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TABLE OF CONTENTS

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q
QUARTERLY REPORT

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

For the Quarter Ended September 27, 2002

Commission File Number 1-12054

WASHINGTON GROUP INTERNATIONAL, INC.

A Delaware Corporation

IRS Employer Identification No. 33-0565601

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

        At September 27, 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. ý Yes    o No

        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. ý Yes    o No

WASHINGTON GROUP INTERNATIONAL, INC.
Quarterly Report on Form 10-Q for the
Quarter Ended September 27, 2002

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

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.

(a)

Contractual interest expense not recorded during bankruptcy proceedings for the one month ended February 1, 2002 and the three and nine months ended August 31, 2001 was $7,090, $22,586 and $27,299, respectively.

(b)

Net income (loss) per share is not presented for these periods, as it is not meaningful because of the revised capital structure of the Successor Company.

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

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.

1.    DESCRIPTION OF THE BUSINESS

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

        We are an international provider of a broad range of design, engineering, construction, construction management, facilities and operations management, environmental remediation and mining services to diverse public and private sector clients, including (i) engineering, construction and operations and maintenance services in nuclear and fossil power markets; (ii) diverse engineering and construction and construction management services for the highway and bridge, airport and seaport, dam, tunnel, water resource, railway and commercial building markets; (iii) engineering, design, procurement, construction and construction management services to industrial companies; (iv) contract mining, technical and engineering services for the metals, precious metals, 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.

2.    BASIS OF PRESENTATION

        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, 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.

3.    ACQUISITION OF RAYTHEON ENGINEERS & CONSTRUCTORS

        On July 7, 2000, pursuant to a stock purchase agreement dated April 14, 2000 (the "Stock Purchase Agreement"), we purchased from Raytheon and RECI (collectively with Raytheon, the "Sellers") the capital stock of the subsidiaries of RECI and specified other assets of RECI, and we assumed specified liabilities of RECI. The businesses that we purchased, hereinafter called "RE&C", provide engineering, design, procurement, construction, operation, maintenance and other services on a worldwide basis. We financed the acquisition by obtaining new senior secured 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 the normal profit reserve and decreases in cost of revenue for the periods indicated are as follows:

        An audited RE&C April 30, 2000 balance sheet was not delivered by 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 made adjustments for amounts that were recorded as part of and subsequent to the initial, preliminary purchase price allocation, as a result of additional information we obtained that supported our contention that some of the July 7, 2000 balances were materially misstated based on generally accepted accounting principles and were, therefore, included in our purchase price adjustment arbitration claim against the Sellers. In the lawsuits and arbitration claim referred to above, we asserted that the Sellers should have recorded these as adjustments in the RE&C financial statements prior to the acquisition. The adjustments primarily relate to provisions for anticipated losses on fixed-price contracts that were not recorded in the RE&C financial statements prior to the acquisition. We recorded these amounts as a $444,055 arbitration claim receivable from the Sellers. However, as noted above, under the terms of the Raytheon Settlement, we subsequently agreed to dismiss all litigation against the Sellers related to the acquisition and to discontinue the purchase price adjustment and binding arbitration process. Therefore, we wrote off the receivable from the Sellers as an asset impairment during 2000.



•

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

        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:

        Of the twenty-three major RE&C projects that had significant contract adjustments discussed above, nine 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 three are continuing under the original terms and conditions. Five of the continuing projects are in the final stages of completion.

        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:

        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 nine months ended August 31, 2001, those costs were $17,649. There were no material amounts during the three months ended August 31, 2001.

4.    REORGANIZATION CASE AND FRESH-START REPORTING

Reorganization case

        On May 14, 2001, because of severe near-term liquidity issues, WGI and several but not all of its direct and indirect 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 order of the bankruptcy court confirming our Plan of Reorganization was the subject of two appeals filed by three of our former unsecured creditors. These appeals have been dismissed by the U.S. District Court for the District of Nevada. The appellants may appeal the dismissals to the Ninth Circuit Court of Appeals. None of the appellants sought to stay the implementation of our Plan of Reorganization as part of its appeal. We believe that the outcomes of these proceedings, individually and collectively, will not have a material adverse effect on our business, financial condition, results of operations or cash flows.

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

        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:

•

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



•

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



•

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



•

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



•

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



•

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



•

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

unsecured creditors and to determine each unsecured creditor's pro rata share of shares and warrants. The warrants consist of three tranches, as follows:

•

Specified members of management and designated employees were granted nonqualified stock options pursuant to a management option plan to purchase an aggregate total of 1,389 shares of the New Common Stock, subject to dilution, with a term of 10 years and a strike price of $24.00 per share. One-third of the stock options vested on the Effective Date, one-third will vest on the first anniversary of the Effective Date and the final third will vest on the second anniversary of the Effective Date. In addition, options to purchase another 1,389 shares of the New Common Stock may be granted after the Effective Date at strike prices to be established by our board of directors.



•

The chairman of our board of directors, Mr. Dennis R. Washington, was granted three tranches of stock options to purchase shares of New Common Stock. The first tranche expires five years after the Effective Date. The remaining tranches expire four years after the Effective Date. One-third of each tranche vested on the Effective Date, one-third of each tranche will vest on the first anniversary of the Effective Date and the final third of each tranche will vest on the second anniversary of the Effective Date. However, all options immediately vest if Mr. Washington is removed from his position as chairman for reasons other than death or disability or if we undergo a change of control. We also agreed with Mr. Washington that our amended certificate of incorporation and bylaws would permit his accumulation of up to 40% of the fully diluted shares of New Common Stock in open market or privately negotiated transactions, including exercise of the stock options, and that we would take no action inconsistent with those provisions. The number of shares and respective strike prices for each tranche are as follows:

•

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



•

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

        On January 25, 2002, we entered into the Senior Secured Revolving Credit Facility to fund our working capital requirements. The Senior Secured Revolving Credit Facility bears variable interest at 5.5% above LIBOR 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. $18,037 in letters of credit remain outstanding from previous credit facilities until they expire, primarily in 2002.

Washington International B.V.

        As a result of our filing for protection under Chapter 11 of the U.S. Bankruptcy Code, the board of directors of Washington International B.V., one of our wholly-owned subsidiaries located in The

Hague, the Netherlands ("BV"), determined that BV would have insufficient funds to continue operations in the same manner as it had prior to our bankruptcy filing. The determination was made based on the existing financial condition of BV and the fact that our DIP Facility contained terms that prohibited the additional commitment of our resources for BV operations.

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

        Following discussions with the interested parties, it became clear that a sale of the business was not feasible. On June 21, 2001, the trustee transformed the suspension of 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. Although formal liquidation procedures related to Washington International B.V., the insolvent Dutch subsidiary, began on June 21, 2001, the fact that our DIP Facility contained terms that prohibited the additional commitment of our resources for the subsidiary's operations made its eventual liquidation inevitable. Therefore, the effect of the liquidation was recognized as of May 29, 2001 when a suspension of payments with respect to Washington International B.V. was ordered under Dutch law.

        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

        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.

Reorganization items

        Reorganization items include the following:

        During the three months ended September 27, 2002, we recognized a charge of $3,543 related to additional professional fees in connection with various bankruptcy related issues.

Fresh-start reporting

        As of February 1, 2002, we adopted fresh-start reporting pursuant to the guidance provided by the American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code. In connection with the adoption of fresh-start reporting, a new entity has been created for financial reporting purposes. The effective date of our emergence from bankruptcy is considered to be the close of business on February 1, 2002 for financial reporting purposes. In the tables below, the periods presented through February 1, 2002 have been designated "Predecessor Company" and the period ending subsequent to February 1, 2002 has been designated "Successor Company."

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

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

•

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



•

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

•

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

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

Debt discharge:

(a)

Reflects payment of $24,500 in payments to creditors under the Plan of Reorganization and $34,749 in deferred financing costs for the Senior Secured Revolving Credit Facility and deferred bonding fees. These emergence costs necessitated a $40,000 draw under the Senior Secured Revolving Credit Facility.

(b)

Records the effect of income taxes on the gain from debt discharge. The discharge of liabilities in bankruptcy is a taxable event. The pre-tax gain reported for financial statement purposes is

$910,732. Our net operating loss carryforward, certain tax credit carryforwards and a portion of tax basis of goodwill and depreciable assets were utilized to offset the tax obligation arising on the discharge of liabilities.

(c)

Reflects the write-off of $22,123 in fees on the RE&C Financing Facilities and the Senior Unsecured Notes, and the payment of $34,749 of deferred financing costs for the Senior Secured Revolving Credit Facility and deferred bonding fees.

(d)

Of the $1,880,900 of liabilities subject to compromise:

•

We retained $373,545 of unsecured liabilities, and $4,500 was paid at emergence.



•

We exchanged $926,288 in unsecured obligations for 5,000 shares of New Common Stock and 8,520 warrants. The unsecured obligations include $300,000 of Senior Unsecured Notes and approximately $415,000 related to specified Power operating unit projects that were subject to guarantees by the Sellers. See Note 3, "Acquisitions—Acquisition of Raytheon Engineers & Constructors."



•

We exchanged $576,567 in secured obligations, including accrued interest, for 20,000 shares of New Common Stock, and $20,000 in cash paid on the Effective Date.

(e)

Reflects the gain on debt discharge of $1,460,732, less the value of New Common Stock and warrants issued of $550,000, net of income taxes of $343,539.

Fresh-start adjustments:

(f)

Reflects the reclassification of Predecessor Company goodwill.

(g)

Records goodwill for value in excess of amounts allocable to identifiable assets.

(h)

Records adjustments to reflect assets and liabilities at fair market values.

(i)

Adjusts to reflect the assets and liabilities of businesses held for sale at their estimated realizable values.

(j)

Adjusts pension plan and post-employment obligations to recognize unrealized actuarial gains and losses.

(k)

Reflects the elimination of the deferred tax assets related to the remaining basis differences between book and tax goodwill of the Predecessor Company. This goodwill will continue to be amortized by the Successor Company over the remaining 13.5 year period for tax purposes. Also records adjustments to deferred tax assets and liabilities resulting from the adjustments to reflect assets and liabilities at fair value.

(l)

Records the cancellation of Predecessor Company common stock and elimination of retained earnings.

        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: