Attached files
file | filename |
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EX-31.1 - Willbros Group, Inc.\NEW\ | v164534_ex31-1.htm |
EX-31.2 - Willbros Group, Inc.\NEW\ | v164534_ex31-2.htm |
EX-32.1 - Willbros Group, Inc.\NEW\ | v164534_ex32-1.htm |
EX-32.2 - Willbros Group, Inc.\NEW\ | v164534_ex32-2.htm |
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, 2009
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)
Delaware
|
30-0513080
|
(Jurisdiction
of incorporation)
|
(I.R.S.
Employer Identification
Number)
|
4400
Post Oak Parkway
Suite
1000
Houston,
TX 77027
Telephone
No.: 713-403-8000
(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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
Accelerated Filer x
Accelerated Filer ¨
Non-Accelerated Filer ¨
Smaller Reporting Company ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No
x
The number of shares of the
registrant’s Common Stock, $.05 par value, outstanding as of October 30, 2009 was
39,637,466.
WILLBROS
GROUP, INC.
FORM
10-Q
FOR
QUARTER ENDED SEPTEMBER 30, 2009
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements
|
Page
|
Condensed
Consolidated Balance Sheets as of September 30, 2009 (Unaudited)
and December 31, 2008
|
3
|
Condensed
Consolidated Statements of Operations (Unaudited) for the three months and
nine months ended September 30, 2009 and 2008
|
4
|
Condensed
Consolidated Statement of Stockholders’ Equity and Comprehensive Income
(Loss) (Unaudited) for the nine months ended September 30,
2009
|
5
|
Condensed
Consolidated Statements of Cash Flows (Unaudited) for the nine
months ended September 30, 2009 and 2008
|
6
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
7
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
25
|
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
39
|
Item
4. Controls and Procedures
|
39
|
PART
II – OTHER INFORMATION
|
|
Item
1. Legal Proceedings
|
40
|
Item
1A . Risk Factors
|
40
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
40
|
Item
3. Defaults upon Senior Securities
|
40
|
Item
4. Submission of Matters to a Vote of Security Holders
|
40
|
Item
5. Other Information
|
40
|
Item
6. Exhibits
|
41
|
SIGNATURE
|
42
|
EXHIBIT
INDEX
|
43
|
2
WILLBROS
GROUP, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except share and per share amounts)
(Unaudited)
PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 243,723 | $ | 207,864 | ||||
Accounts
receivable, net
|
162,795 | 189,968 | ||||||
Contract
cost and recognized income not yet billed
|
44,060 | 64,499 | ||||||
Prepaid
expenses
|
13,470 | 13,427 | ||||||
Parts
and supplies inventories
|
4,648 | 3,367 | ||||||
Assets
of discontinued operations
|
1 | 2,686 | ||||||
Total
current assets
|
468,697 | 481,811 | ||||||
Property,
plant and equipment, net
|
135,632 | 149,988 | ||||||
Goodwill
|
85,062 | 80,365 | ||||||
Other
intangible assets
|
38,032 | 39,786 | ||||||
Deferred
tax assets
|
28,643 | 30,104 | ||||||
Other
assets
|
2,224 | 5,290 | ||||||
Total
assets
|
$ | 758,290 | $ | 787,344 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued liabilities
|
$ | 100,360 | $ | 155,305 | ||||
Contract
billings in excess of cost and recognized income
|
25,683 | 18,289 | ||||||
Current
portion of capital lease obligations
|
6,325 | 9,688 | ||||||
Notes
payable and current portion of other long-term debt
|
- | 1,090 | ||||||
Current
portion of government obligations
|
6,575 | 6,575 | ||||||
Accrued
income taxes
|
710 | 5,089 | ||||||
Liabilities
of discontinued operations
|
- | 609 | ||||||
Other
current liabilities
|
1,785 | - | ||||||
Total
current liabilities
|
141,438 | 196,645 | ||||||
Capital
lease obligations
|
11,884 | 25,186 | ||||||
Long-term
debt
|
86,758 | 84,550 | ||||||
Long-term
portion of government obligations
|
6,575 | 13,150 | ||||||
Long-term
liability for unrecognized tax benefits
|
5,320 | 6,232 | ||||||
Deferred
tax liabilities
|
16,260 | 17,446 | ||||||
Other
long-term liabilities
|
1,631 | - | ||||||
Total
liabilities
|
269,866 | 343,209 | ||||||
Contingencies
and commitments (Note 13)
|
||||||||
Stockholders’
equity:
|
||||||||
Preferred
stock, par value $.01 per share, 1,000,000 shares authorized, none
issued
|
- | - | ||||||
Common
stock, par value $.05 per share, 70,000,000 shares authorized; 40,086,216
shares issued at September 30, 2009 (39,574,220 at December 31,
2008)
|
2,004 | 1,978 | ||||||
Additional
Paid-In Capital
|
603,465 | 595,640 | ||||||
Accumulated
deficit
|
(116,560 | ) | (142,611 | ) | ||||
Treasury
stock at cost, 468,513 shares at September 30, 2009 (387,719 at December
31, 2008)
|
(8,498 | ) | (8,015 | ) | ||||
Accumulated
other comprehensive income (loss)
|
7,028 | (4,436 | ) | |||||
Total
Willbros Group, Inc. stockholders’ equity
|
487,439 | 442,556 | ||||||
Noncontrolling
interest
|
985 | 1,579 | ||||||
Total
stockholders’ equity
|
488,424 | 444,135 | ||||||
Total
liabilities and equity
|
$ | 758,290 | $ | 787,344 |
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 September 30,
|
Nine Months
Ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Contract
Revenue
|
$ | 247,533 | $ | 490,651 | $ | 1,065,941 | $ | 1,450,002 | ||||||||
Operating
Expense:
|
||||||||||||||||
Contract
|
222,166 | 429,696 | 940,949 | 1,255,296 | ||||||||||||
Amortization
of Intangibles
|
960 | 2,586 | 5,554 | 7,828 | ||||||||||||
General
and Administrative
|
18,490 | 29,138 | 62,742 | 85,938 | ||||||||||||
Other
Charges
|
2,418 | - | 8,207 | - | ||||||||||||
244,034 | 461,420 | 1,017,452 | 1,349,062 | |||||||||||||
Operating
Income
|
3,499 | 29,231 | 48,489 | 100,940 | ||||||||||||
Other
Income (Expense)
|
||||||||||||||||
Interest
Income
|
469 | 799 | 1,742 | 2,592 | ||||||||||||
Interest
Expense
|
(2,446 | ) | (3,158 | ) | (7,835 | ) | (9,667 | ) | ||||||||
Other
– Net
|
(126 | ) | 58 | (18 | ) | 204 | ||||||||||
(2,103 | ) | (2,301 | ) | (6,111 | ) | (6,871 | ) | |||||||||
Income
from Continuing Operations Before Income Taxes
|
1,396 | 26,930 | 42,378 | 94,069 | ||||||||||||
Provision
(Benefit) for Income Taxes
|
(659 | ) | 8,057 | 13,257 | 36,450 | |||||||||||
Income
from Continuing Operations Before Noncontrolling Interest
|
2,055 | 18,873 | 29,121 | 57,619 | ||||||||||||
Less:
Income Attributable to Noncontrolling Interest
|
(372 | ) | (413 | ) | (1,543 | ) | (1,433 | ) | ||||||||
Income
from Continuing Operations attributable to Willbros Group
Inc.
|
1,683 | 18,460 | 27,578 | 56,186 | ||||||||||||
Income
(Loss) from Discontinued Operations, net of taxes
|
(27 | ) | 1,219 | (1,527 | ) | 3,042 | ||||||||||
Net
Income Attributable to Willbros Group, Inc.
|
$ | 1,656 | $ | 19,679 | $ | 26,051 | $ | 59,228 | ||||||||
Basic
Income (Loss) per Common Share:
|
||||||||||||||||
Income
from Continuing Operations
|
$ | 0.04 | $ | 0.48 | $ | 0.71 | $ | 1.47 | ||||||||
Income
(Loss) from Discontinued Operations
|
- | 0.03 | (0.04 | ) | 0.08 | |||||||||||
Net
Income
|
$ | 0.04 | $ | 0.51 | $ | 0.67 | $ | 1.55 | ||||||||
Diluted
Income (Loss) per Common Share:
|
||||||||||||||||
Income
from Continuing Operations
|
$ | 0.04 | $ | 0.46 | $ | 0.71 | $ | 1.41 | ||||||||
Income
(Loss) from Discontinued Operations
|
- | 0.03 | (0.04 | ) | 0.07 | |||||||||||
Net
Income
|
$ | 0.04 | $ | 0.49 | $ | 0.67 | $ | 1.48 | ||||||||
Weighted
Average Number of Common
|
||||||||||||||||
Shares
Outstanding:
|
||||||||||||||||
Basic
|
38,721,586 | 38,313,997 | 38,656,656 | 38,236,508 | ||||||||||||
Diluted
|
38,918,933 | 43,803,235 | 38,817,411 | 43,864,307 |
See
accompanying notes to condensed consolidated financial statements.
4
WILLBROS
GROUP, INC.
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
AND
COMPREHENSIVE INCOME (LOSS)
(In
thousands, except share and per share amounts)
(Unaudited)
Total
|
||||||||||||||||||||||||||||||||||||
Accumulated
|
Willbros
|
|||||||||||||||||||||||||||||||||||
Common Stock
|
Additional
|
Other
|
Group, Inc.
|
Non-
|
Total
|
|||||||||||||||||||||||||||||||
Shares
|
Par
|
Paid-In
|
Accumulated
|
Treasury
|
Comprehensive
|
Stockholders’
|
controlling
|
Stockholders’
|
||||||||||||||||||||||||||||
|
Value
|
Capital
|
Deficit
|
Stock
|
Income (Loss)
|
Equity
|
Interest
|
Equity(1)
|
||||||||||||||||||||||||||||
Balance,
December 31, 2008
|
39,574,220 | $ | 1,978 | $ | 579,577 | $ | (129,449 | ) | $ | (8,015 | ) | $ | (4,436 | ) | $ | 439,655 | $ | - | $ | 439,655 | ||||||||||||||||
Cumulative
effect of adoption of new accounting principles
|
- | - | 16,063 | (13,162 | ) | - | - | 2,901 | 1,579 | 4,480 | ||||||||||||||||||||||||||
Balance, December 31,
2008, as adjusted (1)
|
39,574,220 | 1,978 | 595,640 | (142,611 | ) | (8,015 | ) | (4,436 | ) | 442,556 | 1,579 | 444,135 | ||||||||||||||||||||||||
Net
income attributable to Willbros and noncontrolling
interest
|
- | - | - | 26,051 | - | - | 26,051 | 1,543 | 27,594 | |||||||||||||||||||||||||||
Foreign
currency translation adjustment
|
- | - | - | - | - | 11,464 | 11,464 | - | 11,464 | |||||||||||||||||||||||||||
Total
comprehensive income (loss)
|
- | - | - | - | - | - | 37,515 | - | 39,058 | |||||||||||||||||||||||||||
Dividend
declared and distributed to noncontrolling interest
|
- | - | - | - | - | - | - | (2,137 | ) | (2,137 | ) | |||||||||||||||||||||||||
Stock-based
compensation (excluding tax benefit)
|
- | - | 9,321 | - | - | - | 9,321 | - | 9,321 | |||||||||||||||||||||||||||
Stock-based
compensation tax benefit
|
- | - | (1,655 | ) | - | - | - | (1,655 | ) | - | (1,655 | ) | ||||||||||||||||||||||||
Restricted
stock grants
|
457,797 | 23 | (23 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||
Vesting
of restricted stock rights
|
37,699 | 2 | (2 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||
Exercise
of stock options
|
16,500 | 1 | 184 | - | - | - | 185 | - | 185 | |||||||||||||||||||||||||||
Additions
to treasury stock
|
- | - | - | - | (483 | ) | - | (483 | ) | - | (483 | ) | ||||||||||||||||||||||||
Balance,
September 30, 2009
|
40,086,216 | $ | 2,004 | $ | 603,465 | $ | (116,560 | ) | $ | (8,498 | ) | $ | 7,028 | $ | 487,439 | $ | 985 | $ | 488,424 |
(1) Total
stockholders’ equity as of December 31, 2008 has been restated to reflect all
applicable prior periods for the adoption of FSP No APB 14-1 (ASC 470-20) and
SFAS No. 160 (ASC 810-10).
See
accompanying notes to condensed consolidated financial
statements.
5
WILLBROS
GROUP, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands, except share and per share amounts)
(Unaudited)
Nine Months
|
||||||||
Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income attributable to Willbros and noncontrolling
interest
|
$ | 27,594 | $ | 60,661 | ||||
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
||||||||
(Income)
loss from discontinued operations
|
1,527 | (3,042 | ) | |||||
Depreciation
and amortization
|
31,082 | 33,988 | ||||||
Stock-based
compensation
|
9,321 | 7,080 | ||||||
Amortization
of debt issuance costs
|
1,929 | 1,087 | ||||||
Stock-based
compensation tax benefit
|
1,655 | (3,277 | ) | |||||
Deferred
income tax provision
|
(2,485 | ) | 6,885 | |||||
Non-cash
interest expense
|
2,208 | 2,096 | ||||||
Loss
(gain) on sales of property, plant and equipment
|
(908 | ) | 206 | |||||
Provision
for bad debts
|
544 | 1,215 | ||||||
Other
|
- | (123 | ) | |||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable, net
|
38,717 | (19,931 | ) | |||||
Contract
cost and recognized income not yet billed
|
27,913 | (35,405 | ) | |||||
Prepaid
expenses
|
4,766 | 5,706 | ||||||
Parts
and supplies inventories
|
(1,135 | ) | (512 | ) | ||||
Other
assets
|
1,367 | 758 | ||||||
Accounts
payable and accrued liabilities
|
(64,967 | ) | 44,504 | |||||
Contract
billings in excess of cost and recognized income
|
5,317 | (783 | ) | |||||
Accrued
income taxes
|
(4,354 | ) | (3,590 | ) | ||||
Long-term
liability for unrecognized tax benefits
|
(1,157 | ) | (330 | ) | ||||
Other
|
2,296 | - | ||||||
Cash
provided by operating activities of continuing operations
|
81,230 | 97,193 | ||||||
Cash
provided by (used in) operating activities of discontinued
operations
|
(222 | ) | 3,531 | |||||
Cash
provided by operating activities
|
81,008 | 100,724 | ||||||
Cash
flows from investing activities:
|
||||||||
Acquisition
of subsidiaries, net of cash acquired
|
(13,955 | ) | 846 | |||||
Purchases
of property, plant and equipment
|
(10,369 | ) | (28,122 | ) | ||||
Rebates
from purchases of property, plant and equipment
|
- | 1,915 | ||||||
Proceeds
from sales of property, plant and equipment
|
8,233 | 1,418 | ||||||
Cash
used in investing activities of continuing operations
|
(16,091 | ) | (23,943 | ) | ||||
Cash
used in investing activities of discontinued operations
|
- | - | ||||||
Cash
used in investing activities
|
(16,091 | ) | (23,943 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Payments
on capital leases
|
(20,326 | ) | (17,550 | ) | ||||
Payments
of government fines
|
(6,575 | ) | (12,575 | ) | ||||
Repayment
of notes payable
|
(1,062 | ) | (9,550 | ) | ||||
Acquisition
of treasury stock
|
(483 | ) | (4,786 | ) | ||||
Stock-based
compensation tax benefit
|
(1,655 | ) | 3,277 | |||||
Proceeds
from exercise of stock options
|
185 | 684 | ||||||
Costs
of public offering of common stock
|
- | (251 | ) | |||||
Costs
of debt issues
|
(150 | ) | (166 | ) | ||||
Dividend
declared and distributed to noncontrolling interest
|
(2,137 | ) | (699 | ) | ||||
Cash
used in financing activities of continuing operations
|
(32,203 | ) | (41,616 | ) | ||||
Cash
used in financing activities of discontinued operations
|
- | - | ||||||
Cash
used in financing activities
|
(32,203 | ) | (41,616 | ) | ||||
Effect
of exchange rate changes on cash and cash equivalents
|
3,145 | (499 | ) | |||||
Cash
provided by all activities
|
35,859 | 34,666 | ||||||
Cash
and cash equivalents, beginning of period
|
207,864 | 92,886 | ||||||
Cash
and cash equivalents, end of period
|
$ | 243,723 | $ | 127,552 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid for interest (including discontinued operations)
|
$ | 4,648 | $ | 6,287 | ||||
Cash
paid for income taxes (including discontinued operations)
|
$ | 19,481 | $ | 34,651 | ||||
Supplemental
non-cash investing and financing transactions:
|
||||||||
Equipment
and property obtained by capital leases
|
$ | - | $ | 17,863 | ||||
Prepaid
insurance obtained by note payable
|
$ | - | $ | 12,754 | ||||
Common
stock issued for conversion of 2.75% convertible senior
notes
|
$ | - | $ | 8,643 | ||||
Deposit
applied to capital lease obligation
|
$ | - | $ | 1,432 |
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. The
Company and Basis of Presentation
Willbros Group, Inc., a Delaware
corporation, and all of its majority-owned subsidiaries (the “Company,”
“Willbros” or “WGI”), is an independent international contractor serving the
oil, gas and power industries; government entities; and the refinery and
petrochemical industries. The Company’s principal markets for continuing
operations are the United States, Canada and Oman. The Company obtains its work
through competitive bidding and through negotiations with prospective clients.
Contract values may range from several thousand dollars to several hundred
million dollars and contract durations range from a few weeks to more than two
years.
The accompanying Condensed Consolidated
Balance Sheet as of December 31, 2008, which has been derived from audited
consolidated financial statements, and the unaudited interim Condensed
Consolidated Financial Statements as of September 30, 2009, have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”). Accordingly, certain information and note disclosures normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules and
regulations. The Company believes the presentations and disclosures herein are
adequate to make the information not misleading. Certain prior period amounts
have been reclassified to be consistent with current presentation. These
unaudited Condensed Consolidated Financial Statements should be read in
conjunction with the Company’s December 31, 2008 audited Consolidated Financial
Statements and notes thereto contained in the Company’s Annual Report on Form
10-K for the year ended December 31, 2008.
In the opinion of management, the
unaudited Condensed Consolidated Financial Statements reflect all adjustments
necessary to present fairly the financial position as of September 30, 2009, the
results of operations and cash flows of the Company for all interim periods
presented, and stockholders’ equity for the nine months ended September 30,
2009.
The Condensed Consolidated Financial
Statements include certain estimates and assumptions by management. These
estimates and assumptions relate to the reported amounts of assets and
liabilities at the date of the Condensed Consolidated Financial Statements and
the reported amounts of revenue and expense during the periods. Significant
items subject to such estimates and assumptions include the carrying amount of
property, plant and equipment, goodwill and parts and supplies inventories;
quantification of amounts recorded for contingencies, tax accruals and certain
other accrued liabilities; valuation allowances for accounts receivable and
deferred income tax assets; and revenue recognition under the
percentage-of-completion method of accounting, including estimates of progress
toward completion and estimates of gross profit or loss accrual on contracts in
progress. The Company bases its estimates on historical experience and other
assumptions that it believes relevant under the circumstances. Actual results
could differ from those estimates.
As
discussed in Note 10 – Segment Information, beginning with the second quarter of
2009, the Company realigned its business segments to reflect changes that
management has made in its organization.
As discussed in Note 14 –
Discontinuance of Operations, Asset Disposals, and Transition Services
Agreement, the Company has disposed of certain assets and operations that are
together classified as discontinued operations (collectively the “Discontinued
Operations”). Accordingly, these Condensed Consolidated Financial Statements
reflect these operations as discontinued operations in all periods presented.
The disclosures in the Notes to the Condensed Consolidated Financial Statements
relate to continuing operations except as otherwise indicated.
As of September 30, 2009 and December
31, 2008, respectively, the Company had $0 and $1,000 of cash and cash
equivalents committed to specific project uses.
For
interim financial reporting, the Company records the tax provision based on its
estimate of the effective tax rate for the year. The Company has projected its
annual estimated income tax rate to be 32.5 percent for 2009.
The
carrying value of financial instruments does not materially differ from fair
value.
The
Company has evaluated subsequent events through November 4, 2009, the date of
issuance of the condensed consolidated financial statements.
2. New
Accounting Pronouncements
On July
1, 2009, the Financial Accounting Standards Board (“FASB”) officially
launched the FASB Accounting Standards Codification (“the Codification”), which
has become the single official source of authoritative, nongovernmental, U.S.
GAAP, in addition to guidance issued by the Securities and Exchange Commission.
The Codification is designed to simplify U.S. GAAP into a single, topically
ordered structure. All guidance contained in the Codification carries an equal
level of authority. The Codification is effective for all interim and annual
periods ending after September 15, 2009. Accordingly, the Company refers to
Codification in respect to the appropriate accounting standards throughout this
document as “ASC”. Implementation of the Codification did not have any impact on
the Company’s consolidated financial statements.
7
WILLBROS
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share amounts)
(Unaudited)
2. New
Accounting Pronouncements (continued)
FSP
No. APB 14-1 (ASC 470-20)
In May
2008, the FASB issued FSP No. APB 14-1 “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)” (Accounting
Standard Codification “ASC” 470-20). This update clarifies that convertible debt
instruments that may be settled in cash upon conversion (including partial cash
settlement) are not addressed by APB Opinion No. 14 (ASC 470). Additionally,
this update specifies that issuers of such instruments should separately account
for the liability and equity components in a manner that will reflect the
entity’s nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. This update is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. Early adoption is prohibited. On January 1, 2009, the Company
adopted this guidance. Upon adopting the provisions, the Company retroactively
applied its provisions and restated its condensed consolidated financial
statements for prior periods. See Note 8 - Long-term Debt for more information
on the application of this guidance.
SFAS
No. 160 (ASC 810-10)
In
December 2007, the FASB released SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements — an amendment of ARB No. 51” (ASC
810-10). This standard is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. This
standard establishes reporting requirements that provide sufficient disclosure
that clearly identify and distinguish between the interests of noncontrolling
owners and the interest of the parent. The majority of the Company’s
noncontrolling interest relates to its operations in Oman. As of December 31,
2008, noncontrolling interest was included in accounts payable and accrued
liabilities on the balance sheet and within contract cost on the statement of
operations. Upon adoption on January 1, 2009, the presentation and disclosure
requirements were applied retrospectively for all periods presented in which the
noncontrolling interest was reclassified to equity and consolidated net income
was adjusted to include net income attributed to the noncontrolling
interest.
The
following table sets forth the effect of the retrospective application of FSP
No. APB 14-1 (ASC 470-20) and SFAS No. 160 (ASC 810-10) on previously reported
line items.
Consolidated Statement of Operations:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30, 2008
|
September 30, 2008
|
|||||||||||||||
Originally
|
As
|
Originally
|
As
|
|||||||||||||
Reported
|
Adjusted
|
Reported
|
Adjusted
|
|||||||||||||
Contract
cost
|
$ | 430,192 | $ | 429,696 | $ | 1,256,680 | $ | 1,255,296 | ||||||||
Interest
expense
|
(2,484 | ) | (3,158 | ) | (7,671 | ) | (9,667 | ) | ||||||||
Net
income
|
20,270 | 20,092 | 61,272 | 60,661 | ||||||||||||
Net
income attributable to noncontrolling interest
|
- | (413 | ) | - | (1,433 | ) | ||||||||||
Net
income attributable to Willbros Group, Inc.
|
20,270 | 19,679 | 61,272 | 59,228 | ||||||||||||
Basic
income per share
|
$ | 0.53 | - | $ | 1.60 | - | ||||||||||
Basic
income per share to Company shareholders
|
- | $ | 0.51 | - | $ | 1.55 | ||||||||||
Diluted
income per share
|
$ | 0.49 | - | $ | 1.48 | - | ||||||||||
Diluted
income per share to Company shareholders
|
- | $ | 0.49 | - | $ | 1.48 |
8
WILLBROS
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share amounts)
(Unaudited)
2. New
Accounting Pronouncements (continued)
Consolidated
Balance Sheets:
December
31,
2008
|
December
31,
2008
|
|||||||
Originally
Reported
|
As
Adjusted
|
|||||||
Other
Assets
|
$ | 6,191 | $ | 5,290 | ||||
Accounts
payable and accrued liabilities
|
156,335 | 155,305 | ||||||
2.75%
convertible senior notes
|
59,357 | 53,652 | ||||||
6.5%
senior convertible notes
|
32,050 | 30,898 | ||||||
Deferred
tax liability
|
14,703 | 17,446 | ||||||
Additional
paid-in capital
|
579,577 | 595,640 | ||||||
Accumulated
Deficit
|
(129,449 | ) | (142,611 | ) |
FSP
No. FAS 142-3 (ASC 350-30-35)
In April
2008, the FASB issued FSP No. FAS 142-3 “Determination of the Useful Life of
Intangible Assets” (ASC 350-30-35). This update amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset. The intent of this update is
to improve the consistency between the useful life of a recognized intangible
asset under SFAS No. 142 (ASC 350), the period of expected cash flows used to
measure the fair value of the asset under SFAS No. 141-R (ASC 805) and other
U.S. generally accepted accounting principles. This update is effective for
financial statements issued for fiscal years beginning after December 15, 2008
and interim periods within those fiscal years. The Company’s adoption of this
guidance effective January 1, 2009 did not have a material
effect on the Company’s condensed consolidated financial
statements.
FSP
No. FAS 157-1 (ASC 820-10)
In February 2008, the FASB issued FSP
FAS No. 157-1 ”Application of FASB Statement No. 157 to FASB Statement
No. 13 and Other Accounting Pronouncements That Address Fair Value
Measurements for Purposes of Lease Classification or Measurement under Statement
13,” (ASC 820-10) which removes certain leasing transactions from the scope of
SFAS No. 157 (ASC 820) and FSP No. SFAS 157-2 (ASC 820-10) and also defers the
effective date of SFAS No. 157 (ASC 820) for one year for certain nonfinancial
assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis.
Beginning January 1, 2009, the Company adopted the provisions for nonfinancial
assets and nonfinancial liabilities that are not required or permitted to be
measured at fair value on a recurring basis, which include those measured at
fair value in goodwill impairment testing, indefinite-lived intangible assets
measured at fair value for impairment assessment, nonfinancial long-lived assets
measured at fair value for impairment assessment, asset retirement obligations
initially measured at fair value, and those initially measured at fair value in
a business combination. The Company’s adoption of this guidance did not
have a material effect on the Company’s condensed consolidated financial
statements.
SFAS
No. 141-R (ASC 805) and FSP No. SFAS 141(R)-1 (ASC 805-20-25)
In
December 2007, the FASB released SFAS 141(R) “Business Combinations” (ASC
805). This standard applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008, which are
business combinations in the year ending December 31, 2009 for the Company.
Early adoption is prohibited. This standard establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest and the goodwill acquired. Additionally, transaction
costs that are currently capitalized under current accounting guidance will be
required to be expensed as incurred under SFAS No. 141(R) (ASC 805). This
standard also establishes disclosure requirements which will enable users to
evaluate the nature and financial effects of the business
combination.
In April
2009, the FASB issued FSP SFAS No. 141(R)-1 “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies”
(ASC 805-20-25). This update applies to all assets acquired and all
liabilities assumed in a business combination that arise from contingencies. The
update states that the acquirer will recognize such an asset or liability if the
acquisition-date fair value of that asset or liability can be determined during
the measurement period. If it cannot be determined during the measurement
period, then the asset or liability should be recognized at the acquisition date
if the following criteria, consistent with FAS No. 5 “Accounting for
Contingencies,” (ASC 450) are met: (1) information available before the end
of the measurement period indicates that it is probable that an asset existed or
that a liability had been incurred at the acquisition date, and (2) the
amount of the asset or liability can be reasonably estimated. This update is
effective for all business acquisitions occurring on or after the beginning of
the first annual reporting period beginning on or after December 15, 2008. The
Company adopted the provisions of FSP No.
141(R) (ASC 805) and FSP No. 141(R)-1 (ASC 805-20-25) for business
combinations with an acquisition date on or after January 1,
2009.
9
WILLBROS
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share amounts)
(Unaudited)
2. New
Accounting Pronouncements (continued)
SFAS
No. 165 (ASC 855)
In May
2009, the FASB issued SFAS No. 165 “Subsequent Events” (ASC 855). This guidance
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
available to be issued. The Company adopted SFAS No. 165 for the quarter
ended June 30, 2009. Adoption did not have a material effect on the
Company’s condensed consolidated financial statements.
SFAS
No. 167 (ASC 810)
In April
2009, the FASB issued SFAS No. 167 “Amendments to FASB Interpretation
No. 46(R)” (ASC 810). This standard requires a qualitative
approach to identifying a controlling financial interest in a variable interest
entity (“VIE”), and requires
ongoing assessment of whether an entity is a VIE and whether an interest in a
VIE makes the holder the primary beneficiary of the VIE. SFAS No. 167 is
effective for annual reporting periods beginning after
November 15, 2009. The Company is currently evaluating the impact of
the adoption of this standard on its consolidated financial
statements.
3. Acquisitions
On July
9, 2009, the Company acquired the engineering business of Wink Companies, LLC
(“Wink”), a privately-held firm based in Baton Rouge, Louisiana. Wink
serves primarily the U.S. market from its regional offices in Louisiana and
Mississippi, providing multi-disciplinary engineering services to clients in the
petroleum refining, chemicals and petrochemicals and oil and gas
industries. This acquisition provides the Company the opportunity to
offer fully integrated EPC services to the downstream hydrocarbon
industries. The total purchase price of $17,431 was comprised of
$6,075 in cash paid, $10,236 in debt assumed and $1,120 related to the
assumption of an unfavorable lease relative to market value. In
addition, the Company incurred transaction-related costs of approximately
$600.
The
Company has consolidated Wink in its financial results as part of its Downstream Oil & Gas
segment from the date of acquisition. The allocation of purchase price to
acquired assets and liabilities is as follows:
Cash
acquired
|
$ | 2,356 | ||
Receivables,
net
|
5,876 | |||
Other
current assets acquired
|
7,513 | |||
Property
and equipment
|
6,441 | |||
Other
long-term assets
|
80 | |||
Amortizable
intangible assets:
|
||||
Customer
relationships
|
1,400 | |||
Trademark
/ Tradename
|
1,300 | |||
Non-compete
agreement
|
1,100 | |||
Goodwill
|
3,600 | |||
Liabilities
assumed
|
(12,235 | ) | ||
Total
purchase price
|
$ | 17,431 |
The
amortizable intangible assets have useful lives ranging between five years and
ten years and a weighted average useful life of 8.3 years. Goodwill represents
the excess of the purchase price over the fair value of the net tangible and
identifiable intangible assets acquired and is deductible for tax purposes. The
goodwill recorded in connection with this acquisition is included in the Downstream Oil & Gas
segment.
The
results and operations for Wink have been included in the Company’s condensed
consolidated statements of operations since the completion of the acquisition on
July 9, 2009. This acquisition does not have a material impact on the financial
statements. Accordingly, pro forma disclosures have not been
presented.
10
WILLBROS
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share amounts)
(Unaudited)
4. Other
Charges
During
the first nine months of 2009, the Company incurred $8,207 of other charges
consisting of severance and operating lease abandonment charges to realign the
continuing operating costs with the current level of demand for its services.
Third quarter of 2009 charges totaled $2,418, composed primarily of $2,023 in
lease abandonment charges. The estimated carrying costs of the abandoned
lease space were determined with the assistance of the Company’s third party
real estate advisors and were based on an assessment of applicable commercial
real estate markets. There may be a significant fluctuation in the
estimated costs to the extent the evaluation of the facts, circumstances
and expectations change. The principal variables in estimating the carrying
costs are the length of time required to sublease the space, the sublease rate
and expense for inducements (e.g., rent abatement, tenant improvement allowance)
that may be offered to a prospective sublease tenant. The accrual at September
30, 2009, for carrying costs of the abandoned lease space totaled $2,023. While
the Company believes this accrual is adequate, it is subject to adjustment as
conditions change. The Company will continue to evaluate the adequacy of the
accrual and will make the necessary changes to the accrual as conditions
warrant. “Other charges” included in the Company’s consolidated operating income
for the three and nine months ended September 30, 2009 consist of the
following:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Headcount
reductions
|
$ | 356 | $ | - | $ | 4,112 | $ | - | ||||||||
Lease
abandonments
|
2,023 | - | 2,023 | - | ||||||||||||
Accelerated
vesting of stock awards
|
39 | - | 2,072 | - | ||||||||||||
Total
Other Charges
|
$ | 2,418 | $ | - | $ | 8,207 | $ | - |
5.
Contracts in Progress
Contract cost and recognized income not
yet billed on uncompleted contracts arise when recorded revenues for a contract
exceed the amounts billed under the terms of the contracts. Contract billings in
excess of cost and recognized income arise when billed amounts exceed revenues
recorded. Amounts are billable to customers upon various measures of
performance, including achievement of certain milestones, completion of
specified units or completion of the contract. Also included in contract cost
and recognized income not yet billed on uncompleted contracts are amounts the
Company seeks to collect from customers for change orders approved in scope but
not for price associated with that scope change (unapproved change orders).
Revenue for these amounts is recorded equal to the lesser of the expected
revenue or cost incurred when realization of price approval is probable.
Estimating revenues from unapproved change orders involve the use of estimates,
and it is reasonably possible that revisions to the estimated recoverable
amounts of recorded unapproved change orders may be made in the near-term. If
the Company does not successfully resolve these matters, a reduction in revenues
may be required to amounts that have been previously recorded.
Contract cost and recognized income not
yet billed and related amounts billed as of September 30, 2009 and December 31,
2008 were as follows:
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
Cost
incurred on contracts in progress
|
$ | 1,193,474 | $ | 1,576,037 | ||||
Recognized
income
|
170,919 | 180,830 | ||||||
1,364,393 | 1,756,867 | |||||||
Progress
billings and advance payments
|
(1,346,016 | ) | (1,710,657 | ) | ||||
$ | 18,377 | $ | 46,210 | |||||
Contract
cost and recognized income not yet billed
|
$ | 44,060 | $ | 64,499 | ||||
Contract
billings in excess of cost and recognized income
|
(25,683 | ) | (18,289 | ) | ||||
$ | 18,377 | $ | 46,210 |
Contract cost and recognized income not
yet billed includes $706 and $218 at September 30, 2009, and December 31, 2008,
respectively, on completed contracts.
6. Goodwill
and Other Intangible Assets
The
changes in the carrying amount of goodwill for the nine months ended September
30, 2009, by business segment, are detailed below:
Upstream
Oil & Gas
|
Downstream
Oil & Gas
|
Consolidated
|
||||||||||
Balance
as of December 31, 2008
|
$ | 11,142 | $ | 69,223 | $ | 80,365 | ||||||
Goodwill
from acquisitions
|
- | 3,600 | 3,600 | |||||||||
Translation
adjustments and other
|
1,082 | 15 | 1,097 | |||||||||
Balance
as of September 30, 2009
|
$ | 12,224 | $ | 72,838 | $ | 85,062 |
11
WILLBROS
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share amounts)
(Unaudited)
6. Goodwill
and Other Intangible Assets (continued)
The Company’s other intangible assets
as of September 30, 2009 were as follows:
Customer
Relationships
|
Backlog
|
Trademark
|
Non-compete
Agreements
|
Total
|
||||||||||||||||
Balance
as of December 31, 2008
|
$ | 36,869 | $ | 2,917 | $ | - | $ | - | $ | 39,786 | ||||||||||
Intangibles
from acquisitions
|
1,400 | 1,300 | 1,100 | 3,800 | ||||||||||||||||
Amortization
|
(2,549 | ) | (2,917 | ) | (33 | ) | (55 | ) | (5,554 | ) | ||||||||||
Balance
as of September 30, 2009
|
$ | 35,720 | $ | - | $ | 1,267 | $ | 1,045 | $ | 38,032 | ||||||||||
Weighted
average remaining amortization period
|
10.2
yrs
|
N/A |
9.8
yrs
|
4.8
yrs
|
These amortizable intangible assets are
included in the assets of the Company’s Downstream Oil & Gas
segment. Intangible assets are amortized on a straight-line basis over their
estimated useful lives, which range from 1.5 to 12.1 years.
Amortization expense included in net
income for the three and nine months ended September 30, 2009 was $960 and
$5,554, respectively. Estimated amortization expense for the remainder of 2009
and each of the subsequent five years and thereafter is as follows:
Fiscal
year:
|
||||
2009
|
$ | 960 | ||
2010
|
3,842 | |||
2011
|
3,842 | |||
2012
|
3,842 | |||
2013
|
3,842 | |||
2014
|
3,732 | |||
Thereafter
|
17,972 | |||
Total
amortization
|
$ | 38,032 |
7. Government
Obligations
Government obligations represent
amounts due to government entities, specifically the United States Department of
Justice (“DOJ”) and the SEC, in final settlement of the investigations involving
violations of the Foreign Corrupt Practices Act (the “FCPA”) and violations of
the Securities Act of 1933 (the “Securities
Act”) and the
Securities Exchange Act of 1934 (the “Exchange Act”). These investigations stem
primarily from the Company’s former operations in Bolivia, Ecuador and Nigeria.
In May 2008, the Company reached final agreements with the DOJ and the SEC to
settle their investigations. As previously disclosed, the agreements provided
for an aggregate payment of $32,300. The Company will pay $22,000 in fines to
the DOJ related to the FCPA violations, consisting of $10,000 paid on signing
and $4,000 annually for three years thereafter, with no interest due on unpaid
amounts. The Company will pay $10,300 to the SEC, consisting of $8,900 of profit
disgorgement and $1,400 of pre-judgment interest, payable in four equal
installments of $2,575 with the first installment paid on signing and annually
for three years thereafter. Post-judgment interest will be payable on the
outstanding $7,725.
During the twelve months ended December
31, 2008, $12,575 of the aggregate obligation was satisfied, which consisted of
the initial $10,000 payment to the DOJ and the first installment of $2,575 to
the SEC, inclusive of all pre-judgment interest. During the nine months ended
September 30, 2009, $6,575 of the aggregate obligation was relieved, which
consisted of the $4,000 annual installment to the DOJ and the $2,575 annual
installment to the SEC, inclusive of all pre-judgment interest.
The remaining aggregate obligation of
$13,150 has been classified on the Condensed Consolidated Balance Sheets as
$6,575 in “Current portion of government obligations” and $6,575 in “Long-term
portion of government obligations.” This division is based on payment terms that
provide for two remaining equal installments of $2,575 and $4,000 to the SEC and
DOJ, respectively.
12
WILLBROS
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share amounts)
(Unaudited)
8. Long-term
Debt
Long-term debt as of September 30, 2009
and December 31, 2008 was as follows:
September 30,
2009
|
December 31,
2008
|
|||||||
Capital
lease obligations
|
$ | 18,209 | $ | 34,874 | ||||
2.75%
convertible senior notes
|
55,450 | 53,652 | ||||||
6.5%
senior convertible notes
|
31,308 | 30,898 | ||||||
Other
long-term debt
|
- | 27 | ||||||
2007
Credit Facility
|
- | - | ||||||
Total long-term
debt
|
104,967 | 119,451 | ||||||
Less:
current portion
|
(6,325 | ) | (9,715 | ) | ||||
Long-term debt,
net
|
$ | 98,642 | $ | 109,736 |
2007
Credit Facility
On
November 20, 2007, the Company entered into a new credit agreement (the
“Credit Agreement”), among Willbros United States Holding, Inc. (“WUSH”), a
subsidiary of the Company (formerly known as Willbros USA, Inc.), as borrower,
the Company and certain of its subsidiaries as guarantors (collectively, the
“Loan Parties”), and a group of lenders (the “Lenders”) led by Calyon New York
Branch (“Calyon”). The Credit Agreement provides for a new three-year senior
secured $150,000 revolving credit facility due 2010 (the “2007 Credit
Facility”). The Company has the option, subject to obtaining commitment from one
or more lenders and Calyon’s consent, to increase the size of the 2007 Credit
Facility to $200,000 within the first two years of the closing date of the 2007
Credit Facility. The Company is able to utilize 100 percent of the 2007
Credit Facility to obtain performance letters of credit and 33.3 percent
(or $50,000) of the facility for cash advances for general corporate purposes
and financial letters of credit. The 2007 Credit Facility is secured by
substantially all of the assets of the Company, including those of the Loan
Parties, as well as a pledge of 100 percent of the equity interests of WUSH and
each of the Company’s other material U.S. subsidiaries and 65 percent of the
equity interests of Willbros Global Holdings, Inc.
Fees
payable under the 2007 Credit Facility include: (1) an excess facility fee at a
rate per annum equal to 0.50 percent of the unused 2007
Credit Facility capacity, payable quarterly in arrears; (2) a commission on the
face amount of all outstanding performance letters of credit equal to the
applicable margin then in effect for performance letters of credit, payable
quarterly in arrears; (3) a commission on the face amount of all outstanding
financial letters of credit equal to the applicable LIBOR margin then in effect,
payable quarterly in arrears; and (4) a letter of credit fee equal to
0.125 percent per annum of aggregate commitments. Interest on any cash
borrowings is payable quarterly in arrears at a floating rate based on the base
rate (as defined in the Credit Agreement) or, at the Company’s option, at a rate
equal to the one-, two-, three-, or six-month Eurodollar rate (LIBOR) plus, in
each case, an applicable margin as determined using a performance-based grid
described in the Credit Agreement. The Credit Agreement includes customary
affirmative and negative covenants, including: certain financial covenants
described below; limitations on capital expenditures triggered by liquidity
levels lower than $35,000; limitations on foreign cash investments, total
indebtedness, and liens; restrictions on dividends and certain restricted
payments; and limitations on certain asset sales and dispositions as well as
certain acquisitions and asset purchases.
A default
under the Credit Agreement may be triggered by events such as a failure to
comply with financial covenants or other covenants under the Credit Agreement, a
failure to make payments when due under the Credit Agreement, a failure to make
payments when due in respect of or a failure to perform obligations relating to
debt obligations in excess of $5,000, a change of control of the Company or
certain insolvency proceedings. A default under the Credit Agreement would
permit Calyon and the Lenders to restrict the Company’s ability to further
access the 2007 Credit Facility for cash advances or letters of credit, require
the immediate repayment of any outstanding cash advances with interest and
require the cash collateralization of outstanding letter of credit obligations.
Unamortized debt issue costs associated with the creation of the 2007 Credit
Facility total $621 and $960 and are included in other assets at September 30,
2009 and December 31, 2008, respectively. These costs are being amortized to
interest expense over the three-year term of the Credit Facility.
13
WILLBROS
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share amounts)
(Unaudited)
8. Long-term
Debt (continued)
The 2007
Credit Facility also includes financial covenants relating to maintenance of the
following:
|
·
|
A
minimum net worth in an amount of not less than the sum of $106,458 plus
50.0 percent of consolidated net income earned in each fiscal quarter
ended after December 31, 2007 plus adjustments for certain equity
transactions and debt conversions;
|
|
·
|
A
maximum leverage ratio of 2.00 to 1.00 for the fiscal quarter ending
September 30, 2009 and for each fiscal quarter
thereafter;
|
|
·
|
A
minimum fixed charge coverage ratio of not less than 3.50 to 1.00 for the
fiscal quarter ending September 30, 2009 and for each fiscal
quarter thereafter;
|
|
·
|
If
the Company’s liquidity during any fiscal quarter falls below $35,000, a
maximum capital expenditure ratio of 1.50 to 1.00 (cost of assets added
through purchase or capital lease) for such fiscal quarter and for each of
the three quarters thereafter.
|
If any of
these covenants were to be violated, it would be considered an event of default
entitling the Lenders to terminate the remaining commitment, call all
outstanding letters of credit, and accelerate payment of any principal and
interest outstanding. At September 30, 2009, the Company was in compliance with
all of these covenants.
As of
September 30, 2009, there were no borrowings outstanding under the 2007 Credit
Facility and there were $11,552 in outstanding letters of credit for projects in
continuing operations.
6.5%
Senior Convertible Notes
In the
fourth quarter of 2005 the Company entered into a purchase agreement (the “6.5%
Purchase Agreement”) pursuant to which it sold, between December 2005 and March
2006, $84,500 of aggregate principal amount of its 6.5% Senior Convertible Notes
due 2012 (the “6.5% Notes”). The net proceeds of the offering were used to
retire existing indebtedness and provide additional liquidity to support working
capital needs.
The 6.5%
Notes are governed by an indenture, dated December 23, 2005, by and among the
Company, as issuer, WUSH, as guarantor and The Bank of New York Mellon, as
Trustee (the “6.5% Indenture”), and were issued under the 6.5%
Purchase Agreement by and among the Company and the initial purchasers of the
6.5% Notes (the “Purchasers”), in a transaction exempt from the registration
requirements of the Securities Act of 1933, as amended (the “Securities Act”).
The 6.5% Notes are convertible into shares of the Company’s common
stock.
Pursuant
to the 6.5% Purchase Agreement, the Company and WUSH have agreed to indemnify
the Purchasers, their affiliates and agents, against certain liabilities,
including liabilities under the Securities Act. The 6.5% Notes currently
outstanding are convertible into shares of the Company’s common stock at a
conversion rate of 56.9606 shares of common stock per $1,000 principal amount of
notes (representing a conversion price of approximately $17.56 per share
resulting in 1,825,587 shares at September 30, 2009), subject to adjustment in
certain circumstances. The 6.5% Notes are general senior unsecured obligations.
Interest is due semi-annually on June 15 and December 15, and began on June 15,
2006.
The 6.5%
Notes mature on December 15, 2012 unless the notes are repurchased or converted
earlier. The Company does not have the right to redeem the 6.5% Notes. The
holders of the 6.5% Notes have the right to require the Company to purchase the
6.5% Notes for cash, including unpaid interest, on December 15, 2010. The
holders of the 6.5% Notes also have the right to require the Company to purchase
the 6.5% Notes for cash upon the occurrence of a fundamental change, as defined
in the 6.5% Indenture. In addition to the amounts described above, the Company
will be required to pay a “make-whole premium” to the holders of the 6.5% Notes
who elect to convert their notes into the Company’s common stock in connection
with a fundamental change. The make-whole premium is payable in additional
shares of common stock and is calculated based on a formula with the premium
ranging from 0.0 percent to 28.0 percent depending on when the
fundamental change occurs and the price of the Company’s stock at the time the
fundamental change occurs.
Upon
conversion of the 6.5% Notes, excluding the purchase features discussed above,
the Company has the right to deliver, in lieu of shares of its common stock,
cash or a combination of cash and shares of its common stock. Under the 6.5%
Indenture, the Company is required to notify holders of the 6.5% Notes of its
method for settling the principal amount of the 6.5% Notes upon conversion. This
notification, once provided, is irrevocable and legally binding upon the Company
with regard to any conversion of the 6.5% Notes. On March 21, 2006, the Company
notified holders of the 6.5% Notes of its election to satisfy its conversion
obligation with respect to the principal amount of any 6.5% Notes surrendered
for conversion by paying the holders of such surrendered 6.5% Notes 100 percent
of the principal conversion obligation in the form of common stock of the
Company. Until the 6.5% Notes are surrendered for conversion, the Company will
not be required to notify holders of its method for settling the excess amount
of the conversion obligation relating to the amount of the conversion value
above the principal amount, if any. In the event of a default of $10,000 or more
on any credit agreement, including the 2007 Credit Facility and the 2.75% Notes,
a corresponding event of default would result under the 6.5%
Notes.
14
WILLBROS
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share amounts)
(Unaudited)
8. Long-term
Debt (continued)
A
covenant in the indenture for the 6.5% Notes prohibits the Company from
incurring any additional indebtedness if its consolidated leverage ratio exceeds
4.00 to 1.00. As of September 30, 2009, this covenant would not have precluded
the Company from borrowing under the 2007 Credit Facility.
2.75%
Convertible Senior Notes
In the
first and second quarters of 2004, the Company completed an aggregate offering
of $70,000 of 2.75% Convertible Senior Notes (the “2.75% Notes”). The 2.75%
Notes are general senior unsecured obligations. Interest is paid semi-annually
on March 15 and September 15 and payments began on September 15, 2004. The 2.75%
Notes mature on March 15, 2024 unless the notes are repurchased, redeemed or
converted earlier. The Company may redeem the 2.75% Notes for cash on or after
March 15, 2011, at 100 percent of the principal amount of the notes plus accrued
interest. The holders of the 2.75% Notes have the right to require the Company
to purchase the 2.75% 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 2.75%
Notes currently outstanding may, under certain circumstances, convert 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 principal amount of notes
(representing a conversion price of approximately $19.47 per share resulting in
3,048,641 shares at September 30, 2009 subject to adjustment in certain
circumstances). 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 percent of the
then current conversion price, or $23.36 per share, based on the initial
conversion price. In the event of a default under any Company credit agreement
other than the indenture covering the 2.75% Notes, (1) in which the Company
fails to pay principal or interest on indebtedness with an aggregate principal
balance of $10,000 or more; or (2) in which indebtedness with a principal
balance of $10,000 or more is accelerated, an event of default would result
under the 2.75% Notes.
The 2.75%
Notes are governed by an indenture, dated March 12, 2004, between the Company,
as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee (the
“2.75% Indenture”). The 2.75% Notes are convertible into shares of the Company’s
stock. The 2.75% Notes and the underlying shares were registered for resale with
the SEC.
On
September 22, 2005 the Company amended the original Indenture, (“the Indenture
Amendment”) to extend the initial date on or after which the 2.75% Notes may be
redeemed by the Company to March 15, 2013 from March 15, 2011. In
addition, a new provision was added to the 2.75% Indenture which requires the
Company, in the event of a “fundamental change” which is a change of control
event in which 10.0 percent or more of the consideration in the transaction
consists of cash, to make a coupon make-whole payment equal to the present value
(discounted at the U.S. treasury rate) of the lesser of (a) two years of
scheduled payments of interest on the 2.75% Notes or (b) all scheduled interest
on the 2.75% Notes from the date of the transaction through March 15,
2013.
FSP
No. APB 14-1 (ASC 470-20)
As a
result of the adoption of FSP No. APB 14-1 (ASC 470-20), the Company is required
to separately account for the debt and equity components of its 6.5% Notes and
2.75% Notes in a manner that reflects their nonconvertible debt borrowing rate
at the time of issuance.
6.5%
Notes
The debt
and equity components recognized for the Company’s 6.5% Notes were as
follows:
|
September 30,
2009
|
December 31,
2008
|
||||||
Principal amount of 6.5% Notes
|
$ | 32,050 | $ | 32,050 | ||||
Unamortized
discount
|
(742 | ) | (1,152 | ) | ||||
Net
carrying amount
|
31,308 | 30,898 | ||||||
Additional
paid-in capital
|
3,131 | 3,131 |
At
September 30, 2009, the unamortized discount had a remaining recognition period
of approximately 15 months.
15
WILLBROS
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share amounts)
(Unaudited)
8. Long-term
Debt (continued)
The
amount of interest expense recognized and effective interest rate for the three
and nine months ended September 30, 2009 and 2008 were as follows:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Contractual
coupon interest
|
$ | 521 | $ | 521 | $ | 1,562 | $ | 1,562 | ||||||||
Amortization
of discount
|
139 | 128 | 409 | 376 | ||||||||||||
Interest
expense
|
$ | 660 | $ | 649 | $ | 1,971 | $ | 1,938 | ||||||||
Effective
interest rate
|
8.46 | % | 8.46 | % | 8.46 | % | 8.46 | % |
2.75%
Notes
The debt
and equity components recognized for the Company’s 2.75% Notes were as
follows:
September
30,
2009
|
December
31,
2008
|
|||||||
Principal
amount of 2.75% Notes
|
$ | 59,357 | $ | 59,357 | ||||
Unamortized
discount
|
(3,907 | ) | (5,705 | ) | ||||
Net
carrying amount
|
55,450 | 53,652 | ||||||
Additional
paid-in capital
|
14,235 | 14,235 |
At
September 30, 2009, the unamortized discount had a remaining recognition period
of approximately 18 months.
The
amount of interest expense recognized and effective interest rate for the three
and nine months ended September 30, 2009 and 2008 were as follows:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Contractual
coupon interest
|
$ | 408 | $ | 408 | $ | 1,224 | $ | 1,264 | ||||||||
Amortization
of discount
|
610 | 567 | 1,797 | 1,721 | ||||||||||||
Interest
expense
|
$ | 1,018 | $ | 975 | $ | 3,021 | $ | 2,985 | ||||||||
Effective
interest rate
|
7.40 | % | 7.40 | % | 7.40 | % | 7.40 | % |
Capital
Leases
The Company has entered into multiple
capital lease agreements to acquire construction equipment and automobiles.
During the nine months ended September 30, 2009, the Company paid $15,304
to buy-out capital leases to company owned equipment. The weighted average
of interest paid on capital leases is 6.43 percent.
Assets
held under capital leases at September 30, 2009 and December 31, 2008 are
summarized below:
September
30,
2009
|
December
31,
2008
|
|||||||
Construction
equipment
|
$ | 23,816 | $ | 43,175 | ||||
Autos,
trucks and trailers
|
1,922 | 4,090 | ||||||
Total
assets held under capital lease
|
25,738 | 47,265 | ||||||
Less:
accumulated depreciation
|
(8,385 | ) | (11,167 | ) | ||||
Net
assets under capital lease
|
$ | 17,353 | $ | 36,098 |
16
WILLBROS
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share amounts)
(Unaudited)
9. Income
(Loss) Per Share
Basic income per share is computed by
dividing net income by the weighted average number of common shares outstanding
for the period. Diluted income per share is based on the weighted average number
of shares outstanding during each period plus the assumed exercise of
potentially dilutive stock options and warrants, conversion of convertible debt,
and vesting of restricted stock and restricted stock rights less the number of
treasury shares assumed to be purchased using the average market price of the
Company’s stock for each of the periods presented. The Company’s convertible
notes are included in the calculation of diluted income per share under the
“if-converted” method. Additionally, diluted income per share for continuing
operations is calculated excluding interest expense and amortization of debt
issue costs associated with the convertible notes since these notes are treated
as if converted into common stock.
Basic and diluted income (loss) from
continuing operations per common share for the three and nine months ended
September 30, 2009 and 2008 are computed as follows:
Three Months
|
Nine Months
|
|||||||||||||||
Ended September 30,
|
Ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Income
from continuing operations
|
$ | 2,055 | $ | 18,873 | $ | 29,121 | $ | 57,619 | ||||||||
Less:
Income attributable to noncontrolling interest
|
(372 | ) | (413 | ) | (1,543 | ) | (1,433 | ) | ||||||||
Net
income from continuing operations attributable to Willbros Group, Inc.
(numerator for basic calculation)
|
1,683 | 18,460 | 27,578 | 56,186 | ||||||||||||
Add: Interest
and debt issuance costs associated
|
||||||||||||||||
with
convertible notes
|
- | 1,804 |
(1)
|
- | 5,638 |
(1)
|
||||||||||
Net
income from continuing operations applicable
|
||||||||||||||||
to
common shares (numerator for diluted calculation)
|
$ | 1,683 | $ | 20,264 | $ | 27,578 | $ | 61,824 | ||||||||
Weighted
average number of common shares
|
||||||||||||||||
outstanding
for basic income per share
|
38,721,586 | 38,313,997 | 38,656,656 | 38,236,508 | ||||||||||||
Weighted
average number of potentially dilutive
|
||||||||||||||||
common
shares outstanding(2)
|
197,347 | 5,489,238 | 160,754 | 5,627,799 | ||||||||||||
Weighted
average number of common shares
|
||||||||||||||||
outstanding
for diluted income per share
|
38,918,933 | 43,803,235 | 38,817,411 | 43,864,307 | ||||||||||||
Income
per common share from continuing operations:
|
||||||||||||||||
Basic
|
$ | 0.04 | $ | 0.48 | $ | 0.71 | $ | 1.47 | ||||||||
Diluted
|
$ | 0.04 | $ | 0.46 | $ | 0.71 | $ | 1.41 |
|
(1)
|
Interest
expense for the three and nine months ended September 30, 2008 has been
adjusted to reflect additional expense due to the adoption of FSP No. APB
14-1 (ASC 470-20).
|
|
(2)
|
Excluded
from the computation of diluted income per share are options to purchase
207,750 shares of common stock, warrants to purchase 536,925 shares of
common stock and 4,874,228 shares of common stock issuable upon conversion
related to the 6.5% Notes and the 2.75% Notes that were all outstanding
during the three and nine months ended September 30, 2009 as their effect
was antidilutive. There were no shares excluded during the three and nine
months ended September 30, 2008.
|
10. Segment
Information
Effective
April 1, 2009, the Company revised its presentation of segments to reflect the
new approach that management is using to evaluate performance within the
Company. Previously the Company reported three segments, Upstream Oil & Gas, Downstream
Oil & Gas, and
Engineering. The Engineering segment has now
been merged with the Upstream
Oil & Gas segment. The Company’s segments are comprised of business
units that are managed separately as each has different core competencies which
require unique strategies. The Company manages and reports on two
operating segments: Upstream Oil & Gas and Downstream Oil & Gas.
These segments are based on the industry segments served and operate primarily
in the United States, Canada and Oman. Management evaluates the performance of
each operating segment based on operating income. The Company’s corporate
operations include the management, general & administrative, and financing
functions of the organization. The costs of these functions are
allocated to the two operating segments.
17
WILLBROS
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share amounts)
(Unaudited)
10. Segment
Information (continued)
The following tables reflect the
Company’s reconciliation of segment operating results to net income in the
Condensed Consolidated Statements of Operations for the three and nine months
ended September 30, 2009 and 2008:
For the three months ended September
30, 2009:
Upstream
Oil & Gas |
Downstream
Oil & Gas
|
Consolidated
|
||||||||||
Revenue
|
$ | 190,172 | $ | 57,361 | $ | 247,533 | ||||||
Operating
expenses
|
184,712 | 59,322 | 244,034 | |||||||||
Operating
income
|
$ | 5,460 | $ | (1,961 | ) | 3,499 | ||||||
Other
income (expense)
|
(2,103 | ) | ||||||||||
Provision
(benefit) for income taxes
|
(659 | ) | ||||||||||
Income
from continuing operations before noncontrolling interest
|
2,055 | |||||||||||
Less:
Income attributable to noncontrolling interest
|
(372 | ) | ||||||||||
Income
from continuing operations attributable to Willbros
|
1,683 | |||||||||||
Income
(loss) from discontinued operations, net of provision for income
taxes
|
(27 | ) | ||||||||||
Net
income attributable to Willbros Group, Inc.
|
$ | 1,656 |
For the three months ended September
30, 2008:
Upstream
Oil & Gas
|
Downstream
Oil & Gas
|
Consolidated
|
||||||||||
Revenue
|
$ | 404,402 | $ | 86,249 | $ | 490,651 | ||||||
Operating
expenses
|
379,894 | 81,526 | 461,420 | |||||||||
Operating
income
|
$ | 24,508 | $ | 4,723 | 29,231 | |||||||
Other
income (expense)
|
(2,301 | ) | ||||||||||
Provision
(benefit) for income taxes
|
8,057 | |||||||||||
Income
from continuing operations before noncontrolling interest
|
18,873 | |||||||||||
Less:
Income attributable to noncontrolling interest
|
(413 | ) | ||||||||||
Income
from continuing operations attributable to Willbros
|
18,460 | |||||||||||
Income
(loss) from discontinued operations, net of provision for income
taxes
|
1,219 | |||||||||||
Net
income attributable to Willbros Group, Inc.
|
$ | 19,679 |
For the nine months ended September 30,
2009:
Upstream
Oil & Gas
|
Downstream
Oil & Gas
|
Consolidated
|
||||||||||
Revenue
|
$ | 854,066 | $ | 211,875 | $ | 1,065,941 | ||||||
Operating
expenses
|
807,086 | 210,366 | 1,017,452 | |||||||||
Operating
income
|
$ | 46,980 | $ | 1,509 | 48,489 | |||||||
Other
income (expense)
|
(6,111 | ) | ||||||||||
Provision
(benefit) for income taxes
|
13,257 | |||||||||||
Income
from continuing operations before noncontrolling interest
|
29,121 | |||||||||||
Less:
Income attributable to noncontrolling interest
|
(1,543 | ) | ||||||||||
Income
from continuing operations attributable to Willbros
|
27,578 | |||||||||||
Income
(loss) from discontinued operations, net of provision for income
taxes
|
(1,527 | ) | ||||||||||
Net
income attributable to Willbros Group, Inc.
|
$ | 26,051 |
18
WILLBROS
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share amounts)
(Unaudited)
10.
|
Segment
Information (continued)
|
For
the nine months ended September 30, 2008:
Upstream
Oil & Gas
|
Downstream
Oil & Gas
|
Consolidated
|
||||||||||
Revenue
|
$ | 1,171,007 | $ | 278,995 | $ | 1,450,002 | ||||||
Operating
expenses
|
1,088,839 | 260,223 | 1,349,062 | |||||||||
Operating
income
|
$ | 82,168 | $ | 18,772 | 100,940 | |||||||
Other
income (expense)
|
(6,871 | ) | ||||||||||
Provision
(benefit) for income taxes
|
36,450 | |||||||||||
Income
from continuing operations before noncontrolling interest
|
57,619 | |||||||||||
Less:
Income attributable to noncontrolling interest
|
(1,433 | ) | ||||||||||
Income
from continuing operations attributable to Willbros
|
56,186 | |||||||||||
Income
(loss) from discontinued operations, net of provision for income
taxes
|
3,042 | |||||||||||
Net
income attributable to Willbros Group, Inc.
|
$ | 59,228 |
Total
assets by segment as of September 30, 2009 and December 31, 2008 are presented
below:
September 30,
2009
|
December 31,
2008
|
|||||||
Upstream
Oil & Gas
|
$ | 260,087 | $ | 390,494 | ||||
Downstream
Oil & Gas
|
176,521 | 196,409 | ||||||
Corporate
|
321,681 | 197,755 | ||||||
Total
segment assets
|
$ | 758,289 | $ | 784,658 |
11.
|
Stockholders’
Equity
|
The
information contained in this note pertains to continuing and discontinued
operations.
Public
Offering
On
November 20, 2007, the Company completed a public offering of 7,906,250 common
shares at $34.00 per share. The Company received $253,456 in net proceeds after
underwriting discount and offering costs. The net proceeds were used to fund the
cash portion of the purchase price for the acquisition of InServ, capital
expenditures and working capital.
Stock
Ownership Plans
During
May 1996, the Company established the Willbros Group, Inc. 1996 Stock Plan (the
“1996 Plan”) with 1,125,000 shares of common stock authorized for issuance to
provide for awards to key employees of the Company, and the Willbros Group, Inc.
Director Stock Plan (the “Director Plan”) with 125,000 shares of common stock
authorized for issuance to provide for the grant of stock options to
non-employee directors. The number of shares authorized for issuance under the
1996 Plan and the Director Plan was increased to 4,825,000 and 225,000,
respectively, by stockholder approval. The Director Plan expired August 16,
2006. In 2006, the Company established the 2006 Director Restricted Stock Plan
(the “2006 Director Plan”) with 50,000 shares authorized for issuance to grant
shares of restricted stock and restricted stock rights to non-employee
directors. The number of shares authorized for issuance under the 2006 Director
Plan was increased in 2008 to 250,000 by stockholder approval.
Restricted
stock and restricted stock rights, also described collectively as restricted
stock units (“RSU’s”), and options granted under the 1996 Plan vest generally
over a two to four year period. Options granted under the Director Plan are
fully vested. Restricted stock and restricted stock rights granted under the
2006 Director Plan vest one year after the date of grant. At September 30, 2009,
the 1996 Plan had 426,957 and the 2006 Director Plan had 156,711 shares
available for grant. Of the shares available at September 30, 2009,
75,000 shares in the 1996 Stock Plan are reserved for future grants required
under employment agreements. Certain provisions allow for accelerated vesting
based on increases of share prices, eligible retirement and involuntary
termination. Compensation expense of $2,072 and $0, respectively, for the nine
months ended September 30, 2009 and 2008 and $39 and $0, respectively, for the
three months ended September 30, 2009 and 2008 was recognized due to
accelerated vesting of RSU’s due to retirements and separation from the
Company.
19
WILLBROS
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share amounts)
(Unaudited)
11.
|
Stockholders’ Equity
(continued)
|
Effective
January 1, 2006, the Company adopted the fair value recognition provisions of
SFAS No. 123R (ASC 718-10) using the modified prospective application
method. Under this
method, compensation cost recognized in the three months and nine months ended
September 30, 2009 and 2008 includes the applicable amounts of: (a) compensation
expense of all share-based payments granted prior to, but not yet vested as of,
January 1, 2006 (based on the grant-date fair value estimated in accordance with
the original provisions of SFAS No. 123 (ASC 718-10), and previously presented
in the pro forma footnote disclosures in the Company’s SEC reports), and (b)
compensation cost for all share-based payments granted subsequent to January 1,
2006 (based on the grant-date fair value estimated in accordance with the
provisions of SFAS No. 123R). The Company determines the fair value of stock
options as of its grant date using the Black-Scholes valuation
method.
Share-based
compensation related to RSU’s is recorded based on the Company’s stock price as
of the grant date. Expense from both stock options and RSU’s totaled $2,371 and
$2,596, respectively, for the three months ended September 30, 2009 and
2008 and $9,321 and $7,080, respectively, for the nine months ended September
30, 2009 and 2008.
No
options were granted during the three or nine months ended September 30, 2009
and 2008. Stock option activity for the nine months ended September 30, 2009
consists of:
Number of
Options
|
Weighted
Average
Exercise Price
|
|||||||
Outstanding
at January 1, 2009
|
333,750 | $ | 15.47 | |||||
Granted
|
- | - | ||||||
Exercised
|
(16,500 | ) | 11.11 | |||||
Forfeited
|
(55,000 | ) | 15.56 | |||||
Outstanding
at September 30, 2009
|
262,250 | $ | 15.72 | |||||
Exercisable
at September 30, 2009
|
189,750 | $ | 14.49 |
As of
September 30, 2009, the aggregate intrinsic value of stock options outstanding
and stock options exercisable was $450 and $450, respectively. The weighted
average remaining contractual term of outstanding options is 5.60 years and
the weighted average remaining contractual term of the exercisable options is
5.20 years at September 30, 2009. The total intrinsic value of options exercised
during the nine months ended September 30, 2009 and 2008 was $71 and $1,284,
respectively.
The total
fair value of options vested during the nine months ended September 30,
2009 and 2008 was $0 and $112, respectively, and for the three months ended
September 30, 2009 and 2008 was $0 and $112, respectively.
The
Company’s non-vested options at September 30, 2009, and the changes in
non-vested options during the nine months ended September 30, 2009, are as
follows:
Shares
|
Weighted
Average Grant-Date Fair Value
|
|||||||
Nonvested,
January 1, 2009
|
72,500 | $ | 7.15 | |||||
Granted
|
- | - | ||||||
Vested
|
- | - | ||||||
Forfeited
or expired
|
- | - | ||||||
Nonvested,
September 30, 2009
|
72,500 | $ | 7.15 |
20
WILLBROS
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share amounts)
(Unaudited)
11.
|
Stockholders’ Equity
(continued)
|
The
Company’s RSU activity and related information for the nine months ended
September 30, 2009 consist of:
Number of
RSU’s
|
Weighted
Average Grant-Date Fair Value
|
|||||||
Outstanding
at January 1, 2009
|
839,542 | $ | 32.89 | |||||
Granted
|
516,164 | 9.74 | ||||||
Vested
|
(316,356 | ) | 29.00 | |||||
Forfeited
|
(44,320 | ) | 18.97 | |||||
Outstanding
September 30, 2009
|
995,030 | $ | 22.73 |
The total
fair value of RSU’s vested during the nine months ended September 30, 2009 and
2008 was $9,174 and $2,953, respectively.
As of
September 30, 2009, there was a total of $14,562 of unrecognized compensation
cost, net of estimated forfeitures, related to all non-vested share-based
compensation arrangements granted under the Company’s stock ownership plans.
That cost is expected to be recognized over a weighted-average period of 1.56
years.
Warrants
to Purchase Common Stock
On
October 27, 2006, the Company completed a private placement of equity to certain
accredited investors pursuant to which the Company issued and sold 3,722,360
shares of the Company’s common stock resulting in net proceeds of $48,748. In
conjunction with the private placement, the Company also issued warrants to
purchase an additional 558,354 shares of the Company’s common stock. Each
warrant is exercisable, in whole or in part, until 60 months from the date
of issuance. A warrant holder may elect to exercise the warrant by delivery of
payment to the Company at the exercise price of $19.03 per share, or pursuant to
a cashless exercise as provided in the warrant agreement. The fair value of the
warrants was $3,423 on the date of the grant, as calculated using the
Black-Scholes option-pricing model. There were 536,925 warrants outstanding at
September 30, 2009 and 2008, respectively.
12.
|
Foreign
Exchange Risk
|
The Company attempts to negotiate
contracts that 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, 2009 or
December 31, 2008.
13.
|
Contingencies,
Commitments and Other Circumstances
|
Resolution
of criminal and regulatory matters
In May
2008, the United States Department of Justice filed an Information and Deferred
Prosecution Agreement (“DPA”) in the United States District Court in Houston
concluding its investigation into violations of the Foreign Corrupt Practices
Act of 1977, as amended, by Willbros Group, Inc. and its subsidiary Willbros
International, Inc. (“WII”). Also in May 2008, WGI reached a final settlement
with the SEC to resolve its previously disclosed investigation of possible
violations of the FCPA and possible violations of the Securities Act of 1933 and
the Securities Exchange Act of 1934. These investigations stemmed primarily from
the Company’s former operations in Bolivia, Ecuador and Nigeria. The settlements
together require the Company to pay, over approximately three years, a total of
$32,300 in penalties and disgorgement, plus post-judgment interest on $7,725 of
that amount. As part of its agreement with the SEC, the Company will be subject
to a permanent injunction barring future violations of certain provisions of the
federal securities laws. As to its agreement with the DOJ, both WGI and WII for
a period of three years, are subject to the DPA, which among its terms provides
as follows:
|
·
|
In
exchange for WGI’s and WII’s full compliance with the DPA, the DOJ will
not continue a criminal prosecution of WGI and WII and with the successful
completion of the DPA’s terms, the DOJ will move to dismiss the criminal
information.
|
21
WILLBROS
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share amounts)
(Unaudited)
13.
|
Contingencies,
Commitments and Other Circumstances
(continued)
|
For the
term of the DPA, WGI and WII will fully cooperate with the government and comply
with all federal criminal laws – including but not limited to the FCPA. As
provided for in the DPA, the Company has retained a monitor, at the Company’s
expense, effective September 25, 2009, with the approval of the DOJ, for a two
and one-half year period, who will report to the DOJ on the Company’s compliance
with the DPA. Failure by the Company to comply with the terms and conditions of
either settlement could result in resumed prosecution and other regulatory
sanctions.
Pipeline
Construction Project Issue
In July
2007, the Company announced the award of an installation contract (“42”
Contract”) for the construction of three segments of the Midcontinent Express
Pipeline Project (“MEP Project”) by Midcontinent Express Pipeline LLC (“MEP”).
The contract is structured as a cost reimbursable contract with a fixed fee for
the Company. In September 2008, the Company and MEP signed an amendment
which finalized the scope of work under the 42” Contract as the
construction of 179 miles of 42” pipeline. The amendment also included the award
to the Company of an additional installation contract (“36” Contract”) for the
construction of 136 miles of 36” pipeline which at the time was anticipated to
start in March 2009.
In its
Form 10-K for the year ended December 31, 2008, the Company referenced an
ongoing dispute between MEP and the Company in which a portion of the scope of
work on the 42” Contract was terminated for cause and the 36” Contract was
terminated for convenience. This issue has subsequently been resolved and MEP
has paid a termination fee for the cancellation of the 36” Contract. The payment
was received by the Company in the first quarter of 2009.
Furthermore,
the Company achieved mechanical completion of the 179 miles on the 42” pipeline
in April 2009. While the Company has reached mechanical completion on MEP, close
out project efforts are expected to be completed by the end of the fourth
quarter of 2009.
Project
claims and audit disputes
Post-contract
completion audits and reviews are periodically conducted by clients and/or
government entities on certain contracts. As of September 30, 2009, the Company
has been notified of claims and audit assertions totaling $5,329, against which
the Company has an aggregate reserve of $1,850. The Company is actively engaged
with several customers to resolve these disputes. There can be no assurance as
to the resolution of these claims and assertions. During the third quarter of
2009, the Company reached an agreement with a customer to resolve $23,040 of
claims and audit assertions for $2,911.
Legal
Proceedings
In
addition to the matters discussed above, the Company is 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.
Commitments
From time
to time, the Company enters into commercial commitments, usually in the form of
commercial and standby letters of credit, surety bonds and financial guarantees.
Contracts with the Company’s customers may require the Company to secure letters
of credit or surety 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 surety bonds in lieu of contract retention
provisions, in which case 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, 2009, the Company had
approximately $11,870 of letters of credit related to continuing operations and
$0 of letters of credit related to Discontinued Operations in Nigeria.
Additionally, the Company had $287,795 of primary surety bonds outstanding
related to continuing operations. These amounts represent the maximum amount of
future payments the Company could be required to make if the letters of credit
are drawn upon and claims are made under the surety bonds. As of September 30,
2009, no other liability has been recognized for letters of credit and surety
bonds.
Other
Circumstances
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 would have a material effect on the financial statements, and no
such events have been provided for in the accompanying condensed consolidated
financial statements.
22
WILLBROS
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share amounts)
(Unaudited)
13.
|
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 the
Company operates, management believes the Company follows the current practices
in those countries and as applicable under the FCPA. 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 20.0 percent 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.
The
Company attempts to manage contract risk by implementing a standard contracting
philosophy to minimize liabilities assumed in the agreements with the Company’s
clients. With the acquisitions the Company has made in the last few years,
however, there may be contracts or master service agreements in place that do
not meet the Company’s current contracting standards. While the Company has made
efforts to improve its contractual terms with its clients, this process takes
time to implement. The Company has attempted to mitigate the risk by requesting
amendments with its clients and by maintaining primary and excess insurance, of
certain specified limits, in the event a loss was to ensue.
14.
|
Discontinuance
of Operations, Asset Disposals, and Transition Services
Agreement
|
Strategic
Decisions
In 2006,
the Company announced that it intended to sell its assets and operations in
Nigeria and classified these operations as Discontinued Operations. The net
assets and net liabilities related to the Discontinued Operations are shown on
the Consolidated Balance Sheets as “Assets of discontinued operations” and
“Liabilities of discontinued operations”, respectively. The results of the
Discontinued Operations are shown on the Consolidated Statements of Operations
as “Income (loss) from discontinued operations net of provision for income
taxes” for all periods presented.
Nigeria
Assets and Nigeria-Based Operations
Share
Purchase Agreement
On
February 7, 2007, the Company sold its Nigeria assets and Nigeria-based
operations in West Africa to Ascot Offshore Nigeria Limited (“Ascot”), a
Nigerian oilfield services company, for total consideration of $155,250 (the
“Purchase Price”). The sale was pursuant to a Share Purchase Agreement by and
between the Company and Ascot dated as of February 7, 2007 (the “Agreement”),
providing for the purchase by Ascot of all of the share capital of WG Nigeria
Holdings Limited, the holding company for Willbros West Africa, Inc. (“WWAI”),
Willbros (Nigeria) Limited, Willbros (Offshore) Nigeria Limited and WG Nigeria
Equipment Limited.
In
connection with the sale of its Nigeria assets and operations, the Company and
its subsidiary WII entered into an indemnity agreement with Ascot and Berkeley
Group plc (“Berkeley”), the parent company of Ascot (the “Indemnity Agreement”),
pursuant to which Ascot and Berkeley will indemnify the Company and WII for any
obligations incurred by the Company or WII in connection with the parent company
guarantees (the “Guarantees”) that the Company and WII previously issued and
maintained on behalf of certain former subsidiaries now owned by Ascot under
certain working contracts between the subsidiaries and their customers. Either
the Company, WII or both may be contractually obligated, in varying degrees,
under the Guarantees to perform or cause to be performed work related to several
ongoing projects. Among the Guarantees covered by the Indemnity Agreement are
five contracts under which the Company estimates that, at February 7, 2007,
there was aggregate remaining contract revenue, excluding any additional claim
revenue, of $352,107 and aggregate estimated cost to complete of $293,562. At
the February 7, 2007 sale date, one of the contracts covered by the Guarantees
was estimated to be in a loss position with an accrual for such loss of $33,157.
The associated liability was included in the liabilities acquired by Ascot and
Berkeley.
In early
2008, the Company received its first notification asserting various rights under
one of the outstanding parent guarantees. On February 1, 2008, WWAI, the Ascot
company performing the West African Gas Pipeline (“WAGP”) contract, received a
letter from West African Gas Pipeline Company Limited (“WAPCo”), the owner of
WAGP, wherein WAPCo gave written notice alleging that WWAI was in default under
the WAGP contract, as amended, and giving WWAI a brief cure period to remedy the
alleged default. The Company understands that WWAI responded by denying being in
breach of its WAGP contract obligations, and apparently also advised WAPCo that
WWAI “requires a further $55 million, without which it will not be able to
complete the work which it had previously undertaken to perform.”
The
Company understands that, on February 27, 2008, WAPCo terminated the WAGP
contract for the alleged continuing non-performance of WWAI.
Also, on February 1, 2008, the Company
received a letter from WAPCo reminding the Company of its parent guarantee on
the WAGP contract and requesting that we remedy WWAI’s default under that
contract, as amended. Almost one year later, on February 17, 2009, we received
another letter from WAPCo formally demanding that we pay all sums payable in
consequence of the non-performance by Ascot with WAPCo and stating that
quantification of that amount would be provided sometime in the future when the
work was completed. On previous occasions, the Company has advised WAPCo that,
for a variety of legal, contractual, and other reasons, it did not consider the
prior WAGP contract parent guarantee to have continued application, and the
Company reiterated that position to WAPCo in the Company’s response to its
February 1, 2008 letter. WAPCo disputes the Company’s position that
it is no longer bound by the terms of the Company’s prior parent guarantee of
the WAGP contract and has reserved all its rights in that regard. Currently, the
WAGP project is yet to be completed for a variety of technical and commercial
issues unrelated to WAPCo’s termination of the WAGP contract. The February 17,
2009 letter from WAPCo and their still un-quantified claim does not change the
Company’s stance or accounting related to the WAGP parent
guarantee.
23
WILLBROS
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share amounts)
(Unaudited)
14.
|
Discontinuance
of Operations, Asset Disposals, and Transition Services Agreement
(continued)
|
The
Company anticipates that this potential dispute with WAPCo may result in an
arbitration proceeding between WAPCo and WWAI in the London Court of
International Arbitration to determine the validity of the alleged default
notice issued by WAPCo to WWAI, including any resulting damage award, in
combination with a lawsuit between WAPCo and the Company in the English Courts
under English law to determine the enforceability, in whole or in part, of the
Company’s parent guarantee, which the Company expects to be a lengthy
process.
The
Company currently has no employees working in Nigeria and we have no intention
of returning to Nigeria. If ultimately it is determined by an English Court that
the Company is liable, in whole or in part, for damages that WAPCo may establish
against WWAI for WWAI’s alleged non-performance of the WAGP contract, or if
WAPCo is able to establish liability against the Company directly under the
parent company guarantee, and, in either case, we are unable to enforce rights
under the indemnity agreement entered into with Ascot and Berkeley in connection
with the WAGP contract, the Company may experience substantial losses. However,
at this time, the Company cannot predict the outcome of any arbitration or
litigation which may ensue in this developing WAGP
contract dispute, or be certain of the degree to which the indemnity agreement
given in our favor by Ascot and Berkeley will protect the Company. Based upon
current knowledge of the relevant facts and circumstances, the Company does not
expect that the outcome of the potential dispute will have a material adverse
effect on its financial condition or results of operations.
Results
of Discontinued Operations
For the
three months ended September 30, 2009, the loss from Discontinued Operations was
$27 or $0.00 per basic and diluted share. This compares to income from
Discontinued Operations of $1,219 or $0.03 per basic and diluted share for the
three months ended September 30, 2008. For the nine months ended September 30,
2009, the loss from Discontinued Operations was $1,527 or $0.04 per basic and
diluted share compared to income of $3,042 or $0.08 per basic and $0.07 per
diluted share for the nine months ended September 30, 2008. During the second
quarter 2009, a $1,750 charge was taken to write off the net book value of the
commitment related to the sale of the Company’s Venezuela assets and operations
as management determined the collection of the outstanding commitment highly
unlikely, due to nationalization of various oil-field service contractors within
the country.
24
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (In thousands, except share and per share amounts or unless otherwise
noted)
The
following discussion should be read in conjunction with the unaudited Condensed
Consolidated Financial Statements for the three and nine months ended September
30, 2009 and 2008, included in Item 1 of this Form 10-Q, 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, 2008.
OVERVIEW
Third
Quarter of 2009 Summary
Our third
quarter of 2009 revenue was $247,533 and net income was $1,683 or $0.04 per
share from continuing operations. Revenue and net income for the same quarter in
2008 were $490,651 and $18,460, respectively. The 50 percent decline in
year-over-year revenue is primarily related to the reduction of large diameter
pipeline work and the absence of EPC work that made a positive contribution in
the same period in 2008. The third quarter of 2009 earnings were lower than
expected primarily because of $4,500 in additional costs on an EPC project that
was shutdown by our customer for several months and restarted with different
protocols for safety and project execution. The project’s revised schedule and
work scope have resulted in additional charges to the project. Change
orders covering the costs of the delays and scope changes have been or will be
submitted to our customer for settlement; however, we cannot estimate at this
time the outcome of these negotiations. Also impacting the third quarter’s
earnings were $2,418 of “other charges” for employee severance and impairment of
operating leases relating to the Company’s ongoing efforts to align our cost
structure with the current and anticipated business environments.
At the
end of the third quarter, we were awarded the construction contract for two
spreads of large diameter pipeline work on the Energy Transfer operated
Fayetteville Express Project (“FEP”). Our FEP spreads are expected to commence
field operations early in the second quarter of 2010. During the next two
quarters, we expect to bid on over $1 billion of new pipeline construction work
for execution in 2010 and 2011. Industry reports anticipate a return to higher
levels of pipeline construction activity in the United States commencing in the
second half of 2010 through 2012; this information, coupled with the FEP award
and increased bid activity causes us to have a more optimistic view of the
near-term opportunities for our upstream pipeline construction business.
However, U.S. Construction revenue is expected to reflect low utilization of
people and assets during the fourth quarter of 2009 and the first quarter of
next year, primarily because anticipated work has been deferred into 2010. The
near-term weakness in major pipeline construction is further exacerbated by an
anticipated weak winter season in Canada for pipeline construction. We now
expect that the combination of the diminished fourth quarter pipeline
construction revenue, loss of anticipated work in certain other business units
and continuing downward margin pressures across all business units will result
in a further reduction of revenue and contract income as compared to the third
quarter of 2009, resulting in a net loss expected for the fourth
quarter.
We have
responded to this year’s challenging business environment by reassessing the
cost structure of our business units and taking action to size the company for
the market conditions that we anticipate, for current and future commitments,
and for the strategic growth that we have planned going forward. At
the end of 2008, we began aggressively reducing our G&A spending to maintain
cost alignment with a decreasing revenue stream and simultaneously reducing our
costs related to underutilized services, primarily engineering. During the third
quarter, the cost reduction efforts expanded to address underutilized staff
previously charged as part of contract costs, the appropriate level and type of
executive compensation and recognition of underutilized or abandoned office and
facility leases. Cost reduction initiatives related to underutilized operations
staff have been tempered by the need to retain key resources to support a return
to the elevated levels of business activity that are projected for 2010 and
beyond, and to ensure that we are positioned to defend and pursue market share
when conditions warrant it. Management views the negative near term impact, in
the fourth quarter of 2009 and the first quarter of 2010, as necessary in order
to capitalize on the anticipated improvement in business activity in
2010.
Since the fourth quarter of 2008, our
cost savings initiatives have resulted in savings estimated at $56,100. The 2009
cost of these savings are expected to be $11,200, of which $1,700 was recorded
in the fourth quarter of 2008, $8,200 through September 2009 and the
remaining $1,300 is expected to be incurred in the fourth quarter of this year.
The cost includes severance, accelerated stock vesting and lease abandonment
charges. Much of the annual cost savings will not be immediately reflected in
earnings results because in the short-term, these cost reductions will be offset
by a continued downward pressure on margins caused by underutilized assets and
people. The current business environment has mandated that we continue to
aggressively reduce our cost structure in the short-term while also staying
focused on our long-term vision for Willbros. We will reassess our cost
structure throughout our business in conjunction with developing and executing
our strategies and business plans for 2010, 2011 and beyond.
Our
backlog as of September 30, 2009 was $501,358, an increase of $114,172 (29.5
percent) from the prior quarter. This is the first successive quarter backlog
increase since the second quarter of 2008. As mentioned above, the FEP contract
award drove the Upstream Oil
& Gas increase of $74,683. Included in the Upstream Oil & Gas
backlog increase is a 9 percent increase in our Oman backlog as well as new
backlog associated with the Libya Great Manmade River Project, a combined
successive quarter increase of $7,328. Downstream Oil & Gas
backlog also experienced an increase of $39,489 or 26.1 percent. The Downstream Oil & Gas
increase is primarily the result of $21,486 of additional backlog attributable
to the acquisition of the engineering business of Wink Companies, LLC. (“Wink”);
however, overall Downstream
Oil & Gas backlog is trending up as a direct result of the increased
proposal activity experienced in the current quarter and customers scheduling
previously deferred turnaround work. Turnaround work scheduled for 2010
comprises 43.0 percent of the Downstream Oil & Gas
backlog. Because our customers need to complete certain required maintenance
work, our Downstream Oil &
Gas businesses appear to be recovering earlier than the Upstream Oil & Gas
businesses.
25
Looking
forward, we are more optimistic of 2010 and beyond. We believe the first quarter
of 2010 will be the starting point for improved levels of activity, particularly
in turnaround work in our Downstream Oil & Gas
segment. We believe our Upstream Oil & Gas
business lags the oil field services cycle and the uptick in the drilling
rig count driven by improving commodity prices, as well
as increasing development of unconventional gas plays throughout North
America is a positive sign for improvement in the upstream markets
we serve. Internally, inquiry levels for manufacturing, engineering and field
services have increased both in North America and internationally, although we
have not yet seen a corresponding increase in the number of project awards. As
mentioned previously, backlog has improved in both of our
segments. Our cost reduction initiatives have contributed to
conserving cash and maintaining financial flexibility. At September 30, we have
$243,723 in cash, only a slight reduction from the June 30 balance of
$245,392.
To
accelerate our growth of business, we continue to identify and
review potential acquisitions that would advance
our strategy of diversifying our business model and drive more consistent long
term results. The Wink acquisition, consummated in the third quarter, is the
most recent example of the key role acquisitions may play in successfully
executing our strategy. Our strong liquidity position supports our efforts to
continue to acquire companies that are complementary to our
strategy.
We are
continuing to pursue international opportunities to expand our geographical
presence. In addition to developing the North Africa and Middle East markets
through our presence in Libya and our existing operations in Oman and our new
Abu Dhabi engineering office, we have recently entered into a partnership
agreement to actively pursue awards for several pipeline projects
in Australia.
While the
current market uncertainty impacts us unfavorably in the near-term, we remain
committed to strategically building our company by growing our service
offerings, expanding our geographical footprint, leveraging our current
government opportunities, and maximizing our acquisition opportunities. We
believe that our continued focus on growth, the best risk-adjusted returns and
diversity, will result in a larger, more stable and profitable
Willbros.
Our
Vision
We
continue to believe that long-term fundamentals support increasing demand for
our services to the energy industry. This supports our vision for
Willbros as a leading provider to the global infrastructure and government
services markets of diversified professional construction and maintenance
solutions addressing the entire asset lifecycle.
To
accomplish this, we are actively working towards achieving the following
objectives:
|
·
|
Diversify
our current end market and geographic exposure to better serve clients and
mitigate market specific risk.
|
|
·
|
Increase
our professional services (project/program management, engineering,
design, procurement, and logistics) capabilities to minimize cyclicality
and risk associated with large capital projects in favor of higher
return recurring service work.
|
|
·
|
Establish
Willbros as a service provider and employer of
choice.
|
|
·
|
Develop
client partnerships by
exceeding performance expectations and focusing team driven sales efforts
on key clients.
|
|
·
|
Establish
and maintain industry best practices, particularly for safety and
performance.
|
Our
Values
We
believe the values we adhere to as an organization shape the relationships and
performance of our company. We are committed to strong leadership across the
organization to achieve excellence and accountability in everything we do, based
on our core values of:
|
·
|
Safety
– always perform safely for the protection of our people and our
stakeholders.
|
|
·
|
Honesty
and Integrity – always do the right
thing.
|
|
·
|
Our
People – respect and care for their well being and development; maintain
an atmosphere of trust, empowerment and teamwork; ensure the best people
are in the right position.
|
|
·
|
Our
Customers – understand their needs and develop responsive solutions;
promote mutually beneficial relationships and deliver a good job on
time.
|
|
·
|
Superior
Financial Performance – deliver earnings per share and cash flow and
maintain a balance sheet which places us at the forefront of our peer
group.
|
|
·
|
Vision
& Innovation – understand the drivers of our business environment,
promote constant curiosity, imagination and creativity about our business
and opportunities, seek continuous
improvement.
|
|
·
|
Effective
Communications – present a clear, consistent and accurate message to our
people, our customers and the
public.
|
26
We
believe adhering to and living these values will result in a high performance
organization which can differentiate and compete effectively, providing
incremental value to customers, employees and all our stakeholders.
Our
Strategy
We work
diligently to apply these values every day and use them to guide us in the
execution of our strategy. We believe by allowing our values to drive the
execution of our strategic goals we will increase stockholder value by
leveraging the full resources and core competencies of an integrated Willbros
business platform to drive consistent, sustainable value for our key customer,
stockholder and employee constituencies. Key elements of our strategy are as
follows:
Maintain
Financial Flexibility
We
anticipate that we will generate free positive cash flow for 2009 sufficient to
meet our working capital needs and allow us to pursue our vision for
diversification. We view financial strength and flexibility as a fundamental
requirement to fulfilling our strategy.
At
September 30, 2009, we had liquidity of $293,723 comprised of cash and cash
equivalents of $243,723 and unutilized cash borrowing capacity of $50,000 under
our revolving credit facility, with no short-term borrowings or commercial paper
outstanding. This strong liquidity position is the result of our focus on the
risk-adjusted return that was available in the North American market over the
past two years and our focus on managing financial risk and cash flow. Our
financial strategy going forward involves effectively deploying our liquidity to
enhance our service capabilities and expand our geographic presence. We believe
that companies with strong balance sheets and liquidity positions will have
opportunities to acquire assets and companies in today’s market.
Focus on Managing
Risk
We have
implemented a core set of business conduct, practices and policies which have
fundamentally improved our risk profile. Examples of our risk management
execution include diversifying our service offerings and end markets and
focusing on contract execution risk. In today’s economic environment,
acknowledging the importance of risk management is paramount to success. It is
emphasized throughout our organization and covers all aspects of a project from
strategic planning and bidding to contract management and financial
reporting.
Focus resources in markets with the
highest risk-adjusted return. During the pause in North America pipeline
construction activity, we are redeploying resources to seek international
opportunities which can provide superior, more diversified risk-adjusted returns
and believe our extensive international experience is a competitive advantage.
We continue to pursue opportunities to expand our business in North America
organically or through acquisitions to include more recurring service work, and
to build alliances to minimize our reliance on large capital expenditure
projects, such as large diameter cross-country pipeline
construction. We opened an operations office in Libya and an
engineering office in Abu Dhabi. We believe that markets in North Africa and the
Middle East offer attractive opportunities for us in the future given mid- and
long-term industry trends. The recent award to provide the project
management services for the Libya Great Manmade River project and the U.S.
Navy’s selection of Willbros as a participating contractor in the Indefinite
Delivery, Indefinite Quantity (“IDIQ”) contract to upgrade their fuel systems
worldwide represents the beginning of the expected new stream of international
work. We are also pursuing new work in the expanding Asia-Pacific energy
infrastructure where we have entered into an alliance with Nacap, a well-known
international pipeline contractor with operations in Australia, to leverage our
complementary capabilities and experience in pursuit of multiple large diameter
pipeline EPC opportunities associated with the coal seam methane developments
proposed there.
Manage the risks shifting from our
customers because of the shift to fixed price contracts. While we will
continue to pursue a balanced contract portfolio, current market dynamics
indicate that opportunities for pipeline have contracted and entered a much more
competitive period characterized by lower margins and more fixed price
contracts. We believe our fixed price execution experience, our current efforts
to realign our cost structure, especially in the procurement of materials and
subcontractor services, our improved systems and our focus on risk management
provide us a competitive advantage versus many of our competitors.
Leverage
Industry Position and Reputation into a Broader Service Offering
We
believe the global energy infrastructure market will continue to provide
opportunities. Our established platform and track record position us to expand
our expertise into a broader range of related service offerings. We intend to
leverage our project management, engineering and construction skills to
establish additional service offerings, such as downstream engineering,
instrumentation and electrical services, turbo-machinery services, environmental
services and pipeline system integrity services. We believe that over time, a
more balanced mix of recurring services, such as program management and
maintenance services and capital projects will enhance the earnings profile of
our business.
During
the third quarter of 2009, the Wink acquisition completed our Downstream
integrated service offering, enabling us to provide full EPC execution services
with our internal resources. To date we have identified over twelve
EPC prospects, and we believe Wink positions us favorably for participation in
high value, small capital projects for clients in the downstream
markets. We believe small high return projects such as these will be
the first to be awarded as the refining industry returns to more normal levels
of activity. We anticipate this will have a meaningfully favorable impact on our
Downstream Oil & Gas future
revenue and earnings.
27
Leverage
Core Service Expertise into Additional Full EPC Contracts
Our core
expertise and service offerings allow us to provide our customers with a single
source EPC solution which creates greater efficiencies to the benefit of both
our customers and our company. Our goal is to be one of the preeminent global
engineering and construction firms that can provide our customers EPC solutions
related to all the services that we offer. In performing integrated EPC
contracts, we establish ourselves as overall project manager from the earliest
stages of project inception and are therefore better able to efficiently
determine the design, permitting, procurement and construction sequence for a
project in connection with making engineering decisions. Our customers benefit
from a more seamless execution and one-stop accountability for cost containment;
while for us, these contracts often yield higher profit margins on the
engineering and construction components of the contract compared to stand-alone
contracts for similar services. It is the combination of a good job on time and
greater cost certainty that we can provide which differentiates our EPC offering
to our customers. As previously noted, the Wink acquisition now completes
our ability to provide Company-wide EPC service capabilities with internal
resources.
Our
Business
We are a
provider of energy services to global end markets serving the oil and gas,
refinery, petrochemical and power industries. Our services, which include
engineering, procurement and construction individually or an EPC service
offering, turnaround, maintenance and other specialty services, are critical to
the ongoing expansion and operation of energy infrastructure. Within the global
energy market, we specialize in designing, constructing, upgrading and repairing
midstream infrastructure such as pipelines, compressor stations and related
facilities for onshore and coastal locations as well as downstream facilities,
such as refineries. We also provide specialty turnaround services, tank
services, heater services, construction services and safety services and
fabricate specialty items for hydrocarbon processing units. We provide, from
time to time, asset development and participate in the ownership and operations
as an extension of our portfolio of industry services. We place particular
emphasis on achieving the best risk-adjusted returns. Depending upon market
conditions, we may work in developing countries and we believe our experience
gives us a competitive advantage in frontier areas where experience in dealing
with project logistics is an important consideration for project award and
execution. We also believe our engineering, planning and project management
expertise, as it relates to optimizing the structure and execution of a project,
provides us with competitive advantages in the markets we serve.
We are a
top tier, global engineering and construction contractor to the energy market,
having performed work in 60 countries. Our original business of international
pipeline construction led to our worldwide reputation, and we have constructed
over 200,000 kilometers of pipelines in our history. We complement our pipeline
market expertise with our service offerings to the downstream hydrocarbon
processing market providing integrated solutions for turnaround, maintenance and
capital projects for the refining and petrochemical industries. We have
performed these downstream services for 91 of 149 refineries in the United
States and have experience in international markets. We offer our clients full
asset lifecycle services and in some cases we provide the entire scope of
services for a project, from front-end engineering and design to procurement,
construction, commissioning and ongoing facility operations and maintenance.
With over 100 years of experience in the global energy infrastructure
market, our full asset lifecycle services are utilized by major pipeline
transportation companies, exploration, production and refining companies and
government entities worldwide.
Our
Segments
In
conjunction with the Wink acquisition, we redefined our business segments from
Engineering, Upstream Oil
& Gas and Downstream Oil & Gas to
two segments by integrating the existing Engineering segment into the
Upstream Oil & Gas
segment and Wink’s engineering services into the Downstream Oil & Gas
segment. We believe the inclusion of engineering services
within each segment will make our EPC offering even more effective by improving
internal connectivity and providing dedicated, specialized engineering services
to both the upstream and downstream markets.
Upstream
Oil & Gas
We
provide our full EPC services or individual engineering, procurement and
construction expertise, including systems, personnel and equipment, to design,
build or replace large-diameter cross-country pipelines; fabricate engineered
structures, process modules and facilities; and build oil and gas production
facilities, pump stations, flow stations, gas compressor stations, gas
processing facilities, gathering lines and related facilities. We provide a
broad array of engineering, project management, pipeline integrity and field
services to increase our equipment and personnel utilization. We currently
provide these services in the United States, Canada, and Oman, and, with our
international experience, can enter (or re-enter) individual country markets
when conditions there are attractive to us and present an acceptable
risk-adjusted return.
Downstream
Oil & Gas
We
provide integrated, full-service specialty construction, turnaround, repair and
maintenance services to the downstream energy infrastructure market, which
consists primarily of refineries and petrochemical facilities. We are one of
four major contractors in the United States that provides services for the
overhaul of high-utilization fluid catalytic cracking units, the primary
gasoline-producing unit in refineries. These catalytic cracking units, which
operate continuously for long periods of time, are typically overhauled on a
three to five-year cycle. We also provide similar turnaround services for other
refinery process units, as well as specialty services. We design, manufacture
and install process heaters for the refining industry. We also provide
maintenance and construction services for the American Petroleum Institute (API
650) storage tank market. We provide these services primarily in the United
States, but our experience includes international projects, and we are exploring
opportunities to expand this offering to other locations with attractive
risk-adjusted returns.
28
Additionally,
the Downstream Oil &
Gas segment provides government services, with current involvement in
building and managing fueling depots. Also, based on our recent
selection by the U.S. Navy to compete for future task orders under the
Engineering Service Center’s multiple-award IDIQ contract for assessments,
inspections, repair, and construction services for fuel systems at U.S. Navy
locations worldwide, we expect to be active in this area.
Significant
Business Developments
October
2009
In
Australia, we have formed a project-specific joint venture with Nacap, a
well-known international pipeline contractor with operations in Australia, to
leverage our complementary capabilities and experience in pursuit of multiple
large diameter pipeline EPC opportunities associated with the large coal seam
methane to LNG developments proposed there.
September
2009
We were
awarded the construction contract for spreads three and four of the Fayetteville
Express Pipeline. The approximately 185-mile natural gas pipeline
will originate in Conway County, Arkansas, continue eastward through White
County, Arkansas, and terminate at an interconnect with Trunkline Gas Company in
Panola County, Mississippi. FEP will parallel existing utility corridors where
possible to minimize impact to the environment, communities and landowners. FEP
is a joint venture between Energy Transfer Partners, L.P. and Kinder Morgan
Energy Partners, L.P. Our scope of work includes 120 miles of 42-inch pipeline,
beginning near Bald Knob, Arkansas and ending at the Trunkline interconnection.
The project is expected to begin construction in April 2010 and be completed in
October 2010.
NiSource
Gas Transmission & Storage (“NGT&S”), a unit of NiSource Inc., and
Willbros have executed a long-term alliance agreement whereby we will be the
provider of program development, project management, design, engineering,
geographic information systems (“GIS”), integrity and maintenance services with
respect to pipeline system projects for NGT&S. Under the alliance
concept, a joint leadership team of NGT&S and Willbros members will
identify, develop, define and evaluate concepts from a commercial
perspective. We will provide services necessary to advance concepts
to sufficient detail for construction and/or budget approval, and, upon
approval, we will execute a work order for any combination of services in the
execution of projects and programs on the NGT&S system.
29
Financial
Summary
Results and Financial
Position
For the three months ended September
30, 2009, we achieved net income from continuing operations of $1,683 or $0.04
per basic and diluted share on revenue of $247,533. This compares to net income
from continuing operations of $18,460 or $0.48 per basic and $0.46 per diluted
share on revenue of $490,651 for the three months ended September 30,
2008.
Revenue for the three months ended
September 30, 2009 decreased $243,118 (49.6 percent) to $247,533 from $490,651
during the same period in 2008. The revenue decline is a result of
decreased business activity due to delays and cancellations of anticipated
projects for all business units; however, the largest declines were experienced
in large diameter pipeline construction and EPC projects.
General
and Administrative costs for the third quarter of 2009 decreased $10,648
(37.0 percent) to $18,490, which compares to $29,138 in the third quarter
of 2008. This decrease is primarily related to current year reductions in
incentive compensation and reduced salary and wages resulting from headcount
reductions, which began in the fourth quarter of 2008 and continued through the
first three quarters of 2009. Also contributing to this decrease was our effort
to realign our costs with the reduced level of activity we anticipate in our
markets.
Operating income for the three months
ended September 30, 2009 decreased $25,732 (88.0 percent) to $3,499 from
operating income of $29,231 during the same period in 2008, and operating margin
decreased 4.6 percentage points to 1.4 percent in 2009 from operating
margin of 6.0 percent in 2008. The operating income decrease was primarily a
result of the decrease in contract income of $35,588 (58.4 percent) from 2008,
other charges of $2,418, partially offset by a year-over-year quarterly
improvement of G&A equal to $10,648. Following are the key components of the
decrease in operating income:
|
·
|
Additional
costs incurred on an EPC project related to delays and scope
changes;
|
|
·
|
Charges
associated with cost reduction
initiatives;
|
|
·
|
Unusually wet weather adversely
impacting the completion of two fixed price pipeline construction
projects; and
|
|
·
|
Lower
margins and fewer projects in Upstream Oil & Gas
engineering services work.
|
The provision for income taxes for the
three months ended September 30, 2009 was reduced by 6 percentage points as
compared to the three months ended September 30, 2008. The effective tax rate
used for the three months ended 2008 was 38.5 percent while the effective
tax rate for the three months ended 2009 was 32.5 percent. This reduction is
primarily attributed to the Company’s focus on reducing non-deductible expenses,
changing its overall legal structure, lower taxable income and the net benefit
recognized from the derecognition of uncertain tax positions.
Working capital as of September 30,
2009, for continuing operations, increased $44,169 (15.6 percent) to $327,258
from $283,089 at December 31, 2008. The increase in working capital was
primarily driven by an increase in cash of $35,859.
Our debt to equity ratio as of
September 30, 2009, decreased to 0.22:1 from 0.27:1 at December 31, 2008,
primarily as a result of pre-paying capital lease obligations of $15,304 during
the second quarter of 2009.
Consolidated
cash flows provided during the nine months ended September 30, 2009, including
discontinued operations, increased $1,193 to $35,859 from $34,666 during the
same period in 2008. Cash provided by operations was $81,008, attributable
primarily to our large diameter pipeline construction projects. The other
significant cash transactions for the nine months was the acquisition of Wink,
which used $16,311 of cash and the buy-out of capital leases, of $15,304.
Combining our plant, property, and equipment purchases and disposals, along with
cash used and obtained through acquiring Wink, resulted in a net outflow of
$16,091.
Other Financial Measures
Backlog
In our industry, backlog is considered
an indicator of potential future performance because it represents a portion of
the future revenue stream. Our strategy is focused on backlog additions and
capturing quality backlog with margins commensurate with the risks associated
with a given project.
Backlog consists of anticipated revenue
from the uncompleted portions of existing contracts and contracts whose award is
reasonably assured. At September 30, 2009, total backlog from continuing
operations increased $114,172 from $387,186 at June 30, 2009 to
$501,358. Total backlog decreased $154,136 (23.5 percent) from
$655,494 at December 31, 2008. We have transitioned back to a more
historically based backlog unlike the past couple of years when the industry
operated at or near capacity which led to higher backlog levels as customers
reserved available capacity up to a year or more in advance of the project start
date. Historically, a substantial amount of our revenue in a given year has not
been in our backlog at the beginning of that year. Additionally, due to the
short duration of many jobs, revenue associated with jobs performed within a
reporting period will not be reflected in quarterly backlog reports. We generate
revenue from numerous sources, including contracts of long or short duration
entered into during a year as well as from various contractual processes,
including change orders, extra work, variations in the scope of work and the
effect of escalation or currency fluctuation formulas. In the current market for
pipeline construction services, the opportunities for large cost reimbursable
pipeline construction projects are minimal as demand has fallen below available
capacity. Cost reimbursable contracts comprised 43.9 percent of backlog at
September 30, 2009 versus 84.0 percent of backlog at December 31, 2008. We
expect that approximately $136,061 or 27.1 percent, of our total backlog at
September 30, 2009 will be recognized in revenue during the remainder
of 2009.
30
The following tables show our backlog
by operating segment and geographic location as of September 30, 2009 and
December 31, 2008:
September 30, 2009
|
December 31, 2008
|
|||||||||||||||
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||
Operating Segment
|
||||||||||||||||
Upstream
Oil & Gas
|
$ | 310,407 | 61.9 | % | $ | 484,068 | 73.8 | % | ||||||||
Downstream
Oil & Gas
|
190,951 | 38.1 | % | 171,426 | 26.2 | % | ||||||||||
Total
backlog
|
$ | 501,358 | 100.0 | % | $ | 655,494 | 100.0 | % | ||||||||
September
30, 2009
|
December
31, 2008
|
|||||||||||||||
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||
Geographic Region
|
||||||||||||||||
United
States
|
$ | 427,720 | 85.3 | % | $ | 492,621 | 75.2 | % | ||||||||
Canada
|
37,539 | 7.5 | % | 128,692 | 19.6 | % | ||||||||||
Middle
East/North Africa
|
36,099 | 7.2 | % | 34,181 | 5.2 | % | ||||||||||
Total
backlog
|
$ | 501,358 | 100.0 | % | $ | 655,494 | 100.0 | % |
EBITDA from Continuing
Operations
We use earnings before net interest,
income taxes, depreciation and amortization and impairment of intangible assets
(“EBITDA”) 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.
A
reconciliation of EBITDA from continuing operations to GAAP financial
information follows:
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Income
from continuing operations attributable to Willbros Group,
Inc.
|
$ | 1,683 | $ | 18,460 | $ | 27,578 | $ | 56,186 | ||||||||
Interest,
net
|
1,977 | 2,359 | 6,093 | 7,075 | ||||||||||||
Provision
(benefit) for income taxes
|
(659 | ) | 8,057 | 13,257 | 36,450 | |||||||||||
Depreciation
and amortization
|
9,515 | 11,201 | 31,082 | 33,988 | ||||||||||||
EBITDA
|
$ | 12,516 | $ | 40,077 | $ | 78,010 | $ | 133,699 |
EBITDA from continuing operations for
the three months ended September 30, 2009 decreased $27,561 (68.8 percent)
to $12,516 from $40,077 during the same period in 2008. The decrease in EBITDA
during the three months ended September 30, 2009, is primarily a
result of decreased contract income of $34,776 (excluding depreciation) and
other charges of $2,418, partially offset by a decrease in G&A of $11,588
(excluding depreciation). The decrease in contract income (excluding
depreciation) results primarily from a decrease in revenue of $243,118 (49.6
percent) and to a lesser extent, a decrease in contract margin of 0.9 percentage
points to 12.5 percent during the three months ended September 30, 2009, from
13.4 percent during the same period in 2008.
EBITDA from continuing operations for
the nine months ended September 30, 2009 decreased $55,689 (41.7 percent)
to $78,010 from $133,699 during the same period in 2008. The decrease in EBITDA
during the nine months ended September 30, 2009 is primarily a result
of decreased contract income of $68,552 (excluding depreciation) partially
offset by a decrease in G&A of $23,855 (excluding depreciation) and an
increase in other charges of $8,207. The decrease in contract income (excluding
depreciation) results primarily from the $384,061 (26.5 percent) decrease in
revenue and from a decrease in contract margin of 1.3 percentage points to 13.1
percent during the nine months ended September 30, 2009, from 14.4 percent
during the same period in 2008.
Discontinued
Operations
In 2006,
we announced our intention to sell our assets and operations in Nigeria, which
led to their classification as discontinued operations (“Discontinued
Operations”). We sold our Nigeria assets and operations on February 7, 2007 to
Ascot Offshore Nigeria Limited (“Ascot”) pursuant to a Share Purchase Agreement
by and between us and Ascot.
31
Results
For the
three months ended September 30, 2009, the loss from Discontinued Operations was
$27 or $0.00 per basic and diluted share. This compares to income from
Discontinued Operations of $1,219 or $0.03 per basic and diluted share for the
three months ended September 30, 2008. For the nine months ended September 30,
2009, the loss from Discontinued Operations was $1,527 or $0.04 per basic and
diluted share compared to income of $3,042 or $0.08 per basic and $0.07 per
diluted share for the nine months ended September 30, 2008. During the second
quarter 2009, a $1,750 charge was taken to write off the net book value of the
commitment related to the sale of our Venezuelan assets and operations as
management determined the collection of the outstanding commitment highly
unlikely, due to the nationalization of various oil-field service contractors
within the country.
Additional
financial disclosures on Discontinued Operations are provided in Note 14 –
Discontinuance of Operations, Asset Disposals, and Transition Services
Agreement.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
On July
1, 2009, the FASB officially launched the FASB Accounting Standards Codification
(“the Codification”), which has become the single official source of
authoritative, nongovernmental, U.S. GAAP, in addition to guidance issued by the
Securities and Exchange Commission. The Codification is designed to simplify
U.S. GAAP into a single, topically ordered structure. All guidance contained in
the Codification carries an equal level of authority. The Codification is
effective for all interim and annual periods ending after September 15, 2009.
Accordingly, the Company refers to Codification in respect to the appropriate
accounting standards throughout this document as “ASC”. Implementation of the
Codification did not have any impact on the Company’s consolidated financial
statements.
In our
Annual Report on Form 10-K for the year ended December 31, 2008, we identified
and disclosed our significant accounting policies. Other than the adoptions as
of January 1, 2009, of FASB FSP No. APB 14-1(ASC 470-20), SFAS No. 141(R) (ASC
805) and SFAS No. 160 (ASC 810-10), of which the impacts are discussed in Notes
2, 3 and 8, respectively, to the condensed consolidated financial statements
included in this Form 10-Q, there have been no changes to our significant
accounting policies during the third quarter of 2009. In addition, as discussed
in Note 4 – Other Charges, we applied FASB SFAS No. 146 “Accounting for Costs
Associated with Exit or Disposal Activities” (ASC 420-10).
For
further information regarding new accounting pronouncements and accounting
pronouncements adopted in the third quarter of 2009, see Note 2 — New Accounting
Pronouncements.
RESULTS
OF OPERATIONS
Our contract revenue and contract costs
are significantly impacted by the capital budgets of our clients and the timing
and location of development projects in the oil, gas and power industries
worldwide. Contract revenue and cost vary by country from year-to-year as 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
demand for 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.
Three
Months Ended September 30, 2009 Compared to Three Months Ended September 30,
2008
Contract Revenue
For the
three months ended September 30, 2009, contract revenue decreased $243,118 (49.6
percent) to $247,533 from $490,651 during the same period in 2008. The revenue
decline is a result of decreased business activity due to delays and
cancellations of anticipated projects for all business units; however, the
largest declines were experienced in large diameter pipeline construction and
EPC projects. Quarter-to-quarter comparison of revenue is as
follows:
Three months ended September 30,
|
||||||||||||||||
2009
|
2008
|
Increase
(Decrease)
|
Percent
Change
|
|||||||||||||
Upstream
Oil & Gas
|
$ | 190,172 | $ | 404,402 | $ | (214,230 | ) | (53.0 | )% | |||||||
Downstream
Oil & Gas
|
57,361 | 86,249 | (28,888 | ) | (33.5 | )% | ||||||||||
Total
|
$ | 247,533 | $ | 490,651 | $ | (243,118 | ) | (49.6 | )% |
Upstream Oil & Gas
revenue decrease was primarily the result of U.S. revenue declining
$200,400 (65.5 percent). The overall economic contraction caused a
reduction of revenue across all of our Upstream Oil & Gas business
units. The decrease in oil and natural gas prices from 2008 to present that was
caused by the contraction of both consumer and industrial demand, has slowed the
release of capital projects. As a result, we have continued to complete
contracts awarded in 2008 and early 2009, but in the current market environment,
we have not been able to replace them to the same extent as in the prior
year.
U.S. Construction decreased $154,208
(63.3 percent) to $89,570 primarily due to significantly lower utilization of
our pipeline spread capacity; in 2008 we had 3 full spreads utilized for the
majority of the third quarter compared with an average of one spread utilized
for the third quarter 2009. In addition, we have also reduced our owned
equipment capacity to approximately two spreads. In 2008, we benefited from
the management of a significant EPC project, which was materially complete prior
to the third quarter of 2009.
U.S. Engineering decreased $46,192
(74.1 percent) to $16,145 driven by significant work force reductions to
maintain adequate utilization and the lack of significant EPC work in the third
quarter of 2009. For the three months ended September 30, 2009, EPC contributed
$5,106 of total revenue, compared to $25,571 in the same period of
2008.
32
Canada decreased $5,964 (8.0 percent)
to $68,141 resulting from lower pipeline construction activity due to the lack
of a large cross-country pipeline project for this winter. In
addition, our recurring field service work decreased by approximately 6.4
percent. These reductions were partially offset by the addition of pipeline
station work awarded and executed in 2009.
Oman decreased $7,869 (32.5 percent) to
$16,314 primarily driven by one key maintenance customer performing less work in
the third quarter of 2009.
Downstream Oil & Gas
revenue decreased primarily as a result of reduced EPC work
unfavorably impacting construction services ($21,917) and a general decline in
customer demand for capital work, maintenance and turnaround services
($18,506). These unfavorable variances were partially offset by the
third quarter of 2009 acquisition of Wink ($11,581).
Operating Income
For the
three months ended September 30, 2009, operating income decreased $25,732
(88.0 percent) to $3,499 from $29,231 during the same period in 2008.
Operating income declined at a higher percentage than revenue due to the under
utilization of assets and people in 2009 that caused the operating margin to
drop by 4.6 percentage points. A quarter-to-quarter comparison of operating
income is as follows:
Three months ended September 30,
|
||||||||||||||||||||||||
2009
|
Operating
Margin %
|
2008
|
Operating
Margin %
|
Increase
(Decrease)
|
Percent
Change
|
|||||||||||||||||||
Upstream
Oil & Gas
|
$ | 5,460 | 2.9 | % | $ | 24,508 | 6.1 | % | $ | (19,048 | ) | (77.7 | )% | |||||||||||
Downstream
Oil & Gas
|
(1,961 | ) | (3.4 | )% | 4,723 | 5.5 | % | (6,684 | ) | (141.5 | )% | |||||||||||||
Total
|
$ | 3,499 | 1.4 | % | $ | 29,231 | 6.0 | % | $ | (25,732 | ) | (88.0 | )% |
Upstream Oil & Gas
operating income’s decrease resulted primarily from previously discussed revenue
variances, as well as declining margins across most business units, partially
offset by reduced G&A spending of $7,603.
U.S. operating income decreased $20,332
(103.2 percent) to an operating loss of $626 driven primarily by an EPC project
and a southeastern U.S. pipeline project that generated significant losses in
the third quarter and a significant reduction in billable engineering services.
The EPC project was negatively impacted by a safety event earlier in the year,
which resulted in project delays and changes in scope. These two projects
accounted for $15,170 of revenue and $6,424 of contract loss in the quarter. In
addition to these projects, we continued to see declining margins in our
engineering work. Partially offsetting these declines is the reduction of
business unit G&A by $1,439.
Oman operating income decreased $2,097
(42.0 percent) to $2,893 primarily due to the renegotiation of several ongoing
maintenance contracts where we retained the work at a lower margin.
Canada margins improved $3,842 to
$4,620 primarily due to improved contract margins and lower business unit
G&A cost.
Downstream Oil & Gas
operating income decrease resulted from the previously discussed
decreases in revenue from construction services and turnaround services, as well
as an operating loss contributed by the Downstream Oil & Gas
engineering business unit ($3,501, inclusive of $775 related to staff reduction
and lease abandonment charges). These unfavorable variances were partially
offset by an increase of $419 from safety services, a decrease in amortization
expense of $1,748 and cost reduction initiatives that reduced G&A
costs.
Non-Operating Items
Interest, net expense
decreased $382 (16.2 percent) to $1,977 from $2,359 in 2008. The decrease in net
expense is primarily a result of decreased interest expense of $712 due to
capital lease buy-outs during the second quarter of 2009, partially offset by a
decrease in interest income of $330 due to lower rates of return on invested
cash.
Other, net decreased $184
(317.2 percent) to expense of $126 from income of $58 in 2008. The 2009 expense
is primarily driven by $1,210 of asset write downs partially offset by gains on
asset dispositions of $866 and other miscellaneous income during the third
quarter of 2009. The 2008 gain was primarily the result of favorable U.S. dollar
to Canadian dollar rates during the applicable period.
Provision for income taxes
decreased $8,716 to a benefit of $659 from a provision of $8,057 in 2008.
The decrease in the provision for income taxes is due to a reduction in pre-tax
income in 2009 as compared to 2008, the Company’s focus on reducing
non-deductible expenses, and the net impact from the recognition of uncertain
tax positions during the third quarter of 2009. During the three months ended
September 30, 2009, the Company recognized a net benefit of approximately $1,340
from the derecognition of uncertain tax positions. The Company’s estimated
effective tax rate for the year, which is based on the statutory rates in
jurisdictions where the Company operates, has been revised from
35.0 percent to 32.5 percent primarily due to the recognition of uncertain
tax positions. The Company’s primary work locations for 2009 are the U.S. and
Canada, which have combined federal and state/provincial tax rates of
approximately 40.0 percent and 29.0 percent, respectively.
33
Discontinued Operations
Income (loss) from discontinued
operations, net of taxes decreased $1,246 (102.2 percent) to a loss of
$27 from income of $1,219 during the same period in 2008. The change from income
to a loss period-over-period is due to an additional gain recognized of $1,543
during the three months ended September 30, 2008 in connection with the
expiration of two letters of credit as compared to no gain recognized during the
same period in 2009. In addition, the $27 loss for the three months ended
September 30, 2009 represents interest expense recorded in relation to the DOJ
settlement which was finalized in May 2008.
Nine
Months Ended September 30, 2009 Compared to Nine Months Ended September 30,
2008
Contract Revenue
For the nine months ended September 30,
2009, contract revenue decreased $384,061 (26.5 percent) to $1,065,941 from
$1,450,002 during the same period in 2008. The decrease is primarily due to the
economic slowdown that is adversely impacting both segments. A
period-to-period comparison of revenue is as follows:
Nine months ended September 30,
|
||||||||||||||||
2009
|
2008
|
Increase
(Decrease)
|
Percent
Change
|
|||||||||||||
Upstream
Oil & Gas
|
$ | 854,066 | $ | 1,171,007 | $ | (316,941 | ) | (27.1 | )% | |||||||
Downstream
Oil & Gas
|
211,875 | 278,995 | (67,120 | ) | (24.1 | )% | ||||||||||
Total
|
$ | 1,065,941 | $ | 1,450,002 | $ | (384,061 | ) | (26.5 | )% |
Upstream Oil & Gas
revenue decreased $316,941 (27.1 percent) to $854,066 from $1,171,007 in
2008. All business units experienced reductions year-over-year. In the U.S.
revenue decreased $255,120 (30.0 percent) to $593,876, Canada decreased
$45,123 (17.7 percent) to $209,781, and Oman decreased $16,697
(24.9 percent) to 50,409. In the U.S., revenue decreased primarily due to
reduced volume of demand for our engineering program capabilities, reduction of
EPC pipeline projects, and lower utilization of our pipeline construction
resources. In Canada the reduction was primarily caused by reduction in the
pipeline construction activity and a reduction in our field services for
recurring customers. Oman decreased due to lower volume of work on field
services.
Downstream Oil & Gas
revenue decrease is driven primarily from a reduction in EPC work and a general
decline in customer demand for capital work, resulting in a decrease in revenue
from construction services ($52,576) and tank services ($31,153). These
decreases have partially been offset by the third quarter acquisition of Wink
($11,581) and an increase in turnaround services ($5,332) due to several large
turnaround projects performed during the first two quarters of
2009.
Operating Income
For the
nine months ended September 30, 2009, operating income decreased $52,451 (52.0
percent) to $48,489 from $100,940 during the same period in 2008. Operating
income declined at a higher percentage than revenue due to the under utilization
of assets and people in 2009 that caused the operating margin to drop by 2.5
percentage points. A period-to-period comparison of operating income is as
follows:
Nine months ended September 30,
|
||||||||||||||||||||||||
2009
|
Operating
Margin %
|
2008
|
Operating
Margin %
|
Increase
(Decrease)
|
Percent
Change
|
|||||||||||||||||||
Upstream
Oil & Gas
|
$ | 46,980 | 5.5 | % | $ | 82,168 | 7.0 | % | $ | (35,188 | ) | (42.8 | )% | |||||||||||
Downstream
Oil & Gas
|
1,509 | 0.7 | % | 18,772 | 6.7 | % | (17,263 | ) | (92.0 | )% | ||||||||||||||
Total
|
$ | 48,489 | 4.5 | % | $ | 100,940 | 7.0 | % | $ | (52,451 | ) | (52.0 | )% |
Upstream Oil & Gas
operating income decreased $35,188 (42.8 percent) to $46,980 from $82,168
in 2008. The decrease in operating income was a result of decreased margins in
most of our business units. Our engineering operations aggressively reduced
capacity to match the falling demand for their services, but were not able to
anticipate the prolonged delay that has been experienced in planning new capital
projects. In Canada and Oman, we suffered from increased pressure on our service
contracts, compounded by less activity due to key customers reducing their 2009
expenditures. These reductions in profitability were partially offset by
increasing margins in our U.S. pipeline construction work and reductions to our
G&A levels below 2008 levels.
Downstream Oil & Gas
operating income decreased primarily from the previously discussed
revenue variances from construction services and tank services and an operating
loss contributed by Downstream
Oil & Gas engineering business unit ($3,501, of which $775 relates to
restructuring charges). The need to bid work more competitively
reduced margins for turnaround services by $9,440, in spite of the increase in
revenue previously discussed. These unfavorable variances were partially offset
by a decrease in amortization expense of $2,398 and cost reduction initiatives
that reduced G&A costs.
34
Non-Operating
Items
Interest, net expense
decreased $982 (13.9 percent) to $6,093 from $7,075 in 2008. The decrease
results from lower interest income earned and lower interest expense. The income
earnings are reduced due to lower rates of return on invested cash and the
decrease in interest expense is primarily related to the buy-out of certain
capital leases in the second quarter of 2009.
Other, net decreased $222
(108.8 percent) to expense of $18 from income of $204 in 2008. The 2009 expense
is primarily driven by the disposal of construction equipment partially offset
by asset write downs. The 2008 gain was the result of foreign exchange gains on
U.S. dollar to Canadian dollar transactions.
Provision for income taxes
decreased $23,193 to $13,257 from $36,450 in 2008. The decrease in the
provision for income taxes is due to a reduction in pre-tax income in 2009 as
compared to 2008, the Company’s focus on reducing non-deductible expenses, and
the net impact from the recognition of uncertain tax positions during the third
quarter of 2009. During the nine months ended September 30, 2009, the Company
recognized a net benefit of approximately $1,155 from the derecognition of
uncertain tax positions. The Company’s estimated effective tax rate for the
year, which is based on the statutory rates in jurisdictions where the Company
operates, has been revised from 35.0 percent to 32.5 percent primarily
due to the recognition of uncertain tax positions. The Company’s primary work
locations for 2009 are the U.S. and Canada, which have combined federal and
state/provincial tax rates of approximately 40.0 percent and
29.0 percent, respectively
Discontinued Operations
Income (loss) from discontinued
operations, net of taxes decreased $4,569 (150.2 percent) to a loss of
$1,527 from income of $3,042 during the same period in 2008. The loss during the
nine months ended September 30, 2009 is primarily due to a $1,750 charge taken
to write off the net book value of the commitment related to the sale of the
Company’s Venezuela assets and operations as management determined the
collection of the outstanding commitment highly unlikely, due to the
nationalization of various oil-field service contractors within the country.
During the nine months ended September 30, 2009, cash provided by operating
activities of Discontinued Operations decreased $3,753 (106.3 percent) to cash
used of $222 from cash provided of $3,531 during the same period in
2008.
LIQUIDITY
AND CAPITAL RESOURCES
As of September 30, 2009, our liquidity
of $293,723 and our working capital of $327,258 are consistent with our
objective to maintain adequate financial resources and access to additional
liquidity to execute our vision. The combination of our strong cash position,
the availability under our existing credit facility, and our expected future
cash flows from operations will allow us to focus on the highest return projects
available during uncertain economic times as well as pursue our strategy of
diversification as opportunities present themselves.
For the nine months ended September 30,
2009, we increased our working capital position, for continuing operations, by
$44,169 (15.6 percent) to $327,258 from $283,089 at December 31, 2008.
During the nine months ended September 30, 2009, the results of our operations
were our principal sources of funding. We anticipate that cash on hand, future
cash flows from operations and the availability of our revolving credit facility
will be sufficient to fund our working capital, capital expenditures, and
acquisition objectives for the near term. During the nine months ended September
30, 2009, we used cash from operations to fund working capital needs and capital
expenditures. We are also evaluating our current and future equipment needs and
will be taking action to divest any uncommitted equipment.
Cash
Flows
Cash flows provided by (used in)
continuing operations by type of activity were as follows for the nine months
ended September 30, 2009 and 2008:
2009
|
2008
|
Change
|
||||||||||
Operating
activities
|
$ | 81,230 | $ | 97,193 | $ | (15,963 | ) | |||||
Investing
activities
|
(16,091 | ) | (23,943 | ) | 7,852 | |||||||
Financing
activities
|
(32,203 | ) | (41,616 | ) | 9,413 | |||||||
Foreign
Exchange effects
|
3,145 | (499 | ) | 3,644 | ||||||||
Cash
Flows from Continuing Activities
|
36,081 | 31,135 | 4,946 |
Statements of cash flows for entities
with international operations that use the local currency as the functional
currency exclude the effects of the changes in foreign currency exchange rates
that occur during any given period, as these are non-cash charges. As a result,
changes reflected in certain accounts on the consolidated condensed statements
of cash flows may not reflect the changes in corresponding accounts on the
consolidated condensed balance sheets.
Operating Activities
Operating activities of continuing
operations provided $81,230 of cash in the nine months ended
September 30, 2009, as compared to cash provided of $97,193 in same
period in 2008. Cash provided in operating activities decreased $15,963
primarily due to:
35
|
·
|
a
decrease in cash provided by net earnings of $28,608, adjusted for
non-cash charges of $5,811, and
|
|
·
|
an
increase in cash flow from the change in working capital accounts of
$18,346, primarily attributable to the liquidation of accounts receivable
and decreases in contract cost and recognized income not yet
billed.
|
Investing
Activities
Investing activities of continuing
operations used $16,091 of cash in the nine months ended September 30, 2009,
compared to using $23,943 during the same period in 2008. Cash flows from
investing activities decreased $7,852 primarily due to:
|
·
|
an
increase in proceeds received from the sales of property, plant and
equipment of $6,815;
|
|
·
|
a
decrease in the purchases of property, plant and equipment during the nine
months ended September 30, 2009 of $17,753, partially offset
by
|
|
·
|
an
increase in cash used to acquire subsidiaries of $14,801, related to the
purchase of Wink during the third quarter of 2009,
and
|
|
·
|
a
decrease in rebates from the purchases of property, plant and equipment of
$1,915.
|
Financing Activities
Financing
activities of continuing operations used $32,203 of cash in the nine months
ended September 30, 2009 compared to $41,616 in the same period in 2008.
Significant transactions impacting the $9,413 decrease in cash flows from
financing activities included:
|
·
|
a
decrease of $8,488 and $4,303 of cash used to pay short-term debt and
reacquire stock into treasury, respectively, over the applicable nine
month periods, partially offset by
|
|
·
|
an
increase in cash used in payments on capital leases of $2,776;
and
|
|
·
|
an
increase in cash used in payments distributed to the noncontrolling
interest of $1,438.
|
Additional
Sources of Capital
2007 Credit Facility
The
$50,000 of unutilized cash borrowing capacity under our senior secured revolving
credit facility (“2007 Credit Facility”) is included in our liquidity position
as of September 30, 2009. The limited availability of credit in the market has
not affected our credit facility; nor do we believe that it will impact our
ability to access surety bonding in the future.
See Note
8 – Long-term Debt for further discussion of the 2007 Credit
Facility.
Capital
Requirements
During
the nine months ended September 30, 2009, continuing operations provided cash of
$81,230. We believe that our financial results combined with our financial
management will ensure sufficient cash to meet our capital requirements for
continuing operations for the remainder of 2009. We are focused on the following
significant capital requirements:
|
·
|
providing
working capital for projects in process and those scheduled to
begin;
|
|
·
|
pursuing
additional acquisitions that will allow us to expand our service offering;
and
|
|
·
|
funding
installment payments to the government related to fines and profit
disgorgement.
|
We believe that we will be able to
support our ongoing working capital needs through our cash on hand, our
operating cash flows and the availability of the cash borrowings under the 2007
Credit Facility, although we may be required to access the capital markets in
the event we complete any significant acquisitions.
Contractual
Obligations
As of
September 30, 2009, we had aggregate convertible note principal outstanding of
$91,407. In addition, we have various capital leases of construction equipment
and property resulting in aggregate capital lease obligations of $18,209 at
September 30, 2009.
Other
than our $15,304 capital lease buy-out completed during the nine months ended
September 30, 2009, other contractual obligations and commercial commitments, as
detailed in our annual report on Form 10-K for the year ended December 31,
2008, did not materially change except for payments made in the normal course of
business.
NEW
ACCOUNTING PRONOUNCEMENTS
See Note 2 – New Accounting
Pronouncements in the Notes to the Condensed Consolidated Financial Statements
included in this Form 10-Q for a summary of recently issued accounting
standards.
36
FORWARD-LOOKING
STATEMENTS
This Form
10-Q includes “forward-looking statements.” All statements, other than
statements of historical facts, included in this Quarterly Report that 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, power,
refining and petrochemical industries, business strategy, expansion and growth
of our business and operations, the outcome of government investigations and
legal proceedings and other such matters are forward-looking statements. These
forward-looking statements are based on 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 under the circumstances. However, whether actual results and
developments will conform to our expectations and predictions is subject to a
number of risks and uncertainties. As a result, actual results could differ
materially from our expectations. Factors that could cause actual results to
differ from those contemplated by our forward-looking statements include, but
are not limited to, the following:
|
·
|
curtailment
of capital expenditures and the unavailability of project funding in the
oil, gas, power, refining and petrochemical
industries;
|
|
·
|
disruptions
or delays in project awards or our performance on existing projects
resulting from a possible global flu
pandemic;
|
|
·
|
increased
capacity and decreased demand for our services in the more competitive
industry segments that we serve;
|
|
·
|
reduced
creditworthiness of our customer base and higher risk of non-payment of
receivables;
|
|
·
|
inability
to lower our cost structure to remain competitive in the
market;
|
|
·
|
inability
of the energy service sector to reduce costs in the short term to a level
where our customer’s project economics support a reasonable level of
development work;
|
|
·
|
inability
to predict the length and breadth of the current economic downturn, which
results in staffing below the level required when the market
recovers;
|
|
·
|
reduction
of services to existing and prospective clients as they bring historically
out-sourced services back in-house to preserve intellectual capital and
minimize layoffs;
|
|
·
|
the
consequences we may encounter if we fail to comply with the terms and
conditions of our final settlements with the Department of Justice (“DOJ”)
and the Securities and Exchange Commission (“SEC”), including the
imposition of civil or criminal fines, penalties, enhanced monitoring
arrangements, disqualification from performing government contracts, or
other sanctions that might be imposed by the DOJ and
SEC;
|
|
·
|
the
issues we may encounter by having a federal monitor as provided for in our
Deferred Prosecution Agreement with the DOJ and any changes in our
business practices which the monitor may
require;
|
|
·
|
the
commencement by foreign governmental authorities of investigations into
the actions of our current and former employees, and the determination
that such actions constituted violations of foreign
law;
|
|
·
|
difficulties
we may encounter in connection with the previous sale and disposition of
our Nigeria assets and Nigeria based operations, including obtaining
indemnification for any losses we may experience if, due to the
non-performance of the purchaser of these assets, claims are made against
any parent company guarantees we provided, to the extent those guarantees
may be determined to have continued
validity;
|
|
·
|
the
dishonesty of employees and/or other representatives or their refusal to
abide by applicable laws and our established policies and
rules;
|
|
·
|
adverse
weather conditions not anticipated in bids and
estimates;
|
|
·
|
project
cost overruns, unforeseen schedule delays, and the application of
liquidated or liability for consequential
damages;
|
|
·
|
the
occurrence during the course of our operations of accidents and injuries
to our personnel, as well as to third parties, that negatively affect our
safety record, which is a factor used by many clients to pre-qualify and
otherwise award work to contractors in our
industry;
|
|
·
|
cancellation
of projects, in whole or in part;
|
37
|
·
|
failing
to realize cost recoveries on claims or change orders from projects
completed or in progress within a reasonable period after completion of
the relevant project;
|
|
·
|
political
or social circumstances impeding the progress of our work and increasing
the cost of performance;
|
|
·
|
failure
to obtain the timely award of one or more
projects;
|
|
·
|
inability
to identify and acquire suitable acquisition targets on reasonable
terms;
|
|
·
|
inability
to hire and retain sufficient skilled labor to execute our current work,
our work in backlog and future work we have not yet been
awarded;
|
|
·
|
inability
to execute cost-reimbursable projects within the target cost, thus eroding
contract margin and, potentially contract income on any such
project;
|
|
·
|
inability
to obtain sufficient surety bonds or letters of
credit;
|
|
·
|
inability
to obtain adequate financing;
|
|
·
|
loss
of the services of key management
personnel;
|
|
·
|
the
demand for energy moderating or
diminishing;
|
|
·
|
downturns
in general economic, market or business conditions in our target
markets;
|
|
·
|
changes
in and interpretation of U.S. and foreign tax laws that impact the
Company’s worldwide provision for income taxes and effective income tax
rate;
|
|
·
|
the
potential adverse effect on our operating results if our non-U.S.
operations became taxable in the United
States;
|
|
·
|
changes
in applicable laws or regulations, or changed interpretations
thereof;
|
|
·
|
changes
in the scope of our expected insurance
coverage;
|
|
·
|
inability
to manage insurable risk at an affordable
cost;
|
|
·
|
enforceable
claims for which we are not fully
insured;
|
|
·
|
incurrence
of insurable claims in excess of our insurance
coverage;
|
|
·
|
the
occurrence of the risk factors described in our periodic filings with the
SEC; and
|
|
·
|
other
factors, most of which are beyond our
control.
|
Consequently,
all of the forward-looking statements made in this Quarterly Report 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.
Unless
the context otherwise requires, all references in this Quarterly Report to
“Willbros,” the “Company,” “we,” “us” and “our” refer to Willbros Group, Inc.,
its consolidated subsidiaries and their predecessors.
38
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, 2009 and 2008 or during the three months then
ended.
The carrying amounts for cash and cash
equivalents, accounts receivable, notes payable and accounts payable, and
accrued liabilities shown in the Condensed Consolidated Balance Sheets
approximated fair value at September 30, 2009, due to the generally
short maturities of these items. At September 30, 2009, 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, 2009, our only indebtedness subject to variable interest
rates is certain capital lease obligations.
ITEM
4. CONTROLS AND PROCEDURES
In
connection with the preparation of this Quarterly Report on Form 10-Q for
the quarter ended September 30, 2009, we have carried out an evaluation
under the supervision of, and with the participation of, our management,
including the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934 (the “Exchange Act”). There are inherent
limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that the disclosure
controls and procedures were effective as of September 30, 2009 to (1) provide
reasonable assurance that information required to be disclosed in reports that
we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms and (2)
provide reasonable assurance that information required to be disclosed in the
reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including the principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.
There
have been no changes in our internal controls over financial reporting that have
materially affected, or are reasonably likely to materially affect our internal
controls over financial reporting during the quarter ended
September 30, 2009.
39
PART
II. OTHER INFORMATION
Item 1. Legal
Proceedings
For information regarding legal
proceedings, see “Item 3. Legal Proceedings” of our Annual Report on Form 10-K
for the year ended December 31, 2008, and Note 13 – Contingencies, Commitments,
and Other Circumstances of our “Notes to Condensed Consolidated Financial
Statements” in Item 1 of Part I of this Form 10-Q, which information from Note
13 as to legal proceedings is incorporated by reference herein.
Item 1A. Risk
Factors
There have been no material changes to
the risk factors involving us from those previously disclosed in Item 1A of Part
1 in our Annual Report on Form 10-K for the year ended December 31,
2008.
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds
The following table provides
information about purchases of our common stock by us during the quarter ended
September 30, 2009:
Total Number
of Shares
Purchased (1)
|
Average
Price Paid
Per Share (2)
|
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
|
Maximum
Number (or
Approximate
Dollar Value) of
Shares That May
Yet Be Purchased
Under the Plans
or Programs
|
|||||||||||||
July
1, 2009 – July 30, 2009
|
- | $ | - | - | - | |||||||||||
August
1, 2009 – August 31, 2009
|
5,134 | 12.84 | - | - | ||||||||||||
September
1, 2009 – September 30, 2009
|
- | - | - | - | ||||||||||||
Total
|
5,134 | $ | 12.84 | - | - |
(1)
|
Shares
of common stock acquired from certain of our officers and key employees
under the share withholding provisions of our 1996 Stock Plan for the
payment of taxes associated with the vesting of shares of restricted stock
granted under such plan.
|
(2)
|
The
price paid per common share represents the closing sales price of a share
of our common stock, as reported in the New York Stock Exchange composite
transactions, on the day that the stock was acquired by
us.
|
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.
40
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 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.
|
41
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 4, 2009
|
By:
|
/s/ Van A. Welch
|
Van
A. Welch
|
||
Senior
Vice President and Chief Financial Officer
(Principal
Financial Officer and Principal
|
||
Accounting
Officer)
|
42
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
|
|
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.
|
43