SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
1994 FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 (IRS 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $0.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
As of February 28, 1995, the aggregate market value of the
Company's common stock, $0.10 par value, held by non-affiliates was
$678.3 million.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable
date: Common Stock, $0.10 par value, 164,869,034 shares
outstanding as of February 28, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement in connection with the 1995 Annual
Meeting of Stockholders are incorporated into Part III of this
Report.
<PAGE>
TABLE OF CONTENTS TO FORM 10-K
Page
PART I
1. and 2. Business and Properties 3
Contract Drilling 3
Drilling Management Services 8
Oil and Gas Operations 8
Competition and Industry Conditions 10
Operational Risks and Insurance 11
Foreign Operations 12
Governmental Regulations and Environmental Matters 13
Employees 14
Executive Officers of the Registrant 14
3. Legal Proceedings 15
4. Submission of Matters to a Vote of Security Holders 15
PART II
5. Market for Registrant's Common Equity and
Related Stockholder Matters 15
6. Selected Financial Data 16
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
8. Financial Statements and Supplementary Data 26
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 53
PART III
10. Directors and Executive Officers of the Registrant 53
11. Executive Compensation 53
12. Security Ownership of Certain Beneficial Owners and
Management 53
13. Certain Relationships and Related Transactions 53
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 54
SIGNATURES 63
<PAGE>
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
Global Marine Inc., a Delaware corporation incorporated in
1964, is a holding company that engages in various businesses
through its operating subsidiaries. Unless otherwise provided, the
terms "Global Marine" and "Company" refer to Global Marine Inc.
and, unless the context otherwise requires, to the Company's
consolidated subsidiaries.
The Company is a major international offshore drilling
contractor with a modern, diversified fleet of 28 mobile offshore
drilling rigs. In addition, the Company provides offshore drilling
management services on a turnkey basis and participates in oil and
gas exploration, development and production activities. Industry
segment information relative to the Company is set forth in Note 10
of Notes to Consolidated Financial Statements in Item 8 of this
Annual Report on Form 10-K.
CONTRACT DRILLING
Substantially all of the Company's offshore contract drilling
operations are conducted by or through its wholly-owned subsidiary
Global Marine Drilling Company ("GMDC"). GMDC is headquartered in
Houston, Texas, has other principal offices in Lafayette, Louisiana
and Aberdeen, Scotland, and has additional offices in Dubai, United
Arab Emirates; Fremantle, Australia; Jakarta, Indonesia; London,
England; Luanda, Angola; New Orleans, Louisiana; Pointe Noire,
Congo; Port Gentil, Gabon; Port Harcourt, Nigeria, and Port of
Spain, Trinidad.
The Company has a fleet of 28 mobile offshore drilling rigs,
consisting of 24 cantilevered jackup drilling rigs, two
semisubmersible drilling rigs, one self-propelled drillship and one
concrete island drilling system (the "CIDS"). Three of the 24
cantilevered jackup rigs are undergoing refurbishment or reconfiguration and
are not currently in service, but one is expected to be placed in service
during the second quarter of 1995, and two are expected to be
placed in service during the third quarter of 1995. All of the
Company's active drilling rigs were placed in service in 1979 or
later, and, as of February 28, 1995, the average age of the rigs in
the fleet was approximately 12.7 years. Twenty-three of the
Company's rigs are subject to mortgages granted to collateralize
the Company's 12-3/4% Senior Secured Notes due 1999 (the "Senior
Secured Notes").
Since 1989, the Company has undertaken in excess of $90 million
in capital expenditures to maintain and upgrade its fleet,
including approximately $25 million for the purchase and
installation of "top drive" drilling systems on 20 of the Company's
rigs. Top drives are now installed on 22 of the 28 rigs. Top
drive drilling systems permit drilling with extended stands of
drill pipe and enable operators to rotate the drill pipe when
exiting the well bore, thereby increasing both the speed and safety
of drilling operations and reducing the risk of the drill pipe
becoming stuck in the well bore.
The Company's fleet is deployed in the major offshore oil and
gas operating areas worldwide. The principal areas of the
Company's operations currently include the Gulf of Mexico, the
North Sea, and offshore West Africa.
In May 1994, the Company purchased an offshore drilling unit,
a 1983 Marathon LeTourneau 116-C jackup known as the "Bay Driller,"
for $13.8 million in cash. The rig was delivered to the Company in
November 1994, at which time it was renamed the Glomar Adriatic XI.
The rig is currently outfitted for use as an accommodation unit.
The rig is committed to a drilling contract which is expected to
commence in August 1995, prior to which the Company will
reconfigure the rig at a cost of approximately $15 million,
primarily to replace the rig's existing special-purpose drilling
equipment with an enhanced drilling package.
On November 7, 1994, the Company entered into an agreement in
principle, subject to definitive documentation, to purchase the
Glomar Beaufort Sea I, which previously had been operated by the
Company under a long-term lease which expired in December 1994.
The Company has agreed to pay an amount of up to $9.0 million,
payable out of future cash flow or sales proceeds from the rig, if
any. The full $9.0 million would be paid only if the Company's
share of future cash flow or rig sales proceeds exceed $40 million.
The Company would have no obligation to pay any amount if the rig
fails to generate any future cash flows.
As part of upgrading and expanding its rig fleet and other
assets, the Company considers and pursues the acquisition of
suitable additional rigs and other assets on an ongoing basis. If
the Company decides to undertake an acquisition, the issuance of
additional shares of stock or, in certain instances, additional
debt could be required. The Company may also consider the
disposition of rigs and other assets if and when a disposition can
be effected on favorable terms. Disposition proceeds, to the
extent available, could also be used as a source of acquisition
financing.
The following table lists the Company's drilling rigs in
service as of February 28, 1995, indicating the year each rig was
placed in service, as well as its water and drilling depth
capabilities, current location, customer, and estimated contract
expiration date.
<PAGE>
<TABLE>
MARINE DRILLING FLEET
Status as of February 28, 1995
<CAPTION>
YEAR
PLACED WATER DRILLING
IN DEPTH DEPTH CONTRACT
SERVICE CAPABILITY CAPABILITY LOCATION CUSTOMER TERM (1)
RIGS IN SERVICE
CANTILEVERED JACKUP
<S> <C> <C> <C> <C> <C> <C>
Glomar High Island I 1979 250 ft. 20,000 ft. Gulf of Mexico BHP Petroleum expires 4/95
Glomar High Island II 1979 270 ft. 20,000 ft. Gulf of Mexico Unocal expires 3/95
Glomar High Island III 1980 250 ft. 20,000 ft. Gulf of Mexico Enron expires 4/95
Glomar High Island IV 1980 250 ft. 20,000 ft. Gulf of Mexico Unocal expires 4/95
Glomar High Island V 1981 270 ft. 20,000 ft. West Africa Cabinda Gulf Oil Co. expires 8/95
Glomar High Island VII 1982 250 ft. 20,000 ft. West Africa Elf Serepca expires 5/95
Glomar High Island VIII 1982 250 ft. 20,000 ft. Gulf of Mexico Vastar Resources expires 4/95
Glomar High Island IX 1983 250 ft. 20,000 ft. West Africa Cabinda Gulf Oil Co. expires 3/95
Glomar Adriatic I 1981 300 ft. 25,000 ft. West Africa Elf Gabon expires 8/95
Glomar Adriatic II 1981 328 ft. 25,000 ft. Gulf of Mexico Shell expires 5/95
Glomar Adriatic III 1982 300 ft. 25,000 ft. Gulf of Mexico Shell expires 4/95
Glomar Adriatic IV 1983 328 ft. 25,000 ft. Trinidad Enron expires 5/95
Transocean No. 5 1979 300 ft. 20,000 ft. Abu Dhabi Total expires 1/96
Glomar Adriatic VI 1981 328 ft. 20,000 ft. Gulf of Mexico Shell expires 4/95
Glomar Adriatic VII 1983 300 ft. 20,000 ft. Gulf of Mexico Shell expires 3/95
Glomar Adriatic VIII 1983 300 ft. 25,000 ft. West Africa Mobil Nigeria expires 3/96
Glomar Main Pass I 1982 300 ft. 25,000 ft. Gulf of Mexico Pennzoil expires 3/95
Glomar Main Pass III 1982 300 ft. 25,000 ft. India Dual Drilling expires 5/97(2)
Glomar Main Pass IV 1982 300 ft. 25,000 ft. Gulf of Mexico Mobil expires 4/95
Glomar Labrador I 1983 300 ft. 25,000 ft. North Sea Mobil expires 9/95
Glomar Baltic I 1983 375 ft. 25,000 ft. Gulf of Mexico Mobil expires 5/95
SEMISUBMERSIBLE
Glomar Arctic I 1983 1,800 ft. 25,000 ft. North Sea Amerada Hess expires 6/95
Glomar Arctic III 1984 1,800 ft. 25,000 ft. North Sea Conoco expires 8/95
DRILLSHIP
Glomar Robert F. Bauer 1983 2,750 ft. 25,000 ft. Australia WAPET expires 6/95
CONCRETE ISLAND DRILLING SYSTEM
Glomar Beaufort Sea I 1984 55 ft. 25,000 ft. Alaska - available
RIGS UNDERGOING REFURBISHMENT OR RECONFIGURATION
CANTILEVERED JACKUP
Glomar Adriatic IX 1981 300 ft. 20,000 ft. Dubai - -
Glomar Adriatic X 1982 300 ft. 20,000 ft. Dubai - -
Glomar Adriatic XI 1983 (3) (3) North Sea - -
(1) Expiration dates include firm commitments for extensions
of current contracts and for new contracts which have not
yet commenced. Expiration dates relate to both term and
well-to-well contracts and, as to well-to-well contracts,
are estimates only.
(2) Customer may cancel contract upon 60-day prior notice.
(3) The Glomar Adriatic XI is currently outfitted for use only
as an accommodation unit.
</TABLE>
Rig Utilization. The average rig utilization rate for a period
is equal to the ratio of days in the period during which the rigs
were under contract to the total days in the period during which
the rigs were available to work, and excludes the two rigs
undergoing refurbishment as of December 31, 1994. For the year
ended December 31, 1994, the Company's average utilization rate for
its drilling fleet was 90 percent compared to an average
utilization rate of 87 percent in 1993. As of February 28, 1995,
the Company's utilization rate was 96 percent. The Company
anticipates that contracts on 15 of the Company's 24 rigs under
contract as of February 28, 1995, will expire at varying times on
or prior to May 31, 1995. No assurance can be made that the
Company will obtain drilling contracts for the rig that is
currently available, or for its two rigs currently undergoing
refurbishment that are not committed to drilling contracts, or for
its other rigs upon the completion of current contracts. Short-
term contracts have been typical in the industry for the past
decade, and the Company considers its upcoming contract expirations
typical of prevailing market conditions and in the normal course of
business.
As of December 31, 1994, all of the Company's twelve rigs in
the Gulf of Mexico were employed. As of that date, the industry
utilization rate in the Gulf of Mexico was 74 percent compared with
a rate of 78 percent as of December 31, 1993. Revenues from this
market accounted for 53 percent, 38 percent and 7 percent of the
Company's contract drilling revenues in 1994, 1993, and 1992,
respectively.
As of December 31, 1994, three of the Company's four rigs in
the North Sea were employed. As of that date, the industry
utilization rate in the North Sea was 80 percent compared with a
rate of 82 percent as of December 31, 1993. Revenues from this
market accounted for 14 percent, 28 percent and 46 percent of the
Company's contract drilling revenues in 1994, 1993, and 1992,
respectively.
As of December 31, 1994, all five of the Company's rigs
offshore West Africa were employed. As of that date, the industry
utilization rate offshore West Africa was 86 percent compared with
a rate of 75 percent as of December 31, 1993. Revenues from this
market accounted for 15 percent, 16 percent and 23 percent of the
Company's contract drilling revenues in 1994, 1993, and 1992,
respectively.
The following table sets forth the size and average utilization
rate of the Company's fleet.
<TABLE>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Rigs in service at year-end 26 25 25 27 27
Average rig utilization 90% 87% 78% 86% 90%
</TABLE>
The following tables show, for each of the Company's four
principal groups of drilling rigs and each of the major geographic
areas in which the Company operates, the number of contract months
available, the number of contract months under firm commitments and
the percentage of available months committed as of December 31,
1994, determined on the basis of executed contracts as of that
date, excluding customer option periods. The number of rigs in
each category is indicated in parenthesis. The two jackup rigs
undergoing refurbishment as of December 31, 1994 are excluded from
available rig-months. As of December 31, 1994, none of the
Company's rigs were committed beyond 1995.
<PAGE>
<TABLE>
<CAPTION>
1995
Rig Contract Rig Contract Percentage
Months Months Committed/
Available Committed Available
<S> <C> <C> <C>
Jackups (22) 264 63 24%
Semisubmersibles (2) 24 5 21%
Drillships (1) 12 6 50%
CIDS (1) 12 - -
Total 312 74 24%
</TABLE>
<TABLE>
<CAPTION>
1995
Rig Contract Rig Contract Percentage
Months Months Committed/
Available Committed Available
<S> <C> <C> <C>
Gulf of Mexico (12) 144 22 15%
West Africa (5) 60 11 18%
North Sea (4) 48 13 27%
Other (5) 60 28 47%
Total 312 74 24%
</TABLE>
The numbers of rigs in the preceding table reflect their
locations as of December 31, 1994.
As of December 31, 1994, the Company's contract drilling
backlog was approximately $70 million, $60 million of which will be
realized in 1995. The portion of the Company's backlog which will
be realized subsequent to 1995 relates to a customer's rig which
the Company manages under a long-term contract. The contract
drilling backlog at December 31, 1993, was $93 million.
Drilling Contracts and Major Customers. Each of the Company's
drilling rigs is employed under an individual contract which
extends over a period of time covering either a stated term or the
time required to drill a well or number of wells. While the final
contract for employment of a rig is the result of negotiations
between the Company and the customer, most contracts are awarded
based upon competitive bidding. The rates specified in drilling
contracts are generally on a per day basis, payable in U.S.
dollars, and vary depending upon the equipment and services
supplied, the areas involved, the duration of the work, competitive
conditions and other variables. The contracts provide for a basic
dayrate during drilling operations, with lower rates or no payment
for periods of equipment breakdown, adverse weather, or other
conditions which may be beyond the control of the Company. When a
rig mobilizes to or demobilizes from an operating area, a contract
may provide for different dayrates, specified fixed amounts, or for
no payment during the mobilization period. As a result of
competitive conditions within the industry, the Company is, in
certain cases, paying the cost of mobilizing to and/or demobilizing
from an operating area, thus reducing further the Company's
operating margins. A contract may be terminated by the customer if
the rig is destroyed or lost, if drilling operations are suspended
for a specified period of time due to a breakdown of major
equipment or, in some cases, if other events occur that are beyond
the control of either party.
The Company's offshore contract drilling business is subject
to the usual risks associated with having a limited number of
customers for its services. In 1994, no single customer provided
more than 10 percent of consolidated revenues. In 1993, Arco
provided $29.2 million, or 11 percent, of consolidated revenues.
In 1992, Elf Aquitaine provided $37.8 million and Arco provided
$34.0 million, representing 15 percent and 13 percent,
respectively, of consolidated revenues.
DRILLING MANAGEMENT SERVICES
The Company provides drilling management services on a turnkey
basis for oil and gas operators who require drilling expertise.
These services are provided through a wholly-owned subsidiary,
Applied Drilling Technology Inc. ("ADTI"), which operates primarily
in the U.S. Gulf of Mexico, and through Global Marine Integrated
Services - Europe ("GMIS-E"), a division of GMDC, which operates
in areas other than the U.S. Gulf of Mexico. For a guaranteed
price, each will assume responsibility for the design and execution
of specific offshore drilling programs and deliver a logged or
loggable hole to an agreed depth. Compensation is contingent upon
satisfactory completion of the drilling program.
Through December 31, 1994, ADTI had completed 176 turnkey
wells, including 50 in 1994, 18 in 1993, and 10 in 1992. GMIS-E
completed two wells in 1994, its first year of operations.
As of December 31, 1994, the Company's drilling management
backlog was approximately $57 million, all of which will be
realized in 1995. As of December 31, 1993, the drilling management
backlog was approximately $9 million.
The Company, as well as several of its offshore drilling
competitors and other oil service companies, has also started
offering services as a general contractor under arrangements
variously described as "partnering," "full service contracting,"
and "integrated drilling services" arrangements, among others.
When the Company acts as a general contractor, it provides
planning, engineering and management services beyond the scope of
its traditional contract drilling business, and thereby assumes
greater liability. In 1994, GMIS-E began providing such planning,
engineering and management services, as well as turnkey drilling
services, in areas other than the U.S. Gulf of Mexico.
OIL AND GAS OPERATIONS
Oil and gas exploration, development and production activities
are conducted through Challenger Minerals Inc. ("CMI"), which is a
wholly-owned subsidiary of the Company. Such activities primarily
include participation in the development and operation of
properties for oil and gas production. In addition, the Company
incurs through ADTI and other subsidiaries certain limited
exploration and leasehold acquisition costs in connection with its
turnkey drilling operations. Substantially all of the Company's
oil and gas activities are conducted in the United States offshore
Louisiana and Texas in the Gulf of Mexico and onshore in Louisiana,
Oklahoma and Texas.
Sales Prices and Production Costs. The following table
summarizes the Company's sales prices and production costs:
<TABLE>
<CAPTION>
1994 1993 1992
Average sales prices:
<S> <C> <C> <C>
Gas (per MCF) $ 1.86 $ 1.98 $ 1.60
Oil (per barrel) $15.79 $16.89 $19.43
Average production cost:
Oil and Natural Gas (per BTU equivalent MCF of gas) $ .46 $ .37 $ .30
</TABLE>
<PAGE>
Productive Wells. The following table summarizes the Company's
gross and net wells as of December 31, 1994, including those that
are producing and those that are shut-in but capable of producing:
<TABLE>
Gross Wells Net Wells
Oil Gas Oil Gas
Offshore
<S> <C> <C> <C> <C>
Louisiana 12 10 1.61 1.61
Texas - 19 - 3.08
Total offshore 12 29 1.61 4.69
Onshore
Louisiana - 2 - .13
Oklahoma 2 - .14 -
Texas - 1 - .11
Total onshore 2 3 .14 .24
Total 14 32 1.75 4.93
</TABLE>
For purposes of the tables included in this report, a gross
well or a gross acre is a well or acre in which a working interest
is owned by the Company. A net well or net acre is used to show
the cumulative total of the Company's fractional working interests
in one or more wells or acres.
Developed and Undeveloped Acreage. The following table
summarizes the Company's developed and undeveloped acreage as of
December 31, 1994:
<TABLE>
Developed Acreage Undeveloped Acreage
Gross Acres Net Acres Gross Acres Net Acres
Offshore
<S> <C> <C> <C> <C>
Louisiana 25,573 4,985 31,549 12,239
Texas 10,280 2,023 1,280 1,280
Total offshore 35,853 7,008 32,829 13,519
Onshore
Louisiana 845 75 1,191 596
Oklahoma 64 18 - -
Texas 325 74 - -
Total onshore 1,234 167 1,191 596
Total 37,087 7,175 34,020 14,115
</TABLE>
<PAGE>
Drilling Activities. The following table shows the Company's
gross and net exploratory and development wells drilled during the
years indicated:
<TABLE>
1994 1993 1992
Gross Net Gross Net Gross Net
Exploratory
<S> <C> <C> <C> <C> <C> <C>
Gas 4 .68 1 .20 2 .29
Dry 4 .95 4 .88 - -
Development
Gas 2 .34 - - 2 .30
Total
Gas* 6 1.02 1 .20 4 .59
Dry 4 .95 4 .88 - -
Total 10 1.97 5 1.08 4 .59
______________
* Includes wells that are shut-in but capable of producing.
</TABLE>
At December 31, 1994, the Company was participating in the
drilling of two gross wells equal to .45 net wells.
COMPETITION AND INDUSTRY CONDITIONS
The offshore contract drilling industry is a highly competitive
and cyclical business. It is characterized by high capital costs,
long lead times for construction of new rigs and numerous industry
participants, none of which has a significant market share but
several of which have substantially greater financial resources
than the Company. Offshore drilling rigs have few alternative uses
and, because of their nature and the environment in which they
work, have relatively high maintenance costs whether employed or
unemployed. Contracts are awarded on a competitive bid basis and,
while an operator selecting a rig may consider, among other things,
quality of service and equipment, the current oversupply of rigs
has led to a market in which intense price competition is the
primary factor in determining which qualified contractor is awarded
a job. In addition, the Company's offshore drilling business is
subject to the usual risks associated with having a limited number
of customers for its services.
Since 1982, the offshore contract drilling market has been
adversely affected by a supply of offshore rigs that has
significantly exceeded the demand for such equipment as well as by
a reduced level of demand generally for such equipment. The
reduced demand principally has been the result of low oil and gas
prices, reductions in the exploration and development expenditures
of the Company's customers, and prolonged uncertainty and
volatility in oil and gas prices. Worldwide military, political
and economic events, including initiatives by the Organization of
Petroleum Exporting Countries ("OPEC"), are likely to continue to
cause oil and gas price volatility. Factors which influence demand
for the Company's services include the ability of OPEC to set and
maintain production levels and prices, the level of production by
non-OPEC countries, worldwide demand for oil and gas, and contract
and other terms sought by various governments to explore and
develop oil, gas and other hydrocarbons within their offshore
waters. The Company cannot predict the timing or extent of any
improvement in the industry or the future level of demand for the
Company's contract drilling services.
ADTI and GMIS-E compete with other participants in the drilling
management services industry, several of which have substantially
greater resources. In addition, the Company's drilling management
services business is subject to the usual risks associated with
having a limited number of customers for its services.
With respect to the Company's oil and gas operations, CMI
experiences competition from other oil and gas companies in all
phases of its operations. Many competing companies have
substantially greater financial and other resources. The Company's
oil and gas business has been adversely affected by the same oil
and gas market conditions which have affected the Company's
contract drilling operations over the past several years, including
low prices, prolonged uncertainty and price volatility. A
worldwide surplus of oil has affected and continues to affect the
prices received for the Company's oil production.
The Company's oil and gas production operations and economics
are also affected by governmental regulation, the use and
allocation of oil and natural gas, the extent of domestic
production and the level of imports, prices of competitive fuels,
fluctuation in demand in the Company's market areas due to excess
supplies of oil as well as seasonal demand factors, tax and other
laws relating to the petroleum industry and changes in such laws,
and by constantly changing administrative regulations.
OPERATIONAL RISKS AND INSURANCE
The Company's operations are subject to the usual hazards
incident to the drilling of oil and gas wells, such as blowouts,
explosions, oil spills and fires, which can severely damage or
destroy equipment or cause environmental damage. The Company's
activities are also subject to perils peculiar to marine
operations, such as collision, grounding and damage or loss from
severe weather. These hazards can cause personal injury and loss
of life, severe damage to and destruction of property and
equipment, pollution or environmental damage and suspension of
operations.
The Company maintains insurance coverage against certain
general and marine public liability, including liability for
personal injury, in the amount of $200 million, subject to a self-
insured retention of no more than $250,000 per occurrence. In
addition, the Company's rigs (with the exception of the Glomar
Beaufort Sea I) and related equipment are separately insured under
hull and machinery policies against certain marine and other
perils, subject to a self-insured retention generally of no more
than $300,000 per occurrence. The Company's current practice is to
insure each rig for its market value. Although each rig is insured
for more than its carrying value, the Company's insurance may not
cover all costs that would be required to replace each rig. The
Company purchases the majority of the insurance protecting it from
the consequences of these hazards from the marine and energy
insurance market. This market historically is cyclical in nature,
and over the past few years it has experienced a decline in
capacity of available insurance resulting in increased premiums and
reduced coverage for the Company. In particular, as a result of
historical claims involving damage to the "spud cans" (i.e., the
bases of the legs of jackup rigs), insurers have excluded business
interruption coverage with respect to spud can damage incurred
after May 3, 1992. Business interruption coverage applies only to
business interruptions as a result of a loss insured under hull and
machinery policies. The deductible for rig business interruption
claims is 30 days. The Company currently purchases rig business
interruption insurance with respect to all of its operating rigs;
however, the decision to insure a rig against interruption risks is
dependent on a number of factors, including dayrate and utilization
levels, and no assurance can be made that the Company will continue
to insure any or all of its operating rigs against such risks. All
of the Company's rigs which are operated internationally are
presently insured against loss due to war, including terrorism.
The Company is permitted under the terms of the rig mortgages
securing the Senior Secured Notes to change the limits on its
general and marine public liability insurance to $150 million, and
to be subject, with respect to such liability insurance and its
marine hull and machinery insurance, to self-insured retention
amounts of up to $1 million per occurrence. In addition, the
indenture governing the Senior Secured Notes contains certain
restrictions regarding the use of insurance proceeds realized by
the Company due to the loss of any Company-owned rig, other than
the Glomar Baltic I, the Glomar Adriatic IX, the Glomar Adriatic X
and the Glomar Adriatic XI.
While the general and marine public liability policies cover
liability for pollution under most circumstances, they do not cover
liability for bringing a well under control following a blowout.
In the case of turnkey drilling operations, the Company maintains
insurance covering the cost of controlling the well, including any
environmental damage resulting therefrom, the cost of cleanup and
the cost of redrilling ("well control liabilities") in an amount
not less than $20 million per occurrence subject to a self-insured
retention of $200,000 per occurrence.
Under turnkey drilling contracts, the Company generally assumes
the risk of cost of well control, but on occasion the Company
receives indemnification from the customer for such risk in excess
of the $20 million insurance coverage. In many instances,
however, the Company is not indemnified by its customers for well
control liabilities. Furthermore, the Company is not insured
against certain drilling risks that could result in delays or
nonperformance of a turnkey drilling contract.
In connection with the Company's offshore contract drilling
operations, the Company is generally indemnified for any cost of
well control by its customers; however, in any event, the Company
maintains insurance against such liabilities in the amount of $50
million per occurrence subject to a self-insured retention of
$200,000 per occurrence.
The occurrence of a significant event, including pollution or
environmental damage, not fully insured or indemnified against or
the failure of a customer to meet its indemnification obligations,
could materially and adversely affect the Company's operations and
financial condition. Moreover, no assurance can be made that the
Company will be able to maintain adequate insurance in the future
at rates it considers reasonable. See "-- Governmental Regulation
and Environmental Matters."
FOREIGN OPERATIONS
A significant portion of the Company's revenues is attributable
to drilling operations in foreign countries. Such activities
accounted for 29 percent, 44 percent and 71 percent of the
Company's total revenues in 1994, 1993 and 1992, respectively.
Risks associated with the Company's operations in foreign areas
include risks of war and civil disturbances or other risks that may
limit or disrupt markets, expropriation, nationalization,
renegotiation or nullification of existing contracts, foreign
exchange restrictions and currency fluctuations, foreign taxation,
changing political conditions and foreign and domestic monetary
policies. To date, the Company has experienced no material loss as
a result of any of these factors. Additionally, the ability of the
Company to compete in the international drilling market may be
adversely affected by foreign governmental regulations favoring or
requiring the awarding of drilling contracts to local contractors,
or by regulations requiring foreign contractors to employ citizens
of, or purchase supplies from, a particular jurisdiction.
Furthermore, foreign governmental regulations, which may in the
future become applicable to the industry served by the Company,
could reduce demand for the Company's services, or such regulations
could directly affect the Company's ability to compete for
customers.
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS
The Company's business is affected by changes in public policy
and by federal, state, foreign and local laws and regulations
relating to the energy industry. The adoption of laws and
regulations curtailing exploration and development drilling for oil
and gas for economic, environmental and other policy reasons
adversely affects the Company's operations by limiting available
drilling and other opportunities in the energy service industry.
The Company's operations are subject to numerous federal, state
and local laws and regulations controlling the discharge of
materials into the environment or otherwise relating to the
protection of the environment. For example, the Company, as an
operator of mobile offshore drilling units in navigable United
States waters and certain offshore areas, including the Outer
Continental Shelf, is liable for damages and for the cost of
removing oil spills for which it may be held responsible, subject
to certain limitations. The Company's operations may involve the
use or handling of materials that may be classified as
environmentally hazardous substances. Laws and regulations
protecting the environment have generally become more stringent,
and may in certain circumstances impose "strict liability,"
rendering a person liable for environmental damage without regard
to negligence or fault. The Company does not believe that
environmental regulations have had any material adverse effect on
its capital expenditures, results of operations or competitive
position to date, and presently does not anticipate that any
material expenditures will be required to enable it to comply with
existing laws and regulations. It is possible, however, that
modification of existing regulations or the adoption of new
regulations in the future, particularly with respect to
environmental and safety standards, could have such a material
adverse effect on the Company's operations.
The U.S. Oil Pollution Act of 1990 ("OPA '90") and similar
legislation enacted in Texas, Louisiana and other coastal states
address oil spill prevention and control and significantly expand
liability exposure across all spectrums of the oil and gas
industry. The Company is of the opinion that it maintains
sufficient insurance coverage to respond to the added exposures.
OPA '90 also mandated increases in the amounts of financial
responsibility that must be certified with respect to mobile
offshore drilling units and offshore facilities (e.g. oil and gas
production platforms, among others) located in U.S. waters.
Operators of mobile offshore drilling units, together with
operators of vessels, must provide evidence of financial
responsibility based on a tonnage formula, which, in the Company's
case, would not exceed $15 million for its largest rig located in
U.S. waters. The Company may use its current certificate of
financial responsibility ("COFR") until June 30, 1995, after which
time a COFR complying with the new rule must be obtained. The
Company may comply with the requirement either by posting a cash
bond, self-insuring by providing evidence of adequate U.S.-based
net worth, or by providing evidence of an insurance policy meeting
OPA '90 COFR requirements. Reportedly, two insurance facilities
which would satisfy the COFR requirements of the new rule have been
approved by the U.S. Coast Guard. However, no determination has
been made whether either of these insurance facilities would be
made available to the Company on satisfactory terms, if at all.
The Company believes that the probability is remote that it will
not be able to satisfy the financial responsibility requirements of
the rule as promulgated. Furthermore, the Company believes it will
be able to comply with the COFR requirements, either by self-
insuring or by providing evidence of third-party insurance. The
Company's inability to comply with the rule, however, might have a
material adverse effect on its operations and financial condition.
During 1994, 56 percent of the Company's contract drilling revenues
were attributable to operations in U.S. waters, and, as of February
28, 1995, 13 of the Company's 25 rigs then in service were located
in U.S. waters.
Under OPA '90, operators of offshore facilities will be
required to certify evidence of financial responsibility in the
amount of $150 million. The Department of the Interior ("DOI") is
responsible for promulgating regulations implementing the new
financial responsibility requirements with respect to offshore
facilities, and its regulations are not expected to be finalized
until later this year. The Minerals Management Service of the DOI
issued an Advance Notice of Proposed Rulemaking in 1993 which
contemplated regulations for offshore facilities similar to the
Coast Guard regulations. The DOI solicited comments from the
offshore oil industry with respect to the proposed regulations,
which will also be subject to review and comment before adoption.
The DOI regulations, with the regulations promulgated by the Coast
Guard, could adversely affect CMI as well as GMDC and ADTI. CMI
presently operates an offshore production platform, and ADTI's
business and GMDC's operations in the Gulf of Mexico are largely
dependent on oil and gas companies' drilling activities, which, in
turn, ultimately depend on their ability to operate offshore
facilities. The Company cannot predict the exact nature or effect
of any regulations promulgated under OPA '90.
EMPLOYEES
The Company had approximately 1,700 employees at December 31,
1994. The Company requires highly skilled personnel to operate its
drilling rigs. In recognition of this, the Company conducts
extensive personnel training and safety programs.
EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age as of December 31, 1994, and office or offices
currently held by each of the executive officers of the Company are
as follows:
Name Age Office or Offices
David A. Herasimchuk 52 Vice President, Market Development
Thomas R. Johnson 46 Vice President and Corporate Controller
Gary L. Kott 52 President and Chief Operating
Officer of Global Marine Drilling Co.
C. Russell Luigs 61 Chairman of the Board, President and
Chief Executive Officer
Jon A. Marshall 43 Group Vice President of the Company,
and President of Challenger Minerals
Inc.
Jerry C. Martin 62 Senior Vice President and Chief
Financial Officer
James L. McCulloch 42 Vice President and General Counsel
John G. Ryan 42 Chairman and Chief Executive Officer
of Global Marine Drilling Co., and
Corporate Secretary of the Company
Robert E. Sleet, Jr. 48 Vice President and Treasurer
Officers each serve for a one-year term or until their
successors are elected and qualified to serve. Each executive
officer's principal occupation has been as an executive officer of
the Company for more than the past five years, with the exception
of Messrs. Marshall and McCulloch. Mr. Marshall has served as the
Company's Group Vice President since February 14, 1995, prior to
which he had been President of Applied Drilling Technology Inc.
and Challenger Minerals Inc. since April 1992. From 1990 to April
1992, he was Applied Drilling Technology's Vice President of
Operations, prior to which he held various operating positions with
Applied Drilling Technology Inc. and with Global Marine Drilling
Co. Mr. McCulloch has served in his present position since May
1993 and has had general supervision of the Company's legal affairs
since February 1993, prior to which he was the Company's Vice
President, Litigation and Risk Management.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's
security holders during the fourth quarter of the fiscal year ended
December 31, 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $0.10 par value per share, is
listed on the New York Stock Exchange under the symbol "GLM." At
February 28, 1995, there were 8,761 stockholders of record of the
Common Stock. The high and low sales prices of the Common Stock as
reported on the New York Stock Exchange Composite Transactions Tape
for each full quarterly period within the past two years appear
under "Consolidated Selected Quarterly Financial Data," which
follows the notes to the consolidated financial statements.
The Company has not declared any dividends on Common Stock
since February 1985. Subject to the preferential dividend rights
of holders of the Company's preferred stock, if any, the holders of
the Common Stock will be entitled to receive when, as and if
declared by the Board of Directors out of funds legally available
therefor, all other dividends payable in cash, in property, or in
shares of Common Stock. The indenture governing the Company's
Senior Secured Notes contains certain restrictions with respect to
the payment of dividends on the Common Stock (other than stock
dividends). (See Note 7 of Notes to Consolidated Financial
Statements.) It is not expected that dividends will be declared or
paid on the Common Stock in the foreseeable future.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
FIVE-YEAR REVIEW
(Dollars in millions, except per share data)
<CAPTION>
1994 1993 1992 1991 1990
FINANCIAL PERFORMANCE
Revenues:
<S> <C> <C> <C> <C> <C>
Contract drilling $ 211.4 $ 200.3 $ 214.1 $ 249.9 $ 214.3
Drilling management services 137.8 57.1 26.9 37.2 42.1
Oil and gas 9.8 11.6 19.3 28.1 25.4
Total revenues $ 359.0 $ 269.0 $ 260.3 $ 315.2 $ 281.8
Operating income:
Contract drilling $ 25.6 $ 4.5 $ 28.2 (2) $ 49.2 $ 18.7
Drilling management services (1) 10.8 7.6 (2.2) 4.5 2.1
Oil and gas 3.7 5.3 3.2 9.1 10.8
Corporate expenses (14.0) (14.2) (13.5) (13.7) (13.3)
Total operating income 26.1 3.2 15.7 49.1 18.3
Other income (expense):
Interest expense (30.2) (32.1) (43.6) (49.9) (53.9)
Interest capitalized 3.7 - - - -
Interest income 3.8 2.7 2.8 3.5 5.4
Litigation settlement - - 55.0 - -
Other 2.0 - 0.7 0.8 (4.3)
Total other income (expense) (20.7) (29.4) 14.9 (45.6) (52.8)
Income (loss) before income taxes 5.4 (26.2) 30.6 3.5 (34.5)
Income tax expense 0.6 0.3 3.1 2.5 1.3
Income (loss) before extraordinary item and
cumulative effect of accounting changes 4.8 (26.5) 27.5 1.0 (35.8)
Extraordinary gain on extinguishment of debt - - 28.3 - -
Cumulative effect of accounting changes, net (3.5) - 1.4 - -
Net income (loss) $ 1.3 $ (26.5) $ 57.2 $ 1.0 $ (35.8)
Net income (loss) per common share:
Before extraordinary item and cumulative
effect of accounting changes $ 0.03 $ (0.17) $ 0.24 $ 0.01 $ (0.35)
Extraordinary gain on extinguishment of debt - - 0.24 - -
Cumulative effect of accounting changes, net (0.02) - 0.01 - - -
Net income (loss) per common share $ 0.01 $ (0.17) $ 0.49 $ 0.01 $ (0.35)
Average common shares outstanding 163.8 152.0 116.3 109.2 102.6
Dividends declared per common share (3) $ - $ - $ - $ - $ -
Capital expenditures $ 75.9 $ 40.6 $ 20.9 $ 22.7 $ 19.3
FINANCIAL POSITION (END OF YEAR)
Working capital $ 93.4 $ 107.2 $ 30.7 $ 88.4 $ 71.5
Net properties $ 353.4 $ 314.6 $ 318.0 $ 353.7 $ 378.2
Total assets $ 512.4 $ 492.9 $ 479.9 $ 523.7 $ 543.7
Long-term debt, including current maturities $ 225.0 $ 225.0 $ 249.0 $ 391.8 $ 444.7
Shareholders' equity $ 212.3 $ 205.4 $ 154.5 $ 44.6 $ 0.9
OPERATIONAL DATA
Proved oil and gas reserves (end of year) (4) 2,628 2,133 2,917 3,739 7,884
Oil and gas production (4) 816 914 1,841 2,842 2,158
Average rig utilization (5) 90% 87% 78% 86% 90%
Fleet average dayrate (6) $25,300 $25,400 $27,600 $29,300 $24,900
Total rigs in drilling fleet (end of year) 28 25 25 27 27
Turnkey wells completed 52 18 10 16 14
Number of employees (end of year) 1,700 1,500 1,500 1,900 1,700
(1) Excludes profit earned on turnkey wells drilled on oil and gas
properties in which the Company has working interests.
(2) Contract drilling operating income for 1992 includes a net gain of
$10.9 million relating to the sale of two offshore drilling rigs.
(3) The indenture governing the Senior Secured Notes contains certain
restrictions with respect to the payment of dividends on the Common
Stock (other than stock dividends). See Note 7 of Notes to
Consolidated Financial Statements.
(4) Barrels of oil equivalent, in thousands, applying a BTU conversion
factor of six MCF of gas per barrel of oil.
(5) The average utilization rate for a period is equal to the ratio of
days in the period during which the rigs were under contract to the
total days in the period during which the rigs were available to
work.
(6) Contract drilling revenues less non-rig related revenues divided by
the aggregate number of days rigs were under contract.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
SUMMARY
The Company reported operating income of $26.1 million for 1994
compared to $3.2 million for 1993. The improvement in operating
results is due to (i) higher revenues and lower operating expenses
attributable to operating five additional rigs in the lower-cost
Gulf of Mexico market during 1994 compared to 1993, when they were
operating for a portion of the year in weaker, higher-cost foreign
markets, (ii) the full-year effect of 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
1994 compared to 1993, and (v) an increase in the number of turnkey
drilling contracts completed. These improvements were partially
offset by lower turnkey profit margins, normal declines in oil and
gas production and lower oil and gas sales prices.
For 1993, the Company reported operating income of $3.2
million, compared to operating income of $15.7 million for 1992.
Results for 1992 include an $11.0 million gain on the sale of one
of the Company's offshore drilling rigs, the Glomar High Island VI.
Aside from the sale of the High Island VI, the decline in operating
results was attributable to lower contract drilling dayrates and
utilization in the North Sea and higher expense associated with rig
relocations, partially offset by higher contract drilling dayrates
and utilization in the Gulf of Mexico, and by improvements in
turnkey drilling and oil and gas operating income. Drilling
management operating income increased to $9.8 million for 1993 from
$0.2 million in 1992, primarily due to completing 18 turnkey wells
in 1993 compared to 10 turnkey wells in 1992. The 1993 turnkey
wells also had, on average, higher gross margins. Oil and gas
operating income increased from $3.2 million in 1992 to $5.3
million in 1993, despite lower revenues, primarily due to lower
depletion expense.
Data relating to the Company's operations by business segment
follows:
<TABLE>
Increase/ Increase/
1994 (Decrease) 1993 (Decrease) 1992
(Dollars in millions)
Revenues:
<S> <C> <C> <C> <C> <C>
Contract drilling $215.4 6% $203.1 (6%) $216.5
Drilling management 142.8 138% 59.9 115% 27.9
Oil and gas 9.8 (16%) 11.6 (40%) 19.3
Elimination (9.0) (5.6) (3.4)
Total $359.0 33% $269.0 3% $260.3
Operating income:
Contract drilling $ 25.6 469% $ 4.5 (84%) $ 28.2
Drilling management 16.5 68% 9.8 N/M(2) 0.2
Oil and gas 3.7 (30%) 5.3 66% 3.2
Corporate expenses (14.0) (1%) (14.2) 5% (13.5)
Elimination (1) (5.7) (2.2) (2.4)
Total $ 26.1 716% $ 3.2 (80%) $ 15.7
(1) Deferral of profit earned on turnkey wells drilled on oil and gas
properties in which the Company has working interests.
(2) The percentage change results in a figure which, because of its
magnitude, is not meaningful.
</TABLE>
In the U.K. sector of the North Sea, oil and gas operators'
increasing optimism, among other factors, has resulted in higher
dayrates and utilization since October of 1994. Offshore West
Africa, dayrates and utilization appear to have stabilized despite
political unrest and volatile oil prices. Demand in the U.S. Gulf
of Mexico offshore drilling market began weakening in late December
1994 due to low natural gas prices.
The offshore drilling industry overall has been characterized
by an oversupply of rigs, resulting in low dayrates and operating
margins. Nevertheless, the Company reported net income of $1.3
million for 1994 as compared with a net loss of $26.5 million for
1993 and a net loss of $37.1 million for 1992, excluding
nonrecurring gains and income.
CONTRACT DRILLING OPERATIONS
Data with respect to the Company's contract drilling operations
follows:
<TABLE>
<CAPTION>
Increase/ Increase/
1994 (Decrease) 1993 (Decrease) 1992
(Dollars in millions, except for fleet average dayrate)
Contract drilling revenues by area (1):
<S> <C> <C> <C> <C> <C>
Gulf of Mexico $ 113.7 49% $ 76.4 390% $ 15.6
North Sea 29.1 (49%) 57.2 (43%) 100.3
West Africa 31.8 1% 31.6 (37%) 50.5
Other 40.8 8% 37.9 (24%) 50.1
Total $ 215.4 6% $ 203.1 (6%) $ 216.5
Average rig utilization 90% 87% 78%
Fleet average dayrate $25,300 $25,400 $27,600
(1) Includes revenues earned from affiliates.
</TABLE>
Contract drilling revenues in 1994 increased by $12.3 million
over 1993 due to higher rig utilization. Revenues from the Gulf of
Mexico increased by $37.3 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 full-year effect 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 $28.1 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. The increase in
revenues in the "Other" category for 1994 compared to 1993 was due
to higher dayrates and utilization on one rig in the Far East, the
1993 mobilization of one rig to Trinidad from the Gulf of Mexico,
and the full-year effect of one of the three rigs acquired from
Transocean Drilling AS in September 1993, partially offset by the
mobilization of one rig from Alaska to West Africa in the fourth
quarter of 1994 and the termination of a management contract in
Alaska during 1993.
Revenues from the Gulf of Mexico increased to $76.4 million in
1993 from $15.6 million in 1992, as indicated in the table above.
The increase resulted from the mobilization to the Gulf of (i) one
rig from the Mediterranean in November 1992, (ii) two rigs from
West Africa in April 1993, (iii) three rigs from the North Sea,
one in April 1993, one in June 1993 and another in November 1993,
and (iv) two rigs acquired in September 1993 from Transocean
Drilling AS, as well as from higher dayrates and higher rig
utilization in the Gulf of Mexico. The decrease in revenues
attributable to the North Sea was due to the decline in North Sea
dayrates, the mobilization of the three rigs from the North Sea to
the Gulf of Mexico, and the termination of a management contract
with respect to another company's rig. The decrease in revenues
attributable to offshore West Africa was primarily the result of
the sale of the Glomar Biscay II in the first quarter of 1993 and
the mobilization of the two rigs from offshore West Africa to the
Gulf of Mexico in April 1993. The decline in revenues in the
"Other" category for 1993 compared to 1992 was due to the sale of
the Glomar Biscay I and the Glomar Atlantic in the fourth quarter
of 1992 and the first quarter of 1993, respectively.
Depreciation expense for contract drilling operations totaled
$34.9 million for 1994, $32.0 million for 1993, and $36.7 million
for 1992. The number of rigs in the active fleet and subject to
depreciation expense averaged 25 rigs in 1994, 24 rigs in 1993, and
26 rigs in 1992.
Effective January 1, 1995, the Company increased to 25 years
the estimated useful lives of its jackups and increased to 20 years
the estimated useful lives of its semisubmersibles 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 will be to decrease 1995 depreciation expense by
approximately $12.5 million.
The Company's operating profit margin for contract drilling
operations for 1994 increased to 12 percent from 2 percent in 1993
and 8 percent in 1992. 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.
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 1994,
1993 and 1992 were 90 percent, 87 percent, and 78 percent,
respectively.
As of December 31, 1994, the worldwide industry utilization
rate for competitive offshore rigs was 78 percent, with 124 of the
560 worldwide rigs unemployed. The offshore drilling markets in
which the Company participates continue to be characterized by
contracts that are, generally, of a short-term or well-to-well
nature, as they have been for the past several years. The Company
anticipates that contracts on 15 of the Company's 24 rigs under
contract as of February 28, 1995, will expire at varying times on
or prior to May 31, 1995. No assurance can be made that the
Company will obtain drilling contracts for the rig that is
currently available, or for its two rigs currently undergoing
refurbishment that are not committed to drilling contracts, or for
its other rigs upon the completion of current 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.
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 fallen
from a high of $2.84 per thousand cubic feet in February 1994 to a
low of $1.27 in January 1995. In response to lower gas prices,
demand for offshore drilling rigs in the U.S. Gulf of Mexico began
weakening in late December 1994, as the number of rigs under
contract decreased from approximately 142 rigs at the end of
October 1994 to 131 rigs under contract at the end of December. As
of February 28, 1995, the price of natural gas was $1.39 per
thousand cubic feet, and there were 113 Gulf rigs under contract
(63 percent utilization). Unless gas prices strengthen from
current levels, drilling demand will remain depressed and may fall
further. For the full year, average demand in the Gulf increased
to 131 rigs under contract (75 percent utilization) for 1994 from
118 rigs (78 percent utilization) for 1993. As of February 28,
1995, 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 1994.
In the U.K. sector of the North Sea (i) increasing optimism
with respect to the outlook for stable oil prices, (ii) promising
oil discoveries west of the Shetland Islands, (iii) operators'
increased drilling to fulfill commitments to drill previously
awarded blocks, (iv) fewer available North Sea rigs as a result of
mobilizations to other areas and (v) increased levels of operators'
cash flow, among other factors, have recently resulted in higher
North Sea dayrates as operators began contracting available rigs to
carry out 1995 drilling programs. As a result, dayrates and
utilization in the U.K. sector of the North Sea have risen
significantly, particularly for semisubmersible rigs. For the
fourth quarter of 1994, average demand in the North Sea increased
to 63 rigs under contract (77 percent utilization) from 62 rigs (75
percent utilization) for the third quarter of 1994. For the full
year, average demand in the North Sea decreased to 64 rigs under
contract (76 percent utilization) for 1994 from 81 rigs (79 percent
utilization) for 1993. As of February 28, 1995, there were 63
North Sea rigs under contract (82 percent utilization), and all
three of the Company's rigs in service in the North Sea were under
contract. The Company's average utilization rate for its rigs in
the North Sea was 68 percent for 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 two offshore
drilling rigs, the Glomar High Island IX and the Glomar Adriatic
VIII, from weakening markets to West Africa during 1994. Both rigs
are currently under contract. For the fourth quarter of 1994,
average drilling industry demand offshore West Africa increased to
27 rigs under contract (81 percent utilization) from 24 rigs (75
percent utilization) for the third quarter of 1994. For the full
year, average demand offshore West Africa decreased to 24 rigs
under contract (75 percent utilization) for 1994 from 26 rigs (70
percent utilization) for 1993. All five of the Company's rigs
located offshore West Africa were employed as of February 28, 1995.
The Company's average utilization rate for its rigs located
offshore West Africa was 98 percent for 1994.
DRILLING MANAGEMENT SERVICES
Drilling management operations reported an $82.9 million
increase in revenues, from $59.9 million in 1993 to $142.8 million
in 1994, and a $6.7 million increase in operating income, from $9.8
million in 1993 to $16.5 million in 1994. The improvement resulted
from the completion of 52 wells in 1994 as compared to 18 wells in
1993, partially offset by lower average gross profit margins on the
1994 wells. The increase in the number of turnkey wells drilled in
1994 was attributable in part to U.S. Gulf of Mexico oil and gas
operators' increased acceptance of turnkey drilling as an
alternative to dayrate contract drilling and to more aggressive
pricing in the Company's turnkey bids. Seven of the 1994 wells
incurred losses aggregating $5.4 million.
Drilling management operations reported a $32.0 million
increase in revenues, from $27.9 million in 1992 to $59.9 million
in 1993, and a $9.6 million increase in operating income, from $0.2
million in 1992 to $9.8 million in 1993. The improvement resulted
from the completion of 18 wells in 1993 compared to 10 in 1992 and
higher average gross margins on the 1993 wells. One of the 1992
wells incurred a loss of $1.8 million due to mechanical problems.
As a result of corporate consolidation adjustments, drilling
management operating income was reduced to $10.8 million for 1994,
$7.6 million for 1993 and a loss of $2.2 million for 1992. This
compares with operating income on a before-adjustment basis of
$16.5 million, $9.8 million and $0.2 million for 1994, 1993, and
1992, respectively. The adjustments were required to reduce
earnings by an amount up to 100 percent of the profit earned on
turnkey drilling contracts for wells drilled on oil and gas
properties in which the Company had working interests. The amount
of profit which must be eliminated is that amount which equals the
Company's share of exploration and development costs required under
applicable working interest agreements.
OIL AND GAS OPERATIONS
Data related to the Company's oil and gas production follows:
<TABLE>
<CAPTION>
Increase/ Increase/
1994 (Decrease) 1993 (Decrease) 1992
Gas:
Production (in millions
<S> <C> <C> <C> <C> <C>
of cubic feet) 4,009 (12%) 4,557 (55%) 10,055
Average sale price (per
thousand cubic feet) $1.86 (6%) $1.98 24% $1.60
Oil:
Production (in barrels) 147,715 (4%) 154,436 (6%) 164,560
Average sale price (per barrel) $15.79 (7%) $16.89 (13%) $19.43
</TABLE>
Oil and gas revenues for 1994 were lower than for 1993 due to
lower volumes of oil and gas produced and lower oil and gas prices.
Oil and gas production decreased as a result of normal declines,
the 1993 sale of an oil producing property, and the temporary
suspension of production in order to repair an oil and gas well in
1994, partially offset by production from two new properties.
Operating income for 1994 was lower than for 1993 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. Depletion expense decreased to $1.9 million for 1994 from
$3.3 million for 1993. The lower depletion rate resulted in part
from the property sale in 1993, and from the deferral of profit
earned on certain turnkey drilling contracts, which reduced the
depletable base.
Revenues from gas production decreased significantly in 1993
as compared with 1992 despite higher gas prices, primarily due to
overproduction in 1992 from one of the Company's primary offshore
gas producing properties, Matagorda Island Block 668, in order to
make up a prior gas production imbalance between the Company and
its working interest partner. Revenues from oil production in 1993
also decreased as compared with 1992 due to lower oil prices, the
1993 sale of an oil producing property, and normal production
declines. Despite the decrease in revenues, operating income
increased in 1993 as compared with 1992 due to lower depletion
expense, lower overhead expenses and lower lease operating expenses
resulting from property sales. Depletion expense decreased to $3.3
million for 1993 from $10.0 million for 1992. The lower depletion
expense resulted from a lower depletion rate due to property sales
which reduced the depletable base and from lower production in 1993
compared to 1992.
OTHER INCOME AND EXPENSE
Interest expense declined by $1.9 million to $30.2 million in
1994 from $32.1 million in 1993 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. Interest expense declined by
$11.5 million to $32.1 million in 1993 from $43.6 million in 1992
due to the reduction in long-term debt resulting from the Company's
recapitalization in December 1992 and the retirement of the rig
mortgage note for the Glomar Baltic I in August 1993.
In 1994, the Company capitalized $3.7 million 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 Glomar Adriatic IX and Glomar
Adriatic X are expected to become available for operation in April
and July 1995, respectively.
Interest income increased to $3.8 million for 1994 from $2.7
million for 1993, primarily due to the recognition of $0.8 million
in connection with the favorable 1994 settlement of the Company's
demobilization obligations with respect to a third-party owned rig
aboard the Glomar Beaufort Sea I. Interest income for 1993 was
essentially unchanged from 1992.
During 1992, the Company settled its take-or-pay litigation
with Transcontinental Gas Pipe Line Corporation, resulting in a
gain of $55.0 million.
Other income for 1994 consisted of $1.4 million in dividend
income and a $0.6 million gain on the sale of common stock of
Transco Energy Company (see Liquidity and Capital Resources).
Income tax expense of $0.6 million for 1994, $0.3 million for
1993, and $3.1 million for 1992, consists primarily of foreign
taxes. Despite reporting pretax income for 1994 and 1992, the
Company reported no current provision for U.S. federal income taxes
due to deductions for tax purposes not currently recognized for
financial reporting purposes.
During 1992, the Company recognized an extraordinary gain of
$28.3 million on the early retirement of debt in connection with
the Recapitalization (see Liquidity and Capital Resources).
During 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 112, "Employers' Accounting for
Postemployment Benefits." The cumulative impact of this change was
to decrease 1994 net income by $3.5 million. During 1992, the
Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 109,
"Accounting for Income Taxes." The effect of SFAS No. 106 was to
decrease 1992 net income by $1.9 million, and the effect of SFAS
No. 109 was to increase 1992 net income by $3.3 million, each
representing the cumulative effect of the change as of January 1,
1992.
The Company's net income for 1994 was $1.3 million compared
to a net loss of $26.5 million for 1993 and net income of $57.2
million for 1992. The Company would have reported a net loss of
$37.1 million for 1992 absent the settlement of the take-or-pay
litigation with Transcontinental Gas Pipe Line Corporation, the
extraordinary gain on extinguishment of debt and the gain on the
sale of one of the Company's High Island class jackup rigs.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In December 1992, the Company completed a recapitalization (the
"Recapitalization") in order to reduce the amount and extend the
maturity of its outstanding debt and to reduce its debt service
requirements. The Recapitalization was comprised of (i) the
offering and sale of 26,000,000 shares of common stock and a
concurrent offering and sale of 12-3/4% Senior Secured Notes due
1999 (the "Senior Secured Notes") in an aggregate principal amount
of $225.0 million and (ii) the application of the aggregate net
proceeds from the offerings, plus a portion of the Company's
available funds, to retire long-term debt in the amount of $342.7
million, including interest, at a total reacquisition cost of
$314.4 million. In January 1993, the Company sold an additional
3,900,000 shares of common stock pursuant to the exercise of the
underwriters' over-allotment option and received cash in the amount
of $7.8 million, net of expenses.
In August 1993, the Company completed the sale of 17,250,000
shares of common stock in a public offering and received cash
proceeds of $66.4 million, net of expenses. The Company used
$26.0 million of the proceeds to retire the rig mortgage note for
the Glomar Baltic I in August 1993 and $17.0 million to complete
the purchase of three offshore drilling rigs from Transocean
Drilling AS in September 1993.
In May 1992, the Company settled its take-or-pay litigation
(the "Transco Litigation") with Transcontinental Gas Pipe Line
Corporation ("TGPL"), a subsidiary of Transco Energy Company
("Transco"), which had been filed in the United States District
Court for the Southern District of Texas, Houston Division. In
1992, the Company received under the settlement $20.0 million in
cash, TGPL's promissory note in the principal amount of $20.0
million (the "Transco Note"), and the right to receive a number of
shares of Transco common stock, $0.50 par value per share, with a
value of approximately $15.0 million. Such shares were placed in
escrow for delivery in February 1994. In late 1992 Transco
deposited U.S. government securities into a trust account in an
amount sufficient to satisfy the required principal and interest
payments due the Company under the Transco Note.
In 1994, Transco released to the Company the U.S. government
securities held in the trust established to satisfy the Transco
Note. The Company sold the securities and received sales proceeds
totaling $15.2 million in full payment of the remaining balance due
under the note, including interest. In addition, the Company
received under the settlement 1,017,771 of the previously escrowed
shares of Transco common stock, 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. During 1994, the Company sold all 1,017,771 shares
of Transco common stock for $15.6 million, realizing a gain of $0.6
million.
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 issued to the seller's nominee
750,000 shares of Global Marine Inc. common stock to complete the
purchase. In addition, the Company spent approximately $11 million
to refurbish and upgrade the rigs in 1994 and anticipates spending
an additional $13 million in 1995 to complete the refurbishment of
the two rigs. The Glomar Adriatic IX and Glomar Adriatic X are
expected to become available for operation in April and July 1995,
respectively.
In May 1994, the Company purchased another offshore drilling
unit, a 1983 Marathon LeTourneau 116-C jackup known as the "Bay
Driller," for $13.8 million in cash. The rig was delivered to the
Company in November 1994, at which time it was renamed the Glomar
Adriatic XI. The rig is currently outfitted for use as an
accommodation unit. The rig is committed to a drilling contract
which is expected to commence in August 1995, prior to which the
Company will reconfigure the rig at a cost of approximately $15
million, primarily to replace the rig's existing special-purpose
drilling equipment with an enhanced drilling package.
As of December 31, 1994, the Company's long-term debt totaled
$225.0 million, consisting of the Company's 12-3/4% Senior Secured
Notes due 1999. As of December 31, 1994, total shareholders'
equity amounted to $212.3 million.
The indenture under which the Senior Secured Notes are issued
imposes significant operating and financial restrictions on the
Company and requires that a first lien in favor of the trustee be
maintained, for the benefit of the holders of Senior Secured Notes,
on a significant portion of the Company's material assets. Such
restrictions affect, and in many respects limit or prohibit, among
other things, the ability of the Company to incur additional
indebtedness, make certain investments, create liens, sell assets,
engage in mergers or acquisitions and make dividends or other
payments. The highly leveraged position of the Company and the
restrictive covenants contained in and liens provided for under the
indenture could significantly limit the ability of the Company to
respond to changing business or economic conditions or to respond
to substantial declines in operating results.
The Senior Secured Notes do not require any payments of
principal prior to the stated maturity thereof in December 1999,
except that the Company is required to make offers to purchase
Senior Secured Notes with the proceeds of certain asset sales, upon
a change of control, or if the Company's excess cash flow, as
defined in the indenture, exceeds certain specified levels. The
annual interest on the Senior Secured Notes is $28.7 million,
payable semiannually, each June and December.
Capital expenditures for the Company's drilling fleet for 1995,
other than for the refurbishment of the Glomar Adriatic IX and
Glomar Adriatic X and for the reconfiguration of the Glomar
Adriatic XI, are estimated to be $14 million. Capital expenditures
for the Company's oil and gas operations are estimated to be $7
million for 1995, principally for exploratory drilling, development
drilling of producing properties, the purchase of equipment used in
connection with the producing properties, and workovers and
recompletions.
As of December 31, 1994, the Company had $57.9 million in cash,
cash equivalents and marketable securities, including $19.3 million
which was restricted from use for general corporate purposes. The
restricted amount includes $14.6 million in proceeds from asset
sales and $4.7 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. Approximately $9.6 million of asset sales proceeds
will become available to the Company for general corporate purposes
by April 1995. As of December 31, 1993, the Company had $44.6
million in cash and marketable securities, net of restricted
amounts of $6.8 million.
An additional source of liquidity is the cash flow from the
Company's oil and gas properties and drilling management service
operations, both of which are available to service the Company's
debt and to fund its working capital requirements and capital
expenditures. Cash flow from the Company's oil and gas operations
and drilling management services may be limited by certain factors.
In particular, the anticipated capital expenditures during 1995 for
oil and gas activities are expected to equal approximately four-
fifths of the net cash flow from the Company's oil and gas
properties. Cash flow from drilling management service operations
is dependent primarily on the ability of the Company to obtain and
perform successfully turnkey drilling contracts based on
competitive bids and on the number of such contracts available for
bid. Accordingly, results of the Company's drilling management
service operations may vary widely from year to year.
The Company also has available to it a revolving credit and
letter of credit facility expiring June 1996 for up to $25 million
to be collateralized by accounts receivable due under drilling
contracts. The amount the Company is able to borrow under the
facility is subject to a borrowing base consisting of 80 percent of
eligible accounts receivable. There were no amounts outstanding
under this credit line as of December 31, 1994. The Company
estimates that, as of December 31, 1994, it would have been able to
borrow the full $25 million under the revolving credit agreement.
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 the Senior Secured Notes
upon maturity in December 1999 from its cash flow from operations
would require a substantial improvement in current industry
conditions, including an increase in the average dayrate earned by
the Company's contract drilling fleet. The Company may have
available to it sources of liquidity other than cash flow from the
Company's contract drilling fleet, including asset sales and equity
or debt financings, to retire or otherwise refinance the principal
amount of the Senior Secured Notes on or prior to maturity.
As part of upgrading and expanding its rig fleet and other
assets, the Company considers and pursues the acquisition of
suitable additional rigs and other assets on an ongoing basis. If
the Company decides to undertake an acquisition, the issuance of
additional shares of stock or, in certain instances, additional
debt could be required. The Company may also consider the
disposition of rigs and other assets if and when a disposition can
be effected on favorable terms. Disposition proceeds, to the
extent available, could also be used as a source of acquisition
financing.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Global Marine Inc.
We have audited the consolidated balance sheet of Global Marine
Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Global Marine Inc. and subsidiaries as of December 31,
1994 and 1993, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in Notes 1, 9, and 11 to the consolidated financial
statements, in 1992 the Company adopted the new methods of
accounting for income taxes and for postretirement benefits other
than pensions, and in 1994 the Company adopted the new method of
accounting for postemployment benefits, as prescribed by applicable
statements of the Financial Accounting Standards Board.
/s/ Coopers & Lybrand L.L.P.
Houston, Texas
February 10, 1995
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share data)
<CAPTION>
Year Ended December 31,
1994 1993 1992
REVENUES
<S> <C> <C> <C>
Contract drilling $211.4 $200.3 $214.1
Drilling management 137.8 57.1 26.9
Oil and gas 9.8 11.6 19.3
Total revenues 359.0 269.0 260.3
EXPENSES
Contract drilling 150.9 163.8 160.1
Drilling management 127.0 49.5 29.1
Oil and gas 4.2 3.0 6.1
Depreciation, depletion and amortization 37.4 35.9 47.1
Gain on sale of offshore drilling rigs, net - - (10.9)
General and administrative 13.4 13.6 13.1
Total Expenses 332.9 265.8 244.6
Operating income 26.1 3.2 15.7
OTHER INCOME (EXPENSE)
Interest expense (30.2) (32.1) (43.6)
Interest capitalized 3.7 - -
Interest income 3.8 2.7 2.8
Litigation settlement (Note 13) - - 55.0
Other (Note 13) 2.0 - .7
Total other income (expense) (20.7) (29.4) 14.9
Income (loss) before income taxes 5.4 (26.2) 30.6
Income tax expense (Note 9) .6 .3 3.1
Income (loss) before extraordinary item and cumulative
effect of changes in accounting principles 4.8 (26.5) 27.5
Extraordinary gain on extinguishment of debt (Note 3) - - 28.3
Cumulative effect of changes in accounting
principles (Notes 1, 9 and 11) (3.5) - 1.4
NET INCOME (LOSS) $ 1.3 $(26.5) $ 57.2
NET INCOME (LOSS) PER COMMON SHARE (NOTE 8)
Before extraordinary item and cumulative effect
of changes in accounting principles $ 0.03 $(0.17) $ 0.24
Extraordinary gain on extinguishment of debt (Note 3) - - 0.24
Cumulative effect of changes in accounting
principles (Notes 1, 9 and 11) (0.02) - 0.01
NET INCOME (LOSS) PER COMMON SHARE $ 0.01 $(0.17) $ 0.49
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
ASSETS
December 31,
1994 1993
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents (Note 2) $ 33.3 $ 31.2
Marketable securities (Note 2) 24.6 20.2
Accounts receivable, less allowance for
doubtful accounts of $1.2 in 1994 and 1993 63.1 57.9
Costs incurred on turnkey drilling contracts in progress 18.5 1.5
Prepaid expenses 10.0 6.5
Investment, at cost (Note 13) - 15.0
Note receivable (Note 13) - 10.2
Other current assets .3 1.9
Total current assets 149.8 144.4
PROPERTIES (NOTE 3)
Rigs and drilling equipment, less accumulated
depreciation of $168.4 in 1994 and $134.0 in 1993 346.9 311.2
Oil and gas properties, full cost method, less accumulated
depreciation, depletion and amortization of $26.9 in
1994 and $29.5 in 1993 6.5 3.4
Net properties 353.4 314.6
Funds in escrow for operating lease - 8.5
Note receivable (Note 13) - 7.5
Other assets 9.2 17.9
TOTAL ASSETS $512.4 $492.9
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
December 31,
1994 1993
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 39.5 $ 19.9
Accrued liabilities (Note 4) 16.9 17.3
Total current liabilities 56.4 37.2
Long-term debt (Note 3) 225.0 225.0
Reserve for loss on operating lease - 8.4
Other long-term liabilities 18.7 16.9
Commitments and contingencies (Note 5) - -
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, 164,408,185 shares and 162,832,799
shares issued and outstanding at December 31, 1994
and 1993, respectively (Note 7) 16.4 16.3
Additional paid-in capital 260.2 254.7
Accumulated deficit (64.3) (65.6)
Total shareholders' equity 212.3 205.4
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $512.4 $492.9
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
<CAPTION>
Year Ended December 31,
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ 1.3 $(26.5) $ 57.2
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 37.4 35.9 47.1
Deferred interest - - 18.3
Proceeds from settlement of litigation - - (35.0)
Gain on extinguishment of debt - - (28.3)
Gain on sale of offshore drilling rigs, net - - (10.9)
Cumulative effect of changes in accounting
principles, net 3.5 - (1.4)
(Increase) decrease in accounts receivable (5.2) (11.5) 11.9
Decrease in note receivable 17.9 - -
(Increase) decrease in costs incurred on turnkey
drilling contracts in progress (17.0) (1.5) 4.0
Increase in other current assets (1.9) (.7) (2.3)
Increase in accounts payable 19.6 4.7 .8
Increase (decrease) in accrued liabilities 1.2 (2.5) 3.1
Other, net 4.5 1.4 1.5
Net cash flow provided by (used in) operating activities 61.3 (.7) 66.0
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (75.9) (40.6) (20.9)
Purchases of held-to-maturity securities (64.7) (26.7) (48.8)
Proceeds from maturities of held-to-maturity securities 60.2 16.8 70.2
Proceeds from sales of available-for-sale securities 15.6 - -
Disposals of properties 2.6 10.3 21.8
Other 2.1 (1.9) (.3)
Net cash flow provided by (used in) investing activities (60.1) (42.1) 22.0
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock offerings, net of expenses - 74.2 51.3
Payments on long-term debt - (25.4) (359.1)
Issuance of long-term debt - - 225.0
Debt issue costs - - (8.2)
Other .9 1.9 .8
Net cash flow provided by (used in) financing activities .9 50.7 (90.2)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2.1 7.9 (2.2)
Cash and cash equivalents at beginning of year 31.2 23.3 25.5
Cash and cash equivalents at end of year $ 33.3 $ 31.2 $ 23.3
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in millions)
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Par Value Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991 113,275,548 $11.3 $129.6 $(96.3) $ 44.6
Net income - - - 57.2 57.2
Common stock offering 26,000,000 2.6 48.7 - 51.3
Exercise of stock options 319,750 - .2 - .2
Common stock issued under other
employee benefit plans 633,434 .1 1.1 - 1.2
Balance, December 31, 1992 140,228,732 14.0 179.6 (39.1) 154.5
Net loss - - - (26.5) (26.5)
Common stock offerings 21,150,000 2.1 72.1 - 74.2
Exercise of stock options 779,500 .1 1.0 - 1.1
Common stock issued under
other employee benefit plans 674,567 .1 2.0 - 2.1
Balance, December 31, 1993 162,832,799 16.3 254.7 (65.6) 205.4
Net income - - - 1.3 1.3
Common stock issued in
connection with the acquisition
of two offshore drilling rigs 750,000 .1 2.9 - 3.0
Exercise of stock options 484,500 - .9 - .9
Common stock issued under
other employee benefit plans 340,886 - 1.7 - 1.7
Balance, December 31, 1994 164,408,185 $16.4 $260.2 $(64.3) $212.3
See notes to consolidated financial statements.
</TABLE>
<PAGE>
GLOBAL MARINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Global Marine Inc. and its majority-owned subsidiaries. Unless the
context otherwise requires, the term "Company" refers to Global
Marine Inc. and its consolidated subsidiaries. Intercompany
accounts and transactions are eliminated.
RECLASSIFICATIONS
Certain previously reported amounts have been reclassified to
conform to the 1994 presentation.
CASH EQUIVALENTS
Cash equivalents consist of all highly liquid debt instruments
with remaining maturities of three months or less at the time of
purchase.
INVESTMENTS
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which requires that
equity securities that have readily determinable fair values and
all investments in debt securities be designated as trading,
available-for-sale, or held-to-maturity. Under the new standard,
trading securities and available-for-sale securities are reported
at fair value; held-to-maturity debt securities continue to be
reported at amortized cost. There was no cumulative effect on
prior years as a result of adopting the new standard. As of
December 31, 1993, investments in cash equivalents and marketable
securities consisted of short-term debt securities and were carried
at amortized cost, which approximated market value.
PROPERTIES AND DEPRECIATION
Rigs and Drilling Equipment. Rigs and drilling equipment are
carried at an amount equal to the fair market values of the rigs in
the fleet as of December 31, 1988, plus the cost of rig
acquisitions and other additions and improvements to the existing
fleet, thereafter. Included in the cost of rigs and drilling
equipment is an allocation of the interest cost incurred during the
period required to construct or refurbish a rig. Expenditures for
maintenance and repairs are charged to expense as incurred. Costs
of property sold or retired and the related accumulated
depreciation are removed from the accounts; resulting gains or
losses are included in income.
Depreciation of rigs and drilling equipment is computed using
the straight-line method, assuming a salvage value of ten percent,
over their estimated service lives, as follows:
<TABLE>
Years
<S> <C>
Jackups 18-22
Semisubmersibles and drillship 18-19
Drill pipe 4
</TABLE>
Estimated service lives represent the number of years from the
date the asset was initially placed in service by the Company (if
purchased new) or by the original owner.
Effective January 1, 1995, the Company increased to 25 years
the estimated useful lives of its jackups and increased to 20 years
the estimated useful lives of its semisubmersibles 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 will be to decrease 1995 depreciation expense by
approximately $12.5 million.
Oil and Gas Properties. The Company capitalizes all costs
attributable to the acquisition, exploration and development of oil
and gas reserves under the full cost method of accounting. The
depreciation, depletion and amortization provision is computed
using the units-of-production method. The depletable base consists
of capitalized costs, estimated future costs to develop proved
reserves and estimated future dismantlement costs, and is reduced
by profit earned on the Company's turnkey drilling contracts for
wells drilled on properties in which the Company has working
interests. In addition, the depletable base is reduced by proceeds
from sales of oil and gas properties, unless the sale involves a
significant quantity of reserves in relation to total reserves, in
which case a gain or loss would be recognized. The costs of
unproved properties and major development projects are not subject
to depreciation, depletion and amortization until they are fully
evaluated. All unproved properties are reviewed at least annually
to ascertain if impairment has occurred. Costs of proved oil and
gas properties which exceed the present value of estimated future
net revenues are charged to expense.
REVENUE RECOGNITION
Contract drilling services are performed generally on a daily
rate basis under individual contracts for either a stated period of
time or the time required to drill a well or number of wells.
Revenues from contract drilling services and the related expenses
are recognized on a per day basis as the work progresses. Revenues
from turnkey drilling contracts, which are classified under
drilling management revenues, are derived from the design and
execution of a specific offshore drilling program at a fixed price
to the oil and gas operator. Revenues from turnkey drilling
contracts and the related expenses are recognized upon completion
of the turnkey contract.
GAS BALANCING
The Company uses the sales method to account for its undertaken
positions subject to gas balancing agreements. Under the sales
method, the Company postpones revenue recognition of its
proportionate share in production delivered to another producer's
customer, and postpones recognition of the related lease operating
expense until such time as (i) the Company's customer begins taking
delivery of the product and/or (ii) the cessation of production, in
which case the Company's related gas balancing agreements require
monetary settlement.
<PAGE>
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is the functional currency for all of the
Company's operations. Foreign currency transaction gains and
losses are included in income during the period in which they
arise. Such amounts for 1994, 1993 and 1992 were not material.
POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards 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 a charge to earnings in the
amount of $3.5 million ($0.02 per share). Other than the
cumulative effect, the effect of the change on earnings was not
material.
NOTE 2 - INVESTMENTS
At December 31, 1994, all of the Company's investments in cash
equivalents and marketable securities consisted of debt securities
which were classified as held-to-maturity and were carried at
amortized cost. A summary of the estimated fair values of
investments, as of December 31, 1994 follows:
<TABLE>
(In millions)
Cash Equivalents:
<S> <C>
Commercial paper $ 26.1
Eurodollar time deposits 5.1
Certificates of deposit .2
Total Cash Equivalents $ 31.4
Marketable Securities:
Commercial paper $ 13.7
Eurodollar time deposits 7.3
Certificates of deposit 3.3
U.S. Treasury obligations .3
Total Marketable Securities $ 24.6
</TABLE>
The estimated fair values of investments approximated their
amortized cost; therefore, there were no unrealized gains or losses
as of December 31, 1994.
<PAGE>
The estimated fair values of investments as of December 31,
1994 grouped by contractual maturities follows:
<TABLE>
(In millions)
<S> <C>
Within three months or less $ 31.4
After three months through one year 24.5
After one year .1
Total Investments $ 56.0
</TABLE>
As of December 31, 1994, $19.3 million of the Company's
marketable securities was restricted from general use, including
$14.6 million in proceeds from asset sales and $4.7 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. Approximately
$9.6 million of asset sales proceeds will become available to the
Company for general corporate purposes by April 1995.
NOTE 3 - LONG-TERM DEBT
In December 1992, the Company completed a recapitalization,
which was comprised, in part, of (i) the offering and sale of
26,000,000 shares of common stock and a concurrent offering and
sale of 12-3/4% Senior Secured Notes due 1999 (the "Senior Secured
Notes") in an aggregate principal amount of $225.0 million and (ii)
the application of the aggregate net proceeds from the offerings,
plus a portion of the Company's available funds, to retire long-
term debt in the amount of $342.7 million, including interest, at
a total reacquisition cost of $314.4 million. The Company recorded
a $28.3 million extraordinary gain on extinguishment of debt in
connection with the recapitalization.
Long-term debt as of December 31, 1994 and 1993, consisted of
the 12-3/4% Senior Secured Notes in the amount of $225.0 million,
due December 15, 1999. Interest on the Senior Secured Notes is
payable semi-annually each June and December. The Senior Secured
Notes do not require any payments of principal prior to the stated
maturity thereof on December 15, 1999, except that the Company is
required to make offers to purchase Senior Secured Notes upon the
occurrence of certain events, which are defined in the indenture
governing the Senior Secured Notes, such as asset sales or a change
of control or if the excess cash flow of the Company exceeds
certain specified levels.
The Senior Secured Notes are not redeemable at the option of
the Company prior to December 15, 1997. On or after December 15,
1997, the Senior Secured Notes are redeemable at the option of the
Company, in whole at any time or in part from time to time, at a
price of 102 percent of principal if redeemed during the twelve
months beginning December 15, 1997, or at a price of 100 percent of
principal if redeemed on or after December 15, 1998, in each case
together with interest accrued to the redemption date.
The Senior Secured Notes are collateralized by 23 rigs and all
of the capital stock of the Company's direct or indirect
subsidiaries, excluding the stock of Petdrill, Inc., and certain
other subsidiaries as defined in the indenture. The indenture
under which the Senior Secured Notes are issued imposes significant
operating and financial restrictions on the Company. Such
restrictions affect, and in many respects limit or prohibit, among
other things, the ability of the Company to incur additional
indebtedness, make capital expenditures, create liens, sell assets,
engage in mergers or acquisitions and make dividends or other
payments.
In June 1993, the Company entered into a revolving credit
agreement with a major international bank to provide a three-year
revolving credit and letter of credit facility for up to $25
million to be collateralized by accounts receivable due under
drilling contracts. The amount the Company is able to borrow under
the facility is subject to a borrowing base consisting of 80
percent of eligible accounts receivable. Borrowings under the
facility would accrue interest at the lowest of one of three
market-based interest rates, one of which is the prime rate plus 1-
1/2 percent. The unused portion of the line of credit is subject
to an annual commitment fee of one-half of one percent. There were
no amounts outstanding under this credit line as of December 31,
1994 or 1993. The Company estimates that, as of December 31, 1994,
it would have been able to borrow the full $25 million under the
revolving credit agreement.
NOTE 4 - ACCRUED LIABILITIES
Accrued liabilities as of December 31 consisted of the
following:
<TABLE>
1994 1993
(In millions)
<S> <C> <C>
Compensation and related employee costs $ 9.0 $ 9.4
Income taxes 1.9 2.0
Claims and allowances 1.4 3.0
Other 4.6 2.9
TOTAL ACCRUED LIABILITIES $16.9 $17.3
</TABLE>
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company has numerous noncancelable operating leases for
office facilities and equipment. The leases have remaining terms
ranging up to seven years, some of which may be renewed at the
Company's option. Certain leases are subject to rent revisions
based on the Consumer Price Index or increases in building
operating costs. Rent expense for 1994, 1993, and 1992 was $6.9
million, $6.1 million, and $6.8 million, respectively.
Future minimum rental payments for the Company's lease
obligations as of December 31, 1994, were as follows:
<TABLE>
(In millions)
Year ending December 31:
<C> <C>
1995 $ 2.4
1996 .8
1997 .4
1998 .4
1999 .4
Later years .7
TOTAL FUTURE MINIMUM RENTAL PAYMENTS $ 5.1
</TABLE>
On November 7, 1994, the Company entered into an agreement
in principle, subject to definitive documentation, to purchase the
Glomar Beaufort Sea I, which previously had been operated by the
Company under a long-term lease which expired in December 1994.
The Company has agreed to pay an amount of up to $9.0 million,
payable out of future cash flow or sales proceeds from the rig, if
any. The full $9.0 million would be paid only if the Company's
share of future cash flow or rig sales proceeds exceed $40 million.
The Company would have no obligation to pay any amount if the rig
fails to generate any future cash flows.
The Company is involved in various lawsuits resulting from
personal injury and, from time to time, performance of services and
property damage. The Company has accrued for the anticipated cost
of settlement of these claims. In the opinion of management,
resolution of these matters will not have a material adverse effect
on its results of operations or financial position.
NOTE 6 - FINANCIAL INSTRUMENTS
CONCENTRATIONS OF CREDIT RISK
The market for the Company's services and products is the
offshore oil and gas industry, and the Company's customers consist
primarily of major integrated international oil companies and
independent oil and gas producers. The Company performs ongoing
credit evaluations of its customers and generally does not require
material collateral. The Company maintains reserves for potential
credit losses, and such losses have been within management's
expectations.
At December 31, 1994 and 1993, the Company had cash deposits
concentrated primarily in four major banks. In addition, the
Company had certificates of deposits, commercial paper and
Eurodollar time deposits with a variety of companies and financial
institutions with strong credit ratings. As a result of the
foregoing, the Company believes that credit risk in such
instruments is minimal.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's $225.0 million
carrying value of long-term debt approximated $240.8 million and
$249.2 million as of December 31, 1994 and 1993, respectively. The
estimates of fair values were based on quoted market prices. The
fair values of the Company's cash equivalents, marketable
securities, trade receivables and trade payables approximated their
carrying values due to the short-term maturities of these
instruments (see Note 2).
NOTE 7 - CAPITAL STOCK
The Company is authorized to issue 300,000,000 shares of common
stock, $0.10 par value per share, and 10,000,000 shares of
preferred stock, $0.01 par value per share. As of December 31,
1994, 135,591,815 shares of common stock were unissued, including
15,255,837 shares reserved for issuance under stock option and
incentive plans. None of the preferred stock was issued or
outstanding as of December 31, 1994.
The indenture governing the Senior Secured Notes contains
certain restrictions with respect to the payment of dividends on
the common stock (other than stock dividends). Specifically, the
indenture restricts the payment of dividends based on (i)
availability of funds under a formula based on previously unapplied
cumulative net income since September 30, 1992 plus certain stock
sale proceeds after December 23, 1992 and (ii) satisfaction of the
then applicable minimum interest coverage ratio for debt
incurrence. Cumulative net income for purposes of the test
excludes gains or losses on asset sales and certain other
nonrecurring charges or credits specified in the indenture. Based
on the above restrictions, the Company was prohibited from paying
dividends on the common stock as of December 31, 1994.
The Company has three stock option plans, the Global Marine
Inc. 1989 Stock Option and Incentive Plan (the "Employee Plan"),
the Global Marine Inc. 1994 Non-Employee Stock Option and Incentive
Plan (the "Non-Employee Plan"), and the 1990 Non-Employee Director
Stock Option Plan (the "Director Plan"). Under the Employee and
Non-Employee Plans, incentive and non-qualified options to purchase
shares of common stock may be granted to key employees or certain
non-employees, and shares of common stock may be sold to employees
or certain non-employees at prices below the market price at the
time of the sale. Under the Director Plan, non-qualified options
to purchase shares of common stock are automatically granted each
year to outside directors of the Company. Under the plans, one-
half of each option grant is exercisable beginning one year after
the date of grant with the remainder exercisable after two years.
Options expire ten years after the date of grant. Options become
exercisable in full if more than 50 percent of the Company's
outstanding common stock is acquired by a person or a single group
of persons.
<PAGE>
<TABLE>
The following is a summary of stock option transactions:
Number Option Price
Of Shares Per Share
<S> <C> <C>
Outstanding, December 31, 1991 5,792,750 $0.56 to $5.44
Granted 2,118,500 $1.69 to $2.56
Exercised (319,750) $0.56
Canceled (91,100) $2.00 to $5.38
Outstanding, December 31, 1992 7,500,400 $0.56 to $5.44
Granted 1,825,000 $3.00 to $4.63
Exercised (779,500) $0.56 to $4.81
Canceled (183,200) $1.69 to $5.44
Outstanding, December 31, 1993 8,362,700 $0.56 to $5.44
Granted 1,761,900 $4.13 to $4.75
Exercised (484,500) $0.56 to $3.50
Canceled (414,900) $4.44 to $5.44
Outstanding, December 31, 1994 9,225,200 $0.56 to $5.44
Exercisable, December 31,
1994 6,586,550
1993 5,596,200
</TABLE>
During 1994, up to 200,000 shares of common stock were offered
for conditional sale under the Employee Plan to certain key
employees at a price of $0.10 per share. The exact number of
shares to be offered is dependent on the performance of the Company
as measured against certain long-term performance goals. None,
some or all of the shares will be issued no sooner than February
1997.
Shares of common stock available for future option grants and
incentive stock sales under the option plans totaled 5,830,637 and
7,041,691 at December 31, 1994 and 1993, respectively.
NOTE 8 - NET INCOME (LOSS) PER COMMON SHARE
Net income per common share is based on the weighted average
number of common shares outstanding and, for those periods in which
they have a dilutive effect, shares contingently issuable due to
outstanding options and incentive sales. The net loss per share is
based on the weighted average number of common shares outstanding.
The number of shares used were 163,828,711 for 1994, 151,984,669
for 1993, and 116,337,978 for 1992. Shares for 1992 include
1,703,048 share equivalents attributable to outstanding options.
Shares for 1994 and 1993 exclude the effect of outstanding options
because their effect was either immaterial or antidilutive.
NOTE 9 - INCOME TAXES
<TABLE>
The provision for income taxes consisted of the following:
1994 1993 1992
(In millions)
<S> <C> <C> <C>
Current - Foreign $ .9 $ .8 $ 2.8
- U.S. federal (.3) - .3
- State - (.5) -
PROVISION FOR INCOME TAXES $ .6 $ .3 $ 3.1
</TABLE>
Effective January 1, 1992, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Under SFAS No. 109, deferred income taxes are
recorded to reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end. The new
standard replaced SFAS No. 96, which the Company adopted in 1988.
The cumulative effect of the accounting change on years prior to
1992 was a $3.3 million reduction in the Company's deferred tax
liability as of January 1, 1992. The Company reported the
cumulative effect of the change in the 1992 statement of operations
and, as a result, increased 1992 net income by $3.3 million ($0.03
per share). The effect of the change on 1992 net income, excluding
the cumulative effect upon adoption, was not material.
A reconciliation of the differences between income taxes
computed at the U.S. federal statutory rate (35 percent for 1994
and 1993 and 34 percent for 1992) and the Company's reported
provision for income taxes follows:
<TABLE>
1994 1993 1992
(Dollars in millions)
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rate $ 1.9 $(9.2) $10.4
Income (deductions) not recognized for books (1.9) 8.7 (9.9)
Foreign tax provision .9 .8 2.8
Alternative minimum tax - - .3
State tax provision - (.5) -
Amortization of discount on note payable - .3 (.7)
Other, net (.3) .2 .2
PROVISION FOR INCOME TAXES $ .6 $ .3 $ 3.1
EFFECTIVE TAX RATE 11.1% 1.1% 10.1%
</TABLE>
As of December 31, 1994, the Company had deferred tax assets
totaling $445.7 million, deferred tax liabilities totaling $49.9
million, and a valuation allowance in the amount of $395.8 million.
The valuation allowance is based on the likelihood that the net
deferred tax asset in the amount of $395.8 million will not be
realized. The net change in the valuation allowance during 1994
was an increase of $0.9 million. The components of the deferred
tax amounts as of December 31 were as follows:
<TABLE>
<CAPTION>
Asset (Liability)
1994 1993
(In millions)
<S> <C> <C>
Net operating and capital loss carryforwards $ 415.5 $ 398.2
Investment tax credit carryforwards 29.0 29.8
Reserves for operating lease, pensions and claims 1.2 9.1
Income recognized for tax in excess of (less than) book income (2.7) 4.3
Depreciation and depletion (19.2) (16.9)
Tax benefit transfers (26.6) (29.4)
Deferred charges (1.4) (.2)
Net deferred tax asset before valuation allowance 395.8 394.9
Valuation allowance (395.8) (394.9)
NET DEFERRED TAX ASSET RECOGNIZED IN
CONSOLIDATED BALANCE SHEET $ - $ -
</TABLE>
As of December 31, 1994, the Company had $1,170.3 million in
net operating loss carryforwards ("NOLs") expiring from 1999 to
2009 and $29.0 million in investment tax credit carryforwards
("Credits") expiring from 1995 to 2000.
The NOLs and Credits are subject to review and potential
disallowance by the Internal Revenue Service ("IRS") upon audit of
the federal income tax returns of the Company. Section 382 of the
Internal Revenue Code of 1986, as amended, may impair the future
availability of the NOLs and the Credits if there is a change in
ownership of more than 50 percent of the Company's common stock,
including future changes in the ownership of the common stock.
This limitation, if it applied, would limit the utilization of the
NOLs and the Credits in each taxable year to an amount equal to the
product of the federal long-term tax-exempt bond rate prescribed
monthly by the IRS and the fair market value of all the Company's
stock at the time of the ownership change. The interpretation of
Section 382 is subject to numerous uncertainties. Accordingly,
while the Company believes its loss carryforwards are available to
it without limitation, such availability is not certain, nor is it
certain that such carryforwards, if presently available without
limitation, will continue to be available without limitation.
NOTE 10 - INDUSTRY SEGMENT INFORMATION
The principal industry segments of the Company are contract
drilling, drilling management services and oil and gas exploration,
development and production. In the industry segment data which
follows, intersegment revenues are recorded at transfer prices
which approximate the prices charged to unaffiliated customers and
have been eliminated from consolidated revenues. Operating income
consists of revenues less the related operating costs and expenses,
excluding interest and unallocated corporate expenses. Adjustments
and eliminations as they relate to operating income include the
reduction to drilling management operating income attributable to
service contracts on oil and gas properties in which the Company
has economic interests.
<PAGE>
<TABLE>
<CAPTION>
Drilling
Contract Management Adjustments
Drilling Services Oil and Gas Corporate & Eliminations Consolidated
(In millions)
REVENUES FROM UNAFFILIATED CUSTOMERS
<S> <C> <C> <C> <C> <C> <C>
1994 $211.4 $137.8 $ 9.8 $ - $ - $359.0
1993 200.3 57.1 11.6 - - 269.0
1992 214.1 26.9 19.3 - - 260.3
INTERSEGMENT REVENUES
1994 4.0 5.0 - - (9.0) -
1993 2.8 2.8 - - (5.6) -
1992 2.4 1.0 - - (3.4) -
TOTAL REVENUES
1994 215.4 142.8 9.8 - (9.0) 359.0
1993 203.1 59.9 11.6 - (5.6) 269.0
1992 216.5 27.9 19.3 - (3.4) 260.3
OPERATING INCOME
1994 25.6 16.5 3.7 (14.0) (5.7) 26.1
1993 4.5 9.8 5.3 (14.2) (2.2) 3.2
1992 28.2 (1) 0.2 3.2 (13.5) (2.4) 15.7
DEPRECIATION, DEPLETION
AND AMORTIZATION
1994 34.9 - 1.9 0.6 - 37.4
1993 32.0 - 3.3 0.6 - 35.9
1992 36.7 - 10.0 0.4 - 47.1
CAPITAL EXPENDITURES
1994 70.2 (2) - 4.9 0.8 - 75.9
1993 36.7 - 3.1 0.8 - 40.6
1992 18.3 - 1.7 0.9 - 20.9
IDENTIFIABLE ASSETS
1994 390.4 24.3 19.1 78.6 - 512.4
1993 379.6 5.4 43.2 64.7 - 492.9
1992 384.6 0.9 52.1 42.3 - 479.9
__________________________________
(1) Includes a $10.9 million net gain on the sale of two offshore drilling rigs.
(2) Excludes $3.0 million of common stock issued in connection with the acquisition
of two offshore drilling rigs.
</TABLE>
No single customer provided more than ten percent of revenues for 1994.
In 1993 one customer provided $29.2 million of contract drilling revenues.
In 1992 one customer provided $37.8 million and another customer provided $34.0
million of contract drilling revenues.
<PAGE>
<TABLE>
A breakdown of export sales by geographic area follows:
1994 1993 1992
(In millions)
<S> <C> <C> <C>
North Sea $ 39.2 $ 62.9 $100.3
West Africa 31.2 31.6 50.5
Far East and Australia 14.4 10.4 16.1
Mediterranean - - 12.0
Other 18.4 13.3 5.9
TOTAL EXPORT SALES $103.2 $118.2 $184.8
</TABLE>
The Company may be exposed to the risk of foreign currency
exchange losses in connection with its foreign operations. Such
losses are the result of holding net monetary assets (cash and
receivables in excess of payables) denominated in foreign
currencies during periods of a strengthening U.S. dollar. The
Company's foreign exchange gains and losses, which are primarily
attributable to the British pound, have not been and are not
expected to be material. This is because the Company's revenues
are primarily denominated in U.S. dollars; revenues in each foreign
currency are approximately equal to the Company's local expenses in
that currency; and the Company does not speculate in foreign
currencies or maintain significant foreign currency cash balances.
NOTE 11 - RETIREMENT PLANS
PENSIONS
The Company has defined benefit pension plans covering
substantially all of its employees. For the most part, benefits
are based on the employee's length of service and average earnings
for the five highest consecutive calendar years of compensation
during the last fifteen years of service. Substantially all
benefits are paid from funds previously provided to trustees. The
Company is the sole contributor to the plans, and its funding
objective is to fund participants' benefits under the plans as they
accrue, taking into consideration future salary increases. The
components of net pension cost were as follows:
<TABLE>
1994 1993 1992
(In millions)
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 2.1 $ 1.5 $ 1.8
Interest cost on projected benefit obligation 3.7 3.3 3.1
Actual return on plan assets 0.9 (2.9) (1.3)
Net amortization and deferral (3.5) 0.3 (0.9)
NET PENSION COST $ 3.2 $ 2.2 $ 2.7
</TABLE>
<PAGE>
The following table sets forth the funded status of the plans
and the amounts recognized in the Company's consolidated balance
sheet as of December 31:
<TABLE>
1994 1993
(In millions)
Actuarial present value of plan benefits:
<S> <C> <C>
Vested $39.8 $39.2
Nonvested 2.9 3.3
Accumulated benefit obligation 42.7 42.5
Effect of projected salary increases 6.8 6.9
Projected benefit obligation 49.5 49.4
Plan assets at fair value 37.8 36.7
Projected benefit obligation in excess of plan assets 11.7 12.7
Unrecognized net loss (6.2) (6.5)
Unrecognized net transition obligation - (0.1)
ACCRUED PENSION LIABILITY $ 5.5 $ 6.1
</TABLE>
Plan assets consist primarily of listed stocks and bonds, fixed-income
investments and real estate.
The expected long-term rate of return on plan assets used to compute
pension cost was 9.0 percent for 1994, 1993, and 1992. The assumed rate of
increase in future compensation levels ranged from 5.5 percent to
6.5 percent for each of 1994, 1993, and 1992. The discount rate
used to calculate the actuarial present value of the projected
benefit obligation was 8.25 percent for 1994, 7.5 percent for 1993,
and 8.5 percent for 1992.
The Company has a defined contribution savings plan in which
substantially all of the Company's domestic employees are eligible
to participate. Company contributions to this plan are based on
the amount of employee contributions. Charges to expense with
respect to this plan totaled $0.5 million for each of 1994, 1993
and 1992.
Other Postretirement Benefits
The Company provides life insurance and health care benefits
to substantially all retired employees, their covered dependents
and beneficiaries. Generally, employees who have reached the age
of 55 and have rendered a minimum of five years of service are
eligible for these benefits. For the most part, health care
benefits are contributory while life insurance benefits are
noncontributory.
Effective January 1, 1992, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," with respect to
retiree life insurance and health care benefits. Under SFAS No.
106, the Company is required to accrue the estimated cost of such
benefits during the employees' active service period. The Company
previously expensed the cost of these benefits as benefits were
paid. The cumulative effect on prior years of adopting SFAS No.
106 was a $1.9 million increase to a liability for retiree life
insurance and health care benefits as of January 1, 1992. The
Company elected to recognize immediately in income the cumulative
effect of the change and charged 1992 earnings in the amount of
$1.9 million ($0.02 per share). The effect of the adoption of SFAS
No. 106 on 1992 net income excluding the cumulative effect of the
change was not material.
Net postretirement life insurance and health care cost
consisted of the following components:
<TABLE>
<CAPTION>
1994 1993 1992
(In millions)
<S> <C> <C> <C>
Service cost - benefits earned during the period $0.1 $0.1 $0.1
Interest cost on accumulated postretirement benefit obligation 0.2 0.2 0.1
NET POSTRETIREMENT LIFE INSURANCE AND HEALTH CARE COST $0.3 0.3 $0.2
</TABLE>
Benefits under the Company's postretirement life insurance and
health care plans are not funded. The status of the plans as of
December 31 was as follows:
<TABLE>
<CAPTION>
1994 1993
(In millions)
Actuarial present value of accumulated postretirement benefit obligation:
<S> <C> <C>
Retirees and dependents $ 1.0 $ 1.1
Active employees eligible for benefits 0.6 0.5
Active employees not yet eligible for benefits 0.8 0.6
Unrecognized net loss (0.1) (0.2)
ACCRUED POSTRETIREMENT LIFE INSURANCE AND HEALTH CARE LIABILITY $ 2.3 $ 2.0
</TABLE>
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was 8.0 percent for
1995, gradually declining to 6.0 percent by the year 2015 and
remaining at that level thereafter. The effect of a one-percentage
point increase in the assumed health care cost trend rate for each
future year on (i) the portion of the accumulated postretirement
benefit obligation applicable to health care benefits as of
December 31, 1994 and (ii) the net postretirement health care cost
for the year then ended would be immaterial. The assumed discount
rate used in determining the accumulated postretirement benefit
obligation was 7.0 percent for 1994 and 1993.
NOTE 12 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash interest payments during 1994, 1993, and 1992 totaled
$28.7 million, $28.9 million and $23.5 million, respectively. Cash
payments for income taxes totaled $1.1 million in 1994, $5.4
million in 1993, and $1.4 million in 1992.
During 1994, the Company acquired two offshore drilling rigs
for $26.0 million in cash plus 750,000 shares of Global Marine Inc.
common stock.
In September 1993, the Company acquired a 100 percent ownership
interest in three offshore drilling rigs in exchange for a 100
percent ownership interest in its offshore drilling rig, the Glomar
Moray Firth I, plus $17.0 million in cash.
During 1992, in accordance with provisions of its debt
agreements, the Company deferred the payment of interest totaling
$18.3 million. This amount was added to outstanding principal
prior to payment.
NOTE 13 - LITIGATION SETTLEMENT
On May 27, 1992, the Company settled its take-or-pay litigation
(the "Transco Litigation") with Transcontinental Gas Pipe Line
Corporation ("TGPL"), a subsidiary of Transco Energy Company
("Transco"), which had been filed in the United States District
Court for the Southern District of Texas, Houston Division. In
1992, the Company received under the settlement $20.0 million in
cash, TGPL's promissory note in the principal amount of $20.0
million (the "Transco Note"), and the right to receive a number of
shares of Transco common stock, $0.50 par value per share, with a
value of approximately $15.0 million. Such shares were placed in
escrow for delivery in February 1994. In late 1992 Transco
deposited U.S. government securities into a trust account in an
amount sufficient to satisfy the required principal and interest
payments due the Company under the Transco Note.
In 1994, Transco released to the Company the U.S. government
securities held in the trust established to satisfy the Transco
Note. The Company sold the securities and received sales proceeds
totaling $15.2 million in full payment of the remaining balance due
under the note, including interest. In addition, the Company
received under the settlement 1,017,771 of the previously escrowed
shares of Transco common stock, 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. During 1994, the Company sold all 1,017,771 shares
of Transco common stock for $15.6 million, realizing a gain of $0.6
million. Total Transco dividends received during 1994, which
amounted to $1.4 million, plus the realized gain on sale of Transco
common stock of $0.6 million, are classified as other income on the
consolidated statement of operations.
<PAGE>
SUPPLEMENTAL OIL AND GAS DISCLOSURE (UNAUDITED)
The Company's estimated net proved reserves and proved
developed reserves of crude oil, natural gas and natural gas
liquids are shown in the table below:
<TABLE>
<CAPTION>
1994 1993 1992
GAS OIL Gas Oil Gas Oil
MILLIONS OF THOUSANDS OF Millions of Thousands of Millions of Thousands of
CUBIC FEET BARRELS Cubic Feet Barrels Cubic Feet Barrels
Proved Reserves:
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1 10,588 368 11,816 948 17,992 740
Increase (decrease) during the
year attributable to:
Revisions of previous estimates 1,606 349 1,209 (55) 2,566 229
Extensions, discoveries and
other additions 3,652 86 2,120 29 1,652 152
Production (4,009) (148) (4,557) (154) (10,055) (165)
Sales of minerals in place - - - (400) (339) (8)
Balance, December 31 11,837 655 10,588 368 11,816 948
Proved Developed Reserves:
January 1 10,588 368 11,816 948 17,992 740
December 31 11,674 631 10,588 368 11,816 948
</TABLE>
Proved reserves are estimated quantities of crude oil, natural
gas and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future
years from known reservoirs under existing economic and operating
conditions. All of the Company's proved reserves are located in
the United States. Proved developed reserves are those proved
reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods.
The estimates of the Company's proved oil and gas reserves were
prepared by Ryder Scott Company Petroleum Engineers and were based
on data supplied to them by the Company. Ryder Scott Company
Petroleum Engineers has issued reports that include descriptions of
the bases used in preparing the reserve estimates. These reports
are filed as exhibits to this Annual Report on Form 10-K.
<PAGE>
SUPPLEMENTAL OIL AND GAS DISCLOSURE (UNAUDITED)
Capitalized costs of unproved oil and gas properties excluded
from the full cost amortization pool as of December 31, 1994 and
1993 totaled $1.1 million and $0.5 million, respectively. Costs
incurred related to oil and gas activities consisted of the
following:
<TABLE>
1994 1993 1992
(In millions)
<S> <C> <C> <C>
Development costs $ 2.7 $ .3 $ 2.4
Exploration costs 1.1 2.2 (.7)
Acquisition of properties 1.1 .6 -
TOTAL $ 4.9 $ 3.1 $ 1.7
</TABLE>
The 1992 exploration costs were negative as a result of the
deferral of profit earned on turnkey wells drilled on oil and gas
properties in which the Company had working interests.
The calculation of estimated future net cash flows in the
following table assumed the continuation of existing economic
conditions. Future net cash inflows were computed by applying
year-end prices (except for future price changes as allowed by
contract) of oil and gas to the expected future production of
proved reserves, less estimated future expenditures (based on year-
end costs) expected to be incurred in developing and producing such
reserves.
The standardized measure of discounted future net cash flows
relating to proved oil and gas reserves as of December 31 follows:
<TABLE>
1994 1993 1992
(In millions)
<S> <C> <C> <C>
Future cash inflows $ 30.8 $ 29.9 $ 40.7
Future production and development costs 11.1 9.4 16.0
Future net cash flows 19.7 20.5 24.7
Ten percent annual discount for estimated
timing of cash flows 2.8 4.2 4.2
STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOWS RELATING TO
PROVED OIL AND GAS RESERVES $ 16.9 $ 16.3 $ 20.5
</TABLE>
<PAGE>
SUPPLEMENTAL OIL AND GAS DISCLOSURE (UNAUDITED)
Principal sources of changes in the standardized measure of
discounted future net cash flows follow:
<TABLE>
1994 1993 1992
(In millions)
<S> <C> <C> <C>
Balance, January 1 $ 16.3 $ 20.5 $ 26.1
Revisions:
Quantity estimates and production rates 5.0 2.4 4.5
Prices, net of lifting costs (4.0) (.1) .3
Estimated future development costs .1 (.6) (.2)
Accretion of ten percent discount 1.6 2.0 2.6
Net revisions 2.7 3.7 7.2
Additions, extensions and discoveries
plus improved recovery 5.3 3.0 3.6
Net sales of production (7.5) (9.6) (16.2)
Sales and purchases of reserves in place - (2.5) (.4)
Development costs incurred .1 1.2 .2
BALANCE, DECEMBER 31 $ 16.9 $ 16.3 $ 20.5
</TABLE>
Results of operations from producing activities follow:
<TABLE>
1994 1993 1992
(In millions)
<S> <C> <C> <C>
REVENUES $ 9.8 $ 11.6 $ 19.3
EXPENSES
Production costs 2.3 2.0 3.3
Depreciation, depletion and amortization 1.9 3.3 10.0
Technical support and other 1.9 1.0 2.8
Total expenses 6.1 6.3 16.1
Income before income taxes 3.7 5.3 3.2
Income tax benefit - (.5) -
RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES
(EXCLUDING CORPORATE OVERHEAD AND INTEREST) $ 3.7 $ 5.8 $ 3.2
</TABLE>
<PAGE>
CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In millions, except per share data)
<TABLE>
<CAPTION>
1994 1993
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 68.0 $ 76.3 $ 91.4 $ 123.3 $61.0 $ 54.5 $ 67.4 $ 86.1
Operating income (loss) 3.8 4.9 6.8 10.6 (0.8) (4.3) 1.2 7.1
Income (loss):
Before accounting change $ (1.7) $ (0.8) $ 1.1 $ 6.2 $(9.3) $(11.9) $ (6.8) $ 1.5
Cumulative effect of change
in accounting principle (3.5) - - - - - - -
Net income (loss) $ (5.2) $ (0.8) $ 1.1 $ 6.2 $(9.3) $(11.9) $ (6.8) $ 1.5
Income (loss) per share:
Before accounting change $ (.01) $ .00 $ .01 $ .04 $(.06) $ (.08) $ (.04) $ .01
Cumulative effect of change
in accounting principle (.02) - - - - - - -
Net income (loss) per share $ (.03) $ .00 $ .01 $ .04 $(.06) $(.08) $ (.04) $ .01
Price ranges of common stock:
High 4-7/8 4-13/16 4-7/8 5 3-3/4 5-3/8 5-5/8 5-1/2
Low 3-3/4 3-5/8 3-3/4 3-5/8 2-1/8 3-3/8 3-3/4 3-1/2
</TABLE>
During the first quarter of 1994, the Company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." 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). Other than the cumulative effect, the effect of the accounting
change was not material.
The net loss for the first quarter of 1994 also includes the receipt
of $1.1 million in previously escrowed dividends on its investment in common
stock of Transco.
Net income for the fourth quarter of 1994 includes interest income
of $0.8 million recognized in connection with the favorable settlement of the
Company's demobilization obligations with respect to a third-party owned rig
aboard the Glomar Beaufort Sea I.
Net income for the fourth quarter of 1993 includes a gain of $1.0
million related to a favorable settlement of a foreign income tax liability.
The Company did not declare any dividends on its common stock in
either 1994 or 1993.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Global Marine Inc.
Our report on the consolidated financial statements of Global
Marine Inc. and subsidiaries is included on page 26 of this Form
10-K. In connection with our audits of such financial statements,
we have also audited the related financial statement schedule
listed in the index on page 54 of this Form 10-K.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the
information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
Houston, Texas
February 10, 1995
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In millions)
<CAPTION>
Additions
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Year Expenses Accounts Deductions of Year
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Reserve for loss on
operating lease $ 8.4 $ - $.2 (a) $ 8.6 (b) $ -
Allowance for doubtful
accounts receivable 1.2 .2 - .2 1.2
Year ended December 31, 1993:
Reserve for loss on
operating lease $19.6 $ - $ .7 (a) $11.9 (b) $ 8.4
Allowance for doubtful
accounts receivable 1.2 .5 - .5 1.2
Year ended December 31, 1992:
Reserve for loss on
operating lease $29.8 $ - $1.3 (a) $11.5 (b) $19.6
Allowance for doubtful
accounts receivable 1.3 - - .1 1.2
(a) Represents unearned interest income which was charged to an escrow account
for the lease of the Glomar Beaufort Sea I and which was classified as a
noncurrent asset.
(b) Represents lease payments for the Glomar Beaufort Sea I which were made
from the escrow account described in (a) above.
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As permitted by General Instruction G, the information called
for by this item with respect to the Company's directors is
incorporated by reference from the Company's definitive proxy
statement to be filed pursuant to Regulation 14A within 120 days
after the end of the last fiscal year. Information with respect to
the Company's executive officers is set forth in Part I of this
Annual Report on Form 10-K under the caption "Executive Officers of
the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
As permitted by General Instruction G, the information called
for by this item is incorporated by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after the end of the last fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As permitted by General Instruction G, the information called
for by this item is incorporated by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after the end of the last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As permitted by General Instruction G, the information called
for by this item is incorporated by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after the end of the last fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Page
(a) Financial Statements, Schedules and Exhibits
(1) Financial Statements
Report of Independent Accountants 26
Consolidated Statement of Operations 27
Consolidated Balance Sheet 28
Consolidated Statement of Cash Flows 30
Consolidated Statement of Shareholders' Equity 31
Notes to Consolidated Financial Statements 32
(2) Financial Statement Schedule
Report of Independent Accountants 51
Schedule II - Valuation and Qualifying Accounts 52
Schedules other than those listed above are omitted for the
reason that they are not applicable.
(3) Exhibits
The following instruments are included as exhibits to this
Annual Report on Form 10-K and are filed herewith unless
otherwise indicated. Exhibits incorporated by reference
are so indicated by parenthetical information.
3(i).1 Restated Certificate of Incorporation of the
Company as filed with the Secretary of State of
Delaware on March 15, 1989, effective March 16,
1989. (Incorporated herein by this reference to
Exhibit 3(i).1 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993.)
3(i).2 Certificate of Amendment of the Restated
Certificate of Incorporation of the Company as
filed with the Secretary of State of Delaware on
May 11, 1990. (Incorporated herein by this
reference to Exhibit 3(i).2 of the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1993.)
3(i).3 Certificate of Correction of the Restated
Certificate of Incorporation of the Company as
filed with the Secretary of State of Delaware on
September 25, 1990. (Incorporated herein by this
reference to Exhibit 3(i).3 of the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1993.)
3(i).4 Certificate of Amendment of the Restated
Certificate of Incorporation of the Company as
filed with the Secretary of State of Delaware on
May 11, 1992. (Incorporated herein by this
reference to Exhibit 3(i).4 of the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1993.)
3 (i).5 Certificate of Amendment of the Restated
Certificate of Incorporation of the Company as
filed with the Secretary of State of Delaware on
May 12, 1994. (Incorporated herein by this
reference to Exhibit 4.5 of the Registrant's
Registration Statement on Form S-3 (No. 33-53691)
filed with the Commission on May 18, 1994.)
3(ii).1 By-laws of the Company as amended on May 10, 1989.
(Incorporated herein by this reference to Exhibit
3(ii).1 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993.)
4.1 Indenture, dated as of December 23, 1992, between
the Company and Wilmington Trust Company, as
Trustee, with respect to the Senior Secured Notes.
(Incorporated herein by this reference to Exhibit
4.5 of Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-3
(No. 33-34013) filed with the Commission on January
22, 1993.)
4.2 First Priority Naval Mortgage, dated April 29,
1993, from Global Marine Drilling Company to
Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.6 of the Registrant's Registration Statement on
Form S-3 (No. 33-65272) filed with the Commission
on June 30, 1993.)
4.3 First Preferred Fleet Mortgage, dated December 23,
1992, from Global Marine Drilling Company to
Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.7 of Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-3
(No. 33-34013) filed with the Commission on January
22, 1993.)
4.4 Release of Vessel from Lien of First Preferred
Fleet Mortgage, dated April 30, 1993, by Wilmington
Trust Company, as Trustee. (Incorporated herein by
this reference to Exhibit 4.8 of the Registrant's
Registration Statement on Form S-3 (No. 33-65272)
filed with the Commission on June 30, 1993.)
4.5 First Preferred Fleet Mortgage, dated December 23,
1992, from Global Marine Deepwater Drilling Inc. to
Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.8 of Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-3
(No. 33-34013) filed with the Commission on January
22, 1993.)
4.6 Release of Vessel from Lien of Mortgage, dated
January 27, 1993, by Wilmington Trust Company, as
Trustee. (Incorporated herein by this reference to
Exhibit 4.6 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993.)
4.7 First Priority Naval Mortgage, dated March 17,
1993, from Global Marine Nautilus Inc. to
Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.10 of the Registrant's Registration Statement on
Form S-3 (No. 33-65272) filed with the Commission
on June 0, 1993.)
4.8 Release of Vessel from Lien of First Priority Naval
Fleet Mortgage, dated September 8, 1993, by
Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.8 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.)
4.9 Supplement No. 1, dated September 8, 1993, to First
Priority Naval Fleet Mortgage from Global Marine
Nautilus Inc. to Wilmington Trust Company, as
Trustee. (Incorporated herein by this reference to
Exhibit 4.9 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993.)
4.10 Assumption Agreement and Supplement No. 2, dated
December 16, 1993, to First Priority Naval Fleet
Mortgage among Global Marine Drilling Company and
Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.10 of the Registrant's Annual Report on Form 10-
K for the year ended December 31, 1993.)
4.11 First Preferred Fleet Mortgage, dated December 23,
1992, from Global Marine West Africa Inc. to
Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.10 of Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-3
(No. 33-34013) filed with the Commission on January
22, 1993.)
4.12 First Preferred Ship Mortgage, dated December 23,
1992, from Global Marine Adriatic Inc. to
Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.11 of Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-3
(No. 33-34013) filed with the Commission on January
22, 1993.)
4.13 Assumption Agreement and Supplement No.1, dated
March 4, 1993, to First Preferred Ship Mortgage
among Global Marine Adriatic Inc., as Original
Mortgagor, Global Marine Drilling Company, as
Assuming Mortgagor, and Wilmington Trust Company,
as Trustee. (Incorporated herein by this reference
to Exhibit 4.13 of the Registrant's Registration
Statement on Form S-3 (No. 33-65272) filed with the
Commission on June 30, 1993.)
4.14 First Preferred Ship Mortgage, dated December 23,
1992, from Global Marine Australia Inc. to
Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.12 of Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-3
(No. 33-34013) filed with the Commission on January
22, 1993.)
4.15 First Preferred Ship Mortgage, dated December 23,
1992, from Global Marine Bismarck Sea Inc. to
Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.13 of Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-3
(No. 33-34013) filed with the Commission on January
22, 1993.)
4.16 First Priority Naval Mortgage, dated March 17,
1993, from Global Marine North Sea Inc. to
Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.16 of the Registrant's Registration Statement on
Form S-3 (No. 33-65272 ) filed with the Commission
on June 30, 1993.)
4.17 Subsidiary Pledge Agreement, dated December 23,
1992, between Global Marine Adriatic Inc. and
Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.15 of Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-3
(No. 33-34013) filed with the Commission on January
22, 1993.)
4.18 Subsidiary Pledge Agreement, dated December 23,
1992, between Global Marine Australia Inc. and
Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.16 of Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-3
(No. 33-34013) filed with the Commission on January
22, 1993.)
4.19 Subsidiary Pledge Agreement, dated December 23,
1992, between Global Marine Bismarck Sea Inc. and
Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.17 of Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-3
(No. 33-34013) filed with the Commission on January
22, 1993.)
4.20 Subsidiary Pledge Agreement, dated December 23,
1992, between Global Marine Deepwater Drilling Inc.
and Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.18 of Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-3
(No. 33-34013) filed with the Commission on January
22, 1993.)
4.21 Subsidiary Pledge Agreement, dated December 23,
1992, between Global Marine Drilling Company Inc.
and Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.19 of Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-3
(No. 33-34013) filed with the Commission on January
22, 1993.)
4.22 Subsidiary Pledge Agreement, dated December 23,
1992, between Global Marine Nautilus Inc. and
Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.20 of Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-3
(No. 33-34013) filed with the Commission on January
22, 1993.)
4.23 Subsidiary Pledge Agreement, dated December 23,
1992, between Global Marine North Sea Inc. and
Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.21 of Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-3
(No. 33-34013) filed with the Commission on January
22, 1993.)
4.24 Subsidiary Pledge Agreement, dated December 23,
1992, between Global Marine West Africa Inc. and
Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit
4.22 of Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-3
(No. 33-34013) filed with the Commission on January
22, 1993.)
10.1 Credit Agreement, dated June 24, 1993, among Global
Marine Inc., Global Marine Drilling Company, Global
Marine Australia Inc., Global Marine Baltic Inc.,
Global Marine Deepwater Drilling Inc. and Societe
Generale, New York Branch. (Incorporated herein by
this reference to Exhibit 10.1 of the Registrant's
Registration Statement on Form S-3 (No. 33-65272)
filed with the Commission on June 30, 1993.)
10.2 Memorandum of Agreement, dated June 6, 1993,
between Global Marine Inc. and Transocean Drilling
AS, and Amendment No. 1 thereto dated June 16,
1993. (Incorporated herein by this reference to
Exhibit 99.1 of the Registrant's Registration
Statement on Form S-3 (No. 33-65272) filed with the
Commission on June 30, 1993.)
10.3 Letter of Intent in Order to Form a Joint Venture,
dated June 6, 1993, between Global Marine Inc. and
Transocean Drilling AS. (Incorporated herein by
this reference to Exhibit 99.2 of the Registrant's
Registration Statement on Form S-3 (No. 33-65272)
filed with the Commission on June 30, 1993.)
10.4 Purchase and Sale Agreement, dated August 24, 1993,
between Global Marine Inc. and Transocean Drilling
AS. (Incorporated herein by this reference to
Exhibit 10.3 of the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30,
1993.)
10.5 Management Agreement (relating to Glomar Moray
Firth I), dated September 10, 1993, between Global
Marine Nautilus Inc. and Transocean Drilling AS.
(Incorporated herein by this reference to Exhibit
10.4 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993.)
10.6 Management Agreement (relating to Transocean No.
5), dated September 10, 1993, between Global Marine
Nautilus Inc. and Transocean Drilling AS.
(Incorporated herein by this reference to Exhibit
to 10.5 of the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30,
1993.)
10.7 Letter Employment Agreement dated February 14,
1995, between the Company and C. Russell Luigs.
10.8 Consulting Agreement dated February 14, 1986,
between Challenger Minerals Inc. and Donald B.
Brown. (Incorporated herein by this reference to
Exhibit 10.2 of the Company's Annual Report on Form
10-K for the year ended December 31, 1987.)
10.9 Consulting Agreement dated as of February 18, 1986,
between Challenger Minerals Inc. and William C.
Walker. (Incorporated herein by this reference to
Exhibit 10.3 of the Company's Annual Report on Form
10-K for the year ended December 31, 1987.)
10.10 Form of Letter Severance Agreement dated February
7, 1989, between the Company and six executive
officers, respectively. (Incorporated herein by
this reference to Exhibit 10.5 of the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1988.)
10.11 Letter Severance Agreement dated May 7, 1992,
between the Company and one executive officer.
(Incorporated herein by this reference to Exhibit
10.5 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992.)
10.12 Global Marine Inc. 1989 Stock Option and Incentive
Plan. (Incorporated herein by this reference to
Exhibit 10.6 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1988.)
10.13 First Amendment to Global Marine Inc. 1989 Stock
Option and Incentive Plan. (Incorporated herein by
this reference to Exhibit 10.6 of the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1990.)
10.14 Second Amendment to Global Marine Inc. 1989 Stock
Option and Incentive Plan. (Incorporated herein by
this reference to Exhibit 10.7 of the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1991.)
10.15 Third Amendment to Global Marine Inc. 1989 Stock
Option and Incentive Plan. (Incorporated herein by
this reference to Exhibit 10.19 of the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1993.)
10.16 Fourth Amendment to Global Marine Inc. 1989 Stock
Option and Incentive Plan.
10.17 Form of Incentive Stock Sale Agreement dated
February 8, 1994, between the Company and nine
executive officers, respectively. (Incorporated
herein by this reference to Exhibit 10.21 of the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993.)
10.18 Form of Incentive Stock Sale Agreement dated
February 14, 1995, between the Company and nine
executive officers, respectively.
10.19 Form of Performance Stock Memorandum dated June 7,
1994, regarding conditional opportunity to acquire
Company stock granted to six executive officers,
respectively. (Incorporated herein by this
reference to Exhibit 10.1 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994.)
10.20 Form of Performance Stock Memorandum dated February
14, 1995, regarding conditional opportunity to
acquire Company stock granted to six executive
officers, respectively.
10.21 Executive Life Insurance Plan. (Incorporated
herein by this reference to Exhibit 10.5 of the
Company's Annual Report on Form 10-K for the year
ended December 31, 1988.)
10.22 Global Marine Inc. Executive Supplemental
Retirement Plan of 1990. (Incorporated herein by
this reference to Exhibit 10.8 of the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1990.)
10.23 Global Marine Benefit Equalization Retirement Plan
effective January 1, 1990. (Incorporated herein by
this reference to Exhibit 10.8 of the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1989.)
10.24 Global Marine Benefit Equalization Retirement Trust
as established effective January 1, 1990.
(Incorporated herein by this reference to Exhibit
10.9 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1989.)
10.25 Form of Indemnification Agreement entered into
between the Company and each of its directors and
officers. (Incorporated herein by this reference
to Exhibit 10.12 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1986.)
10.26 Amended and Restated Retirement Plan for Outside
Directors. (Incorporated herein by this reference
to Exhibit 10.12 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1990.)
10.27 Global Marine Inc. 1990 Non-Employee Director Stock
Option Plan (Incorporated herein by this reference
to Exhibit 10.18 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991.)
10.28 Global Marine Inc. 1994 Management Incentive Award
Plan. (Incorporated herein by this reference to
Exhibit 10.30 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993.)
10.29 Global Marine Inc. 1995 Management Incentive Award
Plan.
11.1 Computation of Earnings Per Common Share.
21.1 List of Subsidiaries.
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
23.2 Consent of Independent Petroleum Engineers (Ryder
Scott Company Petroleum Engineers).
27.1 Financial Data Schedule. (Exhibit 27.1 is being
submitted as an exhibit only in the electronic
format of this Annual Report on Form 10-K 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.)
99.1 Report of Independent Petroleum Engineers dated
February 8, 1995.
99.2 Report of Independent Petroleum Engineers dated
February 7, 1994. (Incorporated herein by this
reference to Exhibit 99.1 of the Company's Annual
Report on Form 10-K for the year ended December 31,
1993.)
99.3 Reports of Independent Petroleum Engineers dated
January 29, 1993. (Incorporated herein by this
reference to Exhibit 28.1 of the Company's Annual
Report on Form 10-K for the year ended December 31,
1992.)
The Company hereby undertakes, pursuant to Regulation S-K,
Item 601(b), paragraph (4) (iii), to furnish to the Securities
and Exchange Commission on request agreements defining the
rights of holders of long-term debt of the Company and its
consolidated subsidiaries not filed herewith in accordance
with said Item.
Management Contracts, Compensatory Plans and Arrangements:
The following management contracts, compensatory plans and
arrangements, which are required to be filed as exhibits to
this Annual Report on Form 10-K, are included in the
immediately preceding list as Exhibits 10.7 through 10.29.
The parenthetical information in the following list specifies,
for each such contract, plan or arrangement, its exhibit
number in the immediately preceding list, which list includes
information regarding the filing with which it can be found.
Employment Agreement:
Letter Employment Agreement dated February 14, 1995,
between the Company and C. Russell Luigs (Exhibit 10.7).
<PAGE>
Consulting Agreements:
Consulting Agreement, dated as of February 18, 1986,
between Challenger Minerals Inc. and Donald B. Brown
(Exhibit 10.8); Consulting Agreement, dated as of February
18, 1986, between Challenger Minerals Inc. and William C.
Walker (Exhibit 10.9).
Severance Agreements:
Form of Letter Severance Agreement dated February 7, 1989,
between the Company and six executive officers,
respectively (Exhibit 10.10); Form of Letter Severance
Agreement dated May 7, 1992, between the Company and one
executive officer (Exhibit 10.11).
Stock Option Plans and Agreements Thereunder:
Global Marine Inc. 1989 Stock Option and Incentive Plan
(Exhibit 10.12); First Amendment thereto (Exhibit 10.13);
Second Amendment thereto (Exhibit 10.14); Third Amendment
thereto (Exhibit 10.15). Fourth Amendment thereto (Exhibit
10.16).
Form of Incentive Stock Sale Agreement dated
February 8, 1994, between the Company and nine
executive officers, respectively (Exhibit 10.17);
Form of Incentive Stock Sale Agreement dated
February 14, 1995, between the Company and nine
executive officers, respectively (Exhibit 10.18).
Form of Performance Stock Memorandum dated June 7, 1994,
regarding conditional opportunity to acquire Company stock
granted to six executive officers, respectively (Exhibit
10.19); Form of Performance Stock Memorandum dated February
14, 1995, regarding conditional opportunity to acquire
Company stock granted to six executive officers,
respectively (Exhibit 10.20).
Global Marine Inc. 1990 Non-Employee Director Stock Option
Plan (Exhibit 10.27).
Life Insurance Plan:
Executive Life Insurance Plan (Exhibit 10.21).
Retirement Plans:
Global Marine Inc. Executive Supplemental Retirement Plan
of 1990 (Exhibit 10.22).
Global Marine Benefit Equalization Retirement Plan
effective January 1, 1990 (Exhibit 10.23).
Global Marine Benefit Equalization Retirement Trust as
established effective January 1, 1990 (Exhibit 10.24).
Amended and Restated Retirement Plan for Outside Directors
(Exhibit 10.26).
<PAGE>
Indemnification Agreements:
Form of Indemnification Agreement entered into between the
Company and each of its directors and officers (Exhibit
10.25).
Incentive Award Plans:
Global Marine Inc. 1994 Management Incentive Award Plan
(Exhibit 10.28); Global Marine Inc. 1995 Management
Incentive Award Plan (Exhibit 10.29).
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K
during the last quarter of 1994.
<PAGE>
SIGNATURES REQUIRED FOR FORM 10-K
Pursuant to the requirements of Section 13 or 15(d) 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)
Date: March 16, 1995 By: J. C. MARTIN
(J. C. Martin)
Senior Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
<TABLE>
Signature Title Date
<S> <C> <C>
C. R. LUIGS Chairman of the Board, March 16, 1995
(C. R. Luigs) President and Chief
Executive Officer
J. C. MARTIN Senior Vice President and March 16, 1995
(J. C. Martin) Chief Financial Officer
(Principal Financial
Officer) and Director
THOMAS R. JOHNSON Vice President and March 16, 1995
(Thomas R. Johnson) Corporate Controller
(Principal Accounting Officer)
PATRICK M. AHERN Director March 16, 1995
(Patrick M. Ahern)
DONALD B. BROWN Director March 16, 1995
(Donald B. Brown)
E. J. CAMPBELL Director March 16, 1995
(E. J. Campbell)
PETER T. FLAWN Director March 16, 1995
(Peter T. Flawn)
JOHN M. GALVIN Director March 16, 1995
(John M. Galvin)
L. L. LEIGH Director March 16, 1995
(L. L. Leigh)
SIDNEY A. SHUMAN Director March 16, 1995
(Sidney A. Shuman)
WILLIAM R. THOMAS Director March 16, 1995
(William R. Thomas)
WILLIAM C. WALKER Director March 16, 1995
(William C. Walker)
</TABLE>
EXHIBIT INDEX
A. Copies of exhibits listed below are submitted with this
Annual Report on Form 10-K, immediately following this index.
10.7 Letter Employment Agreement dated February 14, 1995, between the
Company and C. Russell Luigs.
10.16 Fourth Amendment to Global Marine Inc. 1989 Stock Option and
Incentive Plan.
10.18 Form of Incentive Stock Sale Agreement dated February 14,
1995, between the Company and nine executive officers,
respectively.
10.20 Form of Performance Stock Memorandum dated February 14,
1995, regarding conditional opportunity to acquire Company
stock granted to six executive officers, respectively.
10.29 Global Marine Inc. 1995 Management Incentive Award Plan.
11.1 Computation of Earnings Per Common Share.
21.1 List of Subsidiaries.
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
23.2 Consent of Independent Petroleum Engineers (Ryder Scott Company
Petroleum Engineers).
27.1 Financial Data Schedule. (Exhibit 27.1 is being submitted
as an exhibit only in the electronic format of this Annual
Report on Form 10-K 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.)
99.1 Report of Independent Petroleum Engineers dated February 8, 1995.
B. All other exhibits listed in Item 14(a)(3) are incorporated
by reference in this Annual Report on Form 10-K, as stated in
Item 14(a)(3). Descriptions of such exhibits are
incorporated herein by this reference to Item 14(a)(3) of
this Report.
EXHIBIT 10.7
GLOBAL MARINE INC.
777 N. Eldridge Road
Houston, Texas 77079-4416
U.S.A.
Telephone: 713/596-5100 Mailing Address:
Telex: 765558 P.O. Box 4577
Fax: 531-1260 Houston, Texas 77210-4577
February 14, 1995
Mr. C. Russell Luigs
Chairman, President and
Chief Executive Officer
Global Marine Inc.
777 N. Eldridge
Houston, Texas 77079
Dear Mr. Luigs:
This letter will serve as evidence of an employment agreement
between Global Marine Inc. ("GMI"), as employer, and C. Russell
Luigs, its Chief Executive Officer.
GMI agrees to employ Mr. Luigs, from and including the
Effective Date as hereinafter defined, as its Chief Executive
Officer, and Mr. Luigs agrees to be employed in this capacity and
to devote substantially all of his business time and effort to this
position. This agreement will be for a term from and including the
Effective Date to and including April 4, 1998. As used herein,
"Effective Date" shall mean the date first written above.
During the term of this agreement, GMI will pay Mr. Luigs an
annual base salary of $500,000, or such larger salary amount as may
have been established from time to time by the Board of Directors
of GMI. Mr. Luigs will be considered for annual bonus, performance
stock and stock option awards in accordance with GMI's practice and
will participate in the benefits and perquisites appropriate to his
position.
GMI expects that its executive offices will remain in the
Houston, Texas area, and Mr. Luigs' office will not be moved from
that area without his consent.
In the event that Mr. Luigs is removed from his position as
GMI's Chief Executive Officer for reasons other than Cause, as
hereinafter defined, or in the event that this agreement is
otherwise terminated prior to April 5, 1998, GMI will continue Mr.
Luigs' salary for a period of two years. During this period, Mr.
Luigs' group insurance benefits will be continued for him until
similar benefits are provided through other employment and all
stock options granted to Mr. Luigs by GMI will remain exercisable
in accordance with their terms. A termination of employment
hereunder shall also be deemed to include, without implied
limitation, any substantial alteration or diminution by GMI in the
responsibilities, duties or authority associated with the position
of Chief Executive Officer of GMI or with respect to Mr. Luigs as
Chief Executive Officer. "Cause" will mean willful and material
acts of misconduct deliberately harmful to GMI and will not mean
inadequate performance or incompetence.
The salary and benefit continuation described above will also
be provided in the event of termination due to disability that
prevents Mr. Luigs from fulfilling the responsibilities of his
position. The Board of Directors of GMI will have the authority to
decide if such disability occurs. In the event of such disability,
payments under this agreement will be reduced by the amount of any
disability payments received by Mr. Luigs that have been funded or
insured at the expense of GMI or any of its affiliates.
Mr. Luigs is a participant in GMI's Executive Supplemental
Retirement Plan. Any period during which salary continuation
payments are made under this agreement, prior to such date as Mr.
Luigs first begins to receive a benefit under said plan, will be
counted as service for computing benefits under said plan, and the
salary continuation payments during that period will be counted as
compensation for computing benefits under said plan.
In the event that Mr. Luigs dies while entitled to salary
continuation payments under this agreement, they will be continued
to his designated beneficiary or his estate for the remainder of
the two-year period.
Mr. Luigs agrees that, during any period he is receiving
salary continuation payments under this agreement, he will not,
directly or indirectly, in any capacity recruit from, compete with,
or in any material way participate in or assist others in competing
with, GMI or any of its affiliates. Mr. Luigs agrees that in the
event he breaches the foregoing provision, GMI shall have no
further obligation hereunder.
For a period of one year following a Change of Ownership, as
hereinafter defined, Mr. Luigs may elect, in his sole and absolute
discretion, to terminate his employment under this agreement and,
upon such election, shall receive the salary and benefit
continuation described above. In this event, the salary and
benefit continuation described above will be provided without
regard to any subsequent competitive activity by Mr. Luigs. A
"Change of Ownership" will have occurred for purposes of this
agreement if, at any time on or after the Effective Date, direct or
indirect beneficial ownership of securities representing, or other
direct or indirect control of, 35% or more of the voting power of
GMI is held by one holder or by a group of holders working in
concert for the purpose of such ownership or control.
In the event of a dispute or disagreement regarding the right
of Mr. Luigs to receive any compensation or other benefit hereunder
or the amount of such compensation or other benefit, Mr. Luigs
shall be reimbursed by GMI for any and all attorney's fees and
other costs and expenses as and when expended by Mr. Luigs in
connection with such dispute or disagreement, regardless of the
outcome thereof. Further, in the event Mr. Luigs becomes entitled
to any monies or benefits hereunder, GMI agrees to pay such monies
and provide such benefits without regard to any and all claims,
offsets or causes of action which GMI may have against Mr. Luigs
until such time, if ever, as GMI shall have obtained a final
judgment in its favor in a court of competent jurisdiction
regarding such claim, offset or cause of action.
This agreement supersedes any and all prior employment
agreements between Mr. Luigs and GMI.
GLOBAL MARINE INC.
By: /s/ Patrick M. Ahern
Chairman, Compensation
Committee of the Board
Date: February 14, 1995
Confirmed and Agreed:
/s/ C. R. Luigs
C. Russell Luigs
Date: 16 February 1995
EXHIBIT 10.16
GLOBAL MARINE INC.
1989 STOCK OPTION AND INCENTIVE PLAN
FOURTH AMENDMENT
The Global Marine Inc. 1989 Stock Option and Incentive Plan,
as heretofore amended (the "Plan"), is hereby further amended as
follows, effective February 14, 1995:
1. Section 5 of the Plan is hereby amended by adding
subsection (h) thereto, said subsection (h) to be and read as
follows:
"(h) The Company may require any participant
exercising an option or stock appreciation right or
purchasing shares of common stock hereunder to
reimburse the Company for any taxes required by any
government to be withheld or otherwise deducted and
paid by the Company in respect thereof. The Board of
Directors or the Committee may, in its discretion,
permit or require the participant to satisfy such
obligation to reimburse the Company by (i) making a
cash payment to the Company, (ii) having the Company
deduct the required amount from any cash compensation
that the Company or any of its subsidiaries may owe the
participant, (iii) having the Company withhold from
shares issuable in the related transaction, or
surrendering the right to acquire, either a specified
number of shares or shares having a specified value, in
each case with a value not in excess of the
participant's related tax liability, (iv) tendering
shares previously issued pursuant to the Plan or other
shares of the Company's common stock owned by the
participant, or (v) combining any or all of the
foregoing in any fashion."
2. Terms used in this Amendment and not defined herein are
used herein as they are defined in the Plan. References in the
Plan to "this Plan" (and indirect references such as "hereof" and
"herein") are amended to refer to the Plan as amended by this
Amendment.
3. Except as expressly amended hereby, the Plan shall
remain in full force and effect.
EXHIBIT 10.18
GLOBAL MARINE INC.
INCENTIVE STOCK SALE AGREEMENT
(1994 Non-Employee Stock Option and Incentive Plan)
GLOBAL MARINE INC. (the "Company"), desiring to afford an
opportunity to the offeree identified as such below (the
"Offeree") to purchase shares of the Company's common stock, $.10
par value per share (the "Common Stock") at an incentive purchase
price below the market price at the time of sale and to provide
the Offeree with recognition and an added incentive in connection
with the provision of services to or for the benefit of the
Company or of one or more of its subsidiaries, hereby makes an
offer to sell to the Offeree, under the Company's 1994 Non-
Employee Stock Option and Incentive Plan, the number of shares of
such Common Stock specified below, at the price specified below,
subject to and upon the terms and conditions set forth below (the
"Offer").
1. Specification of Date, Offeree, Number of Shares, Purchase
Price and Term.
(a) The date of the Offer is February 14, 1995.
(b) The Offeree is .
(c) The number of shares of the Company's Common Stock
offered hereby is .
(d) The purchase price of the Common Stock offered hereby
is $0.10 per share.
(e) The term of the Offer shall expire at the close of
business at the Company's principal executive office in
Houston, Texas, on February 16, 1995; from and after
that time, if the Offer has not been accepted before
that time as provided in this Agreement, neither the
Offeree nor the Company shall have any rights or
obligations under this Agreement.
2. Method of Acceptance and Purchase. The Offeree may accept
the Offer by executing a copy of this Agreement in the
acceptance space provided below and delivering said executed
copy or a facsimile thereof during the term of the Offer to
the Secretary of the Company at the Company's principal
executive office in Houston, Texas. Such acceptance shall
be completed to indicate the number of shares being
purchased. Payment of the purchase price for such number of
shares will be effected by means of immediate deduction from
amounts owed to the Offeree or in respect of the Offeree's
services. Promptly after receipt of such acceptance, the
Company shall, subject to the other terms and conditions of
this Agreement, issue a certificate for such number of
shares to the Offeree.
3. Restrictions on Share Transfer by Certain Offerees. Until
six months have elapsed after the date of the Offer, the
Offeree may not transfer the shares in a transaction that
would constitute a "sale" under Section 16 of the United
States Securities Exchange Act of 1934 (the "Exchange Act")
if the Offeree is (a) a director of Global Marine Inc., (b)
an "officer" of Global Marine Inc. as such term is defined
for purposes of the rules of the Securities and Exchange
Commission under Section 16 of the Exchange Act, or (c) a
beneficial owner of more than ten percent of the issued and
outstanding Common Stock. Furthermore, the Offeree
understands and acknowledges that, if he is an Offeree
described in (a), (b) or (c) in the preceding sentence, his
transfer of any other shares of the Common Stock in a "sale"
transaction during the six-month period mentioned above
could be matched with his purchase of shares of the Common
Stock under this Agreement and subject him to liability
under Section 16 of the Exchange Act.
This Offer is granted in reliance upon a determination that
the Offeree is not an officer, executive officer, director
or affiliate of Global Marine Inc. as such terms are defined
for purposes of applicable stock exchange regulations and
the securities laws and regulations of the United States.
By accepting this Offer, the Offeree acknowledges that
certain restrictions under such laws and/or regulations may
limit his ability to accept this Offer and/or resell the
securities acquired through such acceptance if he is such
officer, executive officer, director or affiliate of the
issuer of such securities at the time of such acceptance or
resale.
4. Non-Transferable. The Offer may not be transferred and may
be accepted only by the Offeree.
5. Limitation. The Offeree shall be entitled to the privileges
of stock ownership in respect of shares subject to the Offer
only when such shares have been issued and delivered to him
as fully paid shares upon purchase of Common Stock in
accordance with this Agreement.
6. Requirements of Law and of Stock Exchanges. The issuance of
shares upon acceptance of the Offer shall be subject to
compliance with all of the applicable requirements of law
with respect to the issuance and sale of such shares. In
addition, the Company shall not be required to issue or
deliver any certificate or certificates upon acceptance of
the Offer prior to the admission of such shares to listing
on notice of issuance on any stock exchange on which shares
of the same class are then listed. In the event the
Company's legal counsel shall advise it that registration
under the United States Securities Act of 1933 of the shares
as to which the Offer is accepted is required prior to
issuance thereof, the Company shall not be required to issue
or deliver such shares unless and until such legal counsel
shall advise that such registration has been completed or is
not required.
7. Global Marine Inc. 1994 Non-Employee Stock Option and
Incentive Plan. The Offer and any acceptance and purchase
under this Agreement are made under and are subject to, and
the Company and the Offeree agree to be bound by, all of the
terms and conditions of the Company's 1994 Non-Employee
Stock Option and Incentive Plan as the same shall have been
amended from time to time in accordance with the terms
thereof, provided that no such amendment shall deprive the
Offeree, without his consent, of the Offer or any rights
hereunder. Pursuant to said Plan, the Board of Directors of
the Company or its Committee established for such purposes
is authorized to adopt rules and regulations not
inconsistent with the Plan and to take such action in the
administration of the Plan as it shall deem proper. A copy
of the Plan in its present form is available for inspection
during business hours by the Offeree at the Company's
principal office.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed on its behalf as of the date of the Offer stated
above.
GLOBAL MARINE INC.
By:
ACCEPTED for shares:
(Offeree)
EXHIBIT 10.20
14 February 1995
TO:
PERFORMANCE STOCK
In order to provide incentive compensation specifically directed
toward achievement of long term performance goals, you have been
granted an opportunity to acquire as many as shares of
Global Marine common stock. At the time of the first regular
meeting of the company's board of directors in 1998, the company
will allow you to acquire none, some or all of these shares,
depending on the extent to which the performance objectives set
forth in Exhibit A have been achieved.
This grant amounts to an incremental opportunity to earn
significant compensation, provided that we are able to achieve
the ambitious targets established for EPS, EBITDA and stock
price. This incentive arrangement is designed so that the
management team wins if the shareholders win.
The terms and conditions of your grant under this incentive
arrangement are outlined in the attached Exhibit A. The
conditions are based on the company's performance during the
period 1995-1997, as measured against long term performance goals
established by the Board.
I look forward to working with you during the next three years,
in an effective mutual
effort to assure that the target goals are more than
accomplished.
C. R. Luigs
<PAGE>
EXHIBIT A
GLOBAL MARINE INC.
TERMS AND CONDITIONS
OF
OPPORTUNITY TO ACQUIRE PERFORMANCE STOCK
(Performance Period 1995-1997)
GLOBAL MARINE INC. (the "Company"), desiring to afford you a
conditional opportunity to acquire shares of the Company's common
stock, $.10 par value per share (the "Common Stock"), as added
incentive to achieve the long-term objectives of the Company and
its subsidiaries, has established the following terms and
conditions under which it will offer shares of Common Stock to
you under the Company's 1989 Stock Option and Incentive Plan (the
"Plan").
1. Conditional Opportunity to Acquire Shares. At the time of
the first regular meeting of the Company's board of
directors held in 1998, the Company will offer shares of the
Common Stock to you, up to the full number of shares stated
in the first paragraph of the cover page of this memorandum
(the "Shares"), subject to the terms and conditions outlined
in this memorandum and the terms and conditions of the Plan
as amended from time to time in accordance with its terms.
The Shares will be offered to you and you will have the
opportunity to acquire the Shares in the form of an
incentive stock purchase under the Plan, at the same price
and by substantially the same method used in paying 1994
incentive bonus awards to the Company's executive officers
in February 1995.
2. Number of Shares to be Offered. The Company will offer you
none, some or all of the Shares. The exact number of Shares
to be offered will depend on the performance of the Company
and its subsidiaries during the period 1995-1997 as measured
against the following long-term performance goals (the
"Performance Goals") established by the Compensation
Committee of the Company's board of directors (the
"Compensation Committee"):
Cumulative EBITDA: Cumulative earnings of the Company and
its subsidiaries on a consolidated basis
before interest, taxes, depreciation and
amortization for fiscal years 1995, 1996
and 1997.
Threshold = $270 million; Target =
$350 million.
1997 E.P.S.: Earnings per share of
the Company's Common Stock for fiscal
year 1997.
Threshold = $0.35/share; Target
$0.60/share.
Stock Price: Average of the daily closing prices for
one share of the Company's Common Stock
during the fourth quarter of 1997
compared to the average of the daily
closing prices for one share of the
Company's Common Stock during the fourth
quarter of 1994.
Threshold = +30%; Target = +50%.
The total number of Shares stated in the first paragraph of
the cover page of this memorandum has been allocated among
the three Performance Goals as follows: 40% are Cumulative
EBITDA Shares; 40% are 1997 E.P.S. Shares; and 20% are Stock
Price Shares. You will be offered a percentage of the
Shares allocated to each Performance Goal, depending on
actual performance as measured against that respective
Performance Goal, as follows:
PERFORMANCE: PERCENTAGE
Below Threshold 0%
At Threshold 25%
Between Threshold A proportionate percentage
between 25% and
and Target 100%, based on straight-line
interpolation
between the threshold and target
objectives.
At or Above Target 100%
3. Non-Transferable. You may not transfer your right to
acquire Shares under this memorandum other than by will or
by the laws of descent and distribution.
4. Termination of Employment. You will not be entitled to
acquire any of the Shares after termination of your
employment with the Company and its subsidiaries unless such
termination is by reason of early retirement not objected to
by the Compensation Committee, normal retirement, disability
or death, or unless your employment with the Company and its
subsidiaries is terminated by the Company or any such
subsidiary other than for cause (to mean acts of misconduct
harmful to the Company, inadequate performance or
incompetence). If your employment is terminated by reason
of early retirement not objected to by the Compensation
Committee, normal retirement or disability, or by the
Company or any of its subsidiaries other than for cause, the
number of Shares that the Company would otherwise offer to
you at the time of the Company's first regular board meeting
held in 1998 will be prorated based on your months of
employment completed during the period 1995-1997 compared to
36 months, and the Company will offer to you or your legal
representative or representatives, at the time of said board
meeting, a reduced number of Shares based on such proration.
If your employment is terminated by reason of your death,
the total number of Shares stated in the first paragraph of
the cover page of this memorandum will be multiplied by 50%
and the resulting number will be prorated based on your
months of employment completed during the period 1995-1997
compared to 36 months, and the Company will offer to the
appropriate person or persons named under your last will and
testament or determined under applicable intestate laws, at
the time of the Company's first regular board meeting held
in 1998, a reduced number of Shares based on such
multiplication and proration. Termination of your
"employment" with the Company and its subsidiaries will be
deemed to occur at the close of business on the earliest of
(i) the last day on which you are assigned to a position
with the Company or any of its subsidiaries for the purpose
of performing your occupation, in the case of termination by
reason of your early or normal retirement, disability or
death, (ii) the last day of the period during which you are
entitled to receive salary continuation under any agreement,
policy, plan or other arrangement with the Company or any of
its affiliates, in the case of any termination entitling you
to such salary continuation, (iii) the last day of an
approved leave of absence if you do not resume the
performance of your occupation for the Company or any of its
subsidiaries on or before the next business day, and (iv)
the last day on which you are assigned to a position with
the Company or any of its subsidiaries for the purpose of
performing your occupation in any other case. For purposes
of this paragraph, the term "disability" shall mean any
physical or mental condition which totally and permanently
prevents you from engaging in any substantial gainful
activity, as reasonably determined in good faith by the
Compensation Committee.
5. Adjustments. Except as provided in the following paragraph,
if outstanding shares of the class then subject to the
conditional opportunity to acquire Shares outlined herein
are increased, decreased, changed into or exchanged for a
different number or kind of shares or securities of the
Company through reorganization, recapitalization,
reclassification, stock dividend, stock split or reverse
stock split, then there will be substituted for each Share
then subject to such opportunity and for each share upon
which any of the Performance Goals are then based the number
and class of shares or securities into or for which each
share of the class subject to such opportunity shall be so
changed or exchanged, all without any change in the
aggregate purchase price for the Shares then subject to such
opportunity, but with a corresponding adjustment in the
purchase price per Share. Such adjustments will become
effective on the effective date of any such transaction;
except that in the event of a stock dividend or of a stock
split effected by means of a stock dividend or distribution,
such adjustments will become effective immediately after the
record date therefor.
Upon a dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with
one or more corporations as a result of which the Company is
not the surviving company, your opportunity to acquire
Shares and the obligations of the Company hereunder will
terminate, unless provision is made in writing in connection
with such transaction for the assumption of such
obligations, or the substitution for such obligations of
similar obligations involving the stock of a successor
employer corporation, or a parent or subsidiary thereof,
with appropriate adjustments as to the conditions thereof
and the number and kind of Shares and prices, in which event
your opportunity to acquire Shares and the obligations of
the Company hereunder will continue in the manner and under
the terms so provided.
Adjustments under this Section 5 will be made by the
Compensation Committee, whose determination as to what
adjustments will be made, and the extent thereof, will be
final, binding and conclusive. No fractional shares of
stock will be issued pursuant to any acquisition of Shares
or in connection with any adjustment contemplated herein.
6. Limitation. You will not be entitled to the privileges of
stock ownership in respect of any of the Shares until they
have been issued and delivered pursuant to the terms and
conditions of this memorandum and the Plan.
7. Requirements of Law and Stock Exchanges. Your right to
acquire the Shares and issuance of the Shares will be
subject to compliance with all applicable requirements of
law. In addition, the Company will not be required to issue
or deliver any certificate or certificates for any of the
Shares prior to the admission of such Shares to listing on
notice of issuance on any stock exchange on which shares of
the same class are then listed.
By acquiring any of the Shares as contemplated herein, you
will be representing and agreeing for yourself and your
transferees by will or by the laws of descent and
distribution that, unless a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"),
is in effect as to the Shares acquired, any and all Shares
so acquired will be acquired for investment and not for sale
or distribution, and each such acquisition will be
accompanied by a representation and warranty in writing,
signed by the person entitled to make such acquisition, that
the Shares are being so acquired in good faith for
investment and not for sale or distribution. In the event
the Company's legal counsel, at the Company's request,
advises it that registration under the Securities Act of the
acquired Shares is required prior to issuance thereof, the
Company will not be required to issue or deliver the Shares
unless and until such legal counsel advises it that such
registration has been completed or is not required.
By acquiring any of the Shares, you also will be
representing and agreeing for yourself and your transferees
by will or the laws of descent and distribution that if you
are an officer of the Company or any other person who might
be deemed an "affiliate" of the Company under the Securities
Act at the time any Shares that have been acquired are
proposed to be sold, you or they will not sell such Shares
(a) without giving thirty days advance notice in writing to
the Company, and (b) until the Company has advised you or
them that such sale may be made without registration under
the Securities Act or, if such registration is required,
that such registration has been effected.
8. Restrictions on Share Transfer by Certain Persons. In the
case of Cumulative EBITDA Shares and 1997 E.P.S. Shares,
until six months have elapsed after the date of the
Company's unconditional offer of such Shares to you, or, in
the case of Stock Price Shares, until six months have
elapsed after the date the Compensation Committee approved
the recommendation that you be granted a conditional
opportunity to acquire such Shares, you may not transfer
such Shares in a transaction that would constitute a "sale"
under Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), if you are at the time of the
sale a person subject to the provisions of Section 16 of the
Exchange Act.
9. Wage Withholding and Employment Taxes. Your acquisition of
any of the Shares as outlined herein may result in ordinary
income at the time of acquisition. Such ordinary income
will be subject to both wage withholding and employment
taxes, and the Company or your employer may be required to
effect such withholding and/or deduct such taxes. Except as
set forth below, you may make an irrevocable election to
satisfy, in whole or in part, your obligation to reimburse
the Company or your employer for such taxes (an "Election")
by (i) making a cash payment to the Company, (ii) having the
Company deduct the required amount from any cash
compensation that the Company or any of its subsidiaries may
owe you, (iii) surrendering your right to acquire either a
specified number of the Shares or Shares having a specified
value, in each case with a value not in excess of your
related tax liability, (iv) tendering shares previously
issued pursuant to the Plan or other shares of the Company's
common stock owned by you, or (v) combining any or all of
the foregoing in any fashion; provided, however, that, if
you are at the time the withholding obligation arises a
person subject to the provisions of Section 16 of the
Exchange Act, you must satisfy such obligation by
surrendering your right to acquire such number of Shares as
will have a value sufficient to satisfy such obligation, but
not in excess of such liability. The Compensation Committee
may disapprove of any Election or suspend or terminate the
right to make Elections at any time or from time to time.
All withheld or surrendered Shares and other shares tendered
in payment will be valued at their Fair Market Value on the
date the withholding obligation arises. "Fair Market Value"
with regard to stock of the Company on a particular date
shall mean the average of the high and low quotations at
which the stock is traded on that particular date as
reported in the "NYSE-Composite Transactions" section of the
Southwest Edition of The Wall Street Journal for that date
(corrected for obvious typographical errors), or, if no
prices are quoted for that date, on the last preceding date
for which such prices of shares of stock are so quoted. In
the event "NYSE-Composite Transactions" cease to be reported
as such, or in the event that the Company's stock is no
longer quoted on the New York Stock Exchange, an appropriate
substitute published stock quotation system will be selected
by the Compensation Committee, consistent with appropriate
regulatory provisions.
10. Continued Employment and Future Grants. Neither the
granting to you of an opportunity to acquire stock nor the
other arrangements outlined herein give you the right to
remain in the employ of the Company or any of its
subsidiaries or to be selected to receive similar or
identical grants in the future.
11. Global Marine Inc. 1989 Stock Option and Incentive Plan, the
Board and the Committee. The opportunity to acquire Shares
outlined in this memorandum has been granted to you, and any
offer or sale of Shares will be made, under and pursuant to
the Plan as the same shall have been amended from time to
time in accordance with its terms. The decision of the
Company's board of directors or the Committee on any
questions concerning the interpretation or administration of
the Plan or any matters covered in this memorandum will be
final and conclusive. No amendment to the Plan or decision
of the board or the Committee will deprive you, without your
consent, of any rights hereunder.
A copy of the Plan in its present form is available at the
Company's principal office for inspection during business
hours by you or other persons who may be entitled to acquire
any of the Shares as contemplated herein.
References in this Exhibit A to "this memorandum" (and indirect
references such as "hereof," "hereunder" and "herein") refer to
the attached cover page of this memorandum and this Exhibit A,
each of which constitutes an integral part of this memorandum.
EXHIBIT 10.29
GLOBAL MARINE INC.
1995 MANAGEMENT INCENTIVE AWARD PLAN
PURPOSE
The purpose of the 1995 Management Incentive Award Plan is to
provide incentive awards for employees of Global Marine Inc.,
Global Marine Corporate Services Inc., Global Marine Drilling
Company, Global Marine Integrated Services-Europe and Intermarine
Services Inc. in grade levels 34 through 44 in respect of service
during 1995. Senior executives who report directly to the Chief
Executive Officer of Global Marine Inc. are excluded from
participation in this plan.
PLAN
One company-wide incentive pool will be established in 1995 for
Global Marine Inc., Global Marine Corporate Services Inc., Global
Marine Drilling Company, Global Marine Integrated Services-Europe
and Intermarine Services Inc. The pool will be equal to 6% of
the amount by which the company's 1995 operating cash
contribution exceeds $57 million; provided, however, that the
1995 pool shall be limited to a maximum of $3.5 million, and
that, if the company fails to earn a profit for 1995 at the net
income line, the 1995 pool shall be zero.
Consideration for individual awards under this plan will be given
to employees in salary grade levels 34 through 44. In cases of
unusual merit, consideration will be given to employees below
those grade levels when recommended by the Subsidiary Presidents
or the relevant Corporate Vice President and when approved by the
Chief Executive Officer. No individual will be eligible for an
award of more than 40% of annual base salary.
Subject to approval by the Board of Directors of Global Marine
Inc., at its discretion, incentive awards under this plan will be
paid as soon as practicable after the company's 1995 results are
final and may be paid in cash or, at the discretion of the
Compensation Committee or the Board of Directors of Global Marine
Inc., in shares of common stock of Global Marine Inc. or in any
combination of cash and such shares; provided, however, that
common stock will not be used to pay an incentive award under
this plan to any director of Global Marine Inc., any beneficial
owner of more than ten percent of the issued and outstanding
common stock of Global Marine Inc., or any "officer" of Global
Marine Inc. as such term is defined for purposes of the rules of
the Securities and Exchange Commission under Section 16 of the
Securities Exchange Act of 1934. The aggregate market value of
the shares, if any, used to pay incentive awards under this plan
shall be no greater than the aggregate amount of cash that
otherwise would have been paid in lieu of said shares pursuant to
the terms of this plan, the market value per share being the
average of the high and low prices for Global Marine Inc. common
stock as quoted on the New York Stock Exchange Composite
Transactions for the day the incentive awards are determined.
Incentive awards will consider individual performance of the
employee. Establishment of the annual incentive award pool shall
not create or imply a promise or any other obligation of Global
Marine Inc. or any of its subsidiaries, or a right of any
individual employee or of the collective employees of Global
Marine Inc. or its subsidiaries. The plan shall terminate upon
the grant of awards under the plan or a resolution of the Board
of Directors of Global Marine Inc. terminating the plan. The
establishment of this plan or the grant of awards hereunder does
not create or imply a promise or any other obligation to
establish the same or a similar plan for any other year or to
continue to grant such awards in the future.
RESPONSIBILITY AND AUTHORITY
The Chief Executive Officer and the Chief Financial Officer of
Global Marine Inc. shall take all such actions, do all such
things, make all such payments and sign and deliver all such
documents and instruments as either or both of them may at any
time or from time to time deem necessary or desirable in order to
implement this plan.
<TABLE>
<CAPTION>
EXHIBIT 11.1
GLOBAL MARINE INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(Dollars in millions, except per share amounts)
1994 1993 1992
Shares for primary and fully diluted computations:
<S> <C> <C> <C>
Weighted average shares of common stock outstanding 163,828,711 151,984,669 114,634,930
Shares issuable on assumed exercise of stock options - - 1,703,048
Weighted average shares for primary earnings per share 163,828,711 151,984,669 116,337,978
Incremental shares issuable on assumed exercise of stock
options and sale of incentive stock to reflect maximum
dilutive effect (1): 3,167,667 3,269,447 124,744
Weighted average shares for fully
diluted earnings per share 166,996,378 155,254,116 116,462,722
Earnings for primary and
fully diluted computations:
Income (loss) before extraordinary item
and cumulative effect of changes in
accounting principles $ 4.8 $ (26.5) $ 27.5
Extraordinary gain on extinguishment of debt - - 28.3
Cumulative effect of change in accounting
for income taxes - - 3.3
Cumulative effect of change in accounting for
postretirement health care and life insurance
benefits - - (1.9)
Cumulative effect of change in accounting for
postemployment benefits (3.5) - -
Net income (loss) $ 1.3 $ (26.5) $ 57.2
Primary earnings (loss) per share:
Income (loss) before extraordinary item
and cumulative effect of changes in
accounting principles $ 0.03 $ (0.17) $ 0.24
Extraordinary gain on extinguishment of debt - - 0.24
Cumulative effect of change in accounting
for income taxes - - 0.03
Cumulative effect of change in accounting for
postretirement health care and life insurance
benefits - - (0.02)
Cumulative effect of change in accounting for
postemployment benefits (0.02) - -
Primary net income (loss) per common share $ 0.01 $ (0.17) 0.49
Fully diluted net income (loss) per share:
Income (loss) before extraordinary item
and cumulative effect of changes in
accounting principles $ 0.03 $ (0.17) $ 0.24
Extraordinary gain on extinguishment of debt - - 0.24
Cumulative effect of change in accounting
for income taxes - - 0.03
Cumulative effect of change in accounting for
postretirement health care and life insurance
benefits - - (0.02)
Cumulative effect of change in accounting for
postemployment benefits (0.02) - -
Fully diluted net income (loss) per common share $ 0.01 $ (0.17) $ 0.49
</TABLE>
(1) Shares issuable upon the assumed exercise of stock options are included
in the computation of fully diluted net loss per common share in
accordance with Regulation S-K, Item 601(b)(11), although for 1993 their
inclusion is contrary to paragraph 40 of APB Opinion No. 15 because
their inclusion produces an antidilutive result.
EXHIBIT 21.1
GLOBAL MARINE INC. AND SUBSIDIARIES
as of March 16, 1995
STATE OR OTHER PERCENT OF VOTING
JURISDICTION STOCK OWNED BY
NAME OF COMPANY INCORPORATION IMMEDIATE PARENT
Global Marine Inc. Delaware -
Applied Drilling
Technology Inc. Texas 100%
Arctic Systems Ltd. Canada 100%
Challenger Minerals Inc. California 100%
WO Offshore, Inc. Texas 50%
Global Marine Adriatic Inc. Delaware 100%
Global Marine Arctic Ltd. Canada 100%
Global Marine B.V. The Netherlands 100%
Global Marine Baltic Inc. Delaware 100%
Global Marine Bismarck
Sea Inc. Delaware 100%
Global Marine Capital
Investments Inc. Delaware 100%
Global Marine Corporate
Services Inc. California 100%
Global Marine Deepwater
Drilling Inc. Delaware 100%
Global Marine
Australia Inc. Delaware 100%
Global Marine
West Africa Inc. Delaware 100%
Petdrill, Inc. Delaware 100%
Global Marine Drilling Company California 100%
Global Marine
Caribbean, Inc. California 100%
Global Marine
Development Inc. California 100%
Global Marine do Brasil
Perfuracoes Brazil 50% (1)
Global Marine Drilling
Services California 100%
Global Dolphin
Drilling Company
Private Limited India 40%
Global Marine Drilling
(Malaysia) Sdn. Bhd. Malaysia 100%
Global Marine North Sea Inc. Delaware 100%
Global Marine Oil & Gas
Company Delaware 100%
Global Marine U.K. Limited Scotland 100%
Global Offshore Drilling Ltd. Nigeria 60%
Intermarine Services Inc. Texas 100%
Marican Offshore Drilling
Services, Inc. Canada 100%
(1) The remaining 50% of the voting stock is owned directly by
Global Marine Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference of our report dated February 10,
1995 on our audits of the consolidated financial statements, which report
includes an explanatory paragraph that describes the Company's adoption of the
method of accounting for income taxes, the method of accounting for
postretirement benefits other than pensions, and the method of accounting for
postemployment benefits, as prescribed by applicable statements of the
Financial Accounting Standards Board, and our report dated February 10, 1995 on
our audits of the financial statement schedule of Global Marine Inc. and
subsidiaries, as of December 31, 1994 and 1993, and for the years ended
December 31, 1994, 1993 and 1992, which reports are included in this Annual
Report on Form 10-K, into (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. 33-57689) for the Global Marine Inc. 1994 Management
Incentive Award Plan, (v) 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 (vi)
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.
/s/ Coopers & Lybrand L.L.P.
Houston, Texas
March 16, 1995
EXHIBIT 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent (a) to the inclusion in the Annual Report
on Form 10-K of Global Marine Inc. for the year ended December
31, 1994, of our reports, dated February 8, 1995 and February 7,
1994, on our estimates of proved oil and gas reserves for the
years ended December 31, 1994 and 1993, respectively, and our
four reports, each dated January 29, 1993, on our estimates of
proved oil and gas reserves for the year ended December 31, 1992,
which reports are included in said Annual Report on Form 10-K as
Exhibits 99.1, 99.2 and 99.3 thereto, and (b) to the
incorporation by reference of our said reports into (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. 33-57689) for the Global
Marine Inc. 1994 Management Incentive Award Plan, (v) 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 (vi) 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. This consent
is given provided that all references to Ryder Scott Company
Petroleum Engineers remain unchanged from those contained in the
Annual Report on Form 10-K of Global Marine Inc. for the year
ended December 31, 1994.
/s/ Ryder Scott Company
Petroleum Engineers
Ryder Scott Company
Petroleum Engineers
Houston, Texas
March 16, 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 12-31-94 and the related condensed consolidated statement of operations
for the year ended 12-31-94, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 33,300
<SECURITIES> 24,600
<RECEIVABLES> 64,300
<ALLOWANCES> 1,200
<INVENTORY> 0
<CURRENT-ASSETS> 149,800
<PP&E> 548,700
<DEPRECIATION> 195,300
<TOTAL-ASSETS> 512,400
<CURRENT-LIABILITIES> 56,400
<BONDS> 225,000
<COMMON> 16,400
0
0
<OTHER-SE> 195,900
<TOTAL-LIABILITY-AND-EQUITY> 512,400
<SALES> 9,800
<TOTAL-REVENUES> 359,000
<CGS> 6,100
<TOTAL-COSTS> 319,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,200
<INCOME-PRETAX> 5,400
<INCOME-TAX> 600
<INCOME-CONTINUING> 4,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (3,500)
<NET-INCOME> 1,300
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 99.1
February 8, 1995
Challenger Minerals Inc.
10777 Westheimer, Suite 700
Houston, Texas 77042
Gentlemen:
At your request, we have prepared an estimate of the reserves,
future production and income attributable to the major leasehold
interests of Challenger Minerals Inc. (Challenger) as of December
31, 1994. The subject properties are located in the state of
Texas, and offshore Louisiana and Texas. The income data have been
estimated using the Securities and Exchange Commission (SEC)
guidelines for future cost and price parameters.
The estimated reserve quantities and future income quantities
presented in this report are related to hydrocarbon prices.
December 31, 1994 hydrocarbon prices were used in the preparation
of this report as required by SEC guidelines; however, actual
future prices may vary significantly from December 31, 1994 prices.
Therefore, quantities of reserves actually recovered and quantities
of income actually received may differ significantly from the
estimated quantities presented in this report. The summary level
results of this study are shown below.
SEC PARAMETERS
Estimated Net Reserve and Income Data
Certain Leasehold Interests of
Challenger Minerals Inc.
As of December 31, 1994
<TABLE>
Proved
<CAPTION>
Developed Total
Producing Non-Producing Undeveloped Proved
Net Remaining Reserves
<S> <C> <C> <C> <C>
Oil/Condensate - Barrels 519,946 110,671 24,806 655,423
Gas - MMCF 7,857 3,817 163 11,837
Income Data
Future Gross Revenue $21,703,917 $8,368,626 $680,146 $30,752,689
Deductions 6,778,998 3,701,303 551,765 11,032,066
Future Net Income (FNI) $14,924,919 $4,667,323 $128,381 $19,720,623
Discounted FNI @ 10% $13,572,181 $3,305,407 $ 60,972 $16,938,560
</TABLE>
<TABLE>
Probable
<CAPTION>
Developed Total
Producing Non-Producing Undeveloped Probable
Net Remaining Reserves
<S> <C> <C> <C> <C>
Oil/Condensate - Barrels 0 12,187 48,333 60,520
Gas - MMCF 1,690 489 240 2,419
Income Data
Future Gross Revenue $2,839,363 $1,023,799 $1,193,027 $5,056,189
Deductions 348,732 69,033 755,387 1,173,152
Future Net Income (FNI) $2,490,631 $ 954,766 $ 437,640 $3,883,037
Discounted FNI @ 10% $1,898,846 $ 587,531 $ 213,718 $2,700,095
</TABLE>
<TABLE>
Possible
<CAPTION>
Developed Total
Non-Producing Undeveloped Possible
Net Remaining Reserves
<S> <C> <C> <C>
Oil/Condensate - Barrels 2,865 5,767 8,632
Gas - MMCF 114 230 344
Income Data
Future Gross Revenue $239,605 $482,138 $721,743
Deductions 20,332 45,319 65,651
Future Net Income (FNI) $219,273 $436,819 $656,092
Discounted FNI @ 10% $137,133 $209,605 $346,738
</TABLE>
Liquid hydrocarbons are expressed in standard 42 gallon
barrels. All gas volumes are sales gas expressed in millions of
cubic feet (MMCF) at the official temperature and pressure bases of
the areas where the gas reserves are located.
We have included probable and possible reserves and
income in this report at the request of Challenger. These data are
for Challenger's information only and should not be included in
reports to the SEC according to the SEC guidelines.
The proved developed non-producing reserves included
herein are comprised of the behind pipe category. The probable
developed reserves included herein are comprised of probable
additional producing and behind pipe categories. The various
producing status categories are defined under the tab "Reserve
Definitions and Pricing Assumptions" in this report.
The future gross revenue is after the deduction of
production taxes. The deductions are comprised of the normal
direct costs of operating the wells, ad valorem taxes, recompletion
costs, development costs and certain abandonment costs net of
salvage. The future net income is before the deduction of state
and federal income taxes and general administrative overhead, and
has not been adjusted for outstanding loans which may exist nor
does it include any adjustment for cash on hand or undistributed
income. No attempt has been made to quantify or otherwise account
for any accumulated gas production imbalances that may exist. Gas
reserves account for approximately 64.9 percent and liquid
hydrocarbon reserves account for the remaining 35.1 percent of
total future gross revenue from proved reserves.
The discounted future net income shown above was
calculated using a discount rate of 10 percent per annum compounded
annually. Future net income was discounted at four other discount
rates, which were also compounded annually. These results are
shown on each estimated projection of future production and income
presented in a later section of this report and in summary form
below.
<TABLE>
Discounted Future Net Income
As of December 31, 1994
<CAPTION>
Discount Rate Total Total Total
Percent Proved Probable Possible
<C> <C> <C> <C>
12 $16,487,126 $2,526,365 $304,814
15 $15,861,479 $2,294,145 $261,212
20 $14,937,325 $1,969,540 $200,687
30 $13,436,414 $1,490,336 $124,445
</TABLE>
The results shown above are presented for your information and
should not be construed as our estimate of fair market value.
RESERVES INCLUDED IN THIS REPORT
The PROVED RESERVES included herein conform to the
definition as set forth in the Securities and Exchange Commission's
Regulation S-X Part 210.4-10 (a) as clarified by subsequent
Commission Staff Accounting Bulletins. The PROBABLE RESERVES and
POSSIBLE RESERVES included herein conform to definitions of
probable and possible reserves approved by the Society of Petroleum
Engineers and the society of Petroleum Evaluation Engineers. Our
definitions of proved, probable, and possible reserves are included
under the tab "Reserve Definitions and pricing Assumptions" in this
report.
The probable reserves are less certain to be recovered
than the proved reserves and reserves classified as possible are
less certain to be recovered than those in the probable category.
The reserves and income quantities attributable to the different
reserve classifications that are included herein have not been
adjusted to reflect the varying degrees of risk associated with
them and thus are not comparable.
ESTIMATES OF RESERVES
In general, the reserves included herein were estimated
by performance methods or the volumetric method; however, other
methods were used in certain cases where characteristics of the
data indicated such other methods were more appropriate in our
opinion. The reserves estimated by the performance method utilized
extrapolations of various historical in those cases where such data
were definitive in our opinion. Reserves were estimated by the
volumetric method in those cases where there were inadequate
historical performance data to establish a definitive trend or
where the use of production performance data as a basis for the
reserve estimates was considered to be inappropriate.
The reserves included in this report are estimates only
and should not be construed as being exact quantities. They may or
may not be actually recovered, and if recovered, the revenues
therefrom and the actual costs related thereto could be more or
less than the estimated amounts. Moreover, estimates of reserves
may increase or decrease as a result of future operations.
FUTURE PRODUCTION RATES
Initial production rates are based on the current
producing rates for those wells now on production. Test data and
other related information were used to estimate the anticipated
initial production rates for those wells or locations which are not
currently producing. If no production decline trend has been
established, future production rates were held constant, or
adjusted for the effects of curtailment where appropriate, until a
decline in ability to produce was anticipated. An estimated rate
of decline was then applied to depletion of the reserves. If a
decline trend has been established, this trend was used as the
basis for estimating future production rates. For reserves not yet
on production, sales were estimated to commence at an anticipated
date furnished by Challenger.
In general, we estimate that future gas production rates
will continue to be the same as the average rate for the latest
available 12 months of actual production until such time that the
well or wells are incapable of producing at this rate. The well or
wells were then projected to decline at their decreasing delivery
capacity rate. Our general policy on estimates of future gas
production rates is adjusted when necessary to reflect actual gas
marketing conditions in specific cases.
The future production rates from wells now on production
may be more or less than estimated because of changes in market
demand or allowables set by regulatory bodies. Wells or locations
which are not currently producing may start producing earlier or
later than anticipated in our estimates of their future production
rates.
HYDROCARBON PRICES
Challenger furnished us with prices in effect at December
31, 1994 and these prices were held constant throughout the
remaining life of the reserves. in accordance with Securities and
Exchange Commission guidelines, changes in liquid and gas prices
subsequent to December 31, 1994 were not taken into account in this
report. Future prices used in this report are discussed in more
detail under the tab "Reserve Definitions and Pricing Assumptions"
in this report.
COSTS
Operating costs for the leases and wells in this report
are based on the operating expense reports of Challenger and
include only those costs directly applicable to the leases or
wells. When applicable, the operating costs include a portion of
general and administrative costs allocated directly to the leases
and wells under terms of operating agreements. Development costs
were furnished to us by Challenger and are based on authorizations
for expenditure for the proposed work or actual costs for similar
projects. The current operating and development costs were held
constant throughout the life of the properties. For properties
located onshore, this study does not consider the salvage value of
the lease equipment or the abandonment cost since both are
relatively insignificant and tend to offset each other. The
estimated net cost of abandonment after salvage was considered for
offshore properties where abandonment costs net of salvage are
significant. The estimates of the offshore net abandonment costs
furnished by Challenger were accepted without independent
verification. No deduction was made for indirect costs such as
general administration and overhead expenses, loan repayments,
interests expenses and exploration and development prepayments
which are not charged directly to the leases or wells.
GENERAL
Table A presents a line summary of proved reserve and
income data for each of the subject properties which are ranked
according to their future net income discounted at 10 percent per
year. Table B presents a one line summary of gross and net
reserves and income data for each of the subject properties. Table
C presents a one line summary of initial basic data for each of the
subject properties. Tables 1 through 125 present our estimated
projection of production and income by years beginning January 1,
1995 by state, field, and lease or well.
While it may reasonably be anticipated that the future
prices received for the sale of production and the operating costs
and other costs relating to such production may also increase or
decrease from existing levels, such changes were, in accordance
with rules adopted by the SEC, omitted from consideration in making
this evaluation.
The estimates of reserves presented herein were based
upon a detailed study of the properties in which Challenger owns an
interest; however, we have not made any field examination of the
properties. No consideration was given in this report to potential
environmental liabilities which may exist nor were any costs
included for potential liability to restore and clean up damages,
if any, caused by past operating practices. Challenger has
informed us that they have furnished us all of the accounts,
records, geological and engineering data, and reports and other
data required for this investigation. The ownership interests,
prices, and other factual data furnished by Challenger were
accepted without independent verification. The estimates presented
in this report are based on data available through December 1994.
Neither we nor any of our employees have any interest in
the subject properties and neither the employment to make this
study nor the compensation is contingent on our estimates of
reserves and future income for the subject properties.
This report was prepared for the exclusive use of
Challenger. The data, work papers, and maps used in the
preparation of this report are available for examination by
authorized parties in our offices. Please contact us if we can be
of further service.
Very truly yours,
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Joe P. Allen, P.E.
Senior Vice President
DEFINITIONS OF RESERVES
SEC PARAMETERS
SEC DEFINITIONS
PROVED RESERVES of crude oil, condensate, natural gas,
and natural gas liquids are estimated quantities that geological
and engineering data demonstrate with reasonable certainty to be
recoverable in the future from known reservoirs under existing
operating conditions using the cost and price parameters discussed
in other sections of this report. Reservoirs are considered proved
if economic producibility is supported by actual production or
formation tests. In certain instances, proved reserves are
assigned on the basis of a combination of core analysis and
electrical and other type logs which indicate the reservoirs are
analogous to reservoirs in the same field which are producing or
have demonstrated the ability to produce on a formation test. The
area of a reservoir considered proved includes (1) that portion
delineated by drilling and defined by fluid contacts, if any, and
(2) the adjoining portions not yet drilled that can be reasonably
judged as economically productive on the basis of available
geological and engineering data. In the absence of data on fluid
contacts, the lowest known structural occurrence of hydrocarbons
controls the lower proved limit of the reservoir. Proved reserves
are estimates of hydrocarbons to be recovered from a given date
forward. They may be revised as hydrocarbons are produced and
additional data become available. Proved natural gas reserves are
comprised of non-associated, associated and dissolved gas. An
appropriate reduction in gas reserves has been made for the
expected removal of natural gas liquids, for lease and plant fuel,
and for the exclusion of non-hydrocarbon gases if they occur in
significant quantities and are removed prior to sale.
Reserves that can be produced economically through the
application of improved recovery techniques are included in the
proved classification when these qualifications are met: (1)
successful testing by a pilot project or the operation of an
installed program in the reservoir provides support for the
engineering analysis on which the project or program was based, and
(2) it is reasonably certain the project will proceed. Improved
recovery includes all methods for supplementing natural reservoir
forces and energy, or otherwise increasing ultimate recovery from
a reservoir, including (1) pressure maintenance, (2) cycling, and
(3) secondary recovery in its original sense. Improved recovery
also includes the enhanced recovery methods of thermal, chemical
flooding, and the use of miscible and immiscible displacement
fluids.
Estimates of proved reserves do not include crude oil,
natural gas, or natural gas liquids being held in underground or
surface storage.
SPE/SPEE DEFINITIONS
PROBABLE RESERVES are the estimated quantities of
recoverable hydrocarbons which are based on engineering and
geological data similar to those used in the estimates of proved
reserves but, for various reasons, these data lack the certainty
required to classify the reserves as proved. Probable reserves
include, without limitation: (a) reserves that apparently exist a
reasonable distance beyond the proved limits of productive
reservoirs where water contacts have not been determined and proved
limits are established by the lowest datum at which proved reserves
exist; (b) reserves in formations that appear to be productive from
log characteristics only, but lack definitive tests or core
analyses data; (c) reserves in a portion of a formation that has
been proved productive in other areas in a field but is separated
from the proved area by sealing faults, provided that the geologic
interpretation indicates the probable area is structurally high
relative to the proved portion of the formation; (d) reserves
obtainable by improved recovery where an improved recovery program,
that has yet to be established through repeated economically
successful operations, is planned but is not yet in operation and
a successful pilot test has not been performed, but reservoir and
formation characteristics appear favorable for its success; and (e)
reserves in the same reservoir as proved reserves that would be
recoverable if a more efficient primary recovery mechanism develops
than was assumed in estimating the proved reserves due to such
factors as infill drilling, improved frac techniques and better
production methods.
POSSIBLE RESERVES are the estimated quantities of
hydrocarbons which are based on engineering and geological data
which are less complete and less conclusive than the data used in
estimates of probable reserves. Possible reserves include, without
limitation: (a) reserves that might be found if certain geologic
conditions exist which are indicated by structural extrapolation
from developed areas; (b) reserves that might be found if
reasonably definitive geophysical interpretations indicate a
structure larger than could be included within the proved and
probable limits; (c) reserves that might be found in formations
which have log characteristics that are somewhat favorable but
leave a reasonable doubt as to their certainty; (d) reserves that
might exist in untested fault segments adjacent to proved reserves
where a reasonable doubt exists as to whether such fault segment is
or is not structurally high enough; and (e) reserves that might
result from a planned improved recovery program that is not in
operation and that is in a field in which formation, fluid or
reservoir characteristics are such that a reasonable doubt exists
as to its success.
DEFINITIONS OF PRODUCING STATUS CATEGORIES
DEVELOPED PRODUCING
PRODUCING reserves are recoverable from completion
intervals currently open and producing to market. Improved
recovery reserves are considered to be producing only after an
improved recovery project has been installed and is in operation.
Probable or possible producing reserves are in addition
to proved producing reserves and are those reserves which may be
recovered from portions of the reservoir which are downdip from the
lowest known proved reserves or which may be recovered if a higher
recovery factor is realized than was used in the estimate of proved
reserves.
DEVELOPED NON-PRODUCING
SHUT-IN reserves are recoverable from completion
intervals now open, but which had not started producing as of the
date of our estimate.
BEHIND PIPE reserves are recoverable from zones behind
casing in existing wells, which will require additional completion
work or a future recompletion prior to the start of production.
UNDEVELOPED
UNDEVELOPED reserves are recoverable by new wells on
undrilled acreage, from existing wells where a relatively large
expenditure is required for recompletion and from acreage where the
application of an improved recovery project is planned and the
costs required to place the project in operation are relatively
large. Reserves on undrilled acreage are limited to those drilling
units offsetting productive units that are reasonably certain of
production when drilled. Proved reserves for other undrilled units
are included only where it can be demonstrated with certainty that
there is continuity of production from the existing productive
formation.
HYDROCARBON PRICING PARAMETERS
SECURITIES AND EXCHANGE COMMISSION PARAMETERS
OIL AND CONDENSATE
Challenger furnished us with oil and condensate prices in
effect at December 31, 1994 and these prices were held constant to
depletion of the properties. In accordance with Securities and
Exchange Commission guidelines, changes in liquid prices subsequent
to December 31, 1994 were not considered in this report.
GAS
Challenger furnished us with gas prices in effect at
December 31, 1994 and with its forecasts of future gas prices which
take into account SEC guidelines, current spot market prices,
contract prices, and fixed and determinable price escalations where
applicable. In accordance with SEC guidelines, the future gas
prices used in this report make no allowances for future gas price
increases which may occur as a result of inflation nor do they make
any allowance for seasonal variations in gas prices which may cause
future yearly average gas prices to be somewhat lower than December
gas prices. For gas sold under contract, the contract gas price
including fixed and determinable escalations, exclusive of
inflation adjustments, was used until the contract expires and then
was adjusted to the current spot market price for the area and held
at this adjusted price to depletion of the reserves.
CHALLENGER MINERALS INC.
Estimated
Future Reserves and Income
Attributable to Certain
Leasehold Interests
(SEC Case)
As of
December 31, 1994
