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, 1996
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,
167,804,019 shares outstanding as of July 31, 1996.
GLOBAL MARINE INC.
TABLE OF CONTENTS TO FORM 10-Q
QUARTER ENDED JUNE 30, 1996
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Report of Independent Accountants
Condensed Consolidated Statement of Operations
Three and Six Months Ended June 30, 1996, and 1995
Condensed Consolidated Balance Sheet
June 30, 1996, and December 31, 1995
Condensed Consolidated Statement of Cash Flows
Six Months Ended June 30, 1996, and 1995
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, 1996, and the related condensed
consolidated statement of operations for the three- and six-month periods ended
June 30, 1996 and 1995, and the condensed consolidated statement of cash
flows for the six-month periods ended June 30, 1996 and 1995. 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, 1995, 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 9, 1996, 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,
1995, 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 6, 1996
<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,
------------------ ------------------
1996 1995 1996 1995
------ ------ ------ ------
Revenues:
<S> <C> <C> <C> <C>
Contract drilling $ 85.7 $ 59.4 $164.2 $116.1
Drilling management 69.3 40.2 111.5 97.2
Oil and gas 4.9 2.8 7.2 5.2
------ ------ ------ ------
Total revenues 159.9 102.4 282.9 218.5
Expenses:
Contract drilling 50.1 41.0 96.5 83.5
Drilling management 61.2 34.9 102.6 87.1
Oil and gas .6 .8 1.4 2.0
Depreciation, depletion and amortization 10.5 7.3 20.2 14.5
General and administrative 5.1 3.7 8.8 7.0
------ ------ ------ ------
Total operating expenses 127.5 87.7 229.5 194.1
------ ------ ------ ------
Operating income 32.4 14.7 53.4 24.4
Other income (expense):
Interest expense (7.5) (7.5) (15.1) (15.1)
Interest capitalized - 1.8 - 3.4
Interest income 1.3 1.3 2.4 2.3
Gain on sale of offshore drilling rig - 14.7 - 14.7
Other - (.1) 1.1 -
------ ------ ------ ------
Total other income (expense) (6.2) 10.2 (11.6) 5.3
------ ------ ------ ------
Income before income taxes 26.2 24.9 41.8 29.7
Income tax expense 2.1 .7 2.8 1.0
------ ------ ------ ------
Net income $ 24.1 $ 24.2 $ 39.0 $ 28.7
====== ====== ====== ======
Net income per common share:
Primary $ 0.14 $ 0.14 $ 0.23 $ 0.17
====== ====== ====== ======
Fully diluted $ 0.14 $ 0.14 $ 0.22 $ 0.17
====== ====== ====== ======
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
June 30, December 31,
1996 1995
-------- ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 55.0 $ 33.2
Marketable securities 48.3 53.4
Accounts receivable, net of allowances 96.6 70.2
Costs incurred on turnkey drilling
contracts in progress 8.4 8.4
Prepaid expenses 7.6 2.2
Other current assets .8 .9
------- -------
Total current assets 216.7 168.3
Properties:
Rigs and drilling equipment, less accumulated
depreciation of $206.2 and $189.0 at June 30, 1996
and December 31, 1995, respectively 385.0 377.9
Oil and gas properties, full cost method, less
accumulated depreciation, depletion and
amortization of $29.5 and $26.4 at June 30, 1996
and December 31, 1995, respectively 7.2 8.7
------- -------
Net properties 392.2 386.6
Other assets 10.2 8.1
------- -------
Total assets $ 619.1 $ 563.0
======= =======
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
(in millions)
June 30, December 31,
1996 1995
-------- ------------
Current liabilities:
<S> <C> <C>
Accounts payable $ 43.3 $ 33.9
Accrued claims and allowances 3.5 2.3
Accrued income taxes 3.3 2.4
Other accrued liabilities 15.4 13.5
------- -------
Total current liabilities 65.5 52.1
Long-term debt 225.0 225.0
Other long-term liabilities 16.2 16.9
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, 167,778,519 shares and 166,458,083
shares issued and outstanding at June 30, 1996
and December 31, 1995, respectively 16.8 16.6
Additional paid-in capital 269.0 264.8
Retained earnings (accumulated deficit) 26.6 (12.4)
------- -------
Total shareholders' equity 312.4 269.0
------- -------
Total liabilities and shareholders' equity $ 619.1 $ 563.0
======= =======
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Six Months Ended
June 30,
------------------
1996 1995
------ ------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 39.0 $ 28.7
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 20.2 14.5
Gains on sales of properties and equipment (1.1) (14.7)
Increase in accounts receivable (26.4) (7.4)
Decrease in costs incurred on turnkey
drilling contracts in progress - 3.6
(Increase) decrease in other current assets (5.3) 3.9
Increase (decrease) in accounts payable 9.4 (3.5)
Increase in other accrued liabilities 4.1 3.5
Other, net (2.6) 1.8
------ ------
Net cash flow provided by operating activities 37.3 30.4
Cash flows from investing activities:
Purchases of held-to-maturity securities (53.1) (43.7)
Proceeds from maturities of held-to-maturity securities 58.2 45.1
Capital expenditures (27.7) (36.2)
Proceeds from sales of properties and equipment 3.0 23.4
------ ------
Net cash flow used in investing activities (19.6) (11.4)
Cash flows from financing activities:
Proceeds from exercise of employee stock options 4.1 .4
------ ------
Net cash flow provided by financing activities 4.1 .4
------ ------
Increase in cash and cash equivalents 21.8 19.4
Cash and cash equivalents at beginning of period 33.2 33.3
------ ------
Cash and cash equivalents at end of period $ 55.0 $ 52.7
====== ======
See notes to condensed consolidated financial statements.
</TABLE>
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 consolidated balance sheet was derived from audited
financial statements but does not include all disclosures required by generally
accepted accounting principles. Certain reclassifications were 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 - Net Income per Share
Primary and fully diluted net income per common share were computed by dividing
net income by the weighted average number of common shares outstanding and, if
dilutive, shares contingently issuable primarily due to outstanding employee
stock options.
The weighted average number of shares for primary net income per common share
for the three and six months ended June 30, 1996, were 167,500,220 and
167,158,732, respectively. Contingently issuable shares were excluded
because their effect was not material. Fully diluted net income per common and
common equivalent share was based on 175,028,029 and 174,353,401 shares for the
three and six months ended June 30, 1996, respectively.
Primary net income per common share for the three and six months ended June 30,
1995 was based on 168,757,895 and 164,795,145 shares, respectively. Primary
shares for the three months ended June 30, 1995 included 3,811,347 contingently
issuable shares attributable to outstanding stock options granted by the
Company. Primary 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. Fully diluted net income per common and common equivalent share
was based on 170,389,202 and 170,100,874 shares for the three and six months
ended June 30, 1995, respectively.
Note 3 - Sale of Oil and Gas Properties
On March 26, 1996, the Company sold its working interest in two offshore oil
and gas properties for $2.2 million in cash, which it received on April 4, 1996.
The Company recognized a gain in the first quarter in the amount of $1.1 million
as required under the full-cost method of oil and gas accounting. Such
amount was included in other income. The terms of the indenture governing the
Company's publicly traded debt restrict the use of the proceeds from the sale
and, therefore, the proceeds are not currently available for general corporate
purposes.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
OPERATING RESULTS
Summary
The Company reported operating income of $32.4 million for the second quarter of
1996 compared to $14.7 million for the prior-year second quarter. For the six
months ended June 30, 1996, the Company reported operating income of $53.4
million compared to $24.4 million for the six months ended June 30,
1995. The improvement in operating results was primarily due to higher contract
drilling dayrates, the commencement of operations in 1995 of three offshore
drilling rigs purchased in 1994 and an increase in the number of turnkey wells
completed, partially offset by lower turnkey profit margins. 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
1996 1995 (Decrease) 1996 1995 (Decrease)
------ ------ ---------- ------ ------ ----------
(in millions)
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Contract drilling $ 86.2 $ 60.6 $ 25.6 $166.0 $118.0 $ 48.0
Drilling management 69.3 40.2 29.1 112.1 99.5 12.6
Oil and gas 4.9 2.8 2.1 7.2 5.2 2.0
Less: Intersegment revenues (0.5) (1.2) 0.7 (2.4) (4.2) 1.8
------ ------ ------ ------ ------ ------
Total revenues $159.9 $102.4 $ 57.5 $282.9 $218.5 $ 64.4
====== ====== ====== ====== ====== ======
Operating income:
Contract drilling $ 26.7 $ 12.0 $ 14.7 $ 50.0 $ 19.8 $ 30.2
Drilling management 8.1 5.3 2.8 8.9 10.1 (1.2)
Oil and gas 3.0 1.3 1.7 3.8 1.8 2.0
Corporate expenses (5.4) (3.9) (1.5) (9.3) (7.3) (2.0)
------ ------ ------ ------ ------ ------
Total operating income $ 32.4 $ 14.7 $ 17.7 $ 53.4 $ 24.4 $ 29.0
====== ====== ====== ====== ====== ======
</TABLE>
The Company reported net income of $24.1 million for the quarter ended June 30,
1996 as compared with $24.2 million for the quarter ended June 30, 1995. 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 1996, the
Company reported net income of $39.0 million as compared with net income of
$14.4 million for the first half of 1995, excluding the gain on the sale of the
rig.
During 1996, industry dayrates and utilization have continued to increase in
almost all markets in which the Company operates. The only exception is the
jackup market in the U.K. sector of the North Sea. An oversupply of natural
gas in the U.K. sector has created uncertainty regarding future demand for North
Sea jackups. A continuation of the oversupply of natural gas in the North Sea
could cause a reduction in future drilling demand and put downward pressure on
dayrates and utilization rates for the Company's two jackup drilling rigs
that operate in the U.K. sector of the North Sea. Demand in other sectors of
the North Sea remains strong.
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
1996 1995 (Decrease) 1996 1995 (Decrease)
------ ------ ---------- ------ ------ ----------
Contract drilling revenues by area
(in millions): (1)
<S> <C> <C> <C> <C> <C> <C>
Gulf of Mexico $ 30.9 $ 27.3 $ 3.6 $ 60.2 $ 55.9 $ 4.3
West Africa 26.7 12.1 14.6 47.9 22.4 25.5
North Sea 23.7 12.4 11.3 45.0 21.3 23.7
Other 4.9 8.8 (3.9) 12.9 18.4 (5.5)
------ ------ ------ ------ ------ ------
$ 86.2 $ 60.6 $ 25.6 $166.0 $118.0 $ 48.0
====== ====== ====== ====== ====== ======
Average rig utilization (2) 96% 99% 98% 98%
Average dayrate $36,400 $27,400 $34,400 $27,400
- -----------------------------------
(1) Includes revenues earned from affiliates.
(2) Excludes the Company's Concrete Island Drilling System, a currently
inactive, special-purpose mobile offshore rig designed for arctic
operations.
</TABLE>
Of the $25.6 million increase in contract drilling revenues for the three months
ended June 30, 1996 compared to the comparable quarter of 1995, $18.0 million
was attributable to increases in dayrates, $9.5 million was attributable to
the commencement of operations of the GLOMAR ADRIATIC IX, GLOMAR ADRIATIC
X and GLOMAR ADRIATIC XI, and $1.3 million was attributable to an increase
in non-dayrate revenue. (The GLOMAR ADRIATIC IX and GLOMAR ADRIATIC X were
purchased in early 1994 and commenced operations offshore West Africa in May
and November 1995, respectively; the GLOMAR ADRIATIC XI was purchased
in late 1994 and commenced operations in the North Sea in October 1995.)
Such increases were partially offset by decreases of $2.7 million
attributable to lower rig utilization and $0.5 million due to the sale
of the GLOMAR MAIN PASS III in June 1995. Of the $48.0 million increase in
contract drilling revenues for the first half of 1996 compared to the first
half of 1995, $26.1 million was attributable to increases in dayrates, $18.2
million was attributable to the commencement of operations of the GLOMAR
ADRIATIC IX, GLOMAR ADRIATIC X and GLOMAR ADRIATIC XI, $3.7 million was
attributable to an increase in non-dayrate revenue, and $1.2 million was
attributable to increases in rig utilization. Such increases were partially
offset by a decrease of $1.2 million due to the sale of the GLOMAR MAIN
PASS III.
Other factors which have affected the Company's 1996 revenues from certain
geographical areas include the mobilization to West Africa of one jackup from
the U.S. Gulf of Mexico in February, one from Abu Dhabi in May, and one from
Trinidad in June.
The Company's operating profit margin for contract drilling operations for the
three and six months ended June 30, 1996, increased to 31% and 30%,
respectively, from 20% and 17% for the comparable prior-year periods. The
increase in operating profit margin was due to higher dayrates earned on the
Company's rigs in 1996. Operating expenses increased by $10.9 million and $17.8
million for the three and six months ended June 30, 1996, respectively,
primarily due to the 1995 commencement of operations of the GLOMAR ADRIATIC
IX, GLOMAR ADRIATIC X and GLOMAR ADRIATIC XI and to the commencement of a
drilling contract in West Africa in the second quarter of 1996 for a rig which,
in the first half of 1995, was operated by a third-party under a management
contract with the Company.
Industry demand in the U.S. Gulf of Mexico has risen since the second quarter of
1995 primarily due to improved seismic and drilling technologies, which have
lowered the finding costs of oil and gas, and to higher natural gas prices.
In the Gulf of Mexico, average drilling industry demand increased to 149
rigs under contract (84 percent utilization) for the quarter ended June 30,
1996, from 145 rigs (82 percent utilization) for the quarter ended March 31,
1996. For the second quarter of 1995, an average of 130 Gulf rigs were under
contract (73 percent utilization). For the first six months of 1996, average
demand increased to 147 rigs under contract (83 percent utilization) from 127
rigs under contract (71 percent utilization) for the first six months of 1995.
In December 1996, the Company expects to mobilize a semisubmersible rig, the
GLOMAR ARCTIC I, from the North Sea to the U.S. Gulf of Mexico where it will
begin drilling for a customer under an 18-month contract in February 1997
after undergoing modifications. The cost of the mobilization will be
substantially reimbursed by the customer. As of August 6, 1996, all eleven
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 1996.
Offshore West Africa, average demand increased to 40 rigs under contract (92
percent utilization) for the quarter ended June 30, 1996, from 38 rigs (87
percent utilization) for the quarter ended March 31, 1996, and 30 rigs (81
percent utilization) for the second quarter of 1995. For the first six months
of 1996, average demand increased to 38 rigs under contract (89 percent
utilization) from 29 rigs under contract (81 percent utilization) for the
first six months of 1995. In addition to the three rigs mobilized to West
Africa during 1996 noted above, in July the Company mobilized the GLOMAR
ROBERT F. BAUER drillship to Angola from a shipyard in South Africa, where it
was undergoing top-drive installation and other improvements. The cost of
the mobilizations were or will be substantially reimbursed by customers. As
of August 6, 1996, all eleven 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 1996 was 100 percent.
In the U.K. sector of the North Sea, promising oil discoveries west of the
Shetland Islands, lower tax rates and higher oil prices, among other factors,
have resulted in higher North Sea dayrates, particularly for semisubmersible
rigs. However, an oversupply of natural gas in the U.K. sector of the North Sea
has caused some gas drilling programs to be delayed and has created uncertainty
regarding future demand for North Sea jackups. A continuation of the oversupply
of natural gas in the U.K. sector could cause a reduction in future drilling
demand and put downward pressure on dayrates and utilization rates for the
Company's two jackups currently operating there. Demand in the Dutch sector
has remained strong. In the North Sea, average drilling industry demand
increased to 79 rigs under contract (92 percent utilization) for the quarter
ended June 30, 1996, from 76 rigs (90 percent utilization) for the quarter
ended March 31, 1996, and 68 rigs (87 percent utilization) for the second
quarter of 1995. For the first six months of 1996, average demand increased to
78 rigs under contract (91 percent utilization) from 66 rigs under contract
(84 percent utilization) for the first six months of 1995. As of August 6,
1996, all of the Company's four rigs in the North Sea, two of which are
jackups and two of which are semisubmersibles, were under contract. The Company
averaged 98 percent utilization for its rigs in the North Sea in the first
six months of 1996.
The Company anticipates that contracts on 15 of the Company's 26 rigs under
contract as of August 6, 1996, will expire at varying times on or prior to
October 31, 1996. No assurance can be made that the Company will obtain
drilling contracts for its rigs upon the completion of existing contracts;
however, 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 consistent with the normal course of
business.
Drilling Management Services
Drilling management revenues increased by $29.1 million to $69.3 million in the
second quarter of 1996 from $40.2 million in the second quarter of 1995, and
operating income increased by $2.8 million to $8.1 million in the second
quarter of 1996 from $5.3 million in the second quarter of 1995. The $29.1
million increase in revenues consisted of a $33.3 million increase
attributable to an increase in the number of turnkey wells drilled, from 10
in the second quarter of 1995 to 22 in the second quarter of 1996, and a
$1.9 million increase attributable to higher average turnkey revenues per
well, partially offset by a $6.1 million reduction in revenues primarily from
consulting services.
Operating income from drilling management services expressed as a percentage of
drilling management revenues declined slightly to 12 percent for the second
quarter of 1996 from 13 percent for the second quarter of 1995. Two wells in
the second quarter of 1996 incurred losses aggregating $0.7 million, compared
to no losses on wells in the second quarter of 1995.
Drilling management revenues increased by $12.6 million to $112.1 million in
the first six months of 1996 from $99.5 million in the first six months of
1995, and operating income deceased by $1.2 million to $8.9 million in the
first half of 1996 from $10.1 million in the first half of 1995. The $12.6
million increase in revenues for the period consisted of a $19.3 million
increase attributable to an increase in the number of wells drilled, from 28
in the first half of 1995 to 35 in the first half of 1996, partially offset by
a $6.7 million decrease attributable to lower average turnkey revenues per well.
Operating income from drilling management services expressed as a percentage of
drilling management revenues declined to 8 percent for the first six months of
1996 from 10 percent for the first six months of 1995. Four wells in the
first six months of 1996 incurred losses aggregating $2.2 million, compared
to no losses on wells in the first six months of 1995.
Results of operations from drilling management services may be limited by
certain factors, in particular, the ability of the Company to obtain and
successfully perform turnkey drilling contracts based on competitive bids,
which in turn is largely dependent on the number of such contracts available for
bid, and the availability of rigs. Accordingly, results from the Company's
drilling management service operations may vary widely from quarter to quarter
and from year to year. During 1996, the Company entered into variable-term
charter agreements to secure the ongoing use of ten rigs in the Gulf of Mexico
and one rig in West Africa at market rates to minimize the risk of not having a
rig available for a turnkey job.
Oil and Gas Operations
Oil and gas revenues of $4.9 million and operating income of $3.0 million for
the second quarter of 1996 were higher than the comparable prior-year period by
$2.1 million and $1.7 million, respectively. The increase in revenues was
attributable to higher oil and gas prices and higher oil and gas production.
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 $7.2 million and operating income of $3.8 million for
the first six months of 1996 were each higher than the comparable prior-year
period by $2.0 million. The increase in revenues was primarily due to higher
oil and gas prices and oil production, partially offset by lower gas
production. The increase in operating income was attributable to higher
revenues and lower overhead, partially offset by the higher depletion expense
noted above.
Other Income and Expenses
Interest capitalized for the three and six months ended June 30, 1996, decreased
by $1.8 million and $3.4 million, respectively, as compared with the comparable
prior-year periods. The decrease in interest capitalized was due to the 1995
completion of the refurbishments of the GLOMAR ADRIATIC IX, GLOMAR ADRIATIC X,
and GLOMAR ADRIATIC XI.
The Company recognized a gain of $1.1 million on the sale of two oil and gas
properties in the first quarter of 1996 and a gain of $14.7 million on the sale
of an offshore drilling rig, the GLOMAR MAIN PASS III, in the second quarter
of 1995.
Despite reporting pretax income for the three and six months ended June 30, 1996
and 1995, the provision for income taxes was not significant due to the
utilization of net operating loss carryforwards for U.S. federal income tax
purposes. Income tax expense for the three- and six-month periods ended
June 30, 1996 and 1995, primarily consisted of income taxes applicable to
foreign countries in which the Company had no loss carryforwards. The
Company's recognition of its net operating loss carryforwards and other
deferred tax assets is dependent on its ability to estimate the amount and
timing of future earnings. Due to this uncertainty, the Company recorded a
valuation allowance as of June 30, 1996, against a substantial portion of its
deferred tax assets. The amount of the valuation allowance is subject
to periodic review and adjustment. A reasonable possibility exists that the
conditions that gave rise to the recognition of the valuation allowance as of
June 30, 1996 may require a reduction in the allowance in the near term. If
the allowance is reduced in a future period, the adjustment would be recorded as
a reduction to income tax expense.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," which sets forth accounting and disclosure requirements for
stock-based compensation arrangements. The new statement encourages,
but does not require, companies to measure stock-based compensation cost
using a fair-value method, rather than the intrinsic-value method prescribed by
Accounting Principles Board ("APB") Opinion No. 25. Companies choosing to
continue to measure stock-based compensation using the intrinsic-value
method must disclose on a pro forma basis net income and net income per share as
if the fair-value method were used. The Company elected to adopt the disclosure
requirements of SFAS No. 123 and to continue to measure stock-based
compensation cost using the intrinsic-value approach prescribed by APB
Opinion No. 25.
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, 1995.
For the six months ended June 30, 1996, cash flow provided by operating
activities amounted to $37.3 million. An additional $5.1 million was provided
from maturities of marketable securities (net of purchases), $4.1 million was
provided from the exercise of employee stock options, and $3.0 million was
provided from sales of properties and equipment. From the $49.5 million sum
of cash inflows, $27.7 million was used for capital expenditures. For the
comparable prior-year period, cash flow provided by operating activities
totaled $30.4 million, proceeds from sales of properties and equipment totaled
$23.4 million, and capital expenditures totaled $36.2 million.
In June 1996, the Company agreed to purchase from K/S Rasmussen Offshore A/S
a dynamically-positioned semisubmersible, the POLYCASTLE, after receiving a
three-year commitment from a major oil company to drill in deep water in the
U.S. Gulf of Mexico. The POLYCASTLE, which will be renamed the GLOMAR CELTIC
SEA, has been operating for the last several years as an accommodations unit.
The Company intends to spend approximately $185 million, excluding capitalized
interest, to acquire the POLYCASTLE and reconfigure it for drilling operations,
which are expected to commence in the third quarter of 1997. The Company
expects to take delivery of the POLYCASTLE in the fourth quarter of 1996.
On August 1, 1996, the Company announced that it had received a five-year, $262
million commitment from two major oil companies to drill in water depths to
7,500 feet. To fulfill this commitment, the Company entered into a 30-year
lease with the U.S. government for use of the GLOMAR EXPLORER, a dynamically-
positioned ship that was designed and operated from 1973 to 1975 by the
Company for the U.S. government. The Company will convert the
GLOMAR EXPLORER into a deep-water drillship at a cost of approximately $160
million, excluding capitalized interest. The Company expects to take
delivery of the ship in the third quarter of 1996 and have it ready to
commence drilling in the U.S. Gulf of Mexico during the first quarter of 1998.
The Company intends to finance its investments in the POLYCASTLE and the GLOMAR
EXPLORER over 15- and 18-month periods, respectively, primarily with
internally generated funds.
Capital expenditures for the full year 1996 are anticipated to be $145 million,
including $83 million for the purchase and reconfiguration of the POLYCASTLE,
$16 million for improvements to the GLOMAR ARCTIC I, $10 million for the
conversion of the GLOMAR EXPLORER, $9 million for improvements to the GLOMAR
ROBERT F. BAUER, $21 million for improvements to the remainder of the
drilling fleet, and $6 million for other expenditures.
As of June 30, 1996, the Company had $103.3 million in cash, cash equivalents
and marketable securities, including $3.5 million which was restricted from use
for general corporate purposes. The restricted amount includes $2.2 million
in proceeds from asset sales and $1.3 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, 1995, the Company had $86.6 million in cash and marketable
securities, including restricted amounts of $42.1 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, its cash, cash equivalents and marketable securities, and
its $25 million revolving credit facility.
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 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 financings.
In April 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 in June 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 8, 1996.
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: Donald B. Brown, 148,695,511 votes for and 439,098 votes
withheld; Thomas W. Cason, 148,698,686 votes for and 435,923 votes withheld; and
Jerry C. Martin, 149,114,324 votes for and 434,138 votes withheld. Also
voted upon at the Annual Meeting was a proposal to amend the Company's 1989
Stock Option and Incentive Plan and approve certain performance-based
compensation, with 142,050,079 votes being cast in favor of the proposal,
5,537,111 votes being cast against the proposal, and 1,685,370 abstentions
and broker non-votes. In addition, a vote was taken on ratification of the
appointment of Coopers & Lybrand L.L.P. as independent certified public
accountants of the Company and its subsidiaries for 1996, with 148,645,811
votes being cast for ratification, 274,712 votes being cast against
ratification, and 352,037 abstentions and broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Fifth Amendment to Global Marine Inc. 1989 Stock Option and Incentive
Plan.
10.2 Performance Criteria for Compensation Intended to Qualify as
"Performance-Based Compensation" Under Section 162(m) of the
Internal Revenue Code.
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
During the second quarter of 1996, the Company filed a Current Report
on Form 8-K, dated June 3, 1996, which reported under Item 5, "Other
Events," that the Company had received two unrelated long-term
commitments to drill in deep water in the U.S. Gulf of Mexico, and
that the Company had agreed to purchase a semisubmersible to be
reconfigured for drilling operations.
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 8, 1996 /s/ Thomas R. Johnson
---------------------------------------
Thomas R. Johnson
Vice President and Corporate Controller
(Duly Authorized Officer and Principal Accounting
Officer of the Registrant)
EXHIBIT 99
INDEX TO EXHIBITS
10.1 Fifth Amendment to Global Marine Inc. 1989 Stock Option
and Incentive Plan.
10.2 Performance Criteria for Compensation Intended to
Qualify as "Performance-Based Compensation" Under
Section 162(m) of the Internal Revenue Code.
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.
1989 STOCK OPTION AND INCENTIVE PLAN
Fifth Amendment
The Global Marine Inc. 1989 Stock Option and Incentive Plan, as heretofore
amended by the First through Fourth Amendments thereto (the "Plan"), is
hereby further amended as follows, effective upon approval of this Amendment by
the stockholders of Global Marine Inc. at said Company's 1996 Annual Meeting of
Stockholders or any adjournment thereof:
1. The first sentence of Paragraph (a) of Section 3 of the Plan is amended
in its entirety to read as follows:
"The Plan shall be administered by the Board of Directors of the Company or
by a Committee appointed by the Board of Directors which shall include not
less than three Directors of the Company, each of whom shall be a
disinterested person within the meaning of Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended, an outside director
within the meaning of Treasury Regulation Section 1.162-27(e)(3)."
2. A new paragraph (i) is added to Section 5 of the Plan to read as follows:
"(i) Notwithstanding anything herein to the contrary, no participant may
be granted options or other rights to purchase, in the aggregate, more than
20% of the shares of common stock authorized under the Plan, subject to
adjustment as provided in Section 2. In the event of an increase in the
number of shares authorized under the Plan, the 20% limitation will apply to
the increased number of shares authorized."
3. Paragraph (b) of Section 10 of the Plan shall be amended in its entirety,
to read as follows:
"(b) Unless sooner terminated by the Board of Directors, the Plan shall
terminate on the date ten years after the effective date of the Plan of
Reorganization, and thereupon no further options may be granted or shares
sold (other than on exercise of previously granted options under the Plan
or under previously granted opportunities, whether conditional or not, to
acquire shares under the Plan) without thereby affecting any options or
other opportunities to acquire shares granted or shares sold prior to the
Plan's termination."
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 10.2
Performance Criteria for
Compensation Intended to Qualify as
"Performance-Based Compensation"
Under Section 162(m)
Performance Criteria*:
1. Earnings before interest, taxes, depreciation and amortization.
2. Earnings per share.
3. Stock price growth.
4. Net income (before or after taxes).
5. Cash flow.
6. Total shareholder return.
_________________________
* Goals may be based on any one or more of these criteria, may be
cumulative, annual or end-of-performance period goals, and may be relative to
a peer group or be based on increases or changes relative to stated values.
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 6, 1996, 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, 1996, 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 6, 1996
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This schedule contains summary financial information extracted from the
condensed consolidated balance sheet of Global Marine Inc. and subsidiaries as
of 6-30-96 and the related condensed consolidated statement of operations for
the six months ended 6-30-96, and is qualified in its entirety by reference to
such financial statements.
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<CURRENT-ASSETS> 216,700
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