Willbros Reports Third Quarter 2010 Results

HOUSTON, Nov. 8, 2010 /PRNewswire-FirstCall/ -- Willbros Group, Inc. (NYSE: WG) announced today results for the three and nine months ended September 30, 2010.

For the third quarter of 2010, Willbros reported earnings from continuing operations of $36.0 million, or $0.71 per diluted share, on revenue of $408.8 million. As anticipated, third quarter results were impacted by costs of approximately $7.9 million associated with the transaction to acquire InfrastruX Group, Inc., which closed on July 1, 2010. The third quarter net income includes two non-cash items: 1) a $45.3 million reduction of the earnout contingency associated with the InfrastruX acquisition and 2) a $7.2 million after tax impairment charge related to the Downstream Oil & Gas segment, which was acquired in November 2007.  Absent these two items, third quarter results would have been an approximately $2.2 million net loss, or $0.05 per share, from continuing operations.  

Third quarter results benefited primarily from high utilization and excellent execution in the Upstream Oil & Gas segment, but lower than anticipated revenue and delayed project awards in the InfrastruX operations, which are now reported in the Utility Transmission & Distribution (“Utility T&D”) segment, offset this benefit.

Randy Harl, President and Chief Executive Officer, commented, “We are clearly disappointed by lower than anticipated revenue levels in our newly acquired Utility T&D segment and are focused on accelerating the integration process and applying our management systems and processes to this new segment.  The solid results of our Upstream segment and the profitable performance (before the impairment charge) in our Downstream segment during the third quarter demonstrates the effectiveness of our proven systems and controls in achieving our intended results.  While we expect the financial performance of the Utility T&D segment to remain suppressed in the fourth quarter due to delayed work, we continue to view this acquisition as a strategic addition that not only diversifies our end market exposure but also provides the platform for Willbros to participate in the growing U.S. electric transmission and distribution market.  

“We believe that we have the people, systems and controls in place at Willbros to enhance our future capability and the performance in our new segment as well as in our other businesses,” added Harl.  “Company-wide, our current emphasis is on cost rationalization in our Downstream segment, fostering a more regional midstream approach in our Upstream segment and integrating the Utility T&D segment into the Willbros enterprise. We will continue to look for additional opportunities to improve our cost structure across all of our business segments.  We are actively evaluating each of our markets and non-strategic and underutilized assets to determine the optimal market exposure and courses of action to respond to the changing business environment.

“With over one billion dollars in backlog, we remain committed to our strategic vision and belief that diversification and expansion of our end markets, a broader geographic reach and emphasis on recurring revenue streams, will strengthen the company over time,” concluded Harl.

Segment Operating Results and Outlook

The Upstream Oil & Gas segment reported operating income for the third quarter of $27.0 million on revenue of $169.7 million. Strong performance in Upstream construction units in the United States, stronger levels of work assignments in the Upstream Engineering unit (which are viewed as a precursor of construction activity), increased oil sands related activities in Canada, and additional time and material work in Oman all contributed to third quarter results. The outlook for the Upstream segment is characterized by backlog growth in Canada, Oman and Engineering, with Canada pipeline construction operations booked into the first quarter 2012. U.S. Construction has multiple bidding opportunities, but visibility is at a seasonal low as the market has reverted to historical patterns of fourth and first quarter bidding activity for projects planned to be initiated in early Spring months and completed during the favorable summer and fall work seasons. Drilling and construction activities in the shale plays, particularly in the liquids rich areas of the Marcellus, Eagle Ford and Bakken, offer increased opportunities for our services. We are actively pursuing these opportunities by expanding our presence and integrating best practices from our legacy project management and engineering services with the regional model from the Utility T&D segment.  

The Downstream Oil & Gas segment was profitable and generated $0.4 million in operating income, excluding the pre-tax impairment charge of $12.0 million. Including the impairment charge, the segment reported a loss from operations of $11.6 million on revenue of $80.9 million. The Downstream segment benefited from the start-up of previously booked maintenance and turn around activities. During the third quarter, Downstream Engineering booked a $14.0 million engineering, procurement and construction (“EPC”) project and is pursuing additional similar and larger EPC opportunities. Management believes the Downstream sector to be at or near the trough of this business cycle as engineering and EPC inquiries have increased throughout 2010. However, work awards to Willbros Downstream continue to lag inquiries, especially for small capital projects, and Downstream Engineering continues to be pressured by lower than optimal volume and margin pressure.

The Utility Transmission & Distribution segment reported an operating loss of $16.0 million on revenue of $158.2 million. The Utility T&D segment was impacted by costs associated with the closing of the transaction to acquire Infrastrux of approximately $ 7.9 million. Utility T&D results were also impacted by lower than forecast performance in certain business units due to minimal storm restoration revenues, the delay in commencement of major construction projects including a large solar generation project; and lower than expected electric transmission construction revenues. Transmission construction revenues are expected to continue at lower levels through the fourth quarter prior to an anticipated ramp up in activity beginning in the first quarter of 2011. Bid activity in the Northeast region is increasing and visibility is improving for the transmission construction services we provide in that market.

Backlog(3)

At September 30, 2010, Willbros reported backlog from continuing operations of $1.04 billion compared to $391.7 million at December 31, 2009. Backlog in Upstream increased $140 million since December 31, 2009. Backlog in Downstream grew quarter over quarter, rising $34 million to $138 million.  At September 30, 2010, backlog in Utility T&D was approximately $516 million with more than 70 percent associated with MSA agreements, including the Oncor alliance. As a reminder, Willbros only books up to 12 months of expected revenue on all MSA’s.

InfrastruX Acquisition

On July 1, 2010, the Company completed the acquisition of 100% of the outstanding stock of InfrastruX Group, Inc. (“InfrastruX”) for a purchase price of approximately $486.0 million before working capital and other transaction adjustments.  The Company paid approximately $372.0 million in cash, a portion of which was used to retire InfrastruX indebtedness and pay InfrastruX transaction expenses, and issued approximately 7.9 million shares of the Company’s common stock to the shareholders of InfrastruX.  Cash paid was comprised of $72.0 million in operating cash and $300.0 million provided from a newly issued term loan facility. The acquisition was completed pursuant to an Agreement and Plan of Merger, dated March 11, 2010.

EBITDA

EBITDA from continuing operations for the three months ended September 30, 2010 increased $64.5 million to $77.0 million from $12.5 million during the same period in 2009. The increase in EBITDA is primarily a result of the $45.3 million reduction in earnout contingency and increased contract income of $38.2 million (excluding depreciation) and an increase in contract margin of 4.4 percentage points for the three months ended September 30, 2010.

Liquidity

At September 30, 2010, Willbros had liquidity of $132.3 million, comprised of $100.8 million in cash and cash equivalents and $31.5 million in unutilized borrowing capacity under our 2010 Credit Facility. Cash and cash equivalents at year-end 2009 was $198.8 million.

Guidance

Van Welch, Chief Financial Officer, updated earnings guidance for 2010: "We are adjusting our annual guidance to reflect the full effect of the acquisition of InfrastruX, including a $45.3 million reduction of the earnout contingency, the disappointing performance of the Utility T&D segment and a $7.2 million after tax impairment charge related to the Downstream Oil & Gas segment. We now expect to generate earnings in the range of $0.25 to $0.30 per diluted share on revenue of $1.1 to $1.2 billion from continuing operations.” The Company will provide details of the change in guidance on its November 9, 2010 conference call.

Conference Call

Willbros will hold a conference call to discuss financial and operational results on Tuesday, November 9, 2010 at 9:00 a.m. Eastern Time / 8:00 a.m. Central Time. To participate, dial (480) 629-9738 or (877) 941-6011 at least ten minutes before the call begins. The call will also be broadcast live over the Internet from the Company’s website at www.willbros.com. A replay of the conference call will be available approximately two hours after the end of the call until Tuesday, November 16, 2010. You may access the replay by calling (303) 590-3030 or (800) 406-7325 and using the pass code 4377926#.  Also, an archive of the webcast will be available shortly after the call on www.willbros.com for a period of 12 months.

Willbros Group, Inc. is an independent contractor serving the oil, gas, power, refining and petrochemical industries, providing engineering, construction, turnaround, maintenance, life-cycle extension services and facilities development and operations services to industry and government entities worldwide.  For more information on Willbros, please visit our web site at www.willbros.com.

This announcement contains forward-looking statements.  All statements, other than statements of historical facts, which address activities, events or developments the Company expects or anticipates will or may occur in the future, are forward-looking statements.  A number of risks and uncertainties could cause actual results to differ materially from these statements, including  the potential for additional investigations; the disruptions to the global credit markets; the current global recession; fines and penalties by government agencies; new legislation or regulations detrimental to the economic operation of refining capacity in the United States; the identification of one or more other issues that require restatement of one or more prior period financial statements; contract and billing disputes; the integration and operation of InfrastruX; delay of committed work under contract; the possible losses arising from the discontinuation of operations and the sale of the Nigeria assets; the existence of material weaknesses in internal controls over financial reporting; availability of quality management; availability and terms of capital; changes in, or the failure to comply with, government regulations; ability to remain in compliance with, or obtain waivers under, the Company's loan agreements and indentures; the promulgation, application, and interpretation of environmental laws and regulations; future E&P capital expenditures; oil, gas, gas liquids, and power prices and demand; the amount and location of planned pipelines; the refinery crack spread and planned refinery outages and upgrades; the effective tax rate of the different countries where the work is being conducted; development trends of the oil, gas, power, refining and petrochemical industries and changes in the political and economic environment of the countries in which the Company has operations; as well as other risk factors described from time to time in the Company's documents and reports filed with the SEC.  The Company assumes no obligation to update publicly such forward-looking statements, whether as a result of new information, future events or otherwise.

SOURCE Willbros Group, Inc.