SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
[ ] 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 1-5471
GLOBAL MARINE INC.
(Exact name of registrant as specified in its charter)
Delaware 95-1849298
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 N. Eldridge Road, Houston, Texas 77079
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 596-5100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X N
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: Common Stock, $.10
par value, 164,300,357 shares outstanding as of October 31, 1994.
<PAGE>
GLOBAL MARINE INC.
TABLE OF CONTENTS TO FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1994
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Report of Independent Accountants 2
Condensed Consolidated Statement of Operations
Three and Nine Months Ended September 30, 1994, and 1993 3
Condensed Consolidated Balance Sheet
September 30, 1994, and December 31, 1993 4
Condensed Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1994, and 1993 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURE 17
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Global Marine Inc.
We have made a review of the condensed consolidated balance sheet
of Global Marine Inc. and subsidiaries as of September 30, 1994,
and the related condensed consolidated statement of operations for
the three- and nine-month periods ended September 30, 1994 and
1993, and the condensed consolidated statement of cash flows for
the nine-month periods ended September 30, 1994, and 1993. These
financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the condensed consolidated financial
statements referred to above for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December
31, 1993, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 11, 1994, we
expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December
31, 1993, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
/s/ Coopers & Lybrand L.L.P.
Houston, Texas
November 1, 1994
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues:
Marine drilling $ 89.2 $ 64.5 $228.2 $173.9
Oil and gas 2.2 2.9 7.5 9.0
Total revenues 91.4 67.4 235.7 182.9
Expenses:
Marine drilling 71.0 53.9 179.5 147.8
Oil and gas 1.1 .3 2.8 2.2
Depreciation, depletion and amortization 9.3 8.8 27.9 26.6
General and administrative 3.2 3.2 10.0 10.2
Total operating expenses 84.6 66.2 220.2 186.8
Operating income (loss) 6.8 1.2 15.5 (3.9)
Other income (expense):
Interest expense (7.6) (8.3) (22.7) (24.5)
Interest capitalized 1.1 - 2.4 -
Interest income .9 .8 2.2 1.9
Dividend income (note 3) .1 - 1.4 -
Gain on sale of marketable securities (note 3) .2 - .3 -
Total other income (expense) (5.3) (7.5) (16.4) (22.6)
Income (loss) before income taxes 1.5 (6.3) (.9) (26.5)
Income tax expense .4 .5 .5 1.5
Income (loss) before cumulative effect
of change in accounting principle 1.1 (6.8) (1.4) (28.0)
Cumulative effect of change in accounting
for postemployment benefits (note 2) - - (3.5) -
Net income (loss) $ 1.1 $ (6.8) $ (4.9) $(28.0)
Net income (loss) per common share (note 4):
Before cumulative effect of
change in accounting principle $ 0.01 $(0.04) $(0.01) $(0.19)
Cumulative effect of change in accounting
for postemployment benefits (note 2) - - (0.02) -
Net income (loss) per share $ 0.01 $(0.04) $(0.03) $(0.19)
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 31.6 $ 31.2
Marketable securities (note 3) 29.1 20.2
Accounts receivable, net of allowances 57.7 57.9
Costs incurred on turnkey drilling contracts in progress 19.8 1.5
Prepaid expenses 3.6 6.5
Investment, at cost - 15.0
Note receivable - 10.2
Other current assets .2 1.9
Total current assets 142.0 144.4
Properties:
Rigs and drilling equipment, less accumulated
depreciation of $159.7 and $134.0 at September 30, 1994
and December 31, 1993, respectively 330.9 311.2
Oil and gas properties, full cost method, less
accumulated depreciation, depletion and amortization
of $29.3 and $29.5 at September 30, 1994 and
December 31, 1993, respectively 5.5 3.4
Net properties 336.4 314.6
Marketable securities (note 5) 12.7 -
Note receivable - 7.5
Other assets 17.5 26.4
Total assets $ 508.6 $ 492.9
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
(in millions)
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
Current liabilities:
Accounts payable $ 33.3 $ 19.9
Accrued liabilities:
Compensation and related employee costs 8.7 9.4
Interest 8.4 1.2
Claims and allowances 2.3 3.0
Income taxes 1.9 2.0
Other 1.5 1.7
Total current liabilities 56.1 37.2
Long-term debt 225.0 225.0
Other long-term liabilities 21.7 25.3
Shareholders' equity:
Preferred stock, $0.01 par value, 10 million
shares authorized, no shares issued or outstanding - -
Common stock, $0.10 par value, 300 million shares
authorized, 164,353,645 shares and 162,832,799
shares issued and outstanding at September 30, 1994
and December 31, 1993, respectively 16.4 16.3
Additional paid-in capital 259.9 254.7
Accumulated deficit (70.5) (65.6)
Total shareholders' equity 205.8 205.4
Total liabilities and shareholders' equity $ 508.6 $ 492.9
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
<CAPTION>
Nine Months Ended
September 30,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4.9) $(28.0)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 27.9 26.6
Cumulative effect of change in accounting principle 3.5 -
(Increase) decrease in accounts receivable .2 (5.6)
Decrease in note receivable 17.9 -
Increase in costs incurred on turnkey
drilling contracts in progress (18.3) (1.7)
Decrease in other current assets 4.6 .7
Increase (decrease) in accounts payable 13.4 (1.2)
Increase in accrued interest 7.2 7.6
Decrease in other accrued liabilities - (1.3)
Other, net 1.0 (.7)
Net cash flow provided by (used in) operating activities 52.5 (3.6)
Cash flows from investing activities:
Capital expenditures (49.0) (35.1)
Purchases of marketable securities (54.7) (18.4)
Proceeds from maturities of held-to-maturity securities 36.4 14.9
Proceeds from sales of available-for-sale securities 12.1 -
Disposals of properties 2.2 9.5
Other .2 .2
Net cash flow used in investing activities (52.8) (28.9)
Cash flows from financing activities:
Common stock offering, net of expenses - 74.2
Payments on long-term debt - (25.4)
Other .7 1.3
Net cash flow provided by financing activities .7 50.1
Increase in cash and cash equivalents .4 17.6
Cash and cash equivalents at beginning of period 31.2 23.3
Cash and cash equivalents at end of period $31.6 $ 40.9
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
GLOBAL MARINE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
NOTE 1 - GENERAL
The financial statements reflect all adjustments which are, in the
opinion of management, necessary for a fair statement of the
results for the interim periods. Such adjustments are considered
to be of a normal recurring nature unless otherwise identified.
Certain reclassifications have been made to the prior-year period
to conform to the current-period presentation. The term "Company"
refers to Global Marine Inc. and, unless the context otherwise
requires, to the Company's consolidated subsidiaries.
The year-end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required
by generally accepted accounting principles.
NOTE 2 - ACCOUNTING CHANGES
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 112, "Employers'
Accounting for Postemployment Benefits." SFAS No. 112 requires the
recognition of expense for postemployment benefits on an accrual
basis, rather than the cash-basis approach used previously.
Postemployment benefits include severance pay, disability-related
benefits and continuation of health care costs during the period
after employment but before retirement. The cumulative impact of
this change as of January 1, 1994 was an increase in the net loss
in the amount of $3.5 million ($0.02 per share) in the first
quarter of 1994. Other than the cumulative effect, the effect of
the accounting change on the net loss was not material. Assuming
the accounting change was applied retroactively to January 1, 1993,
the effect of the change on the net loss and the net loss per share
for the three and nine months ended September 30, 1993, other than
the cumulative effect, would not have been material.
Effective January 1, 1994, the Company also adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
The new standard expands the use of fair value accounting for
certain investments in debt and equity securities but retains the
use of the amortized cost method for investments in debt securities
that the Company has the intent and ability to hold to maturity.
The adoption of the new standard had no effect, as of January 1,
1994, on the accounting for the Company's investments in marketable
securities, which consisted entirely of debt securities as of that
date, because the Company holds such securities to maturity.
<PAGE>
Under SFAS No. 115, investments in debt and equity securities are
classified into three categories: trading securities, available-
for-sale securities, and held-to-maturity securities. Unrealized
holding gains or losses on securities classified as available-for-
sale are excluded from earnings and reported as a net amount in a
separate component of shareholders' equity until realized. As of
September 30, 1994, the status of the Company's investments in debt
and equity securities was as follows:
<TABLE>
Carrying Unrealized
Balance Sheet Classification Fair Value Value Gain
(in millions)
<S> <C> <C> <C>
Available-for-sale:
Marketable securities - current $ 3.3 $ 3.3 $ -
Total available-for-sale 3.3 3.3 -
Held-to-maturity:
Cash equivalents 31.3 31.3 -
Marketable securities - current 25.8 25.8 -
Marketable securities - long-term 12.7 12.7 -
Total held-to-maturity 69.8 69.8 -
Total investments in securities $73.1 $73.1 $ -
</TABLE>
Available-for-sale securities consist entirely of common stock of
Transco (see note 3). All of the Company's held-to-maturity
securities mature within one year of September 30, 1994.
Proceeds from sales of available-for-sale securities for the three
and nine months ended September 30, 1994, totaled $6.1 million and
$12.1 million, respectively, resulting in realized gains of $0.2
million and $0.3 million, respectively. The net unrealized holding
gain on available-for-sale securities that has been included in the
separate component of shareholders' equity decreased by $0.9
million during the three months ended September 30, 1994. The
decrease during the period was primarily due to the sale of 400,000
shares of Transco common stock in September (see note 3).
NOTE 3 - RECEIPT AND SALE OF TRANSCO STOCK
In February 1994, the Company received 1,017,771 previously
escrowed shares of common stock, $0.50 par value per share, of
Transco Energy Company ("Transco"), pursuant to the 1992 settlement
of take-or-pay litigation, plus $1.1 million in previously escrowed
dividends which were declared and paid on the escrowed shares
during the period from June 1992 through February 1994, plus
interest. Upon receipt of the Transco shares, the Company
reclassified the then $15.0 million carrying value of the stock
from a current investment account to marketable securities.
The number of shares of Transco common stock which the Company may
sell during any three-month period is limited by Rule 144 under the
Securities Act of 1933. The number of shares sold under Rule 144
may not exceed the greater of (i) one percent of the outstanding
shares of Transco common stock or (ii) the average weekly trading
volume for the stock during the four weeks preceding the sale. As
a result, the Company is limited to sales of no more than
approximately 400,000 shares of Transco common stock during any
three-month period. In early June, the Company sold 400,000 shares
of Transco common stock for $6.0 million, resulting in a realized
gain of $0.1 million. In September, the Company sold an additional
400,000 shares of Transco common stock for $6.1 million, resulting
in a realized gain of $0.2 million. The Company estimates that it
may sell the remaining 217,771 shares under Rule 144 no sooner than
December 1994. The $12.1 million of proceeds from sales of Transco common
stock is restricted from use by the Company for general corporate purposes
until January 1995. Such proceeds were classified as marketable securities
as of September 30, 1994.
NOTE 4 - NET INCOME (LOSS) PER SHARE
The net income per common share for the three months ended
September 30, 1994 and the net loss per common share for the nine
months then ended, were based on 164,335,575 and 163,657,722
weighted average common shares outstanding, respectively. The net
losses per common share for the three and nine months ended
September 30, 1993, were based on 156,064,215 and 148,351,473
weighted average common shares outstanding, respectively.
NOTE 5 - RIG ACQUISITIONS
In February 1994, the Company purchased two jackup drilling rigs,
the Glomar Adriatic IX and Glomar Adriatic X, for a purchase price
of $26.0 million in cash, $1.0 million in notes payable, and up to
900,000 shares of Global Marine Inc. common stock. The purchase
price, including the number of shares to be issued, was subject to
adjustment based on the results of further inspection of the rigs.
In June 1994, by mutual agreement with the seller, the Company
canceled the aforementioned $1.0 million in notes payable and
issued to the seller's nominee 750,000 shares of Global Marine Inc.
common stock to complete the purchase of the two rigs.
In May 1994, the Company entered into an agreement to purchase a
1983 Marathon LeTourneau 116-C jackup drilling rig, known as the
"Bay Driller," from British Gas for 9,250,000 pounds sterling. The
Company made a ten percent down payment valued at $1.4 million. In
addition, the Company purchased time deposits denominated in British
pounds valued at $12.4 million, equal to the remainder of the purchase
price. Such amount was paid upon delivery of the rig on November
1, 1994. Such time deposits, plus accrued interest totaling $0.3
million, are classified as noncurrent marketable securities on the
condensed consolidated balance sheet as of September 30, 1994.
The Bay Driller is currently outfitted for use as an accommodation
unit. Prior to utilizing the rig for drilling projects, the
Company would need to replace the rig's existing specialized
drilling equipment with standard drilling equipment at a cost
presently estimated to be approximately $10 million.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
SUMMARY
The Company reported operating income of $6.8 million for the
quarter ended September 30, 1994, compared to $1.2 million for the
quarter ended September 30, 1993. For the nine months ended
September 30, 1994, the Company reported operating income of $15.5
million compared to an operating loss of $3.9 million for the nine
months ended September 30, 1993. The improvement in operating
results is due to (i) higher revenues and lower operating expenses
resulting from the mobilization to the U.S. Gulf of Mexico of five
of the Company's rigs from weak overseas markets during the period
from April 1993 to November 1993, (ii) income from three rigs
acquired from Transocean Drilling AS in September 1993, (iii) lower
mobilization expense attributable to moving fewer rigs during 1994,
(iv) increased contract drilling dayrates in the U.S. Gulf of
Mexico for the first nine months of 1994 compared to the first nine
months of 1993, and (v) an increase in the number of turnkey
drilling contracts completed, partially offset by normal declines
in oil and gas production. Data relating to the Company's
operations by business segment follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1994 1993 % Change 1994 1993 % Change
(in millions) (in millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Marine drilling:
Contract drilling $56.1 $52.2 +7% $154.7 $ 144.8 +7%
Turnkey drilling 34.2 12.8 +167% 79.1 30.4 +160%
Intrasegment elimination (1.1) (0.5) (5.6) (1.3)
Total marine drilling 89.2 64.5 +38% 228.2 173.9 +31%
Oil and gas 2.2 2.9 -24% 7.5 9.0 -17%
Total revenues $91.4 $67.4 +36% $235.7 $ 182.9 +29%
Operating income:
Marine drilling:
Contract drilling $ 7.3 $ 0.5 +1,360% $ 16.2 $ (1.7) n/m <F2>
Turnkey drilling 3.7 2.6 +42% 9.5 5.6 +70%
Elimination <F1> (1.5) (0.5) (3.0) (1.2)
Total marine drilling 9.5 2.6 +265% 22.7 2.7 +741%
Oil and gas 0.6 2.0 -70% 3.2 4.0 -20%
Corporate expenses (3.3) (3.4) -3% (10.4) (10.6) -2%
Total operating income (loss) $ 6.8 $ 1.2 +467% $ 15.5 $ (3.9) n/m <F2>
<FN>
<F1> Deferral of turnkey profit on oil and gas wells drilled on properties in
which the Company has an economic interest.
<F2> Not meaningful.
</TABLE>
In the North Sea, volatile oil prices and the reduction in U.K. tax
relief for exploration and appraisal expenditures continue to
depress demand for offshore drilling services, resulting in low
dayrates and utilization. Dayrates and utilization appear to have
stabilized in West Africa despite political unrest and volatile oil
prices. Demand in the U.S. Gulf of Mexico offshore drilling market
continues to be strong, despite weakening natural gas prices.
Despite reporting a net loss of $1.4 million for the first nine
months of 1994 before the cumulative effect of the change in
accounting for postemployment benefits, the Company currently is
forecasting a small profit before the accounting change for the
full year 1994. There can be no assurance, however, that such a
full-year profit will be achieved.
MARINE DRILLING OPERATIONS
Contract drilling. Data with respect to the Company's contract
drilling operations follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1994 1993 % Change 1994 1993 % Change
<S> <C> <C> <C> <C> <C> <C>
Contract drilling revenues
by area (in millions):
Gulf of Mexico $ 27.7 $ 23.7 +17% $ 85.0 $ 49.7 +71%
North Sea 9.6 9.8 -2% 20.7 44.2 -53%
West Africa 7.6 5.5 +38% 21.5 23.3 -8%
Other 11.2 13.2 -15% 27.5 27.6 -
Total $ 56.1 $ 52.2 +7% $ 154.7 $ 144.8 +7%
Average rig utilization 92% 91% 90% 84%
Fleet average dayrate $26,000 $24,600 $24,500 $24,700
</TABLE>
A higher fleet average dayrate and a slightly higher rig
utilization rate for the third quarter of 1994 compared to the
prior-year third quarter resulted in a $3.9 million increase in
contract drilling revenues. Revenues from the Gulf of Mexico
increased by $4.0 million due to the September 1993 deployment of
two of three rigs acquired from Transocean Drilling AS and the
November 1993 mobilization to the Gulf of one rig from the North
Sea, partially offset by lower dayrates for the Company's other
rigs in the Gulf of Mexico. Revenues attributable to offshore
West Africa increased by $2.1 million primarily due to higher
utilization in 1994 and the mobilization of one rig from Saudi
Arabia to offshore West Africa in August 1994. The $2.0 million
decrease in revenues in the "other" category was partially due to
the mobilization of the rig from Saudi Arabia to West Africa.
Revenues in the first nine months of 1994 increased by $9.9 million
over the comparable prior-year period due to higher rig
utilization, offset in part by a slightly lower fleet average
dayrate. Revenues from the Gulf of Mexico increased by $35.3
million due to (i) the 1993 mobilization to the Gulf of two rigs
from West Africa and three rigs from the North Sea, (ii) the
September 1993 deployment of two of three rigs acquired from
Transocean Drilling AS and (iii) higher dayrates for the Company's
other rigs in the Gulf of Mexico. Revenues from the North Sea
decreased by $23.5 million due to (i) the mobilization of the three
rigs from the North Sea to the Gulf of Mexico in 1993, (ii) the
sale of the offshore drilling rig, Glomar Moray Firth, to
Transocean Drilling AS in September 1993 and the termination of a
management contract with respect to that rig in December 1993, and
(iii) lower North Sea dayrates and utilization. Revenues from West
Africa decreased by $1.8 million due to the mobilization of the two
rigs from offshore West Africa to the Gulf of Mexico in the second
quarter of 1993 and the sale of the offshore drilling rig, Glomar
Biscay II, in the first quarter of 1993, partially offset by higher
utilization.
The Company's operating profit margin for contract drilling
operations for the three months ended September 30, 1994, increased
to 13 percent from 1 percent in the comparable prior-year period.
For the nine months ended September 30, 1994, the Company's
operating profit margin for contract drilling increased to 10 percent from a
loss in the comparable prior-year period. For comparison purposes, the
Company's operating profit margins for contract drilling operations
for each of the full years ended December 31, 1993, 1992 and 1991
were 2 percent, 8 percent and 19 percent, respectively. The
percentage for 1993 was relatively low primarily as a result of the
cost of mobilizing a number of rigs from the North Sea and West
Africa to the Gulf of Mexico in 1993. The percentages for 1991
and, to a lesser extent, for 1992 were higher than for 1993 as a
result of a greater number of rigs operating in the North Sea at
dayrates higher than those earned by the Company's other rigs
during 1991 and 1992. Furthermore, operating profit margins are
affected by the level of the Company's rig utilization. When rig
utilization is low, operating profit margins are negatively
affected due to the fact that a significant portion of operating
costs, such as depreciation expense, is fixed. The Company's rig
utilization rate for the first nine months of 1994 and for the full
years 1993, 1992 and 1991 were 90 percent, 87 percent, 78 percent
and 86 percent, respectively.
The Company anticipates that contracts on 13 of the Company's 23
rigs under contract as of October 31, 1994, will expire at varying
times on or prior to December 31, 1994. No assurance can be made
that the Company will obtain drilling contracts for the two rigs
that are presently available or for its other rigs upon the
completion of existing contracts. Short-term contracts have been
typical in the industry for the past decade. The Company considers
its upcoming contract expirations typical of prevailing market
conditions and normal in the Company's course of business.
For the offshore drilling industry as a whole, the number of rigs
under contract in the Gulf of Mexico increased throughout 1993 due
to stronger domestic natural gas prices and a growing number of
drilling prospects developed from enhanced seismic technology. As
demand in the Gulf increased, drilling contractors during 1993 and
1994 relocated a significant number of offshore rigs from weak
overseas markets to the Gulf, resulting in downward pressure on
Gulf dayrates. In recent months, natural gas prices have weakened.
To date, weakening natural gas prices have not appeared to have
reduced drilling demand in the Gulf of Mexico. Unless gas prices
strengthen from current levels, however, drilling demand in the
Gulf is expected to decline. In the U.S. Gulf of Mexico, average industry
demand increased to 135 rigs under contract (76 percent utilization) for
the quarter ended September 30, 1994, from 129 rigs (73 percent
utilization) for the quarter ended June 30, 1994, and 122 rigs (79
percent utilization) for the third quarter of 1993. For the first
nine months of 1994 average demand increased to 129 rigs under
contract (74 percent utilization) from 113 rigs under contract (76
percent utilization) for the first nine months of 1993. As of
October 31, 1994, all twelve of the Company's rigs in the Gulf of
Mexico were under contract. The Company's average utilization rate
for its rigs in the Gulf of Mexico was 99 percent for the nine
months ended September 30, 1994.
In the North Sea, volatile oil prices continue to negatively affect
demand for offshore drilling rigs. U.K. oil prices have trended
downward from approximately $21 per barrel in June of 1992 to a
range of $13 to $19 per barrel since September of 1993. In
addition, the reduction in U.K. tax relief for exploration and
appraisal expenditures has further depressed the North Sea drilling
market. As a result, the outlook for North Sea activity remains
uncertain. In the North Sea, average demand increased to 62 rigs
under contract (75 percent utilization) for the quarter ended
September 30, 1994, from 60 rigs (71 percent utilization) for the
quarter ended June 30, 1994. For the third quarter of 1993, an
average of 82 rigs (82 percent utilization) were under contract in
the North Sea. For the first nine months of 1994 average demand
decreased to 64 rigs under contract (75 percent utilization) from
82 rigs under contract (79 percent utilization) for the first nine
months of 1993. As of October 31, 1994, two of the Company's three
rigs in the North Sea were under contract. The Company's average
utilization rate for its rigs in the North Sea was 73 percent for
the nine months ended September 30, 1994.
During 1993, the civil war in Angola, the reduction of the Nigerian
national oil company's participation in ongoing projects and
volatile oil prices caused a reduction in the demand for drilling
rigs offshore West Africa and, accordingly, a reduction in
dayrates. During 1994, however, supply and demand appear to have
stabilized. As a result, the Company mobilized an offshore
drilling rig, the Glomar High Island IX, from Saudi Arabia to West
Africa in the third quarter of 1994 under a contract expected to
extend through year-end. In West Africa, average offshore drilling
industry demand increased to 24 rigs under contract (75 percent
utilization) for the quarter ended September 30, 1994, from 23 rigs
(72 percent utilization) for the quarter ended June 30, 1994, and
23 rigs (65 percent utilization) for the third quarter of 1993.
For the first nine months of 1994 average demand decreased to 23
rigs under contract (73 percent utilization) from 27 rigs under
contract (72 percent utilization) for the first nine months of
1993. All four of the Company's rigs located offshore West Africa
were employed as of October 31, 1994. The Company's average
utilization rate for its rigs located offshore West Africa was 99
percent for the nine months ended September 30, 1994.
Turnkey Drilling. Turnkey drilling operations completed thirteen
wells during the third quarter of 1994 compared to five wells in
the prior-year third quarter, resulting in a $21.4 million increase
in revenues and a $1.1 million increase in operating income.
During the first nine months of 1994, turnkey drilling operations
completed 30 wells compared to eleven wells in the comparable
prior-year period. Revenues and operating income from turnkey
drilling for the first nine months of 1994 increased by $48.7
million and $3.9 million, respectively, over the first nine months
of 1993 due to the increased number of wells completed. The effect
on operating income of the increased number of wells was partially
offset by a lower average profit margin per completed well in the
three and nine months ended September 30, 1994.
OIL AND GAS OPERATIONS
Data related to the Company's oil and gas sales follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1994 1993 % Change 1994 1993 % Change
<S> <C> <C> <C> <C> <C> <C>
Gas:
Production (in millions
of cubic feet) 906 1,082 -16% 2,940 3,585 -18%
Average sale price (per
thousand cubic feet) $1.74 $2.16 -19% $1.96 $1.93 +2%
Oil:
Production (in barrels) 39,316 37,323 +5% 113,344 119,460 -5%
Average sale price (per barrel) $16.92 $16.16 +5% $15.54 $17.58 -12%
</TABLE>
Revenues from the sale of oil and gas decreased in the third
quarter of 1994 as compared to the third quarter of 1993 due to a
lower average gas price and lower gas production, partially offset
by higher oil production attributable to new properties and a
higher average sale price for oil. Revenues from the sale of oil
and gas decreased in the nine months ended September 30, 1994,
compared to the comparable prior-year period as a result of lower
gas and oil production and a lower average sale price for oil,
partially offset by a slightly higher average sale price for gas.
Oil and gas operating income decreased for the quarter and nine
months ended September 30, 1994, compared to the comparable prior-
year periods due to the lower revenues discussed above and higher
costs associated with the development of new prospects, offset in
part by a lower depletion rate. The lower depletion rate resulted
in part from a property sale in 1993, which reduced the depletable
base.
OTHER INCOME AND EXPENSE
Interest expense for the three and nine months ended September 30,
1994, declined by $0.7 million and $1.8 million, respectively, as
compared with the comparable prior-year periods. The decrease in
interest expense was due to the reduction in long-term debt
resulting from the retirement of the rig mortgage note for the
Glomar Baltic I in August 1993.
During the three and nine months ended September 30, 1994, the
Company capitalized $1.1 million and $2.4 million, respectively, of
interest attributable to the acquisition and refurbishment of two
offshore drilling rigs, the Glomar Adriatic IX and Glomar Adriatic
X, which were acquired in February 1994.
The Company recognized and received dividend income of $0.1 million
and $1.4 million in the three and nine months, respectively, ended
September 30, 1994, on its investment in common stock of Transco.
The $1.1 million in dividends received in the first quarter of 1994
relate to the period from June 1992 through February 1994, when
such dividends were held in escrow. Prior to February 1994, the
exact amount of the dividends to be received by the Company was not
determinable.
During the three and nine months ended September 30, 1994, the
Company realized gains of $0.2 million and $0.3 million,
respectively, on the sale of Transco common stock. (See note 3 of
notes to condensed consolidated financial statements in Part I,
Item 1 of this Quarterly Report on Form 10-Q.)
Income tax expense consists primarily of current foreign income
taxes. The Company's net operating losses provided no current
federal income tax benefit.
In the first quarter of 1994 the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." The adoption
of SFAS No. 112 resulted in a charge to earnings in the amount of
$3.5 million for the cumulative effect of the change.
LIQUIDITY AND CAPITAL RESOURCES
Capitalized words which appear in the following discussion that are
not defined herein are defined in the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.
In February 1994, the Company received 1,017,771 previously
escrowed shares of Transco common stock, pursuant to the 1992
settlement of take-or-pay litigation, plus $1.1 million in
previously escrowed dividends which were declared and paid on the
escrowed shares during the period from June 1992 through February
1994, plus interest. The number of shares of Transco common stock
which the Company may sell during any three-month period is limited
by Rule 144 under the Securities Act of 1933. In June 1994, the
Company sold 400,000 shares of Transco common stock for $6.0
million, resulting in a realized gain of $0.1 million. In
September 1994, the Company sold an additional 400,000 shares of
Transco common stock for $6.1 million, resulting in a realized gain
of $0.2 million. The Company estimates that it may sell the
remaining 217,771 shares no sooner than December 1994. As of
September 30, 1994, the market value of the Transco shares held by
the Company was $3.3 million. (See note 3 of notes to condensed
consolidated financial statements in Part I, Item 1 of this
Quarterly Report on Form 10-Q.)
In March 1994, the Company received $15.2 million in proceeds from
the sale of U.S. government securities which were previously held
in trust in connection with the Transco Note. The proceeds
represented the remaining balance due under the note, which was to
mature quarterly through July 1995.
In February 1994, the Company purchased two jackup drilling rigs,
the Glomar Adriatic IX and Glomar Adriatic X. The Company paid
$26.0 million in cash and, during the second quarter of 1994,
issued to the seller's nominee 750,000 shares of Global Marine Inc.
common stock to complete the purchase. In addition, the Company
anticipates spending approximately $20 million to refurbish and
upgrade the rigs during 1994 and the first half of 1995, including
approximately $6 million spent through September 30, 1994.
In May 1994, the Company signed an agreement to purchase another
offshore drilling unit, a 1983 Marathon LeTourneau 116-C jackup
known as the "Bay Driller," at a price of 9,250,000 pounds sterling, for
delivery in October 1994. The Company made a ten percent down payment
valued at $1.4 million. In addition, the Company purchased time
deposits denominated in British pounds valued at $12.4 million,
equal to the remainder of the purchase price. Such amount was paid
upon delivery of the rig on November 1, 1994. Funds reserved for
the remainder of the purchase price of the Bay Driller, plus
interest earned, are classified as noncurrent marketable securities
on the condensed consolidated balance sheet as of September 30,
1994. The Bay Driller is currently outfitted for use as an
accommodation unit. The Company estimates it would need to spend
approximately $10 million in addition to the purchase price to
outfit the Bay Driller with suitable drilling equipment before it
can be operated as an offshore drilling unit. The Company does not
expect to make such additional expenditures prior to 1995. (See
note 5 of notes to condensed consolidated financial statements in
Part I, Item 1 of this Quarterly Report on Form 10-Q.)
As of September 30, 1994, the Company had $60.7 million in cash and
marketable securities classified as current and $12.7 million
classified as long-term. At that date, $24.7 million of the
current balance (including, among other things, $12.1 million of
proceeds from the sale of Transco common stock, which proceeds
become unrestricted in January 1995) was restricted from use for
general corporate purposes. Of the noncurrent balance, $12.4
million was reserved for the purchase of the Bay Driller. As of
December 31, 1993, the Company had $44.6 million in cash and
marketable securities, net of restricted amounts of $6.8 million.
For the nine months ended September 30, 1994, cash flow provided by
operations increased to $52.5 million from a cash use of $3.6
million in the prior-year comparable period, primarily resulting
from higher revenues, lower contract drilling cash operating
expenses, the liquidation of the Transco Note and a favorable net
working capital change, other than the liquidation of the Transco
Note.
Working capital decreased to $85.9 million at September 30, 1994,
from $107.2 million at December 31, 1993, due to the purchase of
the Glomar Adriatic IX and Glomar Adriatic X offshore drilling
rigs, and the reclassification to long-term of funds reserved to
complete the purchase of the Bay Driller.
Capital expenditures for the remainder of 1994 for the Company's
drilling fleet, other than for the refurbishment of the Glomar
Adriatic IX and Glomar Adriatic X and the purchase of the Bay
Driller, are estimated to be $6 million, principally for capital
additions and improvements to the Company's rigs currently in
service. Capital expenditures for the Company's oil and gas
operations are estimated to be $1 million for the remainder of
1994, principally for exploratory drilling, development drilling of
producing properties, the purchase of equipment used in connection
with producing properties, and workovers and recompletions.
The Company believes that it will be able to meet all of its
current obligations, including capital expenditures and debt
service, from its cash flow from operations and its cash, cash
equivalents and marketable securities. The Company's ability,
however, to pay the principal amount of its Senior Secured Notes
upon maturity in December 1999 would require a substantial
improvement in current industry conditions. The Company estimates
that the average dayrate earned by the Company's contract drilling
fleet would have to increase from $24,500 per rig earned for the
first nine months of 1994 to approximately $29,000 per rig during
the period from October 1, 1994, through the date of maturity of
the Senior Secured Notes in order to cover all cash operating,
capital and financing costs, including principal payments, during
the period up to and including the maturity of the Senior Secured
Notes. This estimate assumes the continuation of rig utilization
and operating expenses at current levels and does not include
sources of liquidity other than cash flow from the Company's
contract drilling fleet.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
15.1 Letter of Independent Accountants regarding Awareness of
Incorporation by Reference.
27.1 Financial Data Schedule. (Exhibit 27.1 is being
submitted as an exhibit only in the electronic format of
this Quarterly Report on Form 10-Q being submitted to the
Securities and Exchange Commission. Exhibit 27.1 shall
not be deemed filed for purposes of Section 11 of the
Securities Act of 1933, Section 18 of the Securities
Exchange Act of 1934 or Section 323 of the Trust
Indenture Act, or otherwise be subject to the liabilities
of such sections, nor shall it be deemed a part of any
registration statement to which it relates.)
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K
during the third quarter of 1994.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
GLOBAL MARINE INC.
(Registrant)
Dated: November 2, 1994 /s/ Thomas R. Johnson
Thomas R. Johnson
Vice President and Corporate Controller
(Duly Authorized Officer and Principal
Accounting Officer of the Registrant)
INDEX TO EXHIBITS
15.1 Letter of Independent Accountants regarding Awareness of
Incorporation by Reference.
27.1 Financial Data Schedule. (Exhibit 27.1 is being submitted
as an exhibit only in the electronic format of this
Quarterly Report on Form 10-Q being submitted to the
Securities and Exchange Commission. Exhibit 27.1 shall
not be deemed filed for purposes of Section 11 of the
Securities Act of 1933, Section 18 of the Securities
Exchange Act of 1934 or Section 323 of the Trust Indenture
Act, or otherwise be subject to the liabilities of such
sections, nor shall it be deemed a part of any registration
statement to which it relates.)
<PAGE>
EXHIBIT 15.1
ACCOUNTANTS' AWARENESS LETTER
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Global Marine Inc.
Registration Statements
We are aware that our report dated November 1, 1994, on our
review of the condensed consolidated interim financial
information of Global Marine Inc. and subsidiaries for the three
and nine months ended September 30, 1994, and included in this
Quarterly Report on Form 10-Q is incorporated by reference in (i)
the prospectus constituting part of the Company's Registration
Statements on Form S-8 (Registration Nos. 33-32088, 33-40961, and
33-63326), respectively, for the Global Marine Inc. 1989 Stock
Option and Incentive Plan, (ii) the prospectus constituting part
of the Company's Registration Statement on Form S-8 (Registration
No. 33-40266) for the Global Marine Savings Incentive Plan, (iii)
the prospectus constituting part of the Company's Registration
Statement on Form S-8 (Registration No. 33-40961) for the Global
Marine Inc. 1990 Non-Employee Director Stock Option Plan, and
(iv) the prospectus constituting part of the Company's
Registration Statement on Form S-3 (Registration No. 33-53691)
pertaining to sales of 750,000 shares of the Company's Common
Stock, $.10 par value per share, by a stockholder. Pursuant to
Rule 436(c) under the Securities Act of 1933, this report should
not be considered a part of any of said registration statements
prepared or certified by us within the meaning of Sections 7 and
11 of that Act.
Houston, Texas /s/ Coopers & Lybrand L.L.P.
November 2, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet of Global Marine Inc. and subsidiaries as
of 9-30-94 and the related condensed consolidated statement of operations for
the nine-month period ended 9-30-94, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 31,600
<SECURITIES> 29,100
<RECEIVABLES> 58,900
<ALLOWANCES> (1,200)
<INVENTORY> 0
<CURRENT-ASSETS> 142,000
<PP&E> 525,400
<DEPRECIATION> 189,000
<TOTAL-ASSETS> 508,600
<CURRENT-LIABILITIES> 56,100
<BONDS> 225,000
<COMMON> 16,400
0
0
<OTHER-SE> 189,400
<TOTAL-LIABILITY-AND-EQUITY> 508,600
<SALES> 7,500
<TOTAL-REVENUES> 235,700
<CGS> 4,300
<TOTAL-COSTS> 210,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,700
<INCOME-PRETAX> (900)
<INCOME-TAX> 500
<INCOME-CONTINUING> (1,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (3,500)
<NET-INCOME> (4,900)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
