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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
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 2000 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
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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 May 14, 2002 was 19,469,664.
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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)
MARCH 31, DECEMBER 31,
2002 2001
------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 11,398 $ 19,289
Accounts receivable, net................................................... 104,568 94,604
Contract cost and recognized income not yet billed......................... 15,450 17,006
Prepaid expenses........................................................... 10,728 3,664
------------ ------------
Total current assets................................................. 142,144 134,563
Spare parts, net................................................................. 6,388 5,965
Property, plant and equipment, net............................................... 68,980 68,349
Other assets..................................................................... 18,305 15,258
------------ ------------
Total assets......................................................... $ 235,817 $ 224,135
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt........................ $ 39,300 $ 284
Accounts payable and accrued liabilities................................... 74,982 60,125
Accrued income taxes....................................................... 9,047 7,871
Contract billings in excess of cost and recognized income.................. 9,268 20,061
------------ ------------
Total current liabilities............................................ 132,597 88,341
Long-term debt................................................................... - 39,000
Other liabilities................................................................ 237 237
------------ ------------
Total liabilities.................................................... 132,834 127,578
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; 16,010,014 shares issued at March 31, 2002
(15,728,191 at December 31, 2001)........................................ 801 786
Capital in excess of par value............................................. 76,141 72,915
Retained earnings.......................................................... 35,818 31,205
Treasury stock at cost, 996,196 shares..................................... (7,403) (7,403)
Notes receivable for stock purchases....................................... (1,315) (8)
Accumulated other comprehensive income (loss).............................. (1,059) (938)
----------- ------------
Total stockholders' equity........................................... 102,983 96,557
----------- ------------
Total liabilities and stockholders' equity........................... $ 235,817 $ 224,135
=========== ============
See accompanying notes to condensed consolidated financial statements.
2
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
-----------------------------
2002 2001
----------- -----------
Contract revenue................................................................. $ 147,497 $ 65,732
Operating expenses:
Contract................................................................... 122,194 51,677
Depreciation and amortization.............................................. 5,412 4,814
General and administrative................................................. 8,786 5,896
-------------- -------------
136,392 62,387
-------------- -------------
Operating income .................................................... 11,105 3,345
Other expense:
Interest - net............................................................. (330) (255)
Minority interest.......................................................... (557) (373)
Other - net................................................................ (796) (221)
--------------- --------------
(1,683) (849)
--------------- --------------
Income before income taxes........................................... 9,422 2,496
Provision for income taxes....................................................... 4,809 1,716
-------------- -------------
Net income .......................................................... $ 4,613 $ 780
============== =============
Income per common share:
Basic ..................................................................... $ .31 $ .06
============== =============
Diluted.................................................................... $ .30 $ .05
============== =============
Weighted average number of common shares outstanding:
Basic...................................................................... 14,878,717 14,128,558
============== =============
Diluted.................................................................... 15,502,406 14,589,695
============== =============
See accompanying notes to condensed consolidated financial statements.
3
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, 2002.......... 15,728,191 $ 786 $ 72,915 $31,205 $(7,403) $ (8) $ (938) $ 96,557
Comprehensive
income (loss):
Net income........... - - - 4,613 - - - 4,613
Foreign currency
translation adjust.. - - - - - - (121) (121)
----------
Total
comprehensive
income........... 4,492
Issuance of notes
receivable for stock
purchase............... - - - - - (1,307) - (1,307)
Compensation expense
attributable to
stock options........... - - 553 - - - - 553
Issuance of common
stock under employee
benefit plan........... 7,823 1 118 - - - - 119
Exercise of stock
options................ 274,000 14 2,555 - - - - 2,569
---------- ------ --------- -------- --------- -------- --------- ----------
Balance, March 31, 2002..... 16,010,014 $ 801 $ 76,141 $ 35,818 $ (7,403) $(1,315) $ (1,059) $ 102,983
=========== ====== ========= ======== ========= ======= ========= ==========
See accompanying notes to condensed consolidated financial statements.
4
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
------------------------------
2002 2001
------------ ------------
Cash flows from operating activities:
Net income ................................................................ $ 4,613 $ 780
Reconciliation of net income to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................................... 5,412 4,814
Loss on retirements of property, plant and equipment................... 543 -
Non-cash compensation expense.......................................... 553 -
Changes in operating assets and liabilities:
Accounts receivable................................................ (9,964) 10,381
Contract cost and recognized income not yet billed................. 1,556 (3,607)
Prepaid expenses and other assets.................................. (10,114) (505)
Accounts payable and accrued liabilities........................... 14,857 (921)
Accrued income taxes............................................... 1,176 (79)
Contract billings in excess of cost and recognized income.......... (10,793) 5,188
Other liabilities.................................................. - 17
------------ ------------
Cash provided by (used in) operating activities............... (2,161) 16,068
Cash flows from investing activities:
Purchase of property, plant and equipment.................................. (4,860) (5,099)
Purchase of spare parts.................................................... (2,138) (1,696)
------------ ------------
Cash used in investing activities............................. (6,998) (6,795)
Cash flows from financing activities:
Proceeds from long-term debt............................................... 21,000 3,000
Proceeds from notes payable................................................ 2,192 1,283
Proceeds from common stock................................................. 1,381 1,007
Collection of notes receivable for stock purchases......................... - 35
Repayments of long-term debt............................................... (23,000) (16,000)
Repayment of notes payable to banks........................................ (176) (54)
------------ ------------
Cash provided by (used in) financing activities............... 1,397 (10,729)
Effect of exchange rate changes on cash & cash equivalents....................... (129) 75
------------ ------------
Cash used in all activities...................................................... (7,891) (1,381)
Cash and cash equivalents, beginning of period................................... 19,289 11,939
------------ ------------
Cash and cash equivalents, end of period......................................... $ 11,398 $ 10,558
============ ============
Non-cash financing activities:
Non-cash compensation expense.............................................. $ 553 $ -
Issuance of notes receivable for stock purchases........................... $ 1,307 $ -
Cash payments made during the period:
Interest................................................................... $ 458 $ 893
Income taxes............................................................... $ 3,464 $ 1,637
See accompanying notes to condensed consolidated financial statements.
5
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of Willbros Group, Inc.
and its majority-owned subsidiaries (the "Company") reflect all adjustments
which are, in the opinion of management, necessary to present fairly the
financial position, results of operations and cash flows of the Company as of
March 31, 2002, 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, 2001
audited consolidated financial statements and notes thereto contained in the
Company's Annual Report on form 10-K, as amended, for the year ended December
31, 2001. The results of operations for the period ended March 31, 2002, are not
necessarily indicative of the operating results to be achieved for the full
year.
2. NEW ACCOUNTING PRINCIPLES
Effective January 1, 2002, the Company adopted the remaining provisions
of Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142") which require that amortization of goodwill
cease and be replaced with periodic tests of the goodwill's impairment at least
annually. SFAS No. 142 also requires that a transitional impairment test be
completed by June 30, 2002. The Company has not yet performed its transitional
impairment test. Amortization of goodwill for the first quarter of 2001 was $12
and as such the adoption of SFAS 142 did not have a material impact on the
consolidated results of operations.
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No. 144") related to the accounting and reporting for
the impairment or disposal of long-lived assets. The adoption of SFAS No. 144
had no effect on the Company's financial position or results of operations.
3. 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 March 31, 2002, or December 31, 2001.
4. NOTES PAYABLE AND LONG-TERM DEBT
Borrowings and letters of credit under the Company's $150,000 credit
facility become due when the facility expires on February 20, 2003. Accordingly,
the $37,000 of borrowings at March 31, 2002 is included in the current portion
of long-term debt.
6
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
5. STOCK BASED COMPENSATION
In March 2002, certain officers of the Company borrowed a total of $1,307
under the Employee Stock Purchase Program, which permits selected executives and
officers to borrow from the Company up to 100% of the funds required to exercise
vested stock options. The loans are full recourse, noninterest-bearing for a
period of up to 5 years and are collateralized by the related stock. The
difference of $553 between the discounted value of the loans and the fair market
value of the stock on the date of exercise was recorded as compensation expense.
The loan receivable is presented as a reduction of stockholders' equity.
6. EARNINGS PER SHARE
Basic and diluted earnings per common share for the three months ended
March 31, 2002 and 2001, are computed as follows:
2002 2001
------------- ------------
Net income applicable to common shares................................. $ 4,613 $ 780
============= ============
Weighted average number of common shares outstanding for basic
earnings per share................................................... 14,878,717 14,128,558
Effect of dilutive potential common shares from
stock options........................................................ 623,689 461,137
------------- ------------
Weighted average number of common shares outstanding for diluted
earnings per share................................................... 15,502,406 14,589,695
============= ============
Earnings per common share:
Basic............................................................. $ .31 $ .06
============= ============
Diluted........................................................... $ .30 $ .05
============= ============
At March 31, 2002, there were 17,500 potential common shares (230,750 at
March 31, 2001) excluded from the computation of diluted earnings per share
because of their anti-dilutive effect.
7. 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 North America. 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, war, terrorist acts, 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
7
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
7. CONTINGENCIES, COMMITMENTS AND OTHER CIRCUMSTANCES (CONTINUED)
consolidated financial statements. Based upon the advice of local advisors in
the various work countries concerning the interpretation of the laws, practices
and customs of the countries in which it operates, management believes the
Company has followed the current practices in those countries; however, because
of the nature of these potential risks, there can be no assurance that the
Company may not be adversely affected by them in the future. The Company insures
substantially all of its equipment in countries outside the United States
against certain political risks and terrorism.
The Company has the usual liability of contractors for the completion of
contracts and the warranty of its work. Where work is performed through a joint
venture, the Company also has possible liability for the contract completion and
warranty responsibilities of its joint venturers. Management is not aware of any
material exposure related thereto which has not been provided for in the
accompanying consolidated financial statements.
Certain 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. SUBSEQUENT EVENT
On May 14, 2002, the Company completed a public offering of its common
shares at $17.75 per share; 4,356,750 shares were sold by the Company and
985,000 shares were sold by certain selling shareholders. The underwriters
exercised options to purchase all shares available for over-allotments. The
Company received approximately $72,310 in net proceeds, which will be used to
repay indebtedness and for working capital and general corporate purposes.
8
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 March 31, 2002 and 2001,
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, including Critical Accounting Policies, included in the Company's
Annual Report on Form 10-K, as amended, for the year ended December 31, 2001.
GENERAL
We derive our revenue from providing construction, engineering and
specialty services to the oil, gas and power industries and government entities
worldwide. We obtain contracts for our work primarily by competitive bidding or
through negotiations with long-standing clients or prospective clients. Bidding
activity, backlog and revenue resulting from the award of contracts to us 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 our business affect the 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 income and resulting revenue is generally accrued
based on costs incurred to date as a percentage of total estimated costs, taking
into consideration physical completion. Total estimated costs and thus contract
income, are impacted by changes in productivity, scheduling, and the unit cost
of labor, subcontractors, materials and equipment. Additionally, 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.
Generally, we do 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 from the
percentage-of-completion calculation. 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 change orders, extra work,
variations in the scope of work and claims is recognized when realization is
reasonably assured. Revenue from unit-price contracts is recognized as earned.
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
the event a contract would be terminated at the convenience of the client prior
to completion, we will typically be compensated for progress up to the time of
termination and any termination costs. 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.
In our report on Form 10-K, as amended, for the year ended December 31,
2001, we identified and disclosed three critical accounting policies: (a)
Revenue Recognition: Percentage-of-Completion; (b) Income Taxes; and (c) Joint
Venture Accounting. There have been no changes to our critical accounting
policies during the three month period ended March 31, 2002.
We use EBITDA (earnings before net interest, income taxes, depreciation and
amortization) as part of our overall assessment of financial performance by
comparing EBITDA between accounting periods. We believe 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 businesses similar to ours.
EBITDA increased to $15.2 million for the three month period ended March 31,
2002, an increase of $7.6 million compared to the three month period ended March
31, 2001.
We recognize anticipated contract revenue as backlog when the award of a
contract is assured, generally upon the execution of a definitive agreement or
contract. Anticipated revenue from post-contract award
9
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 assured. New contract awards totaled $130.3 million
during the quarter ended March 31, 2002. Additions to backlog during the period
were as follows: construction, $95.8 million; engineering, $21.3 million; and
specialty services, $13.2 million. Backlog decreases by type of service as a
result of services performed during the period were as follows: construction,
$83.3 million; engineering, $49.9 million; and specialty services, $14.3
million. Backlog at the end of the quarter was down $17.2 million (4%) to $390.4
million and consisted of the following: (a) construction, $220.5 million, up
$12.5 million; (b) engineering, $125.7 million, down $28.6 million; and (c)
specialty services, $44.2 million, down $1.1 million. Construction backlog
consists primarily of the Chad-Cameroon Pipeline Project (see below) as well as
construction projects in Bolivia and Offshore West Africa. 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, Oman and Canada.
In September 2000, through a joint venture led by a subsidiary of ours, we
were 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 began in
late 2001 and is anticipated to end in 2003.
During 2001, our activities in Nigeria included work on two 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"). By March 31,
2002, work on both projects was substantially complete.
On October 12, 2001, we completed the purchase of MSI Energy Services Inc.
("MSI"), a Canadian general contractor. MSI provides pipeline construction,
pipeline integrity and maintenance, and other services in the oil sands region
of Northern Alberta, Canada. MSI contributed $2.9 million of revenue during the
first quarter of 2002.
RESULTS OF OPERATIONS
Our 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 our services.
Our 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 our competitors, our clients and our work locations. We do not
believe that our revenue or results of operations were adversely affected in
this regard during the three month periods ended March 31, 2002 or 2001.
Three Months Ended March 31, 2002, Compared to Three Months
Ended March 31, 2001
Contract revenue increased $81.8 million (125%) to $147.5 million due to
(a) $56.8 million (214%) of increased construction revenue due primarily to
construction on the Chad-Cameroon Pipeline Project and increased activity in
Offshore West Africa and the United States, net of reduced activities on the
Nembe Creek Projects in Nigeria as they neared completion; (b) increased
engineering revenue of $25.8 million (107%) due to an increase of engineering
and procurement services in the United States; offset by (c) a decrease of $0.8
million (5%) in specialty services revenue principally from operations in
Nigeria. Revenue in the United States increased $37.1 million (121%) due to an
increase in construction, engineering, and procurement services. Chad-Cameroon
revenue increased $28.5 million resulting from construction work begun on the
pipeline project in that area. Revenue from Offshore West Africa increased $22.1
million as a result of increased vessel utilization on several projects. Work
that began in 2002 on a project in Bolivia
10
resulted in $4.5 million in revenue in that country. Revenue in Canada was $2.9
million resulting from the acquisition of MSI in October 2001. Nigeria revenue
decreased $15.0 million (56%) due primarily to reduced activity on the Nembe
Creek Projects. The combined revenue in all other areas increased $1.7 million
(31%).
Contract costs increased $70.5 million (136%) to $122.2 million due to
an increase of $47.5 million (232%) in construction services cost, $22.5 million
(111%) in engineering services cost and $0.5 million (5%) in specialty services
cost. Variations in contract cost by country were closely related to the
variations in contract revenue, with the exception of Bolivia. Contract costs in
Bolivia were equal to revenue in that area. We did not recognize contract income
on the project because work was less than 10% physically complete, the minimum
required for this project in accordance with our percentage-of-completion
accounting policy.
Depreciation and amortization increased $0.6 million (13%) due primarily
to the addition of equipment for the Chad-Cameroon Pipeline Project.
General and administrative expense increased $2.9 million (49%) to $8.8
million. This increase is due to higher staff compensation and administrative
services necessary to support the 125% increase in revenue. As a percent of
revenue, general and administrative expense decreased from 9.0% in 2001 to 6.0%
in 2002.
Operating income increased $7.8 million (236%) from $3.3 million in 2001
to $11.1 million in 2002, largely as a result of higher revenue resulting from
greater activity in North America, construction activity on the Chad-Cameroon
Pipeline Project and marine maintenance and construction in Offshore West
Africa, offset by higher depreciation and amortization and general and
administrative costs.
Interest expense increased $0.1 million to $0.3 million due to higher
average borrowings during the period.
Minority interest expense increased $0.2 million to $0.6 million due to
an increase in activity in countries where minority interest partners were
involved.
Other expense increased $0.6 million to $0.8 million due primarily to
retirement of older assets in Venezuela and Oman and losses on currency
exchanges in 2002.
The provision for income taxes increased $3.1 million (180%) due
primarily to the increase in taxable income in the United States. The provision
for income taxes is also 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
Our primary requirements for capital are to acquire, upgrade and maintain
our equipment, provide working capital for current projects, finance the
mobilization of employees and equipment to new projects, establish a presence in
countries where we perceive growth opportunities and finance the possible
acquisition of new businesses and equity investments. Historically, we have met
our capital requirements primarily from operating cash flows, and more recently
from borrowings under our credit facility.
Cash and cash equivalents decreased $7.9 million (41%) to $11.4 million at
March 31, 2002, from $19.3 million at December 31, 2001. The decrease was due to
cash flows of $1.4 million from financing activities, offset by $7.0 million
used for investing activities (the purchase of equipment and spare parts) and
$2.2 million used for operations. The effect of exchange rate changes on cash
and cash equivalents totaled $0.1 million.
On May 14, 2002, we completed a public offering of our common shares at
$17.75 per share; 4,356,750 shares were sold by us and 985,000 shares were sold
by certain selling shareholders. We received approximately $72.3 million in net
proceeds, which will be used to repay indebtedness under our credit facility and
for working capital and general corporate purposes.
We 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
11
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 ranging from 0.75% to
2.25% or a Eurodollar Rate plus a margin ranging from 2.00% to 3.50%. A
commitment fee on the unused portion of the credit agreement is payable
quarterly ranging from 0.475% to 0.75%. The credit agreement is collateralized
by substantially all of our assets, including stock of our principal
subsidiaries. The credit agreement restricts the payment of cash dividends and
requires us 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.
At March 31, 2002, there was $37.0 million borrowed under the credit
agreement at an average interest rate of 4.1% and $69.8 million of letters of
credit outstanding leaving $43.2 million available for a combination of
borrowings and letters of credit.
The credit facility is due to expire on February 20, 2003. Accordingly, the
$37.0 million of borrowings at March 31, 2002 is included in the current portion
of long-term debt. We are currently negotiating with a new bank group to provide
a new three-year credit agreement in an amount of $120.0 million, with the
ability to increase the facility to $150.0 million in the future. The terms of
the proposed credit facility are similar to the terms of the current facility.
At March 31, 2002, there were $1.6 million of notes payable issued by RPI,
primarily related to financing of annual insurance premiums. The note requires
monthly payments of principle plus interest of 4.75% and matures on January 1,
2003.
At March 31, 2002, MSI borrowed $0.7 million under a $1.5 million credit
facility with a bank. The credit facility is collateralized by a fabrication
facility, real estate and equipment. The facility matures in October 2002.
We have unsecured credit facilities with banks in certain countries outside
the United States. Borrowings under these lines, in the form of short-term notes
and overdrafts, are made at competitive local interest rates. Generally, each
line is available only for borrowings related to operations in a specific
country. Credit available under these facilities is approximately $8.8 million
at March 31, 2002. There were no outstanding borrowings at March 31, 2002.
We do not anticipate any significant collection problems with our
customers, including those in countries that may be experiencing economic and/or
currency difficulties. Since our customers generally are major oil companies and
government entities, and the terms for billing and collecting for work performed
are generally established by contracts, we historically have a very low
incidence of collectability problems.
We believe that cash flows from operations, borrowing capacity under
existing credit facilities and cash generated from the issuance of additional
common shares in the public equity offering will be sufficient to finance
working capital and capital expenditures for ongoing operations through March
31, 2003. We estimate capital expenditures for equipment and spare parts to be
approximately $25.0 to $35.0 million in 2002. We believe that while there are
numerous factors that could and will have an impact on our cash flow, both
positively and negatively; there is not one or two events that should they occur
could not be funded from our operations or borrowing capacity. For a list of
events which could cause actual results to differ from our expectations and a
discussion of risk factors that could impact cash flow, please refer to the
section entitled "Political and Economic Risks; Operational Risks" contained in
our report on Form 10-K, as amended, for the year ended December 31, 2001.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 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
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rational method. We will adopt SFAS No. 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, we cannot reasonably estimate the
effect of the adoption of this statement on either our financial position or
results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS No. 4, 44,
and 64, Amendment of SFAS No. 13 and Technical Corrections". SFAS No. 145
provides guidance for income statement classification of gains and losses on
extinguishment of debt and accounting for certain lease modifications that have
economic effects that are similar to sale-leaseback transactions. We will adopt
SFAS No. 145 in January 2003. We are evaluating the impact that this statement
will have on our 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 we expect or anticipate 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, demand for
our services, the amount and nature of future investments by governments,
expansion and other development trends of the oil, gas and power industries,
business strategy, expansion and growth of our business and operations, and
other such matters are forward-looking statements. These statements are based on
certain assumptions and analyses we made in light of our experience and our
perception of historical trends, current conditions and expected future
developments as well as other factors we believe are appropriate in the
circumstances. However, whether actual results and developments will conform to
our expectations and predictions is subject to a number of risks and
uncertainties, which could cause actual results to differ materially from our
expectations including:
o The timely award of one or more projects
o Cancellation of projects
o Inclement weather
o Project cost overruns and unforeseen schedule delays
o Failing to realize cost recoveries from projects completed or in
progress within a reasonable period after completion of the relevant
project
o Identifying and acquiring suitable acquisition targets on reasonable
terms
o Obtaining adequate financing
o The demand for energy diminishing
o Curtailment of capital expenditures in the oil, gas, and power
industries
o Political circumstances impeding the progress of work
o Downturns in general economic, market or business conditions in our
target markets
o Changes in laws or regulations
o The risk factors listed in this Form 10-Q and listed from time to time
in our filings with the Securities and Exchange Commission o Other
factors, most of which are beyond our control.
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 we anticipated will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on our business or operations. We assume no obligation to update
publicly any such forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL RISK MANAGEMENT
Our primary market risk is our exposure to changes in non-U.S. currency
exchange rates. We attempt to negotiate contracts which provide for payment in
U.S. dollars, but we may be required to take all or a
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portion of payment under a contract in another currency. To mitigate non-U.S.
currency exchange risk, we seek to match anticipated non-U.S. currency revenue
with expenses in the same currency whenever possible. To the extent we are
unable to match non-U.S. currency revenue with expenses in the same currency, we
may use forward contracts, options or other common hedging techniques in the
same non-U.S. currencies. We had no forward contracts or options at March 31,
2002.
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 March 31, 2002 due to the
generally short maturities of these items. We invest primarily in short-term
dollar denominated bank deposits, and at March 31, 2002 did not have any
investment in instruments with a maturity of more than a few days or in any
equity securities. We have the ability and expect to hold our investments to
maturity.
Our exposure to market risk for changes in interest rates relates primarily
to our long-term debt. At March 31, 2002, $37.0 million of our indebtedness was
subject to variable interest rates. The weighted average effective interest rate
on the variable rate debt for the three months ended March 31, 2002 was 4.1%.
The detrimental effect of a hypothetical 100 basis point increase in interest
rates would be to reduce income before income taxes by less than $0.1 million
for the three-month period. At March 31, 2002, our fixed rate debt approximated
fair value based upon discounted future cash flows using current market prices.
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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:
None
(b) Reports on Form 8-K
There were no current reports on Form 8-K filed during the three months
ended March 31, 2002.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLBROS GROUP, INC.
Date: May 14, 2002 By: /s/ Warren L. Williams
------------------------------------
Warren L. Williams
Vice President, Chief Financial
Officer And Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
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