SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-5471
GLOBAL MARINE INC.
(Exact name of registrant as specified in its charter)
Delaware 95-1849298
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 N. Eldridge Road, Houston, Texas 77079
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 596-5100
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: Common
Stock, $.10 par value, 165,123,205 shares outstanding as of July
31, 1995.
GLOBAL MARINE INC.
TABLE OF CONTENTS TO FORM 10-Q
QUARTER ENDED JUNE 30, 1995
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Report of Independent Accountants
Condensed Consolidated Statement of Operations
Three and Six Months Ended June 30, 1995, and 1994
Condensed Consolidated Balance Sheet
June 30, 1995, and December 31, 1994
Condensed Consolidated Statement of Cash Flows
Six Months Ended June 30, 1995, and 1994
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Global Marine Inc.
We have made a review of the condensed consolidated balance sheet
of Global Marine Inc. and subsidiaries as of June 30, 1995, and the
related condensed consolidated statement of operations for the
three- and six-month periods ended June 30, 1995 and 1994, and the
condensed consolidated statement of cash flows for the six-month
periods ended June 30, 1995, and 1994. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the condensed consolidated financial
statements referred to above for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December
31, 1994, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 10, 1995, we
expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December
31, 1994, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
/s/ Coopers & Lybrand L.L.P.
Houston, Texas
August 9, 1995
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
1995 1994 1995 1994
------ ------ ------ ------
Revenues:
<S> <C> <C> <C> <C>
Contract drilling $59.4 $ 45.0 $116.1 $ 95.4
Drilling management 40.2 28.8 97.2 43.6
Oil and gas 2.8 2.5 5.2 5.3
------ ------ ------ ------
Total revenues 102.4 76.3 218.5 144.3
Expenses:
Contract drilling 41.0 33.4 83.5 69.2
Drilling management 34.9 24.5 87.1 39.3
Oil and gas .8 .7 2.0 1.7
Depreciation, depletion and amortization (Note 3) 7.3 9.3 14.5 18.6
General and administrative 3.7 3.5 7.0 6.8
------ ------ ------ ------
Total operating expenses 87.7 71.4 194.1 135.6
------ ------ ------ ------
Operating income 14.7 4.9 24.4 8.7
Other income (expense):
Interest expense (7.5) (7.5) (15.1) (15.1)
Interest capitalized 1.8 .8 3.4 1.3
Interest income 1.3 .7 2.3 1.3
Gain on sale of offshore drilling rig (Note 5) 14.7 - 14.7 -
Other (.1) .3 - 1.4
------ ------ ------ ------
Total other income (expense) 10.2 (5.7) 5.3 (11.1)
------ ------ ------ ------
Income (loss) before income taxes 24.9 (.8) 29.7 (2.4)
Income tax expense .7 - 1.0 .1
------ ------ ------ ------
Income (loss) before cumulative effect
of change in accounting principle 24.2 (.8) 28.7 (2.5)
Cumulative effect of change in accounting
for postemployment benefits - - - (3.5)
------ ------ ------ ------
Net income (loss) $ 24.2 $ (.8) $ 28.7 $ (6.0)
====== ====== ====== ======
Net income (loss) per common share:
Before cumulative effect of
change in accounting principle $ 0.14 $ 0.00 $ 0.17 $(0.02)
Cumulative effect of change in accounting for
postemployment benefits - - - (0.02)
------ ------ ------ ------
Net income (loss) per common share $ 0.14 $ 0.00 $ 0.17 $(0.04)
====== ====== ====== ======
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
<CAPTION>
June 30, December 31,
1995 1994
-------- ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 52.7 $ 33.3
Marketable securities 23.2 24.6
Accounts receivable, net of allowances 70.5 63.1
Costs incurred on turnkey drilling contracts in progress 14.9 18.5
Prepaid expenses 5.8 10.0
Other current assets .6 .3
------ ------
Total current assets 167.7 149.8
Properties:
Rigs and drilling equipment, less accumulated
depreciation of $174.3 and $168.4 at June 30, 1995
and December 31, 1994, respectively 357.6 346.9
Oil and gas properties, full cost method, less
accumulated depreciation, depletion and amortization
of $28.4 and $26.9 at June 30, 1995 and
December 31, 1994, respectively 8.8 6.5
------ ------
Net properties 366.4 353.4
Other assets 6.4 9.2
------ ------
Total assets $540.5 $512.4
====== ======
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
(in millions)
<CAPTION>
June 30, December 31,
1995 1994
-------- ------------
Current liabilities:
<S> <C> <C>
Accounts payable $ 36.0 $ 39.5
Accrued liabilities:
Compensation and related employee costs 9.1 9.0
Claims and allowances 2.5 1.4
Income taxes 2.7 1.9
Interest 1.2 1.2
Other 3.2 3.4
------ ------
Total current liabilities 54.7 56.4
Long-term debt 225.0 225.0
Other long-term liabilities 17.9 18.7
Shareholders' equity:
Preferred stock, $0.01 par value, 10 million
shares authorized, no shares issued or outstanding - -
Common stock, $0.10 par value, 300 million shares
authorized, 165,068,034 shares and 164,408,185
shares issued and outstanding at June 30, 1995
and December 31, 1994, respectively 16.5 16.4
Additional paid-in capital 262.0 260.2
Accumulated deficit (35.6) (64.3)
------ ------
Total shareholders' equity 242.9 212.3
------ ------
Total liabilities and shareholders' equity $540.5 $512.4
====== ======
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
<CAPTION>
Six Months Ended
June 30,
-------------------
1995 1994
------ ------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 28.7 $ (6.0)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation, depletion and amortization 14.5 18.6
Gain on sale of offshore drilling rig (14.7) -
Cumulative effect of change in accounting principle - 3.5
(Increase) decrease in accounts receivable (7.4) 6.7
Decrease in note receivable - 17.9
(Increase) decrease in costs incurred on turnkey
drilling contracts in progress 3.6 (4.4)
Decrease in other current assets 3.9 1.2
Increase (decrease) in accounts payable (3.5) 3.1
Increase (decrease) in other accrued liabilities 3.5 (.1)
Other, net 1.8 3.3
------ ------
Net cash flow provided by operating activities 30.4 43.8
Cash flows from investing activities:
Proceeds from maturities of held-to-maturity securities 45.1 19.5
Proceeds from sales of properties and equipment 23.4 1.7
Purchases of held-to-maturity securities (43.7) (20.0)
Capital expenditures (36.2) (41.2)
Proceeds from sales of available-for-sale securities - 6.0
Other - .4
------ ------
Net cash flow used in investing activities (11.4) (33.6)
Cash flows from financing activities:
Proceeds from exercise of employee stock options .4 .6
------ ------
Net cash flow provided by financing activities .4 .6
------ ------
Increase in cash and cash equivalents 19.4 10.8
Cash and cash equivalents at beginning of period 33.3 31.2
------ ------
Cash and cash equivalents at end of period $ 52.7 $ 42.0
====== ======
See notes to condensed consolidated financial statements.
</TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1 - GENERAL
The financial statements reflect all adjustments which are, in the
opinion of management, necessary for a fair statement of the
results for the interim periods. Such adjustments are considered
to be of a normal recurring nature unless otherwise identified.
The year-end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required
by generally accepted accounting principles. Certain
reclassifications have been made to the prior-year periods to
conform to the current-period presentation.
The term "Company" refers to Global Marine Inc. and, unless the
context otherwise requires, to the Company's consolidated
subsidiaries.
NOTE 2 - CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1995, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," which requires that certain long-lived assets be
reviewed for impairment whenever events indicate that the carrying
amount of an asset may not be recoverable, and that an impairment
loss be recognized under certain circumstances in the amount by
which the carrying value exceeds the fair value of the asset. The
adoption of SFAS No. 121 had no effect on the Company's results of
operations or financial position.
NOTE 3 - CHANGE IN ESTIMATED RIG LIVES
Effective January 1, 1995, the Company increased to 25 years the
estimated useful lives of its jackup drilling rigs and increased to
20 years the estimated useful lives of its semisubmersible drilling
rigs and drillship. In addition, salvage values were reduced to
$500,000 per rig for jackups and $1,000,000 per rig for both
semisubmersibles and the drillship. The effect of the change in
estimated service lives and salvage values was a reduction in
depreciation expense of $2.7 million and $5.3 million for the three
and six months ended June 30, 1995, respectively.
NOTE 4 - NET INCOME (LOSS) PER 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 employee stock options. The net loss per common share
is based on the weighted average number of common shares
outstanding. Net income per common share for the three and six
months ended June 30, 1995 were based on 168,757,895 and
164,795,145 shares, respectively. Shares for the three months
ended June 30, 1995 included 3,811,347 contingently issuable shares
attributable to outstanding employee stock options. Net income per
share for the six months ended June 30, 1995 excluded the effect of
contingently issuable shares because their effect was not material.
The net losses per common share for the three and six months ended
June 30, 1994 were based on 163,494,599 and 163,313,127 weighted
average common shares outstanding, respectively.
NOTE 5 - SALE OF OFFSHORE DRILLING RIG
On June 2, 1995, the Company completed the sale of one of its
offshore drilling rigs, the Glomar Main Pass III, to Dual Drilling
Company, the customer that had been bareboat chartering the rig
from the Company. The Company received net proceeds of $22.4
million in cash and recognized a gain of $14.7 million in the
second quarter of 1995.
NOTE 6 - PURCHASE OF GLOMAR BEAUFORT SEA I
On April 28, 1995, the Company completed the previously reported
purchase of the Glomar Beaufort Sea I, which, prior to January
1995, had been chartered by the Company under a long-term lease.
The Company has agreed to pay a purchase price of up to $9.3
million out of the rig's future cash flow or proceeds from the sale
of the rig, if any. The full $9.3 million will be paid only if the
Company's share of future cash flow or rig sale proceeds exceeds
$48 million. The Company will have no obligation to pay any amount
if the rig fails to generate any future cash flow.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
SUMMARY
The Company reported operating income of $14.7 million for the
second quarter of 1995 compared to $4.9 million for the prior-year
second quarter. For the six months ended June 30, 1995, the
Company reported operating income of $24.4 million compared to
$8.7 million for the six months ended June 30, 1994. The
improvement in operating results is primarily due to generally
higher contract drilling dayrates and utilization, lower
depreciation expense due to a change in estimated rig service lives
and, for the six months ended June 30, 1995, an increase in the
number of turnkey wells completed. Data relating to the Company's
operations by business segment follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- -----------------------------------
Increase Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
------ ------ ---------- ------ ------ ----------
(in millions)
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Contract drilling $ 60.6 $ 46.7 $ 13.9 $118.0 $ 98.6 $ 19.4
Drilling management 40.2 30.1 10.1 99.5 44.9 54.6
Oil and gas 2.8 2.5 0.3 5.2 5.3 (0.1)
Less: Intersegment revenues (1.2) (3.0) 1.8 (4.2) (4.5) 0.3
------ ------ ------ ------ ------ ------
Total revenues $102.4 $ 76.3 $ 26.1 $218.5 $144.3 $ 74.2
====== ====== ====== ====== ====== ======
Operating income:
Contract drilling $ 12.0 $ 2.9 $ 9.1 $ 19.8 $ 8.9 $ 10.9
Drilling management 5.3 4.3 1.0 10.1 4.3 5.8
Oil and gas 1.3 1.2 0.1 1.8 2.5 (0.7)
Corporate expenses (3.9) (3.5) (0.4) (7.3) (7.0) (0.3)
------ ------ ------ ------ ------ ------
Total operating income $ 14.7 $ 4.9 $ 9.8 $ 24.4 $ 8.7 $ 15.7
====== ====== ====== ====== ====== ======
</TABLE>
The Company reported net income of $24.2 million for the quarter
ended June 30, 1995 as compared with a net loss of $0.8 million for
the quarter ended June 30, 1994. Net income for the second quarter
of 1995 included a $14.3 million after-tax gain on the sale of an
offshore drilling rig. Excluding the gain, net income for the
second quarter of 1995 was $9.9 million. For the first half of
1995, the Company reported net income of $14.4 million, excluding
the gain on the sale of the rig, as compared with a net loss of
$6.0 million for the first half of 1994. The net loss for the
first half of 1994 included a $3.5 million charge for the
cumulative effect of a required change in accounting for
postemployment benefits. Excluding the effect of the accounting
change, the net loss for the first half of 1994 was $2.5 million.
The Company expects to report net income for the full year 1995 due
to improved contract and turnkey drilling operations.
In the U.K. sector of the North Sea, increased rig demand and a
decrease in the number of rigs available, among other factors, have
resulted in higher contract drilling dayrates since October of
1994. Offshore West Africa, dayrates and industry utilization
remain stable despite political unrest. In the U.S. Gulf of
Mexico, industry demand began weakening in late December 1994 due
to seasonal factors, but stabilized during the first quarter of
1995. Since March 1995, demand in the U.S. Gulf of Mexico has
increased, and, as of August 8, 1995, 139 Gulf rigs were under
contract, up from a low of 109 earlier in the year. Further
strengthening is not expected, however, without an increase in
natural gas prices.
CONTRACT DRILLING OPERATIONS
Data with respect to the Company's contract drilling operations
follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- -------------------------------------
Increase Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
-------- -------- ---------- -------- -------- ----------
Contract drilling revenues by area
(in millions) (1):
<S> <C> <C> <C> <C> <C> <C>
North Sea $ 12.4 $ 4.5 $ 7.9 $ 21.3 $ 11.1 $ 10.2
West Africa 12.1 6.8 5.3 22.4 13.9 8.5
Gulf of Mexico 27.3 27.5 (0.2) 55.9 57.3 (1.4)
Other 8.8 7.9 0.9 18.4 16.3 2.1
------- ------- ------- ------- ------- -------
Total $ 60.6 $ 46.7 $ 13.9 $ 118.0 $ 98.6 $ 19.4
======= ======= ======= ======= ======= =======
Average rig utilization 95% 87% 92% 90%
Average dayrate (2) $27,400 $23,200 $27,400 $23,800
-------------------
(1) Includes revenues earned from affiliates.
(2) Contract drilling revenues less non-rig related revenues
divided by aggregate contract days.
</TABLE>
Of the $13.9 million increase in contract drilling revenues for the
three months ended June 30, 1995 compared to the comparable quarter
of 1994, $7.4 million was attributable to increases in dayrates,
$5.0 million was attributable to increases in rig utilization, and
$1.5 million was attributable to an increase in non-dayrate
revenue. Of the $19.4 million increase in contract drilling
revenues for the first half of 1995 compared to the first half of
1994, $13.5 million was attributable to increases in dayrates, $5.1
million was attributable to increases in rig utilization, and $0.8
million was attributable to an increase in non-dayrate revenue.
Revenues from the North Sea increased for the three and six months
ended June 30, 1995 as compared with the comparable periods of
1994, due to higher utilization and higher dayrates. Revenues
attributable to offshore West Africa increased over the same
periods primarily due to the 1994 mobilization of two rigs to West
Africa (one from Saudi Arabia and the other from Alaska) and the
May 1995 commencement of operations of the Glomar Adriatic IX.
Revenues from the Gulf of Mexico decreased in both the three and
six months ended June 30, 1995 as compared with the comparable
prior-year periods due to lower dayrates. Despite the mobilization
of two rigs to West Africa, revenues in the "other" category
increased due to a significantly higher dayrate and utilization
with respect to the drillship in Australia.
Effective January 1, 1995, the Company increased to 25 years the
estimated useful lives of its jackup drilling rigs and increased to
20 years the estimated useful lives of its semisubmersible drilling
rigs and drillship. In addition, salvage values were reduced to
$500,000 per rig for jackups and $1,000,000 per rig for both
semisubmersibles and the drillship. The effect of the change in
estimated service lives and salvage values was to decrease
depreciation expense by approximately $2.7 million and $5.3 million
for the three and six months ended June 30, 1995, respectively.
The Company's operating profit margin for contract drilling
operations for the three and six months ended June 30, 1995,
increased to 20% and 17%, respectively, from 6% and 9% for the
comparable prior-year periods. The increase in operating profit
margin was due to higher dayrates earned on the Company's rigs in
1995 as well as to the decrease in depreciation expense discussed
above. Operating expenses other than depreciation increased by
$7.1 million and $13.0 million for the three and six months ended
June 30, 1995, respectively. The increase in operating expenses
was due in part to (i) the September 1994 commencement of a
drilling contract in Angola for a rig which, in the first half of
1994, was leased to an operator in Saudi Arabia under a bareboat
charter agreement, (ii) the March 1995 commencement of a drilling
contract for a rig in Nigeria after mobilizing it from Alaska where
it was on standby for a customer in 1994, (iii) higher utilization
of the two North Sea semisubmersible rigs which were idle for much
of the first half of 1994, and (iv) the operation of the Company's
drillship in 1995 in Australia, which is a more costly market in
which to operate than is Indonesia, where the rig operated in the
first half of 1994.
During the first six months of 1995, three rigs, the Glomar
Adriatic IX, Glomar Adriatic X, and Glomar Adriatic XI, were not in
service for all or part of the time. The Glomar Adriatic XI is
currently undergoing extensive modifications, primarily to replace
the rig's existing special-purpose drilling equipment with an
enhanced drilling package. The rig is under contract to begin
operations for a customer in the North Sea after modifications are
completed in September 1995. The Glomar Adriatic IX and Glomar
Adriatic X were purchased by the Company in February 1994 and have
been undergoing refurbishment since that time. Refurbishment of
the Glomar Adriatic IX was completed in March 1995, and the rig was
mobilized to Nigeria where it began drilling in May 1995.
Refurbishment of the Glomar Adriatic X is expected to be completed
in September 1995. At that time the rig will mobilize to Angola
where it is scheduled to begin drilling for a customer in November
1995.
Industry demand for contract drilling services in the U.S. Gulf of
Mexico began weakening in late December 1994. This seasonal
decline was exacerbated by low natural gas prices, and the number
of rigs under contract fell from approximately 140 in December 1994
to 109 in February 1995. As a result of this weakness, dayrates
received for newly contracted jackups in the Gulf of Mexico trended
downward between November 1994 and March 1995. Despite stagnant
1995 natural gas prices, drilling demand in the Gulf has increased
since March and, as of August 8, 1995, 139 Gulf rigs were under
contract. As demand increased, dayrates for jackups in the Gulf
began recovering. Aside from the seasonal recovery, the strength
in demand in the U.S. Gulf of Mexico beginning in the second
quarter of 1995 can be attributed to, among other things, improved
seismic and drilling technologies which have lowered the finding
costs of oil and gas, making exploration and production economical
at lower oil and natural gas prices. Unless gas prices increase
from current levels, however, further strengthening in demand and
dayrates in the Gulf of Mexico is not expected to continue.
The effect on the Company of the decline in dayrates in the U.S.
Gulf of Mexico was limited. For the three and six months ended
June 30, 1995, the Company's revenues derived from the Gulf of
Mexico decreased by $1.7 million and $3.3 million, respectively, as
a result of the decline in dayrates. Partially offsetting such
declines were increases in utilization and non-dayrate revenue in
the Gulf which increased Gulf revenues by $1.5 million and $1.9
million for the three and six months ended June 30, 1995,
respectively, over the comparable prior-year periods. As of August
8, 1995, all twelve of the Company's rigs in the Gulf of Mexico
were under contract. The Company averaged 100 percent utilization
for its rigs in the Gulf of Mexico in the first six months of 1995.
Offshore West Africa, average demand increased to 30 rigs under
contract (81 percent utilization) for the quarter ended June 30,
1995, from 29 rigs (83 percent utilization) for the quarter ended
March 31, 1995, and 23 rigs (72 percent utilization) for the second
quarter of 1994. For the first six months of 1995, average demand
increased to 29 rigs under contract (81 percent utilization) from
23 rigs under contract (73 percent utilization) for the first six
months of 1994. As of August 8, 1995, all six of the Company's
rigs located offshore West Africa were under contract. The
Company's average utilization rate for its rigs in West Africa in
the first six months of 1995 was 89 percent.
In the U.K. sector of the North Sea, (i) promising oil discoveries
west of the Shetland Islands, (ii) operators' increased drilling to
fulfill commitments to drill previously awarded blocks, (iii) fewer
available North Sea rigs as a result of mobilizations to other
areas, (iv) higher oil prices and (v) increased levels of
operators' cash flow, among other factors, have resulted in higher
North Sea dayrates in 1995, particularly for semisubmersible rigs,
as operators contracted available rigs to fulfill 1995 drilling
programs. In the North Sea, average demand increased to 68 rigs
under contract (87 percent utilization) for the quarter ended June
30, 1995, from 63 rigs (80 percent utilization) for the quarter
ended March 31, 1995, and 60 rigs (71 percent utilization) for the
second quarter of 1994. For the first six months of 1995, average
demand increased to 66 rigs under contract (84 percent utilization)
from 65 rigs under contract (75 percent utilization) for the first
six months of 1994. As of August 8, 1995, all three of the
Company's drilling rigs in the North Sea were under contract. The
Company averaged 100 percent utilization for its drilling rigs in
the North Sea in the first six months of 1995.
The Company anticipates that contracts on 16 of the Company's 26
rigs under contract or letter of intent as of August 8, 1995, will
expire at varying times on or prior to September 30, 1995. No
assurance can be made that the Company will obtain drilling
contracts for the rig in service that is presently available or for
its other rigs upon the completion of existing contracts. Short-
term contracts have been typical in the industry for the past
decade. The Company considers its upcoming contract expirations
typical of prevailing market conditions and in the normal course of
business.
DRILLING MANAGEMENT SERVICES
Drilling management services reported a $10.1 million increase in
revenues, from $30.1 million in the second quarter of 1994 to $40.2
million in the second quarter of 1995, and a $1.0 million increase
in operating income, from $4.3 million in the second quarter of
1994 to $5.3 million in the second quarter of 1995. The $10.1
million increase in revenues consisted of $13.9 million
attributable to the completion work on a multi-well North Sea
turnkey project in the second quarter of 1995 and a $4.6 million
increase attributable to higher turnkey revenues per well, offset
by a $7.7 million reduction attributable to a decline in the number
of turnkey wells drilled, from 13 in the second quarter of 1994 to
10 in the second quarter of 1995, and a $0.7 million decrease in
other drilling management revenues. Turnkey revenues per well
increased as a result of completing two higher-risk, technically
difficult wells, one offshore Nigeria and one offshore Spain, in
the second quarter of 1995. Despite the increase in operating
income, such amount expressed as a percentage of revenues declined
slightly to approximately 13 percent for the quarter ended June 30,
1995, from 14 percent for the comparable quarter of 1994.
For the first half of 1995, drilling management services reported
a $54.6 million increase in revenues, from $44.9 million in the
first six months of 1994 to $99.5 million in the first six months
of 1995, and a $5.8 million increase in operating income, from $4.3
million in the first half of 1994 to $10.1 million in the first
half of 1995. The $54.6 million increase in revenues for the
period consisted of a $32.9 million increase attributable to an
increase in the number of wells drilled, from 17 in the first half
of 1994 to 28 in the first half of 1995, $13.9 million from the
completion work on the multi-well North Sea project and a $10.5
million increase attributable to higher turnkey revenues per well,
offset by a $2.7 million decline in other revenues. The increase
in the number of turnkey wells drilled was attributable in part to
oil and gas operators' increased acceptance of turnkey drilling as
an alternative to dayrate contract drilling in the U.S. Gulf
of Mexico, West Africa and Europe. Operating income for drilling
management services expressed as a percentage of drilling management
revenues approximated 10 percent for each of the six-month periods
ended June 30, 1995 and 1994.
OIL AND GAS OPERATIONS
Production volume and price information with respect to the
Company's sales of oil and gas follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- ---------------------------------
Percentage Percentage
1995 1994 Change 1995 1994 Change
------ ------ ------ ------ ------ ------
Gas:
<S> <C> <C> <C> <C> <C> <C>
Production (in millions of cubic feet) 1,203 996 +21% 2,312 2,034 +14%
Average sale price (per thousand cubic feet) $1.68 $1.90 -12% $1.59 $2.06 -23%
Oil:
Production (in barrels) 45,637 38,305 +19% 88,094 74,028 +19%
Average sale price (per barrel) $16.40 $16.20 +1% $16.96 $14.81 +15%
</TABLE>
Oil and gas revenues of $2.8 million and operating income of $1.3
million for the second quarter of 1995 were higher than the
comparable prior-year period by $0.3 million and $0.1 million,
respectively. The increase in revenues was primarily attributable
to higher volumes of gas and oil produced due to production from
two new properties, partially offset by lower gas prices. The
increase in operating income was attributable to the higher
revenues, partially offset by higher depletion expense due to an
increase in the depletion rate and to the increase in production
volume.
Oil and gas revenues of $5.2 million and operating income of $1.8
million for the first six months of 1995 were lower than the
comparable prior-year period by $0.1 million and $0.7 million,
respectively. The decrease in revenues was primarily due to lower
gas prices, partially offset by higher oil prices and higher
volumes of oil and gas produced due to production from the two new
properties. The decrease in operating income was attributable to
higher depletion expense due to an increase in the depletion rate
and to the increase in production volume, higher employee severance
costs and lower revenues.
OTHER INCOME AND EXPENSE
In June 1995 the Company completed the sale of its offshore
drilling rig, the Glomar Main Pass III, for $22.4 million in cash,
net of expenses, and recognized a gain of $14.7 million in the
second quarter.
Interest capitalized for the three and six months ended June 30,
1995, increased by $1.0 million and $2.1 million, respectively, as
compared with the comparable prior-year periods. The increase in
interest capitalized was primarily due to the construction work on
the Glomar Adriatic XI, which was acquired in November 1994, and to
higher amounts capitalized with respect to the Glomar Adriatic IX
and Glomar Adriatic X as a result of continuing capital
expenditures.
Interest income in the three and six months ended June 30, 1995
increased by $0.6 million and $1.0 million, respectively, from the
comparable prior-year periods due to higher short-term investment
balances and to higher interest rates earned thereon.
The Company recognized and received dividend income of $0.2 million
and $1.3 million in the three and six months ended June 30, 1994,
respectively, on its investment in Transco Energy Company common
stock, which the Company sold in 1994.
Despite reporting pretax income for the three and six months ended
June 30, 1995, the provision for income taxes was not significant
due to the utilization of net operating loss carryforwards for U.S.
federal income tax purposes. Income tax expense for the six months
ended June 30, 1994 primarily consisted of income taxes applicable
to foreign countries in which the Company had no loss
carryforwards.
In the first quarter of 1994 the Company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." The adoption of SFAS No. 112 resulted in
a charge to earnings in the amount of $3.5 million for the
cumulative effect of the change.
LIQUIDITY AND CAPITAL RESOURCES
Capitalized words which appear in the following discussion that are
not defined herein are defined in the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
Capital expenditures for the full year 1995 are anticipated to be
$66 million, including $21 million for the completion of the
refurbishment and mobilization of the Glomar Adriatic IX and Glomar
Adriatic X, $20 million for the replacement of the drilling package
and other improvements with respect to the Glomar Adriatic XI, $14
million for improvements to the remainder of the drilling fleet, $4
million for interest capitalized, $4 million for exploration costs
in connection with the Company's oil and gas operations, and $3
million for other expenditures.
For the six months ended June 30, 1995, cash flow provided by
operating activities amounted to $30.4 million. An additional
$23.4 million was provided from sales of properties and equipment.
From the $53.8 million sum of cash flow from operations and sales
of properties and equipment, $36.2 million was used for capital
expenditures. For the comparable prior-year period, cash flow
provided by operating activities totaled $43.8 million. The prior
year period included $17.9 million in proceeds from the liquidation
of the promissory note received in connection with the 1992
settlement of the Company's take-or-pay litigation against
Transcontinental Gas Pipe Line Corporation.
As of June 30, 1995, the Company had $75.9 million in cash, cash
equivalents and marketable securities, including $7.6 million which
was restricted from use for general corporate purposes. The
restricted amount includes $5.3 million in proceeds from asset
sales and $2.3 million collateralizing outstanding operating
letters of credit. The use of the proceeds from sales of assets is
limited under the terms of the indenture governing the Senior
Secured Notes. As of December 31, 1994, the Company had $57.9
million in cash and marketable securities, including restricted
amounts of $19.3 million.
The Company believes that it will be able to meet all of its
current obligations, including capital expenditures and debt
service, from its cash flow from operations and its cash, cash
equivalents and marketable securities.
On April 13, 1995, the Company filed with the Securities and
Exchange Commission a Registration Statement on Form S-3 for the
proposed offering from time to time of (i) debt securities, which
may be subordinated to other indebtedness of the Company, (ii)
shares of preferred stock, $.01 par value per share, and/or (iii)
shares of common stock, $.10 par value per share, for an aggregate
initial public offering price not to exceed $75 million. Any net
proceeds from the sale of offered securities would be used for
general corporate purposes which may include, but are not limited
to, capital expenditures and the financing of acquisitions. The
Registration Statement was declared effective by the Commission on
June 13, 1995. The Company has not yet offered for sale or sold
any securities under the Registration Statement.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on May
10, 1995. At the meeting, three directors were elected by a vote
of holders of Common Stock, $.10 par value per share, as outlined
in the Company's Proxy Statement relating to the meeting. With
respect to the election of directors, (i) proxies were solicited
pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended, (ii) there was no solicitation in opposition to
the management's nominees as listed in the Proxy Statement, and
(iii) all of such nominees were elected. The following numbers of
votes were cast as to the director nominees: Patrick M. Ahern,
144,785,836 votes for and 1,534,294 votes withheld; C. Russell
Luigs, 144,787,459 votes for and 1,532,671 votes withheld; and
William R. Thomas, 144,788,681 votes for and 1,531,449 votes
withheld. Also voted upon at the Annual Meeting was the
ratification of the appointment of Coopers & Lybrand L.L.P. as
independent certified public accountants of the Company and its
subsidiaries for 1995, with 144,535,536 votes being cast for
ratification, 607,875 votes being cast against ratification, and
1,176,719 abstentions and broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 First Amendment to Global Marine Inc. 1990 Non-Employee
Director Stock Option Plan.
15.1 Letter of Independent Accountants regarding Awareness of
Incorporation by Reference.
27.1 Financial Data Schedule. (Exhibit 27.1 is being
submitted as an exhibit only in the electronic format of
this Quarterly Report on Form 10-Q being submitted to the
Securities and Exchange Commission. Exhibit 27.1 shall
not be deemed filed for purposes of Section 11 of the
Securities Act of 1933, Section 18 of the Securities
Exchange Act of 1934 or Section 323 of the Trust
Indenture Act, or otherwise be subject to the liabilities
of such sections, nor shall it be deemed a part of any
registration statement to which it relates.)
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K
during the second quarter of 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
GLOBAL MARINE INC.
(Registrant)
Dated: August 10, 1995 /s/ Thomas R. Johnson
Thomas R. Johnson
Vice President and Corporate Controller
(Duly Authorized Officer and Principal Accounting
Officer of the Registrant)
INDEX TO EXHIBITS
10.1 First Amendment to Global Marine Inc. 1990 Non-Employee
Director Stock Option Plan.
15.1 Letter of Independent Accountants regarding Awareness of
Incorporation by Reference.
27.1 Financial Data Schedule. (Exhibit 27.1 is being
submitted as an exhibit only in the electronic format of
this Quarterly Report on Form 10-Q being submitted to the
Securities and Exchange Commission. Exhibit 27.1 shall
not be deemed filed for purposes of Section 11 of the
Securities Act of 1933, Section 18 of the Securities
Exchange Act of 1934 or Section 323 of the Trust
Indenture Act, or otherwise be subject to the liabilities
of such sections, nor shall it be deemed a part of any
registration statement to which it relates.)
EXHIBIT 10.1
GLOBAL MARINE INC.
1990 NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN
FIRST AMENDMENT
The Global Marine Inc. 1990 Non-Employee Director Stock Option
Plan (the "Plan") is hereby amended as follows, effective May 9,
1995:
1. Paragraph A of Section 8.1 of the Plan is hereby amended
in its entirety to be and read as follows:
A. Options shall not be exercisable for a
period of six months from the date of grant (except in
the event of death or Disability, as hereinafter defined,
of the optionee). Each Option shall become exercisable
for fifty percent (50%) of the Shares covered thereby on
the day which is one (1) year following the date of
grant, and shall become exercisable for the remaining
fifty percent (50%) of the Shares covered thereby on the
day which is two (2) years following the date of grant
(either of said days being hereinafter referred to as a
"Fifty Percent Vesting Day"); provided, however, that if
the foregoing determination would cause a Fifty Percent
Vesting Day to occur after the day immediately prior to
the date of the Company's Annual Meeting of Stockholders
occurring in the same calendar year as said Fifty Percent
Vesting Day, then said Fifty Percent Vesting Day shall,
instead, be redetermined to be the day immediately prior
to the date of said Annual Meeting of Stockholders,
unless said Annual Meeting of Stockholders is, in the
case of the first Fifty Percent Vesting Day, less than
three hundred fifty-five (355) days after the date of
grant or, in the case of the second Fifty Percent Vesting
Day, less than one (1) year plus three hundred fifty-five
(355) days after the date of grant.
2. Section 1(d) of the form of Non-Employee Director Stock
Option Agreement attached to the Plan is hereby amended in its
entirety to be and read as follows:
(d) Subject to acceleration and to adjustments as set
forth in and as provided by the Plan, the number of
shares first purchasable on the day which is one
year after the date of this Option and, on a
cumulative basis, the number of shares first
purchasable on the day which is two years after the
date of this Option is, in each case, 50% of the
shares set forth in Section 1(c) (_________ shares)
(either of said days being hereinafter referred to
as a "Fifty Percent Vesting Day"); provided,
however, that if the foregoing determination would
cause a Fifty Percent Vesting Day to occur after
the day immediately prior to the date of the
Company's Annual Meeting of Stockholders occurring
in the same calendar year as said Fifty Percent
Vesting Day, then said Fifty Percent Vesting Day
shall, instead, be redetermined to be the day
immediately prior to the date of said Annual
Meeting of Stockholders, unless said Annual Meeting
of Stockholders is, in the case of the first Fifty
Percent Vesting Day, less than 355 days after the
date of this Option or, in the case of the second
Fifty Percent Vesting Day, less than one year plus
355 days after the date of this Option.
3. The changes to the Plan effected by this Amendment are
contingent upon the concurrence of the Division of Corporation
Finance of the Securities and Exchange Commission that this
Amendment will not require stockholder approval pursuant to Rule
16b-3(b) under the Securities Exchange Act of 1934, as amended.
4. 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.
5. Except as expressly amended hereby, the Plan shall remain
in full force and effect.
EXHIBIT 15.1
ACCOUNTANTS' AWARENESS LETTER
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Global Marine Inc.
Registration Statements
We are aware that our report dated August 9, 1995, on our review of
the condensed consolidated interim financial information of Global
Marine Inc. and subsidiaries for the three and six months ended
June 30, 1995, and included in this Quarterly Report on Form 10-Q
is incorporated by reference in (i) the prospectus constituting
part of the Company's Registration Statements on Form S-8
(Registration Nos. 33-32088, 33-40961, and 33-63326), respectively,
for the Global Marine Inc. 1989 Stock Option and Incentive Plan,
(ii) the prospectus constituting part of the Company's Registration
Statement on Form S-8 (Registration No. 33-40266) for the Global
Marine Savings Incentive Plan, (iii) the prospectus constituting
part of the Company's Registration Statement on Form S-8
(Registration No. 33-40961) for the Global Marine Inc. 1990 Non-
Employee Director Stock Option Plan, (iv) the prospectus
constituting part of the Company's Registration Statement on Form
S-8 (Registration No. 33-57691) for the Global Marine Inc. 1994
Non-Employee Stock Option and Incentive Plan and (v) the prospectus
constituting part of the Company's Registration Statement on Form
S-3 (Registration No. 33-58577) for the proposed offering of up to
$75,000,000 of debt securities, preferred stock and/or common
stock. Pursuant to Rule 436(c) under the Securities Act of 1933,
this report should not be considered a part of any of said
registration statements prepared or certified by us within the
meaning of Sections 7 and 11 of that Act.
Houston, Texas /s/ Coopers & Lybrand L.L.P.
August 10, 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 6-30-95 and the related condensed statement of operations for the year ended
6-30-95, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 52,700
<SECURITIES> 23,200
<RECEIVABLES> 72,500
<ALLOWANCES> 2,000
<INVENTORY> 0
<CURRENT-ASSETS> 167,700
<PP&E> 569,100
<DEPRECIATION> 202,700
<TOTAL-ASSETS> 540,500
<CURRENT-LIABILITIES> 54,700
<BONDS> 225,000
<COMMON> 16,500
0
0
<OTHER-SE> 226,400
<TOTAL-LIABILITY-AND-EQUITY> 540,500
<SALES> 5,200
<TOTAL-REVENUES> 218,500
<CGS> 3,400
<TOTAL-COSTS> 187,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,100
<INCOME-PRETAX> 29,700
<INCOME-TAX> 1,000
<INCOME-CONTINUING> 28,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,700
<EPS-PRIMARY> .17
<EPS-DILUTED> 0
</TABLE>
