-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EfXLrnRJt/bTE+yPSpl1t+pnK/OcRalegrEokViK7+rnEBuQAB960aiJPApyNp4Y n0HI12JwYu+8mvnUwdJfkg== 0000041850-97-000010.txt : 19971114 0000041850-97-000010.hdr.sgml : 19971114 ACCESSION NUMBER: 0000041850-97-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBAL MARINE INC CENTRAL INDEX KEY: 0000041850 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 951849298 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05471 FILM NUMBER: 97712336 BUSINESS ADDRESS: STREET 1: 777 N ELDRIDGE RD CITY: HOUSTON STATE: TX ZIP: 77079 BUSINESS PHONE: 7135965100 FORMER COMPANY: FORMER CONFORMED NAME: GLOBAL MARINE EXPLORATION CO DATE OF NAME CHANGE: 19670629 10-Q 1 3RD QUARTER 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-5471 GLOBAL MARINE INC. (Exact name of registrant as specified in its charter) Delaware 95-1849298 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 777 N. Eldridge Parkway, Houston, Texas 77079-4493 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (281) 596-5100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of the registrant's Common Stock, par value $.10 per share, outstanding as of October 31, 1997 was 172,169,969. GLOBAL MARINE INC. TABLE OF CONTENTS TO FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1997 Page PART I - FINANCIAL INFORMATION Item 1. Financial Statements Report of Independent Accountants 2 Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 1997 and 1996 3 Condensed Consolidated Balance Sheet as of September 30, 1997 and December 31, 1996 4 Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 1997 and 1996 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURE 18 _____________________ The statements regarding future performance and results and the other statements that are not historical facts contained in this report are forward-looking statements. The words "anticipate," "expect," "project," "estimate," "predict," "plan" and similar expressions are also intended to identify forward-looking statements. Such statements involve risks and uncertainties including, but not limited to, changes in the markets for oil and gas and for offshore drilling rigs and the risks of doing business in changing markets, changes in the dates the Company's rigs undergoing conversion to drilling operations will enter service, changes in applicable tax laws, regulations and interpretations and the risk that tax rates to which the Company is subject could change from those anticipated, the risks involved in dealing with other parties, including the risk that other parties' commitments to the Company could be breached, and changing costs and other factors discussed herein and in the Company's other Securities and Exchange Commission filings. Should one or more risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. PART I - FINANCIAL INFORMATION Item 1. Financial Statements REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Global Marine Inc. We have made a review of the condensed consolidated balance sheet of Global Marine Inc. and subsidiaries as of September 30, 1997, and the related condensed consolidated statement of operations for the three- and nine-month periods ended September 30, 1997 and 1996, and the condensed consolidated statement of cash flows for the nine-month periods ended September 30, 1997 and 1996. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 7, 1997, 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, 1996, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Coopers & Lybrand L.L.P. Houston, Texas November 7, 1997 GLOBAL MARINE INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (in millions, except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1997 1996 1997 1996 ------ ------ ------ ------ Revenues: Contract drilling $167.3 $ 98.2 $405.1 $262.4 Drilling management 135.4 75.8 337.0 187.3 Oil and gas 1.7 3.9 5.7 11.1 ------ ------ ------ ------ Total revenues 304.4 177.9 747.8 460.8 Expenses: Contract drilling 73.1 52.9 182.9 149.4 Drilling management 120.6 70.5 297.2 173.1 Oil and gas .9 .7 2.4 2.1 Depreciation, depletion and amortization 16.2 10.6 37.6 30.8 General and administrative 5.9 4.3 15.7 13.1 ------ ------ ------ ------ Total operating expenses 216.7 139.0 535.8 368.5 ------ ------ ------ ------ Operating income 87.7 38.9 212.0 92.3 Other income (expense): Interest expense (10.9) (7.9) (27.0) (23.0) Interest capitalized 5.7 .7 13.9 .7 Interest income 1.6 1.9 5.0 4.3 Other - (.1) - 1.0 ------ ------ ------ ------ Total other income (expense) (3.6) (5.4) (8.1) (17.0) ------ ------ ------ ------ Income before income taxes 84.1 33.5 203.9 75.3 Provision (benefit) for income taxes: Current tax provision 5.7 2.6 17.6 5.4 Deferred tax benefit (15.0) - (70.0) - ------ ------ ------ ------ Total provision (benefit) for income taxes (9.3) 2.6 (52.4) 5.4 ------ ------ ------ ------ Net income $ 93.4 $ 30.9 $256.3 $ 69.9 ====== ====== ====== ====== Net income per common share: Primary $ 0.54 $ 0.18 $ 1.50 $ 0.42 ====== ====== ====== ====== Fully diluted $ 0.53 $ 0.18 $ 1.45 $ 0.40 ====== ====== ====== ====== See notes to condensed consolidated financial statements.
GLOBAL MARINE INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (dollars in millions)
September 30, December 31, 1997 1996 ------------- ------------ Current assets: Cash and cash equivalents $ 190.6 $ 92.9 Marketable securities .2 27.5 -------- ------ Total cash, cash equivalents and marketable securities 190.8 120.4 Accounts receivable, net of allowances 148.7 104.4 Costs incurred on turnkey drilling contracts in progress 11.7 10.8 Other current assets 13.4 10.9 -------- ------ Total current assets 364.6 246.5 Properties and equipment: Rigs and drilling equipment, less accumulated depreciation of $258.4 and $224.4 at September 30, 1997 and December 31, 1996, respectively 618.2 374.1 Construction in progress 281.7 97.8 Oil and gas properties, full cost method, less accumulated depreciation, depletion and amortization of $30.8 and $31.1 at September 30, 1997 and December 31, 1996, respectively 6.0 5.5 -------- ------ Net properties and equipment 905.9 477.4 Future income tax benefits, net 140.0 70.0 Other assets 18.7 13.9 -------- ------ Total assets $1,429.2 $807.8 ======== ====== See notes to condensed consolidated financial statements.
GLOBAL MARINE INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Continued) (dollars in millions)
September 30, December 31, 1997 1996 ------------- ------------ Current liabilities: Accounts payable $ 92.0 $ 53.5 Accrued compensation and related employee costs 22.6 19.0 Accrued interest 9.2 1.2 Accrued claims and allowances 3.4 2.1 Accrued income taxes 8.3 4.4 Other accrued liabilities 9.9 7.4 ------- ------ Total current liabilities 145.4 87.6 12-3/4% Senior Secured Notes due 1999 223.9 225.0 7-1/8% Notes due 2007 299.3 - Capital lease obligation 17.6 16.6 Other long-term liabilities 14.8 19.5 Shareholders' equity: Preferred stock, $0.01 par value, 10 million shares authorized, no shares issued or outstanding - - Common stock, $0.10 par value, 300 million shares authorized, 172,111,358 shares and 169,440,569 shares issued and outstanding at September 30, 1997 and December 31, 1996, respectively 17.2 16.9 Additional paid-in capital 287.0 274.5 Retained earnings 424.0 167.7 -------- ------ Total shareholders' equity 728.2 459.1 -------- ------ Total liabilities and shareholders' equity $1,429.2 $807.8 ======== ====== See notes to condensed consolidated financial statements.
GLOBAL MARINE INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in millions)
Nine Months Ended September 30, ------------------ 1997 1996 ------ ------ Cash flows from operating activities: Net income $ 256.3 $ 69.9 Adjustments to reconcile net income to net cash provided by operating activities: Deferred tax benefit (70.0) - Depreciation, depletion and amortization 37.6 30.8 Gain on sale of oil and gas properties - (1.1) Increase in accounts receivable (45.3) (38.8) Increase in costs incurred on turnkey drilling contracts in progress (.9) (8.1) Increase in other current assets (2.5) (7.8) Increase in accounts payable 38.5 24.9 Increase in accrued interest 8.0 7.2 Increase in other accrued liabilities 12.6 10.4 Other, net (3.4) (2.0) -------- ------ Net cash flow provided by operating activities 230.9 85.4 Cash flows from investing activities: Capital expenditures (467.5) (36.9) Purchases of held-to-maturity securities (19.3) (62.8) Proceeds from maturities of held-to-maturity securities 46.6 80.6 Proceeds from sales of properties and equipment 1.4 3.2 ------- ------ Net cash flow used in investing activities (438.8) (15.9) Cash flows from financing activities: Proceeds from issuance of long-term debt 499.3 - Reductions of long-term debt (201.1) - Proceeds from exercise of employee stock options 9.6 6.7 Debt issue costs (2.0) - Payment on capital lease obligation (.2) - ------- ------ Net cash flow provided by financing activities 305.6 6.7 ------- ------ Increase in cash and cash equivalents 97.7 76.2 Cash and cash equivalents at beginning of period 92.9 33.2 ------- ------ Cash and cash equivalents at end of period $ 190.6 $109.4 ======= ====== See notes to condensed consolidated financial statements.
Note 1 - General The financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods. Such adjustments are considered to be of a normal recurring nature unless otherwise identified. The year-end condensed consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. Certain reclassifications were made to the prior-year periods to conform to the current-period presentation. The term "Company" refers to Global Marine Inc. and, unless the context otherwise requires, to the Company's consolidated subsidiaries. Note 2 - Offer to Purchase Senior Secured Notes The terms of the indenture governing the Company's 12-3/4% Senior Secured Notes due 1999 (the "Senior Secured Notes") require the Company to offer to purchase Senior Secured Notes in amounts based on cash flow for the previous calendar year. On February 3, 1997, the Company offered to purchase up to $55.3 million aggregate principal amount of Senior Secured Notes. Under the terms of the offer, which expired on March 4, 1997, holders had the right to require the Company to repurchase Senior Secured Notes for a cash purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest. Upon expiration of the offer in March, the Company purchased all of the Senior Secured Notes tendered in response to the offer, resulting in a total payment by the Company of $1.1 million. Cash and marketable securities totaling $54.2 million, which previously were restricted from use for general corporate purposes, became unrestricted upon termination of the offer. The Company has elected to redeem the entire $223.9 million principal amount of its outstanding Senior Secured Notes on December 15, 1997, at a price of 102 percent of principal plus accrued and unpaid interest. The total required cash payment will approximate $243 million, which will be funded with approximately $125 million to be drawn under the revolving credit facility (see Note 3) and cash on hand. The Company will record an extraordinary pretax loss of approximately $6.9 million in the fourth quarter of 1997 when the notes are redeemed. Note 3 - Purchase of Maersk Jutlander and Maersk Vinlander On July 15, 1997, the Company amended and restated its revolving credit facility with a group of major banks increasing its credit limit to $250 million from $100 million. On July 22, 1997, the Company purchased two deep-water offshore drilling rigs, the Maersk Jutlander and Maersk Vinlander, for a combined purchase price of $250 million. The Company borrowed $200 million under its revolving credit facility at an annual interest rate of 6.4375% and used $50 million of cash on hand to pay the rigs' purchase price. Note 4 - Issuance of 7-1/8% Notes On September 15, 1997, the Company issued $300 million of 7-1/8% Notes due 2007 (the "7-1/8% Notes") and received cash proceeds of $299.3 million. The Company used $200 million of the proceeds to pay all amounts outstanding under the revolving credit facility and will use the remainder of the proceeds, together with amounts drawn under the credit facility, to redeem the Senior Secured Notes on December 15, 1997. Interest on the 7-1/8% Notes will be payable on March 1 and September 1 of each year. The Company may redeem the 7-1/8% Notes in whole at any time, or in part from time to time, at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of redemption, plus a premium, if any, relating to the then prevailing Treasury Yield and the remaining life of the notes. The indenture relating to the 7-1/8% Notes contains limitations on the Company's ability to incur indebtedness for borrowed money secured by certain liens and to engage in certain sale/leaseback transactions. Note 5 - Income Taxes The Company's effective tax rate for financial reporting purposes for the three and nine months ended September 30, 1996 approximated 8 percent, which was significantly lower than the U.S. statutory rate of 35 percent, due to the Company's use of net operating loss ("NOL") carryforwards to reduce its federal income tax liability. The Company's effective tax rate for financial reporting purposes for the three and nine months ended September 30, 1997 was a net credit of approximately 11 percent and 27 percent, respectively, due to the Company's recognition during the periods of the future tax benefits of a significant portion of its unused NOL carryforwards as discussed below. As previously reported, under SFAS No. 109, "Accounting for Income Taxes," the Company is required to recognize the future tax benefits of unused net operating loss carryforwards if it is "more likely than not" that they will be utilized on future tax returns. In each of the first three quarters of 1997, the Company increased the recognized amount of future tax benefits of the Company's unused NOL carryforwards. The adjustments were required because income for the first three quarters of 1997 was higher than previously estimated, and, with the passage of time, the Company was able to project future earnings more accurately. The amounts of additional tax benefits recognized in the first three quarters of 1997 were partially offset by the tax effect of NOL carryforwards that will be used to reduce the Company's 1997 U.S. federal income tax liability. The net effect of the 1997 adjustments was a credit to the deferred income tax provision in the amount of $30.0 million in the first quarter, $25.0 million in the second quarter, and $15.0 million in the third quarter. Note 6 - Net Income per Share Primary and fully diluted net income per common share were computed by dividing net income by the weighted average number of common shares outstanding and, if their effect was material, common share equivalents, which primarily consisted of outstanding employee stock options. Common share equivalents were excluded from the computation of primary earnings per share for all periods presented because their effect was not material. Primary net income per common share for the three and nine months ended September 30, 1997, was based on 171,679,175 and 170,822,548 weighted average shares, respectively. Fully diluted net income per common and common equivalent share was based on 177,375,673 and 176,848,962 shares for the three and nine months ended September 30, 1997, respectively. Primary net income per common share for the three and nine months ended September 30, 1996, was based on 168,188,517 and 167,501,994 shares, respectively. Fully diluted net income per common and common equivalent share was based on 175,524,946 and 174,770,904 shares for the three and nine months ended September 30, 1996, respectively. In February 1997 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which sets forth new standards for computing and presenting earnings per share. The Company will adopt the new standards in the fourth quarter of 1997, the earliest date permitted, and will be required to restate prior periods presented for comparative purposes. The adoption of SFAS No. 128 is not expected to have a material effect on the Company's earnings per share. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations OPERATING RESULTS Summary Operating income was $87.7 million for the third quarter of 1997 as compared to $38.9 million for the prior-year third quarter. For the nine months ended September 30, 1997, operating income was $212.0 million as compared to $92.3 million for the nine months ended September 30, 1996. Operating results improved primarily due to higher contract drilling dayrates, an increase in the number of turnkey wells completed, and higher turnkey profit margins. Data relating to the Company's operations by business segment follows:
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- Percentage Percentage 1997 1996 Change 1997 1996 Change ------ ------ ---------- ------ ------ ---------- (dollars in millions) Revenues: Contract drilling $168.9 $ 99.4 70% $410.4 $265.4 55% Drilling management 135.9 76.1 79% 338.0 188.2 80% Oil and gas 1.7 3.9 (56%) 5.7 11.1 (49%) Less: Intersegment revenues (2.1) (1.5) 40% (6.3) (3.9) 62% ------ ------ ------ ------ Total revenues $304.4 $177.9 71% $747.8 $460.8 62% ====== ====== ====== ====== Operating income: Contract drilling $ 79.1 $ 36.1 119% $187.3 $ 86.1 118% Drilling management 14.6 5.3 175% 39.5 14.2 178% Oil and gas 0.2 2.1 (90%) 1.8 5.9 (69%) Corporate expenses (6.2) (4.6) 35% (16.6) (13.9) 19% ------ ------ ------ ------ Total operating income $ 87.7 $ 38.9 125% $212.0 $ 92.3 130% ====== ====== ====== ======
Net income before deferred tax adjustments was $78.4 million for the quarter ended September 30, 1997 as compared with net income of $30.9 million for the quarter ended September 30, 1996. For the first nine months of 1997, net income before the deferred tax adjustments was $186.3 million as compared with net income of $69.9 million for the first nine months of 1996. The Company recorded noncash net credit adjustments to deferred income taxes during the three and nine months ended September 30, 1997 in the amounts of $15.0 million and $70.0 million, respectively. As previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, SFAS No. 109 requires that the Company periodically reevaluate the amount of the future tax benefits of net operating loss carryforwards required to be recognized in its financial statements and make corresponding adjustments. Since year-end 1996, strong demand for contract drilling services has caused industry dayrates for offshore rigs to increase in all geographic markets in which the Company operates, and the market for drilling management services has remained firm. In July 1997 the Company completed the purchase of two deep-water, third- generation semisubmersible drilling rigs, the Maersk Vinlander and the Maersk Jutlander, for a combined purchase price of $250 million. The Vinlander, which will be renamed the Glomar North Sea, is currently operating in the U.K. sector of the North Sea under a bareboat charter expiring in the first quarter of 1998, and the Jutlander is operating in the Norwegian sector of the North Sea under a bareboat charter through December 2000. The Company's deep-water fleet will total seven rigs with the addition of these two rigs and the conversion of two other rigs to offshore drilling units from other uses. The two rigs undergoing conversion are the Glomar Celtic Sea and Glomar Explorer, which are scheduled to enter service in the first quarter of 1998. Contract Drilling Operations Data with respect to the Company's contract drilling operations follows:
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- Percentage Percentage 1997 1996 Change 1997 1996 Change ------ ------ ---------- ------ ------ ---------- Contract drilling revenues by area (in millions): (1) Gulf of Mexico $ 63.1 $ 34.3 84% $ 169.5 $ 94.5 79% West Africa 50.5 41.4 22% 141.9 89.3 59% North Sea 24.6 23.7 4% 64.8 68.7 (6%) Other 30.7 - - 34.2 12.9 165% ------- ------- -------- ------- $ 168.9 $ 99.4 70% $ 410.4 $ 265.4 55% ======= ======= ======== ======= Average rig utilization (2) 99% 98% 99% 98% Average dayrate $59,300 $40,400 $53,400 $36,400
- -------------------- (1) Includes revenues earned from affiliates. (2) Excludes the Glomar Beaufort Sea I concrete island drilling system, a special-purpose mobile offshore rig designed for arctic operations. Also excludes the Glomar Explorer and Glomar Celtic Sea, which are being converted to drilling rigs from other uses. Of the $69.5 million increase in contract drilling revenues for the three months ended September 30, 1997 as compared with the comparable quarter of 1996, $54.0 million was attributable to increases in dayrates, $8.9 million was attributable to an increase in non-dayrate revenue, $4.2 million was attributable to the two deep-water rigs purchased in July 1997, and $2.4 million was attributable to higher rig utilization. Of the $145.0 million increase in contract drilling revenues for the first nine months of 1997 as compared with the first nine months of 1996, $130.0 million was attributable to higher dayrates, $9.5 million was attributable to an increase in non-dayrate revenue, $4.2 million was attributable to the two deep-water rigs purchased in July 1997, and $1.3 million was attributable to higher rig utilization. The mobilization of rigs between the geographic areas shown in the above table also affected each area's revenues over the periods indicated. Specifically, the Company mobilized one jackup from the North Sea to offshore Argentina in September 1997, one jackup from West Africa to California in July 1997, one jackup from the Gulf of Mexico to Trinidad in June 1997, one semisubmersible from the North Sea to the Gulf of Mexico in December 1996, and four rigs to West Africa in 1996, including one jackup from the U.S. Gulf of Mexico, one jackup from Abu Dhabi, one jackup from Trinidad, and one drillship from the Middle East. The operating profit margin for contract drilling for the three and nine months ended September 30, 1997 increased to 47 percent and 46 percent, respectively, from 36 percent and 32 percent for the comparable prior-year periods. The increase in operating profit margin was primarily due to higher 1997 dayrates. Operating expenses increased for the three and nine months ended September 30, 1997 by $26.5 million and $43.8 million, respectively, due to higher depreciation expense, higher labor expense, a higher payout in 1997 with respect to two of three rigs under a net revenue-sharing arrangement with Transocean Drilling AS, higher mobilization expense, and general price-level increases, among other factors. As of October 31, 1997, eleven of the Company's rigs were located in the U.S. Gulf of Mexico, ten were offshore West Africa, four were in the North Sea, one was offshore Argentina, one was offshore Trinidad, and one was offshore California. In addition, the previously inactive Glomar Beaufort Sea I concrete island drilling system is preparing to drill offshore Alaska under a 30-day contract in November 1997. At October 31, 1997, all 29 of the Company's active rigs were under contract. The Glomar Celtic Sea and the Glomar Explorer are scheduled to begin operations in the Gulf of Mexico in the first quarter of 1998 after completion of their conversion to drilling rigs from other uses. The Company anticipates that contracts on 10 of the Company's 29 rigs under contract as of October 31, 1997 will expire at varying times on or prior to January 31, 1998. Over the past several months, the terms of deep-water drilling contracts for semisubmersibles and drillships have lengthened as oil and gas operators have attempted to lock in the availability of rigs to carry out deep-water projects. The drilling market for jackup rigs in shallow waters, however, particularly in the U.S. Gulf of Mexico, continues to be characterized by short-term, well-to-well contracts. Short-term contracts for jackup rigs have been typical in the industry for the past decade, and the Company considers its upcoming contract expirations typical of prevailing market conditions and consistent with the normal course of business. The Company's strategy has been to employ its rigs on short-term contracts in periods of rising dayrates, enabling the Company to contract at higher dayrates as existing contracts expire. Drilling Management Services Drilling management revenues increased by $59.8 million to $135.9 million in the third quarter of 1997 from $76.1 million in the third quarter of 1996. Operating income increased by $9.3 million to $14.6 million in the third quarter of 1997 from $5.3 million in the third quarter of 1996. The increase in revenues consisted of a $25.1 million increase attributable to higher average turnkey revenues per well, an $18.8 million increase attributable to daywork and other revenues, and a $15.9 million increase attributable to an increase in the number of turnkey wells drilled, from 22 in the third quarter of 1996 to 26 in the third quarter of 1997. Operating income from drilling management services as a percentage of drilling management revenues increased to 11 percent for the third quarter of 1997 from 7 percent for the third quarter of 1996. The Company incurred losses totaling $0.6 million on one well in the third quarter of 1997, compared to losses totaling $3.7 million on five wells in the third quarter of 1996. Drilling management revenues increased by $149.8 million to $338.0 million in the first nine months of 1997 from $188.2 million in the first nine months of 1996. Operating income increased by $25.3 million to $39.5 million in the first nine months of 1997 from $14.2 million in the first nine months of 1996. The increase in revenues for the period consisted of a $74.5 million increase attributable to an increase in the number of wells drilled, from 57 in the first nine months of 1996 to 79 in the first nine months of 1997, a $40.6 million increase attributable to daywork and other revenues, and a $34.7 million increase attributable to higher average turnkey revenues per well. Operating income from drilling management services as a percentage of drilling management revenues increased to 12 percent for the first nine months of 1997 from 8 percent for the first nine months of 1996. The increase in profit margin was attributable in part to the higher average turnkey revenues per well and increased drilling efficiencies in 1997. The Company incurred losses totaling $1.5 million on three wells in the first nine months of 1997, compared to losses totaling $5.8 million on nine wells in the first nine months of 1996. Due to risks inherent in turnkey drilling operations, the Company can provide no assurance that it will be able to maintain the higher profit margins in the future. Other Income and Expense General and administrative expenses for the three and nine months ended September 30, 1997 increased by $1.6 million and $2.6 million, respectively, as compared with the comparable prior-year periods. Most of the increase in 1997 was attributable to charges required in connection with 1995 offers to sell Company stock at a nominal price to certain employees in 1998 if the Company meets certain earnings, cash flow and stock price targets over the years 1995 through 1997. Interest expense for the three and nine months ended September 30, 1997 increased by $3.0 million and $4.0 million, respectively, from the comparable prior-year periods primarily due to interest on borrowings under the revolving credit facility and interest on the 7-1/8% Notes. Interest capitalized for the three and nine months ended September 30, 1997 increased by $5.0 million and $13.2 million, respectively, as compared with the comparable prior-year periods, as a result of interest capitalized in connection with the conversions of the Glomar Celtic Sea and Glomar Explorer. Interest income for the three months ended September 30, 1997 decreased by $0.3 million from the comparable prior-year period due to lower cash investments. Interest income for the nine months ended September 30, 1997 increased by $0.7 million from the comparable prior-year period due to larger cash investments and higher interest rates earned thereon. The Company recognized a gain of $1.1 million on the sale of two oil and gas properties in the first quarter of 1996. The Company's effective tax rate for financial reporting purposes for the three and nine months ended September 30, 1996 approximated 8 percent, which was significantly lower than the U.S. statutory rate of 35 percent, due to the Company's use of NOL carryforwards to reduce its federal income tax liability. The Company's effective tax rate for financial reporting purposes for the three and nine months ended September 30, 1997 was a net credit of approximately 11 percent and 27 percent, respectively, due to the Company's recognition during the periods of the future tax benefits of a significant portion of its unused NOL carryforwards as discussed below. The Company presently estimates that, if certain events more fully described below transpire, its effective tax rate for financial reporting purposes would be between 25 and 30 percent for 1998. As previously reported, under SFAS No. 109, "Accounting for Income Taxes," the Company is required to recognize the future tax benefits of unused NOL carryforwards if it is "more likely than not" that they will be utilized on future tax returns. In each of the first three quarters of 1997, the Company increased the recognized amount of future tax benefits of the Company's unused NOL carryforwards. The adjustments were required because income for the first three quarters of 1997 was higher than previously estimated, and, with the passage of time, the Company was able to project future earnings more accurately. The amounts of additional tax benefits recognized in the first three quarters of 1997 were partially offset by the tax effect of the NOL carryforwards that will be used to reduce the Company's 1997 U.S. federal income tax liability. The net effect of the 1997 adjustments was a credit to the deferred income tax provision in the amount of $30.0 million in the first quarter, $25.0 million in the second quarter, and $15.0 million in the third quarter. The occurrence of two events could materially impact the amount of the tax provision reported in the fourth quarter of 1997 and future years. First, should present drilling market conditions continue, the Company expects to recognize in the fourth quarter the remainder of the future tax benefits of its unused NOL carryforwards and other deferred tax assets. Second, as part of the Company's strategy to increase its ability to respond to expanding opportunities in foreign markets, the Company intends to realign the ownership of its foreign operating assets within the Global Marine group. Future earnings of the realigned operations that are permanently reinvested outside the U.S. would be taxed at the applicable foreign rates, which the Company believes will be lower overall than the current U.S. statutory rate of 35 percent. The effect of these two events on fourth quarter earnings for financial reporting purposes would be (i) a material credit to record the remainder of the unrecognized future tax benefits of NOL carryforwards and (ii) a material charge resulting from the use of a significant portion of the NOL carryforwards in 1997 as a result of the realignment of the ownership of foreign operating assets discussed above. Including the effect of the two events, should they both transpire, the Company estimates its total fourth quarter income tax provision will be between $45 and $60 million. This estimated provision consists of approximately $15 million of cash taxes with the remaining noncash portion of the provision to be charged to deferred income tax expense. Should both of these events occur, the Company estimates its effective tax rate for financial reporting purposes would be between 25 and 30 percent for 1998. However, actual cash taxes are anticipated to remain significantly lower than the effective book tax rate as long as the Company is able to use its NOL carryforwards to reduce its current U.S. federal income tax liability. The Company presently estimates it will have at December 31, 1997, approximately $0.4 billion of NOL carryforwards to shelter future income from U.S. taxes. In February 1997 the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share," which sets forth new standards for computing and presenting earnings per share. The Company will adopt the new standards in the fourth quarter of 1997, the earliest date permitted, and will be required to restate prior periods presented for comparative purposes. The adoption of SFAS No. 128 is not expected to have a material effect on the Company's earnings per share. LIQUIDITY AND CAPITAL RESOURCES Capitalized words in the following discussion that are not defined herein are defined in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, or in the indenture governing the Company's 7-1/8% Notes. For the nine months ended September 30, 1997, $230.9 million of cash flow was provided by operating activities, $27.3 million was provided by maturities of marketable securities (net of purchases), $9.6 million was provided from exercises of employee stock options, and $298.2 million was provided from the issuance of long-term debt (net of debt payments). From these amounts, $467.5 million was used for capital expenditures. For the comparable prior-year period, cash flow provided by operating activities totaled $85.4 million, proceeds from maturities of marketable securities (net of purchases) totaled $17.8 million, exercises of employee stock options provided $6.7 million, and sales of properties and equipment provided $3.2 million. From these amounts, $36.9 million was used for capital expenditures. On July 15, 1997, the Company amended and restated its revolving credit facility increasing its credit limit to $250 million from $100 million. On July 22, 1997, the Company purchased the Maersk Vinlander and the Maersk Jutlander, two third-generation semisubmersible drilling rigs, for a combined purchase price of $250 million. The Company borrowed $200 million under its revolving credit facility at an annual interest rate of 6.4375% and used $50 million of cash on hand to pay the rigs' purchase price. Other capital expenditures for the full year 1997 are anticipated to be $351 million, including $151 million for the conversion of the Glomar Celtic Sea, $130 million for the conversion of the Glomar Explorer, $45 million for improvements to the remainder of the drilling fleet, $21 million for capitalized interest, and $4 million for other expenditures. On September 15, 1997, the Company issued $300 million of 7-1/8% Notes due 2007 (the "7-1/8% Notes") and received cash proceeds of $299.3 million. The Company used $200 million of the proceeds to pay all amounts outstanding under the revolving credit facility. Interest on the 7-1/8% Notes will be payable on March 1 and September 1 of each year. The Company may redeem the 7-1/8% Notes in whole at any time, or in part from time to time, at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of redemption, plus a premium, if any, relating to the then prevailing Treasury Yield and the remaining life of the notes. The indenture relating to the 7-1/8% Notes contains limitations on the Company's ability to incur indebtedness for borrowed money secured by certain liens and to engage in certain sale/leaseback transactions. The Company has elected to redeem the entire $223.9 million principal amount of its outstanding Senior Secured Notes on December 15, 1997, at a price of 102 percent of principal plus accrued and unpaid interest. The total required cash payment will approximate $243 million, which will be funded with approximately $125 million to be drawn under the revolving credit facility and cash on hand. The Company will record an extraordinary pretax loss of approximately $6.9 million in the fourth quarter of 1997 when the notes are redeemed. The Company has an option with Harland & Wolff Shipbuilding and Heavy Industries Limited under which the Company may commit by December 1, 1997, to build a dynamically-positioned deep-water drillship. The drillship would cost approximately $300 million, which would be financed through a combination of draws under the Company's revolving credit facility and cash flow from operations. It is expected that the drillship would be placed into service in the fourth quarter of 1999. If the option to build the drillship is not exercised, the Company would pay cancellation fees and certain shipyard costs not to exceed a total of $2.5 million, in return for which the Company would receive the benefit of certain related engineering work. If the option is exercised, the Company would then have an option to build a second drillship. The Company is currently in discussions with major oil companies regarding long-term drilling contracts for one or both drillships but, in view of projected continuing strength in the deep-water drilling market, may commit to build one drillship even if no such contract is obtained by December 1. As of September 30, 1997, the Company had $190.8 million in cash, cash equivalents and marketable securities, including $3.1 million which was restricted from use for general corporate purposes. As of December 31, 1996, the Company had $120.4 million in cash, cash equivalents and marketable securities. Except for the redemption of the Senior Secured Notes in December and the purchase of the drillships in the event that the Company exercises its purchase options, the Company believes that it will be able to meet all of its current obligations, capital expenditure requirements and debt service from its cash flow from operations and its cash, cash equivalents and marketable securities. As part of upgrading and expanding its rig fleet and other assets, the Company considers and pursues the acquisition of suitable additional rigs and other assets on an ongoing basis. If the Company decides to undertake an acquisition, the issuance of additional shares of stock or additional debt could be required. The Company has a registration statement on Form S-3 for the proposed offering from time to time of (i) debt securities, which may be subordinated to other indebtedness of the Company, (ii)shares of preferred stock, $0.01 par value per share, and/or (iii) shares of common stock, $0.10 par value per share, for an aggregate initial public offering price not to exceed $75 million. Any net proceeds from the sale of offered securities would be used for general corporate purposes which may include, but are not limited to, capital expenditures and the financing of acquisitions. The Company has not offered for sale or sold any securities under this registration statement. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4.1 Indenture dated as of September 1, 1997, between Global Marine Inc. and Wilmington Trust Company, as Trustee, relating to Debt Securities of the Registrant. (Incorporated herein by this reference to Exhibit 4.1 of the Registrant's Registration Statement on Form S-4 (No. 333-39033) filed with the Commission on October 30, 1997.) 4.2 Purchase Agreement dated as of September 10, 1997, between Global Marine Inc. and Salomon Brothers Inc, individually and as representative of the Initial Purchasers of the Registrant's 7-1/8% Notes Due 2007. (Incorporated herein by this reference to Exhibit 4.2 of the Registrant's Registration Statement on Form S-4 (No. 333-39033) filed with the Commission on October 30, 1997.) 4.3 Registration Rights Agreement dated September 15, 1997, between Global Marine Inc. and Salomon Brothers Inc, individually and as representative of the Initial Purchasers of the Registrant's 7-1/8% Notes Due 2007. (Incorporated herein by this reference to Exhibit 4.3 of the Registrant's Registration Statement on Form S-4 (No. 333-39033) filed with the Commission on October 30, 1997.) 4.4 Form of 7-1/8% Exchange Note Due 2007. (Incorporated herein by this reference to Exhibit 4.4 of the Registrant's Registration Statement on Form S-4 (No. 333-39033) filed with the Commission on October 30, 1997.) 4.5 Terms of 7-1/8% Notes Due 2007. (Incorporated herein by this reference to Exhibit 4.5 of the Registrant's Registration Statement on Form S-4 (No. 333-39033) filed with the Commission on October 30, 1997.) 10.1 Resolution dated August 5, 1997, regarding Directors' Compensation. 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.) 99.1 Amendment No. 1 to Amended and Restated Credit Agreement among Global Marine Inc., Various Lending Institutions, Bankers Trust Company as Administrative Agent, Societe Generale as Managing Agent, and Christiania Bank OG Kreditkasse ASA New York Branch, Credit Lyonnais New York Branch, and the Bank of Nova Scotia as Co-Agents, Amended and Restated as of July 15, 1997. (b) Reports on Form 8-K During the third quarter of 1997, the Company filed a Current Report on Form 8-K, dated July 7, 1997, which reported under Item 2, "Acquisition or Disposition of Assets," that the Company had entered into an agreement to purchase the Maersk Vinlander and Maersk Jutlander offshore drilling rigs. The Company filed another Current Report on Form 8-K, dated August 1, 1997, which reported under Item 2 that the Company had completed the purchase of both rigs on July 22, 1997. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GLOBAL MARINE INC. (Registrant) Dated: November 10, 1997 /s/ Thomas R. Johnson --------------------- Thomas R. Johnson Vice President and Corporate Controller (Duly Authorized Officer and Principal Accounting Officer of the Registrant) EX-99 2 EXHIBIT INDEX TO 3RD QTR 10Q EXHIBIT 99 INDEX TO EXHIBITS 4.1 Indenture dated as of September 1, 1997, between Global Marine Inc. and Wilmington Trust Company, as Trustee, relating to Debt Securities of the Registrant. (Incorporated herein by this reference to Exhibit 4.1 of the Registrant's Registration Statement on Form S-4 (No. 333-39033) filed with the Commission on October 30, 1997.) 4.2 Purchase Agreement dated as of September 10, 1997, between Global Marine Inc. and Salomon Brothers Inc, individually and as representative of the Initial Purchasers of the Registrant's 7-1/8% Notes Due 2007. (Incorporated herein by this reference to Exhibit 4.2 of the Registrant's Registration Statement on Form S-4 (No. 333-39033) filed with the Commission on October 30, 1997.) 4.3 Registration Rights Agreement dated September 15, 1997, between Global Marine Inc. and Salomon Brothers Inc, individually and as representative of the Initial Purchasers of the Registrant's 7-1/8% Notes Due 2007. (Incorporated herein by this reference to Exhibit 4.3 of the Registrant's Registration Statement on Form S-4 (No. 333-39033) filed with the Commission on October 30, 1997.) 4.4 Form of 7-1/8% Exchange Note Due 2007. (Incorporated herein by this reference to Exhibit 4.4 of the Registrant's Registration Statement on Form S-4 (No. 333-39033) filed with the Commission on October 30, 1997.) 4.5 Terms of 7-1/8% Notes Due 2007. (Incorporated herein by this reference to Exhibit 4.5 of the Registrant's Registration Statement on Form S-4 (No. 333-39033) filed with the Commission on October 30, 1997.) 10.1 Resolution dated August 5, 1997, regarding Directors' Compensation. 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.) 99.1 Amendment No. 1 to Amended and Restated Credit Agreement among Global Marine Inc., Various Lending Institutions, Bankers Trust Company as Administrative Agent, Societe Generale as Managing Agent, and Christiania Bank OG Kreditkasse ASA New York Branch, Credit Lyonnais New York Branch, and the Bank of Nova Scotia as Co-Agents, Amended and Restated as of July 15, 1997. EX-10.1 3 RESOLUTION RE DIRECTORS' COMPENSATION EXHIBIT 10.1 COMPANY: Global Marine Inc. (the "Company") ITEM: Resolutions of the Board of Directors SUBJECT: Director Compensation DATE: August 5, 1997 RESOLVED that the resolutions of this Board of Directors adopted on August 3, 1994, relating to directors fees and expense reimbursement be, and they hereby are, superseded in their entirety, and that the following resolutions be, and they hereby are, effective in their stead; and it was further RESOLVED that the fees payable to directors of the Company who are not officers or employees of the Company be, and they hereby are, $7,000 per quarter (payable with respect to each calendar quarter on the date of the regular meeting of the Board of Directors during such calendar quarter), plus $1,000 for participation in each regular meeting of the Board of Directors, whether in person or by telephone, $1,000 for attendance at each of the Company s annual management conferences, $1,500 for attendance at each special meeting of the Board of Directors, $1,000 for participation by telephone in each special meeting of the Board of Directors, and $500 for participation in each meeting of any Committee of the Board of Directors, whether in person or by telephone; and it was further RESOLVED that each director shall be reimbursed for all expenses incurred by such director in attending each annual management conference and each meeting of the Board of Directors of the Company including regular meetings, special meetings and meetings of any Committee of the Board of Directors, and that payment of such expenses shall be made upon receipt by the Company of an invoice or expense account covering such expenses. EX-15.1 4 ACCOUNTANTS AWARENESS LETTER EXHIBIT 15.1 ACCOUNTANTS' AWARENESS LETTER Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Global Marine Inc. Registration Statements We are aware that our report dated November 7, 1997, on our review of the condensed consolidated interim financial information of Global Marine Inc. and subsidiaries for the three and nine months ended September 30, 1997, and included in this Quarterly Report on Form 10-Q is incorporated by reference in (i) the prospectus constituting part of the Company's Registration Statements on Form S-8 (Registration Nos. 33-32088, 33-40961, and 33-63326), respectively, for the Global Marine Inc. 1989 Stock Option and Incentive Plan, (ii) the prospectus constituting part of the Company's Registration Statement on Form S-8 (Registration No. 33-40266) for the Global Marine Savings Incentive Plan, (iii) the prospectus constituting part of the Company's Registration Statement on Form S-8 (Registration No. 33-40961) for the Global Marine Inc. 1990 Non-Employee Director Stock Option Plan, (iv) the prospectus constituting part of the Company's Registration Statement on Form S-8 (Registration No. 33-57691) for the Global Marine Inc. 1994 Non-Employee Stock Option and Incentive Plan and (v) the prospectus constituting part of the Company's Registration Statement on Form S-3 (Registration No. 33-58577) for the proposed offering of up to $75,000,000 of debt securities, preferred stock and/or common stock. Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of any of said registration statements prepared or certified by us within the meaning of Sections 7 and 11 of that Act. /s/ Coopers & Lybrand L.L.P. Houston, Texas November 10, 1997 EX-27.1 5 FINANCIAL DATA SCHEDULE - 3RD QTR 10Q
5 This schedule contains summary financial information extracted from the condensed consolidated balance sheet of Global Marine Inc. and subsidiaries as of 9-30-97 and the related condensed consolidated statement of operations for the nine months ended 9-30-97, and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1997 SEP-30-1997 190,600 200 150,800 2,100 0 364,600 1,195,100 289,200 1,429,200 145,400 523,200 0 0 17,200 711,000 1,429,200 5,700 747,800 3,900 520,100 0 0 27,000 203,900 (52,400) 256,300 0 0 0 256,300 1.50 1.45
EX-99.1 6 AMDMENT NO. 1 TO AMENDED & RESTATED CREDIT AGRMT EXHIBIT 99.1 AMENDMENT NO. 1 AMENDMENT NO. 1 (the "AMENDMENT"), dated as of September 3, 1997, to that certain Amended and Restated Credit Agreement, entered into as of February 12, 1997 and amended and restated as of July 15, 1997 (the "CREDIT AGREEMENT"; capitalized terms used herein and not defined shall have the meaning set forth in the Credit Agreement), among GLOBAL MARINE INC., a Delaware corporation ("BORROWER"), the lending institutions party thereto (the "BANKS"), BANKERS TRUST COMPANY, as administrative agent (the "ADMINISTRATIVE AGENT"), SOCIETE GENERALE, as managing agent (the "MANAGING AGENT"), and CHRISTIANIA BANK OG KREDITKASSE ASA, NEW YORK BRANCH, CREDIT LYONNAIS NEW YORK BRANCH and THE BANK OF NOVA SCOTIA, as co-agents (collectively, the "CO-AGENTS", and together with the Administrative Agent and the Managing Agent, the "AGENTS"). W I T N E S S E T H : WHEREAS, Borrower and the Banks wish to provide for the amendment of the Credit Agreement as herein provided; and WHEREAS, pursuant to Section 12.12 of the Credit Agreement, Borrower and each of the undersigned Banks hereby agree to amend the Credit Agreement as set forth herein; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION ONE - AMENDMENTS. (i) Section 8.03 of the Credit Agreement is amended, effective as of the date hereof, and subject to the satisfaction of the conditions set forth in Section Three hereof, by (a) deleting the "." at the end of clause (f) thereof and substituting "; and" in lieu thereof and (b) inserting the following clause immediately after clause (f) thereof: "(g) Indebtedness represented by senior unsecured debt securities issued by the Borrower in an aggregate principal amount not exceeding $300.0 million; PROVIDED that (i) the terms and conditions of such Indebtedness either (x) provide for (A) an average life for such Indebtedness of at least five years, (B) an interest rate applicable to such Indebtedness not in excess of 8% per annum, and (C) no scheduled maturity or any mandatory sinking fund, prepayment or retirement requirements of such Indebtedness prior to the Maturity Date or (y) are reasonably satisfactory in all material respects to the Administrative Agent; and (ii) no Default or Event of Default shall occur or be continuing at the time of the incurrence thereof or immediately after giving effect to the incurrence thereof." ii) The definition of Debt Issuance in the Credit Agreement is amended to add prior to the period thereof the words "and other than any Indebtedness incurred pursuant to Section 8.03(g)" SECTION TWO - RELEASE OF GUARANTIES. Effective as of the date hereof, and subject to the satisfaction of the conditions set forth in Section Three hereof, and to the issuance and sale of not less than $300 million in aggregate principal amount of notes as permitted by new Section 8.03(g) of the Credit Agreement contemplated by Section One of this Amendment, (a) all Guarantees are hereby released, disclaimed, terminated, discharged and otherwise no longer of any force or effect, (b) all Guarantors are released from all obligations under the Guarantees, the Ratification Agreement and the other Credit Documents, (c) Section 7.11 of the Credit Agreement is hereby deleted in its entirety, (d) the proviso to Section 8.02(a) of the Credit Agreement is deleted, (e) the parenthetical in Section 8.03(b) of the Credit Agreement is deleted, (f) the reference to "Guarantor" in Section 8.08 of the Credit Agreement is hereby deleted and replaced with "Subsidiary (other than an Unrestricted Subsidiary)", (g) Section 9.06 of the Credit Agreement is deleted in its entirety, (h) the text of clause (iv) of the definition of Consolidated Net Income in the Credit Agreement is deleted and replaced with the following "the net income of any Subsidiary to the extent that the transfer to Borrower or a Subsidiary of that income is not at the time permitted, directly or indirectly, by any means (including by dividend, distribution, advance or loan or otherwise), by operation of the terms of its charter or any agreement with a Person other than with Borrower or any Affiliate thereof, instrument held by a Person other than by Borrower or any Affiliate thereof, judgment, decree, order, statute, law, rule or governmental regulations applicable to such Subsidiary or its stockholders; PROVIDED, HOWEVER, that if at any time during the period for which Consolidated Net Income is measured such restriction or transfer to Borrower of such income of a Subsidiary is lifted, Consolidated Net Income shall include the net income of such Subsidiary previously excluded", (i) the definition of Credit Party in the Credit Agreement is amended by deleting "and each Guarantor" , and (j) Borrower covenants and agrees that if any Subsidiary (other than an Unrestricted Subsidiary) guarantees any Indebtedness of Borrower described in Section 8.03(b) or (g), then such Subsidiary shall guarantee the Obligations on terms (and pursuant to documentation) no less favorable to the Banks than such guarantee of such Indebtedness and for so long as such Indebtedness is guaranteed; PROVIDED, HOWEVER, that (x) if and to the extent that such guarantee of such Indebtedness is released or discharged (other than by virtue of payment), then the guarantee of the Obligations shall likewise be released and (y) no Lien granted or existing in favor of the Senior Secured Notes pursuant to the documentation relating thereto as in effect on the Original Effectiveness Date shall be deemed a guarantee and the existence or granting of any such Lien pursuant to such documentation shall not in any manner require the granting of any guarantee in respect of the Obligations. SECTION THREE - CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective as of the date first above written when, and only when, the Administrative Agent shall have received counterparts of this Amendment executed by Borrower and the Required Banks or, as to any of the Banks, advice satisfactory to the Administrative Agent that such Bank has executed this Amendment, except that, in addition to the foregoing, Section Two of this Amendment shall not become effective unless and until there has been an issuance and sale of not less than $300 million in aggregate principal amount of notes permitted by new Section 8.03(g) of the Credit Agreement contemplated by Section One of this Amendment. In addition, the effectiveness of this Amendment (other than Sections Six and Eight hereof) is conditioned upon the accuracy of the representations and warranties set forth in Section Four hereof. SECTION FOUR - REPRESENTATIONS AND WARRANTIES. In order to induce the Banks and the Agents to enter into this Amendment, Borrower represents and warrants to each of the Banks and the Agents that after giving effect to this Amendment, (a) no Default or Event of Default has occurred and is continuing; (b) all of the representations and warranties in the Credit Agreement and each of the other Credit Documents, after giving effect to this Amendment, are true and complete in all material respects on and as of the date hereof as if made on the date hereof (or, if any suchrepresentation or warranty is expressly stated to have been made as of a specific date, as of such specific date); (c) the execution, delivery and performance by Borrower of this Amendment have been duly authorized; (d) this Amendment constitutes the legal, valid and binding obligation of Borrower, enforceable in accordance with its terms, except to the extent that the enforceability hereof would be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law); and (e) neither the execution, delivery or performance by Borrower of this Amendment nor compliance with the terms and provisions hereof (i) will contravene any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality of the United States or any State thereof, (ii) will result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under (or with notice or lapse of time or both would constitute a default under), or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of Borrower pursuant to the terms of, any indenture, mortgage, deed of trust, agreement or other instrument to which Borrower or any Subsidiary is a party or by which it or any of its properties or assets are bound or to which it is subject or (iii) will violate any provision of the Certificate of Incorporation or By-Laws of Borrower. SECTION FIVE - REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE NOTES. On and after the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the Notes and each of the other Credit Documents to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Amendment. The Credit Agreement, the Notes and each of the other Credit Documents, as specifically amended by this Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Bank or any Agent under any of the Credit Documents, nor constitute a waiver of any provision of any of the Credit Documents. SECTION SIX - COSTS, EXPENSES AND TAXES. Borrower agrees to pay all reasonable costs and expenses of the Administrative Agent in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, if any (including, without limitation, the reasonable fees and expenses of Cahill Gordon & Reindel) in accordance with the terms of Section 12.01 of the Credit Agreement. In addition, Borrower shall pay or reimburse any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, if any, and agrees to save each Agent and each Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. SECTION SEVEN - EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. SECTION EIGHT - GOVERNING LAW. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York (without giving effect to any provisions thereof relating to conflicts of law). [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. GLOBAL MARINE INC. By: /s/ W. Matt Ralls Name: W. Matt Ralls Title: Vice President & Treasurer Commitment Amount BANKERS TRUST COMPANY, Individually and as Administrative Agent By: /s/ David J. Bell Name: David J. Bell Title: Vice President SOCIETE GENERALE, Individually and as Managing Agent By: /s/ John J. Wagner Name: John J. Wagner Title: Vice President CHRISTIANIA BANK OG KREDITKASSE ASA, NEW YORK BRANCH, Individually and as Co-Agent By: /s/ Martin Lunder Name: Martin Lunder Title: First Vice President CREDIT LYONNAIS NEW YORK BRANCH, Individually and as Co-Agent By: Name: Title: THE BANK OF NOVA SCOTIA, Individually and as Co-Agent By: /s/ F. C. H. Ashby Name: F. C. H. Ashby Title: Senior Manager Loan Operations FIRST UNION NATIONAL BANK OF NORTH CAROLINA By: Name: Title: THE SANWA BANK LIMITED By: /s/ Toru Sakamuto Name: Toru Sakamuto Title: Vice President SKANDINAVISKA ENSKILDA BANKEN AB (publ.) By: /s/ Magna Haga Per K. Froslich Name: Magna Haga Per K. Froslich Title: Head of Unit Head of Admin. THE SUMITOMO BANK, LIMITED By: /s/ Harumitsu Seki Name: Harumsitsu Seki Title: General Manager DEN NORSKE BANK ASA, NEW YORK BRANCH By: Name: Title: TORONTO DOMINION (TEXAS), INC. By: /s/ Neva Nesbitt Name: Neva Nesbitt Title: Vice President THE FUJI BANK, LTD. By: /s/ Nate Ellis Name: Nate Ellis Title: Vice President and Manager -----END PRIVACY-ENHANCED MESSAGE-----