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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 Quarterly Period Ended

July 4, 2003

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

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. Yes ý    No o

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ý    No o

At July 4, 2003, 25,000,000 shares of the registrant's $.01 par value common stock were outstanding.

WASHINGTON GROUP INTERNATIONAL, INC.
Quarterly Report on Form 10-Q for the
Quarterly Period Ended July 4, 2003

TABLE OF CONTENTS

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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:

•

Our business strategy and competitive advantages

•

Our expectations as to potential revenues from designated markets or customers

•

Our expectations as to profits, cash flows, return on invested capital and net income

•

Our expectations as to new work and backlog

•

The markets for our services and products

•

Our anticipated capital expenditures and funding requirements

        Forward-looking statements are only predictions. The forward-looking statements in this report are subject to risks and uncertainties, including, among others, the risks and uncertainties identified in this report and 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 forward-looking statements. The most important factors that could prevent us from achieving the expectations expressed include, but are not limited to, our failure to:

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Satisfy the restrictive covenants imposed by our indebtedness



•

Raise sufficient working capital on acceptable terms and on a timely basis



•

Maintain relationships with key customers, partners, sureties and suppliers



•

Manage and avoid delays or cost overruns in existing and future contracts



•

Successfully bid for, and enter into, new contracts on satisfactory terms



•

Successfully negotiate claims and change orders



•

Manage and maintain our operations and financial performance and the operations and financial performance of our current and future operating subsidiaries and joint ventures



•

Respond to competitors in our existing and planned markets



•

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



•

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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Realize anticipated reductions in overhead and other costs

Some other factors that may affect our businesses, financial position or results of operations include:

•

Accidents and conditions, including industrial accidents, labor disputes, geological conditions, environmental hazards, weather and other natural phenomena



•

Special risks of international operations, including uncertain political and economic environments, acts of terrorism or war, potential incompatibilities with foreign joint venture partners, foreign currency fluctuations and controls, civil disturbances and labor issues

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•

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, reimbursement obligations to the government for funds previously received and other regulatory risks



•

Maintenance of government-compliant cost systems



•

The economic well-being of our private and public customer base and its ability and intentions to invest capital in engineering and construction activities

        For a description of additional risk factors that may affect our businesses, financial position or results of operations, see "Business—Risk Factors" in Part I, Item 1 of our annual report on Form 10-K for the fiscal year ended January 3, 2003.

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

WASHINGTON GROUP INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands except per share data)

(UNAUDITED)

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

(a)

Contractual interest expense not recorded during bankruptcy proceedings for the one month ended February 1, 2002 was $7,090.

(b)

Net income per share is not presented for this period, as it is not meaningful because of the revised capital structure of the Successor Company upon emergence from bankruptcy protection.

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WASHINGTON GROUP INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except per share data)

(UNAUDITED)

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

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WASHINGTON GROUP INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(UNAUDITED)

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

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WASHINGTON GROUP INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(UNAUDITED)

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

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WASHINGTON GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except per share data)

        The terms "we," "us" and "our" as used in this quarterly report refer to Washington Group International, Inc. ("Washington Group International") and its consolidated subsidiaries unless otherwise indicated. On May 14, 2001, Washington Group International and several but not all of its subsidiaries filed for Chapter 11 bankruptcy protection. On January 25, 2002, we emerged from bankruptcy protection. See Note 4, "Reorganization Case and Fresh-start Reporting" in our annual report on Form 10-K for the fiscal year ended January 3, 2003.

1. DESCRIPTION OF THE BUSINESS

        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 (1) engineering, construction and operations and maintenance services in nuclear and fossil power markets; (2) 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; (3) engineering, design, procurement, construction and construction management services to industrial companies; (4) contract mining, technical and engineering services for the metals, precious metals, coal, minerals and minerals processes markets; (5) comprehensive nuclear and other environmental and hazardous substance remediation services for governmental and private-sector clients and (6) weapons and chemical demilitarization programs for governmental and private-sector clients. In providing these services, we enter into four 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, target-price contracts, a form of cost-reimbursable contracts, providing for an agreed upon price whereby we absorb cost escalation to the extent of our expected fee or profit and are reimbursed for costs which continue to escalate beyond our expected fee, and other 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 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 in this report as "Old MK," and changed our name to Morrison Knudsen Corporation. 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 primarily a part of our Energy & Environment business unit. On July 7, 2000, we purchased from Raytheon Company and Raytheon Engineers & Constructors International, Inc. ("RECI" and, collectively with Raytheon Company, the "Sellers"), the capital stock of the subsidiaries of RECI and specified other assets of RECI and assumed specified liabilities of RECI. The businesses that we purchased, which we refer to in this report as "RE&C," provide engineering, design, procurement, construction, operation, maintenance and other services on a global basis. Following the acquisition, on September 15, 2000, we changed our name to Washington Group International, Inc.

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        On May 14, 2001, due to near-term liquidity problems resulting from our acquisition of RE&C, we filed for protection under Chapter 11 of the U.S. Bankruptcy Code. On December 21, 2001, the bankruptcy court entered an order confirming the Second Amended Joint Plan of Reorganization of Washington Group International, Inc., et. al., as modified (the "Plan of Reorganization"). The Plan of Reorganization became effective and we emerged from bankruptcy protection on January 25, 2002. For a more detailed discussion of the RE&C acquisition and the resulting bankruptcy, see Note 3, "Acquisition" and Note 4, "Reorganization Case and Fresh-start Reporting" of the Notes to Consolidated Financial Statements in Item 8 of our annual report on Form 10-K for the fiscal year ended January 3, 2003.

2. BASIS OF PRESENTATION

        The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements include the accounts of Washington Group International and all of its majority-owned subsidiaries and certain joint ventures. Investments in non-consolidated construction joint ventures and certain unconsolidated affiliates are accounted for using the equity method. For non-consolidated construction joint ventures, our proportionate share of revenue, cost of revenue and gross profit is included in the consolidated statements of income. Equity in net earnings of unconsolidated affiliates is accounted for under 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 January 3, 2003. The comparative balance sheet and related disclosures at January 3, 2003 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 of a recurring nature 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. Future operating results may not be comparable to historical operating results as a result of 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. Our bankruptcy proceedings and our adoption of fresh-start reporting have materially affected comparability among the reporting periods presented.

        As of February 1, 2002, we adopted fresh-start reporting pursuant to the guidelines provided by the American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code. In connection with the adoption of fresh-start reporting, a new entity was created for financial reporting purposes with assets, liabilities and a capital structure having carrying values as of February 1, 2002, and subsequent periods are not comparable to prior periods. In the accompanying financial statements and notes to financial statements, the periods presented through February 1, 2002 have been designated "Predecessor Company," and the periods ending subsequent to February 1, 2002 have been designated "Successor Company."

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        Our fiscal year is the 52/53 weeks ending on the Friday closest to December 31.

        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.

Stock-based compensation

        We have used the intrinsic value method to account for stock-based employee compensation under the recognition and measurement principles of Accounting Principles Bulletin ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations for all periods presented. The following table illustrates the pro forma effect on net income and income per share if we had applied the fair value recognition provisions of the Financial Accounting Standards Board ("FASB") Statement

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No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"), to stock-based employee compensation.