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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
QUARTERLY REPORT

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

August 31, 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

        At August 31, 2001, 52,468,791 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

WASHINGTON GROUP INTERNATIONAL, INC.
(Debtor-in-Possession)

Quarterly Report Form 10-Q for the

Quarter Ended August 31, 2001

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

WASHINGTON GROUP INTERNATIONAL, INC. (Debtor-in-Possession)

CONSOLIDATED STATEMENTS OF OPERATIONS

QUARTER AND NINE MONTHS ENDED AUGUST 31, 2001 AND SEPTEMBER 1, 2000

(In thousands except per share data)

(UNAUDITED)

(a)

Contractual interest expense not recorded during bankruptcy proceedings for the quarter and nine months ended August 31, 2001 was $22,586 and $27,299, respectively.

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

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WASHINGTON GROUP INTERNATIONAL, INC. (Debtor-in-Possession)

CONSOLIDATED BALANCE SHEETS

AT AUGUST 31, 2001 (UNAUDITED) AND DECEMBER 1, 2000

(In thousands except per share data)

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

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WASHINGTON GROUP INTERNATIONAL, INC. (Debtor-in-Possession)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED AUGUST 31, 2001 AND SEPTEMBER 1, 2000

(In thousands)

(UNAUDITED)

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

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WASHINGTON GROUP INTERNATIONAL, INC. (Debtor-in-Possession)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

QUARTER AND NINE MONTHS ENDED AUGUST 31, 2001 AND SEPTEMBER 1, 2000

(In thousands)

(UNAUDITED)

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

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WASHINGTON GROUP INTERNATIONAL, INC. (Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of dollars 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. On May 14, 2001, WGI and several but not all of its subsidiaries filed for Chapter 11 bankruptcy protection. See Note 4, "Reorganization Case and Fresh-start Reporting." 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 Government operating unit. On July 7, 2000, we purchased from Raytheon Company ("Raytheon") and Raytheon Engineers & Constructors International, Inc. ("RECI") the capital stock of the subsidiaries of RECI, and specified other assets of RECI and we assumed specified liabilities of RECI. The businesses that we purchased provide engineering, design, procurement, construction, operation, maintenance and other services on a worldwide basis. See Note 3, "Acquisition of Raytheon Engineers & Constructors."

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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 consolidated financial statements include the accounts of WGI and all of its majority-owned subsidiaries and certain construction joint ventures. Investments in non-consolidated construction joint ventures and mining ventures are accounted for 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 December 1, 2000. The comparative balance sheet and related disclosures at December 1, 2000 have been derived from the audited balance sheet and consolidated footnotes referred to above.

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

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

        Effective December 1, 1998, we adopted a 52/53 week fiscal year ending on the Friday closest to November 30.

        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

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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 7, "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

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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: