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, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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 No
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, 165,450,617 shares outstanding as of October 31, 1995.
GLOBAL MARINE INC.
TABLE OF CONTENTS TO FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Report of Independent Accountants
Condensed Consolidated Statement of Operations
Three and Nine Months Ended September 30, 1995, and 1994
Condensed Consolidated Balance Sheet
September 30, 1995, and December 31, 1994
Condensed Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1995, and 1994
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
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, 1995, and the
related condensed consolidated statement of operations for the three- and
nine-month periods ended September 30, 1995 and 1994, and the condensed
consolidated statement of cash flows for the nine-month periods ended
September 30, 1995, and 1994. 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, 1994, 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 10, 1995, 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,
1994, 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 9, 1995
<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,
__________________ _________________
1995 1994 1995 1994
____ ____ ____ ____
Revenues:
<S> <C> <C> <C> <C>
Contract drilling $ 61.4 $ 56.1 $177.5 $151.5
Drilling management 71.9 33.1 169.1 76.7
Oil and gas 2.5 2.2 7.7 7.5
______ ______ ______ ______
Total revenues 135.8 91.4 354.3 235.7
______ ______ ______ ______
Expenses:
Contract drilling 39.9 40.1 123.4 109.3
Drilling management 68.4 30.9 155.5 70.2
Oil and gas .7 1.1 2.7 2.8
Depreciation, depletion and amortization (Note 3) 7.9 9.3 22.4 27.9
General and administrative 3.4 3.2 10.4 10.0
______ ______ ______ ______
Total operating expenses 120.3 84.6 314.4 220.2
______ ______ ______ ______
Operating income 15.5 6.8 39.9 15.5
______ ______ ______ ______
Other income (expense):
Interest expense (7.6) (7.6) (22.7) (22.7)
Interest capitalized 1.7 1.1 5.1 2.4
Interest income 1.1 .9 3.4 2.2
Gain on sale of offshore drilling rig (Note 5) - - 14.7 -
Other .1 .3 .1 1.7
______ ______ ______ ______
Total other income (expense) (4.7) (5.3) .6 (16.4)
______ ______ ______ ______
Income (loss) before income taxes 10.8 1.5 40.5 (.9)
Income tax expense 1.2 .4 2.2 .5
______ ______ ______ ______
Income (loss) before cumulative effect
of change in accounting principle 9.6 1.1 38.3 (1.4)
Cumulative effect of change in accounting
for postemployment benefits - - - (3.5)
______ ______ ______ ______
Net income (loss) $ 9.6 $ 1.1 $ 38.3 $ (4.9)
====== ====== ====== ======
Primary net income (loss) per common share (Note 4):
Before cumulative effect of
change in accounting principle $ 0.06 $ 0.01 $ 0.23 $(0.01)
Cumulative effect of change in accounting for
postemployment benefits - - - (0.02)
______ _______ ______ ______
Primary net income (loss) per common share $ 0.06 $ 0.01 $ 0.23 $(0.03)
====== ======= ====== ======
Fully diluted net income per common
and common equivalent share (Note 4):
Before cumulative effect of change
in accounting principle $ 0.06 $ 0.01 $ 0.22 NA
Cumulative effect of change in accounting
for postemployment benefits - - - NA
______ _______ ______
Fully diluted net income per common
and common equivalent share $ 0.06 $ 0.01 $ 0.22 NA
====== ======= ======
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
<CAPTION>
September 30, December 31,
1995 1994
____________ ____________
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 35.3 $ 33.3
Marketable securities 53.0 24.6
Accounts receivable, net of allowances 75.2 63.1
Costs incurred on turnkey drilling contracts in progress 5.4 18.5
Prepaid expenses 3.8 10.0
Other current assets .8 .3
_______ _______
Total current assets 173.5 149.8
Properties:
Rigs and drilling equipment, less accumulated
depreciation of $181.1 and $168.4 at September 30, 1995
and December 31, 1994, respectively 372.2 346.9
Oil and gas properties, full cost method, less
accumulated depreciation, depletion and amortization
of $29.2 and $26.9 at September 30, 1995 and
December 31, 1994, respectively 8.7 6.5
_______ _______
Net properties 380.9 353.4
Other assets 6.3 9.2
_______ _______
Total assets $ 560.7 $ 512.4
======= =======
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
(in millions)
<CAPTION>
September 30, December 31,
1995 1994
____________ ____________
Current liabilities:
<S> <C> <C>
Accounts payable $ 38.7 $ 39.5
Accrued liabilities:
Compensation and related employee costs 9.4 9.0
Interest 8.4 1.2
Income taxes 2.1 1.9
Claims and allowances 1.9 1.4
Other 3.0 3.4
_______ _______
Total current liabilities 63.5 56.4
Long-term debt 225.0 225.0
Other long-term liabilities 19.0 18.7
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, 165,429,117 shares and 164,408,185
shares issued and outstanding at September 30, 1995
and December 31, 1994, respectively 16.5 16.4
Additional paid-in capital 262.7 260.2
Accumulated deficit (26.0) (64.3)
_______ _______
Total shareholders' equity 253.2 212.3
_______ _______
Total liabilities and shareholders' equity $ 560.7 $ 512.4
======= =======
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
<CAPTION>
Nine Months Ended
September 30,
__________________
1995 1994
______ ______
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 38.3 $ (4.9)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation, depletion and amortization 22.4 27.9
Gain on sale of offshore drilling rig (14.7) -
Cumulative effect of change in
accounting principle - 3.5
(Increase) decrease in accounts receivable (12.1) .2
Decrease in note receivable - 17.9
(Increase) decrease in costs incurred on
turnkey drilling contracts in progress 13.1 (18.3)
Decrease in other current assets 5.7 4.6
Increase (decrease) in accounts payable (.8) 13.4
Increase in accrued interest 7.2 7.2
Increase in other accrued liabilities 2.4 -
Other, net 3.1 1.0
______ _____
Net cash flow provided by
operating activities 64.6 52.5
______ _____
Cash flows from investing activities:
Capital expenditures (58.9) (49.0)
Purchases of held-to-maturity securities (88.4) (54.7)
Proceeds from maturities of held-to-maturity
securities 60.0 36.4
Proceeds from sales of available-for-sale
securities - 12.1
Proceeds from sales of assets 23.6 2.2
Other - .2
______ _____
Net cash flow used in investing activities (63.7) (52.8)
______ _____
Cash flows from financing activities:
Proceeds from exercise of employee stock options 1.1 .7
______ _____
Net cash flow provided by financing activities 1.1 .7
______ _____
Increase in cash and cash equivalents 2.0 .4
Cash and cash equivalents at beginning of period 33.3 31.2
______ ______
Cash and cash equivalents at end of period $ 35.3 $ 31.6
====== ======
See notes to condensed consolidated financial statements.
</TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
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.
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. Certain reclassifications have been made to
the prior-year periods 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
NOTE 2 - CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
requires that certain long-lived assets be reviewed for impairment whenever
events indicate that the carrying amount of an asset may not be recoverable,
and that an impairment loss be recognized under certain circumstances in the
amount by which the carrying value exceeds the fair value of the asset. The
adoption of SFAS No. 121 had no effect on the Company's results of operations
or financial position.
NOTE 3 - CHANGE IN ESTIMATED RIG LIVES
Effective January 1, 1995, the Company increased to 25 years the estimated
useful lives of its jackup drilling rigs and increased to 20 years the
estimated useful lives of its semisubmersible drilling rigs and drillship.
In addition, salvage values were reduced to $500,000 per rig for jackups and
$1,000,000 per rig for both semisubmersibles and the drillship. The effect of
the change in estimated service lives and salvage values was a reduction in
depreciation expense of $3.0 million and $8.3 million for the three and
nine months ended September 30, 1995, respectively.
NOTE 4 - NET INCOME (LOSS) PER SHARE
Primary and fully diluted net income per common share are computed by
dividing net income by the weighted average number of common shares outstanding
and, for those periods in which they have a dilutive effect, shares
contingently issuable primarily due to outstanding employee stock options. The
net loss per common share is computed by dividing the net loss by
the weighted average number of common shares outstanding.
Primary net income or loss per common share was based on 165,209,110 and
164,934,650 shares, respectively, for the three and nine months ended
September 30, 1995 and 164,335,575 and 163,657,722 shares, respectively, for
the comparable periods of 1994. Primary shares excluded contingently issuable
shares because their effect was either not material or antidilutive.
Fully diluted net income per common and common equivalent share was based
on 171,633,818 and 171,363,433 shares, respectively, for the three and nine
months ended September 30, 1995 and 167,249,142 shares for the three months
ended September 30, 1994.
NOTE 5 - SALE OF OFFSHORE DRILLING RIG
On June 2, 1995, the Company completed the sale of one of its offshore drilling
rigs, the GLOMAR MAIN PASS III, to Dual Drilling Company, the customer that
had been bareboat chartering the rig from the Company. The Company received
net proceeds of $22.4 million in cash and recognized a gain of $14.7 million in
the second quarter of 1995.
NOTE 6 - PURCHASE OF GLOMAR BEAUFORT SEA I
On April 28, 1995, the Company completed the purchase of the GLOMAR BEAUFORT
SEA I, which, prior to January 1995, had been chartered by the Company under a
long-term lease. The Company has agreed to pay a purchase price of up to $9.3
million out of the rig's future cash flow or proceeds from the sale of the rig,
if any. The full $9.3 million will be paid only if the Company's share of
future cash flow or rig sale proceeds exceeds $48 million. The Company will
have no obligation to pay any amount if the rig fails to generate any future
cash flow. The GLOMAR BEAUFORT SEA I, which is most suitable for operation in
arctic regions, was last under contract in September 1990.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
SUMMARY
The Company reported operating income of $15.5 million for the
third quarter of 1995 compared to $6.8 million for the prior-year
third quarter. For the nine months ended September 30, 1995, the
Company reported operating income of $39.9 million compared to
$15.5 million for the nine months ended September 30, 1994. The
improvement in operating results is primarily due to generally
higher contract drilling dayrates and utilization, lower
depreciation expense due to a change in estimated rig service
lives and an increase in the number of turnkey wells completed.
Data relating to the Company's operations by business segment
follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
________________________________ _______________________________
Increase Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
______ ______ __________ ______ ______ __________
(in millions)
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Contract drilling $ 66.3 $56.1 $10.2 $184.3 $154.7 $ 29.6
Drilling management 72.7 34.2 38.5 172.2 79.1 93.1
Oil and gas 2.5 2.2 0.3 7.7 7.5 0.2
Less: Intersegment revenues (5.7) (1.1) (4.6) (9.9) (5.6) (4.3)
______ _____ _____ ______ ______ ______
Total revenues $135.8 $91.4 $44.4 $354.3 $235.7 $118.6
====== ===== ===== ====== ====== ======
Operating income:
Contract drilling $ 14.7 $ 7.3 $ 7.4 $ 34.5 $ 16.2 $ 18.3
Drilling management 3.5 2.2 1.3 13.6 6.5 7.1
Oil and gas 0.9 0.6 0.3 2.7 3.2 (0.5)
Corporate expenses (3.6) (3.3) (0.3) (10.9) (10.4) (0.5)
------ ----- ----- ------ ------ ------
Total operating income $ 15.5 $ 6.8 $ 8.7 $ 39.9 $ 15.5 $ 24.4
====== ===== ===== ====== ====== ======
</TABLE>
The Company reported net income of $9.6 million for the quarter
ended September 30, 1995 as compared with net income of $1.1
million for the quarter ended September 30, 1994. For the first
nine months of 1995, the Company reported net income of $38.3
million as compared with a net loss of $4.9 million for the
comparable prior-year period. Net income for the nine months
ended September 30, 1995 included a $14.3 million after-tax gain
on the sale of the offshore drilling rig, GLOMAR MAIN PASS III.
Excluding the gain, net income for the first nine months of 1995
was $24.0 million. The net loss for the nine months ended
September 30, 1994 included a $3.5 million charge for the
cumulative effect of a required change in accounting for
postemployment benefits. Excluding the effect of the accounting
change, the net loss for the first nine months of 1994 was $1.4
million.
In the U.K. sector of the North Sea, increased rig demand and a
decrease in the number of rigs available have resulted in higher
contract drilling dayrates in 1995 as compared with 1994,
particularly for semisubmersible rigs. A current oversupply of
natural gas in the North Sea's U.K. sector, however, has created
recent uncertainty regarding future demand for North Sea jackups.
An oversupply of jackups in the North Sea, which could result
from any reduction in future demand, could put downward pressure
on dayrates and utilization rates for the Company's two jackup
drilling rigs which operate in the U.K. sector of the North Sea.
Offshore West Africa, industry utilization and dayrates have
steadily improved since the end of 1994. In the U.S. Gulf of
Mexico, industry demand began weakening in late December 1994 due
to seasonal factors, but stabilized during the first quarter of
1995. Since March 1995, demand in the U.S. Gulf of Mexico has
increased, and, as of October 25, 1995, 145 Gulf rigs were under
contract, up from a low of 109 earlier in the year. A
substantial strengthening in future demand is not expected to
occur in the Gulf, however, absent an increase in natural gas
prices.
CONTRACT DRILLING OPERATIONS
Data with respect to the Company's contract drilling operations
follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
________________________________ _______________________________
Increase Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
______ ______ __________ ______ ______ __________
Contract drilling revenues by area
(in millions) (1):
<S> <C> <C> <C> <C> <C> <C>
West Africa $15.2 $ 7.6 $ 7.6 $ 37.6 $ 21.5 $16.1
North Sea 15.0 9.6 5.4 36.3 20.7 15.6
Gulf of Mexico 27.9 27.7 0.2 83.8 85.0 (1.2)
Other 8.2 11.2 (3.0) 26.6 27.5 (0.9)
_____ _____ _____ ______ ______ _____
Total $66.3 $56.1 $10.2 $184.3 $154.7 $29.6
===== ===== ===== ====== ====== =====
Average rig utilization 95% 92% 93% 90%
Average dayrate (2) $29,100 $26,800 $28,000 $24,800
<FN>
___________________
(1) Includes revenues earned from affiliates.
(2) Contract drilling revenues less non-rig related revenues
divided by aggregate contract days, adjusted to exclude days
under contract at zero dayrate.
</FN>
</TABLE>
Of the $10.2 million increase in contract drilling revenues for
the three months ended September 30, 1995 compared to the comparable
quarter of 1994, $6.7 million was attributable to increases in
dayrates, $2.3 million was attributable to increases in rig utilization,
and $1.2 million was attributable to an increase in non-dayrate revenue.
Of the $29.6 million increase in contract drilling revenues for the
first nine months of 1995 compared to the first nine months of
1994, $20.2 million was attributable to increases in dayrates,
$7.4 million was attributable to increases in rig utilization,
and $2.0 million was attributable to an increase in non-dayrate
revenue.
Revenues attributable to offshore West Africa increased for the
three and nine months ended September 30, 1995, as compared with
the comparable periods of 1994, primarily due to the 1994
mobilization of two rigs to West Africa (one from Saudi Arabia
and the other from Alaska) and the May 1995 commencement of
operations of the GLOMAR ADRIATIC IX. Revenues from the North
Sea increased over the same periods due to higher utilization and
higher dayrates. Revenues from the Gulf of Mexico decreased in
the nine months ended September 30, 1995, as compared with the
comparable prior-year period due to lower dayrates. Despite
higher utilization and a significantly higher dayrate with
respect to the Company's drillship in Australia, revenues in the
"other" category decreased due to the mobilization of two rigs to
West Africa in 1994 and the sale of the GLOMAR MAIN PASS III in
the second quarter of 1995.
Effective January 1, 1995, the Company increased to 25 years the
estimated useful lives of its jackup drilling rigs and increased
to 20 years the estimated useful lives of its semisubmersible
drilling rigs and drillship. In addition, salvage values were
reduced to $500,000 per rig for jackups and $1,000,000 per
rig for both semisubmersibles and the drillship. The effect of
the change in estimated service lives and salvage values was to
decrease depreciation expense by approximately $3.0 million and
$8.3 million for the three and nine months ended September 30,
1995, respectively.
The Company's operating profit margin for contract drilling
operations for the three and nine months ended September 30,
1995, increased to 22% and 19%, respectively, from 13% and 10%
for the comparable prior-year periods. The increase in operating
profit margin was due to the decrease in depreciation expense
discussed above as well as to higher dayrates earned on the
Company's rigs in 1995. Operating expenses other than
depreciation increased by $4.7 million and $17.7 million for the
three and nine months ended September 30, 1995, respectively,
over the comparable prior-year periods. The increase in
operating expenses was due in part to (i) the September 1994
commencement of a drilling contract in Angola for a rig which, in
the first half of 1994, was leased to an operator in Saudi Arabia
under a bareboat charter agreement, (ii) the March 1995
commencement of a drilling contract in Nigeria for a rig which
was mobilized from Alaska where it had been on standby for a
customer in 1994, (iii) a higher payout under a net
revenue-sharing arrangement with Transocean Drilling A.S. with
respect to two rigs, (iv) higher utilization of the two North Sea
semisubmersible rigs which were idle for a large part of 1994,
(v) the May 1995 commencement of operations of the GLOMAR
ADRIATIC IX, which was acquired in 1994, and (vi) the 1995
operation of the Company's drillship in Australia, which is a
more costly market in which to operate than is Indonesia, where
the rig operated in the first half of 1994.
Three rigs, the GLOMAR ADRIATIC IX, GLOMAR ADRIATIC X, and GLOMAR
ADRIATIC XI, were not in service for part or all of the first
nine months of 1995. The GLOMAR ADRIATIC IX and GLOMAR ADRIATIC
X were purchased by the Company in February 1994 and began
undergoing refurbishment at that time. Refurbishment of the
GLOMAR ADRIATIC IX was completed in March 1995, and the rig was
mobilized to Nigeria where it began drilling in May.
Refurbishment of the GLOMAR ADRIATIC X was completed in October
1995, and the rig was mobilized to Angola where it is scheduled
to begin drilling for a customer in mid-November. The GLOMAR
ADRIATIC XI was purchased by the Company in November 1994 and
began operations for a customer in the North Sea in October 1995
after extensive modifications were completed.
With respect to the market for contract drilling services in
general, demand in the U.S. Gulf of Mexico began weakening in
late December 1994. This seasonal decline was exacerbated by low
natural gas prices, and the number of rigs under contract
industry-wide fell substantially from December 1994 to February
1995. As a result of this weakening in demand, dayrates received
for newly contracted jackups in the Gulf of Mexico trended
downward between November 1994 and March 1995. Despite stagnant
1995 natural gas prices, drilling demand in the Gulf has
increased since March and, as of October 25, 1995, 145 Gulf rigs
were under contract. As demand increased, dayrates for jackups
in the Gulf began recovering. Aside from the seasonal recovery,
the strength in demand in the U.S. Gulf of Mexico beginning in
the second quarter of 1995 can be attributed to, among other
things, improved seismic and drilling technologies which have
lowered the finding costs of oil and gas and lower oil and gas
producers' operating costs, making exploration and production
economical at lower oil and natural gas prices. A substantial
strengthening in future demand in the U.S. Gulf of Mexico is not
expected to occur, however, without an increase in natural gas
prices.
The effect on the Company of the decline in dayrates in the U.S.
Gulf of Mexico was limited. For the three and nine months ended
September 30, 1995, the Company's revenues derived from the Gulf
of Mexico decreased by $0.7 million and $4.0 million,
respectively, from the comparable prior-year periods as a result
of the decline in dayrates. Offsetting such declines were
increases in utilization and non-dayrate revenue in the Gulf,
which increased Gulf revenues by $0.9 million and $2.8 million
for the three and nine months ended September 30, 1995,
respectively, over the comparable prior-year periods. As of
November 9, 1995, all twelve of the Company's rigs in the Gulf of
Mexico were under contract. The Company averaged 100 percent
utilization for its rigs in the Gulf of Mexico in the first nine
months of 1995.
Offshore West Africa, average demand increased to 32 rigs under
contract (84 percent utilization) for the quarter ended September
30, 1995, from 30 rigs (81 percent utilization) for the quarter
ended June 30, 1995, and 24 rigs (75 percent utilization) for the
third quarter of 1994. For the first nine months of
1995, average demand increased to 30 rig under contract (83
percent utilization) from 23 rigs under contract (73 percent
utilization) for the first nine months of 1994. As of November
9, 1995, all seven of the Company's rigs located offshore West
Africa were under contract. The Company's average utilization
rate for its rigs in West Africa in the first nine months of 1995
was 93 percent.
In the U.K. sector of the North Sea, dayrates have increased over
1994 levels, particularly for semi-submersible rigs, due to,
among other factors, (i) promising oil discoveries west of the
Shetland Islands, (ii) operators' increased drilling to fulfill
commitments to drill previously awarded blocks, (iii) fewer
available North Sea rigs, (iv) higher oil prices and (v)
increased levels of operators' cash flow. In the North Sea,
average demand increased to 77 rigs under contract (96 percent
utilization) for the quarter ended September 30, 1995, from 68
rigs (87 percent utilization) for the quarter ended June 30,
1995, and 62 rigs (75 percent utilization) for the third quarter
of 1994. For the first nine months of 1995, average demand
increased to 69 rigs under contract (88 percent utilization) from
64 rigs under contract (75 percent utilization) for the first
nine months of 1994.
A recent oversupply of natural gas in the U.K. sector of the
North Sea has caused some gas drilling programs to be delayed and
has created uncertainty over future demand for North Sea jackups,
which in the U.K. drill predominantly for gas. An oversupply of
jackups in the North Sea, which could result from any reduction
in future demand, could put downward pressure on dayrates and
utilization rates for the Company's GLOMAR LABRADOR I and GLOMAR
ADRIATIC XI jackups. Under the GLOMAR LABRADOR I'S current
contract, which is expected to terminate in April 1996, the
dayrate for the rig is subject to adjustment periodically based
on an index of market dayrates. The GLOMAR ADRIATIC XI is under
contract at a fixed dayrate through approximately September 1996.
The Company's two semisubmersible rigs operating in the North
Sea, the GLOMAR ARCTIC I and GLOMAR ARCTIC III, compete in
markets driven primarily by oil prices and are not expected to be
affected by any weakness caused by low natural gas prices. As of
November 9, 1995, all four of the Company's drilling rigs in the
North Sea were under contract. The Company averaged 100 percent
utilization for its drilling rigs in the North Sea in the first
nine months of 1995.
The Company anticipates that contracts on 8 of the Company's 26
rigs under contract as of November 9, 1995, will expire at
varying times on or prior to December 31, 1995. No assurance can
be made that the Company will obtain drilling contracts for the
rig that is 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 in the normal course of business.
DRILLING MANAGEMENT SERVICES
Drilling management services reported a $38.5 million increase in
revenues, from $34.2 million in the third quarter of 1994 to
$72.7 million in the third quarter of 1995, and a $1.3 million
increase in operating income, from $2.2 million in the third
quarter of 1994 to $3.5 million in the third quarter of 1995.
The $38.5 million increase in revenues consisted of (i) a $27.8
million increase attributable to an increase in the number of
turnkey wells drilled, from 13 in the third quarter of 1994 to 22
in the third quarter of 1995, (ii) an $8.7 million increase
attributable to higher average turnkey revenues per well and
(iii) a $2.0 million increase in other drilling management
revenues. Average turnkey revenues per well were higher because
a higher percentage of the wells drilled in 1995 were directional
and/or deep, high-pressured wells as compared with those
completed in the prior year. Despite the increase in operating
income, such amount expressed as a percentage of revenues
declined slightly to approximately 5 percent for the quarter
ended September 30, 1995, from 6 percent for the comparable
quarter of 1994. In the third quarter of 1995, two wells
incurred losses aggregating $3.2 million as compared to losses
aggregating $1.9 million on two wells in the third quarter of
1994.
For the first nine months of 1995, drilling management services
reported a $93.1 million increase in revenues, from $79.1 million
in the first nine months of 1994 to $172.2 million in the first
nine months of 1995, and a $7.1 million increase in operating
income, from $6.5 million in the first nine months of 1994 to
$13.6 million in the first nine months of 1995. The $93.1
million increase in revenues for the period consisted of (i) a
$60.7 million increase attributable to an increase in the number
of wells drilled, from 30 in the first nine months of 1994 to 50
in the first nine months of 1995, (ii) a $19.2 million increase
attributable to higher average turnkey revenues per well and
(iii) $13.9 million from the completion work on a multi-well
North Sea turnkey project in the second quarter of 1995,
partially offset by a $0.7 million decline in other revenues.
The increase in the number of turnkey wells drilled was
attributable in part to oil and gas operators' increased
acceptance of turnkey drilling as an alternative to dayrate
contract drilling in the U.S. Gulf of Mexico, West Africa and
Europe. Operating income for drilling management services
expressed as a percentage of drilling management revenues
approximated 8 percent for each of the nine-month periods ended
September 30, 1995 and 1994. The Company incurred losses on
three wells aggregating $4.6 million in the first nine months of
1995 and losses on three wells aggregating $2.2 million in the
first nine months of 1994.
OIL AND GAS OPERATIONS
Production volume and price information with respect to the
Company's sales of oil and gas follows:
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
____________________________ ___________________________
Percentage Percentage
1995 1994 Change 1995 1994 Change
____ ____ ______ ____ ____ ______
Gas:
<S> <C> <C> <C> <C> <C> <C>
Production (in millions of cubic feet) 1,182 906 +30% 3,494 2,940 +19%
Average sale price (per thousand
cubic feet) $1.44 $1.74 -17% $1.54 $1.96 -21%
Oil:
Production (in barrels) 45,083 39,316 +15% 133,177 113,344 +17%
Average sale price (per barrel) $16.99 $16.92 - $16.98 $15.54 +9%
</TABLE>
For the third quarter of 1995, oil and gas revenues of $2.5
million and operating income of $0.9 million were higher than the
comparable prior-year period by $0.3 million each. The increase
in revenues was primarily attributable to higher volumes of oil
and gas produced due to production from two new properties,
partially offset by lower gas prices. The increase in operating
income was attributable to the higher revenues and lower overhead
costs, partially offset by higher depletion expense due to an
increase in the depletion rate and to the increase in production
volume.
Despite a $0.2 million increase in oil and gas revenues,
operating income of $2.7 million for the first nine months of
1995 was lower than the comparable prior-year period by $0.5
million. The increase in revenues was primarily attributable to
higher volumes of gas and oil produced due to production from
the two new properties and higher oil prices, partially offset by
lower gas prices. The decrease in operating income was
attributable to higher depletion expense due to an increase in
the depletion rate and to the increase in production volume,
partially offset by higher revenues.
OTHER INCOME AND EXPENSE
In June 1995 the Company completed the sale of its offshore
drilling rig, the Glomar Main Pass III, for $22.4 million in
cash, net of expenses, and recognized a gain of $14.7 million in
the second quarter.
Interest capitalized for the three and nine months ended
September 30, 1995 increased by $0.6 million and $2.7 million,
respectively, as compared with the comparable prior-year periods.
The increase in interest capitalized was primarily due to the
construction work on the GLOMAR ADRIATIC XI, which was acquired
in November 1994, and to higher amounts capitalized with respect
to the GLOMAR ADRIATIC IX and GLOMAR ADRIATIC X as a result of
continuing capital expenditures. The higher interest
capitalization was offset in part by the completion of the
refurbishment of the GLOMAR ADRIATIC IX in March 1995.
Interest income in the three and nine months ended September 30,
1995 increased by $0.2 million and $1.2 million, respectively,
from the comparable prior-year periods due to higher short-term
investment balances and higher interest rates earned thereon.
The Company recognized and received dividend income of $0.1
million and $1.4 million in the three and nine months ended
September 30, 1994, respectively, on its investment in Transco
Energy Company common stock, which the Company sold in 1994.
Despite reporting pretax income for the three and nine months
ended September 30, 1995, the provision for income taxes was not
significant due to the utilization of net operating loss
carryforwards for U.S. federal income tax purposes. Income tax
expense for the three and nine months ended September 30, 1994
primarily consisted of income taxes applicable to foreign
countries in which the Company had no loss carryforwards.
In the first quarter of 1994, the Company adopted Statement of
Financial Accounting Standards 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, 1994.
Capital expenditures for the full year 1995 are anticipated to be
$71 million, including $49 million for the completion of the
refurbishment and mobilization of the GLOMAR ADRIATIC IX and
GLOMAR ADRIATIC X and for the replacement of the drilling package
and other improvements to the GLOMAR ADRIATIC XI, $9 million for
improvements to the remainder of the drilling fleet, $6 million
for interest capitalized, $4 million for exploration costs in
connection with the Company's oil and gas operations, and $3
million for other expenditures.
For the nine months ended September 30, 1995, cash flow provided
by operating activities amounted to $64.6 million. An additional
$23.6 million was provided primarily from the sale of the GLOMAR
MAIN PASS III. From the $88.2 million sum of cash flow from
operations and sales of properties and equipment, $58.9 million
was used for capital expenditures and $28.4 million was used for
purchases of marketable securities (net of maturities). For the
comparable prior-year period, cash flow provided by operating
activities totaled $52.5 million. The prior year period included
$17.9 million in proceeds from the liquidation of the promissory
note received in connection with the 1992 settlement of the
Company's take-or-pay litigation against Transcontinental Gas
Pipe Line Corporation.
As of September 30, 1995, the Company had $88.3 million in cash,
cash equivalents and marketable securities, including $7.9
million which was restricted from use for general corporate
purposes. The restricted amount includes $5.3 million in
proceeds from asset sales and $2.6 million collateralizing
outstanding operating letters of credit. The use of the proceeds
from sales of assets is limited under the terms of the indenture
governing the Senior Secured Notes. As of December 31, 1994, the
Company had $57.9 million in cash and marketable securities,
including restricted amounts of $19.3 million.
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.
On April 13, 1995, the Company filed with the Securities and
Exchange Commission a Registration Statement on Form S-3 for the
proposed offering from time to time of (i) debt securities, which
may be subordinated to other indebtedness of the Company, (ii)
shares of preferred stock, $.01 par value per share, and/or (iii)
shares of common stock, $.10 par value per share, for an
aggregate initial public offering price not to exceed $75
million. Any net proceeds from the sale of offered securities
would be used for general corporate purposes which may include,
but are not limited to, capital expenditures and the financing of
acquisitions. The Registration Statement was declared effective
by the Commission on June 13, 1995. The Company has not yet
offered for sale or sold any securities under the Registration
Statement.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," which sets forth accounting
and disclosure requirements for stock-based compensation arrangements.
The Company will adopt the new accounting standard in the first quarter
of 1996. Adoption of the new standard is not expected to have a material
effect on the Company's reported earnings.
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 1995.
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 9, 1995 /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.)
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 9, 1995, 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, 1995, 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, (iv)
the prospectus constituting part of the Company's Registration
Statement on Form S-8 (Registration No. 33-57691) for the Global
Marine Inc. 1994 Non-Employee Stock Option and Incentive Plan and
(v) the prospectus constituting part of the Company's
Registration Statement on Form S-3 (Registration No. 33-58577)
for the proposed offering of up to $75,000,000 of debt
securities, preferred stock and/or common stock. 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 9, 1995
<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 9-30-95 and the related condensed statement of operations for the nine-month
period ended 9-30-95, 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-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 35,300
<SECURITIES> 53,000
<RECEIVABLES> 77,200
<ALLOWANCES> 2,000
<INVENTORY> 0
<CURRENT-ASSETS> 173,500
<PP&E> 591,200
<DEPRECIATION> 210,300
<TOTAL-ASSETS> 560,700
<CURRENT-LIABILITIES> 63,500
<BONDS> 225,000
<COMMON> 16,500
0
0
<OTHER-SE> 236,700
<TOTAL-LIABILITY-AND-EQUITY> 560,700
<SALES> 7,700
<TOTAL-REVENUES> 354,300
<CGS> 5,000
<TOTAL-COSTS> 304,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,700
<INCOME-PRETAX> 40,500
<INCOME-TAX> 2,200
<INCOME-CONTINUING> 38,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,300
<EPS-PRIMARY> .23
<EPS-DILUTED> .22
</TABLE>
