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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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
APARTADO 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 November 3, 2004 was 21,184,739.
WILLBROS GROUP, INC.
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 2004
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets for September 30, 2004 (unaudited) and
December 31, 2003 3
Condensed Consolidated Statements of Operations (unaudited) for the three
month and nine month periods ended September 30, 2004 and 2003 4
Condensed Consolidated Statement of Stockholders' Equity and Comprehensive
Income (unaudited) for the nine months ended September 30, 2004 5
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine
months ended September 30, 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 14
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 25
Item 4 - Controls and Procedures 25
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 25
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 3 - Defaults upon Senior Securities 25
Item 4 - Submission of Matters to a Vote of Security Holders 25
Item 5 - Other Information 26
Item 6 - Exhibits 26
SIGNATURE 27
EXHIBIT INDEX 28
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 46,302 $ 20,969
Accounts receivable, net........................................... 179,465 101,654
Contract cost and recognized income not yet billed................. 29,973 40,109
Prepaid expenses................................................... 24,056 11,531
------------ ------------
Total current assets......................................... 279,796 174,263
Deferred tax asset....................................................... 4,697 6,948
Spare parts, net......................................................... 6,720 6,363
Property, plant and equipment, net....................................... 111,555 95,528
Investments in joint ventures............................................ 2,744 14,086
Goodwill ............................................................... 10,129 9,360
Other assets............................................................. 12,644 4,874
------------ ------------
Total assets................................................. $ 428,285 $ 311,422
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt................ $ 1,210 $ 1,315
Accounts payable and accrued liabilities........................... 106,832 75,377
Contract billings in excess of cost and recognized income.......... 31,633 7,205
Accrued income taxes............................................... 6,642 -
------------ ------------
Total current liabilities.................................... 146,317 83,897
2.75% Convertible senior notes........................................... 70,000 -
Long-term debt........................................................... 2,586 17,007
Other liabilities........................................................ 863 237
------------ ------------
Total liabilities............................................ 219,766 101,141
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; 21,214,434 shares issued at September 30, 2004
(20,748,498 at December 31, 2003)................................ 1,060 1,037
Capital in excess of par value..................................... 157,231 152,630
Retained earnings.................................................. 52,045 57,741
Treasury stock at cost, 46,196 shares.............................. (345) (345)
Deferred compensation.............................................. (1,533) -
Notes receivable for stock purchases............................... (882) (1,240)
Accumulated other comprehensive income............................. 943 458
------------ ------------
Total stockholders' equity................................... 208,519 210,281
------------ ------------
Total liabilities and stockholders' equity................... $ 428,285 $ 311,422
============ ============
3
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
2004 2003 2004 2003
---- ---- ---- ----
Contract revenue ................................ $ 118,459 $ 91,498 $ 336,800 $ 313,298
Operating expenses:
Contract .................................. 101,401 86,703 284,033 282,027
Depreciation and amortization ............. 6,569 5,490 17,643 16,682
General and administrative ................ 11,386 8,846 33,004 26,471
------------ ------------ ------------ ------------
119,356 101,039 334,680 325,180
------------ ------------ ------------ ------------
Operating income (loss) ............. (897) (9,541) 2,120 (11,882)
Other income (expense):
Interest - net ............................ (927) (349) (2,155) (1,135)
Other - net ............................... (217) 158 305 (130)
------------ ------------ ------------ ------------
(1,144) (191) (1,850) (1,265)
------------ ------------ ------------ ------------
Income (loss) before income
taxes ............................ (2,041) (9,732) 270 (13,147)
Provision (benefit) for income taxes ............ 2,930 (986) 5,966 (3,953)
------------ ------------ ------------ ------------
Net loss ............................ $ (4,971) $ (8,746) $ (5,696) $ (9,194)
============ ============ ============ ============
Earnings (loss) per common share:
Basic ..................................... $ (.24) $ (.42) $ (.27) $ (.45)
============ ============ ============ ============
Diluted ................................... $ (.24) $ (.42) $ (.27) $ (.45)
============ ============ ============ ============
Weighted average number of common shares
outstanding:
Basic ..................................... 20,976,443 20,680,961 20,868,413 20,649,626
============ ============ ============ ============
Diluted ................................... 20,976,443 20,680,961 20,868,413 20,649,626
============ ============ ============ ============
4
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
ACCUMULATED
NOTES OTHER
CAPITAL RECEIVABLE COMPRE- TOTAL
COMMOM 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 - - - (5,696) - - - - (5,696)
Foreign currency
translation
adjustment - - - - - - - 485 485
--------
Total
comprehensive
loss (5,211)
Collection of notes
receivable for
stock purchases - - - - - - 358 - 358
Restricted stock
awards 170,000 8 2,004 - - (2,012) - -- -
Amortization of
deferred compensation - - - - - 479 - - 479
Issuance of common
stock under
employee
benefit plan 12,665 1 174 - - - - - 175
Exercise of stock
options 283,271 14 2,423 - - - - - 2,437
---------- --------- --------- -------- ------- ------- --------- -------- --------
Balance,
September 30, 2004 21,214,434 $ 1,060 $ 157,231 $ 52,045 $ (345) $(1,533) $ (882) $ 943 $208,519
========== ========= ========= ======== ======= ======= ========= ======== ========
5
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
2004 2003
-------- --------
Cash flows from operating activities:
Net loss .......................................................... $ (5,696) $ (9,194)
Reconciliation of net loss to net cash provided
by (used in) operating activities:
Change in equity in joint ventures, net ....................... 10,605 5,396
Depreciation and amortization ................................. 17,643 16,682
Amortization of debt issue cost ............................... 1,575 1,166
Loss (gain) on disposal of property, plant and equipment ...... (3) (392)
Deferred income tax (benefit) expense ......................... 2,404 (1,557)
Non-cash compensation expense ................................. 479 -
Changes in operating assets and liabilities:
Accounts receivable ....................................... (77,334) 11,768
Contract cost and recognized income not yet billed ........ 10,136 (14,047)
Prepaid expenses and other assets ......................... (15,704) (8,200)
Accounts payable, accrued liabilities and contract advances 30,823 8,852
Accrued income taxes ...................................... 6,635 (8,775)
Contract billings in excess of cost and recognized income . 24,428 (8,640)
Other liabilities ......................................... 707 -
-------- --------
Cash provided by (used in) operating activities ...... 6,698 (6,941)
Cash flows from investing activities:
Mt. West Group acquisition earn-out payment ....................... (670) -
Proceeds from sales of property, plant and equipment .............. 884 1,058
Purchase of property, plant and equipment ......................... (28,042) (27,582)
Purchase of spare parts ........................................... (5,994) (4,396)
-------- --------
Cash used in investing activities .................... (33,822) (30,920)
Cash flows from financing activities:
Proceeds from issuance of 2.75% convertible senior notes .......... 70,000 -
Proceeds from issuance of common stock ............................ 2,612 709
Proceeds from notes payable ....................................... 667 2,765
Collection of notes receivable for stock purchases ................ 358 49
Proceeds from long-term debt ...................................... - 8,000
Repayment of long-term debt ....................................... (14,000) -
Costs of debt issues .............................................. (6,088) -
Repayment of notes payable to banks ............................... (1,194) (2,650)
-------- --------
Cash provided by financing activities ................ 52,355 8,873
Effect of exchange rate changes on cash and cash equivalents ............ 102 (234)
-------- --------
Cash provided by (used in) all activities ............................... 25,333 (29,222)
Cash and cash equivalents, beginning of period .......................... 20,969 49,457
-------- --------
Cash and cash equivalents, end of period ................................ $ 46,302 $ 20,235
======== ========
Cash payments made (received) during the period:
Interest expense .................................................. $ 1,533 $ 241
Income taxes ...................................................... $ (982) $ 9,957
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
September 30, 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 interim periods ended September 30,
2004 are not necessarily indicative of the operating results to be achieved for
the full year.
The condensed consolidated financial statements include certain estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities and the reported amounts of
revenue and expenses. Actual results could differ significantly from those
estimates.
Certain reclassifications have been made to the 2003 balances in order to
conform to 2004 presentations.
2. NEW ACCOUNTING PRONOUNCEMENTS
During 2003 and 2004, the Financial Accounting Standards Board ("FASB")
issued the following pronouncements which were reviewed by the Company to
determine the potential impact on the financial statements upon adoption.
FASB Interpretation No. 46, Consolidation of Variable Interest Entities,
an Interpretation of Accounting Research Bulletin No. 51 ("FIN 46") and its
amendment entitled FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities ("FIN 46R") were first issued by the
FASB in January 2003 and revised in December 2003. FIN 46R requires certain
variable interest entities to be consolidated by the primary beneficiary of the
entity if (a) the equity investors in the entity do not have the characteristics
of a controlling financial interest or (b) do not have sufficient equity at risk
for the entity to finance its activities without additional subordinated
financial support from other parties. The adoption of FIN 46R did not have a
material impact on our financial position or results of operations.
On September 30, 2004, the Emerging Issues Task Force confirmed their
consensus on Issue No. 04-8 ("EITF 04-8") "The Effect of Contingently
Convertible Debt on Diluted Earnings per Share," which changes the treatment of
contingently convertible debt instruments in the calculation of diluted earnings
per share. EITF 04-8 provides that shares issuable upon conversion of these debt
instruments be included in the earnings per share computation, if dilutive,
regardless of whether any contingent conditions, such as market price, for their
conversion have been met. EITF 04-8 is expected to be effective for reporting
periods ending after December 15, 2004, and requires restatement of previously
reported earnings per share. The Company will adopt EITF 04-8 as of December 31,
2004 and will include, if dilutive, the assumed conversion of the $70,000 of
2.75% Convertible Senior Notes issued in March and April of 2004 into
approximately 3.6 million shares of common stock in the diluted earnings per
share calculations. The assumed conversion is anti-dilutive in all interim
periods in 2004 and therefore the adoption of EITF 04-8 will have no effect on
previously reported earnings per share.
7
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
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 September 30, 2004 or September 30, 2003, or during the
nine-month periods then ended.
4. 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- month and nine-month
periods ended September 30, 2004 and 2003 would have been as shown in the pro
forma amounts below:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------ ------------------
2004 2003 2004 2003
---- ---- ---- ----
Net income (loss) as reported ...... $ (4,971) $ (8,746) $ (5,696) $ (9,194)
Add stock-based employee
compensation included in net
income, after tax ................ 158 - 479 -
Less stock-based employee
compensation determined under
fair value method, after tax ..... (131) (283) (577) (803)
---------- ---------- ---------- ---------
Pro forma net income (loss) ........ $ (4,944) $ (9,029) $ (5,794) $ (9,997)
========== ========== ========== =========
Income (loss) per share:
Basic, as reported ............... $ (.24) $ (.42) $ (.27) $ (.45)
========== ========== ========== =========
Basic, pro forma ................. $ (.24) $ (.44) $ (.28) $ (.48)
========== ========== ========== =========
Diluted, as reported ............ $ (.24) $ (.42) $ (.27) $ (.45)
========== ========== ========== =========
Diluted, pro forma ............... $ (.24) $ (.44) $ (.28) $ (.48)
========== ========== ========== =========
8
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
5. MT. WEST GROUP ACQUISITION EARN-OUT PAYMENT
On October 23, 2002, the Company acquired all outstanding shares of Mt.
West Fabrication Plants and Stations, Inc., Process Electric and Control, Inc.,
Process Engineering Design, Inc. and Pacific Industrial Electric, Inc.
(collectively, "Mt. West Group"). The purchase price of $13,711 was based on a
multiple of cash flow and consisted of $4,591 cash and acquisition costs and
950,000 shares of common stock valued at $9,120 (based on the average market
price of the Company's common shares over the two-day periods before and after
the date a definitive purchase agreement was signed). In addition, the purchase
price included an earn-out amount equal to 25 percent of the combined adjusted
net income, as defined in the definitive purchase agreement, of Mt. West Group
for the 24-month period following the date of acquisition. During the third
quarter of 2004, the earn-out was settled for $670. This amount was paid to the
former shareholders of Mt. West Group, and accounted for as an increase in
goodwill. Goodwill related to this acquisition increased to $5,018.
6. INCOME TAXES
During the quarter ended September 30, 2004, the Company recorded net
income taxes of $2,930 on loss before income taxes of $2,041. The third quarter
of 2004 tax provision is primarily attributable to the Nigeria deemed profit tax
which is based on a percentage of revenue, rather than taxable income. Nigeria
had a pre-tax loss for the third quarter. During the quarter ended September 30,
2003, the Company recorded a net income tax benefit of $986 on loss before
income taxes of $9,732, resulting in an effective income tax rate of
approximately 10% for the period. The effective rates in these periods differ
from the United States statutory federal income tax rate of 34% primarily as a
result of: (1) income taxes in certain countries being based on deemed profit
rather than taxable income; (2) losses in one country that cannot be used to
offset taxable income in another country; and (3) income that is earned under
foreign contracts which provide tax concessions that eliminate the payment of
income tax.
7. 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, which began 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, or 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 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 $3,213, net of accumulated amortization of
$268, associated with the Convertible Notes are included in other assets at
September 30, 2004 and are being amortized over the seven-year period ending
March 2011. In the event of a default of $10,000 or more on any credit
agreement, including the 2004 Credit Facility, a corresponding event of default
would result under the Convertible Notes.
9
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
8. 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, prohibits 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 $3,346, net
of accumulated amortization of $976, associated with the 2004 Credit Facility
are included in other assets at September 30, 2004 and are being amortized over
a 24-month period ending March 2006.
For the quarter ended June 30, 2004, due to the Company's operating
results and EBITDA levels, an Amendment and Waiver Agreement (the "Agreement")
was obtained from the syndicated bank group to waive non-compliance with a
financial covenant to the credit agreement at June 30, 2004 and to amend certain
financial covenants. The Agreement provides for an amendment of certain
quarterly financial covenants and the multiple of EBITDA calculation with
respect to the borrowing base determination through September 30, 2005. In the
future, an acceleration of debt under the 2004 Credit Facility could occur if
the credit agreement's covenants are not met and the Company is not successful
in obtaining waivers of compliance at that time.
9. EARNINGS PER SHARE
Basic and diluted earnings per common share for the three-month and
nine-month periods ended September 30, 2004 and 2003 are computed as follows:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------ ------------------
2004 2003 2004 2003
---- ---- ---- ----
Net income (loss) applicable to
common shares ................... $ (4,971) $ (8,746) $ (5,696) $ (9,194)
============== =============== ============== ============
Weighted average number of
common shares outstanding
for basic earnings per share .... 20,976,443 20,680,961 20,868,413 20,649,626
Effect of dilutive potential common
shares from stock options ....... - - - -
-------------- --------------- -------------- ------------
Weighted average number of
common shares outstanding
for diluted earnings per share .. 20,976,443 20,680,961 20,868,413 20,649,626
============== =============== ============== ============
Earnings per common share:
Basic ........................... $ (.24) $ (.42) $ (.27) $ (.45)
============== =============== ============== ============
Diluted ......................... $ (.24) $ (.42) $ (.27) $ (.45)
============== =============== ============== ============
At September 30, 2004, there were 1,324,628 potential common shares
(698,141 at September 30, 2003) excluded from the computation of diluted
earnings per share because of their anti-dilutive effect.
10
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
10. INFORMATION ON BUSINESS SEGMENTS
Beginning in the second quarter of 2004, the Company restructured its
business into two operating segments: Engineering and Construction, and
Facilities Development and Operations. This organization reflects the way
management now assesses the performance of the businesses and makes decisions
about allocating resources. Formerly, the Company reported in one operating
segment offering three integrated services: engineering, construction, and
specialty.
All prior period segment results have been restated to reflect this
change.
The Engineering and Construction segment consists of construction of
pipelines, stations and other facilities, engineering, procurement, project
management, and other oilfield services including maintenance, transportation,
dredging, and coating. Specialty services revenue, with the exception of the
fueling facilities and the Venezuela water injection activities, is included in
the Engineering and Construction segment.
The Facilities Development and Operations segment consists of the
development, ownership and operation or lease of assets such as the Opal Gas
Plant. It also includes the four fueling facilities constructed and operated for
the Defense Energy Supply Corporation, an agency of the U.S. government, and the
Lake Maracaibo water injection program in Venezuela, operated and maintained for
Petroleos de Venezuela, S.A. ("PDVSA") by a consortium in which the Company
holds a 10% equity interest.
11
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
10. INFORMATION ON BUSINESS SEGMENTS (CONTINUED)
Revenue, contract income (contract revenue less contract costs) and total
assets by operating segment on a comparable basis for the three-month and
nine-month periods ended September 30, 2004 and 2003, are as follows:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
2004 2003 2004 2003
---- ---- ---- ----
Revenue:
Engineering and construction................. $ 110,699 $ 90,365 $ 320,790 $ 309,683
Facilities development and operations........ 7,760 1,133 16,010 3,615
----------- ----------- ----------- -----------
$ 118,459 $ 91,498 $ 336,800 $ 313,298
=========== =========== =========== ===========
Reconciliation of segment income to
income (loss) before income taxes:
Contract income by operating segment:
Engineering and construction............. $ 14,658 $ 3,782 $ 47,358 $ 28,557
Facilities development and operations.... 2,400 1,013 5,409 2,714
----------- ----------- ----------- -----------
Contract income...................... 17,058 4,795 52,767 31,271
Other operating costs and expenses:
Depreciation and amortization............ $ 6,569 $ 5,490 $ 17,643 $ 16,682
General and administrative............... 11,386 8,846 33,004 26,471
----------- ----------- ----------- -----------
Operating income (loss).............. (897) (9,541) 2,120 (11,882)
Other income (expense)..................... (1,144) (191) (1,850) (1,265)
----------- ----------- ----------- -----------
Income (loss) before income taxes............... $ (2,041) $ (9,732) $ 270 $ (13,147)
=========== =========== =========== ===========
SEPTEMBER 30, 2004 DECEMBER 31, 2003
------------------ -----------------
Total assets:
Engineering and construction............... $ 330,193 $ 248,975
Facilities development and operations...... 27,465 23,338
General corporate.......................... 70,627 39,109
----------- -----------
$ 428,285 $ 311,422
=========== ===========
11. CONTINGENCIES, COMMITMENTS AND OTHER CIRCUMSTANCES
The Company provides engineering and construction services to the oil, gas
and power industries, and develops, owns and operates assets developed under
"Build, Own and Operate" contracts. 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 material events of the type described in the countries in
which it operates that have not been provided for in the accompanying condensed
consolidated financial statements.
12
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
11. CONTINGENCIES, COMMITMENTS AND OTHER CIRCUMSTANCES (CONTINUED)
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 condensed
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 borrowing with two banks. The guarantee reduces as
borrowings are repaid. The commitment as of September 30, 2004 totals
approximately $3,322, 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
September 30, 2004, the Company had approximately $34,963 of letters of credit
and $78,997 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 September 30, 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
company of similar size engaged in a similar type of business and that none of
these proceedings is material to the Company's financial position.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and the notes thereto 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 engineering and construction
services, and developing, owning and operating facilities for the oil, gas and
power industries and government entities worldwide. In the first nine months of
2004, our revenue was primarily generated from operations in Canada, Ecuador,
Iraq, Nigeria, Oman, the United States and Venezuela. We obtain contracts for
our work mainly by competitive bidding or through negotiations with
long-standing clients. Contracts have durations from a few weeks to several
months or in some cases more than a year.
Our current market environment is characterized by strength in
international markets, primarily West Africa, and continued weakness in North
America. Outside of North America, we are transitioning from a market
environment which was characterized by depressed margins, onerous contractual
terms and "back-ended" payment schedules. Now, we believe we are beginning to
see an improvement in these areas which should result in better sharing of
contractual risk, improved payment terms and increased profitability.
Willbros has been awarded almost $300,000 of new contracts during the
third quarter of 2004. These recent awards have resulted in another record
backlog of $583,886, a $168,537 or 41% increase over this year's second quarter
$415,349 record backlog. We remain confident that imminent work awards between
now and the end of the first quarter of 2005 should result in this number
increasing substantially. We continue to be selective since some of our areas of
operation continue to be plagued with older projects of higher contractual risk
and lower margins. Our main emphasis now is to optimize our execution of the
record backlog and to increase profitability. Further, we view the current
business environment as favorable to our strategic objective to grow the
Company, and we remain alert to possibilities for expansion of our service
offerings and geographic reach.
We are expecting to commence significant additional work in West Africa
and Nigeria during the next several quarters and expect that market to remain
strong through 2006. In addition to the Shell Petroleum Development Company
Eastern Gas Gathering System ("EGGS") contract, we have recently been awarded a
contract ("EPC4") from Mobil Producing Nigeria Unlimited for approximately
$200,000 to retrofit and revamp existing platforms located offshore West Africa.
(See "Significant Business Developments" for additional details on the Shell
EGGS and the Mobil EPC4 contracts). These new projects are major components of
our revenue stream going into 2005. Smaller contracts in Nigeria continue to be
awarded; the most recent awards were primarily for concrete weight coating of
pipe for new pipelines. Expanded concrete weight coating and new offshore
fabrication services are two service capabilities that are expected to provide
additional revenue as the Nigerian government continues to push for more
Nigerian content in construction projects.
While most of the new awards are in West Africa, we see major
opportunities in the Middle East and South America where we are well
established, and in Southeast Asia, where we recently bid on a major project.
Our prospect list continues to reflect increasing opportunities for the next 12
to 24 months of approximately $7 billion.
The move towards Liquefied Natural Gas ("LNG") as a solution to declining
natural gas production in North America is expected to bring more opportunities
to Willbros, both in North America and in the producing and exporting countries.
Willbros is participating in the growth of the LNG energy transportation
infrastructure and we have LNG associated projects currently underway valued at
over $300,000 including:
- The EGGS project in Southern Nigeria,
- The EPC award from Trunkline Gas Company in the United States,
14
- A five-year maintenance contract with Oman LNG, and
- The current OGGS contract which is for facilities work in the
Nigerian LNG Plant at Bonny Island.
We expect to have more opportunities to participate in similar projects as LNG
solutions to supply the North American and global markets are developed.
In North America, we now believe that improvement in revenue and contract
margins in 2005 will have to come from gains in market share. Our Engineering,
Procurement and Construction ("EPC") capability and financial strength relative
to our competitors provide us with a competitive advantage which we believe may
enable us to gain market share in a lean year in terms of opportunities and
margins.
Also in North America, we have seen progress in the development of both
the Mackenzie Valley Pipeline in Canada and the Alaska Gas Pipeline. The
Mackenzie Valley Pipeline filed its environmental impact statement in early
October and its application for permits with the regulatory authorities in
Canada. The Alaska Gas Pipeline project was involved in several recent actions,
including a federal guarantee for up to $18 billion, which was signed into law
on October 13, 2004.
FINANCIAL SUMMARY
For the quarter ended September 30, 2004, we had a net loss of $4,971 or
$0.24 per share on revenue of $118,459. This compares to revenue of $91,498 in
the same quarter in 2003, when we reported a net loss of $8,746 or $0.42 per
share.
Revenue of $118,459 in the third quarter of 2004 increased 29.5 percent
over revenue for the third quarter of 2003. In the Middle East, revenue
increased $3,737 as compared to 2003 due to the work performed in Iraq. In West
Africa, revenue increased by $16,350 primarily due to the start-up of two major
projects. This increase was offset somewhat by delays in call-out work in West
Africa, delays and work interruptions as a result of labor actions and community
disturbances in Nigeria and the completion of work on the Chad-Cameroon Pipeline
Project in the third quarter of 2003. In North America, revenue was up $8,765 as
compared to a year ago with $6,798 of the increase attributable to the first
quarter of 2004 start-up of the Opal Gas Plant.
Contract income and margin in third quarter 2004 were $17,058 and 14.4
percent, respectively which compare favorably to contract income and margin in
the third quarter of 2003 of $4,795 and 5.2 percent. While the contract margin
for the third quarter of 2004 is a significant improvement from a year ago it is
still below our target range of 17 to 20 percent. Contract margin in the third
quarter of 2004 was negatively impacted by unresolved claims related to work
performed outside the scope of the initial contracts (no revenue to offset
costs), contract variations for which the price of the additional work has not
been finalized (revenue equals costs), and revenue generated in the period for
which no contract margin was recognized due to the application of
percent-of-completion accounting regulations for long-term contracts. Three
projects in West Africa were significantly affected by these accounting issues
and contributed to the margin erosion in this quarter of approximately $4,300 or
3.6 percent. We also had one project where we positively resolved issues like
those discussed above, resulting in a $900 increase in contract income or a 0.7
percent increase in contract margin.
G&A expenses increased $2,540 from $8,846 in the third quarter of 2003 to
$11,386 in the third quarter of 2004. We continued to experience increased
levels of G&A expense in the third quarter of this year; although, as a
percentage of revenue, G&A expense in the third quarter of 2004 was 9.6%, a
slight decrease of 0.1% as compared to the same quarter in 2003. The major
contributors to the increased G&A expense levels were marketing and bidding
expenses in Asia, the Middle East and Latin America, which resulted in new
prospects of approximately $1 billion, pre-award staffing to support the
recently awarded major projects, and increased cost associated with regulatory
compliance. As we look forward to 2005, we would expect to see our G&A expense
as a percent of revenue return to less than 8 percent.
In the current quarter, we recognized $2,930 in income tax expense on a
pre-tax loss of $2,041. The income tax provision is the result of accruing
income taxes in Nigeria where taxes are calculated and paid based upon revenue
versus pre-tax income. Two factors drove the $3,916 increase in income taxes in
the third quarter of 2004, as compared to the third quarter of 2003. First, last
year in North America, the
15
Company recognized a tax benefit of $3,211 due to pretax losses as compared to a
$227 benefit for taxes in North America in the third quarter of 2004. Secondly,
international income taxes were up quarter-to-quarter by approximately $932 due
to increased revenue in Nigeria where our taxes are based primarily on revenue.
For the first nine months of 2004 the Company is experiencing an effective
income tax rate, outside of North America, of approximately 141 percent of
pre-tax income for the following reasons:
- Income taxes in Nigeria are paid based upon a percentage of revenue
without consideration of profitability of the legal entity,
- Contract margins and pre-tax income in Nigeria have been negatively
impacted by unresolved contract variations and unapproved change
orders where pricing has not been determined; and
- Pre-tax losses in one country cannot be used to offset pre-tax
income in another country.
In North America the effective income tax rate is approximately 38 percent. We
continue to investigate and explore ways to optimize our tax structure on a
worldwide basis and reduce our consolidated effective income tax rate.
In March and April 2004, we sold $70,000 of 2.75% Convertible Notes and we
amended and expanded our credit facility. (For additional information, see the
related discussions under "Liquidity and Capital Resources.") We believe that
these financing transactions have improved our liquidity and, combined with cash
flows from operations, will be sufficient to finance our working capital and
capital expenditure requirements for forecasted operations. 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 in our
Facilities segment. Willbros remains in a 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 nine-month period ended September 30, 2004.
SIGNIFICANT BUSINESS DEVELOPMENTS
OPAL GAS PLANT
In late March 2004, we commenced commercial production from our newly
constructed Opal Gas Plant, located near Opal, Wyoming. This gas plant adds a
new source of long-term revenue to complement our revenue stream from our
project work. In 2003, we completed agreements with Williams Gas Processing
Company ("Williams") that allowed us to design and construct our Opal Gas Plant.
The plant is designed to process approximately 350,000 MCF per day of natural
gas, producing 294,000 to 462,000 gallons per day of natural gas liquids at
various operating conditions. We receive a $0.0175 per MCF processing fee under
a 10-year contract through March 2014, and net approximately 38.8% of the
liquids sales after payment to Williams for the contracted operations of the
Opal Gas Plant.
NEW OPERATING SEGMENT
Beginning in the second quarter of 2004 and concurrent with the start-up
of the Opal Gas Plant, we restructured our business into two operating segments.
We believe this organization more accurately reflects the way our management now
assesses the performance of our businesses and makes decisions about allocating
resources. The Facilities Development and Operations ("Facilities") segment
consists of the development, ownership and operation or lease of assets such as
the Opal Gas Plant. It will also include the four fueling facilities constructed
and operated for the Defense Energy Supply Corporation, an agency of the U.S.
government, and the Lake Maracaibo water injection program in Venezuela,
operated and maintained for PDVSA by a consortium in which we hold a 10% equity
interest.
16
The Engineering and Construction ("E&C") segment provides construction of
pipelines, stations and other facilities, engineering, procurement, project
management, and other oilfield services including maintenance, transportation,
dredging, and coating. Specialty services revenue, with the exception of the
fueling facilities and the Venezuela water injection activities, will be
included in the Engineering and Construction segment. Formerly, we reported in
one operating segment offering three integrated services - construction,
engineering and specialty services.
NIGERIA - EASTERN GAS GATHERING SYSTEM ("EGGS") PROJECT
At the end of the second quarter of 2004, Willbros Nigeria Ltd., with
operations based in Port Harcourt, Nigeria, was awarded an EPC contract for a
new gas transmission pipeline for Shell Petroleum Development Company. The
40-inch diameter, high pressure natural gas pipeline will be routed between the
Soku gas plant and the Nigeria Liquefied Natural Gas terminal on Bonny Island in
Nigeria, a distance of approximately 83 kilometers. The pipeline is part of the
EGGS Project, and the contract is valued at approximately $246,000. Engineering
and procurement activities for the construction and pipe coating projects
commenced in the third quarter of 2004, with the project moving to the field for
construction in late 2004 or early 2005. Completion is scheduled for the fourth
quarter of 2005.
NIGERIA - PLATFORMS RETROFIT AND WELLHEAD TIE-INS PROJECT
In mid-August 2004, Willbros (Offshore) Nigeria Limited ("WONL") and
Willbros West Africa, Inc. ("WWAI") received a letter of intent ("LOI") from
Mobil Producing Nigeria Unlimited ("MPNU") to commence preliminary engineering
and design work for the EPC4 project located offshore West Africa. The EPC4
contract, encompassing both fixed sum and time and material work, was recently
executed by all parties and is initially projected to have a value of
approximately $200,000. MPNU has entered into separate contracts for work inside
Nigeria with WONL and work outside of Nigeria with WWAI. The project covers the
retrofitting and revamping of facilities on existing offshore platforms.
Engineering activities commenced with the signing of the LOI. Procurement
activities began in the fourth quarter of 2004. Field work is expected to
commence in the second quarter of 2005 and continue through 2006.
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 nine-month period ended September 30, 2004 was $20,068
as compared to $4,670 for the same period in 2003. The $15,398 (329.7%) increase
in EBITDA is primarily the result of improved contract income related to a 5.5%
increase in E&C margins, partially offset by increased G&A costs.
A reconciliation of EBITDA to GAAP financial information follows:
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
2004 2003
---- ----
Net loss $ (5,696) $ (9,194)
Interest expense, net 2,155 1,135
Provision (benefit) for income taxes 5,966 (3,953)
Depreciation and amortization 17,643 16,682
--------- --------
EBITDA $ 20,068 $ 4,670
========= ========
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
17
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 September 30,
2004 was $583,886 with an estimated embedded margin of 22.6%, as compared to
$224,712 at December 31, 2003 with an estimated embedded margin of 29.6%. The
$359,174 increase in backlog as compared to the end of 2003 is primarily the
result of several significant contract awards in the second and third quarters.
The $246,000 EGGS project was awarded in the second quarter followed by the
approximately $200,000 EPC4 project in the third quarter. Included in the
backlog total at September 30, 2004 is $21,047 of gas processing fee 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 and
is based on expected gas volumes to be processed. If backlog amounts were
reduced by eliminating the effects of the Opal gas processing contract, the
adjusted estimated embedded margin would be 19.7% and 22.0%, as of September 30,
2004 and December 31, 2003, respectively. We estimate that $100,000 (17.1%) of
the current backlog will be worked off during the remainder of 2004.
Backlog by major geographical area and reporting segment is as follows:
SEPTEMBER 30, 2004 DECEMBER 31, 2003
------------------ -----------------
By Geographic Area
West Africa $463,498 $ 49,942
Latin America 13,417 23,230
Middle East 2,743 57,853
North America 104,228 93,687
-------- --------
$583,886 $224,712
======== ========
By Reporting Segment
Engineering & Construction $541,801 $182,236
Facilities Development & Operations 42,085 42,476
-------- --------
$583,886 $224,712
======== ========
RESULTS OF OPERATIONS
During the second quarter of 2004, Willbros changed the way the business
is managed by establishing two separate operating segments: (1) Engineering &
Construction ("E&C"), and (2) Facilities Development and Operations
("Facilities"). Facilities is comprised of the recently constructed Opal Gas
Plant, fuel depot facilities and a 10% equity interest in a Venezuelan joint
venture to provide water injection services. The bulk of the Company's activity
continues to take place within the E&C segment. Specialty services revenue, with
the exception of the fueling facilities and the Venezuela water injection
activities, are included in the E&C segment.
Our E&C 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.
Facilities revenue is heavily concentrated in the operations of our Opal
Gas Plant. Revenues and contract income are dependent on the volume of gas
furnished to the plant and the relative price differential between equivalent
heating value contained in natural gas and natural gas liquids ("NGL"). During
the second quarter of 2004, the gas plant averaged slightly over 279,000 MCF of
processed gas per day and produced an average of 242,000 gallons of NGLs per
day. We receive approximately 38.8% of the NGL production. The processed volumes
represented approximately 80% of the 350,000 MCF per day design capacity.
18
THREE MONTHS ENDED SEPTEMBER 30, 2004, COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2003
CONTRACT REVENUE
Contract revenue increased $26,961 (29.4%) to $118,459 in the third
quarter of 2004 over the same period in 2003 as detailed in the table below:
CONTRACT REVENUE - THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------
INCREASE PERCENT
2004 2003 (DECREASE) CHANGE
-------- -------- -------- ------
E & C $110,699 $ 90,365 $ 20,334 22.5%
Facilities 7,760 1,133 6,627 584.9%
-------- -------- --------
Total Contract Revenue $118,459 $ 91,498 $ 26,961 29.4%
======== ======== ========
During the third quarter of 2004, E&C revenue increased $20,334 (22.5%) as
compared to the same period in 2003 primarily as a result of increases in
onshore Nigeria ($39,601) related to the start-up of the Shell Petroleum
Development Company EGGS and Offshore Gas Gathering System ("OGGS") projects,
partially offset by delays in call-out work in West Africa, delays and work
interruptions as a result of labor actions and community disturbances in Nigeria
($10,992), and the completion of work on the Chad-Cameroon Pipeline Project in
the third quarter of 2003 ($4,816).
During the third quarter of 2004, Facilities revenue increased $6,627
(584.9%) as compared to the same period of 2003 because of $6,798 of revenue
from the Opal Gas Plant which commenced commercial production in the first
quarter of 2004. Opal Gas Plant revenue represented 87.6% of the third quarter
Facilities segment revenue.
CONTRACT INCOME
Contract income increased $12,263 (255.7%) to $17,068 in the third quarter
of 2004 over the same period in 2003 as detailed in the table below:
CONTRACT INCOME - THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------
INCREASE PERCENT
2004 2003 (DECREASE) CHANGE
-------- -------- -------- ------
E & C $ 14,658 $ 3,782 $ 10,876 287.6%
Facilities 2,400 1,013 1,387 136.9%
-------- -------- --------
Contract Income $ 17,058 $ 4,795 $ 12,263 255.7%
======== ======== ========
During the third quarter of 2004, E&C contract income increased $10,876
(287.6%) as compared to the same period in 2003 primarily as a result of a 9.1%
improvement in margin ($8,184) and the additional margin associated with the
$20,334 revenue increase ($2,692). While international margins remained
relatively unchanged quarter-to-quarter, North American margins increased 22.5%
to 12.3% in the third quarter of 2004 as compared to a negative 10.2% in the
third quarter of 2003. The third quarter 2004 margin increase is amplified by
the results recognized in the third quarter of 2003 when three of the four North
American business units experienced negative margins and losses in contract
income. The revenue increase was primarily related to the start-up of two West
Africa projects in the third quarter of 2004 - EGGS and OGGS.
During the third quarter of 2004, Facilities contract income increased
$1,387 (136.9%) as compared to the same period in 2003. The contract income
increase is related to the 2004 start-up of the Opal Gas Plant.
OTHER OPERATING ITEMS
Depreciation and amortization expense increased by $1,079 (19.7%) in the
third quarter of 2004 as compared to the same period in 2003 because of
additional capital spending in Nigeria and Oman to support new and existing
projects and depreciation charges related to the Opal Gas Plant's 2004 start-up.
19
G&A expense increased from $8,846 in the third quarter of 2003 to $11,386
in the third quarter of this year, an increase of $2,540 (28.7%). The major
contributors to the increased G&A expense levels in the third quarter of 2004
were marketing and bidding expenses in Asia, the Middle East and Latin America,
which resulted in new prospects of over $1 billion; pre-award staffing to
support the recently awarded major projects in West Africa and increased cost
associated with regulatory compliance.
Operating loss decreased $8,644 from $9,541 in the third quarter of 2003
to $897 in the third quarter of 2004. The improvement was primarily the result
of the $26,961 increase in revenue and the strengthened North American E&C
margins partially offset by increased G&A costs.
NON-OPERATING ITEMS
Net interest expense increased $578 to $927 in the third quarter of 2004
as compared to the same period in the prior year. The increased interest expense
reflects the addition of the $70,000 of Convertible Notes and amortization of
the additional debt issue costs.
The provision for income taxes was $2,930 on a pre-tax loss of $2,041 for
the third quarter of 2004. The income tax provision is the result of accruing
income taxes in Nigeria where taxes are calculated and paid based upon revenue
versus pre-tax income. An increased tax expense of $3,916 results from comparing
the third quarter of 2004 with the same quarter of 2003 when a $986 tax benefit
was recognized. The unfavorable variance is largely the result of improved third
quarter of 2004 performance among the North America business units. In North
America, the Company recognized a tax benefit of $3,211 due to pretax losses in
the third quarter of 2003 as compared to a tax benefit of $227 in the third
quarter of 2004. Additionally, international income taxes were up
quarter-to-quarter by $932 due to increased revenue in Nigeria where our taxes
are based primarily on revenue.
NINE MONTHS ENDED SEPTEMBER 30, 2004, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 2003
CONTRACT REVENUE
Contract revenue increased $23,502 (7.5%) to $336,800 in the first nine
months of 2004 over the same period in 2003 as detailed in the table below:
CONTRACT REVENUE - NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------
INCREASE PERCENT
2004 2003 (DECREASE) CHANGE
-------- -------- -------- ------
E & C $320,790 $309,683 $ 11,107 3.6%
Facilities 16,010 3,615 12,395 342.9%
-------- -------- --------
Total Contract Revenue $336,800 $313,298 $ 23,502 7.5%
======== ======== ========
During the first nine months of 2004, E&C revenue increased $11,107 (3.6%)
as compared to the same period in 2003. International revenue increased $6,504
(3.4%) primarily from new work in Iraq ($51,012) and the third quarter of 2004
start-up of two new West Africa projects ($39,601), partially offset by the
completion of the Chad-Cameroon Pipeline Project in 2003 ($51,143) and a
year-to-year reduction in West Africa revenue related to delays in call-out
work, and delays and work interruptions stemming from labor actions and
community disturbances. North America revenue increased $4,603 (4.0%) largely
from increased U.S. pipeline construction activity.
During the first nine months of 2004, Facilities revenue increased $12,395
(342.9%) as compared to the same period in 2003 because of $13,245 of revenue
from the Opal Gas Plant which commenced commercial production late in the first
quarter of 2004. Opal Gas Plant revenue represents 82.7% of the first nine
months of 2004 Facilities revenue.
20
CONTRACT INCOME
Contract income increased $21,496 (68.7%) to $52,767 in the first nine
months of 2004 over the same period in 2003 as detailed in the table below:
CONTRACT INCOME - NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------
INCREASE PERCENT
2004 2003 (DECREASE) CHANGE
-------- -------- -------- ------
E & C $ 47,358 $ 28,557 $ 18,801 65.8%
Facilities 5,409 2,714 2,695 99.3%
-------- -------- --------
Contract Income $ 52,767 $ 31,271 $ 21,496 68.7%
======== ======== ========
During the first nine months of 2004, E&C contract income increased
$18,801 (65.8%) as compared to the same period in 2003. Improving North American
margins resulted in a $14,192 increase in contract income. The North American
margin for the first nine months of 2004 was 9.2% as compared to a negative 2.8%
margin for the same period in 2003, an 11.9% period-to-period increase.
Improvements in North American margins were a result of our engineering group's
cost reduction initiatives and our pipeline construction group's 42% revenue
increase. The margin improvements were amplified by a weak market in 2003.
Internationally, contract income increased $4,609 in the first nine months of
2004, as compared to the same period in 2003, from the combined effects of
contract income improvements attributable to the $6,307 second quarter Bolivia
Transierra Pipeline contract variation settlement and new 2004 work in the
Middle East, primarily in Iraq. These improvements were largely offset by the
completion of the Chad-Cameroon Pipeline Project in 2003 and year-to-year
decline in offshore Nigeria revenue levels and margins.
During the first nine months of 2004, Facilities contract income increased
$2,695 (99.3%) as compared to the same period in 2003 because of the 2004
start-up of the Opal Gas Plant.
OTHER OPERATING ITEMS
Depreciation and amortization expense increased $961 (5.8%) primarily due
to new depreciation charges related to the Opal Gas Plant's 2004 start-up and
additional capital spending in Nigeria and Oman to support new and existing
projects, partially offset by the elimination of depreciation expense on assets
for the Chad-Cameroon Pipeline Project that was completed in 2003.
G&A expense increased from $26,471 in the first nine months of 2003 to
$33,004 in the first nine months of the current year, an increase of $6,533
(24.7%). The major contributors to the increased G&A expense levels in the first
nine months of 2004 were marketing and bidding expenses in Asia, the Middle East
and Latin America, which resulted in new prospects of approximately $1 billion;
pre-award staffing to support the recently awarded major projects; increased
levels of activity in Oman and Iraq, costs associated with negotiations and
settlement on outstanding contract variations, and increased cost associated
with regulatory compliance.
Operating income increased $14,002 to $2,120 for the first nine months of
2004 from an operating loss of $11,882 in the same period in 2003. The operating
income increase is due to increased contract income, driven by improved margins
and higher revenue levels, partially offset by increased G&A expense.
NON-OPERATING ITEMS
Net interest expense increased $1,020 to $2,155 during the first nine
months of 2004 as compared to the same period in the prior year. The increased
interest expense reflects the addition of the $70,000 of Convertible Notes and
amortization of debt issue costs.
We recognized a $5,966 tax expense on a $270 pre-tax income for the first
nine months of 2004, an increase of $9,919 when compared to the $3,953 tax
benefit recognized for the first nine months of 2003. The $9,919 increase in
income tax expense includes the recognition of $2,401 of tax expense related to
the Bolivia Transierra Pipeline contract variation settlement. By comparison, in
the prior year a $1,291 tax benefit was recognized in Bolivia. The remainder of
the increase is primarily attributable to improved first nine months of 2004
performance for the North American business units.
21
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL REQUIREMENTS
Our primary requirements for capital are to acquire, upgrade and maintain
equipment, provide working capital for 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 and April 2004 Convertible Notes offering.
WORKING CAPITAL
Cash and cash equivalents increased $25,333 (120.8%) to $46,302 at
September 30, 2004 from $20,969 at December 31, 2003. The increase consists
mainly of $70,000 from the sale of the Convertible Notes less the $14,000
repayment of the outstanding balance on the June 2002 credit agreement and
$6,088 of debt issue cost related to the Convertible Notes and the 2004 Credit
Facility, and $6,698 provided by operating activities. This increase was
partially offset by $34,036 of investing activities related to the acquisition
of equipment and spare parts for the new major projects, implementation of a new
information system and the final costs to make the Opal Gas Plant fully
operational.
Working capital increased $43,113 (47.7%) to $133,479 at September 30,
2004 from $90,366 at December 31, 2003. The increase was primarily attributable
to increased cash of $25,333, and increased prepaid expenses of $12,525,
including $6,036 for a stockpile of iron ore for the concrete weight coating
projects, and increased receivables of $77,811 partially offset by increased
accounts payable and accrued liabilities ($31,455) and contract billings in
excess of cost and recognized income ($23,705).
Stockholders' equity was $208,519 as of September 30, 2004, a decrease of
0.8% from the $210,281 at December 31, 2003.
We believe the anticipated increase in revenue, improvement in contract
margins and a focus on reducing working capital requirements internationally
will improve the Company's positive cash flow from operations in the fourth
quarter of 2004.
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 totaled $70,000.
Completion of the Convertible Notes offering enhances our competitive position
in the marketplace 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 15 and September 15. The initial payment was made
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, or 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 $1,000.00 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. 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 $10,000 or more on any credit agreement, including
the 2004 Credit Facility, a corresponding event of default would result under
the Convertible Notes. $14,000 of the net proceeds
22
of approximately $67,024 from the March and April 2004 sale of Convertible Notes
were used to repay all outstanding indebtedness under the $125,000 June 2002
credit agreement. The remainder will be used for working capital and for general
corporate purposes.
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 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 $30,000 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 our assets, including stock
of our principal subsidiaries, prohibits 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.
For the quarter ended June 30, 2004, due to the Company's operating
results and EBITDA levels, an Amendment and Waiver Agreement (the "Agreement")
was obtained from the syndicated bank group to waive non-compliance with a
financial covenant to the credit agreement at June 30, 2004 and to amend certain
financial covenants. The Agreement provides for an amendment of certain
quarterly financial covenants and the multiple of EBITDA calculation with
respect to the borrowing base determination through June 30, 2005. In the
future, an acceleration of debt under the 2004 Credit Facility could occur if
the credit agreement's covenants are not met and the Company is not successful
in obtaining waivers of compliance at that time.
As of September 30, 2004, the 2004 Credit Facility had no outstanding
borrowings and $34,963 in letters of credit outstanding. Under the borrowing
base that is applicable to September 30, 2004 (based on August 31, 2004
financial statements), a total of $82,086 was available for the issuance of
additional letters of credit and cash borrowings. Letters of credit are advanced
at 75% of their face value, therefore indicating that a maximum of $109,448
could be used to issue letters of credit if the full availability were used for
the issuance of letters of credit. Cash borrowings are restricted to $30,000.
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 $7,500 and $2,500, respectively. 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 certain customer payments have been delayed beyond their
anticipated payment date, we do not at this time 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.
23
CONTRACTUAL OBLIGATIONS
As of September 30, 2004, we had $70,000 of outstanding debt related to
the Convertible Notes. All of the outstanding debt under the $125,000 June 2002
credit agreement was repaid from the proceeds of the Convertible Notes offering.
The October 23, 2002 acquisition of Mt. West Group included an earn-out
amount in the purchase price equal to 25 percent of the combined adjusted net
income, as defined in the definitive purchase agreement, of Mt. West Group for
the 24-month period following the date of acquisition. During the third quarter
of 2004, the earn-out was settled for $670. This amount was paid to the former
shareholders of Mt. West Group, and accounted for as an increase in goodwill.
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 2 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 in general and new prospects in particular, 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:
- curtailment of capital expenditures in the oil, gas, and power
industries;
- political or social circumstances impeding the progress of our work;
- the timely award of one or more projects;
- cancellation of projects;
- inclement weather;
- project cost overruns, unforeseen schedule delays, and liquidated
damages;
- failing to realize cost recoveries from projects completed or in
progress within a reasonable period after completion of the relevant
project;
- identifying and acquiring suitable acquisition targets on reasonable
terms;
- obtaining adequate financing;
- downturns in general economic, market or business conditions in our
target markets;
- changes in the effective tax rate in countries where the work will
be performed;
- changes in laws or regulations;
- 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;
- ability to manage insurable risk at an affordable cost;
- the demand for energy diminishing; and
- 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
24
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 September 30, 2003 and
2004 or during the nine-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 September 30, 2004 due to
the generally short maturities of these items. At September 30, 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 September 30, 2004, none of our outstanding
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 September 30, 2004. Based on this evaluation, our management,
including our Chief Executive Officer and Chief Financial Officer, concluded
that, as of September 30, 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 September 30, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. UNREGISTERED SALES OF EQUITY 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
25
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. 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 or furnished herewith.
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.
26
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLBROS GROUP, INC.
Date: November 9, 2004 By: /s/ Warren L. Williams
----------------------------------------
Warren L. Williams
Senior Vice President, Chief Financial Officer
and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
27
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 or furnished herewith.
Exhibit
Number Description
- ------ -----------
31.1 Certification 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 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 pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
28