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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
 For the quarterly period ended September 30, 2006
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 0-21086
 Global Industries, Ltd.
  Louisiana
    
    72-1212563(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)8000 Global DriveCarlyss, Louisiana
    
    70665(Address of principal executive offices)
    
    (Zip Code)
 (337) 583-5000
 None
  þ o
  þ o o
 o þ




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Global Industries, Ltd.
Index  Form 10-Q
 Part I  Financial InformationItem 1.
    
    Financial Statements  UnauditedReport of Independent Registered Public Accounting Firm
    
    
    3Condensed Consolidated Statements of Operations
    
    
    4Condensed Consolidated Balance Sheets
    
    
    5Condensed Consolidated Statements of Cash Flows
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    24Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    39Item 4.
    
    Controls and Procedures
    
    
    40Part II  Other InformationItem 1.
    
    Legal Proceedings
    
    
    41Item 1A.
    
    Risk Factors
    
    
    42Item 6.
    
    Exhibits
    
    
    44Signature
    
    
    45Letter Regarding Unaudited Interim Financial InformationSection 302 Certification of CEO, B. K. ChinSection 302 Certification of CFO, Peter S. AtkinsonSection 906 Certification of CEO, B. K. ChinSection 906 Certification of CFO, Peter S. Atkinson
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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 
  
      
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GLOBAL INDUSTRIES, LTD.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 (Unaudited)
 Quarter Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Results of OperationsRevenues
    
    $
    316,865
    
    
    $
    168,043
    
    
    $
    930,763
    
    
    $
    514,658Cost of operations
    
    
    212,027
    
    
    
    142,489
    
    
    
    676,658
    
    
    
    427,273Gross profit
    
    
    104,838
    
    
    
    25,554
    
    
    
    254,105
    
    
    
    87,385Loss on asset impairments
    
    
    
    
    
    
    
    
    
    
    4,485
    
    
    
    Reduction in litigation provision
    
    
    
    
    
    
    
    
    
    
    (13,699
    )
    
    
    Net gain on asset disposal
    
    
    (2,618
    )
    
    
    (2,685
    )
    
    
    (3,125
    )
    
    
    (5,300
    )Selling, general and administrative expenses
    
    
    17,570
    
    
    
    12,237
    
    
    
    48,566
    
    
    
    36,912Operating income
    
    
    89,886
    
    
    
    16,002
    
    
    
    217,878
    
    
    
    55,773Other expense (income):Interest expense
    
    
    3,372
    
    
    
    3,278
    
    
    
    7,868
    
    
    
    8,142Other income
    
    
    (2,920
    )
    
    
    (1,194
    )
    
    
    (4,013
    )
    
    
    (2,740
    )Income before taxes
    
    
    89,434
    
    
    
    13,918
    
    
    
    214,023
    
    
    
    50,371Income taxes
    
    
    25,765
    
    
    
    9,085
    
    
    
    69,207
    
    
    
    25,689Net income
    
    $
    63,669
    
    
    $
    4,833
    
    
    $
    144,816
    
    
    $
    24,682Earnings Per Common ShareBasic
    
    $
    0.55
    
    
    $
    0.04
    
    
    $
    1.25
    
    
    $
    0.22Diluted
    
    $
    0.54
    
    
    $
    0.04
    
    
    $
    1.24
    
    
    $
    0.21Weighted Average Common Shares
OutstandingBasic
    
    
    115,988
    
    
    
    113,052
    
    
    
    115,418
    
    
    
    112,828Diluted
    
    
    117,673
    
    
    
    116,006
    
    
    
    117,167
    
    
    
    115,381
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GLOBAL INDUSTRIES, LTD.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands)
 (Unaudited)
 September 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent AssetsCash
    
    $
    188,487
    
    
    $
    127,138Restricted cash
    
    
    1,036
    
    
    
    1,477Accounts receivable  net of allowance of $21,012 for 2006
and $7,757 for 2005
    
    
    204,235
    
    
    
    168,781Unbilled work on uncompleted contracts
    
    
    138,651
    
    
    
    76,291Contract costs incurred not yet recognized
    
    
    38,954
    
    
    
    34,076Deferred income taxes
    
    
    
    
    
    
    14,158Prepaid expenses and other
    
    
    21,646
    
    
    
    34,448Total current assets
    
    
    593,009
    
    
    
    456,369Property and Equipment, net
    
    
    330,732
    
    
    
    330,402Other AssetsDeferred charges, net
    
    
    21,760
    
    
    
    19,125Goodwill, net
    
    
    37,388
    
    
    
    37,388Other
    
    
    1,626
    
    
    
    1,378Total other assets
    
    
    60,774
    
    
    
    57,891Total
    
    $
    984,515
    
    
    $
    844,662LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesCurrent maturities of long term debt
    
    $
    3,960
    
    
    $
    3,960Accounts payable
    
    
    123,355
    
    
    
    106,348Employee-related liabilities
    
    
    23,657
    
    
    
    16,170Income taxes payable
    
    
    30,460
    
    
    
    25,726Deferred income taxes payable
    
    
    4,405
    
    
    
    Accrued interest
    
    
    722
    
    
    
    2,249Advance billings on uncompleted contracts
    
    
    6,508
    
    
    
    21,308Litigation liability provision
    
    
    
    
    
    
    34,911Other accrued liabilities
    
    
    11,813
    
    
    
    13,647Total current liabilities
    
    
    204,880
    
    
    
    224,319Long-Term Debt
    
    
    69,300
    
    
    
    73,260Deferred Income Taxes
    
    
    48,803
    
    
    
    49,491Other Liabilities
    
    
    1,752
    
    
    
    787Commitments and Contingencies
    
    
    
    
    
    
    Shareholders EquityCommon stock issued, 116,019 in 2006 and 114,344 shares in 2005
    
    
    1,160
    
    
    
    1,144Additional paid-in capital
    
    
    370,468
    
    
    
    350,550Retained earnings
    
    
    298,905
    
    
    
    154,089Treasury stock at cost, 25 in 2006 and none in 2005
    
    
    (432
    )
    
    
    Accumulated other comprehensive loss
    
    
    (10,321
    )
    
    
    (8,978
    )Total shareholders equity
    
    
    659,780
    
    
    
    496,805Total
    
    $
    984,515
    
    
    $
    844,662
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GLOBAL INDUSTRIES, LTD.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Nine Months EndedSeptember 30,2006
    
    
    2005Cash Flows From Operating ActivitiesNet income
    
    $
    144,816
    
    
    $
    24,682Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and non-stock-based amortization
    
    
    38,802
    
    
    
    39,387Stock-based compensation expense
    
    
    9,724
    
    
    
    2,817Provision for doubtful accounts
    
    
    22,359
    
    
    
    423Gain on sale or disposal of property and equipment
    
    
    (3,125
    )
    
    
    (5,300
    )Loss on asset impairments
    
    
    4,485
    
    
    
    Reduction in litigation provision
    
    
    (13,699
    )
    
    
    Deferred income taxes
    
    
    17,875
    
    
    
    9,037Latin America tax penalties, fees, and adjustments
    
    
    1,684
    
    
    
    3,750Excess tax benefits from stock-based compensation
    
    
    (1,417
    )
    
    
    Other
    
    
    (66
    )
    
    
    (123
    )Changes in operating assets and liabilitiesAccounts receivable, unbilled work, and contract costs
    
    
    (125,052
    )
    
    
    (97,567
    )Prepaid expenses and other
    
    
    12,555
    
    
    
    (11,696
    )Accounts payable, employee-related liabilities and other
accrued liabilities
    
    
    13,972
    
    
    
    39,559Deferred dry dock costs incurred
    
    
    (12,239
    )
    
    
    (7,790
    )Litigation settlement payment
    
    
    (22,050
    )
    
    
    Net cash provided by (used in) operating activities
    
    
    88,624
    
    
    
    (2,821
    )Cash Flows From Investing ActivitiesProceeds from the sale of assets
    
    
    3,587
    
    
    
    9,176Additions to property and equipment
    
    
    (35,757
    )
    
    
    (14,797
    )Decrease in (additions to) restricted cash
    
    
    441
    
    
    
    (1,015
    )Net cash used in investing activities
    
    
    (31,729
    )
    
    
    (6,636
    )Cash Flows From Financing ActivitiesProceeds from the sale of common stock, net
    
    
    8,112
    
    
    
    6,212Additions to deferred charges
    
    
    (683
    )
    
    
    (680
    )Repayment of long-term debt
    
    
    (3,960
    )
    
    
    (3,960
    )Repurchase of common stock
    
    
    (432
    )
    
    
    Excess tax benefits from stock-based compensation
    
    
    1,417
    
    
    
    Net cash provided by financing activities
    
    
    4,454
    
    
    
    1,572CashIncrease (decrease)
    
    
    61,349
    
    
    
    (7,885
    )Beginning of period
    
    
    127,138
    
    
    
    143,161End of period
    
    $
    188,487
    
    
    $
    135,276Supplemental
DisclosuresInterest paid
    
    $
    12,396
    
    
    $
    8,107Income taxes
paid
    
    $
    42,433
    
    
    $
    9,213
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Global Industries, Ltd.
 
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 1.
    
    Basis of PresentationThe accompanying unaudited Condensed Consolidated Financial
Statements include the accounts of Global Industries, Ltd. and its subsidiaries (the
Company, we, us, or our).In the opinion of management of the Company, all adjustments (such adjustments consisting
only 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 periods ended September 30,
2006 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2006. 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, 2005. Certain reclassifications have
been made to the prior periods financial statements in order to conform to the
classifications adopted for reporting in 2006, including the netting of certain current
assets and current liabilities related to value added taxes in Latin America which resulted
in a decline in the amount of total assets reported on our balance sheet for December 31,
2005.2.
    
    Recent Accounting Pronouncements In July 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109(FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an entitys financial statements in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.FIN
48 prescribes a recognition threshold and measurement attribute for financial statement
disclosure of tax positions taken or expected to be taken on a tax return. This
interpretation is effective for fiscal years beginning after December 15, 2006. Consistent
with the requirements of FIN 48, we will adopt this new interpretation on January 1, 2007. We
are currently evaluating the provisions of FIN 48 and have not yet determined the impact, if
any, on our consolidated financial statements.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(SFAS 157). SFAS
157 defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands the disclosure requirements related to fair
value measurements. This statement, which is effective for fiscal years beginning after
November 15, 2007, applies to most FASB pronouncements that require fair value measurement
but does not in itself require any new fair value measurements. We are currently evaluating
the provisions of SFAS 157 but have not yet determined the impact, if any, on our
consolidated financial statements.In September 2006, the SEC issued Staff Accounting Bulletin (SAB) 108, Guidance on
Materiality. The new guidance requires the use of both a balance sheet and income statement
approach in quantifying and evaluating the materiality of misstatements in the financial
statements. While the income statement approach addresses only misstatements related to the
current year financial statements, the balance sheet approach takes into account unadjusted
cumulative misstatements existing in the balance sheet at the end of the current period.
Under the transition guidance in SAB 108, correction of errors from prior periods that
existed in the balance sheet which had been previously considered immaterial could be
treated as a one-time cumulative-effect adjustment and would not require restatement of
prior periods. SAB 108 is effective for annual financial statements covering the first
fiscal year ending after November 15, 2006. We do not anticipate that the adoption of SAB
108 will have a significant impact on our consolidated financial statements.
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3.
    
    Contracts in Progress and Revenue Recognition 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 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.4.
    
    Restricted Cash At September 30, 2006, the balance of 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
arrangement.5.
    
    Receivables Our receivables are presented in the following balance sheet accounts: (1)
accounts receivable, (2) unbilled work on uncompleted contracts, and (3) contract costs
incurred not yet recognized. The balance of accounts receivable primarily consists of work
which has been billed to customers. Accounts receivable are stated at net realizable value,
and the allowances for uncollectible accounts were $21.0 million and $7.8 million at September
30, 2006 and December 31, 2005, respectively. Accounts receivable at September 30, 2006
included $13.2 million which was not immediately collectible due to contractually specified
retainage requirements. This amount is expected to be collected within the next twelve
months. Accounts receivable at December 31, 2005 included $2.6 million which was related to
retainage.The balance of unbilled work on uncompleted contracts includes (a) amounts 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 in order to provide a more meaningful measurement of actual contract
progress.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. The claims and unapproved change orders included in our
receivables amounted to $68.1 million at September 30, 2006 and $37.2 million at December
31, 2005.
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Costs and Estimated Earnings on Uncompleted Contracts
 September 30,
    
    
    December 31,2006
    
    
    2005(In thousands)Costs incurred and recognized on uncompleted contracts
    
    $
    725,331
    
    
    $
    567,266Estimated earnings
    
    
    186,418
    
    
    
    62,038Costs and estimated earnings on uncompleted contracts
    
    
    911,749
    
    
    
    629,304Less: Billings to date
    
    
    (824,696
    )
    
    
    (608,272
    )87,053
    
    
    
    21,032Plus: Accrued revenue
    
    
    45,090
    
    
    
    33,951$
    132,143
    
    
    $
    54,983Included in accompanying balance sheets under the
following captions:Unbilled work on uncompleted contracts
    
    $
    138,651
    
    
    $
    76,291Advance billings on uncompleted contracts
    
    
    (6,508
    )
    
    
    (21,308
    )$
    132,143
    
    
    $
    54,983
 6.
    
    Property and Equipment 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 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, 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 if we applied only a straight-line depreciation method.7.
    
    Goodwill Goodwill represents cost in excess of the fair value of net assets acquired in a
business acquisition and is tested on an annual basis or when circumstances indicate that
impairment may exist. The carrying amount of goodwill as of September 30, 2006 and December
31, 2005 was approximately $37.4 million and is primarily attributable to our Latin America
segment.8.
    
    Loss on Asset Impairments Due to a deterioration in forecasted cash flows and/or expected
useful life with respect to certain of our marine assets in the second quarter of 2006, we
tested those assets for impairment during the quarter. Our analysis included (1) cost
estimates for refurbishment, upgrades, and regulatory compliance, (2) cash flow projections
for potential future work, and (3) an evaluation of the potential for vessel sales to others.
Each asset was analyzed and valued using third party assessments and probability weighted
undiscounted cash flow analysis, taking into account any costs related to the disposal of the
asset. As a result of this analysis, we recorded a pre-tax non-cash impairment charge of $4.5
million related to certain of our marine assets. The segment, assets, and amounts associated
with the loss are listed below.
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Segment
    
    Description of Asset
    
    
    Amount(In thousands)Gulf of Mexico OCD
    
    Pipeliner 5
    
    $
    757Gulf of Mexico OCD
    
    GP 35
    
    
    2Latin America
    
    1 Dive Support Vessel
    
    
    450Middle East
    
    Navajo
    
    
    3,276Total
    
    
    
    
    
    $
    4,485
 9.
    
    Interest Expense Interest expense for the third quarter and nine months ended September 30,
2006 included $1.7 million of expense related to an inflationary adjustment associated with
our plans to amend certain prior-year tax returns in our Latin America segment. Interest
expense for the third quarter and nine months ended September 30, 2005 included $1.0 million
of interest expense related to an income tax settlement agreement in our Asia Pacific segment.10.
    
    Income Taxes Our effective tax rate was 32% and 51% for the nine months ended September 30,
2006 and 2005, respectively. Our effective tax rate for 2005 was substantially higher than
our 35% U.S. Federal statutory rate primarily due to taxes in certain foreign jurisdictions
that were levied on a deemed profits (i.e., percentage of revenue) basis, net operating losses
in certain foreign jurisdictions where we did not record a tax benefit, and permanent book to
tax differences.11.
    
    Financing Arrangements On June 30, 2006, we entered into the Third Amended and Restated
Credit Agreement (the Credit Agreement). As compared to the credit facility which it
replaced, the Credit Agreement increased our overall borrowing capacity, reduced the interest
rate premiums (spreads) to be paid on our borrowings, reduced fee rates for letters of
credit, increased the number of subsidiaries allowed to borrow under the facility, extended
the term of the facility, and reduced the scope of certain covenants applicable under the
agreement. The Credit Agreement, which is a $130 million revolving credit facility with
optional provisions for expansion to $150 million, replaces the previous $85 million credit
facility that would have matured in March 2008. The Credit Agreement matures on June 30,
2011. The entire facility is available for the issuance of letters of credit and direct cash
advances. The Credit Agreement permits borrowings based on a floating spread over prime rate
or London Interbank Offered Rate (LIBOR). The spreads can range from 0% to 1.75% and 0.75%
to 2.75% for prime rate and LIBOR-based borrowings, respectively, based upon certain of our
financial ratios. Common stock of our subsidiaries, certain real estate, and the majority of
our vessels collateralize the loans under the Credit Agreement. The Credit Agreement is
subject to certain covenants including a requirement to maintain a minimum level of net worth
and compliance with minimum fixed charge coverage and maximum leverage ratios. In
consideration for the Credit Agreement, we paid a $406,000 fee. At September 30, 2006, we
were in compliance with all of the covenants associated with our credit facility and had no
borrowings, $59.7 million of letters of credit outstanding, and $70.3 million of credit
availability under the Credit Agreement.Our Title XI bonds mature in 2025. The bonds carry an interest rate of 7.71% per annum and
require semi-annual principal payments of $2.0 million, plus interest. The agreement
pursuant to which the Title XI bonds were issued contains certain covenants, including the
maintenance of minimum working capital and net worth requirements. If not met, additional
covenants become applicable that would restrict our operations and our ability to pay cash
dividends. At September 30, 2006, we were in compliance with these covenants.
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We also have a $16.0 million short-term credit facility at one of our foreign locations that
is secured by a letter of credit issued under our primary credit facility.12.
    
    Commitments and Contingencies In November 1999, we notified Groupe GTM (now Vinci), that as
a result of material adverse changes and other breaches by Vinci, we were no longer bound by
and were terminating the Share Purchase Agreement to purchase the shares of ETPM S.A. The
Share Purchase Agreement provided for liquidated damages of $25.0 million to be paid by a
party that failed to consummate the transaction under certain circumstances. On December 23,
1999, we filed suit against Vinci in the Tribunal de Commerce de Paris to recover damages. On
June 21, 2000, Vinci filed an answer and counterclaim against us seeking the liquidated
damages of $25.0 million and other damages, costs and expenses of approximately $3.2 million
based on then current exchange rates. In November 2003, the Tribunal de Commerce de Paris
ruled in favor of Vinci in the matter and awarded Vinci $25.0 million plus approximately $8.5
million in interest, exchange rate differential, and legal fees. As a result, although we had
not yet paid the judgment, we recorded a $33.5 million (pre-tax) provision in the fourth
quarter of 2003. A decision was rendered in May 2005 by the Cour dappel de Paris upholding
the lower court decision. Vinci filed an enforcement action in the United States District
Court for the Eastern District of Louisiana (civil action number 05-3251). The Company filed
an appeal in the French Supreme Court on the additional costs associated with the exchange
rate differential. On June 30, 2006, we entered into a Settlement Agreement (the Settlement
Agreement) with Vinci to settle all claims associated with this litigation. Under the terms
of the Settlement Agreement, on July 3, 2006, we paid Vinci 17.5 million (for which we
paid approximately $22.0 million) in full and final settlement of its claims against us. Our
operating income for the nine months ended September 30, 2006 includes the benefit of a $13.7
million reduction in the loss provision related to this litigation.On June 30, 2005, we were notified by the Mexican appeals court of an unfavorable decision
in litigation related to an audit assessment of 1999 corporate income and value added taxes
totaling $15.4 million. The assessment was related to the timing of contract revenue
recognition for Mexican tax purposes. The assessed amount included taxes adjusted for
inflationary costs of approximately $5.4 million and penalties and interest of approximately
$10.0 million. A reserve of $2.5 million dollars for interest, penalties, and inflationary
charges related to this assessment was established and recorded in our Latin America segment
during the second quarter of 2005. A provision for income and value added taxes was not
necessary because the assessment was related to the timing of revenue recognition rather
than the overall amount of revenue to be recognized for tax purposes. During the second
quarter of 2006, we settled this matter with the Mexican tax authorities for the following
amounts.
 Type of Tax
    
    Amount(In millions)Income taxes
    
    $
    3.1Value added taxes
    
    
    0.8Penalties, interest, and inflationary charges
    
    
    1.7Total
    
    $
    5.6
 We plan to amend our Mexican tax returns for 2000 and 2001 to adjust them for revenue which
was recognized for tax purposes in 1999 pursuant to the aforementioned settlement and
thereby receive a credit for the income and value added taxes listed in the table above. In
the third quarter of 2006, we recorded a $1.7 million provision for inflationary adjustments
related to these amended returns for 2000 and 2001.
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Pursuant to a tax audit of a Nigerian subsidiary of the Company for the years of 1998
through 2003, tax authorities in Nigeria have issued a payroll tax assessment against the
Company in the amount of $24.4 million. The assessment alleges that certain persons were
working on projects in Nigeria and were subject to payroll taxes which were not paid.
However, due to the specific persons listed in the assessment and the periods of time which
they are alleged to have worked in Nigeria, we believe that this claim is substantially
without merit. We recorded a reserve of $0.1 million for this assessment in the second
quarter of 2006. This reserve reflects managements best estimate for our Nigerian payroll
tax liability associated with this assessment. In October 2006, we received a formal demand
for payment from the Nigerian tax authorities and believe that this matter will ultimately
be resolved by litigation.In addition to the previously mentioned legal matters, we are a party to legal proceedings
and potential claims arising in the ordinary course of business. We do not believe that
these matters arising in the ordinary course of business will have a material impact on our
financial statements in future periods.During the fourth quarter of 2005, we entered into a long-term charter for a newly built
dive support vessel (DSV) which was delivered in June 2006. This charter, which includes a
five-year fixed term and five one-year options, requires monthly payments denominated in
Norwegian kroners at an annual rate of approximately 63.1 million kroners (or $9.7 million
at September 30, 2006). During the first quarter of 2006, we entered into a long-term
charter for another newly built DSV which was delivered in October 2006. This charter,
which includes a three-year fixed term and four one-year options, requires monthly payments
denominated in Norwegian kroners at an annual rate of approximately 78.5 million kroners (or
$12.1 million as of September 30, 2006). As of September 30, 2006, we had entered into
forward exchange agreements which will enable the Company to fulfill its remaining
non-cancellable Norwegian kroner obligations under these charters at an average rate of 6.31
kroners per U.S. dollar.In the normal course of our business, we provide guarantees and performance, bid, and
payment bonds pursuant to agreements to perform construction services, or in connection with
bidding to obtain such agreements. All of these guarantees are secured by parent company
guarantees. The aggregate amount of these guarantees and bonds at September 30, 2006 was
$100.4 million in surety bonds and $59.7 million in bank guarantees/letters of credit. The
surety bonds and bank guarantees/letters of credit were due to expire between October 2006
and April 2008 and between October 2006 and December 2009, respectively.We estimate that the cost to complete capital expenditure projects in progress at September
30, 2006 will be approximately $35.0 million.
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13.
    
    Derivative Financial Instruments Due to the international nature of our business
operations and the variable interest rate provisions of our revolving credit facility, we
are exposed to certain risks associated with changes in foreign currency exchange rates and
interest rates. From time to time, we enter into derivative agreements (hedging
instruments) to hedge our exposure to specific foreign currency or interest rate risks
(hedged items). We do not use derivative financial instruments for trading purposes. As of
September 30, 2006, we had entered into forward exchange contracts to hedge commitments
denominated in Norwegian kroners and euros. The Company accounts for these instruments as
cash flow hedges, as defined by SFAS 133, Accounting for Derivative Instruments and Hedging
Activities. Under SFAS 133, all derivatives which are designated as hedges and meet certain
requirements are granted special hedge accounting treatment. Generally, under this
accounting treatment, all periodic changes in the fair value of the derivative financial
instruments which are designated as hedges and that are considered to be effective, as
defined by SFAS 133, are recorded in accumulated other comprehensive income until the
associated hedged item is settled. The Company is exposed to the risk that, at some future
point in time, its derivative financial instruments which are designated as hedges may no
longer be considered effective as defined by SFAS 133, or may no longer qualify for hedge
accounting treatment for some other reason. In such case, the amount of accumulated other
comprehensive income associated with the disqualified derivative financial instrument as
well as future periodic changes in value will be included in the Companys results of
operations. Ineffectiveness, as defined by SFAS 133, results when the change in the total
fair value of a derivative financial instrument which is designated as a hedging instrument
does not equal the change in fair value of the associated hedged item. All changes in fair
value which are associated with ineffectiveness will be included in the results of
operations of the Company during the period of the change. During the nine months ended
September 30, 2006 and 2005, the Company did not recognize any material gains or losses in
its results of operations due to ineffectiveness of its hedges. As of September 30, 2006,
the Company had $1.3 million in unrealized losses, net of tax, in accumulated other
comprehensive income related to forward exchange hedges. Included in this total is
approximately $0.6 million in net unrealized losses which are expected to be realized in
earnings during the twelve months following September 30, 2006.
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14.
    
    Other Comprehensive Income Comprehensive income includes changes in the fair value of
certain derivative financial instruments which qualify for hedge accounting treatment.
Comprehensive income totaled $60.5 million and $4.8 million for the quarters ended September
30, 2006 and 2005, respectively, and $143.5 million and $24.7 million for the nine months
ended September 30, 2006 and 2005, respectively. The differences between net income and
comprehensive income for each of the comparable periods presented are as follows.
 Quarter Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands)Net Income
    
    $
    63,669
    
    
    $
    4,833
    
    
    $
    144,816
    
    
    $
    24,682Unrealized net loss on derivatives
    
    
    (4,849
    )
    
    
    
    
    
    
    (1,984
    )
    
    
    Deferred tax benefit
    
    
    1,638
    
    
    
    
    
    
    
    641
    
    
    
    Comprehensive Income
    
    $
    60,458
    
    
    $
    4,833
    
    
    $
    143,473
    
    
    $
    24,682
 A roll-forward of the amounts included in accumulated other comprehensive
income (loss), net of taxes, is shown below.
 AccumulatedAccumulated
    
    
    Foreign
    
    
    OtherTranslation
    
    
    Exchange
    
    
    ComprehensiveAdjustment
    
    
    Agreements
    
    
    Income (Loss)Balance at December 31, 2005
    
    $
    (8,978
    )
    
    $
    
    
    
    $
    (8,978
    )Change in value
    
    
    
    
    
    
    (1,248
    )
    
    
    (1,248
    )Reclassification of gain to earnings
    
    
    
    
    
    
    (95
    )
    
    
    (95
    )Balance at September 30, 2006
    
    $
    (8,978
    )
    
    $
    (1,343
    )
    
    $
    (10,321
    )
 The amount of accumulated translation adjustment included in accumulated other comprehensive
income relates to subsidiaries whose functional currency was not the U.S. dollar in certain
prior years. The amount of loss on forward exchange agreements included in accumulated
other comprehensive income is associated with forward exchange agreements which hedge the
Companys foreign currency commitments under long-term vessel charters and under contracts
for the purchase of equipment. This loss (or potentially a gain) will be reclassified to
results of operations as the associated hedged items are settled and will offset any
variability in foreign exchange rates which occurs subsequent to the initiation of the
hedges.
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15.
    
    Segment Information During the first quarter of 2006, our operations management and
internal financial reporting were reorganized into five business units: Gulf of Mexico, Latin
America, West Africa, Middle East (including India), and Asia Pacific. Each of these business
units includes both offshore construction activities and diving activities for a particular
region of the world. Management has determined that the Gulf of Mexico business unit includes
two reportable segments under SFAS 131, Disclosures About Segments of an Enterprise and
Related Information, and has presented six segments in this note to the financial statements:
Gulf of Mexico Offshore Construction Division (OCD), Gulf of Mexico Diving, Latin America,
West Africa, Middle East, and Asia Pacific. The amounts shown for the comparable period in
2005 have been restated to correspond to the new presentation of segments. The primary effect
of this restated presentation of segments is to combine the previously reported OCD and GDMC
(i.e., diving) segments for each of the following regions: Latin America, West Africa, and
the Middle East. Consequently, total segment revenues for these newly defined segments only
includes revenues earned from third parties or other segments as defined under the new regime
and no longer includes intercompany diving revenues earned within those geographical regions.
Income before taxes for these segments is merely the sum of previously reported OCD and GDMC
segments for the region.
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The following table presents information about the profit or loss of each of the Companys
six reportable segments for the quarters and nine months ended September 30, 2006 and 2005.
The information contains certain allocations of corporate expenses that we deem reasonable
and appropriate for the evaluation of results of operations.
 Quarter Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands)Total segment revenuesGulf of Mexico OCD
    
    $
    61,449
    
    
    $
    45,341
    
    
    $
    173,881
    
    
    $
    91,331Gulf of Mexico Diving
    
    
    40,204
    
    
    
    14,452
    
    
    
    97,339
    
    
    
    38,150Latin America
    
    
    163,009
    
    
    
    69,223
    
    
    
    369,477
    
    
    
    231,684West Africa
    
    
    46,348
    
    
    
    35
    
    
    
    135,717
    
    
    
    9,355Middle East
    
    
    1,635
    
    
    
    3,778
    
    
    
    134,096
    
    
    
    57,546Asia Pacific
    
    
    21,600
    
    
    
    42,320
    
    
    
    71,917
    
    
    
    101,239Subtotal
    
    $
    334,245
    
    
    $
    175,149
    
    
    $
    982,427
    
    
    $
    529,305Intersegment eliminationsGulf of Mexico Diving
    
    $
    (14,149
    )
    
    $
    (7,037
    )
    
    $
    (39,493
    )
    
    $
    (13,937
    )Latin America
    
    
    
    
    
    
    
    
    
    
    (1,218
    )
    
    
    Middle East
    
    
    (3,231
    )
    
    
    
    
    
    
    (7,854
    )
    
    
    (414
    )Asia Pacific
    
    
    
    
    
    
    (69
    )
    
    
    (3,099
    )
    
    
    (296
    )Subtotal
    
    $
    (17,380
    )
    
    $
    (7,106
    )
    
    $
    (51,664
    )
    
    $
    (14,647
    )Consolidated revenues
    
    $
    316,865
    
    
    $
    168,043
    
    
    $
    930,763
    
    
    $
    514,658Income (loss) before taxesGulf of Mexico OCD
    
    $
    18,463
    
    
    $
    10,950
    
    
    $
    44,728
    
    
    $
    27,626Gulf of Mexico Diving
    
    
    23,045
    
    
    
    6,058
    
    
    
    38,574
    
    
    
    14,449Latin America
    
    
    50,094
    
    
    
    3,836
    
    
    
    77,526
    
    
    
    5,486West Africa
    
    
    5,147
    
    
    
    (5,953
    )
    
    
    22,852
    
    
    
    (13,528
    )Middle East
    
    
    (3,475
    )
    
    
    (1,664
    )
    
    
    17,714
    
    
    
    15,990Asia Pacific
    
    
    (5,054
    )
    
    
    588
    
    
    
    (1,897
    )
    
    
    (500
    )Corporate (litigation provision)
    
    
    
    
    
    
    
    
    
    
    13,699
    
    
    
    Over (under) allocated
corporate expenses
    
    
    1,214
    
    
    
    103
    
    
    
    827
    
    
    
    848Consolidated income before taxes
    
    $
    89,434
    
    
    $
    13,918
    
    
    $
    214,023
    
    
    $
    50,371
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16.
    
    Stock-Based Compensation During the nine-month periods ended September 30, 2006 and 2005,
we had three stock-based compensation plans that provide for the granting of restricted
stock, stock options, performance-based shares, performance-based units, or any combination
thereof to directors, officers, and employees.Our 1992 Restricted Stock Plan, which terminated in the second quarter of 2005, provided for
awards of shares of restricted stock to employees approved by a committee of the Board of
Directors. Under the plan, 712,000 shares of common stock had been reserved for issuance.
Forfeiture restrictions on shares granted under the plan lapse 33-1/3% on the third, fourth,
and fifth anniversary date of grant. No awards were made under this plan during either of
the comparable nine-month periods.The 1998 Equity Incentive Plan permits the granting of both stock options and restricted
stock awards to officers and employees approved by a committee of the Board of Directors.
The plan also authorizes the Chief Executive Officer to grant stock options and restricted
stock awards to non-officer employees. The maximum number of shares of common stock that
may be granted as options or restricted stock to any one individual during any calendar year
is 10% of the number of shares authorized under the 1998 Plan, and re-pricing of outstanding
options is prohibited without the approval of our shareholders. As of September 30, 2006,
7,500,000 shares of common stock have been reserved for issuance under the plan of which
1,053,717 were available for grant. Option awards are generally granted with an exercise
price equal to the market price of the Companys stock at the date of grant. Options
granted under the plan in 2005 and 2006 vest over periods ranging from three to five years
and have ten year contractual terms. Forfeiture restrictions on restricted shares granted
under the plan in 2006 and 2005 lapse on the third anniversary date of the grant.
Performance-based restricted stock granted under the plan, whose vesting is contingent upon
meeting various Company-wide performance goals, have forfeiture restrictions which lapse at
the end of a three-year performance period. The performance period for the 2005
performance-based shares awarded under this plan ends on December 31, 2007. No options,
restricted shares, or performance-based restricted stock awards were granted under this plan
in 2006.The 2005 Stock Incentive Plan permits the grants of non-qualified stock options, incentive
stock options, restricted stock, performance awards, phantom shares, stock appreciation
rights, substitute awards, and other stock-based awards (Awards) to the Companys
employees, directors, and consultants and to employees and consultants of its Subsidiaries,
provided that incentive stock options may be granted solely to employees. A maximum of
5,500,000 shares of common stock may be delivered pursuant to Awards under the 2005 Stock
Incentive Plan, provided that no more than 60% of such shares may be delivered in payment of
restricted stock or phantom share awards. As of September 30, 2006, 3,517,049 were
available for grant. Options granted under the plan in 2006 vest 33-1/3% per year for three
years and have a ten year contractual term. Forfeiture restrictions on restricted shares
lapse 100% after three years. Performance-based units that have been granted under the
plan, whose vesting is contingent upon meeting various Company-wide performance goals, have
forfeiture restrictions which vest, if at all, at the end of a three-year performance
period. The performance period for the 2006 performance-based units awarded under this plan
ends on December 31, 2008.Compensation cost that has been charged against income for the Companys stock-based
compensation plans was $9.7 million and $2.8 million for the nine months ended September 30,
2006 and 2005, respectively. Included in stock-based compensation cost for the nine months
ended September 30, 2006 is a charge of $1.7 million related to the acceleration of certain
options, restricted shares, and performance shares/units attributable to the planned
retirement of the Companys founder and Chairman of the Board. No compensation cost was
capitalized as a
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part of inventory or fixed assets. The total income tax benefit recognized in the income
statement for share-based compensation arrangements was $3.1 million and $1.4 million for
the nine months ended September 30, 2006 and 2005, respectively.
 Effective January 1, 2006, we adopted SFAS No. 123 (Revised 2004), Share-Based Payment(SFAS
123R), using the modified prospective transition method. Under this method, we record
compensation expense at fair value for all awards granted after the date of adoption of SFAS
123R. In addition, we record compensation expense at fair value (as previous awards
continue to vest) for the unvested portion of previously granted stock option awards that
were outstanding as of the date of adoption. Prior periods have not been restated.
Compensation for time-based restricted stock and performance-based restricted stock or units
is based upon the grant date fair value of the stock or units awarded. The impact on the
nine month period ended September 30, 2006 of implementing SFAS 123R was $0.02 per share,
net of taxes.Pro forma information for the nine months ended September 30, 2005 is provided to show the
effect of amortizing stock-based compensation to expense on a straight-line basis over the
vesting period. Had compensation costs been determined as prescribed by SFAS 123R, the net
income and earnings per share would have been as follows.
 2005 Pro Forma Information
 Quarter
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2005
    
    
    2005(In thousands except per share amounts)Net income (loss) as reported
    
    $
    4,833
    
    
    $
    24,682Add: Recognized stock compensation expense,
net of taxes
    
    
    752
    
    
    
    1,630Less: SFAS 123R pro forma stock compensation expense
net of taxes
    
    
    (1,412
    )
    
    
    (3,773
    )Pro-forma net income
    
    $
    4,173
    
    
    $
    22,539As reported:Basic
    
    $
    0.04
    
    
    $
    0.22Diluted
    
    
    0.04
    
    
    
    0.21Pro forma:Basic
    
    $
    0.04
    
    
    $
    0.20Diluted
    
    
    0.04
    
    
    
    0.20
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The following tables summarize the methods used to measure compensation cost for the various types
of awards granted under the plans:
 Method Used to Determine Actual and Pro FormaAward Type
    
    2005 Compensation CostStock Options:
    
    Estimated using the Black-Scholes Option Valuation method (Pro forma)Time-based Restricted Stock:
    
    Measured using fair value on the grant date (Actual)Performance Shares:
    
    Initially measured using fair value and expected
achievement levels on the date of grant.
Compensation cost is then periodically adjusted to
reflect changes in market prices and achievement
through the settlement date (Actual)
 In the first nine months of 2005, the fair value of stock options was estimated using the
Black-Scholes option valuation method with the following assumptions:
 2005Expected life in years
    
    6 yearsInterest rate
    
    
    4.54
    %Volatility
    
    
    46.59
    %Forfeiture rate
    
    ActualExpected dividends
    
    
    -0-
 The expected life represents the period of time that options granted are expected to be
outstanding. The risk-free rate is based upon the rate for 10 year U.S. Treasury strips.
Volatility is based upon the historical volatility of the Companys stock over the previous
six-year period.
 Award Type
    
    Method Used to Determine 2006 Compensation CostStock Options:
    
    Estimated using the Black-Scholes Option Valuation method in accordance with SFAS 123RTime-based Restricted Stock:
    
    Measured using fair value on the grant date
Forfeitures assumed to be 12%Performance Shares/Units:
    
    Performance shares/units are segregated
between those shares which are earned based
upon a market condition and those which are
earned based upon other criteria. Performance
shares/units which are dependent upon a market
condition are measured using the fair value at
the date of grant and a 100% expected
achievement level. The fair value of the
market based awards is based upon a Monte
Carlo Simulation. Performance shares/units
which have no market-based earnings criteria
are initially measured using fair value at
date of award and expected achievement levels
on date of grant. Compensation cost is then
periodically adjusted to reflect changes in
expected achievement through the settlement
date.
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For the nine months ended September 30, 2006, the fair value of stock options was estimated using
the Black-Scholes option valuation model with the following assumptions:
 Quarter Ended
    
    Quarter Ended
    
    Quarter EndedSeptember 30,
    
    June 30,
    
    March 312006
    
    2006
    
    2006Expected life in years
    
    6 years
    
    6 years
    
    6 yearsInterest rate
    
    
    4.61
    %
    
    
    5.15
    %
    
    
    4.98
    %Volatility
    
    
    56.75
    %
    
    
    58.70
    %
    
    
    54.82
    %Forfeiture rate
    
    
    25
    %
    
    
    25
    %
    
    
    25
    %Expected dividends
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
 The expected life represents the period of time that options granted are expected to be
outstanding. The risk-free rate is based upon the rate for 10 year U.S. Treasury strips.
Volatility is based upon the historical volatility of the Companys stock over the previous
six-year period. The forfeiture rate is based upon historical forfeitures of options granted.The following tables summarize the activity for the nine months ended September 30, 2006.
 STOCK OPTIONS
 Outstanding OptionsNine Months Ended September 30, 2006Weighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Average
    
    
    IntrinsicExercise
    
    
    Contractual
    
    
    ValueShares
    
    
    Price
    
    
    Life (Years)
    
    
    (In thousands)Outstanding at December 31, 2005
    
    
    4,459,050
    
    
    $
    10.14Granted
    
    
    964,300
    
    
    
    12.84Forfeited or expired
    
    
    (211,990
    )
    
    
    11.84Exercised
    
    
    (923,103
    )
    
    
    9.02Outstanding at September 30, 2006
    
    
    4,288,257
    
    
    $
    10.90
    
    
    
    5.1
    
    
    $
    21,330Exercisable at September 30, 2006
    
    
    3,022,637
    
    
    $
    10.85
    
    
    
    3.8
    
    
    $
    15,495
 The weighted average grant date fair value of options granted during the nine months ended
September 30, 2006 and 2005 was $7.38 and $5.48 per share, respectively. The total intrinsic value
(i.e., the fair market value of the underlying stock less exercise price) of options exercised
during the nine months ended September 30, 2006 and 2005 was $6.2 million and $3.4 million,
respectively.
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Cash received for options exercised during the nine months ended September 30, 2006 and 2005 was
$8.3 million and $5.5 million, respectively.
 Non-Vested OptionsSeptember 30, 2006WeightedAverageGrant DateShares
    
    
    Fair ValueOutstanding at December 31, 2005
    
    
    782,990
    
    
    $
    7.88Vested
    
    
    (361,100
    )
    
    
    9.46Forfeited or expired
    
    
    (120,570
    )
    
    
    9.82Granted
    
    
    964,300
    
    
    
    12.84Outstanding at September 30, 2006
    
    
    1,265,620
    
    
    $
    11.02
 As of September 30, 2006, there was $3.4 million of total unrecognized compensation cost related to
non-vested options. That cost is expected to be recognized over a weighted average period of 1.4
years.
 TIME- BASED RESTRICTED STOCK
 Non-Vested Outstanding SharesNine Months Ended September 30, 2006Weighted
    
    
    RemainingAverage
    
    
    Average
    
    
    AggregateGrant Date
    
    
    Contractual
    
    
    ValueShares
    
    
    Fair Value
    
    
    Life (Years)
    
    
    (In thousands)Outstanding at December 31, 2005
    
    
    846,174
    
    
    $
    6.75Granted
    
    
    805,981
    
    
    
    14.90Forfeited or expired
    
    
    (114,486
    )
    
    
    9.51Vested and released to
participants
    
    
    (76,705
    )
    
    
    5.88Outstanding at September 30, 2006
    
    
    1,460,964
    
    
    $
    11.07
    
    
    
    1.79
    
    
    $
    16,177
 The weighted-average grant date fair value of restricted shares granted during the nine months
ended September 30, 2005 was $10.53 per share. The total fair value of awards vesting for the nine
months ended September 30, 2006 and 2005 was $0.5 million and $0.7 million, respectively.
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As of September 30, 2006, there was $10.4 million of total unrecognized compensation cost related
to non-vested time based restricted shares that is expected to be recognized over a
weighted-average period of 2.29 years.
 PERFORMANCE SHARES
 Non-Vested Outstanding SharesNine Months Ended September 30, 2006WeightedAverage
    
    
    AggregateGrant Date
    
    
    ValueShares
    
    
    Fair Value
    
    
    (In thousands)Outstanding at December 31, 2005
    
    
    833,000
    
    
    $
    5.59Granted
    
    
    
    
    
    
    Forfeited or expired
    
    
    (70,000
    )
    
    
    5.64Outstanding at September 30, 2006
    
    
    763,000
    
    
    $
    5.59
    
    
    $
    4,261
 The non-vested and outstanding shares displayed in the above table assumes that shares are issued
at the maximum performance level (100%). Shares which are earned based upon criteria other than a
market condition are assumed issued at 75% of the maximum performance level. The aggregate value
reflects the impacts of current expectations of achievement and stock price.As of September 30, 2006, there was $1.4 million of total unrecognized compensation cost related to
non-vested performance shares that is expected to be recognized over a weighted-average period of
1.25 years.
 PERFORMANCE-BASED UNITS
 Non-Vested Outstanding UnitsNine Months Ended September 30, 2006WeightedAverage
    
    
    AggregateGrant Date
    
    
    ValueUnits
    
    
    Fair Value
    
    
    (In thousands)Outstanding at December 31, 2005
    
    
    
    
    
    $
    Granted
    
    
    197,129
    
    
    
    15.07Forfeited or expired
    
    
    (11,725
    )
    
    
    14.71Outstanding at September 30, 2006
    
    
    185,404
    
    
    $
    15.09
    
    
    $
    2,797
 The aggregate value reflects the value of performance units given current expectations of
performance through the end of the cycle.The non-vested and outstanding units displayed in the above table assumes that units are issued at
the maximum performance level (100%). Units which are earned based upon criteria other than a
market condition are assumed issued at 75% of the maximum performance level. The aggregate value
reflects the impacts of current expectations of achievement and stock price.As of September 30, 2006, there was a total of $1.8 million of compensation cost related to
non-vested performance unit awards that is expected to be recognized over a weighted-average period
of 2.25 years.
 - 22 -




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##### Table of Contents



Non-Employee Director Compensation Plan Pursuant to the Companys Non-Employee Director
Compensation policy, on May 16, 2006, the Compensation Committee of the Board of Directors of
Global Industries, Ltd. approved the grant of 10,000 shares of restricted stock to each of the
non-employee directors. A total of 90,000 restricted shares were awarded to directors in 2006.
The restricted stock awards were granted under the Global Industries, Ltd. 2005 Stock Incentive
Plan. Under the terms of the restricted stock awards, the forfeiture restrictions on the
restricted stock lapse on the earlier of the date of the 2007 annual meeting of shareholders and
June 1, 2007, unless sooner forfeited. In addition, the forfeiture restrictions lapse on all of
the restricted stock under the award immediately as of the date of a change of control (as defined
in the 2005 Stock Incentive Plan) or the non-employee directors death or disability. The excess
tax benefits related to the restricted stock vested during the nine months ended September 30, 2006
was $1.3 million.During the third quarter of 2006, we purchased 25,324 shares of common stock from directors
pursuant to our Non-Employee Director Compensation policy at an aggregate cost of $0.4 million.
These transactions involved shares which were surrendered in exchange for the payment of income
taxes.
 - 23 -




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    fluctuations in the prices or demand for oil and gas;
    
    the level of offshore drilling activity;
    
    operating hazards;
    
    industry conditions;
    
    foreign exchange and currency fluctuations;
    
    changes in laws and regulations;
    
    acquisition or divestitures;
    
    environmental matters; and
    
    the availability of capital resources.
   - 24 -




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##### Table of Contents



Results of Operations
 General
 Disclosures About Segments of an Enterprise and Related Information,
    Offshore Construction
   - 25 -




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##### Table of Contents



Diving
  Overview
  - 26 -




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##### Table of Contents



Quarter Ended September 30, 2006 Compared to Quarter Ended September 30, 2005
 2006
    
    
    2005% of
    
    
    
    
    
    
    % of
    
    
    % ChangeThousands
    
    
    Revenue
    
    
    Thousands
    
    
    Revenue
    
    
    (Unfavorable)Revenues
    
    $
    316,865
    
    
    
    100.0
    %
    
    $
    168,043
    
    
    
    100.0
    %
    
    
    89
    %Cost of operations
    
    
    212,027
    
    
    
    66.9
    
    
    
    142,489
    
    
    
    84.8
    
    
    
    (49
    )Gross profit
    
    
    104,838
    
    
    
    33.1
    
    
    
    25,554
    
    
    
    15.2
    
    
    
    310Net gain on asset disposal
    
    
    (2,618
    )
    
    
    (0.8
    )
    
    
    (2,685
    )
    
    
    (1.6
    )
    
    
    (2
    )Selling, general and administrative expenses
    
    
    17,570
    
    
    
    5.5
    
    
    
    12,237
    
    
    
    7.3
    
    
    
    (44
    )Operating income
    
    
    89,886
    
    
    
    28.4
    
    
    
    16,002
    
    
    
    9.5
    
    
    
    462Other expense:Interest expense
    
    
    3,372
    
    
    
    1.1
    
    
    
    3,278
    
    
    
    2.0
    
    
    
    (3
    )Other (income)
    
    
    (2,920
    )
    
    
    (0.9
    )
    
    
    (1,194
    )
    
    
    (0.8
    )
    
    
    145Income before taxes
    
    
    89,434
    
    
    
    28.2
    
    
    
    13,918
    
    
    
    8.3
    
    
    
    543Income taxes
    
    
    25,765
    
    
    
    8.1
    
    
    
    9,085
    
    
    
    5.4
    
    
    
    (184
    )Net income
    
    $
    63,669
    
    
    
    20.1
    %
    
    $
    4,833
    
    
    
    2.9
    %
    
    
    1217
    %
 Revenues. REM Commander
 Depreciation and Amortization in Cost of Operations. Hercules
 Gross Profit.
 Net Gains on Asset Disposal.
 - 27 -




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##### Table of Contents



Selling, General and Administrative Expenses
 Interest Expense.
 Other Expense/Income.
 Net Income.
 Segment Information
  Gulf of Mexico Offshore Construction Division
  - 28 -




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##### Table of Contents



Gulf of Mexico Diving
 REM Commander REM Commander
 Latin America
  West Africa
  Middle East
  - 29 -




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##### Table of Contents



Asia Pacific
 Hercules
 - 30 -




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##### Table of Contents



Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005
 2006
    
    
    2005% of
    
    
    
    
    
    
    % of
    
    
    % ChangeThousands
    
    
    Revenue
    
    
    Thousands
    
    
    Revenue
    
    
    (Unfavorable)Revenues
    
    $
    930,763
    
    
    
    100.0
    %
    
    $
    514,658
    
    
    
    100.0
    %
    
    
    81
    %Cost of operations
    
    
    676,658
    
    
    
    72.7
    
    
    
    427,273
    
    
    
    83.0
    
    
    
    (58
    )Gross profit
    
    
    254,105
    
    
    
    27.3
    
    
    
    87,385
    
    
    
    17.0
    
    
    
    191Loss on asset impairments
    
    
    4,485
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    Reduction in litigation provision
    
    
    (13,699
    )
    
    
    (1.5
    )
    
    
    
    
    
    
    
    
    
    
    Net gain on asset disposal
    
    
    (3,125
    )
    
    
    (0.3
    )
    
    
    (5,300
    )
    
    
    (1.0
    )
    
    
    (41
    )Selling, general and administrative expenses
    
    
    48,566
    
    
    
    5.2
    
    
    
    36,912
    
    
    
    7.2
    
    
    
    (32
    )Operating income
    
    
    217,878
    
    
    
    23.4
    
    
    
    55,773
    
    
    
    10.8
    
    
    
    291Other expense:Interest expense
    
    
    7,868
    
    
    
    0.8
    
    
    
    8,142
    
    
    
    1.6
    
    
    
    3Other (income)
    
    
    (4,013
    )
    
    
    (0.4
    )
    
    
    (2,740
    )
    
    
    (0.6
    )
    
    
    46Income before taxes
    
    
    214,023
    
    
    
    23.0
    
    
    
    50,371
    
    
    
    9.8
    
    
    
    325Income taxes
    
    
    69,207
    
    
    
    7.4
    
    
    
    25,689
    
    
    
    5.0
    
    
    
    (169
    )Net income
    
    $
    144,816
    
    
    
    15.6
    %
    
    $
    24,682
    
    
    
    4.8
    %
    
    
    487
    %
 Revenues. REM Commander
 Depreciation and Amortization in Cost of Operations.
 Gross Profit.
 Loss on Asset Impairments.
 - 31 -




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##### Table of Contents



Navajo, Pipeliner 5
 Net Gains on Asset Disposal.
 Selling, General and Administrative Expenses.
 Interest Expense.
 Other Expense/Income.
 Net Income.
 Segment Information
  Gulf of Mexico Offshore Construction Division
  - 32 -




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##### Table of Contents



G/P 37 Pipeliner 5
 Gulf of Mexico Diving
 REM Commander
 Latin America
  - 33 -




---



##### Table of Contents



West Africa
  Middle East
 Navajo
 Asia Pacific
  - 34 -




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##### Table of Contents



Liquidity and Capital Resources
 Overview
   Cash Flow
    Long-Term Debt
    - 35 -




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##### Table of Contents



Other Indebtedness and Obligations
  Titan 2 Titan 2
  - 36 -




---



##### Table of Contents



Liquidity Outlook
    - 37 -




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##### Table of Contents



Industry and Business Outlook
    Hercules
 Critical Accounting Policies and Estimates
  - 38 -




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
      Accounting for Derivative Instruments and
Hedging Activities
   - 39 -




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##### Table of Contents



Item 4. Controls and Procedures.
   - 40 -




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  Type of Tax
    
    Amount(In millions)Income taxes
    
    $
    3.1Value added taxes
    
    
    0.8Penalties, interest and inflationary charges
    
    
    1.7Total
    
    $
    5.6
     - 41 -




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##### Table of Contents



Item 1A. Risk Factors.
  Risks Relating To Our Business
 Our business is capital intensive, and our ability to finance our business depends on generating
sufficient cash flow from our operations.
  We may experience difficulties resolving claims and variation orders, which may adversely impact
our cash flows.
  - 42 -




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There might be delays or cancellation of projects included in our backlog.
  We may experience equipment or mechanical failures, which could increase costs, reduce revenues and
result in penalties for failure to meet project completion requirements.
  Our operations could suffer with the loss of one of our senior officers or other key personnel.
  We operate in countries where corrupt behavior exists that could impair our ability to do business
in the future.
  Our revenues are subject to a significant number of tax regimes, and changes in the tax legislation
or the rules implementing tax legislation or the regulator enforcing those rules or legislation in
any one of these countries could negatively and adversely affect our results of operations.
  - 43 -




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Our internal controls may not be sufficient to achieve all stated goals and objectives; existing
deficiencies may not be adequately remediated prior to yearend.
  
 Item 6. Exhibits.
 * 15.1
    
    -
    
    Letter regarding unaudited interim financial information* 31.1
    
    -
    
    Section 302 Certification of CEO, B. K. Chin* 31.2
    
    -
    
    Section 302 Certification of CFO, Peter S. Atkinson* 32.1
    
    -
    
    Section 906 Certification of CEO, B. K. Chin* 32.2
    
    -
    
    Section 906 Certification of CFO, Peter S. Atkinson
 
 *
    
    Included with this filing - 44 -




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##### Table of Contents



Signature
 
 GLOBAL INDUSTRIES, LTD.By:
    /s/ PETER S. ATKINSONPeter S. AtkinsonPresident and Chief Financial Officer
(Principal Financial and Accounting Officer)  - 45 -




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##### Table of Contents



Exhibits.
 * 15.1
    
    -
    
    Letter regarding unaudited interim financial information* 31.1
    
    -
    
    Section 302 Certification of CEO, B. K. Chin* 31.2
    
    -
    
    Section 302 Certification of CFO, Peter S. Atkinson* 32.1
    
    -
    
    Section 906 Certification of CEO, B. K. Chin* 32.2
    
    -
    
    Section 906 Certification of CFO, Peter S. Atkinson
 
 *
    
    Included with this filing - 46 -