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<div style="margin-top: 12pt; font-size: 10pt;" align="left"><b>1. Organization and Summary of Significant Accounting Policies</b> </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Organization </i></b>— Global Industries, Ltd. and subsidiaries (the "Company," "we," "us" or "our") provide construction and subsea services to the offshore oil and gas industry in the North America, Latin America, and Asia Pacific/Middle East regions. These services include pipeline construction, platform installation and removal, construction support, diving services, diverless intervention, and marine support services. Most of our work is performed on a fixed-price basis, but we also perform services on a unit-rate basis, a cost-plus basis, a day-rate basis, or a combination of such bases. Our traditional contracts are typically of short duration, being completed in one to five months. However, Engineering, Procurement, Installation and Commissioning contracts (EPIC), turnkey contracts, and certain international contracts can be for longer durations, sometimes in excess of one year. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Principles of Consolidation </i></b>— The consolidated financial statements include the accounts of Global Industries, Ltd. and its wholly owned subsidiaries and controlled entities. All intercompany balances and transactions have been eliminated in consolidation. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Cash and Cash Equivalents </i></b>— Cash and cash equivalents include cash on hand, demand deposits, money market accounts, and securities with maturities of three months or less when purchased. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Restricted Cash </i></b>— At December 31, 2010, restricted cash was comprised of $3.2 million in excess project funds and $1.1 million in cash deposits related to foreign currency exchange arrangements. The excess project funds are denominated in Indian rupees and held at the Royal Bank of Scotland and Standard Chartered Bank related to our Asia Pacific/Middle East segment. These funds can only be repatriated after the project accounts are audited and tax clearance obtained. We expect the period of restriction on this cash will not exceed twelve months and is therefore classified as a current asset on our Consolidated Balance Sheets. The restrictions on the cash deposits related to foreign currency exchange arrangements will remain in effect until we terminate the associated foreign currency arrangement. At December 31, 2009, restricted cash was comprised of cash deposits related to foreign currency exchange arrangements. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Receivables — </i></b>Our receivables are presented in the following balance sheet accounts: (1) Accounts receivable, (2) Accounts receivable — long term, (3) Unbilled work on uncompleted contracts, and (4) Contract costs incurred not yet recognized. The balance of accounts receivable primarily consists of amounts which have been billed to customers for offshore construction services. Most of the balance of accounts receivable is collectible pursuant to routine collection terms, which are generally less than sixty days from the date of the invoice; however, some amounts which are included in accounts receivable are not immediately collectible due to retainage provisions in the applicable offshore construction contract. Amounts related to retainage which are expected to be collected within twelve months of the balance sheet date are carried in the balance of accounts receivable, and any amounts, including retainage, which have been billed but are not expected to be collected within twelve months are carried in the balance of Accounts receivable — long term. The balance of Unbilled work on uncompleted contracts includes (a) amounts which are receivable from customers for work that has not yet been billed pursuant to contractually specified milestone billing requirements and (b) revenue accruals. The balance of Contract costs incurred not yet recognized represents those contract costs which have been incurred but excluded from our percentage-of-completion computation under the cost-to-cost method. Contract costs, especially incurred during the early stages of a contract, can be excluded from the percentage-of-completion computation if they do not provide a meaningful measure of contract performance or were not specifically produced for a particular project. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left">The balances of accounts receivable and unbilled work on uncompleted contracts may include amounts related to claims and unapproved change orders. We include claims and unapproved change orders in contract revenues to the extent of costs incurred when (1) the contract or other evidence provides a legal basis for the claim, (2) additional costs are not the result of deficiencies in our performance, (3) costs are identifiable, and (4) evidence supporting the claim is objective and verifiable. The basis for our recorded unapproved change orders and claims was formed after we engaged in an extensive contract review, a review of the supporting evidence and, generally, obtained a legal opinion from either internal or external legal counsel. Additionally, we believe that we have objective, verifiable evidence to support these claims. That evidence consists of explicit contractual terms and/or written legal opinions. </div></div>
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<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Allowances for Doubtful Accounts — </i></b>We maintain allowances for doubtful accounts for estimated losses resulting from the receivable items in dispute with our customers or from the inability of our customers to make required payments. If a trade receivable is deemed to be uncollectible, such receivable is charged-off against the allowance for doubtful accounts. We consider the following factors when determining if collection of revenue is reasonably assured: the nature of any disputed items, customer credit-worthiness and solvency, and changes in customer payment terms. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Assets Held for Sale </i></b>— Long-lived assets held for sale are carried at the lower of the asset's carrying value or net realizable value, and depreciation ceases. As of December 31, 2010, we had $16.7 million of assets held for sale. These assets consist of a DLB, an OSV, an airplane, and other miscellaneous equipment. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Property and Equipment, and Depreciation </i></b>— Property and equipment are stated at cost less accumulated depreciation. Expenditures for property and equipment and items that substantially increase the useful lives of existing assets are capitalized at cost and depreciated. Routine expenditures for repairs and maintenance are expensed as incurred. Except for the majority of our vessels that are depreciated on the units-of-production (UOP) method over estimated vessel operating days, depreciation is provided utilizing the straight-line method over the estimated useful lives of the assets. The UOP method is based on vessel utilization days and more closely correlates depreciation expense to vessel revenue. In addition, the UOP method provides for a minimum depreciation floor in periods with nominal vessel use. Amortization of leasehold improvements is provided utilizing the straight-line method over the estimated useful lives of the assets or over the lives of the leases, whichever is shorter. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left">The periods used in determining straight-line depreciation and amortization follow: </div>
<div align="center">
<table style="font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%">
<tr valign="bottom"><td width="80%"> </td>
<td width="2%"> </td>
<td width="2%"> </td>
<td width="1%"> </td>
<td width="2%"> </td>
<td width="2%"> </td>
<td width="4%"> </td>
<td width="2%"> </td>
<td width="5%"> </td></tr>
<tr valign="bottom"><td valign="top">
<div style="text-indent: 0px; margin-left: 0px;">Marine barges, vessels, and related equipment </div></td>
<td> </td>
<td valign="top" nowrap="nowrap" align="right"> </td>
<td valign="top" align="right">5</td>
<td valign="top" nowrap="nowrap"> </td>
<td> </td>
<td valign="top" align="center">- </td>
<td> </td>
<td valign="top" align="center">25 years</td></tr>
<tr valign="bottom"><td valign="top">
<div style="text-indent: 0px; margin-left: 0px;">Machinery and equipment </div></td>
<td> </td>
<td valign="top" nowrap="nowrap" align="right"> </td>
<td valign="top" align="right">5</td>
<td valign="top" nowrap="nowrap"> </td>
<td> </td>
<td valign="top" align="center">- </td>
<td> </td>
<td valign="top" align="center">18 years</td></tr>
<tr valign="bottom"><td valign="top">
<div style="text-indent: 0px; margin-left: 0px;">Transportation equipment </div></td>
<td> </td>
<td valign="top" nowrap="nowrap" align="right"> </td>
<td valign="top" align="right">3</td>
<td valign="top" nowrap="nowrap"> </td>
<td> </td>
<td valign="top" align="center">- </td>
<td> </td>
<td valign="top" align="center">10 years</td></tr>
<tr valign="bottom"><td valign="top">
<div style="text-indent: 0px; margin-left: 0px;">Furniture and fixtures </div></td>
<td> </td>
<td valign="top" nowrap="nowrap" align="right"> </td>
<td valign="top" align="right">2</td>
<td valign="top" nowrap="nowrap"> </td>
<td> </td>
<td valign="top" align="center">- </td>
<td> </td>
<td valign="top" align="center">12 years</td></tr>
<tr valign="bottom"><td valign="top">
<div style="text-indent: 0px; margin-left: 0px;">Buildings and leasehold improvements </div></td>
<td> </td>
<td valign="top" nowrap="nowrap" align="right"> </td>
<td valign="top" align="right">3</td>
<td valign="top" nowrap="nowrap"> </td>
<td> </td>
<td valign="top" align="center">- </td>
<td> </td>
<td valign="top" align="center">40 years</td></tr></table></div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Interest Capitalization </i></b>— Interest costs for the construction of certain long-term assets are capitalized and amortized over the related assets' estimated useful lives. Approximately $17.9 million, $14.7 million, and $7.3 million of interest was capitalized in 2010, 2009, and 2008, respectively. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Deferred Charges </i></b>— Deferred charges consist principally of scheduled dry-docking costs and debt issuance costs. Dry-docking costs are capitalized and amortized using the straight-line method through the date of the next scheduled dry-docking, which typically occurs between thirty and sixty months after the most recently completed scheduled dry-docking. Amortization expense related to deferred dry-docking costs was $15.3 million in 2010, $21.3 million in 2009, and $16.4 million in 2008. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left">Debt issuance cost incurred in connection with the issuance of long-term debt is capitalized and amortized to interest expense. The debt issuance cost incurred on our Senior Convertible Debentures is being amortized until the earliest call date allowable under the indenture, August 1, 2014. The outstanding balance of deferred debt issuance costs was $6.8 million, $8.0 million, and $9.0 million at December 31, 2010, 2009, and 2008, respectively. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Goodwill </i></b>— Goodwill represents the excess of cost over the fair value of net assets acquired and is tested for impairment on an annual basis, on January 1, or when circumstances indicate that an impairment may exist. In the third quarter of 2010, we tested goodwill in light of losses incurred during the period and weaker outlook for future performance. The result of the test was a complete impairment of our goodwill. Consequently, the carrying amount of goodwill as of December 31, 2010 was -0-. The carrying amount of goodwill as of December 31, 2009 was approximately $37.4 million, and was primarily attributable to our Latin America segment. </div></div>
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<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Impairment of Long-Lived Assets </i></b>— Long-lived assets held and used by us are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We assess the recoverability of long-lived assets by determining whether the carrying values can be recovered through projected cash flows and operating results over their remaining lives. Any impairment of the asset is recognized when it is determined that such future undiscounted cash flows will be less than the carrying value of the asset. If undiscounted cash flows are less than the carrying amount, assets are reduced to fair value. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Contracts in Progress and Revenue Recognition </i></b>— Revenues from construction contracts, which are generally recognized using the percentage-of-completion method, are measured by relating the actual cost of work performed to date to the current estimated total cost of the respective contract (the cost-to-cost option of the percentage of completion method). Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect vessel costs (including depreciation and amortization), labor, supplies, and repairs. Certain costs may be excluded from the cost-to-cost method of measuring progress, such as significant costs for materials and major third-party subcontractors, if it appears that such exclusion would result in a more meaningful measurement of actual contract progress and resulting periodic allocation of income. Provisions for estimated losses, if any, on uncompleted contracts are made in the period in which such losses are determined. Selling, general, and administrative costs are charged to expense as incurred. We also provide services on a day-rate basis to many of our customers. Revenues for day-rate services are recognized as the services are rendered if collectability is reasonably assured. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left">Significant changes in cost estimates due to adverse market conditions or poor contract performance could affect estimated gross profit, possibly resulting in a contract loss. Moreover, adjustments, if any, are reflected in income in the period when any adjustment is determined. To the extent that an adjustment results in a reduction of previously reported profits, we could recognize a significant charge against current earnings to reflect the adjustment. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Derivative Financial Instruments </i></b>— We use forward contracts to manage our exposure to foreign exchange rates. Derivative instruments are recognized on the consolidated balance sheet at fair value, based on quoted market prices, and changes in the fair value of the derivative instruments are recorded each period in other comprehensive income or in earnings. Any portion of the change in fair value of the derivative instruments which become ineffective, with respect to the hedging relationship, is recognized in current earnings. See Note 8 for more information regarding the accounting for and classification of our outstanding derivative instruments. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left">We use derivative instruments for non-trading purposes. When we enter into derivative agreements, we formally document the relationship between the derivative position (hedge instrument) and the foreign currency exposure (hedged item), as well as the risk management strategy for the use of the hedge instrument. On an ongoing basis, we assess whether the derivative instrument continues to be highly effective in offsetting the changes in cash flows of the hedged item. If the derivative instrument is believed to be ineffective, then hedge accounting discontinues. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Foreign Currency Translation </i></b>— We have determined that the United States dollar is the functional currency for substantially all of the financial statements of our foreign subsidiaries. Current exchange rates are used to remeasure assets and liabilities, except for certain accounts (including property and equipment, goodwill and equity) which are remeasured using historical rates. The translation calculation used to revalue the income statement was the average exchange rates during the period, except certain items (including depreciation and amortization expense) for which historical rates are used. Any resulting remeasurement gain or loss is included in other income (expense). </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Stock-Based Compensation — </i></b>We record compensation expense based on grant-date fair value for our stock-based awards. The fair value of restricted stock awards is calculated using the grant-date closing stock price and is expensed over the requisite service period using the straight-line attribution method. The fair value of option awards is calculated using the Black-Scholes option pricing model which uses the following six inputs: expected volatility, risk-free interest rate, expected dividend yield, exercise price, grant-date stock price, and the expected term of the option. The fair value is expensed over the requisite service period using the accelerated attribution method which recognizes expense on a straight-line basis over the requisite service period for each vesting tranche. </div></div>
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<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Income Taxes </i></b>— We are a United States corporation that files income tax returns in the United States federal jurisdiction, various states' jurisdictions, and foreign jurisdictions. As part of the legal entity structure, we have foreign affiliates that file income tax returns in various foreign jurisdictions in Asia Pacific, Latin America, Middle East, and West Africa. In some of the foreign jurisdictions, tax is determined on a deemed profit basis (percentage of revenue). </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left">We use the liability method for determining our income taxes, under which current and deferred tax liabilities and assets are recorded in accordance with enacted tax laws and rates. Under this method, the amounts of deferred tax liabilities and assets at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left">Deferred income taxes are provided for the estimated income tax effect of temporary differences between financial and tax bases in assets and liabilities. Deferred tax assets are also provided for certain tax credit carryforwards. A valuation allowance, to reduce deferred tax assets, is established when it is more likely than not that some or all of the deferred tax assets will not be realized. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left">Accounting guidance related to uncertain tax positions prescribes a recognition threshold and measurement attribute for tax positions taken, or expected to be taken, on a tax return. See Note 16 for additional information regarding the accounting for income taxes. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Concentration of Credit Risk </i></b>— Our customers are primarily national oil companies, major oil companies, independent oil and gas producers, and transportation companies operating in selected international areas and in the Gulf of Mexico. We perform ongoing credit evaluations of our customers and require posting of collateral when deemed appropriate. We provide allowances for possible credit losses when necessary. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Use of Estimates </i></b>— The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions about future events and their effects cannot be perceived with certainty. Accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained, and as our operating environment changes. While we believe that the estimates and assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimated. Estimates are used for, but are not limited to, determining the following: estimated costs to complete unfinished construction contracts, allowances for doubtful accounts, the recoverability of long-lived assets, the useful lives used in depreciation and amortization, income taxes and related valuation allowances, and other legal obligations. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>Basic and Diluted Earnings Per Share </i></b>— Basic earnings per share ("EPS") is computed by dividing earnings (loss) attributed to common shareholders during the period by the weighted average number of shares of common stock outstanding during each period. Diluted EPS is computed by dividing net income (loss) attributed to common shareholders during the period by the weighted average number of shares of common stock that would have been outstanding assuming the issuance of potentially dilutive shares of common stock as if such shares were outstanding during the reporting period, net of shares assumed to be repurchased using the treasury stock method. The dilutive effect of stock options and performance units is based on the treasury stock method. The dilutive effect of non-vested restricted stock awards is based on the more dilutive of the treasury stock method or the two-class method </div></div>
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<div style="margin-top: 6pt; font-size: 10pt;" align="left">assuming a reallocation of undistributed earnings to common shareholders after considering the dilutive effect of potential common shares other than the non-vested shares of restricted stock. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><i>Subsequent Events</i> — Subsequent events were evaluated through the date of issuance of these financial statements. </div>
<div style="margin-top: 12pt; font-size: 10pt;" align="left"><b>Recent Accounting Pronouncements</b> </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>ASU No. 2010-06</i></b>. In January 2010, the FASB issued ASU No. 2010-06 which amends ASC Topic 820 to add new disclosure requirements about recurring and nonrecurring fair value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. This guidance was effective for reporting periods beginning after December 15, 2009, except for the Level 3 reconciliation disclosures which will be effective for reporting periods beginning after December 15, 2010. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements. See Note 3 for disclosures required by this guidance. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"><b><i>ASU No. 2009-17</i></b>. In June 2009, the FASB issued SFAS No. 167, "<i>Amendments to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities</i>" (ASC Topic 810-10). This updated guidance requires an analysis to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity. It also requires an ongoing reassessment and eliminates the quantitative approach previously required for determining whether an entity is the primary beneficiary. This update is codified in ASU No. 2009-17 and was effective for our fiscal year beginning January 1, 2010. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.</div></div> </div>1. Organization and Summary of Significant Accounting Policies
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-Number FAS140-4 and FIN46(R)-8
-Paragraph 8, C1, C7
Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Research Bulletin (ARB)
-Number 51
-Paragraph 2-6
Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Statement of Position (SOP)
-Number 94-6
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Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name FASB Interpretation (FIN)
-Number 46R
-Paragraph 4, 14, 15
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