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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A-1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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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
APARTADO 6307
PANAMA 5, REPUBLIC OF PANAMA
TELEPHONE NO.: (507) 213-0947
(Address, including zip code, and telephone number, including
area code, of principal executive offices of registrant)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common stock, $.05 Par Value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of February 1, 2002, 14,803,113 shares of the Registrant's Common Stock
were outstanding, and the aggregate market value of the Common Stock held by
non-affiliates was approximately $197,360,651.
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
We are one of the leading independent contractors serving the oil, gas and
power industries, providing construction, engineering and specialty services to
industry and government entities worldwide. We place particular emphasis on
projects in countries where we believe our experience gives us a competitive
advantage, including several developing countries. Our construction services
include the building and replacement of major pipelines and gathering systems,
flow stations, pump stations, gas compressor stations, gas processing
facilities, oil and gas production facilities, piers, dock facilities and
bridges.
Our engineering services include:
o Feasibility studies
o Conceptual and detailed design
o Field services, material procurement and overall project management.
Our specialty services include:
o Dredging
o Pipe coating
o Pipe double jointing
o Removal and installation of flowlines
o Fabrication of piles and platforms
o Maintenance and repair of pipelines, stations and other facilities
o Pipeline rehabilitation
o General oilfield services
o Transport of oilfield equipment, rigs and vessels
o Facility operations.
Our contract backlog at December 31, 2001, was a record $407.6 million as
compared to the previous year-end record backlog amount of $373.9 million at
December 31, 2000.
We provide our services utilizing a large fleet of company-owned and leased
equipment that includes marine vessels, barges, dredges, pipelaying equipment,
heavy construction equipment, transportation equipment and camp equipment. Our
equipment fleet is supported by an extensive inventory of spare parts and tools,
which we strategically locate and maintain throughout the world to maximize
availability and minimize cost.
We trace our roots to the construction business of Williams Brothers
Company, founded in 1908. Through successors to that business, we have completed
many landmark projects around the world, including the "Big Inch" and "Little
Big Inch" War Emergency Pipelines (1942-44), the Mid-America Pipeline (1960),
the TransNiger Pipeline (1962-64), the Trans-Ecuadorian Pipeline (1970-72), the
northernmost portion of the Trans-Alaskan Pipeline System (1974-76), the All
American Pipeline System (1984-86), Colombia's Alto Magdalena Pipeline System
(1989-90), and a portion of the Pacific Gas Transmission System expansion
(1992-93). In September 2000, through a joint venture led by a subsidiary of
ours, we were awarded yet another landmark project, the scope of which includes
the engineering, procurement and construction, or "EPC" of a 665-mile
(1,070-kilometer), 30-inch crude oil pipeline from the Doba Fields in Chad to an
export terminal on the coast of Cameroon in Africa, which we refer to as the
"Chad-Cameroon Pipeline Project".
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Over the years, we have been employed by more than 400 clients to carry out
work in 55 countries. Within the past 10 years, we have worked in Africa, Asia,
Australia, the Middle East, North America and South America. We have
historically had a steady base of operations in Nigeria, Oman, the United States
and Venezuela, which has been enhanced by major projects in Australia, Bolivia,
Cameroon, Chad, Egypt, Gabon, Indonesia, Ivory Coast, Kuwait, and Pakistan.
Private sector clients have historically accounted for the majority of our
revenue. Government entities and agencies have accounted for the remainder. Ten
clients were responsible for 81% of our total revenue in 2001 (86% in 2000 and
78% in 1999). Operating units of ExxonMobil, Centennial Pipeline, Royal Dutch
Shell, Duke Energy, and Trans Union Power accounted for 18%, 17%, 14%, 10% and
10% of our total revenue in 2001, respectively.
CORPORATE STRUCTURE
We are incorporated in the Republic of Panama and maintain our headquarters
at Plaza 2000 Building, 50th Street, 8th Floor, Apartado 6307, Panama 5,
Republic of Panama; our telephone number is (507) 213-0947. Panama's General
Corporation Law is substantially modeled on the New York and Delaware corporate
laws as they existed in 1932. Panama does not tax income derived from activities
conducted outside Panama. The principal subsidiaries of Willbros Group, Inc. are
Willbros International, Inc., Rogers & Phillips, Inc., MSI Energy Services, Inc.
and Willbros USA, Inc. All significant operations outside North America are
carried out by material subsidiaries of Willbros International, Inc., which is
also a Panamanian corporation. Such material subsidiaries include Willbros West
Africa, Inc., Willbros (Nigeria) Limited, Willbros (Offshore) Nigeria Limited,
Constructora CAMSA, C.A., the Oman Construction Company LLC, and Willbros
Transandina, S.A. All significant operations in North America are carried out
either by Rogers & Phillips, Inc., a Delaware corporation, by MSI Energy
Services, Inc., an Alberta, Canada corporation, or by the material subsidiaries
of Willbros USA, Inc., which is also a Delaware corporation. Such material
subsidiaries of Willbros USA, Inc. include Willbros Engineers, Inc., Willbros
Energy Services Company and Willbros Operating Services, Inc. The Willbros
corporate structure is designed to comply with jurisdictional and registration
requirements associated with work bid and performed and to minimize worldwide
taxation of operating income. Additional subsidiaries may be formed in specific
work countries where necessary or useful for compliance with local laws or tax
objectives. Administrative services are provided by Willbros USA, Inc., whose
administrative headquarters are located at 4400 Post Oak Parkway, Suite 1000,
Houston, Texas 77027 and telephone number is (713) 403-8000.
CURRENT MARKET CONDITIONS
The global recession has dampened industrial demand for energy, which has
affected short-term energy prices and resulted in a re-evaluation of future
projects both in the primary pipeline sector and the power generation sector.
However, we are not experiencing any significant slowdown in the regions in
which we compete from this reassessment of proposed projects by our customers
and potential customers. Further, we have a high level of confidence in the work
under contract for all of 2002 and into 2003. We believe several factors
influencing the global energy market have led to and will continue to result in
increased activity across our primary lines of business. The factors leading to
higher levels of energy-related capital expenditures include:
o Rising global energy demand resulting from economic growth in developing
countries
o The need for larger oil and gas transportation infrastructures in a number
of developing countries
o Certain state-controlled oil and gas companies seeking foreign investment
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o The increasing role of natural gas as a fuel for power generation and other
uses in producing countries
o Initiatives to reduce natural gas flaring
o Efforts to bring stranded natural gas reserves to market
o Aging of energy infrastructure.
Industry reports indicate that planned worldwide pipeline construction will
increase significantly over the next several years. These forecasts indicate in
excess of $25 billion to be spent worldwide in 2002 on pipeline construction and
related infrastructure as compared to approximately $17 billion of planned
expenditures for 2001. We expect to aggressively pursue and capture a portion of
the approximately $1.5 billion in business opportunities that we estimate will
meet our bidding criteria over the next 12 months.
We currently have a number of significant bids outstanding with respect to
potential contract awards in Bolivia, Cameroon, Canada, Ecuador, Nigeria, Oman,
Saudi Arabia, the United States and Venezuela. We are currently preparing bids
with respect to potential contract awards in Nigeria, Oman, Saudi Arabia, the
United States and Venezuela. Finally, we expect to prepare and submit bids with
respect to certain other potential construction and engineering projects in
Africa, Asia, the Middle East, North America and South America during 2002.
BUSINESS STRATEGY
We seek to maximize stockholder value through our business strategy. The
core elements of this strategy are to:
o Concentrate on projects and prospects in areas where we can be most
competitive and obtain the highest profit margins
o Pursue engineer-procure-construct contracts with a renewed vigor because
they can often yield higher profit margins on the engineering and
construction components of the contract than stand alone contracts for
similar services
o Focus on performance and project execution in order to maximize the profit
potential on each contract awarded
o Maintain our commitment to safety and quality
o Develop alliances with companies who will enhance our capabilities and
competitiveness in markets throughout the world
o Pursue growth through expansion, acquisitions and equity investments while
maintaining a strong balance sheet.
In pursuing this strategy, we rely on the competitive advantage gained from
our experience in completing logistically complex and technically difficult
projects in remote areas with difficult terrain and harsh climatic conditions,
and our experienced multinational work force of approximately 3,790 employees
(including those of our joint ventures), of whom more than 81 percent are
citizens of the respective countries in which they work. Recognizing them as our
most sustainable competitive advantage, we continue to invest in our employees
to ensure that they have the training and tools needed to be successful in
today's challenging environment.
One of our short-term objectives over the past three years has been to
reduce operating and overhead costs to a level that is justified by expected
revenue. To accomplish this objective, we downsized operations or offices in
work countries where expected returns have not materialized and identified and
sold surplus equipment. In addition, we terminated certain employee benefit
plans which management felt were not competitive in today's market and in some
cases replaced them with other benefits which enhanced our competitive position
in recruiting experienced personnel. Our long-term strategies remain unchanged.
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In carrying out the core elements of our long-term strategies, we build
from the following:
Geographic Area. Our objective is to maintain and enhance our presence in
regions where we have developed a strong base of operations, such as Africa, the
Middle East, North America and South America, by capitalizing on our local
experience, established contacts with local customers and suppliers, and
familiarity with local working conditions. In pursuing this strategy, we seek to
identify a limited number of long-term niche markets in which we can outperform
the competition and establish an advantageous position. In 2001, to establish
our presence in Canada, we acquired MSI Energy Services Inc., a Canadian
contractor active in the oil sands producing area of Northern Alberta. In
addition, we seek to establish or enhance our presence in other strategically
important areas, such as Algeria, Bolivia, Cameroon, Chad, Ecuador and Saudi
Arabia as well as other selected areas.
Pursue EPC Contracts. We will continue to pursue engineering, procurement
and construction (EPC) contracts because they can often yield higher profit
margins on the engineering and construction components of the contract compared
to stand alone contracts for similar services. In performing EPC contracts we
are engaged in numerous aspects of a project. We are therefore able to
efficiently determine the design, permitting, procurement and construction
sequence for a project in connection with making engineering decisions.
Accordingly, this contract structure allows us to deploy our resources more
efficiently and capture those efficiencies in the form of improved margins on
the engineering and construction components of these projects. We intend to
capitalize on being one of the few pipeline construction companies worldwide
with the ability to provide the full range of EPC services in order to position
ourselves to capture more of this business.
Focus on Superior Project Execution. We will continue to focus on
performance and project execution in order to maximize customer satisfaction and
the profit potential on each contract awarded. By doing so, we also enhance our
potential for repeat business and/or add-on engineering or specialty service
contracts.
Quality Improvements. Our quality program enhances our ability to meet the
specific requirements of our customers through continuous improvement of all our
business processes, while at the same time improving competitiveness and
profitability. ISO 9000, an internationally recognized verification system for
quality management, has in recent years been made a criterion for
prequalification of contractors by various clients and potential clients, and
this trend is expected to continue. The certification process involves a
rigorous review and audit of our management processes and quality control
procedures. Currently, four of our key operating subsidiaries have ISO 9000
certification.
Strategic Alliances. We seek to establish strategic alliances with
companies whose resources, skills and strategies are complementary to and are
likely to enhance our business opportunities, including the formation of joint
ventures and consortia to achieve a competitive advantage and share risks. Such
alliances have already been established in a number of countries and we
currently have alliances to pursue or perform work in Bolivia, Cameroon, Chad,
Dominican Republic, Ecuador, Saudi Arabia, the United States, and Venezuela. As
a related strategy, we may decide to make an equity investment in a project in
order to enhance our competitive position and/or maximize project returns. This
strategy led in 1998 to our Venezuelan subsidiary taking a 10 percent equity
interest in a joint venture which was awarded a 16-year contract to operate,
maintain and refurbish water injection facilities in Lake Maracaibo, Venezuela.
Acquisitions. We seek to identify, evaluate and acquire companies that
offer growth opportunities and that complement our resources and capabilities.
Consistent with this strategy, in January 2000, we acquired Rogers & Phillips,
Inc., or "RPI," a closely held pipeline construction company in Houston, Texas
with an experienced management team and a strong market position in the U.S.
Gulf Coast area, and in 2001, MSI Energy Services Inc., or "MSI," a closely held
facility maintenance and pipeline construction company based in Alberta, Canada.
Conservative Financial Management. We emphasize the maintenance of a strong
balance sheet in the financing of the development and growth of our business. We
also seek to obtain contracts that are likely to result in recurring revenue in
order to partially mitigate the cyclical nature of our construction and
engineering businesses. For example, we generally seek to obtain specialty
services contracts of more than one year in duration. Additionally, we act to
minimize our exposure to currency fluctuations through the use of U.S.
dollar-denominated contracts whenever possible, by limiting payments in local
currency to
5
approximately the amount of local currency expenses. We continue to exercise a
disciplined approach to controlling cost at both project and administrative
levels.
WILLBROS BACKGROUND
We are the successor to the pipeline construction business of Williams
Brothers Company, which was started in 1908 by Miller and David Williams. In
1949, the business was reconstituted and acquired by the next generation of the
Williams family. The resulting enterprise eventually became The Williams
Companies, Inc., a major U.S. energy and interstate natural gas and petroleum
products transportation company ("Williams").
In 1975, Williams elected to discontinue its pipeline construction
activities and, in December 1975, sold substantially all of the non-U.S. assets
and international entities comprising its pipeline construction division to a
newly formed Panama corporation (eventually renamed Willbros Group, Inc.) owned
by employees of the division. In 1979, Willbros Group, Inc. retired its debt
incurred in the acquisition by selling a 60 percent equity interest to Heerema
Holding Construction, Inc. In 1986, Heerema acquired the balance of Willbros
Group, Inc., which then operated as a wholly owned subsidiary of Heerema until
April 1992.
In April 1992, Heerema sold Willbros Group, Inc. to a corporation formed
December 31, 1991, in the Republic of Panama by members of the company's
management at the time, certain other investors, and Heerema. Subsequently, the
original Willbros Group, Inc. was dissolved into the acquiring corporation which
was renamed "Willbros Group, Inc." In August 1996, we completed an initial
public offering of common stock in which Heerema sold all of its shares of
common stock; and in October 1997 we completed a secondary offering in which the
other investors sold substantially all of their shares of common stock.
WILLBROS MILESTONES
The following are selected milestones which we have achieved:
1915 Began pipeline work in the United States.
1939 Began international pipeline work in Venezuela.
1942-44 Served as principal contractor on the "Big Inch" and "Little Big
Inch" War Emergency Pipelines in the United States which
delivered Gulf Coast crude oil to the Eastern Seaboard.
1947-48 Built the 370-mile (600-kilometer) Camiri to Sucre and Cochabamba
crude oil pipeline in Bolivia.
1951 Completed the 400-mile (645-kilometer) western segment of the
Trans-Arabian Pipeline System in Jordan, Syria and Lebanon.
1954-55 Built Alaska's first major pipeline system, consisting of 625
miles (1,000 kilometers) of petroleum products pipeline, housing,
communications, two tank farms, five pump stations, and marine
dock and loading facilities.
1956-57 Led a joint venture which constructed the 335-mile
(535-kilometer) southern section of the Trans-Iranian Pipeline, a
products pipeline system extending from Abadan to Tehran.
1958 Constructed pipelines and related facilities for the world's
largest oil export terminal at Kharg Island, Iran.
1960 Built the first major liquefied petroleum gas pipeline system,
the 2,175-mile (3,480-kilometer) Mid-America Pipeline in the
United States, including six delivery terminals, two operating
terminals, 13 pump stations, communications and cavern storage.
6
1962 Began operations in Nigeria with the commencement of construction
of the TransNiger Pipeline, a 170-mile (275-kilometer) crude oil
pipeline.
1964-65 Built the 390-mile (625-kilometer) Santa Cruz to Sica Sica crude
oil pipeline in Bolivia. The highest altitude reached by this
line is 14,760 feet (4,500 meters) above sea level, which
management believes is higher than the altitude of any other
pipeline in the world.
1965 Began operations in Oman with the commencement of construction of
the 175-mile (280-kilometer) Fahud to Muscat crude oil pipeline
system.
1967-68 Built the 190-mile (310-kilometer) Orito to Tumaco crude oil
pipeline in Colombia, one of five Willbros crossings of the Andes
Mountains, a project notable for the use of helicopters in
high-altitude construction.
1969 Completed a gas gathering system and 105 miles (170 kilometers)
of 42-inch trunkline for the Iranian Gas Trunkline Project (IGAT)
in Iran to supply gas to the USSR.
1970-72 Built the Trans-Ecuadorian Pipeline, crossing the Andes
Mountains, consisting of 315 miles (505 kilometers) of 20- and
26-inch pipeline, seven pump stations, four pressure-reducing
stations and six storage tanks. Considered the most logistically
difficult pipeline project ever completed at the time.
1974-76 Led a joint venture which built the northernmost 225 miles (365
kilometers) of the Trans-Alaskan Pipeline System.
1974-76 Led a joint venture which constructed 290 miles (465 kilometers)
of pipeline and two pump stations in the difficult to access
western Amazon basin of Peru. Another logistics challenge which
required lightering from shipping on the Amazon River.
1974-79 Designed and engineered the 500-mile (795-kilometer) Sarakhs-Neka
gas transmission line in northeastern Iran.
1982-83 Built the Cortez carbon dioxide pipeline system in the
southwestern United States, consisting of 505 miles (815
kilometers) of 30-inch pipe.
1984-86 Constructed, through a joint venture, the All American Pipeline
System, a 1,240-mile (1,995-kilometer), 30-inch heated pipeline,
including 23 pump stations, in the United States.
1984-95 Developed and furnished a rapid deployment fuel pipeline
distribution and storage system for the U.S. Army which was used
extensively and successfully in Saudi Arabia during Operation
Desert Shield/Desert Storm in 1990/1991 and in Somalia during
1993.
1985-86 Built a 185-mile (300-kilometer), 24-inch crude oil pipeline from
Ayacucho to Covenas in Colombia, another Andean challenge.
1987 Rebuilt 25 miles (40 kilometers) of the Trans-Ecuadorian crude
oil pipeline mobilizing to Ecuador in two weeks and completing
work within six months after major portions were destroyed by an
earthquake.
1988-92 Performed project management, engineering, procurement and field
support services to expand the Great Lakes Gas Transmission
System in the northern United States. The expansion involved
modifications to 13 compressor stations and the addition of 660
miles (1,060 kilometers) of 36-inch pipeline in 50 separate
loops.
1989-92 Provided pipeline engineering and field support services for the
Kern River Gas Transmission System, a 36-inch pipeline project
extending over 685 miles (1,100 kilometers) of desert and
mountains from Wyoming to California in the United States.
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1992-93 Rebuilt oil field gathering systems in Kuwait as part of the
post-war reconstruction effort.
1996 Listed shares in an initial public offering of Common Stock on
the NYSE under the symbol "WG."
1996-97 Achieved ISO Certification for seven operating companies.
1996-98 Performed an EPC contract with Asamera (Overseas) Limited to
design and construct pipelines, flowlines and related facilities
for the Corridor Block Gas Project located in southern Sumatra,
Indonesia.
1997-98 Carried out a contract for the construction of 120 miles (200
kilometers) each of 36- and 20-inch pipelines in the Zuata Region
of the Orinoco Belt in Venezuela.
1997-98 Completed an EPC contract for El Paso Natural Gas Company and
Gasoductos de Chihuahua, a joint venture between El Paso and
PEMEX, to construct a 45-mile (75-kilometer) gas pipeline system
in Texas and Mexico.
1999-00 Carried out a contract through a joint venture to construct a
492-mile (792-kilometer), 18-inch gas pipeline in Australia.
2000 Acquired Rogers & Phillips, Inc., a United States pipeline
construction company.
2000 Awarded an EPC contract for the 665-mile (1,070-kilometer),
30-inch crude oil Chad-Cameroon Pipeline Project, through a joint
venture with another international contractor.
2000 Relocated the Willbros USA, Inc. administrative headquarters from
Tulsa, Oklahoma to Houston, Texas.
2000 Ended year with record backlog of $373.9 million.
2001 Acquired MSI Energy Services Inc., Alberta, Canada based
contractor, working in the oilsands area and establishing a
presence in Canada.
2001 Ended year with new record backlog of $407.6 million.
SERVICES PROVIDED
We operate in a single operating segment providing contract construction,
engineering and specialty services to the oil, gas and power industries. The
following table reflects our contract revenue by type of service for 2001, 2000
and 1999.
YEAR ENDED DECEMBER 31,
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2001 2000 1999
----------------------- ----------------------- ------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- -------- -------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
Construction services ... $214,456 55% $192,270 61% $ 67,690 38%
Engineering services .... 120,321 31 58,709 19 70,500 40
Specialty services ...... 55,357 14 63,311 20 38,374 22
-------- -------- -------- -------- -------- --------
Total .............. $390,134 100% $314,290 100% $176,564 100%
======== ======== ======== ======== ======== ========
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CONSTRUCTION SERVICES
We are one of the most experienced contractors serving the oil, gas and
power industries. Our construction capabilities include the expertise to
construct and replace large-diameter cross-country and offshore pipelines; to
construct oil and gas production facilities, pump stations, flow stations, gas
compressor stations, gas processing facilities and other related facilities; and
to construct offshore platforms, piers, docks and bridges.
Pipeline Construction. World demand for pipelines results from the need
to move millions of barrels of crude oil and petroleum products and billions of
cubic feet of natural gas to refiners, processors and consumers each day.
Pipeline construction is capital-intensive, and we own, lease, operate and
maintain a fleet of specialized equipment necessary for us to engage in the
pipeline construction business. We focus on pipeline construction activity in
remote areas and harsh climates where we believe our experience gives us a
competitive advantage. We believe that we have constructed more miles of
pipeline than any other private sector company.
The construction of a cross-country pipeline involves a number of
sequential operations along the designated pipeline right-of-way. These
operations are virtually the same for all overland pipelines, but personnel and
equipment may vary widely depending upon such factors as the time required for
completion, general climatic conditions, seasonal weather patterns, the number
of road crossings, the number and size of river crossings, terrain
considerations, extent of rock formations, density of heavy timber and amount of
swamp.
Onshore construction often involves separate crews to perform the following
different functions:
o Clear the right-of-way
o Grade the right-of-way
o Excavate a trench in which to bury the pipe
o Haul pipe to intermediate stockpiles from which stringing trucks carry
pipe and place individual lengths (joints) of pipe alongside the ditch
o Bend pipe joints to conform to changes of direction and elevation
o Clean pipe ends and line up the succeeding joint
o Perform various welding operations
o Non-destructively inspect welds
o Clean pipe and apply anti-corrosion coatings
o Lower pipe into the ditch
o Backfill the ditch
o Bore and install highway and railroad crossings
o Drill, excavate or dredge and install pipeline river crossings
o Tie in all crossings to the pipeline
o Install mainline valve stations
o Conduct pressure testing
o Install cathodic protection system
o Perform final clean up.
Special equipment and techniques are required to construct pipelines
across wetlands and offshore. The "Willbros 318" is a combination derrick/lay
barge which performs pipelay and marine construction services in offshore West
Africa. We use swamp pipelaying methods extensively in Nigeria, where most of
our construction operations are carried out in the Niger River delta. In
addition to our primary offshore and swamp equipment such as laybarges, dredges
and swamp backhoes, we have a substantial investment in support vessels,
including tugboats, barges, supply boats and houseboats, which are required in
order to maintain our capabilities in offshore and swamp pipeline construction.
Station Construction. Oil and gas companies require various facilities
in the course of producing, processing, storing and moving oil and gas. We are
experienced in and capable of constructing facilities
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such as pump stations, flow stations, gas processing facilities, gas compressor
stations and metering stations. We are capable of building such facilities
onshore, offshore in shallow water or in swamp locations. The construction of
station facilities, while not nearly as capital-intensive as pipeline
construction, is generally characterized by complex logistics and scheduling,
particularly on projects in locations where seasonal weather patterns limit
construction options, and in countries where the importation process is
difficult. Our capabilities have been enhanced by our experience in dealing with
such challenges in numerous countries around the world.
Marine Construction. Our marine fleet includes lay barges, pile driving
barges, derrick barges and other vessels, which support marine construction
operations, and the "Willbros 318" combination derrick/lay barge to perform
shallow water pipelay and maintenance projects in offshore West Africa. This
300-foot (91-meter) barge is capable of laying up to 24-inch diameter pipe in up
to 200-foot water depths. During 2001, we purchased the "WB82" work/derrick
barge to complement our West Africa marine construction operations. The WB82
work/derrick barge is a 253-foot (78-meter) barge with accommodations for 135
personnel. The WB82 is equipped with a 100-ton revolving crane and is configured
to support the construction, maintenance and repair of marine facilities. In
Venezuela, we construct and install fixed drilling and production platforms,
primarily in Lake Maracaibo, and we are also capable of building bridges, docks,
jetties and mooring dolphins, which are a group of pilings clustered together
and sometimes bound with wire rope.
ENGINEERING SERVICES
We provide project management, engineering, and material procurement
services to the oil, gas and power industries and government agencies. We
specialize in providing engineering services to assist clients in constructing
or expanding pipeline systems, compressor stations, pump stations, fuel storage
facilities, and field gathering and production facilities. Through experience,
we have developed expertise in addressing the unique engineering issues involved
with pipeline systems and associated facilities to be installed where climatic
conditions are extreme, areas of environmental sensitivity must be crossed,
fluids which present extreme health hazards must be transported, and fluids
which present technical challenges regarding material selection are to be
transported.
To complement our engineering services, we also provide a full range of
field services, including:
o Surveying
o Right-of-way acquisition
o Material receiving and control
o Construction inspection
o Facilities startup assistance.
Such services are furnished to a number of oil, gas, power and
government clients on a stand-alone basis; and are provided as part of EPC
contracts undertaken by our company.
The buying process of our customers includes close scrutiny of our
experience and capabilities with respect to project requirements. Some of those
requirements are:
Climatic Constraints. In the design of pipelines and associated
facilities to be installed in harsh environments, special provisions for
metallurgy of materials and foundation design must be addressed. We are
experienced in designing pipelines for arctic conditions, where permafrost and
extremely low temperatures are prevalent, desert conditions, mountainous
terrain, swamps and offshore.
Environmental Impact of River Crossings/Wetlands. We have considerable
capability in designing pipeline crossings of rivers, streams and wetlands in
such a way as to minimize environmental impact. We possess expertise to
determine the optimal crossing techniques, such as open cut,
directionally-drilled or overhead, and to develop site-specific construction
methods to minimize bank erosion, sedimentation and other environmental impacts.
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Seismic Design and Stress Analysis. Our engineers are experienced in
seismic design of pipeline crossings of active faults and areas where
liquefaction or slope instability may occur due to seismic events. Our engineers
also carry out specialized stress analyses of piping systems that are subjected
to expansion and contraction due to temperature changes, as well as loads from
equipment and other sources.
Hazardous Materials. Special care must be taken in the design of
pipeline systems transporting sour gas. Sour gas not only presents challenges
regarding personnel safety since hydrogen sulfide leaks can be extremely
hazardous, but also requires that material be specified to withstand highly
corrosive conditions. Our engineers have extensive natural gas experience which
includes design of sour gas systems.
Hydraulics Analysis for Fluid Flow in Piping Systems. We employ
engineers with the specialized knowledge necessary to address properly the
effects of both steady state and transient flow conditions for a wide variety of
fluids transported by pipelines, including natural gas, crude oil, refined
petroleum products, natural gas liquids, carbon dioxide and water. This
expertise is important in optimizing the capital costs of pipeline projects
where pipe material costs typically represent a significant portion of total
project capital costs.
Natural Gas Transmission Systems. The expansion of the natural gas
transportation network in the United States in recent years has been a major
contributor to our engineering business. We believe we have established a strong
position as a leading supplier of project management and engineering services to
natural gas pipeline transmission companies in the United States. Since 1988, we
have provided, or are providing, engineering services for 19 major natural gas
pipeline projects in the United States, totaling more than 7,000 miles (11,200
kilometers) of large diameter pipe for new systems and expansions of existing
systems. During this same period, we were also the engineering contractor for 80
compressor stations, including new stations and additions to existing stations
for 17 clients.
Liquids Pipelines and Storage Facility Design. We have engineered a
number of crude oil and refined petroleum products systems throughout the world,
and have become recognized for our expertise in the engineering of systems for
the storage and transportation of petroleum products and crude oil. In recent
years, we have been responsible for the engineering of a major expansion of a
products pipeline system in the United States, involving 395 miles (640
kilometers) of pipeline in New Mexico and Texas. In 2001, we provided
engineering and field services for conversion of a natural gas system in the
Midwest United States, involving over 794 miles (1,279 kilometers) of 24 to
26-inch diameter pipeline to serve the upper Midwest with refined petroleum
products. Currently we are providing EPC services for the expansion of another
petroleum products pipeline to the Midwest involving 12 new pump stations,
modifications to another 12 pump stations and additional storage.
U.S. Government Services. Since 1981, we have established our position
with U.S. government agencies as a leading engineering contractor for jet fuel
storage and aircraft fueling facilities, having performed the engineering for
major projects at seven U.S. military bases including three air bases outside
the U.S. The award of these projects was based largely on contractor experience
and personnel qualifications. In the past three years, we have won four of five
so-called "Build, Own, Operate, Transfer" or "BOOT" projects to provide fueling
facilities for the U.S. Defense Energy Support Center.
Design of Peripheral Systems. Our expertise extends to the engineering
of a wide range of project peripherals, including various types of support
buildings and utility systems, power generation and electrical transmission,
communications systems, fire protection, water and sewage treatment, water
transmission, roads and railroad sidings.
Material Procurement. Because material procurement plays such a
critical part in the success of any project, we maintain an experienced staff to
carry out material procurement activities. Material procurement services are
provided to clients as a complement to the engineering services performed for a
project. Material procurement is especially critical to the timely completion of
construction on the EPC contracts we undertake. We maintain a computer-based
material procurement, tracking and control system, which utilizes software
enhanced to meet our specific requirements.
11
SPECIALTY SERVICES
We provide a wide range of support and ancillary services related to
the construction, operation, repair and rehabilitation of pipelines. Frequently,
such services require the utilization of specialized equipment, which is costly
and requires operating expertise. Due to the initial equipment cost and
operating expertise required, many client companies contract with us for the use
of such specialized equipment and experienced personnel. We own and operate a
variety of specialized equipment that is used to support construction projects
and to provide a wide range of oilfield services. The following is a description
of the primary types of specialty services.
Dredging. We conduct dredging operations on our own projects and as a
subcontractor to other companies. Dredging equipment is required to pump sand to
establish a land location in a swamp and to excavate trenches for pipelines in
swamps or offshore locations and for river crossings. Dredging equipment is also
used to maintain required depth of navigation channels for barges and other
watercraft. This maintenance dredging is often performed under annual or
multi-year contracts. We own a fleet of dredges, including cutter suction
dredges and grab dredges, which are routinely used in Nigeria and can be readily
deployed to other projects in the region.
Pipe Coating. We own and operate coating equipment, which applies a
variety of protective anti-corrosion coatings to the external surface of line
pipe. The external coating is required to protect buried pipe in order to
mitigate external corrosion.
Concrete Weight Coating. Pipelines installed in wetlands or marine
environments must be heavy enough to offset the buoyancy forces on the buried
pipeline to keep the pipeline from floating out of the ditch. The most effective
method of achieving the required negative buoyancy is concrete coating applied
over the anti-corrosion coating to a calculated thickness. We own and operate a
facility in Nigeria to apply concrete weight coating to line pipe.
Pipe Double-Jointing. Large diameter pipe for onshore pipeline projects
is normally manufactured in 40-foot (12-meter) nominal lengths, or joints, to
facilitate ocean transportation. On long distance, large diameter pipeline
projects, it is usually economical to weld two joints into an 80-foot (24-meter)
double joint at a location or locations along the pipeline route. This technique
reduces the amount of field welding by 50 percent, and, because welding is often
the critical operation, it may accelerate construction of the pipeline. The
double-joint welds are made with a semi-automatic submerged arc welding process,
which produces high quality, consistent welds at lower costs than field welding.
We own two transportable self-contained double-joint plants, which can handle
24- to 48-inch diameter pipe and are used worldwide.
Piling. Our subsidiary in Venezuela specializes in the fabrication and
installation of 36-inch concrete piles up to 220 feet (67 meters) in length.
These piles are used to construct marine facilities such as drilling platforms,
production platforms, bridges, docks, jetties and mooring or breasting dolphins.
We also own barges and pile driving equipment to install piles in Venezuela and
Nigeria.
Marine Heavy Lift Services. The primary equipment used for offshore oil
and gas production facilities is usually manufactured on skids at the vendor's
shop and transported to the production site by ocean-going water craft. We own a
variety of heavy lift barges and tugs to transport such equipment from the
receiving country port to the production location and to install the equipment
on the platforms. Other services include marine salvage and dry-dock facilities
for inland water barges.
Transport of Dry and Liquid Cargo. Exploration and production
operations in marine environments require logistical support services to
transport a variety of liquid and dry cargo to the work sites. We own and
operate a diversified fleet of marine equipment to provide transportation
services to support these operations in Nigeria and Venezuela.
Rig Moves. Derricks used for drilling oil and gas wells and for well
work-overs require heavy transportation equipment to move such equipment, tanks
and storage vessels between well locations. We own a fleet of heavy trucks and
trailers, and provide transportation services to our clients in Oman and
Venezuela.
12
Maintenance and Repair Services. We provide a wide range of other
services including mechanical, electrical, instrumentation, civil works, road
maintenance and provision of camp services for operating personnel associated
with operation and maintenance of oil and gas gathering systems and production
equipment. With the acquisition of MSI Energy Services, we have expanded our
maintenance and repair services to include multi-year maintenance contracts
servicing the oil sands and tailings slurry pipelines in Northern Alberta.
Facility Operations. Subsequent to the design, commissioning and
start-up phases of contracts, we provide facility operations services to those
clients desiring third party operations of facilities.
GEOGRAPHIC REGIONS
We operate in the following geographic regions: Africa, North America,
South America, the Middle East, and Asia and Australia. The following table
reflects our contract revenue by geographic region for 2001, 2000 and 1999.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
2001 2000 1999
----------------------- ----------------------- ------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- -------- -------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
Africa ................ $146,200 37% $161,556 51% $ 79,777 45%
North America ......... 208,626 54 92,998 30 42,981 24
South America ......... 16,968 4 26,141 8 23,801 14
Middle East ........... 14,303 4 12,908 4 8,026 5
Asia and Australia .... 4,037 1 20,687 7 21,979 12
-------- -------- -------- -------- -------- --------
Total ............ $390,134 100% $314,290 100% $176,564 100%
======== ======== ======== ======== ======== ========
See Note 13 to the Consolidated Financial Statements included in Item 8 of this
report for additional information about operations in our work countries.
Africa
Africa has been and will continue to be an important strategic market
for us. We believe that there will be opportunities to expand our business in
Africa, particularly through the development of natural gas projects. There are
large, potentially exploitable reserves of natural gas in West Africa, extending
from the Ivory Coast to Angola. Depending upon the world market for natural gas
and the availability of financing, the amount of potential new work could be
substantial. We intend to maintain our presence in Africa and seek to increase
our share of available work. We currently are monitoring or bidding major work
prospects in Algeria, Cameroon, Chad, Gabon, Ghana, Mozambique, Nigeria, South
Africa, and Tanzania.
Over the past 50 years, we have completed major projects in a number of
African countries including Algeria, Cameroon, Egypt, Gabon, Ivory Coast, Libya,
Morocco and Nigeria. We have management staff resident in Africa, assisted by
engineers, managers and craftsmen with extensive African experience, capable of
providing construction expertise, repair and maintenance services, dredging
operations, pipe coating and engineering support. Strong local relationships
have enabled us to satisfy the varied needs of our clientele in the region.
We have had a continuous presence in Nigeria since 1962. Our activities
in Nigeria are directed from a fully staffed operational base near Port
Harcourt. This 150-acre site includes office and living facilities, equipment
and vehicle repair shops, a marine jetty, warehouses and fabrication and
lay-down areas for both the client's and our materials and spare parts. We have
diversified our range of services by adding dredging and pipe coating expertise
and drydock facilities. Having diverse yet complementary capabilities has often
given us a competitive advantage on projects that contain several distinct work
elements within the project's scope of work. For example, we believe that we are
currently the only contractor operating in
13
the Nigerian oil and gas sector capable, with our own resources, of executing
engineering, procurement and construction projects for pipelines and related
facilities for onshore, swamp, and offshore locations.
Our current activities in Nigeria include maintenance and improvement
of offshore structures for ExxonMobil. Other ongoing activities in Nigeria are
multi-year contracts to provide dredging services and swamp flowline maintenance
services.
Since our purchase of the "Willbros 318" in 1998, we have successfully
completed several offshore projects including the installation of decks and
other production facilities on two offshore platforms, five miles (7.5
kilometers) of 8-inch and 10-inch pipelines, a single-point mooring system and a
2-mile, 20-inch offshore pipeline, and performed various other services for
ChevronTexaco and ExxonMobil.
In 2001, we purchased the "WB82" work barge to complement the "Willbros
318" and the "EROS" support vessel. Since the third quarter of 2001, the
"Willbros 318" and "WB82" have been engaged to provide riser and platform repair
and improvements for ExxonMobil in offshore West Africa.
In September 2000, through a joint venture with another international
contractor, we were awarded a contract to construct the Chad-Cameroon Pipeline
Project. The project scope includes engineering, procurement, and construction
of a 665-mile (1,070-kilometer), 30-inch crude oil pipeline and fiber optic
cable from the Doba fields in Chad to an export terminal on the coast of
Cameroon. Engineering and procurement activities began in 2000. The mobilization
of the construction and the project management team to West Africa began in the
second quarter of 2001. Pipelay activities commenced in the fourth quarter of
2001.
Our backlog in Africa was $204.7 million at December 31, 2001, compared
to $230.8 million at December 31, 2000.
North America
We have provided services to the U.S. oil and gas industry for more
than 80 years. We believe that the United States will continue to be an
important market for our services. Recent deregulation of the electric power and
natural gas pipeline industries in the United States has led to the
consolidation and reconfiguration of existing pipeline infrastructure and the
establishment of new energy transport systems, which we expect will result in
continued demand for our services. The demand for natural gas for industrial and
power usage in the United States should increase the requirement to build new
natural gas transportation infrastructure in the region. We anticipate that
supply to satisfy such market demand for natural gas will come from existing and
new production in western Canada, the Gulf of Mexico and the Canadian Atlantic
offshore region. Environmental concerns will likely continue to require careful,
thorough and specialized professional engineering and planning for all new
facilities within the oil, gas and power sectors. Furthermore, the demand for
replacement and rehabilitation of pipelines is expected to increase as pipeline
systems in the United States approach the end of their design lives and
population trends influence overall energy needs.
We are recognized as an industry leader in the United States for
providing state-of-the-art project management, engineering, procurement and
construction services. We maintain a staff of experienced management,
construction, engineering and support personnel in the United States. Currently,
we are providing project management and engineering services for the following
projects: the Gulfstream Natural Gas System to transport natural gas from
southern Alabama and Mississippi to markets throughout central and south
Florida; and the Blue Atlantic Pipeline Project envisioned to bring natural gas
from offshore northeast Canada to Nova Scotia and New York and New Jersey via
submarine pipeline. We are also under contract to provide project management,
engineering, procurement and construction services for the Explorer Pipeline
Mainline Expansion Project, to increase annual throughput to over 47 million
barrels, transporting refined products from the Texas Gulf Coast to the Chicago
area; CMS Gas Transmission's Guardian Pipeline Project to transport natural gas
from the Chicago area into Wisconsin; and Southern Natural Gas Company's
Southern Company Expansion Project to increase the capacity to transport natural
gas in their existing system in Mississippi, Alabama and Georgia. Our MSI Energy
Services Inc. subsidiary in Canada has maintenance contracts with producers in
the oil sands area of Northern Alberta.
14
We have also provided significant engineering services to the U.S.
Government during the past 15 years, particularly in fuel storage and
distribution systems and aircraft fueling facilities. Currently, we own and
operate two fueling facilities at Ft. Bragg, North Carolina, which were
constructed by us in 1998 and a similar facility completed in 2000 at
Twenty-nine Palms Marine Corps Base in California. In 2001, we won contracts for
similar facilities at Ft. Stewart, Georgia and Ft. Gordon, Georgia.
On January 24, 2000, we acquired Rogers & Phillips, Inc., a closely
held pipeline construction company in Houston, Texas, with an experienced
management team and a strong market position in the U.S. Gulf Coast area. Since
our acquisition of "RPI", it has experienced revenue growth from $22 million in
the year before the acquisition to $85.9 million in 2001. This growth is
primarily the result of synergies developed with our engineering subsidiary in
the acquisition and performance of EPC contracts. On October 12, 2001, we
acquired MSI Energy Services Inc., a Canadian contractor with a strong position
in the oil sands area of northern Alberta; an area in which production is
projected to expand from 600,000 barrels per day in 2000 to more than 1.8
million barrels per day by 2010. Both acquisitions add construction and
management capabilities to their respective markets.
Our backlog in North America was $171.8 million at December 31, 2001,
compared to $106.7 million at December 31, 2000.
South America
We have been active in South America since 1939. Recent developments
involving political changes and privatization efforts in many of the South
American countries make this region attractive to us. In particular,
privatization and deregulation in this region are allowing more foreign and
domestic private investment in the energy sector which, until recently, had
traditionally been controlled by state-owned energy companies. We expect gas
transportation projects in Argentina, Bolivia, Brazil, Chile, Peru and Venezuela
to continue to evolve to meet increasing demand for gas for industrial and power
usage in the rapidly growing urban areas. In Venezuela, Colombia and Ecuador,
crude oil transportation systems will likely need to be built and upgraded so
that the vast crude reserves in these countries can be efficiently exported to
the world market. We are aggressively pursuing business opportunities throughout
South America and currently bidding work or monitoring prospects in Bolivia,
Brazil, Ecuador, Peru and Venezuela.
We have performed numerous major projects in South America, where our
accomplishments include the construction of five major pipeline crossings of the
Andes Mountains and setting a world altitude record for constructing a pipeline.
Our largest project in South America was a turnkey project for the procurement
and construction of the Alto Magdalena Crude Oil Pipeline System in Colombia,
awarded to us in 1989 and completed in 1990.
Venezuela is the largest oil producer in South America and conservative
estimates place proven reserves at more than 77 billion barrels of oil and 146
trillion cubic feet of natural gas. Venezuela has redirected its energy
initiatives to include development of its significant natural gas reserves. The
government of Venezuela, under Presidente Hugo Chavez, has separated the natural
gas initiative from the oil interests of Petroleos de Venezuela, S. A., the
government owned oil company, to place natural gas projects on an equal footing
with oil projects. This new emphasis on natural gas projects should translate
into more demand for natural gas capabilities such as ours. However, the Chavez
government has also introduced a new national hydrocarbons law which is viewed
by both international and national petroleum industry leaders as unfriendly to
future investment in this sector. The new Hydrocarbons Law replaces the previous
Hydrocarbons Law of 1934 and Venezuela's Nationalization Law of 1975. It
establishes increased royalty rates of 20% to 30%, replacing the prior fixed
royalty rate of 16.6%. All royalties are to be at the higher 30% rate with the
exception of those imposed on mature fields that are less productive or are
being reworked and the four heavy oil projects in the Orinoco Belt. In addition,
the new Hydrocarbons Law eliminates the previous Venezuelan policy of permitting
foreign oil companies to maintain a majority interest in partnerships and
various joint venture operations that they hold with Petroleos de Venezuela
S.A., or "PDVSA," and establishes that PDVSA must be the majority owner. The
outcome of negotiations between the government and private industry to revise
this law is uncertain, and significant new foreign investment is unlikely until
these negotiations are satisfactorily completed.
15
In Venezuela, we maintain a fully staffed facility including offices,
equipment, yard and dock facilities on a 15-acre waterfront site on Lake
Maracaibo and a representation office Caracas. Resident personnel provide
services for both onshore and offshore projects. Services include pipeline
construction, repair and maintenance services, fabrication and installation of
concrete piles and platforms, marine related services, engineering support and
other needed services. In 1998, a consortium in which we hold a 10 percent
equity interest was awarded a 16-year contract valued at $785.0 million to
operate, maintain and refurbish the Lake Maracaibo water injection program for
PDVSA Gas. In 2000, we completed the construction of a major crude oil pumping
station for Petrozuata. Current activities include operating, maintenance and
refurbishment services for the above-mentioned consortium and recurring service
and maintenance work for various clients.
Subsequent to December 31, 2001, we were selected, in an alliance with
another international contractor, to construct a 144-mile (230-kilometer)
32-inch natural gas pipeline in Bolivia for the Transierra consortium.
Our backlog in South America was $27.0 million at December 31, 2001,
compared to $29.7 million at December 31, 2000.
Middle East
We believe that increased exploration and production activity in the
Middle East will continue to be the primary factor influencing the construction
of new energy transportation systems in that region. The majority of future
transportation projects in the region are expected to be centered around natural
gas due to increased regional demand, governments' recognition of gas as an
important asset and an underdeveloped gas transportation infrastructure
throughout the region. We are aggressively pursuing business opportunities
throughout the Middle East and are currently bidding work or monitoring
prospects in Abu Dhabi, Jordan, Kuwait, Oman, Qatar, Saudi Arabia and Yemen.
Our operations in the Middle East date back to 1948. We have worked in
most of the countries in the region, with particularly heavy involvement in
Iran, Kuwait, Oman and Saudi Arabia. Currently, we have ongoing operations in
Oman, where we have been active for more than 35 years. We maintain a fully
staffed facility in Oman with equipment repair facilities and spare parts on
site and offer construction expertise, repair and maintenance services,
engineering support, oil field transport services, materials procurement and a
variety of related services to our clients. In November 1999, we were awarded a
five-year contract by Oman LNG for general maintenance services. Other current
operations in Oman include a general oilfield services contract for Occidental
of Oman and an ad hoc service contract for Petroleum Development Oman. Work
carried out in Oman during 2001 and 2000 includes pipeline construction,
pipeline maintenance, mechanical services and flowline work.
Our backlog in the Middle East was $4.1 million at December 31, 2001,
compared to $6.7 million at December 31, 2000.
Australia and Asia
Australia and Asia continue to be a geographic market of focus due to
the relative abundance of undeveloped natural gas resources. That abundance, and
environmental concerns, favor the use of natural gas for power generation and
industrial and residential usage in Australia and Asia. However, economic and
political difficulties in certain countries in the region have caused us to
downsize our Jakarta, Indonesia office in 2000 to a minimum level. We are
currently conducting marketing and business development activities in this
market.
In June 1999, Duke Energy International awarded a gas pipeline
construction contract in Australia to a consortium in which one of our operating
subsidiaries had a 35 percent interest. The 492-mile (792-kilometer), 18-inch
pipeline, completed in 2000, transports natural gas from Longford, Victoria to
Sydney.
16
In 1999, we completed contracts for Pak-Arab Refinery, Ltd. relating to
the MFM Pipeline Extension Project in Pakistan. The contracts included the
supply of project materials, the engineering and construction of 225 miles (365
kilometers) of 18- and 16-inch petroleum products pipeline, the expansion of an
existing terminal (including 267,000 barrels of storage capacity), the addition
of a new terminal and pump station (including 270,000 barrels of storage), the
addition of a storage terminal (including 443,000 barrels of storage) and the
design of a future pump station.
We had no backlog in Australia or Asia at December 31, 2001 or 2000.
BACKLOG
Our backlog (anticipated revenue from the uncompleted portions of
existing contracts and contracts whose award is reasonably assured) was $407.6
million at December 31, 2001, compared to $373.9 million at December 31, 2000.
We believe the backlog figures are firm, subject only to the cancellation and
modification provisions contained in various contracts. We expect that
approximately $337.2 million (82.7%) of our backlog existing at December 31,
2001, will be recognized in revenue during 2002. Historically, a substantial
amount of our revenue in a given year has not been reflected in our backlog at
the beginning of that year. We generate revenue from numerous sources, including
contracts of long or short duration entered into during a year as well as from
various contractual processes, including change orders, extra work, variations
in the scope of work and the effect of escalation or currency fluctuation
formulas. These revenue sources are not added to backlog until realization is
assured.
The following is a breakdown of our backlog by geographic region as of
December 31, 2001 and 2000:
2001 2000
----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
Africa ........... $204,653 50% $230,838 62%
North America .... 171,750 42 106,728 28
South America .... 27,047 7 29,670 8
Middle East ...... 4,103 1 6,711 2
-------- -------- -------- --------
Total ............ $407,553 100% $373,947 100%
======== ======== ======== ========
The $33.7 million (9%) increase in backlog is due mainly to the
addition of the Explorer Pipeline Mainline Expansion Project and other U.S.
engineering and construction contracts.
A substantial percentage of our revenue in past years resulted from
contracts entered into during that year or the immediately preceding year. The
following table sets forth revenue for each of the last five years as a
percentage of backlog at the beginning of each such year:
REVENUE FOR
BACKLOG AT YEAR ENDED
JANUARY 1 DECEMBER 31 PERCENT
---------- ----------- -------
(DOLLAR AMOUNTS IN THOUSANDS)
1997 ......................... $108,751 $251,877 231%
1998 ......................... 135,797 281,618 207
1999 ......................... 286,473 176,564 61
2000 ......................... 253,080 314,290 124
2001 ......................... 373,947 390,134 104
No assurance can be given that our future experience will be similar to
our historical results in this respect.
17
COMPETITION
We operate in a highly competitive environment. We compete against
government-owned or supported companies and other companies that have financial
and other resources substantially in excess of those available to us. In certain
markets, there is competition from national and regional firms against which we
may not be price competitive.
Our primary competitors for international onshore construction projects
in developing countries include Entrepose (France), Technip (France), CCC
(Lebanon), Nippon Kokan (Japan), Saipem (Italy), Spie-Capag (France), Techint
(Argentina), Bechtel (U.S.), Stroytransgaz (Russia), Tekfen (Turkey), and Nacap
(Netherlands). We believe that we are one of the few companies among our
competitors possessing the ability to carry out large projects in developing
countries on a turnkey basis (engineering, procurement and construction),
without subcontracting major elements of the work. As a result, we may be more
cost effective than our competitors in certain instances.
We have different competitors in different markets. In Nigeria, we
compete for pipe coating work with Bredero Price (Netherlands), while our
dredging competitors include Bos Kalis Westminster (Netherlands), Dredging
International (Belgium), Bilfinger + Berger (Germany), Nigerian Dredging &
Marine (Netherlands) and Ham Dredging (Netherlands). In offshore West Africa, we
compete with SaiBos, Stolt Offshore, Global Industries, Inc., and Adamac Group.
In Oman, competitors in oil field transport services include Desert Line, Al
Ahram, Hamdam and TruckOman, all Omani companies; and in construction and the
installation of flowlines and mechanical services, we compete with Taylor
Woodrow Towell (Britain), CCC (Lebanon), Dodsal (India), Saipem (Italy), Desert
Line (Oman) and Galfar (Oman). In Venezuela, competitors in marine support
services include Raymond de Venezuela, Petrolago, and Siemogas, all Venezuelan
companies. In the Southern Cone of South America, major competitors include
Techint (Argentina), Conduto (Brazil), Odebrecht (Brazil), and Contreras
Hermanos (Argentina).
In the United States, our primary construction competitors on a
national basis include Associated Pipeline Contractors, Gregory & Cook, Murphy
Brothers, H. C. Price, Sheehan Pipeline Construction and Welded Construction. In
addition, there are a number of regional competitors, such as Sunland, Dyess,
Flint, and Jomax.
Primary competitors for engineering services include:
o ABB
o Bechtel
o Fluor
o Gulf Interstate
o Jacobs Engineering
o Kellogg Brown and Root
o Mustang Engineering
o Paragon Engineering
o Snamprogetti
o Technip
o Trigon Engineering
o Universal Ensco
o Worley Engineering
JOINT VENTURES
From time to time in the ordinary course of our business, we enter into
joint venture agreements with other contractors for the performance of specific
projects. Typically, we seek one or more joint venture partners when a project
requires local content, equipment, manpower or other resources beyond those we
have available to complete work in a timely and efficient manner or when we wish
to share risk on a particularly large project. Our joint venture agreements
identify the work to be performed by each party, procedures for managing the
joint venture work, the manner in which profits and losses will be shared by the
parties, the equipment, personnel or other assets that each party will make
available to the joint
18
venture and the means by which any disputes will be resolved. We currently are
performing two large projects through joint ventures: the onshore pipeline for
the Chad Development Project in Chad and Cameroon, which we are performing
jointly with Spie-Capag (Jersey) Ltd., and the Transierra Gas Pipeline Project
in Bolivia, which we are performing jointly venture with Harbert International
Establishment S.A.
Willbros is the managing partner for the joint venture for the
performance of the Chad pipeline project. This project, which involves the
construction of a 1,070 kilometer crude oil pipeline, has an expected duration
of over two years. The Transierra Gas Pipeline Project, a 230 kilometer
pipeline, is less than one fourth the scope and duration of the Chad project.
CONTRACT PROVISIONS AND SUBCONTRACTING
Most of our revenues are derived from construction, engineering and
specialty services contracts. We enter into four basic types of construction
contracts:
o Firm fixed-price or lump sum fixed-price contracts providing for a
single price for the total amount of work or for a number of fixed lump
sums for the various work elements comprising the total price
o Unit-price contracts which specify a price for each unit of work
performed
o Time and materials contracts under which personnel and equipment are
provided under an agreed schedule of daily rates with other direct
costs being reimbursable
o A combination of the above (such as lump sums for certain items and
unit rates for others).
We enter into three types of engineering contracts:
o Firm fixed-price or lump sum fixed-price contracts
o Time and materials contracts pursuant to which engineering services are
provided under an agreed schedule of hourly rates for different
categories of personnel, and materials and other direct costs are
reimbursable
o Cost-plus-fee contracts, common with U.S. government clients under
which income is earned solely from the fee received. Cost-plus-fee
contracts are often used for material procurement services.
Specialty services contracts generally are unit-price contracts, which
specify a price payable per unit of work performed (e.g., per cubic meter, per
lineal meter, etc.). Such contracts usually include hourly rates for various
categories of personnel and equipment to be applied in cases where no unit price
exists for a particular work element. Under a services contract, the client is
typically responsible for supplying all materials; a cost-plus-percentage-fee
provision is generally included in the contract to enable the client to direct
the contractor to furnish certain materials.
Changes in scope of work are defined by change orders agreed to by both
parties. These changes can impact our contract revenue either positively or
negatively.
We usually obtain contracts through competitive bidding or through
negotiations with long-standing clients. We are typically invited to bid on
projects undertaken by our clients who maintain approved bidder lists. Bidders
are pre-qualified by virtue of their prior performance for such clients, as well
as their experience, reputation for quality, safety record, financial strength
and bonding capacity.
In evaluating bid opportunities, we consider such factors as the
client, the geographic location, the difficulty of the work, our current and
projected workload, the likelihood of additional work, the project's cost and
profitability estimates, and our competitive advantage relative to other likely
bidders. For international projects, we give careful thought and consideration
to the political and financial stability of the country or region where the work
is to be performed. We use a computer-based estimating system. The bid estimate
forms the basis of a project budget against which performance is tracked through
a project control system, enabling management to monitor projects effectively.
Project costs are accumulated weekly and monitored against billings and payments
to facilitate cash flow management on the project.
All U.S. government contracts and many of our other contracts provide
for termination of the contract for the convenience of the client. In addition,
many contracts are subject to certain completion schedule
19
requirements that include liquidated damages in the event schedules are not met
as the result of circumstances within our control.
We act as prime contractor on a majority of the construction projects
we undertake. In our capacity as prime contractor and when acting as a
subcontractor, we perform most of the work on our projects with our own
resources and typically subcontract only such specialized activities as
hazardous waste removal, non-destructive inspection, tank erection, catering and
security. In the construction industry, the prime contractor is normally
responsible for the performance of the entire contract, including subcontract
work. Thus, when acting as a prime contractor, we are subject to the risk
associated with the failure of one or more subcontractors to perform as
anticipated.
A substantial portion of our projects are currently performed on a
fixed-price basis. Under a fixed-price contract, we agree on the price that we
will receive for the entire project, based upon specific assumptions and project
criteria. If our estimates of our own costs to complete the project are below
the actual costs that we may incur, our margins will decrease, and we may incur
a loss. The revenue, cost and gross profit realized on a fixed-price contract
will often vary from the estimated amounts because of unforeseen conditions or
changes in job conditions and variations in labor and equipment productivity
over the term of the contract. If we are unsuccessful in mitigating these risks,
we may realize gross profits that are different from those originally estimated
and reduced profitability or losses on projects. Depending on the size of a
project, these variations from estimated contract performance could have a
significant effect on our operating results for any quarter or year. In general,
turnkey contracts to be performed on a fixed-price basis involve an increased
risk of significant variations. This is a result of the long-term nature of
these contracts and the inherent difficulties in estimating costs and of the
interrelationship of the integrated services to be provided under these
contracts whereby unanticipated costs or delays in performing part of the
contract can have compounding effects by increasing costs of performing other
parts of the contract.
EMPLOYEES
We believe our employees are our most valuable asset and that their
loyalty, productivity, pioneering spirit, work ethic and strong commitment in
providing quality services have been crucial elements in the successes we have
achieved on numerous projects in remote, logistically challenging locations
around the world.
At December 31, 2001, we employed directly or through our joint
ventures, a multi-national work force of approximately 3,790 persons, of which
81% are citizens of the respective countries in which they work. Although the
level of activity varies from year to year, we have maintained an average work
force of approximately 3,370 over the past five years. The minimum employment
during that period has been 2,010 and the maximum 4,750. At December 31, 2001,
approximately 32% of our employees were covered by collective bargaining
agreements. We believe our relations with our employees are satisfactory.
20
The following table sets forth the location of employees by work
countries as of December 31, 2001:
NUMBER OF
EMPLOYEES(1) PERCENT
------------ -------
Nigeria ................ 1,180 31%
Cameroon ............... 1,280 34
Oman ................... 420 11
Venezuela .............. 220 6
Canada ................. 110 3
U.S. Engineering ....... 360 9
U.S. Construction ...... 150 4
U.S. Administration .... 70 2
----- -----
Total .................. 3,790 100%
===== =====
(1) Includes joint ventures
EQUIPMENT
We own, lease, and maintain a fleet of generally standardized
construction, transportation and support equipment and spare parts. In 2001 and
2000, expenditures for capital equipment and spare parts were $28.8 million and
$15.4 million, respectively. At December 31, 2001, our net book value of
property, plant, equipment and spare parts was $74.3 million. During 2001,
surplus equipment with a net book value of $0.6 million was sold or retired for
approximately $0.2 million.
Historically, we have preferred to own rather than lease equipment to
ensure that standardized equipment is available as needed. We believe the
standardization of equipment has resulted in lower equipment costs. We are
constantly evaluating the availability of equipment and may from time to time
pursue the leasing of equipment to support projects. In recent years the leasing
market for heavy construction equipment in international locales has become much
more competitive. As a result, we have made more significant use of leasing to
support our project equipment requirements. We continue to evaluate expected
equipment utilization, given anticipated market conditions, and may dispose of
underutilized equipment from time to time. All equipment is subject to scheduled
maintenance to maximize fleet readiness. We have maintenance facilities at Port
Harcourt, Nigeria; Azaiba, Oman; Maracaibo, Venezuela; and Houston, Texas; as
well as temporary site facilities on major jobs to minimize downtime.
FACILITIES
We own a 14-acre equipment yard/maintenance facility and an adjoining
29-acre undeveloped industrial site (that is under lease to a third party) at
Broken Arrow, Oklahoma, a short distance from Tulsa, Oklahoma and a similar
facility in Channelview, Texas, near Houston, that is comprised of 19 acres. In
Canada, we own a 10,000 square foot fabrication shop on 3 acres of land in Ft.
McMurray, Alberta. In Venezuela, our offices and construction facilities are
located on 15 acres of land, which we own, on the shores of Lake Maracaibo. We
lease all other facilities used in our operations, including corporate offices
in Panama; administrative and engineering offices in Tulsa, Oklahoma, and
Houston, Texas; and various office facilities, equipment sites and expatriate
housing units in the United States, Canada, England, Nigeria, Oman, and
Venezuela. Rent expense for these facilities was $2.6 million in 2001 and $3.2
million in 2000.
21
INSURANCE AND BONDING
Operational risks are analyzed and categorized by our risk management
department and are insured through a major national insurance broker under a
comprehensive insurance program, which includes commercial insurance policies,
consisting of the types and amounts typically carried by companies engaged in
the worldwide construction industry. We maintain worldwide master policies
written through A-rated insurers. These policies cover our land and marine
property, plant, equipment and cargo against all normally insurable risks,
including war risk, political risk and terrorism, in third-world countries.
Other policies cover our workers and liabilities arising out of our operations.
Primary and excess liability insurance limits are consistent with the level of
our asset base. Risks of loss or damage to project works and materials are often
insured on our behalf by our clients. On other projects, "builders all risk
insurance" is purchased. All insurance is purchased and maintained at the
corporate level, other than certain basic insurance, which must be purchased in
some countries in order to comply with local insurance laws.
The insurance protection we maintain may not be sufficient or effective
under all circumstances or against all hazards to which we may be subject. An
enforceable claim for which we are not fully insured could have a material
adverse effect on our results of operations. We recently renewed our insurance
policies at rates significantly higher than the previous year. In the future,
our ability to maintain insurance, which may not be available at rates we
consider reasonable, may be affected by events over which we have no control,
such as those that occurred on September 11, 2001.
We often are required to provide surety bonds guaranteeing our
performance and/or financial obligations. The amount of bonding available to us
depends upon our experience and reputation in the industry, financial condition,
backlog and management expertise, among other factors. We maintain relationships
with two top-rated surety companies to provide surety bonds. We also use letters
of credit in lieu of bonds to satisfy performance and financial guarantees on
some international projects.
POLITICAL AND ECONOMIC RISKS; OPERATIONAL RISKS
We currently have substantial operations and assets in developing
countries in Africa, the Middle East and South America. Approximately 45% of our
contract revenues from 2001 were derived from activities in developing
countries, and approximately 72% of our long-lived assets as of December 31,
2001 were located in developing countries. For a list of revenue and assets by
location, see Note 13 of "Notes to Consolidated Financial Statements" included
elsewhere in this Form 10-K. Accordingly, we are subject to risks which
ordinarily would not be expected to exist in the United States, Canada, Japan or
Western Europe.
Some of these risks include:
o Foreign currency restrictions, which may prevent us from repatriating
foreign currency received in excess of local currency requirements and
converting it into dollars or other fungible currency.
o Exchange rate fluctuations, which can reduce the purchasing power of
local currencies and cause our costs to exceed our budget, reducing our
operating margin in the affected country.
o Expropriation of assets, by either a recognized or unrecognized foreign
government, which can disrupt our business activities and create delays
and corresponding losses.
o Civil uprisings, riots and war, which can make it impractical to
continue operations, adversely affect both budgets and schedules and
expose us to losses. In 1999, for example, local protestors looted and
vandalized our facilities in Nigeria and interfered with our
operations.
o Availability of suitable personnel and equipment, which can be affected
by government policy, or changes in policy, which limit the importation
of skilled craftsmen or specialized equipment in areas where local
resources are insufficient.
o Government instability, which can cause investment in capital projects
by our potential customers to be withdrawn or delayed, reducing or
eliminating the viability of some markets for our services.
o Legal systems of decrees, laws, regulations, interpretations and court
decisions which are not always fully developed and which may be
retroactively applied and cause us to incur unanticipated and/or
22
unrecoverable costs as well as delays which may result in real or
opportunity costs. In Venezuela, for example, a new hydrocarbons law,
which went into effect on January 1, 2002 and which increases royalty
rates from approximately 17% to between 20% and 30%, is expected to
reduce investment in that country.
o Terrorist attacks such as those which occurred on September 11, 2001,
which could impact insurance rates, insurance coverages, the level of
economic activity and produce instability in financial markets. The
terrorist attacks on September 11, 2001, and the changes in the
insurance markets attributable to the terrorist attacks, have resulted
in increased insurance premiums and have made it difficult for us to
obtain certain types of insurance coverage. We may be unable to secure
the levels and types of insurance we would otherwise have secured prior
to September 11, 2001. A lower level of economic activity could also
result, and instability in the financial markets could also affect our
ability to raise capital.
Our operations in developing countries may be adversely affected in the
event any governmental agencies in these countries interpret laws, regulations
or court decisions in a manner which might be considered inconsistent or
inequitable in the United States, Canada, Japan or western Europe. We may be
subject to unanticipated taxes including income taxes, excise duties, import
taxes, export taxes, sales taxes, or other governmental assessments, which could
have a material adverse effect on our results of operations for any quarter or
year.
Given the unpredictable nature of the risks described in the preceding
paragraph, there can be no assurance that such risks will not result in a loss
of business which could have a material adverse effect on our results of
operations. We have attempted to mitigate the risks of doing business in
developing countries by separately incorporating our operations in many such
countries; working with local partners in certain countries; contracting
whenever possible with major international oil and gas companies; obtaining
sizeable down payments or securing payment guarantees; entering into contracts
providing for payment in U.S. dollars instead of the local currency whenever
possible; maintaining reserves for credit losses; maintaining insurance on
equipment against certain political risks and terrorism; and limiting our
capital investment in each country. We retain local advisors to assist us in
interpreting the laws, practices and customs of the countries in which we
operate.
In 1999, local protesters looted and vandalized one of our facilities
near Port Harcourt, Nigeria, and interfered with the operations and progress on
some ongoing projects. The Nigerian government intervened and restored order in
the area. In 2000, there were periodic interruptions on some projects. We have
successfully operated in Nigeria for the past 39 years with very favorable
relationships with the local communities, and believe that we can continue to
operate in the area.
Due to the limited number of major projects worldwide, we may, at any
one time, have a substantial portion of our resources dedicated to projects
located in a few countries. Our results of operations are, therefore,
susceptible to adverse events beyond our control, which may occur in a
particular country in which one of our businesses may be concentrated.
Our operations include pipeline construction, dredging, pipeline
rehabilitation services, marine support services and the operation of vessels
and heavy equipment. These operations involve a high degree of operational risk.
Natural disasters, adverse weather conditions, collisions, and operator or
navigational error could cause personal injury or loss of life, severe damage to
and destruction of property, equipment and the environment and suspension of
operations. In locations where we perform work with equipment that is owned by
others, our continued use of the equipment can be subject to unexpected or
arbitrary interruption or termination. The occurrence of any of these events
could result in work stoppage, loss of revenue, casualty loss, increased costs
and significant liability to third parties. Litigation arising from the
occurrence of any of these events could result in our being named as a defendant
in lawsuits asserting substantial claims.
We maintain risk management and safety programs to mitigate the effects
of loss or damage. While we maintain such insurance protection as we deem
prudent, there can be no assurance that any such insurance will be sufficient or
effective under all circumstances or against all hazards to which we may be
subject. An enforceable claim for which we are not fully insured could have a
material adverse effect on
23
our financial condition and results of operations. Moreover, no assurance can be
given that we will be able to maintain adequate insurance in the future at rates
that we consider reasonable.
GOVERNMENT REGULATIONS
General
Many aspects of our operations are subject to government regulations in
the countries in which we operate, including those relating to currency
conversion and repatriation, taxation of our earnings and earnings of our
personnel, and our use of local employees and suppliers. In addition, we depend
on the demand for our services from the oil, gas and power industries and,
therefore, our business is affected by changing taxes, price controls and laws
and regulations relating to the oil, gas and power industries generally. The
ability of the Organization of Petroleum Exporting Countries to meet and
maintain production targets also influences the demand for our services. The
adoption of laws and regulations by the countries or the states in which we
operate for the purpose of curtailing exploration and development drilling for
oil and gas or the development of power generation facilities for economic and
other policy reasons, could adversely affect our operations by limiting demand
for our services. Our operations are also subject to the risk of changes in
foreign and U.S. laws and policies which may impose restrictions on our
business, including trade restrictions, which could have a material adverse
effect on our operations.
Other types of government regulation which could, if enacted or
implemented, adversely affect our operations include:
o Expropriation or nationalization decrees
o Confiscatory tax systems
o Primary or secondary boycotts directed at specific countries or
companies
o Embargoes
o Extensive import restrictions or other trade barriers
o Mandatory sourcing rules
o Unrealistically high labor rate and fuel price regulation.
Our future operations and earnings may be adversely affected by new
legislation, new regulations or changes in, or new interpretations of, existing
regulations and the impact of these changes could be material.
Environmental
Our operations are subject to numerous environmental protection laws
and regulations, which are complex and stringent. We regularly perform work in
and around sensitive environmental areas such as rivers, lakes and wetlands.
Significant fines and penalties may be imposed for non-compliance with
environmental laws and regulations, and certain environmental laws provide for
joint and several strict liability for remediation of releases of hazardous
substances, rendering a person liable for environmental damage without regard to
negligence or fault on the part of such person. In addition to potential
liabilities that may be incurred in satisfying these requirements, we may be
subject to claims alleging personal injury or property damage as a result of
alleged exposure to hazardous substances. Such laws and regulations may expose
us to liability arising out of the conduct of operations or conditions caused by
others, or for our acts which were in compliance with all applicable laws at the
time such acts were performed. We are not aware of any non-compliance with or
liability under any environmental law that could have a material adverse effect
on our business or operations.
24
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
2001(1) 2000(2) 1999 1998 1997
--------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Contract revenue $ 390,134 $ 314,290 $ 176,564 $ 281,618 $ 251,877
Operating expenses:
Contract cost 315,685 266,969 145,498 220,360 182,435
Termination of benefit plans (9,204) -- -- -- --
Depreciation and amortization 19,522 22,408 21,313 25,552 18,936
General and administrative 29,975 30,218 27,548 32,383 29,118
--------- --------- --------- --------- ---------
Operating income (loss) 34,156 (5,305) (17,795) 3,323 21,388
Net interest income (expense) (2,084) (1,865) 587 (484) 304
Minority interest (1,501) (2,449) (1,541) (1,132) (1,911)
Other income (expense) (1,107) (716) 2,031 (1,502) 58
--------- --------- --------- --------- ---------
Income (loss) before income taxes 29,464 (10,335) (16,718) 205 19,839
Provision for income taxes 10,384 5,257 3,300 4,567 5,723
--------- --------- --------- --------- ---------
Net income (loss) $ 19,080 $ (15,592) $ (20,018) $ (4,362) $ 14,116
========= ========= ========= ========= =========
Net income (loss) per share:
Basic $ 1.32 $ (1.11) $ (1.54) $ (.30) $ .97
Diluted 1.27 (1.11) (1.54) (.30) .96
CASH FLOW DATA:
Cash provided by (used in):
Operating activities $ 24,756 $ 3,040 $ (14,041) $ 15,199 $ 45,788
Investing activities (36,066) (10,035) 4,866 (34,684) (46,386)
Financing activities 18,373 10,442 8,641 (14,545) 19,747
Effect of exchange rate changes 287 686 93 (961) (29)
OTHER DATA:
EBITDA(3) $ 51,070 $ 13,938 $ 4,008 $ 26,241 $ 38,471
Capital expenditures, excluding acquisitions 28,818 15,351 12,245 36,112 47,272
Backlog (at period end)(4) 407,553 373,947 253,080 286,473 135,797
Number of employees (at
period end)(5) 3,790 2,194 2,030 2,280 4,230
Cash dividends per common share -- -- -- -- --
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents $ 19,289 $ 11,939 $ 7,806 $ 8,247 $ 43,238
Working capital 46,222 32,079 25,801 13,495 39,563
Total assets 224,135 176,125 153,153 159,939 201,202
Total debt 39,284 26,298 15,981 758 8,574
Stockholders' equity 96,557 71,746 80,427 106,934 118,986
----------
(1) The Company acquired MSI Energy Services Inc., a general contractor in
Alberta, Canada, on October 12, 2001. Accordingly, its results of
operations since that date are consolidated with the Company's results of
operations. Refer to Management's Discussion and Analysis of Financial
Condition and Results of Operations - General and the Company's
Consolidated Financial Statements included elsewhere herein.
(2) The Company acquired Rogers & Phillips, Inc., a U.S. pipeline construction
company, on January 24, 2000. Accordingly, its results of operations since
that date are consolidated with the Company's results of operations. Refer
to Management's Discussion and Analysis of Financial Condition and Results
of Operations - General and the Company's Consolidated Financial Statements
included elsewhere herein.
(3) EBITDA represents earnings before net interest, income taxes, depreciation
and amortization. EBITDA is not intended to represent cash flows for the
respective period, nor has it been presented as an alternative to operating
income as an indicator of operating performance. It should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with accounting principles generally accepted in the
United States. See the Company's Consolidated Statements of Cash Flows in
the Company's Consolidated Financial Statements included elsewhere in this
Annual Report. EBITDA as included in this Form 10-K because it is one of
the measures through which the Company assesses its financial performance.
EBITDA as presented may not be comparable to other similarly titled
measures used by other companies.
(4) Backlog is anticipated contract revenue from contracts for which award is
either in hand or reasonably assured.
(5) Includes joint ventures in 2001.
25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements for the years ended December 31, 2001 and
2000, included in Item 8 of this Form 10-K.
GENERAL
We derive our revenue from providing construction, engineering and
specialty services to the oil, gas and power industries and government entities
worldwide. We obtain contracts for our work primarily by competitive bidding or
through negotiations with long-standing or prospective clients. Bidding
activity, backlog and revenue resulting from the award of contracts to us may
vary significantly from period to period. Contracts have durations from a few
weeks to several months or in some cases more than a year.
Operations outside the United States may be subject to certain risks
which ordinarily would not exist in the United States, including foreign
currency restrictions, extreme exchange rate fluctuations, expropriation of
assets, civil uprising and riots, availability of personnel and government
audit. In 1999, local protesters looted and vandalized our facility near Port
Harcourt, Nigeria, and interfered with our operations and progress on some
ongoing projects. The Nigerian government intervened and restored order in the
area. In 2000 there were periodic interruptions on some projects. We have
successfully operated in Nigeria for the past 39 years with very favorable
relationships with the local communities, and believe that we can continue to
operate in the area. We have been active in South America since 1939. Venezuela
is the largest oil producer in South America and has redirected its energy
initiative to include development of its significant natural gas reserves. This
new initiative should translate into more demand for our natural gas pipeline
capabilities. However, the Venezuelan economy is highly inflationary and the
government has introduced a new hydrocarbon law, which is viewed by both
international and national petroleum industry leaders as unfriendly to future
investment in this sector. The outcome of negotiations between the government
and private industry to revise the law is uncertain, and significant new foreign
investment is unlikely until the negotiations are complete.
CRITICAL ACCOUNTING POLICIES
Revenue Recognition: Percentage-of-Completion Method - A number of
factors relating to our business affect the recognition of contract revenue.
Revenue from fixed-price construction and engineering contracts is recognized on
the percentage-of-completion method. Under this method, estimated contract
income and resulting revenue is generally accrued based on costs incurred to
date as a percentage of total estimated costs, taking into consideration
physical completion. Total estimated costs, and thus contract income, are
impacted by changes in productivity, scheduling, and the unit cost of labor,
subcontracts, materials and equipment. Additionally, external factors such as
weather, client needs, client delays in providing approvals, labor availability,
governmental regulation and politics, may also affect the progress and estimated
cost of a project's completion and thus the timing of income and revenue
recognition. Generally, we do not recognize income on a fixed-price contract
until the contract is approximately 5% to 10% complete, depending upon the
nature of the contract. Costs which are considered to be reimbursable are
excluded from the percentage-of-completion calculation. Accrued revenue
pertaining to reimbursables is limited to the cost of the reimbursables. If a
current estimate of total contract cost indicates a loss on a contract, the
projected loss is recognized in full when determined. Revenue from change
orders, extra work, variations in the scope of work and claims is recognized
when realization is reasonably assured. Revenue from unit-price contracts is
recognized as earned. We believe that our operating results should be evaluated
over a relatively long time horizon during which major contracts are completed
and change orders, extra work, variations in the scope of work and cost
recoveries and other claims are negotiated and realized.
All U.S. government contracts and many of our other contracts provide
for termination of the contract for the convenience of the client. In the event
a contract would be terminated at the convenience of the client prior to
completion, we will typically be compensated for progress up to the time of
termination and any termination costs. In addition, many contracts are subject
to certain completion schedule
26
requirements with liquidated damages in the event schedules are not met as the
result of circumstances that are within our control.
An example of a project involving many of the above factors is our
project in Australia. The project in Australia was completed after July 1, 2000,
the date on which liquidated damages were scheduled to commence under the
contract. Due primarily to productivity and other labor issues, and anticipated
liquidated damages, we recognized a contract loss of $14.5 million in 2000.
However, during 2001, the client accepted claims for extension of the scheduled
completion date, accepted other claims and requested additional services,
resulting in contract amendments and the realization in 2001 of $4.2 million of
contract income on the project.
Income Taxes - The determination of our tax provision is complex due to
operations in several tax jurisdictions outside the United States which may be
subject to certain risks which ordinarily would not be expected in the United
States. Tax regimes in certain jurisdictions are subject to significant changes
which may be applied on a retroactive basis. If this were to occur, our tax
expense could be materially different than the amounts reported. Furthermore, in
determining the valuation allowance related to deferred tax assets, we estimate
taxable income into the future and determine the magnitude of deferred tax
assets which are more likely than not to be realized. Future taxable income
could be materially different than amounts estimated, in which case the
valuation allowance would need to be adjusted.
Joint Venture Accounting - From time to time, we seek one or more joint
venture partners when a project requires local content, equipment, manpower or
other resources beyond those we have available to complete work in a timely and
efficient manner or when we wish to share risk on a particularly large project.
We have investments, ranging from 10 percent to 50 percent, in joint ventures
that operate in similar lines of business as ours. Investments consist of a 10
percent interest in a consortium for work in Venezuela, a 35 percent interest in
a joint venture for work in Australia and a 50 percent interest in a joint
venture for work in Africa. Interests in these unconsolidated ventures are
accounted for under the equity-method in the consolidated balance sheets and on
a proportionate consolidation basis in the consolidated statements of
operations. This presentation is consistent with construction industry practice.
Alternatively, if we were to account for these interests using the equity-method
in the consolidated statement of operations, revenue and contract cost would be
materially lower; however, net income would not change.
SIGNIFICANT BUSINESS DEVELOPMENTS
On January 24, 2000, we acquired Rogers & Phillips, Inc. ("RPI"), a
closely held pipeline construction company in Houston, Texas with an experienced
management team and a strong market position in the U.S. Gulf Coast area.
Founded in 1992, RPI provides a full range of construction services for pipeline
operating companies, including station and piping projects in congested urban
areas and inside plants, as well as cross-country pipelines. The consideration
included 1,035,000 shares of our common stock and approximately $1.7 million in
cash and acquisition costs. The transaction was accounted for as a purchase. RPI
contributed $85.9 million of revenue during 2001 and $39.4 million in 2000.
In September 2000, through a joint venture led by a subsidiary of ours,
we were awarded a significant project, the scope of which includes the
engineering, procurement and construction ("EPC") of a 665-mile
(1,070-kilometer), 30-inch crude oil pipeline from the Doba Fields in Chad to an
export terminal on the coast of Cameroon in Africa (the "Chad-Cameroon Pipeline
Project"). Engineering and procurement activities began in late 2000. Pipeline
construction began in November 2001 and is expected to be completed in 2003.
During 2000, our activities in Nigeria included work on two major EPC
contracts for Shell: (a) the Nembe Creek gas gathering pipeline system, and (b)
four concrete barge-mounted gas compressor facilities for Shell's Nembe Creek
Associated Gas project (collectively, the "Nembe Creek Projects"). At the end of
2001, both projects were nearing completion.
27
During 2000, Willbros USA, Inc. relocated its administrative
headquarters and some construction support services from Tulsa, Oklahoma, to
Houston, Texas. The cost of the move, termination benefits, and office lease
termination costs totaled approximately $4.5 million.
On October 12, 2001, we completed the purchase of MSI Energy Services
Inc. ("MSI"), a Canadian general contractor whose common shares were listed on
The Canadian Venture Exchange. MSI provides pipeline construction, pipeline
integrity and maintenance services in addition to pipe storage and handling
services, specialty metal fabrication services, pipeline equipment rentals and
concrete construction products in the oil sands region of Northern Alberta,
Canada. The aggregate purchase price, including transaction costs, was $8.3
million. In conjunction with the acquisition the Company sold 144,175 common
shares from treasury for $1.9 million to certain MSI shareholders and the net
cash paid of $6.4 million to purchase MSI was funded through borrowings under
our principal credit agreement. The transaction was accounted for as a purchase.
MSI contributed $3.3 million of revenue during 2001.
During 2001, our engineering group executed an alliance agreement with
Explorer Pipeline Company to provide project management, engineering,
procurement and construction services for their Mainline Expansion Project in
Texas, Oklahoma, Missouri, Illinois, and Indiana (the "Explorer Pipeline
Project"). This project includes construction of 12 grassroots pump stations,
modifications at 12 existing pump stations, the addition of 500,000 barrels of
storage at the Wood River, Illinois terminal and modifications at two other
terminals. The project is scheduled for completion in 2002.
OTHER FINANCIAL MEASURES
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 year 2001 was $51.1 million, up $37.2 million from $13.9
million for 2000.
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. New contract awards totaled $423.8
million during the year ended December 31, 2001. Additions to backlog during the
year were as follows: construction, $147.4 million; engineering, $219.9 million;
and specialty services, $56.5 million. Backlog decreases by type of service as a
result of services performed during the period were as follows: construction,
$214.5 million; engineering, $120.3 million; and specialty services, $55.3
million. Backlog at the end of the year increased $33.7 million (9%) from the
previous year end to $407.6 million and consisted of the following: (a)
construction, $207.7 million, down $67.1 million (24%); (b) engineering, $154.6
million, up $99.6 million (181%); and (c) specialty services, $45.3 million, up
$1.2 million (3%). Construction backlog consists primarily of the Chad-Cameroon
Pipeline Project and construction projects in Offshore West Africa. Engineering
backlog consists primarily of the Explorer Pipeline Project and other
engineering and procurement projects in the United States. Specialty services
backlog is largely attributable to a 16-year water injection contract awarded in
1998 to a consortium in which we have a 10 percent interest in Venezuela,
contracts to build, own and operate four fueling facilities for the United
States government, and service contracts in Oman and Canada.
RESULTS OF OPERATIONS
Our contract revenue and contract costs are primarily related to 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
28
work locations. We do not believe that our revenue or results of operations were
adversely affected in this regard during the years ended December 31, 2001 or
2000.
FISCAL YEAR ENDED DECEMBER 31, 2001, COMPARED TO FISCAL YEAR
ENDED DECEMBER 31, 2000
CONTRACT REVENUE
Contract revenue increased $75.8 million (24%) to $390.1 million as a
result of (a) increased engineering revenue of $61.6 million due to an increase
in engineering and procurement services in the United States; and (b) increased
construction revenue of $22.1 million due primarily to increased construction
activity in the United States, Offshore West Africa and Cameroon partially
offset by reduced activities on the Nembe Creek Projects in Nigeria as they
neared completion in 2001 and the completion in the third quarter of 2000 of the
construction contract in Australia. These increases in engineering and
construction revenue were partially offset by a decrease of $7.9 million in
specialty services revenue. Revenue in the United States increased $112.3
million (121%) due to an increase in engineering, procurement and construction
services. Cameroon revenue increased $34.0 million as work on the Chad-Cameroon
Pipeline Project moved from the engineering, procurement and mobilization phases
into the construction phase in November 2001. Offshore West Africa revenue
increased $26.3 million (149%) due to higher utilization of the combination
barge "Willbros 318" as well as utilization of the derrick barge "WB82" acquired
in 2001. Revenue in Oman increased $1.4 million (11%). Canada revenue, from the
MSI acquisition on October 12, 2001, was $3.3 million. Nigeria revenue decreased
$75.6 million (53%) due to reduced activity on the Nembe Creek Projects.
Australia revenue decreased $16.7 million (81%) due to the construction contract
that was completed in 2000, net of $4.0 million from contract amendments and
settled claims during 2001. Revenue in Venezuela decreased $9.2 million (35%).
CONTRACT COSTS
Contract costs increased $48.7 million (18%) to $315.7 million due to
an increase of $51.9 million in engineering services cost and an increase in
construction services cost of $8.1 million, partially offset by a decrease of
$11.3 million in specialty services cost. Variations in contract cost by country
were closely related to the variations in contract revenue, with the exception
of Australia. Contract costs in Australia decreased by $35.4 million or $18.7
million more than the decrease in revenue primarily as a result of a $14.5
million loss recognized during 2000, offset by $4.2 million of settled claims in
2001.
TERMINATION OF BENEFIT PLANS
During 2001 we terminated two employee benefit plans which resulted in
one-time, non-taxable gains of $9.2 million. These plans were costly to maintain
and had become ineffective in the recruitment and retention of an experienced
and qualified workforce.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased $2.9 million to $19.5 million
due primarily to the sale in 2000 of excess equipment in Venezuela, Indonesia,
the United States and Oman, accelerated amortization of excess spare parts in
Indonesia in 2000 and accelerated amortization of leasehold improvements of $0.8
million related to termination of our administrative office space in Tulsa,
Oklahoma as a result of relocation of those offices to Houston, Texas.
GENERAL AND ADMINISTRATIVE
General and administrative expense, as a percentage of revenue,
decreased to 7.7% in 2001 from 9.6% in 2000. On a dollar basis, general and
administrative expenses decreased $0.2 million to $30.0 million in 2001. This
reduction is the result of the non-recurrence of the $3.6 million in expenses
that were incurred in 2000 that were associated with the relocation of the
administrative office to Houston, Texas. This reduction was offset by increased
general and administrative expenses in 2001 as expansion in staffing and support
services were necessary to support the 24% increase in revenue during the year.
29
OPERATING INCOME
Operating income increased $39.4 million from an operating loss of $5.3
million in 2000 to operating income of $34.1 million in 2001. For the reasons
described above, operating income increased in Australia by $19.4 million (from
an operating loss of $15.4 million in 2000), the United States by $14.8 million,
Offshore West Africa by $9.2 million and Cameroon by $5.0 million. Additionally,
we recognized $9.2 million of gains related to the termination of certain
employee benefit plans. These improvements were offset by reduced operating
income in Nigeria and Venezuela totaling $18.7 million. All other areas combined
accounted for an increase of $0.5 million.
NET INTEREST INCOME (EXPENSE)
Net interest income (expense) decreased $0.2 million to $2.1 million
net interest expense due primarily to lower interest rates during the period
offset by higher average debt levels.
MINORITY INTEREST
Minority interest expense decreased $0.9 million to $1.5 million due to
a decrease in activity in Nigeria where minority interest partners were
involved.
FOREIGN EXCHANGE GAIN (LOSS)
Foreign exchange loss decreased $1.0 million to $0.1 million primarily
due to the write-off during 2000 of cumulative translation adjustments
associated with substantially reduced operations in Indonesia and other work
countries.
OTHER INCOME (EXPENSE)
Other income (expense) decreased $1.4 million to $1.0 million expense
primarily due a full year of amortization of debt issue cost and losses on
equipment disposals.
PROVISION FOR INCOME TAXES
The provision for income taxes increased $5.1 million while pretax
income increased $39.8 million. This is the result of increased taxes on higher
taxable income in the United States offset by lower income taxes in Nigeria due
to a decrease in taxable revenue in that country, an adjustment to the deferred
tax assets valuation allowance in the United States by $2.3 million and
settlement of $0.9 million of prior year taxes in Nigeria. The valuation
allowance for deferred tax assets was reduced in each of 2000 and 2001 as a
result of significant increases in revenue, earnings, contract awards, backlog
and forecasted earnings for some of our U.S. entities. In addition, we had $9.2
million of non-taxable gains in 2001 associated with the termination of benefit
plans. The provision for income taxes is impacted by income taxes in certain
countries, primarily Nigeria, being based on deemed profit rather than taxable
income and the fact that losses in one country cannot be used to offset taxable
income in another country.
FISCAL YEAR ENDED DECEMBER 31, 2000, COMPARED TO FISCAL YEAR
ENDED DECEMBER 31, 1999
CONTRACT REVENUE
Contract revenue increased $137.7 million (78%) to $314.3 million due
to (a) $124.6 million of increased construction revenue resulting primarily from
new construction contracts in Nigeria, the United States and Offshore West
Africa; and (b) an increase of $24.9 million in specialty services revenue,
principally from operations in Nigeria, Oman and Venezuela; net of decreased
engineering revenue of $11.8 million due to completion in early 2000 of the
engineering portion of engineering, procurement and
30
construction contracts in Nigeria. Nigeria revenue increased $67.1 million (88%)
due to revenue from work performed on engineering, procurement and construction
projects and increased specialty services work. Revenue in the United States
increased $50.0 million (117%) primarily due to construction projects in
Indiana, Illinois and Louisiana performed by RPI and increased engineering work.
Offshore West Africa revenue increased $16.4 million due primarily to work
performed on an engineering, procurement and construction project to install
offshore pipelines and facilities. Oman revenue increased $4.9 million (61%) due
to increased construction and service revenues. Venezuela revenue increased $2.6
million (11%) due to work performed on a water injection platform construction
contract and several new service contracts. Australia revenue increased $1.9
million due to a construction contract started in the second half of 1999 and
completed in July 2000. Indonesia revenue decreased $3.2 million (100%) and
Ivory Coast revenue decreased $2.6 million (100%) due to the completion of work
in 1999 on pipeline projects in those countries. Revenue in all other areas
increased $0.6 million.
CONTRACT COSTS
Contract costs increased $121.5 million (84%) to $267.0 million due to
an increase of $114.2 million in construction services cost, an increase of
$15.8 million in specialty services costs and a decrease of $8.5 million in
engineering services cost. Variations in contract costs by country were closely
related to the variations in contract revenue, with the exception of Australia.
Contract costs in Australia exceeded contract revenue by approximately $14.5
million.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $1.1 million to $22.4 million
due to $0.8 million of accelerated amortization of leasehold improvements
related to the Company's vacated office space in Tulsa, Oklahoma, and $0.9
million of increased amortization resulting from higher levels of spare parts
purchases, offset by a reduction in depreciation expense as a result of the sale
of excess equipment in Venezuela, Indonesia, the United States and Oman.
GENERAL AND ADMINISTRATIVE
General and administrative expense increased $2.6 million (9%) to $30.2
million. This increase included $3.0 million of general and administrative
expense from RPI, which was acquired in January 2000, and $3.6 million in office
relocation costs that were partially offset by a $4.0 million reduction in
general and administrative expense as a result of personnel reductions and
scaling back or eliminating activities.
OPERATING LOSS
Operating loss declined $12.5 million (70%) to an operating loss of
$5.3 million. Increased operating income in Nigeria, Offshore West Africa, Oman,
and the United States in the aggregate was $26.8 million. This improvement is
primarily attributable to a 78 percent increase in revenue in 2000 over 1999.
Offsetting the improvements in the above work countries was the increased
operating loss in Australia of $14.3 million. This loss is primarily
attributable to unanticipated labor difficulties and delays caused by weather
and a subcontractor.
NET INTEREST INCOME (EXPENSE)
Net interest income decreased $2.5 million to $1.9 million net interest
expense due to an increase in borrowings and higher interest rates during the
period.
MINORITY INTEREST
Minority interest expense increased $0.9 million to $2.4 million due to
an increase in activity in countries where minority interest partners were
involved.
31
FOREIGN EXCHANGE GAIN (LOSS)
Foreign exchange loss increased $0.6 million to $1.1 million primarily
due to the write-off of cumulative translation adjustments associated with
substantially reduced operations in certain work countries.
OTHER INCOME (EXPENSE)
Other income decreased $2.1 million to $0.4 million primarily due to
gains on disposals of equipment in 1999 exceeding gains on disposals of
equipment in 2000.
PROVISION FOR INCOME TAXES
The provision for income taxes increased $2.0 million (61%) primarily
due to the increase in taxable revenue in Nigeria, offset by a $1.2 million
deferred tax benefit resulting from recognition in 2000 of a portion of the
future tax benefit of operating loss carryforwards in the United States that
were previously fully reserved through a valuation allowance against deferred
tax assets. Although we had a loss before income taxes, a provision for income
taxes was required due to income taxes in certain countries being based on
deemed profit rather than taxable income and the fact that losses in one country
cannot be used to offset taxable income in another country.
EFFECT OF INFLATION AND CHANGING PRICES
Our operations are affected by increases in prices, whether caused by
inflation, government mandates or other economic factors, in the countries in
which we operate. We attempt to recover anticipated increases in the cost of
labor, fuel and materials through price escalation provisions in certain of our
major contracts or by considering the estimated effect of such increases when
bidding or pricing new work.
LIQUIDITY AND CAPITAL RESOURCES
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, and more
recently from borrowings under our credit facility.
Cash and cash equivalents increased $7.4 million (62%) to $19.3 million
at December 31, 2001, from $11.9 million at December 31, 2000. The increase was
due to cash flows of $24.8 million from operations, $18.4 million from financing
activities resulting from net borrowings, issuance of treasury stock and the
exercise of employee stock options and $0.3 million from the effect of exchange
rate changes on cash and cash equivalents. These increases were offset by $36.1
million of investing activities primarily for the purchase of $28.8 million of
equipment and spare parts and $7.4 million for the acquisition of MSI (net of
cash acquired). Working capital increased $14.1 million during 2001 to $46.2
million at December 31, 2001. Our debt, net of cash balances, at December 31,
2001 was $20.0 million as compared to $14.4 million at December 31, 2000.
Stockholders' equity increased $24.8 million to $96.6 million at December 31,
2001. As a result, our debt (net of cash) to equity ratio was basically
unchanged from 20% at the end of 2000 to 21% at December 31, 2001.
CONTRACTUAL OBLIGATIONS
We have a $150 million credit agreement with a syndicated bank group,
which was amended effective June 30, 2000. The credit agreement subjects the
$100 million revolving portion of the credit facility to borrowing base
requirements. The entire facility, less amounts used under the revolving portion
of the facility, may be used for standby and commercial letters of credit.
Borrowings are payable at termination on February 20, 2003. Interest is payable
quarterly at a Base Rate plus a margin ranging from 0.75% to
32
2.25% or a Eurodollar Rate plus a margin ranging from 2.00% to 3.50%, depending
upon our performance. A commitment fee on the unused portion of the credit
agreement is payable quarterly ranging from 0.475% to 0.75%, depending upon our
performance. The credit agreement is collateralized by substantially all of our
assets, including stock of our principal subsidiaries. The credit agreement
restricts the payment of cash dividends and requires us to maintain certain
financial ratios, including among others, indebtedness to EBITDA, leverage, and
interest coverage. 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.
As of December 31, 2001, there was $39.0 million borrowed under the
credit agreement at an average interest rate of 4.5% and $54.4 million of
letters of credit outstanding, leaving $56.6 million available for a combination
of borrowings and letters of credit.
At December 31, 2001, there were $0.1 million of notes payable issued
by RPI to a bank, collateralized by vehicles and machinery, and payable in
monthly installments of principal plus interest ranging from 6.7% to 9.0% per
annum. The notes mature in 2002.
At December 31, 2001, MSI borrowed $0.1 million under a $1.5 million
revolving credit facility with a bank. The credit facility is collateralized by
a fabrication facility and some real estate and equipment. The facility matures
in 2002.
In addition we have unsecured credit facilities with banks in certain
countries outside the United States. Borrowings under these lines, in the form
of short-term notes and overdrafts, are made at competitive local interest
rates. Generally, each line is available only for borrowings related to
operations in a specific country. Credit available under these facilities is
approximately $9.3 million at December 31, 2001. There were no outstanding
borrowings at December 31, 2001.
We have certain operating leases for office and camp facilities.
Minimum lease commitments under operating leases as of December 31, 2001,
totaled $4.5 million and are payable as follows: 2002, $1.3 million; 2003, $0.9
million; 2004, $0.8 million; 2005, $0.8 million; 2006, $0.6 million and later
years, $0.1 million.
Based upon the above, our total cash obligations are payable as
follows: 2002, $1.5 million; 2003, $39.9 million and later years, $2.3 million.
COMMERCIAL COMMITMENTS
From time to time we enter into commercial commitments, usually in the
form of commercial and standby letters of credit, insurance bonds and financial
guarantees. Contracts with our customers may require us to provide letters of
credit or insurance bonds with regard to our performance of contracted services.
In such cases, the commitments can be called upon in the event of our failure to
perform contracted services. Likewise, contracts may allow us 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. In connection with the Chad-Cameroon Pipeline Project joint venture,
we issued a letter of credit to an equipment leasing company equal to 50% of
total lease payments, our share of the joint venture. The letter of credit
reduces as lease payments are made and expires in October 2002. The commitment
can be called upon as a result of failure to make lease payments.
In connection with our 10% interest in a joint venture in Venezuela, we
issued a corporate guarantee equal to 10% of the joint venture's outstanding
borrowings with two banks. The guarantee reduces as borrowings are repaid, and
expires in March 2003. The commitment as of December 31, 2001 totals $3.8
million.
33
In 1997 we entered into lease agreements with a special-purpose leasing
partnership for land and an office building for our engineering group in Tulsa,
Oklahoma. The leases are treated for accounting purposes as operating leases.
The initial terms of the leases were for five years with 30 one-year renewal
options, and end in August 2002. At the end of the initial terms of the leases,
we can extend the leases with the agreement of the lessor, purchase the leased
assets for $5.5 million or terminate the leases and cause the assets to be sold.
If the assets are sold, the cash proceeds from the sale in excess of $5.5
million will be paid to us by the landlord. In the event cash proceeds are less
than $5.5 million, we will make up the shortfall up to a maximum of $4.7
million. Currently, we believe the fair market value of the property is equal to
or greater than $5.5 million.
A summary of our off-balance sheet commercial commitments as of
December 31, 2001 is as follows:
AMOUNT OF COMMITMENT
EXPIRATION PER PERIOD
---------------------
TOTAL LESS THAN OVER 2
COMMITMENT 2 YEARS YEARS
(Dollar Amounts in Millions)
Letters of Credit:
Chad-Cameroon Pipeline Project - performance $31.9 $31.9 $ --
Chad-Cameroon Pipeline Project - equipment lease 12.9 12.9 --
Other - performance and retention 9.6 9.6 --
----- ----- -----
Total letters of credit 54.4 54.4 --
----- ----- -----
Insurance Bonds - primarily performance related:
Expiring 6.7 6.7 --
Non-expiring 2.5 -- 2.5
----- ----- -----
Total insurance bonds 9.2 6.7 2.5
----- ----- -----
Corporate guarantee 3.8 3.8 --
Lease residual value guarantee 4.7 4.7 --
----- ----- -----
Total commercial commitments $72.1 $69.6 $ 2.5
===== ===== =====
We do not anticipate any significant collection problems with our
customers, including those in countries that may be experiencing economic and/or
currency difficulties. Since our customers generally are major oil companies and
government entities, and the terms for billing and collecting for work performed
are generally established by contracts, we historically have a very low
incidence of collectability problems.
We believe that cash flows from operations and borrowing capacity under
existing credit facilities will be sufficient to finance working capital and
capital expenditures for ongoing operations. We estimate capital expenditures
for equipment and spare parts to be approximately $25.0 to $35.0 million in
2002. In analyzing our cash flow from operations, we believe that while there
are numerous factors that could and will have an impact on our cash flow, both
positively and negatively; there is not one or two events that should they occur
could not be funded from our operations or borrowing capacity. 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 "Political and Economic Risks; Operational Risks" contained in
this Form 10-K.
During 1998 and 1999, we repurchased and held in treasury 2,175,371
shares of Common Stock for $16.1 million. We did not repurchase any shares in
2000 or 2001. In January 2000, 1,035,000 shares of treasury stock were issued in
connection with the acquisition of RPI. In October 2001, 144,175 shares of
treasury stock were issued in connection with the acquisition of MSI. As of
December 31, 2001, a total of 996,196 shares remain in treasury stock at an
average price of $7.43 per share.
34
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.
141 requires, among other things, that the purchase method of accounting be used
for all business combinations after June 30, 2001. SFAS No. 142 requires, among
other things, that goodwill and intangible assets with indefinite useful lives
acquired after June 30, 2001 no longer be amortized, but instead be tested for
impairment at least annually. Goodwill and intangible assets acquired before
July 1, 2001 will continue to be amortized until adoption of SFAS No. 142.
We are required to fully adopt the provisions of SFAS No. 142 on
January 1, 2002. Amortization expense related to goodwill was $38 thousand for
the year ended December 31, 2000, and $47 thousand for the year ended December
31, 2001. We do not expect the adoption of SFAS No. 142 to have a material
impact on the consolidated results of operations.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 requires that an asset retirement cost
should be capitalized as part of the cost of the related long-lived asset and
subsequently allocated to expense using a systematic and rational method. We
will adopt SFAS No. 143 effective January 1, 2003. The transition adjustment, if
any, will be reported as a cumulative effect of a change in accounting
principle. At this time, we cannot reasonably estimate the effect of the
adoption of this statement on either our financial position or results of
operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No.
121, Accounting for Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, but retains its fundamental provisions for recognizing and measuring
impairment losses on long-lived assets held for use and long-lived assets to be
disposed of by sale. We are required to adopt SFAS No. 144 on January 1, 2002.
The provisions of SFAS No. 144 generally are required to be applied
prospectively. We do not expect the adoption of SFAS 144 to have a material
impact on our financial position or results of operations.
ITEM 7A. 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 December 31, 2001 and
2000.
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 December 31, 2001 due
to the generally short maturities of these items. We invest primarily in
short-term dollar denominated bank deposits, and at December 31, 2001 did not
have any investment in instruments with a maturity of more than a few days or in
any equity securities. 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 December 31, 2001, $39.0 million of
indebtedness was subject to variable interest rates. The weighted average
effective interest rate on the variable rate debt for the twelve months ended
December 31, 2001 was 7.6%. The detrimental effect of a hypothetical 100 basis
point increase in interest rates would be to reduce income before income taxes
by $0.3 million for the twelve-month period.
35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Audited Financial Statements of Willbros Group, Inc. and Subsidiaries
Independent Auditors' Report....................................................................... 37
Consolidated Balance Sheets as of December 31, 2001 and 2000....................................... 38
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999........................................................... 39
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years
ended December 31, 2001, 2000 and 1999..................................................... 40
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999........................................................... 41
Notes to Consolidated Financial Statements for the years ended
December 31, 2001, 2000 and 1999........................................................... 42
36
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Willbros Group, Inc.:
We have audited the accompanying consolidated balance sheets of Willbros Group,
Inc. as of December 31, 2001 and 2000, and the related consolidated statements
of operations, stockholders' equity and comprehensive income and cash flows for
each of the years in the three-year period ended December 31, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Willbros Group, Inc.
as of December 31, 2001 and 2000, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and certain provisions from SFAS No. 142, "Goodwill and Other
Intangible Assets" in 2001.
KPMG LLP
Houston, Texas
February 5, 2002
37
WILLBROS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31,
------------------------
2001 2000
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 19,289 $ 11,939
Accounts receivable, net 94,604 66,663
Contract cost and recognized income not yet billed 17,006 22,765
Prepaid expenses 3,664 2,666
--------- ---------
Total current assets 134,563 104,033
Spare parts, net 5,965 5,495
Property, plant and equipment, net 68,349 57,070
Other assets 15,258 9,527
--------- ---------
Total assets $ 224,135 $ 176,125
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 284 $ 217
Accounts payable and accrued liabilities 60,125 61,960
Accrued income taxes 7,871 4,952
Contract billings in excess of cost and recognized income 20,061 4,825
--------- ---------
Total current liabilities 88,341 71,954
Long-term debt 39,000 26,081
Other liabilities 237 6,344
--------- ---------
Total liabilities 127,578 104,379
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 and 15,728,191 shares issued at December 31,
2001 (15,206,495 at December 31, 2000) 786 760
Capital in excess of par value 72,915 68,373
Retained earnings 31,205 12,125
Treasury stock at cost, 996,196 shares at December 31, 2001
(1,140,371 shares at December 31, 2000) (7,403) (8,474)
Notes receivable for stock purchases (8) (43)
Accumulated other comprehensive income (loss) (938) (995)
--------- ---------
Total stockholders' equity 96,557 71,746
--------- ---------
Total liabilities and stockholders' equity $ 224,135 $ 176,125
========= =========
See accompanying notes to consolidated financial statements.
38
WILLBROS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
Year Ended December 31,
------------------------------------------------
2001 2000 1999
------------ ------------ ------------
Contract revenue $ 390,134 $ 314,290 $ 176,564
Operating expenses (income):
Contract 315,685 266,969 145,498
Termination of benefit plans (9,204) -- --
Depreciation and amortization 19,522 22,408 21,313
General and administrative 29,975 30,218 27,548
------------ ------------ ------------
355,978 319,595 194,359
------------ ------------ ------------
Operating income (loss) 34,156 (5,305) (17,795)
Other income (expense):
Interest income 377 677 801
Interest expense (2,461) (2,542) (214)
Foreign exchange loss (117) (1,101) (501)
Minority interest (1,501) (2,449) (1,541)
Other - net (990) 385 2,532
------------ ------------ ------------
(4,692) (5,030) 1,077
------------ ------------ ------------
Income (loss) before income taxes 29,464 (10,335) (16,718)
Provision for income taxes 10,384 5,257 3,300
------------ ------------ ------------
Net income (loss) $ 19,080 $ (15,592) $ (20,018)
============ ============ ============
Income (loss) per common share:
Basic $ 1.32 $ (1.11) $ (1.54)
============ ============ ============
Diluted $ 1.27 $ (1.11) $ (1.54)
============ ============ ============
Weighted average number of common shares outstanding:
Basic 14,442,035 14,017,857 13,029,665
============ ============ ============
Diluted 15,074,166 14,017,857 13,029,665
============ ============ ============
See accompanying notes to consolidated financial statements.
39
WILLBROS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(In thousands, except share amounts)
Notes
Common Stock Capital in Receivable
---------------------------- Excess For
Par of Par Retained Treasury Stock
Shares Value Value Earnings Stock Purchases
----------- ----------- ----------- ----------- ----------- -----------
Balance, January 1, 1999 15,071,715 $ 753 $ 67,613 $ 49,914 $ (8,590) $ (982)
Comprehensive income (loss):
Net loss -- -- -- (20,018) -- --
Foreign currency translation
adjustments -- -- -- -- -- --
Total comprehensive
loss
Payment of notes receivable -- -- -- -- -- 675
Purchase of treasury stock -- -- -- -- (7,574) --
Issuance of common stock
under employee benefit plan 51,238 3 311 -- -- --
Exercise of stock options 500 -- 3 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 15,123,453 756 67,927 29,896 (16,164) (307)
Comprehensive income (loss):
Net loss -- -- -- (15,592) -- --
Foreign currency translation
adjustments -- -- -- -- -- --
Total comprehensive
loss
Payment of notes receivable -- -- -- -- -- 264
Issuance of treasury stock -- -- -- (2,179) 7,690 --
Issuance of common stock
under employee benefit plan 42,542 2 241 -- -- --
Exercise of stock options 40,500 2 205 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2000 15,206,495 760 68,373 12,125 (8,474) (43)
Comprehensive income (loss):
Net income -- -- -- 19,080 -- --
Foreign currency translation
adjustments -- -- -- -- -- --
Total comprehensive
income
Payment of notes receivable -- -- -- -- -- 35
Issuance of treasury stock -- -- 779 -- 1,071 --
Issuance of common stock
under employee benefit plan 25,446 1 305 -- -- --
Exercise of stock options 496,250 25 3,458 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2001 15,728,191 $ 786 $ 72,915 $ 31,205 $ (7,403) $ (8)
=========== =========== =========== =========== =========== ===========
Accumulated
Other
Compre- Total
hensive Stock-
Income holders'
(Loss) Equity
------------- -----------
Balance, January 1, 1999 $ (1,774) $ 106,934
Comprehensive income (loss):
Net loss -- (20,018)
Foreign currency translation
adjustments 93 93
-----------
Total comprehensive
loss (19,925)
Payment of notes receivable -- 675
Purchase of treasury stock -- (7,574)
Issuance of common stock
under employee benefit plan -- 314
Exercise of stock options -- 3
----------- -----------
Balance, December 31, 1999 (1,681) 80,427
Comprehensive income (loss):
Net loss -- (15,592)
Foreign currency translation
adjustments 686 686
-----------
Total comprehensive
loss (14,906)
Payment of notes receivable -- 264
Issuance of treasury stock -- 5,511
Issuance of common stock
under employee benefit plan -- 243
Exercise of stock options -- 207
----------- -----------
Balance, December 31, 2000 (995) 71,746
Comprehensive income (loss):
Net income -- 19,080
Foreign currency translation
adjustments 57 57
-----------
Total comprehensive
income 19,137
Payment of notes receivable -- 35
Issuance of treasury stock -- 1,850
Issuance of common stock
under employee benefit plan -- 306
Exercise of stock options -- 3,483
----------- -----------
Balance, December 31, 2001 $ (938) $ 96,557
=========== ===========
See accompanying notes to consolidated financial statements.
40
WILLBROS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
------------------------------------
2001 2000 1999
-------- -------- --------
Cash flows from operating activities:
Net income (loss) $ 19,080 $(15,592) $(20,018)
Reconciliation of net income (loss) to cash provided
by (used in) operating activities:
Termination of benefit plans (9,204) -- --
Depreciation and amortization 19,522 22,408 21,313
Loss (gain) on sales and retirements
of property and equipment 402 (4) (2,897)
Deferred income tax benefit (1,466) (1,193) --
Changes in operating assets and liabilities:
Accounts receivable (25,333) (11,900) (10,551)
Contract cost and recognized
income not yet billed 5,759 (9,305) (5,060)
Prepaid expenses and other assets (2,363) 73 (1,326)
Accounts payable and accrued liabilities 772 23,984 (98)
Accrued income taxes 2,351 (596) (971)
Contract billings in excess of cost
and recognized income 15,236 (4,414) 4,436
Other liabilities -- (421) 1,131
-------- -------- --------
Cash provided by (used in) operating activities 24,756 3,040 (14,041)
Cash flows from investing activities:
Acquisitions, net of cash acquired (7,410) (14) --
Proceeds from sales of property and equipment 162 5,330 17,111
Purchase of property and equipment (22,223) (8,792) (7,983)
Purchase of spare parts (6,595) (6,559) (4,262)
-------- -------- --------
Cash provided by (used in) investing activities (36,066) (10,035) 4,866
Cash flows from financing activities:
Proceeds from long-term debt 75,000 55,000 15,500
Proceeds from notes payable to banks 1,674 979 481
Proceeds from common stock 3,789 450 317
Collection of notes receivable for stock purchases 35 264 675
Repayment of long-term debt (62,000) (44,791) --
Repayment of notes payable to banks (2,104) (1,460) (525)
Sale (purchase) of treasury stock 1,979 -- (7,574)
Repayment of notes payable to former shareholders -- -- (233)
-------- -------- --------
Cash provided by financing activities 18,373 10,442 8,641
Effect of exchange rate changes on cash and
cash equivalents 287 686 93
-------- -------- --------
Cash provided by (used in) all activities 7,350 4,133 (441)
Cash and cash equivalents, beginning of year 11,939 7,806 8,247
-------- -------- --------
Cash and cash equivalents, end of year $ 19,289 $ 11,939 $ 7,806
======== ======== ========
See accompanying notes to consolidated financial statements.
41
WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company - Willbros Group, Inc. ("WGI"), a Republic of Panama corporation,
and all of its majority-owned subsidiaries (the "Company") provide construction,
engineering and specialty services to the oil, gas and power industries. The
Company's principal markets are Africa, Asia, Australia, the Middle East, South
America, Canada and the United States.
Principles of Consolidation - The consolidated financial statements of the
Company include the accounts of WGI and all of its majority-owned subsidiaries.
Intercompany accounts and transactions are eliminated in consolidation. The
ownership interest of minority participants in subsidiaries that are not wholly
owned (principally in Nigeria and Oman) is included in accounts payable and
accrued liabilities and is not material. The minority participants' share of the
net income of those subsidiaries is included in other expense. Interests in
unconsolidated joint ventures are accounted for on the equity method in the
consolidated balance sheets and on a proportionate consolidation basis in the
consolidated statements of operations.
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States and include
certain estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities and the
reported amounts of revenue and expenses. Actual results could differ
significantly from those estimates.
Reclassifications - Certain reclassifications have been made to the 2000
balances in order to conform with the 2001 presentation.
Accounts Receivable - Accounts receivable include retainage, all due within
one year, of $1,819 in 2001 and $858 in 2000 and are stated net of allowances
for bad debts of $734 in 2001 and $508 in 2000. The provision (credit) for bad
debts was $(290) in 2001, $(154) in 2000 and $573 in 1999.
Spare Parts - Spare parts (excluding expendables), stated net of
accumulated depreciation of $10,882 in 2001 and $13,509 in 2000, are depreciated
over three years on the straight-line method.
Property, Plant and Equipment - Depreciation is provided on the
straight-line method using estimated lives as follows:
Construction equipment 4-6 years
Marine equipment 10 years
Transportation equipment 3-4 years
Buildings, furniture and equipment 3-20 years
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in income for the period. Normal repair and maintenance costs
are charged to expense as incurred. Major overhaul costs are accrued in advance
of actual overhaul activities and are allocated to contracts based on estimates
of equipment condition. Significant renewals and betterments are capitalized.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
Goodwill - Goodwill represents the excess of purchase price over fair value
of net assets acquired. Goodwill acquired prior to July 1, 2001 is being
amortized on a straight-line basis over twenty years, until adoption of the
non-amortization of goodwill provision of Statement of Financial Accounting
Standards
42
WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
("SFAS") No. 142 "Goodwill and Other Intangible Assets" in 2002. The Company
adopted SFAS No. 141, "Business Combinations" and certain provisions of SFAS No.
142 as of July 1, 2001. Goodwill acquired after July 1, 2001 of $3,406 is not
amortized, but instead is tested for impairment at least annually. At December
31, 2001, goodwill of $4,383, less accumulated amortization of $85, is included
in other assets. Prior to January 1, 2002, the Company assessed the
recoverability of goodwill using estimates of undiscounted future cash flows.
Revenue - Construction and engineering fixed-price contracts and cost plus
fixed-fee contracts are accounted for using the percentage-of-completion method.
Under this method, estimated contract revenue is generally accrued based on the
percentage the costs to date bear to total estimated costs, taking into
consideration physical completion. Estimated contract losses are recognized in
full when determined. Revenue from unit-price contracts and from time and
material contracts is recognized as earned. Revenue from change orders, extra
work, variations in the scope of work and claims is recognized when realization
is reasonably assured. Costs incurred for bidding and obtaining contracts are
expensed as incurred.
Income Taxes - The Company accounts for income taxes by the asset and
liability method under which deferred tax assets and liabilities are recognized
for the future tax consequences of operating loss and tax credit carryforwards
and temporary differences between the financial statement carrying values of
assets and liabilities and their respective tax bases. The provision for income
taxes is impacted by income taxes in certain countries, primarily Nigeria, being
based on deemed profit rather than taxable income.
Retirement Plans and Benefits - During 2001, the Company terminated its
defined benefit retirement plans and postretirement medical benefits plan that
provided retirement benefits to substantially all regular employees. Pension
costs were funded in accordance with annual actuarial valuations. The Company
recorded the cost of postretirement medical benefits, which were funded on the
pay-as-you-go basis, over the employees' working lives. The Company has a
voluntary defined contribution retirement plan that is qualified, and is
contributory on the part of the employees.
Common Stock Options - The Company measures stock-based compensation using
the intrinsic value method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations, and provides pro-forma disclosure as required by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". As such, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the date of
grant over the exercise price.
Foreign Currency Translation - All significant asset and liability accounts
stated in currencies other than United States dollars are translated into United
States dollars at current exchange rates for countries in which the local
currency is the functional currency. Non-monetary assets and liabilities in
highly inflationary economies are translated into United States dollars at
historical exchange rates. Translation adjustments are accumulated in other
comprehensive income (loss). Revenue and expense accounts are converted at
prevailing rates throughout the year. Foreign currency transaction adjustments
and translation adjustments in highly inflationary economies are recorded in
income. During 2000, $854 was transferred from cumulative translation
adjustments in stockholders' equity to foreign exchange loss due to the
substantial reduction of operations in certain countries.
Concentration of Credit Risk - The Company has a concentration of customers
in the oil, gas and power industries which exposes the Company to a
concentration of credit risks within an industry. The Company seeks to obtain
advance and progress payments for contract work performed on major contracts.
Receivables are generally not collateralized. The Company believes that its
allowance for bad debts is adequate.
43
WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments - The carrying value of financial
instruments does not materially differ from fair value.
Cash Flows - In the determination of cash flows, all highly liquid
investments with maturities of less than three months are considered to be cash
equivalents. The Company paid interest of $2,858 in 2001, $2,216 in 2000 and $76
in 1999 and income taxes of $8,650 in 2001, $7,249 in 2000, and $3,474 in 1999.
Earnings (Loss) per Share - Basic earnings (loss) per share is calculated
by dividing net income, less any preferred dividend requirements, by the
weighted-average number of common shares outstanding during the year. Diluted
earnings (loss) per share is calculated by including the weighted-average number
of all potentially dilutive common shares with the weighted-average number of
common shares outstanding.
Derivative Financial Instruments - The Company may use derivative financial
instruments such as forward contracts, options or other financial instruments as
hedges to mitigate non-U.S. currency exchange risk when the Company is unable to
match non-U.S. currency revenue with expenses in the same currency. The Company
had no derivative financial instruments as of December 31, 2001 or 2000.
2. ACQUISITIONS
On October 12, 2001, the Company successfully completed its tender offer
for all outstanding shares of MSI Energy Services Inc. ("MSI"), a general
contractor in Alberta, Canada. The acquisition establishes the Company's
presence in Canada. The aggregate purchase price, including transaction costs,
was $8,295. Concurrently, the Company sold to certain MSI shareholders 144,175
common shares of treasury stock with an assigned value of $1,850, the market
price at the date the transaction was announced. The net cash of $6,445 paid to
purchase MSI was funded through borrowings under the Company's principal credit
agreement. The transaction was accounted for as a purchase.
On January 24, 2000, the Company acquired Rogers & Phillips, Inc. ("RPI"),
a closely held United States pipeline construction company. The consideration
included 1,035,000 shares of treasury stock valued at $5,511 and approximately
$1,710 in cash and transaction costs. The transaction was accounted for as a
purchase.
The fair value of the net assets acquired from these acquisitions was as
follows:
MSI RPI
------- -------
Current assets $ 3,549 $ 6,615
Property, plant and equipment 3,318 3,523
Current liabilities (1,080) (3,044)
Deferred income taxes (482) (515)
Term debt (416) (335)
------- -------
4,889 6,244
Goodwill, included in other assets 3,406 977
------- -------
$ 8,295 $ 7,221
======= =======
44
WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
2. ACQUISITIONS (CONTINUED)
The unaudited pro forma results of operation for the MSI acquisition, had
the acquisition occurred at January 1, 2000, would have been:
Year Ended December 31,
---------------------------
2001 2000
----------- -----------
Revenue $ 397,202 $ 327,411
Net income (loss) 19,465 (14,825)
Income (loss) per common share:
Basic 1.34 (1.05)
Diluted 1.28 (1.05)
The unaudited pro forma results of operations for the RPI acquisition, had
the acquisition occurred at January 1, 1999, for revenue would have been
$314,290 in 2000 and $198,179 in 1999. Pro forma results of net loss and net
loss per share would not have been materially different from reported results.
3. CONTRACTS IN PROGRESS
Most contracts allow for progress billings to be made during the
performance of the work. These billings may be made on a basis different from
that used for recognizing revenue. Contracts in progress for which cost and
recognized income exceed billings or billings exceed cost and recognized income
consist of:
December 31,
------------------------
2001 2000
--------- ---------
Costs incurred on contracts in progress $ 310,926 $ 198,369
Recognized income 65,473 58,686
--------- ---------
376,399 257,055
Progress billings and advance payments 379,454 239,115
--------- ---------
$ (3,055) $ 17,940
========= =========
Contract cost and recognized income not yet billed $ 17,006 $ 22,765
Contract billings in excess of cost and
recognized income (20,061) (4,825)
--------- ---------
$ (3,055) $ 17,940
========= =========
During the year ended December 31, 2000, the costs to complete a project in
Australia exceeded the cost to complete estimate at December 31, 1999 by
$14,500. This resulted in a loss on the project in 2000 of the same amount.
45
WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, which are used to secure debt or are subject
to lien, at cost, consist of:
December 31,
---------------------
2001 2000
-------- --------
Construction equipment $ 49,201 $ 39,907
Marine equipment 51,154 46,874
Transportation equipment 20,795 17,324
Land, buildings, furniture and equipment 26,658 24,251
-------- --------
147,808 128,356
Less accumulated depreciation and amortization 79,459 71,286
-------- --------
$ 68,349 $ 57,070
======== ========
5. JOINT VENTURES
The Company has investments, ranging from 10 percent to 50 percent, in
joint ventures that operate in similar lines of business as the Company.
Investments consist of a 10 percent interest in a consortium for work in
Venezuela, a 35 percent interest in a joint venture for work in Australia and a
50 percent interest in a joint venture for work in Africa. Interests in these
unconsolidated ventures are accounted for under the equity-method in the
consolidated balance sheets and on a proportionate consolidation basis in the
consolidated statements of operations.
The Company's proportionate share of revenue and contract cost included in
the consolidated statements of operations from these ventures consist of:
Year Ended December 31,
-------------------------------
2001 2000 1999
------- ------- -------
Contract revenue $42,483 $25,546 $21,633
Contract cost 31,637 39,913 22,164
The Company's investments in and advances to and from these ventures
consist of:
December 31,
-----------------
2001 2000
------ ------
Due from joint ventures, included in accounts receivable $5,313 $ 662
Equity in and advances to joint ventures, included in other assets 7,686 4,434
Payable to joint ventures, included in accounts payable -- 1,845
46
WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
5. JOINT VENTURES (CONTINUED)
Summarized balance sheet information for the significant joint venture in
Africa (accounted for under the equity-method in the consolidated balance
sheets) is as follows:
December 31,
-------------------
2001 2000
------- -------
Current assets $31,221 $12,406
Non-current assets 16,257 --
------- -------
Total $47,478 $12,406
======= =======
Liabilities, current $44,471 $12,406
Equity 3,007 --
------- -------
Total $47,478 $12,406
======= =======
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of:
December 31,
-------------------
2001 2000
------- -------
Trade payables $48,075 $45,736
Payrolls and payroll liabilities 9,914 12,894
Equipment reconditioning and overhaul reserves 2,136 3,330
------- -------
$60,125 $61,960
======= =======
7. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following:
December 31,
-------------------
2001 2000
------- -------
$150,000 revolving credit agreement with a syndicated bank group $39,000 $26,000
Revolving credit agreement for MSI 112 --
Notes payable issued by RPI to a bank 131 298
Other obligations 41 --
------- -------
Total long-term debt 39,284 26,298
Less current portion 284 217
------- -------
Long-term debt, less current portion $39,000 $26,081
======= =======
47
WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
7. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
The Company and certain affiliated companies have a $150,000 credit
agreement with a syndicated bank group that was amended effective June 30, 2000.
The credit agreement subjects the $100,000 revolving portion of the credit
facility to borrowing base requirements. The entire facility, less amounts used
under the revolving portion of the facility, may be used for standby and
commercial letters of credit. Borrowings are payable at termination on February
20, 2003. Interest is payable quarterly at a Base Rate plus a margin ranging
from 0.75% to 2.25% or a Eurodollar Rate plus a margin ranging from 2.00% to
3.50%, depending on Company performance. A commitment fee on the unused portion
of the credit agreement is payable quarterly ranging from 0.475% to 0.75%,
depending on Company performance. The credit agreement is collateralized by
substantially all of the Company's assets, including stock of the principal
subsidiaries of the Company. The credit agreement restricts 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. Debt issue costs of $1,048, less
accumulated amortization of $943, are included in other assets at December 31,
2001.
As of December 31, 2001, there was $39,000 borrowed under the credit
agreement at an average interest rate of 4.5% and $54,375 of letters of credit
outstanding leaving $56,625 available for a combination of borrowings and
letters of credit.
At December 31, 2001, there was $131 of notes payable issued by RPI to a
bank, collaterallized by vehicles and machinery, and payable in monthly
installments of principal plus interest ranging from 6.7% to 9.0% per annum. The
notes mature in 2002.
At December 31, 2001, MSI borrowed $112 under a $1,500 revolving credit
facility with a bank and is collateralized by a fabrication facility and certain
real estate and pieces of equipment. The facility matures in 2002.
The Company has unsecured credit facilities with banks in certain countries
outside the United States. Borrowings in the form of short-term notes and
overdrafts, are made at competitive local interest rates. Generally, each line
is available only for borrowings related to operations in a specific country.
Credit available under these facilities is approximately $9,289 at December 31,
2001. There were no outstanding borrowings at December 31, 2001 or 2000.
8. RETIREMENT BENEFITS
The Company had two defined benefit plans (pension plans) covering
substantially all regular employees which were funded by employee and Company
contributions. The Company's funding policy was to contribute at least the
minimum required by the Employee Retirement Income Security Act of 1974 in
accordance with annual actuarial valuations. Benefits under the plans were
determined by employee earnings and credited service. The Company had a
post-retirement medical benefits plan that covered substantially all regular
employees and was funded by Company and retiree contributions based on estimated
cost. The defined benefit plans and the post-retirement medical benefit plan
were terminated during 2001.
Plan assets of the pension plans consisted primarily of listed stocks and
bonds. Pension plan assets totaling $35,985 were distributed to plan
participants during the year. At December 31, 2001, assets totaling $494
remained in the pension plan, pending distribution to plan participants. The
post-retirement medical benefit plan had no assets. Upon termination of these
plans, all benefits ceased and the liabilities relating to the accrued cost of
future benefits were reversed resulting in non-cash, non-taxable gains of
$9,204, which are reflected as a reduction of operating expenses in the 2001
consolidated statements of operations.
48
WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
8. RETIREMENT BENEFITS (CONTINUED)
Benefit expense for these plans included the following components:
Pension Benefits Postretirement Medical Benefits
--------------------------------- ---------------------------------
Year Ended December 31, Year Ended December 31,
--------------------------------- ---------------------------------
2001 2000 1999 2001 2000 1999
------- ------- ------- ------- ------- -------
Service cost $ 714 $ 1,084 $ 1,692 $ 56 $ 119 $ 157
Interest cost 2,260 2,347 2,244 215 365 274
Expected return on plan assets (2,418) (3,155) (2,914) -- -- --
Recognized net actuarial loss (gain) (323) (960) (188) (27) (93) (108)
Amortization of transition asset (29) (29) (29) -- -- --
Amortization of prior service cost 45 133 95 (12) (22) (22)
Curtailment 73 -- -- -- -- --
Amendments (220) 170 -- -- -- --
------- ------- ------- ------- ------- -------
102 (410) 900 232 369 301
Settlement gain (3,170) -- -- (6,034) -- --
------- ------- ------- ------- ------- -------
$(3,068) $ (410) $ 900 $(5,802) $ 369 $ 301
======= ======= ======= ======= ======= =======
The retirement benefit obligations were determined using a weighted-average
discount rate 7.75 percent at December 31, 2000, and 8.0 percent at December 31,
1999. For pension benefits the rate of increase in future pay increases was 5.5
percent at December 31, 2000 and 1999, and assets were expected to have a
long-term rate of return of 8.5 percent. The transition asset was being
amortized over 15 years.
49
WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
8. RETIREMENT BENEFITS (CONTINUED)
The following table sets forth the changes in benefit obligations and plan
assets and the reconciliation of the funded status of the plans to the accrued
benefit cost:
Pension Benefits Postretirement Medical Benefits
------------------------------------ ------------------------------------
Year Ended December 31, Year Ended December 31,
------------------------------------ ------------------------------------
2001 2000 1999 2001 2000 1999
-------- -------- -------- -------- -------- --------
Change in benefit obligations:
Benefit obligations, beginning
of year $ 32,289 $ 30,107 $ 34,278 $ 5,540 $ 4,557 $ 4,057
Service cost 714 1,084 1,692 56 119 157
Interest cost 2,260 2,347 2,244 215 364 274
Plan participants' contribution 295 390 407 60 121 110
Amendments 326 170 -- -- -- --
Actuarial loss (gain) 595 92 (6,416) -- 778 243
Curtailment -- -- -- (5,381) -- --
Benefits paid (35,985) (1,901) (2,098) (490) (399) (284)
-------- -------- -------- -------- -------- --------
Benefit obligations, end of year 494 32,289 30,107 -- 5,540 4,557
-------- -------- -------- -------- -------- --------
Change in plan assets:
Plan assets at fair value,
beginning of year 35,444 37,709 34,699 -- -- --
Actual return on plan assets (858) (754) 4,468 -- -- --
Employer contribution 1,598 -- -- 430 278 174
Plan participants' contribution 295 390 407 60 121 110
Benefits paid (35,985) (1,901) (1,865) (490) (399) (284)
-------- -------- -------- -------- -------- --------
Plan assets at fair value,
end of year 494 35,444 37,709 -- -- --
-------- -------- -------- -------- -------- --------
Reconciliation:
Funded status, plan assets over
(under) benefit obligations -- 3,155 7,602 -- (5,540) (4,557)
Unrecognized net actuarial gain -- (8,466) (13,427) -- (514) (1,384)
Transition asset at
January 1, 1987 -- (29) (57) -- -- --
Unrecognized prior service cost -- 844 976 -- (177) (199)
Adjustment for minimum liability -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Accrued benefit cost $ -- $ (4,496) $ (4,906) $ -- $ (6,231) $ (6,140)
======== ======== ======== ======== ======== ========
The non-current portion of the postretirement medical benefit liability of
$6,133 at December 31, 2000 is included in other liabilities.
The Company has a defined contribution plan that is funded by participating
employee contributions and the Company. The Company matches employee
contributions, up to a maximum of 4 percent of salary, as follows: 100 percent
in the form of cash or 125 percent in the form of WGI common stock, as elected
by the employee. Company contributions for this plan were $905 (including $306
of WGI common stock) in 2001, $616 (including $243 of WGI common stock) in 2000,
and $636 (including $314 of WGI common stock) in 1999.
50
WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
9. INCOME TAXES
The provision for income taxes represents income taxes arising as a result
of operations, credits for revision of previous estimates of income taxes
payable in a number of countries and a credit recognizing the tax benefit of a
portion of the Company's tax losses carried forward. The Company is not subject
to income tax in Panama on income earned outside of Panama. All income has been
earned outside of Panama. The relationship between income (loss) before income
taxes and the provision for income taxes is affected by the method of
determining income taxes in the countries in which the Company operates. The
effective consolidated tax rate differs from a statutory tax rate as taxable
income and operating losses from different countries cannot be offset and tax
rates and methods of determining taxes payable are different in each country.
Income (loss) before income taxes and the provision for income taxes in the
consolidated statements of operations consist of:
Year Ended December 31,
------------------------------------
2001 2000 1999
-------- -------- --------
Income (loss) before income taxes:
Other countries $ 8,935 $(12,240) $(19,197)
United States 20,529 1,905 2,479
-------- -------- --------
$ 29,464 $(10,335) $(16,718)
======== ======== ========
Provision for income taxes:
Current provision:
Other countries $ 5,563 $ 5,818 $ 2,851
United States:
Federal 4,991 365 190
State 1,296 267 259
-------- -------- --------
11,850 6,450 3,300
Deferred tax expense (benefit):
United States (1,497) (1,193) --
Canada 31 -- --
-------- -------- --------
Total provision for income taxes $ 10,384 $ 5,257 $ 3,300
======== ======== ========
The Company's provision for income taxes differed from the United States
statutory federal income tax rate of 34% due to the following:
Year Ended December 31,
------------------------------------
2001 2000 1999
-------- -------- --------
Tax at U.S. statutory rate $ 10,018 $ (3,514) $ (5,684)
Non-U.S. (income) loss taxed at other
than U.S. rates (3,038) 4,161 6,527
Non-U.S. income tax 5,563 5,818 2,851
State tax, net of federal benefit 855 176 171
Non-U.S. income taxed in U.S. 784 -- --
Other, net 973 (191) (565)
Termination of benefit plans (2,433) -- --
Adjustment to valuation allowance (2,338) (1,193) --
-------- -------- --------
$ 10,384 $ 5,257 $ 3,300
======== ======== ========
51
WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
9. INCOME TAXES (CONTINUED)
The principal components of the Company's net deferred tax assets are:
December 31,
----------------------
2001 2000
-------- --------
Deferred income tax assets:
General business credit carryforwards $ 425 $ 506
Self insured medical accrual 229 216
Post retirement medical benefits -- 1,169
Accrued pension benefits -- 1,594
Accrued vacation 354 362
Non-U.S. tax net operating loss carryforwards 12,724 10,746
U.S. tax net operating loss carryforwards 5,375 6,198
Other 52 76
-------- --------
19,159 20,867
Valuation allowance (16,033) (19,192)
-------- --------
Deferred income tax assets, net of valuation allowance 3,126 1,675
Deferred income tax liabilities:
Property and equipment (1,458) (997)
-------- --------
Net deferred income tax assets, included in other assets $ 1,668 $ 678
======== ========
The net deferred income tax assets (liabilities) by country is as follows:
December 31,
--------------------
2001 2000
------- -------
United States $ 2,175 $ 678
Canada (507) --
------- -------
Net deferred income tax assets $ 1,668 $ 678
======= =======
The Company has $15,809 in United States net operating loss carryforwards
and $425 of United States investment tax credit carryforwards at December 31,
2001. The United States net operating loss carryforwards will expire, unless
utilized, beginning in 2002 and ending December 31, 2012. The carryforwards
available on an annual basis are limited. The Company has assessed its United
States operations including past earnings history and projected future earnings,
and the limitations and expiration dates of the U.S. net operating loss and
investment tax credit carryforwards and other tax assets, and has determined
that it is more likely than not that $2,175 of net deferred tax assets at
December 31, 2001, will be realized.
At December 31, 2001, the Company has nonexpiring operating loss
carryforwards in the United Kingdom of $27,845 (L.19,072), and a net operating
loss carryforward expiring over three years in Venezuela of $6,344 (Bolivars
4,808,744). The deferred tax assets applicable to these operating loss
carryforwards at December 31, 2001 and 2000 are fully reserved by a valuation
allowance.
In connection with the acquisitions of MSI in 2001 and RPI in 2000, the
Company recorded $482 and $515, respectively, of deferred tax liabilities
relating primarily to differences between the financial statement carrying
values of the assets acquired and their tax bases.
52
WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
10. STOCKHOLDER RIGHTS PLAN
On April 1, 1999, the Company adopted a Stockholder Rights Plan and
declared a distribution of one Preferred Share Purchase Right ("Right") on each
outstanding share of the Company's common stock. The distribution was made on
April 15, 1999 to stockholders of record on that date. The Rights expire on
April 14, 2009.
The Rights are exercisable only if a person or group acquires 15 percent or
more of the Company's common stock or announces a tender offer the consummation
of which would result in ownership by a person or group of 15 percent or more of
the common stock. Each Right entitles stockholders to buy one one-thousandth of
a share of a series of junior participating preferred stock at an exercise price
of $30.00 per share.
If the Company is acquired in a merger or other business combination
transaction after a person or group has acquired 15 percent or more of the
Company's outstanding common stock, each Right entitles its holder to purchase,
at the Right's then-current exercise price, a number of acquiring company's
common shares having a market value of twice such price. In addition, if a
person or group acquires 15 percent or more of the Company's outstanding common
stock, each Right entitles its holder (other than such person or members of such
group) to purchase, at the Right's then-current exercise price, a number of the
Company's common shares having a market value of twice such price.
Prior to the acquisition by a person or group of beneficial ownership of 15
percent or more of the Company's common stock, the Rights are redeemable for
one-half cent per Right at the option of the Company's Board of Directors.
11. STOCK OWNERSHIP PLANS
During May 1996, the Company established the Willbros Group, Inc. 1996
Stock Plan (the "1996 Plan") with 1,125,000 shares of common stock authorized
for issuance to provide for awards to key employees of the Company, and the
Willbros Group, Inc. Director Stock Plan (the "Director Plan") with 125,000
shares of common stock authorized for issuance to provide for the grant of stock
options to non-employee directors. The number of shares authorized for issuance
under the 1996 Plan was increased to 3,125,000 by shareholder approval.
Options granted under the 1996 Plan vest over a three to four year period.
Options granted under the Director Plan vest six months after the date of grant.
At December 31, 2001, the 1996 Plan has 748,000 shares and the Director Plan has
65,000 shares available for grant. Certain provisions allow for accelerated
vesting based on increases of share prices.
The per share weighted-average fair value of options granted was calculated
using the Black Scholes option-pricing model, assuming the options have a life
of three years, the weighted-average risk-free interest rate at the dates of
grant was 3.91 percent in 2001 (6.45 percent in 2000 and 5.86 percent in 1999)
and the weighted-average volatility was 61.03 percent in 2001 (59.14 percent in
2000 and 52.78 percent in 1999).
53
WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
11. STOCK OWNERSHIP PLANS (CONTINUED)
The Company's stock option activity and related information consist of:
Year Ended December 31,
------------------------------------------------------------------------------------------
2001 2000 1999
--------------------------- --------------------------- ----------------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
--------- -------------- --------- -------------- --------- --------------
Outstanding, beginning
of year 1,859,550 $ 7.62 1,479,550 $ 8.20 1,093,050 $ 9.37
Granted 559,500 13.54 651,500 5.70 416,000 5.28
Exercised 496,250 7.02 40,500 5.12 500 6.63
Forfeited 71,000 6.12 231,000 6.34 29,000 10.51
--------- ------ --------- ------ --------- ------
Outstanding, end of year 1,851,800 $ 9.64 1,859,550 $ 7.62 1,479,550 $ 8.20
========= ====== ========= ====== ========= ======
Exercisable at end of year 975,500 $ 9.00 1,186,425 $ 8.42 904,800 $ 8.84
========= ====== ========= ====== ========= ======
The weighted-average fair value of options granted during the year was
$6.47 in 2001 ($2.56 in 2000, $2.17 in 1999). Exercise prices for options
outstanding, weighted-average remaining life and weighted-average exercise price
by ranges of exercise prices at December 31, 2001 are:
Weighted Weighted
Range of Options Average Average
Exercise Prices Outstanding Remaining Life Exercise Price
--------------- ----------- -------------- --------------
$ 5.06 - $ 6.94 832,500 7.9 Years $ 5.84
$ 8.67 - $ 11.75 388,050 6.0 Years 9.21
$ 12.70 - $ 19.44 631,250 8.7 Years 14.91
--------- --------- -------
$ 5.06 - $ 19.44 1,851,800 7.8 Years $ 9.64
========= ========= =======
The number of vested options and weighted-average exercise price by ranges
of exercise prices at December 31, 2001 are:
Weighted
Range of Vested Average
Exercise Prices Options Exercise Price
--------------- ------- --------------
$ 5.06 - $ 6.94 447,750 $ 6.02
$ 8.67 - $ 11.75 309,300 9.13
$ 12.70 - $ 19.44 218,500 14.91
------- -------
$ 5.06 - $ 19.44 975,550 $ 9.00
======= =======
54
WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
11. STOCK OWNERSHIP PLANS (CONTINUED)
No compensation expense for the options granted under the 1996 Plan and the
Director Plan has been recorded because the options exercise prices are equal to
the fair value of the stock at the date of the grant. Had compensation expense
for vested options been recorded, in accordance with the method provided in SFAS
123, the Company's net income (loss) would have been $18,268 in 2001 $(16,397)
in 2000 and $(21,232) in 1999, and basic and diluted earnings (loss) per share
would have been $1.26 and $1.21, respectively, in 2001, $(1.17) in 2000 and
$(1.63) in 1999.
Under employee stock ownership plans established in 1992 and 1995, certain
key employees were issued options to purchase common stock at a discount from
fair value and were allowed to finance up to 90 percent of the option price with
three-year non-interest bearing recourse notes.
12. EARNINGS (LOSS) PER SHARE
Basic and diluted earnings (loss) per share are computed as follows:
Year Ended December 31,
-----------------------------------------------
2001 2000 1999
------------ ------------ ------------
Net income (loss) applicable to common shares $ 19,080 $ (15,592) $ (20,018)
============ ============ ============
Weighted average number of common shares
outstanding for basic earnings per share 14,442,035 14,017,857 13,029,665
Weighted average number of dilutive potential
common shares outstanding 632,131 -- --
------------ ------------ ------------
Weighted average number of common shares
outstanding for diluted earnings per share 15,074,166 14,017,857 13,029,665
============ ============ ============
Earnings (loss) per common share:
Basic $ 1.32 $ (1.11) $ (1.54)
============ ============ ============
Diluted $ 1.27 $ (1.11) $ (1.54)
============ ============ ============
At December 31, 2001, there were 449,750 potential common shares (1,859,550
at December 31, 2000, and 1,479,550 at December 31, 1999) excluded from the
computation of diluted earnings (loss) per share because of their anti-dilutive
effect.
13. SEGMENT INFORMATION
The Company operates in a single operating segment providing construction,
engineering and specialty services to the oil, gas and power industries. 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.
55
WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
13. SEGMENT INFORMATION (CONTINUED)
Customers representing more than 10 percent of total contract revenue are
as follows:
Year Ended December 31,
---------------------------
2001 2000 1999
---- ---- ----
Customer A 18% --% --%
Customer B 17 -- --
Customer C 14 44 36
Customer D 10 11 11
Customer E 10 -- --
---- ---- ----
69% 55% 47%
==== ==== ====
Information about the Company's operations in its significant work
countries is shown below:
Year Ended December 31,
----------------------------------
2001 2000 1999
-------- -------- --------
Contract revenue:
United States(1) $205,292 $ 92,998 $ 42,981
Nigeria 67,365 143,023 75,928
Offshore West Africa 44,027 17,727 1,282
Cameroon 34,808 806 --
Venezuela 16,968 26,111 23,501
Oman 14,303 12,908 8,026
Australia 4,037 20,687 18,774
Canada 3,334 -- --
Indonesia -- -- 3,205
Ivory Coast -- -- 2,567
Other -- 30 300
-------- -------- --------
$390,134 $314,290 $176,564
======== ======== ========
Long-lived assets:
Nigeria $ 21,305 $ 24,541 $ 24,158
United States 17,346 15,404 11,680
Offshore West Africa 11,399 7,411 8,100
Cameroon 9,709 -- --
Venezuela 6,640 9,699 14,724
Oman 4,464 4,298 4,665
Canada 3,258 -- --
Indonesia -- -- 3,929
Ivory Coast -- 57 2,953
Other 193 1,155 1,185
-------- -------- --------
$ 74,314 $ 62,565 $ 71,394
======== ======== ========
(1) Net of intercountry revenue of $59,284 in 2001, $6,481 in 2000 and $3,176
in 1999.
56
WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
14. CONTINGENCIES, COMMITMENTS AND OTHER CIRCUMSTANCES
The Company provides construction, engineering and specialty services to
the oil, gas and power industries. The Company's principal markets are currently
Africa, the Middle East, South America, Canada and the United States. 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, terrorist acts, 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 has followed 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.
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 venturers. Management is not aware of any
material exposure related thereto which has not been provided for in the
accompanying consolidated financial statements.
Certain postcontract completion audits and reviews are being 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% interest in a joint venture in
Venezuela, the Company issued a corporate guarantee equal to 10% of the joint
venture's outstanding borrowings with two banks. The guarantee reduces as
borrowings are repaid, and expires in March 2003. The commitment as of December
31, 2001 totals approximately $3,800.
In 1997 the Company entered into lease agreements with a special-purpose
leasing partnership for land and an office building for the engineering group in
Tulsa, Oklahoma. The leases are treated for accounting purposes as operating
leases. The initial terms of the leases were for five years with 30 one-year
renewal options, and end in August 2002. At the end of the initial terms of the
leases, we can extend the leases with the agreement of the lessor, purchase the
leased assets for $5,500 or terminate the leases and cause the assets to be
sold. If the assets are sold, the cash proceeds from the sale in excess of
$5,500 will be paid to the Company by the landlord. In the event cash proceeds
are less than $5,500, the Company will make up the shortfall up to a maximum of
$4,700.
The Company has certain operating leases for office and camp facilities.
Rental expense, excluding daily rentals and reimbursable rentals under cost plus
contracts, was $2,596 in 2001, $3,166 in 2000, and $2,257 in 1999. Minimum lease
commitments under operating leases as of December 31, 2001, totaled $4,479 and
are payable as follows: 2002, $1,346; 2003, $862; 2004, $847; 2005, $787; 2006,
$577 and later years, $60.
57
WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data for the years ended December
31, 2001 and 2000, is as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter(a) Total
--------- --------- --------- ---------- ---------
December 31, 2001:
Contract revenue $ 65,732 $ 78,839 $ 113,343 $ 132,220 $ 390,134
Operating income 3,345 8,320 8,574 13,917 34,156
Income before
income taxes 2,496 7,399 6,908 12,661 29,464
Net income 780 7,093 2,642 8,565 19,080
Earnings per share:
Basic .06 .49 .18 .58 1.32
Diluted .05 .47 .17 .56 1.27
December 31, 2000:
Contract revenue $ 78,773 $ 81,772 $ 74,934 $ 78,811 $ 314,290
Operating income (loss) (4,389) (263) (3,738) 3,085 (5,305)
Income (loss) before
income taxes (4,623) (1,270) (3,782) (660) (10,335)
Net income (loss) (5,914) (4,344) (5,742) 408 (15,592)
Earnings (loss) per share,
basic and diluted (.42) (.31) (.41) .03 (1.11)
(a) Included in Fourth Quarter 2001 are non-taxable gains of $3,626 on
termination of benefit plans.
The Company derives its revenue from contracts with durations from a few
weeks to several months or in some cases, more than a year. Unit-price contracts
provide relatively even quarterly results; however, major projects are usually
fixed-price contracts that may result in uneven quarterly financial results due
to the method by which revenue is recognized.
58
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our Chief Executive Officer, Larry J. Bump, will retire in May 2002, but
will continue to serve as Chairman of the Board. We previously announced that
Michael F. Curran will succeed Mr. Bump as our Chief Executive Officer. Mr.
Curran will continue in his current roles as our President and Chief Operating
Officer.
The following table sets forth information regarding our directors,
executive officers and key personnel. Officers are elected annually by, and
serve at the discretion of, our Board of Directors.
Name Age Position(s)
---- --- -----------
Larry J. Bump............................... 62 Director, Chairman of the Board of Directors and Chief
Executive Officer
Michael F. Curran........................... 61 Director, Vice Chairman of the Board of Directors,
President and Chief Operating Officer
John K. Allcorn............................. 40 Executive Vice President of Willbros Group, Inc. and
Willbros USA, Inc.
Warren L. Williams.......................... 46 Vice President, Chief Financial Officer and Treasurer
James R. Beasley............................ 59 Senior Vice President of Willbros USA, Inc. and President
of Willbros Engineers, Inc.
J. K. Tillery............................... 43 Senior Vice President - Operations of Willbros
International, Inc. and Senior Vice President of Willbros
USA, Inc.
Peter A. Leidel............................. 45 Director
Rodney B. Mitchell.......................... 66 Director
Michael J. Pink............................. 64 Director
James B. Taylor, Jr......................... 63 Director
Guy E. Waldvogel............................ 65 Director
John H. Williams............................ 83 Director
Larry J. Bump joined Willbros in 1977 as President and Chief Operating
Officer and was elected to the Board of Directors. Mr. Bump was named Chief
Executive Officer in 1980 and elected Chairman of the Board of Directors in
1981. His 42 year career includes significant U.S. and international pipeline
construction management experience. Prior to joining Willbros, he managed major
international projects in North Africa and the Middle East, and was Chief
Executive Officer of a major international pipeline construction company. Mr.
Bump served two terms as President of the International Pipeline & Offshore
Contractors Association. He also serves as a Director of 3TEC Energy
Corporation.
Michael F. Curran joined Willbros in March 2000 as a Director, Vice
Chairman of the Board of Directors, President and Chief Operating Officer. Mr.
Curran served from 1972 to March 2000 as Chairman and CEO of Michael Curran &
Associates, a mainline pipeline constructor in North America and West Africa,
prior to joining Willbros. He has over 40 years of diversified experience in
pipeline construction around the world, including 31 years as President and
Chief Executive Officer of various domestic and international pipeline
construction firms. Mr. Curran also served as President of the Pipe Line
Contractors Association.
John K. Allcorn joined Willbros in May 2000 as Senior Vice President of
Willbros International, Inc. and was elected Executive Vice President of
Willbros Group, Inc. and Willbros USA, Inc. in 2001. Mr. Allcorn was employed at
U.S. Pipeline, Inc., a North American pipeline construction company, as Senior
Vice President, from July 1997 until joining Willbros in May 2000. He served as
Vice President at Gregory & Cook Construction, Inc., an international pipeline
construction company from June 1996 to July 1997. Mr. Allcorn has over 15 years
of pipeline industry experience including an established record in operations
management, finance, and business development.
59
Warren L. Williams joined Willbros in July 2000 as Vice President, Finance
and Accounting, for Willbros USA, Inc. He was elected Vice President, Chief
Financial Officer and Treasurer of Willbros Group, Inc. in 2001. Prior to
joining Willbros, Mr. Williams was employed at TransCoastal Marine Services,
Inc., a marine construction company, from April 1998 to July 2000. Mr. Williams
served as Vice President during the entire period of his employment at
TransCoastal and was named Chief Financial Officer in early 2000. TransCoastal
declared bankruptcy under Chapter 7 of the U.S. Bankruptcy Code in June 2000.
Mr. Williams worked as an independent financial consultant from 1994 to April
1998. Prior to 1994, Mr. Williams worked at the public accounting firm of Ernst
& Young, the last four years as a partner.
James R. Beasley joined Willbros in 1981 when Willbros Engineers, Inc. was
acquired. He was elected Vice President of Willbros Engineers, Inc. in 1981,
Senior Vice President and General Manager in 1982, President in 1986 and Senior
Vice President of Willbros USA, Inc. in 2001. Mr. Beasley has more than 30 years
of experience in pipeline engineering and operations.
J. K. Tillery joined Willbros in 1983 as a field engineer. He has over 20
years of experience as an engineer and project manager working in both U.S. and
international pipeline construction. In 1995, he was named Managing Director of
Willbros (Nigeria) Limited and in 2001, he was named Senior Vice President -
Operations of Willbros International, Inc. and Senior Vice President of Willbros
USA, Inc.
Peter A. Leidel was elected to the Board of Directors in 1992. Since
September 1997, Mr. Leidel has been a founder and partner in Yorktown Partners,
L.L.C., an investment management company. From 1983 to September 1997, he was
employed by Dillon, Read & Co., Inc., an investment banking firm, serving most
recently as a Senior Vice President. He also serves as a Director of Cornell
Companies, Inc. and Carbon Energy Corporation.
Rodney B. Mitchell was elected to the Board of Directors in July 2001. Mr.
Mitchell has over 30 years of experience in the investment management business.
He is President and Chief Executive Officer of The Mitchell Group, Inc., an
investment advisory firm which he founded in 1989. Previously, Mr. Mitchell
formed in 1970 an investment advisory organization, Talassi Management Company,
and served as President and Chief Executive Officer.
Michael J. Pink was elected to the Board of Directors in 1996. Mr. Pink has
been a consultant to oil and gas industry investors since January 1997. He
served as First Vice President of Sidanco, a major Russian integrated oil
company, from August 1997 to March 1998. From May 1994 through December 1996,
Mr. Pink served as Group Managing Director of Enterprise Oil plc, an independent
oil exploration and production company. Prior to that time, Mr. Pink was
employed for 30 years with the Royal Dutch/Shell Group at various locations in
Europe, the United States, Africa, and the Middle East. He also serves as a
Director of ROXAR ASA, a Norwegian oil and gas technology company.
James B. Taylor, Jr. was elected to the Board of Directors in February
1999. Mr. Taylor is currently a Director of TMBR Sharp Drilling, Inc. Mr. Taylor
co-founded Solana Petroleum Corp., a Canadian-based public oil and gas
exploration and production company, in 1997 and served as Chairman of the Board
of Directors until December 2000. From 1996 to 1998, he was a Director and
consultant for Arakis Energy, a Canadian public company with operations in North
Africa and the Middle East. Prior to that time, he served for 28 years in
various worldwide exploration and operations management positions with
Occidental Petroleum Corporation before retiring in 1996 as Executive Vice
President.
Guy E. Waldvogel was elected to the Board of Directors in 1990. Mr.
Waldvogel recently retired from Heerema Holding Construction, Inc., a major
marine engineering, fabrication and installation contractor, where he had served
as Director and Chief Financial Officer for more than five years. Previously he
was Senior Executive Vice President of Societe Generale de Surveillance, a
leading international cargo inspection firm. Mr. Waldvogel also serves as a
Director for Bank Julius Baer and Julius Baer Holding, AG.
John H. Williams was elected to the Board of Directors in 1996. Prior to
his retirement at the end of 1978, Mr. Williams was Chairman of the Board and
Chief Executive Officer of The Williams Companies,
60
Inc. He also serves as a Director for Apco Argentina, Inc., Unit Corporation and
Westwood Corp., and is an honorary member of the Board of Directors of The
Williams Companies, Inc.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 1, 2002 by (a) each person
who is known by the Company to own beneficially more than five percent of the
outstanding shares of Common Stock, (b) each director and nominee for director
of the Company, (c) each of the executive officers of the Company named in the
Summary Compensation Table above, and (d) all executive officers and directors
of the Company as a group. Except as otherwise indicated, the Company believes
that the beneficial owners of the Common Stock listed in the table, based on
information furnished by such owners, have sole investment and voting power with
respect to such shares.
SHARES
BENEFICIALLY PERCENTAGE
NAME OF OWNER OR IDENTITY OF GROUP OWNED OF CLASS(1)
---------------------------------- ------------ ------------
Larry J. Bump(2) ................................................ 1,301,691 (3) 8.6
The Mitchell Group, Inc.(4) ..................................... 995,153 6.7
Royce & Associates, Inc.(5) ..................................... 917,050 6.2
Sage Asset Management, L.L.C.(6) ................................ 845,180 5.7
Michael F. Curran ............................................... 837,496 (7) 5.6
Husic Capital Management(8) ..................................... 784,000 5.3
Melvin F. Spreitzer ............................................. 377,897 (9) 2.5
James R. Beasley ................................................ 185,500(10) 1.2
John K. Allcorn ................................................. 166,568(11) 1.1
Warren L. Williams .............................................. 63,166(12) *
Peter A. Leidel ................................................. 42,872(13) *
John H. Williams ................................................ 25,000(14) *
Guy E. Waldvogel ................................................ 19,000(15) *
Michael J. Pink ................................................. 10,000(16) *
James B. Taylor, Jr ............................................. 8,000(17) *
Rodney B. Mitchell .............................................. 5,000(18) *
All executive officers and directors as a group (11 people) ..... 2,664,293(19) 17.2
----------
* Less than 1%
(1) Shares of Common Stock which were not outstanding but which could be
acquired by a person upon exercise of an option within 60 days of March 1,
2002, are deemed outstanding for the purpose of computing the percentage of
outstanding shares beneficially owned by such person. Such shares, however,
are not deemed to be outstanding for the purpose of computing the
percentage of outstanding shares beneficially owned by any other person.
(2) Mr. Bump's address is 4400 Post Oak Parkway, Suite 1000, Houston, Texas
77027.
(3) Includes (a) 420,000 shares held in a family limited partnership in which
Mr. Bump is the sole general partner, (b) 185,000 shares subject to stock
options which are currently exercisable at an average exercise price of
$9.80 per share, and (c) 109,101 shares held in the Willbros Employees'
401(k) Investment Plan (the "401(k) Plan") for the account of Mr. Bump.
(4) Information is as of December 31, 2001, and is based on the Schedule 13G
dated February 5, 2002, which was filed by The Mitchell Group, Inc. Its
address is 1100 Louisiana, Suite 4810, Houston, Texas 77002. The Mitchell
Group is a registered investment adviser and the shares shown are held in
investment advisory accounts managed by it for numerous clients. The
Mitchell Group has full investment discretion with respect to such
accounts.
61
(5) Information is as of December 31, 2001, and is based on the Schedule 13G
dated February 13, 2002, which was filed on behalf of Royce & Associates,
Inc. Its address is 1414 Avenue of the Americas, New York, New York 10019.
(6) Information is as of December 31, 2001, and is based on the Schedule 13G
dated February 13, 2002, which was filed by Sage Opportunity Fund, L.P.
("Sage"), Sage Master Investments Ltd ("Sage Master"), Sage Asset
Management, L.L.C. ("SAM"), Barry Haimes ("Haimes") and Katherine Hensel
("Hensel"). The address for Sage, SAM, Haimes and Hensel is 153 East 53rd
Street, 48th Floor, New York, New York 10022. The address for Sage Master
is c/o Huntlaw Corporate Services Ltd., P.O. Box 1350GT, The Huntlaw
Building, Grand Cayman, Cayman Islands. SAM is investment manager of Sage
Master and a general partner of Sage. Haimes and Hensel are co-portfolio
managers of SAM. Of the shares shown, (a) Sage has shared voting and
dispositive power with SAM, Haimes and Hensel over 94,000 shares, (b) Sage
Master has shared voting and dispositive power with SAM, Haimes and Hensel
over 751,180 shares, and (c) SAM, Haimes and Hensel have shared voting and
dispositive power over 845,180 shares.
(7) Represents (a) 753,155 shares held in a corporation controlled by Mr.
Curran, (b) 83,500 shares subject to stock options which are currently
exercisable at an average exercise price of $6.14 per share, and (c) 647
shares held in the 401(k) Plan for the account of Mr. Curran. Mr. Curran's
address is 4400 Post Oak Parkway, Suite 1000, Houston, Texas 77027.
(8) Information is as of December 31, 2001, and is based on the Schedule 13G
dated February 11, 2002, which was filed on behalf of Husic Capital
Management ("Husic Capital"), Frank J. Husic and Co. ("Husic Co.") and
Frank J. Husic ("Husic"). Their address is 555 California Street, Suite
2900, San Francisco, California 94104. Husic Capital is a registered
investment adviser and the shares shown are held for its investment
advisory clients. Husic Co. is the sole general partner of Husic Capital
and Husic is the sole stockholder of Husic Co.
(9) Includes (a) 25,000 shares held in a trust, of which Mr. Spreitzer's wife
is trustee, (b) 158,000 shares subject to stock options which are currently
exercisable at an average exercise price of $8.88 per share, and (c) 1,797
shares held in the 401(k) Plan for the account of Mr. Spreitzer. Mr.
Spreitzer disclaims beneficial ownership over the shares held by his wife.
(10) Includes (a) 67,490 shares held in a trust, of which Mr. Beasley's wife is
trustee, and (b) 118,000 shares subject to stock options which are
currently exercisable at an average exercise price of $9.84 per share. Mr.
Beasley disclaims beneficial ownership over the shares held by his wife.
(11) Includes (a) 100,000 shares subject to stock options which are currently
exercisable at an exercise price of $5.38 per share, and (b) 943 shares
held in the 401(k) Plan for the account of Mr. Allcorn.
(12) Represents (a) 47,500 shares subject to stock options which are currently
exerciseable at an average exercise price of $10.39 per share, and (b) 41
shares held in the 401(k) Plan for the account of Mr. Williams.
(13) Includes 14,000 shares subject to stock options which are currently at an
average exercise price of $10.48 per share.
(14) Includes 10,000 shares subject to stock options which are currently
exercisable or exercisable within 60 days of March 1, 2002, at an average
exercise price of $9.90 per share.
(15) Includes 14,000 shares subject to stock options which are currently
exercisable at an average exercise price of $10.48 per share.
(16) Represents 10,000 shares subject to stock options which are currently
exercisable or exercisable within 60 days of March 1, 2002, at an average
exercise price of $9.90 per share.
62
(17) Represents (a) 1,000 shares held by the James and Sarah Taylor Trust, and
(b) 7,000 shares subject to stock options which are currently exercisable
at an average exercise price of $5.82 per share.
(18) Represents 5,000 shares subject to stock options which are currently
exercisable at an exercise price of $12.70 per share. Does not include the
995,153 shares held by The Mitchell Group, Inc. Mr. Mitchell is a director
and executive officer of The Mitchell Group. Mr. Mitchell disclaims
beneficial ownership of these shares.
(19) For specific information regarding each of the individuals, see footnotes
(3), (7) and (10) through (18) above.
63
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 2001, (a) there has not been any transaction or series of
similar transactions to which the Company was a party in which the amount
involved exceeds $60,000 and in which any director, executive officer, holder of
more than five percent of the Common Stock of the Company or any member of the
immediate family of any of the foregoing persons had a direct or indirect
material interest, and (b) none of the executive officers, directors or any
member of their immediate family have been indebted to the Company in amounts in
excess of $60,000.
The Board of Directors has approved an Employee Stock Purchase Program (the
"Program"). Under the Program, selected executives and officers of the Company
are given the opportunity to borrow funds on an interest free basis for the
purpose of exercising vested stock options granted to the executives under the
Company's 1996 Stock Plan. All such loans will be full recourse and will be
secured by Company stock. The maximum amount that can be loaned to individual
executives under the Program is $250,000. Each loan will have a maximum term of
five years and will not bear interest unless not repaid on the due date. The
loan will become due 90 days after termination of employment or on the normal
due date of the loan, whichever is first. Pursuant to the Program, in March
2002, certain executive officers of the Company became indebted to the Company
in amounts in excess of $60,000 under various notes. The following table sets
forth, as to the persons shown, the largest amounts of their indebtedness
outstanding, the interest rates, the final maturity dates and the outstanding
balances of such indebtedness as of April 1, 2002:
Largest Final Outstanding
Amount of Interest Maturity Balance at
Name Indebtedness Rate Date April 1, 2002
John K. Allcorn $232,188 0% March 2007 $232,188
Warren L. Williams $250,000 0% March 2007 $250,000
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
Our financial statements and those of our subsidiaries and independent
auditors' report are listed in Item 8 of this Form 10-K.
2001
Form 10-K
Page(s)
-------
(2) Financial Statement Schedule:
Independent Auditors' Report........................................ 68
Schedule II - Consolidated Valuation and Qualifying Accounts........ 69
All other schedules are omitted as inapplicable or because the required
information is contained in the financial statements or included in the
footnotes thereto.
(3) Exhibits:
The following documents are included as exhibits to this Form 10-K. 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 was previously filed with this Form 10-K
or is filed herewith.
64
3.1 Amended and Restated Articles of Incorporation (Filed as Exhibit 3.2 to
our report on Form 10-Q for the quarter ended September 30, 1998, filed
November 16, 1998).
3.2 Restated By-laws (Filed as Exhibit 3.2 to our Registration Statement on
Form S-1, Registration No. 333-5413 (the "S-1 Registration
Statement")).
4.1 Form of stock certificate for our Common Stock, par value $.05 per
share (Filed as Exhibit 4 to the S-1 Registration Statement).
4.2 Rights Agreement, dated April 1, 1999, between us and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent (Filed as an Exhibit to
our Registration Statement on Form 8-A, dated April 9, 1999).
4.3 Certificate of Designation of Series A Junior Participating Preferred
Stock (Filed as Exhibit 3 to our report on Form 10-Q for the quarter
ended March 31, 1999, filed May 17, 1999).
10.1 Credit Agreement dated February 20, 1997, by and among us, certain
designated subsidiaries, Credit Lyonnais New York Branch, as co-agent,
certain financial institutions, and ABN AMRO Bank N.V., as agent (Filed
as Exhibit 10.1 to our report on Form 10-K for the year ended December
31, 1996, filed March 31, 1997 (the "1996 Form 10-K")).
10.2 Parent Pledge Agreement dated February 20, 1997, in favor of ABN AMRO
Bank N.V., as agent (Filed as Exhibit 10.2 to the 1996 Form 10-K).
10.3 Pledge Agreement dated February 20, 1997, by Musketeer Oil B.V., in
favor of ABN AMRO Bank N.V., as agent (Filed as Exhibit 10.3 to the
1996 Form 10-K).
10.4 Pledge Agreement dated February 20, 1997, by Willbros USA, Inc., in
favor of ABN AMRO Bank N.V., as agent (Filed as Exhibit 10.4 to the
1996 Form 10-K).
10.5* Form of Indemnification Agreement between our officers and us (Filed as
Exhibit 10.7 to the S-1 Registration Statement).
10.6* Form of Indemnification Agreement between our directors and us (Filed
as Exhibit 10.16 to the S-1 Registration Statement).
10.7* Willbros Group, Inc. 1996 Stock Plan (Filed as Exhibit 10.8 to the S-1
Registration Statement).
10.8* Amendment Number 1 to Willbros Group, Inc. 1996 Stock Plan dated
February 24, 1999 (Filed as Exhibit A to the Company's Proxy Statement
for Annual Meeting of Stockholders dated March 31, 1999).
10.9* Amendment Number 2 to Willbros Group, Inc. 1996 Stock Plan dated March
7, 2001 (Filed as Exhibit B to our Proxy Statement for Annual Meeting
of Stockholders dated April 2, 2001).
10.10* Form of Incentive Stock Option Agreement under the Willbros Group, Inc.
1996 Stock Plan (Filed as Exhibit 10.13 to the 1996 Form 10-K).
10.11* Form of Non-Qualified Stock Option Agreement under the Willbros Group,
Inc. 1996 Stock Plan (Filed as Exhibit 10.14 to the 1996 Form 10-K).
10.12* Willbros Group, Inc. Director Stock Plan (Filed as Exhibit 10.9 to the
S-1 Registration Statement).
10.13* Amendment Number 1 to Willbros Group, Inc. Director Stock Plan dated
January 1, 2002. Previously filed with this Form 10-K.
10.14* Willbros USA, Inc. Executive Benefit Restoration Plan (Filed as Exhibit
10.10 to the S-1 Registration Statement).
65
10.15 Registration Rights Agreement dated April 9, 1992, between us and
Heerema Holding Construction, Inc., Yorktown Energy Partners, L.P.,
Concord Partners II, L.P., Concord Partners Japan Limited and certain
other stockholders of the Company (Filed as Exhibit 10.13 to the S-1
Registration Statement).
10.16* Willbros Group, Inc. Severance Plan dated January 1, 1999 (Filed as
Exhibit 10.22 to our report on Form 10-K for the year ended December
31, 1998, filed March 31, 1999 (the "1998 Form 10-K")).
10.17 First Amendment to Credit Agreement dated April 2, 1998, by and among
us, certain designated subsidiaries, Credit Lyonnais New York Branch,
as co-agent, certain financial institutions, and ABN AMRO Bank N.V., as
agent (Filed as Exhibit 10.25 to the 1998 Form 10-K).
10.18 Second Amendment to Credit Agreement dated October 1, 1998, by and
among us, certain designated subsidiaries, Credit Lyonnais New York
Branch, as co-agent, certain financial institutions, and ABN AMRO Bank
N.V., as agent (Filed as Exhibit 10.26 to the 1998 Form 10-K).
10.19 Third Amendment to Credit Agreement effective June 30, 2000, by and
among us, certain designated subsidiaries, Credit Lyonnais New York
Branch, as co-agent, certain financial institutions, and ABN AMRO Bank
N.V., as agent (Filed as Exhibit 10.1 to our report on Form 10-Q for
the quarter ended June 30, 2000, filed August 14, 2000).
10.20 Security Agreement effective July 27, 2000, by and among us, certain
designated subsidiaries, and ABN AMRO Bank N.V., as agent (Filed as
Exhibit 10.2 to our report on Form 10-Q for the quarter ended June 30,
2000, filed August 14, 2000).
10.21 Fourth Amendment to Credit Agreement effective June 30, 2000, by and
among us, certain designated subsidiaries, Credit Lyonnais New York
Branch, as co-agent, certain financial institutions, and ABN AMRO Bank
N.V., as agent (Filed as Exhibit 10.3 to our report on Form 10-Q for
the quarter ended June 30, 2000, filed August 14, 2000).
10.22* Separation Agreement and Release dated December 22, 2001, between
Willbros USA, Inc. and Melvin F. Spreitzer. Previously filed with this
Form 10-K.
21. Subsidiaries. Previously filed with this Form 10-K.
23. Consent of KPMG LLP. Filed herewith.
----------
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
Form 8-K dated October 12, 2001, was filed on October 12, 2001, to report
under Item 5 our sale of 144,175 shares of our common stock.
66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: May 1, 2002 By: /s/ Larry J. Bump
-------------------------
Larry J. Bump
Chairman of the Board and
Chief Executive Officer
67
WILLBROS GROUP, INC.
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Charged
(Credited)
Balance at to Costs Charge Balance
Beginning and Offs and at End
Year Ended Description of Year Expenses Other of Year
---------- ----------- ---------- ---------- -------- -------
December 31, 1999 Allowance for bad debts $ 988 $ 573 $ (294) $ 1,267
December 31, 2000 Allowance for bad debts $ 1,267 $ (154) $ (605) $ 508
December 31, 2001 Allowance for bad debts $ 508 $ (290) $ 516 $ 734
December 31, 1999 Overhaul Accrual $ 3,810 $ 512 $ 1,132 $ 3,190
December 31, 2000 Overhaul Accrual $ 3,190 $ 399 $ 259 $ 3,330
December 31, 2001 Overhaul Accrual $ 3,330 $ -- $ 1,194 $ 2,136
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Amended and Restated Articles of Incorporation (Filed as Exhibit 3.2 to
our report on Form 10-Q for the quarter ended September 30, 1998, filed
November 16, 1998).
3.2 Restated By-laws (Filed as Exhibit 3.2 to our Registration Statement on
Form S-1, Registration No. 333-5413 (the "S-1 Registration
Statement")).
4.1 Form of stock certificate for our Common Stock, par value $.05 per
share (Filed as Exhibit 4 to the S-1 Registration Statement).
4.2 Rights Agreement, dated April 1, 1999, between us and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent (Filed as an Exhibit to
our Registration Statement on Form 8-A, dated April 9, 1999).
4.3 Certificate of Designation of Series A Junior Participating Preferred
Stock (Filed as Exhibit 3 to our report on Form 10-Q for the quarter
ended March 31, 1999, filed May 17, 1999).
10.1 Credit Agreement dated February 20, 1997, by and among us, certain
designated subsidiaries, Credit Lyonnais New York Branch, as co-agent,
certain financial institutions, and ABN AMRO Bank N.V., as agent (Filed
as Exhibit 10.1 to our report on Form 10-K for the year ended December
31, 1996, filed March 31, 1997 (the "1996 Form 10-K")).
10.2 Parent Pledge Agreement dated February 20, 1997, in favor of ABN AMRO
Bank N.V., as agent (Filed as Exhibit 10.2 to the 1996 Form 10-K).
10.3 Pledge Agreement dated February 20, 1997, by Musketeer Oil B.V., in
favor of ABN AMRO Bank N.V., as agent (Filed as Exhibit 10.3 to the
1996 Form 10-K).
10.4 Pledge Agreement dated February 20, 1997, by Willbros USA, Inc., in
favor of ABN AMRO Bank N.V., as agent (Filed as Exhibit 10.4 to the
1996 Form 10-K).
10.5* Form of Indemnification Agreement between our officers and us (Filed as
Exhibit 10.7 to the S-1 Registration Statement).
10.6* Form of Indemnification Agreement between our directors and us (Filed
as Exhibit 10.16 to the S-1 Registration Statement).
10.7* Willbros Group, Inc. 1996 Stock Plan (Filed as Exhibit 10.8 to the S-1
Registration Statement).
10.8* Amendment Number 1 to Willbros Group, Inc. 1996 Stock Plan dated
February 24, 1999 (Filed as Exhibit A to the Company's Proxy Statement
for Annual Meeting of Stockholders dated March 31, 1999).
10.9* Amendment Number 2 to Willbros Group, Inc. 1996 Stock Plan dated March
7, 2001 (Filed as Exhibit B to our Proxy Statement for Annual Meeting
of Stockholders dated April 2, 2001).
10.10* Form of Incentive Stock Option Agreement under the Willbros Group, Inc.
1996 Stock Plan (Filed as Exhibit 10.13 to the 1996 Form 10-K).
10.11* Form of Non-Qualified Stock Option Agreement under the Willbros Group,
Inc. 1996 Stock Plan (Filed as Exhibit 10.14 to the 1996 Form 10-K).
10.12* Willbros Group, Inc. Director Stock Plan (Filed as Exhibit 10.9 to the
S-1 Registration Statement).
10.13* Amendment Number 1 to Willbros Group, Inc. Director Stock Plan dated
January 1, 2002. Previously filed with this Form 10-K.
10.14* Willbros USA, Inc. Executive Benefit Restoration Plan (Filed as Exhibit
10.10 to the S-1 Registration Statement).
10.15 Registration Rights Agreement dated April 9, 1992, between us and
Heerema Holding Construction, Inc., Yorktown Energy Partners, L.P.,
Concord Partners II, L.P., Concord Partners Japan Limited and certain
other stockholders of the Company (Filed as Exhibit 10.13 to the S-1
Registration Statement).
10.16* Willbros Group, Inc. Severance Plan dated January 1, 1999 (Filed as
Exhibit 10.22 to our report on Form 10-K for the year ended December
31, 1998, filed March 31, 1999 (the "1998 Form 10-K")).
10.17 First Amendment to Credit Agreement dated April 2, 1998, by and among
us, certain designated subsidiaries, Credit Lyonnais New York Branch,
as co-agent, certain financial institutions, and ABN AMRO Bank N.V., as
agent (Filed as Exhibit 10.25 to the 1998 Form 10-K).
10.18 Second Amendment to Credit Agreement dated October 1, 1998, by and
among us, certain designated subsidiaries, Credit Lyonnais New York
Branch, as co-agent, certain financial institutions, and ABN AMRO Bank
N.V., as agent (Filed as Exhibit 10.26 to the 1998 Form 10-K).
10.19 Third Amendment to Credit Agreement effective June 30, 2000, by and
among us, certain designated subsidiaries, Credit Lyonnais New York
Branch, as co-agent, certain financial institutions, and ABN AMRO Bank
N.V., as agent (Filed as Exhibit 10.1 to our report on Form 10-Q for
the quarter ended June 30, 2000, filed August 14, 2000).
10.20 Security Agreement effective July 27, 2000, by and among us, certain
designated subsidiaries, and ABN AMRO Bank N.V., as agent (Filed as
Exhibit 10.2 to our report on Form 10-Q for the quarter ended June 30,
2000, filed August 14, 2000).
10.21 Fourth Amendment to Credit Agreement effective June 30, 2000, by and
among us, certain designated subsidiaries, Credit Lyonnais New York
Branch, as co-agent, certain financial institutions, and ABN AMRO Bank
N.V., as agent (Filed as Exhibit 10.3 to our report on Form 10-Q for
the quarter ended June 30, 2000, filed August 14, 2000).
10.22* Separation Agreement and Release dated December 22, 2001, between
Willbros USA, Inc. and Melvin F. Spreitzer. Previously filed with this
Form 10-K.
21. Subsidiaries. Previously filed with this Form 10-K.
23. Consent of KPMG LLP. Filed herewith.
----------
* Management contract or compensatory plan or arrangement.