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

OR

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

For the transition period from                      to                     

Willbros Group, Inc.

(Exact name of registrant as specified in its charter)

Republic of Panama (Jurisdiction of incorporation)		98-0160660 (I.R.S. Employer Identification Number)

Plaza 2000 Building
50th Street, 8th Floor
P.O. Box 0816-01098
Panama, Republic of Panama
Telephone No.: +50-7-213-0947
(Address, including zip code, and telephone number, including
area code, of principal executive offices of registrant)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

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     Noo

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o     Noþ

The number of shares of the registrant’s Common Stock, $.05 par value, outstanding as of October 31, 2008 was 39,199,222.

 

 

WILLBROS GROUP, INC.
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 2008

		Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2008 (Unaudited) and December 31, 2007			3
Condensed Consolidated Statements of Operations (Unaudited) for the three months and nine months ended September 30, 2008 and 2007			4
Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Income (Loss) (Unaudited) for the nine months ended September 30, 2008			5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2008 and 2007			6
Notes to Condensed Consolidated Financial Statements (Unaudited)			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures About Market Risk			38
Item 4. Controls and Procedures			38
PART II – OTHER INFORMATION
Item 1. Legal Proceedings			39
Item 1A . Risk Factors			39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			41
Item 3. Defaults upon Senior Securities			41
Item 4. Submission of Matters to a Vote of Security Holders			41
Item 5. Other Information			41
Item 6. Exhibits			41
SIGNATURE			42
EXHIBIT INDEX			43
EX-31.1
EX-31.2
EX-32.1
EX-32.2

WILLBROS GROUP, INC.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

		September 30,				December 31,
		2008				2007
ASSETS
Current assets:
Cash and cash equivalents		$	127,552			$	92,886
Accounts receivable, net of allowance of $1,217 and $1,108			266,985				251,746
Contract cost and recognized income not yet billed			81,815				49,233
Prepaid expenses			14,683				7,555
Parts and supplies inventories			3,381				2,902
Assets held for sale			13,607				—
Assets of discontinued operations			2,673				3,211
Total current assets			510,696				407,533
Property, plant and equipment, net of accumulated depreciation of $118,032 and $97,268			159,186				159,766
Goodwill			143,653				143,241
Other intangible assets			42,378				50,206
Deferred tax assets			7,227				7,769
Other assets			7,882				10,898
Total assets		$	871,022			$	779,413
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of capital lease obligations		$	12,880			$	12,132
Notes payable and current portion of other long-term debt			4,275				1,040
Current portion of government obligations			6,575				8,075
Accounts payable and accrued liabilities			200,200				156,342
Contract billings in excess of cost and recognized income			21,943				22,868
Accrued income taxes			1,131				4,750
Liabilities of discontinued operations			637				978
Total current liabilities			247,641				206,185
2.75% convertible senior notes			59,357				68,000
6.5% senior convertible notes			32,050				32,050
Capital lease obligations			36,683				39,090
Long-term portion of government obligations			13,150				24,225
Other long-term debt			—				34
Deferred tax liabilities			9,345				6,879
Long-term liability for unrecognized tax benefits			6,154				6,612
Other liabilities			237				237
Total liabilities			404,617				383,312
Contingencies and commitments (Note 12)
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, 70,000,000 shares authorized; 39,570,886 shares issued (38,276,545 at December 31, 2007)			1,978				1,913
Capital in excess of par value			575,591				556,223
Accumulated deficit			(114,664	)			(175,936	)
Treasury stock at cost, 372,803 shares (222,839 at December 31, 2007)			(8,084	)			(3,298	)
Accumulated other comprehensive income			11,584				17,199
Total stockholders’ equity			466,405				396,101
Total liabilities and stockholders’ equity		$	871,022			$	779,413

See accompanying notes to condensed consolidated financial statements.

WILLBROS GROUP, INC.

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
		2008				2007				2008				2007
Contract revenue		$	490,651			$	246,716			$	1,450,002			$	610,168
Operating expenses:
Contract			430,192				212,237				1,256,680				550,995
Amortization of intangibles			2,586				—				7,828				—
General and administrative			29,138				17,757				85,939				43,313
Government fines			—				(2,000	)			—				22,000
			461,916				227,994				1,350,447				616,308
Operating income (loss)			28,735				18,722				99,555				(6,140	)
Other income (expense):
Interest income			799				1,029				2,592				4,433
Interest expense			(2,484	)			(2,071	)			(7,671	)			(6,552	)
Other, net			58				(1,327	)			204				(2,019	)
Loss on early extinguishment of debt			—				—				—				(15,375	)
			(1,627	)			(2,369	)			(4,875	)			(19,513	)
Income (loss) from continuing operations before income taxes			27,108				16,353				94,680				(25,653	)
Provision for income taxes			8,057				6,081				36,450				7,793
Net income (loss) from continuing operations			19,051				10,272				58,230				(33,446	)
Income (loss) from discontinued operations net of provision for income taxes			1,219				(9,126	)			3,042				(21,494	)
Net income (loss)		$	20,270			$	1,146			$	61,272			$	(54,940	)
Basic income (loss) per common share:
Income (loss) from continuing operations		$	0.50			$	0.36			$	1.52			$	(1.22	)
Income (loss) from discontinued operations			0.03				(0.32	)			0.08				(0.78	)
Net income (loss)		$	0.53			$	0.04			$	1.60			$	(2.00	)
Diluted income (loss) per common share:
Income (loss) from continuing operations		$	0.46			$	0.32			$	1.41			$	(1.22	)
Income (loss) from discontinued operations			0.03				(0.26	)			0.07				(0.78	)
Net income (loss)		$	0.49			$	0.06			$	1.48			$	(2.00	)
Weighted average number of common shares outstanding:
Basic			38,313,997				28,804,907				38,236,508				27,421,927
Diluted			43,803,235				34,844,482				43,864,307				27,421,927

See accompanying notes to condensed consolidated financial statements.

WILLBROS GROUP, INC.

																						Accumulated
																						Other
										Capital in												Comprehen-				Total
		Common Stock								Excess of				Accumulated				Treasury				sive Income				Stockholders’
		Shares				Par Value				Par Value				Deficit				Stock				(Loss)				Equity
Balance, December 31, 2007			38,276,545			$	1,913			$	556,223			$	(175,936	)		$	(3,298	)		$	17,199			$	396,101
Comprehensive income:
Net income			—				—				—				61,272				—				—				61,272
Foreign currency translation adjustment			—				—				—				—				—				(5,615	)			(5,615	)
Total comprehensive income																											55,657
Deferred compensation expense			—				—				7,080				—				—				—				7,080
Deferred compensation tax benefit			—				—				3,277				—				—				—				3,277
Deferred restricted stock rights issuance			225,000				11				(11	)			—				—				—				—
Restricted stock grants			552,159				28				(28	)			—				—				—				—
Vesting of restricted stock rights			20,269				1				(1	)			—				—				—				—
Additions to treasury stock, vesting and forfeitures of restricted stock			—				—				—				—				(4,786	)			—				(4,786	)
Exercise of stock options			53,000				3				681				—				—				—				684
Additional costs of public offering			—				—				(251	)			—				—				—				(251	)
Stock issued on conversion of 2.75% convertible senior notes			443,913				22				8,621				—				—				—				8,643
Balance, September 30, 2008			39,570,886			$	1,978			$	575,591			$	(114,664	)		$	(8,084	)		$	11,584			$	466,405

See accompanying notes to condensed consolidated financial statements.

WILLBROS GROUP, INC.

		Nine Months
		Ended September 30,
		2008				2007
Cash flows from operating activities:
Net income (loss)		$	61,272			$	(54,940	)
Reconciliation of net income (loss) to net cash provided by operating activities:
(Income) loss from discontinued operations			(3,042	)			21,494
Depreciation and amortization			33,988				13,223
Amortization of deferred compensation, net			7,080				3,010
Amortization of debt issuance costs			1,189				1,557
Deferred compensation tax benefit			(3,277	)			—
Deferred income tax provision			6,885				1,063
Loss (gain) on sales of property, plant and equipment			206				(716	)
Provision for bad debts			1,215				181
Equity in joint ventures			(123	)			—
Government fines			—				22,000
Loss on early extinguishment of debt			—				15,375
Changes in operating assets and liabilities:
Accounts receivable, net			(19,931	)			(36,923	)
Contract cost and recognized income not yet billed			(35,405	)			(15,226	)
Prepaid expenses			5,706				11,239
Parts and supplies inventories			(512	)			(704	)
Other assets			758				(879	)
Accounts payable and accrued liabilities			45,188				3,466
Contract billings in excess of cost and recognized income			(783	)			(6,772	)
Accrued income taxes			(3,590	)			608
Long-term liability for unrecognized tax benefits			(330	)			315
Cash provided by (used in) operating activities of continuing operations			96,494				(22,629	)
Cash provided by operating activities of discontinued operations			3,531				2,980
Cash provided by (used in) operating activities			100,025				(19,649	)
Cash flows from investing activities:
Purchases of property, plant and equipment			(28,122	)			(15,890	)
Rebates from purchases of property, plant and equipment			1,915				—
Proceeds from sales of property, plant and equipment			1,418				1,428
Acquisition of subsidiaries			846				(24,154	)
Proceeds from the sale of discontinued operations, net			—				105,568
Cash provided by (used in) investing activities of continuing operations			(23,943	)			66,952
Cash used in investing activities of discontinued operations			—				—
Cash provided by (used in) investing activities			(23,943	)			66,952
Cash flows from financing activities:
Payments on capital leases			(17,550	)			(7,507	)
Payments of government fines			(12,575	)			—
Repayment of notes payable			(9,550	)			(8,665	)
Acquisition of treasury stock			(4,786	)			(513	)
Deferred compensation tax benefit			3,277				—
Proceeds from exercise of stock options			684				1,519
Additional costs of public offering of common stock			(251	)			—
Costs of debt issues			(166	)			(286	)
Loss on early extinguishment of debt			—				(12,993	)
Cash used in financing activities of continuing operations			(40,917	)			(28,445	)
Cash used in financing activities of discontinued operations			—				—
Cash used in financing activities			(40,917	)			(28,445	)
Effect of exchange rate changes on cash and cash equivalents			(499	)			2,208
Cash provided by all activities			34,666				21,066
Cash and cash equivalents, beginning of period			92,886				37,643
Cash and cash equivalents, end of period		$	127,552			$	58,709

WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts)
(Unaudited)

		Nine Months
		Ended September 30,
		2008				2007
Supplemental disclosures of cash flow information:
Cash paid for interest (including discontinued operations)		$	6,287			$	5,659
Cash paid for income taxes (including discontinued operations)		$	34,651			$	8,438
Supplemental non-cash investing and financing transactions:
Equipment and property obtained by capital leases		$	17,863			$	29,780
Prepaid insurance obtained by note payable		$	12,754			$	10,051
Common stock issued for conversion of 2.75% convertible senior notes		$	8,643			$	—
Deposit applied to capital lease obligation		$	1,432			$	—
Deferred government obligation payments		$	—			$	32,300

See accompanying notes to condensed consolidated financial statements.

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

     Willbros Group, Inc., a Republic of Panama 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 may 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, 2007, which has been derived from audited consolidated financial statements, and the unaudited interim Condensed Consolidated Financial Statements as of September 30, 2008, 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. 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 current presentation. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company’s December 31, 2007 audited Consolidated Financial Statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

     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, 2008, the results of operations and cash flows of the Company for all interim periods presented, and stockholders’ equity for the nine months ended September 30, 2008.

     The Condensed Consolidated Financial Statements include certain estimates and assumptions by management. These estimates and assumptions relate to the reported amounts of assets and liabilities at the date 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 13 – 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.

     As of September 30, 2008 and December 31, 2007, respectively, the Company had $9,492 and $2,686 of cash and cash equivalents committed to specific project uses.

2. New Accounting Pronouncements

     SFAS No. 157

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statements of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements and is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. On January 1, 2008, the Company adopted the provisions of SFAS No. 157 related to financial assets and liabilities and to nonfinancial assets and liabilities measured at fair value on a recurring basis. The adoption of this accounting pronouncement did not result in a material impact to the consolidated financial statements. 

     In February 2008, the FASB issued FASB Staff Position (“FSP”) Financial Accounting Standard 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13”, which removes certain leasing transactions from the scope of SFAS No. 157, and FSP Financial Accounting Standard 157-2, “Effective Date of FASB Statement No. 157”, which defers the effective date of SFAS No. 157 for one year for certain nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. In October 2008, the FASB also issued FSP SFAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Actvie, ” which clarifies the application of SFAS No. 157 in an inactive market and illustrates how an entity would determine fair value when the market for a financial asset is not active. Beginning January 1, 2009, the Company will adopt the provisions for nonfinancial assets and nonfinancial liabilities that are not required or permitted to be measured at fair value on a recurring basis, which include those measured at fair value in goodwill impairment testing, indefinite-lived intangible assets measured at fair value for impairment assessment, nonfinancial long-lived assets measured at fair value for impairment assessment, asset retirement obligations initially measured at fair value, and those initially measured at fair value in a business

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

2. New Accounting Pronouncements (continued)

combination. The Company is currently assessing the impact the adoption of this pronouncement will have on its financial statements. The Company does not expect the provisions of SFAS No. 157 related to these items to have a material impact on its consolidated financial statements.

     SFAS No. 159

     In February 2007, the FASB released Statements of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”), which is effective for fiscal years beginning after November 15, 2007. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for the Company’s fiscal year ending December 31, 2008. The Company does not expect to use the fair value option for any financial assets and financial liabilities that are not currently recorded at fair value.

     SFAS No. 141-R

     In December 2007, the FASB released Statements of Financial Accounting Standards No. 141-R, “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, which are business combinations in the year ending December 31, 2009 for the Company. Early adoption is prohibited. SFAS No. 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest and the goodwill acquired. Additionally, transaction costs that are currently capitalized under current accounting guidance will be required to be expensed as incurred under SFAS No. 141R. SFAS No. 141R also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination.

       SFAS No. 160

     In December 2007, the FASB released Statements of Financial Accounting Standards No. 160, “Non-controlling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Early adoption is prohibited. SFAS No. 160 establishes reporting requirements that provide sufficient disclosure that clearly identify and distinguish between the interests of non-controlling owners and the interest of the parent. The Company is currently assessing the impact the adoption of this pronouncement will have on its financial statements.

     FSP No. APB 14-1

     In May 2008, the FASB issued FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)”. This FSP clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by APB Opinion No. 14. Additionally, this FSP specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This statement is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company is currently assessing the impact the adoption of this pronouncement will have on its financial statements.

     FSP No. FAS 142-3

     In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets.” This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement of Financial Accounting Standards No. 142 (“SFAS No. 142”). The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142, the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R and other U.S. generally accepted accounting principles. This statement is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. Early adoption is prohibited. The Company is currently assessing the impact the adoption of this pronouncement will have on its financial statements.

3. Contracts in Progress

     Contract cost and recognized income not yet billed on uncompleted contracts arise when recorded revenues for a contract exceed the amounts 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 the lesser of the expected revenue or cost incurred when realization of price approval is probable. Estimating revenues from unapproved change

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

3. Contracts in Progress (continued)

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, 2008 and December 31, 2007 was as follows:

		September 30,				December 31,
		2008				2007
Cost incurred on contracts in progress		$	1,088,970			$	720,799
Recognized income			140,789				74,228
			1,229,759				795,027
Progress billings and advance payments			(1,169,887	)			(768,662	)
		$	59,872			$	26,365
Contract cost and recognized income not yet billed		$	81,815			$	49,233
Contract billings in excess of cost and recognized income			(21,943	)			(22,868	)
		$	59,872			$	26,365

     Contract cost and recognized income not yet billed includes $340 and $86 at September 30, 2008, and December 31, 2007, respectively, on completed contracts.

4. Goodwill and Other Intangible Assets

     The changes in the carrying amount of goodwill for the nine months ended September 30, 2008, by business segment, are detailed below:

		Upstream				Downstream
		O&G				O&G				Consolidated
Balance as of December 31, 2007		$	12,818			$	130,423			$	143,241
Purchase price adjustments			(581	)			1,095				514
Translation adjustments and other			(102	)			—				(102	)
Balance as of September 30, 2008		$	12,135			$	131,518			$	143,653

     The purchase price adjustments in the table above are due to changes in the estimated fair value assigned to the assets and liabilities acquired and contractual working capital adjustments made during the one year estimation period following the consummation of the transaction.

The Company’s intangible assets as of September 30, 2008 were as follows:

		Customer
		Relationships				Backlog				Total
Gross carrying amount		$	40,500			$	10,500			$	51,000
Less: accumulated amortization			(2,791	)			(5,831	)			(8,622	)
Total amortizable intangible assets, net		$	37,709			$	4,669			$	42,378
Weighted average remaining amortization period		11.3 yrs				0.7 yrs

     These amortizable intangible assets are included in the assets of the Company’s Downstream O&G segment. Intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from 1.5 to 12.1 years.

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

4. Goodwill and Other Intangible Assets (continued)

     Amortization expense included in net income for the three and nine months ended September 30, 2008 was $2,586 and $7,828, respectively. Estimated amortization expense for the remainder of 2008 and each of the subsequent five years and thereafter is as follows:

Fiscal year:
2008		$	2,588
2009			6,268
2010			3,352
2011			3,352
2012			3,352
2013			3,352
Thereafter			20,114
Total amortization		$	42,378

5. 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 and the Securities Exchange Act of 1934. 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. The Company will pay $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. The Company will pay $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 will be payable on the outstanding $7,725.

     During the nine months ended September 30, 2008, $12,575 of the aggregate obligation was relieved, 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.

     The remaining aggregate obligation of $19,725 has been classified on the Condensed Consolidated Balance Sheets as $6,575 in “Current portion of government obligations” and $13,150 in “Long-term portion of government obligations.” This division is based on payment terms that provide for three remaining equal installments of $2,575 and $4,000 to the SEC and DOJ, respectively.

6. Long-term Debt

     Long-term debt as of September 30, 2008 and December 31, 2007 was as follows:

		September 30,				December 31,
		2008				2007
Capital lease obligations		$	49,563			$	51,222
2.75% convertible senior notes			59,357				68,000
6.5% senior convertible notes			32,050				32,050
Other long-term debt			49				99
2007 Credit Facility			—				—
Total long-term debt			141,019				151,371
Less: current portion			(12,929	)			(12,197	)
Long-term debt, net		$	128,090			$	139,174

2007 Credit Facility

On November 20, 2007, the Company entered into a new credit agreement (the “Credit Agreement”), among Willbros USA, Inc., a subsidiary of the Company (“WUSA”), 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 provides for a new three-year senior secured $150,000 revolving credit facility due 2010 (the “2007 Credit Facility”). The Company has the option, subject to obtaining commitment from one or more lenders and Calyon’s consent, to increase the size of the 2007 Credit Facility to $200,000 within the first two years of the closing date of the 2007 Credit Facility. The Company is able to utilize 100 percent of the 2007 Credit Facility to obtain performance letters of credit and 33.3 percent of the facility for cash advances for general corporate purposes

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

6. Long-term Debt (continued)

and financial letters of credit. The 2007 Credit Facility is 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 WUSA and each of the Company’s other subsidiaries that are Loan Parties. The 2007 Credit Facility replaced the Company’s existing three-year $100,000 senior secured synthetic credit facility, which was scheduled to expire in October 2009.

     Unamortized debt issuance costs associated with the 2007 Credit Facility total $1,088 and $1,302 and are included in other assets at September 30, 2008, and December 31, 2007, respectively. These costs are being amortized to interest expense over the three-year term of the Credit Facility ending October 2010.

     The 2007 Credit Facility also requires compliance with the following financial covenants:

	•		A minimum net worth in an amount of not less than the sum of $223,819 plus 50 percent of consolidated net income earned in each fiscal quarter ended after September 30, 2008 plus adjustments for certain equity transactions;
	•		A maximum leverage ratio of 2.25 to 1.00 for the fiscal quarter ending September 30, 2008 and one fiscal quarter thereafter and a maximum leverage ratio of 2.00 to 1.00 for each fiscal quarter ending after December 31, 2008;
	•		A minimum fixed charge coverage ratio of not less than 3.25 to 1.00 for the fiscal quarter ending September 30, 2008 and one fiscal quarter thereafter and a fixed charge ratio of not less than 3.50 to 1.00 for each fiscal quarter ending after December 31, 2008; and
	•		If the Company’s liquidity during any fiscal quarter falls below $35,000, a maximum capital expenditure ratio of 1.50 to 1.00 (cost of assets added through purchase or capital lease) for such fiscal quarter and for each of the three quarters thereafter.

     If these covenants are violated, it would be considered an event of default entitling the lenders to terminate the remaining commitment, call all outstanding letters of credit, and accelerate payment of any principal and interest outstanding. At September 30, 2008, the Company was in compliance with all of these covenants.

     As of September 30, 2008, there were no borrowings outstanding under the 2007 Credit Facility and there were $34,010 in outstanding performance letters of credit consisting of $33,887 issued for projects in continuing operations and $123 issued for projects related to Discontinued Operations.

6.5% Senior Convertible Notes

     On December 22, 2005, the Company entered into a purchase agreement (the “Purchase Agreement”) for a private placement of $65,000 aggregate principal amount of its 6.5% Senior Convertible Notes due 2012 (the “6.5% Notes”). The private placement closed on December 23, 2005. 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. Collectively, the primary offering and the purchase option of the 6.5% Notes totaled $84,500. The net proceeds of the offering were used to retire existing indebtedness and provide additional liquidity to support working capital needs.

     The 6.5% Notes are governed by an indenture, dated December 23, 2005, that was entered into by and among the Company, as issuer, WUSA, as guarantor and The Bank of New York Mellon Corporation, 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 “Securities Act”). The 6.5% Notes are convertible into shares of the Company’s stock and these underlying shares have been registered with the SEC. The resale of the 6.5% Notes, however, has not been registered with the SEC.

     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 resulting in 1,825,587 shares at September 30, 2008), 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.

     As of September 30, 2008, $32,050 of aggregate principal amount of the 6.5% Notes remains outstanding. Unamortized debt issuance costs of $1,546 and $1,819 associated with the 6.5% Notes are included in other assets at September 30, 2008 and December 31, 2007, respectively, and are being amortized over the seven-year period ending December 2012.

     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, 2008, this covenant would not have precluded the Company from borrowing under the 2007 Credit Facility.

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

6. Long-term Debt (continued)

2.75% Convertible Senior Notes

     On March 12, 2004, the Company completed a primary offering of $60,000 of 2.75% Convertible Senior Notes (the “2.75% Notes”). On April 13, 2004, the initial purchasers of the 2.75% Notes exercised their option to purchase an additional $10,000 aggregate principal amount of the notes. Collectively, 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 and payments began on September 15, 2004.

     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 principal amount of notes (representing a conversion price of approximately $19.47 per share resulting in 3,048,641 shares at September 30, 2008 subject to adjustment in certain circumstances).

     On March 20, 2008, a holder exercised its right to convert, converting $8,643 in aggregate principal amount of the 2.75% Notes into 443,913 shares of the Company’s common stock. In connection with the conversion, the Company expensed a proportionate amount of its debt issuance costs resulting in additional period interest of $187.

     Unamortized debt issuance costs of $1,074 and $1,610 associated with the 2.75% Notes are included in other assets at September 30, 2008 and December 31, 2007, respectively, and are being amortized over the seven-year period ending March 2011.

Capital Leases

     The Company has entered into multiple capital lease agreements to acquire construction equipment and automobiles. In aggregate, these leases have interest rates ranging from 4.30% to 8.26% and have typical terms of at least 30 months.

     Assets held under capital leases at September 30, 2008 and December 31, 2007 are summarized below:

		September 30,				December 31,
		2008				2007
Construction equipment		$	60,413			$	56,171
Autos, trucks and trailers			4,458				4,282
Furniture and office equipment			—				535
Total assets held under capital lease			64,871				60,988
Less: accumulated depreciation			(14,968	)			(9,251	)
Net assets under capital lease		$	49,903			$	51,737

7. 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 plus the assumed exercise of potentially dilutive stock options and warrants, conversion of convertible debt, and vesting of restricted stock and restricted stock rights less the number of treasury shares assumed to be purchased using the average market price of the Company’s stock for each of the periods presented. The Company’s convertible notes, except when anti-dilutive, 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 interest expense and amortization of debt issuance costs 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)

7. 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, 2008 and 2007 are computed as follows:

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
		2008				2007				2008				2007
Net income (loss) from continuing operations (numerator for basic calculation)		$	19,051			$	10,272			$	58,230			$	(33,446	)
Add: Interest and debt issuance costs amortization associated with convertible notes			1,129				780				3,642				—
Net income (loss) from continuing operations applicable to common shares (numerator for diluted calculation)		$	20,180			$	11,052			$	61,872			$	(33,446	)
Weighted average number of common shares outstanding for basic income (loss) per share			38,313,997				28,804,907				38,236,508				27,421,927
Weighted average number of potentially dilutive common shares outstanding			5,489,238				6,039,575				5,627,799				—
Weighted average number of common shares outstanding for diluted income (loss) per share			43,803,235				34,844,482				43,864,307				27,421,927
Income (loss) per common share from continuing operations:
Basic		$	0.50			$	0.36			$	1.52			$	(1.22	)
Diluted		$	0.46			$	0.32			$	1.41			$	(1.22	)

     The Company incurred net losses for the nine months ended September 30, 2007, and has therefore excluded the securities listed below from the computation of diluted loss per share, as the effect would be anti-dilutive:

		Nine Months
		Ended September 30,
		2008				2007
2.75% Convertible senior notes			—				3,595,277
6.5% Senior convertible notes			—				1,825,589
Stock options			—				686,750
Warrants to purchase common stock			—				558,354
Restricted stock and restricted stock rights			—				612,637
			—				7,278,607

     In accordance with Emerging Issues Task Force Issue 04-8, “The Effect of Contingently Convertible Instruments on Diluted Earnings per Share”, the 5,420,866 shares issuable upon conversion of both the 6.5% Notes and the 2.75% Notes would have been included in diluted earnings per share if those securities are dilutive, regardless of whether the conversion prices of $17.56 and $19.47, respectively, have been met.

8. Segment Information

     The Company’s segments are strategic business units that are managed separately as each has different operational requirements and strategies. With the acquisition of InServ on November 20, 2007, the Company redefined its operating segments based on industry segments served. The operating segments the Company now manages by and reports on are: Upstream O&G, Downstream O&G and Engineering. These segments operate primarily in the United States, Canada and Oman. Management evaluates the performance of each operating segment based on operating income. The Company’s corporate operations include the general, administrative and financing functions of the organization. The costs of these functions are allocated between the three operating segments. There were no material inter-segment revenues in the periods presented.

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

8. Segment Information (continued)

     The following tables reflect the Company’s reconciliation of segment operating results to net income (loss) in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2008 and 2007:

     For the three months ended September 30, 2008:

		Upstream				Downstream
		O&G				O&G				Engineering				Consolidated
Revenue		$	342,064			$	86,249			$	62,338			$	490,651
Operating expenses			325,036				81,526				55,354				461,916
Operating income		$	17,028			$	4,723			$	6,984				28,735
Other expense, net															(1,627	)
Provision for income taxes															8,057
Net income from continuing operations															19,051
Income from discontinued operations net of provision for income taxes															1,219
Net income														$	20,270

     For the three months ended September 30, 2007:

		Upstream				Downstream
		O&G				O&G				Engineering				Consolidated
Revenue		$	196,554			$	—			$	50,162			$	246,716
Operating expenses			183,121				—				46,873				229,994
Government fines			—				—				—				(2,000	)
Operating income		$	13,433			$	—			$	3,289				18,722
Other expense, net															(2,369	)
Provision for income taxes															6,081
Net income from continuing operations															10,272
Loss from discontinued operations net of provision for income taxes															(9,126	)
Net income														$	1,146

     For the nine months ended September 30, 2008:

		Upstream
		O&G				Downstream O&G				Engineering				Consolidated
Revenue		$	982,836			$	278,995			$	188,171			$	1,450,002
Operating expenses			925,044				260,223				165,180				1,350,447
Operating income		$	57,792			$	18,772			$	22,991				99,555
Other expense, net															(4,875	)
Provision for income taxes															36,450
Net income from continuing operations															58,230
Income from discontinued operations net of provision for income taxes															3,042
Net income														$	61,272

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

8. Segment Information (continued)

     For the nine months ended September 30, 2007:

		Upstream				Downstream
		O&G				O&G				Engineering				Consolidated
Revenue		$	482,104			$	—			$	128,064			$	610,168
Operating expenses			475,743				—				118,565				594,308
Government fines			—				—				—				22,000
Operating income (loss)		$	6,361			$	—			$	9,499				(6,140	)
Other expense, net															(19,513	)
Provision for income taxes															7,793
Net loss from continuing operations															(33,446	)
Loss from discontinued operations net of provision for income taxes															(21,494	)
Net loss														$	(54,940	)

     Total assets by segment as of September 30, 2008 and December 31, 2007 are presented below:

		September				December 31,
		30, 2008				2007
Upstream O&G		$	423,661			$	369,255
Downstream O&G			138,914				123,707
Engineering			51,352				50,286
Corporate			254,422				232,954
Discontinued operations			2,673				3,211
Total segment assets		$	871,022			$	779,413

9. Stockholders’ Equity

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

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.

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

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

9. Stockholders’ Equity (continued)

     Restricted stock and restricted stock rights, also described collectively as restricted stock units (“RSU’s”), and options granted under the 1996 Plan 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, 2008, the 1996 Plan had 783,447 shares and the 2006 Director Plan had 217,875 shares available for grant. Of the shares available at September 30, 2008, 150,000 shares in the 1996 Stock Plan are reserved for future grants required under employment agreements. Certain provisions allow for accelerated vesting based on increases of share prices and on eligible retirement. Compensation expense of $0 and $35, respectively, for the nine months ended September 30, 2008 and 2007 and $0 and $19 for each of the three months ended September 30, 2008 and 2007 was recognized due to accelerated vesting of RSU’s due to retirements and separation from the Company.

     The Company follows the fair value recognition provisions of FASB Statements of Financial Accounting Standards No. 123R, “Share Based Payment” (“SFAS No. 123R”) using the modified prospective application method. Under this method, compensation cost recognized in the three and nine months ended September 30, 2008 and 2007 includes the applicable amounts of: (a) compensation expense of all share-based payments granted prior to, but not yet vested as of, January 1, 2006 (based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”), and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006 (based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R). The Company determines the fair value of stock options as of its grant date using the Black-Scholes valuation method.

     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 $2,596 and $1,088, respectively, for the three months ended September 30, 2008 and 2007 and $7,080 and $3,010, respectively, for the nine months ended September 30, 2008 and 2007.

     No options were granted during the three or nine months ended September 30, 2008 and 2007. Stock option activity for the nine months ended September 30, 2008 consists of:

						Weighted
		Number of				Average
		Options				Exercise Price
Outstanding at January 1, 2008			418,750			$	14.96
Granted			—				—
Exercised			53,000				12.90
Forfeited or expired			31,000				13.36
Outstanding at September 30, 2008			334,750			$	15.44
Exercisable at September 30, 2008			228,916			$	14.07

     As of September 30, 2008, the aggregate intrinsic value of stock options outstanding and stock options exercisable was $3,715 and $2,849, respectively. The weighted average remaining contractual term of outstanding options is 5.97 years and the weighted average remaining contractual term of the exercisable options is 5.19 years at September 30, 2008. The total intrinsic value of options exercised during the nine months ended September 30, 2008 and 2007 was $1,284 and $1,491, respectively.

     The total fair value of options vested during the nine months ended September 30, 2008 and 2007 was $112 and $229, respectively, and $112 and $88 for each of the three months ended September 30, 2008 and 2007.

     The Company’s non-vested options at September 30, 2008 and the changes in non-vested options during the nine months ended September 30, 2008 are as follows:

						Weighted
						Average Grant-
		Shares				Date Fair Value
Nonvested, January 1, 2008			130,834			$	6.86
Granted			—				—
Vested			15,000				7.44
Forfeited or expired			10,000				5.65
Nonvested, September 30, 2008			105,834			$	6.89

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

9. Stockholders’ Equity (continued)

     The Company’s RSU activity and related information for the nine months ended September 30, 2008 consist of:

						Weighted
		Number of				Average Grant-
		RSU’s				Date Fair Value
Outstanding at January 1, 2008			548,688			$	20.89
Granted			635,314				38.24
Vested			145,489				20.30
Forfeited			81,879				27.84
Outstanding September 30, 2008			956,634			$	31.91

     The total fair value of RSU’s vested during the nine months ended September 30, 2008 and 2007 was $2,953 and $1,855, respectively.

     As of September 30, 2008, there was a total of $24,717 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 2.29 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 and 558,354 warrants outstanding at September 30, 2008 and 2007, respectively.

10. Income Taxes

     For interim financial reporting, the Company records the tax provision based on its estimate of the effective tax rate for the year. The Company has revised its annual estimated effective income tax rate from 42.0 percent to 38.5 percent during the three months ended September 30, 2008. The reduction in the effective income tax rate is primarily attributed to tax positions taken in connection with the deductibility of costs associated with certain contracts. The Company continues to refine its corporate structure and its overall tax strategy to increase tax efficiency.

11. Foreign Exchange Risk

     The Company attempts to negotiate contracts that provide for payment in U.S. dollars, but it 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, the Company seeks to match anticipated non-U.S. currency revenue with expenses in the same currency whenever possible. To the extent it is unable to match non-U.S. currency revenue with expenses in the same currency, the Company may use forward contracts, options or other common hedging techniques in the same non-U.S. currencies. The Company had no derivative financial instruments to hedge currency risk at September 30, 2008 or December 31, 2007.

12. Contingencies, Commitments and Other Circumstances

Commitments

     Resolution of criminal and regulatory matters

     In May 2008, the previously disclosed agreement in principle with the United States Department of Justice (the “DOJ”) and Willbros Group, Inc. (“WGI”), and its subsidiary, Willbros International, Inc. (“WII”), to settle the DOJ’s investigation into violations of the Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), reached final approval by the DOJ. The terms of the final agreement are included in a Deferred Prosecution Agreement (the “DPA”), more fully described below, which along with a six count criminal Information (the “Information”), was filed in the United States District Court, Southern District of Texas, Houston Division (the “Court”). When the requirements of the DPA are satisfied, the DOJ will dismiss the Information. Also in May 2008, a final agreement was reached by the Company with the Securities and Exchange Commission (the “SEC”) to resolve the SEC’s investigation into violations of the FCPA, the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the

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

12. Contingencies, Commitments and Other Circumstances (continued)

“Exchange Act”). The final settlement with the SEC has been entered and approved by the Court. These investigations stemmed primarily from the Company’s former operations in Bolivia, Ecuador and Nigeria.

     As described more fully below, the settlements together will require the Company to pay, over approximately three years, a total of $32,300 in penalties and disgorgement of profits, plus post-judgment interest on $7,725 of that amount. In addition, WGI and WII will, for a period of approximately three years, each be subject to the DPA with the DOJ. Finally, the Company will be subject to a permanent injunction barring future violations of certain provisions of the federal securities laws.

     More specifically, the terms of the final settlement agreement concluded by WGI and WII on May 14, 2008 with the DOJ include the following:

	•		The six counts include conspiracy to violate the FCPA, violations of the FCPA’s anti-bribery provisions and violations of the FCPA’s books-and-records provisions. WGI and WII face prosecution by the DOJ for the charges contained in the Information, and possibly other charges as well, if they fail to comply with the DPA.
	•		The DPA requires, for the three-year term of the DPA, continued full cooperation with the DOJ in its investigation; continued implementation of a compliance and ethics program to prevent and detect violations of the FCPA and other anti-corruption laws; and continued review of existing internal controls, policies and procedures in order to ensure that WGI and WII maintain adequate controls and a rigorous anti-corruption compliance code.
	•		The DPA also requires WGI and WII, at their expense, to engage an independent monitor for three years to assess and make recommendations about their compliance with the DPA. The independent monitor selection process is now underway with the DOJ having taken under consideration the candidate proposed by the Company.
	•		Provided that WGI and WII comply with the DPA, the DOJ has agreed not to prosecute WGI or WII based on the conduct described in the DPA and to move to dismiss the Information after three years.
	•		As part of the DPA, the Company will pay $22,000 in fines in four installments, consisting of the $10,000 payment made at signing on May 14, 2008, and $4,000 annually for three years thereafter, with no interest due on the unpaid amounts.

     With respect to the final settlement agreement concluded by the Company on May 14, 2008 with the SEC:

	•		The SEC filed in the Court a Complaint (the “SEC Complaint”) and a proposed Agreed Final Judgment against the Company (the “Judgment”). Without admitting or denying the allegations in the SEC Complaint, the Company consented to the filing of the SEC Complaint and entry of the Judgment to resolve the SEC’s investigation. The SEC Complaint alleges civil violations of the FCPA’s anti-bribery provisions, the FCPA’s books-and-records and internal control provisions and various antifraud provisions of the Securities Act and the Exchange Act. Since approved by the Court, the Judgment now permanently enjoins the Company from violating the FCPA’s anti-bribery, books-and-records, and internal control provisions and certain antifraud provisions of the Securities Act and the Exchange Act.
	•		The Judgment requires the Company to pay $8,900 for disgorgement of profits and $1,400 of pre-judgment interest. The disgorgement and pre-judgment interest are payable in four equal installments of $2,575, first on signing, and annually for three years thereafter. The first payment was made at signing on May 14, 2008. Post-judgment interest will be payable on the outstanding balance of $7,725. In January 2008, the Company deposited the first installment payment of $2,575 into an escrow account, as required by the SEC.

     Failure by the Company to comply with the terms and conditions of either the DOJ or the SEC settlement could result in resumed prosecution and other regulatory sanctions.

     In addition, the Company previously disclosed that the Office of Foreign Assets Control (“OFAC”) was investigating allegations of violations of the Sudanese Sanctions Regulations occurring during October 2003. The Company voluntarily reported this matter to OFAC and also has reported to OFAC corrective measures and improvements to the Company’s OFAC compliance program. OFAC and Willbros USA, Inc. have agreed in principle to settle the allegations pursuant to which the Company will pay a total civil penalty not to exceed $30.

     Other

     In addition to the matters discussed above, the Company is party to a number of other legal proceedings. Management believes that the nature and number of these proceedings are typical for a firm of similar size engaged in a similar type of business and that none of these proceedings is material to the Company’s financial position. See Note 13 — Discontinuance of Operations, Asset Disposals and Transition Services Agreement for discussion of commitments and contingencies associated with Discontinued Operations.

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

12. Contingencies, Commitments and Other Circumstances (continued)

     From time to time, the Company enters into commercial commitments, usually in the form of commercial and standby letters of credit, surety bonds and financial guarantees. Contracts with the Company’s customers may require the Company to secure letters of credit or surety bonds with regard to the Company’s performance of contracted services. In such cases, the commitments can be called upon in the event of failure to perform contracted services. Likewise, contracts may allow the Company to issue letters of credit or surety bonds in lieu of contract retention provisions, where 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. At September 30, 2008, the Company had approximately $33,974 of letters of credit related to continuing operations and $123 of letters of credit related to Discontinued Operations in Nigeria. These amounts represent the maximum amount of payments the Company could be required to make if these letters of credit are drawn upon. Additionally, the Company issues surety bonds customarily required by commercial terms on construction projects. At September 30, 2008, the Company had bonds outstanding, primarily performance bonds, valued at $463,228 related to continuing operations. These amounts represent the bond penalty amount of future payments the Company could be required to make if the Company fails to perform its obligations under such contracts. The performance bonds do not have a stated expiration date; rather, each is released when the contract is accepted by the owner. The Company’s maximum exposure as it relates to the value of the bonds outstanding is lowered on each bonded project as the cost to complete is reduced. As of September 30, 2008, no liability has been recognized for letters of credit or surety bonds, other than $13 recorded as the fair value of the letters of credit outstanding for the Nigeria operations. See Note 13 – Discontinuance of Operations, Asset Disposals, and Transition Services Agreement for further discussion of these letters of credit.

Other Circumstances

     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, 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 would have a material effect on the financial statements, and have not been provided for in the accompanying Condensed 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 follows the current practices in those countries and as applicable under the FCPA. 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 through political risk insurance coverage that contains a 20 percent co-insurance provision. 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 venture partners. In addition, the Company acts as prime contractor on a majority of the projects it undertakes and is normally responsible for the performance of the entire project, including subcontract work. Management is not aware of any material exposure related thereto which has not been provided for in the accompanying Condensed Consolidated Financial Statements.

     Certain post-contract completion audits and reviews are periodically 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 exists for any material claims. At present, it is not possible for management to estimate the likelihood of such claims being asserted or, if asserted, the amount or nature or ultimate disposition thereof.

13. Discontinuance of Operations, Asset Disposals, and Transition Services Agreement

Strategic Decisions

     In 2006, the Company announced that it intended to sell its assets and operations in Nigeria and classified these operations as Discontinued Operations. The net assets and net liabilities related to the Discontinued Operations are shown on the Consolidated Balance Sheets as “Assets of discontinued operations” and “Liabilities of discontinued operations”, respectively. The results of the Discontinued Operations are shown on the Consolidated Statements of Operations as “Income (loss) from discontinued operations, net of provision for income taxes” for all periods presented.

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

13. Discontinuance of Operations, Asset Disposals, and Transition Services Agreement (continued)

Nigeria Assets and Nigeria-Based Operations

     Share Purchase Agreement

     On February 7, 2007, the Company sold its Nigeria assets and Nigeria-based operations in West Africa to Ascot Offshore Nigeria Limited (“Ascot”), a Nigerian oilfield services company, for total consideration of $155,250 (the “Purchase Price”). The sale was pursuant to a Share Purchase Agreement by and between the Company and Ascot dated as of February 7, 2007 (the “Agreement”), providing for the purchase by Ascot of all of the share capital of WG Nigeria Holdings Limited (“WGNHL”), the holding company for Willbros West Africa, Inc. (“WWAI”), Willbros (Nigeria) Limited, Willbros (Offshore) Nigeria Limited and WG Nigeria Equipment Limited.

     In connection with the sale of its Nigeria assets and operations, the Company and its subsidiary WII entered into an indemnity agreement with Ascot and Berkeley Group plc (“Berkeley”), the parent company of Ascot (the “Indemnity Agreement”), pursuant to which Ascot and Berkeley will indemnify the Company and WII for any obligations incurred by the Company or WII in connection with the parent company guarantees (the “Guarantees”) that the Company and WII previously issued and maintained on behalf of certain former subsidiaries now owned by Ascot under certain working contracts between the subsidiaries and their customers. Either the Company, WII or both may be contractually obligated, in varying degrees, under the Guarantees to perform or cause to be performed work related to several ongoing projects. Among the Guarantees covered by the Indemnity Agreement are five contracts under which the Company estimates that, at February 7, 2007, there was aggregate remaining contract revenue, excluding any additional claim revenue, of $352,107 and aggregate estimated cost to complete of $293,562. At the February 7, 2007 sale date, one of the contracts covered by the Guarantees was estimated to be in a loss position with an accrual for such loss of $33,157. The associated liability was included in the liabilities acquired by Ascot and Berkeley.

     In early 2008, the Company received its first notification asserting various rights under one of the outstanding parent guarantees. On February 1, 2008, WWAI, the Ascot company performing the West African Gas Pipeline (“WAGP”) contract, received a letter from West African Gas Pipeline Company Limited (“WAPCo”), the owner of WAGP, wherein WAPCo gave written notice alleging that WWAI was in default under the WAGP contract, as amended, and giving WWAI a brief cure period to remedy the alleged default. We understand that WWAI responded by denying being in breach of its WAGP contract obligations, and apparently also advised WAPCo that WWAI “...requires a further $55 million, without which it will not be able to complete the work which it had previously undertaken to perform.” The Company understands that, on February 27, 2008, WAPCo terminated the WAGP contract for the alleged continuing non-performance of WWAI.

     Also, on February 1, 2008, the Company received a letter from WAPCo reminding the Company of its parent guarantee on the WAGP contract and requesting that we remedy WWAI’s default under that contract, as amended. On previous occasions, the Company has advised WAPCo that, for a variety of legal, contractual, and other reasons, it did not consider the prior WAGP contract parent guarantee to have continued application, and the Company reiterated that position to WAPCo in the Company’s response to its February 1, 2008 letter. WAPCo disputes the Company’s position that it is no longer bound by the terms of the Company’s prior parent guarantee of the WAGP contract and has reserved all its rights in that regard. Currently, the WAGP project is at a stand still for a variety of technical and commercial issues unrelated to WAPCo’s termination of the WAGP contract.

     The Company anticipates that this potential dispute with WAPCo may result in a lengthy arbitration proceeding between WAPCo and WWAI in the London Court of International Arbitration to determine the validity of the alleged default notice issued by WAPCo to WWAI, including any resulting damage award, in combination with a lawsuit between WAPCo and the Company in the English Courts under English law to determine the enforceability, in whole or in part, of the Company’s parent guarantee, which the Company expects to be a lengthy process.

     The Company currently has no employees working in Nigeria and we have no intention of returning to Nigeria. If ultimately it is determined by an English Court that the Company is liable, in whole or in part, for damages that WAPCo may establish against WWAI for WWAI’s alleged non-performance of the WAGP contract, or if WAPCo is able to establish liability against the Company directly under parent company guarantee, and, in either case, are unable to enforce rights under the indemnity agreement entered into with Ascot in connection with the WAGP contract, the Company may experience substantial losses. However, at this time, the Company cannot predict the outcome of any arbitration or litigation which may ensue in this developing WAGP contract dispute, or be certain of the degree to which the indemnity agreement given in our favor by Ascot will protect the Company. Based upon current knowledge of the relevant facts and circumstances, the Company does not expect that the outcome of the potential dispute will have a material adverse effect on our financial condition or results of operations.

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

13. Discontinuance of Operations, Asset Disposals, and Transition Services Agreement (continued)

     Letters of Credit

     At the time of the February 7, 2007 sale of its Nigeria assets and operations, the Company had four letters of credit outstanding totaling $20,322 associated with Discontinued Operations (the “Discontinued LC’s”). In accordance with FASB Interpretation No. 45, “Guarantors Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others” (“FIN 45”), a liability was recognized for $1,575 related to the letters of credit. This liability is released as each of the Discontinued LC’s is released or expires and the Company is relieved of its risk related to the Discontinued LC’s. As of September 30, 2008 only one of the Discontinued LCs remains issued and outstanding. This Discontinued LC in the amount of $123 is scheduled to expire on February 28, 2009. During the three months ended September 30, 2008, two Discontinued LC’s in the aggregate amount of $19,759 expired resulting in the release of the associated liability and recognition of $1,543 of additional cumulative gain on the sale of Nigeria assets and operations. The fair value of the remaining Discontinued LC is $13 and will also result in positive impact to the cumulative gain on sale when and if it is released.

     Transition Services Agreement

     Concurrent with the Nigeria sale, the Company entered into a two-year Transition Services Agreement (“TSA”) with Ascot. Under the agreement, the Company was primarily providing labor in the form of seconded employees to work under the direction of Ascot along with specifically defined work orders for services generally covered in the TSA. Ascot agreed to reimburse the Company for these services. For the three and nine months ended September 30, 2008, these reimbursable contract costs totaled approximately $664 and $3,227, respectively. Both the Company and Ascot have been working to shift the transition services provided by the Company to services directly secured by Ascot. That effort is substantially complete in that the Company has no employees still seconded to Ascot working in West Africa generally, or Nigeria specifically; however, the Company continues to provide minimal transition services from the U.S.

     Residual Equipment in Nigeria

     In conjunction with the TSA, the Company has made available certain equipment to Ascot for use in Nigeria and at times, in Benin, Togo, and Ghana. This equipment was not sold to Ascot under the Agreement. The Company has not resolved with Ascot the rental rates for this equipment. Therefore, we have not recorded a receivable related to the use of the equipment, but have incurred and recorded all necessary depreciation and holding costs. Due to business and legal conditions in Nigeria, the Company recorded an impairment charge of $1,542 related to this equipment located in Nigeria in the fourth quarter of 2007. The Company’s net book value for the equipment in West Africa at September 30, 2008 and December 31, 2007 was $641 and $1,205, respectively. This equipment is comprised primarily of construction equipment, rolling stock, and generator sets. The Company is in the process of redeploying this equipment for use in Oman.

     Insurance Recovery

     During the nine months ended September 30, 2008, income from Discontinued Operations consisted of two pre-Nigeria sale insurance claim recoveries of $850 and $2,154 for events of loss the Company suffered prior to the sale of its Nigeria operations.

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

13. Discontinuance of Operations, Asset Disposals, and Transition Services Agreement (continued)

Results of Discontinued Operations

     Condensed Statements of Operations of the Discontinued Operations for the three and nine months ended September 30, 2008 and 2007 are as follows:

		Three Months Ended September 30, 2008
										Discontinued
		Nigeria				Nigeria TSA				Operations
Contract revenue		$	—			$	418			$	418
Operating expenses:
Contract			—				665				665
General and administrative			13				(1	)			12
Operating loss			(13	)			(246	)			(259	)
Other income (expense)			1,486				(3	)			1,483
Income (loss) before income taxes			1,473				(249	)			1,224
Provision for income taxes			—				5				5
Net income (loss)		$	1,473			$	(254	)		$	1,219

		Three Months Ended September 30, 2007
										Discontinued
		Nigeria				Nigeria TSA				Operations
Contract revenue		$	—			$	4,825			$	4,825
Operating expenses:
Contract							4,868				4,868
General and administrative			—				124				124
Profit disgorgement			10,300				—				10,300
Operating loss			(10,300	)			(167	)			(10,467	)
Other income			1,441				54				1,495
Loss before income taxes			(8,859	)			(113	)			(8,972	)
Provision for income taxes			—				154				154
Net loss		$	(8,859	)		$	(267	)		$	(9,126	)

		Nine Months Ended September 30, 2008
										Discontinued
		Nigeria				Nigeria TSA				Operations
Contract revenue		$	—			$	2,087			$	2,087
Operating expenses:
Contract			—				3,195				3,195
General and administrative			13				32				45
Operating loss			(13	)			(1,140	)			(1,153	)
Other income (expense)			4,393				(178	)			4,215
Income (loss) before income taxes			4,380				(1,318	)			3,062
Provision for income taxes			—				20				20
Net income (loss)		$	4,380			$	(1,338	)		$	3,042

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

13. Discontinuance of Operations, Asset Disposals, and Transition Services Agreement (continued)

		Nine Months Ended September 30, 2007
										Discontinued
		Nigeria(1)				Nigeria TSA				Operations
Contract revenue		$	30,046			$	21,906			$	51,952
Operating expenses:
Contract			34,360				21,016				55,376
General and administrative			3,472				566				4,038
Profit disgorgement			10,300				—				10,300
Operating income (loss)			(18,086	)			324				(17,762	)
Other income (expense)			(1,946	)			55				(1,891	)
Income (loss) before income taxes			(20,032	)			379				(19,653	)
Provision for income taxes			1,092				749				1,841
Net loss		$	(21,124	)		$	(370	)		$	(21,494	)