WASHINGTON GROUP INTERNATIONAL INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
ANNUAL REPORT

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

NOVEMBER 30, 2001

Commission File Number 1-12054

WASHINGTON GROUP INTERNATIONAL, INC.

A Delaware Corporation
IRS Employer Identification No. 33-0565601

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

SECURITIES REGISTERED AND NUMBER OF SHARES OF
REGISTRANT'S COMMON STOCK OUTSTANDING

At November 30, 2001, 52,468,900 shares of the registrant's $.01 par value
common stock were outstanding, and such common stock was traded in the
over-the-counter market and registered under Section 12(g) of the Securities
Exchange Act of 1934 (the "Exchange Act"). Such common stock was formerly listed
on the New York Stock Exchange and registered under Section 12(b) of the
Exchange Act. On May 14, 2001, the New York Stock Exchange suspended trading of
such common stock, and on July 6, 2001 such common stock was delisted by the New
York Stock Exchange. Upon such delisting, the common stock was traded in the
over-the-counter market and was registered under section 12(g) of the Exchange
Act. Pursuant to the Second Amended Joint Plan of Reorganization of Washington
Group International, Inc., et al., as modified and confirmed, on January 25,
2002, all of the registrant's existing equity securities, including such common
stock, were deemed canceled and extinguished, and new common stock was issued.
At May 31, 2002, 25,000,000 shares of the registrant's $.01 par value common
stock were outstanding; such common stock is traded in the over-the-counter
market and is registered under 12(g) of the Exchange Act.

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

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

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

AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY NONAFFILIATES
At November 30, 2001, the aggregate market value of the registrant's common
stock held by nonaffiliates of the registrant, based on the over-the-counter
market closing bid price on November 30, 2001, as reported by the Pink Sheets
quotation service, was approximately $1,836,000. The aggregate market value of
the registrant's common stock held by nonaffiliates of the registrant, based on
the over-the-counter closing bid price on May 31, 2002, as reported by the Pink
Sheets(R) quotation service, was approximately $576,250,000. No shares are
assumed to be held by affiliates of the registrant on such dates for purposes of
these calculations.

DOCUMENTS INCORPORATED BY REFERENCE
None.

WASHINGTON GROUP INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED NOVEMBER 30, 2001

TABLE OF CONTENTS

NOTE REGARDING FORWARD-LOOKING INFORMATION

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

o OUR BUSINESS STRATEGY AND COMPETITIVE ADVANTAGES

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

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

o OUR EXPECTATIONS AS TO NEW WORK AND BACKLOG

o THE MARKETS FOR OUR SERVICES AND PRODUCTS

o OUR ANTICIPATED CAPITAL EXPENDITURES AND FUNDING REQUIREMENTS

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

o SATISFY THE RESTRICTIVE COVENANTS IMPOSED BY OUR INDEBTEDNESS

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

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

o MANAGE AND AVOID DELAYS OR COST OVERRUNS IN EXISTING CONTRACTS

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

o SUCCESSFULLY NEGOTIATE CLAIMS AND CHANGE ORDERS

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

o NEGOTIATE ACCEPTABLE COLLECTIVE BARGAINING AGREEMENTS WITH ANY
APPLICABLE UNIONS

o RESPOND TO COMPETITORS IN OUR EXISTING AND PLANNED MARKETS

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

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

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o REALIZE ANTICIPATED REDUCTIONS IN OVERHEAD AND OTHER COSTS

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

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

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

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

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

o MAINTENANCE OF GOVERNMENT-COMPLIANT COST SYSTEMS.

SUBSEQUENT EVENTS

The deadline to timely file this report was February 28, 2002. On March 7,
2002, we filed a current report on Form 8-K announcing that we did not file this
report by the prescribed due date because we needed additional time to prepare
the consolidated financial statements and related disclosures required to be
included herein.

On March 16, 2001, we announced that, if we were unable to obtain
additional sources of cash, we may seek protection from our creditors under the
U.S. Bankruptcy Code. On March 8, 2001, we announced that, as a result of a
rigorous review of projects acquired in connection with our acquisition of the
capital stock of certain subsidiaries of Raytheon Engineers & Constructors
International, Inc. ("RECI") from RECI and Raytheon Company ("Raytheon" and,
together with RECI, the "Sellers"), we believed that certain historical
financial statements and unaudited pro forma condensed combined financial
statements, which were previously filed as exhibits to a current report on Form
8-K filed July 13, 2000, should not be relied upon. For a more detailed
discussion, see our current report on Form 8-K filed March 8, 2001, and for
additional discussion of the transactions with the Sellers and their
consequences, see "The Raytheon Transaction" in Item 1 of this report. The
businesses that we purchased, hereinafter called "RE&C", provide engineering,
design, procurement, construction, operation, maintenance and other services on
a worldwide basis.

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

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

Shortly after the commencement of the bankruptcy cases, the committee
representing our secured lenders and Dennis R. Washington began negotiations
regarding Mr. Washington's continued involvement with us during the bankruptcy
cases and after our emergence from bankruptcy protection. The result of these
negotiations was an

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

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

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

On January 25, 2002 (the "Effective Date"), the Debtors emerged from
bankruptcy protection pursuant to our Plan of Reorganization. We also entered
into a $350 million, 30-month revolving credit facility to fund our working
capital requirements and obtained bonding capacity to take on new projects.
Under 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. For a more detailed
discussion, see our current reports on Form 8-K filed February 8, 2002.

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

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

Under the Raytheon Settlement, the Sellers waived any rights to
distributions under the Plan of Reorganization arising from the claims they
had asserted against the Debtors, and the Debtors agreed to dismiss the
fraudulent conveyance adversary proceeding they filed with the bankruptcy
court and the pending state court litigation against the Sellers related to
our purchase of certain of the businesses of RECI, including a purchase price
adjustment process and a pending arbitration. We released all claims based on
any act occurring prior to the

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

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

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

We have changed our fiscal year from a 52/53 week year ending on the Friday
closest to November 30 to the Friday ending closest to December 31. This change
became effective on December 29, 2001.

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

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

These events are discussed in greater detail in Note 3, "Acquisitions" and
Note 4, "Reorganization Case and Fresh-start Reporting" of the Notes to
Consolidated Financial Statements in Item 8 of this report and in our annual
report on Form 10-K for the fiscal year ended December 1, 2000, which is being
filed contemporaneously with this report.

PART I

ITEM 1. BUSINESS

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

Except as otherwise indicated, the information in this report is
presented as of and for the periods ended November 30, 2001 and does not
reflect our reorganization, which occurred after our fiscal year ended
November 30, 2001, or the impact of our reorganization. Thus, although much
of the information in this report is stated in the present tense, unless
otherwise indicated, that information is not or may not be representative of
our current business, properties, legal proceedings or financial position.
Because of the material impact of the reorganization on our business and
financial statements, the information in this report is of limited relevance
and does not include, except by reference to our subsequent filings with the
Securities and Exchange Commission under the Securities Exchange Act of 1934
that are identified in this report, the information that is required for an

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understanding of our current business, financial condition, prospects and
outlook. Accordingly, this report should be read in conjunction with the
various reports we have filed with the Securities and Exchange Commission
under the Securities Exchange Act of 1934 since November 30, 2001 and, in
particular, our quarterly report on Form 10-Q for the quarter ended March 29,
2002, which is being filed contemporaneously with this report.

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

GENERAL

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

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

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

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

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

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

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

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

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

o Under a "cost-type" contract, a customer reimburses us for the costs
that we incur (primarily materials, labor, overhead and subcontractor
services), plus a predetermined fee. The fee portion of the contract
may

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equal a percentage of the costs incurred or may be based on the
achievement of specific performance incentives. The fee portion may
also be subject to a maximum. Engineering, construction management and
environmental and hazardous substance remediation contracts, including
most of our work for U.S. government customers, are typically awarded
pursuant to a cost-type contract.

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

BACKGROUND

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

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

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

THE RAYTHEON TRANSACTION

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

The purchase price paid at the closing of the acquisition on July 7,
2000 was $53 million in cash and the assumption of net liabilities originally
estimated at $450 million. We also incurred acquisition costs of $7.7
million. The cash portion of the purchase price paid at closing was
determined based upon a formula contained in the Stock Purchase Agreement and
represented the estimated amount of the Adjusted Non-Current Net Assets and
Adjusted Net Working Capital (as the terms are defined in the Stock Purchase
Agreement) that we acquired, 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 to either pay the
Sellers or to be paid by the Sellers, the net amount of cash the Sellers
either advanced to or withdrew from RE&C between April 30, 2000 and July 7,
2000. After closing, we paid the Sellers $84.4 million representing the net
amount of cash advanced or paid by the Sellers for the use or benefit of RE&C
between April 30, 2000 and July 7, 2000.

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

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

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

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

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

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

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

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

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

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

I-8

liabilities related to these 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 entered into the Raytheon
Settlement.

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

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

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

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

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

I-9

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

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

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

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

Of the 23 major RE&C projects that had significant contract adjustments
discussed above, 7 are now complete and 5 were eliminated in the insolvency
proceedings of Washington International B.V. See Note 4, "Reorganization Case
and Fresh-start Reporting - Washington International B.V." of the Notes to
Consolidated Financial Statements in Item 8 of this report. Of the remaining
projects, 6 have undergone reformation of the contracts to terms and conditions
that permitted us to continue working on the original project and 5 are
continuing under the original terms and conditions. Most of the projects will be
completed by the end of 2002, and the remaining projects in 2003.

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

I-10

OPERATING UNITS

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

POWER

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

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

INFRASTRUCTURE & MINING

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

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

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

I-11

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

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

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

INDUSTRIAL/PROCESS

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

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

GOVERNMENT

Our Government operating unit provides products and services primarily to
U.S. government customers in the national defense, nonproliferation,
environmental cleanup, nuclear waste management and hazardous material
stabilization markets. Its services span the entire life cycle of its customers'
needs - from design, construction and operation of facilities through their
eventual decontamination, decommissioning and final environmental remediation.
Through its Electro-Mechanical Division, the operating unit designs and
manufactures pumps, valves, generators and propulsion units for the U.S. Navy's
nuclear-powered fleet. Almost all of this operating unit's revenues are from
contracts with the federal government, with the Department of Defense and the
Department of Energy accounting for about 71% of its revenues.

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

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

I-12

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

PETROLEUM & CHEMICALS

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

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

GOVERNMENT CONTRACTS AND BACKLOG

Government contracts are a significant part of our business. For example,
the U.S. government accounted for 24% of our consolidated operating revenues in
2001. Allowable costs under U.S. government contracts are subject to audit by
the government. To the extent that these audits result in determinations that
costs claimed as reimbursable are not allowable costs or were not allocated in
accordance with federal regulations, we could be required to reimburse the
government for amounts previously received. We also have a number of U.S.
government contracts which extend beyond one year and for which government
funding has not yet been approved. All U.S. government contracts and some
foreign contracts are subject to unilateral termination at the option of the
customer.

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

Backlog at November 30, 2001 totaled $3.5 billion compared with December 1,
2000 backlog of $5.7 billion. Approximately $1.1 billion of the backlog at
November 30, 2001 was comprised of U.S. government contracts that are subject to
termination by the government, $463 million of which had not been funded.
Terminations for the convenience of the government generally provide for
recovery of contract costs and related earnings.

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

I-13

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

COMPETITION

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

EMPLOYEES

Our total worldwide employment varies widely with the volume, type and
scope of operations under way at any given time. At November 30, 2001, we
employed over 34,000 employees. Approximately 22% of the employees are covered
either by one of our regional collective bargaining agreements, which expire
between June 2001 and September 2006, or by a project specific collective
bargaining agreement, each of which expires upon completion of the relevant
project.

RAW MATERIALS

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

ENVIRONMENTAL MATTERS

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

We are subject to risks of liability under federal, state and local
environmental laws and regulations, as well as common law. These laws and
regulations and the risk of attendant litigation can cause significant delays to
a project and add significantly to its cost. Violations of these laws and
regulations could subject us to civil and criminal penalties and other
liabilities, including liabilities for property damage, costs of investigation
and cleanup of hazardous or toxic substances on property currently or previously
owned by us or arising out of our current and past remediation, waste management
and contract mining activities.

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

I-14

RISK FACTORS

We are subject to a number of risks, including those enumerated below. Any
or all of these risks could have a material adverse effect on our business,
financial condition, results of operations and cash flows and on the market
price of our securities. See also "Note Regarding Forward-looking Information."

THE DOCUMENTS GOVERNING OUR INDEBTEDNESS RESTRICT OUR ABILITY AND THE ABILITY OF
SOME OF OUR SUBSIDIARIES TO ENGAGE IN SOME BUSINESS TRANSACTIONS.

In connection with our emergence from bankruptcy protection, we entered
into exit financing facilities (the "Senior Secured Revolving Credit Facility")
providing for an aggregate of $350 million of revolving borrowing and letter of
credit capacity. The credit agreement governing the Senior Secured Revolving
Credit Facility restricts our ability and the ability of some of our
subsidiaries to, among other things:

o incur or guarantee additional indebtedness;

o declare or pay dividends on, redeem or repurchase capital stock;

o restrict the payment of dividends or other distributions or the ability
to transfer assets or make loans between us and some of our
subsidiaries;

o make investments;

o incur or permit to exist liens;

o enter into transactions with affiliates;

o make material changes in the nature or conduct of our business;

o merge or consolidate with, acquire substantially all of the stock or
assets of other companies;

o transfer, sell assets; and

o engage in sale-leaseback transactions.

The Senior Secured Revolving Credit Facility also contains other covenants
that are typical for credit facilities of this size, type and tenor, such as
requirements that we meet specified financial ratios and financial condition
tests. Our ability to make additional borrowings under the Senior Secured
Revolving Credit Facility otherwise depends upon satisfaction of these
covenants. Our ability to meet these covenants and requirements may be affected
by events beyond our control.

Our failure to comply with obligations under the Senior Secured Revolving
Credit Facility could result in an event of default under the facility. A
default, if not cured or waived, could permit acceleration of our indebtedness.
We cannot be certain that we will be able to remedy any default. If our
indebtedness is accelerated, we cannot be certain that we will have funds
available to pay the accelerated indebtedness or that we will have the ability
to refinance the accelerated indebtedness on terms favorable to us or at all.

WE ARE ENGAGED IN HIGHLY COMPETITIVE BUSINESSES AND MUST TYPICALLY BID AGAINST
COMPETITORS TO OBTAIN ENGINEERING, CONSTRUCTION AND SERVICE CONTRACTS.

We are engaged in highly competitive businesses in which customer contracts
are typically awarded through competitive bidding processes. We compete with
other general and specialty contractors, both foreign and

I-15

domestic, including large international contractors and small local contractors.
Some competitors have greater financial and other resources than we do that, in
some instances, could give them a competitive advantage over us.

STRIKES, WORK STOPPAGES AND THE LIKE, AS WELL AS RESULTING INCREASES IN
OPERATING COSTS WOULD HAVE A NEGATIVE IMPACT ON OUR OPERATIONS AND RESULTS.

We are party to several regional collective bargaining agreements which
expire between June 2001 and September 2006, and several project-specific
collective bargaining agreements, each of which expires upon completion of the
relevant project. Our inability to negotiate acceptable collective bargaining
agreements with any of the unions could result in strikes, work stoppages or
increased operating costs as a result of higher union wages or benefits. If the
unionized workers engage in a strike or other work stoppage, or other employees
become unionized, we could experience a significant disruption of our operations
and ongoing higher labor costs, which could adversely affect our businesses,
financial position or results of operations. See "Employees" in Part I of this
report.

OUR SUCCESS DEPENDS ON ATTRACTING AND RETAINING QUALIFIED PERSONNEL IN A
COMPETITIVE ENVIRONMENT.

We are dependent upon our ability to attract and retain highly qualified
managerial, technical and business development personnel. Competition for key
personnel is intense. We cannot be certain that we will retain our key
managerial, technical and business development personnel or that we will attract
or assimilate key personnel in the future.

ECONOMIC DOWNTURNS AND REDUCTIONS IN GOVERNMENT FUNDING COULD HAVE A NEGATIVE
IMPACT ON OUR BUSINESSES.

Demand for the services offered by us has been, and is expected to continue
to be, subject to significant fluctuations due to a variety of factors beyond
our control, including economic conditions. During economic downturns, the
ability of both private and governmental entities to make expenditures may
decline significantly. We cannot be certain that economic or political
conditions generally will be favorable or that there will not be significant
fluctuations adversely affecting the industry as a whole or key markets targeted
by us. In addition, our operations are in part dependent upon government
funding. Significant changes in the level of government funding of these
projects could have an unfavorable impact on our operating results.

OUR FIXED-PRICE CONTRACTS SUBJECT US TO THE RISK OF INCREASED PROJECT COST.

Our fixed-price contracts involve risks relating to our inability to
receive additional compensation in the event the costs of performing those
contracts proves to be greater than anticipated. Our cost of performing the
contracts may be greater than anticipated due to uncertainties inherent in
estimating contract completion costs, contract modifications by customers
resulting in claims, failure of subcontractors and joint venture partners to
perform and other unforeseen events and conditions. Approximately 58% or
$2,046.6 million of our backlog is fixed-price or fixed-unit-price contracts.
Any one or more of these risks could result in reduced profits or increased
losses on a particular contract or contracts.

THE U.S. GOVERNMENT CAN AUDIT AND DISALLOW CLAIMS FOR COMPENSATION UNDER OUR
GOVERNMENT CONTRACTS, AND CAN TERMINATE THOSE CONTRACTS WITHOUT CAUSE.

Government contracts, primarily with the U.S. Departments of Energy and
Defense, are, and are expected to be, a significant part of our business. The
U.S. government accounted for approximately 24% of our consolidated revenues in
2001. Allowable costs under government contracts are subject to audit by the
U.S. government. To the extent that these audits result in determinations that
costs claimed as reimbursable are not allowable costs or were not allocated in
accordance with federal government regulations, we could be required to
reimburse the U.S. government for amounts previously received. If we were to
lose and not replace our revenues generated by one or more of the U.S.
government contracts, our businesses, financial condition, results of operations
and cash flows could be adversely affected.

I-16

We have a number of contracts and subcontracts with agencies of the U.S.
government, principally for environmental remediation and restoration work,
which extend beyond one year and for which government funding has not yet been
approved. We cannot be certain that funding will be approved. All contracts with
agencies of the U.S. government and some commercial and foreign contracts are
subject to unilateral termination at the option of the customer. In the event of
a termination, we would not receive projected revenues or profits associated
with the terminated portion of those contracts.

OUR BUSINESSES INVOLVE MANY PROJECT-RELATED AND CONTRACT-RELATED RISKS.

Our businesses are subject to a variety of project-related risks, including
changes in political and other circumstances, particularly since contracts for
major projects are performed over extended periods of time. These risks include
the failure of applicable governing authorities to take necessary actions,
opposition by third parties to particular projects and the failure to obtain
adequate financing for particular projects. Due to these factors, losses on a
particular contract or contracts could occur, and we could experience
significant changes in operating results on a quarterly or annual basis.

We also may be adversely affected by various risks and hazards, including
industrial accidents, labor disputes, geological conditions, environmental
hazards, weather and other natural phenomena such as earthquakes and floods.

OUR INTERNATIONAL OPERATIONS INVOLVE SPECIAL RISKS.

We pursue project opportunities internationally through foreign and
domestic subsidiaries as well as through agreements with foreign joint venture
partners. Our international operations accounted for 15.8% of our revenues in
2001. Our foreign operations are subject to special risks, including:

o unstable political, economic, financial and market conditions;

o potential incompatibility with foreign joint venture partners;

o foreign currency controls and fluctuations;

o trade restrictions;

o restrictions on repatriating foreign profits back to the United States;

o increases in taxes;

o civil disturbances; and

o changes in labor conditions, labor strikes and difficulties in staffing
and managing international operations.

Events outside of our control may limit or disrupt operations, restrict the
movement of funds, result in the deprivation of contract rights, increase
foreign taxation or limit repatriation of earnings. In addition, in some cases,
applicable law and joint venture or other agreements may provide that each joint
venture partner is jointly and severally liable for all liabilities of the
venture.

WE COULD BE SUBJECT TO LIABILITY UNDER ENVIRONMENTAL LAWS.

We are subject to a variety of environmental laws and regulations
governing, among other things, discharges to air and water, the handling,
storage and disposal of hazardous or solid waste materials and the
remediation of

I-17

contamination associated with releases of hazardous substances. These laws
and regulations and the risk of attendant litigation can cause significant
delays to a project and add significantly to its cost. Violations of these
environmental laws and regulations could subject us and our management to
civil and criminal penalties and other liabilities. These laws and
regulations may become more stringent, or be more stringently enforced, in
the future.

Various federal, state and local environmental laws and regulations, as
well as common law, may impose liability for property damage and costs of
investigation and cleanup of hazardous or toxic substances on property
currently or previously owned by us or arising out of our waste management
activities. These laws may impose responsibility and liability without regard
to knowledge of or causation of the presence of the contaminants. The
liability under these laws is joint and several. We have potential
liabilities associated with our past waste management and contract mining
activities and with our current and prior ownership of various properties.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Contingencies and Commitments."

OUR STOCKHOLDER RIGHTS PLAN, OUR ORGANIZATIONAL DOCUMENTS, SOME OF OUR
AGREEMENTS AND PROVISIONS OF DELAWARE LAW COULD INHIBIT A CHANGE IN CONTROL.

We are subject to various restrictions and other requirements that may
have the effect of delaying, deterring or preventing a change in control of
us, such as:

o our stockholder rights plan;

o provisions in our certificate of incorporation and bylaws;

o some of our agreements, including the disbursing agreement that we
entered into in connection with our emergence from bankruptcy; and

o once it applies to us, Section 203 of the Delaware General Corporation
law.

On June 21, 2002, our board of directors approved a stockholder rights
plan. Under this plan, each share of our common stock is accompanied by a
right that entitles the holder of that share, upon the occurrence of
specified events that may be intended to effect a change in control, to
purchase either additional shares of our common stock or shares of an
acquiring company's common stock at a price equal to one-half of the current
market price of the relevant shares.

A number of provisions in our certificate of incorporation and bylaws
also may make a change in control more difficult, including, among others,
provisions relating to a classified board of directors, removal of directors
only for cause, the elimination of our stockholders' ability to fill
vacancies on the board of directors and to call special meetings and
supermajority stockholder amendments. In addition, our certificate of
incorporation authorizes the issuance of up to 100 million shares of our
common stock and 10 million shares of our preferred stock. Our board of
directors has the power to determine the price and terms under which
additional capital stock may be issued and to fix the terms of preferred
stock. Existing shareholders will not have preemptive rights with respect to
any of those shares.

On the Effective Date, we issued 5,000,000 shares of our common stock to
a disbursing agent for the benefit of unsecured creditors in our bankruptcy.
As of June 19, 2002, an initial distribution of 461,505 shares of our common
stock was made to various unsecured creditors. Pending the distribution of
the remaining shares to the unsecured creditors, the disbursing agreement
requires the disbursing agent to vote the shares held by the disbursing agent
as recommended by our board of directors, unless the reorganization plan
committee established in connection with our bankruptcy directs it to vote
the shares in proportion to the votes cast and abstentions claimed by all
other stockholders eligible to vote on the particular matter.

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Section 203 of the Delaware General Corporation Law, which generally
limits the ability of major stockholders to engage in specified transactions
with us that may be intended to effect a change in control, is not currently
applicable to us. It will become applicable to us as soon as our common stock
is listed on a national securities exchange or authorized for quotation on
Nasdaq or we have more than 2,000 stockholders.

THE SIGNIFICANT DEMANDS ON OUR CASH RESOURCES COULD AFFECT OUR ABILITY TO
ACHIEVE OUR BUSINESS PLAN.

We have substantial demands on our cash resources in addition to
operating expenses and interest expense, principally capital expenditures.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Financial Condition and Liquidity."

Our ability to fund working capital requirements will depend upon our
future operating performance which, in turn, will be affected by prevailing
economic conditions and financial, business and other factors, many of which
are beyond our control. If we are unable to fund our businesses, we will be
forced to adopt an alternative strategy that may include:

o reducing or delaying capital expenditures;

o limiting our growth;

o seeking additional debt financing or equity capital;

o selling assets; or

o restructuring or refinancing our indebtedness.

We cannot assure you that any of these strategies could be effected on
favorable terms or at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial Condition and
Liquidity."

THERE IS NO ORGANIZED TRADING MARKET FOR OUR COMMON STOCK.

At present, our common stock is not eligible to be listed on a national
stock exchange or quoted on a national quotation system. As a result, there
is no organized trading market for our common stock. We intend to apply for
the listing or quotation of our common stock on a national stock exchange or
national quotation system as soon as possible after all of the relevant
listing requirements are met. However, we can give no assurance that we will
be successful in having our common stock listed on an exchange or quoted on a
quotation system. In the event that we are unable to cause any of our common
stock to be so listed or quoted, the liquidity of our common stock would be
materially impaired and holders of our common stock may be forced to bear the
economic risk of their investment for an indefinite period of time.

WE MAY BE SUBJECT TO ADDITIONAL RISKS ASSOCIATED WITH OUR RECENT EMERGENCE
FROM BANKRUPTCY.

Our recent emergence from bankruptcy does not assure our continued
success, and the effect, if any, which the bankruptcy may have on our future
operations cannot be accurately predicted or quantified. We are engaged in
highly competitive businesses in which customer contracts are typically
awarded through competitive bidding processes, and winning new work and new
customers is vital to our success. In addition, on some projects,
particularly those of significant size and requiring specialized technology
or know-how, we partner with other companies, both to increase our
opportunity to win the contract and to manage development and execution risk.
For some projects, if we cannot find a suitable partner on satisfactory
terms, we will not be able to pursue the project on our own. The adverse
publicity of our recent bankruptcy could impair our ability to attract new
customers, win new work from existing customers and establish partnerships
and joint ventures with other

I-19

companies on favorable terms. Any of these circumstances would adversely
affect our ability to compete and could have a material adverse effect on our
businesses, financial condition, results of operations and cash flows.

WE MAY BE UNABLE TO OBTAIN ADEQUATE BONDING TO BID ON NEW WORK.

In line with industry practice, we are often required to provide
performance and surety bonds to customers under fixed-price contracts. These
bonds indemnify the customer should we fail to perform our obligations under
the contract. If a bond is required for a particular project and we are
unable to obtain an appropriate bond, we cannot pursue that project. We have
an existing bonding facility with an aggregate capacity of $500 million, but
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. There can be no assurance that
bonds will continue to be available on reasonable terms. Our inability to
obtain adequate bonding and, as a result, to bid on new work could have a
material adverse effect on our businesses, financial condition, results of
operations and cash flows.

ITEM 2. PROPERTIES

We do not own significant real property for operations other than
certain land and improvements in Highland and Petaluma, California and
Cheswick, Pennsylvania. Our principal administrative office facilities
located in Boise, Idaho, Cleveland, Ohio, Aiken, South Carolina, Denver,
Colorado and Princeton, New Jersey, are leased under long-term, noncancelable
leases expiring in 2003, 2010, 2011, 2005 and 2013, respectively. At November
30, 2001, we owned more than 7,300 units of heavy and light mobile
construction, environmental remediation and contract mining equipment. We
consider our construction, environmental remediation and mining equipment and
leased administrative and engineering facilities to be well maintained and
suitable for our current operations.

As of November 30, 2001, our principal facilities were as follows:

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

ITEM 3. LEGAL PROCEEDINGS

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

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

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

I-21

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

We submitted no matters to a vote of our stockholders during the fourth
quarter of 2001.

I-22

PART II

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

MARKET INFORMATION

Prior to May 14, 2001, our common stock traded on the New York Stock
Exchange under the ticker symbol "WNG." On May 14, 2001, the New York Stock
Exchange suspended trading of our common stock and on July 6, 2001, our
common stock was delisted by the New York Stock Exchange. Upon such
delisting, our common stock traded in the over-the-counter market, as
reported by the Pink Sheets(R) quotation service, under the ticker symbol
"WNGXQ." At the close of business on November 30, 2001, we had 52,468,900
shares of common stock issued and outstanding.

The following table sets forth the high and low prices per share of our
common stock for each quarterly period within 2000 and 2001:

- ----------------------
(1) Unless otherwise indicated, all prices are the New York Stock Exchange
composite high and low sales prices per share of our common stock.
(2) The high price is the New York Stock Exchange composite high sales price
per share of our common stock, and the low price is the low
over-the-counter closing bid price per share of our common stock, as
reported buy the Pink Sheets(R) quotation service.
(3) The high and low prices are the high and low over-the-counter closing bid
prices per share of our common stock, as reported by the Pink Sheets(R)
quotation service. The over-the-counter quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.

HOLDERS

The number of record holders of our voting common stock at November 30,
2001 was approximately 1,321. This number does not include beneficial owners
of our common stock held in the name of a nominee.

DIVIDENDS

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

RECENT SALES OF UNREGISTERED EQUITY SECURITIES

We did not sell any unregistered equity securities during 2001.

II-1

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

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

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

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

II-2

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

RESULTS OF OPERATIONS

CONSOLIDATED OPERATIONS

OVERVIEW

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

WGI is a global engineering and construction company serving clients
through five operating units: Power, Infrastructure & Mining,
Industrial/Process, Government and Petroleum & Chemicals. See "Business
- --Operating Units" in Item 1 of this report for a thorough description of the
segments.

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

II-3

During 2001, numerous factors impacted our results of operations, but
the largest factor was our dispute with the Sellers surrounding the RE&C
acquisition that led to our bankruptcy filing on May 14, 2001. See Note 4,
"Reorganization Case and Fresh-start Reporting" of the Notes to Consolidated
Financial Statements in Item 8 of this report. The bankruptcy adversely
impacted our ability to win new contracts. However, it also enabled us to
relieve ourselves of significant liabilities in the form of debt, warranty
obligations, lease obligations, and obligations on contracts acquired from
the Sellers.

The following are our most significant accounting terms and policies:

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

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

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

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

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

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

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

With respect to award fees associated with U.S. government contracts, we
recognize an estimated award fee based on historical performance until the
client has confirmed the final award fee at year-end. This approach can

II-4

result in significant amounts of profit recognition in the fourth quarter on
projects in our Government operating unit. Performance-based incentive fees
are recognized when actually awarded by the client.

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

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

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

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

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

CHANGE ORDERS AND CLAIMS are common on construction contracts when
changes occur once contract performance is underway. These changes are to be
documented and terms agreed with the client before the work is performed.
Also, costs may be incurred in addition to amounts originally estimated under
the assumption that the customer will agree to pay for such additional costs.
Change orders are included in total estimated contract revenue when it is
probable that the change order will result in a bona fide addition to
contract value and can be reliably estimated. If it is probable that the
change order will result in the contract price exceeding the related costs
incurred, that the excess over cost can be reliably estimated and if
realiza