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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------------------------------------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
- -------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---
The number of shares of the registrant's Common Stock, $ .05
par value, outstanding as of November 10, 1998 was 14,313,468.
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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)
September December
30, 31,
1998 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 3,939 $ 43,238
Accounts receivable 58,619 57,005
Contract cost and recognized income
not yet billed 6,362 8,159
Prepaid expenses 3,487 4,022
---------- ----------
Total current assets 72,407 112,424
Spare parts, net 9,457 7,385
Property, plant and equipment, net 78,662 78,420
Other assets 4,670 2,973
---------- ----------
Total assets $ 165,196 $ 201,202
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 2,244 $ 5,341
Accounts payable and accrued liabilities 36,275 41,287
Accrued income taxes 6,094 5,171
Contract billings in excess of cost and
recognized income 6,869 21,062
---------- ----------
Total current liabilities 51,482 72,861
Deferred income taxes 200 200
Long-term debt - 3,233
Other liabilities 6,009 5,922
---------- ----------
Total liabilities 57,691 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; 14,312,551 shares
issued at September 30, 1998 (14,992,320 at
December 31, 1997) 753 750
Capital in excess of par value 67,537 66,857
Retained earnings 49,626 54,276
Treasury stock (745,000 shares at
September 30, 1998) (7,560) -
Notes receivable for stock purchases (1,793) (2,084)
Accumulated other comprehensive income (loss) (1,058) (813)
---------- ----------
Total stockholders' equity 107,505 118,986
---------- ----------
Total liabilities and stockholders' equity $ 165,196 $ 201,202
========== ==========
See accompanying notes to condensed consolidated financial statements.
2
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Contract revenues $ 65,962 $ 72,815 $ 206,549 $ 181,260
Operating expenses:
Contract 62,123 55,469 163,889 132,399
Depreciation and
amortization 6,635 4,807 18,947 13,002
General and administrative 6,877 7,295 23,639 21,200
---------- ---------- ---------- ----------
75,635 67,571 206,475 166,601
---------- ---------- ---------- ----------
Operating income (loss) (9,673) 5,244 74 14,659
Other income (expense):
Interest - net (184) 197 (387) 265
Minority interest (384) (479) (1,253) (1,418)
Other - net (656) 33 (473) 166
---------- ---------- ---------- ----------
(1,224) (249) (2,113) (987)
---------- ---------- ---------- ----------
Income (loss) before
income taxes (10,897) 4,995 (2,039) 13,672
---------- ---------- ---------- ----------
Provision for income taxes 581 1,112 2,611 4,310
---------- ---------- ---------- ----------
Net income (loss) $ (11,478) $ 3,883 $ (4,650) $ 9,362
========== ========== ========== ==========
Earnings (loss) per common
share:
Basic $ (.78) $ .27 $ (.31) $ .65
========== ========== ========== ==========
Diluted $ (.78) $ .27 $ (.31) $ .65
========== ========== ========== ==========
Weighted average number of
common shares outstanding:
Basic 14,675,887 14,394,633 14,906,501 14,390,062
========== ========== ========== ==========
Diluted 14,675,887 14,621,413 14,906,501 14,504,384
========== ========== ========== ==========
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 (loss) - - - (4,650)
Collection of notes
receivable - - - -
Issuance of common stock
under employee benefit plan 18,781 1 256 -
Exercise of stock options 46,450 2 424 -
Treasury stock purchases (745,000) - - -
Other comprehensive income
(loss) - foreign currency
translation adjustments - - - -
---------- ---------- ---------- ----------
Balance, September 30, 1998 14,312,551 $ 753 $ 67,537 $ 49,626
========== ========== ========== ==========
CONTINUED-
Accumulated
Notes Other
Receivable Compre- Total
for hensive Stock-
Treasury Stock Income holders'
Stock Purchases (Loss) Equity
---------- ---------- ---------- ----------
Balance, January 1, 1998 $ - $ (2,084) $ (813) $ 118,986
Net income (loss) - - - (4,650)
Collection of notes receivable - 291 - 291
Issuance of common stock
under employee benefit plan - - - 257
Exercise of stock options - - - 426
Treasury stock purchases (7,560) - - (7,560)
Other comprehensive income
(loss) - foreign currency
translation adjustments - - (245) (245)
---------- ---------- ---------- ----------
Balance, September 30, 1998 $ (7,560) $ (1,793) $ (1,058) $ 107,505
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
4
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months
Ended September 30,
----------------------
1998 1997
---------- ----------
Cash flows from operating activities:
Net income (loss) $ (4,650) $ 9,362
Reconciliation of net income (loss) to cash
provided by (used in) operating activities:
Depreciation and amortization 18,947 13,002
(Gain) loss on sales and retirements (247) 243
Changes in operating assets and liabilities:
Accounts receivable (1,614) (14,449)
Contract cost and recognized income
not yet billed 1,797 (3,689)
Prepaid expenses and other assets (1,162) (3,925)
Accounts payable and accrued liabilities (5,012) 6,131
Accrued income taxes 923 429
Contract billings in excess of cost and
recognized income (14,193) 17,773
Other liabilities 87 291
---------- ----------
Cash provided by (used in) operating
activities (5,124) 25,168
Cash flows from investing activities:
Proceeds from sales of property and equipment 1,351 65
Purchase of property and equipment (13,516) (23,902)
Purchase of spare parts (8,849) (5,410)
---------- ----------
Cash used in investing activities (21,014) (29,247)
Cash flows from financing activities:
Proceeds from common stock 683 124
Proceeds from notes payable to banks 7,160 2,482
Proceeds from long-term debt 14,000 -
Repayments of long-term debt (17,000) -
Collection of notes receivable for
stock purchases 291 864
Repayment of notes payable to banks (10,140) (1,242)
Purchase of treasury shares (7,560) -
Repayment of notes payable to former shareholders (350) (350)
---------- ----------
Cash provided by (used in)
financing activities (12,916) 1,878
Effect of exchange rate changes on cash and
cash equivalents (245) (244)
---------- ----------
Cash used in all activities (39,299) (2,445)
Cash and cash equivalents, beginning of period 43,238 24,118
---------- ----------
Cash and cash equivalents, end of period $ 3,939 $ 21,673
========== ==========
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 September 30, 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
September 30, 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. The Company had no significant
financial instruments to hedge currency risk at September 30, 1998.
3. Earnings Per Share
Basic and diluted earnings are computed as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Net income (loss)
applicable to
common shares $ (11,478) $ 3,883 $ (4,650) $ 9,362
========== ========== ========== ==========
Weighted average
number of common
shares outstanding for
basic earnings per share 14,675,887 14,394,633 14,906,501 14,390,062
Effect of dilutive
potential common shares
from stock options - 226,780 - 114,322
---------- ---------- ---------- ----------
Weighted average number
of common shares
outstanding for diluted
earnings per share 14,675,887 14,621,413 14,906,501 14,504,384
========== ========== ========== ==========
Earnings (loss) per
common share:
Basic $ (.78) $ .27 $ (.31) $ .65
========== ========== ========== ==========
Diluted $ (.78) $ .27 $ (.31) $ .65
========== ========== ========== ==========
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 periods ended
September 30, 1998 and 1997, consists of:
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Net income (loss) $ (11,478) $ 3,883 $ (4,650) $ 9,362
Other comprehensive
income (loss) -
foreign currency
translation adjustments (481) 540 (245) (244)
---------- ---------- ---------- ----------
Comprehensive income
(loss) $ (11,959) $ 4,423 $ (4,895) $ 9,118
========== ========== ========== ==========
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.
Low oil prices and the uncertainty as to when prices will
improve have recently had and continue to have a negative influence
on the Company's clients' capital spending plans. As a direct
result, the Company is experiencing reduced demand for its
services, especially specialty services. While the longer term
effect of lower oil prices on future construction activity is
unclear, the Company does not anticipate that any of the projects
in its current backlog will be deferred or cancelled. However, a
number of projects the Company has been following in Asia have been
delayed. Adverse weather and start-up costs have also impacted
operations during the quarter ended September 30, 1998.
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 reasonably assured. New contract
awards totaled $29.6 million during the quarter ended September 30,
1998. Additions to backlog during the third quarter are as
follows: construction, $10.9 million; engineering, $9.3 million;
and specialty services, $9.4 million. Backlog decreases by line of
business are as follows: construction, $40.1 million; engineering,
$21.1 million; and specialty services, $6.9 million. Backlog at
the end of the third quarter stood at $144.7 million, down
$38.5 million (21%) from the second quarter, and consisted of the
following: (a) construction, $44.3 million, down $29.2 million
(40%); (b) engineering, $13.9 million, down $11.8 million (46%);
and (c) specialty services, $86.5 million, up $2.5 million (3%).
Specialty services backlog is primarily attributable to two major
contracts:
9
a sixteen year water injection contract awarded to a consortium in
which the Company has a 10% interest in Venezuela and a three year
dredging contract in Nigeria.
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.
The Company anticipates that market conditions in its
businesses will remain constricted for some time due to low oil
prices and other factors. The Company's goal is to report
breakeven financial results for the fourth quarter of 1998, but
achieving that objective is by no means certain. In anticipation
of continuing unfavorable market conditions and a possible
reduction in its 1999 revenues, the Company is taking steps to
bring its 1999 cost structure in line with the level of its
expected business activity.
Three Months Ended September 30, 1998, Compared to Three Months
Ended September 30, 1997
Contract revenues decreased $6.9 million (9%) to $65.9 million
due to (a) a decrease of $8.4 million in engineering revenues
resulting primarily from reduced activity in the United States; and
(b) a decrease in specialty services revenues of $7.3 million,
primarily in Nigeria; offset by (c) an increase of $8.8 million in
construction revenues, principally in the United States. Nigeria
revenues decreased $8.6 million (46%), primarily in specialty
services work as a result of delays in funding from the Nigerian
government and low oil prices which have caused the Company's
clients to defer maintenance activities. The Company has seen
early indications that the Nigerian government is taking steps
toward resolving the funding issues; but if low oil prices persist,
it is unclear as to when specialty services activities in Nigeria
will return to historical levels. Indonesian revenues decreased
$3.9 million (33%) due to substantial completion of a project.
Revenues in Oman decreased $2.5 million primarily because of
reduced construction work. Pakistan revenues decreased
$1.1 million (141%) due to completion of an Engineering,
Procurement, and Construction contract. Revenues in the Ivory
Coast increased $4.9 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. Revenues from Venezuela increased
$2.0 million (21%) due to work on the construction of 120 miles
(200 kilometers) each of 36-inch and 20-inch pipelines. Revenues
in the United States increased $2.0 million principally due to work
performed on a 94-mile (150-kilometer) 36-inch natural gas pipeline
in Iowa.
Contract costs increased $6.6 million (12%) to $62.1 million due
to an increase of $13.4 million in construction services cost,
resulting from an increase in costs on construction projects in the
United States and Venezuela and start-up costs associated with an
offshore construction project in Cameroon, offset by a decrease of
$5.5 million in engineering services cost and a decrease of
$1.3 million in specialty services cost. Variations in contract
cost by country were closely related to the variations in contract
revenues.
Depreciation and amortization increased $1.8 million to
$6.6 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 expense decreased $ .5 million to
$6.8 million primarily as a result of reduced incentive
compensation costs.
Operating income (loss) decreased $14.9 million to a loss of
$9.6 million from operating income of $5.3 million in 1997. The net
loss for the quarter ended September 30, 1998 is primarily due to a
significant decrease in specialty service activity, an increase in
costs on construction projects in the United States and Venezuela
and start-up costs associated with an offshore construction project
in Cameroon.
Interest - net decreased to expense of $ .2 million due to
increased borrowings to meet working capital requirements.
Other - net decreased $ .6 million to $ .6 million expense
primarily as a result of foreign exchange losses in Venezuela.
10
The provision for income taxes decreased $ .5 million (45%) to
$ .6 million primarily due to decreased activity in certain work
countries and a tax refund.
Nine Months Ended September 30, 1998, Compared to Nine Months
Ended September 30, 1997
Contract revenues increased $25.2 million (14%) to
$206.5 million due to (a) $64.8 million of additional construction
revenues resulting primarily from construction contracts in
Venezuela, the United States, the Ivory Coast and Indonesia; offset
by (b) a decrease of $23.8 million in specialty services revenues,
principally in Nigeria; and (c) a decrease in engineering revenues
of $15.8 million due to less engineering services work in the
United States and Pakistan. Venezuela revenues increased
$43.0 million (262%), primarily due to work on a pipeline contract
that includes the construction of 120 miles (200 kilometers) each
of 36-inch and 20-inch pipelines and revenue from a transport
services contract. United States revenues increased $6.1 million
(10%), primarily due to work performed on a 94-mile (150-kilometer)
36-inch natural gas pipeline in Iowa. Ivory Coast revenues
increased $5.3 million due to work on 46 miles (74 kilometers) of
dual 4-inch and 12-inch pipelines and an 8-mile (13-kilometer)
12-inch pipeline. Indonesia revenues increased $4.8 million (26%),
primarily due to work on a 35-mile (55-kilometer) 42-inch pipeline
in Kalimantan. Nigeria revenues decreased $23.9 million (40%), most
of which was specialty services work, primarily as a result of
delays in funding from the Nigerian government, low oil prices
which have caused the Company's clients to slow down the award of
specialty services maintenance projects and the realization of
certain cost recoveries in 1997 which were not repeated in 1998.
The Company has seen early indications that the Nigerian government
is taking steps toward resolving the funding issues; but if low oil
prices persist, it is unclear as to when specialty services
activities in Nigeria will return to historical levels. Revenues
from Pakistan decreased $9.3 million (85%) due to the completion of
an Engineering, Procurement, and Construction contract. Oman
revenues decreased $ .6 million (3%) due to reduced specialty
services work.
Contract costs increased $31.5 million (24%) to $163.9 million
due to an increase of $59.5 million in construction services cost,
offset by a decrease of $20.4 million in engineering services cost
and a decrease of $7.6 million in specialty services cost.
Variations in contract cost by country were closely related to the
variations in contract revenues.
Depreciation and amortization increased $5.9 million to
$18.9 million, primarily due to additions made to the equipment
fleet to prepare for new contracts in Venezuela, Indonesia, the
Ivory Coast and the United States.
General and administrative expense increased $2.4 million to
$23.6 million to support prospective growth in worldwide
activities.
Operating income decreased $14.6 million (99%) to $ .1 million.
The decrease was primarily attributable to a decrease in specialty
services revenues, principally in Nigeria.
Interest - net decreased $ .7 million to $ .4 million expense
due to increased borrowings to meet working capital requirements.
Other - net decreased $ .5 million to $ .4 million expense,
primarily as a result of foreign exchange losses in Venezuela.
The provision for income taxes decreased $1.7 million (39%) to
$2.6 million, primarily due to decreased activity in Nigeria and
Pakistan.
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 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 $39.3 million (91%) to
$3.9 million at September 30, 1998, from $43.2 million at December
31, 1997. The decrease was due to negative cash flows of
$5.1 million from
11
operations (including a $19.4 million increase in working capital
required to support construction projects), $21.0 million from net
capital expenditures for the purchase of equipment and spare parts
and $13.2 million from financing activities, including $7.6 million
used to repurchase 745,000 shares of common stock.
The Company has a $150.0 million credit agreement that matures
on February 20, 2003 and may be extended annually in one year
increments, subject to certain approvals, for up to two additional
years, with a syndicated bank group including ABN AMRO Bank N.V.,
as agent, and Credit Lyonnais, New York Branch, as co-agent. The
credit agreement provides for a $100.0 million revolving credit
facility, part of which can be used for acquisitions and equity
investments. The entire facility, less amounts used under the
revolving portions of the facility, may be used for standby and
commercial letters of credit. Principal is payable at termination
on all revolving loans except qualifying acquisition and equity
investment loans which are payable quarterly over the remaining
life of the credit agreement. Interest is payable quarterly at
prime or other alternative interest rates. A commitment fee is
payable quarterly based on an annual rate of 1/4% of the unused
portion of the credit facility. The Company's obligations under
the credit agreement are secured by the stock of the principal
subsidiaries of the Company. The credit agreement requires the
Company to maintain certain financial ratios, restricts the amount
of annual dividend payments to the greater of 25 cents per share or
25% of net income and limits the Company's ability to purchase its
own stock. At September 30, 1998, outstanding letters of credit
totaled $13.6 million, leaving $136.4 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
$11.1 million at September 30, 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
$20 to $30 million during 1998.
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. As of September 30, 1998, 745,000 shares had been
purchased at an average price of $10.15 per share. Subsequent to
September 30, 1998, the Company's Board of Directors approved to
include, and the Company's credit agreement was amended to permit
the buy back of an additional $8.8 million of its Common Stock.
New Accounting Standards
In May 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities," which is effective for fiscal years
beginning after December 15, 1998. This statement requires that
start-up costs and organization costs be expensed as they are
incurred. The Company does not believe this statement will have a
material impact on its consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 1999. This
standard requires that all derivatives be recognized on the balance
sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through earnings. Derivatives that are
hedges must be adjusted to fair value, depending on the nature of
the hedge, either through earnings as an offset against the change
in fair value of the hedged assets, liabilities, or firm
commitments or recognized in other comprehensive income until the
hedged item is recognized in earnings. The Company does not believe
adoption of this standard will have a material impact on its
consolidated financial statements.
12
Year 2000 Compliance
During 1997, the Company initiated an enterprise-wide program to
prepare its computer systems and applications for the year 2000.
Certain critical systems and applications have been identified
which are unable to accurately process information containing dates
beginning in the year 2000. The Company plans to modify, replace
or outsource these systems and applications before the year 2000.
The cost of modification or outsourcing is expensed; the cost of
replacement systems is capitalized.
The Company is utilizing both internal and external resources to
identify, correct, and test its systems for Year 2000 compliance.
The Company anticipates that the majority of its reprogramming and
testing will be substantially completed by September 30, 1999, and
all critical systems are expected to be Year 2000 compliant prior
to the end of the 1999 calendar year.
Because third party failures could impact the Company's ability
to conduct business, the Company is making every reasonable effort
to assess the Year 2000 readiness of its suppliers and customers
and creating action plans to address the identified risks. The
Company is obtaining certifications from substantially all of its
suppliers and customers providing evidence of their readiness to
handle Year 2000 issues. These certifications are being assessed
by the Company, and are being categorized based on Year 2000
compliance and prioritized in order of significance to the business
of the Company. To the extent possible, contingency plans will be
developed for business-critical suppliers and customers.
The Company anticipates that it will have substantially
completed an assessment of the Year 2000 compliance status of all
its information technology and non-information technology equipment
by December 31, 1998, and will then address the need, if any, to
upgrade or replace equipment.
Testing and remediation of all of the Company's critical systems
and applications are expected to cost approximately $2.7 million
from inception in calendar year 1997 through substantial completion
in calendar year 1999, of which approximately $2.0 million is
expected to be capitalized. Of these costs, approximately
$ .5 million was incurred through September 30, 1998.
Approximately $ .3 million is expected to be incurred in the fourth
quarter of 1998, and the remaining $1.9 million is expected to be
incurred in 1999. All estimated costs have been budgeted and are
expected to be funded by cash flows from operations.
The cost of the Year 2000 compliance project and the date on
which the Company plans to complete the Year 2000 modifications are
based on management's best estimates, which were derived utilizing
numerous assumptions of future events including the availability of
internal and external resources, finalization of modification
plans, and other factors, some of which are outside the control of
the Company. Unanticipated failures by critical suppliers and
customers, as well as the failure by the Company to timely execute
its own remediation efforts or outsourcing, could have an adverse
effect on the cost of the Year 2000 project and its completion
date. Because of these uncertainties, there can be no assurance
that these forward-looking estimates will be achieved.
Forward-Looking Statements
This Form 10-Q includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements, other than statements of historical facts, included
in this Form 10-Q which address activities, events or developments
which the Company expects or anticipates will or may occur in the
future, including such things as future capital expenditures
(including the amount and nature thereof), oil and gas prices and
demand, expansion and other development trends of the oil and gas
industry, business strategy, expansion and growth of the Company's
business and operations, and other such matters are forward-looking
statements. These statements are based on certain assumptions and
analyses made by the Company in light of its experience and its
perception of historical trends, current conditions and expected
future developments as well as other factors it believes are
appropriate in the circumstances. However, whether actual results
and developments will conform with the Company's expectations and
predictions is subject to a number of risks
13
and uncertainties which could cause actual results to differ
materially from the Company's expectations including the timely
award of one or more projects; cancellation of projects; weather;
exceeding project cost and scheduled targets; failing to realize
cost recoveries from projects completed or in progress within a
reasonable period after completion of the relevant project;
identifying and acquiring suitable acquisition targets on
reasonable terms; the demand for energy diminishing; political
circumstances impeding the progress of work; general economic,
market or business conditions; changes in laws or regulations; the
availability of internal and external resources; the timely
execution of remediation, outsourcing or replacement of systems and
applications; the risk factors listed from time to time in the
Company's reports filed with the Securities and Exchange
Commission; and other factors, most of which are beyond the control
of the Company. Consequently, all of the forward-looking
statements made in this Form 10-Q are qualified by these cautionary
statements and there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even
if substantially realized, that they will have the expected
consequences or effects on the Company or its business or
operations. The Company assumes no obligation to update publicly
any such forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
14
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.
3.1 Certificate of Amendment to the Articles of Incorporation of
the Company.
3.2 Amended and Restated Articles of Incorporation of
the Company.
27 Financial Data Schedule.
(b) Reports on Form 8-K
There were no current reports on Form 8-K filed during the three
months ended September 30, 1998.
15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
WILLBROS GROUP, INC.
Date: November 16, 1998 By: /s/ Melvin F. Spreitzer
-------------------------------
Melvin F. Spreitzer
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
16
EXHIBIT INDEX
The following documents are included as exhibits to this Form 10-Q.
Exhibit
Number Description
- ------------ ------------------------------------------------------------
3.1 Certificate of Amendment to the Articles of Incorporation of
the Company.
3.2 Amended and Restated Articles of Incorporation of
the Company.
27 Financial Data Schedule.