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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO ___________
COMMISSION FILE NUMBER 1-11953
WILLBROS GROUP, INC.
(Exact name of registrant as specified in its charter)
REPUBLIC OF PANAMA 98-0160660
(Jurisdiction of incorporation) (I.R.S. Employer Identification Number)
PLAZA 2000 BUILDING
50TH STREET, 8TH FLOOR
P.O. BOX 0816-01098
PANAMA, REPUBLIC OF PANAMA
TELEPHONE NO.: +50-7-213-0947
(Address, including zip code, and telephone number, including
area code, of principal executive offices of registrant)
NOT APPLICABLE
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
The number of shares of the registrant's Common Stock, $.05 par value,
outstanding as of September 1, 2005 was 21,542,112.
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WILLBROS GROUP, INC
FORM 10-Q
FOR QUARTER ENDED JUNE 30, 2005
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets for June 30, 2005 (Unaudited) and
December 31, 2004 3
Condensed Consolidated Statements of Operations (Unaudited) for the three-
month and six-month periods ended June 30, 2005 and 2004 (Restated) 4
Condensed Consolidated Statement of Stockholders' Equity and Comprehensive
Income (Loss) (Unaudited) for the six-month period ended June 30, 2005 5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
six-month periods ended June 30, 2005 and 2004 (Restated) 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 20
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 30
Item 4 - Controls and Procedures 31
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 32
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 32
Item 3 - Defaults upon Senior Securities 32
Item 4 - Submission of Matters to a Vote of Security Holders 32
Item 5 - Other Information 32
Item 6 - Exhibits 32
SIGNATURE 34
EXHIBIT INDEX 35
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
2005 2004
------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 54,452 $ 78,720
Accounts receivable, net ................................................. 142,035 151,054
Contract cost and recognized income not yet billed ....................... 49,629 21,251
Prepaid expenses ......................................................... 23,370 15,662
Parts inventory, net ..................................................... 5,619 5,623
------------ ------------
Total current assets ............................................... 275,105 272,310
Deferred tax assets ............................................................ 5,957 6,416
Property, plant and equipment, net ............................................. 128,344 116,643
Investments in joint ventures .................................................. 3,626 3,441
Goodwill ....................................................................... 6,427 6,535
Other assets ................................................................... 9,942 11,765
------------ ------------
Total assets ....................................................... $ 429,401 $ 417,110
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt ...................... $ 231 $ 1,171
Accounts payable and accrued liabilities ................................. 154,986 122,470
Contract billings in excess of cost and recognized income ................ 26,424 30,957
Accrued income taxes ..................................................... 9,337 9,069
Capital lease payable .................................................... 5,732 --
------------ ------------
Total current liabilities .......................................... 196,710 163,667
2.75% Convertible senior notes ................................................. 70,000 70,000
Long-term debt ................................................................. 496 2,324
Other liabilities .............................................................. 1,099 1,075
------------ ------------
Total liabilities .................................................. 268,305 237,066
Stockholders' equity:
Class A preferred stock, par value $.01 per share,
1,000,000 shares authorized, none issued ............................... -- --
Common stock, par value $.05 per share, 35,000,000 shares
authorized; 21,635,725 shares issued at June 30, 2005
(21,425,980 at December 31, 2004) ...................................... 1,082 1,071
Capital in excess of par value ........................................... 160,931 156,175
Retained earnings ........................................................ 3,797 23,614
Treasury stock at cost, 93,613 shares (63,196 at December 31, 2004) ...... (1,057) (555)
Deferred compensation .................................................... (4,515) (1,639)
Notes receivable for stock purchases ..................................... (223) (216)
Accumulated other comprehensive income ................................... 1,081 1,594
------------ ------------
Total stockholders' equity ......................................... 161,096 180,044
------------ ------------
Total liabilities and stockholders' equity ......................... $ 429,401 $ 417,110
============ ============
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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------------------------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
RESTATED RESTATED
Contract revenue .................................... $ 164,196 $ 116,204 $ 295,798 $ 217,851
Operating expenses:
Contract ................................... 144,525 98,170 259,360 184,887
Depreciation and amortization .............. 4,950 3,959 10,257 7,672
General and administrative ................. 18,774 11,216 35,842 21,618
Other operating costs ...................... - 822 1,084 1,608
------------ ------------ ------------ ------------
168,249 114,167 306,543 215,785
------------ ------------ ------------ ------------
Operating income (loss) ................. (4,053) 2,037 (10,745) 2,066
Other income (expense):
Interest - net ............................. (519) (777) (1,065) (1,087)
Other - net ................................ 135 49 239 288
------------ ------------ ------------ ------------
(384) (728) (826) (799)
------------ ------------ ------------ ------------
Income (loss) before income taxes ....... (4,437) 1,309 (11,571) 1,267
Provision for income taxes .......................... 5,482 2,911 8,246 3,036
------------ ------------ ------------ ------------
Net loss ................................ $ (9,919) $ (1,602) $ (19,817) $ (1,769)
============ ============ ============ ============
Loss per common share:
Basic ...................................... $ (.47) $ (.08) $ (.93) $ (.08)
============ ============ ============ ============
Diluted .................................... $ (.47) $ (.08) $ (.93) $ (.08)
============ ============ ============ ============
Weighted average number of common shares outstanding:
Basic ...................................... 21,253,737 20,887,493 21,251,997 20,814,398
============ ============ ============ ============
Diluted .................................... 21,253,737 20,887,493 21,251,997 20,814,398
============ ============ ============ ============
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 AMOUNTS)
(UNAUDITED)
ACCUMULATED
NOTES OTHER
CAPITAL RECEIVABLE COMPRE- TOTAL
COMMON STOCK IN EXCESS DEFERRED FOR HENSIVE STOCK-
----------------------- OF PAR RETAINED TREASURY COMPEN- STOCK INCOME HOLDERS'
SHARES PAR VALUE VALUE EARNINGS STOCK SATION PURCHASES (LOSS) EQUITY
----------- --------- --------- --------- --------- --------- ---------- ------- -----------
Balance,
January 1, 2005 .... 21,425,980 $ 1,071 $ 156,175 $ 23,614 $ (555) $ (1,639) $ (216) $ 1,594 $ 180,044
Comprehensive
Loss:
Net loss ......... -- -- -- (19,817) -- -- -- -- (19,817)
Foreign currency
translation
adjustment ....... -- -- -- -- -- -- -- (513) (513)
-----------
Total
comprehensive
loss ............. (20,330)
Amortization of note
discount ........... -- -- -- -- -- -- (7) -- (7)
Restricted stock
grants ............. 175,000 9 3,822 -- -- (3,831) -- -- --
Deferred
compensation, net
of forfeitures ..... -- -- 574 -- (271) 955 -- -- 1,258
Vesting of restricted
stock rights ....... 10,875 1 (1) -- -- -- -- -- --
Additions to treasury
stock .............. -- -- -- -- (231) -- -- -- (231)
Issuance of common
stock under
employee
benefit plan ....... 3,870 -- 79 -- -- -- -- -- 79
Exercise of stock
options ............ 20,000 1 282 -- -- -- -- -- 283
----------- --------- --------- --------- --------- --------- --------- ------- -----------
Balance June 30,
2005 ............... 21,635,725 $ 1,082 $ 160,931 $ 3,797 $ (1,057) $ (4,515) $ (223) $ 1,081 $ 161,096
=========== ========= ========= ========= ========= ========= ========= ======= ===========
See accompanying notes to condensed consolidated financial statements
5
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS
ENDED JUNE 30,
---------------------------
2005 2004
----------- -----------
RESTATED
Cash flows from operating activities:
Net loss ........................................................... $ (19,817) $ (1,769)
Reconciliation of net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization .................................. 10,257 7,672
Amortization of debt issue costs ............................... 942 740
Amortization of deferred compensation .......................... 1,258 321
Amortization of discount on notes receivable for stock purchases (7) (29)
Loss (gain) on retirements of property, plant and equipment .... (71) (138)
Equity in joint ventures, net .................................. (185) 7,781
Deferred income tax benefit .................................... 452 2,851
Changes in operating assets and liabilities:
Accounts receivable ........................................ 8,537 (26,258)
Contract cost and recognized income not yet billed ......... (28,894) 7,841
Prepaid expenses ........................................... (7,774) (8,036)
Parts inventory, net ....................................... 4 (203)
Other assets ............................................... 888 (737)
Accounts payable and accrued liabilities ................... 33,177 (3,118)
Accrued income taxes ....................................... 324 4,227
Contract billings in excess of cost and recognized income .. (4,538) (3,497)
Other liabilities .......................................... 21 841
----------- -----------
Cash provided by (used in) operating activities ....... (5,426) (11,511)
Cash flows from investing activities:
Proceeds from sale of equipment .................................... 1,538 292
Purchase of property, plant and equipment .......................... (17,226) (16,173)
----------- -----------
Cash used in investing activities ..................... (15,688) (15,881)
Cash flows from financing activities:
Proceeds from notes payable ........................................ 770 535
Proceeds from issuance of common stock ............................. 362 2,219
Repayment of notes payable ......................................... -- (764)
Payments on capital lease .......................................... (405) --
Acquisition of treasury stock ...................................... (231) --
Costs of debt issues ............................................... (11) (5,423)
Proceeds from issuance of 2.75% convertible senior notes ........... -- 70,000
Collections of notes receivable for stock purchases ................ -- 350
Repayments of long-term debt ....................................... (3,537) (14,000)
----------- -----------
Cash provided by (used in) financing activities ....... (3,052) 52,917
Effect of exchange rate changes on cash and cash equivalents ............. (102) 35
----------- -----------
Cash provided by (used in) all activities ................................ (24,268) 25,560
Cash and cash equivalents, beginning of period ........................... 78,720 20,969
----------- -----------
Cash and cash equivalents, end of period ................................. $ 54,452 $ 46,529
=========== ===========
Cash payments made during the period:
Interest ........................................................... $ 1,205 $ 500
Income taxes ....................................................... $ 6,397 $ 2,316
Non-cash investing and financing transactions:
Property obtained by capital lease ................................. $ 5,732 $ --
See accompanying notes to condensed consolidated financial statements
6
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of Willbros
Group, Inc. and its majority-owned subsidiaries (the "Company") reflect all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary to present fairly the financial position as of
June 30, 2005 and the results of operations and cash flows of the Company for
all interim periods presented.
Certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the Company's December 31, 2004
audited consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2004. The
results of operations and cash flows for the six month period ended June 30,
2005 are not necessarily indicative of the operating results to be achieved for
the full year.
The condensed consolidated financial statements are prepared in accordance
with generally accepted accounting principles in the United States and include
certain estimates and assumptions by management of the Company in the
preparation of the condensed consolidated financial statements. 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 period. Significant items subject to such
estimates and assumptions include the carrying amount of property, plant and
equipment, goodwill and spare parts; quantification of amounts recorded for
contingencies, tax accruals and certain other accrued liabilities; valuation
allowances for accounts receivables 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.
2. RESTATEMENT
In late December of 2004, the Company became aware of an approximate $2,500
tax assessment against the Company's Bolivian subsidiary which alleged that the
subsidiary had filed improper tax returns. The assessment also imposed penalties
and interest related to the tax assessment. Prior to late December 2004, the
executive management of the Company was unaware of the tax assessment, with the
exception of J. Kenneth Tillery, the then President of Willbros International,
Inc. ("WII"), the primary international subsidiary of the Company. Mr. Tillery
resigned from the Company on January 6, 2005.
Upon learning of the tax assessment, the Company immediately commenced an
initial investigation into the matter and notified the Audit Committee of the
Board of Directors. The Audit Committee retained independent counsel, who in
turn retained forensic accountants, and began an independent investigation.
Concurrent with the Audit Committee's investigation, the Company initiated
its own review of the Company's accounting. This review focused primarily on the
Company's international activities supervised by the former President of WII,
but also included other areas of the Company's accounting activities.
As a result of the investigation by the Audit Committee and the Company's
accounting review, the Company determined that several members of the senior
management of WII and its subsidiaries collaborated to misappropriate assets
from the Company and cover up such activity. It was determined that the Bolivian
subsidiary had in fact filed improper tax returns, or failed to file returns, at
the direction of Mr. Tillery, the former President of WII. The investigation
also determined that Mr. Tillery, in collusion with several members of the
management of the international subsidiaries, was involved in other improper
activities, primarily in the Company's Nigerian subsidiaries.
7
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
2. RESTATEMENT (CONTINUED)
The Company's review of its historical accounting also identified other
accounting errors which were corrected in the Company's restated consolidated
financial statements. Financial statement adjustments resulting from misconduct
of certain members of the international subsidiaries' management had a negative
impact on the Company's consolidated loss of approximately $1,374 and $2,085 for
the three months and six months ended June 30, 2004, respectively. The impact of
the correction of other accounting errors for the same periods had a positive
impact on the Company's consolidated loss of $265 and $1,041, respectively.
The impact on the Company's consolidated cumulative earnings (loss) as a
result of all financial statement adjustments through June 30, 2004 was
approximately ($14,356), with ($1,044) in such adjustments occurring in the six
months ended June 30, 2004. See Note 2 of the "Notes to Consolidated Financial
Statements" included in Item 8 of the Company's Annual Report on Form 10-K for
information about the various adjustments recorded for fiscal periods prior to
2004, which resulted in consolidated cumulative earnings (loss) through December
31, 2003 of approximately ($13,312).
The impact on the restated three-month and six-month periods ended June 30,
2004, is presented below.
Three Months Ended June 30, 2004
----------------------------------------------
As Reported Adjustments Restated
------------ ------------ ------------
Contract revenue $ 116,003 $ 201 $ 116,204
Operating expenses 112,903 1,264 114,167
------------ ------------ ------------
Operating income (loss) 3,100 (1,063) 2,037
Other income (expense) (682) (46) (728)
------------ ------------ ------------
Income (loss) before income taxes 2,418 (1,109) 1,309
Provision for income taxes 2,911 -- 2,911
------------ ------------ ------------
Net income (loss) $ (493) $ (1,109) $ (1,602)
============ ============ ============
Income (loss) per common share:
Basic $ (.02) $ (.06) $ (.08)
Diluted $ (.02) $ (.06) $ (.08)
Weighted average number of common shares outstanding:
Basic 20,887,493 20,887,493 20,887,493
Diluted 20,887,493 20,887,493 20,887,493
Six Months Ended June 30, 2004
----------------------------------------------
As Reported Adjustments Restated
------------ ------------ ------------
Contract revenue $ 218,341 $ (490) $ 217,851
Operating expenses 215,324 461 215,785
------------ ------------ ------------
Operating income (loss) 3,017 (951) 2,066
Other income (expense) (706) (93) (799)
------------ ------------ ------------
Income (loss) before income taxes 2,311 (1,044) 1,267
Provision for income taxes 3,036 -- 3,036
------------ ------------ ------------
Net income (loss) $ (725) $ (1,044) $ (1,769)
============ ============ ============
Income (loss) per common share:
Basic $ (.03) $ (.05) $ (.08)
Diluted $ (.03) $ (.05) $ (.08)
Weighted average number of common shares outstanding:
Basic 20,814,398 20,814,398 20,814,398
Diluted 20,814,398 20,814,398 20,814,398
8
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
2. RESTATEMENT (CONTINUED)
THE FINANCIAL EFFECTS CAUSED BY THE RESTATEMENT ARE AS FOLLOWS: Three Months Six Months
June 30, 2004 June 30, 2004
-------------- --------------
INCREASE/(DECREASE) IN CONTRACT REVENUE ATTRIBUTABLE TO:
o An error in the recognition of change order revenue on a Nigerian contract $ 250 $ 250
o The recalculation of revenue on the Bolivia Transierra Project as a result of the timing of
percentage of completion revenue (74) 139
o The reclassification of contract revenue and contract costs associated with an error in the
recording of provisions for loss contracts 30 (905)
o The recalculation of percentage of completion revenue for the removal of fraudulent charges
incorrectly recorded to individual projects (28) (12)
o Correction of percentage completion revenue recognition to reflect the reclassification
of fraudulent consulting fees as other operating costs 23 38
------------ ------------
TOTAL INCREASE/(DECREASE) IN CONTRACT REVENUE $ 201 $ (490)
============ ============
(INCREASE)/DECREASE IN OPERATING EXPENSE ATTRIBUTABLE TO:
o Accrual of unreported and unpaid value added taxes and payroll taxes related to certain
international subsidiaries $ (376) $ (742)
o The reclassification of contract revenue and contract costs associated with an error in the
recording of the provisions for loss contracts (30) 905
o Increase in contract cost for an error in accounting for prepaid barge costs -- (401)
o The recalculation of contract cost on the Bolivia Transierra Project as a result of the
Bolivia tax assessments (1,043) (1,043)
o Increase due to fraudulent invoices inappropriately capitalized (15) (80)
o Decrease due to error in accounting for parts inventory 200 900
------------ ------------
TOTAL (INCREASE)/DECREASE IN OPERATING COSTS $ (1,264) $ (461)
============ ============
(INCREASE)/DECREASE IN OTHER INCOME (EXPENSE) ATTRIBUTABLE TO:
o Provision for penalties and interest associated with the underpayment of various taxes in
our international subsidiaries $ (111) $ (234)
o Decrease due to error in the amortization period used to amortize debt issuance costs 50 111
o Other miscellaneous corrections 15 30
------------ ------------
TOTAL (INCREASE)/DECREASE IN OTHER INCOME (EXPENSE) $ (46) $ (93)
============ ============
TOTAL INCREASE IN NET LOSS $ (1,109) $ (1,044)
============ ============
3. STOCK-BASED COMPENSATION
The Company applies the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations, including FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation and interpretation of APB Opinion No. 25", to account for its
fixed-plan stock options. Under this method, compensation cost is recorded on
the date of grant only if the current market price of the underlying common
stock exceeded the exercise price. SFAS No. 123, "Accounting for Stock-Based
Compensation" and SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure, an amendment of SFAS No. 123", established accounting
and disclosure requirements using fair-value-based method of accounting for
stock-based employee compensation plans. As permitted by existing standards, the
Company has elected to continue to apply the intrinsic-value-based method of
accounting described above, and has adopted only the disclosure requirements of
SFAS No. 123, as amended. Compensation cost related to restricted stock awards
and restricted stock rights awards is measured as the market price of the
Company's common stock at the date of the award, and compensation cost is
recognized over the vesting period, typically four years.
The following table illustrates the effect on net income if the
fair-value-based method had been applied to all outstanding and unvested awards
in for the three-month and six-month periods ended June 30, 2005 and 2004:
9
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
3. STOCK-BASED COMPENSATION (CONTINUED)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------------- --------------------------------
2005 2004 2005 2004
-------------- -------------- -------------- --------------
RESTATED RESTATED
Net loss as reported ............... $ (9,919) $ (1,602) $ (19,817) $ (1,769)
Add stock-based employee
compensation included in net
income, after tax ................ 598 160 1,258 321
Less stock-based employee
compensation determined under
fair value method, after tax ..... (586) (243) (1,338) (446)
-------------- -------------- -------------- --------------
Pro forma net loss ................. $ (9,907) $ (1,685) $ (19,897) $ (1,894)
============== ============== ============== ==============
Income (loss) per share:
Basic, as reported ............... $ (.47) $ (.08) $ (.93) $ (.08)
============== ============== ============== ==============
Basic, pro forma ................. $ (.47) $ (.08) $ (.94) $ (.09)
============== ============== ============== ==============
Diluted, as reported ............. $ (.47) $ (.08) $ (.93) $ (.08)
============== ============== ============== ==============
Diluted, pro forma ............... $ (.47) $ (.08) $ (.94) $ (.09)
============== ============== ============== ==============
4. NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS 153, "Exchanges of Non-monetary
Assets," which amends APB Opinion No. 29. The guidance in APB 29, "Accounting
for Non-monetary Transactions," is based on the principle that exchanges of
non-monetary assets should be measured based on the fair value of the assets
exchanged. The amendment made by SFAS No. 153 eliminates the exception for
exchanges of similar productive assets and replaces it with a broader exception
for exchanges of non-monetary assets that do not have commercial substance. The
provisions of the statement are effective for exchanges taking place in fiscal
periods beginning after June 15, 2005. The Company will adopt the standard as of
the effective date and the Company believes the standard will not have a
material impact on its financial statements.
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment."
This standard requires expensing of stock options and other share-based payments
and supersedes SFAS No. 123, which had allowed companies to choose between
expensing stock options or showing pro forma disclosure only. This standard is
effective for reporting periods beginning January 1, 2006 and will apply to all
awards granted, modified, cancelled or repurchased after that date as well as
the unvested portion of prior awards. The Company will adopt the standard as of
January 1, 2006. The Company is currently evaluating the effect on the
consolidated financial statements and the method to use when valuing stock
options.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs", an
amendment of ARB No. 43, Chapter 4. This statement clarifies the types of costs
that should be expensed rather than capitalized as inventory. This statement
also clarifies the circumstances under which fixed overhead costs associated
with operating facilities involved in inventory processing should be
capitalized. The provisions of SFAS No. 151 are effective for fiscal years
beginning after June 15, 2005, and may impact certain inventory costs the
Company incurs after January 1, 2006. The Company is currently evaluating the
impact, if any, of this standard on its consolidated financial statements.
10
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
4. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In October 2004, the FASB ratified the consensus reached by the Emerging
Issues Task Force in EITF Issue No. 04-8 ("EITF 04-8") "The Effect of
Contingently Convertible Debt on Diluted Earnings per Share," which changes the
treatment of contingently convertible debt instruments in the calculation of
diluted earnings per share. EITF 04-8 provides that shares issuable upon
conversion of these debt instruments be included in the earnings per share
computation, if dilutive, regardless of whether any contingent conditions, in
such instruments have been met. EITF 04-8 is for reporting periods ending after
December 15, 2004, and requires restatement of previously reported earnings per
share. The Company adopted EITF 04-8 as of December 31, 2004. See Note 14 of the
"Notes to Consolidated Financial Statements" included in Item 8 of the Company's
Annual Report on Form 10-K for additional information about the Company's
earnings (loss) per share calculation.
5. FOREIGN EXCHANGE RISK
The Company attempts to negotiate contracts which provide for payment in
U.S. dollars, but it may be required to take all or a portion of payment under a
contract in another currency. To mitigate non-U.S. currency exchange risk, the
Company seeks to match anticipated non-U.S. currency revenue with expenses in
the same currency whenever possible. To the extent it is unable to match
non-U.S. currency revenue with expenses in the same currency, the Company may
use forward contracts, options or other common hedging techniques in the same
non-U.S. currencies. The Company had no derivative financial instruments to
hedge currency risk at June 30, 2005 or June 30, 2004, or during the six-month
periods then ended.
6. INCOME TAXES
During the three-month and six-month periods ended June 30, 2005, the
Company recorded income taxes of $5,482 and $8,246, respectively, on losses
before income taxes of $4,437 and $11,571, respectively, resulting in effective
income tax rates in excess of 100% for the periods. During the restated
three-month and six-month periods ended June 30, 2004, the Company recorded a
provision for income taxes of $2,911 and $3,036, respectively, on income before
income taxes of $1,309 and $1,267 respectively. The circumstances that gave rise
to the Company recording provisions for income taxes when the Company had losses
before income taxes for the three-month and six-month periods ended June 30,
2005 were primarily the result of income taxes in certain countries being based
on a deemed income rather than on taxable income and the fact that losses in one
country are not able to be used to offset taxable income in another country.
7. CONVERTIBLE NOTES
On March 12, 2004, the Company completed a primary offering of $60,000 of
2.75 percent Convertible Senior Notes (the "Convertible Notes"). On April 13,
2004, the initial purchasers of the Convertible Notes exercised their option to
purchase an additional $10,000 aggregate principal amount of the notes.
Collectively, the primary offering and purchase option of the Convertible Notes
total $70,000. The Convertible Notes are general senior unsecured obligations.
Interest is paid semi-annually on March 15 and September 15 and payments began
on September 15, 2004. The Convertible Notes mature on March 15, 2024 unless the
notes are repurchased, redeemed or converted earlier. The Company may redeem the
Convertible Notes for cash on or after March 15, 2011, at 100 percent of the
principal amount of the notes plus accrued interest. The holders of the
Convertible Notes have the right to require the Company to purchase the
Convertible Notes, including unpaid interest, on March 15, 2011, 2014, and 2019
or upon a change of control related event. On March 15, 2011 or upon a change in
control event, the Company must pay the purchase price in cash. On March 15,
2014 and 2019, the Company has the option of providing its common stock in lieu
of cash or a combination of common stock and cash to fund purchases. The holders
of the Convertible Notes may, under certain circumstances, convert the notes
into shares of the Company's common stock at an initial conversion ratio of
11
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
7. CONVERTIBLE NOTES (CONTINUED)
51.3611 shares of common stock per $1,000.00 principal amount of notes
(representing a conversion price of approximately $19.47 per share resulting in
3,595,277 shares at June 30, 2005). 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. Unamortized debt issue costs of $2,672 associated with
the Convertible Notes are included in other assets at June 30, 2005 and are
being amortized over the seven-year period ending March 2011. In the event of a
default under any Company credit agreement other than the indenture covering the
Convertible 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 Convertible Notes. Since
the non-compliance issues under the 2004 Credit Facility discussed in Note 8
below did not involve payment defaults and did not result in the acceleration of
any indebtedness of the Company, these defaults did not create an event of
default under the Convertible Notes.
On June 10, 2005, the Company received a letter from a law firm
representing an investor claiming to be the owner of in excess of 25% of the
Convertible Notes asserting that, as a result of the Company's failure to timely
file with the SEC its 2004 Form 10-K and its Quarterly Report on Form 10-Q for
the quarter ended March 31, 2005, it was placing the Company on notice of an
event of default under the indenture dated as of March 12, 2004 between the
Company as issuer, and JPMorgan Chase Bank, N.A., as trustee (the "Indenture"),
which governs the Convertible Notes. The Company indicated that it does not
believe that it has failed to perform its obligations under the relevant
provisions of the Indenture referenced in the letter. On August 19, 2005, the
Company entered into a settlement agreement with the beneficial owner of the
Convertible Notes on behalf of whom the notice of default was sent, pursuant to
which the Company agreed to use commercially reasonable efforts to solicit the
requisite vote to approve an amendment to the Indenture (the "Indenture
Amendment"). The Company has obtained the requisite vote and on September 22,
2005, the Indenture Amendment became effective.
The Indenture Amendment extends the initial date on or after which the
Convertible Notes may be redeemed by the Company to March 15, 2013 from March
15, 2011. In addition, a new provision was added to the Indenture which requires
the Company, in the event of a "fundamental change" which is a change of control
event in which 10% 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 Convertible Notes or (b) all scheduled
interest on the Convertible Notes from the date of the transaction through March
15, 2013.
8. 2004 CREDIT FACILITY
On March 12, 2004, the existing $125,000 June 2002 credit agreement was
amended, restated and increased to $150,000 (the "2004 Credit Facility"). The
2004 Credit Facility matures on March 12, 2007. The 2004 Credit Facility may be
used for standby and commercial letters of credit, borrowings or a combination
thereof. Borrowings are limited to the lesser of 40 percent of the borrowing
base or $30,000 and are payable at termination on March 12, 2007. Interest is
payable quarterly at a base rate plus a margin ranging from 0.75 percent to 2.00
percent or on a Eurodollar rate plus a margin ranging from 1.75 percent to 3.00
percent. A commitment fee on the unused portion of the 2004 Credit Facility is
payable quarterly, ranging from 0.375 percent to 0.625 percent. The 2004 Credit
Facility is collateralized by substantially all of the Company's assets,
including stock of the principal subsidiaries, prohibits the payment of cash
dividends and requires the Company to maintain certain financial ratios. The
borrowing base is calculated using varying percentages of cash, accounts
receivable, accrued revenue, contract cost and recognized income not yet billed,
property, plant and equipment, and spare parts. Unamortized debt issue costs of
$2,238 associated with the 2004 Credit Facility are included in other assets at
June 30, 2005 and are amortized over the term of the 2004 Credit Facility ending
March 2007.
12
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
8. 2004 CREDIT FACILITY (CONTINUED)
As of June 30, 2005, there were no borrowings under the 2004 Credit
Facility and there were $50,156 in outstanding letters of credit. Letters of
credit reduce the availability on the facility by 75 percent of their amount
outstanding; however, the total value of letters of credit outstanding may not
exceed $150,000 (see "Waiver Amendment" below).
2004 Credit Facility Waivers
For the quarter ended June 30, 2004, due to the Company's operating results
and EBITDA (earnings before net interest, income taxes, depreciation and
amortization) levels, an Amendment and Waiver Agreement (the "Waiver Agreement")
was obtained from the syndicated bank group to waive non-compliance with a
financial covenant to the credit agreement at June 30, 2004 and to amend certain
financial covenants. The Waiver Agreement provides for an amendment of certain
quarterly financial covenants and the multiple of EBITDA calculation with
respect to the borrowing base determination through September 30, 2005.
In January 2005, the Company obtained a Consent and Waiver from its
syndicated bank group, covering a period through June 29, 2005, waiving certain
defaults and covenants which related to the filing of tax returns, the payment
of taxes when due, tax liens and legal proceedings against the Company related
to a tax assessment in Bolivia. (See Note 2 above). Additional Consent and
Waivers were obtained from the syndicated bank group as of April 8 and June 13,
2005 with respect to these defaults and non-compliance with certain financial
covenants as of June 13, 2005.
2004 Credit Facility Amendment
On July 19, 2005, the Company entered into a Second Amendment and Waiver
Agreement ("Waiver Amendment") of the 2004 Credit Facility with the syndicated
bank group to obtain continuing waivers regarding its non-compliance with
certain financial and non-financial covenants in the 2004 Credit Facility. Under
the terms of the Waiver Amendment, the total credit availability under the 2004
Credit Facility is reduced to $100,000 as of the effective date of the Waiver
Amendment. Subject to certain conditions, the bank group agreed to permanently
waive all existing and probable technical defaults under the 2004 Credit
Facility as long as the Company submits year-end 2004 financial statements and
interim financial statements for the quarters ended March 31 and June 30, 2005
by September 30, 2005. These conditions relate primarily to submissions of
various financial statements and other financial and borrowing base related
information.
The Waiver Amendment also modified certain of the ongoing financial
covenants under the 2004 Credit Facility and established a requirement that the
Company maintain a minimum cash balance of $15,000. Until such time as the
waiver becomes permanent, the Company has certain additional reporting
requirements, including periodic cash balance reporting. In addition, the Waiver
Amendment prohibits the Company from borrowing cash under the 2004 Credit
Facility until the waiver becomes permanent. Since the Company was not able to
submit the referenced statements by September 30, 2005, the waiver did not
become permanent.
Additionally, the Company was not in compliance with certain of the
financial covenants under the 2004 Credit Facility at September 30, 2005 and
the Company has not obtained a waiver. The Company also believes it will not be
in compliance with certain of the financial covenants under the 2004 Credit
Facility at December 31, 2005. As a result of the covenant violations and the
failure to provide certain financial statements by September 30, 2005, the bank
syndicate has the right to discontinue advances under the facility as well as
the issuance of new letters of credit. The inability of the Company to access
new letters of credit could negatively impact the Company's ability to take on
new work, or bid additional work where letters of credit are required, in order
to bid on a project. Additionally, the bank syndicate could request that the
Company provide cash collateral for outstanding letters of credit.
As the Company has done in the past, management believes that it will be
able to negotiate a waiver with the syndicated bank group with respect to these
violations. In the event the waivers are not obtained, the Company would expect
to arrange for alternative financing which could include the following
components, individually or in combination: (1) establishing a credit facility
with a new bank group, (2) raising equity capital, (3) selling certain assets or
(4) issuing debt in either a public or private transaction.
13
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
9. EARNINGS (LOSS) PER SHARE
Basic and diluted earnings (loss) per common share for the three-month and
six-month periods ended June 30, 2005 and 2004, are computed as follows:
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------------- ---------------------------------
2005 2004 2005 2004
-------------- -------------- -------------- --------------
RESTATED RESTATED
Net loss applicable to
common shares .......................... $ (9,919) $ (1,602) $ (19,817) $ (1,769)
============== ============== ============== ==============
Weighted average number of
common shares outstanding
for basic earnings per share ........... 21,253,737 20,887,493 21,251,997 20,814,398
Effect of dilutive potential common
shares from stock options .............. -- -- -- --
-------------- -------------- -------------- --------------
Weighted average number of
common shares outstanding
for diluted earnings per share ......... 21,253,737 20,887,493 21,251,997 20,814,398
============== ============== ============== ==============
Loss per common share:
Basic .................................. $ (.47) $ (.08) $ (.93) $ (.08)
============== ============== ============== ==============
Diluted ................................ $ (.47) $ (.08) $ (.93) $ (.08)
============== ============== ============== ==============
The Company incurred net losses for the three-month and six-month periods
ended June 30, 2005 and 2004 and has therefore excluded securities from the
computation of diluted earnings per share as the effect would be anti-dilutive.
The weighted average number of potential common shares excluded from the
computation of diluted earnings (loss) per share because of their anti-dilutive
effect was 3,595,277 shares issuable upon conversion of the Convertible Notes,
921,520 shares from options, and 288,375 restricted shares of common stock at
June 30, 2005; 3,595,277 shares issuable upon conversion of the Convertible
Notes 1,200,128 shares from options and 162,500 restricted shares of common
stock at June 30, 2004.
10. SEGMENT INFORMATION
Historically, the Company reported in one operating segment offering three
integrated services: engineering, construction, and specialty. In mid-2004, the
Company restructured its operating segments to include Engineering and
Construction and Facilities Development and Operations. Beginning in the fourth
quarter of 2004, the Company restructured its business into two operating
segments, International and United States & Canada. All periods presented
reflect this change in segments.
The Company's segments are strategic business units that are managed
separately as each segment has different operational requirements and marketing
strategies. Management believes, due to the composition of current work and
potential work opportunities, and the nuances of the geographic markets the
Company serves, that the organization should be viewed on a geographic basis.
The International segment consists of all construction, engineering and
facilities development operations in countries other than the United States and
Canada. Currently such operations are in Africa, the Middle East, and South
America. The United States & Canada segment consists of all construction,
engineering and facilities development
14
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
10. SEGMENT INFORMATION (CONTINUED)
operations in the United States and Canada. The Company's corporate operations
include the general, administrative, and financing functions of the
organization. The costs of these functions are allocated between the two
operating segments. The Company's corporate operations also include various
other assets that are allocated between the two operating segments. Intersegment
revenue and revenue between geographic areas are not material.
The tables below reflect the Company's operating segments as of and for the
three-month and six-month periods ended June 30, 2005 and 2004:
Three Months Ended June 30, 2005 Six Months Ended June 30, 2005
---------------------------------- ----------------------------------
US & US &
Total Int'l Canada Total Int'l Canada
-------- -------- -------- -------- -------- --------
Revenue $164,196 $ 98,180 $ 66,016 $295,798 $185,214 $110,584
Operating expense:
Contract costs 144,525 87,082 57,443 259,360 160,662 98,698
Depreciation and amortization 4,950 2,655 2,295 10,257 5,671 4,586
General and administrative 18,774 14,984 3,790 35,842 27,503 8,339
Other operating costs - - - 1,084 1,084 -
-------- -------- -------- -------- -------- --------
168,249 104,721 63,528 306,543 194,920 111,623
-------- -------- -------- -------- -------- --------
Operating income (loss) $ (4,053) $ (6,541) $ 2,488 $(10,745) $ (9,706) $ (1,039)
======== ======== ======== ======== ======== ========
Three Months Ended June 30, 2004 Six Months Ended June 30, 2004
----------------------------------- -----------------------------------
RESTATED RESTATED
US & US &
Total Int'l Canada Total Int'l Canada
--------- --------- --------- --------- --------- ---------
Revenue $ 116,204 $ 61,434 $ 54,770 $ 217,851 $ 124,920 $ 92,931
Operating expense:
Contract costs 98,170 48,450 49,720 184,887 101,435 83,452
Depreciation and amortization 3,959 2,138 1,821 7,672 4,317 3,355
General and administrative 11,216 5,775 5,441 21,618 11,431 10,187
Other operating costs 822 822 - 1,608 1,608 -
--------- --------- --------- --------- --------- ---------
114,167 57,185 56,982 215,785 118,791 96,994
--------- --------- --------- --------- --------- ---------
Operating income (loss) $ 2,037 $ 4,249 $ (2,212) $ 2,066 $ 6,129 $ (4,063)
========= ========= ========= ========= ========= =========
Total assets by segment are presented below:
June 30, December 31,
2005 2004
------------- -------------
International $ 243,092 $ 225,262
United States & Canada 186,309 191,848
------------- -------------
Total Consolidated Assets $ 429,401 $ 417,110
============= =============
Due to a limited number of major projects and clients, the Company may at
any one time have a substantial part of its operations dedicated to one project,
client and country.
15
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
11. CONTINGENCIES, COMMITMENTS AND OTHER CIRCUMSTANCES
On January 6, 2005, J. Kenneth Tillery, President of Willbros
International, Inc. ("WII"), who was principally responsible for international
operations, including Bolivian operations, resigned from the Company as
discussed in Note 2 above.
Following Mr. Tillery's resignation, the Audit Committee, working with
independent outside legal counsel and their forensic accountants retained by
such legal counsel, commenced an independent investigation into the
circumstances surrounding the Bolivian tax assessment and the actions of Mr.
Tillery in other international locations. The Audit Committee's investigation
identified payments that were made by or at the direction of Mr. Tillery in
Bolivia, Nigeria and Ecuador which may have been violations of the United States
Foreign Corrupt Practices Act ("FCPA") and other United States laws. The
investigation also revealed that Mr. Tillery authorized numerous transactions
between Company subsidiaries and entities in which he apparently held an
ownership interest or exercised significant control. (See Note 12 below). In
addition, the Company has learned that certain acts carried out by Mr. Tillery
and others acting under his direction with respect to a bid for work in Sudan
may constitute facilitation efforts prohibited by U.S. law, a violation of U.S.
trade sanctions and the unauthorized export of technical information.
The United States Securities and Exchange Commission ("SEC") is conducting
an investigation into whether the Company and others may have violated various
provisions of the Securities Act of 1933 (the "Securities Act") and the
Securities Exchange Act of 1934 (the "Exchange Act"). The United States
Department of Justice ("DOJ") is conducting an investigation concerning possible
violations of the FCPA and other applicable laws. In addition, the United States
Department of Treasury's Office of Foreign Assets Control ("OFAC") is commencing
an investigation of the potentially improper facilitation and export activities.
The Company is cooperating fully with all of these investigations. If the
Company or one of its subsidiaries is found to have violated the FCPA, that
entity could be subject to civil penalties of up to $650 per violation and
criminal penalties of up to the greater of $2,000 per violation or twice the
gross pecuniary gain resulting from the improper conduct. If the Company or one
of its subsidiaries is found to have violated trade sanctions or U.S. export
restrictions, that entity could be subject to civil penalties of up to $11 per
violation and criminal penalties of up to $250 per violation. The Company and
its subsidiaries could also be barred from participating in future U.S.
government contracts and from participating in certain U.S. export transactions.
There may be other penalties that could apply under other U.S. laws or the laws
of foreign jurisdictions. The Company cannot predict the outcome of the
investigations being conducted by the SEC, the DOJ and OFAC, including the
Company's exposure to civil or criminal fines or penalties, or other regulatory
action which could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company's
ability to obtain and retain business and to collect outstanding receivables in
current or future operating locations, including Nigeria, could be negatively
affected.
In May 2005, a securities class-action lawsuit was filed against the
Company and certain of its present and former officers and directors in U.S.
District Court for the Southern District of Texas. Three additional
substantially identical lawsuits were filed shortly thereafter. Plaintiffs in
these lawsuits purport to represent a class of persons who purchased or
otherwise acquired Willbros Group, Inc. common stock and/or other securities
between May 6, 2002 and May 16, 2005, inclusive, and allege various violations
by the defendants of Sections 10(b), 10b-5 and 20a of the Exchange Act and
allege, among other things, that the defendants made false or misleading
statements of material fact about the Company's financial statements. The
plaintiffs seek unspecified monetary damages and other relief. While the outcome
of such lawsuits cannot be predicted with certainty, the Company believes that
it has meritorious defenses and intends to defend itself vigorously.
We have received letters from two Nigerian law firms alleging that we have
not complied with our obligations under certain consulting contracts with their
clients. The Company has not recognized contract costs or accrued any liability
for the $3,845 related to these asserted obligations. We believe that compliance
with those contracts may constitute a violation of the United States Foreign
Corrupt Practices Act and accordingly, we will not comply. While there can be no
assurance that a court or arbitration panel considering those contracts would
not award damages to the consulting firms who are parties to such contracts; the
Company believes the likelihood of a material adverse effect on the Company's
financial position or results of operations from a resolution of this matter is
remote.
We have received a demand from a party in Nigeria requesting repayment of
an alleged $500 note payable. However, credible evidence of the transaction has
not been furnished and the Company has not found any record that any funds were
received from the party. Additionally, we have received another claim from a
second party in Nigeria for the repayment of a separate alleged $1,000 note
payable. Based on our investigation of the events surrounding these purported
February 2005 transactions, we believe there is no lawful basis for the claims.
Furthermore, independent of whether the claims are credible, we believe that
recognizing these alleged liabilities could constitute a violation of the United
States Foreign Corrupt Practices Act. Accordingly, the Company had not recorded
any liability or expenses for the $1,500 in claims.
16
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
11. CONTINGENCIES, COMMITMENTS AND OTHER CIRCUMSTANCES (CONTINUED)
The Company provides engineering and construction services to the oil, gas
and power industries and government entities, and develops, owns and operates
assets developed under "Build, Own and Operate" contracts. The Company's
principal markets are currently Africa, the Middle East, South America and North
America. Operations outside the United States may be subject to certain risks
which ordinarily would not be expected to exist in the United States, including
foreign currency restrictions, extreme exchange rate fluctuations, expropriation
of assets, civil uprisings and riots, war, unanticipated taxes including income
taxes, excise duties, import taxes, export taxes, sales taxes or other
governmental assessments, availability of suitable personnel and equipment,
termination of existing contracts and leases, government instability and legal
systems of decrees, laws, regulations, interpretations and court decisions which
are not always fully developed and which may be retroactively applied.
Management is not presently aware of any events of the type described in the
countries in which it operates that have not been provided for in the
accompanying consolidated financial statements.
Based upon the advice of local advisors in the various work countries
concerning the interpretation of the laws, practices and customs of the
countries in which it operates, management believes the Company follows the
current practices in those countries; however, because of the nature of these
potential risks, there can be no assurance that the Company may not be adversely
affected by them in the future. The Company insures substantially all of its
equipment in countries outside the United States against certain political risks
and terrorism through political risk insurance coverage that contains a 20
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 consolidated
financial statements.
Certain post-contract completion audits and reviews are periodically
conducted by clients and/or government entities. While there can be no assurance
that claims will not be received as a result of such audits and reviews,
management does not believe a legitimate basis for any material claims exists.
At the present time, it is not possible for management to estimate the
likelihood of such claims being asserted or, if asserted, the amount or nature
thereof.
In connection with the Company's 10 percent interest in a joint venture in
Venezuela, the Company issued a corporate guarantee equal to 10 percent of the
joint venture's outstanding borrowings with two banks. The guarantee reduces as
borrowings are repaid. As of June 30, 2005, the maximum amount of future
payments the Company could be required to make under this guarantee is
approximately $2,919.
From time to time, the Company enters into commercial commitments, usually
in the form of commercial and standby letters of credit, insurance bonds and
financial guarantees. Contracts with the Company's customers may require the
Company to provide letters of credit or insurance bonds with regard to the
Company's performance of contracted services. In such cases, the commitments can
be called upon in the event of failure to perform contracted services. Likewise,
contracts may allow the Company to issue letters of credit or insurance bonds in
lieu of contract retention provisions, in which the client withholds a
percentage of the contract value until project completion or expiration of a
warranty period. Retention commitments can be called upon in the event of
warranty or project completion issues, as prescribed in the contracts. At June
30, 2005, the Company had approximately $129,366 of letters of credit and
insurance bonds outstanding, representing the maximum amount of future payments
the Company could be required to make. The Company had no liability recorded as
of June 30, 2005 related to these commitments.
17
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
11. CONTINGENCIES, COMMITMENTS AND OTHER CIRCUMSTANCES (CONTINUED)
During the first quarter of 2005, the Company entered into a capital lease
agreement for a 90,000 square foot building on 10 acres of land in Edmonton,
Alberta with an option to purchase the building for a total of $6,514 (Canadian
$8,000). Under the terms of the agreement, the Company made payments of
approximately $620 (Canadian $750) through June 30, 2005, and will purchase the
building in December 2005 for a lump sum payment of approximately $5,894
(Canadian $7,250). At June 30, 2005, approximately $2,531 (Canadian $3,113) of
costs have been incurred for equipping and preparing the building for use. The
Company will begin depreciating the building and other components of the
facility when operations commence in the second half of 2005.
At June 30, 2005 and December 31, 2004, other assets include anticipated
recoveries from insurance or third parties of $3,840 and $4,445, respectively,
related to repairs of pipelines under two construction projects. The Company
believes the recovery of certain of these costs from insurance or other parties
is probable. Actual recoveries may vary from these estimates.
In addition to the matters discussed above, the Company is a party to a
number of other 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.
12. RELATED PARTY TRANSACTIONS
During the past several years, certain of the Company's subsidiaries have
entered into commercial agreements with companies in which the former President
of WII, Mr. J. Kenneth Tillery, apparently had an ownership interest. These
ownership interests had not been previously disclosed to the Company. Those
companies included Windfall Energy Services, Oco Industrial Services, Ltd.,
Hydrodive Nigeria, Ltd., and Hydrodive International, Ltd. All are companies
that chartered or sold marine vessels to the Company's subsidiaries. Hydrodive
International, Ltd. has also provided diving services to the Company's
subsidiaries. Payment terms for these vendors range from due on receipt to net
30 days. The settlement method is cash.
Mr. Tillery also appears to have exercised significant influence over the
activities of Symoil Petroleum Ltd and Fusion Petroleum Services Ltd., which
provided consulting services for projects in Nigeria, and Kaplan and Associates,
which provided consulting services for projects in Bolivia and certain other
foreign locations.
Payments made to companies where Mr. Tillery appears to have an undisclosed
ownership interest, varying from 13 percent to 40 percent, or over which he
appears to have exercised significant influence during the three-month and
six-month periods ended June 30, 2005 and June 30, 2004 were recorded as
contract cost on Nigerian and Bolivian projects and are detailed below.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- --------------------------
2005 2004 2005 2004
----------- ------------ ----------- -----------
Hydrodive International, Ltd. $ 2,036 $ 1,184 $ 3,279 $ 2,474
Hydrodive Nigeria Ltd. -- 19 -- 64
Kaplan and Associates -- 37 -- 143
Oco Industrial Services Ltd. -- 27 3 50
Windfall Energy Services -- 233 300 383
----------- ----------- ----------- -----------
Total $ 2,036 $ 1,500 $ 3,582 $ 3,114
=========== =========== =========== ===========
18
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
12. RELATED PARTY TRANSACTIONS (CONTINUED)
Outstanding amounts owed to related parties in which Mr. Tillery
appears to have had an undisclosed ownership interest or over which he appears
to have exercised significant influence and which are included in accounts
payable and accrued liabilities are as follows:
JUNE 30, DECEMBER 31,
2005 2004
---------- -----------
Hydrodive International, Ltd. $ 6 $ 1,846
Windfall Energy Services 1,344 300
Oco Industrial Services Ltd. 25 --
Hydrodive Nigeria, Ltd. 18 5
---------- ----------
Total $ 1,393 $ 2,151
========== ==========
In addition, it appears that Mr. Tillery had an equity interest in
Addax Petroleum of Nigeria ("Addax") during an unknown period prior to April
2003. During this period subsidiaries of the Company were paid for various
services which they performed for Addax. Subsequent to March 2003, Mr. Tillery
purportedly sold his equity interest in Addax. The subsidiaries of the Company
continued to perform services for Addax and/or its successor company ("New
Addax"). During the three-month and six month periods ended June 30, 2005, the
Company recorded revenue for services provided to New Addax as follows:
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------------- --------------------------------
2005 2004 2005 2004
----------- ------------- ------------ ------------
New Addax Revenue $ 675 $ 8,137 $ 675 $ 16,287
% of Consolidated Revenue 0.4% 7.0% 0.2% 7.5%
The Company had outstanding accounts receivable from New Addax and
contract cost and recognized income not yet billed to New Addax of $0 and
$13,619 at June 30, 2005 and 2004, respectively. In 2005, the Company entered
into a global settlement with New Addax for outstanding receivables, change
orders, and claims for $10,000. The settlement was recovered in full in May
2005.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS OR
UNLESS NOTED OTHERWISE)
The following discussion should be read in conjunction with the
unaudited condensed consolidated financial statements for the three-month and
six-month interim periods ended June 30, 2005 and 2004, included in Item 1 of
this report, and the consolidated financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations,
including Critical Accounting Policies, included in our Annual Report on Form
10-K for the year ended December 31, 2004.
OVERVIEW
We derive our revenue from providing construction, engineering and
facilities development operations to the oil, gas and power industries and
government entities worldwide. In 2005, our revenue was primarily generated from
operations in Canada, Nigeria, Oman, and the United States. We obtain contracts
for our work mainly by competitive bidding or through negotiations with
long-standing or prospective clients. Contracts have durations from a few weeks
to several months or in some cases more than a year.
We believe the fundamentals supporting the demand for engineering and
construction services for the oil, gas and power industries indicate the market
for our services will be strong in the mid to long-term. We are encouraged by
many positive developments in the markets that we serve. In addition to
increased bid activity in several of our markets, we are optimistic about new
oil and gas production developments in both Canada and Mexico, both of which are
attractive markets for our engineering and construction services. The move
towards LNG is also expected to bring more opportunities to Willbros, both in
North America and in the producing/exporting countries.
The engineering market in North America is becoming more active and we
are encouraged that we have received multiple awards in recent weeks.
Additionally, we are involved in numerous discussions and contract negotiations
regarding pipeline and station construction projects in North America. The
nature of these recent discussions and the increase in engineering assignments
continues to support our belief that we may see an increase in activity in North
America during the second half of 2005.
RESTATEMENT
In late December of 2004, the Company became aware of an approximate
$2,500 tax assessment against the Company's Bolivian subsidiary which alleged
that the subsidiary had filed improper tax returns. The assessment also imposed
penalties and interest related to the tax assessment. Prior to late December
2004, the executive management of the Company was unaware of the tax assessment,
with the exception of J. Kenneth Tillery, the then President of Willbros
International, Inc. ("WII"), the primary international subsidiary of the
Company. Mr. Tillery resigned from the Company on January 6, 2005.
Upon learning of the tax assessment, the Company immediately commenced
an initial investigation into the matter and notified the Audit Committee of the
Board of Directors. The Audit Committee retained independent counsel, who in
turn retained forensic accountants, and began an independent investigation.
Concurrent with the Audit Committee's investigation, the Company
initiated its own review of the Company's accounting. This review focused
primarily on the Company's international activities supervised by the former
President of WII, but also included other areas of the Company's accounting
activities.
As a result of the investigation by the Audit Committee and the
Company's accounting review, the Company determined that several members of the
senior management of WII and its subsidiaries collaborated to misappropriate
assets from the Company and cover up such activity. It was determined that the
Bolivian subsidiary had in fact filed improper tax returns, or failed to file
returns, at the direction of Mr. Tillery, the former President of WII. The
investigation also determined that Mr. Tillery, in collusion with several
members of the management of the international subsidiaries, was involved in
other improper activities, primarily in the Company's Nigerian subsidiaries.
20
FINANCIAL SUMMARY
For the quarter ended June 30, 2005, we had a loss of ($0.47) per share
on revenue of $164,196. This compares to revenue of $116,204 in the same
restated quarter in 2004, when we reported a loss of ($0.08) per share.
Revenue of $164,196 for the second quarter of 2005 represents a $47,992
(41%) increase over the revenue for the same restated period in 2004. In the
second quarter of this year, international revenue increased $36,746 primarily
because of a $72,693 increase from new work in Nigeria and West Africa,
partially offset by a $33,924 decrease in revenue from completed 2004 projects
in Iraq ($25,132), Bolivia ($6,343) and Venezuela ($2,449). United States and
Canada revenue increased $11,246 primarily as a result of $5,090 of increased
activity in Canada, and a $7,208 increase in engineering revenues.
Contract costs increased $46,355 (47%) to $144,525 in the second
quarter of 2005 as compared to the same restated quarter of 2004 due to the
activity increases in both operating segments. Overall, margins decreased by
3.5% in the second quarter of 2005 as compared to the same restated quarter in
2004.
G&A expenses increased $7,558 (67%) to $18,774 in the second quarter of
2005 from $11,216 in the restated second quarter of last year. The increase in
G&A expenses includes $2,811 related to the Audit Committee's internal
investigation, $1,007 in Nigeria due to increased activity, $670 in Bolivia as
close-out costs of the work country, $3,070 increase in IT support costs and
additional Houston office labor costs to support the effort of Audit Committee's
independent investigation, and increased operating activity.
We recognized $5,482 of tax expense on a $4,437 pre-tax loss in the
second quarter of 2005. The $2,571 tax expense increase in the second quarter of
2005 resulted from $72,693 of increased revenue in Nigeria and West Africa as
compared to the same restated quarter in 2004. Tax expense of $5,482 in the
second quarter of 2005 results primarily from accruing income taxes in Nigeria
where taxes are calculated and based on a deemed income (percentage of revenue)
instead of actual pre-tax income.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In our report on Form 10-K for the year ended December 31, 2004, we
identified and disclosed three critical accounting policies: (a) Revenue
Recognition: Percentage-of-Completion Method; (b) Income Taxes; and (c) Joint
Venture Accounting. There have been no changes to our critical accounting
policies during the three-month period ended June 30, 2005.
SIGNIFICANT BUSINESS DEVELOPMENTS
OTHER FINANCIAL MEASURES
EBITDA
We use EBITDA (earnings before net interest, income taxes, depreciation
and amortization) as part of our overall assessment of financial performance by
comparing EBITDA between accounting periods. We believe that EBITDA is used by
the financial community as a method of measuring our performance and of
evaluating the market value of companies considered to be in businesses similar
to ours. EBITDA for the six months ended June 30, 2005 was ($249) as compared to
$10,026 for the same restated period in 2004, an $10,275 (102%) decrease.
21
A reconciliation of EBITDA to GAAP financial information follows:
SIX MONTHS ENDED JUNE 30,
---------------------------------
2005 2004
----------- ----------
RESTATED
Net loss $ (19,817) $ (1,769)
Interest, net 1,065 1,087
Provision for income taxes 8,246 3,036
Depreciation and amortization 10,257 7,672
----------- ----------
EBITDA $ (249) $ 10,026
=========== ==========
BACKLOG
We define anticipated contract revenue as backlog when the award of a
contract is reasonably assured, generally upon the execution of a definitive
agreement or contract. Anticipated revenue from post-contract award processes,
including change orders, extra work, variations in the scope of work and the
effect of escalation or currency fluctuation formulas, is not added to backlog
until realization is reasonably assured. Backlog as of June 30, 2005 was
$716,534 with an estimated embedded margin of 19.7% compared to $660,932 at
December 31, 2004 with an estimated embedded margin of 21.6%. Included in the
backlog at June 30, 2005 is $19,737 of gas processing revenue with an estimated
embedded margin of 100%. The gas processing revenue is associated with the
10-year gas processing contract for our Opal Gas Plant. If backlog amounts were
reduced by eliminating the effects of the Opal gas processing contract, the
adjusted estimated embedded margin would be 17.4% as of June 30, 2005. An
estimated $303,694 (42.4%) of the current backlog is scheduled to be worked off
during the remainder of 2005.
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 variations by country from year to year are the result of (a) entering and
exiting work countries; (b) the execution of new contract awards; (c) the
completion of contracts; and (d) the overall level of activity in our services.
Our ability to be successful in obtaining and executing contracts can
be affected by the relative strength or weakness of the U.S. dollar compared to
the currencies of our competitors, our clients and our work locations. During
the six-month period ended June 30, 2004, the Venezuelan Bolivar experienced
significant devaluation relative to the U.S. dollar and the restated first six
months of 2004 included a foreign exchange gain of $345 resulting from the
translation of our Bolivar denominated monetary assets and liabilities into U.S.
dollars. In the first six months of 2005 we had a foreign exchange gain of $21
on the Bolivar.
THREE MONTHS ENDED JUNE 30, 2005, COMPARED TO THREE MONTHS ENDED JUNE 30, 2004
CONTRACT REVENUE
Contract revenue increased $47,992 (41%) to $164,196 due to increases
in both International and United States and Canada segments. A
quarter-to-quarter comparison of revenue is as follows:
THREE MONTHS ENDED JUNE 30,
------------------------------------------------------------
INCREASE PERCENT
2005 2004 (DECREASE) CHANGE
----------- ----------- ------------ --------
RESTATED
International $ 98,180 $ 61,434 $ 36,746 60%
United States & Canada 66,016 54,770 11,246 21%
----------- ----------- ------------
Total $ 164,196 $ 116,204 $ 47,992 41%
=========== =========== ============
22
International revenue increased $36,746 primarily because of a $72,693
increase from new work in Nigeria and West Africa, partially offset by a $33,924
decrease in revenue from the completed 2004 projects in Iraq ($25,132), Bolivia
($6,343) and Venezuela ($2,449). United States and Canada revenue increased
$11,246 primarily as a result of $5,090 of increased activity in Canada, and a
$7,208 increase in engineering revenue.
CONTRACT INCOME
Contract income increased $1,637 (9%) to $19,671 in the second quarter
of 2005 as compared to the same restated quarter in 2004. A comparison of
contract income is included in the table below.
THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------------------
% of % of INCREASE PERCENT
2005 Revenue 2004 Revenue (DECREASE) CHANGE
---------- ------- ---------- ------- ---------- ----------
RESTATED
International $ 11,098 11.3 $ 12,984 21.1 $ (1,886) (15%)
United States & Canada 8,573 13.0 5,050 9.2 3,523 70%
---------- ---------- ----------
Total $ 19,671 12.0 $ 18,034 15.5 $ 1,637 9%
========== ========== ==========
United States and Canada contract income increased $3,523 during the
second quarter of 2005. Contract margin also increased by 3.8% during this
period. The increased contract income and margin is mainly due to improved
margins at our North America RPI division along with increased engineering
activity and slightly higher engineering margins. International contract income
decreased $1,886 in the second quarter of 2005. The decrease is mainly due to
the completion of the higher margin Iraq project in 2004 along with the Bolivia
contract settlement in the second quarter of 2004. This was partially offset by
increased contract income in Nigeria primarily attributable to the large Eastern
Gas Gathering Project. The additional work in Nigeria in 2005 was subject to a
much lower contract margin as compared to the margin recognized from the
completed 2004 Iraq project. The margin in the second quarter of 2004 also
benefited from the Bolivia Transierra Project settlement. International contract
margins declined 9.8% in the second quarter of 2005 as compared to the same
restated quarter in 2004.
OTHER OPERATING EXPENSES
Depreciation and amortization increased $991 (25%) in the second
quarter of 2005 as compared to the same restated quarter in 2004 primarily due
to additions to equipment in Nigeria over the last year, and depreciation on the
new information system.
G&A expenses increased $7,558 (67%) to $18,774 in the second quarter of
2005 from $11,216 in the restated second quarter of last year. The increase in
G&A expenses includes $2,811 related to the Audit Committee's internal
investigation, $1,007 in Nigeria due to increased activity, $670 in Bolivia as
close-out costs of the work country, $3,070 increase in IT support costs and
additional Houston office labor costs to support the effort of Audit Committee's
independent investigation and increased operating activity.
NON-OPERATING ITEMS
Other income/(expense) decreased from $728 of expense in the restated
second quarter of 2004 to $384 of expense in the same quarter of 2005. The $344
quarter-to-quarter favorable variance is primarily attributable to increased
interest income of $337.
We recognized $5,482 of tax expense on a $4,437 pre-tax loss in the
second quarter of 2005. The $2,571 tax expense increase in the second quarter of
2005 resulted primarily from $72,693 of increased revenue in Nigeria and West
Africa as compared to the same restated quarter in 2004. Tax expense of $5,482
in the second quarter of 2005 results primarily from accruing income taxes in
Nigeria where taxes are calculated and based on a deemed income (percentage of
revenue) instead of actual pre-tax income.
SIX MONTHS ENDED JUNE 30, 2005, COMPARED TO SIX MONTHS ENDED JUNE 30, 2004
CONTRACT REVENUE
Contract revenue increased $77,947 (36%) to $295,798 due to increases
in both International and United States and Canada segments. A
quarter-to-quarter comparison of revenue is as follows:
23
SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------
INCREASE PERCENT
2005 2004 (DECREASE) CHANGE
---------- ---------- ---------- ----------
RESTATED
International $ 185,214 $ 124,920 $ 60,294 48%
United States & Canada 110,584 92,931 17,653 19%
---------- ---------- ----------
Total $ 295,798 $ 217,851 $ 77,947 36%
========== ========== ==========
International revenue increased $60,294 primarily because of a $103,576
increase from new work in Nigeria and $24,164 from new work in West Africa,
partially offset by a $60,332 decrease in revenue from the completed 2004
projects in Iraq ($41,101), Oman ($7,853) and Venezuela ($11,378). United States
and Canada revenue increased $17,653 primarily as a result of $9,544 of
increased activity in Canada and $12,370 of increased activity in engineering.
CONTRACT INCOME
Contract income increased $3,474 (11%) to $36,438 for the first six
months of 2005 as compared to the same restated first six months of 2004. A
comparison of contract income is included in the table below.
SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------
% of % of INCREASE PERCENT
2005 Revenue 2004 Revenue (DECREASE) CHANGE
---------- ------- ---------- ------- ---------- ----------
RESTATED
International $ 24,552 13.3 $ 23,485 18.8 $ 1,067 5%
United States & Canada 11,886 10.8 9,479 10.2 2,407 25%
---------- ---------- ----------
Total $ 36,438 12.3 $ 32,964 15.1 $ 3,474 11%
========== ========== ==========
United States and Canada contract income increased $2,407 during the
first six months of 2005. Contract margin also increased by .6% during this
period. The increased contract income and margin is mainly due to improved
margins at our North America RPI division along with increased engineering
activity and slightly higher engineering margins. International contract income
increased $1,067 in the first six months of 2005. The increase is mainly due to
the increased construction activity in Nigeria on the large EPC contracts with
Shell Petroleum Development Company and Mobil producing Nigeria. The additional
Nigeria contract income was partially offset by declines in Iraq, Bolivia, and
Venezuela as these projects were completed or closed out in fiscal year 2004.
The additional work in Nigeria in 2005 was subject to a much lower contract
margin as compared to the margin recognized from the completed 2004 Iraq
project. The margin in the first six months of 2004 also benefited from the
Bolivia Transierra settlement. International contract margins declined 5.5%
during the first six months of 2005.
OTHER OPERATING EXPENSES
Depreciation and amortization increased $2,585 (34%) during the first
six months of 2005 as compared to the same restated period in 2004 primarily
due to additions to equipment in Nigeria over the last year, and depreciation
on the new information system.
G&A expenses increased $14,224 (66%) to $35,842 in the first six
months of 2005 from $21,618 in the restated first six months of last year. The
increase in G&A expenses includes $6,468 related to the Audit Committee's
internal investigation, $1,440 in Nigeria due to increased activity, $517 in
Bolivia as close-out costs of the work country, $539 in North America due to
increased activity, $5,777 increase in IT support costs and additional Houston
office labor costs to support the effort of Audit Committee's independent
investigation and increased operating activity.
24
NON-OPERATING ITEMS
We recognized $8,246 of tax expense on a $11,571 pre-tax loss in the
first six months of 2005. The $5,210 tax expense increase in the first six
months of 2005 resulted primarily from $103,576 of increased revenue in Nigeria
as compared to the same restated first six months in 2004. Tax expense of $8,246
in the first six months of 2005 results primarily from accruing income taxes in
Nigeria where taxes are calculated and based on a deemed income (percentage of
revenue) instead of actual pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL REQUIREMENTS
Our primary requirements for capital are to acquire, upgrade and
maintain equipment, provide working capital for current projects, finance the
mobilization of employees and equipment to new projects, establish a presence in
countries where we perceive growth opportunities and finance the possible
acquisition of new businesses and equity investments. Historically, we have met
these capital requirements primarily from operating cash flows, borrowings under
our credit facility and debt and equity financings.
WORKING CAPITAL
Cash and cash equivalents decreased $24,268 (31%) to $54,452 at June
30, 2005 from $78,720 at December 31, 2004. This decrease was primarily due to
$17,226 of investing activities related to the acquisition of equipment, $5,426
cash used in operations, and a $2,767 net reduction of notes payable and
long-term debt. Offsetting these decreases were cash provided by proceeds from
sale of equipment of $1,538.
Working capital decreased $30,248 (28%) from decreased cash of $24,268
and increased current liabilities of $33,043, offset by increased prepaid
expenses, including inventory, of $7,704 and increased receivables and unbilled
revenue of $19,359.
Cash flows from operations improved by $6,085 compared to the restated
same period in 2004, from a negative cash flow of $11,511 to a negative cash
flow of $5,426.
We believe the anticipated increase in revenue, a focus on reducing
working capital requirements internationally, and increased analysis in the area
of capital asset additions will improve cash flow from operations in 2005.
CONVERTIBLE NOTES
On March 12, 2004, the Company completed a primary offering of $60,000
of 2.75 percent Convertible Senior Notes (the "Convertible Notes"). On April 13,
2004, the initial purchasers of the Convertible Notes exercised their option to
purchase an additional $10,000 aggregate principal amount of the notes.
Collectively, the primary offering and purchase option of the Convertible Notes
total $70,000. The Convertible Notes are general senior unsecured obligations.
Interest is paid semi-annually on March 15 and September 15 and payments began
on September 15, 2004. The Convertible Notes mature on March 15, 2024 unless the
notes are repurchased, redeemed or converted earlier. The Company may redeem the
Convertible Notes for cash on or after March 15, 2011, at 100 percent of the
principal amount of the notes plus accrued interest. The holders of the
Convertible Notes have the right to require the Company to purchase the
Convertible Notes, including unpaid interest, on March 15, 2011, 2014, and 2019
or upon a change of control related event. On March 15, 2011 and upon a change
in control event, the Company must pay the purchase price in cash. On March 15,
2014 and 2019, the Company has the option of providing its common stock in lieu
of cash or a combination of common stock and cash to fund purchases. The holders
of the Convertible Notes 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 $1,000.00 principal amount of notes
(representing a conversion price of approximately $19.47 per share resulting in
3,595,277 shares at June 30, 2005). 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. Unamortized debt issue costs of $2,672 associated with
the Convertible Notes are included in other assets at June 30, 2005 and are
being amortized over the seven-year period ending March 2011. In the event of a
default under any Company credit agreement other than the indentures covering
the Convertible Notes, (1) in which the Company fails to pay
25
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
Convertible Notes. Since the non-compliance issues under the 2004 Credit
Facility discussed in Note 8 below did not involve payment defaults and did not
result in the acceleration of any indebtedness of the Company, these defaults
did not create an event of default under the Convertible Notes.
On June 10, 2005, the Company received a letter from a law firm
representing an investor claiming to be the owner of in excess of 25% of the
Convertible Notes asserting that, as a result of the Company's failure to timely
file with the SEC its 2004 Form 10-K and its Quarterly Report on Form 10-Q for
the quarter ended March 31, 2005, it was placing the Company on notice of an
event of default under the indenture dated as of March 12, 2004 between the
Company as issuer, and JPMorgan Chase Bank, N.A., as trustee (the "Indenture"),
which governs the Convertible Notes. The Company indicated that it does not
believe that it has failed to perform its obligations under the relevant
provisions of the Indenture referenced in the letter. On August 19, 2005, the
Company entered into a settlement agreement with the beneficial owner of the
Convertible Notes on behalf of whom the notice of default was sent, pursuant to
which the Company agreed to use commercially reasonable efforts to solicit the
requisite vote to approve an amendment to the Indenture (the "Indenture
Amendment"). The Company has obtained the requisite vote and on September 22,
2005, the Indenture Amendment became effective.
The Indenture Amendment extends the initial date on or after which the
Convertible Notes may be redeemed by the Company to March 15, 2013 from March
15, 2011. In addition, a new provision was added to the Indenture which would
requires the Company, in the event of a "fundamental change" which is a change
of control event in which 10% 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 Convertible Notes or (b) all scheduled
interest on the Convertible Notes from the date of the transaction through March
15, 2013.
2004 CREDIT FACILITY
On March 12, 2004, the existing $125,000 June 2002 credit agreement was
amended, restated and increased to $150,000 (the "2004 Credit Facility"). The
2004 Credit Facility matures on March 12, 2007. The 2004 Credit Facility may be
used for standby and commercial letters of credit, borrowings or a combination
thereof. Borrowings are limited to the lesser of 40 percent of the borrowing
base or $30,000 and are payable at termination on March 12, 2007. Interest is
payable quarterly at a base rate plus a margin ranging from 0.75 percent to 2.00
percent or on a Eurodollar rate plus a margin ranging from 1.75 percent to 3.00
percent. The 2004 Credit Facility is collateralized by substantially all of the
Company's assets, including stock of the principal subsidiaries, prohibits the
payment of cash dividends and requires the Company to maintain certain financial
ratios. The borrowing base is calculated using varying percentages of cash,
accounts receivable, accrued revenue, contract cost and recognized income not
yet billed, property, plant and equipment, and spare parts. Unamortized debt
issue costs of $2,238 associated with the 2004 Credit Facility are included in
other assets at June 30, 2005 and are amortized over the term of the 2004 Credit
Facility ending March 2007.
As of June 30, 2005, there were no borrowings under the 2004 Credit
Facility and there were $50,156 in outstanding letters of credit. Letters of
credit reduce the availability on the facility by 75 percent of their amount
outstanding; however, the total value of letters of credit outstanding may not
exceed $150,000 (see "Waiver Amendment" below).
2004 Credit Facility Waivers
For the quarter ended June 30, 2004, due to the Company's operating
results and EBITDA (earnings before net interest, income taxes, depreciation and
amortization) levels, an Amendment and Waiver Agreement (the "Waiver Agreement")
was obtained from the syndicated bank group to waive non-compliance with a
financial covenant to the credit agreement at June 30, 2004 and to amend certain
financial covenants. The Waiver Agreement provides for an amendment of certain
quarterly financial covenants and the multiple of EBITDA calculation with
respect to the borrowing base determination through September 30, 2005.
In January 2005, the Company obtained a Consent and Waiver from its
syndicated bank group, covering a period through June 29, 2005, waiving certain
defaults and covenants which related to the filing of tax returns, the payment
of taxes when due, tax liens and legal proceedings against the Company related
to a tax
26
assessment in Bolivia. (See Note 2 of the Notes to the Condensed Consolidated
Financial Statements included in this report) Additional Consent and Waivers
were obtained from the syndicated bank group as of April 8 and June 13, 2005
with respect to these defaults and non-compliance with certain financial
covenants as of June 13, 2005.
2004 Credit Facility Amendment
On July 19, 2005, the Company entered into a Second Amendment and
Waiver Agreement ("Waiver Amendment") of the 2004 Credit Facility with the
syndicated bank group to obtain continuing waivers regarding its non-compliance
with certain financial and non-financial covenants in the 2004 Credit Facility.
Under the terms of the Waiver Amendment, the total credit availability under the
2004 Credit Facility is reduced to $100,000 as of the effective date of the
Waiver Amendment. Subject to certain conditions, the bank group agreed to
permanently waive all existing and probable technical defaults under the 2004
Credit Facility as long as the Company submits year-end 2004 financial
statements and interim financial statements for the quarters ended March 31 and
June 30, 2005 by September 30, 2005. These conditions relate primarily to
submissions of various financial statements and other financial and borrowing
base related information.
The Waiver Amendment also modified certain of the ongoing financial
covenants under the 2004 Credit Facility and established a requirement that the
Company maintain a minimum cash balance of $15,000. Until such time as the
waiver becomes permanent, the Company has certain additional reporting
requirements, including periodic cash balance reporting. In addition, the Waiver
Amendment prohibits the Company from borrowing cash under the 2004 Credit
Facility until the waiver becomes permanent. Since the Company was not able to
submit the referenced statements by September 30, 2005, the waiver did not
become permanent.
Additionally, the Company was not in compliance with certain of the
financial covenants under the 2004 Credit Facility at September 30, 2005 and the
Company has not obtained a waiver. The Company also believes it will not be in
compliance with certain of the financial covenants under the 2004 Credit
Facility at December 31, 2005. As a result of the covenant violations and the
failure to provide certain financial statements by September 30, 2005, the bank
syndicate has the right to discontinue advances under the facility as well as
the issuance of new letters of credit. The inability of the Company to access
new letters of credit could negatively impact the Company's ability to take on
new work, or bid additional work where letters of credit are required, in order
to bid on a project. Additionally, the bank syndicate could request that the
Company provide cash collateral for outstanding letters of credit.
As the Company has done in the past, management believes that it will be
able to negotiate a waiver with the syndicated bank group with respect to these
violations. In the event the waivers are not obtained, the Company would expect
to arrange for alternative financing which could include the following
components, individually or in combination: (1) establishing a credit facility
with a new bank group, (2) raising equity capital, (3) selling certain assets
or (4) issuing debt in either a public or private transaction.
LIQUIDITY
We believe that cash flows from operations, future borrowing capacity under
the 2004 Credit Facility and the net proceeds from the Convertible Notes
offering will be sufficient to finance working capital and capital expenditures
for ongoing operations at our present level of activity. Capital expenditures
for equipment for the remainder of 2005 is estimated at $15,000. We believe that
while there are numerous factors that could and will have an impact on our cash
flow, both positively and negatively, the vast majority of which, should they
occur, could be funded from our operations, existing cash balances, or future
borrowing capacity. However, should the DOJ, SEC, or OFAC, as a result of their
investigation, levy material civil and/or criminal fines or penalties against
the Company, these fines could have a material adverse effect on the Company's
liquidity and operations. For a list of events which could cause actual results
to differ from our expectations and a discussion of risk factors that could
impact cash flow, please refer to the section entitled "Risk Factors" contained
in Items 1 and 2 in the Company's Annual Report on Form 10-K for the year ended
December 31, 2004.
CONTRACTUAL OBLIGATIONS
As of June 30, 2005, we had $70,000 of outstanding debt related to the
Convertible Notes.
During the first quarter of 2005, the Company entered into a capital
lease agreement for a 90,000 square foot building on 10 acres of land in
Edmonton, Alberta with an option to purchase the building for a total of $6,514,
(Canadian $8,000). Under the terms of the agreement, the Company made payments
of approximately $620 (Canadian $750) through June 30, 2005, and will purchase
the building in December 2005 for a lump sum payment of approximately $5,894
(Canadian $7,250).
Other contractual obligations and commercial commitments, as detailed
in the Company's annual report on Form 10-K for the year ended December 31,
2004, did not materially change outside of payments made in the
27
normal course of business, except that a $2,600 capital lease with a remaining
life of three years related to a new information system was paid off in March
2005.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 4 of the Notes to the Condensed Consolidated Financial Statements
included in this report for a summary of recently issued accounting standards.
FORWARD-LOOKING STATEMENTS
THIS FORM 10-Q INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS, OTHER THAN
STATEMENTS OF HISTORICAL FACTS, INCLUDED IN THIS FORM 10-Q 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 AND POWER
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 CERTAIN ASSUMPTIONS AND ANALYSES WE MADE IN LIGHT OF OUR
EXPERIENCE AND OUR PERCEPTION OF HISTORICAL TRENDS, CURRENT CONDITIONS AND
EXPECTED FUTURE DEVELOPMENTS AS WELL AS OTHER FACTORS WE BELIEVE ARE APPROPRIATE
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:
o THE RESULTS OF GOVERNMENT INVESTIGATIONS INTO THE ACTIONS OF THE
COMPANY AND OF CURRENT AND FORMER EMPLOYEES OF THE COMPANY, INCLUDING
J. KENNETH TILLERY, THE FORMER PRESIDENT OF WILLBROS INTERNATIONAL,
INC.;
o THE IMPOSITION OF FINES, PENALTIES OR OTHER SANCTIONS THAT MIGHT BE
IMPOSED AS A RESULT OF GOVERNMENT INVESTIGATIONS;
o DIFFICULTIES WE MAY ENCOUNTER IN OBTAINING NEW BUSINESS, RETAINING
EXISTING BUSINESS AND/OR COLLECTING RECEIVABLES IN NIGERIA AND
ELSEWHERE BECAUSE OF THE SEVERANCE OF LONG-TERM RELATIONSHIPS WITH
CONSULTANTS AND OTHER INDIVIDUALS;
o ADVERSE RESULTS THAT WE COULD SUFFER IN CIVIL LITIGATION INVOLVING OR
ARISING FROM THE ACTIONS OF CURRENT AND FORMER EMPLOYEES AND OFFICERS
OF THE COMPANY;
o THE ASSERTION BY PARTIES TO CONTRACTS WITH US THAT THE ACTIONS OF
CURRENT AND FORMER EMPLOYEES OF THE COMPANY WERE IMPROPER WHICH
CONSTITUTES A BREACH OF, OR OTHERWISE GIVE RISE TO CLAIMS UNDER,
CONTRACTS TO WHICH WE ARE A PARTY;
o DETERMINATION THAT THE ACTIONS OF CURRENT AND FORMER EMPLOYEES OF THE
COMPANY CAUSED US TO BREACH OUR CREDIT AGREEMENTS OR DEBT INSTRUMENTS,
WHICH COULD RESULT IN THE LACK OF ACCESS TO OUR CREDIT FACILITIES AND
THE REQUIREMENT TO CASH COLLATERALIZE OUR EXISTING LETTERS OF CREDIT;
o THE COMMENCEMENT BY FOREIGN GOVERNMENTAL AUTHORITIES OF INVESTIGATIONS
INTO THE ACTIONS OF CURRENT AND FORMER EMPLOYEES OF THE COMPANY, AND
THE DETERMINATION THAT SUCH ACTIONS CONSTITUTED VIOLATIONS OF FOREIGN
LAW;
o THE DISHONESTY OF EMPLOYEES AND/OR OTHER REPRESENTATIVES OR THEIR
REFUSAL TO ABIDE BY APPLICABLE LAWS AND THE COMPANY'S ESTABLISHED
POLICIES AND RULES;
o CURTAILMENT OF CAPITAL EXPENDITURES IN THE OIL, GAS, AND POWER
INDUSTRIES;
o POLITICAL OR SOCIAL CIRCUMSTANCES IMPEDING THE PROGRESS OF OUR WORK;
o FAILURE TO OBTAIN THE TIMELY AWARD OF ONE OR MORE PROJECTS;
o CANCELLATION OF PROJECTS;
o INCLEMENT WEATHER;
o PROJECT COST OVERRUNS, UNFORESEEN SCHEDULE DELAYS, AND THE APPLICATION
OF LIQUIDATED DAMAGES;
o FAILING TO REALIZE COST RECOVERIES FROM PROJECTS COMPLETED OR IN
PROGRESS WITHIN A REASONABLE PERIOD AFTER COMPLETION OF THE RELEVANT
PROJECT;
o INABILITY TO IDENTIFY AND ACQUIRE SUITABLE ACQUISITION TARGETS ON
REASONABLE TERMS;
28
o INABILITY TO OBTAIN ADEQUATE FINANCING;
o LOSS OF THE SERVICES OF KEY MANAGEMENT PERSONNEL;
o THE DEMAND FOR ENERGY MODERATING OR DIMINISHING;
o DOWNTURNS IN GENERAL ECONOMIC, MARKET OR BUSINESS CONDITIONS IN OUR
TARGET MARKETS;
o CHANGES IN THE EFFECTIVE TAX RATE IN COUNTRIES WHERE OUR WORK WILL BE
PERFORMED;
o CHANGES IN APPLICABLE LAWS OR REGULATIONS;
o CHANGES IN THE SCOPE OF OUR EXPECTED INSURANCE COVERAGE;
o INABILITY TO MANAGE INSURABLE RISK AT AN AFFORDABLE COST;
o THE OCCURRENCE OF THE RISK FACTORS LISTED ELSEWHERE IN THIS FORM 10-K
AND IN OUR OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION
FROM TIME TO TIME; AND
o OTHER FACTORS, MOST OF WHICH ARE BEYOND OUR CONTROL.
CONSEQUENTLY, ALL OF THE FORWARD-LOOKING STATEMENTS MADE IN THIS FORM 10-Q
ARE QUALIFIED BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO ASSURANCE THAT
THE ACTUAL RESULTS OR DEVELOPMENTS WE ANTICIPATE WILL BE REALIZED OR, EVEN IF
SUBSTANTIALLY REALIZED, THAT THEY WILL HAVE THE CONSEQUENCES FOR, OR EFFECTS ON,
OUR BUSINESS OR OPERATIONS THAT WE ANTICIPATE TODAY. WE ASSUME NO OBLIGATION TO
UPDATE PUBLICLY ANY SUCH FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE. FOR A MORE COMPLETE DESCRIPTION OF THE
CIRCUMSTANCES SURROUNDING THE ACTIONS OF THE CURRENT AND FORMER EMPLOYEES OF THE
COMPANY, SEE THE RISK FACTORS INCLUDED IN THE COMPANY'S 2004 ANNUAL REPORT ON
FORM 10-K BEGINNING ON PAGE 27.
29
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 June 30, 2005 and 2004 or
during the three-month periods then ended.
The carrying amounts for cash and cash equivalents, accounts receivable,
notes payable and accounts payable and accrued liabilities shown in the
consolidated balance sheets approximate fair value at June 30, 2005 due to the
generally short maturities of these items. At June 30, 2005, 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 June 30, 2005, none of our indebtedness was subject to
variable interest rates.
30
ITEM 4. CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934) as of June 30, 2005. Based on this evaluation, our management,
including our Chief Executive Officer and Chief Financial Officer, concluded
that, as of June 30, 2005, the disclosure controls and procedures are not
effective in alerting them on a timely basis to material information required to
be included in our periodic filings with the Securities and Exchange Commission.
Company management with oversight from the Audit Committee has devoted
substantial effort to the remediation of its material weaknesses described in
Item 9A "Controls and Procedures" in the Company's 2004 Annual Report on Form
10-K. Specifically, we have undertaken the following actions to remediate these
material weaknesses:
Remediation steps taken in the fourth quarter of 2004:
o Increased staffing and training of the finance and accounting
personnel at the business unit level.
o Adoption of a more frequent rotation policy for the financial staff
at our business units.
Actions taken in 2005:
o Initiation of an enhanced worldwide awareness program to educate
employees with respect to the content of our Whistle Blower policy to
better achieve reporting of any suspected problems.
o Realignment of the reporting of all business units' financial staff
directly to the Corporate Controller's Office.
o Adoption of a more frequent rotation policy for the operations
staff at our business units.
o Adoption of a policy requiring approval of the General Counsel or the
Chief Financial Officer for the engagement of legal, accounting and
tax advisors.
o Implementation of an "enhanced and stand-alone" FCPA Compliance
Program (separate from that incorporated previously into our Code of
Business Conduct and Ethics), inclusive of a "Definitive FCPA Policy
Statement" from the Board of Directors and an FCPA Compliance
Procedure providing for, among other measures, routine training
Company-wide, starting in Nigeria, Latin America and Oman.
o Requirement that employees in a position of authority, as well as
professional consultants, identify any direct or indirect ownership
interest in entities doing business with the Company. Included in this
disclosure will be any entities owned or controlled in whole or in
part by immediate family members such as spouses.
o Improvements to strengthen existing internal controls relating
specifically to Nigerian cash disbursements, approved vendor lists and
approval levels for individuals, subsidiaries and senior management.
o Expansion and formalization of the review process by corporate tax
personnel of all international tax returns on at least a quarterly
basis. Book and tax liability accounts will be reconciled and compared
with tax returns as filed. This process was already in place for the
North American subsidiaries.
o Movement of the internal audit function from an outsourced function
with an independent accounting firm to an in-house department to
facilitate more frequent and more in-depth examination of controls
throughout the Company.
Company management with oversight from the Audit Committee is implementing
numerous other improvements as described below:
o Appointment of a senior-level Company employee with primary
responsibility for implementation, oversight and enforcement of the
(i) Definitive FCPA Policy Statement; (ii) the Code of Business
Conduct and Ethics; and (iii) the Whistleblower Policy, and publish
that appointment through the Company. The appointee will have a
direct communication line to the Audit Committee.
The above changes are all part of our overall plan that is intended to
remediate the material weaknesses described in Item 9A "Controls and Procedures"
in the Company's 2004 Annual Report on Form 10-K.
31
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, 2004, and Note
11 of our "Notes to Condensed Consolidated Financial Statements" in Item 1 of
Part I of this Form 10-Q, which information from Note 11 as to legal proceedings
in incorporated by reference into this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits
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.
32
4. First Supplemental Indenture, dated September 22, 2005,
between us and JPMorgan Chase Bank, N.A., successor to
JPMorgan Chase Bank, as trustee, to the Indenture, dated
March 12, 2004, between us and JPMorgan Chase Bank, as
trustee (Filed as Exhibit 4.1 to our current report on
Form 8-K dated September 22, 2005, filed September 28,
2005).
10. Second Amendment and Waiver dated July 19, 2005, to the
Amended and Restated Credit Agreement dated March 12,
2004, among us, certain designated subsidiaries, certain
financial institutions, Calyon New York Branch, as
administrative agent, and CIBC, Inc., as syndication agent
(Filed as Exhibit 10 to our current report on Form 8-K
dated July 19, 2005, filed July 25, 2005).
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.
33
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 21, 2005 By: /s/ Warren L. Williams
--------------------------------------
Warren L. Williams
Senior Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
34
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
--------------- -----------------------------------------------------
4. First Supplemental Indenture, dated September 22,
2005, between us and JPMorgan Chase Bank, N.A.,
successor to JPMorgan Chase Bank, as trustee, to the
Indenture, dated March 12, 2004, between us and
JPMorgan Chase Bank, as trustee (Filed as Exhibit 4.1
to our current report on Form 8-K dated September 22,
2005, filed September 28, 2005).
10. Second Amendment and Waiver dated July 19, 2005, to
the Amended and Restated Credit Agreement dated March
12, 2004, among us, certain designated subsidiaries,
certain financial institutions, Calyon New York
Branch, as administrative agent, and CIBC, Inc., as
syndication agent (Filed as Exhibit 10 to our current
report on Form 8-K dated July 19, 2005, filed July
25, 2005).
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.
35