<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 March 31, 1993
--------------
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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
SIX INTERNATIONAL DRIVE, RYE BROOK, N.Y. 10573
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(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 No X
--- ---
Number of shares of Common Stock outstanding as of the close of business on
September 30, 1994: 41,523,993 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 March 31, 1993 and 1992............................... 3
Condensed consolidated balance sheets as of March 31, 1993
and December 31, 1992....................................... 4
Condensed consolidated statements of cash flows--three months
ended March 31, 1993 and 1992............................... 5
Notes to condensed consolidated financial statements......... 6
Item 2 Management's discussion and analysis of interim financial
information.................................................. 13
PART II--OTHER INFORMATION
Item 3 Defaults Upon Senior Securities.............................. 21
Item 6 Exhibits and Reports on Form 8-K............................. 21
</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 MARCH 31,
------------------------------
1993 1992
-------------- --------------
<S> <C> <C>
REVENUES....................................... $ 563,879 $ 582,580
-------------- --------------
COSTS AND EXPENSES
Cost of sales................................ 505,325 502,111
Selling, general and administrative.......... 57,870 83,210
Restructuring charges........................ -- 2,200
-------------- --------------
563,195 587,521
-------------- --------------
OPERATING INCOME (LOSS)........................ 684 (4,941)
Interest expense, net........................ (12,203) (10,419)
-------------- --------------
(LOSS) BEFORE INCOME TAXES..................... (11,519) (15,360)
Provision (credit) for income taxes.......... 311 (7,538)
-------------- --------------
(LOSS) FROM CONTINUING OPERATIONS.............. (11,830) (7,822)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS..... 1,718 (9,712)
CUMULATIVE EFFECT OF CHANGE IN METHOD OF
ACCOUNTING FOR INCOME TAXES................... -- 4,315
-------------- --------------
NET (LOSS)..................................... $ (10,112) $ (13,219)
============== ==============
(LOSS) INCOME PER SHARE
Continuing operations........................ $ (.30) $ (.20)
Discontinued operations...................... .04 (.25)
Cumulative effect of change in method of
accounting for income taxes................. -- .11
-------------- --------------
Net (loss)................................... $ (.26) $ (.34)
============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
JWP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1993 1992
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................... $ 40,698 $ 86,836
Accounts receivable, net............................ 444,817 458,273
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... 75,853 67,817
Inventories......................................... 6,011 6,618
Prepaid expenses and other.......................... 10,906 9,746
Net assets held for sale............................ 51,979 32,894
--------- ----------
TOTAL CURRENT ASSETS.................................. 630,264 662,184
--------- ----------
NET ASSETS HELD FOR SALE.............................. 80,376 85,611
--------- ----------
INVESTMENTS, NOTES AND OTHER LONG-TERM RECEIVABLES.... 23,314 22,440
--------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET.................... 46,928 51,087
--------- ----------
OTHER ASSETS
Excess of cost of acquired businesses over net as-
sets, less amortization............................ 60,139 61,542
Miscellaneous....................................... 27,256 24,720
--------- ----------
87,395 86,262
--------- ----------
TOTAL ASSETS.......................................... $ 868,277 $ 907,584
========= ==========
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Notes payable....................................... $ 7,571 $ 6,452
Current maturities of long-term debt and capital
lease obligations.................................. 2,648 2,634
Debt in default..................................... 501,007 501,007
Accounts payable.................................... 211,913 224,840
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... 112,761 125,764
Other accrued expenses and liabilities.............. 152,253 166,398
--------- ----------
TOTAL CURRENT LIABILITIES............................. 988,153 1,027,095
--------- ----------
LONG-TERM DEBT........................................ 3,308 4,111
--------- ----------
OTHER LONG-TERM OBLIGATIONS........................... 63,390 52,357
--------- ----------
SHAREHOLDERS' (DEFICIT)
Preferred Stock, $1 par value, 25,000,000 shares au-
thorized, 425,000 shares of Series A issued and
outstanding........................................ 21,250 21,250
Common Stock, $.10 par value, 75,000,000 shares au-
thorized, 40,855,250 and 40,754,051 outstanding,
excluding 586,076 and 591,775 treasury shares...... 4,085 4,075
Warrants of Participation........................... 576 576
Capital surplus..................................... 203,579 203,505
Cumulative translation adjustment................... (4,045) (3,930)
(Deficit)........................................... (412,019) (401,455)
--------- ----------
TOTAL SHAREHOLDERS' (DEFICIT)......................... (186,574) (175,979)
--------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT)......... $ 868,277 $ 907,584
========= ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
JWP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1993 1992
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net (Loss)................................... $(10,112) $(13,219)
Non-cash expenses............................ 12,198 36,272
Cumulative effect of accounting change....... -- (4,315)
Change in operating assets and liabilities,
excluding the effect of businesses disposed
of and acquired............................. (29,029) (52,009)
-------------- --------------
NET CASH (USED IN) OPERATIONS.................. (26,943) (33,271)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt................. -- 76,100
Proceeds from issuance of common stock and
exercise of stock options................... -- 1,518
Payments of long-term debt and capital lease
obligations................................. (2,047) (15,600)
Preferred stock dividends.................... -- (452)
(Decrease) in notes payable, net............. (5,838) (16,780)
-------------- --------------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES.................................... (7,885) 44,786
-------------- --------------
CASH FLOWS FROM INVESTMENT ACTIVITIES
Acquisition of businesses, net of cash
acquired.................................... -- (4,940)
Purchase of property, plant and equipment.... (5,056) (9,140)
Purchase of environmental facilities......... -- (9,891)
Proceeds from sale of businesses and other
assets...................................... 4,872 --
Increase in cash balances of businesses held
for sale.................................... (11,126) --
Other, net................................... -- (3,084)
-------------- --------------
NET CASH (USED IN) INVESTMENT ACTIVITIES....... (11,310) (27,055)
-------------- --------------
(DECREASE) IN CASH AND CASH EQUIVALENTS........ (46,138) (15,540)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD........................................ 86,836 76,593
-------------- --------------
CASH AND CASH EQUIVALENTS AT MARCH 31.......... $ 40,698 $ 61,053
============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
JWP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that JWP
INC. (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 working capital deficit of $357.9 million after the
reclassification of long-term debt in default and a shareholders' deficit of
$186.6 million at March 31, 1993. 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 together
comprised approximately 20% of the Company's 1993 revenues of those
mechanical/electrical companies which 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. However, the absence of
available surety bonding for these subsidiaries has not resulted in a material
reduction in their backlog. The Company and these subsidiaries are actively
engaged in discussions with another surety bonding company which has undertaken
due diligence for the purpose of entering into 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 would materially adversely affect the Company.
The Company is focused on returning to profitability and restructuring its
operations primarily around a smaller international mechanical/electrical
services business. The Company has formulated a business restructuring plan
which includes the sale of its information services business, water supply
business, several non-core businesses and certain mechanical/electrical
services operations and the closing or downsizing of 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 plan.
As described in Note C, the Company is in default of covenants contained in
its bank revolving credit agreement, senior note agreements, 12% subordinated
note agreements and its 7 3/4% Convertible Subordinated Debentures and is
presently in a Chapter 11 proceeding. The outstanding amount of such debt in
default at December 31, 1993 was $501.0 million.
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 noteholders, will
6
<PAGE>
exchange approximately $605 million of holding company debt for 100% of the
equity of the reorganized Company and for approximately $136 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 common stock in 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 common stock in the reorganized
Company. With the exception of approximately $62 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 is working to make distributions under its Plan of Reorganization
as soon as possible in the Fall of 1994. The actual date on which the Company
will emerge from Chapter 11 is subject to certain conditions to the Plan of
Reorganization becoming effective being satisfied, including the obtaining of 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/electrical services, water supply and other
operating subsidiaries are not parties to the Chapter 11 proceeding. All
operating subsidiary obligations 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 the then pending rate-
related matters and litigation which are described in Note H. In December 1993,
the Company's 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, the Company reinstated its plan of sale in the
first quarter of 1994. 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 subsidiaries. Operating results for all periods presented have been
reclassified to reflect the Company's information services business and water
supply business as discontinued operations (see Note D).
As indicated above, the Company has developed a business restructuring plan
which also contemplates the sale of certain of its mechanical/electrical
services business units, its water supply business and certain other non-core
businesses. The net assets of businesses to be sold have been classified in the
condensed consolidated balance sheets as of March 31, 1993 and December 31,
1992 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.
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, a consolidated class action lawsuit for
unspecified damages was filed against the Company, certain former officers and
directors, four current directors, a former subsidiary company 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 other named defendants. The Company has denied the material
allegations contained in the complaint. The parties are now engaged in the
discovery proceedings. However, under the terms of the Plan of Reorganization,
claimants in the class action litigation will not be entitled to recover
damages, if any, from the Company, although they will receive warrants to
purchase common stock of the reorganized Company.
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 months ended March 31, 1993 are not
necessarily indicative of the results to be expected for the year ended
December 31, 1993. 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, 1992.
7
<PAGE>
NOTE B NET (LOSS) PER SHARE
Net loss per common share for the three month period ended March 31, 1993 and
1992 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 (40,790,305 and
40,396,534 for the three months ended March 31, 1993 and 1992, respectively).
For 1993 and 1992, per common share loss from continuing operations and net
loss reflect dividends of $0.452 million for the three month periods which were
paid or accrued on the Company's preferred stock. Cumulative unpaid dividends
through March 31, 1993 aggregate $0.9 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 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. As a result, the entire amount of such notes and bank
indebtedness has been classified in the accompanying condensed consolidated
balance sheets as "Debt 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 and, accordingly, such
debentures have been classified as "Debt in default" in the accompanying
condensed consolidated balance sheets.
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 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 March 31, 1993 and December 31, 1992, accrued
interest applicable to debt in default was $9.3 million and $5.8 million,
respectively. Such amounts are included in "Other accrued expenses and
liabilities" 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 certain subsidiaries held for sale and certain proceeds
from the sale of one of those subsidiaries which have a combined net book value
of $21.5 million as of March 31, 1993.
Certain of the Company's loan agreements contain covenants which restrict its
ability to pay dividends on its common stock. As indicated, the Company is in
default under these loan agreements and is in a Chapter 11 proceeding.
See Note A with respect to the contemplated exchange of the debt in default
for new debt and equity securities under the Plan of Reorganization, which was
confirmed on September 30, 1994 by the U.S. Bankruptcy Court.
8
<PAGE>
NOTE D DISCONTINUED OPERATIONS
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 its U.S. information services business. The
assets of the information services group consist primarily of inventory held
for resale and accounts receivable. Under the terms of the sale agreement, the
purchaser assumed the debt and other liabilities relating to the 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. At March 31, 1993 and December 31, 1992 the net assets
of the information services group are included in "Net assets held for sale" in
the accompanying condensed consolidated balance sheets.
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 the 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 Public Service Commission on February 2,
1994. Accordingly, the Company reinstated its plan of sale in the first quarter
of 1994. The financial statements for all periods presented reflect the water
supply business as discontinued operations.
See Note H 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.
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 $58.0
million and $57.2 million at March 31, 1993 and December 31, 1992,
respectively, are classified as a long-term asset in the accompanying condensed
consolidated balance sheets under the caption "Net assets held for sale".
Combined operating results of discontinued operations are as follows (in
thousands):
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Revenues................................................... $408,057 $470,694
Costs and expenses......................................... 400,924 478,381
-------- --------
Operating income (loss).................................... 7,133 (7,687)
Interest expense........................................... (5,415) (5,237)
-------- --------
Income (loss) before taxes................................. 1,718 (12,924)
(Credit) for income taxes.................................. -- (3,212)
-------- --------
Income (loss) from discontinued operations................. $ 1,718 $ (9,712)
======== ========
</TABLE>
NOTE E OTHER BUSINESSES SOLD AND NET ASSETS HELD FOR SALE
The Company has sold its remaining rental equipment business and certain
other assets in the first three months of 1993 for cash proceeds of $4.9
million. 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/electrical operations. The operating
results of these businesses are included in (loss) income from continuing
operations.
9
<PAGE>
Revenues and operating income of the other businesses sold and held for sale
for the three months ended March 31, 1993 and 1992 are as follows (in
thousands):
<TABLE>
<CAPTION>
1993 1992
------- --------
<S> <C> <C>
Revenues.................................................... $98,746 $133,108
Operating Income............................................ 182 4,016
</TABLE>
The condensed balance sheet relating to net assets held for sale including
discontinued operations as of March 31, 1993 is as follows (in thousands):
<TABLE>
<S> <C>
Cash................................................................ $ 36,423
Accounts receivable, net............................................ 324,614
Costs and estimated earnings in excess of billings.................. 34,530
Inventories......................................................... 184,711
Other current assets................................................ 26,110
--------
Property, plant and equipment, net.................................. 195,670
Other assets........................................................ 25,134
--------
$827,192
========
</TABLE>
<TABLE>
<S> <C>
Notes payable....................................................... $ 44,422
Current maturities of long-term debt and capital lease obligations.. 8,390
Accounts payable.................................................... 345,891
Billings in excess of costs and estimated earnings.................. 19,343
Other accrued expenses.............................................. 159,378
--------
577,424
Long-term debt...................................................... 74,854
Other long-term liabilities......................................... 42,559
Net assets held for sale--current................................... 51,979
Net assets held for sale--long-term................................. 80,376
--------
$827,192
========
</TABLE>
NOTE F INSURANCE RESERVES
The Company is primarily insured with a wholly-owned captive insurance
subsidiary ("Defender") for its workers' compensation, automobile and general
liability insurance. At March 31, 1993, the Company and Defender had letters of
credit outstanding totaling $38.2 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. Letters of credit of $1.8
million expired subsequent to March 31, 1993. 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 $11.2 million and $7.7
million as of March 31, 1993 and December 31, 1992, respectively, and are
classified as a long-term asset in the accompanying condensed consolidated
balance sheets under the caption "Miscellaneous Assets."
NOTE G INCOME TAXES
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The
cumulative effect of adopting SFAS 109 was to record an income tax benefit of
$4.3 million or $0.11 per share as of January 1, 1992. Such amount has been
reflected in the Condensed Consolidated Statements of Operations under the
caption "Cumulative Effect of Change in Method of Accounting for Income Taxes."
The Company has substantial net operating loss carry-forwards ("NOL") for
U.S. income tax purposes expiring in years through 2008. As of March 31, 1993
the Company has provided a valuation allowance for the full amount of such
NOLs.
NOTE H 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.
10
<PAGE>
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 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, under the Plan of Reorganization, no
damages will be recoverable from the Company by claimants in the class action
litigation, although they will receive warrants to purchase common stock of the
reorganized Company.
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 are
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. 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 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.
11
<PAGE>
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 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.
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.
Such amount was provided for as a loss in the fourth quarter of 1992.
As described in Note D, 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.
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 I ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 106, "Accounting For Postretirement Benefits
Other Than Pensions" (SFAS 106). The estimated present value of the accumulated
postretirement benefit obligations under SFAS 106 approximated $7.0 million at
January 1, 1993. The adoption of SFAS 106 did not have a material impact upon
the Company's consolidated results of operations.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 112 "Employers' Accounting for Postemployment
Benefits" (SFAS 112) which the Company adopted effective January 1, 1994. The
estimated present value of the Company's accumulated post-employment benefit
obligations under SFAS 112 is $2.1 million as of January 1, 1994, which
includes obligations for short-term disability and employee severance benefits.
12
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL INFORMATION
RESULTS OF OPERATIONS
Revenues for the first quarter of 1993 were $563.9 million compared to $582.6
million in the first quarter of 1992. In the first quarter of 1993 the Company
incurred a net loss of $10.1 million or $0.26 per share compared to a net loss
of $13.2 million or $0.34 per share in the first quarter of 1992. Loss from
continuing operations in the first quarter of 1993 was $11.8 million or $0.30
per share compared to a loss of $7.8 million or $0.20 per share in the year
earlier period. In the first quarter of 1993 income from discontinued
operations was $1.7 million or $0.04 per share compared to a loss of $9.7
million or $0.25 per share in the first quarter of 1992. The net loss in the
first quarter of 1992 includes an income tax benefit of $4.3 million or $0.11
per share as a result of the adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes".
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 a
newly organized subsidiary, all of its 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 also will receive warrants to
purchase common stock of the reorganized Company in exchange for their equity
interests. 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. Following the Company's public announcement in
October 1993 of its then proposed reorganization plan, the New York Stock
Exchange took action resulting in the delisting of the Company's common stock.
As of March 31, 1993, the Company had negative net worth of $186.6 million
and a working capital deficit of $357.9 million after the reclassification of
debt in default aggregating $501.0 million. The Company continues to fail to
generate sufficient cash to fund its operations and service its 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
a duration 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 together
comprised approximately 20% of the Company's 1993 revenues of those
mechanical/electrical companies which 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 surety bonds. However, the absence of
available surety bonding for these subsidiaries has not resulted in a material
reduction in their backlog. The Company and these subsidiaries are actively
engaged in discussions with another surety bonding company which has undertaken
due diligence for the purpose of entering into 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 would materially adversely affect 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
13
<PAGE>
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 proceedings,
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 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, under
the terms of the Plan of Reorganization, claimants in the class action
litigation will not be entitled to recover damages, if any, from the Company,
although they will receive warrants to purchase common stock of the reorganized
Company. See Note H 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 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
action against the Company. The Company is currently engaged in discussions
with the SEC's staff concerning a possible consensual resolution of the matter.
MECHANICAL/ELECTRICAL SERVICES
Revenues of the mechanical/electrical services business for the quarter ended
March 31, 1993 decreased by 3.2% to $563.9 million from $582.6 million in 1992.
This decrease of approximately $19 million is primarily due to the loss of
revenues from the energy and environmental businesses sold during 1992 coupled
with lower revenues from those companies being held for sale. Those mechanical
and electrical business units which the Company plans to retain had a net
increase in revenues of approximately $16 million principally from those
business units operating in the Midwest and West regions of the United States.
Operating income in the first quarter of 1993 was $6.0 million compared to
operating loss of $0.2 million in the first quarter of 1992, which is discussed
below in operating results. 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 quarters
ended March 31, 1993 and 1992 were $98.7 million and $133.1 million,
respectively. For the quarters ended March 31, 1993 and 1992, such business
units had operating income of $0.2 million and $4.0 million, respectively, also
discussed below.
The operating results in both 1993 and 1992 reflect, among other things, the
continued negative impact of the recession, oversupply in the commercial real
estate market which has caused intense competition for new commercial work and
reduced retrofit and service activities in the U.S. As a result of the
reduction of commercial work, many of the Company's mechanical/electrical
services business units pursued noncommercial 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 1993 were
also adversely affected by the continuing recessions in the United
14
<PAGE>
Kingdom and Canada, but were not impacted by unusual write-downs and write-offs
that affected the 1992 margins. The operating results for the first quarter of
1992 include charges of $16.8 million applicable to: (a) provisions for losses
on accounts receivable, due partially to the impact of the recession on the
financial condition of customers of the Company's mechanical/electrical
services business ($7.4 million), (b) the Company's discontinued lease and
project finance subsidiary ($2.7 million), (c) termination of certain municipal
solid waste to energy operations ($2.2 million, which amount is included in
restructuring charges in the accompanying statement of operations), and (d)
reorganization of the Company's U.S. mechanical/electrical services business
($4.5 million). The above charges are the primary reason for the decline in
selling, general and administrative expenses (excluding general corporate and
other expenses which are discussed below), to $52.6 million in 1993 from $78.5
million in 1992.
At March 31, 1993, the mechanical/electrical services business backlog was
$1.5 billion compared to $1.6 billion at December 31, 1992. The Company's
overall backlog in its North American regions and in the United Kingdom has
stabilized at approximately $1.0 billion through June 1994. Such backlog
included $1.2 billion at March 31, 1993 and $1.3 billion at December 31, 1992
relating to companies which the Company currently intends to retain. A
reduction in backlog was experienced in each business unit operating in the
Company's North American regions and in the United Kingdom and 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 continuing recessions in the North American and overseas
construction markets. 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. Additionally, the surety bonding companies
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 March 31, 1993
under the caption "Excess of cost of acquired businesses over net assets, less
amortization" is $60.1 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, goodwill and other write-offs might be required depending upon then
existing market conditions and the future business prospects of the retained
units.
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 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 H) 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, the
Company reinstated its plan of sale in the first quarter of 1994. The condensed
consolidated financial statements reflect the water supply business as a
discontinued operation for all periods presented. See Note H 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.
In March 1993 the Company's Board of Directors approved the disposition of
the Company's U.S. information services businesses which was sold in August
1993. 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.
15
<PAGE>
Revenues and income (loss) of discontinued operations for the three months
ended March 31, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
REVENUES INCOME (LOSS)
----------------- --------------
1993 1992 1993 1992
-------- -------- ------ -------
<S> <C> <C> <C> <C>
Water Supply............................ $ 14,582 $ 14,025 $1,288 $ 207
Information Services.................... 393,475 456,669 430 (9,919)
-------- -------- ------ -------
$408,057 $470,694 $1,718 $(9,712)
======== ======== ====== =======
</TABLE>
The loss in 1992 applicable to the information services businesses reflects
recessionary factors, intense competition in the computer reseller industry and
difficulties encountered in integrating the operations of Businessland Inc.,
which was acquired in August 1991, with the information services pre-existing
operations. Also, in the first quarter of 1992, the information services
business recorded a charge of $4.0 million to increase its reserves for
obsolete and excess inventories.
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.
GENERAL CORPORATE AND OTHER EXPENSES
General corporate expenses for the quarters ended March 31, 1993 and 1992
were $5.3 million and $4.7 million, respectively. General corporate expenses
for the quarter ended March 31, 1993 include approximately $2.5 million related
to legal, consulting and other professional fees arising from the shareholder
litigation, a proposed debt restructuring and the restatement of the Company's
financial statements. Interest expense for the three months ended March 31,
1993 and 1992 was $12.2 million and $10.4 million, respectively. The increase
in interest expense in 1993 was primarily attributable to penalty interest on
debt in default.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1993, the Company's operations used
$26.9 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 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 decreased from $86.8 million at
December 31, 1992 to $40.7 million at March 31, 1993. The March 31, 1993 cash
balance included $4.9 million in foreign bank accounts. Such bank accounts are
only available to support the Company's foreign operations. The negative
operating cash flow reflects continued pressure to accelerate payments 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
debt restructuring negotiations and shareholder litigation adversely affected
cash flow. Cash deposits made to secure insurance obligations also negatively
impacted cash flow.
As a consequence of the Company's financial difficulties, an asset
disposition program was initiated in the third quarter of 1992 with respect to
the Company's non-core businesses and certain other assets to raise cash for
working capital and to reduce debt. For the three months ended March 31, 1993,
the Company received net cash proceeds of $4.9 million primarily from the sale
of its remaining rental equipment business and certain other assets. For the
year ended December 31, 1993, the Company received $43.4 million from the sale
of certain overseas information services business units, other non-core
businesses and other assets. Such proceeds were used primarily for working
capital requirements.
16
<PAGE>
In February 1994, the Company and substantially all of its subsidiaries
entered into an agreement with Belmont with respect to a DIP Loan. The DIP Loan
agreement provides a credit facility to the Company of $35 million at an
interest rate of 12% per annum during the period of the Company's Chapter 11
reorganization proceeding. Also, Belmont will 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 September 30, 1994, the Company
had drawn down $25 million under the DIP loan.
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 and August 2,
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 effective date of the Plan of
Reorganization. The Company is actively seeking a working capital facility of
approximately $40 million. 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. 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.
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 $210.0 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 agreements under which approximately $501.0 million was outstanding at
March 31, 1993 and December 31, 1992, including $484.4 million owed to senior
lenders and $16.6 million owed to subordinated note 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 respective loan 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 March 31, 1993 and December 31, 1992, accrued
interest on defaulted debt was $9.3 million and $5.8 million, respectively. The
Company has pledged to the holders of its senior notes and bank indebtedness
the common stock of certain subsidiaries held for sale and certain proceeds
from the sale of one of these subsidiaries. The combined net book value of
these subsidiaries was $21.5 million at March 31, 1993.
The Company has not made scheduled semiannual interest payments since
September 1, 1993 with respect to its 7 3/4% Convertible Subordinated
Debentures. All interest payments on such debt were previously paid when due.
The outstanding principal balance of the debentures at March 31, 1993 and
December 31, 1992 in the amount of approximately $7.0 million has been included
in "Debt in default" in the accompanying condensed consolidated balance sheets.
17
<PAGE>
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 holders, will exchange approximately
$605 million of holding company debt for 100% of the equity of the reorganized
Company and for approximately $136 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 common stock in 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 common stock in the reorganized Company. With the exception of
approximately $62 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 is working to make distributions under its Plan of Reorganization
as soon as possible in the Fall of 1994. The actual date on which the Company
will emerge from Chapter 11 is subject to certain conditions to the Plan
becoming effective being satisfied, including the obtaining of 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 operating
subsidiary obligations 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 and 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. At August 31,
1994, Comstock Canada had no outstanding bank loans. 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
consists of the following components with the individual credit lines as
indicated: an overdraft line of up to (Pounds)7.0 million (approximately U.S.
$10.7 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 is secured by substantially all of the assets
of the Company's principal U.K. subsidiaries. The overdraft facility provides
for interest at the U.K. bank reference rate (5 1/2% as of June 1994) plus 3%.
This credit facility will expire in December 1994.
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 1/4% at June 30, 1994). Both
agreements expired on April 30, 1994 and the borrowings thereunder have been
permitted by the lenders to remain outstanding. JWS is currently negotiating
new revolving credit agreements. As of March 31, 1993, JWS had equal borrowings
under each agreement 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 E to the condensed consolidated financial
statements.
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
18
<PAGE>
regulatory and legal proceedings involving JWS which are referred to above and
in Note H to the 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. JWS, in consideration of
avoided litigation and other costs associated with the proceedings, also 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 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 March 31, 1993, the Company and a wholly-owned captive insurance
subsidiary ("Defender") had letters of credit outstanding totaling $38.2
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. Letters of credit of $1.8 million have expired subsequent to March 31,
1993. 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 to an
unrelated insurance company to secure those types of obligations. The deposits
totaled $11.2 million and $7.7 million as of March 31, 1993 and December 31,
1992, respectively, and are included under the caption "Miscellaneous" 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 have been impaired in
the Chapter 11 proceeding as well as any related Company obligations to those
banks. 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 $7 million has been drawn down against these letters of credit
through September 30, 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. Such amount was provided for as a loss in the fourth quarter of 1992.
The Company has not paid dividends on its preferred stock since September
1992. Cumulative unpaid dividends through 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 its existing indebtedness
for newly issued equity 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 (See Note H).
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. Dividends paid by JWS in 1992 and 1991
amounted to $1.2 million and $2.0 million, respectively. As a result of the
19
<PAGE>
settlement agreement described above (See "Discontinued Operations"), JWS
recommenced dividend payments in 1994.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 112 "Employers' Accounting for Postemployment
Benefits" (SFAS 112) which the Company adopted on January 1, 1994. The
estimated present value of the Company's accumulated post-employment benefit
obligations under SFAS 112 is $2.1 million as of January 1, 1994, which
includes obligations for short-term disability and employee severance benefits.
20
<PAGE>
JWP INC. AND SUBSIDIARIES
PART II--OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) The Company is in default under its loan agreements. See Part 1, Item 1,
Notes to Condensed Consolidated Financial Statements, Note C--Debt in
Default, which is hereby incorporated herein by reference.
(b) The Company is in arrears 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.
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 March 31, 1993. None.
21
<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: October 7, 1994 Frank T. MacInnis
-------------------------------------
Frank T. MacInnis
Chairman of the Board of
Directors, President and
Chief Executive Officer
Date: October 7, 1994 Stephen H. Meyers
-------------------------------------
Stephen H. Meyers
Senior Vice President-Finance
(principal financial officer from
January 1993 to May 1994 and
principal accounting officer
from May 1994 to date)
22
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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21
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