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WG > SEC Filings for WG > Form 10-Q on 5-Aug-2014All Recent SEC Filings

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

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


5-Aug-2014

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, 2014 and 2013, 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, 2013.

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 2014

In the second quarter of 2014, we generated contract revenue of $543.6 million, an increase of approximately $107.7 million from the second quarter of 2013. The increase was attributed primarily to an increase of $103.4 million in our Oil & Gas segment as well as increases of $13.0 million and $7.9 million in our Professional Services and Canada segments, respectively. The overall increase in contract revenue was partially offset by a $16.4 million decrease in our Utility T&D segment.

Operating income of $18.5 million during the second quarter of 2014 was an increase of $12.2 million compared to operating income of $6.3 million in the second quarter of 2013 The overall increase reflects improved operating results in our Oil & Gas and Canada segments, as well as continued operating profitability in our Utility T&D and Professional Services segments. Our strategy to build a more diversified model, with broader end-market exposure is delivering improved and more predictable results.

Contract revenue of $237.8 million generated by our Oil & Gas segment increased approximately 77.0 percent from the second quarter of 2013 primarily driven by increased demand and a higher utilization of services within our cross-country pipeline, downstream and regional delivery services. The operating loss of $7.8 million in the second quarter of 2014 was a $14.0 million improvement in operating loss as compared to the same period last year. The current period operating losses generated by the segment were largely attributable to one construction project and were partially offset by significantly improved operating results in our regional delivery services. These regional delivery service lines generated income in the second quarter of 2014 mainly through strong performance in the northeast and improved resource utilization in the northern plains.

Contract revenue of $111.9 million generated by our Utility T&D segment decreased $16.4 million from the second quarter of 2013 and operating income of $9.0 million decreased $6.7 million. These decreases are primarily attributable to the completion of the Texas Competitive Renewable Energy Zone ("CREZ") backlog in 2013; however, we are experiencing revenue and margin growth in our service lines and continue to anticipate margin improvement as this segment transitions to a more balanced customer base for transmission construction.

Our Canada segment generated contract revenue of $95.3 million, up $7.9 million from the same period last year. Operating income for the second quarter of 2014 more than doubled to $10.5 million from the same period last year due primarily to a shift in portfolio mix from lower-margin maintenance work to higher-margin lump sum projects. Canada continues to benefit from its focus on the oil sands mining and in-situ markets and the process-focused leadership team.

Our Professional Services segment increased contract revenue by 14.8 percent over the second quarter of 2013, to $100.4 million. Professional Services operating income of $6.9 million in the second quarter of 2014 was a $1.3 million decrease from the second quarter of last year. The decrease quarter-over-quarter was primarily driven by the delayed start on a government services project. We continue to expect that the investments we have made in new offices and technology will add margin improvement going forward.

Looking Forward

We continue to expect increased opportunities for our Professional Services, Oil & Gas, Utility T&D and Canada segments and continue to focus on driving the process-oriented culture change that has positively impacted safety performance over the last two years and operating results over the last five quarters. This focus 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, will continue to be the focus of management actions throughout 2014. 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 in all of our segments.


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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 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, 2014        June 30, 2013
  Income (loss) from continuing operations     $         8,355      $       (14,095 )
  Interest expense, net                                 15,195               15,109
  Provision for income taxes                             6,297                3,738
  Depreciation and amortization                         18,559               20,726
  Loss on early extinguishment of debt                     948                   -
  Stock based compensation                               4,509                2,761
  Restructuring and reorganization costs                   220                  154
  Gain on disposal of property and equipment            (2,721 )             (1,032 )

  Adjusted EBITDA from continuing operations   $        51,362      $        27,361

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 is focused on capturing quality backlog with margins commensurate with the risks associated with a given project. As such, we have put processes and procedures in place to identify contractual and execution risks in new work opportunities and 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.

Backlog broadly consists of anticipated revenue from the uncompleted portions of existing contracts and contracts whose award is reasonably assured, 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.

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, 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.


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At June 30, 2014, total backlog was approximately $1.7 billion and 12 month backlog was approximately $0.9 billion. In comparison to December 31, 2013, total backlog decreased approximately $257.5 million and 12 month backlog decreased approximately $95.6 million. These decreases are primarily related to the burn-off of backlog on certain significant Oil & Gas projects and the continued work-off of MSAs, which are subject to renewal options in future years.

The following tables (in thousands) show our backlog from continuing operations by operating segment and geographic location as of June 30, 2014 and December 31, 2013:

                                                       June 30, 2014                                            December 31, 2013
                                    12 Month      Percent          Total        Percent        12 Month       Percent          Total        Percent
Oil & Gas                           $ 294,200         31.2 %    $   297,011         17.3 %    $   367,726         35.4 %    $   368,776         18.7 %
Utility T&D                           302,101         32.0 %        946,321         55.3 %        298,202         28.7 %        978,535         49.7 %
Professional Services                 169,415         17.9 %        213,557         12.5 %        194,283         18.7 %        256,981         13.0 %
Canada                                178,108         18.9 %        255,812         14.9 %        179,175         17.2 %        365,946         18.6 %

Total Backlog                       $ 943,824        100.0 %    $ 1,712,701        100.0 %    $ 1,039,386        100.0 %    $ 1,970,238        100.0 %

                                           June 30, 2014               December 31, 2013
                                         Total        Percent          Total        Percent
 Total Backlog by Geographic Region
 United States                        $ 1,453,981         84.9 %    $ 1,599,796         81.2 %
 Canada                                   255,812         14.9 %        365,946         18.6 %
 Other International                        2,908          0.2 %          4,496          0.2 %

 Backlog                              $ 1,712,701        100.0 %    $ 1,970,238        100.0 %

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In our Annual Report on Form 10-K for the year ended December 31, 2013, we identified and disclosed our significant accounting policies. Subsequent to December 31, 2013, there has been no change to our significant accounting policies.


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RESULTS OF OPERATIONS

 Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013

                                 (in thousands)



                                                         2014           2013          Change
Contract revenue
Oil & Gas                                              $ 237,777      $ 134,368      $ 103,409
Utility T&D                                              111,936        128,321        (16,385 )
Professional Services                                    100,395         87,423         12,972
Canada                                                    95,277         87,425          7,852
Eliminations                                              (1,828 )       (1,692 )         (136 )

Total                                                    543,557        435,845        107,712
General and administrative                                39,373         41,004         (1,631 )
Operating income (loss)
Oil & Gas                                                 (7,849 )      (21,830 )       13,981
Utility T&D                                                8,968         15,628         (6,660 )
Professional Services                                      6,906          8,185         (1,279 )
Canada                                                    10,481          4,308          6,173

Total                                                     18,506          6,291         12,215
Other expense                                             (8,576 )       (7,727 )         (849 )

Income (loss) from continuing operations before
income taxes                                               9,930         (1,436 )       11,366
Provision for income taxes                                 2,962          1,126          1,836

Income (loss) from continuing operations                   6,968         (2,562 )        9,530
Loss from discontinued operations net of provision
for income taxes                                         (10,620 )       (4,339 )       (6,281 )

Net loss                                               $  (3,652 )    $  (6,901 )    $   3,249

Consolidated Results

Contract Revenue

Contract revenue increased $107.7 million in the second quarter of 2014 primarily related to higher utilization and increased demand in a number of service offerings within our Oil & Gas segment and continued growth within our Canada and Professional Services segments. The increase was partially offset by a reduction of activity in our electric transmission construction services within our Utility T&D segment primarily due to the completion of two Texas CREZ transmission construction projects in the same period last year.

General and Administrative Expenses

General and administrative expense as a percentage of contract revenue decreased to 7.2 percent in the second quarter of 2014 as compared to 9.4 percent in the second quarter of 2013. This change is primarily due to an increase in contract revenue in the current quarter without a corresponding increase in support and overhead costs.

Operating Income

Operating income increased $12.2 million in the second quarter of 2014 driven primarily by continued profitability in our Canada segment in addition to improved performance in our regional delivery services within our Oil & Gas segment, whose prior period losses were the result of ineffective project management and execution. The overall increase was partially offset by decreased performance in our electric transmission construction services within our Utility T&D segment primarily due to the completion of two Texas CREZ transmission construction projects in the same period last year, as well as losses generated by one construction project in our Oil & Gas segment.

Other Expense

Other expense increased $0.8 million in the second quarter of 2014, primarily due to a one-time debt extinguishment charge of $0.9 million related to the write-off of Original Issue Discount and financing costs, which resulted from an early payment of debt under our 2013 Term Loan Facility.

Provision for Income Taxes

Provision for income taxes increased $1.8 million in the second quarter of 2014 primarily attributed to increased profitability in our Canada segment, which is subject to an income tax provision. We have not recorded the benefit of current year losses in the United States for the second quarter of 2014 as our U.S. federal and state deferred tax assets continue to be covered by valuation allowances.


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Loss from Discontinued Operations, Net of Taxes

Loss from discontinued operations increased $6.3 million in the second quarter of 2014 primarily due to an $8.2 million loss on the sale of our union refinery maintenance turnaround business unit, a related fabrication facility and associated tools and equipment ("CTS") which was recorded in the second quarter of 2014. The increase was partially offset by decreased losses attributed to the Maine Power Reliability Program ("MPRP") Project, quarter-over-quarter.

Segment Results

Oil & Gas Segment

Contract revenue increased $103.4 million in the second quarter of 2014 primarily related to higher utilization and increased demand within our cross-country pipeline, downstream, and regional delivery services.

Operating loss decreased $14.0 million in the second quarter of 2014 primarily related to improved performance within our regional delivery and downstream services. This increase was partially offset by losses generated by one construction project.

Utility T&D Segment

Contract revenue decreased $16.4 million in the second quarter of 2014 driven primarily by a reduction in activity in our electric transmission construction services in Texas primarily related to the completion of two Texas CREZ transmission construction projects in the same period last year. The decrease was partially offset by growth in distribution MSA work in Texas and the Mid-Atlantic region.

Operating income decreased $6.7 million in the second quarter of 2014 also driven primarily by the completion of the two Texas CREZ transmission construction projects referenced above. The decrease was partially offset by improved margins associated with distribution MSA work.

Professional Services Segment

Contract revenue increased $13.0 million in the second quarter of 2014 primarily from increased demand and growth in our engineering and EPC services partially offset by decreased activity in government services mainly related to the delayed start of projects under contract.

Operating income decreased $1.3 million in the second quarter of 2014 primarily within our government services mainly due to the delayed start of projects under contract. The decrease was partially offset by strong execution and performance on EPC projects and higher margins in our integrity service offerings.

Canada Segment

Contract revenue increased $7.9 million in the second quarter of 2014 primarily attributed to the continued large volume of work on all lines of service including several significant specialty service and lump-sum projects.

Operating income increased $6.2 million in the second quarter of 2014 primarily due to increased profitability in our tanks and facilities service offerings as well as a greater volume of lump-sum projects which produced higher margins quarter-over-quarter.


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   Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

                                 (in thousands)



                                                    2014              2013            Change
Contract revenue
Oil & Gas                                        $   431,831        $ 302,904        $ 128,927
Utility T&D                                          208,269          241,525          (33,256 )
Professional Services                                187,820          165,888           21,932
Canada                                               212,356          199,420           12,936
Eliminations                                          (3,335 )         (2,981 )           (354 )

Total                                              1,036,941          906,756          130,185
General and administrative                            77,704           77,472              232
Operating income (loss)
Oil & Gas                                            (10,029 )        (36,305 )         26,276
Utility T&D                                            8,737           17,521           (8,784 )
Professional Services                                  9,144            8,798              346
Canada                                                23,054           14,815            8,239

Total                                                 30,906            4,829           26,077
Other expense                                        (16,254 )        (15,186 )         (1,068 )

Income (loss) from continuing operations
before income taxes                                   14,652          (10,357 )         25,009
Provision for income taxes                             6,297            3,738            2,559

Income (loss) from continuing operations               8,355          (14,095 )         22,450
Income (loss) from discontinued operations
net of provision for income taxes                    (18,614 )         11,386          (30,000 )

Net loss                                         $   (10,259 )      $  (2,709 )      $  (7,550 )

Consolidated Results

Contract Revenue

Contract revenue increased $130.2 million in the first six months of 2014 primarily related to higher utilization and increased demand in a number of service offerings within our Oil & Gas segment and continued growth within our Canada and Professional Services segments. The increase was partially offset by a reduction of activity in our electric transmission construction services within our Utility T&D segment primarily due to the completion of two Texas CREZ transmission construction projects in the same period last year.

General and Administrative Expenses

General and administrative expense as a percentage of contract revenue decreased to 7.5 percent for the first six months of 2014 compared to 8.5 percent for the six months of 2013. This change is primarily due to an increase in contract revenue during the first half of the year without a corresponding increase in support and overhead costs.

Operating Income

Operating income increased $26.1 million in the first six months of 2014 driven primarily by continued profitability in our Canada segment in addition to improved performance in our regional delivery services within our Oil & Gas segment, whose prior period losses were the result of ineffective project management and execution. The overall increase was partially offset by decreased performance in our electric transmission construction services within our Utility T&Dsegment primarily due to the completion of two Texas CREZ transmission construction projects in the same period last year, as well as losses generated by one construction project in our Oil & Gas segment.

Other Expense

Other expense increased $1.1 million in the first six months of 2014 primarily due to a one-time debt extinguishment charge of $0.9 million in the second quarter of 2014 related to the write-off of Original Issue Discount and financing costs, which resulted from an early payment of debt under our 2013 Term Loan Facility.

Provision for Income Taxes

Provision for income taxes increased $2.6 million in the first six months of 2014 primarily attributed to increased profitability in our Canada segment, which is subject to an income tax provision. We have not recorded the benefit of current year losses in the United States for the first six months of 2014 as our U.S. federal and state deferred tax assets continue to be covered by valuation allowances.


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Income (Loss) from Discontinued Operations, Net of Taxes

Income (loss) from discontinued operations decreased $30.0 million in the first six months of 2014 primarily due to the $23.6 million gain recorded in 2013 related to the sale of Willbros Middle East Limited, which held our operations in Oman. The decrease was also related, in part, to an $8.2 million loss on the sale of CTS, which was recorded in the second quarter of 2014. The overall decrease was partially offset by reduced losses attributed to the MPRP Project, period-over-period.

Segment Results

Oil & Gas Segment

Contract revenue increased $128.9 million during the first six months of 2014 primarily related to higher utilization in our cross-country pipeline, facilities, and downstream services.

Operating loss decreased $26.3 million during the first six months of 2014 primarily related to improved performance within our regional delivery and downstream services. This loss was partially offset by losses generated by one construction project.

Utility T&D Segment

Contract revenue decreased $33.3 million in the first six months of 2014 driven primarily by a reduction in activity in our electric transmission construction services related to the completion of two Texas CREZ transmission construction projects in the same period last year. The decrease was partially offset by growth in distribution MSA work in Texas and the Mid-Atlantic region.

Operating income decreased $8.8 million in the first six months of 2014 also driven primarily by the completion of two Texas CREZ transmission construction projects referenced above. The decrease was partially offset by improved margins associated with distribution MSA work.

Professional Services Segment

Contract revenue increased $21.9 million in the first six months of 2014 primarily from increased demand and growth in our engineering, integrity and EPC service offerings partially offset by decreased activity in government services mainly related to the delayed start of projects under contract.

Operating income increased $0.3 million in the first six months of 2014 as a . . .

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