UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission File Number: 2-56600
Global Industries, Ltd.
(Exact name of registrant as specified in its charter)
Louisiana 72-1212563
(State or other jurisdiction of incorporation or organization)(I.R.S.
Employer Identification No.)
107 Global Circle
P.O. Box 61936, Lafayette, LA 70596-1936
(Address of principal executive offices) (Zip Code)
(318) 989-0000
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since
last report)
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. X Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of the Registrant's Common Stock
outstanding as of April 30, 1999 was 90,820,219.
Global Industries, Ltd.
Index - Form 10-Q
Part I
Item 1. Financial Statements - Unaudited
Independent Accountants' Report 3
Consolidated Statements of Operations 4
Consolidated Balance Sheets 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market
Risk 18
Part II
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
Global Industries, Ltd.
We have reviewed the condensed consolidated financial statements
of Global Industries, Ltd. and subsidiaries, as listed in the
accompanying index, as of March 31, 1999 and for the three-month
periods ended March 31, 1999 and 1998. 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 of 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 such condensed consolidated
financial statements 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 of Global
Industries, Ltd. and subsidiaries as of December 31, 1998, and
the related consolidated statements of operations, shareholders'
equity, cash flows, and comprehensive income for the nine months
then ended (not presented herein); and in our report dated
February 12, 1999, 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, 1998 is fairly stated, in all
material respects, in relation to the consolidated balance sheet
from which it has been derived.
DELOITTE & TOUCHE LLP
May 5, 1999
New Orleans, Louisiana
Global Industries, Ltd.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
Quarter Ended March 31,
-------------------------
1999 1998
----------- -----------
Revenues $ 79,292 $ 87,518
Cost of Revenues 69,538 63,775
----------- -----------
Gross Profit 9,754 23,743
Equity in Net Earnings (Loss) of
Unconsolidated Affiliate (2,000) (800)
Selling, General and Administrative
Expenses 5,730 5,585
----------- -----------
Operating Income 2,024 17,358
----------- -----------
Other Income (Expense):
Interest Expense (2,989) (786)
Other 1,281 402
----------- -----------
(1,708) (384)
----------- -----------
Income Before Income Taxes 316 16,974
Provision for Income Taxes 118 5,992
----------- -----------
Net Income $ 198 $ 10,982
=========== ===========
Weighted Average Common Shares
Outstanding
Basic 90,723,000 91,475,000
Diluted 92,037,000 94,042,000
Net Income Per Share
Basic $ 0.00 $ 0.12
Diluted $ 0.00 $ 0.12
See Notes to Consolidated Financial Statements.
Global Industries, Ltd.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
March 31, December 31,
1999 1998
----------- -------------
ASSETS
Current Assets:
Cash $ 10,969 $ 25,368
Escrowed funds 1,499 2,447
Receivables 100,076 107,992
Advances to and receivables from
unconsolidated affiliate 14,886 8,190
Prepaid expenses and other 10,375 9,874
----------- -------------
Total current assets 137,805 153,871
----------- -------------
Escrowed Funds 7,695 9,143
----------- -------------
Property and Equipment, net 532,108 535,386
----------- -------------
Other Assets:
Deferred charges, net 20,379 18,467
Investment in and advances to
unconsolidated affiliate 8,655 10,655
Other 3,378 3,349
----------- -------------
Total other assets 32,412 32,471
----------- -------------
Total $710,020 $730,871
=========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt
and short-term debt $ 3,747 $ 2,190
Accounts payable 38,582 53,005
Employee-related liabilities 8,780 8,086
Other accrued liabilities 9,031 11,953
---------- -------------
Total current liabilities 60,140 75,234
---------- -------------
Long-Term Debt 202,747 208,607
---------- -------------
Deferred Income Taxes 51,169 49,502
---------- -------------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock -- --
Common stock, 92,194,309 and
92,110,929 shares issued,
respectively 921 921
Additional paid-in capital 213,828 213,518
Treasury stock at cost, 1,429,500
shares (15,012) (15,012)
Accumulated other comprehensive
income (10,227) (8,155)
Retained earnings 206,454 206,256
----------- -------------
Total shareholders' equity 395,964 397,528
----------- -------------
Total $710,020 $730,871
=========== =============
See Notes to Consolidated Financial Statements.
Global Industries, Ltd.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Quarter Ended March 31,
------------------------
1999 1998
--------- ----------
Cash Flows From Operating Activities:
Net income $ 198 $ 10,982
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 12,655 7,635
Deferred income taxes 1,700 6,872
Equity in net (earnings) loss of
unconsolidated affiliate 2,000 800
Other 868 (1,154)
Changes in operating assets and
liabilities:
Receivables 6,747 3,758
Receivables from unconsolidated
affiliate (696) --
Prepaid expenses and other (548) (320)
Accounts payable and accrued
liabilities (16,196) (13,487)
--------- ---------
Net cash provided by (used in)
operating activities 6,728 15,086
--------- ---------
Cash Flows From Investing Activities:
Additions to property and equipment (9,203) (27,936)
Escrowed funds 2,396 19
Additions to deferred charges (3,903) (5,786)
Net (advances to) repayment of advances
to unconsolidated affiliate (6,000) 888
Other (114) (496)
--------- ---------
Net cash (used in) investing
activities (16,824) (33,311)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from sale of common stock 130 488
Net proceeds (repayment) of short-term
debt 1,612 --
Net proceeds (repayment) of long-term
debt (5,915) 9,104
--------- ---------
Net cash provided by (used in)
financing activities (4,173) 9,592
--------- ---------
Effect of Exchange Rate Changes on Cash (130) 211
Cash:
Increase (Decrease) (14,399) (8,422)
Beginning of period 25,368 27,115
--------- ---------
End of period $ 10,969 $ 18,693
========= =========
See Notes to Consolidated Financial Statements.
Global Industries, Ltd.
Notes To Consolidated Financial Statements (Unaudited)
1. Basis of Presentation - The accompanying unaudited consolidated
financial statements include the accounts of Global Industries,
Ltd. and its wholly owned subsidiaries (the "Company"). The
Company also has a 49% ownership interest in CCC Fabricaciones y
Construcciones, S.A. de C.V. ("CCC"), which is accounted for by
the equity method. Effective December 31, 1998, the Company
changed its fiscal year-end from March 31 to December 31 of each
year.
In the opinion of management of the Company, all adjustments
(such adjustments consisting only of a normal recurring nature)
necessary for a fair presentation of the operating results for
the interim periods presented have been included in the unaudited
consolidated financial statements. Operating results for the
period ended March 31, 1999, are not necessarily indicative of
the results that may be expected for the year ending December 31,
1999. These financial statements should be read in conjunction
with the Company's audited consolidated financial statements and
related notes thereto included in the Company's Transition Report
on Form 10-K for the nine months ended December 31, 1998.
The financial statements required by Rule 10-01 of Regulation S-X
have been reviewed by independent public accountants as stated in
their report included herein.
2. Recent Accounting Pronouncement - In June 1998, the FASB issued
Statement of Financial Accounting Standards No. 133 "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for
derivative instruments and hedging activities and requires, among
other things, that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those
instruments at fair value. The Company has considered the
implications of SFAS 133 and does not believe that the adoption
of this new accounting standard will have a material effect on
its consolidated financial statements.
3. Change in Accounting Estimate - Effective April 1, 1998, the
Company changed its estimate of the useful lives of certain
marine barges that are depreciated on the units-of-production
method. The Company increased total estimated operating days for
such barges to better reflect the estimated periods during which
the assets will remain in service. The change had the effect of
reducing depreciation expense by $1.2 million and increasing net
income by $0.7 million ($0.01 for both diluted and basic share)
for the three months ended March 31, 1999.
4. Financing Arrangements - During March 1999, the Company amended
the terms of its existing credit agreement with a syndicate of
commercial banks to, among other things, remove a provision that
reduced the amount available by borrowings outstanding under a
separate credit agreement between the banks and CCC.
5. Basic and Diluted Net Income Per Share - The difference in the
number of weighted average shares outstanding for basic and
diluted net income per share is attributable to the incremental
shares related to dilutive outstanding options to purchase common
stock and non-vested restricted stock awards.
6. Commitments and Contingencies - The Company is a party to legal
proceedings and potential claims arising in the ordinary course
of business. Management does not believe these matters will
materially effect the Company's consolidated financial
statements.
During August 1998, the Board of Directors authorized the
expenditure of up to $30.0 million to purchase shares of the
Company's outstanding common stock. No limit was placed on the
duration of the purchase program. No shares were purchased
during the quarter ended March 31, 1999. The Company has
purchased 1,429,500 shares since the authorization at a total
cost of $15.0 million.
The Company has guaranteed certain indebtedness and commitments
of CCC approximating $20 million at March 31, 1999. The Company
has also given a contingent guarantee to a financial institution
whereby the guarantee becomes effective if certain vessel
contracts of CCC are canceled or not renewed. The principal
amount subject to the contingent guaranty at March 31, 1999 was
approximately $13 million. The Company has also given performance
and currency guarantees to banks for CCC debt approximating $14
million at March 31, 1999 related to project financings. Under
the terms of the performance and currency guarantees, the banks
may enforce the guarantees (i) if the customer does not pay CCC
because neither CCC nor the guarantors performed the contracts
that define the projects or (ii) if, after converting contract
payments from Mexican Pesos to United States Dollars, funds from
the project are insufficient to pay the sums due.
In the normal course of its business activities, the Company
provides letters of credit to secure the performance and/or
payment of obligations, including the payment of worker's
compensation obligations. Additionally, the Company has issued a
letter of credit as collateral for $28.0 million of Port
Improvement Revenue Bonds. At March 31, 1999, outstanding
letters of credit and bonds approximated $38.3 million. Also in
the normal course of its business activities, the Company
provides guarantees and performance, bid, and payment bonds
pursuant to agreements or obtaining such agreements to perform
construction services. Some of these financial instruments are
secured by parent guarantees. The aggregate of these guarantees
and bonds at March 31, 1999 was $5.1 million.
The Company estimates that the cost to complete capital
expenditure projects in progress at March 31, 1999 approximates
$12 million.
7. Investment in and Advances to Unconsolidated Affiliate - In March
1999, Global and its partner restructured their joint venture in
Mexico, CCC. Under the restructuring, its partner, through the
assumption of CCC debt, contributed additional capital of
approximately $16.5 million to CCC. Global, through the
forgiveness of advances and receivables due from CCC, contributed
additional capital of approximately $15.8 million to CCC. During
the quarter ended March 31, 1999, Global gave a $6.0 million
interest bearing short-term advance to CCC.
8. Industry Segment Information - The Company operates primarily in
the offshore oil and gas construction industry. However, the
Company has used a combination of factors to identify its
reportable segments as required by Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). The overriding
determination of the Company's segments is based on how the chief
operating decision-maker of the Company evaluates the Company's
results of operations. The underlying factors include types of
service and types of assets used to perform such services,
operational management, physical locations, degree of
integration, and underlying economic characteristics of the
various types of work the Company performs. The Company has
identified eight segments of which six meet the quantitative
thresholds as required by SFAS 131 for disclosure. The
reportable segments are Gulf of Mexico Offshore Construction,
Gulf of Mexico Diving, Gulf of Mexico Marine Support, West Africa
Construction, Asia Pacific Construction, and Latin America
Construction. Operating segments that did not meet the
quantitative thresholds for disclosure include the Company's
Middle East Construction and Gulf of Mexico ROV/other offshore
construction services.
Gulf of Mexico Offshore Construction is principally related
services performed using the Company's construction barges in the
Gulf of Mexico, including pipelay and derrick services. Gulf of
Mexico Diving is all diving services including those performed
using dive support vessels. Gulf of Mexico Marine Support
includes services performed using the Company's SWATH vessel,
Pioneer, liftboat services, crewboat services, and transportation
services. West Africa Construction is principally related
services performed using construction barges offshore West
Africa. Asia Pacific Construction includes a broad range of
offshore construction services, including pipelay and derrick,
diving, offshore support vessels, and ROV services. Latin
America Construction is primarily services and equipment provided
to CCC and the 49% equity in CCC's results. Many of the
Company's services are integrated, and thus, are performed for
other of the Company's segments, typically at rates charged to
external customers.
The following tables present information about the profit or loss
of each of the Company's reportable segments for the quarters
ended March 31, 1999 and 1998. The information contains certain
allocations of corporate expenses that the Company deems
reasonable and appropriate for the evaluation of results of
operations.
Gulf of Mexico
-----------------------------
Offshore Marine West Asia Latin
Construction Diving Support Africa Pacific America
------------ ------- ------- ------- ------- --------
(in thousands)
Quarter Ended March 31, 1999
Revenues from
external
customers $21,953 $ 903 $ 3,883 $29,516 $20,290 $ 1,161
Intersegment
revenues 383 2,950 1,200 -- -- --
Income (loss)
before income
tax 310 (1,587) (1,103) 7,682 349 (2,569)
Quarter Ended March 31, 1998
Revenues from
external
customers $40,688 $ 5,353 $ 9,925 $15,935 $ 5,002 $ 2,725
Intersegment
revenues 116 10,645 2,579 -- -- --
Income (loss)
before income
tax 47 5,597 4,153 6,174 581 (388)
The following table reconciles the reportable segments' revenues
and profit or loss presented above, to the Company's consolidated
totals.
Quarter Ended March 31,
-------------------------
1999 1998
----------- ------------
(in thousands)
Revenues
Total for reportable
segments $ 82,239 $ 92,968
Total for other segments 1,596 8,050
Elimination of intersegment
revenues (4,543) (13,500)
------------ -----------
Total consolidated
revenues $ 79,292 $ 87,518
============ ===========
Income (loss) before income
tax
Total for reportable segments $ 3,082 $ 16,164
Total for other segments (3,130) 114
Unallocated corporate income 364 696
------------ -----------
Total consolidated
income before tax $ 316 $ 16,974
=========== ============
9. Comprehensive Income - The Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), effective April 1, 1998. SFAS 130 establishes
standards for reporting and display of comprehensive income and
its major components. Comprehensive income includes net income
and other comprehensive income (loss) which, in the case of the
Company, currently includes only foreign currency translation
adjustments.
Following is a summary of the Company's comprehensive income
(loss) for the three months ended March 31, 1999 and 1998 (in
thousands):
Quarter Ended March 31,
-----------------------
1999 1998
---------- -----------
Net income $ 198 $ 10,982
Other comprehensive income (loss):
Foreign currency translation
adjustments (2,072) 150
----------- ----------
Comprehensive income (loss) (1,874) 11,132
=========== ==========
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
The following discussion presents management's discussion and
analysis of the Company's financial condition and results of
operations. Certain of the statements included below, including
those regarding future financial performance or results or that
are not historical facts, are or contain "forward-looking"
information as that term is defined in the Securities Act of
1933, as amended. The words "expect," "believe," "anticipate,"
"project," "estimate," and similar expressions are intended to
identify forward-looking statements. The Company cautions
readers that any such statements are not guarantees of future
performance or events and such statements involve risks,
uncertainties and assumptions. Factors that could cause actual
results to differ from those expected include, but are not
limited to, dependence on the oil and gas industry and industry
conditions, general economic conditions including interest rates
and inflation, competition, the ability of the Company to
continue its acquisition strategy, successfully manage its
growth, and obtain funds to finance its growth, operating risks,
contract bidding risks, the use of estimates for revenue
recognition, risks of international operations, risks of vessel
construction such as cost overruns, changes in government
regulations, and disputes with construction contractors,
dependence on key personnel and the availability of skilled
workers during periods of strong demand, the impact of regulatory
and environmental laws, the ability to obtain insurance, and
other factors discussed below. Operating risks include hazards
such as vessel capsizing, sinking, grounding, colliding, and
sustaining damage in severe whether conditions. These hazards
can also cause personal injury, loss of life, severe damage to
and destruction of property and equipment, pollution and
environmental damage, and suspension of operations. The risks
inherent with international operations include political, social,
and economic instability, exchange rate fluctuations, currency
restrictions, nullification, modification, or renegotiations of
contracts, potential vessel seizure, nationalization of assets,
import-export quotas, and other forms of public and governmental
regulation. Should one or more of these risks or uncertainties
materialize or should the underlying assumptions prove incorrect,
actual results and outcomes may differ materially from those
indicated in the forward-looking statements.
The following discussion should be read in conjunction with the
Company's unaudited consolidated financial statements for the
periods ended March 31, 1999 and 1998, included elsewhere in this
report and the Company's audited consolidated financial
statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's
Transition Report on Form 10-K for the nine months ended December
31, 1998.
As a result of the prolonged worldwide oil price weakness that
began in mid-1997, the Company continued to experience an overall
decline in the demand for its services and increased competition
for available projects in the quarter ended March 31, 1999,
particularly when compared to the quarter ended March 31, 1998,
as oil and gas companies reduced their capital expenditures. The
increased competition, which resulted from the lower oil price
conditions, the greater contribution from Asia Pacific, which
historically has had lower margins, and increased interest
expense as a result of the Company's higher debt levels have
resulted in overall lower net income for the quarter. Although
there has been recent improvement in oil and gas pricing, the
Company does not expect significant improvement in its industry
until after the current year. See "Industry Outlook" below.
Results of Operations
The following table sets forth, for the periods indicated, the
Company's statements of operations expressed as a percentage of
revenues.
Quarter Ended March 31,
1999 1998
---------- -----------
Revenues 100.0% 100.0%
Cost of revenues (87.7) (72.9)
---------- -----------
Gross profit 12.3 27.1
Equity in net earnings (loss) of
unconsolidated affiliate (2.5) (0.9)
Selling, general and administrative
expenses (7.2) (6.4)
---------- -----------
Operating income 2.6 19.8
Interest expense (3.8) (0.9)
Other income (expense), net 1.6 0.5
---------- -----------
Income before income taxes 0.4 19.4
Provision for income taxes (0.2) (6.9)
---------- -----------
Net income 0.2 12.5
========== ===========
Quarter Ended March 31, 1999 Compared to Quarter Ended March 31,
1998
Revenues. Revenues for the quarter ended March 31, 1999 of
$79.3 million were 9% lower than revenues for the quarter ended
March 31, 1998 of $87.5 million. The decrease in revenues
resulted largely from decreased activity in certain areas
including Gulf of Mexico and Latin America, and was partially
offset by increased West Africa and Asia Pacific activity and
revenues. The decrease is also attributable to lower pricing for
the Company's services resulting from declining demand and
increased competition for available projects.
Gross Profit. For the quarter ended March 31, 1999, the Company
had gross profit of $9.8 million compared with $23.7 million for
the quarter ended March 31, 1998. The 59% decrease was largely
the result of decreased activity in certain areas including Gulf
of Mexico and Latin America, and was partially offset by
increased West Africa and Asia Pacific activity. Lower pricing
for the Company's services further contributed to the decrease.
As a percentage of revenues, gross profit for the quarter ended
March 31, 1999 was 12% compared to the gross profit percentage
earned for the quarter ended March 31, 1998 of 27%. Gross profit
as a percent of revenues was lower in all areas as a result of
pricing pressures and an increase in the percentage of lower
margin international work.
Selling, General, and Administrative Expenses. For the quarter
ended March 31, 1999, selling, general, and administrative
expenses of $5.7 million were slightly higher than the $5.6
million reported during the quarter ended March 31, 1998. As a
percentage of revenues, they increased to 7.2% during the quarter
ended March 31, 1999, compared to 6.4% during the quarter ended
March 31, 1998 principally as a result of the decline in
revenues.
Depreciation and Amortization. Depreciation and amortization,
including amortization of drydocking costs, for the quarter ended
March 31, 1999 was $12.7 million compared to the $7.6 million
recorded in the quarter ended March 31, 1998. The 66% increase
was principally attributable to the employment of barges during
the quarter ended March 31, 1999 that were not employed during
the quarter ended March 31, 1998, including the upgraded Hercules
in the Gulf of Mexico and the Seminole and DLB 264 in Asia
Pacific. Each of those barges are depreciated on a units-of-
production basis. Higher amounts of drydock amortization also
contributed to the increase. Lower employment of other vessels
that are also depreciated on a units-of-production basis
partially offset the increase.
Effective April 1, 1998, the Company changed its estimate of the
useful lives of certain marine barges that are depreciated on the
units-of-production method. The Company increased total
estimated operating days for such barges to better reflect the
estimated periods during which the assets will remain in service.
For the quarter ended March 31, 1999, the change had the effect
of reducing depreciation expense by $1.0 million and increasing
net income by $0.6 million ($0.01 for both basic and diluted
share).
Interest Expense. Interest expense was $3.0 million net of
capitalized interest for the quarter ended March 31, 1999,
compared to $0.8 million for the quarter ended March 31, 1998
principally due to higher average long-term debt outstanding.
Net Income. Net income for the quarter ended March 31, 1999
declined 98% to $0.2 million as compared to $11.0 million
recorded for the quarter ended March 31, 1998. Included in net
income for the quarter ended March 31, 1999 is a $2.0 million
loss associated with the Company's 49% ownership interest in CCC.
The loss associated with the CCC ownership for the quarter ended
March 31, 1998 was $0.8 million. The increase in CCC's loss
was attributable to unabsorbed operating expenses and adjustments to
prior period provisions. The Company's effective tax rate for the
quarter ended March 31, 1999 was 37%, compared to 35% for the
quarter ended March 31, 1998.
Segment Information. The Company has identified six reportable
segments as required by SFAS 131. The following discusses the
results of operations for each of those reportable segments.
Gulf of Mexico Offshore Construction - Overall decreased demand
for offshore construction services in the Gulf of Mexico and
resulting pricing decreases caused this segment's gross revenues
to decline 45% to $22.3 million (including $0.4 million
intersegment revenues) for the quarter ended March 31, 1999
compared to $40.8 million (including $0.1 million intersegment
revenues) for the quarter ended March 31, 1998. Despite the
lower revenues, income before income taxes improved slightly to
$0.3 million during the quarter ended March 31, 1999 compared to
less than $0.1 million for the quarter ended March 31, 1998. The
Hercules, which worked during the quarter ended March 31, 1999
and was out of service during the quarter ended March 31, 1998,
helped partially offset the decline in revenues and contributed
to profits.
Gulf of Mexico Diving - Revenues and income before income taxes
from diving-related services in the Gulf of Mexico declined due
to decreased demand from outside customers and the Company's Gulf
of Mexico Offshore Construction Segment. Gross revenues for the
quarter ended March 31, 1999 declined 76% to $3.9 million
(including $3.0 million intersegment revenues) compared to $16.0
million (including $10.6 million intersegment revenues) for the
same period ended March 31, 1998. The overall lower activity
levels and resulting lower prices caused income before income
taxes to decline from $5.6 million for the quarter ended March
31, 1998, to a loss of $1.6 million during the quarter ended
March 31, 1999.
Gulf of Mexico Marine Support - Decreased demand and resulting
pricing decreases also affected the Gulf of Mexico Marine Support
services. Gross revenues from Gulf of Mexico Marine Support
services declined 59% to $5.1 million (including $1.2 million
intersegment revenues) for the quarter ended March 31, 1999,
compared to $12.5 million (including $2.6 million intersegment
revenues) for the same period ended March 31, 1998. Income
before income taxes also declined from $4.2 million for the
quarter ended March 31, 1999 to a loss of $1.1 million during the
quarter ended March 31, 1999.
West Africa Construction - The West Africa Construction market
continued its recovery from a down cycle in 1997. For the
quarter ended March 31, 1999, gross revenues increased 85% to
$29.5 million compared to $15.9 million for the quarter ended
March 31, 1998. Income before income taxes increased to $7.7
million during the quarter ended March 31, 1999 compared to $6.2
million for the quarter ended March 31, 1998.
Asia Pacific Construction - Asia Pacific Construction results
benefited from the acquisition and placement of construction
barges in that region. For the quarter ended March 31, 1999,
gross revenues increased 306% to $20.3 million compared to $5.0
million for the quarter ended March 31, 1998. However, income
before income taxes declined to $0.3 million during the quarter
ended March 31, 1999 compared to $0.6 million for the quarter
ended March 31, 1998. The decline in profits was attributable to
lower pricing for offshore construction services and decreased
demand for other offshore diving and support services.
Latin America Construction - For the quarter ended March 31,
1999, revenue from services and equipment provided to CCC
decreased 57% to $1.2 million compared to $2.7 million for the
quarter ended March 31, 1998. The decrease was attributable to
CCC's decline in offshore construction activity. Income before
income taxes and equity in CCC losses decreased from $0.4 million
during the quarter ended March 31, 1998 to a $0.6 million loss
during the quarter ended March 31, 1999. Equity in CCC losses
were $2.0 million for the quarter ended March 31, 1999 and $0.8
for the quarter ended March 31, 1998. The increase in CCC's loss
was attributable to unabsorbed operating expenses and adjustments
to prior period provisions.
Liquidity and Capital Resources
The Company's operations generated net cash flow of $6.7 million
during the quarter ended March 31, 1999. During the quarter, the
Company used available cash to reduce its debt by $4.3 million
and fund investing activities of $16.8 million. Investing
activities consisted principally of (i) capital expenditures,
(ii) dry-docking costs, (iii) the release from escrow of Lake
Charles Harbor and Terminal District Port Improvement Revenue
Bonds proceeds, and (iv) advances to CCC. Working capital
decreased $0.9 million during the quarter ended March 31, 1999
from $78.6 million at December 31, 1998 to $77.7 million at March
31, 1999.
Capital expenditures during the quarter ended March 31, 1999
aggregated $9.2 million, including $1.9 million for continued
conversion and upgrade of the Hercules, $2.7 million for
continued construction of the Carlyss, Louisiana, deepwater
support facility and pipebase, and $3.7 million for the
construction of a shorebase facility in Batam, Indonesia.
The Company estimates that the cost to complete capital
expenditure projects in progress at March 31, 1999, will be
approximately $12 million all of which is expected to be incurred
during the next twelve months. The scheduled completion of the
addition of reel pipelay capability to the Hercules is during the
first quarter of the year ending December 31, 2000. The
estimated remaining costs to complete the Hercules upgrades are
approximately $3 million.
The Company is constructing a deepwater support facility and
pipebase near Carlyss, Louisiana. The Company plans to replace
its existing facilities in Houma and Amelia, Louisiana with the
Carlyss Facility. Estimated completion is in the third quarter
of the year ending December 31, 1999 at a total cost of
approximately $37 million, including approximately $32.1 million
incurred through March 31, 1999. Tax exempt revenue bonds issued
by the Lake Charles Harbor and Terminal District financed
approximately $28 million of the construction. The bonds bear
interest at a variable rate, which was 3.1% at March 31, 1999,
and mature on November 1, 2027.
In the normal course of business, the Company is in the initial
phase of replacing its accounting and procurement systems and has
established a target date in the fourth quarter 1999 for its
installations at all locations. While the Company's growth is
driving the Company's efforts to replace its accounting and
procurement systems, the Company does expect the implementation
of the new accounting and procurement system to mitigate any
potential Year 2000 issues related to the existing accounting and
procurement systems. The Company expects the corporate-wide
accounting and procurement system replacement to cost
approximately $3 million.
In August 1998, the Board of Directors authorized the expenditure
of up to $30.0 million to purchase shares of the Company's
outstanding common stock. The Board of Directors placed no limit
on the duration of the program. No shares were purchased during
the quarter ended March 31, 1999.
Long-term debt outstanding at March 31, 1999, (including current
maturities), includes $38.6 million of Title XI bonds, the $28.0
million of Lake Charles Harbor and Terminal District bonds, and
$139.1 million drawn against the Company's revolving line of
credit.
The Company's Title XI bonds mature in 2003, 2005, 2020, and
2022. The bonds carry interest rates of 9.15%, 8.75%, 8.30% and
7.25% per annum, respectively, and require aggregate semi-annual
payments of $0.9 million, plus interest. The agreements pursuant
to which the Title XI bonds were issued contain certain
covenants, including the maintenance of minimum working capital
and net worth requirements. If not met, additional covenants
result that restrict the operations of the Company and its
ability to pay cash dividends. At March 31, 1999 the Company was
in compliance with these covenants.
The Company maintains a $250.0 million revolving line of credit
under a loan agreement ("Restated Credit Agreement") with a
syndicate of commercial banks. The revolving credit facility
reduces to $150.0 million on July 1, 2000, and to $100.0 million
on July 1, 2001. Borrowings under the facility bear interest at
fluctuating rates, are payable on June 30, 2002, and have
subsidiary guarantees and stock pledges as collateral. The
amount of available credit decreases by borrowings outstanding
($139.1 million at March 31, 1999), and outstanding letters of
credit issued under the Restated Credit Agreement ($39.3 million
at March 31, 1999). Effective March 30, 1999, an amendment to
the Restated Credit Agreement, among other things, removed a
provision that reduced the amount available by borrowings
outstanding under a separate credit agreement between the banks
and CCC. For continuing access to the revolving line of credit,
the Company must remain in compliance with the covenants of the
Restated Credit Agreement, including covenants relating to the
maintenance of certain financial ratios. At March 31, 1999 the
Company was in compliance with these covenants. Additionally,
the Restated Credit Agreement contains cross-default provisions
that specify that default by CCC under a separate loan agreement
constitutes default under the Company's Restated Credit
Agreement.
The Company also has short-term credit facilities at its foreign
locations that aggregate $2.8 million and are secured by parent
company guarantees. Additionally, in the normal course of
business, the Company provides guarantees and performance, bid,
and payment bonds pursuant to agreements, or in connection with
bidding to obtain such agreements, to perform construction
services. Some of these guarantees are secured by parent
guarantees. The aggregate of these guarantees and bonds at March
31, 1999 was $5.1 million.
The Company has guaranteed certain indebtedness and commitments
of CCC approximating $20 million at March 31, 1999. The Company
has given a contingent guarantee to a financial institution
whereby the guarantee becomes effective if certain vessel
contracts of CCC are canceled or not renewed. The principal
amount subject to the contingent guaranty at March 31, 1999
approximated $13 million. The Company has also given performance
and currency guarantees to banks for CCC debt totaling $14
million at March 31, 1999, related to project financings. Under
the terms of the performance and currency guarantees, the banks
may enforce the guarantees (i) if the customer does not pay CCC
because neither CCC nor the guarantors performed the contracts
that define the projects or (ii) if, after converting contract
payments from Mexican Pesos to United States Dollars, funds from
the project are insufficient to pay the sums due.
In March 1999, Global and its partner restructured their joint
venture in Mexico, CCC. Under the restructuring, its partner,
through the assumption of CCC debt, contributed additional
capital of approximately $16.5 million to CCC. Global, through
the forgiveness of advances and receivables due from CCC,
contributed additional capital of approximately $15.8 million to
CCC. Among other provisions of the restructuring, CCC will also
dispose of its industrial construction division. CCC's primary
business is offshore marine construction and marine fabrication.
Global has a 49% ownership interest in CCC and charters vessels
and other equipment to CCC.
The Company expects funds available under the Restated Credit
Agreement, proceeds from the tax exempt revenue bonds issued by
the Lake Charles Harbor and Terminal District, available cash,
and cash generated from operations to be sufficient to fund the
Company's operations, scheduled debt retirement, and planned
capital expenditures for the next twelve months.
In the normal course of business, the Company is currently
evaluating its debt structure and considering alternatives to
refinance a portion of its credit facility debt to extend the
payment terms beyond the current expiration.
Facilities Relocation
The Company is constructing a deepwater support facility and
pipebase near Carlyss, Louisiana, to accommodate deeper draft
vessels such as the Hercules and the Pioneer. To gain
anticipated efficiencies, the Company plans to replace the
existing facilities in Houma and Amelia, Louisiana with the
Carlyss Facility. Certain of the Company's administrative
functions will also relocate from its Lafayette, Louisiana and
Houston, Texas offices. As a result of the relocation, the
Company expects to incur certain employment costs, equipment and
material relocation costs, and costs to close the replaced
facilities.
The total employment costs, equipment and material relocation
costs, and costs to close the replaced facilities expended during
the quarter ended March 31, 1999 were $0.6 million of which $0.3
million had been provided for in the results of operations during
the nine months ended December 31, 1998. The Company expects to
expend $3.5 million for facility relocation costs during the
remainder of the year ending December 31, 1999 of which $0.4
million were also provided for in the results of operations
during the nine months ended December 31, 1998.
Industry Outlook
Recent improvements in oil and gas prices have given the Company
cautious optimism regarding the economics of its industry.
However, most oil and gas companies based their 1999 capital
expenditure budgets on lower oil and gas prices. Thus, the
Company expects that any appreciable benefit from higher oil and
gas prices is unlikely to occur until the third and fourth
quarters of 1999 with the most significant impact occurring in
2000, and then, only if current commodity pricing holds or
improves. The Company expects revenues and margins for 1999 to
be lower than in 1998. The Company also expects the current
competitive environment to continue for the remainder of the
year, which will cause the Company to continue to adjust its
pricing to bid competitively for available projects, and which
could result in the Company's results of operations for the
current year being materially lower than the results for last
year.
Ultimately, the Company feels that eventual economic recovery of
developing nations, which will spur demand growth, and depletion
of petroleum reserves currently in production will result in
sustained favorable prices for petroleum resources. However, the
Company cannot predict when such sustained recovery might occur.
The Company projects that considering the industry expectations,
its capital expenditures in 1999 will be smaller than recent
fiscal periods. However, the Company is committed to completing
the conversion of the Hercules, the construction of the Carlyss,
Louisiana, deepwater support facility and pipebase, and the
construction of a shorebase facility in Batam, Indonesia. Also,
as the Company has historically done, it will continue to
evaluate the merits of any opportunities that may arise for
acquisitions of equipment or businesses.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative and Hedging Activities" ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for
derivative instruments and hedging activities and requires, among
other things, that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and
measure the instruments at fair value. The Company does not
believe that the adoption of this new accounting standard will
have a material effect on its consolidated financial statements.
The Company will adopt this accounting standard, if applicable,
effective January 1, 2000, as required.
Year 2000
The Year 2000 problem results from the use in computer hardware
and software of two digits rather than four digits to define the
applicable year. The use of two digits was a common practice for
decades when computer storage and processing was much more
expensive than today. When computer systems must process dates
both before and after January 1, 2000, two-digit year "fields"
may create processing ambiguities that can cause errors and
system failures. For example, computer programs that have date-
sensitive features may recognize a date represented by "00" as
the year 1900, instead of 2000. These errors or failures may
have limited effects, or the effects may be widespread, depending
on the computer chip, system or software, and its location and
function.
The effects of the Year 2000 problem are exacerbated because of
the interdependence of computer and telecommunications systems in
the United States and throughout the world. This interdependence
certainly is true for Global and Global's suppliers, and
customers, as well as for governments of countries around the
world where Global does business.
The Company makes use of computers in its gathering,
manipulating, calculating, and reporting of accounting,
financial, administrative, and management information. We also
rely on computers to undertake certain operational procedures and
to more efficiently produce documents and financial instruments.
Additionally, the Company uses computers as a communication tool
for its employees to communicate among themselves and with other
persons outside the organization. Finally, certain of the
Company's equipment (including the dynamic positioning systems on
certain of the Company's vessels) makes use of embedded computer
technology.
Readiness - The Company has prepared a Year 2000 Project Plan
(the "Y2K Plan") to identify and assess its risks associated with
Year 2000 issues and to take reasonable steps to prevent Global's
critical functions from being impaired. Global is currently
implementing its Y2K Plan, which will be modified as events
require. Under the plan, the Company continues to (i) assess its
critical information and computing systems and (ii) inventory its
systems using embedded technology, including our fleet of
offshore vessels and related systems; assess the effects of Year
2000 problems on the critical functions of Global's business
units; remedy systems, software and embedded chips in an effort
to avoid material disruptions or other material adverse effects
on critical functions, processes and systems; verify and test the
critical systems to which remediation efforts have been applied;
and attempt to mitigate those critical aspects of the Year 2000
problem that are not remediated by January 1, 2000, including the
development of contingency plans to cope with the mission
critical consequences of Year 2000 problems that have not been
identified or remediated by that date. Implementation of our Y2K
Plan is supervised by a Vice President and the Company has
contracted with firms specializing in the assessment and
remediation of embedded technology for additional assistance. As
a result of the assessments, non-compliant embedded technology
has been found on certain of the Company's vessels. The Company
plans to complete the identification and remediation of mission
critical systems that require modification or replacement by mid-
1999.
The Y2K Plan recognizes that the computer, telecommunications,
and other systems ("Outside Systems") of outside entities
("Outside Entities") have the potential for major, mission
critical, adverse effects on the conduct of Global's business.
Global does not have control of these Outside Entities or Outside
Systems. In some cases, Outside Entities are foreign governments
or businesses located in foreign countries. However, Global's
Y2K Plan includes an ongoing process of identifying and
contacting Outside Entities whose systems, in Global's judgment,
have or may have a substantial effect on our ability to continue
to conduct the mission critical aspects of our business without
disruption from Year 2000 problems. The Company has contacted
its key vendors and customers to assess their progress with their
own Year 2000 issues and to anticipate potential risks associated
with its key vendors and customers. Global will work prudently
with Outside Entities in a reasonable attempt to inventory,
assess, analyze, convert (where necessary), test, and develop
contingency plans for Global's connections to these mission
critical Outside Systems and to ascertain the extent to which
they are, or can be made to be, Year 2000 ready and compatible
with Global's mission critical systems.
Despite efforts to address all material Year 2000 issues in
advance, the Company could potentially experience disruptions to
some aspects of its activities or operations. Thus, the Company
is developing business contingency plans for mitigating the
effect of potential disruptions.
Costs - Total amounts spent to date on Year 2000 awareness,
inventory, assessment, analysis, conversion, testing or
contingency planning efforts were approximately $125,000.
Additional costs to carry out the Y2K Plan, including
implementation of Year 2000 contingency plan, based on
assessments to date, are not expected to be material to the
Company's financial condition. Although management believes that
its estimates are reasonable, there can be no assurance that the
actual costs of implementing the Y2K Plan will not differ
materially from the estimated costs or that Global will not be
materially adversely affected by Year 2000 issues. Moreover, the
estimated costs of implementing the Y2K Plan do not take into
account the costs, if any, that might be incurred as a result of
Year 2000-related failures that occur despite Global's
implementation of the Y2K Plan.
Worst Case Scenario - The Securities and Exchange Commission
requires that public companies forecast the most reasonably
likely worst case Year 2000 scenario. In doing so, Global is
assuming that the Company's Y2K Plan will not be effective.
Analysis of the most reasonably likely worst case Year 2000
scenarios Global may face leads to contemplation of the following
possibilities which, though unlikely in some or many cases, must
be included in any consideration of worst cases: widespread
failure of electrical, gas, and similar supplies by utilities
serving Global domestically and internationally; widespread
disruption of the services of communications common carriers
domestically and internationally; similar disruption to means and
modes of transportation for Global and its employees,
contractors, suppliers, and customers; significant disruption to
Global's ability to gain access to, and remain working in, office
buildings and other facilities; the failure of substantial
numbers of Global's critical information (computer) hardware and
software systems; and the failure, domestically and
internationally, of Outside Systems, the effects of which would
have a cumulative material adverse impact on Global's critical
systems. Among other things, Global could face substantial
claims by customers or loss of revenues due to inability to
fulfill contractual obligations, inability to account for certain
revenues or obligations or to bill customers accurately and on a
timely basis, and increased expenses associated with litigation,
stabilization of operations following critical failures, and the
execution of contingency plans. Global could also experience an
inability by customers to pay, on a timely basis or at all,
obligations owed to Global. Under these circumstances, the
adverse effect on Global, and the diminution of Global's
revenues, would be material, although not quantifiable at this
time.
Summary - Global has a plan to deal with the Year 2000 challenge
and believes that it will be able to achieve substantial Year
2000 readiness with respect to the mission critical systems that
it controls. However, from a forward-looking perspective, the
extent and magnitude of the Year 2000 problem as it will affect
Global, both before and for some period after January 1, 2000,
are difficult to predict or quantify for a number of reasons.
Among these are: the difficulty of locating "embedded" chips that
may be in a great variety of mission critical systems; the
difficulty of inventorying, assessing, remediating, verifying and
testing Outside Systems; the difficulty in locating all mission
critical software (computer code) internal to Global that is not
Year 2000 compatible; and the unavailability of certain necessary
internal or external resources, including but not limited to
trained hardware and software engineers, technicians, and other
personnel to perform adequate remediation, verification and
testing of mission critical Global systems or Outside Systems.
Accordingly, there can be no assurance that all of Global's
Systems and all Outside Systems will be adequately remediated so
that they are Year 2000 ready by January 1, 2000, or by some
earlier date, so as not to create a material disruption to
Global's business. If despite Global's efforts, there are
mission critical Year 2000-related failures that create
substantial disruptions to our business, the adverse impact on
Global's business could be material. Additionally, Year 2000
costs are difficult to estimate accurately because of
unanticipated vendor delays, technical difficulties, the impact
of tests of Outside Systems and similar events.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
During the quarter ended March 31, 1999, the Company did not
enter into any transactions involving financial derivative
instruments. Quantitative and qualitative disclosures about
market risk are in Item 7A of the Company's 10K for the
transition period ended December 31, 1998.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various routine legal proceedings
primarily involving claims for personal injury under the General
Maritime Laws of the United States and Jones Act as a result of
alleged negligence. The Company believes that the outcome of all
such proceedings, even if determined adversely, would not have a
material adverse effect on its consolidated financial statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
15.1 - Letter regarding unaudited interim financial
information.
27.1 - Financial Data Schedule.
(b) Reports on Form 8-K - None
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 INDUSTRIES, LTD.
By: /s/ PETER S. ATKINSON
___________________________________
Peter S. Atkinson
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
May 14, 1999
EXHIBIT 15.1
May 12, 1999
Global Industries, Ltd.
107 Global Circle
Lafayette, Louisiana 70503
We have made a review, in accordance with standards established
by the American Institute of Certified Public Accountants, of the
unaudited interim financial information of Global Industries,
Ltd. and subsidiaries for the periods ended March 31, 1999 and
1998, as indicated in our report dated May 5, 1999; because we
did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included
in your Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, is incorporated by reference in Registration Statement
Nos. 33-58048, 33-89778, and 333-69949 on Form S-8.
We also are aware that the aforementioned report, pursuant to
Rule 436(c) under the Securities Act of 1933, is not considered a
part of the Registration Statement prepared or certified by an
accountant or a report prepared or certified by an accountant
within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GLOBAL
INDUSTRIES, LTD.'S FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10Q.
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