<PAGE>
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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: September 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-22595
Friede Goldman Halter, Inc.
(Exact name of Registrant as specified in its charter)
Mississippi 72-1362492
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13085 Seaway Road 39503
Gulfport, Mississippi (Zip code)
(Address of principal executive
offices)
(228) 896-0029
(Registrant's telephone number including area code)
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 [_]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 48,708,979 shares as of
October 31, 2000.
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<PAGE>
FRIEDE GOLDMAN HALTER, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I.Financial Information
Item 1. Financial Statements................................. 3
Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999....................................... 3
Consolidated Statements of Operations for the three
months and nine months ended September 30, 2000 and
1999.................................................... 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999....................... 5
Notes to Consolidated Financial Statements............... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 12
Item 3. Quantitative and Qualitative Disclosures of Market
Risk................................................. 17
Part II. Other Information
Item 1. Legal Proceedings.................................... 18
Item 2. Changes in Securities and Use of Proceeds............ Not applicable
Item 3. Defaults upon Senior Securities...................... Not applicable
Item 4. Submission of Matters to a Vote of Security
Holders.............................................. Not applicable
Item 5. Other Information.................................... Not applicable
Item 6. Exhibits............................................. 18
Signatures...................................................... 19
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1--Financial Statements
FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
ASSETS
------ (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 70,550 $ 15,124
Accounts receivable............................... 69,306 143,037
Income tax receivable............................. 591 38,657
Inventories....................................... 45,033 45,261
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... 80,409 143,769
Prepaid expenses and other........................ 12,879 17,048
Deferred income tax asset......................... 16,950 45,403
-------- ----------
Total current assets............................ 295,718 448,299
-------- ----------
Investment in unconsolidated subsidiary............. 13,035 13,035
Property, plant and equipment, net of accumulated
depreciation....................................... 267,696 334,642
Goodwill, net of accumulated amortization........... 196,666 195,137
Other assets........................................ 9,035 9,779
-------- ----------
$782,150 $1,000,892
======== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Short-term debt, including current portion of
long-term debt................................... $ 7,399 $ 13,645
Accounts payable.................................. 96,251 115,918
Accrued liabilities............................... 69,197 117,966
Reserve for losses on uncompleted contracts....... 32,222 66,226
Billings in excess of costs and estimated earnings
on uncompleted contracts......................... 41,829 50,725
-------- ----------
Total current liabilities....................... 246,898 364,480
Deferred income tax liability....................... 10,485 56,190
Long-term debt, less current portion................ 209,319 299,075
Other............................................... 445 --
-------- ----------
Total liabilities............................... 467,147 719,745
-------- ----------
Deferred government subsidy, net of accumulated
amortization....................................... 30,363 33,026
Stockholders' equity:
Preferred stock................................... -- --
Common stock...................................... 487 400
Additional paid-in capital........................ 299,571 230,166
Retained earnings (deficit)....................... (12,110) 18,520
Treasury stock.................................... (199) --
Accumulated other comprehensive income (loss)..... (3,109) (965)
-------- ----------
Total stockholders' equity...................... 284,640 248,121
-------- ----------
$782,150 $1,000,892
======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months
ended September Nine months ended
30, September 30,
----------------- ------------------
2000 1999 2000 1999
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Contract revenue earned................. $162,180 $51,699 $568,039 $330,345
Cost of revenue earned.................. 153,551 56,132 546,182 288,762
-------- ------- -------- --------
Gross profit (loss)................... 8,629 (4,433) 21,857 41,583
Selling, general and administrative
expenses............................... 14,376 6,720 43,008 24,299
Amortization of goodwill................ 1,881 380 5,643 555
-------- ------- -------- --------
Operating income (loss)............... (7,628) (11,533) (26,794) 16,729
-------- ------- -------- --------
Other expense:
Interest expense, net................. 7,871 1,404 25,542 3,109
Other................................. (590) 16 50 61
-------- ------- -------- --------
Total other expense................. 7,281 1,420 25,592 3,170
-------- ------- -------- --------
Income (loss) before income
taxes............................ (14,909) (12,953) (52,386) 13,559
Provision for income tax expense
(benefit).............................. (5,507) (4,425) (21,766) 4,051
-------- ------- -------- --------
Net income (loss)..................... $ (9,402) $(8,528) $(30,620) $ 9,508
======== ======= ======== ========
Net income (loss) per share:
Basic................................. $ (0.19) $ (0.36) $ (0.71) $ 0.41
======== ======= ======== ========
Diluted............................... $ (0.19) $ (0.36) $ (0.71) $ 0.40
======== ======= ======== ========
Weighted average shares outstanding:
Basic................................. 48,778 23,428 43,234 23,353
Diluted............................... 48,778 23,428 43,234 23,586
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................... $(30,620) $ 9,508
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 29,642 6,059
Increase in provision for loss on uncompleted contracts... 31,329 --
Compensation expense related to stock or stock options
issued to employees...................................... 145
(Gain) loss on sale of assets............................. 221 (6)
Deferred income taxes..................................... (18,872) 483
Changes in operating assets and liabilities:
Decrease in receivables................................... 51,852 23,218
Decrease in income tax receivable......................... 38,066 --
Increase in inventories................................... (4,166) (11,947)
(Increase) decrease in other assets....................... 2,684 (6,813)
Decrease in accounts payable and accrued liabilities...... (84,034) (43,151)
Decrease in reserve for uncompleted contracts............. (65,335) --
Decrease in billings in excess of costs and estimated
earnings on uncompleted contracts........................ (8,099) (10,491)
(Increase) decrease in costs and estimated earnings in
excess of billings on uncompleted contracts.............. 62,679 (731)
-------- --------
Net cash provided by (used in) operating activities .... 5,347 (33,725)
-------- --------
Investing activities:
Capital expenditures for plant and equipment............... (3,525) (6,751)
Proceeds from sale of business units....................... 80,755 --
Proceeds from sale of property, plant and equipment........ 7,594 93
-------- --------
Net cash provided by (used in) investing activities..... 84,824 (6,658)
-------- --------
Financing activities:
Proceeds from stock offering............................... $ 69,486 $ --
Proceeds from exercise of stock options.................... 6 901
Net borrowings under line of credit........................ (63,012) 3,903
Proceeds from borrowings under debt facilities............. 7,009 11,968
Repayments on borrowings under debt facilities............. (47,266) (8,241)
Purchase of treasury stock................................. (199) --
-------- --------
Net cash provided by (used in) financing activities..... (33,976) 8,531
-------- --------
Effect of exchange rate changes on cash.................... (769) (1,079)
-------- --------
Net increase (decrease) in cash and cash equivalents....... 55,426 (32,931)
Cash and cash equivalents at beginning of period........... 15,124 42,796
-------- --------
Cash and cash equivalents at end of period................. $ 70,550 $ 9,865
======== ========
Supplemental disclosures:
Cash paid during the period for interest................... $ 17,367 $ 4,055
Cash refunds received during the period for income taxes... $ 42,190 $ --
Cash paid during the period for income taxes............... $ 1,274 $ 12,946
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
FRIEDE GOLDMAN HALTER, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2000
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim reporting
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all disclosures required by generally
accepted accounting principles for complete financial statements. The
consolidated financial information has not been audited but, in the opinion of
management, includes all adjustments required (consisting of normal recurring
adjustments) for a fair presentation of the consolidated balance sheets,
statements of operations, and statements of cash flows at the dates and for
the periods indicated. Results of operations for the interim periods are not
necessarily indicative of results of operations for the respective full years.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. The consolidated financial statements of Friede
Goldman Halter, Inc. (the "Company") should be read in conjunction with the
audited financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
2. MERGER
On November 3, 1999, a merger was consummated between Friede Goldman
International, Inc. ("FGI") and Halter Marine Group, Inc. ("HMG"). As set
forth in the merger agreement, stockholders of HMG received 0.57 of a share of
FGI's common stock in exchange for each share of HMG common stock. A total of
16,450,292 shares was issued for a total value of approximately $193.3
million. The merger is being accounted for as a purchase business combination
and the operating activities of HMG have been included in the accompanying
financial statements for periods subsequent to November 3, 1999. The net
assets acquired were recorded at their fair market values at the acquisition
date. As a result of the merger, approximately $195.9 million was allocated to
goodwill. The goodwill is being amortized over 25 years.
The following summarized statement of operations data reflects the impact
which the merger with HMG would have had on the Company's results of
operations had the transactions taken place as of January 1, 1999.
<TABLE>
<CAPTION>
Proforma Results for
-------------------------------------
The Three Months The Nine Months
Ended Ended
September 30, 1999 September 30, 1999
------------------ ------------------
(in 000's, except per share data)
<S> <C> <C>
Contract revenue earned................ $287,739 $758,512
Operating income (loss)................ $ (6,647) $ 27,042
Net income (loss)...................... $ (7,239) $ 12,720
Net income (loss) per share:
Basic................................ $ (0.18) $ 0.32
Diluted.............................. $ (.018) $ 0.32
</TABLE>
6
<PAGE>
FRIEDE GOLDMAN HALTER, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
September 30, 2000
3. BUSINESS SEGMENTS
Effective with the merger with HMG on November 3, 1999, the Company
classifies its business into three segments: Vessels, Offshore, and Engineered
Products. Operations within the Vessels segment include the new construction
and repair of a wide variety of vessels for the government, offshore energy
and commercial markets. Effective with the sale of the Company's vessel repair
business as discussed Note 8, the Company is no longer engaged in the business
of vessel repair. Operations within the Offshore segment include the new
construction, conversion and repair of mobile offshore drilling rigs and
production platforms. Operations within the Engineered Products segment
include the design, manufacture and marketing of cranes, mooring systems,
derricks, and other marine deck equipment.
The Company evaluates the performance of its segments based upon income
before interest and income taxes as these expenses are not allocated to the
segments.
Selected information as to the operations of the Company by segment is set
forth below (in thousands).
<TABLE>
<CAPTION>
Three months ended September 30, 2000
-----------------------------------------------------
Engineered
Vessels Offshore Products Corporate Total
-------- ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 40,960 $ 88,591 $32,629 $ -- $162,180
Operating income
(loss)................. $ 673 $ (4,015) $ 4,285 $ (8,571) $ (7,628)
Total assets............ $118,117 $277,611 $59,553 $326,869 $782,150
<CAPTION>
Three months ended September 30, 1999
-----------------------------------------------------
Engineered
Offshore Products Corporate Eliminations Total
-------- ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 46,503 $ 5,196 $ -- $ -- $ 51,699
Operating income
(loss)................. $ (8,766) $ (689) $(2,078) $ -- $(11,533)
Total assets............ $207,708 $ 50,866 $65,331 $(47,844) $276,061
<CAPTION>
Nine months ended September 30, 2000
-----------------------------------------------------
Engineered
Vessels Offshore Products Corporate Total
-------- ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenues................ $186,126 $292,737 $89,176 $ -- $568,039
Operating income
(loss)................. $ 17,407 $(28,232) $ 7,258 $(23,227) $(26,794)
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30, 1999
--------------------------------------
Engineered
Offshore Products Corporate Total
-------- ---------- --------- --------
<S> <C> <C> <C> <C>
Revenues................................ $303,717 $26,628 $ -- $330,345
Operating income (loss)................. $ 24,152 $ 323 $(7,746) $ 16,729
</TABLE>
7
<PAGE>
FRIEDE GOLDMAN HALTER, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
September 30, 2000
4. RECONCILIATION OF NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per share:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------- ----------------
2000 1999 2000 1999
------- ------- -------- ------
(in 000's, except per share
data)
<S> <C> <C> <C> <C>
Numerator:
Net income (loss)..................... $(9,402) $(8,528) $(30,620) $9,508
======= ======= ======== ======
Numerator for net income (loss) per
share, diluted....................... $(9,402) $(8,528) $(30,620) $9,508
======= ======= ======== ======
Denominator:
Denominator for net income per share-
weighted average shares outstanding.. 48,778 23,428 43,234 23,353
Effect of dilutive securities:
Stock options....................... -- -- -- 233
------- ------- -------- ------
Denominator for net income (loss) per
share, diluted....................... 48,778 23,428 43,234 23,586
======= ======= ======== ======
Net income (loss) per share............. $( 0.19) $ (0.36) $ ( 0.71) $ 0.41
======= ======= ======== ======
Net income (loss) per share, diluted.... $( 0.19) $ (0.36) $ ( 0.71) $ 0.40
======= ======= ======== ======
</TABLE>
For the three months ended September 30, 1999, the effect on net income per
share, diluted, would have been anti-dilutive if the stock options had been
assumed in the computation. For the three and nine months ended September 30,
2000, the effect on net income per share, diluted, would have been anti-
dilutive if the stock options and the conversion of the 4 1/2% Convertible
Subordinated Notes had been assumed in the computation.
5. COMPREHENSIVE INCOME
Other comprehensive income includes foreign currency translation
adjustments. Total comprehensive income was as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September Ended September
30, 30,
----------------- ----------------
2000 1999 2000 1999
-------- ------- -------- ------
<S> <C> <C> <C> <C>
Net income (loss)....................... $ (9,402) $(8,528) $(30,620) $9,508
Other comprehensive income (loss):
Foreign currency translation.......... (1,099) 533 (2,144) (866)
-------- ------- -------- ------
Comprehensive income (loss)............. $(10,501) $(7,995) $(32,764) $8,642
======== ======= ======== ======
</TABLE>
8
<PAGE>
FRIEDE GOLDMAN HALTER, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
September 30, 2000
6. DEBT
A summary of short and long-term debt follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Borrowings under 1999 Credit Facility.............. $ 43,695 $106,708
Convertible Subordinated Notes bearing interest at
4 1/2%, principal due at maturity in September
2004, unsecured (less discount of $60,716)........ 124,284 116,342
Taxable revenue bonds bearing interest at 6.39%,
principal due at maturity in December 2013,
secured by letter of credit....................... -- 30,000
Notes payable to financial institutions and others
bearing interest at rates ranging from 5.7% to
12.0%, payable in monthly installments, maturing
at dates ranging from January 1999 to March 2005
and secured by equipment, a lease and real
property.......................................... 6,542 11,090
Bonds payable to MARAD bearing interest at 6.35%
maturing June 2013 payable in semi-annual
installments commencing July 1, 1999, secured by
equipment......................................... 21,509 23,163
Bonds payable, bearing interest at 7.9% payable in
monthly installments commencing January 1999,
maturing December 2008, secured by equipment...... 14,380 16,880
Capital lease obligations bearing interest at rates
ranging from 4.7% to 10.0%, maturing at dates
ranging from February 2000 through November 2004.. 3,308 4,037
Notes payable, bearing interest at 7.05% payable in
quarterly installments commencing April 1998,
maturing March 2002, secured by equipment......... 3,000 4,500
-------- --------
Total............................................ 216,718 312,720
Less: Short-term debt and current portion of long-
term debt......................................... 7,399 13,645
-------- --------
Long-term debt less current portion.............. $209,319 $299,075
======== ========
</TABLE>
Credit Facility
In connection with the merger with HMG, on November 3, 1999, the Company
entered into a new secured bank revolving and letter of credit facility ("the
Credit Facility") that replaced the Company's existing credit facility. Under
the terms of the Credit Facility, the Company was allowed to borrow up to
$120.0 million under a senior secured revolving credit facility. In addition,
the Credit Facility provided an approximate $44.2 million senior secured
letter of credit facility. The Credit Facility had a three-year term and was
secured by substantially all of the Company's otherwise unencumbered assets,
all of the stock of the Company's domestic subsidiaries and 67% of the stock
of its foreign subsidiaries. The interest rate ranged from 1.375% to 2.75%
over the London Inter Bank Offered Rate ("LIBOR"), or the base rate (as
defined), at the Company's choice. Under the Credit Facility, the Company was
obligated to pay certain fees, including an annual commitment fee in an amount
of 0.50% of the unused portion of the commitment.
Effective October 24, 2000, the Company entered into a $110.0 million
amended and restated credit agreement, comprised of a $70.0 million line of
credit and a $40.0 million term loan (collectively,
9
<PAGE>
FRIEDE GOLDMAN HALTER, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
September 30, 2000
"the Restated Credit Agreement"). The Restated Credit Agreement has a three-
year term. The line of credit is secured by substantially all of the Company's
otherwise unencumbered assets, including accounts receivable, inventory,
equipment, real property and all of the stock of the Company's domestic
subsidiaries and 67% of the stock of its Canadian subsidiary. The term loan is
secured by a subordinated security interest in the line of credit collateral.
Under the terms of the Restated Credit Agreement, the Company may borrow up
to $70.0 million under a senior secured revolving line of credit facility,
which includes a $65.0 million sub-limit for issuing letters of credit.
Availability under the line of credit is based on specified percentages of the
Company's accounts receivable, inventory, equipment and real property. The
interest rate on the line of credit is based on LIBOR or the base rate (as
defined), at the Company's option, with a floor of 7.5%. During the first year
of the line of credit the spread is fixed at 3.75% over LIBOR and 1.75% over
the base rate; thereafter the LIBOR option ranges from 3.25% to 4.25% over
LIBOR and the base rate option ranges from 1.25% to 2.25% over the base rate,
(as defined). The Company is also obligated to pay certain fees, including a
commitment fee equal to (i) during year one of the facility, .050% of the
unused portion of the line of credit and (ii) thereafter, a range of 0.25% to
0.50% of the unused portion of the line of credit.
The term loan is a $40.0 million interest-only three-year facility. The term
loan bears interest at the base rate (as defined) plus 5.5% with a floor of 13%
and, at the Company's option, the ability to capitalize 1.5% of the current
interest charge through maturity. Proceeds from the term loan were used to
repay the existing credit facility in its entirety.
The Restated Credit Agreement requires the Company to comply with certain
financial covenants including limitations on additional borrowings and capital
expenditures, certain debt coverage ratios, minimum EBITDA (earnings before
interest, taxes, depreciation and amortization) and other customary
requirements.
On September 26, 2000, the Company paid off its Mississippi Business Finance
Corporation Taxable Revenue Bonds, Series 1998 in the aggregate principal
amount of $30.0 million. The Bonds, originally issued on January 1, 1998, were
scheduled to mature on December 31, 2013. Interest was payable semiannually, in
arrears, on June 30 and December 31 of each year at an annual interest rate of
6.39%.
7. CONTRACTUAL MATTERS
Ocean Rig
In December 1997 and June 1998, the Company entered into contracts to
construct two semi-submersible drilling rigs for Ocean Rig ASA, a Norwegian
company ("Ocean Rig"). The contracts had a combined value of $282.0 million and
called for delivery of the rigs on August 1999 and November 1999. The Company
was unable to meet those delivery dates because of delays and cost increases
associated with design changes initiated by Ocean Rig and the late delivery by
Ocean Rig of information and equipment it was required to provide. Ocean Rig
denied its responsibility for the delays. The dispute was resolved pursuant to
a negotiated settlement agreement, dated January 18, 2000, (the "Settlement
Agreement") which provided for an increase of $21.5 million in the contract
price of each rig, revised delivery dates of October 2000 and December 2000 and
total liquidated damages for late delivery beyond the new delivery dates of
$75,000 per day per rig up to a maximum
10
<PAGE>
FRIEDE GOLDMAN HALTER, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
September 30, 2000
of $7.5 million for each rig. The Company anticipates that shipyard
construction of the first rig will be completed in January 2001 and that the
rig will leave the shipyard for sea trials. The Company anticipates that
shipyard construction of the second rig will be completed approximately 90
days after the completion of shipyard construction on the first rig with sea
trials to follow. The changes in these dates are the result of continuing
changes which the Company believes entitle the Company to extended delivery
dates without liquidated damages and to additional contract compensation.
The Company has adjusted previously recognized revenues and profits to
reflect the percentage of completion based on the revised delivery dates and
related cost estimates and expected recoveries. The net impact of this
adjustment to account for the settled claim and related additional costs
incurred and for the timing of recognition of related revenues and expenses
was a gross loss of $32.3 million and $31.3 million for the year ended
December 31, 1999 and the nine months ending September 30, 2000, respectively.
The amount of the adjustment was based on, among other things, the outcome of
the settlement negotiations as adjusted for expected change orders and
management's estimate of the percentage of completion of the projects.
Petrodrill
In April 1998, one of the Company's subsidiaries entered into contracts to
construct two semi-submersible drilling rigs for two newly formed entities,
Petrodrill IV Ltd. and Petrodrill V, Ltd. ("Petrodrill"). The contracts had a
combined value of $168.0 million. After the commencement of construction, the
Company began to experience delays in the production schedule and increased
costs due, in whole or part, to delays caused by Petrodrill and by
subcontractors nominated by Petrodrill. In addition, the Company had to
perform as the lead yard as opposed to a follow-on yard as initially
anticipated by the contracting parties.
On May 26, 2000, the Company's subsidiary entered into amended contractual
arrangements with Petrodrill which provided for an increase in the contract
price of $3.0 million for each rig and an additional payment of $6.4 million
per rig subject to daily reduction for late delivery at a rate of
approximately $139,000 per day from 15 to 60 days until exhausted and revised
delivery dates of September 2001 and December 2001 and settled all of the
related litigation. The parties also agreed to increased liquidated damages
for late delivery of $20,000 per day commencing on the 61st day after the
revised delivery date, increasing to $40,000 per day commencing on the 91st
day after the revised delivery date, of up to a maximum of $4.2 million per
rig. The contract amendments have not resulted in any material change in our
previously announced estimate of costs in excess of contract prices of
approximately $60.0 million.
The Company evaluates its estimates to complete the Ocean Rig and Petrodrill
contracts on a regular basis. Any additional increases in the projected costs
to complete the Petrodrill project would likely result in an adjustment of the
Company's purchase accounting treatment of the assets and liabilities acquired
through the merger with Halter Marine Group. Any additional increases in the
projected costs to complete the Ocean Rig contracts would require the Company
to record an adjustment to amounts of revenue and gross profit that were
recognized in prior periods under the percentage of completion method. Any
such adjustments, if substantial, could have a material adverse effect on the
Company's results of operations, financial condition and liquidity. The
Company expects that funding the losses associated with the Ocean Rig contract
will negatively impact its cash flow over the next six months. The Company
further expects that funding the losses associated with the Petrodrill
contracts will negatively impact its cash flow over the next twelve months.
Funding of losses on these contracts could significantly impact the Company's
liquidity over the next twelve months.
11
<PAGE>
FRIEDE GOLDMAN HALTER, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
September 30, 2000
8. CONTINGENCIES
Liberty Mutual
On September 18, 1998, Liberty Mutual and Employers Insurance of Wausau (the
"Insurers") filed suit against a subsidiary of the Company, FGO (formerly HAM
Marine, Inc.), two contract labor providers. Petra Contractors, Inc., KT
Contractors, Inc., and fifty unnamed individuals in an action styled Liberty
Mutual Insurance Company and Employers Insurance of Wausau v. HAM Marine,
Inc., et al. (in the United States District Court for the Southern District of
Mississippi, Jackson Division, Case No. 3:98cv6111LOS). Insurers allege that
the contract labor providers were alter egos of FGO established to obtain
workers' compensation insurance at lower rates than FGO could have obtained in
its own name. The Insurers seek actual damages of $2.3 million and punitive
damages of $4.5 million. On October 1, 1999, the Insurers were allowed to
amend their complaint to add certain former officers and directors of FGO and
other third party individuals and entities which the Insurers allege were
involved in the action which is the subject of the complaint.
Economic Incentive Program
In connection with the construction of the FGO East Facility, the County of
Jackson, Mississippi, agreed to dredge the ship channel and build roads and
other infrastructure under an economic incentive program. The terms of the
economic incentive program require that the Company maintain a minimum
employment level of 400 jobs through the FGO East Facility during the primary
term of the FGO East Facility's 20-year lease. If the Company fails to
maintain the minimum employment level, the Company could be required to pay
the remaining balance of the $6 million loan incurred by the county to finance
such improvements.
The Company is involved in various other claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
9. SALE OF BUSINESS UNITS
During April 2000, the Company completed the sale of its Trinity Yachts
division to a group led by John Dane III, the Company's former chief operating
officer and former board member. The division was sold for $5.7 million in an
all-cash transaction. During August 2000, the Company completed the sale of
its vessel repair business to Bollinger Shipyards, Inc. of Lockport,
Louisiana, for approximately $80.0 million in an all-cash transaction subject
to certain adjustments. The vessel repair business sold was an operating unit
of the Company's Vessels segment and consisted of five facilities located in
Louisiana and Texas devoted to vessel repair and maintenance. The Company did
not recognize a gain or loss on either of these transactions for financial
reporting purposes.
10. EQUITY OFFERING
On June 22, 2000, the Company completed an offering of 8,750,000 million
shares of its common stock at a price of $8.25 per share. The offering
generated $69.7 million in net proceeds to the Company.
12
<PAGE>
FRIEDE GOLDMAN HALTER, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
September 30, 2000
11. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. Subsequently, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133," which defers the effective date of SFAS No. 133 to
apply to all financial statements for years beginning after June 15, 2000. The
FASB also issued SFAS No. 138, which amends certain provisions of SFAS No. 133
by providing implementation guidance in selected areas. Based on the Company's
historical minimal use of derivative instruments, management does not
anticipate that the adoption of SFAS No. 133 will have a material impact on
the financial condition or operating results of the Company.
13
<PAGE>
Item 2--Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
This Report on Form 10-Q contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, included in this Form 10-Q, are forward-
looking statements. Such forward-looking statements are subject to certain
risks, uncertainties and assumptions, including (i) risks of reduced levels of
demand for the Company's products and services resulting from reduced levels
of capital expenditures of oil and gas companies relating to offshore drilling
and exploration activity and reduced levels of capital expenditures of
offshore drilling contractors, which levels of capital expenditures may be
affected by prevailing oil and natural gas prices, expectations about future
oil and natural gas prices, the cost of exploring for, producing and
delivering oil and gas, the sale and expiration dates of offshore leases in
the United States and overseas, the discovery rate of new oil and gas reserves
in offshore areas, local and international political and economic conditions,
the ability of oil and gas companies to access or generate capital sufficient
to fund capital expenditures for offshore exploration, development and
production activities, and other factors, (ii) risks related to expansion of
operations, either at its shipyards or one or more other locations, (iii)
operating risks relating to conversion, retrofit and repair of drilling rigs,
new construction of drilling rigs and production units and the design of new
drilling rigs, new construction and repair of vessels and the design of new
vessels, and the design and manufacture of engineered products (iv) contract
bidding risks, (v) risks related to dependence on significant customers, (vi)
risks related to the failure to realize the level of backlog estimated by the
Company due to determinations by one or more customers to change or terminate
all or portions of projects included in such estimation of backlog, (vii)
risks related to regulatory and environmental matters, and (viii) risks
related to future government funding for certain vessel contracts and
prospects, (ix) risks related to the completion of contracts to construct
offshore drilling rigs and vessels at costs not in excess of those currently
estimated by the Company and prior to the contractual delivery dates and (x)
risks of untimely performance by companies which provide services to the
Company as subcontractors under construction contracts. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated or projected. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, no assurance can
be given that such expectations will prove to have been correct.
Financial Condition
Decreases in balance sheet accounts at September 30, 2000 compared to
December 31, 1999 were primarily attributable to decreases in property plant
and equipment, accounts payable, accrued liabilities, and long-term debt.
These decreases were primarily funded with cash on hand, collections on
accounts receivable, proceeds from the sale of certain fixed assets and the
Yacht and Vessel Repair business units, proceeds from income tax refunds,
proceeds from the sale of shares of common stock, and funds available under
the credit facility. (See "Liquidity and Capital Resources")
Results of Operations
The consolidated financial statements include the accounts of FGH, Inc. and
its wholly-owned subsidiaries, including, among others, Friede Goldman
Offshore, Inc. ("FGO"), Friede & Goldman, Ltd. ("FGL"), Friede Goldman
Newfoundland Limited ("FGN"), Friede Goldman France S.A.S. ("FGF"), and Halter
Marine, Inc. ("Halter") (collectively referred to as the "Company"). These
consolidated statements include the accounts of Halter for all periods
subsequent to November 3, 1999 and all other subsidiaries from their dates of
acquisition. All significant intercompany accounts and transactions have been
eliminated.
14
<PAGE>
Three Months Ended September 30, 2000 vs. Three Months Ended September 30,
1999
The following table sets forth contract revenue earned by business segment
as a percentage of the Company's revenue for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
2000 1999
---------------- ---------------
Amount Percent Amount Percent
-------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Contract revenue earned by business
segment:
Vessels................................ $ 40,960 25.3% $ -- --%
Offshore............................... 88,591 54.6 46,503 89.9
Engineered Products.................... 32,629 20.1 5,196 10.1
-------- ----- ------- -----
$162,180 100.0% $51,699 100.0%
======== ===== ======= =====
</TABLE>
Contract revenue increased 214% to $162.2 million for the quarter ended
September 30, 2000 compared to $51.7 million for the quarter ended September
30, 1999. Of the $110.5 million increase, $41.0 million was attributable to
the Vessels segment, newly acquired in the merger with Halter Marine Group,
Inc. (the "HMG merger") which occurred during the fourth quarter of 1999, and
$27.4 million was attributable to the Engineered Products segment. Included in
the Engineered Products segment is approximately $24.4 million of revenue
generated by operations acquired in the HMG merger. Additionally, revenue in
the Offshore segment increased by $42.1 million. Included in the revenue of
the Offshore segment is approximately $50.5 million of new revenues generated
by offshore entities acquired in the HMG merger. These new revenues were
offset by an $8.4 million decline in revenues generated by the operations of
the Offshore segment existing prior to the merger which was primarily due to
the completion of several contracts during 1999 that were not replaced in 2000
due to a decreased demand for repair, conversion and retrofitting projects.
Gross profit margin increased to $8.6 million or 5.3% for the third quarter
of 2000 compared to a gross loss of $4.4 million or a negative margin of 8.6%
for the third quarter of 1999. Gross profit for the Offshore segment improved
from a loss of $5.4 million or a negative margin of 0.4% for the third quarter
of 1999 to a gross loss of $0.3 million or a negative margin of 0.4% for the
third quarter of 2000. The improved dollar margin resulted from the overall
increase in revenues for this segment; although, the margin percentage
remained stable for the two periods. Also, during the third quarter of 2000, a
loss of approximately $7.1 million was recorded on a contract to construct two
semi-submersible drilling rigs for Ocean Rig ASA due to increased estimated
manhours required to complete this project. These decreases were offset by an
$8.9 million or 17.7% gross profit generated by offshore operations acquired
in the HMG merger. The Company also recognized a gross profit for the newly
acquired Vessels segment of $2.4 million or 5.8% which further improved its
gross profit margin. Additionally, gross profit for the Engineered Products
segment increased $5.7 million from $0.9 million or 17.8% for the third
quarter of 1999 to $6.6 million or 20.2% for the third quarter of 2000.
Selling, general and administrative ("SG&A") expenses increased $7.7 million
to $14.4 million compared to $6.7 million for third quarter of 1999; although,
as a percentage of revenue, SG&A expenses decreased to 8.9% of revenue for the
third quarter of 2000 compared to 13.0% of revenue for the third quarter of
1999. The increase in expenses is primarily attributable to growth in the
Company as a result of the HMG merger. Included in SG&A expenses for the third
quarter of 2000 is approximately $0.8 million of non-recurring expenses
related to the proposed debt offering undertaken during the third quarter
which was subsequently withdrawn.
Amortization of goodwill increased to $2.0 million for the third quarter of
2000 compared to $0.4 million for the third quarter of 1999 as a result of
goodwill recorded in conjunction with the HMG merger.
15
<PAGE>
Net interest expense (interest expense less interest income) increased to
$7.9 million for the third quarter of 2000 compared to $1.4 million for the
third quarter of 1999 primarily as a result of (1) additional interest expense
from the $210.9 million in debt assumed by the Company in connection with the
merger with HMG, (2) increased usage and amortization of fees associated with
the Credit Facility, (3) interest expense in the amount of $2.7 million
related to accretion of the $70.3 million discount recorded to reflect the
fair market value of the $185.0 million 4% Convertible Subordinated Notes
assumed in connection with the HMG merger and (4) a non-recurring charge for
deferred loan fees charged off in connection with the payoff of the $30.0
million in Taxable Revenue bonds as discussed in Note 6 to the financial
statements. (Also, see "Liquidity and Capital Resources").
Other expense decreased by $0.6 million from the third quarter of 1999 as
result of various items, none of which were individually material.
Loss before income taxes increased $1.9 million to a $14.9 million loss for
the third quarter of 2000 compared to a loss of $13.0 million for the third
quarter of 1999. The increased loss was the result of increases in SG&A
expenses, amortization of goodwill and interest expense as discussed above.
The Company expects SG&A expenses to continue at approximately the same
percentage of revenues as currently reflected in the third quarter of 2000 and
amortization of goodwill is expected to remain at approximately the same
level. The Company expects the increase in interest expense to continue during
2000 principally due to the additional debt assumed in the HMG merger,
increased usage and amortization of fees associated with the new credit
facility, and accretion of the discount recorded in association with the 4
1/2% Convertible Subordinated Notes assumed in the HMG merger.
The Company had an income tax benefit of $5.5 million for the third quarter
of 2000 compared to an income tax benefit of $4.4 million for the third
quarter of 1999 reflecting an increase in the Company's effective tax rate to
36.9% for the third quarter of 2000 compared to 34.2% for the third quarter of
1999.
Nine Months Ended September 30, 2000 vs. Nine Months Ended September 30, 1999
The following table sets forth contract revenue earned by business segment
as a percentage of the Company's revenue for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
2000 1999
---------------- ----------------
Amount Percent Amount Percent
-------- ------- -------- -------
(in thousands)
<S> <C> <C> <C> <C>
Contract revenue earned by business
segment:
Vessels............................... $186,126 32.8% $ -- --%
Offshore.............................. 292,737 51.5 303,717 91.9
Engineered Products................... 89,176 15.7 26,628 8.1
-------- ----- -------- -----
$568,039 100.0% $330,345 100.0%
======== ===== ======== =====
</TABLE>
Contract revenue increased 72.0% to $568.0 million for the nine months ended
September 30, 2000 compared to $330.3 million for the nine months ended
September 30, 1999. Of the $237.7 million increase, $186.1 million was
attributable to the Vessels segment, newly acquired in the merger with Halter
Marine Group, Inc. (the "HMG merger") which occurred during the fourth quarter
of 1999, and $62.5 million was attributable to the Engineered Products
segment. Included in the Engineered Products segment is approximately $67.9
million of revenue generated by operations acquired in the HMG merger offset
by a $5.4 million decline in revenue of Engineered Products segment entities
existing prior to the merger which occurred due to a decrease in overall
demand for these products. Revenue increases in the Vessels and Engineered
Products segments were offset by a $11.0 million
16
<PAGE>
decrease in revenues generated by the Offshore segment. Revenues of the
Offshore segment entities existing prior to the merger with HMG decreased by
$186.2 million from the same period last year which was primarily due to the
completion of several contracts during 1999 that were not replaced in 2000 due
to a decreased demand for repair, conversion and retrofitting projects.
Offsetting this decrease were new revenues of approximately $175.2 million
generated by offshore entities acquired in the HMG merger.
The gross profit margin decreased to $21.9 million or 3.8% for the first
nine months of 2000 compared to $41.6 million or 12.6% for the first nine
months of 1999. Gross profit for the Offshore segment decreased from $36.1
million or 11.9% for the first nine months of 1999 to a loss of $16.3 million
or a negative margin of 5.6% for the first nine months of 2000. This decrease
was partially related to a shift in the mix of the segment's business to new
build completion of semi-submersible drilling rigs from the higher margin
business of repair, conversion and retrofitting of drilling rigs.
Additionally, during the nine months ended September 30, 2000, losses of
approximately $31.3 million were recorded on a contract to construct two semi-
submersible drilling rigs for Ocean Rig ASA due to increased estimated
manhours required to complete this project. These decreases were offset by a
$21.8 million or 12.5% gross profit generated by offshore operations acquired
in the HMG merger. Gross profit for the newly acquired Vessels segment was
$22.9 million or 12.3%. Gross profit for the Engineered Products segment
increased $9.8 million or 179.6% from $5.5 million for the first nine months
of 1999 to $15.3 million for the first nine months of 2000 while the gross
profit percentage decreased from 20.6% to 17.2%. These changes are a result of
additional lower margin revenues generated by engineered products operations
acquired in the HMG merger.
Selling, general and administrative ("SG&A") expenses increased $18.7
million to $43.0 million, or 7.6% of revenue, for the first nine months of
2000 compared to $24.3 million, or 7.4% of revenue for the first nine months
of 1999. The overall increase is primarily attributable to growth in the
Company as a result of the HMG merger. Included in SG&A expenses for 2000 is
approximately $0.8 million of non-recurring expenses related to the proposed
debt offering undertaken during the third quarter which was subsequently
withdrawn.
Amortization of goodwill increased to $5.6 million for the first nine months
of 2000 compared to $0.6 million for the first nine months of 1999 as a result
of goodwill recorded in conjunction with the HMG merger.
Net interest expense (interest expense less interest income) increased to
$25.5 million for the first nine months of 2000 compared to $3.1 million for
the first nine months of 1999 primarily as a result of (1) additional interest
expense from the $210.9 million in debt assumed by the Company in connection
with the merger with HMG, (2) increased usage and amortization of fees
associated with the new credit facility, (3) interest expense in the amount of
$7.9 million related to accretion of the $70.3 million discount recorded to
reflect the fair market value of the $185.0 million 4% Convertible
Subordinated Notes assumed in connection with the HMG merger and (4) a non-
recurring charge for deferred loan fees charged off in connection with the
payoff of the $30.0 million in Taxable Revenue bonds as discussed in Note 6 to
the financial statements. (Also, see "Liquidity and Capital Resources").
Income (loss) before income taxes decreased $65.9 million to a $52.4 million
loss for the first nine months of 2000 compared to income of $13.6 million for
the first nine months of 1999. The decrease was the result of a decline in
gross profit margin as well as increases in SG&A expenses, amortization of
goodwill and interest expense as discussed above. The Company does not expect
its gross margin to improve significantly during 2000, principally because its
Offshore segment contains several contracts on which it expects to earn
minimal gross profit. The Company expects SG&A expenses to continue at
approximately the same level of revenues as currently reflected in the most
recent quarter 2000; however, it is currently evaluating budgeted SG&A
expenditures for 2001 in an attempt to identify spending reductions.
Amortization of goodwill is expected to remain at approximately the same
17
<PAGE>
level. The Company expects the increase in interest expense to continue during
2000 principally due to the additional debt assumed in the HMG merger,
increased usage and amortization of fees associated with the new credit
facility, and accretion of the discount recorded in association with the 4%
Convertible Subordinated Notes assumed in the HMG merger.
The Company had an income tax benefit of $21.8 million for the first nine
months of 2000 compared to income tax expense of $4.1 million for the first
nine months of 1999 primarily reflecting the Company's pretax loss of $52.4
million for the first nine months of 2000 compared to pretax income of $13.6
million for the first nine months of 1999.
The Company's construction backlog of $403.5 million at September 30, 2000
decreased $285.6 million compared to $689.1 million at December 31, 1999 and
increased $65.6 compared to $337.9 million at September 30, 1999. At September
30, 2000, backlog by segment was as follows: Vessels, $144.1 million;
Offshore, $171.3 million; and Engineered Products, $88.1 million.
Liquidity and Capital Resources
The Company's principal needs for capital are the funding of ongoing
operations and capital expenditures. The Company's principal sources of
liquidity during the first nine months of 2000 were cash balances, including
those generated through collections of accounts receivable, income tax
refunds, proceeds from the sale of certain fixed assets and the Company's
yacht and vessel repair divisions as well as proceeds from the sale of common
stock. Cash flows from these sources were $15.1 million from cash and cash
equivalent balances at the beginning of the period, $51.9 million from a
decrease in accounts receivable, $42.2 from cash refunds of income taxes, $7.6
million from the sale of certain fixed assets, $5.7 million from the sale of
the yacht division, $80.0 million from the sale of the vessel repair division,
and $69.5 million in proceeds generated through the sale of 8.8 million shares
of the Company's common stock.
During the nine months ended September 30, 2000, the Company incurred
approximately $3.6 million in capital expenditures compared to $6.8 million
during the nine months ended September 30, 1999. The Company anticipates that
its level of capital expenditures during 2000 will not exceed $10.0 million.
In connection with the merger with HMG, on November 3, 1999, the Company
entered into a new secured bank revolving and letter of credit facility ("the
Credit Facility") that replaced the Company's existing credit facility. Under
the terms of the Credit Facility, the Company was allowed to borrow up to
$120.0 million under a senior secured revolving credit facility. In addition,
the Credit Facility provided an approximate $44.2 million senior secured
letter of credit facility. The Credit Facility had a three-year term and was
secured by substantially all of the Company's otherwise unencumbered assets,
all of the stock of the Company's domestic subsidiaries and 67% of the stock
of its foreign subsidiaries. The interest rate ranged from 1.375% to 2.75%
over the London Inter Bank Offered Rate ("LIBOR"), or the base rate (as
defined), at the Company's choice. Under the Credit Facility, the Company was
obligated to pay certain fees, including an annual commitment fee in an amount
of 0.50% of the unused portion of the commitment.
Effective October 24, 2000, the Company entered into a $110.0 million
amended and restated credit agreement, comprised of a $70.0 million line of
credit and a $40.0 million term loan (collectively, "the Restated Credit
Agreement"). The Restated Credit Agreement has a three-year term. The line of
credit is secured by substantially all of the Company's otherwise unencumbered
assets, including accounts receivable, inventory, equipment, real property and
all of the stock of the Company's domestic subsidiaries and 67% of the stock
of its Canadian subsidiary. The term loan is secured by a subordinated
security interest in the line of credit collateral.
Under the terms of the Restated Credit Agreement, the Company may borrow up
to $70.0 million under a senior secured revolving line of credit facility,
which includes a $65.0 million sub-limit for
18
<PAGE>
issuing letters of credit. Availability under the line of credit is based on
specified percentages of the Company's accounts receivable, inventory,
equipment and real property. The interest rate on the line of credit is based
on LIBOR or the base rate (as defined), at the Company's option, with a floor
of 7.5%. During the first year of the line of credit the spread is fixed at
3.75% over LIBOR and 1.75% over the base rate; thereafter the LIBOR option
ranges from 3.25% to 4.25% over LIBOR and the base rate option ranges from
1.25% to 2.25% over the base rate, (as defined). The Company is also obligated
to pay certain fees, including a commitment fee equal to (i) during year one
of the facility, 0.50% of the unused portion of the line of credit and (ii)
thereafter, a range of 0.25% to 0.50% of the unused portion of the line of
credit.
The term loan is a $40.0 million interest-only three-year facility. The term
loan bears interest at the base rate (as defined) plus 5.5% with a floor of
13% and, at the Company's option, the ability to capitalize 1.5% of the
current interest charge through maturity. Proceeds from the term loan were
used to repay the existing credit facility in its entirety.
The Restated Credit Agreement requires the Company to comply with certain
financial covenants including limitations on additional borrowings and capital
expenditures, certain debt coverage ratios, minimum EBITDA (earnings before
interest, taxes, depreciation and amortization) and other customary
requirements.
On September 26, 2000, the Company paid off its Mississippi Business Finance
Corporation Taxable Revenue Bonds, Series 1998 in the aggregate principal
amount of $30.0 million. The Bonds, originally issued on January 1, 1998, were
scheduled to mature on December 31, 2013.
In 2000, the Company initiated a liquidity campaign through the sale of non-
core assets and the acceleration of certain claims. The Company has raised
approximately $131.0 million through the date of this Form 10-Q, of which
$80.0 million relates to the sale of our vessel repair business. The Company
is also actively marketing excess real estate and non-strategic investments
that could provide additional cash proceeds.
The Company expects that funding losses associated with its Ocean Rig and
Petrodrill contracts will negatively impact its cash flow over the next 12
months which could significantly impact its liquidity.
On June 22, 2000, the Company completed an offering of 8,750,000 shares of
its common stock at a price of $8.25 per share. The offering generated $69.7
million in net proceeds.
The Company believes that cash on hand, cash generated from operations, the
settlement of certain recoverable contract claims, funds available under the
Restated Credit Agreement and other liquidity campaign events will be
sufficient to fund its requirements for working capital (including contract
losses), capital expenditures, and other capital needs for at least the next
12 months. However, additional debt or equity financing or asset sales may be
required if estimated costs on the Ocean Rig contracts and/or the Petrodrill
contracts are materially higher than current estimates or if our level of
business activity picks up considerably and the Company is unable to negotiate
contact terms that provide for contract funding as costs are incurred.
Although the Company believes that under such circumstances, it would be able
to obtain additional funding from these sources, there can be no assurance
that funding from these sources will be available for these purposes or, if
available, will be on satisfactory terms.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's market risk disclosures set forth in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999 have not
changed significantly through the period ended September 30, 2000.
19
<PAGE>
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
There have been no significant developments with regard to matters discussed
in the Company's disclosures surrounding litigation settlement and
contingencies as set forth in Note 13 to the Consolidated Financial Statements
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1999.
Regarding developments with regard to matters discussed in the Company's
disclosures surrounding contractual matters as set forth in Note 14 to the
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999, refer to Note 7 to the
Consolidated Financial Statements contained in Part I of this Form 10-Q.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<C> <S>
*10.1 Amended & Restated Loan and Security Agreement, dated October 24,
2000 by and among Friede Goldman Halter, Inc. and each of its
subsidiaries as signatories thereto and Foothill Capital
Corporation, as arranger and administrative agent.
*27.1 Financial Data Schedule
</TABLE>
--------
* Filed herewith
(b) Reports of Form 8-K.
No Current Reports on Form 8-K were filed by the Company during the third
quarter of 2000.
20
<PAGE>
SIGNATURES
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, in the City of Gulfport, State of
Mississippi, on the 14th day of November 2000.
FRIEDE GOLDMAN HALTER, INC.
/s/ Emile J. Dumesnil
By: _________________________________
Emile J. Dumesnil
Sr. Vice President--Finance
21
