UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

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

Commission File Number: 0-21086

Global Industries, Ltd.

(Exact name of registrant as specified in its charter)

Louisiana (State or other jurisdiction of incorporation or organization)		72-1212563 (I.R.S. Employer Identification No.)
8000 Global Drive Carlyss, Louisiana (Address of principal executive offices)		70665 (Zip Code)

(337) 583-5000
(Registrant’s telephone number, including area code)

None
(Former name, former address and former fiscal year, if changes since last report)

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 þ     NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES þ     NO o

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

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

YES o     NO þ

The number of shares of the registrant’s common stock outstanding as of August 3, 2010, was 115,089,545.

 

 

Global Industries, Ltd.
Table of Contents

		Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements			3
Condensed Consolidated Balance Sheets (Unaudited)			3
Condensed Consolidated Statements of Operations (Unaudited)			4
Condensed Consolidated Statements of Cash Flows (Unaudited)			5
Notes to Condensed Consolidated Financial Statements (Unaudited)			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			32
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			33
Item 1A. Risk Factors			33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			33
Item 6. Exhibits			34
Signature			35
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

GLOBAL INDUSTRIES, LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

		June 30				December 31
		2010				2009
		(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents		$	264,727			$	344,855
Restricted cash			5,270				1,139
Marketable securities			750				30,750
Accounts receivable — net of allowance of $3,485 for 2010 and $2,765 for 2009			99,039				160,273
Unbilled work on uncompleted contracts			52,921				92,569
Contract costs incurred not yet recognized			25,039				489
Deferred income taxes			3,347				2,945
Assets held for sale			18,417				16,152
Prepaid expenses and other			54,364				31,596
Total current assets			523,874				680,768
Property and Equipment, net			775,241				722,819
Other Assets
Marketable securities — long-term			—				11,097
Accounts receivable — long-term			8,670				12,294
Deferred charges, net			41,885				49,866
Goodwill			37,388				37,388
Other			11,179				9,961
Total other assets			99,122				120,606
Total		$	1,398,237			$	1,524,193
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Current maturities of long term debt		$	3,960			$	3,960
Accounts payable			98,980				192,008
Employee-related liabilities			17,029				18,079
Income taxes payable			32,243				45,301
Other accrued liabilities			32,153				15,811
Total current liabilities			184,365				275,159
Long-Term Debt			296,803				294,366
Deferred Income Taxes			47,978				69,998
Other Liabilities			15,766				15,171
Commitments and Contingencies			—				—
Shareholders’ Equity
Common stock, $0.01 par value, 250,000 shares authorized, and 115,113 and 119,989 shares issued at June 30, 2010 and December 31, 2009, respectively			1,151				1,200
Additional paid-in capital			412,978				513,353
Retained earnings			448,478				468,430
Treasury stock at cost, 6,130 shares at December 31, 2009			—				(105,038	)
Accumulated other comprehensive loss			(9,282	)			(8,446	)
Total shareholders’ equity			853,325				869,499
Total		$	1,398,237			$	1,524,193

See Notes to Condensed Consolidated Financial Statements.

GLOBAL INDUSTRIES, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

		Three Months Ended								Six Months Ended
		June 30								June 30
		2010				2009				2010				2009
Revenues		$	121,768			$	294,827			$	228,579			$	564,292
Cost of operations			114,585				229,656				225,645				453,754
Gross profit			7,183				65,171				2,934				110,538
Loss (gain) on asset disposals and impairments			10,214				(3,715	)			10,788				(8,523	)
Selling, general and administrative expenses			17,395				16,689				34,939				36,560
Operating income (loss)			(20,426	)			52,197				(42,793	)			82,501
Interest income			492				618				733				1,192
Interest expense			(1,756	)			(3,729	)			(4,659	)			(7,222	)
Other income (expense), net			(579	)			4,492				(1,006	)			6,570
Income (loss) before taxes			(22,269	)			53,578				(47,725	)			83,041
Income tax expense (benefit)			(23,675	)			7,645				(27,773	)			18,077
Net income (loss)		$	1,406			$	45,933			$	(19,952	)		$	64,964
Earnings (Loss) Per Common Share
Basic		$	0.01			$	0.40			$	(0.18	)		$	0.57
Diluted		$	0.01			$	0.40			$	(0.18	)		$	0.57
Weighted Average Common Shares Outstanding
Basic			113,831				112,521				113,595				112,459
Diluted			114,126				114,500				113,595				114,319

See Notes to Condensed Consolidated Financial Statements.

GLOBAL INDUSTRIES, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

		Six Months Ended
		June 30
		2010				2009
Cash Flows From Operating Activities
Net income (loss)		$	(19,952	)		$	64,964
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and non-stock-based amortization			22,471				31,264
Stock-based compensation expense			5,483				3,446
Provision for doubtful accounts			1,212				2,512
Gain on sale or disposal of property and equipment			(146	)			(9,481	)
Derivative (gain) loss			834				(483	)
Loss on asset impairments			10,934				958
Deferred income taxes			(22,728	)			1,296
Other			561				(17	)
Changes in operating assets and liabilities
Accounts receivable, unbilled work, and contract costs			78,744				(34,773	)
Prepaid expenses and other			(25,128	)			(451	)
Accounts payable, employee-related liabilities, and other accrued liabilities			(47,590	)			(20,131	)
Deferred dry-docking costs incurred			(2,186	)			(5,256	)
Net cash provided by (used in) operating activities			2,509				33,848
Cash Flows From Investing Activities
Proceeds from the sale of assets			919				27,080
Advance deposits on asset sales			13,750				—
Additions to property and equipment			(104,851	)			(65,480	)
Sale of marketable securities			40,664				—
Decrease in (additions to) restricted cash			(4,131	)			93,377
Net cash provided by (used in) investing activities			(53,649	)			54,977
Cash Flows From Financing Activities
Repayment of long-term debt			(1,980	)			(1,980	)
Payments on long-term payables for property and equipment acquisitions			(26,031	)			—
Proceeds from sale of common stock, net			10				—
Repurchase of common stock			(607	)			(155	)
Additions to deferred charges			(563	)			(33	)
Other			—				17
Net cash provided by (used in) financing activities			(29,171	)			(2,151	)
Effect of exchange rate changes on cash			183				—
Cash and cash equivalents
Increase (decrease)			(80,128	)			86,674
Beginning of period			344,855				287,669
End of period		$	264,727			$	374,343
Supplemental Disclosures
Interest paid, net of amounts capitalized		$	3,153			$	5,219
Income taxes paid		$	3,562			$	8,327
Property and equipment additions included in accounts payable		$	27,252			$	42,047

See Notes to Condensed Consolidated Financial Statements.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.

General

		Basis of Presentation
		The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Global Industries, Ltd. and its subsidiaries (“Company,” “we,” “us,” or “our”).
		In the opinion of our management, all adjustments (such adjustments consisting of a normal and recurring nature) necessary for a fair presentation of the operating results for the interim periods presented have been included in the unaudited Condensed Consolidated Financial Statements. Operating results for the period ended June 30, 2010, are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. These financial statements should be read in conjunction with our audited Consolidated Financial Statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009.
		All “$” represent U.S. Dollars.
		Recent Accounting Pronouncements
		ASU No. 2010-09. In February 2010, the FASB issued ASU No. 2010-09 which amends ASC Topic 855 to address certain implementation issues related to an entity’s requirement to perform and disclose subsequent events procedures. This guidance requires SEC filers and conduit debt obligors for conduit debt securities that are traded in a public market to evaluate subsequent events through the date the financial statements are issued. All other entities are required to evaluate subsequent events through the date the financial statements are available to be issued. The guidance also exempts SEC filers from disclosing the date through which subsequent events have been evaluated. This guidance was effective upon issuance. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
		ASU No. 2010-06. 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 is effective for reporting periods beginning after December 15, 2009, except for the Level 3 reconciliation disclosures which are 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.
		SFAS 167. In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities” (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 is 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.

2.

Restricted Cash

At June 30, 2010, we had approximately $5.3 million of restricted cash, which included $4.2 million for excess project funds denominated in Indian rupees and held at the Reserve Bank of India 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 the Condensed Consolidated Balance Sheets. The remaining $1.1 million restricted cash was comprised of cash deposits related to foreign currency exchange arrangements. Restrictions with respect to these deposits will remain in effect until we terminate the associated foreign currency exchange arrangement.

3.

Marketable Securities

As of June 30, 2010 and December 31, 2009, we held $0.8 million and $42.0 million at par value, respectively, in auction rate securities which are variable rate bonds tied to short-term interest rates with maturities up to 29 years.

		Auction rate securities have interest rate resets through a Dutch auction at predetermined short intervals. Interest rates generally reset every 7-49 days. The coupon interest rate for these securities ranged from 0.5% to 0.8%, on a tax exempt basis for the three months ended June 30, 2010.
		Our investments in auction rate securities were issued by municipalities and state education agencies. The auction rate securities issued by state education agencies represent pools of student loans for which repayment is substantially guaranteed by the U.S. government under the Federal Family Education Loan Program. All of our investments in auction rate securities have at least a double A rating. As of June 30, 2010 and December 31, 2009, the par value of our auction rate securities issued by municipalities was $0.8 million and $12.0 million, respectively. As of June 30, 2010 and December 31, 2009, the par value of our auction rate securities issued by state education agencies was -0- and $30.0 million, respectively.
		Auction Rate Securities under Settlement Agreement — Due to continuing failures of auctions for our auction rate securities, we entered into an auction rate security rights agreement (the “Settlement”) with UBS Financial Services, Inc. (“UBS”) in November 2008 that permits us to sell, or put, certain auction rate securities back to UBS at par value at any time during the period from June 30, 2010 through July 2, 2012. As of June 30, 2010 and December 31, 2009, the par value of our auction rate securities covered under the Settlement was $0.8 million and $30.8 million, respectively. During the second quarter of 2010, $30.0 million of our investments in auction rate securities covered under the Settlement were redeemed for par value. We put the remaining $0.8 million in auction rate securities back to UBS on June 30, 2010 and received the proceeds on July 1, 2010; therefore, these securities are classified as current as of June 30, 2010. These auction rate securities are classified as trading securities; consequently, we are required to assess the fair value of these auction rate securities and of the Settlement and record changes in earnings each period until the Settlement is exercised and the securities are redeemed.
		As of June 30, 2010, the fair value of the auction rate securities covered under the Settlement was $0.8 million, the par value of the securities. As of December 31, 2009, the fair value of the auction rate securities covered under the Settlement was $28.5 million, a decline of $2.3 million from par value. However, as we would be permitted to put these securities back to UBS at par, the fair value assessment of the Settlement was measured at an offsetting $2.3 million. Because all auction rate securities covered under the Settlement were either sold or put to UBS during the second quarter of 2010, we reversed the other-than-temporary impairment of $2.3 million on the auction rate securities and the offsetting gain of $2.3 million on the fair value assessment of the Settlement. These changes were reflected in Other income (expense), net for the three and six months ended June 30, 2010. As of June 30, 2009, the fair value of the auction rate securities covered under the Settlement was $26.5 million, a decline of $4.2 million from par value. For the three months ended June 30, 2009, we reversed $1.0 million of the other-than-temporary impairment on the auction rate securities and an offsetting $1.0 million gain on the fair value assessment of the Settlement. For the six months ended June 30, 2009, we recognized an other-than-temporary impairment on the auction rate securities of $1.1 million and an offsetting $1.1 million gain on the fair value assessment of the Settlement. These changes were reflected in Other income (expense), net on the Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2009.
		Auction Rate Securities Not Covered under Settlement — As of June 30, 2010 and December 31, 2009, the par value of our auction rate securities not covered under the Settlement was -0- and $11.2 million, respectively. In March 2010, we sold $11.2 million of our auction rate securities not covered under the Settlement for $10.7 million. We recognized the $0.5 million loss on the sale of the securities in Other income (expense), net on the Condensed Consolidated Statement of Operations for the six months ended June 30, 2010 .

4.

Derivatives

		We provide services in a number of countries throughout the world and, as a result, are exposed to changes in foreign currency exchange rates. Costs in some countries are incurred, in part, in currencies other than the applicable functional currency. We selectively use forward foreign currency contracts to manage our foreign currency exposure. Our outstanding forward foreign currency contracts at June 30, 2010 are used to hedge (i) cash flows for long-term charter payments on a multi-service vessel denominated in Norwegian kroners, (ii) certain purchase commitments related to the construction of the Global 1200 and Global 1201 in Singapore dollars and (iii) a portion of the operating costs of our Asia Pacific/Middle East segment that are denominated in Singapore dollars.
		The Norwegian kroner forward contracts have maturities extending until June 2011 and are accounted for as cash flow hedges with the effective portion of unrealized gains and losses recorded in Accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For the three and six months ended June 30, 2010, there was no ineffective portion of the hedging

		relationship for these forward contracts. As of June 30, 2010 there were $0.3 million in unrealized losses, net of taxes, in Accumulated other comprehensive income (loss) of which approximately $0.3 million which is expected to be realized in earnings during the twelve months following June 30, 2010. As of June 30, 2010, these contracts are included in Other accrued liabilities on the Condensed Consolidated Balance Sheets, valued at $0.5 million. As of December 31, 2009, these contracts are included in Prepaid expenses and other and Other assets on the Condensed Consolidated Balance Sheets, valued at $0.7 million and $0.2 million, respectively. For the three and six months ended June 30, 2010, we recorded $0.1 million and $0.2 million, respectively, in gains related to these contracts which are included in Cost of operations on the Condensed Consolidated Statement of Operations. For the three and six months ended June 30, 2009, we recorded $0.2 million and $0.7 million, respectively, in losses which are included in Cost of operations on the Condensed Consolidated Statement of Operations.
		During the second quarter of 2009, we entered into two forward contracts to purchase 18.9 million Singapore dollars to hedge certain purchase commitments in the first quarter of 2010 related to the construction of the Global 1200. During the first quarter of 2010, we entered into additional forward contracts to purchase 28.8 million Singapore dollars to hedge certain purchase commitments related to the construction of the Global 1200 and Global 1201 and 8.3 million Singapore dollars to hedge operating expenses related to our Asia Pacific/Middle East segment. We have not elected hedge treatment for these contracts. Consequently, changes in the fair value of these instruments and cash settlements are recorded in Other income (expense), net on the Condensed Consolidated Statement of Operations. For the three months ended June 30, 2010, we recorded $0.1 million in gains related to these contracts. For the six months ended June 30, 2010, we recorded $0.7 million in losses related to these contracts. For the three and six months ended June 30, 2009, we recorded $0.5 million and $0.5 million, respectively, in gains related to these contracts. Although these contracts are in a gain position valued at $0.1 million as of June 30, 2010, they are netted against the Norwegian kroner contracts discussed above which are in a loss position and included in Other accrued liabilities on the Condensed Consolidated Balance Sheets. As of December 31, 2009, the fair value of these contracts was $0.9 million and is included in Prepaid expenses and other on the Condensed Consolidated Balance Sheets.

5.

Fair Value Measurements

Fair value is defined in accounting guidance as the price that would be received to sell an asset or paid to transfer a liability (i.e. exit price) in an orderly transaction between market participants at the measurement date. This guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy for inputs is categorized into three levels based on the reliability of inputs as follows:

			Level 1—Observable inputs such as quoted prices in active markets.
			Level 2—Inputs (other than quoted prices in active markets) that are either directly or indirectly observable.
			Level 3—Unobservable inputs which requires management’s best estimate of what market participants would use in pricing the asset or liability.

		Our financial instruments include cash and short-term investments, investments in auction rate securities, accounts receivable, accounts payable, debt, and forward foreign currency contracts. Except as described below, the estimated fair value of such financial instruments at June 30, 2010 and December 31, 2009 approximates their carrying value as reflected in our condensed consolidated balance sheets.
		Our debt consists of our United States Government Ship Financing Title XI bonds and our Senior Convertible Debentures due 2027 (the “Senior Convertible Debentures”). The fair value of the bonds, based on current market conditions and net present value calculations, as of June 30, 2010 and December 31, 2009 was approximately $76.0 million and $74.4 million, respectively. The fair value of the debentures, based on quoted market prices, as of June 30, 2010 and December 31, 2009 was $195.8 million and $202.3 million, respectively.

Assets and liabilities measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations.

Fair Value Measurements at June 30, 2010
(In thousands)

Description		Total				Level 1				Level 2				Level 3
Cash equivalents		$	102,495			$	102,495			$	—			$	—
Marketable securities			750				—				—				750
Derivative contracts			(421	)			—				(421	)			—
Total		$	102,824			$	102,495			$	(421	)		$	750

Fair Value Measurements at December 31, 2009
(In thousands)

Description		Total				Level 1				Level 2				Level 3
Cash equivalents		$	63,797			$	63,797			$	—			$	—
Marketable securities			41,847				—				—				41,847
Derivative contracts			1,827				—				1,827				—
Total		$	107,471			$	63,797			$	1,827			$	41,847

		Financial instruments classified as Level 2 in the fair value hierarchy represent our forward foreign currency contracts. These contracts are valued using the market approach which uses prices and other information generated by market transactions involving identical or comparable assets or liabilities.
		Financial instruments classified as Level 3 in the fair value hierarchy represent auction rate securities and the related put option described in Note 3 in which management has used at least one significant unobservable input in the valuation model.
		Due to the lack of observable market quotes on our auction rate securities portfolio, we utilize a valuation model that relies on Level 3 inputs including market, tax status, credit quality, duration, recent market observations and overall capital market liquidity. The valuation of our auction rate securities is subject to uncertainties that are difficult to predict. Factors that may impact our valuation include changes to credit ratings of the securities as well as to the underlying assets supporting those securities, rates of default of the underlying assets, underlying collateral value, discount rates, counterparty risk and ongoing strength and quality of market credit and liquidity.
		The following table presents a reconciliation of activity for such securities:

Changes in Level 3 Financial Instruments
(In thousands)

		Three Months Ended								Six Months Ended
		June 30								June 30
		2010				2009				2010				2009
Balance at beginning of period		$	30,750			$	41,384			$	41,847			$	42,375
Sales			(30,000	)			—				(40,664	)			—
Total gains or (losses):
Realized losses included in other income (expense), net			—				—				(561	)			—
Changes in net unrealized gain (losses) included in other comprehensive income			—				(349	)			128				(1,340	)
Balance at end of period		$	750			$	41,035			$	750			$	41,035

In the second quarter of 2010, we classified the Hercules reel in our North America OCD segment to Assets held for sale. Consequently, we remeasured the fair value of this asset, along with the Subtec 1 and other equipment in our Asia Pacific/Middle East segment, using a valuation model that relies on Level 3 inputs including market data of recent sales of similar assets, our prior experience in the sale of similar assets, and price of third party offers for the assets. The carrying amount of these assets of $17.8 million was written down to their fair value of $7.6 million resulting in an impairment of $10.2 million, which was included in earnings for the second quarter of 2010. (See Note 7 for additional information regarding the impairment of these assets.) The remaining assets held for sale continue to be held at the lower of their carrying value or net realizable value.

6.

Receivables

		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. Accounts receivable are stated at net realizable value, and the allowances for uncollectible accounts were $3.5 million and $2.8 million at June 30, 2010 and December 31, 2009, respectively. Accounts receivable at June 30, 2010 and December 31, 2009 included $13.0 million and $25.0 million, respectively, of retainage, which represents the short-term portion of amounts not immediately collectible due to contractually specified requirements. Accounts receivable — long term at June 30, 2010 and December 31, 2009 represented amounts related to retainage which were not expected to be collected within the next twelve months.
		Receivables also included claims and unapproved change orders of $17.6 million at June 30, 2010 and $28.0 million at December 31, 2009. These claims and change orders are amounts due for extra work and/or changes in the scope of work on certain projects.
		The costs and estimated earnings on uncompleted contracts are presented in the following table:

		June 30				December 31
		2010				2009
		(In thousands)
Costs incurred and recognized on uncompleted contracts		$	397,295			$	891,530
Estimated earnings			101,708				66,179
Costs and estimated earnings on uncompleted contracts			499,003				957,709
Less: Billings to date			(462,516	)			(873,636	)
			36,487				84,073
Plus: Accrued revenue(1)			16,434				8,496
Less: Advance billing on uncompleted contracts			(96	)			(175	)
		$	52,825			$	92,394
Included in accompanying balance sheets under the following captions:
Unbilled work on uncompleted contracts		$	52,921			$	92,569
Other accrued liabilities			(96	)			(175	)
		$	52,825			$	92,394

7.

Asset Disposal and Impairments and Assets Held for Sale

Due to escalating costs for dry-docking services, escalating repair and maintenance costs for aging vessels, increasing difficulty in obtaining certain replacement parts, declining marketability of certain vessels, and our strategic shift to deepwater vessels, we decided to forego dry-docking or refurbishment of certain vessels and to sell or permanently retire them from service. Consequently, we recognized gains and losses on the disposition of certain vessels, and non-cash impairment charges on the retirement of other vessels. Each asset was analyzed using an undiscounted cash flow analysis and valued at the lower of carrying value or net realizable value.

        Net Gains and (Losses) on Asset Disposal consisted of the following:

		Three Months Ended								Six Months Ended
		June 30								June 30
Segment		2010				2009				2010				2009
		(In thousands)
North America Subsea		$	25			$	205			$	25			$	5,067
Latin America			—				—				—				(11	)
West Africa			(8	)			788				(8	)			788
Asia Pacific/ Middle East			2				3,663				140				3,663
Corporate			(11	)			(26	)			(11	)			(26	)
		$	8			$	4,630			$	146			$	9,481

        Losses on Asset Impairments consisted of the following:

						Three Months Ended								Six Months Ended
						June 30								June 30
Segment		Description of Asset				2010				2009				2010				2009
						(In thousands)
North America Subsea		Two DSVs in 2010 and one DSV and three dive systems in 2009				$	—			$	725			$	712			$	768
North America OCD		Other equipment					5,038				—				5,038				—
Latin America		One DSV					—				190				—				190
Asia Pacific/Middle East		One DSV and other equipment					5,184				—				5,184				—
						$	10,222			$	915			$	10,934			$	958

In accordance with accounting guidance, long-lived assets held for sale are carried at the lower of the asset’s carrying value or net realizable value and depreciation ceases.

Assets Held for Sale consisted of the following:

						June 30								December 31
Segment		Description of Asset				2010				Description of Asset				2009
						(In thousands)								(In thousands)
North America OCD		One DLB and Other				$	4,567			None				$	—
Latin America		One DLB and Other					2,821			None					—
West Africa		One DLB, One DSV, and Other					6,867			One DLB, One DSV, and Other					6,832
Asia Pacific/Middle East		One OSV and Other					4,162			One OSV and Other					9,320
						$	18,417							$	16,152

8.

Property and Equipment

The components of property and equipment, at cost, and the related accumulated depreciation are as follows:

		June 30				December 31
		2010				2009
		(In thousands)
Land		$	6,322			$	6,322
Facilities and equipment			180,582				183,526
Marine vessels			440,981				474,208
Construction in progress			450,756				375,360
Total property and equipment			1,078,641				1,039,416
Less: Accumulated depreciation			(303,400	)			(316,597	)
Property and equipment, net		$	775,241			$	722,819

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. We capitalized $4.5 million and $3.5 million of interest costs for the three months ended June 30, 2010 and 2009, respectively. We capitalized $8.9 million and $6.6 million of interest costs for the six months ended June 30, 2010 and 2009, respectively. Except for major construction 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. In general, if we applied only a straight-line depreciation method instead of the UOP method, less depreciation expense would be recorded in periods of high utilization and revenues, and more depreciation expense would be recorded in periods of low vessel utilization and revenues.

9.

Deferred Dry-Docking Costs

		We utilize the deferral method to capitalize vessel dry-docking costs and to amortize the costs to the next dry-docking. Such capitalized costs include regulatory required steel replacement, direct costs for vessel mobilization and demobilization and rental of dry-docking facilities and services. Crew costs may also be capitalized when employees perform all or a part of the required dry-docking. Any repair and maintenance costs incurred during the dry-docking period are expensed.
		The below table presents dry-docking costs incurred and amortization for all periods presented:

		Three Months Ended								Six Months Ended
		June 30								June 30
		2010				2009				2010				2009
		(In thousands)								(In thousands)
Net book value at beginning of period		$	38,487			$	57,816			$	41,825			$	61,552
Additions for the period			—				2,720				2,186				5,256
Reclassifications to assets held for sale			(399	)			(4,914	)			(1,688	)			(4,914	)
Amortization expense for the period			(3,965	)			(5,084	)			(8,200	)			(11,356	)
Net book value at end of period		$	34,123			$	50,538			$	34,123			$	50,538

10.

Long-Term Debt

The components of long-term debt are as follows:

		June 30				December 31
		2010				2009
		(In thousands)
Senior Convertible Debentures due 2027, 2.75%
Principal amount of debt component		$	325,000			$	325,000
Less: Unamortized debt discount			83,637				88,054
Carrying amount of debt component			241,363				236,946
Title XI Bonds due 2025, 7.71%			59,400				61,380
Revolving Credit Facility			—				—
Total long-term debt			300,763				298,326
Less: Current maturities			3,960				3,960
Long-term debt less current maturities		$	296,803			$	294,366

Senior Convertible Debentures

On January 1, 2009, we implemented new accounting guidance which changed the accounting treatment of our Senior Convertible Debentures. This guidance requires cash settled convertible debt to be separated into debt and equity components at issuance and a value to be assigned to each. The value assigned to the debt component is the estimated fair value of similar debentures without the conversion feature. The difference between the debenture cash proceeds and this estimated fair value was recorded as debt discount and is being amortized to interest expense over the 10-year period ending August 1, 2017. This is the earliest date that holders of the Senior Convertible Debentures may require us to repurchase all or part of their Senior Convertible Debentures for cash.

The Debentures are convertible into cash, and if applicable, into shares of our common stock, or under certain circumstances and at our election, solely into our common stock, based on a conversion rate of 28.1821 shares per $1,000 principal amount of Debentures, which represents an initial conversion price of $35.48 per share. As of June 30, 2010 and December 31, 2009, the Debentures’ if-converted value does not exceed the Debentures’ principal of $325 million.

The equity component of our Senior Convertible Debentures is comprised of the following:

		June 30				December 31
		2010				2009
		(In thousands)
Debt discount on issuance		$	107,261			$	107,261
Less: Issuance costs			2,249				2,249
Deferred income tax			36,772				36,772
Carrying amount of equity component		$	68,240			$	68,240

The table below presents interest expense for our Senior Convertible Debentures:

		Three Months Ended								Six Months Ended
		June 30								June 30
		2010				2009				2010				2009
		(In thousands)								(In thousands)
Contractual interest coupon, 2.75%		$	2,234			$	2,234			$	4,468			$	4,468
Amortization of debt discount			2,222				2,064				4,417				4,103
Total Debentures interest expense		$	4,456			$	4,298			$	8,885			$	8,571
Effective interest rate			7.5	%			7.5	%			7.5	%			7.5	%

Revolving Credit Facility

Our Revolving Credit Facility, which matures on October 18, 2012, provides a borrowing capacity of up to $150.0 million. Due to the sale and/or release of four of the vessels mortgaged under the Revolving Credit Facility, our effective maximum borrowing capacity was reduced to approximately $110 million. As part of the amendment to our Revolving Credit Facility, we mortgaged the Global Orion on June 16, 2010, restoring our borrowing capacity under this facility to $150.0 million. As of June 30, 2010, we had no borrowings against the facility, $53.7 million of letters of credit outstanding thereunder, and available credit of $96.3 million.

Our initial financial projections for 2010 indicated that we might not meet our leverage ratio covenant in our Revolving Credit Facility beginning in the second quarter of 2010 and continuing through the fourth quarter of 2010. Earlier this year, we began discussions with our lenders regarding these potential violations. On June 16, 2010, our Revolving Credit Facility was amended to provide for a modification period beginning on the date of the amendment and ending the earlier of June 30, 2011 or upon compliance with covenant conditions under the Revolving Credit Facility and a written request to end the modification period (the “Modification Period”). During the Modification Period (1) the net debt to EBITDA coverage ratio under the Revolving Credit Facility will be suspended, (2) we will be required to maintain a trailing twelve months minimum EBITDA of $40,000,000, and (3) no borrowings, other than letters of credit and guarantees, will be permitted. Once terminated, the Modification Period may not be reinstated. The interest rates on letters of credit will range from 2.75% to 3.5%.

When we finalized the Revolving Credit Facility amendment on June 16, 2010, the financial impact of the oil spill in the U.S. Gulf of Mexico was not forecasted to be as significant as it has since evolved to be. Consequently, our current financial projections indicate that we may not meet our minimum EBITDA covenant under the amended Revolving Credit Facility in the fourth quarter of 2010. We are currently in discussion with our lenders regarding these potential violations. If we do not meet this covenant, we may be required to cash collateralize our outstanding letters of credit or explore other alternatives with respect to the covenant violation. If we are required to cash collateralize letters of credit, it would reduce our available cash and may impact our ability to bid on future projects. Further, upon a covenant violation and the declaration of an event of default by our lenders, under the cross default provisions of our Title XI bonds (1) we may be subject to additional reporting requirements, (2) we may be subject to additional covenants restricting our operations, and (3) the Maritime Administration of the U.S. Department of Transportation (“MarAd”), guarantor of the bonds, may institute procedures that could ultimately allow the bondholders the right to demand payment of the bonds from MarAd. MarAd can alternatively assume the obligation to pay the bonds when due. As we have no outstanding indebtedness under our Revolving Credit Facility, an event of default related to the covenant failure would not trigger the cross default provision of our Senior Convertible Debentures. It is not possible at this time to predict the outcome of discussions with our lenders or the effect that these potential violations may have on our financial position.

Our Revolving Credit Facility has a customary cross default provision triggered by a default of any of our other indebtedness, the aggregate principal amount of which is in excess of $5 million.

We also have a $16.0 million short-term credit facility at one of our foreign locations. At June 30, 2010, we had $3.3 million of letters of credit outstanding and $12.7 million of credit availability under this particular credit facility. This short-term credit facility was reduced to $6.0 million on July 13, 2010 and the letter of credit issued under our Revolving Credit Facility backing this facility was also reduced to $6.0 million.

11.

Commitments and Contingencies

Commitments

Construction and Purchases in Progress — The estimated cost to complete capital expenditure projects in progress at June 30, 2010 was approximately $213.5 million, of which $102.0 million is obligated through contractual commitments. The total estimated cost primarily represents expenditures for construction of the Global 1200 and Global 1201, our new generation derrick/pipelay vessels. This amount includes aggregate commitments of 54.4 million Singapore dollars (or $38.9 million as of June 30, 2010) and 4.6 million Euros or $5.6 million as of June 30, 2010). We have entered into forward contracts to purchase 11.3 million Singapore dollars to hedge certain purchase commitments related to the construction of the Global 1200 and Global 1201 and 5.0 million Singapore dollars to hedge operating expenses related to our Asia Pacific/Middle East segment.

Off Balance Sheet Arrangements — In the normal course of our business activities, and pursuant to agreements or upon obtaining such agreements to perform construction services, we provide guarantees, bonds, and letters of credit

to customers, vendors, and other parties. At June 30, 2010, the aggregate amount of these outstanding bonds was $55.6 million, which are scheduled to expire between July 2010 and August 2011, and the aggregate amount of outstanding letters of credit was $54.2 million, which are due to expire between July 2010 and March 2014.

Contingencies

During the fourth quarter of 2007, we received a payroll tax assessment for the years 2005 through 2007 from the Nigerian Revenue Department valued at $18.0 million based on the exchange rate of the Nigerian naira as of June 30, 2010. The assessment alleges that certain expatriate employees, working on projects in Nigeria, were subject to personal income taxes, which were not paid to the government. We filed a formal objection to the assessment on November 12, 2007. We do not believe these employees are subject to the personal income tax assessed; however, based on past practices of the Nigerian Revenue Department, we believe this matter will ultimately have to be resolved by litigation. We do not expect the ultimate resolution to have a material adverse effect on our future operating results.

During 2008, we received an additional assessment from the Nigerian Revenue Department valued at $37.1 million, based on the exchange rate of the Nigerian naira as of June 30, 2010, for tax withholding related to third party service providers. The assessment alleges that taxes were not withheld from third party service providers for the years 2002 through 2006 and remitted to the Nigerian government. We have filed an objection to the assessment. We do not expect the ultimate resolution to have a material adverse effect on our future operating results.

During the third quarter of 2009, we received a tax assessment from the Mexican Revenue Department in the amount of $5.9 million related to the 2003 tax year. The assessment alleges that chartered vessels should be treated as equipment leases and subject to tax at a rate of 10%. We have engaged outside counsel to assist us in this matter and have filed an appeal in the Mexican court system. We await disposition of that appeal. We do not expect the ultimate resolution to have a material adverse effect on our future operating results; however, if the Mexican Revenue Department prevails in its assessment, we could be exposed to similar liabilities for each of the tax years beginning with 2004 through the current year.

We have one unresolved issue related to an Algerian tax assessment received by us on February 21, 2007. The remaining amount in dispute is approximately $10.4 million of alleged value added tax for the years 2004 and 2005. We are contractually indemnified by our client for the full amount of the assessment that remains in dispute. We continue to engage outside tax counsel to assist us in resolving the tax assessment.

Investigations and Litigation

We are involved in various legal proceedings and potential claims that arise in the ordinary course of business, primarily involving claims for personal injury under the General Maritime Laws of the United States and Jones Act as a result of alleged negligence. We believe that the outcome of all such proceedings, even if determined adversely, would not have a material adverse effect on our business or financial condition.

12.

Comprehensive Income

Other Comprehensive Income — The differences between net income (loss) and comprehensive income (loss) for each of the comparable periods presented are as follows.

		Three Months Ended								Six Months Ended
		June 30								June 30
		2010				2009				2010				2009
		(In thousands)
Net income (loss)		$	1,406			$	45,933			$	(19,952	)		$	64,964
Unrealized gain (loss) on derivatives			(994	)			1,451				(1,414	)			2,964
Unrealized gain (loss) on auction rate securities			—				(349	)			—				(1,340	)
Deferred tax benefit (expense)			348				(386	)			495				(568	)
Comprehensive income (loss)		$	760			$	46,649			$	(20,871	)		$	66,020

Accumulated Other Comprehensive Income (Loss) — A roll-forward of the amounts included in accumulated other comprehensive income (loss), net of taxes, is shown below.

		Cumulative
		Foreign				Forward								Accumulated
		Currency				Foreign				Auction				Other
		Translation				Currency				Rate				Comprehensive
		Adjustment				Contracts				Securities				Income (Loss)
Balance at December 31, 2009		$	(8,978	)		$	615			$	(83	)		$	(8,446	)
Change in value			—				(1,167	)			83				(1,084	)
Reclassification to earnings			—				248				—				248
Balance at June 30, 2010		$	(8,978	)		$	(304	)		$	—			$	(9,282	)

The amount of cumulative foreign currency translation adjustment included in accumulated other comprehensive income (loss) relates to prior translations of subsidiaries whose functional currency was not the U.S. dollar. The amount of gain (loss) on forward foreign currency contracts included in accumulated other comprehensive income (loss) hedges our exposure to changes in Norwegian kroners for commitments of a long-term vessel charter. The amount of loss on auction rate securities relates to a temporary decline in the fair value of certain investments that lack current market liquidity. See also Note 3 for further discussion on auction rate securities.

13.

Stock-Based Compensation

We recognize the cost of employee services received in exchange for awards of equity instruments based on the grant date fair value of those awards.

The table below sets forth the total amount of stock-based compensation expense for the three and six months ended June 30, 2010 and 2009.

		Three Months Ended								Six Months Ended
		June 30								June 30
		2010				2009				2010				2009
						(In thousands)
Stock-based compensation expense
Stock options		$	120			$	155			$	225			$	457
Time-based restricted stock			1,210				1,070				4,343				2,593
Performance shares and units			659				247				915				396
Total stock-based compensation expense		$	1,989			$	1,472			$	5,483			$	3,446

During the three months ended June 30, 2010 and 2009, 42,300 and 198,520 shares of restricted stock vested, respectively. During the six months ended June 30, 2010 and 2009, 236,292 and 345,057 shares of restricted stock vested, respectively. In addition, during the three and six months ended June 30, 2010, 43,700 and 403,700 shares of stock with immediate vesting were awarded to managerial employees, respectively. Pursuant to the terms of the Non-Employee Director Compensation Policy, 33,384 and 62,240 shares of stock with immediate vesting were awarded to our directors during the three and six months ended June 30, 2010.

14.

Other Income (Expense), net

Components of other income (expense), net are as follows:

		Three Months Ended								Six Months Ended
		June 30								June 30
		2010				2009				2010				2009
						(In thousands)
Foreign exchange rate gain (loss)		$	(761	)		$	4,148			$	130			$	4,352
Derivative contract gain (loss)			145				484				(654	)			484
Loss on sale of auction rate securities			—				—				(561	)			—
Insurance settlement			—				—				—				978
Other			37				(140	)			79				756
Total		$	(579	)		$	4,492			$	(1,006	)		$	6,570

15.

Income Taxes

Our effective tax rate for the three and six months ended June 30, 2010 was 106.3% and 58.2%, respectively, compared to 14.3% and 21.8% for the three and six months ended June 30, 2009. For 2010, losses were incurred in jurisdictions with effective tax rates of 35% that could be fully tax benefited while income was earned in jurisdictions with low tax rates. This mix of losses in higher tax jurisdictions offset by income in low tax jurisdictions results in a higher effective tax rate when compared to the corporate tax rate in the United States of 35%. The change in the tax rate from 16.1% in the first quarter of 2010 to 58.2% for the six months ended June 30, 2010 resulted in a cumulative tax benefit adjustment of $10.5 million which has created a tax benefit in the second quarter of 2010 which exceeds the loss before taxes.

During the second quarter of 2010, the statute of limitations for several uncertain tax positions expired. As a result, we have reduced our unrecognized tax benefits in the amount of $0.1 million and our interest expense associated with these items in the amount of $0.4 million. We recognize interest expense and penalties related to unrecognized tax benefits as part of non-operating expenses.

16.

Earnings Per Share

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 assuming a reallocation of undistributed earnings to common shareholders after considering the dilutive effect of potential shares of common stock other than the non-vested shares of restricted stock.

In accordance with current accounting guidance, certain instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to participate in computing earnings per share under the two-class method. Our non-vested restricted stock awards contain nonforfeitable rights to dividends and consequently are included in the computation of basic earnings per share under the two-class method.

The following table presents information necessary to calculate earnings (loss) per share of common stock for the three and six months ended June 30, 2010 and 2009:

		Three Months Ended								Six Months Ended
		June 30								June 30
		2010				2009				2010				2009
		(In thousands, except per share data)
Basic EPS:
Net income (loss)		$	1,406			$	45,933			$	(19,952	)		$	64,964
Less earnings attributed to shareholders of non-vested restricted stock			(15	)			(546	)			—				(751	)
Earnings (loss) attributed to common shareholders		$	1,391			$	45,387			$	(19,952	)		$	64,213
Weighted-average number of common shares outstanding—basic			113,831				112,521				113,595				112,459
Basic earnings (loss) per common share		$	0.01			$	0.40			$	(0.18	)		$	0.57
Diluted EPS:
Earnings (loss) attributable to common shareholders—basic		$	1,391			$	45,387			$	(19,952	)		$	64,213
Adjustment to earnings (loss) attributable to common shareholders for redistribution to shareholders of non-vested restricted stock			—				3				—				4
Adjusted earnings (loss) attributable to common shareholders—diluted		$	1,391			$	45,390			$	(19,952	)		$	64,217
Weighted average number of common shares outstanding—basic			113,831				112,521				113,595				112,459
Dilutive effect of potential common shares:
Restricted stock			—				1,355				—				1,315
Stock options			20				28				—				11
Performance units			275				596				—				534
Weighted-average number of common shares outstanding—diluted			114,126				114,500				113,595				114,319
Diluted net income (loss) per common share		$	0.01			$	0.40			$	(0.18	)		$	0.57

Anti-dilutive shares primarily represent options where the strike price was in excess of the average market price of our common stock for the period reported and are excluded from the computation of diluted earnings per share. All potentially dilutive shares of common stock were excluded for the six months ended June 30, 2010 as the net loss results in such shares being anti-dilutive. Excluded anti-dilutive shares totaled 1.7 million and 1.9 million for the three months ended June 30, 2010 and 2009, respectively. Excluded anti-dilutive shares totaled 2.0 million and 1.9 million for the six months ended June 30, 2010 and 2009, respectively.

The net settlement premium obligation on the Senior Convertible Debentures was not included in the dilutive earnings per share calculation for the three or six months ended June 30, 2010 and 2009 because the conversion price of the debentures was in excess of our common stock price.

17.

Treasury Stock

In May 2010, we retired 6.1 million shares of treasury stock. These shares have been cancelled and restored to the status of authorized and unissued shares.

18.

Segment Information

The following table presents information about the profit (or loss) for the three and six months ended June 30, 2010 and 2009 of each of our five reportable segments: North America Offshore Construction Division (“OCD”), North America Subsea, Latin America, West Africa, and Asia Pacific/Middle East.

Effective January 1, 2010, we combined our Middle East and Asia Pacific/India segments into the Asia Pacific/Middle East segment. The equipment and personnel assigned to each of these segments as well as the executive management thereof were consolidated during 2009; therefore, we made the decision to combine the segments. The combined reporting segment will continue to pursue projects in both regions. This change has been reflected as a retrospective change to the financial information for the three and six months ended June 30, 2009, presented below. This change did not affect our condensed consolidated balance sheets, condensed consolidated statements of operations, or condensed consolidated statements of cash flows.

		Three Months Ended								Six Months Ended
		June 30								June 30
		2010				2009				2010				2009
		(In thousands)
Total segment revenues
North America OCD		$	15,506			$	43,630			$	19,404			$	48,950
North America Subsea			32,662				34,198				60,493				65,750
Latin America			33,601				73,470				76,442				149,785
West Africa			—				36,436				—				101,568
Asia Pacific/Middle East			41,342				117,519				74,976				209,676
Subtotal			123,111				305,253				231,315				575,729
Intersegment eliminations
North America Subsea			(1,343	)			(10,426	)			(2,736	)			(11,437	)
Subtotal			(1,343	)			(10,426	)			(2,736	)			(11,437	)
Consolidated revenues		$	121,768			$	294,827			$	228,579			$	564,292
Income (loss) before taxes
North America OCD		$	(7,578	)		$	4,260			$	(14,795	)		$	(7,979	)
North America Subsea			(1,671	)			3,717				(4,736	)			15,705
Latin America			(2,487	)			16,445				(11,556	)			22,467
West Africa			(1,562	)			15,081				(3,320	)			32,859
Asia Pacific/Middle East			(1,608	)			20,893				2,836				34,594
Corporate			(7,363	)			(6,818	)			(16,154	)			(14,605	)
Consolidated income (loss) before taxes		$	(22,269	)		$	53,578			$	(47,725	)		$	83,041

The following table presents information about the assets of each of our reportable segments as of June 30, 2010 and December 31, 2009.

		June 30				December 31
		2010				2009
		(In thousands)
Segment assets at period end
North America OCD		$	121,465			$	140,806
North America Subsea			173,202				180,230
Latin America			179,252				223,699
West Africa			39,323				98,897
Asia Pacific/Middle East			206,567				257,853
Corporate			678,428				622,708
Consolidated segment assets at period end		$	1,398,237			$	1,524,193

19.

Related Party Transactions

Mr. William J. Doré, our founder and a member of our Board of Directors, is also a beneficial owner of more than 5% of our outstanding common stock. We are parties to a retirement and consulting agreement, as amended, with him. Pursuant to the terms of the agreement, we recorded expense of $100,000 and $200,000 for services provided for both the three and six months ended June 30, 2010 and 2009, respectively. We also recorded expenses of $16,800 for the six months ended June 30, 2010, for use of Mr. Doré’s hunting lodge related to two business development trips.

20.

Subsequent Events

On July 15, 2010, we sold the Shawnee for $12.5 million resulting in a gain of $9.7 million. On July 30, 2010, we sold the Sea Constructor for $3.8 million resulting in a gain of $2.7 million.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

We are including the following discussion to inform our existing and potential shareholders generally of some of the risks and uncertainties that can affect us and to take advantage of the “safe harbor” protection for forward-looking statements that applicable federal securities law affords.

From time to time, our management or persons acting on our behalf make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, to inform existing and potential shareholders about us. These statements may include projections and estimates concerning the timing and success of specific projects and our future backlog, revenues, income and capital expenditures. Forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes. In addition, sometimes we will specifically describe a statement as being a forward-looking statement and refer to this cautionary statement.

In addition, various statements in this Quarterly Report on Form 10-Q, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. Those forward-looking statements appear in Part I, Item 2 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the notes to our condensed consolidated financial statements in Part I, Item 1 of this report and elsewhere in this report. These forward-looking statements speak only as of the date of this report; we disclaim any obligation to update these statements unless required by securities law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties relate to, among other matters, the following:

	•		the level of capital expenditures in the oil and gas industry;
	•		general economic and business conditions and industry trends;
	•		risks inherent in doing business abroad;
	•		the economic and regulatory impact of the oil spill in the U.S. Gulf of Mexico;
	•		operating hazards related to working offshore;
	•		our dependence on significant customers;
	•		the level of offshore drilling activity;
	•		possible delays or cost overruns related to construction projects;
	•		our ability to attract and retain skilled workers;
	•		environmental matters;
	•		changes in laws and regulations;
	•		the effects of resolving claims and variation orders;
	•		adverse outcomes from legal and regulatory proceedings;
	•		our ability to obtain surety bonds, letters of credit, and financing;
	•		our availability of capital resources;
	•		our ability to obtain new project awards;
	•		delays or cancellation of projects included in backlog;
	•		fluctuations in the prices of or demand for oil and gas;
	•		our ability to comply with covenants in our credit agreements and other debt instruments and availability, terms and deployment of capital; and
	•		foreign exchange, currency, and interest rate fluctuations.

We believe the items we have outlined above are important factors that could cause actual results to differ materially from those expressed in a forward-looking statement made in this report or elsewhere by us or on our behalf. We have discussed many of these factors in more detail elsewhere in this report. These factors are not necessarily all the factors that could affect us. Unpredictable or unanticipated factors we have not discussed in this report could also have material adverse effects on actual results of matters that are the subject of our forward-looking statements. We do not intend to update our description of important factors each time a potential important factor arises, except as required by applicable securities laws and regulations. We advise our security holders that they should (1) be aware that factors not referred to above could affect the accuracy of our forward-looking statements and (2) use caution and common sense when considering our forward-looking

statements. For more detailed information regarding risks, see the discussion of risk factors in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2009.

The following discussion presents management’s discussion and analysis of our financial condition and results of operations and should be read in conjunction with the condensed consolidated financial statements and related notes for the period ended June 30, 2010.

Results of Operations

General

We are a leading offshore construction company offering a comprehensive and integrated range of marine construction and support services in the North America, Latin America, and Asia Pacific/Middle East regions. These services include pipeline construction, platform installation and removal, project management, construction support, diving services, diverless intervention, SURF (subsea equipment, umbilical, riser, and flow line), IRM (inspection, repairs, and maintenance), and decommissioning/plug and abandonment services.

Our results of operations, in terms of revenues, gross profit, and gross profit as a percentage of revenues (“margins”), are principally driven by three factors: (1) our level of offshore construction activity and subsea activity (“activity”), (2) pricing, which can be affected by contract mix (“pricing”), and (3) operating efficiency on any particular construction project (“productivity”).

Our business consists of two principal activities:

	•		Offshore Construction Services, which include pipeline construction, platform installation and removal services, and decommissioning/plug and abandonment services; and
	•		Subsea Services, which include diving and diverless intervention, SURF, IRM, and support services for construction.

Offshore Construction Services

The level of our offshore construction activity in any given period has a significant impact on our results of operations. Our results of operations depend heavily upon our ability to obtain, in a very competitive environment, a sufficient quantity of offshore construction contracts with sufficient gross profit margins to recover the fixed costs associated with our offshore construction business. The offshore construction business is capital and personnel intensive, and as a practical matter, many of our costs, including the wages of skilled workers, are effectively fixed in the short run regardless of the activity level of our vessels. In general, as activity increases, a greater proportion of these fixed costs are recovered through operating revenues and gross profit and margins increase. Conversely, as activity decreases, our revenues decline, but our costs do not decline proportionally, thereby constricting our gross profit and margins. Our activity level can be affected by changes in demand due to economic or other conditions in the oil and gas exploration industry, seasonal conditions in certain geographical areas, and our ability to win the bidding for available jobs.

Most of our offshore construction revenues are earned through international contracts which are generally larger, more complex, and of longer duration than our typical domestic contracts. Most of these international contracts require a significant amount of working capital, are generally bid on a lump-sum basis, and are secured by a letter of credit or performance bond. Operating cash flows may be negatively affected during periods of escalating activity due to the substantial amounts of cash required to initiate these projects and the normal delays between our cash expenditures and cash receipts from the customer. Additionally, lump-sum contracts for offshore construction services are inherently risky and are subject to many unforeseen circumstances and events that may affect productivity and thus, profitability. When productivity decreases with no offsetting decrease in costs or increases in revenues, our contract margins erode compared to our bid margins. In general, we traditionally bear a larger share of project related risks during periods of weak demand for our services and a smaller share of risks during periods of high demand for our services. Consequently, our revenues and margins from offshore construction services are subject to a high degree of variability, even as compared to other businesses in the offshore energy industry.

Subsea Services

Most of our subsea revenues are the result of short-term work, involve numerous smaller contracts, and are usually based on a day-rate charge. Financial risks associated with these types of contracts are normally limited due to their short-term and non-lump sum nature. However, some subsea contracts, especially those that utilize dive support vessels (“DSVs”), may

involve longer-term commitments that extend from the exploration, design, and installation phases of a field throughout its useful life by providing IRM services. The financial risks which are associated with these commitments remain low in comparison with our offshore construction activities due to the day-rate structure of the contracts. Revenues and margins from our subsea activities tend to be more consistent than from our offshore construction activities.

Quarter Ended June 30, 2010 Compared to Quarter Ended June 30, 2009

		Three months ended June 30
		2010								2009
						% of								% of				% Change
		(Thousands)				Revenue				(Thousands)				Revenue				(Unfavorable)
Revenues		$	121,768				100.0	%		$	294,827				100.0	%			(58.7	)%
Cost of operations			114,585				94.1				229,656				77.9				50.1
Gross profit			7,183				5.9				65,171				22.1				(89.0	)
Loss (gain) on asset disposals and impairments			10,214				8.4				(3,715	)			1.3				(374.9	)
Selling, general and administrative expenses			17,395				14.3				16,689				5.7				(4.2	)
Operating income (loss)			(20,426	)			16.8				52,197				17.7				(139.1	)
Interest income			492				0.4				618				0.2				(20.4	)
Interest expense			(1,756	)			1.4				(3,729	)			1.3				52.9
Other income (expense), net			(579	)			0.5				4,492				1.6				(112.9	)
Income (loss) before income taxes			(22,269	)			18.3				53,578				18.2				(141.6	)
Income tax expense (benefits)			(23,675	)			19.5				7,645				2.6				409.7
Net income		$	1,406				1.2	%		$	45,933				15.6	%			(96.9	)%