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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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
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(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
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The number of shares of the registrant's Common Stock, $.05
par value, outstanding as of May 11, 1998 was 15,038,685.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
March December
31, 31,
1998 1997
-------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 24,587 $ 43,238
Accounts receivable 58,459 57,005
Contract cost and recognized income
not yet billed 9,042 8,159
Prepaid expenses 4,835 4,022
---------- ---------
Total current assets 96,923 112,424
Spare parts, net 7,885 7,385
Property, plant and equipment, net 75,808 78,420
Other assets 3,951 2,973
---------- ---------
Total assets $ 184,567 $ 201,202
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 5,508 $ 5,341
Accounts payable and accrued liabilities 36,446 41,287
Accrued income taxes 4,509 5,171
Contract billings in excess of cost and
recognized income 9,369 21,062
---------- ---------
Total current liabilities 55,832 72,861
Deferred income taxes 200 200
Long-term debt 117 3,233
Other liabilities 5,970 5,922
---------- ---------
Total liabilities 62,119 82,216
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; 15,005,812 shares issued at
March 31, 1998 (14,992,320 at December 31, 1997) 750 750
Capital in excess of par value 67,015 66,857
Retained earnings 57,316 54,276
Notes receivable for stock purchases (1,932) (2,084)
Accumulated other comprehensive income (loss) (701) (813)
---------- ----------
Total stockholders' equity 122,448 118,986
---------- ----------
Total liabilities and stockholders' equity $ 184,567 $ 201,202
========== ==========
See accompanying notes to condensed consolidated financial statements.
2
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
(Unaudited)
Three Months
Ended March 31,
----------------------
1998 1997
---------- ----------
Contract revenues $ 61,835 $ 51,165
Operating expenses:
Contract 44,294 35,775
Depreciation and amortization 5,970 3,904
General and administrative 8,442 6,686
---------- ----------
58,706 46,365
---------- ----------
Operating income 3,129 4,800
Other income (expense):
Interest - net 52 58
Minority interest (393) (452)
Other - net 968 97
---------- ----------
627 (297)
---------- ----------
Income before income taxes 3,756 4,503
Provision for income taxes 716 2,049
---------- ----------
Net income $ 3,040 $ 2,454
========== ==========
Earnings per common share:
Basic $ .20 $ .17
========== ==========
Diluted $ .20 $ .17
========== ==========
Weighted average number of common and common
equivalent shares outstanding:
Basic 15,000,947 14,385,980
========== ==========
Diluted 15,203,414 14,385,980
========== ==========
See accompanying notes to condensed consolidated financial statements.
3
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
(Unaudited)
Capital
Common Stock in Excess
---------------------- of Par Retained
Shares Par Value Value Earnings
---------- ---------- ---------- ----------
Balance, January 1, 1998 14,992,320 $ 750 $ 66,857 $ 54,276
Net income - - - 3,040
Collection of notes
receivable - - - -
Issuance of common stock
under employee benefit
plan 5,992 - 90 -
Exercise of stock options 7,500 - 68 -
Other comprehensive income -
foreign currency translation
adjustments - - - -
---------- --------- ---------- ----------
Balance, March 31, 1998 15,005,812 $ 750 $ 67,015 $ 57,316
========== ========== ========== ==========
CONTINUED-
Accumulated
Notes Other
Receivable Compre- Total
for hensive Stock-
Stock Income holders'
Purchases (Loss) Equity
---------- ---------- ----------
Balance, January 1, 1998 $ (2,084) $ (813) $ 118,986
Net income - - 3,040
Collection of notes
receivable 152 - 152
Issuance of common stock
under employee benefit
plan - - 90
Exercise of stock options - - 68
Other comprehensive income -
foreign currency translation
adjustments - 112 112
---------- ---------- ----------
Balance, March 31, 1998 $ (1,932) $ (701) $ 122,448
========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
4
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months
Ended March 31,
----------------------
1998 1997
---------- ----------
Cash flows from operating activities:
Net income $ 3,040 $ 2,454
Reconciliation of net income to cash
provided by (used in) operating activities:
Depreciation and amortization 5,970 3,904
(Gain) loss on sales and retirements (167) 32
Changes in operating assets and liabilities:
Accounts receivable (1,454) 976
Contract cost and recognized income not
yet billed (883) (1,221)
Prepaid expenses and other assets (1,791) (607)
Accounts payable and accrued liabilities (4,841) (1,684)
Accrued income taxes (662) 583
Contract billings in excess of cost and
recognized income (11,693) (2,639)
Other liabilities 48 84
---------- ----------
Cash provided by (used in) operating
activities (12,433) 1,882
Cash flows from investing activities:
Proceeds from sales of property and equipment 815 52
Purchase of property and equipment (1,929) (6,048)
Purchase of spare parts (2,577) (1,332)
---------- ----------
Cash used in investing activities (3,691) (7,328)
Cash flows from financing activities:
Proceeds from common stock 158 -
Proceeds from notes payable to banks 2,003 499
Repayments of long-term debt (3,000) -
Collection of notes receivable for stock
purchases 152 49
Repayment of notes payable to banks (1,836) (139)
Repayment of notes payable to former
shareholders (116) (116)
---------- ----------
Cash provided by (used in) financing
activities (2,639) 293
Effect of exchange rate changes on cash and
cash equivalents 112 -
---------- ----------
Cash used in all activities (18,651) (5,153)
Cash and cash equivalents, beginning of period 43,238 24,118
---------- ----------
Cash and cash equivalents, end of period $ 24,587 $ 18,965
========== ==========
See accompanying notes to condensed consolidated financial statements.
5
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements of Willbros
Group, Inc. and its majority-owned subsidiaries (the "Company")
reflect all adjustments which are, in the opinion of management,
necessary to present fairly the financial position, results of
operations and cash flows of the Company as of March 31, 1998, and
for all interim periods presented. All adjustments are normal
recurring accruals.
Certain information and footnote 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, 1997 audited
consolidated financial statements and notes thereto contained in
the Company's Annual Report to Stockholders for the year ended
December 31, 1997. The results of operations for the period ended
March 31, 1998, 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 revenues with expenses in the
same currency whenever possible. To the extent it is unable to
match non-U.S. currency revenues with expenses in the same
currency, the Company may use forward contracts, options or other
common hedging techniques in the same non-U.S. currencies. The
unrealized gains or losses on financial instruments used to hedge
currency risk are deferred and recognized when realized as an
adjustment to contract revenue.
3. Earnings Per Share
Basic and diluted earnings per common share for the three months
ended March 31, 1998 and 1997, are computed as follows:
1998 1997
---------- ----------
Net income applicable to common shares $ 3,040 $ 2,454
========== ==========
Weighted average number of common shares
outstanding for basic earnings per share 15,000,947 14,385,980
Effect of dilutive potential common shares
from stock options 202,467 -
---------- ----------
Weighted average number of common shares
outstanding for diluted earnings per share 15,203,414 14,385,980
========== ==========
Earnings per common share:
Basic $ .20 $ .17
========== ==========
Diluted $ .20 $ .17
========== ==========
6
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
4. Comprehensive Income
In the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." The standard requires reporting of comprehensive income,
which includes all changes in stockholders' equity other than
additional investments by stockholders or distributions to
stockholders. Comprehensive income for the Company includes net
income and foreign currency translation adjustments which are
charged or credited to the cumulative foreign currency translation
adjustment account within stockholders' equity. There were no
related tax effects associated with the Company's calculation of
comprehensive income. Comprehensive income for the three months
ended March 31, 1998 and 1997, consists of:
1998 1997
---------- ----------
Net income $ 3,040 $ 2,454
Other comprehensive income - foreign
currency translation adjustments 112 -
---------- ----------
Comprehensive income $ 3,152 $ 2,454
========== ==========
5. 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, government instability and legal
systems of decrees, laws, regulations, interpretations and court
decisions which are not always fully developed and which may be
retroactively applied. Management is not presently aware of any
events of the type described in the countries in which it operates
that have not been provided for in the accompanying condensed
consolidated financial statements. Based upon the advice of local
advisors in the various work countries concerning the
interpretation of the laws, practices and customs of the countries
in which it operates, management believes the Company has followed
the current practices in those countries; however, because of the
nature of these potential risks, there can be no assurance that the
Company may not be adversely affected by them in the future. The
Company insures substantially all of its equipment in countries
outside the United States against certain political risks and
terrorism.
The Company has the usual liability of contractors for the
completion of contracts and the warranty of its work. Where work
is performed through a joint venture, the Company also has possible
liability for the contract completion and warranty responsibilities
of its joint venturers. Management is not aware of any material
exposure related thereto which has not been provided for in the
accompanying condensed consolidated financial statements.
7
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
5. Contingencies, Commitments and Other Circumstances
(continued)
Certain post contract completion audits and reviews are being
conducted by clients and/or government entities. While there can be
no assurance that claims will not be received as a result of such
audits and reviews, management does not believe a legitimate basis
for any material claims exists. At the present time it is not
possible for management to estimate the likelihood of such claims
being asserted or, if asserted, the amount or nature thereof.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company derives its revenues 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 revenues
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 revenues. Revenues from fixed-
price construction and engineering contracts are recognized on the
percentage-of-completion method. Under this method, estimated
contract revenues are 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 revenues pertaining to reimbursables
are 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. Revenues from
unit-price contracts are recognized as earned. Revenues from change
orders, extra work, variations in the scope of work and claims are
recognized when realization is assured.
The Company derives its revenues 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 revenues are 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.
The Company recognizes anticipated contract revenues as backlog
when the award of a contract is reasonably assured. Anticipated
revenues 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, are not added to
backlog until their realization is assured. Backlog increased $8.7
million (6%) to $144.5 million during the quarter ended March 31,
1998. Total backlog consists of (a) construction backlog of $112.3
million, up $11.1 million (11%) from December 31, 1997; (b)
engineering backlog of $29.8 million, down $2.1 million (7%) from
December 31, 1997; and (c) specialty services backlog of $2.4
million, down $.3 million (11%) from December 31, 1997. The
increase in backlog consists of increases of $25.6 million in the
United States, $13.0 million in Ivory Coast, $7.0 million in
Cameroon, offset by decreases in backlog of $18.4 million in
Venezuela, $7.0 million in Indonesia, $6.8 million in Nigeria, $3.8
million in Oman, and $.9 million in Pakistan. New contract awards
totaled $71.6 million during the quarter ended March 31, 1998. New
contract awards consists of $54.0 million in construction backlog,
$10.9 million in engineering backlog and $6.7 million in specialty
services backlog.
9
Results of Operations
The Company's contract revenues and contract costs are
primarily related to the timing and location of development
projects in the oil and gas industry worldwide. Contract revenues
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 lines of business.
Three Months Ended March 31, 1998, Compared to Three Months Ended
March 31, 1997
Contract revenues increased $10.6 million (21%) to $61.8 million
due to (a) $24.1 million of additional construction revenues
resulting primarily from construction contracts in Venezuela and
Indonesia; offset by (b) a decrease of $12.6 million in specialty
services revenues principally in Nigeria; and (c) a decrease in
engineering revenues of $.9 million. Venezuela revenues increased
$20.6 million (540%) primarily due to the recognition of revenue
upon substantial completion of an offshore loading and storage
terminal and work on a pipeline contract that includes the
construction of 120 miles (200 kilometers) each of 36 inch and 20
inch pipelines. Indonesia revenues increased $5.5 million (389%)
primarily due to work on an 85 mile (135 kilometer) gas gathering
system and station in Sumatra. Nigeria revenues decreased $10.7
million (48%) primarily as a result of a reduction in specialty
services work attributable to delays in funding from the Nigerian
government which has caused a slowdown in the award of specialty
services projects. Revenues from Pakistan decreased $4.9 million
(79%) due to the substantial completion of an Engineering,
Procurement, and Construction contract.
Contract costs increased $8.5 million (24%) to $44.3 million due
to an increase of $15.0 million in construction services cost,
offset by a decrease of $3.0 million in engineering services cost
and a decrease of $3.5 million in specialty services cost.
Variations in contract cost by country were closely related to the
variations in contract revenues.
Depreciation and amortization increased $2.1 million to $6.0
million primarily due to additions made to the equipment fleet to
prepare for new contracts in Indonesia and Venezuela.
General and administrative expense increased $1.7 million to
$8.4 million to support the growth in worldwide activities.
Operating income decreased $1.7 million (35%) to $3.1 million.
The decrease was primarily attributable to (a) a decrease of $1.1
million in construction and specialty services primarily from the
realization of certain cost recoveries in 1997 that were not
repeated in the first quarter of 1998; and (b) a decrease of $.6
million in engineering operating income due the decrease in
engineering services activity.
Minority interest expense decreased 13% to $.4 million due to a
reduction of activity in countries where minority interest partners
were involved.
Other - net increased $.9 million to $1.0 million primarily as a
result of foreign exchange gains in Nigeria and Venezuela and the
sale of land in the United States.
The provision for income taxes decreased $1.3 million (65%) to
$.7 million primarily due to decreased activity in Nigeria and
Pakistan.
10
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 $18.6 million (43%) to $24.6
million at March 31, 1998, from $43.2 million at December 31, 1997.
The decrease was due to negative cash flows of $12.4 million from
operations (including a $21.3 million increase in working capital
required to support new construction projects), $3.6 million from
net capital expenditures for the purchase of equipment and spare
parts and $2.6 million from financing activities.
The Company has a $150.0 million credit agreement that matures
on February 20, 2003 and may be extended annually in one year
increments, subject to certain approvals, for up to two additional
years, with a syndicated bank group including ABN AMRO Bank N.V.,
as agent, and Credit Lyonnais, New York Branch, as co-agent. The
credit agreement provides for a $100.0 million revolving credit
facility, part of which can be used for acquisitions and equity
investments. The entire facility, less amounts used under the
revolving portions of the facility, may be used for standby and
commercial letters of credit. Principal is payable at termination
on all revolving loans except qualifying acquisition and equity
investment loans which are payable quarterly over the remaining
life of the credit agreement. Interest is payable quarterly at
prime or other alternative interest rates. A commitment fee is
payable quarterly based on an annual rate of 1/4% of the unused
portion of the credit facility. The Company's obligations under
the credit agreement are secured by the stock of the principal
subsidiaries of the Company. The credit agreement requires the
Company to maintain certain financial ratios, restricts the amount
of annual dividend payments to the greater of 25 cents per share or 25%
of net income and limits the Company's ability to purchase its own
stock. At March 31, 1998, outstanding letters of credit totaled
$33.8 million, leaving $116.2 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
$8.3 million at March 31, 1998.
The Company believes that cash flows from operations and
borrowing under existing credit facilities will be sufficient to
finance working capital and capital expenditures for ongoing
operations at least through the end of 1998. The Company estimates
capital expenditures for equipment and spare parts of approximately
$30 to $40 million during 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
Not applicable
Item 2. Changes in Securities and Use of Proceeds
- ------ -----------------------------------------
Not applicable
Item 3. Defaults upon Senior Securities
- ------- -------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
Not applicable
Item 5. Other Information
- ------- -----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits:
The following documents are included as exhibits to this Form 10-
Q. Those exhibits below incorporated by reference herein are
indicated as such by the information supplied in the parenthetical
thereafter. If no parenthetical appears after an exhibit, such
exhibit is filed herewith.
10 Separation Agreement dated February 20, 1998, by and
between Willbros USA, Inc. and Gary L. Bracken.
(Filed as Exhibit 10.21 to the Company's report on
Form 10-K for the year ended December 31, 1997, filed
March 27, 1998).
27 Financial Data Schedule.
(b) Reports on Form 8-K
There were no current reports on Form 8-K filed during the
three months ended March 31, 1998.
12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
WILLBROS GROUP, INC.
Date: May 15, 1998 By: /s/Melvin F. Spreitzer
-----------------------------
Melvin F. Spreitzer
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
13
EXHIBIT INDEX
The following documents are included as exhibits to this Form 10-
Q. Those exhibits below incorporated by reference herein are
indicated as such by the information supplied in the parenthetical
thereafter. If no parenthetical appears after an exhibit, such
exhibit is filed herewith.
Exhibit
Number Description
- ------------ ---------------------------------------------------
10 Separation Agreement dated February 20, 1998,
by and between Willbros USA, Inc. and Gary L.
Bracken. (Filed as Exhibit 10.21 to the Company's
report on Form 10-K for the year ended December 31,
1997, filed March 27, 1998).
27 Financial Data Schedule.