UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 Parkway, Houston, Texas 77079-4493
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 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 [ ]
The number of shares of the registrant's Common Stock, par value $.10
per share, outstanding as of October 31, 1998 was 173,354,465.
<PAGE>
GLOBAL MARINE INC.
TABLE OF CONTENTS TO FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1998
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Report of Independent Accountants 2
Condensed Consolidated Statement of Operations for
the Three and Nine Months Ended September 30, 1998
and 1997 3
Condensed Consolidated Balance Sheet as of
September 30, 1998 and December 31, 1997 4
Condensed Consolidated Statement of Cash Flows for
the Nine Months Ended September 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 21
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURE 22
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Global Marine Inc.
We have made a review of the condensed consolidated balance sheet
of Global Marine Inc. and subsidiaries as of September 30, 1998,
and the related condensed consolidated statement of operations
for the three- and nine-month periods ended September 30, 1998
and 1997, and the condensed consolidated statement of cash flows
for the nine-month periods ended September 30, 1998, and 1997.
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, 1997, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated March 11, 1998, 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, 1997, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
November 11, 1998
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Contract drilling $191.4 $167.3 $564.6 $405.1
Drilling management 79.9 135.4 335.5 337.0
Oil and gas .9 1.7 3.2 5.7
------ ------ ------ ------
Total revenues 272.2 304.4 903.3 747.8
Expenses:
Contract drilling 73.7 73.1 200.6 182.9
Drilling management 99.9 120.6 354.2 297.2
Oil and gas .4 .9 1.4 2.4
Depreciation, depletion
and amortization 27.9 16.2 74.4 37.6
General and administrative 3.7 5.9 14.1 15.7
------ ------ ------ ------
Total operating expenses 205.6 216.7 644.7 535.8
------ ------ ------ ------
Operating income 66.6 87.7 258.6 212.0
Other income (expense):
Interest expense (12.7) (10.9) (33.1) (27.0)
Interest capitalized 3.7 5.7 13.9 13.9
Interest income .7 1.6 2.6 5.0
------ ------ ------ ------
Total other income (expense) (8.3) (3.6) (16.6) (8.1)
------ ------ ------ ------
Income before income taxes 58.3 84.1 242.0 203.9
Provision (benefit) for income taxes:
Current tax provision 5.5 5.7 17.1 17.6
Deferred tax provision (benefit) 5.6 (15.0) 36.1 (70.0)
------ ------ ------ ------
Total provision (benefit) for
income taxes 11.1 (9.3) 53.2 (52.4)
------ ------ ------ ------
Net income $ 47.2 $ 93.4 $188.8 $256.3
====== ====== ====== ======
Earnings per share:
Basic $ 0.27 $ 0.54 $ 1.09 $ 1.50
Diluted $ 0.27 $ 0.53 $ 1.07 $ 1.45
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
($ in millions)
ASSETS
<CAPTION>
September 30, December 31,
1998 1997
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 52.0 $ 78.9
Marketable securities 1.5 1.7
Accounts receivable, net of allowances 177.8 152.2
Future income tax benefits 40.0 70.0
Costs incurred on turnkey drilling
contracts in progress 9.9 11.7
Prepaid expenses 20.0 3.1
Other current assets 7.0 10.1
-------- --------
Total current assets 308.2 327.7
Properties and equipment:
Rigs and drilling equipment, less
accumulated depreciation of $343.9
and $275.4 at September 30, 1998 and
December 31, 1997, respectively 1,265.5 609.2
Construction in progress 159.6 383.4
Oil and gas properties, full cost method,
less accumulated depreciation, depletion
and amortization of $31.0 and $29.7 at
September 30, 1998 and December 31, 1997,
respectively 10.1 6.4
-------- --------
Net properties and equipment 1,435.2 999.0
Future income tax benefits 76.0 79.4
Other assets 82.2 15.8
-------- --------
Total assets $1,901.6 $1,421.9
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
($ in millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
September 30, December 31,
1998 1997
------------ -----------
<S> <C> <C>
Current liabilities:
Accounts payable $ 92.2 $ 115.5
Accrued compensation and related employee costs 21.1 30.5
Accrued interest 9.4 6.6
Accrued income taxes 14.2 19.5
Other accrued liabilities 10.2 11.4
-------- --------
Total current liabilities 147.1 183.5
Long-term debt 720.6 399.4
Capital lease obligation 17.3 17.9
Other long-term liabilities 10.7 15.5
Stockholders' 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, 173,354,465 shares and
172,202,785 shares issued and outstanding
at September 30, 1998 and December 31, 1997,
respectively 17.3 17.2
Additional paid-in capital 321.5 310.1
Retained earnings 667.1 478.3
-------- --------
Total stockholders' equity 1,005.9 805.6
-------- --------
Total liabilities and stockholders' equity $1,901.6 $1,421.9
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
<CAPTION>
Nine Months Ended
September 30,
-----------------
1998 1997
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 188.8 $ 256.3
Adjustments to reconcile net income to net cash
flow provided by operating activities:
Deferred income tax provision (benefit) 36.1 (70.0)
Depreciation, depletion and amortization 74.4 37.6
Increase in accounts receivable (70.1) (45.3)
Decrease (increase) in costs incurred on
turnkey drilling contracts in progress 1.8 (.9)
Increase in other current assets (13.8) (2.5)
(Decrease) increase in accounts payable (23.3) 38.5
(Decrease) increase in accrued liabilities (10.2) 20.6
Other, net (4.6) (3.4)
------- -------
Net cash flow provided by operating activities 179.1 230.9
Cash flows from investing activities:
Capital expenditures (531.7) (467.5)
Proceeds from sales of properties and equipment 3.2 1.4
Proceeds from maturities of held-to-maturity
securities 1.3 46.6
Purchases of held-to-maturity securities (1.1) (19.3)
------- -------
Net cash flow used in investing activities (528.3) (438.8)
Cash flows from financing activities:
Increases in long-term debt 571.0 499.3
Reductions of long-term debt (250.0) (201.1)
Proceeds from exercises of employee stock options 4.4 9.6
Other (3.1) (2.2)
------- -------
Net cash flow provided by financing activities 322.3 305.6
------- -------
(Decrease) increase in cash and cash equivalents (26.9) 97.7
Cash and cash equivalents at beginning of period 78.9 92.9
------- -------
Cash and cash equivalents at end of period $ 52.0 $ 190.6
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
GLOBAL MARINE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
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 period to conform to
the current-period presentation.
The term "Company" refers to Global Marine Inc. and, unless the context
otherwise requires, to the Company's consolidated subsidiaries.
These interim financial statements should be read in conjunction with
the Company's audited financial statements for the year ended December 31,
1997.
Note 2 - Commitments to Purchase New Drillships
In the first quarter of 1998, the Company entered into agreements with
Harland and Wolff Shipbuilding and Heavy Industries, Ltd. for the
construction of two dynamically-positioned deep-water drillships, one
for delivery in the fourth quarter of 1999 and the other for delivery
in the first quarter of 2000. Future payment commitments in connection
with construction of the rigs totaled $362 million at September 30, 1998.
Note 3 - Long-term Debt
Long-term debt as of September 30, 1998 and December 31, 1997 consisted
of the following:
<TABLE>
<CAPTION>
9/30/98 12/31/97
------- --------
(In millions)
<S> <C> <C>
7-1/8% Notes due 2007, net of discount $299.4 $299.4
7% Notes due 2028, net of discount 296.2 -
Borrowings under $240 million bank revolving
credit facility 125.0 100.0
------ ------
Total long-term debt, including current maturities 720.6 399.4
Less current maturities - -
------ ------
Long-term debt $720.6 $399.4
====== ======
</TABLE>
The weighted average annual rate of interest on borrowings under the
Company's $240 million revolving credit facility was 5.85% as of
September 30, 1998, as compared to 6.325% as of December 31, 1997.
On January 29, 1998, the Company entered into a one-year unsecured revolving
credit facility (the "$150 million credit facility") in connection with the
acquisition of the offshore drilling rig, Stena Forth, which was subsequently
renamed the Glomar Arctic IV. Under the $150 million credit facility, the
Company
<PAGE>
may borrow up to $150 million at interest rates determinable at the
time of the borrowings. The unused portion of the credit facility is subject
to an annual commitment fee of one-tenth of one percent. As of September 30,
1998, there were no borrowings under the $150 million credit facility.
The Company is seeking to amend the $150 million credit facility. Under
the proposed amendment, the revolving credit period would be extended to
365 days from the closing date. Any amounts outstanding at the end of the
revolving period may, at the option of the Company, be converted into a
two-year term loan. It is estimated that the closing date will be in
mid-November 1998.
On May 26, 1998, the Company issued $300 million of 7% Notes due 2028
(the "7% Notes") and received cash proceeds of $296.0 million after
deduction for discount and underwriting fees. The Company used $150.0
million of the proceeds to repay all amounts drawn under the $150 million
credit facility and used the remainder to repay a portion of the amount
drawn under the $240 million revolving bank credit facility. The outstanding
debt that was repaid from the net proceeds of the 7% Notes was incurred to
finance the upgrade, acquisition and construction of rigs and for working
capital requirements. Interest on the 7% Notes is payable on June 1 and
December 1 of each year. The Company may redeem the 7% Notes in whole at any
time, or in part from time to time, at a price equal to 100% of the principal
amount thereof plus accrued interest, if any, to the date of redemption,
plus a premium, if any, relating to the then prevailing Treasury Yield and
the remaining life of the 7% Notes. The indenture relating to the 7% Notes
contains limitations on the Company's ability to incur indebtedness for
borrowed money secured by certain liens and to engage in certain sale/leaseback
transactions.
Note 4 - Income Taxes
The Company's effective income tax rates for financial reporting purposes
for the three and nine months ended September 30, 1998 were approximately
19 and 22 percent, respectively, which were lower than the United States
federal statutory rate of 35 percent. These lower effective rates were
primarily the result of taxation of certain foreign subsidiaries' earnings
at foreign rates, which were generally lower than the U.S. federal income
tax rate. For the three and nine months ended September 30, 1997, the
Company's effective tax rate differed from the U.S. statutory rate
primarily due to the Company's recognition of the future tax benefits of
a portion of the Company's unused net operating loss ("NOL") carryforwards.
<PAGE>
Note 5 - Earnings per Share
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share," in the fourth quarter of 1997.
As a result, the Company's reported earnings per share for the three and
nine months ended September 30, 1997 have been restated. A reconciliation
of the numerators and denominators of the basic and diluted per-share
computations for net income follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
($ in millions, except per share data)
<S> <C> <C> <C> <C>
Net income (numerator): $47.2 $93.4 $188.8 $256.3
===== ===== ====== ======
Shares (denominator):
Shares - Basic 173,264,071 171,679,175 172,935,155 170,822,548
Effect of employee
stock options 2,395,816 5,288,703 2,995,137 5,571,457
----------- ----------- ----------- -----------
Shares - Diluted 175,659,887 176,967,878 175,930,292 176,394,005
=========== =========== =========== ===========
Earnings per share:
Basic $0.27 $0.54 $1.09 $1.50
Diluted $0.27 $0.53 $1.07 $1.45
</TABLE>
Note 6 - Contingencies
In June 1998, the Company suspended drilling a turnkey well after
experiencing an underground blowout which made it impossible to continue
drilling. The Company attempted to re-drill the well and failed when the
casing buckled. The Company's insurance carrier has agreed to indemnify
the Company for the costs incurred in re-drilling the well, less a $0.2
million deductible. As of September 30, 1998, the Company had incurred
total costs in connection with the well (the initial drill and the re-drill)
of approximately $13.1 million, including $7.4 million in re-drill costs.
All costs were deferred at September 30, 1998 pending resolution of the
matter. The Company has not yet determined whether or not it will re-drill
the well a second time, and there can be no assurance that the well would be
successfully completed. Due to this uncertainty, the Company is not able to
predict the amount of loss, if any, that it may incur in connection with the
turnkey contract. Such loss could range from zero to $6 million. The maximum
loss would occur in the event that the Company is unable to successfully
perform under the drilling contract and is therefore unable to receive any
revenue under its terms.
The Company is seeking to resolve a dispute with Sedco Forex Offshore
("Sedco") with respect to a bareboat charter agreement for the drilling
rig, Glomar Grand Banks. The Company assumed rights to the bareboat
charter at the time it acquired ownership of the rig in July 1997. At
issue are the date of termination of the charter, the condition of the rig
upon its return to the Company, and Sedco's liability to pay additional
dayrate. With regard to the first issue, the Company has contended that
the charter expired on January 20, 1998. The parties commenced arbitration
proceedings in December 1997, and the
<PAGE>
arbitration panel ruled in favor of the Company on that issue. With
respect to the other issues, the Company contends Sedco is responsible
under the charter for paying the cost of certain repairs to the rig and
for paying a market dayrate for the period following termination of the
charter and while the rig was in the shipyard for repairs prior to its
return to work for another customer. Sedco completed using the rig for
drilling on May 5, 1998, at which time the rig entered a shipyard to
undergo the repairs at issue. The Company completed the repairs on
October 30, 1998 and has begun mobilizing the rig to the east coast of
Canada, where it will begin operating for another customer upon its arrival
in November. An arbitration hearing with regard to the outstanding issues
is scheduled for the second quarter of 1999. As of September 30, 1998, the
amount of dayrate from Sedco which the Company has recognized as revenue
totaled $23.2 million, none of which has been collected. In addition, the
Company has paid $11.3 million as of September 30, 1998 for the cost of
certain rig repairs for which the Company contends Sedco is responsible,
and the Company expects to make claims against Sedco for additional repair
costs. The two amounts totaling $34.5 million at September 30, 1998 are
classified as noncurrent assets on the accompanying balance sheet.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Operating Results
SUMMARY
Operating income decreased by $21.1 million to $66.6 million for the
third quarter of 1998 from $87.7 million for the third quarter of 1997.
The decline was attributable to drilling management services, which
reported a loss resulting from the downturn in shallow-water drilling
activity in the Gulf of Mexico and the fixed costs of idle rigs retained
by the Company under term contracts. The drilling management services
loss was partially offset by contract drilling operations, which reported
improved results primarily due to higher average dayrates.
Operating income increased by $46.6 million to $258.6 million for the
nine months ended September 30, 1998, from $212.0 million for the nine
months ended September 30, 1997. The improvement was attributable to
higher average contract drilling dayrates and the addition of five
deep-water rigs to the contract drilling fleet since July 1997, partly
offset by a drilling management services loss.
Data relating to the Company's operations by business segment follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------- ------------------------------
% Increase % Increase
1998 1997 (Decrease) 1998 1997 (Decrease)
------ ------ ---------- ------ ------ ----------
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Contract drilling $191.4 $168.9 13% $575.6 $410.4 40%
Drilling management 80.7 135.9 (41%) 340.0 338.0 1%
Oil and gas .9 1.7 (47%) 3.2 5.7 (44%)
Less: Intersegment revenues (.8) (2.1) (62%) (15.5) (6.3) 146%
------ ------ ------ ------
Total revenues $272.2 $304.4 (11%) $903.3 $747.8 21%
====== ====== ====== ======
Operating income (loss):
Contract drilling $ 90.8 $ 79.1 15% $292.4 $187.3 56%
Drilling management (20.0) 14.6 (237%) (18.9) 39.5 (148%)
Oil and gas - .2 (100%) .5 1.8 (72%)
Corporate expenses (4.2) (6.2) (32%) (15.4) (16.6) (7%)
------ ------ ------ ------
Total operating income $ 66.6 $ 87.7 (24%) $258.6 $212.0 22%
====== ====== ====== ======
</TABLE>
The Company reported net income of $47.2 million for the third quarter of
1998, as compared with net income of $78.4 million for the third quarter
of 1997. The results for the third quarter of 1997 are before a $15.0
million net credit to deferred income taxes due to the recognition of tax
benefits of operating loss carryforwards.
The Company reported net income of $188.8 million for the nine months
ended September 30, 1998, as compared with net income of $186.3 million
for the nine months ended September 30, 1997. The results for the nine
months ended September 30, 1997 are before a $70.0 million net credit to
deferred income taxes due to the recognition of tax benefits of operating
loss carryforwards.
<PAGE>
The Company's deep-water rig conversion, the Glomar Explorer drillship,
entered service in the Gulf of Mexico during the third quarter of 1998
under a five-year, $268 million contract. The addition of the Glomar
Explorer expands the Company's deep-water fleet to eight rigs. Deep-water
rigs now generate approximately half of the Company's operating income.
The weakness in worldwide oil prices, which began trending downward in
the fourth quarter of 1997, continues to depress offshore drilling activity.
Low oil prices have caused many customers to reduce their 1998 drilling
budgets, primarily in the shallow-water depths where jackup drilling rigs
are used. This decreased drilling activity has in turn increased competition
among drilling contractors for available work and has forced down dayrates
for some jackup rigs by as much as 68 percent compared with levels seen
earlier in the year. In addition, the Company has experienced lower average
utilization on some of its jackup rigs in the Gulf of Mexico and offshore
West Africa in the third quarter of 1998. The Company expects this slowdown
in shallow-water activity to continue to affect results from operations for
the remainder of 1998. The Company's deep-water rigs, currently consisting
of six semisubmersibles and two drillships, are generally operating under
longer-term contracts and are less affected by the slowdown. At November 11,
1998, four of these rigs were operating under contracts expiring from March
to December 1999, and the remaining four rigs were operating under contracts
expiring in each of 2000, 2001, 2002 and 2003.
The Company has under construction two dynamically-positioned, ultra
deep-water drillships, one of which is scheduled for delivery in the fourth
quarter of 1999 and the other in the first quarter of 2000. The Company's
deep-water fleet will total ten rigs with the addition of these two rigs.
CONTRACT DRILLING OPERATIONS
Data with respect to the Company's contract drilling operations follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------- ------------------------------
% Increase % Increase
1998 1997 (Decrease) 1998 1997 (Decrease)
------ ------ ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Contract drilling revenues by area
(in millions): (1)
Gulf of Mexico $ 59.7 $ 63.1 (5%) $ 206.4 $ 169.5 22%
West Africa 56.6 50.5 12% 169.5 141.9 19%
North Sea 51.2 24.6 108% 128.2 64.8 98%
Other 23.9 30.7 (22%) 71.5 34.2 109%
------- ------- ------- -------
$ 191.4 $ 168.9 13% $ 575.6 $ 410.4 40%
======= ======= ======= =======
Average rig utilization (2) 93% 99% 97% 99%
Average dayrate $72,100 $59,300 $72,900 $53,400
_______________
(1) Includes revenues earned from affiliates.
(2) Excludes the Glomar Beaufort Sea I concrete island drilling system,
a currently inactive, special-purpose mobile offshore rig designed
for arctic operations, and rigs during the periods they were being
converted to drilling operations from other uses.
</TABLE>
Of the $22.5 million increase in contract drilling revenues for the third
quarter of 1998 as compared with the third quarter of 1997, $28.2 million
was attributable to fleet additions subsequent to the second quarter of
1997 and $15.0 million was attributable to increases in average dayrates,
partially offset by an $11.9 million decrease attributable to lower average
rig utilization and an $8.8 million decrease in non-dayrate revenues.
<PAGE>
Of the $165.2 million increase in contract drilling revenues for the nine
months ended September 30, 1998 as compared with the nine months ended
September 30, 1997, $107.7 million was attributable to increases in average
dayrates and $82.3 million was attributable to fleet additions subsequent
to the second quarter of 1997, partially offset by a $12.3 million decrease
attributable to lower average rig utilization and a $12.5 million decrease
in non-dayrate revenues.
The mobilization of rigs between the geographic areas shown in the above
table also affected each area's revenues over the periods indicated.
Specifically, the Company mobilized one jackup from the Gulf of Mexico
to Trinidad in June 1997, one jackup from West Africa to California in July
1997 and to the North Sea in July 1998, one jackup from the North Sea to
offshore Argentina in September 1997, one drillship from West Africa to
offshore Egypt in April 1998 and back to West Africa in August 1998,
and one jackup from the Gulf of Mexico to the North Sea in May 1998.
The Company's operating profit margin for contract drilling operations
remained relatively unchanged at 47 percent for the third quarter of
1998 as compared with the third quarter of 1997. Operating expenses
increased by $10.8 million primarily due to higher depreciation and
other operating costs in connection with the deep-water additions to
the drilling rig fleet and higher labor expense, partially offset by
lower mobilization costs.
The Company's operating profit margin for contract drilling operations
increased to 51 percent for the nine months ended September 30, 1998
from 46 percent for the nine months ended September 30, 1997, primarily
as a result of higher average dayrates, partially offset by a decrease
in average rig utilization. Operating expenses increased by $60.1
million due to higher depreciation and other operating costs in connection
with the deep-water additions to the drilling rig fleet, higher labor
expense and general price-level increases, partially offset by a decrease
in mobilization costs.
The Company is seeking to resolve a dispute with Sedco Forex Offshore
("Sedco") with respect to a bareboat charter agreement for the drilling
rig, Glomar Grand Banks. The Company assumed rights to the bareboat
charter at the time it acquired ownership of the rig in July 1997. At
issue are the date of termination of the charter, the condition of the
rig upon its return to the Company, and Sedco's liability to pay
additional dayrate. With regard to the first issue, the Company has
contended that the charter expired on January 20, 1998. The parties
commenced arbitration proceedings in December 1997, and the arbitration
panel ruled in favor of the Company on that issue. With respect to the
other issues, the Company contends Sedco is responsible under the
charter for paying the cost of certain repairs to the rig and for paying
a market dayrate for the period following termination of the charter
and while the rig was in the shipyard for repairs prior to its return
to work for another customer. Sedco completed using the rig for
drilling on May 5, 1998, at which time the rig entered a shipyard to
undergo the repairs at issue. The Company completed the repairs on
October 30, 1998 and has begun mobilizing the rig to the east coast of
Canada, where it will begin operating for another customer upon its
arrival in November. An arbitration hearing with regard to the outstanding
issues is scheduled for the second quarter of 1999. As of September 30,
1998, the amount of dayrate from Sedco which the Company has recognized
as revenue totaled $23.2 million, none of which has been collected. In
addition, the Company has paid $11.3 million as of September 30, 1998 for
the cost of certain rig repairs for which the Company contends Sedco is
responsible, and the Company expects to make claims against Sedco for
additional repair costs. The two amounts totaling $34.5 million at
September 30, 1998 are classified as noncurrent assets on the accompanying
balance sheet. The Company has not reserved any of these amounts, all of
which it expects to collect. The total amount of dayrate to be claimed by
the Company is projected to be in excess of $30 million, including the
$23.2 million recognized through September 30, 1998. The Company believes
it has meritorious claims to the remaining amount of dayrate revenues not
yet recognized.
<PAGE>
In February 1998, the Company completed the conversion of the Glomar Celtic
Sea semisubmersible to drilling operations from an accommodations unit and
began operating the rig in deep waters of the U.S. Gulf of Mexico under
a three-year, $164 million contract. In addition, the Company's
deep-water rig conversion, the Glomar Explorer drillship, entered service
in the Gulf of Mexico in August 1998 under a five-year, $268 million contract.
The addition of the Glomar Explorer expands the Company's deep-water fleet
to eight rigs.
As of November 11, 1998, twelve of the Company's rigs were located in the
U.S. Gulf of Mexico, ten were offshore West Africa, six were in the North
Sea, and one was offshore each of Argentina and Trinidad. In addition,
the Company completed repairs on the Glomar Grand Banks during October 1998
and is currently mobilizing the rig to the east coast of Canada, where it
will operate under a contract which is expected to extend into December 1999.
At November 11, 1998, 30 of the Company's 31 active rigs were under contract
or committed to a customer.
A continuation of low oil prices has caused many oil and gas operators
to reduce their 1998 drilling budgets, primarily in shallow-water depths
where jackup rigs are used. This decreased drilling activity has in turn
increased competition among drilling contractors for available work,
and has recently forced down dayrates for some jackup rigs by as much as
68 percent compared to levels seen earlier in the year. Since the end of
the second quarter of 1998, 14 of the Company's 23 jackups have been
recontracted at rates which are, on average, 40 percent below the rates
received earlier in the year. Among the remaining 9 jackups, 8 are
operating under higher-dayrate contracts signed earlier in 1998, and one
rig is idle. Among the 8 jackups operating at above current-market
dayrates, 6 are estimated to complete their contracts in 1999 and two are
estimated to complete their contracts in 2000. The Company's deep-water
rigs, currently consisting of six semisubmersibles and two drillships, are
generally operating under longer-term contracts and are less affected by
the slowdown in shallow-water activity. At November 11, 1998, four of
these rigs were operating under contracts expiring from March to December
1999, and the remaining four rigs were operating under contracts expiring
in each of 2000, 2001, 2002 and 2003.
DRILLING MANAGEMENT SERVICES
Drilling management revenues decreased by $55.2 million to $80.7 million
in the third quarter of 1998 from $135.9 million in the third quarter
of 1997. The decrease in revenues consisted of a $59.5 million decrease
attributable to a reduction in the number of turnkey wells drilled, to
12 in the third quarter of 1998 from 26 in the third quarter of 1997,
and a $3.0 million decrease primarily attributable to daywork. These
decreases were partially offset by an increase of $7.3 million attributable
to higher average turnkey revenues per well.
Drilling management revenues increased by $2.0 million to $340.0 million
for the nine months ended September 30, 1998 from $338.0 million for the
nine months ended September 30, 1997. The increase in revenues consisted
of a $66.1 million increase attributable to higher average turnkey
revenues per well and a $24.6 million increase primarily attributable to
daywork. These increases were partially offset by a decrease of $88.7
million attributable to a reduction in the number of turnkey wells
drilled, to 58 for the nine months ended September 30, 1998 from 79 for
the nine months ended September 30, 1997.
Operating income decreased by $34.6 million to an operating loss of
$20.0 million in the third quarter of 1998 compared with operating
income of $14.6 million for the third quarter of 1997. Operating income
decreased by $58.4 million to an operating loss of $18.9 million for
the nine months ended September 30, 1998 compared with operating income
of $39.5 million for the nine months ended September 30, 1997.
<PAGE>
The drilling management services operating losses in the quarter and
nine months ended September 30, 1998 were primarily due to the fixed
cost of rigs retained by the Company under term contracts at above
current-market rates. During the nine months ended September 30, 1998,
the Company had an average of 14 third-party rigs under contracts with
initial terms ranging from six months to one year. The Company has from
time to time subcontracted some of these rigs to clients when they were
not needed for turnkey operations. Due to the slowdown in shallow-water
drilling activity in the U.S. Gulf of Mexico, these rigs were neither
subcontracted out to third parties nor utilized internally for approximately
11 percent of the time, on average, during the nine months ended September 30,
1998, resulting in idle-time costs of $19.0 million and $30.9 million for the
quarter and nine months, respectively. Of the 12 remaining rig contracts
as of November 11, 1998, eleven will expire by the end of February 1999 and
one will expire in June 1999. Although the Company has recorded its known
losses for idle rig time and rigs subcontracted at below cost, the Company
believes there could be an additional impact of as much as $14 million in
the fourth quarter of 1998. Going forward, the Company plans to contract
rigs for its turnkey operations on an as-needed, well-by-well basis.
The number of rigs under contract at above current-market rates significantly
affected the number of turnkey wells resulting in losses for the quarter and
nine months ended September 30, 1998. The Company incurred losses of $3.1
million on five of the 12 wells completed in the third quarter of 1998,
compared with losses of $0.6 million on one of the 26 wells completed in the
third quarter of 1997. Similarly, the Company incurred losses of $16.9 million
on 13 of the 58 wells completed in the nine months ended September 30, 1998,
as compared with losses of $1.5 million on three of the 79 wells completed in
the nine months ended September 30, 1997. In addition, in the third quarter
of 1998 the Company recognized $4.2 million of estimated losses related to rigs
subcontracted at rates below the Company's cost and wells in progress at
September 30, 1998 that were expected to be completed at a loss.
In June 1998, the Company suspended drilling a turnkey well after experiencing
an underground blowout which made it impossible to continue drilling. The
Company attempted to re-drill the well and failed when the casing buckled.
The Company's insurance carrier has agreed to indemnify the Company for the
costs incurred in re-drilling the well,less a $0.2 million deductible. As of
September 30, 1998, the Company had incurred total costs in connection with
the well (the initial drill and the re-drill) of approximately $13.1 million,
including $7.4 million in re-drill costs. All costs were deferred at
September 30, 1998 pending resolution of the matter. The Company has not yet
determined whether or not it will re-drill the well a second time, and there
can be no assurance that the well would be successfully completed. Due to this
uncertainty, the Company is not able to predict the amount of loss, if any,
that it may incur in connection with the turnkey contract. Such loss could
range from zero to $6 million. The maximum loss would occur in the event
that the Company is unable to successfully perform under the drilling contract
and is therefore unable to receive any revenue under its terms.
OTHER INCOME AND EXPENSES
General and administrative expense for the three and nine months ended
September 30, 1998 decreased by $2.2 million and $l.6 million, respectively,
from the comparable prior-year periods primarily due to lower executive
compensation expense, partially offset by expenses incurred in connection
with improvements to the Company's information systems and general price
level increases, among other factors.
<PAGE>
Interest expense for the three and nine months ended September 30, 1998
increased by $1.8 million and $6.1 million, respectively, from the
comparable prior-year periods primarily due to higher debt incurred to
finance the upgrade, acquisition and construction of rigs and for working
capital requirements.
The Company capitalized $3.7 million of interest expense for the third
quarter of 1998 as compared to $5.7 million for the comparable quarter
of 1997, a decrease of $2.0 million. The decrease was due to the Glomar
Celtic Sea and the Glomar Explorer, which entered service in the first
and third quarters of 1998, respectively, partially offset by interest
capitalized on the two new-builds, the Glomar C.R. Luigs and the Glomar
Irish Sea I. Capitalized interest remained unchanged at $13.9 million for
the nine months ended September 30, 1998 as compared to the comparable
prior-year period.
Interest income for the three and nine months ended September 30, 1998
decreased by $0.9 million and $2.4 million, respectively, from the
comparable prior-year periods primarily due to lower cash balances.
The Company's effective income tax rates for financial reporting purposes
for the three and nine months ended September 30, 1998 were approximately
19 and 22 percent, respectively, which were lower than the U.S. federal
statutory rate of 35 percent. These lower effective rates were primarily
the result of the Company's December 1997 realignment, which placed the
ownership of its foreign operating assets in foreign subsidiaries of the
Company, and the fact that such foreign subsidiaries' earnings permanently
invested abroad were taxed at foreign rates, which were generally lower
than the U.S. federal income tax rate. Since the Company intends to
permanently reinvest outside the U.S. its foreign subsidiaries' earnings
that are not otherwise subject to U.S. taxation, the Company will neither
incur nor provide for any U.S. federal income taxes on such foreign earnings.
The Company estimates that its overall effective income tax rate for 1998
will be approximately 20 percent for the full year. Most of the tax expense
for 1998 will be noncash because the Company will use its NOL carryforwards
to significantly reduce its current U.S. federal income tax liability for
the year.
In the three and nine months ended September 30, 1997, the Company's
effective income tax rate differed from the U.S. statutory rate primarily
due to the Company's recognition of the future tax benefits of a portion
of the Company's unused NOL carryforwards.
Liquidity and Capital Resources
On March 10, 1998, the Company purchased a deep-water, third-generation
semisubmersible drilling rig, the Stena Forth, for $150 million. The
Company financed the purchase through borrowings under its bank credit
facilities.
On March 18, 1998, the Company entered into an agreement to purchase from
Transocean ASA, a Norwegian drilling contractor ("Transocean"), the
remaining 43.4 percent interest of the partnership operating the Glomar
Adriatic V, Glomar Adriatic VI, and Glomar Adriatic VII. Under the
agreement, which was effective January 31, 1998, the Company paid Transocean
$20.3 million in cash, which will be amortized over approximately 5-1/2
years. The Company and Transocean previously shared in the net revenues of
the aforementioned rigs and a Transocean rig, the Nordic, as part of a 1993
rig purchase and sale agreement.
On May 26, 1998, the Company issued $300 million of 7% Notes due 2028 and
received cash proceeds of $296.0 million after deduction for discount and
underwriting fees. The Company used $150.0 million of the proceeds to
repay all amounts drawn under the $150 million credit facility and used the
remainder to repay a portion of the amount drawn under the $240 million
credit facility. The outstanding debt that
<PAGE>
was repaid from the net proceeds of the 7% Notes was incurred to finance
the upgrade, acquisition and construction of rigs and for working capital
requirements.
For the nine months ended September 30, 1998, $179.1 million of cash flow
was provided by operating activities, $296.0 million was provided from the
issuance of the 7% Notes, $25.0 million was provided from the Company's
bank revolving credit facilities (net of payments), and $4.4 million was
provided from exercises of employee stock options. From these amounts,
together with cash on hand, $531.7 million was used for capital expenditures.
For the nine months ended September 30, 1997, $230.9 million of cash flow
was provided by operating activities, $299.3 million was provided from
the issuance of the 7-1/8% Notes, $27.3 million was provided by maturities
of marketable securities (net of purchases), and $9.6 million was provided
from exercises of employee stock options. From these amounts, $467.5
million was used for capital expenditures.
In the first quarter of 1998, the Company entered into agreements with
Harland and Wolff Shipbuilding and Heavy Industries Ltd. for the construction
of two dynamically-positioned, ultra deep-water drillships in order to
fulfill the Company's obligations under two multi-year drilling contracts.
The two drillships are expected to be completed at an aggregate estimated
cost of approximately $660 million, including all equipment, financing and
other associated costs. Of this amount, the Company expects to incur
approximately $220 million in construction costs and $7 million of
capitalized interest in 1998. The Company intends to finance construction
of the drillships with internally generated funds and funds available under
existing bank credit facilities.
The first of the new drillships, the Glomar C.R. Luigs, is committed to
a customer for thirty of thirty-six months following delivery, and is
committed to another customer for the other six months. The first
customer additionally has two one-year options following the thirty-six
month period. Total revenues to be generated over the thirty-six month
period after delivery is expected to be approximately $223 million. The
second of the two drillships, the Glomar Irish Sea I, is committed to a
customer for a period of three years and is expected to generate revenues
of approximately $208 million. Each of the two drillships is now fully
committed for three years following delivery, scheduled for late 1999 and
early 2000, respectively.
Capital expenditures for the full year 1998 are anticipated to be $630
million, including $220 million for construction of the new drillships,
$150 million for the purchase of the Glomar Arctic IV, $82 million for
the conversion of the Glomar Explorer, $44 million for the conversion of
the Glomar Celtic Sea, $45 million for improvements to the Glomar Grand
Banks, $44 million for improvements to the remainder of the drilling
fleet, $20 million for the Transocean transaction, $17 million for
capitalized interest, and $8 million for other expenditures.
As of September 30, 1998, the Company had $53.5 million in cash, cash
equivalents and marketable securities (including $3.5 million which was
restricted from use for general corporate purposes) and $265.0 million
available for borrowings under the Company's bank revolving credit
facilities. As of December 31, 1997, the Company had $80.6 million in
cash, cash equivalents and marketable securities, including restricted
amounts of $1.5 million.
In April 1998, the Company filed with the U.S. Securities and Exchange
Commission a registration statement on Form S-3 under which, together
with a previous registration statement on Form S-3, the Company may
offer to sell from time to time (i) unsecured debt securities consisting
of notes, debentures
<PAGE>
or other evidences of indebtedness, (ii) shares of preferred stock, $0.01
par value per share, and/or (iii) shares of common stock, $0.10 par value
per share, for an aggregate initial public offering price not to exceed
$500 million. The amount of securities available for issuance was reduced
from $500 million to $200 million as a result of the issuance of the $300
million of 7% Notes in May 1998.
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 existing bank credit facilities, and its
cash, cash equivalents and marketable securities.
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 or the construction of a vessel, the incurrence of additional
debt or issuance of additional shares of stock could be required.
Year 2000 Readiness Disclosure
Background. The "Year 2000" problem refers to the inability of certain
computer systems and other equipment with embedded chips or processors
(collectively "Business Systems") to correctly interpret the century from
a date in which the year is represented by only two digits. Business
Systems which are not Year 2000 compliant may not be able to correctly
process certain data, or in extreme situations, may cause a system to be
disabled or fail to function reliably.
Overall Goals and Objectives. The Company's goal is to have all of its
critical Business Systems functioning properly with respect to the Year
2000 problem before December 31, 1999 and to develop by December 31, 1999
contingency plans for use in the event of disruptions caused by the Year
2000 problem. In order to meet these goals, the Company has established
a task force of key employees and outside professional consultants to
identify, repair, and replace, if necessary, significant Business Systems
with Year 2000 problems. These overall goals and objectives are referred
to as the "Year 2000 Project Plan."
Year 2000 Project Plan. The phases of the Year 2000 Project Plan include
(1) identifying and inventorying Year 2000 problems in significant Business
Systems, (2) assigning priorities to Year 2000 Business Systems identified
(i.e. Business Systems critical to continuing operations are given the
highest priority), (3) assessing Year 2000 risks, (4) resolving and
correcting Year 2000 problems with repairs, upgrades, or replacements,
(5) testing the Year 2000 repairs, upgrades, or replacements, (6) conducting
assessments of the Year 2000 readiness of significant customers, suppliers,
and business partners (collectively "Key Business Partners") including, where
appropriate, using surveys and other assessment tools, and (7) developing
and testing Year 2000 contingency plans. Currently, each phase is in various
stages of completion; however, the Company estimates that it is approximately
30 percent complete with the Year 2000 Project Plan. The estimated completion
dates are December 31, 1998 for phases one through three, June 30, 1999 for
phases four and six, and December 31, 1999 for phases five and seven.
Business Systems: Accounting and Administrative. In 1995, the Company
purchased and developed new accounting, payroll, personnel and purchasing
software as part of the migration of its computer systems from a mainframe
platform to a PC-based client/server platform. The Company has tested the
software and believes them to be Year 2000 compliant. The Company, as
part of its normal business operations, has upgraded certain software as
part of its software maintenance agreements and is in the process of
upgrading and modifying other software, to ensure that they are Year 2000
compliant.
<PAGE>
As part of normal business operations, the Company replaces its computer
hardware on an as needed basis as new technology is developed. The Company
believes its computer hardware to be substantially, Year 2000 compliant;
however, it is currently testing the hardware for such compliance.
Business Systems: Operational. Part of the Year 2000 Project Plan includes
performing an inventory of each drilling rig's critical Business Systems.
This inventory is in the process of being fully developed and evaluated, and
a compilation of written documentation regarding compliance is underway.
At this time, the Company is not able to reasonably assess a likely worst
case Year 2000 scenario related to its drilling rigs, but expects to be in
a position to do so after completion of the rig assessment.
Key Business Partners. The Company has initiated communication with
its Key Business Partners to seek Year 2000 readiness assurances and
determine the extent to which their failure to correct their own Year
2000 problems could affect the Company. The Company's Key Business
Partners include suppliers whose critical function is to provide drilling
rig capital equipment essential to the operation of a rig. As part of
normal business operations, the Company generally does not maintain an
inventory of drilling rig capital equipment replacement parts. In the
event replacement parts are required for a rig and the Company is
unsuccessful in purchasing the equipment from its suppliers, the rig could
experience idle time resulting in loss of revenue. Other Key Business
Partners include customers who provide the Company's source of revenue
and cash flow. Any disruption in this revenue stream could impact the
Company's cash flow, results of operations and financial position. In
large measure, the Company must rely on such Key Business Partners to make
accurate and complete disclosures about their Year 2000 efforts in order
for its assessment of their readiness to be effective. Accordingly, the
Company cannot guarantee that Year 2000 problems, if any, in Key Business
Partners' systems on which it relies will be timely resolved, nor, in most
cases, can it reasonably inspect their Year 2000 efforts or independently
verify their representations to the Company. In addition, the Company cannot
foretell the effect on its business operations from the failure of systems
owned by others, from the delivery of inaccurate information from other
companies, or from the inability of Key Business Partners' systems to
interface with the Company's systems. Where appropriate, the Company plans
to explore the possibility of conducting tests of critical system interfaces
with relevant Key Business Partners. The Company cannot guarantee that
other companies' failure to resolve their Year 2000 problems would not have
a material adverse effect on the Company; however, the Company will continue
to assess these risks and prepare accordingly.
Costs. As of November 11, 1998, the Company has incurred approximately
$100,000 of incremental costs related to the Year 2000 issue, primarily
for outside consultants. Such costs are exclusive of certain software
corrections or upgrades that are generally made in the normal course of
business and are exclusive of the information system upgrade in 1995,
which was unrelated to the Year 2000 issue. Although the Company presently
expects future costs related to the Year 2000 issue to be immaterial with
respect to the Company's results of operations, cash flow and financial
position, total costs will be influenced by the Company's ability to
successfully identify, repair, and/or replace the Business Systems that are
critical to its business operations. The Company will be unable to estimate
its future costs until it has significantly completed phases one through
three of the Year 2000 Project Plan, which is expected to be by December 31,
1998. Costs related to the Year 2000 issue are funded from the Company's
operating cash flows.
Risks. The Company's expectations regarding the Year 2000 problem are subject
to uncertainties which could affect the Company's results of operations or
financial condition. For example, the Company could be adversely affected
by the inability of its Key Business Partners to remedy their own Year 2000
problems, or the Company could be unsuccessful in identifying or repairing
all of its Year 2000 problems
<PAGE>
related to its critical business operations, and as such, the Company's
results of operations or financial condition could be materially impacted.
Accordingly, success depends on many factors, some of which are outside the
Company's control. Despite reasonable efforts, the Company cannot assure
that it will not experience any disruptions or otherwise be adversely
affected by Year 2000 problems. While the Company does not expect any
catastrophic failures of any of its Business Systems, such belief is based
upon future events which cannot be reasonably predicted. As part of
assessing its Year 2000 risks, the Company has initiated communication with
its insurance carrier to determine the extent to which Year 2000 problems
are covered.
Contingency Plans. The Company will be engaging external consultants to
develop contingency plans for Business Systems and certain processes that are
highly to moderately critical to the business operations. The contingency
plans will encompass alternative courses of action, with limited reliance
on computer software and hardware, in the event that Business Systems or
processes are not Year 2000 compliant. The contingency plans are expected to
be completed by the second quarter of 1999, with testing of the plans to
occur before December 31, 1999.
To the extent that any reader of the above Year 2000 Readiness Disclosure
is other than an investor or potential investor in the Company's equity
or debt securities, this disclosure is made for the sole purpose of
communicating or disclosing information aimed at correcting, helping to
correct and/or avoid Year 2000 failures. This statement is made with the
intention to comply fully with the Year 2000 Information and Readiness
Disclosure Act as signed into law October 19, 1998. All statements made
herein shall be construed within the confines of that Act.
Forward-Looking Statements
Under the Private Securities Litigation Reform Act of 1995, companies are
provided a "safe harbor" for discussing their expectations regarding future
performance. We believe it is in the best interests of our stockholders
and the investment community to use these provisions and provide such
forward-looking information. We do so in this report and other communications.
Our forward-looking statements include things such as our expectations for
future Company performance and earnings; our projections regarding costs of
the Company's rigs that are under construction, the financing of those costs,
the dates the rigs will enter service, and the revenues expected to be
generated by the rigs; our expectations regarding reimbursements under the
Company's insurance coverages; the estimated impact of idle and subcontracted
third-party rigs that are under contract to the Company, and our plans to
contract rigs in the future; our expectations regarding disputed amounts of
dayrate revenue that can be claimed and collected by the Company; statements
regarding oil and gas prices and demand and the effect the resulting slowdown
in offshore drilling activity will have on results of operations; our
expectations regarding future income tax rates and liabilities, and future
capital expenditures; an estimate of the possible financial impact of a
presently-suspended turnkey drilling project; our estimated completion
dates for the various phases of our Year 2000 Project Plan, as well as the
project's estimated costs and projected effectiveness; our belief in the
Company's ability to meet its current obligations; and other statements that
are not historical facts.
Our forward-looking statements speak only as of the date of this report
and are based on currently available industry, financial and economic data
and our operating plans. They are also inherently uncertain, and investors
must recognize that events could turn out to be materially different from
our expectations.
<PAGE>
Factors that could cause or contribute to such differences include, but
are not limited to, changes in capital markets that affect our ability
to obtain financing to fund our growth; changes in the markets for oil
and gas and for offshore drilling services, including decreases in demand
for the Company's services which may result from curtailments of oil and gas
operators' drilling programs due to low oil or gas prices; the uncertainties
inherent in resolving disputed matters through negotiation, arbitration,
litigation or by other means; changing tax laws and regulations, as well as
changing interpretations of such laws and regulations; the risks of operating
in international markets, including changes in political, economic, trade
and regulatory climates; unanticipated costs or delays in the Company's
construction projects due to things such as price inflation, design and
engineering problems, regulatory requirements, and labor difficulties;
competitive and technological changes that affect our ability to market our
services competitively and cost effectively; personal events that affect key
employees' employment relationships with the Company; the operational risks
and uncertainties inherent in offshore oil and gas drilling, particularly
on a turnkey basis; the risks discussed above in our Year 2000 Information
and Readiness Statement and Disclosure; and such other risk factors as may
be discussed in the Company's reports filed with the U.S. Securities and
Exchange Commission.
The Company disclaims any obligation or undertaking to disseminate any
updates or revisions to its statements, forward-looking or otherwise,
to reflect changes in the Company's expectations or any change in events,
conditions or circumstances on which any such statements are based.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not significant.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
15.1 Letter of Independent Accountants regarding Awareness of
Incorporation by Reference.
27.1 Financial Data Schedule. (Exhibit 27.1 is being submitted
as an exhibit only in the electronic format of this Quarterly
Report on Form 10-Q being submitted to the Securities and
Exchange Commission. Exhibit 27.1 shall not be deemed filed
for purposes of Section 11 of the Securities Act of 1933,
Section 18 of the Securities Exchange Act of 1934 or Section
323 of the Trust Indenture Act, or otherwise be subject
to the liabilities of such sections, nor shall it be deemed
a part of any registration statement to which it relates.)
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the
quarter ended September 30, 1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLOBAL MARINE INC.
(Registrant)
Dated: November 13, 1998 /s/ Thomas R. Johnson
---------------------------------
Thomas R. Johnson
Vice President and Corporate Controller
(Duly Authorized Officer and Principal
Accounting Officer of the Registrant)
INDEX TO EXHIBITS
15.1 Letter of Independent Accountants regarding Awareness
of Incorporation by Reference.
27.1 Financial Data Schedule. (Exhibit 27.1 is being
submitted as an exhibit only in the electronic format
of this Quarterly Report on Form 10-Q being submitted
to the Securities and Exchange Commission. Exhibit
27.1 shall not be deemed filed for purposes of Section
11 of the Securities Act of 1933, Section 18 of the
Securities Exchange Act of 1934 or Section 323 of the
Trust Indenture Act, or otherwise be subject to the
liabilities of such sections, nor shall it be deemed a
part of any registration statement to which it relates.)
EXHIBIT 15.1
ACCOUNTANTS' AWARENESS LETTER
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Global Marine Inc. Registration Statements
We are aware that our report dated November 11, 1998, on our
review of the condensed consolidated interim financial information
of Global Marine Inc. and subsidiaries for the three and nine months
ended September 30, 1998, 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 combined prospectus constituting part of the Company's Registration
Statements on Form S-3 (Registration Nos. 33-58577 and 333-49807) for the
proposed offering of up to $500,000,000 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.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
November 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet of Global Marine Inc. and subsidiaries
as of 9-30-98 and the related condensed consolidated statement of operations
for the nine months ended 9-30-98, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 52,000
<SECURITIES> 1,500
<RECEIVABLES> 181,300
<ALLOWANCES> 3,500
<INVENTORY> 0
<CURRENT-ASSETS> 308,200
<PP&E> 1,810,100
<DEPRECIATION> 374,900
<TOTAL-ASSETS> 1,901,600
<CURRENT-LIABILITIES> 147,100
<BONDS> 595,600
0
0
<COMMON> 17,300
<OTHER-SE> 988,600
<TOTAL-LIABILITY-AND-EQUITY> 1,901,600
<SALES> 3,200
<TOTAL-REVENUES> 903,300
<CGS> 2,700
<TOTAL-COSTS> 630,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,100
<INCOME-PRETAX> 242,000
<INCOME-TAX> 53,200
<INCOME-CONTINUING> 188,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 188,800
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.07
</TABLE>
