As filed with the Securities and Exchange Commission on August 14, 2000
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 June 30, 2000
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 July 31, 2000 was 175,439,471.
<PAGE>
GLOBAL MARINE INC.
TABLE OF CONTENTS TO FORM 10-Q
QUARTER ENDED JUNE 30, 2000
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Report of Independent Accountants 2
Condensed Consolidated Statement of Income for the
Three and Six Months Ended June 30, 2000 and 1999 3
Condensed Consolidated Balance Sheet as of
June 30, 2000 and December 31, 1999 4
Condensed Consolidated Statement of Cash Flows for
the Six Months Ended June 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 21
PART II - OTHER INFORMATION
Item 2. Change in Securities and Use of Proceeds 21
Item 4. Submission of Matters to a Vote of Security
Holders 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURE 23
<PAGE>
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 reviewed the accompanying condensed consolidated balance sheet of
Global Marine Inc. and subsidiaries as of June 30, 2000, and the related
condensed consolidated statements of income for the three and six-month periods
ended June 30, 2000 and 1999 and the condensed consolidated statement of cash
flows for the six months ended June 30, 2000 and 1999. 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 accompanying condensed consolidated interim financial
statements for them to be in conformity with generally accepted accounting
principles.
We previously audited in accordance with generally accepted auditing standards
the consolidated balance sheet as of December 31, 1999, and the related
consolidated statements of income, stockholders' equity, and of cash flows for
the year then ended (not presented herein); and in our report dated
February 29, 2000, 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, 1999, 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
August 11, 2000
<PAGE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In millions, except per-share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Contract drilling $148.0 $140.7 $258.4 $297.7
Drilling management 79.2 53.4 169.2 123.6
Oil and gas 4.1 1.6 7.8 2.4
------ ------ ------ ------
Total revenues 231.3 195.7 435.4 423.7
Expenses:
Contract drilling 75.6 69.4 139.2 142.1
Drilling management 73.4 52.7 156.0 125.4
Oil and gas .7 .8 1.0 1.3
Depreciation, depletion,
and amortization 26.4 21.9 49.8 43.3
Restructure costs (Note 4) - - 5.2 -
General and administrative 6.0 6.0 12.2 11.9
------ ------ ------ ------
Total operating expenses 182.1 150.8 363.4 324.0
------ ------ ------ ------
Operating income 49.2 44.9 72.0 99.7
Other income (expense):
Interest expense (17.3) (13.6) (34.1) (27.0)
Interest capitalized 6.9 5.9 17.8 10.0
Interest income .7 .7 1.5 1.5
------ ------ ------ ------
Total other income (expense) (9.7) (7.0) (14.8) (15.5)
------ ------ ------ ------
Income before income taxes 39.5 37.9 57.2 84.2
Provision for income taxes (Note 6):
Current tax provision (benefit) 2.1 (2.4) 3.5 (.4)
Deferred tax provision 9.3 12.1 13.0 19.6
------ ------ ------ ------
Total provision for
income taxes 11.4 9.7 16.5 19.2
------ ------ ------ ------
Net income $ 28.1 $ 28.2 $ 40.7 $ 65.0
====== ====== ====== ======
Earnings per share (Note 3):
Basic $ 0.16 $ 0.16 $ 0.23 $ 0.37
Diluted $ 0.16 $ 0.16 $ 0.23 $ 0.37
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
($ in millions)
ASSETS
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 231.7 $ 83.3
Accounts receivable, net of allowances 130.0 101.1
Costs incurred on turnkey drilling contracts
in progress 4.7 12.9
Prepaid expenses 5.8 11.2
Other current assets 2.8 4.5
------- -------
Total current assets 375.0 213.0
Properties and equipment:
Rigs and drilling equipment, less accumulated
depreciation of $494.3 at June 30, 2000 and
$450.2 at December 31, 1999 1,574.8 1,225.8
Construction in progress 337.2 632.2
Oil and gas properties, full-cost method, less
accumulated depreciation, depletion, and
amortization of $18.7 at June 30, 2000
and $16.3 at December 31, 1999 7.8 10.6
------- -------
Net properties and equipment 1,919.8 1,868.6
Future income tax benefits 81.2 90.7
Other assets 93.5 92.2
------- -------
Total assets $2,469.5 $2,264.5
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
($ in millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ - $ 7.9
Short-term debt (Note 2) 185.1 -
Accounts payable 72.1 94.0
Accrued compensation and related employee costs 24.6 21.6
Accrued income taxes 7.4 6.1
Accrued interest 10.3 10.7
Other accrued liabilities 12.5 9.3
------- -------
Total current liabilities 312.0 149.6
Long-term debt (Note 2) 933.0 937.8
Capital lease obligation 18.3 17.5
Other long-term liabilities 18.8 24.6
Contingencies (Note 7) - -
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, 175,402,972 shares and 174,421,339
shares issued and outstanding at June 30, 2000 and
December 31, 1999, respectively 17.5 17.4
Additional paid-in capital 340.3 328.6
Retained earnings 831.8 791.1
Accumulated other comprehensive loss (2.2) (2.1)
------- -------
Total stockholders' equity 1,187.4 1,135.0
------- -------
Total liabilities and stockholders' equity $2,469.5 $2,264.5
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
<CAPTION>
Six Months Ended
June 30,
-----------------
2000 1999
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 40.7 $ 65.0
Adjustments to reconcile net income to net
cash flow provided by operating activities:
Depreciation, depletion, and amortization 49.8 43.3
Deferred income taxes 13.0 19.6
(Increase) decrease in accounts receivable (29.4) 40.4
Decrease (increase) in costs incurred on
turnkey drilling contracts in progress 8.2 (5.8)
Decrease in prepaid expenses and
other current assets 6.8 6.6
Decrease in noncurrent receivables .2 3.4
Decrease in accounts payable (21.9) (23.9)
Decrease in accrued interest (.4) -
Increase (decrease) in other accrued
liabilities 7.5 (10.6)
Other, net (.9) 11.0
----- -----
Net cash flow provided by operating
activities 73.6 149.0
Cash flows from investing activities:
Capital expenditures (100.4) (180.3)
Proceeds from sales of properties and equipment 1.2 2.1
Other .3 (.3)
----- -----
Net cash flow used in investing activities (98.9) (178.5)
Cash flows from financing activities:
Increases in long-term debt 728.0 70.0
Reductions of long-term debt (555.9) (80.0)
Proceeds from exercises of employee stock options 8.3 1.7
Debt issue costs (6.7) -
----- -----
Net cash flow provided by (used in) financing
activities 173.7 (8.3)
----- -----
Increase (decrease) in cash and cash equivalents 148.4 (37.8)
Cash and cash equivalents at beginning of period 83.3 56.9
----- -----
Cash and cash equivalents at end of period $ 231.7 $ 19.1
====== =====
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
GLOBAL MARINE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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.
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, 1999.
In December 1999, the staff of the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"),
"Revenue Recognition in Financial Statements," which provides the
staff's interpretations of the application of generally accepted
accounting principles to revenue recognition. The Company is
required to implement SAB 101 no later than the fourth quarter of
2000. The Company is in the process of evaluating SAB 101 and has
not yet determined what effect, if any, its implementation will
have on the Company's financial statements. The Company intends to
implement SAB 101 in the fourth quarter of 2000.
NOTE 2 - LONG-TERM DEBT
Long-term debt as of June 30, 2000 and December 31, 1999,
consisted of the following:
<TABLE>
<CAPTION>
6/30/00 12/31/99
------- --------
(In millions)
<S> <C> <C>
7-1/8% Notes due 2007, net of discount $299.5 $299.5
7% Notes due 2028, net of discount 296.4 296.3
Zero coupon convertible debentures, net of discount 300.0 -
Commercial paper 27.1 235.9
Borrowings under bank credit facilities 10.0 114.0
------ ------
Total long-term debt, including current maturities 933.0 945.7
Less current maturities - 7.9
------ ------
Long-term debt $933.0 $937.8
====== ======
</TABLE>
In June 2000 the Company completed a private placement of Zero
Coupon Convertible Debentures due June 23, 2020, and received net
proceeds of $293.0 million after deduction for underwriting fees.
The Company used $114.1 million of the proceeds to reduce
outstanding commercial paper in June 2000 and used the remainder
of the proceeds, plus available cash, to reduce outstanding
commercial paper by
<PAGE>
$185.1 million in July 2000. Commercial paper in the amount of
$185.1 million that was redeemed in July 2000 was classified as
short-term debt at June 30, 2000.
The convertible debentures were issued at a price of $499.60 per
debenture, which represents a yield to maturity of 3.5 percent
per annum to reach an accreted value at maturity of $1,000 per
debenture. The Company has the right to redeem the debentures in
whole or in part on or after June 23, 2005, at a price equal to
the issuance price plus accrued original issue discount through
the date of redemption. Each debenture is convertible into
12.2182 shares of Global Marine Inc. common stock at the option
of the holder at any time prior to maturity, unless previously
redeemed. Holders have the right to require the Company to
redeem the debentures on the fifth, tenth, and fifteenth
anniversaries of the issuance at a price equal to the accreted
value through the date of redemption. The Company may pay the
redemption price with either cash or shares of the Company's
common stock or a combination of cash and shares of common stock.
In July 2000 the Company terminated its $150 million and $50
million committed, unsecured revolving bank credit facilities.
With the termination of these two facilities, aggregate
borrowings under the Company's remaining $240 million bank credit
facility, which expires December 2002, and the commercial paper
program are limited to $240 million.
NOTE 3 - EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic
and diluted per-share computations for net income follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- -------------------------
2000 1999 2000 1999
------- ------ ------ ------
($ in millions, except per-share data)
<S> <C> <C> <C> <C>
Net income (numerator): $28.1 $28.2 $40.7 $65.0
=========== =========== =========== ===========
Shares (denominator):
Shares - Basic 175,160,102 173,836,006 174,910,593 173,653,556
Effect of employee stock options 4,128,910 3,029,590 3,768,160 2,423,975
----------- ----------- ----------- -----------
Shares - Diluted 179,289,012 176,865,596 178,678,753 176,077,531
=========== =========== =========== ===========
Earnings per share:
Basic $0.16 $0.16 $0.23 $0.37
Diluted $0.16 $0.16 $0.23 $0.37
</TABLE>
Diluted per-share computations for the three and six months ended
June 30, 2000, exclude 7,330,920 potentially dilutive shares
issuable upon conversion of the Company's zero coupon convertible
debentures because they are anti-dilutive.
<PAGE>
NOTE 4 - RESTRUCTURE COSTS
In the first quarter of 2000, the Company began implementing a
restructuring designed to streamline its organization and improve
efficiency. The restructuring involves a workforce reduction of
approximately 89 positions, a consolidation of administrative
offices in Houston and Europe, and closure of a materials control
facility in Houston. The employee functions affected are
primarily corporate support in nature and include materials
control, engineering, accounting, and information technology,
among others. Approximately 80 percent of the affected positions
are located in Houston, and the remaining 20 percent are located
in Europe. The Company recorded a $5.2 million pretax charge in
the first quarter of 2000 in connection with the restructuring,
consisting of $4.3 million for employee severance costs and $0.9
million for office and facility closures. Cash payments for
severance could be paid over various periods generally ranging
from six weeks to twelve months from the date of termination,
based on salary grade and length of service. Cash payments
through June 30, 2000, under the restructuring totaled $2.1
million, consisting of $1.9 million for employee severance and
$0.2 million for facility closures.
<PAGE>
NOTE 5 - SEGMENT AND GEOGRAPHIC INFORMATION
Information by operating segment, together with reconciliations
to the consolidated totals, is presented in the following table:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2000 1999 2000 1999
----- ----- ----- -----
(In millions)
<S> <C> <C> <C> <C>
Revenues from external customers:
Contract drilling $ 148.0 $ 140.7 $ 258.4 $ 297.7
Drilling management services 79.2 53.4 169.2 123.6
Oil and gas 4.1 1.6 7.8 2.4
------- ------- ------- -------
Consolidated $ 231.3 $ 195.7 $ 435.4 $ 423.7
======= ======= ======= =======
Intersegment revenues:
Contract drilling $ - $ .9 $ 1.9 $ 3.9
Drilling management services 2.2 3.0 4.9 4.9
Intersegment eliminations (2.2) (3.9) (6.8) (8.8)
------- ------- ------- -------
Consolidated $ - $ - $ - $ -
======= ======= ======= =======
Total revenues:
Contract drilling $ 148.0 $ 141.6 $ 260.3 $ 301.6
Drilling management services 81.4 56.4 174.1 128.5
Oil and gas 4.1 1.6 7.8 2.4
Intersegment eliminations (2.2) (3.9) (6.8) (8.8)
------- ------- ------- -------
Consolidated $ 231.3 $ 195.7 $ 435.4 $ 423.7
======= ======= ======= =======
Operating income:
Contract drilling $ 47.6 $ 50.5 $ 73.2 $ 114.4
Drilling management services 5.8 .7 13.1 (1.9)
Oil and gas 2.3 .1 4.4 (.1)
Restructure costs - - (5.2) -
Corporate expenses (6.5) (6.4) (13.5) (12.7)
------- ------- -------- -------
Consolidated $ 49.2 $ 44.9 $ 72.0 $ 99.7
======= ======= ======== =======
</TABLE>
NOTE 6 - INCOME TAXES
The Company's effective income tax rate for financial reporting
purposes was approximately 29 percent for both the quarter and
six months ended June 30, 2000. This compares to an effective
rate of 26 percent for the second quarter of 1999 and 23 percent
for the six months ended June 30, 1999, and the U.S. federal
statutory rate of 35 percent. The Company's effective tax rate
for a period is estimated based on the Company's projected annual
income and relative amounts of U.S. and foreign income. The
<PAGE>
increase in the Company's effective rate for 2000 as compared to
1999 was due to an increase in U.S. earnings relative to earnings
from the Company's foreign markets, and the fact that the U.S.
statutory rate of 35 percent was generally higher than the rates
applicable to the Company's non-U.S. earnings. The Company's U.S.
earnings were higher in 2000 than in 1999 primarily due to higher
dayrates and utilization for the Company's rigs operating in the
U.S. Gulf of Mexico and higher income from drilling management
services in the U.S. Gulf of Mexico.
NOTE 7 - CONTINGENCIES
In 1998 the Company entered into fixed-price contracts with
Harland and Wolff Shipbuilding and Heavy Industries Limited (the
"Shipbuilder") totaling $315 million for the construction of two
dynamically positioned, ultra-deepwater drillships, the Glomar
C.R. Luigs and the Glomar Jack Ryan, for delivery in the fourth
quarter of 1999 and first quarter of 2000, respectively.
Pursuant to two fully-defeased long-term lease agreements, the
Company has novated the construction contracts for the drillships
to two financial institutions, which now own the drillships and
have agreed to lease them to the Company. The Company acts as
the lessors' construction supervisor and, to date, has paid on
behalf of the lessors, or provided for the lessors' payment of,
all amounts it believes are required under the terms of the
contracts, including payments for all approved change orders.
In October 1999 the Company received a claim from the Shipbuilder
alleging breach of contract in connection with the Company's
obligations regarding design of the drillships, the timely
delivery to the Shipbuilder of owner-furnished equipment, and
design change orders. In its claim, the Shipbuilder also
requested additional compensation for increases in the
drillships' steel weight. The amount of the Shipbuilder's claim
in excess of the contract price totals GBP133 million ($202
million). With the exception of a small portion of the steel-
weight claim, the Company believes that the claim is totally
without merit. The contracts provide that such claims are to be
resolved through arbitration in London.
Because the Company was concerned about the Shipbuilder's
financial viability and the satisfactory completion of the
drillships, in November 1999 the Company agreed to provide
additional funding to the Shipbuilder for completion of the two
drillships in exchange for certain assurances by the Shipbuilder
and its parent, Fred. Olsen Energy ASA (the "Funding Agreement").
Under the terms of the Funding Agreement, the Company released
two cash collateralized letters of credit, giving the Shipbuilder
access to $40 million of its own funds. In addition, the Company
agreed to advance to the Shipbuilder, without prejudice to any
issues of liability under the shipbuilding contracts, GBP57 million
($92.6 million) above the drillships' $315 million contract
price. The Company also agreed to advance amounts equal to half
of subsequent cost overruns until the Company's total advances
under the Funding Agreement reach GBP65 million ($104.8 million).
As of August 11, 2000, the Company had advanced GBP63.9 million
($103.1 million) under the Funding Agreement, including GBP6.9
million ($10.5 million) in connection with its share of cost
overruns. If the maximum advances of GBP65 million are made by the
Company, the Shipbuilder's parent, Fred. Olsen Energy ASA, has
agreed to provide all additional funds necessary to keep the
Shipbuilder solvent and working in an expeditious and diligent
manner and to enable it to deliver the two completed drillships.
In addition, the Shipbuilder's parent will guarantee
<PAGE>
up to GBP3 million ($4.5 million) of the Shipbuilder's warranty with
respect to the two drillships. The Glomar C.R. Luigs was delivered on
March 16, 2000. The status of delivery of the Glomar Jack Ryan
is discussed below.
The Funding Agreement did not settle any portion of the
Shipbuilder's claim of GBP133 million ($202 million). The
agreement provides that the Shipbuilder will repay to the Company
amounts advanced under the Funding Agreement to the extent the
amount of the advanced funds exceeds any arbitration award in
favor of the Shipbuilder and that the Company will pay the
Shipbuilder to the extent any arbitration award in favor of the
Shipbuilder exceeds the funds so advanced. In view of the
current financial condition of the Shipbuilder, collection from
the Shipbuilder of any amounts to which the Company may be
entitled under the Funding Agreement is doubtful.
On August 1, 2000, the Company delivered notice to the
Shipbuilder of its intent to take possession of the Glomar Jack
Ryan following the Shipbuilder's failure to timely deliver the
vessel in accordance with construction contract as amended by the
Funding Agreement. Following the Shipbuilder's refusal to grant
possession of the vessel to the Company, the Company filed an
application for a mandatory injunction with the London Commercial
Court requesting that the shipbuilder be ordered to do so. The
Court granted the injunction on August 11, 2000, on the condition
that the Company post a bond in the amount of $100 million to secure
the Shipbuilder's lien for the delivery installment and the unsecured
balance of the Shipbuilder's previously disclosed claims. The Company's
obligation, if any, to pay the delivery installment and its liability
for the previously disclosed claims will be subject to determination in
arbitration proceedings that are currently underway in London. The
vessel will sail to a shipyard in the U.S. Gulf of Mexico where final
completion and commissioning will be undertaken. The Company estimates
that the ship could be accepted by the customer and begin earning dayrate
under its drilling contract around November 1, 2000. The Company believes
that the additional cost of bringing the ship to the U.S. for final
completion and commissioning will not be material to the total cost of
the vessel.
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 1997. At issue are (i) the date of termination of
the charter, (ii) the condition of the rig upon its return to the
Company, and (iii) 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, 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 finished using
the rig for drilling in May 1998, at which time the rig entered a
shipyard to undergo the repairs at issue. The Company completed
the repairs in October 1998 and mobilized the rig to the east
coast of Canada, where it was operating from December 1998 to
July 2000. An arbitration hearing in respect of certain
preliminary legal issues was held in late May 2000. Full
evidentiary hearings are scheduled to begin in September
2000, and the Company expects that additional hearings will be
required in 2001. Schlumberger Limited, the parent of Sedco at
the time the claims arose, has issued a guaranty in favor of
<PAGE>
the Company in the amount of $140 million as security for any award
ultimately handed down by the arbitration tribunal.
The Company has recorded a noncurrent receivable from Sedco in
the amount of $58.5 million at June 30, 2000, consisting of $35.3
million of costs incurred in connection with rig repairs for
which the Company contends Sedco is responsible and $23.2 million
of dayrate revenue recognized in 1998 in connection with the
arbitration ruling. The total amount of the receivable from Sedco
recorded at December 31, 1999 was $56.7 million.
The Company is involved in various lawsuits resulting from
personal injury and property damage. In the opinion of
management, resolution of these matters will not have a material
adverse effect on the Company's results of operations, financial
position, or cash flows.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
Summary
Data relating to the Company's operations by business segment
follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
% Increase % Increase
2000 1999 (Decrease) 2000 1999 (Decrease)
----- ----- ---------- ----- ----- --------
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Contract drilling $148.0 $141.6 5% $260.3 $301.6 (14%)
Drilling management 81.4 56.4 44% 174.1 128.5 35%
Oil and gas 4.1 1.6 156% 7.8 2.4 225%
Less: Intersegment revenues (2.2) (3.9) (44%) (6.8) (8.8) (23%)
------ ------ ------ ------
$231.3 $195.7 18% $435.4 $423.7 3%
====== ====== ====== ======
Operating income:
Contract drilling $ 47.6 $ 50.5 (6%) $ 73.2 $114.4 (36%)
Drilling management 5.8 .7 729% 13.1 (1.9) na
Oil and gas 2.3 .1 2200% 4.4 (.1) na
Restructure costs - - na (5.2) - na
Corporate expenses (6.5) (6.4) 2% (13.5) (12.7) 6%
------ ------ ------ ------
$ 49.2 $ 44.9 10% $ 72.0 $ 99.7 (28%)
====== ====== ====== ======
</TABLE>
Operating income increased by $4.3 million to $49.2 million for
the second quarter of 2000 from $44.9 million for the second
quarter of 1999 primarily due to higher income from drilling
management services and oil and gas, partly offset by lower
income from contract drilling. The decrease in contract drilling
was primarily due to a decrease in average dayrates and
unanticipated rig downtime on certain of the Company's deepwater
rigs. These declines were partially offset by the addition to
the fleet of the Glomar C.R. Luigs ultra-deepwater drillship in
April 2000 and higher utilization of the Company's rigs in the
U.S. Gulf of Mexico and offshore West Africa.
Operating income decreased by $27.7 million to $72.0 million for
the six months ended June 30, 2000, from $99.7 million for the
six months ended June 30, 1999. The decline was primarily
attributable to decreases in average dayrates and rig utilization
for contract drilling, partially offset by higher income from
drilling management services and the addition to the fleet of the
Glomar C.R. Luigs. Operating income for the six months ended
June 30, 2000, included a one-time $5.2 million charge in
connection with a planned restructuring comprised of a workforce
reduction and consolidation of facilities.
Since the third quarter of 1999, the Company has seen continued
improvement in the U.S. Gulf of Mexico and offshore West Africa
jackup markets. In the U.S. Gulf of Mexico, the Company's
average rig utilization rate was 100 percent for the six months
ended June 30, 2000, as compared to an industry average of 76
percent for the region. As of August 2000, spot market dayrates
for premium jackups in the U.S. Gulf of Mexico had increased
about three-fold from levels one year ago. In West Africa, where
four of the Company's rigs were cold-stacked at year-end 1999,
the Company reactivated two rigs in the first quarter of 2000,
and a third rig reentered service on August 1, 2000. In
addition, the Glomar Robert
<PAGE>
F. Bauer drillship, which had been cold-stacked in Peru since
June 1999, returned to work offshore West Africa in April 2000.
On July 22, 2000, the Glomar Labrador jackup commenced operations
offshore Trinidad under an 80-day contract, following which it
has a commitment from another customer for one year. Prior to
July, the rig had been idle in Argentina for nearly a year.
The Glomar Adriatic VI jackup, however, completed operations under
a high-dayrate, two-year contract in the North Sea on August 10, 2000,
and is to resume operations in September 2000 at a rate that is $50,000
per day lower than the previous contract.
Despite the improvements in jackup markets, the outlook for
second and third-generation semisubmersible rigs remains weak,
particularly in the North Sea, where the Company has two cold-
stacked third-generation semisubmersibles. The North Sea market
continues to lag other major markets and will likely remain soft
for the remainder of 2000. Another of the Company's third-
generation semisubmersibles, the Glomar Grand Banks, completed
its $163,000 per-day contract off the east coast of Canada on
July 2, 2000, and is not expected to return to work in 2000. As
a result of the foregoing, the Company expects earnings in the
third quarter of 2000 to be roughly comparable to the second
quarter of 2000 as increased rig utilization in West Africa and
higher dayrates in the U.S. Gulf of Mexico are largely offset by
the reduced contribution from the Glomar Adriatic VI and the
Glomar Grand Banks as discussed above.
On March 16, 2000, the Company took delivery of the Glomar C.R.
Luigs, the first of two newly constructed, dynamically-
positioned, ultra-deepwater drillships. The Glomar C.R. Luigs
entered service on April 21, 2000, for the first of two customers
under contracts totaling three years. Total revenues to be
generated over the three-year period are estimated to be $227
million. Construction of the Glomar Jack Ryan, the Company's
other new-build, ultra-deepwater drillship, is approximately 98
percent complete.
On August 1, 2000, the Company delivered notice to Harland and
Wolff, the shipbuilder of the Glomar Jack Ryan, of its intent to
take possession of the ship following the shipbuilder's failure
to timely deliver the vessel in accordance with the construction
contract as amended by the previously disclosed Funding Agreement.
Following the shipbuilder's refusal to grant possession of the vessel
to the Company, the Company filed an application for a mandatory
injunction with the London Commercial Court requesting that the
shipbuilder be ordered to do so. The Court granted the injunction on
August 11, 2000, on the condition that the Company post a bond in the
amount of $100 million to secure the shipbuilder's lien for the
delivery installment and the unsecured balance of the shipbuilder's
previously disclosed claims. The Company's obligation, if any, to pay
the delivery installment and its liability for the previously disclosed
claims will be subject to determination in arbitration proceedings that
are currently underway in London. The vessel will sail to a shipyard
in the U.S. Gulf of Mexico where final completion and commissioning will
be undertaken. The Company estimates that the ship could be accepted
by the customer and begin earning dayrate under its drilling contract
around November 1, 2000. The Company believes that the additional cost
of bringing the ship to the U.S. for final completion and commissioning
will not be material to the total cost of the vessel.
At June 30, 2000, the Company had $949 million of contract
drilling backlog, which is expected to be realized as follows:
$278 million during the remainder of 2000, $317 million in 2001,
and $354 million in 2002 through 2003. Contract drilling backlog
at December 31, 1999 was $1.0 billion.
The Company's results of operations could be limited by its
ability to find and retain qualified personnel in a tightening
market for offshore labor. In recognition of this, effective June
1, 2000, the Company
<PAGE>
increased compensation levels for certain of its offshore positions
between five and ten percent. Approximately 40 percent of the overall
impact is expected to be recoverable from customers under dayrate adjustment
provisions of certain contracts. The Company believes that it has not
experienced any adverse effect on operations to date resulting from its
ability to find or retain qualified personnel and that its compensation
levels are competitive within the industry.
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
2000 1999 (Decrease) 2000 1999 (Decrease)
----- ----- -------- ------ ----- --------
<S> <C> <C> <C> <C> <C> <C>
Contract drilling revenues by area
(in millions): (1)
Gulf of Mexico $ 76.6 $ 43.5 76% $ 131.5 $ 99.8 32%
West Africa 31.9 23.9 33% 56.2 51.2 10%
North Sea 19.4 36.8 (47%) 37.9 80.3 (53%)
Other 20.1 37.4 (46%) 34.7 70.3 (51%)
------ ------ ------ ------
$ 148.0 $141.6 5% $ 260.3 $301.6 (14%)
====== ====== ====== ======
Average rig utilization (2) 84% 78% 80% 81%
Average dayrate $59,400 $63,700 $56,000 $65,300
------------------------------------
(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.
</TABLE>
Of the $6.4 million increase in contract drilling revenues for
the second quarter of 2000 as compared with the second quarter of
1999, $12.2 million was attributable to the addition to the fleet
of the Glomar C.R. Luigs drillship in April 2000, and $8.9
million was attributable to an increase in average rig
utilization, primarily in the U.S. Gulf of Mexico and West
Africa. These increases were partially offset by a $14.5 million
decrease due to lower average dayrates and unanticipated rig
downtime on certain of the Company's deepwater rigs. The decline
in average dayrates was attributable to the expiration of certain
higher dayrate contracts signed when rig markets were tighter,
partially offset by higher dayrates for jackup rigs in the U.S.
Gulf of Mexico.
Of the $41.3 million decrease in contract drilling revenues for
the six months ended June 30, 2000, as compared with the six
months ended June 30, 1999, $50.0 million was attributable to a
decrease in average dayrates, and $3.2 million was attributable
to a decrease in average rig utilization, primarily in the North
Sea. The lower dayrates were due in part to the expiration of
higher dayrate contracts signed when market rates were higher and
unanticipated rig downtime attributable primarily to repair work
on certain deepwater rigs and were partly offset by higher
dayrates for jackup rigs in the U.S. Gulf of Mexico. These
decreases were partially offset by a $12.2 million increase
attributable to the addition to the fleet of the Glomar C.R.
Luigs drillship in April 2000.
In the second quarter of 2000, the Company averaged 100 percent
utilization for its rigs in the U.S. Gulf of Mexico, 78 percent
offshore West Africa, and 60 percent in the North Sea. This
compares with the
<PAGE>
Company's average rig utilization for the second quarter of 1999
of 94 percent in the U.S. Gulf of Mexico, 32 percent in West Africa,
and 92 percent in the North Sea.
For the six months ended June 30, 2000, the Company averaged 100
percent utilization for its rigs in the U.S. Gulf of Mexico, 69
percent offshore West Africa, and 60 percent in the North Sea.
This compares with the Company's average rig utilization for the
six months ended June 30, 1999, of 96 percent in the U.S. Gulf of
Mexico, 47 percent in West Africa, and 93 percent in the North
Sea.
The mobilization of rigs between the geographic areas shown in
the preceding table also affected each area's revenues over the
periods indicated. Specifically, the Company mobilized one
drillship from West Africa to offshore Peru in April 1999 and
back to West Africa in April 2000, one drillship from the U.S.
Gulf of Mexico to West Africa in May 1999, two jackups from West
Africa to the U.S. Gulf of Mexico in October 1999, and one jackup
from the North Sea to the U.S. Gulf of Mexico in January 2000.
The Company's operating profit margin for contract drilling
operations decreased to 32 percent for the second quarter of 2000
from 36 percent for the second quarter of 1999 primarily due to
lower average dayrates. Contract drilling operating expenses
increased by $9.3 million primarily due to higher depreciation
and other operating costs in connection with the addition of the
Glomar C.R. Luigs to the drilling rig fleet, and higher operating
costs due to fewer cold-stacked rigs in the second quarter of
2000 as compared to the second quarter of 1999. In the second
quarter of 2000, the Company had four cold-stacked rigs as
compared to as many as seven cold-stacked rigs during the second
quarter of 1999.
The Company's operating profit margin for contract drilling
operations decreased to 28 percent for the six months ended June
30, 2000, from 38 percent for the six months ended June 30, 1999,
primarily due to lower average dayrates. Contract drilling
operating expenses decreased by $0.1 million primarily due to
lower operating costs in connection with the Company's cold-
stacked rigs, partially offset by higher depreciation and other
operating costs in connection with the addition to the fleet of
the Glomar C.R. Luigs. During the six months ended June 30,
2000, the Company had as many as nine cold-stacked rigs (four as
of June 30, 2000) as compared to seven cold-stacked rigs during
the six months ended June 30, 1999.
As of August 11, 2000, sixteen of the Company's rigs were located
in the U.S. Gulf of Mexico, eight were offshore West Africa, five
were in the North Sea, two were offshore Trinidad, and one was
offshore the east coast of Canada. As of August 11, 2000, four of
the Company's thirty-two active rigs were without contracts or
commitments.
Drilling Management Services
Drilling management services revenues increased by $25.0 million
to $81.4 million in the second quarter of 2000 from $56.4 million
in the second quarter of 1999, and operating income increased by
$5.1 million to $5.8 million in the second quarter of 2000 from
$0.7 million in the second quarter of 1999. The increase in
revenues consisted of a $26.5 million increase attributable to
higher average revenues per turnkey project and a $1.5 million
increase attributable to daywork and other revenues, partly
offset by a $3.0 million decrease attributable to a decrease in
the number of turnkey projects. The Company completed 23 turnkey
projects in the second quarter of 2000 (20 wells drilled and 3
well completions) as compared to 24 turnkey projects in the
second quarter of 1999 (19 wells drilled and 5 well completions).
<PAGE>
Drilling management services revenues increased by $45.6 million
to $174.1 million for the six months ended June 30, 2000, from
$128.5 million for the six months ended June 30, 1999, and
operating income increased by $15.0 million to $13.1 million for
the six months ended June 30, 2000, from a loss of $1.9 million
for the six months ended June 30, 1999. The increase in revenues
consisted of a $37.5 million increase attributable to an increase
in the number of turnkey projects and a $15.0 million increase
attributable to higher average revenues per turnkey project, partly
offset by a $6.9 million decrease attributable to daywork and other revenues.
The Company completed 59 turnkey projects for the six months
ended June 30, 2000 (49 wells drilled and 10 well completions),
as compared to 44 turnkey projects for the six months ended June 30, 1999
(37 wells drilled and 7 well completions).
The improvement in drilling management services operating results
for the three and six months ended June 30, 2000, as compared to
the prior-year periods was due in part to a decrease in the number
of rigs under term contract to the Company. During 1999 the
Company was paying above-market rates for the use of as many as
sixteen rigs under term contracts signed in late 1997 and early 1998,
when market rates were higher. The incremental cost of these rigs above
what they would have cost if contracted as needed on the spot market was
estimated to be $3.3 million and $11.8 million for the three and
six months ended June 30, 1999, respectively. By June 30, 1999, the
Company had substantially fulfilled all obligations related to rigs
contracted at above-market rates. Currently, the Company is
contracting rigs as needed on a well-by-well basis.
Other Income and Expense
General and administrative expenses increased to $12.2 million
for the six months ended June 30, 2000, from $11.9 million for
the six months ended June 30, 1999. The increase was due
primarily to higher compensation expense, partly offset by lower
professional fees. The increase in compensation expense was
attributable to accrued expenses under a stock-based compensation
plan, which is based on Company performance and the market price
of the Company's common stock.
Interest expense increased to $17.3 million in the second quarter
of 2000 from $13.6 million in the second quarter of 1999.
Interest expense increased to $34.1 million for the six months
ended June 30, 2000, from $27.0 million for the comparable prior-
year period. The increases were primarily due to higher debt
incurred to finance the construction of the Glomar C.R. Luigs and
the Glomar Jack Ryan drillships.
In connection with construction of the two drillships, the
Company capitalized $6.9 million of interest expense for the
second quarter of 2000 as compared to $5.9 million for the second
quarter of 1999, and $17.8 million for the six months ended June
30, 2000, as compared to $10.0 million for the comparable prior-
year period.
The Company's effective income tax rate for financial reporting
purposes was approximately 29 percent for both the quarter and
six months ended June 30, 2000. This compares to an effective
rate of 26 percent for the second quarter of 1999 and 23 percent
for the six months ended June 30, 1999, and the U.S. federal
statutory rate of 35 percent. The increase in the effective
income tax rate was due to an increase in U.S. earnings relative
to earnings from the Company's foreign markets. The Company's
effective tax rate for a period is estimated based on the
Company's projected annual income and relative amounts of U.S.
and foreign income. Because of the differences between U.S. and
foreign tax rates, the Company's effective income tax rate can be
expected to fluctuate from year to year as the relative amounts
of the Company's U.S. and foreign earnings fluctuate.
<PAGE>
In the first quarter of 2000, the Company began implementing a
restructuring designed to streamline its organization and improve
efficiency. The restructuring involves a workforce reduction of
approximately 89 positions, a consolidation of administrative
offices in Houston and Europe, and closure of a materials control
facility in Houston. The employee functions affected are primarily
corporate support in nature and include materials control, engineering,
accounting, and information technology, among others. Approximately
80 percent of the affected positions are located in Houston, and the
remaining 20 percent are located in Europe. The Company recorded a
$5.2 million pretax charge in the first quarter of 2000 in connection
with the restructuring, consisting of $4.3 million for employee severance
costs and $0.9 million for office and facility closures. Cash payments
for severance could be paid over various periods generally ranging
from six weeks to twelve months from the date of termination,
based on salary grade and length of service. As of June 30, 2000,
cash payments under the restructuring totaled $2.1 million,
consisting of $1.9 million for employee severance and $0.2
million for facility closures. Payments contemplated under the
restructuring will be substantially completed by December 31,
2000. The Company expects to record pretax savings of
approximately $1.5 million per quarter after the plan's
implementation is completed in or about the third quarter of
2000. Approximately 80 percent of the savings is expected to be
realized through lower contract drilling expenses, and the
remainder is expected to be realized through lower drilling
management and general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
In June 2000 the Company completed a private placement of Zero
Coupon Convertible Debentures due June 23, 2020, and received net
proceeds of $293.0 million after deduction for underwriting fees.
The Company used $114.1 million of the proceeds to reduce
outstanding commercial paper in June 2000 and used the remainder
of the proceeds, plus available cash, to reduce outstanding
commercial paper by $185.1 million in July 2000. Proceeds from
issuances of commercial paper were used primarily to finance
construction of the Glomar C.R. Luigs and Glomar Jack Ryan
drillships, and for general corporate purposes.
The convertible debentures were issued at a price of $499.60 per
debenture, which represents a yield to maturity of 3.5 percent
per annum to reach an accreted value at maturity of $1,000 per
debenture. The Company has the right to redeem the debentures in
whole or in part on or after June 23, 2005, at a price equal to
the issuance price plus accrued original issue discount through
the date of redemption. Each debenture is convertible into
12.2182 shares of Global Marine Inc. common stock (7,330,920
total shares) at the option of the holder at any time prior to
maturity, unless previously redeemed. Holders have the right to
require the Company to redeem the debentures on the fifth, tenth,
and fifteenth anniversaries of the issuance at a price equal to
the accreted value through the date of redemption. The Company
may pay the redemption price with either cash or shares of the
Company's common stock or a combination of cash and shares of
common stock.
In July 2000 the Company terminated its $150 million and $50
million committed, unsecured revolving bank credit facilities.
With the termination of these two facilities, aggregate
borrowings under the Company's remaining $240 million bank credit
facility, which expires December 2002, and the commercial paper
program are limited to $240 million. As of July 31, 2000,
borrowings under the $240 million facility and the commercial
paper program totaled $23.0 million, and $217.0 million was
available for future borrowings.
<PAGE>
For the six months ended June 30, 2000, $293.0 million of cash
flow was provided from issuance of the zero coupon convertible
debentures (after deduction for underwriting fees), $73.6 million
was provided by operating activities, $8.3 million was provided
from exercises of employee stock options, $1.2 million was
provided from sales of properties and equipment, and $0.3 million
was provided from maturities of marketable securities. From these
amounts, $127.6 million was used to reduce long-term debt (net of
borrowings), and $100.4 million was used for capital expenditures.
For the six months ended June 30, 1999, $149.0 million of cash
flow was provided by operating activities, $2.1 million was
provided from sales of properties and equipment, and $1.7 million
was provided from exercises of employee stock options. From
these amounts, plus available cash, $180.3 million was used for
capital expenditures, $10.0 million was used to reduce long-term
debt (net of borrowings), and $0.3 million was used to purchase
marketable securities.
Capital expenditures for the full year 2000 are presently
estimated to be $183 million. This amount consists of $57 million
for construction of the Glomar Jack Ryan, $33 million for
construction of the Glomar C.R. Luigs, $16 million for planned
refurbishments and upgrades to the Glomar Arctic IV in addition
to $5 million of previously expended amounts in connection with
mooring system upgrades to the rig, $5 million for upgrades to
the Glomar Adriatic VI, $40 million for improvements to the
remainder of the drilling fleet, $24 million for capitalized
interest, and $3 million for other expenditures.
As of June 30, 2000, the Company had $231.7 million in cash and
cash equivalents, as compared to $83.3 million at December 31,
1999. Approximately $185 million of the Company's cash and cash
equivalents balance at June 30 was used to redeem outstanding
debt in July 2000.
The Company believes it will be able to meet all of its current
obligations, including working capital requirements, capital
expenditures and debt service, from its cash flow from
operations, its cash and cash equivalents, and its existing bank
credit facilities.
In December 1999, the staff of the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"),
"Revenue Recognition in Financial Statements," which provides the
staff's interpretations of the application of generally accepted
accounting principles to revenue recognition. The Company is
required to implement SAB 101 no later than the fourth quarter of
2000. The Company is in the process of evaluating SAB 101 and has
not yet determined what effect, if any, its implementation will
have on the Company's financial statements. The Company intends to
implement SAB 101 in the fourth quarter of 2000.
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 regarding the dates rigs will commence or
resume operations and begin earning dayrate, the terms under which
they will be employed, and the revenues rigs are expected to generate;
our beliefs regarding the likelihood of collecting disputed amounts
from the Shipbuilder of the Glomar C.R. Luigs and the Glomar Jack
Ryan and the immateriality of the additional cost of bring the Glomar
Jack Ryan to the U.S. for final completion and commissioning; our
outlook for the second and third-generation semisubmersible and North
Sea rig markets; our expectations regarding the periods during
<PAGE>
which our contract drilling backlog will be realized and the amounts to be
realized during each period; our expectation that earnings in the third
quarter of 2000 will be roughly comparable to the second quarter and the
expected reasons therefor; our belief that our results of operations
could be limited by our ability to find and retain qualified personnel
and our expectation that recent compensation increases will be partially
recovered from customers; the details of our restructuring plan, including
our statements that it will involve a workforce reduction of approximately
89 positions, that it will affect primarily administrative functions,
that implementation will be completed in or about the third quarter of
2000, that cash payments will be substantially completed by December 31,
2000, and that the plan will result in an estimated pretax cost savings
of approximately $1.5 million per quarter after implementation is
completed; our anticipated capital expenditures for full-year 2000 and
the expected allocation of those expenditures; our belief regarding
our ability to meet all of our 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.
Factors that could cause or contribute to such differences
include, but are not limited to, changes in the markets for oil
and gas and for offshore drilling services, including changes in
demand for our services which may result from changes in oil and
gas operators' drilling programs due to factors such as changing
oil and gas prices, a general economic slowdown or regional or
worldwide recession, and changes in oil and gas drilling
technology; the operational risks and uncertainties inherent
in offshore oil and gas drilling, including the risk that rigs may
experience unanticipated downtime due to construction defects,
design or engineering problems or other mechanical problems, or
due to damage by external forces; unanticipated costs or delays in
finishing construction of the Glomar Jack Ryan or in putting
it or other rigs to work due to things such as contract disputes,
design and engineering or other mechanical problems, or labor
difficulties; the uncertainty involved in dealing with other parties
and resolving disputed matters through arbitration, litigation, or by
other means; unanticipated changes in labor markets due to things such
as general economic trends; the need to make accounting and other
adjustments in connection with our restructuring plan as we gather
more information regarding the actual impact of our current
restructuring; 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
No material change from December 31, 1999.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 23, 2000, the Company issued and sold $600 million
principal amount at maturity of its Zero Coupon Convertible
Debentures Due June 23, 2020 (the "Debentures"). The Debentures
were sold to
<PAGE>
Credit Suisse First Boston Corporation, as initial
purchaser. The Company received proceeds of $488.36 per $1,000
principal amount at maturity (a total of $293,016,000) for the
sale of the Debentures to the initial purchaser, which offered
the Debentures for sale pursuant to Rule 144A to qualified
institutional buyers and pursuant to Regulation S in offshore
transactions at an initial price of $499.60 per $1,000 principal
amount at maturity (for a total initial offering price of
$299,760,000). The underwriting discount was 2.25%, or $6,744,000
in the aggregate. The net proceeds were used to repay outstanding
debt of the Company. The Debentures are convertible at the option
of the holder at any time prior to maturity, unless previously
redeemed, into shares of the Company's Common Stock, $.10 par
value per share, at a conversion rate of 12.2182 shares of Common
Stock per $1,000 principal amount at maturity of Debentures.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on May
11, 2000. 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, (a) proxies were solicited
pursuant to Regulation 14A under the Securities Exchange Act of
1934, (b) there was no solicitation in opposition to the
management's nominees as listed in the Proxy Statement, and (c)
all of such nominees were elected. The following numbers of
votes were cast as to the director nominees: Edward A. Blair,
160,352,375 votes for and 812,790 votes withheld; John M. Galvin,
160,324,210 votes for and 840,955 votes withheld; and Ben G.
Streetman, 160,364,269 votes for and 800,896 votes withheld. A
vote was also taken on a proposal to approve the Global Marine
Non-Employee Director Restricted Stock Plan, with 142,866,943
votes being cast for approval, 17,557,774 votes being cast
against approval, and 740,448 abstentions and broker non-votes.
In addition, a vote was taken on a proposal to approve an
increase in the authorized shares for the Global Marine 1998
Stock Option and Incentive Plan, with 131,112,727 votes being
cast for approval, 29,408,030 votes being cast against approval,
and 644,408 abstentions and broker non-votes. A vote was also
taken on ratification of the appointment of
PricewaterhouseCoopers LLP as independent certified public
accountants of the Company and its subsidiaries for 2000, with
160,520,634 votes being cast for ratification, 390,383 votes
being cast against ratification, and 254,148 abstentions and
broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Purchase Agreement dated June 20, 2000, between Global
Marine Inc. and Credit Suisse First Boston Corporation.
4.2 First Supplemental Indenture between Global Marine Inc.
and Wilmington Trust Company, as Trustee, dated as of
June 23, 2000, to Indenture dated Sptember 1, 1997.
4.3 Registration Rights Agreement between Global Marine
Inc. and Credit Suisse First Boston dated June 23,
2000.
4.4 Form of Zero Coupon Convertible Debentures Due June 23,
2020.
10.1 Global Marine Non-Employee Director Restricted Stock
Plan.
<PAGE>
10.2 First Amendment to Global Marine 1998 Stock Option and
Incentive Plan.
15.1 Letter of Independent Accountants regarding Awareness
of Incorporation by Reference.
27.1 Financial Data Schedule. (Exhibit 27.1 is being
submitted as an exhibit only in the electronic format
of this Quarterly Report on Form 10-Q being submitted
to the Securities and Exchange Commission. Exhibit
27.1 shall not be deemed filed for purposes of Section
11 of the Securities Act of 1933, Section 18 of the
Securities Exchange Act of 1934 or Section 323 of the
Trust Indenture Act, or otherwise be subject to the
liabilities of such sections, nor shall it be deemed a
part of any registration statement to which it
relates.)
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated June 21,
2000, reporting under Item 5, Other Events, the pricing of
its Zero Coupon Convertible Debentures Due June 23, 2020.
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 14, 2000 /s/ Douglas C. Stegall
---------------------------
Douglas C. Stegall
Vice President and Controller
(Duly Authorized Officer and Principal
Accounting Officer of the Registrant)
