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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
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
P.O. BOX 0816-01098
PANAMA, 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
------- --------
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes X No
------- --------
The number of shares of the registrant's Common Stock, $.05 par value,
outstanding as of May 3, 2004 was 20,852,106.
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WILLBROS GROUP, INC
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 2004
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets for March 31, 2004 (unaudited) and
December 31, 2003 3
Condensed Consolidated Statements of Operations (unaudited) for the three
months ended March 31, 2004 and 2003 4
Condensed Consolidated Statement of Stockholders' Equity and Comprehensive
Income (unaudited) for the three months ended March 31, 2004 5
Condensed Consolidated Statements of Cash Flows (unaudited) for the three
months ended March 31, 2004 and 2003 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 18
Item 4 - Controls and Procedures 18
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 19
Item 2 - Changes in Securities and Use of Proceeds 19
Item 3 - Defaults upon Senior Securities 19
Item 4 - Submission of Matters to a Vote of Security Holders 19
Item 5 - Other Information 19
Item 6 - Exhibits and Reports on Form 8-K 20
SIGNATURE 21
EXHIBIT INDEX 22
2
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,
2004 2003
--------- ---------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 45,416 $ 20,969
Accounts receivable, net ................................................. 108,210 101,654
Contract cost and recognized income not yet billed ....................... 46,552 40,109
Prepaid expenses ......................................................... 14,369 11,531
--------- ---------
Total current assets ............................................... 214,547 174,263
Spare parts, net ............................................................... 6,251 6,363
Property, plant and equipment, net ............................................. 101,683 95,528
Investments in joint ventures .................................................. 14,312 14,086
Goodwill ....................................................................... 9,296 9,360
Other assets ................................................................... 16,437 11,822
--------- ---------
Total assets ....................................................... $ 362,526 $ 311,422
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt ...................... $ 1,082 $ 1,315
Accounts payable and accrued liabilities ................................. 78,475 75,377
Contract billings in excess of cost and recognized income ................ 7,926 7,205
--------- ---------
Total current liabilities .......................................... 87,483 83,897
2.75% Convertible senior notes ................................................. 60,000 --
Long-term debt ................................................................. 3,305 17,007
Other liabilities .............................................................. 237 237
--------- ---------
Total liabilities .................................................. 151,025 101,141
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; 21,020,640 shares issued at March 31, 2004
(20,748,498 at December 31, 2003) ...................................... 1,051 1,037
Capital in excess of par value ........................................... 155,652 152,630
Retained earnings ........................................................ 57,509 57,741
Treasury stock at cost, 46,196 shares .................................... (345) (345)
Deferred compensation .................................................... (1,876) --
Notes receivable for stock purchases ..................................... (890) (1,240)
Accumulated other comprehensive income ................................... 400 458
--------- ---------
Total stockholders' equity ......................................... 211,501 210,281
--------- ---------
Total liabilities and stockholders' equity ......................... $ 362,526 $ 311,422
========= =========
See accompanying notes to condensed consolidated financial statements.
3
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
------------------------------
2004 2003
------------ ------------
Contract revenue .................................... $ 102,338 $ 98,936
Operating expenses:
Contract ...................................... 86,704 89,139
Depreciation and amortization ................. 5,315 5,668
General and administrative .................... 10,402 8,980
------------ ------------
102,421 103,787
------------ ------------
Operating loss .......................... (83) (4,851)
Other income (expense):
Interest - net ................................ (386) (399)
Other - net ................................... 362 (354)
------------ ------------
(24) (753)
------------ ------------
Loss before income taxes ................ (107) (5,604)
Provision (benefit) for income taxes ................ 125 (1,031)
------------ ------------
Net loss ................................ $ (232) $ (4,573)
============ ============
Loss per common share:
Basic ......................................... $ (.01) $ (.22)
============ ============
Diluted ....................................... $ (.01) $ (.22)
============ ============
Weighted average number of common shares outstanding:
Basic ......................................... 20,741,302 20,613,157
============ ============
Diluted ....................................... 20,741,302 20,613,157
============ ============
See accompanying notes to condensed consolidated financial statements.
4
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
ACCUMULATED
NOTES OTHER
CAPITAL RECEIVABLE COMPRE- TOTAL
COMMON STOCK IN EXCESS DEFERRED FOR HENSIVE STOCK-
-------------------- OF PAR RETAINED TREASURY COMPEN- STOCK INCOME HOLDERS'
SHARES PAR VALUE VALUE EARNINGS STOCK SATION PURCHASES (LOSS) EQUITY
---------- --------- --------- -------- ------- ------- --------- ---------- --------
Balance,
January 1, 2004 20,748,498 $1,037 $152,630 $57,741 $(345) $ -- $(1,240) $458 $210,281
Comprehensive
Loss:
Net loss -- -- -- (232) -- -- -- -- (232)
Foreign currency
translation
adjustment -- -- -- -- -- -- -- (58) (58)
--------
Total
comprehensive
loss (290)
Collection of notes
receivable for
stock purchases -- -- -- -- -- -- 350 -- 350
Restricted stock
awards 164,500 8 2,029 -- -- (2,037) -- -- --
Amortization of
deferred compensation -- -- -- -- -- 161 -- -- 161
Issuance of common
stock under
employee
benefit plan 4,054 -- 53 -- -- -- -- -- 53
Exercise of stock
options 103,588 6 940 -- -- -- -- -- 946
---------- ------ -------- ------- ----- ------- ----- ---- --------
Balance,
March 31, 2004 21,020,640 $1,051 $155,652 $57,509 $(345) $(1,876) $(890) $400 $211,501
========== ====== ======== ======= ===== ======= ===== ==== ========
See accompanying notes to condensed consolidated financial statements.
5
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
----------------------
2004 2003
-------- --------
Cash flows from operating activities:
Net loss ........................................................ $ (232) $(4,573)
Reconciliation of net loss to net cash
used in operating activities:
Change in equity in joint ventures, net ..................... (226) 4,405
Depreciation and amortization ............................... 5,315 5,668
Amortization of debt issue costs ............................ 480 389
Loss (gain) on retirements of property, plant and equipment . 11 (174)
Amortization of deferred compensation ....................... 161 --
Deferred income tax benefit ................................. -- (1,862)
Changes in operating assets and liabilities:
Accounts receivable ..................................... (6,354) 3,803
Contract cost and recognized income not yet billed ...... (6,443) (5,825)
Prepaid expenses and other assets ....................... (3,156) (5,777)
Accounts payable and accrued liabilities ................ 2,757 (12,345)
Accrued income taxes .................................... -- (4,862)
Contract billings in excess of cost and recognized income 721 (1,538)
-------- --------
Cash used in operating activities .................. (6,966) (22,691)
Cash flows from investing activities:
Proceeds from sale of equipment ................................. 18 390
Purchase of property, plant and equipment ....................... (9,944) (3,772)
Purchase of spare parts ......................................... (1,469) (1,504)
-------- --------
Cash used in investing activities .................. (11,395) (4,886)
Cash flows from financing activities:
Proceeds from issuance of 2.75% convertible senior notes ........ 60,000 --
Proceeds from notes payable ..................................... 535 624
Proceeds from issuance of common stock .......................... 999 404
Collections of notes receivable for stock purchases ............. 350 --
Repayments of long-term debt .................................... (14,000) --
Costs of debt issues ............................................ (4,851) --
Repayment of notes payable ...................................... (469) (1,026)
-------- --------
Cash provided by financing activities .............. 42,564 2
Effect of exchange rate changes on cash and cash equivalents .......... 244 52
-------- --------
Cash provided by (used in) all activities ............................. 24,447 (27,523)
Cash and cash equivalents, beginning of period ........................ 20,969 49,457
-------- --------
Cash and cash equivalents, end of period .............................. $ 45,416 $ 21,934
======== ========
Cash payments made during the period:
Interest ........................................................ $ 353 $ 105
Income taxes .................................................... $ 540 $ 5,645
See accompanying notes to condensed consolidated financial statements.
6
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of Willbros
Group, Inc. and its majority-owned subsidiaries (the "Company") reflect all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary to present fairly the financial position as of
March 31, 2004 and the results of operations and cash flows of the Company for
all interim periods presented.
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, 2003
audited consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003. The
results of operations and cash flows for the three-month period ended March 31,
2004 are not necessarily indicative of the operating results to be achieved for
the full year.
Certain reclassifications have been made to 2003 balances in order to
conform to 2004 presentations.
2. STOCK-BASED COMPENSATION
The Company measures stock-based employee compensation using the
intrinsic value method of accounting prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations, and provides pro-forma disclosure as required by Statement of
Financial Accounting Standards No. 123 and SFAS 148, "Accounting for Stock -
Based Compensation." As such, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's stock at the
date of grant over the exercise price. Compensation cost related to restricted
stock and restricted stock rights awards is measured as the market price of the
Company's common stock at the date of the award, and compensation cost is
recognized over the vesting period, typically four years.
If compensation cost for the Company's stock compensation plans had been
determined using the fair value method in SFAS No. 123 and SFAS 148, the
Company's net loss and loss per share for the three months ended March 31, 2004
and 2003 would have been as shown in the pro forma amounts below:
2004 2003
-------- --------
Net loss as reported $ (232) $(4,573)
Add stock-based employee compensation
included in net income, after tax 161 --
Less stock-based employee compensation
determined under fair value method, after tax (203) (257)
------- -------
Pro forma net loss $ (274) $(4,830)
======= =======
Loss per common share:
Basic, as reported $ (.01) $ (.22)
======= =======
Basic, pro forma $ (.01) $ (.23)
======= =======
Diluted, as reported $ (.01) $ (.22)
======= =======
Diluted, pro forma $ (.01) $ (.23)
======= =======
7
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
3. NEW ACCOUNTING PRONOUNCEMENTS
During 2003 and 2004, the Financial Accounting Standards Board ("FASB")
issued the following statement of Financial Accounting Standards which were
reviewed by Willbros to determine the potential impact on the financial
statements upon adoption.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51," ("FIN 46"). The interpretation states that certain variable interest
entities may be required to be consolidated into the results of operations and
financial position of the entity that is the primary beneficiary. FIN 46 applies
immediately to variable interest entities created after January 31, 2003 and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after
December 15, 2003, the revised effective date, to variable entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
FIN 46 applies to public enterprises as of the beginning of the applicable
interim or annual period. The adoption of FIN 46 did not have a material impact
on our financial position or results of operations.
4. 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, 2004 or March 31, 2003, or during the three
month periods then ended.
5. INCOME TAXES
During the quarter ended March 31, 2004, the Company recorded net income
taxes of $125 on a loss before income taxes of $107, resulting in an effective
income tax rate in excess of 100% for the period. This effective rate differs
from the United States statutory federal income tax rate of 34% primarily as a
result of income taxes in certain countries being based on deemed profit rather
than taxable income, losses in one country cannot be used to offset taxable
income in another country, and some income is earned under foreign contracts
which provide tax concessions that eliminate the payment of income tax. During
the quarter ended March 31, 2003, the Company recorded a net income tax benefit
of $1,031 on a loss before income taxes of $5,604, resulting in an effective
income tax rate of approximately 18% for the period.
6. 2.75% CONVERTIBLE SENIOR NOTES
On March 12, 2004, the Company completed a primary offering of $60,000 of
2.75% Convertible Senior Notes (the "Convertible Notes"). On April 13, 2004, the
initial purchasers of the Convertible Notes exercised their option to purchase
an additional $10,000 aggregate principal amount of the notes. Collectively, the
primary offering and purchase option of the Convertible Notes total $70,000. The
Convertible Notes are general senior unsecured obligations. Interest is paid
semi-annually on March 15 and September 15, beginning on September 15, 2004. The
Convertible Notes mature on March 15, 2024 unless the notes are repurchased,
redeemed or converted earlier. The Company may redeem the Convertible Notes for
cash on or after March 15, 2011, at 100% of the principal amount of the notes
plus accrued interest. The holders of the Convertible Notes have the right to
require the Company to purchase the Convertible Notes, including unpaid
interest, on March 15, 2011, 2014, and 2019 or upon a change of control related
event. On March 15, 2011 and upon a change in control event, the Company must
pay the purchase price in cash. On March 15, 2014 and 2019, the Company has the
option of providing its common stock in lieu of cash or a combination of common
stock and cash to
8
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
6. 2.75% CONVERTIBLE SENIOR NOTES (CONTINUED)
fund purchases. The holders of the Convertible Notes may convert, under certain
circumstances, the notes into shares of the Company's common stock at an initial
conversion ratio of 51.3611 shares of common stock per $1,000.00 principal
amount of notes (representing a conversion price of approximately $19.47 per
share). The notes will be convertible only upon the occurrence of certain
specified events including, but not limited to, if, at certain times, the
closing sale price of the Company's Common Stock exceeds 120% of the then
current conversion price, or $23.36 per share based on the initial conversion
price. Debt issue costs of $2,447, net of accumulated amortization of $29,
associated with the Convertible Notes are included in other assets at March 31,
2004 and are being amortized over the seven-year period ending March 2011. In
the event of a default of $10.0 million or more on any credit agreement,
including the 2004 Credit Facility, a corresponding event of default would
result under the Convertible Notes.
7. 2004 CREDIT FACILITY
On March 12, 2004, the existing June 2002 credit agreement was amended
and restated (the "2004 Credit Facility"). The 2004 Credit Facility matures on
March 12, 2007. The 2004 Credit Facility may be used for standby and commercial
letters of credit, borrowings or a combination thereof. Borrowings are limited
to the lesser of 40% of the borrowing base or $30,000 and are payable at
termination on March 12, 2007. Interest is payable quarterly at a base rate plus
a margin ranging from 0.75% to 2.00% or a Eurodollar Rate plus a margin ranging
from 1.75% to 3.00%. A commitment fee on the unused portion of the 2004 Credit
Facility is payable quarterly ranging from 0.375% to 0.625%. The 2004 Credit
Facility is collateralized by substantially all of the Company's assets,
including stock of the principal subsidiaries, 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. Debt issue costs of $3,206, net
of accumulated amortization of $451, associated with the 2004 Credit Facility
are included in other assets at March 31, 2004 and are being amortized over a
24-month period ending March 2006.
8. EARNINGS PER SHARE
Basic and diluted earnings per common share for the three months ended
March 31, 2004 and 2003, are computed as follows:
2004 2003
-------------- ------------
Net income (loss) applicable to common shares $(232) $(4,573)
============== ============
Weighted average number of common shares out-
standing for basic earnings per share 20,741,302 20,613,157
Effect of dilutive potential common shares from
stock options -- --
-------------- ------------
Weighted average number of common shares out-
standing for diluted earnings per share 20,741,302 20,613,157
============== ============
Loss per common share:
Basic $(.01) $(.22)
============== ============
Diluted $(.01) $(.22)
============== ============
At March 31, 2004, there were 1,504,978 potential common shares
(1,505,732 at March 31, 2003) excluded from the computation of diluted earnings
per share because of their anti-dilutive effect.
9
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
9. 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, 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 through political risk insurance coverage that contains a 20%
co-insurance provision.
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 venture partners. In addition, the
Company acts as prime contractor on a majority of the projects it undertakes and
is normally responsible for the performance of the entire project, including
subcontract work. 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.
In connection with the Company's 10% interest in a joint venture in
Venezuela, the Company issued a corporate guarantee equal to 10% of the joint
venture's outstanding borrowings with two banks. The guarantee reduces as
borrowings are repaid. The commitment as of March 31, 2004 totals approximately
$2,926, which is the maximum amount of future payments the Company could be
required to make.
From time to time the Company enters into commercial commitments, usually
in the form of commercial and standby letters of credit, insurance bonds and
financial guarantees. Contracts with the Company's customers may require the
Company to provide letters of credit or insurance bonds with regard to the
Company's performance of contracted services. In such cases, the commitments can
be called upon in the event of failure to perform contracted services. Likewise,
contracts may allow the Company to issue letters of credit or insurance bonds in
lieu of contract retention provisions, in which the client withholds a
percentage of the contract value until project completion or expiration of a
warranty period. Retention commitments can be called upon in the event of
warranty or project completion issues, as prescribed in the contracts. At March
31, 2004, the Company had approximately $46,269 of letters of credit and $46,789
of insurance bonds outstanding, representing the maximum amount of future
payments the Company could be required to make. The Company had no liability
recorded as of March 31, 2004, related to these commitments.
The Company is a party to a number of legal proceedings. Management
believes that the nature and number of these proceedings are typical for a firm
of similar size engaged in a similar type of business and that none of these
proceedings is material to the Company's financial position.
10
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
condensed consolidated financial statements for the three-month interim periods
ended March 31, 2004 and 2003, 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 our Annual Report on Form 10-K for the year ended December
31, 2003.
OVERVIEW
We derive our revenue from providing construction, engineering and
specialty services to the oil, gas and power industries and government entities
worldwide. In 2004, our revenue was primarily generated from operations in
Canada, Iraq, Nigeria, Oman, the United States, and Venezuela. We obtain
contracts for our work mainly by competitive bidding or through negotiations
with long-standing or prospective clients. Contracts have durations from a few
weeks to several months or in some cases more than a year.
We believe the fundamentals supporting the demand for engineering and
construction services for the oil, gas and power industries indicate the market
for our services will be strong in the mid to long-term. We are encouraged by
many positive developments in the markets that we serve. In addition to
increased bid activity in several of our markets, we are optimistic about new
oil and gas production developments in both Canada and Mexico, both of which are
attractive markets for our engineering and construction services. The move
towards LNG is also expected to bring more opportunities to Willbros, both in
North America and in the producing/exporting countries.
We are expecting to commence significant additional work in West Africa
and Nigeria later this year and expect that market to remain strong. We expect
the markets outside of North America to lead the improvements in demand for our
services.
We expect the demand in North America for our services to improve in late
2004. The engineering market in North America is becoming more active and we are
encouraged that we have received multiple awards in recent weeks. These new
assignments are not large, but they have the earmarks of preliminary work
associated with larger assignments. Additionally, we are involved in numerous
discussions and contract negotiations regarding pipeline and station
construction projects in North America. The nature of these recent discussions
and the increase in engineering assignments continues to support our belief that
we may see an increase in activity in North America during the second half of
2004.
In late March 2004, the Opal Gas Plant began commercial operation and is
currently operating well within the parameters on which it was modeled.
Beginning in the second quarter, this new facility should add a new source of
long-term revenue to complement our revenue stream from our project work. For
additional information, see the related discussion under "Significant Business
Developments."
For the quarter ended March 31, 2004, we had a loss of $0.2 million or
$0.01 per share on revenue of $102.3 million. This compares to revenue of $98.9
million in the same quarter in 2003, when we reported a loss of $4.6 million or
$0.22 per share. The costs of significant contract variations were included in
the first quarter of last year.
Revenue of $102.3 million for the first quarter of 2004 represents a 3%
increase over the revenue for the same period in 2003. In the first quarter of
this year, revenue increased $24.0 million in the Middle East. This increase was
entirely offset by a reduction in revenue in West Africa, primarily as the
result of the completion of the Chad-Cameroon Pipeline project in mid-2003.
Slight revenue increases in North and South America accounted for the net 3%
revenue increase in the first quarter.
Contract margin for the first quarter of 2004 increased to 15.3% of
revenue from 9.9% in the first quarter of 2003. This 5.4% or $5.8 million
increase in contract margin is largely the result of reduced margins in the
first quarter of 2003 related to recognition of unusual contract variation
costs. In early 2003, we recognized substantial costs related to client caused
delays on the Bolivian Transierra Pipeline project and incurred increased
demobilization costs on the Chad-Cameroon Pipeline project.
11
G&A expenses increased from $9.0 million in the first quarter of 2003 to
$10.4 million in the first quarter of this year. $1.2 million dollars of the
increase in G&A expenses were incurred at the work country level. The increase
at the work country level is attributable to approximately $0.3 million of legal
expenses associated with negotiations and arbitration on outstanding claims, and
new contract negotiations. In addition, we experienced an approximate $0.9
million increase in G&A expenses in work countries related to estimating,
bidding and initial staffing necessary to support the anticipated new work and
the increased level of activity in Oman and Iraq. The $0.2 million increase in
corporate G&A resulted from additional costs to comply with the requirements of
the Sarbanes-Oxley Act of 2002.
We recognized a $0.1 million tax expense on a $0.1 million pre-tax loss
for the first quarter of 2004. The $1.1 million tax expense increase in the
first quarter of 2004 versus the same quarter of 2003 resulted primarily from
accruing income taxes in those countries where taxes are calculated and paid
based upon revenue versus pre-tax income. This is partially offset by income
earned under foreign contracts which provide tax concessions that eliminate the
payment of income taxes, and utilization of net operating loss carryforwards in
the United States and Bolivia.
Recently, we completed two financing transactions which we believe
improved our liquidity and, combined with cash flows from operations, will be
sufficient to finance our working capital and capital expenditure requirements
for forecast operations. On March 12, 2004, the Company completed a primary
offering of $60.0 million of Convertible Notes (the "Convertible Notes"). On
April 13, 2004, the initial purchasers of the Convertible Notes exercised their
option to purchase an additional $10.0 million aggregate principal amount of the
notes. Collectively, the primary offering and purchase option Convertible Notes
total $70.0 million. Also, on March 12, 2004, we amended and restated the $125.0
million senior secured credit facility. The three-year amended and restated
credit facility (the "2004 Credit Facility") provides for $150.0 million of
available credit capacity to be used for letters of credit and cash borrowings.
See the related discussion under "Liquidity and Capital Resources" for
additional information.
We believe this new capital structure positions us to take on a
substantial amount of additional new work and provides a better matching of our
capital asset investment with the long-term revenue and cash flows to be
generated from capital assets such as our Opal Gas Plant. Willbros remains in
strong financial position. We believe these financing transactions provide the
Company with the funds to grow as we move into a period of improving markets
during this strengthening business cycle.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In our report on Form 10-K for the year ended December 31, 2003, we
identified and disclosed three critical accounting policies: (a) Revenue
Recognition: Percentage-of-Completion Method; (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, 2004.
SIGNIFICANT BUSINESS DEVELOPMENTS
In late March 2004, we commenced commercial production from our newly
constructed Opal Gas Plant, located near Opal, Wyoming. In 2003, we completed
agreements with Williams Gas Processing Company to design, construct and own the
Opal Gas Plant. The plant is designed to process volumes in excess of 350
million standard cubic feet per day of natural gas, producing 7,000 to 11,000
barrels per day of natural gas liquids at various operating conditions. We
receive an annual processing fee under a 10-year contract through March 2014,
and share in the proceeds from the sales of natural gas liquids extracted.
During March and April 2004, the Company improved its overall financial
position through a $70 million debt offering of Convertible Notes and amendment
and restatement of our credit facility. $14 million of the proceeds from the
offering were used to repay our existing debt which accrued interest at
approximately 5%. We intend to use the remaining proceeds to provide capital to
expand our current operations and to fund possible acquisition of assets and
businesses, which would complement Willbros' capabilities, including asset
development. The 2004 Credit Facility was increased from $125.0 million to
$150.0 million in anticipation of additional letter of credit requirements for
anticipated new work. Additionally, the 2004 Credit Facility will
12
expire in March 2007. See the related discussion under "Liquidity and Capital
Resources" for additional information.
OTHER FINANCIAL MEASURES
EBITDA
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 our performance and of
evaluating the market value of companies considered to be in businesses similar
to ours. EBITDA for the three-months ended March 31, 2004 was $5.6 million as
compared to $0.5 million for the same period in 2003. The $5.1 million increase
in EBITDA is primarily the result of the absence of significant contract
variation costs in 2004 as compared to the first quarter of 2003.
A reconciliation of EBITDA to GAAP financial information follows:
THREE MONTHS ENDED MARCH 31,
----------------------------
2004 2003
------- -------
(Dollar amounts in thousands)
Net (loss) $ (232) $(4,573)
Interest, net 386 399
Provision (benefit) for income taxes 125 (1,031)
Depreciation and amortization 5,315 5,668
------- -------
EBITDA $5,594 $ 463
======= =======
BACKLOG
We define anticipated contract revenue as backlog when the award of a
contract is reasonably assured, generally upon the execution of a definitive
agreement or contract. 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. Backlog as of March 31, 2004 was $204.5
million with an estimated embedded margin of 30.9% compared to $224.7 million at
December 31, 2003 with an estimated embedded margin of 29.6%. Included in these
backlog amounts is $22.0 million of gas processing revenue with an estimated
embedded margin of 100%. The gas processing revenue is associated with the
10-year gas processing contract for our Opal Gas Plant. If backlog amounts were
reduced by eliminating the effects of the Opal gas processing contract, the
adjusted estimated embedded margin would be 22.6% and 22.0% as of March 31, 2004
and December 31, 2003, respectively. An estimated $130.0 million (64%) of the
current backlog is scheduled to be worked off during the remainder of 2004.
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. During the
three-month periods ended March 31, 2004 and 2003, the Venezuelan Bolivar
experienced significant devaluation relative to the U.S. dollar. The first
quarter of 2004 included a foreign exchange gain of $0.3 million and the first
quarter of 2003 included a foreign exchange loss of $0.5 million, both resulting
from the translation of our Bolivar denominated monetary assets and liabilities
into U.S. dollars.
13
We do not believe that our revenue or results of operations in other areas were
adversely affected in this regard during the three-month periods ended March 31,
2004 and 2003.
THREE MONTHS ENDED MARCH 31, 2004, COMPARED TO THREE MONTHS ENDED MARCH 31, 2003
Contract revenue increased $3.4 million (3%) to $102.3 million due to
increased construction revenue partially offset by decrease in specialty
services and engineering revenue. A quarter-to-quarter comparison of revenue is
as follows:
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------
INCREASE PERCENT
2004 2003 (DECREASE) CHANGE
---- ---- ---------- -------
(Dollar amounts in thousands)
Construction $ 76,865 $ 64,249 $ 12,616 20%
Specialty Services 16,931 19,483 (2,552) (13)%
Engineering 8,542 15,204 (6,662) (44)%
-------- -------- --------
Total $102,338 $ 98,936 $ 3,402 3%
======== ======== ========
Construction revenue increased $12.6 million primarily because of
improvements in North American construction and new work in the Middle East
offset by a $22.5 million decrease in revenue from the Chad-Cameroon Pipeline
project that was completed in 2003. Specialty services revenue decreased $2.6
million as a result of a $4.4 million decrease in Nigeria, and a $0.6 million
decrease in the United States, partially offset by $2.5 million of increased
activity in Canada. The engineering revenue decrease of $6.7 million was
primarily related to the decrease in revenue from the Explorer Pipeline project
that was substantially completed in 2003.
Contract costs decreased $2.4 million (3%) to $86.7 million due to a
decrease in engineering costs partially offset by higher construction costs.
Overall margins increased by more than 5% in the first quarter of 2004 as
compared to the same quarter in 2003. The decrease in contract cost and the
margin improvement were driven by the absence of significant contract variation
costs in 2004 versus 2003. A quarter-to-quarter comparison of contract cost
follows:
THREE MONTHS ENDED MARCH 31,
----------------------------------------------
INCREASE PERCENT
2004 2003 (DECREASE) CHANGE
---- ---- ---------- -------
(Dollar amounts in thousands)
Construction $62,911 $57,463 $ 5,448 9%
Specialty Services 15,467 14,411 1,056 7%
Engineering 8,326 17,265 (8,939) (52)%
------- ------- -------
Total $86,704 $89,139 $(2,435) (3)%
======= ======= =======
Depreciation and amortization decreased $0.4 million (6%) primarily due
to the completion of the Chad-Cameroon Pipeline project in early 2003.
G&A expenses increased from $9.0 million in the first quarter of 2003 to
$10.4 million in the first quarter of this year. $1.2 million of the increase in
G&A expenses were incurred at the work country level. The increase at the work
country level is attributable to approximately $0.3 million of legal expenses
associated with negotiations and arbitration on outstanding claims, and new
contract negotiations. In addition, we experienced an approximately $0.9 million
increase in G&A expenses in work countries related to estimating, bidding and
initial
14
staffing necessary to support the anticipated new work and the increased level
of activity in Oman and Iraq. A $0.2 million increase in corporate G&A resulted
from additional costs to comply with the requirements of the Sarbanes-Oxley Act
of 2002.
Operating loss decreased $4.8 million (98%) from $4.9 million in 2003 to
$0.1 million in 2004, largely as a result of non-recurring contract variation
costs that impaired the 2003 first quarter results, partially offset by
increased G&A expenses.
Other income/(expense) improved from $0.4 million of expense in the first
quarter of 2003 to $0.4 million of income in the same quarter of 2004. The $0.7
million quarter-to-quarter improvement is attributable to Venezuela Bolivar
currency devaluations. The improvement resulting from these foreign exchange
gains/losses was partially offset by a $0.2 million gain related to the
disposition of Venezuelan assets in 2003.
We recognized a $0.1 million tax expense on a $0.1 million pre-tax loss
for the first quarter of 2004. The $1.1 million tax expense increase in the
first quarter of 2004 versus the same quarter of 2003 resulted primarily from
accruing income taxes in those countries where taxes are calculated and paid
based upon revenue versus pre-tax income. This is partially offset by income
earned under foreign contracts which provide tax concessions that eliminate the
payment of income taxes, and utilization of net operating loss carryforwards in
the United States and Bolivia.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL REQUIREMENTS
Our primary requirements for capital are to acquire, upgrade and maintain
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. We have met these capital
requirements primarily from operating cash flows, a 2002 equity offering,
borrowings under our credit facility and the March 2004 Convertible Notes
offering.
WORKING CAPITAL
Cash and cash equivalents increased $24.5 million (117%) to $45.4 million
at March 31, 2004 from $20.9 million at December 31, 2003. The increase consists
of $60.0 million from the sale of the Convertible Notes less the $14.0 million
repayment of the outstanding balance on the June 2002 credit agreement and $4.9
million of debt issue cost related to the Convertible Notes and the 2004 Credit
Facility. This increase was partially offset by $6.8 million used in operating
activities, primarily due to increases in accounts receivable and contract cost
and recognized income not yet billed, principally related to the increased North
American and Middle East construction activities, and $11.4 million of investing
activities related to the acquisition of equipment and spare parts, and the
final costs to make the Opal Gas Plant fully operational.
Working capital increased $36.7 million (40%) from increased cash of
$24.5 million and receivables and unbilled revenue of $13.0 million. The
majority of the receivable and unbilled revenue increase is related to increased
construction activities.
Stockholders' equity remained fairly constant during the three-month
period ended March 31, 2004, changing less than 1%.
We believe the anticipated increase in revenue, improvement in contract
margins and a focus on reducing the working capital requirements
internationally, will return the Company to positive cash flow from operations
in 2004.
2.75% CONVERTIBLE SENIOR NOTES
On March 12, 2004, the Company completed a primary offering of $60.0
million of 2.75% Convertible Senior Notes (the "Convertible Notes"). On April
13, 2004, the initial purchasers of the Convertible Notes exercised their option
to purchase an additional $10.0 million aggregate principal amount of the notes.
Collectively, the primary offering and purchase option of the Convertible Notes
total $70.0 million. Completion of
15
the Convertible Notes offering enhances our competitive position in the market
place and provides a better matching of the funding of capital assets with the
revenue and cash flow streams they are generating.
The Convertible Notes are general senior unsecured obligations. Interest
is paid semi-annually on March 15th and September 15th, beginning on September
15, 2004. The Convertible Notes mature on March 15, 2024, unless the notes are
purchased, redeemed or converted earlier. We may redeem the Convertible Notes
for cash on or after March 15, 2011, at 100% of the principal amount of the
notes plus accrued interest. The holders of the Convertible Notes have the right
to require us to purchase the Convertible Notes, including unpaid interest, on
March 15, 2011, 2014, and 2019, or upon a change of control related event. On
March 15, 2011 and upon a change in control event, we must pay the purchase
price in cash. On March 15, 2014 and 2019, we have the option of purchasing the
notes with common stock in lieu of cash or a combination of common stock and
cash. The holders of the Convertible Notes may convert, under certain
circumstances, the notes into shares of our common stock at an initial
conversion ratio of 51.3611 shares of common stock per $1,000 principal amount
of notes (representing a conversion price of approximately $19.47 per share).
The notes will be convertible only upon the occurrence of certain specified
events including, but not limited to, if, at certain times, the closing sale
price of the Company's Common Stock exceeds 120% of the then current conversion
price, or $23.36 per share based on the initial conversion price. Upon
conversion, we will have the right to deliver in lieu of shares of our common
stock, cash or a combination of cash and shares of our common stock. In the
event of a default of $10.0 million or more on any credit agreement, including
the 2004 Credit Facility, a corresponding event of default would result under
the Convertible Notes. $14.0 million of the net proceeds of approximately $57.2
million from the March 2004 sale of Convertible Notes were used to repay all
outstanding indebtedness under the $125.0 million June 2002 credit agreement.
The remainder will be used for working capital and for general corporate
purposes.
RESTATED AND EXTENDED CREDIT FACILITY
On March 12, 2004, the existing June 2002 credit agreement was amended
and restated (the "2004 Credit Facility"). The 2004 Credit Facility will mature
on March 12, 2007. The 2004 Credit Facility may be used for standby and
commercial letters of credit, borrowings or a combination thereof. Borrowings
are limited to the lesser of 40% of the borrowing base or $30.0 million and are
payable at termination on March 12, 2007. Interest is payable quarterly at a
base rate plus a margin ranging from 0.75% to 2.00% or a Eurodollar Rate plus a
margin ranging from 1.75% to 3.00%. A commitment fee on the unused portion of
the 2004 Credit Facility is payable quarterly ranging from 0.375% to 0.625%. The
2004 Credit Facility is collateralized by substantially all of our assets,
including stock of the principal subsidiaries, 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.
As of March 31, 2004, the 2004 Credit Facility had no outstanding
borrowings and $46.3 million in letters of credit outstanding. Under the
borrowing base that is applicable to March 31, 2004 (based on January 31, 2004
financial statements), a total of $30.5 million was available for the issuance
of letters of credit and cash borrowings. Cash borrowings were restricted to
$26.6 million.
As of May 2004, this borrowing base is expected to increase to
approximately $98.1 million based on the March 31, 2004 financial statements. An
additional $51.8 million would be available for letters of credit. Cash
borrowings would be restricted to a maximum of $30.0 million. In addition to the
increased letter of credit availability related to the expanded borrowing base,
the available letter of credit capacity is expected to increase approximately
$16 million in May because of reductions in letters of credit associated with
the winding down of the Chad-Cameroon Pipeline project.
LIQUIDITY
We believe that cash flows from operations, borrowing capacity under the
2004 Credit Facility and the net proceeds from the Convertible Notes offering
will be sufficient to finance working capital and capital expenditures for
ongoing operations at our present level of activity and will provide capacity
for expected growth. Capital expenditures for equipment and spare parts for the
remainder of 2004 are estimated at $20.1 million and $4.5 million, respectively.
Also, we may be required to make additional payments during 2004 related to the
Mt. West Group acquisition based on a net income earn-out provision of 25%
covering the two-year period following
16
the acquisition date. We believe that while there are numerous factors that
could and will have an impact on our cash flow, both positively and negatively,
there are 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 , Economic and Operational Risks" contained in Items 1 & 2 in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003.
Although payments may be delayed beyond their anticipated payment date,
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.
CONTRACTUAL OBLIGATIONS
As of March 31, 2004, we had $60.0 million of outstanding debt related to
the Convertible Notes. An additional $10.0 million of Convertible Notes were
sold as a result of the initial purchasers exercising purchase options in April
2004. All of the outstanding debt under the $125.0 million June 2002 credit
agreement was repaid from the proceeds of the Convertible Notes offering .
Other contractual obligations and commercial commitments, as detailed in
the Company's annual report on Form 10-K for the year ended December 31, 2003,
did not materially change outside of payments made in the normal course of
business.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 3 of the Notes to the Condensed Consolidated Financial
Statements included in this report for a summary of recently issued accounting
standards.
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, gas liquids 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 curtailment of capital expenditures in the oil, gas, and power
industries;
o political or social circumstances impeding the progress of our work;
o the timely award of one or more projects;
o cancellation of projects; o inclement weather;
o project cost overruns, unforeseen schedule delays, and liquidated
damages;
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;
17
o the demand for energy diminishing;
o downturns in general economic, market or business conditions in our
target markets;
o changes in the effective tax rate in countries where the work will be
performed;
o changes in laws or regulations;
o the risk factors listed in our annual report on Form 10-K for 2003 and
in our other filings with the Securities and Exchange Commission from
time to time;
o ability to manage insurable risk at an affordable cost; and
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 anticipate will be realized or, even
if substantially realized, that they will have the consequences for, or effects
on, our business or operations that we anticipate today. 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
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 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, 2004 and 2003 or
during the three-month periods then ended.
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, 2004 due to the
generally short maturities of these items. At March 31, 2004, our investments
were primarily in short-term dollar denominated bank deposits with maturities of
a few days, or in longer term deposits where funds can be withdrawn on demand
without penalty. 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, 2004, none of our indebtedness was
subject to variable interest rates.
ITEM 4. CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934) as of March 31, 2004. Based on this evaluation, our management,
including our Chief Executive Officer and Chief Financial Officer, concluded
that, as of March 31, 2004, the disclosure controls and procedures are effective
in alerting them on a timely basis to material information required to be
included in our periodic filings with the Securities and Exchange Commission.
No change in our internal control over financial reporting (as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the
fiscal quarter ended March 31, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
On March 12, 2004 and April 13, 2004 we issued $60.0 million and $10.0
million, respectively, of 2.75% Convertible Senior Notes due 2024 ("Notes") in a
private placement to Bear, Stearns & Co. Inc., CIBC World Markets Corp. and
Credit Lyonnais Securities (USA) Inc., as initial purchasers. The Notes were
offered only to "qualified institutional buyers," in accordance with Rule 144A
under the Securities Act of 1933. The initial purchasers' aggregate discount was
$2,800,000. A portion of the net proceeds from the Notes was used to repay $14.0
million of outstanding indebtedness under our senior secured credit facility,
and the remainder will be used to provide capital to support expansion of our
current operations and to fund possible acquisitions of assets and businesses.
Interest on the Notes is payable semi-annually on March 15 and September 15 of
each year, beginning on September 15, 2004. The Notes will mature on March 15,
2024. However, we may redeem all or a portion of the notes for cash on or after
March 15, 2011, at 100% of the principal amount of the notes plus accrued and
unpaid interest. In addition, holders may require us to purchase all or part of
the Notes at a purchase price of 100% of the principal amount per Note plus
accrued and unpaid interest on March 15, 2011, March 15, 2014 and March 15, 2019
or upon the occurrence of a fundamental change. On March 15, 2011, we must pay
the purchase price in cash. On March 15, 2014 and March 15, 2019, we may pay the
purchase price in cash, in shares of our common stock, or in any combination of
cash and common stock.
During certain periods, the Notes are convertible by holders into shares of
our common stock initially at a conversion rate of 51.3611 shares of common
stock per $1,000 principal amount of Notes, which is equivalent to an initial
conversion price of $19.47 per share of common stock (subject to adjustment in
certain events), under the following circumstances: (1) if the closing sale
price of our common stock issuable upon conversion exceeds 120% of the
conversion price under specified conditions; (2) if we call the Notes for
redemption; or (3) upon the occurrence of specified corporate transactions. Upon
conversion of the Notes, in lieu of delivering common stock we may, at our
election, deliver cash or a combination of cash and common stock. The Notes are
general senior unsecured obligations, ranking on a parity in right of payment
with all our existing and future unsecured senior indebtedness and our other
general unsecured obligations, and senior in right of payment to all our future
subordinated indebtedness. The Notes are effectively subordinated to all of our
existing and future secured senior indebtedness to the extent of the assets
securing such indebtedness, and to the claims of all creditors of our
subsidiaries.
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
19
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.
10.1 Amended and Restated Credit Agreement dated March 12, 2004,
among us, certain designated subsidiaries, certain financial
institutions, Credit Lyonnais New York Branch, as
administrative agent, and CIBC Inc., as syndication agent.
10.2 Indenture dated March 12, 2004, between us and JPMorgan Chase
Bank,as trustee.
10.3 Registration Rights Agreement dated March 12, 2004, among Bear
Stearns & Co. Inc., CIBC World Markets Corp., Credit Lyonnais
Securities (USA) Inc. and us.
10.4 Amendment Number 3 to Willbros Group, Inc. 1996 Stock Plan
dated as of January 1, 2004.
10.5 Amendment Number 3 to Willbros Group, Inc. Director Stock Plan
dated as of January 1, 2004.
10.6 Form of Restricted Stock Award Agreement under the Willbros
Group, Inc. 1996 Stock Plan.
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
Form 8-K dated March 4, 2004, filed on March 4, 2004, to
report under Item 5 our press release dated March 4, 2004,
announcing an offering of $60 million aggregate principal
amount of our convertible senior notes due 2024.
Form 8-K dated March 5, 2004, filed on March 5, 2004, to
report under Item 5 our press release dated March 5, 2004,
announcing the pricing of our offering of $60 million
aggregate principal amount of our convertible senior notes due
2024.
20
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 7, 2004 By: /s/ Warren L. Williams
-----------------------------------
Warren L. Williams
Senior Vice President, Chief Financial Officer
and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
21
EXHIBIT INDEX
The following documents are included as exhibits to this Form 10-Q. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
Exhibit
Number Description
---------- --------------------------------------------------------------
10.1 Amended and Restated Credit Agreement dated March 12, 2004,
among us, certain designated subsidiaries, certain financial
institutions, Credit Lyonnais New York Branch, as
administrative agent, and CIBC Inc., as syndication agent.
10.2 Indenture dated March 12, 2004, between us and JPMorgan Chase
Bank, as trustee.
10.3 Registration Rights Agreement dated March 12, 2004, among Bear
Stearns & Co. Inc., CIBC World Markets Corp., Credit Lyonnais
Securities (USA) Inc. and us.
10.4 Amendment Number 3 to Willbros Group, Inc. 1996 Stock Plan
dated as of January 1, 2004.
10.5 Amendment Number 3 to Willbros Group, Inc. Director Stock Plan
dated as of January 1, 2004.
10.6 Form of Restricted Stock Award Agreement under the Willbros
Group, Inc. 1996 Stock Plan.
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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