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Washington Group International Reports First Quarter Net Income of $19.0 Million ($0.62 Per Diluted Share) and Raises Net Income Guidance for 2006

Posted on: Monday, 8 May 2006, 18:06 CDT

BOISE, Idaho, May 8 /PRNewswire-FirstCall/ -- Washington Group International Inc. today announced financial results for its first quarter ended March 31, 2006.

"We are pleased with our strong start to 2006," said Stephen G. Hanks, president and chief executive officer. "Net income in the first quarter rose 18 percent to $19.0 million compared to $16.1 million in the first quarter last year, as we benefited from growth in our oil and gas business as well as continued strong performance by our Power, Defense, and Energy & Environment business units.

"New work awarded during the quarter totaled $798.3 million. Key awards included additional task orders in Iraq, a contract for jointly managing the Los Alamos National Laboratory for the U.S. Department of Energy (DOE), new clean air power plant modification awards, and additional funding for chemical demilitarization programs for the U.S. Department of Defense."

New work of $1.5 billion in the 2005 first quarter included a large new mining contract of $152.9 million associated with a project in Bolivia and a $440.0 million contract for the Idaho Cleanup Project.

"Although timing of new awards results in quarter-over-quarter variability, our markets remain strong. We continue to compete for significant awards across all of our business units with a disciplined approach of selectivity to help us achieve sustained growth while achieving our desired risk-return profile. After assessing our opportunities, we are reaffirming our new work guidance of $3.5-$3.8 billion for 2006," Hanks said.

Backlog was $4.8 billion at the end of the quarter, compared to $4.9 billion at 2005 year end.

In the first quarter, the company generated revenue of $828.3 million, up 18 percent from $700.9 million in the 2005 first quarter. The growth was primarily attributable to strength in the oil and gas and power sectors, as well as the impact of accounting for the Idaho Cleanup Project for the DOE on an "at risk" basis.

In the 2006 first quarter, the company adopted FASB Statement No. 123(R) for Share-Based Payments. For comparison purposes, the company has restated its financial statements for prior periods to include the impact of expensing stock options. Expense related to stock options was $1.4 million ($0.9 million after-tax) in the 2006 first quarter and $1.9 million ($1.1 million after-tax) in the 2005 first quarter.

Net income of $19.0 million, or $0.62 per diluted share, was up $2.9 million compared to $16.1 million, or $0.55 per diluted share, in the 2005 first quarter. The increase was attributable to growth in the oil and gas sector, higher earnings associated with work in Iraq, and a strong quarter from the company's MIBRAG mining joint venture, which together more than offset a $6.9 million ($4.2 million after-tax) charge on a fixed-price highway program that is experiencing cost growth and schedule delays. In the 2005 first quarter, the Power Business Unit benefited from a $9.2 million ($5.6 million after-tax) claim settlement related to an international power project; there was no similar claim settlement in 2006.

Operating income in the 2006 first quarter was $33.5 million, up $2.9 million on a comparable pro-forma basis from operating income of $30.6 million in the 2005 first quarter. Beginning in the 2005 second quarter, the company's payments to British Nuclear Fuels plc (BNFL) for BNFL's interest in the government services business have been reflected as reductions in operating income, whereas in the 2005 first quarter and earlier periods, BNFL payments were reflected as minority interest. For comparability, the $30.6 million operating income in the 2005 first quarter reflects a $5.6 million reduction for payments to BNFL that were reported as minority interest.

Cash including restricted cash at the end of the quarter was $292.1 million, up $1.9 million from year end. The company received $81.0 million from the exercise of warrants and stock options. The company also purchased 2.0 million warrants and repurchased 245,000 shares of common stock at a total cost of $49.3 million, bringing the total expenditure for warrants and shares repurchased to $123.0 million. Subsequent to quarter end, the company repurchased an additional 461,000 shares of common stock at a cost of $26.5 million, nearly completing its $150 million share-repurchase program. On May 5, the Board of Directors authorized a $25 million increase in the company's share repurchase program.

Business Unit Performance

Energy & Environment: In the first quarter, the Energy & Environment Business Unit generated revenue of $171.0 million, up 53 percent or $58.9 million from the 2005 first quarter. The growth was primarily due to the Idaho Cleanup Project, which began in the 2005 second quarter. This project is accounted for as an "at risk" project with the full value of the work included in revenue, as opposed to an "agency" project where only the company's fee is included in revenue.

Operating income in the quarter was $14.1 million. This is a $2.5 million increase over $11.6 million in the 2005 first quarter on a comparable pro-forma basis, adjusting for $4.8 million in payments to BNFL that had been reflected as minority interest. Performance-based award fees in the quarter reflected continued operational excellence at all DOE sites, including the Idaho Cleanup Project awarded in 2005.

New work was $158.1 million, down from $518.7 million in the 2005 first quarter. New awards in the period last year included $440.0 million for the Idaho Cleanup Project. Backlog was $852.8 million at the end of the quarter, down $13.0 million from 2005 year end.

Defense: In the first quarter, the Defense Business Unit generated revenue of $152.6 million, approximately the same level as the 2005 first quarter.

Operating income in the quarter was $13.6 million, down from $14.1 million in the 2005 first quarter on a comparable pro-forma basis, adjusting for $0.8 million in payments to BNFL that had been reflected as minority interest. The unit continues to perform very well at chemical demilitarization facilities and on threat-reduction programs both in the United States and at international sites, with award fees at high levels.

New work was $108.7 million, down from $152.3 million in the 2005 first quarter due primarily to scope additions at chemical demilitarization facilities being delayed until later this year. Backlog was $946.5 million at the end of the quarter, down $43.9 million from year end.

Power: In the first quarter, the Power Business Unit generated revenue of $204.7 million, up 36 percent or $54.1 million from the 2005 first quarter. The growth is driven by increased revenue in Iraq, which totaled $61.7 million compared to $31.2 million in 2005, a new power-generation project in Puerto Rico, and growth in clean-air modification programs.

Operating income in the quarter was $11.1 million, down $2.8 million from $13.9 million in the 2005 first quarter. Operating income in 2005 reflected a claim settlement of $9.2 million and the contract close out of two steam generator replacement projects. In the 2006 first quarter, Iraq projects provided operating income of $7.2 million, up from $0.8 million in the 2005 first quarter.

New work was $161.0 million, down from $324.9 million in the 2005 first quarter. New task orders in Iraq totaled $5.3 million, versus $139.0 million in the 2005 first quarter. Backlog was $881.2 million at the end of the quarter, down $43.7 million from year end.

Mining: In the first quarter, the Mining Business Unit generated revenue of $31.7 million, up 15 percent or $4.1 million from the 2005 first quarter. Revenue increased as major new projects including a silver, lead, and zinc mine in Bolivia and gold projects in Nevada and Mexico offset a copper mining project in Nevada that ended in late 2005.

Operating income in the quarter was $7.9 million, up $1.3 million compared to the 2005 first quarter. Washington Group's share of earnings from MIBRAG, the company's coal mining joint venture in Germany, was $12.3 million, up from $7.0 million in the 2005 first quarter. Coal sales in the period last year were negatively affected when one of the two power plant customers underwent a major scheduled outage. During the 2006 first quarter, two accounting changes related to MIBRAG were implemented that had a $2.6 million favorable impact on operating income. Operating income for contract mining declined due primarily to unanticipated equipment repairs and weather conditions at mining operations and also the completion of a Nevada copper mining project.

New work was $73.5 million, down from $187.1 million in the 2005 first quarter that included a significant award for mine development and contract mining of a silver, lead, and zinc mine in Bolivia. Backlog was $594.6 million at the end of the quarter, up $29.2 million from year end.

Infrastructure: In the first quarter, the Infrastructure Business Unit generated revenue of $142.4 million, down $18.5 million from the 2005 first quarter. The decline was primarily the result of the winding down of a light rail project on the East Coast and a highway project in Nevada.

Before a charge of $6.9 million related to a fixed-price highway project that was awarded in 2001 and expected to be completed in 2007, operating income increased $1.2 million to $4.5 million. After the charge, however, the unit reported a $2.4 million loss in the 2006 first quarter versus operating income of $3.3 million in the 2005 first quarter. The business unit benefited from cost savings associated with the realignment of the business unit to achieve greater efficiency in engineering and estimating, project development, and administration.

New work was $95.3 million, down from $166.4 million in the 2005 first quarter. This decline was anticipated due to the business unit's continued shift to a lower risk business model. Backlog was $932.1 million at the end of the quarter, down $114.0 million from year end.

Industrial/Process: In the first quarter, the Industrial/Process Business Unit generated revenue of $125.4 million, up 29 percent or $28.1 million, from the 2005 first quarter. The growth is attributable to a large engineering, procurement, and construction project in Qatar for the oil and gas market.

Operating income was $4.8 million in the quarter compared to an operating loss of $1.9 million in the 2005 first quarter. In the 2006 first quarter, the company recognized earnings of $4.8 million on the Qatar oil and gas project as it reached the stage of completion at which earnings recognition commences pursuant to the company's accounting policies. The business unit continues to make investments to expand its oil and gas business.

New work was $201.5 million, up 69 percent from $119.1 million in the 2005 first quarter. New work showed strength in the oil, gas, and chemicals sector as well as additional scope for an international facility management client. Backlog was $563.3 million at the end of the quarter, up $75.6 million from year end.

Outlook

New work and performance awards in Iraq during the first quarter were higher than anticipated, and prospects in other areas of the business continue to improve. Although the performance on the highway projects in the Southwest is still an area of concern, the company is increasing its net income guidance for 2006 to $65-$75 million or $2.10-$2.42 per diluted share. The updated guidance reflects net income growth of more than 20 percent over the 2005 period. The guidance for new work, revenue, and backlog remain unchanged as detailed in the table below.

Financial Guidance Prior Updated 2006 2006 2005 Guidance Guidance Actual Backlog (at year-end) $4.9 - $5.2 B $4.9 - $5.2 B $4.9 B New Work $3.5 - $3.8 B $3.5 - $3.8 B $4.2 B Revenue $3.2 - $3.5 B $3.2 - $3.5 B $3.2 B Net Income (Before impact of expensing stock options) $65 - 75(a) M $70 - $80(a) M $58.4 M Diluted EPS $2.10 - $2.42(b) $2.26 - $2.58(b) $1.93 Net Income (After impact of expensing stock options) $60 - $70(a) M $65 - $75(a) M $53.9 M Diluted EPS $1.94 - $2.26(b) $2.10 - $2.42(b) $1.78 (a) The after-tax expense for expensing stock options is estimated at $5 million (b) Assumes fully diluted outstanding shares of 31 million 10-Q Filing and Investor Conference Call

Washington Group International will file its Quarterly Report on Form 10-Q for the period ended March 31, 2006, with the Securities and Exchange Commission before the market opens tomorrow, May 9.

Washington Group International will host an investor conference call to discuss the first quarter 2006 results tomorrow, May 9, at 1 p.m. Eastern Time. The company will provide a webcast of its call live over the Internet at http://www.wgint.com/. Participants should allow approximately five minutes prior to the call's start time to visit the site and download any streaming media software needed to listen to the webcast. An online archive of the webcast will be made available a few hours following the end of the live call.

About the Company

Washington Group International Inc. provides the talent, innovation, and proven performance to deliver integrated engineering, construction and management solutions for businesses and governments worldwide. Headquartered in Boise, Idaho, with more than $3 billion in annual revenue, the company has approximately 24,000 people at work around the world providing solutions in power, environmental management, defense, oil and gas processing, mining, industrial facilities, transportation, and water resources. For more information, visit http://www.wgint.com/.

Investor Contact Media Contact Earl Ward Laurie Spiegelberg Washington Group International Inc. Washington Group International Inc. 208-386-5698 208-386-5255 earl.ward@wgint.com laurie.spiegelberg@wgint.com

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are identified by the use of forward-looking terminology such as may, will, could, should, expect, anticipate, intend, plan, estimate, or continue or the negative thereof or other variations thereof. Each forward-looking statement, including, without limitation, any financial guidance, speaks only as of the date on which it is made, and Washington Group undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. The forward-looking statements are necessarily based on assumptions and estimates of management and are inherently subject to various risks and uncertainties. Actual results may vary materially as a result of changes or developments in social, economic, business, market, legal, and regulatory circumstances or conditions, both domestically and globally, as well as due to actions by customers, clients, suppliers, business partners, or government bodies. Performance is subject to numerous factors, including demand for new power generation and for modification of existing power facilities, public sector funding, demand for extractive resources, capital spending plans of customers, and spending levels and priorities of the U.S., state and other governments. Results may also vary as a result of difficulties or delays experienced in the execution of contracts or implementation of strategic initiatives. For additional risks and uncertainties impacting the forward-looking statements contained in this news release, please see "Note Regarding Forward-Looking Information" and "Item 1A. Risk Factors" in Washington Group's annual report on Form 10-K for fiscal year 2005.

WASHINGTON GROUP INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (UNAUDITED) Three months ended March 31, April 1, 2006 2005* Revenue $828,342 $700,861 Cost of revenue (793,299) (655,772) Gross profit 35,043 45,089 Equity in income of unconsolidated affiliates 13,190 7,343 General and administrative expenses (14,760) (16,207) Operating income 33,473 36,225 Interest income 2,673 1,847 Interest expense (1,932) (3,400) Other income (expense), net (382) 22 Income before income taxes and minority interests 33,832 34,694 Income tax expense (13,500) (13,896) Minority interests in income of consolidated subsidiaries, net of tax (1,372) (4,717) Net income $18,960 $16,081 Net income per share: Basic $.67 $.63 Diluted .62 .55 Shares used to compute income per share: Basic 28,377 25,509 Diluted 30,771 29,063 * Adjusted to include retroactive impact of adopting the fair value method of recording compensation expense associated with stock options. WASHINGTON GROUP INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) (UNAUDITED) March 31, December 30, 2006 2005* ASSETS Current assets Cash and cash equivalents $236,389 $237,706 Restricted cash 55,726 52,533 Accounts receivable, including retentions of $17,424 and $22,849, respectively 228,579 275,623 Unbilled receivables 288,668 256,090 Investments in and advances to construction joint ventures 60,887 56,668 Deferred income taxes 106,918 107,798 Other 35,134 41,202 Total current assets 1,012,301 1,027,620 Investments and other assets Investments in unconsolidated affiliates 102,799 172,448 Goodwill 156,292 162,270 Deferred income taxes 168,507 141,291 Other assets 57,704 59,362 Total investments and other assets 485,302 535,371 Property and equipment Construction equipment 122,085 121,109 Other equipment and fixtures 42,771 40,415 Buildings and improvements 12,614 12,575 Land and improvements 2,403 2,403 Total property and equipment 179,873 176,502 Less accumulated depreciation (81,236) (75,748) Property and equipment, net 98,637 100,754 Total assets $1,596,240 $1,663,745 * Adjusted to include the retroactive impact of adopting the fair value method of recording compensation expense associated with stock options. WASHINGTON GROUP INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (In thousands, except per share data) (UNAUDITED) March 31, December 30, 2006 2005* LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and subcontracts payable, including retentions of $29,942 and $32,127, respectively $231,542 $253,559 Billings in excess of cost and estimated earnings on uncompleted contracts 199,502 239,106 Accrued salaries, wages and benefits, including compensated absences of $55,995 and $49,578, respectively 143,651 158,033 Other accrued liabilities 48,670 46,639 Total current liabilities 623,365 697,337 Non-current liabilities Self-insurance reserves 69,211 66,933 Pension and post-retirement benefit obligations 98,160 99,239 Other non-current liabilities 36,593 38,801 Total non-current liabilities 203,964 204,973 Contingencies and commitments Minority interests 8,755 5,578 Stockholders' equity Preferred stock, par value $.01 per share, 10,000 shares authorized -- -- Common stock, par value $.01 per share, 100,000 shares authorized; 29,662 and 26,870 shares issued, respectively 297 269 Capital in excess of par value 645,174 570,934 Stock purchase warrants -- 15,104 Retained earnings 123,532 159,165 Treasury stock, 277 and 32 shares, respectively, at cost (15,647) (1,307) Unearned compensation - restricted stock (10,888) (4,233) Accumulated other comprehensive income 17,688 15,925 Total stockholders' equity 760,156 755,857 Total liabilities and stockholders' equity $1,596,240 $1,663,745 * Adjusted to include the retroactive impact of adopting the fair value method of recording compensation expense associated with stock options. WASHINGTON GROUP INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (UNAUDITED) Three months ended March 31, April 1, 2006 2005* Operating activities Net income $18,960 $16,081 Adjustments to reconcile net income to net cash provided (used) by operating activities: Cash paid for reorganization items (453) (327) Depreciation of property and equipment 7,076 4,285 Amortization of financing fees 552 855 Amortization of intangible assets 2,108 -- Non-cash income tax expense 9,256 11,922 Minority interests in income of consolidated subsidiaries 1,372 4,717 Equity in income of unconsolidated affiliates, less dividends received (10,455) (3,747) Gain on sale of assets, net (217) (397) Stock based compensation 2,122 1,548 Changes in operating assets, liabilities and other (55,718) (14,212) Net cash provided (used) by operating activities (25,397) 20,725 Investing activities Property and equipment additions (7,315) (9,047) Property and equipment disposals 619 631 Purchases of short-term investments -- (74,900) Sales of short-term investments -- 105,100 Contributions and advances to unconsolidated affiliates (1,588) (708) Increase in restricted cash (3,193) (3,441) Net cash provided (used) by investing activities (11,477) 17,635 Financing activities Contributions from (distributions to) minority interests, net 927 (1,602) Proceeds from exercise of stock options and warrants 81,014 8,723 Purchase of warrants and treasury stock (49,749) -- Excess tax benefit from exercise of stock options 3,365 2,167 Net cash provided by financing activities 35,557 9,288 Increase (decrease) in cash and cash equivalents (1,317) 47,648 Cash and cash equivalents at beginning of period 237,706 224,529 Cash and cash equivalents at end of period $236,389 $272,177 * Adjusted to include the retroactive impact of adopting the fair value method of recording compensation expense associated with stock options. WASHINGTON GROUP INTERNATIONAL, INC. SEGMENT INFORMATION (In thousands) (UNAUDITED) Three months ended March 31, April 1, 2006 2005* Revenue Power $204,700 $150,649 Infrastructure 142,378 160,897 Mining 31,709 27,593 Industrial/Process 125,449 97,256 Defense 152,598 152,570 Energy & Environment 170,999 112,115 Intersegment, eliminations and other 509 (219) Total revenue $828,342 $700,861 Operating income (loss) Power $11,130 $13,895 Infrastructure (2,407) 3,323 Mining 7,859 6,563 Industrial/Process 4,800 (1,859) Defense 13,603 14,967** Energy & Environment 14,126 16,422** Intersegment and other unallocated operating costs (878) (879) Corporate general and administrative expenses (14,760) (16,207) Total operating income $33,473 $36,225** New work Power $161.0 $324.9 Infrastructure 95.3 166.4 Mining 73.5 187.1 Industrial/Process 201.5 119.1 Defense 108.7 152.3 Energy & Environment 158.1 518.7 Other 0.2 (0.2) Total new work $798.3 $1,468.3 Backlog March 31, December 30, 2006 2005* Power $881.2 $924.9 Infrastructure 932.1 1,046.1 Mining 594.6 565.4 Industrial/Process 563.3 487.7 Defense 946.5 990.4 Energy & Environment 852.8 865.8 Total backlog $4,770.5 $4,880.3 * Adjusted to include the retroactive impact of adopting the fair value method of recording compensation expense associated with stock options. ** Effective December 30, 2005, we acquired BNFL Nuclear Services, Inc.'s ("BNFL") interest in certain operations of our Energy & Environment and Defense business units. During the three months ended April 1, 2005, payments made to BNFL for their interest in the earnings of these operations of $5,597 were reflected as minority interest. On a comparable pro-forma basis, had such payments been reflected as a reduction in operating income, the Defense and Energy and Environment business units' operating income would have been $14,131 and $11,661, respectively, and total operating income would have been $30,628. EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION ("EBITDA")

We view EBITDA as a performance 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. Components of EBITDA are presented below:

Three months ended (In millions) March 31, 2006 April 1, 2005* Net income $19.0 $16.1 Interest expense 1.9 3.4 Taxes 13.5 13.9 Depreciation and amortization 9.2 4.3 Total $43.6 $37.7 * Adjusted to include the retroactive impact of adopting the fair value method of recording compensation expense associated with stock options.

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 (In millions) March 31, 2006 April 1, 2005* EBITDA $43.6 $37.7 Interest expense (1.9) (3.4) Tax expense (13.5) (13.9) Cash paid for reorganization items (0.5) (0.3) Amortization of financing fees 0.6 0.9 Non-cash income tax expense 9.3 11.9 Minority interests in income of consolidated subsidiaries 1.4 4.7 Equity in income of unconsolidated affiliates, less dividends received (10.5) (3.7) Gain on sale of assets, net (0.2) (0.4) Stock based compensation 2.1 1.5 Changes in net operating assets, liabilities and other (55.8) (14.3) Net cash provided (used) by operating activities $(25.4) $(20.7) * Adjusted to include the retroactive impact of adopting the fair value method of recording compensation expense associated with stock options.

Washington Group International Inc.

CONTACT: Investors, Earl Ward, +1-208-386-5698, earl.ward@wgint.com, orMedia, Laurie Spiegelberg, +1-208-386-5255, laurie.spiegelberg@wgint.com, bothof Washington Group International Inc.

Web site: http://www.wgint.com/

Source: PRNewswire-FirstCall

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