<PAGE>
===================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 1-11953
Willbros Group, Inc.
(Exact name of registrant as specified in its charter)
Republic of Panama 98-0160660
(Jurisdiction of incorporation) (I.R.S. Employer Identification Number)
Dresdner Bank Building
50th Street, 8th Floor
P. O. Box 850048
Panama 5, Republic of Panama
Telephone No.: (50-7) 263-9282
(Address, including zip code, and telephone number, including
area code, of principal executive offices of registrant)
NOT APPLICABLE
-------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
----- -----
The number of shares of the registrant's Common Stock, $.05 par
value, outstanding as of May 12, 1999 was 12,918,950.
====================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
March December
31, 31,
1999 1998
---------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,288 $ 8,247
Accounts receivable 52,509 40,018
Contract cost and recognized income
not yet billed 416 8,022
Prepaid expenses 5,153 3,963
---------- ----------
Total current assets 80,366 60,250
Spare parts, net 8,969 9,666
Property, plant and equipment, net 79,345 85,010
Other assets 5,965 5,013
---------- ----------
Total assets $ 174,645 $ 159,939
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 117 $ 758
Accounts payable and accrued liabilities 34,071 35,352
Accrued income taxes 4,524 5,654
Contract billings in excess of cost and
recognized income 37,074 4,991
---------- ----------
Total current liabilities 75,786 46,755
Other liabilities 6,493 6,250
---------- ----------
Total liabilities 82,279 53,005
Stockholders' equity:
Class A Preferred Stock, par value $.01 per share,
1,000,000 shares authorized, none issued - -
Common stock, par value $.05 per share,
35,000,000 shares authorized; 15,088,406 shares
issued at March 31, 1999
(15,071,715 at December 31, 1998) 754 753
Capital in excess of par value 67,711 67,613
Retained earnings 42,799 49,914
Treasury stock at cost, 2,175,316 shares at
March 31, 1999 (927,716 at December 31, 1998) (16,164) (8,590)
Notes receivable for stock purchases (960) (982)
Accumulated other comprehensive income (loss) (1,774) (1,774)
---------- ----------
Total stockholders' equity 92,366 106,934
---------- ----------
Total liabilities and stockholders' equity $ 174,645 $ 159,939
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
(Unaudited)
Three Months
Ended March 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Contract revenues $ 28,479 $ 61,835
Operating expenses:
Contract 24,167 44,294
Depreciation and amortization 5,292 5,970
General and administrative 7,594 8,442
---------- ----------
37,053 58,706
---------- ----------
Operating income (loss) (8,574) 3,129
Other income (expense):
Interest - net 218 52
Minority interest (164) (393)
Other - net 1,874 968
---------- ----------
1,928 627
---------- ----------
Income (loss) before income taxes (6,646) 3,756
Provision for income taxes 469 716
---------- ----------
Net income (loss) $ (7,115) $ 3,040
========== ==========
Earnings (loss) per common share:
Basic $ (.53) $ .20
========== ==========
Diluted $ (.53) $ .20
========== ==========
Weighted average number of common and common
equivalent shares outstanding:
Basic 13,319,240 15,000,947
========== ==========
Diluted 13,319,240 15,203,414
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
(Unaudited)
Capital
Common Stock in Excess
---------------------- of Par Retained
Shares Par Value Value Earnings
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance,
January 1, 1999 15,071,715 $ 753 $ 67,613 $ 49,914
Comprehensive
income (loss) -
Net income
(loss) - - - (7,115)
Collection of notes
receivable - - - -
Issuance of common
stock under
employee
benefit plan 16,691 1 98 -
Treasury stock
purchases - - - -
---------- ---------- ---------- ----------
Balance,
March 31, 1999 15,088,406 $ 754 $ 67,711 $ 42,799
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
CONTINUED-
Accumulated
Notes Other
Receivable Compre- Total
for hensive Stock-
Treasury Stock Income holders'
Stock Purchases (Loss) Equity
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance,
January 1, 1999 $ (8,590) $ (982) $ (1,774) $ 106,934
Comprehensive
income (loss) -
Net income
(loss) - - - (7,115)
Collection of notes
receivable - 22 - 22
Issuance of common
stock under
employee
benefit plan - - - 99
Treasury stock
purchases (7,574) - - (7,574)
---------- ---------- ---------- ----------
Balance,
March 31, 1999 $ (16,164) $ (960) $ (1,774) $ 92,366
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months
Ended March 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (7,115) $ 3,040
Reconciliation of net income to cash
provided by (used in) operating activities:
Depreciation and amortization 5,292 5,970
Gain on sales and retirements (1,827) (167)
Changes in operating assets and liabilities:
Accounts receivable (12,491) (1,454)
Contract cost and recognized income
not yet billed 7,606 (883)
Prepaid expenses and other assets (2,142) (1,791)
Accounts payable and accrued liabilities (1,281) (4,841)
Accrued income taxes (1,130) (662)
Contract billings in excess of cost and
recognized income 32,083 (11,693)
Other liabilities 243 48
---------- ----------
Cash provided by (used in)
operating activities 19,238 (12,433)
Cash flows from investing activities:
Proceeds from sales of property and equipment 5,164 815
Purchase of property and equipment (1,156) (1,929)
Purchase of spare parts (1,111) (2,577)
---------- ----------
Cash provided by (used in)
investing activities 2,897 (3,691)
Cash flows from financing activities:
Proceeds from common stock 99 158
Proceeds from notes payable to banks - 2,003
Repayments of long-term debt - (3,000)
Collection of notes receivable for stock purchases 22 152
Repayment of notes payable to banks (525) (1,836)
Purchase of treasury shares (7,574) -
Repayment of notes payable to former shareholders (116) (116)
---------- ----------
Cash used in financing activities (8,094) (2,639)
Effect of exchange rate changes on cash and
cash equivalents - 112
---------- ----------
Cash provided by (used in) all activities 14,041 (18,651)
Cash and cash equivalents, beginning of period 8,247 43,238
---------- ----------
Cash and cash equivalents, end of period $ 22,288 $ 24,587
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements of Willbros
Group, Inc. and its majority-owned subsidiaries (the "Company")
reflect all adjustments which are, in the opinion of management,
necessary to present fairly the financial position, results of
operations and cash flows of the Company as of March 31, 1999, and
for all interim periods presented. All adjustments are normal
recurring accruals.
Certain information and disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
These condensed consolidated financial statements should be read in
conjunction with the Company's December 31, 1998 audited
consolidated financial statements and notes thereto contained in
the Company's Annual Report to Stockholders for the year ended
December 31, 1998. The results of operations for the period ended
March 31, 1999, are not necessarily indicative of the operating
results to be achieved for the full year.
2. Foreign Exchange Risk
The Company attempts to negotiate contracts which provide for
payment in U.S. dollars, but it may be required to take all or a
portion of payment under a contract in another currency. To
mitigate non-U.S. currency exchange risk, the Company seeks to
match anticipated non-U.S. currency revenue with expenses in the
same currency whenever possible. To the extent it is unable to
match non-U.S. currency revenue with expenses in the same currency,
the Company may use forward contracts, options or other common
hedging techniques in the same non-U.S. currencies. The unrealized
gains or losses on financial instruments used to hedge currency
risk are deferred and recognized when realized as an adjustment to
contract revenue.
3. Earnings Per Share
Basic and diluted earnings per common share for the three months
ended March 31, 1999 and 1998, are computed as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Net income (loss) applicable to common shares $ (7,115) $ 3,040
========== ==========
Weighted average number of common shares out-
standing for basic earnings per share 13,319,240 15,000,947
Effect of dilutive potential common shares from
stock options - 202,467
---------- ----------
Weighted average number of common shares out-
standing for diluted earnings per share 13,319,240 15,203,414
========== ==========
Earnings (loss) per common share:
Basic $ (.53) $ .20
========== ==========
Diluted $ (.53) $ .20
========== ==========
</TABLE>
6
<PAGE>
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
3. Earnings Per Share (continued)
At March 31, 1999, there were 1,098,050 potential common shares
excluded from the computation of diluted earnings (loss) per share
because of their anti-dilutive effect.
4. Comprehensive Income
Comprehensive income for the Company includes net income and
foreign currency translation adjustments which are charged or
credited to the cumulative foreign currency translation adjustment
account within stockholders' equity. There were no related tax
effects associated with the Company's calculation of comprehensive
income. Comprehensive income for the three months ended March 31,
1999 and 1998, consists of:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<C> <S> <S>
Net income (loss) $ (7,115) $ 3,040
Other comprehensive income - foreign currency
translation adjustments - 112
---------- ----------
Comprehensive income (loss) $ (7,115) $ 3,152
========== ==========
</TABLE>
5. Contingencies, Commitments and Other Circumstances
The Company operates in a single operating segment providing
construction, engineering and specialty services to the oil and gas
industry. The Company's principal markets are currently Africa,
Asia, the Middle East, South America and the United States.
Operations outside the United States may be subject to certain
risks which ordinarily would not be expected to exist in the United
States, including foreign currency restrictions, extreme exchange
rate fluctuations, expropriation of assets, civil uprisings and
riots, government instability and legal systems of decrees, laws,
regulations, interpretations and court decisions which are not
always fully developed and which may be retroactively applied.
Management is not presently aware of any events of the type
described in the countries in which it operates that have not been
provided for in the accompanying condensed consolidated financial
statements. Based upon the advice of local advisors in the various
work countries concerning the interpretation of the laws, practices
and customs of the countries in which it operates, management
believes the Company has followed the current practices in those
countries; however, because of the nature of these potential risks,
there can be no assurance that the Company may not be adversely
affected by them in the future. The Company insures substantially
all of its equipment in countries outside the United States against
certain political risks and terrorism.
The Company has the usual liability of contractors for the
completion of contracts and the warranty of its work. Where work
is performed through a joint venture, the Company also has possible
liability for the contract completion and warranty responsibilities
of its joint venturers. Management is not aware of any material
exposure related thereto which has not been provided for in the
accompanying condensed consolidated financial statements.
7
<PAGE>
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
5. Contingencies, Commitments and other Circumstances (continued)
Certain post contract completion audits and reviews are being
conducted by clients and/or government entities. While there can be
no assurance that claims will not be received as a result of such
audits and reviews, management does not believe a legitimate basis for
any material claims exists. At the present time it is not possible for
management to estimate the likelihood of such claims being asserted or,
if asserted, the amount or nature thereof.
6. Subsequent Event
On April 1, 1999, the Company adopted a Stockholder Rights Plan
and declared a distribution of one Preferred Share Purchase Right
("Right") on each outstanding share of the Company's common stock.
The distribution was made on April 15, 1999 to stockholders of
record on that date. The Rights expire on April 14, 2009.
The Rights are exercisable only if a person or group acquires
15% or more of the Company's common stock or announces a tender
offer the consummation of which would result in ownership by a
person or group of 15% or more of the common stock. Each Right
entitles stockholders to buy one one-thousandth of a share of a
series of junior participating preferred stock at an exercise price
of $30.00 per share.
If the Company is acquired in a merger or other business
combination transaction after a person has acquired 15% or more of
the Company's outstanding common stock, each Right entitles its holder
to purchase, at the Right's then-current exercise price, a number of
the acquiring company's common shares having a market value of
twice such price. In addition, if a person or group acquires 15%
or more of the Company's outstanding common stock, each Right
entitles its holder (other than such person or members of such
group) to purchase, at the Right's then-current exercise price, a
number of the Company's common shares having a market value of
twice such price.
Prior to the acquisition by a person or group of beneficial
ownership of 15% or more of the Company's common stock, the Rights
are redeemable for one-half cent per Right at the option of the
Company's Board of Directors.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company derives its revenue from providing construction,
engineering and specialty services to the oil and gas industry and
government entities worldwide. The Company obtains contracts for
its work primarily by competitive bidding or through negotiations
with long-standing clients. Bidding activity, backlog and revenue
resulting from the award of contracts to the Company may vary
significantly from period to period.
A number of factors relating to the Company's business affect
the Company's recognition of contract revenue. Revenue from fixed-
price construction and engineering contracts is recognized on the
percentage-of-completion method. Under this method, estimated
contract revenue is accrued based generally on the percentage that
costs to date bear to total estimated costs, taking into
consideration physical completion. Generally, the Company does not
recognize income on a fixed-price contract until the contract is
approximately 10% complete. Costs which are considered to be
reimbursable are excluded before the percentage-of-completion
calculation is made. Accrued revenue pertaining to reimbursables is
limited to the cost of the reimbursables. If a current estimate of
total contract cost indicates a loss on a contract, the projected
loss is recognized in full when determined. Revenue from unit-price
contracts is recognized as earned. Revenue from change orders,
extra work, variations in the scope of work and claims is
recognized when realization is assured.
The Company derives its revenue from contracts with durations
from a few weeks to several months or in some cases more than a
year. Unit-price contracts provide relatively even quarterly
results; however, major projects are usually fixed-price contracts
that may result in uneven quarterly financial results due to the
nature of the work and the method by which revenue is recognized.
These financial factors, as well as external factors such as
weather, client needs, client delays in providing approvals, labor
availability, governmental regulation and politics, may affect the
progress of a project's completion and thus the timing of revenue
recognition. The Company believes that its operating results should
be evaluated over a relatively long time horizon during which major
contracts in progress are completed and change orders, extra work,
variations in the scope of work and cost recoveries and other
claims are negotiated and realized.
Recent low oil prices have had and continue to have a negative
influence on the Company's clients' capital spending plans. As a
direct result, the Company is experiencing reduced demand for its
services, especially specialty services. The Company, however,
does not anticipate that any of the projects in its current backlog
will be deferred or cancelled. However, a number of projects the
Company has been following have been delayed, and the Company
expects revenue in 1999 to be below that of 1998. Despite the
recent increase in the price of oil, the Company believes it will
be late 1999 or early 2000 before its clients begin to increase
their capital spending budgets and there is any significant
increase in our overall activity.
The Company recognizes anticipated contract revenue as backlog
when the award of a contract is reasonably assured. Anticipated
revenue from post-contract award processes, including change
orders, extra work, variations in the scope of work and the effect
of escalation or currency fluctuation formulas, is not added to
backlog until realization is reasonably assured. New contract
awards totaled $35.4 million during the quarter ended March 31,
1999. Additions to backlog during the period are as follows:
construction, $9.4 million; engineering, $16.5 million; and
specialty services, $9.5 million. Backlog decreases by type of
service are as follows: construction, $9.5 million; engineering,
$8.3 million; and specialty services, $12.5 million. Backlog at
the end of the quarter was up $5.1 million (2%) to $291.6 million
and consisted of the following: (a) construction, $196.8 million,
down $.1 million; (b) engineering, $17.9 million, up $8.2 million
(85%); and (c) specialty services, $76.9 million, down $3.0 million
(4%). Construction backlog consists primarily of an engineering,
procurement and construction project in Nigeria. Specialty
services backlog is primarily attributable to two major contracts:
a 16-year water injection contract awarded to a consortium in which
the Company has a 10% interest in Venezuela and a three-year
dredging contract in Nigeria.
9
<PAGE>
Results of Operations
The Company's contract revenue and contract costs are primarily
related to the timing and location of development projects in the
oil and gas industry worldwide. Contract revenue and cost
variations by country from year to year are the result of (a)
entering new countries as part of the Company's strategy for
geographical diversification, (b) the execution of new contract
awards, (c) the completion of contracts, and (d) the overall level
of activity in the Company's services.
The Company's ability to be successful in obtaining and
executing contracts can be affected by the relative strength or
weakness of the U.S. dollar compared to the currencies of its
competitors, its clients and its work locations. The Company does
not believe that its revenue or results of operations were
adversely affected in this regard during the periods ended March
31, 1999 or 1998.
Three Months Ended March 31, 1999, Compared to Three Months Ended
March 31, 1998
Contract revenue decreased $33.3 million (54%) to $28.5 million
due to (a) $34.2 million of decreased construction revenue
resulting primarily from the completion of construction contracts
in Venezuela, Nigeria, Indonesia and Oman; (b) decreased
engineering revenue of $4.5 million due to a reduction of
engineering services in the United States; offset by (c) an
increase of $5.5 million in specialty services revenue principally
from dredging operations in Nigeria. Venezuela revenue decreased
$22.2 million (91%) due to the completion in 1998 of an offshore
loading and storage terminal and a pipeline contract for the
construction of 120 miles (200 kilometers) each of 36-inch and 20-
inch pipelines. Indonesia revenue decreased $5.6 million (81%) due
to the substantial completion in 1998 of construction projects in
that country. Oman revenue decreased $4.1 million (67%) primarily
due to the completion in 1998 of work on various pipeline projects.
Revenue in the United States decreased $3.1 million (27%) primarily
due to a reduction of engineering services. Revenue in Pakistan
decreased $1.3 million to zero in 1999 due to completion of the EPC
contract in that country. Nigeria revenue decreased $1.0 million
(9%) due to the completion in 1998 of a contract for the
construction of a liquid natural gas pipeline, offset by an
increase of $7.6 million in specialty services work, primarily
dredging. Specialty services work, while showing improvement,
remains below historical levels as a result of continuing delays in
funding to our clients from the Nigerian government and low oil
prices which have caused the Company's clients to defer maintenance
activities. The Company has seen early indications that the
Nigerian government is taking steps toward resolving the funding
issues; but if low oil prices persist, it is unclear as to when
specialty services activities in Nigeria will return to historical
levels. Revenue from the Ivory Coast increased $2.0 million due to
work on 46 miles (74 kilometers) of dual 4-inch and 12-inch
pipelines and an 8-mile (13-kilometer) 12-inch pipeline. In 1999
revenue of $1.9 million was earned from operations offshore West
Africa with the marine barge acquired in late 1998.
Contract costs decreased $20.1 million (46%) to $24.2 million
due to a decrease of $22.5 million in construction services cost
and a decrease of $4.7 million in engineering services cost, offset
by an increase of $7.1 million in specialty services cost.
Variations in contract cost by country were closely related to the
variations in contract revenue.
Depreciation and amortization decreased $.7 million (12%) to
$5.3 million primarily due to the sale of excess equipment in
Venezuela.
General and administrative expense decreased $.8 million (10%)
to $7.6 million due to decreased activity, principally in engineering
services, Venezuela, and Indonesia; partially offset by approximately
$1.5 million in costs related to personnel reductions.
Operating income decreased $11.7 million (377%) to an operating
loss of $8.6 million. The decrease is primarily attributable to
the decrease in construction activity due to the completion in 1998
of pipeline construction projects in Nigeria, Venezuela, Oman and
Indonesia resulting in a lack of projects in process which normally
carry over from one period to the next. Additionally, operating
costs remained high due to underutilized equipment and work country
facilities, and incurring the cost of personnel reductions.
Minority interest expense decreased 50% to $.2 million due to a
reduction of activity in countries where minority interest partners
were involved.
10
<PAGE>
Other - net increased $.9 million to $1.9 million due to $1.8
million in gains on sales of equipment in Venezuela, offset by
foreign exchange losses in Indonesia and Nigeria.
The provision for income taxes decreased $.2 million (28%) due
primarily to the reduction in activity in Oman and Pakistan. The
effective income tax rate at March 31, 1999 exceeds 100% of income
before income taxes due to the fact that income taxes in certain
countries are based on revenue and also due to the fact that losses
in certain countries cannot be used to offset taxable income in
other countries.
Liquidity and Capital Resources
The Company's primary requirements for capital are to fund the
acquisition, upgrade and maintenance of its equipment, provide
working capital for current projects, finance the mobilization of
employees and equipment to new projects, establish a presence in
countries where the Company perceives growth opportunities and
finance the possible acquisition of new businesses and equity
investments. Historically the Company has met its capital
requirements primarily from operating cash flows.
Cash and cash equivalents increased $14.1 million (172%) to
$22.3 million at March 31, 1999, from $8.2 million at December 31,
1998. The increase was due to positive cash flows of $19.3 million
from operations (including a $22.9 million increase in working
capital arising principally from the receipt of contract advances
for new construction projects), $2.9 million from sales of
equipment, net of capital expenditures for the purchase of
equipment and spare parts, offset by $8.1 million used in financing
activities (including $7.6 million used to purchase 1,247,600
shares of treasury stock).
The Company has a $150.0 million credit agreement that matures
on February 20, 2003 and may be extended annually in one-year
increments, subject to certain approvals, for up to two additional
years, with a syndicated bank group including ABN AMRO Bank N.V.,
as agent, and Credit Lyonnais, New York Branch, as co-agent. The
credit agreement provides for a $100.0 million revolving credit
facility, part of which can be used for acquisitions and equity
investments. The entire facility, less amounts used under the
revolving portions of the facility, may be used for standby and
commercial letters of credit. Principal is payable at termination
on all revolving loans except qualifying acquisition and equity
investment loans which are payable quarterly over the remaining
life of the credit agreement. Interest is payable quarterly at
prime or other alternative interest rates. A commitment fee is
payable quarterly based on an annual rate of 1/4% of the unused
portion of the credit facility. The Company's obligations under
the credit agreement are secured by the stock of the principal
subsidiaries of the Company. The credit agreement requires the
Company to maintain certain financial ratios, restricts the amount
of annual dividend payments to the greater of 25 cents per share or
25% of net income and limits the Company's ability to purchase its
own stock. At March 31, 1999, outstanding letters of credit
totaled $39.5 million, leaving $110.5 million available under this
facility.
The Company has unsecured credit facilities with banks in
certain countries outside the United States. Borrowings under
these lines, in the form of short-term notes and overdrafts, are
made at competitive local interest rates. Generally, each line is
available only for borrowings related to operations in a specific
country. Credit available under these facilities is approximately
$12.7 million at March 31, 1999.
The Company believes that cash flows from operations and
borrowing under existing credit facilities will be sufficient to
finance working capital and capital expenditures for ongoing
operations at least through the end of 1999. The Company estimates
total capital expenditures for equipment and spare parts to be
approximately $10.0 to $15.0 million during 1999, and expects to
conduct sales of surplus equipment having a net book value of
approximately $10.0 to $15.0 million during 1999.
In March 1999, the Company's Board of Directors approved a plan
to buy back approximately 700,000 shares of the Company's common
stock from time to time in the open market or through negotiated
transactions. The number of shares approved is in addition to the
$.2 million the Company still has remaining under the previous
$8.8 million stock buy back authorization. In February 1999, the
Company purchased 1,247,600 shares of treasury stock at an average
price of $6.07 per share.
11
<PAGE>
Year 2000 Compliance
During 1997, the Company initiated an enterprise-wide program to
prepare its computer systems and applications for the Year 2000.
Certain critical applications have been identified that may not be
able to accurately process information containing dates beginning
in the Year 2000. The Company plans to modify, replace or
outsource these applications before the Year 2000. The cost of
modification or outsourcing is expensed; the cost of replacement is
capitalized.
The Company is utilizing both internal and external resources to
identify, correct, and test its applications for Year 2000
compliance. The Company anticipates that the majority of its
reprogramming and testing will be substantially completed by
September 30, 1999, and that all critical applications will be
Year 2000 compliant prior to the end of the 1999 calendar year.
Because third party failures could affect the Company's ability
to conduct business, the Company is making every reasonable effort
to assess the Year 2000 readiness of its business-critical
suppliers and customers, including obtaining certifications
providing evidence of their readiness to handle Year 2000 issues.
These certifications are being assessed by the Company, and are
being categorized based on Year 2000 compliance and prioritized in
order of significance to the business of the Company. To the
extent possible, contingency plans will be developed for business-
critical suppliers and customers.
The Company has completed an assessment of the Year 2000
compliance status of substantially all of its information
technology and non-information technology equipment, and does not
anticipate that any will require upgrade or replacement in order to
accurately process information containing dates beginning in the
Year 2000.
Testing, remediation and replacement of the Company's critical
applications are anticipated to cost approximately $4.7 million from
inception in calendar year 1997 through substantial completion in
calendar year 1999, of which approximately $3.5 million is expected
to be capitalized. Of these costs, approximately $1.5 million was
incurred through the first quarter fiscal 1999, with the remaining
$3.2 million expected to be incurred during the remainder of 1999.
All estimated costs have been budgeted and are expected to be
funded by cash flows from operations.
The Company believes that Year 2000 failures affecting its
business will most likely be limited to interruptions of business
at individual Company locations or operations around the world, and
be caused by failures of third parties, including customers,
suppliers, and local governments. The Company is unable to
determine the likelihood of such failures and interruptions
occurring at its locations, but there is a possibility that such an
occurrence could cause the Company to be unable, at least
temporarily, to perform services under its contracts at the
affected location. The failure of the Company, its customers,
suppliers or others upon whom the Company relies to achieve Year
2000 readiness could also adversely affect the Company's business,
which could have a material adverse effect on the Company's
financial condition and results of operations.
As part of its Year 2000 project, the Company is exploring
alternatives and developing contingency plans to address the
possibility that the Company and third parties, including local
governments, with whom it has material relationships will not be
Year 2000 compliant on a timely basis. Contingency plans are
expected to be completed for any remaining areas of Year 2000 risk
by September 30, 1999.
The anticipated cost and planned completion date of the Year
2000 compliance project are based on management's best estimates,
which were derived utilizing numerous assumptions of future events
including the availability of internal and external resources and
other factors, some of which are outside the control of the
Company. Unanticipated failures by critical suppliers and
customers, as well as the failure by the Company to timely execute
its own remediation efforts or outsourcing, could have an adverse
effect on the cost of the Year 2000 project and its completion
date. Because of these uncertainties, there can be no assurance
that these forward-looking estimates will be achieved.
12
<PAGE>
These disclosures constitute a "Year 2000 Readiness Disclosure"
and "Year 2000 Statement" within the meaning of the Year 2000
Information and Readiness Disclosure Act of 1998. The Year 2000
Information and Readiness Disclosure Act of 1998 does not insulate
the Company from liability under the federal securities laws with
respect to disclosures relating to Year 2000 information.
Forward-Looking Statements
This Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements, other than statements of historical
facts, included in this Form 10-Q which address activities, events
or developments which the Company expects or anticipates will or
may occur in the future, including such things as future capital
expenditures (including the amount and nature thereof), oil and gas
prices and demand, expansion and other development trends of the
oil and gas industry, business strategy, expansion and growth of
the Company's business and operations, and other such matters are
forward-looking statements. These statements are based on certain
assumptions and analyses made by the Company in light of its
experience and its perception of historical trends, current
conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. However,
whether actual results and developments will conform with the
Company's expectations and predictions is subject to a number of
risks and uncertainties which could cause actual results to differ
materially from the Company's expectations including the timely
award of one or more projects; cancellation of projects; weather;
exceeding project cost and scheduled targets; failing to realize
cost recoveries from projects completed or in progress within a
reasonable period after completion of the relevant project;
identifying and acquiring suitable acquisition targets on
reasonable terms; the demand for energy diminishing; political
circumstances impeding the progress of work; general economic,
market or business conditions; changes in laws or regulations; the
availability of internal and external resources; the timely
execution of remediation, outsourcing or replacement of systems and
applications; the risk factors listed from time to time in the
Company's reports filed with the Securities and Exchange
Commission; and other factors, most of which are beyond the control
of the Company. Consequently, all of the forward-looking
statements made in this Form 10-Q are qualified by these cautionary
statements and there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even
if substantially realized, that they will have the expected
consequences or effects on the Company or its business or
operations. The Company assumes no obligation to update publicly
any such forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial Risk Management
The Company's primary market risk is its exposure to changes in
non-U.S. currency exchange rates. The Company attempts to
negotiate contracts which provide for payment in U.S. dollars, but
it may be required to take all or a portion of payment under a
contract in another currency. To mitigate non-U.S. currency
exchange risk, the Company seeks to match anticipated non-U.S.
currency revenue with expenses in the same currency whenever
possible. To the extent it is unable to match non-U.S. currency
revenue with expenses in the same currency, the Company may use
forward contracts, options or other common hedging techniques in
the same non-U.S. currencies. The Company had no forward contracts
or options at March 31, 1999.
The carrying amounts for cash and cash equivalents, accounts
receivable, notes payable and accounts payable and accrued
liabilities shown in the consolidated balance sheets approximate
fair value at March 31, 1999 due to the generally short maturities
of these items. The Company invests primarily in short-term dollar
denominated bank deposits, and at March 31, 1999 did not have any
investment in instruments with a maturity of more than a few days
or in any equity securities. The Company has the ability and
expects to hold its investment to maturity.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
Not applicable
Item 2. Changes in Securities and Use of Proceeds
- ------- -----------------------------------------
Not applicable
Item 3. Defaults upon Senior Securities
- ------- -------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
Not applicable
Item 5. Other Information
- ------- -----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits:
The following documents are included as exhibits to this
Form 10-Q. Those exhibits below incorporated by reference herein are
indicated as such by the information supplied in the parenthetical
thereafter. If no parenthetical appears after an exhibit, such
exhibit is filed herewith.
10.1 Willbros Group, Inc. Severance Plan dated January 1, 1999
(Filed as Exhibit 10.22 to the Company's report on Form 10-K
for the year ended December 31, 1998, filed March 31, 1999
(the "1998 Form 10-K")).
10.2 Separation Agreement and Release dated March 31, 1999, by and
between Willbros USA, Inc. and M. Kieth Phillips (Filed as
Exhibit 10.22 to the 1998 Form 10-K).
27 Financial Data Schedule.
(b) Reports on Form 8-K
There were no current reports on Form 8-K filed during the three
months ended March 31, 1999.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
WILLBROS GROUP, INC.
Date: May 14, 1999 By: /s/ Melvin F. Spreitzer
-----------------------------------------
Melvin F. Spreitzer
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
The following documents are included as exhibits to this Form 10-
Q. Those exhibits below incorporated by reference herein are
indicated as such by the information supplied in the parenthetical
thereafter. If no parenthetical appears after an exhibit, such
exhibit is filed herewith.
Exhibit
Number Description
- -------------- ------------------------------------------------------
10.1 Willbros Group, Inc. Severance Plan dated
January 1, 1999 (Filed as Exhibit 10.22 to the
Company's report on Form 10-K for the year ended
December 31, 1998, filed March 31, 1999 (the "1998
Form 10-K")).
10.2 Separation Agreement and Release dated March 31,
1999, by and between Willbros USA, Inc. and
M. Kieth Phillips (Filed as Exhibit 10.22 to the
1998 Form 10-K).
27 Financial Data Schedule.
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S MARCH 31, 1999 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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<RECEIVABLES> 53,470
<ALLOWANCES> 961
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<PP&E> 142,558
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0
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<TOTAL-LIABILITY-AND-EQUITY> 174,645
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<TOTAL-COSTS> 37,053
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<NET-INCOME> (7,115)
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