<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
- --------------------------------------------------------------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
------------------
OR
[_] 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 0-2315
------
JWP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2125338
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
SIX INTERNATIONAL DRIVE, RYE BROOK N.Y. 10573
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(914) 935-4000
(REGISTRANT'S TELEPHONE NUMBER)
(FORMER NAME, FORMER ADDRESS AND FORMER
FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and 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
filing requirements for the past 90 days. Yes X No ___
---
Number of shares of Common Stock outstanding as of the close of business on
November 21, 1994:41,460,180 shares.
<PAGE>
JWP INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<C> <S> <C>
PART I--FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Condensed consolidated statements of operations--three months
ended September 30, 1994 and 1993............................ 3
Condensed consolidated statements of operations--nine months
ended September 30, 1994 and 1993............................ 4
Condensed consolidated balance sheets--as of September 30,
1994 and December 31, 1993................................... 5
Condensed consolidated statements of cash flows--nine months
ended September 30, 1994 and 1993............................ 6
Notes to condensed consolidated financial statements......... 7
Item 2 Management's discussion and analysis of interim financial
information.................................................. 17
PART II--OTHER INFORMATION
Item 1 Legal Proceedings............................................ 26
Item 3 Default Upon Senior Securities............................... 26
Item 6 Exhibits and Reports on Form 8-K............................. 26
</TABLE>
2
<PAGE>
PART 1--FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
JWP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
------------------
1994 1993
-------- --------
<S> <C> <C>
REVENUES................................................... $444,355 $565,845
-------- --------
COSTS AND EXPENSES
Cost of sales............................................ 408,357 525,728
Selling, general and administrative...................... 43,102 46,243
Reorganization charges................................... 3,200 --
-------- --------
454,659 571,971
-------- --------
OPERATING LOSS............................................. (10,304) (6,126)
Interest expense, net.................................... (707) (12,764)
Loss on sale of businesses and other assets.............. (236) (1,391)
Other expense............................................ (4,092) --
-------- --------
LOSS BEFORE INCOME TAXES................................... (15,339) (20,281)
Provision (benefit) for income taxes..................... 250 (621)
-------- --------
LOSS FROM CONTINUING OPERATIONS............................ (15,589) (19,660)
DISCONTINUED OPERATIONS
Income from operations................................... 5,559 2,841
Loss from disposal of businesses......................... -- (7,634)
-------- --------
Income (loss) from discontinued operations............... 5,559 (4,793)
-------- --------
NET LOSS................................................... $(10,030) $(24,453)
======== ========
(LOSS) INCOME PER SHARE:
Continuing operations.................................... $ (.39) $ (.49)
Discontinued operations.................................. .14 (.12)
-------- --------
Net loss................................................. $ (.25) $ (.61)
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
JWP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1994 1993
---------- ----------
<S> <C> <C>
REVENUES............................................... $1,313,450 $1,713,596
---------- ----------
COSTS AND EXPENSES
Cost of sales........................................ 1,192,330 1,567,321
Selling, general and administrative.................. 133,758 161,769
Reorganization charges............................... 10,100 --
---------- ----------
1,336,188 1,729,090
---------- ----------
OPERATING LOSS......................................... (22,738) (15,494)
Interest expense, net................................ (1,184) (37,758)
(Loss) gain on sale of businesses and other assets... (532) 2,614
Other expense........................................ (4,092) --
---------- ----------
LOSS BEFORE INCOME TAXES............................... (28,546) (50,638)
Provision (benefit) for income taxes................. 750 (192)
---------- ----------
LOSS FROM CONTINUING OPERATIONS........................ (29,296) (50,446)
DISCONTINUED OPERATIONS
Income from operations............................... 9,386 7,585
Loss from disposal of businesses..................... -- (7,634)
---------- ----------
Income (loss) from discontinued operations........... 9,386 (49)
---------- ----------
CUMULATIVE EFFECT OF CHANGE IN METHOD OF ACCOUNTING FOR
POST-EMPLOYMENT BENEFITS.............................. (2,100) --
---------- ----------
NET (LOSS)............................................. $ (22,010) $ (50,495)
========== ==========
(LOSS) INCOME PER SHARE
Continuing operations................................ $ (.72) $ (1.27)
Discontinued operations.............................. .23 --
Cumulative effect of change in method of accounting
for
post-employment benefits............................ (.05) --
---------- ----------
Net loss............................................. $ (.54) $ (1.27)
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
JWP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................................... $ 39,699 $ 39,534
Accounts receivable, net.................................................... 460,059 455,944
Costs and estimated earnings in excess of billings on uncompleted contracts. 73,482 61,987
Inventories................................................................. 7,571 5,221
Prepaid expenses and other.................................................. 9,170 13,240
Net assets held for sale.................................................... 75,593 20,454
--------- ---------
TOTAL CURRENT ASSETS.......................................................... 665,574 596,380
--------- ---------
NET ASSETS HELD FOR SALE...................................................... -- 63,161
--------- ---------
INVESTMENTS, NOTES AND OTHER LONG-TERM RECEIVABLES............................ 12,504 19,737
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET............................................ 36,262 39,266
--------- ---------
OTHER ASSETS
Excess of cost of acquired businesses over net assets, less amortization.... 57,820 58,973
Insurance cash collateral................................................... 33,960 21,394
Funds held in escrow........................................................ 17,221 335
Miscellaneous............................................................... 5,861 7,196
--------- ---------
114,862 87,898
--------- ---------
TOTAL ASSETS.................................................................. $ 829,202 $ 806,442
========= =========
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Notes payable............................................................... $ 7,652 $ 172
Debtor-in-possession note payable........................................... 25,000 --
Current maturities of long-term debt and capital lease obligations.......... 2,420 2,327
Debt in default............................................................. -- 501,007
Accounts payable............................................................ 203,943 209,867
Billings in excess of costs and estimated earnings on uncompleted contracts. 127,541 115,179
Other accrued expenses and liabilities...................................... 126,726 220,152
--------- ---------
TOTAL CURRENT LIABILITIES..................................................... 493,282 1,048,704
--------- ---------
LONG-TERM DEBT................................................................ 2,362 2,538
--------- ---------
OTHER LONG-TERM OBLIGATIONS................................................... 34,636 57,462
--------- ---------
PRE-CONSENT DATE BANKRUPTCY CLAIMS SUBJECT TO COMPROMISE...................... 622,859 --
--------- ---------
SHAREHOLDERS' (DEFICIT)
Preferred Stock, $1 par value, 25,000,000 shares authorized, 418,100 and
425,000 shares of Series A issued and outstanding.......................... 20,905 21,250
Common Stock, $.10 par value, 75,000,000 shares authorized, 40,732,791 and
40,715,541 shares outstanding, excluding 727,389 treasury shares........... 4,073 4,072
Warrants of Participation................................................... 576 576
Capital surplus............................................................. 204,591 204,247
Cumulative translation adjustment........................................... (5,733) (6,068)
(Deficit)................................................................... (548,349) (526,339)
--------- ---------
TOTAL SHAREHOLDERS' (DEFICIT)................................................. (323,937) (302,262)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT)................................. $ 829,202 $ 806,442
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
JWP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net loss................................................. $(22,010) $(50,495)
Non-cash expenses........................................ 12,311 29,869
Write down of investment................................. 4,092 --
Cumulative effect of account change in method of
accounting.............................................. 2,100 --
Loss on sale of businesses and other assets.............. 532 5,020
Change in operating assets and liabilities, excluding the
effect of businesses sold............................... (33,975) (41,982)
-------- --------
NET CASH USED IN OPERATIONS................................ (36,950) (57,588)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt............................. -- 710
Proceeds from debtor-in-possession financing............. 25,000 --
Cash deposited in trust account for funding of post-
bankruptcy debt......................................... (7,501) --
Payments of long-term debt and capital lease obligations. (956) (5,534)
Redemption of preferred stock............................ -- (500)
Increase (decrease) in notes payable, net................ 7,220 (17,531)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES........ 23,763 (22,855)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment................ (3,056) (13,974)
Net disbursement for investment to be sold............... (2,422) --
Proceeds from sale of businesses and other assets........ 4,458 40,834
Decrease (increase) in cash balances of businesses held
for sale or sold........................................ 8,597 (3,127)
All other................................................ 5,775 --
-------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES.................. 13,352 23,733
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... 165 (56,710)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... 39,534 86,836
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 39,699 $ 30,126
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
JWP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A BASIS OF PRESENTATION
On February 14, 1994, JWP INC. (the "Company") became a debtor-in-possession
under Chapter 11 of the U.S. Bankruptcy Code. The accompanying financial
statements have been prepared on the basis of the principles prescribed by the
American Institute of Certified Public Accountants' Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code".
As a result, liabilities of the Company that are expected to be compromised in
the bankruptcy proceeding have been reclassified to the caption "Pre-consent
Date Bankruptcy Claims Subject to Compromise" in the accompanying condensed
consolidated balance sheet. See discussion below with respect to the entry of
an order for relief under Chapter 11 of the U.S. Bankruptcy Code and the
Company's plan of reorganization. During the Chapter 11 proceeding, the Company
has continued to expense the various legal and other professional fees
incurred. These fees are reflected in the accompanying condensed consolidated
statement of operations under the caption "Reorganization charges". As of
December 21, 1993, the Company ceased to accrue interest on its defaulted debt.
See Note C with respect to debt in default.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The matters discussed below raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of assets or the amounts and classification
of liabilities that might be necessary should the Company be unable to continue
as a going concern. The Company's continuation as a going concern is dependent
upon its ability to restructure its indebtedness in its Chapter 11 proceeding,
obtain sufficient surety bonds to guarantee its performance of construction
contracts, return to profitability, obtain new credit facilities and generate
sufficient cash flow to meet its restructured and other obligations on a timely
basis.
The Company had a shareholders' deficit of $323.9 million at September 30,
1994. Many of the Company's mechanical and electrical contracts require surety
bonds to guarantee the performance of such contracts. The Company's surety
bonding companies are reviewing bid and performance bond requests on a case-by-
case basis for large construction projects and those with durations of more
than two years. Further, the Company is experiencing significant constraints in
its bonding line which has adversely affected its operations. In addition, a
surety bonding company that had been the primary source of surety bonds for
certain subsidiaries, which, for the nine months ended September 30, 1994,
together comprised approximately 23% of the Company's revenues of those
mechanical and electrical companies the Company currently plans to retain, is
no longer engaged in the business of issuing such bonds. As a result, these
subsidiaries are currently not receiving such bonds. The absence of available
surety bonds for these subsidiaries has resulted in a significant reduction in
their backlog. The Company and these subsidiaries are actively engaged in
negotiations with another surety bonding company regarding a new surety bonding
arrangement. However, there can be no assurance that such a new surety bonding
arrangement will be entered into. The failure to obtain a new surety bonding
company for these subsidiaries will have a materially adverse effect on the
Company.
The Company is focused on returning to profitability and has been
restructuring its operations around a smaller international mechanical and
electrical services business. The Company has formulated and implemented a
business restructuring plan which presently includes the sale of its water
supply business, certain mechanical services operations and other non-core
businesses and the continued closing or downsizing of its unprofitable
operations. The proceeds from the sale of these businesses and other assets to
date have been used for working capital and to reduce debt. There is no
assurance that the Company will be able to consummate the remaining sales and,
if consummated, whether the Company will realize the proceeds contemplated by
the restructuring plan.
7
<PAGE>
As described in Note C, the Company is in default of covenants contained in
its bank revolving credit agreement, senior note agreements and 12%
subordinated note agreements and in the indenture under which its 7 3/4%
Convertible Subordinated Debentures were issued and is presently in a Chapter
11 proceeding. The outstanding amount of such debt in default at September 30,
1994 and December 31, 1993 was approximately $501.0 million. Such amount is
included in "Pre-consent Date Bankruptcy Claims Subject to Compromise" at
September 30, 1994 and "Debt in default" at December 31, 1993 in the
accompanying condensed consolidated balance sheets.
On December 21, 1993, three holders of the Company's 7 3/4% Convertible
Subordinated Debentures filed an involuntary petition under Chapter 11 of the
U.S. Bankruptcy Code against the Company. The Company on February 14, 1994
consented to the entry of an order for relief under Chapter 11 of the U.S.
Bankruptcy Code. At that time the Company adopted a proposed plan of
reorganization and its subsidiaries continue to operate in the normal course of
business. The Company's plan of reorganization, as amended (the "Plan of
Reorganization"), was confirmed by the U.S. Bankruptcy Court on September 30,
1994. The Plan of Reorganization provides that the Company's creditors, other
than subordinated note and debenture holders, will exchange approximately $605
million of holding company debt for 100% of the equity and approximately $141
million of notes of the reorganized Company and approximately $48 million of
notes of a newly organized subsidiary. Holders of approximately $18 million of
subordinated debt will exchange their notes for warrants to purchase the common
stock of the reorganized Company. Additionally, holders of the Company's common
and preferred stock and warrants of participation will have their JWP
securities canceled and will receive warrants to purchase the common stock of
the reorganized Company. With the exception of approximately $68 million of new
notes to be due in 2001, substantially all of the reorganized Company's new
debt is expected to be paid from the proceeds of asset sales.
The Company expects to make distributions under its Plan of Reorganization
before the end of 1994. The actual date on which the Company's Plan of
Reorganization will become effective is subject to certain conditions to the
Plan being satisfied. The conditions include obtaining a new working capital
line which is in the process of being negotiated. However, there can be no
assurance that the Plan of Reorganization will become effective or, if so, its
timing.
The Company's mechanical and electrical services, water supply and other
operating subsidiaries are not parties to the Chapter 11 proceeding. All
obligations of the operating subsidiaries continue to be paid in the ordinary
course of business.
In April 1992, the Company announced its intention to sell its water supply
business. However, in July 1993, the Company's Board of Directors decided not
to proceed with the sale due to uncertainties created by then pending rate-
related matters and litigation which are described in Note J. In December 1993,
the Company's principal water supply subsidiary, Jamaica Water Supply Company
("JWS"), entered into an agreement with respect to the rate-related proceedings
and litigation thereby eliminating significant uncertainties relating to the
water supply business. This agreement was approved by the New York State Public
Service Commission on February 2, 1994. Accordingly, in the first quarter of
1994 the Company reinstated its plan of sale. In 1993 the Company sold
substantially all of its information services businesses. Operating results for
all periods presented reflect the Company's information services and water
supply businesses as discontinued operations (see Note F).
As indicated above, the Company has developed and implemented a business
restructuring plan which presently includes the sale of its water supply
business, certain mechanical services business units and other non-core
businesses. The net assets of businesses to be sold have been classified in the
condensed consolidated balance sheets as of September 30, 1994 and December 31,
1993 as "Net assets held for sale" and carried as either current or long-term
assets on the basis of their actual or expected disposition dates.
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS 112) (See Note K).
8
<PAGE>
In September 1994, the Company wrote down its investment in Health Care
International, Ltd. ("HCI") when HCI went into receivership.
Certain reclassifications have been made to the prior year condensed
consolidated financial statements to conform to current year presentation.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to present
fairly the financial position of the Company and the results of its operations.
The results of operations for the three and nine months ended September 30,
1994 are not necessarily indicative of the results to be expected for the year
ended December 31, 1994. For further information, refer to the Consolidated
Financial Statements and Notes thereto included in the Company's annual report
on Form 10-K for the year ended December 31, 1993.
NOTE B NET LOSS PER SHARE
Net loss per common share for the three and nine month periods ended
September 30, 1994 and 1993 has been calculated based on the weighted average
number of shares of common stock outstanding and common stock equivalents
relating to stock options outstanding when the effect of such equivalents are
dilutive (40,715,729 shares and 40,806,497 shares for the three months ended
September 30, 1994 and 1993, respectively, and 40,715,604 shares and 40,800,883
shares for the nine months ended September 30, 1994 and 1993, respectively).
For 1993, per common share loss from continuing operations and net loss reflect
dividends of $0.45 million and $1.36 million for the three and nine month
periods, respectively, which were accrued on the Company's preferred stock. The
Company ceased accruing dividends on its preferred stock on December 21, 1993,
the date on which the involuntary bankruptcy petition was filed against the
Company. Cumulative unpaid dividends at September 30, 1994 and December 31,
1993 aggregate $2.3 million.
NOTE C DEBT IN DEFAULT
Debt in default consists of (in thousands):
<TABLE>
<S> <C>
Notes payable to banks under revolving credit facility at prime
plus 3/4%........................................................ $155,795
Senior notes, payable to insurance companies, 9.1% to 10.95%...... 328,572
--------
Total senior debt................................................. 484,367
Subordinated notes, payable to insurance companies, 12%........... 9,600
7 3/4% Convertible Subordinated Debentures........................ 7,040
--------
$501,007
========
</TABLE>
The Company has failed to make principal payments on its senior notes and 12%
subordinated notes and is in default under various financial covenants
contained in the loan agreements pursuant to which these notes were issued,
including covenants requiring maintenance of minimum tangible net worth and
minimum current ratio. Its bank revolving credit facility also contains certain
financial and other covenants, including covenants requiring maintenance of
minimum tangible net worth and minimum current ratio, under which the Company
is in default. Additionally, the Company has not made scheduled semiannual
interest payments since September 1, 1993 with respect to its 7 3/4%
Convertible Subordinated Debentures. As a result, the entire amount of such
notes, debentures and bank indebtedness has been classified in the accompanying
condensed consolidated balance sheets as "Pre-consent Date Bankruptcy Claims
Subject to Compromise" at September 30, 1994 and "Debt in default" at December
31, 1993.
Commencing in April 1993, the Company ceased making payments of principal and
interest under its revolving credit facility and on its senior and subordinated
notes. Interest continued to accrue in accordance with the provisions of the
loan agreements pursuant to which these notes were issued which in certain
circumstances include default rates at an additional 2% and, in one case, 4%
until December 21, 1993, the date on which the involuntary bankruptcy petition
was filed against the Company. At September 30, 1994 and December 31, 1993,
accrued interest applicable to debt in default was $43.3 million. Such amount
is included in "Pre-consent Date Bankruptcy Claims Subject to Compromise" at
September 30, 1994 and
9
<PAGE>
"Other accrued expenses and liabilities" at December 31, 1993 in the
accompanying condensed consolidated balance sheets. The Company has pledged to
the holders of its senior notes and bank indebtedness the common stock of five
subsidiaries held for sale and certain proceeds from the sale of these
subsidiaries. Two of the subsidiaries were sold in 1994. The combined net book
value of the remaining subsidiaries is $16.2 million as of September 30, 1994.
Certain of the Company's loan and note agreements contain covenants which
restrict its ability to pay dividends on its common stock. As indicated, the
Company is in default under these agreements and is in a Chapter 11 proceeding.
See Note A with respect to the contemplated exchange of debt in default for
new debt and equity securities under the Plan of Reorganization, which was
confirmed by the U.S. Bankruptcy Court on September 30, 1994.
NOTE D PRE-CONSENT DATE BANKRUPTCY CLAIMS SUBJECT TO COMPROMISE
As described in Note A, on February 14, 1994, the Company consented to the
entry of an order for relief under Chapter 11 of the U.S. Bankruptcy Code.
While the Company continues business as a debtor-in-possession, the Company's
creditors are stayed from taking action against the Company to collect debts in
existence prior to the date that the involuntary petition was filed against the
Company, December 21, 1993. The Company's condensed consolidated balance sheets
include the following liabilities in "Pre-consent Date Bankruptcy Claims
Subject to Compromise" as of September 30, 1994 and in various liability
accounts, as indicated below, at December 31, 1993:
<TABLE>
<CAPTION>
OTHER
ACCRUED OTHER
ACCOUNTS DEBT IN EXPENSES AND LONG-TERM
PAYABLE DEFAULT LIABILITIES OBLIGATIONS TOTAL
-------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Debt in default......... $ -- $501,007 $ -- $ -- $501,007
Accrued interest........ -- -- 43,315 -- 43,315
Amount due to JWP
Information Services,
Inc.................... -- -- 24,933 -- 24,933
Foreign debt guarantees. -- -- 6,037 -- 6,037
Stock price guarantees.. -- -- 5,118 -- 5,118
Preferred dividends in
arrears................ -- -- 2,257 -- 2,257
Unexpired leases........ -- -- -- 1,718 1,718
Unfunded directors'
retirement benefits.... -- -- -- 975 975
Insurance reserves...... -- -- 9,600 26,800 36,400
Other impaired claims... 400 -- 699 -- 1,099
----- -------- ------- ------- --------
$ 400 $501,007 $91,959 $29,493 $622,859
===== ======== ======= ======= ========
</TABLE>
The Bankruptcy Court established April 8, 1994 as the bar date for the filing
of claims against the Company. Certain claims filed against the Company are
contingent or in dispute and such claims will be fixed by either litigation or
settlement.
The Company has received approval from the Bankruptcy Court to pay or
otherwise honor certain of its obligations that arose prior to the entry of the
order for relief under Chapter 11, including employee wages and benefits,
amounts payable under the Company's property, casualty, workers' compensation
and other insurance programs and amounts payable under an employee stay
bonus/severance pay plan.
NOTE E DEBTOR-IN-POSSESSION FINANCING ("DIP LOAN")
In February 1994 the Company and substantially all of its subsidiaries
entered into an agreement with Belmont Capital Partners II, L.P., an affiliate
of Fidelity Investments ("Belmont"), to provide for a credit
10
<PAGE>
facility to the Company (the "DIP Loan"). The agreement provides to the Company
a credit facility of $35 million at an interest rate of 12% per annum during
the Chapter 11 proceeding. Belmont will also receive, as additional interest, a
percentage of the securities to be issued under the Company's Plan of
Reorganization. The DIP Loan is secured by a first lien on substantially all of
the assets of the Company and most of its subsidiaries. As of November 21,
1994, the Company had drawn down $30 million under the DIP Loan of which $25
million was outstanding as of September 30, 1994.
The Company is in default of certain covenants of the DIP Loan. Pursuant to
written waivers of default, dated April 27, 1994, May 6, 1994, August 2, 1994
and November 4, 1994, the Company has been permitted by Belmont to draw on its
line of credit. Under the circumstances, any additional borrowings under the
DIP Loan will require further waivers of default.
The DIP Loan is to be repaid upon the earlier of the effective date of the
Plan of Reorganization or February 15, 1995. The Company is currently
negotiating the terms of a $45 million working capital facility. The proceeds
of this new facility will be used to refinance the Company's borrowings under
the DIP Loan and to provide working capital for the reorganized Company and its
subsidiaries. There can be no assurance that the Company will be able to obtain
a new working capital facility or, if so, the amount of any such facility.
Obtaining such a facility is a condition to the Plan of Reorganization becoming
effective.
NOTE F DISCONTINUED OPERATIONS
In April 1992 the Company announced its intention to sell its water supply
business. However, in July 1993, the Company's Board of Directors decided not
to proceed with the sale due to uncertainties created by then pending rate-
related proceedings and litigation. In December 1993, JWS entered into an
agreement with respect to the rate-related proceedings and litigation. This
agreement was approved by the New York State Public Service Commission on
February 2, 1994. Accordingly, in the first quarter of 1994 the Company
reinstated its plan of sale. The financial statements for all periods presented
reflect the water supply business as discontinued operations.
See Note J with respect to the status of a proceeding initiated in 1988 by
the City of New York to acquire by condemnation all of the water distribution
system of JWS that is located in New York City. Additionally, see Note J with
respect to the lawsuit brought by certain holders of warrants of participation
against Jamaica Water Securities Corp.
The assets of the water supply business consist primarily of utility plant
and equipment which are located in Nassau and Queens Counties in the State of
New York. The net assets of the water supply business, which aggregate $62.2
million and $60.0 million at September 30, 1994 and December 31, 1993,
respectively, are classified in the accompanying condensed consolidated balance
sheets under the caption "Net Assets Held for Sale" and carried as a current
asset at September 30, 1994 and as a long-term asset at December 31, 1993 since
disposition is expected to take place mid-year 1995.
In March 1993 the Company's Board of Directors approved the disposition of
the Company's U.S. information services business. The Board of Directors had
previously decided to sell the Company's overseas information services
businesses. Accordingly, operating results of the information services
businesses have been classified as discontinued operations. In August 1993, the
Company sold substantially all of the assets of its U.S. information services
business. Under the terms of the sale agreement, the purchaser assumed the debt
and other liabilities relating to ongoing operations of the business. The
Company received warrants to buy up to 10% of the purchaser's common stock for
a nominal amount. The Company has assigned no value to these warrants.
In October 1993, the Company's subsidiary which formerly carried on a U.S.
information services business filed a voluntary petition under Chapter 7 of the
U.S. Bankruptcy Code. In connection with the bankruptcy filing, the Company
recorded a loss of $8.1 million in the third quarter of 1993. Such amount is
11
<PAGE>
included in "Loss on sale of businesses and other assets" in the accompanying
condensed consolidated statements of operations. At September 30, 1994 and
December 31, 1993 the Company owed its bankrupt U.S. information services
subsidiary $24.9 million. Such amount is included in "Pre-consent Date
Bankruptcy Claims Subject to Compromise" at September 30, 1994 and "Other
accrued expenses and liabilities" at December 31, 1993 in the accompanying
condensed consolidated balance sheets.
For 1994, the combined operating results of discontinued operations consist
only of the water supply business. For 1993, such combined operating results
include both the water supply and information services businesses.
Combined operating results of discontinued operations are as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
1994 1993 1994 1993
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Revenues...................... $ 19,544 $ 128,197 $ 50,452 $ 911,342
Costs and expenses............ 12,915 123,029 37,999 890,402
--------- ---------- --------- ----------
Operating income.............. 6,629 5,168 12,453 20,940
Interest expense.............. (1,070) (2,327) (3,067) (13,355)
--------- ---------- --------- ----------
Income before taxes........... 5,559 2,841 9,386 7,585
Income taxes.................. -- -- -- --
--------- ---------- --------- ----------
Income from discontinued
operations................... $ 5,559 $ 2,841 $ 9,386 $ 7,585
========= ========== ========= ==========
</TABLE>
NOTE G OTHER BUSINESSES SOLD AND NET ASSETS HELD FOR SALE
In the first nine months of 1994 and 1993, the Company received cash proceeds
of $4.5 million and $40.8 million, respectively, from the sale of certain non-
core businesses and other assets. In 1994 the assets sold by the Company
included the sale of the Company's minority ownership in an energy and
environmental business and other non-core businesses. In 1993, the Company sold
its Software House subsidiary, the U.S. information services business and
certain other non-core businesses and other assets. The Company realized a gain
of $2.7 million from the sale of Software House. No material gain or loss was
realized from the aggregate of the other sales in either 1994 or 1993.
The Company's Board of Directors has approved a plan for the sale of the
Company's remaining energy and environmental related businesses, other non-core
businesses and certain mechanical operations. The operating results of these
businesses are included in loss from continuing operations.
Revenues and operating loss of the other businesses sold and held for sale,
for the three and nine months ended September 30, 1994 and 1993, are as follows
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------
1994 1993 1994 1993
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues........................... $ 41,284 $ 89,467 $120,991 $287,471
Operating loss..................... (3,256) (677) (9,541) (2,093)
</TABLE>
12
<PAGE>
The condensed balance sheet relating to net assets held for sale, including
discontinued operations as of September 30, 1994, is as follows (in thousands):
<TABLE>
<S> <C>
Cash........................................ $ 6,502
Accounts receivable, net.................... 47,946
Costs and estimated earnings in excess of
billings................................... 4,447
Inventories................................. 12,253
Other current assets........................ 1,862
--------
73,010
Property, plant and equipment, net.......... 152,371
Other assets................................ 13,233
--------
$238,614
========
</TABLE>
<TABLE>
<S> <C>
Current maturities of long-term debt and
capital lease obligations.................. $ 14,222
Accounts payable............................ 10,796
--------
Billings in excess of costs and estimated
earnings................................... 5,345
Other accrued expenses...................... 58,080
--------
88,443
Long-term debt.............................. 31,806
Other long-term liabilities................. 42,772
Net assets held for sale--current........... 75,593
--------
$238,614
========
</TABLE>
NOTE H INSURANCE RESERVES
The Company is primarily insured through a wholly-owned captive insurance
subsidiary ("Defender") for its workers' compensation, automobile and general
liability insurance. At September 30, 1994, the Company and Defender had
letters of credit outstanding totaling $36.4 million which in effect secure
their insurance obligations. The letters of credit were intended to serve as
collateral for the obligations of Defender to reimburse the Company's unrelated
insurance carriers for claims paid with respect to certain years' insurance
programs. Letters of credit of $34.9 million and $1.5 million expire in
December 1994 and February 1995, respectively. Since October 1992 neither the
Company nor Defender has been able to obtain additional letters of credit to
secure their insurance obligations and, as a result, have been required to make
cash collateral deposits with an unrelated third party insurance company to
secure those types of obligations. The deposits totaled approximately $34.0
million and $21.3 million as of September 30, 1994 and December 31, 1993,
respectively, and are classified as a long-term asset in the accompanying
condensed consolidated balance sheets under the caption "Insurance cash
collateral" in Other Assets.
NOTE I INCOME TAXES
The Company has substantial net operating loss carry-forwards ("NOL") for
U.S. income tax purposes expiring in years through 2008. The Company has
provided a valuation allowance to offset the full amount of the net deferred
tax assets arising from book and tax differences including those from the NOLs.
NOTE J LEGAL PROCEEDINGS
Since August 1992, nineteen purported class action lawsuits have been filed
against the Company arising out of the restatements of earnings, write-offs and
losses announced by the Company on August 4, 1992 and October 2, 1992. Pursuant
to Stipulation and Court Order, on January 15, 1993, a single consolidated
amended class action complaint (the "Complaint") was filed. The Complaint names
as defendants the Company, certain former officers and directors, four current
directors, a former subsidiary officer and the Company's then independent
auditor, Ernst & Young.
The Complaint alleges violations of Section 10(b) of the Securities and
Exchange Act of 1934, Rule 10b-5 promulgated thereunder and common law fraud
and deceit on the part of the Company and certain other defendants. Among other
things, the Company is alleged to have intentionally and materially overstated
its inventory, accounts receivable and earnings in various public
disseminations during the purported class action period May 1, 1991 through
October 2, 1992. The Complaint seeks an unspecified amount of damages. The
Company has denied the material allegations contained in the Complaint. The
parties are now engaged in discovery proceedings. However, the Bankruptcy
Court's order dated September 30, 1994, confirming the
13
<PAGE>
Company's Plan of Reorganization, included a discharge of all claims asserted
against JWP in the class action lawsuits, and a permanent injunction against
continuing these actions, or any other proceeding, with respect to the claims
asserted therein. Accordingly, on November 11, 1994, the Company filed a motion
seeking dismissal of these actions. That motion, which is expected to be
unopposed, is returnable on December 2, 1994.
The Company had been informed by the Securities and Exchange Commission (the
"SEC") that it was conducting a private investigation to determine whether
there have been violations of certain provisions of the federal securities laws
and/or the rules and regulations of the SEC in connection with the Company's
financial records, reports and public disclosures. The Company has been
cooperating with the SEC's staff and has voluntarily produced requested
documents and information. On April 12, 1994, the SEC's staff informed the
Company of its intention to recommend that the SEC file a civil injunction
against the Company. The Company is currently engaged in discussions with the
SEC's staff concerning a possible consensual resolution of the matter.
In January 1992, the Public Service Commission of the State of New York
("PSC") ordered its staff to perform an audit covering all aspects of
operations of JWS. The audit report alleged that mismanagement and imprudence
on the part of JWS may have resulted in excess charges to its customers of up
to $10.6 million. Based on the audit report, in June 1992 the PSC instituted a
proceeding requiring JWS to demonstrate that its rates charged to customers
were not excessive and provided for an investigation of JWS' management
practices. As part of this proceeding and citing the audit report's assertion
without receiving the audit report in evidence, the PSC ordered that $10.6
million of JWS' annual revenues be made temporary and subject to refund,
effective August 6, 1992, pending the completion of the investigation.
Between December 1992 and May 1993, representatives of JWS, the PSC, consumer
advocate groups, the County of Nassau, the Town of Hempstead and others
appeared and submitted testimony in the PSC proceedings. On June 3, 1993, the
PSC issued an order suspending hearings and appointed two administrative law
judges for the purpose of effecting a settlement. Negotiations among the
parties and the settlement judges were ongoing from that time.
In addition on February 5, 1993, the County of Nassau filed a complaint in
the Supreme Court of the State of New York alleging that JWS intentionally
filed false rate applications with the PSC and, as a result, for the period
from March 31, 1987 through March 31, 1992, JWS had earnings that exceeded its
projections by $8.7 million. The complaint alleged that this conduct
constituted violations of the Racketeer Influenced and Corrupt Organizations
Act ("RICO") and common law fraud.
On December 22, 1993, JWS, the New York State Consumer Protection Board,
Nassau County, certain other governmental bodies and a consumer advocate group
entered into an agreement that ended the several regulatory and legal
proceedings against JWS. The agreement was approved by the PSC on February 2,
1994. The agreement provides for, among other things, a three year general rate
case moratorium, resolution of the economic issues raised by the PSC arising
from its 1992 audit of JWS, settlement of related litigation and the dismissal
of Nassau County's RICO lawsuit against JWS. As part of the agreement, JWS
agreed, in consideration of avoided litigation and other costs associated with
the proceedings, to make payments over the period January, 1994 through
December, 1996 totaling $11.7 million to customers in Nassau and Queens
Counties in the State of New York. In connection with this settlement, the
Company provided for a pre-tax charge of $7.0 million in the fourth quarter of
1992. The agreement also provides that JWS, subject to limited specified
exceptions, will not seek to have a general rate increase become effective
prior to January 1, 1997 and will use its best efforts to bring about the
separation of Jamaica Water Securities Corp., a subsidiary of the Company which
holds substantially all the common stock of JWS, from the Company.
In 1986, the State of New York enacted a statute requiring the City of New
York (the "City") to acquire by condemnation all of the JWS property
constituting or relating to its water distribution system located in the City
only if a Supreme Court of the State of New York (the "Supreme Court") decides
that the amount
14
<PAGE>
of compensation to be paid for the system is determined solely by the income
capitalization method of valuation. If the Court determines compensation by a
method other than the income capitalization method or the award is for more
than the rate base of the condemned assets, the statute permits the City to
withdraw the proceeding without prejudice or costs. In 1988, the City
instituted a proceeding pursuant to the statute to acquire the system which
constitutes approximately 75% of JWS' water utility plant. JWS argued at trial
that the judicially recognized method for valuing public utility property is by
the method known as "Reproduction Cost New, Less Depreciation". JWS also sought
consequential and severance damages that would result from separating the JWS
Nassau County water supply system from that in the City. The aggregate amount
sought by JWS as of December 31, 1987 was approximately $924 million. The City
submitted its income capitalization valuation, as of December 31, 1987, at
approximately $63 million.
In June 1993, the Supreme Court dismissed the City's petition. The Supreme
Court concluded, among other things, that the statute is unconstitutional
because it directs the Court to render an advisory opinion.
In February 1994, the New York Court of Appeals held constitutional a nearly-
identical statute dealing with another water utility. In April 1994, upon a
request made by the City for reconsideration, the Supreme Court stated that it
would reconsider its prior decision in light of the February decision of the
Court of Appeals. The Company cannot predict when or if the Supreme Court will
conduct further proceedings under the statute nor is it possible to predict
what the decision of the Supreme Court might be if it decides to value the JWS
property or the effect of the pending litigation on the proposed sale of JWS.
On September 26, 1994 certain holders of Warrants of Participation
("Warrants") that were issued pursuant to a Warrant Agreement dated June 15,
1969 by the Company's predecessor, Jamaica Water and Utilities, Inc. ("JWU"),
commenced a declaratory judgment action against the Company's wholly-owned
subsidiary Jamaica Water Securities Corporation ("JW Securities") by filing a
complaint in the Supreme Court of the State of New York, Westchester County,
bearing the caption, Harold F. Scattergood, Jr., et al. v. Jamaica Water
Securities Corp. (Index No. 15992/94). On October 17, 1994, an amended
complaint (the "complaint") was served adding additional plaintiffs.
Plaintiffs seek a declaration that JW Securities is the successor to the
Company's obligations under the Warrant Agreement by reason of its 1977
acquisition of JWU's 96% stock interest in Jamaica Water Supply Company.
Plaintiffs also claim that three events have triggered the Warrants, obligating
JW Securities to issue shares of its own stock to plaintiffs: (1) the 1988
filing by the City of New York of a condemnation proceeding and lis pendens
seeking to condemn that part of water distribution system of Jamaica Water
Supply Company located in Queens County; (2) the prosecution of that
condemnation proceeding, which was subsequently dismissed by the court; and (3)
a 1993 settlement agreement entered into by JW Securities and of Jamaica Water
Supply Company which settled unrelated matters involving the Public Service
Commission, Nassau County and others. Plaintiffs claim that each of these
events constituted a disposition of the assets of Jamaica Water Supply Company
which triggered the Warrants. In the alternative, plaintiffs claim that the
Warrant Agreement's December 31, 1994 expiration date should be extended for
some indefinite period.
The time to answer or move against the complaint has not yet expired and JW
Securities intends to defend vigorously against all claims asserted in the
complaint.
In 1993 the Company's French and Belgian information services subsidiaries
filed petitions in their respective countries seeking relief from their
creditors. The French and Belgian subsidiaries have outstanding unsecured
credit facilities which are guaranteed by the Company aggregating $5.9 million.
Their creditors filed claims with the U.S. Bankruptcy Court for this guaranteed
debt in the aggregate amount of $4.6 million.
In August 1993, the Company sold its U.S. information services business. In
October 1993, the subsidiary formerly carrying on this business filed a
voluntary petition under Chapter 7 of the U.S. Bankruptcy Code.
15
<PAGE>
In connection with an investigation of the plumbing industry being conducted
by the New York County District Attorney's office, two related subsidiaries of
the Company engaged in the plumbing business in New York City have received
subpoenas for certain of their books and records. The subsidiaries have
complied with those subpoenas. Additionally, certain employees of these
subsidiaries have been subpoenaed to testify as witnesses before a grand jury,
and those employees have complied with the subpoenas.
The Company is involved in other legal proceedings and claims which have
arisen in the ordinary course of business. The Company cannot predict the
outcome thereof or the impact that an adverse result will have upon its
financial position or the results of its operations.
NOTE K ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS 112). This standard requires that the cost of
benefits provided to former or inactive employees be recognized on an accrual
basis of accounting. Previously, the Company recognized post-employment benefit
costs (primarily short-term disability and severance costs) when paid. The
cumulative effect of adopting SFAS 112 was to record a charge of $2.1 million
or $0.05 per share as of January 1, 1994. Such amount has been reflected in the
consolidated statement of operations for the nine months ended September 30,
1994 under the caption "Cumulative Effect of Change in Accounting for
Postemployment Benefits". The adoption of SFAS 112 will not have a material
effect on the 1994 loss before cumulative effect of change in method of
accounting for post-retirement benefits.
16
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL INFORMATION
RESULTS OF OPERATIONS
On December 21, 1993, three holders of the Company's 7 3/4% Convertible
Subordinated Debentures filed an involuntary petition under Chapter 11 of the
U.S. Bankruptcy Code against the Company. The Company on February 14, 1994
consented to the entry of an order for relief under Chapter 11 of the
Bankruptcy Code. At that time the Company adopted a proposed plan of
reorganization. The Company's plan of reorganization, as amended (the "Plan of
Reorganization"), was confirmed by the U.S. Bankruptcy Court on September 30,
1994. The Plan of Reorganization provides for the exchange of substantially all
of the Company's indebtedness for new notes of the reorganized Company and
notes of a newly organized subsidiary, for all of the reorganized Company's
common stock and warrants to purchase common stock of the reorganized Company.
Holders of the Company's common and preferred stock and warrants of
participation will have their JWP securities canceled and will receive warrants
to purchase the common stock of the reorganized Company. The Plan of
Reorganization contemplates a business restructuring plan which the Company
initially developed in the third quarter of 1992 to divest certain of its non-
core businesses. There can be no assurance that the Plan of Reorganization will
become effective or, if so, its timing. Obtaining a credit facility for the
reorganized Company is one of the conditions to the Plan of Reorganization
becoming effective. See "Liquidity and Capital Resources" below for additional
discussion with respect to the Company's business restructuring plan and Plan
of Reorganization.
As of September 30, 1994, the Company had negative net worth of $323.9
million. The Company continues to fail to generate sufficient cash to fund its
operations and service its other obligations. From September 1992 to February
1994, when the Company obtained debtor-in-possession financing, the Company did
not have available credit facilities and, consequently, funded its operations
from working capital and proceeds from the sale of businesses and other assets.
The Company's surety bonding companies are reviewing bid and performance bond
requests on a case-by-case basis for large construction projects and those with
durations of more than two years. Further, the Company is experiencing
significant constraints in its bonding line which has adversely affected its
operations. In addition, a surety bonding company that had been the primary
source of bid and performance bonds for certain subsidiaries, which, for the
nine months ended September 30, 1994, together comprised approximately 23% of
the Company's revenues of those mechanical and electrical companies the Company
currently plans to retain, is no longer engaged in the business of issuing such
bonds. As a result, these subsidiaries are currently not receiving such surety
bonds. The absence of available surety bonding for these subsidiaries has
resulted in a significant reduction in their backlog. The Company and these
subsidiaries are actively engaged in negotiations with another surety bonding
company regarding a new surety bonding arrangement. However, there can be no
assurance that such a new surety bonding arrangement will be entered into. The
failure to obtain a new surety bonding agreement for these subsidiaries will
have a materially adverse effect on the Company.
The accompanying financial statements have been prepared on a going concern
basis and do not include any adjustments relating to the recoverability and
classification of assets or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
The Company's continuation as a going concern is dependent upon its ability to
restructure its indebtedness in the Chapter 11 proceeding, obtain sufficient
bonding to guarantee its performance of construction contracts, return to
profitability, obtain new credit facilities and generate sufficient cash flow
to meet its restructured and other obligations on a timely basis. See
"Liquidity and Capital Resources".
As a result of the restatement of the Company's first and second quarter
earnings of 1992 and write-offs and losses announced by the Company on August
4, 1992 and on October 2, 1992, class action lawsuits were filed on behalf of
shareholders against the Company and certain other defendants. The class action
lawsuits
17
<PAGE>
have been consolidated and the single consolidated amended class action
complaint alleges, among other things, that the Company intentionally and
materially overstated assets and earnings in various public disseminations in
violation of Section 10(b) of the Securities and Exchange Act of 1934 and Rule
10b-5 promulgated thereunder. The complaint seeks an unspecified amount of
damages. The Company has denied the material allegations contained in the
complaint. The parties are now engaged in discovery proceedings. However, the
Bankruptcy Court's order dated September 30, 1994, confirming the Company's
Plan of Reorganization included a discharge of all claims asserted against JWP
in the class action lawsuits, and a permanent injunction against continuing
these actions, or any other proceeding, with respect to the claims asserted
therein. Accordingly, on November 11, 1994, the Company filed a motion seeking
dismissal of these actions. That motion, which is expected to be unopposed, is
returnable on December 2, 1994. See Note J to the condensed consolidated
financial statements for additional discussion with respect to the shareholder
litigation.
The Company had been informed by the Securities and Exchange Commission (the
"SEC") that it is conducting a private investigation to determine whether there
have been violations of certain provisions of the federal securities laws
and/or the rules and regulations of the SEC in connection with the Company's
financial records, reports and public disclosures. The Company has cooperated
with the SEC's staff and has voluntarily produced requested documents and
information. On April 12, 1994, the SEC's staff informed the Company of its
intention to recommend that the SEC file a civil injunction action against the
Company. The Company is currently engaged in discussions with the SEC's staff
concerning a possible consensual resolution of the matter.
Revenues for the third quarter of 1994 were $444.4 million compared to $565.8
million in the third quarter of 1993. In the third quarter of 1994 the Company
incurred a net loss of $10.0 million or $0.25 per share compared to a net loss
of $24.5 million or $0.61 per share in the third quarter of 1993. Loss from
continuing operations in the third quarter of 1994 was $15.6 million or $0.39
per share compared to a loss of $19.7 million or $0.49 per share in the year
earlier period. In the third quarter of 1994 income from discontinued
operations was $5.6 million or $0.14 per share compared to a loss of $4.8
million or $0.12 per share in the third quarter of 1993.
Revenues for the nine months ended September 30, 1994 were $1,313.5 million
compared to $1,713.6 million in the year earlier period. For the nine months
ended September 30, 1994, the Company incurred a net loss of $22.0 million or
$0.54 per share compared to a net loss of $50.5 million or $1.27 per share for
the nine months ended September 30, 1993. For the nine months ended September
30, 1994 loss from continuing operations was $29.2 million or $0.72 per share
compared to a loss of $50.4 million or $1.27 per share in the year earlier
period. For the nine months ended September 30, 1994 income from discontinued
operations was $9.4 million or $0.23 per share compared to a loss of $0.05
million for the nine months ended September 30, 1993.
Loss from continuing operations for the three and nine months ended September
30, 1994 includes: a gain of $1.9 million or $0.05 per share for the settlement
of a construction claim; a loss of $4.1 million or $0.10 per share due to the
write down of an investment; a loss of $6.5 million or $0.16 per share for the
write down on certain long-term construction projects and a loss of $0.5
million or $0.01 per share for severance of certain employees. Additionally,
the net loss for the nine months ended September 30, 1994 includes a charge of
$2.1 million or $0.05 per share as a result of the adoption of Statement of
Accounting Financial Standards No. 112, "Employers' Accounting for
Postemployment Benefits". The 1993 loss from continuing operations in the
amount of $19.7 million and $50.4 million for the three and nine months ended
September 30, 1993, respectively, included interest expense on debt in default
of approximately $1.0 million and $3.5 million, respectively. The Company
ceased accruing interest on debt in default in December 1993 upon the filing of
an involuntary bankruptcy petition against the Company. Accordingly, no
interest expense on debt in default is included in the condensed consolidated
statements of operations for the three and nine months ended September 30,
1994. A net gain of $2.6 million or $0.06 per share resulted from the sale of
Software House, Inc. and other assets for the nine month period ended September
30, 1993.
18
<PAGE>
The Company incurred an operating loss of $10.3 million for the three months
ended September 30, 1994 compared to a $6.1 million operating loss for the
third quarter of 1993. The 1994 third quarter operating loss includes $3.7
million and $2.8 million of losses recognized on long-term construction
projects in the Company's North American and United Kingdom business units,
respectively. The Company incurred an operating loss of $22.7 million for the
nine months ended September 30, 1994 compared with an operating loss of $15.5
million for comparable nine month period of 1993. The increase in the operating
loss for the first nine months of 1994 was principally due to write downs of
long-term construction projects, as discussed above, and to an increase over
1993 of $1.8 million in professional fees which includes legal, consulting and
other fees in connection with the Company's Chapter 11 bankruptcy proceeding,
as well as $0.5 million of debt issuance costs incurred in obtaining debtor-in-
possession financing and an increase in insurance costs.
MECHANICAL/ELECTRICAL SERVICES
Revenues of the mechanical/electrical services business for the quarter ended
September 30, 1994 decreased by 21.5% to $444.4 million from $565.8 million in
1993. Operating loss of the mechanical/electrical services business (before
deduction of general corporate and other expenses discussed below) in the third
quarter of 1994 was $3.2 million compared to an operating loss of $0.9 million
in the third quarter of 1993. In connection with the Company's business
restructuring plan, certain mechanical/electrical business units have been sold
or identified for sale. The operating results of such business units are
included in the aforementioned operating results. Revenues of the
mechanical/electrical business units sold or held for sale for the quarter
ended September 30, 1994 and 1993 were $41.3 million and $89.5 million,
respectively. For the quarter ended September 30, 1994 and 1993, such business
units had operating losses of $3.3 million and $0.7 million, respectively.
Revenues of the mechanical/electrical services business for the nine months
ended September 30, 1994 decreased by 23.3% to $1,313.5 million from $1,713.6
million in the year earlier period. Operating income of the
mechanical/electrical services business (before deduction of general corporate
and other expenses discussed below) for the nine months ended September 30,
1994 and 1993 was $0.1 million and $1.3 million, respectively. Revenues of the
mechanical/electrical units sold or held for sale for the nine months ended
September 30, 1994 and 1993 were $121.0 million and $287.5 million,
respectively. Such units incurred an operating loss of $9.5 million for the
nine months ended September 30, 1994 compared to an operating loss of $2.1
million in the year earlier period.
The decrease in revenues for the three and nine months ended September 30,
1994 was partially attributable to the disposition of certain businesses held
for sale and the downsizing of certain other businesses. Revenues for the three
and nine months ended September 30, 1994 relating to businesses which the
Company plans to retain decreased by approximately 15% when compared to the
year earlier periods. This decrease resulted primarily from those business
units operating in the United States and Eastern Canadian regions. The units in
these regions are experiencing difficulties in obtaining new construction
contracts principally because of continuing poor market conditions.
The operating results for both the three and nine months ended September 30,
1994 and 1993 reflect, among other things, the negative impact of the recession
and oversupply in the commercial real estate market which has caused intense
competition for new commercial work. As a result of the reduction of commercial
work, many of the Company's mechanical/electrical services business units have
pursued noncommerical projects, primarily governmental and municipal
facilities, at lower margins than historically available in the commercial
marketplace. Certain of these business units were not as experienced in
performing noncommercial projects and, as a result, incurred losses
particularly on certain long-term contracts. Operating margins in 1994 and 1993
were also adversely affected by the continuing recessions in the United Kingdom
and Canada.
Selling, general and administrative ("SG&A") expenses, excluding general
corporate expenses, for the quarter ended September 30, 1994 and 1993 were
$39.2 million and $41.0 million, respectively. For the nine
19
<PAGE>
months ended September 30, 1994 and 1993, SG&A expenses, excluding general
corporate and other expenses, were $121.1 million and $145.0 million,
respectively. The amount of SG&A expenses, to date, in 1994 was lower than 1993
as a result of the implementation of the Company's downsizing plans and the
disposition of certain businesses.
At September 30, 1994, the mechanical/electrical services business backlog
was $1,060 million compared to $1,047 million at December 31, 1993. Such
backlog included $986.7 million at September 30, 1994 and $954.2 million at
December 31, 1993 relating to companies which the Company currently intends to
retain. The Company's backlog in the United States has declined by $76.7
million between December 31, 1993 and September 30, 1994, whereas its backlog
in the United Kingdom and Canada increased by $82.3 and $16.5 million,
respectively, during that same period. The Company's United Kingdom and
Canadian subsidiaries received major long-term contracts during the second
quarter of 1994. The Company has experienced a reduction in backlog in most of
the U.S. regions it serves. The decline is attributable to the downsizing of
the Company's operations, the Company's weakened financial condition which
adversely affects its ability to obtain new surety bonds and contracts and the
inability of certain of the Company's subsidiaries to obtain surety bonds
because their surety bonding company ceased to engage in the business of
issuing surety bonds. The Company's surety bonding companies have become more
selective in issuing new surety bonds and are reviewing bid and performance
bonds on a case-by-case basis, especially for larger projects and those with a
duration of more than two years. The Company's principal surety bonding company
will generally not bond new projects for certain non-core businesses which the
Company has identified for sale. Surety bonds are frequently a condition to the
award of a mechanical or electrical contract. Prospects for a recovery in the
commercial office building market in both North America and the United Kingdom
remain poor for the immediate future.
Included in the condensed consolidated balance sheet as of September 30, 1994
under the caption "Excess of cost of acquired businesses over net assets, less
amortization" is $57.8 million of goodwill. Such goodwill relates to the
mechanical/electrical services business units which the Company currently
intends to retain. Management believes that such goodwill has not been
permanently impaired. However, if the Company were to decide to sell these
units, the write-off of goodwill and other write-offs might be required
depending upon then existing market conditions and the future business
prospects of the retained units.
GENERAL CORPORATE AND OTHER EXPENSES
General corporate expenses for the quarter ended September 30, 1994 and 1993
were $7.1 million and $5.2 million, respectively. General corporate expenses
for the nine months ended September 30, 1994 and 1993 were $22.8 million and
$16.8 million, respectively. General corporate expenses for the three and nine
months ended September 30, 1993 include approximately $2.0 million and $7.5
million, respectively, related to legal, consulting and other professional fees
arising from the shareholder litigation, the proposed debt restructuring and
the restatement of the Company's financial statements. Legal and other
professional fees for 1994 incurred as a result of the bankruptcy proceeding
are reflected under the caption "Reorganization charges" in the condensed
consolidated statement of operations. These expenses for the three and nine
months ended September 30, 1994 were approximately $3.2 million and $10.1
million, respectively. The higher amount of general corporate expenses in 1994
is also attributable to debt issuance costs related to the Company's debtor-in-
possession credit facility, severance paid to terminated employees and an
increase in insurance costs. Net interest expense for the three and nine months
ended September 30, 1994 was $0.7 million and $1.2 million, respectively,
compared to $12.8 million and $37.8 million in the year earlier periods. The
Company ceased accruing interest expense related to debt in default on December
21, 1993, the date on which an involuntary bankruptcy petition was filed
against the Company.
DISCONTINUED OPERATIONS
In April 1992, the Company announced its intention to sell its water supply
business. However, in July 1993 the Company's Board of Directors decided not to
proceed with the sale due to the then pending rate-related proceedings and
litigation. As described below, in December 1993, the Company's subsidiary
Jamaica
20
<PAGE>
Water Supply Company ("JWS") entered into an agreement that became effective
February 2, 1994 with respect to the rate-related proceedings and litigation
(See Note J) thereby eliminating significant uncertainties relating to the
Company's water supply business. This agreement was approved by the New York
State Public Service Commission on February 2, 1994. Accordingly, in the first
quarter of 1994, the Company reinstated its plan of sale. The condensed
consolidated financial statements reflect the water supply business as a
discontinued operation for all periods presented. See Note J regarding the
status of a proceeding initiated in 1988 by the City of New York with respect
to the possible condemnation of the water distribution system of JWS that is
located in New York City and a proceeding initiated by the holders of the JWS
warrants of participation.
In 1993, the Company sold substantially all of its information services
businesses.
Revenues and income from discontinued operations for the three and nine
months ended September 30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1994 1993 1994 1993
------------------ -------- ---------
<S> <C> <C> <C> <C>
Revenues:
Water Supply....................... $ 19,544 $ 19,529 $ 50,452 $ 51,034
Information Services............... -- 108,668 -- 860,308
-------- --------- -------- ---------
$ 19,544 $ 128,197 $ 50,452 $ 911,342
======== ========= ======== =========
Income:
Water Supply....................... $ 5,559 $ 5,464 $ 9,386 $ 9,364
Information Services............... -- (2,623) -- (1,779)
-------- --------- -------- ---------
$ 5,559 $ 2,841 $ 9,386 $ 7,585
======== ========= ======== =========
</TABLE>
The water supply business operating results are impacted by seasonal factors.
Its revenues are generally higher in the second and third quarters which
reflects the warmer weather conditions in the Northeast.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1994, the Company's operations used
$37.0 million of cash primarily to fund operating losses and working capital
requirements. From September 1992 to February 1994, the Company had no
available lines of credit and experienced significant cash outflow as a result
of operating losses coupled with adverse publicity associated with the
restatement of its first and second quarter 1992 financial statements, defaults
under its loan and note agreements and senior management changes. In February
1994, the Company obtained a $35 million debtor-in-possession credit facility
("DIP Loan") from Belmont Capital Partners II, L.P., an affiliate of Fidelity
Investments ("Belmont"), which is described in greater detail below.
The Company's consolidated cash balance increased by $0.2 million from $39.5
million at December 31, 1993 to $39.7 million at September 30, 1994. The
September 30, 1994 cash balance included $1.2 million in foreign bank accounts
and reflected $25 million borrowed under the DIP Loan. The foreign bank
accounts are available only to support the Company's foreign operations. The
negative operating cash flow reflects continued pressure to accelerate payment
of accounts payable and the delay on the part of customers in payment of
accounts receivable caused by the Company's weakened financial condition.
Additionally, recurring operating losses, restructuring costs, professional
fees relating to the Company's Chapter 11 proceeding and shareholder litigation
and cash deposits made to secure insurance obligations have adversely affected
cash flow.
As a consequence of the Company's financial difficulties and as part of its
business restructuring plan, an asset disposition program was initiated in the
third quarter of 1992 with respect to the Company's non-core
21
<PAGE>
businesses and certain other assets to raise cash for working capital and to
reduce debt. For the nine months ended September 30, 1994, the Company received
net cash proceeds of $4.5 million from the sale of the Company's minority
ownership in an energy and environmental business, other non-core businesses
and other assets. In the nine month period ended September 30, 1993, the
Company received net proceeds of $40.8 million primarily from the sale of its
Software House subsidiary and its U.S. information services business. Such
proceeds were used for working capital requirements and to repay debt.
In February 1994 the Company and substantially all of its subsidiaries
entered into an agreement with Belmont which provided for the DIP Loan. The DIP
Loan agreement provides a credit facility to the Company of up to $35 million
at an interest rate of 12% per annum during the period of the Company's Chapter
11 proceeding. Belmont will also receive, as additional interest, a percentage
of the securities to be issued under the Plan of Reorganization. The DIP Loan
is secured by a first lien on substantially all of the assets of the Company
and most of its subsidiaries. As of November 14, 1994, the Company had drawn
down $30 million under the DIP Loan of which $25 million was outstanding at
September 30, 1994.
The Company is in default of certain covenants of the DIP Loan. Pursuant to
written waivers of default, dated April 27, 1994, May 6, 1994, August 2, 1994
and November 4, 1994, the Company has been permitted by Belmont to draw on its
line of credit. Under the circumstances, any additional borrowings under the
DIP Loan will require further waivers of default.
The DIP Loan is to be repaid upon the earlier of the effective date of the
Plan of Reorganization or February 15, 1995. The Company is actively
negotiating the terms of a $45 million working capital facility. The proceeds
of this new facility will be used to refinance the Company's borrowings under
the DIP Loan and to provide working capital for the reorganized Company and its
subsidiaries. There can be no assurance that the Company will be able to obtain
a new working capital facility or, if so, the amount of any such facility.
Obtaining such a facility is a condition to the Company's Plan of
Reorganization becoming effective.
In August 1993, the Company sold substantially all the assets of its U.S.
information services subsidiary to ENTEX Information Services, Inc. ("ENTEX"),
a newly organized company owned by a private investor and the management of the
U.S. information services subsidiary. As part of the consideration for its
sale, the Company received warrants to buy up to 10% of the purchaser's common
stock for a nominal amount. The Company has ascribed no value to these
warrants. Additionally, ENTEX assumed substantially all the debt and other
liabilities and obligations relating to the ongoing operations of the U.S.
information services subsidiary; however, that subsidiary retained certain
lease obligations and certain tax liabilities. The Company was also released
from approximately $210 million of its guarantees of indebtedness and similar
obligations of the subsidiary. In October 1993, that subsidiary filed a
voluntary petition under Chapter 7 of the U.S. Bankruptcy Code.
As described in Notes A and C to the Company's condensed consolidated
financial statements, the Company is in default of covenants contained in its
loan and note agreements under which approximately $501.0 million was
outstanding at September 30, 1994 and December 31, 1993 and included in "Pre-
consent Date Bankruptcy Claims Subject to Compromise" and "Debt in default",
respectively, in the accompanying condensed consolidated balance sheets. The
$501.0 million outstanding included $484.4 million owed to senior lenders and
$16.6 million owed to subordinated note and debenture holders. With respect to
the defaulted senior loan agreements, "standstill arrangements" were negotiated
which covered the period from mid-December of 1992 through April 30, 1993.
Under the standstill arrangements, the senior lenders agreed, in principle, to
forebear the receipt of principal and to accept payment of interest during such
periods at reduced rates ranging from 4% to 6.75%. Since April 30, 1993, no
standstill arrangement has been in place and the Company has ceased making
principal and interest payments. However, interest continued to accrue under
the terms of the loan and note agreements which in certain circumstances
include default rate premiums of an additional 2% and, in one case, 4% until
December 21, 1993, the date on which an involuntary bankruptcy petition was
filed against the Company. At September 30, 1994 and December 31, 1993, accrued
interest on defaulted debt was $43.3 million and was included in "Pre-consent
Date Bankruptcy
22
<PAGE>
Claims Subject to Compromise" and "Other accrued expenses and liabilities",
respectively, in the condensed consolidated balance sheets. The Company has
pledged to the holders of its senior notes and bank indebtedness the common
stock of five subsidiaries held for sale and certain proceeds from the sale of
these subsidiaries. Two of these subsidiaries were sold in 1994. The combined
net book value of the remaining subsidiaries was $16.2 million at September 30,
1994.
The Company has not made scheduled semiannual interest payments since
September 1, 1993 with respect to its 7% Convertible Subordinated Debentures.
All interest payments on these debentures were previously paid when due. The
outstanding principal balance of the debentures at September 30, 1994 and
December 31, 1993, in the amount of approximately $7.0 million, is included in
"Pre-consent Date Bankruptcy Claims Subject to Compromise" and "Debt in
default", respectively, in the accompanying condensed consolidated balance
sheets.
The Company's Plan of Reorganization was confirmed by the U.S Bankruptcy
Court on September 30, 1994. The Plan of Reorganization provides that the
Company's creditors, other than subordinated note and debenture holders, will
exchange approximately $605 million of holding company debt for 100% of the
equity and approximately $141 million of notes of the reorganized Company and
approximately $48 million of notes of a newly organized subsidiary. Holders of
approximately $18 million of subordinated debt will exchange their notes for
warrants to purchase the common stock of the reorganized Company. Additionally,
holders of the Company's common and preferred stock and warrants of
participation will have their JWP securities canceled and will receive warrants
to purchase the common stock of the reorganized Company. With the exception of
approximately $68 million of new notes to be due in 2001, substantially all of
the new debt is expected to be paid from the proceeds of assets sales.
The Company expects to make distributions under its Plan of Reorganization
before the end of 1994. The actual date on which the Company's Plan of
Reorganization will become effective is subject to certain conditions to the
Plan being satisfied. The conditions include obtaining a new working capital
line which is in the process of being negotiated. However, there can be no
assurance that the Plan of Reorganization will become effective or, if so, its
timing.
Only JWP INC., the parent holding company, is the subject of the proceeding
under Chapter 11. The Company's mechanical/electrical, water supply and other
operating subsidiaries are not parties to this proceeding. All obligations of
the operating subsidiaries continue to be paid in the ordinary course of
business.
The Company's Canadian subsidiary, Comstock Canada, is negotiating with a
Canadian bank to obtain a Canadian $7.5 million (approximately U.S. $5.6
million) secured demand loan facility. The new credit facility would include
bank loans, letters of credit and indemnity arrangements, would be secured by
all the assets of Comstock Canada and would be guaranteed by the Company. The
new credit facility would replace an expired demand secured facility, also
guaranteed by the Company, under which the lender has permitted Comstock Canada
to continue to borrow, subject to certain collateral requirements, currently
limited to approximately Canadian $1.0 million. Borrowings during 1994 have
generally ranged from U.S. $1 million to $3 million. There can be no assurance
that Comstock Canada will obtain a new credit facility or, if so, the amount of
any such facility or whether the lender will continue to grant credit to
Comstock Canada without a new definitive credit facility in place.
In June 1994 a number of the Company's U.K. subsidiaries entered into a
demand credit facility with a U.K. bank for an aggregate credit line of
(Pounds)14.1 million (approximately U.S. $21.7 million). The credit facility,
as amended in September 1994, consists of the following components with the
individual credit limits as indicated: an overdraft line of up to (Pounds)8.0
million (approximately U.S. $12.2 million), a facility for the issuance of
guarantees, bonds and indemnities of up to (Pounds)7.4 million (approximately
U.S. $11.4 million) and other credit facilities of up to (Pounds)0.75 million
(approximately U.S. $1.2 million). The overdraft facility decreases to
(Pounds)6.0 million (approximately $9.2 million) as of December 31, 1994. The
facility is secured by substantially all of the assets of the Company's
principal U.K. subsidiaries. The overdraft facility provides for interest at
the
23
<PAGE>
U.K. bank reference rate (5 3/4% as of September 30, 1994) plus 3% subject to a
minimum of 8%. The Company expects that this credit facility which expires in
December 1994 will be extended. However, there can be no assurance that this
credit facility will be extended or, if so, its timing.
For the nine months ended September 30, 1994 the Company's U.K. subsidiaries
drew down net proceeds of $7.4 million under this credit line.
JWS, a subsidiary of the Company carried in "Net assets held for sale" in the
accompanying condensed consolidated balance sheets, had two revolving credit
agreements each of which permitted unsecured borrowings of up to $10.0 million
with interest rates equal to the prime rate (7 3/4% as of September 30, 1994).
Both agreements expired on April 30, 1994 and the borrowings thereunder were
permitted by the lenders to remain outstanding. As of September 30, 1994 and
December 31, 1993, JWS had borrowings under the agreements aggregating $4.8
million. These borrowings are reflected as current liabilities in the condensed
balance sheet of "Net assets held for sale" which is presented in Note G to the
condensed consolidated financial statements. On November 4, 1994, JWS and Sea
Cliff Water Company ("SCW"), another water supply subsidiary of the Company,
entered into a new credit agreement providing for a credit facility to JWS of
$17.9 million and for a credit facility to SCW of $2.1 million at an interest
rate based upon either prime rate, LIBOR plus 5/8% or bid rate. These credit
facilities will expire November 3, 1995.
The Company's mechanical/electrical services business does not require
significant commitments for capital expenditures.
On December 22, 1993, JWS, the New York State Consumer Protection Board,
Nassau County, certain other governmental bodies and a consumer advocate group
entered into an agreement that ended several regulatory and legal proceedings
involving JWS which are referred to above and in Note J to the accompanying
condensed consolidated financial statements. This agreement was approved by the
New York State Public Service Commission (the "PSC") on February 2, 1994. The
agreement provides for, among other things, a three year moratorium on general
rates charged by JWS, resolution of economic issues raised by the PSC arising
from its 1992 audit of JWS, settlement of related litigation and the dismissal
of an action brought against JWS by Nassau County of the State of New York
alleging violations of the Racketeer Influenced and Corrupt Organizations Act
and common law fraud. Among other things, JWS, in consideration of avoided
litigation and other costs associated with the proceedings, agreed to make
payments over the period January 1994 through December 1996 totaling $11.7
million to customers in Nassau and Queens Counties in the State of New York.
The agreement also provides that JWS, subject to limited specified exceptions,
will not seek to have a general rate increase become effective prior to January
1, 1997 and will use its best efforts to bring about the separation of Jamaica
Water Securities Corp., a subsidiary of the Company which holds substantially
all the common stock of JWS, from the Company.
At September 30, 1994, the Company and a wholly-owned captive insurance
subsidiary ("Defender") had letters of credit outstanding totaling $36.4
million which in effect secure their workers' compensation, automobile and
general liability insurance obligations. The letters of credit were intended to
serve as collateral for the obligations of Defender to reimburse the Company's
unrelated insurance carriers for claims paid with respect to certain years'
insurance programs. A total of $34.9 million of such letters of credit expire
in December 1994 and $1.5 million of such letters of credit expire in February
1995. Since October 1992, neither the Company nor Defender has been able to
obtain additional letters of credit to secure their insurance obligations and,
as a result, have been required to make cash collateral deposits with an
unrelated third party insurance company to secure those types of obligations.
The deposits totaled $34.0 million and $21.3 million as of September 30, 1994
and December 31, 1993, respectively, and are included under the caption
"Insurance cash collateral" in Other Assets in the accompanying condensed
consolidated balance sheets. The need to provide cash collateral has adversely
affected the Company's cash flow.
The letters of credit, described above, will be drawn upon by the unrelated
insurance carriers and the Company's obligations to Defender which were pledged
as collateral to the banks issuing such letters of credit,
24
<PAGE>
have been impaired in the Chapter 11 proceeding as well as any related Company
obligations to those banks. Accordingly, neither the Company nor Defender will
be liable to the banks issuing the letters of credit for past or future draws
thereunder. Beginning in February 1994, Defender ceased making payments for the
amounts owed to the unrelated insurance carriers, which obligations are in
effect secured by the letters of credit, and the Company's insurance carriers
have commenced partial draw downs against certain of the letters of credit.
Approximately $8.5 million had been drawn down against these letters of credit
through October 31, 1994.
In 1993, the Company's French and Belgian information services subsidiaries
filed petitions in their respective countries seeking relief from their
creditors. The French and Belgian subsidiaries have outstanding unsecured
credit facilities guaranteed by the Company which aggregate approximately $5.9
million. Their creditors filed claims with the U.S. Bankruptcy Court for this
guaranteed debt in the aggregate amount of $4.6 million.
The Company has not paid dividends on its preferred stock since September
1992. The Company ceased accruing dividends on its preferred stock on December
21, 1993, the date on which an involuntary bankruptcy petition was filed
against the Company. Cumulative unpaid dividends at September 30, 1994 and
December 31, 1993 aggregate $2.3 million.
The Company has substantial net operating loss carryforwards ("NOL") for U.S.
Federal income tax purposes. If the Company exchanges newly issued equity in
exchange for debt as contemplated by the Plan of Reorganization, a significant
portion of the NOL may not be available to reduce future U.S. taxable income.
Additionally, due to recent changes in the U.S. Federal income tax laws, the
timing of any such reorganization could further impact and reduce the amount of
the NOL. At September 30, 1994, the Company has provided a valuation allowance
to offset for the full amount of the net deferred tax asset arising from book
and tax differences including those from the NOLs.
In September 1992, the PSC issued an order that resulted in the suspension of
dividend payments to the Company by JWS for the last two quarters of 1992 and
for the year ended December 31, 1993. As a result of the settlement agreement
described above in "Discontinued Operations", JWS recommenced dividend payments
in April 1994.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS 112). The cumulative effect of adopting SFAS 112
was to record a charge of $2.1 million or $0.05 per share as of January 1,
1994. Such amount has been reflected in the accompanying condensed consolidated
statement of operations under the caption "Cumulative Effect of Change in
Method of Accounting for Postemployment Benefits." The adoption of this
standard will not materially affect the 1994 loss before cumulative effect of
change in method of accounting for post-employment benefits.
25
<PAGE>
JWP INC. AND SUBSIDIARIES
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information with respect to certain legal proceedings involving the
Company is described in Part 1, Item I, Notes to Condensed Consolidated
Financial Statements, Note J--Legal Proceedings, which is hereby incorporated
herein by reference thereto.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) The Company is in default under its senior debt agreements. See Part 1,
Item 1, Notes to Condensed Consolidated Financial Statements, Note C--
Debt in Default, which is hereby incorporated herein by reference
thereto.
(b) The Company is in arrearages in the payment of dividends on its preferred
stock. See Part 1, Item 1, Notes to Condensed Consolidated Financial
Statements, Note B--Net Loss Per Share, which is hereby incorporated
herein by reference thereto.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. Exhibit No. 27; Article 5, Financial Data Schedule; Page.
(b) Report on Form 8-K filed during the quarter ended September 30, 1994: 8-
K/A, Amendment No. 3, July 1, 1994.
26
<PAGE>
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.
JWP INC.
_____________________________________
(Registrant)
Date: November 21, 1994 Frank T. MacInnis
_____________________________________
Frank T. MacInnis Chairman of the
Board of Directors, President and
Chief Executive Officer
Date: November 21, 1994 Leicle E. Chesser
_____________________________________
Leicle E. Chesser Executive Vice
President and Chief Financial
Officer
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 40
<SECURITIES> 0
<RECEIVABLES> 489
<ALLOWANCES> 29
<INVENTORY> 73
<CURRENT-ASSETS> 666
<PP&E> 94
<DEPRECIATION> 58
<TOTAL-ASSETS> 829
<CURRENT-LIABILITIES> 493
<BONDS> 2
<COMMON> 4
0
21
<OTHER-SE> (349)
<TOTAL-LIABILITY-AND-EQUITY> 829
<SALES> 1,313
<TOTAL-REVENUES> 1,313
<CGS> 1,192
<TOTAL-COSTS> 1,192
<OTHER-EXPENSES> 10
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> (28)
<INCOME-TAX> 1
<INCOME-CONTINUING> (29)
<DISCONTINUED> 9
<EXTRAORDINARY> 0
<CHANGES> (2)
<NET-INCOME> (22)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
