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WG > SEC Filings for WG > Form 10-Q on 9-Aug-2013All Recent SEC Filings

Show all filings for WILLBROS GROUP, INC.\NEW\

Form 10-Q for WILLBROS GROUP, INC.\NEW\


9-Aug-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the unaudited Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 and 2012, included in Item 1 of Part I of this Form 10-Q, and the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations, including Critical Accounting Policies, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

OVERVIEW

Willbros is a specialty energy infrastructure contractor serving the oil, gas, refinery, petrochemical and power industries. Our offerings include engineering, procurement and construction (either individually or as an integrated "EPC" service offering), turnarounds, maintenance, facilities development and operations services.

Second Quarter of 2013

In the second quarter of 2013, we reported contract revenue of $487.9 million, an increase of approximately $37.4 million from the second quarter of 2012. The over $50.0 million revenue increase in our Canada segment was partially offset by a decrease in revenue in our Oil & Gas and Utility T&D segments. Our operating income of $9.4 million during the second quarter of 2013 was an increase of approximately $1.9 million from operating income of $7.5 million in the second quarter last year. Second quarter of 2013 results reflect improved operating income in the Utility T&D, Professional Services and Canada segments. These results were negatively impacted by losses in our Oil & Gas segment related to our regional delivery services and lower activity in our cross-country pipeline construction services.

Our Oil & Gas segment reported a decrease of $17.8 million in contract revenue from the second quarter of 2012 and a $15.2 million increase in operating loss. We believe that recent changes in the Oil & Gas segment and regional delivery services leadership, as well as improvements made in our estimating process and project management, are appropriate to minimize the losses in our regional delivery services. We continue to exercise patience and discipline with respect to the acquisition of new work in these regions and in our cross-country pipeline construction services where multiple opportunities are still available for execution in 2013. Revenue generated from our downstream construction and maintenance services increased over 40.0 percent from the second quarter of 2012 as a result of greater turnaround activity, as well as higher utilization of shops and fabrication resources.

Revenue generated by our Utility T&D segment remained relatively flat from the second quarter of last year. Positive operating performance in all lines of service contributed to the nearly 12.2 percent operating margin. Expanding margins were a result of successful completion in June of two of the remaining four Texas Competitive Renewable Energy Zone ("CREZ") projects for Oncor, storm restoration work in Texas and Oklahoma and an early start on a new transmission construction project.

Our Canada segment continues to benefit from its new business model which focuses on the oil sands mine sites and in situ extraction developments. Contract revenue and operating income improved relative to last year significantly through our specialty construction and integrity services, infrastructure replacement projects and additional maintenance work.

Contract revenue generated by our Professional Services segment increased slightly during the second quarter of 2013 and reported operating margins of approximately 9.4 percent. Operating income for the quarter improved relative to the second quarter of 2012 due to strong performance in our upstream and midstream engineering, right-of-way, survey and government services offerings. The segment also benefited from expanding its geographic presence to offer our line locating and other integrity services to more markets.

Looking Forward

We expect increased opportunities for our Professional Services, Oil & Gas, Utility T&D and Canada segments. We continue to focus our management actions on risk identification and mitigation, and on lines of service which are underperforming, with the objective of generating improved operating results, cash flow and margins. Improving weather aided our second quarter results, and we believe we will maintain the level of activity in Professional Services and Utility T&D for the next two quarters, with improvement expected in Canada. The actions we have taken in our Oil & Gas regional operations should drive the improved operating performance of these services during the second half of the year. In our Oil & Gas segment, the recent award of a spread of the Seaway Pipeline project gives us optimism that the 2013 plan for these services will be achieved. We will continue to take actions to remediate or exit lines of service, which are not performing to expectations, and focus on expansion of services, which contribute superior risk adjusted margins and demonstrate growth potential, such as integrity services and electric transmission and distribution construction and maintenance.


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Other Financial Measures

Adjusted EBITDA from Continuing Operations

We define Adjusted EBITDA from continuing operations as income (loss) from continuing operations before interest expense, income tax expense (benefit) and depreciation and amortization, adjusted for items broadly consisting of selected items which management does not consider representative of our ongoing operations and certain non-cash items of the Company. These adjustments are included in various performance metrics under our credit facilities and other financing arrangements. These adjustments are itemized in the following table. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA from continuing operations, you should be aware that in the future we may incur expenses that are the same as, or similar to, some of the adjustments in this presentation. Our presentation of Adjusted EBITDA from continuing operations should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Management uses Adjusted EBITDA from continuing operations as a supplemental performance measure for:

Comparing normalized operating results with corresponding historical periods and with the operational performance of other companies in our industry; and

Presentations made to analysts, investment banks and other members of the financial community who use this information in order to make investment decisions about us.

Adjusted EBITDA from continuing operations is not a financial measurement recognized under U.S. generally accepted accounting principles, or U.S. GAAP. When analyzing our operating performance, investors should use Adjusted EBITDA from continuing operations in addition to, and not as an alternative for, net income, operating income, or any other performance measure derived in accordance with U.S. GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. Because not all companies use identical calculations, our presentation of Adjusted EBITDA from continuing operations may be different from similarly titled measures of other companies.

A reconciliation of Adjusted EBITDA from continuing operations to U.S. GAAP financial information follows (in thousands):

                                                                Six Months Ended
                                                     June 30, 2013            June 30, 2012
Loss from continuing operations attributable
to Willbros Group, Inc.                             $       (10,622 )        $       (23,141 )
Interest expense, net                                        14,612                   14,990
Provision for income taxes                                    3,738                    2,181
Depreciation and amortization                                22,307                   23,854
Loss on early extinguishment of debt                             -                     3,405
Stock based compensation                                      2,798                    3,917
Restructuring and reorganization costs                          154                      136
Gain on disposal of property and equipment                   (1,042 )                 (2,005 )
DOJ monitor cost                                                 -                     1,586

Adjusted EBITDA from continuing operations          $        31,945          $        24,923

Backlog

In our industry, backlog is considered an indicator of potential future performance as it represents a portion of the future revenue stream. Our strategy focuses on capturing quality backlog with margins commensurate with the risks associated with a given project, and we have put processes and procedures in place to identify contractual and execution risks in new work opportunities. We believe we have instilled in the organization the discipline to price, accept and book only work which meets stringent criteria for commercial success and profitability.

We believe the backlog figures are firm, subject only to the cancellation and modification provisions contained in various contracts. Additionally, due to the short duration of many jobs, revenue associated with jobs won and performed within a reporting period will not be reflected in quarterly backlog reports. We generate revenue from numerous sources, including contracts of long or short duration entered into during a year as well as from various contractual processes, including change orders, extra work and variations in the scope of work. These revenue sources are not added to backlog until realization is assured.

Backlog broadly consists of anticipated revenue from the uncompleted portions of existing contracts and contracts whose award is reasonably assured. Our backlog presentation reflects not only the 12-month lump sum and work under a Master Service Agreement ("MSA"); but also, the full-term value of work under contract,


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including MSA work, as we believe that this information is helpful in providing additional long-term visibility. We determine the amount of backlog for work under ongoing MSA maintenance and construction contracts by using recurring historical trends inherent in the MSAs, factoring in seasonal demand and projecting customer needs based upon ongoing communications with the customer. We also include in backlog our share of work to be performed under contracts signed by joint ventures in which we have an ownership interest.

The following tables (in thousands) show our backlog from continuing operations by operating segment and geographic location as of June 30, 2013 and December 31, 2012:

                                                       June 30, 2013                                            December 31, 2012
                                    12 Month      Percent          Total        Percent        12 Month       Percent          Total        Percent
Oil & Gas                           $ 240,507         26.2 %    $   241,347         12.3 %    $   290,500         28.8 %    $   293,495         14.0 %
Utility T&D                           296,891         32.3 %      1,079,261         55.2 %        393,318         38.9 %      1,257,403         59.9 %
Professional Services                 165,443         18.0 %        220,707         11.3 %        146,120         14.4 %        197,752          9.4 %
Canada                                216,133         23.5 %        415,804         21.2 %        180,427         17.9 %        349,520         16.7 %

Total Backlog                       $ 918,974        100.0 %    $ 1,957,119        100.0 %    $ 1,010,365        100.0 %    $ 2,098,170        100.0 %

                                           June 30, 2013               December 31, 2012
                                         Total        Percent          Total        Percent
 Total Backlog by Geographic Region
 United States                        $ 1,537,313         78.6 %    $ 1,743,906         83.1 %
 Canada                                   415,804         21.2 %        349,520         16.7 %
 Other International                        4,002          0.2 %          4,744          0.2 %

 Backlog                              $ 1,957,119        100.0 %    $ 2,098,170        100.0 %

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In our Annual Report on Form 10-K for the year ended December 31, 2012, we identified and disclosed our significant accounting policies. Subsequent to December 31, 2012, there has been no change to our significant accounting policies.


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RESULTS OF OPERATIONS

 Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012

                                 (in thousands)



                                                      2013             2012            Change
Contract revenue
Oil & Gas                                           $ 186,387        $ 204,158        $ (17,771 )
Utility T&D                                           128,321          129,836           (1,515 )
Professional Services                                  87,423           80,074            7,349
Canada                                                 87,425           37,356           50,069
Eliminations                                           (1,692 )         (1,002 )           (690 )

Total                                                 487,864          450,422           37,442
General and administrative                             41,914           33,242            8,672
Operating income
Oil & Gas                                             (18,758 )         (3,539 )        (15,219 )
Utility T&D                                            15,628            9,347            6,281
Professional Services                                   8,185            4,596            3,589
Canada                                                  4,308           (2,910 )          7,218

Total                                                   9,363            7,494            1,869
Other expense                                          (7,230 )         (8,277 )          1,047

Income (loss) from continuing operations before
income taxes                                            2,133             (783 )          2,916
Provision for income taxes                              1,126            1,208              (82 )

Income (loss) from continuing operations                1,007           (1,991 )          2,998
Income (loss) from discontinued operations net
of provision (benefit) for income taxes                (7,908 )          5,699          (13,607 )

Net income (loss)                                   $  (6,901 )      $   3,708        $ (10,609 )

Consolidated Results

Contract Revenue

Contract revenue increased $37.4 million primarily attributable to significant growth in our Canada segment partially offset by a reduction of cross-country pipeline services provided within our Oil & Gas segment.

General and Administrative Expenses

General and administrative expense as a percentage of contract revenue was 8.6 percent in the second quarter of 2013 as compared to 7.4 percent in the second quarter of 2012 primarily due to increased management costs related to our regional delivery services, increased corporate costs and lower gains on sales of property and equipment.

Operating Income

Operating income increased $1.9 million driven primarily by improved operating income among the Utility T&D, Professional Services and Canada segments. This increase was partially offset by decreased performance within our Oil & Gas segment, specifically attributed to decreased performance in our regional delivery services.

Other Expense

Other expense decreased $1.0 million primarily due to the lack of debt extinguishment costs during the second quarter of 2013. Debt extinguishment costs during the second quarter of 2012 were the result of accelerated debt payments.

Provision for Income Taxes

Provision for income taxes decreased $0.1 million primarily attributed to specific tax adjustments related to second quarter activity in 2012 not recurring in second quarter 2013, such as, accruals for Canadian tax reassessments and Canadian Tax Withholding. In addition, a release of an uncertain tax position occurred in the second quarter 2013 that did not occur in the second quarter of 2012.

Income (Loss) from Discontinued Operations

Income (loss) from discontinued operations decreased $13.6 million primarily due to continued losses in our electric and gas distribution business in the Northeast, coupled with a second quarter of 2012 gain on the sale of certain assets disposed of as part of the liquidation of our Canada cross-country pipeline business that did not recur in the second quarter of 2013.


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Segment Results

Oil & Gas Segment

Contract revenue decreased $17.8 million driven predominantly by lower utilization in our cross-country pipeline services. The overall decrease was partially offset by growth in our downstream construction and maintenance services.

Operating loss increased $15.2 million primarily attributed to losses incurred in our regional delivery services and cross-county pipeline construction services. The overall decrease was partially offset by improved profitability in our downstream construction and maintenance services.

Utility T&D Segment

Contract revenue remained relatively flat quarter-over-quarter within all lines of service.

Operating income increased $6.3 million due to the successful completion of two of the four remaining Texas CREZ projects for Oncor, storm restoration work in Texas and Oklahoma and an early start on a new transmission construction project.

Professional Services Segment

Contract revenue increased $7.3 million primarily from higher demand for our line locating and downstream engineering services.

Operating income increased $3.6 million primarily due to strong performance in our upstream, midstream engineering, right-of-way, survey and government services.

Canada Segment

Contract revenue increased $50.1 million for the quarter driven primarily by the continuation of significant maintenance and construction projects in Northern Alberta focusing on the oil sands and in situ extraction sites.

Operating income increased $7.2 million primarily due to increased profits from our specialty construction and integrity services, ongoing infrastructure replacement projects and additional maintenance work.

   Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012

                                 (in thousands)



                                                    2013             2012            Change
Contract revenue
Oil & Gas                                         $ 371,371        $ 352,863        $  18,508
Utility T&D                                         241,525          238,146            3,379
Professional Services                               165,888          163,647            2,241
Canada                                              199,420           71,325          128,095
Eliminations                                         (2,981 )         (1,853 )         (1,128 )

Total                                               975,223          824,128          151,095
General and administrative                           79,552           70,811            8,741
Operating income (loss)
Oil & Gas                                           (33,329 )         (6,225 )        (27,104 )
Utility T&D                                          17,521            5,784           11,737
Professional Services                                 8,798            4,176            4,622
Canada                                               14,815           (5,961 )         20,776

Total                                                 7,805           (2,226 )         10,031
Other expense                                       (14,689 )        (18,734 )          4,045

Loss from continuing operations before income
taxes                                                (6,884 )        (20,960 )         14,076
Provision for income taxes                            3,738            2,181            1,557

Loss from continuing operations                     (10,622 )        (23,141 )         12,519
Income from discontinued operations net of
provision (benefit) for income taxes                  7,913            6,469            1,444

Net loss                                          $  (2,709 )      $ (16,672 )      $  13,963

Consolidated Results

Contract Revenue

Contract revenue increased $151.1 million which is primarily attributable to significant growth in construction and maintenance projects and specialty services in Canada and continued business growth and expansion of our regional delivery services within the liquids-rich shale plays across the United States.


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General and Administrative Expenses

General and administrative expense as a percentage of contract revenue was 8.2 percent for the first six months of 2013 compared to 8.6 percent for the six months of 2012.

Operating Income (Loss)

Operating Income increased $10.0 million driven primarily by improved performance within our Canada segment, specifically through increased profitability in our specialty construction and integrity services as well as through improved performance on several completed infrastructure replacement construction projects. The Utility T&D and Professional Servicessegments also contributed to the increase in operating income. This improved performance was partially offset by an increase in operating losses within our Oil & Gas segment primarily attributed to losses incurred in our regional delivery services.

Other Expense

Other expense decreased $4.0 million primarily due to the lack of debt extinguishment costs during the first six months of 2013. Debt extinguishment costs during the first two quarters of 2012 were the result of accelerated debt payments.

Provision for Income Taxes

Provision for income taxes increased $1.6 million primarily related to Canada being in a profit position for the first six months of 2013 versus a loss position for the first six months of 2012.

Income from Discontinued Operations

Income (loss) from discontinued operations increased $1.4 million driven primarily by a gain on the sale of Willbros Middle East Limited, which held our operations in Oman. The increase was partially offset by continued losses in our electric and gas distribution business in the Northeast coupled with a gain on the sale of certain assets disposed of as part of the liquidation of our Canada cross-country pipeline business during the first six months of 2012 that did not recur during the first six months of 2013.

Segment Results

Oil & Gas Segment

Contract revenue increased $18.5 million driven predominantly by continued growth and expansion of our regional delivery services into the liquids-rich shale plays across the United States offset by lower utilization across our cross-county pipeline construction services.

Operating loss increased $27.1 million primarily attributable to decreased performance in our regional delivery services, partially offset by improved performance in our downstream construction and maintenance services.

Utility T&D Segment

Contract revenue increased $3.4 million driven primarily through additional wireless work performed in the Southwest combined with continued steady sales under our alliance agreement with Oncor. The increase was partially offset by a decline in cable restoration services due to poor weather in the Midwest and Northeast during the first quarter of 2013.

Operating income increased $11.7 million due to successful completion of two of the four remaining Texas CREZ projects for Oncor, storm restoration work in Texas and Oklahoma and an early start on a new transmission construction project.

Professional Services Segment

Contract revenue increased $2.2 million primarily through higher demand for our core engineering, integrity and government services offerings. This increase was partially offset by a reduction in EPC activity year-over-year as a number of contracts awarded in 2012 were completed during the first six months of 2013.

Operating income increased $4.6 million mainly due to strong performance in our upstream, midstream engineering, right-of-way, survey and government services.

Canada Segment

Contract revenue increased $128.1 million for the first half of 2013 driven primarily by the continuation of significant maintenance and construction projects in Northern Alberta focusing on the oil sands and in situ extraction sites.

Operating income increased $20.8 million in the first six months of 2013 primarily due to increased profits from our specialty construction and integrity services, ongoing infrastructure replacement projects and additional maintenance work.


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LIQUIDITY AND CAPITAL RESOURCES

Additional Sources and Uses of Capital

Pursuant to our Amendment and Restatement Agreement dated as of November 8, 2012, the 2010 Credit Agreement was amended and restated in its entirety (the "Amended and Restated Credit Agreement"). Under the Amended and Restated Credit Agreement, certain existing lenders under the Revolving Credit Facility holding an aggregate amount of commitments equal to $115.0 million, agreed that the maturity applicable to such commitments would be extended by one year, to June 30, 2014. On June 30, 2013, our obligations under the existing Term Loan Facility and Revolving Credit Facility were due within one year. Subsequent to June 30, 2013, we refinanced these obligations by entering into a five-year $150.0 million asset based senior revolving credit facility maturing on August 7, 2018 (the "ABL Credit Facility"), and a six-year $250.0 million term loan facility maturing on August 7, 2019 (the "2013 Term Loan Facility" and together with the ABL Credit Facility, the "2013 Credit Facilities"), effective August 7, 2013. Therefore, we have classified our obligations under the Term Loan Facility and Revolving Credit Facility as long-term on our Condensed Consolidated Balance Sheet.

Proceeds from the 2013 Term Loan Facility were used to repay all indebtedness under the existing Term Loan Facility and Revolving Credit Facility under the Amended and Restated Credit Agreement, to pay fees and expenses incurred in connection with the transactions and for working capital purposes.

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