WASHINGTON GROUP INTERNATIONAL INC - 10-Q Quarterly Report

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

At June 28, 2002, 25,000,000 shares of the registrant's $.01 par value common stock were outstanding.

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.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ý No o

WASHINGTON GROUP INTERNATIONAL, INC.
Quarterly Report on Form 10-Q for the
Quarter Ended June 28, 2002

		PAGE
PART I
Item 1.	Consolidated Financial Statements and Notes Thereto
	Statements of Operations for the Three Months Ended June 28, 2002 and June 1, 2001, Five Months Ended June 28, 2002, One Month Ended February 1, 2002 and Six Months Ended June 1, 2001	I-1
	Balance Sheets at June 28, 2002, February 1, 2002 and November 30, 2001	I-2
	Condensed Statements of Cash Flows for the Five Months Ended June 28, 2002, One Month Ended February 1, 2002 and Six Months Ended June 1, 2001	I-4
	Statements of Comprehensive Income (Loss) for the Three Months Ended June 28, 2002 and June 1, 2001, Five Months Ended June 28, 2002, One Month Ended February 1, 2002 and Six Months Ended June 1, 2001	I-5
	Notes to Financial Statements	I-6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	I-37
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	I-58
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	II-1
Item 6.	Exhibits and Reports on Form 8-K	II-2
SIGNATURES

WASHINGTON GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(UNAUDITED)

The accompanying notes are an integral part of the consolidated financial statements.

WASHINGTON GROUP INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)

The accompanying notes are an integral part of the consolidated financial statements.

WASHINGTON GROUP INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)

The accompanying notes are an integral part of the consolidated financial statements.

WASHINGTON GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(UNAUDITED)

The accompanying notes are an integral part of the consolidated financial statements.

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 quarterly report include Washington Group International, Inc. ("WGI") and its consolidated subsidiaries unless otherwise indicated. The term "Plan of Reorganization" as used in this quarterly report refers to the Second Amended Joint Plan of Reorganization of Washington Group International, Inc., et al., as modified and confirmed by the U.S. Bankruptcy Court for the District of Nevada on December 21, 2001.

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 and commercial building markets; (iii) engineering, design, procurement, construction and construction management services to coal, minerals and minerals processes markets; (v) comprehensive nuclear and other environmental and hazardous substance remediation services for governmental and private-sector clients and (vi) weapons and chemical demilitarization programs for governmental and private-sector clients. In providing these 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 to be 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 that 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.). We refer to these businesses as the "Westinghouse Businesses." The Westinghouse Businesses currently constitute our Westinghouse Government Services Group ("WGSG"), which is part of our Defense and Energy & Environment operating units. 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.

The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles for interim financial

information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These 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 using 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. All significant intercompany transactions and accounts have been eliminated in consolidation.

These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in our annual report on Form 10-K for the fiscal year ended November 30, 2001 and with the audited consolidated balance sheet and related notes as of February 1, 2002 filed on July 19, 2002 as a Current Report on Form 8-K. The comparative balance sheet and related disclosures at November 30, 2001 and February 1, 2002 have been derived from the audited balance sheet and consolidated footnotes referred to above.

In our opinion, the accompanying unaudited interim consolidated financial statements reflect all adjustments that are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented.

The results of operations for the interim periods presented in these unaudited interim consolidated financial statements are not necessarily indicative of results to be expected for the full year, and future operating results may not be comparable to historical operating results as a result of our acquisition of RE&C, as described below, effective July 7, 2000; our filing for protection under Chapter 11 of the U.S. Bankruptcy Code on May 14, 2001; our subsequent emergence therefrom on January 25, 2002; and the implementation of fresh-start reporting on February 1, 2002. See Note 3, "Acquisition of Raytheon Engineers & Constructors" and Note 4, "Reorganization Case and Fresh-start Reporting."

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 the reporting periods have not materially affected comparability between the reporting periods presented. Other events, however, including our bankruptcy proceedings and our adoption of fresh-start reporting, have materially affected comparability among the reporting periods presented.

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 revenues 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 cause us to revise estimates.

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

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 financing 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" for a more detailed description of the terms of the RE&C Financing Facilities and 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 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 (the "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 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.

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:

Normal profit reserve
July 7, 2000 balance	$	233,135
Cost of revenue (decrease)		(50,271	)

December 1, 2000 balance		182,864
Adjustments on reformed and rejected contracts (see below)		(53,376	)
Cost of revenue (decrease)		(87,200	)

November 30, 2001 balance		42,288
Cost of revenue (decrease)		(4,378	)

December 28, 2001 balance		37,910
Increase from fresh-start reporting		9,101
Cost of revenue (decrease)		(3,518	)

February 1, 2002 balance		43,493
Cost of revenue (decrease)		(8,558	)

March 29, 2002 balance		34,935
Cost of revenue (decrease)		(15,705	)

June 28, 2002 balance	$	19,230

An audited RE&C April 30, 2000 balance sheet was not delivered by the 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 an arbitration proceeding 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 that resulted in significant additional indemnification obligations by us to the Sellers. As a result of costs it 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." Until such settlement, we retained all liabilities related to the contracts, including normal profit reserves, on our balance sheet as accrued liabilities included in liabilities subject to compromise.

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 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 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 our emergence from bankruptcy protection, 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 our emergence from bankruptcy protection, 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 the settlement.

In addition, 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 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 reorganization process. Without this settlement, a successful emergence from Chapter 11 would have been delayed or impossible.

We 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:

We 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 from the July 7, 2000 acquisition date. We 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	$	(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 twenty-three major RE&C projects that had significant contract adjustments discussed above, seven are now complete and five were eliminated in the insolvency proceedings of Washington International B.V. See Note 4, "Reorganization Case and Fresh-start Reporting." Of the remaining projects, six have undergone reformation of the contracts to terms and conditions that permitted us to continue working on the original project and five are continuing under the original terms and conditions. Five of the continuing projects are in the final stages of completion and, of the remainder, two are expected to 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 recorded a charge against income during the quarter ended December 1, 2000 for the following impairments of acquired assets:

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 legal, accounting, consulting and other fees representing external, incremental costs directly related to the acquisition, including business consulting, promotion and systems integration. For the three and six months ended June 1, 2001, those costs were $12,424 and $18,344, respectively.

On May 14, 2001, because of severe near-term liquidity issues, WGI and several but not all of its direct and indirect 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 the 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 the resolution of claims for contingencies and other disputed amounts. The Pre-petition Claims are reflected in the balance sheets as of dates between May 14, 2001 and February 1, 2002 as "liabilities subject to compromise." 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 to enable us 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. For a discussion of these disputes, see Note 3, "Acquisition of Raytheon Engineers & Constructors."

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, 2002, the DIP Facility lenders approved an increase in the total commitment from $195,000 to $220,000. See Note 8, "Credit Facilities—DIP Facility." 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 on the Senior Secured Revolving Credit Facility, see Note 8, "Credit Facilities—Senior Secured Revolving Credit Facility."

On December 21, 2001, the bankruptcy court entered an order confirming our 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.

The Plan of Reorganization became effective and the Debtors emerged from bankruptcy protection on January 25, 2002 (the "Effective Date"). Our Plan of Reorganization provided for the following upon the Effective Date:

	Number of shares	Strike price per share
Tranche A	3,086	$	28.50
Tranche B	3,527	$	31.74
Tranche C	1,907	$	33.51

	Number of shares	Strike price per share
Tranche A	1,389	$	24.00
Tranche B	882	$	31.74
Tranche C	953	$	33.84

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 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. $20,630 in letters of credit remain outstanding from previous credit facilities until they expire, primarily in 2002.

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. In 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 payment 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 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.

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 ended 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.

	One month ended February 1, 2002		Three and six months ended June 1, 2001
Professional fees and other expenses related to the bankruptcy proceedings	$	36,072	$	13,504
Impairment of assets of rejected projects		907		9,538
Adjustments of assets and liabilities to fair value		35,078		—
Net gain from liquidation of insolvent subsidiary		—		(31,961	)

Total reorganization items	$	72,057	$	(8,919	)

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:

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 the approximate 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.

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

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:

During the fourth quarter of 2001, we initiated restructuring actions to improve operational effectiveness and efficiency and reduce expenses worldwide relative to employment levels and excess facilities consistent with the Plan of Reorganization. A liability was recorded in other accrued liabilities with a corresponding charge to restructuring costs for employee termination benefits, impairment charges and enhanced pension benefits. The severance costs represent expected reductions in work force for 1,283 employees representing management, professional, administrative and operational overhead. Actual reductions in work force were 1,025 through June 28, 2002.

During 2000, as part of the acquisition of RE&C, we established a restructuring liability for closure and consolidation of office facilities, some of which were already contemplated by the Sellers. As part of the Plan of Reorganization in January 2002, restructuring liabilities of $14,155 representing the remaining balance recorded as part of the acquisition of RE&C and consisting of non-cancelable lease obligations were discharged.

We participate in non-consolidated joint ventures that are formed to bid, negotiate and complete specific projects. The non-consolidated joint ventures are measured on the consolidated balance sheet as equity method investments, and our proportionate share of revenue, cost of revenue and gross profit

is included in the income statement. The size, scope and duration of joint-venture projects vary among periods.

At June 28, 2002, we held ownership interests in two incorporated mining ventures: MIBRAG mbH (50%) and Westmoreland Resources, Inc. ("Westmoreland Resources") (20%), which are accounted for under the equity method. We provide contract mining services to these ventures. We currently are in litigation with Westmoreland Resources concerning the contract mining services we provide. See Note 13, "Contingencies and Commitments—Other."

In November 2001, we and BNFL agreed to pursue the sale of the electro-mechanical division ("EMD") of our Westinghouse Businesses. EMD designs and manufactures components for the U.S. Navy, nuclear power utilities and other industries. We are in discussions with potential buyers and anticipate that a sale will be completed in 2002. Operating results for EMD are included as part of the Energy & Environment operating unit in Note 10, "Operating Segment, Geographic and Customer Information."

During 2001, we elected to pursue the sale of the process technology development portion of our petroleum and chemical business (the "Technology Center"). We are in discussions with potential buyers, and anticipate that a sale will be completed in 2002. Operating results for the Technology Center are included as part of the "Intersegment and other" in Note 10, "Operating Segment, Geographic and Customer Information."

For financial reporting purposes, the assets and liabilities of businesses held for sale have been classified as "Assets held for sale" and "Liabilities held for sale" in the Consolidated Balance Sheets.

The table below provides detail of the assets and liabilities of EMD and the Technology Center as of June 28, 2002, February 1, 2002 and November 30, 2001.

During the fresh-start reporting process, assets and liabilities held for sale were adjusted to estimated fair values based upon estimated fair value of the EMD and Technology Center businesses. Goodwill at June 28, 2002 and February 1, 2002 in the above table includes the net increase in fair value over the amounts allocated to identifiable assets and liabilities.

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 the Senior Unsecured Notes. Our obligations under the RE&C Financing Facilities and the Senior Unsecured Notes were discharged upon our emergence from bankruptcy on January 25, 2002.

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." On the same day, we entered into the DIP Facility with some of our subsidiaries as guarantors, for a commitment of $195,000 with 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 agreements. 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 $32,800 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.

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 letters of credit issued under our pre-petition RE&C Financing Facilities; (iii) to replace approximately $32,800 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 minimal 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.

On June 21, 2002, our board of directors adopted a stockholder rights plan under which we issued 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 (one hundred twenty-five dollars) 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.

Our business operates through six operating units, each of which comprises a separate reportable business segment: Power, Infrastructure, Mining, Industrial/Process, Energy & Environment and Defense. The reportable segments are separately managed, serve different markets and customers, and differ in their expertise, technology and resources necessary to perform their services.

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 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 and hydroelectric facilities. The operating unit generally performs as a general contractor or as a joint venture partner with other contractors on domestic and international projects.

Mining provides contract-mining, engineering, resource evaluation, geologic modeling, mine planning, simulation modeling, equipment selection, production scheduling and operations management to coal, industrial minerals and metals markets worldwide. The operating unit currently operates six mines that produce a total of four different industrial minerals in North and South America and Europe. Mining contracts are typically two- to three-year contracts that are normally renewed in subsequent bidding cycles throughout the useful life of the mine, which can range from 20 to 30 years. Mining contracts are largely fixed-price or fixed-unit-price in nature.

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.

Energy & Environment provides services to the U.S. Department of Energy, which is responsible for maintaining the nation's nuclear weapons stockpile and performing environmental cleanup and remediation. The operating unit also provides the U.S. government with construction, contract management, supply-chain management, quality assurance, administrative and environmental cleanup and restoration services. In addition, the operating unit, through EMD, supplies high reliability specialty pumps and drive systems for the U.S. Navy's nuclear-powered fleet. Energy & Environment provides safety management consulting and waste and environmental technology and engineered products, including radioactive waste containers and technical support services. We plan to sell EMD as a part of our strategy to exit this manufacturing portion of our business. See Note 7, "Businesses Held for Sale."

Defense services the U.S. Department of Defense ("DOD"), which is responsible for handling U.S. biological and chemical weaponry. The operating unit serves as lead contractor for four of the U.S. Army's six chemical weapons destruction facilities. The facilities are designed to incinerate chemical weapons that have been stored in underground bunkers for several years. In addition, the operating unit provides chemical demilitarization services, funded by the U.S. government, to the Ukraine via a joint venture and has recently been awarded significant participation in the Cooperative Threat Reduction Integrated Contract. The contract is financed by Congress to protect and safely destroy weapons of mass destruction located in the former Soviet Union.

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. 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 significant goodwill amortization is allocated to the segments. Corporate and other expense consists principally of general and administrative expenses.

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 141, Business Combinations ("SFAS No. 141"), and Statement No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"). SFAS No. 141, which is effective for acquisitions initiated after June 30, 2001, prohibits the use of the pooling-of-interest method for business combinations and establishes the accounting and financial reporting requirements for business combinations accounted for by the purchase method. Adoption of this statement had no effect on our financial statements. SFAS No. 142 requires that an intangible asset that was or is acquired shall be initially recognized and measured based on its fair value. The statement also provides that goodwill should not be amortized, but shall be tested for impairment annually, or more frequently if circumstances indicate potential impairment,

through a comparison of fair value to its carrying amount. SFAS No. 142 became effective for us for our fiscal year beginning December 29, 2001. The adoption of this statement did not have a significant impact on the financial statements due to our adoption of fresh-start reporting on February 1, 2002. See Note 4, "Reorganization Case and Fresh-start Reporting." Fresh-start reporting revalued all of our assets and liabilities to fair value on that date. At the date of adoption of the statement, the net book value of goodwill was $174,909 (not including amount included in assets held for sale) and was being amortized at an annual rate of approximately $15 million.

In July 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement Obligations ("SFAS No. 143"). Upon emergence from bankruptcy, we were required to early adopt SFAS No. 143 on February 1, 2002. This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The adoption of this statement did not have a significant impact on our financial statements.

In August 2001, the FASB issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"). SFAS No. 144, which replaces SFAS No. 121 and APB No. 30, became effective for us on February 1, 2002. This statement retains the requirements to (i) recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows, and (ii) measure an impairment loss as the difference between the carrying amount and fair value of the asset. This statement removes goodwill from its scope, eliminating the requirement to allocate goodwill to long-lived assets to be tested for impairment. SFAS No. 144 also requires that a long-lived asset to be abandoned, exchanged for a similar productive asset or distributed to owners in a spin-off, be considered held and used until it is disposed of. The accounting model for long-lived assets to be disposed of by sale must be used for all long-lived assets, whether previously held and used or newly acquired. Discontinued operations are no longer measured on a net realizable value basis, and future operating losses are no longer recognized before they occur. SFAS No. 144 also broadens the presentation of discontinued operations in the income statement to include a component of an entity (rather than a segment of a business). A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the remainder of that entity. The adoption of this statement did not have a significant effect on our operating results.

The effective tax rates for the one month ended February 1, 2002, the three months ended June 28, 2002 and the five months ended June 28, 2002 were 38.2%, 45.4% and 44.0%, respectively. This compares to an effective tax rate of 27.8% for the three and six months ended June 1, 2001. The components of the effective tax rate for the various periods are shown in the table below:

	Successor Company		Predecessor Company		Successor Company		Predecessor Company
	Three months ended June 28, 2002		Three months ended June 1, 2001		Five months ended June 28, 2002		One month ended February 1, 2002		Six months ended June 1, 2001
Federal tax rate	35.0	%	35.0	%	35.0	%	35.0	%	35.0	%
State tax	5.0		5.5		4.3		2.8		5.5
Nondeductible items	3.6		(14.4	)	3.1		.4		(14.4	)
Foreign tax	1.8		(1.3	)	1.6		—		(1.3	)
Goodwill	—		3.0		—		—		3.0

Effective tax rate	45.4	%	27.8	%	44.0	%	38.2	%	27.8	%

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 potentially responsible party (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 those defendants are jointly and severally liable for the response 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 entered into a Settlement Agreement and Consent Decree wherein Friedland agreed to pay $27,500 in exchange for various promises by the United States and State of 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 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.

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 EMD. 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 June 28, 2002, February 1, 2002 and November 30, 2001, we had accruals of $813, $1,154 and $701, respectively, for our estimated share of the future decontamination and decommissioning costs at this site.

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.

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 June 28, 2002, $172,890 in face amount of letters of credit was outstanding. Of this total, $129,851 in letters of credit was issued under the $350,000 Senior Secured Revolving Credit Facility and reduces the amount available thereunder. Letters of credit outstanding under the RE&C Financing Facilities, which do not reduce the amount available under the Senior Secured Revolving Credit Facility, total $20,630. The remaining letters of credit outstanding, which are collateralized by cash and cash equivalents and do not reduce the amount available under the Senior Secured Revolving Credit Facility, are related to Broadway Insurance Company, a wholly-owned captive Bermuda insurance subsidiary, and total $22,409.

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 collateralized the bonds with some of its assets and has established a sinking fund for the bonds. This guarantee was rejected during our bankruptcy process without liability to us.

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) we 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. The cost of the settlement was recognized in 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.

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.

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

This quarterly report on Form 10-Q and other reports and statements filed by Washington Group International, Inc. (formerly Morrison Knudsen Corporation) from time to time with the Securities and Exchange Commission (collectively, "SEC Filings") contain or may contain forward-looking statements. When used in SEC Filings, the words "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, are or may constitute forward-looking statements. In particular, statements relating to awards of new contracts, estimates of future capital expenditures, expectations with respect to the impact of contingencies and liquidity are forward-looking statements. Such forward-looking statements are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties including, in addition to any risks and uncertainties disclosed in the text surrounding such statements or elsewhere in the SEC Filings, risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including our customers, suppliers, business partners and competitors and legislative, regulatory, judicial and other governmental authorities and officials. Should our assumptions or estimates prove to be incorrect, or should one or more of these risks or uncertainties materialize, actual amounts, results, events and circumstances may vary significantly from those reflected in such forward-looking statements.

Washington Group International, Inc. ("WGI") is a global engineering and construction company serving clients through six operating units: Power, Infrastructure, Mining, Industrial/Process, Defense and Energy & Environment.

We are subject to numerous factors, which impact our ability to win new work. The Power operating unit is dependent on the domestic demand for new power generating facilities and the modification of existing power facilities. Infrastructure is impacted by the availability of public sector funding for transportation projects and availability of bonding. Mining is affected by demand for coal and other extractive resources. The Industrial/Process operating unit 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 Defense and Energy & Environment operating units are almost entirely dependent on the spending levels of the U.S. government, in particular, the Departments of Energy and Defense.

We believe the following accounting issues and policies are the most significant to a complete understanding of our results of operations.

New work represents the monetary value of a contract entered into with clients that is binding on both parties and reflect the revenue expected to be recognized from that contract.

Backlog represents the total accumulation of new work awarded 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 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. 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.

Revenue recognition is generally measured on the "percentage-of-completion" method for construction-type 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 only an estimated award fee based on historical performance until the client has confirmed the final award fee. Historically, this approach resulted in significant amounts of profit recognition in the fourth quarter on projects in our Defense and Energy and Environment operating units. However, fee award mechanisms in current contracts are such that the recognition of profit is spread more evenly throughout the year. 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 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.

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 on 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 on 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.

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 and reserves for punch-list costs, demobilization and warrant 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 Defense and Energy & Environment operating units. We have contracts with the U.S. government that contain provisions requiring compliance with the U.S. Federal Acquisition Regulation and the U.S. Cost Accounting Standards. The allowable costs we charge to those contracts are subject to adjustment 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 (i) the acquisition of the government and environmental services businesses of CBS Corporation (now Viacom, Inc.) by BNFL Nuclear Services, Inc. ("BNFL") and us, which businesses are referred to as the "Westinghouse Businesses"; and (ii) our acquisition from Raytheon Engineers & Constructors International Inc. ("RECI") of the capital stock of the subsidiaries of RECI, and specified other assets of RECI, and our assumption of specified liabilities of RECI, which acquired businesses are referred to as "RE&C." We assumed sponsorship of contributory defined benefit pension plans that 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 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.

Goodwill will no longer be amortized, but will be subject to annual impairment tests under the new rules issued in June 2001 by the Financial Accounting Standards Board in Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"). These statements are effective for our fiscal year 2002. Effective February 1, 2002, in conjunction with fresh-start reporting, we adjusted all of our assets and liabilities to estimated fair value. In addition, our income tax attributes include tax deductible goodwill in excess of financial statement goodwill. The tax value of goodwill arising from the acquisition of the RE&C businesses continues to generate tax deductible amortization although financial statement goodwill is no longer amortized. Thus, as goodwill amortization is deducted for income tax purposes, a book/tax difference is created. Financial statement goodwill is affected by this difference because the tax effect of the amortization generated by tax goodwill in excess of financial statement goodwill results in a decrease in financial statement goodwill.

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") is used to provide information regarding our ability to service our debt. EBITDA is not a measure of operating performance computed in accordance with generally accepted accounting principles ("GAAP"), and should not be considered as a substitute for earnings from operations, net income or loss, cash flows from operating activities or other statements of operations or cash flow data prepared in conformity with GAAP, or as a measure of profitability or liquidity. In addition, EBITDA may not be comparable to similarly titled measures of other companies.

Our calculation of EBITDA represents earnings before interest, taxes, depreciation and amortization, normal profit and exclusion of certain other non-recurring gains and losses. Components of EBITDA are presented below:

EBITDA (in millions)	Three months ended June 28, 2002			Six months ended June 28, 2002
Net income	$	9.2		$	540.9
Reorganization items, net of tax of $23.7		—			48.4
Net gain in bankruptcy		—			(567.2	)

Net income, after adjustments for bankruptcy items		9.2			22.1
Taxes		12.3			24.9
Interest expense		7.5			13.2
Depreciation*		16.3			32.4
Normal profit		(15.7	)		(27.7	)

Total	$	29.6		$	64.9

On May 14, 2001, WGI 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 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, that provided 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.

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"). For a more detailed discussion, see our current report on Form 8-K filed January 4, 2002.

On January 25, 2002 (the "Effective Date"), we emerged from bankruptcy protection pursuant to our Plan of Reorganization. We also entered into a secured $350 million, 30-month revolving credit facility to fund our working capital requirements and obtained bonding capacity to take on new projects. Under our 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. Our new common stock currently trades in the over-the-counter market and is quoted on the NASD Bulletin Board under the ticker symbol "WGII." For a more detailed discussion, see our current report on Form 8-K filed February 8, 2002.

During the pendency of the bankruptcy cases, we continued to negotiate with Raytheon and RECI (collectively with Raytheon, 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 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 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 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 our emergence from bankruptcy protection, 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 our emergence from bankruptcy protection, 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 the settlement.

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.

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 protection is considered to be the close of business on February 1, 2002 for financial reporting purposes. The periods presented prior to February 1, 2002 have been designated "Predecessor Company" and the periods ending subsequent to February 1, 2002 have been designated "Successor Company."

These events are discussed in greater detail in Note 3, "Acquisition of Raytheon Engineers and Constructors," Note 4, "Reorganization Case and Fresh-start Reporting" of the Notes to Consolidated Financial Statements in Item 1 of this report and are discussed in our annual reports on Form 10-K for the fiscal years ended December 1, 2000 and November 30, 2001.

We have changed our fiscal year from a 52/53 week year ending on the Friday closest to the end of November to a 52/53 week year ending on the Friday closest to December 31. This change became effective on December 29, 2001.

During fiscal 2001, most of which was impacted first by the announcement of our problems with the RE&C acquisition and impending liquidity crisis, and by our filing for bankruptcy protection, we were able to book new work of $2,968.3 million. However, our backlog fell from $5,659.4 million at December 1, 2000 to $3,547.5 million at November 30, 2001. The reduction in backlog occurred because revenue recognized of $4,059.5 million in 2001 exceeded new work by approximately $1,091.2 million, and we reduced backlog by $1,020.6 million primarily because of the suspension of work on two power plants in Massachusetts ($800 million), the bankruptcy and liquidation of a foreign subsidiary company (see Note 4, "Reorganization Case and Fresh-start Reporting—Washington International B.V." of the Notes to Consolidated Financial Statements in Item 1 of this report) ($90 million), and the cancellation of a contract as a result of a revision of the client's capital expenditure program in our Industrial/Process operating unit ($90 million). Our Power and Infrastructure operating units were also impacted the most during this time because they were unable to book new large projects during the period of uncertainty.

It is important to note that during this period, no contracts of any significance were canceled by clients due to our financial difficulties, and in fact, many clients renewed or extended contracts or expanded the scope of existing contracts, which contributed significantly to the $2,968.3 million of new work booked.

While we were operating under the protection of the bankruptcy court, we continued both to integrate the RE&C business with WGI, and to restructure the way we do business to focus on our key markets and reduce the overall cost structure. The following major initiatives were undertaken during 2001:

These efforts culminated in a reduction of 1,283 salaried employees, which together with the office closings, are expected to reduce the overall cost structure by approximately $100 million when compared to 2001, most of which will result in improved gross profit from the operating units.

Of the twenty-three major RE&C projects that had significant contract adjustments, seven are now complete and five were eliminated in the insolvency proceedings of Washington International B.V. Of the remaining projects, six have undergone reformation of the contracts to terms and conditions that permitted us to continue working on the original project and five are continuing under the original terms and conditions. Five of the continuing projects are in the final stages of completion, and of the remainder, two are expected to be completed by the end of 2002 and the remaining projects in 2003.

Beginning on December 29, 2001, we changed the operating units of our business. The process technology development portion of our petroleum and chemicals business (the "Technology Center") is being held for sale and, together with the remainder of the Petroleum & Chemicals operating unit, has been combined with the Industrial/Process operating unit. The Infrastructure & Mining operating unit 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 emerged from Chapter 11 bankruptcy proceedings and implemented fresh-start reporting effective February 1, 2002. Accordingly, all assets and liabilities at the Effective Date were adjusted to reflect their respective fair values. The consolidated financial statements after that date are those of a new reporting entity and are not comparable to the pre-emergence periods. However, for purposes of this discussion, the five months ended June 28, 2002 (post-emergence) were combined with the month ended February 1, 2002 (pre-emergence) and reorganization items are presented as bankruptcy-related items, net of tax. The six months of fiscal 2001 is presented as the six months ended June 1, 2001. Due to the differing time periods covered in the second quarter and six months of each year and the bankruptcy occurring in the intervening period, the data is not

comparable. The following table is included solely for use in analysis of results of operations, and to complement management's discussion and analysis.

During the three months ended June 28, 2002, we recorded $720.4 million of new work awards; $244.6 million less than revenue recognized. The Power operating unit's new work of $342.9 million was primarily related to continuing work on four contracts originally obtained through the RE&C acquisition and then reformed during our bankruptcy. New work on these contracts resulted in an increase of $301.2 million in new work awards compared to the corresponding quarter's results in 2001. The Power operating unit's new work during the second quarter of 2001 was significantly impacted by the suspension of work on two power plant construction projects in Massachusetts on March 9, 2001 (see Note 3, "Acquisition of Raytheon Engineers and Constructors" of the Notes to Consolidated Financial Statements in Item 1 of this report) and by the subsequent filing for bankruptcy protection on May 14, 2001. During the first quarter of 2002, because we were uncertain about whether we would be retained to complete all of the remaining work on the four reformed contracts, the Power operating unit recorded new work awards only as revenue was actually generated. During the second quarter of 2002, it became apparent that we would be retained through completion of the projects and, therefore, we have recorded the remaining estimated work to complete those projects of $120 million.

The Infrastructure operating unit recorded $72.7 million in new work during the second quarter. $35.6 million of the new work resulted from engineering work orders and $19.2 million arose from contract modifications.

The Mining operating unit recorded $17.9 million in new work awards during the second quarter, resulting primarily from additions to current contracts.

The Industrial/Process operating unit recorded $92.3 million in new work awards during the second quarter from small awards on approximately 25 different contracts. This is a reflection of softness in the markets served by this operating unit, particularly the telecommunications market.

The Defense operating unit recognized $111.4 million in new work primarily from additions in chemical demilitarization and threat reduction markets.

The Energy & Environment operating unit recorded $81.6 million in new work during the second quarter. The new work was generated primarily from new work awards at EMD (a business held for sale) of $36.2 million, two environmental contracts and a variety of small commercial contracts.

Consolidated year-to-date new work awards were $1,687.5 million. The Power operating unit's new work was primarily related to continuing work on four reformed contracts obtained through the RE&C acquisition. The Mining operating unit recognized $55.4 million in new work, mostly on contract extensions and modifications.

The Industrial/Process operating unit new work awards of $261.4 million for 2002 year-to-date reflected the softness in the economies of their markets. The Defense operating unit recorded $276.0 million in contract additions and extensions, primarily to chemical demilitarization and threat reduction projects resulting from increased federal appropriations for such projects. The Energy & Environment operating unit recorded $256.0 million in new work during the six months ended June 28, 2002 generated primarily from new work awards at EMD (a business held for sale) of $110.5 million, two environmental contracts and a variety of small commercial contracts.

At June 28, 2002, backlog was $3,137.6 million, down $241.1 million from the beginning of the six month period. Backlog on government contracts includes only two years' worth of the portions of such contracts that are currently funded or which management is highly confident will be funded. The reported backlog excludes approximately $1,100.0 million of contracts in progress for work to be performed beyond the second quarter of 2004.

Revenue for the second quarter was $965.0 million. The Power operating unit's revenue was driven by continuing work on the four reformed contracts obtained through the RE&C acquisition. The pendency of the bankruptcy and the related difficulty in obtaining adequate bonding negatively affected the Infrastructure operating unit's ability to sell new work during 2001, particularly during the latter half of that year. Thus, revenue during the three months ended June 28, 2002 was primarily generated from existing backlog and only minor amounts were derived from new work awards. The Mining operating unit's revenue remained steady as work continued on long-term contracts. The Industrial/Process operating unit's revenue during the three months ended June 28, 2002 was impacted by a combination of the softening of the domestic and international economies, the downturn in the telecommunications market and the winding down of some significant projects that were not replaced during the pendency of our bankruptcy proceedings. The Defense operating unit's revenue for the three months ended June 28, 2002 was favorably impacted by increased scope requirements on four chemical demilitarization projects generating $14.8 million in revenue. Energy & Environment operating unit's second quarter revenue of $174.2 million includes $42.5 million from EMD (a business held for sale). Other significant sources of revenue include major U.S. Department of Energy ("DOE") projects and several environmental projects.

Revenue for the six months ended June 28, 2002 was $1,928.6 million. The revenue characteristics of the various operating units for the six month period are consistent with those for the second quarter, as described above.

Revenue for the three and six months ended June 1, 2001 was $958.1 million and $1,974.9 million, respectively. The Power operating unit recognized $157.1 million and $397.5 million during the three and six months, respectively. On March 9, 2001, we suspended work on two large power construction projects located in Massachusetts that were part of the acquisition of the RE&C businesses. Although we were subsequently retained to participate on these two projects, our role during the three and six months ended June 1, 2001 was significantly diminished. As a result, the Power operating unit's revenue during that period was reduced as well. The Infrastructure operating unit's revenue of $220.1 million and $450.4 million was generated predominantly by a dam and powerhouse project in the Philippines, highway construction projects and a light rail construction project. The Industrial/Process operating unit recognized $263.4 million and $512.8 million during the three and six months ended June 1, 2001, which included revenue from the operations of our Netherlands subsidiary. On June 21, 2001, our Netherlands subsidiary was liquidated. See Note 4, "Reorganization Case and Fresh-start Reporting - Washington International B.V." of the Notes to Consolidated Financial Statements in Item 1 of this report. Revenue of $138.7 million and $275.9 million during the three and six months ended June 1, 2001 recognized by the Defense operating unit was produced primarily by chemical demilitarization and projects in the United States and threat reduction projects in the former Soviet Union. The majority of revenue recognized by the Energy & Environment operating unit for the three and six months ended June 1, 2001 were generated by site management and operation projects for the U.S. Department of Energy.

Gross profit for the three and six months ended June 28, 2002 was $45.7 million and $91.4 million, respectively, and was driven by strong performance in the Power, Defense and Energy & Environment business units resulting from the sources of favorable revenue variances described above. Gross profit during the three and six months ended June 1, 2001 was impacted by the suspension of work on two power construction projects in Massachusetts that resulted in reductions in revenue and gross profit. As a result of restructuring efforts, overhead costs have been reduced in the Power, Industrial/Process, Defense and Energy & Environment operating units by a combined $37.0 million between the six months ended June 28, 2002 and the corresponding period in 2001. Included in gross profit is normal profit of $15.7 million and $27.7 million for the quarter and six months ended June 28, 2002, respectively, primarily related to Infrastructure projects.

Gross profit for the three and six months ended June 1, 2001 was $27.6 million and $71.2 million, respectively. The Power operating unit's gross profit reflects the effects of the work suspension on two power construction projects described above. Gross profit for these periods included $22.3 million and $52.8 million that was generated through recognition of normal profit, mostly in the Power, Infrastructure and Defense operating units.

General and administrative expenses for the three and six months ended June 28, 2002 were $11.5 million and $23.8 million and represent the executive and headquarters costs of supporting our operations. General and administrative expenses declined $3.6 million and $6.9 million for the three and six months ended June 28, 2002, respectively, from the comparable periods of 2001. The reduction was a result of the initiatives taken to reduce costs under our restructuring plan. We expect annual costs to be between $11.0 million and $12.0 million lower in 2002 than 2001, which were $56.9 million.

Goodwill amortization during 2001 was primarily due to the amortization of goodwill arising from the acquisition of the Westinghouse Businesses. Effective for our 2002 fiscal year, we ceased amortization of goodwill upon the adoption of SFAS No. 142, Goodwill and Other Intangible Assets.

Integration and merger costs were $12.4 million and $18.3 million for the three and six months ended June 1, 2001. These costs related to the integration of RE&C into our businesses and were principally comprised of incremental legal, accounting and consulting services. There were no such costs in 2002.

Investment income declined $2.4 million and $7.1 million for the three and six months ended June 28, 2002 from the comparable periods of 2001 as a result of lower interest rates combined with lower available cash balances for investment.

Interest expense declined $8.6 million and $23.5 million for the three and six months ended June 28, 2002 from the comparable periods in 2001. Interest expense for the second quarter of 2002 consists of $3.0 million of amortization of bank fees paid at the closing of the Senior Secured Revolving Credit Facility and $4.5 million of cash interest expense consisting primarily of letter of credit fees, commitment fees on undrawn and unissued funds, fronting fees and interest on funded debt.

Interest expense incurred during the three and six months ended June 1, 2001 principally consisted of interest incurred on outstanding borrowings under the RE&C Financial Facilities and Senior Unsecured Notes to fund substantial working capital requirements of the acquired RE&C contracts. We ceased accruing interest on the RE&C Financing Facilities and Senior Unsecured Notes upon our filing for relief under Chapter 11 of the U.S. Bankruptcy Code on May 14, 2001 since the lenders' claims were then subject to compromise. Contractual interest not recorded during the three and six months ended June 1, 2001 was $4.7 million.

Other income (expense), net for the six months ended June 28, 2002 of $2.2 million consisted primarily of a $2.8 million distribution received from the conversion of an insurance carrier that provides our employee long-term disability coverage from a mutual insurance company to a stock company. In connection with the demutualization, the distribution was received following the insurance company's initial public offering during the first quarter of 2002.

Other income (expense), net for the six months ended June 1, 2001 of $(6.0) million consisted primarily of a settlement of a legal claim for $(1.5) million, an impairment of an equity investment of $(2.0) million and reimbursement to Raytheon Company of $(2.5) million for transition costs incurred as a result of the acquisition of RE&C.

The effective tax rates for the one month ended February 1, 2002, the three months ended June 28, 2002 and the five months ended June 28, 2002 were 38.2%, 45.4% and 44.0%, respectively.

This compares to an effective tax rate of 27.8% for the three and six months ended June 1, 2001. The components of the effective tax rate for the various periods are shown in the table below:

	Successor Company		Predecessor Company		Successor Company		Predecessor Company
	Three months ended June 28, 2002		Three months ended June 1, 2001		Five months ended June 28, 2002		One month ended February 1, 2002		Six months ended June 1, 2001
Federal tax rate	35.0	%	35.0	%	35.0	%	35.0	%	35.0	%
State tax	5.0		5.5		4.3		2.8		5.5
Nondeductible items	3.6		(14.4	)	3.1		.4		(14.4	)
Foreign tax	1.8		(1.3	)	1.6		—		(1.3	)
Goodwill	—		3.0		—		—		3.0

Effective tax rate	45.4	%	27.8	%	44.0	%	38.2	%	27.8	%

When the effective tax rate is applied to a loss before taxes, a tax benefit results. In these periods, nondeductible expenses decrease the effective tax rate. When the effective tax rate is applied to income before taxes, a tax expense results. In these periods, nondeductible expenses increase the effective tax rate.

Income recognized upon the cancellation of debt in the bankruptcy restructuring was offset by a net operating loss ("NOL") carryover, capital loss carryover, federal tax credit carryovers, such as the alternative minimum tax credit, and reduction in the tax basis of depreciable and amortizable assets. Tax payments for 2002 and later years are anticipated to be substantially less than the related tax provision reported in the financial statements. While the NOL carryover for federal and state income taxes will be substantially utilized after 2002 as a result of the cancellation of debt in the bankruptcy restructuring, there will continue to be substantial tax deductions for goodwill amortization. Goodwill, for tax purposes, has a remaining 13.5-year life at the beginning of 2002, and annual amortization is expected to be at least $40.0 million. As a result, we do not expect to pay any federal income taxes during 2002.

Deferred tax assets such as the NOL carryover and certain tax credit carryovers were substantially utilized by the cancellation of debt recognized upon our emergence from bankruptcy. Deferred tax assets were also reduced because we adopted fresh-start accounting for financial reporting purposes. The main impact on deferred taxes as a result of fresh-start accounting was that the deferred tax asset that had been previously recorded for the difference between the financial reporting and the tax bases in goodwill was eliminated. This elimination and the other changes associated with fresh-start accounting reduced the net deferred tax assets by $193.8 million. The remainder of the change to deferred tax assets from the balance shown at the end of 2001 was associated with the cancellation of debt.

Minority interests in the income of consolidated subsidiaries for the three and six months ended June 28, 2002 increased $1.8 million and $5.1 million from the comparable periods of 2001 primarily due to an increase in income from the Westinghouse Businesses. The majority of our minority interests relates to BNFL's 40% ownership of our Westinghouse operations that are included in the Energy & Environment operating unit. Increases in income of our majority-owned subsidiaries cause an increase in the minority interest share of income from those operations. Likewise, decreases in income of our majority-owned subsidiaries cause a decrease in the minority interest share of income.

During the period ended February 1, 2002, we recognized, as part of fresh-start reporting, charges that aggregated $35.1 million for adjustments to reflect all assets and liabilities at their respective fair values. Other reorganization charges during the period ended March 29, 2002 totaled $37.0 million and represent mainly professional fees incurred in connection with the bankruptcy proceedings.

Reorganization items for the three and six months ended June 1, 2001 resulted in a net gain of $8.9 million consisting of a net gain of $31.9 million from the liquidation of Washington International B.V. located in The Hague, the Netherlands, $13.5 million of professional fees and other expenses related to the bankruptcy proceedings and $9.5 million of charges related to the impairment of assets of rejected projects.

During the first quarter of 2002, an extraordinary gain was recorded comprised of $1,460.7 million for the discharge of liabilities that resulted from our Plan of Reorganization, offset by new common stock and warrants issued of $550.0 million and income taxes of $343.5 million.

Revenue for the three and six months ended June 28, 2002 is derived primarily from continuing work on new power generation projects acquired as part of the RE&C businesses, steam generator replacement projects and operations and maintenance services contracts. Included in revenue for second quarter and year-to-date 2002 is approximately $141.8 million and $259.1 million, respectively, related to four power new generation projects purchased in the RE&C acquisition. These four projects were originally fixed- price contracts, but were converted (reformed) in December 2001 to cost reimbursable contracts and follow terms established as part of the Raytheon Settlement (see Footnote 3 - Acquisition of Raytheon Engineers and Constructors). Nearly all of the revenue recognized during 2001 for the respective periods was derived from fixed-price projects purchased through the RE&C acquisition. On March 9, 2001, we suspended work on two large construction projects located in Massachusetts that were a part of the acquisition of the RE&C businesses. Although we were subsequently retained to participate on these two projects, our role during the three and six months ended June 1, 2001 was significantly diminished. As a result, revenue during that period was reduced as well. In December 2001, we were re-engaged as the primary contractor on the two projects and related revenues increased in relative proportion to our increased role on the project through the three and six month periods ended June 28, 2002.

Included in operating income for 2002 is $4.7 million and $8.6 million for the respective periods that was derived from the four reformed contracts. Contract performance reserves for a steam generator replacement project were established during November 2001 and supplemented during the second quarter of 2002, offset by normal profit recognition of $2.4 million and $3.2 million for the three and six months ended, respectively. Operating income during the three and six months ended

June 1, 2001 was impacted by the suspension of work described above in similar proportion to the impact on revenue. In addition, the normal profit amortization included in operating income amounted to $10.1 million and $22.5 million for the three and six months ended June 1, 2001, respectively.

New work awards during the three and six months ended June 28, 2002 were attributable primarily to extensions and scope increases on existing contracts, predominantly on the four reformed contracts. During the first quarter of 2002, because we were uncertain about whether we would be retained to complete all of the remaining work on the four reformed contracts, we recorded new work awards only as revenue was actually generated. During the second quarter, it became apparent that we will be retained through completion of the projects and, therefore, we have recorded the remaining new work awards to complete those projects. In 2001, the low level of new awards reflected the uncertainty that existed at the time due to the bankruptcy filing. Thus, new work awarded during the three and six months ended June 28, 2002 increased significantly over the comparable periods in 2001.

The pendency of the bankruptcy and the related difficulty in obtaining adequate bonding negatively affected the Infrastructure operating unit's ability to sell new work during 2001, particularly during the latter half of that year. Thus, revenue during the three and six months ended June 28, 2002 was primarily generated from existing backlog and only minor amounts were derived from new work. Significant sources of revenue included a dam and power project in the Philippines, a light rail project in New Jersey, a variety of highway and other heavy construction work and engineering services projects.

Operating income for the three and six months ended June 28, 2002 showed good performance in engineering services and on international projects in the middle east, and included recognition of normal profit of $13.2 million and $23.2 million, respectively. However, operating income for the three and six months ended June 28, 2002 was impacted by recognition of contract value adjustments of $8.5 million on: two highway projects of $5.1 million, less minority interest of $1.7 million, $1.9 million on a light rail project and $7.5 million on a foreign dam and powerhouse project, which was partially offset by recognition of the remaining $6.0 million of normal profit. The three and six months ended June 1, 2001 included project losses of $3.4 million and recognition of normal profit of $7.2 million and $20.6 million, respectively.

New work awards during the three and six months ended June 28, 2002 were lower than anticipated and were impacted by our inability to qualify to participate as a bidder on some state and federal projects until post-bankruptcy audited financial statements could be made available. New work awards during the three and six months ended June 1, 2001 were impacted by our inability to obtain adequate bonding and the disclosure on March 2, 2001 of our near-term liquidity problems and our subsequent filing for bankruptcy protection. Post-bankruptcy audited financial statements are now available and bonding capacity has been restored, which will enable us to pursue large, fixed-price construction projects in our traditional markets.

Revenue during the three and six months ended June 28, 2002 was generated predominantly by mine projects and mine management contracts that existed during the prior year. On March 28, 2001, we purchased an additional 17% of MIBRAG mbH ("MIBRAG"), a coal mine operating in Germany, bringing our total ownership to 50%. The increase in ownership resulted in a corresponding increase in revenue during the three and six months ended June 28, 2002. Revenue during the three and six months ended June 1, 2001 was also positively affected by the additional ownership interest. The MIBRAG mining operations produced and delivered substantially more product during the three and six months ended June 28, 2002 than in the corresponding period in the prior year, however, the

revenue from the increased production was offset by revenue reductions related to a pricing disagreement with the Westmoreland mining venture and the cancellation of a contract due to the closure by a customer of a phosphate processing facility in Idaho. See Note 13, "Contingencies and Commitments—Other" of the Notes to Consolidated Financial Statements in Item 1 of this report.

MIBRAG generated $4.6 million and $11.0 million of operating income for the three and six months ended June 28, 2002, respectively. That represents approximately 72% and 85%, respectively, of the contract level profit generated by the Mining operating unit for those periods. MIBRAG's contribution in the corresponding periods of the prior year was similar, reflecting the impact of the additional investment beginning in late March 2001. Although revenue was down between the three and six months ended June 28, 2002 and the corresponding periods in 2001, operating income was equivalent between the quarters and increased between the six month periods. This improvement in margin percentage is attributable to the increase in the investment in MIBRAG. Because we recognize MIBRAG's revenue and profits on the equity method, project revenue and operating income are equal, which increases the overall profit margin for the entire operating unit.

The Mining operating unit's new work awarded during the three and six months ended June 28, 2002 was comprised of additions and extensions to existing contracts amounting to $13.9 million and $28.0 million, respectively, and $4.0 million and $27.4 million from new contracts, primarily from new work associated with the increased investment in MIBRAG and various new contract awards in the Powder River Basin in Wyoming.

The Industrial/Process operating unit's revenue during the three and six months ended June 28, 2002 was impacted by a combination of the softening of the domestic and international economies, the downturn in the telecommunications market and the winding down of some significant projects. Some sectors of the Industrial/Process operating unit's markets continue to be strong including automotive, gas processing and bio-pharmaceuticals. On June 21, 2001, our Netherlands subsidiary was liquidated, causing declines in the petroleum and chemicals businesses at that point in time. (See Note 4, "Reorganization Case and Fresh-start Reporting—Washington International B.V." of the Notes to Consolidated Financial Statements in Item 1 of this report.) The three and six month period ended June 1, 2001 contains the operations of Washington International B.V. prior to its liquidation. The effects of the economic slowdown occurred after that period; hence, revenue in 2002 declined 36% and 34% from corresponding periods in 2001.

Operating income for the three and six months ended June 28, 2002 was impacted by the same factors that impacted revenue. Reduced revenue was offset by significant reductions to overhead costs, including the closing of multiple offices, employee terminations and elimination of redundant costs. Operating income was also impacted by recognition of contract value adjustments of $2.5 million on an international methanol plant construction project. Finally, operating income during the three and six months ended June 28, 2002 was also impacted by the under-utilization of the operating unit's professional engineering staff.

As a result of the slowing economy, new work awarded during the three and six months ended June 28, 2002 was below historical results. Most of the new work was extensions and modifications to existing contracts. Biopharmaceutical and operations and maintenance experienced the most success in signing new work.

The Defense operating unit's revenue for the three and six months ended June 28, 2002 was favorably impacted by increases in funded scope requirements on four chemical demilitarization

projects. In addition, the scope of a reformed construction contract obtained through the RE&C acquisition was expanded and, as a result, continued beyond the expected completion period.

Chemical demilitarization contracts produced 76% of the unit's operating income during the three and six months ended June 28, 2002, benefiting from the scope expansions described above. Threat reduction projects contributed another 16%.

New work awarded during the three months ended June 28, 2002 was derived from scope increases on chemical demilitarization contracts, the reformed construction contract discussed above and threat reduction contracts.

During the three and six months ended June 28, 2002, the Energy & Environment operating unit recognized significant revenue on major DOE projects earlier in the year than in prior years. Historically, award fees on such projects were "back-end loaded," causing a significant portion of the profit for this operating unit to be recognized in the third and particularly the fourth quarters of the year. However, current contract terms provide for more evenly distributed notification and recognition of award fees throughout the year. EMD, a manufacturing subsidiary held for sale, and two environmental subcontracts also contributed $42.5 million and $85.9 million, respectively, to revenue performance during the three and six months ended June 28, 2002.

Operating income showed favorable trends, reflecting the increased revenue in both the three and six months ended June 28, 2002. Most of our major DOE projects are "agency" contracts, therefore, revenue increases benefit operating income nearly dollar for dollar. In addition, EMD and the two environmental subcontracts both contributed significant operating income. EMD generated $3.7 million and $11.1 million of the increase, major DOE projects generated $4.7 million and $7.6 million and the remainder was attributable to reduced overhead expenses.

EMD, a business held for sale, received $36.2 million and $110.5 million in new work awards during the three and six months ended June 28, 2002, respectively. A new environmental project generated new work awards of $13.7 million and $76.2 million during the same periods. In addition, commercial contract awards totaling $10.5 million and $20.9 million were recorded during the same periods.

For the three and six months ended June 1, 2001, operating costs included merger and integration costs of $12.4 million and $18.3 million, respectively, related to the RE&C acquisition. No merger and integration costs were incurred in 2002. Goodwill is not amortized in 2002 due to our adoption of SFAS No. 142 effective December 27, 2001.

New work for each operating unit, which represents additions to backlog for the period, is presented below:

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 six months ended June 28, 2002, we generated $31.3 million of net cash from our operating activities. Payments were made upon the emergence from bankruptcy of approximately $70 million on January 25, 2002 to fund up-front fees for the Senior Secured Revolving Credit Facility, payment to the secured lenders, creditors and insurance premiums. This was funded with available cash and an initial borrowing under the senior Secured Revolving Credit Facility of $40 million. Borrowings under the facility were reduced to zero by June 28, 2002.

Cash and cash equivalents decreased $37.9 million to $100.3 million at June 28, 2002 from $138.2 million at December 28, 2001. Cash of $64.9 million was restricted for use on the operations of our consolidated construction joint ventures, by projects having contractual cash restriction and our self-insurance programs.

At June 28, 2002, we had $129.8 million in letters of credit outstanding under the Senior Secured Revolving Credit Facility and no borrowings, leaving $220.2 million available for borrowings and letters of credit.

We expect to use cash to, among other things, fund working capital requirements and make capital expenditures. We anticipate capital expenditures for normal renewal and replacement will be approximately $25.0 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 $10.0 million during the balance of the year, with an additional $25.0 to $30.0 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 $500.0 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.

Backlog of all uncompleted contracts at June 28, 2002 was $3,137.6 million compared with $3,547.5 million at November 30, 2001. New work awarded in the three and six months ended June 28, 2002 totaled $720.4 million and $1,687.5 million compared with $553.1 million and $1,641.3 million for the three and six months ended June 1, 2001.

New work awarded in the three and six months ended June 28, 2002 related to businesses held for sale totaled $40.5 million and $123.6 million, respectively. Backlog for businesses held for sale at June 28, 2002 amounted to $291.2 million.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
(In millions of dollars)

Our exposure to market risk for changes in interest rates relates primarily to our short-term debt obligations. Our short-term investments, which are substantially all of our cash, consist primarily of highly liquid instruments with maturities of one month or less. Of total cash and cash equivalents at June 28, 2002 of $100.3 million, $64.9 million was restricted for use on the operations of our consolidated joint ventures, by projects having contractual cash restrictions and by our self-insurance programs.

From time to time, we effect borrowings under our Senior Secured Revolving Credit Facility or otherwise for general corporate purposes, including working capital requirements and capital expenditures. Borrowings under our Senior Secured Revolving Credit Facility bear interest at the applicable LIBOR or prime rate, plus an additional margin and, therefore, are subject to fluctuations in interest rates. As of June 28, 2002, we had no borrowings outstanding under our Senior Secured Revolving Credit Facility. As such, our exposure to interest rate risk was not significant.

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, in Germany. At June 28, 2002, the cumulative adjustments for translation gains net of related income tax expense were $6.4 million. 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.

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.

We also incorporate by reference the information regarding legal proceedings set forth under the caption "Reorganization case" in Note 4, "Reorganization Case and Fresh-start Reporting," and under the captions "Summitville environmental matters," "Other environmental matters" and "Other" in Note 13, "Contingencies and Commitments" of the Notes to Consolidated Financial Statements in Part I, Item 1, of this report.

Our reorganization case is "In re Washington Group International, Inc. and Related Cases, Docket No. BK-N 01-31627-GWZ, in the U.S. Bankruptcy Court for the District of Nevada. The litigation related to the matters discussed under the caption "Summitville environmental matters" in Note 13, "Contingencies and Commitments" of the Notes to Consolidated Financial Statements in Part I, Item 1, of this report refers to State of Colorado v. Sunoco, Inc. et. al., U.S. District Court for the District of Colorado, Civil Action No. 01-N-1, and United States v. Friedland v. Bechtel, et. al., U.S. District Court for the District of Colorado, Civil Action No. 96-N-1213, and Friedland v. Industrial Constructors Corp. and United States Guaranty Fidelity Co., U.S. District Court for the District of Montana, Civil Action No. DV-99-88448. The litigation with Leucadia National Corporation and MK Gold discussed under the caption "Other" in Note 13, "Contingencies and Commitments" of the Notes to Consolidated Financial Statements in Part I, Item 1 of this report refers to MK Gold Company v. Morrison Knudsen Corporation, Civil Action No. 2:96CV00935 and Leucadia National Corporation v. Morrison Knudsen Corporation, et. al., Civil Action No. 2:98CV0327S, both in the U.S. District Court for the District of Utah. The litigation related to the Old MK 401(k) Plan discussed under the caption "Other" in Note 13, "Contingencies and Commitments" of the Notes to Consolidated Financial Statements in Part I, Item 1 of this report refers to John B. Blyler, et. al., v. William J. Agee, et. al., Case No. CIV97-0332-S-BLW, in the U.S. District Court for the District of Idaho. The litigation related to Westmoreland Resources discussed under the caption "Other" in Note 13, "Contingencies and Commitments" of the Notes to Consolidated Financial Statements in Part I, Item 1 of this report refers to Westmoreland Resources, Inc. v. Morrison Knudsen Corporation, Case No. CV0041 BLG-JDS in the U.S. District Court for the District of Montana, Billings Division and Adversary Proceeding No. 02-5007 in our reorganization case pending in the U.S. Bankruptcy Court for the District of Nevada.

The Exhibits to this quarterly report on Form 10-Q are listed in the Exhibit Index contained elsewhere in this quarterly report.

On April 3, 2002, we filed a current report on Form 8-K dated March 25, 2002 announcing the appointment of several new members of the Board of Directors, replacing certain persons who served as interim directors, in accordance with our Plan of Reorganization.

On April 26, 2002, we filed a current report on Form 8-K dated April 19, 2002 reporting that on April 9, 2002, we filed a Notice of Identification of Director of the Board with the U.S. Bankruptcy Court for the District of Nevada designating Admiral William J. "Bud" Flanagan as the final member of the Board of Directors, effective on April 9, 2002.

On May 16, 2002, we filed a current report on Form 8-K dated May 13, 2002 announcing preliminary results for our first quarter of 2002. We also reported that we did not timely file our quarterly report on Form 10-Q for the quarter ended March 29, 2002 because we needed additional time to reflect the impact of our bankruptcy proceedings and reorganization in the financial statements and related disclosures required to be included in that report.

On May 21, 2002, we filed a current report on Form 8-K dated May 21, 2002 reporting that on May 21, 2002, members of our senior management team presented an overview of our business and market outlook for 2002 and beyond at the Credit Suisse First Boston Engineering and Construction Conference 2002. We also noted that a copy of the presentation materials was available on our website.

On June 3, 2002, we filed a current report on Form 8-K dated May 31, 2002 disclosing a letter issued from Stephen G. Hanks, our President and Chief Executive Officer, to our employees summarizing our first quarter results and describing our commitment to continue to secure new work.

On June 19, 2002, we filed a current report on Form 8-K dated June 18, 2002 reporting our new work bookings.

On June 24, 2002, we filed a current report on Form 8-K dated June 21, 2002 reporting that our Board of Directors declared a dividend distribution of one right for each share of our Common Stock outstanding at the close of business on July 15, 2002 pursuant to the terms of a Rights Agreement dated as of June 21, 2002. A summary description of the Rights Agreement was also disclosed.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Copies of exhibits will be provided upon request at a fee of $.25 per page requested.

		Successor Company			Predecessor Company			Successor Company			Predecessor Company
		Three months ended June 28, 2002			Three months ended June 1, 2001			Five months ended June 28, 2002			One month ended February 1, 2002			Six months ended June 1, 2001
Operating revenue		$	960,507		$	954,107		$	1,567,537		$	349,912		$	1,969,346
Equity in net income of mining ventures			4,493			3,953			8,066			3,109			5,563

Total revenue			965,000			958,060			1,575,603			353,021			1,974,909
Cost of revenue			(919,284	)		(930,463	)		(1,498,422	)		(338,792	)		(1,903,645	)

Gross profit			45,716			27,597			77,181			14,229			71,264
General and administrative expenses			(11,547	)		(15,129	)		(19,605	)		(4,180	)		(30,734	)
Goodwill amortization			—			(1,865	)		—			—			(7,206	)
Integration and merger costs			—			(12,424	)		—			—			(18,344	)
Restructuring charges			—			—			—			(625	)		—

Operating income (loss)			34,169			(1,821	)		57,576			9,424			14,980
Investment income			172			2,652			172			400			7,704
Interest expense (a)			(7,461	)		(16,124	)		(11,999	)		(1,193	)		(36,728	)
Other income (loss), net			132			(2,485	)		2,775			(563	)		(5,983	)

Income (loss) before reorganization items, income taxes, minority interests and extraordinary item			27,012			(17,778	)		48,524			8,068			(20,027	)
Reorganization items (Note 4)			—			8,919			—			(72,057	)		8,919
Income tax (expense) benefit			(12,260	)		2,464			(21,315	)		20,078			3,090
Minority interests in consolidated subsidiaries			(5,516	)		(3,704	)		(8,456	)		(1,132	)		(4,480	)

Income (loss) before extraordinary item			9,236			(10,099	)		18,753			(45,043	)		(12,498	)
Extraordinary item—gain on debt discharge, net of tax of $343,539 (Note 4)			—			—			—			567,193			—

Net income (loss)		$	9,236		$	(10,099	)	$	18,753		$	522,150		$	(12,498	)

Net income per share
	Basic and diluted	$	.37			— (b	)	$	.75			— (b	)		— (b	)

Common shares used
	Basic and diluted		25,000			— (b	)		25,000			— (b	)		— (b	)

	Successor Company					Predecessor Company
	June 28, 2002			February 1, 2002		November 30, 2001
	(Unaudited)			(Fresh-start)
ASSETS
Current assets
Cash and cash equivalents	$	100,271		$	128,201	$	128,315
Accounts receivable, including retentions of $26,867, $33,822 and $45,609		298,430			350,898		406,068
Unbilled receivables		157,632			195,869		197,339
Inventories		11,406			11,479		13,706
Refundable income taxes		984			2,924		2,524
Investments in and advances to construction joint ventures		38,674			46,820		54,723
Deferred income taxes		97,646			104,828		193,346
Assets held for sale		186,481			187,819		154,720
Other		35,389			43,572		52,305

Total current assets		926,913			1,072,410		1,203,046

Investments and other assets
Investments in mining ventures		78,391			68,700		83,792
Goodwill		395,489			402,352		176,108
Deferred income taxes		34,962			37,707		463,489
Other assets		38,181			43,551		42,967

Total investments and other assets		547,023			552,310		766,356

Property and equipment, at cost
Construction equipment		123,484			124,341		289,718
Land and improvements		5,427			5,746		5,146
Buildings and improvements		12,898			10,857		23,286
Equipment and fixtures		22,285			17,708		88,702

Total property and equipment		164,094			158,652		406,852
Less accumulated depreciation		(24,419	)		—		(235,859	)

Property and equipment, net		139,675			158,652		170,993

Total assets	$	1,613,611		$	1,783,372	$	2,140,395

	Successor Company				Predecessor Company
	June 28, 2002		February 1, 2002		November 30, 2001
	(Unaudited)		(Fresh-start)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and subcontracts payable, including retentions of $17,263, $17,164 and $11,751	$	193,654	$	227,638	$	180,621
Billings in excess of cost and estimated earnings on uncompleted contracts		198,892		266,875		110,826
Estimated costs to complete long-term contracts		82,976		98,564		77,685
Accrued salaries, wages and benefits, including compensated absences of $46,145, $42,775 and $9,989		112,551		130,476		70,793
Income taxes payable		559		516		249
Other accrued liabilities		98,299		129,742		72,156
Liabilities held for sale		121,045		119,361		114,736

Total current liabilities		807,976		973,172		627,066

Non-current liabilities
Long-term debt		—		40,000		—
Self-insurance reserves		50,697		46,536		20,337
Pension and post-retirement obligations		96,093		95,643		39,723
Other non-current liabilities		112		—		—

Total non-current liabilities		146,902		182,179		60,060

Liabilities subject to compromise (Note 4)		—		—		1,928,219

Contingencies and commitments

Minority interests		83,605		78,021		76,515

Stockholders' equity (deficit)
Preferred stock (Predecessor Company), par value $.01, 10,000 shares authorized		—		—		—
Common stock (Predecessor Company), par value $.01, authorized 100,000 shares; issued 54,486		—		—		545
Preferred stock (Successor Company), par value $.01, 10,000 shares authorized		—		—		—
Common stock (Successor Company), par value $.01, authorized 100,000 shares; issued 25,000		250		250		—
Capital in excess of par value		521,103		521,103		250,118
Stock purchase warrants (Predecessor Company)		—		—		6,550
Stock purchase warrants (Successor Company)		28,647		28,647		—
Retained earnings (accumulated deficit)		18,753		—		(764,656	)
Treasury stock (Predecessor Company), 2,019 shares, at cost		—		—		(23,192	)
Accumulated other comprehensive income (loss)		6,375		—		(20,830	)

Total stockholders' equity (deficit)		575,128		550,000		(551,465	)

Total liabilities and stockholders' equity (deficit)	$	1,613,611	$	1,783,372	$	2,140,395

			Successor Company			Predecessor Company
			Five months ended June 28, 2002			One month ended February 1, 2002			Six months ended June 1, 2001
Net income (loss)			$	18,753		$	522,150		$	(12,498	)
Reorganization items				—			36,979			8,919
Adjustments to reconcile net income (loss) to cash provided (used) by operating activities
	Reorganization items:
		Cash paid for reorganization items		(8,513	)		(38,248	)		(6,919	)
		Fresh-start adjustments		—			35,078			—
		Extraordinary item-gain on debt discharge		—			(567,193	)		—
	Depreciation of property and equipment			26,830			5,612			35,449
	Amortization of goodwill			—			—			7,206
	Amortization of prepaid loan fees			5,042			624			2,233
	Normal profit			(24,263	)		(3,518	)		(49,822	)
	Deferred income taxes			13,356			(10,109	)		(14,919	)
	Minority interests in income of consolidated subsidiaries			13,532			2,094			7,330
	Equity in net income of mining ventures less dividends received			(78	)		(3,109	)		12,365
	Gain on sale of assets, net			(769	)		(227	)		(4,083	)
	Gain on foreign entity bankruptcies, including cash forfeited of $7,185			—			—			(39,146	)
	Decrease (increase) in net operating assets and other			(17,354	)		24,719			(241,094	)

Net cash provided (used) by operating activities				26,536			4,852			(294,979	)

Investing activities
Property and equipment acquisitions				(11,947	)		(3,996	)		(20,553	)
Property and equipment disposals				5,429			4,168			9,746
Purchases of securities available for sale				—			—			(12,224	)
Sales and maturities of securities available for sale				—			—			51,347
Purchase of equity investment				—			—			(17,500	)

Net cash provided (used) by investing activities				(6,518	)		172			10,816

Financing activities
Payment on senior secured credit facilities				—			(20,000	)		—
Net payments on long-term revolving line of credit				—			—			(1,516	)
Financing and bonding fees				—			(34,749	)		—
Net borrowings (repayments) from credit agreement				(40,000	)		40,000			—
Distributions to minority interests				(7,948	)		(227	)		(8,278	)

Net cash used by financing activities				(47,948	)		(14,976	)		(9,794	)

Decrease in cash and cash equivalents				(27,930	)		(9,952	)		(293,957	)
Cash and cash equivalents at beginning of period				128,201			138,153			393,433

Cash and cash equivalents at end of period			$	100,271		$	128,201		$	99,476

Supplemental disclosure of cash flow information:
Interest paid			$	6,559		$	451		$	30,018
Income tax paid, net				687			975			4,837

			Successor Company		Predecessor Company			Successor Company		Predecessor Company
			Three months ended June 28, 2002		Three months ended June 1, 2001			Five months ended June 28, 2002		One month ended February 1, 2002		Six months ended June 1, 2001
Net income (loss)			$	9,236	$	(10,099	)	$	18,753	$	522,150	$	(12,498	)

Other comprehensive income, net of tax:
	Foreign currency translation adjustments			5,672		(5,183	)		6,375		80		(3,317	)
	Unrealized gains (losses) on marketable securities:
		Unrealized net holding gains arising during period		—		115			—		—		474
		Less reclassification adjustment for net gains realized in net income		—		(612	)		—		—		(861	)
	Amounts reclassified to net income in fresh-start reporting			—		—			—		20,268		—
	Derivatives designated as cash flow hedges:
		Cumulative effect of adoption of accounting principle		—		—			—		—		(1,161	)
		Deferred loss on foreign exchange and interest rate contracts		—		1,059			—		—		1,583

Other comprehensive income (loss), net of tax				5,672		(4,621	)		6,375		20,348		(3,282	)

Comprehensive income (loss)			$	14,908	$	(14,720	)	$	25,128	$	542,498	$	(15,780	)

Cost of revenue	$	(140,954	)
Impairment of assets		(4,685	)
Other		1,158

Total	$	(144,481	)

	Predecessor Company balance sheet February 1, 2002			Debt discharge			Fresh-start adjustments			Successor Company balance sheet February 1, 2002
Current assets
Cash and cash equivalents	$	147,450		$	(19,249	)(a)	$	—		$	128,201
Accounts receivable		351,316			—			(418	)(h)		350,898
Deferred income taxes		104,828			—			—			104,828
Assets held for sale		154,237			—			33,582	(i)		187,819
Other		310,242			—			(9,578	)(h)		300,664

Total current assets		1,068,073			(19,249	)		23,586			1,072,410

Non-current assets
Investments in mining ventures		88,968			—			(20,268	)(h)		68,700
Goodwill, Predecessor Company		174,909			—			(174,909	)(f)		—
Goodwill, Successor Company		—			—			402,352	(g)		402,352
Deferred income taxes		575,012			(343,539	)(b)		(193,766	)(k)		37,707
Property and equipment, net		161,241			—			(2,589	)(h)		158,652
Other assets		39,156			12,626	(c)		(8,231	)(h)		43,551

Total non-current assets		1,039,286			(330,913	)		2,589			710,962

Total assets	$	2,107,359		$	(350,162	)	$	26,175		$	1,783,372

Current liabilities
Accounts payable and subcontracts payable	$	191,609		$	35,960	(d)	$	69	(h)	$	227,638
Billings in excess of cost and estimated earnings on uncompleted contracts		87,201			170,573	(d)		9,101	(h)		266,875
Estimated costs to complete long-term contracts		75,252			23,887	(d)		(575	)(h)		98,564
Accrued salaries, wages and benefits		88,220			42,256	(d)		—			130,476
Other accrued liabilities		112,314			17,656	(d)		(228	)(h)		129,742
Liabilities held for sale		108,670			—			10,691	(i)		119,361
Income taxes payable		516			—			—			516

Total current liabilities		663,782			290,332			19,058			973,172

Non-current liabilities
Revolving credit facility		—			40,000	(a)		—			40,000
Self-insurance reserves		38,956			7,580	(d)		—			46,536
Pension and post-retirement obligations		32,132			75,633	(d)		(12,122	)(j)		95,643

Total non-current liabilities		71,088			123,213			(12,122	)		182,179

Liabilities subject to compromise		1,880,900			(1,880,900	)(d)		—			—

Minority interests		77,649			—			372	(h)		78,021

Stockholders' equity (deficit)
Common stock		545			250	(d)		(545	)(l)		250
Capital in excess of par value		250,118			521,103	(d)		(250,118	)(l)		521,103
Stock purchase warrants		6,550			28,647	(d)		(6,550	)(l)		28,647
Retained earnings (accumulated deficit)		(799,813	)		567,193	(e)		232,620	(l)		—
Treasury stock		(23,192	)		—			23,192	(l)		—
Accumulated other comprehensive income (loss)		(20,268	)		—			20,268	(l)		—

Total stockholders' equity (deficit)		(586,060	)		1,117,193			18,867			550,000

Total liabilities and stockholders' equity (deficit)	$	2,107,359		$	(350,162	)	$	26,175		$	1,783,372

Resolution of liabilities subject to compromise	Predecessor Company liabilities subject to compromise February 1, 2002		Liabilities compromised (debt discharged)			Cash paid at emergence			Successor Company liabilities not compromised February 1, 2002
Current liabilities
Accounts payable and subcontracts payable	$	63,827	$	(23,367	)	$	(4,500	)	$	35,960
Billings in excess of cost and estimated earnings on uncompleted contracts		181,446		(10,873	)		—			170,573
Estimated costs to complete long-term contracts		27,380		(3,493	)		—			23,887
Accrued salaries, wages and benefits		42,441		(185	)		—			42,256
Other accrued liabilities		489,110		(471,454	)		—			17,656

Total current liabilities		804,204		(509,372	)		(4,500	)		290,332

Non-current liabilities
Long-term debt, including accrued interest		888,899		(868,899	)		(20,000	)		—
Self-insurance reserves		97,036		(89,456	)		—			7,580
Pension and post-retirement obligations		77,781		(2,148	)		—			75,633
Environmental liabilities		3,970		(3,970	)		—			—
Other liabilities		9,010		(9,010	)		—			—

Total non-current liabilities		1,076,696		(973,483	)		(20,000	)		83,213

Total	$	1,880,900	$	(1,482,855	)	$	(24,500	)	$	373,545

	Successor Company
Combined financial position of construction joint ventures	June 28, 2002			February 1, 2002			Predecessor Company November 30, 2001
				(Fresh-start)
Current assets	$	180,766		$	195,557		$	223,376
Property and equipment, net		5,042			6,229			4,609
Current liabilities		(121,391	)		(111,620	)		(102,573	)

Net assets	$	64,417		$	90,166		$	125,412

	Successor Company			Predecessor Company			Successor Company			Predecessor Company
Combined results of operations of construction joint ventures	Three months ended June 28, 2002			Three months ended June 1, 2001			Five months ended June 28, 2002			One month ended February 1, 2002			Six months ended June 1, 2001
Revenue	$	103,913		$	147,606		$	274,644		$	43,721		$	337,180
Cost of revenue		(96,188	)		(138,229	)		(259,034	)		(42,419	)		(315,584	)

Gross profit	$	7,725		$	9,377		$	15,610		$	1,302		$	21,596

	Successor Company						Predecessor Company
Combined financial position of mining ventures	June 28, 2002			February 1, 2002			November 30, 2001
				(Fresh-start)
Current assets	$	174,432		$	145,827		$	175,403
Non-current assets		148,043			125,927			147,639
Property and equipment, net		436,324			381,161			483,662
Current liabilities		(68,223	)		(49,730	)		(76,931	)
Long-term debt, non-recourse to parents		(260,787	)		(226,431	)		(262,998	)
Other non-current liabilities		(257,088	)		(222,079	)		(249,005	)

Net assets	$	172,701		$	154,675		$	217,770

				Predecessor Company
	Successor Company Five months ended June 28, 2002			Predecessor Company
Combined results of operations of mining ventures	Successor Company Five months ended June 28, 2002			One month ended February 1, 2002			Six months ended June 1, 2001
Revenue	$	133,617		$	28,512		$	158,031
Costs and expenses		(117,452	)		(22,564	)		(139,830	)

Net income	$	16,165		$	5,948		$	18,201

	Successor Company		Predecessor Company		Successor Company		Predecessor Company
Total revenue	Three months ended June 28, 2002		Three months ended June 1, 2001		Five months ended June 28, 2002		One month ended February 1, 2002		Six months ended June 1, 2001
Power	$	269,504	$	157,127	$	433,295	$	85,551	$	397,510
Infrastructure		188,698		220,139		327,588		79,924		450,426
Mining		23,060		24,793		35,216		8,435		48,862
Industrial/Process		168,275		263,441		276,554		64,271		512,818
Defense		139,954		138,713		237,661		62,107		275,916
Energy & Environment		174,238		151,506		260,846		50,357		263,676

Total segments		963,729		955,719		1,571,160		350,645		1,949,208
Corporate and other		1,271		2,341		4,443		2,376		25,701

Total consolidated revenues	$	965,000	$	958,060	$	1,575,603	$	353,021	$	1,974,909

		Successor Company			Predecessor Company			Successor Company			Predecessor Company
Operating income (loss)		Three months ended June 28, 2002			Three months ended June 1, 2001			Five months ended June 28, 2002			One month ended February 1, 2002			Six months ended June 1, 2001
Gross profit (loss)
	Power	$	6,019		$	2,806		$	12,302		$	199		$	11,526
	Infrastructure		2,838			7,286			11,524			3,028			17,932
	Mining		6,386			6,350			9,852			3,209			9,615
	Industrial/Process		2,290			3,825			4,064			631			16,485
	Defense		6,568			7,384			10,143			1,956			14,319
	Energy & Environment		21,425			10,098			31,600			5,568			15,803
	Corporate and other		190			(10,152	)		(2,304	)		(362	)		(14,416	)

Total gross profit			45,716			27,597			77,181			14,229			71,264

Corporate general and administrative expense			(11,547	)		(15,129	)		(19,605	)		(4,180	)		(30,734	)

Goodwill amortization
	Power		—			—			—			—			—
	Infrastructure		—			—			—			—			—
	Mining		—			(67	)		—			—			(135	)
	Industrial/Process		—			(7	)		—			—			(14	)
	Defense		—			—			—			—			—
	Energy & Environment		—			(3,417	)		—			—			(6,833	)
	Corporate and other		—			1,626			—			—			(224	)

Total goodwill amortization			—			(1,865	)		—			—			(7,206	)

Integration and merger costs, corporate			—			(12,424	)		—			—			(18,344	)

Restructuring charges, corporate			—			—			—			(625	)		—

Operating income (loss)
	Power		6,019			2,806			12,302			199			11,526
	Infrastructure		2,838			7,286			11,524			3,028			17,932
	Mining		6,386			6,283			9,852			3,209			9,480
	Industrial/Process		2,290			3,818			4,064			631			16,471
	Defense		6,568			7,384			10,143			1,956			14,319
	Energy & Environment		21,425			6,681			31,600			5,568			8,970
	Corporate and other		(11,357	)		(36,079	)		(21,909	)		(5,167	)		(63,718	)

Total operating income (loss)		$	34,169		$	(1,821	)	$	57,576		$	9,424		$	14,980

			Three months ended						Six months ended
RESULTS OF OPERATIONS (In millions)			June 28, 2002			June 1, 2001			June 28, 2002			June 1, 2001
Backlog
	Beginning backlog		$	3,382.2		$	4,891.6		$	3,378.7		$	5,659.4
	New work			720.4			553.1			1,687.5			1,641.3
	De-bookings			—			(89.8	)		—			(929.0	)
	Revenue			(965.0	)		(958.1	)		(1,928.6	)		(1,974.9	)

Ending backlog			$	3,137.6		$	4,396.8		$	3,137.6		$	4,396.8

		Total revenue	$	965.0		$	958.1		$	1,928.6		$	1,974.9

Gross profit			$	45.7		$	27.6		$	91.4		$	71.2
General and administrative expenses				(11.5	)		(15.1	)		(23.8	)		(30.7	)
Goodwill amortization				—			(1.9	)		—			(7.2	)
Integration and merger costs				—			(12.4	)		—			(18.3	)
Restructuring charges				—			—			(.6	)		—

Operating income				34.2			(1.8	)		67.0			15.0
Investment income				.2			2.6			.6			7.7
Interest expense				(7.5	)		(16.1	)		(13.2	)		(36.7	)
Other income (loss), net				.1			(2.5	)		2.2			(6.0	)

Income (loss) before income taxes, minority interests and bankruptcy-related items				27.0			(17.8	)		56.6			(20.0	)
Income tax (expense) benefit				(12.3	)		8.4			(24.9	)		9.0
Minority interests in consolidated subsidiaries				(5.5	)		(3.7	)		(9.6	)		(4.5	)

Income (loss) before bankruptcy-related items				9.2			(13.1	)		22.1			(15.5	)
Reorganization items, net of tax				—			3.0			(48.4	)		3.0
Extraordinary item: debt discharge, net of tax				—			—			567.2			—

Net income (loss)			$	9.2		$	(10.1	)	$	540.9		$	(12.5	)

	Three months ended				Six months ended
Total revenue	June 28, 2002		June 1, 2001		June 28, 2002		June 1, 2001
Power	$	269.5	$	157.1	$	518.8	$	397.5
Infrastructure		188.7		220.1		407.5		450.4
Mining		23.1		24.8		43.7		48.9
Industrial/Process		168.3		263.5		340.8		512.8
Defense		140.0		138.7		299.8		275.9
Energy & Environment		174.2		151.6		311.2		263.7
Intersegment and other		1.2		2.3		6.8		25.7

Total revenue	$	965.0	$	958.1	$	1,928.6	$	1,974.9

	Three months ended				Six months ended
(In millions)	Three months ended				Six months ended
(In millions)	June 28, 2002		June 1, 2001		June 28, 2002		June 1, 2001
Power	$	342.9	$	41.7	$	526.4	$	208.8
Infrastructure		72.7		95.5		302.2		323.5
Mining		17.9		9.3		55.4		17.1
Industrial/Process		92.3		171.2		261.4		480.8
Defense		111.4		85.4		276.0		198.1
Energy & Environment		81.6		149.3		256.0		388.6
Other		1.6		.7		10.1		24.4

Total new work	$	720.4	$	553.1	$	1,687.5	$	1,641.3

		WASHINGTON GROUP INTERNATIONAL, INC.
		/s/ GEORGE H. JUETTEN George H. Juetten Executive Vice President and Chief Financial Officer, in his respective capacities as such

	Six months ended
Liquidity and capital resources (In millions)	June 28, 2002		June 1, 2001
Cash and cash equivalents
Beginning of period	$	138.2	$	393.4
End of period		100.3		99.5

	Six months ended
	June 28, 2002			June 1, 2001
Net cash provided (used) by:
Operating activities	$	31.3		$	(294.9	)
Investing activities		(6.3	)		10.8
Financing activities		(62.9	)		(9.8	)

Exhibit Number		Exhibits
4.1		Specimen certificate of WGI's Common Stock, as amended.*
4.2		Specimen certificate of WGI's Tranche A Warrants.*
4.3		Specimen certificate of WGI's Tranche B Warrants.*
4.4		Specimen certificate of WGI's Tranche C Warrants.*
10.1		Amendment No. 1 and Consent, dated as of June 28, 2002, to WGI's Credit Agreement dated as of January 24, 2002, among WGI, Credit Suisse First Boston, as administrative agent, collateral monitoring agent, lead arranger and book manager, ABLECO Finance LLC, as documentation agent, and certain lenders and issuers identified therein.*
99.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*