1
================================================================================
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 JUNE 30, 2001
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)
PLAZA BANCOMER BUILDING
50TH STREET, 8TH FLOOR
APARTADO 6307
PANAMA 5, REPUBLIC OF PANAMA
TELEPHONE NO.: (507) 213-0947
(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 August 13, 2001 was 14,512,107.
================================================================================
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
2001 2000
--------- ------------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents ......................................... $ 7,485 $ 11,939
Accounts receivable, net .......................................... 58,489 66,663
Contract cost and recognized income not yet billed ................ 30,986 22,765
Prepaid expenses .................................................. 4,688 2,666
--------- ---------
Total current assets ........................................ 101,648 104,033
Spare parts, net ........................................................ 5,630 5,495
Property, plant and equipment, net ...................................... 59,918 57,070
Other assets ............................................................ 9,330 9,527
--------- ---------
Total assets ................................................ $ 176,526 $ 176,125
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt ............... $ 881 $ 217
Accounts payable and accrued liabilities .......................... 51,682 61,960
Accrued income taxes .............................................. 5,170 4,952
Contract billings in excess of cost and recognized income ......... 6,400 4,825
--------- ---------
Total current liabilities ................................... 64,133 71,954
Long-term debt .......................................................... 29,000 26,081
Other liabilities ....................................................... 237 6,344
--------- ---------
Total liabilities ........................................... 93,370 104,379
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; 15,640,069 shares issued at June 30, 2001
(15,206,495 at December 31, 2000) ............................... 782 760
Capital in excess of par value .................................... 71,531 68,373
Retained earnings ................................................. 19,998 12,125
Treasury stock at cost, 1,140,371 shares .......................... (8,474) (8,474)
Notes receivable for stock purchases .............................. (8) (43)
Accumulated other comprehensive income (loss) ..................... (673) (995)
--------- ---------
Total stockholders' equity .................................. 83,156 71,746
--------- ---------
Total liabilities and stockholders' equity .................. $ 176,526 $ 176,125
========= =========
See accompanying notes to condensed consolidated financial statements.
2
3
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Contract revenue ...................................... $ 78,839 $ 81,772 $ 144,571 $ 160,545
Operating expenses (income):
Contract ........................................ 64,358 69,752 116,035 140,070
Other ........................................... (5,578) -- (5,578) --
Depreciation and amortization ................... 4,684 5,617 9,498 10,906
General and administrative ...................... 7,055 6,666 12,951 14,221
---------- ---------- ---------- ----------
70,519 82,035 132,906 165,197
---------- ---------- ---------- ----------
Operating income (loss) ................... 8,320 (263) 11,665 (4,652)
Other income (expense):
Interest - net .................................. (431) (464) (686) (522)
Minority interest ............................... (298) (623) (671) (955)
Other - net ..................................... (192) 80 (413) 236
---------- ---------- ---------- ----------
(921) (1,007) (1,770) (1,241)
---------- ---------- ---------- ----------
Income (loss) before income
taxes ..................................... 7,399 (1,270) 9,895 (5,893)
Provision for income taxes ............................ 306 3,074 2,022 4,365
---------- ---------- ---------- ----------
Net income (loss) ......................... $ 7,093 $ (4,344) $ 7,873 $ (10,258)
========== ========== ========== ==========
Earnings (loss) per common share:
Basic ........................................... $ .49 $ (.31) $ .55 $ (.73)
========== ========== ========== ==========
Diluted ......................................... $ .47 $ (.31) $ .53 $ (.73)
========== ========== ========== ==========
Weighted average number of common shares outstanding:
Basic ........................................... 14,399,061 14,003,219 14,263,810 13,996,637
========== ========== ========== ==========
Diluted ......................................... 15,219,186 14,003,219 14,904,441 13,996,637
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
3
4
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
ACCUMULATED
NOTES OTHER
CAPITAL RECEIVABLE COMPRE- TOTAL
COMMON STOCK IN EXCESS FOR HENSIVE STOCK-
----------------------- OF PAR RETAINED TREASURY STOCK INCOME HOLDERS'
SHARES PAR VALUE VALUE EARNINGS STOCK PURCHASES (LOSS) EQUITY
---------- ---------- --------- -------- -------- --------- ----------- --------
Balance,
January 1, 2001 ........... 15,206,495 $ 760 $ 68,373 $ 12,125 $(8,474) $ (43) $ (995) $ 71,746
Comprehensive
income (loss):
Net income .............. -- -- -- 7,873 -- -- -- 7,873
Foreign currency
translation adjust .... -- -- -- -- -- -- 322 322
--------
Total
comprehensive
income .............. 8,195
Collection of notes
receivable ................ -- -- -- -- -- 35 -- 35
Issuance of common
stock under employee
benefit plan .............. 12,324 1 129 -- -- -- -- 130
Exercise of stock
options ................... 421,250 21 3,029 -- -- -- -- 3,050
---------- ----- -------- -------- -------- ----- ------ --------
Balance,
June 30, 2001 ............. 15,640,069 $ 782 $ 71,531 $ 19,998 $ (8,474) $ (8) $ (673) $ 83,156
========== ===== ======== ======== ======== ===== ====== ========
See accompanying notes to condensed consolidated financial statements.
4
5
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS
ENDED JUNE 30,
---------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net income (loss) ............................................... $ 7,873 $(10,258)
Reconciliation of net loss to cash provided by (used in)
operating activities:
Gain on benefit plan termination ............................ (5,578) --
Depreciation and amortization ............................... 9,498 10,906
Loss on disposals of property and equipment ................. 5 189
Deferred income tax benefit ................................. (1,176) --
Changes in operating assets and liabilities:
Accounts receivable ..................................... 8,480 (14,541)
Contract cost and recognized income not yet billed ...... (8,221) 3,261
Prepaid expenses and other assets ....................... (708) (5,870)
Accounts payable and accrued liabilities ................ (10,881) 20,888
Accrued income taxes .................................... 218 713
Contract billings in excess of cost and
recognized income...................................... 1,574 (8,079)
Other liabilities ....................................... (529) 126
-------- --------
Cash provided by (used in) operating activities .... 555 (2,665)
Cash flows from investing activities:
Purchase of Rogers and Phillips, Inc.,
net of cash acquired .......................................... -- (15)
Proceeds from sales of property and equipment ................... (12) 50
Purchase of property and equipment .............................. (9,233) (2,188)
Purchase of spare parts ......................................... (3,248) (2,967)
-------- --------
Cash used in investing activities .................. (12,493) (5,120)
Cash flows from financing activities:
Proceeds from long-term debt .................................... 31,000 24,000
Proceeds from notes payable ..................................... 1,283 979
Proceeds from common stock ...................................... 3,180 159
Collection of notes receivable for stock purchases .............. 35 84
Repayments of long-term debt .................................... (28,000) (5,658)
Repayment of notes payable to banks ............................. (700) (802)
-------- --------
Cash provided by financing activities .............. 6,798 18,762
Effect of exchange rate changes on cash and cash equivalents .......... 686 --
-------- --------
Cash provided by (used in) all activities ............................. (4,454) 10,977
Cash and cash equivalents, beginning of period ........................ 11,939 7,806
-------- --------
Cash and cash equivalents, end of period .............................. $ 7,485 $ 18,783
======== ========
See accompanying notes to condensed consolidated financial statements.
5
6
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of Willbros Group, Inc.
and its majority-owned subsidiaries (the "Company") reflect all adjustments
which are, in the opinion of management, necessary to present fairly the
financial position, results of operations and cash flows of the Company as of
June 30, 2001, 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, 2000
audited consolidated financial statements and notes thereto contained in the
Company's Annual Report to Stockholders for the year ended December 31, 2000.
The results of operations for the period ended June 30, 2001, are not
necessarily indicative of the operating results to be achieved for the full
year.
Certain reclassifications have been made to the 2000 balances in order to
conform with the 2001 presentation.
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 Company had no derivative financial instruments to
hedge currency risk at June 30, 2001, or December 31, 2000.
3. EARNINGS PER SHARE
Basic and diluted earnings (loss) per common share for the three month
and six month periods ended June 30, 2001 and 2000, are computed as follows:
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------- ---------- ---------- ----------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net income (loss) applicable to
common shares ..................... $ 7,093 $ (4,344) $ 7,873 $ (10,258)
========== ========== ========== ==========
Weighted average number of
common shares outstanding
for basic earnings per share ...... 14,399,061 14,003,219 14,263,810 13,996,637
Effect of dilutive potential common
shares from stock options ......... 820,125 -- 640,631 --
---------- ---------- ---------- ----------
Weighted average number of
common shares outstanding
for diluted earnings per share .... 15,219,186 14,003,219 14,904,441 13,996,637
========== ========== ========== ==========
Earnings (loss) per common share:
Basic ............................. $ .49 $ (.31) $ .55 $ (.73)
========== ========== ========== ==========
Diluted ........................... $ .47 $ (.31) $ .53 $ (.73)
========== ========== ========== ==========
6
7
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
3. EARNINGS PER SHARE (CONTINUED)
At June 30, 2001, there were 226,292 potential common shares excluded
from the computation of diluted earnings per share because of their
anti-dilutive effect.
4. BENEFITS PLAN TERMINATION
Effective June 30, 2001, the Company terminated its post-retirement
medical benefits plan resulting in a non-taxable gain of $5,578. The plan had no
assets and was funded by Company and retiree contributions. Upon termination all
benefits ceased and the liability relating to accrued cost of future benefits
was reversed resulting in a gain on plan termination, which is reflected as a
reduction of operating expenses in the 2001 statements of operations.
5. INCOME TAXES
The Company's effective income tax rate for the quarter ended June 30,
2001 was 4% of income before income taxes and differs from the normal effective
rate due to recognition of a one-time, non-taxable gain associated with
termination of the post-retirement medical plan. Additionally, the provision for
income taxes is impacted by income taxes in certain countries being based on
deemed profit rather than taxable income and the fact that losses in one country
cannot be used to offset taxable income in another country. Also, during the
three month period ended June 30, 2001, the Company reduced the beginning of
year valuation allowance for deferred tax assets by $1,389 due to increased
anticipated utilization of tax net operating losses.
6. CONTINGENCIES, COMMITMENTS AND OTHER CIRCUMSTANCES
The Company provides construction, engineering and specialty services to
the oil, gas and power industries. The Company's principal markets are currently
Africa, the Middle East, South America and the United States. Operations outside
the United States may be subject to certain risks which ordinarily would not be
expected to exist in the United States, including foreign currency restrictions,
extreme exchange rate fluctuations, expropriation of assets, civil uprisings and
riots, unanticipated taxes including income taxes, excise duties, import taxes,
export taxes, sales taxes or other governmental assessments, availability of
suitable personnel and equipment, termination of existing contracts and leases,
government instability and legal systems of decrees, laws, regulations,
interpretations and court decisions which are not always fully developed and
which may be retroactively applied. Management is not presently aware of any
events of the type described in the countries in which it operates that have not
been provided for in the accompanying consolidated financial statements. Based
upon the advice of local advisors in the various work countries concerning the
interpretation of the laws, practices and customs of the countries in which it
operates, management believes the Company has followed the current practices in
those countries; however, because of the nature of these potential risks, there
can be no assurance that the Company may not be adversely affected by them in
the future. The Company insures substantially all of its equipment in countries
outside the United States against certain political risks and terrorism.
The Company has the usual liability of contractors for the completion of
contracts and the warranty of its work. Where work is performed through a joint
venture, the Company also has possible liability for the contract completion and
warranty responsibilities of its joint venturers. Management is not aware of any
material exposure related thereto which has not been provided for in the
accompanying consolidated financial statements.
7
8
6. 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.
7. SUBSEQUENT EVENT - BUSINESS COMBINATION
On July 11, 2001, the Company and MSI Energy Services Inc. (MSI)
announced that the Company has agreed to purchase all outstanding shares of MSI
for cash. MSI is a general contractor in Alberta, Canada whose common shares are
listed on The Canadian Venture Exchange (CDNX: MES). The Company will offer Cdn.
$0.95 for each MSI common share and Cdn. $0.05 for each MSI Class "C" share.
Certain current MSI shareholders holding a substantial percentage of the
outstanding shares of MSI stock have agreed, pursuant to lock-up agreements, to
tender their shares to the offers. The offers have the unanimous support of the
Boards of Directors of both companies. The offers will remain in effect for 35
days following the mailing of the takeover circular and are conditional on,
among other things, at least 86 percent of the fully diluted common shares and
90% of the Class "C" shares of MSI being tendered, receipt of all regulatory
approvals and other conditions customary in transactions of this nature. Certain
MSI shareholders have agreed to purchase common stock of the Company totaling
approximately 150,000 shares.
8
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
consolidated financial statements for the periods ended June 30, 2001 and 2000,
included in Item 1 of this report, and the consolidated financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's Annual Report to Stockholders for the year
ended December 31, 2000.
GENERAL
The Company derives its revenue from providing construction, engineering
and specialty services to the oil, gas and power industries 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. Contracts have durations
from a few weeks to several months or in some cases more than a year.
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 5% to 10%
complete, depending upon the nature of the contract. 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 reasonably assured. External factors such as weather, client
needs, client delays in providing approvals, labor availability, governmental
regulation and politics, may affect the progress of a project's completion and
thus the timing of revenue recognition. The Company believes that its operating
results should be evaluated over a relatively long time horizon during which
major contracts in progress are completed and change orders, extra work,
variations in the scope of work and cost recoveries and other claims are
negotiated and realized.
All U.S. government contracts and many of the Company's other contracts
provide for termination of the contract for the convenience of the client. In
addition, many contracts are subject to certain completion schedule requirements
with liquidated damages in the event schedules are not met as the result of
circumstances within the control of the Company. A project in Australia was
completed after July 1, 2000, the date on which liquidated damages were
scheduled to commence under the contract. However, the Company has submitted
claims for extension of the scheduled completion date and believes these claims
are valid. The Company believes it has adequately provided for any liquidated
damages that could apply. Recovery of some of the cost overruns on this project
may also be possible; but until realization is reasonably assured, no recoveries
will be recognized.
The Company uses EBITDA as part of its overall assessment of financial
performance by comparing EBITDA between accounting periods. EBITDA is defined as
net income before interest expense, income taxes and depreciation and
amortization. EBITDA is not required by generally accepted accounting principles
and should not be considered in isolation or as an alternative to net income,
net cash provided by operating, investing, and financing activities or other
financial data prepared in accordance with generally accepted accounting
principles, or as a sole indicator of the Company's performance. Management
believes that EBITDA is used by the financial community as a method of measuring
performance and of evaluating the market value of companies considered to be in
similar businesses to those of the Company. EBITDA increased to $12.5 million
for the quarter ended June 30, 2001, an increase of $7.7 million compared to the
9
10
quarter ended June 30, 2000 and increased to $20.1 million for the six month
period ended June 30, 2001, an increase of $14.6 million compared to the six
month period ended June 30, 2000.
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 $53.1 million during the quarter ended June 30, 2001.
Additions to backlog during the quarter were as follows: construction, $12.2
million; engineering, $15.9 million; and specialty services, $25.0 million.
Backlog decreases by type of service during the period were as follows:
construction, $43.6 million; engineering, $13.2 million; and specialty services,
$22.0 million. Backlog at the end of the quarter was down $25.7 million (7%) to
$364.9 million and consisted of the following: (a) construction, $254.1 million,
down $31.4 million; (b) engineering, $66.1 million, up $2.7 million; and (c)
specialty services, $44.7 million, up $3.0 million. Construction backlog
consists primarily of engineering, procurement and construction for the
Chad-Cameroon Pipeline Project (see below) as well as construction projects in
the United States. Engineering backlog consists primarily of engineering
projects in the United States. Specialty services backlog is primarily
attributable to a 16-year water injection contract awarded in 1998 to a
consortium in which the Company has a 10 percent interest in Venezuela and
service contracts in the United States and Oman.
On January 24, 2000, the Company acquired Rogers & Phillips, Inc., a
closely held pipeline construction company in Houston, Texas with an experienced
management team and a strong market position in the United States Gulf Coast
area. Founded in 1992, RPI provides a full range of construction services for
pipeline operating companies, including station and piping projects in congested
urban areas and inside plants, as well as cross-country pipelines. The
consideration included 1,035,000 shares of the Company's common stock and
approximately $1.5 million in cash. The transaction was accounted for as a
purchase.
In September 2000, the Company, through a joint venture led by a subsidiary
of the Company, was awarded a significant project, the scope of which includes
the engineering, procurement and construction ("EPC") of a 665-mile (1,070
kilometer), 30-inch crude oil pipeline from the Doba Fields in Chad to an export
terminal on the coast of Cameroon in Africa (the "Chad-Cameroon Pipeline
Project"). Engineering and procurement activities began in late 2000. Pipeline
construction is anticipated to begin in late 2001 and end in 2003.
During 2000, the Company's activities in Nigeria included work on two major
EPC contracts for Shell: (a) the Nembe Creek gas gathering pipeline system, and
(b) four concrete barge-mounted gas compressor facilities for Shell's Nembe
Creek Associated Gas project (collectively, the "Nembe Creek Projects"). In
2001, both projects are nearing completion and it is anticipated that all work
will be completed in 2001.
Also during 2000, Willbros USA, Inc. relocated its administrative
headquarters and some construction support services from Tulsa, Oklahoma, to
Houston, Texas. The cost of the move, termination benefits, and office lease
termination costs totaled approximately $4.5 million, substantially all of which
was incurred from April 2000 to December 2000. Approximately $0.4 million was
incurred during the three month period ended June 30, 2000.
On July 11, 2001, the Company announced an agreement to purchase MSI Energy
Services Inc., a Canadian general contractor whose common shares are listed on
The Canadian Venture Exchange. The purchase is expected to be completed prior to
September 30, 2001.
10
11
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, gas and power
industries worldwide. Contract revenue and cost variations by country from year
to year are the result of (a) entering and exiting work countries; (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 materially adversely affected in this regard during the six
month periods ended June 30, 2001 or 2000.
Three Months Ended June 30, 2001, Compared to Three Months Ended
June 30, 2000
Contract revenue decreased $3.0 million (4%) to $78.8 million due to (a)
$10.5 million of decreased construction revenue due primarily to reduced
activities on the Nembe Creek Projects in Nigeria as they near completion in
2001 and the completion in the third quarter of 2000 of the construction
contract in Australia, net of increased construction activity in the United
States; (b) a decrease of $0.9 million in specialty service revenue; offset by
(c) increased engineering revenue of $8.4 million due to an increase of
engineering services in the United States. Nigeria revenue decreased $21.2
million (57%) due to reduced activity on the Nembe Creek Projects. Australia
revenue decreased $8.6 million (100%) due to the construction contract that was
completed in 2000. Revenue in the United States increased $22.9 million (111%)
due to an increase in engineering, procurement and construction services.
Chad-Cameroon revenue was $3.3 million resulting from pre-construction work
begun on the pipeline project in that area. Revenue in all other areas combined
increased $0.6 million (4%).
Contract costs decreased $5.5 million (8%) to $64.3 million due to a
decrease of $8.3 million in construction services cost and $3.3 million in
specialty services cost, offset by an increase of $6.1 million in engineering
services cost. Variations in contract cost by country were closely related to
the variations in contract revenue, with the exception of Australia. Contract
costs in Australia decreased by $15.1 million, or $6.5 million more than the
decrease in revenue as a result of a loss recognized during the three month
period ended June 30, 2000 on the project in Australia.
Other operating income of $5.6 million in 2001 results from a non-taxable
gain upon termination of the Company's post-retirement medical benefits plan.
Depreciation and amortization decreased $0.9 million due to the sale in
2000 of excess equipment in Venezuela, Indonesia, the United States and Oman and
accelerated amortization of excess spare parts in Indonesia during 2000.
General and administrative expense increased $0.4 million to $7.1
million. This increase is due primarily to additional services to support
increased revenue in the United States and increased business development
activities worldwide, net of a reduction in costs related to personnel
reductions and scaling back or eliminating activities in Indonesia and the
corporate administrative offices.
Interest expense decreased $0.1 million to $0.4 million expense due to
lower borrowing levels in 2001.
Minority interest expense decreased $0.3 million to $0.3 million due to a
decrease in activity in countries where minority interest partners were
involved, primarily Nigeria.
Other - net decreased $0.3 million to a $0.2 million expense due
primarily to amortization of debt costs related to the bank credit agreement
that was amended as of June 30, 2000 and gains on currency exchanges in 2000 not
repeated in 2001.
The provision for income taxes decreased $2.7 million (90%) due to the
decrease in taxable revenue in Nigeria, adjustment of the deferred tax assets
valuation allowance in the United States by $1.4 million and settlement of prior
year taxes outside the United States. Also, the provision for income taxes is
impacted by
11
12
income taxes in certain countries being based on deemed profit rather than
taxable income and the fact that losses in one country cannot be used to offset
taxable income in another country.
Six Months Ended June 30, 2001, Compared to Six Months Ended June 30, 2000
Contract revenue decreased $15.9 million (10%) to $144.6 million due to
(a) $35.1 million of decreased construction revenue due primarily to reduced
activities on the Nembe Creek Projects in Nigeria as they near completion in
2001 and the completion in the third quarter of 2000 of the construction
contract in Australia, net of increased construction activity in the Untied
States; offset by (b) increased engineering revenue of $18.7 million due to an
increase of engineering services in the United States; and (c) an increase of
$0.5 million in specialty services revenue principally from operations in
Nigeria. Nigeria revenue decreased $38.0 million (47%) due to reduced activity
on the Nembe Creek Projects. Australia revenue decreased $20.6 million (100%)
due to the construction contract that was completed in 2000. Revenue in the
United States increased $38.5 million (105%) due to an increase in engineering,
procurement and construction services. Chad-Cameroon revenue was $4.4 million
resulting from pre-construction work begun on the pipeline project in that area.
Revenue in all other areas combined decreased $0.2 million (1%).
Contract costs decreased $24.1 million (17%) to $116.0 million due to
decreases of $35.7 million in construction services cost and $3.4 million in
specialty services cost, offset by an increase of $15.0 million in engineering
services cost. Variations in contract cost by country were closely related to
the variations in contract revenue, with the exception of Australia. Contract
costs in Australia decreased by $35.3 million, or $14.7 million more than the
decrease in revenue as a result of a loss recognized during the six month period
ended June 30, 2000 on the project in Australia.
Other operating income of $5.6 million in 2001 results from a non-taxable
gain upon termination of the Company's post-retirement medical benefits plan.
Depreciation and amortization decreased $1.4 million due to the sale in
2000 of excess equipment in Venezuela, Indonesia, the United States and Oman and
accelerated amortization of excess spare parts in Indonesia in 2000.
General and administrative expense decreased $1.2 million to $13.0
million. This decrease is due primarily to a reduction in costs related to
personnel reductions and scaling back or eliminating activities.
Interest expense increased $0.2 million to $0.7 million expense due to
higher interest rates during the period.
Minority interest expense decreased $0.2 million to $0.7 million due to a
decrease in activity in countries where minority interest partners were
involved, primarily Nigeria.
Other - net decreased $0.6 million to a $0.4 million expense due
primarily to amortization of debt costs related to the bank credit agreement
amended as of June 30, 2000 and gains on currency exchanges in 2000 not repeated
in 2001.
The provision for income taxes decreased $2.4 million (55%) due to the
decrease in taxable revenue in Nigeria, adjustment to the deferred assets
valuation allowance in the United States by $1.4 million and settlement of prior
year taxes outside the United States. The provision for income taxes is impacted
by income taxes in certain countries being based on deemed profit rather than
taxable income and the fact that losses in one country cannot be used to offset
taxable income in another country.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital are to acquire, upgrade
and maintain its equipment, provide working capital for current projects,
finance the mobilization of employees and equipment to new projects, establish a
presence in countries where the Company perceives growth opportunities and
finance the possible acquisition of new businesses and equity investments.
Historically, the Company has met its capital requirements primarily from
operating cash flows.
12
13
Cash and cash equivalents decreased $4.4 million (37%) to $7.5 million at
June 30, 2001, from $11.9 million at December 31, 2000. The decrease was due to
cash flows of $0.6 million from operations and $7.5 million from financing
activities (principally issuance of common stock and additional borrowings)
offset by $12.5 million used for investing activities (the purchase of equipment
and spare parts).
The Company and certain affiliated companies have a $150.0 million credit
agreement with a syndicated bank group which was amended effective June 30,
2000. The credit agreement subjects the $100.0 million revolving portion of the
credit facility to borrowing base requirements. The entire facility, less
amounts used under the revolving portion of the facility, may be used for
standby and commercial letters of credit. Borrowings are payable at termination
on February 20, 2003. Interest is payable quarterly at a Base Rate plus a margin
of 2.25% or a Eurodollar Rate plus a margin of 3.5%. A commitment fee on the
unused portion of the credit agreement is payable quarterly at 0.75%. The credit
agreement is collateralized by substantially all of the Company's assets,
including stock of the principal subsidiaries of the Company. The credit
agreement restricts the payment of cash dividends and requires the Company to
maintain certain financial ratios. The borrowing base is calculated using
varying percentages of cash, accounts receivable, accrued revenue, contract cost
and recognized income not yet billed, property, plant and equipment, and spare
parts.
As of June 30, 2001, there was $29.0 million borrowed under the credit
agreement at an average interest rate of 9.3% and $41.1 million of letters of
credit outstanding leaving $42.9 million available for borrowings and $79.9
million available for standby and commercial letters of credit.
At June 30, 2001, there were $0.9 million of notes payable issued by RPI,
collateralized by vehicles and machinery, and payable in monthly installments
including interest from 6.7% to 9.7% per annum. The notes mature prior to June
30, 2002.
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 $9.8
million at June 30, 2001. There were no outstanding borrowings at June 30, 2001.
The Company does not anticipate any significant collection problems with
its customers, including those in countries that may be experiencing economic
and/or currency difficulties. Since the Company's customers generally are major
oil companies and government entities, and the terms for billing and collecting
for work performed are generally established by contracts, the Company
historically has a very low incidence of collectability problems.
The Company believes that cash flows from operations and borrowing capacity
under existing credit facilities will be sufficient to finance working capital
and capital expenditures for ongoing operations through June 30, 2002. The
Company estimates capital expenditures for equipment and spare parts to be
approximately $25.0 to $35.0 million in 2001.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and SFAS 142, Goodwill and Other Intangible Assets. SFAS 141
requires, among other things, that the purchase method of accounting be used for
all business combinations after June 30, 2001. SFAS 142 requires, among other
things, that goodwill and intangible assets with indefinite useful lives
acquired after June 30, 2001 no longer be amortized, but instead be tested for
impairment at least annually. Goodwill and intangible assets acquired before
July 1, 2001 will continue to be amortized until adoption of SFAS 142.
The Company is required to adopt the provisions of SFAS 141 and expects to
adopt the provisions of SFAS 142 on January 2, 2002. Amortization expense
related to goodwill was $36 thousand for the year
13
14
ended December 31, 2000, and $23 thousand for the six months ended June 30,
2001. The Company does not expect the adoption of SFAS 142 to have a material
impact on the consolidated results of operations.
In June 2001, the FASB also approved SFAS 143, Accounting for Asset
Retirement Obligations. SFAS 143 requires that an asset retirement cost should
be capitalized as part of the cost of the related long-lived asset and
subsequently allocated to expense using a systematic and rational method. The
Company will adopt SFAS 143 effective January 1, 2003. The transition
adjustment, if any, will be reported as a cumulative effect of a change in
accounting principle. At this time, the Company has not reasonably estimated the
effect of this statement on either its financial position or results of
operations.
FORWARD-LOOKING STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included in this Form 10-Q which address
activities, events or developments which the Company expects or anticipates will
or may occur in the future, including such things as future capital expenditures
(including the amount and nature thereof), oil, gas and power prices and demand,
expansion and other development trends of the oil, gas and power industries,
business strategy, expansion and growth of the Company's business and
operations, 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; obtaining adequate financing; the demand for energy
diminishing; political circumstances impeding the progress of work; general
economic, market or business conditions; changes in laws or regulations; the
risk factors listed from time to time in the Company's filings with the
Securities and Exchange Commission; and other factors, most of which are beyond
the control of the Company. Consequently, all of the forward-looking statements
made in this Form 10-Q are qualified by these cautionary statements and there
can be no assurance that the actual results or developments anticipated by the
Company will be realized or, even if substantially realized, that they will have
the expected consequences or effects on the Company or its business or
operations. The Company assumes no obligation to update publicly any such
forward-looking statements, whether as a result of new information, future
events or otherwise.
14
15
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 June 30, 2001.
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 June 30, 2001 due to the
generally short maturities of these items. The Company invests primarily in
short-term dollar denominated bank deposits, and at June 30, 2001 did not have
any investment in instruments with a maturity of more than a few days or in any
equity securities. The Company has the ability and expects to hold its
investments to maturity.
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's long-term debt. At June 30, 2001, $29.0
million of the Company's indebtedness was subject to variable interest rates.
The weighted average effective interest rate on the variable rate debt for the
six months ended June 30, 2001 was 9.5%. The detrimental effect of a
hypothetical 100 basis point increase in interest rates would be to reduce
income before income taxes by $0.1 million for the six-month period. At June 30,
2001, the Company's fixed rate debt approximated fair value based upon
discounted future cash flows using current market prices.
15
16
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
The Annual Meeting of Stockholders of the Company (the "Annual Meeting")
was held on May 9, 2001, in Panama City, Panama. At the Annual Meeting, the
stockholders of the Company elected Michael J. Pink and John H. Williams as
Class II directors of the Company for three-year terms. The stockholders also
considered and approved Amendment Number 2 to the Willbros Group, Inc. 1996
Stock Plan increasing the total number of shares of Common Stock available for
issuance under the plan from 2,125,000 shares to 3,125,000 shares and considered
and approved the appointment of KPMG LLP as the independent auditors of the
Company for the fiscal year ending December 31, 2001.
There were present at the Annual Meeting, in person or by proxy,
stockholders holding 12,046,499 shares of the common stock of the Company, or
84.69 percent of the total stock outstanding and entitled to vote at the Annual
Meeting. The table below describes the results of voting at the Annual Meeting.
Votes
Votes Against or Broker
For Withheld Abstentions Non-Votes
----------- ---------- ----------- ----------
1. Election of Directors:
Michael J. Pink 12,025,550 20,949 -0- -0-
John H. Williams 12,027,950 18,549 -0- -0-
2. Amendment Number 2 to
the Willbros Group, Inc.
1996 Stock Plan 5,449,514 2,273,279 1,006,602 3,317,104
3. Ratification of KPMG LLP
as independent auditors of
the Company for fiscal
2001 12,029,339 15,295 1,865 -0-
Item 5. Other Information
Not applicable
16
17
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. Amendment Number 2 to the Willbros Group, Inc.
1996 Stock Plan (filed as Exhibit B to the Company's Proxy
Statement for Annual Meeting of Stockholders dated
April 2, 2001).
(b) Reports on Form 8-K
There were no current reports on Form 8-K filed during the three months
ended June 30, 2001.
17
18
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: August 14, 2001 By: /s/ Warren L. Williams
-------------------------------------
Warren L. Williams
Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
18