WASHINGTON GROUP INTERNATIONAL INC - 10-Q Quarterly Report

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TABLE OF CONTENTS

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q
QUARTERLY REPORT

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

For the Quarter Ended September 27, 2002

Commission File Number 1-12054

WASHINGTON GROUP INTERNATIONAL, INC.

A Delaware Corporation

IRS Employer Identification No. 33-0565601

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

At September 27, 2002, 25,000,000 shares of the registrant's $.01 par value common stock were outstanding.

The registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and has been subject to such filing requirements for the past 90 days. ý Yes o No

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

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

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
PART I
Item 1. Consolidated Financial Statements and Notes Thereto
		Statements of Operations for the Three Months Ended September 27, 2002 and August 31, 2001, Eight Months Ended September 27, 2002, One Month Ended February 1, 2002 and Nine Months Ended August 31, 2001
		Balance Sheets at September 27, 2002, February 1, 2002 and November 30, 2001
		Condensed Statements of Cash Flows for the Eight Months Ended September 27, 2002, One Month Ended February 1, 2002 and Nine Months Ended August 31, 2001
		Statements of Comprehensive Income (Loss) for the Three Months Ended September 27, 2002 and August 31, 2001, Eight Months Ended September 27, 2002, One Month Ended February 1, 2002 and Nine Months Ended August 31, 2001
		Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

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

		Successor Company			Predecessor Company			Successor Company			Predecessor Company
		Three months Ended September 27, 2002			Three months ended August 31, 2001			Eight months ended September 27, 2002			One month ended February 1, 2002			Nine months ended August 31, 2001
Operating revenue		$	903,733		$	981,386		$	2,471,270		$	349,912		$	2,950,732
Equity in net income of mining ventures			1,482			4,180			9,548			3,109			9,743

Total revenue			905,215			985,566			2,480,818			353,021			2,960,475
Cost of revenue			(858,018	)		(967,580	)		(2,356,440	)		(338,792	)		(2,871,225	)

Gross profit			47,197			17,986			124,378			14,229			89,250
General and administrative expenses			(11,103	)		(13,056	)		(30,708	)		(4,180	)		(43,790	)
Goodwill amortization			—			(3,826	)		—			—			(11,032	)
Integration and merger costs			—			695			—			—			(17,649	)
Restructuring charges			—			—			—			(625	)		—

Operating income			36,094			1,799			93,670			9,424			16,779
Investment income			228			773			400			400			8,477
Interest expense(a)			(7,346	)		(10,293	)		(19,345	)		(1,193	)		(47,021	)
Other income (expense), net			(83	)		(551	)		2,692			(563	)		(6,534	)

Income (loss) before reorganization items, income taxes, minority interests and extraordinary item			28,893			(8,272	)		77,417			8,068			(28,299	)
Reorganization items (Note 4)			(3,543	)		(30,508	)		(3,543	)		(72,057	)		(21,589	)
Income tax (expense) benefit			(11,485	)		10,788			(32,800	)		20,078			13,878
Minority interests in consolidated subsidiaries			(4,593	)		(4,414	)		(13,049	)		(1,132	)		(8,894	)

Income (loss) before extraordinary item			9,272			(32,406	)		28,025			(45,043	)		(44,904	)
Extraordinary item—gain on debt discharge, net of tax of $343,539 (Note 4)			—			—			—			567,193			—

Net income (loss)		$	9,272		$	(32,406	)	$	28,025		$	522,150		$	(44,904	)

Net income per share
	Basic and diluted	$	.37			—(b	)	$	1.12			—(b	)		—(b	)

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

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

(a): Contractual interest expense not recorded during bankruptcy proceedings for the one month ended February 1, 2002 and the three and nine months ended August 31, 2001 was $7,090, $22,586 and $27,299, respectively.
(b): Net income (loss) per share is not presented for these periods, as it is not meaningful because of the revised capital structure of the Successor Company.

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

	Successor Company					Predecessor Company
	September 27, 2002			February 1, 2002 (Fresh-start)		November 30, 2001
ASSETS
Current assets
Cash and cash equivalents	$	127,570		$	128,201	$	128,315
Accounts receivable, including retentions of $24,241, $33,822 and $45,609		289,659			350,898		406,068
Unbilled receivables		153,305			195,869		197,339
Inventories		10,702			11,479		13,706
Refundable income taxes		598			2,924		2,524
Investments in and advances to construction joint ventures		43,491			46,820		54,723
Deferred income taxes		82,615			104,828		193,346
Assets held for sale		188,070			187,819		154,720
Other		27,860			43,572		52,305

Total current assets		923,870			1,072,410		1,203,046

Investments and other assets
Investments in mining ventures		79,613			68,700		83,792
Goodwill		391,372			402,352		176,108
Deferred income taxes		47,487			37,707		463,489
Other assets		31,713			43,551		42,967

Total investments and other assets		550,185			552,310		766,356

Property and equipment, at cost
Construction equipment		121,646			124,341		289,718
Land and improvements		5,950			5,746		5,146
Buildings and improvements		12,359			10,857		23,286
Equipment and fixtures		23,930			17,708		88,702

Total property and equipment		163,885			158,652		406,852
Less accumulated depreciation		(37,918	)		—		(235,859	)

Property and equipment, net		125,967			158,652		170,993

Total assets	$	1,600,022		$	1,783,372	$	2,140,395

	Successor Company				Predecessor Company
	September 27, 2002		February 1, 2002 (Fresh-start)		November 30, 2001
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and subcontracts payable, including retentions of $14,720, $17,164 and $11,751	$	178,532	$	227,638	$	180,621
Billings in excess of cost and estimated earnings on uncompleted contracts		158,052		266,875		110,826
Estimated costs to complete long-term contracts		100,406		98,564		77,685
Accrued salaries, wages and benefits, including compensated absences of $45,255, $42,775 and $9,989		138,666		130,476		70,793
Income taxes payable		668		516		249
Other accrued liabilities		88,794		129,742		72,156
Liabilities held for sale		123,176		119,361		114,736

Total current liabilities		788,294		973,172		627,066

Non-current liabilities
Long-term debt		—		40,000		—
Self-insurance reserves		52,158		46,536		20,337
Pension and post-retirement obligations		99,393		95,643		39,723
Other non-current liabilities		113		—		—

Total non-current liabilities		151,664		182,179		60,060

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

Contingencies and commitments

Minority interests		75,764		78,021		76,515

Stockholders' equity (deficit)
Preferred stock (Predecessor Company), par value $.01, 10,000 shares authorized		—		—		—
Common stock (Predecessor Company), par value $.01, authorized 100,000 shares; issued 54,486		—		—		545
Preferred stock (Successor Company), par value $.01, 10,000 shares authorized		—		—		—
Common stock (Successor Company), par value $.01, authorized 100,000 shares; issued 25,000		250		250		—
Capital in excess of par value		521,103		521,103		250,118
Stock purchase warrants (Predecessor Company)		—		—		6,550
Stock purchase warrants (Successor Company)		28,647		28,647		—
Retained earnings (accumulated deficit)		28,025		—		(764,656	)
Treasury stock (Predecessor Company), 2,019 shares, at cost		—		—		(23,192	)
Accumulated other comprehensive income (loss)		6,275		—		(20,830	)

Total stockholders' equity (deficit)		584,300		550,000		(551,465	)

Total liabilities and stockholders' equity (deficit)	$	1,600,022	$	1,783,372	$	2,140,395

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

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

			Successor Company			Predecessor Company
			Eight months ended September 27, 2002			One month ended February 1, 2002			Nine months ended August 31, 2001
Net income (loss)			$	28,025		$	522,150		$	(44,904	)
Reorganization items				3,543			36,979			21,589
Adjustments to reconcile net income (loss) to cash provided (used) by operating activities
	Reorganization items:
		Cash paid for reorganization items		(12,295	)		(38,248	)		(21,125	)
		Fresh-start adjustments		—			35,078			—
		Extraordinary item-gain on debt discharge		—			(567,193	)		—
	Depreciation of property and equipment			38,715			5,612			54,415
	Amortization of goodwill			—			—			11,032
	Amortization of prepaid loan fees			8,066			624			11,474
	Normal profit			(25,703	)		(3,518	)		(68,860	)
	Deferred income taxes			20,034			(10,109	)		(23,490	)
	Minority interests in income of consolidated subsidiaries			21,519			2,094			14,580
	Equity in net income of mining ventures less dividends received			(1,561	)		(3,109	)		8,158
	Gain on sale of assets, net			(225	)		(227	)		(7,289	)
	Cash forfeited on bankruptcy of foreign subsidiary			—			—			(7,185	)
	Decrease (increase) in net operating assets and other			(7,582	)		24,719			(167,357	)

Net cash provided (used) by operating activities				72,536			4,852			(218,962	)

Investing activities
Property and equipment acquisitions				(16,469	)		(3,996	)		(27,784	)
Property and equipment disposals				7,078			4,168			19,354
Purchases of securities available for sale				—			—			(12,224	)
Sales and maturities of securities available for sale				—			—			51,347
Purchase of interest in mining venture				—			—			(17,500	)

Net cash provided (used) by investing activities				(9,391	)		172			13,193

Financing activities
Payment on senior secured credit facilities				—			(20,000	)		—
Proceeds from debtor-in-possession facility				—			—			16,000
Repayments on debtor-in-possession facility				—			—			(16,000	)
Net payments on long-term revolving line of credit				—			—			(1,516	)
Financing and bonding fees				—			(34,749	)		—
Net borrowings (repayments) from credit agreement				(40,000	)		40,000			—
Distributions to minority interests				(23,776	)		(227	)		(19,758	)
Financing fees				—			—			(16,500	)

Net cash used by financing activities				(63,776	)		(14,976	)		(37,774	)

Decrease in cash and cash equivalents				(631	)		(9,952	)		(243,543	)
Cash and cash equivalents at beginning of period				128,201			138,153			393,433

Cash and cash equivalents at end of period			$	127,570		$	128,201		$	149,890

Supplemental disclosure of cash flow information:
	Interest paid		$	10,436		$	451		$	30,527
	Income tax paid, net			1,670			975			4,842

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

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

			Successor Company			Predecessor Company			Successor Company		Predecessor Company
			Three months ended September 27, 2002			Three months ended August 31, 2001			Eight months ended September 27, 2002		One month ended February 1, 2002		Nine months ended August 31, 2001
Net income (loss)			$	9,272		$	(32,406	)	$	28,025	$	522,150	$	(44,904	)

Other comprehensive income (loss), net of tax:
	Foreign currency translation adjustments			(100	)		4,898			6,275		80		1,581
	Unrealized gains (losses) on marketable securities:
		Unrealized net holding gains arising during period					—					—		474
		Less reclassification adjustment for net gains realized in net income					—					—		(861	)
	Amounts reclassified to net income in fresh-start reporting						—					20,268		—
	Derivatives designated as cash flow hedges: