UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

______________

FORM 10-Q

~~QUARTERLY REPORT~~_____________

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

~~For~~ý Quarterly Report Pursuant to Section 13 or 15(d) of the ~~Quarterly~~Securities ~~Period~~Exchange ~~Ended~~Act of 1934

~~July 1~~ For the Quarterly Period Ended March 30, ~~2005~~2007

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

For the transition period from _____________ to _____________

Commission File Number 1-12054

______________

WASHINGTON GROUP INTERNATIONAL, INC.

A (Exact name ~~Delaware~~of ~~Corporation~~registrant as specified in its charter)

IRS Employer Identification No. 33-0565601

Delaware (State or other jurisdiction of incorporation or organization)		33-0565601 (IRS Employer Identification No.)
720 Park Boulevard, Boise, Idaho (Address of principal executive offices)		83712 (zip code)
	(208) 386-5000 (Registrant’s telephone number, including area code)

~~720~~Indicate by ~~PARK~~check ~~BOULEVARD,~~mark ~~BOISE~~whether the registrant (1) 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 (2) has been subject to such filing requirements ~~IDAHO 83712~~ for the past 90 days:

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.

ý Yes o No

Indicate by check mark whether the registrant ~~has~~is ~~filed~~a ~~all~~large ~~documents~~accelerated ~~and~~filer, ~~reports~~an ~~required~~ accelerated tofiler, beor ~~filed~~a bynon-accelerated ~~Section 12,~~filer. 13See ordefinition ~~15(d)~~ of ~~the Securities~~“accelerated ~~Exchange~~ filer ~~Act~~and oflarge ~~1934~~accelerated ~~subsequent~~filer” toin ~~the~~Rule ~~distribution~~12b-2 of ~~securities~~the ~~under~~Securities aExchange ~~plan~~Act. ~~confirmed~~ (Check ~~by a court.~~one):

ý ~~Yes~~ Large accelerated filer o No Accelerated filer o Non-accelerated filer

Indicate by check mark whether the registrant is ana ~~accelerated~~shell ~~filer~~company (as defined in Rule 12b-2 of the ~~Securities~~ Exchange Act ~~of 1934~~).:

~~ý Yes~~ o Yes ý No

AtNumber ~~July 22, 2005, 26,260,898~~ of shares of ~~the~~common ~~registrant’s~~stock ~~$.01~~outstanding ~~par~~at ~~value~~April ~~common~~27, ~~stock were outstanding.~~ 2007: 29,181,543

TABLE OF CONTENTS

	Note Regarding Forward-Looking Information
		PAGE
	Note Regarding Forward-Looking Information	i
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations for the
	Condensed Consolidated Statements of Income for the Three Months Ended March 30, 2007 and March 31, 2006	I-1
	Three and Six Months Ended July 1, 2005 and July 2, 2004
	Condensed Consolidated Balance Sheets at March 30, 2007 and December 29, 2006	I-2
	Condensed Consolidated Balance Sheets at
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 30, 2007 and March 31, 2006	I-4
	July 1, 2005 and December 31, 2004
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 30, 2007 and March 31, 2006	I-5
	Condensed Consolidated Statements of Cash Flows for the
	Notes to Condensed Consolidated Financial Statements	I-6
	Six Months Ended July 1, 2005 and July 2, 2004
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	I-17
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	I-32
	Three and Six Months Ended July 1, 2005 and July 2, 2004
Item 4.	Controls and Procedures	I-33
	Notes to Condensed Consolidated 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
Item 4.	Controls and Procedures
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	II-1
Item 4.	Submission of Matters to a Vote of Security Holders
Item 1A.	Risk Factors	II-2
Item 6.	Exhibits
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	II-2
Item 3.	Defaults upon Senior Securities	II-2
Item 4.	Submission of Matters to a Vote of Security Holders	II-2
Item 5.	Other Information	II-2
Item 6.	Exhibits	II-2
	SIGNATURES

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~~ revenue from designated markets or customers;

• · Our expectations as to operating results, cash flows, return on invested capital and net income;

• · Our expectations as to new work and backlog;

• · The markets for our services and products; and

• · Our anticipated contractual obligations, 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. ~~Important factors that could prevent us from achieving the expectations expressed include, but are not limited to, our failure to:~~

~~• Manage~~ Important ~~and~~factors ~~avoid~~that ~~delays~~could orprevent ~~cost~~us ~~overruns~~from onachieving the expectations ~~existing~~ expressed ~~and~~include, ~~future~~but ~~contracts~~are not limited to, our failure to:

~~• Maintain~~· ~~relationships~~Manage ~~with~~and ~~key~~avoid ~~customers, partners~~delays or cost overruns on existing and ~~suppliers~~future contracts;

~~• Successfully~~· ~~bid~~Maintain ~~for,~~relationships ~~and~~with ~~enter~~key ~~into~~customers, ~~new contracts~~partners onand ~~satisfactory terms~~suppliers;

• · Successfully ~~manage~~bid ~~and~~for, ~~negotiate change orders~~ and ~~claims~~enter ~~with~~into, ~~respect~~new tocontracts ~~existing~~on ~~and~~satisfactory ~~future contracts~~terms;

~~• Manage~~· ~~and~~Successfully ~~maintain~~manage ~~our operations~~ and ~~financial~~ ~~performance~~negotiate ~~and~~change ~~the~~orders ~~operations~~ and ~~financial~~claims ~~performance~~with ofrespect ~~our current~~to existing and future ~~operating subsidiaries and joint ventures~~contracts;

~~• Respond~~· ~~effectively~~Manage toand ~~regulatory, legislative~~maintain our operations and ~~judicial~~financial ~~developments,~~performance ~~including~~and ~~any~~the ~~legal~~operations orand ~~regulatory proceedings,~~financial ~~affecting~~performance of our ~~existing~~current ~~contracts,~~and ~~including~~future ~~contracts~~operating ~~concerning environmental~~subsidiaries ~~remediation~~ and ~~restoration~~joint ventures;

~~• Obtain~~· ~~and~~Respond ~~maintain~~effectively ~~any~~to ~~required governmental authorizations~~regulatory, ~~franchises~~legislative and ~~permits~~judicial developments, ~~all~~including inany alegal ~~timely~~or ~~manner~~regulatory proceedings, ataffecting ~~reasonable costs~~our ~~and~~existing oncontracts, ~~satisfactory~~including ~~terms~~contracts concerning environmental remediation and ~~conditions~~restoration;

~~• Satisfy~~· ~~the~~Obtain ~~restrictive~~and ~~covenants~~maintain ~~imposed~~any ~~by our~~required ~~revolving~~governmental ~~credit~~authorizations, ~~facility~~franchises and ~~surety~~permits, ~~arrangements~~all in a timely manner, at reasonable costs and on satisfactory terms and conditions;

~~• Maintain~~· ~~access~~Satisfy tothe ~~sufficient~~restrictive ~~working~~covenants ~~capital through~~imposed by our ~~existing~~ revolving credit facility orand ~~otherwise~~surety arrangements;

• · Maintain access to sufficient ~~bonding capacity~~working capital through our existing revolving credit facility or otherwise; and

·	Maintain access to sufficient bonding capacity.

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, civil disturbances and labor issues;

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 reimbursement obligations to the government for funds previously received;

·	The outcome of legal proceedings;

·	Maintenance of government-compliant cost systems; and

·	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 1A. of our Annual Report on Form 10-K for the fiscal year ended December 29, 2006 (“2006 Annual Report”).

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Three Months Ended
(In thousands, except per share data)	March 30, 2007			March 31, 2006
Revenue	$	837,376		$	828,342
Cost of revenue		(804,670	)		(793,299	)
Gross profit		32,706			35,043
Equity in income of unconsolidated affiliates		9,427			13,190
General and administrative expenses		(19,393	)		(14,760	)
Operating income		22,740			33,473
Interest income		2,967			2,673
Interest expense		(1,534	)		(1,932	)
Other non-operating expense, net		(363	)		(382	)
Income before income taxes and minority interests		23,810			33,832
Income tax expense		(9,062	)		(13,500	)
Minority interests in income of consolidated subsidiaries, net of tax		(1,699	)		(1,372	)

Net income	$	13,049		$	18,960

Net income per share:
Basic	$	0.46		$	0.67
Diluted		0.43			0.62

Shares used to compute net income per share:
Basic		28,625			28,377
Diluted		30,526			30,771

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

I-1

~~Some other factors that may affect our businesses,~~CONDENSED ~~financial~~ CONSOLIDATED ~~position,~~BALANCE ~~or results of operations include:~~SHEETS

~~• Accidents and conditions, including industrial accidents, labor disputes, geological conditions, environmental hazards, weather and other natural phenomena~~(UNAUDITED)

• 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

(In thousands)	March 30, 2007			December 29, 2006
ASSETS
Current assets
Cash and cash equivalents	$	185,153		$	232,096
Restricted cash		66,149			65,475
Accounts receivable, including retentions of $15,141 and $16,443, respectively		213,672			358,957
Unbilled receivables		305,273			268,829
Investments in and advances to construction joint ventures		51,444			44,333
Deferred income taxes		96,195			106,681
Other		48,620			48,789
Total current assets		966,506			1,125,160

Investments and other assets
Investments in unconsolidated affiliates		119,430			113,953
Goodwill		97,076			97,076
Deferred income taxes		236,668			227,901
Other assets		36,098			38,005
Total investments and other assets		489,272			476,935

Property and equipment
Construction equipment		185,733			162,776
Other equipment and fixtures		54,186			50,642
Buildings and improvements		10,741			12,781
Land and improvements		584			584
Total property and equipment		251,244			226,783
Less accumulated depreciation		(98,187	)		(96,554	)
Property and equipment, net		153,057			130,229

Total assets	$	1,608,835		$	1,732,324

~~• Special risks of contracts with the~~The ~~government,~~ accompanying ~~including~~notes ~~the~~are ~~failure~~an ofintegral ~~applicable~~part ~~governing authorities to take necessary actions to secure or maintain funding for particular projects with us, the unilateral termination~~ of ~~contracts by~~ the ~~government~~condensed ~~and~~consolidated ~~reimbursement~~financial ~~obligations to the government for funds previously received~~ statements.

• The outcome of legal proceedings

• 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 December 31, 2004.

I-2

~~PART I. FINANCIAL~~CONDENSED CONSOLIDATED ~~INFORMATION~~BALANCE SHEETS (continued)

~~ITEM 1. FINANCIAL STATEMENTS~~(UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)	March 30, 2007			December 29, 2006
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and subcontracts payable, including retentions of $23,802 and $26,423, respectively	$	249,266		$	335,045
Billings in excess of cost and estimated earnings on uncompleted contracts		115,047			152,109
Accrued salaries, wages and benefits, including compensated absences of $60,745 and $53,695, respectively		164,720			192,307
Other accrued liabilities		39,177			38,563
Total current liabilities		568,210			718,024

Non-current liabilities
Self-insurance reserves		69,917			68,392
Pension and post-retirement benefit obligations		87,321			87,449
Other non-current liabilities		48,930			50,263
Total non-current liabilities		206,168			206,104

Contingencies and commitments (Note 7)

Minority interests		11,332			9,947

Stockholders’ equity
Preferred stock, par value $.01 per share, 10,000 shares authorized	─			─
Common stock, par value $.01 per share, 100,000 shares authorized; 30,333 and 30,001 shares issued, respectively		303			300
Capital in excess of par value		672,296			661,278
Retained earnings		196,541			183,492
Treasury stock, 1,161 and 1,159 shares, respectively, at cost		(67,370	)		(67,251	)
Accumulated other comprehensive income		21,355			20,430
Total stockholders’ equity		823,125			798,249

Total liabilities and stockholders’ equity	$	1,608,835		$	1,732,324

~~(In~~The ~~thousands,~~ accompanying ~~except~~notes ~~per~~are ~~share~~an ~~data)~~integral part of the condensed consolidated financial statements.

~~(UNAUDITED)~~I-3

	Three months ended						Six months ended
	July 1, 2005			July 2, 2004			July 1, 2005			July 2, 2004
Revenue	$	773,184		$	684,484		$	1,474,045		$	1,438,648
Cost of revenue	(769,609		)	(646,748		)	(1,424,397		)	(1,363,523		)
Gross profit	3,575			37,736			49,648			75,125
Equity in income of unconsolidated affiliates	1,923			7,119			9,266			17,799
General and administrative expenses	(10,116		)	(15,792		)	(25,422		)	(29,754		)
Operating income (loss)	(4,618		)	29,063			33,492			63,170
Interest income	2,215			596			4,061			1,190
Interest expense	(2,958		)	(3,602		)	(6,357		)	(8,016		)
Write-off of deferred financing fees (Note 5)	(3,588		)	—			(3,588		)	—
Other expense, net	(28		)	(740		)	(5		)	(1,269		)
Income (loss) before reorganization items, income taxes, and minority interests	(8,977		)	25,317			27,603			55,075
Reorganization items	—			1,245			—			1,245
Income tax benefit (expense)	6,159			(10,758		)	(8,473		)	(22,810		)
Minority interests in loss (income) of consolidated subsidiaries	2,224			(2,524		)	(2,494		)	(7,164		)
Net income (loss)	$	(594	)	$	13,280		$	16,636		$	26,346
Net income (loss) per share:
Basic	$	(.02	)	$	.53		$	.65		$	1.05
Diluted	(.02		)	.49			.56			.96
Common shares used to compute net income (loss) per share:
Basic	25,971			25,216			25,740			25,175
Diluted (a)	25,971			27,111			29,505			27,350

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

~~The accompanying notes are an integral part of the consolidated financial statements.~~(UNAUDITED)

(a) Potential dilutive common share equivalents of 4,252 for the three months ended July 1, 2005 were not included in the diluted net loss per share calculation, as their inclusion would have been antidilutive.

	Three Months Ended
(In thousands)	March 30, 2007			March 31, 2006
Operating activities
Net income	$	13,049		$	18,960
Adjustments to reconcile net income to net cash used by operating activities:
Cash paid for reorganization items		(1,061	)		(453	)
Depreciation of property and equipment		9,183			7,076
Amortization of intangible assets		1,093			2,108
Amortization of deferred financing fees		228			552
Non-cash income tax expense		8,040			12,621
Minority interests in income of consolidated subsidiaries, net of tax		1,699			1,372
Equity in income of unconsolidated affiliates, less dividends received		(1,537	)		(10,455	)
Gain on sale of assets, net		(2,546	)		(217	)
Stock-based compensation expense		4,011			2,122
Excess tax benefits from exercise of stock options		(1,628	)		(3,365	)
Changes in operating assets, liabilities and other		(51,037	)		(55,718	)
Net cash used by operating activities		(20,506	)		(25,397	)

Investing activities
Property and equipment additions		(38,280	)		(7,315	)
Property and equipment disposals		8,170			619
Change in restricted cash		(674	)		(3,193	)
Contributions and advances to unconsolidated affiliates		(2,531	)		(1,588	)
Net cash used by investing activities		(33,315	)		(11,477	)

Financing activities
Proceeds from exercise of stock options and warrants		6,653			81,014
Excess tax benefit from exercise of stock options		1,628			3,365
Purchase of warrants and treasury stock	─				(49,749	)
Contributions from (distributions to) minority interest, net		(1,403	)		927
Net cash provided by financing activities		6,878			35,557

Decrease in cash and cash equivalents		(46,943	)		(1,317	)
Cash and cash equivalents at beginning of period		232,096			237,706

Cash and cash equivalents at end of period	$	185,153		$	236,389

~~I-3~~The accompanying notes are an integral part of the condensed consolidated financial statements.

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~I-4

~~(In~~CONDENSED ~~thousands,~~ CONSOLIDATED ~~except~~STATEMENTS ~~per~~OF ~~share data)~~COMPREHENSIVE INCOME

(UNAUDITED)

		July 1, 2005			December 31, 2004
	Three Months Ended
ASSETS
(In thousands)	March 30, 2007				March 31, 2006
Current assets
Net income	$	13,049			$	18,960
Cash and cash equivalents		$	303,995		$	286,078
Other comprehensive income, net of tax:
Short-term investments		—			30,200
Foreign currency translation adjustments		910				1,603
Accounts receivable, including retentions of $15,475 and $14,973, respectively		245,701			250,251
Other		15				160
Unbilled receivables		241,235			214,437
Other comprehensive income, net of tax		925				1,763
Investments in and advances to construction joint ventures		39,144			24,321
Comprehensive income	$	13,974			$	20,723
Deferred income taxes		102,228			94,343
Other		48,254			49,642
Total current assets		980,557			949,272
Investments and other assets
Investments in unconsolidated affiliates		165,870			179,347
Goodwill		219,085			307,817
Deferred income taxes		81,208			64,479
Other assets		39,416			18,078
Total investments and other assets		505,579			569,721
Property and equipment
Construction equipment		106,627			81,432
Other equipment and fixtures		35,482			31,954
Buildings and improvements		12,125			11,543
Land and improvements		2,459			2,491
Total property and equipment		156,693			127,420
Less accumulated depreciation		(66,937		)	(58,207		)
Property and equipment, net		89,756			69,213
Total assets		$	1,575,892		$	1,588,206

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

I-45

~~CONDENSED~~NOTES ~~CONSOLIDATED~~ TO ~~BALANCE~~CONDENSED ~~SHEETS~~CONSOLIDATED ~~- Continued~~FINANCIAL STATEMENTS

(~~In thousands, except per share data~~UNAUDITED)

The terms “we,” “us” and “our” as used in this quarterly report refer to Washington Group International, Inc. (~~UNAUDITED~~“Washington Group International”) and its consolidated subsidiaries unless otherwise indicated.

	July 1, 2005			December 31, 2004
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and subcontracts payable, including retentions of $28,608 and $30,154, respectively	$	206,302		$	206,180
Billings in excess of cost and estimated earnings on uncompleted contracts	215,705			204,263
Accrued salaries, wages and benefits, including compensated absences of $52,898 and $48,908, respectively	121,687			140,623
Other accrued liabilities	55,764			61,919
Total current liabilities	599,458			612,985
Non-current liabilities
Self-insurance reserves	69,708			67,945
Pension and post-retirement benefit obligations	107,556			103,398
Other non-current liabilities	36,507			23,037
Total non-current liabilities	213,771			194,380
Contingencies and commitments (Note 9)
Minority interests	3,488			47,920
Stockholders’ equity
Preferred stock, par value $.01 per share, 10,000 shares authorized	—			—
Common stock, par value $.01 per share, 100,000 shares authorized; 26,284 and 25,474 shares issued, respectively	263			255
Capital in excess of par value	569,373			542,514
Stock purchase warrants	27,817			28,167
Retained earnings	147,537			130,901
Treasury stock, 28 shares, at cost	(1,086		)	(1,012		)
Unearned compensation - restricted stock, 126 shares	(4,619		)	—
Accumulated other comprehensive income	19,890			32,096
Total stockholders’ equity	759,175			732,921
Total liabilities and stockholders’ equity	$	1,575,892		$	1,588,206

1.	DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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

I 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 customers, including (i) engineering, construction and operations and maintenance services in nuclear and fossil power markets; (ii) engineering, construction, construction management and operations and maintenance services for the highway and bridge, airport and seaport, dam, tunnel, water resource and railway markets; (iii) contract mining, technical and engineering services for the metals, precious metals, coal, minerals and minerals processes markets; (iv) design, engineering, procurement, construction and construction management and operations and maintenance services for industrial companies; (v) design, engineering, construction, management and operations and closure services for weapons and chemical demilitarization programs for governmental customers; and (vi) comprehensive nuclear and other environmental and hazardous substance remediation as well as management and operations services for governmental and private-5sector customers. In providing these services, we enter into two basic types of contracts: fixed-price and cost-type contracts. Fixed price contracts include lump-sum contracts providing for a fixed price for all work to be performed and fixed-unit-price contracts providing for a fixed price for each unit of work to be performed. Cost-type contracts include target-price contracts providing for an agreed upon price whereby we absorb all or a portion of cost escalations to the extent of our expected fee or profit and are reimbursed for costs which continue to escalate beyond our expected fee and share in the cost savings based on a negotiated formula and cost-type contracts providing for reimbursement of costs plus a fee. Engineering, construction management, maintenance and environmental and hazardous substance remediation contracts are typically awarded pursuant to a cost-type contract.

~~CONDENSED~~ We ~~CONSOLIDATED~~ participate ~~STATEMENTS~~in OFconstruction ~~CASH~~joint ventures, ~~FLOWS~~often as sponsor and manager of projects, which are formed for the sole purpose of bidding, negotiating and completing specific projects. We participate in two incorporated mining ventures: MIBRAG mbH (“MIBRAG”), a company that operates lignite coal mines and power plants in Germany, and Westmoreland Resources, Inc. (“Westmoreland Resources”), a coal mining company in Montana.

~~(In~~Basis ~~thousands)~~ of presentation

The accompanying condensed consolidated financial statements and related notes are unaudited. They have been prepared in accordance with generally accepted accounting principles (~~UNAUDITED~~“GAAP”) 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 GAAP for complete financial statements. The financial statements include the accounts of Washington Group International and all of its majority-owned subsidiaries and certain majority-owned construction joint ventures. Investments in unconsolidated construction joint ventures are accounted for using the equity method in the consolidated balance sheets, with our proportionate share of revenue, cost of revenue and gross profit included in the consolidated statements of income. Investments in unconsolidated affiliates are accounted for under the equity method. Intercompany transactions and accounts have been eliminated in consolidation.

	Six months ended
	July 1, 2005			July 2, 2004
Operating activities
Net income	$	16,636		$	26,346
Reorganization items	—			(1,245		)
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Cash paid for reorganization items	(742		)	(1,253		)
Depreciation of property and equipment	9,130			8,416
Amortization and write-off of deferred financing fees	5,197			1,554
Non-cash income tax expense	6,882			20,262
Minority interests in net income of consolidated subsidiaries	2,494			7,164
Equity in income of unconsolidated affiliates, less dividends received	(2,195		)	(16,851		)
Changes in operating assets and liabilities and other	(28,349		)	(62,045		)
Net cash provided (used) by operating activities	9,053			(17,652		)
Investing activities
Property and equipment additions	(30,840		)	(16,075		)
Property and equipment disposals	1,140			17,014
Purchases of short-term investments	(74,900		)	(274,400		)
Sales of short-term investments	105,100			294,400
Contributions and advances to unconsolidated affiliates	(740		)	(3,499		)
Other	(137		)	—
Net cash provided (used) by investing activities	(377		)	17,440
Financing activities
Payment of financing fees	(4,577		)	(1,524		)
Distributions to minority interests, net	(1,686		)	(7,758		)
Proceeds from exercise of stock options and warrants	15,504			4,727
Net cash provided (used) by financing activities	9,241			(4,555		)
Increase (decrease) in cash and cash equivalents	17,917			(4,767		)
Cash and cash equivalents at beginning of period	286,078			188,835
Cash and cash equivalents at end of period	$	303,995		$	184,068
Supplemental disclosure of cash flow information:
Interest paid	$	4,536		$	7,027
Income taxes paid, net	924			3,962

The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in our 2006 Annual Report. The accompanying condensed consolidated balance sheet at December 29, 2006 and related footnote disclosures included herein have been derived from the audited consolidated balance sheet and related footnotes included in the 2006 Annual Report.

~~The accompanying notes are an integral part of the consolidated financial statements.~~I-6

~~I-6~~ In our opinion, the accompanying condensed 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 and cash flows for the interim periods presented are not necessarily indicative of results of operations and cash flows to be expected for the full year.

~~CONDENSED~~ Our ~~CONSOLIDATED~~ fiscal ~~STATEMENTS~~year OFis ~~COMPREHENSIVE~~the ~~INCOME~~52/53 ~~(LOSS)~~weeks ending on the Friday closest to December 31.

~~(In~~ The ~~thousands)~~ preparation of our condensed consolidated financial statements in conformity with GAAP 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 revenue and expenses 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.

~~(UNAUDITED)~~Reclassification

	Three months ended						Six months ended
	July 1, 2005			July 2, 2004			July 1, 2005			July 2, 2004
Net income (loss)	$	(594	)	$	13,280		$	16,636		$	26,346
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(7,493		)	(259		)	(12,682		)	(2,032		)
Other	314			—			476			—
Other comprehensive loss, net of tax	(7,179		)	(259		)	(12,206		)	(2,032		)
Comprehensive income (loss)	$	(7,773	)	$	13,021		$	4,430		$	24,314

The accompanying condensed consolidated balance sheet as of December 29, 2006 reflects the reclassification of unearned compensation – restricted stock of $8.4 million to capital in excess of par to conform to the 2007 presentation. The reclassification did not impact previously reported revenue, net income, total assets, total liabilities, stockholders’ equity or cash flows.

~~The accompanying~~2. ~~notes~~NET ~~are~~INCOME anPER ~~integral part of the consolidated financial statements.~~SHARE

I Basic net income per share is computed by dividing net income by the weighted-7average number of common shares outstanding during the period. Diluted net income per share is computed similar to basic net income per share except that it reflects the potential dilution from dilutive common stock equivalents using the treasury stock method. Outstanding common stock equivalents primarily consist of options and warrants to purchase common stock and restricted shares. During the three months ended March 30, 2007 and March 31, 2006, the number of anti-dilutive outstanding options and deferred shares excluded from the computation of diluted net income per share was 745,000 and 8,000, respectively.

~~NOTES~~ A reconciliation TObetween ~~CONDENSED~~weighted ~~CONSOLIDATED~~average ~~FINANCIAL~~shares ~~STATEMENTS~~outstanding used in calculating basic and diluted net income per share is as follows:

(In thousands, except per share data)

	Three Months Ended
(In thousands)	March 30, 2007		March 31, 2006
Basic weighted average shares outstanding		28,625		28,377
Effect of dilutive securities:
Stock options		1,689		1,791
Stock warrants	─			482
Restricted shares and other		212		121
Diluted weighted average shares outstanding		30,526		30,771

~~(UNAUDITED)~~ I-7

~~The terms “we,” “us” and “our” as used in this quarterly report refer to Washington Group International, Inc~~3. ~~(“Washington~~ ~~Group”) and its consolidated subsidiaries unless otherwise indicated.~~ VENTURES

~~1. DESCRIPTION~~Construction joint ~~OF THE BUSINESS~~ventures

We participate ~~are~~in anunconsolidated ~~international~~construction ~~provider~~joint ofventures athat ~~broad~~are ~~range of~~formed ~~design, engineering, construction, construction management, facilities and~~ to ~~operations management~~ bid, ~~environmental~~negotiate ~~remediation~~ and ~~mining~~complete ~~services~~specific toprojects. ~~diverse public~~The ~~and~~unconsolidated ~~private sector clients, including (1) engineering,~~ construction ~~and~~ joint ~~operations~~ventures ~~and~~are ~~maintenance~~reflected ~~services~~ in ~~nuclear~~our ~~and~~condensed ~~fossil~~consolidated ~~power~~balance ~~markets; (2) diverse~~sheets ~~engineering~~ as “Investments in and ~~construction~~advances ~~and~~to construction ~~management~~joint ~~services~~ventures” ~~for~~using the ~~highway~~equity ~~and~~ method ~~bridge,~~with ~~airport~~our ~~and~~proportionate ~~seaport,~~share ~~dam,~~of ~~tunnel~~revenue, ~~water~~cost ~~resource,~~of ~~railway~~revenue and ~~commercial~~ ~~building markets; (3) design, engineering, procurement,~~gross ~~construction and construction management and operations and maintenance~~ profit ~~services~~ included toin ~~industrial~~our ~~companies;~~condensed ~~(4) contract~~consolidated ~~mining,~~statements ~~technical~~of ~~and engineering~~income. ~~services~~The ~~for the metals~~size, ~~precious metals, coal, minerals and~~scope ~~minerals processes markets; (5) comprehensive nuclear~~ and ~~other~~ ~~environmental~~ duration ~~and~~of ~~hazardous~~joint-venture ~~substance~~projects ~~remediation~~vary asamong ~~well~~periods. asThe ~~management~~tables ~~and~~below present ~~operations~~ the ~~services~~financial ~~for~~information ~~governmental~~of ~~and~~our ~~private-sector~~unconsolidated ~~clients~~construction ~~and~~joint ~~(6) design,~~ventures ~~engineering,~~ in which ~~construction,~~we ~~management~~do ~~and~~not ~~operations,~~hold ~~and~~a ~~closure~~controlling ~~services~~interest ~~for weapons~~but ~~and~~do ~~chemical~~exercise ~~demilitarization programs for governmental and~~significant ~~private-sector clients~~ influence. InAt ~~providing~~March ~~these services~~30, we2007 ~~enter~~and ~~into~~December ~~four~~29, ~~basic types~~2006, of$32.2 ~~contracts:~~million ~~fixed-price~~and ~~or lump-sum contracts providing for a fixed~~$48.8 ~~price~~ million, ~~for all work to be performed~~respectively, ~~fixed-unit-price~~were ~~contracts~~included ~~providing~~in ~~for~~our ~~a fixed~~condensed ~~price~~consolidated ~~for each unit of work to be performed; target-price contracts~~balance ~~providing~~ sheets ~~for~~under anthe ~~agreed~~caption ~~upon~~“Billings ~~price~~in ~~whereby~~excess weof ~~absorb~~ cost ~~escalations to the extent of our expected fee or profit~~ and ~~are~~estimated ~~reimbursed~~earnings ~~for costs which~~on ~~continue~~ uncompleted tocontracts,” ~~escalate~~representing ~~beyond~~ our ~~expected~~share ~~fee;~~of ~~and~~the ~~cost-type~~excess ~~contracts providing for reimbursement~~ of ~~costs~~liabilities ~~plus a fee. Both anticipated income and economic~~over ~~risk~~ assets ~~are~~primarily ~~greater~~due ~~under~~to ~~fixed-price~~accrued ~~and~~contract ~~fixed-unit-price~~losses ~~contracts~~of ~~than~~unconsolidated ~~under target-price and cost-type contracts. Engineering,~~ construction ~~management,~~ ~~maintenance,~~ joint ~~and environmental and hazardous substance remediation contracts are typically awarded pursuant to a cost-type contract~~ventures.

We participate in construction joint ventures, often as sponsor and manager of projects, which are formed for the sole purpose of bidding, negotiating and completing specific projects. We participate in two incorporated mining ventures: MIBRAG mbH (“MIBRAG”), a company that operates lignite coal mines and power plants in Germany, and Westmoreland Resources, Inc. (“Westmoreland Resources”), a coal mining company in Montana. We also own two government contracting ventures, in which British Nuclear Services, Inc. (“BNFL”) previously held a 40% economic interest. See Note 10, “Acquisition of BNFL’s Interest in Government Contracting Ventures,” regarding our purchase of BNFL’s 40% economic interest.

Combined financial position of unconsolidated construction joint ventures (In thousands)	March 30, 2007			December 29, 2006
Current assets	$	301,838		$	299,722
Property and equipment, net		7,192			7,734
Current liabilities		(292,947	)		(322,414	)
Net assets (liabilities)	$	16,083		$	(14,958	)

2. BASIS OF PRESENTATION

	Three Months Ended
Combined results of operations of unconsolidated construction joint ventures (In thousands)	March 30, 2007			March 31, 2006
Revenue	$	231,255		$	290,583
Cost of revenue		(220,119	)		(292,608	)
Gross profit (loss)	$	11,136		$	(2,025	)

The accompanying unaudited interim condensed 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 accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. These financial statements include the accounts of Washington Group and all of its majority-owned subsidiaries and certain majority-owned construction joint ventures. Investments in non-consolidated construction joint ventures are accounted for using the equity method on the balance sheet, with our proportionate share of revenue, cost of revenue and gross profit included in the consolidated statements of operations. Investments in unconsolidated affiliates are accounted for under the equity method. All significant intercompany transactions and accounts have been eliminated in consolidation.

	Three Months Ended
Washington Group International’s share of results of operations of unconsolidated construction joint ventures (In thousands)	March 30, 2007			March 31, 2006
Revenue	$	110,790		$	134,719
Cost of revenue		(105,859	)		(134,887	)
Gross profit (loss)	$	4,931		$	(168	)

I Beginning in 2004, contract losses have been recognized by a construction joint venture in which we have a 50 percent interest on a $392.2 million fixed-8price roadway interchange and bridge project. Through March 30, 2007, we have recorded a total of $135.1 million of contract losses on this project. The losses have resulted from various developments including final design and other customer specifications, state regulatory agency requirements, material quantity and cost growth, higher subcontractor and labor costs, and impacts from schedule delays. During the three months ended March 30, 2007, no additional losses were recorded as compared to $6.9 million during the three months ended March 31, 2006. The contract is approximately 78 percent complete, measured on a cost-to-cost basis, and is scheduled to be substantially complete in 2007.

~~These~~ To date, ~~unaudited~~only ~~interim~~a ~~condensed~~portion ~~consolidated financial~~of ~~statements~~the ~~should~~cost beincreases ~~read~~have inbeen ~~conjunction~~agreed to with the customers ~~audited~~and acknowledged with change orders. Pending change orders and ~~consolidated~~ claims submitted ~~financial~~to ~~statements~~the customers total approximately $114.8 million (of which our share is $57.4 million) and ~~related~~an ~~notes~~additional ~~contained~~$41.9 million are in ~~our~~process ~~2004~~(of ~~Annual~~ which our ~~Report~~share is $21.0 ~~The~~million). ~~comparative~~In ~~balance~~response ~~sheet~~to ~~and~~our ~~related~~claims, ~~disclosures~~one atof ~~December 31,~~the customers ~~2004~~ has filed certain counterclaims against us. We believe that we will realize significant recoveries once the claim process is completed. Because we have not been ~~derived~~able ~~from~~to reach agreement on the ~~audited~~change ~~balance~~orders ~~sheet~~and claims, recoveries will be recognized only when it is probable they will result in additional revenue and ~~consolidated~~the ~~footnotes~~amounts can be reliably ~~referred~~ estimated. While tothe ~~above~~entire amount of the current estimated loss has been recognized, actual results may differ from our estimates.

In our opinion, the accompanying unaudited condensed 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.I-8

Pursuant to the fixed-price agreement, the joint venture is liable for specified liquidated damages to the customers if certain project schedule milestones are not met. Based on schedule delays to date, the liquidated damages could amount to approximately $46.6 million, of which our share would be $23.3 million. No potential liquidated damages have been included in the current estimated contract loss because we believe it is unlikely that any liquidated damages will be owed once schedule relief for customer directed changes has been determined.

~~Our fiscal year is the 52/53 week period ending on~~Unconsolidated ~~the Friday closest to December 31.~~ affiliates

~~The~~ At March ~~preparation of our consolidated financial~~30, ~~statements~~ 2007 inand ~~conformity~~December ~~with~~29, ~~GAAP~~2006, ~~necessarily~~we ~~requires~~held usownership tointerests ~~make~~in ~~estimates~~unconsolidated ~~and~~ affiliates ~~assumptions~~ that ~~affect~~are ~~the~~accounted ~~reported~~for ~~amounts~~under ofthe ~~assets~~equity ~~and~~method, ~~liabilities~~the ~~and disclosure~~most significant of ~~contingent~~which ~~assets~~are ~~and~~two ~~liabilities~~incorporated atmining ~~the~~ventures: ~~balance~~MIBRAG ~~sheet~~(50 ~~dates,~~percent) and ~~the~~ Westmoreland ~~reported~~Resources ~~amounts~~(20 ofpercent). ~~revenues~~We ~~and~~provide ~~costs~~consulting ~~during~~services ~~the~~to ~~reporting periods. Actual~~MIBRAG ~~results~~ and, ~~could~~through ~~differ~~March ~~from~~30, ~~those estimates. On an ongoing basis~~2007, we ~~review~~provided ~~our estimates~~contract ~~based~~mining onservices ~~information that is currently available. Changes in facts~~to ~~and~~ Westmoreland ~~circumstances may cause us to revise estimates~~Resources.

~~Reclassifications~~ Effective March 30, 2007, we agreed with Westmoreland Resources to conclude our contract mining services agreement, which provided for compensation to us in lieu of future services and the transfer of certain mining equipment, inventory, and reclamation liabilities to Westmoreland Resources. The transaction generated $14.0 million of cash and a net gain of $6.1 million, of which $1.0 million has been deferred because we continue to own a 20 percent interest in Westmoreland Resources. This gain more than offset the operating loss incurred on the project in the quarter of $4.3 million. The tables below present the financial information of our unconsolidated affiliates in which we do not hold a controlling interest but do exercise significant influence.

Certain reclassifications have been made to the accompanying condensed consolidated financial statements as of December 31, 2004 and for the six months ended July 2, 2004 to conform to the current period presentation. The reclassifications did not impact previously reported revenues, operating income, net income, total assets, total liabilities, or stockholders’ equity.

Combined financial position of unconsolidated affiliates (In thousands)	March 30, 2007			December 29, 2006
Current assets	$	148,060		$	153,581
Property and equipment, net		610,630			608,454
Other non-current assets		440,048			433,418
Current liabilities		(92,380	)		(92,507	)
Long-term debt, non-recourse to parents		(189,739	)		(201,684	)
Other non-current liabilities		(658,119	)		(653,750	)
Net assets	$	258,500		$	247,512

In February 2005, we determined that investments in Auction Rate Securities (“ARS”) should not be considered cash equivalents. ARS generally have long-term stated maturities; however, these investments have characteristics similar to short-term investments because at pre-determined intervals, generally within 7 to 90 days of the purchase, there is a new auction process. At July 2, 2004 and January 2, 2004, we reclassified ARS of $30,000 and $50,000, respectively, that were previously included in cash and cash equivalents to short-term investments. We have included the purchases and sales of ARS in the consolidated statements of cash flows as a component of investing activities. The reclassification resulted in an increase of net cash provided (used) by investing activities from $(2,560) as previously reported to $17,440 in the condensed consolidated statement of cash flows for the six months ended July 2, 2004. We first invested in ARS in May 2003. All ARS were sold in February 2005.

	Three Months Ended
Combined results of operations of unconsolidated affiliates (In thousands)	March 30, 2007			March 31, 2006
Revenue	$	147,254		$	138,172
Cost of revenue		(121,320	)		(110,931	)
Gross profit	$	25,934		$	27,241

~~Stock-based~~4. CREDIT ~~compensation~~FACILITY

We have ~~used~~a Senior ~~the~~Secured ~~intrinsic~~Revolving ~~value~~Credit ~~method~~Facility to(the ~~account~~"Credit Facility") that provides for ~~stock-based~~up ~~employee~~to ~~compensation~~$350.0 ~~under~~million in the ~~recognition~~aggregate of loans and ~~measurement~~other financial ~~principles~~ accommodations. The maturity date of ~~Accounting~~the ~~Principles~~Credit ~~Board~~Facility ~~(“APB”)~~is ~~Opinion~~June ~~No. 25~~14, ~~Accounting~~2010. The borrowing ~~for~~rate ~~Stock~~is ~~Issued~~LIBOR toplus ~~Employees,~~an ~~and~~additional ~~related interpretations~~margin ~~for~~of ~~all~~2.00 ~~periods~~percent ~~presented.~~or, ~~The~~at our option, ~~following~~prime ~~table~~plus ~~illustrates~~an ~~the pro~~additional ~~forma~~margin ~~effect~~of on1.00 ~~net~~percent, ~~income~~subject ~~(loss)~~in ~~and~~each case ~~income~~to a ~~(loss)~~0.25 ~~per~~percent ~~share~~reduction ifupon weour ~~had applied~~obtaining ~~the~~a ~~fair~~specified ~~value~~long-term ~~recognition~~debt ~~provisions~~rating. As of ~~Statement~~March of30, ~~Financial Accounting~~2007 ~~Standards~~and ~~(“SFAS”)~~December ~~No. 123~~29, ~~Accounting~~2006, ~~for~~the ~~Stock-Based~~effective borrowing rate ~~Compensation,~~ was 7.32 topercent ~~stock-based~~and ~~employee~~7.33 ~~compensation~~percent, respectively.

I The Credit Facility also provides for other fees, including commitment and letter of credit fees, normal and customary for such credit agreements. Letter of credit fees are calculated using the applicable LIBOR margins stated above plus an issuance fee that is negotiated with the issuing bank. Commitment fees are calculated on the remaining borrowing capacity after subtracting any outstanding borrowings and letters of credit. The commitment fee is 0.50 percent (subject to a 0.25 percent reduction upon our obtaining a specified long-9term debt rating). As of March 30, 2007, $126.0 million in face amount of letters of credit were issued and outstanding and no borrowings were outstanding leaving a borrowing capacity of $224.0 million under the Credit Facility.

	Three months ended						Six months ended
	July 1, 2005			July 2, 2004			July 1, 2005			July 2, 2004
Net income (loss) as reported	$	(594	)	$	13,280		$	16,636		$	26,346
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards	(1,908		)	(1,504		)	(3,765		)	(3,234		)
Add: Compensation cost recognized using intrinsic value method	—			—			—			784
Tax effects	745			587			1,469			956
Pro forma net income (loss)	$	(1,757	)	$	12,363		$	14,340		$	24,852
Net income (loss) per share
As reported – basic	$	(.02	)	$	.53		$	.65		$	1.05
As reported – diluted	(.02		)	.49			.56			.96
Pro forma - basic	(.07		)	.49			.56			.99
Pro forma – diluted	(.07		)	.46			.49			.91

I-9

3 The Credit Facility contains financial covenants requiring the maintenance of specified financial and operating ratios, and specified events of default that are typical for a credit facility of this size, type and tenor. ~~ACCOUNTING~~ ~~STANDARDS~~The Credit Facility also contains covenants that limit our ability and the ability of some of our subsidiaries to incur debt, grant liens, provide guarantees, make investments, merge with or acquire other companies and pay dividends. As of March 30, 2007, we were in compliance with all of the financial covenants under the Credit Facility. The Credit Facility is secured by substantially all of the assets of Washington Group International and our wholly owned domestic subsidiaries.

~~Recently~~5. OPERATING ~~Issued~~SEGMENT ~~Accounting Standards~~INFORMATION

~~In December~~ ~~2004, the Financial Accounting~~We ~~Standards~~ operate ~~Board~~through ~~(“FASB”)~~six ~~issued~~business ~~SFAS No. 123 (Revised)~~units, ~~Share-Based~~each ~~Payment. SFAS No. 123-R replaces SFAS No. 123 and supersedes APB Opinion No. 25. Adoption~~ of ~~SFAS~~which ~~No. 123-R~~comprises ~~will require us to record~~ a ~~non-cash expense for our stock compensation plans using the fair value~~separate ~~method.~~ reportable ~~Historically~~business wesegment: ~~have~~Power, ~~recorded~~Infrastructure, ~~our compensation cost in accordance with APB Opinion No. 25~~Mining, ~~which does not require the recording of an expense for~~Industrial/Process, ~~our~~ Defense ~~equity~~and ~~related~~Energy ~~compensation~~& ~~plans if stock options were granted at a price equal to the fair market value of our common stock on the grant date~~Environment. ~~SFAS~~The ~~No. 123-R is~~reportable ~~effective~~segments ~~for~~are ~~us beginning the first quarter of 2006. Based on the options~~separately ~~outstanding as of July 1~~ managed, ~~2005,~~serve wedifferent ~~estimate~~markets ~~the~~and ~~adoption~~customers, ofand ~~SFAS~~differ ~~No. 123-R will result~~ in antheir ~~additional expense of approximately $6~~expertise,~~000 in 2006. The~~ ~~actual~~ technology ~~expense will change from the estimate for new option grants~~ and ~~for forfeitures~~resources ofnecessary ~~current~~to ~~outstanding~~perform ~~options~~their services.

~~In December~~ ~~2004,~~Power provides ~~the FASB issued SFAS No. 153~~engineering, ~~Exchanges~~ ofconstruction ~~Non-monetary~~and ~~Assets~~maintenance –services Anin ~~Amendment~~nuclear ~~of APB Opinion No. 29. ABP Opinion No. 29~~and ~~provided~~ fossil anpower ~~exception~~markets ~~to the basic measurement principle (fair value)~~ for ~~exchanges~~ ofturnkey ~~similar~~new ~~productive~~power ~~assets.~~plant ~~That exception required that some non-monetary exchanges~~construction, ~~although~~plant ~~commercially substantive~~expansion, ~~be recorded on a~~ ~~carryover~~ retrofit ~~basis. SFAS~~and ~~No. 153 eliminates~~modification, ~~the~~decontamination ~~exception to fair value for exchanges of similar productive assets~~ and ~~replaces~~decommissioning, ~~it with a~~ general ~~exception for exchange transactions that~~ ~~do not have commercial substance – that is~~ planning, ~~transactions~~siting ~~that~~and ~~are~~licensing ~~not~~and ~~expected to~~environmental ~~result in significant changes in the cash flows of the reporting entity~~permitting. ~~SFAS No. 153 is effective for us in the third quarter of 2005 but is not expected to have a significant impact on our financial position, results of operations or cash flows.~~

In Infrastructure provides ~~the~~engineering, ~~mining industry~~construction, ~~companies~~construction ~~may~~management, ~~be required to remove overburden~~ and ~~waste materials to access mineral deposits. The costs of~~operations ~~removing overburden~~ and ~~waste materials are referred to as “stripping costs.”~~ ~~MIBRAG~~ maintenance ~~incurs~~services ~~significant~~for ~~stripping~~highways ~~costs~~and inbridges, ~~its~~airports ~~lignite~~and ~~coal~~seaports, ~~mining~~tunnels ~~operations.~~ and Intube ~~March 2005~~tunnels, ~~the~~railroad ~~Emerging~~and ~~Issues~~transit ~~Task~~lines, ~~Force~~water ~~(“EITF”)~~storage ~~reached a~~and ~~consensus on Issue No. 04-6~~transport, ~~Accounting for Stripping~~ ~~Costs Incurred during Production in the Mining Industry. The EITF~~ water concluded that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the cost of inventory produced during the period the stripping costs are incurred. EITF No. 04-6 is effective for us in the first quarter of 2006. Based upon MIBRAG’s deferred stripping costs recorded as of July 1 treatment, ~~2005,~~site wedevelopment ~~estimate the adoption of EITF No. 04-6 will result in a write-down of our investments in unconsolidated affiliates~~ and ahydroelectric ~~reduction of total stockholders’ equity by approximately $82,000 and $53,300, respectively~~facilities. The ~~actual~~business ~~write-down will~~unit ~~vary~~ generally ~~from~~performs ~~this estimate for changes in deferred stripping costs during the remainder of 2005. EITF No. 04-6 requires any adjustment from adoption to be recognized~~ as a ~~cumulative~~general ~~effect~~contractor ~~adjustment to beginning retained earnings in the period of adoption~~ or byas ~~retrospective~~a ~~adjustment~~joint ofventure ~~our financial~~partner ~~statements,~~ with other ~~neither~~contractors ofon ~~which~~domestic ~~will~~and ~~affect~~international ~~our earnings in~~projects.

~~I-10~~ Mining provides contract mining, resource evaluation, mine planning, production scheduling, simulation modeling, equipment selection, engineering, mine reclamation and operations management to coal, oil sands, industrial minerals and metals markets.

~~2006. MIBRAG’s mines are open pit lignite~~ Industrial/Process ~~coal~~ provides ~~mines~~design, ~~which~~engineering, ~~cover~~procurement, ~~several~~construction ~~square~~services ~~miles~~ and ~~have an estimated remaining~~total ~~life~~ facilities ofmanagement 40for orgeneral ~~more years. Because of the mining procedures used~~manufacturing, ~~MIBRAG generally~~pharmaceutical ~~does not maintain any significant inventory of mined coal.~~and ~~Accordingly~~ biotechnology, ~~under~~oil ~~EITF~~production, ~~No. 04-6~~gas ~~costs~~treating, ofgas ~~removing~~monetization, ~~overburden will be~~institutional ~~expensed~~ buildings, infood ~~the~~and ~~period~~consumer ~~incurred.~~products, ~~The~~automotive, ~~execution~~aerospace ofand ~~the~~pulp ~~mine plan may result in~~and ~~fiscal periods during which costs incurred for the removal of overburden will~~ paper ~~not bear a direct relationship to the revenue derived from the sale of coal~~ industries. ~~This may result in a degree of variability in the future reported earnings of MIBRAG.~~

~~In March~~ ~~2005, the FASB issued Interpretation No. 47,~~Defense ~~Accounting~~ provides ~~for~~a ~~Conditional~~complete ~~Asset~~range ~~Retirement Obligations – an interpretation~~ of ~~FASB~~technical ~~Statement~~services ~~No. 143 (“FIN No. 47”). FIN No. 47 clarifies the term conditional asset retirement obligation as used in SFAS No. 143, Accounting for Asset Retirement Obligations, and requires a liability~~ to ~~be recorded if~~ the ~~fair~~Department ~~value~~ of ~~the obligation can be reasonably~~Defense, ~~estimated. The~~ including ~~types~~operations ofand ~~asset~~management ~~retirement obligations~~services, ~~that~~environmental ~~are~~and ~~covered by FIN No. 47 are those for which an entity~~chemical ~~has~~ demilitarization aservices, ~~legal~~waste ~~obligation~~handling toand ~~perform an asset retirement activity~~storage, ~~however~~architectural ~~the~~engineering ~~timing~~ services and ~~(or)~~engineering, ~~method~~procurement ofand ~~settling~~construction ~~the~~services obligation are conditional on a future event that may or may not be within the control of the entity. FIN No. 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN No. 47 is effective for ~~us in~~ the ~~fourth quarter of 2005, but is not expected to have~~armed ~~a significant impact on our financial position, results of operations and cash flows~~ forces.

4 Energy & Environment provides services to the Department of Energy, which is responsible for maintaining the nation’s nuclear weapons stockpile and performing environmental cleanup and remediation. ~~VENTURES~~ The business unit also provides the United States (“US”) government with construction, contract management, supply-chain management, quality assurance, administrative and environmental cleanup and restoration services. Energy & Environment provides safety management consulting and waste and environmental technology and engineered products, including radioactive waste containers and technical support services.

~~Construction~~ The accounting ~~joint~~policies ~~ventures~~of the segments are the same as those described in Note 2, “Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8 of our 2006 Annual Report. We evaluate performance and allocate resources based on segment operating income. Segment operating income is total segment revenue reduced by segment cost of revenue and includes equity in income of unconsolidated affiliates. Intersegment and other unallocated operating costs principally consist of unallocated costs of our self-insurance program and company-wide development initiatives.

We participate in unconsolidated construction joint ventures that are formed to bid, negotiate, and complete specific projects. The unconsolidated construction joint ventures are reflected in our consolidated balance sheets as investments in and advances to construction joint ventures and are accounted for under the equity method. Our proportionate share of revenue, cost of revenue, and gross profit for these unconsolidated construction joint ventures is included in our consolidated statements of operations. The size, scope, and duration of joint-venture projects vary among periods. The tables below present the financial information for our unconsolidated construction joint ventures in which we do not hold a controlling interest but exercise significant influence. At July 1, 2005 and December 31, 2004, $52,380 and $27,708, respectively, was included in our consolidated balance sheet under the caption “Billings in excess of cost and estimated earnings on uncompleted contracts,” representing our share of unconsolidated construction joint ventures that had an excess of liabilities over assets primarily due to accrued contract losses.I-10

Combined financial position of
non-consolidated construction joint ventures	July 1, 2005			December 31, 2004
Current assets	$	198,042		$	182,127
Property and equipment, net	4,990			3,707
Current liabilities	(238,917		)	(171,476		)
Net assets (liabilities)	$	(35,885	)	$	14,358

SEGMENT OPERATING INFORMATION

Combined results of operations of		Three months ended						Six months ended
	Three Months Ended
non-consolidated construction joint ventures		July 1, 2005			July 2, 2004			July 1, 2005			July 2, 2004
(In thousands)	March 30, 2007				March 31, 2006
Revenue		$	~~166,501~~		$	~~165,764~~		$	~~295,735~~		$	~~325,185~~
Cost of revenue		(241,270		)	(161,810		)	(364,217		)	(322,414		)
Power	$	214,613			$	204,700
Gross profit (loss)		$	(74,769	)	$	3,954		$	(68,482	)	$	2,771
Infrastructure		133,705				142,378
Mining		56,419				31,709
Industrial/Process		141,627				125,449
Defense		141,463				152,598
Energy & Environment		148,689				170,999
Intersegment, eliminations and other		860				509
Total revenue	$	837,376			$	828,342
Gross profit (loss)
Power	$	11,615			$	11,111
Infrastructure		4,232				(2,757	)
Mining		97				(4,714	)
Industrial/Process		325				4,609
Defense		9,309				13,603
Energy & Environment		7,291				14,069
Intersegment and other unallocated operating costs		(163	)			(878	)
Total gross profit	$	32,706			$	35,043
Equity in income (loss) of unconsolidated affiliates
Power	$	(1	)		$	19
Infrastructure		389				350
Mining		7,877				12,573
Industrial/Process		347				191
Defense	─				─
Energy & Environment		815				57
Total equity in income of unconsolidated affiliates	$	9,427			$	13,190
Operating income (loss)
Power	$	11,614			$	11,130
Infrastructure		4,621				(2,407	)
Mining		7,974				7,859
Industrial/Process		672				4,800
Defense		9,309				13,603
Energy & Environment		8,106				14,126
Intersegment and other unallocated operating costs		(163	)			(878	)
Corporate general and administrative expenses		(19,393	)			(14,760	)
Total operating income	$	22,740			$	33,473

Washington Group’s share of results of operations of		Three months ended						Six months ended
Assets as of (In thousands)	March 30, 2007				December 29, 2006
non-consolidated construction joint ventures		July 1, 2005			July 2, 2004			July 1, 2005			July 2, 2004
Power	$	143,913			$	126,266
Revenue		$	70,812		$	63,921		$	122,816		$	123,477
Infrastructure		167,622				165,390
Cost of revenue		(108,373		)	(63,310		)	(154,826		)	(125,870		)
Mining		286,823				270,362
Gross profit (loss)		$	(37,561	)	$	611		$	(32,010	)	$	(2,393	)
Industrial/Process		130,824				128,567
Defense		98,599				107,917
Energy & Environment		236,070				347,875
Corporate and other		544,984				585,947
Total assets	$	1,608,835			$	1,732,324

I-11

During 2004, a construction joint venture in which we have a 50% interest recognized a contract loss on a $378,000 fixed-price roadway interchange and bridge project. Our share of the loss amounted to $27,500 of which $5,000 was recorded during the three and six months ended July 2, 2004. During the second quarter of 2005, the final design for a major portion of the project was completed. Based on the final design and combined with what we believe to be a number of changes directed by the clients, or the state regulatory agency, the estimated costs have increased significantly due to quantity growth, cost escalation, additional labor required. Also, the changes will result in a later completion date with the attendant costs. Our share of the estimated additional costs is $38.6 ~~million, bringing our share of the total estimated loss to $66~~.~~1 million. To date we have only been able to~~ ~~negotiate~~ INCOME ~~acceptable~~TAXES ~~change~~AND ~~orders~~ADOPTION ~~with~~OF ~~the~~FIN ~~clients involved for a small portion of the cost increases. As of July 1, 2005, the project is approximately 31% complete and is scheduled to be complete in the first quarter of 2007.~~48

~~Pending~~ The effective ~~change~~tax ~~orders~~rates ~~and~~for ~~claims submitted to~~ the ~~client~~ ~~total~~three ~~approximately~~months ~~$50~~ended ~~million~~March 30, ~~our~~2007 ~~share~~and isMarch ~~$25 million~~31, ~~and we~~ ~~believe~~ 2006, ~~additional~~were ~~claims will be submitted~~38.1 Wepercent ~~believe there will be significant recoveries once the claim process is completed. Because we have not been able to reach agreement on the change orders~~ and ~~claims, recoveries will be recognized only when it is probable they will result in additional revenue and the amount can be reliably estimated~~39.9 ~~While the entire amount of the current estimated loss has been recognized~~percent, ~~actual results may differ from our estimates~~respectively.

~~Unconsolidated~~ In July ~~affiliates~~2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes (“FIN 48”). FIN 48 prescribes a more-likely-than-not recognition threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest and penalties, and disclosure. An uncertain income tax position is not recognized if it has less than a 50 percent likelihood of being sustained.

~~At July~~ 1,We adopted ~~2005,~~the weprovisions ~~held~~of ~~ownership~~FIN ~~interests~~48 ineffective December 30, 2006. As of December ~~unconsolidated~~ 29, 2006, ~~affiliates~~we ~~that~~had ~~are~~recognized ~~accounted~~tax benefits for ~~under~~$22.3 ~~the~~million ~~equity~~of ~~method,~~tax ~~the~~deductions ~~most~~ that ~~significant~~we have ofconcluded ~~which~~do ~~are~~not ~~two~~meet ~~incorporated~~the ~~mining~~more-likely-than-not ~~ventures:~~threshold ~~MIBRAG~~for ~~(50%)~~financial ~~and~~ statement ~~Westmoreland~~recognition. ~~Resources~~As ~~(20%).~~a Weresult, ~~provide~~the ~~consulting~~adoption ~~services~~of toFIN ~~MIBRAG~~48 ~~and contract~~resulted ~~mining~~in ~~services~~recording an increase to ~~Westmoreland~~other ~~Resources.~~non-current ~~The~~liabilities ~~tables~~and ~~below~~a ~~present~~charge to capital in excess ~~the~~ of ~~financial~~par ~~information~~value ~~for~~of ~~our~~$5.8 ~~unconsolidated~~million. ~~affiliates~~In inaddition, ~~which~~changes wein dothe ~~not~~unrecognized tax ~~hold~~ benefit awould ~~controlling~~have ~~interest~~no ~~but~~impact ~~exercise~~on ~~significant~~the ~~influence~~effective tax rate in future periods.

Combined financial position of
unconsolidated affiliates	July 1, 2005			December 31, 2004
Current assets	$	149,632		$	184,801
Property and equipment, net	574,949			615,475
Other non-current assets	608,826			686,849
Current liabilities	(94,034		)	(98,424		)
Long-term debt, non-recourse to parents	(234,000		)	(257,950		)
Other non-current liabilities	(672,072		)	(769,739		)
Net assets	$	333,301		$	361,012

We recognize interest and penalties accrued related to unrecognized tax liabilities in income tax expense. We had $1.0 million accrued for the payment of interest at December 29, 2006. Upon adoption of FIN 48 on December 30, 2006, no change in our accrual for interest and penalties was required.

Combined results of operations of	Three months ended						Six months ended
unconsolidated affiliates	July 1, 2005			July 2, 2004			July 1, 2005			July 2, 2004
Revenue	$	103,535		$	112,331		$	221,722		$	230,323
Cost of revenue	(99,344		)	(97,819		)	(202,211		)	(193,997		)
Gross profit	$	4,191		$	14,512		$	19,511		$	36,326

We are subject to taxation in the US and various states and foreign jurisdictions. Our returns for tax years 2002 and 2003 are currently under examination by the Internal Revenue Service (“IRS”). It is reasonably possible that the examination phase of the audit for these years may conclude in the next twelve months. As of March 30, 2007, the IRS has proposed adjustments to certain claimed deductions. We are currently evaluating those proposed adjustments. We do not anticipate the adjustments would result in a material change to our results of operations and financial position. With few exceptions, we are no longer subject to US federal, state, local or foreign examinations by tax authorities for years before 2002.

57. ~~CREDIT~~ CONTINGENCIES ~~FACILITIES~~AND COMMITMENTS

~~We have a Senior Secured Revolving Credit Facility~~Contract ~~(the~~ related “Credit Facility”) that provides for up to $350,000 in the aggregate of loans and other financial accommodations allocated pro rata between a tranche A facility and a tranche B facility. On June 14, 2005, we amended the Credit Facility to include more favorable terms, increase the tranche A to $247,500 from $115,000 and decrease the tranche B to $102,500 from $235,000. As amended, the scheduled termination date for both tranche A and tranche B is June 14, 2010. The borrowing rate for tranche A is LIBOR plus an additional margin of 2.00%. The borrowing rate for tranche B is LIBOR plus an additional margin of 1.75%. As of July 1, 2005, the effective borrowing rate was 5.34% for tranche A and 5.09% for tranche B. The Credit Facility also provides for other fees, including commitment and letter of credit fees, normal andmatters

I We have cost-12type contracts with the US government that require the use of estimated annual rates for indirect costs. The estimated rates are analyzed periodically and adjusted based on changes in the level of indirect costs we expect to incur and the volume of work we expect to perform. The cumulative effect of changes to estimated rates is recorded in the period of the change. Additionally, the allowable indirect costs for US government cost-type contracts are subject to adjustment upon audit by the US 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. Audits by the US government of indirect costs are complete through 2003. Audits of 2004 and 2005 indirect costs are in process. The US government is also in the process of auditing insurance related costs reimbursed under government contracts for periods ranging from 1998 through 2005.

~~customary for such credit agreements. Under the current terms of the~~ US ~~agreement,~~ Government ~~letters~~Cost ofAccounting ~~credit~~Standards ~~are~~and ~~allocated~~other ~~pro~~regulations ~~rata~~also ~~between~~require ~~the facilities on~~that ~~the~~ accounting ~~same~~changes, ~~basis~~ as ~~loans.~~defined, ~~Letter~~be ofevaluated ~~credit fees are calculated using the applicable LIBOR margins of 2.00%~~ for ~~tranche~~potential Aimpact ~~and~~to ~~1.75% for tranche B plus an issuance fee which is negotiated with~~ the ~~issuing bank. Commitment fees are~~ ~~calculated on the remaining borrowing capacity of each tranche after~~ amount ~~subtracting all loans and letters~~ of ~~credit.~~indirect ~~The~~costs ~~commitment~~allocated ~~fee~~to isgovernment ~~0.50%~~contracts ~~for tranche A~~ and ~~1.75%~~that ~~for~~cost ~~tranche B. At July 1, 2005, $122,797 in face~~impact ~~amount~~ statements ofbe ~~letters~~submitted ofto ~~credit were issued and outstanding and no borrowings were outstanding leaving a borrowing capacity of $227,203 under~~ the ~~Credit~~US ~~Facility. In~~government ~~July 2005,~~for ~~a $50,000 letter of credit supporting a surety facility was cancelled~~audit. ~~The~~Cost ~~Credit~~impact ~~Facility contains financial covenants requiring the~~statements ~~maintenance~~ through of1998 ~~specified~~have ~~financial~~been ~~and~~audited ~~operating~~by ratios, and specified events of default that are typical for a credit facility of this size, type and tenor. The Credit Facility also contains affirmative and negative covenants that limit our ability and the ~~ability~~US ofgovernment ~~some of our subsidiaries to incur debt or liens, provide guarantees, make investments, merge with or acquire other companies,~~ and ~~pay dividends~~settled. AtWe ~~July 1,~~are ~~2005, we were~~ in ~~compliance with all of the~~ ~~financial covenants under~~ the ~~Credit Facility. The Credit Facility is secured~~ by process ~~substantially all~~ of ~~the~~preparing ~~assets~~cost ofimpact ~~Washington~~statements ~~Group~~for ~~and~~1999 ~~our~~through ~~wholly owned domestic subsidiaries~~2005.

As While a we ~~result~~have ofrecorded ~~the~~reserves ~~June 14,~~for ~~2005~~amounts ~~amendment~~we tobelieve ~~the~~are ~~Credit~~owed ~~Facility,~~to ~~$3,588~~the ofUS government ~~deferred~~ under ~~financing~~cost-type ~~fees~~contracts, ~~were~~actual ~~written~~results ~~off~~may ~~during~~differ ~~the~~from ~~three and six months ended July 1,~~our ~~2005~~ estimates.

~~6. OPERATING SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION~~I-12

~~We operate through six business units, each~~ Letters of which comprises a separate reportable business segment: Power, Infrastructure, Mining, Industrial/Process, Defense, and Energy & Environment. The reportable segments are separately managed, serve different markets and customers, and differ in their expertise, technology and resources necessary to perform their services.credit

~~Power~~ In the ~~provides~~normal ~~engineering~~course of business, ~~construction~~we ~~and~~cause letters of credit to be issued in ~~operations~~ connection ~~and~~with ~~maintenance~~contract ~~services~~performance obligations that are not required to be reflected in ~~both~~the ~~fossil~~accompanying ~~and~~condensed ~~nuclear~~consolidated ~~power~~balance ~~markets~~sheets. We are obligated to reimburse the issuer of such letters of credit for ~~turnkey~~any ~~new~~payments made ~~power~~thereunder. ~~plant~~At ~~construction~~March 30, ~~plant~~2007 ~~expansion~~and December 29, ~~retrofit~~2006, $149.9 million and ~~modification~~ $148.1 million, ~~decontamination~~respectively, ~~and~~in ~~decommissioning,~~face ~~general~~amount ~~planning~~of letters of credit were outstanding. As of March 30, ~~siting~~2007, ~~and~~$126.0 million of the outstanding letters ~~licensing~~ of credit were issued under the Credit Facility and ~~environmental~~$21.0 ~~permitting~~million of letters of credit were secured by restricted cash.

~~Infrastructure provides diverse engineering and~~Legal 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 and hydroelectric facilities. The business unit generally performs as a general contractor or as a joint venture partner with other contractors on domestic and international projects. Matters

~~Mining~~ Litigation and Investigation ~~provides~~related to USAID Egyptian Projects. In 2002, the Inspector General for the US Agency for International Development (“USAID”) requested documentation about and made inquiries into the contractual relationships between one of our US joint ventures and a local construction company in Egypt. The focus of the inquiry was whether the structure of our business relationship with the Egyptian company violated USAID contract~~-mining~~ regulations with respect to source, ~~engineering~~origin, and nationality ~~resource~~ requirements. In ~~evaluation~~January 2004, ~~geologic~~we ~~modeling,~~entered ~~mine~~into ~~planning,~~an ~~simulation~~agreement ~~modeling,~~with ~~equipment~~ USAID ~~selection,~~whereby ~~production~~we ~~scheduling~~agreed to undertake certain compliance and ~~operations~~training ~~management~~measures and toUSAID ~~coal~~agreed that we are presently eligible for USAID contracts, including ~~industrial~~ host-country ~~minerals~~projects, and ~~metals~~are ~~markets~~not under threat of suspension or debarment arising out of matters covered by the USAID inquiry. We satisfactorily completed that training effective November 22, 2004, and, as a result, are currently in good standing to bid on all USAID projects.

~~Industrial/Process~~ In March ~~provides~~2003, ~~engineering~~we were notified by the Department of Justice that the US government was considering civil litigation against us for potential violations of the USAID source, ~~design~~origin, ~~procurement~~ and nationality regulations in connection with five of our USAID-financed host-country projects located in Egypt beginning in the early 1990s. Following that notification, ~~construction~~we ~~services~~responded to inquiries from the Department of Justice and ~~total~~otherwise ~~facilities~~cooperated ~~management~~with ~~for~~the ~~general~~government’s ~~manufacturing~~ investigation. In November 2004, ~~pharmaceutical~~the government filed an action in the US District Court for the District of Idaho against us and ~~biotechnology,~~the ~~oil~~companies referred ~~production,~~to ~~gas~~above ~~treating,~~with respect to the Egyptian projects (the “Idaho ~~gas~~ Action”). The ~~monetization~~Idaho Action was brought under the Federal False Claims Act, ~~institutional~~the ~~buildings~~Federal Foreign Assistance Act of 1961, ~~food~~and common law theories of payment by mistake and ~~consumer~~unjust ~~products,~~enrichment. The complaint seeks damages and ~~automotive,~~ civil penalties ~~aerospace,~~for ~~telecommunications~~violations of the statutes and ~~pulp~~asserts that the government is entitled to a refund of all amounts paid to us and ~~paper~~the ~~industries~~other defendants under the specified contracts. The government alleges that approximately $373.0 million was paid under those contracts. We deny any liability in the action and contest the government’s damage allegations and its entitlement to any recovery. All projects were completed and turned over for operation.

~~Defense~~ Further, on ~~provides~~March 23, 2005, we filed a ~~complete~~Motion ~~range~~to ofEnforce ~~technical~~the Confirmation Order in the Bankruptcy Court ~~services~~ in Nevada, and a Motion to Dismiss or Stay the ~~U.S.~~Action ~~Department~~in the Idaho Court pending resolution of ~~Defense,~~the ~~including~~proceedings ~~operations~~in ~~and~~the ~~management~~Bankruptcy Court. In the filings in ~~services~~ the Bankruptcy Court, ~~environmental~~we sought dismissal of the government’s claims pursuant to the Confirmation Order (and ~~chemical~~other ~~demilitarization~~relevant ~~services~~orders of the Bankruptcy Court) because of the government’s failure to give appropriate notice or otherwise preserve those claims. On August 30, ~~waste~~2005, ~~handling~~the Bankruptcy Court granted our Motion ~~and~~ to Enforce ~~storage~~the Confirmation Order, ~~architectural~~in ~~engineering~~total, ~~services~~ruling ~~and~~that ~~engineering~~all of the government’s claims (as set forth in the Complaint in the Idaho Action) are barred. On November 9, ~~procurement~~2005, the Bankruptcy Court confirmed its decision with a written order and ~~construction~~detailed ~~services~~findings of fact. The government appealed the Bankruptcy Court's order to the US District Court for the ~~armed~~District ~~forces~~of Nevada. On March 22, 2006, the judge in the Idaho Action stayed that action during the pendency of the government's appeal of the Bankruptcy Court's ruling.

~~Energy~~ &On December ~~Environment~~29, ~~provides~~2006, ~~services to~~ the District ~~U.S.~~Court ~~Department~~in ofNevada ~~Energy,~~disagreed with the specific grounds on which isthe Bankruptcy ~~responsible~~Court ~~for~~had ~~maintaining~~determined that the ~~nation~~Government’s ~~nuclear~~ ~~weapons~~statutory ~~stockpile~~claims were barred, and ~~performing~~on ~~environmental~~that ~~cleanup~~basis reversed the Bankruptcy Court’s order and ~~remediation.~~remanded the ~~The~~ matter ~~business~~back ~~unit~~to ~~also~~the ~~provides~~Bankruptcy ~~the~~Court Ufor further proceedings.S. ~~government~~In ~~with~~his ~~construction~~Order, ~~contract~~ ~~management,~~ the District ~~supply-chain~~Court ~~management~~judge specifically noted that on remand, ~~quality~~“[t]he ~~assurance~~Bankruptcy Court may choose among other things, ~~administrative~~to ~~and~~address whether the Idaho claims are barred ~~environmental~~ for ~~cleanup~~any ~~and~~other ~~restoration~~reasons, ~~services~~or are otherwise affected by WGI’s Bankruptcy proceedings.” ~~Energy &~~We ~~Environment~~intend to renew our motion that the Government’s claim in the ~~provides~~ Bankruptcy ~~safety~~Court ~~management~~is ~~consulting~~nonetheless ~~and~~barred ~~waste~~under ~~and~~different ~~environmental~~theories ~~technology~~than those ~~and~~ initially ~~engineered~~addressed ~~products~~by the Bankruptcy Court. On February 23, ~~including~~2007, ~~radioactive~~the ~~waste~~US District ~~containers~~Judge ~~and~~reaffirmed ~~technical~~that the Idaho Action will remain stayed until ~~support~~ the Bankruptcy ~~services~~Court determines whether the government’s claims in the Idaho Action are barred.

I-13

~~The~~ Our joint ~~accounting~~venture ~~policies~~for one of the ~~segments~~five ~~are~~projects referred to above brought arbitration proceedings before an arbitration tribunal in Egypt in which it asserted an affirmative claim for additional compensation for the ~~same~~construction of water as and wastewater ~~those~~treatment ~~described~~facilities in ~~Note~~Egypt. 1The project owner, National Organization for Potable Water and Sanitary Drainage (“~~Significant~~NOPWASD”), ~~Accounting~~an ~~Policies~~Egyptian government agency,” asserted in a counterclaim that by reason of alleged violations of the ~~Notes to~~USAID ~~Consolidated~~source, ~~Financial~~origin ~~Statement~~and innationality ~~Part II~~regulations, ~~Item~~and 8alleged violations of Egyptian law, our ~~2004~~joint ~~Annual Report~~venture onshould ~~Form 10-K.~~forfeit Weits ~~evaluate~~claim, ~~performance~~pay damages of approximately $6.0 million and ~~allocate~~the ~~resources~~owner’s ~~based~~costs of defending against the joint venture’s claims in arbitration. We denied liability on ~~segment~~the project ~~operating~~owner’s ~~income~~counterclaim. ~~Segment~~On ~~operating~~April ~~income~~17, is2006, ~~total~~the ~~segment~~arbitration ~~revenue~~tribunal issued ~~reduced~~ its byaward ~~segment~~providing ~~cost~~that ofthe ~~revenue~~joint ~~and~~venture ~~includes~~prevailed ~~equity~~on its affirmative claims in the net ~~earnings~~amount of ~~unconsolidated~~ ~~affiliates~~$8.2 million, ~~Intersegment~~ and ~~other~~that ~~unallocated~~NOPWASD's ~~operating~~counterclaims ~~costs~~are ~~principally~~ rejected. ~~consist~~Our portion of ~~residual~~any ~~costs~~final ofaward ~~our~~received ~~non-union~~by ~~subsidiary~~the ~~and~~joint venture would ~~unallocated~~ be approximately ~~costs~~45 percent. Because of ~~our~~potential ~~self~~issues ~~insurance~~related ~~program~~to appeals or collectibility of amounts awarded, no amounts related to this potential recovery have been recognized in the accompanying consolidated financial statements.

~~SEGMENT~~ Based ~~OPERATING~~ on ~~INFORMATION~~our assessment of the above-described matters, we recorded a charge of $8.2 million in the year ended December 31, 2004. Potential recovery on the arbitration award, or additional loss, if any, is not estimable.

	Three months ended							Six months ended
	July 1, 2005			July 2, 2004				July 1, 2005			July 2, 2004
Revenue
Power	$	186,797		$	146,887			$	337,446		$	297,089
Infrastructure	186,193			199,380				347,090			477,030
Mining	42,753			25,575				70,346			45,945
Industrial/Process	103,305			99,225				200,561			190,029
Defense	132,561			118,593				285,131			240,774
Energy & Environment	120,858			95,966				232,973			192,436
Intersegment, eliminations and other	717			(1,142			)	498			(4,655			)
Total revenue	$	773,184		$	684,484			$	1,474,045		$		1,438,648
Gross profit (loss)
Power	$	25,605		$	5,640			$	39,609		$		13,857
Infrastructure	(47,451		)	6,060				(44,088		)	11,912
Mining	(1,450		)	2,604				(1,958		)	3,189
Industrial/Process	1,426			1,341				(459		)	2,829
Defense	17,330			9,215				32,441			17,785
Energy & Environment	8,404			14,506				25,169			31,805
Intersegment and other unallocated operating costs	(289		)	(1,630			)	(1,066		)	(6,252			)
Total gross profit	$	3,575		$	37,736			$	49,648		$		75,125
Equity in income (loss) of unconsolidated affiliates
Power	$	35		$	61			$	57		$		130
Infrastructure	232			184				380			366
Mining	972			6,802				8,139			17,236
Industrial/Process	80			194				288			330
Defense	—			—				—			—
Energy & Environment	604			(122			)	402			(263			)
Intersegment and other	—			—				—			—
Total equity in income of unconsolidated affiliates	$	1,923		$	7,119			$	9,266		$		17,799
Operating income (loss)
Power	$	25,640		$		5,701		$	39,666		$		13,987
Infrastructure	(47,219		)	6,244				(43,708		)	12,278
Mining	(478		)	9,406				6,181			20,425
Industrial/Process	1,506			1,535				(171		)	3,159
Defense	17,330			9,215				32,441			17,785
Energy & Environment	9,008			14,384				25,571			31,542
Intersegment and other unallocated operating costs	(289		)	(1,630			)	(1,066		)	(6,252			)
General and administrative expenses, corporate	(10,116		)	(15,792			)	(25,422		)	(29,754			)
Total operating income (loss)	$	(4,618	)	$		29,063		$	33,492		$		63,170

New Orleans Levee Failure Class Action Litigation. From July 1999 through May 2005, we performed demolition, site preparation, and environmental remediation services for the US Army Corps of Engineers on the east bank of the Inner Harbor Navigation Canal (the “Industrial Canal”) in New Orleans, Louisiana. All the work performed by us and our subcontractors was directed, supervised and approved by the US Army Corps of Engineers.

~~I-14~~ On August 29, 2005, Hurricane Katrina devastated New Orleans. The storm surge created by the hurricane overtopped the Industrial Canal levee and floodwall, flooding the Lower Ninth Ward and other parts of the city.

7 Between September 19, 2005 and March 30, 2007, twenty-seven personal injury and property damage class action lawsuits have been filed in Louisiana State and Federal court naming us, and twenty-six are currently pending. ~~TAXES~~ Other defendants include ON the ~~INCOME~~USACE, the Board for the Orleans Parish Levee District, and its insurer, St. Paul Fire and Marine Insurance Company. Over 170 hurricane-related cases, including Washington Group International cases, have been consolidated in the Federal District Court for the Eastern District of Louisiana. The plaintiffs claim that defendants were negligent in their design, construction and/or maintenance of the New Orleans levees. The alleged class of plaintiffs are all residents and property owners who incurred damages arising out of the breach and failure of the hurricane protection levees and floodwalls in the wake of Hurricane Katrina. The allegation against us is that the work we performed adjacent to the Industrial Canal damaged the levee and floodwall and caused and/or contributed to breaches and flooding. The plaintiffs allege damages of $200 billion and demand attorneys’ fees and costs. In the event we are found to have any liability in this matter, we have substantial general liability and professional liability insurance coverage. While the adequacy of the coverage cannot be predicted with certainty, it is believed to be adequate to cover any potential liability which could be imposed on us as a result of this litigation.

~~The~~ We ~~effective~~ deny ~~tax~~any ~~rates~~liability ~~for~~and ~~the~~are ~~three~~vigorously ~~and~~defending ~~six~~these ~~months~~lawsuits. ~~ended~~We ~~July 1~~did not design, ~~2005~~construct, ~~were~~repair ~~a benefit~~or maintain any of ~~68.6%~~the ~~and~~levees anor ~~expense~~floodwalls ofthat failed ~~30.7%,~~during ~~respectively~~or after Hurricane Katrina. ~~The~~ ~~effective~~There ~~tax~~is ~~rate~~no ~~for~~evidence ~~both~~that activities performed by us damaged the ~~three~~Industrial ~~and six~~Canal ~~months~~levee ~~ended~~or ~~July 2,~~floodwall. ~~2004~~We ~~was~~will pursue all ancontractual ~~expense~~and equitable rights of 40indemnity and contribution and leverage all available challenges against class certification.~~5%.~~

~~The~~ Based on ~~consolidated~~the ~~pretax~~status ~~loss~~and ~~for~~nature ~~the~~of ~~three~~this ~~months ended~~matter ~~July 1,~~at ~~2005~~this ~~reflected~~time, inwe ~~the~~cannot ~~accompanying~~make ~~consolidated~~an ~~statements~~estimate of ~~operations~~probable ~~consists~~liability, ofif aany. ~~domestic~~We ~~loss~~performed ~~partially~~the ~~offset~~work byadjacent ~~foreign~~to ~~income.~~the Industrial ~~Income~~ Canal ~~from~~as ~~foreign~~a ~~sources~~contractor isfor ~~generally~~the ~~not~~US ~~subject~~government toand ~~state~~are ~~income~~pursuing ~~tax,~~dismissal ~~which~~from ~~results~~ the lawsuits ineither anas ~~increased~~a ~~state~~result ~~tax~~of ~~benefit~~a ~~related~~motion to ~~the~~dismiss ~~taxable~~for ~~loss~~failure ~~for~~to ~~the~~state a ~~three~~ claim or ~~months~~on ~~ended~~a ~~July 1,~~motion ~~2005.~~for ~~However,~~summary ~~foreign~~judgment ~~source~~on ~~income~~the ~~not subject~~basis tothat ~~state~~government ~~tax~~contractors are immune ~~decreased~~from ~~the~~liability. ~~state~~Until ~~effective~~our ~~tax~~motions ~~rate~~are indecided, ~~periods~~class ofcertification ~~taxable~~ decisions ~~income~~are ~~resulting~~issued, inand awe ~~lower~~know ~~state~~who ~~effective~~our ~~tax~~co-defendants ~~rate~~will ~~for~~be, ~~the~~there ~~six months~~is ~~ended~~ no reasonable ~~July 1,~~basis ~~2005~~for ~~compared~~accurately topredicting the ~~same~~outcome ~~period~~of inthese ~~the~~actions. Consistent ~~prior~~with ~~year. Also,~~our inaccounting ~~preparing~~policy ~~the~~of ~~state~~accruing ~~income~~legal ~~tax returns~~fees when probable and estimable, ~~extensions~~as ~~for~~of ~~2004~~March 30, 2007, we ~~revised~~have ~~our~~accrued ~~estimate~~$5.7 ofmillion ~~the~~for ~~impact of~~estimated ~~foreign~~ legal ~~earnings~~defense ~~not~~costs ~~subject~~associated towith ~~state~~these ~~income taxes~~matters. ~~The~~We ~~result~~believe ofa ~~this~~portion ~~change~~of in these costs ~~estimate~~are ~~was~~reimbursable aunder ~~$2,000~~our ~~tax~~insurance ~~benefit~~program ~~recorded for the three~~ and ~~six~~have ~~months~~recorded a ~~ended~~ corresponding ~~July 1,~~insurance ~~2005~~receivable.

During the three months ended July 1, 2005, we settled with the IRS on disputes involving tax years 1994 through 1997. The settlement amount was less than had been previously recorded as a contingent liability. In accordance with SFAS No. 109, Accounting for Income Taxes, the reduction to the liability, which was recorded as of the date of our reorganization, resulted in a $12,079 reduction of goodwill.I-14

8General Litigation. ~~BENEFIT~~ In addition to the foregoing, there are other claims, ~~PLANS~~ lawsuits, disputes with third parties, investigations, and administrative proceedings against us relating to matters in the ordinary course of our business activities that we do not expect to have a material adverse effect on our financial position, results of operations or cash flows. Government contracts, including work performed for US Government Agencies in Iraq, are subject to specific procurement regulations, contract provisions and a variety of other requirements relating to the formation, administration, performance and accounting for these contracts. As a result of our government contracting, claims for civil or criminal fraud may be brought by the government for violations of those regulations, requirements and statutes.

~~The components~~8. ofSTOCK ~~net~~PURCHASE ~~benefit~~WARRANTS ~~cost~~AND ~~for~~STOCK/WARRANT ~~our~~BUYBACK ~~pension and post-retirement benefit plans were as follows:~~PROGRAM

	Three months ended						Six months ended
Pension benefits	July 1, 2005			July 2, 2004			July 1, 2005			July 2, 2004
Service cost	$	1,268		$	1,007		$	2,536		$	2,014
Interest cost	1,175			1,089			2,350			2,177
Expected return on assets	(469		)	(347		)	(938		)	(693		)
Recognized net actuarial loss	96			33			192			59
Net benefit cost	$	2,070		$	1,782		$	4,140		$	3,557

During the three months ended March 31, 2006, under a stock/warrant buy back program, we purchased 2,038,000 warrants at a cost of $35.0 million and 245,000 shares of common stock for $14.3 million. In addition, 2,262,000 warrants were exercised generating proceeds of $71.2 million and the remaining 192,000 outstanding warrants expired on January 25, 2006. In connection with the stock/warrant buy-back program, we incurred $0.7 million of direct costs.

	Three months ended					Six months ended
Post-retirement benefits	July 1, 2005			July 2, 2004		July 1, 2005			July 2, 2004
Service cost	$	198		$	305	$	396		$	610
Interest cost	729			841		1,458			1,667
Recognized net actuarial loss (gain)	(3		)	59		(5		)	128
Amortization of prior service cost	—			12		—			12
Net benefit cost	$	924		$	1,217	$	1,849		$	2,417

As of March 30, 2007, our Board of Directors has authorized $275.0 million for purchases of stock and warrants under the program, of which $174.4 million has been expended. No purchases were made under the program during the three months ended March 30, 2007.

~~I-15~~9. STOCK COMPENSATION PLANS

~~Employer~~ We have ~~Contributions~~two share-based compensation plans for officers, key employees and directors (See Note 13 of the Notes to Consolidated Financial Statements in Part II, Item 8 of our 2006 Annual Report). The number of shares authorized for issuance under the plans as of March 30, 2007, totaled 8,402,000, 555,000 of which were available for future issuance. Our policy is to issue new shares of common stock to satisfy stock option exercises. All stock options granted must have an exercise price equal to or greater than the fair value of our common stock on the date the option is granted. Stock options granted have a contractual term of ten years and vest over three years. Restricted stock grants vest on the third anniversary of the date of grant. We recognize compensation cost for these options and restricted shares on a straight-line basis over the service period for the entire award.

We measure ~~previously~~the ~~disclosed~~compensation incost ~~our~~associated ~~financial~~with ~~statements for~~share-based payments by estimating the ~~year~~fair ~~ended~~value ~~December 31,~~of ~~2004,~~stock weoptions ~~expect~~as toof ~~contribute~~the ~~$8,400~~grant ~~and~~date using the Black-Scholes ~~$4,100,~~ option ~~respectively,~~pricing tomodel. ~~our~~We ~~pension~~believe ~~and~~that ~~post-retirement~~the ~~plans~~valuation ~~during~~technique ~~2005. During~~and the ~~six~~approach utilized ~~months~~to ~~ended~~develop ~~July 1,~~the ~~2005,~~underlying ~~$3,589~~assumptions ~~and~~are ~~$2,270,~~appropriate ~~respectively,~~in calculating ~~have~~ the ~~been~~fair ~~contributed~~values toof ~~our~~the ~~pension~~stock ~~and~~options ~~post-retirement plans~~granted. WeEstimates ~~anticipate~~of fair value are ~~contributing~~ not intended anto ~~additional~~predict ~~$4,811~~actual ~~and~~future ~~$1,830,~~events ~~respectively,~~or tothe ~~fund~~value ~~our~~ultimately ~~pension~~realized ~~and~~ by ~~post-retirement~~the employees ~~plans~~who inreceive ~~2005~~equity awards.

~~9. CONTINGENCIES AND COMMITMENTS~~ I-15

~~Contract~~ The weighted ~~related~~average ~~matters~~fair values of stock-based arrangements on the date of grant and the assumptions used to estimate the fair value of the stock options were as follows:

We have cost-type contracts with the U.S. government that require the use of estimated annual rates for indirect costs. The estimated rates are analyzed periodically and adjusted based on changes in the level of indirect costs we expect to incur and the volume of work we expect to perform. The cumulative effect of changes to estimated rates is recorded in the period of the change. Additionally, the allowable indirect costs for U.S. government cost-type contracts are subject to adjustment upon 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 regulations, we could be required to reimburse the government for amounts previously received. Audits by the U.S. government of indirect costs are substantially complete through 2001. Audits of 2002 and 2003 indirect costs are in process.

	Three Months Ended
	March 30, 2007			March 31, 2006
Weighted average fair value of:
Stock options granted	$	24.13		$	22.34
Restricted stock awards	$	59.37		$	58.34
Average expected volatility		32.9	%		34.7	%
Expected term (years)		6			5
Average risk-free interest rate		4.5	%		4.6	%
Expected dividend yield	─			─

~~U.S.~~ We estimate ~~Government~~expected ~~Cost~~volatility ~~Accounting~~based ~~Standards~~on ~~and~~historical ~~other regulations~~daily ~~also~~price ~~require~~changes ~~that~~of ~~accounting~~our common ~~changes,~~stock asfor ~~defined,~~a beperiod ~~evaluated~~that ~~for potential~~approximates ~~impact~~the tocurrent ~~the~~expected ~~amount~~term of the options. ~~indirect~~The ~~costs~~risk-free ~~allocated~~interest torate ~~government contracts~~is ~~and~~based ~~that~~on ~~cost~~the ~~impact~~US ~~statements~~Treasury beyields ~~submitted~~in effect toat the ~~U.S.~~time ~~government for~~of ~~audit.~~grant Wecorresponding ~~have~~with ~~prepared~~the ~~and~~expected ~~submitted~~term ~~cost~~of ~~impact~~the ~~statements for 1989~~options. ~~through~~ The ~~1998~~expected ~~that~~option ~~have~~term ~~been~~is ~~audited~~the bynumber ~~the~~of ~~U.S.~~years ~~government.~~we Weestimate ~~are~~that ~~currently~~options ~~negotiating~~ will ~~the~~be outstanding ~~resolution~~prior ofto ~~certain~~exercise ~~proposed~~considering ~~audit~~vesting ~~adjustments~~schedules toand ~~the cost~~historical ~~impact~~ exercise ~~statements~~experience. We ~~are~~elected ~~also~~to inuse the ~~process~~simplified method of ~~preparing cost impact~~estimating ~~statements~~ the expected ~~for~~option ~~1999 through 2004~~term.

~~While~~ A summary weof ~~have~~stock ~~provided~~option ~~for~~and ~~amounts~~restricted westock ~~believe~~award ~~are owed~~activity ~~to the U.S. government~~ under ~~cost-type contracts, actual results may differ from~~ our ~~estimates. We believe that the results of the indirect cost~~ ~~audits,~~ share-based ~~the~~compensation ~~resolution~~plans offor the ~~proposed~~three ~~audit~~months ~~adjustments~~ended ~~related~~March ~~to the 1989 through 1998 cost impact statements~~30, ~~and the final submission and audit of cost~~2007 ~~impact statements for 1999 through 2004 will not have a material adverse effect~~ is on presented ~~our~~in ~~financial~~the ~~position,~~following ~~results of operations or cash flows.~~tables:

Letters of credit

Stock Options Three Months Ended (In thousands, except per share data)	Number of Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Yrs)		Aggregate Intrinsic Value
Outstanding as of December 29, 2006		5,101		$	31.95
Granted		346			59.37
Exercised		(208	)		28.69
Forfeited		(1	)		52.40
Outstanding as of March 30, 2007		5,238		$	33.89		5.90	$	170,399
Exercisable as of March 30, 2007		4,483		$	30.18		5.34	$	162,465

In the normal course of business, we cause letters of credit to be issued in connection with contract performance obligations that are not required to be reflected in the accompanying condensed consolidated balance sheets. We are obligated to reimburse the issuer of such letters of credit for any payments made thereunder. At July 1, 2005 and December 31, 2004, $149,797 and $157,881, respectively, in face amount of letters of credit were outstanding. We have pledged cash and cash equivalents as collateral for our reimbursement obligations with respect to $27,000 in face amount of letters of credit that were outstanding at July 1, 2005 not related to the Credit Facility. At July 1, 2005, $122,797 of the outstanding letters of credit were issued under the Credit Facility. On July 26, 2005, a $50,000 letter of credit issued under our credit facility was cancelled.

Restricted Stock Awards Three Months Ended (In thousands, except per share data)	Number of Restricted Shares		Remaining Contractual Life (Yrs)		Weighted Average Aggregate Intrinsic Value
Outstanding as of December 29, 2006		259
Granted		125
Restrictions lapsed		─
Forfeited		─
Outstanding as of March 30, 2007		384		1.92	$	4,876

Intrinsic value represents the amount by which the fair market value of the underlying stock exceeds the exercise price of the options or the fair market value at the time of award of restricted shares. The total intrinsic value of stock-based arrangements exercised or on which the restrictions lapsed during the three months ended March 30, 2007 and March 31, 2006, was $6.7 million and $12.9 million, respectively. As of March 30, 2007, total remaining unrecognized compensation cost related to unvested stock-based arrangements was $26.4 million and is expected to be recognized over a weighted average period of 2.29 years. During the three months ended March 30, 2007, options to purchase 208,000 shares of common stock were exercised for proceeds of $6.0 million. The total grant date fair value of stock options that vested during the three months ended March 30, 2007 and March 31, 2006 was $8.2 million and $6.7 million, respectively.

~~Indemnities~~ I-16

~~We have indemnity obligations relating to the sale~~ITEM of certain assets to Curtiss-Wright Corporation in October 2002 for the potential occurrence of specified events, including breaches of representations and warranties and/or failure to perform certain covenants or agreements 2. ~~Generally,~~ MANAGEMENT'S ~~the~~DISCUSSION ~~indemnification~~AND ~~provisions~~ANALYSIS ~~expire~~OF ~~by October 2005 and are~~FINANCIAL capped at $20,000. In addition, the indemnity provisions relating to environmental conditions obligate us to pay Curtiss-Wright Corporation up to a maximum $3,500 for environmental losses they incur over $5,000 until October 2007. We are also responsible for environmental losses that exceed $1,300 related to a CONDITION

~~I-16~~ AND RESULTS OF OPERATIONS

~~specified~~The following ~~parcel~~management's discussion and analysis of ~~the~~financial ~~sold~~condition ~~property~~and results ~~through~~of operations should be read in conjunction with the condensed ~~October 2012.~~ consolidated ~~BNFL~~financial ~~has~~statements ~~agreed~~and tonotes ~~indemnify~~thereto usin ~~for~~Item ~~40%~~1 of ~~losses~~this ~~we incur~~report. as The afollowing ~~result~~analysis ofcontains forward-looking statements about our ~~indemnity~~future revenues, ~~obligations.~~operating Weresults ~~believe~~and ~~that~~expectations. ~~the~~See ~~indemnification~~"Note Regarding ~~provisions~~ Forward-Looking ~~will~~Information" ~~not~~for ~~have~~ a ~~material~~discussion ~~adverse~~of ~~effect~~the onrisks ~~our~~and ~~financial position,~~uncertainties ~~results~~ affecting ofthese ~~operations~~statements orpreceding ~~cash~~Item ~~flows~~1 of this report.

~~Legal Matters~~OVERVIEW

~~Litigation and Investigation related to USAID Egyptian Projects. In 2002, the Inspector General for the U.S. Agency for International~~ We ~~Development~~ are ~~(“USAID”)~~an ~~requested~~international ~~documentation~~provider ~~about and made inquiries into the contractual relationships between one~~ of ~~our U.S. joint ventures and~~ a ~~local construction~~broad ~~company~~range ~~in Egypt. The focus~~ of ~~the~~design, ~~inquiry was whether the structure of our business relationship with the Egyptian company violated USAID contract regulations with respect to source~~engineering, ~~origin~~ construction, ~~and~~construction ~~nationality requirements. In January 2004~~management, wefacilities ~~entered~~and ~~into~~operations anmanagement, ~~agreement~~ environmental ~~with~~remediation ~~USAID~~and ~~whereby~~mining weservices. ~~agreed~~We tooffer ~~undertake~~our ~~certain~~various ~~compliance and~~services ~~training~~ separately ~~measures~~or ~~and~~as ~~USAID~~part ~~agreed~~of ~~that~~an weintegrated ~~are~~package ~~presently~~throughout ~~eligible~~the ~~for~~life ~~USAID~~cycle ~~contracts, including host-country projects, and not under threat~~ of ~~suspension~~a or customer's ~~debarment~~project. ~~arising~~We ~~out~~serve ofour ~~matters~~customers ~~covered~~through bysix ~~the~~business ~~USAID~~units: ~~inquiry. We~~Power, ~~satisfactorily completed that training effective November 22~~ Infrastructure, ~~2004~~Mining, ~~and~~Industrial/Process, as aDefense ~~result,~~and ~~are~~Energy ~~currently in good standing to bid all USAID projects~~& Environment.

~~In March~~ ~~2003,~~We are wesubject ~~were~~to ~~notified~~numerous byfactors ~~the Department of Justice (“DOJ”)~~ that ~~the U.S.~~have ~~Government~~an ~~was~~impact ~~considering~~on ~~civil~~our ~~litigation~~ability ~~against~~to ~~us for potential~~obtain ~~violations of the USAID source, origin, and nationality regulations in~~ new ~~connection~~ work. ~~with~~The ~~five~~Power ofbusiness ~~our~~unit ~~USAID-financed~~is ~~host-country~~dependent ~~projects~~on ~~located in Egypt beginning in~~ the ~~early~~domestic ~~1990’s.~~demand ~~Following~~for ~~that notification, we responded~~new to power generating ~~inquiries~~facilities ~~from~~and the ~~DOJ~~modification ~~and~~of ~~otherwise~~existing ~~cooperated~~power ~~with the Government’s investigation~~facilities. ~~In November 2004,~~ ~~the~~ Infrastructure ~~Government~~is ~~filed~~affected anby ~~action in~~ the ~~U.S.~~availability ~~District~~of ~~Court~~public ~~for~~sector ~~the~~funding ~~District of~~for ~~Idaho~~ transportation ~~against~~projects us and the ~~companies~~availability ~~referred~~of tobonding. ~~above~~Mining ~~with~~is ~~respect to the~~affected ~~Egyptian~~ by demand ~~projects.~~for ~~The~~coal, ~~action~~precious ~~was~~metals ~~brought~~and ~~under~~other ~~the~~extractive ~~Federal~~resources. ~~False Claims Act,~~The ~~the~~ Industrial/Process ~~Federal~~business ~~Foreign~~unit ~~Assistance~~is ~~Act~~affected, ofin ~~1961~~general, ~~and common law theories of payment~~ by ~~mistake~~the ~~and unjust~~growth ~~enrichment.~~ prospects ~~The~~in ~~complaint~~the ~~seeks~~US ~~damages~~economy and ~~civil~~more ~~penalties~~directly ~~for~~by ~~violations~~the capital spending plans of ~~the~~ its ~~statutes~~large ~~and~~customer ~~asserts~~base. ~~that~~Industrial/Process ~~the~~also ~~Government~~provides isservices ~~entitled~~ to ~~a refund of all~~the ~~amounts~~ natural ~~paid~~gas toprocessing usindustry. ~~and~~Finally, the ~~other~~Defense ~~defendants~~and ~~under~~Energy ~~the specified contracts. The~~& ~~Government~~Environment ~~alleges~~business ~~that~~units ~~approximately~~are ~~$373~~almost ~~million~~entirely ~~was~~dependent ~~paid~~on ~~under~~the ~~those~~spending ~~contracts.~~ levels of Wethe ~~deny~~US ~~any~~government, ~~liability~~ in ~~the~~particular, ~~action and contest~~ the ~~Government’s damage~~Departments ~~allegations~~of ~~and~~Defense ~~its entitlement to any recovery~~and Energy.

~~Further,~~CRITICAL on ACCOUNTING ~~March 23,~~POLICIES ~~2005,~~AND weRELATED ~~filed~~CRITICAL ~~a Motion to Enforce Confirmation Order in the~~ACCOUNTING Bankruptcy Court in Nevada, and a Motion to Dismiss or Stay the Action in the Idaho Court pending resolution of the proceedings in the Bankruptcy Court. The motion to dismiss still is pending before the Idaho Court. In the filings in the Bankruptcy Court, we have sought a dismissal of the Government’s claims pursuant to the Confirmation Order (and other relevant orders of the Bankruptcy Court) because of the Government’s failure to give appropriate notice or otherwise preserve those claims. The motion filed in the Bankruptcy Court was argued on June 20, 2005, and the Court made a preliminary determination that our position was well-founded, pending further briefing by the parties. We anticipate that the Court will render its final decision at a hearing scheduled for August 30, 2005. ESTIMATES

Our accounting ~~joint~~and ~~venture~~financial ~~for~~reporting ~~one~~policies ofare ~~the~~in ~~five~~conformity ~~projects~~with accounting ~~referred~~ principles togenerally ~~above~~accepted ~~brought~~in ~~arbitration~~the ~~proceedings~~United ~~before~~States anof ~~arbitral~~America ~~tribunal~~("GAAP"). The in preparation ~~Egypt~~of our consolidated financial statements in ~~which~~conformity itwith ~~has~~GAAP requires ~~asserted~~us anto ~~affirmative~~make ~~claim~~estimates ~~for~~and ~~additional compensation~~judgments ~~for~~that affect the ~~construction~~reported amounts of assets ~~water~~and liabilities and ~~wastewater~~disclosure ~~treatment~~of ~~facilities in~~contingent ~~Egypt.~~assets ~~The~~and ~~project~~liabilities at the ~~owner~~balance sheet dates, anand ~~Egyptian~~the ~~government~~reported ~~agency,~~amounts ~~asserted~~of inrevenue aand expenses ~~counterclaim~~ during the ~~that~~reporting periods. Our significant accounting policies are described in Note 2, by"Significant ~~reason~~Accounting Policies," of ~~alleged~~the ~~violations~~Notes to Consolidated Financial Statements in Item 8 of ~~the~~our ~~USAID~~2006 ~~source,~~Annual ~~origin~~Report, and our critical accounting policies and ~~nationality~~related ~~regulations~~critical accounting estimates are described in “Management’s Discussion and ~~alleged~~Analysis ~~violations~~of Financial Condition and Results of Operations” ~~Egyptian~~in ~~law~~Part I, Item 7 of our ~~joint~~2006 Annual Report. There were no changes ~~venture~~ in ~~should~~our ~~forfeit~~critical ~~its~~accounting ~~claim,~~policies ~~and~~during ~~pay~~the ~~damages~~three ofmonths ~~approximately~~ended March 30, $ 2007. As discussed in Note 6,~~000,~~ ~~and~~“Income ~~the~~Taxes ~~owner’s~~and ~~costs~~Adoption of FIN 48” ~~defending~~in ~~against~~Part ~~the~~I, ~~joint~~Item ~~venture’s~~1 ~~claims~~of inthis ~~arbitration~~report, we adopted FIN 48 effective December 30, 2006. The Wefollowing ~~are~~discussion ~~defending~~of our significant revenue recognition ~~against~~ policies has been included to enhance the ~~counterclaims~~discussion ~~raised~~of byfinancial results for the ~~project~~interim ~~owner~~periods presented.

~~Based~~ Revenue recognition. onWe ~~our~~follow ~~assessment~~the provisions of the ~~above~~American ~~described~~Institute of ~~matters~~ Certified Public Accountants Statement of Position 81-1, weAccounting ~~recorded~~for Performance aof ~~charge~~Construction-Type and Certain Production-Type Contracts. We recognize revenue on certain engineering and construction-type contracts using the percentage-of-completion ~~$8,200~~method inof accounting whereby revenue is recognized as performance under the ~~fourth~~contract progresses. ~~quarter~~For most of ~~2004~~our fixed-price and target-price contracts, we use a cost-to-cost approach to measure progress towards completion. Under the ~~Additional~~ cost-to-cost ~~loss~~method, ifwe ~~any~~make periodic estimates of our progress towards completion by comparing costs incurred to date with total estimated contract costs. Revenue is then calculated on a cumulative basis (project-to-date) as the total contract value multiplied by the current percentage complete. Revenue for a reporting period is calculated as the cumulative project-to-date revenue less project revenue recognized in prior periods. However, we defer profit recognition on fixed-price and certain target-priced contracts until progress is sufficient to estimate the probable outcome, which generally does not ~~currently~~occur until ~~estimable~~the project is at least 20 percent complete. Fixed-price contracts accounted for 20 and 21 percent of our total revenue for the three months ended March 30, 2007 and March 31, 2006, respectively.

Tar Creek Litigation. From the spring of 1996 through the spring of 2001, we were the environmental remediation contractor for the U.S. Army Corps of Engineers (the “USACOE”) with respect to remediation at the Tar Creek Superfund site at a former mining area in northeast Oklahoma. The USACOE contracted with the U.S. Environmental Protection Agency (the “EPA”) to remove lead contaminated soil in residential areas from moreI-17

I For contracts that include significant material or equipment costs, we use an efforts expended method to measure progress towards completion based on labor hours, labor dollars or some other measurement of physical completion. For certain long-17term contracts involving mining and environmental and hazardous substance remediation, progress towards completion is measured using the units of production method. Revenue from reimbursable or cost-plus contracts is recognized on the basis of costs incurred during the period plus the fee earned. Service-related contracts, including operations and maintenance contracts, are accounted for over the period of performance, in proportion to the costs of performance, evenly over the period or over units of production. Award fees associated with US government contracts are initially estimated and recognized based on historical performance until the customer has confirmed the final award fee. Performance-based incentive fees are included in contract value when a basis exists for the reasonable prediction of performance in relation to established targets. When a basis for reasonable prediction does not exist, performance-based incentive fees are recognized when actually awarded by the customer.

~~than~~ The ~~2,000~~ amount ~~sites~~of ~~and~~revenue ~~replace~~recognized itdepends ~~with~~on ~~clean~~whether ~~fill~~the ~~material.~~contract Inor ~~February 2000,~~project is ~~various~~ determined ~~federal~~to ~~investigators~~be ~~working~~an ~~with~~"at-risk" ~~the~~or ~~U.S.~~an ~~Attorney’s~~"agency" ~~Office~~relationship ~~for~~between the customer ~~Northern~~ and ~~District~~us. Determination of ~~Oklahoma~~the ~~executed~~relationship ~~search~~is ~~warrants~~based ~~and~~on ~~seized~~characteristics ~~records at~~of the ~~Tar Creek project site. Allegations~~ ~~made~~ contract ator the ~~time~~relationship ~~included~~with ~~claims that~~ the ~~project~~customer. ~~falsified~~For ~~truck~~at-risk ~~load tickets~~relationships, ~~and~~ the gross ~~claimed~~revenue ~~compensation~~and ~~for~~the ~~more~~costs ~~loads~~of ~~than~~materials, ~~actually~~services, ~~were hauled~~payroll, ~~or indicated~~benefits, ~~that~~ non-income ~~full~~tax ~~loads~~and ~~were~~other ~~hauled~~costs ~~when~~are ~~partial~~recognized ~~loads~~in ~~actually~~our ~~were~~statement ~~carried,~~of ~~as well~~income. as For agency ~~claims~~relationships, ~~that~~where ~~the~~we ~~project~~act ~~sought~~as ~~compensation~~an agent for ~~truckers~~our ~~and~~customer, ~~injured~~only ~~workers~~fee ~~who~~ revenue ~~were~~is ~~directed~~recognized, tomeaning ~~remain~~that atdirect ~~the~~project ~~job~~costs ~~site,~~and ~~but~~the ~~not to work. In October 2004,~~related ~~the~~ reimbursement ~~Government~~from ~~advised us that~~ the ~~criminal~~customer ~~investigation~~are ~~was concluded in September without any criminal prosecution~~netted.

~~Through~~ The use ~~claims~~of ~~filed~~the inpercentage-of-completion ~~our~~method ~~bankruptcy~~for ~~proceedings~~revenue recognition requires the use of various estimates, including among others, the extent of progress towards completion, contract completion costs and ~~conversations~~contract ~~with~~revenue. ~~lawyers~~Profit ~~from~~to be recognized is dependent upon the ~~Civil~~accuracy ~~Division~~of estimated engineering progress, materials quantities, achievement of milestones and other incentives, penalty provisions, labor productivity and other cost estimates. Such estimates are dependent upon various judgments we make with respect to those factors, and some are difficult to accurately determine until the Uproject is significantly underway.S Progress is evaluated each reporting period. ~~DOJ,~~We werecognize adjustments ~~learned~~ to ~~that~~profitability on contracts utilizing the percentage-of-completion method on a cumulative ~~qui~~basis, ~~tam~~when ~~lawsuit~~such ~~had~~adjustments ~~been~~are ~~filed~~identified. We have a history ~~against~~ of making usreasonably ~~under~~dependable estimates of the ~~Federal~~extent ~~False~~of ~~Claims~~progress ~~Act~~towards completion, bycontract ~~private~~revenue ~~citizens~~and (contract completion costs on our long-term engineering and construction-type contracts. However, due to uncertainties inherent in the ~~“Relators”)~~estimation process, it is possible that actual completion ~~alleging~~ costs may ~~fraudulent~~vary orfrom ~~false~~estimates. ~~claims~~In bylimited uscircumstances, we may use the completed-contract method for ~~payments~~specific ~~received~~contracts infor ~~connection~~which reasonably dependable ~~with~~ estimates cannot be made or for which inherent hazards make the ~~Tar~~estimates doubtful. ~~Creek~~The ~~remediation~~completed ~~project~~contract method was not utilized during any of the periods presented.

InChange orders ~~March 2004,~~and ~~the~~claims. ~~DOJ~~Once ~~declined~~contract toperformance ~~intervene~~is ~~in this civil lawsuit~~underway, ~~with~~we ~~the~~often experience ~~exception~~changes ofin ~~four claims~~conditions, ~~which~~customer ~~are~~requirements, ~~stayed until September 25~~specifications, ~~2005.~~ designs, ~~The~~materials ~~Relators~~and ~~filed~~work anschedule. ~~amended complaint in March 2004~~Generally, ~~which eliminated~~a ~~the~~"change ~~four~~order" ~~claims~~will ~~that~~be negotiated ~~were~~with ~~reserved~~our customer to modify the ~~Government.~~original Wecontract ~~moved~~ to ~~dismiss~~ ~~the~~approve ~~Relators’ claims;~~ both the scope ~~Court~~and ~~has~~price ~~yet~~of tothe ~~rule on~~change. ~~our~~Occasionally, ~~motion~~however, todisagreements arise ~~dismiss.~~ regarding ~~Also~~changes, intheir ~~April 2004~~nature, wemeasurement, ~~received~~timing aand ~~letter~~other ~~from~~characteristics that ~~the~~impact ~~EPA’s Suspension~~costs and ~~Debarment~~revenue ~~Division~~under ~~seeking~~the ~~information,~~contract. ~~regarding~~When ~~the~~a ~~qui~~change ~~tam~~becomes ~~allegations,~~a point of indispute ~~order~~between ~~for~~our ~~the~~customer ~~EPA to~~and ~~determine~~us, ~~whether~~ we ~~presently~~then ~~are~~consider ait ~~responsible~~as ~~contractor~~a claim.

~~In June~~ ~~2005,~~Costs related weto ~~reached~~change anorders ~~agreement~~and inclaims are recognized when they are incurred. ~~principle~~ Change ~~with~~orders ~~EPA’s~~are ~~Suspension~~included ~~and~~in ~~Debarment~~total ~~Division~~estimated tocontract ~~resolve~~revenue when it is probable that the ~~potential~~change order will result in a bona fide addition to contract ~~debarment~~ value ~~matter~~and can be reliably estimated. ~~Under~~Estimated contract revenue associated with change orders may include amounts in excess of incurred costs (profit) when agreement with the ~~proposed~~customer ~~resolution,~~has webeen ~~have~~reached. ~~agreed~~Claims toare ~~continue~~included toin total ~~implement~~ estimated contract revenue, ~~and~~only to ~~explore~~the ~~ways~~extent that contract costs related to the ~~enhance~~claim have been incurred, ~~certain~~when ~~company-wide~~it ~~corporate~~is ~~compliance~~probable that the claim will result ~~programs~~ in a bona fide addition to contract value and ~~EPA~~can ~~has~~be ~~agreed~~reliably ~~that~~estimated, itwhich generally ~~will~~occurs ~~not~~when ~~pursue~~amounts ~~any~~have ~~suspension~~been received or ~~debarment related~~awarded. This can lead to ~~the~~a situation ~~qui~~where ~~tam~~costs ~~allegations.~~are ~~The~~recognized in one period and revenue is recognized ~~agreement~~ when ~~will~~customer ~~become~~agreement ~~effective~~is ~~upon~~obtained ~~the~~or claim resolution occurs, which can be in subsequent periods. Historical claim recoveries should not be considered indicative of future claim recoveries. No claim revenue was recognized during the ~~stayed~~three ~~civil~~months ~~claims~~ended March 30, 2007 and March 31, 2006, respectively.

~~We continue to discuss the civil matter with the DOJ and Relators’ counsel. We believe there was no wrongdoing by us or our employees at this project.~~I-18

~~General~~ Estimated losses ~~Litigation~~on uncompleted contracts and changes in contract estimates. In ~~addition~~ We torecord provisions for estimated losses on uncompleted contracts in the period in ~~foregoing,~~which ~~there~~such losses are ~~other~~identified. ~~claims,~~The ~~lawsuits,~~cumulative ~~disputes~~effect ~~with third~~of ~~parties,~~revisions ~~investigations~~to contract revenue and ~~administrative~~estimated ~~proceedings~~completion ~~against~~costs ~~us relating~~are torecorded ~~matters~~in the accounting period in which the ~~ordinary~~amounts ~~course~~become ofevident ~~our~~and ~~business~~can ~~activities~~be ~~that~~reasonably weestimated. do These ~~not~~revisions ~~expect~~include tosuch ~~have~~items aas ~~material~~the ~~adverse~~effects ~~effect~~of onchange ~~our~~orders ~~financial~~and ~~position~~claims, ~~results~~ warranty ofclaims, ~~operations~~liquidated damages or ~~cash~~other ~~flows.~~contractual ~~Government~~penalties, adjustments for audit findings on US government contracts ~~are~~and ~~subject~~contract tocloseout settlements. ~~specific~~ It ~~procurement~~is ~~regulations,~~possible ~~contract~~that ~~provisions~~there ~~and~~will abe ~~variety~~future ofand ~~other requirements~~currently ~~relating~~unknown significant adjustments to ~~the~~our ~~formation,~~estimated ~~administration~~contract revenue, ~~performance~~costs and ~~accounting~~ ~~for~~gross ~~these~~margins for contracts currently in process. AsThese aadjustments ~~result~~are common in the construction industry and inherent in the nature of our ~~government~~contracts. ~~contracting~~These adjustments could, ~~claims~~ depending ~~for~~on ~~civil~~the magnitude of the adjustments and/or ~~criminal~~the ~~fraud~~number ~~may~~of becontracts being ~~brought~~completed, bymaterially, ~~the~~positively ~~Government~~or ~~for~~negatively, affect our operating ~~violations~~ results ofin ~~those~~an ~~regulations,~~annual ~~requirements~~or ~~and~~quarterly ~~statutes~~reporting period.

~~10. ACQUISITION~~BUSINESS UNIT OFNEW ~~BNFL’s~~WORK ~~INTEREST~~AND ~~IN GOVERNMENT CONTRACTING VENTURES~~BACKLOG

~~On August~~ ~~25, 2004, we entered into an~~New ~~agreement~~ work torepresents ~~acquire BNFL’s 40% economic interest in two government contracting ventures, effective July 31, 2004. The ventures manage highly complex facilities and programs for~~ the ~~U.S.~~monetary ~~Department~~value of ~~Energy~~a ~~(“DoE”)~~contract ~~and Department~~entered ofinto ~~Defense~~with ~~(“DoD”) and provide engineering, construction, management, and risk-analysis services for~~ a ~~variety of governmental~~ ~~markets. Under~~ customer ~~the~~that ~~terms~~is ofbinding ~~the agreement, we own and control the ventures and generally will pay BNFL 40% of future earnings from certain existing contracts and~~ on ~~future~~both ~~Washington~~parties ~~Group contracts, if any, at certain DoE sites~~ and ~~one~~reflects ~~DoD site (~~the ~~“40% Legacy Contracts”) and 10% of the earnings from all other future contracts with the DoE through September 30~~revenue, ~~2012~~or ~~(the “10% Contracts”). BNFL will not share~~equity in ~~any losses related to the 10% Contracts if they occur in the future~~ income, ~~but will~~expected ~~retain its portion of liabilities incurred prior~~ to ~~July 31,~~be ~~2004. The~~recognized acquisition was conditioned upon compliance with the Hart-Scott-Rodino Antitrust Act (the “HSR Act”). This condition was satisfied on April 7, 2005 (the “Effective Date”), the date an exemption from ~~the~~that ~~HSR Act filing requirement became effective pursuant to rules newly adopted by the Federal Trade Commission~~contract.

~~I-18~~ Backlog represents the total accumulation of new work awarded less the amount of revenue, or equity in income, recognized to date on contracts at a specific point in time. We believe backlog is an indicator of future earnings potential. Although backlog reflects business that we consider to be firm, cancellations or reductions may occur and may reduce backlog and future revenue. We have a significant number of customers that consistently extend or add to the scope of existing contracts. We do not include any estimate of this ongoing work in backlog until awarded.

~~For accounting purposes, the agreement has been~~ There ~~bifurcated~~ are ~~between~~three ~~the~~unique ~~40%~~aspects ~~Legacy Contracts and the 10% Contracts. Prior to the acquisition, BNFL had a 40% economic interest in the 40% Legacy Contracts and will continue to receive 40%~~ of ~~the~~our ~~earnings~~approach ~~from such contracts. In substance there has been no change in the economic relationship of the parties and therefore payments~~ to ~~BNFL~~recording ~~for~~new ~~their~~work share of the earnings from the 40% Legacy Contracts have not been recorded as consideration for the acquisition of a minority interest. Prior to the acquisition, BNFL’s portion of the earnings related to the 40% Legacy Contracts was classified on the statement of operations as minority interest in income of consolidated subsidiaries. BNFL’s portion of the cash flows related to the 40% Legacy Contracts was classified on the statement of cash flows as a financing activity as distributions to minority interests. After the Effective Date, BNFL’s share of the earnings related to the 40% Legacy Contracts has been classified as cost of revenue and ~~BNFL’s share of the cash flows related to the 40% Legacy Contracts has been classified as an operating activity.~~ backlog:

~~Payments~~· toGovernment ~~BNFL~~contracts ~~for~~- ~~the~~Most ~~10%~~of ~~Contracts~~our ~~are~~government ~~treated as~~contracts ~~consideration~~cover ~~for~~several ~~the~~years. ~~acquisition~~However, offunding afor ~~minority~~the ~~interest~~contracts ~~and~~is ~~are~~subject ~~recorded using~~to ~~the~~annual ~~purchase~~appropriations ~~method~~by ~~of accounting~~Congress. ~~Pursuant~~To toaccount ~~purchase~~for ~~method accounting,~~ the ~~acquired~~risk ~~assets~~that ~~and~~future ~~assumed~~amounts ~~liabilities~~may ~~have~~not ~~been~~be ~~recorded~~appropriated, ~~at estimated~~we ~~fair~~only ~~values.~~include ~~The~~the ~~fair~~next ~~value~~two years of ~~assets~~forecast ~~acquired~~revenue ~~exceeded liabilities assumed resulting~~ in ~~$6,292~~our ofnew ~~contingent~~work ~~consideration~~and ~~being recorded at the Effective Date~~backlog. ~~Future~~Therefore, ~~payments~~as ~~for~~time ~~the~~passes ~~10%~~and ~~Contracts~~appropriations ~~will~~occur, ~~initially~~additional ~~reduce~~new ~~the contingent~~work ~~consideration~~is ~~then~~recorded beon ~~recorded~~existing asgovernment ~~goodwill~~contracts.

~~Other~~· ~~significant~~Mining ~~adjustments~~contracts ~~related~~- toMining ~~the acquisition~~contracts ~~include:~~span i)varying ~~elimination~~periods of ~~BNFL’s~~time ~~minority~~up ~~interest~~to ofthe ~~$46,135,~~life ~~(ii) elimination~~ of ~~$64,066~~the ofresource. ~~goodwill,~~For ~~and~~new ~~(iii) recording~~work aand ~~receivable~~backlog ~~of $24~~purposes,~~613~~ ~~from BNFL~~we ~~for~~limit ~~its~~the ~~portion~~amount ofrecorded ~~pension~~to ~~liabilities~~five ~~retained~~years. WeSimilar doto ~~not anticipate that the acquisition will have a significant impact on~~ our ~~results~~practices ofwith ~~operations~~government ~~and cash~~contracts, ~~flows~~as ~~except~~time ~~for~~passes, ~~the~~we ~~classification~~recognize ofadditional ~~BNFL’s~~new ~~portion~~work ofas ~~the~~commitments ~~earnings and cash flows~~ for ~~the~~that ~~40%~~future ~~Legacy~~work ~~Contracts~~are asfirmed ~~explained above~~up.

11· At-risk and agency contracts - 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 customer and us. ~~EQUITY~~ ~~TRANSACTIONS~~For at-risk relationships, the expected gross revenue is included in new work and backlog. For relationships where we act as an agent for our customer, only the expected net fee revenue is included in new work and backlog.

During the three and six months ended July 1, 2005, options to purchase 15 and 397 shares, respectively, of common stock were granted at weighted average exercise prices of $47.22 and $42.44, respectively. In addition, 5 and 129 shares, respectively, of restricted stock were awarded to key employees during the three and six months ended July 1, 2005. The fair value of the restricted stock of $5,462 is being expensed over the three year vesting period of the restricted stock. I-19

~~During the three and six months ended July~~ 1,New ~~2005~~ work, ~~options~~which torepresents ~~purchase~~additions ~~158~~to ~~and~~backlog ~~583~~for ~~shares,~~the ~~respectively~~period, ofis ~~common stock~~presented ~~were exercised. Proceeds from the~~ below ~~exercises~~ for ~~during~~each ~~the~~business ~~three and six months ended July 1, 2005 amounted to $3,899 and $12,612, respectively.~~unit:

I-19

	Three Months Ended
NEW WORK (In millions)	March 30, 2007		March 31, 2006
Power	$	419.9	$	161.0
Infrastructure		110.1		95.3
Mining		80.5		73.5
Industrial/Process		105.0		201.5
Defense		175.0		108.7
Energy & Environment		296.1		158.1
Other		0.9		0.2
Total new work	$	1,187.5	$	798.3

~~ITEM~~ Based on the nature of our new work and the bidding and awarding process, our new work can fluctuate significantly period-to-period. The increase in new work to $1.2 billion during the three months ended March 30, 2007 from $798.3 ~~MANAGEMENT~~million in the prior year comparable period is primarily related to new clean air modification projects in our Power business unit, higher funding authorization for Defense’Ss chemical ~~DISCUSSION~~demilitarization ~~AND~~projects, ~~ANALYSIS~~and OFDepartment ~~FINANCIAL~~of ~~CONDITION~~Energy ~~AND~~contract ~~RESULTS~~extensions and OFcontinuations ~~OPERATIONS~~in our Energy & Environment business unit.

~~The~~ New ~~following~~ work ~~management’s~~for ~~discussion and analysis of financial condition and results of operations should be read in conjunction with~~ the ~~condensed consolidated~~three ~~financial~~months ~~statements~~ended ~~and~~March ~~notes thereto in Item 1 of this report. The following analysis contains forward-looking statements about our future revenues~~30, ~~operating~~2007 ~~results~~includes ~~and expectations. See “Note Regarding Forward-Looking Statements” for a discussion of~~ the ~~risks and uncertainties~~following ~~affecting~~ significant ~~these statements preceding Item 1 of this report.~~contracts:

OVERVIEW

	Three Months Ended
(In millions)	March 30, 2007
Power
Clean air modification projects	$	233.5
New generation		115.2
Infrastructure
Engineering services		24.0
Middle East task orders		16.7
Mining
Contract mining services project		48.3
Industrial/Process
Oil and gas projects		55.4
Defense
Chemical demilitarization contract continuations		164.5
Energy & Environment
Department of Energy contract extensions and continuations		172.8
Consulting services		25.1
Middle East task orders		20.5

~~We are an international provider of a broad range of~~ The ~~design,~~ following ~~engineering,~~table ~~construction,~~summarizes ~~construction management, facilities and operations management, environmental remediation and mining services. We offer~~ our ~~various~~changes ~~services~~in ~~separately~~backlog orfor aseach ~~part~~ of ~~an integrated package throughout~~ the ~~life cycle of a customer’s project. We serve our clients through six~~periods ~~business units~~ presented: ~~Power, Infrastructure, Mining, Industrial/Process, Defense and Energy & Environment.~~

We are subject to numerous factors, which have an impact on our ability to obtain new work. The Power business unit is dependent on the domestic demand for new power generating facilities and the modification of existing power facilities. Infrastructure is affected by the availability of public sector funding for transportation projects and the availability of bonding. Mining is affected by demand for coal, precious metals, and other extractive resources. The Industrial/Process business unit is affected in general by the growth prospects in the U.S. economy and more directly by the capital spending plans of its large customer base. Industrial Process also provides services to the natural gas processing industry. With the increase in the price of oil and natural gas, the business unit is actively pursuing opportunities in this market. Finally, the Defense and Energy & Environment business units are almost entirely dependent on the spending levels of the U.S. government, in particular, the Departments of Energy and Defense.

	Three Months Ended
CHANGES IN BACKLOG (In millions)	March 30, 2007			March 31, 2006
Beginning backlog	$	5,604.8		$	4,880.3
New work		1,187.5			798.3
Adjustments to backlog		(51.5	)		(66.6	)
Revenue and equity income recognized		(846.8	)		(841.5	)
Ending backlog	$	5,894.0		$	4,770.5

~~CRITICAL~~ The backlog ~~ACCOUNTING~~adjustment ~~POLICIES~~during ~~AND~~the ~~RELATED~~three ~~CRITICAL~~months ~~ACCOUNTING~~ended ~~ESTIMATES~~March 30, 2007 primarily resulted from an agreement to terminate a contract mining project. The adjustment during the three months ended March 31, 2006 primarily resulted from a negotiated change order on a contract that reduced the remaining contract term from ten years to five years with two five-year renewal options.

Our accounting and financial reporting policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date, and the reported amounts of revenue and expenses during the reporting period. Our significant accounting policies are described in Note 1, “Significant Accounting Policies” of the Notes to Consolidated Financial Statements in Item 8 of our Annual Report on Form 10I-K for the fiscal year ended December 31, 2004 (the “2004 Annual Report”). The following discussion is intended to describe those accounting policies most critical to the preparation of our consolidated financial statements. The development and selection of the critical accounting policies, related critical accounting estimates and the disclosure below have been reviewed with the audit review committee of our board of directors. There were no changes in our critical accounting policies during the three months ended July 1, 2005.20

~~Revenue~~ Backlog at ~~recognition.~~March ~~We follow the provisions of SOP 81-1~~30, ~~Accounting~~2007 ~~for Performance of Construction-Type~~ and ~~Certain~~ ~~Production-Type~~December Contracts. We recognize revenue on engineering and construction-type contracts using the percentage-of-completion method of accounting whereby revenue is recognized as performance under the contract progresses. For most of our fixed-price and target-price contracts29, ~~we use~~2006 aconsisted ~~cost-to-cost approach to measure progress toward completion. Under the cost-to-cost method, we make periodic estimates~~ of ~~our progress toward completion by comparing costs incurred to date with total estimated contract costs. Revenue is then calculated on a cumulative basis (project-to-date) as~~ the ~~total~~following ~~contract value multiplied by the current percentage complete. Revenue~~ for ~~a reporting period is calculated as the cumulative project-to-date revenue~~each ~~less~~ business project revenue recognized in prior periods. However, we defer profit recognition on fixed-price and certain target-priced construction contracts until progress is sufficient to estimate the probable outcome, whichunit:

I-20

BACKLOG (In millions)	March 30, 2007		December 29, 2006
Power	$	1,467.3	$	1,262.0
Infrastructure		760.5		799.6
Mining		714.3		733.3
Industrial/Process		1,190.6		1,227.6
Defense		986.9		953.6
Energy & Environment		774.4		628.7
Total backlog	$	5,894.0	$	5,604.8

~~generally~~ At March ~~does~~30, ~~not~~2007, ~~occur~~our ~~until~~backlog ~~the~~was ~~project~~$5.9 isbillion, an increase of $289.2 million from December 29, 2006. Based on our backlog recognition policies by contract type, reported backlog at ~~least~~March ~~20%~~30, ~~complete~~2007 excludes $2.8 ~~Fixed-price~~billion of government contracts to ~~accounted~~be ~~for~~performed ~~23%~~beyond two years and ~~26%~~$0.8 billion of ~~our total~~mining ~~revenue~~contracts ~~for~~to be performed beyond the ~~six~~next ~~months~~five ~~ended~~years. ~~July 1~~Our backlog at March 30, ~~2005~~2007 consisted of approximately 82 percent cost-type and ~~July 2,~~18 ~~2004,~~percent fixed-price contracts compared ~~respectively~~ with 80 percent cost-type and 20 percent fixed-price contracts at the end of 2006.

~~For contracts that include significant materials or~~RESULTS ~~equipment~~ OF costs, we use an efforts expended method to measure progress towards completion based on labor hours, labor dollars or some other measurement of physical completion. For certain long-term contracts involving mining and environmental and hazardous substance remediation, progress towards completion is measured using the units of production method. Revenue from reimbursable or cost-plus contracts is recognized on the basis of costs incurred during the period plus the fee earned. Revenue from service-related contracts, including operations and maintenance contracts, is recognized over the period of performance, in proportion to the costs incurred over the period or over units of production. Award fees associated with U.S. government contracts are initially estimated and recognized based on prior historical performance until the client has confirmed the final award fee. Performance-based incentive fees are included in contract value when a basis exists for the reasonable prediction of performance in relation to established targets. When a basis for reasonable prediction does not exist, performance-based incentive fees are recognized when actually awarded by the client.OPERATIONS

The ~~amount of revenue recognized depends on whether~~ ~~the~~ following ~~contract~~table orsummarizes ~~project~~our isresults ~~determined to be an “at-risk” or an “agency” relationship between the client and us. Determination~~ of ~~the~~operations ~~relationship~~for ~~is based on characteristics of~~ the ~~contract~~three ~~or the relationship with the client. For “at-risk”~~months ~~relationships~~ ended March 30, ~~the~~2007 ~~gross revenue~~ and ~~the~~March ~~costs of materials~~31, ~~services~~2006, ~~payroll, benefits, non-income tax~~ and ~~other~~is ~~costs~~included ~~are~~to ~~recognized~~facilitate in our ~~statement of~~analysis ~~operations. For “agency” relationships, where we act as an agent for our client, only the base~~ and ~~award~~discussion ~~fee~~of isresults ~~recognized~~of ~~as revenue~~operations.

The use of the percentage-of-completion method for revenue recognition requires the use of various estimates, including among others, the extent of progress towards completion, contract completion costs and contract revenue. Profit margins to be recognized are dependent upon the accuracy of estimated engineering progress, materials quantities, achievement of milestones and other incentives, penalty provisions, labor productivity and other cost estimates. Such estimates are dependent upon various judgments we make with respect to those factors, and some are difficult to accurately determine until the project is significantly underway. Progress is evaluated each reporting period. We recognize adjustments to profitability on contracts utilizing the percentage-of-completion method on a cumulative basis, when such adjustments are identified. We have a history of making reasonably dependable estimates of the extent of progress towards completion, contract revenue and contract completion costs on our long-term engineering and construction contracts. However, due to uncertainties inherent in the estimation process, it is possible that actual completion costs may vary from estimates. In limited circumstances, we may use the completed-contract method for specific contracts for which reasonably dependable estimates cannot be made or for which inherent hazards make the estimates doubtful. The completed contract method was not utilized during any of the periods presented.

	Three Months Ended
(In millions)	March 30, 2007			March 31, 2006
Revenue	$	837.4		$	828.3
Gross Profit		32.7			35.0
Equity in income of unconsolidated affiliates		9.4			13.2
General and administrative expenses		(19.4	)		(14.7	)
Operating income		22.7			33.5
Interest income		3.0			2.6
Interest expense		(1.5	)		(1.9	)
Other expense, net		(0.4	)		(0.4	)
Income before income taxes and minority interests		23.8			33.8
Income tax expense		(9.1	)		(13.5	)
Minority interests in income of consolidated subsidiaries, net of tax		(1.7	)		(1.3	)
Net income	$	13.0		$	19.0

~~Change orders~~THREE ~~and~~ MONTHS ~~claims.~~ENDED ~~Once contract~~MARCH ~~performance is underway~~30, we2007 ~~often~~COMPARED experience changes in conditions, client requirements, specifications, designs, materials and work schedule. Generally, a “change order” will be negotiated with our customer to modify the original contract to approve both the scope and price of the change. Occasionally, however, disagreements arise regarding changes, their nature, measurement, timing and other characteristics that impact costs and revenue under the contract. When a change becomes a point of dispute between our customer and us, as to both scope and price, we then consider it as a claim.TO

~~Costs related to change orders and claims are~~THREE ~~recognized~~ MONTHS ~~when~~ENDED ~~they~~MARCH are incurred. 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. Claims are included in total estimated contract revenue31, only to the extent that contract costs related to the claim have been incurred, when it is probable that the claim will result in a bona fide addition to contract value and can be reliably estimated. No profit is recognized on claims until final settlement occurs. This can lead to a situation where costs are recognized in one period and revenue is recognized when customer agreement is obtained or claim resolution occurs, which can be in subsequent periods. We recognized claim revenue of $8.4 million and $18.1 million and $0.4 million and $3.2 million, respectively, during the three and six months ended July 1, 2005 and three and six months ended July 2, 2004. Substantially all2006

~~I-21~~Revenue and operating income

~~claims~~ Revenue for the ~~were~~three ~~settled~~months ~~and~~ended ~~collected~~March ~~during~~30, ~~each respective~~2007 increased $9.1 million from the comparable period ~~for~~in ~~which~~2006. ~~claim~~The net increase in revenue ~~was~~consists ~~recognized.~~of ~~Additional~~higher ~~contract~~revenue from ~~related~~ new projects ~~costs~~including power clean air modification projects, ~~including~~a ~~subcontractors~~new ~~share~~bauxite ofmine in Jamaica, ~~claim~~a ~~settlements~~uranium enrichment facility in New Mexico, and a new cement plant in Missouri. The increase in revenue from new projects was partially offset by the completion of $1certain projects and decreasing volume of work in Iraq.3 Revenue from work in the Middle East decreased $28.4 million ~~and~~to $161.54 million, ~~respectively~~for the three months ended March 30, 2007 compared to $89.8 million for the three months ended ~~and~~March ~~six~~31, ~~months~~2006 ~~ended~~due ~~July 1,~~to the completion of task orders. We expect revenue ~~2005~~ from ~~reduced~~work ~~the~~in ~~impact~~Iraq onto ~~operating~~continue ~~income~~to ofdecline ~~the~~as ~~claim~~current ~~settlements~~task ~~disclosed~~orders are completed ~~above~~ and funding for new task orders is limited.

Estimated losses on uncompleted contracts and changes in contract estimates. We record provisions for estimated losses on uncompleted contracts in the period in which such losses are identified. The cumulative effect of revisions to contract revenue and estimated completion costs are recorded in the accounting period in which the amounts become evident and can be reasonably estimated. These revisions include such items as the effects of change orders and claims, warranty claims, liquidated damages or other contractual penalties, adjustments for audit findings on U.S. government contracts and contract closeout settlements. It is possible that there will be future and currently unknown significant adjustments to our estimated contract revenues, costs and gross margins for contracts currently in process, particularly in the later stages of the contracts. These adjustments are common in the construction industry and inherent in the nature of our contracts. These adjustments could, depending on the magnitude of the adjustments and the number of contracts being completed, materially, positively or negatively, affect our operating results in an annual or quarterly reporting period. I-21

~~Goodwill. As of July 1, 2005, we have $219.1~~ ~~million of goodwill. Pursuant to Statement of Financial Accounting Standards (“SFAS”)~~A ~~No. 142,~~ summary Goodwill and Other Intangible Assets, goodwill is no longer amortized but is to be tested for impairment at least annually. We regularly evaluate whether events and circumstances have occurred which may indicate a possible impairment of ~~goodwill and perform the annual impairment test for all of our reporting~~ ~~units each October. In conducting~~ the ~~impairment~~significant ~~test,~~changes we apply various techniques to estimate the fair value of our reporting units. These techniques are inherently subjective, and the resulting values are not necessarily representative of the values we might obtain in aoperating ~~sale~~income ~~of our reporting units to a willing third party. Based on our annual review of the recoverability of goodwill as of October 31, 2004, we determined that our goodwill~~ is ~~not impaired.~~included ~~However, our businesses are cyclical and subject to competitive pressures. Therefore it is possible that the goodwill values of our business units could be adversely impacted~~ in the ~~future by these or other factors and~~following ~~that a significant impairment adjustment, which would reduce earnings and potentially affect debt covenants, could be required in such circumstances.~~ table:

Litigation claims and contingencies. In the normal course of business, we are subject to a variety of contractual guarantees and litigation. In general, guarantees can relate to project scheduling, project completion, plant performance or meeting required standards of workmanship. Most of our litigation involves us as a defendant in workers’ compensation, personal injury, contract, environmental, environmental exposure, professional liability and other similar lawsuits. We maintain insurance coverage for some aspects of our business and operations. In addition, we have elected to retain a portion of insured losses that may occur through the use of various deductibles, limits and retentions under our insurance programs. This situation may subject us to some future liability for which we are only partially insured, or completely uninsured. Self-insurance reserves are established and maintained for uninsured business risks.

(In millions)
Operating income for the three months ended March 31, 2006	$	33.5
Increase in earnings from new contracts		6.2
Increase in earnings from continuing contracts		5.4
Decrease in earnings from completion of contracts		(3.4	)
Decrease in earnings from MIBRAG mining venture		(5.1	)
Significant highway project loss in 2006		6.9
Decrease in earnings from task order work in the Middle East		(9.3	)
Increase in business development costs		(6.1	)
Increase in general and administrative expenses		(4.6	)
Other		(0.8	)
Net decrease		(10.8	)
Operating income for the three months ended March 30, 2007	$	22.7

~~Government~~ The diversification ~~funded~~of ~~contracts~~our ~~are,~~business ~~and~~may ~~are~~cause ~~expected~~margins to vary between periods ~~continue~~ due to the ~~be,~~inherent arisks ~~significant~~and ~~part~~rewards ofon ~~our~~fixed-price ~~business.~~contracts Wecausing ~~derived~~unplanned gains and ~~51%~~losses ofon ~~our consolidated~~contracts. ~~operating~~Margins ~~revenues~~may inalso ~~2004~~vary ~~from~~between ~~contracts~~periods ~~with~~due ~~the~~to ~~U.S.~~changes ~~government,~~ in mix ~~including~~and ~~19%~~timing ~~from~~of ~~work~~contracts ~~performed~~executed inby ~~the~~us, ~~Middle~~which ~~East.~~contain ~~Allowable costs~~various ~~under~~risk ~~U.S.~~and profit ~~government~~profiles ~~contracts~~and are subject to ~~audit~~uncertainties byinherent in the ~~government.~~estimation To process. ~~the~~As ~~extent~~discussed ~~that~~in ~~these~~our ~~audits~~summary ~~result~~of incritical ~~determinations~~accounting ~~that~~policies, ~~costs claimed as~~we ~~reimbursable~~ provide for ~~are~~estimated ~~not~~losses ~~allowable~~on ~~costs~~contracts orwhen ~~were~~such ~~not~~losses ~~allocated~~are inidentified ~~accordance~~and ~~with~~can ~~federal~~ be reasonably ~~regulations~~estimated. However, we ~~could~~do benot ~~required~~recognize torevenue ~~reimburse~~for ~~the~~change ~~government~~orders or claims ~~for~~until ~~amounts previously~~it ~~received.~~is Weprobable ~~also~~that ~~have~~they awill ~~number~~result ofin ~~U.S.~~additions ~~government~~to ~~contracts~~the ~~which~~contract ~~extend~~ value. ~~beyond~~In ~~one~~many ~~year~~cases, ~~and~~revenue ~~for~~is ~~which~~not ~~government~~recognized ~~funding~~until ~~has~~an ~~not~~actual ~~yet been~~settlement ~~approved~~ is reached. ~~All~~The ~~U.S.~~combination ~~government~~of ~~contracts~~these ~~and~~accounting ~~some~~policies ~~foreign~~can ~~contracts~~result ~~are~~in ~~subject~~volatility to in ~~unilateral~~operating ~~termination~~income atwith ~~the~~a ~~convenience~~charge ofrecognized ~~the~~in ~~customer.~~one ~~However,~~period weand ~~have not~~a ~~experienced~~change ~~any~~order or claim ~~unilateral~~revenue ~~termination~~recognized ofin ~~U.S.~~a ~~government~~subsequent ~~contracts within the recent past~~period.

~~Estimating~~ For a ~~liabilities~~more ~~and~~detailed ~~costs~~discussion ~~associated~~of ~~with such~~our ~~claims,~~revenue ~~guarantees, litigation~~ and ~~audits~~operating ~~and~~income, ~~investigations~~see ~~requires~~“Business ~~judgment~~ Unit ~~and~~Results,” ~~assessment~~later ~~based~~in onthis ~~professional~~Management’s ~~knowledge~~Discussion and ~~experience of our management and legal counsel~~Analysis. ~~In accordance with SFAS No. 5, Accounting for Contingencies, amounts are~~

~~I-22~~Equity in income of unconsolidated affiliates

~~recorded~~ Equity in asincome ~~charges~~of tounconsolidated ~~earnings~~affiliates ~~when~~for ~~we determine~~the ~~that~~three itmonths isended ~~probable~~March ~~that~~30, 2007 declined a$3.8 ~~liability~~million ~~has~~from ~~been~~the ~~incurred~~comparable ~~and~~period ~~the amount~~ of ~~loss can be reasonably estimated~~2006. The ~~ultimate~~most ~~resolution~~significant component of ~~any~~this ~~such exposure~~decline ~~may~~was ~~vary~~a ~~from earlier estimates as further facts and circumstances become known~~$5.1 Wemillion ~~maintain~~decline ~~reserves~~in ~~for~~earnings ~~both~~from ~~self-insured claims that are known~~our as share of ~~well~~the asMIBRAG ~~for~~mining ~~self-insured~~venture ~~claims~~in ~~that~~Germany. ~~are~~MIBRAG’s ~~believed~~decrease towas ~~have~~partially ~~been incurred~~offset ~~based~~ by onearnings ~~actuarial~~from ~~analysis,~~our ~~but~~interest ~~have~~in ~~not~~an ~~yet~~affiliate ~~been~~that ~~reported~~operates toa ~~our claims~~national ~~administrators.~~ laboratory Wefor ~~include~~the ~~any~~Department ~~adjustments to such insurance reserves in our consolidated results~~ of ~~operations~~Energy.

~~OTHER~~ The $5.1 ~~SIGNIFICANT~~million ~~ACCOUNTING~~decline ~~POLICIES~~in ~~AND~~MIBRAG’s ~~TERMS~~2007 earnings as compared to 2006 is due to a $2.1 million favorable impact in the first quarter of 2006 from the adoption of a new accounting pronouncement and due to lower coal sales to MIBRAG’s power plant customers as a result of lower power demand in the first quarter of 2007 as compared to the first quarter of 2006.

~~The following summary of significant accounting~~General ~~policies~~ and ~~terms~~administrative ~~is presented to provide a better understanding of our industry, our consolidated financial statements and discussion and analysis of our results of operations and financial position and liquidity.~~expenses

~~New work~~ General ~~represents~~ and administrative expenses for the ~~monetary~~three ~~value~~months ofended aMarch ~~contract~~30, ~~entered~~2007 ~~into~~increased by ~~with~~$4.6 amillion ~~client~~from ~~that~~the ~~is binding~~comparable onperiod ~~both~~of ~~parties~~2006 ~~and~~primarily ~~reflects~~due ~~the~~to ~~revenue~~higher costs associated with information systems, oremployee ~~equity~~development, inlegal ~~income~~and ofother ~~unconsolidated~~ outside ~~affiliates,~~consulting ~~expected~~services toassociated bewith ~~recognized~~operational ~~from~~efficiencies ~~that~~and cost reduction ~~contract~~initiatives.

Backlog represents the total accumulation of new work awarded less the amount of revenue, or equity in income of unconsolidated affiliates, recognized to date on contracts at a specific point in time. It comprises the total value of awarded contracts that are not complete and the revenue, or equity in income of unconsolidated affiliates, that is expected to be recognized over the remaining life of the projects in process. We believe backlog is a key predictor of future earnings potential. Although backlog reflects business that we consider to be firm, cancellations or reductions may occur and 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 until awarded. I-22

~~There are three unique aspects of our approach to~~Income ~~recording~~ tax ~~new work and backlog:~~expense

~~• Government contracts - Most of our government contracts cover~~ The ~~several~~ effective ~~years.~~income ~~However,~~tax ~~funding~~rates for the ~~contracts~~three ismonths ~~subject~~ended toMarch ~~annual appropriations~~30, by2007 ~~Congress.~~and March 31, To2006 ~~account~~were ~~for~~38.1 ~~the~~percent ~~risk~~and ~~that~~39.9 ~~future amounts may not be appropriated~~percent, werespectively. ~~only~~The ~~include~~decline in the ~~most immediate two years of forecast~~ ~~revenue~~ tax inrate ~~our~~for ~~backlog.~~the ~~Therefore,~~three asmonths ~~time~~ended ~~passes~~March ~~and appropriations occur~~30, ~~additional~~ ~~new~~2007 ~~work~~ is ~~recorded~~primarily ondue ~~existing~~to ~~government contracts. At July 1,~~the ~~2005,~~ impact ~~U.S. government funded contracts comprised approximately 36%~~ of ~~our~~foreign ~~total backlog~~tax credits.

~~• Mining contracts - Mining contracts span varying periods of~~BUSINESS ~~time~~ UNIT up to the life of the resource. For new work and backlog purposes, we limit the amount recorded to five years. Similar to our practices with government contracts, as time passes, we recognize additional new work as commitments for that future work are firmed up. At July 1, 2005, mining contracts comprised approximately 15% of our total backlog.RESULTS

• At-risk and agency contracts - 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. For “at-risk” relationships, the expected gross revenue is included in new work and backlog. For relationships where we act as an agent for our client, only the expected net fee revenue is included in new work and backlog. At July 1, 2005, agency contracts comprised approximately 5% of our total backlog.

	Three Months Ended
(In millions)	March 30, 2007			March 31, 2006
Revenue
Power	$	214.6		$	204.7
Infrastructure		133.7			142.4
Mining		56.4			31.7
Industrial/Process		141.6			125.4
Defense		141.5			152.6
Energy & Environment		148.7			171.0
Intersegment and other		0.9			0.5
Total revenue	$	837.4		$	828.3

Operating income (loss)
Power	$	11.6		$	11.1
Infrastructure		4.6			(2.4	)
Mining		8.0			7.9
Industrial/Process		0.7			4.8
Defense		9.3			13.6
Energy & Environment		8.1			14.1
Intersegment and other unallocated operating costs		(0.2	)		(0.8	)
Total segment operating income		42.1			48.3
General and administrative expenses, corporate		(19.4	)		(14.8	)
Total operating income	$	22.7		$	33.5

~~Joint ventures and equity investments are utilized when contracts are executed jointly through partnerships and joint ventures with unrelated third parties.~~Power

~~• Joint~~ Revenue for ~~ventures~~the three months ended March 30, 2007 increased $9.9 Amillion, ~~large~~or ~~part~~5 ofpercent, ~~our~~from ~~work~~the oncomparable period ~~large~~in 2006. The increase is primarily due to new clean air modification ~~construction~~ projects, a uranium enrichment facility in New Mexico and ~~engineering~~a new generation project in Arizona. Higher revenue was also driven by continuing projects including isa ~~performed~~new ~~through~~generation ~~unincorporated~~project ~~joint~~in Puerto Rico and a natural gas project ~~ventures~~ in Wisconsin. ~~with~~The ~~one~~higher orrevenue ~~more~~from ~~partners~~new and continuing projects was partially offset by a $35.7 ~~For~~million ~~those~~decrease in ~~which~~revenue wefrom ~~control~~work in the ~~joint~~Middle East ~~venture~~ to $26.0 bymillion ~~contract~~for ~~terms~~the orthree ~~other~~months ~~means~~ended March 30, 2007 from $61.7 million for the ~~assets,~~comparable ~~liabilities~~period ~~and~~in ~~results~~2006. The decline in Middle East revenue is a result of the ~~operations~~completion of ~~the~~task ~~joint~~orders and a decrease in funding for new task orders.

~~I-23~~ Operating income for the three months ended March 30, 2007 of $11.6 million increased slightly from the comparable period in 2006. The new projects referenced above contributed to higher earnings in the first quarter of 2007 and earnings from continuing projects increased as the projects progressed to completion. Offsetting these increases is a $5.4 million decline in earnings from work in the Middle East due to decreased task orders. Earnings from the Middle East were $1.8 million in the first quarter of 2007 as compared to $7.2 million in the comparable period in 2006.

venture are fully consolidated in our financial statements, and the minority interests of third parties are separately deducted in our financial statements. For those construction joint ventures in which we do not control the joint venture, we report our pro rata portion of revenue and costs, but the balance sheet reflects only our net investment in the project. Joint ventures not involving construction or engineering activities, and which we do not control, are reported using the equity method of accounting in which we record our portion of the joint venture’s net income or loss as equity in income or loss of unconsolidated affiliates and our investment on the balance sheet reflects our original investment, at cost, as adjusted for our equity in the income or loss of the joint venture. I-23

• Partially owned subsidiary companies. For incorporated ventures in which we have a controlling interest, 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, for those in which we do not have a controlling interest but do have significant influence, we use the equity method of accounting in which we record our portion of the subsidiary company’s net income or loss as equity in income or loss of unconsolidated affiliates and our investment on the balance sheet reflects our original investment, at cost, as adjusted for our equity in the income or loss of the subsidiary company.Infrastructure

~~Accounts~~ Revenue ~~receivable represent~~ for ~~amounts~~the ~~billed~~three tomonths ~~clients~~ended ~~that~~March ~~have~~30, ~~not~~2007 ~~been~~declined ~~paid~~$8.7 Onmillion, ~~large fixed-price~~or ~~construction~~6 ~~contracts~~percent, from ~~contract~~the ~~provisions~~comparable ~~may~~period ~~allow~~in ~~the~~2006 ~~client~~primarily ~~to withhold~~as ~~from~~a 5%result toof ~~10%~~the wind-down of ~~invoices~~a light ~~until~~rail ~~the~~ project isin ~~completed~~New Jersey, ~~which~~completion ~~may~~of a bridge project in Florida be and decreases ~~several~~in ~~months~~certain orcontinuing ~~years~~projects. ~~These~~The ~~amounts~~decrease ~~withheld,~~in ~~referred~~revenue towas ~~as retentions,~~partially ~~are~~ offset ~~recorded~~by asincreased ~~receivables~~activity ~~and~~on ~~are~~a ~~separately~~fixed-price ~~disclosed~~highway project in California and on certain operation and maintenance projects. Middle East revenue totaled $19.0 million for the ~~financial~~three months ended March 30, 2007 compared to $17.5 million ~~statements~~ in the comparable period in 2006.

~~Unbilled~~ Infrastructure ~~receivables~~ generated ~~include~~operating ~~costs~~income ~~incurred~~for onthe three months ended March 30, 2007 of $4.6 million as compared to a $2.4 million operating loss for the comparable period in 2006. The increase in earnings was primarily related to improved performance on two fixed-price highway projects in California. Through December 29, ~~together~~2006, Infrastructure ~~with~~had ~~any~~recorded ~~profit~~a ~~recognized~~total of $134.6 million of contract losses on ~~projects~~the largest ~~using~~project and $31.6 million of contract losses on the second project ~~percentage-~~ (before minority interest of~~-completion~~ ~~method~~$11.1 million). During the three months ended March 31, ~~and~~2006, ~~represents~~a ~~work~~$6.9 ~~performed~~million ~~but~~charge ~~not~~was ~~yet billed~~recorded ~~pursuant~~on the largest project as compared to ~~contract~~no ~~terms~~loss orin ~~billed~~the ~~after~~three months ended March 30, 2007. Additionally, during the three ~~accounting~~months ~~period~~ended ~~cut-off~~March 30, 2007, the second project negotiated additional ~~occurred~~ change orders with the customer resulting in the recovery of $2.5 million of prior losses (before minority interest of $0.9 million). Partially offsetting the increase related to the highway projects was a $4.4 million decrease in Middle East earnings from $6.4 million in 2006 to $2.0 million in 2007.

~~Billings in~~ The ~~excess~~ largest offixed-price ~~cost~~highway ~~and~~project ~~estimated~~is ~~earnings~~a on$392.2 ~~uncompleted~~million ~~contracts~~fixed-price ~~represent amounts actually billed to~~highway ~~clients,~~ project ~~and perhaps collected,~~ in ~~excess~~California ofthat ~~costs~~is ~~incurred~~being ~~and~~performed ~~profits recognized~~by on a ~~project.~~construction ~~Also,~~joint venture in which ~~limited situations,~~ we ~~negotiate~~have ~~substantial advance payments as~~ a ~~contract~~50 ~~condition~~percent interest. ~~These~~The ~~advance~~losses ~~payments~~have ~~are~~resulted ~~reflected~~from various in developments ~~billings~~including infinal ~~excess~~design ~~of cost~~ and ~~estimated~~other ~~earnings~~customer onspecifications, ~~uncompleted contracts.~~state ~~Provisions~~ regulatory ~~for~~agency ~~losses on contracts~~requirements, ~~reclamation~~material ~~reserves~~quantity ~~on mining contracts~~ and ~~reserves~~cost ~~for punch-list costs~~growth, ~~demobilization~~higher subcontractor and ~~warranty~~labor costs, ~~on contracts~~and ~~that~~impacts ~~have~~from ~~achieved~~schedule ~~substantial~~delays. ~~completion~~As ~~and~~of ~~reserves~~March 30, 2007, ~~for~~the ~~audit and~~ contract ~~closing~~is ~~adjustments~~approximately on78 ~~U.S.~~percent ~~government~~complete, ~~contracts~~measured ~~are~~on ~~also included in~~a ~~billings~~ cost-to-cost inbasis, ~~excess~~and ofis ~~cost~~scheduled ~~and~~to ~~estimated~~be ~~earnings~~substantially oncomplete ~~uncompleted contracts~~in 2007.

~~Estimate at~~ The ~~completion~~ second project is a ~~financial~~ ~~forecast~~$261.8 ofmillion afixed-price highway project in California that ~~indicates~~is ~~the~~being ~~best~~performed ~~current~~by ~~estimate~~a ofjoint venture in which we have a 65 percent ~~total~~ interest. ~~revenues~~The cost growth on this contract is primarily related to customer design changes and ~~profits~~related atimpacts. During the ~~point~~fourth inquarter ~~time~~of ~~when~~2006, ~~the~~a $10.8 million ~~project~~(before ~~will~~minority beinterest of $3.8 million) change order recovery ~~completed~~ was agreed to by the customer. IfDuring athe ~~project~~first ~~estimate~~quarter atof ~~completion~~2007, ~~indicates~~$2.5 ~~that~~million (before aminority ~~project~~interest ~~will~~of $0.9 million) of additional change orders have ~~incur~~ been agreed ato ~~loss,~~and anegotiations ~~provision~~are ~~for~~continuing. As of March 30, 2007, the ~~entire~~project is approximately ~~loss~~71 percent complete, measured on ~~the~~a ~~contract~~cost-to-cost isbasis, ~~recognized~~and ~~currently~~ is scheduled to be complete in 2008.

~~General~~ To date, ~~and~~only a portion of the cost increases on the two highway projects have ~~administrative~~ been agreed ~~expenses~~to ~~include~~with ~~executive~~the customers and ~~corporate~~acknowledged ~~functions~~with change orders. Our share of pending change orders and claims submitted to the customers total approximately $71.5 million. An additional $21.0 million are in process. In response to our claims, ~~such~~one asof ~~legal~~the customers has filed certain counterclaims against us. We believe that we will realize significant recoveries once the claim process is completed. Recoveries are recognized only when it is probable they will result in additional revenue and the amount can be reliably estimated, ~~human~~which generally ~~resources~~ occurs when amounts have been received or awarded. We have not recognized any recoveries related to the pending change orders and ~~finance~~claims. Operating results to date are based on current estimates and ~~accounting~~actual results may differ from our estimates.

~~Self-insurance~~ Subsequent ~~reserves~~ to ~~are maintained~~March ~~for~~30, ~~uninsured business risks. We carry substantial premium-paid~~2007, ~~traditional~~ ~~insurance~~we ~~for~~settled ~~our~~a ~~various~~claim ~~business~~on ~~risks;~~a ~~however,~~completed wefixed-price dohighway ~~self-insure~~ project in ~~the~~Nevada. ~~lower~~Pursuant ~~level~~to ~~deductibles~~our ~~for~~revenue ~~workers’~~recognition ~~compensation~~policy ~~and~~of ~~general,~~recording revenue ~~automobile~~ from claims ~~and~~in ~~professional~~the ~~liability.~~period Asreceived ~~such~~or awarded, wethe ~~carry~~claim ~~self-insurance reserves~~settlement onof ~~our balance sheet~~$5.4 ~~The~~million will ~~current~~be ~~portion~~recognized ofin the ~~self-insurance reserves~~second isquarter ~~included~~of ~~in other accrued liabilities~~2007.

~~I-24~~Mining

~~Minority~~ Revenue ~~interest~~ for ~~reflects~~ the ~~equity~~three ~~investment~~months byended ~~third~~March ~~parties~~30, in2007 ~~certain~~increased ~~subsidiary~~$24.7 ~~companies~~million, ~~and~~or 78 ~~joint~~ percent, ~~ventures~~compared ~~that~~to we2006. ~~have~~The ~~consolidated~~increase is primarily attributable to new work at a bauxite mine in ~~our~~Jamaica ~~financial~~and ~~statements~~an increase in work on a silver mine in Bolivia. These increases were partially offset by the completion of a gold mine project in Nevada.

Government contract costs are incurred under some of our contracts, primarily in our Defense, Energy & Environment, and Infrastructure business units. We have contracts with the U.S. government that contain provisions requiring compliance with the U.S. Federal Acquisition Regulations and the U.S. Cost Accounting Standards. The allowable costs we charge to those contracts are subject to adjustment upon audit by various agencies of the U.S. government. Audits of indirect costs are complete through 2001. Audits of 2002 and 2003 indirect costs are in process. We have prepared and submitted cost impact statements for 1989 through 1998 that have been audited by the U.S. government. We are currently negotiating the resolution of certain proposed audit adjustments to the cost impact statements. We are also in the process of preparing cost impact statements for 1999 through 2004. While we have provided for amounts we believe may be owed to the U.S. government under cost reimbursable contracts, actual results may differ from our estimates. We believe that the results of indirect cost audits and cost impact assessments will not have a material adverse effect on our financial position, results of operations or cash flows.I-24

~~Pension and~~ Operating ~~post-retirement~~ income ~~benefit~~for ~~obligations~~the ~~include~~three ~~defined~~months ~~benefit~~ended ~~pension~~March ~~plans~~30, ~~that~~2007 of $8.0 million increased ~~primarily~~ slightly ~~cover~~from ~~certain~~the ~~groups~~same ofperiod ~~employees~~in of2006. ~~our~~Equity ~~government~~in ~~contracting~~earnings of MIBRAG decreased ~~ventures~~ to $7.2 Wemillion ~~make~~in ~~actuarially-computed~~the ~~contributions~~first asquarter ~~necessary~~of to2007 ~~adequately fund~~from ~~benefits~~$12.3 million for ~~these~~the ~~plans~~three months ended March 31, 2006. WeThe ~~also~~$5.1 ~~provide~~million ~~benefits~~decrease ~~under~~is ~~company-sponsored retiree~~due ~~health~~to ~~care~~a ~~and~~$2.1 ~~life~~million favorable ~~insurance~~impact ~~plans~~in ~~for~~the ~~certain~~first ~~groups~~quarter of ~~employees~~2006 from the adoption of a new ~~the~~ accounting ~~government~~pronouncement ~~contracting~~and ~~ventures.~~due ~~The~~to ~~retiree~~lower ~~health~~coal ~~care~~sales ~~plans~~to ~~require~~MIBRAG’s power plant ~~retiree~~ customers ~~contributions~~as ~~and~~a ~~contain~~result ~~other~~of ~~cost-sharing~~lower ~~features~~power demand. The ~~retiree~~decrease ~~life~~in equity in earnings ~~insurance~~ of ~~plan~~MIBRAG ~~provides~~was ~~basic~~offset ~~coverage~~by higher earnings from contract mining projects, including a net gain on the termination of a ~~noncontributory~~mining ~~basis~~services contract. WeEffective ~~also~~March ~~sponsor~~ 30, 2007, ~~certain~~we ~~frozen~~agreed ~~benefit~~with ~~plans~~Westmoreland Resources to conclude our contract mining services agreement at a coal mine in Montana, which provided for ~~certain~~compensation to us ~~groups~~in lieu of ~~employees~~future services and the transfer of certain mining equipment, ~~retirees~~ inventory, ~~other~~and ~~than~~reclamation ~~the~~liabilities ~~government~~to ~~contracting~~Westmoreland ~~ventures~~Resources. The transaction ~~Depending~~resulted onin ~~the~~a ~~plan~~net gain of $6.1 million, ~~the~~ ~~retirees~~of ~~are~~which ~~entitled~~$1.0 million has been deferred due to ~~health~~our ~~care,~~continuing ~~life~~20 ~~insurance,~~percent orinterest ~~retirement~~in Westmoreland ~~benefits~~ Resources. ~~Some~~This ofgain more than offset the ~~plans~~operating ~~require~~loss ~~retiree~~incurred ~~contributions~~on the project in the quarter of $4.3 million.

~~BUSINESS UNIT NEW WORK AND BACKLOG~~Industrial/Process

~~New~~ Revenue ~~work~~ for the three months ended March 30, ~~which~~2007 ~~represents~~increased ~~additions~~$16.2 tomillion, ~~backlog~~or ~~for~~13 percent, from the comparable period of 2006. The increase in revenue was primarily due to new contracts, isincluding ~~presented~~a ~~below~~cement plant in Missouri, an ~~for~~ industrial ~~each~~maintenance ~~business~~chemical ~~unit:~~plant project in Ohio and increases on two continuing facility management projects. The increase was partially offset by lower revenue on an oil and gas project in Qatar and lower volume within the Life Sciences division.

~~NEW~~ Operating income ~~WORK~~for the three months ended March 30, 2007 decreased $4.1 million from the comparable period of 2006. The decrease is primarily related to an oil and gas project in Qatar. During the first quarter of 2006, we recognized earnings of $4.8 million on the Qatar project as it reached the stage of completion at which earnings recognition commences pursuant to our accounting policies.

~~(In millions)~~Defense

	Three months ended					Six months ended
	July 1, 2005		July 2, 2004			July 1, 2005		July 2, 2004
Power	$	182.0	$	57.1		$	507.0	$	142.5
Infrastructure	174.8		433.9			341.3		718.2
Mining	86.4		12.4			273.3		26.2
Industrial/Process	71.2		121.0			190.3		285.5
Defense	159.0		181.2			311.3		294.1
Energy & Environment	145.7		78.0			664.4		203.1
Other	0.7		(1.1		)	0.5		(4.7		)
Total new work	$	819.8	$	882.5		$	2,288.1	$	1,664.9

Revenue for the three months ended March 30, 2007 decreased $11.1 million, or 7 percent, from the comparable period of 2006. Revenue decreased due to lower volume of operations and maintenance activities at one chemical demilitarization project in the US and due to lower funding for a threat reduction project in the former Soviet Union. The decrease was partially offset by higher activity on a chemical demilitarization project in Albania.

Operating income for the three months ended March 30, 2007 decreased $4.3 million from the comparable period of 2006. The ~~following~~decrease ~~table~~is ~~summarizes~~primarily ~~our~~due ~~changes~~to inthe factors driving ~~backlog~~ the ~~for~~revenue ~~each~~decrease, oflower earnings from completed projects, and the ~~periods~~first quarter ~~presented:~~of 2006 included a favorable prior year indirect rate adjustment.

~~CHANGES~~Energy IN & ~~BACKLOG~~Environment

~~(In~~ Revenue ~~millions)~~ for the three months ended March 30, 2007 decreased $22.3 million, or 13 percent, from the comparable period of 2006. The decrease was primarily due to severance costs associated with a workforce reduction that occurred in the first quarter of 2006 at an environmental cleanup project in Idaho and a restructuring of a Department of Energy management services contract in 2006. The decrease in revenue was partially offset by revenue from continuing projects in the Middle East. Revenue from the Middle East increased $5.7 million from $10.7 million for the three months ended March 31, 2006 to $16.4 million for the three months ended March 30, 2007.

	Three months ended						Six months ended
	July 1, 2005			July 2, 2004			July 1, 2005			July 2, 2004
Beginning backlog	$	4,764.2		$	3,340.1		$	4,004.1		$		3,322.5
New work	819.8			882.5			2,288.1			1,664.9
Revenue and equity income recognized	(775.1		)	(691.6		)	(1,483.3		)	(1,456.4			)
Ending backlog	$	4,808.9		$	3,531.0		$	4,808.9		$	3,531.0

Operating income for the three months ended March 30, 2007 decreased $6.0 million, or 43 percent, primarily due to a $6.3 million increase in business development related costs associated with various Department of Energy bids and new work opportunities in the United Kingdom. The increase in business development costs was partially offset by higher earnings on continuing projects and an increase in earnings from the Middle East to $1.1 million for the three months ended March 30, 2007 from $0.6 million in the comparable period in 2006.

I-25

~~Backlog~~ Energy at & ~~July 1,~~Environment ~~2005,~~participates ~~April 1,~~in ~~2005~~a Department of Energy nuclear waste processing facility construction project in Washington that has experienced significant scope and ~~December 31~~cost increases. The project is cost reimbursable with performance and cost-based incentive fees. Due to the significant scope and cost increases, ~~2004~~changes ~~consisted~~to the fee structure are currently being negotiated with the Department of Energy. If the ~~following~~negotiations ~~for~~are ~~each~~successful, ~~business~~we ~~unit:~~will recognize a cumulative adjustment to project to date earnings based on percent complete, which could occur in 2007 or later.

~~BACKLOG~~ Additionally, we have submitted a Request for Equitable Adjustment (“REA”) to the Department of Energy with respect to a large Department of Energy management services contract that expired on December 31, 2006. Although the contract has been extended for a period of eighteen to twenty four months, the REA requests compensation for negative impacts from funding shortfalls and other factors on performance fees earned under the contract. If the REA is successful, we would receive additional fees for work performed under the contract, which could occur in 2007 or later.

~~(In~~FINANCIAL ~~millions)~~ CONDITION AND LIQUIDITY

	July 1, 2005		April 1, 2005		December 31, 2004
Power	$	885.9	$	890.7	$	716.4
Infrastructure	1,115.1		1,126.7		1,121.3
Mining	711.0		668.4		516.1
Industrial/Process	282.9		315.1		293.5
Defense	895.9		869.4		869.7
Energy & Environment	918.1		893.9		487.1
Total backlog	$	4,808.9	$	4,764.2	$	4,004.1

We have three principal sources of liquidity: (1) cash generated by operations (2) existing cash and cash equivalents and (3) available capacity under our Credit Facility. We had cash and cash equivalents of $251.3 million at March 30, 2007, of which $66.1 million was restricted for use in the normal operations of our consolidated joint venture projects or was restricted under our self-insurance programs. As of March 30, 2007, we had no borrowings and $126.0 million in face amount of letters of credit outstanding under the Credit Facility, leaving a borrowing capacity of $224.0 million under the facility. For more information on our financing activities, see Note 4 “Credit Facility,” of the Notes to Condensed Consolidated Financial Statements in Item 1.

~~New~~ Our cash ~~work~~flows are primarily impacted from period to period by fluctuations in working capital and ~~backlog~~purchases of construction and mining equipment required to perform our contracts. Working capital is affected by numerous factors including:

At· ~~July 1,~~Business ~~2005,~~unit ~~our~~mix. ~~backlog~~Our ~~was~~working ~~$4,808.9 million,~~capital anrequirements ~~increase~~are ofunique ~~$804.8~~by ~~million~~business ~~from December 31~~unit, ~~2004.~~and ~~Backlog~~changes ~~on government~~in ~~contracts~~the ~~includes~~type, ~~only~~size ~~two~~and ~~years’~~stage ~~worth~~ of ~~the~~completion ~~portions~~ of ~~such~~ contracts ~~that~~performed ~~are~~by ~~currently~~our ~~funded~~business orunits ~~which~~can ~~management~~impact isour ~~highly~~working ~~confident will~~capital ~~be funded~~requirements. ~~In this regard~~Also, ~~the~~growth ~~reported backlog at July 1, 2005 excludes $2.8 billion of government contracts~~ in ~~progress for work to be performed beyond~~ the ~~second~~business ~~quarter~~requires ofworking ~~2007.~~capital ~~Our~~investment ~~backlog~~and atthe ~~July 1,~~purchase ~~2005 consisted~~ of ~~approximately~~construction ~~69% cost-type~~ and ~~31%~~mining ~~fixed-price contracts compared with 64% cost-type and 36% fixed-price contracts at the end of 2004~~equipment.

~~New~~· ~~work~~Commercial ~~includes~~terms. ~~the~~The ~~following~~commercial ~~significant~~ terms of our contracts: with customers and subcontractors may vary by business unit, contract type and customer type and utilize a variety of billing and payment terms. These could include customer advances, milestone payment schedules, monthly or bi-monthly billing cycles, and performance based incentives. Additionally, some customers have requirements on billing documentation including documentation from subcontractors, which may increase the level of billing complexity and cause delays in the billing cycle and collection cycle from period to period.

	Three months ended		Six months ended
(In millions)	July 1, 2005		July 1, 2005
Power
Middle East task orders	$	41.2	$	180.2
Plant modification contract in California	—		92.9
Plant modification contract in Florida	55.0		55.0
Infrastructure
Operations and maintenance contract in Florida	83.6		83.6
Middle East task orders	48.7		82.6
Operations and maintenance contract in Texas	—		55.2
Mining
Silver and zinc mining contract in Bolivia	9.0		161.9
Phosphate mine in Idaho	56.4		56.4
Defense
Chemical demilitarization contract continuations	90.1		197.5
Energy & Environment
Department of Energy environmental, decontamination and demolition contracts	87.9		527.9

·	*Contract life cycle.* Our contracts typically involve initial cash for working capital during the start-up phase, reach a cash neutral position and eventually experience a reduction of working capital during the wind-down and completion of the project.

~~I-26~~· Delays in execution. At times, we may experience delays in scheduling and performance of our contracts and encounter unforeseen events or issues that may negatively affect our cash flow.

~~RESULTS OF OPERATIONS~~ I-26

The following ~~table~~tables ~~summarizes~~summarize our ~~results~~liquidity ~~of operations~~position ~~for the three~~ and ~~six~~cash ~~months ended July 1, 2005 and July 2,~~flow ~~2004, and is included to facilitate our analysis and discussion of results of operations~~ activities.

		Three months ended						Six months ended
Liquidity (In millions)	March 30, 2007				December 29, 2006
(In millions)		July 1, 2005			July 2, 2004			July 1, 2005			July 2, 2004
Cash and cash equivalents	$	185.2			$	232.1
Total revenue		$	773.2		$	684.5		$	1,474.0		$	1,438.6
Restricted cash		66.1				65.5
Gross profit		$	3.6		$	37.7		$	49.6		$	75.1
Total	$	251.3			$	297.6
Equity in income of unconsolidated affiliates		1.9			7.1			9.3			17.8
General and administrative expenses		(10.1		)	(15.7		)	(25.4		)	(29.7		)
Operating income (loss)		(4.6		)	29.1			33.5			63.2
Interest income		2.2			0.6			4.1			1.2
Interest expense		(3.0		)	(3.6		)	(6.4		)	(8.0		)
Write-off of deferred financing fees		(3.6		)	—			(3.6		)	—
Other expense, net		—			(0.8		)	—			(1.3		)
Income (loss) before reorganization items, income taxes, and minority interests		(9.0		)	25.3			27.6			55.1
Reorganization items		—			1.2			—			1.2
Income tax benefit (expense)		6.2			(10.7		)	(8.5		)	(22.8		)
Minority interests in (income) loss of consolidated subsidiaries		2.2			(2.5		)	(2.5		)	(7.2		)
Net income (loss)		$	(0.6	)	$	13.3		$	16.6		$	26.3

THREE AND SIX MONTHS ENDED JULY 1, 2005 COMPARED TO

	Three Months Ended
Cash flow activities (In millions)	March 30, 2007			March 31, 2006
Net cash provided (used) by:
Operating activities	$	(20.5	)	$	(25.4	)
Investing activities		(33.3	)		(11.5	)
Financing activities		6.9			35.6
Decrease in cash and cash equivalents	$	(46.9	)	$	(1.3	)

~~THREE~~ The ~~AND~~ discussion ~~SIX~~below ~~MONTHS~~highlights ~~ENDED~~significant ~~JULY 2,~~aspects ~~2004~~of our cash flows.

~~Revenue~~· ~~and~~Operating activities: For the three months ended March 30, 2007, operating activities used $20.5 million of cash. During the period, operating activities included net income of $13.0 million and several significant non-cash charges including non-cash income taxes of $8.0 million, depreciation and amortization of $10.5 million, and stock-based compensation of $4.0 million. Cash flow was impacted by an increase in working capital of $51.0 million principally due to funding $17.9 million of losses on two highway projects, other project working capital requirements and payments made for incentive compensation. Working capital requirements for the US Army Corps of Engineers task orders in the Middle East increased $11.5 million to $32.0 million at March 30, 2007 from $20.5 million at December 29, 2006.

~~Revenue for~~ For the three ~~and six~~ months ended ~~July~~March 131, ~~2005~~2006, ~~increased~~operating ~~$88.7~~activities ~~million~~used ~~and~~ $3525.4 million, ~~or 13% and 2%, from the comparable periods~~ of ~~2004~~cash. ~~Revenue~~During ~~for~~ the ~~second quarter~~period, ofoperating ~~2005~~activities ~~increased~~included ~~from~~net ~~work~~income ~~performed~~of ~~on a domestic infrastructure dam,~~$19.0 ~~highway~~ million and ~~light~~several ~~rail~~significant ~~projects,~~non-cash ~~new~~charges ~~mining~~including ~~contracts,~~non-cash ~~increased activity and~~income ~~scope~~ taxes of on$12.6 ~~threat~~million, ~~reduction~~depreciation ~~projects~~and inamortization ~~the~~of ~~former~~$9.7 ~~Soviet~~million, ~~Union~~ and ~~revenue from~~stock-based a compensation ~~new~~of ~~environmental~~$2.1 ~~cleanup project in Idaho~~million. ~~Revenue~~Cash ~~for~~flow ~~the second quarter from task orders in the Middle East~~ was ~~essentially~~impacted ~~the~~by ~~same~~an asincrease in ~~the second~~working ~~quarter~~ capital of ~~2004~~$55.8 asmillion ~~revenue~~principally ~~from~~due ~~new~~to ~~Middle~~funding ~~East power projects increased, but was offset by~~ the ~~completion~~losses ofon ~~several large infrastructure and power task~~highway ~~orders. In addition to the foregoing~~ projects, ~~revenue~~other ~~from~~project ~~task~~working ~~orders~~capital inrequirements ~~the~~and ~~Middle East~~payments ~~during~~made ~~the first six months of 2005 declined due to the substantial~~for ~~completion~~ incentive ofcompensation. ~~several~~At ~~large~~March ~~task~~31, ~~orders~~2006, ~~primarily~~working ~~with~~capital ~~the~~requirements ~~Infrastructure~~related ~~business~~ to ~~unit.~~work ~~Revenue~~in ~~from~~ the Middle East ~~totaled~~declined to $~~125~~44.24 million ~~and~~from $~~193~~58.8 0 million, ~~respectively, for the three and six months ended July~~at December 130, 2005 ~~as compared to $117~~.~~6 million and $332.4 million for the comparable periods of 2004.~~

~~Operating~~· ~~income~~Investing ~~declined $33.7~~activities: ~~million~~During ~~and $29.7 million for~~ the three ~~and six~~ months ended ~~July 1~~March 30, ~~2005,~~ ~~respectively~~2007, ~~from~~investing ~~the~~activities ~~comparable~~used ~~periods in 2004. Operating income declined due to~~ $6033.93 million of ~~estimated~~cash, ~~contract~~primarily ~~losses recorded by the Infrastructure business unit during the second quarter of 2005~~ for ~~additional cost~~property ~~increases~~and onequipment ~~three~~acquisitions ~~fixed-price highway projects~~ for ~~which we have not been able to negotiate change orders or claims with the clients, lower coal sales by~~ our ~~MIBRAG~~Mining mining venture in Germany due to customer power plant outages, and a decrease in earnings from higher than anticipated start-up costs on new mining contracts. Additionally, operating income of the Energy and Environment business unit ~~declined due to lower earnings from international operations as well as the timing of awards on large DoE management services contracts~~. The decline in operating income was partially offset by increased award fees earned from work in the Middle East and an increase in operating income by the Defense business unit from a higher volume of work performed on chemical demilitarization projects and increased income from award fees earned on four threat reduction projects. In

~~I-27~~During the three months ended March 31, 2006, investing activities used $11.5 million of cash, primarily for property and equipment acquisitions for our Infrastructure and Mining business units.

~~addition~~· Financing activities: During the three months ended March 30, ~~claim~~ ~~settlements~~2007, financing activities generated $6.9 million of cash. Options to purchase 208,000 shares of common stock were exercised generating $46.80 million ~~and~~of cash. An additional $130.87 million, ~~respectively,~~of ~~were received~~cash ~~during~~was ~~the~~received ~~three~~in ~~and~~January ~~six~~2007 ~~months~~for ~~ended~~options ~~July 1,~~exercised ~~2005~~at onthe aend ~~completed international~~of ~~power~~December ~~project~~2006.

ADuring the ~~summary~~three months ended March 31, 2006, financing activities generated $35.6 million of cash. During the ~~significant~~period, ~~changes~~we inpurchased and cancelled 2.0 million ~~operating~~ warrants ~~income~~at ~~(loss)~~a iscost ~~included~~of in$35.7 million; 2.3 million warrants were exercised providing proceeds of $71.2 million and the ~~following~~remaining ~~table:~~192,000 warrants expired. Options to purchase 405,000 shares of common stock were exercised generating $9.8 million in cash and we purchased 245,000 shares of our common stock for $14.3 million.

	Three months			Six Months
Operating income for the three and six months ended July 2, 2004	$	29.1		$	63.2
Increase in earnings from Middle East task orders	12.9			6.5
Higher earnings from increase in claim settlements	5.7			13.0
Increase in earnings from ongoing projects	23.9			27.1
Significant project loss in 2004	—			5.0
Significant project losses in 2005	(60.9		)	(61.2		)
Decrease in earnings from completion of projects	(8.6		)	(11.3		)
Decrease in earnings from MIBRAG mining venture	(5.8		)	(9.1		)
Other	(0.9		)	0.3
Operating income (loss) for the three and six months ended July 1, 2005	$	(4.6	)	$	33.5

I-27

~~The diversification of our~~Income business may cause margins to vary between periods due to the inherent risks and rewards on fixed-price contracts causing unplanned gains and losses on contracts. Margins may also vary between periods due to changes in the mix and timing of contracts executed by us, which contain various risk and profit profiles and are subject to uncertainties inherent in the estimation process. As discussed in our summary of critical accounting policies, we provide for estimated losses on contracts when such losses are identified and can be estimated. However, we do not recognize revenue for change orders or claims until it is probable that they will result in additions to the contract value; in many cases, this does not happen until an actual settlement is reached. The combination of these accounting policies can result in volatility in operating income with a charge recognized in one period and change order or claim revenue recognized in a subsequent period. taxes

~~For~~ We anticipate athat ~~more~~cash ~~detailed~~payments ~~discussion~~ for ofincome taxes for 2007 and later years will be substantially less than income tax expense recognized in our ~~revenue~~consolidated financial statements. This difference results from expected tax deductions for tax goodwill amortization and from the use of net operating ~~income~~loss (“NOL”) carryovers and foreign tax credit carryforwards. As of March 30, ~~see~~2007, “we have remaining tax goodwill of $45.5 million resulting from the original acquisition of the Government Services Business ~~Unit~~in ~~Results~~1999 and $458.0 million resulting from the acquisition of Raytheon Company and Raytheon Engineers & Constructors International,” Inc. The ~~later~~ amortization inof this ~~Management’s~~tax ~~Discussion~~goodwill is deductible over remaining periods of 7.0 and ~~Analysis~~8.3 years, respectively, resulting in annual tax deductions of $62.1 million. The federal NOL carryovers as of March 30, 2007 were approximately $173.1 million, most of which are subject to an annual limitation of $26.5 million and expire in years 2020 through 2026. Unused available NOL carryovers from previous years plus the 2007 annual limitation of $26.5 million would allow us to use up to approximately $75.5 million of the NOL carryovers in 2007. Until the tax goodwill deductions and the NOL carryovers are exhausted, we will not pay cash taxes (other than a minimal impact for alternative minimum tax) on the first $88.6 million of federal taxable income before tax goodwill amortization and application of NOL carryovers each year. We have $137.6 million of tax goodwill deductions and NOL carryovers available for 2007. In addition, as of March 30, 2007, we have $44.4 million of foreign tax credits available to offset future federal taxes payable.

~~Equity~~Cash flows infor ~~income of unconsolidated affiliates~~2007

~~During the three and six months ended July~~ ~~1, 2005, earnings from our MIBRAG mining venture in~~In ~~Germany declined $5.8 million and $9.1 million~~ 2007, ~~respectively,~~we ~~from~~expect ~~the comparable~~negative ~~periods~~cash inflow ~~2004. The two primary customers of MIBRAG,~~ from ~~time to time, have planned outages as well as fluctuations in utilization at the power plants they operate~~operations. ~~The~~Specific timing and duration of such outages and fluctuations vary from year to year. MIBRAG’s earnings declined during the first quarter of 2005 due to lower coal sales to one of MIBRAG’s primary customers as a result of performance issues, ~~at one of its power plants. MIBRAG’s coal sales declined~~which ~~further in the second quarter of 2005 while the customer made repairs to that~~ are ~~power~~ relevant ~~plant and as a result of a scheduled outage at the other customer’s power plant. The outages were completed by the end of the second quarter and coal sales returned~~ to ~~normal~~understanding ~~levels.~~2007 Wecash ~~anticipate~~flows, ~~total 2005 earnings for MIBRAG will be comparable to prior years.~~include:

~~General~~· Operating Activities: We expect to fund approximately $50.0 million of the highway project losses during 2007 of which $17.9 million has been funded through March 30, 2007. Future change orders and ~~administrative~~claim ~~expenses~~recoveries on these projects, if received, would reduce the amount of required funding.

~~General~~· Property and ~~administrative~~equipment: ~~expenses~~Capital expenditures for ~~the~~construction ~~three~~ and ~~six~~mining ~~months~~projects, ~~ended~~along ~~July 1~~with normal capital expenditures to upgrade our information systems hardware and software, ~~2005~~are ~~declined~~expected to be approximately $~~5.6~~65 to $75 million ~~and~~of which approximately $438.3 million ~~from~~ ~~the~~has ~~comparable~~been ~~periods~~purchased inthrough ~~2004~~March 30, 2007. ~~The~~Additionally, ~~decline~~in ~~was~~the ~~primarily~~normal ~~due~~course toof ~~a decrease~~business, inwe ~~professional~~sell ~~fees~~a ~~related~~portion toof ~~preparation~~our ~~for~~construction ~~compliance~~and ~~with certain~~mining ~~provisions~~equipment offleet ~~the~~each ~~Sarbanes-Oxley~~year, ~~Act~~depending ofon ~~2002~~estimated ~~and~~future ~~lower~~requirements. ~~incentive~~We ~~compensation~~ expect depreciation expense ~~associated~~to ~~with~~amount ~~the~~to ~~decline~~approximately $33.7 million in ~~earnings~~2007.

~~I-28~~· Income taxes: Because of anticipated utilization of tax goodwill amortization of $62.1 million, and the availability of approximately $75.5 million of NOL carryovers and foreign tax credits, we will likely not pay federal taxes, other than a minimal amount for alternative minimum tax. We will pay state and foreign income taxes.

~~Interest~~· ~~income~~Pension and post-retirement benefit obligations: We expect to fund $8.5 million of our pension and post-retirement benefit obligations during 2007 as compared to $14.0 million in 2006. We estimate financial statement expense under these plans to be approximately $4.8 million in 2007 as compared to $6.7 million in 2006. As of March 30, 2007, $1.3 million of contributions have been made to the pension and post-retirement plans.

~~Interest income for the~~Financial ~~three~~ condition and six months ended July 1, 2005 increased $1.6 million and $2.9 million, respectively, from the comparable periods of 2004 due to higher cash balances available for investment and an increase in short term investment interest rates from 1% to 3%.liquidity

~~Interest~~ We expect ~~expense~~to use cash to, among other things, satisfy contractual obligations, fund working capital requirements and make capital expenditures. We believe that our cash flows from operations, existing cash and cash equivalents and available capacity under our revolving Credit Facility will be sufficient to meet our reasonably foreseeable liquidity needs.

Interest expense for the three and six months ended July 1, 2005 declined $0.6 million and $1.6 million, respectively, from the comparable periods of 2004 due to improved terms from amendments to our credit facility on March 19, 2004, and again on August 5, 2004.I-28

~~Write~~ In line with industry practice, we are often required to provide surety bonds to customers under fixed-~~off~~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 existing bonding capacity but, as is customary, the issuance of ~~deferred~~a ~~financing~~bond ~~fees~~is at the sureties’ 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. Although there can be no assurance that bonds will continue to be available on reasonable terms, we believe that we have access to the bonding necessary to achieve our operating goals.

~~On June~~ ~~14, 2005, we~~We ~~again~~ continually ~~amended~~evaluate ~~our~~alternative ~~$350~~capital ~~million~~structures ~~credit~~and ~~facility~~the toterms ~~include~~of ~~more favorable~~our ~~provisions~~ credit facilities. ~~and~~We tomay ~~extend~~also, ~~the~~from ~~term~~time to ~~June 2010.~~time, ~~The~~pursue ~~amendment~~opportunities ~~required~~to acomplement ~~$3.6~~ existing ~~million~~operations ~~write-off~~through ofbusiness ~~unamortized~~combinations ~~deferred~~and ~~financing~~participation ~~fees.~~in ~~With the new~~ventures, ~~amendment~~ which ofmay ~~the~~require ~~credit~~additional ~~facility,~~financing weand ~~expect~~utilization ~~interest for 2006 to be in the range~~ of $7our ~~to $8 million~~capital resources.

~~Reorganization~~Earnings Before ~~items~~Interest, Taxes, Depreciation and Amortization (“EBITDA”)

~~Reorganization~~ We view ~~items~~EBITDA as a performance measure of ~~$1.2~~operating ~~million~~liquidity, ~~for~~and as such we believe that the ~~three~~GAAP financial measure most directly comparable to it is net cash provided by operating activities (see reconciliation of EBITDA to net cash used by operating activities below). EBITDA is not an alternative to and should not ~~six~~be ~~months~~considered ~~ended~~instead ~~July 2~~of, ~~2004~~or ~~consist~~as a substitute for, earnings from operations, net income or loss, cash flows from operating activities or other statements of operations aor ~~reduction~~cash flow data prepared in ~~estimated~~conformity with GAAP, or as a GAAP ~~professional~~ measure ~~expenses~~of toprofitability ~~settle~~or ~~outstanding~~liquidity. ~~claims~~In ~~from~~addition, our ~~bankruptcy.~~calculation Noof ~~such~~EBITDA ~~adjustments~~ may ~~were~~or ~~required~~may ~~for~~not ~~the~~be comparable ~~periods~~to similarly titled measures of ~~2005~~other companies.

~~Income~~ EBITDA is used by our management as a supplemental financial measure to evaluate the performance of our business that, when viewed with our GAAP results and the accompanying reconciliations, we believe provides a more complete understanding of factors and trends affecting our business than the GAAP results alone. We also regularly communicate our EBITDA to the public through our earnings releases because it is a financial measure commonly used by analysts that cover our industry to evaluate our performance as compared to the performance of other companies that have different financing and capital structures or effective tax rates. ~~expense~~In addition, EBITDA is a financial measure used in the financial covenants of our Credit Facility and therefore is a financial measure to evaluate our compliance with our financial covenants. Management compensates for the above-described limitations of using a non-GAAP financial measure by using this non-GAAP financial measure only to supplement our GAAP results to provide a more complete understanding of the factors and trends affecting our business.

~~The effective tax rates for the three and six months ended July~~ ~~1, 2005 were a~~Components ~~benefit~~ of ~~68.6%~~EBITDA ~~and~~are anpresented ~~expense of 30.7%, respectively. The effective tax rate for both the three and six months ended July 2, 2004 was an expense of 40.5%.~~below:

The consolidated pretax loss for the three months ended July 1, 2005 reflected in the accompanying consolidated statements of operations consists of a domestic loss partially offset by foreign income. Income from foreign sources is generally not subject to state income tax, which results in an increased state tax benefit related to the taxable loss for the three months ended July 1, 2005. However, foreign source income not subject to state tax decreased the state effective tax rate in periods of taxable income resulting in a lower state effective tax rate for the six months ended July 1, 2005 compared to the same period in the prior year. Also, in preparing the state income tax returns and extensions for 2004, we revised our estimate of the impact of foreign earnings not subject to state income taxes. The result of this change in estimate was a $2 million tax benefit recorded for the three and six months ended July 1, 2005.

	Three Months Ended
(In millions)	March 30, 2007		March 31, 2006
Net income	$	13.0	$	19.0
Interest expense		1.5		1.9
Income tax expense		9.1		13.5
Depreciation and amortization		10.3		9.2
EBITDA	$	33.9	$	43.6

~~Minority~~Reconciliation of ~~interests~~EBITDA into ~~(income)~~net ~~loss~~cash ofused ~~consolidated subsidiaries~~by operating activities

~~Minority~~ We ~~interests~~ believe inthat ~~(income)~~net ~~loss~~cash ofused ~~consolidated~~by ~~subsidiaries~~operating ~~for~~activities is the ~~three~~financial ~~and six~~measure ~~months~~ calculated ~~ended July 1, 2005 was $2.2 million~~ and ~~$(2.5)~~presented ~~million~~in asaccordance ~~compared to~~with ~~$(2.5)~~GAAP ~~million~~that ~~and~~is ~~$(7.2)~~most ~~million in the~~ directly comparable ~~periods~~to ~~of 2004~~EBITDA. ~~Our results~~The ~~for~~following ~~the~~table ~~three~~reconciles ~~and~~EBITDA ~~six~~to ~~months~~net ~~ended~~cash ~~July 1, 2005 included a~~used ~~minority~~ by operating ~~interest’s~~activities ~~35%~~for ~~share~~each of athe ~~$15.3~~periods ~~million estimated contract loss~~ for ~~a fixed-priced~~which ~~highway~~EBITDA ~~project in a consolidated joint venture. In addition, on April 7,~~is ~~2005 we consummated the acquisition of BNFL’s interest in the government contracting~~ presented.

I-29

	Three Months Ended
(In millions)	March 30, 2007			March 31, 2006
EBITDA	$	33.9		$	43.6
Interest expense		(1.5	)		(1.9	)
Income tax expense		(9.1	)		(13.5	)
Cash paid for reorganization items		(1.1	)		(0.5	)
Amortization of deferred financing fees		0.2			0.6
Non-cash income tax expense		8.0			12.6
Minority interests in income of consolidated subsidiaries, net of tax		1.7			1.4
Equity in income of unconsolidated affiliates, less dividends received		(1.5	)		(10.5	)
Gain on sale of assets, net		(2.5	)		(0.2	)
Stock-based compensation expense		4.0			2.1
Excess tax benefits from exercise of stock options		(1.6	)		(3.4	)
Changes in operating assets, liabilities and other		(51.0	)		(55.7	)
Net cash used by operating activities	$	(20.5	)	$	(25.4	)

~~ventures. See~~ACCOUNTING Note 10, “Acquisition of BNFL’s Interest in Government Contracting Ventures” of Notes to Condensed Consolidated Financial Statements in Item 1 of this report. Effective with the acquisition in the second quarter of 2005, BNFL continued to receive 40% of the earnings of the 40% Legacy Contracts. However, BNFL’s share of the 40% Legacy Contracts is now classified as cost of revenue rather than minority interest in income of consolidated subsidiaries as had been the case prior to the acquisition. STANDARDS

~~BUSINESS~~Recently ~~UNIT~~ issued ~~RESULTS~~accounting standards

( In ~~millions~~ September 2006, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 157, Fair Value Measurements. SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for our fiscal year 2008 and interim periods within fiscal 2008, with early adoption permitted. We are currently evaluating the impact, if any, that SFAS No. 157 will have on our financial statements.

	Three months ended						Six months ended
	July 1, 2005			July 2, 2004			July 1, 2005			July 2, 2004
Revenue
Power	$	186.8		$	146.9		$	337.4		$	297.1
Infrastructure	186.2			199.4			347.1			477.0
Mining	42.8			25.6			70.3			46.0
Industrial/Process	103.3			99.2			200.6			190.0
Defense	132.5			118.6			285.1			240.8
Energy & Environment	120.9			95.9			233.0			192.4
Intersegment and other	0.7			(1.1		)	0.5			(4.7		)
Total revenue	$	773.2		$	684.5		$	1,474.0		$	1,438.6
Operating income (loss)
Power	$	25.7		$	5.7		$	39.7		$	14.0
Infrastructure	(47.2		)	6.3			(43.7		)	12.3
Mining	(0.5		)	9.4			6.2			20.4
Industrial/Process	1.5			1.5			(0.2		)	3.2
Defense	17.3			9.2			32.4			17.8
Energy & Environment	9.0			14.4			25.6			31.5
Intersegment and other unallocated operating costs	(0.3		)	(1.7		)	(1.1		)	(6.3		)
Total segment operating income	5.5			44.8			58.9			92.9
General and administrative expenses, corporate	(10.1		)	(15.7		)	(25.4		)	(29.7		)
Total operating income (loss)	$	(4.6	)	$	29.1		$	33.5		$	63.2

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for our fiscal year 2008 and interim periods within fiscal 2008, with early adoption permitted. We are currently evaluating the impact, if any, that SFAS No. 159 will have on our financial statements.

~~Power~~Adoption of accounting standards

~~Revenue~~ ~~for~~ In ~~the~~September ~~three and six months ended July 1~~2006, ~~2005~~the ~~increased~~FASB ~~$39.9~~issued ~~million and~~SFAS ~~$40~~No.3 ~~million~~158, orEmployers’ Accounting ~~27%~~for ~~and~~Defined ~~14%,~~Benefit ~~respectively,~~Pension ~~from~~and ~~the~~Other ~~comparable~~Postretirement Plans. ~~periods of~~SFAS ~~2004~~ No. ~~Revenue~~158 ~~from~~requires ~~work~~employers ~~performed~~to inrecognize the ~~Middle~~overfunded ~~East~~or ~~increased~~underfunded ~~$43.1 million~~status ~~and $28.3 million, respectively, during the second quarter~~ of ~~2005 and year to~~ ~~date~~ a ~~from~~defined ~~the~~benefit ~~comparable~~pension ~~periods~~or ofpostretirement ~~2004.~~plan ~~Revenue~~as ~~also~~an ~~grew~~asset ~~from~~or ~~increased~~liability ~~scope~~ in onits statement aof ~~modification~~financial ~~services contract~~position, ~~increased~~recognize ~~activity~~changes onin athat ~~new~~funded status ~~generation~~ in ~~plant~~the year in ~~Puerto~~which ~~Rico,~~the ~~and~~changes ~~revenue~~occur ~~from~~through acomprehensive ~~new~~income ~~modification~~and ~~services~~measure ~~contract~~ a plan’s inassets ~~Michigan together totaling $39.2 million~~ and ~~$65.8~~its ~~million, respectively,~~obligations ~~for~~that ~~the~~determine ~~three~~its ~~and~~funded ~~six~~status ~~months~~as ~~ended~~of ~~July 1,~~the ~~2005. The~~end ~~increase~~ of inthe ~~revenue~~employer’s ~~was~~fiscal ~~partially~~year. ~~offset~~We byadopted acertain ~~decline~~recognition provisions of ~~$49.2 million and~~SFAS ~~$70~~ No.8 ~~million~~158 ~~for~~as ~~the~~of ~~three~~December ~~and six months~~29, ~~respectively~~2006, ~~from the winding down~~ and ~~completion~~will ofbe arequired ~~steam~~to ~~generator~~adopt ~~replacement~~the ~~project in South Carolina, a~~remaining ~~new~~ measurement ~~generation~~provisions ~~power~~of ~~project~~SFAS inNo. ~~Wisconsin~~158 ~~and two plant modification projects~~ in ~~Alabama~~2008. Those ~~Revenue~~provisions require ~~from~~that ~~the~~we ~~Middle~~measure ~~East~~our ~~totaled~~plan’s ~~$72.6~~assets ~~million~~ and ~~$103.8 million,~~its ~~respectively,~~obligations ~~for~~that ~~the~~determine ~~three~~its funded ~~and~~status ~~six~~as ~~months~~of ~~ended~~the ~~July 1~~end ~~2005 compared~~of toour ~~$29.5~~fiscal ~~million and $75~~year.5 Our ~~million, respectively, for the three and~~current ~~six~~ measurement ~~months~~date ~~ended~~is ~~July 2,~~October ~~2004~~31.

Operating income for the three and six months ended July 1, 2005 increased $20.0 million and $25.7 million, respectively, from the comparable periods of 2004, primarily due to an increase in earnings from work in the Middle East and a claim settlement on a completed international project. The increase was partially offset by a decrease in earnings from the winding down and completion of the steam generator replacement project and the new generation power project. Operating income from the Middle East totaled $13.7 million and $14.5 million, respectively, for the three and six months ended July 1, 2005 and $1.3 million and $3.9 million, respectively, for the three and six months ended July 2, 2004. During the three months ended July 1, 2005, we received favorable performance ratings resulting in $6.8 million of performanceI-~~based award fees for work performed through~~30

I In July 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a more-likely-than-not recognition threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest and penalties, and disclosure. An uncertain income tax position will not be recognized if it has less than a 50 percent likelihood of being sustained. We adopted the provisions of FIN 48 on December 30, 2006. See Note 6, “Income Taxes and Adoption of FIN 48,” of the Notes to Condensed Consolidated Financial Statements in Item 1 of this report for disclosure of the impact of adopting FIN 48.

~~March 2005. Based on the actual awards, consistent with our policy we began accruing performance~~ I-~~based awards for the ongoing work in the Middle East resulting in an additional $4.0 million of earnings during the second quarter.~~31

~~Infrastructure~~ ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Revenue~~Interest ~~for~~ rate the three and six months ended July 1, 2005 declined $13.2 million and $129.9 million, or 7% and 27%, respectively, from the comparable periods of 2004. Revenue from work in the Middle East in the second quarter and the first six months of 2005 declined $38.6 million and $182.0 million, respectively, due to the substantial completion of several large task orders. An increase in revenue during the second quarter of 2005 from other domestic infrastructure projects partially offset the decline in revenue from the Middle East. The increase included revenue from the construction of a dam in Illinois, a new light rail project in California and increased construction activity on two highway projects in California. Revenue from the Middle East totaled $49.4 million and $74.8 million, respectively, for the three and six months ended July 1, 2005 compared to $88.0 million and $256.8 million, respectively, for the three and six months ended July 2, 2004.risk

~~Operating loss of $47.2 and $43.7 million for the three and six months ended July~~ ~~1, 2005 was a decline in operating income~~Our of exposure ~~$53.5~~to ~~million~~market ~~and~~risk ~~$56.0 million, respectively, from the comparable periods of 2004. During the second quarter of 2005, Infrastructure recognized a $38.6 million estimated contract loss~~ for ~~our share of additional cost growth resulting from additional design~~ changes, ~~cost escalation and project delays on a $378 million fixed- price highway project of a construction joint venture~~ in ~~which~~ ~~we have a 50%~~ interest. ~~Operating~~rates ~~income~~relates ~~for~~primarily the six months ended July 2, 2004 was impacted by a $5.0 million charge we recorded in the first quarter of 2004 for estimated cost overruns on this project. As of July 1, 2005, the project is approximately 31% complete and is scheduled to ~~be complete in the~~ ~~first quarter of 2007. Additionally, during the second quarter of 2005, an~~ our ~~additional~~ Credit ~~$15~~Facility.3 ~~million~~Substantially ~~estimated~~all ~~contract~~cash ~~loss was recognized for cost growth related to client design changes resulting in quantity growth~~ and ~~project delays~~cash onequivalents aat ~~fixed-price~~March ~~highway project in California and another charge of $7.0 million was recognized due to cost growth on another fixed-priced highway project in Nevada. To date~~30, ~~we have~~ ~~only been able to negotiate acceptable change orders with the clients involved~~ 2007 ~~for~~ were aheld small portion of the cost increases. Our share of pending change orders and claims submitted to the clients total approximately $42 million, and we believe additional claims will be submitted. We believe there will be significant recoveries once the claim process is completed. Because we have not been able to reach agreement on the change orders and claims, recoveries will be recognized only when it is probable they will result in ~~additional~~highly ~~revenue~~liquid ~~and the amount can be reliably estimated~~instruments. ~~While the entire amount of the current estimated losses have been recognized, actual results may differ from our estimates.~~

~~Earnings from work in the Middle East for the three and six months ended July~~ ~~1, 2005 declined $0.1 million and $5.8 million,~~From ~~respectively,~~ time ~~from the comparable periods in 2004 due~~ to ~~the~~time, ~~completion~~we ~~of several~~may ~~large~~effect ~~task~~borrowings ~~orders~~under ~~and~~bank ~~lower~~credit ~~volume~~facilities ofor ~~work in 2005. The decline in~~otherwise ~~operating~~ for ~~income~~general ~~was~~corporate ~~partially offset by favorable results from the dam construction project in Illinois~~purposes, anincluding ~~airport~~working ~~runway~~capital ~~construction~~requirements ~~project in California, an increase in volume in engineering services~~ and ~~a $2.2 million~~ ~~net~~ capital ~~claim settlement on a completed Philippine dam and hydropower project~~expenditures. ~~Operating~~ ~~income~~Borrowings ~~from~~under ~~the~~our ~~Middle~~Credit ~~East totaled $9.5 million and $13.5 million~~Facility, ~~respectively,~~ ~~for~~of ~~the~~which ~~three and six months ended July 1, 2005 compared to~~there ~~$9.6~~ currently ~~million~~are ~~and $19.3 million~~none, ~~respectively,~~bear ~~for~~interest at the ~~three~~applicable ~~and~~LIBOR ~~six~~or ~~months ended~~prime ~~July 2~~rate, plus ~~2004. Operating income from the Middle East for the three~~an ~~and~~ additional ~~six~~margin ~~months ended July 1~~and, ~~2005 reflect $1.6 million and $4.0 million~~therefore, ~~respectively,~~ ofare ~~actual~~subject ~~performance-based~~to ~~award~~fluctuations ~~fees~~in ~~and $2.5 million of~~interest ~~accrued award fees as explained above under Power~~ rates.

~~I-31~~Foreign currency risk

~~Mining~~ We conduct our business in various regions of the world. Our operations are, therefore, subject to volatility because of currency fluctuations, inflation changes and changes in political and economic conditions in these countries. We are subject to foreign currency translation and exchange issues, primarily with regard to our mining venture, MIBRAG, in Germany. At March 30, 2007 and December 29, 2006, the cumulative adjustments for translation gains, net of related income tax benefits, were $26.8 million and $25.8 million, respectively. While we endeavor to enter into contracts with foreign customers with repayment terms in US dollars in order to mitigate foreign exchange risk, our revenues and expenses are sometimes denominated in local currencies, and our results of operations may be affected adversely as currency fluctuations affect our pricing and operating costs or those of our competitors. We may engage from time to time in hedging operations, including forward foreign exchange contracts, to reduce the exposure of our cash flows to fluctuations in foreign currency rates. We do not engage in hedging for speculative investment reasons. We can give no assurances that our hedging operations will eliminate or substantially reduce risks associated with fluctuating currencies.

~~Revenue~~ We ~~for~~ do ~~the~~not ~~three~~have ~~and~~any ~~six~~off-balance ~~months~~sheet ~~ended~~arrangements ~~July 1,~~that ~~2005~~have ~~increased $17.2 million and $24.3 million,~~ or ~~67%~~are ~~and 53%, respectively, from the comparable periods of~~reasonably ~~2005.~~ likely ~~The increase was primarily due~~ to ~~new~~have ~~contracts, including~~ a ~~new~~current ~~copper mine~~or infuture ~~Nevada,~~effect aon ~~new~~financial ~~silver mine in Bolivia~~condition, ~~and a new domestic pre-stripping~~results ~~project.~~ of operations, ~~The~~liquidity, ~~increase~~capital inexpenditures ~~revenue~~or ~~was~~capital ~~partially~~resources ~~offset~~that ~~by a reduction in revenue~~are ~~from~~ material ~~the~~to ~~shutdown of a phosphate mine in Idaho~~investors.

Operating income (loss) for the three and six months ended July 1, 2005 was ($0.5) million and $6.2 million, respectively, a decline of $9.9 million and $14.2 million, respectively, from the comparable periods of 2004. During the three and six months ended July 1, 2005, earnings from our share of the MIBRAG mining venture in Germany declined $5.8 million and $9.1 million, respectively, from the comparable periods in 2004. The two primary customers of MIBRAG, from time to time, have planned outages as well as fluctuations in utilization at the power plants they operate. The timing and duration of such outages and fluctuations vary from year to year. MIBRAG’s earnings declined during the first quarter of 2005 due to lower coal sales to one of MIBRAG’s primary customers as a result of performance issues at one of its power plants. MIBRAG’s coal sales declined further in the second quarter of 2005 while the customer made repairs to that power plant and as a result of a scheduled outage at the other customer’s power plant. The outages were substantially completed by the end of the second quarter and coal sales returned to normal levels. We anticipate total 2005 earnings for MIBRAG will be comparable to prior years. Mining’s results were also impacted by higher than anticipated start I-~~up costs and weather problems at four projects.~~32

~~Industrial/Process~~ITEM 4. CONTROLS AND PROCEDURES

~~Revenue~~ We ~~for~~ maintain ~~the~~a ~~three~~set of disclosure controls and ~~six~~procedures ~~months~~designed ~~ended~~to ~~July 1,~~ensure ~~2005~~that ~~increased~~information ~~$4.1~~required ~~million~~to ~~and~~be ~~$10.6~~ disclosed ~~million,~~by orus 4%in ~~and~~reports ~~6%,~~that ~~respectively,~~we ~~from~~file ~~the~~or ~~comparable~~submit ~~periods~~under ofthe ~~2004.~~Securities Exchange ~~The~~ Act ~~increase~~of in1934 ~~revenue~~is ~~was~~recorded, ~~primarily~~processed, ~~due~~summarized toand areported ~~new~~within ~~engineering,~~the ~~procurement and~~time ~~construction~~ periods ~~contract~~specified ~~for~~in aSecurities ~~food~~and ~~processing~~Exchange ~~facility,~~Commission ~~continued~~(“SEC”) ~~growth~~rules onand ~~a new~~forms. ~~facilities~~ As ~~management~~of ~~project~~the ~~and~~date aof ~~new~~the ~~life~~financial ~~sciences~~statements, ~~project.~~an ~~The~~evaluation ~~increase~~was incarried out ~~revenue~~ under the ~~was~~supervision ~~partially~~and ~~offset~~with by the ~~winding~~participation ~~down~~of ~~and~~our ~~completion~~management, ofincluding ~~several~~the ~~facilities~~ Chief ~~management~~Executive Officer (“CEO”) and ~~industrial~~Chief ~~maintenance~~Financial ~~contracts.~~Officer ~~Subsequent~~(“CFO”), toof the ~~end~~ effectiveness of ~~the~~our ~~quarter,~~disclosure ~~the~~controls ~~business~~and ~~unit~~procedures. ~~signed~~Based aon ~~$190.3~~that evaluation, ~~million~~the ~~contract~~CEO toand ~~build a~~CFO ~~sulfur~~have ~~handling~~concluded ~~plant~~that inour ~~Qatar~~disclosure controls and procedures are effective.

~~Operating income~~· ~~(loss)~~CEO ~~for the three~~ and ~~six~~CFO months ended July 1, 2005 of $1.5 million and $(0.2) million, respectively, was unchanged and declined $3.4 million, respectively, from the comparable periods of 2004. Operating income was impacted by increased proposal costs and a shortfall in work to cover fixed costs, including specialists’ down time pending the award of new contracts. The resolution of a subcontractor claim favorably impacted operating income by $2.0 million for the three and six months ended July 1, 2005. Operating income for the three and six months ended July 2, 2004 included claim settlements of $0.4 million and $2.5 million, respectively.certificates

~~Defense~~Attached as Exhibits 31.1 and 31.2 to this report on Form 10-Q are two certifications, one each by the CEO and the CFO. They are required in accordance with Rule 13a-14 of the Exchange Act. This Item 4, Controls and Procedures, includes the information concerning the controls evaluation referred to in the certifications and should be read in conjunction with the certifications.

~~Revenue for~~· ~~the~~Disclosure three and six months ended July 1, 2005 increased $13.9 million and $44.3 million, or 12% and 18%, respectively, over the comparable periods of 2005. The increase was primarily due to higher procurement and construction activities totaling $11.8 million and $40.9 million, respectively, on a plutonium reactor conversion project, increased activity on other threat reduction projects in the former Soviet Union, a larger volume of operations and maintenance activities on two chemical demilitarization projects, and increased scope on an electrical power enhancement project. The increase in revenue was partially offset by reduced task order activities on a program in the former Soviet Union totaling $6.5 million and $23.3 million, respectively, completion of closure activities on a chemical demilitarization project in 2004, and a decline in revenue on a chemical demilitarization project from extensive plant testing activity performed in 2004.controls

I“Disclosure Controls” are controls and procedures that are designed to reasonably ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this report on Form 10-32Q, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure Controls are also designed to ensure that information required to be disclosed is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.

~~Operating income~~· ~~for~~Internal ~~the~~control ~~three and six months ended July 1, 2005 increased $8.1 million and $14.6 million, respectively,~~ over ~~the~~financial comparable periods of 2004 due to an increase in income from higher award fees earned on two chemical demilitarization projects totaling $5.1 million and $9.8 million, respectively. In addition, operating income increased from award fees earned on four threat reduction projects in the former Soviet Union, and from a favorable construction project close-out. The increase in operating income was partially offset by the completion of closure activities on a chemical demilitarization project, reduced task order activities on a program in the former Soviet Union, and higher business unit overhead, primarily from an increase in business development activity.reporting

~~Energy~~Our Disclosure Controls include components of our “Internal Control over Financial Reporting.” Internal Control over Financial Reporting is a process designed by, or under the supervision of our principal executive and ~~Environment~~principal financial officers, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

~~Revenue for~~▪ ~~the~~Pertain ~~three~~to ~~and six months ended July 1, 2005 increased $25.0 million and $40.6 million, or 26% and 21%, respectively, from~~ the ~~comparable~~maintenance ~~periods~~ of ~~2004~~ ~~due~~records tothat ~~$28.2~~in ~~million~~reasonable ~~associated~~detail ~~with~~accurately aand ~~new~~fairly ~~environmental~~reflect ~~cleanup project, revenue from new contracts in~~ the ~~Middle~~transactions ~~East totaling $3.2 million~~ and ~~$15.3 million,~~dispositions ~~respectively,~~of ~~and~~our ~~an increase in activity on a design contract. The increase in revenue was partially offset by a decrease in activity on a large DoE management services contract.~~assets;

~~Operating~~▪ ~~income~~Provide ~~for~~reasonable ~~the three~~assurance ~~and~~that ~~six~~transactions ~~months~~are ~~ended~~recorded ~~July 1,~~as ~~2005~~necessary ~~declined~~to ~~$5.4~~permit ~~million~~preparation ~~and~~of ~~$5.9 million,~~financial ~~respectively,~~statements ~~from the comparable periods~~ in ~~2004.~~accordance ~~Beginning~~ with ~~the second~~generally ~~quarter~~accepted ofaccounting ~~2005~~principles, ~~payments~~and tothat ~~BNFL~~our ~~for~~receipts ~~their~~and ~~interest~~expenditures inare ~~certain DoE contracts of $2.7 million were charged to operating income rather than~~ being ~~reflected~~ asmade ~~minority~~only ~~interest. See Note 10, “Acquisition of BNFL’s Interest~~ in ~~Government~~ ~~Contracting~~accordance ~~Ventures”~~with ofauthorizations ~~Notes to Condensed Consolidated Financial Statements in Item 1~~ of ~~this~~our ~~report.~~management Also during the quarter, a loss of $3.3 million was recognized relating to a reduction in work performed in the United Kingdom. The decline in operating income was partially offset by earnings from work in the Middle East of $0.6 million and ~~$2.6~~directors; ~~million, respectively, for the three~~ and ~~six months ended July 1, 2005. The business unit continued to perform exceptionally well on projects for the DoE.~~

~~Intersegment~~▪ ~~and~~Provide ~~other~~reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

~~Intersegment~~· ~~and~~Limitations ~~other~~on ~~operating loss for~~ the ~~three and~~effectiveness ~~six months ended July 1, 2005 included $1.1 million and $2.2 million, respectively,~~ of ~~residual costs from our non-union subsidiary.~~controls

~~Intersegment~~Our management, including the CEO and ~~other~~CFO, ~~for~~does ~~the~~not ~~three~~expect that our Disclosure Controls and/or ~~six~~our ~~months ended~~Internal ~~July 2~~Control over Financial Reporting will prevent or detect all error or fraud. A system of controls is able to provide only reasonable, ~~2004~~not ~~included~~complete, $1assurance that the control objectives are being met, no matter how extensive those control systems may be.0 ~~million~~Also, control systems must be established considering the benefits of a control system relative to its costs. Because of these inherent limitations that exist in all control systems, no evaluation of controls can provide absolute assurance that all errors or fraud, if any, have been detected. The inherent limitations in control systems include various human and $2system factors that may include errors in judgment or interpretation regarding events or circumstances or inadvertent error.2 ~~million~~Additionally, ~~respectively~~controls can be circumvented by the acts of a single person, by collusion on the part of ~~residual~~two ~~costs~~or ~~from~~more ~~our~~people ~~non-union~~or ~~subsidiary~~by management override of the control. InOver ~~addition~~time, ~~$2.6~~controls ~~million~~can also become ineffective as conditions, circumstances, policies, technologies, level of ~~additional~~ ~~expense~~compliance ~~was~~and ~~incurred~~people ~~related~~change. toBecause ~~our~~of ~~self-insurance~~such ~~program~~inherent ~~during the~~limitations, ~~six~~in ~~months~~any ~~ended~~cost-effective ~~July 2~~control system over financial information, ~~2004~~misstatements may occur due to error or fraud and may not be detected.

~~FINANCIAL CONDITION AND LIQUIDITY~~I-33

We· ~~have~~Scope ~~three principal sources~~ of ~~liquidity:~~evaluation ~~(1) cash generated by operations; (2) existing cash and cash equivalents and (3) available capacity under our credit facility. We had cash and cash equivalents~~ of ~~$304.0~~Disclosure million at July 1, 2005, of which $68.9 million was restricted for use in the normal operations of our consolidated joint venture projects or was restricted under our self-insurance program. At July 1, 2005, we had no borrowing and $122.8 million in face amount of letters of credit outstanding under the credit facility, leaving a borrowing capacity of $227.2 million under the facility. For more information on our financing activities, see Note 5 “Credit Facilities,” of the Notes to Condensed Consolidated Financial Statements in Item 1.Controls

~~Our~~The ~~cash~~evaluation ~~flow~~of our Disclosure Controls performed by our CEO and CFO included obtaining an understanding of the design and objectives of the controls, the implementation of those controls and the results of the controls on this report on Form 10-Q. We have established a Disclosure Committee whose duty is ~~primarily impacted~~to ~~from~~perform ~~period~~procedures to ~~period~~evaluate bythe ~~fluctuations~~Disclosure inControls ~~working~~and ~~capital~~provide the CEO and ~~purchase~~ CFO with the results of ~~construction~~their evaluation as part of the information considered by the CEO and ~~mining~~CFO ~~equipment~~in ~~required~~their evaluation of Disclosure Controls. In the course of the evaluation of Disclosure Controls, we reviewed the controls that are in place to ~~perform~~record, process, summarize and report, on a timely basis, matters that require disclosure in our ~~contracts~~reports filed under the Securities Exchange Act of 1934. ~~Working capital~~We isalso ~~affected~~considered bythe ~~numerous~~adequacy ~~factors~~of ~~including:~~the items disclosed in this report on Form 10-Q.

~~• Business~~· ~~unit mix. Our working capital requirements are unique by business unit, and changes in the type, size and stage of completion of contracts performed by our business units can impact our working~~Conclusions

IBased upon the evaluation of our Disclosure Controls described above, our CEO and CFO have concluded that, subject to the limitations described above, our Disclosure Controls are effective to provide reasonable assurance that material information relating to Washington Group International and its consolidated subsidiaries is made known to management, including the CEO and CFO, so that required disclosures have been included in this report on Form 10-33Q.

~~capital~~We ~~requirements.~~have ~~Also, growth~~also inreviewed ~~the~~our ~~business~~Internal ~~requires~~Control ~~working~~Over ~~capital~~Financial ~~investment~~Reporting ~~and~~during the ~~purchase~~most ~~of construction~~recent fiscal quarter, and ~~mining~~our ~~equipment~~CEO and CFO have concluded that there have been no changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

• Commercial terms. The commercial terms of our contracts with customers and subcontractors may vary by business unit, contract type and customer type and utilize a variety of billing and payment terms. These could include client advances, milestone payment schedules, monthly or bi I-monthly billing cycles, and performance base incentives. Additionally, some customers have requirements on billing documentation including documentation from subcontractors, which may increase the level of billing complexity and cause delays in the billing cycle and collection cycle from period to period.34

~~• Contract life cycle. Our~~PART ~~contracts~~ II. ~~typically~~OTHER involve initial cash for working capital during the start-up phase, reach a cash neutral position and eventually experience a reduction of working capital during the wind-down and completion of the project.INFORMATION

~~• Delays in execution. At times, we may experience delays in scheduling and performance of our~~ITEM ~~contracts and encounter unforeseen events or issues that may negatively affect our cash flow~~ 1. LEGAL PROCEEDINGS

~~Cash~~ As previously ~~flows~~reported, we were sued in the Supreme Court of New York, County of Kings in connection with construction management and inspection services performed by Washington Infrastructure, Inc. for a new school facility for the School Construction Authority of the City of New York by the prime contractor. This suit, Trataros Construction, Inc. et al., v. The New York City School Construction Authority et al., Index No. 20213/01, has been in the discovery stage for years and there have been no material developments in the proceedings in some time. To the extent there are additional material developments in this suit, we will discuss them in future reports under the Exchange Act.

~~(In~~ We incorporate ~~millions)~~by reference the information regarding legal proceedings set forth under the caption “Legal Matters” in Note 7, “Contingencies and Commitments,” of the Notes to Condensed Consolidated Financial Statements in Item 1 of this report. Our legal proceedings are also described in Part I, Item 3 “Legal Proceedings” and Note 11, “Contingencies and Commitments,” of the Notes to the Consolidated Financial Statements in Item 8 of our 2006 Annual Report.

Liquidity and capital resources	July 1, 2005		December 31, 2004
Cash and cash equivalents	$	304.0	$	286.1
Short-term investments	—		30.2
Total	$	304.0	$	316.3

Our reorganization case is In re Washington Group International, Inc. and Related Cases, Docket No. BK-N 01-31627-GWZ, in the US Bankruptcy Court for the District of Nevada.

	Six months ended
Cash flow activities	July 1, 2005		July 2, 2004
Net cash provided (used) by:
Operating activities	9.1		(17.7	)
Investing activities	(0.4	)	17.4
Financing activities	9.2		(4.6	)

The personal injury and property damage lawsuits discussed under the caption “Legal Matters” and referred to as “New Orleans Levee Failure Class Action Litigation” in Note 7, “Contingencies and Commitments” of the Notes to Condensed Consolidated Financial Statements in Item 1 of this report refers to Berthelot, et al. v. Boh Bros. Construction Co., LLC, et al., Case No. 05-4182; Vodanovich, et al. v. Boh Bros. Construction Co., LLC, et al., Case No. 05-5237; Kirsch, et al. v. Boh Bros. Construction Co., LLC, et al., Case No. 05-6073; Ezell v. Boh Bros. Construction Co., LLC, et al., Case No. 05-6314; Brown, et al. v. Boh Bros. Construction Co., LLC, et al., Case No. 05-6324; LeBlanc, et al. v. Boh Bros. Construction Co., LLC, et al., Case No. 05-6327; Finney, et al. v. Boh Bros. Construction Co., LLC, et al.,, Case No. 06-0886; Christenberry, et al. v. Board of Commissioners of the Orleans Levee District, et al., Case No. 06-2278; Sanchez, et al. v. Boh Bros. Construction Co., LLC, et al., Case No. 06-2287; C. Adams, et al. v. Boh Bros. Construction Co., LLC, et al., Case No. 06-4065; Brock, et al. v. Boh Bros. Construction Co., LLC, et al., Case No. 06-4931; Fleming, et al. v. The United States of America, et al., Case No. 06-5159; G. Adams, et al. v. Boh Bros. Construction Co., LLC, et al., Case No. 06-4634; Gisevius v. Boh Bros. Construction Co., LLC, et al., Case No. 06-5308; Holmes, et al. v. The United States of America, et al., Case No. 06-5161; Joseph, et al. v. New Orleans Sewage and Water Board, et al., Case No. 06-5032; LeDuff, et al. v. Boh Bros. Construction Co., LLC, et al., Case No. 06-5260; O’Dwyer(1) v. Boh Bros Construction Col, LLC, et al., Case No. 05-4181, O’Dwyer(3) v. Dept. of Trans. and Dev., et al., Case No. 06-4389; Bradley, et al. v. Boh Bros. Construction Co., LLC, et al., Case No. 06-225; O’Dwyer(2) v. Dept. of Trans. and Dev., et al., Case No. 06-5786; Richardson v. Boh Bros. Construction Co., LLC, et al., Case No. 06-8708; and Yacob v. Board of Commissioners for Orleans Levee District, et al., Case No. 06-5937; Cochran, et. al. v. Boh Bros. Construction Co., LLC, et al., Case No. 06-5785; Ciuffi v. United States of America, et al., Case No. 07-1271; and Carney v. Boh Bros. Construction Co., LLC, Case No. (not yet assigned), all currently pending in the US District Court for the Eastern District of Louisiana and consolidated under the Berthelot case.

The lawsuit ~~discussion~~relating ~~below~~to our USAID-financed projects in Egypt discussed under ~~highlights~~ the caption ~~significant~~“Legal ~~aspects~~Matters” and referred to as “Litigation and Investigation related to USAID Egyptian Projects” in Note 7, “Contingencies and Commitments” of ~~our~~the Notes ~~cash~~to ~~flows~~Condensed Consolidated Financial Statements in Item 1 of this report refers to United States of America v. Washington Group International, Inc., et al., Case No. CIV-04545S-EJL, in the US District Court for the District of Idaho.

~~• Operating activities:~~II-1

~~For the six months ended July 1,~~ITEM ~~2005, operating activities provided $9~~ 1A.1 RISK million of cash. Operating activities included net income of $16.6 million and several significant non-cash charges including non-cash income taxes of $6.9 million, depreciation of $9.1 million, and amortization and write-off of financing fees of $5.2 million. Cash flow was impacted by an increase in working capital of $26.0 million. Start-up activities on a new large environmental cleanup project for the Energy and Environment business unit and several contracts for the Mining business unit were the primary contributors to the increased investment in working capital. Working capital was also impacted by incentive compensation payments during the first quarter of 2005. In addition, cash was required to fund work on three large highway construction projects. We have recognized a total loss of $66.1 million on one of these projects and expect cash will be required in the next several quarters to fund the cost growth on these contracts as work progresses. We anticipate future change orders and claim recoveries on these projects, which if received, will partially mitigate the negative cash impact of these projects. At July 1, 2005, capital invested in contracts in the Middle East declined to $47.8 million from $51.6 million at December 31, 2004. The combination of our available net operating loss carryforwards and amortization of the tax deductible goodwill resulted in only $0.9 million of our $8.5 million of tax expense being paid in cash during the six months ended July 1, 2005.FACTORS

~~I-34~~ There have been no material changes in our risk factors from those disclosed in our 2006 Annual Report.

~~For the six months ended July 2,~~ITEM ~~2004, operating activities used $17~~ 2.7 UNREGISTERED ~~million~~SALE ofOF ~~cash.~~EQUITY ~~Cash~~SECURITIES ~~was~~AND ~~impacted~~USE ~~by an~~OF increase in working capital of $61.5 million principally due to working capital requirements for task orders in the Middle East, in both our Infrastructure and Power business units, and incentive compensation payments. Operating earnings generated during the first six months of 2004 partially offset the increase in working capital. PROCEEDS

~~• Investing~~Issue Repurchases ~~activities:~~of Equity Securities

~~During~~ We ~~the~~did ~~six~~not ~~months~~repurchase ~~ended~~any ~~July 1, 2005,~~shares ~~capital~~of ~~expenditures~~our ~~totaled~~common ~~$30.8~~stock ~~million,~~during ~~primarily~~the ~~for~~three ~~new contract~~months ~~mining~~ ended ~~projects~~March in30, ~~our~~2007. We ~~Mining~~are ~~business~~authorized ~~unit.~~to ~~Also,~~repurchase weup ~~sold~~to approximately $30100.20 million of ~~short-term~~ ~~investments~~outstanding ~~during~~shares ~~the~~of ~~six~~common ~~month~~stock ~~period~~in open market or negotiated transactions.

~~During the six months ended July 2,~~ITEM 2004, investing activities provided $17.4 million of cash, consisting of $20.0 million from the liquidation of short-term investments and $17.0 million in proceeds from the sale of property and equipment, primarily from a dam and hydropower project in the Philippines. Equipment acquisitions amounted to $16.1 million principally for new work in the Infrastructure and Mining business units and $ 3.5 DEFAULTS ~~million~~UPON ofSENIOR ~~contributions and advances to unconsolidated affiliates.~~SECURITIES

~~• Financing activities:~~ None.

~~During the six months ended July 1,~~ITEM ~~2005, financing activities provided $9.2 million of cash, consisting of $15.5 million of proceeds from the exercise of stock options and warrants offset by $~~ 4.6 SUBMISSION ~~million~~OF inMATTERS ~~financing~~TO ~~fees~~A inVOTE ~~amending~~OF ~~our Credit Facility and $1.7 million~~SECURITY in distributions to minority interests. Effective upon the April 7, 2005 consummation of the acquisition of BNFL’s interest in certain government contracting ventures, payment of BNFL’s share of net profits of the 40% Legacy Contracts from the ventures is reflected as an operating cash flow. Prior to the acquisition, payment for BNFL’s share of the net profits of the 40% Legacy Contracts was classified as a financing cash flow. HOLDERS

~~During the six months ended July 2,~~ ~~2004, financing activities used $4~~None.6 million of cash, consisting of $7.8 million of distributions to minority interests offset by $4.7 million of proceeds from the exercise of stock options and warrants. In March 2004, we paid $1.5 million of financing fees in amending the Credit Facility.

~~Income~~ITEM 5. OTHER ~~taxes~~INFORMATION

~~We anticipate that cash~~ ~~payments for income taxes for 2005 and later years will be substantially less than income tax expense recognized in the financial statements~~ None. ~~This difference results from expected tax deductions for goodwill amortization and from use of net operating loss (“NOL”) carryovers. As of July~~ 1, 2005, we have remaining tax goodwill of approximately $56 million resulting from the acquisition of government contracting ventures and $552 million resulting from the acquisition of Raytheon Engineers & Constructors International, Inc. The amortization of this tax goodwill is deductible over remaining periods of 8.7 and 10.0 years, respectively, resulting in annual tax deductions of approximately $61 million. The federal NOL carryovers as of July 1, 2005 were approximately $192 million, most of which are subject to an annual limitation of approximately $27 million and expire in years 2020 through 2022. Unused available NOL carryovers from previous years plus the 2005 annual limitation of $27 million, would allow us to use as much as $72 million of the NOL carryovers in 2005 or beyond. Until the tax goodwill deductions and the NOL carryovers are exhausted, we will not pay cash taxes (other than a minimal impact for alternative minimum tax) on the first $88 million of federal taxable income before tax goodwill amortization and application of NOL carryovers each year.

~~Cash flows for 2005~~ITEM 6. EXHIBITS

~~As in 2004, we expect to generate positive cash flows from operations in 2005. Specific issues which are relevant to understanding 2005 cash flows include:~~ (a) Exhibits

IThe Exhibits to this quarterly report on Form 10-35Q are listed in the Exhibit Index contained elsewhere in this quarterly report.

• Income taxes: Because of anticipated utilization of tax goodwill amortization of $61 million, and the availability of $72 million of NOL carryovers, we will not pay federal taxes, other than a minimal impact for alternative minimum tax. Our partners in joint ventures are responsible for their share of the income tax liabilities of the joint ventures. We will pay state and foreign income taxes which are not expected to be significant. II-2

• Property and equipment: Capital expenditures for current construction and mining projects, along with normal capital expenditures to upgrade our information systems hardware and software, are expected to be approximately $5.0 to $10.0 million during the remainder of 2005. Additional capital may be required for new projects obtained during the year. Additionally, in the normal course of business, we sell a portion of our construction and mining equipment fleet each year, depending on expected future requirements. We do not expect any significant sales of equipment during the remainder of 2005.SIGNATURES

~~• Pension and post-retirement~~Pursuant ~~benefit~~ to ~~obligations: During~~ the ~~six~~requirements ~~months~~of ~~ended~~the ~~July 1,~~Securities ~~2005,~~Exchange weAct ~~contributed~~of ~~$3.6 million and $2.3 million~~1934, ~~respectively,~~the ~~to our pension and post-retirement plans. We presently~~registrant ~~anticipate~~ has duly ~~contributing~~caused anthis ~~additional~~report ~~$4.8 million and $1.8 million, respectively,~~ to ~~fund~~be ~~our~~signed ~~pension~~on ~~and~~its ~~post-retirement~~behalf ~~plans~~by ~~during~~ the ~~remainder~~ ~~of 2005~~undersigned, ~~for a total of $8.4 million and $4.1 million, respectively.~~thereunto ~~During~~ duly ~~the six months ended July 1, 2005, we recognized expense of $4~~authorized.~~1 million and $1.8 million, respectively, for our pension and post-retirement plans.~~

• Financing activities: At July 1, 2005, we had outstanding approximately 8.3 million warrants to purchase common stock. These warrants will expire in January 2006. Additionally, we have issued common stock options that are currently exercisable. At July 1, 2005, the market price of our common stock exceeded the exercise price of the warrants and options. If the warrants or options are exercised, we will receive proceeds to the extent of the exercise price of the warrants or options. For a complete discussion, see Note 16, “Capital Stock, Stock Purchase Warrants and Stock Compensation Plans” of the Notes to Consolidated Financial Statements in Item 8 of our 2004 Annual Report on Form 10-K. Our Board of Directors authorized a systematic program for the repurchase, from time to time, of up to $50 million of our common stock and warrants for cash, in the open market, or in privately negotiated transactions. Under the program, management is authorized to repurchase common stock and warrants following the filing of this quarterly report on Form 10-Q.

	WASHINGTON GROUP INTERNATIONAL, INC.


	/s/ George H. Juetten
	George H. Juetten
	Executive Vice President and Chief Financial Officer,
	in his respective capacities as such

Date: May 9, 2007

~~Financial~~WASHINGTON GROUP ~~condition~~INTERNATIONAL, ~~and liquidity~~INC.

~~We expect to use cash to,~~EXHIBIT among other things, satisfy contractual obligations, fund working capital requirements, make capital expenditures and repurchase common stock and warrants. For additional information on contractual obligations and capital expenditures, see “Contractual Obligations” below and “Property and Equipment” above. INDEX

We believe that our cash flow from operations, existing cash and cash equivalents, and available capacity under our revolving credit facility will be sufficient to meet our reasonably foreseeable liquidity needs.Exhibit

InNumber Exhibit 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 existing bonding capacity but, as is customary, the issuance of a bond is at the sureties’ 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. While there can be no assurance that bonds will continue to be available on reasonable terms, we believe that we have access to the bonding necessary to achieve our operating goals. Description

I31.1* Certification of the Principal Executive Officer of Washington Group International, pursuant to Section 302 of the Sarbanes-36Oxley Act of 2002.

We31.2* ~~continually~~Certification ~~evaluate alternative~~of ~~capital~~the ~~structures~~Principal ~~and~~Financial ~~the~~Officer ~~terms~~ of ~~our~~Washington ~~credit~~Group ~~facilities. We may also~~International, ~~from~~pursuant ~~time~~ to ~~time,~~Section ~~pursue~~302 ~~opportunities~~of tothe ~~complement~~Sarbanes-Oxley ~~existing~~Act ~~operations through business combinations and participation in ventures, which may require additional financing and utilization~~ of ~~our capital resources~~2002.

~~Off~~32.1† Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-~~balance~~Oxley ~~sheet arrangements~~Act of 2002.

We* Filed do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. herewith

~~Contractual obligations~~ † Furnished herewith

~~During the six months ended July~~ E-1, 2005, a seven year extension, through 2015, of the Boise, Idaho Corporate and Business Unit headquarters lease was signed for an additional total lease commitment of approximately $22.0 million. Additionally, on July 26, 2005, $50.0 million of outstanding letters of credit issued against our credit facility were cancelled. There were no other material changes in contractual obligations and other commercial commitments from such obligations and commitments as of December 31, 2004.

Indemnities

We have indemnity obligations relating to the sale of certain assets to Curtiss-Wright Corporation for the potential occurrence of specified events, including breaches of representations and warranties and/or failure to perform certain covenants or agreements. Generally, the indemnification provisions expire by October 2005 and are capped at $20 million. In addition, the indemnity provisions relating to environmental conditions obligate us to pay Curtiss-Wright Corporation up to a maximum $3.5 million for environmental losses they may incur over $5 million until October 2007. We are also responsible for environmental losses that exceed $1.3 million related to a specified parcel of the sold property through October 2012. BNFL has agreed to indemnify us for 40% of losses we incur as a result of our indemnity obligations. We believe that the indemnification provisions will not have a material adverse effect on our financial position, results of operations or cash flows.

Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)

We view EBITDA as a measure of operating liquidity, and as such we believe that the GAAP financial measure most directly comparable to it is net cash provided by operating activities (see reconciliation of EBITDA to net cash provided by operating activities below). EBITDA is not an alternative to and should not be considered instead of, or as a substitute for, earnings from operations, net income or loss, cash flows from operating activities or other statements of operations or cash flow data prepared in conformity with GAAP, or as a GAAP measure of profitability or liquidity. In addition, our calculation of EBITDA may or may not be comparable to similarly titled measures of other companies.

EBITDA is used by our management as a supplemental financial measure to evaluate the performance of our business that, when viewed with our GAAP results and the accompanying reconciliations, we believe provides a more complete understanding of factors and trends affecting our business than the GAAP results alone. We also regularly communicate our EBITDA to the public through our earnings releases because it is a financial measure commonly used by analysts that cover our industry to evaluate our performance as compared to the performance of other companies that have different financing and capital structures or effective tax rates. In addition, EBITDA is a financial measure used in the financial covenants of our credit facility and therefore is a financial measure to evaluate our compliance with our financial covenants. Management compensates for the above-described limitations of using a non-GAAP financial measure by using this non-GAAP financial measure only to supplement our GAAP results to provide a more complete understanding of the factors and trends affecting our business.

I-37

Components of EBITDA are presented below:

	Three months ended					Six months ended
(In millions)	July 1, 2005			July 2, 2004		July 1, 2005		July 2, 2004
Net income (loss)	$	(0.6	)	$	13.3	$	16.6	$	26.3
Interest expense (a)	6.6			3.6		10.0		8.0
Tax expense (benefit)	(6.2		)	10.7		8.5		22.8
Depreciation and amortization	4.8			4.3		9.1		8.5
Total	$	4.6		$	31.9	$	44.2	$	65.6

(a) Includes write-off of deferred financing fees of $3.6 million for the three and six months ended July 1, 2005.

RECONCILIATION OF EBITDA TO NET CASH PROVIDED (USED) BY

OPERATING ACTIVITIES

We believe that net cash provided (used) by operating activities is the financial measure calculated and presented in accordance with GAAP that is most directly comparable to EBITDA. The following table reconciles EBITDA to net cash provided (used) by operating activities for each of the periods for which EBITDA is presented.

	Three months ended						Six months ended
(In millions)	July 1, 2005			July 2, 2004			July 1, 2005			July 2, 2004
EBITDA	$	4.6		$	31.9		$	44.2		$	65.6
Interest expense	(6.6		)	(3.6		)	(10.0		)	(8.0		)
Tax benefit (expense)	6.2			(10.7		)	(8.5		)	(22.8		)
Reorganization items	—			(1.2		)	—			(1.2		)
Cash paid for reorganization items	(.4		)	(.6		)	(.7		)	(1.2		)
Amortization and write-off of financing fees	4.3			0.8			5.2			1.5
Non-cash income tax expense	(7.2		)	9.5			6.9			20.3
Minority interests in loss (income) of consolidated subsidiaries	(2.2		)	2.5			2.5			7.1
Equity in income of unconsolidated affiliates, less dividends received	1.6			(6.6		)	(2.2		)	(16.9		)
Changes in net operating assets and liabilities and other	(14.1		)	3.7			(28.3		)	(62.1		)
Net cash provided (used) by operating activities	$	(13.8	)	$	25.7		$	9.1		$	(17.7	)
Net cash provided by operating activities for the six months ended July 1, 2005	$	9.1
Less: Net cash provided by operating activities for the three months ended April 1, 2005	(22.9		)
Net cash used by operating activities for the three months ended July 1, 2005	$	(13.8	)
Net cash used by operating activities for the six months ended July 2, 2004				$	(17.7	)
Less: Net cash used by operating activities for the three months ended April 2, 2004				43.4
Net cash provided by operating activities for the three months ended July 2, 2004				$	25.7

I-38

ACCOUNTING STANDARDS

Recently issued accounting standards

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (Revised), Share-Based Payment. SFAS No. 123-R replaces SFAS No. 123 and supersedes APB Opinion No. 25. Adoption of SFAS No. 123-R will require us to record a non-cash expense for our stock compensation plans using the fair value method. Historically we have recorded our compensation cost in accordance with APB Opinion No. 25, which does not require the recording of an expense for our equity related compensation plans if stock options were granted at a price equal to the fair market value of our common stock on the grant date. SFAS No. 123-R is effective for us beginning the first quarter of 2006. Based on the options outstanding as of July 1, 2005, we estimate the adoption of SFAS No. 123-R will result in an additional expense of approximately $6.0 million in 2006. The actual expense will change from the estimate for new option grants and for forfeitures of current outstanding options.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets – An Amendment of APB Opinion No. 29. APB Opinion No. 29 provided an exception to the basic measurement principle (fair value) for exchanges of similar productive assets. That exception required that some non-monetary exchanges, although commercially substantive, be recorded on a carryover basis. SFAS No. 153 eliminates the exception to fair value for exchanges of similar productive assets and replaces it with a general exception for exchange transactions that do not have commercial substance – that is, transactions that are not expected to result in significant changes in the cash flows of the reporting entity. SFAS No. 153 is effective for us in the third quarter of 2005 but is not expected to have a significant impact on our financial position, results of operations or cash flows.

In the mining industry, companies may be required to remove overburden and waste materials to access mineral deposits. The costs of removing overburden and waste materials are referred to as “stripping costs.” MIBRAG incurs significant stripping costs in its lignite coal mining operations. In March 2005, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 04-6, Accounting for Stripping Costs Incurred during Production in the Mining Industry. The EITF concluded that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the cost of inventory produced during the period that stripping costs are incurred. EITF No. 04-6 is effective for us in the first quarter of 2006. Based upon MIBRAG’s deferred stripping costs recorded as of July 1, 2005, we estimate the adoption of EITF No. 04-6 will result in a write-down of our investments in unconsolidated affiliates and a reduction of total stockholders’ equity by approximately $82 million and $53.3 million, respectively. The actual write-down will vary from this estimate for changes in deferred stripping costs incurred during the remainder of 2005. EITF No. 04-6 requires any adjustment from adoption to be recognized as a cumulative effect adjustment to beginning retained earnings in the period of adoption or by retrospective adjustment of our financial statements, neither of which will affect our earnings in 2006. MIBRAG’s mines are open pit lignite coal mines which cover several square miles and have an estimated remaining life of 40 or more years. Because of the mining procedures used, MIBRAG generally does not maintain any significant inventory of mined coal. Accordingly, under EITF 04-6 costs of removing overburden will be expensed in the period incurred. The execution of the mine plan may result in fiscal periods during which costs incurred for the removal of overburden will not bear a direct relationship to the revenue derived from the sale of coal. This may result in a degree of variability in the reported earnings of MIBRAG.

In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations – an interpretation of FASB Statement No. 143 (“FIN 47”). FIN 47 clarifies the term conditional asset retirement obligation as used in SFAS No. 143, Accounting for Asset Retirement Obligations, and requires a liability to be recorded if the fair value of the obligation can be reasonably estimated. The types of asset retirement obligations that are covered by FIN No. 47 are those for which an entity has a legal obligation to perform an asset retirement activity, however the timing and (or) method of settling the obligation are conditional on a future event that may or may not be within the control of the entity. FIN No. 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN No. 47 is effective for us in the fourth quarter of 2005 but is not expected to have a significant impact on our financial position, results of operations and cash flows.

I-39

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk

Our exposure to market risk for changes in interest rates relates primarily to our credit facility. Our short-term investment portfolio, at December 31, 2004, consisted primarily of highly liquid instruments sold or re-priced as to interest rate in periods less than three months. In February 2005, we liquidated our entire short-term investment portfolio and invested the proceeds in cash equivalents. Substantially all cash and cash equivalents at July 1, 2005 of $304.0 million were held in highly liquid instruments.

From time to time, we may effect borrowings under bank credit facilities or otherwise for general corporate purposes, including working capital requirements and capital expenditures. Borrowings under our credit facility, of which there currently are none, bear interest at the applicable LIBOR or prime rate, plus an additional margin and, therefore, are subject to fluctuations in interest rates.

Foreign currency risk

We conduct our business in various regions of the world. Our operations are, therefore, subject to volatility because of currency fluctuations, inflation changes and changes in political and economic conditions in these countries. We are subject to foreign currency translation and exchange issues, primarily with regard to our mining venture, MIBRAG, in Germany. At July 1, 2005 and December 31, 2004, the cumulative adjustments for translation gains (losses), net of related income tax benefits, were $22.2 million and $34.8 million, respectively. While we endeavor to enter into contracts with foreign customers with repayment terms in U.S. dollars in order to mitigate foreign exchange risk, our revenues and expenses are sometimes denominated in local currencies, and our results of operations may be affected adversely as currency fluctuations affect our pricing and operating costs or those of our competitors. We may engage from time to time in hedging operations, including forward foreign exchange contracts, to reduce the exposure of our cash flows to fluctuations in foreign currency rates. We do not engage in hedging for speculative investment reasons. We can give no assurances that our hedging operations will eliminate or substantially reduce risks associated with fluctuating currencies.

I-40

ITEM 4. CONTROLS AND PROCEDURES

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms. As of the date of the financial statements, an evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures are effective.

• CEO and CFO certificates

Attached as Exhibits 31.1 and 31.2 to this report on Form 10-K are two certifications, one each by the CEO and the CFO. They are required in accordance with Rule 13a-14 of the Exchange Act. This Item 4, Controls and Procedures, includes the information concerning the controls evaluation referred to in the certifications and should be read in conjunction with the certifications.

• Disclosure controls

“Disclosure Controls” are controls and procedures that are designed to reasonably ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure Controls are also designed to ensure that information required to be disclosed is accumulated and communicated to our management, including our CEO and CFO.

• Internal controls over financial reporting

Our Disclosure Controls include components of our “Internal Control over Financial Reporting.” Internal Control over Financial Reporting is a process designed by, or under the supervision of our principal executive and principal financial officers, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

• Limitations on the effectiveness of controls

Our management, including the CEO and CFO, does not expect that our Disclosure Controls and/or our Internal Control over Financial Reporting will prevent or detect all error or fraud. A system of controls is able to provide only reasonable, not complete, assurance that the control objectives are being met, no matter how extensive those control systems may be. Also, control systems must be established considering the benefits of a control system relative to its costs. Because of these inherent limitations that exist in all control systems, no evaluation of controls can provide absolute assurance that all errors or fraud, if any, have been detected. The inherent limitations in control systems include various human and

I-41

system factors that may include errors in judgment or interpretation regarding events or circumstances or inadvertent error. Additionally, controls can be circumvented by the acts of a single person, by collusion on the part of two or more people or by management override of the control. Over time, controls can also become ineffective as conditions, circumstances, policies, technologies, level of compliance and people change. Because of such inherent limitations, in any cost-effective control system over financial information, misstatements may occur due to error or fraud and may not be detected.

• Scope of evaluation of Disclosure Controls

The evaluation of our Disclosure Controls performed by our CEO and CFO included obtaining an understanding of the design and objective of the controls, the implementation of those controls and the results of the controls on this report on Form 10-Q. We have established a Disclosure Committee whose duty is to perform procedures to evaluate the Disclosure Controls and provide the CEO and CFO with the results of their evaluation as part of the information considered by the CEO and CFO in their evaluation of Disclosure Controls. In the course of the evaluation of Disclosure Controls, we reviewed the controls that are in place to record, process, summarize and report, on a timely basis, matters that require disclosure in our reports filed under the Securities Exchange Act of 1934. We also considered the adequacy of the items disclosed in this report on Form 10-Q.

• Conclusions

Based upon the evaluation of Disclosure Controls described above, our CEO and CFO have concluded that, subject to the limitations described above, our Disclosure Controls are effective to provide reasonable assurance that material information relating to Washington Group International, Inc. and its consolidated subsidiaries is made known to management, including the CEO and CFO, so that required disclosures have been included in this report on Form 10-Q.

We have also reviewed our internal control over financial reporting during the most recent fiscal quarter, and our CEO and CFO have concluded that there have been no changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

I-42

PART II. OTHER INFORMATION

ITEM 1. 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 claim filed with the court during the pendency of our bankruptcy proceedings, we are aware of other potential asbestos claims against us, although most of those proofs of claim were disallowed by the bankruptcy court in July 2005. We never were a manufacturer of asbestos or products which contain asbestos. Asbestos-related lawsuits against us result from allegations that third parties sustained injuries and damage from the inhalation of asbestos fibers contained in materials used in construction projects and that we allegedly were negligent, the typical negligence claim being that we had a duty but failed to warn the plaintiff or claimant of, or failed to protect the plaintiff or claimant from, the dangers of asbestos. We expect that additional asbestos claims will be filed against us in the future.

Previously, we had determined that all of our asbestos claims are fully insured except for asbestos claims relating to a subsidiary acquired in 1986. Subsequently, we reviewed the 1986 stock purchase agreement and have obtained and reviewed the insurance policies obtained by the prior owners of the subsidiary. Based on these reviews, we believe we are entitled to the benefit of the insurance coverage obtained by the prior owners. We have tendered the claims related to the acquired subsidiary to such insurance carriers, and to date one carrier has agreed to pay at least a portion of the claims relating to the subsidiary.

The outcome of these claims, including the adequacy of insurance coverage, cannot be predicted with certainty. Prior to receiving and reviewing the insurance policies, we believed that the annual range of reasonably possible additional loss, including related legal costs, was zero to $1.2 million. After analyzing the recently obtained insurance policies and reviewing the solvency of the insurance carriers, we believe the most likely annual loss to be at the lower end of the range.

We also incorporate by reference the information regarding legal proceedings set forth under the caption “Legal Matters” in Note 9, “Contingencies and Commitments” of the Notes to Consolidated Financial Statements in Item 1 of this report.

Our reorganization case is In re Washington Group International, Inc. and Related Cases, Docket No. BK-N 01-31627-GWZ, in the U.S. Bankruptcy Court for the District of Nevada.

The qui tam lawsuit discussed under the caption “Legal Matters” and referred to as “Tar Creek Litigation” in Note 9, “Contingencies and Commitments” of the Notes to Consolidated Financial Statements in Item 1 of this report refers to United States ex. rel. Lovelace et. al. v. Washington Group International, Inc., Case No. 00-CV-61 EA(M) in the U.S. District Court for the Northern District of Oklahoma.

The lawsuit relating to our USAID-financed projects in Egypt discussed under the caption “Legal Matters” and referred to as “Litigation and Investigation related to USAID Egyptian Projects” in Note 9, “Contingencies and Commitments” of the Notes to Consolidated Financial Statements in Item 1 of this report refers to United States of American v. Washington Group International, Inc., et al., Case No. CIV-04545S-EJL in the U.S. District Court for the District of Idaho.

II-1

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

(a) The annual meeting of the Corporation’s stockholders was held on May 19, 2004.

(b) At the annual meeting, stockholders of record on March 31, 2005, were entitled to vote 25,898,377 shares of common stock. A total of 24,329,836 shares were represented at the meeting. The results of voting at the annual meeting are summarized below:

(1) Nominees for terms of office to continue until the annual meeting of stockholders in 2006:

	For	Withheld
David H. Batchelder	23,879,983	449,853
Michael R. D’Appolonia	23,411,905	917,931
C. Scott Greer	23,038,393	1,291,443
Stephen G. Hanks	23,878,499	451,337
William H. Mallender	23,654,692	675,144
Michael P. Monaco	23,843,885	485,951
Cordell Reed	23,581,014	748,822
Dennis R. Washington	22,511,175	818,661
Dennis K. Williams	23,674,476	655,360

(2) Ratification of the appointment of Deloitte & Touche LLP as independent auditor of the Corporation:

For		Against		Abstain		Broker Non-Vote
24,273,123		56,535		178		0

II-2

ITEM 6. EXHIBITS

(a) Exhibits

The Exhibits to this quarterly report on Form 10-Q are listed in the Exhibit Index contained elsewhere in this quarterly report.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	WASHINGTON GROUP INTERNATIONAL, INC.
	/s/ George H. Juetten
	George H. Juetten
	Executive Vice President and Chief Financial Officer,
	in his respective capacities as such
Date: August 5, 2005

WASHINGTON GROUP INTERNATIONAL, INC.

EXHIBIT INDEX

Copies of exhibits will be provided upon request at a fee of $.25 per page requested.

Exhibit
Number		Exhibit Description
10.1		Amendment No. 2, effective as of May 20, 2005, to the Washington Group International, Inc. Equity and Performance Incentive Plan (filed as Exhibit 10.1 to Washington Group International’s Form 8-K Current Report filed on May 25, 2005, and incorporated herein by reference).#
10.2		Amendment No. 1, effective as of May 20, 2005, to the Washington Group International, Inc. 2004 Equity Incentive Plan (filed as Exhibit 10.2 to Washington Group International’s Form 8-K Current Report filed on May 25, 2005, and incorporated herein by reference).#
10.3		Amendment Agreement among Washington Group International, Inc., the lenders and issuers party thereto, Credit Suisse, as administrative agent, and the other parties thereto, including the Second Amended and Restated Credit Agreement, dated as of June 14, 2005, among Washington Group International, Inc., the lenders and issuers party thereto, and Credit Suisse, as administrative agent (filed as Exhibit 10.1 to Washington Group International’s Form 8-K Current Report filed on June 17, 2005, and incorporated herein by reference.)
31.1*		Certification of the Principal Executive Officer of Washington Group International, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of the Principal Financial Officer of Washington Group International, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1†		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

# Management contract or compensatory plan

* Filed herewith

† Furnished herewith

E-1

Filing Compare · WASHINGTON GROUP INTERNATIONAL INC