<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 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 64-0900067
(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: 39,956,479 shares as of April
30, 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 March 31, 2000 and
December 31, 1999....................................... 3
Consolidated Statements of Operations for the three
months ended March 31, 2000 and 1999.................... 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 2000 and 1999.................... 5
Notes to Consolidated Financial Statements............... 6
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 13
Item 3.Quantitative and Qualitative Disclosures of Market
Risk........................................................ 16
Part II.Other Information
Item 1.Legal Proceedings..................................... 17
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.............................................. 17
Signatures...................................................... 18
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1--Financial Statements
FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
ASSETS
------ (Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 6,901 $ 15,124
Accounts receivable................................. 131,602 143,037
Income tax receivable............................... 37,748 38,657
Inventories......................................... 40,068 45,261
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... 140,693 143,769
Prepaid expenses and other.......................... 14,827 17,048
Deferred income tax asset........................... 35,783 45,403
-------- ----------
Total current assets.............................. 407,622 448,299
-------- ----------
Investment in unconsolidated subsidiary............... 13,035 13,035
Property, plant and equipment, net of accumulated
depreciation......................................... 329,348 334,642
Goodwill, net of accumulated amortization............. 192,807 195,137
Other assets.......................................... 9,384 9,779
-------- ----------
$952,196 $1,000,892
======== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Short-term debt, including current portion of long-
term debt.......................................... $ 9,441 $ 13,645
Accounts payable.................................... 94,824 115,918
Accrued liabilities................................. 89,963 117,966
Reserve for losses on uncompleted contracts......... 59,847 66,226
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... 62,677 50,725
-------- ----------
Total current liabilities......................... 316,752 364,480
Deferred income tax liability......................... 57,298 56,190
Long-term debt, less current portion.................. 301,196 299,075
Other................................................. 462 --
-------- ----------
Total liabilities................................. 675,708 719,745
-------- ----------
Deferred government subsidy, net of accumulated
amortization......................................... 32,425 33,026
Stockholders' equity:
Preferred stock..................................... -- --
Common stock........................................ 400 400
Additional paid-in capital.......................... 230,166 230,166
Retained earnings................................... 15,392 18,520
Treasury stock...................................... (157) --
Accumulated other comprehensive income (loss)....... (1,738) (965)
-------- ----------
Total stockholders' equity........................ 244,063 248,121
-------- ----------
$952,196 $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 March 31,
------------------
2000 1999
-------- --------
<S> <C> <C>
Contract revenue earned..................................... $211,853 $145,156
Cost of revenue earned...................................... 191,284 119,233
-------- --------
Gross profit.............................................. 20,569 25,923
Selling, general and administrative expenses................ 13,864 9,828
Amortization of goodwill.................................... 1,968 87
-------- --------
Operating income........................................ 4,737 16,008
-------- --------
Other expense:
Interest expense, net..................................... 8,393 795
Other..................................................... 298 3
-------- --------
Total other expense..................................... 8,691 798
-------- --------
Income (loss) before income taxes..................... (3,954) 15,210
Provision for income tax expense (benefit).................. (826) 5,203
-------- --------
Net income (loss)......................................... $ (3,128) $ 10,007
======== ========
Net income (loss) per share:
Basic..................................................... $ (0.08) $ 0.43
======== ========
Diluted................................................... $ (0.08) $ 0.43
======== ========
Weighted average shares outstanding:
Basic..................................................... 39,956 23,347
Diluted................................................... 39,956 23,539
</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>
Three months
ended March 31,
------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (3,128) $ 10,007
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization............................ 9,777 1,609
Provision for loss on uncompleted contracts.............. (1,447) --
Compensation expense related to stock or stock options
issued to employees..................................... -- 49
Gain on sale of assets................................... -- (38)
Deferred income taxes.................................... 10,542 168
Changes in operating assets and liabilities:
(Increase) decrease in receivables....................... 11,274 (6,270)
Decrease in income tax receivable........................ 909 --
Decrease in inventories.................................. 4,891 914
Decrease in other assets................................. 2,547 134
Decrease in accounts payable and accrued liabilities..... (48,854) (1,646)
Increase (decrease) in billings in excess of costs and
estimated earnings on uncompleted contracts............. 7,301 (7,332)
(Increase) decrease in costs and estimated earnings in
excess of billings on uncompleted contracts............. 3,018 (14,070)
-------- --------
Net cash used in operating activities ................. (3,170) (16,475)
-------- --------
Investing activities:
Capital expenditures for plant and equipment.............. (646) (3,661)
Proceeds from sale of property, plant and equipment....... 184 --
-------- --------
Net cash used in investing activities.................. $ (462) $ (3,661)
-------- --------
Financing activities:
Proceeds from exercise of stock options................... $ -- $ 120
Net borrowings under line of credit....................... 671 3,287
Proceeds from borrowings under debt facilities............ 1,191 1,931
Repayments on borrowing under debt facilities............. (5,955) (2,951)
Purchase of treasury stock................................ (157) --
-------- --------
Net cash provided by (used in) financing activities.... (4,250) 2,387
-------- --------
Effect of exchange rate changes on cash................... (341) (887)
-------- --------
Net decrease in cash and cash equivalents................. (8,223) (18,636)
Cash and cash equivalents at beginning of period.......... 15,124 42,796
-------- --------
Cash and cash equivalents at end of period................ $ 6,901 $ 24,160
======== ========
Supplemental disclosures:
Cash paid during the period for interest.................. $ 8,647 $ 1,302
======== ========
Cash refunds received during the period for income taxes.. $ 12,406 $ --
======== ========
Cash paid during the period for income taxes.............. $ -- $ 1,429
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 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 $187.7 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>
Pro Forma
Results for The
Three
Months Ended
March 31, 1999
---------------
(in 000's,
except per
share data)
<S> <C>
Contract revenue earned...................................... $383,502
Operating income............................................. $ 18,657
Net income................................................... $ 11,498
Net income per common share-basic............................ $ 0.29
Net income per common share-diluted.......................... $ 0.29
</TABLE>
6
<PAGE>
FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
March 31, 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. 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.
<TABLE>
<CAPTION>
Three months ended March 31, 2000
-------------------------------------------------------------
Engineered Intersegment
Vessels Offshore Products Corporate Eliminations Total
-------- -------- ---------- --------- ------------ --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 84,285 $101,157 $26,411 $ -- $ -- $211,853
Operating income
(loss)................. $ 7,554 $ 2,185 $ 2,215 $ (7,217) $ -- $ 4,737
Total assets............ $260,264 $321,248 $83,603 $440,968 $(153,887) $952,196
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31, 1999
---------------------------------------------------
Engineered Intersegment
Offshore Products Corporate Eliminations Total
-------- ---------- --------- ------------ --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues................... $131,152 $14,004 $ -- $ -- $145,156
Operating income (loss).... $ 18,357 $ 1,200 $(3,549) $ -- $ 16,008
Total assets............... $264,885 $57,977 $70,569 $(78,467) $314,964
</TABLE>
7
<PAGE>
FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
March 31, 2000
4. RECONCILIATION OF NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per share:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------
2000 1999
------- -------
(in 000's,
except per
share data)
<S> <C> <C>
Numerator:
Net income (loss)....................................... $(3,128) $10,007
======= =======
Numerator for net income (loss) per share, diluted...... $(3,128) $10,007
======= =======
Denominator:
Denominator for net income per share-weighted average
shares outstanding..................................... 39,956 23,347
Effect of dilutive securities:
Stock options......................................... -- 192
------- -------
Denominator for net income (loss) per share, diluted.... 39,956 23,539
======= =======
Net income (loss) per share............................... $( 0.08) $ 0.43
======= =======
Net income (loss) per share, diluted...................... $( 0.08) $ 0.43
======= =======
</TABLE>
For the three months ended March 31, 2000, the effect on net income per
share, diluted, would be 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
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," as of January 1, 1998. Other comprehensive
income includes foreign currency translation adjustments. Total comprehensive
income was as follows:
<TABLE>
<CAPTION>
Three months
ended March 31,
----------------
2000 1999
------- -------
(in thousands)
<S> <C> <C>
Net income (loss).......................................... $(3,128) $10,007
Other comprehensive income (loss):
Foreign currency translation............................. (773) (450)
------- -------
Comprehensive income (loss)................................ $(3,901) $ 9,557
======= =======
</TABLE>
8
<PAGE>
FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
March 31, 2000
6. NEW 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
New Credit Facility") that replaced the Company's prior credit facility. Under
the terms of the New Credit Facility, the Company may borrow up to $120.0
million under a senior secured revolving credit facility. In addition, the New
Credit Facility provides an approximate $44.2 million senior secured letter of
credit facility. The New Credit Facility has a three-year term and is secured
by substantially all of the Company's otherwise unencumbered assets, all of
the Company's domestic subsidiaries and 67% of the stock of its foreign
subsidiaries. The interest rate ranges 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; although, this was amended during the first quarter of 2000
as discussed below. Under the New Credit Facility, the Company is obligated to
pay certain fees, including an annual commitment fee in an amount of 0.50% of
the unused portion of the commitment.
The New Credit Facility requires the Company to comply with certain
financial covenants, including limitations on additional borrowings and
capital expenditures, certain debt coverage ratios, minimum net worth and
other customary requirements. On March 28, 2000, the New Credit Facility was
amended to, among other things, revise the leverage ratio, the fixed charge
coverage ratio and the minimum net worth requirement; and, to require the
commitment amount under the New Credit Facility to be reduced by 75% of the
net proceeds of asset sales. The amendment also changed the interest rate to
the lender's base rate plus 2.0% per annum until the Company completes certain
of its contracts. It is not anticipated that the Company will complete these
contracts until the fourth quarter of 2001. In connection with the amendment,
the Company is obligated to pay certain fees, including an annual commitment
fee in an amount of 1.0% of the unused portion of the commitment.
Amounts outstanding under the New Credit Facility may not exceed an amount
based on specified percentages of the Company's accounts receivable, inventory
and net contract related investments. At March 31, 2000, the Company had
$115.7 million in cash advances under the credit agreement with $4.3 million
available under the New Credit Facility. Average usage since December 31, 1999
has been $104.8 million, resulting in an average availability of $15.2 over
the same period.
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. The Company commenced construction of one rig in June 1998 and the
other in January 1999. In late July and early August 1999, Friede Goldman
initiated discussions with Ocean Rig with respect to anticipated delays in the
completion and delivery of the two rigs from the original delivery dates of
August 26, 1999 and November 23, 1999. The Company asserted that Ocean Rig was
responsible for the delays and certain cost increases due to Ocean Rig-
initiated design changes and late delivery by Ocean Rig of information and
equipment required to be provided to the Company by Ocean Rig pursuant to the
terms of the construction contracts.
Friede Goldman entered into negotiations with Ocean Rig in early August 1999
for the purpose of seeking compensation from Ocean Rig for additional costs
and delay damages resulting from the
9
<PAGE>
FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
March 31, 2000
Ocean Rig-initiated design changes and late deliveries of information and
equipment. In connection with these negotiations, Ocean Rig denied
responsibility for causing the delivery delays and indicated that it would
seek delay damages from Friede Goldman in the event that the delivery dates
were not met.
On August 16, 1999, the Company and Ocean Rig entered into an agreement
providing for new delivery dates of March 31, 2000 and June 30, 2000 for the
two rigs. As part of this agreement, Ocean Rig agreed to make all payments
when due and as construction milestones are met in accordance with the two
contracts. The agreement also required both parties to submit supporting
documentation relating to their respective claims and required the parties to
meet to negotiate a resolution of their dispute. A resolution between the
parties was not reached and fast track arbitration with respect to the claims
was initiated by Ocean Rig in London, England on September 3, 1999. The
Company asserted an arbitration claim in excess of $75.0 million seeking
compensation for additional costs and delay damages relating to the
construction of the two rigs.
Ocean Rig sought liquidated damages and damages at large for delay of up to
$28.0 million. The dispute between the Company and Ocean Rig was settled
pursuant to the terms and conditions of a Confidential Settlement Agreement
dated January 18, 2000. Among other things, the settlement with Ocean Rig
provided for an increase of $21.5 million in the contract price of each rig
and revised delivery dates of October 2000 and December 2000 for the two rigs;
and total liquidated damages for late delivery beyond the new delivery dates
of up to $7.5 million for each rig.
The Company has adjusted previously recognized revenues and gross profits to
reflect the percentage of completion based on the revised delivery dates and
related cost estimates and expected recoveries as of December 31, 1999. There
were no material changes to this adjustment during the first quarter of 2000.
The amount of the adjustment at December 31, 1999 was based on, among other
things, the outcome of the settlement negotiations and management's estimate
of the percentage of completion of the projects at the end of the year.
In accordance with the terms of the Confidential Settlement Agreement, both
parties agreed to engage a third party project evaluation consultant ("the
Consultant") to review the estimates to complete the projects and the
projected delivery dates. The Company expects to receive a report on the
findings of the Consultant during the second quarter of 2000. To the extent
that the estimates to complete and projected delivery dates of the Consultant
materially differ from those of the Company, the Company will reevaluate its
estimated costs to complete the two rigs, including potential liquidated
damages. It is possible that the Company may be required to record adjustments
to its previous estimates that could result in the Company increasing its
reserve for losses on the contracts. At March 31, 2000, included in the
balance sheet classification "Reserve for losses on uncompleted contracts,"
was $15.1 million related to these contracts.
Petrodrill
In April 1998, TDI-Halter, L.P., now Friede Goldman Offshore Texas, L.P.
("FGOT"), a subsidiary of the Company, entered into contracts to construct two
semi-submersible drilling rigs for Petrodrill IV Ltd. and Petrodrill V, Ltd.
(collectively, "Petrodrill") with the combined contract value of $168.0
million (the "Contracts"). FGOT provided certain bonds issued by Fireman's
Fund guaranteeing FGOT's performance under the Contracts. After FGOT commenced
construction of the two rigs, FGOT began
10
<PAGE>
FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
March 31, 2000
to experience delays in the production schedule and increased costs due, in
whole or part, to delays caused by Petrodrill and by certain subcontractors
nominated for FGOT's use by Petrodrill, and by FGOT's performing as the lead
yard as opposed to a follow-on yard as anticipated by the parties.
In April 1999, and in connection with a transaction whereby the Federal
Maritime Administration ("MARAD") agreed to finance the Petrodrill rigs, FGOT
and Petrodrill entered into an amendment to the Contracts that provided, among
other things, for extensions to the delivery dates of approximately six months
for each rig. Thereafter, production delays continued. Under the Contracts,
FGOT is entitled to extensions of the delivery dates for permissible delay as
defined in the Contracts ("Permissible Delay") and for delays caused by
Petrodrill's breaches of contract. FGOT notified Petrodrill that, as a result
of such delays, it was entitled to additional extension of the delivery dates
and to additional compensation. Petrodrill refused to acknowledge FGOT's right
to extension of the delivery dates. Petrodrill was also advised that the rigs
could not be completed by their respective existing delivery dates.
Due to Petrodrill's refusal to grant extensions to the delivery dates, FGOT
notified Petrodrill in January 2000 that it was mitigating its and
Petrodrill's damages by deferring certain fabrication efforts until
engineering work could be completed so that construction could go forward in
an efficient manner. FGOT also notified Petrodrill that it believed it was
entitled to additional monetary compensation from Petrodrill as a result of
delay, disruption, inefficiencies and other direct and indirect costs caused
by, among other things, delays by Petrodrill and its nominated subcontractors
and by FGOT being required to perform as the lead yard.
On January 13, 2000, Petrodrill filed suit against the Company and FGOT, in
state court in Houston, Texas asserting, among other things, that the Company
and FGOT had tortiously interfered with FGOT's Contracts with Petrodrill,
seeking injunctive relief and damages. On January 19, 2000, the case was
removed to the federal district court in Houston (the "US litigation"). On
January 27, 2000, the Company filed a counterclaim and FGOT filed a complaint
against Petrodrill in the US litigation asserting breach of contract, and
seeking monetary damages, reformation of contract and declaratory relief.
On January 27, 2000, Petrodrill filed an action against FGOT in the court in
London, England, (the "UK action") seeking essentially the same relief on
different theories as it had in the US litigation. In March, the court in
London dismissed Petrodrill's application for interim relief that FGOT was not
entitled to cease construction work; confirmed that the proper jurisdiction
and forum for the disputes was the court in London; and ordered a stay of the
U.S. litigation. As directed by the UK court, FGOT filed a counterclaim
seeking monetary damages under various legal theories.
11
<PAGE>
FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
March 31, 2000
During March and April 2000, FGOT and Petrodrill reached a preliminary
agreement to amend the Contracts (the "Amendment No. 2"). This preliminary
agreement is subject to various approvals, including that of MARAD, Fireman's
Fund (FGOT's surety), and the Boards of Directors of each company. The
currently proposed Amendment No. 2 provides that the delivery dates for the
rigs will be extended; Petrodrill and FGOT will waive all of their claims
against each other accruing prior to the Amendment, including Petrodrill's
right to terminate the Contracts for events occurring prior to the Amendment;
total liquidated damages for late delivery beyond the new delivery dates will
be capped at an amount to be negotiated for each rig; any future right of
Petrodrill to terminate each Contract will accrue only if the respective rig
is not delivered within 180 days of its extended delivery date, as such date
may be further extended under other contractual provisions. The principal
difference between the preliminary Amendment No. 2 as previously disclosed in
Form 10-K for the year ended December 31, 1999, and the currently proposed
Amendment No. 2 is that the Company is negotiating with Petrodrill to settle
its UK litigation, including the Company's claims against Petrodrill.
Notwithstanding the Amendment, the Company intends to proceed with
construction of the rigs while pursuing any and all remedies available to it
under the Contracts and applicable law. If the contract delivery dates are not
extended as provided in Amendment No. 2 for any reason, including any failure
to obtain an approval required for Amendment No. 2 to become effective, FGOT
will not be in a position to deliver the rigs on or before the pre-Amendment
delivery dates, or the date on which Petrodrill's contractual right to
terminate the Contracts will accrue. Petrodrill's remedies upon termination
include among others, the right to rescind the Contracts, transfer the rigs to
FGOT, and demand reimbursement for all amounts paid, including amounts paid
for owner furnished equipment. FGOT would likely not be in a position to meet
such a demand, and if such demand was successfully asserted, it could have a
material adverse effect on the Company.
Based upon current estimates, the Company believes that it will incur
approximately $60.0 million in costs in excess of the contract prices, as
adjusted for change orders, to complete the contracts. A provision for these
excess costs has been provided in the Company's purchase accounting treatment
of assets and liabilities acquired through the merger with HMG. The funding of
these costs could have a significant impact on the Company's liquidity. The
balance of the excess costs at March 31, 2000 was approximately $44.8 million
and is included in the reserve for losses on uncompleted contracts in the
consolidated balance sheets. Management expects such costs will be expended by
the Company over eighteen months beginning in April 2000.
12
<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 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 March 31, 2000 compared to December
31, 1999 were primarily attributable to decreases in accounts payable, accrued
liabilities, and short-term debt. These decreases were primarily funded with
cash on hand, collections on accounts receivable, and proceeds from an income
tax refund. (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.
13
<PAGE>
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 March 31,
---------------------------------
2000 1999
---------------- ----------------
Amount Percent Amount Percent
-------- ------- -------- -------
(in thousands)
<S> <C> <C> <C> <C>
Contract revenue earned by business
segment:
Vessels............................... $ 84,285 39.8% $ -- --%
Offshore.............................. 101,157 47.7 131,152 90.4
Engineered Products................... 26,411 12.5 14,004 9.6
-------- ----- -------- -----
$211,853 100.0% $145,156 100.0%
======== ===== ======== =====
</TABLE>
Three Months Ended March 31, 2000 vs. Three Months Ended March 31, 1999
Contract revenue increased 46.0% to $211.9 million for the quarter ended
March 31, 2000 compared to $145.2 million for the quarter ended March 31,
1999. Of the $66.7 million increase, $84.3 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 $12.4
million was attributable to the Engineered Products segment. Included in the
Engineered Products segment is approximately $20.4 million of revenue
generated by operations acquired in the HMG merger offset by an $8.0 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 $30.0 million decrease in revenues generated by the Offshore
segment 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 $63.3 million generated by offshore entities
acquired in the HMG merger.
The gross profit margin decreased to $20.6 million or 9.7% for the first
quarter of 2000 compared to $25.9 million or 17.9% for the first quarter of
1999. Gross profit for the Offshore segment decreased from $22.8 million or
17.4% for the first quarter of 1999 to $6.0 million or 5.9% for the first
quarter of 2000. This decrease was primarily 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. During the first quarter of 2000, a loss was recorded on one
contract and minimal gross profit was experienced on others. These decreases
were offset by an $8.5 million or 13.3% gross profit generated by offshore
operations acquired in the HMG merger. Gross profit for the newly acquired
Vessels segment was $9.4 million or 11.2%. Gross profit for the Engineered
Products segment increased $2.0 million or 64.5% from $3.1 million for the
first quarter of 1999 to $5.1 million for the first quarter of 2000 while the
gross profit percentage decreased from 22.3% to 19.4%. These changes are a
result of additional lower margin revenues generated by engineered products
operations acquired in the HMG merger.
Selling, general and administrative ("S,G&A") expenses increased $4.1
million to $13.9 million, or 6.5% of revenue, for the first quarter of 2000
compared to $9.8 million, or 6.8% of revenue for the first quarter of 1999.
The increase is primarily attributable to growth in the Company as a result of
the HMG merger.
Amortization of goodwill increased to $2.0 million for the first quarter of
2000 compared to $0.1 million for the first quarter of 1999 as a result of
goodwill recorded in conjunction with the HMG merger.
Net interest expense (interest expense less interest income) increased to
$8.4 million for the first quarter of 2000 compared to $0.8 million for the
first quarter of 1999 primarily as a result of
14
<PAGE>
(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, and (3) interest
expense in the amount of $2.5 million related to accretion of the $70.3
million discount recorded to reflect the fair market value of the $185.0
million 4 1/2% Convertible Subordinated Notes assumed in connection with the
HMG merger (See "Liquidity and Capital Resources").
Other expense increased by $0.3 million from the first quarter of 1999 as
result of various items, none of which were individually material.
Income (loss) before income taxes decreased $19.2 million to a $4.0 million
loss for the first quarter of 2000 compared to income of $15.2 million for the
first quarter 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 first 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 $0.8 million for the first quarter
of 2000 compared to income tax expense of $5.2 million for the first quarter
of 1999 reflecting the Company's pretax loss of $4.0 million for the first
quarter of 2000 compared to pretax income of $15.2 million for the first
quarter of 1999.
The Company's construction backlog of $543.4 million at March 31, 2000
decreased 21.1% compared to $689.1 million at December 31, 1999 and increased
33.5% compared to $407.0 million at March 31, 1999. At March 31, 2000, backlog
by segment was as follows: Vessels, $131.2 million; Offshore, $302.7 million;
and Engineered Products, $102.0 million. Included in Vessels backlog at March
31, 2000 was $28.6 million related to the Yachts Division which was sold in
April 2000.
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 current quarter were cash balances, including those
generated through collections of accounts receivable and an income tax refund.
Cash flows from these sources were $15.1 million from cash and cash equivalent
balances at the beginning of the period, $11.3 million from a decrease in
accounts receivable, and a $12.4 cash refund of income taxes.
During the three months ended March 31, 2000, the Company incurred
approximately $0.6 million in capital expenditures compared to $3.7 million
during the three months ended March 31, 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 the New Credit Facility that replaced the Company's prior credit
facility. Under the terms of the New Credit Facility, the Company may borrow
up to $120.0 million under a senior secured revolving credit facility. In
addition, the New Credit Facility provides an approximate $44.2 million senior
secured letter of credit facility. The New Credit Facility has a three-year
term and is secured by substantially all of the Company's otherwise
unencumbered assets, all of the Company's domestic subsidiaries and 67% of the
stock of its foreign subsidiaries. The interest rate ranges from 1.375% to
2.75% over the London
15
<PAGE>
Inter Bank Offered Rate ("LIBOR"), or the base rate (as defined), at the
Company's choice; although, this was amended during the first quarter of 2000
as discussed below. Under the New Credit Facility, the Company is obligated to
pay certain fees, including an annual commitment fee in an amount of 0.50% of
the unused portion of the commitment.
The New Credit Facility requires the Company to comply with certain
financial covenants, including limitations on additional borrowings and
capital expenditures, certain debt coverage ratios, minimum net worth and
other customary requirements. On March 28, 2000, the New Credit Facility was
amended to, among other things, revise the leverage ratio, the fixed charge
coverage ratio and the minimum net worth requirement; and, to require the
commitment amount under the New Credit Facility to be reduced by 75% of the
net proceeds of asset sales. The amendment also changed the interest rate to
the lender's base rate plus 2.0% per annum until the Company completes certain
of its contracts. It is not anticipated that the Company will complete these
contracts until the fourth quarter of 2001. In connection with the amendment,
the Company is obligated to pay certain fees. Including an annual commitment
fee in an amount of 1.0% of the unused portion of the commitment.
Amounts outstanding under the New Credit Facility may not exceed an amount
based on specified percentages of the Company's accounts receivable, inventory
and net contract related investments. At March 31, 2000, the Company had
$115.7 million in cash advances under the credit agreement with $4.3 million
available under the New Credit Facility. Average usage since December 31, 1999
has been $104.8 million, resulting in an average availability of $15.2 over
the same period.
The Company believes that cash generated from operations, cash on hand, the
collection of income taxes paid in prior years, the settlement of certain
recoverable contract claims, and funds available under the New Credit Facility
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 and to remain in compliance with the new loan covenants.
However, additional debt or equity financing or asset sales may be required it
the Company's estimated costs on the Ocean Rig contracts and/or the Petrodrill
contracts are materially higher than those utilized in preparing the financial
statements at March 31, 2000 or if the Company's level of business activity
picks up considerably and the Company is unable to negotiate contract 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 to the Company for these purposes or, if available,
will be on terms satisfactory to the Company.
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 March 31, 2000.
16
<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 Amendment No. 2, dated March 28, 2000, to Credit Agreement, among
Friede Goldman Halter, Inc. and Wells Fargo Bank (Texas) National
Association, as administrative agent and co-arranger, Banc One
Capital Markets, Inc., as co-arranger and syndication agent, and
the lenders party thereto.
*27.1 Financial Data Schedule
</TABLE>
- --------
* Filed herewith
(b) Reports of Form 8-K.
The Company filed Current Reports on Form 8-K on the following dates:
January 12, 2000
February 22, 2000
17
<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 15th day of May 2000.
FRIEDE GOLDMAN HALTER, INC.
/s/ Rick S. Rees
By:__________________________________
Rick S. Rees, Executive Vice-
President and
Chief Financial Officer
18
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 2
TO
CREDIT AGREEMENT
AMENDMENT NO. 2 ("Amendment No. 2") dated as of March 28, 2000 (the
"Amendment Date") to the Credit Agreement dated as of November 3, 1999 (the
"Credit Agreement"), among FRIEDE GOLDMAN HALTER, INC., a corporation organized
and existing under the laws of the State of Mississippi (the "Borrower"), the
financial institutions from time to time party thereto (the "Lenders"), WELLS
FARGO BANK (TEXAS), NATIONAL ASSOCIATION, a national banking association, as
Administrative Agent and Co-Arranger (the "Agent"), and BANK ONE CAPITAL
MARKETS, INC., as Co-Arranger and Syndication Agent.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders made available to
the Borrower a loan facility of up to USD 164,218,250, as evidenced by the
promissory notes of the Borrower dated November 3, 1999; and
WHEREAS, the parties wish to amend certain provisions of the Credit
Agreement as set forth herein.
NOW THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree to amend the Credit Agreement as follows:
1. Section 1.1 is hereby amended as follows:
1.1 The definition of "Amendment Date" is hereby added to Section 1.1
and reads as follows:
"'Amendment Date' means the date of Amendment No. 2 to this Credit
Agreement."
1.2 The second sentence of the definition of "Applicable Commitment
Fee Percentage" is deleted in its entirety and the following shall be
substituted in place thereof:
"Notwithstanding the foregoing table or anything else herein contained
to the contrary, from and after April 1, 2000, the Applicable
Commitment Fee Percentage shall be 1.0% until the delivery to the
purchaser of each and every vessel to be delivered under the Ocean Rig
Contracts and the Petrodrill Rig Contracts, after which date, and
provided that no Default or Event of Default has occurred and is
continuing, the Applicable Commitment Fee Percentage shall be reduced
to the rate of 0.75%, until the earlier of (x) December 31, 2000 and
(y) the Voluntary Step Down Date after which date the foregoing table
shall be applicable."
<PAGE>
1.3 The table set forth in the definition of "Applicable Margin
Amount" is deleted in its entirety and the following shall be substituted
in place thereof:
Applicable Margin
(basis points)
-------------------------
Borrower's LIBOR Base Rate
Leverage Ratio Margin Margin
------------------ --------- -----------
Level I: (less than) 1.0 137.5 25.0
Level II: (3) 1.00 to 1.50 175.0 50.0
Level III: (3) 1.50 to 2.00 212.5 75.0
Level IV: (3) 2.00 to 2.50 250.0 100.0
Level V: (3) 2.50 to 3.25 275.0 125.0
Level VI: (3) 3.25 300.0 150.0
1.4 The second sentence of the definition of "Applicable Margin
Amount" is deleted in its entirety and the following shall be substituted
in place thereof:
"Notwithstanding the foregoing table or anything else herein contained
to the contrary, from and after April 1, 2000 for any new Advances and
Base Rate Advances and from and after the expiration of any LIBOR
Advances outstanding on the Amendment Date, the Applicable Margin
Amount for Base Rate Advances shall be 2.0%until the delivery to the
purchaser of each and every vessel to be delivered under the Ocean Rig
Contracts and the Petrodrill Rig Contracts, after which date the
Applicable Margin Amount shall be determined in accordance with the
foregoing table, provided that no Default or Event of Default has
occurred and is continuing."
1.5 The second sentence of the definition of "Asset Sales" shall be
deleted in its entirety and the following shall be substituted in place
thereof:
"Notwithstanding the foregoing, the following transactions will be
deemed not to be Asset Sales: (A) a sale of assets by the Borrower to
a Guarantor or by a Guarantor to the Borrower or to another Guarantor
and (B) a sale of assets if either the sales price or the appraised
value of such assets is $1,000,000 or less, and if such assets are
promptly replaced thereafter by assets of a similar type and value."
<PAGE>
1.6 A new definition is hereby added to the Credit Agreement, which
reads as follows:
"'Commitment Reduction Fee' shall mean a fee equal to two and one-half
percent (2.5%) of the Commitment as of the Amendment Date, payable to
the Agent for the ratable benefit of the Lenders, subject to a single
reduction in accordance with the following table:
<TABLE>
<CAPTION>
Reduction in Commitment Reduction Fee
-----------------------------------------------------------
Commitment Amount By 6/30/00 By 7/31/00 By 8/31/00 By 9/30/00
- ----------------- ------------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Less than $100,000,000 20% 15% 10% 5%
- ------------------------------------------------------------------------------------------------------------------------
Less than $75,000,000 30% 25% 20% 15%
- ------------------------------------------------------------------------------------------------------------------------
Less than $50,000,000 40% 35% 30% 25%
- ------------------------------------------------------------------------------------------------------------------------
$0 50% 45% 40% 35%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Commitment Reduction Fee shall be reduced in accordance with the
highest percentage corresponding to the level of the reduction of the
Commitment attained by the Borrower. As an example, if the Borrower
reduces the Commitment by June 30, 2000 to an amount less than
$100,000,000 but greater than $75,000,000, the Commitment Reduction Fee
shall be reduced by 20%. If the Borrower then reduces the Commitment to
less than $75,000,000 but greater than $50,000,000 by July 31, 2000, the
total aggregate reduction in the Commitment Reduction Fee shall be 25%."
1.7 A new definition is hereby added to the Credit Agreement, which
reads as follows:
"'Contract Loss' shall mean a loss in excess of USD 1,000,000 under any
contract of the Borrower or any Subsidiary, such loss being measured at
the time the Borrower or such Subsidiary becomes aware that it must
recognize a contract loss in respect of such contract in accordance with
GAAP."
1.8 A new definition is hereby added to the Credit Agreement, which
reads as follows:
"'Documentation Agent' shall mean Royal Bank of Canada."
1.9 The definition of "Fixed Charge Coverage Ratio" shall be deleted
in its entirety and the following shall be substituted in place thereof:
'Fixed Charge Coverage Ratio' shall mean, for any period, (A) the sum of
(i) GAAP Cash Flow from Operations, (ii) unrestricted cash balances, and
(iii) the available Commitment under the Revolving Credit Facility, less
capital expenditures used for the maintenance or repair of existing
assets, divided by the sum total of cash payments in respect of required
principal payments on Indebtedness and required payments under capital
leases.
1.10 A new definition is hereby added to the Credit Agreement, which
reads as follows:
3
<PAGE>
"'GAAP Cash Flow from Operations' means, for any period, the amount set
forth in the quarterly and annual consolidated financial statements of
the Borrower on the line in the statement of cash flows which summarizes
the Borrower's cash flow from operating activities."
1.11 The definition of "Leverage Ratio" is amended to add the
following language:
"; provided that EBITDA shall be determined for purposes of this
definition as follows:
(a) for the fiscal quarter ending March 31, 2000, EBITDA shall
mean the Borrower's consolidated EBITDA for the fiscal quarter
then ending, multiplied by four;
(b) for the fiscal quarter ending June 30, 2000, EBITDA shall
mean the Borrower's consolidated EBITDA for the two fiscal
quarters then ending, multiplied by two;
(c) for the fiscal quarter ending September 30, 2000, EBITDA
shall mean the Borrower's consolidated EBITDA for the three
quarters then ending, multiplied by one and one-third; and
(d) thereafter on a rolling four-quarter basis."
1.12 The definition of "Majority Lenders" shall be amended and revised
so that all references to "fifty-one percent (51%)" are changed to "sixty-
six and two-thirds percent (66.66%)".
1.13 The definitions of "Material adverse effect" and "materially
adversely affected" shall be amended and revised so that all references to
"USD 2,000,000" are changed to "USD 1,000,000."
1.14 The definition of "Mortgages" is hereby amended to include any
leasehold mortgages the Agent may request the Borrower or any Subsidiary to
execute and deliver to the Agent from time to time.
1.15 A new definition is hereby added to the Credit Agreement, which
reads as follows:
"'Ocean Rig Contracts' shall mean those contracts between the Borrower
(or one of its Subsidiaries) and Ocean Rig ASA, Inc. or one of its
subsidiaries concerning the construction, delivery and price of the Bingo
9001 and Bingo 9002 drilling rigs."
4
<PAGE>
1.16 A new definition is hereby added to the Credit Agreement, which
reads as follows:
"'Petrodrill Rig Contracts' shall mean those contracts between the
Borrower (or one of its Subsidiaries) and Petrodrill 4, Ltd. and
Petrodrill 5, Ltd., concerning the construction, delivery and price of
the B103 (Amethyst 4) and B104 (Amethyst 5) drilling rigs."
1.17 A new definition is hereby added to the Credit Agreement, which
reads as follows:
"'Settlement' shall mean, any revision, extension or renegotiation of an
existing contract whether entered into through the mutual consent of the
contracting parties or by court order or direction of an arbitration
panel where the amended contract amount represents a change of greater
than $10,000,000.00 from the original contract amount."
2. Section 2 is hereby amended as follows:
2.1 Section 2.1(c) is deleted in its entirety and the following shall
be substituted in place thereof:
A(c) On the terms and conditions set forth in this Credit Agreement,
the Agent shall from time to time on any Business Day during the
period from the date of this Credit Agreement until the Maturity Date
make advances ("Swing Line Advances") under the Swing Note to the
Borrower in an aggregate outstanding principal amount not to exceed
Twelve Million and No/100 Dollars ($12,000,000) with such payment
terms and principal maturities as the Agent and the Borrower may
agree; provided that (i) Swing Line Advances shall bear interest (X)
at the Base Rate plus two Percent (2%) per annum until the delivery to
the purchaser of each and every vessel to be delivered under the Ocean
Rig Contracts and the Petrodrill Rig Contracts, and (Y) at the one-
month LIBOR Rate as in effect from time to time plus the then
applicable LIBOR Margin as set forth in the Applicable Margin Amount
at all other times hereunder, (ii) no Swing Line Advances shall mature
after the Maturity Date, and (iii) no Swing Line Advances shall have a
maturity longer than ten (10) days, at which time Borrower shall repay
the Swing Line Advances with the proceeds of Advances under the
Revolving Credit Facility. The Agent may terminate the Swing Line in
its sole discretion upon two (2) weeks' prior written notice to the
Borrower, setting forth in such notice the date upon which the Swing
Line shall terminate, at which time all outstanding Swing Line
Advances, plus interest accrued thereon and any fees incurred in
connection therewith, shall be repaid in full. Upon the date of such
payment all accrued but unpaid interest on the Swing Note to such date
shall be due and payable by the Borrower to Agent. Upon the Agent's
written request or upon the acceleration of the Maturity Date pursuant
to this Credit Agreement, each Lender shall pay to Agent such Lender's
pro rata share based on their respective Commitment Percentage of all
outstanding Swing Line Advances as a Base Rate Advance under such
Lender's Commitment, but in no event shall any Lender be obligated to
fund more than its Commitment Percentage.
5
<PAGE>
2.2 Section 2.1(e) is deleted in its entirety and the following shall be
substituted in place thereof:
"(e) The Revolving Loan Commitment shall be reduced by seventy-five
percent (75%) of the Net Proceeds of any Asset Sales."
2.3 A new sentence is hereby added to Section 2.3(c) which reads as
follows:
"The LC Facility will be reduced by the face amount of any expiring,
drawn or canceled Tranche B Letters of Credit, excluding, however, those
expiring Tranche B Letters of Credit with automatic renewals which are
actually renewed."
3. A new Section 5.1(e) is hereby added to the Credit Agreement, which
reads as follows:
"(e) Notwithstanding anything herein contained to the contrary, from and
after the Amendment Date, no Advance shall be a LIBOR Advance until
the delivery to the purchaser of each and every vessel to be
delivered under the Ocean Rig Contracts and the Petrodrill Rig
Contracts."
4. Section 9.1(b) is deleted in its entirety and the following added in
substitution thereof:
"(b) The Borrower shall pay to the Agent for distribution to the Issuing
Lender an annual letter of credit fee equal to the face amount of each
Letter of Credit (including the Dollar Equivalent of the face amounts of
outstanding Offshore Currency Letters of Credit) outstanding times (i)
three percent (3%) per annum for the period from April 1, 2000 until the
delivery to the purchaser of each and every vessel to be delivered under
the Ocean Rig Contracts and the Petrodrill Rig Contracts, and (ii) the
Applicable Margin Amount then in effect for LIBOR Advances for all other
periods hereunder, each such fee to be payable quarterly in arrears;
provided that the Agent shall deduct from such fee, for payment to the
Issuing Lender, an amount equal to one-tenth of one percent (0.10%) of
the face amount of each such Letter of Credit (including the Dollar
Equivalent of the face amounts of outstanding Offshore Currency Letters
of Credit).
5. A new Section 9.1(d) is hereby added to the Credit Agreement, which
reads as follows:
"(d) The Borrower will pay to the Agent for ratable distribution to the
Lenders, the Commitment Reduction Fee on the earlier of (a) the
termination of the Commitment and (b) September 30, 2000."
6. Section 11 is hereby amended as follows:
6.1 Section 11.1(a)(iv) shall be deleted in its entirety and the
following shall be substituted in place thereof:
6
<PAGE>
"(iv) as soon as available and in any event within thirty (30) days
after the end of each month, a profit and loss report by
contract for projects where the total contract amount is in
excess of $10,000,000, in form and substance satisfactory to
the Agent."
6.2 The following sentence is hereby added to Section 11.1(b) as the
second sentence thereof:
"The Agent may order audits and examinations by outside auditing or
consulting firms that may include the review and testing of the
Borrower's business plan and any items relating to its business plan
including underlying contract assumptions, expense projections,
revenue timing, Eligible Accounts (including, without limitation,
test verifications, aging and reconciliations thereof, and trial
balances therefor), Eligible Inventory and other related items, the
costs of which shall be borne by the Borrower."
6.3 A new Section 11.1(g) is hereby added to the Credit Agreement, which
reads as follows:
"(g) The Borrower will furnish to the Agent, as soon as available
and in any event within thirty (30) days after the end of
each month, a statement of Borrower's consolidating cash
receipts for such month and a consolidating cash receipts
projection for the subsequent three months, setting forth by
contract the payments to the Borrower and its Subsidiaries
under each of their contracts for the repair, construction
and refurbishment of vessels and other equipment, and the
costs to the Borrower and its Subsidiaries of the goods and
services required thereunder for such period; provided that
such statement shall not include or take into account any
changes or adjustments to balance sheet items."
6.4 A new Section 11.1(h) is hereby added to the Credit Agreement, which
reads as follows:
"(h) Promptly upon the occurrence of each Contract Loss, and no
less than five (5) Business Days prior to the Borrower's or
any Subsidiary's entering into any Settlement, the Borrower
shall provide to the Agent a statement of projected expenses
and revenues of the Borrower (on a consolidated basis) for
the period following such occurrence or Settlement through
(1) the projected completion of the contract subject to the
Contract Loss or Settlement or (2) the subsequent twelve
(12) months, whichever period is greater, which statement
shall give effect to each Settlement (including without
limitation the proposed Settlement) and each Contract Loss."
7
<PAGE>
6.5 A new Section 11.11 is hereby added to the Credit Agreement, which
reads as follows:
"11.11 Field Audits and Environmental Audits. The Borrower shall,
and shall cause each Subsidiary to, within thirty (30) days
following the date of Amendment No. 2:
(a) commence Phase I environmental audits for each parcel of real
property owned by the Borrower or any domestic Subsidiary; and
(b) cooperate fully with the Agent and the Lenders to commence an
audit of the Borrower's and the Subsidiaries' books, records and
accounts."
7. Section 12 is hereby amended as follows:
7.1 Section 12.5(h) of the Credit Agreement shall be deleted in its
entirety and the following shall be substituted in place thereof:
"(h) other Indebtedness not otherwise permitted by this Section
12.5 in the principal amount outstanding of up to USD
5,000,000 in any year, and up to an aggregate of USD
10,000,000 from the date hereof through the Maturity Date."
7.2 Section 12.10 of the Credit Agreement shall be deleted in its
entirety and the following shall be substituted in place thereof:
"Sale of Fixed Assets or Accounts. Sell, transfer or assign any
fixed assets or any account receivable; provided, however, that the
Borrower may sell, transfer or assign any assets in the ordinary
course of business in an amount of up to an aggregate of USD
5,000,000 from the date of this Credit Agreement through the
Maturity Date; provided, further, that one hundred percent (100%) of
the Net Proceeds from such sales shall be applied first to repay any
amounts outstanding under the Swing line, second to repay any
amounts outstanding under the Revolving Credit Facility and third to
cash collateralize Tranche B Letters of Credit to the extent the
aggregate face amount of such Letters of Credit exceeds eighty
percent (80%) of the orderly liquidation value of the Equipment."
8
<PAGE>
7.3 Section 12.11 of the Credit Agreement shall be deleted in its
entirety and the following shall be substituted in place thereof:
"Leverage Ratio. Permit the Leverage Ratio to be greater than the
Required Ratio set forth below:
Quarter Ending Required Ratio
-------------- --------------
March 31, 2000 4.50 to 1.00
June 30, 2000 4.00 to 1.00
September 30, 2000 4.00 to 1.00
December 31, 2000 3.00 to 1.00
March 31, 2001 3.00 to 1.00
June 30, 2001 and 2.25 to 1.00"
each quarter thereafter
7.4 Section 12.12 of the Credit Agreement shall be deleted in its
entirety and the following shall be substituted in place thereof:
"Fixed Charge Coverage Ratio. Permit its Fixed Charge Coverage Ratio
to be less than the Required Ratio set forth below:
Quarter Ending Required
Ratio
-------------- --------
March 31, 2000 1.10
June 30, 2000 1.50
September, 30, 2000 1.35
December 31, 2000 1.25
March 31, 2001 1.50
June 30, 2001 1.50
September 30, 2001 1.35
December 31, 2001 1.25
March 31, 2002 and thereafter 1.50"
7.5 Section 12.13 of the Credit Agreement shall be deleted in its
entirety and the following shall be substituted in place thereof:
"Net Worth. Permit its Net Worth, as measured on a quarterly basis,
to be less than the aggregate of (a) ninety-five percent (95%) of
Net Worth at December 31, 1999, plus (b) seventy-five percent (75%)
of positive net income for each fiscal quarter and (c) seventy-five
percent (75%) of the Net Proceeds of future offerings of common
stock or other equity of the Borrower."
7.6 Section 12.15(a) shall be amended and revised such that the
following shall be added to the end of the existing paragraph:
"; provided further, that, until delivery to the purchaser of each
and every vessel to be delivered under the Ocean Rig Contracts and
the Petrodrill Rig Contracts, neither the Borrower nor any
Subsidiary shall make any Acquisition."
9
<PAGE>
7.7 Section 12.15(d) shall be deleted in its entirety and the following
shall be substituted in place thereof:
"(d) present and future investments in joint ventures or similar
arrangements, including guarantees of joint venture
obligations, up to USD 13,000,000 in respect of any one such
investment, not to exceed USD 20,000,000 in respect of all
such investments; and"
7.8 Section 12.15(e) shall be deleted in its entirety and the following
shall be substituted in place thereof:
"(e) capitalized fixed asset additions, not to exceed USD
12,000,000 per calendar year; provided that, notwithstanding
anything herein to the contrary, neither the Borrower nor any
of its U.S. subsidiaries shall make advances or loans to any
one non-U.S. subsidiary in excess of USD 5,000,000 and to all
non-U.S. subsidiaries which exceed, in the aggregate, USD
10,000,000."
7.9 Section 12.17 shall be deleted in its entirety and the following
shall be substituted in place thereof:
"Dividends. Without the consent of the Majority Lenders, make any
dividend payments (other than dividends payable in stock) or other
distributions to its stockholders or redeem or otherwise acquire any
of its stock."
8. A new Section 13.1(l) is hereby added to the Credit Agreement, which
reads as follows:
"(l) The Borrower or any Subsidiary incurs a Contract Loss or
enters into a Settlement, and after giving effect to such
Settlement or Contract Loss and all other Settlements and
Contract Losses, the cash flow projections of the Borrower in
any statement required to be delivered under Section 11.1(h)
indicate such Settlement or Contract Loss shall or is likely
to result in a Default or Event of Default under Sections 13.1
(a) through (h)."
9. Conditions Precedent.
9.1 Documents and Other Items Required as Conditions Precedent to
Amendment No. 2. The effectiveness of the modifications to the
Credit Agreement contemplated by this Amendment No. 2 is subject to
the condition precedent that the Agent shall have received at or
prior to the Amendment Date all of the following, each dated on or
before the Amendment Date and each in form and substance
satisfactory to the Agent and its counsel:
10
<PAGE>
(a) Each of the following documents (the "Amendment Documents")
shall have been duly authorized and executed with original counterparts
thereof delivered to the Agent:
(i) This Amendment No. 2;
(ii) Amendment No. 2 to the U.S. Preferred Fleet Mortgage;
(iii) Ratifications of Security Agreements;
(iv) Ratifications of Pledges;
(v) Ratification of Guaranty;
(vi) Legal Opinion of Jones Walker Waechter Poitevent Carrere &
Denegre L.L.P.;
(vii) Legal Opinion of Watkins & Eager;
(viii) Ratification by the Board of Directors of Friede Goldman
Halter, Inc.;
(ix) Leasehold Mortgages on properties designated by the Agent;
(x) A Borrowing Base Certificate with respect to the Borrowing
Base for the month ending February 29, 2000; and
(xi) such further documents as the Lenders may reasonably
request;
(b) The Agent shall have received satisfactory evidence that the
Borrower shall have paid all reasonable fees and expenses of Agent's
counsel.
(c) The Agent shall have received from the Borrower, for ratable
distribution to the Lenders, payment of an amendment fee equal to 0.5% of
the Commitment.
(d) The representations and warranties contained in Section 10 of
the Credit Agreement shall be true on the Amendment Date with the same
effect as though such representations and warranties had been made on and
as of such date, and no Event of Default specified in Section 13 of the
Credit Agreement and no event which, with the lapse of time or the giving
of notice and the lapse of time specified in Section 13 of the Credit
Agreement, would become such an Event of Default, shall have occurred and
be continuing.
(e) The Leasehold Mortgages referenced in Section 9.1(a)(ix) above
shall not be filed with respect to properties for which the applicable
lease agreement contains a prohibition on the lessee's ability to
mortgage its leasehold interests until such time as
11
<PAGE>
the consent of the applicable lessor is obtained; provided that the
Borrower shall use its best efforts to obtain each such consent within
ninety (90) days from the date hereof.
9.2 Waiver of Conditions Precedent. All of the conditions precedent
contained in this Section 9 are for the sole benefit of the Agent
and the Lenders and the Agent may waive any of them in its absolute
discretion, and on such conditions as it deems proper.
10. Representations. The Borrower represents and warrants that:
(a) The Borrower is a corporation, duly organized and validly existing in
good standing under the laws of the State of Mississippi, and has the
requisite power and authority (i) to carry on its business as presently
conducted; and (ii) to enter into and perform its obligations under the
Amendment Documents.
(b) The execution, delivery and performance by Borrower and the
Guarantors of the Amendment Documents and any other instrument or agreement
provided for by this Amendment No. 2 to which it is a party, have been duly
authorized by all necessary corporate action, do not require stockholder
approval other than such as has been duly obtained or given, do not or will
not contravene any of the terms of its Certificate of Incorporation or
Bylaws, or similar such organizational documentation, and will not violate
any provision of law or of any order of any court or governmental agency or
constitute (with or without notice or lapse of time or both) a default
under, or result (except as contemplated by this Amendment No. 2) in the
creation of any security interests, lien, charge or encumbrance upon any of
its properties or assets pursuant to, any agreement, indenture or other
instrument to which it is a party or by which it may be bound other than is
in favor of the Agent; the Amendment Documents have been duly executed and
delivered by the Borrower and the Guarantors and constitute the respective
legal, valid and binding agreements, enforceable in accordance with the
respective terms thereof as to which each of the Borrower and the
Guarantors is a party. The enforceability of this Amendment No. 2, however,
is subject to all applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws affecting the rights or creditors and to general
equity principles.
(c) Except as set forth on Schedule 10(c) hereto, there are no suits or
proceedings pending or to its knowledge threatened against or affecting
Borrower or any Guarantor which if adversely determined would have a
material adverse effect upon its business, financial condition or
operations.
(d) Other than such as have been obtained, no license, consent or
approval of any Governmental Agency or other regulatory authority is
required for the execution, delivery or performance of this Amendment No. 2
or any other Amendment Document or any instrument contemplated herein or
therein.
11. Expenses. The Borrower agrees to promptly, whether or not the
modifications to the Credit Agreement contemplated by this Amendment
No. 2 become effective, (x) reimburse the Agent for all fees and
disbursements of external counsel to the Agent and all reasonable
out of pocket fees and disbursements of the Agent incurred in
connection with the
12
<PAGE>
preparation, execution and delivery of this Amendment No. 2 and all
other documents referred to herein, and all amendments or waivers to
or termination of this Amendment No. 2 or any agreement referred to
herein; and (y) reimburse the Agent for all fees and disbursements
of internal and external counsel to the Agent and all reasonable out
of pocket fees, disbursements and travel-related expenses of the
Agent incurred in connection with the protection of the rights of
the Agent under this Amendment No. 2 and all other documents
referred to herein, whether by judicial proceedings or otherwise.
The obligations of the Borrowers under this Section 11 shall survive
payment of the Loan.
12. Wherever and in each such place the term "Credit Agreement" is used
throughout the Credit Agreement, such term shall be read to mean the
Credit Agreement as amended by this Amendment No. 2.
13. Except as specifically amended by this Amendment No. 2, all of the
terms and provisions of the Credit Agreement shall remain in full
force and effect.
14. All capitalized terms used herein but not defined herein shall have
the meanings given to them in the Credit Agreement.
15. THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
TEXAS.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 2 to Credit Agreement on the date first written above.
BORROWER:
FRIEDE GOLDMAN HALTER, INC.
By: /S/ Emile J. Dumesnil
----------------------
Name: Emile J. Dumesnil
Title: Senior Vice President and Treasurer
LENDERS:
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
By: /S/ Joseph P. Maxwell
Name: Joseph P. Maxwell
Title: Vice President
ROYAL BANK OF CANADA
By:
Name:
Title:
HIBERNIA NATIONAL BANK
By:
Name:
Title:
14
<PAGE>
BANK ONE, N.A.
By:
Name:
Title:
ADMINISTRATIVE AGENT AND CO-ARRANGER:
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
By:/S/ Joseph P. Maxwell
----------------------
Name: Joseph P. Maxwell
Title: Vice President
SYNDICATION AGENT AND CO-ARRANGER:
BANC ONE CAPITAL MARKETS, INC.
By:
Name:
Title:
15
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<PAGE>
<ARTICLE> 5
<CURRENCY> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1,000
<CASH> 6,901
<SECURITIES> 0
<RECEIVABLES> 169,350
<ALLOWANCES> 0
<INVENTORY> 40,068
<CURRENT-ASSETS> 407,622
<PP&E> 358,174
<DEPRECIATION> 28,826
<TOTAL-ASSETS> 952,196
<CURRENT-LIABILITIES> 316,752
<BONDS> 186,385
0
0
<COMMON> 400
<OTHER-SE> 244,063
<TOTAL-LIABILITY-AND-EQUITY> 952,196
<SALES> 211,853
<TOTAL-REVENUES> 211,853
<CGS> 191,284
<TOTAL-COSTS> 207,116
<OTHER-EXPENSES> 298
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,393
<INCOME-PRETAX> (3,954)
<INCOME-TAX> (826)
<INCOME-CONTINUING> (3,128)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,128)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
