UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 1-11953

Willbros Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware		30-0513080
(Jurisdiction of incorporation)		(I.R.S. Employer Identification Number)

4400 Post Oak Parkway
Suite 1000
Houston, TX 77027
Telephone No.: 713-403-8000
(Address, including zip code, and telephone number, including
area code, of principal executive offices of registrant)

NOT APPLICABLE

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o		Accelerated Filer þ		Non-Accelerated Filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares of the registrant’s Common Stock, $.05 par value, outstanding as of November 5, 2010 was 47,874,908.

 

 

WILLBROS GROUP, INC.
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 2010

		Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2010 (Unaudited) and December 31, 2009			3
Condensed Consolidated Statements of Income (Unaudited) for the three months and nine months ended September 30, 2010 and 2009			4
Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Income (Loss) (Unaudited) for the nine months ended September 30, 2010			5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2010 and 2009			6
Notes to Condensed Consolidated Financial Statements (Unaudited)			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
Item 3. Quantitative and Qualitative Disclosures About Market Risk			56
Item 4. Controls and Procedures			56
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			57
Item 1A. Risk Factors			57
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			58
Item 3. Defaults upon Senior Securities			58
Item 4. Reserved			58
Item 5. Other Information			58
Item 6. Exhibits			59
SIGNATURE			60
EXHIBIT INDEX			61
Exhibit 10.1
Exhibit 10.4
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

WILLBROS GROUP, INC.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

		September 30,				December 31,
		2010				2009
ASSETS
Current assets:
Cash and cash equivalents		$	100,887			$	198,774
Short-term investments			—				16,559
Accounts receivable, net			366,388				162,460
Contract cost and recognized income not yet billed			32,986				45,009
Prepaid expenses and other			42,924				15,530
Parts and supplies inventories			10,348				4,666
Deferred income taxes			6,796				2,875
Total current assets			560,329				445,873
Property, plant and equipment, net			272,506				132,879
Goodwill			258,975				85,775
Other intangible assets, net			201,736				36,772
Deferred income taxes			9,179				25,034
Other assets			39,428				2,045
Total assets		$	1,342,153			$	728,378
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	192,573			$	81,821
Contract billings in excess of cost and recognized income			18,059				11,336
Current portion of capital lease obligations			7,248				5,824
Notes payable and current portion of other long-term debt			102,634				31,450
Current portion of government obligations			6,575				6,575
Accrued income taxes			11,516				1,605
Other current liabilities			2,671				9,968
Liabilities of discontinued operations			791				—
Total current liabilities			342,067				148,579
Long-term debt			276,386				56,071
Capital lease obligations			8,727				10,692
Contingent earnout			10,000				—
Long-term portion of government obligations			—				6,575
Long-term liabilities for unrecognized tax benefits			4,510				5,512
Deferred income taxes			89,604				11,356
Other long-term liabilities			27,758				1,598
Total liabilities			759,052				240,383
Contingencies and commitments (Note 16)
Stockholders’ equity:
Preferred stock, par value $.01 per share, 1,000,000 shares authorized, none issued			—				—
Common stock, par value $.05 per share, 70,000,000 shares authorized and 48,467,080 shares issued at September 30, 2010 (40,106,498 at December 31, 2009)			2,420				2,005
Capital in excess of par value			670,495				607,299
Accumulated deficit			(94,055	)			(124,788	)
Treasury stock at cost, 607,534 shares at September 30, 2010 (510,187 at December 31, 2009)			(9,939	)			(9,045	)
Accumulated other comprehensive income			13,421				11,725
Total Willbros Group, Inc. stockholders’ equity			582,342				487,196
Noncontrolling interest			759				799
Total stockholders’ equity			583,101				487,995
Total liabilities and stockholders’ equity		$	1,342,153			$	728,378

See accompanying notes to condensed consolidated financial statements.

WILLBROS GROUP, INC.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Contract revenue		$	408,792			$	247,533			$	793,917			$	1,065,941
Operating expenses:
Contract			350,135				222,330				687,918				941,129
Amortization of intangibles			3,921				960				5,826				5,554
General and administrative			35,347				17,469				82,593				61,620
Goodwill impairment			12,000				—				12,000				—
Changes in fair value of contingent earnout liability			(45,340	)			—				(45,340	)			—
Acquisition costs			7,947				857				9,912				942
Other charges			85				2,418				698				8,207
			364,095				244,034				753,607				1,017,452
Operating income			44,697				3,499				40,310				48,489
Other income (expense):
Interest income			137				469				656				1,742
Interest expense			(11,973	)			(2,446	)			(16,674	)			(7,835	)
Other, net			731				(126	)			3,593				(18	)
			(11,105	)			(2,103	)			(12,425	)			(6,111	)
Income from continuing operations before income taxes			33,592				1,396				27,885				42,378
Provision (benefit) for income taxes			(2,687	)			(659	)			(5,074	)			13,257
Income from continuing operations			36,279				2,055				32,959				29,121
Loss from discontinued operations net of provision for income taxes			(578	)			(27	)			(1,324	)			(1,527	)
Net income			35,701				2,028				31,635				27,594
Less: Income attributable to noncontrolling interest			(293	)			(372	)			(902	)			(1,543	)
Net income  attributable to Willbros Group, Inc.		$	35,408			$	1,656			$	30,733			$	26,051
Reconciliation of net income attributable to Willbros Group, Inc.
Income  from continuing operations		$	35,986			$	1,683			$	32,057			$	27,578
Loss from discontinued operations			(578	)			(27	)			(1,324	)			(1,527	)
Net income  attributable to Willbros Group, Inc.		$	35,408			$	1,656			$	30,733			$	26,051
Basic income (loss) per share attributable to Company Shareholders:
Income  from continuing operations		$	0.77			$	0.04			$	0.77			$	0.71
Loss from discontinued operations			(0.01	)			—				(0.03	)			(0.04	)
Net income		$	0.76			$	0.04			$	0.74			$	0.67
Diluted income (loss) per share attributable to Company Shareholders:
Income  from continuing operations		$	0.71			$	0.04			$	0.76			$	0.71
Loss from discontinued operations			(0.01	)			—				(0.03	)			(0.04	)
Net Income		$	0.70			$	0.04			$	0.73			$	0.67
Weighted average number of common shares outstanding:
Basic			46,997,431				38,721,586				41,651,994				38,656,656
Diluted			52,154,029				38,918,933				44,890,005				38,817,411

See accompanying notes to condensed consolidated financial statements.

WILLBROS GROUP, INC.

																						Accumulated				Total
																						Other				Stockholders’								Total
										Capital in												Comprehensive				Equity				Non-				Stock-
		Common Stock								Excess of				Accumulated				Treasury				Income				Willbros				controlling				holder’s
		Shares				Par				Par Value				Deficit				Stock				(Loss)				Group, Inc.				Interest				Equity
Balance, December 31, 2009			40,106,498			$	2,005			$	607,299			$	(124,788	)		$	(9,045	)		$	11,725			$	487,196			$	799			$	487,995
Net income			—				—				—				30,733				—				—				30,733				902				31,635
Foreign currency translation adjustment			—				—				—				—				—				2,407				2,407				—				2,407
Derivatives																							(711	)			(711	)			—				(711	)
Total comprehensive income (loss)			—				—				—				—				—				—				32,429				—				33,331
Dividend declared and distributed to noncontrolling interest			—				—				—				—				—				—				—				(942	)			(942	)
Amortization of stock-based compensation			—				—				6,489				—				—				—				6,489				—				6,489
Stock-based compensation tax benefit			—				—				(956	)			—				—				—				(956	)			—				(956	)
Stock issued under share-based plans			437,274				19				(19	)			—				—				—				—				—				—
Stock issued in connection with acquisition of InfrastruX			7,923,308				396				57,682				—				—				—				58,078				—				58,078
Additions to treasury stock, vesting and forfeitures of restricted stock			—				—				—				—				(894	)			—				(894	)			—				(894	)
Balance, September 30, 2010			48,467,080			$	2,420			$	670,495			$	(94,055	)		$	(9,939	)		$	13,421			$	582,342			$	759			$	583,101

See accompanying notes to condensed consolidated financial statements.

WILLBROS GROUP, INC.

		Nine Months
		Ended September 30,
		2010				2009
Cash flows from operating activities:
Net income (loss)		$	31,635			$	27,594
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Loss from discontinued operations			1,324				1,527
Depreciation and amortization			36,374				31,082
Goodwill impairment			12,000				—
Changes in fair value of contingent earnout liabilty			(45,340	)			—
Stock-based compensation			6,489				9,321
Deferred income tax provision			(7,437	)			(2,485	)
Other non-cash			5,181				5,428
Changes in operating assets and liabilities:
Accounts receivable, net			(78,919	)			38,717
Contract cost and recognized income not yet billed			12,116				27,913
Prepaid expenses and other assets			16,126				4,998
Accounts payable and accrued liabilities			12,694				(64,967	)
Accrued income taxes			8,911				(5,511	)
Contract billings in excess of cost and recognized income			6,714				5,317
Other liabilities			(228	)			2,296
Cash provided by operating activities of continuing operations			17,640				81,230
Cash used in operating activities of discontinued operations			(533	)			(222	)
Cash provided by operating activities			17,107				81,008
Cash flows from investing activities:
Acquisition of subsidiaries, net of cash acquired and earnout			(421,182	)			(13,955	)
Proceeds from sales of property, plant and equipment			2,320				8,233
Purchases of property, plant and equipment			(13,723	)			(10,369	)
Maturities of short-term investments			16,755				—
Purchase of short-term investments			(255	)			—
Cash used in investing activities of continuing operations			(416,085	)			(16,091	)
Cash provided by investing activities of discontinued operations			—				—
Cash used in investing activities			(416,085	)			(16,091	)
Cash flows from financing activities:
Proceeds from term loan issuance			282,000				—
Proceeds from stock issuance			58,078				—
Payments on capital leases			(5,690	)			(20,326	)
Repayment of notes payable			(8,326	)			(1,062	)
Payments to reacquire common stock			(894	)			(483	)
Payments on government fines			(6,575	)			(6,575	)
Costs of debt issues			(16,384	)			(150	)
Proceeds from exercise of stock options			—				185
Stock-based compensation tax deficiency			(956	)			(1,655	)
Dividend distribution to noncontrolling interest			(942	)			(2,137	)
Cash provided by (used in) financing activities of continuing operations			300,311				(32,203	)
Cash provided by (used in) financing activities of discontinued operations			—				—
Cash provided by (used in) financing activities			300,311				(32,203	)
Effect of exchange rate changes on cash and cash equivalents			780				3,145
Cash provided by (used in) all activities			(97,887	)			35,859
Cash and cash equivalents, beginning of period			198,774				207,864
Cash and cash equivalents, end of period		$	100,887			$	243,723
Supplemental disclosures of cash flow information:
Cash paid for interest		$	9,007			$	4,648
Cash paid for income taxes (including discontinued operations)		$	3,180			$	19,481
Supplemental non-cash investing and financing transactions:
Initial contingent earnout liability		$	55,340			$	—
Prepaid insurance obtained by note payable		$	11,687			$	—
Equipment received through like-kind exchange		$	3,355			$	—
Equipment surrendered through like-kind exchange		$	2,550			$	—

See accompanying notes to condensed consolidated financial statements.

WILLBROS GROUP, INC.

1. The Company and Basis of Presentation

Willbros Group, Inc., a Delaware corporation, and all of its majority-owned subsidiaries (the “Company,” “Willbros” or “WGI”) is an independent international contractor serving the oil, gas and power industries; government entities; and the refinery and petrochemical industries. The Company’s principal markets for continuing operations are the United States, Canada, and Oman. The Company obtains its work through competitive bidding and through negotiations with prospective clients. Contract values range from several thousand dollars to several hundred million dollars and contract durations range from a few weeks to more than two years.

The accompanying Condensed Consolidated Balance Sheet as of December 31, 2009, which has been derived from audited consolidated financial statements, and the unaudited interim Condensed Consolidated Financial Statements as of September 30, 2009 and 2010, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. However, the Company believes the presentations and disclosures herein are adequate to make the information not misleading. Certain prior period amounts have been reclassified to be consistent with the current presentation. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company’s December 31, 2009 audited Consolidated Financial Statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

In the opinion of management, the unaudited Condensed Consolidated Financial Statements reflect all adjustments necessary to present fairly the financial position as of September 30, 2010, the results of operations, statement of stockholder’s equity and cash flows of the Company for all interim periods presented. The results of operations and cash flows for the three months ended September 30, 2010 are not necessarily indicative of the operating results and cash flows to be achieved for the full year.

The Condensed Consolidated Financial Statements include certain estimates and assumptions made by management. These estimates and assumptions relate to the reported amounts of assets and liabilities at the dates of the Condensed Consolidated Financial Statements and the reported amounts of revenue and expense during the periods. Significant items subject to such estimates and assumptions include the carrying amount of property, plant and equipment, goodwill and parts and supplies inventories; quantification of amounts recorded for contingencies, tax accruals and certain other accrued liabilities; valuation allowances for accounts receivable and deferred income tax assets; and revenue recognition under the percentage-of-completion method of accounting, including estimates of progress toward completion and estimates of gross profit or loss accrual on contracts in progress. The Company bases its estimates on historical experience and other assumptions that it believes relevant under the circumstances. Actual results could differ from those estimates.

As discussed in Note 19 — Discontinuance of Operations, Asset Disposals, and Transition Services Agreement, the Company has disposed of certain assets and operations that are together classified as discontinued operations (collectively the “Discontinued Operations”). Accordingly, these Condensed Consolidated Financial Statements reflect these operations as discontinued operations in all periods presented. The disclosures in the Notes to the Condensed Consolidated Financial Statements relate to continuing operations except as otherwise indicated.

The carrying value of financial instruments does not materially differ from fair value.

Change in Estimate — The Company performed a review of the estimated useful lives of certain fixed assets at its Upstream Oil and Gas segment during the first quarter of 2010. This evaluation indicated that actual lives for the construction equipment were generally longer than the estimated useful lives used for depreciation purposes in the Company’s financial statements. As a result, the Company adjusted the estimated useful life on construction equipment from a range of four to six years to a range of four to twelve years. The effect of this change in estimate was to reduce depreciation expense for the three and nine months ended September 30, 2010 by $1,606 and $4,818, respectively, and increase income from continuing operations by $1,044 and $3,132, net of taxes, or $0.02 and $0.08 per basic share, respectively.

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

1. The Company and Basis of Presentation (continued)

Consistency — Effective January 1, 2010, the Company has reclassified certain indirect overhead expenses to general and administrative expenses to apply a consistent approach in the classification of overhead across the legacy business segments. If the Company reclassified these same costs in the three-month and nine-month periods ended September 30, 2009, the reported general and administrative costs would have increased, accompanied by a corresponding decrease to contract costs of $1,258 and $4,042, respectively. The Company is currently in the process of evaluating the impact, if any, that the treatment of these costs would have on the Utility Transmission & Distribution (“Utility T&D”) segment.

Warranty Costs — In connection with the acquisition of InfrastruX Group, Inc. (“InfrastruX”), the Company warrants labor for new installations and construction and servicing of existing infrastructure. The anticipated costs are not considered significant and no reserve has been provided. One of the InfrastruX subsidiary companies maintains a warranty program which specifically covers its cable remediation services. A warranty reserve of $2,443 for cable remediation services is recorded in “Other long-term liabilities” on the balance sheet as of September 30, 2010. Prior to the acquisition of InfrastruX, the Company has historically recorded an immaterial amount related to warranty reserve.

Property, Plant and Equipment — In connection with the acquisition of InfrastruX, the Company acquired $156,160 of property, plant and equipment. Depreciation, including amortization of capital leases, is provided on the straight-line method using the estimated lives as follows:

Construction equipment		3-20 years
Furniture and equipment		3-12 years
Buildings		20 years
Transportation equipment		3-17 years
Aircraft and marine equipment		10 years

The table has been updated from the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 to reflect the estimated useful lives of the assets acquired.

2. New Accounting Pronouncements

In June 2009, the FASB issued a new accounting standard which provides amendments to previous guidance on the consolidation of variable interest entities (“VIE”). This standard clarifies the characteristics that identify a VIE and changes how a reporting entity identifies a primary beneficiary that would consolidate the VIE from a quantitative risk and rewards calculation to a qualitative approach based on which variable interest holder has controlling financial interest and the ability to direct the most significant activities that impact the VIE’s economic performance. This statement requires the primary beneficiary assessment to be performed on a continuous basis. It also requires additional disclosures about an entity’s involvement with a VIE, restrictions on the VIE’s assets and liabilities that are included in the reporting entity’s consolidated balance sheet, significant risk exposures due to the entity’s involvement with the VIE, and how its involvement with a VIE impacts the reporting entity’s consolidated financial statements. The standard was effective for fiscal years beginning after November 15, 2009. The adoption of the standard did not have any impact on the Company’s consolidated financial statements.

3. Acquisition

On July 1, 2010, the Company completed the acquisition of 100 percent of the outstanding stock of InfrastruX for a purchase price of $485,800, before final working capital and other transaction adjustments. The Company paid $372,382 in cash, a portion of which was used to retire InfrastruX indebtedness and pay InfrastruX transaction expenses, and issued approximately 7.9 million shares of the Company’s common stock to the shareholders of InfrastruX. Cash paid was comprised of $72,382 in cash from operations and $300,000 from a new term loan facility. The acquisition was completed pursuant to an Agreement and Plan of Merger (the “Merger”), dated March 11, 2010.

Under the agreement, InfrastruX shareholders are eligible to receive earnout payments of up to $125,000 if certain EBITDA targets are met. Refer to Note 17 — Fair Value Measurements for further discussion of the contingent earnout.

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

3. Acquisition (continued)

InfrastruX was a privately-held firm based in Seattle, Washington and provides design, construction, maintenance, engineering and other infrastructure services to the utility industry across the U.S. market. This acquisition provides the Company the opportunity to strengthen its presence in the infrastructure markets within the utility industry.

Consideration

Total consideration transferred in acquiring InfrastruX is summarized as follows:

Proceeds from newly issued term loan facility		$	300,000
Cash provided from operations			72,382
Total cash consideration			372,382
Issuance of WG common stock			58,078	(1)
Contingent consideration			55,340	(2)
Total Consideration		$	485,800

This transaction has been accounted for using the acquisition method of accounting which requires that, among other things, assets acquired and liabilities assumed be recorded at their fair values as of the acquisition date. The excess of the consideration transferred over those fair values is recorded as goodwill. The preliminary allocation of purchase price to acquired assets and liabilities is as follows:

Assets acquired:
Cash and cash equivalents		$	9,278
Accounts receivable			124,856
Inventories			4,501
Prepaid expenses and other current assets			39,565
Property, plant and equipment			156,160
Intangible assets			170,790
Goodwill			184,376
Other long-term assets			19,989
Liabilities assumed:
Accounts Payable and other accrued liabilities			(97,985	)
Capital Lease Obligations			(4,977	)
Vendor related debt			(2,761	)
Deferred income taxes and other tax liabilities			(95,902	)
Other long-term liabilities			(22,090	)
Net Assets Acquired		$	485,800

The Company has consolidated InfrastruX in its financial results as the Utility T&D segment from the date of the acquisition. Our purchase price allocation has not been finalized due to the ongoing negotiation of closing working capital and other closing adjustments. These are expected to be finalized during the fourth quarter of 2010. However, under U.S. GAAP, companies have up to one year after an acquisition to finalize the acquisition accounting.

Property, plant and equipment (“PP&E”)

A step-up adjustment of $25,077 was recorded to present the PP&E acquired at its estimated fair value. The weighted average useful life used to calculate depreciation of the step up related to PP&E is approximately seven years.

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

3. Acquisition (continued)

Intangible assets

The following table summarizes the fair value estimates recorded for the identifiable intangible assets and their estimated useful lives:

		Estimated Fair Value				Estimated Useful Life
Trade Name		$	12,700			10 years
Customer Relationships			152,890			15 years
Technology			5,200			10 years
Total Identifiable Intangible Assets		$	170,790

The amortizable intangible assets have useful lives ranging between ten years and fifteen years and a weighted average useful life of 14.2 years. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. Goodwill associated with this transaction is not expected to be deductible for tax purposes. The goodwill recorded in connection with this acquisition is included in the Utility T&D segment.

Deferred taxes

The Company provided deferred taxes and other tax liabilities as part of the acquisition accounting related to the estimated fair market value adjustments for acquired intangible assets and PP&E. An adjustment of $95,902 was recorded to present the deferred taxes and other tax liabilities at fair value.

Pro Forma Impact of the Acquisition

The following unaudited supplemental pro forma results present consolidated information as if the acquisition had been completed as of January 1, 2010 and January 1, 2009. The pro forma results include: (i) the amortization associated with an estimate of the acquired intangible assets, (ii) interest expense associated with debt used to fund a portion of the acquisition and reduced interest income associated with cash used to fund a portion of the acquisition, (iii) the impact of certain fair value adjustments such as additional depreciation expense for adjustments to property, plant and equipment and reduction to interest expense for adjustments to debt, and (iv) costs directly related to acquiring InfrastruX. The pro forma results do not include any potential synergies, cost savings or other expected benefits of the acquisition. Accordingly, the pro forma results should not be considered indicative of the results that would have occurred if the acquisition and related borrowings had been consummated as of January 1, 2009, or January 1, 2010, nor are they indicative of future results.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Revenues		$	408,792			$	401,410			$	1,102,333			$	1,536,606
Net income (loss) attributable to Company shareholders		$	35,986			$	(8,108	)		$	12,008			$	764
Basic net income (loss) per share		$	0.77			$	(0.17	)		$	0.29			$	0.02
Diluted net income (loss) per share		$	0.71			$	(0.17	)		$	0.29			$	0.02

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

4. Accounts Receivable

Accounts receivable, net as of September 30, 2010 and December 31, 2009 is comprised of the following:

		September 30,				December 31,
		2010				2009
Trade		$	284,569			$	105,858
Unbilled revenue			61,092				18,314
Contract retention			21,773				38,357
Other receivables			1,280				1,867
Total accounts receivable			368,714				164,396
Less: allowance for doubtful accounts			(2,326	)			(1,936	)
Total accounts receivable, net		$	366,388			$	162,460

The Company expects all accounts receivable to be collected within one year. The provision for bad debts included in “General and administrative” expenses in the Consolidated Statements of Income was $630 and $664 for the nine months ended September 30, 2010 and year ended December 31, 2009, respectively.

5. Contracts in Progress

Contract cost and recognized income not yet billed on uncompleted contracts arise when revenues have been recorded but the amounts cannot be billed under the terms of the contracts. Contract billings in excess of cost and recognized income arise when billed amounts exceed revenues recorded. Amounts are billable to customers upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of the contract. Also included in contract cost and recognized income not yet billed on uncompleted contracts are amounts the Company seeks to collect from customers for change orders approved in scope but not for price associated with that scope change (unapproved change orders). Revenue for these amounts is recorded equal to cost incurred when realization of price approval is probable and the estimated amount is equal to or greater than the Company’s cost related to the unapproved change order. Unapproved change orders involve the use of estimates, and it is reasonably possible that revisions to the estimated recoverable amounts of recorded unapproved change orders may be made in the near-term. If the Company does not successfully resolve these matters, a reduction in revenues may be required to amounts that have been previously recorded.

Contract cost and recognized income not yet billed and related amounts billed as of September 30, 2010 and December 31, 2009 was as follows:

		September 30,				December 31,
		2010				2009
Cost incurred on contracts in progress		$	983,639			$	1,113,712
Recognized income			207,266				161,398
			1,190,905				1,275,110
Progress billings and advance payments			(1,175,978	)			(1,241,437	)
		$	14,927			$	33,673
Contract cost and recognized income not yet billed		$	32,986			$	45,009
Contract billings in excess of cost and recognized income			(18,059	)			(11,336	)
		$	14,927			$	33,673

Contract cost and recognized income not yet billed includes $13,556 and $1,551 at September 30, 2010, and December 31, 2009, respectively, on completed contracts.

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

6. Property, Plant and Equipment

Property, plant and equipment, at cost, which are used to secure debt or are subject to lien, as of September 30, 2010 and December 31, 2009 were as follows:

		September 30,				December 31,
		2010				2009
Construction equipment		$	175,562			$	140,157
Furniture and equipment			50,566				44,119
Land and buildings			41,999				36,278
Transportation equipment			149,238				32,264
Leasehold improvements			17,718				16,221
Aircraft			7,410				7,410
Marine equipment			120				120
Total property, plant and equipment			442,613				276,569
Less: accumulated depreciation			(170,107	)			(143,690	)
Total property, plant and equipment, net		$	272,506			$	132,879

Amounts above include $7,138 and $4,401 of construction in progress as of September 30, 2010 and December 31, 2009, respectively. Depreciation expense included in operating expense for the nine months ended September 30, 2010 and the year ended December 31, 2009 was $30,548 and $34,345, respectively.

7. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended September 30, 2010, by business segment, are detailed below:

						Impairment
Upstream Oil & Gas		Goodwill				Reserves				Total, Net
Balance as of January 1, 2009		$	11,142			$	—			$	11,142
Goodwill from acquisitions			—				—				—
Purchase price adjustments			—				—				—
Impairment losses			—				—				—
Translation adjustments and other			1,496				—				1,496
Balance as of December 31, 2009			12,638				—				12,638
Goodwill from acquisitions			—				—				—
Purchase price adjustments			—				—				—
Impairment losses			—				—				—
Translation adjustments and other			207				—				207
Balance as of September 30, 2010		$	12,845			$	—			$	12,845

						Impairment
Downstream Oil & Gas		Goodwill				Reserves				Total, Net
Balance as of January 1, 2009		$	131,518			$	(62,295	)		$	69,223
Goodwill from acquisitions			3,600				—				3,600
Purchase price adjustments			299				—				299
Impairment losses			—				—				—
Translation adjustments and other			15				—				15
Balance as of December 31, 2009			135,432				(62,295	)			73,137
Goodwill from acquisitions			—				—				—
Purchase price adjustments			617				—				617
Impairment losses			—				(12,000	)			(12,000	)
Translation adjustments and other			—				—				—
Balance as of September 30, 2010		$	136,049			$	(74,295	)		$	61,754

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

7. Goodwill and Other Intangible Assets (continued)

						Impairment
Utility T&D		Goodwill				Reserves				Total, Net
Balance as of July 1, 2010		$	184,376			$	—			$	184,376
Purchase price adjustments			—				—				—
Impairment losses			—				—				—
Translation adjustments and other			—				—				—
Balance as of September 30, 2010		$	184,376			$	—			$	184,376

According to accounting standards for goodwill, goodwill and other intangibles are required to be evaluated whenever indicators of impairment exist and at least annually. The Company conducts its annual evaluations during the fourth quarter. The standard requires a two-step process be performed to analyze whether or not goodwill has been impaired. The first step of this test, used to identify potential impairment, compares the estimated fair value of a reporting unit with its carrying amount. The second step, if necessary, measures the amount of the impairment. Goodwill and other purchased intangible assets are included in the identifiable assets of the segment to which they have been assigned.

During the third quarter, in connection with the completion of the preliminary forecast for 2011, it became evident that a goodwill impairment at Downstream Oil & Gas was probable. As a result, a preliminary step one analysis for that segment was performed. Using a discounted cash flow analysis supported by comparative market multiples to determine the fair value of the segment versus its carrying value, a range of likely impairment was generated. The low end of this range was approximately $12,000. Accordingly, the Company recorded an impairment charge of $12,000 during the third quarter of 2010.

The third quarter charge was driven by reduced demand for services resulting from the current low level of both capital and maintenance spending in the refining industry, which has fostered a highly competitive environment, resulting in significantly decreased margins. The Company expects to conclude the second step of the impairment test during the fourth quarter of 2010. This may result in further impairment.

The changes in the carrying amounts of intangible assets for the nine months ended September 30, 2010 are detailed below:

		Customer				Trademark /				Non-compete
		Relationships				Tradename				Agreements				Technology				Total
Balance as of December 31, 2009		$	34,547			$	1,235			$	990			$	—			$	36,772
Additions			152,890				12,700				—				5,200				170,790
Amortization			(5,116	)			(415	)			(165	)			(130	)			(5,826	)
Balance as of September 30, 2010		$	182,321			$	13,520			$	825			$	5,070			$	201,736
Weighted Average Remaining Amortization Period		13.6 yrs				9.7 yrs				3.8 yrs				9.8 yrs

Intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from 5 to 15 years.

Amortization expense included in net income for the three and nine months ended September 30, 2010 was $3,921 and $5,826, respectively. Estimated amortization expense for the remainder of 2010 and each of the subsequent five years and thereafter is as follows:

Fiscal year:
2010		$	3,948
2011			15,793
2012			15,793
2013			15,793
2014			15,683
2015			15,573
Thereafter			119,153
Total amortization		$	201,736

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

8. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities as of September 30, 2010 and December 31, 2009 were as follows:

		September 30,				December 31,
		2010				2009
Trade accounts payable		$	86,470			$	48,302
Payroll and payroll liabilities			26,656				23,037
Provision for loss contract costs			420				1,062
Other accrued liabilities			79,027				9,420
Total accounts payable and accrued liabilities		$	192,573			$	81,821

9. Government Obligations

Government obligations represent amounts due to government entities, specifically the United States Department of Justice (“DOJ”) and the SEC, in final settlement of the investigations involving violations of the Foreign Corrupt Practices Act (the “FCPA”) and violations of the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”). These investigations stem primarily from the Company’s former operations in Bolivia, Ecuador and Nigeria. In May 2008, the Company reached final agreements with the DOJ and the SEC to settle their investigations. As previously disclosed, the agreements provided for an aggregate payment of $32,300 including $22,000 in fines to the DOJ related to the FCPA violations, consisting of $10,000 paid on signing and $4,000 annually for three years thereafter, with no interest due on unpaid amounts and $10,300 to the SEC, consisting of $8,900 of profit disgorgement and $1,400 of pre-judgment interest, payable in four equal installments of $2,575 with the first installment paid on signing and annually for three years thereafter. Post-judgment interest is payable on the outstanding $7,725.

During the twelve months ended December 31, 2008, $12,575 of the aggregate obligation was paid, which consisted of the initial $10,000 payment to the DOJ and the first installment of $2,575 to the SEC, inclusive of all pre-judgment interest. During the twelve months ended December 31, 2009, $6,575 of the aggregate obligation was paid, which consisted of the $4,000 annual installment to the DOJ and the $2,575 annual installment to the SEC, inclusive of all pre-judgment interest.

On May 24, 2010 and May 27, 2010, the Company made its third installment payments in the amounts of $4,000 and $2,575, plus post judgment interest, to the DOJ and SEC, respectively. The remaining aggregate obligation of $6,575 has been classified on the Consolidated Balance Sheets as “Current portion of government obligations.” This amount is based on payment terms that provide for one remaining equal installment of $2,575 and $4,000 to the SEC and DOJ, respectively, in 2011.

10. Long-term Debt

Long-term debt as of September 30, 2010 and December 31, 2009 was as follows:

		September 30,				December 31,
		2010				2009
Capital lease obligations		$	15,975			$	16,516
Term loan			282,904				—
2.75% convertible senior notes, net			58,006				56,071
6.5% senior convertible notes, net			31,895				31,450
Other obligations			2,333				—
Total long-term debt			391,113				104,037
Less: current portion			(106,000	)			(37,274	)
Long-term debt, net		$	285,113			$	66,763

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

10. Long-term Debt (continued)

2010 Credit Facility

The Company entered into a new credit agreement dated June 30, 2010 (the “2010 Credit Agreement”), among Willbros United States Holdings, Inc. (“WUSH”), a subsidiary of the Company (formerly known as Willbros USA, Inc.) as borrower, the Company and certain of its subsidiaries, as Guarantors, the lenders from time to time party thereto (the “Lenders”), Crédit Agricole Corporate and Investment Bank (“Crédit Agricole”), as Administrative Agent, Collateral Agent, Issuing Bank, Revolving Credit Facility Sole Lead Arranger, Sole Bookrunner and participating Lender, UBS Securities LLC (“UBS”), as Syndication Agent, Natixis, The Bank of Nova Scotia and Capital One, N.A., as Co-Documentation Agents, and Crédit Agricole and UBS as Term Loan Facility Joint Lead Arrangers and Joint Bookrunners. The new 2010 Credit Agreement consists of a four year, $300,000 term loan facility (“Term Loan”) maturing in July 2014 and a three year revolving credit facility of $175,000 maturing in July 2013 (the “2010 Credit Facility”) and replaced the Company’s existing three-year $150,000 senior secured credit facility, which was scheduled to expire in November 2010. The proceeds from the Term Loan were used to pay part of the cash portion of the merger consideration payable in connection with the Company’s acquisition of InfrastruX.

The initial aggregate amount of commitments for the revolving credit facility totaled $175,000, including an accordion feature enabling the Company to increase the size of the facility by an incremental $75,000 if it is in compliance with certain terms of the 2010 Credit Facility. The revolving credit facility is available for letters of credit and for revolving loans, which may be used for working capital and general corporate purposes. During an interim period ending on either September 30, 2010, if the Company is in compliance with end of 2010 leverage ratio requirements, or December 31, 2010 (the “Interim Period”), the revolving credit facility has a sublimit of $31,500 for revolving loans, with the proceeds thereof to be used only to pay the purchase price on the Company’s 6.5% Senior Convertible Notes (the “6.5% Notes”) due 2012, as a result of any holder thereof exercising its right to require the Company to purchase such notes. Thereafter, the revolving credit facility will have a sublimit of $150,000 for revolving loans.

The Company is able to utilize 100 percent of the revolving credit facility to obtain letters of credit, including during the Interim Period. As of September 30 2010, the Company had not borrowed any funds under the revolving credit facility.

Interest payable under the 2010 Credit Agreement is determined by the loan type. Base rate loans require annual interest payments equal to the adjusted base rate plus the applicable margin for base rate loans. The adjusted base rate is equal to the highest of (a) the Prime Rate in effect for such day, (b) the sum of the Federal Funds Effective Rate in effect for such day plus 1/2 of 1.0% per annum, (c) the sum of the Prime, London Inter-Bank Offered Rate (“LIBOR”) or Eurocurrency Rate in effect for such day with a maturity of one month plus 1.0% per annum and (d) with respect to Term Loans only is 3.0% per annum. The applicable margin for base rate loans is 6.50% per annum for Term Loans and 3.25% per annum for revolving advances during the Interim Period or following the Interim Period, a fixed margin based on the Company’s leverage ratio. Eurocurrency rate loans require annual interest payments equal to the Eurocurrency Rate plus the applicable margin for Eurocurrency rate loans. The Eurocurrency Rate is equal to the LIBOR rate in effect for such day, subject to a 2.0% floor for Term Loans only. The applicable margin for Eurocurrency rate loans is 7.50% per annum for Term Loans and 4.25% per annum for revolving advances during the Interim Period or following the Interim Period, a fixed margin based on the Company’s leverage ratio. As of September 30, 2010, the interest rate on the Term Loan (currently a Eurocurrency rate loan) was 9.5%. Interest payments on the Eurocurrency rate loans are payable in arrears on the last day of such interest period, and, in the case of interest periods of greater than three months, on each business day which occurs at three month intervals from the first day of such interest period. Interest payments on base rate loans are payable quarterly in arrears on the last business day of each calendar quarter. Additionally, the Company is required under the terms of the 2010 Credit Agreement to maintain in effect, one or more hedging arrangements to fix or otherwise limit the interest cost with respect to at least 50 percent of the aggregate outstanding principal amount of the Term Loan.

The Term Loan was issued at a discount such that the funded portion was equal to 94 percent of the principal amount of the Term Loan. Accordingly, the Company recognized an $18,000 discount on the Term Loan that is being amortized over the four-year term of the Term Loan.

The 2010 Credit Facility is secured by substantially all of the assets of WUSH, the Company and the other Guarantors. The 2010 Credit Agreement prohibits the Company from paying cash dividends on its common stock.

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

10. Long-term Debt (continued)

The 2010 Credit Agreement includes customary affirmative and negative covenants, including:

•

maintenance of a minimum interest coverage ratio;

•

maintenance of a maximum total leverage ratio;

•

maintenance of a minimum tangible net worth amount;

•

maintenance of a minimum consolidated EBITDA and a minimum cash balance during the Interim Period;

•

limitations on capital expenditures during the Interim Period, $60,000, and the greater of $70,000 or 25% of EBITDA thereafter;

•

limitations on indebtedness;

•

limitations on liens;

•

limitations on certain asset sales and dispositions; and

•

limitations on certain acquisitions and asset purchases if certain liquidity levels are not maintained.

A default under the 2010 Credit Agreement may be triggered by events such as a failure to comply with financial covenants or other covenants under the 2010 Credit Agreement, a failure to make payments when due under the 2010 Credit Agreement, a failure to make payments when due in respect of, or a failure to perform obligations relating to, debt obligations in excess of $15,000, a change of control of the Company and certain insolvency proceedings. A default under the 2010 Credit Agreement would permit Crédit Agricole and the Lenders to terminate their commitment to make cash advances or issue letters of credit, require the immediate repayment of any outstanding cash advances with interest and require the cash collateralization of outstanding letter of credit obligations. As of September 30, the Company was in compliance with all covenants under this Agreement.

Incurred unamortized debt issue costs associated with the creation of the 2010 Credit Agreement are $16,384. These debt issue costs are included in “Other assets” at September 30, 2010. These costs will be amortized to interest expense over the three and four-year terms of the revolving credit facility and Term Loan, respectively.

2007 Credit Facility

On November 20, 2007, the Company entered into a credit agreement (the “Credit Agreement”), among WUSH as borrower, the Company and certain of its subsidiaries as guarantors (collectively, the “Loan Parties”), and a group of lenders (the “Lenders”) led by Calyon New York Branch (“Calyon”). The Credit Agreement provided for a three-year senior secured $150,000 revolving credit facility maturing in November 2010 (the “2007 Credit Facility”). The Company was able to utilize 100 percent of the 2007 Credit Facility to obtain performance letters of credit and 33.3 percent (or $50,000) of the facility for cash advances for general corporate purposes and financial letters of credit. The 2007 Credit Facility was secured by substantially all of the assets of the Company, including those of the Loan Parties, as well as a pledge of 100 percent of the equity interests of WUSH and each of the Company’s other material U.S. subsidiaries and 65.0 percent of the equity interests of Willbros Global Holdings, Inc. On July 1, 2010, the 2007 Credit Facility was terminated in connection with the acquisition of InfrastruX and replaced with the new 2010 Credit Agreement.

6.5% Senior Convertible Notes

In December 2005, the Company completed a private placement of $65,000 aggregate principal amount of its 6.5% Notes, pursuant to a purchase agreement (the “Purchase Agreement”). During the first quarter of 2006, the initial purchasers of the 6.5% Notes exercised their options to purchase an additional $19,500 aggregate principal amount of the 6.5% Notes. The primary offering and the purchase option of the 6.5% Notes totaled $84,500.

The 6.5% Notes are governed by an indenture by and among the Company, as issuer, WUSH, as guarantor, and Bank of Texas, N.A. (as successor to the original trustee), as Trustee (the “Indenture”), and were issued under the Purchase Agreement by and among the Company and the initial purchasers of the 6.5% Notes (the “Purchasers”), in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended. The 6.5% Notes are convertible into shares of the Company’s common stock at a conversion rate of 56.9606 shares of common stock per $1,000 principal amount of notes representing a conversion price of approximately $17.56 per share. If all notes had been converted to common stock at September 30, 2010, 1,825,587 shares would have been issuable based on the principal amount of the 6.5% Notes which remain outstanding, subject to adjustment in certain circumstances. The 6.5% Notes are general senior unsecured obligations. Interest is due semi-annually on June 15 and December 15.

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

10. Long-term Debt (continued)

The 6.5% Notes mature on December 15, 2012 unless the notes are repurchased or converted earlier. The Company does not have the right to redeem the 6.5% Notes prior to maturity. Upon maturity, the principal amount plus the accrued interest through the day prior to the maturity date is payable only in cash. The holders of the 6.5% Notes have the right to require the Company to purchase the 6.5% Notes for cash, including unpaid interest, on December 15, 2010. The holders of the 6.5% Notes also have the right to require the Company to purchase the 6.5% Notes for cash upon the occurrence of a fundamental change, as defined in the Indenture. In addition to the amounts described above, the Company will be required to pay a “make-whole premium” to the holders of the 6.5% Notes who elect to convert their notes into the Company’s common stock in connection with a fundamental change. The make-whole premium is payable in additional shares of common stock and is calculated based on a formula with the premium ranging from 0.0 percent to 28.0 percent depending on when the fundamental change occurs and the price of the Company’s stock at the time the fundamental change occurs. Based on the uncertainty surrounding the future economic conditions, the Company is unable to estimate the number or probability of future repurchases of the 6.5% Notes on December 15, 2010. As such, all $31,450 (net of $600 bond discount) and $31,895 (net of $155 bond discount) has been classified as short-term and included within “Notes payable and current portion of other long-term debt” on the Consolidated Balance Sheet at December 31, 2009 and September 30, 2010, respectively.

Upon conversion of the 6.5% Notes, the Company has the right to deliver, in lieu of shares of its common stock, cash or a combination of cash and shares of its common stock. Under the Indenture, the Company is required to notify holders of the 6.5% Notes of its method for settling the principal amount of the 6.5% Notes upon conversion. This notification, once provided, is irrevocable and legally binding upon the Company with regard to any conversion of the 6.5% Notes. On March 21, 2006, the Company notified holders of the 6.5% Notes of its election to satisfy its conversion obligation with respect to the principal amount of any 6.5% Notes surrendered for conversion by paying the holders of such surrendered 6.5% Notes 100 percent of the principal conversion obligation in the form of common stock of the Company. Until the 6.5% Notes are surrendered for conversion, the Company will not be required to notify holders of its method for settling the excess amount of the conversion obligation relating to the amount of the conversion value above the principal amount, if any. In the event of a payment default or other default which results in acceleration on any credit agreement of $10,000 or more, including the 2010 Credit Facility and the 2.75% Convertible Senior Notes (the “2.75% Notes”), a corresponding event of default would result under the 6.5% Notes.

A covenant in the indenture for the 6.5% Notes prohibits the Company from incurring any additional indebtedness if its consolidated leverage ratio exceeds 4.00 to 1.00. As of September 30, 2010, this covenant would not have precluded the Company from borrowing under the 2010 Credit Facility.

On March 10, 2010, the Company entered into Consent Agreements (the “Consent Agreements”) with Highbridge International LLC, Whitebox Combined Partners, LP, Whitebox Convertible Arbitrage Partners, LP, IAM Mini-Fund 14 Limited, HFR Combined Master Trust and Wolverine Convertible Arbitrage Trading Limited (the “Consenting Holders”), who collectively held a majority of the $32,050 in aggregate principal amount outstanding of the 6.5% Notes. Pursuant to the Consent Agreements, the Consenting Holders consented to modifications and amendments to the Indenture substantially in the form and substance set forth in a third supplemental indenture (the “Third Supplemental Indenture”) to the indenture for the 6.5% Notes. The Third Supplemental Indenture initially provided, among other things, for an amendment to Section 6.13 of the Indenture so that certain restrictions on the Company’s ability to incur indebtedness would not be applicable to the borrowing by the Company of an amount not to exceed $300,000 under a new credit facility to be entered into in connection with the acquisition of InfrastruX.

On May 10, 2010, the Company entered into an Amendment to Consent Agreement (the “Amendment”) with the Consenting Holders. Pursuant to the Amendment, the Consenting Holders consented to modifications to the Third Supplemental Indenture to clarify that certain restrictions on the Company’s ability to incur indebtedness would not be applicable to certain borrowings by the Company to acquire InfrastruX regardless of whether the borrowing consisted of a term loan under a new credit agreement, a new series of notes or bonds or a combination thereof.

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

10. Long-term Debt (continued)

The Company is required to separately account for the debt and equity components of the 6.5% Notes in a manner that reflects its nonconvertible debt borrowing rate at the time of issuance. The difference between the fair value and the principal amount was recorded as a debt discount and as a component of equity. The debt and equity components recognized for the Company’s 6.5% Notes were as follows:

		September 30,				December 31,
		2010				2009
Principal amount of 6.5% Notes		$	32,050			$	32,050
Unamortized discount			(155	)			(600	)
Net carrying amount		$	31,895			$	31,450
Additional paid-in capital		$	3,131			$	3,131

At September 30, 2010, the unamortized discount had a remaining recognition period of approximately 3 months.

The amount of interest expense recognized and the effective interest rate for the three and nine months ended September 30, 2010 and 2009 were as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Contractual coupon interest		$	521			$	521			$	1,562			$	1,562
Amortization of discount			151				139				445				409
Interest expense		$	672			$	660			$	2,007			$	1,971
Effective interest rate			8.46	%			8.46	%			8.46	%			8.46	%

2.75% Convertible Senior Notes

In 2004, the Company completed a primary offering of $60,000 of the 2.75% Notes. Also, in 2004, the initial purchasers of the 2.75% Notes exercised their option to purchase an additional $10,000 aggregate principal amount of the 2.75% Notes. The primary offering and purchase option of the 2.75% Notes totaled $70,000. The 2.75% Notes are general senior unsecured obligations. Interest is paid semi-annually on March 15 and September 15. The 2.75% Notes mature on March 15, 2024 unless the notes are repurchased, redeemed or converted earlier. Upon maturity, the principal amount plus the accrued interest through the day prior to the maturity date is payable only in cash. The indenture for the 2.75% Notes originally provided that the Company could redeem the 2.75% Notes for cash on or after March 15, 2011, at 100 percent of the principal amount of the notes plus accrued interest. An indenture amendment, as described more fully below, delayed the redemption date two years to March 15, 2013. The holders of the 2.75% Notes have the right to require the Company to purchase the 2.75% Notes, including unpaid interest, on March 15, 2011, 2014, and 2019 or upon a change of control related event. On March 15, 2014 and 2019, the Company has the option of providing its common stock in lieu of cash, or a combination of common stock and cash to fund purchases. Based on the uncertainty surrounding the future economic conditions, the Company is unable to estimate the probability of future repurchases of the 2.75% Notes on March 15, 2011. Accordingly, all $58,006 (net of $1,351 bond discount) has been classified as short-term and included within “Notes payable and current portion of other long-term debt” on the Consolidated Balance Sheet at September 30, 2010.

Accrued interest on the notes on all three put dates can only be paid in cash. Upon the occurrence of a fundamental change, as defined by the Indenture, the holders of the 2.75% Notes have the right to require the Company to purchase the 2.75% Notes for cash, in addition to a “make-whole premium” that is payable in cash or in additional shares of common stock. The holders of the 2.75% Notes may, under certain circumstances, convert the notes into shares of the Company’s common stock at an initial conversion ratio of 51.3611 shares of common stock per $1,000.00 principal amount of notes representing a conversion price of approximately $19.47 per share and resulting in 3,048,641 shares at September 30, 2010 based on the principal amount of the 2.75% Notes which remain outstanding, subject to adjustment in certain circumstances. The notes will be convertible only upon the occurrence of certain specified events including, but not limited to, if, at certain times, the closing sale price of the Company’s common stock exceeds 120.0 percent of the then current conversion price, or $23.36 per share, based on the initial conversion price. In the event of a default under any Company credit agreement other than the indenture covering the 2.75% Notes, (1) in which the Company fails to pay principal or interest on indebtedness with an aggregate principal balance of $10,000 or more; or (2) in which indebtedness with a principal balance of $10,000 or more is accelerated, an event of default would result under the 2.75% Notes.

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

10. Long-term Debt (continued)

An indenture amendment extended the initial date on or after which the 2.75% Notes may be redeemed by the Company to March 15, 2013 from March 15, 2011 for cash at 100 percent of the principal amount of the notes plus accrued interest. In addition, a new provision was added to the indenture which requires the Company, in the event of a “fundamental change” which is a change of control event in which 10.0 percent or more of the consideration in the transaction consists of cash to make a coupon make-whole payment equal to the present value (discounted at the U.S. treasury rate) of the lesser of (a) two years of scheduled payments of interest on the 2.75% Notes or (b) all scheduled interest on the 2.75% Notes from the date of the transaction through March 15, 2013.

The Company is required to separately account for the debt and equity components of the 2.75% Notes in a manner that reflects its nonconvertible debt borrowing rate at the time of issuance. The difference between the fair value and the principal amount was recorded as a debt discount and as a component of equity. The debt and equity components recognized for the Company’s 2.75% Notes were as follows:

		September 30,				December 31,
		2010				2009
Principal amount of 2.75% Notes		$	59,357			$	59,357
Unamortized discount			(1,351	)			(3,286	)
Net carrying amount		$	58,006			$	56,071
Additional paid-in capital		$	14,235			$	14,235

At September 30, 2010, the unamortized discount had a remaining recognition period of approximately 6 months.

The amount of interest expense recognized and the effective interest rate for the three and nine months ended September 30, 2010 and 2009 were as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Contractual coupon interest		$	408			$	408			$	1,224			$	1,224
Amortization of discount			657				610				1,935				1,797
Interest expense		$	1,065			$	1,018			$	3,159			$	3,021
Effective interest rate			7.40	%			7.40	%			7.40	%			7.40	%

Capital Leases

The Company has entered into multiple capital lease agreements to acquire various units of construction equipment which have a weighted average 5.9 percent interest rate. Assets held under capital leases at September 30, 2010 and December 31, 2009 are summarized below:

		September 30,				December 31,
		2010				2009
Construction equipment		$	19,002			$	23,475
Auto, trucks and trailers			6,739				1,895
Furniture and equipment			1,881				1,911
Total assets held under capital lease			27,622				27,281
Less: accumulated depreciation			(7,992	)			(9,800	)
Net assets under capital lease		$	19,630			$	17,481

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

10. Long-term Debt (continued)

The following are the minimum lease payments for assets financed under capital lease arrangements as of September, 2010:

Fiscal year:
2010		$	4,061
2011			5,487
2012			6,438
2013			1,073
2014			49
Thereafter			—
Total minimum lease payments under capital lease obligations			17,108
Less: future interest expense			(1,133	)
Net minimum lease payments under capital leases obligations			15,975
Less: current portion of net minimum lease payments			(7,248	)
Long-term net minimum lease payments		$	8,727

11. Retirement Benefits

The Company has defined contribution plans that are funded by participating employee contributions and the Company. The Company matches employee contributions, up to a maximum of four percent of salary, in the form of cash. The Company match was suspended in May 2009 through December 2009 for all U.S. based plans and was reinstated in January 2010. Company contributions for the plans were $2,458 and $1,372 as of September 30, 2010 and 2009, respectively.

In connection with the Company’s acquisition of InfrastruX, the Company is subject to additional collective bargaining agreements with various unions. As a result, the Company participates with other companies in the unions’ multi-employer pension and other postretirement benefit plans. These plans cover all employees who are members of such unions. The Employee Retirement Income Security Act of 1974, as amended by the Multi-Employer Pension Plan Amendments Act of 1980, imposes certain liabilities upon employers who are contributors to a multi-employer plan in the event of the employer’s withdrawal from, or upon termination of, such plan. The Company has no intention to withdraw from these plans. The plans do not maintain information on the net assets and actuarial present value of the plans’ unfunded vested benefits allocable to the Company, and the amounts, if any, for which the Company may be contingently liable, are not ascertainable at this time. Contributions to all union multi-employer pension and other postretirement plans by the Company were $13,147 and $5,340 as of September 30, 2010 and 2009.

12. Income Taxes

For the three months ended September 30, 2010, the Company recorded income tax expense based on actual results rather than using a projected effective tax rate for the year. This was due in part to contingent events occurring in the third quarter of 2010, such as deal costs incurred in connection with the acquisition of InfrastruX, release of contingent earnout liability, goodwill impairment and the vesting of stock based compensation that had a significant impact on income tax expense.

In the third quarter of 2010, the total income tax benefit of $2,687 includes a $299 write-off of deferred tax assets related to tax benefits previously recorded under Accounting Standard Codification (“ASC”) 718 — Stock Compensation that will no longer be realized and $3,453 of deal costs that received no tax benefit. There was no tax expense required to be recorded in connection with the $45,340 release of the contingent earnout liability.

13. Stockholders’ Equity

The information contained in this note pertains to continuing and discontinued operations.

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 and the Director Plan was increased to 4,825,000 and 225,000, respectively, by stockholder approval. The Director Plan expired August 16, 2006. In 2006, the Company established the 2006 Director Restricted Stock Plan (the “2006 Director Plan”) with 50,000 shares authorized for issuance to grant shares of restricted stock and restricted stock rights to non-employee directors.

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

13. Stockholders’ Equity (continued)

The number of shares authorized for issuance under the 2006 Director Plan was increased in 2008 to 250,000 by stockholder approval.

On May 26, 2010, the Company established the Willbros Group, Inc. 2010 Stock and Incentive Compensation Plan (“2010 Plan”) with 2,100,000 shares of common stock authorized for issuance to provide for awards to key employees of the Company. All future grants of stock awards to key employees will be made through the 2010 Plan. On May 26, 2010, the 1996 Plan was frozen, with the exception of normal vesting, forfeiture and other activity associated with awards previously granted under the 1996 Plan. At September 30, 2010, the 2010 plan had 1,968,392 shares available for grant.

Restricted stock and restricted stock rights, also described collectively as restricted stock units (“RSU’s”) and options granted to employees vest generally over a three to four year period. Options granted under the Director Plan are fully vested. Restricted stock and restricted stock rights granted under the 2006 Director Plan vest one year after the date of grant. At September 30, 2010, the 2006 Director Plan had 121,711 shares available for grant. Certain provisions allow for accelerated vesting based on increases of share prices and on eligible retirement. Compensation expense of $504 and $2,072, for the nine months ended September 30, 2010 and 2009, respectively, and $223 and $39, for the three months ended September 30, 2010 and 2009, respectively, was recognized due to accelerated vesting of RSU’s due to retirements and separation from the Company.

Share-based compensation related to RSU’s is recorded based on the Company’s stock price as of the grant date. Expense from both stock options and RSU’s totaled $1,911 and $2,371, for the three months ended September 30, 2010 and 2009, respectively, and $6,489 and $9,321, for the nine months ended September 30, 2010 and 2009, respectively.

The Company determines the fair value of stock options as of its grant date using the Black-Scholes valuation method. No options were granted during the three or nine months ended September 30, 2010 and 2009. Stock option activity for the nine months ended September 30, 2010 consists of:

		Number of				Weighted Average
		Options				Exercise Price
Outstanding at January 1, 2010			257,750			$	15.91
Granted			—				—
Exercised			—				—
Forfeited, expired and other			(30,000	)			20.65
Outstanding at September 30, 2010			227,750			$	15.28
Exercisable at September 30, 2010			195,250			$	14.84

As of September 30, 2010, the aggregate intrinsic value of stock options outstanding and stock options exercisable was $96 and $96, respectively. The weighted average remaining contractual term of outstanding options is 4.54 years and the weighted average remaining contractual term of the exercisable options is 4.37 years at September 30, 2010. The total intrinsic value of options exercised during the nine months ended September 30, 2010 and 2009 was $0 and $71, respectively.

The total fair value of options vested during the three and nine months ended September 30, 2010 and 2009 was $0 and $0, respectively.

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

13. Stockholders’ Equity (continued)

The Company’s non-vested options at September 30, 2010 and the changes in non-vested options during the nine months ended September 30, 2010 are as follows:

						Weighted
						Average Grant-
		Shares				Date Fair Value
Nonvested, January 1, 2010			37,500			$	7.23
Granted			—				—
Vested			—				—
Forfeited or expired			(5,000	)			9.69
Nonvested, September 30, 2010			32,500			$	6.85

The Company’s RSU activity and related information for the nine months ended September 30, 2010 consists of:

						Weighted
		Number of				Average Grant-
		RSU’s				Date Fair Value
Outstanding at January 1, 2010			859,248			$	22.38
Granted			549,849				11.83
Vested			(325,644	)			22.74
Forfeited			(18,500	)			22.21
Outstanding September 30, 2010			1,064,953			$	16.81

The total fair value of RSU’s vested during the nine months ended September 30, 2010 and 2009 was $7,406 and $9,174, respectively.

As of September 30, 2010, there was a total of $9,933 of unrecognized compensation cost, net of estimated forfeitures, related to all non-vested share-based compensation arrangements granted under the Company’s stock ownership plans. That cost is expected to be recognized over a weighted-average period of 1.2 years.

Warrants to Purchase Common Stock

On October 27, 2006, the Company completed a private placement of equity to certain accredited investors pursuant to which the Company issued and sold 3,722,360 shares of the Company’s common stock resulting in net proceeds of $48,748. In conjunction with the private placement, the Company also issued warrants to purchase an additional 558,354 shares of the Company’s common stock. Each warrant is exercisable, in whole or in part, until 60 months from the date of issuance. A warrant holder may elect to exercise the warrant by delivery of payment to the Company at the exercise price of $19.03 per share, or pursuant to a cashless exercise as provided in the warrant agreement. The fair value of the warrants was $3,423 on the date of the grant, as calculated using the Black-Scholes option-pricing model. There were 536,925 warrants outstanding at September 30, 2010 and 2009, respectively.

14. Income (Loss) Per Share

Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share is based on the weighted average number of shares outstanding during each period and the assumed exercise of potentially dilutive stock options and warrants and vesting of restricted stock and restricted stock rights less the number of treasury shares assumed to be purchased from the proceeds using the average market price of the Company’s stock for each of the periods presented. The Company’s convertible notes are included in the calculation of diluted income per share under the “if-converted” method. Additionally, diluted income per share for continuing operations is calculated excluding the after-tax interest expense associated with the convertible notes since these notes are treated as if converted into common stock.

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)

14. Income (Loss) Per Share (continued)

Basic and diluted income (loss) from continuing operations per common share for the three and nine months ended September 30, 2010 and 2009 are computed as follows:

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
		2010				2009				2010				2009
Income from continuing operations		$	36,279			$	2,055			$	32,959			$	29,121
Less: Income attributable to noncontrolling interest			(293	)			(372	)			(902	)			(1,543	)
Net income from continuing operations attributable to Willbros Group, Inc. (numerator for basic calculation)			35,986				1,683				32,057				27,578
Add: Interest and debt issuance costs associated with convertible notes			1,246				—				2,108				—
Net income from continuing operations applicable to common shares (numerator for diluted calculation)		$	37,232			$	1,683			$	34,165			$	27,578
Weighted average number of common shares outstanding for basic income per share			46,997,431				38,721,586				41,651,994				38,656,656
Weighted average number of potentially dilutive common shares outstanding			5,156,598				197,347				3,238,011				160,755
Weighted average number of common shares outstanding for diluted income per share			52,154,029				38,918,933				44,890,005				38,817,411
Income per common share from continuing operations:
Basic		$	0.77			$	0.04			$	0.77			$	0.71
Diluted		$	0.71			$	0.04			$	0.76			$	0.71