WASHINGTON GROUP INTERNATIONAL INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
ANNUAL REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended

DECEMBER 1, 2000

Commission File Number 1-12054

WASHINGTON GROUP INTERNATIONAL, INC.

A Delaware Corporation
IRS Employer Identification No. 33-0565601

720 PARK BOULEVARD, BOISE, IDAHO 83712
208 / 386-5000

- --------------------------------------------------------------------------------
SECURITIES REGISTERED AND NUMBER OF SHARES OF
REGISTRANT'S COMMON STOCK OUTSTANDING
At December 1, 2000, 52,467,733 shares of the registrant's $.01 par value common
stock were outstanding, and such common stock was listed on the New York Stock
Exchange and registered under Section 12(b) of the Securities Exchange Act of
1934 (the "Exchange Act"). On May 14, 2001, the New York Stock Exchange
suspended trading of such common stock, and on July 6, 2001 such common stock
was delisted by the New York Stock Exchange. Upon such delisting, the common
stock was traded in the over-the-counter market and was registered under Section
12(g) of the Exchange Act. Pursuant to the Second Amended Joint Plan of
Reorganization of Washington Group International, Inc., et al., as modified and
confirmed, on January 25, 2002, all of the registrant's existing equity
securities, including such common stock, were canceled and extinguished, and new
common stock was issued. At May 31, 2002, 25,000,000 shares of the registrant's
$.01 par value common stock were outstanding; such common stock is traded in the
over-the-counter market and is registered under 12(g) of the Exchange Act.

COMPLIANCE WITH REPORTING REQUIREMENTS
Indicate by check mark whether the registrant 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 has been subject to such filing requirements
for the past 90 days.
/ / Yes /X/ No

DISCLOSURE PURSUANT TO ITEM 405 OF REGULATION S-K
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Annual Report on Form 10-K or any
amendment to this Annual Report on Form 10-K. /X/

AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY NONAFFILIATES
At December 1, 2000, the aggregate market value of the registrant's common stock
held by nonaffiliates of the registrant, based on the New York Stock Exchange
closing price on December 1, 2000, was approximately $273,640,483. Shares having
an aggregate market value of $172,335,247 are assumed to be held by affiliates
of the registrant on such date for purposes of this calculation. The aggregate
market value of the registrant's common stock held by nonaffiliates of the
registrant, based on the quotation service over-the-counter closing bid price on
May 31, 2002, as reported by the Pink Sheets(R) quotation service was
approximately $576,250,000. There were no shares held by affiliates on such
date.

DOCUMENTS INCORPORATED BY REFERENCE
None.

WASHINGTON GROUP INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 1, 2000

TABLE OF CONTENTS

NOTE REGARDING FORWARD-LOOKING INFORMATION

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS. YOU CAN IDENTIFY
FORWARD-LOOKING STATEMENTS BY THE USE OF TERMINOLOGY SUCH AS "MAY," "WILL,"
"ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT," "FUTURE," "INTEND," "PLAN,"
"COULD," "SHOULD," "POTENTIAL," OR "CONTINUE," OR THE NEGATIVE OR OTHER
VARIATIONS THEREOF, AS WELL AS OTHER STATEMENTS REGARDING MATTERS THAT ARE NOT
HISTORICAL FACT. THESE FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS,
STATEMENTS CONCERNING:

o OUR BUSINESS STRATEGY AND COMPETITIVE ADVANTAGES

o OUR EXPECTATIONS AS TO POTENTIAL REVENUES FROM DESIGNATED MARKETS OR
CUSTOMERS

o OUR EXPECTATIONS AS TO PROFITS, CASH FLOWS, RETURN ON INVESTED CAPITAL
AND NET INCOME

o OUR EXPECTATIONS AS TO NEW WORK AND BACKLOG

o THE MARKETS FOR OUR SERVICES AND PRODUCTS

o OUR ANTICIPATED CAPITAL EXPENDITURES AND FUNDING REQUIREMENTS

FORWARD-LOOKING STATEMENTS ARE ONLY PREDICTIONS. THESE FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES, INCLUDING, AMONG OTHERS, THE
RISKS AND UNCERTAINTIES IDENTIFIED IN THIS REPORT OR OTHER OPERATIONAL,
BUSINESS, INDUSTRY, MARKET, LEGAL AND REGULATORY DEVELOPMENTS, WHICH COULD CAUSE
ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY
THE STATEMENTS. THE MOST IMPORTANT FACTORS THAT COULD PREVENT US FROM ACHIEVING
THE EXPECTATIONS EXPRESSED INCLUDE, BUT ARE NOT LIMITED TO, OUR FAILURE TO:

o SATISFY THE RESTRICTIVE COVENANTS IMPOSED BY OUR INDEBTEDNESS

o RAISE SUFFICIENT WORKING CAPITAL ON ACCEPTABLE TERMS AND ON A TIMELY
BASIS

o MAINTAIN RELATIONSHIPS WITH KEY CUSTOMERS, PARTNERS, SURETIES AND
SUPPLIERS

o MANAGE AND AVOID DELAYS OR COST OVERRUNS IN EXISTING CONTRACTS

o SUCCESSFULLY BID FOR, AND ENTER INTO, NEW CONTRACTS ON SATISFACTORY
TERMS

o SUCCESSFULLY NEGOTIATE CLAIMS AND CHANGE ORDERS

o MANAGE AND MAINTAIN OUR OPERATIONS AND FINANCIAL PERFORMANCE AND THE
OPERATIONS AND FINANCIAL PERFORMANCE OF OUR CURRENT AND FUTURE OPERATING
SUBSIDIARIES AND JOINT VENTURES

o NEGOTIATE ACCEPTABLE COLLECTIVE BARGAINING AGREEMENTS WITH ANY
APPLICABLE UNIONS

o RESPOND TO COMPETITORS IN OUR EXISTING AND PLANNED MARKETS

o RESPOND EFFECTIVELY TO REGULATORY, LEGISLATIVE AND JUDICIAL
DEVELOPMENTS, INCLUDING ANY LEGAL OR REGULATORY PROCEEDINGS, AFFECTING
OUR EXISTING CONTRACTS, INCLUDING CONTRACTS CONCERNING ENVIRONMENTAL
REMEDIATION AND RESTORATION

o OBTAIN AND MAINTAIN ANY REQUIRED GOVERNMENTAL AUTHORIZATIONS,
FRANCHISES AND PERMITS, ALL IN A TIMELY MANNER, AT REASONABLE COSTS AND
ON SATISFACTORY TERMS AND CONDITIONS

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o SUCCESSFULLY IMPLEMENT OUR PLAN OF REORGANIZATION, AS MODIFIED AND
CONFIRMED

SOME OTHER FACTORS THAT MAY AFFECT OUR BUSINESSES, FINANCIAL POSITION OR
RESULTS OF OPERATIONS INCLUDE:

o ACCIDENTS AND CONDITIONS, INCLUDING INDUSTRIAL ACCIDENTS, LABOR
DISPUTES, GEOLOGICAL CONDITIONS, ENVIRONMENTAL HAZARDS, WEATHER AND
OTHER NATURAL PHENOMENA

o SPECIAL RISKS OF INTERNATIONAL OPERATIONS, INCLUDING UNCERTAIN
POLITICAL AND ECONOMIC ENVIRONMENTS, POTENTIAL INCOMPATIBILITIES WITH
FOREIGN JOINT VENTURE PARTNERS, FOREIGN CURRENCY FLUCTUATIONS AND
CONTROLS, CIVIL DISTURBANCES AND LABOR ISSUES

o SPECIAL RISKS OF CONTRACTS WITH THE GOVERNMENT, INCLUDING THE FAILURE
OF APPLICABLE GOVERNING AUTHORITIES TO TAKE NECESSARY ACTIONS TO SECURE
OR MAINTAIN FUNDING FOR PARTICULAR PROJECTS WITH US, THE UNILATERAL
TERMINATION OF CONTRACTS BY THE GOVERNMENT AND BEING REQUIRED TO
REIMBURSE THE GOVERNMENT FOR FUNDS PREVIOUSLY RECEIVED

o MAINTENANCE OF GOVERNMENT-COMPLIANT COST SYSTEMS

SUBSEQUENT EVENTS

The deadline to timely file this report was March 1, 2001. On March 2,
2001, we filed a Form 12b-25, which delayed the deadline to file this report
until March 16, 2001 and disclosed that we faced severe near-term liquidity
problems, were in default under certain covenants of our senior secured credit
facilities and were unable to secure performance bonds necessary to obtain new
projects. We also announced that, if we were unable to obtain additional sources
of cash, we may seek protection from our creditors under the U.S. Bankruptcy
Code. On March 8, 2001, we announced that, as a result of a rigorous review of
projects acquired in connection with our acquisition of the capital stock of
certain subsidiaries of Raytheon Engineers & Constructors International, Inc.
("RECI") from RECI and Raytheon Company ("Raytheon" and, together with RECI, the
"Sellers"), we believed that certain historical financial statements and
unaudited pro forma condensed combined financial statements, which were
previously filed as exhibits to a current report on Form 8-K filed July 13,
2000, should not be relied upon. For a more detailed discussion, see our current
report on Form 8-K filed March 8, 2001, and for additional discussion of the
transactions with the Sellers and their consequences, see "The Raytheon
Transaction" in Item 1 of this report. The businesses that we purchased,
hereinafter called "RE&C", provide engineering, design, procurement,
construction, operation, maintenance and other services on a worldwide basis. On
March 16, 2001, we filed a current report on Form 8-K, which stated that,
despite our best efforts to timely file this report, we would delay filing this
report until we would be able to accurately reflect the impact of our severe
near-term liquidity problems in the financial statements and related disclosures
to be included in this report. For a more detailed discussion, see our current
report on Form 8-K filed March 16, 2001.

On May 14, 2001, Washington Group International, Inc. and several but not
all of its direct and indirect subsidiaries filed voluntary petitions to
reorganize under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy
Court for the District of Nevada (Case No. BK-N-01-31627). The various legal
entities that filed for bankruptcy are collectively referred to hereafter as the
"Debtors." The individual bankruptcy cases were administered jointly. Each of
the Debtors continued to operate its business and manage its property as a
debtor-in-possession pursuant to sections 1107 and 1108 of the U.S. Bankruptcy
Code during the pendency of the cases. For a more detailed discussion, see our
current report on Form 8-K filed May 29, 2001.

Prior to May 14, 2001, our common stock was listed on the New York Stock
Exchange and traded under the ticker symbol "WNG." On May 14, 2001, the exchange
suspended trading of our common stock and on July 6, 2001 our common stock was
delisted by the exchange.

Shortly after the commencement of the bankruptcy cases, the committee
representing our secured lenders and Dennis R. Washington began negotiations
regarding Mr. Washington's continued involvement with us during the

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bankruptcy cases and after our emergence from bankruptcy protection. The
result of these negotiations was an agreement, embodied in our Plan of
Reorganization (as defined below), providing that in exchange for Mr.
Washington's agreement to render ongoing services to us and to remain as
chairman of our board of directors, Mr. Washington would be granted options
to purchase shares of our common stock to be issued in connection with our
emergence from bankruptcy protection. For a more detailed discussion, see our
current report on Form 8-K filed January 4, 2002.

Following the commencement of the bankruptcy cases, PricewaterhouseCoopers
LLP informed us that it had concluded that it was not a "disinterested person"
with respect to the Debtors, and could not file an affidavit of
disinterestedness before the bankruptcy court in order to continue to serve as
independent public accountants of the Debtors during the pendency of the
bankruptcy cases. In addition, PricewaterhouseCoopers LLP notified us that it
could give no assurance that it would be able to act as our independent public
accountants following the Debtors' emergence from bankruptcy protection. As a
result, on October 3, 2001, we dismissed PricewaterhouseCoopers LLP and selected
Deloitte & Touche LLP as our independent public accountants. For a more detailed
discussion, see our current report on Form 8-K filed October 3, 2001.

On December 21, 2001, the U.S. Bankruptcy Court for the District of Nevada
entered an order confirming the Second Amended Joint Plan of Reorganization of
Washington Group International, Inc., et al., as modified (the "Plan of
Reorganization"). For a more detailed discussion, see our current report on Form
8-K filed January 4, 2002.

On January 25, 2002 (the "Effective Date"), the Debtors emerged from
bankruptcy protection pursuant to our Plan of Reorganization. We also entered
into a $350 million, 30-month revolving credit facility to fund our working
capital requirements and obtained bonding capacity to take on new projects.
Under the Plan of Reorganization, on the Effective Date, all our equity
securities existing prior to the Effective Date were canceled and extinguished,
we issued an aggregate 25,000,000 shares of our $.01 par value common stock, we
issued warrants to purchase an additional aggregate 8,520,424 shares of common
stock, we filed an amended and restated certificate of incorporation and adopted
amended and restated bylaws, we adopted new stock option plans and granted
options under those plans for an aggregate 4,613,000 shares of common stock,
including options granted to Dennis R. Washington to purchase an aggregate
3,224,100 shares of common stock, and we entered into various other agreements.
For a more detailed discussion, see our current report on Form 8-K filed
February 8, 2002.

Also on the Effective Date, our board of directors was replaced by an
interim board of directors pursuant to the Plan of Reorganization. This interim
board of directors consisted of David H. Batchelder, H. Peter Boger, Robert A.
Del Genio, Joel A. Glodowski, Stephen G. Hanks, Samuel "Skip" Victor, Dennis R.
Washington and four vacancies. Pursuant to the Plan of Reorganization, the
interim board of directors was replaced upon designation of the members of the
initial board of directors on March 14, 2002 and April 9, 2002; these
designations became effective on March 25, 2002 and April 19, 2002,
respectively. The board of directors currently consists of Dennis R. Washington,
David H. Batchelder, Michael R. D'Appolonia, William J. "Bud" Flanagan, C. Scott
Greer, Stephen G. Hanks, William H. Mallender, Michael P. Monaco, Cordell Reed,
Bettina M. Whyte and Dennis K. Williams. For a more detailed discussion, see our
current reports on Form 8-K filed April 3, 2002 and April 26, 2002.

During the pendency of the bankruptcy cases, we continued negotiations with
the Sellers in respect of certain disputes related to the purchase price of
RE&C. As a result of these negotiations, we reached a settlement regarding the
issues and disputes between the parties, which settlement was incorporated into
our Plan of Reorganization (the "Raytheon Settlement").

Under the Raytheon Settlement, the Sellers waived any rights to
distributions under the Plan of Reorganization arising from the claims they had
asserted against the Debtors, and the Debtors agreed to dismiss the fraudulent
conveyance adversary proceeding they filed with the bankruptcy court and the
pending state court litigation against the Sellers related to our purchase of
certain of the businesses of RECI, including a purchase

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price adjustment process and a pending arbitration. We released all claims
based on any act occurring prior to the Effective Date of the Plan of
Reorganization, including all claims against the Sellers, their affiliates
and their directors, officers, employees, agents and specified professionals.
The Sellers released all claims based on any act occurring prior to the
Effective Date, including any claims related to any contracts or projects not
assumed by the Debtors during the bankruptcy cases, against us and our
directors, officers, employees, agents and professionals.

Under a services agreement entered into as a part of the Raytheon
Settlement, the Sellers will direct the process for resolving pre-petition
claims asserted against the Debtors in the bankruptcy cases relating to any
contract or project that was rejected by the Debtors and that involved some form
of support arrangement from the Sellers. We agreed to assist the Sellers in
settling or litigating various claims related to those rejected projects. We
will also complete work as requested by the Sellers on those rejected projects,
and the Sellers will reimburse us on a cost-plus basis. The Sellers have the
right to pursue or settle any claims of the Debtors against project owners,
contractors or other third parties with respect to those rejected projects and
will retain any resulting proceeds, except that for some projects, recoveries in
excess of amounts paid by the Sellers will be returned to us.

Our new common stock currently trades in the over-the-counter market and is
quoted on the Pink Sheets(R) quotation service under the ticker symbol "WGII."

We have changed our fiscal year from a 52/53 week year ending on the Friday
closest to the end of November to the Friday ending closest to the end of
December. This change became effective on December 29, 2001.

Beginning on December 29, 2001, we changed the operating units of our
business. The process technology development portion of our petroleum and
chemicals business is being held for sale; the remainder of the Petroleum &
Chemicals operating unit has been combined with the Industrial/Process operating
unit. Infrastructure & Mining has been split into two operating units:
"Infrastructure" and "Mining." The Government operating unit has been split into
two operating units: "Defense" and "Energy & Environment."

On January 25, 2002, we completed our reorganization and emerged from
bankruptcy. We accounted for the reorganization using fresh-start reporting
effective February 1, 2002. Accordingly, all assets and liabilities at the
Effective Date were restated to reflect their reorganization value, which
approximates fair value at the date of reorganization.

We have not filed our quarterly reports on Form 10-Q for the quarters ended
March 2, 2001, June 1, 2001 and August 31, 2001 and did not timely file our
annual report on Form 10-K for our fiscal year ended November 30, 2001 because
we needed additional time to prepare and file the financial statements and
related disclosures required to be included in those reports.

These events are discussed in greater detail in Note 3, "Acquisitions" and
Note 4, "Reorganization Case and Fresh-start Reporting" of the Notes to
Consolidated Financial Statements in Item 8 of this report and in our annual
report on Form 10-K for the fiscal year ended November 30, 2001, which is being
filed contemporaneously with this report.

PART I

ITEM 1. BUSINESS

Unless otherwise indicated, the terms "we," "us" and "our" refer to
Washington Group International, Inc. ("WGI") and its consolidated subsidiaries,
and references to 2001 are references to our fiscal year ended November 30,
2001. References to 2000 are references to our fiscal year ended December 1,
2000, references to 1999 are references to our fiscal year ended December 3,
1999, and references to 1998 are references to our fiscal year ended November
30, 1998.

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Except as otherwise indicated, the information in this report is presented
as of and for the periods ended December 1, 2000 and does not reflect our
reorganization, which occurred after our fiscal year ended November 30, 2001, or
the impact of our reorganization. Thus, although much of the information in this
report is stated in the present tense, unless otherwise indicated, that
information is not or may not be representative of our current business,
properties, legal proceedings or financial position. Because of the material
impact of the reorganization on our business and financial statements, the
information in this report is of limited relevance and does not include, except
by reference to our subsequent filings with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 that are identified in this
report, the information that is required for an understanding of our current
business, financial condition, prospects and outlook. Accordingly, this report
should be read in conjunction with the various reports we have filed with the
Securities and Exchange Commission under the Securities Exchange Act of 1934
since November 30, 2001 and, in particular, our quarterly report on Form 10-Q
for the quarter ended March 29, 2002, and our annual report on Form 10-K for the
fiscal year ended November 30, 2001, which are being filed contemporaneously
with this report.

Our principal executive offices are located at 720 Park Boulevard, Boise,
Idaho 83712. Our telephone number is (208) 386-5000. Our website address is
http://www.wgint.com. The information on our website is not incorporated into,
and is not part of, this report.

GENERAL

We are an international provider of a broad range of design, engineering,
construction, construction management, facilities and operations management,
environmental remediation and mining services. We offer our various services
separately or as part of an integrated package throughout the life cycle of a
customer's project:

o In providing engineering and design services, we are involved in the
conceptualization and planning stages of projects that are part of our
customers' overall capital programs. We develop the physical designs
and determine the technical specifications. We also devise project
configurations to maximize both construction and operating efficiency.

o As a contractor, we are responsible for the construction and completion
of each contract in accordance with its specifications and contracting
terms (primarily schedule and total cost). In this capacity, we often
manage the procurement of materials, subcontractors and craft labor.
Depending on the project, we may function as the primary contractor or
as a subcontractor to another firm.

o On some projects, we function as a construction manager, engaged by the
customer to oversee another contractor's compliance with design
specifications and contracting terms.

o Under operations and maintenance contracts, we provide repair,
renovation, predictive and preventive services to customer facilities
worldwide. We also offer other "light" facility services, such as
cleaning and grounds keeping. In addition, we provide inventory and
product logistics for manufacturing plants, information technology
support, equipment servicing and tooling changeover support.

On some projects, particularly those of significant size and requiring
specialized technology or know-how, we partner with other firms, both to
increase our opportunity to win the contract and to manage development and
execution risk. Partners may include specialized process engineering firms,
other contractors or equipment manufacturers. These partnerships may be
structured as joint ventures or consortia, with each participating firm having
an economic interest relative to the scope of its work.

We enter into three basic types of contracts with our customers:

o Under a "fixed-price" contract, we provide the customer a total project
or per-unit cost, subject to project circumstances and changes in
scope. We commonly refer to contracts under which the total project
cost is determined up front as "lump-sum" contracts. Plant and facility
construction projects are typically

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awarded on a lump-sum basis. We follow strict guidelines in bidding
for and entering into fixed-price contracts.

o Under a "fixed-unit-price" contract, the customer pays us for labor,
overhead, equipment rentals or other costs at fixed rates as each unit
of work is performed. Large infrastructure projects are typically
awarded on a fixed-price per-unit basis.

o Under a "cost-type" contract, a customer reimburses us for the costs
that we incur (primarily materials, labor, overhead and subcontractor
services), plus a predetermined fee. The fee portion of the contract
may equal a percentage of the costs incurred or may be based on the
achievement of specific performance incentives. The fee portion may
also be subject to a maximum. Engineering, construction management and
environmental and hazardous substance remediation contracts, including
most of our work for U.S. government customers, are typically awarded
pursuant to a cost-type contract.

Many fixed-price contracts require the contractor to provide a surety bond
to its customer. This general industry practice provides indemnification to the
customer if the contractor fails to perform its obligations. Surety companies
consider factors such as capitalization, available working capital, past
performance and management expertise to determine the amount of bonds they are
willing to issue to a particular engineering and construction firm.

BACKGROUND

We were originally incorporated in Delaware on April 28, 1993 under the
name Kasler Holding Company. In April 1996, we changed our name to Washington
Construction Group, Inc. On September 11, 1996, we purchased Morrison Knudsen
Corporation, which we refer to as "Old MK," and changed our name to Morrison
Knudsen Corporation. On September 15, 2000, we changed our name to Washington
Group International, Inc.

Our purchase of Old MK was structured as a merger with and into us and was
an integral part of the reorganization of Old MK under a plan of reorganization
that Old MK filed in the U.S. Bankruptcy Court for the District of Delaware. We
have no remaining obligations under that plan of reorganization.

On March 22, 1999, we and BNFL Nuclear Services, Inc. ("BNFL") acquired the
government and environmental services businesses of CBS Corporation (now Viacom,
Inc.). We refer to these businesses as the "Westinghouse Businesses." The
Westinghouse Businesses currently constitute our Westinghouse Government
Services Group, which is a part of our Government operating unit.

THE RAYTHEON TRANSACTION

On July 7, 2000, pursuant to a stock purchase agreement dated April 14,
2000 (the "Stock Purchase Agreement"), we purchased from the Sellers the capital
stock of the subsidiaries of RECI and specified other assets of RECI and we
assumed specified liabilities of RECI. The businesses that we purchased provide
engineering, design, procurement, construction, operation, maintenance and other
services on a worldwide basis. We financed the acquisition by obtaining new
senior secured credit facilities (the "RE&C Financing Facilities") and issuing
senior unsecured notes due July 1, 2010 (the "Senior Unsecured Notes"). See Note
8, "Credit Facilities - RE&C Financing Facilities" and "Credit Facilities -
Senior Unsecured Notes" of the Notes to Consolidated Financial Statements in
Item 8 of this report for a more detailed description of the RE&C Financing
Facilities and the Senior Unsecured Notes.

The purchase price paid at the closing of the acquisition on July 7, 2000
was $53 million in cash and the assumption of net liabilities originally
estimated at $450 million. We also incurred acquisition costs of $7.7 million.
The cash portion of the purchase price paid at closing was determined based upon
a formula contained in the Stock Purchase Agreement and represented the
estimated amount of the Adjusted Non-Current Net Assets and Adjusted Net Working
Capital (as the terms are defined in the Stock Purchase Agreement) that we
acquired,

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valued as of April 30, 2000. The amounts of Adjusted Non-Current Net Assets
and Adjusted Net Working Capital were subject to post-closing finalization,
including an audit by independent accountants, and other adjustments to the
price paid at closing. In addition, the Stock Purchase Agreement contained a
provision requiring us either to pay the Sellers or to be paid by the
Sellers, the net amount of cash the Sellers either advanced to or withdrew
from RE&C between April 30, 2000 and July 7, 2000. After closing we paid the
Sellers $84.4 million representing the net amount of cash advanced or paid by
the Sellers for the use or benefit of RE&C between April 30, 2000 and July 7,
2000.

The Stock Purchase Agreement provided that the Sellers would retain all
non-restricted cash and cash equivalents held by RE&C at the close of business
on April 30, 2000 ("Cut-Off Date Cash Balances"). At closing, for purposes of
administrative convenience, RE&C kept all cash held by it ($15.8 million), and
we paid the Sellers an additional $30.8 million for the cash balances on April
30, 2000. That amount was subject to post-closing verification by us and
adjustment in the event it was not equal to the Cut-Off Date Cash Balances held
by RE&C. We subsequently verified the amount and no adjustment was required.

RECI retained, among other assets, all of its interest in and rights with
respect to some of the existing contracts. In addition, the Stock Purchase
Agreement provided that the contracts related to four specified construction
projects would be transferred to RECI, and RE&C would enter into subcontracts to
perform, on a cost-reimbursed basis, all of RECI's obligations under those
contracts. Because the customer consents required to transfer the four contracts
to RECI could not be obtained as of closing, we agreed to remain the contract
party and continued to be directly obligated to the customers and other third
parties under the contracts relating to the four projects. Accordingly, we and
the Sellers agreed that the Sellers would provide us with full indemnification
with respect to any risks associated with those contracts, which arrangement
accomplished the original intent of the Stock Purchase Agreement. Under the
Stock Purchase Agreement we agreed that we would complete the four specified
projects for the Sellers' account and the Sellers agreed to reimburse our costs
to do so and to share equally with us any positive variance between actual costs
and estimated costs. The Sellers also agreed to indemnify us against any losses,
claims or liabilities under the contracts relating to such projects, except
losses, claims or liabilities resulting from our gross negligence or willful
misconduct, against which we would indemnify the Sellers.

The Stock Purchase Agreement did not contain a fixed purchase price at
closing for the transaction, but rather, as noted above, provided that the
purchase price would be adjusted upward or downward post-closing, based on the
effect on a formula that would be applied to an audited RE&C April 30, 2000
balance sheet to be prepared by the Sellers and audited by the Sellers'
independent accountants. After closing, we extended the delivery date for the
final audited RE&C balance sheet for April 30, 2000 to January 14, 2001.

As part of the acquisition of RE&C, we undertook a comprehensive review of
existing contracts that we acquired for the purpose of making a preliminary
allocation of the acquisition price to the net assets acquired. As part of this
review, we evaluated, among other matters, RECI's estimates of the cost at
completion of the long-term contracts that were underway as of July 7, 2000
("Acquisition Date EAC's"). During this process, information came to our
attention that raised questions as to whether the Acquisition Date EAC's needed
to be adjusted significantly. Our review process involved the analysis of an
extensive amount of supporting data, including analysis of numerous, large
construction projects in various stages of completion. Based on the information
available at the time of the review, the preliminary results of this review
indicated that the Acquisition Date EAC's of numerous long-term contracts
required substantial adjustment. The adjustments resulted in contract losses or
lower than market rate margins. As a result, in our report on Form 10-Q for the
quarter ended September 1, 2000, we significantly decreased the carrying value
of the net assets acquired and increased the goodwill associated with the
transaction. Because many of the contracts we acquired contained either
unrecorded losses or lower than market rate margins, these contracts were
adjusted to their estimated fair value at the July 7, 2000 acquisition date in
order to allow for a reasonable profit margin for completing the contracts, and
a gross margin or normal profit reserve of $233.1 million was established and
recorded in billings in excess of cost and estimated earnings on uncompleted
contracts.

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Our review of the RE&C contracts and the purchase price allocation process
continued thereafter, and, based on the results of that review, we expected
that, as a result of the purchase price adjustment process, the purchase price
of RE&C would be adjusted downward by a significant amount. Subsequent to the
quarter ended September 1, 2000, we completed the review and made additional
adjustments to the contracts we had acquired, resulting from a more accurate
determination of the actual contract status at the acquisition date.

The normal profit reserve has been reduced as work has been performed on
the affected projects. The reduction results in reductions to cost of revenue
and corresponding increases in gross profit, but has no effect on cash. The
establishment of and decreases in cost of revenue for the periods indicated are
as follows:

An audited RE&C April 30, 2000 balance sheet was not delivered by Sellers,
and therefore on February 27, 2001 we filed a lawsuit against the Sellers
seeking specific performance of the purchase price adjustment provisions of the
Stock Purchase Agreement. On March 8, 2001, we amended our complaint to also
seek money damages for misstatements and omissions allegedly made by the
Sellers. Our lawsuit seeking specific performance was successful, and we and the
Sellers thereafter commenced arbitration proceedings before an independent
accountant approved by the court to determine the purchase price adjustment. A
significant arbitration claim was ultimately filed against the Sellers, as
discussed below.

During the spring of 2000, in connection with the acquisition of RE&C, we
received from the Sellers audited RECI financial statements at December 31, 1999
and 1998 and for each of the three years in the period ended December 31, 1999
and unaudited RECI financial statements as of and for the three months ended
April 2, 2000 and April 4, 1999. In accordance with federal securities law
disclosure requirements, we filed on July 13, 2000 those audited and unaudited
financial statements and our related unaudited pro forma condensed combined
financial statements as of and for the year ended December 3, 1999 and for the
quarter ended March 3, 2000 in a current report on Form 8-K. In our current
report on Form 8-K filed March 8, 2001, we advised that, for the reasons stated
in such report, the foregoing audited and unaudited financial statements of
RECI, and our related unaudited pro forma condensed combined financial
statements, which were derived therefrom, no longer should be relied upon.

On March 2, 2001 we announced that we faced severe near-term liquidity
problems as a result of our acquisition of RE&C. On March 9, 2001, because of
those liquidity problems, we suspended work on two large construction projects
located in Massachusetts that were part of the acquisition. The Sellers had
provided the customer with parent performance guarantees on those two contracts
and the guarantees remained in effect after closing. Those performance
guarantees required the Sellers to complete the work on the contracts in the
event RE&C (owned by us as of July 7, 2000) did not complete them. The contracts
were fixed-price in nature and our review of cost estimates indicated that there
were substantial unrecognized future costs in excess of future contract revenues
that were not reflected in RECI's Acquisition Date EAC's.

Upon our suspension of work, the Sellers undertook performance of those
contracts pursuant to the outstanding performance guarantees. We, however, were
obligated under the Stock Purchase Agreement to indemnify the Sellers for losses
they incurred under those guarantees. The Sellers also assumed obligations under
other contracts, primarily in the RE&C power generation construction business
unit, which resulted in significant additional indemnification obligations by us
to the Sellers. As a result of costs they incurred to perform under the parent
guarantees, the Sellers filed a claim against us in the bankruptcy process for
approximately $940 million.

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As further discussed below, this claim was ultimately settled without payment
to the Sellers in connection with the completion of our Plan of
Reorganization. See Note 4, "Reorganization Case and Fresh-start Reporting"
of the Notes to Consolidated Financial Statements in Item 8 of this report.

On May 14, 2001, because of the severe near-term liquidity problems
resulting from our acquisition of RE&C, we filed for protection under Chapter
11 of the U.S. Bankruptcy Code. At various times between May 14, 2001 and
November 20, 2001, we "rejected" numerous contracts (construction contracts,
leases and others), as that term is used in the legal sense in bankruptcy
law. Included in these rejections were numerous contracts that we acquired
from the Sellers. Effective August 27, 2001, we also rejected the Stock
Purchase Agreement.

During the pendency of the bankruptcy we continued to negotiate with the
Sellers a settlement of our outstanding litigation with respect to the RE&C
acquisition. As a result of those negotiations, we entered into the Raytheon
Settlement.

Under the Raytheon Settlement, the Sellers agreed that, with respect to
their bankruptcy claim, the Sellers would be considered unpaid, unsecured
creditors having rights in the unsecured creditor class, but that, upon
completion of our Plan of Reorganization, they would waive any rights to receive
any distributions to be given to unsecured creditors with allowed claims. In
exchange, we agreed to dismiss all litigation against the Sellers related to the
acquisition and to discontinue the purchase price adjustment and binding
arbitration process. We released all claims based on any act occurring prior to
the Effective Date of our Plan of Reorganization, including all claims against
the Sellers, their affiliates and their directors, officers, employees, agents
and specified professionals. The Sellers released all claims based on any act
occurring prior to the Effective Date of our Plan of Reorganization, including
any claims related to any contracts or projects not assumed by us during the
bankruptcy cases, against us and our directors, officers, employees, agents and
professionals. No cash was exchanged as a result of this settlement.

In addition, under a services agreement that is a part of the Raytheon
Settlement, the Sellers will direct the process for resolving pre-petition
claims asserted against us in the bankruptcy case relating to any contract or
project that was rejected by us and that involved some form of support
arrangement from the Sellers. We will assist the Sellers in settling or
litigating various claims related to those rejected projects. We will also
complete work as requested by the Sellers on those rejected projects, and will
be reimbursed on a cost-reimbursable contracting basis. The Sellers may, with
respect to the rejected projects described above, pursue or settle any of our
claims against project owners, contractors or other third parties and will
retain any resulting proceeds, except that for specified projects, recoveries in
excess of amounts paid by the Sellers will be returned to us.

While this settlement eliminated our ability to continue to seek to collect
our arbitration claim, it was necessary because the Sellers' large unsecured
claims in the bankruptcy were substantially impeding our Plan of Reorganization
process. Without this settlement, a successful emergence from Chapter 11 would
have been delayed or impossible.

We have made adjustments to the preliminary purchase price allocation of
the RE&C acquisition price to the net assets acquired that was included in the
unaudited quarterly information at September 1, 2000, including the following,
as a result of completing our review:

o We have made adjustments for amounts that were recorded as part of
and subsequent to the initial preliminary purchase price
allocation, as a result of additional information we obtained that
supported that some of the July 7, 2000 balances were materially
misstated based on generally accepted accounting principles and
were, therefore, included in our purchase price adjustment
arbitration claim against the Sellers. In the lawsuits and purchase
price adjustment arbitration claim referred to above, we asserted
that the Sellers should have recorded these as adjustments in the
RE&C financial statements prior to the acquisition. The adjustments
primarily relate to provisions for anticipated losses on
fixed-price contracts that were not recorded in the RE&C financial
statements prior to the acquisition. We recorded these amounts as
a $444.1 million arbitration claim receivable from the Sellers.
However, as noted above,

I-9

under the terms of the Raytheon Settlement, we subsequently agreed to
dismiss all litigation against the Sellers related to the acquisition
and to discontinue the purchase price adjustment and binding
arbitration process. Therefore, we wrote off the receivable from the
Sellers as an asset impairment during the fourth quarter of 2000.

o Also, we have made adjustments for items that were identified
subsequent to the initial purchase price allocation that we believed
were additional misstatements, based on additional information that we
obtained, but that were not included in the arbitration claim. Cost of
revenue included adjustments to estimates at completion on contracts
and increases in self-insurance reserves The impairment of assets was
primarily unrecoverable accounts receivable. These amounts totaled
$144.5 million and were charged to operations in the fourth quarter of
2000, as follows:

OPERATING UNITS

During the fiscal quarter ended September 1, 2000, we reorganized our
business to operate through five operating units, each of which comprises a
separate reportable business segment: Power, Infrastructure & Mining,
Industrial/Process, Government and Petroleum & Chemicals.

POWER

Our Power operating unit provides engineering, construction, and operations
and maintenance services in both the fossil and nuclear power markets. Its
customers include utilities, industrial co-generators, independent power
producers, and governments that generate power in a wide variety of ways,
including coal-, oil- and gas-fired power plants, combustion turbine and
combined cycle generation, nuclear power generation, hydroelectric generation
and waste-to-energy generation. The operating unit provides a range of services
that include:

o general engineering and design;
o power generation planning;
o siting and licensing;
o environmental permitting and engineering;
o plant construction, expansion, refurbishment, retrofit and
modification, including the construction of new power plants,
distribution and transmission systems and energy storage
facilities, the installation of flue-gas cleaning systems in
coal-fired power plants and the replacement of steam generators
in nuclear power plants;
o decontamination and decommissioning of nuclear power plants; and
o operations and maintenance, including renewal and repair, supply
and logistics management and maintenance and modification services
at several nuclear power plants.

INFRASTRUCTURE & MINING

Our Infrastructure & Mining operating unit provides diverse engineering and
construction and construction management services for highways and bridges,
airports and seaports, tunnels and tube tunnels, railroad and transit lines,
water storage and transport, water treatment, site development, mine operations
and hydroelectric facilities. It also provides contract mining, engineering and
other technical services to the international fossil fuel and mineral markets.
The operating unit generally performs as a general contractor or as a joint
venture partner with other contractors on domestic and international projects.

Infrastructure & Mining serves both private and public sector customers
through four major divisions:

o HEAVY CIVIL: This division provides services both as a general
contractor and in a design-build capacity. Heavy Civil primarily
targets domestic heavy infrastructure projects in the transportation,
marine and water resources markets, including highways, bridges,
tunnels, railroad and commuter rail systems, airport and seaport
facilities, dams, wastewater treatment facilities and pipelines. It
also provides site development at mine, industrial, various commercial
and recreational sites.

I-11

o INTERNATIONAL CONSTRUCTION: This division constructs heavy
infrastructure projects, with a current focus on water resource,
wastewater management and telecommunications projects in the Middle
East and various other regions of the world.

o INFRASTRUCTURE PROGRAMS: This division provides civil design and
project-management services throughout the United States.
Infrastructure Programs specializes in the engineering, design and
construction/program management of highway, bridge, railroad, airport
and water resource infrastructure projects.

o MINING: This division provides contract mining services internationally
to the fossil fuel and industrial mineral markets. Mining also offers a
full range of technical and engineering services, including resource
evaluation, geologic modeling, mine planning and development,
environmental permitting, equipment selection, and remediation. Mining
holds ownership interests in two mining ventures: MIBRAG mbH (33% at
December 1, 2000 and increased to 50% effective March 28, 2001) and
Westmoreland Resources, Inc. (20%). See Note 6, "Ventures" of the Notes
to Consolidated Financial Statements in Item 8 of this report.

INDUSTRIAL/PROCESS

The Industrial/Process operating unit provides services in each stage of a
project's life cycle, including engineering, design, procurement, construction
and total facilities management. Industrial/Process' total facilities management
services include inventory and supply chain management, shutdown and turnaround
management and other maintenance, operations and logistics management services.
Industrial/Process serves companies in the following markets:

o general manufacturing;
o pharmaceutical and biotechnology;
o institutional buildings;
o food and consumer products;
o automotive;
o aerospace;
o telecommunications;
o pulp and paper industries;
o process; and
o metals processing.

GOVERNMENT

Our Government operating unit primarily provides technical services to U.S.
government customers in the national defense, nonproliferation, environmental
cleanup, nuclear waste management and hazardous material stabilization markets.
Its services span the entire life cycle of its customers' needs - from design,
construction and operation of facilities through their eventual decontamination,
decommissioning and final environmental remediation. Through its
Electro-Mechanical Division, the operating unit designs and manufactures pumps,
valves, generators and propulsion units for the U.S. Navy's nuclear-powered
fleet. Almost all of this operating unit's revenues are from contracts with the
federal government, with the Department of Defense and the Department of Energy
accounting for about 81% of its revenues.

The Government operating unit also provides products and services to
commercial clients, including:

o the design and manufacture of components for nuclear power facilities;
o the design and manufacture of engineered canisters to ship and store
spent nuclear fuel; and

I-12

o safety planning, integrated safety management consulting, facility
operation, hazardous material management and licensing.

PETROLEUM & CHEMICALS

The Petroleum & Chemicals operating unit provides a wide range of services
to petroleum and chemical markets worldwide, including the commodity-organic
chemicals, polymers, Fischer-Tropsch chemistry, fertilizers, oleochemicals,
petroleum processing, lube oil processing and natural gas processing markets.
The operating unit offers engineering, procurement, construction and operations
and maintenance services for diverse projects, including upstream petroleum
processing and refining plants, natural gas processing plants, plants that
convert coal to synthetic fuels, underground gas storage facilities and plants
that produce a wide array of products ranging from industrial commodities to
specialty chemicals. Petroleum & Chemicals also develops and licenses technology
used in the production of petrochemicals. The operating unit provides technology
for the ethylbenzene, styrene, cumene, phosphoric acid, paraxylene and purified
terephthalic acid markets, among others.

For financial information about our operating units and additional
disclosures, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Operating Segment Results" in Item 7 of this report
and Note 12, "Operating Segment, Geographic and Customer Information" of the
Notes to Consolidated Financial Statements in Item 8 of this report.

GOVERNMENT CONTRACTS AND BACKLOG

Government contracts are a significant part of our business. For example,
the U.S. government accounted for 27% of our consolidated operating revenues in
2000. Allowable costs under U.S. government contracts are subject to audit by
the government. To the extent that these audits result in determinations that
costs claimed as reimbursable are not allowable costs or were not allocated in
accordance with federal regulations, we could be required to reimburse the
government for amounts previously received. We also have a number of U.S.
government contracts which extend beyond one year and for which government
funding has not yet been approved. All U.S. government contracts and some
foreign contracts are subject to unilateral termination at the option of the
customer.

Backlog represents the total value of all awarded contracts that have not
been completed and will be recognized as revenues over the life of the project
or over the construction period. Backlog includes our proportionate share of
construction joint venture contracts and the uncompleted portions of mining
service contracts and ventures for the next five years. Backlog for government
contracts include only two years' worth of the portions of such contracts that
are currently funded or which we are highly confident will be funded.

Backlog at December 1, 2000 totaled $5.7 billion compared with December 3,
1999 backlog of $3.3 billion. Approximately $3.3 billion of the backlog at
December 1, 2000 is attributable to contracts related to the RE&C businesses
acquired in fiscal 2000. Approximately $1.3 billion of the backlog at December
1, 2000 was comprised of U.S. government contracts that are subject to
termination by the government, $460 million of which had not been funded.
Terminations for the convenience of the government generally provide for
recovery of contract costs and related earnings.

Although backlog reflects business that we consider to be firm,
cancellations or scope adjustments may occur. We have adjusted backlog to
reflect project cancellations, deferrals and revisions in scope and cost, both
upward and downward known at the reporting date; however, future contract
cancellations or modifications may reduce backlog and future revenues.

I-13

During 2001, we reversed previously recorded backlog of $1,020.6 million.
This reversal was principally due to the suspension of work on two large
construction projects located in Massachusetts that were part of the RE&C
acquisition. See Note 3, "Acquisitions - Acquisition of Raytheon Engineers &
Constructors" of the Notes to Consolidated Financial Statements in Item 8 of
this report.

COMPETITION

We are engaged in highly competitive businesses in which customer contracts
are typically awarded through competitive bidding processes. We compete based
primarily on price, reputation and reliability with other general and specialty
contractors, both foreign and domestic. Success or failure in our lines of
business is, in large measure, based upon the ability to compete successfully
for contracts and to provide the engineering, planning, procurement, management
and project financing skills required to complete them in a timely and
cost-efficient manner. We compete with other general and specialty contractors,
both foreign and domestic, including large international contractors and small
local contractors. Some competitors have greater financial and other resources
than us, which, in some instances, could give them a competitive advantage over
us.

EMPLOYEES

Our total worldwide employment varies widely with the volume, type and
scope of operations under way at any given time. At December 1, 2000, we
employed over 34,000 employees. Approximately 15% of the employees are covered
either by one of our regional collective bargaining agreements, which expire
between June 2001 and September 2006, or by a project specific collective
bargaining agreement, each of which expires upon completion of the relevant
project.

RAW MATERIALS

We can purchase much of the raw materials and components necessary to
operate our businesses from numerous sources. We do not foresee any
unavailability of raw materials or components that would have a material adverse
effect on our businesses in the foreseeable future.

ENVIRONMENTAL MATTERS

Our environmental and hazardous substance remediation and contract mining
services involve risks of liability under federal, state and local environmental
laws and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"). We perform environmental remediation
at Superfund sites as a response action contractor for the Environmental
Protection Agency and, in such capacity, are exempt from liability under any
federal law, including CERCLA, unless our conduct is negligent. Moreover, we may
be entitled to indemnification from agencies of the United States against
liability arising out of the negligent performance of work in such capacity.

We are subject to risks of liability under federal, state and local
environmental laws and regulations, as well as common law. These laws and
regulations and the risk of attendant litigation can cause significant delays to
a project and add significantly to its cost. Violations of these laws and
regulations could subject us to civil and criminal penalties and other
liabilities, including liabilities for property damage, costs of investigation
and

I-14

cleanup of hazardous or toxic substances on property currently or previously
owned by us or arising out of our current and past remediation, waste management
and contract mining activities.

For additional information regarding environmental matters, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Environmental Contingency" in Item 7 of this report and Note 13,
"Contingencies and Commitments - Summitville environmental matters" and
"Contingencies and Commitments - Other environmental matters" of the Notes to
Consolidated Financial Statements in Item 8 of this report.

ITEM 2. PROPERTIES

We do not own significant real property for operations other than certain
land and improvements in Highland and Petaluma, California and Cheswick,
Pennsylvania. Our principal administrative office facilities located in Boise,
Idaho, Cleveland, Ohio, Aiken, South Carolina, Denver, Colorado and Princeton,
New Jersey, are leased under long-term, noncancelable leases expiring in 2003,
2010, 2003, 2005 and 2013, respectively. At December 1, 2000, we owned more than
7,300 units of heavy and light mobile construction, environmental remediation
and contract mining equipment. We consider our construction, environmental
remediation and mining equipment and leased administrative and engineering
facilities to be well maintained and suitable for our current operations.

Our principal facilities at December 1, 2000 were:

I-15

* Operating unit: 1 - Industrial Process
2 - Government Services
3 - Infrastructure & Mining
4 - Power
5 - Petroleum & Chemicals
6 - Corporate

ITEM 3. LEGAL PROCEEDINGS

We are a defendant in various lawsuits resulting from allegations that
third parties sustained injuries and damage from the inhalation of asbestos
fibers contained in materials used in construction projects. In addition, based
on proofs of claims filed with the court during the pendency of our bankruptcy
proceedings, we are aware of other potential asbestos claims against us. We
believe that we have substantial third party insurance coverage for a
significant portion of these existing and potential claims and remaining amounts
will not have an adverse material impact on our financial position, results of
operations or cash flows.

While we expect that additional asbestos claims will be filed against us in
the future, we have no basis for estimating the number of claims or individual
or cumulative settlement amounts and, accordingly, no provision has been made
for future claims. We believe, however, that the outcome of these actions,
individually and collectively, will not have a material adverse impact on our
financial position, results of operations or cash flows.

I-16

We also incorporate by reference the information regarding legal
proceedings set forth under the caption "Other" in Note 13, "Contingencies and
Commitments" of the Notes to Consolidated Financial Statements in Item 8 of this
report.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We submitted one matter to a vote of our stockholders during the fourth
quarter of 2000. On September 15, 2000, we called a special meeting of
stockholders to approve our name change from Morrison Knudsen Corporation to
Washington Group International, Inc. The stockholders voted on no other matter
during the meeting. The number of votes cast for the name change was 48,031,334,
the number of votes withheld or against was 4,252,942 and the number of
abstentions from the vote was 105,208. Our name change became effective on
September 15, 2000.

I-17

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS

MARKET INFORMATION

Prior to September 18, 2000, our common stock traded on the New York Stock
Exchange under the ticker symbol "MK," and, after that date, under the ticker
symbol "WNG." At the close of business on December 1, 2000, we had 52,467,733
shares of common stock issued and outstanding.

The New York Stock Exchange composite high and low sales prices of our
common stock traded on the New York Stock Exchange for each quarterly period
within 1999 and 2000 are set forth under the caption "Quarterly Financial Data"
in Item 7 of this report. We incorporate that information by reference in
response to this Item 5.

HOLDERS

The number of record holders of our voting common stock at December 1, 2000
was approximately 1,305. This number does not include beneficial owners of our
common stock held in the name of a nominee.

DIVIDENDS

We have not paid a cash dividend since the first quarter of fiscal 1994.
Our indenture and credit facilities place restrictions on dividend payments. See
Note 8, "Credit Facilities" of the Notes to Consolidated Financial Statements in
Item 8 of this report.

RECENT SALES OF UNREGISTERED EQUITY SECURITIES

We did not sell any unregistered equity securities during 2000.

II-1

ITEM 6. SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)

(a) On July 7, 2000, we acquired RE&C from the Sellers in a transaction
accounted for as a purchase. See Items 1 and 7 of this report and Note 3,
"Acquisitions - Acquisition of Raytheon Engineers & Constructors" of the
Notes to Consolidated Financial Statements in Item 8 of this report.

(b) On March 22, 1999, we acquired a majority economic interest in the
government and environmental services businesses of CBS Corporation (now
Viacom, Inc.) in a transaction accounted for as a purchase. See Item 1 of
this report and Note 3, "Acquisitions - Acquisition of Westinghouse
Businesses" of the Notes to Consolidated Financial Statements in Item 8 of
this report.

(c) On September 11, 1996, we acquired Old MK in a transaction accounted for as
a purchase. See Item 1 of this report.

(d) Gross profit (loss) during the year ended December 1, 2000 includes the
impact of adjustments of $141.0 million to the preliminary allocation of
the RE&C purchase price to the net assets acquired for items that we
believe were additional misstatements, based on additional information we
obtained, but that were not included in the arbitration claim, including
adjustments to estimates at completion on contracts and increases in
self-insurance reserves. See Note 3, "Acquisitions - Acquisition of
Raytheon Engineers & Constructors" of the Notes to Consolidated Financial
Statements in Item 8 of this report.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

CONSOLIDATED OPERATIONS

OVERVIEW

The acquisition of RE&C on July 7, 2000 significantly increased our size in
terms of revenues and backlog. As a result, the historical information presented
in this Form 10-K does not purport to represent what our results of operations,
financial position or cash flows would have been for the historical periods
presented had we in fact owned RE&C for those periods, and is not indicative of
the results of operations, financial position or cash flows we may report in the
future.

WGI is a global engineering and construction company serving clients
through five operating units: Power, Infrastructure & Mining,
Industrial/Process, Government and Petroleum & Chemicals. See "Business -
Operating Units" in Item I of this report for a thorough description of the
segments.

We are subject to numerous factors that impact our ability to win new work.
The Power segment is dependent on the domestic demand for new power generating
facilities and the modification of existing power facilities. Infrastructure &
Mining is impacted by the availability of public sector funding for
transportation projects and availability of bonding. The Industrial/Process
segment is impacted in general by the growth prospects in the U.S. economy and
more directly by the capital spending plans of its large customer base. The
Government unit is almost entirely dependent on the spending levels of the U.S.
government, in particular, the Departments of Energy and Defense. Petroleum &
Chemicals is affected by the capital spending of oil and gas companies and
chemical producers.

II-3

The following are our most significant accounting terms and policies:

NEW WORK BOOKINGS represent the monetary value of a contract entered into
with clients that are binding on both parties and reflect the revenue expected
to be recognized from that contract.

BACKLOG represents the total accumulation of new work bookings less the
amount of revenue recognized to-date on contracts at a specific point in time;
therefore, it comprises the total value of awarded contracts that are not
complete and the revenue that is expected to be reflected over the remaining
life of the projects in process. Backlog is the key predictor of future earnings
potential. Although backlog reflects business that is considered to be firm,
cancellations or scope adjustments may occur. We have adjusted backlog to
reflect project cancellations, deferrals and revisions in scope and cost, both
upward and downward known at the reporting date; however, future contract
cancellations or modifications may reduce backlog and future revenues. We have a
significant number of clients that consistently extend or add to the scope of
existing contracts. We do not include any estimate of this ongoing work in
backlog.

There are three unique aspects of our approach to new work bookings and
backlog:

o GOVERNMENT CONTRACTS - Most of our government contracts cover several
years. However, they are subject to annual appropriations by Congress. To
account for the risk that future amounts may not be appropriated, we only
include the most immediate two years of forecast revenue in our backlog.
Therefore, as time passes and appropriations occur, additional new work
bookings are recorded on existing government contracts.

o MINING CONTRACTS - Mining contracts are entered into for varying periods of
time up to the life of the resource. For new work bookings and backlog
purposes, we limit the amount recorded to five years. Similarly to
government contracts, as time passes, we recognize additional new work
bookings as commitments for that future work are firmed up.

o The amount of new work and related backlog recognized depends on whether
the contract or project is determined to be an "at-risk" or "agency"
relationship between the client and us. Determination of the relationship
is based on characteristics of the contract or the relationship with the
client. For "at-risk" relationships, the expected gross revenue is included
in new work and backlog, while in relationships where we act as an agent
for our client, only the expected net fee revenue is included in new work
and backlog.

REVENUE RECOGNITION is generally measured on the "percentage-of-completion"
method for construction-type contracts, on the "units performed" method for
fixed-unit-price contracts and as work is performed and award and other fees are
earned for cost-type and operation and maintenance type contracts. There are
various means of determining revenue under the percentage-of-completion method.
Most of our fixed-price contracts use a cost-to-cost approach, where revenue is
earned in proportion to costs incurred divided by total expected costs to be
incurred. However, if a project includes significant materials or equipment
costs, we require that the percentage-of-completion method be based on labor
hours, labor dollars or some other appropriate approximation of physical
completion rather than on a strict percentage of costs incurred. Also, we
generally do not recognize any profit on fixed-price contracts until the project
is at least 20% complete.

With respect to award fees associated with U.S. government contracts, we
recognize an estimated award fee based on historical performance until the
client has confirmed the final award fee at year-end. This approach can result
in significant amounts of profit recognition in the fourth quarter on projects
in our Government operating unit. Performance-based incentive fees are
recognized when actually awarded by the client.

Revenue recognition for construction and engineering contracts also depends
on whether the contract or project is determined to be an "at risk" or an
"agency" relationship between the client and us. Determination of the
relationship is based on characteristics of the contract or the relationship
with the client. For "at risk" relationships, the gross revenue and the costs of
goods, services, payroll, benefits, non-income tax, and other costs are
recognized in the income statement. For "agency" relationships, where we act as
an agent for our client, only

II-4

fee revenue is recognized, meaning that direct project costs and the related
reimbursement from the client have been netted.

JOINT VENTURES AND EQUITY INVESTMENTS are utilized when certain contracts
are executed jointly through partnerships and joint ventures with unrelated
third parties.

o JOINT VENTURES - Much of our work on large construction projects is
performed through joint ventures with one or more partners. The
accounting treatment depends on our ownership percentage of the joint
venture. For those where the ownership exceeds 50% or we control the
joint venture by contract terms or other means, the assets, liabilities
and results of operations of the joint venture are fully consolidated
in our financial statements and the minority interests of third parties
are separately deducted in our financial statements. For those where
the ownership is 50% or less, we report our pro rata portion of revenue
and costs but the balance sheet reflects only our net percentage
investment in the project.

o PARTIALLY-OWNED SUBSIDIARY COMPANIES - Again, the accounting treatment
depends on our ownership percentage of the subsidiary company. For
those where the ownership exceeds 50%, the assets, liabilities and
results of operations of the subsidiary company are fully consolidated
in our financial statements and the minority interests of third parties
are separately deducted in our financial statements. However, where the
ownership is 50% or less, we reflect our proportion of the net income
in the results of operations as equity in earnings of mining ventures
and our investment on the balance sheet as our net percentage
investment in the subsidiary company.

NORMAL PROFIT is an accounting concept that results from the requirement
that an acquiring company record at fair value all contracts, including
construction contracts, of an acquiree in process at the date of the
acquisition. As such, an asset for favorable contracts or a liability for
unfavorable contracts is recorded in purchase accounting. These assets or
liabilities are then reduced based on revenues recorded over the remaining
contract lives effectively resulting in the recognition of a reasonable or
normal profit margin on contract activity performed by us subsequent to the
acquisition. Because of the acquisition of RE&C and the below market profit
status of many of the significant acquired contracts, we recorded significant
liabilities in purchase accounting. The reduction of these liabilities has a
significant impact on our recorded net income but has no impact on our cash
flows.

CHANGE ORDERS AND CLAIMS are common on construction contracts when changes
occur once contract performance is underway. These changes are to be documented
and terms agreed with the client before the work is performed. Also, costs may
be incurred in addition to amounts originally estimated under the assumption
that the customer will agree to pay for such additional costs. Change orders are
included in total estimated contract revenue when it is probable that the change
order will result in a bona fide addition to contract value and can be reliably
estimated. If it is probable that the change order will result in the contract
price exceeding the related costs incurred, that the excess over cost can be
reliably estimated and if realization is assured beyond a reasonable doubt, the
original contract price is adjusted to the probable revised contract amount as
the costs are recognized. Claims are included in total estimated contract
revenue, only to the extent that contract costs related to the claim have been
incurred, when it is probable that the claim will result in a bona fide addition
to contract value and can be reliably estimated. No profit is recognized on
claims until final settlement occurs. This can lead to a situation where losses
are recognized when costs are incurred before client agreement is obtained and
subsequent income recognized when signed agreements are negotiated.

ACCOUNTS RECEIVABLE generally carry the same meaning as in any other
business and represent amounts billed to clients that have not been paid. One
unusual item is client retention. On large fixed-price construction contracts,
contract provisions may allow the client to withhold from 5% to 10% of invoices
until the project is completed, which may be several months or years. Retention
is recorded as a receivable and is separately disclosed in the financial
statements.

II-5

UNBILLED RECEIVABLES is comprised of costs incurred on projects, together
with any profit recognized on projects using the percentage-of-completion
method, and represents work performed but pursuant to contract terms we are
either not yet able to bill the client, or the invoice was not recorded before
the accounting period cut-off occurred.

BILLINGS IN EXCESS OF COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
represents amounts actually billed to clients, and perhaps collected, in excess
of costs and profits incurred on the project and as such, is reflected as a
liability. Also, in specified business segments, we are able to negotiate
substantial advance payments as a contract condition. Those advance payments are
reflected in billings in excess of cost and estimated earnings on uncompleted
contracts.

ESTIMATE AT COMPLETION is a financial forecast of a project that indicates
the best current estimate of total revenues and profits at the point in time
when the project is completed. If a project estimate at completion indicates
that a project will incur a loss, a provision for the entire loss on the
contract is recognized at that time.

ESTIMATED COSTS TO COMPLETE LONG-TERM CONTRACTS is comprised of provisions
for losses on contracts, reclamation reserves on mining contracts, reserves for
punch-list costs and demobilization and warranty costs on contracts that have
achieved substantial completion and reserves for audit and contract closing
adjustments on U.S. government contracts.

GENERAL AND ADMINISTRATIVE EXPENSES include executive salaries and
corporate headquarters functions such as legal services, human resources, and
finance and accounting.

SELF-INSURANCE RESERVES represent reserves established through a program
under which we determine the extent to which we self-insure certain business
risks. We carry substantial premium-paid, traditional insurance for our various
business risks, however, we do self-insure the lower level deductibles for
workers' compensation and general and auto liability. Most of this is handled
through Broadway Insurance Company, a wholly-owned captive Bermuda insurance
subsidiary. As such, we carry self-insurance reserves on our balance sheet that
are reviewed annually by an independent actuary. The current portion of the
self-insurance reserves is included in other accrued liabilities.

MINORITY INTEREST reflects the equity investment by third parties in
certain subsidiary companies and joint ventures that we have consolidated in our
financial statements.

GOVERNMENT CONTRACT COSTS are incurred under certain of our contracts,
primarily in the Government operating unit. We have contracts with the U.S.
government that contain provisions requiring compliance with the U.S. Federal
Acquisition Regulation and U.S. Cost Accounting Standards. The allowable costs
we charge to those contracts are subject to adjustments upon audit and
negotiation by various agencies of the U.S. government. Audits and negotiations
of indirect costs are substantially complete through 1999. Audits of 2000
indirect costs are in progress. We are also in the process of preparing cost
impact statements as required under the U.S. Cost Accounting Standards for 1999
through 2001, which are subject to audit and negotiation. We have also prepared
and submitted to the U.S. government cost impact statements for 1989 through
1995 for which we believe no adjustments are necessary. We believe that the
results of the indirect cost audits and negotiations and the cost impact
statements will not result in a material change to our financial position,
results of operations or cash flows.

PENSION AND POST-RETIREMENT BENEFIT PLANS include certain plans for which
we assumed sponsorship through the Westinghouse acquisition, including
contributory defined benefit pension plans, which cover employees of the
Westinghouse Government Services Group ("WGSG"). We make actuarially computed
contributions as necessary to adequately fund benefits for these plans. We are
also the sponsors of an unfunded plan to provide health care benefits for
employees of WGSG who retired before July 1, 1993, including their surviving
spouses and dependent children. We also provide benefits under company-sponsored
retiree health care and life insurance plans for substantially all employees of
WGSG. We also provide benefits under company-sponsored retiree health care to
approximately 260 retired employees and provide a life insurance plan for
substantially all retirees of

II-6

RE&C. The retiree health care plans require retiree contributions and contain
other cost sharing features. The retiree life insurance plan provides basic
coverage on a noncontributory basis.

2000 COMPARED TO 1999

REVENUE AND GROSS PROFIT

Revenue for the year ended December 1, 2000 increased 35% to $3,103.9
million compared to $2,304.4 million for the comparable period in 1999. The
increase is due to the inclusion of the post-acquisition results of RE&C,
acquired on July 7, 2000, and a full year of results of the Westinghouse
Businesses, acquired on March 22, 1999. Revenue for the quarter ended December
1, 2000 increased 53% or $358.7 million over the comparable period in 1999, also
due to the consolidation of results of RE&C.

Cost of revenue for the year ended December 1, 2000 includes $141 million
in charges for items related to the acquisition of RE&C that were identified
subsequent to the initial purchase price allocation based on additional
information we obtained, but that were not included in the arbitration claim.
See Note 3, "Acquisitions - Acquisition of Raytheon Engineers & Constructors,"
of the Notes to Consolidated Financial Statements in Item 8 of this report.
These amounts are comprised of the following:

Exclusive of the $141.0 million in charges discussed above, gross profit
for the year ended December 1, 2000 decreased 52% to $59.4 million from the
previous year primarily due to incremental losses of $47.3 million on three
large fixed-price contracts acquired in the RE&C acquisition. These losses
resulted from events that arose after the acquisition. In addition, our
Infrastructure & Mining operating unit recognized approximately $12.1 million
in losses on seven domestic projects and a $4.9 million loss on an
international water distribution project. Our Government operating unit
recognized a $10.2 million loss on an environmental remediation project.
Lastly, a $20.3 million reserve was established for the settlement of the
Summitville environmental matters. See Note 13, "Contingencies and
Commitments - Summitville environmental matters" of the Notes to Consolidated
Financial Statements in Item 8 of this report. Our gross profit for the
quarter and year ended December 1, 2000 included $25.7 and $50.2 million,
respectively, for the recognition of normal profit on contracts related to
the acquisition of RE&C. The recognition of normal profit had no impact on
our cash flows. There was no normal profit in 1999.

Substantially all of the above noted losses and provisions were recorded
in the quarter ended December 1, 2000, causing the $90 million decline from
the gross profit recognized in the previous year's fourth quarter.

Our gross margins often vary between periods due to inherent risks and
rewards of fixed-price contracts causing unexpected gains and losses on
contracts. Gross margins may also vary between periods due to changes in the
mix and timing of contracts executed by us, which contain various risk and
profit profiles and are subject to uncertainties inherent in the estimation
process. During 2000, these profit margin fluctuations were over shadowed by
the impact of losses recognized on projects obtained in the acquisition of
RE&C.

At December 1, 2000, backlog of $5,659.4 million was comprised of
$1,365.7 million (24%) of revenue from cost-type contracts and $4,293.7
million (76%) of revenue from fixed-price and fixed-unit-price contracts and
the uncompleted portions of mining service contracts and ventures. During
2001, we reversed previously recorded backlog of $1,020.6 million. This
reversal was principally due to the suspension of work on two large
construction projects located in Massachusetts that were part of the RE&C
acquisition. See Note 3, "Acquisitions - Acquisition of Raytheon Engineers &
Constructors" of the Notes to Consolidated Financial Statements in Item 8 of
this report.

II-7

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the quarter and year ended
December 1, 2000 increased $6.6 million and $11.8 million, respectively,
compared to 1999. The increase for the quarter and year is due to the general
and administrative costs supporting RE&C businesses.

GOODWILL AMORTIZATION

Amortization of goodwill for the year ended December 1, 2000 increased
$12.6 million over the comparable period of 1999. The increase is due to the
full year of amortization (over a period of 20 years) of goodwill arising
from the acquisition of the Westinghouse Businesses, which amortization began
on March 22, 1999, the date of the acquisition, and the amortization of
goodwill of $8.7 million arising from the acquisition of RE&C, which
amortization began on July 7, 2000, the date of the acquisition. The annual
amortization of the Westinghouse goodwill is currently estimated at $13.7
million through 2001. See "Impairment of acquired assets" below for the
impairment of goodwill associated with the RE&C acquisition.

In connection with the acquisition of Old MK, we allocated the purchase
price of Old MK to the assets and liabilities assumed, including
preacquisition contingencies, on the basis of estimated fair values at
September 11, 1996. During the fourth quarter of 2000, we reevaluated the
likelihood of the future realization of the tax benefits of net operating
loss ("NOL") carryforwards relating to Old MK and concluded, based on
available evidence, including the utilization of NOL's upon emergence from
bankruptcy in 2002, that it was more likely than not that the tax benefits
previously reserved would be realized. This conclusion resulted in a $44.3
million increase in deferred tax assets and a corresponding decrease in
recorded goodwill at December 1, 2000. With this adjustment, the goodwill
related to Old MK was completely eliminated which reduced annual goodwill
amortization by $1.2 million through 2001.

INTEGRATION AND MERGER COSTS

As a result of the acquisition of RE&C on July 7, 2000, we incurred
significant costs associated with the integration and merger of the two
companies. During the quarter and year ended December 1, 2000, those costs
were $5.2 million and $15.3 million, respectively. They consisted primarily
of legal, accounting, consulting and other fees. There were no such costs in
1999.

IMPAIRMENT OF ACQUIRED ASSETS

During the fourth quarter of 2000, we recognized asset impairment losses
of $444.1 million and $747.5 million for our inability to collect our
purchase price adjustment from the Sellers and for impairment of goodwill and
other assets acquired as a part of the RE&C transaction, respectively. There
were no such costs in 1999.

INVESTMENT INCOME

Investment income for the quarter and year ended December 1, 2000
increased $4.4 million and $7.5 million, respectively, as a result of
investment income from excess funds derived from the financing for the
acquisition of RE&C.

INTEREST EXPENSE

Interest expense includes three components: amortization of fees associated
with our lines of credit, fees on letters of credit, and interest expense.
Interest expense for the quarter and year ended December 1, 2000 increased $17.8
million and $30.8 million, respectively, over the comparable period of 1999,
which reflects the increase in borrowings, the increase in borrowing rates, and
credit line fees related to the acquisition of RE&C.

II-8

OTHER INCOME (EXPENSE), NET

Other income (expense) was $(6.6) million and $(5.3) million,
respectively, for the quarter and year ended December 1, 2000 compared to
$(.7) million and $9.7 million, respectively, for the comparable periods in
1999. Other income (expense) for the quarter and year ended December 1, 2000
includes a charge of $6.2 million related to the settlement of the MK Gold
Corporation litigation. Other income of $9.7 million for the year ended
December 3, 1999 included $8.7 million of gain from the sale of two non-core
subsidiaries.

INCOME TAX EXPENSE (BENEFIT)

The effective tax rate for the quarter and year ended December 1, 2000
was a 38.6% benefit compared to a 37% expense in the comparable periods of
1999. State taxes, including the impact of adjusting prior year's state tax
attributes for current year changes in apportionment factors, account for
4.1% of the 2000 effective tax rate. Foreign taxes, net of federal benefit,
reflect both the value of the benefit from foreign net operating losses and
the expense of current foreign tax liability in those jurisdictions where net
income was reported. A valuation allowance was established in 2000 against
the benefit for foreign net operating losses incurred that year to reflect
the expected future utilization of those losses on a more likely than not
basis.

Cash tax payments for 2002 and later years are anticipated to be
substantially less than the related tax liability reported in the financial
statements. The NOL carryover for federal and state income taxes will be
substantially utilized after 2002 as a result of the cancellation of debt
income in the bankruptcy restructuring. However, the recognition of loss
reserves and deferred deductions and the amortization of goodwill for tax
reporting purposes will cause the taxable income reported on future federal
and state tax returns to be substantially less than pre-tax income reported
on the financial statements. Goodwill, for tax purposes, has a remaining life
of 13.5 years at the beginning of 2002, and annual amortization is expected
to be at least $40 million.

MINORITY INTERESTS

Minority interests in the income of consolidated subsidiaries for the
quarter and year ended December 1, 2000 increased to $2.9 million and $9.4
million, respectively, compared to $2.5 million and $8.8 million,
respectively, for the comparable periods of 1999 due to an increase in income
from the Westinghouse Businesses, which were acquired on March 22, 1999.
Minority interests consist of the 40% minority interest of BNFL in the income
of WGSG and a 35% minority interest in the income of Safe Sites of Colorado,
LLC, a subsidiary of WGSG.

1999 COMPARED TO 1998

REVENUE AND GROSS PROFIT

Revenue for the quarter and year ended December 3, 1999 increased 22% to
$674.8 million and 21% to $2,304.4 million, respectively, compared to $554.3
million and $1,907.9 million for the comparable periods in 1998. These
increases were principally due to the acquisition of the Westinghouse
Businesses and the concurrent formation of WGSG in March 1999.

Gross profit for the quarter and year ended December 3, 1999 increased
$9.2 million and $23.1 million, respectively, over the comparable periods of
1998. The increase in gross profit was primarily due to the inclusion of the
earnings of WGSG in our consolidated results of operations beginning March
1999. Gross profit as a percent of revenue was 5.8% and 5.4%, respectively,
for the quarter and year ended December 3, 1999 compared to 4.3% and 5.3% for
the comparable periods of 1998. The gross profit percentage increase in 1999
over 1998 was primarily due to WGSG whose operations generally have
relatively higher profit margins. In addition, the gross margins for the
fourth quarter of 1999 include significant performance-based incentive and
award fees earned on WGSG contracts.

Our gross margins often vary between periods due to inherent risks and
rewards on fixed-price contracts causing unexpected gains and losses on
contracts. Gross margins may also vary between periods due to changes

II-9

in the mix and timing of contracts executed by us, which contain various risk
and profit profiles and are subject to uncertainties inherent in the
estimation process.

At December 3, 1999, backlog of $2,819.7 million was comprised of
$1,413.4 million (50%) of revenue from cost-type contracts and $1,406.3
million (50%) of revenue from fixed-price contracts and our share of revenue
from mining ventures.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the year ended December 3, 1999
increased $1.8 million compared to 1998 due to additional compensation
expenses related to a key executive retirement, a key executive recruitment
and increased information system costs.

GOODWILL AMORTIZATION

Amortization of goodwill for the quarter and year ended December 3, 1999
increased $3.3 million and $9.0 million, respectively, over the comparable
periods of 1998 due to the amortization (over a period of 20 years) of
goodwill arising from the Westinghouse Businesses acquisition.

In connection with the acquisition of Old MK, we allocated the purchase
price of Old MK to the assets acquired and liabilities assumed, including
preacquisition contingencies, on the basis of estimated fair values at
September 11, 1996. During the fourth quarter of 1998, we reevaluated the
likelihood of the future realization of the tax benefits of deductible
temporary differences and NOL carryforwards relating to Old MK and concluded,
based on available evidence, that it is more likely than not that a portion
of the tax benefits previously reserved would be realized. This conclusion
resulted in a $20 million increase in deferred tax assets and a corresponding
decrease in recorded goodwill at November 30, 1998. The decrease in goodwill
reduced annual goodwill amortization by $.5 million. As a result of the
Westinghouse Businesses acquisition in the second quarter of 1999 and related
projections of additional future income, we reevaluated the likelihood of the
future realization of the tax benefits relating to Old MK. This reevaluation
resulted in an additional $50 million increase in deferred tax assets and a
corresponding decrease in recorded goodwill. The 1999 adjustment to goodwill
reduces annual goodwill amortization by $1.3 million.

INVESTMENT INCOME

Investment income for the quarter and year ended December 3, 1999
declined as a result of less cash available for investment in the corporate
short-term asset management account due primarily to working capital
requirements. Additionally, investment income for the year ended November 30,
1998 included interest recognized on claims for U.S. federal income tax
refunds received in January 1998.

INTEREST EXPENSE

Interest expense includes three components: amortization of fees
associated with our lines of credit, fees on letters of credit, and interest
expense. Interest expense for the quarter and year ended December 3, 1999
increased $2.7 million and $6.7 million, respectively, over the comparable
periods of 1998 resulting from interest expense incurred and amortization of
prepaid bank fees associated with our revolving credit facilities which were
primarily used to fund the Westinghouse Businesses acquisition in March 1999.
In addition, $1.0 million of prepaid loan fees associated with our previous
credit facility was written off in the second quarter of 1999.

OTHER INCOME (EXPENSE), NET

Other income (expense) of $(.7) million for the quarter ended December 3,
1999 includes a provision of $1.2 million to settle various government contract
claims. Other income (expense) of $9.7 million for the year ended December 3,
1999 includes $8.7 million of gain from the sale of two non-core subsidiaries.
In addition, $2.2

II-10

million of gain was recognized on the settlement of contingent issues
relating to the sale of a former subsidiary of Old MK.

Other income (expense) for the quarter and year ended November 30, 1998
of $1.5 million and $3.8 million, respectively, reflects the recognition of
$1.1 million and $3.2 million of income, respectively, associated with the
settlement of our defined benefit pension plan obligations.

INCOME TAX EXPENSE

The effective tax rate for the quarter and year ended December 3, 1999
was 37% compared to 43% in the comparable periods of 1998. These reductions
resulted from the Westinghouse Businesses acquisition and the resulting (i)
reduction of nondeductible goodwill amortization expense relating to the
acquisition of Old MK, (ii) ability to use foreign tax credits from prior
years and (iii) additional pre-tax income resulting in a lower proportion of
nondeductible expenses to pre-tax income. The effective tax rate is higher
than the U.S. federal statutory rate of 35% because of state income taxes and
nondeductible expenses.

MINORITY INTERESTS

Minority interests in the income of consolidated subsidiaries of $2.5
million and $8.8 million, respectively, for the quarter and year ended
December 3, 1999 consist of BNFL's 40% minority interest in the earnings of
the Westinghouse Businesses and a third party's 35% minority interest in the
earnings of Safe Sites of Colorado LLC, a subsidiary included in WGSG.

OPERATING UNIT RESULTS
(IN MILLIONS)

Operating income (loss) for the operating units was as follows:

For purposes of the following comparison, we have excluded the $141
million charge for changes to estimates at completion on acquired contracts,
which has been discussed previously, from our 2000 operating unit income
(loss) amounts.

II-11

2000 COMPARED TO 1999

POWER

Revenue for 2000 was $480.7 million, an increase of $431.5 million compared
to 1999 due principally to the acquisition of RE&C.

Operating income for 2000 was $4.3 million, an increase of $2.2 million
over the prior year due to an increased volume of work related to the
acquisition of RE&C. Operating income in 2000 included $21.3 million of normal
profit related to certain fixed-price contracts from the acquisition of RE&C on
July 7, 2000. The Power operating unit recognized losses of $24.3 million in
2000 related to problems that arose in connection with the completion and
operational start-up of two large power generation facilities, one in the United
States and one in the United Kingdom. There was no normal profit in 1999. The
operating income rate for 2000 was .9% compared to 4.3% in 1999.

New work booked for 2000 was $251.0 million compared to $164.9 million in
1999. Backlog at December 1, 2000 was $1,541.8 million, an increase of $1,286.1
million compared to December 3, 1999 primarily due to $1,515.9 million of
backlog acquired in the RE&C acquisition. During 2001, we reversed previously
recorded backlog of $801.0 million. This reversal was principally due to the
suspension of work on two large construction projects located in Massachusetts
that were part of the RE&C acquisition. See Note 3, "Acquisitions - Acquisition
of Raytheon Engineers & Constructors" of the Notes to Consolidated Financial
Statements in Item 8 of this report.

INFRASTRUCTURE & MINING

Revenue for 2000 was $811.0 million, an increase of $40.1 million compared
to 1999 due principally to the acquisition of RE&C.

Operating income for 2000 was $20.6 million, a decrease of $25.7 million
compared to 1999 due principally to the recognition of $12.1 million of losses
related to cost overruns on domestic infrastructure and heavy civil projects, a
$4.9 million loss from an international project and $20.3 million to establish a
reserve related to the Summitville environmental matters. See Note 13,
"Contingencies and Commitments - Summitville environmental matters" of the Notes
to Consolidated Financial Statements in Item 8 of this report. Operating income
in 2000 included approximately $15.3 million of normal profit related to certain
fixed-price contracts from the acquisition of RE&C on July 7, 2000. There was no
normal profit in 1999. The operating income rate for 2000 was 2.5% compared to
6.0% in 1999.

New work booked for 2000 was $1,249.3 million compared to $898.6 million in
1999. Backlog at December 1, 2000 was $1,847.0 million, an increase of $835.3
million, including $396.6 million of backlog acquired in the RE&C acquisition,
compared to December 3, 1999.

II-12

INDUSTRIAL/PROCESS

Revenue for 2000 was $789.4 million, an increase of $147.5 million compared
to 1999 due principally to the acquisition of RE&C.

Operating income for 2000 was $4.0 million, a decrease of $10.8 million
compared to 1999. The decrease was caused primarily by write-offs of acquired
accounts receivable and increased insurance costs. Operating income in 2000 was
increased $.4 million by the recognition of normal profit related to certain
fixed-price contracts from the acquisition of RE&C on July 7, 2000. There was no
normal profit in 1999. The operating income rate for 2000 was .5% compared to
2.3% in 1999.

New work booked for 2000 was $776.8 million compared to $637.1 million in
1999. Backlog at December 1, 2000 was $576.6 million, an increase of $83.6
million, including $98.6 million of backlog acquired in the RE&C acquisition,
compared to December 3, 1999.

GOVERNMENT

Revenue for 2000 was $936.4 million, an increase of $92.2 million compared
to 1999 due principally to inclusion of a full year of Westinghouse operations
and the acquisition of RE&C.

Operating income for 2000 was $19.6 million, a decrease of $29.9 million
compared to 1999 due principally to the recognition of cost overruns on a large
fixed-price contract acquired in the RE&C acquisition for a private sector
client and on a large environmental remediation project. Most of the overruns
were ultimately resolved favorably during 2001 through contract renegotiation,
resulting in additional profit recognition. Operating income in 2000 included
$9.1 million of normal profit related to certain fixed-price contracts from the
acquisition of RE&C on July 7, 2000. There was no normal profit in 1999. The
operating income rate for 2000 was 2.1% compared to 5.9% in 1999.

New work booked for 2000 was $352.3 million compared to $626.8 million in
1999. Backlog at December 1, 2000 was $1,317.7 million, an increase of $258.4
million, including $840.2 million of backlog acquired in the RE&C acquisition,
compared to December 3, 1999.

PETROLEUM & CHEMICALS

We had no revenue or operating income from this segment except that which
we acquired in the purchase of RE&C. Revenue for 2000 was $90.6 million.
Operating income (loss) for 2000 was $(5.6) million. Operating income in 2000
was negatively impacted by operating inefficiencies on two contracts and high
overhead costs for our office in The Hague, the Netherlands. Operating income in
2000 included $4.1 million of normal profit related to certain fixed-price
contracts from the acquisition of RE&C on July 7, 2000. The operating income
rate for 2000 was (6.2)%.

New work booked for 2000 was $29.3 million. Backlog at December 1, 2000 was
$376.3 million, virtually all of which came with the RE&C acquisition.

INTERSEGMENT, IMPAIRMENTS AND OTHER

Intersegment, impairments and other for 2000 consisted primarily of the
impairment of arbitration claim $(444.1) million and the impairment of acquired
assets $(747.5) million, integration and merger costs ($15.3 million) and
amortization of goodwill associated with the acquisition of Old MK. For 1999,
this amount consisted of the results of operations of Broadway Insurance
Company, a wholly-owned captive Bermuda insurance subsidiary, and amortization
of goodwill associated with the acquisition of Old MK.

II-13

1999 COMPARED TO 1998

POWER

Revenue for the year ended December 3, 1999 increased $1.0 million from
$48.2 million in 1998 as there were no significant contract additions or
completions that materially impacted revenue. Operating income decreased to $2.1
million in 1999 from $8.6 million in 1998 due to the final closeout and
completion of a successful fixed-price construction contract in 1998.

INFRASTRUCTURE & MINING

Revenue for the year ended December 3, 1999 increased 7.2% to $770.9
million from $719.2 million in 1998 due to a significant increase in activity in
International Infrastructure projects, the execution of new mining contracts in
the Powder River Basin and increased production on several existing mining
contracts and an increase in revenue in Heavy Civil construction work performed
on new contracts. Operating income decreased $15.1 million to $46.3 million in
1999 due to lower margin contracts infrastructure work and additional costs
incurred in pursuing design-build projects. These reductions in operating income
in 1999 compared to 1998 were partially offset by an increase in operating
income in mining contracts due to increased volume of work performed. In
addition, a loss was recognized in the second quarter of 1998 related to
start-up difficulties with a fixed-price contract.

INDUSTRIAL/PROCESS

Revenue decreased $106.2 million or 14.2% to $641.9 million in 1999 from
$748.1 million in 1998 primarily due to the completion of several large
contracts in 1999. Operating income increased $12.1 million to $14.8 million in
1999 due to the favorable performance on Industrial/Process contracts and
reduced overhead costs as a result of streamlining and cost reduction efforts.

GOVERNMENT

Revenue and operating income recognized during 1999 was $844.2 million and
$49.5 million, respectively, an increase of $449.1 million and $23.9 million,
respectively, over the previous year due to the Westinghouse acquisition.
Operating income from environmental remediation contracts increased
substantially in 1999 compared to 1998 due to the strong performance on the
fixed-price portion of a project. In addition, operating income increased due to
losses incurred and the $5.4 million write-off of an investment in a solvent
extraction facility and a related contract to treat contaminated soil, which
occurred in 1998. These losses in 1998 were partially offset by a $5.7 million
gain recognized on the settlement of an environmental contract. Operating income
in 1999 includes $10.4 million of goodwill amortization related to the
Westinghouse acquisition.

PETROLEUM & CHEMICALS

We had no revenue or operating income from this segment for the years 1999
and 1998, as the segment was acquired in the purchase of the RE&C businesses.

INTERSEGMENT AND OTHER

Intersegment and other for 1999 and 1998 include $2.1 million and $3.6
million, respectively, of goodwill amortization related to the acquisition of
Old MK.

II-14

OPERATING UNIT NEW WORK

New work for each operating unit is presented below:

FINANCIAL CONDITION AND LIQUIDITY

Cash and cash equivalents increased $341 million from $52 million at
December 3, 1999 to $393 million at December 1, 2000. Net cash proceeds of
$697 million were provided by new financing facilities obtained in 2000,
primarily to finance the acquisition of RE&C and refinance existing revolving
credit facilities. We utilized $29 million to pay financing fees for the RE&C
Financing Facilities, $160 million to complete the acquisition of RE&C and
$100 million to repay our prior unsecured revolving credit facilities. During
the last half of 2000, overall cash flow from the RE&C businesses was
adequate to fund construction activities on those projects that required
substantial amounts of cash. However, as discussed below, this situation
deteriorated significantly in 2001 with the RE&C projects requiring
approximately $450 million in cash to fund construction activities. Also
during 2000, funding of operations, minority interests, working capital and
capital expenditures used approximately $67 million in cash.

At December 1, 2000, cash and cash equivalents included $19.0 million
that was restricted for use on the normal operations of our consolidated
construction joint ventures, by projects having contractual cash restrictions
and our self-insurance programs. For more information on our financing
activities, see the comments below and Note 8, "Credit Facilities" of the
Notes to Consolidated Financial Statements in Item 8 of this report.

We received authorization in January 1998 to repurchase, in open market
transactions, block trades or otherwise, up to 2 million shares of outstanding
common stock and up to 2.765 million warrants to purchase common stock. As of
June 1999, all 2 million shares of common stock had been repurchased. In July
1999, we received authorization to repurchase an additional 2 million shares of
our outstanding common stock. As of December 1, 2000, we had not repurchased any
shares under the new authorization.

On March 19, 1999, we replaced our existing $200 million bank credit
facility with new unsecured revolving credit facilities providing an aggregate
borrowing capacity of $250 million. On May 21, 1999, borrowing capacity under
the unsecured credit facilities was increased to $325 million, consisting of a
$195 million five-year facility which provided for both revolving borrowings and
the issuance of letters of credit and a $130 million one-year

II-15

facility that provided for revolving borrowings which could be extended in
one-year increments by mutual agreement of the banks and us or converted, at
our option, into a term loan maturing one year after the then current
expiration date of such facility. We requested, and received, a one-year
extension of the one-year facility from the bank.

On July 7, 2000, in order to finance the acquisition of RE&C, refinance
existing revolving credit facilities, fund working capital requirements and pay
related fees and expenses, we (i) obtained new senior secured credit facilities
providing for an aggregate of $1 billion of term loans and revolving borrowing
capacity (the "RE&C Financing Facilities") consisting of a $100 million Tranche
A term loan facility, a $400 million Tranche B term loan facility and $500
million of revolving credit and (ii) issued and sold $300 million aggregate
principal amount of senior unsecured notes due July 1, 2010 (the "Senior
Unsecured Notes"). On October 5, 2000, we terminated the Tranche A term loan
facility to eliminate ongoing related commitment fees. See Note 8, "Credit
Facilities - RE&C Financing Facilities and Senior Unsecured Notes" of the Notes
to Consolidated Financial Statements in Item 8 of this report.

Also, on July 7, 2000, we borrowed net proceeds of $697.3 million
consisting of (i) $400 million from the Tranche B term loan facility of the
RE&C Financing Facilities at an interest rate based upon the applicable LIBOR
plus an additional margin of 3.25% for an effective interest rate of 9.87%
and (ii) $297.3 million in net proceeds from the $300 million aggregate
principal amount of Senior Unsecured Notes with a stated coupon rate of
11.0%. The proceeds were used to (i) repay $96 million outstanding under the
prior unsecured revolving credit facilities, (ii) pay financing fees of
approximately $29 million for the RE&C Financing Facilities, (iii) fund the
$53 million cash component of the purchase price for RE&C, the $30.8 million
paid to the Sellers for cash held on April 30, 2000 by RE&C and the $84.4
million paid to the Sellers representing the net cash advanced or paid by the
Sellers for the use or benefit of the purchased business between April 30,
2000 and closing and (iv) fund $7.7 million in acquisition related expenses.
Cash on hand of $15.8 million at July 7, 2000 was retained by the RE&C
businesses. The balance remained in cash and was anticipated to be used for
our working capital requirements.

We announced on March 2, 2001 that we faced severe near-term liquidity
problems due to delays in resolving purchase price adjustments in connection
with our acquisition of RE&C and due to substantial cost overruns and
negative cash flows associated with certain RE&C projects acquired. We also
announced that we were in default under certain covenants in the RE&C
Financing Facilities and we were unable to secure performance bonds necessary
to obtain certain new projects. We funded approximately $250 million of cash
flow deficits (i.e. cash disbursements in excess of receipts) generated by
RE&C projects between December 2, 2000 and May 14, 2001.

We announced on March 8, 2001, that we had filed a fraud lawsuit against
the Sellers and that we had ceased activities on two RE&C contracts (the
Mystic and Fore River power projects) with very large negative cash flows.
The Sellers remained responsible for the performance of the contracts and as
such continued to fund the construction of the projects. We were retained on
a cost-reimbursable basis and continue to provide construction management and
craft personnel to complete the projects.

On May 7, 2001, a letter of credit in the amount of $96 million was
drawn and on May 10, 2001 two additional letters of credit totaling $76
million were drawn for a total of $172 million. The letters of credit were
issued under the $500 million revolving credit facility of RE&C Financing
Facilities and became funded debt. The borrowing rate for funded debt under
the revolving credit facility was based upon the applicable LIBOR plus an
additional margin of 2.75%, for an initial effective interest rate of 9.37%.
The total funded debt as of May 10, 2001, was $870 million.

We considered all alternatives to obtain additional sources of cash,
including seeking waivers of default under the RE&C Financing Facilities, the
incurrence of additional debt, the issuance of additional equity and the sale
of non-core assets. However, our near-term liquidity problems limited our
strategic alternatives. We were ultimately unable to find additional sources
of cash and sought protection from our creditors under Chapter 11 of the U.S.
Bankruptcy Code.

II-16

DIP FACILITY

On May 14, 2001, we filed voluntary petitions for relief under Chapter 11
of the U.S. Bankruptcy Code. See Note 4, "Reorganization Case and Fresh-start
Reporting" of the Notes to Consolidated Financial Statements in Item 8 of this
report. On the same day, we entered into a Secured Super-Priority Debtor In
Possession Revolving Credit Agreement (the "DIP Facility"), with certain of our
subsidiaries as guarantors, with a commitment of $195 million and the ability to
increase the total commitment to $350 million. On June 5, 2001 the DIP Facility
lenders approved an increase in the total commitment from $195 million to $220
million. The DIP Facility was to be used (i) to finance the costs of
restructuring; and (ii) for ongoing working capital, general corporate purposes
and letter of credit issuance. The borrowing rate under the DIP Facility was the
prime rate, plus an additional margin of 4.0%. The effective interest rate was
11.0% as of May 2001. The DIP Facility carried other fees, including commitment
fees and letter of credit fees, normal and customary for such credit agreement.
The credit agreement under which the DIP Facility was made available contained
affirmative and negative covenants, reporting covenants and specified events of
default typical for a credit agreement governing credit facilities of the size,
type and tenor of the DIP Facility. Among the covenants were those limiting our
ability and the ability of some of our subsidiaries to incur debt or liens,
provide guarantees, make investments and pay dividends. As of January 24, 2002,
we had no outstanding debt and $32.8 million of outstanding letters of credit
under the DIP Facility. As discussed below, the DIP Facility was replaced by
exit financing facilities on January 25, 2002.

Cash flow during the reorganization, between May 14, 2001 and our emergence
from bankruptcy on January 25, 2002, was slightly positive despite the added
costs associated with the reorganization and our first-day motion allowing us to
pay critical pre-petition subcontractors and suppliers. The primary reason for
cash flow being slightly positive was a $63 million cash settlement of a claim
against the Department of Defense on a chemical demilitarization project in
Umatilla, Oregon, in June 2001. During the pendency of the bankruptcy we
borrowed under the DIP Facility only to pay related fees.

In addition to affecting negatively our ability to fund cash outlays on
existing projects, our near-term liquidity problems also affected our ability to
obtain future projects. Immediately prior to and during the pendency of our
bankruptcy proceedings, our ability to obtain performance bonds from surety
companies was severely limited. As a result, we were able to bid only on
contracts that limited surety bonds or on contracts in which we were to partner
with a company able to obtain surety bonds.

We were able to successfully reorganize in the bankruptcy proceedings, and
we emerged from bankruptcy on January 25, 2002, when our Plan of Reorganization
became effective. In connection with our emergence from bankruptcy protection,
we entered into (i) exit financing facilities (the "Senior Secured Revolving
Credit Facility"), providing for an aggregate of $350 million of revolving
borrowing and letter of credit capacity, and (ii) exit bonding facilities,
providing for up to an aggregate amount of $500 million of surety bonds.

SENIOR SECURED REVOLVING CREDIT FACILITY

The Senior Secured Revolving Credit Facility provides for a senior secured
facility in an amount up to $350 million in the aggregate of loans and other
financial accommodations allocated pro rata between two facilities as follows: a
Tranche A facility in the amount of $208.35 million and a Tranche B facility in
the amount of $141.65 million. The scheduled termination date for the Senior
Secured Revolving Credit Facility is thirty months from January 24, 2002, and it
may be increased up to a total of $375 million with the approval of the lenders.

The Senior Secured Revolving Credit Facility was entered into (i) to retire
our DIP Facility and repay any DIP Facility balance, (of which there was none);
(ii) to replace or backstop approximately $122 million in letters of credit
issued under our pre-petition RE&C Financing Facilities; (iii) to replace
approximately $32.8 million in letters of credit issued under the DIP Facility;
(iv) to make payments to the pre-petition senior secured lenders and Mitsubishi
Heavy Industries pursuant to the Plan of Reorganization; (v) to finance the
costs of restructuring; and (vi) for ongoing working capital, general corporate
purposes and letter of credit issuance. The initial borrowing rate under the
Senior Secured Revolving Credit Facility is the applicable LIBOR, which has a
stated floor of 3%, plus an additional margin of 5.5%. Alternatively, we may
choose the prime rate, plus an additional margin of

II-17

4.5%. As of January 2002, the effective LIBOR- and prime-based rates were
8.5% and 9.25%, respectively. The Senior Secured Revolving Credit Facility
carries other fees, including commitment fees and letter of credit fees,
normal and customary for such credit agreements. The Senior Secured Revolving
Credit Facility contains affirmative, negative and financial covenants,
including minimum net worth, capital expenditures, maintenance of certain
financial and operating ratios, and specified events of default that are
typical for a credit agreement governing credit facilities of the size, type
and tenor of the Senior Secured Revolving Credit Facility. Among the
covenants are those limiting our ability and the ability of some of our
subsidiaries to incur debt or liens, provide guarantees, make investments and
pay dividends.

POST-EMERGENCE FINANCIAL CONDITION AND LIQUIDITY

Currently, we have three principal sources of near-term liquidity: (1) cash
generated by operations; (2) existing cash and cash equivalents; and (3)
revolving loan borrowings under our Senior Secured Revolving Credit Facility. In
the three months ended March 29, 2002, we generated $4 million of net cash from
our operating activities. We had cash and cash equivalents of $105.8 million at
March 29, 2002, $78.6 million of which were restricted for use on the normal
operations of our consolidated construction joint ventures, by projects having
contractual cash restrictions and our self-insurance programs. At March 29,
2002, we had $137.5 million in letters of credit outstanding under the Senior
Secured Revolving Credit Facility which when combined with existing borrowings
of $25 million, leave $187.5 million available for borrowings and letters of
credit.

We expect to use cash to, among other things, fund working capital
requirements, make capital expenditures and make cure payments pursuant to our
Plan of Reorganization. We anticipate capital expenditures for normal renewal
and replacement will be approximately $25 million for the year. Funding of
working capital and capital expenditures for major new construction projects
will depend upon new awards during the balance of the year. It is anticipated
that we will begin to sell equipment from the large hydroelectric project in the
Philippines beginning in the third quarter of 2002. Currently we estimate
proceeds from the sale of this equipment will be approximately $10 million
during the balance of the year with an additional $25 to $30 million to be
realized in 2003. However, we may use this equipment if a new project is awarded
that would need the same type of equipment and is not otherwise available in our
equipment fleet.

We believe that our cash flow from operations, existing cash and cash
equivalents and available borrowings under our revolving credit facility will be
sufficient to meet our reasonably foreseeable liquidity needs. We may, from time
to time, pursue opportunities to complement existing operations through business
combinations and participation in ventures, which may require additional
financing and utilization of our capital resources.

In addition to the above sources of liquidity, we have certain non-core
assets held for sale (the Technology Center and EMD), which we expect will
generate cash proceeds. The sales of these assets are expected to close during
fiscal year 2002.

In line with industry practice, we are often required to provide
performance and surety bonds to customers under fixed-price contracts. These
bonds indemnify the customer should we fail to perform our obligations under the
contract. If a bond is required for a particular project and we are unable to
obtain an appropriate bond, we cannot pursue that project. We have an existing
bonding facility with an aggregate capacity of $500 million, but, as is
customary, the issuance of bonds under that facility is at the surety's sole
discretion. Moreover, due to events that affect the insurance and bonding
markets generally, bonding may be more difficult to obtain in the future or may
only be available at significant additional cost. While there can be no
assurance that bonds will continue to be available on reasonable terms, we
believe that we have access to the bonding necessary to achieve our operating
goals.

ENVIRONMENTAL CONTINGENCY

From July 1985 to June 1989, Industrial Constructors Corp. ("ICC"), one of
our wholly-owned subsidiaries, performed various contract mining and
construction services at the Summitville mine near Del Norte, Colorado. In 1996,
the United States and the State of Colorado commenced an action under CERCLA in
the U.S. District

II-18

Court for the District of Colorado against Mr. Robert Friedland, a
potentially responsible party, to recover the response costs incurred and to
be incurred at the Summitville Mine Superfund Site (the "Site"). No other
parties were named as defendants in the original complaints in this action.
On April 30, 1999, Friedland filed a third-party complaint naming ICC and
nine other defendants, alleging that such defendants are jointly and
severally liable for such costs and requesting that the response costs be
equitably allocated. In October 1999, the United States and Colorado amended
their complaints to add direct claims against ICC and other parties.

On December 22, 2000, the United States and Colorado signed a Settlement
Agreement and Consent Decree wherein Friedland agreed to pay $27.5 million in
exchange for various promises by the United States and Colorado, including
dismissal of Friedland from the action filed in 1996.

On January 2, 2001, Colorado filed a new federal action in Colorado,
naming five defendants: Sunoco, ARCO, Asarco, Bechtel and A.O. Smith,
alleging that these defendants are jointly and severally liable for costs
incurred and to be incurred by Colorado at the Site. On January 12, 2001,
Colorado amended this complaint by naming WGI, Washington Contractors Group,
Inc., another one of our wholly-owned subsidiaries, and Dennis Washington,
our chairman, as additional defendants. That case was dismissed on September
14, 2001 on the basis that the statute of limitations had expired and the
complaint was untimely.

The United States and Colorado have estimated that the total response
costs incurred and to be incurred at the Site will approximate $150 million.
Prior to our bankruptcy filings, neither we nor Mr. Washington were a party
to any agreement regarding allocation of responsibility, and neither the
United States nor Colorado had made any formal allocation of responsibility
among those defendants.

During the course of our bankruptcy proceedings we entered into
negotiations with the United States, Colorado and Mr. Friedland to settle the
issues related to these matters. In December 2001, we entered into settlement
agreements with the United States, Colorado and Mr. Friedland. As a result,
the United States and Colorado were deemed to have a general unsecured claim
against us in the amount of $20.3 million in the bankruptcy proceedings and
Mr. Friedland obtained a settlement in the amount of $15 million. In
connection with the bankruptcy cases, the general unsecured claim of the
United States and Colorado was discharged on the Effective Date pursuant to
our Plan of Reorganization. Mr. Friedland has been assigned the right to
proceed against insurance carriers under specified insurance policies by
which we were insured with respect to claims for defense, contribution or
indemnity relating to the Site and to the actions brought by the United
States and Colorado. Mr. Friedland has agreed to proceed directly against the
insurance carriers and will not enforce or seek the payment of the settlement
by us. As a result of this settlement, we recorded a liability of $20.3
million at December 1, 2000.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Statement
No. 133 ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS
No. 133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
into other contracts and for hedging activities. Under SFAS No. 133, we are
required to recognize derivative instruments, including those embedded into
other contracts as either assets or liabilities in our consolidated balance
sheets and to measure them at fair value.

SFAS No. 133 requires that the gain or loss on a derivative instrument,
designated and qualifying as a fair value hedging instrument, as well as the
offsetting gain or loss on the hedged item, be recognized currently in
earnings in the same accounting period. It also provides that the effective
portion of the gain or loss on a derivative instrument designated and
qualifying as a cash flow hedge be reported as a component of other
comprehensive income. That amount would subsequently be reclassified into
earnings in the same period or periods in which the hedge forecasted
transaction affects earnings. Any remaining gain or loss on the derivative
instrument, if any, must be recognized in earnings in the current period.

II-19

Our financial risk management philosophy is to ensure that financial
exposures created by changes in foreign currency rates, interest rates and
commodity prices are minimized. The intent of this philosophy is to minimize
the volatility of cash flows and reported earnings which result from
financial rather than business related factors, and thus minimize the
financial consequences caused by fluctuations in financial and commodity
markets.

Currently, we hedge certain foreign currency transactions denominated in
the Philippine peso and the Euro to reduce exposure to change in the U.S.
dollar / peso and U.S. dollar / Euro exchange rates. Previously, hedge
accounting under generally accepted accounting principles allowed us to
account for these forward contracts at spot exchange rates with the related
market adjustment made to other comprehensive income. SFAS No. 133 eliminates
special hedge accounting treatment for such contracts, requiring us to
account for the forward contracts at their fair value (that is, based on the
forward exchange rate) with all changes in fair value reported currently in
other comprehensive income. We plan to continue our practice of hedging our
foreign currency contracts because such an approach economically reduces the
risks. On December 2, 2000, we adopted SFAS 133 and recorded a decrease in
other comprehensive income of $1.9 million and an increase in total
liabilities of $1.9 million for derivatives designated as cash flow type
hedges. The impact on our net income was not material.

In the ordinary course of business in executing construction,
construction management, operations management and mining services, we enter
into fixed-price contracts for future purchases of commodities from our
suppliers. The nature of the terms and conditions of the contracts are
considered normal purchases of inventory and have no financial statement
impact under SFAS No. 133, as amended.

In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101") which summarizes the SEC
staff's position on selected revenue recognition issues. Adoption is required
for us for the first quarter of 2001. The implementation of SAB 101 did not
have a significant impact on our results of operations or financial position.

QUARTERLY FINANCIAL DATA
(IN MILLIONS EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
Selected quarterly financial data for the years ended December 1, 2000 and
December 3, 1999 are presented below.

(a) As discussed previously, significant adjustments were recorded to these
items during the fourth quarter resulting from the RE&C acquisition.

(b) Reclassified for Emerging Issues Task Force Issue No. 00-1 INVESTOR BALANCE
SHEET AND INCOME STATEMENT DISPLAY UNDER THE EQUITY METHOD FOR INVESTMENTS IN
CERTAIN PARTNERSHIPS AND OTHER VENTURES. See Note 2, "Adoption of Accounting
Standards" of the Notes to Consolidated Financial Statements in Item 8 of this
report.

II-20

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
(IN MILLIONS)

INTEREST RATE RISK

In fiscal year 2000, our exposure to market risk for changes in interest
rates related primarily to our short-and long-term investment portfolios and
debt obligations. Our short-term investment portfolio consisted primarily of
highly liquid instruments with maturities of one month or less. As of December
1, 2000, we had $393.4 million in short-term investments classified as cash
equivalents and $38.3 million in investments classified as securities available
for sale. Of total cash and cash equivalents of $393.4 million, $19.0 million
was restricted for use on the normal operations of our consolidated construction
joint ventures, by projects having contractual cash restrictions and our
self-insurance programs.

From time to time, we effect borrowings under bank credit facilities or
otherwise for general corporate purposes, including working capital requirements
and capital expenditures. Total borrowings of $697.4 million were outstanding as
of December 1, 2000, which consisted principally of $399.0 million under the
Tranche B term loan and $297.8 million Senior Unsecured Notes net of unamortized
discount. The Tranche B term loan bore interest at the applicable LIBOR rate
plus an additional margin of 3.25% and, therefore, was subject to fluctuations
in interest rates. The Senior Unsecured Notes bore interest at a fixed rate of
11.5% and, therefore, were not subject to fluctuations in interest rates.

FOREIGN CURRENCY RISK

We conduct our business in various regions of the world. Our operations
are, therefore, subject to volatility because of currency fluctuations,
inflation changes and changes in political and economic conditions in these
countries. We are subject to foreign currency translation and exchange issues,
primarily with regard to our mining venture, MIBRAG mbH, in Germany. At December
1, 2000 and December 3, 1999, the cumulative adjustments for translation losses
net of related income tax benefits were $8.6 million and $6.4 million,
respectively. While we endeavor to enter into contracts with foreign customers
with repayment terms in U.S. currency in order to mitigate foreign exchange
risk, our revenues and expenses are sometimes denominated in local currencies,
and our results of operations may be affected adversely as currency fluctuations
affect pricing and operating costs or those of our competitors. We engage from
time to time in hedging operations, including forward foreign exchange
contracts, to reduce the exposure of our cash flows to fluctuations in foreign
currency rates. We do not engage in hedging for speculative investment reasons.
We can give no assurances that our hedging operations will eliminate or
substantially reduce risks associated with fluctuating currencies.

II-21

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

WASHINGTON GROUP INTERNATIONAL, INC., AND SUBSIDIARIES
Consolidated Financial Statements and Financial Statement Schedule
as of December 1, 2000 and December 3, 1999, and for each of the
three years in the period ended December 1, 2000

II-22

REPORT OF MANAGEMENT

Management prepared, and is responsible for, the consolidated financial
statements and the other information appearing in this annual report. The
consolidated financial statements present fairly the company's financial
position, results of operations and cash flows in conformity with accounting
principles generally accepted in the United States. In preparing its
consolidated financial statements, the company includes amounts that are based
upon estimates and judgments that management believes are reasonable under the
circumstances.

The company maintains internal controls designed to provide reasonable assurance
that the company's assets are protected from unauthorized use and that all
transactions are executed in accordance with established authorizations and
recorded properly. The internal controls are supported by written policies and
guidelines and are complemented by a staff of internal auditors. Management
believes that the internal controls in place at December 1, 2000, provide
reasonable assurance that the books and records reflect the transactions of the
company and there has been compliance with its policies and procedures.

The company's fiscal 2000 consolidated financial statements have been audited by
Deloitte & Touche LLP and the company's fiscal 1999 and 1998 consolidated
financial statements have been audited by PricewaterhouseCoopers LLP, both
independent auditors. Management has made available to both independent auditors
all of the company's financial records and related data, as well as the minutes
of stockholders' and directors' meetings.

/s/ Stephen G. Hanks /s/ George H. Juetten
- ------------------------------- ---------------------------------
Stephen G. Hanks George H. Juetten
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer

June 21, 2002

II-23

DELOITTE & TOUCHE LLP
Suite 1800
101 South Capitol Boulevard
Boise, Idaho 83702

Tel: (208) 342-9361
Fax: (208) 342-2199
www.us.deloitte.com

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Washington Group
International, Inc.

We have audited the accompanying consolidated balance sheet of Washington
Group International, Inc. and subsidiaries (the "Corporation") as of December 1,
2000, and the related consolidated statements of operations, comprehensive
income (loss), stockholders' equity (deficit), and cash flows for the year then
ended. Our audit also included the consolidated financial statement schedule
listed in the Index at Item 8. These financial statements and financial
statement schedule are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Washington Group International,
Inc. and subsidiaries as of December 1, 2000, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

As discussed in Note 3, on July 7, 2000, the Corporation purchased the
capital stock and certain other assets and assumed certain liabilities of
Raytheon Engineers & Constructors International, Inc. Subsequent to the
purchase, substantial litigation was commenced between the parties. The
litigation was settled effective January 25, 2002.

As discussed in Note 4, the Corporation and certain of its subsidiaries
filed for reorganization under Chapter 11 of the Federal Bankruptcy Code on May
14, 2001. Also, as discussed in Note 4, on December 21, 2001, the Bankruptcy
Court entered an order confirming the plan of reorganization that became
effective after the close of business on January 25, 2002. The accompanying
consolidated financial statements and financial statement schedule do not
purport to reflect or provide for the consequences of the bankruptcy
proceedings. In particular, such financial statements do not purport to show (a)
as to assets, their realizable value on a liquidation basis or their
availability to satisfy liabilities; (b) as to pre-petition liabilities, the
amounts that were allowed for claims or contingencies, or the status and
priority thereof; (c) as to stockholder accounts, the effect of any changes that
were made in the capitalization of the Company; or (d) as to operations, the
effect of any changes that were made in its business.

DELOITTE & TOUCHE LLP

Boise, Idaho
June 21, 2002

II-24

REPORT OF INDEPENDENT ACCOUNTANTS

To Board of Directors and Stockholders
of Washington Group International, Inc. (formerly Morrison Knudsen Corporation):

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and comprehensive income (loss), of
stockholders' equity (deficit) and of cash flows present fairly, in all material
respects, the financial position of Washington Group International, Inc.
(formerly Morrison Knudsen Corporation) and its subsidiaries (the "Corporation")
at December 3, 1999, and the results of their operations and their cash flows
for each of the two years in the period ended December 3, 1999 in conformity
with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the accompanying financial statement schedule
(Schedule II Valuation, Qualifying, and Reserve Accounts) for each of the two
years in the period ended December 3, 1999 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and the
financial statement schedule are the responsibility of the Corporation's
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 13 to the consolidated financial statements, a subsidiary
of the Corporation has been named as a defendant in litigation regarding the
Summitville Mine Superfund Site. The outcome of the litigation is not presently
determinable and, accordingly, response costs have not been accrued in the
accompanying financial statements.

PricewaterhouseCoopers LLP

Boise, Idaho
January 28, 2000

II-25

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

II-26

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE DATA)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

II-27

II-28

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

Supplemental disclosure of cash flow information (Note 14)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

II-29

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

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WASHINGTON GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT PER SHARE DATA)

The terms "we," "us" and "our" as used in this Annual Report include
Washington Group International, Inc. ("WGI") and its consolidated
subsidiaries unless otherwise indicated.

1. SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

We were originally incorporated in Delaware on April 28, 1993 under the
name Kasler Holding Company. In April 1996, we changed our name to Washington
Construction Group, Inc. On September 11, 1996, we purchased Morrison Knudsen
Corporation, which we refer to as "Old MK," and changed our name to Morrison
Knudsen Corporation. On September 15, 2000, we changed our name to Washington
Group International, Inc.

We are an international provider of a broad range of design,
engineering, construction, construction management, facilities and operations
management, environmental remediation and mining services to diverse public
and private sector clients, including (i) engineering, construction and
operations and maintenance services in nuclear and fossil power markets, (ii)
diverse engineering and construction and construction management services for
the highway and bridge, airport and seaport, dam, tunnel, water resource,
railway, mining and commercial building markets, (iii) engineering, design,
procurement, construction and construction management services to industrial
companies, (iv) comprehensive nuclear and other environmental and hazardous
substance remediation services and weapons and chemical demilitarization
programs for governmental and private-sector clients, and (v) technology,
engineering, procurement and construction services to the petroleum and
chemical industries worldwide. In providing such services, we enter into
three basic types of contracts: fixed-price or lump-sum contracts providing
for a fixed price for all work to be performed, fixed-unit-price contracts
providing for a fixed price for each unit of work performed, and cost-type
contracts providing for reimbursement of costs plus a fee. Both anticipated
income and economic risk are greater under fixed-price and fixed-unit-price
contracts than under cost-type contracts. Engineering, construction
management and environmental and hazardous substance remediation contracts
are typically awarded pursuant to a cost-type contract.

We participate in construction joint ventures, often as sponsor and
manager of projects, which are formed for the sole purpose of bidding,
negotiating and completing specific projects. We also participate in two
incorporated mining ventures: Westmoreland Resources, Inc., a coal mining
company in Montana, and MIBRAG mbH, a company that operates lignite coal
mines and power plants in Germany. On March 22, 1999, we and BNFL Nuclear
Services, Inc. ("BNFL"), an unrelated entity, acquired the government and
environmental services businesses of CBS Corporation (now Viacom, Inc.). On
July 7, 2000, we purchased from Raytheon Company ("Raytheon") and Raytheon
Engineers & Constructors International, Inc. ("RECI") the capital stock of
the subsidiaries of RECI and specified other assets of RECI and we assumed
specified liabilities of RECI. The businesses that we purchased provide
engineering, design, procurement, construction, operation, maintenance and
other services on a worldwide basis. See Note 3, "Acquisitions - Acquisition
of Raytheon Engineers & Constructors."

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of WGI and
all of its majority-owned subsidiaries and certain construction joint
ventures. Investments in non-consolidated construction joint ventures and
mining ventures are accounted for by the equity method. For these
non-consolidated construction joint ventures, our proportionate share of
revenue, cost of revenue and gross profit (loss) is included in the
consolidated statements of operations, and equity in net earnings of our
incorporated mining ventures is accounted for on the equity method.
Intercompany accounts and transactions have been eliminated.

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Our fiscal year had historically ended on November 30. Effective
December 1, 1998, we adopted a 52/53 week fiscal year ending on the Friday
closest to November 30. Effective December 1, 2001, we changed our fiscal
year to the 52/53 weeks ending on the Friday closest to December 31. The
changes in reporting period have not materially affected comparability
between the reporting periods presented.

REVENUE RECOGNITION

Revenue is generally recognized on the percentage-of-completion method.
Completion on contracts is generally measured based on the proportion of
costs incurred to total estimated contract costs or on the proportion of
labor hours or labor costs incurred to total estimated labor hours or labor
costs. For certain long-term contracts involving mining, environmental and
hazardous substance remediation, completion is measured on estimated physical
completion or units of production.

Revenue recognition on certain fixed-price construction contracts begins
when progress is sufficient to estimate the probable outcome, or on the
completed contract method if the probable outcome cannot be reasonably
estimated. The cumulative effect of revisions to contract revenue and
estimated completion costs, including incentive awards, penalties, change
orders, claims and anticipated losses, is recorded in the accounting period
in which the amounts are known and can be reasonably estimated. Such
revisions could occur at any time and the effects could be material. Change
orders are included in total estimated contract revenue when it is probable
that the change order will result in a bona fide addition to contract value
and can be reliably estimated. If it is probable that the change order will
result in the contract price exceeding the related costs incurred, that the
excess over cost can be reliably estimated, and if realization is assured
beyond a reasonable doubt, the original contract price is adjusted to the
probable revised contract amount as the costs are recognized. Claims are
included in total estimated contract revenue, only to the extent that
contract costs related to the claim have been incurred, when it is probable
that the claim will result in a bona fide addition to contract value and can
be reliably estimated. No profit is recognized on claims until final
settlement occurs.

We have a number of contracts and subcontracts with various agencies of
the U.S. government, which extend beyond one year and for which government
funding has not yet been approved. All contracts with agencies of the U.S.
government and some commercial and foreign contracts are subject to
unilateral termination at the option of the customer. In the event of a
termination, we would not receive projected revenues associated with the
terminated portion of such contracts.

We have a history of making reasonably dependable estimates of the
extent of progress towards completion, contract revenue and contract
completion costs on our long-term engineering and construction contracts.
However, due to uncertainties inherent in the estimation process, it is
possible that actual completion costs may vary from estimates.

USE OF ESTIMATES

The preparation of our consolidated financial statements in conformity
with generally accepted accounting principles necessarily requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
balance sheet dates and the reported amounts of revenue and costs during the
reporting periods. Actual results could differ from those estimates. On an
ongoing basis, we review our estimates based on information that is currently
available. Changes in facts and circumstances may result in revised estimates.

CLASSIFICATION OF CURRENT ASSETS AND LIABILITIES

We include in current assets and liabilities amounts realizable and
payable under contracts that extend beyond one year. Accounts receivable at
December 1, 2000 and December 3, 1999 include approximately $25,524 and
$8,990, respectively, of contract retentions, which are not expected to be
collected within one year. At December 1, 2000 and December 3, 1999, accounts
receivable include $8,526 and $17,537, respectively, of short-term marketable
securities jointly held with customers as contract retentions, the market
value of which approximated

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the carrying amounts. We recognize interest income from marketable securities
as earned. Advances from customers are non-interest bearing. Subcontracts
payable, billings in excess of costs, estimated earnings on uncompleted
contracts and estimated costs to complete long-term contracts each contain
amounts that, depending on contract performance, resolution of U.S.
government contract audits, negotiations, change orders, claims or changes in
facts and circumstances, may not require payment within one year.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of liquid securities with remaining
maturities of three months or less at the date of acquisition that are
readily convertible into known amounts of cash. At December 1, 2000, cash and
cash equivalents included amounts totaling $18,961 that were restricted for
use on the normal operations of our consolidated construction joint ventures,
by projects having contractual cash restrictions and our self-insurance
programs. The comparable amount at December 3, 1999 was $34,810.

UNBILLED RECEIVABLES

Unbilled receivables represent costs incurred under contracts in process
that have not yet been invoiced to customers, and arise from the use of the
percentage-of-completion method of accounting, cost reimbursement-type
contracts and the timing of billings. Substantially all unbilled receivables
at December 1, 2000 are expected to be billed and collected within one year.

INVENTORIES

Inventories are stated at the lower of cost or market on a first-in,
first-out basis and consist of inventoried costs relating to long-term
contracts. The elements of cost included in inventories are direct labor,
direct material and certain overhead costs.

CREDIT RISK CONCENTRATION

By policy, we limit the amount of credit exposure to any one financial
institution and place investments with financial institutions evaluated as
highly creditworthy. Concentrations of credit risk with respect to accounts
receivable and unbilled receivables are believed to be limited due to the
number, diversification and character of the obligors and our credit
evaluation process. Typically, we have not required collateral for such
obligations, but can place liens against property, plant or equipment
constructed if a default occurs. Historically, we have not incurred any
material credit-related losses.

GOODWILL

Goodwill is amortized using the straight-line method over 20 to 40
years. The carrying value of goodwill or other long-lived assets is reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If impairment is indicated by the
facts and circumstances, an impairment loss will be recognized based on a
comparison of the carrying value of the long-lived assets and associated
goodwill with the discounted cash flow of such assets. The carrying amount of
the goodwill identifiable with such assets will be eliminated before
recognition of impairment of the related long-lived tangible and identifiable
intangible assets.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Major renewals and
improvements are capitalized, while maintenance and repairs are expensed when
incurred. Depreciation of construction equipment is provided on straight-line
and accelerated methods, after an allowance for estimated salvage value, over
estimated lives of 2 to 10 years. Depreciation of buildings is provided on
the straight-line method over estimated lives of 10 to 40 years, and
improvements are amortized over the shorter of the asset life or lease term.
Depreciation of equipment is provided under the straight-line method over
estimated lives of 3 to 12 years. Upon disposition, cost and related

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accumulated depreciation of property and equipment are removed from the
accounts and the gain or loss is reflected in results of operations.

FOREIGN CURRENCY TRANSLATION

The functional currency for foreign operations is generally the local
currency. Translation of assets and liabilities to U.S. dollars is based on
exchange rates at the balance sheet date. Translation of revenue and expenses
to U.S. dollars is based on a weighted-average rate during the period.
Translation gains or losses, net of income tax effects, are reported as a
component of other comprehensive income (loss). Because of the short-term
duration of certain construction and engineering projects, related
translation gains or losses are recognized currently. Gains or losses from
foreign currency transactions are included in the results of operations of
the period in which the transaction is completed. Foreign currency gains and
losses were immaterial for all periods presented.

ENVIRONMENTAL LIABILITIES

Accruals for estimated costs of response actions for environmental
matters are recorded when it is probable that a liability has been incurred
and the amount of the liability can be reasonably estimated. On a quarterly
basis, we review estimates of costs of response actions at various sites,
including sites in respect of which government agencies have designated us as
a potentially responsible party ("PRP"). Accrued liabilities may be
discounted and are exclusive of claims for recovery, if any. However, due to
uncertainties inherent in the estimation process, it is possible that actual
results may vary from estimates.

INCOME TAXES

Deferred income tax assets and liabilities are recognized for the
effects of temporary differences between the carrying amounts and the income
tax basis of assets and liabilities using enacted tax rates. A valuation
allowance is established when it is more likely than not that net deferred
tax assets will not be realized. Tax credits are generally recognized in the
year they arise.

INCOME (LOSS) PER SHARE

Basic income (loss) per share is calculated on the weighted-average
number of outstanding common shares during the applicable period. Diluted
income (loss) per share is based on the weighted-average number of
outstanding common shares plus the weighted-average number of potential
outstanding common shares. Income (loss) per share is computed separately for
each period presented.

In 2000, because of our operating losses, all options and warrants were
antidilutive and, therefore, are excluded from earnings per share
calculations. For 1999 and 1998, the additional weighted-average number of
potential outstanding common shares for purposes of computing diluted
earnings per share consisted solely of stock options for all periods
presented. Stock purchase warrants were not included in the computation of
diluted earnings per share because the exercise price was greater than the
average market price of the warrants, and, therefore, the effect would be
antidilutive.

Our emergence from bankruptcy in January 2002 resulted in the
cancellation of all of our then outstanding capital stock, stock options and
stock purchase warrants and the issuance of new shares of capital stock,
stock purchase warrants and stock options. As such, we believe the
presentation of income (loss) per share for these canceled instruments is not
meaningful. See Note 4, "Reorganization Case and Fresh-start Reporting."

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Statement
No. 133 ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS
No. 133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments "embedded"
into other contracts and for hedging activities. Under SFAS No. 133, we are
required to recognize derivative instruments, including those

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embedded into other contracts as either assets or liabilities in our
consolidated balance sheets and to measure them at fair value.

SFAS No. 133 requires that the gain or loss on a derivative instrument,
designated and qualifying as a fair value hedging instrument, as well as the
offsetting gain or loss on the hedged item be recognized currently in
earnings in the same accounting period. It also provides that the effective
portion of the gain or loss on a derivative instrument designated and
qualifying as a cash flow hedge be reported as a component of other
comprehensive income. That amount would subsequently be reclassified into
earnings in the same period or periods in which the hedge forecasted
transaction affects earnings. Any remaining gain or loss on the derivative
instrument, if any, must be recognized in earnings in the current period.

Our financial risk management philosophy is to ensure that financial
exposures created by changes in foreign currency rates, interest rates and
commodity prices are minimized. The intent of this philosophy is to minimize
the volatility of cash flows and reported earnings which result from
financial rather than business related factors, and thus minimize the
financial consequences caused by fluctuations in financial and commodity
markets.

We hedged certain foreign currency transactions denominated in the
Philippine peso and the Euro to reduce exposure to changes in the U.S. dollar
/ peso and U.S. dollar / Euro exchange rates. Hedge accounting under current
generally accepted accounting principles allows us to account for these
forward contracts at spot exchange rates with the related market adjustment
made to other comprehensive income. SFAS No. 133 eliminates special hedge
accounting treatment for such contracts, requiring us to account for the
forward contracts at their fair value (that is, based on the forward exchange
rate) with all changes in fair value reported currently in other
comprehensive income. We plan to continue our practice of hedging our foreign
currency contracts because such an approach economically reduces the risks.
On December 2, 2000, we adopted SFAS 133 and recorded a decrease in other
comprehensive income of $1,901 and an increase in total liabilities of $1,901
for derivatives designated as cash-flow-type hedges. The impact on our net
income was not material. There were no material hedging transactions prior to
the adoption of SFAS No. 133.

In the ordinary course of business in executing construction,
construction management, operations management and mining services, we enter
into fixed-price contracts for future purchases of commodities from our
suppliers. The nature of the terms and conditions of the contracts are
considered normal purchases of inventory and did not have a financial
statement impact under SFAS No. 133, as amended.

In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), which summarizes the SEC
staff's position on selected revenue recognition issues. Adoption is required
for us for the first quarter of 2001. The implementation of SAB 101 did not
have a significant impact on our results of operations or financial position.

RECLASSIFICATIONS

Certain reclassifications have been made to prior year financial
statements to conform to the current year presentation.

2. ADOPTION OF ACCOUNTING STANDARDS

On December 4, 1999, we adopted Statement of Position ("SOP") 98-5
REPORTING ON THE COSTS OF START-UP ACTIVITIES. The SOP provides guidance on
the financial reporting of start-up costs and organization costs to be
expensed as incurred. The SOP also amends SOP 81-1 ACCOUNTING FOR PERFORMANCE
OF CONSTRUCTION/PRODUCTION CONTRACTS by requiring pre-contract costs to be
expensed as incurred. The adoption of SOP 98-5 had no material effect on our
financial position or results of operations.

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During 2000, the Emerging Issues Task Force ("EITF") issued EITF Issue
No. 00-1 INVESTOR BALANCE SHEET AND INCOME STATEMENT DISPLAY UNDER THE EQUITY
METHOD FOR INVESTMENTS IN CERTAIN PARTNERSHIPS AND OTHER VENTURES ("EITF
00-1") which clarifies those circumstances in which proportionate gross
presentation of an investee's revenues and expenses in an investor's income
statement is appropriate under the equity method of accounting for an
investment in a legal entity. We adopted the provisions of EITF 00-1 during
the year ended December 1, 2000. The adoption resulted in presenting the
results of operations of our incorporated mining ventures on the equity
method rather than reflecting our proportionate share of revenues and
expenses in the consolidated statements of operations. In addition, results
of operations and financial position of certain majority-owned joint ventures
have been fully consolidated. These majority-owned joint ventures had
previously been presented using the equity method for the investment and
proportionate consolidation of the results of operations. All prior years'
financial information has been reclassified to conform to the current
presentation. The effect of adoption of EITF 00-1 was not significant to the
financial statements.

3. ACQUISITIONS

ACQUISITION OF WESTINGHOUSE BUSINESSES

On March 22, 1999 BNFL and WGI acquired the government and environmental
businesses, ("Westinghouse Businesses") of CBS Corporation.

Operations of the Westinghouse Businesses are conducted through the
following two companies:

o Westinghouse Government Services Company LLC ("WGS"), a limited
liability company that provides defense-related operations and
maintenance services for the U.S. Departments of Energy and Defense,
including the production of tritium for national weapons programs and
high-level waste solidification (also known as "vitrification").

o Westinghouse Government Environmental Services Company LLC ("WGES"), a
limited liability company that provides non-defense related
governmental and environmental services, including environmental
remediation and waste management services.

Our and BNFL's rights and obligations with respect to WGS and WGES are
described in the Amended and Restated Consortium Agreement dated March 19,
1999 and in other related documents, collectively called the "Consortium
Agreement." Under the Consortium Agreement, 60% of the profits, losses and
cash flows of WGS and WGES are allocated to us and 40% are allocated to BNFL.
WGS and WGES are components of our Government operating unit.

The aggregate purchase price of the Westinghouse Businesses was
$207,611, consisting of net cash paid to CBS Corporation of $201,060 and
acquisition costs of $6,551. Our share of the aggregate purchase price,
$124,567 was funded primarily through borrowings under our bank credit
facilities. The remaining balance of $83,044 was paid by BNFL.

We have accounted for the acquisition of the Westinghouse Businesses as
a purchase business combination. The results of our operations, financial
position and cash flows include WGS and WGES on a consolidated basis from the
acquisition date with BNFL's 40% minority interest in WGS and WGES and a
third party's 35% minority interest in Safe Sites of Colorado LLC, a
subsidiary of WGES, reflected in a single minority interest line item in our
consolidated financial statements. The aggregate purchase price was allocated
to the net assets we acquired on the basis of estimates of fair values with
the excess recorded as goodwill, as follows:

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- ---------------------------------------------------------------------------------------------------------------------------

Working capital deficit $ (2,188)
Investments and other assets 8,405
Property, plant and equipment 25,496
Post-retirement benefit obligation (27,000)
Pension liabilities (55,908)
Other non-current liabilities and minority interests (15,054)
Goodwill 273,860
- ---------------------------------------------------------------------------------------------------------------------------
Total acquisition costs 207,611
Less BNFL portion of total acquisition costs (83,044)
- ---------------------------------------------------------------------------------------------------------------------------
WGI portion of total acquisition costs $124,567
===========================================================================================================================

Completion of the purchase allocation resulted primarily in a reduction
of employee benefit obligations of $18,050 with a corresponding reduction in
goodwill. During the quarter ended December 1, 2000, a pre-acquisition
contingency related to the Westinghouse Businesses was resolved. That
resulted in an additional reduction in employee benefit obligations of $6,900
with a corresponding reduction in goodwill. Also, we revised our original
estimate of legal costs, reducing the purchase price by an additional $5,130.

The following unaudited pro forma information presents our consolidated
operating results as if the acquisition of the Westinghouse Businesses had
taken place on December 1, 1998. These pro forma operating results have been
prepared for illustrative purposes only and are not indicative of operating
results that would have been experienced if the Westinghouse Businesses
acquisition occurred on the dates indicated, or of future operating results.

ACQUISITION OF RAYTHEON ENGINEERS & CONSTRUCTORS

On July 7, 2000, pursuant to a stock purchase agreement dated April 14,
2000 (the "Stock Purchase Agreement"), we purchased from Raytheon and RECI
(collectively with Raytheon, the "Sellers") the capital stock of the
subsidiaries of RECI and specified other assets of RECI and we assumed
specified liabilities of RECI. The businesses that we purchased, hereinafter
called "RE&C", provide engineering, design, procurement, construction,
operation, maintenance and other services on a worldwide basis. We financed
the acquisition by obtaining new senior secured facilities (the "RE&C
Financing Facilities") and issuing senior unsecured notes due July 1, 2010
(the "Senior Unsecured Notes"). See Note 8, "Credit Facilities - RE&C
Financing Facilities" and "Credit Facilities - Senior Unsecured Notes" for a
more detailed description of the RE&C Financing Facilities and the Senior
Unsecured Notes.

The purchase price paid at the closing of the acquisition on July 7,
2000 was $53,000 in cash and the assumption of net liabilities originally
estimated at $450,000. We also incurred acquisition costs of $7,705. The cash
portion of the purchase price paid at closing was determined based upon a
formula contained in the Stock Purchase Agreement and represented the
estimated amount of the Adjusted Non-Current Net Assets and Adjusted Net
Working Capital (as the terms are defined in the Stock Purchase Agreement)
that we acquired, valued as of April 30, 2000. The amounts of Adjusted
Non-Current Net Assets and Adjusted Net Working Capital were subject to
post-closing finalization, including an audit by independent accountants, and
other adjustments to the price paid at closing. In addition, the Stock
Purchase Agreement contained a provision requiring us either to pay the
Sellers, or to be paid by the Sellers, the net amount of cash the Sellers
either advanced to or withdrew from RE&C between April 30, 2000 and July 7,
2000. After closing we paid the Sellers $84,400 representing the net

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amount of cash advanced or paid by the Sellers for the use or benefit of RE&C
between April 30, 2000 and July 7, 2000.

The Stock Purchase Agreement provided that the Sellers would retain all
non-restricted cash and cash equivalents held by RE&C at the close of
business on April 30, 2000 ("Cut-Off Date Cash Balances"). At closing, for
purposes of administrative convenience, RE&C kept all cash held by it
($15,790), and we paid the Sellers an additional $30,800 for the cash
balances on April 30, 2000. That amount was subject to post-closing
verification by us and adjustment in the event it was not equal to the
Cut-Off Date Cash Balances held by RE&C. We subsequently verified the amount
and no adjustment was required. In total, we paid net cash of $160,130 for
the RE&C acquisition.

RECI retained, among other assets, all of its interest in and rights
with respect to some of the existing contracts. In addition, the Stock
Purchase Agreement provided that the contracts related to four specified
construction projects would be transferred to RECI, and RE&C would enter into
subcontracts to perform, on a cost-reimbursed basis, all of RECI's
obligations under those contracts. Because the customer consents required to
transfer the four contracts to RECI could not be obtained as of closing, we
agreed to remain the contract party and continued to be directly obligated to
the customers and other third parties under the contracts relating to the
four projects. Accordingly, we and the Sellers agreed that the Sellers would
provide us with full indemnification with respect to any risks associated
with those contracts, which arrangement accomplished the original intent of
the Stock Purchase Agreement. Under the Stock Purchase Agreement, we agreed
that we would complete the four specified projects for the Sellers' account
and the Sellers agreed to reimburse our costs to do so and to share equally
with us any positive variance between actual costs and estimated costs. The
Sellers also agreed to indemnify us against any losses, claims or liabilities
under the contracts relating to such projects, except losses, claims or
liabilities resulting from our gross negligence or willful misconduct,
against which we would indemnify the Sellers.

The Stock Purchase Agreement did not contain a fixed purchase price at
closing for the transaction, but rather, as noted above, provided that the
purchase price would be adjusted upward or downward post-closing based on the
effect on a formula that would be applied to an audited RE&C April 30, 2000
balance sheet to be prepared by the Sellers and audited by the Sellers'
independent accountants. After closing, we extended the delivery date for the
final audited RE&C balance sheet for April 30, 2000 to January 14, 2001.

As part of the acquisition of RE&C, we undertook a comprehensive review
of existing contracts that we acquired for the purpose of making a
preliminary allocation of the acquisition price to the net assets acquired.
As part of this review, we evaluated, among other matters, RECI's estimates
of the costs at completion of the long-term contracts that were underway as
of July 7, 2000 ("Acquisition Date EAC's"). During this process, information
came to our attention that raised questions as to whether the Acquisition
Date EAC's needed to be adjusted significantly. Our review process involved
the analysis of an extensive amount of supporting data, including analysis of
numerous, large construction projects in various stages of completion. Based
on the information available at the time of the review, the preliminary
results of this review indicated that the Acquisition Date EAC's of numerous
long-term contracts required substantial adjustment. The adjustments resulted
in contract losses or lower than market rate margins. As a result, in our
report on Form 10-Q for the quarter ended September 1, 2000, we significantly
decreased the carrying value of the net assets acquired and increased the
goodwill associated with the transaction. Because many of the contracts we
acquired contained either unrecorded losses or lower than market profits,
these contracts were adjusted to their estimated fair value at the July 7,
2000 acquisition date in order to allow for a reasonable profit margin for
completing the contracts, and a gross margin or normal profit reserve of
$233,135 was established and recorded in billings in excess of cost and
estimated earnings on uncompleted contracts.

Our review of the RE&C contracts and the purchase price allocation
process continued thereafter, and, based on the results of that review, we
expected that, as a result of the purchase price adjustment process, the
purchase price of RE&C would be adjusted downward by a significant amount.
Subsequent to the quarter ended September 1, 2000, we completed the review
and made additional adjustments to the contracts we had acquired, resulting
from a more accurate determination of the actual contract status at the
acquisition date.

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The normal profit reserve has been reduced as work has been performed on
the affected projects. The reduction results in reductions to cost of revenue
and corresponding increases in gross profit, but has no effect on cash. The
establishment of and decreases in cost of revenue for the periods indicated are
as follows:

An audited RE&C April 30, 2000 balance sheet was not delivered by Sellers,
and therefore on February 27, 2001 we filed a lawsuit against the Sellers
seeking specific performance of the purchase price adjustment provisions of the
Stock Purchase Agreement. On March 8, 2001, we amended our complaint to also
seek money damages for misstatements and omissions allegedly made by the
Sellers. Our lawsuit seeking specific performance was successful, and we and the
Sellers thereafter commenced arbitration proceedings before an independent
accountant approved by the court to determine the purchase price adjustment. A
significant arbitration claim was ultimately filed against the Sellers, as
discussed below.

During the spring of 2000, in connection with the acquisition of RE&C, we
received from the Sellers audited RECI financial statements at December 31, 1999
and 1998 and for each of the three years in the period ended December 31, 1999
and unaudited RECI financial statements as of and for the three months ended
April 2, 2000 and April 4, 1999. In accordance with federal securities law
disclosure requirements, we filed on July 13, 2000 those audited and unaudited
financial statements and our related unaudited pro forma condensed combined
financial statements as of and for the year ended December 3, 1999 and for the
quarter ended March 3, 2000 in a current report on Form 8-K. Subsequently, in
our current report on Form 8-K filed March 8, 2001, we advised that, for the
reasons stated in such report, the foregoing audited and unaudited financial
statements of RECI and our related unaudited pro forma condensed combined
financial statements, which were derived therefrom, no longer should be relied
upon.

On March 2, 2001 we announced that we faced severe near-term liquidity
problems as a result of our acquisition of RE&C. On March 9, 2001, because of
those liquidity problems, we suspended work on two large construction projects
located in Massachusetts that were part of the acquisition. The Sellers had
provided the customer with parent performance guarantees on those two contracts
and the guarantees remained in effect after closing. Those performance
guarantees required the Sellers to complete the work on the contracts in the
event RE&C (owned by us as of July 7, 2000) did not complete them. The contracts
were fixed-price in nature and our review of cost estimates indicated that there
were substantial unrecognized future costs in excess of future contract revenues
that were not reflected in RECI's Acquisition Date EAC's.

Upon our suspension of work, the Sellers undertook performance of those
contracts pursuant to the outstanding performance guarantees. We, however, were
obligated under the Stock Purchase Agreement to indemnify the Sellers for losses
they incurred under those guarantees. The Sellers also assumed obligations under
other contracts, primarily in the RE&C power generation construction business
unit, which resulted in significant additional indemnification obligations by us
to the Sellers. As a result of costs they incurred to perform under the parent
guarantees, the Sellers filed a claim against us in the bankruptcy process for
approximately $940,000. As further discussed below, this claim was ultimately
settled without payment to the Sellers in connection with the completion of our
Plan of Reorganization. See Note 4, "Reorganization Case and Fresh-start
Reporting."

On May 14, 2001, because of the severe near-term liquidity problems
resulting from our acquisition of RE&C, we filed for protection under Chapter 11
of the U.S. Bankruptcy Code. At various times between May 14, 2001 and November
20, 2001, we "rejected" numerous contracts (construction contracts, leases and
others), as

II-39

that term is used in the legal sense in bankruptcy law. Included in these
rejections were numerous contracts that we acquired from the Sellers.
Effective August 27, 2001, we also rejected the Stock Purchase Agreement.

On December 21, 2001, the bankruptcy court entered an order confirming the
Second Amended Joint Plan of Reorganization of Washington Group International,
Inc., et al., as modified (the "Plan of Reorganization"). The Plan of
Reorganization became effective and we emerged from bankruptcy on January 25,
2002 (the "Effective Date").

During the pendency of the bankruptcy we continued to negotiate with the
Sellers a settlement of our outstanding litigation with respect to the RE&C
acquisition. As a result of those negotiations, we reached a settlement
regarding all issues and disputes between the parties, which settlement was
incorporated into our Plan of Reorganization (the "Raytheon Settlement").

Under the Raytheon Settlement, the Sellers agreed that with respect to
their bankruptcy claim, the Sellers would be considered unpaid, unsecured
creditors having rights in the unsecured creditor class, but that, upon
completion of our Plan of Reorganization, they would waive any rights to receive
any distributions to be given to unsecured creditors with allowed claims. In
exchange, we agreed to dismiss all litigation against the Sellers related to the
acquisition and to discontinue the purchase price adjustment and binding
arbitration process. We released all claims based on any act occurring prior to
the Effective Date of our Plan of Reorganization, including all claims against
the Sellers, their affiliates and directors, officers, employees, agents and
specified professionals. The Sellers released all claims based on any act
occurring prior to the Effective Date of our Plan of Reorganization, including
any claims related to any contracts or projects not assumed by us during the
bankruptcy cases, against us and our directors, officers, employees, agents and
professionals. No cash was exchanged as a result of this settlement.

In addition, under a services agreement that is a part of the Raytheon
Settlement, the Sellers will direct the process for resolving pre-petition
claims asserted against us in the bankruptcy case relating to any contract or
project that we rejected and that involved some form of support arrangement from
the Sellers. We will assist the Sellers in settling or litigating various claims
related to those rejected projects. We will also complete work as requested by
the Sellers on those rejected projects, and will be reimbursed on a
cost-reimbursable basis. The Sellers may, with respect to the rejected projects
described above, pursue or settle any of our claims against project owners,
contractors or other third parties and will retain any resulting proceeds,
except that for specified projects, recoveries in excess of amounts paid by the
Sellers will be returned to us.

While this settlement eliminated our ability to continue to seek to collect
our arbitration claim, it was necessary because the Sellers' large unsecured
claims in the bankruptcy were substantially impeding our Plan of Reorganization
process. Without this settlement, a successful emergence from Chapter 11 would
have been delayed or impossible.

We have made adjustments to the preliminary purchase price allocation of
the RE&C acquisition price to the net assets acquired that was included in the
unaudited quarterly information at September 1, 2000, including the following,
as a result of completing our review:

o We have made adjustments for amounts that were recorded as part of
and subsequent to the initial preliminary purchase price
allocation, as a result of additional information we obtained that
supported that some of the July 7, 2000 balances were materially
misstated based on generally accepted accounting principles and
were, therefore, included in our purchase price adjustment
arbitration claim against the Sellers. In the lawsuits and purchase
price adjustment arbitration claim referred to above, we asserted
that the Sellers should have recorded these as adjustments in the
RE&C financial statements prior to the acquisition. The adjustments
primarily relate to provisions for anticipated losses on
fixed-price contracts that were not recorded in the RE&C financial
statements prior to the acquisition. We recorded these amounts
as a $444,055 arbitration claim receivable from the Sellers.
However, as noted above, under the terms of the Raytheon Settlement,
we subsequently agreed to dismiss all litigation against the Sellers

II-40

related to the acquisition and to discontinue the purchase price
adjustment and binding arbitration process. Therefore, we wrote off
the receivable from the Sellers as an asset impairment during 2000.

o We also have made adjustments for items that were identified subsequent
to the initial purchase price allocation that we believe were
additional misstatements, based on additional information we obtained,
but that were not included in the arbitration claim. Cost of revenue
included adjustments to estimates at completion on contracts and
increases in self-insurance reserves. The impairment of assets was
primarily unrecoverable accounts receivable. These amounts totaled
$144,481 and were charged to operations in the three months ending
December 1, 2000 as follows:

- ------------------------------------------------------------------------------------------------------------

Cost of revenue $(140,954)
Impairment of assets (4,685)
Other 1,158
- ------------------------------------------------------------------------------------------------------------
Total $(144,481)
============================================================================================================

Because we cannot determine the final impact of the matters discussed above
on the pre-acquisition RE&C financial statements or the pro forma adjustments
that would be appropriate for the years ended December 1, 2000 and December 3,
1999, unaudited pro forma consolidated results of operations as if the
acquisition of RE&C had taken place on December 1, 1998 have not been presented.

We have accounted for the acquisition of RE&C as a purchase business
combination. The results of our operations, financial position and cash flows
include the operations of RE&C on a consolidated basis from the July 7, 2000
acquisition date. We have made an allocation of the aggregate purchase price to
the net assets we acquired, with the remainder recorded as goodwill, on the
basis of estimates of fair values after adjustments for the arbitration claim
against the Sellers and adjustments charged to operations, as follows:

- ------------------------------------------------------------------------------------------------------------

Working capital deficit $(958,636)
Arbitration claim receivable 444,055
Investments and other assets 42,633
Property and equipment 139,868
Pension and post-retirement benefit obligations (16,427)
Deferred income taxes (83,222)
Other non-current liabilities (88,351)
Goodwill 680,210
- ------------------------------------------------------------------------------------------------------------
Total acquisition costs, net of cash acquired of $15,790 $ 160,130
============================================================================================================

Of the 23 major RE&C projects that had significant contract adjustments
discussed above, 7 are now complete and 5 were eliminated in the insolvency
proceedings of Washington International B.V. See Note 4, "Reorganization Case
and Fresh-start Reporting - Washington International B.V." Of the remaining
projects, 6 have undergone reformation of the contracts to terms and conditions
that permitted us to continue to complete the original project and 5 are
continuing under the original terms and conditions. Most of the projects will be
completed by the end of 2002, and the remaining projects in 2003.

As a result of the foregoing events and the substantial negative cash flows
of RE&C, we analyzed for impairment the assets acquired in the acquisition of
RE&C, including goodwill. Based upon the results of our analysis, we have taken
a charge against income during the quarter ended December 1, 2000 for the
following impairments of acquired assets:

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- ------------------------------------------------------------------------------------------------------------

Goodwill, net of accumulated amortization of $8,727 $671,483
Indemnification amounts receivable from the Sellers under the Stock Purchase Agreement:
Billed and unbilled receivables on closed contracts 46,562
Partial indemnification of loss on government contract 25,115
Reimbursement for restructuring costs 3,026
Reimbursement of legal fees 1,305
- ------------------------------------------------------------------------------------------------------------
Impairment of assets $747,491
============================================================================================================

As a result of the acquisition, we incurred significant costs associated
with the integration and merger of the two companies. They consisted primarily
of incremental costs for legal, accounting, consulting and other fees, including
business consulting, promotion and systems integration. During the quarter and
year ended December 1, 2000, those costs were $5,246 and $15,302, respectively.
There were no such costs in 1999.

4. REORGANIZATION CASE AND FRESH-START REPORTING

REORGANIZATION CASE

On May 14, 2001, because of severe near-term liquidity issues WGI and
several but not all of its direct and indirect wholly-owned domestic
subsidiaries (the "Debtors") filed voluntary petitions to reorganize under
Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the
District of Nevada. The various individual bankruptcy cases were administered
jointly.

Under Chapter 11, certain claims against a debtor in existence prior to the
filing of a petition for relief under the federal bankruptcy laws ("Pre-petition
Claims") are stayed while the debtor continues business operations as a
debtor-in-possession. Each of our Debtors in this case continued to operate its
business and manage its property as a debtor-in-possession during the pendency
of the case. Subsequent to the filing date, additional Pre-petition Claims
resulted from the rejection of executory contracts, including leases, and from
resolution of claims for contingencies and other disputed amounts. Secured
claims, primarily representing liens on the Debtors' assets related to the RE&C
Financing Facilities, were also stayed during the pendency of the bankruptcy.

The Debtors received approval from the bankruptcy court under first-day
orders to pay and did pay specified pre-petition obligations, including employee
wages and benefits, foreign vendors, tax obligations and critical vendor
obligations.

Our ability to continue as a going-concern during the pendency of the
bankruptcy was dependent upon obtaining sufficient debtor-in-possession
financing in order to continue operations while in bankruptcy, the confirmation
of a plan of reorganization by the bankruptcy court, and resolution of disputes
between the Sellers and us. See Note 3, "Acquisitions - Acquisition of Raytheon
Engineers & Constructors" for a description of these disputes.

As of May 14, 2001, we obtained a Secured Super-Priority Debtor in
Possession Revolving Credit Facility (the "DIP Facility") with a commitment of
$195,000 that was available to provide both ongoing funding and to support
letters of credit. On June 5, 2001, the DIP Facility lenders approved an
increase in the total commitment from $195,000 to $220,000. The DIP Facility was
available and utilized as needed throughout the pendency of the bankruptcy, had
no outstanding balance at November 30, 2001 and was replaced by a secured
$350,000 30-month revolving credit facility (the "Senior Secured Revolving
Credit Facility") entered into on January 25, 2002. For a detailed discussion of
the Senior Secured Revolving Facility, see Note 8, "Credit Facilities - Senior
Secured Revolving Credit Facility."

On December 21, 2001, the bankruptcy court entered an order confirming the
Second Amended Joint Plan of Reorganization of Washington Group International,
Inc., et al., as modified (the "Plan of Reorganization"). Substantially all
liabilities of the Debtors as of the date of the bankruptcy filing were subject
to settlement under our Plan of Reorganization.

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During the pendency of the bankruptcy, we continued to negotiate with the
Sellers a settlement of our outstanding litigation and disputes with respect to
the RE&C acquisition. As a result of those negotiations, we entered into the
Raytheon Settlement.

The Plan of Reorganization provided for and we executed the following upon
its effective date (the "Effective Date"):

o All of our equity securities (common stock, stock purchase warrants and
stock options) existing prior to the Effective Date were canceled and
extinguished.

o $570,000 of secured debt under the RE&C Financing Facilities was exchanged
for $20,000 in cash and 20,000 shares of the new common stock of
reorganized WGI ("New Common Stock") as discussed further below. Also, see
Note 8, "Credit Facilities."

o We entered into a registration rights agreement with each holder of secured
claims who received New Common Stock and requested to be a party to such
agreement.

o Vendor and subcontractor claims directly related to contracts we assumed
during bankruptcy or upon emergence from bankruptcy that were not paid as
critical vendor payments were to be paid in cash in a cure amount equal to
the total claim.

o Each holder of unsecured claims at or under $5 (five thousand dollars) is
to receive cash in an amount equal to its total unsecured claim
("Convenience Class Payments").

o Accounts payable and subcontracts payable that were not related to cure
payments or Convenience Class Payments were discharged.

o The holders of $300,000 of Senior Unsecured Notes and all other unsecured
creditors were to receive a pro rata share of 5,000 shares of the New
Common Stock and a pro rata share of 8,520 fully vested stock warrants to
purchase additional shares of New Common Stock. The stock warrants expire
if unexercised four years after the Effective Date. A reorganization plan
committee has been established to evaluate and resolve objections to
disputed claims of unsecured creditors and to determine each unsecured
creditor's pro rata share of shares and warrants. The warrants consist of
three tranches as follows:

o Specified members of management and designated employees were granted stock
options pursuant to a management option plan. The management option plan
provided for nonqualified stock option grants as of the Effective Date
totaling 1,389 aggregate shares of the New Common Stock with a term of 10
years and a strike price of $24.00 per share. In addition, another 1,389
shares of the New Common Stock may be granted after the Effective Date at
strike prices to be established by our board of directors.

o The chairman of our board of directors, Mr. Dennis R. Washington, was
granted stock options to purchase shares of New Common Stock in three
tranches. The first tranche expires five years after the Effective Date;
the remaining tranches expire four years after the Effective Date.
One-third of each tranche vested on the Effective Date, one-third of each
tranche will vest on the first anniversary of the Effective Date and the
final third of each tranche will vest on the second anniversary of the
Effective Date. However, all options immediately vest if Mr. Washington
is removed from his position as chairman for reasons other than death or
disability or if we undergo a change of control. We also agreed with
Mr. Washington that our amended

II-43

certificate of incorporation and bylaws would permit his accumulation of
up to 40% of the fully diluted shares of New Common Stock in open market or
privately-negotiated transactions, including exercise of the stock options,
and that we would take no action inconsistent with those provisions. The
number of shares and respective strike prices for each tranche are as
follows:

o We adopted fresh-start reporting as of February 1, 2002, as discussed
further below.

o We filed an amended and restated certificate of incorporation and adopted
amended and restated bylaws and established a new board of directors.

On January 25, 2002, we entered into the Senior Secured Revolving Credit
Facility to fund our working capital requirements. The Senior Secured Revolving
Credit Facility bears variable interest at 5.5% above LIBOR, with a LIBOR floor
of 3%, or 4.5% above the prime rate, at our choice. It is comprised of a
$208,350 revolver and a $141,650 credit-linked note. Repayments are made on a
pro rata basis between the revolver and the credit-linked note. The
credit-linked note can be utilized for letters of credit or funded borrowings as
needed. We are required to meet various financial covenants contained in the
Senior Secured Revolving Credit Facility. $28,800 in letters of credit remain
outstanding from previous credit facilities until they expire, primarily in
2002.

WASHINGTON INTERNATIONAL B.V.

As a result of our filing for protection under Chapter 11 of the U. S.
Bankruptcy Code, the Board of Directors of Washington International B.V., one of
our wholly-owned subsidiaries located in The Hague, the Netherlands ("BV"),
determined that BV would have insufficient funds to continue operations in the
same manner as it had prior to our bankruptcy filing. The determination was made
based on the existing financial condition of BV and the fact that our DIP
Facility contained terms that prohibited the additional commitment of our
resources for BV operations.

On May 21, 2001, the BV board of directors directed management to consider
strategic restructuring alternatives including the filing of a petition for
suspension of payment under Dutch law. On May 29, 2001, the suspension of
payment was granted and a trustee was appointed pursuant to Dutch law. Under the
joint management of the trustee and the BV management, all payments to third
parties were temporarily postponed while the trustee and management attempted to
pursue strategic alternatives, including the sale of the business to various
potentially interested parties. From the date of the trustee's appointment
through June 21, 2001, the trustee and management gathered facts and attempted
to sell the business to several interested parties.

Following discussions with the interested parties, it became clear that a
sale of the business was not feasible. On June 21, 2001, the trustee transformed
the suspension of payments to a procedure of insolvency and a curator was
appointed to take over all management responsibilities and to liquidate the BV
estate. The curator has been managing the estate since that date and we have
cooperated and will continue to cooperate with the curator to resolve various
intercompany subsidiary issues including third party intellectual property
rights, foreign intercompany loans and other matters.

During the second quarter of 2001, as a result of the insolvency and
liquidation of BV, we wrote off $30,652 of assets, $64,517 of liabilities and
$1,904 of foreign currency translation losses, resulting in a net gain of
$31,961 from the discharge of liabilities, which is included in reorganization
items.

II-44

WASHINGTON INTERNATIONAL, LLC

Washington International, LLC, a Delaware limited liability company and
wholly-owned subsidiary of Washington International Holding Limited, a United
Kingdom wholly-owned subsidiary of WGI filed for protection under the U.S.
Bankruptcy Code in connection with our Chapter 11 filing. Washington
International Holding Limited did not file for bankruptcy protection and,
therefore, was not a debtor in our bankruptcy proceedings in the United States.
Washington International, LLC conducted business primarily in the United
Kingdom. On December 5, 2001, Washington E&C Limited, also a United Kingdom
wholly-owned subsidiary of Washington International Holding Limited, purchased
specified contracts, constituting the ongoing business of Washington
International, LLC, for $250. At that time, Washington International, LLC ceased
conducting business and on February 20, 2002 a "Winding Up" order was made under
the insolvency laws of England and Wales against Washington International, LLC.
Washington International, LLC is now under the control of a liquidator pursuant
to the insolvency laws of England and Wales and we no longer have any control
over its activities. Once the winding up process is complete, Washington
International, LLC will be dissolved and will cease to exist. Creditors of
Washington International, LLC will not receive any shares of the New Common
Stock or stock warrants to be distributed to the unsecured creditors of the
Debtors.

Upon adoption of liquidation basis accounting in the quarter ending
November 30, 2001, Washington International, LLC had assets of $9,208,
liabilities of $12,155 and $364 of foreign currency translation losses,
resulting in a net gain of $2,583, which is included in reorganization items.

FRESH-START REPORTING

As of February 1, 2002, we adopted fresh-start reporting pursuant to the
guidance provided by the American Institute of Certified Public Accountants
Statement of Position 90-7, FINANCIAL REPORTING BY ENTITIES IN REORGANIZATION
UNDER THE BANKRUPTCY CODE. In connection with the adoption of fresh-start
reporting, a new entity has been created for financial reporting purposes. The
effective date of our emergence from bankruptcy is considered to be the close of
business on February 1, 2002 for financial reporting purposes. In the tables
below, the periods presented through February 1, 2002 have been designated
"Predecessor Company" and the period ending subsequent to February 1, 2002 has
been designated "Successor Company."

Pursuant to this guidance, we used the purchase method of accounting to
allocate our reorganization value to our net assets with the excess recorded as
goodwill on the basis of estimates of fair values. The reorganization value was
determined to be $550,000 as of February 1, 2002.

The reorganization value of $550,000 was developed by an independent
financial advisor and was based upon the use of three valuation methodologies as
follows:

o Comparable public company analysis is generally a historic or
backward-looking technique. It is premised on the idea that the price
an investor is willing to pay in the public markets for securities of
similar publicly traded companies is a relevant measure to determine
what an investor is willing to pay today for a target company. Publicly
traded companies were selected that were generally comparable to us.
Criteria for selection included lines of business, business risks,
growth prospects, maturity of the business, market presence and size
and scale of operations.

o Discounted cash flow valuation is a forward-looking approach that
relates the value of an asset or business to the present value of
expected future cash flows to be generated by that asset or business.
The discount rate used to arrive at present values is a function of the
risk inherent in the estimated cash flows, with investors requiring
higher rates of return for riskier assets and lower rates for assets
with lower expected risk.

II-45

o Precedent transaction analysis estimates value by examining public
merger and acquisition transactions. An analysis of the disclosed
purchase price as a multiple of various operating statistics reveals
industry sales multiples for companies in similar lines of business.
Merger and acquisition transactions in the engineering and construction
sector and prices paid as a multiple of key operating statistics were
analyzed.

Different weights were placed on each of these analyses and judgments were
made as to the relative significance of each in determining an indicated
enterprise value range. The weighted valuation methodologies resulted in an
enterprise value range for the consolidated businesses. The total enterprise
value was determined applying valuation metrics against the various risks and
opportunities identified to each business segment. Our reorganization value
represented the value of the reorganized consolidated entity. This value was
viewed as the fair value of our capital, comprising the value of long-term
capital investment, including both long-term debt and equity, and approximated
the amount a willing buyer would have paid for our net assets immediately after
the reorganization was completed.

The calculated reorganization value was based upon a variety of
estimates and assumptions about circumstances and events not all of which have
taken place to date. These estimates and assumptions are inherently subject to
significant economic and competitive uncertainties beyond our control, including
but not limited to, our ability to obtain and perform new contracts profitably.

On the Effective Date, we borrowed $40,000 under the Senior Secured
Revolving Credit Facility; however, because the borrowings under the Senior
Secured Revolving Credit Facility are revolving working capital loans, they were
not included as part of the reorganization value. Therefore, the reorganization
value of $550,000 represents the value of our stockholders' equity as of the
Effective Date. Based on values determined by our financial advisor, we
allocated $28,647 of the equity value to the stock purchase warrants and the
remainder to the New Common Stock.

II-46

The reorganization and the adoption of fresh-start reporting resulted in
the following adjustments to our consolidated balance sheet as of February 1,
2002:

II-47

- --------------------------------
Debt discharge:
(a) Reflects payment of $24,500 in payments to creditors under the Plan of
Reorganization and $34,749 in deferred financing costs for the Senior
Secured Revolving Credit Facility. These emergence costs necessitated a
$40,000 draw under the Senior Secured Revolving Credit Facility.
(b) Records the effect of income taxes on the gain from debt discharge. The
discharge of liabilities in bankruptcy is a taxable event. The pre-tax gain
reported for financial statement purposes is $910,732. Our net operating
loss carryforward, certain tax credit carryforwards and a portion of tax
basis of goodwill and depreciable assets were utilized to offset the tax
obligation arising on the discharge of liabilities.
(c) Reflects the write-off of $22,123 in fees on the RE&C Financing Facilities
and the Senior Unsecured Notes, and the payment of $34,749 of deferred
financing costs for the Senior Secured Revolving Credit Facility.
(d) Of the $1,880,900 of liabilities subject to compromise:
o $373,545 of unsecured liabilities were retained by us and $4,500 was
paid at emergence.
o $926,288 in unsecured obligations were exchanged for 5,000 shares of
New Common Stock and 8,520 warrants. The unsecured obligations include
$300,000 of Senior Unsecured Notes and approximately $415,000 related
to specified Power operating unit projects that were subject to
guarantees by the Sellers. See Note 3, "Acquisitions - Acquisition of
Raytheon Engineers & Constructors."
o $576,567 in secured obligations, including accrued interest, were
exchanged for 20,000 shares of New Common Stock, and $20,000 in cash
paid on the Effective Date.
(e) Reflects the gain on debt discharge of $1,460,732, less the value of New
Common Stock and warrants issued of $550,000, net of income taxes of
$343,539.
Fresh-start adjustments:
(f) Reflects the reclassification of Predecessor Company goodwill.
(g) Records goodwill for value in excess of amounts allocable to identifiable
assets.
(h) Records adjustments to reflect assets and liabilities at fair market
values.
(i) Adjusts to reflect the assets and liabilities of businesses held for sale
at their estimated realizable values.
(j) Adjusts pension plan and post-employment obligations to recognize
unrealized actuarial gains and losses.
(k) Reflects the elimination of the deferred tax assets related to the
remaining basis differences between book and tax goodwill of the
Predecessor Company. This goodwill will continue to be amortized by the
Successor Company over the remaining 13.5 year period for tax purposes.
Also records adjustments to deferred tax assets and liabilities resulting
from the adjustments to reflect assets and liabilities at fair value.
(l) Records the cancellation of Predecessor Company common stock and
elimination of retained earnings.

II-48

On May 14, 2001, all liabilities of the Debtors were reclassified as
liabilities subject to compromise. The resolution of liabilities subject to
compromise was as follows:

5. RESTRUCTURING CHARGES

During 2000, as part of the acquisition of RE&C, we established a
restructuring liability of $28,264 for closure and consolidation of office
facilities, some of which were already contemplated by the Sellers.

The following presents restructuring charges accrued and costs incurred:

6. VENTURES

CONSTRUCTION JOINT VENTURES

We participate in joint ventures that are formed to bid, negotiate and
complete specific projects. We generally participate in joint ventures as the
sponsor and manager of the projects. The size, scope and duration of
joint-venture projects vary among periods. The tables below exclude consolidated
joint ventures.

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MINING VENTURES

At December 1, 2000, we held ownership interests in two incorporated mining
ventures: MIBRAG mbH (33%) and Westmoreland Resources, Inc. ("Westmoreland
Resources") (20%) which are accounted for under the equity method. We provide
contract mining services to these ventures. Effective March 28, 2001, we
increased our ownership interest in MIBRAG mbH from 33% to 50% by purchasing the
additional interests for approximately $17,500, which was funded through the
reinvestment of dividend distributions from MIBRAG mbH. We currently are in
litigation with Westmoreland Resources concerning the contract mining services
we provide to it. See Note 13, "Contingencies and Commitments - Other."

Undistributed earnings from mining ventures totaled $72,405 at December 1,
2000.

7. SALES OF BUSINESSES

During the year ended December 3, 1999, we sold a foreign non-core
subsidiary and a domestic subsidiary engaged in the concrete and aggregate
business. The $8,730 pre-tax gain on the sale of these businesses was recognized
as other income. Operations of the subsidiaries resulted in revenue of $11,985
and $20,200 and net losses of $481 and $12 for 1999 and 1998, respectively.
Proceeds from the sales of both businesses totaled $25,914. During 1998, land
held for sale was sold at its approximate book value of $2,758.

II-50

8. CREDIT FACILITIES

Long-term debt consisted of the following:

CREDIT FACILITIES AND ACQUISITION FINANCING

On March 19, 1999, we replaced our existing bank credit facility with new
uncollateralized revolving credit facilities providing an aggregate borrowing
capacity of $250,000 in order to acquire the Westinghouse Businesses, to provide
for general corporate purposes, to support working capital requirements and to
support letters of credit and other potential acquisitions. On May 21, 1999, the
new credit facilities were increased to $325,000 consisting of a $195,000
five-year facility, which provided for both revolving borrowings and the
issuance of letters of credit, and a $130,000 one-year facility, which provided
for revolving borrowings. The one-year facility included terms permitting
extensions in one-year increments by mutual agreement of the banks and us or
converted, at our option, to a term loan having a maturity of one year after the
then current expiration of such facility. The facilities' covenants required the
maintenance of financial ratios, and placed limitations on guarantees, liens,
investments, dividends and other matters. At December 3, 1999, $55,000 and
$45,000 were outstanding on the one-year and five-year facilities, respectively.

The facilities provided for interest on loans, payable at the conclusion of
each interest commitment period not to exceed quarterly, at the applicable LIBOR
rate or the base rate, as defined, plus an additional margin. The additional
margin ranged from 1.25% to 2.00% for the LIBOR rate and .25% to 1.00% for the
base rate, based on the ratio of earnings before interest, taxes, depreciation
and amortization to our funded debt. The effective interest rate at December 3,
1999 was 6.98%. On March 19, 1999, we paid $3,700 in underwriting fees to the
banks and were required to pay quarterly commitment and letter of credit fees.
Commitment fees were based on the unused portion of the facilities. Letter of
credit fees were based on a percentage of the letter of credit amount.

On July 7, 2000, in order to finance the acquisition of RE&C, refinance
existing revolving credit facilities, fund working capital requirements and pay
related fees and expenses, we (i) obtained the RE&C Financing Facilities,
providing for an aggregate of $1,000,000 of term loans and revolving borrowing
capacity and (ii) issued and sold $300,000 aggregate principal amount of
Unsecured Senior Notes. The terms of the RE&C Financing Facilities and Senior
Unsecured Notes are briefly summarized below.

RE&C FINANCING FACILITIES

The RE&C Financing Facilities provided for, on the terms and subject to the
conditions stated in the RE&C Financing Facilities: (i) two senior secured term
loan facilities in an aggregate principal amount of up to $500,000, including a
multi-draw Tranche A term loan facility in an aggregate principal amount of
$100,000 that were to mature July 7, 2005 and a Tranche B term loan facility in
an aggregate principal amount of $400,000 that were to mature July 7, 2007, and
(ii) a five-year senior secured revolving credit facility in an aggregate
principal amount of up to $500,000, all of which was available for letters of
credit. Initial borrowings under the RE&C Financing Facilities totaled $400,000,
representing the full amount available under the Tranche B term loan facility.
The initial borrowing rate under the Tranche B term loan facility was the
applicable LIBOR plus an additional margin of 3.25%. The effective interest rate
was 9.87% at December 1, 2000. The borrowing rate,

II-51

when utilized, under the Tranche A term loan facility and the senior secured
revolving credit facility was the applicable LIBOR plus an additional margin
of 2.75%, for an effective interest rate of 9.37% at December 1, 2000. The
additional margins, which were determined based on an agreed pricing grid,
could increase or decrease from time to time as the ratio of debt to EBITDA
(as such term is defined in the RE&C Financing Facilities) increased or
decreased. The credit agreement under which the RE&C Financing Facilities
were made available contained affirmative, negative and financial covenants
and specified events of default which are typical for a credit agreement
governing credit facilities of the size, type and tenor of the RE&C Financing
Facilities. Among the covenants were those limiting our ability and the
ability of certain of our subsidiaries to incur debt or liens, provide
guarantees, make investments and pay dividends or repurchase shares. On
October 5, 2000, we terminated the Tranche A term loan facility to eliminate
ongoing related commitment fees.

SENIOR UNSECURED NOTES

The Senior Unsecured Notes were unsecured senior obligations that were to
mature on July 1, 2010. Interest on the Senior Unsecured Notes was payable
semiannually in arrears on January 1 and July 1, commencing January 1, 2001. The
Senior Unsecured Notes were sold in a private offering to qualified
institutional buyers. Under a registration rights agreement for the benefit of
the holders of the Senior Unsecured Notes, we were required to offer to exchange
the Senior Unsecured Notes for new Senior Unsecured Notes that were registered
under the Securities Act of 1933. The Senior Unsecured Notes provided for
additional interest to the extent and for the period that the registration
process was not completed within the specified periods. The Senior Unsecured
Notes accrued interest at a rate of 11% per annum through September 20, 2000,
and were then adjusted to 11.5% per annum. They were scheduled to continue at
that rate until we fully complied with the registration requirements of the
registration rights agreement, subject to a further increase in interest rate of
...5% per annum from and after December 20, 2000, until the registration process
was completed. At that time, the Senior Unsecured Notes would accrue interest at
the annual rate of 11%. The Senior Unsecured Notes ranked equally with our
existing and future senior unsecured indebtedness. The Senior Unsecured Notes
effectively ranked junior to all of our secured indebtedness and to all
liabilities of our subsidiaries that were not guarantors of the Senior Unsecured
Notes. The Senior Unsecured Notes ranked senior to any future subordinated
indebtedness we might have incurred. The Senior Unsecured Notes were guaranteed
on a senior basis by certain of our subsidiaries. The indenture under which the
Senior Unsecured Notes were issued contained affirmative, restrictive and
financial covenants and specified events of default which are typical for an
indenture governing an issue of high-yield senior unsecured notes. Among the
covenants were those limiting our ability and the ability of certain of our
subsidiaries to incur debt or liens, provide guarantees, make investments and
pay dividends or repurchase shares.

BANKRUPTCY DISCHARGE

As discussed in Note 4, "Reorganization Case and Fresh-start Reporting,"
our obligations under the RE&C Financing Facilities and the Senior Unsecured
Notes were discharged upon our emergence from bankruptcy on January 25, 2002.

DIP FACILITY

On May 14, 2001, we filed a voluntary petition for relief under Chapter 11
of the U.S. Bankruptcy Code. See Note 4, "Reorganization Case and Fresh-start
Reporting." On the same day, we entered into the DIP Facility with certain of
our subsidiaries as guarantors, with a commitment of $195,000 and the ability to
increase the total commitment to $350,000. On June 5, 2001 the DIP Facility
lenders approved an increase in the total commitment from $195,000 to $220,000.
The DIP Facility was to be used (i) to finance the costs of restructuring; and
(ii) for ongoing working capital, general corporate purposes and letter of
credit issuance. The borrowing rate under the DIP Facility was the prime rate,
plus an additional margin of 4.0%. The effective interest rate was 11.0% as of
May 2001. The DIP Facility carried other fees, including commitment fees and
letter of credit fees, normal and customary for such credit agreement. The
credit agreement under which the DIP Facility was made available contained
affirmative and negative covenants, reporting covenants and specified events of
default typical for a credit agreement governing credit facilities of the size,
type and tenor of the DIP Facility. Among the covenants were those limiting our
ability and the ability of some of our subsidiaries to incur debt or liens,
provide

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guarantees, make investments and pay dividends. As of January 24, 2002, we
had no outstanding debt and $32,800 of outstanding letters of credit under
the DIP Facility. As discussed below, the DIP Facility was replaced by the
Senior Secured Revolving Credit Facility on January 25, 2002.

SENIOR SECURED REVOLVING CREDIT FACILITY

In connection with our emergence from bankruptcy protection on January 25,
2002, we entered into: (i) the Senior Secured Revolving Credit Facility,
providing for an aggregate of $350,000 of revolving borrowing and letter of
credit capacity, and (ii) exit bonding facilities, providing for an aggregate
amount of $500,000 of surety bonds. The Senior Secured Revolving Credit Facility
provides for an amount up to $350,000 in the aggregate of loans and other
financial accommodations allocated pro rata between two facilities as follows: a
Tranche A facility in the amount of $208,350 and a Tranche B facility in the
amount of $141,650. The scheduled termination date for the Senior Secured
Revolving Credit Facility is thirty months from January 24, 2002, and it may be
increased up to a total of $375,000 with the approval of the lenders.

The Senior Secured Revolving Credit Facility was entered into (i) to retire
our DIP Facility and to repay any DIP Facility balance (of which there was
none); (ii) to replace or backstop approximately $122,000 of letters of credit
issued under our pre-petition RE&C Financing Facilities; (iii) to replace
approximately $32,800 of letters of credit issued under the DIP Facility; (iv)
to make payments to the pre-petition senior secured lenders and Mitsubishi Heavy
Industries pursuant to our Plan of Reorganization; (v) to finance the costs of
restructuring; and (vi) for ongoing working capital, general corporate purposes
and letter of credit issuance. The initial borrowing rate under the Senior
Secured Revolving Credit Facility is the applicable LIBOR, which has a stated
floor of 3%, plus an additional margin of 5.5%. Alternatively, we may choose the
prime rate, plus an additional margin of 4.5%. As of January 2002, the effective
LIBOR- and prime-based rates were 8.5% and 9.25%, respectively. The Senior
Secured Revolving Credit Facility carries other fees including commitment fees
and letter of credit fees normal and customary for such credit agreements. The
Senior Secured Revolving Credit Facility contains affirmative, negative and
financial covenants, including minimum net worth, capital expenditures,
maintenance of certain financial and operating ratios, and specifies events of
default, which are typical for a credit agreement governing credit facilities of
the size, type and tenor of the Senior Secured Revolving Credit Facility. Among
the covenants are those limiting our ability and the ability of some of our
subsidiaries to incur debt or liens, provide guarantees, make investments and
pay dividends.

9. TAXES ON INCOME

The components of the U.S. federal, state and foreign income tax expense
(benefit) were as follows:

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The components of the deferred tax assets and liabilities and the related
valuation allowances were as follows:

At December 1, 2000, we had tax net operating loss ("NOL") carryforwards
for federal, state and foreign tax purposes of approximately $192,281, $286,037
and $145,450, respectively. The federal NOL's expire in years 2009 through 2020,
and the state NOL's expire in years 2002 through 2015. Of the foreign NOL's,
$6,783 expire in years 2002 through 2007 and $138,667 carryover indefinitely.
The foreign NOL's primarily consist of losses incurred on two construction
projects in the United Kingdom which were acquired as part of the RE&C
acquisition. We also had a federal capital loss carryover of $3,077 that expires
in year 2004. The federal alternative minimum tax credits of $18,802 carry
forward indefinitely, and the foreign tax credits of $7,861 currently have no
expiration date. The federal and state NOL's, federal capital loss and the
federal alternative minimum tax credits will be substantially utilized due to
the 2002 bankruptcy restructuring. Foreign NOL's will not be impacted.

The net change in valuation allowance at December 1, 2000 resulted from an
evaluation of the likelihood of the future utilization of the NOL's of Old MK
and foreign NOL's which were part of the acquisition of RE&C. The valuation
allowance relating to the NOL's of Old MK was reduced by $40,666 with an
equivalent reduction to goodwill. The reduction in the valuation allowance for
the NOL's of Old MK reflects that the federal and state NOL's will be
substantially utilized to offset the gain on cancellation of debt that was
recognized on emergence from bankruptcy. See Note 4, "Reorganization Case and
Fresh-start Reporting." The valuation allowance related to foreign NOL's
includes $12,023 that was established as part of the acquisition of RE&C and was
increased by $31,241 at December 1, 2000 to reduce the deferred tax asset
associated with the foreign NOL's to a level that we believe, more likely than
not, will be realized based on future foreign taxable income. The net decrease
of $50,000 in the valuation allowance at December 3, 1999 resulted from an
evaluation of the likelihood of the future realization of deductible temporary
differences and utilization of NOL's of Old MK with an equivalent reduction to
goodwill. The reduction in deferred tax liabilities related to investments in
affiliates for 2000 is due to losses incurred by foreign subsidiaries, currency
translation losses and Subpart F income recognized for U.S. federal income tax
purposes.

Years prior to 1994 are closed to examination for federal tax purposes. We
believe that adequate provision has been made for probable tax assessments for
all open tax years.

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Income tax expense (benefit) differed from income taxes at the U.S.
federal statutory tax rate of 35% as follows:

State taxes, net of federal benefit, include the impact of the cumulative
effect of the state tax rate changes caused by the impact of recent
acquisitions. These acquisitions significantly impacted our state apportionment
factors that had a corresponding impact on our deferred state tax assets and
liabilities. Nondeductible expenses, net for December 1, 2000, December 3, 1999
and November 30, 1998 was comprised principally of nondeductible goodwill
amortization and the portion of meals and entertainment expenses that are not
deductible for income tax purposes.

Income (loss) before income taxes and minority interests is comprised of
the following:

10. BENEFIT PLANS

PENSION PLANS

Through the RE&C acquisition, we assumed sponsorship of contributory
defined benefit pension plans which covered employees of legal entities in the
Netherlands and the United Kingdom. We made actuarially computed contributions,
as necessary, based on local standards in the respective countries to adequately
fund benefits for these plans. At December 1, 2000, plan assets for the pension
plan in the Netherlands were invested in separate accounts through an insurance
contract, and plan assets for the pension plan in the United Kingdom were
invested in a pooled pension fund. Investments consisted primarily of publicly
traded equity securities, bonds, government securities and cash equivalents. In
May 2001 and November 2001, respectively, the legal entities sponsoring the
pension plans in the Netherlands and the United Kingdom filed for bankruptcy and
the plans were transferred to independent trustees and the related liabilities
were extinguished. See Note 4, "Reorganization Case and Fresh-start Reporting."

Through the Westinghouse Businesses acquisition, we assumed sponsorship of
contributory defined benefit pension plans that cover employees of Westinghouse
Government Services Group ("WGSG"), which is comprised of the Westinghouse
Businesses acquired by us. We make actuarially computed contributions as
necessary to adequately fund benefits for these plans. As of December 1, 2000,
plan assets were invested in a WGSG master pension trust and as of December 3,
1999, plan assets were invested in a CBS master pension trust. Both master
trusts invested primarily in publicly traded common stocks, bonds, government
securities and cash equivalents.

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We terminated a defined benefit pension plan in 1997. During 1998, the
plan's accumulated vested termination benefit obligation was settled through a
combination of lump-sum cash payments and the purchase of a nonparticipating
group annuity contract. Other income of $3,161 was recognized during 1998 as a
result of the termination of the defined benefit pension plan. All excess plan
assets remaining in trust were distributed equally after payment of final plan
expenses to eligible plan participants during 1999.

SUPPLEMENTAL RETIREMENT PLANS

We have assumed the nonqualified pension liabilities to approximately 60
employees and former employees of an acquired company. Participants do not
accrue any service cost under the plans. We also have an unfunded supplemental
retirement plan for key executives of WGSG providing for periodic payments upon
retirement. Benefits from this plan are based on salary and years of service and
are reduced by benefits earned from certain other pension plans in which the
executives participate.

In addition, we have an unfunded pension liability for former non-employee
directors of an acquired company. Participants do not accrue any service costs
under the plan.

POST-RETIREMENT HEALTH CARE PLANS

We are the sponsors of an unfunded plan to provide certain health care
benefits for employees of an acquired company who retired before July 1, 1993,
including their surviving spouses and dependent children. Employees who retired
after July 1, 1993 are not eligible for subsidized post-retirement health care
benefits. The plan was amended in past years, and we reserve the right to amend
or terminate the post-retirement health care benefits currently provided under
the plan and may increase retirees' cash contributions at any time. The
unrecognized prior service cost is being amortized to periodic health care
expense over the 13-year average future expected lifetime of retirees and their
surviving spouses beginning in 1997, the date of the last plan change.

We provide benefits under company sponsored retiree health care and life
insurance plans for substantially all employees of WGSG. We also provide
benefits under company sponsored retiree health care to approximately 260
retired employees and provide a life insurance plan for substantially all
retirees of RE&C. The retiree health care plans require retiree contributions
and contain other cost sharing features. The retiree life insurance plans
provide basic coverage on a noncontributory basis.

The actuarial assumptions used to determine costs and benefit
obligations for the U.S. plans are as follows:

Experience gains and losses, as well as the effects of changes in actuarial
assumptions and plan provisions, are amortized over the average future service
period of employees.

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The components of net pension and post-retirement costs for the U.S. plans
are as follows:

Reconciliation of beginning and ending balances of benefit obligations and
fair value of plan assets and the funded status of the U.S. plans are as
follows:

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Amounts recognized in the balance sheet for the U.S. plans are as follows:

At December 1, 2000, the benefit obligation for each pension and
post-retirement benefit plan disclosed above exceeded the fair value of plan
assets. Upon our emergence from bankruptcy we applied fresh-start reporting that
required the elimination of all unrecognized amounts as described above. See
Note 4, "Reorganization Case and Fresh-start Reporting," for disclosure of the
effect of the elimination.

An annual rate increase of 8.5% in the per capita cost of health care
benefits was assumed, gradually declining to 5.5% in the year 2005 and
continuing thereafter at that rate over the projected payout period of the
benefits. The health care cost trend rate assumption has a significant effect on
the accumulated projected benefit obligation. The effect of a 1% change in this
assumption would be as follows:

The actuarial assumptions used to determine costs and benefit obligations
for the non-U.S. pension plans acquired in the RE&C acquisition at December 1,
2000 are as follows:

Experience gains and losses, as well as the effects of changes in actuarial
assumptions and plan provisions, are amortized over the average future service
period of employees.

The components of net pension and post-retirement costs for non-U.S.
plans are as follows for the year ended December 1, 2000:

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Reconciliation of beginning and ending balances of benefit obligations and
fair value of plan assets and the funded status of the non-U.S. plans are as
follows at December 1, 2000:

Amounts recognized in the balance sheet at December 1, 2000 for non-U.S.
plans that are included in other current assets are as follows:

DEFERRED COMPENSATION PLANS

We adopted a deferred compensation plan effective January 1, 1998 for the
benefit of executive officers and key employees. The unfunded plan allowed
participants to elect to defer salary and bonus subject to certain limits. The
net cost of this plan was $317 in 2000, $221 in 1999, and $137 in 1998. The plan
was terminated and assets were distributed to participants in March 2001.

OTHER RETIREMENT PLANS

We sponsor a number of defined contribution retirement plans. Participation
in these plans is available to substantially all salaried employees and to
certain groups of hourly employees. Our cash contributions to these plans are
based on either a percentage of employee contributions or on a specified amount
per hour depending on the provisions of each plan. The net cost of these plans
was $24,310 in 2000, $13,767 in 1999 and $12,219 in 1998.

MULTIEMPLOYER PENSION PLANS

We participate in and make contributions to numerous construction-industry
multiemployer pension plans. Generally, the plans provide defined benefits to
substantially all employees covered by collective bargaining

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agreements. Under the Employee Retirement Income Security Act, a contributor
to a multiemployer plan is liable, upon termination or withdrawal from a
plan, for its proportionate share of a plan's unfunded vested liability. We
currently have no intention of withdrawing from any of the multiemployer
pension plans in which we participate. The net cost of these plans was,
$30,420 in 2000, $18,874 in 1999 and $18,871 in 1998.

11. TRANSACTIONS WITH AFFILIATES

We purchased goods and services from and participated in joint ventures
with affiliates of a principal stockholder who was also chairman of the board of
directors, president and chief executive officer, of WGI (the "Principal
Stockholder") as follows:

We performed construction services, mined and sold ballast, sold an
aircraft and realized gains (losses) on sales of equipment to affiliates of the
Principal Stockholder as follows:

Insurance, surety bonds and financial advisory services were purchased by
us from firms owned by or affiliated with persons who were members of our board
of directors at the time of the purchase as follows:

In the first quarter of 2000, related to our acquisition of RE&C, we
entered into an agreement with a financial services advisory firm, the Chairman
and Chief Executive Officer of which was and continues to be a member of our
board of directors. Pursuant to the agreement, we paid the financial services
firm a success fee of $4,000 upon completion of the RE&C acquisition and paid an
aggregate retainer fee of $50 per quarter.

In January 1998, we entered into an agreement with an insurance brokerage
firm owned by a then member of our board of directors for insurance and bond
services. The agreement was effective January 1, 1998 and expired December 31,
2000. Pursuant to the agreement, the brokerage firm received an annual fixed fee
of $1,150, which was paid in equal quarterly installments. All insurance
commissions earned on policies purchased for us are credited 100% against the
fee. The insurance brokerage firm retained 50% of all surety commissions in
excess of $250 during each calendar year. In 1999, our board of directors
approved an amendment to the agreement to increase the annual fee payable to the
brokerage firm to $1,250, effective January 1, 1999. A new agreement, effective
January 1, 2001, was approved by our board of directors in January 2001. The new
agreement reduced the fixed fee to $850 and eliminated the provision allowing
the retention of any surety commissions.

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12. OPERATING SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION

During the quarter ended September 1, 2000, we reorganized our business
to operate through five operating units, each of which comprised a separate
reportable business segment: Power, Infrastructure & Mining,
Industrial/Process, Government and Petroleum & Chemicals. The reportable
segments were separately managed, served different markets and customers, and
differed in their expertise, technology and resources necessary to perform
their services. The presentation of operating unit information for the years
ended December 3, 1999 and November 30, 1998 have been reclassified to
conform to the presentation for the year ended December 1, 2000.

Power provides engineering, construction and operations and maintenance
services in both fossil and nuclear power markets for turnkey new power plant
construction, plant expansion, retrofit and modification, decontamination and
decommissioning, general planning, siting and licensing and environmental
permitting.

Infrastructure & Mining provides diverse engineering and construction and
construction management services on highways and bridges, airports and seaports,
tunnels and tube tunnels, railroad and transit lines, water storage and
transport, water treatment, site development, mine operations and hydroelectric
facilities. This operating unit generally performs as a general contractor or as
a joint venture partner with other contractors on domestic and international
projects.

Industrial/Process provides engineering, design, procurement, construction
services and total facilities management for general manufacturing,
pharmaceutical and biotechnology, process, metals processing, institutional
buildings, food and consumer products, automotive, aerospace, telecommunications
and pulp and paper industries.

Government provides a complete range of technical services to the U.S.
Departments of Energy and Defense, including operations and management services,
environmental and chemical demilitarization services, waste handling and storage
and weapons stockpile support. Services provided for commercial clients include
design and manufacture of components of nuclear power facilities, safety
management services, waste and environmental technology, design and manufacture
of radioactive waste containers and licensing.

Petroleum & Chemicals provides technology, engineering, procurement and
construction services to the petroleum and chemical industries worldwide. Major
markets include commodity-organic chemicals, polymers, Fischer-Tropsch
chemistry, fertilizers, oleochemicals, petroleum processing and lube oil
processing.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. We evaluate performance and
allocate resources based on segment operating income. In 2000, segment asset
balances were not measures reported to the chief operating decision-maker for
purposes of making decisions about allocating resources to segments and
assessing performance. Segment operating income is total segment revenue reduced
by segment cost of revenue and goodwill amortization related to the acquisition
of the Westinghouse Businesses. No other goodwill amortization is allocated to
the segments. Corporate and other expense consists principally of general and
administrative expenses.

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INVESTMENT IN EQUITY METHOD INVESTEES

At December 1, 2000 and December 3, 1999, we had $66,008 and $69,063,
respectively, in investments in mining ventures accounted for by the equity
method. We recorded earnings from equity method investees totaling $13,080,
$12,435 and $7,789 in 2000, 1999 and 1998, respectively. These investments were
held and reported as part of the Infrastructure & Mining segment.

GEOGRAPHIC AREAS

Geographic data regarding our revenue and long-lived assets is shown below.
In 2000, geographical disclosures of long-lived assets were impracticable.

Revenue from international operations in 2000, 1999 and 1998 were in
numerous geographic areas without significant concentration.

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MAJOR CUSTOMERS

Ten percent or more of our total revenues for one or more of the three
years in the period ended December 1, 2000 were derived from contracts and
subcontracts performed by the Industrial/Process and Government segments with
the following customers:

13. CONTINGENCIES AND COMMITMENTS

SUMMITVILLE ENVIRONMENTAL MATTERS

From July 1985 to June 1989, Industrial Constructors Corp. ("ICC"), one of
our wholly-owned subsidiaries, performed various contract mining and
construction services at the Summitville mine near Del Norte, Colorado. In 1996,
the United States and the State of Colorado commenced an action under the
Comprehensive Environmental Response, Compensation and Liability Act in the U.S.
District Court for the District of Colorado against Mr. Robert Friedland, a PRP,
to recover the response costs incurred and to be incurred at the Summitville
Mine Superfund Site (the "Site"). No other parties were named as defendants in
the original complaints in this action. On April 30, 1999, Friedland filed a
third-party complaint naming ICC and nine other defendants, alleging that such
defendants are jointly and severally liable for such costs and requesting that
the response costs be equitably allocated. In October 1999, the United States
and Colorado amended their complaints to add direct claims against ICC and other
parties.

On December 22, 2000, the United States and Colorado signed a Settlement
Agreement and Consent Decree wherein Friedland agreed to pay $27,500 in exchange
for various promises by the United States and Colorado, including dismissal of
Friedland from the action filed in 1996.

On January 2, 2001, Colorado filed a new federal action in Colorado, naming
five defendants: Sunoco, ARCO, Asarco, Bechtel and A.O. Smith, alleging that
these defendants are jointly and severally liable for costs incurred and to be
incurred by Colorado at the Site. On January 12, 2001, Colorado amended this
complaint by naming WGI, Washington Contractors Group, Inc., which is another
one of our wholly-owned subsidiaries, and Dennis R. Washington, our chairman, as
additional defendants. That case was dismissed on September 14, 2001 on the
basis that the statute of limitations had expired and the complaint was
untimely.

The United States and Colorado have estimated that the total response costs
incurred and to be incurred at the Site will approximate $150,000. Prior to our
bankruptcy filings neither we nor Mr. Washington were a party to any agreement
regarding allocation of responsibility, and neither the United States nor
Colorado had made any formal allocation of responsibility among those
defendants.

During the course of our bankruptcy proceedings we entered into
negotiations with the United States, Colorado and Mr. Friedland to settle the
issues related to these matters. In December 2001, we entered into settlement
agreements with the United States, Colorado and Mr. Friedland. As a result, the
United States and Colorado were deemed to have a general unsecured claim against
us in the amount of $20,288 in the bankruptcy proceedings and Mr. Friedland
obtained a settlement in the amount of $15,000. In connection with the
bankruptcy cases, the general unsecured claim of the United States and Colorado
was discharged on the Effective Date pursuant to our Plan of Reorganization. Mr.
Friedland has been assigned the right to proceed against insurance carriers
under specified insurance policies by which we were insured with respect to
claims for defense, contribution or indemnity relating to the Site and to the
actions brought by the United States and Colorado. Mr. Friedland has agreed to
proceed directly against the insurance carriers and will not enforce or seek the
payment of the settlement by us. As a result of this settlement, we recorded a
liability of $20,288 at December 1, 2000.

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OTHER ENVIRONMENTAL MATTERS

We were identified as a PRP and were contingently liable for remediation
liabilities in connection with Old MK's former transit business. We were
obligated to indemnify the buyer of the transit business for remediation costs
and therefore had accrued a $3,000 liability. Our obligations under this
indemnification were discharged in our bankruptcy proceedings on the Effective
Date of our Plan of Reorganization.

We are responsible for decontaminating and decommissioning a nuclear
licensed site owned and operated by the Electro-Mechanical Division of the
Government operating unit. During 2001, one facility underwent decontamination
and decommissioning at a total cost of $8,000, of which the U.S. Navy paid 75%
and we paid 25%. In April 2002, we presented a claim to the U.S. Navy requesting
funding for the decontamination and decommissioning of the remaining site.
Although we do not have a commitment from the U.S. Navy to pay for such future
costs, we expect that, as in the past, the U.S. Navy will share in
responsibility for such costs. At December 1, 2000, we accrued $218 for what we
currently estimate to be our share of the future decontamination and
decommissioning costs at this site.

CONTRACT RELATED MATTERS

We have contracts with the U.S. government, the allowable costs of which
are subject to adjustments upon audit and negotiation by various agencies of the
U.S. government. Audits by the U.S. government and negotiations of indirect
costs are substantially complete through 1999. Audits by the U.S. government of
2000 indirect costs are in progress. We are also in the process of preparing
cost impact statements as required under U.S. Cost Accounting Standards for 1999
through 2001, which are subject to audit by the U.S. government and negotiation.
We have also prepared and submitted to the government cost impact statements for
1989 through 1995 for which we believe no adjustments are necessary. We believe
that the results of the indirect costs audits and negotiations and the cost
impact statements will not result in a material change to our financial
position, results of operations or cash flows.

LETTERS OF CREDIT

In the normal course of business, we cause letters of credit to be issued
in connection with contract performance obligations that are not required to be
reflected in the balance sheet. We are obligated to reimburse the issuer of such
letters of credit for any payments made thereunder. At December 1, 2000 and
December 3, 1999, $253,927 and $47,586, respectively, in face amount of letters
of credit were outstanding. We have pledged securities held for sale as
collateral for our reimbursement obligations with respect to $3,000 in face
amount of certain letters of credit that were outstanding at December 1, 2000.
At December 1, 2000, $250,912 of the outstanding letters of credit were issued
under the $500,000 RE&C Financing Facilities described in Note 8, "Credit
Facilities."

In connection with a 1989 sale of Old MK's ownership interest in a
shipbuilding subsidiary, we assumed a guarantee of port facility bonds of
$21,000 through 2002. The former subsidiary has collateralized the bonds with
some of its assets and established a sinking fund for the bonds. This guarantee
was rejected during our bankruptcy process without liability to us.

LONG-TERM LEASES

Total rental and long-term lease payments for real estate and equipment
charged to operations in 2000, 1999 and 1998 were $85,520, $60,561 and $53,246,
respectively. Future minimum rental payments under operating leases, some of
which contain renewal or escalation clauses, with remaining noncancelable terms
in excess of one year at December 1, 2000 were as follows:

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The table above represents obligations existing for the respective periods
after adjustment for approximately $250,808 of future lease obligations that
were rejected, eliminated or renegotiated during the bankruptcy process through
reformation of the related lease.

OTHER

In May 1998, Leucadia National Corporation filed an action against us and
some of our officers and directors in the U.S. District Court for the District
of Utah. The complaint alleged fraud in the sale of shares of MK Gold
Corporation ("MK Gold") by Old MK to Leucadia and sought rescission of the sale
and restitution of $22,500. Leucadia contended that we knew or believed that a
non-competition agreement between us and MK Gold was unenforceable and failed to
disclose that belief to Leucadia. The non-competition agreement was the subject
of separate litigation between MK Gold and WGI. MK Gold was seeking alleged
damages of up to $10,000. On January 5, 1999, the two cases were consolidated
for trial. In April 2001, we entered into a settlement agreement with Leucadia
and MK Gold and, as a result, (i) the litigation was dismissed and the parties
granted one another mutual releases, (ii) we paid to MK Gold $1,500, (iii)
issued a promissory note to MK Gold for $10,000 and (iv) we agreed to extend the
term of the non-competition agreement through 2006. We recorded the charge for
this settlement in November of 2000. In our bankruptcy proceedings the
non-competition agreement and the extension thereof contained in the settlement
agreement were rejected and terminated and amounts due to MK Gold under the
promissory note were treated as a general unsecured claim and were discharged on
the Effective Date pursuant to our Plan of Reorganization.

Some current and former officers, employees and directors of WGI were named
defendants in an action filed by two former participants in the Old MK 401(k)
Plan and Employee Stock Ownership Plan in the U.S. District Court for the
District of Idaho. The complaint alleges, among other things, that the
defendants breached certain fiduciary duties. On July 12, 2000, the Court denied
plaintiffs' motion to reconsider a prior summary judgment in favor of specified
defendants and granted summary judgment with respect to specified other
defendants, with the result that WGI and all current and former officers,
employees and directors have been dismissed from the action. The court also
certified the case as a class action. The remaining defendants in this
proceeding are the two plan committees and two companies (to which we had
indemnification obligations that were discharged in our bankruptcy proceedings)
involved in administration of the plans.

In September 2001, Westmoreland Resources, a mining venture in which we
hold a 20% ownership interest and to which we provide contract mining services,
asserted claims against us in our bankruptcy proceedings. As a threshold matter,
Westmoreland Resources objected to our assumption in the course of our
bankruptcy proceedings of the mining contract between us and Westmoreland
Resources, and we have reserved the right to reject all pending agreements
between Westmoreland Resources and us. In addition, Westmoreland Resources
claimed that (i) we had been overpaid under various mining contracts over a
six-year period, (ii) we likely would be obligated to reimburse Westmoreland
Resources for a portion of past due royalties that may be imposed against
Westmoreland Resources by the U.S. government and the Crow Indian Tribe, (iii)
we are obligated to pay for repairs to mining equipment (a dragline) owned by
Westmoreland Resources and (iv) Westmoreland Resources is entitled to adequate
assurances about whether we would be able to perform final reclamation at the
end of mining operations on the properties leased by Westmoreland Resources.
Westmoreland Resources has also asserted that we are being overpaid by them for
contract mining services we currently provide them.

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The claim for damage to the dragline was originally filed by Westmoreland
Resources in the U.S. District Court for the District of Montana in March 2000
and will be tried in that court. We expect that the other disputes between us
and Westmoreland Resources will be resolved as adversary proceedings in the
bankruptcy court. Dispositive motions on the issues before the bankruptcy court
are to be filed on or before November 15, 2002, and a trial date has been set
for January 20, 2003 to resolve those claims. We will not be required to assume
or reject the contracts between us and Westmoreland Resources until all
adversary proceedings are resolved.

From the spring of 1996 through the spring of 2001, we were the
environmental remediation contractor for the U.S. Army Corps of Engineers (the
"Corps") with respect to remediation at the Tar Creek Superfund Site at a former
mining area in northeast Oklahoma. The Corps had contracted with the U.S.
Environmental Protection Agency to remove lead contaminated soil in residential
areas from more than 2,000 sites and replace it with clean fill material. In
February 2000, various federal investigators working with the U.S. Attorney's
Office for the Northern District of Oklahoma executed search warrants and seized
our local project records. Allegations made at the time included claims that the
project had falsified truck load tickets and had claimed compensation for more
loads than actually were hauled, or had indicated that full loads had been
hauled when partial loads actually were carried, as well as claims that the
project had sought compensation for truckers and injured workers who were
directed to remain at the job site, but not to work. The criminal investigation
that relates to the execution of the search warrants remains pending. Through
claims filed in our bankruptcy proceedings and conversations with lawyers from
the Civil Division of the U.S. Department of Justice, we have learned that a QUI
TAM lawsuit has been filed against us under the federal False Claims Act by
private citizens alleging fraudulent or false claims by us for payments we
received in connection with the Tar Creek remediation project. We believe that
there was no wrongdoing by us or our employees at this project.

Although the ultimate outcome of the matters discussed in the three
preceding paragraphs cannot be predicted with certainty, we believe that the
outcome of these actions, individually or collectively, will not have a material
adverse impact on our financial position, results of operations or cash flows.

In addition to the foregoing, there are other claims, lawsuits, disputes
with third parties, investigations and administrative proceedings against us
relating to matters in the ordinary course of our business activities that are
not expected to have a material adverse effect on our financial position,
results of operations or cash flows.

14. SUPPLEMENTAL CASH FLOW INFORMATION

15. COMPREHENSIVE INCOME (LOSS)

Comprehensive income for the years ended December 1, 2000, December 3, 1999
and November 30, 1998 was as follows:

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The accumulated balances related to each component of other comprehensive
income (loss) were as follows:

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16. CAPITAL STOCK, STOCK PURCHASE WARRANTS AND STOCK COMPENSATION PLAN

As discussed in Note 4, "Reorganization Case and Fresh-start Reporting," our
Plan of Reorganization canceled all of the then outstanding shares of capital
stock, stock purchase warrants and stock options as of January 25, 2002, and new
capital stock, stock purchase warrants and stock options were issued. The
following was the status of these shares, warrants and options as of December 1,
2000, prior to our filing for and emergence from bankruptcy protection.

CAPITAL STOCK

Pursuant to our certificate of incorporation, we had the authority to issue
100,000 shares of common stock and 10,000 shares of preferred stock. Preferred
stock could be issued at any time or from time to time in one or more series
with such designations, powers, preferences and rights, qualifications,
limitations or restrictions thereon as determined by our board of directors.

STOCK PURCHASE WARRANTS

At December 1, 2000, we had outstanding stock purchase warrants giving
rights to acquire 2,945 shares of our old common stock at an exercise price of
$12.00 per share. Of such warrants, 2,865 were scheduled to expire in March
2003, and 80 were scheduled to expire in September 2001.

STOCK REPURCHASE PROGRAM

In January 1998, our board of directors authorized the purchase, from time
to time, of up to 2,000 shares of our common stock and up to 2,765 of our stock
purchase warrants. As of June 1999, 2,000 shares had been repurchased. In July
1999, our board of directors authorized the purchase of an additional 2,000
shares of our common stock. As of December 1, 2000, no shares had been
repurchased under the new authorization.

STOCK COMPENSATION PLAN

We had a stock compensation plan for employees and non-employee directors
(the "1994 Plan") which provided for grants in the form of nonqualified stock
options or incentive stock options ("ISOs") and restricted stock awards.
Additional shares of common stock available each year for grants under the 1994
Plan were equal to 3% of the outstanding shares as of the first day of such
year. Exercise prices for nonqualified stock options were determined by our
board of directors. Exercise prices for ISOs were equal to the fair market value
of our common stock at the date of grant. Stock options extended for and vested
over periods of up to ten years as determined by our board of directors. Our
board of directors could accelerate the vesting period after award of an option.
The number of shares available for grant of ISOs could not exceed 2,900 shares,
and no individual could be granted stock options or restricted stock awards for
more than 5,000 shares over any three-year period.

Non-employee directors could elect to forego receipt in cash of certain
fees earned during any year in return for an option with a grant price equal to
80% of the fair market value of our common stock, vesting quarterly during the
year with a term period of up to ten years as determined by our board of
directors. Non-employee directors elected options for 85, 83 and 88 shares in
lieu of fees earned in 2000, 1999 and 1998, respectively.

On April 11, 1997, our stockholders adopted the 1997 Stock Option and
Incentive Plan for Non-employee Directors (the "1997 Plan") which provided for
grants in the form of nonqualified stock options and restricted stock awards.
Grant prices per share for stock options were at fair market value at the date
of grant. The number of shares available for grant as options and restricted
stock awards was 500 shares, of which no more than 100 shares could be awarded
as restricted. Grants of nonqualified stock options and restricted stock awards
to the non-employee directors under the 1997 Plan did not preclude grants under
the 1994 Plan. Options were subject to terms and conditions determined by our
board of directors and had a term not exceeding 10 years from the date of grant.
Option activity under our stock plans is summarized as follows:

II-69

The terms and conditions of restricted stock awards issued to key employees
were determined by our board of directors. Upon termination of employment,
shares that remained subject to restriction were forfeited. At December 1, 2000,
there were no restricted shares outstanding. No restricted stock awards were
made in 2000, 1999 and 1998.

STOCK-BASED COMPENSATION

We adopted the disclosure-only provisions of the Financial Accounting
Standards Board Statement No. 123 ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS
No. 123"), issued in October 1995. Accordingly, compensation cost has been
recorded based only on the intrinsic value of the options granted. We recognized
$192, $219 and $219 of compensation cost in 2000, 1999 and 1998, respectively,
for stock-based compensation awards. If we had elected to recognize compensation
cost based on the fair value of the options granted at grant date as prescribed
by SFAS No. 123, net income (loss) would have been adjusted to the pro forma
amounts as follows:

The pro forma amounts set forth above reflect the portion of the estimated
fair value of awards earned in 2000, 1999 and 1998 based on the vesting period
of the options. The pro forma effects disclosed above are not likely to be
representative of the pro forma disclosures of future years because SFAS No. 123
is applicable only to options granted subsequent to November 30, 1995, the
effect of which is not fully reflected until 1999.

The Black-Scholes option valuation model was used to estimate the fair
value of the options for purposes of the pro forma presentation set forth above.

II-70

The following assumptions were used in the valuation and no dividends were
assumed:

The assumptions used in the Black-Scholes option valuation model are highly
subjective, particularly as to stock price volatility of the underlying stock,
and can materially affect the resulting valuation.

The following table summarizes information regarding options that were
outstanding at December 1, 2000:

STOCKHOLDER RIGHTS PLAN

On June 21, 2002, our board of directors adopted a stockholder rights plan
under which we will issue one right for each outstanding share of our common
stock. The rights expire in 2012 unless they are earlier redeemed, exchanged or
amended by the board of directors. The board also adopted a Three-Year
Independent Director Evaluation ("TIDE") policy with respect to the plan. Under
the TIDE policy, a committee comprised solely of independent directors will
review the plan at least once every three years to determine whether to modify
the plan in light of all relevant factors.

The rights will initially trade together with our common stock and will not
be exercisable until after 10 days from the earlier of a public announcement
that a person or group has acquired beneficial ownership of 15% or more, with
certain exceptions, of our common stock or the commencement of, or public
announcement of an intent to commence, a tender or exchange offer which, if
successful, would result in the offeror acquiring 15% or more of our common
stock. Once exercisable, each right would separate from the common stock and be
separately tradeable.

If a person or group acquires 15% or more, with certain exceptions, of our
common stock, or if we are acquired in a merger or other business combination,
each right then exercisable would entitle its holder to purchase, at the
exercise price of $125 per right, shares of our common stock, or the surviving
company's stock if we are not the surviving company, with a market value equal
to twice the right's exercise price.

We may redeem the rights for $.01 per right until the rights become
exercisable. We also may exchange each right for one share of common stock or an
equivalent security until an acquiring person or group owns 50% or more of the
outstanding common stock.

The rights are not considered to be common stock equivalents because there
is no indication that any event will occur that would cause them to become
exercisable.

II-71

17. FINANCIAL INSTRUMENTS

The estimated fair values of financial instruments at December 1, 2000
were determined by us, using available market information and valuation
methodologies believed to be appropriate. However, judgment is necessary in
interpreting market data to develop the estimates of fair values.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that we could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies could have a
material effect on the estimated fair value amounts.

The carrying amounts and estimated fair values of certain financial
instruments at December 1, 2000 and December 3, 1999 were as follows:

The fair value of other financial instruments was comprised of (i) cash and
cash equivalents, accounts receivable excluding customer retentions, unbilled
receivables and accounts and subcontracts payable excluding retentions which
approximate cost because of the immediate or short-term maturity, (ii)
securities available for sale based on quoted market prices of the securities at
the balance sheet date, (iii) customer retentions, subcontract retentions and
customer advances estimated by discounting expected cash flows at rates
currently available to us for instruments with similar risks and maturities,
(iv) long-term senior secured credit facilities which approximate fair value due
to frequent repricing at market rates or recent issuances at rates approximating
current rates, (v) senior unsecured notes that approximate fair value due to a
stable interest rate environment during the period and (vi) long-term debt that
approximates fair value due to frequent repricing at market rates. Both the
senior secured credit facilities and the senior unsecured notes were a part of
the RE&C Financing Facilities, more fully described in Note 8, "Credit
Facilities."

18. REDEEMABLE PREFERRED STOCK

On September 11, 1996, we issued 1,800 shares of Series A preferred stock
in connection with the acquisition of Old MK. On April 15, 1998, all of the
Series A preferred stock was redeemed, in accordance with its terms, with
$18,000 of federal income tax refunds received by us in January 1998.

19. SECURITIES AVAILABLE FOR SALE

Securities available for sale are reported at fair value and consist
primarily of debt securities at December 1, 2000. Gross unrealized gains are
$739 and losses are $105 at December 1, 2000. Gross unrealized gains were $805
and losses were $375 at December 3, 1999. Unrealized gains and losses, net of
income tax effects, are reported as a component of other comprehensive income
(loss). Cost is determined using the specific identification method for purposes
of calculating realized gains and losses. Securities available for sale are held
by Broadway Insurance Company, a wholly-owned captive Bermuda insurance
subsidiary, which insures our workers' compensation, general and auto liability
risks. Maturities, fair value and cost of securities held for sale were as
follows:

II-72

We have classified these securities as current assets in our 2000 financial
statements because they were available for use in our operations if needed and
were liquidated in 2001 in anticipation of our bankruptcy filing.

II-73

ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

Following the commencement of the bankruptcy cases in 2001,
PricewaterhouseCoopers LLP informed us that it had concluded that it was not a
"disinterested person" with respect to the Debtors and, accordingly, could not
continue to serve as independent public accountants of the Debtors during the
pendency of the bankruptcy proceedings. In addition, PricewaterhouseCoopers LLP
notified us that they could give no assurance that they would be able to act as
our independent public accountants following the Debtors' emergence from
bankruptcy protection. As a result, on October 3, 2001, we dismissed
PricewaterhouseCoopers LLP and selected Deloitte & Touche LLP as our independent
public accountants. For a more detailed discussion, see our current report on
Form 8-K filed October 3, 2001.

During the fiscal year ended December 1, 2000, there were no disagreements
with accountants on accounting and financial disclosure matters.

II-74

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information with respect to the directors of the registrant as
of March 31, 2001, including business experience for the past five years and all
positions held by them with the registrant, is set forth below. The directors of
the registrant are elected annually to serve until the next annual meeting of
the stockholders and until their respective successors are elected.

(1) Washington Corporations and other entities controlled by Dennis R.
Washington may be deemed to be affiliates of the registrant.

III-1

EXECUTIVE OFFICERS

Certain information with respect to the executive officers of the
registrant as of March 31, 2001, including all positions held by them with
the registrant, is set forth below. Executive officers of the registrant are
elected by the Board of Directors for terms of one year and until their
successors are elected and qualified.

(1) For certain biographical information regarding Mr. Washington, see
"DIRECTORS."

(2) Mr. Hanks was named President in April 2000. He is a member of the
Office of the Chairman. Mr. Hanks formerly served the registrant as
Executive Vice President, Chief Legal Officer, Secretary and Acting
Chief Financial Officer, and formerly served Old MK in various other
executive and management capacities.

(3) Mr. Kontny is a member of the Office of the Chairman. He formerly served
as President and Chief Operating Officer of Fluor Corporation
(engineering, procurement, construction, and maintenance services) and
President of Fluor Daniel, Inc. (engineering and construction). Mr.
Kontny is also a director of Chicago Bridge and Iron Company.

(4) Mr. Oliver is a member of the Office of the Chairman. He formerly served
Fluor Daniel, Inc. (engineering and construction) in various group
president positions related to sales, strategic planning, project
development and project finance.

(5) Mr. Juetten is a member of the Office of the Chairman. He formerly
served Dresser Industries, Inc. (supplier of products and services for
oil and natural gas industry) as Senior Vice President and Chief
Financial Officer, and Vice President and Controller.

(6) Mr. Ludlam formerly served the registrant as Executive Vice President
and President and Chief Executive Officer of MK Contractors Group. He
also formerly served as President and Chief Executive Officer of Perini
Corporation (general contractor), Park Construction Company (heavy civil
contractor) and S. J. Groves & Sons (heavy civil contractor).

(7) Mr. Schwallie formerly served the registrant as Executive Vice President
and President and Chief Executive Officer of MK Government Services
Group. He also formerly served as President of Westinghouse Savannah
River Company (defense program contract services).

III-2

(8) Mr. Wiesel formerly served as Senior Vice President of the Petroleum and
Chemicals Division of Raytheon Engineers & Constructors. He also
formerly served as Executive Vice President and in various other
executive and management capacities for Stone & Webster (engineering and
construction).

(9) Mr. Williams formerly served the registrant as Executive Vice President
of Industrial/Process and served in various other business development
and operations capacities for Old MK.

(10) Mr. Zarges formerly served the registrant as Executive Vice President
and President and Chief Executive Officer of Industrial/Process Group
and MK Engineers and Constructors, and as Senior Vice
President-Operations. He also served Old MK as Senior Vice President and
President and Chief Executive Officer of the Power and
Industrial/Manufacturing Divisions.

(11) Mr. David Myers formerly served the registrant as President and Chief
Executive Officer of the Power Group. He also formerly served as Chief
Operating Officer of Raytheon Engineers & Constructors, and as President
of Fluor Global Services (operations, maintenance and consulting
services), President-Industrial of Fluor Daniel, Inc. and Chairman of
Fluor Daniel GTI (global environmental services).

(12) Mr. Brimhall formerly served the registrant as Vice President of Audit
and Government Accounting. He also formerly served as Secretary and
Controller of Scientech, Inc. (energy and telecommunication consulting
and technical services) and in various other executive and management
positions at Stanford University (educational institution).

(13) Mr. Johnson formerly served as Senior Vice President of Global
Development, Marketing and Strategy for Fluor Corporation (engineering,
procurement, construction, and maintenance services) and as Vice
President of Sales for Fluor Daniel, Inc. (engineering and construction).

(14) Mr. Larry Myers formerly served the registrant as Senior Vice President
of Business Operations for Washington Government. He also formerly
served as Vice President of Human Resources for Westinghouse Savannah
River Company (defense program contract services) and in a variety of
senior human resource positions.

(15) Mr. O'Donnell formerly served the registrant as Vice President of
Corporate Development and served in various other marketing, strategic
planning and finance and administration positions for the registrant and
Old MK.

(16) Mr. Parry formerly served the registrant as Vice President - Legal.

(17) Mr. Finlayson formerly served the registrant as Vice President of
Project Finance and served Old MK in various other finance and project
development positions.

(18) Mr. Taylor formerly served the registrant as Associate General Counsel.
He also formerly practiced law, specializing in employee benefits
matters, for a private law firm.

III-3

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table summarizes all plan and non-plan compensation
awarded or paid to, or earned by, each of the Named Executives (all
individuals who acted as the chief executive officer during the last fiscal
year and the other four most highly compensated executive officers of the
Company and its subsidiaries) during the fiscal years indicated:

(1) The numbers in this column notwithstanding, effective as of January 25,
2002, all of the above options were canceled pursuant to the Plan of
Reorganization; therefore, none of these options are currently
exercisable or will become exercisable at any time in the future.

(2) Includes 2,000,000 stock options awarded in lieu of cash compensation to
Mr. Washington on April 8, 1999, in consideration of his election to the
position of Chairman, President and Chief Executive Officer; 250,000
options awarded on March 22, 1999, granted in recognition of his
involvement in the strategic development of the Westinghouse Acquisition
and 11,084 options awarded as of January 1, 1999, in lieu of director's
retainer fees.

(3) These shares were granted to Mr. Washington as of January 1, 1998, in
lieu of director's retainer fees for his service as a Non-Employee
Director of the Company.

(4) Consists of disability insurance premium of $10,712, imputed income of
$610 in connection with an executive life insurance policy, and tax
gross-up of $10,727 on the foregoing disability insurance premium and
the value of the term life insurance premium reported in the last column
of this table.

(5) Consists of $8,500 matching contributions to Mr. Hanks' 401(k) account,
service recognition of $2,315 and $24,929 representing Mr. Hanks'
interest in his executive life insurance policy's cash surrender value
as projected on an actuarial basis attributable to the 2000 premium.

(6) Consists of disability insurance premium of $10,712, imputed income of
$520 in connection with an executive term life insurance policy, and tax
gross-up of $10,641 on the foregoing disability insurance premium and
the value of the term life insurance premium.

(7) Consists of disability insurance premium of $10,712 and tax gross-up of
$10,650 on the foregoing disability insurance premium and the value of
the term life insurance premium reported in the last column of this
table.

(8) Consists of $8,500 matching contributions to Mr. Kontny's 401(k) account.

III-4

(9) Consists of imputed income of $661 in connection with executive life
insurance, $8,000 perquisite allowance and $2,250 for personal financial
planning services.

(10) Consists of $5,487 matching contributions to Mr. Schwallie's 401(k)
account and imputed income of $661 in connection with a life insurance
policy.

(11) Consists of perquisite allowance of $8,000 and $2,250 for personal
financial planning services.

(12) Consists of disability insurance premium of $7,342, imputed income of
$780 in connection with an executive life insurance policy, and tax
gross-up of $8,106 on the foregoing disability insurance premium and the
value of the term life insurance premium reported in the last column of
this table.

(13) Consists of $8,500 matching contributions to Mr. Zarges' 401(k) account
and $16,783 representing Mr. Zarges' interest in his executive life
insurance policy's cash surrender value as projected on an actuarial
basis attributable to the 2000 premium.

(14) Consists of disability insurance premium of $7,153, imputed income of
$720 in connection with an executive term life insurance policy and tax
gross-up of $7,139 on the foregoing disability insurance premium and the
value of the term life insurance premium.

(15) Consists of disability insurance premium of $6,973 and tax gross-up of
$7,534 on the foregoing disability insurance premium and the value of
the term life insurance premium reported in the last column of this
table.

OPTION GRANTS

The following table summarizes pertinent information concerning individual
grants of options to purchase Common Stock during fiscal year 2000, including a
theoretical grant date present value for each grant:

(1) Mr. Washington's options were granted on July 7, 2000 and become
exercisable in four equal increments on each of the first four anniversaries
of the date of grant. Mr. Hanks's options were granted on January 31, 2000
and April 14, 2000, respectively, and become exercisable in four equal
increments on each of the first four anniversaries of their respective dates
of grants. Mr. Kontny's options were granted on April 14, 2000 and become
exercisable in their entirety on the first anniversary of the date of grant.
The options granted to Mr. Schwallie and Mr. Zarges were granted effective on
January 31, 2000 and July 7, 2000, and become exercisable in four equal
increments on each of the first four anniversaries of their respective dates
of grant.

Effective as of January 25, 2002, all of the above options were canceled
pursuant to the Plan of Reorganization; therefore, none of these options are
currently exercisable or will become exercisable at any time in the future.

III-5

AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES

The following table summarizes pertinent information concerning the
exercise of options to purchase Common Stock during fiscal year 2000 by each of
the Named Executives and the fiscal year-end value of unexercised options:

- ---------------
(1) A total of 35,657 shares compose options which were awarded to Mr.
Washington as a Non-Employee Director of the Company prior to his election as
a Company officer, pursuant to his election to receive stock options in lieu
of cash in payment of his annual director's retainer fees. The remaining
25,000 shares compose an option granted to Mr. Washington on January 10, 1997
under the 1997 Stock Option and Incentive Plan for Non-Employee Directors of
Washington Group International, Inc.

Effective as of January 25, 2002, all of the above options were canceled
pursuant to the Plan of Reorganization; therefore, none of these options are
currently exercisable or will become exercisable at any time in the future.

PENSION

Mr. Hanks is entitled to pension benefits payable under the terms of a
group annuity contract purchased upon the termination of the Morrison Knudsen
Corporation Retirement Plan of 1970. This plan was terminated December 12, 1987.
Assuming a five-year certain and life annuity upon normal retirement, Mr. Hanks'
total annual benefit at age 65 would be $7,142. For purposes of this benefit,
Mr. Hanks has 12 years of credited service with the Company.

Mr. Schwallie is eligible for retirement benefits under the Westinghouse
Government Services Group Pension Plan (the "WGS Plan"), the Westinghouse
Savannah River Company/Bechtel Savannah River, Inc. Pension Plan (the "WSRC
Plan") and the Westinghouse Government Services Group Executive Pension Plan
(the "WGS Executive Pension Plan") (collectively, the "Westinghouse Pension
Plans"). The following table indicates the approximate amounts of annual
retirement income that would be payable at the present time to employees who
participate in the Westinghouse Pension Plans:

III-6

The WGS Plan and the WSRC Plan are contributory, defined benefit plans
designed to provide retirement income related to an employee's salary and
years of active service. All Company contributions are actuarially
determined. The WGS Executive Pension Plan provides for supplemental pension
payments, provided certain eligibility requirements are met. Such payments,
when added to the pensions under the WGS Plan and the WSRC Plan, result in a
total average pension equal to 1.47% for each year of credited service
multiplied by the employee's average annual compensation as defined by the
WGS Executive Pension Plan. Average annual compensation is equal to the
average of the five highest annualized base salaries plus the average of the
five highest annual incentive awards, each in the last ten years of
employment. In the event of retirement prior to age 60, the total annual
pension would be reduced by an amount equal to the reduction in the benefits
payable under the WGS Plan and the WSRC Plan. In the event of a change in
control of the Company, participants in the WGS Executive Pension Plan become
vested and benefits may be paid on a present value or other basis.

The amounts presented in the above table are based on straight life
annuity amounts and are not subject to any reduction for Social Security
benefits but may be offset by amounts payable under certain other pension
plans previously sponsored by Westinghouse. As of December 1, 2000, Mr.
Schwallie had 28 years of credited service under the Westinghouse Pension
Plans.

EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL AGREEMENTS

Effective January 1, 1993, Old MK entered into an employment agreement
with Mr. Hanks, to which the Company succeeded in the merger with Old MK in
September 1996. Effective January 1, 1994, Old MK entered into a similar
employment agreement with Mr. Zarges, to which the Company also succeeded in
the merger with Old MK in September 1996. The agreements were for initial
five-year terms (January 1, 1993, through December 31, 1997, for Mr. Hanks
and January 1, 1994, through December 31, 1998, for Mr. Zarges) with
automatic continuing year-long extensions after the end of the initial term.

On January 20, 1999, the Board of Directors approved the restructuring
of the employment arrangements of Mr. Hanks and Zarges to make them "at will"
employees and to allow their written agreements to expire at the end of March
2000.

Pursuant to the terms of their employment agreements, Messrs. Hanks and
Zarges each were entitled to receive a minimum annual base salary of
$250,000, and to participate in the Company's annual bonus plan applicable to
their corporate position or operating group position. They were also entitled
to participate in (i) the Key Executive Life Insurance Plan (which provides
pre-retirement life insurance of three times base salary, inclusive of the
Company's group plan, and which provides post-retirement life insurance of
one times base salary); (ii) the Key Executive Disability Insurance Plan
(which provides a disability benefit of 60% of base salary and annual bonus,
inclusive of all Company and government programs) and (iii) all other health
and welfare benefits generally available to executive officers of the Company.

Under the employment agreements, Messrs. Hanks and Zarges were also
entitled to receive a severance benefit equal to twice their base
compensation (which included such items as base salary in effect immediately
preceding the termination of employment, bonuses and participation in health
and retirement programs) if their employment was terminated for a reason
other than death, disability, cause, voluntary resignation under
circumstances not constituting constructive termination or the expiration of
their employment agreements. Under such circumstances, the Company would have
fully vested unvested stock options and restricted stock awards granted
before 1997 and fully vested and immediately paid any accrued cash awards and
bonuses. If any payments due under the employment agreements would have
resulted in liability to Messrs. Hanks and Zarges for an excise tax imposed
by Section 4999 of the Internal Revenue Code, the Company agreed to pay to
them an amount which (after deducting any federal, state and local income
taxes payable with respect to such amount) is sufficient to fully satisfy
such tax.

On January 10, 1997, January 14, 1998, and January 20, 1999, the
employment agreements of Messrs. Hanks and Zarges were amended to provide
that in the event they were terminated for any reason, no portion of the
stock

III-7

options that were granted to them on January 10, 1997, January 14, 1998 and
January 20, 1999 and that were unvested as of the date of such termination
would be exercisable.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table shows stock ownership information as of March 31, 2001,
for (i) the persons (as the term is used in Section 13(d)(3) of the Exchange
Act) known to the registrant to beneficially own more than 5% of the Common
Stock, (ii) each director of the registrant, (iii) each of the Named Executives
and (iv) all current directors and executive officers of the registrant as a
group. Effective January 25, 2002, all of such common stock was canceled
pursuant to the Plan of Reorganization.

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* Indicates that the percentage of shares beneficially owned does not exceed
1% of the class.

(1) Except as otherwise indicated, the mailing address of each person shown is
c/o Washington Group International, Inc., 720 Park Boulevard, Boise, Idaho
83712.
(2) For purposes of this table, shares are considered to be "beneficially"
owned if the person directly or indirectly has the sole or shared power to
vote or direct the voting of the securities or the sole or shared power to
dispose of or direct the disposition of the securities, and a person is
considered to be the beneficial owner of shares if that person has the
right to acquire the beneficial ownership of the shares within 60 days of
March 31, 2001. Unless otherwise noted, the beneficial owners have sole
voting and dispositive power over their shares listed in this column.
(3) Indicates shares included in the amounts shown to be beneficially owned as
of March 31, 2001, by reason of a right to acquire beneficial ownership
thereof within 60 days of such date.
(4) The percentages shown are calculated based upon the number of shares of the
Common Stock shown in the second column of this table, which includes
shares that the stockholder has the right to acquire beneficial ownership
of within 60 days of March 31, 2001.
(5) Such shares include 828,000 shares held by D.W. Holdings, Inc., which is
wholly owned by Mr. Washington and as to which Mr. Washington may be deemed
to be the beneficial owner, and exclude 77,838 shares held by Mr.
Washington's wife as to which Mr. Washington disclaims beneficial
ownership.
(6) Based on Schedule 13G Amendment No. 1 dated February 5, 2001, which was
filed with the Securities and Exchange Commission by Royce & Associates,
Inc. ("Royce"), Royce Management Company ("RMC") and Charles M. Royce ("Mr.
Royce") as a group. Royce has sole voting and

III-8

dispositive power as to 2,968,500 shares, RMC has sole voting and
dispositive power as to 109,700 shares and Mr. Royce may be deemed to
beneficially own the shares beneficially owned by Royce and RMC. Mr. Royce
disclaims beneficial ownership of such shares.
(7) Such shares include 5,000 shares held in joint tenancy with Mr. Parkinson's
wife as to which Mr. Parkinson shares voting and dispositive power and
exclude 5,000 shares held by Mr. Parkinson's wife as to which Mr. Parkinson
disclaims beneficial ownership.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

From time to time, we engage Batchelder & Partners, Inc., an investment
advisory and consulting firm ("BPI"), of which Mr. Batchelder is Chairman and
Chief Executive Officer, to act as our financial advisor with respect to
potential acquisitions and divestitures pursuant to written engagement
agreements. Such agreements traditionally include a retainer fee, reimbursement
of reasonable out-of-pocket expenses, indemnification and payment of a success
fee based upon the transaction value payable upon completion of the transaction.
The potential transactions, including the specific details of the engagement
agreements between the registrant and BPI, generally are subject to strict
confidentiality agreements.

In 1999, BPI entered into an engagement agreement with us (the "1999
Agreement") with respect to our acquisition of RE&C and other unrelated
engagements. The RE&C acquisition was completed on July 7, 2000 and,
accordingly, in fiscal year 2000, we paid BPI a success fee of $4 million as
prescribed in the 1999 Agreement. In addition, pursuant to the 1999 Agreement,
in fiscal year 2000, we paid to BPI $200,000 in retainer fees ($50,000 per
quarter) and $100,190 for expenses related to the acquisition of RE&C and other
unrelated engagements.

The 1999 Agreement was superseded by a Letter Agreement between us and BPI
dated as of March 15, 2001, under which we agreed to pay a monthly retainer fee
of $100,000 to BPI, effective January 1, 2001. Under this Letter Agreement BPI
agreed to act as a financial advisor to us in relation to the emerging liquidity
crisis.

During fiscal year 2001, we have paid $50,770 to BPI, pursuant to the 1999
Agreement, representing the 2001 first quarter retainer fee and miscellaneous
expenses.

Mr. Payne is Chairman and owner of Terry Payne & Co., Inc. ("TPC"), which
provides insurance and bonding brokerage services to us and our subsidiaries. In
January 1998, our Board of Directors approved a Professional Services Agreement
for insurance brokering services supplied by TPC to us effective January 1,
1998, and expiring December 31, 2000, with automatic renewal annually for
12-month terms thereafter, unless canceled by either party prior to the annual
date (the "1998 Professional Services Agreement"). Pursuant to the 1998
Professional Services Agreement, TPC would receive an annual fixed fee of
$1,150,000 to be paid in equal quarterly installments with all insurance and
surety commissions earned on policies purchased for the registrant to be
credited 100% against the fee, except that, should surety commissions exceed
$250,000 in any given calendar year, then TPC would credit only 50% of all
surety commissions above $250,000 for the remainder of the year. In 1999, our
Board of Directors approved an amendment to the 1998 Professional Services
Agreement to increase the annual fixed fee payable to TPC to $1,250,000 per
calendar year, effective as of January 1, 1999.

In January 2001, the Board of Directors approved a new agreement with TPC,
effective January 1, 2001, substantially similar to the 1998 Professional
Services Agreement, as amended, except for the following material differences:
the scope of insurance services is reduced; the annual fixed fee is $850,000;
and the $250,000 threshold with respect to surety commissions is eliminated and
100% of all insurance commissions and 50% of all surety commissions are credited
against the fixed fee.

In addition, in February 2001, we paid $425,000 to TPC for services
performed in connection with due diligence and post-closing activities related
to our acquisition of the RE&C businesses.

Mr. Washington is the founder and owner of Washington Corporations ("WC").
We regularly lease corporate jets from WC and WC Leasing Corporation ("WC
Leasing"), a WC wholly owned subsidiary, in connection with our business. During
fiscal year 2000, we paid to WC and WC Leasing approximately $4.6 million for
such jet usage and related maintenance and support services. In addition, as
part of the acquisition of RE&C, we acquired a 1988 Hawker 800 corporate jet on
July 7, 2000. On November 22, 2000, we sold the corporate jet to WC

III-9

Leasing for $6.5 million, which purchase price was based on an independent
appraisal. During fiscal year 2000, we also paid WC $178,000 for
miscellaneous support services, unrelated to our jet usage, performed in
connection with our business.

Equipco, Inc. ("Equipco"), a wholly-owned subsidiary of WC, provides
repair services for equipment we own at cost with no warranty on work
performed. We pay a proportionate share of Equipco's fixed costs in return
for Equipco maintaining its repair facility conveniently located and readily
available to us. During fiscal year 2000, services and equipment Equipco
provided to us totaled $320,000.

As the pit mine operator at the Pipestone Mine Project in Montana, we
sell ballast to Montana Rail Link, Inc., a corporation owned by Mr.
Washington. During fiscal year 2000, we realized revenues totaling $450,000
from such ballast sales.

III-10

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(a) DOCUMENTS FILED AS A PART OF THIS ANNUAL REPORT OF FORM 10-K.

PAGE(S)

1. The Consolidated Financial Statements, together with the reports
thereon of Deloitte & Touche LLP and PricewaterhouseCoopers LLP,
are included in Part II, Item 8 of this report.

Independent Auditors' Report, Deloitte & Touche LLP II-24

Report of Independent Accountants, PricewaterhouseCoopers LLP II-25

Consolidated Statements of Operations and Consolidated Statements of
Comprehensive Income (Loss) for each of the three years in the
period ended December 1, 2000 II-26

Consolidated Balance Sheets at December 1, 2000 and December 3, 1999 II-27, II-28

Consolidated Statements of Cash Flows for each of the three years
in the period ended December 1, 2000 II-29

Consolidated Statements of Stockholders' Equity (Deficit) for each of
the three years in the period ended December 1, 2000 II-30

Notes to Consolidated Financial Statements II-31 to II-73

2. Financial Statement Schedule as of December 1, 2000 S-1

Valuation, Qualifying and Reserve Accounts

Financial statement schedules not listed above are omitted because
they are not required or are not applicable, or the required
information is given in the financial statements including the
notes thereto. Captions and column headings have been omitted
where not applicable.

3. Exhibits

The exhibits to this report are listed in the Exhibit Index
contained elsewhere in this report.

(b) REPORTS ON FORM 8-K.

We filed a current report on Form 8-K dated September 15, 2000 to
announce the approval by our board of directors of the change of
our name from "Morrison Knudsen Corporation" to "Washington Group
International, Inc.," subject to stockholder approval.

We filed a current report on Form 8-K dated October 16, 2000 to
announce (1) our intention to delay filing our third quarter
earnings release until October 23, 2000 and (2) the resignation of
Anthony S. Cleberg, our chief financial officer.

IV-1

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, we have duly caused this annual report on Form 10-K to be signed on
our behalf by the undersigned, thereunto duly authorized on July 9, 2002.

Washington Group International, Inc.

By /s/ George H. Juetten
- -------------------------------------------------------------------------------
George H. Juetten, Executive Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this annual
report on Form 10-K has been signed below on July 9, 2002 by the following
persons on our behalf in the capacities indicated.

Chief Executive Officer and President and Director
/s/ Stephen G. Hanks (Principal Executive Officer)
- ---------------------------------------------
Executive Vice President and Chief Financial Officer
/s/ George H. Juetten (Principal Financial Officer)
- ---------------------------------------------
Senior Vice President and Controller
/s/ Reed N. Brimhall (Principal Accounting Officer)
- ---------------------------------------------

/s/ Dennis R. Washington* Chairman and Director
- ---------------------------------------------

/s/ David H. Batchelder* Director
- ---------------------------------------------

/s/ Michael R. D'Appolonia* Director
- ---------------------------------------------

/s/ William J. Flanagan* Director
- ---------------------------------------------

/s/ C. Scott Greer* Director
- ---------------------------------------------

/s/ William H. Mallender* Director
- ---------------------------------------------

/s/ Michael P. Monaco* Director
- ---------------------------------------------

/s/ Cordell Reed* Director
- ---------------------------------------------

/s/ Bettina M. Whyte* Director
- ---------------------------------------------

/s/ Dennis K. Williams* Director
- ---------------------------------------------

*Craig G. Taylor, by signing his name hereto, does hereby sign this annual
report on Form 10-K on behalf of each of the above-named officers and directors
of Washington Group International, Inc., pursuant to powers of attorney executed
on behalf of each such officer and director.

By /s/ Craig G. Taylor
-----------------------------------
Craig G. Taylor, Attorney-in-fact

WASHINGTON GROUP INTERNATIONAL, INC.
SCHEDULE II. VALUATION, QUALIFYING AND RESERVE ACCOUNTS
FOR THE YEAR ENDED DECEMBER 1, 2000
(IN THOUSANDS)

ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLES DEDUCTED IN THE
BALANCE SHEET FROM ACCOUNTS RECEIVABLE

DEFERRED INCOME TAX ASSET VALUATION ALLOWANCE DEDUCTED IN THE BALANCE
SHEET FROM DEFERRED INCOME TAX ASSET

ESTIMATED COSTS TO COMPLETE LONG-TERM CONTRACTS REFLECTED IN THE
BALANCE SHEET

PROVISION FOR FUTURE LOSSES ON JOINT VENTURE CONTRACTS DEDUCTED IN THE
BALANCE SHEET FROM INVESTMENTS IN AND ADVANCES TO JOINT VENTURES

- --------------------
(1) Change in valuation allowance related to estimates of the future
realization of acquired deductible temporary differences that have been
treated as a reduction of goodwill.
(2) Value of foreign net operating losses acquired in acquisition of RE&C.

S-1

WASHINGTON GROUP INTERNATIONAL, INC.
EXHIBIT INDEX

COPIES OF EXHIBITS WILL BE SUPPLIED UPON REQUEST. EXHIBITS WILL BE PROVIDED AT A
FEE OF $.25 PER PAGE REQUESTED.

- ----------------

#Management contract or compensatory plan
*Filed herewith

E-4