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 June 30, 1998
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 o No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of the Registrant's Common Stock
outstanding as of July 31, 1998 was 91,987,530.
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
Part II
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
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 June 30, 1998 and for the three-month
periods ended June 30, 1998 and 1997. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and 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 March 31, 1998, 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 June 12, 1998, we expressed an
unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of March 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
August 6, 1998
New Orleans, Louisiana
Global Industries, Ltd.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
Quarter Ended June 30,
1998 1997
-------- -------
Revenues $92,158 $63,176
Cost of Revenues 61,571 42,337
-------- -------
Gross Profit 30,587 20,839
Equity in Net Earnings (Loss) of
Unconsolidated Affiliate (1,562) (1,656)
Selling, General and Administrative
Expenses 5,475 4,247
-------- -------
Operating Income 23,550 14,936
-------- -------
Other Income (Expense):
Interest Expense (1,151) (130)
Other 415 1,515
-------- -------
(736) 1,385
-------- -------
Income Before Income Taxes 22,814 16,321
Provision for Income Taxes 7,985 6,202
-------- -------
Net Income $14,829 $10,119
======== =======
Weighted Average Common Shares
Outstanding
Basic 91,769,000 90,722,000
Diluted 94,345,000 93,134,000
Net Income Per Share
Basic $ 0.16 $ 0.11
Diluted $ 0.16 $ 0.11
See Notes to Consolidated Financial Statements.
Global Industries, Ltd.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
June 30, March 31,
1998 1998
-------- ---------
ASSETS
Current Assets:
Cash $ 11,773 $ 18,693
Escrowed funds 5,597 6,907
Receivables 99,601 97,156
Advances to and receivables from
unconsolidated affiliate 15,587 22,852
Prepaid expenses and other 4,744 7,002
-------- --------
Total current assets 137,302 152,610
-------- --------
Escrowed Funds 19,901 22,478
-------- --------
Property and Equipment, net 507,119 432,224
-------- --------
Other Assets:
Deferred charges, net 15,716 12,139
Investment in unconsolidated
affiliate 315 1,878
Other 4,530 4,038
-------- --------
Total other assets 20,561 18,055
-------- --------
Total $684,883 $625,367
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 2,164 2,168
Accounts payable 48,531 55,016
Accrued liabilities 14,821 11,418
Accrued profit-sharing 3,882 4,126
Insurance payable 1,781 2,410
-------- --------
Total current liabilities 71,179 75,138
-------- --------
Long-Term Debt 189,683 144,825
-------- --------
Deferred Income Taxes 40,367 36,471
-------- --------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock -- --
Common stock, issued and outstanding,
91,944,935, and
91,597,114 shares, respectively 919 915
Additional paid-in capital 211,237 208,911
Translation adjustments (10,616) (8,178)
Retained earnings 182,114 167,285
-------- --------
Total shareholders' equity 383,654 368,933
-------- --------
Total $684,883 $625,367
======== ========
See Notes to Consolidated Financial Statements.
Global Industries, Ltd.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Quarter Ended June 30,
1998 1997
-------- -------
Cash Flows From Operating Activities:
Net income $14,829 $10,119
Adjustments to reconcile net income to
net cash provided
by (used in) operating activities:
Depreciation and amortization 9,802 4,855
Deferred income taxes 3,911 2,000
Equity in net (earnings) loss of
unconsolidated affiliate 1,562 1,656
Other 694 (32)
Changes in operating assets and
liabilities:
Receivables (3,017) (6,038)
Receivables from unconsolidated
affiliate 431 --
Prepaid expenses and other 2,159 (1,888)
Accounts payable and accrued
liabilities (3,641) 5,254
------- -------
Net cash provided by (used in)
operating activities 26,730 15,926
------- -------
Cash Flows From Investing Activities:
Additions to property and equipment (85,435) (47,629)
Escrowed funds 3,887 12
Additions to deferred charges (5,355) (1,646)
Net repayment of advances to
unconsolidated affiliate 6,835 22,011
Other (274) (1,481)
------- -------
Net cash (used in) investing
activities (80,342) (28,733)
------- -------
Cash Flows From Financing Activities:
Proceeds from sale of common stock 2,302 311
Net proceeds (repayment) of long-term debt 44,854 (329)
------- -------
Net cash provided by (used in)
financing activities 47,156 (18)
------- -------
Effect of Exchange Rate Changes on Cash (464) --
Cash:
Increase (Decrease) (6,920) (12,825)
Beginning of period 18,693 63,981
End of period $11,773 $51,156
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.
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 June 30, 1998, are not necessarily indicative of the
results that may be expected for the year ending March 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 Annual Report on Form 10-
K for the fiscal year ended March 31, 1998.
The accompanying consolidated financial statements for June 30,
1997, have been adjusted to reflect a two-for-one common stock
split effected in October of 1997.
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 Pronouncements - 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 which,
in the case of the Company, currently includes only foreign
currency translation adjustments.
Following is a summary of the Company's comprehensive income for
the three months ended June 30, 1998 and 1997 (in thousands):
Three Months Ended June 30,
1998 1997
----------- ------------
Net Income $14,829 $10,119
Other Comprehensive Income (Loss),
net of income tax:
Foreign currency translation
adjustments (2,438) --
---------- -----------
Comprehensive Income $12,391 $10,119
========== ===========
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"), which is effective for the Company
beginning April 1, 1998. SFAS 131 redefines how operating
segments are determined and requires disclosure of certain
financial and descriptive information about a Company's operating
segments. Management believes that implementation of SFAS 131
will not have a material impact on the presentation of the
Company's financial statements but may require additional
disclosure.
In February 1998, the Financial Accounting Standard Board
("FASB") issued Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS 132"). SFAS 132 revises the
standards for disclosure of pension and other postretirement
benefit plans by standardizing the disclosure requirements,
requiring additional information on changes in the benefit
obligations and fair values of plan assets, and eliminating
certain disclosure requirements no longer considered to be
useful. These new disclosure requirements are designed to
improve the understandability of benefit disclosures for
financial analysis. The Company is required to adopt this
standard for fiscal 1999. Management believes that the
implementation of SFAS 132 will not have a material impact on the
Company's financial statements and disclosures.
3. Change in Accounting Estimate - Effective April 1, 1998, the
Company changed its estimate of the useful lives of certain
marine barges which 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 $1.0 million and increasing net
income by $0.6 million ($0.01 per both diluted and basic share)
for the three months ended June 30, 1998.
4. Financing Arrangements - During April 1998, the Company amended
the terms of its existing credit agreement with a syndicate of
commercial banks to increase the available line of credit from
$160 million to $200 million. At June 30, 1998, the amount
available under the credit agreement approximated $20.2 million.
5. Basic and Diluted Earnings Net Income Per Share - The number of
weighted average shares outstanding for calculation of "basic"
and "diluted" net income per share was 91,769,000 and 94,345,000,
respectively, for the three months ended June 30, 1998 and
90,722,000 and 93,134,000, respectively, for the three months
ended June 30, 1997. 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
outstanding options to purchase common stock.
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.
In July 1998 the Company settled the previously disclosed
arbitration with a shipyard relating to the construction contract
terms for the conversion and upgrade of the Hercules. The
Company included the settlement costs in the conversion and
upgrade cost with no current charge to earnings. The additional
cost will not have a significant impact on future results.
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. Subject to market
conditions, the purchases may be effected from time to time
through solicited or unsolicited transactions in the market or in
privately negotiated transactions. No limit was placed on the
duration of the purchase program. Subject to applicable
securities laws, purchase decisions will be made by management
based upon market conditions and other factors.
The Company has guaranteed certain indebtedness and commitments
of CCC approximating $26.0 million at June 30, 1998. The Company
has also given performance and currency guarantees totaling $18.2
million at June 30, 1998, ($24.1 million at July 31, 1998) to banks
for CCC debt 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 April 1998, the Company gave a
contingent guarantee to a financial institution whereby the guarantee
becomes effective if certain contracts are canceled or not
renewed. The contingent guaranty amount is $16.9 million.
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 June 30, 1998, outstanding letters
of credit approximated $41.4 million, including $10.6 million
which was subsequently extinguished as a result of the
aforementioned settlement related to the Hercules.
The Company estimates that the cost to complete capital
expenditure projects in progress at June 30, 1998, approximates
$54 million.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
The following commentary 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, including but not limited to
industry conditions, general economic conditions, competition,
ability of the Company to successfully manage its growth,
operating risks, risks of international operations, risks of
vessel construction and other factors discussed below and in the
Company's Annual Report on Form 10-K for the year ended March 31,
1998. 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 June 30, 1998 and 1997, 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
Annual Report on Form 10-K for the fiscal year ended March 31,
1998.
During the second quarter of fiscal 1998, the Company completed
the acquisition of certain business operations and assets of Sub
Sea International, Inc. and certain of its subsidiaries (the "Sub
Sea Acquisition"). The $103.8 million acquisition costs
(including $1.8 million of directly related acquisition costs)
came from available cash and borrowings under the Company's
existing credit line. The major assets acquired in the
transaction include three construction barges, four liftboats and
one dive support vessel based in the United States, four support
vessels based in the Middle East, and support vessels and ROVs
based in the Far East and Asia Pacific.
In the first quarter of fiscal 1999, the Company again added to
its fleet with the acquisition of the pipelay/derrick barges DLB
332 (Teknik Perdana) and DLB 264 (Teknik Padu) from TL Marine
Sdn. Bhd. These two vessels are currently in Asia Pacific. The
purchase price was $47.3 million (of which $4.8 million was paid
in the fourth quarter of fiscal 1998) and was funded from the
Company's bank line of credit. The DLB 332 is 352 feet by 100
feet, has an 800 ton lift capacity, and can be outfitted to lay
up to 60 inch diameter pipe. The DLB 264 is 400 feet by 100
feet, has an 1,100 ton lift capacity, and is capable of laying up
to 60 inch diameter pipe. Each of these vessels is working under
a short-term bare boat charter agreement with Hydro Marine
Services, Inc., an affiliate of J. Ray McDermott S.A., to allow
for completion of certain contractual commitments. The barges
should be available for use in the Company's construction
services work in the fall of 1998.
During the first quarter of fiscal 1999, the Company's barge
Hercules continued its conversion to a dynamically-positioned
pipelay/heavy-lift barge, and thus, was unavailable for service.
In July 1998, the barge returned to service to begin its first
conventional pipelay project. The Company plans to have a reel
installed on the barge in the fourth quarter of fiscal 1999 to
enable it to install offshore pipelines using the reel method.
Although the Company has been expanding its international
operations, the Company derived 80% of its revenues in fiscal
1998 and 58% of its revenues in the first quarter of fiscal 1999
from work performed in the United States Gulf of Mexico ("U.S.
Gulf") and offshore Mexico. The offshore marine construction
industry in the Gulf of Mexico is highly seasonal as a result of
weather conditions and the timing of capital expenditures by oil
and gas companies. Historically, the Company performed a
substantial portion of its services during June through November.
As a result, the Company may earn a disproportionate portion of
the Company's revenues, gross profit, and net income during the
second (July through September) and third (October through
December) quarters of its fiscal year. Because of seasonality,
full year results are not likely to be a direct multiple of any
particular quarter or combination of quarters. The following
table documents the seasonal nature of the Company's operations
by presenting the percentage of revenues, gross profit, and net
income contributed by each fiscal quarter for the past three
fiscal years.
Quarter Ended
June 30, Sept. 30, Dec. 31, March 31,
-------- --------- -------- ---------
Revenues, three year weighted average 19% 30% 28 % 23%
Gross profit, three year weighted average 19 35 25 21
Net income, three year weighted average 19 37 24 20
In fiscal 1996 the Company expanded its operations into West
Africa. In fiscal 1997 and fiscal 1998 the Company acquired
operations in Asia Pacific and the Middle East. In fiscal
1997 the Company also acquired certain operations in the Mexican
waters of the Gulf of Mexico. Certain of these geographic areas
have seasonal effects different from the Gulf of Mexico and may
affect the three year averages shown above.
As discussed in the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1998, demand for the Company's
construction services depends on the condition of the oil and gas
industry, and particularly the capital expenditures of oil and
gas companies with operations in the Gulf of Mexico and in other
regions served by the Company. As a result the Company is
concerned about the recent weakness in oil prices as a prolonged
decline in offshore drilling and exploration activity could
adversely affect the Company's future revenues and profitability.
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
June 30,
1998 1997
------- -------
Revenues 100.0% 100.0%
Cost of revenues (66.8) (67.0)
------- -------
Gross profit 33.2 33.0
Equity in net earnings (loss) of
unconsolidated affiliate (1.7) (2.7)
Selling, general and administrative
expenses (5.9) (6.7)
------- -------
Operating income 25.6 23.6
Interest expense (1.3) (0.2)
Other income (expense), net 0.5 2.4
------- -------
Income before income taxes 24.8 25.8
Provision for income taxes (8.7) (9.8)
------- -------
Net income 16.1 16.0
======= =======
The Company's results of operations for the first quarter of
fiscal 1998 and 1999 reflect the level of offshore construction
activity in the U. S. Gulf, West Africa, and Asia Pacific and the
amount of resources supplied to CCC in Mexico. The results for
the first quarter of fiscal 1999 also include the results of
additional business acquired in July 1997 from Sub Sea
International, Inc. in the U. S. Gulf, Asia Pacific, and the
Middle East.
First Quarter Fiscal 1999 Compared to First Quarter Fiscal 1998
Revenues. Revenues for the first quarter of fiscal 1999 of $92.2
million were 46% higher than the $63.2 million recorded in the
first quarter of fiscal 1998. The increase in revenues for the
quarter resulted from greater revenue contributions from the
Company's international operations in West Africa, Mexico, Asia
Pacific, and the Middle East. Lower revenues in the U. S. Gulf
partially offset the increase.
United States Gulf of Mexico -- Revenues in the U. S. Gulf
declined 27% to $42.0 million in the first quarter of fiscal 1999
from $57.7 million in the same period of fiscal 1998. Barge days
worked in the U. S. Gulf were 247 in the first quarter of fiscal
1999 compared to 381 in the same quarter last year. The dry-
docking of two of the Coastal Division's primary barges, making
them unavailable for over half of the quarter, contributed to the
decline. Liftboat, DSV, and OSV days worked in the U. S. Gulf
declined to 1,480 in the first quarter of fiscal 1999 from 1,563
in last year's first quarter. Diver days in the U. S. Gulf
declined to 3,569 during the first quarter of fiscal 1999 from
4,605 during the same period last year. The reduced number of U.
S. Gulf barge days during the quarter is partially responsible
for the decline in diver days.
West Africa -- Revenues in West Africa increased substantially to
$20.3 million during the first quarter of fiscal 1999 from $0.8
million in last fiscal year's first quarter. Barge days worked
in West Africa were 87 for the first quarter of fiscal 1999
compared to eight in last year's first quarter. The Company also
recorded 972 diver days in West Africa during the first quarter
of fiscal 1999 compared to 193 during the same period last year.
Mexico -- Revenues in Mexico also increased significantly to
$11.4 million during the first quarter of fiscal 1999 from $1.1
million in last fiscal year's first quarter. The Company derived
substantially all of its revenue in Mexico from barge charters,
diving services, and other services provided to its
unconsolidated affiliate, CCC. Reported revenues do not include
the Company's share (49%) of CCC revenues. The Company accounts
for the earnings and losses of CCC using the equity method.
During the first quarter of fiscal 1999, the Company had three
barges working offshore Mexico. Barge days worked offshore
Mexico were 233 for the first quarter of fiscal 1999 compared to
55 in last year's first quarter. Diver days worked offshore
Mexico during the first quarter of fiscal 1999 were 1,493
compared to 72 in last year's first quarter.
Asia Pacific -- Revenues in Asia Pacific improved to $7.6 million
during the first quarter of fiscal 1999 from $3.6 million in last
fiscal year's first quarter. The Company benefited in the first
quarter of fiscal 1999 from the July 1997 Sub Sea Acquisition.
The Company also received revenue on the DLB 332 and DLB 264,
which the Company acquired in April 1998. The barges are
currently working under a short-term bare boat charter agreement
with Hydro Marine Services, Inc., an affiliate of J. Ray
McDermott S.A., to allow for completion of certain contractual
commitments. The acquisition of these two barges allowed the
Company to record 168 barge days in Asia Pacific during the first
quarter of fiscal 1999 compared to none in last fiscal year's
first quarter. Primarily as a result of the Sub Sea Acquisition,
the Company recorded 549 DSV and OSV days in the first quarter of
fiscal 1999 compared to none in last fiscal year's first quarter.
Diver days worked during the first quarter of fiscal 1999
declined to 1,888 from 3,911 during the first quarter of fiscal
1998.
Middle East -- Revenues in the Middle East were $10.8 million
during the first quarter of fiscal 1999. The Company entered the
Middle East market through the Sub Sea Acquisition in July 1997,
and thus, had no operations or revenues in last fiscal year's
first quarter. Middle East barge days, OSV days, and diver days
during the first quarter of fiscal 1999 were 61, 291, and 5,195,
respectively.
Depreciation and Amortization. Effective April 1, 1998, the
Company changed its estimate of the useful lives of certain
marine barges that are depreciated using a units-of-production
method. The Company increased total estimated operating days to
better reflect the estimated period during which the assets will
remain in service. The change had the effect of reducing
depreciation expense by $1.0 million in the first quarter of
fiscal 1999. Depreciation and amortization expenses, including
amortization of dry-docking costs, were $9.8 million in the first
quarter of fiscal 1999 compared to $4.9 million in the same
period of the prior fiscal year. The increase was principally
attributable to the depreciation expense resulting from the
increase in property and equipment, through purchases and
acquisitions, compared to the first quarter of fiscal 1998. Lower
depreciation on barges depreciated using a units-of-production
method, and which had lower days employed in the first quarter of
fiscal 1999 than in the same quarter of fiscal 1998, partially
offset the depreciation increase.
Gross Profit. Gross profit for the first quarter of fiscal 1999
of $30.6 million was 47% higher than the $20.8 million gross
profit for the same quarter a year earlier. The gross profit
increase was primarily attributable to the increased revenue
contributions of the international operations, and was partially
offset by lower gross profit from the operations in the U. S.
Gulf. Gross profit as a percentage of revenues was 33.2% for the
first quarter of fiscal 1999 as compared to 33.0% for the same
quarter a year earlier. Margins for operations in the U. S. Gulf
for the first quarter of fiscal 1999 were nearly unchanged when
compared to the first quarter of fiscal 1998. Margins in the
Company's international operations improved significantly in the
first quarter of fiscal 1999.
Selling, General, and Administrative Expenses. Selling, general,
and administrative expenses for the first quarter of fiscal 1999
were $5.5 million, 31% higher than the $4.2 million expense for
the same quarter a year earlier. The increase is primarily
attributable to the expansion of the Company's business. As a
percentage of revenue, selling, general, and administrative
expenses declined to 5.9% in the first quarter of fiscal 1999
from 6.7% in the first quarter of fiscal 1998. The Company
recorded an $0.8 million expense for the Company's retirement and
incentive compensation plan in the first quarter of fiscal 1999.
However, an $0.8 million adjustment of the fiscal year 1998
provision offset the first quarter of fiscal 1999 expense. The
Company had a $1.2 million provision in the same period a year
earlier of which $0.4 million was included in selling, general,
and administrative expenses.
Interest Expense and Other Income (Expense). Interest expense,
net of $1.6 million of capitalized interest cost, was $1.2
million in the first quarter of fiscal 1999 compared to $0.1
million in the same quarter a year earlier. The increase is
attributable to higher debt levels in the first quarter of fiscal
1999 than in the first quarter of fiscal 1998. Other income in
the first quarter fiscal 1999 of $0.4 million was lower than the
$1.5 million reported a year earlier largely because the Company
had lower cash balances available for investment.
Net Income. Net income for the first quarter of fiscal 1999
totaled $14.8 million, an increase of 47% from $10.1 million in
the same quarter a year earlier. The change in estimated useful
lives of certain marine barges discussed above resulted in a $0.6
million increase in net income. Included in net income for the
first quarter of fiscal 1999 is a $1.6 million loss associated
with the Company's 49% ownership interest in CCC. The first
quarter of fiscal 1998 loss associated with the CCC ownership was
$1.7 million. The Company's effective income tax rate declined
from 38.0% in the first quarter of fiscal 1998 to 35.0% in the
first quarter of fiscal 1999, reflecting the benefit of increased
net income in certain international operations that have lower
tax rates.
Liquidity and Capital Resources
The Company's operations generated cash flow of $26.7 million
during the first quarter of fiscal 1999. Cash from operations,
together with available cash and funds provided by financing
activities, funded net investing activities of $80.3 million.
Investing activities consisted principally of capital
expenditures, dry-docking costs, and reimbursement of escrowed
funds and advances to CCC. Working capital decreased $11.4
million during the first three months of fiscal 1999 from $77.5
million at March 31, 1998, to $66.1 million at June 30, 1998.
Capital expenditures during the first quarter of fiscal 1999
aggregated $85.4 million. The expenditures included a $42.5
million final payment to acquire the DLB 332 and DLB 264, $18.8
million for continued conversion and upgrade of the Hercules, and
$5.5 million for continued construction of the Carlyss, Louisiana
deepwater support facility and pipebase. The Company estimates
that the cost to complete capital expenditure projects in
progress at June 30, 1998, approximates $54 million. The Company
plans to install reel pipelay capabilities on the Hercules during
the fourth quarter of fiscal 1999 with an estimated completion
cost of $12.0 million, which is in addition to the approximately
$101.2 million previously spent.
During the first quarter of fiscal 1999, the Company settled the
previously disclosed arbitration with a shipyard relating to the
construction contract terms for the conversion and upgrade of the
Hercules. The settlement costs were not material to the
Company's consolidated financial statements.
Long-term debt outstanding at June 30, 1998, (including current
maturities), consists primarily of $39.9 million of Title XI
bonds, a $28.0 million obligation to service Lake Charles Harbor
and Terminal District bonds, and $123.0 million drawn against the
Company's revolving line of credit.
The Company's outstanding Title XI bonds mature in 2003, 2005,
2020 and 2022, 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, which, if not met, result in
additional covenants that restrict the operations of the Company
and its ability to pay cash dividends. The Company is currently
in compliance with these covenants.
The Company maintains a revolving line of credit under a loan
agreement ("Restated Credit Agreement") with a syndicate of
commercial banks. Effective April 8, 1998, an amendment to the
Restated Credit Agreement increased the available credit from
$160.0 million to $200.0 million. The revolving credit facility
reduces to $150.0 million from July 1, 2000, to June 30, 2001,
and to $100.0 million from July 1, 2001, to June 30, 2002.
Borrowings under the facility bear interest at fluctuating rates,
are payable on July 30, 2002, and have subsidiary guarantees and
stock pledges as security. The amount of available credit
decreases by (i) borrowings outstanding ($123.0 million at June
30, 1998), (ii) outstanding letters of credit issued under the
Restated Credit Agreement ($30.8 million at June 30, 1998) and
(iii) amounts outstanding under a separate credit agreement
between the banks and CCC, limited to a maximum of $35.0 million
($26.0 million at June 30, 1998). 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. The Company is currently in compliance with these
covenants. At July 31, 1998, borrowings of $133.0 million were
outstanding under the Restated Credit Agreement.
The Company has guaranteed certain indebtedness and commitments
of CCC approximating $26.0 million at June 30, 1998. The Company
has also given performance and currency guarantees banks for CCC
debt totaling $49.2 million at June 30, 1998, 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 April 1998, the Company gave a contingent
guarantee to a financial institution whereby the guarantee
becomes effective if certain contracts are canceled or not
renewed. The contingent guaranty amount is $17.5 million.
Global has reached agreement in principal with its partner to
restructure its joint venture in Mexico, CCC, to sell or spin-off
to its partner CCC's onshore construction and fabrication
business and assets. Expected to be completed in the near
future, this restructuring will permit CCC to focus on its
offshore construction business. Global has a 49% ownership
interest in CCC and charters vessels and other equipment to CCC.
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. Subject to market
conditions, the Company may effect purchases from time to time.
The Board of Directors placed no limit on the duration of the
program.
The Company expects funds available under the Company's Restated
Credit Agreement, combined with available cash and cash generated
from operations, to provide sufficient funds for the Company's
operations, scheduled debt retirement, planned capital
expenditures, purchases of the Company's common stock, and
working capital needs for the foreseeable future.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"), which is effective for the Company
beginning April 1, 1998. SFAS 131 redefines how operating
segments are determined and requires disclosure of certain
financial and descriptive information about a Company's operating
segments. Management believes that implementation of SFAS 131
will not have a material impact on the presentation of the
Company's financial statements but may require additional
disclosure.
In February 1998, the FASB issued Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS
132 revises the standards for disclosure of pension and other
postretirement benefit plans by standardizing the disclosure
requirements, requiring additional information on changes in the
benefit obligations and fair values of plan assets, and
eliminating certain disclosure requirements no longer considered
to be useful. These new disclosure requirements are designed to
improve the understandability of benefit disclosures for
financial analysis. The Company is required to adopt this
standard for fiscal 1999. Management believes that the
implementation of SFAS 132 will not have a material impact on the
Company's financial statements and disclosures.
Year 2000
The Company has begun assessing its major information and
computing systems and is updating or replacing, in the normal
course of business, any applications that are not Year 2000
compliant. The Company has also begun assessing both the costs
of addressing and the costs or consequences of incomplete or
untimely resolution of the Year 2000 issue. Based upon
assessments to date, the Company believes that its estimated
costs related to the Year 2000 issue will not be material to the
Company's business, operations, or financial condition.
In addition, the Company has initiated a program to determine the
extent to which the Company is vulnerable to its significant
suppliers' and customers' failure to remedy their Year 2000
issues. The Company cannot guarantee that other companies will
convert their systems on time or that a failure to convert by
another company would not have a material adverse effect on the
Company. However, the Company does not currently foresee any
material affects to its business, operations, or financial
condition resulting from any suppliers' and customers'
deficiency.
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.
In July 1998 the Company settled the previously disclosed
arbitration with a shipyard relating to the construction contract
terms for the conversion and upgrade of the Hercules. The
Company included the settlement costs in the conversion and
upgrade cost with no current charge to earnings. The additional
cost will not have a significant impact on future results.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
15.1 - Letter regarding unaudited interim financial
information.
27.1 - Financial Data Schedule.
27.2 - Restated Financial Data Schedule.
27.3 - Restated 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/ MICHAEL J. MCCANN
___________________________________
Michael J. McCann
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
August 14, 1998
EXHIBIT 15.1
August 12, 1998
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 June 30, 1998 and
1997, as indicated in our report dated August 6, 1998; 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 June
30, 1998, is incorporated by reference in Registration Statement
Nos. 33-58048 and 33-89778 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