Revenue Recognition Receivables  Goodwill continually based on a combination of historical information and other information that comes to its attention  that may vary its outlook for the future. Actual results may differ from these estimates under different  assumptions. Management suggests that the company’s Nature of Operations and Summary of Significant Accounting  Policies, as described in Note 1 of Notes to Consolidated Financial Statements included in Item 8 of this  report, be read in conjunction with this Management’s Discussion and Analysis of Financial Condition and  Results of Operations. The company believes the following critical accounting policies affect our more  significant judgments and estimates used in the preparation of the company’s consolidated financial  statements are described below. The company’s primary source of revenue is derived from time charter contracts of its vessels on a rate per  day of service basis; therefore, vessel revenues are recognized on a daily basis throughout the contract  period. These time charter contracts are generally either on a term basis (average three months to two  years) or on a “spot” basis. The base rate of hire for a term contract is generally a fixed rate, provided,  however, that term contracts at times include escalation clauses to recover increases in specific costs. A  spot contract is a short-term agreement to provide offshore marine services to a customer for a specific  short-term job. Spot contract terms generally range from one day to three months. Vessel revenues are  recognized on a daily basis throughout the contract period. There are no material differences in the costs  structure of the company’s contracts based on whether the contracts are spot or term, for the operating  costs are generally the same without regard to the length of a contract.  In the normal course of business, the company extends credit to its customers on a short-term basis. The  company’s principal customers are major oil and natural gas exploration, field development and production  companies. The company routinely reviews and evaluates its accounts receivable balances for collectability.  When the company becomes aware of any uncollectible receivables, provisions for doubtful accounts is  estimated and recorded, which reduces the company’s receivable balance. The company believes its  provisions for doubtful accounts to be adequate. During fiscal 2010, the company recorded a $44.8 million  provision to fully reserve accounts receivable payable by two of the company’s customers located in  Venezuela. Please refer to Note 10 of Notes to Consolidated Financial Statements included in Item 8 of this  report for a detailed discussion regarding the company’s Venezuelan operations.  The company tests goodwill for impairment annually at a reporting unit level, as required, utilizing carrying  amounts as of December 31. The company considers its reporting units to be its International and United  States operations. The estimated fair value of the reporting unit is determined by discounting the projected  future operating cash flows for the remaining average useful life of the assets within the reporting units by  the company’s estimated weighted average cost of capital. Impairment is deemed to exist if the implied fair  value of the reporting unit goodwill is less than the respective book value of the reporting unit goodwill, and  in such case, an impairment loss would be recognized equal to the difference. There are many assumptions  and estimates underlying the determination of the fair value of each reporting unit, such as, future expected  utilization and average day rates for the vessels, vessel additions and attrition, operating expenses and tax  rates. Although the company believes its assumptions and estimates are reasonable, deviations from the  assumptions and estimates could produce a materially different result. The company performed its annual impairment test as of December 31, 2009, and the test determined there  was no goodwill impairment. At March 31, 2010, the company’s goodwill balance represented 10% of total  assets and 13% of stockholders’ equity. Interim testing will be performed if events occur or circumstances  indicate that the carrying amount of goodwill may be impaired. Examples of events or circumstances that  might give rise to interim goodwill impairment testing include prolonged adverse industry or economic  changes; significant business interruption due to political unrest or terrorism; unanticipated competition that  has the potential to dramatically reduce the company’s earning potential; legal issues; or the loss of key  personnel. -57- 