<PAGE>
=============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------------
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[ X ] SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[ ] SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 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 August 11, 2000 was 14,015,349.
=============================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 18,783 $ 7,806
Accounts receivable 69,304 50,569
Contract cost and recognized income
not yet billed 10,199 13,082
Prepaid expenses 5,806 4,189
---------- ----------
Total current assets 104,092 75,646
Spare parts, net 5,555 6,581
Property, plant and equipment, net 63,370 64,813
Other assets 10,925 6,113
---------- ----------
Total assets $ 183,942 $ 153,153
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 658 $ 481
Accounts payable and accrued liabilities 58,613 35,254
Accrued income taxes 5,396 4,683
Contract billings in excess of cost
and recognized income 1,416 9,427
Current maturities of long-term debt 225 -
---------- ----------
Total current liabilities 66,308 49,845
Long-term debt 34,204 15,500
Other liabilities 7,507 7,381
---------- ----------
Total liabilities 108,019 72,726
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;
15,151,936 shares issued at June 30, 2000
(15,123,453 at December 31, 1999) 758 756
Capital in excess of par value 68,084 67,927
Retained earnings 17,459 29,896
Treasury stock at cost, 1,140,371 shares at
June 30, 2000 (2,175,371 at December 31, 1999) (8,474) (16,164)
Notes receivable for stock purchases (223) (307)
Accumulated other comprehensive loss (1,681) (1,681)
---------- ----------
Total stockholders' equity 75,923 80,427
---------- ----------
Total liabilities and stockholders' equity $ 183,942 $ 153,153
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Contract revenue $ 81,772 $ 41,599 $ 160,545 $ 70,078
Operating expenses:
Contract 69,752 37,685 140,070 61,852
Depreciation and
amortization 5,617 5,882 10,906 11,174
General and
administrative 6,666 7,210 14,221 14,804
---------- ---------- ---------- ----------
82,035 50,777 165,197 87,830
---------- ---------- ---------- ----------
Operating loss (263) (9,178) (4,652) (17,752)
Other income (expense):
Interest - net (464) 326 (522) 544
Minority interest (623) (532) (955) (696)
Other - net 80 828 236 2,702
---------- ---------- ---------- ----------
(1,007) 622 (1,241) 2,550
Loss before
income taxes (1,270) (8,556) (5,893) (15,202)
Provision for income taxes 3,074 989 4,365 1,458
---------- ---------- ---------- ----------
Net loss $ (4,344) $ (9,545) $ (10,258) $ (16,660)
========== ========== ========== ==========
Earnings (loss) per
common share:
Basic $ (.31) $ (.74) $ (.73) $ (1.27)
========== ========== ========== ==========
Diluted $ (.31) $ (.74) $ (.73) $ (1.27)
========== ========== ========== ==========
Weighted average number
of common shares
outstanding:
Basic 14,003,219 12,922,405 13,996,637 13,120,823
========== ========== ========== ==========
Diluted 14,003,219 12,922,405 13,996,637 13,120,823
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Capital
Common Stock in Excess
--------------------- of Par Retained
Shares Par Value Value Earnings
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance,
January 1, 2000 15,123,453 $ 756 $ 67,927 $ 29,896
Comprehensive loss:
Net loss - - - (10,258)
Collection of notes
receivable - - - -
Issuance of treasury
stock in acquisition - - - (2,179)
Exercise of employee
stock options 6,500 1 33 -
Issuance of common
stock under
employee
benefit plan 21,983 1 124 -
---------- ---------- ---------- ----------
Balance,
June 30, 2000 15,151,936 $ 758 $ 68,084 $ 17,459
========== ========== ========== ==========
-CONTINUED-
</TABLE>
<TABLE>
<CAPTION>
Accumu-
Notes lated
Receivable Other Total
for Compre- Stock-
Treasury Stock hensive holders'
Stock Purchases Loss Equity
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance,
January 1, 2000 $ (16,164) $ (307) $ (1,681) $ 80,427
Comprehensive loss:
Net loss - - - (10,258)
Collection of notes
receivable - 84 - 84
Issuance of treasury
stock in acquisition 7,690 - - 5,511
Exercise of employee
stock options - - - 34
Issuance of common
stock under
employee
benefit plan - - - 125
---------- ---------- ---------- ----------
Balance,
June 30, 2000 $ (8,474) $ (223) $ (1,681) $ 75,923
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
----------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (10,258) $ (16,660)
Reconciliation of net loss to cash provided
by (used in) operating activities:
Depreciation and amortization 10,906 11,174
Loss (gain) on disposals of property
and equipment 189 (2,666)
Changes in operating assets and liabilities:
Accounts receivable (14,541) (3,266)
Contract cost and recognized income
not yet billed 3,261 6,253
Prepaid expenses and other assets (5,870) (3,965)
Accounts payable and accrued liabilities 20,888 7,259
Accrued income taxes 713 (728)
Contract billings in excess of cost
and recognized income (8,079) 20,830
Other liabilities 126 243
---------- ----------
Cash provided by (used in)
operating activities (2,665) 18,474
Cash flows from investing activities:
Purchase of Rogers and Phillips, Inc.,
net of cash acquired (15) -
Proceeds from sales of property and equipment 50 15,916
Purchase of property and equipment (2,188) (1,489)
Purchase of spare parts (2,967) (2,631)
---------- ----------
Cash provided by (used in)
investing activities (5,120) 11,796
Cash flows from financing activities:
Proceeds from long-term debt 24,000 -
Proceeds from notes payable 979 -
Proceeds from common stock 159 180
Collection of notes receivable for stock purchases 84 25
Repayments of long-term debt (5,658) -
Repayment of notes payable to banks (802) (525)
Purchase of treasury stock - (7,574)
Repayment of notes payable to former shareholders - (233)
---------- ----------
Cash provided by (used in)
financing activities 18,762 (8,127)
Effect of exchange rate changes on cash
and cash equivalents - (98)
---------- ----------
Cash provided by all activities 10,977 22,045
Cash and cash equivalents, beginning of period 7,806 8,247
---------- ----------
Cash and cash equivalents, end of period $ 18,783 $ 30,292
========== ==========
</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 June 30, 2000, 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, 1999 audited
consolidated financial statements and notes thereto contained in
the Company's Annual Report to Stockholders for the year ended
December 31, 1999. The results of operations for the period ended
June 30, 2000, 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. The Company has no financial instruments to
hedge currency risk at June 30, 2000.
3. Earnings Per Share
Basic and diluted earnings (loss) per common share for the three
month and six month periods ended June 30, 2000 and 1999, are
computed as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss applicable to
common shares $ (4,344) $ (9,545) $ (10,258) $ (16,660)
---------- ---------- ---------- ----------
Weighted average number
of common shares
outstanding for basic
earnings per share 14,003,219 12,922,405 13,996,637 13,120,823
Effect of dilutive
potential common shares
from stock options - - - -
---------- ---------- ---------- ----------
Weighted average number
of common shares
outstanding for
diluted earnings
per share 14,003,219 12,922,405 13,996,637 13,120,823
========== ========== ========== ==========
Earnings (loss) per
common share:
Basic $ (.31) $ (.74) $ (.73) $ (1.27)
========== ========== ========== ==========
Diluted $ (.31) $ (.74) $ (.73) $ (1.27)
========== ========== ========== ==========
</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 June 30, 2000, there were 1,924,550 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 loss 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 periods ended June 30, 2000
and 1999, consists of:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss $ (4,344) $ (9,545) $ (10,258) $ (16,660)
Other comprehensive
income - foreign
currency translation
adjustments - (98) - (98)
---------- ---------- ---------- ----------
Comprehensive loss $ (4,344) $ (9,643) $ (10,258) $ (16,758)
========== ========== ========== ==========
</TABLE>
5. Long-Term Debt
Effective June 30, 2000, the Company amended its $150.0 million
credit agreement with a syndicated bank group. The amended credit
agreement subjects the $100.0 million revolving portion of the
credit facility to borrowing base requirements. The entire
facility, less amounts used under the revolving portion of the
facility, may be used for standby and commercial letters of credit.
Borrowings are payable at termination on February 20, 2003.
Interest is payable quarterly at a Base Rate plus a margin of
2.25% or a Eurodollar Rate plus a margin of 3.5%. A
commitment fee on the unused portion of the credit agreement is
payable quarterly at 0.75%. The amended credit agreement
is collateralized by substantially all of the Company's
assets, including stock of the principal subsidiaries of the
Company. The amended credit agreement restricts the payment of
cash dividends and requires the Company to maintain certain
financial ratios. The borrowing base is calculated using varying
percentages of cash, accounts receivable, accrued revenue, contract
cost and recognized income not yet billed, property, plant and
equipment, and spares.
As of June 30, 2000, there was $91.1 million available under the
amended revolving credit facility for borrowings, of which
$34.0 million had been borrowed at an average interest rate of 8.3%.
Outstanding letters of credit at June 30, 2000 totaled $23.4 million,
leaving availability for standby and commercial letters of
credit of $92.6 million.
7
<PAGE>
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
6. Contingencies, Commitments and Other Circumstances
The Company provides construction, engineering and specialty
services to the oil and gas industry. The Company's principal
markets are currently Africa, Asia, Australia, 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, unanticipated
taxes including income taxes, excise duties, import taxes, export
taxes, sales taxes or other governmental assessments, availability
of suitable personnel and equipment, termination of existing
contracts and leases, 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 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 consolidated financial statements.
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.
7. Acquisition
On January 24, 2000, the Company acquired Rogers & Phillips,
Inc. ("RPI"), a closely held United States pipeline construction
company. The consideration included 1,035,000 shares of treasury
stock valued at $5,511 and approximately $1,710 in cash and
acquisition costs. The transaction was accounted for as a
purchase. The pro forma results of operations for this
acquisition, had the acquisition occurred at the beginning of 2000
and 1999, are not materially different from reported results, and
accordingly have not been provided. The fair value, as adjusted,
of the net assets acquired was as follows:
<TABLE>
<S> <C>
Current assets $ 6,826
Property, plant and equipment 3,523
Current liabilities (2,793)
Long-term debt (335)
--------
$ 7,221
========
</TABLE>
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 percent 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.
All U.S. government contracts and many of the Company's other
contracts provide for termination of the contract for the
convenience of the client. In addition, many contracts are subject
to certain completion schedule requirements with liquidated damages
in the event schedules are not met as the result of circumstances
within the control of Willbros. The Australian project was not
completed prior to July 1, 2000, the date on which liquidated
damages were scheduled to commence under the contract. However,
the Company has submitted claims for extension of the scheduled
completion date and believes these claims are valid. The Company
believes it has adequately provided for any liquidated damages
which could apply. Recovery of some of the cost overruns on this
project may also be possible; but until realization is assured, no
recoveries will be recognized.
The world's economies are continuing their recovery following
the downturn of 1997-98. This fact, along with current oil prices,
suggest that many significant development projects and energy
infrastructure projects will now likely proceed, including a number
of projects in emerging markets which were put on hold over the
past two to three years.
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 $28.9 million during the quarter ended June 30,
2000. Additions to backlog during the period were as follows:
construction, $19.2 million; engineering, $4.1 million; and
specialty services, $5.6 million. Backlog decreases by type of
service were as follows: construction, $53.9 million; engineering,
$13.3 million; and specialty services, $26.5 million. Backlog at
the end of the quarter was down $64.8 million to $192.5 million and
consisted of the
9
<PAGE>
following: (a) construction, $92.2 million, down $34.7 million;
(b) engineering, $47.3 million, down $9.2 million; and (c) specialty
services, $53.0 million, down $20.9 million. 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 in 1998 to a consortium in which the Company has a
10 percent interest in Venezuela and a three-year dredging contract
awarded in 1998 in Nigeria.
On January 24, 2000, the Company acquired Rogers & Phillips,
Inc. ("RPI"), a closely held pipeline construction company in
Houston, Texas with an experienced management team and a strong
market position in the Gulf Coast area. Founded in 1992, RPI
provides a full range of construction services for pipeline
operating companies, including station and piping projects in
congested urban areas and inside plants, as well as cross-country
pipelines. The consideration included 1,035,000 shares of the
Company's common stock and approximately $1.7 million in cash and
acquisition costs. The transaction was accounted for as a
purchase. The acquisition resulted in the addition of $13.9 million
to backlog. RPI contributed approximately $7.6 million of
revenue during the quarter.
On March 6, 2000, the Company announced that Willbros USA,
Inc.'s administrative headquarters and some construction support
services will be moved from Tulsa, Oklahoma, to Houston, Texas,
during 2000. The total cost of the move and termination benefits
is currently estimated to be between $3.5 million and $4.5 million,
of which approximately $0.7 million had been incurred for the six
months ended June 30, 2000.
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 market 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 June 30,
2000 or 1999.
Three Months Ended June 30, 2000, Compared to Three Months Ended
June 30, 1999
Contract revenue increased $40.2 million (96%) to $81.8 million
due to (a) $30.2 million of increased construction revenue
resulting primarily from new construction contracts in Nigeria,
Australia and the United States; (b) increased engineering revenue
of $3.5 million due to an increase of engineering services in the
United States; and (c) an increase of $6.5 million in specialty
services revenue principally from operations in Nigeria. Nigeria
revenue increased $16.7 million (81%) due to revenue from work
performed on a pipeline engineering, procurement and construction
project and an increase in specialty services work, particularly
dredging. Australia revenue increased $8.5 million due to a
construction contract started in 1999. Revenue in the United
States increased $9.0 million (78%) primarily due to an increase in
construction revenue from projects in Indiana and Illinois
resulting from the acquisition of RPI. Venezuela revenue increased
$1.7 million (25%) due to work performed on a water injection
platform construction contract and several new service contracts.
Oman revenue increased $1.0 million (45%) due to increased
construction and service revenues. Revenue from the Ivory Coast
decreased $0.2 million (100%) due to the completion of work in 1999
on pipeline projects in that country. Offshore West Africa revenue
increased $5.4 million due to work begun on an engineering,
procurement and construction project to install offshore pipelines
and facilities valued at $12.8 million. Indonesia revenue
decreased $1.7 million (100%) due to the completion in 1999 of
construction projects in that country.
Contract costs increased $32.1 million (85%) to $69.8 million
due to an increase of $23.3 million in construction services cost,
an increase of $4.6 million in engineering services cost, and an
increase of
10
<PAGE>
$4.2 million in specialty services cost. Variations in contract
cost by country were closely related to the variations in contract
revenue.
General and administrative expense decreased $0.6 million (8%)
to $6.6 million. A reduction in general and administrative expense
of $1.6 million was realized due to scaling back or eliminating
activities in certain work countries and personnel reductions in
the United States. This reduction was partially offset by the
increase of approximately $0.6 million due to the acquisition of
RPI and approximately $0.4 million in office relocation costs that
were incurred during the period.
Operating loss decreased $8.9 million (97%) to an operating loss
of $0.3 million. Increases in operating income in Nigeria, which
improved $9.4 million to $4.6 million compared to an operating loss
of $4.8 million in 1999; Offshore West Africa, which increased
$3.8 million to $1.0 million compared to an operating loss of
$2.8 million in 1999; and United States construction, which
increased $2.0 million to $0.8 million compared to an operating
loss of $1.2 million in 1999; were offset by recognizing a
$6.5 million loss on a pipeline construction project in Australia
that has been impacted by unanticipated labor difficulties and delays
caused by weather and a subcontractor.
Interest - net decreased $0.8 million to $0.5 million expense
due to an increase in borrowings during the period.
Minority interest expense increased 17% to $0.6 million due to
an increase in activity in countries where minority interest
partners were involved.
Other - net decreased $0.7 million to $0.1 million due to gains
on disposals of equipment in 1999 not repeated in 2000.
The provision for income taxes increased $2.1 million (210%) due
primarily to the increase in activity in Nigeria. Although the
Company has a loss before income taxes, a provision for income
taxes is required due to income taxes in certain countries being
based on revenue rather than income and the fact that losses in one
country cannot be used to offset taxable income in another country.
Six Months Ended June 30, 2000, Compared to Six Months Ended
June 30, 1999
Contract revenue increased $90.5 million (129%) to $160.5 million
due to (a) $73.3 million of increased construction revenue
resulting primarily from new construction contracts in Nigeria,
Australia and the United States; (b) increased engineering revenue
of $9.6 million due to an increase of engineering services in the
United States; and (c) an increase of $7.6 million in specialty
services revenue principally from operations in Oman and Venezuela.
Nigeria revenue increased $49.0 million (157%) due to revenue from
work performed on a pipeline engineering, procurement and
construction project and increased specialty services work.
Australia revenue increased $20.6 million due to a construction
contract started in 1999. Revenue in the United States increased
$16.6 million (83%) primarily due to an increase in construction
revenue from projects in Indiana and Illinois resulting from the
acquisition of RPI. Venezuela revenue increased $3.9 million (43%)
due to work performed on a water injection platform construction
contract and several new service contracts. Oman revenue increased
$1.9 million (45%) due to increased construction and service
revenues. Revenue from the Ivory Coast decreased $2.2 million
(100%) due to the completion of work in 1999 on pipeline projects
in that country. Offshore West Africa revenue increased
$4.0 million due to work begun on an engineering, procurement and
construction project to install offshore pipelines and facilities
valued at $12.8 million. Indonesia revenue decreased $3.0 million
(100%) due to the completion in 1999 of construction projects in
that country.
Contract costs increased $78.2 million (126%) to $140.1 million
due to an increase of $65.3 million in construction services cost,
an increase of $10.1 million in engineering services cost and an
increase of $2.8 million in specialty services cost. Variations in
contract cost by country were closely related to the variations in
contract revenue.
General and administrative expense decreased $0.6 million (4%)
to $14.2 million. A reduction in general and administrative expense
of $2.5 million was realized due to scaling back or eliminating
activities in
11
<PAGE>
certain work countries and personnel reductions in the United States.
This reduction was partially offset by the increase of
approximately $1.2 million due to the acquisition of RPI and
approximately $0.7 million in office relocation costs that were
incurred during the period.
Operating loss decreased $13.1 million (74%) to an operating
loss of $4.7 million. Increases in operating income in Nigeria,
which improved $22.4 million to $13.2 million compared to an
operating loss of $9.2 million in 1999; Offshore West Africa, which
increased $2.9 million to $0.9 million compared to an operating
loss of $2.0 million in 1999; and United States construction, which
increased $2.1 million to $0.2 million compared to an operating
loss of $1.9 million in 1999; were offset by recognizing a
$15.3 million operating loss on a pipeline construction project in
Australia that has been impacted by unanticipated labor
difficulties and delays caused by weather and a subcontractor.
Interest - net decreased $1.1 million to $0.5 million expense
due to an increase in borrowings during the period.
Minority interest expense increased 37% to $1.0 million due to
an increase in activity in countries where minority interest
partners were involved.
Other - net decreased $2.5 million to $0.2 million due to gains
on disposals of equipment in 1999 not repeated in 2000.
The provision for income taxes increased $2.9 million (200%)
primarily due to the increase in activity in Nigeria. Although the
Company has a loss before income taxes, a provision for income
taxes is required due to income taxes in certain countries being
based on revenue rather than income and the fact that losses in one
country cannot be used to offset taxable income in another country.
Liquidity and Capital Resources
The Company's primary requirements for capital are to acquire,
upgrade and maintain 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 $11.0 million (141%) to
$18.8 million at June 30, 2000, from $7.8 million at December 31,
1999. The increase was due to negative cash flows of $2.9 million
from operations and $4.9 million from investing activities
(including $5.2 million for the purchase of equipment and spare
parts), offset by $18.8 million cash provided by net borrowings
under the Company's long-term credit facility.
Effective June 30, 2000, the Company amended its $150.0 million
credit agreement with a group of syndicated banks as a result of
certain anticipated events, which if they occurred, could have
potentially resulted in the Company being unable to comply with
certain of its financial covenants. The amended credit agreement
subjects the $100.0 million revolving portion of the credit
facility to borrowing base requirements. The entire facility, less
amounts used under the revolving portion of the facility, may be
used for standby and commercial letters of credit. Borrowings are
payable at termination on February 20, 2003. Interest is payable
quarterly at a Base Rate plus a margin of 2.25% or a
Eurodollar Rate plus a margin of 3.5%. A commitment fee on
the unused portion of the credit agreement is payable quarterly
at 0.75%. The amended credit agreement is collateralized
by substantially all of the Company's assets, including stock of
the principal subsidiaries of the Company. The amended credit
agreement restricts the payment of cash dividends and requires the
Company to maintain certain financial ratios. The borrowing base
is calculated using varying percentages of cash, accounts
receivable, accrued revenue, contract cost and recognized income
not yet billed, property, plant and equipment, and spares.
12
<PAGE>
As of June 30, 2000, there was $91.1 million available under the
amended revolving credit facility for borrowings, of which
$34.0 million had been borrowed at an average interest rate of 8.3%.
Outstanding letters of credit at June 30, 2000 totaled $23.4 million,
leaving availability for standby and commercial letters of
credit of $92.6 million.
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
$5.2 million at June 30, 2000.
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 December 31, 2000. The Company
estimates total capital expenditures for equipment and spare parts
to be approximately $10.0 to $15.0 million during 2000.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging
activities. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities
Deferral of Effective Date of FASB Statement No. 133," which
deferred the effective date of SFAS No. 133 to all fiscal quarters
of fiscal years beginning after June 15, 2000. In June 2000, the
FASB issued SFAS No. 138 which amends the accounting and reporting
standards of SFAS No. 133 for certain derivative instruments and
certain hedging activities. SFAS No. 138 also amends SFAS No. 133
for decisions made by the FASB relating to the Derivatives
Implementation Group process. The Company does not expect SFAS No. 133
as amended to have an impact on its results of operations,
financial position or cash flows as it currently does not have any
derivative instruments or hedging activities.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition
in Financial Statements." This document expresses the views of the
SEC in applying generally accepted accounting principles while
recognizing revenue. In June 2000, the SEC issued SAB 101B,
"Deferral of the Effective Date of SAB 101," which deferred the
effective date of SAB 101 to the fourth fiscal quarter of fiscal
years beginning after December 15, 1999. The Company is evaluating
the impact of adoption of the SAB and currently does not anticipate
that adoption of the views expressed in this document will have a
material impact on the methodology the Company uses to recognize
revenue.
In March 2000, the FASB issued FASB Interpretation No. 44,
Accounting for Certain Transactions Involving Stock Compensation -
An Interpretation of APB Opinion No. 25 ("Interpretation 44").
Interpretation 44 clarifies the application of APB No. 25 in
certain situations, as defined. Interpretation 44 is effective
July 1, 2000 but is retroactive for certain events that occurred
after December 15, 1998. The Company does not expect that the
adoption of Interpretation 44 will materially affect its
consolidated results of operations.
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, gas and power
prices and demand, expansion and other development trends of the
oil, gas and power industries, business
13
<PAGE>
strategy, expansion and growth of the Company's business and
operations, movement of Willbros USA, Inc.'s Tulsa, Oklahoma
administrative offices to Houston, Texas, 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; 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 risk factors listed from time to time in the
Company's filings 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 to 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 June 30, 2000.
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 June 30, 2000 due to the generally short maturities
of these items. The Company invests primarily in short-term dollar
denominated bank deposits, and at June 30, 2000 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 investments to maturity.
The Company's exposure to market risk for changes in interest
rates relates primarily to the Company's long-term debt. At June 30,
2000, $34.0 million of the Company's indebtedness was subject
to variable interest rates. The weighted average effective
interest rate on the variable rate debt for the six months ended
June 30, 2000 was 7.6%. The detrimental effect of a hypothetical
100 basis point increase in interest rates would be to reduce
income before taxes by $0.1 million for the six month period. At
June 30, 2000, the Company's fixed rate debt approximated fair
market value based upon discounted future cash flows using current
market prices.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
------- -----------------
Not applicable
Item 2. Changes in Securities and Use of Proceeds
------- -----------------------------------------
As a result of an amendment to the Company's credit agreement,
the Company is prohibited from paying cash dividends. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" - "Liquidity and Capital Resources."
Item 3. Defaults upon Senior Securities
------- -------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
The Annual Meeting of Stockholders of the Company (the "Annual
Meeting") was held on May 4, 2000, in Panama City, Panama. At the
Annual Meeting, the stockholders of the Company elected
Melvin F. Spreitzer, Peter A. Leidel and James B. Taylor, Jr. as Class I
directors of the Company for three-year terms. The stockholders
also considered and approved the appointment of KPMG Peat Marwick
as the independent auditors of the Company for the fiscal year
ending December 31, 2000.
There were present at the Annual Meeting, in person or by proxy,
stockholders holding 11,043,688 shares of the common stock of the
Company, or 78.9 percent of the total stock outstanding and
entitled to vote at the Annual Meeting. The table below describes
the results of voting at the Annual Meeting.
<TABLE>
<CAPTION>
Votes
Votes Against or Broker
For Withheld Abstentions Non-Votes
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
1. Election of Directors:
Melvin F. Spreitzer 10,984,736 58,952 -0- -0-
Peter A. Leidel 11,007,901 35,787 -0- -0-
James B. Taylor, Jr. 11,004,201 39,487 -0- -0-
2. Ratification of
KPMG Peat Marwick as
independent auditors
of the Company for
fiscal 2000 11,018,553 5,200 19,935 -0-
</TABLE>
Item 5. Other Information
------- -----------------
Not applicable
15
<PAGE>
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 Third Amendment to Credit Agreement effective
June 30, 2000, by and among the Company, certain
designated subsidiaries, Credit Lyonnais New York
Branch, as co-agent, certain financial institutions,
and ABN AMRO Bank N.V., as agent.
10.2 Security Agreement effective July 27, 2000,
by and among the Company, certain designated
subsidiaries, and ABN AMRO Bank N.V., as agent.
10.3 Fourth Amendment to Credit Agreement
effective June 30, 2000, by and among the Company,
certain designated subsidiaries, Credit Lyonnais New
York Branch, as co-agent, certain financial
institutions, and ABN AMRO Bank N.V., as agent.
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 June 30, 2000.
16
<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: August 14, 2000 By: /s/ Melvin F. Spreitzer
-------------------------------------------------
Melvin F. Spreitzer
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
17
<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.
<TABLE>
<CAPTION>
Exhibit
Number Description
----------- ---------------------------------------------------------------
<S> <C>
10.1 Third Amendment to Credit Agreement effective
June 30, 2000, by and among the Company, certain
designated subsidiaries, Credit Lyonnais New York
Branch, as co-agent, certain financial institutions,
and ABN AMRO Bank N.V., as agent.
10.2 Security Agreement effective July 27, 2000, by and
among the Company, certain designated subsidiaries,
and ABN AMRO Bank N.V., as agent.
10.3 Fourth Amendment to Credit Agreement effective
June 30, 2000, by and among the Company, certain
designated subsidiaries, Credit Lyonnais New York
Branch, as co-agent, certain financial institutions,
and ABN AMRO Bank N.V., as agent.
27 Financial Data Schedule.
</TABLE>
