Willbros Group, Inc.\NEW\ - FORM 10-Q - October 28, 2016

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EX-32.2 - EXHIBIT 32.2 - Willbros Group, Inc.\NEW\a9302016-exhibit322.htm
EX-32.1 - EXHIBIT 32.1 - Willbros Group, Inc.\NEW\a9302016-exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - Willbros Group, Inc.\NEW\a9302016-exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - Willbros Group, Inc.\NEW\a9302016-exhibit311.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM 10-Q
 

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

For the quarterly period ended September 30, 2016

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 1-34259
 
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  ý    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  ý    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
¨
Accelerated Filer
ý
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  ý
The number of shares of the registrant’s Common Stock, $.05 par value, outstanding as of October 26, 2016 was 62,629,313.


WILLBROS GROUP, INC.
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 2016
 
 
Page
 
 
 



PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
 
September 30,
2016
 
December 31,
2015
ASSETS
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
42,259

 
$
58,832

Accounts receivable, net
 
128,008

 
149,753

Contract cost and recognized income not yet billed
 
16,875

 
20,451

Prepaid expenses and other current assets
 
19,488

 
19,610

Parts and supplies inventories
 
1,259

 
1,383

Assets held for sale
 
16

 
3,774

Current assets associated with discontinued operations
 
143

 
1,247

Total current assets
 
208,048

 
255,050

Property, plant and equipment, net
 
41,427

 
50,352

Intangible assets, net
 
79,547

 
86,862

Restricted cash
 
41,319

 
35,212

Other long-term assets
 
12,487

 
14,101

Total assets
 
$
382,828

 
$
441,577

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
 
Accounts payable and accrued liabilities
 
$
94,365

 
$
107,709

Contract billings in excess of cost and recognized income
 
6,489

 
9,892

Current portion of capital lease obligations
 
—

 
469

Notes payable and current portion of long-term debt
 
831

 
2,656

Accrued income taxes
 
2,465

 
3,108

Other current liabilities
 
5,636

 
6,759

Current liabilities associated with discontinued operations
 
1,553

 
4,027

Total current liabilities
 
111,339

 
134,620

Long-term debt
 
87,841

 
92,498

Deferred income taxes
 
665

 
120

Other long-term liabilities
 
32,903

 
35,516

Long-term liabilities associated with discontinued operations
 
1,106

 
1,423

Total liabilities
 
233,854

 
264,177

Contingencies and commitments (Note 12)
 

 

Stockholders’ equity:
 
 
 
 
Preferred stock, par value $.01 per share, 1,000,000 shares authorized, none issued
 
—

 
—

Common stock, par value $.05 per share, 105,000,000 shares authorized and 64,638,229 shares issued at September 30, 2016 (63,918,220 at December 31, 2015)
 
3,224

 
3,188

Additional paid-in capital
 
748,447

 
745,214

Accumulated deficit
 
(583,818
)
 
(550,262
)
Treasury stock at cost, 2,009,997 shares at September 30, 2016 (1,828,586 at December 31, 2015)
 
(15,092
)
 
(14,731
)
Accumulated other comprehensive loss
 
(3,787
)
 
(6,009
)
Total stockholders’ equity
 
148,974

 
177,400

Total liabilities and stockholders’ equity
 
$
382,828

 
$
441,577

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,
 
 
2016
 
2015
 
2016
 
2015
Contract revenue
 
$
174,821

 
$
222,191

 
$
567,293

 
$
691,334

Operating expenses:
 
 
 
 
 
 
 
 
Contract costs
 
162,806

 
208,855

 
526,322


658,570

Amortization of intangibles
 
2,438

 
2,472

 
7,315


7,414

General and administrative
 
15,377

 
19,359

 
47,031


61,840

Other charges
 
519

 
3,872

 
5,146


10,200

 
 
181,140

 
234,558

 
585,814

 
738,024

Operating loss
 
(6,319
)
 
(12,367
)
 
(18,521
)
 
(46,690
)
Non-operating income (expense):
 
 
 
 
 
 
 
 
Interest expense
 
(3,564
)
 
(6,125
)
 
(10,433
)
 
(20,976
)
Interest income
 
12

 
15

 
443


37

Debt covenant suspension and extinguishment charges
 
—

 
(931
)
 
(63
)
 
(37,112
)
Other, net
 
2

 
(46
)
 
—

 
(181
)
 
 
(3,550
)
 
(7,087
)
 
(10,053
)
 
(58,232
)
Loss from continuing operations before income taxes
 
(9,869
)
 
(19,454
)
 
(28,574
)
 
(104,922
)
Provision (benefit) for income taxes
 
792

 
(43
)
 
1,146

 
(21,164
)
Loss from continuing operations
 
(10,661
)
 
(19,411
)
 
(29,720
)
 
(83,758
)
Income (loss) from discontinued operations net of provision for income taxes
 
(1,325
)
 
2,212

 
(3,836
)
 
37,849

Net loss
 
$
(11,986
)
 
$
(17,199
)
 
$
(33,556
)
 
$
(45,909
)
Basic income (loss) per share attributable to Company shareholders:
 
 
 
 
 
 
 
 
Loss from continuing operations
 
$
(0.17
)
 
$
(0.32
)
 
$
(0.49
)
 
$
(1.47
)
Income (loss) from discontinued operations
 
(0.02
)
 
0.03

 
(0.06
)
 
0.67

Net loss
 
$
(0.19
)
 
$
(0.29
)
 
$
(0.55
)
 
$
(0.80
)
Diluted income (loss) per share attributable to Company shareholders:
 
 
 
 
 
 
 
 
Loss from continuing operations
 
$
(0.17
)
 
$
(0.32
)
 
$
(0.49
)
 
$
(1.47
)
Income (loss) from discontinued operations
 
(0.02
)
 
0.03

 
(0.06
)
 
0.67

Net loss
 
$
(0.19
)
 
$
(0.29
)
 
$
(0.55
)
 
$
(0.80
)
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
61,639,590

 
60,335,717

 
61,257,851

 
56,833,178

Diluted
 
61,639,590

 
60,335,717

 
61,257,851

 
56,833,178

See accompanying notes to condensed consolidated financial statements.

4

WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2016
 
2015
 
2016
 
2015
Net loss
 
$
(11,986
)
 
$
(17,199
)
 
$
(33,556
)
 
$
(45,909
)
Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(495
)
 
(3,851
)
 
1,273

 
(7,055
)
Changes in derivative financial instruments
 
273

 
(1,323
)
 
949

 
(1,456
)
Total other comprehensive income (loss), net of tax
 
(222
)
 
(5,174
)
 
2,222

 
(8,511
)
Total comprehensive loss
 
$
(12,208
)
 
$
(22,373
)
 
$
(31,334
)
 
$
(54,420
)
See accompanying notes to condensed consolidated financial statements.

5

WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 
 
Nine Months Ended 
 September 30,
 
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(33,556
)
 
$
(45,909
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
 
(Income) loss from discontinued operations
 
3,836

 
(37,849
)
Depreciation and amortization
 
16,694

 
21,046

Debt covenant suspension and extinguishment charges
 
63

 
37,112

Stock-based compensation
 
3,269

 
4,553

Amortization of debt issuance costs
 
704

 
468

Non-cash interest expense
 
1,665

 
—

Provision (benefit) for deferred income taxes
 
487

 
(210
)
Gain on disposal of property and equipment
 
(3,181
)
 
(1,715
)
Loss on sale of subsidiary
 
330

 
—

Provision for bad debts
 
106

 
1,989

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable, net
 
16,466

 
85,965

Contract cost and recognized income not yet billed
 
3,648

 
2,497

Prepaid expenses and other current assets
 
177

 
(3,288
)
Accounts payable and accrued liabilities
 
(14,105
)
 
(41,308
)
Accrued income taxes
 
(665
)
 
(1,120
)
Contract billings in excess of cost and recognized income
 
(3,438
)
 
(3,400
)
Other assets and liabilities, net
 
(732
)
 
(4,375
)
Cash provided by (used in) operating activities from continuing operations
 
(8,232
)
 
14,456

Cash used in operating activities from discontinued operations
 
(7,030
)
 
(20,371
)
Cash used in operating activities
 
(15,262
)
 
(5,915
)
Cash flows from investing activities:
 
 
 
 
Proceeds from sales of property, plant and equipment
 
5,311

 
8,305

Proceeds from sale of subsidiaries
 
9,963

 
97,344

Purchases of property, plant and equipment
 
(2,528
)
 
(2,055
)
Changes in restricted cash
 
(6,107
)
 
—

Cash provided by investing activities from continuing operations
 
6,639

 
103,594

Cash used in investing activities from discontinued operations
 
—

 
(632
)
Cash provided by investing activities
 
6,639

 
102,962

Cash flows from financing activities:
 
 
 
 
Proceeds from revolver and notes payable
 
—

 
30,716

Payments on capital leases
 
(469
)
 
(686
)
Payments of revolver and notes payable
 
—

 
(30,649
)
Payments on term loan facility
 
(3,128
)
 
(80,349
)
Cost of debt issuance
 
(4,612
)
 
(751
)
Payments to reacquire common stock
 
(361
)
 
(368
)
Cash used in financing activities from continuing operations
 
(8,570
)
 
(82,087
)
Cash provided by financing activities from discontinued operations
 
—

 
10,624

Cash used in financing activities
 
(8,570
)
 
(71,463
)
Effect of exchange rate changes on cash and cash equivalents
 
620

 
(752
)
Net increase (decrease) in cash and cash equivalents
 
(16,573
)
 
24,832

Cash and cash equivalents of continuing operations at beginning of period
 
58,832

 
22,565

Cash and cash equivalents of discontinued operations at beginning of period
 
—

 
708

Cash and cash equivalents at beginning of period
 
58,832

 
23,273

Cash and cash equivalents at end of period
 
42,259

 
48,105

Less: cash and cash equivalents of discontinued operations at end of period
 
—

 
268

Cash and cash equivalents of continuing operations at end of period
 
$
42,259

 
$
47,837

Supplemental disclosures of cash flow information:
 
 
 
 
Cash paid for interest (including discontinued operations)
 
$
6,320

 
$
21,448

Cash paid for income taxes (including discontinued operations)
 
$
1,501

 
$
3,341

See accompanying notes to condensed consolidated financial statements.

6
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



1. Company and Organization
Willbros Group, Inc., a Delaware corporation, and its subsidiaries (the “Company,” “Willbros” or “WGI”), is a specialty energy infrastructure contractor serving the oil and gas and power industries with offerings that primarily include construction, maintenance and facilities development services. The Company’s principal markets for continuing operations are the United States and Canada. The Company obtains its work through competitive bidding and negotiations with prospective clients. Contract values range from several thousand dollars to several hundred million dollars, and contract durations range from a few weeks to more than two years.
The Company has three operating segments: Oil & Gas, Utility T&D and Canada. The Company's segments are comprised of strategic businesses that are defined by the industries or geographic regions they serve. Each is managed as an operation with well established strategic directions and performance requirements.
Management evaluates the performance of each operating segment based on operating income. To support the segments, the Company has a focused corporate operation led by the executive management team, which, in addition to oversight and leadership, provides general, administrative and financing functions for the organization. The costs to provide these services are allocated, as are certain other corporate costs, to the three operating segments.
2. Basis of Presentation
Condensed Consolidated Financial Information
The accompanying Condensed Consolidated Balance Sheet as of December 31, 2015, which has been derived from audited Consolidated Financial Statements, and the unaudited Condensed Consolidated Financial Statements as of September 30, 2016 and 2015, 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 U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations. However, the Company believes the presentations and disclosures herein are adequate to make the information not misleading. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company’s December 31, 2015 audited Consolidated Financial Statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
In the opinion of management, the unaudited Condensed Consolidated Financial Statements reflect all recurring adjustments necessary to fairly state the financial position as of September 30, 2016, and the results of operations and cash flows of the Company for all interim periods presented. The results of operations and cash flows for the nine months ended September 30, 2016 are not necessarily indicative of the operating results and cash flows to be achieved for the full year.
Use of Estimates and Assumptions
The Condensed Consolidated Financial Statements include certain estimates and assumptions made by management. These estimates and assumptions relate to the reported amounts of assets and liabilities at the dates of the Condensed Consolidated Financial Statements and the reported amounts of revenue and expense during those periods. Significant items subject to such estimates and assumptions include revenue recognition under the percentage-of-completion method of accounting, including estimates of progress towards completion and estimates of gross profit or loss accrual on contracts in progress; tax accruals and certain other accrued liabilities; quantification of amounts recorded for contingencies; valuation allowances for accounts receivable and deferred income tax assets; and the carrying amount of property, plant and equipment, goodwill and intangible assets. The Company bases its estimates on historical experience and other assumptions it believes to be relevant under the circumstances. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation. These reclassifications primarily relate to the presentation of the 2015 sale of the Company's Professional Services segment including the Company's previously sold subsidiaries, Willbros Engineers, LLC and Willbros Heater Services, LLC ("Downstream Professional Services"), Premier Utility Services, LLC ("Premier") and UtilX Corporation ("UtilX") as discontinued operations. For additional information, see Note 15 - Discontinued Operations.

7
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. New Accounting Standards


Recently Adopted Accounting Standards
In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-17, which requires deferred tax assets and liabilities, as well as related valuation allowances, to be classified as non-current. ASU 2015-17 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted as of the beginning of an interim or annual period. The Company adopted ASU 2015-17 in the first quarter of 2016 and applied the standard retroactively for all periods presented. As a result of this adoption, current deferred taxes and non-current deferred taxes decreased $2.3 million at December 31, 2015 in the Condensed Consolidated Balance Sheet.
In April 2015, the FASB issued ASU 2015-03, which changes the presentation of debt issuance costs with the requirement that debt issuance costs related to a debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for annual periods beginning after December 15, 2015 and interim periods within annual periods beginning after December 15, 2016. The Company adopted ASU 2015-03 in the first quarter of 2016 and applied the standard retroactively for all periods presented. The application of the standard did not have a material impact on the Company's Condensed Consolidated Balance Sheet.
Accounting Standards Not Yet Adopted
In August 2016, the FASB issued ASU 2016-15, which provides specific guidance for cash flow classifications of cash payments and receipts to reduce the diversity of treatment of such items. The standard is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods with early adoption permitted. The Company is assessing the impact of the standard on its Condensed Consolidated Financial Statements.
In March 2016, the FASB issued ASU 2016-09, which changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods with early adoption permitted. The Company is assessing the impact of the standard on its Condensed Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02, which requires companies that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those assets. The standard is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted for financial statements of fiscal years or interim periods that have not been previously issued. The Company is assessing the impact of the standard on its Condensed Consolidated Financial Statements.
In August 2014, the FASB issued ASU 2014-15, which requires management to perform interim and annual assessments on whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year of the date the financial statements are issued and to provide related disclosures, if required. The amendments in ASU 2014-15 are effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. The Company will adopt ASU 2014-15 in the fourth quarter of 2016.
In May 2014, the FASB and the IASB issued ASU 2014-09 surrounding the recognition of revenue from contracts with customers. Under the new standard, a company will recognize revenue when it satisfies a performance obligation by transferring a promised good or service to a customer. Revenue will be recognized at an amount that reflects the consideration it expects to receive in exchange for those goods and services. The standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB deferred the effective date of the standard to December 15, 2017 with early adoption permitted. The standard can be applied on a full retrospective or modified retrospective basis whereby the entity records a cumulative effect of initially applying this update at the date of initial application. Furthermore, in March, April, and May of 2016, the FASB issued ASUs 2016-08, 2016-10, and 2016-12, respectively, which provide practical expedients and clarification in regards to ASU 2014-09. ASU 2016-08 amends and clarifies the principal versus agent considerations under the new revenue recognition standard, which requires determination of whether the nature of a promise is to provide the specified good or service to the customer (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by another party (that is, the entity is an agent); this determination affects the timing and amount of revenue recognition. ASU 2016-10 clarifies issues related to identifying performance obligations. ASU 2016-12 provides practical expedients and clarification pertaining to the exclusion of sales tax from the measurement of a transaction price, the measurement of non-cash consideration, allocation of a transaction

8
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. New Accounting Pronouncements (continued)

price on the basis of all satisfied and unsatisfied performance obligations in a modified contract at transition, and the definition of a completed contract. The effective date of ASUs 2016-08, 2016-10, and 2016-12 is December 15, 2017 with early adoption permitted. The Company is still assessing the impact of these standards on its Condensed Consolidated Financial Statements and will adopt this guidance effective January 1, 2018.
4. 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.
Contract cost and recognized income not yet billed and related amounts billed as of September 30, 2016 and December 31, 2015 was as follows (in thousands):
 
 
September 30,
2016
 
December 31,
2015
Cost incurred on contracts in progress
 
$
317,503

 
$
567,144

Recognized income
 
38,749

 
50,812

 
 
356,252

 
617,956

Progress billings and advance payments
 
(345,866
)
 
(607,397
)
 
 
$
10,386

 
$
10,559

Contract cost and recognized income not yet billed
 
$
16,875

 
$
20,451

Contract billings in excess of cost and recognized income
 
(6,489
)
 
(9,892
)
 
 
$
10,386

 
$
10,559

Contract cost and recognized income not yet billed includes $1.9 million and $0.8 million at September 30, 2016 and December 31, 2015, respectively, on completed contracts.
The balances billed but not paid by customers pursuant to retainage provisions in certain contracts are generally due upon completion of the contracts and acceptance by the customer. Based on the Company’s experience with similar contracts in recent years, the majority of the retainage balances at each balance sheet date are expected to be collected within the next 12 months. Current retainage balances at September 30, 2016 and December 31, 2015, were approximately $24.6 million and $25.3 million, respectively, and are included in “Accounts receivable, net” in the Condensed Consolidated Balance Sheets. There were no retainage balances with settlement dates beyond the next 12 months at September 30, 2016 and December 31, 2015.

9
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

5. Intangible Assets


The Company's intangible assets with finite lives include customer relationships and trade names and are predominantly within the Utility T&D segment. The changes in the carrying amounts of intangible assets for the nine months ended September 30, 2016 are detailed below (in thousands):
 
 
Customer
Relationships
 
Trademark /
Tradename
 
Total
Balance as of December 31, 2015
 
$
82,044

 
$
4,818

 
$
86,862

Amortization
 
(6,512
)
 
(803
)
 
(7,315
)
Balance as of September 30, 2016
 
$
75,532

 
$
4,015

 
$
79,547

Weighted average remaining amortization period
 
8.7 years

 
3.8 years

 
 
Intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from 5 to 15 years.
Estimated amortization expense for the remainder of 2016 and each of the subsequent five years and thereafter is as follows (in thousands):
Fiscal year:
 
 
Remainder of 2016
 
$
2,439

2017
 
9,754

2018
 
9,754

2019
 
9,754

2020
 
9,135

2021
 
8,597

Thereafter
 
30,114

Total amortization
 
$
79,547

6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities as of September 30, 2016 and December 31, 2015 were as follows (in thousands):
 
 
September 30,
2016
 
December 31,
2015
Trade accounts payable
 
$
40,741

 
$
48,501

Payroll and payroll liabilities
 
13,594

 
14,914

Accrued contract costs
 
17,777

 
17,571

Self-insurance accrual
 
11,757

 
12,128

Other accrued liabilities
 
10,496

 
14,595

Total accounts payable and accrued liabilities
 
$
94,365

 
$
107,709


10
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

7. Long-term Debt


Long-term debt as of September 30, 2016 and December 31, 2015 was as follows (in thousands):
 
 
September 30,
2016
 
December 31,
2015
Principal amount, 2014 Term Loan Facility
 
$
92,224

 
$
95,352

Repayment fee, 2014 Term Loan Facility
 
4,261

 
4,261

Unamortized discount, 2014 Term Loan Facility
 
(3,475
)
 
(4,261
)
Unamortized debt issuance costs, 2014 Term Loan Facility
 
(4,338
)
 
(198
)
Revolver borrowings
 
—

 
—

Capital lease obligations
 
—

 
469

Total debt, net of unamortized discount and debt issuance costs
 
88,672

 
95,623

Less: current portion
 
(831
)
 
(3,125
)
Long-term debt, net
 
$
87,841

 
$
92,498

2014 Term Loan Facility
On December 15, 2014, the Company entered into a credit agreement (the “2014 Term Credit Agreement”) among the Company, certain of its subsidiaries, as guarantors, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and KKR Credit Advisors (US) LLC, as sole lead arranger and sole bookrunner. Cortland Capital Market Services LLC currently serves as administrative agent under the 2014 Term Credit Agreement.
The 2014 Term Credit Agreement provides for a five-year $270.0 million term loan facility (the “2014 Term Loan Facility”), which the Company drew in full on the effective date of the 2014 Term Credit Agreement. The Company is the borrower under the 2014 Term Credit Agreement, with all of its obligations guaranteed by its material U.S. subsidiaries, other than excluded subsidiaries. Obligations under the 2014 Term Loan Facility are secured by a first priority security interest in, among other things, the borrower’s and the guarantors’ equipment, subsidiary capital stock and intellectual property (the “2014 Term Loan Priority Collateral”) and a second priority security interest in, among other things, the borrower’s and the guarantors’ inventory, accounts receivable, deposit accounts and similar assets.
The term loans bear interest at the “Adjusted Base Rate” plus an applicable margin of 8.75 percent, or the “Eurodollar Rate” plus an applicable margin of 9.75 percent. The interest rate in effect at September 30, 2016 and December 31, 2015 was 11 percent, comprised of an applicable margin of 9.75 percent for Eurodollar rate loans plus a LIBOR floor of 1.25 percent.
The Company made early payments of $3.1 million and $78.3 million against its 2014 Term Loan Facility during the nine months ended September 30, 2016 and 2015, respectively. As a result of these early payments, the Company recorded debt extinguishment charges of $0.1 million and $1.9 million, respectively, which consisted of prepayment fees of 2 percent and the write-off of debt issuance costs.
The Company is also required to pay a repayment fee on the maturity date of the 2014 Term Loan Facility equal to 5.0 percent of the aggregate principal amount outstanding on the maturity date. The repayment fee was contingent upon the sale of the Company's Professional Services segment, which was completed on November 30, 2015. As a result, the Company is amortizing the repayment fee as a discount, from that date through the maturity date of the 2014 Term Loan Facility, using the effective interest method. The unamortized amount of the repayment fee is $3.5 million and $4.3 million at September 30, 2016 and December 31, 2015, respectively.
Since December 31, 2014, the Company has significantly reduced the balance under the 2014 Term Loan Facility. Under the provisions of the 2014 Term Credit Agreement, with respect to prepayments made from inception of the Term Loan through September 30, 2016, the Company has not been required to pay prepayment premiums in respect of the “makewhole amount.” However, future prepayments or refinancing of the balance of the 2014 Term Loan Facility will, in most cases, require the Company to pay a prepayment premium equal to the makewhole amount. The makewhole amount is calculated as the present value of all interest payments that would have been made on the amount prepaid from the date of the prepayment to December 15, 2019 (or June 15, 2019 if the prepayment is made on or after June 15, 2018) at a rate per annum equal to the sum of 9.75 percent plus the greater of 1.25 percent and the Eurodollar rate in effect on the date of the repayment.

11
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

7. Long-term Debt (continued)



2013 ABL Credit Facility
On August 7, 2013, the Company entered into five-year asset based senior revolving credit facility maturing on August 7, 2018 with Bank of America, N.A. serving as sole administrative agent for the lenders thereunder, collateral agent, issuing bank and swingline lender (as amended, the “2013 ABL Credit Facility”).
The aggregate amount of commitments for the 2013 ABL Credit Facility is currently comprised of $80.0 million for the U.S. facility (the “U.S. Facility”) and $20.0 million for the Canadian facility (the “Canadian Facility”). The 2013 ABL Credit Facility includes a sublimit of $80.0 million for letters of credit. The borrowers under the U.S. Facility consist of all of the Company’s U.S. operating subsidiaries with assets included in the borrowing base, and the U.S. Facility is guaranteed by Willbros Group, Inc. and its material U.S. subsidiaries, other than excluded subsidiaries. The borrower under the Canadian Facility is Willbros Construction Services (Canada) LP, and the Canadian Facility is guaranteed by Willbros Group, Inc. and all of its material U.S. and Canadian subsidiaries, other than excluded subsidiaries.
Advances under the U.S. and Canadian Facilities are limited to a borrowing base consisting of the sum of the following, less applicable reserves:
•
85 percent of the value of "eligible accounts";
•
the lesser of (i) 75 percent of the value of "eligible unbilled accounts" and (ii) $33.0 million minus the amount of eligible unbilled accounts then included in the borrowing base; and
•
"eligible pledged cash".
The Company is also required, as part of its borrowing base calculation, to include a minimum of $25.0 million of the net proceeds of the sale of Bemis, LLC and the balance of the Professional Services segment as eligible pledged cash. The Company has included $40.1 million as eligible pledged cash (collateralized for a portion of its letters of credit) in its September 30, 2016 borrowing base calculation, which is included in the line item "Restricted cash" on the Consolidated Balance Sheet.
The aggregate amount of the borrowing base attributable to eligible accounts and eligible unbilled accounts constituting certain progress or milestone billings, retainage and other performance-based benchmarks may not exceed $23.0 million.
Advances in U.S. dollars bear interest at a rate equal to LIBOR or the U.S. or Canadian base rate plus an additional margin. Advances in Canadian dollars bear interest at the Bankers Acceptance ("BA") Equivalent Rate or the Canadian prime rate plus an additional margin.
The interest rate margins will be adjusted each quarter based on the Company’s fixed charge coverage ratio as of the end of the previous quarter as follows:
Fixed Charge Coverage Ratio
 
U.S. Base Rate, Canadian
Base Rate and Canadian
Prime Rate Loans
 
LIBOR Loans, BA Rate Loans and
Letter of Credit Fees
>1.25 to 1
 
1.25%
 
2.25%
<1.25 to 1 and >1.15 to 1
 
1.50%
 
2.50%
<1.15 to 1
 
1.75%
 
2.75%
The borrowers will also pay an unused line fee on each of the U.S. and Canadian Facilities equal to 50 basis points when usage under the applicable facility during the preceding calendar month is less than 50 percent of the commitments or 37.5 basis points when usage under the applicable facility equals or exceeds 50 percent of the commitments for such period. With respect to the letters of credit, the borrowers will pay a letter of credit fee equal to the applicable LIBOR margin, shown in the table above, on all letters of credit, and a 0.125 percent fronting fee to the issuing bank, in each case, payable monthly in arrears.
Obligations under the 2013 ABL Credit Facility are secured by a first priority security interest in the borrowers’ and guarantors’ accounts receivable, deposit accounts and similar assets (the “ABL Priority Collateral”) and a second priority security interest in the 2014 Term Loan Priority Collateral.

12
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

7. Long-term Debt (continued)



Debt Covenants and Events of Default
A default under the 2014 Term Loan Facility and the 2013 ABL Credit Facility may be triggered by events such as a failure to comply with financial covenants or other covenants under the 2014 Term Loan Facility and the 2013 ABL Credit Facility, a failure to make payments when due under the 2014 Term Loan Facility and the 2013 ABL Credit Facility, a failure to make payments when due in respect of, or a failure to perform obligations relating to, debt obligations in excess of $15.0 million, a change of control of the Company and certain insolvency proceedings. A default under the 2013 ABL Credit Facility would permit the lenders to terminate their commitment to make cash advances or issue letters of credit, require the immediate repayment of any outstanding cash advances with interest and require the cash collateralization of outstanding letter of credit obligations. A default under the 2014 Term Loan Facility would permit the lenders to require immediate repayment of all principal, interest, fees and other amounts payable thereunder.
On March 31, 2015 (the "First Amendment Closing Date"), March 1, 2016, and July 26, 2016, the Company amended the 2014 Term Credit Agreement pursuant to a First Amendment (the "First Amendment"), a Third Amendment (the "Third Amendment") and a Fourth Amendment (the “Fourth Amendment”). These amendments, among other things, suspended the calculation of the Maximum Total Leverage Ratio and Minimum Interest Coverage Ratio for the period from December 31, 2014 through December 31, 2016 (the "Covenant Suspension Periods") and provided that any failure by the Company to comply with the Maximum Total Leverage Ratio or Minimum Interest Coverage Ratio during the Covenant Suspension Periods shall not be deemed to result in a default or event of default.
In consideration of the initial suspension of the calculation of the Maximum Total Leverage Ratio and Minimum Interest Coverage Ratio under the First Amendment, the Company issued 10.1 million shares, which was equivalent to 19.9 percent of the outstanding shares of common stock immediately prior to the First Amendment Closing Date, to KKR Lending Partners II L.P. and other entities indirectly advised by KKR Credit Advisers (US) LLC. In connection with this transaction, the Company recorded debt covenant suspension charges of approximately $33.5 million which represented the fair value of the 10.1 million outstanding shares of common stock issued, multiplied by the closing stock price on the First Amendment Closing Date. In addition, the Company recorded debt extinguishment charges of approximately $0.8 million related to the write-off of debt issuance costs associated with the Company's 2014 Term Credit Agreement.
Under the Fourth Amendment, the Maximum Total Leverage Ratio will be 6.00 to 1.00 as of March 31, 2017 and will decrease to 5.00 to 1.00 as of June 30, 2017, 3.50 to 1.00 as of September 30, 2017 and December 31, 2017 and 3.00 to 1.00 as of March 31, 2018 and thereafter. The Minimum Interest Coverage Ratio will be 1.50 to 1.00 as of March 31, 2017 and will increase to 1.75 to 1.00 as of June 30, 2017, 2.50 to 1.00 as of September 30, 2017 and December 31, 2017 and 2.75 to 1.00 as of March 31, 2018 and thereafter.
In consideration for the Third Amendment and Fourth Amendment, the Company paid a total of $4.6 million in amendment fees during the first nine months of 2016. The amendment fees are recorded as direct deductions from the carrying amount of the 2014 Term Loan Facility in accordance with ASU 2015-03, which the Company retroactively adopted effective January 1, 2016. The Company is amortizing the amendment fees through the maturity date of the 2014 Term Loan Facility, using the effective interest method.
On September 28, 2015, the Company further amended the 2014 Term Credit Agreement, pursuant to a Second Amendment (the "Second Amendment"). The Second Amendment permits discrete asset sales by the Company and its subsidiaries, including the sale of the Company's Professional Services segment, which was finalized on November 30, 2015.
The Company's primary sources of funds are its cash on hand, cash flow from operations and borrowings under the 2013 ABL Credit Facility. Based on current forecasts, through a combination of these sources, as well as the covenant relief included in the Fourth Amendment, the Company expects to have sufficient liquidity and capital resources to meet its obligations for at least the next twelve months. However, the Company can make no assurance regarding its ability to achieve its forecasts.
As of September 30, 2016, the Company did not have any outstanding revolver borrowings. The Company's unused availability under its September 30, 2016 borrowing base certificate was $44.0 million on a borrowing base of $52.4 million and outstanding letters of credit of $48.5 million, of which $40.1 million was cash collateralized. If the Company’s unused availability under the 2013 ABL Credit Facility is less than the greater of (i) 15.0 percent of the revolving commitments or $15.0 million for five consecutive days, or (ii) 12.5 percent of the revolving commitments or $12.5 million at any time, or upon the occurrence of certain events of default under the 2013 ABL Credit Facility, the Company is subject to increased reporting requirements, the administrative agent shall have exclusive control over any deposit account, the Company will not have any right of access to, or withdrawal from, any deposit account, or any right to direct the disposition of funds in any deposit account, and amounts in any deposit account will be applied to reduce the outstanding amounts under the 2013 ABL Credit

13
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

7. Long-term Debt (continued)



Facility. In addition, if the Company's unused availability under the 2013 ABL Credit Facility is less than the amounts described above, the Company would be required to comply with a Minimum Fixed Charge Coverage Ratio of 1.15 to 1.00. Based on its current forecasts, the Company does not expect its unused availability under the 2013 ABL Credit Facility to be less than the amounts described above and therefore does not expect the Minimum Fixed Charge Coverage Ratio to be applicable over the next twelve months. If the Minimum Fixed Charge Coverage Ratio were to become applicable, the Company would not expect to be in compliance over the next twelve months and would therefore be in default under its credit agreements.
The 2014 Term Credit Agreement and the 2013 ABL Credit Facility also include customary representations and warranties and affirmative and negative covenants, including:
•
the preparation of financial statements in accordance with GAAP;
•
the identification of any events or circumstances, either individually or in the aggregate, that has had or could reasonably be expected to have a material adverse effect on the business, results of operations, properties or condition of the Company;
•
limitations on liens and indebtedness;
•
limitations on dividends and other payments in respect of capital stock;
•
limitations on capital expenditures; and
•
limitations on modifications of the documentation of the 2013 ABL Credit Facility.
Fair Value of Debt
The estimated fair value of the Company’s debt instruments as of September 30, 2016 and December 31, 2015 was as follows (in thousands):
 
 
September 30,
2016
 
December 31,
2015
2014 Term Loan Facility
 
$
95,200

 
$
98,044

Revolver borrowings
 
—

 
—

Capital lease obligations
 
—

 
469

Total fair value of debt instruments
 
$
95,200

 
$
98,513

The 2014 Term Loan Facility, revolver borrowings under the 2013 ABL Credit Facility and capital lease obligations are classified within Level 2 of the fair value hierarchy. The fair value of the 2014 Term Loan Facility has been estimated using discounted cash flow analyses based on the Company’s incremental borrowing rate for similar borrowing arrangements.
8. Income Taxes
The Company's interim tax provision has been estimated using the discrete method, which is based on statutory tax rates applied to pre-tax income as adjusted for permanent differences such as transfer pricing differences between generally accepted accounting principles and local country tax. The Company believes this method yields a more reliable income tax calculation for interim periods.
The effective tax rate on continuing operations was a negative 4.0 percent for the nine months ended September 30, 2016 and 20.2 percent for the nine months ended September 30, 2015. The provision for income taxes for the nine months ended September 30, 2016 was $1.1 million. The Company has reserved for the benefit of current year losses in the United States. As of September 30, 2016, U.S. federal and state deferred tax assets continue to be covered by valuation allowances. The ultimate realization of deferred tax assets is dependent upon the generation of future U.S. taxable income. The Company considers the impacts of reversing taxable temporary differences, future forecasted income and available tax planning strategies when evaluating whether deferred tax assets are more likely than not to be realized.
The effective tax rate on continuing operations was a negative 8.0 percent for the three months ended September 30, 2016 and 0.2 percent for the three months ended September 30, 2015. The provision for income taxes for the three months ended September 30, 2016 was $0.8 million.

14
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

8. Income Taxes (continued)


It is reasonably possible the unrecognized tax benefits may change between $0.0 million to $3.0 million within the next twelve months as a result of settling tax examinations related to 2008-2011.
9. Stockholders' Equity
Changes in Accumulated Other Comprehensive Income (Loss) by Component 
 
 
Three Months Ended September 30, 2016 (in thousands)
 
 
Foreign currency
translation
adjustments
 
Changes in
derivative
financial
instruments
 
Total
accumulated
comprehensive
income (loss)
Balance as of June 30, 2016
 
$
(197
)
 
$
(3,368
)
 
$
(3,565
)
Other comprehensive loss before reclassifications
 
(495
)
 
—

 
(495
)
Amounts reclassified from accumulated other comprehensive income (loss)
 
—

 
273

 
273

Net current-period other comprehensive income (loss)
 
(495
)
 
273

 
(222
)
Balance as of September 30, 2016
 
$
(692
)
 
$
(3,095
)
 
$
(3,787
)
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016 (in thousands)
 
 
Foreign currency
translation
adjustments
 
Changes in
derivative
financial
instruments
 
Total
accumulated
comprehensive
income (loss)
Balance as of December 31, 2015
 
$
(1,965
)
 
$
(4,044
)
 
$
(6,009
)
Other comprehensive income before reclassifications
 
1,273

 
—

 
1,273

Amounts reclassified from accumulated other comprehensive income (loss)
 
—

 
949

 
949

Net current-period other comprehensive income
 
1,273

 
949

 
2,222

Balance as of September 30, 2016
 
$
(692
)
 
$
(3,095
)
 
$
(3,787
)

 
 
Three Months Ended September 30, 2015 (in thousands)
 
 
Foreign currency
translation
adjustments
 
Changes in
derivative
financial
instruments
 
Total
accumulated
comprehensive
income (loss)
Balance as of June 30, 2015
 
$
3,659

 
$
(4,208
)
 
$
(549
)
Other comprehensive loss before reclassifications
 
(3,851
)
 
(1,812
)
 
(5,663
)
Amounts reclassified from accumulated other comprehensive income (loss)
 
—

 
489

 
489

Net current-period other comprehensive loss
 
(3,851
)
 
(1,323
)
 
(5,174
)
Balance as of September 30, 2015
 
$
(192
)
 
$
(5,531
)
 
$
(5,723
)
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015 (in thousands)
 
 
Foreign currency
translation
adjustments
 
Changes in
derivative
financial
instruments
 
Total
accumulated
comprehensive
income (loss)
Balance as of December 31, 2014
 
$
6,863

 
$
(4,075
)
 
$
2,788

Other comprehensive loss before reclassifications
 
(7,055
)
 
(2,927
)
 
(9,982
)
Amounts reclassified from accumulated other comprehensive income (loss)
 
—

 
1,471

 
1,471

Net current-period other comprehensive loss
 
(7,055
)
 
(1,456
)
 
(8,511
)
Balance as of September 30, 2015
 
$
(192
)
 
$
(5,531
)
 
$
(5,723
)

15
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

9. Stockholders' Equity (continued)





Reclassifications From Accumulated Other Comprehensive Income (Loss)
Three Months Ended September 30, 2016 (in thousands)
Details about Accumulated Other
Comprehensive Income Components
 
Amount Reclassified from Accumulated Other  Comprehensive Income (Loss)
 
Details about Accumulated Other Comprehensive Income Components
Interest rate contracts
 
$
273

 
Interest expense
Total
 
$
273

 
 
 
 
 
 
 
Nine Months Ended September 30, 2016 (in thousands)
Details about Accumulated Other
Comprehensive Income Components
 
Amount Reclassified from Accumulated Other  Comprehensive Income (Loss)
 
Details about Accumulated Other Comprehensive Income Components
Interest rate contracts
 
$
949

 
Interest expense
Total
 
$
949

 
 
Three Months Ended September 30, 2015 (in thousands)
Details about Accumulated Other
Comprehensive Income Components
 
Amount Reclassified from Accumulated Other  Comprehensive Income (Loss)
 
Details about Accumulated Other Comprehensive Income Components
Interest rate contracts
 
$
489

 
Interest expense
Total
 
$
489

 
 
 
 
 
 
 
Nine Months Ended September 30, 2015 (in thousands)
Details about Accumulated Other
Comprehensive Income Components
 
Amount Reclassified from Accumulated Other  Comprehensive Income (Loss)
 
Details about Accumulated Other Comprehensive Income Components
Interest rate contracts
 
$
1,471

 
Interest expense
Total
 
$
1,471

 
 

16
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

10. Income (Loss) Per Share

Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share is based on the weighted average number of shares outstanding during each period and the assumed exercise of potentially dilutive stock options and vesting of restricted stock units less the number of treasury shares assumed to be purchased from the proceeds using the average market price of the Company’s stock for each of the periods presented.
Basic and diluted income (loss) per common share from continuing operations is computed as follows (in thousands, except share and per share amounts):
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2016
 
2015
 
2016
 
2015
Net loss from continuing operations applicable to common shares (numerator for basic and diluted calculation)
 
$
(10,661
)
 
$
(19,411
)
 
$
(29,720
)
 
$
(83,758
)
Weighted average number of common shares outstanding for basic loss per share
 
61,639,590

 
60,335,717

 
61,257,851

 
56,833,178

Weighted average number of potentially dilutive common shares outstanding
 
—

 
—

 
—

 
—

Weighted average number of common shares outstanding for diluted loss per share
 
61,639,590

 
60,335,717

 
61,257,851

 
56,833,178

Loss per common share from continuing operations:
 
 
 
 
 
 
 
 
Basic
 
$
(0.17
)
 
$
(0.32
)
 
$
(0.49
)
 
$
(1.47
)
Diluted
 
$
(0.17
)
 
$
(0.32
)
 
$
(0.49
)
 
$
(1.47
)

The Company has excluded shares potentially issuable under the terms of use of the securities listed below from the computation of diluted income per share, as the effect would be anti-dilutive:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2016
 
2015
 
2016
 
2015
Stock options
 
31,522

 
55,000

 
43,796

 
55,000

Restricted stock and restricted stock units
 
52,677

 
327,761

 
391,230

 
435,302

 
 
84,199

 
382,761

 
435,026

 
490,302


17
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. Segment Information




The following tables reflect the Company’s operations by reportable segment for the three and nine months ended September 30, 2016 and 2015 (in thousands):
 
 
Three Months Ended September 30, 2016
 
 
Oil & Gas
 
Utility T&D
 
Canada
 
Unallocated Corporate Costs
 
Eliminations
 
Consolidated
Contract revenue
 
$
33,100

 
$
106,422

 
$
35,355

 
$
—

 
$
(56
)
 
$
174,821

Contract costs
 
34,192

 
95,461

 
33,209

 
—

 
(56
)
 
162,806

Amortization of intangibles
 
48

 
2,390

 
—

 
—

 
—

 
2,438

General and administrative
 
4,103

 
7,906

 
3,368

 
—

 
—

 
15,377

Other charges
 
158

 
36

 
325

 
—

 
—

 
519

Operating income (loss)
 
$
(5,401
)
 
$
629

 
$
(1,547
)
 
$
—

 
$
—

 
(6,319
)
Non-operating expenses
 
(3,550
)
Provision for income taxes
 
792

Loss from continuing operations
 
(10,661
)
Loss from discontinued operations net of provision for income taxes
 
(1,325
)
Net loss
 
$
(11,986
)
General and administrative amounts above include allocated corporate costs of $1.1 million in Oil & Gas, $3.6 million in Utility T&D and $1.2 million in Canada.
 
 
Three Months Ended September 30, 2015
 
 
Oil & Gas
 
Utility T&D
 
Canada
 
Unallocated Corporate Costs
 
Eliminations
 
Consolidated
Contract revenue
 
$
81,029

 
$
88,922

 
$
52,294

 
$
—

 
$
(54
)
 
$
222,191

Contract costs
 
79,449

 
86,357

 
43,103

 
—

 
(54
)
 
208,855

Amortization of intangibles
 
82

 
2,390

 
—

 
—

 
—

 
2,472

General and administrative
 
6,040

 
5,373

 
6,358

 
1,588

 
—

 
19,359

Other charges
 
3,787

 
81

 
11

 
(7
)
 
—

 
3,872

Operating income (loss)
 
$
(8,329
)
 
$
(5,279
)
 
$
2,822

 
$
(1,581
)
 
$
—

 
(12,367
)
Non-operating expenses
 
(7,087
)
Benefit for income taxes
 
(43
)
Loss from continuing operations
 
(19,411
)
Income from discontinued operations net of provision for income taxes
 
2,212

Net loss
 
$
(17,199
)
General and administrative amounts above include allocated corporate costs of $1.9 million in Oil & Gas, $3.0 million in Utility T&D and $2.0 million in Canada. Other charges amounts above include allocated corporate costs of $0.1 million in Oil and Gas and $0.1 million in Utility T&D. Unallocated corporate costs represent charges that were previously allocated to the Professional Services segment but were not reclassified to discontinued operations.

18
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. Segment Information (continued)


 
 
Nine Months Ended September 30, 2016
 
 
Oil & Gas
 
Utility T&D
 
Canada
 
Unallocated Corporate Costs
 
Eliminations
 
Consolidated
Contract revenue
 
$
147,174

 
$
313,066

 
$
107,343

 
$
—

 
$
(290
)
 
$
567,293

Contract costs
 
147,022

 
281,025

 
98,565

 
—

 
(290
)
 
526,322

Amortization of intangibles
 
146

 
7,169

 
—

 
—

 
—

 
7,315

General and administrative
 
14,559

 
22,115

 
10,357

 
—

 
—

 
47,031

Other charges
 
2,251

 
1,429

 
1,466

 
—

 
—

 
5,146

Operating income (loss)
 
$
(16,804
)
 
$
1,328

 
$
(3,045
)
 
$
—

 
$
—

 
(18,521
)
Non-operating expenses
 
(10,053
)
Provision for income taxes
 
1,146

Loss from continuing operations
 
(29,720
)
Loss from discontinued operations net of provision for income taxes
 
(3,836
)
Net loss
 
$
(33,556
)
General and administrative amounts above include allocated corporate costs of $5.1 million in Oil & Gas, $10.7 million in Utility T&D and $3.7 million in Canada. Other charges amounts above include allocated corporate costs of $0.7 million in Oil & Gas, $1.4 million in Utility T&D and $0.5 million in Canada.
 
 
Nine Months Ended September 30, 2015
 
 
Oil & Gas
 
Utility T&D
 
Canada
 
Unallocated Corporate Costs
 
Eliminations
 
Consolidated
Contract revenue
 
$
219,247

 
$
282,347

 
$
189,948

 
$
—

 
$
(208
)
 
$
691,334

Contract costs
 
225,274

 
262,407

 
171,097

 
—

 
(208
)
 
658,570

Amortization of intangibles
 
245

 
7,169

 
—

 
—

 
—

 
7,414

General and administrative
 
21,418

 
17,181

 
16,252

 
6,989

 
—

 
61,840

Other charges
 
7,365

 
1,063

 
911

 
861

 
—

 
10,200

Operating income (loss)
 
$
(35,055
)
 
$
(5,473
)
 
$
1,688

 
$
(7,850
)
 
$
—

 
(46,690
)
Non-operating expenses
 
(58,232
)
Benefit for income taxes
 
(21,164
)
Loss from continuing operations
 
(83,758
)
Income from discontinued operations net of provision for income taxes
 
37,849

Net loss
 
$
(45,909
)
General and administrative amounts above include allocated corporate costs of $6.0 million in Oil & Gas, $8.6 million in Utility T&D and $6.0 million in Canada. Other charges amounts above include allocated corporate costs of $0.8 million in Oil & Gas, $1.1 million in Utility T&D and $0.7 million in Canada. Unallocated corporate costs represent charges that were previously allocated to the Professional Services segment but were not reclassified to discontinued operations.
Total assets by segment at September 30, 2016 and December 31, 2015 are presented below (in thousands):
 
 
September 30,
2016
 
December 31,
2015
Oil & Gas
 
$
48,021

 
$
78,623

Utility T&D
 
200,997

 
202,836

Canada
 
56,075

 
69,816

Corporate
 
77,592

 
89,055

Total assets, continuing operations
 
$
382,685

 
$
440,330


19
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

12. Contingencies, Commitments and Other Circumstances


Contingencies
Litigation and Regulatory Matters Related to the Company’s October 21, 2014 Press Release Announcing the Restatement of Condensed Consolidated Financial Statements for the Quarterly Period Ended June 30, 2014
After the Company announced it would be restating its Condensed Consolidated Financial Statements for the quarterly period ended June 30, 2014, a complaint was filed in the United States District Court for the Southern District of Texas (“USDC”) on October 28, 2014 seeking class action status on behalf of purchasers of the Company’s stock and alleging damages on their behalf arising from the matters that led to the restatement. The original defendants in the case were the Company, its former chief executive officer, Robert R. Harl, and its current chief financial officer. On January 30, 2015, the court named two employee retirement systems as Lead Plaintiffs. Lead Plaintiffs filed their consolidated complaint, captioned In re Willbros Group, Inc. Securities Litigation, on March 31, 2015, adding as a defendant John T. McNabb, II, the former chief executive officer who had succeeded Mr. Harl. On June 15, 2015, Lead Plaintiffs filed a second amended consolidated complaint, seeking unspecified damages and asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Act”), based on alleged misrepresentations and omissions in SEC filings and other public disclosures in 2014, primarily regarding internal controls, the performance of the Oil & Gas segment, compliance with debt covenants and liquidity, certain financial results, and the circumstances surrounding Mr. Harl’s departure. On July 27, 2015, the Company filed a motion to dismiss the case. At a hearing on May 24, 2016, the court granted the motion to dismiss in part and denied it in part. On July 22, 2016, the Company filed an answer to the suit denying the remaining allegations in the case, which complain of alleged misrepresentations and omissions in violation of the Act regarding internal controls, the performance of the Oil & Gas segment, and Mr. Harl’s departure. The Company is vigorously defending against the remaining allegations, which the Company believes are without merit. The Company is not able at this time to determine the likelihood of loss, if any, arising from this matter.
In addition, two shareholder derivative lawsuits were filed purportedly on behalf of the Company in connection with the restatement. The first, Markovich v. Harl et al, was filed on November 6, 2014 in the District Court of Harris County, Texas. The second, Kumararatne v. McNabb et al, was filed on March 4, 2015 in the USDC, but was voluntarily dismissed by the plaintiff on April 23, 2015. The Markovich lawsuit named certain current and former officers and members of the Company's board of directors as defendants and the Company as a nominal defendant. The lawsuit alleged that the officer and board member defendants breached their fiduciary duties by permitting the Company’s internal controls to be inadequate, failing to prevent the restatements, wasting corporate assets, and alleged that the defendants were unjustly enriched. The defendants sought dismissal of the lawsuit on the grounds that the plaintiff failed to make demand upon the Company’s board to bring the lawsuit and on February 23, 2016, the court sustained the defendants’ motion and dismissed the lawsuit with prejudice. On March 10, 2016, the plaintiff filed a motion for reconsideration and asked the court for leave to amend its lawsuit. The court granted the plaintiff’s motion in part, allowing an amended petition, which was filed on April 18, 2016. The Plaintiff’s Second Amended Petition added Ravi Kumararatne as a plaintiff and added claims for breach of fiduciary duty against the former officers and officer and board of director defendants related to the departure of former Company executives, financial controls, and compliance with the Company’s debt covenants. The Company sought dismissal of the amended petition on the grounds the plaintiffs failed to make a demand upon the Company’s board to bring the lawsuit. In response, plaintiffs filed a Third Amended Petition on June 24, 2016, purporting to add additional facts to support their allegations, including their allegation that they are excused from making a demand upon the board because, they claim, such demand would be futile. Believing the claims added by plaintiffs are without merit, the Company has moved to dismiss this latest pleading. After hearing argument on the motion, the court issued an order on October 24, 2016, sustaining the Company's objections to plaintiffs' latest pleading and again dismissed the lawsuit with prejudice.
Other
The SEC issued an order of investigation on January 29, 2015 and a subpoena on February 3, 2015, requesting information regarding the restatement of the Company's previously issued condensed consolidated financial statements for the quarterly periods ended March 31, 2014 and June 30, 2014. The Company provided its full cooperation to the SEC, who on January 25, 2016, sent the Company a letter stating it had concluded its investigation and, based on the information it had, did not intend to recommend an enforcement action against the Company.
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 consolidated results of operations, financial position or cash flows.

20
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

12. Contingencies, Commitments and Other Circumstances (continued)


Commitments
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 to secure the Company’s performance of contracted services. In such cases, the letters of credit or bond commitments can be called upon in the event of the Company's 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 otherwise withholds a percentage of the contract value until project completion or expiration of a warranty period. Retention letters of credit or bond commitments can be called upon in the event of warranty or project completion issues, as prescribed in the contracts. The Company also issues letters of credit from time-to-time to secure deductible obligations under its workers compensation, automobile and general liability policies. At September 30, 2016, the Company had approximately $48.5 million of outstanding letters of credit. This amount represents 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 (primarily performance in nature) that are customarily required by commercial terms on construction projects. At September 30, 2016, these bonds outstanding had a face value of $160.3 million. This amount represents 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 Company's performance of the contract is accepted by the customer. 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, 2016, no liability has been recognized for letters of credit or surety bonds.
Other Circumstances
The Company is in the process of executing a pipeline project which has encountered unmarked underground obstructions in the desired pipeline right-of-way. As such, the Company is evaluating alternatives with its client to complete the required contract scope, which is included in the Company's estimated contract costs to complete. While the Company believes the impact of the obstructions may be grounds for a change order, the Company has not included any potential change order in its contract revenue estimates. In addition, should the Company be unable to complete the scope of work using its desired alternatives, the Company could incur additional costs which could have a material impact on its Condensed Consolidated Financial Statements.
In addition to the matter described above, the Company has the usual liability of contractors for the completion of contracts and warranty of its work. 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.

21
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13. Fair Value Measurements


The FASB’s standard on fair value measurements defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
Fair Value Hierarchy
The FASB’s standard on fair value measurements establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. This standard establishes three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities.
Level 3 – Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
There were no transfers between levels in the third quarter of 2016 and 2015.
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, notes payable and long-term debt. The fair value estimates of the Company’s financial instruments have been determined using available market information and appropriate valuation methodologies and approximate carrying value.
Hedging Arrangements
The Company is exposed to market risk associated with changes in non-U.S. (primarily Canada) currency exchange rates. To mitigate its risk, the Company may borrow Canadian dollars under its Canadian Facility to settle U.S. dollar account balances.
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 forward contracts or options at September 30, 2016 or December 31, 2015.
The Company is subject to interest rate risk on its debt and investment of cash and cash equivalents arising in the normal course of business and had previously entered into hedging arrangements to fix or otherwise limit the interest cost of its variable interest rate borrowings.
Termination of Interest Rate Swap Agreement
In August 2013, the Company entered into an interest rate swap agreement (the "Swap Agreement") for a notional amount of $124.1 million to hedge changes in the variable rate interest expense on $124.1 million of its existing or replacement LIBOR indexed debt. The Swap Agreement was designated and qualified as a cash flow hedging instrument with the effective portion of the Swap Agreement's change in fair value recorded in Other Comprehensive Income ("OCI"). The Swap Agreement was highly effective in offsetting changes in interest expense and no hedge ineffectiveness was recorded in the Consolidated Statements of Operations. The Swap Agreement was terminated in the third quarter of 2015 for $5.7 million, which was recorded in OCI as fair value. In the fourth quarter of 2015, the Company made an early payment of $93.6 million against its 2014 Term Loan Facility and therefore reclassified approximately $1.2 million of the fair value of the Swap Agreement from OCI to interest expense. In the first quarter of 2016, the Company made an early payment of $3.1 million against its 2014 Term Loan Facility and therefore reclassified approximately $0.1 million of the fair value of the Swap Agreement from OCI to interest expense. The remaining fair value of the Swap Agreement included in OCI will be reclassified to interest expense over the remaining life of the underlying debt with approximately $1.1 million expected to be recognized in the coming twelve months.

22
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

14. Other Charges


The following table reflects the Company's other charges for the three and nine months ended September 30, 2016 and 2015 (in thousands):
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2016
 
2015
 
2016
 
2015
Equipment and facility lease abandonment
 
$
217

 
$
3,279

 
$
3,338

 
$
5,818

Loss on sale of subsidiary (1)
 
207

 
—

 
330

 
—

Loss on sale of corporate asset
 
—

 
—

 
—


2,226

Employee severance charges
 
91

 
325

 
1,249

 
977

Restatement costs (2)
 
4

 
205

 
(42
)
 
651

Accelerated stock vesting
 
—

 
63

 
271

 
528

Total
 
$
519

 
$
3,872

 
$
5,146

 
$
10,200

(1) Attributed to the sale of the Oil & Gas segment's fabrication business that was finalized in 2016. In the fourth quarter of 2015, the Company recorded an impairment charge of $2.0 million in relation to this business.
(2) Includes accounting and legal fees associated with the investigation of the root cause behind the deterioration of certain construction projects within the Oil & Gas segment, which led to the restatements of the Company's Condensed Consolidated Financial Statements for the quarterly periods ended March 31, 2014 and June 30, 2014.
Activity in the accrual related to the equipment and facility lease abandonment charges during the nine months ended September 30, 2016 is as follows (in thousands):
 
 
Oil & Gas
 
Canada
 
Utility T&D
 
Corporate
 
Total
Accrued cost at December 31, 2015
 
$
1,434

 
$
147

 
$
626

 
$
4,163

 
$
6,370

Costs recognized
 
1,414

 
214

 
—

 
2,401

 
4,029

Cash payments
 
(1,923
)
 
(65
)
 
(226
)
 
(1,816
)
 
(4,030
)
Non-cash charges (1)
 
—

 
—

 
—

 
217

 
217

Change in estimates (2)
 
(84
)
 
—

 
(3
)
 
(1,766
)
 
(1,853
)
Accrued cost at September 30, 2016
 
$
841

 
$
296

 
$
397

 
$
3,199

 
$
4,733

(1) Non-cash charges consist of accretion expense.
(2) Includes approximately $1.2 million in income that was allocated to discontinued operations.
The Company will continue to evaluate the need for additional equipment and facility lease abandonment charges, including the adequacy of its existing accrual, as conditions warrant.

23
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

15. Discontinued Operations


The following disposals qualify for discontinued operations treatment under ASU 2014-08, which the Company adopted on January 1, 2015.
Professional Services
On November 30, 2015, the Company sold the balance of its Professional Services segment to TRC Companies ("TRC") for $130.0 million in cash, subject to working capital and other adjustments. At closing, TRC held back $7.5 million from the purchase price (the "Holdback Amount") until the Company effects the novation of a customer contract from one of the subsidiaries sold in the transaction to the Company (or obtains written approval of a subcontract of all the work that is the subject of such contract) and obtains certain consents. If such novation, subcontract or consents were not approved by March 15, 2016, TRC would pay the Holdback Amount to the Company. In the first quarter of 2016, the Company received $2.4 million of the Holdback Amount from TRC.
In connection with this transaction, the Company recorded a net gain on sale of $97.0 million during the fourth quarter of 2015. Certain assets and liabilities associated with one Professional Services contract were retained by the Company and have been excluded from the transaction. During the first nine months of 2016, the Company recorded $2.5 million in charges against the net gain on sale in relation to working capital and other post-closing adjustments.
In the third quarter of 2016, the Company reached an agreement with TRC on substantially all of the outstanding items related to the sale of the Professional Services segment. As a result, the Company received $2.2 million in the third quarter of 2016 in relation to the sale and inclusive of the final settlement of working capital and the outstanding Holdback Amount.
In 2015, and prior to the sale of the balance of the Professional Services segment, the Company sold the following three subsidiaries that were historically part of the Professional Services segment.
Downstream Professional Services
On June 12, 2015, the Company sold all of its issued and outstanding equity of Downstream Professional Services to BR Engineers, LLC for approximately $10.0 million in cash. In connection with this transaction, the Company recorded a net loss on sale of $2.2 million during the second quarter of 2015.
Premier
On March 31, 2015, the Company sold all of its membership units in Premier to USIC Locating Services, LLC for approximately $51.0 million in cash, of which $4.0 million was deposited into an escrow account for a period of up to eighteen months to cover post-closing adjustments and any indemnification obligations of the Company. The Company received $2.0 million of the escrow amount in the first nine months of 2016 and an additional $1.2 million in the fourth quarter of 2016. In connection with this transaction, the Company recorded a net gain on sale of $37.1 million during the first quarter of 2015.
UtilX
On March 17, 2015, the Company sold all of its equity interests of UtilX to Novinium, Inc. for approximately $40.0 million in cash, of which $0.5 million was deposited into an escrow account for a period of six months to cover post-closing adjustments and any indemnification obligations of the Company. In connection with this transaction, the Company recorded a net gain on sale of $21.4 million during the first quarter of 2015. The Company subsequently reported post-closing adjustments in 2015 against the net gain on sale related to the release of the $0.5 million escrow and a $0.6 million arbitrator settlement of a working capital dispute.
Hawkeye
In the fourth quarter of 2013, the Company sold certain assets comprising its Hawkeye business to Elecnor Hawkeye,
LLC, a subsidiary of Elecnor, Inc. (“Elecnor”). The Maine Power Reliability Program Project was retained by the Company and subsequently completed in 2015.

24
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

15. Discontinued Operations (continued)


Results of Discontinued Operations
Condensed Statements of Operations with respect to discontinued operations are as follows (in thousands):
 
 
Three Months Ended September 30, 2016
 
 
Professional Services
 
Hawkeye
 
Total
Contract revenue
 
$
—

 
$
—

 
$
—

Contract costs
 
276

 
—

 
276

Loss on sale of subsidiary
 
—

 
—

 
—

General and administrative
 
651

 
296

 
947

Other charges
 
102

 
—

 
102

Operating loss
 
(1,029
)
 
(296
)
 
(1,325
)
Non-operating expenses
 
—

 
—

 
—

Pre-tax loss
 
(1,029
)
 
(296
)
 
(1,325
)
Provision for income taxes
 
—

 
—

 
—

Loss from discontinued operations
 
$
(1,029
)
 
$
(296
)
 
$
(1,325
)
 
 
Three Months Ended September 30, 2015
 
 
Professional Services
 
Hawkeye
 
Total
Contract revenue
 
$
44,559

 
$
849

 
$
45,408

Contract costs
 
36,499

 
153

 
36,652

Amortization of intangibles
 
21

 
—

 
21

Loss on sale of subsidiary
 
591

 
—

 
591

General and administrative
 
3,092

 
(513
)
 
2,579

Other charges
 
2,048

 
—

 
2,048

Operating income
 
2,308

 
1,209

 
3,517

Non-operating income (expense)
 
15

 
(3
)
 
12

Pre-tax income
 
2,323

 
1,206

 
3,529

Provision for income taxes
 
1,317

 
—

 
1,317

Income from discontinued operations
 
$
1,006

 
$
1,206

 
$
2,212

 
 
Nine Months Ended September 30, 2016
 
 
Professional Services
 
Hawkeye
 
Total
Contract revenue
 
$
1,869

 
$
—

 
$
1,869

Contract costs
 
2,293

 
—

 
2,293

Loss on sale of subsidiary
 
2,456

 
—

 
2,456

General and administrative
 
1,949

 
67

 
2,016

Other income
 
(1,060
)
 
—

 
(1,060
)
Operating loss
 
(3,769
)
 
(67
)
 
(3,836
)
Non-operating expenses
 
—

 
—

 
—

Pre-tax loss
 
(3,769
)
 
(67
)
 
(3,836
)
Provision for income taxes
 
—

 
—

 
—

Loss from discontinued operations
 
$
(3,769
)
 
$
(67
)
 
$
(3,836
)

25
WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

15. Discontinued Operations (continued)


 
 
Nine Months Ended September 30, 2015
 
 
Professional Services
 
Hawkeye
 
Total
Contract revenue
 
$
209,271

 
$
2,073

 
$
211,344

Contract costs
 
177,594

 
1,242

 
178,836

Amortization of intangibles
 
793

 
—

 
793

Gain on sale of subsidiaries
 
(55,781
)
 
—

 
(55,781
)
General and administrative
 
22,753

 
(109
)
 
22,644

Other charges
 
4,405

 
—

 
4,405

Operating income
 
59,507

 
940

 
60,447

Non-operating income (expense)
 
(62
)
 
10

 
(52
)
Pre-tax income
 
59,445

 
950

 
60,395

Provision for income taxes
 
22,546

 
—

 
22,546

Income from discontinued operations
 
$
36,899

 
$
950

 
$
37,849

Condensed Balance Sheets with respect to discontinued operations are as follows (in thousands):
 
 
September 30, 2016
 
 
Professional Services
 
Hawkeye
 
Total
Accounts receivable, net
 
$
6

 
$
—

 
$
6

Contract cost and recognized income not yet billed
 
137

 
—

 
137

Prepaid expenses and other current assets
 
—

 
—

 
—

Total assets associated with discontinued operations
 
143

 
—

 
143


 


 


 


Accounts payable and accrued liabilities
 
470

 
153

 
623

Contract billings in excess of costs and recognized income
 
400

 
—

 
400

Other current liabilities
 
530

 
—

 
530

Other long-term liabilities
 
1,106

 
—

 
1,106

Total liabilities associated with discontinued operations
 
2,506

 
153

 
2,659


 


 


 


Net liabilities of discontinued operations
 
$
(2,363
)
 
$
(153
)
 
$
(2,516
)
 
 
 
December 31, 2015
 
 
Professional Services
 
Hawkeye
 
Total
Accounts receivable, net
 
$
313

 
$
9

 
$
322

Contract cost and recognized income not yet billed
 
924

 
—

 
924

Prepaid expenses and other current assets
 
—

 
1

 
1

Total assets associated with discontinued operations
 
1,237

 
10

 
1,247


 


 


 


Accounts payable and accrued liabilities
 
815

 
452

 
1,267

Contract billings in excess of costs and recognized income
 
1,457

 
—

 
1,457

Other current liabilities
 
1,303

 
—

 
1,303

Other long-term liabilities
 
1,423

 
—

 
1,423

Total liabilities associated with discontinued operations
 
4,998

 
452

 
5,450


 


 


 


Net liabilities of discontinued operations
 
$
(3,761
)
 
$
(442
)
 
$
(4,203
)

26

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the unaudited Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2016 and 2015, included in Item 1 of Part I of this Form 10-Q, and the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations, including Critical Accounting Policies, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

OVERVIEW

Company Information
Willbros is a specialty energy infrastructure contractor serving the oil and gas and power industries with offerings that primarily include construction, maintenance and facilities development services. Our principal markets for continuing operations are the United States and Canada. We obtain our work through competitive bidding and negotiations with prospective clients. Contract values range from several thousand dollars to several hundred million dollars, and contract durations range from a few weeks to more than two years.
Willbros has three operating segments: Oil & Gas, Utility T&D and Canada. Our segments are comprised of strategic businesses that are defined by the industries or geographic regions they serve. Each is managed as an operation with established strategic directions and performance requirements.
Management evaluates the performance of each operating segment based on operating income, strategic execution, cash management and various other measures. To support our segments we have a focused corporate operation led by our executive management team, which, in addition to oversight and leadership, provides general, administrative and financing functions for the organization. The costs to provide these services are allocated, as are certain other corporate costs, to the three operating segments.
Our Oil & Gas segment provides construction, maintenance and lifecycle extension services to the midstream markets. These services include pipeline construction to support the transportation and storage of hydrocarbons, including gathering, lateral and main-line pipeline systems, as well as, facilities construction such as pump stations, flow stations, gas compressor stations and metering stations. In addition, the Oil & Gas segment provides integrity construction, pipeline systems maintenance, new tank construction and tank repair and maintenance services to a number of different customers.
Our Utility T&D segment provides a wide range of services in electric and natural gas transmission and distribution, including comprehensive engineering, procurement, maintenance and construction, repair and restoration of utility infrastructure.
Our Canada segment provides construction, maintenance and fabrication services, including integrity and supporting civil work, pipeline construction, general mechanical and facility construction, API storage tanks, general and modular fabrication, along with electrical and instrumentation projects serving the Canadian energy and water industries.
General economic and market conditions such as the prolonged decline in oil prices, coupled with the highly competitive nature of our industry, continue to result in pricing pressure on the services we provide in our Oil & Gas and Canada segments.
Looking Forward
Although the reduction in contract revenue in the third quarter of 2016 reflects our recent decline in backlog, bidding opportunities exist in all of our segments, and we continue to remain focused on building backlog. We have strengthened our business development team and increased our executive management customer interface efforts. While recent awards have been small and reflect some market diversification, we anticipate any new awards resulting from these efforts will be realized primarily in 2017.
We continually assess our overall cost structure, operating performance and service offering capabilities, primarily in our Oil & Gas and Canada segments as the energy market remains challenging and uncertain. We continue to manage growth in our Utility T&D segment as multiple opportunities exist, including bids in the renewable energy and fiber optics markets.

27

Other Financial Measures
Adjusted EBITDA from Continuing Operations
We define Adjusted EBITDA from continuing operations as income (loss) from continuing operations before interest expense, income tax expense (benefit) and depreciation and amortization, adjusted for items which management does not consider representative of our ongoing operations and certain non-cash items of the Company. These adjustments are itemized in the following table. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA from continuing operations, you should be aware that in the future we may incur expenses that are the same as, or similar to, some of the adjustments in this presentation. Our presentation of Adjusted EBITDA from continuing operations should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
Management uses Adjusted EBITDA from continuing operations as a supplemental performance measure for:
 
•
Comparing normalized operating results with corresponding historical periods and with the operational performance of other companies in our industry; and
•
Presentations made to analysts, investment banks and other members of the financial community who use this information in order to make investment decisions about us.
Adjusted EBITDA from continuing operations is not a financial measurement recognized under U.S. generally accepted accounting principles, or U.S. GAAP. When analyzing our operating performance, investors should use Adjusted EBITDA from continuing operations in addition to, and not as an alternative for, net income, operating income, or any other performance measure derived in accordance with U.S. GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. Because not all companies use identical calculations, our presentation of Adjusted EBITDA from continuing operations may be different from similarly titled measures of other companies.
A reconciliation of Adjusted EBITDA from continuing operations to U.S. GAAP financial information follows (in thousands): 
 
 
Nine Months Ended
 
 
September 30, 2016
 
September 30, 2015
Loss from continuing operations
 
$
(29,720
)
 
$
(83,758
)
Interest expense
 
10,433

 
20,976

Interest income
 
(443
)
 
(37
)
Provision (benefit) for income taxes
 
1,146

 
(21,164
)
Depreciation and amortization
 
16,694

 
21,046

Debt covenant suspension and extinguishment charges
 
63

 
37,112

Stock based compensation
 
3,269

 
4,553

Restructuring and reorganization costs
 
4,587

 
6,509

Accounting and legal fees associated with the restatements
 
(42
)
 
651

Loss on sale of subsidiary
 
330

 
—

Fort McMurray wildfire related costs
 
523

 
—

Gain on disposal of property and equipment
 
(3,181
)
 
(1,715
)
Adjusted EBITDA from continuing operations
 
$
3,659

 
$
(15,827
)

Backlog
Backlog broadly consists of anticipated revenue from the uncompleted portions of existing contracts and contracts whose award is reasonably assured, subject only to the cancellation and modification provisions contained in various contracts. Additionally, due to the short duration of many jobs, revenue associated with jobs won and performed within a reporting period will not be reflected in quarterly backlog reports. We generate revenue from numerous sources, including contracts of long or short duration entered into during a year as well as from various contractual processes, including change orders, extra work and variations in the scope of work. These revenue sources are not added to backlog until realization is assured.
Our backlog presentation reflects not only the 12-month lump sum and work under a Master Service Agreement (“MSA”) but also the full-term value of work under contract, including MSA work, as we believe that this information is helpful in providing additional long-term visibility. We determine the amount of backlog for work under ongoing MSA maintenance and

28

construction contracts by using recurring historical trends inherent in the MSAs, factoring in seasonal demand and projecting customer needs based upon ongoing communications with the customer.
At September 30, 2016, total backlog was $646.6 million and 12 month backlog was $375.7 million. In comparison to December 31, 2015, total backlog decreased $180.2 million and 12 month backlog decreased $56.5 million. These decreases are primarily related to the lower demand for our services in the oil and gas industry resulting in fewer new awards. In addition, the decrease in total backlog is due to the continued work-off of MSAs, which are subject to renewal options in future years. MSA work included in backlog extends only through the life of the contract. We intend to pursue the renewal of these MSAs upon expiration.
The following tables (in thousands) show our backlog from continuing operations by operating segment and geographic location as of September 30, 2016 and December 31, 2015: 
 
 
September 30, 2016
 
December 31, 2015
 
 
12 Month
 
Percent
 
Total
 
Percent
 
12 Month
 
Percent
 
Total
 
Percent
Oil & Gas
 
$
23,590

 
6.3
%
 
$
23,590

 
3.7
%
 
$
46,810

 
10.9
%
 
$
48,810

 
5.9
%
Utility T&D
 
289,758

 
77.1
%
 
535,014

 
82.7
%
 
274,610

 
63.5
%
 
622,629

 
75.3
%
Canada
 
62,400

 
16.6
%
 
88,025

 
13.6
%
 
110,797

 
25.6
%
 
155,379

 
18.8
%
Total Backlog
 
$
375,748

 
100.0
%
 
$
646,629

 
100.0
%
 
$
432,217

 
100.0
%
 
$
826,818

 
100.0
%
 
 
 
September 30, 2016
 
December 31, 2015
 
 
Total
 
Percent
 
Total
 
Percent
Total Backlog by Geographic Region
 
 
 
 
 
 
 
 
United States
 
$
558,604

 
86.4
%
 
$
671,439

 
81.2
%
Canada
 
88,025

 
13.6
%
 
155,379

 
18.8
%
Backlog
 
$
646,629

 
100.0
%
 
$
826,818

 
100.0
%

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In our Annual Report on Form 10-K for the year ended December 31, 2015, we identified and disclosed our significant accounting policies. Subsequent to December 31, 2015, there has been no change to our significant accounting policies.

29

RESULTS OF OPERATIONS
Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015
(in thousands)
 
 
2016
 
2015
 
Change
Contract revenue
 
 
 
 
 
 
Oil & Gas
 
$
33,100

 
$
81,029

 
$
(47,929
)
Utility T&D
 
106,422

 
88,922

 
17,500

Canada
 
35,355

 
52,294

 
(16,939
)
Eliminations
 
(56
)
 
(54
)
 
(2
)
Total
 
174,821

 
222,191

 
(47,370
)
Contract costs
 
162,806

 
208,855

 
(46,049
)
Amortization of intangibles
 
2,438

 
2,472

 
(34
)
General and administrative
 
15,377

 
19,359

 
(3,982
)
Other charges
 
519

 
3,872

 
(3,353
)
Operating income (loss)
 
 
 
 
 
 
Oil & Gas
 
(5,401
)
 
(8,329
)
 
2,928

Utility T&D
 
629

 
(5,279
)
 
5,908

Canada
 
(1,547
)
 
2,822

 
(4,369
)
Unallocated Corporate costs
 
—

 
(1,581
)
 
1,581

Total
 
(6,319
)
 
(12,367
)
 
6,048

Non-operating expenses
 
(3,550
)
 
(7,087
)
 
3,537

Loss from continuing operations before income taxes
 
(9,869
)
 
(19,454
)
 
9,585

Provision (benefit) for income taxes
 
792

 
(43
)
 
835

Loss from continuing operations
 
(10,661
)
 
(19,411
)
 
8,750

Income (loss) from discontinued operations net of provision for income taxes
 
(1,325
)
 
2,212

 
(3,537
)
Net loss
 
$
(11,986
)
 
$
(17,199
)
 
$
5,213


Consolidated Results
Contract Revenue
Contract revenue decreased $47.4 million in the third quarter of 2016 primarily related to the continued negative impact of current market conditions in the United States and Canada including low prevailing oil and gas prices. The decrease is partially offset by increased revenue in our Utility T&D segment driven mainly by our electric transmission construction services in Texas.
Contract Costs
Contract costs decreased $46.0 million in the third quarter of 2016 primarily related to lower revenue levels previously discussed. Contract margin was 6.9 percent in the third quarter of 2016 compared to 6.0 percent in the third quarter of 2015. The improved margin is primarily related to lower equipment related indirect costs due to the rationalization of our equipment fleet.
Amortization of Intangibles
We recorded $2.4 million of intangible amortization expense in the third quarter of 2016 primarily related to the amortization of customer relationship and trademark intangibles associated with our Utility T&D segment. The small decrease from the third quarter of 2015 is related to the lack of intangible amortization associated with field, fabrication and union construction turnaround services in our Oil & Gas segment, which were fully impaired in the fourth quarter of 2015.
General and Administrative Expenses
General and administrative expenses decreased $4.0 million quarter-over-quarter as a result of cost reduction initiatives taken over the last several quarters, including, but not limited to, employee headcount reductions, primarily in our corporate headquarters, as well as the closing of our regional delivery offices and our exit from the downstream market in the Oil & Gas segment.

30


Other Charges
We recorded other charges of $0.5 million in the third quarter of 2016 primarily related to a facility lease abandonment charge in the current quarter. The decrease of $3.4 million from the third quarter of 2015 is primarily related to 2015 equipment lease abandonment charges that did not recur in the third quarter of 2016.
Operating Loss
Operating loss decreased $6.0 million in the third quarter of 2016 primarily driven by increased income in our Utility T&D segment mainly through an increased volume of work in our electric transmission construction services and electric distribution services in Texas, which led to higher margins. In addition, the reduced loss is partly attributable to the rationalization of our equipment fleet in our Oil & Gas segment, and a decrease in general and administrative costs and equipment and facility lease abandonment charges quarter-over-quarter. The overall decrease is partially offset by a lower volume of work in our Oil & Gas and Canada segments in comparison to the third quarter of 2015.
Non-Operating Expenses
Non-operating expenses decreased $3.5 million in the third quarter of 2016 primarily related to a reduction of interest expense as a result of a lower Term Loan balance in the third quarter of 2016, compared to the third quarter of 2015.
Provision (Benefit) for Income Taxes
Benefit for income taxes decreased $0.8 million to a provision of $0.8 million in the third quarter of 2016. The decrease is primarily attributed to the alternative minimum tax.
Income (Loss) from Discontinued Operations, Net of Taxes
Income from discontinued operations decreased $3.5 million to a loss of $1.3 million in the third quarter of 2016 primarily due to a reduction of income generated from services in our Professional Services segment, which were sold in the fourth quarter of 2015, as well as a reduction of income associated with the Maine Power Reliability Program Project, which we retained as part of the sale of Hawkeye and completed in 2015. The overall reduction is partially offset by a provision for income taxes related to previously sold subsidiaries that did not recur in the third quarter of 2016.

Segment Results
Oil & Gas Segment
Contract revenue decreased $47.9 million in the third quarter of 2016 primarily related to a lower volume of work in our mainline pipeline, facilities and integrity construction services as well as our tank services. The overall decrease is also partly attributed to the 2015 exit from service offerings in the downstream market.
Operating loss decreased $2.9 million in the third quarter of 2016 primarily related to lower equipment-related indirect costs due to the rationalization of our equipment fleet, a decrease in other charges related to the abandonment of certain equipment and facility leases, mostly in our mainline pipeline construction services, and a reduction of losses associated with our service offerings in the downstream market, which we exited in 2015. The overall decrease is partially offset by a reduction of income in our facilities and integrity construction services due to the lower volume of work described above.
Utility T&D Segment
Contract revenue increased $17.5 million in the third quarter of 2016 driven primarily by an increase in the volume of work in our electric transmission construction services and electric distribution services in Texas, which includes work performed under our alliance agreement with Oncor. The increase was partially offset by the absence of matting services associated with Bemis, LLC ("Bemis"), which was sold in the fourth quarter of 2015.
Operating income increased $5.9 million to $0.6 million in the third quarter of 2016 primarily driven by the increased volume of work described above, which led to higher margins. The increase is also partly attributed to a decrease in insurance and other employee related costs across the segment compared to the third quarter of 2015. The improvement is partially offset by an increase in allocated corporate overhead due to the segment's increased percentage of total company revenue quarter-over-quarter.

31


Canada Segment
Contract revenue decreased $16.9 million in the third quarter of 2016 primarily related to a lower volume of work across the entire segment due to low prevailing oil and gas prices and challenging market conditions. The decrease in contract revenue is also partly driven by the 2015 completion of certain large capital projects that have not recurred in 2016 due to the challenging market conditions described above, which has significantly reduced capital spending by our customers in the energy sector.
Operating income decreased $4.4 million in the third quarter of 2016 primarily related to a lower volume of work across the entire segment and continued price pressures coupled with a loss recognized mainly due to adverse weather conditions in the early stages of one cross-country pipeline project. In addition, the overall decrease in income is partly attributed to a change in the mix of services as there were more capital and maintenance projects performed in the third quarter of 2015, which yielded higher margins. The overall reduction was partially offset by higher equipment utilization and a reduction in allocated corporate overhead due to the segment's decreased percentage of total company revenue quarter-over-quarter.
Unallocated Corporate Costs
Unallocated corporate costs represent charges that were previously allocated to the Professional Services segment, but were not reclassified to discontinued operations. There were no unallocated corporate costs during the third quarter of 2016 as the Professional Services segment was sold in 2015.

32

Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015
(in thousands)
 
 
2016
 
2015
 
Change
Contract revenue
 
 
 
 
 
 
Oil & Gas
 
$
147,174

 
$
219,247

 
$
(72,073
)
Utility T&D
 
313,066

 
282,347

 
30,719

Canada
 
107,343

 
189,948

 
(82,605
)
Eliminations
 
(290
)
 
(208
)
 
(82
)
Total
 
567,293

 
691,334

 
(124,041
)
Contract costs
 
526,322

 
658,570

 
(132,248
)
Amortization of intangibles
 
7,315

 
7,414

 
(99
)
General and administrative
 
47,031

 
61,840

 
(14,809
)
Other charges
 
5,146

 
10,200

 
(5,054
)
Operating income (loss)
 
 
 
 
 
 
Oil & Gas
 
(16,804
)
 
(35,055
)
 
18,251

Utility T&D
 
1,328

 
(5,473
)
 
6,801

Canada
 
(3,045
)
 
1,688

 
(4,733
)
Unallocated Corporate costs
 
—

 
(7,850
)
 
7,850

Total
 
(18,521
)
 
(46,690
)
 
28,169

Non-operating expenses
 
(10,053
)
 
(58,232
)
 
48,179

Loss from continuing operations before income taxes
 
(28,574
)
 
(104,922
)
 
76,348

Provision (benefit) for income taxes
 
1,146

 
(21,164
)
 
22,310

Loss from continuing operations
 
(29,720
)
 
(83,758
)
 
54,038

Income (loss) from discontinued operations net of provision for income taxes
 
(3,836
)
 
37,849

 
(41,685
)
Net loss
 
$
(33,556
)
 
$
(45,909
)
 
$
12,353


Consolidated Results
Contract Revenue
Contract revenue decreased $124.0 million in the first nine months of 2016 primarily related to the continued negative impact of current market conditions in the United States and Canada including low prevailing oil and gas prices. The overall decrease is also partly attributed to the 2015 exit from both our regional delivery model and service offerings in the downstream market in our Oil & Gas segment. The decrease is partially offset by increased revenue in our Utility T&D segment driven mainly by our electric transmission construction services in Texas.
Contract Costs
Contract costs decreased $132.2 million in the first nine months of 2016 primarily related to lower revenue levels previously discussed. Contract margin was 7.2 percent in the first nine months of 2016 compared to 4.7 percent in the first nine months of 2015. The improved margin is primarily related to a reduction of equipment related indirect costs due to the rationalization of our equipment fleet.
Amortization of Intangibles
We recorded $7.3 million of intangible amortization expense in the first nine months of 2016 primarily related to the amortization of customer relationship and trademark intangibles associated with our Utility T&D segment. The decrease from the first nine months of 2015 of $0.1 million is primarily related to the lack of intangible amortization associated with field, fabrication and union construction turnaround services in our Oil & Gas segment, which were fully impaired in the fourth quarter of 2015.
General and Administrative Expenses
General and administrative expenses decreased $14.8 million in the first nine months of 2016 as a result of cost reduction initiatives taken over the last several quarters, including, but not limited to, employee headcount reductions, primarily in our corporate headquarters, as well as the closing of our regional delivery offices and our exit from the downstream market in the Oil & Gas segment.

33


Other Charges
We recorded other charges of $5.1 million in the first nine months of 2016 primarily related to $3.3 million in equipment and facility lease abandonment charges and $1.2 million in employee severance charges. The $5.1 million decrease in other charges from the first nine months of 2015 is primarily related to a $2.2 million loss on sale of corporate asset in the first nine months of 2015 that did not recur in 2016 and a $2.5 million reduction of equipment and facility lease abandonment charges year-over-year.
Operating Loss
Operating loss decreased $28.2 million in the first nine months of 2016 primarily driven by the rationalization of our equipment fleet in our Oil & Gas segment, and decreased general and administrative costs and other charges year-over-year. In addition, the reduced loss is partly attributable to an increased volume of work in a number of service offerings in our Utility T&D segment. The overall decrease in operating loss was partially offset by a lower volume of work in our Oil & Gas and Canada segments in comparison to the first nine months of 2015.
Non-Operating Expenses
Non-operating expenses decreased $48.2 million in the first nine months of 2016 primarily related to $33.5 million in debt covenant suspension and extinguishment charges related to the fair value of outstanding stock issued during the first nine months of 2015, which did not recur in the first nine months of 2016. The remaining decrease was related to a reduction of interest expense as a result of a lower Term Loan balance in the first nine months of 2016, compared to the first nine months of 2015, as well as a reduction in prepayment premiums and debt issuance cost write-offs in connection with early payments of debt from asset dispositions, which significantly decreased year-over-year.
Provision (Benefit) for Income Taxes
Benefit for income taxes decreased $22.3 million to a provision of $1.1 million in the first nine months of 2016. The decrease is primarily attributed to a 2015 benefit for income taxes in continuing operations that was partially offset by a 2015 provision for income taxes in discontinued operations in relation to the net gain on sale of subsidiaries in 2015 that did not recur in 2016.
Income (Loss) from Discontinued Operations, Net of Taxes
Income from discontinued operations decreased $41.7 million to a $3.8 million loss in the first nine months of 2016. The decrease is primarily attributed to a change in net gain on sale of subsidiaries of $58.3 million between periods. In 2015, we recorded a large net gain on sale of $55.8 million primarily related to the sale of our Premier and UtilX subsidiaries, whereas in 2016, we recorded a loss on sale of $2.5 million related to the settlement of working capital and other post-closing adjustments in connection with the sale of our Professional Services segment. The overall decrease from the first nine months of 2015 is also partly attributed to a reduction of income in 2016 from services previously associated with our Professional Services segment. The overall decrease is partially offset by a 2015 provision for income taxes of $22.5 million related to previously sold subsidiaries that did not recur in the first nine months of 2016.

Segment Results
Oil & Gas Segment
Contract revenue decreased $72.1 million in the first nine months of 2016 primarily related to the 2015 exit of both our regional delivery model and service offerings in the downstream market, coupled with the 2015 completion of a significant project in the Northeast and a lower volume of work in tank services, facilities and integrity construction services compared to 2015. The overall decrease is partially offset by increased revenue in our mainline pipeline construction service offerings year-over-year.
Operating loss decreased $18.3 million in the first nine months of 2016 primarily associated with lower equipment-related indirect costs due to the rationalization of our equipment fleet, as well as a decrease in other charges related to the abandonment of certain equipment and facility leases, mostly in our mainline pipeline construction services. The decreased operating loss is also partly attributed to a reduction of losses associated with our regional delivery model and service offerings in our downstream market, which we exited in 2015, as well as the favorable settlement of a contract dispute with a customer during the first nine months of 2016. The overall decrease is partially offset by a reduction of income in our facilities construction services and increased losses in our tank services, both due to the lower volume of work described above.

34


Utility T&D Segment
Contract revenue increased $30.7 million in the first nine months of 2016 driven primarily by an increase in the volume of work in our electric transmission construction services and electric distribution services in Texas, which includes work performed under our alliance agreement with Oncor, as well as growth in distribution MSA work along the Atlantic seaboard. The increase was partially offset by the absence of matting services associated with Bemis, which was sold in the fourth quarter of 2015.
Operating income increased $6.8 million in the first nine months of 2016 primarily driven by the increased volume of work described above, which led to higher margins. The increase is also partly attributed to a decrease in insurance and other employee related costs across the segment compared to the same period in 2015. The increase in income is partially offset by an increase in allocated corporate overhead due to the segment's increased percentage of total company revenue quarter-over-quarter, and a reduction of income generated from matting services in Bemis, which was sold in the fourth quarter of 2015.
Canada Segment
Contract revenue decreased $82.6 million in the first nine months of 2016 primarily related to a lower volume of work across the entire segment due to low prevailing oil and gas prices and challenging market conditions. The decrease in contract revenue is also partly driven by the 2015 completion of certain large capital projects that have not recurred in 2016 due to the challenging market conditions described above, which has significantly reduced capital spending by our customers.
Operating income decreased $4.7 million in the first nine months of 2016 primarily related to a lower volume of work across the entire segment and continued price pressures coupled with a loss recognized mainly due to adverse weather conditions in the early stages of one cross-country pipeline project. In addition, the overall decrease in income is partly attributed to a change in the mix of services as there were more capital and maintenance projects performed in the first nine months of 2015, which yielded higher margins. The overall reduction was partially offset by higher equipment utilization a reduction in allocated corporate overhead due to the segment's decreased percentage of total company revenue year-over-year and the impact of measures taken to reduce overall operating costs in the first nine months of 2016.
Unallocated Corporate Costs
Unallocated corporate costs represent charges that were previously allocated to the Professional Services segment, but were not reclassified to discontinued operations. There were no unallocated corporate costs during the first nine months of 2016 as the Professional Services segment was sold in 2015.
LIQUIDITY AND CAPITAL RESOURCES
Additional Sources and Uses of Capital
2014 Term Loan Facility
On December 15, 2014, we entered into a credit agreement (the “2014 Term Credit Agreement”) among Willbros Group, Inc., certain of its subsidiaries, as guarantors, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and KKR Credit Advisors (US) LLC, as sole lead arranger and sole bookrunner. Cortland Capital Market Services LLC currently serves as administrative agent under the 2014 Term Credit Agreement.
The 2014 Term Credit Agreement provides for a five-year $270.0 million term loan facility (the “2014 Term Loan Facility”), which we drew in full on the effective date of the 2014 Term Credit Agreement. Willbros Group, Inc. is the borrower under the 2014 Term Credit Agreement, with all of its obligations guaranteed by its material U.S. subsidiaries, other than excluded subsidiaries. Obligations under the 2014 Term Loan Facility are secured by a first priority security interest in, among other things, the borrower’s and the guarantors’ equipment, subsidiary capital stock and intellectual property (the “2014 Term Loan Priority Collateral”) and a second priority security interest in, among other things, the borrower’s and the guarantors’ inventory, accounts receivable, deposit accounts and similar assets.
The term loans bear interest at the “Adjusted Base Rate” plus an applicable margin of 8.75 percent, or the “Eurodollar Rate” plus an applicable margin of 9.75 percent. The interest rate in effect at September 30, 2016 and December 31, 2015 was 11 percent, comprised of an applicable margin of 9.75 percent for Eurodollar Rate loans plus a LIBOR floor of 1.25 percent.
We made early payments of $3.1 million and $78.3 million against our 2014 Term Loan Facility during the nine months ended September 30, 2016 and 2015, respectively. As a result of these early payments, we recorded debt extinguishment charges of $0.1 million and $1.9 million, respectively, which consisted of prepayment fees of 2 percent and the write-off of debt issuance costs.

35

We are also required to pay a repayment fee on the maturity date of the 2014 Term Loan Facility equal to 5.0 percent of the aggregate principal amount outstanding on the maturity date. The repayment fee was contingent upon the sale of our Professional Services segment, which was completed on November 30, 2015. As a result, we are amortizing the repayment fee as a discount, from that date through the maturity date of the 2014 Term Loan Facility, using the effective interest method. The unamortized amount of the repayment fee is $3.5 million and $4.3 million at September 30, 2016 and December 31, 2015, respectively.
Since December 31, 2014, we have significantly reduced the balance under the 2014 Term Loan Facility.  Under the provisions of the 2014 Term Credit Agreement, with respect to prepayments made from inception of the Term Loan through September 30, 2016, we have not been required to pay prepayment premiums in respect of the “makewhole amount.” However, future prepayments or refinancing of the balance of the 2014 Term Loan Facility will, in most cases, require us to pay a prepayment premium equal to the makewhole amount.  The makewhole amount is calculated as the present value of all interest payments that would have been made on the amount prepaid from the date of the prepayment to December 15, 2019 (or June 15, 2019 if the prepayment is made on or after June 15, 2018) at a rate per annum equal to the sum of 9.75 percent plus the greater of 1.25 percent and the Eurodollar rate in effect on the date of the repayment.
2013 ABL Credit Facility
On August 7, 2013, we entered into a five-year asset based senior revolving credit facility maturing on August 7, 2018 with Bank of America, N.A. serving as sole administrative agent for the lenders thereunder, collateral agent, issuing bank and swingline lender (as amended, the “2013 ABL Credit Facility”).
The aggregate amount of commitments for the 2013 ABL Credit Facility is currently comprised of $80.0 million for the U.S. facility (the “U.S. Facility”) and $20.0 million for the Canadian facility (the “Canadian Facility”). The 2013 ABL Credit Facility includes a sublimit of $80.0 million for letters of credit. The borrowers under the U.S. Facility consist of all our U.S. operating subsidiaries with assets included in the borrowing base, and the U.S. Facility is guaranteed by Willbros Group, Inc. and its material U.S. subsidiaries, other than excluded subsidiaries. The borrower under the Canadian Facility is Willbros Construction Services (Canada) LP, and the Canadian Facility is guaranteed by Willbros Group, Inc. and all of its material U.S. and Canadian subsidiaries, other than excluded subsidiaries.
Advances under the U.S. and Canadian Facilities are limited to a borrowing base consisting of the sum of the following, less applicable reserves:
•
85 percent of the value of “eligible accounts”;
•
the lesser of (i) 75 percent of the value of “eligible unbilled accounts” and (ii) $33.0 million minus the amount of eligible unbilled accounts then included in the borrowing base; and
•
“eligible pledged cash”.
We are also required, as part of our borrowing base calculation, to include a minimum of $25.0 million of the net proceeds of the sale of Bemis and the balance of the Professional Services segment as eligible pledged cash. At September 30, 2016, we have included $40.1 million as eligible pledged cash (collateralized for a portion of our letters of credit) in our borrowing base calculation, which is included in the line item "Restricted cash" on the Consolidated Balance Sheet.
The aggregate amount of the borrowing base that is attributable to eligible accounts and eligible unbilled accounts constituting certain progress or milestone billings, retainage and other performance-based benchmarks may not exceed $23.0 million.
Advances in U.S. dollars bear interest at a rate equal to LIBOR or the U.S. or Canadian base rate plus an additional margin. Advances in Canadian dollars bear interest at the Bankers Acceptance ("BA") Equivalent Rate or the Canadian prime rate plus an additional margin.
The interest rate margins will be adjusted each quarter based on our fixed charge coverage ratio as of the end of the previous quarter as follows:
Fixed Charge Coverage Ratio
 
U.S. Base Rate, Canadian
Base Rate and Canadian
Prime Rate Loans
 
LIBOR Loans, BA Rate Loans and
Letter of Credit Fees
>1.25 to 1
 
1.25%
 
2.25%
<1.25 to 1 and >1.15 to 1
 
1.50%
 
2.50%
<1.15 to 1
 
1.75%
 
2.75%
The borrowers will also pay an unused line fee on each of the U.S. and Canadian Facilities equal to 50 basis points when usage under the applicable facility during the preceding calendar month is less than 50 percent of the commitments or 37.5 basis

36

points when usage under the applicable facility equals or exceeds 50 percent of the commitments for such period. With respect to the letters of credit, the borrowers will pay a letter of credit fee equal to the applicable LIBOR margin, shown in the table above, on all letters of credit and a 0.125 percent fronting fee to the issuing bank, in each case, payable monthly in arrears.
Obligations under the 2013 ABL Credit Facility are secured by a first priority security interest in the borrowers’ and guarantors’ accounts receivable, deposit accounts and similar assets (the “ABL Priority Collateral”) and a second priority security interest in the 2014 Term Loan Priority Collateral.
Debt Covenants and Events of Default
A default under the 2014 Term Loan Facility and the 2013 ABL Credit Facility may be triggered by events such as a failure to comply with financial covenants or other covenants under the 2014 Term Loan Facility and the 2013 ABL Credit Facility, a failure to make payments when due under the 2014 Term Loan Facility and the 2013 ABL Credit Facility, a failure to make payments when due in respect of, or a failure to perform obligations relating to, debt obligations in excess of $15.0 million, a change of control of the Company and certain insolvency proceedings. A default under the 2013 ABL Credit Facility would permit the lenders to terminate their commitment to make cash advances or issue letters of credit, require the immediate repayment of any outstanding cash advances with interest and require the cash collateralization of outstanding letter of credit obligations. A default under the 2014 Term Loan Facility would permit the lenders to require immediate repayment of all principal, interest, fees and other amounts payable thereunder.
On March 31, 2015, (the "First Amendment Closing Date"), March 1, 2016, and July 26, 2016, we amended the 2014 Term Credit Agreement pursuant to a First Amendment (the "First Amendment"), a Third Amendment (the "Third Amendment") and a Fourth Amendment (the “Fourth Amendment”). These amendments, among other things, suspended the calculation of the Maximum Total Leverage Ratio and Minimum Interest Coverage Ratio for the period from December 31, 2014 through December 31, 2016 (the "Covenant Suspension Periods") and provided that any failure by us to comply with the Maximum Total Leverage Ratio or Minimum Interest Coverage Ratio during the Covenant Suspension Periods shall not be deemed to result in a default or event of default.
In consideration of the initial suspension of the calculation of the Maximum Total Leverage Ratio and Minimum Interest Coverage Ratio under the First Amendment, we issued 10.1 million shares, which was equivalent to 19.9 percent of the outstanding shares of common stock immediately prior to the First Amendment Closing Date, to KKR Lending Partners II L.P. and other entities indirectly advised by KKR Credit Advisers (US) LLC. In connection with this transaction, we recorded debt covenant suspension charges of approximately $33.5 million which represented the fair value of the 10.1 million outstanding shares of common stock issued, multiplied by the closing stock price on the First Amendment Closing Date. In addition, we recorded debt extinguishment charges of approximately $0.8 million related to the write-off of debt issuance costs associated with our 2014 Term Credit Agreement.
Under the Fourth Amendment, the Maximum Total Leverage Ratio will be 6.00 to 1.00 as of March 31, 2017 and will decrease to 5.00 to 1.00 as of June 30, 2017, 3.50 to 1.00 as of September 30, 2017 and December 31, 2017 and 3.00 to 1.00 as of March 31, 2018 and thereafter. The Minimum Interest Coverage Ratio will be 1.50 to 1.00 as of March 31, 2017 and will increase to 1.75 to 1.00 as of June 30, 2017, 2.50 to 1.00 as of September 30, 2017 and December 31, 2017 and 2.75 to 1.00 as of March 31, 2018 and thereafter. If our results of operations do not improve and we are unable to obtain a waiver from the lenders, we will be unable to meet the required financial covenants and therefore be in default under the 2014 Term Loan Facility. A default under the 2014 Term Loan Facility would permit the lenders to require immediate repayment of all principal, interest, fees and other amounts payable thereunder.
In consideration for the Third Amendment and Fourth Amendment, we paid a total of $4.6 million in amendment fees during the first nine months of 2016. The amendment fees are recorded as direct deductions from the carrying amount of the 2014 Term Loan Facility in accordance with Accounting Standards Update 2015-03, which we retroactively adopted effective January 1, 2016. We are amortizing the amendment fees through the maturity date of the 2014 Term Loan Facility, using the effective interest method.
On September 28, 2015, we further amended the 2014 Term Credit Agreement, pursuant to a Second Amendment (the "Second Amendment"). The Second Amendment permits discrete asset sales by us and our subsidiaries, including the sale of our Professional Services segment, which was finalized on November 30, 2015.
Our primary sources of funds are our cash on hand, cash flow from operations and borrowings under the 2013 ABL Credit Facility. Based on current forecasts, through a combination of these sources, as well as the covenant relief included in the Fourth Amendment, we expect to have sufficient liquidity and capital resources to meet our obligations for at least the next twelve months. However, we can make no assurance regarding our ability to achieve our forecasts.
As of September 30, 2016, we did not have any outstanding revolver borrowings, and our unused availability under our September 30, 2016 borrowing base certificate was $44.0 million on a borrowing base of $52.4 million and outstanding letters of

37

credit of $48.5 million of which $40.1 million was cash collateralized. If our unused availability under the 2013 ABL Credit Facility is less than the greater of (i) 15.0 percent of the revolving commitments or $15.0 million for five consecutive days, or (ii) 12.5 percent of the revolving commitments or $12.5 million at any time, or upon the occurrence of certain events of default under the 2013 ABL Credit Facility, we would be subject to increased reporting requirements, the administrative agent shall have exclusive control over any deposit account, we will not have any right of access to, or withdrawal from, any deposit account, or any right to direct the disposition of funds in any deposit account, and amounts in any deposit account will be applied to reduce the outstanding amounts under the 2013 ABL Credit Facility. In addition, if our unused availability under the 2013 ABL Credit Facility is less than the amounts described above, we would be required to comply with a Minimum Fixed Charge Coverage Ratio of 1.15 to 1.00. Based on current forecasts, we do not expect our unused availability under the 2013 ABL Credit Facility to be less than the amounts described above and therefore do not expect the Minimum Fixed Charge Coverage Ratio to be applicable over the next twelve months. If the Minimum Fixed Charge Coverage Ratio were to become applicable, we would not expect to be in compliance over the next twelve months and would therefore be in default under our credit agreements.
The 2014 Term Credit Agreement and the 2013 ABL Credit Facility also include customary representations and warranties and affirmative and negative covenants, including:
•
the preparation of financial statements in accordance with GAAP;
•
the identification of any events or circumstances, either individually or in the aggregate, that has had or could reasonably be expected to have a material adverse effect on our business, results of operations, properties or financial condition;
•
limitations on liens and indebtedness;
•
limitations on dividends and other payments in respect of capital stock;
•
limitations on capital expenditures; and
•
limitations on modifications of the documentation of the 2013 ABL Credit Facility.
Cash Balances
As of September 30, 2016, we had cash and cash equivalents of $42.3 million. Our cash and cash equivalent balances held in the United States and foreign countries were $25.7 million and $16.6 million, respectively. In 2011, we discontinued our strategy of reinvesting non-U.S. earnings in foreign operations. Accordingly, we may repatriate cash for corporate purposes without incurring additional tax expense.
Our working capital position for continuing operations decreased $25.1 million to $98.1 million at September 30, 2016 from $123.2 million at December 31, 2015, primarily attributable to decreased accounts receivable and a decrease in unbilled revenue. We continue to take the necessary measures to improve liquidity including an increased focus on cash collections and reducing our levels of capital spending.
Cash Flows
Statements of cash flows for entities with international operations that use the local currency as the functional currency exclude the effects of the changes in foreign currency exchange rates that occur during any given period, as these are non-cash charges. As a result, changes reflected in certain accounts on the Condensed Consolidated Statements of Cash Flows may not reflect the changes in corresponding accounts on the Condensed Consolidated Balance Sheets.
Cash flows provided by (used in) continuing operations by type of activity were as follows for the nine months ended September 30, 2016 and 2015 (in thousands):
 
 
 
2016
 
2015
 
Increase
(Decrease)
Operating activities
 
$
(8,232
)
 
$
14,456

 
$
(22,688
)
Investing activities
 
6,639

 
103,594

 
(96,955
)
Financing activities
 
(8,570
)
 
(82,087
)
 
73,517

Effect of exchange rate changes
 
620

 
(752
)
 
1,372

Cash provided by (used in) all continuing activities
 
$
(9,543
)
 
$
35,211

 
$
(44,754
)

38

Operating Activities
Cash flow from operations is primarily influenced by demand for our services, operating margins and the type of services we provide, but can also be influenced by working capital needs such as the timing of collection of receivables and the settlement of payables and other obligations. Working capital needs are generally higher during the summer and fall months when the majority of our capital-intensive projects are executed. Conversely, working capital assets are typically converted to cash during the late fall and winter months.
Operating activities from continuing operations used net cash of $8.2 million during the nine months ended September 30, 2016 as compared to $14.5 million provided during the same period in 2015. The $22.7 million decrease in operating cash flow is primarily a result of the following:
•
A decrease in cash flow provided by accounts receivable of $69.5 million related to a decrease in customer cash collections during the period resulting from lower receivable balances.
This item was partially offset by:
•
An increase in cash flow provided by accounts payable of $27.2 million attributed primarily to reduced vendor payments during the period;
•
An increase in cash flow provided by continuing operations of $10.9 million attributed primarily to a decrease in net loss from operations, adjusted for any non-cash items; and
•
An increase in cash flow provided by prepaid expenses and other current assets of $3.5 million attributed primarily to changes in business activity as well as the timing of prepaid policies.
Investing Activities
Investing activities from continuing operations provided net cash of $6.6 million during the nine months ended September 30, 2016 as compared to $103.6 million provided during the same period in 2015. The $97.0 million decrease in investing cash flow is primarily the result of a decrease of $87.4 million in proceeds received from the sale of subsidiaries in the first nine months of 2015, which generated a significant amount of cash proceeds. The decrease in investing cash flow is also partly attributed to restricted cash deposits of $6.2 million as well as $3.0 million less in proceeds from the sale of property, plant and equipment sales during the first nine months of 2016.
Financing Activities
Financing activities used net cash of $8.6 million during the nine months ended September 30, 2016 as compared to $82.1 million used during the same period of 2015. The $73.5 million decrease in cash used is primarily a result of a $77.2 million decrease in payments against our Term Loan during the first nine months of 2016 as compared to 2015, partially offset by a $3.9 million increase in debt issuance costs in 2016.
Discontinued Operations
Discontinued operations used net cash of $7.0 million during the nine months ended September 30, 2016 as compared to $10.4 million used during the nine months ended September 30, 2015. The $3.3 million decrease in discontinued operations cash flow used is primarily due to changes in business activity between periods from services previously associated with our Professional Services segment.
Interest Rate Risk
We are subject to interest rate risk on our debt and investment of cash and cash equivalents arising in the normal course of business and have entered into hedging arrangements to fix or otherwise limit the interest costs of our variable interest rate borrowings.
Termination of Interest Rate Swap Agreement
In August 2013, we entered into an interest rate swap agreement (the "Swap Agreement") for a notional amount of $124.1 million to hedge changes in the variable rate interest expense on $124.1 million of our existing or replacement LIBOR indexed debt. The Swap Agreement was designated and qualified as a cash flow hedging instrument with the effective portion of the Swap Agreement's change in fair value recorded in Other Comprehensive Income ("OCI"). The Swap Agreement was highly effective in offsetting changes in interest expense and no hedge ineffectiveness was recorded in the Consolidated Statements of Operations. The Swap Agreement was terminated in the third quarter of 2015 for $5.7 million, which was recorded in OCI as fair value. In the fourth quarter of 2015, we made an early payment of $93.6 million against our 2014 Term Loan Facility and therefore reclassified approximately $1.2 million of the fair value of the Swap Agreement from OCI to interest expense. In the first quarter of 2016, we made an early payment of $3.1 million against our 2014 Term Loan Facility and therefore reclassified approximately $0.1 million of the fair value of the Swap Agreement from OCI to interest expense. The remaining fair value of

39

the Swap Agreement included in OCI will be reclassified to interest expense over the remaining life of the underlying debt with approximately $1.1 million expected to be recognized in the coming twelve months.
Capital Requirements
Our financing objective is to maintain financial flexibility to meet the material, equipment and personnel needs to support our project and MSA commitments. Our primary sources of capital are our cash on hand, cash flow from operations and borrowings under our 2013 ABL Credit Facility.
Our industry is capital intensive, and we expect the need for substantial capital expenditures to continue into the foreseeable future to meet the anticipated demand for our services. As such, we are focused on the following significant capital requirements:
•
Providing working capital for projects in process and those scheduled to begin in 2016; and
•
Funding our 2016 capital budget of approximately $11.6 million of which $8.8 million remained unspent as of September 30, 2016.
Given our cash on hand and our ABL availability, we believe our financial results and financial management will provide sufficient funds to enable us to meet our future operating needs and our planned capital expenditures, as well as facilitate our ability to grow in the foreseeable future.
Contractual Obligations
We are in the process of executing a pipeline project which has encountered unmarked underground obstructions in the desired pipeline right-of-way. As such, we are evaluating alternatives with our client to complete the required contract scope, which is included in our estimated contract costs to complete. While we believe the impact of the obstructions may be grounds for a change order, we have not included any potential change order in our contract revenue estimates. In addition, should we be unable to complete the scope of work using our desired alternatives, we could incur additional costs which could have a material impact on our Condensed Consolidated Financial Statements.
Other commercial commitments, as detailed in our Annual Report on Form 10-K for the year ended December 31, 2015, did not materially change except for payments made in the normal course of business.
NEW ACCOUNTING STANDARDS
See Note 3 - New Accounting Standards in the Notes to Condensed Consolidated Financial Statements included in this Form 10-Q for a summary of any recently issued accounting standards.

40


FORWARD-LOOKING STATEMENTS
This Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included in this Form 10-Q that address activities, events or developments which we expect or anticipate will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof), oil, gas, gas liquids and power prices, demand for our services, the amount and nature of future investments by governments, expansion and other development trends of the oil and gas and power industries, business strategy, expansion and growth of our business and operations, the outcome of legal proceedings and other such matters are forward-looking statements. These forward-looking statements are based on assumptions and analyses we made in light of our experience and our perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. However, whether actual results and developments will conform to our expectations and predictions is subject to a number of risks and uncertainties. As a result, actual results could differ materially from our expectations. Factors that could cause actual results to differ from those contemplated by our forward-looking statements include, but are not limited to, the following: 

•
curtailment of capital expenditures due to low prevailing commodity prices or other factors, and the unavailability of project funding in the oil and gas and power industries;
•
the demand for energy moderating or diminishing;
•
inability to comply with the financial and other covenants in, or obtain waivers under our credit facilities;
•
failure to obtain the timely award of one or more projects;
•
reduced creditworthiness of our customer base and higher risk of non-payment of receivables;
•
project cost overruns, unforeseen schedule delays and the application of liquidated damages;
•
inability to execute fixed-price and cost-reimbursable projects within the target cost, thus eroding contract margin and, potentially, contract income on any such project;
•
inability to satisfy New York Stock Exchange continued listing requirements for our common stock;
•
increased capacity and decreased demand for our services in the more competitive industry segments that we serve;
•
inability to lower our cost structure to remain competitive in the market or to achieve anticipated operating margins;
•
inability of the energy service sector to reduce costs when necessary to a level where our customers’ project economics support a reasonable level of development work;
•
reduction of services to existing and prospective clients when they bring historically out-sourced services back in-house to preserve intellectual capital and minimize layoffs;
•
the consequences we may encounter if, in the future, we identify any material weaknesses in our internal control over financial reporting which may adversely affect the accuracy and timing of our financial reporting;
•
the impact of any litigation, including class actions associated with our restatement of first and second quarter 2014 financial results on our financial position and results of operations, including our defense costs and the costs and other effects of settlements or judgments;
•
the consequences we may encounter if we violate the Foreign Corrupt Practices Act (the “FCPA”) or other anti-corruption laws in view of the 2008 final settlements with the Department of Justice and the Securities and Exchange Commission (“SEC”) in which we admitted prior FCPA violations, including the imposition of civil or criminal fines, penalties, enhanced monitoring arrangements, or other sanctions that might be imposed;
•
the dishonesty of employees and/or other representatives or their refusal to abide by applicable laws and our established policies and rules;
•
adverse weather conditions not anticipated in bids and estimates;
•
the occurrence during the course of our operations of accidents and injuries to our personnel, as well as to third parties, that negatively affect our safety record, which is a factor used by many clients to pre-qualify and otherwise award work to contractors in our industry;
•
cancellation of projects, in whole or in part, for any reason;

41

•
failing to realize cost recoveries on claims or change orders from projects completed or in progress within a reasonable period after completion of the relevant project;
•
political or social circumstances impeding the progress of our work and increasing the cost of performance;
•
inability to obtain and maintain legal registration status in one or more foreign countries in which we are seeking to do business;
•
inability to predict the timing of an increase in energy sector capital spending, which results in staffing below the level required to service such an increase;
•
inability to hire and retain sufficient skilled labor to execute our current work, our work in backlog and future work we have not yet been awarded;
•
inability to obtain adequate financing on reasonable terms;
•
inability to obtain sufficient surety bonds or letters of credit;
•
loss of the services of key management personnel;
•
downturns in general economic, market or business conditions in our target markets;
•
changes in and interpretation of U.S. and foreign tax laws that impact our worldwide provision for income taxes and effective income tax rate;
•
changes in applicable laws or regulations, or changed interpretations thereof, including climate change regulation;
•
changes in the scope of our expected insurance coverage;
•
inability to manage insurable risk at an affordable cost;
•
enforceable claims for which we are not fully insured;
•
incurrence of insurable claims in excess of our insurance coverage;
•
the occurrence of the risk factors listed elsewhere in this Form 10-Q or described in our periodic filings with the SEC; and
•
other factors, most of which are beyond our control.
Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results or developments we anticipate will be realized or, even if substantially realized, that they will have the consequences for, or effects on, our business or operations that we anticipate today. We assume no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.
 
 
 

Unless the context requires or is otherwise noted, all references in this Form 10-Q to “Willbros”, the “Company”, “we”, “us” and “our” refer to Willbros Group, Inc., its consolidated subsidiaries and their predecessors.

42


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk
We are subject to interest rate risk on our debt and investment of cash and cash equivalents arising in the normal course of business and have entered into hedging arrangements to fix or otherwise limit the interest costs of our variable interest rate borrowings.
Termination of Interest Rate Swap Agreement
In August 2013, we entered into an interest rate swap agreement (the "Swap Agreement") for a notional amount of $124.1 million to hedge changes in the variable rate interest expense on $124.1 million of our existing or replacement LIBOR indexed debt. The Swap Agreement was designated and qualified as a cash flow hedging instrument with the effective portion of the Swap Agreement's change in fair value recorded in OCI. The Swap Agreement was highly effective in offsetting changes in interest expense and no hedge ineffectiveness was recorded in the Consolidated Statements of Operations. The Swap Agreement was terminated in the third quarter of 2015 for $5.7 million, which was recorded in OCI as fair value. In the fourth quarter of 2015, we made an early payment of $93.6 million against our 2014 Term Loan Facility and therefore reclassified approximately $1.2 million of the fair value of the Swap Agreement from OCI to interest expense. In the first quarter of 2016, we made an early payment of $3.1 million against our 2014 Term Loan Facility and therefore reclassified approximately $0.1 million of the fair value of the Swap Agreement from OCI to interest expense. The remaining fair value of the Swap Agreement included in OCI will be reclassified to interest expense over the remaining life of the underlying debt with approximately $1.1 million expected to be recognized in the coming twelve months.
Foreign Currency Risk
We are exposed to market risk associated with changes in non-U.S. (primarily Canada) currency exchange rates. To mitigate our risk, we may borrow Canadian dollars under our Canadian Facility to settle U.S. dollar account balances.
We attempt to negotiate contracts which provide for payment in U.S. dollars, but we may be required to take all or a portion of payment under a contract in another currency. To mitigate non-U.S. currency exchange risk, we seek to match anticipated non-U.S. currency revenue with expense in the same currency whenever possible. To the extent we are unable to match non-U.S. currency revenue with expense in the same currency, we may use forward contracts, options or other common hedging techniques in the same non-U.S. currencies. We had no forward contracts or options at September 30, 2016 and 2015.
Other
The carrying amounts for cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities shown in the Condensed Consolidated Balance Sheets approximate fair value at September 30, 2016 due to the generally short maturities of these items. At September 30, 2016, we invested primarily in short-term dollar denominated bank deposits. We have the ability and expect to hold our investments to maturity.

43


ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed under the Exchange Act is accumulated and communicated to management, including its principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
As of September 30, 2016, we have carried out an evaluation under the supervision of, and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2016, our disclosure controls and procedures were effective in providing the reasonable assurance described above.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarterly period ended September 30, 2016, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


44

PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information regarding legal proceedings, see the discussion under the caption “Contingencies” in Note 12 - Contingencies, Commitments and Other Circumstances, of our “Notes to Condensed Consolidated Financial Statements” in Item 1 of Part I of this Form 10-Q, which information from Note 12 is incorporated by reference herein.
ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors involving us from those previously disclosed in Item 1A of Part I included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, except as previously described in Item 1A of Part II in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information about purchases of our common stock by us during the quarter ended September 30, 2016:
 
 
 
Total
Number of
Shares
Purchased (1)
 
Average
Price Paid Per
Share (2)
 
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
 
Maximum Number
(or Approximate
Dollar Value) of
Shares That May
Yet Be Purchased
Under the Plans or
Programs
July 1, 2016 - July 31, 2016
 
8,980

 
$
2.59

 
—

 
—

August 1, 2016 - August 31, 2016
 
—

 
—

 
—

 
—

September 1, 2016 - September 30, 2016
 
437

 
2.00

 
—

 
—

Total
 
9,417

 
$
2.56

 
—

 
—

 
(1)
Represents shares of common stock acquired from certain of our officers and key employees under the share withholding provisions of our 2010 Stock and Incentive Compensation Plan for the payment of taxes associated with the vesting of shares of restricted stock and restricted stock units granted under such plan.
(2)
The price paid per common share represents the closing sales price of a share of our common stock, as reported in the New York Stock Exchange composite transactions, on the day that the stock was acquired by us.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.

45

ITEM 6. EXHIBITS
The following documents are included as exhibits to this Form 10-Q. Those exhibits below incorporated by reference herein are indicated as such by the information supplied in the parenthetical thereafter. If no parenthetical appears after an exhibit, such exhibit is filed herewith.
 
10.1
Fourth Amendment to Credit Agreement dated as of July 26, 2016, by and among Willbros Group, Inc., as borrower, certain subsidiary guarantors party thereto, the Lenders party thereto, KKR Credit Advisors (US) LLC, as arranger, and Cortland Capital Market Services LLC, as administrative agent (filed as Exhibit 10.1 to our report on Form 10-Q for the quarter ended June 30, 2016, filed July 29, 2016).
 
 
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101.INS
XBRL Instance Document.
 
 
101.SCH
XBRL Taxonomy Extension Schema Document.
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.


46

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
WILLBROS GROUP, INC.
 
 
 
Date: October 28, 2016
By:
/s/ Van A. Welch
 
 
Van A. Welch
 
 
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

47

EXHIBIT INDEX
The following documents are included as exhibits to this Form 10-Q. Those exhibits below incorporated by reference herein are indicated as such by the information supplied in the parenthetical thereafter. If no parenthetical appears after an exhibit, such exhibit is filed herewith.
 
Exhibit
Number
Description
10.1
Fourth Amendment to Credit Agreement dated as of July 26, 2016, by and among Willbros Group, Inc., as borrower, certain subsidiary guarantors party thereto, the Lenders party thereto, KKR Credit Advisors (US) LLC, as arranger, and Cortland Capital Market Services LLC, as administrative agent (filed as Exhibit 10.1 to our report on Form 10-Q for the quarter ended June 30, 2016, filed July 29, 2016).
 
 
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101.INS
XBRL Instance Document.
 
 
101.SCH
XBRL Taxonomy Extension Schema Document.
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.


48

Willbros Group, Inc.\NEW\ Reports