| GLOBAL INDUSTRIES LTD ITEM 1A RISK FACTORS An investment in our common stock involves certain risks |
| If any of these risks were to occur, our business, results of operations, cash flows, and financial condition could be materially adversely affected |
| In that case, the trading price of our common stock could decline, and you could lose part or all of your investment |
| Among the key risk factors that may have a direct impact on our business, results of operations, cash flows, and financial condition are the following |
| Our business is substantially dependent on the level of capital expenditures in the oil and gas industry and lower capital expenditures will adversely affect our results of operations |
| The demand for our services depends on the condition of the oil and gas industry and, in particular, on the capital expenditures of companies engaged in the offshore exploration, development, and production of oil and natural gas |
| Capital expenditures by these companies are primarily influenced by three factors: • the oil and gas industryapstas ability to economically justify placing discoveries of oil and gas reserves in production; • the oil and gas industryapstas need to clear all structures from the lease once the oil and gas reserves have been depleted; and • weather events, such as major hurricanes |
| Historically, prices of oil and natural gas and offshore exploration, development and production have fluctuated substantially |
| A sustained period of substantially reduced capital expenditures by oil and gas companies will result in continued decreased demand for our services, low margins, and possibly net losses |
| Our international operations expose us to additional risks inherent in doing business abroad |
| A majority of our revenue is derived from operations outside the United States |
| The scope and extent of our operations outside of the US Gulf of Mexico means we are exposed to the risks inherent in doing business abroad |
| These risks include the following: • currency exchange rate fluctuations, devaluations, and restrictions on currency repatriation; • unfavorable taxes, tax increases, and retroactive tax claims; • the disruption of operations from labor and political disturbances; • insurrection, war, or acts of terrorism that may disrupt or limit markets; • expropriation or seizure of our property; • nullification, modification, or renegotiation of existing contracts; • regional economic downturns; and • import/export quotas and other forms of public and governmental regulation |
| We cannot predict the nature of foreign governmental regulations applicable to our operations that may be enacted in the future |
| In many cases, our direct or indirect customer will be a foreign government, which can increase our exposure to these risks |
| US government-imposed export restrictions or trade sanctions under the Export Administration Act of 2001, the Trading with the Enemy Act of 1917 or similar legislation or regulation also may impede our ability to expand our operations and bid for and accept work in specific countries that we might otherwise have the equipment and technical ability to compete |
| These factors could have a material adverse effect on our financial condition and results of operation |
| We are exposed to the substantial hazards and risks inherent in marine construction and our insurance coverage is limited |
| Our business involves a high degree of operational risks |
| Hazards and risks that are inherent in marine operations include capsizing, grounding, colliding, and sustaining damage from severe weather conditions |
| In addition, our construction work can disrupt existing pipeline, platforms and other offshore structures |
| Any of these incidents could cause damage to or destruction of vessels, property or equipment, personal injury or loss of life, suspension of production operations, or environmental damage |
| The failure of offshore pipelines or structural components during or after our installation could also result in similar injuries or damages |
| Any of these events could result in interruption of our business or significant liability |
| We cannot always obtain insurance for our operating risks, and it is not practical to insure against all risks in all geographic areas |
| Builders risk insurance is becoming increasingly expensive and coverage limits have been decreasing |
| Uninsured liabilities resulting from our operations may adversely affect our business and results of operations |
| We depend on significant customers |
| Some of our segments derive a significant amount of their revenues from a small number of customers |
| For example, sales to PEMEX represented approximately 36prca of our consolidated revenue in 2005 and almost all of our Latin American revenue in 2005 |
| The inability of these segments to continue to perform services for a number of their large existing customers and particularly the inability of our Latin America segment to continue to perform services for PEMEX, if not offset by contracts with new or other existing customers, could have a material adverse effect on our business and operations |
| If we are unable to attract and retain skilled workers our business will be adversely affected |
| Our operations depend substantially upon our ability to retain and attract project managers, project engineers, and skilled construction workers such as divers, welders, pipefitters, and equipment operators |
| Our ability to expand our operations is impacted by our ability to increase our labor force |
| The demand for skilled workers in our industry is currently high, and the supply is limited |
| As a result of the cyclical nature of the oil and gas industry as well as the physically demanding nature of the work, skilled workers may choose to pursue employment in other fields |
| A significant increase in the wages paid or benefits offered by competing employers could result in a reduction in our skilled labor force, increases in our employee costs, or both |
| If either of these events occur, our operations and results could be materially adversely affected |
| During periods of strong demand, we may be unable to obtain critical project materials on a timely basis |
| Our operations depend on our ability to procure on a timely basis certain project materials, such as pipe, to complete projects in an efficient manner |
| Our inability to procure critical materials during times of strong demand could have a material adverse effect on our business and operations |
| We may not complete our fixed-price contracts within our original estimates of costs, which will adversely affect our results |
| Because of the nature of the offshore construction industry, most of our projects are performed on a fixed-price basis |
| The profits we realize on one of our contracts will often vary from the estimated amounts because of changes in offshore job conditions, in labor and equipment productivity, and in third party costs |
| In addition, we sometimes bear the risk of delays caused by bad weather conditions |
| We may continue to suffer lower profits or even losses on some projects because of cost overruns resulting from these or other causes |
| Our industry is highly competitive |
| Offshore construction companies compete intensely for projects |
| Contracts for our services are generally awarded on a competitive bid basis, and price is a primary factor in determining who is awarded the job |
| Customers also consider availability and capability of equipment, reputation, experience, and safety record of the contender in awarding jobs |
| Certain competitors may be willing to accept risks or work for little or no margin on projects to gain experience or market share, to cover fixed costs of their fleets or to avoid the expense of temporarily idling vessels, resulting in reduced prices |
| During industry down cycles in particular, we may have to accept lower rates for our services and vessels or increased contractual liabilities |
| As we have increased our operations in deeper waters and internationally, we have encountered additional competitors, many of whom have greater experience than we do in these markets and greater resources |
| As large international companies relocate vessels to the Gulf of Mexico, levels of competition may increase, and our business could be adversely affected |
| Additionally, our competitiveness in international markets may be adversely affected by regulations requiring, among other things, the awarding of contracts to local contractors, the employment of local citizens and/or the purchase of supplies from local vendors or that favor or require local ownership |
| Our debt instruments contain covenants that limit our operating and financial flexibility |
| Under the terms of our amended loan credit facility, we must maintain minimum levels of net worth and comply with, among other things, a fixed charge coverage ratio and a leverage ratio |
| Our ability to meet the financial ratios and tests under our amended credit facility is affected, in part, by events beyond our control, and we may not be able to satisfy those ratios and tests |
| Prior to amending our credit facility in March 2005, it was necessary for us to seek covenant waivers on several occasions |
| If we fail to comply with these ratios and tests and are unable to obtain a waiver, no further borrowings would be available under the revolving credit facility, and our lenders will be entitled to, among other things, accelerate the debt outstanding under the credit facility so that it is immediately due and payable and ultimately foreclose on our assets that secure the debt |
| Any significant inability to draw on the credit facility or acceleration of the debt outstanding under the credit facility would have a material adverse effect on our financial condition and operations |
| For a more detailed discussion of our credit facility, please read "e Managementapstas Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources "e |
| Our ability to incur debt and issue letters of credit is limited, which could limit the number and size of contracts we can obtain and/or perform |
| Our amended credit facility is currently limited to dlra85dtta0 million |
| At February 28, 2006, dlra12dtta6 million of credit capacity was available under our credit facility |
| Certain contracts require substantial amounts of working capital and/or performance letters of credit |
| Critical accounting policies significantly affect our reported financial results and conditions |
| Although our financial statements are prepared in accordance with US generally accepted accounting principles, their preparation requires us to make estimates and judgments that affect the reported amounts |
| Certain critical accounting policies affect our more significant judgments and estimates, and they are described in "e Managementapstas Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates "e |
| Actual amounts and results may differ materially from our estimates |
| Since our contract revenues are recognized on a percentage-of-completion basis, we periodically review contract revenue and cost estimates as the work progresses |
| Accordingly, adjustments are reflected in income in the period when any revisions are determined |
| To the extent that these adjustments result in a reduction of previously reported profits, we would recognize a charge against current earnings that may be significant depending on the size of the adjustment |
| We have incurred losses in recent years and may incur additional losses in the future which could adversely effect our operations |
| In recent years we have incurred losses from operations |
| Operating losses could have significant adverse effects on our future operations including limiting our ability to adjust to changing market conditions, reducing our ability to withstand competitive pressures and impairing our ability to obtain financing to provide for future working capital needs and capital expenditures |
| Our results of operations may be adversely affected by unforeseen work stoppages or labor problems |
| Some of our employees and the employees of some of our subcontractors are represented by unions |
| None of our employees are covered by a collective bargaining agreement; however, we are aware of recent efforts by union representatives to expand their reach in the offshore construction industry |
| We are not protected against work stoppages or labor problems by our employees or employees of the subcontractors we use |
| For example, in 2003, we experienced reduced productivity on one project due to a work stoppage by some employees of our welding subcontractor |
| Work stoppages or other labor matters could materially adversely affect our operations |
| Our operations could suffer with the loss of one of our senior officers or other key personnel |
| Our success depends heavily on continued services of our senior management and key employees |
| Our officers and key personnel have extensive experience in our industry, so if we were to lose any of our key employees or executive officers, our operations could suffer |
| Compliance with environmental and other governmental regulations could be costly and could negatively impact our operations |
| Our vessels and operations are subject to and affected by various types of governmental regulation including many international, federal, state and local environmental protection laws and regulations |
| These laws and regulations are becoming increasingly complex and stringent, and compliance may become increasingly difficult and expensive |
| We may be subject to significant fines and penalties for non-compliance, and some environmental laws impose joint and several "e strict liability "e for cleaning up spills and releases of oil and hazardous substances, regardless of whether we were negligent or at fault |
| These laws and regulations may expose us to liability for the conduct of our conditions caused by others or for our acts that complied with all applicable laws at the time we performed the acts |
| Adoption of laws or regulations that have the effect of curtailing exploration for and production of oil and natural gas in our areas of operation could adversely affect our operations by reducing demand for our services |
| In addition, new laws or regulations, or changes to existing laws or regulations may increase our costs or otherwise adversely affect our operations |
| Our principal shareholder is able to exercise substantial influence |
| As of March 10, 2006, Mr |
| William J Dore beneficially owns approximately 24prca of our outstanding common stock |
| Dore is able to exercise substantial influence on the outcome of matters requiring a shareholder vote, including the election of directors |
| This influence may have the effect of delaying, deferring, or preventing a change in control of our company |
| We limit foreign ownership of our company, which could reduce the price of our common stock |
| Our articles of incorporation limit the percentage of outstanding common stock and other classes of voting securities that non-United States citizens can own |
| Applying the statutory requirements applicable today, our articles of incorporation provide that no more than 25prca of our outstanding common stock may be owned by non-United States citizens |
| These restrictions may at times preclude United States citizens from transferring their common stock to non-United States citizens |
| These restrictions may also limit the available market for resale of shares of common stock and for the issuance of shares by us and could adversely affect the price of our common stock |
| Provisions in our corporate documents and Louisiana law could delay or prevent a change in control of our company, even if that change would be beneficial to our shareholders |
| The existence of some provisions in our corporate documents could delay or prevent a change in control of our company, even if that change would be beneficial to our shareholders |
| Our articles of incorporation and by-laws contain provisions that may make acquiring control of our company difficult, including provisions relating to the nomination and removal of our directors, provisions regulating the ability of our shareholders to bring matters for action at annual meetings of our shareholders, and the authorization given to our board of directors to issue and set the terms of preferred stock |
| Louisiana law also effectively limits the ability of a potential acquirer to obtain a written consent of our shareholders |
| We may issue preferred stock whose terms could adversely affect the voting power or value of our common stock |
| Our articles of incorporation authorize us to issue, without the approval of our shareholders, one or more classes or series of preferred stock having such preferences, powers and relative, participating, optional and other rights, including preferences over our common stock respecting dividends and distributions, as our board of directors generally may determine |
| The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock |
| For example, we might grant holders of preferred stock the right to elect some number of our directors in all events, or on the happening of specified events, or the right to veto specified transactions |
| Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the common stock |
| We have no plans to pay dividends on our common stock |
| We have no plans to pay dividends in the foreseeable future |
| We intend to invest our future earnings, if any, to fund our growth |
| In addition, our credit facility limits the payment of cash dividends |
| Any payment of future dividends will be at the discretion of our board of directors and will depend upon, among other things, our earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions applying to the payment of dividends, and other considerations that our board of directors deems relevant |
| Our internal controls may not be sufficient to achieve all stated goals and objectives |
| Our internal controls and procedures were developed through a process in which our management applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding the control objectives |
| You should note that the design of any system of internal controls and procedures is based in part upon various assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote |