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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, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ------ SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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
----------- ----------
The number of shares of the registrant's Common Stock, $.05 par
value, outstanding as of November 10, 1999 was 12,941,010.
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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 30, December 31,
1999 1998
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,421 $ 8,247
Accounts receivable 53,038 40,018
Contract cost and recognized income
not yet billed 2,625 8,022
Prepaid expenses 3,885 3,963
------------- ------------
Total current assets 65,969 60,250
Spare parts, net 7,328 9,666
Property, plant and equipment, net 63,091 85,010
Other assets 8,500 5,013
------------- ------------
Total assets $ 144,888 $ 159,939
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ - $ 758
Accounts payable and accrued liabilities 33,707 35,352
Accrued income taxes 5,516 5,654
Contract billings in excess of cost and
recognized income 20,049 4,991
------------- ------------
Total current liabilities 59,272 46,755
Other liabilities 6,547 6,250
------------- ------------
Total liabilities 65,819 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;
15,112,336 shares issued at
September 30, 1999
(15,071,715 at December 31, 1998) 756 753
Capital in excess of par value 67,864 67,613
Retained earnings 28,964 49,914
Treasury stock at cost, 2,175,371 shares
at September 30, 1999
(927,716 at December 31, 1998) (16,164) (8,590)
Notes receivable for stock purchases (479) (982)
Accumulated other comprehensive income (loss) (1,872) (1,774)
------------- ------------
Total stockholders' equity 79,069 106,934
------------- ------------
Total liabilities and stockholders' equity $ 144,888 $ 159,939
============= ============
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 Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Contract revenues $ 42,650 $ 65,962 $ 112,728 $ 206,549
Operating expenses:
Contract 33,515 62,123 95,367 163,889
Depreciation and
amortization 5,262 6,635 16,436 18,947
General and administrative 5,805 6,877 20,609 23,639
---------- ---------- ---------- ----------
44,582 75,635 132,412 206,475
---------- ---------- ---------- ----------
Operating income (loss) (1,932) (9,673) (19,684) 74
Other income (expense):
Interest - net 120 (184) 664 (387)
Minority interest (460) (384) (1,156) (1,253)
Other - net (982) (656) 1,720 (473)
---------- ---------- ---------- ----------
(1,322) (1,224) 1,228 (2,113)
---------- ---------- ---------- ----------
Loss before
income taxes (3,254) (10,897) (18,456) (2,039)
Provision for income taxes 1,036 581 2,494 2,611
---------- ---------- ---------- ----------
Net Loss $ (4,290) $ (11,478) $ (20,950) $ (4,650)
========== ========== ========== ==========
Earnings (loss) per
common share:
Basic $ (.33) $ (.78) $ (1.60) $ (.31)
========== ========== ========== ==========
Diluted $ (.33) $ (.78) $ (1.60) $ (.31)
========== ========== ========== ==========
Weighted average number of
common shares outstanding:
Basic 12,932,898 14,675,887 13,058,181 14,906,501
========== ========== ========== ==========
Diluted 12,932,898 14,675,887 13,058,181 14,906,501
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
3
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
(Unaudited)
Common Stock
----------------------
Shares Par Value
---------- ----------
Balance,
January 1, 1999 15,071,715 $ 753
Comprehensive
income (loss):
Net loss - -
Foreign currency
translation
adjustments - -
Total compre-
hensive
income
(loss)
Collection of notes
receivable - -
Issuance of common
stock under
employee
benefit plan 40,121 3
Exercise of
stock options 500 -
Treasury stock
purchases - -
---------- ----------
Balance,
September 30, 1999 15,112,336 $ 756
========== ==========
- -CONTINUED-
Capital
in Excess
of Par Retained Treasury
Value Earnings Stock
---------- ---------- ----------
Balance,
January 1, 1999 $ 67,613 $ 49,914 $ (8,590)
Comprehensive
income (loss):
Net Loss - (20,950) -
Foreign currency
translation
adjustments - - -
Total compre-
hensive
income
(loss)
Collection of notes
receivable - - -
Issuance of common
stock under
employee
benefit plan 248 - -
Exercise of
stock options 3 - -
Treasury stock
purchases - - (7,574)
---------- ---------- ----------
Balance,
September 30, 1999 $ 67,864 $ 28,964 $ (16,164)
========== ========== ==========
- -CONTINUED-
Accumulated
Notes Other
Receivable Compre- Total
for hensive Stock-
Stock Income holders'
Purchases (Loss) Equity
---------- ---------- ----------
Balance,
January 1, 1999 $ (982) $ (1,774) $ 106,934
Comprehensive
income (loss):
Net Loss - - (20,950)
Foreign currency
translation
adjustments - (98) (98)
----------
Total compre-
hensive
income
(loss) (21,048)
Collection of notes
receivable 503 - 503
Issuance of common
stock under
employee
benefit plan - - 251
Exercise of
stock options - - 3
Treasury stock
purchases - - (7,574)
---------- ---------- ----------
Balance,
September 30, 1999 $ (479) $ (1,872) $ 79,069
========== ========== ==========
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,
----------------------
1999 1998
---------- ----------
Cash flows from operating activities:
Net Loss $ (20,950) $ (4,650)
Reconciliation of net loss to cash used in
operating activities:
Depreciation and amortization 16,436 18,947
Gain on sales and retirements (2,714) (247)
Changes in operating assets and liabilities:
Accounts receivable (13,020) (1,614)
Contract cost and recognized income not
yet billed 5,397 1,797
Prepaid expenses and other assets (3,409) (1,162)
Accounts payable and accrued liabilities (1,645) (5,012)
Accrued income taxes (138) 923
Contract billings in excess of cost and
recognized income 15,058 (14,193)
Other liabilities 297 87
---------- ----------
Cash used in operating activities (4,688) (5,124)
Cash flows from investing activities:
Proceeds from sales of property and equipment 16,329 1,351
Purchase of spare parts (3,524) (8,849)
Purchase of property and equipment (2,270) (13,516)
---------- ----------
Cash provided by (used in)
investing activities 10,535 (21,014)
Cash flows from financing activities:
Collection of notes receivable for
stock purchases 503 291
Proceeds from common stock 254 683
Proceeds from long-term debt - 14,000
Proceeds from notes payable to banks - 7,160
Purchase of treasury shares (7,574) (7,560)
Repayment of notes payable to banks (525) (10,140)
Repayment of notes payable to former shareholders (233) (350)
Repayments of long-term debt - (17,000)
---------- ----------
Cash used in financing activities (7,575) (12,916)
Effect of exchange rate changes on cash and
cash equivalents (98) (245)
---------- ----------
Cash used in all activities (1,826) (39,299)
Cash and cash equivalents, beginning
of period 8,247 43,238
---------- ----------
Cash and cash equivalents, end of period $ 6,421 $ 3,939
========== ==========
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, 1999,
and for all interim periods presented. All adjustments are normal
recurring accruals.
Certain information and disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These
condensed consolidated financial statements should be read in
conjunction with the Company's December 31, 1998 audited
consolidated financial statements and notes thereto contained in
the Company's Annual Report to Stockholders for the year ended
December 31, 1998. The results of operations for the period ended
September 30, 1999, are not necessarily indicative of the operating
results to be achieved for the full year.
2. Foreign Exchange Risk
The Company attempts to negotiate contracts which provide for
payment in U.S. dollars, but it may be required to take all or a
portion of payment under a contract in another currency. To
mitigate non-U.S. currency exchange risk, the Company seeks to
match anticipated non-U.S. currency revenue with expenses in the
same currency whenever possible. To the extent it is unable to
match non-U.S. currency revenue with expenses in the same currency,
the Company may use forward contracts, options or other common
hedging techniques in the same non-U.S. currencies. The unrealized
gains or losses on financial instruments used to hedge currency
risk are deferred and recognized when realized as an adjustment to
contract revenue.
3. Earnings Per Share
Basic and diluted earnings (loss) per common share for the
three month and nine month periods ended September 30, 1999 and 1998,
are computed as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net loss applicable to
common shares $ (4,290) $ (11,478) $ (20,950) $ (4,650)
========== ========== ========== ==========
Weighted average number
of common shares
outstanding for basic
earnings per share 12,932,898 14,675,887 13,058,181 14,906,501
Effect of dilutive
potential common shares
from stock options - - - -
---------- ---------- ---------- ----------
Weighted average number
of common shares
outstanding for diluted
earnings per share 12,932,898 14,675,887 13,058,181 14,906,501
========== ========== ========== ==========
Earnings (loss) per
common share:
Basic $ (.33) $ (.78) $ (1.60) $ (.31)
========== ========== ========== ==========
Diluted $ (.33) $ (.78) $ (1.60) $ (.31)
========== ========== ========== ==========
6
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
3. Earnings Per Share (continued)
At September 30, 1999, there were 1,070,550 potential
common shares excluded from the computation of diluted earnings
(loss) per share because of their anti-dilutive effect.
4. Comprehensive Income
Comprehensive income for the Company includes net 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,
1999 and 1998, consists of:
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net loss $ (4,290) $ (11,478) $ (20,950) $ (4,650)
Other comprehensive
income (loss) - foreign
currency translation
adjustments - (481) (98) (245)
---------- ---------- ---------- ----------
Comprehensive income
(loss) $ (4,290) $ (11,959) $ (21,048) $ (4,895)
========== ========== ========== ==========
5. Contingencies, Commitments and Other Circumstances
The Company operates in a single operating segment providing
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 revenue from providing construction,
engineering and specialty services to the oil and gas industry and
government entities worldwide. The Company obtains contracts for
its work primarily by competitive bidding or through negotiations
with long-standing clients. Bidding activity, backlog and revenue
resulting from the award of contracts to the Company may vary
significantly from period to period.
A number of factors relating to the Company's business affect
the Company's recognition of contract revenue. Revenue from fixed-
price construction and engineering contracts is recognized on the
percentage-of-completion method. Under this method, estimated
contract revenue is accrued based generally on the percentage that
costs to date bear to total estimated costs, taking into
consideration physical completion. Generally, the Company does not
recognize income on a fixed-price contract until the contract is
approximately 10% complete. Costs which are considered to be
reimbursable are excluded before the percentage-of-completion
calculation is made. Accrued revenue pertaining to reimbursables is
limited to the cost of the reimbursables. If a current estimate of
total contract cost indicates a loss on a contract, the projected
loss is recognized in full when determined. Revenue from unit-price
contracts is recognized as earned. Revenue from change orders,
extra work, variations in the scope of work and claims is
recognized when realization is assured.
The Company derives its revenue from contracts with durations
from a few weeks to several months or in some cases more than a
year. Unit-price contracts provide relatively even quarterly
results; however, major projects are usually fixed-price contracts
that may result in uneven quarterly financial results due to the
nature of the work and the method by which revenue is recognized.
These financial factors, as well as external factors such as
weather, client needs, client delays in providing approvals, labor
availability, governmental regulation and politics, may affect the
progress of a project's completion and thus the timing of revenue
recognition. The Company believes that its operating results should
be evaluated over a relatively long time horizon during which major
contracts in progress are completed and change orders, extra work,
variations in the scope of work and cost recoveries and other
claims are negotiated and realized.
Recent low oil prices have had and continue to have a negative
influence on client capital spending plans. As a direct result,
the Company is experiencing reduced demand for its services,
especially high margin construction and specialty services. The
Company, however, 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 have been
delayed, and the Company expects revenue in 1999 to be below that
of 1998. With the recent increase in the price of oil, the Company
believes its clients will begin to increase their capital spending
budgets in 2000.
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 oilfield services
companies sustaining similar problems. While the disturbance has
interfered with the Company's operations, progress on some ongoing
projects has not been halted. The Nigerian government has
intervened and is restoring 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 37 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.
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 $15.0 million during the quarter ended September 30,
1999. Additions to backlog during the period are as follows:
construction, $3.1 million; engineering, $6.8 million; and
specialty services, $5.1 million. Backlog decreases by type of
9
service are as follows: construction, $36.4 million; engineering,
$11.9 million; and specialty services, $7.5 million. Backlog at
the end of the quarter was down $40.8 million (14%) to $249.8
million and consisted of the following: (a) construction, $172.4
million, down $33.3 million (16%); (b) engineering, $6.8 million,
down $5.1 million (43%); and (c) specialty services, $70.6 million,
down $2.4 million (3%). Construction backlog consists primarily of
engineering, procurement and construction projects in Nigeria and a
construction project in Australia. Specialty services backlog is
primarily attributable to two major contracts: a 16-year water
injection contract awarded in 1998 to a consortium in which the
Company has a 10% interest in Venezuela and a three-year dredging
contract awarded in 1998 in Nigeria.
Results of Operations
The Company's contract revenue and contract costs are primarily
related to the timing and location of development projects in the
oil and gas industry worldwide. Contract revenue and cost
variations by country from year to year are the result of (a)
entering new countries as part of the Company's strategy for
geographical diversification, (b) the execution of new contract
awards, (c) the completion of contracts, and (d) the overall level
of activity in the Company's services.
The Company's ability to be successful in obtaining and
executing contracts can be affected by the relative strength or
weakness of the U.S. dollar compared to the currencies of its
competitors, its clients and its work locations. The Company does
not believe that its revenue or results of operations were
adversely affected in this regard during the periods ended
September 30, 1999 or 1998.
Three Months Ended September 30, 1999, Compared to Three Months
Ended September 30, 1998
Contract revenue decreased $23.3 million (35%) to $42.6 million
due to (a) $14.7 million of decreased construction revenue
resulting primarily from the completion of construction contracts
in Venezuela, the Ivory Coast, Indonesia and the United States; and
(b) decreased engineering revenue of $9.2 million due to a
reduction of engineering services in the United States; offset by
(c) an increase of $0.6 million in specialty services revenue
principally from service contracts in Venezuela. Venezuela revenue
decreased $3.3 million (30%) due to the completion in 1998 of an
offshore loading and storage terminal and a pipeline construction
contract. Indonesia revenue decreased $7.5 million (97%) due to
the substantial completion in 1998 of construction projects in that
country. Oman revenue decreased $0.5 million (21%) primarily due
to the completion in 1998 of work on various pipeline projects.
Revenue in the United States decreased $18.4 million (62%)
primarily due to reductions in engineering services, and
substantial completion in 1998 of a 94-mile (150-kilometer) 36-inch
natural gas pipeline in Iowa. Nigeria revenue increased $9.1
million (121%) due to revenue being recognized on a pipeline
engineering, procurement and construction project started in 1999,
offset by the completion in 1998 of a contract for the construction
of a liquid natural gas pipeline. Offshore West Africa revenue
decreased $2.6 million due to a decline in offshore services.
Specialty services work, while showing improvement, remains below
historical levels as a result of continuing delays in funding to
our clients from the Nigerian government, recent low oil prices
which have caused the Company's clients to defer maintenance
activities, and civil unrest. The Company has seen some
indications that the Nigerian government is taking steps toward
resolving the funding issues in light of higher oil prices, but it
is unclear as to when specialty services activities in Nigeria will
return to historical levels. Revenue from the Ivory Coast
decreased $5.4 million due to completion of work on 46 miles
(74 kilometers) of dual 4-inch and 12-inch pipelines and an 8-mile
(13-kilometer) 12-inch pipeline. Australia revenue increased $5.2
million (100%) due to a new construction contract.
Contract costs decreased $28.6 million (46%) to $33.5 million
due to a decrease of $22.0 million in construction services cost
and a decrease of $9.0 million in engineering services cost, offset
by an increase of $2.6 million in specialty services cost.
Specialty services cost increased primarily due to operating
overhead costs related to underutilized equipment and facilities.
Variations in contract cost by country were closely related to the
variations in contract revenue.
Depreciation and amortization decreased $1.4 million (21%) to
$5.3 million primarily due to the sale of excess equipment in
Venezuela, Indonesia, Ivory Coast, and Oman.
10
General and administrative expense decreased $1.1 million (16%) to
$5.8 million due to decreased activity, principally in engineering
services and in Venezuela, and a decrease in administrative expense
in the United States.
Operating loss decreased $7.0 million (80%) to an operating loss
of $1.9 million. The improvement is attributable to the increase
in revenues in Nigeria and the recognition in 1998 of increases in
costs on construction projects in the United States and Venezuela.
Interest - net increased to income of $0.1 million from expense
of $0.2 million in 1998 due to a decrease in work country
borrowings.
Other - net decreased $0.3 million to expense of $1.0 million
due to costs associated with pursuing mergers and acquisitions.
The provision for income taxes increased $0.4 million (67%) due
primarily to the receipt in 1998 of state income tax refunds in the
United States. The effective income tax rate at September 30, 1999
exceeds 100% of income before income taxes because income taxes in
certain countries are based on revenue and because losses in
certain countries cannot be used to offset taxable income in other
countries.
Nine Months Ended September 30, 1999, Compared to Nine Months
Ended September 30, 1998
Contract revenues decreased $93.8 million (45%) to $112.7
million due to (a) $78.5 million of reduced construction revenues
resulting primarily from completion of construction contracts in
Venezuela, Indonesia, Oman and the United States; and (b) a
decrease in engineering revenues of $21.9 million due to less
engineering services work in the United States; offset by (c) an
increase of $6.6 million in specialty services revenues,
principally in Nigeria. Venezuela revenues decreased $42.5 million
(72%) primarily 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, completion of a transport
services contract, and substantial completion of an offshore
loading and storage terminal. Indonesia revenues decreased $19.9
million (86%) primarily due to completion of work on a 35-mile (55-
kilometer) 42-inch pipeline in Kalimantan. United States revenues
decreased $34.5 million (52%) primarily due to completion of work
on a 94-mile (150-kilometer) 36-inch natural gas pipeline in Iowa,
and reduced engineering services work in the United States. Oman
revenues decreased $9.4 million (61%) due to completion of
construction work on three pipeline construction contracts and a
pressure reducing terminal. Nigeria revenues increased $15.1
million (46%) primarily due to revenue being recognized on a
pipeline engineering, procurement and construction project started
in 1999. Ivory Coast revenue decreased $3.6 million (68%) due to
completion of work on 46 miles (74 kilometers) of dual 4-inch and
12-inch pipelines and an 8-mile (13-kilometer) 12-inch pipeline.
Offshore West Africa revenue decreased $2.7 million due to a
decline in offshore services. Revenues from Pakistan decreased
$1.8 million (100%) due to the completion of an engineering,
procurement and construction contract. Australia revenue increased
$5.3 million (100%) due to a new construction contract.
Contract costs decreased $68.5 million (42%) to $95.4 million
due to a decrease of $60.5 million in construction services cost
and a decrease of $22.3 million in engineering services cost,
offset by an increase of $14.3 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 revenues.
Depreciation and amortization decreased $2.5 million to $16.4
million primarily due to the sale of excess equipment in Venezuela,
Indonesia, and Oman.
General and administrative expense decreased $3.0 million to
$20.6 million due to decreased activity, principally in the United
States, Venezuela and Indonesia.
Operating income decreased $19.8 million to an operating loss of
$19.7 million. The decrease is attributable to a 45% decrease in
revenues 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.
11
Interest - net increased $1.1 million to $0.7 million income due
to increased short-term investments during 1999 and reduced
borrowing in the work countries.
Other - net increased $2.2 million to $1.7 million income,
primarily as a result of gains from the sale of excess equipment in
Venezuela, the United States, Indonesia, and Oman, offset by costs
associated with pursuing mergers and acquisitions and reduced
foreign exchange expense.
The provision for income taxes decreased $0.1 million (4%) to
$2.5 million primarily due to decreased activity in Venezuela, the
United States and Indonesia.
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 $1.8 million (22%) to $6.4
million at September 30, 1999, from $8.2 million at December 31,
1998. The decrease was due to negative cash flows of $4.7 million
from operations and $7.6 million used in financing activities to
purchase 1,247,655 shares of treasury stock; offset by $10.5
million from sales of equipment, net of capital expenditures for
the purchase of equipment and spare parts.
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, 1999, outstanding letters of credit
totaled $51.6 million, leaving $98.4 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. At September 30, 1999, there were no borrowings, and
credit available under these facilities is approximately $8.8
million.
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 1999. The Company estimates
total capital expenditures for equipment and spare parts to be
approximately $11.0 million during 1999 and $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.
Through September 30, 1999, the Company has reacquired a total of
2,175,316 shares of its Common Stock under these plans,
12
including 1,247,655 shares acquired in 1999 at an average price of
$6.07 per share, thus leaving $0.2 million remaining under these
plans.
In March 1999, the Company's Board of Directors approved a plan
to buy back approximately 700,000 shares of its Common Stock in the
open market or through negotiated transactions. The Company did
not reacquire any shares of its Common Stock under these plans
during the quarter ended September 30, 1999.
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 applications have been identified that may not be
able to accurately process information containing dates beginning
in the Year 2000. The Company plans to modify, replace or
outsource these applications before the Year 2000. The cost of
modification or outsourcing is expensed; the cost of replacement is
capitalized.
The Company is utilizing both internal and external resources to
identify, correct, and test its applications for Year 2000
compliance. Substantially all of the Company's critical information
systems are now Year 2000 compliant as a result of the
implementation of a new core business system. This implementation
is substantially complete in the United States. For those systems
not being replaced and locations where the implementation will not
be completed before December 31, 1999, existing non-Year 2000
compliant information systems have been, or are being, upgraded or
remediated to be compliant. The Company expects that all critical
applications will be Year 2000 compliant prior to the end of the
1999 calendar year.
Because third party failures could affect the Company's ability
to conduct business, the Company is making every reasonable effort
to assess the Year 2000 readiness of its business-critical
suppliers and customers, including obtaining certifications
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 has also completed an assessment of the Year 2000
compliance status of substantially all of its information
technology and non-information technology equipment, and does not
anticipate that any will require upgrade or replacement in order to
accurately process information containing dates beginning in the
Year 2000.
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 substantial completion
in calendar year 1999, of which approximately $2.8 million is
expected to be capitalized. Of these costs, approximately
$3.5 million was incurred through the second quarter 1999, with
most of the remaining $1.5 million expected to be incurred during
the remainder of 1999. All estimated costs have been budgeted and
are expected to be funded by cash flows from operations.
The Company believes that Year 2000 failures affecting its
business will most likely be limited to interruptions of business
at individual Company locations or operations around the world, and
be caused by failures of third parties, including customers,
suppliers, and local governments. The Company is unable to
determine the likelihood of such failures and interruptions
occurring at its locations, but there is a possibility that such an
occurrence could cause the Company to be unable, at least
temporarily, to perform services under its contracts at the
affected location. The failure of the Company, its customers,
suppliers or others upon whom the Company relies to achieve Year
2000 readiness could also adversely affect the Company's business,
which could have a material adverse effect on the Company's
financial condition and results of operations.
As part of its Year 2000 project, the Company is exploring
alternatives and developing contingency plans to address the
possibility that the Company and third parties, including local
governments, with whom it
13
has material relationships will not be Year 2000 compliant on a
timely basis. Should the performance of either third parties or
internal systems be affected by failure of systems to be Year 2000
compliant, the Company believes it has adequate contingency
planning in place to maintain uninterrupted operations, including
alternative power generation and communications systems available
in work country locations and alternative suppliers identified.
Critical business relationships and systems will continue to be
monitored into the year 2000 for compliance problems, and
additional contingency planning will be in place as required.
The anticipated cost and planned completion date of the Year
2000 compliance project are based on management's best estimates,
which were derived utilizing numerous assumptions of future events
including the availability of internal and external resources 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.
These disclosures constitute a "Year 2000 Readiness Disclosure"
and "Year 2000 Statement" within the meaning of the Year 2000
Information and Readiness Disclosure Act of 1998. The Year 2000
Information and Readiness Disclosure Act of 1998 does not insulate
the Company from liability under the federal securities laws with
respect to disclosures relating to Year 2000 information.
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 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.
14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial Risk Management
The Company's primary market risk is its exposure to changes in
non-U.S. currency exchange rates. The Company attempts to
negotiate contracts which provide for payment in U.S. dollars, but
it may be required to take all or a portion of payment under a
contract in another currency. To mitigate non-U.S. currency
exchange risk, the Company seeks to match anticipated non-U.S.
currency revenue with expenses in the same currency whenever
possible. To the extent it is unable to match non-U.S. currency
revenue with expenses in the same currency, the Company may use
forward contracts, options or other common hedging techniques in
the same non-U.S. currencies. The Company had no forward contracts
or options at September 30, 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 September 30, 1999 due to the generally short
maturities of these items. The Company invests primarily in short-
term dollar denominated bank deposits, and at September 30, 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 investment to maturity.
15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
Not applicable
Item 2. Changes in Securities and Use of Proceeds
- ------- -----------------------------------------
Not applicable
Item 3. Defaults upon Senior Securities
- ------- -------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
- ------- --------------------------------------------------
Not applicable
Item 5. Other Information
- ------- -----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits:
The following documents are included as exhibits to this Form 10-Q.
Those exhibits below incorporated by reference herein are
indicated as such by the information supplied in the parenthetical
thereafter. If no parenthetical appears after an exhibit, such
exhibit is filed herewith.
27 Financial Data Schedule.
(b) Reports on Form 8-K
There were no current reports on Form 8-K filed during the three
months ended September 30, 1999.
16
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 15, 1999 By: /s/ Melvin F. Spreitzer
-------------------------------------
Melvin F. Spreitzer
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
17
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
- ----------- --------------------------------------------------------
27 Financial Data Schedule.