<PAGE> 1
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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 SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
--------------- ---------------
COMMISSION FILE NUMBER 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 November 10, 2000 was 14,053,032.
================================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 6,197 $ 7,806
Accounts receivable ...................................................... 60,214 50,569
Contract cost and recognized income not yet billed ....................... 17,763 13,082
Prepaid expenses ......................................................... 4,220 4,189
--------- ---------
Total current assets ............................................... 88,394 75,646
Spare parts, net ............................................................... 5,726 6,581
Property, plant and equipment, net ............................................. 57,326 64,813
Other assets ................................................................... 11,415 6,113
--------- ---------
Total assets ....................................................... $ 162,861 $ 153,153
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable ............................................................ $ 332 $ 481
Accounts payable and accrued liabilities ................................. 57,172 35,254
Accrued income taxes ..................................................... 5,295 4,683
Contract billings in excess of cost and recognized income ................ 4,365 9,427
Current maturities of long-term debt ..................................... 217 --
--------- ---------
Total current liabilities .......................................... 67,381 49,845
Long-term debt ................................................................. 17,141 15,500
Other liabilities .............................................................. 8,086 7,381
--------- ---------
Total liabilities .................................................. 92,608 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; 15,163,193 shares issued at September 30, 2000
(15,123,453 at December 31, 1999) ...................................... 758 756
Capital in excess of par value ........................................... 68,150 67,927
Retained earnings ........................................................ 11,717 29,896
Treasury stock at cost, 1,140,371 shares at September 30, 2000
(2,175,371 at December 31, 1999) ....................................... (8,474) (16,164)
Notes receivable for stock purchases ..................................... (217) (307)
Accumulated other comprehensive income (loss) ............................ (1,681) (1,681)
--------- ---------
Total stockholders' equity ......................................... 70,253 80,427
--------- ---------
Total liabilities and stockholders' equity ......................... $ 162,861 $ 153,153
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Contract revenues ....................... $ 74,934 $ 42,650 $ 235,479 $ 112,728
Operating expenses:
Contract .......................... 65,635 33,515 205,705 95,367
Depreciation and amortization ..... 5,411 5,262 16,317 16,436
General and administrative ........ 7,626 5,805 21,847 20,609
------------ ------------ ------------ ------------
78,672 44,582 243,869 132,412
------------ ------------ ------------ ------------
Operating loss .............. (3,738) (1,932) (8,390) (19,684)
Other income (expense):
Interest - net .................... (650) 120 (1,172) 664
Minority interest ................. (490) (460) (1,445) (1,156)
Other - net ....................... 1,096 (982) 1,332 1,720
------------ ------------ ------------ ------------
(44) (1,322) (1,285) 1,228
------------ ------------ ------------ ------------
Loss before
income taxes .............. (3,782) (3,254) (9,675) (18,456)
Provision for income taxes .............. 1,960 1,036 6,325 2,494
------------ ------------ ------------ ------------
Net loss .................... $ (5,742) $ (4,290) $ (16,000) $ (20,950)
============ ============ ============ ============
Earnings (loss) per common share:
Basic ............................. $ (.41) $ (.33) $ (1.14) $ (1.60)
============ ============ ============ ============
Diluted ........................... $ (.41) $ (.33) $ (1.14) $ (1.60)
============ ============ ============ ============
Weighted average number of
common shares outstanding:
Basic ............................. 14,018,645 12,932,898 14,003,973 13,058,181
============ ============ ============ ============
Diluted ........................... 14,018,645 12,932,898 14,003,973 13,058,181
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
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 ............... -- -- -- (16,000)
Collection of notes
receivable ............... -- -- -- --
Issuance of treasury
stock in acquisition ..... -- -- -- (2,179)
Issuance of common
stock under employee
benefit plan ............. 30,240 2 173 --
Exercise of
stock options ............ 9,500 -- 50 --
---------- ---------- ---------- ----------
Balance,
September 30, 2000 ......... 15,163,193 $ 758 $ 68,150 $ 11,717
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
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, 2000 ............ $ (16,164) $ (307) $ (1,681) $ 80,427
Comprehensive loss:
Net loss ............... -- -- -- (16,000)
Collection of notes
receivable ............... -- 90 -- 90
Issuance of treasury
stock in acquisition ..... 7,690 -- -- 5,511
Issuance of common
stock under employee
benefit plan ............. -- -- -- 175
Exercise of
stock options ............ -- -- -- 50
---------- ---------- ---------- ----------
Balance,
September 30, 2000 ......... $ (8,474) $ (217) $ (1,681) $ 70,253
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
------------------------
2000 1999
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................................ $(16,000) $(20,950)
Reconciliation of net loss to cash used in
operating activities:
Depreciation and amortization ............................... 16,317 16,436
Gain on sales and retirements ............................... (163) (2,714)
Changes in operating assets and liabilities:
Accounts receivable ..................................... (5,451) (13,020)
Contract cost and recognized income not yet billed ...... (4,303) 5,397
Prepaid expenses and other assets ....................... (4,208) (3,409)
Accounts payable and accrued liabilities ................ 19,196 (1,645)
Accrued income taxes .................................... 612 (138)
Contract billings in excess of cost and recognized income (5,130) 15,058
Other liabilities ....................................... 190 297
-------- --------
Cash provided by (used in) operating activities .... 1,060 (4,688)
Cash flows from investing activities:
Purchase of Rogers & Phillips, Inc., net of cash acquired ....... (15) --
Proceeds from sales of property and equipment ................... 7,442 16,329
Purchase of spare parts ......................................... (4,867) (3,524)
Purchase of property and equipment .............................. (6,664) (2,270)
-------- --------
Cash provided by (used in) investing activities .... (4,104) 10,535
Cash flows from financing activities:
Proceeds from long-term debt .................................... 36,000 --
Proceeds from notes payable to banks ............................ 979 --
Proceeds from common stock ...................................... 225 254
Collection of notes receivable for stock purchases .............. 90 503
Repayments of long-term debt .................................... (34,731) --
Repayment of notes payable to banks ............................. (1,128) (525)
Purchase of treasury shares ..................................... -- (7,574)
Repayment of notes payable to former shareholders ............... -- (233)
-------- --------
Cash provided by (used in) financing activities .... 1,435 (7,575)
Effect of exchange rate changes on cash and cash equivalents .......... -- (98)
-------- --------
Cash used in all activities ........................................... (1,609) (1,826)
Cash and cash equivalents, beginning of period ........................ 7,806 8,247
-------- --------
Cash and cash equivalents, end of period .............................. $ 6,197 $ 6,421
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
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
September 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 September 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 September 30, 2000.
3. EARNINGS PER SHARE
Basic and diluted earnings (loss) per common share for the three month
and nine month periods ended September 30, 2000 and 1999, are computed as
follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------- -------------------------------
2000 1999 2000 1999
-------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net loss applicable to
common shares ......................... $ (5,742) $ (4,290) $ (16,000) $ (20,950)
============= ============ ============ =============
Weighted average number of
common shares outstanding
for basic earnings per share .......... 14,018,645 12,932,898 14,003,973 13,058,181
Effect of dilutive potential common
shares from stock options ............. -- -- -- --
------------- ------------ ------------ -------------
Weighted average number of
common shares outstanding
for diluted earnings per share ........ 14,018,645 12,932,898 14,003,973 13,058,181
============= ============ ============ =============
Earnings (loss) per common share:
Basic ................................. $ (.41) $ (.33) $ (1.14) $ (1.60)
============= ============ ============ =============
Diluted ............................... $ (.41) $ (.33) $ (1.14) $ (1.60)
============= ============ ============ =============
</TABLE>
6
<PAGE> 7
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
3. EARNINGS PER SHARE (CONTINUED)
At September 30, 2000, there were 1,938,800 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 periods ended September 30,
2000 and 1999, consists of:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss .......................... $ (5,742) $ (4,290) $(16,000) $(20,950)
Other comprehensive income (loss) -
foreign currency translation
adjustments ..................... -- -- -- (98)
-------- -------- -------- --------
Comprehensive income (loss) ....... $ (5,742) $ (4,290) $(16,000) $(21,048)
======== ======== ======== ========
</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 spare parts. Debt issue costs of $0.9
million, net of accumulated amortization of $0.2 million, are included in other
assets at September 30, 2000.
As of September 30, 2000, there was $45.4 million available under the
amended revolving credit facility for borrowings, of which $17.0 million had
been borrowed at an average interest rate of 10.5%. Outstanding letters of
credit at September 30, 2000 totaled $16.2 million, leaving availability for
standby and commercial letters of credit of $116.8 million.
7
<PAGE> 8
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, 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 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.
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.
8
<PAGE> 9
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 ............................... (3,044)
Deferred income taxes ............................. (515)
Long term debt .................................... (335)
-------
6,455
Excess of purchase price over net assets acquired.. 766
-------
$ 7,221
=======
</TABLE>
9
<PAGE> 10
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.
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 the Company. The Australian project was
completed after 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 that 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. Activity in the Company's key
markets appears to be improving and it believes the Chad-Cameroon Pipeline
Project recently awarded to a joint venture lead by the Company is the first of
several major projects which will characterize this cycle in the industry.
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 $244.5 million during the quarter ended September 30,
2000. Additions to backlog during the period are as follows: construction,
10
<PAGE> 11
$214.6 million; engineering, $19.6 million; and specialty services, $10.3
million. Backlog decreases by type of service are as follows: construction,
$44.4 million; engineering, $15.3 million; and specialty services, $14.6
million. Backlog at the end of the quarter was up $170.2 million (88%) to $362.7
million and consisted of the following: (a) construction, $262.4 million, up
$170.2 million (185%); (b) engineering, $51.6 million, up $4.3 million (9%); and
(c) specialty services, $48.7 million, down $4.3 million (8%). Construction
backlog consists primarily of engineering, procurement and construction projects
in Nigeria and a construction project in Chad-Cameroon. Specialty services
backlog is primarily attributable to a 16-year water injection contract awarded
in 1998 to a consortium in which the Company has a 10% 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. RPI contributed approximately $15.8 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 would 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 $1.5 million and $0.8 million
has been incurred for the nine months and three months ended September 30, 2000,
respectively.
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
September 30, 2000 or 1999.
Three Months Ended September 30, 2000, Compared to Three Months Ended
September 30, 1999
Contract revenue increased $32.4 million (76%) to $74.9 million in
connection with (a) $19.1 million of additional construction revenue primarily
from new construction contracts in the United States and Offshore West Africa;
(b) increased engineering revenue of $5.8 million associated with an increase of
engineering services in the United States; and (c) an increase of $7.5 million
in specialty services revenue principally from operations in Nigeria. Revenue in
the United States increased $19.3 million (169%) primarily due to construction
projects in Indiana, Illinois and Louisiana by RPI. Nigeria revenue increased
$11.3 million (68%) related to work performed on a pipeline engineering,
procurement and construction project and an increase in specialty services work,
particularly dredging. Offshore West Africa revenue increased $6.8 million due
to work on an engineering, procurement and construction project to install
offshore pipelines and facilities. Oman revenue increased $0.8 million (42%) due
to increased construction and service revenues. Australia revenue decreased $5.1
million (98%) as a result of completion in 2000 of a construction contract begun
in 1999. Venezuela revenue decreased $1.0 million (13%). Revenue in all other
areas combined increased $0.3 million.
Contract costs increased $32.1 million (96%) to $65.6 million due to an
increase of $23.9 million in construction services costs, an increase of $3.6
million in engineering services cost, and an increase of $4.6
11
<PAGE> 12
million in specialty services costs. Construction services costs increased
primarily as a result of increased construction activity, lower margin work and
project delays. Engineering and specialty services costs increased primarily due
to increases in these services. Contract costs in Nigeria and Venezuela
increased more than increases in revenue due to lower margin work and project
delays. Variations in contract cost for all other countries were closely related
to the variations in contract revenue.
Depreciation and amortization expense increased $0.2 million, resulting
from accelerated amortization of certain leasehold improvements associated with
vacated administrative office space in Tulsa.
General and administrative expense increased $1.9 million (33%) to $7.7
million primarily due to approximately $1.1 million of RPI general and
administrative expense and approximately $0.6 million in office relocation costs
that were incurred during the period.
Operating loss increased $1.8 million (90%) to an operating loss of
$3.8 million. Increases in operating income in U.S. Engineering, which increased
$1.7 million from zero operating income in 1999 to $1.7 million in 2000; Oman,
which increased $0.5 million to $0.2 million compared to an operating loss of
$0.3 million in 1999; were offset by lower margin work and project delays in
Nigeria and Venezuela and $0.8 million of costs resulting from relocation of the
administrative offices.
Interest - net decreased $0.9 million to $0.7 million expense due to an
increase in borrowings during the period.
Other - net income (expense) increased $2.1 million to $1.1 million
income in 2000 from a $1.0 million expense in 1999. In 2000, the Company sold
surplus equipment primarily from Indonesia and U.S. Construction for $7.4
million, resulting in a $0.4 million gain, and collected $0.5 million relating
to a prior year insurance claim. The remaining increase is due largely to cost
associated with pursuing mergers and acquisitions in 1999 not repeated in 2000.
The provision for income taxes increased $0.9 million (90%) due
primarily to the increase in taxable revenue 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 deemed profit rather than
taxable income and the fact that losses in one country cannot be used to offset
taxable income in other countries.
Nine Months Ended September 30, 2000, Compared to Nine Months Ended
September 30, 1999
Contract revenues increased $122.8 million (109%) to $235.5 million due
to (a) $92.4 million of increased construction revenue resulting primarily from
new construction contracts in Nigeria, Australia and the United States; (b)
increased engineering revenue of $15.4 million due to an increase of engineering
services work in the United States and Nigeria; and (c) an increase of $15.0
million in specialty services revenue, principally from operations in Nigeria,
Oman and Venezuela. Nigeria revenue increased $60.3 million (126%) due to
revenue from work performed on a pipeline engineering, procurement and
construction project and increased specialty services work. Revenue in the
United States increased $35.9 million (115%) primarily due to construction
projects in Indiana, Illinois and Louisiana by RPI. Australia revenue increased
$15.4 million due to a construction contract started in the second half of 1999
and completed in July 2000. Offshore West Africa revenue increased $10.8 million
due to work begun on an engineering, procurement and construction project to
install offshore pipelines and facilities. Venezuela revenue increased $2.9
million (17%) due to work performed on a water injection platform construction
contract and several new service contracts. Oman revenue increased $2.7 million
(44%) due to increased construction and service revenues. Indonesia revenue
decreased $3.2 million (100%) due to the completion in 1999 of construction
projects in that country. Ivory Coast revenue decreased $1.7 million (100%) due
to the completion of work in 1999 on pipeline projects in that country. Revenues
in all other areas decreased $0.3 million.
Contract costs increased $110.3 million (116%) to $205.7 million due to
an increase of $89.0 million in construction services cost, an increase of $13.7
million in engineering services cost and an increase of $7.6 million in
specialty services costs. Variations in contract costs by country were closely
related to the variations in contract revenues.
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General and administrative expense increased $1.3 million (6%) to $21.9
million. This increase included $2.3 million due to RPI general and
administrative expense and $1.3 million in office relocation costs that were
partially offset by a $2.3 million reduction in general and administrative
expense as a result of scaling back or eliminating activities in certain work
countries and personnel reductions in the United States.
Operating loss declined $11.3 million (57%) to an operating loss of
$8.4 million. Increases in operating income in Nigeria, which improved $22.0
million to $13.9 million compared to a loss of $8.1 million in 1999; Offshore
West Africa, which increased $2.0 million to a loss of $0.9 million compared to
an operating loss of $2.9 million in 1999; US Engineering, which increased $2.0
million to $4.2 million compared to $2.2 million in 1999; and United States
Construction, which improved $1.5 million to a loss of $0.8 million compared to
an operating loss of $2.3 million in 1999; were offset by recognizing a $15.3
million operating loss on a pipeline construction project in Australia that was
impacted by unanticipated labor difficulties and delays caused by weather and a
subcontractor. Operating income in all other areas decreased $0.9 million.
Interest - net decreased $1.9 million to $1.2 million expense due to an
increase in borrowings during the period.
Minority interest expense increased $0.3 million (27%) to $1.4 million
due to an increase in activity in countries where minority interest partners
were involved.
Other - net income (expense) decreased $0.4 million to $1.3 million
income primarily due to gains on disposals of equipment in 1999 exceeding gains
on disposals of equipment in 2000.
The provision for income taxes increased $3.8 million (152%) primarily
due to the increase in taxable revenue 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 deemed profit rather than taxable
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 decreased $1.6 million (21%) to $6.2 million
at September 30, 2000, from $7.8 million at December 31, 1999. The decrease was
due to cash flows of $1.1 million from operations and $1.4 million from
financing activities, offset by $4.1 million for investing activities (the net
result of the purchase of $11.5 million of equipment and spare parts and
proceeds of $7.4 million from sales of surplus equipment).
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 spare
parts.
As of September 30, 2000, there was $45.4 million available under the
amended revolving credit facility for borrowings, of which $17.0 million had
been borrowed at an average interest rate of 10.5%. Outstanding
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letters of credit at September 30, 2000 totaled $16.2 million, leaving
availability for standby and commercial letters of credit of $116.8 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 $8.3 million at September 30, 2000, for which there were no
outstanding borrowings.
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 $12.0 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") "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.
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 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; cancellation of projects; weather;
exceeding project cost and scheduled targets; failing to realize cost recoveries
from projects completed or in progress
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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 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 September 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 September 30, 2000 due
to the generally short maturities of these items. The Company invests primarily
in short-term dollar denominated bank deposits, and at September 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
investment to maturity.
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's long-term debt. At September 30, 2000, $17.0
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
nine months ended September 30, 2000 was 9.3%. The detrimental effect of a
hypothetical 100 basis point increase in interest rates would be to reduce
income before income taxes by $0.2 million for the nine-month period. At
September 30, 2000, the Company's fixed rate debt approximated fair market value
based upon discounted future cash flows using current market prices.
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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.
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 September 30, 2000.
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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: November 13, 2000 By: /s/ Melvin F. Spreitzer
-------------------------------------
Melvin F. Spreitzer
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
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INDEX TO 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.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ------------------------
<S> <C>
27 Financial Data Schedule.
</TABLE>
