EXHIBIT 13
21
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
- -----------------------------------------------------------------------------
(Dollar amounts in thousands, except per share data)
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
Statement of Operations Data:
Contract revenue $ 176,564 $ 281,618 $ 251,877
Operating expenses:
Contract cost 145,498 220,360 182,435
Depreciation and amortization 21,313 25,552 18,936
General and administrative 27,548 32,383 29,118
Compensation from changes
in redemption value of
common stock (1) - - -
---------- ---------- ----------
Operating income (loss) (17,795) 3,323 21,388
Net interest income (expense) 587 (484) 304
Minority interest (1,541) (1,132) (1,911)
Other income (expense) 2,031 (1,502) 58
---------- ---------- ----------
Income (loss) before income taxes (16,718) 205 19,839
Provision (credit) for income taxes 3,300 4,567 5,723
---------- ---------- ----------
Net income (loss) $ (20,018) $ (4,362) $ 14,116
========== ========== ==========
Earnings (loss) per share (2):
Basic $ (1.54) $ (.30) $ .97
Diluted $ (1.54) $ (.30) $ .96
Cash Flow Data:
Cash provided by (used in):
Operating activities $ (14,041) $ 15,199 $ 45,788
Investing activities 4,866 (34,684) (46,386)
Financing activities 8,734 (15,506) 19,718
Other Data:
EBITDA (3) $ 4,008 $ 26,241 $ 38,471
Capital expenditures $ 12,245 $ 36,112 $ 47,272
Backlog (at period end) $ 253,080 $ 286,473 $ 135,797
Number of employees (at
period end) 2,030 2,280 4,230
Balance Sheet Data (at period end):
Cash and cash equivalents $ 7,806 $ 8,247 $ 43,238
Working capital 25,801 13,495 39,563
Total assets 153,153 159,939 201,202
Total debt 15,981 758 8,574
Redemption value of common stock
held by plan participants - - -
Redeemable preferred stock - - -
Stockholders' equity 80,427 106,934 118,986
- -CONTINUED-
Year Ended December 31,
-----------------------
1996 1995
---------- ----------
Statement of Operations Data:
Contract revenue $ 197,688 $ 220,506
Operating expenses:
Contract cost 145,812 161,584
Depreciation and amortization 13,932 15,193
General and administrative 25,803 27,937
Compensation from changes
in redemption value of
common stock (1) 6,122 2,100
---------- ----------
Operating income (loss) 6,019 13,692
Net interest income (expense) (215) 144
Minority interest (2,220) (1,589)
Other income (expense) 1,472 (381)
---------- ----------
Income (loss) before income taxes 5,056 11,866
Provision (credit) for income taxes 2,332 (75)
---------- ----------
Net income (loss) $ 2,724 $ 11,941
========== ==========
Earnings (loss) per share (2):
Basic $ .09 $ .84
Diluted $ .09 $ .84
Cash Flow Data:
Cash provided by (used in):
Operating activities $ 29,961 $ (8,396)
Investing activities (24,072) (18,558)
Financing activities (1,630) (2,321)
Other Data:
EBITDA (3) $ 19,203 $ 26,915
Capital expenditures $ 24,957 $ 18,946
Backlog (at period end) $ 108,751 $ 139,359
Number of employees (at
period end) 3,700 3,110
Balance Sheet Data (at period end):
Cash and cash equivalents $ 24,118 $ 19,859
Working capital 36,723 38,767
Total assets 147,465 149,954
Total debt 1,340 3,119
Redemption value of common stock
held by plan participants - 7,918
Redeemable preferred stock - 36,200
Stockholders' equity 92,386 39,273
(1) Under the Company's stock ownership plans established in
1992 and 1995, the Company had an obligation to purchase,
under certain conditions and at a formula price, Common Stock
held by retiring or terminating employees. The Company
recorded as noncash compensation expense the change in the
redemption value at the end of each period using the maximum
formula price. In addition, in the third quarter of 1996, the
Company recognized a noncash compensation expense of $4,695
for the difference between the maximum redemption value of the
shares subject to redemption and the initial public offering
price. The Company's stock redemption obligations terminated
in the fourth quarter of 1996.
(2) Earnings per share for the year ended December 31, 1996
is calculated after deducting $1,448 ($.10 per common share)
of dividends on the Company's Preferred Stock.
(3) EBITDA represents earnings (net income) before interest,
income taxes, depreciation and amortization. Noncash
compensation expenses have not been added back in calculating
EBITDA. EBITDA is not intended to represent cash flows for
the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance. It
should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally
accepted accounting principles. See the Company's
Consolidated Statements of Cash Flows in the Company's
Consolidated Financial Statements included elsewhere in this
Annual Report. EBITDA is included in this Annual Report
because it is a basis upon which the Company assesses its
financial performance.
22
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.
During 1999, the Company continued to experience reduced
demand for its services, especially high-margin construction
and specialty services, as a result of the low oil
prices. With the recent increase in the price of oil, the
Company believes its clients will begin to increase their capital
spending budgets in 2000 and expects revenue in 2000 to exceed
that of 1999.
Recently, local protesters looted and vandalized a Company
facility near Port Harcourt, Nigeria. Reports of similar
disturbances have been frequent within the region during recent
months, with many of the oil production and
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------
oilfield services companies sustaining similar problems.
While the disturbance interfered with the Company's
operations, progress on some ongoing projects was not
halted. The Nigerian government intervened and restored
order in the area. At this time, it is not possible
to assess with certainty the impact the incident will
have on future operations. The Company has successfully
operated in Nigeria for the past 38 years with very favorable
relationships with the local communities, and believes that order
can be maintained and that it can continue to operate in the
area.
As previously noted, the Company uses EBITDA as part of its
overall assessment of financial performance by comparing EBITDA
between accounting periods. Management believes that EBITDA is
used by the financial community as a method of measuring
performance and of evaluating the market value of companies
considered to be in similar businesses to those of the Company.
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 $165.2 million during the year ended
December 31, 1999. Additions to backlog during the period were
as follows: construction, $70.8 million; engineering, $54.6
million; and specialty services, $39.8 million. Backlog
decreases by type of service were as follows: construction,
$84.7 million; engineering, $75.5 million; and specialty
services, $38.4 million. Backlog at the end of the year was down
$33.4 million (12%) to $253.1 million and consisted of the
following: (a) construction, $140.8 million, down $13.9 million
(9%); (b) engineering, $31.0 million, down $20.9 million (40%);
and (c) specialty services, $81.3 million, up $1.4 million (2%).
Construction backlog included the construction portion of
engineering, procurement and construction projects in
Nigeria and a construction project in Australia. Specialty
services backlog was 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. Subsequent to December 31, 1999, $13.7 million was
added to construction backlog as a result of the acquisition of
Rogers & Phillips, Inc. ("RPI"), a pipeline construction company
in the United States.
On March 6, 2000, the Company announced that Willbros USA, Inc.'s
administrative headquarters and some construction support will be moved
from Tulsa, Oklahoma, to Houston, Texas, during 2000. As of
March 15, 2000, the specific jobs and personnel to be relocated
were not yet identified. Accordingly, a reliable estimate of the
cost of the expected relocation was not available at that date.
The Company expects to announce more specific plans regarding the
planned relocation as more information becomes available.
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
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------
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 years ended December 31,
1999 or 1998.
YEAR ENDED DECEMBER 31, 1999, COMPARED TO YEAR ENDED DECEMBER 31, 1998
Contract Revenue.
Contract revenue decreased $105.0 million (37%) to $176.6 million
due to (a) a $118.3 million (64%) reduction in construction
revenue resulting primarily from completion of construction
contracts in Venezuela, Indonesia, Oman and the United States;
offset by (b) an increase in engineering revenue of $7.3 million
(12%) due to engineering and procurement services work in
Nigeria; and (c) an increase of $6.0 million (19%) in specialty
services revenue, principally in Nigeria. Venezuela revenue
decreased $51.9 million (69%) mainly due to completion
of work on a pipeline contract that included the construction
of 120 miles (200 kilometers) each of 36-inch and 20-inch pipelines
and completion of a transport services contract. Indonesia
revenue decreased $22.6 million (88%) due to completion of work
on a 35-mile (55-kilometer) 42-inch pipeline in Kalimantan.
United States revenue decreased $48.1 million (53%) primarily
due to reduced engineering services work in the United States
and completion of work on a natural gas pipeline in Iowa.
Oman revenue decreased $9.8 million (55%) due to reduced
construction and specialty services work; however in the last
quarter, work was begun on a $10.0 million, five-year
maintenance services contract. Nigeria revenue increased
$36.7 million (94%) principally due to revenue being recognized
on a pipeline engineering, procurement and construction project
started in 1999 and increased specialty services work.
Ivory Coast revenue decreased $11.9 million (82%) due to
completion of work on pipeline projects in that country.
Offshore West Africa revenue decreased $8.2 million due to a
decline in offshore services in 1999; however, work has recently
begun on an engineering, procurement and construction project to
install offshore pipelines and facilities valued at $12.9
million. Revenue from Pakistan decreased $6.8 million (100%)
due to the completion of an engineering, procurement and
construction contract. Australia revenue increased $18.8 million
(100%) due to a new construction contract.
Contract Cost.
Contract costs decreased $74.9 million (34%) to $145.5 million
due to a decrease of $88.8 million in construction services cost,
offset by an increase of $13.9 million in specialty services cost
due to costs associated with maintaining underutilized assets.
Variations in contract cost by country were closely related to
the variations in contract revenue.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------
Depreciation and Amortization.
Depreciation and amortization decreased $4.2 million to
$21.3 million primarily due to the sale of excess equipment in
Venezuela, Indonesia, the United States and Oman.
General and Administrative.
General and administrative expense decreased $4.8 million to
$27.6 million due to decreased activity, principally in the
United States, Venezuela, Indonesia and Oman, and a decrease in
administrative expense in the United States.
Operating Income.
Operating income decreased $21.1 million to an operating loss
of $17.8 million. The decrease is attributable to a 37 percent
decrease in revenue caused by a lack of new contract awards in
construction and specialty services in Venezuela, Indonesia, the
United States and Oman; and a change in the revenue mix caused by
a higher level of engineering, material procurement and
subcontract services, which have lower margins than construction
and specialty services.
Net Interest Income (Expense).
Net interest increased $1.1 million to $0.6 million income due
to increased short-term investments during 1999 and reduced
borrowing in the work countries.
Minority Interest Expense.
Minority interest expense increased $0.4 million to
$1.5 million due to an increase in activity in Nigeria.
Foreign Exchange Gain (Loss).
Foreign exchange loss decreased $1.4 million to $0.5 million
because of reduced foreign exchange losses in Venezuela, Pakistan
and the Ivory Coast.
Other Income (Expense).
Other income (expense) increased $2.1 million to $2.5 million
income, primarily as a result of gains from the sale of excess
equipment in Venezuela, Indonesia, the United States and Oman,
offset by costs associated with pursuing mergers and
acquisitions.
Provision for Income Taxes.
The provision for income taxes decreased $1.3 million (28%) to
$3.3 million primarily due to decreased activity in Venezuela,
the Ivory Coast, Indonesia and Oman, offset by income taxes
arising from increased activity in Nigeria and federal and state
income taxes in the United States. 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 losses in one country cannot be
used to offset income in another country.
YEAR ENDED DECEMBER 31, 1998, COMPARED TO YEAR ENDED DECEMBER 31, 1997
Contract Revenue.
Contract revenue increased $29.7 million (12%) to
$281.6 million due to (a) an increase in construction services
revenue of $67.6 million related to work in Venezuela, the
United States and the Ivory Coast; offset by (b) a decrease in
specialty services revenue of $25.4 million associated with a
reduction of specialty services work primarily in Nigeria; and
(c) a decrease in engineering services of $12.5 million due to
decreased engineering, principally in the United States. Revenue
from Venezuela increased $43.6 million (137%) due to work on the
construction of 120 miles (200 kilometers) each of 36-inch and 20-
inch pipelines. Revenue in the Ivory Coast increased
$14.5 million due to beginning work on 46 miles (74 kilometers)
of dual 4-inch and 12-inch pipelines and an 8-mile (13-
kilometer), 12-inch pipeline. United States revenue increased
$6.8 million (8%) primarily due to work performed
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------
on a 94-mile (150-kilometer), 36-inch natural gas pipeline in
Iowa. Revenue from Nigeria decreased $27.3 million (36%)
primarily in specialty services work as a result of delays in
funding to our clients from the Nigerian government and low oil
prices which have caused the Company's clients to defer
maintenance activities. Oman revenue decreased $5.0 million (22%)
due to decreased specialty services work. Indonesian revenue
decreased $2.2 million (8%) due to the substantial completion of
pipeline projects in that country.
Contract Cost.
Contract cost increased $37.9 million (21%) to $220.4 million
due to an increase of $57.2 million in construction services
cost, resulting from an increase in costs on construction
projects in the United States, Venezuela and the Ivory Coast,
offset by a decrease of $17.8 million in engineering services
cost and a decrease of $1.4 million in specialty services cost.
Variations in contract cost by country were closely related to
the variations in contract revenue.
Depreciation and Amortization.
Depreciation and amortization increased $6.6 million to
$25.5 million, primarily due to additions made to the equipment
fleet in 1997 to prepare for new contracts in Indonesia and
Venezuela and additions in 1998 to prepare for a new contract in
the Ivory Coast.
General and Administrative.
General and administrative expense increased $3.3 million to
$32.4 million to support the growth in worldwide activities and
promote expansion into new work countries, such as Mexico.
Operating Income.
Operating income decreased $18.1 million (85%) to $3.3 million.
The decrease is primarily due to a significant decrease in
specialty service activity, an increase in costs on certain
projects including construction projects in Pakistan, the
United States and Venezuela and start-up costs associated with an
offshore construction project in Cameroon.
Net Interest Income (Expense).
Net interest income decreased $0.8 million to a net expense of
$0.5 million, due to increased borrowings to meet working capital
requirements.
Minority Interest Expense.
Minority interest expense decreased $0.8 million to
$1.1 million, due to a reduction in revenue and operating income
in certain work countries.
Other Income (Expense).
Other income decreased $1.6 million resulting in $1.5 million
of other expense in 1998. The decrease was primarily due to
$1.9 million in net foreign exchange losses arising from
remeasuring assets and liabilities in countries with highly
inflationary economies, primarily Venezuela.
Provision for Income Taxes.
Provision for income tax expense decreased $1.1 million to
$4.6 million, principally due to reduced taxable income in
certain work countries in 1998 and a tax refund. The effective
income tax rate in 1998 exceeds 100 percent of income before
income taxes due to the fact that income taxes in certain
countries are based on revenue and also due to the fact that
losses in certain countries cannot be used to offset taxable
income in other countries.
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------
EFFECT OF INFLATION AND CHANGING PRICES
The Company's operations are affected by increases in prices,
whether caused by inflation, government mandates or other
economic factors, in the countries in which it operates. The
Company attempts to recover anticipated increases in the cost of
labor, fuel and materials through price escalation provisions in
certain of its major contracts or by considering the estimated
effect of such increases when bidding or pricing new work.
CAPITAL STRUCTURE, LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital are to fund the
acquisition, upgrade and maintenance of its equipment, provide
working capital for current projects, finance the mobilization of
employees and equipment to new projects, establish a presence in
countries where the Company perceives growth opportunities and
finance the possible acquisition of new businesses and equity
investments. Historically the Company has met its capital
requirements primarily from operating cash flows.
Cash and cash equivalents decreased $0.4 million (5%) to $7.8
million at December 31, 1999, from $8.2 million at December 31,
1998. The decrease is due to negative cash flows of $14.0
million from operations (including a $12.4 million increase in
working capital required to support uncompleted projects), offset
by $4.9 million from the sale of surplus equipment net of $12.2
million in capital expenditures for the purchase of equipment and
spare parts, and $8.7 million from financing activities
(including borrowings of $16.0 million offset by $7.6 million
used to repurchase 1,247,655 shares of common stock).
The Company has a $150.0 million credit agreement that matures
on February 20, 2003, with a syndicated bank group including ABN
AMRO Bank N.V., as agent, and Credit Lyonnais, New York Branch,
as co-agent. The credit agreement provides for a $100.0 million
revolving credit facility, part of which can be used for
acquisitions and equity investments. The entire facility, less
amounts used under the revolving portions of the facility, may be
used for standby and commercial letters of credit. Principal is
payable at termination on all revolving loans except qualifying
acquisition and equity investment loans which are payable
quarterly over the remaining life of the credit agreement.
Interest is payable quarterly at prime or other alternative
interest rates. A commitment fee is payable quarterly based on
an annual rate of one fourth percent of the unused portion of the
credit facility. The Company's obligations under the credit
agreement are secured by the stock of the principal subsidiaries
of the Company. The credit agreement requires the Company to
maintain certain financial ratios, restricts the amount of annual
dividend payments to the greater of 25 cents per share or 25
percent of net income and limits the Company's ability to
purchase its own stock. At December 31, 1999, outstanding
letters of credit totaled $52.8 million and borrowings amounted
to $15.5 million, leaving $81.7 million available under this
facility.
The Company has unsecured credit facilities with banks in
certain countries outside the United States. Borrowings under
these lines, in the form of short-term notes and overdrafts, are
made at competitive local interest rates. Generally, each line
is available only for borrowings related to operations in a
specific country. Credit available under these facilities is
approximately $8.7 million at December 31, 1999.
The Company does not anticipate any significant collection
problems with its customers, including those in countries that
may be experiencing economic and/or currency difficulties. Since
the Company's customers generally are major oil companies and
government entities, and the terms
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------
for billing and collecting for work performed are generally
established by contracts, the Company historically has a very low
incidence of collectability problems.
The Company's 2000 business plan indicates that cash flows from
operations and borrowing under existing credit facilities will be
sufficient to finance working capital and capital expenditures for
ongoing operations at least through the end of 2000. The Company
estimates capital expenditures for equipment and spare parts to
be approximately $10.0 to $15.0 million in 2000.
In February 1998, the Company's Board of Directors approved a
plan to buy back approximately 750,000 shares of its Common Stock
from time to time in the open market or through negotiated
transactions. In October 1998, the Company's Board of Directors
approved, and the Company's credit agreement was amended to
permit, the buy back of an additional $8.8 million of its Common
Stock. During 1999, the Company repurchased 1,247,655 shares of
its Common Stock for $7.6 million. As of December 31, 1999,
2,175,371 shares have been purchased at an average price of $7.43
per share. Subsequent to December 31, 1999, 1,035,000 shares of
treasury stock were issued in connection with the acquisition of
RPI.
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 December 31, 1999.
The carrying amounts for cash and cash equivalents, accounts
receivable, notes payable and accounts payable and accrued
liabilities shown in the consolidated balance sheets approximate
fair value at December 31, 1999 due to the generally short
maturities of these items. The Company invests primarily in
short-term dollar denominated bank deposits, and at December 31,
1999 did not have any investment in instruments with a maturity
of more than a few days or in any equity securities. The Company
has the ability and expects to hold its investments to maturity.
YEAR 2000 COMPLIANCE
As of March 1, 2000, the Company has not experienced any
significant Year 2000 problems. However, due to the uncertainty
regarding Year 2000 compliance on the part of third parties, it
is possible that Year 2000 problems could arise that have an
adverse impact on the Company's business and results of
operations.
Testing, remediation and replacement of the Company's critical
applications are anticipated to cost approximately $5.0 million
from inception in calendar year 1997 through completion in
calendar year 2000, of which approximately $2.8 million is
expected to be capitalized. Of these costs, approximately
$3.9 million had been incurred at December 31, 1999, with most of the
remaining $1.1 million expected to be incurred during the first
quarter of 2000. All estimated costs have been budgeted and are
expected to be funded by cash flows from operations.
29
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
Willbros Group, Inc.:
We have audited the accompanying consolidated balance
sheets of Willbros Group, Inc. and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1999. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards in the United States. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the aforementioned consolidated financial
statements present fairly, in all material respects, the financial
position of Willbros Group, Inc. and subsidiaries as of December
31, 1999 and 1998, and the results of their operations and their
cash flows for each of the years in the three-year period ended
December 31, 1999, in conformity with generally accepted accounting
principles in the United States.
KPMG
Panama City, Panama
February 11, 2000
30
WILLBROS GROUP, INC.
consolidated balance sheets
- -----------------------------------------------------------------------------
(In thousands, except share and per share amounts)
December 31,
----------------------
1999 1998
---------- ----------
Assets
Current assets:
Cash and cash equivalents $ 7,806 $ 8,247
Accounts receivable 50,569 40,018
Contract cost and recognized income not yet billed 13,082 8,022
Prepaid expenses 4,189 3,963
---------- ----------
Total current assets 75,646 60,250
Spare parts, net 6,581 9,666
Property, plant and equipment, net 64,813 85,010
Other assets 6,113 5,013
---------- ----------
Total assets $ 153,153 $ 159,939
========== ==========
Liabilities And Stockholders' Equity
Current liabilities:
Notes payable $ 481 $ 758
Accounts payable and accrued liabilities 35,254 35,352
Accrued income taxes 4,683 5,654
Contract billings in excess of cost and
recognized income 9,427 4,991
---------- ----------
Total current liabilities 49,845 46,755
Long-term debt 15,500 -
Other liabilities 7,381 6,250
---------- ----------
Total liabilities 72,726 53,005
Stockholders' equity:
Class A preferred stock, par value $.01 per share,
1,000,000 shares authorized, none issued - -
Common stock, par value $.05 per share,
35,000,000 shares authorized and
15,123,453 shares issued at December 31, 1999
(15,071,715 at December 31, 1998) 756 753
Capital in excess of par value 67,927 67,613
Retained earnings 29,896 49,914
Treasury stock at cost, 2,175,371 shares at
December 31, 1999 <927,716 shares at
December 31, 1998) (16,164) (8,590)
Notes receivable for stock purchases (307) (982)
Accumulated other comprehensive income (loss) (1,681) (1,774)
---------- ----------
Total stockholders' equity 80,427 106,934
---------- ----------
Total liabilities and stockholders' equity $ 153,153 $ 159,939
========== ==========
See accompanying notes to consolidated financial statements.
31
Willbros Group, Inc.
consolidated statements of operations
- -----------------------------------------------------------------------------
(In thousands, except share and per share amounts)
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
Contract revenue $ 176,564 $ 281,618 $ 251,877
Operating expenses:
Contract 145,498 220,360 182,435
Depreciation and amortization 21,313 25,552 18,936
General and administrative 27,548 32,383 29,118
---------- ---------- ----------
194,359 278,295 230,489
---------- ---------- ----------
Operating income (loss) (17,795) 3,323 21,388
Other income (expense):
Interest income 801 851 1,118
Interest expense (214) (1,335) (814)
Foreign exchange gain (loss) (501) (1,934) 257
Minority interest (1,541) (1,132) (1,911)
Other - net 2,532 432 (199)
---------- ---------- ----------
1,077 (3,118) (1,549)
---------- ---------- ----------
Income (loss) before income taxes (16,718) 205 19,839
Provision for income taxes 3,300 4,567 5,723
---------- ---------- ----------
Net income (loss) $ (20,018) $ (4,362) $ 14,116
========== ========== ==========
Earnings (loss) per common share:
Basic $ (1.54) $ (.30) $ .97
========== ========== ==========
Diluted $ (1.54) $ (.30) $ .96
========== ========== ==========
Weighted average number of common
shares outstanding:
Basic 13,029,665 14,744,622 14,540,137
========== ========== ==========
Diluted 13,029,665 14,744,622 14,688,372
========== ========== ==========
See accompanying notes to consolidated financial statements.
32
Willbros Group, Inc.
consolidated statements of stockholders' equity
- ----------------------------------------------------------------------------
(In thousands, except share amounts)
Common Stock
----------------------
Par
Shares Value
---------- ----------
Balance, January 1, 1997 14,385,980 $ 719
Comprehensive income (loss):
Net income - -
Foreign currency translation
adjustments - -
Total comprehensive
income (loss)
Payment of notes receivable - -
Sale of common stock, net
of offering cost 590,641 31
Issuance of common stock
under employee benefit plan 14,199 -
Exercise of stock options 1,500 -
---------- ----------
Balance, December 31, 1997 14,992,320 750
Comprehensive income (loss):
Net loss - -
Foreign currency translation
adjustments - -
Total comprehensive
income (loss)
Payment of notes receivable - -
Purchase of treasury stock - -
Issuance of common stock
under employee benefit plan 32,945 1
Exercise of stock options 46,450 2
---------- ----------
Balance, December 31, 1998 15,071,715 753
Comprehensive income (loss):
Net loss - -
Foreign currency translation
adjustments - -
Total comprehensive
income (loss)
Payment of notes receivable - -
Purchase of treasury stock - -
Issuance of common stock
under employee benefit plan 51,238 3
Exercise of stock options 500 -
---------- ----------
Balance, December 31, 1999 15,123,453 $ 756
========== ==========
- -CONTINUED-
Capital in
Excess
of Par Retained Treasury
Value Earnings Stock
---------- ---------- ----------
Balance, January 1, 1997 $ 55,475 $ 40,160 $ -
Comprehensive income (loss):
Net income - 14,116 -
Foreign currency translation
adjustments - - -
Total comprehensive
income (loss)
Payment of notes receivable - - -
Sale of common stock, net
of offering cost 11,168 - -
Issuance of common stock
under employee benefit plan 200 - -
Exercise of stock options 14 - -
---------- ---------- ----------
Balance, December 31, 1997 66,857 54,276 -
Comprehensive income (loss):
Net loss - (4,362) -
Foreign currency translation
adjustments - - -
Total comprehensive
income (loss)
Payment of notes receivable - - -
Purchase of treasury stock - - (8,590)
Issuance of common stock
under employee benefit plan 331 - -
Exercise of stock options 425 - -
---------- ---------- ----------
Balance, December 31, 1998 67,613 49,914 (8,590)
Comprehensive income (loss):
Net loss - (20,018) -
Foreign currency translation
adjustments - - -
Total comprehensive
income (loss)
Payment of notes receivable - - -
Purchase of treasury stock (7,574)
Issuance of common stock
under employee benefit plan 311 - -
Exercise of stock options 3 - -
---------- ---------- ----------
Balance, December 31, 1999 $ 67,927 $ 29,896 $ (16,164)
========== ========== ==========
- -CONTINUED-
Accumu-
lated
Notes Other
Receivable Compre- Total
For hensive Stock-
Stock Income holders'
Purchases (Loss) Equity
---------- ---------- ----------
Balance, January 1, 1997 $ (3,184) $ (784) $ 92,386
Comprehensive income (loss):
Net income - - 14,116
Foreign currency translation
adjustments - (29) (29)
----------
Total comprehensive
income (loss) 14,087
Payment of notes receivable 1,100 - 1,100
Sale of common stock, net
of offering cost - - 11,199
Issuance of common stock
under employee benefit plan - - 200
Exercise of stock options - - 14
---------- ---------- ----------
Balance, December 31, 1997 (2,084) (813) 118,986
Comprehensive income (loss):
Net loss - - (4,362)
Foreign currency translation
adjustments - (961) (961)
----------
Total comprehensive
income (loss) (5,323)
Payment of notes receivable 1,102 - 1,102
Purchase of treasury stock - - (8,590)
Issuance of common stock
under employee benefit plan - - 332
Exercise of stock options - - 427
---------- ---------- ----------
Balance, December 31, 1998 (982) (1,774) 106,934
Comprehensive income (loss):
Net loss - - (20,018)
Foreign currency translation
adjustments - 93 93
----------
Total comprehensive
income (loss) (19,925)
Payment of notes receivable 675 - 675
Purchase of treasury stock - - (7,574)
Issuance of common stock
under employee benefit plan - - 314
Exercise of stock options - - 3
---------- ---------- ----------
Balance, December 31, 1999 $ (307) $ (1,681) $ 80,427
========== ========== ==========
See accompanying notes to consolidated financial statements.
33
Willbros Group, Inc.
consolidated statements of cash flows
- -----------------------------------------------------------------------------
(In thousands)
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
Cash flows from operating activities:
Net income (loss) $ (20,018) $ (4,362) $ 14,116
Reconciliation of net income (loss)
to cash provided by (used in)
operating activities:
Depreciation and amortization 21,313 25,552 18,936
Loss (gain) on sales and retirements
of property and equipment (2,897) 261 814
Changes in operating assets and
liabilities:
Accounts receivable (10,551) 16,987 (3,249)
Contract cost and recognized
income not yet billed (5,060) 137 (4,516)
Prepaid expenses and other assets (1,326) (1,981) (216)
Accounts payable and accrued
liabilities (98) (5,935) 8,419
Accrued income taxes (971) 483 1,121
Contract billings in excess of cost
and recognized income 4,436 (16,071) 9,960
Other liabilities 1,131 128 403
---------- ---------- ----------
Cash provided by (used
in) operating activities (14,041) 15,199 45,788
Cash flows from investing activities:
Proceeds from sales of property
and equipment 17,111 1,428 886
Purchase of property and equipment (7,983) (24,861) (38,932)
Purchase of spare parts (4,262) (11,251) (8,340)
---------- ---------- ----------
Cash provided by (used
in) investing activities 4,866 (34,684) (46,386)
Cash flows from financing activities:
Proceeds from long-term debt 15,500 37,000 3,000
Collection of notes receivable
for stock purchases 675 1,102 1,100
Proceeds from notes payable to banks 481 7,160 6,858
Proceeds from common stock 317 759 11,413
Purchase of treasury stock (7,574) (8,590) -
Repayment of notes payable to banks (525) (11,509) (2,157)
Repayment of notes payable to
former shareholders (233) (467) (467)
Repayment of long-term debt - (40,000) -
---------- ---------- ----------
Cash provided by (used
in) financing activities 8,641 (14,545) 19,747
Effect of exchange rate changes on cash
and cash equivalents 93 (961) (29)
---------- ---------- ----------
Cash provided by (used in) all activities (441) (34,991) 19,120
Cash and cash equivalents, beginning
of year 8,247 43,238 24,118
---------- ---------- ----------
Cash and cash equivalents, end of year $ 7,806 $ 8,247 $ 43,238
========== ========== ==========
See accompanying notes to consolidated financial statements.
34
Willbros Group, Inc.
notes to consolidated financial statements
- -----------------------------------------------------------------------------
(In thousands, except share and per share amounts)
1. Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial
statements include the accounts of Willbros Group, Inc. ("WGI"), a
Republic of Panama corporation, and all of its majority-owned
subsidiaries (the "Company"). All material intercompany accounts
and transactions are eliminated in consolidation. The ownership
interest of minority participants in subsidiaries that are not
wholly owned (principally in Nigeria and Oman) is included in
accounts payable and accrued liabilities and is not material. The
minority participants' share of the net income of those
subsidiaries is included in other expense.
The consolidated financial statements are prepared in accordance
with generally accepted accounting principles in the United States
and include certain estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities and the reported amounts of
revenue and expenses. Actual results could differ from those
estimates.
Accounts Receivable - Accounts receivable include retainage, all
due within one year, of $3,423 in 1999 and $6,304 in 1998 and are
stated net of allowances for bad debts of $1,267 in 1999 and $988
in 1998. The provision (credit) for bad debts was $573 in 1999,
$72 in 1998 and $(8) in 1997.
Spare Parts - Spare parts (excluding expendables), stated net of
accumulated depreciation of $16,052 in 1999 and $16,247 in 1998,
are depreciated over three years on the straight-line method.
Property, Plant and Equipment - Depreciation is provided on the
straight-line method using principally estimated lives of four to
six years. When assets are retired or otherwise disposed of, the
cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized in income for
the period. Normal repair and maintenance costs are charged to
expense as incurred. Major overhaul costs are accrued and allocated
to contracts based on estimates of equipment condition.
Significant renewals and betterments are capitalized.
Long-lived assets held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of the asset to future net cash flows expected to
be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceeds the fair value
of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell.
Revenue - Construction and engineering fixed-price contracts
are accounted for using 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.
Estimated contract losses are 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.
Income Taxes - The Company accounts for income taxes by the
asset and liability method under which deferred tax assets and
liabilities are recognized for the future tax consequences of
operating loss and tax credit carryforwards and differences between
the financial statement carrying values of assets and liabilities
and their tax bases.
35
Willbros Group, Inc.
notes to consolidated financial statements
- -----------------------------------------------------------------------------
(In thousands, except share and per share amounts)
1. Summary of Significant Accounting Policies (continued)
Retirement Plans and Benefits - The Company has defined benefit
and defined contribution retirement plans and a postretirement
medical benefits plan that provide retirement benefits to
substantially all regular employees. Qualified plans are
contributory on the part of employees. Pension costs are funded in
accordance with annual actuarial valuations. The Company records
the cost of postretirement medical benefits, which are funded on
the pay-as-you-go basis, over the employees' working lives.
Common Stock Options - The Company follows the intrinsic value
method of accounting for common stock options granted to employees.
Foreign Currency Translation - All significant asset and
liability accounts stated in currencies other than United States
dollars are translated into United States dollars at current
exchange rates. Translation adjustments are accumulated in other
comprehensive income (loss). Revenue and expense accounts are
converted at prevailing rates throughout the year. Foreign
currency transaction adjustments and translation adjustments in
highly inflationary economies are recorded in income.
Cash Flows - In the determination of cash flows, all highly
liquid debt instruments with maturities of less than three months
are considered to be cash equivalents. The Company paid interest
of $76 in 1999, $1,309 in 1998 and $817 in 1997 and income taxes of
$3,474 in 1999, $4,084 in 1998 and $4,685 in 1997.
Earnings (Loss) per Share - Basic earnings (loss) per share is
calculated by dividing net income, less any preferred dividend
requirements, by the weighted-average number of common shares
outstanding during the year. Diluted earnings (loss) per share is
calculated by including the weighted-average number of all dilutive
potential common shares with the weighted-average number of common
shares outstanding.
Derivative Financial Instruments - The Company may use
derivatives such as forward contracts, options or other financial
instruments as hedges to mitigate non-U.S. currency exchange risk
when the Company is unable to match non-U.S. currency revenue with
expenses in the same currency. The unrealized gains or losses on
such financial instruments are deferred and recognized when
realized as an adjustment to contract revenue. The Company had no
derivative financial instruments as of December 31, 1999 or 1998.
2. Concentration of Credit Risk
The Company has a concentration of customers in the oil and gas
industry which exposes the Company to a concentration of credit
risk within an industry. The Company seeks to obtain advance and
progress payments for contract work performed on major contracts.
Receivables are generally not collateralized. The Company believes
that its allowance for bad debts is adequate.
36
Willbros Group, Inc.
notes to consolidated financial statements
- -----------------------------------------------------------------------------
(In thousands, except share and per share amounts)
3. Contracts in Progress
Most contracts allow for progress billings to be made during
performance of the work. These billings may be made on a basis
different from that used for recognizing revenue. Contracts in
progress for which cost and recognized income exceed billings or
billings exceed cost and recognized income consist of:
December 31,
----------------------
1999 1998
---------- ----------
Costs incurred on contracts in progress $ 86,836 $ 235,088
Recognized income 16,537 55,635
---------- ----------
103,373 290,723
Progress billings and advance payments 99,718 287,692
---------- ----------
$ 3,655 $ 3,031
========== ==========
Contract cost and recognized income
not yet billed $ 13,082 $ 8,022
Contract billings in excess of cost and
recognized income (9,427) (4,991)
---------- ----------
$ 3,655 $ 3,031
========== ==========
4. Property, Plant and Equipment
Property, plant and equipment, none of which are used to secure
debt or are subject to lien, at cost, consist of:
December 31,
----------------------
1999 1998
---------- ----------
Construction equipment $ 48,072 $ 61,236
Marine equipment 46,365 43,431
Transportation equipment 21,220 31,997
Land, buildings, furniture and equipment 20,287 17,274
---------- ----------
135,944 153,938
Less accumulated depreciation and amortization 71,131 68,928
---------- ----------
$ 64,813 $ 85,010
========== ==========
5. Notes Payable
The Company has unsecured credit facilities with banks in
certain countries outside the United States. Borrowings under
these lines of $481 at December 31, 1999 ($525 at December 31,
1998), 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
$8,700 at December 31, 1999.
37
Willbros Group, Inc.
notes to consolidated financial statements
- -----------------------------------------------------------------------------
(In thousands, except share and per share amounts)
6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of:
December 31,
----------------------
1999 1998
---------- ----------
Trade payables $ 18,676 $ 17,018
Payrolls and payroll liabilities 13,388 14,524
Equipment reconditioning and overhaul reserves 3,190 3,810
---------- ----------
$ 35,254 $ 35,352
========== ==========
7. Long-term Debt
The Company has a $150,000 credit agreement that matures on
February 20, 2003, with a syndicated bank group including ABN AMRO
Bank N.V., as agent, and Credit Lyonnais, New York Branch, as co-
agent. The credit agreement provides for a $100,000 revolving
credit facility, part of which can be used for acquisitions and
equity investments. The entire facility, less amounts used under
the revolving portion of the facility, may be used for standby and
commercial letters of credit. Principal is payable at termination
on all revolving loans except qualifying acquisition and equity
investment loans which are payable quarterly over the remaining
life of the credit agreement. Interest is payable quarterly at
prime or other alternative interest rates. A commitment fee is
payable quarterly based on an annual rate of one fourth percent of the
unused portion of the credit facility. The Company's obligations
under the credit agreement are secured by the stock of the
principal subsidiaries of the Company. The credit agreement
requires the Company to maintain certain financial ratios,
restricts the amount of annual dividend payments to the greater of
25 cents per share or 25 percent of net income and limits the
Company's ability to purchase its own stock. At December 31, 1999,
outstanding letters of credit totaled $52,765 and borrowings
amounted to $15,500, leaving $81,735 available under this facility.
Included in notes payable at December 31, 1998 are notes payable
to two former shareholders with a remaining balance of $233. The
notes were paid in full when due on April 15, 1999.
38
Willbros Group, Inc.
notes to consolidated financial statements
- -----------------------------------------------------------------------------
(In thousands, except share and per share amounts)
8. Retirement Benefits
The Company has defined benefit plans (pension plans) covering
substantially all regular employees which are funded by employee
and Company contributions. The Company's funding policy is to
contribute at least the minimum required by the Employee Retirement
Income Security Act of 1974 in accordance with annual actuarial
valuations. Benefits under the plans are determined by employee
earnings and credited service. The Company has a postretirement
medical benefits plan which covers substantially all regular
employees and which is funded by Company and retiree contributions
based on estimated cost. Benefit expense for these plans include
the following components:
Pension Benefits
----------------------------------
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
Service cost $ 1,692 $ 1,658 $ 1,180
Interest cost 2,244 2,225 2,032
Expected return on plan assets (2,914) (2,560) (2,247)
Recognized net actuarial loss (gain) (188) - (11)
Amortization of transition asset (29) (29) (29)
Amortization of prior service cost 95 145 142
---------- ---------- ----------
$ 900 $ 1,439 $ 1,067
========== ========== ==========
- -CONTINUED-
Postretirement Medical Benefits
----------------------------------
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
Service cost $ 157 $ 179 $ 237
Interest cost 274 296 326
Expected return on plan assets - - -
Recognized net actuarial loss (gain) (108) (81) (52)
Amortization of transition asset - - -
Amortization of prior service cost (22) (22) -
---------- ---------- ----------
$ 301 $ 372 $ 511
========== ========== ==========
The retirement benefit obligations are determined using a
weighted-average discount rate of 8.0 percent at December 31, 1999
(6.75 percent at December 31, 1998, and 7.0 percent at December 31,
1997). For pension benefits the rate of increase in future pay
increases is 5.5 percent at December 31, 1999 (5.5 percent at
December 31, 1998 and 6.0 percent at December 31, 1997), and assets
are expected to have a long-term rate of return of 8.5 percent. The
transition asset is amortized over 15 years.
The following table sets forth the changes in benefit
obligations and plan assets and the reconciliation of the funded
status of the plans to the accrued benefit cost:
Pension Benefits
----------------------------------
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
Change in benefit obligations:
Benefit obligations,
beginning of year $ 34,278 $ 32,407 $ 27,651
Service cost 1,692 1,658 1,180
Interest cost 2,244 2,225 2,032
Plan participants' contribution 407 493 468
Amendments - - -
Actuarial loss (gain) (6,416) (1,035) 2,184
Benefits paid (2,098) (1,470) (1,108)
---------- ---------- ----------
Benefit obligations, end of year 30,107 34,278 32,407
---------- ---------- ----------
- -CONTINUED-
Postretirement Medical Benefits
----------------------------------
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
Change in benefit obligations:
Benefit obligations,
beginning of year $ 4,057 $ 4,236 $ 4,355
Service cost 157 179 237
Interest cost 274 296 326
Plan participants' contribution 110 86 84
Amendments - - (243)
Actuarial loss (gain) 243 (494) (347)
Benefits paid (284) (246) (176)
---------- ---------- ----------
Benefit obligations, end of year 4,557 4,057 4,236
---------- ---------- ----------
39
Willbros Group, Inc.
notes to consolidated financial statements
- -----------------------------------------------------------------------------
(In thousands, except share and per share amounts)
8. Retirement Benefits (continued)
Pension Benefits
----------------------------------
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
Change in plan assets:
Plan assets at fair value,
beginning of year $ 34,699 $ 30,514 $ 26,995
Actual return on plan assets 4,468 4,823 4,159
Employer contribution - - -
Plan participants' contribution 407 493 468
Benefits paid (1,865) (1,131) (1,108)
---------- ---------- ----------
Plan assets at fair value,
end of year 37,709 34,699 30,514
---------- ---------- ----------
Reconciliation:
Funded status, plan assets over
(under) benefit obligations 7,602 421 (1,893)
Unrecognized net actuarial gain (13,427) (5,391) (2,093)
Transition asset at January 1, 1987 (57) (86) (115)
Unrecognized prior service cost 976 816 961
Adjustment for minimum liability - (50) (97)
---------- ---------- ----------
Accrued benefit cost $ (4,906) $ (4,290) $ (3,237)
========== ========== ==========
- -CONTINUED-
Postretirement Medical Benefits
----------------------------------
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
Change in plan assets:
Plan assets at fair value,
beginning of year $ - $ - $ -
Actual return on plan assets - - -
Employer contribution 174 160 92
Plan participants' contribution 110 86 84
Benefits paid (284) (246) (176)
---------- ---------- ----------
Plan assets at fair value,
end of year - - -
---------- ---------- ----------
Reconciliation:
Funded status, plan assets over
(under) benefit obligations (4,557) (4,057) (4,236)
Unrecognized net actuarial gain (1,384) (1,735) (1,322)
Transition asset at January 1, 1987 - - -
Unrecognized prior service cost (199) (221) (243)
Adjustment for minimum liability - - -
---------- ---------- ----------
Accrued benefit cost $ $ (6,140) $ (6,013) $ (5,801)
========== ========== ==========
Plan assets of the pension plans consist primarily of listed
stocks and bonds. Contributions of assets to a trust established
by the Company to fund benefit payments under the Executive Benefit
Restoration Plan are irrevocable but are subject to creditor claims
under certain conditions and are, therefore, excluded from the
determination of funded status. Assets held in trust, at cost
which approximates market, included in other assets, are $1,438
at December 31, 1999, $1,329 at December 31, 1998, and $1,367 at
December 31, 1997.
The non-current portion of the postretirement medical benefit
liability, $6,042 at December 31, 1999 ($5,810 at December 31,
1998), is included in other liabilities.
The weighted-average annual assumed rate of increase in the per
capita cost of covered postretirement medical benefits is 8.5
percent for 2000 and is assumed to decrease to 5.5 percent by the
year 2011 and to remain at that level. Increasing the assumed
health care cost trend rates by one percentage point in each year
would increase the postretirement medical benefits liability at
December 31, 1999, by $566 and expense for 1999 by $74. Decreasing
the assumed health care cost trend rates by one percentage point in
each year would decrease the postretirement medical benefits
liability by $470 and expense for 1999 by $59.
40
Willbros Group, Inc.
notes to consolidated financial statements
- -----------------------------------------------------------------------------
(In thousands, except share and per share amounts)
8. Retirement Benefits (continued)
The Company has a defined contribution plan which is funded by
participating employee contributions and the Company. The Company
matches employee contributions up to a maximum of four percent of
salary in cash or beginning in 1997, if the participant so elects,
up to five percent of salary in WGI common stock. Company
contributions for this plan were $636 (including $314 of WGI common
stock) in 1999, $689 (including $332 of WGI common stock) in 1998,
and $636 (including $200 of WGI common stock) in 1997.
9. Income Taxes
The provision for income taxes represents income taxes
arising as a result of operations and credits for revision of
previous estimates of income taxes payable in a number of
countries. The Company is not subject to income tax in Panama on
income earned outside of Panama. All income has been earned
outside of Panama; therefore, there is no expected relationship
between income (loss) before income taxes and the provision
for income taxes. The effective consolidated tax rate
differs from the statutory tax rate in each country because taxable
income and operating losses from different countries cannot be
offset and tax rates and methods of determining taxes payable are
different in each country.
Income (loss) before income taxes and the provision for
income taxes in the consolidated statements of operations consist
of:
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
Income (loss) before income taxes:
Other countries $ (19,197) $ 3,036 $ 20,038
United States 2,479 (2,831) (199)
---------- ---------- ----------
$ (16,718) $ 205 $ 19,839
========== ========== ==========
Provision for income taxes:
Currently payable:
Other countries $ 2,851 $ 4,567 $ 5,723
United States:
Federal 190 - -
State 259 - -
---------- ---------- ----------
$ 3,300 $ 4,567 $ 5,723
========== ========== ==========
The Company has a deferred tax asset in the United States of
$13,621 at December 31, 1999, and $16,316 at December 31, 1998,
relating to United States net operating loss and credit
carryforwards and employee benefit expense, and a deferred tax
liability of $684 at December 31, 1999, and $1,146 at December 31,
1998, relating to excess tax depreciation. The net deferred tax
asset is reduced to zero by a valuation allowance in both years.
41
Willbros Group, Inc.
notes to consolidated financial statements
- -----------------------------------------------------------------------------
(In thousands, except share and per share amounts)
9. Income Taxes (continued)
The Company has $26,731 in United States net operating loss
carryforwards and $797 of United States investment tax credit
carryforwards at December 31, 1999. The United States net
operating loss carryforwards will expire, unless utilized,
beginning in 2000 and ending December 31, 2013. The carryforwards
available on an annual basis are limited. At December 31, 1999,
the Company has nonexpiring operating loss carryforwards in the
United Kingdom of $30,000 (Pounds 18,500), and a net operating loss
carryforward expiring over three years in Venezuela of $1,400
(Bolivars 912,600). The deferred tax asset applicable to these
operating loss carryforwards has been reduced to zero by a
valuation allowance.
10. Stockholder Rights Plan
On April 1, 1999, the Company adopted a Stockholder Rights Plan
and declared a distribution of one Preferred Share Purchase Right
("Right") on each outstanding share of the Company's common stock.
The distribution was made on April 15, 1999 to stockholders of
record on that date. The Rights expire on April 14, 2009.
The Rights are exercisable only if a person or group acquires
15 percent or more of the Company's common stock or announces a tender
offer the consummation of which would result in ownership by a
person or group of 15 percent or more of the common stock. Each Right
entitles stockholders to buy one one-thousandth of a share of a
series of junior participating preferred stock at an exercise price
of $30.00 per share.
If the Company is acquired in a merger or other business
combination transaction after a person or group has acquired 15 percent or
more of the Company's outstanding common stock, each Right entitles its
holder to purchase, at the Right's then-current exercise price, a
number of acquiring company's common shares having a market
value of twice such price. In addition, if a person or group
acquires 15 percent or more of the Company's outstanding common stock,
each Right entitles its holder (other than such person or members
of such group) to purchase, at the Right's then-current exercise
price, a number of the Company's common shares having a market
value of twice such price.
Prior to the acquisition by a person or group of beneficial
ownership of 15 percent or more of the Company's common stock, the Rights
are redeemable for one-half cent per Right at the option of the
Company's Board of Directors.
42
Willbros Group, Inc.
notes to consolidated financial statements
- -----------------------------------------------------------------------------
(In thousands, except share and per share amounts)
11. Stock Ownership Plans
During May 1996, the Company established the Willbros Group,
Inc. 1996 Stock Plan (the "1996 Plan") with 1,125,000 shares of
common stock authorized for issuance to provide for awards to key
employees of the Company, and the Willbros Group, Inc. Director
Stock Plan (the "Director Plan") with 125,000 shares of common
stock authorized for issuance to provide for the grant of stock
options to non-employee directors. In May 1999, the
stockholders approved the increase of the number of shares
authorized for issuance under the 1996 Plan to 2,125,000.
Options granted under the 1996 Plan vest 25 percent at the date
of grant and 25 percent each January 1 thereafter. Options granted
under the Director Plan vest six months after the date of grant.
At December 31, 1999, the 1996 Plan has 690,450 shares and the
Director Plan has 80,000 shares available for grant.
The per share weighted-average fair value of options granted is
calculated using the Black Scholes option-pricing model, assuming
the options have a life of three years, the weighted-average risk-
free interest rate at the dates of grant is 5.86 percent in 1999
(4.63 percent in 1998 and 5.84 percent in 1997) and the weighted-
average volatility is 52.78 percent in 1999 (59.12 percent in 1998
and 36.37 percent in 1997).
The Company's stock option activity and related information
consist of:
Year Ended December 31,
-----------------------
1999
-----------------------
Weighted-
Average
Exercise
Shares Price
---------- -----------
Outstanding, beginning
of year 1,093,050 $ 9.37
Granted 416,000 5.28
Exercised 500 6.63
Forfeited 29,000 10.51
---------- -----------
Outstanding, end of year 1,479,550 $ 8.20
========== ===========
Exercisable at end of year 904,800 $ 8.84
========== ===========
- -CONTINUED-
Year Ended December 31,
-----------------------
1998
-----------------------
Weighted-
Average
Exercise
Shares Price
---------- -----------
Outstanding, beginning of year 484,500 $ 9.19
Granted 655,000 9.50
Exercised 46,450 9.19
Forfeited 500 6.63
---------- -----------
Outstanding, end of year 1,093,050 $ 9.37
========== ===========
Exercisable at end of year 517,550 $ 9.30
========== ===========
- -CONTINUED-
Year Ended December 31,
-----------------------
1997
-----------------------
Weighted-
Average
Exercise
Shares Price
---------- -----------
Outstanding, beginning of year 481,000 $ 9.08
Granted 5,000 18.95
Exercised 1,500 9.13
Forfeited - -
---------- -----------
Outstanding, end of year 484,500 $ 9.19
========== ===========
Exercisable at end of year 310,750 $ 9.22
========== ===========
43
Willbros Group, Inc.
notes to consolidated financial statements
- -----------------------------------------------------------------------------
(In thousands, except share and per share amounts)
11. Stock Ownership Plans (continued)
The weighted-average fair value of options granted during the
year was $2.17 in 1999 ($3.75 in 1998, $5.98 in 1997). Exercise
prices for options outstanding, weighted-average remaining life and
weighted-average exercise price by ranges of exercise prices at
December 31, 1999 are:
Weighted- Weighted-
Average Average
Range of Options Remaining Exercise
Exercise Prices Outstanding Life Price
--------------- ----------- ----------- -----------
$ 5.06 - $ 6.94 837,500 9.4 years $ 5.96
$ 8.67 - $11.75 420,050 6.8 years 9.07
$14.94 - $19.44 222,000 8.1 years 15.01
----------- ----------- -----------
$ 5.06 - $19.44 1,479,550 8.5 years $ 8.20
=========== =========== ===========
The number of vested options and weighted-average exercise price
by ranges of exercise prices at December 31, 1999, are:
Weighted-
Average
Range of Vested Exercise
Exercise Prices Options Price
--------------- ---------- -----------
$ 5.06 - $ 6.94 352,250 $ 6.21
$ 8.67 - $11.75 420,050 9.08
$14.94 - $19.44 132,500 15.06
---------- -----------
$ 5.06 - $19.44 904,800 $ 8.84
========== ===========
No compensation expense for the options granted under the 1996
Plan and the Director Plan is recorded. Had compensation expense
for vested options been recorded, the Company's net income would
have been reduced to $(21,232) in 1999 ($(5,234) in 1998 and
$13,624 in 1997), basic earnings per share would have been reduced
to $(1.63) in 1999 ($(.35) in 1998 and $.94 in 1997), and diluted
earnings per share would have been reduced to $(1.63) in 1999
($(.35) in 1998 and $.93 in 1997).
Under employee stock ownership plans established in 1992 and
1995, certain key employees were issued options to purchase common
stock at a discount from fair value and were allowed to finance up
to 90 percent of the option price with three-year noninterest
bearing recourse notes.
12. Fair Value of Financial Instruments
The carrying value of financial instruments does not materially
differ from fair value.
44
Willbros Group, Inc.
notes to consolidated financial statements
- -----------------------------------------------------------------------------
(In thousands, except share and per share amounts)
13. Public Offerings
A secondary offering of the Company's common stock was completed
in October 1997, with the sale of 4,528,250 shares of common stock,
consisting of 590,641 newly issued shares resulting in net proceeds
to the Company of $11,699 before offering costs and 3,937,609 shares
sold by certain stockholders of the Company for which the Company
did not receive any proceeds.
14. Earnings (Loss) Per Share
Basic and diluted earnings (loss) per share are computed as
follows:
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
Net income (loss) applicable to
common shares $ (20,018) $ (4,362) $ 14,116
========== ========== ==========
Weighted average number of common
shares outstanding for basic
earnings per share 13,029,665 14,744,622 14,540,137
Weighted average number of
dilutive potential common
shares outstanding - - 148,235
---------- ---------- ----------
Weighted average number of
common shares outstanding for
diluted earnings per share 13,029,665 14,744,622 14,688,372
========== ========== ==========
Earnings (loss) per common share:
Basic $ (1.54) $ (.30) $ .97
========== ========== ==========
Diluted $ (1.54) $ (.30) $ .96
========== ========== ==========
At December 31, 1999, there were 1,479,550 potential common
shares (383,571 at December 31, 1998, and 8,000 at December 31,
1997) excluded from the computation of diluted earnings (loss) per
share because of their anti-dilutive effect.
15. Segment Information
The Company operates in a single operating segment providing
construction, engineering and specialty services to the oil and gas
industry. Due to a limited number of major projects and clients,
the Company may at any one time have a substantial part of its
operations dedicated to one project, client and country.
Customers with more than 10 percent of total contract revenue are as
follows:
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
Customer A 36 % - % 13 %
Customer B 11 - -
Customer C - 22 -
Customer D - 18 -
Customer E - - 10
Customer F - - 10
---------- ---------- ----------
47 % 40 % 33 %
========== ========== ==========
45
Willbros Group, Inc.
notes to consolidated financial statements
- -----------------------------------------------------------------------------
(In thousands, except share and per share amounts)
15. Segment Information (continued)
Information about the Company's operations in its significant
work countries is shown below:
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
Contract revenue:
Nigeria $ 75,928 $ 48,743 $ 75,982
United States (1) 42,981 91,151 78,849
Venezuela 23,501 75,350 31,830
Australia 18,774 - -
Oman 8,026 17,806 22,846
Indonesia 3,205 25,804 27,951
Ivory Coast 2,567 14,511 -
Pakistan - 6,764 13,889
Other 1,582 1,489 530
---------- ---------- ----------
$ 176,564 $ 281,618 $ 251,877
========== ========== ==========
Long-lived assets:
Nigeria $ 32,258 $ 33,005 $ 27,106
United States 11,680 15,088 10,882
Venezuela 14,724 26,495 30,433
Oman 4,665 6,602 8,382
Indonesia 3,929 7,246 8,077
Ivory Coast 2,953 4,213 -
Other 1,185 2,027 925
---------- ---------- ----------
$ 71,394 $ 94,676 $ 85,805
========== ========== ==========
- ------------------
(1) Net of intercountry revenue of $3,176 in 1999, $1,463 in
1998 and $4,365 in 1997.
46
Willbros Group, Inc.
notes to consolidated financial statements
- -----------------------------------------------------------------------------
(In thousands, except share and per share amounts)
16. 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, 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 postcontract 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.
The Company has certain operating leases for office and camp
facilities. Rental expense, excluding daily rentals and
reimbursable rentals under cost plus contracts, was $2,257 in 1999,
$3,254 in 1998, and $2,962 in 1997. Minimum lease commitments
under operating leases as of December 31, 1999, total $6,357 and
are payable as follows: 2000, $1,937; 2001, $1,699; 2002, $1,496;
2003, $423; 2004, $217; and later years, $585.
47
Willbros Group, Inc.
notes to consolidated financial statements
- -----------------------------------------------------------------------------
(In thousands, except share and per share amounts)
17. Quarterly Financial Data (Unaudited)
Selected unaudited quarterly financial data for the years ended
December 31, 1999 and 1998, is as follows:
First Second
Quarter Quarter
---------- ----------
December 31, 1999:
Contract revenue $ 28,479 $ 41,599
Operating income (loss) (8,574) (9,178)
Income (loss) before
income taxes (6,646) (8,556)
Net income (loss) (7,115) (9,545)
Earnings (loss) per share,
basic and diluted (.53) (.74)
December 31, 1998:
Contract revenue $ 61,835 $ 78,752
Operating income (loss) 3,129 6,618
Income (loss) before
income taxes 3,756 5,102
Net income (loss) 3,040 3,788
Earnings (loss) per share,
basic and diluted .20 .25
- -CONTINUED-
Third Fourth
Quarter Quarter Total
---------- ---------- ----------
December 31, 1999:
Contract revenue $ 42,650 $ 63,836 $ 176,564
Operating income (loss) (1,932) 1,889 (17,795)
Income (loss) before
income taxes (3,254) 1,738 (16,718)
Net income (loss) (4,290) 932 (20,018)
Earnings (loss) per share,
basic and diluted (.33) .07 (1.54)
December 31, 1998:
Contract revenue $ 65,962 $ 75,069 $ 281,618
Operating income (loss) (9,673) 3,249 3,323
Income (loss) before
income taxes (10,897) 2,244 205
Net income (loss) (11,478) 288 (4,362)
Earnings (loss) per share,
basic and diluted (.78) .02 (.30)
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
method by which revenue is recognized.
18. Subsequent Event
On January 24, 2000, the Company acquired Rogers & Phillips,
Inc., a closely held pipeline construction company in the United
States. The consideration included 1,035,000 shares of the
Company's common stock and approximately $1,516 in cash, and the
transaction was accounted for as a purchase.
48
Corporate Data
- ----------------------------------------------------------------------------
Common Stock Information and Divident Policy
The Company's common stock trades on the New York Stock
Exchange under the symbol WG. As of December 31, 1999, there
were 160 stockholders of record. The table below sets forth
the common stock trading price by quarter for 1998 and 1999.
1998 1999
- ---------------------------------------------------------------------
HIGH LOW HIGH LOW
FIRST QUARTER $ 17 $ 13 1/2 $ 6 1/2 $ 4 9/16
SECOND QUARTER $ 19 13/16 $ 15 5/16 $ 9 $ 5 5/16
THIRD QUARTER $ 16 1/8 $ 5 3/16 $ 8 3/4 $ 6
FOURTH QUARTER $ 6 7/8 $ 5 1/2 $ 7 1/8 $ 4 5/8