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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
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.
(as Debtor in Possession)
(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
Gulfport, Mississippi
(Address of principal executive offices)
39503
(Zip Code)
(228) 896-0029
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: Common Stock,
$.01, par value
Securities Registered Pursuant to Section 12(g) of the Act: None
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. [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (S) 229.405 under the Securities Exchange Act of 1934) is
not contained herein, and will not be contained, to the best of
1
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes. [X] No. [_]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes. [_] No. [X]
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant was approximately $2,153,887 as of June 30,
2002 (computed by reference to the quoted closing price of the registrant's
common stock on the Over the Counter Bulletin Board on June 28, 2002). Shares of
common stock held by each officer and director and by each person who owns 5% or
more of the outstanding stock have been excluded from this computation in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
As of April 4, 2003 there were 48,710,579 shares of Common Stock, $.01 par
value, of Friede Goldman Halter, Inc. issued and outstanding, 39,216,845 of
which shares having an aggregate market value of approximately $58,825, were
held by non-affiliates of the registrant (affiliates being, for these purposes
only, directors, executive officers and holders of more than 5% of the
registrant's Common Stock).
2
TABLE OF CONTENTS
PART I
Page
----
Item 1. Business ...................................................................... 3
Risk Factors .................................................................. 7
Item 2. Properties .................................................................... 8
Item 3. Legal Proceedings ............................................................. 8
Item 4. Submission of Matters to a Vote of Security Holders ........................... 8
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters ..... 8
Item 6. Selected Financial Data ....................................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations .................................................................... 12
Item 8. Financial Statements and Supplementary Data ................................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure .................................................................... 22
PART III
Item 10. Directors and Executive Officers of the Registrant ............................ 23
Item 11. Executive Compensation ........................................................ 24
Item 12. Security Ownership of Certain Beneficial Owners and Management ................ 29
Item 13. Certain Relationships and Related Transactions ................................ 30
PART IV
Item 14. Controls and Procedures ....................................................... 30
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K ............... 31
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this Annual Report on Form 10-K, future
filings by the Company with the Securities and Exchange Commission (the
"Commission"), the Company's press releases and oral statements by authorized
officers of the Company are intended to be subject to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that all forward-looking statements involve risks and uncertainty, including
without limitation, the risks set forth under the caption "Significant Factors
That may Affect Forward-Looking Statements" appearing in Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Company believes that forward-looking statements made by it are based on
reasonable expectations; however, no assurances can be given that actual results
will not differ materially from those contained in such forward-looking
statements. Forward-looking statements involve statements that are predictive in
nature, which depend upon or refer to future events or conditions, or which
include the words "estimate," "project," "anticipate," "expect," "predict,"
"believe," "could," "would," "may" and similar expressions.
ITEM 1. Business
General
On April 19 and 20, 2001, Friede Goldman Halter, Inc., including 31 of our
subsidiaries (collectively, the "Company"), elected to file separate petitions
for relief under Chapter 11 of the United States Bankruptcy Code which allows
for the reorganization of our debts. We filed petitions in the U.S. Bankruptcy
Court for the Southern
3
District of Mississippi which are being jointly administered under Case No.
01-52173 SEG. Since the date of the petition, we have maintained possession of
our property, and have continued to remain in control of our on going business
affairs as a Debtor in Possession.
Under Chapter 11, certain claims against us in existence prior to the
filing of the petitions for relief under the federal bankruptcy laws are stayed
while we continue business operations as Debtor in Possession. These claims are
reflected in the December 31, 2002 and December 31, 2001 balance sheets as
"liabilities subject to compromise." Claims secured against our assets ("secured
claims") also are stayed, although the holders of such claims have the right to
move the court for relief from the stay. Secured claims are secured primarily by
liens on our property, plant, and equipment. Additional claims (liabilities
subject to compromise) have arisen subsequent to the filing date resulting from
rejection of executory contracts, including leases, and from the determination
by the court (or agreed to by parties in interest) of allowed claims for
contingencies and other disputed amounts.
We retained the investment banking firm of Houlihan, Lokey, Howard & Zukin
and restructuring advisor, Glass and Associates, Inc. to assist in the
preparation of a plan of reorganization. These advisors assisted management and
our Board of Directors in evaluating various alternatives including, but not
limited to, sales of assets and our business unit(s), infusion of capital, debt
restructuring and any combination of these options. Upon the sale of our
Offshore segment in January 2003, Houlihan, Lokey, Howard & Zukin completed
their engagement. Glass and Associates continues to assist management and the
Board of Directors in preparation of an amended plan of reorganization and with
other operational matters.
As further described in Note 4 to the Consolidated Financial Statements, on
March 22, 2002, we filed a plan of reorganization with the United States
Bankruptcy Court. We anticipate amending the plan of reorganization due to the
sale of the Vessels and Offshore segments. The amended plan will result in no
recovery for current equity interests. The amount of any recovery to general
creditors will depend primarily on, but will not be limited to the following
factors: (a) the ultimate value of pre-petition claims and (b) the dollar amount
of claims associated with the administration of this case. Note 4 also contains
information regarding the sale of the Vessels and Offshore segments as well as
their asset sales and dispositions.
We cannot provide assurance that the amended plan will be approved. It is
not possible to assess the outcome of our bankruptcy proceeding or whether we
will operate in accordance with the amended plan, if approved.
Description of Operations
Offshore Segment
On January 29, 2003, we sold substantially all the assets of the Company's
Offshore segment constituting the Company's Mississippi and Texas operations; on
March 22, 2002 , we sold substantially all the Company's Offshore assets located
in Newfoundland, Canada. Prior to the sale, primary customers of our Offshore
segment were drilling contractors with operations offshore in the Gulf of
Mexico, the North Sea, West Africa, eastern Canada and South America and other
offshore areas of the world. These drilling contractors generally owned and
operated offshore drilling rigs and provided drilling services to oil and gas
companies. In addition, we contracted for the construction of rigs with
customers who did not operate the equipment but intended to charter the rigs to
drilling contractors.
In our Offshore segment, operations during 2002 consisted of several
conversion, retrofit and repair projects for offshore drilling contractors as
well as work on the completion of one new construction semi-submersible offshore
drilling unit and the continuing new construction of three semi-submersible
offshore drilling units. Significant conversion or retrofit projects generally
took eight to fourteen months to complete, whereas certain repair projects
required only one to three months to complete. New rig construction projects
required from 18 to 30 months to complete.
Several factors determined the type of rig most suitable for a particular
project, the more significant of which are the marine environment, water depth
and seabed conditions at the proposed drilling location, whether the drilling
was to be done over a production platform or other fixed structure, the intended
well depth, and variable deck load and well control requirements.
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On June 30, 2002, we sold the assets of Friede & Goldman Ltd. ("F&G Ltd.").
Prior to the sale, we performed design and engineering of offshore drilling and
production units, including jackups, semi-submersibles, drillships and floating
production, storage and offloading vessels. F&G Ltd. had a long history of
successful designs with 50 F&G Ltd. designed semi-submersible drilling,
pipelaying, and accommodation units in service worldwide, and over 30 jackup
drilling units of F&G Ltd. design operating worldwide.
Vessels Segment
On October 23, 2002, we sold the Vessels segment. Prior to the sale,
primary customers of our Vessels segment were offshore energy service companies,
marine transportation companies, domestic and foreign governments and other
commercial enterprises. Services provided by the Vessels segment included the
design, new construction, and conversion of ocean-going vessels including OSVs
for energy service companies, cargo ships, oceanographic research and survey
ships, high speed patrol boats and ferries for domestic and foreign governments,
and double-hull tank barges; tugboats, towboats and other types of barges for
other commercial enterprises.
Engineered Products Segment
On April 25, 2002, we sold the assets of Amclyde Engineered Products, Inc.,
which made up the Engineered Products Segment. Prior to the sale, primary
customers of our Engineered Products segment, in addition to the customers of
our Offshore and Vessels segments, included offshore construction contractors,
shipyards, commercial cruise-liner ship-owners, general merchant marine
operators, the fishing industry, on-land general construction contractors and
the U.S. Government. The Engineered Products segment services included the
design and manufacture of the world's largest cranes, mooring systems, marine
deck equipment, jacking systems, specialty mechanical systems, and a
comprehensive aftermarket repair and retrofitting operation.
Backlog
As of December 31, 2002, our backlog was $39.3 million which consisted of
FGO and FGOT's backlog in the amounts of $35.7 million and $3.6 million,
respectively. We completed the sale of FGO and FGOT on January 29, 2003.
Government and Environmental Regulation
Overview. Many aspects of our operations and properties are materially
affected by foreign, federal, state and local regulation, as well as certain
international conventions and private industry organizations. These regulations
govern worker health and safety and the manning, construction and operation of
vessels. For example, we are subject to the jurisdiction of the U.S. Coast
Guard, the National Transportation Safety Board, the U.S. Customs Service and
the Maritime Administration of the U.S. Department of Transportation, as well as
private industry organizations such as the American Bureau of Shipping. These
organizations establish safety criteria and are authorized to investigate vessel
accidents and recommend improved safety standards. In addition, the exploration
and development of oil and gas properties located on the outer continental shelf
of the United States is regulated primarily by the Minerals Management Service
("MMS"). The MMS has promulgated federal regulations under the Outer Continental
Shelf Lands Act requiring the construction of offshore platforms located on the
outer continental shelf to meet stringent engineering and construction
specifications. Violations of these regulations and related laws can result in
substantial civil and criminal penalties as well as injunctions curtailing
operations. We believe that our operations are in compliance with these and all
other regulations affecting the fabrication of platforms for delivery to the
outer continental shelf of the United States.
Environmental. Our operations and properties are subject to a wide variety
of increasingly complex and stringent foreign, federal, state and local
environmental laws and regulations, including those governing discharges into
the air and water, the handling and disposal of solid and hazardous wastes, the
remediation of soil and groundwater contaminated by hazardous substances and the
health and safety of employees. These laws may provide for "strict liability"
for damages to natural resources and threats to public health and safety,
rendering a
5
party liable for the environmental damage without regard to negligence or fault
on the part of such party. Sanctions for noncompliance may include revocation of
permits, corrective action orders, administrative or civil penalties and
criminal prosecution. Certain environmental laws provide for strict, joint and
several liability for remediation of spills and other releases of hazardous
substances, as well as damage to natural resources. In addition, we may be
subject to claims alleging personal injury or property damage as a result of
alleged exposure to hazardous substances. Such laws and regulations may also
expose us to liability for the conduct of or conditions caused by others, or for
our acts that were in compliance with all applicable laws at the time such acts
were performed.
The Resource Conservation and Recovery Act ("RCRA") and similar state laws
regulate the generation, treatment, storage, disposal, and other handling of
solid wastes, with the most stringent regulations applying to solid wastes that
are considered hazardous wastes. RCRA also may impose stringent requirements on
the closure, and the post-closure care, of facilities where hazardous waste was
treated, disposed of or stored. We generate solid waste, including hazardous and
non-hazardous waste, in connection with our routine operations. We believe that
our waste is handled properly under RCRA.
Amendments to the federal Clean Air Act in 1990 resulted in numerous
changes which the Environmental Protection Agency and similar state agencies
fully implemented by regulations. The Clean Air Act amendments have not resulted
in the Company incurring material expenses at our properties.
In connection with our purchase of the Marystown Facilities in Canada, the
Newfoundland provincial government agreed to carry out and pay for a complete
environmental assessment and remediation program. The Phase I investigation
identified several issues surrounding possible subsurface contamination on site
at one of the Marystown Facilities. As a result of Phase I findings, remediation
work was completed in 2000. Remediation efforts included the removal of
underground oil storage tanks, removal and proper disposal of contaminated soils
and re-installation of new oil storage tanks at the shipyard facility. The Phase
II investigation has been completed and additional environmental issues were
identified. Additional remediation efforts were required for asbestos and lead
paint abatement. Remediation work was substantially completed in 2001. The
Newfoundland Provincial Government funded the cost of remediation procedures
associated with the Marystown Facilities as agreed upon at the time the facility
was purchased. In addition, the Newfoundland Provincial Government will
indemnify us against any environmental liabilities associated therewith. The
asset sale agreement executed in March 2002 continues this indemnification.
At December 31, 2002 and 2001, the Company had accrued $6.0 million related
to remediation of certain contaminated sites. This liability is primarily the
result of liabilities retained in the sale of the Company's Vessel Repair
division to Bollinger Shipyards in August 2000. Negotiations are ongoing with
the Louisiana Department of Environmental Quality as to the ultimate resolution
of this matter. This liability is included in liabilities subject to compromise
at December 31, 2002 and 2001. There is no assurance that the amount of this
estimate will be adequate to cover the costs of the eventual resolution of this
matter. There is also no assurance that this liability will ultimately be deemed
a liability subject to compromise. The Bankruptcy Court could rule this to be an
administrative claim.
Our compliance with environmental laws and regulations has entailed certain
additional expenses and changes in operating procedures. Because substantially
all of the Company's assets have been sold, compliance with these laws and
regulations is not anticipated to have a material adverse effect on our business
or financial condition for the foreseeable future. However, future events, such
as changes in existing laws and regulations or their interpretation, more
vigorous enforcement policies of regulatory agencies, or stricter or different
interpretations of existing laws and regulations, may require additional
expenditures on our part, which expenditures may be material.
Insurance
We maintain a property and casualty insurance program protecting us against
damage caused by fire, flood, explosion and similar catastrophic events. We also
maintain commercial general liability insurance including coverage for products
and completed operations. We have in place both builder's risk and ship
repairer's construction risk programs. We maintain a workers' compensation and
employers' liability insurance program with respect to our operations that
satisfies the Federal and State Workers' Compensation Acts and includes the U.S.
6
Longshore and Harbor Workers Act and maritime and outer continental shelf
endorsements. We currently maintain limits we deem are proper and necessary in
the course of our business. Although management believes that our insurance is
adequate with respect to all of our domestic and international operations, there
can be no assurance that we will be able to maintain adequate insurance at rates
which management considers commercially reasonable, nor can there be any
assurance such coverage will be adequate to cover all claims that may arise.
Employees
Our workforce has varied based on the level of ongoing fabrication activity
at any particular time. As of December 31, 2002, we had approximately 1,445
employees which included 1,432 related to the Offshore segment sold in January,
2003 and 13 related to the corporate office estate stay-team. The Company's
total workforce included contract labor of approximately 223 employees at
December 31, 2002 related to the Offshore segment.
None of our employees are employed pursuant to a collective bargaining
agreement. We believe that our relationship with our employees is good.
RISK FACTORS
Due to the Chapter 11 filing, there will be no recovery for our equity
security holders. There is also no assurance that our plan of reorganization
will ultimately be approved by the Bankruptcy Court.
On April 19 and 20, 2001, we, including 31 of our subsidiaries, elected to
file separate petitions for relief under Chapter 11 of the United States
Bankruptcy Code. At this time, we are focusing on maximizing the recoveries for
the creditors. Under our current plan of reorganization, equity holders would
not receive any recovery. In addition, there can be no assurance that our plan
of reorganization will ultimately be approved by the Bankruptcy Court.
Proofs of claim filed with the Bankruptcy Court significantly exceed the
estimation of our liabilities subject to compromise.
As a result of certain contractual matters described in Note 17 to the
Consolidated Financial Statements and other claims asserted by secured and
unsecured creditors, we have been notified that proofs of claims filed with the
Bankruptcy Court related to its Chapter 11 filing significantly exceed the
liabilities we have recorded. At December 31, 2002 and December 31, 2001, we
accrued an estimate of the liability for the resolution of these claims. This
estimate has been developed in consultation with outside counsel that is
handling the bankruptcy and defense of these matters. To the extent additional
information arises or the Bankruptcy Court approves the proofs of claims as
filed, it is possible that our estimate of our liability in these matters may
significantly change. Our management believes any change to the estimate will
increase the balance of our liabilities subject to compromise. Additionally,
some items classified as liabilities subject to compromise could be deemed
priority or administrative claims through the Bankruptcy Courts and could
thereby become current liabilities.
Our business involves significant operating risks and our insurance
protection could be insufficient or ineffective.
Our operational activities involved the fabrication, refurbishment and
repair of large steel structures, including drilling rigs, vessels, cranes and
production units. These activities have inherent risks associated with them that
could result in significant injury and loss of life, severe damage and
destruction of property and suspension of operations. These risks include:
. operating hazards, including the operation of cranes and other heavy
machinery;
. the structural failure of a drilling rig, crane, vessel or other
equipment;
. liabilities associated with a defect in design or a failure or
malfunction of a product developed or manufactured by us;
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. marine accidents, including collisions with other vessels and
sinkings;
. physical damage of our facilities caused by hurricanes or flooding;
and
. employment practices within our operating divisions.
Litigation arising from any of these occurrences may result in the Company
being named as a defendant in lawsuits asserting large claims. Although we
maintain and will continue to maintain insurance that we consider to be
economically prudent, it cannot be assured that this insurance will be
sufficient or effective under the circumstances. A successful claim for which we
are not fully insured could have a material adverse effect on the Company.
Available Information
We file annual, quarterly and current reports and other information with
the SEC. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K, along with any amendments to those reports, are not
posted on our corporate website as we no longer have a corporate website.
However we will provide, free of charge upon request, electronic or paper copies
of its filings.
ITEM 2. Properties
As of April 1, 2003, substantially all of the Company's assets have been
sold except those discussed below.
Our corporate headquarters is located in Gulfport, Mississippi occupying
approximately 5,000 square feet of leased office space. In addition, we own two
separate parcels of real property, the Three Rivers Yard in Gulfport,
Mississippi and the FGOT Central Yard in Sabine Pass, Texas. The Texas shipyard
is under contract and is anticipated to be sold in the second quarter of 2003.
We also own a Series 4600 Manitowac Ringer Crane (the "Crane") which had
been used by Friede Goldman Newfoundland. All assets of Friede Goldman
Newfoundland were sold in the spring of 2002 except for the Crane which was part
of the Offshore business. The Crane was relocated from Canada to Mississippi.
ITEM 3. Legal Proceedings
We are involved in various claims and legal actions arising in the ordinary
course of business. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a description of these significant
matters. See Item 15--Notes 16 and 17 to the Consolidated Financial Statements
for more information on the significant legal and contractual matters in which
we are involved.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Our Common Stock is listed for trading on the Over the Counter Bulletin
Board under the symbol "FGHLQ" due to our Chapter 11 bankruptcy filing on April
20, 2001. Prior to filing bankruptcy, our stock was listed on the New York Stock
Exchange under the symbol "FGH".
The following table sets forth the high and low sales price per share of
the Common Stock, as reported on the
8
New York Stock Exchange composite tape from January 1, 2001 through April 20,
2001 and on the Over the Counter Bulletin Board from April 23, 2001 through
December 31, 2002, for the periods indicated:
2002
--------------
Quarter High Low
--------- ------ ------
First ..... $0.290 $0.055
Second .... 0.150 0.050
Third ..... 0.079 0.012
Fourth .... 0.024 0.001
2001
--------------
Quarter High Low
--------- ------ ------
First ..... $ 6.60 $ 1.24
Second .... 2.45 0.18
Third ..... 0.85 0.40
Fourth .... 0.53 0.18
We will not be paying any cash dividends on our Common Stock. In addition,
under our current plan of reorganization, equity holders would not receive any
recovery in the bankruptcy.
The following table sets forth information as of December 31, 2002, with
respect to compensation plans under which equity securities of the Company are
authorized for issuance:
(a)
Number of (c)
securities to (b) Number of securities
be issued Weighted-average remaining available
upon exercise exercise price for future
of outstanding of compensation issuance under equity
options, warrants plans outstanding (excuding securities
and rights options, warrants reflected in column
Plan category (in thousands) and rights (a)) (in thousands)
------------- ----------------- ----------------- ---------------------
Equity compensation plans approved by security
holders ..................................... 414,551 $ 8.72 --
Equity compensation plans not approved
by security holders ......................... -- -- --
----------------- ----------------- ---------------------
Total ..................................... 414,551 $ 8.72 --
================= ================= =====================
ITEM 6. Selected Financial Data
The following table sets forth selected historical financial data as of the
dates and for the periods indicated. The historical financial data set forth
below are derived from the audited consolidated financial statements of Friede
Goldman Halter, Inc. ("FGH"). The consolidated financial statements include the
accounts of FGH and its wholly-owned subsidiaries, including, among others,
Friede Goldman Offshore, Inc. ("FGO"), Friede & Goldman, Ltd. ("F&G Ltd"),
Friede Goldman Newfoundland Limited ("FGN"), Friede Goldman France S.A.S.
("FGF"), AmClyde Engineered Products Company , Inc. ("Amclyde"), and Halter
Marine, Inc. ("Halter").
The selected financial data includes the accounts of FGF for all periods
from February 6, 1998 through its sale date of May 22, 2001, FGN for all periods
from January 1, 1998 through its sale date of March 22, 2002, Amclyde
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for all periods from November 4, 1999 through its sale date of April 25, 2002,
FGL for all periods from January 1, 1998 through its sale date of June 30, 2002,
and Halter for all periods from November 4, 1999 through its sale date of
October 23, 2002, and all other subsidiaries for all periods presented. All
significant intercompany accounts and transactions have been eliminated. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and the related notes thereto.
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FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
For the Years Ended December 31,
--------------------------------
2002 2001 2000 1999 1998
--------- ---------- --------- --------- ---------
Revenues (See Footnote 1) ........................................... $ -- $ -- $ -- $ -- $ --
Selling, general and administrative expenses ........................ 9,590 18,236 24,564 16,770 11,464
Goodwill amortization ............................................... -- 11,153 7,524 1,576 334
Goodwill impairment ................................................. -- 201,622 -- -- --
--------- ---------- --------- --------- ---------
Operating loss ...................................................... (9,590) (231,011) (32,088) (18,346) (11,798)
--------- ---------- --------- --------- ---------
Other expense (income):
Interest expense (income), net (contractual interest
of $18,186 and $21,825 for the years
ended December 31, 2002 and 2001, respectively) ............... 9,826 15,913 30,242 5,930 (634)
Discount on convertible subordinated notes ....................... -- 54,878 -- -- --
Other ............................................................ (116) -- -- -- 313
--------- ---------- --------- --------- ---------
Total other expense ...................................... 9,710 70,791 30,242 5,930 (321)
--------- ---------- --------- --------- ---------
Loss before reorganization items, discontinued operations,
income taxes and extraordinary item ............................... (19,300) (301,802) (62,330) (24,276) (11,477)
Reorganization items:
Professional fees ................................................ 12,911 11,691 -- -- --
Loss on investment in unconsolidated subsidiary .................. -- 1,371 -- -- --
Write-off of deferred financing costs ............................ 1,971 2,618 -- -- --
Loss on termination of employee benefit plan ..................... 339 -- -- -- --
-------- ---------- --------- --------- ---------
Total reorganization items ............................... 15,221 15,680 -- -- --
-------- ---------- --------- --------- ---------
Loss before discontinued operations, income taxes and
extraordinary item ............................................... (34,521) (317,482) (62,330) (24,276) (11,477)
Income tax expense (benefit) ........................................ 251 9,510 (21,042) (17,141) 20,679
--------- ---------- --------- --------- ---------
Loss before discontinued operations and extraordinary item .......... (34,772) (326,992) (41,288) (7,135) (32,156)
Discontinued operations:
Income (loss) from operations of Vessels segment ................. (12,465) (13,202) 13,747 4,214 --
Loss on disposal of Vessels segment .............................. (37,527) -- -- -- --
Income (loss) from operations of Offshore segment ................ 8,164 (20,816) (86,093) (28,395) 63,121
Loss on disposal of Offshore segment ............................. (16,230) (21,951) -- -- --
Income from operations of Engineered
Products segment ............................................ 497 7,337 11,116 490 4,321
Income (loss) on disposal of Engineered
Products segment ............................................. 720 (25,983) -- -- --
--------- ---------- --------- --------- ---------
Total discontinued operations ............................ (56,841) (74,615) (61,230) (23,691) 67,442
---------- ---------- --------- --------- ---------
Net loss before extraordinary item .................................. (91,613) ($401,607) (102,518) (30,826) 35,286
Extraordinary loss .................................................. -- -- (3,853) -- --
---------- ---------- --------- --------- ---------
Net income (loss) ................................................... $ (91,613) $ (401,607) $(106,371) $ (30,826) $ 35,286
========= ========== ========= ========= =========
Net income (loss) per share, basic
Net loss before discontinued operations
and extraordinary item ................................... $ (0.71) $ (6.71) $ (0.93) $ (0.27) $ (1.33)
Discontinued operations ............................................ (1.17) (1.54) (1.37) (0.91) 2.79
Extraordinary loss ................................................. -- -- (0.09) -- --
--------- ---------- --------- --------- ---------
Net income (loss) .................................................. $ (1.88) $ (8.25) $ (2.39) $ (1.18) $ 1.46
========= ========== ========= ========= =========
11
FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS , CONT.
(in thousands, except per share amounts)
Years Ended December 31,
--------------------------------------
2002 2001 2000 1999 1998
---------- --------- ---------- ---------- ---------
(in thousands, except per share data)
Net income (loss) per share, diluted
Net loss before discontinued operations
and extraordinary item .................................. $ (0.71) $ (6.71) $ (0.93) (0.27) $ (1.32)
Discontinued operations ..................................... (1.17) (1.54) (1.37) (0.91) 2.75
Extraordinary loss .......................................... -- -- (0.09) -- --
---------- ---------- ---------- ---------- ---------
Net income (loss) ........................................... $ (1.88) $ (8.25) $ (2.39) $ (1.18) $ 1.43
========== ========== ========== ========== =========
Weighted average shares outstanding:
Basic ....................................................... 48,711 48,711 44,562 26,148 24,211
Diluted ..................................................... 48,711 48,711 44,562 26,148 24,599
Statement of Cash Flows Data:
Cash provided by (used in) operating activities .................. $ (36,924) $ (33,267) $ (53,767) $ (61,061) $ 21,088
Cash provided by (used) in investing activities .................. 95,350 6,824 95,813 (4,747) (77,299)
Cash provided by (used in) financing activities .................. (64,700) 21,949 (31,739) 39,558 41,156
Balance Sheet Data:
Working capital (deficit) ........................................ $ 10,693 $ (24,578) $ (140,423) $ 83,819 $ 5,859
Net property, plant and equipment ................................ -- 155,458 261,337 334,642 139,078
Long-lived assets held for disposition ........................... 49,284 56,930 -- -- --
Total assets ..................................................... 147,124 361,621 822,014 1,010,491 314,560
Debt ............................................................. 48,712 115,355 222,274 312,720 61,992
Liabilities subject to compromise ................................ 346,015 360,697 -- -- --
Stockholders' equity (deficit) ................................... (285,090) (193,346) 209,793 248,121 85,290
(1) Revenues are zero for all periods presented because revenues are included
in the determination of income (loss) from operations of discontinued
segments. There were no revenues from continuing operations for all periods
presented.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
Overview
On March 22, 2002, we filed a Plan of Reorganization with the United States
Bankruptcy Court, which included the reorganization of substantially all of our
Offshore and Vessels segments and the disposition of our Engineered Products
segment as well as the disposition through sale, or otherwise, of other
subsidiaries and assets as described below. As discussed in Note 2 to the
Consolidated Financial Statements, we anticipate amending the plan of
reorganization due to the sale of the Vessels and Offshore segments. We have no
ongoing operations after the Offshore sale in January 2003.
Backlog
12
As of December 31, 2002, our backlog was $39.3 million which consisted of
FGO and FGOT's backlog in the amounts of $35.7 million and $3.6 million,
respectively. We completed the sale of the assets of FGO and FGOT on January 29,
2003.
Critical Accounting Policies
Our discussion and analysis of financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those
related to contract revenue and costs, property, plant and equipment including
related goodwill, income taxes, and contingencies. We base estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We believe the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
Revenue Recognition--Long-Term Contracts. We recognize revenue and profit
as work on long-term contracts progresses using the percentage of completion
method of accounting, which relies on estimates of total expected contract
revenues and costs. We follow this method since reasonably dependable estimates
of the revenue and costs applicable to various stages of a contract can be made.
Since the financial reporting of these contracts depends on estimates, which are
assessed continually during the term of the contract, recognized revenues and
profit are subject to revisions as the contract progresses to completion.
Revisions in profit estimates are reflected in the period in which the facts
that give rise to the revision become known. Accordingly, favorable changes in
estimates result in additional profit recognition, and unfavorable changes in
estimates result in the reversal of previously recognized revenue and profits.
When estimates indicate a loss under a contract, cost of revenue is charged with
a provision for such loss. As work progresses under a loss contract, revenue
continues to be recognized, and a portion of the contract costs incurred in each
period is charged to the contract loss reserve.
Property, Plant, & Equipment Held for Disposition. We evaluated our
property, plant, and equipment held for disposition for impairment based on the
asset purchase agreement entered into during November 2002 for the Offshore
segment. As a result, in 2002, we recognized a loss on assets held for sale of
$28.7 million related to the disposition of the Offshore segment.
Liabilities Subject to Compromise. We have been notified that proofs of
claims filed with the bankruptcy court related to our Chapter 11 filing
significantly exceed the liabilities we have recorded. As discussed in the notes
to our consolidated financial statements, as of December 31, 2002, we have
accrued an estimate of the probable liability for the resolution of these
claims. This estimate has been developed in consultation with outside counsel
that is handling our bankruptcy and defense in these matters. To the extent
additional information arises or the bankruptcy court approves the proofs of
claims as filed, it is possible that our estimate of the liability in these
matters could significantly change. We believe any change to our estimate will
increase the balance of our liabilities subject to compromise.
Income Taxes. We recognize deferred tax assets and liabilities based on the
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities. We regularly review our deferred tax assets for
recoverability and establish a valuation allowance based upon historical losses,
projected future taxable income and the expected timing of the reversals of
existing temporary differences. As a result of this review, we have established
a full valuation allowance against our deferred tax assets.
13
Contracts
A significant portion of our contracts were on a fixed-price basis.
Revenue, cost and gross profit realized on a fixed-price contract will often
vary from the estimated amounts because of many factors, including changes in
job conditions and variations in labor and equipment productivity over the term
of the contract.
The construction of offshore drilling rigs, vessels and other equipment
frequently involves complex design and engineering, and equipment and supply
delivery coordination throughout construction periods that may extend from
several months to two years. It is not unusual in such circumstances to
encounter design, engineering, equipment delivery schedule changes and other
factors that impact the builder's ability to complete construction of the
project in accordance with the original contractual delivery schedule. Our
construction contracts generally required the customer to compensate us for
additional work as well as reassess delivery dates or expenses incurred due to
customer requested change orders or failure of the customer to provide us with
design or engineering information or equipment, if specified in the contract for
the customer to provide these items. Under these circumstances, we generally
negotiated with the customer with respect to the amount of compensation to be
paid to us following the time at which the change order was requested or the
customer failed to provide us with items required by the contract to be provided
by the customer to us.
The Ocean Rig, Petrodrill, Pasha and CNOOC Contracts
Our results of operations for the year ended December 31, 2001 and our
current financial condition have been materially and adversely impacted by
contracts for the construction of four semi-submersible drilling rigs (Ocean Rig
and Petrodrill contracts), one vehicle car carrier (Pasha contract) and one
heavy derrick-lay barge (CNOOC contract), as further described below.
Ocean Rig
In December 1997 and June 1998, we entered into contracts to construct two
semi-submersible drilling rigs for Ocean Rig ASA, a Norwegian company. We
commenced construction of one rig in June 1998 and the other in January 1999.
Since January 2000, when we entered into a Confidential Settlement Agreement
with Ocean Rig to resolve disputes with respect to these contracts, we continued
to experience significant cost overruns and delays in the construction of these
rigs. As a result, we recorded provisions for contract losses during the second,
third and fourth quarters of 2000 of approximately $24.6 million, $7.0 million
and $38.2 million, respectively, related to this project. Losses for the fourth
quarter include a provision for all costs we incurred through the date of the
March 9, 2001 amendment to the contract, at which time the contract was
converted to a "time and materials" contract. Shipyard construction of the first
rig was completed in May 2001 and that rig left our facility to undergo final
outfitting, including the installation of the dynamic positioning thruster
system. This rig has completed final sea trial commissioning and is in
operation. The second rig left our facility in July 2001 and construction was
completed at a Canadian shipyard.
On December 10, 2001, we entered into a Delivery and Close-Out Agreement
with Ocean Rig (the "Agreement") under which both parties waived and released
all claims each had against the other except certain limited claims reserved in
the Agreement. The Agreement was subject to the approval of the Bankruptcy
Court. The Bankruptcy Court's approval of the Agreement was not received prior
to the deadline for filing proofs of claim in the Bankruptcy Court. In order to
preserve its rights, Ocean Rig filed unquantified proofs of claim for both rigs.
On May 16, 2002, the Court entered an order approving the Agreement. Pursuant to
the order, the proofs of claim filed by Ocean Rig are deemed held in abeyance.
If we fail to comply with the mutual waivers and releases of the Agreement, the
proofs of claim could be reactivated and amended. We do not believe that the
proofs of claim will be reactivated and amended.
Petrodrill
In April 1998, one of our subsidiaries, Friede Goldman Offshore-Texas
("FGOT") entered into contracts to construct two semi-submersible drilling rigs
for two newly formed entities, Petrodrill IV, Ltd. and Petrodrill V, Ltd.
("Petrodrill"). After the commencement of construction, FGOT 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
14
by Petrodrill. In addition, FGOT had to perform as the lead yard as opposed to a
follow-on yard as initially anticipated by the contracting parties.
In April 1999, and in connection with a transaction whereby the United
States 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 nine
months for each rig. Thereafter, production delays continued. Under the
contracts, FGOT was entitled to extensions of the delivery dates for permissible
delay as defined in the contracts ("Permissible Delay") and for delays caused by
Petrodrill breaches of contract. FGOT notified Petrodrill that, as a result of
such delays, it was entitled to additional extensions of the delivery dates and
to additional compensation. Petrodrill refused to acknowledge FGOT's right to an
extension of the delivery dates. Petrodrill was also advised that the rigs could
not be completed by their respective existing delivery dates.
In January 2000, FGOT notified Petrodrill that it was mitigating FGOT's and
Petrodrill's damages by deferring certain fabrication efforts until engineering
work could be completed so that we could determine the ultimate cost of the
project and permit construction to 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. Consequently, we and Petrodrill filed a series of
actions against one another in the United States federal court and in a court in
London, England. In May 2000, FGOT and Petrodrill finalized an agreement to
amend the construction contract and dismiss the litigation previously filed
against each other. The amendment extended delivery dates, capped liquidated
damages and increased our contract value.
On February 28, 2001, we announced an agreement in principle with Fireman's
Fund, the surety company which wrote the performance bonds of $87.0 million per
rig on the Petrodrill project, pursuant to which the surety company had agreed
to provide certain funding for the completion of construction of the two
semi-submersible drilling rigs. The agreement provided that the surety company
would contract with FGOT for fringe benefit costs, materials, subcontractor and
other costs and an allocation for overhead and general and administrative
expenses. The terms of the final agreement were not successfully negotiated,
thereby resulting in the surety ceasing to provide funding.
On May 4, 2001, we announced that we filed with the Bankruptcy Court a
motion to reject the contracts related to the Petrodrill project. This motion
was approved by the Bankruptcy Court in June 2001 and finalized in July 2001.
Work on the projects was discontinued effective May 4, 2001. Construction on the
projects resumed pursuant to a Bankruptcy Court motion effective September 6,
2001. This motion provided for us to work as authorized by the customer and
surety company for a 120-day period on Rig I and a 150-day period on Rig II.
These periods began on September 6, 2001. The construction was to be performed
at specified labor, equipment and material billing rates. In December 2001, we,
Petrodrill and Fireman's Fund jointly moved for and were granted an extension of
time to April 4, 2002 for the removal of the first rig from our Pascagoula,
Mississippi shipyard and to May 9, 2002 for the removal of the second rig from
our shipyard in Orange, Texas. Work continued past the deadlines based on a
mutual agreement by both parties under the same terms of the Bankruptcy Court
agreement. Our work was completed on the first rig and it was removed from our
property on May 3, 2002. Our work was completed on the second rig and it was
removed from our property on July 26, 2002.
At December 31, 2002, $19.2 million was included in our reserve for
estimated costs to compete the contract, which represents our estimate of the
remaining cost of completion in excess of future billings at the time work on
the project was suspended. Our estimate was based on an uninterrupted work plan
we developed during the first quarter of 2001. At December 31, 2002, $25.2
million was included in our liabilities related to costs funded to date by the
surety. We believe our liability related to the project at December 31, 2002 is
limited to the sum of these two liabilities, approximately $44.4 million. This
amount is included in liabilities subject to compromise in the Consolidated
Financial Statements.
Petrodrill has submitted proofs of claim totaling $477.0 million based on
estimated costs to complete the rigs and lost revenues. Fireman's Fund has
submitted proofs of claim which are unquantified at this time. We believe the
amount of Petrodrill's asserted claim substantially exceeds our reserve of $44.4
million as of December 31, 2002
15
due to delays caused by the customer/surety and the customer's/surety's inaction
on resolving the strategy to complete construction of the rigs. We are not
privileged to the customer's/surety's final strategy for completion of these
projects and their claims and do not have information as to the estimated final
cost to complete under the customer's/surety's strategy. We believe the claims
made by Petrodrill and the surety, if substantiated, would be a liability
subject to compromise. There is no assurance that management's position
regarding the value of the claims of Petrodrill and Fireman's Fund will be
upheld by applicable courts and additional liabilities will not result in excess
of the reserve recorded at December 31, 2002.
PASHA
On December 28, 1999, we signed a contract for the construction of a 4,000
car-carrier vessel for transport of vehicles between the West Coast and the
Hawaiian Islands. On May 1, 2001, we gave notice that we were not financially
capable of completing this contract without further funding to ensure a cash
flow positive contract from the date of filing Chapter 11 reorganization on
April 20, 2001. This additional funding was anticipated to come from the surety
company which wrote the performance bond for the project. The surety company
provided additional funding for the project under court order until July 27,
2001 when it informed us that it would not fund completion of the vessel.
Construction on the project was suspended when this funding ceased. We and the
customer maintain that this is a violation of the terms of the performance bond.
The customer has sued the surety in federal court. The United States Department
of Justice ("USDOJ"), which represents the United States Maritime Administration
("MARAD") (the provider of customer financing) and the customer have also sued
the surety in Mississippi state court. The suits are seeking specific
performance of the surety under the terms of the performance bond. This suit was
settled, but the agreement was sealed by the federal court. Because
substantially all of the assets of our Vessels segment were sold on October 23,
2002, we will not complete the project.
At December 31, 2002, $2.4 million was included in our reserve for
estimated costs to complete the contract, which represents our estimate of the
remaining costs of completion in excess of future billings at the time work on
the project was suspended. The customer has submitted proofs of claim totaling
$906.0 million and the surety has submitted proofs of claim which are
unquantified at this time. We believe that these pre-petition claims made by the
customer and the surety are objectionable on one or more grounds, although no
such objections have been made to date. If the claims are substantiated, then
they would be a liability subject to compromise. There is no assurance that
management's position regarding the value of the claims of the customer and the
surety will be upheld by applicable courts and additional liabilities will not
result in excess of the reserve recorded at December 31, 2002. The surety also
asserts certain secured claims against our assets and post-petition
administrative claims for payments made under the payment bond. Pending
resolution of the surety's lien and claim rights, the Bankruptcy Court has
ordered us to maintain a minimum balance of $7.5 million in the sales proceed
cash account for the Vessels segments subject to certain adjustments.
CNOOC
We filed a motion with the Bankruptcy Court to reject the contract with
China National Offshore Oil Company ("CNOOC") for the construction of a heavy
derrick-lay barge. Liberty Mutual Insurance Company ("Liberty Mutual") opposed
the contract rejection. Pursuant to the contract, CNOOC was provided a bank
guarantee from Royal Bank of Canada ("Royal Bank"). After we filed for
bankruptcy, CNOOC received approximately $10.9 million from Royal Bank under the
bank guarantee. Under a counter guarantee, Royal Bank received from Liberty
Mutual the same amount that Royal Bank paid to CNOOC. Prior to filing for
bankruptcy, we and certain of our subsidiaries entered into an indemnification
agreement with Liberty Mutual providing that we would indemnify Liberty Mutual
for any amount paid to Royal Bank under the counter guarantee. At December 31,
2002, approximately $10.9 million was included in our liabilities subject to
compromise for the indemnification agreement. Liberty Mutual has submitted
proofs of claim which are unquantified at this time. Liberty Mutual has also
asserted claims against proceeds received by a subsidiary of ours under
post-petition contacts between the subsidiary and CNOOC. We believe any claim
made by Liberty Mutual would be a liability subject to compromise and no loss
exposure exists in excess of the liability recorded. Pending resolution of
certain rights asserted by Liberty Mutual, the Bankruptcy Court has ordered us
to maintain a minimum balance of $10.5 million in the sales proceed cash account
for the Engineered Products segment subject to certain adjustments.
16
Results of Operations
The consolidated financial statements include the accounts of FGH, Inc. and
its wholly-owned subsidiaries, including, among others, FGO, F&G Ltd., FGN, FGF
and Amclyde (collectively referred to as the "Company").
Revenues
Revenues are zero for all periods presented because revenues are included
in the determination of income (loss) from operations of discontinued segments.
There were no revenues from continuing operations for all periods presented.
Selling, general and administrative expenses
Selling, general and administrative expenses ("SG&A expenses") were $9.6
million from continuing operations for the year ended December 31, 2002 compared
to $18.2 million from continuing operations for the year ended December 31,
2001. The decrease in SG&A expenses is due to personnel reductions and other
cost-saving measures we implemented.
SG&A expenses were $18.2 million from continuing operations for the year
ended December 31, 2001 compared to $24.6 million from continuing operations for
the year ended December 31, 2000. The decrease in SG&A expenses is due to
personnel reductions and other cost-saving measures we implemented.
Amortization of Goodwill
Amortization of goodwill increased $3.6 million from continuing operations
for the year ended December 31, 2001 compared to the year ended December 31,
2000 as a result of adjustments to goodwill in 2000. As of December 31, 2002, we
have no goodwill as a result of an impairment recorded in 2001.
Impairment of Goodwill
During 2001, we completed an evaluation of the impairment in carrying
values of our long-lived assets, including goodwill, in conjunction with the
development of our plan of reorganization. We recorded a goodwill impairment
charge of $201.6 million for the year ended December 31, 2001 related to our
Vessel and Offshore segments. This charge was estimated based on our projection
of cash flow that would be generated from the operation of these segments in
future periods. This adjustment related to an analysis performed by comparing
the total book value of property, plant, equipment and goodwill to the total
undiscounted cash flows for a period of five years as it relates to the assets
we acquired in the merger with Halter Marine Group in November 1999. The
adjustment was based on the amount by which the carrying amount of the
long-lived assets, including goodwill, exceeded the estimated fair market value.
Net interest expense
Net interest expense decreased to $9.8 million from continuing operations
for the year ended December 31, 2002 from $15.9 million from continuing
operations for the year ended December 31, 2001. The decrease of $6.1 million is
primarily the result of interest expense recorded on the 4 1/2% convertible
subordinated notes from January 2001 through April 18, 2001, before the Chapter
11 filing, while no related interest was recorded in the year ended December 31,
2002. Contractual interest expense of $8.4 million and $5.9 million on the 4
1/2% convertible subordinated notes was not recorded in the years ended December
31, 2002 and 2001, respectively, due to the Chapter 11 filing.
Net interest expense decreased to $15.9 million for the year ended December
31, 2001 from $30.2 million for the year ended December 31, 2000. The decrease
of $14.3 million is primarily the result of interest expense recorded on the 4
1/2% convertible subordinated notes from January 2001 through April 18, 2001,
before the Chapter 11 filing, while twelve months of related interest was
recorded in the year ended December 31, 2000. Contractual interest
17
expense of $5.9 million on the 4 1/2% convertible subordinated notes was not
recorded in the year ended December 31, 2001 due to the Chapter 11 filing.
We recorded discount accretion of $54.9 million during the year ended
December 31, 2001 related to the reclassification of the $185.0 million, 4 1/2%
convertible subordinated notes as a liability subject to compromise.
Reorganization items
We incurred professional fees of $12.9 million related to the bankruptcy
proceeding and reorganization in the year ended December 31, 2002 compared to
$11.7 million in the year ended December 31, 2001.
Due to the agreement to satisfy our obligations to Foothill, we recorded a
loss of $2.0 million during the year ended December 31, 2002 to write-off the
remaining balance of the deferred financing costs related to this debt. In 2001,
we also wrote-off $2.6 million of debt issuance costs related to the 4 1/2%
subordinated convertible notes due to the notes being reclassified as a
liability subject to compromise.
In September 2002, the Bankruptcy Court issued an order limiting the amount
of cash that could be disbursed to the participants in our deferred compensation
program, which was less than the recorded liability. We reported a $1.2 million
gain in the third quarter of 2002 as a result of reducing our liabilities
subject to compromise related to our deferred compensation program. The $1.2
million gain was offset by a $1.5 million loss on the write-off of prepaid
pension costs due to the termination of the Halter Marine Group defined benefit
plan in 2003.
Discontinued Operations of Vessels Segment
We recorded a loss from discontinued operations of our Vessels segment of
$12.5 million for the year ended December 31, 2002 as compared to a loss of
$13.2 million for the year ended December 31, 2001. We recorded a loss from
discontinued operations of our Vessels segment of $13.2 million for the year
ended December 31, 2001 as compared to income of $13.7 million for the year
ended December 31, 2000. The losses from discontinued operations in 2002 and
2001 are primarily the result of the sale of the higher margin repair business
in August 2000, overhead inefficiencies due to lower sales volume, losses
incurred on a contract to build a car carrier vessel and losses incurred on the
construction of an ocean going barge. The losses on these contracts were
primarily attributable to delays and disruption caused by our working capital
deficit prior to filing Chapter 11 bankruptcy.
We recorded a loss on disposal of our Vessels segment of $37.5 million for
the year ended December 31, 2002 as a result of the sale of the Vessels segment
in October 2002.
Discontinued Operations of Offshore Segment
We recorded income from discontinued operations of our Offshore segment of
$8.2 million for the year ended December 31, 2002 as compared to a $20.8 million
loss for the year ended December 31, 2001 primarily due to an increase in the
reserve for obsolete inventories of $10.5 million and the recording of the
performance bank guarantee liability on the heavy derrick-lay barge contract in
2001. In addition, earnings on new repair and conversion projects were included
in the year ended December 31, 2002, most of which were not in progress in the
year ended December 31, 2001.
We recorded a loss from discontinued operations of our Offshore segment of
$20.8 million for the year ended December 31, 2001 as compared to a loss of
$86.1 million from discontinued operations recorded for the year ended December
31, 2000. This $65.3 million decrease in loss from discontinued operations is
primarily the result of $69.6 million in losses recorded in 2000, including a
provision for future losses of $21.1 million, on a contract to construct two
semi-submersible drilling rigs for Ocean Rig ASA requiring increased estimated
man-hours to complete this project. The gross profit margin was also impacted by
an increase in the reserve for obsolete inventories of $10.5 million and the
recording of the performance bank guarantee liability on the heavy derrick-lay
barge contract in 2001.
During the year ended December 31, 2001, we recorded a loss on disposal of
the Offshore segment in the amount of $22.0 million. This loss relates to the
write-down of $17.1 million on certain assets of the Offshore
18
segment to an amount equal to the debt owed to our secured lenders since we
intended to satisfy this debt by relinquishing control of the assets to our
lender. We also recorded a write-down of $4.9 million on the asset value of FGN
based on the estimated net proceeds that we would receive from the sale of this
facility.
During the year ended December 31, 2002, we recorded a gain of $1.1 million
related to an adjustment on the sale of FGN and a gain of $11.4 million on the
sale of FGL. In addition, during the forth quarter of 2002, we recorded a $28.7
million write-down of the asset values of FGO and FGOT based on the proceeds
received from the sale of these facilities in January 2003 pursuant to an asset
purchase agreement entered into in November 2002.
Discontinued Operations of Engineered Products Segment
We recorded income from discontinued operations of our Engineered Products
segment of $0.5 million for the year ended December 31, 2002 compared to income
of $7.3 million for the year ended December 31, 2001 primarily due to the sale
of its assets in April 2002. We recorded income from discontinued operations of
our Engineered Products segment of $7.3 million for the year ended December 31,
2001 compared to income of $11.1 million for the year ended December 31, 2000
primarily due to higher sales volumes in 2000.
In 2001, we recorded a net loss of $26.0 million relating to the
disposition of our Engineered Products segment. This included a $16.0 million
gain on the sale of the BLM division in May 2001 offset by a loss on the sale of
the Amclyde division of $42.0 million. The sale of the Amclyde division was
completed on April 25, 2002.
In 2002, we recorded a gain of $0.7 million related to an adjustment to the
sale of Amclyde.
Income taxes
We had income tax expense of $0.3 million in 2002 compared to $9.5 million
in 2001. As a result of losses incurred in prior years, we were not able to
record income tax benefits for financial reporting purposes during 2002. The
income tax expense recorded during the year ended December 31, 2001 related to
income generated by BLM and an increase in the valuation allowance on deferred
tax assets.
We had income tax expense of $9.5 million in 2001 compared to an income tax
benefit of $21.0 million in 2000. As a result of losses recorded during the
fourth quarter of 2000 and during the year ended December 31, 2001, the benefits
available for financial reporting purposes were limited significantly. We have
recorded a valuation allowance which offsets substantially all of the deferred
tax assets arising from contract reserves and net operating loss carry-forwards
generated through the current period. The income tax expense recorded during the
year ended December 31, 2001 related to income generated by BLM and an increase
in the valuation allowance on deferred tax assets.
Extraordinary Item
During 2000, we recorded an extraordinary loss of $3.9 million related to
the write-offs of deferred loan costs associated with the portion of deferred
loan fees related to the previous credit facility which were written off when
the agreement was re-negotiated and restated in October 2000.
Liquidity and Capital Resources
Overview
As further described in the introduction section of Item 7, Management's
Discussion and Analysis, we filed a petition for relief under Chapter 11 of the
United States Bankruptcy Code in April 2001.
19
Cash flow summary
During the year ended December 31, 2002, we financed our business
activities through funds generated from cash balances, including those generated
through collections of accounts receivable, borrowings under the Restated Credit
Agreement and proceeds from the sale of assets of FGN, Amclyde, F&G Ltd., and
the Vessels segment.
Net cash used in operating activities during 2002 was approximately $36.9
million including a net loss of $91.6 million for the twelve months ended
December 31, 2002 and a gain on termination of the deferred compensation plan of
$1.2 million, offset by non-cash depreciation and amortization of $13.8 million,
write-off of deferred financing costs of $2.0 million and termination of the
defined benefit plan of $1.5 million. Funds generated through operating
activities include a $6.4 million decrease in contract and other receivables and
a $2.8 million decrease in inventories. Funds used by operating activities
included a $7.6 million decrease in billings related to costs and estimated
earnings on uncompleted contracts, an $8.4 million decrease in liabilities
subject to compromise, and an $8.5 million decrease in accounts payable and
accrued liabilities. In addition, loss on disposal of the Vessels and Offshore
segments recorded during 2002 were $37.5 million and $16.2 million,
respectively. Gain on disposal of the Engineered Products segment was $0.7
million in 2002.
Net cash provided by investing activities during 2002 was $95.4 million. We
generated cash of $123.7 million from the sale of business units including $62.7
million and $41.7 million related to the sale of the Vessels segment and
Engineered Products segment, respectively. In addition, $15.1 million and $4.2
million was received related to the sale of F&G Ltd and FGN, respectively.
During 2002, we paid $0.3 million for capital expenditures and received $0.2
million in proceeds from the sale of property, plant and equipment.
Additionally, restricted cash increased by $28.2 million primarily due to $6.0
million in cash collateral and a $14.4 million escrow account established in
2002 related to Foothill Capital Corporation. (See Note 3 of the Consolidated
Financial Statements for further detail.) The remaining increase in restricted
cash is primarily the result of the remaining proceeds from the sale of
divisions in 2002.
Net cash used in financing activities during 2002 was $64.7 million.
Sources of cash included borrowings under debt facilities of $1.3 million. Funds
used in financing activities included net repayments under our line of credit of
$62.3 million and repayments on other debt facilities of $3.7 million.
Net cash used in operating activities during 2001 was approximately $33.3
million including a net loss of $401.6 million for the twelve months ended
December 31, 2001 offset by non-cash depreciation and amortization of $32.3
million and goodwill impairment of $201.6 million. Funds generated through
operating activities include a $42.3 million decrease in contract and other
receivables and a $18.2 million increase in accounts payable and accrued
liabilities. Funds used by operating activities included a $17.0 million
decrease in billings related to costs and estimated earnings on uncompleted
contracts and a $36.4 million decrease in the reserve for uncompleted contracts.
Additionally, loss on disposal of the Engineered Products segment, discount on
convertible notes, and loss on disposal of Offshore segment were recorded in
2001 in the amounts of $26.0 million, $55.9 million, and $22.0 million,
respectively.
Net cash provided by investing activities during 2001 was $6.8 million. We
generated cash of $26.6 million from the sale of our French subsidiaries;
however, use of these funds is restricted and subject to the approval of the
unsecured creditor's committee and/or an order of the Bankruptcy Court. These
funds were used to pay the professional fees and other administrative costs
related to our bankruptcy filing. During 2001, we paid approximately $4.0
million for capital expenditures.
Net cash provided by financing activities during 2001 was $22.0 million.
Sources of cash included net borrowings under our line of credit of $22.8
million, borrowings under other debt facilities of $8.9 million, and repayments
on other debt facilities of $9.7 million.
Restated Credit Agreement
Effective October 24, 2000, we entered into a $110.0 million amended and
restated credit agreement with Foothill Capital Corporation ("Foothill"),
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 our
otherwise unencumbered assets, including accounts receivable, inventory,
20
equipment, real property and all of the stock of our domestic subsidiaries. The
term loan is secured by a subordinated security interest in the line of credit
collateral.
On October 29, 2002, the Bankruptcy Court entered an order authorizing us
to pay, upon the sale of the Vessels segment to Foothill approximately $64.0
million in undisputed principal and undisputed non-default rate interest, and to
provide $6.0 million in cash collateral to secure a letter of credit. An escrow
account of $14.4 million was also authorized to satisfy potentially disputed
charges, which include default interest and various fees that might be awarded
by the Bankruptcy Court. As of November 25, 2002, we had made all payments
required by the court order. Although the court order requires use of the escrow
account for payment of disputed charges, Foothill retains all of its liens on
our assets pending final resolution.
Total balances outstanding under the Restated Credit Agreement at December
31, 2002 were $9.3 million, excluding $5.7 million in outstanding letters of
credit. The letter of credit was provided to secure our worker's compensation
obligations.
Notes Payable to Financial Institutions
Notes payable to financial institutions were $3.4 million at December 31,
2002 which includes $2.5 million in debt assumed by the buyer in connection with
the sale of the Offshore segment in January 2003.
MARAD Financing Agreement
As of December 31, 2002, we had approximately $19.9 million in outstanding
principal related to our demand notes payable to the U.S. Maritime
Administration ("MARAD"). The demand notes resulted from MARAD making payment
under its guarantee agreement to the holders of the bonds originally issued in
December 1997, under Title XI, to partially finance construction of the FGO East
Facility. Pursuant to the disposition of the Offshore segment in January 2003,
the debt owed to Marad was assumed by the buyer of the Offshore segment, and the
Company has no further obligations thereunder.
Bonds Payable - Capital Public Finance Agreement
The balance of the GE Capital Public Finance ("GEPF") debt at December 31,
2002 was $13.6 million. Pursuant to the disposition of the Offshore segment in
January 2003, the debt owed to GEPF was assumed by the buyer of the offshore
segment, and the Company has no further obligations thereunder.
Notes Payable - GE Capital Corporation Debt
The balance of the GE Capital Corporation ("GECC") debt at December 31,
2002 was $2.5 million. Pursuant to the disposition of the Offshore segment in
January 2003, the debt owed to GECC was assumed by the buyer of the Offshore
segment, and the Company has no further obligations thereunder.
Liabilities Subject to Compromise
The Company has liabilities subject to compromise of $346.0 million over
and above the previously discussed debt. These liabilities have resulted from
certain contractual matters and other claims asserted by creditors (as further
described in Notes 9, 13, 16, 17 and 19 of the Consolidated Financial
Statements). The Company has been notified that proofs of claims filed with the
Bankruptcy Court related to its Chapter 11 filing significantly exceed the
liabilities the Company has recorded. At December 31, 2002 and December 31,
2001, the Company accrued its estimate of the liability for the resolution of
these claims. This estimate has been developed in consultation with outside
counsel that is handling the bankruptcy and defense of these matters. To the
extent additional information arises or the Bankruptcy Court approves the proofs
of claims as filed, it is possible that the Company's estimate of its liability
in these matters may change. Management believes any change to the Company's
estimate will increase the balance of its liabilities subject to compromise.
Based upon an assessment of information currently
21
available, management believes that a reasonable estimate of the possible claims
that could be approved by the court could be as much as $575.0 million. There is
no assurance that either of these estimates will reflect the ultimate position
of the Bankruptcy Court. The amount of the awarded claim could be higher. (See
Note 12 of the Consolidated Financial Statements.)
Recently Issued Accounting Pronouncements
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." This statement provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation and amends the disclosure
requirement of SFAS No. 123, "Accounting for Stock-Based Compensation." This
statement is effective for fiscal years ending after December 15, 2002 and did
not have an impact on our financial condition or operating results. The
disclosure requirements are included in this report.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to interest rate risk due to changes in interest rates,
primarily in the United States. Our policy is to manage interest rates through
the use of a combination of fixed and floating rate debt. We currently do not
use any derivative financial instruments to manage our exposure to interest rate
risk.
The table below provides information about future maturities of principal
for our outstanding debt instruments and fair value at December 31, 2002. All
instruments described are non-trading instruments ($ in thousands). See Note 11
of the Consolidated Financial Statements for further discussion of the Company's
debt.
December 31,
2002
------
Fixed rate debt:
Fixed rate ................ $39,367
Average interest rate ..... 6.90%
Variable rate debt:
Variable rate: ........... $ 9,345
Average interest rate .... LIBOR
plus
Foreign Currency Risks
Although the majority of our transactions were in U.S. dollars, FGN and FGF
conducted some of their operations in various foreign currencies. We currently
do not use any off balance sheet hedging instruments to manage risks associated
with our operating activities conducted in foreign currencies unless that
particular operation enters into a contract in a foreign currency which is
different than the local currency of the particular operation. In limited
circumstances and when considered appropriate, we will utilize forward exchange
contracts to hedge the anticipated purchases and/or sales. We have historically
used these instruments primarily in the manufacturing and selling of certain
marine deck equipment. We attempt to minimize our exposure to foreign currency
fluctuations by matching our revenues and expenses in the same currency for our
contracts. As of December 31, 2002, we do not have any outstanding forward
exchange contracts. FGN and FGF were sold in March 22, 2002 and May 23, 2001,
respectively.
ITEM 8. Financial Statements and Supplementary Data
The information required by this Item 8 is contained in a separate section
of this report. See Consolidated Financial Statements in Item 14 of this report.
22
ITEM 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The directors of the Company were elected at the annual meeting of
shareholders held on May 16, 2000 to serve as directors of our Company until the
annual meeting of stockholders in the year 2002 and until their respective
successors are duly elected and qualified. As a result of the cancellation of
such annual meeting until such future time as may be appropriate, no election of
directors of our Company will occur at this time. Our Executive Officers are
elected annually to serve for the ensuing year or until their successors have
been elected. The following table sets forth certain information with respect to
the directors and executive officers of the Company as of April 1, 2003:
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Name Age Position
------------------- --- --------------------------------------------------
T. Jay Collins 56 Chief Executive Officer and Chairman of the Board
Alan A. Baker 71 Director
Angus R. Cooper, II 61 Director
Barry J. Galt 69 Director
Gary L. Kott 61 Director
Raymond E. Mabus 54 Director
Marilyn L. Cameron 53 Assistant Secretary
T. JAY COLLINS, age 56, has been Chief Executive Officer since June 4,
2002, Chairman of the Board since May 4, 2002 and Director since 1997. He is
currently the President of Oceaneering International, Inc., a position he has
held since November 1998. From May 1995 to November 1998, he served as Executive
Vice President of Oilfield Marine Service at Oceaneering International, Inc.
From 1993 to 1996, Mr. Collins served as Senior Vice President and Chief
Financial Officer of Oceaneering International, Inc., an applied technology
company providing services and products to the oil and gas industry.
ALAN A. BAKER, age 71, has been a Director since 1997. Mr. Baker is the
retired Chairman of Halliburton Energy Services, an oil and gas service company,
a position he held from 1992 to 1995. He also served as the Chief Executive
Officer of Halliburton Energy Services Group from 1992 to 1993. Mr. Baker has
served as a consultant to Halliburton Company, a director of Noble Affiliates,
Inc., a worldwide oil and gas exploration and production company, Crestar
Energy, an oil and gas exploration and production company and Nova Technology, a
deepwater oil and gas service company.
ANGUS R. COOPER, II, age 61, has been a Director since November 3, 1999.
Mr. Cooper served as a Director of Halter Marine Group, Inc. from April 1997
through the time of the merger with the Company. Mr. Cooper is Chairman of the
Board and Chief Executive Officer of Cooper/T. Smith Corporation, a stevedoring
company. He currently serves as a Director of Whitney National Bank. He also
serves on the Board of Trustees of the University of Alabama.
23
BARRY J. GALT, age 69, has been a Director since November 3, 1999. Mr. Galt
was a director of Halter Marine Group, Inc. from November 1997 through the time
of the merger with the Company. Prior to his retirement on March 30, 1999, Mr.
Galt served since 1983 as Chairman and Chief Executive Officer of Ocean Energy,
Inc., formerly named Seagull Energy Corporation, a diversified energy company
engaged in oil and gas exploration and development. He is also a director of
Trinity Industries, Inc., a diversified industrial company, a director of
StanCorp Financial Corp., Inc., an insurance company, and a director of Dynegy,
Inc., a diversified energy company.
GARY L. KOTT, age 61, has been a Director since March 1999. Mr. Kott has
served has a consultant in the private sector since July 1998. From April 1997
through June 1998, Mr. Kott served as Senior Vice President and Chief Financial
Officer of Global Marine, Inc., an international drilling contracting company.
Mr. Kott also is a director of Tesco Corporation, a drilling technology company
based in Calgary, Canada, and NS Group, Inc., a manufacturer of oilfield
tubulars.
RAYMOND E. MABUS, age 54, has been a Director since 1997. Mr. Mabus has
served as President of Frontline Global Resources, a consulting company since
October 1998 and as Of Counsel to the law firm of Baker, Donelson, Bearman &
Caldwell since October 1996. Mr. Mabus also serves as a director of the
Kroll-O'Gara Company, a publicly-traded risk mitigation company and Foamex, Inc,
a publicly traded maker of foam.
MARILYN CAMERON, age 53, has been Assistant Secretary of the Company since
October 2001 and was previously the Company's Director of Corporate Governance
since 1998.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our executive
officers, directors and persons who own more than ten percent (10%) of the
Company's Common Stock to file initial reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). These reports are
also filed with the New York Stock Exchange and a copy of each report is
required to be furnished to us.
In addition, SEC regulations require that the we identify any individuals
for whom one of the referenced reports was not filed on a timely basis during
the most recent fiscal year. To our knowledge, based solely on a review of the
reports furnished to us and written representations that no other reports were
required during and with respect to the year ended December 31, 2002, each
individual who was required to file such reports during the year complied with
the applicable filing requirements.
ITEM 11. Executive Compensation
Cash Compensation
The following table sets forth certain summary information for the prior
three years concerning the compensation earned by our current Chief Executive
Officer and Chairman of the Board (Mr. Collins), our former President and Chief
Executive Officer (Mr. Alford), our former President and Chief Executive Officer
(Mr. Stone, Jr.) and the four other most highly compensated individuals who
earned in excess of $100,000 and were employed by the Company on December 31,
2002 (Messrs. Shepherd, Schnoor, Cunningham and Haley).
24
Summary Compensation Table
Annual Long-Term
Name and Principal Position Compensation Compensation
--------------------------- ------------------- ------------
Stock Option
Awards All Other
Year Salary Bonus (Shares) Compensation (1)
---- --------- -------- ------------ ----------------
T. Jay Collins 2002 $ -- $ -- -- $ 59,224
Chief Executive Officer and 2001 $ -- $ -- -- $ 42,316
Chairman of the Board (see note 2) 2000 $ -- $ -- -- $ 29,936
Jack R. Stone, Jr. 2002 $ -- $ -- -- $ --
Former President and Chief 2001 $ -- $ -- -- $ --
Executive Officer (see note 3) 2000 $ -- $ -- -- $ --
John Alford 2002 $ 102,308 $ -- -- $ 19,871
Former President and Chief 2001 $ 366,667 $ -- -- $ 5,128
Executive Officer (see note 4) 2000 $ 399,449 $ -- 250,000 $ 48,770
Ronald W. Schnoor 2002 $ 216,050 $ 68,935(5) -- $ 30,044
Group President--Offshore 2001 $ 210,664 $ -- -- $ 4,573
2000 $ 255,626 $ -- -- $ 7,665
Robert Shepherd 2002 $ 216,250 $ -- -- $ 232,693(6)
Executive Vice-President 2001 $ 191,543 $ -- -- $ 31,502
2000 $ -- $ -- --
Chris Cunningham 2002 $ 110,000 $ 60,302(5) -- $ 17,349
Chief Accounting Officer 2001 $ 110,000 $ -- -- $ 20,012
2000 $ 106,250 $ 24,134 -- $ 7,647
John Haley 2002 $ 162,083 $ 26,358(5) -- $ 104,111
President--Friede Goldman Offshore Texas 2001 $ 143,125 $ -- -- $ --
2000 $ 147,500 $ -- -- $ --
(1) All Other Compensation consists principally of the Company's deferred
compensation payments, matching contributions to 401(k) Retirement Plan
accounts, term life insurance premiums paid by the Company, automobile
allowances, vacation pay and relocation expenses.
(2) Mr. Collins' other compensation payments include director's fees.
(3) Mr. Jack R. Stone, Jr., currently serving as the Chief Restructuring
Advisor to FGH, was elected to the additional post of President and CEO
effective April 5, 2002 though June 3, 2002. Mr. Stone, a principal of
Glass & Associates, Inc., a nationally prominent management-consulting
firm, has been advising the Board of Directors since October 2001 on
restructuring matters. Payments to Glass & Associates, Inc. for Mr. Stone's
compensation and restructuring services totaled $0.2 million for the period
April 5, 2002 through June 3, 2002.
(4) Effective April 4, 2002, Mr. Alford resigned as our President and Chief
Executive Officer.
(5) The amount represents bonus paid pursuant to a retention plan approved by
the Bankruptcy Court.
(6) Mr. Shepherd received a $200,000 payment upon the termination of his
employment with Friede Goldman Newfoundland, when substantially all the
assets of FGN were sold.
25
INCENTIVE AND OTHER EMPLOYEE BENEFIT PLANS
Stock Options
No stock options with respect to fiscal 2002 were granted to, or exercised
by, the executives named in the Summary Compensation Table.
Employment Agreements
John F. Alford. Mr. Alford resigned as our President and CEO effective
April 4, 2002. The following paragraphs describe his employment agreement as it
existed prior to his resignation.
Mr. Alford's employment agreement, as amended on August 7, 2000, had a
three-year term ending August 7, 2003 and was subject to automatic annual
renewal beginning on the second anniversary of the effective date of the
agreement; provided that either Friede Goldman Halter or Mr. Alford, as the case
may be, could elect to terminate the agreement by providing the other party with
at least 90 days' written notice prior to any year, beginning with the second
anniversary of the effective date of the agreement.
Mr. Alford received an annual base salary of at least $500,000 and was
eligible to participate in the annual bonus plan and earn an annual bonus in an
amount up to 150% of his annual base salary (as determined by the compensation
committee of the board of directors of Friede Goldman Halter). Mr. Alford also
received options to purchase 250,000 shares of the Company's common stock,
100,000 of which vested immediately with the remaining 150,000 options vesting
ratably over the next three years. In addition, Mr. Alford was eligible to
receive incentive compensation awards on a year-to-year basis.
The failure of Friede Goldman Halter to extend the term of Mr. Alford's
employment agreement would have resulted in a severance payment. If Mr. Alford's
employment was terminated by Friede Goldman Halter without "cause" or Mr. Alford
resigns for "good reason," Mr. Alford would have been entitled to the same
severance benefits as provided to Mr. Holloway; provided, however, that Mr.
Alford would have been entitled to a lump sum cash payment of $750,000 and an
additional lump sum payment of up to $750,000 based on the fair market value of
his options at the date his employment terminated.
For purposes of determining "good reason" in Mr. Alford's employment
agreement, "good reason" generally consisted of: (i) a material breach by Friede
Goldman Halter of the employment agreement; (ii) a diminution of his
responsibilities or title; (iii) a reduction in his base salary, annual bonus
opportunity, welfare plan benefits, fringe benefits or incentive plan benefits;
(iv) the failure of Friede Goldman Halter to pay any compensation to him when
due; (v) a substantial increase in his travel obligations; (vi) a relocation of
his workplace without accommodation by Friede Goldman Halter; (vi) failure by
Friede Goldman Halter to obtain a satisfactory agreement from a successor
company to assume the obligations under his employment agreements; and (vii)
termination of his employment without providing a notice of non-renewal of the
employment agreement.
Under his employment agreement, Mr. Alford had non-solicitation and
non-competition obligations toward Friede Goldman Halter for a period of two
years following the effective date of the merger.
The employment agreement for Mr. Alford also provided that in the event any
payments received by him under his employment agreement or under any other plan
of Friede Goldman Halter was subject to any excise tax imposed under Section
4999 of the Internal Revenue Code of 1986 or any other similar tax or
assessment, Friede Goldman Halter would pay Mr. Alford the amount necessary to
fully reimburse him for these excise taxes or assessments.
In exchange for a waiver and release of amounts owing, if any, under his
employment agreement, and other consideration and pursuant to an order of the
Bankruptcy Court entered on December 23, 2002, Mr. Alford received vacation pay
in the amount of $17,307, additional salary in the amount of $75,000 and
benefits valued at $1,416. Pursuant to the Order, Mr. Alford was also paid
$19,000 on account of his share of funds paid into the Friede Goldman Halter,
Inc. deferred Compensation Plan.
26
Ronald W. Schnoor. Mr. Schnoor resigned from the Company in January 2003.
The following paragraphs describe his employment agreement as it existed before
Mr. Schnoor waived his rights pursuant to it by agreeing to participate in the
Debtor's Retention and Incentive Program.
Mr. Schnoor's employment agreement had a term of three years provided that
on the second anniversary of the completion of the merger and on each
anniversary of this date, the term of the agreement would be automatically
extended for one year. Either Friede Goldman Halter or Mr. Schnoor could elect
to terminate the agreement by providing the other party with at least six
months' written notice prior to each anniversary of the completion of the
merger.
The employment agreement provided for an annual base salary of $256,000,
subject to increases in the discretion of the compensation committee. Mr.
Schnoor's employment agreement could be terminated at any time by Friede Goldman
Halter for "cause" ten days after written notice was provided to Mr. Schnoor.
Upon termination, Mr. Schnoor would not have been entitled to severance
compensation. "Cause" was defined to include a material and irreparable breach
of the agreement, gross negligence or a willful failure by Mr. Schnoor in
performing his material duties under the employment agreement, acts of
dishonesty or misconduct which had an adverse effect on Friede Goldman Halter, a
conviction of or plea of nolo contendere to a felony crime involving moral
turpitude, or chronic alcohol abuse or illegal drug abuse.
If Mr. Schnoor's employment was terminated by Friede Goldman Halter without
"cause" or he resigned for "good reason" (as defined below), he would be
entitled to receive a lump-sum payment equal to one year's base salary at the
rate in effect at that time. If Mr. Schnoor resigned his employment without
"good reason," he would have received no severance compensation. Upon
termination for any reason, Mr. Schnoor would have been entitled to receive all
compensation earned and all vested benefits and reimbursements through the
effective date of his termination.
"Good Reason" was defined in Mr. Schnoor's employment agreement to consist
of a material breach by Friede Goldman Halter of the employment agreement
occurring during the 30-day period preceding the date written notice of
termination for good reason was provided to Friede Goldman Halter which was not
remedied by Friede Goldman Halter within 30 days after receipt of the notice.
Under his employment agreement, Mr. Schnoor had non-solicitation and
non-competition obligations toward Friede Goldman Halter for a period of one
year following any termination of his employment.
Mr. Schnoor was entitled to receive $156,878.00 under the Company's
Retention and Incentive Program, $19,008 of which amount constituted his pro
rata share of the funds held by the Friede Goldman Halter, Inc. Deferred
Compensation Program. Mr. Schnoor received one-half of the total amount in 2002.
The R&I Program, the purpose of which was to provide an incentive pool for
certain employees of the Company, was approved by Order of the Bankruptcy Court
entered on June 26, 2002.
Additional Information with Respect to Compensation Committee Interlocks and
Insider Participation in Compensation Decisions
None.
Report of the Compensation Committee on Executive Compensation; Retention and
Incentive Plan
The following report is submitted by the Compensation Committee for
inclusion in this annual report pursuant to the rules of the Securities and
Exchange Commission with respect to Executive Compensation:
The Compensation Committee (the "Committee"), subject to direction from the
Board of Directors, determines the general compensation policies of the Company,
determines the compensation to be paid to certain officers and certain other
persons in senior management positions and administers the Company's Stock
Option Plan. The Committee is composed of three directors consisting of T. Jay
Collins, Angus R. Cooper II, and Raymond E. Mabus.
27
Retention and Incentive Plan
During the year ended December 31, 2002, the principal objective of the
Company's compensation policy was to retain executives and other employees
needed to continue the Company's operations until its operating divisions were
sold or reorganized. Toward this end, the Company adopted a retention and
incentive plan involving cash payments during the 2002 and 2003 calendar years
in order to retain the services of Company personnel. The retention and
incentive plan was developed with the assistance of the Company's restructuring
consulting firm, and was approved by the Company's compensation committee and by
the Bankruptcy Court. No long-term compensation was granted to Company employees
last year.
Policy on Deductibility of Compensation
Section 162(m) of the Internal Revenue Code of 1986 limits the
deductibility for federal income taxes of compensation in excess of $1 million
paid to a publicly held company's chief executive officer and any of the other
four highest-paid executive officers, except for "performance-based"
compensation. The Committee is aware of this limitation and intends to consider
the effects of Section 162(m) on the Company when making compensation decisions.
Compensation Committee
T. Jay Collins, Member
Raymond E. Mabus, Member
Angus R. Cooper, II, Member
28
Performance Table
The following table shows a comparison of cumulative return (assuming
reinvestment of any dividends) for the Company, the Standard & Poor's Small Cap
600 Index (the "S&P Small Cap Index") and the Philadelphia Stock Exchange, Inc.
Oil Services Index (the "OSXIndex"). Since there is no widely recognized
standard industry group comprising the Company and peer companies, the peer
groups are composed of companies which have one or more products that compete
with products of the Company and are believed by the Company to be companies
that analysts frequently use to compare with an investment in the Company. The
information contained in this table was prepared by Research Data Group, Inc.
- --------------------------------------- ------------ ----------- ----------- ----------- ----------- -----------
1997 1998 1999 2000 2001 2002
- --------------------------------------- ------------ ----------- ----------- ----------- ----------- -----------
Friede Goldman Halter, Inc. $100.00 $38.08 $23.22 $11.92 $0.64 $0.003
- --------------------------------------- ------------ ----------- ----------- ----------- ----------- -----------
Oilfield Service Index 100.00 51.42 68.98 95.20 67.03 62.36
- --------------------------------------- ------------ ----------- ----------- ----------- ----------- -----------
S&P Small Cap 600 100.00 98.69 110.94 124.03 132.14 112.81
- --------------------------------------- ------------ ----------- ----------- ----------- ----------- -----------
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The following table shows the number of shares of Common Stock beneficially
owned by each director; by our Chief Executive Officer; by each of our executive
officers named in the "Summary Compensation Table"; by all directors and
executive officers (12 persons) as a group; and by such persons known to us to
own beneficially more than five percent (5%) of our outstanding Common Stock.
29
The information set forth in the following table, except where indicated,
is as of March 31, 2003 and, is based upon information supplied or confirmed by
the named individuals:
Number of
Shares
Beneficially Percent
Name Owned(1) of Class
----------------------------------------------- ------------ --------
T. Jay Collins ................................ 20,333 *
Jack R. Stone, Jr. ............................ -- --
John F. Alford(2) ............................. 92,050 0.2%
Angus R. Cooper II ............................ 8,333 *
Barry J. Galt ................................. 8,333 *
Gary L. Kott .................................. 9,333 *
Raymond E. Mabus .............................. 17,333 *
Alan A. Baker ................................. 16,333 *
Ronald W. Schnoor ............................. 610,262 1.3%
Robert Shepherd ............................... 33,652 0.1%
John Haley .................................... -- --
Chris Cunningham .............................. -- --
Directors and Executive Officers as a Group ... 815,962 1.6%
* Less than one percent (1%).
Unless otherwise noted, all shares are owned directly and the owner has the
right to vote the shares.
(1) Includes shares which the individual has the right to acquire by March
31, 2003 pursuant to exercise of options granted under the Company's Stock
Option Plan: Mr. Baker (16,333 shares), Mr. Collins (16,333 shares), Mr. Cooper
(8,333 shares), Mr. Galt (8,333 shares), Mr. Kott (9,333 shares), Mr. Mabus
(17,333 shares), Mr. Schnoor (25,000 shares), Mr. Shepherd (33,652 shares),
Directors and Executive Officers as a Group (134,650 shares).
(2) Mr. Alford's shares in the amount of 92,050 are as of both the
effective date of his resignation, April 4, 2002 and March 31, 2003.
ITEM 13. Certain Relationships and Related Transactions
None.
ITEM 14. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Within the 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based upon that evaluation, the
Company's management, including the Chief Executive Officer and Chief Financial
Officer, concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in the
Company's periodic SEC filings.
30
(b) Changes in Internal Controls
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
PART IV
ITEM 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
The Consolidated Financial Statements listed by the Registrant on the
accompanying Index to Consolidated Financial Statements are filed as part of
this Annual Report. (See page 1).
(a)(2) Financial Statement Schedules
The required information is included in the Consolidated Financial
Statements or Notes thereto.
(a)(3) Exhibits
Exhibits
Exhibit
No. Description
------- ---------------------------------------------------
*10.1 Amended and Restated Certificate of Incorporation, dated February
28, 1997 (filed as Exhibit 3.1 to the Company's Form S-1 dated May
22, 1997 and incorporated herein by reference).
*10.2 Bylaws, dated February 28, 1997 (filed as Exhibit 3.2 to the
Company's Form S-1, dated May 22, 1997, and incorporated herein by
reference).
*10.3-- Amended and 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 (Filed as
Exhibit 10.1 to the Company's Form 10-Q, dated November 14, 2000,
and incorporated herein by reference)
*10.4 Amendment No. 1, dated December 1999, 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 (filed as Exhibit 10.2 to the Company's
Form 10-K, dated March 30, 2000, and incorporated hereby
reference)
*10.5-- 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 (filed as Exhibit 10.1 to the Company's
Form 10-Q, dated May 15, 2000, and incorporated herein by
reference)
*10.6-- Amendment No. 3, dated June 9, 2000, to Credit Agreement, among
Friede Goldman Halter, Inc. and Wells Fargo Bank (Texas) National
Association, as administrative agent and co-arranger, Bank One
Capital Markets, Inc. as co-arranger and syndication agent, and
the lenders party thereto (filed as Exhibit 10.1 to the Company's
Form 10-Q, dated August 14, 2000, and incorporated herein by
reference)
31
*10.7-- Amendment No. 4 to Title XI Reserve Fund and Financial Agreement,
dated October 27, 2000, between Friede Goldman Offshore, Inc. and
the United States of America, represented by the Secretary of
Transportation acting by and through the Maritime Administrator
pursuant to the provisions of Title XI of the Merchant Marine Act,
1936, as Amended. (Filed as Exhibit 10.6 to the Company's Form
10-K405, dated April 2, 2001, and incorporated herein by
reference)
*10.8-- Asset Purchase Agreement, dated February 15, 2002, between Friede
Goldman Halter, Inc. and Hydralift ASA (filed as Exhibit 10.9 to
the Company's Form 10-K, dated April 16, 2002, and incorporated
herein by reference).
*10.9-- Amendment No. 1 to Asset Purchase Agreement, dated March 14, 2002,
between Friede Goldman Halter, Inc. and Hydralift ASA (filed as
Exhibit 10.10 to the Company's Form 10-K, dated April 16, 2002,
and inc