, 2008 can be attributed to higher average day rates. Average day rates for the total international-based fleet increased approximately 20% during the nine months ended December 31, 2008 as compared to the same period in fiscal 2008. The company’s international results of operations are primarily dependent on the supply and demand relationship of crude oil. Even before the financial crisis caused extreme uncertainty in the market, crude oil prices were already retreating from the all time closing high of approximately $147 per barrel in mid-July 2008. In the past four months, falling oil prices prompted the Organization of Petroleum Exporting Countries (OPEC) to announce three oil production cuts in an attempt to stabilize oil prices. The most recent announcement stated that OPEC will cut production by 2.2 million barrels per day effective January 1, 2009, which would reduce oil production by 4.2 million barrels per day (nearly 5% cut in global oil supplies) when all previously announced production cuts are included. At present, it is unknown whether crude oil prices will stabilize at levels that will continue to support significant levels of exploration and production spending by oil and gas companies. In addition, even if prices stabilize at levels that do support high levels of spending, it is uncertain if E&P companies will be able to sustain their level of capital expenditures because of reductions in available capital and liquidity. Given the historical strong correlation between commodity prices, drilling and exploration activity and demand for the company’s vessels in the various international markets, if crude oil prices remain weak during calendar year 2009, the company would expect that its ability to maintain the utilization rates and day rates for its vessels in that market will be under stress. However, because oil pricing and oil demand have been extremely volatile, as evidenced by the sharp increases and declines experienced during calendar year 2008, management is unable to predict with confidence what the company’s actual experience will be in calendar year 2009.

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Marine operating profit and other components of earnings before income taxes and its related percentage of total revenue for the quarters and the nine-month periods ended December 31, 2008 and 2007 and for the quarter ended September 30, 2008 consist of the following:

United States-based Operations

U.S.-based vessel revenues for the quarter ended December 31, 2008, increased a modest 1%, or $0.4 million, as compared to the same period in fiscal year 2008, due to higher utilization rates on all vessel classes operating in the U.S. market and to higher total average day rates resulting from a stronger GOM market during the comparative periods despite fewer vessels operating in the GOM (due to the transfer of vessels to international markets). U.S.-based vessel revenues, for the nine-month period ended December 31, 2008, decreased approximately 5%, or $5.7 million, as compared to the same period in fiscal 2008, due to fewer vessels operating in the GOM resulting from vessels being transferred to international markets and to lower utilization rates despite increases in average day rates.

Revenues on the active towing supply/supply class of vessels, the company’s major income producing vessel class in the domestic market, increased approximately 32%, or $4.9 million, during the quarter ended December 31, 2008, as compared to the same period in fiscal 2008, due to higher utilization and average day rates. Revenues on this same class of vessel decreased approximately 9%, or $5.5 million, during the nine-month period ended December 31, 2008, as compared to the same period in fiscal 2008, due to lower utilization. Revenues on the company’s deepwater class of vessels decreased approximately 17%, or $2.7 million, during the quarter ended December 31, 2008, as compared to the same period in fiscal 2008, due to fewer deepwater vessels operating in the current quarter as a result of vessels being transferred to international markets. Revenues on the company’s deepwater class of vessels increased approximately 8%, or $3.2 million, during the nine-month period ended December 31, 2008, as compared to the same period in fiscal 2008, due to higher utilization and average day rates. The company’s crew/utility class of vessels experienced a decrease in revenues of approximately 29%, or $1.7 million, during the quarter ended December 31, 2008, as compared to the same period in fiscal 2008, due to lower average day rates and fewer vessels operating in the current quarter as a result of vessel being transferred to international markets. Revenues on this same class of vessel decreased approximately 19%, or $3.5 million, during the nine-month period ended December 31, 2008, as compared to the same period in fiscal 2008, due to lower utilization and average day rates.

Average day rates on the U.S-based towing supply/supply vessels increased approximately 34% and 11% during the quarter and the nine-month period ended December 31, 2008, respectively, as compared to the same periods in fiscal 2008. Utilization rates on this same class of vessel increased approximately 3 percentage points during the quarter ended December 31, 2008, but decreased approximately 6 percentage points during the nine-month period ended December 31, 2008, as compared to same periods in fiscal 2008. Average day rates on the company’s U.S.-based deepwater class of vessels increased approximately 3% and

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5% during the quarter and the nine-month period ended December 31, 2008, respectively, as compared to the same periods in fiscal year 2008. Utilization rates on the deepwater class of vessels increased approximately 6 and 4 percentage points for the quarter and the nine-month period ended December 31, 2008, respectively, as compared to the same periods in fiscal year 2008. Utilization rates on the company’s U.S-based crew/utility class of vessels increased approximately 3 percentage points during the quarter ended December 31, 2008, but decreased approximately 7 percentage points during the nine-month period ended December 31, 2008, as compared to the same periods in fiscal year 2008, respectively. Average day rates for the crew/utility class of vessels decreased approximately 8% and 4%, during the same comparative periods, respectively.

U.S.-based operating profit for the quarter and the nine-month period ended December 31, 2008, increased approximately $8.7 million and $8.8 million, or 348% and 39%, as compared to the same periods in fiscal year 2008, respectively, primarily due to lower vessel operating costs and depreciation expense.

Current quarter U.S.-based vessel revenue decreased approximately 7%, or $2.9 million, compared to the previous quarter due primarily to the transfer of seven vessels (including two deepwater vessels) to international markets. Current quarter operating profit increased approximately 2%, or $0.2 million, compared to the previous quarter due to lower vessel operating costs and depreciation expense.

International-based Operations

International-based vessel revenues increased approximately 14% and 16%, or $38.1 million and $127.0 million, for the quarter and the nine-month period ended December 31, 2008, respectively, as compared to the same periods in fiscal year 2008, due primarily to higher average day rates on all vessel classes operating in international markets.

Revenues on the company’s international deepwater class of vessels increased approximately 10% and 8%, or $6.3 million and $14.4 million, during the quarter and the nine-month period ended December 31, 2008, respectively, as compared to the same periods in fiscal 2008. Revenues on the international towing supply/supply class of vessels increased approximately 17% and 22%, or $28.9 million and $104.5 million, during the quarter and the nine-month period ended December 31, 2008, respectively, as compared to the same periods in fiscal 2008. Revenues on the company’s crew/utility class of vessels increased a modest 1% and 2%, or $0.3 million and $1.8 million, during the quarter and the nine-month period ended December 31, 2008, respectively, as compared to the same periods in fiscal 2008. Revenues on the company’s offshore tug class of vessels increased approximately 19% and 11%, or $2.4 million and $4.7 million, during the quarter and the nine-month period ended December 31, 2008, respectively, as compared to the same periods in fiscal 2008.

Average day rates on the international deepwater class of vessels increased approximately 6% and 11%, during the quarter and the nine-month period ended December 31, 2008, respectively, as compared to the same periods in fiscal year 2008, while utilization rates on this same class of vessel decreased approximately 6 and 8 percentage points, during the same comparative periods. Average day rates for the company’s international towing supply/supply class of vessels increased approximately 22% for the quarter and the nine-month period ended December 31, 2008, as compared to the same periods in fiscal year 2008, respectively, while utilization rates on the same class of vessels decreased approximately 3 and 2 percentage points during the same comparative periods, respectively. Average day rates on the company’s international-based crew/utility class of vessels increased approximately 11% and 10%, during the quarter and the nine-month period ended December 31, 2008, respectively, as compared to the same periods in fiscal 2008. Utilization rates for the crew/utility class of vessels decreased approximately 9 and 6 percentage points during the same comparative periods, respectively. Average day rates on the international offshore tugs increased approximately 15% and 23%, during the quarter and the nine-month period ended December 31, 2008, respectively, as compared to the same periods in fiscal 2008. Utilization rates on the international offshore tugs increased approximately 10 percentage points during the quarter ended December 31, 2008 as compared to the same period in fiscal 2008. Utilization rates on the international offshore tugs during the nine-month period ended December 31, 2008 were comparable to the rates achieved during the same period in fiscal 2008.

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International-based vessel operating profit increased approximately 17% and 8%, or $18.6 million and $22.3 million, for the quarter and the nine-month period ended December 31, 2008, respectively, as compared to the same periods in fiscal 2008, primarily due to higher revenues. Higher international-based revenues earned during the current fiscal year periods were partially offset by increases in vessel operating costs (primarily crew costs due to basic inflationary increases in labor costs around the world, repair and maintenance costs, fuel, lube and supplies, and other type costs) and higher depreciation expense resulting from newly-constructed vessels added to the international-based fleet over the past year. International-based operating profit was also higher during the comparative periods because of higher foreign exchange gains resulting from a stronger U.S. dollar relative to other currencies.

While international-based vessel revenues improved during the nine month period ended December 31, 2008, as compared to the same period in fiscal 2008, the revenue line was negatively impacted by an increased number of maintenance days on several of the company’s larger deepwater class of vessels during the nine-month period ended December 31, 2008, resulting from a higher level of drydockings performed during the period. The increased number of maintenance days negatively impacted the utilization statistics and average day rates of the company’s deepwater class of vessels during the nine month period ended December 31, 2008, as compared to the same period in fiscal 2008.

Current quarter international-based vessel revenues increased a modest 2%, or $7.4 million, as compared to the previous quarter due to higher average day rates and stable utilization. International-based vessel operating profit for the current quarter increased approximately 17%, or $18.6 million, as compared to the previous quarter, due to higher revenues, lower vessel operating costs and higher foreign exchange gains.

Other Items

Insurance and loss reserves during the quarter and the nine-month period ended December 31, 2008, decreased approximately 88% and 34%, or $6.7 million and $6.2 million, respectively, as compared to the same periods in fiscal 2008, due to lower premiums and loss reserves recorded as a result of a better safety record during fiscal 2009 as compared to fiscal 2008.

Gain on sales of assets during the nine months ended December 31, 2008 increased approximately $11.3 million, or 117%, as compared to the same period in fiscal 2008, due to a higher number of vessels sold during fiscal 2009 as compared to fiscal 2008 and due to larger gains earned on the mix of vessels sold. Dispositions of vessels can vary from quarter to quarter; therefore, gains on sales of assets may fluctuate significantly from period to period.

The company performed a thorough review of all the vessels in its fleet for asset impairment during the quarter ended December 31, 2008. The review resulted in no impairment charge. The company’s thorough review of all the vessels in its fleet for asset impairment during the quarter ended December 31, 2007 also resulted in no impairment charge.

Vessel Class Statistics

Vessel utilization is determined primarily by market conditions and to a lesser extent by drydocking requirements. Vessel day rates are primarily determined by vessel demand, primarily from offshore exploration, development and production companies and contract drillers, relative to the available supply of offshore service vessels. Suitability of equipment and quality of service provided also influence vessel day rates. Vessel utilization rates are calculated by dividing the number of vessel days worked during a reporting period by the number of vessel days available to work in the reporting period. Average day rates are calculated by dividing aggregate vessel revenue earned during a reporting period by the number of days the vessels worked in the reporting period. Vessel utilization and average day rates are calculated only on vessels in service and, as such, do not include vessels withdrawn from service or joint venture vessels. The following tables compare day-based utilization percentages and average day rates by vessel class and in total for the quarters and the nine months ended December 31, 2008 and 2007 and the quarter ended September 30, 2008:

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