WILLBROS GROUP INC - 10-Q Quarterly Report

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

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

OR

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

FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-11953

WILLBROS GROUP, INC.
(Exact name of registrant as specified in its charter)

REPUBLIC OF PANAMA 98-0160660
(Jurisdiction of incorporation) (I.R.S. Employer Identification Number)

PLAZA 2000 BUILDING
50TH STREET, 8TH FLOOR
APARTADO 6307
PANAMA 5, REPUBLIC OF PANAMA
TELEPHONE NO.: (507) 213-0947
(Address, including zip code, and telephone number, including
area code, of principal executive offices of registrant)

NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

The number of shares of the registrant's Common Stock, $.05 par value,
outstanding as of August 13, 2002 was 19,564,694.

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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

See accompanying notes to condensed consolidated financial statements.

2

WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

3

WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

4

WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

5

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

1. BASIS OF PRESENTATION

The condensed consolidated financial statements of Willbros Group, Inc.
and its majority-owned subsidiaries (the "Company") reflect all adjustments
which are, in the opinion of management, necessary to present fairly the
financial position, results of operations and cash flows of the Company as of
June 30, 2002, and for all interim periods presented. All adjustments are normal
recurring accruals.

Certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the Company's December 31, 2001
audited consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K, as amended, for the year ended December
31, 2001. The results of operations for the period ended June 30, 2002, are not
necessarily indicative of the operating results to be achieved for the full
year.

Reclassifications - Minority owners of certain non U.S. subsidiaries
(operating principally in Nigeria and Oman) earn a percentage of net contract
receipts rather than sharing in the net income or losses of the subsidiaries'
operations. Due to the nature of these minority interests and the basis on which
the entitlement is earned, amounts attributable to the minority interests are
included in contract costs. Prior to the three months ended June 30, 2002, the
minority interest amounts were presented as a separate line item in other
expenses. Accordingly, reclassifications have been made to the 2001 balances to
conform to the 2002 presentation. Amounts due to the minority participants
continue to be included in accounts payable and accrued liabilities.

2. NEW ACCOUNTING PRINCIPLES

Effective January 1, 2002, the Company adopted the remaining provisions
of Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142") which require that amortization of goodwill
cease and be replaced with periodic tests of the goodwill's impairment at least
annually. Amortization of goodwill for the six month period ended June 30, 2001,
was $23 and as such the adoption of SFAS 142 did not have a material impact on
the consolidated results of operations. The Company did not incur any
transitional impairment losses as a result of adoption of SFAS No. 142.

Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No. 144") related to the accounting and reporting for
the impairment or disposal of long-lived assets. The adoption of SFAS No. 144
had no effect on the Company's financial position or results of operations.

3. FOREIGN EXCHANGE RISK

The Company attempts to negotiate contracts which provide for payment
in U.S. dollars, but it may be required to take all or a portion of payment
under a contract in another currency. To mitigate non-U.S. currency exchange
risk, the Company seeks to match anticipated non-U.S. currency revenue with
expenses in the same currency whenever possible. To the extent it is unable to
match non-U.S. currency revenue with expenses in the same currency, the Company
may use forward contracts, options or other common hedging techniques in the
same non-U.S. currencies. The Company had no derivative financial instruments to
hedge currency risk at June 30, 2002, or December 31, 2001.

6

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

4. NOTES PAYABLE AND LONG-TERM DEBT

On June 14, 2002, the Company completed a new $125,000 credit agreement
with a syndicated bank group, replacing the existing facility that was due to
expire in February 2003. The facility may be used for standby and commercial
letters of credit, borrowings or a combination thereof. Borrowings are limited
to the lesser of 40% of the borrowing base or $50.0 million and are payable at
termination on June 14, 2005. Interest is payable quarterly at a Base Rate plus
a margin ranging from 0.75% to 2.00% or a Eurodollar Rate plus a margin ranging
from 1.75% to 3.00%. A commitment fee on the unused portion of the credit
agreement is payable quarterly ranging from 0.50% to 0.75%. The credit agreement
is collateralized by substantially all of the Company's assets, including stock
of the principal subsidiaries, restricts the payment of cash dividends and
requires the Company to maintain certain financial ratios. The borrowing base is
calculated using varying percentages of cash, accounts receivable, accrued
revenue, contract cost and recognized income not yet billed, property, plant and
equipment, and spare parts. Debt issue costs of $2,213, net of accumulated
amortization, associated with the new credit agreement are included in other
assets at June 30, 2002 and are being amortized over 24 months.

5. STOCKHOLDERS' EQUITY

On May 14, 2002, the Company completed a public offering of its common
shares at $17.75 per share; 4,356,750 shares were sold by the Company. The
underwriters exercised options to purchase all shares available for
over-allotments. The Company received $72,055 in proceeds, after the
underwriting discount and offering costs, which were used to repay indebtedness
under the prior credit agreement and for working capital and general corporate
purposes.

6. STOCK BASED COMPENSATION

In March 2002, certain officers of the Company borrowed a total of
$1,307 under the Employee Stock Purchase Program, which permits selected
executives and officers (exclusive of the Chief Executive Officer) to borrow
from the Company up to 100% of the funds required to exercise vested stock
options. The loans are full recourse, noninterest-bearing for a period of up to
5 years and are collateralized by the related stock. The difference of $553
between the discounted value of the loans and the fair market value of the stock
on the date of exercise was recorded as compensation expense. The loans
receivable are presented as a reduction of stockholders' equity. The maximum
loan amount any one officer may have outstanding under the Employee Stock
Purchase Program is $250.

7

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

7. EARNINGS PER SHARE

Basic and diluted earnings (loss) per common share for the three month
and six month periods ended June 30, 2002 and 2001, are computed as follows:

At June 30, 2002, there were 10,750 potential common shares (226,292 at
June 30, 2001) excluded from the computation of diluted earnings per share
because of their anti-dilutive effect.

8. CONTINGENCIES, COMMITMENTS AND OTHER CIRCUMSTANCES

The Company provides construction, engineering and specialty services
to the oil, gas and power industries. The Company's principal markets are
currently Africa, the Middle East, South America and North America. Operations
outside the United States may be subject to certain risks which ordinarily would
not be expected to exist in the United States, including foreign currency
restrictions, extreme exchange rate fluctuations, expropriation of assets, civil
uprisings and riots, war, terrorist acts and government instability. Management
is not presently aware of any events of the type described in the countries in
which it operates that have not been provided for in the accompanying
consolidated financial statements. The Company insures substantially all of its
equipment in countries outside the United States against certain political risks
and terrorism.

The Company has the usual liability of contractors for the completion
of contracts and the warranty of its work. Where work is performed through a
joint venture, the Company also has possible liability for the contract
completion and warranty responsibilities of its joint venturers. Management is
not aware of any material exposure related thereto which has not been provided
for in the accompanying consolidated financial statements.

8

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

8. CONTINGENCIES, COMMITMENTS AND OTHER CIRCUMSTANCES (CONTINUED)

During the course of performing its contractual duties, the Company may
incur additional contract costs due to delays and changes caused by the
customers. The Company recognizes these additional costs as they are incurred.
In such cases, the Company has filed claims, or intends to file claims, with
these customers seeking additional contract revenue amounts. Management believes
that the contracts provide a legal basis for the claims; however, due to the
inherent uncertainties associated with the resolution of such claims the Company
has not recognized any of these amounts as income. The Company will continue to
seek amicable resolutions with the customers and pursue recovery of amounts
claimed. Any amounts received from customers related to claims will be recorded
in the periods in which the claims are agreed to by the customers.

9

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the
unaudited consolidated financial statements for the periods ended June 30, 2002
and 2001, included in Item 1 of this report, 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, as amended, for the year ended December 31, 2001.

GENERAL

We derive our revenue from providing construction, engineering and
specialty services to the oil, gas and power industries and government entities
worldwide. We obtain contracts for our work primarily by competitive bidding or
through negotiations with long-standing clients or prospective clients. Bidding
activity, backlog and revenue resulting from the award of contracts to us may
vary significantly from period to period. Contracts have durations from a few
weeks to several months or in some cases more than a year.

A number of factors relating to our business affect the recognition of
contract revenue. Revenue from fixed-price construction and engineering
contracts is recognized on the percentage-of-completion method. Under this
method, estimated contract income and resulting revenue is generally accrued
based on costs incurred to date as a percentage of total estimated costs, taking
into consideration physical completion. Total estimated costs, and thus contract
income, are impacted by changes in productivity, scheduling, and the unit cost
of labor, subcontractors, materials and equipment. Additionally, external
factors such as weather, client needs, client delays in providing approvals,
labor availability, governmental regulation and politics, may affect the
progress of a project's completion and thus the timing of revenue recognition.
Generally, we do not recognize income on a fixed-price contract until the
contract is approximately 5% to 10% complete, depending upon the nature of the
contract. Costs which are considered to be reimbursable are excluded from the
percentage-of-completion calculation. Accrued revenue pertaining to
reimbursables is limited to the cost of the reimbursables. If a current estimate
of total contract cost indicates a loss on a contract, the projected loss is
recognized in full when determined. Revenue from change orders, extra work,
variations in the scope of work and claims is recognized when realization is
reasonably assured. Revenue from unit-price contracts is recognized as earned.
We believe that our operating results should be evaluated over a relatively long
time horizon during which major contracts in progress are completed and change
orders, extra work, variations in the scope of work and cost recoveries and
other claims are negotiated and realized.

All U.S. government contracts and many of our other contracts provide
for termination of the contract for the convenience of the client. In the event
a contract would be terminated at the convenience of the client prior to
completion, we will typically be compensated for progress up to the time of
termination and any termination costs. In addition, many contracts are subject
to certain completion schedule requirements with liquidated damages in the event
schedules are not met as the result of circumstances within our control.

In our report on Form 10-K, as amended, for the year ended December 31,
2001, we identified and disclosed three critical accounting policies: (a)
Revenue Recognition: Percentage-of-Completion; (b) Income Taxes; and (c) Joint
Venture Accounting. There have been no changes to our critical accounting
policies during the six month period ended June 30, 2002.

We use EBITDA (earnings before net interest, income taxes, depreciation
and amortization) as part of our overall assessment of financial performance by
comparing EBITDA of different accounting periods. We believe that EBITDA is used
by the financial community as a method of measuring performance and of
evaluating the market value of companies considered to be in businesses similar
to ours. EBITDA increased to $32.2 million for the six month period ended June
30, 2002, an increase of $12.1 million (60%) compared to the six month period
ended June 30, 2001. However, EBITDA is not a calculation based on generally
accepted accounting principles and should not be considered as an alternative to
net earnings or operating income as an indication of our financial performance
or to cash flows as a measure of liquidity. In addition, our EBITDA calculation
may not be comparable to other similarly titled measures of other companies.

10

We recognize anticipated contract revenue as backlog when the award of
a contract is assured, generally upon the execution of a definitive agreement or
contract. Anticipated revenue from post-contract award processes, including
change orders, extra work, variations in the scope of work and the effect of
escalation or currency fluctuation formulas, is not added to backlog until
realization is assured. New contract awards totaled $123.3 million during the
quarter ended June 30, 2002. Additions to backlog during the period were as
follows: construction, $89.7 million; engineering, $2.3 million; and specialty
services, $31.3 million. Backlog decreases by type of service as a result of
services performed during the period were as follows: construction, $85.0
million; engineering, $47.0 million; and specialty services, $16.1 million.
Backlog at June 30, 2002, was down $24.8 million (6%) from March 31, 2002 to
$365.6 million and consisted of the following: (a) construction, $225.2 million,
up $4.7 million; (b) engineering, $81.0 million, down $44.7 million; and (c)
specialty services, $59.4 million, up $15.2 million. Construction backlog
consists primarily of the Chad-Cameroon Pipeline Project (see below) as well as
construction projects in Venezuela, Bolivia, the Dominican Republic and Offshore
West Africa. Engineering backlog consists primarily of engineering projects in
the United States. Specialty services backlog is primarily attributable to a
16-year water injection contract awarded in 1998 to a consortium in which the
Company has a 10 percent interest in Venezuela and service contracts in Canada
and the United States.

In September 2000, through a joint venture led by a subsidiary of ours,
we were awarded a significant project, the scope of which includes the
engineering, procurement and construction ("EPC") of a 665-mile (1,070
kilometer), 30-inch crude oil pipeline from the Doba Fields in Chad to an export
terminal on the coast of Cameroon in Africa (the "Chad-Cameroon Pipeline
Project"). Engineering and procurement activities began in late 2000. Pipeline
construction began in November 2001 and is anticipated to end in 2003.

During 2001, our activities in Nigeria included work on two EPC
contracts for Shell: (a) the Nembe Creek gas gathering pipeline system, and (b)
four concrete barge-mounted gas compressor facilities for Shell's Nembe Creek
Associated Gas project (collectively, the "Nembe Creek Projects"). By June 30,
2001, work on both projects was nearly complete.

On October 12, 2001, we completed the purchase of MSI Energy Services
Inc. ("MSI"), a Canadian general contractor. MSI provides pipeline construction,
pipeline integrity and maintenance, and other services in the oil sands region
of Northern Alberta, Canada. MSI contributed $4.0 million of revenue during the
second quarter of 2002.

RESULTS OF OPERATIONS

Our contract revenue and contract costs are primarily related to the
timing and location of development projects in the oil, gas and power industries
worldwide. Contract revenue and cost variations by country from year to year are
the result of (a) entering and exiting work countries; (b) the execution of new
contract awards; (c) the completion of contracts; and (d) the overall level of
activity in our services.

Our ability to be successful in obtaining and executing contracts can
be affected by the relative strength or weakness of the U.S. dollar compared to
the currencies of our competitors, our clients and our work locations. We do not
believe that our revenue or results of operations were adversely affected in
this regard during the six month periods ended June 30, 2002 or 2001.

Three Months Ended June 30, 2002, Compared to Three Months Ended
June 30, 2001

Contract revenue increased $69.3 million (88%) to $148.1 million due to
(a) $41.3 million (95%) of increased construction revenue due primarily to
construction on the Chad-Cameroon Pipeline Project, work on a project in Bolivia
and increased activity in Offshore West Africa, net of reduced construction
activities in the United States and Nigeria; (b) increased engineering revenue
of $25.1 million (115%) due to an increase of engineering and procurement
services in the United States; and (c) an increase of $2.9 million (22%) in
specialty services revenue principally from operations in Canada as a result of
the MSI acquisition in October 2001. Revenue in the United States increased
$15.6 million (36%) due to an increase in engineering and procurement services.
Chad-Cameroon revenue increased $32.4 million resulting from construction work

11

begun in November 2001 on the pipeline project in that area. Revenue from
Offshore West Africa increased $11.0 million as a result of increased vessel
utilization on several projects. Work that began in 2002 on a project in Bolivia
resulted in $12.2 million in revenue in that country. Revenue in Canada was $4.0
million resulting from the acquisition of MSI in October 2001. Nigeria revenue
decreased $6.7 million (42%) due primarily to reduced activity on the Nembe
Creek Projects as they neared completion in June 2001. The combined revenue in
all other areas increased $0.8 million.

Contract costs increased $56.5 million (87%) to $121.1 million due to
an increase of $31.8 million (86%) in construction services cost, $22.9 million
(131%) in engineering services cost and $1.8 million (17%) in specialty services
cost. Variations in contract cost by country were closely related to the
variations in contract revenue.

Depreciation and amortization increased $1.2 million (25%) to $5.9
million due primarily to the addition of equipment for the Chad-Cameroon
Pipeline Project and the project in Bolivia.

General and administrative expense increased $1.9 million (27%) to $9.0
million. This increase is due to higher staff compensation and administrative
services necessary to support the 88% increase in revenue. As a percent of
revenue, general and administrative expense decreased from 8.9% in 2001 to 6.0%
in 2002.

Operating income increased $4.2 million (52%) from $8.0 million in 2001
to $12.2 million in 2002. Excluding a one time gain of $5.6 million in June 2001
associated with the termination of a benefit plan, operating income increased
$9.7 million (398%). Excluding the one time gain in 2001, operating income
increased largely as a result of higher revenue resulting from greater activity
in North America, construction activity on the Chad-Cameroon Pipeline Project
and marine maintenance and construction in Offshore West Africa, offset by
higher depreciation, amortization and general and administrative costs and
reduced income in Nigeria resulting from a 42% decrease in revenue in that area.

Interest expense decreased $0.1 million from the prior year. In May
2002 we completed a common stock offering in which we received $72.1 million in
net proceeds. Borrowings under our prior credit agreement were paid in full.

Other expense increased $0.8 million to $1.0 million due primarily to
losses on currency translations in 2002 related to devaluation of the Venezuelan
bolivar.

The provision for income taxes increased $2.9 million (945%) due to the
increase in taxable income in the United States and a $2.3 million reduction in
income tax expense in 2001 due to an adjustment in connection with the valuation
allowance related to the net operating loss carryforwards in the United States
and settlement of prior year taxes outside the United States. The provision for
income taxes is also impacted by income taxes in certain countries being based
on deemed profit rather than taxable income and the fact that losses in one
country cannot be used to offset taxable income in another country.

Six Months Ended June 30, 2002, Compared to Six Months Ended June 30,
2001

Contract revenue increased $151.1 million (104%) to $295.6 million due
to (a) $98.0 million (139%) of increased construction revenue due primarily to
construction on the Chad-Cameroon Pipeline Project, work on a project in Bolivia
and increased activity in Offshore West Africa and the United States, net of
reduced activities on the Nembe Creek Projects in Nigeria as they neared
completion; (b) increased engineering revenue of $50.9 million (111%) due to an
increase of engineering and procurement services in the United States; and (c)
an increase of $2.2 million (8%) in specialty services revenue principally from
revenue generated by MSI in Canada, which was acquired in October 2001, offset
by reduced activity in Nigeria. Revenue in the United States increased $53.3
million (71%) due primarily to an increase in engineering and procurement
services. Chad-Cameroon revenue increased $60.9 million resulting from
construction work begun on the pipeline project in that area. Revenue from
Offshore West Africa increased $33.1 million as a result of increased vessel
utilization on several projects. Work that began in 2002 on a project in Bolivia
resulted in $16.7 million in revenue in that country. Revenue in Canada was $6.9
million resulting from the acquisition of MSI in October 2001. Nigeria revenue
decreased $22.4 million (53%) due primarily to reduced activity on the Nembe
Creek Projects. The combined revenue in all other areas increased $2.6 million
(19%).

12

Contract costs increased $127.2 million (109%) to $243.9 million due to
an increase of $78.9 million (138%) in construction services cost, $45.4 million
(120%) in engineering services cost and $2.9 million (13%) in specialty services
cost. Variations in contract cost by country were closely related to the
variations in contract revenue.

Depreciation and amortization increased $1.8 million (19%) due
primarily to the addition of equipment for the Chad-Cameroon Pipeline Project
and the project in Bolivia.

General and administrative expense increased $4.8 million (37%) to
$17.7 million. This increase is due to higher staff compensation and
administrative services necessary to support the 104% increase in revenue. As a
percent of revenue, general and administrative expense decreased from 9.0% in
2001 to 6.0% in 2002.

Operating income increased $11.7 million (107%) from $11.0 million in
2001 to $22.7 million in 2002. Excluding a one time gain of $5.6 million in June
2001 associated with the termination of a benefit plan, operating income
increased $17.3 million (320%). Excluding the one time gain in 2001, operating
income increased largely as a result of higher revenue resulting from greater
activity in North America, construction activity on the Chad-Cameroon Pipeline
Project and marine maintenance and construction in Offshore West Africa, offset
by higher depreciation, amortization and general and administrative costs and
reduced income in Nigeria resulting from a 53% decrease in revenue in that area.

Interest expense was unchanged from the prior year. In May 2002 we
completed a common stock offering in which we received $72.1 million in net
proceeds. Borrowings under the credit agreement were paid in full.

Other expense increased $1.4 million to $1.8 million due primarily to
the loss on retirement of older assets in Venezuela and Oman and losses on
currency translations in 2002 related to devaluation of the Venezuelan bolivar.

The provision for income taxes increased $6.0 million (296%) due
primarily to the increase in taxable income in the United States and a $2.3
million reduction in income tax expense in 2001 due to an adjustment in
connection with the valuation allowance related to the net operating loss
carryforwards in the United States and settlement of prior year taxes outside
the United States. The provision for income taxes is also impacted by income
taxes in certain countries being based on deemed profit rather than taxable
income and the fact that losses in one country cannot be used to offset taxable
income in another country.

LIQUIDITY AND CAPITAL RESOURCES

Our primary requirements for capital are to acquire, upgrade and
maintain our equipment, provide working capital for current projects, finance
the mobilization of employees and equipment to new projects, establish a
presence in countries where we perceive growth opportunities and finance the
possible acquisition of new businesses and equity investments. Historically, we
have met our capital requirements primarily from operating cash flows, and more
recently from borrowings under our credit facility.

Cash and cash equivalents increased $17.9 million (93%) to $37.2
million at June 30, 2002, from $19.3 million at December 31, 2001. The increase
was due to net cash flows of $34.2 million from financing activities, offset by
$14.4 million used for investing activities (the purchase of equipment and spare
parts) and $1.7 million used for operations. The effect of exchange rate changes
on cash and cash equivalents was to reduce cash and cash equivalents by $0.2
million.

On May 14, 2002, we completed a public offering of our common shares at
$17.75 per share; 4,356,750 shares were sold by us and 985,000 shares were sold
by certain selling stockholders. We received $72.1 million in net proceeds,
which were used to repay indebtedness under our prior credit facility and for
working capital and general corporate purposes.

13

On June 14, 2002, we completed a new $125.0 million credit agreement
with a syndicated bank group, replacing the existing facility that was due to
expire in February 2003. The facility may be used for standby and commercial
letters of credit, borrowings or a combination thereof. Borrowings are limited
to the lesser of 40% of the borrowing base or $50.0 million and are payable at
termination on June 14, 2005. Interest is payable quarterly at a Base Rate plus
a margin ranging from 0.75% to 2.00% or a Eurodollar Rate plus a margin ranging
from 1.75% to 3.00%. A commitment fee on the unused portion of the credit
agreement is payable quarterly ranging from 0.50% to 0.75%. The credit agreement
is collateralized by substantially all of our assets, including stock of our
principal subsidiaries, restricts the payment of cash dividends and requires us
to maintain certain financial ratios. The borrowing base is calculated using
varying percentages of cash, accounts receivable, accrued revenue, contract cost
and recognized income not yet billed, property, plant and equipment, and spare
parts. Debt issue costs of $2.2 million, net of accumulated amortization,
associated with the new credit agreement are included in other assets at June
30, 2002 and are being amortized over a 24 month period.

At June 30, 2002, there were no amounts borrowed under the credit
agreement. We had $66.5 million of letters of credit outstanding leaving $58.5
million available for letters of credit or $38.9 million for borrowings, or a
combination thereof.

At June 30, 2002, there were $1.0 million of notes payable issued by
RPI, primarily related to financing of annual insurance premiums. The notes
require monthly payment of principle plus interest of 4.75% and mature on
January 1, 2003.

At June 30, 2002, MSI borrowed $0.2 million under a $1.5 million credit
facility with a bank. The credit facility is collateralized by a fabrication
facility, real estate and equipment. The facility matures in October 2002.

We have unsecured credit facilities with banks in certain countries
outside the United States. Borrowings under these lines, in the form of
short-term notes and overdrafts, are made at competitive local interest rates.
Generally, each line is available only for borrowings related to operations in a
specific country. Credit available under these facilities is approximately $8.1
million at June 30, 2002. There were no outstanding borrowings at June 30, 2002.

We do not anticipate any significant collection problems with our
customers, including those in countries that may be experiencing economic and/or
currency difficulties. Since our customers generally are major oil companies and
government entities, and the terms for billing and collecting for work performed
are generally established by contracts, we historically have a very low
incidence of collectability problems.

We believe that cash flows from operations, borrowing capacity under
existing credit facilities and cash generated from the issuance of additional
common shares in the public equity offering will be sufficient to finance
working capital and capital expenditures for ongoing operations through June 30,
2003. We estimate capital expenditures for equipment and spare parts to be
approximately $25.0 to $35.0 million in 2002. We believe that while there are
numerous factors that could and will have an impact on our cash flow, both
positively and negatively; there is not one or two events that should they occur
could not be funded from our operations or borrowing capacity. For a list of
events which could cause actual results to differ from our expectations and a
discussion of risk factors that could impact cash flow, please refer to the
section entitled "Political and Economic Risks; Operational Risks" contained in
our report on Form 10-K, as amended, for the year ended December 31, 2001.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143
requires that an asset retirement cost should be capitalized as part of the cost
of the related long-lived asset and subsequently allocated to expense using a
systematic and rational method. We will adopt SFAS No. 143 effective January 1,
2003. The transition adjustment, if any,

14

will be reported as a cumulative effect of a change in accounting principle. At
this time, we cannot reasonably estimate the effect of the adoption of this
statement on either our financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS No. 4,
44, and 64, Amendment of SFAS No. 13 and Technical Corrections". SFAS No. 145
provides guidance for income statement classification of gains and losses on
extinguishment of debt and accounting for certain lease modifications that have
economic effects that are similar to sale-leaseback transactions. We will adopt
SFAS No. 145 in January 2003 and do not expect adoption to materially affect our
consolidated financial statements.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which addresses accounting for
restructuring and similar costs. SFAS No. 146 supersedes previous accounting
guidance, principally Emerging Issues Task Force Issue No. 94-3. We will adopt
the provisions of SFAS No. 146 for restructuring activities initiated after
December 31, 2002. SFAS No. 146 requires that the liability for costs associated
with an exit or disposal activity be recognized when the liability is incurred.
Under Issue 94-3, a liability for an exit cost is recognized at the date of the
Company's commitment to an exit plan. SFAS No. 146 also establishes that the
liability should initially be measured and recorded at fair value. Accordingly,
SFAS No. 146 may affect the timing of recognizing future restructuring costs as
well as the amounts recognized.

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 which 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 and power prices, demand for
our services, the amount and nature of future investments by governments,
expansion and other development trends of the oil, gas and power industries,
business strategy, expansion and growth of our business and operations, and
other such matters are forward-looking statements. These statements are based on
certain 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 in the
circumstances. However, whether actual results and developments will conform to
our expectations and predictions is subject to a number of risks and
uncertainties, which could cause actual results to differ materially from our
expectations including:

o The timely award of one or more projects

o Cancellation of projects

o Inclement weather

o Project cost overruns and unforeseen schedule delays

o Failing to realize cost recoveries from projects completed or
in progress within a reasonable period after completion of the
relevant project

o Identifying and acquiring suitable acquisition targets on
reasonable terms

o Obtaining adequate financing

o The demand for energy diminishing

o Curtailment of capital expenditures in the oil, gas, and power
industries

o Political circumstances impeding the progress of work

o Downturns in general economic, market or business conditions
in our target markets

o Changes in laws or regulations, or current practices regarding
their application

o The risk factors listed in this Form 10-Q and listed from time
to time in our filings with the Securities and Exchange
Commission

o 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 anticipated will be realized or, even
if substantially realized, that they will have the expected consequences to or
effects on our business or operations. We assume no obligation to update
publicly any such forward-looking statements, whether as a result of new
information, future events or otherwise.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FINANCIAL RISK MANAGEMENT

Our primary market risk is our exposure to changes in non-U.S. currency
exchange rates. We attempt to negotiate contracts which provide for payment in
U.S. dollars, but we may be required to take all or a portion of payment under a
contract in another currency. To mitigate non-U.S. currency exchange risk, we
seek to match anticipated non-U.S. currency revenue with expenses in the same
currency whenever possible. To the extent we are unable to match non-U.S.
currency revenue with expenses in the same currency, we may use forward
contracts, options or other common hedging techniques in the same non-U.S.
currencies. We had no forward contracts or options at June 30, 2002.

The carrying amounts for cash and cash equivalents, accounts
receivable, notes payable and accounts payable and accrued liabilities shown in
the consolidated balance sheets approximate fair value at June 30, 2002 due to
the generally short maturities of these items. We invest primarily in short-term
dollar denominated bank deposits, and at June 30, 2002 did not have any
investment in instruments with a maturity of more than a few days or in any
equity securities. We have the ability and expect to hold our investments to
maturity.

Our exposure to market risk for changes in interest rates relates
primarily to our long-term debt. In May 2002, subsequent to completing our
public offering of common shares, we paid all borrowings on our credit facility
and as such at June 30, 2002, none of our indebtedness was subject to variable
interest rates. At June 30, 2002, our fixed rate debt approximated fair value
based upon discounted future cash flows using current market prices.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable

Item 2. Changes in Securities and Use of Proceeds

Not applicable

Item 3. Defaults upon Senior Securities

Not applicable

Item 4. Submission of Matters to a Vote of Security Holders

The Annual Meeting of Stockholders of the Company (the "Annual
Meeting") was held on May 30, 2002, in Panama City, Panama. At the Annual
Meeting, the stockholders of the Company elected Larry J. Bump, Guy E. Waldvogel
and Michael F. Curran as Class III directors of the Company for three-year
terms. The stockholders also considered and approved a.) Amendment to the
Articles of Incorporation, deleting a certain class of preferred stock that
would never be issued, b.) Amendment Number 2 to the Willbros Group, Inc.
Director Stock Plan increasing the total number of shares of Common Stock
available for issuance under the plan from 125,000 shares to 225,000 shares and
c.) the appointment of KPMG LLP as the independent auditors of the Company for
the fiscal year ending December 31, 2002.

There were present at the Annual Meeting, in person or by proxy,
stockholders holding 11,855,782 shares of the common stock of the Company, or
78.91 percent of the total stock outstanding and entitled to vote at the Annual
Meeting. The table below describes the results of voting at the Annual Meeting.

17

Item 5. Other Information

Not applicable

Item 6. Exhibits and Reports on Form 8-K

(a) 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 Credit Agreement dated June 14, 2002, by and among
the Company, certain designated subsidiaries, Credit
Lyonnais New York Branch, as administrative agent,
certain financial institutions, and Canadian Imperial
Bank of Commerce, as syndication agent.

10.2 Amendment Number 2 to the Willbros Group, Inc.
Director Stock Plan (filed as Exhibit B to the
Company's Proxy Statement for Annual Meeting of
Stockholders dated April 30, 2002).

10.3 Separation Agreement and Release dated May 30, 2002,
between Willbros U.S.A., Inc. and Larry J. Bump.

10.4 Consulting Services Agreement dated June 1, 2002,
between Willbros Group, Inc. and Larry J. Bump.

10.5 Form of Secured Promissory Note under the Employee
Stock Purchase Program.

99.1 Certificate pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.

99.2 Certificate pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.

(b) Reports on Form 8-K:

Form 8-K dated May 6, 2002, filed on May 8, 2002, to file our
press release dated May 6, 2002, reporting earnings for the
three month period ended March 31, 2002.

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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: August 14, 2002 By: /s/ Warren L. Williams
----------------------------------
Warren L. Williams
Senior Vice President, Chief Financial
Officer And Treasurer
(Principal Financial Officer and
Principal Accounting Officer)

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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.