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, 2003

OR

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

FOR THE TRANSITION PERIOD FROM ____________ TO _____________

COMMISSION FILE NUMBER 1-11953

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

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

PLAZA 2000 BUILDING
50TH STREET, 8TH FLOOR
APARTADO 0816-01098
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
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(Former name, former address and former fiscal year, if changed since
last report)

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

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

The number of shares of the registrant's Common Stock, $.05 par value,
outstanding as of August 12, 2003 was 20,679,693.

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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, 2003, 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, 2002
audited consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002. The
results of operations for the period ended June 30, 2003, are not necessarily
indicative of the operating results to be achieved for the full year.

Certain reclassifications have been made to the 2002 balances in order to
conform to 2003 presentation.

2. STOCK-BASED COMPENSATION

The Company measures stock-based employee compensation using the
intrinsic value method of accounting prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations, and provides pro-forma disclosure as required by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." As such, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the date of
grant over the exercise price.

If compensation cost for the Company's stock options plans had been
determined using the fair value method in SFAS No. 123, the Company's net income
(loss) and income (loss) per share would have been as shown in the pro forma
amounts below:

6

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

2. STOCK-BASED COMPENSATION (CONTINUED)

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 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 five 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 loan receivable is presented as a reduction of stockholders' equity.

3. NEW ACCOUNTING PRINCIPLES

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. The Company adopted SFAS No. 143 effective
January 1, 2003. The adoption of this statement did not have a material impact
on the Company's 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. The Company
adopted SFAS No. 145 in January 2003. The adoption of this statement did not
have a material impact on the Company's financial position or results of
operations.

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. The Company
adopted 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.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34." This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and are not expected to have a material effect on the Company's
financial statements.

7

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

3. NEW ACCOUNTING PRINCIPLES (CONTINUED)

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an Amendment of FASB
Statement No. 123." This Statement amends FASB Statement No. 123, "Accounting
for Stock-Based Compensation," to provide alternative methods of transition for
a voluntary change to the fair value method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of Statement No. 123 to require prominent disclosures in both
annual and interim financial statements. Certain of the disclosure modifications
are required for fiscal years ending after December 15, 2002 and are included in
these notes to the consolidated financial statements. As described in Note 2,
the Company measures stock-based employee compensation using the intrinsic value
method rather than the fair value method.

4. 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, 2003, or December 31, 2002.

5. INCOME TAXES

During the quarter ended June 30, 2003, the Company recorded a $1,936
net income tax benefit on income before income taxes of $2,189, resulting in an
effective income tax rate of (88)% for the period. This effective rate differs
from the United States statutory federal income tax rate of 34% primarily as a
result of: (a) pretax income generated in countries that have low or no
effective income tax rates that more than offset a pretax loss of $5,565 in the
United States; and (b) a $535 reduction in taxes due to annual settlements of
tax liabilities outside the United States.

6. DEBT

On June 14, 2002, the Company completed a new $125,000 credit agreement
with a syndicated bank group. 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 $50,000 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 $3,055, net
of accumulated amortization of $1,655, associated with the new credit agreement
are included in other assets at June 30, 2003 and are being amortized over 24
months ending June 2004.

8

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, 2003 and 2002, are computed as follows:

At June 30, 2003, there were 710,225 potential common shares (10,750 at
June 30, 2002) 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 and government instability. Management is not presently
aware of any material 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,
subject to 20 percent co-insurance, in countries outside North America 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.

9

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 outside the control of
the Company. 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 and/or contractual 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 related to claims will be recorded in
the periods in which the claims are agreed to by the customers.

In connection with the Company's 10% interest in a joint venture in
Venezuela, the Company issued a corporate guarantee equal to 10% of the joint
venture's outstanding borrowings with two banks. The guarantee reduces as
borrowings are repaid, and expires in March 2004. The commitment as of June 30,
2003 totals approximately $3,500, the maximum amount of future payments the
Company could be required to make.

From time to time the Company enters into commercial commitments,
usually in the form of commercial and standby letters of credit, insurance bonds
and financial guarantees. Contracts with the Company's customers may require the
Company to provide letters of credit or insurance bonds with regard to the
Company's performance of contracted services. In such cases, the commitments can
be called upon in the event of failure to perform contracted services. Likewise,
contracts may allow the Company to issue letters of credit or insurance bonds in
lieu of contract retention provisions, in which the client withholds a
percentage of the contract value until project completion or expiration of a
warranty period. Retention commitments can be called upon in the event of
warranty or project completion issues, as prescribed in the contracts. In
connection with the Chad-Cameroon Pipeline Project joint venture, the Company
issued a letter of credit to an equipment leasing company equal to 50% of total
lease payments, the Company's share of the joint venture. The letter of credit
reduces as lease payments are made and expires in December 2003. The commitment
can be called upon as a result of failure to make lease payments. At June 30,
2003, the Company had $41,228 of letters of credit and insurance bonds
outstanding, representing the maximum amount of future payments the Company
could be required to make. The Company had no liability recorded as of June 30,
2003, related to these commitments.

In connection with the Company's 50% interest in a joint venture
related to the Chad-Cameroon Pipeline Project, the Company is joint and
severally liable for the performance of the Company's joint venturer. In the
event the joint venturer were unable to fulfill its responsibilities associated
with the project, the Company would be required to fulfill its duties. In doing
so, the Company would recognize the income or losses, if any, associated with
the Company fulfilling the duties of its joint venturer. At June 30, 2003, the
project is approximately 97% complete and is estimated to produce contract
income. However, there is no limitation to the maximum future potential payments
the Company could be required to make in the event the project were to result in
contract losses. The Company has no liability recorded as of June 30, 2003,
related to this commitment.

The Company is a party to a number of legal proceedings. Management
believes that the nature and number of these proceedings are typical for a firm
of similar size engaged in a similar type of business and that none of these
proceedings is material to the Company's financial position.

10

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, 2003
and 2002, 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 for the year ended December 31, 2002.

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 and
variations in the scope of work is recognized when agreement is reached with
clients as to the scope of work and when it is probable that the cost of
such work will be recovered in a change in contract price. Profit on change
orders, extra work and variations in the scope of work is recognized when
realization is assured beyond a reasonable doubt. Revenue from claims is
recognized when agreement is reached with clients as to the value of the claims,
which in some instances may not occur until after completion of work under the
contract. Revenue from unit-price contracts is recognized as earned. Management
believes 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 for the year ended December 31, 2002, 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, 2003.

We use EBITDA (earnings before net interest, income taxes, depreciation and
amortization) as part of our overall assessment of financial performance by
comparing EBITDA between 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 was $8.6 million for the six month period ended June 30, 2003, a
decrease of $23.6 million (73%) compared to the six

11

month period ended June 30, 2002. It should be noted that 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.

A reconciliation of EBITDA to net income for the six months ended June
30, 2003 and 2002, is as follows:

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 $69.0 million during the
quarter ended June 30, 2003. Additions to backlog during the period were as
follows: construction, $46.7 million; engineering, $4.4 million; and specialty
services, $17.9 million. Backlog decreases by type of service as a result of
services performed during the period were as follows: construction, $90.9
million; engineering, $11.7 million; and specialty services, $20.3 million.
Backlog at June 30, 2003, was down $53.9 million (25%) from March 31, 2003 to
$164.4 million and consisted of the following: (a) construction, $80.9 million,
down $44.2 million; (b) engineering, $8.1 million, down $7.3 million; and (c)
specialty services, $75.4 million, down $2.4 million. Construction backlog
consists primarily of construction projects in Venezuela, Oman, the United
States and Offshore West Africa and the Chad-Cameroon Pipeline Project (see
below). Engineering backlog consists 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, a ten-year contracted gas processing fee at a
natural gas processing plant in Opal, Wyoming and service contracts in Canada
and the United States. We anticipate that approximately $90.0 million of the
backlog at June 30, 2003, will be worked off during the remainder of 2003.

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"). Pipeline construction activities were nearing completion and
demobilization of project equipment and personnel was nearly complete by June
30, 2003.

During 2001, our engineering group executed an alliance agreement with
Explorer Pipeline Company to provide project management, engineering,
procurement and construction services for their Mainline Expansion Project in
Texas, Oklahoma, Missouri, Illinois, and Indiana (the "Explorer Pipeline
Project"). This project includes construction of 12 grassroots pump stations,
modifications at 13 existing pump stations, the addition of 500,000 barrels of
storage at the Wood River, Illinois terminal and modifications at two other
terminals. The project was substantially complete as of June 30, 2003.

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. The underwriters exercised
options to purchase all shares available for over-allotments. We received $71.9
million 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.

In June 2002, we completed a new $125.0 million credit agreement with a
syndicated bank group. The terms of the new facility are discussed in the
Liquidity and Capital Resources section of Item 2 of this Form 10-Q.

12

On October 23, 2002, we completed the acquisition of four related
companies (collectively, "Mt. West Group"). Mt. West Group provides design-build
services, including engineering, procurement and construction services to the
energy industry, primarily in the western United States, and contributed $21.5
million of revenue during the six months ended June 30, 2003.

The government of Venezuela, under Presidente Hugo Chavez, has
experienced extreme civil unrest culminating in a national labor strike
beginning in December 2002. We suspended all work in Venezuela in December 2002
and resumed work in February 2003 when the impact of the strike had moderated.
Although business and commercial activity has not yet returned to pre-strike
levels, it has continued to improve.

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, 2003 or 2002.

Three Months Ended June 30, 2003, Compared to Three Months Ended June
30, 2002

Contract revenue decreased $25.2 million (17%) to $122.9 million due to
(a) decreased engineering revenue of $35.3 million (75%) due primarily to a
number of significant engineer, procure, and construct projects in progress in
the United States during the second quarter of 2002 that were not duplicated
during the same period in 2003; partially offset by (b) $5.9 million (7%) of
increased construction revenue due primarily to revenue from Mt. West Group,
which was acquired in October 2002, partially offset by lower levels of
construction on the Chad-Cameroon Pipeline Project and a construction project in
Bolivia; and (c) an increase of $4.2 million (26%) in specialty services revenue
principally from operations in Nigeria. Revenue in the United States decreased
$14.9 million (25%) due to a decrease in engineering, procurement and
construction services, partially offset by $10.4 million of revenue from Mt.
West Group. Work that began in 2002 on a project in Bolivia resulted in $11.9
million (98%) less revenue in that country in 2003 as that project was
substantially completed during the second quarter of 2003. Chad-Cameroon revenue
decreased $11.6 million (32%) resulting from lower levels of construction work
as the pipeline project in that area neared completion. Revenue in Venezuela
increased $5.2 million primarily as a result of a large project in that area
that commenced during the third quarter of 2002. Nigeria revenue increased $3.7
million (40%). Revenue from Offshore West Africa increased $3.6 million (19%) as
a result of increased vessel utilization. The combined revenue in all other
areas increased $0.7 million.

Contract costs decreased $14.9 million (12%) to $106.2 million due to a
decrease of $25.8 million (64%) in engineering cost net of increases of $7.6
million (11%) in construction services cost and $3.3 million (26%) in specialty
services cost. Variations in contract cost by country were closely related to
the variations in contract revenue.

Depreciation and amortization decreased $0.3 million (6%) to $5.5
million.

General and administrative expense decreased $0.3 million (3%) to $8.6
million. The Mt. West Group accounted for $0.8 million of total general and
administrative expense during the period. Excluding the Mt. West Group, general
and administrative expense declined $1.1 million primarily as a result of lower
staff compensation and administrative services associated with the reduction in
revenue. As a percent of revenue, general and administrative expense increased
from 6% in 2002 to 7% in 2003.

Operating income decreased $9.7 million (79%) from $12.2 million in
2002 to $2.5 million in 2003. Operating income decreased largely as a result of
(a) lower revenue resulting from less activity in the United

13

States, on the project in Bolivia and on the Chad-Cameroon Pipeline Project; and
(b) lower margins on work performed in the United States.

Interest expense increased less than $0.1 million from the prior year.
In May 2002, we completed a common stock offering in which we received $71.9
million in net proceeds. Borrowings under our prior credit agreement were paid
in full. Interest expense in 2003 results from amortization of debt issue cost,
net of interest income.

Other expense decreased $1.1 million to $0.1 million of income. The
change is due primarily to losses on currency translations in 2002 related to
devaluation of the Venezuelan bolivar.

The provision for income taxes decreased $5.1 million to a tax benefit
of $1.9 million. In 2003, we recognized a $2.2 million income tax benefit in the
United States resulting from a $5.6 million pretax loss caused by the decline in
revenue and margins. Pretax income in countries where we have low or no
effective income tax rates more than offset the pretax loss in the United
States. The provision for income taxes is 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, 2003, Compared to Six Months Ended June 30,
2002

Contract revenue decreased $73.8 million (25%) to $221.8 million due to
(a) decreased engineering revenue of $71.4 million (74%) due to a decrease of
engineering and procurement services in the United States; (b) $11.8 million
(7%) of decreased construction revenue due primarily to lower levels of
construction on the Chad-Cameroon Pipeline Project and a project in Bolivia as
both projects neared completion in 2003 and lower activity in Offshore West
Africa, partially offset by revenue from Mt. West Group, which was acquired in
October 2002; partially offset by (c) an increase of $9.4 million (31%) in
specialty services revenue principally from revenue generated by Nigeria and
Canada. Revenue in the United States decreased $52.6 million (41%) due to a
decrease in engineering, procurement and construction services, partially offset
by $21.5 million of revenue from Mt. West Group. Chad-Cameroon revenue decreased
$18.6 million (28%) resulting from lower levels of construction work as the
pipeline project in that area neared completion. Work that began in 2002 on a
project in Bolivia resulted in $14.0 million less revenue in that country in
2003 as that project neared completion. Revenue from Offshore West Africa
decreased $5.8 million as a result of lower vessel utilization. Revenue in
Venezuela increased $8.3 million primarily as a result of a larger project in
that area that commenced during the third quarter of 2002. Nigeria revenue
increased $6.6 million. The combined revenue in all other areas increased $2.3
million.

Contract costs decreased $48.6 million (20%) to $195.3 million due to
decreases of $52.3 million (63%) in engineering services cost and $2.0 million
(1%) in construction services cost, offset by an increase of $5.7 million (23%)
in specialty services cost. Variations in contract cost by country were closely
related to the variations in contract revenue.

Depreciation and amortization decreased $0.1 million (1%).

General and administrative expense decreased $0.1 million (1%) to $17.6
million. The Mt. West Group accounted for $1.7 million of total general and
administrative expense during the period. Excluding the Mt. West Group, general
and administrative expense declined $1.8 million primarily as a result of lower
staff compensation and administrative services associated with the reduction in
revenue. As a percent of revenue, general and administrative expense increased
from 6% in 2002 to 8% in 2003.

Operating income decreased $25.1 million (110%) from $22.7 million in
2002 to a $2.3 million operating loss in 2003. Operating income decreased
largely as a result of (a) lower revenue resulting from less activity in the
United States, on the Chad-Cameroon Pipeline Project and on a pipeline project
in Bolivia; and (b) lower margins in the United States; partially offset by (c)
increased revenue in Venezuela.

Interest expense increased $0.1 million (14%) from the prior year. In
May 2002 we completed a common stock offering in which we received $71.9 million
in net proceeds. Borrowings under the credit agreement were paid in full.
Interest expense in 2003 results from amortization of debt issue costs, net of
interest income.

14

Other expense decreased $1.5 million to $0.3 million due primarily to
the loss on retirement of older assets in Venezuela and Oman in 2002 and losses
on currency translations in 2002 related to devaluation of the Venezuelan
bolivar.

The provision for income taxes decreased $11.0 million (137%) to a tax
benefit of $3.0 million. In 2003 we recognized a $3.7 million income tax benefit
in the United States resulting from a $10.4 million pretax loss caused by the
decline in revenue and margins. Pretax income in countries where we have low or
no effective income tax rates partially offset the pretax loss reported in 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 from
borrowings under our credit facility.

Cash and cash equivalents decreased $15.4 million (31%) to $34.1
million at June 30, 2003, from $49.5 million at December 31, 2002. The decrease
was due to net cash outflows of $13.3 million used for investing activities (the
purchase of equipment and spare parts) and $2.8 million used for operations, net
of $0.7 million of cash from financing activities.

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 $71.9 million in net proceeds,
which were used to repay indebtedness under our prior credit facility and for
working capital and general corporate purposes.

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 $1.4 million, net of accumulated amortization of $1.7
million, associated with the new credit agreement are included in other assets
at June 30, 2003 and are being amortized over a 24 month period.

At June 30, 2003, there were no amounts borrowed under the credit
agreement. We had $41.3 million of letters of credit outstanding leaving $51.4
million available for letters of credit of which up to $37.1 million was
available for borrowings as a result of borrowing base limitations.

At June 30, 2003, we have various other obligations totaling $1.3
million, including notes payable generally related to equipment financing and
revolving credit facilities. All are at market rates, are collateralized by
certain vehicles, equipment or real estate and mature over various terms through
2004.

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 $6.1
million at June 30, 2003. There were no outstanding borrowings at June 30, 2003.

15

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 and borrowing capacity under
existing credit facilities will be sufficient to finance working capital and
capital expenditures for ongoing operations through June 30, 2004. We estimate
capital expenditures for equipment and spare parts to be approximately $25.0 to
$35.0 million in 2003. 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, 2002.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123." This Statement amends FASB Statement No. 123, "Accounting
for Stock-Based Compensation," to provide alternative methods of transition for
a voluntary change to the fair value method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of Statement No. 123 to require prominent disclosures in both
annual and interim financial statements. Certain of the disclosure modifications
are required for fiscal years ending after December 15, 2002 and are included in
the notes to our condensed consolidated financial statements included in Item 1
of this Form 10-Q.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51." ("FIN 46"). The interpretation states that certain variable interest
entities may be required to be consolidated into the results of operations and
financial position of the entity that is the primary beneficiary. FIN 46 applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after June
15, 2003, to variable entities in which an enterprise holds a variable interest
that it acquired before February 1, 2003. FIN 46 applies to public enterprises
as of the beginning of the applicable interim or annual period. We do not expect
the adoption of FIN 46 to have have a material impact on our financial position
or results of operations.

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

o Political circumstances impeding the progress of work

o The timely award of one or more projects

o Cancellation of projects

16

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

o Changes in the effective tax rate in countries where the work
is performed

o Changes in laws or regulations

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

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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, 2003.

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, 2003 due to
the generally short maturities of these items. We invest primarily in short-term
dollar denominated bank deposits, and at June 30, 2003 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.
We have not since made any new borrowings and as such at June 30, 2003, none of
our indebtedness was subject to variable interest rates. At June 30, 2003, our
fixed rate debt approximated fair value based upon discounted future cash flows
using current market prices.

ITEM 4. CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of June 30, 2003. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective. Disclosure controls
and procedures are designed to ensure that information required to be disclosed
in our reports filed or submitted under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms. During the period covered
by this Form 10-Q,

17

there have been no changes in our internal control over financial reporting that
have materially affected or are reasonably likely to materially affect our
internal control over financial reporting.

18

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 15, 2003, in Panama City, Panama. At the Annual
Meeting, the stockholders of the Company elected Peter A. Leidel and James B.
Taylor, Jr. as Class I directors of the Company for three-year terms. The
stockholders also considered and approved the appointment of KPMG LLP as the
independent auditors of the Company for the fiscal year ending December 31,
2003.

There were present at the Annual Meeting, in person or by proxy,
stockholders holding 17,127,208 shares of the common stock of the Company, or
83.01 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.

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 or furnished herewith.

19

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

32.2 Certification 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 April 23, 2003, filed on April 24, 2003, furnishing
under Item 12 our press release dated April 23, 2003, reporting
preliminary earnings for the three month period ended March 31, 2003
and revised outlook.

Form 8-K dated May 7, 2003, filed on May 8, 2003, furnishing under Item
12 our press release dated May 7, 2003, reporting earnings for the
three month period ended March 31, 2003.

20

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 13, 2003

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

21

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 or furnished herewith.