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EX-31.1 - Willbros Group, Inc.\NEW\v164534_ex31-1.htm
EX-31.2 - Willbros Group, Inc.\NEW\v164534_ex31-2.htm
EX-32.1 - Willbros Group, Inc.\NEW\v164534_ex32-1.htm
EX-32.2 - Willbros Group, Inc.\NEW\v164534_ex32-2.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
________________

FORM 10-Q

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

For the quarterly period ended September 30, 2009

OR

¨
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

(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 x   No¨
 
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 ¨  No  ¨
 
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 x Accelerated Filer ¨ Non-Accelerated Filer ¨ 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 ¨ No x
 
The number of shares of the registrant’s Common Stock, $.05 par value, outstanding as of October 30, 2009 was 39,637,466.
 


 
 

 
 
WILLBROS GROUP, INC.
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 2009
 
PART I – FINANCIAL INFORMATION
 
Item 1. Financial Statements
Page
   
Condensed Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and  December 31, 2008
 3
   
Condensed Consolidated Statements of Operations (Unaudited) for the three months and nine months ended September 30, 2009 and 2008
 4
   
Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Income (Loss) (Unaudited) for the nine months ended September 30, 2009
 5
   
Condensed Consolidated Statements of Cash Flows (Unaudited) for the  nine months ended September 30, 2009 and 2008
 6
   
Notes to Condensed Consolidated Financial Statements (Unaudited)
 7
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
25
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
39
   
Item 4. Controls and Procedures
39
   
PART II – OTHER INFORMATION
 
   
Item 1. Legal Proceedings
40
   
Item 1A . Risk Factors
40
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
40
   
Item 3. Defaults upon Senior Securities
40
   
Item 4. Submission of Matters to a Vote of Security Holders
40
   
Item 5. Other Information
40
   
Item 6. Exhibits
41
   
SIGNATURE
42
   
EXHIBIT INDEX
43

 
2

 
 
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
 
   
September 30,
   
December 31,
 
   
2009
   
2008
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 243,723     $ 207,864  
Accounts receivable, net
    162,795       189,968  
Contract cost and recognized income not yet billed
    44,060       64,499  
Prepaid expenses
    13,470       13,427  
Parts and supplies inventories
    4,648       3,367  
Assets of discontinued operations
    1       2,686  
Total current assets
    468,697       481,811  
                 
Property, plant and equipment, net
    135,632       149,988  
Goodwill
    85,062       80,365  
Other intangible assets
    38,032       39,786  
Deferred tax assets
    28,643       30,104  
Other assets
    2,224       5,290  
Total assets
  $ 758,290     $ 787,344  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable and accrued liabilities
  $ 100,360     $ 155,305  
Contract billings in excess of cost and recognized income
    25,683       18,289  
Current portion of capital lease obligations
    6,325       9,688  
Notes payable and current portion of other long-term debt
    -       1,090  
Current portion of government obligations
    6,575       6,575  
Accrued income taxes
    710       5,089  
Liabilities of discontinued operations
    -       609  
Other current liabilities
    1,785       -  
Total current liabilities
    141,438       196,645  
                 
Capital lease obligations
    11,884       25,186  
Long-term debt
    86,758       84,550  
Long-term portion of government obligations
    6,575       13,150  
Long-term liability for unrecognized tax benefits
    5,320       6,232  
Deferred tax liabilities
    16,260       17,446  
Other long-term liabilities
    1,631       -  
Total liabilities
    269,866       343,209  
                 
Contingencies and commitments (Note 13)
               
                 
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; 40,086,216 shares issued at September 30, 2009 (39,574,220 at December 31, 2008)
    2,004       1,978  
Additional Paid-In Capital
    603,465       595,640  
Accumulated deficit
    (116,560 )     (142,611 )
Treasury stock at cost, 468,513 shares at September 30, 2009 (387,719 at December 31, 2008)
    (8,498 )     (8,015 )
Accumulated other comprehensive income (loss)
    7,028       (4,436 )
Total Willbros Group, Inc. stockholders’ equity
    487,439       442,556  
Noncontrolling interest
    985       1,579  
Total stockholders’ equity
    488,424       444,135  
Total liabilities and equity
  $ 758,290     $ 787,344  
 
See accompanying notes to condensed consolidated financial statements.
 
3

 
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
 
   
Three Months
Ended September 30,
   
Nine Months
Ended September 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Contract Revenue
  $ 247,533     $ 490,651     $ 1,065,941     $ 1,450,002  
                                 
Operating Expense:
                               
Contract
    222,166       429,696       940,949       1,255,296  
Amortization of Intangibles
    960       2,586       5,554       7,828  
General and Administrative
    18,490       29,138       62,742       85,938  
Other Charges
    2,418       -       8,207       -  
      244,034       461,420       1,017,452       1,349,062  
Operating Income
    3,499       29,231       48,489       100,940  
                                 
Other Income (Expense)
                               
Interest Income
    469       799       1,742       2,592  
Interest Expense
    (2,446 )     (3,158 )     (7,835 )     (9,667 )
Other – Net
    (126 )     58       (18 )     204  
      (2,103 )     (2,301 )     (6,111 )     (6,871 )
Income from Continuing Operations Before Income Taxes
    1,396       26,930       42,378       94,069  
                                 
Provision (Benefit) for Income Taxes
    (659 )     8,057       13,257       36,450  
Income from Continuing Operations Before Noncontrolling Interest
    2,055       18,873       29,121       57,619  
Less: Income Attributable to Noncontrolling Interest
    (372 )     (413 )     (1,543 )     (1,433 )
Income from Continuing Operations attributable to Willbros Group Inc.
    1,683       18,460       27,578       56,186  
Income (Loss) from Discontinued Operations, net of taxes
    (27 )     1,219       (1,527 )     3,042  
Net Income Attributable to Willbros Group, Inc.
  $ 1,656     $ 19,679     $ 26,051     $ 59,228  
                                 
Basic Income (Loss) per Common Share:
                               
Income from Continuing Operations
  $ 0.04     $ 0.48     $ 0.71     $ 1.47  
Income (Loss) from Discontinued Operations
    -       0.03       (0.04 )     0.08  
Net Income
  $ 0.04     $ 0.51     $ 0.67     $ 1.55  
                                 
Diluted Income (Loss) per Common Share:
                               
Income from Continuing Operations
  $ 0.04     $ 0.46     $ 0.71     $ 1.41  
Income (Loss) from Discontinued Operations
    -       0.03       (0.04 )     0.07  
Net Income
  $ 0.04     $ 0.49     $ 0.67     $ 1.48  
                                 
Weighted Average Number of Common
                               
Shares Outstanding:
                               
Basic
    38,721,586       38,313,997       38,656,656       38,236,508  
Diluted
    38,918,933       43,803,235       38,817,411       43,864,307  

See accompanying notes to condensed consolidated financial statements.
 
 
4

 
 
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share amounts)
(Unaudited)
 
                                       
Total
             
                                 
Accumulated
   
Willbros
             
   
Common Stock
   
Additional
               
Other
   
Group, Inc.
   
Non-
   
Total
 
   
Shares
   
Par
   
Paid-In
   
Accumulated
   
Treasury
   
Comprehensive
   
Stockholders’
   
controlling
   
Stockholders’
 
   
 
   
Value
   
Capital
   
Deficit
   
Stock
   
Income (Loss)
   
Equity
   
Interest
   
Equity(1)
 
                                                       
Balance, December 31, 2008
    39,574,220     $ 1,978     $ 579,577     $ (129,449 )   $ (8,015 )   $ (4,436 )   $ 439,655     $ -     $ 439,655  
Cumulative effect of adoption of new accounting principles
    -       -       16,063       (13,162 )     -       -       2,901       1,579       4,480  
Balance, December 31, 2008, as adjusted (1)
    39,574,220       1,978       595,640       (142,611 )     (8,015 )     (4,436 )     442,556       1,579       444,135  
                                                                         
Net income attributable to Willbros and noncontrolling interest
    -       -       -       26,051       -       -       26,051       1,543       27,594  
Foreign currency translation adjustment
    -       -       -       -       -       11,464       11,464       -       11,464  
Total comprehensive income (loss)
    -       -       -       -       -       -       37,515       -       39,058  
                                                                         
Dividend declared and distributed to noncontrolling interest
    -       -       -       -       -       -       -       (2,137 )     (2,137 )
Stock-based compensation (excluding tax benefit)
    -       -       9,321       -       -       -       9,321       -       9,321  
Stock-based compensation tax benefit
    -       -       (1,655 )     -       -       -       (1,655 )     -       (1,655 )
Restricted stock grants
    457,797       23       (23 )     -       -       -       -       -       -  
Vesting of restricted stock rights
    37,699       2       (2 )     -       -       -       -       -       -  
Exercise of stock options
    16,500       1       184       -       -       -       185       -       185  
Additions to treasury stock
    -       -       -       -       (483 )     -       (483 )     -       (483 )
Balance, September 30, 2009
    40,086,216     $ 2,004     $ 603,465     $ (116,560 )   $ (8,498 )   $ 7,028     $ 487,439     $ 985     $ 488,424  
 
(1) Total stockholders’ equity as of December 31, 2008 has been restated to reflect all applicable prior periods for the adoption of FSP No APB 14-1 (ASC 470-20) and SFAS No. 160 (ASC 810-10).
 
See accompanying notes to condensed consolidated financial statements.

 
5

 

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

   
Nine Months
 
   
Ended September 30,
 
   
2009
   
2008
 
Cash flows from operating activities:
           
Net income attributable to Willbros and noncontrolling interest
  $ 27,594     $ 60,661  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
               
(Income) loss from discontinued operations
    1,527       (3,042 )
Depreciation and amortization
    31,082       33,988  
Stock-based compensation
    9,321       7,080  
Amortization of debt issuance costs
    1,929       1,087  
Stock-based compensation tax benefit
    1,655       (3,277 )
Deferred income tax provision
    (2,485 )     6,885  
Non-cash interest expense
    2,208       2,096  
Loss (gain) on sales of property, plant and equipment
    (908 )     206  
Provision for bad debts
    544       1,215  
Other
    -       (123 )
Changes in operating assets and liabilities:
               
Accounts receivable, net
    38,717       (19,931 )
Contract cost and recognized income not yet billed
    27,913       (35,405 )
Prepaid expenses
    4,766       5,706  
Parts and supplies inventories
    (1,135 )     (512 )
Other assets
    1,367       758  
Accounts payable and accrued liabilities
    (64,967 )     44,504  
Contract billings in excess of cost and recognized income
    5,317       (783 )
Accrued income taxes
    (4,354 )     (3,590 )
Long-term liability for unrecognized tax benefits
    (1,157 )     (330 )
Other
    2,296       -  
Cash provided by operating activities of continuing operations
    81,230       97,193  
Cash provided by (used in) operating activities of discontinued operations
    (222 )     3,531  
Cash provided by operating activities
    81,008       100,724  
Cash flows from investing activities:
               
Acquisition of subsidiaries, net of cash acquired
    (13,955 )     846  
Purchases of property, plant and equipment
    (10,369 )     (28,122 )
Rebates from purchases of property, plant and equipment
    -       1,915  
Proceeds from sales of property, plant and equipment
    8,233       1,418  
Cash used in investing activities of continuing operations
    (16,091 )     (23,943 )
Cash used in investing activities of discontinued operations
    -       -  
Cash used in investing activities
    (16,091 )     (23,943 )
Cash flows from financing activities:
               
Payments on capital leases
    (20,326 )     (17,550 )
Payments of government fines
    (6,575 )     (12,575 )
Repayment of notes payable
    (1,062 )     (9,550 )
Acquisition of treasury stock
    (483 )     (4,786 )
Stock-based compensation tax benefit
    (1,655 )     3,277  
Proceeds from exercise of stock options
    185       684  
Costs of public offering of common stock
    -       (251 )
Costs of debt issues
    (150 )     (166 )
Dividend declared and distributed to noncontrolling interest
    (2,137 )     (699 )
Cash used in financing activities of continuing operations
    (32,203 )     (41,616 )
Cash used in financing activities of discontinued operations
    -       -  
Cash used in financing activities
    (32,203 )     (41,616 )
Effect of exchange rate changes on cash and cash equivalents
    3,145       (499 )
Cash provided by all activities
    35,859       34,666  
Cash and cash equivalents, beginning of period
    207,864       92,886  
Cash and cash equivalents, end of period
  $ 243,723     $ 127,552  
                 
Supplemental disclosures of cash flow information:
               
Cash paid for interest (including discontinued operations)
  $ 4,648     $ 6,287  
Cash paid for income taxes (including discontinued operations)
  $ 19,481     $ 34,651  
                 
Supplemental non-cash investing and financing transactions:
               
Equipment and property obtained by capital leases
  $ -     $ 17,863  
Prepaid insurance obtained by note payable
  $ -     $ 12,754  
Common stock issued for conversion of 2.75% convertible senior notes
  $ -     $ 8,643  
Deposit applied to capital lease obligation
  $ -     $ 1,432  
 
See accompanying notes to condensed consolidated financial statements.
 
 
6

 
 
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 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 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, 2008, which has been derived from audited consolidated financial statements, and the unaudited interim Condensed Consolidated Financial Statements as of September 30, 2009, 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, 2008 audited Consolidated Financial Statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.
 
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, 2009, 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, 2009.
 
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 10 – Segment Information, beginning with the second quarter of 2009, the Company realigned its business segments to reflect changes that management has made in its organization.
 
As discussed in Note 14 – 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, 2009 and December 31, 2008, respectively, the Company had $0 and $1,000 of cash and cash equivalents committed to specific project uses.
 
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 projected its annual estimated income tax rate to be 32.5 percent for 2009.
 
The carrying value of financial instruments does not materially differ from fair value.
 
The Company has evaluated subsequent events through November 4, 2009, the date of issuance of the condensed consolidated financial statements.
 
2.      New Accounting Pronouncements
 
On July 1, 2009, the Financial Accounting Standards Board (“FASB) officially launched the FASB Accounting Standards Codification (“the Codification”), which has become the single official source of authoritative, nongovernmental, U.S. GAAP, in addition to guidance issued by the Securities and Exchange Commission. The Codification is designed to simplify U.S. GAAP into a single, topically ordered structure. All guidance contained in the Codification carries an equal level of authority. The Codification is effective for all interim and annual periods ending after September 15, 2009. Accordingly, the Company refers to Codification in respect to the appropriate accounting standards throughout this document as “ASC”. Implementation of the Codification did not have any impact on the Company’s consolidated financial statements.
 
7

 
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
 
2.    New Accounting Pronouncements (continued)
 
FSP No. APB 14-1 (ASC 470-20)
 
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)” (Accounting Standard Codification “ASC” 470-20). This update 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 (ASC 470). Additionally, this update 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 update 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. On January 1, 2009, the Company adopted this guidance. Upon adopting the provisions, the Company retroactively applied its provisions and restated its condensed consolidated financial statements for prior periods. See Note 8 - Long-term Debt for more information on the application of this guidance.
 
SFAS No. 160 (ASC 810-10)
 
In December 2007, the FASB released SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (ASC 810-10).  This standard is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. This standard establishes reporting requirements that provide sufficient disclosure that clearly identify and distinguish between the interests of noncontrolling owners and the interest of the parent. The majority of the Company’s noncontrolling interest relates to its operations in Oman. As of December 31, 2008, noncontrolling interest was included in accounts payable and accrued liabilities on the balance sheet and within contract cost on the statement of operations. Upon adoption on January 1, 2009, the presentation and disclosure requirements were applied retrospectively for all periods presented in which the noncontrolling interest was reclassified to equity and consolidated net income was adjusted to include net income attributed to the noncontrolling interest.
 
The following table sets forth the effect of the retrospective application of FSP No. APB 14-1 (ASC 470-20) and SFAS No. 160 (ASC 810-10) on previously reported line items.

Consolidated Statement of Operations:

   
Three Months Ended
   
Nine Months Ended
 
   
September 30, 2008
   
September 30, 2008
 
   
Originally
   
As
   
Originally
   
As
 
   
Reported
   
Adjusted
   
Reported
   
Adjusted
 
                         
Contract cost
  $ 430,192     $ 429,696     $ 1,256,680     $ 1,255,296  
Interest expense
    (2,484 )     (3,158 )     (7,671 )     (9,667 )
                                 
Net income
    20,270       20,092       61,272       60,661  
Net income attributable to noncontrolling interest
    -       (413 )     -       (1,433 )
Net income attributable to Willbros Group, Inc.
    20,270       19,679       61,272       59,228  
                                 
Basic income per share
  $ 0.53       -     $ 1.60       -  
Basic income per share to Company shareholders
    -     $ 0.51       -     $ 1.55  
Diluted income per share
  $ 0.49       -     $ 1.48       -  
Diluted income per share to Company shareholders
    -     $ 0.49       -     $ 1.48  
 
 
8

 
 
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
 
2.     New Accounting Pronouncements (continued)
 
Consolidated Balance Sheets:

   
December 31,
2008
   
December 31,
2008
 
   
Originally
Reported
   
As
Adjusted
 
             
Other Assets
  $ 6,191     $ 5,290  
Accounts payable and accrued liabilities
    156,335       155,305  
2.75% convertible senior notes
    59,357       53,652  
6.5% senior convertible notes
    32,050       30,898  
Deferred tax liability
    14,703       17,446  
Additional paid-in capital
    579,577       595,640  
Accumulated Deficit
    (129,449 )     (142,611 )
 
FSP No. FAS 142-3 (ASC 350-30-35)
 
In April 2008, the FASB issued FSP No. FAS 142-3 “Determination of the Useful Life of Intangible Assets” (ASC 350-30-35). This update amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The intent of this update is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 (ASC 350), the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141-R (ASC 805) and other U.S. generally accepted accounting principles. This update is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. The Company’s adoption of this guidance effective January 1, 2009 did not have a material effect on the Company’s condensed consolidated financial statements.
 
FSP No. FAS 157-1 (ASC 820-10)
 
In February 2008, the FASB issued FSP FAS No. 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,” (ASC 820-10) which removes certain leasing transactions from the scope of SFAS No. 157 (ASC 820) and FSP No. SFAS 157-2 (ASC 820-10) and also defers the effective date of SFAS No. 157 (ASC 820) 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. Beginning January 1, 2009, the Company adopted 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 combination. The Company’s adoption of this guidance did not have a material effect on the Company’s condensed consolidated financial statements.
 
SFAS No. 141-R (ASC 805) and FSP No. SFAS 141(R)-1 (ASC 805-20-25)
 
In December 2007, the FASB released SFAS 141(R) “Business Combinations” (ASC 805).  This standard 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. This standard establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling 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. 141(R) (ASC 805). This standard also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination.
 
In April 2009, the FASB issued FSP SFAS No. 141(R)-1 “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (ASC 805-20-25).  This update applies to all assets acquired and all liabilities assumed in a business combination that arise from contingencies. The update states that the acquirer will recognize such an asset or liability if the acquisition-date fair value of that asset or liability can be determined during the measurement period. If it cannot be determined during the measurement period, then the asset or liability should be recognized at the acquisition date if the following criteria, consistent with FAS No. 5 “Accounting for Contingencies,” (ASC 450) are met: (1) information available before the end of the measurement period indicates that it is probable that an asset existed or that a liability had been incurred at the acquisition date, and (2) the amount of the asset or liability can be reasonably estimated. This update is effective for all business acquisitions occurring on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted the provisions of FSP No. 141(R) (ASC 805) and  FSP No. 141(R)-1 (ASC 805-20-25) for business combinations with an acquisition date on or after January 1, 2009.

 
9

 

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
 
2.     New Accounting Pronouncements (continued)
 
SFAS No. 165 (ASC 855)
 
In May 2009, the FASB issued SFAS No. 165 “Subsequent Events” (ASC 855). This guidance establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. The Company adopted SFAS No. 165 for the quarter ended June 30, 2009. Adoption did not have a material effect on the Company’s condensed consolidated financial statements.
 
SFAS No. 167 (ASC 810)
 
In April 2009, the FASB issued SFAS No. 167  “Amendments to FASB Interpretation No. 46(R)” (ASC 810).  This standard requires a qualitative approach to identifying a controlling financial interest in a variable interest entity (VIE), and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. SFAS No. 167 is effective for annual reporting periods beginning after November 15, 2009. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
 
3.    Acquisitions
 
On July 9, 2009, the Company acquired the engineering business of Wink Companies, LLC (“Wink”), a privately-held firm based in Baton Rouge, Louisiana.  Wink serves primarily the U.S. market from its regional offices in Louisiana and Mississippi, providing multi-disciplinary engineering services to clients in the petroleum refining, chemicals and petrochemicals and oil and gas industries.  This acquisition provides the Company the opportunity to offer fully integrated EPC services to the downstream hydrocarbon industries.  The total purchase price of $17,431 was comprised of $6,075 in cash paid, $10,236 in debt assumed and $1,120 related to the assumption of an unfavorable lease relative to market value.  In addition, the Company incurred transaction-related costs of approximately $600.

The Company has consolidated Wink in its financial results as part of its Downstream Oil & Gas segment from the date of acquisition. The allocation of purchase price to acquired assets and liabilities is as follows:

Cash acquired
  $ 2,356  
Receivables, net
    5,876  
Other current assets acquired
    7,513  
Property and equipment
    6,441  
Other long-term assets
    80  
Amortizable intangible assets:
       
Customer relationships
    1,400  
Trademark / Tradename
    1,300  
Non-compete agreement
    1,100  
Goodwill
    3,600  
Liabilities assumed
    (12,235 )
Total purchase price
  $ 17,431  

The amortizable intangible assets have useful lives ranging between five years and ten years and a weighted average useful life of 8.3 years. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired and is deductible for tax purposes. The goodwill recorded in connection with this acquisition is included in the Downstream Oil & Gas segment.

The results and operations for Wink have been included in the Company’s condensed consolidated statements of operations since the completion of the acquisition on July 9, 2009. This acquisition does not have a material impact on the financial statements. Accordingly, pro forma disclosures have not been presented.
 
10

 
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
 
4.     Other Charges
 
During the first nine months of 2009, the Company incurred $8,207 of other charges consisting of severance and operating lease abandonment charges to realign the continuing operating costs with the current level of demand for its services. Third quarter of 2009 charges totaled $2,418, composed primarily of $2,023 in lease abandonment charges. The estimated carrying costs of the abandoned lease space were determined with the assistance of the Company’s third party real estate advisors and were based on an assessment of applicable commercial real estate markets.  There may be a significant fluctuation in the estimated costs to the extent the evaluation of the facts, circumstances and expectations change. The principal variables in estimating the carrying costs are the length of time required to sublease the space, the sublease rate and expense for inducements (e.g., rent abatement, tenant improvement allowance) that may be offered to a prospective sublease tenant. The accrual at September 30, 2009, for carrying costs of the abandoned lease space totaled $2,023. While the Company believes this accrual is adequate, it is subject to adjustment as conditions change. The Company will continue to evaluate the adequacy of the accrual and will make the necessary changes to the accrual as conditions warrant. “Other charges” included in the Company’s consolidated operating income for the three and nine months ended September 30, 2009 consist of the following:

   
Three Months Ended
   
Nine Months Ended
 
   
2009
   
2008
   
2009
   
2008
 
Headcount reductions
  $ 356     $ -     $ 4,112     $ -  
Lease abandonments
    2,023       -       2,023       -  
Accelerated vesting of stock awards
    39       -       2,072       -  
Total Other Charges
  $ 2,418     $ -     $ 8,207     $ -  
 
5. 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 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, 2009 and December 31, 2008 were as follows:
 
   
September 30,
   
December 31,
 
   
2009
   
2008
 
             
Cost incurred on contracts in progress
  $ 1,193,474     $ 1,576,037  
Recognized income
    170,919       180,830  
      1,364,393       1,756,867  
Progress billings and advance payments
    (1,346,016 )     (1,710,657 )
    $ 18,377     $ 46,210  
                 
Contract cost and recognized income not yet billed
  $ 44,060     $ 64,499  
Contract billings in excess of cost and recognized income
    (25,683 )     (18,289 )
    $ 18,377     $ 46,210  
 
Contract cost and recognized income not yet billed includes $706 and $218 at September 30, 2009, and December 31, 2008, respectively, on completed contracts.
 
6.    Goodwill and Other Intangible Assets
 
The changes in the carrying amount of goodwill for the nine months ended September 30, 2009, by business segment, are detailed below:
 
   
Upstream
Oil & Gas
   
Downstream
Oil & Gas
   
Consolidated
 
Balance as of December 31, 2008
  $ 11,142     $ 69,223     $ 80,365  
Goodwill from acquisitions
    -       3,600       3,600  
Translation adjustments and other
    1,082       15       1,097  
Balance as of September 30, 2009
  $ 12,224     $ 72,838     $ 85,062  
 
11

 
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
 
6.    Goodwill and Other Intangible Assets (continued)
 
The Company’s other intangible assets as of September 30, 2009 were as follows:
 
   
Customer
Relationships
   
Backlog
   
Trademark
   
Non-compete
Agreements
   
Total
 
Balance as of December 31, 2008
  $ 36,869     $ 2,917     $ -     $ -     $ 39,786  
Intangibles from acquisitions
    1,400               1,300       1,100       3,800  
Amortization
    (2,549 )     (2,917 )     (33 )     (55 )     (5,554 )
Balance as of September 30, 2009
  $ 35,720     $ -     $ 1,267     $ 1,045     $ 38,032  
                                         
Weighted average remaining amortization period
 
10.2 yrs
      N/A    
9.8 yrs
   
4.8 yrs
         
 
These amortizable intangible assets are included in the assets of the Company’s Downstream Oil & Gas segment. Intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from 1.5 to 12.1 years.
 
Amortization expense included in net income for the three and nine months ended September 30, 2009 was $960 and $5,554, respectively. Estimated amortization expense for the remainder of 2009 and each of the subsequent five years and thereafter is as follows:
 
Fiscal year:
     
2009
  $ 960  
2010
    3,842  
2011
    3,842  
2012
    3,842  
2013
    3,842  
2014
    3,732  
Thereafter
    17,972  
Total amortization
  $ 38,032  
 
7.    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. 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 twelve months ended December 31, 2008, $12,575 of the aggregate obligation was satisfied, 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 nine months ended September 30, 2009, $6,575 of the aggregate obligation was relieved, 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.
 
The remaining aggregate obligation of $13,150 has been classified on the Condensed Consolidated Balance Sheets as $6,575 in “Current portion of government obligations” and $6,575 in “Long-term portion of government obligations.” This division is based on payment terms that provide for two remaining equal installments of $2,575 and $4,000 to the SEC and DOJ, respectively.

 
12

 
 
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
 
8.    Long-term Debt
 
Long-term debt as of September 30, 2009 and December 31, 2008 was as follows:
 
   
September 30,
2009
   
December 31, 
2008
 
             
Capital lease obligations
  $ 18,209     $ 34,874  
2.75% convertible senior notes
    55,450       53,652  
6.5% senior convertible notes
    31,308       30,898  
Other long-term debt
    -       27  
2007 Credit Facility
    -       -  
Total long-term debt
    104,967       119,451  
Less: current portion
    (6,325 )     (9,715 )
Long-term debt, net
  $ 98,642     $ 109,736  
 
2007 Credit Facility
 
On November 20, 2007, the Company entered into a new credit agreement (the “Credit Agreement”), among Willbros United States Holding, Inc. (“WUSH”), a subsidiary of the Company (formerly known as Willbros USA, Inc.), 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 (or $50,000) of the facility for cash advances for general corporate purposes 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 WUSH and each of the Company’s other material U.S. subsidiaries and 65 percent of the equity interests of Willbros Global Holdings, Inc.
 
Fees payable under the 2007 Credit Facility include: (1) an excess facility fee at a rate per annum equal to 0.50 percent of the unused 2007 Credit Facility capacity, payable quarterly in arrears; (2) a commission on the face amount of all outstanding performance letters of credit equal to the applicable margin then in effect for performance letters of credit, payable quarterly in arrears; (3) a commission on the face amount of all outstanding financial letters of credit equal to the applicable LIBOR margin then in effect, payable quarterly in arrears; and (4) a letter of credit fee equal to 0.125 percent per annum of aggregate commitments. Interest on any cash borrowings is payable quarterly in arrears at a floating rate based on the base rate (as defined in the Credit Agreement) or, at the Company’s option, at a rate equal to the one-, two-, three-, or six-month Eurodollar rate (LIBOR) plus, in each case, an applicable margin as determined using a performance-based grid described in the Credit Agreement. The Credit Agreement includes customary affirmative and negative covenants, including: certain financial covenants described below; limitations on capital expenditures triggered by liquidity levels lower than $35,000; limitations on foreign cash investments, total indebtedness, and liens; restrictions on dividends and certain restricted payments; and limitations on certain asset sales and dispositions as well as certain acquisitions and asset purchases.
 
A default under the Credit Agreement may be triggered by events such as a failure to comply with financial covenants or other covenants under the Credit Agreement, a failure to make payments when due under the 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 $5,000, a change of control of the Company or certain insolvency proceedings. A default under the Credit Agreement would permit Calyon and the Lenders to restrict the Company’s ability to further access the 2007 Credit Facility for cash advances or 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. Unamortized debt issue costs associated with the creation of the 2007 Credit Facility total $621 and $960 and are included in other assets at September 30, 2009 and December 31, 2008, respectively. These costs are being amortized to interest expense over the three-year term of the Credit Facility.
 
 
13

 
 
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
 
8.    Long-term Debt (continued)
 
The 2007 Credit Facility also includes financial covenants relating to maintenance of the following:
 
 
·
A minimum net worth in an amount of not less than the sum of $106,458 plus 50.0 percent of consolidated net income earned in each fiscal quarter ended after December 31, 2007 plus adjustments for certain equity transactions and debt conversions;
 
 
·
A maximum leverage ratio of 2.00 to 1.00 for the fiscal quarter ending September 30, 2009 and for each fiscal quarter thereafter;
 
 
·
A minimum fixed charge coverage ratio of not less than 3.50 to 1.00 for the fiscal quarter ending September 30, 2009 and for each fiscal quarter thereafter;
 
 
·
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 any of these covenants were to be 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, 2009, the Company was in compliance with all of these covenants.
 
As of September 30, 2009, there were no borrowings outstanding under the 2007 Credit Facility and there were $11,552 in outstanding letters of credit for projects in continuing operations.
 
6.5% Senior Convertible Notes
 
In the fourth quarter of 2005 the Company entered into a purchase agreement (the “6.5% Purchase Agreement”) pursuant to which it sold, between December 2005 and March 2006, $84,500 of aggregate principal amount of its 6.5% Senior Convertible Notes due 2012 (the “6.5% Notes”). 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, by and among the Company, as issuer, WUSH, as guarantor and The Bank of New York Mellon, as Trustee (the “6.5% Indenture”), and were issued under the 6.5% 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 common stock.
 
Pursuant to the 6.5% Purchase Agreement, the Company and WUSH have agreed to indemnify the Purchasers, their affiliates and agents, against certain liabilities, including liabilities under the Securities Act. The 6.5% Notes currently outstanding 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, 2009), 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, and began on June 15, 2006.
 
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. 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 6.5% 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.
 
Upon conversion of the 6.5% Notes, excluding the purchase features discussed above, 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 6.5% 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 default of $10,000 or more on any credit agreement, including the 2007 Credit Facility and the 2.75% Notes, a corresponding event of default would result under the 6.5% Notes.

 
14

 

 
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
 
8.    Long-term Debt (continued)
 
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, 2009, this covenant would not have precluded the Company from borrowing under the 2007 Credit Facility.
 
2.75% Convertible Senior Notes
 
In the first and second quarters of 2004, the Company completed an aggregate offering of $70,000 of 2.75% Convertible Senior Notes (the “2.75% Notes”). 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 2.75% Notes mature on March 15, 2024 unless the notes are repurchased, redeemed or converted earlier. The Company may 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. 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, 2011, or upon a change in control event, the Company must pay the purchase price in cash. 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. The holders of the 2.75% Notes currently outstanding 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, 2009 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 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.
 
The 2.75% Notes are governed by an indenture, dated March 12, 2004, between the Company, as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee (the “2.75% Indenture”). The 2.75% Notes are convertible into shares of the Company’s stock. The 2.75% Notes and the underlying shares were registered for resale with the SEC.
 
On September 22, 2005 the Company amended the original Indenture, (“the Indenture Amendment”) to extend 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. In addition, a new provision was added to the 2.75% 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.
 
FSP No. APB 14-1 (ASC 470-20)
 
As a result of the adoption of FSP No. APB 14-1 (ASC 470-20), the Company is required to separately account for the debt and equity components of its 6.5% Notes and 2.75% Notes in a manner that reflects their nonconvertible debt borrowing rate at the time of issuance.
 
6.5% Notes
The debt and equity components recognized for the Company’s 6.5% Notes were as follows:

  
 
September 30, 
2009
   
December 31,
2008
 
Principal amount of 6.5% Notes
  $ 32,050     $ 32,050  
Unamortized discount
    (742 )     (1,152 )
Net carrying amount
    31,308       30,898  
Additional paid-in capital
    3,131       3,131  
 
At September 30, 2009, the unamortized discount had a remaining recognition period of approximately 15 months.

 
15

 
 
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
 
8.    Long-term Debt (continued)
 
The amount of interest expense recognized and effective interest rate for the three and nine months ended September 30, 2009 and 2008 were as follows:

   
Three Months Ended
   
Nine Months Ended
 
   
2009
   
2008
   
2009
   
2008
 
                         
Contractual coupon interest
  $ 521     $ 521     $ 1,562     $ 1,562  
Amortization of discount
    139       128       409       376  
Interest expense
  $ 660     $ 649     $ 1,971     $ 1,938  
                                 
Effective interest rate
    8.46     8.46     8.46     8.46 % 
 
2.75% Notes
The debt and equity components recognized for the Company’s 2.75% Notes were as follows:

   
September 30,
2009
   
December 31,
2008
 
Principal amount of 2.75% Notes
  $ 59,357     $ 59,357  
Unamortized discount
    (3,907 )     (5,705 )
Net carrying amount
    55,450       53,652  
Additional paid-in capital
    14,235       14,235  
 
At September 30, 2009, the unamortized discount had a remaining recognition period of approximately 18 months.
 
The amount of interest expense recognized and effective interest rate for the three and nine months ended September 30, 2009 and 2008 were as follows:

   
Three Months Ended
   
Nine Months Ended
 
   
2009
   
2008
   
2009
   
2008
 
                         
Contractual coupon interest
  $ 408     $ 408     $ 1,224     $ 1,264  
Amortization of discount
    610       567       1,797       1,721  
Interest expense
  $ 1,018     $ 975     $ 3,021     $ 2,985  
                                 
Effective interest rate
    7.40     7.40     7.40     7.40 % 
 
Capital Leases
 
The Company has entered into multiple capital lease agreements to acquire construction equipment and automobiles. During the nine months ended September 30, 2009, the Company paid $15,304 to buy-out capital leases to company owned equipment. The weighted average of interest paid on capital leases is 6.43 percent.
 
Assets held under capital leases at September 30, 2009 and December 31, 2008 are summarized below:

   
September 30,
2009
   
December 31,
2008
 
             
Construction equipment
  $ 23,816     $ 43,175  
Autos, trucks and trailers
    1,922       4,090  
Total assets held under capital lease
    25,738       47,265  
Less: accumulated depreciation
    (8,385 )     (11,167 )
Net assets under capital lease
  $ 17,353     $ 36,098  
 
 
16

 

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
 
9.    Income (Loss) Per Share
 
Basic income per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted income 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 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 issue costs associated with the convertible notes since these notes are treated as if converted into common stock.
 
Basic and diluted income (loss) from continuing operations per common share for the three and nine months ended September 30, 2009 and 2008 are computed as follows:
 
   
Three Months
   
Nine Months
 
   
Ended September 30,
   
Ended September 30,
 
   
2009
   
2008
   
2009
   
2008
 
Income from continuing operations
  $ 2,055     $ 18,873     $ 29,121     $ 57,619  
Less: Income attributable to noncontrolling interest
    (372 )     (413 )     (1,543 )     (1,433 )
Net income from continuing operations attributable to Willbros Group, Inc. (numerator for basic calculation)
    1,683       18,460       27,578       56,186  
Add:  Interest and debt issuance costs associated
                               
with convertible notes
    -       1,804
(1)
    -       5,638
(1)
Net income from continuing operations applicable
                               
to common shares (numerator for diluted calculation)
  $ 1,683     $ 20,264     $ 27,578     $ 61,824  
                                 
Weighted average number of common shares
                               
outstanding for basic income per  share
    38,721,586       38,313,997       38,656,656       38,236,508  
Weighted average number of potentially dilutive
                               
common shares outstanding(2)
    197,347       5,489,238       160,754       5,627,799  
Weighted average number of common shares
                               
outstanding for diluted income per share
    38,918,933       43,803,235       38,817,411       43,864,307  
Income per common share from continuing operations:
                               
Basic
  $ 0.04     $ 0.48     $ 0.71     $ 1.47  
Diluted
  $ 0.04     $ 0.46     $ 0.71     $ 1.41  
 
 
(1)
Interest expense for the three and nine months ended September 30, 2008 has been adjusted to reflect additional expense due to the adoption of FSP No. APB 14-1 (ASC 470-20).
 
 
(2)
Excluded from the computation of diluted income per share are options to purchase 207,750 shares of common stock, warrants to purchase 536,925 shares of common stock and 4,874,228 shares of common stock issuable upon conversion related to the 6.5% Notes and the 2.75% Notes that were all outstanding during the three and nine months ended September 30, 2009 as their effect was antidilutive. There were no shares excluded during the three and nine months ended September 30, 2008.
 
10.  Segment Information
 
Effective April 1, 2009, the Company revised its presentation of segments to reflect the new approach that management is using to evaluate performance within the Company. Previously the Company reported three segments, Upstream Oil & Gas, Downstream Oil & Gas, and Engineering. The Engineering segment has now been merged with the Upstream Oil & Gas segment. The Company’s segments are comprised of business units that are managed separately as each has different core competencies which require unique strategies.  The Company manages and reports on two operating segments: Upstream Oil & Gas and Downstream Oil & Gas. These segments are based on the industry segments served and 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 management, general & administrative, and financing functions of the organization.  The costs of these functions are allocated to the two operating segments.
 
 
17

 

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
 
10.  Segment Information (continued)
 
The following tables reflect the Company’s reconciliation of segment operating results to net income in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2009 and 2008:
 
For the three months ended September 30, 2009:
   
Upstream
Oil & Gas
   
Downstream
Oil & Gas
   
Consolidated
 
Revenue
  $ 190,172     $ 57,361     $ 247,533  
Operating expenses
    184,712       59,322       244,034  
Operating income
  $ 5,460     $ (1,961 )     3,499  
Other income (expense)
                    (2,103 )
Provision (benefit) for income taxes
                    (659 )
Income from continuing operations before noncontrolling interest
      2,055  
Less: Income attributable to noncontrolling interest
              (372 )
Income from continuing operations attributable to Willbros
      1,683  
Income (loss) from discontinued operations, net of provision for income taxes
      (27 )
Net income attributable to Willbros Group, Inc.
            $ 1,656  

For the three months ended September 30, 2008:
   
Upstream
Oil & Gas
   
Downstream
Oil & Gas
   
Consolidated
 
Revenue
  $ 404,402     $ 86,249     $ 490,651  
Operating expenses
    379,894       81,526       461,420  
Operating income
  $ 24,508     $ 4,723       29,231  
Other income (expense)
                    (2,301 )
Provision (benefit) for income taxes
                    8,057  
Income from continuing operations before noncontrolling interest
      18,873  
Less: Income attributable to noncontrolling interest