<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999 Commission File No. 1-12248
ICF KAISER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 54-1437073
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9300 Lee Highway, Fairfax, Virginia 22031-1207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (703) 934-3600
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 Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
On August 12, 1999, there were 23,822,657 shares of ICF Kaiser International,
Inc. Common Stock, par value $0.01 per share, outstanding.
<PAGE>
ICF KAISER INTERNATIONAL, INC.
INDEX TO FORM 10-Q
Page
Part I - Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998........................ 3
Consolidated Statements of Operations and Comprehensive
Income (Loss)-
Three and Six Months Ended June 30, 1999 and 1998.......... 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and 1998.................... 5
Notes to Consolidated Financial Statements................. 6-20
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 21-31
Item 3 Quantitative and Qualitative Disclosures
About Market Risk.......................................... 31
Part 11 - Other Information
Item 1. Legal Proceedings. ......................................... 31
Item 2. Changes in Securities and Use of Proceeds. ................. 31
Item 3. Defaults Upon Senior Securities. ........................... 31
Item 4. Submission of Matters to a Vote of Security Holders. ....... 31
Item 5. Other Information. ......................................... 31
Item 6. Exhibits and Reports on Form 8-K ........................... 31
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except shares)
- --------------------------------------------------------------------------------
June 30, December 31,
1999 1998
- --------------------------------------------------------------------------------
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 67,514 $ 15,248
Restricted cash 22,854 --
Contract receivables, net 204,758 234,320
Prepaid expenses and other current assets 15,693 11,918
Deferred income taxes -- 34,673
Net assets of discontinued operations -- 65,862
-- --------
Total Current Assets 310,819 362,021
-------- --------
Fixed Assets
Furniture, equipment, and leaseholds 17,182 17,970
Less depreciation and amortization (13,244) (13,665)
-------- --------
3,938 4,305
-------- --------
Other Assets
Goodwill, net 21,687 23,323
Investments in and advances to affiliates 8,939 7,571
Capitalized software development costs 2,046 1,618
Notes receivable 6,550 --
Other 10,455 12,745
------- -------
49,677 45,257
------- -------
Total Assets $ 364,434 $ 411,583
========== =========
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities
Debt currently payable $ -- $ 30,729
Accounts payable 165,983 179,451
Accrued salaries and benefits 35,447 31,141
Other accrued expenses 22,959 36,865
Accrued interest 9,100 --
Deferred revenue 6,404 36,847
Income taxes payable 4,307 2,147
------- -------
Total Current Liabilities 244,200 317,180
Long-term Liabilities
Long-term debt 137,730 137,488
Other 17,699 19,584
-------- --------
Total Liabilities 399,629 474,252
-------- --------
Commitments and Contingencies
Minority Interest 4,654 449
Shareholders' Equity (Deficit)
Preferred stock -- --
Common stock, par value $.01 per share:
Authorized-90,000,000 shares
Issued and outstanding- 23,822,657 and
24,257,828 shares 238 242
Additional paid-in capital 75,127 75,422
Notes receivable collateralized by common stock -- (638)
Accumulated deficit (111,704) (134,757)
Accumulated other comprehensive income (loss) (3,510) (3,387)
-------- --------
Total Shareholders' Equity (Deficit) (39,849) (63,118)
-------- --------
Total Liabilities and Shareholders'
Equity (Deficit) $ 364,434 $ 411,583
========== =========
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
3
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ --------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Gross Revenue $ 219,880 $ 263,129 $ 445,377 $ 519,968
Subcontract and direct material costs (158,082) (190,943) (320,940) (374,277)
Provision for contract losses - (40,000) - (40,000)
Equity in net income of unconsolidated subsidiaries 1,476 1,407 2,996 2,434
--------- --------- --------- ---------
Service Revenue 63,274 33,593 127,433 108,125
Operating Expenses
Direct labor and fringe benefits 48,851 54,951 97,310 108,416
Group overhead 9,152 10,872 20,089 22,155
Corporate general and administrative 3,985 4,058 8,139 7,902
Depreciation and amortization 1,617 1,439 3,098 3,031
Severance and restructuring 9,359 1,500 9,359 1,500
Other unusual charges 405 - 1,335 -
--------- --------- --------- ---------
Operating Income (Loss) (10,095) (39,227) (11,897) (34,879)
Other Income (Expense)
Interest income 339 435 607 901
Interest expense (6,357) (4,939) (12,209) (9,760)
--------- --------- --------- ---------
Income (Loss) From Continuing Operations
Before Income Taxes, Minority Interest, Extraordinary (16,113) (43,731) (23,499) (43,738)
Item and Cumulative Effect of Accounting Change
Income tax (expense) benefit (573) 14,159 602 14,627
--------- --------- --------- ---------
Income (Loss) From Continuing Operations (16,686) (29,572) (22,897) (29,111)
Before Minority Interest, Extraordinary Item
and Cumulative Effect of Accounting Change
Minority interest in net income of subsidiaries (2,123) (2,040) (4,205) (4,551)
--------- --------- --------- ---------
Income (Loss) Before Discontinued Operations, (18,809) (31,612) (27,102) (33,662)
Extraordinary Item and Cumulative Effect of
Accounting Change
Income (loss) from discontinued operations, net of tax (417) 1,944 2,157 4,439
Gain on sale of discontinued operations, net of tax 48,755 - 48,755 -
--------- --------- --------- ---------
Income (Loss) before Extraordinary Item and
Cumulative Effect of Accounting Change 29,529 (29,668) 23,810 (29,223)
Extraordinary item, net of tax (698) - (698) -
--------- --------- --------- ---------
Income (Loss) before Cumulative Effect
of Accounting Change 28,831 (29,668) 23,112 (29,223)
Cumulative effect of accounting change, net of tax - (6,000) - (6,000)
--------- --------- --------- ---------
Net Income (Loss) $ 28,831 $ (35,668) $ 23,112 $ (35,223)
========= ========= ========= =========
Basic and Diluted Earnings (Loss) Per Share:
Continuing operations, net of tax $ (0.79) $ (1.31) $ (1.13) $ (1.40)
Discontinued operations, net of tax 2.03 0.08 2.12 0.18
Extraordinary item, net of tax (0.03) - (0.03) -
Cumulative effect of acounting change, net of tax - (0.25) - (0.25)
--------- --------- --------- ---------
$ 1.21 $ (1.48) $ 0.96 $ (1.47)
========= ========= ========= =========
Weighted average shares for basic earnings per share 23,840 24,103 23,971 24,017
Effect of dilutive stock options - - - -
--------- --------- --------- ---------
Weighted average shares for diluted earnings per share 23,840 24,103 23,971 24,017
========= ========= ========= =========
Comprehensive Income (Loss)
Net Income (Loss) $ 28,831 $ (35,668) $ 23,112 $ (35,223)
Other Comprehensive Income (Loss)
Foreign currency translation adjustments (334) (1,441) 133 (887)
--------- --------- --------- ---------
Total Comprehensive Income (Loss) $ 28,497 $ (37,109) $ 23,245 $ (36,110)
========= ========= ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
====================================================================================================================
Six Months Ended June 30,
----------------------------
1999 1998
- --------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Operating Activities
Net income (loss) $ 23,112 $ (35,223)
Adjustments to reconcile net income (loss) to net cash
(used in) operating activities:
Income from discontinued operations (2,157) -
Gain on sale of discontinued operations (48,755) -
Depreciation and amortization 3,098 4,431
Net change in provision for losses (6,295) 41,516
Extraordinary item 698 -
Cumulative effect of accounting change - 6,000
Provision for deferred income taxes 34,673 (18,106)
Note receivable write-off 638 -
(Advances to) distributions from joint ventures and
affiliates (in excess of) less than equity in earnings (1,588) 237
Minority interest in net income of subsidiaries 4,205 4,551
Changes in operating assets and liabilities, net of acquisitions and
dispositions:
Contract receivables, net 29,562 (23,460)
Prepaid expenses and other current assets (3,775) (7,063)
Accounts payable and accrued expenses (24,953) 990
Deferred revenue (30,443) 4,198
Income taxes payable 2,160 (43)
----------- -----------
Net Cash Used in Operating Activities (19,820) (21,972)
----------- -----------
Investing Activities
Cash proceeds from investments in subsidiaries and affiliates - 3,759
Sales of subsidiaries and/or investments - 2,400
Net proceeds from sales of discontinued operations 135,316 -
Purchases of fixed assets (428) (2,546)
----------- -----------
Net Cash Provided by Investing Activities 134,888 3,613
----------- -----------
Financing Activities
Borrowings under revolving credit facility 57,064 76,500
Principal payments on revolving credit facility (92,584) (66,000)
Cash collateral for performance guarantees (22,854) -
Change in book overdraft (4,542) 5,518
Distribution of income to minority interest - (3,489)
Proceeds from issuances of common stock 38 86
----------- -----------
Net Cash (Used in ) Provided by Financing Activities (62,878) 12,615
----------- -----------
Effect of Exchange Rate Changes on Cash 76 (309)
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents 52,266 (6,053)
Cash and Cash Equivalents at Beginning of Period 15,248 20,020
----------- -----------
Cash and Cash Equivalents at End of Period $ 67,514 $ 13,967
=========== ===========
Supplemental cash flow information is as follows:
Cash payments for interest $ 3,295 $ 9,384
Cash payments for income taxes 23 -
Non-cash transactions:
Issuance of common stock 8,455
Reacquisition of common stock (337) (513)
====================================================================================================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements of ICF Kaiser International,
Inc. and subsidiaries (the Company), except for the December 31, 1998 balance
sheet (derived from audited financial statements), are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. These statements should be
read in conjunction with the Company's audited consolidated financial statements
and footnotes thereto for the year ended December 31, 1998 and the information
included in the Company's Annual Report to the Securities and Exchange
Commission (SEC) on Form 10-K for the year ended December 31, 1998. Certain
reclassifications have been made to the prior period financial statements to
conform them to the presentation used in the June 30, 1999 financial statements.
2. Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net income by the
weighted average number of common shares outstanding for the period. The assumed
proceeds from the exercise of dilutive securities are used to purchase common
stock at the average market price during the period. The difference between the
number of shares assumed issued and the number of shares assumed purchased is
added to the basic EPS denominator in order to derive the diluted EPS
denominator. All of the Company's common stock equivalents have been excluded
from the fully diluted EPS calculation as they are anti-dilutive.
3. Restructuring Plan
In response to severe liquidity constraints and related side effects of
substantial cost overruns incurred primarily in 1998 on four fixed price
projects, management, along with the Board of Directors, developed a plan
intended to restructure the Company. The plan consists primarily of:
. Divesting of operating units and reinvesting the funds into the Company to
facilitate the completion of the problem projects and to provide working
capital necessary to grow the retained business activities;
. Reducing the Company's overhead cost structure that would remain after the
divestiture of the operating units referenced above;
. Improving profitability of the retained operations; and
. Revising the Company's debt and capital structure in order to eliminate
barriers to securing new business and improve accessibility to new sources of
working capital.
Elements of the plan were initiated as early as the third quarter of 1998 while
the problem projects were entering their final phases of completion. As
summarized below the progress made to date toward achieving each plan element
varies and the detail of each element continues to be reviewed and refined to
ensure that progress is made toward attainment.
Divesting of Operating Units
As of June 30, 1999, the Company has completed the sales of two business
segments.
. Sale of the Environment and Facilities Management Group (EFM): On April 9,
1999, the Company sold the majority of the active contracts and
investments, and transferred a substantial number of employees of EFM, to
The IT Group, Inc. (IT) for a cash purchase price of $82 million, less $8
million which was retained by IT for EFM's working capital requirements.
The Company will complete EFM contracts that were not sold to IT in the
near term. Net of income tax expense, the Company recognized a gain of
$13.4 million from the sale.
6
<PAGE>
. Sale of the Consulting Group: On June 30, 1999, the Company sold 90% of
its Consulting Group to CM Equity Partners, L.P. and the Group's
management for $64.0 million in cash and $6.6 million of interest-bearing
notes. The Company retained a 10% ownership balance in the new and
independent consulting company, now known as ICF Consulting Group, Inc.
Net of income tax expense, the Company recognized a gain of $35.4 million
from the sale.
The combined net financial position and operating results of the two segments
have been presented in the accompanying financial statements as discontinued
operations for the entire six-month period. All prior period financial
information has also been restated to conform to the current presentation.
Reducing Overhead and Improving Profitability
The restructuring plan includes actions to realign and reduce the Company's
post-divestiture overhead cost structure such that the remaining levels are
appropriate for its continuing operations. Elements of the overhead reduction
plan include an approximate 25% personnel reduction in the Company's wholly-
owned North American operations, downsizing facilities, closing of marginally
profitable office locations, discontinuing certain business offerings, improving
direct labor utilization on projects and enhancing project controls to minimize
risks of future contract losses. Because of certain centralized aspects of the
Company's organization structure that existed prior to completing the
divestitures discussed above, the cost reduction elements of this phase of the
plan could not begin effectively until after the divestitures were completed.
The results of the rightsizing should be evident in the Company's operating
results after June 30, 1999.
In connection with these actions, the Company recorded a charge for severance
and restructuring costs of $9.4 million during the second quarter of 1999.
Components of the charge included $4.5 million for severance, $1.6 million for
the write-off of goodwill associated with the discontinuance of operations from
a prior acquisition, a $2.2 million write-down reflective of the carrying value
impairment of certain long-term investments, and a $1.1 million charge for
anticipated sublease losses incurred as a result of office downsizing.
These cost reduction efforts, together with an increased focus on risk
mitigation and effective resource allocation, are aimed at improving the
profitability of the Company's remaining operations. The Company is committed to
implementing proper management controls and the processes necessary to deliver
high-quality, profitable projects throughout its operations.
Revising the Capital Structure
The Company is actively exploring means by which the remaining available cash
proceeds from the sale of the EFM and Consulting Groups may be used to
facilitate transactions that would reduce the Company's outstanding debt to
levels supportable over the long term by anticipated cash flows from remaining
operations. Such transactions may include proposals for the exchange of cash,
new debt and equity for some or all of the Company's outstanding Senior and
Senior Subordinated Notes (the Notes). Any equity issuance could result in
substantial dilution to current holders of the Company's common stock.
4. Revolving Credit Facility and Long-term Debt
The terms of the Company's revolving credit facility called for the proceeds of
asset sales to be used to extinguish outstanding debt and to terminate the
facility. Upon the sale of the EFM Group, the Company used $35.5 million in
proceeds to extinguish outstanding borrowings. The Company then obtained an
amendment to the revolver extending the facility, with similar restrictive
financial covenants and a substantially reduced total borrowing capacity, until
the earlier of June 30, 1999 or the completion of the Company's sale of its
Consulting Group. The amendment required an additional $10.0 million of the EFM
proceeds to cash collateralize a portion of its outstanding letters of credit
previously secured by assets of the Company. Upon the closing of the sale of
the Consulting Group on June 30, 1999, an additional $12.8 million of sale
proceeds was required to cash collateralize the remaining amount of outstanding
letters of credit. The facility was then terminated. Amendment fees totaling
$1.0 million have been included in interest expense for the three and six months
ended June 30, 1999. Unamortized debt issuance costs of $1.1 million associated
with this facility, net of an income tax benefit of $0.4 million, were expensed
on June 30, 1999 as an extraordinary item in the accompanying Statement of
Operations.
The Company did not make the semi-annual interest payment due on its Notes of
$9.1 million on June 30, 1999, but did pay the interest in full on July 30, 1999
prior to the expiration of a 30-day grace period contained in the Note
indentures.
7
<PAGE>
5. Segment Information
The Company uses several segments for internal management reporting purposes.
The segments are compiled based on the similarities in each of their underlying
services, customers, and regulatory environments. The segment operating results
represent all activities that were controllable by the respective segment
business leaders and that had sole direct benefit to the respective segment.
Operating activities that are deemed to benefit more than one segment are not
managed by segment business leaders but are instead managed by the Company's
corporate overhead structure and are not allocated to the segments. The
accounting policies of the operating segments are the same as those described in
the Company's summary of significant accounting policies.
Continuing Business Segments: For purposes of providing segment information, the
Company's continuing business segments are:
. the Engineers and Constructors Group (E&C), which provides engineering,
construction management and project and program management services to
commercial and federal, state, and local entities in the areas of transit
and transportation, alumina and aluminum, facilities engineering and
management, iron and steel and microelectronics and clean technology;
. Kaiser-Hill Company, LLC (Kaiser-Hill), a 50% owned subsidiary, which
serves as the integrated management contractor at the U.S. Department of
Energy's Rocky Flats Environmental Technology Site near Denver, Colorado.
The Company, through a designated majority representation on Kaiser-Hill's
board of directors, has a controlling interest in Kaiser-Hill and
therefore consolidates Kaiser-Hill's results of operations with those of
its only other remaining business segment, E&C. Although the Company has a
controlling interest in Kaiser-Hill, as defined by generally accepted
accounting principles, the subsidiary's operations are primarily directed
by its own dedicated management team. Neither the management of the
Company nor the management of the other 50% owner has an active role in
Kaiser-Hill's day-to-day operations.
After the completion of the divestitures discussed above, the financial
information for Kaiser-Hill represents a substantial portion of many
components of the Company's financial statements. Accordingly, management
believes that a separate presentation of Kaiser-Hill's financial
statements is meaningful in interpreting the financial results of the
remaining core E&C operations. See Note 6 for the condensed financial
statements of Kaiser-Hill Company, LLC.
8
<PAGE>
Financial data for the three and six months ended June 30, 1999 for the
continuing business segments are as follows (in thousands):
<TABLE>
<CAPTION>
Kaiser-Hill E&C Total
------------------------ ------------------------ ------------------------
1999 Three Six Three Six Three Six
- ---- ----- --- ----- --- ----- ---
Months Months Months Months Months Months
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Gross revenue.................................. $ 165,221 $ 310,297 $ 54,659 $ 135,080 $ 219,880 $ 445,377
Subcontracts and materials................... (129,226) (239,567) (28,856) (81,373) (158,082) (320,940)
Equity in unconsolidated subsidiaries........ -- -- 1,476 2,996 1,476 2,996
--------- --------- -------- --------- --------- ---------
Service revenue................................ 35,995 70,730 27,279 56,703 63,274 127,433
Operating expenses:
Direct labor and fringe...................... 31,750 62,321 17,101 34,989 48,851 97,310
Group overhead............................... -- -- 9,152 20,089 9,152 20,089
--------- --------- -------- --------- --------- ---------
Segment income................................. $ 4,245 $ 8,409 $ 1,026 $ 1,625 5,271 10,034
========= ========= ======== =========
Reconciliation of segment income to operating
income (loss) from continuing operations:
Corporate overhead........................... 3,985 8,139
Severance and restructuring.................. 9,359 9,359
Depreciation and amortization................ 1,917 3,398
Other unusual charges........................ 405 1,335
---------- ----------
Operating income (loss) from continuing
operations..................................... $ (10,395) $( 12,197)
========= =========
<CAPTION>
1998
- ----
Gross revenue.................................. $ 151,487 $ 292,529 $111,642 $ 227,439 $ 263,129 $ 519,968
Subcontracts and materials................... (115,959) (221,315) (74,984) (152,962) (190,943) (374,277)
Provision for contract losses................ -- -- (40,000) (40,000) (40,000) (40,000)
Equity in unconsolidated subsidiaries........ -- -- 1,407 2,434 1,407 2,434
--------- --------- -------- --------- --------- ---------
Service revenue................................ 35,528 71,214 (1,935) 36,911 33,593 108,125
Operating expenses:
Direct labor and fringe...................... 31,448 62,112 23,503 46,304 54,951 108,416
Group overhead............................... -- -- 10,872 22,155 10,872 22,155
--------- --------- -------- --------- --------- ---------
Segment income................................. $ 4,080 $ 9,102 $(36,310) $ (31,548) (32,230) (22,446)
========= ========= ======== =========
Reconciliation of segment income to operating
income from continuing operations:
Corporate overhead........................... 4,058 7,902
Depreciation and amortization................ 1,439 3,031
Severance and restructuring.................. 1,500 1,500
--------- ---------
Operating income from continuing
operations.................................... $ (39,227) $ (34,879)
========= =========
</TABLE>
9
<PAGE>
6. Condensed Financial Information for Kaiser-Hill Company, LLC
Unaudited financial information for the 50%-owned, controlled and consolidated
Kaiser-Hill is as follows (see Note 5):
Balance Sheets
--------------
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- --------
Assets
<S> <C> <C>
Cash and cash equivalents.............................................. $ 7,199 $ 3,644
Contract receivables, net.............................................. 124,559 127,163
-------- --------
Total Assets.............................................. 131,758 130,807
Liabilities
Accounts payable..................................................... 105,802 115,730
Accrued salaries and benefits...................................... 15,136 12,666
-------- --------
Total Liabilities............................................... 120,938 128,396
Commitments and contingencies..........................................
Net Assets............................................................. $ 10,820 $ 2,411
======== ========
</TABLE>
Income Statements
-----------------
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
-------------------------- ------------------------
1999 1998 1999 1998
-------------------------- ------------------------
<S> <C> <C> <C> <C>
Gross Revenue......................................... $ 165,221 $ 151,487 $ 310,297 $ 292,529
Subcontract and direct material costs............. (129,226) (115,959) (239,567) (221,315)
--------- --------- --------- ---------
Service Revenue....................................... 35,995 35,528 70,730 71,214
Operating Expenses....................................
Direct labor and fringe benefits.................. 31,750 31,448 62,321 62,112
--------- --------- --------- ---------
Net Income............................................ $ 4,245 $ 4,080 $ 8,409 $ 9,102
========= ========= ========= =========
Minority's interest in Kaiser-Hill net income......... $ 2,123 $ 2,040 $ 4,205 $ 4,551
========= ========= ========= =========
Company's interest in Kaiser-Hill net income.......... $ 2,123 $ 2,040 $ 4,205 $ 4,551
========= ========= ========= =========
</TABLE>
Statements of Cash Flows
------------------------
<TABLE>
<CAPTION>
For the six months ended June
30,
---------------------------------
1999 1998
Operating Activities -------------- --------------
<S> <C> <C>
Net Income........................................................................ $ 8,409 $ 9,102
Changes in operating assets and liabilities:..................................
Accounts receivable, net.................................................. 2,604 (27,603)
Accounts payable and accrued expenses..................................... (7,458) 13,956
------- --------
Net cash provided by (used in) operating activities............................ 3,555 (13,647)
------- --------
Financing Activities
(Distributions to) receipts from shareholders.................................. 0 (4,722)
------- --------
Net cash (used in) provided by financing activities............................ 0 (4,722)
------- --------
Increase in cash and cash equivalents............................................. 3,555 (9,267)
Cash and cash equivalents at beginning of period.................................. 3,644 10,181
------- --------
Cash and cash equivalents at end of period........................................ $ 7,199 $ 914
======= ========
</TABLE>
10
<PAGE>
7. Contingencies
Certain Contracts: In March 1998, the Company entered into a $187 million
maximum price contract to construct a shipbuilding facility. The Company
subsequently learned that estimated costs to perform the contract as reflected
in actual proposed subcontracts were approximately $30 million higher than the
cost estimates used as the basis for contract negotiation between the Company
and the customer. After learning this, the Company advised the customer that it
was not required to perform the contract in accordance with its terms.
Negotiations with the customer resulted in an interim agreement under which both
parties reserved their rights and, on a day-to-day basis, the Company continued
to execute certain transitional on-site activities. The customer terminated the
interim agreement with the Company effective August 14, 1998. In October 1998,
the customer presented an initial draft of a claim against the Company
requesting payment for estimated damages and entitlements pursuant to the
terminated contract. The Company and the customer are currently discussing the
customer's draft claim. No provision for loss for this matter has been included
in the Company's financial results to date as management does not believe that
it has sufficient information at this time to reasonably estimate the outcome as
there has not yet been significant activity in the negotiation process.
As a result of uncertainties surrounding the costs to complete large fixed-price
contracts involving the construction of plants to produce nitric acid, in 1998
the Company established $66.0 million in reserves intended to cover its estimate
of the related cost overruns. Although management believes that, based on
information currently available, an adequate provision for loss reserves for
these fixed-price contracts has been reflected in the financial statements, no
assurance can be given that the full amount of any claims will be realized or
that the loss provision is entirely adequate.
Acquisition Contingency: The ICF Kaiser common shares exchanged for the stock of
ICT Spectrum in the March, 1998 acquisition carry the guarantee that the fair
market value of each share of stock will reach $5.36 by March 1, 2001. In the
event that the fair market value does not attain the guaranteed level, the
Company is obligated to make up the shortfall either through the payment of cash
or by issuing additional shares of common stock, or both, with a total value
equal to the shortfall, depending upon the Company's preference. Pursuant to the
terms of the agreement, however, the total number of contingently issuable
shares of common stock cannot exceed an additional 1.5 million. Given that the
quoted fair market value of the stock at June 30, 1999 was $0.38 per share, the
assumed issuance of an additional 1.5 million shares would not completely
extinguish the purchase price contingency. Any future distribution of cash or
common stock would be recorded as a charge to the Company's paid-in-capital.
Until the earlier of the contingent purchase price resolution or March 1, 2001,
any additional shares assumed to be issued because of shortfalls in fair market
value will be included in the Company's diluted earnings per share calculations,
unless they are antidilutive. The exchanged shares also contain restrictions
preventing their sale prior to March 1, 2001.
On March 29, 1999, one ex-ICT Spectrum shareholder, individually and on behalf
of all others similarly situated, filed a class action lawsuit alleging false
and misleading statements made in a private offering memorandum, and otherwise,
in connection with the Company's acquisition of ICT Spectrum in 1998. The
Company has filed a motion to dismiss the plaintiffs' amended complaint.
Litigation, Claims and Assessments: In the course of the Company's normal
business activities, various claims or charges have been asserted and litigation
commenced against the Company arising from or related to properties, injuries to
persons, and breaches of contract, as well as claims related to acquisitions and
dispositions. Claimed amounts may not bear any reasonable relationship to the
merits of the claim or to a final court award. In the opinion of management,
adequate reserves have been provided for final judgments, if any, in excess of
insurance coverage, that might be rendered against the Company in such
litigation. The continued adequacy of reserves is reviewed periodically as
progress on such matters ensues.
The Company may from time to time, either individually or in conjunction with
other government contractors operating in similar types of businesses, be
involved in U.S. government investigations for alleged violations of procurement
or other federal laws and regulations. The Company currently is the subject of a
number of U.S. government investigations and is cooperating with the responsible
government agencies involved. No charges presently are known to have been filed
against the Company by these agencies. The Company has provided for its estimate
of the potential effect of these investigations, and the continued adequacy of
reserves is reviewed periodically as progress on such matters ensues.
The Company has a substantial number of cost-reimbursement contracts with the
U.S. government, the costs of which are subject to audit by the U.S. government.
As a result of pending audits related to fiscal years 1986 forward, the
government has asserted, among other things, that certain costs claimed as
reimbursable under government contracts either were not allowable or not
allocated in accordance with federal procurement regulations. The Company is
actively working with the government to resolve these issues. The Company has
provided for its estimate of the potential effect of issues that have
11
<PAGE>
been quantified, including its estimate of disallowed costs for the periods
currently under audit and for periods not yet audited. Neither the government
nor the Company, however, has quantified many of the issues, and others are
qualitative in nature, and their potential financial impact, if any, is not
quantifiable by the government or the Company at this time. The adequacy of
provisions for reserves is reviewed periodically as progress with the government
on such matters ensues.
Contract warranties and performance guarantees: In the course of the Company's
normal business activities, many of its contracts contain provisions for
warranties and performance guarantees. As progress on contracts ensues, the
Company regularly updates the estimates of the costs to perform such
contingencies and reserves a proportionate amount of the total related contract
value until such time as the contingency is resolved.
In connection with the sales of the EFM and Consulting Groups completed in the
second quarter of 1999, the Company has made commitments to indemnify the
buyers of those businesses on certain matters, including, but not limited to
amounts incurred, if any, relating to unfavorable settlements and outcomes from
government audits. The Company has provided for estimates of such contingencies.
8. Guarantor Subsidiaries
Pursuant to SEC rules regarding publicly held debt, the Company is required to
provide financial information for wholly owned subsidiaries of ICF Kaiser
International, Inc. (Subsidiary Guarantors) which unconditionally guarantee the
payment of the principal, premium, if any, and interest on the Company's Senior
Subordinated Notes and Series B Senior Notes. The Subsidiary Guarantors are
Cygna Consulting Engineers and Project Management, Inc; ICF Kaiser Government
Programs, Inc; Systems Applications International, Inc; EDA, Incorporated;
Global Trade & Investment, Inc; ICF Kaiser Europe, Inc; ICF Kaiser/Georgia
Wilson, Inc; ICF Kaiser Overseas Engineering, Inc; ICF Kaiser Engineers Pacific,
Inc; ICF Kaiser Remediation Company; and ICF Kaiser Advanced Technology, Inc.
ICF Kaiser Remediation Company was included in the sale of the EFM Group to IT
on April 9, 1999 and Systems Applications International, Inc. was included in
the sale of the Consulting Group on June 30. Accordingly, both subsidiaries
were eliminated as guarantors effective with the closings of the two sales.
Presented below is condensed consolidating financial information for ICF Kaiser
International, Inc. (Parent Company), the Subsidiary Guarantors, and the Non-
Guarantor Subsidiaries. The information, except for the December 31, 1998
condensed consolidating balance sheet, is unaudited.
Investments in subsidiaries have been presented using the equity method of
accounting. The Company does not have a formal tax-sharing arrangement with its
subsidiaries and has allocated taxes to its subsidiaries based on the Company's
overall effective tax rate.
12
<PAGE>
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
June 30, 1999
(In thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
ICF Kaiser
Parent Subsidiary Non-Guarantor Discontinued International, Inc.
Company Guarantors Subsidiaries Operations Eliminations Consolidated
---------- ------------ ------------- ------------ ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 48,584 $ 9,036 $ 9,894 $ - $ - $ 67,514
Restricted cash 22,854 - - - - 22,854
Contract receivables, net (4,198) 132,226 76,730 - - 204,758
Intercompany receivables, net 188,619 10,357 (198,976) - - -
Prepaid expenses and other current assets (13) 483 15,223 - - 15,693
Deferred income taxes (1,061) 3,284 (2,223) - - -
Net assets of discontinued operations - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Total Current Assets 254,785 155,386 (99,352) - - 310,819
---------- ---------- ---------- ---------- ---------- ----------
Fixed Assets
Furniture, equipment, and leaseholds 4,333 1,377 11,472 - - 17,182
Less depreciation and amortization (3,848) (1,191) (8,205) - - (13,244)
---------- ---------- ---------- ---------- ---------- ----------
485 186 3,267 - - 3,938
---------- ---------- ---------- ---------- ---------- ----------
Other Assets
Goodwill, net - 6,779 14,908 - - 21,687
Investment in and advances to affiliates (90,347) 14 8,120 - 91,152 8,939
Capitalized software development costs 2,046 - - 2,046
Note Receivable 6,550 - - - - 6,550
Other 3,863 26 6,566 - - 10,455
---------- ---------- ---------- ---------- ---------- ----------
(77,888) 6,819 29,594 - 91,152 49,677
---------- ---------- ---------- ---------- ---------- ----------
Total Assets $ 177,382 $ 162,391 $ (66,491) $ - $ 91,152 $ 364,434
========== ========== ========== ========== ========== ==========
Liabilities and Shareholders' Equity
Current Liabilities
Debt currently payable $ - $ - $ - $ - $ - $ -
Accounts payable and other accrued expenses 57,040 109,677 31,325 - - 198,042
Accrued salaries and employee benefits 7,582 16,405 11,460 - - 35,447
Other 7,102 1,933 1,676 - - 10,711
---------- ---------- ---------- ---------- ---------- ----------
Total Current Liabilities 71,724 128,015 44,461 - - 244,200
Long-term Liabilities
Long-term debt, less current portion 137,729 - 1 - - 137,730
Other 789 26 16,884 - - 17,699
---------- ---------- ---------- ---------- ---------- ----------
Total Liabilities 210,242 128,041 61,346 - - 399,629
---------- ---------- ---------- ---------- ---------- ----------
Minority Interests in Subsidiaries - 4,654 - - - 4,654
Shareholders' Equity
Common Stock 225 8,179 114 - (8,280) 238
Additional Paid-in Capital 74,905 2,372 48,266 - (50,416) 75,127
Accumulated Earnings (Deficit) (107,990) 19,467 (173,029) - 149,848 (111,704)
Other Equity - (322) (3,188) - - (3,510)
---------- ---------- ---------- ---------- ---------- ----------
Total Shareholders' Equity (32,860) 29,696 (127,837) - 91,152 (39,849)
---------- ---------- ---------- ---------- ---------- ----------
Total Liabilities and Shareholders' Equity $ 177,382 $ 162,391 $ (66,491) $ - $ 91,152 $ 364,434
========== ========== ========== ========== ========== ==========
</TABLE>
13
<PAGE>
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
====================================================================================================================================
ICF Kaiser
Parent Subsidiary Non-Guarantor Discontinued International, Inc.
Company Guarantors Subsidiaries Operations Eliminations Consolidated
---------- ---------- ------------- ------------ -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 2,414 $ 3,814 $ 9,039 $ (19) $ - $ 15,248
Contract receivables, net (5,283) 133,618 155,743 (49,758) - 234,320
Intercompany receivables, net 184,700 10,943 (195,643) - - -
Prepaid expenses and other current assets 2,185 431 10,225 (923) - 11,918
Deferred income taxes 30,367 3,245 1,061 - - 34,673
Net assets of discontinued operations - - - 65,862 - 65,862
---------- ---------- --------- ---------- --------- ----------
Total Current Assets 214,383 152,051 (19,575) 15,162 - 362,021
---------- ---------- --------- ---------- --------- ----------
Fixed Assets
Furniture, equipment, and leaseholds 4,589 3,456 35,951 (26,026) - 17,970
Less depreciation and amortization (4,040) (3,155) (30,216) 23,746 - (13,665)
---------- ---------- --------- ---------- --------- ----------
549 301 5,735 (2,280) - 4,305
---------- ---------- --------- ---------- --------- ----------
Other Assets
Goodwill, net - 8,745 40,547 (25,969) - 23,323
Investment in and advances to affiliates (64,556) 14 6,494 (157) 65,776 7,571
Capitalized software development costs 4,296 766 (3,444) 1,618
Other 4,910 523 8,094 (782) - 12,745
---------- ---------- --------- ---------- --------- ----------
(55,350) 9,282 55,901 (30,352) 65,776 45,257
---------- ---------- --------- ---------- --------- ----------
Total Assets $ 159,582 $ 161,634 $ 42,061 $ (17,470) $ 65,776 $ 411,583
========== ========== ========= ========== ========= ==========
Liabilities and Shareholders' Equity
Current Liabilities
Debt currently payable $ 30,729 $ - $ - $ - $ - $ 30,729
Accounts payable and other accrued expenses 29,759 121,833 72,160 (7,436) - 216,316
Accrued salaries and employee benefits 7,818 13,997 16,116 (6,790) - 31,141
Other 1,910 1,282 38,966 (3,164) - 38,994
---------- ---------- --------- ---------- --------- ----------
Total Current Liabilities 70,216 137,112 127,242 (17,390) - 317,180
Long-term Liabilities
Long-term debt, less current portion 137,487 - 1 - - 137,488
Other 12,000 26 7,638 (80) - 19,584
---------- ---------- --------- ---------- --------- ----------
Total Liabilities 219,703 137,138 134,881 (17,470) - 474,252
---------- ---------- --------- ---------- --------- ----------
Minority Interests in Subsidiaries - 449 - - - 449
Shareholders' Equity
Common Stock 230 8,179 121 - (8,288) 242
Additional Paid-in Capital 75,200 2,596 58,544 - (60,918) 75,422
Accumulated Earnings (Deficit) (134,913) 13,542 (148,368) - 134,982 (134,757)
Other Equity (638) (270) (3,117) - - (4,025)
---------- ---------- --------- ---------- --------- ----------
Total Shareholders' Equity (60,121) 24,047 (92,820) - 65,776 (63,118)
---------- ---------- --------- ---------- --------- ----------
Total Liabilities and Shareholders' Equity $ 159,582 $ 161,634 $ 42,061 $ (17,470) $ 65,776 $ 411,583
========== ========== ========= ========== ========= ==========
</TABLE>
14
<PAGE>
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
Six Months Ended June 30, 1999
(In thousands)
<TABLE>
<CAPTION>
====================================================================================================================================
ICF Kaiser
International,
Parent Subsidiary Non-Guarantor Discontinued Inc.
Company Guarantors Subsidiaries Operations Eliminations Consolidated
--------- ----------- ------------- ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Gross Revenue $ 621 $ 329,543 $ 198,976 $ (83,763) $ - $ 445,377
Subcontract and direct material costs (366) (249,650) (101,914) 30,990 (320,940)
Equity in income of joint ventures and
affiliated companies (27,216) - 5,198 - 25,014 2,996
--------- --------- --------- --------- ---------- ----------
Service Revenue (26,961) 79,893 102,260 (52,773) 25,014 127,433
Operating Expenses
Operating expenses 5,369 68,433 100,020 (48,284) - 125,538
Depreciation and amortization 909 454 2,164 (429) 3,098
Severance and restructuring 5,807 1,599 1,953 9,359
Other unusual charges 1,335 - - - - 1,335
--------- --------- --------- --------- ---------- ----------
Operating Income (Loss) (40,381) 9,407 (1,877) (4,060) 25,014 (11,897)
Other Income (Expense)
Interest income 63 264 282 (2) - 607
Interest expense (11,914) (286) (11) 2 - (12,209)
--------- --------- --------- --------- ---------- -----------
Income (Loss) From Continuing Operations
Before Income Taxes, Minority Interest
and Extraordinary Item (52,232) 9,385 (1,606) (4,060) 25,014 (23,499)
Income tax expense (benefit) 2,707 (488) 84 (1,603) (1,302) (602)
--------- --------- --------- --------- ---------- -----------
Income (Loss) From Continuing Operations
Before Minority Interest and
Extraordinary Item (54,939) 9,873 (1,690) (2,457) 26,316 (22,897)
Minority interests in net income of
subsidiaries - 4,205 - - - 4,205
--------- --------- --------- --------- ---------- ----------
Income (Loss) From Continuing Operations
Before Extraordinary Item (54,939) 5,668 (1,690) (2,457) 26,316 (27,102)
Income from discontinued operations
(net of tax) - 2,157 2,157
Gain on sale of discontinued operations
(net of tax) 77,748 - (28,993) - - 48,755
--------- --------- --------- --------- ---------- ----------
Income (Loss) Before Extraordinary Item 22,809 5,668 (30,683) (300) 26,316 23,810
Extraordinary item, net of tax 698 - - - - 698
--------- -------- ---------- -------- ---------- ----------
Net Income (Loss) $ 22,111 $ 5,668 $ (30,683) $ (300) $ 26,316 $ 23,112
========= ======== ========== ======== ========== ==========
</TABLE>
15
<PAGE>
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
Six Months Ended June 30, 1998
(In thousands)
<TABLE>
<CAPTION>
====================================================================================================================================
ICF Kaiser
International,
Parent Subsidiary Non-Guarantor Discontinued Inc.
Company Guarantors Subsidiaries Operations Eliminations Consolidated
----------- ------------ ------------ ------------- ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Gross Revenue $ 608 $ 366,635 $ 250,025 $ (97,300) $ - $ 519,968
Subcontract and direct material costs (280) (284,587) (121,610) 32,200 (374,277)
Provision for contract loss (40,000) (40,000)
Equity in income of joint ventures and
affiliated companies (22,090) - 3,477 - 21,047 2,434
--------- -------- --------- --------- -------- ---------
Service Revenue (21,762) 82,048 91,892 (65,100) 21,047 108,125
Operating Expenses
Operating expenses 7,987 70,342 116,525 (56,381) - 138,473
Depreciation and amortization 1,258 594 2,579 (1,400) - 3,031
Severance and restructuring 1,500 - - - - 1,500
--------- -------- --------- --------- -------- ---------
Operating Income (Loss) (32,507) 11,112 (27,212) (7,319) 21,047 (34,879)
Other Income (Expense)
Interest income 181 346 374 - - 901
Interest expense (9,646) (96) (18) - - (9,760)
--------- -------- --------- --------- -------- ----------
Income (Loss) From Continuing Operations
Before Income Taxes, Minority Interest and
Cumulative Effect of Accounting Change (41,972) 11,362 (26,856) (7,319) 21,047 (43,738)
Income tax expense (benefit) (13,538) 3,665 (8,662) (2,880) 6,788 (14,627)
--------- -------- --------- --------- -------- ---------
Income (Loss) From Continuing Operations
Before Minority Interest and
Cumulative Effect of Accounting Change (28,434) 7,697 (18,194) (4,439) 14,259 (29,111)
Minority interests in net income of
subsidiaries - 4,551 - - - 4,551
--------- -------- --------- --------- -------- ---------
Income (Loss) From Continuing Operations
Before Cumulative Effect of Accounting
Change (28,434) 3,146 (18,194) (4,439) 14,259 (33,662)
Income from discontinued operations
(net of tax) - - - 4,439 - 4,439
--------- -------- --------- --------- -------- ---------
Income (Loss) Before Cumulative Effect
of Accounting Change (28,434) 3,146 (18,194) - 14,259 (29,223)
Cumulative Effect of Accounting change - - 6,000 - - 6,000
--------- -------- --------- --------- -------- ---------
Net Income (Loss) $ (28,434) $ 3,146 $ (24,194) $ - $ 14,259 $ (35,223)
========= ======== ========= ========= ======== =========
</TABLE>
16
<PAGE>
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
Three Months Ended June 30, 1999
(In thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ICF Kaiser
Parent Subsidiary Non-Guarantor Discontinued International, Inc.
Company Guarantors Subsidiaries Operations Eliminations Consolidated
--------- ---------- ------------- ------------ ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenue $ 600 $ 173,034 $ 73,608 $ (27,362) $ - $ 219,880
Subcontract and direct material costs (295) (133,349) (33,972) 9,534 - (158,082)
Equity in income of joint ventures and
affiliated companies (31,759) - 2,590 - 30,645 1,476
--------- --------- --------- --------- --------- ---------
Service Revenue (31,454) 39,685 42,226 (17,828) 30,645 63,274
Operating Expenses
Operating expenses 2,657 35,027 42,302 (17,998) - 61,988
Depreciation and amortization 129 209 913 366 - 1,617
Severance and restructuring 5,807 1,599 1,953 - - 9,359
Other unusual charges 405 - - - - 405
--------- --------- --------- --------- --------- ---------
Operating Income (Loss) (40,452) 2,850 (2,942) (196) 30,645 (10,095)
Other Income (Expense)
Interest income 6 187 148 (2) - 339
Interest expense (6,116) (240) (3) 2 - (6,357)
--------- --------- --------- --------- --------- ---------
Income (Loss) From Continuing Operations
Before Income Taxes, Minority Interest
and Extraordinary Item (46,562) 2,797 (2,797) (196) 30,645 (16,113)
Income tax expense (benefit) 2,862 (501) (403) (83) (1,302) 573
--------- --------- --------- --------- --------- ---------
Income (Loss) From Continuing Operations
Before Minority Interest and
Extraordinary Item (49,424) 3,298 (2,394) (113) 31,947 (16,686)
Minority interests in net income of
subsidiaries - 2,123 - - - 2,123
--------- --------- --------- --------- --------- ---------
Income (Loss) From Continuing Operations
Before Extraordinary Item (49,424) 1,175 (2,394) (113) 31,947 (18,809)
Income from discontinued operations
(net of tax) - - - (417) - (417)
Gain on sale of discontinued operations
(net of tax) 77,748 - (28,993) - - 48,755
--------- --------- --------- --------- --------- ---------
Income (Loss) Before Extraordinary Item 28,324 1,175 (31,387) (530) 31,947 29,529
Extraordinary item, net of tax 698 - - - - 698
--------- --------- --------- --------- --------- ---------
Net Income (Loss) $ 27,626 $ 1,175 $ (31,387) $ (530) $ 31,947 $ 28,831
========= ========= ========= ========= ========= =========
</TABLE>
17
<PAGE>
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
Three Months Ended June 30, 1998
(In thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ICF Kaiser
Parent Subsidiary Non-Guarantor Discontinued International, Inc.
Company Guarantors Subsidiaries Operations Eliminations Consolidated
--------- ---------- ------------- ------------ ------------ -------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Gross Revenue $ 772 $ 220,295 $ 90,945 $ (48,883) $ - $ 263,129
Subcontract and direct material costs (105) (177,191) (30,161) 16,514 - (190,943)
Provision for contract loss - - (40,000) - - (40,000)
Equity in income of joint ventures and
affiliated companies (32,683) - 1,393 - 32,697 1,407
-------- --------- --------- --------- --------- ---------
Service Revenue (32,016) 43,104 22,177 (32,369) 32,697 33,593
Operating Expenses
Operating expenses 3,699 37,742 56,945 (28,505) - 69,881
Depreciation and amortization 595 302 1,199 (657) - 1,439
Severance and restructuring 1,500 - - - - 1,500
-------- --------- --------- --------- --------- ---------
Operating Income (Loss) (37,810) 5,060 (35,967) (3,207) 32,697 (39,227)
Other Income (Expense)
Interest income 50 223 104 - 58 435
Interest expense (4,830) (50) (6) - (53) (4,939)
-------- --------- --------- --------- --------- ---------
Income (Loss) From Continuing Operations
Before Income Taxes, Minority Interest and
Cumulative Effect of Accounting Change (42,590) 5,233 (35,869) (3,207) 32,702 (43,731)
Income tax expense (benefit) (13,711) 1,949 (11,185) (1,263) 10,051 (14,159)
-------- --------- --------- --------- --------- ---------
Income (Loss) From Continuing Operations
Before Minority Interest and
Cumulative Effect of Accounting Change (28,879) 3,284 (24,684) (1,944) 22,651 (29,572)
Minority interests in net income of
subsidiaries - 2,013 27 - - 2,040
-------- --------- --------- --------- --------- ---------
Income (Loss) From Continuing Operations
Before Cumulative Effect of Accounting
Change (28,879) 1,271 (24,711) (1,944) 22,651 (31,612)
Income from discontinued operations (net
of tax) - - - 1,944 - 1,944
-------- --------- --------- --------- --------- ---------
Income (Loss) Before Cumulative Effect
of Accounting Change (28,879) 1,271 (24,711) - 22,651 (29,668)
Cumulative Effect of Accounting change - - 6,000 - - 6,000
-------- --------- --------- --------- --------- ---------
Net Income (Loss) $(28,879) $ 1,271 $ (30,711) $ - $ 22,651 $ (35,668)
======== ========= ========= ========= ========= =========
</TABLE>
18
<PAGE>
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 1999
(In thousands)
<TABLE>
<CAPTION>
==================================================================================================================================
ICF Kaiser
Non- International,
Parent Subsidiary Guarantor Discontinued Inc.
Company Guarantors Subsidiaries Operations Eliminations Consolidated
--------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
(Unaudited)
Net Cash Provided by (Used in) Operating Activities $ (26,268) $ 5,222 $ 1,207 $ 19 $ - $ (19,820)
--------- ---------- ------------ ------------ ------------ ------------
Investing Activities
Investments in subsidiaries and affiliates, net of
cash acquired - - - - - -
Sales of subsidiaries and/or investments - - - - - -
Net proceeds from sale of (investment in) net assets of
discontinued operations 135,316 - - - - 135,316
Purchases of fixed assets - - (428) - - (428)
--------- ---------- ------------ ------------ ------------ ------------
Net Cash Used in Investing Activities 135,316 - (428) - - 134,888
--------- ---------- ------------ ------------ ------------ ------------
Financing Activities
Borrowings under revolving credit facility 57,064 - - - - 4,791
Principal payments on revolving credit facility (92,584) - - - - (40,311)
Cash collateral for performance guarantees (22,854) - - - - (22,854)
Change in book overdraft (4,542) - - - - (4,542)
Distribution of income to minority interest -- - - - - -
Proceeds from issuances of common stock 38 - - - - 38
--------- ---------- ------------ ------------ ------------ ------------
Net Cash Provided by (Used in) Financing
Activities (62,878) - - - - (62,878)
--------- ---------- ------------ ------------ ------------ ------------
Effect of Exchange Rate Changes on Cash - - 76 - - 76
--------- ---------- ------------ ------------ ------------ ------------
Increase in Cash and Cash Equivalents 46,170 5,222 855 19 - 52,266
Cash and Cash Equivalents at Beginning of Period 2,414 3,814 9,039 (19) - 15,248
--------- ---------- ------------ ------------ ------------ ------------
Cash and Cash Equivalents at End of Period $ 48,584 $ 9,036 $ 9,894 $ - $ - $ 67,514
========= ========== ============ ============ ============ ============
</TABLE>
19
<PAGE>
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 1998
(In thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ICF Kaiser
Parent Subsidiary Non-Guarantor Discontinued International, Inc.
Company Guarantors Subsidiaries Operations Eliminations Consolidated
--------- ---------- ------------- ------------ ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Net Cash Provided by (Used in) Operating $ (4,616) $ (7,384) $ (9,972) $ - $ - $ (21,972)
Activities ----------- --------- --------- ------------ ------------ -----------------
Investing Activities
Investments in subsidiaries and affiliates,
net of cash acquired - - 3,759 - - 3,759
Sales of subsidiaries and/or investments - - 2,400 - - 2,400
Investments in net assets of discontinued - - - - --
operations
Purchases of fixed assets (814) (6) (1,726) - - (2,546)
---------- --------- --------- ------------ ------------ -----------------
Net Cash Provided by (Used in) (814) (6) 4,433 - - 3,613
Investing Activities ---------- --------- --------- ------------ ------------ -----------------
Financing Activities
Borrowings under credit facility 76,500 - - - - 76,500
Principal payments on credit facility (66,000) - - - - (66,000)
Change in book overdraft 5,518 - - - - 5,518
Distribution of income to minority interest - (3,489) - - - (3,489)
Proceeds from issuances of common stock 86 - - - - 86
---------- --------- --------- ------------ ------------ -----------------
Net Cash Provided by (Used in) 16,104 (3,489) - - - 12,615
Financing Activities ---------- --------- --------- ------------ ------------ -----------------
Effect of Exchange Rate Changes on Cash - - (309) - - (309)
---------- --------- --------- ------------ ------------ -----------------
Increase (Decrease) in Cash and Cash 10,674 (10,879) (5,848) - - (6,053)
Equivalents
Cash and Cash Equivalents at Beginning (4,843) 10,258 14,605 - - 20,020
of Period ---------- --------- --------- ------------ ------------ -----------------
Cash and Cash Equivalents at End of Period $ 5,831 $ (621) $ 8,757 $ - $ - $ 13,967
========== ========= ========= ============ ============ =================
</TABLE>
20
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
As a result of incurring substantial cost overruns, primarily in 1998, on four
large fixed price contracts to construct plants to produce nitric acid (the
Nitric Acid Projects), management of the Company has been aggressively
addressing the negative ramifications and working to return the Company to
profitability. In summary, significant actions during 1999 toward that end
include:
. the completion of the last two of its Nitric Acid Projects on which it
incurred $66.0 million in cost overruns that were recognized in 1998,
. the continued execution of a plan (summarized below) designed to enable the
Company to fund its operations as a result of the severe liquidity
constraints brought upon it largely by the problems with the Nitric Acid
Projects,
. and the continued focus on new business development activities in light of
the challenges imposed on it by the above activities.
As a result of cost overruns from the Nitric Acid Projects and the significant
ensuing restructuring activities, management, along with the Board of Directors,
developed a plan intended to enable the Company to return to profitability. The
plan consists primarily of:
. Divesting of operating units and reinvesting the funds into the Company to
facilitate the completion of the problem projects and to provide working
capital necessary to grow the retained business activities;
. Reducing the Company's overhead cost structure that would remain after the
divestiture of the operating units referenced above;
. Improving profitability of the retained operations; and
. Revising the Company's debt and capital structure in order to eliminate
barriers to securing new business and improve accessibility to new sources of
working capital.
Elements of the plan were initiated as early as the third quarter of 1998 while
the Nitric Acid projects were entering their final phases of completion. As
summarized below the progress made to date toward achieving each plan element
varies and the detail of each element continues to be reviewed and refined to
ensure that progress is made toward attainment.
Divesting of Operating Units
As of June 30, 1999, the Company has completed the sales of two business
segments.
. Sale of the Environment and Facilities Management Group (EFM): On April 9,
1999, the Company sold the majority of the active contracts and investments,
and transferred a substantial number of employees of EFM, to The IT Group,
Inc. (IT) for a cash purchase price of $82 million, less $8 million which was
retained by IT for EFM's working capital requirements. The Company will
complete EFM contracts that were not sold to IT in the near term. Net of
income tax expense, the Company recognized a gain of $13.4 million from the
sale.
. Sale of the Consulting Group: On June 30, 1999, the Company sold 90% of its
Consulting Group to CM Equity Partners, L.P. and the Group's management for
$64.0 million in cash and $6.6 million of interest-bearing notes. The Company
retained a 10% ownership balance in the new and independent consulting
company, now known as ICF Consulting Group, Inc. Net of income tax expense,
the Company recognized a gain of $35.4 million from the sale.
The combined net financial position and operating results of the two segments
have been presented in the accompanying financial statements as discontinued
operations for the entire six-month period. All prior period financial
information has also been restated to conform to the current presentation.
21
<PAGE>
Reducing Overhead and Improving Profitability
The restructuring plan includes actions to realign and reduce the Company's
post-divestiture overhead cost structure such that the remaining levels are
appropriate for its continuing operations. Elements of the overhead reduction
plan include an approximate 25% personnel reduction in the Company's wholly-
owned North American operations, downsizing facilities, closing of marginally
profitable office locations, discontinuing certain business offerings, improving
direct labor utilization on projects and enhancing project controls to minimize
risks of future contract losses. Because of certain centralized aspects of the
Company's organization structure that existed prior to completing the
divestitures discussed above, the cost reduction elements of this phase of the
plan could not begin effectively until after the divestitures were completed.
The results of the rightsizing should be evident in the Company's operating
results after June 30, 1999.
In connection with these actions, the Company recorded a charge for severance
and restructuring costs of $9.4 million during the second quarter of 1999.
Components of the charge included $4.5 million for severance, $1.6 million for
the write-off of goodwill associated with the discontinuance of operations from
a prior acquisition, a $2.2 million write-down reflective of the carrying value
impairment of certain long-term investments, and a $1.1 million charge for
anticipated sublease losses incurred as a result of office downsizing.
These cost reduction efforts, together with an increased focus on risk
mitigation and effective resource allocation, are aimed at improving the
profitability of the Company's remaining operations. The Company is committed to
implementing proper management controls and the processes necessary to deliver
high-quality, profitable projects throughout its operations.
Revising the Capital Structure
The Company is actively exploring means by which the remaining available cash
proceeds from the sale of the EFM and Consulting Groups may be used to
facilitate transactions that would reduce the Company's outstanding debt to
levels supportable over the long term by anticipated cash flows from remaining
operations. Such transactions may include proposals for the exchange of cash,
new debt and equity for some or all of the Company's outstanding Senior and
Senior Subordinated Notes. Any equity issuance could result in substantial
dilution to current holders of the Company's common stock.
The Company ended the second quarter of 1999 with approximately $900 million in
contract backlog for its continuing operations; $650 million for Kaiser-Hill and
$250 million for E&C.
Results of Continuing Operations
Gross Revenue
The Company's gross revenue by operating group for each of the three and six
month periods ended June 30 are as follows (in millions):
<TABLE>
<CAPTION>
For the three months For the six months
Ended June 30, Ended June 30,
--------------------------------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Kaiser-Hill ................................................. $165,221 $151,487 $310,297 $292,529
Engineering and Construction (E&C) .......................... 54,659 111,642 135,080 227,439
-------- -------- -------- --------
Total ..................................................... $219,880 $263,129 $445,377 $519,968
======== ======== ======== ========
</TABLE>
Kaiser-Hill
Kaiser-Hill is a 50% owned, board-controlled and consolidated joint venture
between ICF Kaiser International, Inc. and CH2M Hill formed solely to perform
the U.S. Department of Energy's Rocky Flats contract awarded in late 1995. The
contract is cost-plus incentive fee in nature. Accordingly, the changes in
gross revenue earned by Kaiser-Hill during the comparable periods are largely
reflective of increased levels of reimbursable subcontractor costs being
incurred as the contract progress ensues.
22
<PAGE>
Engineers & Constructors Group (E&C)
The Engineers and Constructors Group (E&C) provides engineering, construction
management and project and program management services to commercial and
federal, state, and local entities in the areas of transit and transportation,
alumina and aluminum, facilities engineering and management, iron and steel and
microelectronics and clean technology. The decrease in gross revenue of $56.9
million and $92.4 million, respectively, during the three and six months ended
June 30, 1999 compared to the same periods in 1998 is comprised of the
following:
. a decline of $21.8 million and $52.9 million, respectively, in gross revenue
generated by the Company's construction management activities specializing in
fabrication plants and other facilities for semiconductor and
microelectronics customers. This revenue consisted largely of construction
costs that are directly reimbursed by the customers, thus this decrease did
not have an equal impact on the Company's operating results.
. an increase of $5.4 million and $17.6 million, respectively, in gross revenue
generated by the Nova Hut steel mini-mill contract in the Czech Republic
primarily from completing activities of the project involving the procurement
of significant amounts of subcontracted labor and direct materials. Currently
contracted portions of this project are expected to be completed during the
latter half of 1999.
. a reduction of $28.3 million and $34.6 million, respectively, in gross
revenue generated by the Nitric Acid Projects, partially reflective of the
decreasing volume of activity on the projects as they neared completion.
. declines in activities in the Asian region of $2.9 million and $4.5 million,
respectively, reflecting the softened industrial markets following economic
strains in the countries in that region.
. reductions of $2.3 million and $3.0 million, respectively, in revenues from
certain foreign operations that were discontinued after the second quarter of
1998.
. other net reductions representing an 11% and 10% decrease, respectively, in
the remaining E&C business base, resulting from the management attention
diverted to resolving the Nitric Acid Projects and an inability to secure new
business and growth on existing projects sufficient to offset completing
projects.
Service Revenue
The Company's service revenue for the three and six months ended June 30, as
well as the related percentage of service revenue to gross revenue, is as
follows (in millions):
<TABLE>
<CAPTION>
Three Months Six Months
--------------------------------------- -----------------------------------------
1999 1998 % Change 1999 1998 % Change
------ ------ --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Kaiser-Hill ........................ $36.0 22% $35.5 23% 1.4% $ 70.7 23% $ 71.2 24% (0.01%)
Engineering and Construction (E&C) .. 27.3 50% 38.1 (1) (28.3%) 56.7 42% 76.9 (1) (26.2%)
----- ----- -- ----- ------ ------ -- -----
$63.3 29% $73.6 12% (14.0%) $127.4 28% $148.1 28% (26.1%)
===== ===== ===== ====== ====== =====
</TABLE>
(1) For comparative purposes, service revenue has been adjusted to exclude the
$40.0 million Nitric Acid Project loss provision recorded during the three
months ended June 30, 1998.
Kaiser-Hill
- -----------
Kaiser-Hill's service revenue is generated in part by fees earned as a
percentage of costs incurred to execute the project and in part by incentive
fees earned for attaining specified contract performance thresholds. The
incentive fees are not based on incurred costs. The flat service revenue
performance quarter over quarter was indicative of the flat amounts of
underlying costs incurred by the project in the respective periods.
Engineers & Constructors Group (E&C)
- ------------------------------------
Adjusting for the $40.0 million provision for Nitric Acid contract losses
recorded in the second quarter of 1999, service revenue decreased by $10.3
million and $20.7 million, respectively, during the three and six months ended
June 30, 1999,
23
<PAGE>
compared to the same quarters in 1998 due to the following activities:
. a reduction of $1.0 million and $1.6 million, respectively, in service
revenue generated by the Company's construction management activities
specializing in fabrication plants and other facilities for semiconductor and
microelectronics customers.
. a reduction of $1.3 million and $3.0 million, respectively, previously
generated from the Nitric Acid Projects. The Projects generated no service
revenue in 1999, reflective of the large provisions for cost overruns
recorded during 1998 and of the fact that the last phases of the contracts
were more subcontractor intensive. The related service revenue recognized
primarily during the first quarter of 1999 was on two Nitric Acid Projects
for which, as of the same time in 1998, the Company had not yet projected
losses at completion. Although management believes that adequate provision
for loss reserves and profit estimates for these fixed-price contracts has
been reflected in the Company's historical results, no assurance can be given
that there will be no additional future adjustments.
. a reduction of $2.6 million and $4.8 million, respectively, generated by
Asian activities, respectively, reflecting the softened industrial markets
following economic strains in the countries in the region.
. a reduction of $0.6 million and $1.1 million, respectively, representing the
late 1998 discontinuance of certain E&C operations in several foreign
markets.
. other net reductions representing a 13% and 13.6% decrease during the three
and six months ended June 30, 1999, respectively, in the remaining E&C
business base, resulting from the management attention diverted to resolving
the Nitric Acid projects and as a result of the ramifications on the
business, an inability to secure new business and growth on existing projects
sufficient to offset completing projects.
Corresponding to the decrease in service revenue, direct labor deployed on
projects decreased by 28% and 25%, respectively, during the comparable three and
six month periods in 1999. As evidenced by the percentage increase in group
overhead as a percentage of service revenue (summarized below), much of the
direct labor decline was not eliminated, rather it contributed to
proportionately increasing the Group's overhead costs.
Operating Expenses
Segment operating expenses as a percentage of service revenue for each of the
three and six months ended June 30 are as follows:
<TABLE>
<CAPTION>
Kaiser-Hill E&C
----------------------------------- ---------------------------------------
Three Months Six Months Three Months Six Months
----------------- ----------------- ------------------- ------------------
1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service Revenue . 100% 100% 100% 100% 100% 100% (1) 100% 100% (1)
Operating Expenses
Direct labor and fringe benefits . 88% 89% 88% 87% 62% 62% 61% 73%
Group overhead......................... - - - - 34% 28% 35% 15%
---- ---- ---- ---- ---- --- --- ---
Segment income........................... 12% 12% 12% 13% 4% 10% 4% 12%
==== ==== ==== ==== ==== === === ===
</TABLE>
(1) For comparative purposes, service revenue has been adjusted to exclude the
$40.0 million Nitric Acid Project loss provision recorded during the three
months ended June 30, 1998.
The segment operating results include all direct and overhead activities that
are typically controllable by the respective segment's business leaders and
consist of activities that had sole direct benefit to the respective segment.
Operating activities that are deemed to benefit more than one segment are not
managed by segment business leaders but are instead managed by the Company's
corporate overhead structure and are not allocated to the segments but instead
classified as corporate overhead on the Company's income statement.
Corresponding to the decrease in service revenue above, direct labor deployed on
projects decreased by 28% and 25%, respectively during the comparable three and
six month periods in 1999. As evidenced, however, by the percentage increase in
group overhead as a percentage of service revenue, much of the direct labor
decline was not eliminated and contributed to proportionately increasing the
Group's overhead costs.
The levels of corporate general and administrative expense (not detailed above)
incurred during the three and six months ended June 30, 1999 and 1998 were for
the Company's organization and size prior to the completion of the sales of the
24
<PAGE>
EFM and Consulting Groups in the second quarter of 1999. Subsequent to those
sales, all overhead and general and administrative spending will be restructured
and reduced to levels appropriate for the Company's continuing core E&C
operations. Management believes it can significantly reduce or "right-size"
these costs. Corporate general and administrative expenses decreased only
slightly during the second quarter of 1999 as compared to the first quarter of
1999 - indicative of the fact that management's overhead reduction plan did not
take effect prior to June 30. Corporate general and administrative expenses
increased by $0.2 million, or 3%, during the six months ended June 30, 1999
compared to the same period in 1998 due to certain current year efforts
undertaken to address the Company's readiness for the Year 2000.
In light of the significant 1998 contract overruns and ensuing activities
directed at resolving the resulting liquidity issues, the Company has incurred
costs that it ordinarily would not incur without these strains. Such costs,
including certain divestiture-related expenses of professional fees as well as
increased bank fees, and fines and penalties, have been presented as unusual
items in the accompanying income statement.
Severance and Restructuring
The restructuring plan also includes actions to realign and reduce the Company's
post-divestiture overhead cost structure such that the remaining levels are
appropriate for its continuing operations. Elements of the overhead reduction
plan include an approximate 25% reduction in the Company's wholly-owned North
American operations, downsizing facilities, closing of marginally profitable
office locations, discontinuing certain business offerings, improving direct
labor utilization on projects and enhancing project controls to minimize risks
of future contract losses.
Actions intended to obtain these results were largely executed effective late in
June, 1999. In connection with the actions, the Company recorded a charge for
severance and restructuring costs of $9.4 million during the second quarter of
1999. Components of the charge included $4.5 million for severance, $1.6 for the
write-off of goodwill associated with the discontinuance of operations from a
prior acquisition, a $2.2 million write-down reflective of the carrying value
impairment of certain long-term investments, and a $1.1 million charge for
anticipated sublease losses incurred as a result of office downsizing.
In June of 1998, the Company recorded a $1.5 million charge for the costs of
legal and organizational changes necessary for the disposition of the Consulting
Group.
Interest Expense
The Company's average outstanding debt and the related average effective
interest rates for three and six months ended June 30, 1999 was as follows:
<TABLE>
<CAPTION>
Three Months Six Months
---------------------------- -------------------------
1999 1998 1999 1998
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Weighted average outstanding debt .................. $144,129 $149,345 $159,771 $147,133
Average effective interest rate .................... 14.9% 13.2% 15.3% 13.2%
</TABLE>
The increase in the average debt outstanding during the six months ended June
30, 1999 compared to the same period in 1998 was primarily related to the timing
of the incremental borrowings necessary to fund the remaining Nitric Acid
Project losses less the repayment of the entire revolving credit facility
balance of $35.5 million on April 9, 1999 out of the proceeds from the sale of
the EFM Group.
The terms of the Company's revolving credit facility called for the proceeds of
the EFM sale to be used to extinguish outstanding debt and to terminate the
facility. Upon the sale of the EFM Group, the Company agreed to a revolver
amendment to extend the facility until the earlier of June 30, 1999 or the
completion of the Company's sale of its Consulting Group. Amendment fees
totaling $1.0 million have been included in interest expense for the three and
six months ended June 30, 1999. Unamortized debt issuance costs of $1.1
million associated with this facility, net of an income tax benefit of $0.4
million, were expensed on June 30, 1999 as an extraordinary item in the
accompany Statement of Operations.
The Company did not pay $9.1 million in interest that was due on its Notes as of
June 30, 1999. The interest was paid, however, on July 30, 1999, prior to the
expiration of a 30-day grace period.
25
<PAGE>
Income Tax Expense
During the three months ended June 30, 1998, the Company recognized an income
tax benefit and related deferred tax asset of $18.1 million, primarily as a
result of reserves recorded for the estimated future Nitric Acid Project losses.
That income tax benefit increased the Company's deferred tax asset to $33.4
million. Management did not recognize additional financial statement benefits
created by the potential future deductibility of its net operating losses due to
uncertainties over the Company's ability to generate sufficient future taxable
income - essentially adopting the policy of not benefiting any additional future
losses until such uncertainties over positive earnings were alleviated.
The net effect of the income tax activity for the three and six months ended
June 30, 1999 was a combination of income tax impacts related to continuing
operations, as well as the income taxes resulting from the Company's gains on
the second quarter sales of two of its divisions. Continuing with recently
established policy, in the second quarter, the Company did not recognize current
financial statement benefits created by the potential future deductibility of
historical net operating losses created largely by domestic operations. Rather,
the Company only recognized income tax expense that will be due as a result of
current period foreign earnings.
In addition, the Company recognized $34.5 million in income tax expense in the
three months ended June 30, 1999 resulting from its gains on the sale of two of
its divisions. This amount of income tax expense offset the entire balance of a
previously established deferred tax asset totaling $34.5 million. The asset was
previously comprised of total future income tax credits from all sources of
$60.0 million less a $25.3 million valuation allowance. The valuation allowance
had been recorded to reflect the uncertainty over the Company's ability to use
all of the net operating loss deductions in the future. The current period
income tax expense from the gains on the sale of the two divisions included a
$2.9 million benefit from the release of valuation allowance offset by the
alternative minimum and state income taxes due on the sales of $1.9 million.
The remaining valuation allowance totals $22.4 million.
The income tax provision for all periods presented excludes the minority's
interest in Kaiser-Hill's operating income because it is only 50% owned and is a
flow-through entity for income tax purposes.
Results of Discontinued Operations
The operating results of the two discontinued segments have been included in the
accompanying financial statements, in accordance with generally accepted
accounting principles, in the form of their net results only. Summarized
results for the discontinued segments is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
---------------------------- ----------------------
Three and Six Months Ended June 30, 1999 1998 1999 1998
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Gross revenue.................................................. $ 27,362 $ 48,883 $ 83,763 $ 97,300
Subcontracts and materials.................................... (9,534) (16,514) (30,990) (32,200)
----------- ----------- --------- ---------
Service revenue................................................ 17,828 32,369 52,773 65,100
Operating expenses:
Direct labor and fringe....................................... 9,185 15,830 26,133 31,800
Group overhead................................................ 8,634 12,675 22,151 24,581
Depreciation and amortization................................. 300 657 429 1,400
---------- ----------- --------- ---------
Segment income before income tax............................... $ (291) $ 3,207 $ 4,060 $ 7,319
========== =========== ========= =========
</TABLE>
Segment income for the three and six months ended June 30, 1999 decreased in
comparison to the 1998 periods due to:
. the sale of the EFM Group was completed as of April 9, 1999. Therefore only 9
days of results were included in the second quarter of 1999, and
. the write-off of $1.4 million in revenue and segment income in the Consulting
Group during the second quarter in response to developing problems on certain
systems implementation contracts.
Total segment income from the discontinued operations for the three and six
months ended June 30, 1999 and 1998, respectively, is presented in the
accompanying income statement net of an applicable 40% income tax rate of
$0.1 million and $1.6 million, respectively. Regardless of the income tax
expense recognized on the earnings from the discontinued operations, the
Company's consolidated tax position has no net current income tax expense (other
than for foreign income taxes) - see Income Tax Expense. Therefore, the tax
expense attributable to the earnings from the discontinued operations
26
<PAGE>
has been offset in the income tax provision from continuing operations by a
similar amount of income tax benefit.
Cumulative Effect of Accounting Change
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued a Statement of Position 98-5 -
Reporting on the Costs of Start-Up Activities (SOP 98-5). The SOP requires
costs of organization and start-up activities to be expensed as incurred.
Initial application of the SOP should be reported as the cumulative effect of a
change in accounting principle, as described in Accounting Principles Board
Opinion No. 20, Accounting Changes. The Company adopted the Statement effective
April 1, 1998 and recognized a charge of $6 million, net of tax, as the
cumulative effect of the adoption.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities: Apart from operating cash flows of $3.5 million generated
by Kaiser-Hill during the six months ended June 30, 1999, the Company's
remaining continuing operations used $23.3 million in cash - primarily for the
latter funding obligations of the Nitric Acid Project overruns, as well as the
costs of its restructuring plan including employee severance and office
closings. The Company did not pay $9.1 million in interest expense that was due
on its Notes as of June 30, 1999 until July 30, 1999, prior to the expiration of
a 30-day grace period contained in the Note indentures.
Investing activities: Fixed asset purchases during the first half of 1999 and
1998 consisted largely of the capitalized costs of either purchased or
internally developed software necessitated by the Company's software replacement
efforts for Year 2000 issues.
During the second quarter of 1999, the Company completed the sales of its EFM
and Consulting Groups and collected total proceeds of $135.3 million. During
the first quarter of 1998, the Company collected $2.4 million from the sale of
its 1997 sale of a remaining minority investment in a pulverized coal injection
facility. Also during the first quarter of 1998, the Company acquired cash of
approximately $3.8 million when it completed the acquisition of the former ICT
Spectrum using common stock.
Financing activities: Also upon the sale of the EFM Group, the Company used
$35.5 million of the $135.3 million of net divestiture proceeds to extinguish
outstanding borrowings on its revolving credit facility. The Company then
obtained an amendment to the revolver extending the facility, with similar
restrictive financial covenants and a substantially reduced total borrowing
capacity, until the earlier of June 30, 1999 or the completion of the Company's
sale of its Consulting Group. The amendment required an additional $10.0
million of the EFM proceeds to cash collateralize a portion of its outstanding
letters of credit previously secured by assets of the Company. Upon the closing
of the sale of the Consulting Group on June 30, 1999, an additional $12.9
million of sale proceeds was required to cash collateralize the remaining amount
of outstanding letters of credit. The facility was then terminated. Amendment
fees totaling $1.0 million have been included in interest expense for the three
and six months ended June 30, 1999.
Beginning in the second quarter of 1998, the Company was required to draw
against the applicable revolving line of credit in order to fund the Nitric Acid
Project overruns in addition to fund growing aspects of its federal government
business units - the EFM and Consulting Groups. Net draws from the line during
the second quarter of 1998 totaled $10.0 million. Also during the first six
months of 1998, Kaiser-Hill distributed $3.1 million to each of its owners.
As of June 30, 1999, the Company had no outstanding cash borrowings, no
immediate access to any borrowing capacity and $22.9 million in cash collateral
supporting outstanding letters of credit.
Liquidity and Capital Resource Outlook
Based on current plans and expectations, management believes that the net cash
proceeds from the completed EFM sale and the Consulting Group sale will yield
sufficient short-term liquidity to bridge the Company's financing needs until
such time as the Company can secure other longer-term funding alternatives.
Specifically, the cash proceeds from the divestitures were used to retire $35.5
million in outstanding cash borrowings from the revolving credit facility,
provide $22.9 million in required collateral for contract performance guarantees
(including letters of credit), and reinvested in the Company to support the
future working capital requirements and capital expenditures of the Company's
remaining operations, including the $9.1 million interest obligations due June
30, 1999 to the Senior and the Senior Subordinated Notes, which was paid on July
30, 1999.
27
<PAGE>
Effective with the sale of the Consulting Group, the Company's amended $30
million revolving line of credit (the Amended Revolver) from its current lenders
was terminated. As anticipated, the Company does not presently have an
available revolving line of credit and does not expect to have access to a line
prior to the completion of the contemplated debt restructuring. Based on
preliminary discussions with qualified lending institutions, the Company
believes it will be able to obtain a new line of credit conditioned upon the
successful restructuring of the Company's Senior and Senior Subordinated Notes,
however, there can be no assurances as to its ability to actually secure such a
line of credit. This constraint could limit the availability of letters of
credit to support the growth of the Company's business.
Management believes that a factor critical to the Company's success in
restructuring its Senior and Senior Subordinated Notes, and to securing a
sufficient and affordable working capital facility in the near term is its
ability to immediately reduce sufficient overhead costs from remaining
operations and achieve improved operating results. Although management has taken
certain steps to accomplish these milestones, there can be no assurance that it
will be able to do so successfully.
The Company is actively exploring means by which the remaining available cash
proceeds from the sales of the EFM and Consulting Groups may be used to
facilitate transactions that would reduce the Company's outstanding debt to
levels supportable over the long term by anticipated cash flows from remaining
operations. Such transactions may include proposals for the exchange of cash,
new debt and equity for some or all of the Company's outstanding notes. Any
equity issuance could result in substantial dilution to current holders of the
Company's common stock.
The Company also will continue to explore options that would provide additional
capital for longer-term objectives and operating needs, including the
possibility for divestiture of additional operating assets and additional equity
infusions.
Other Matters
Bath Contingency: In March 1998, the Company entered into a $187 million
maximum price contract to construct a ship building facility. In May 1998, the
Company subsequently learned that estimated costs to perform the contract as
reflected in actual proposed subcontracts were approximately $30 million higher
than the cost estimates originally used as the basis for contract negotiation
between the Company and the customer. After learning this, the Company advised
the customer that it was not required to perform the contract in accordance with
its terms as a result of a mutual mistake among them in negotiating that
contract. In October 1998, the customer presented an initial draft of a claim
against the Company requesting payment for estimated damages and entitlements
pursuant to the terminated contract. The Company and the customer are currently
discussing the customer's draft claim. No provision for loss for this matter has
been included in the Company's financial results to date, as management does not
believe that it has sufficient information to reasonably estimate the outcome as
negotiation activity has not been significant to date.
Acquisition Contingency: The ICF Kaiser common shares exchanged for the stock of
ICT Spectrum in the March, 1998 acquisition carry the guarantee that the fair
market value of each share of stock will reach $5.36 by March 1, 2001. In the
event that the fair market value does not attain the guaranteed level, the
Company is obligated to make up the shortfall either through the payment of cash
or by issuing additional shares of common stock, or both, with a total value
equal to the shortfall, depending upon the Company's preference. Pursuant to the
terms of the agreement, however, the total number of contingently issuable
shares of common stock cannot exceed an additional 1.5 million. Given that the
quoted fair market value of the stock at June 30, 1999 was $0.38 per share, the
assumed issuance of an additional 1.5 million shares would not completely
extinguish the purchase price contingency. Any future distribution of cash or
common stock would be recorded as a charge to the Company's paid-in-capital.
Until the earlier of the contingent purchase price resolution or March 1, 2001,
any additional shares assumed to be issued because of shortfalls in fair market
value will be included in the Company's diluted earnings per share calculations,
unless they are antidilutive. The exchanged shares also contain restrictions
preventing their sale prior to March 1, 2001.
On March 29, 1999, one ex-ICT Spectrum shareholder, individually and on behalf
of all others similarly situated, filed a class action lawsuit alleging false
and misleading statements made in a private offering memorandum, and asserting
other claims, in connection with the Company's acquisition of ICT Spectrum in
1998. The Company has filed a motion to dismiss the plaintiffs' amended
complaint.
Year-2000 Readiness: Similar to many organizations that use computer programs
in their operations, the Company is addressing the impact of the Year-2000 issue
on its business. The Year-2000 issue is the result of computer programs that
were written using two digits rather than four to identify the year in a date
field. Although it is possible that certain programs could function if left
uncorrected, there is a significant risk that computer programs will recognize
any two digit date containing ''00'' to be referring to the year 1900 rather
than the year 2000. This could result in system failures and miscalculations
causing disruptions to regular operations.
28
<PAGE>
The Company has developed and implemented a plan to achieve Year-2000 readiness.
The Year-2000 program, led and coordinated at the corporate level, consists of
senior management from all Company disciplines, and is being executed and
implemented by teams in each of the Company's operating groups throughout the
world. The Company has identified the following five areas in which Year-2000
readiness and/or risk assessment are critical operations:
(1) software applications used by management to run and monitor the business
("Internal Systems");
(2) the hardware and related software used internally to run the core business--
such as desk-top hardware and software applications, communications networks,
and systems used in the operation of office facilities ("Hardware, Network, and
Facilities Systems");
(3) software that the Company has either purchased, designed, developed,
written, or interfaced, and sold to customers ("Customer Systems");
(4) software used by the Company's significant vendors or subcontractors that
could disrupt the flow of the Company's activities in the event that the system
malfunctions ("Vendor Systems"); and
(5) systems critical to the operations of Kaiser-Hill ("Kaiser-Hill Systems").
Within each category, the Company has identified and assigned criticality
priorities to the various systems. Levels of system criticality were defined as
those that might have a significant adverse effect to the Company in any of the
areas of safety, environmental, legal, financial, and service-delivery
capabilities.
Internal Systems: Management's ongoing assessment of the majority of its
Internal Systems began in 1995 and 1996 with the replacement of its main-frame
based financial and project management software systems with new client-server
applications which will be Year 2000 ready. The phased conversion to the new
systems began in 1996 and is scheduled for completion by September 1999. The
costs of the new software, external consultants, and the internal cost of
implementation labor is being capitalized and amortized over a period of five
years. The total remaining costs, excluding internal labor, of this aspect of
the Year-2000 project, including nonrecurring costs associated with the
historical archival of main-frame-based computer data, are estimated to be less
than $0.25 million.
Hardware, Network and Facilities Systems: The Company is finalizing the
inventory and assessment of these systems and is currently in the replacement
mode. Estimated costs of $0.2 million will be incurred to replace these critical
systems, primarily including the replacement of embedded technology in items
such as telephone switches. The Company will most likely finance the majority of
this obligation through operating leases just as it does for the majority of its
annual ongoing needs for technology updates for desk-top hardware and software.
Accordingly, the charges will be expensed as the lease financing is paid.
Customer Systems: The Company also is assessing the risk surrounding Year-2000
readiness in its customer systems, i.e. risk that may have been created through
the Company's contracts for services in which the Company's professionals wrote
and delivered software source code, or procured third party software for
modification and/or resale to customers. Based on the service orientations of
the Company's business, which historically did not make wide use of computer
software applications, management does not anticipate significant contract
exposures emanating from the improper functioning of delivered source code that
would still be covered under nonexpired contract warranty provisions. There can
be no assurances that the Company's customers would be unable to seek such
compensation even if the contracts do not provide for it.
Vendor Systems: The Company is also corresponding with all vendors and
subcontractors related to the Vendor Systems that have been identified through
reasonable risk assessment techniques as critical to the Company's operations
regarding their Year-2000 readiness. Compliance assessment in this area will be
ongoing throughout 1999. The Company will devise contingency plans in the event
it believes significant risk to a disruption of service to the Company is not
being adequately mitigated. Currently, management does not anticipate the need
for contingency plans. Of course, the ability of parties to be compensated for
monetary or other damages resulting from Year-2000 readiness risks is unknown.
Kaiser-Hill Systems: Kaiser-Hill also has a Year-2000 readiness program,
separate from that of the Company. The United States Department of Energy (DOE)
owns all property and equipment at the Rocky Flats Environmental Technology Site
near Denver, Colorado. While DOE bears the Year-2000 risk at Rocky Flats,
Kaiser-Hill manages and uses the DOE property in its execution of the site
closure contract. One work element of the Rocky Flats contract requires that
Kaiser-Hill plan and execute DOE's Year-2000 readiness activities at the site.
Costs incurred by Kaiser-Hill in the execution of the
29
<PAGE>
readiness activities are fully reimbursed by the DOE. Additionally, Kaiser-Hill
is eligible for performance award fees for attaining certain plan performance
milestones, and is susceptible to penalties in the event certain plan milestones
are not attained. Successful progress on the plan execution to date has resulted
in Kaiser-Hill being awarded more than $0.5 million in performance award fees
through June 30, 1999, as well as attaining reductions to the total amount of
potential penalties, limiting the remaining potential penalty exposure to less
than $0.5 million.
Although there can be no guarantee of complete readiness by the beginning of the
year 2000, the Company believes each of the business areas described above will
be Year-2000 ready or be substantially ready by November 1999 such that further
remediation and testing, if any, will not be significant. In the event the
Company does not complete its program, or fails to properly identify and modify
critical business applications, there may be an interruption to the Company's
business that may have a material adverse affect on its business, future
financial condition and results of operations. In addition, Year-2000-related
disruptions in the general economy may also have a materially adverse effect on
the Company's future financial condition and results of operations.
At this time, management believes that the majority of the risks to its critical
business operations are within the Company's control and ability to address,
however, the Company has developed a "worst case" scenario or an overall Year-
2000 contingency plan for those systems that management believes pose
significant risk to the Company in the event timely readiness is not achieved.
(see "Forward-Looking Information" below).
Forward-Looking Statements
From time to time, certain disclosures in reports and statements released by the
Company, or statements made by its officers or directors, will be forward-
looking in nature. These forward-looking statements may contain information
related to the Company's intent, belief, or expectation with respect to contract
awards and performance, potential acquisitions and joint ventures, and cost-
cutting measures. In addition, these forward-looking statements contain a number
of factual assumptions made by the Company regarding, among other things, future
economic, competitive, and market conditions. Because the accurate prediction of
any future facts or conditions may be difficult and involve the assessment of
events beyond the Company's control, actual results may differ materially from
those expressed or implied in such forward-looking statements.
The Company is availing itself of the safe harbor provisions provided in the
Private Securities Litigation Reform Act of 1995 by cautioning readers that the
forward-looking statements that use words such as the Company "believes,"
"anticipates," "expects," "estimates," and "believes" are subject to
certain risks and uncertainties which could cause actual results of operations
to differ materially from expectations. These forward-looking statements will be
contained in the Company's federal securities laws filings or in written or oral
statements made by the Company's officers and directors to press, potential
investors, securities analysts, and others. Any such written or oral forward-
looking statements should be considered in context with the risk factors
discussed below:
. the Company requires access to a revolving credit line to fund short-
term borrowing needs of the Company's total remaining operations, as well as
the letter of credit capacity needed primarily by the E&C Group. The Company
may not be able to generate collateral to support a borrowing base of
sufficient size to obtain such credit or may not be able to improve operating
results enough, by removing overhead costs or otherwise, to be able to obtain
such credit.
. the Company may be precluded from attaining other satisfactory contract
performance guarantee mechanisms, such as performance bonding capabilities.
. the Company may not be able to maintain the existing volume or size of
contracts and may not be able to realize increased contract performance
levels.
. the Company is involved in a number of fixed-price contracts under which
the Company can benefit from cost savings or performance efficiencies, but if
certain pricing and performance assumptions prove inaccurate, unrecoverable
cost overruns can occur.
. the Company may not be awarded new contracts for which it is competing
in its established markets or these awards may be delayed; in addition, the
Company may not be able to win contracts in new markets it chooses to target.
General economic conditions in the international arena, especially Asia and
Latin America, could negatively impact the Company's current international
business and its ability to expand in international markets.
. the Company may not be able to make acquisitions and or enter into joint
ventures, and if made, acquisitions and joint ventures may take more time to
contribute favorably to the Company's financial results than was formerly
30
<PAGE>
assumed. The Company is highly leveraged and is subject to restrictive
covenants that limit its ability to fund potential acquisitions and joint
ventures beyond certain levels established in its debt agreements.
. a portion of the Company's business has been and is generated either
directly or indirectly as a result of federal and state laws, regulations,
and programs; a reduction in the number or scope of these laws, regulations,
or programs could materially affect the Company's business.
. certain of the Company's environmental work poses risks of large civil
and criminal liabilities for violations of environmental laws and
regulations, and liabilities to customers and to third parties for damages
arising from the Company's performing environmental services to its clients.
A large fine or penalty imposed on the Company could negatively impact
contract performance fees under certain existing contracts or otherwise
negatively affect the Company's financial results.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company does not believe that it has significant exposures to market
risk. The majority of its foreign contracts are denominated and executed in
the applicable local currency. The interest rate risk associated with the
majority of the Company's borrowing activities is fixed, however, a 10%
increase or decrease in the average annual prime rate would result in an
increase or decrease of .72% multiplied by the weighted-average amount of
fluctuating rate borrowings outstanding during a period.
Part II - Other Information
Item 1. Legal Proceedings
As previously reported in the Annual Report on Form 10-K for the year ended
December 31, 1998.
Item 2. Changes in Securities
(a) None (b) None (c) None (d) Not applicable
Item 3. Defaults Upon Senior Securities
(a) None
(b) None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits filed as part of this report are listed below:
No. 21 Consolidated Subsidiaries of the Registrant as of July 2, 1999
No. 27 Financial Data Schedule
(b) Reports on Form 8-K
On June 10, 1999 ICF Kaiser filed a Form 8-K referencing a change in the
Company's Chairman of the Board of Directors.
On July 6, 1999, ICF Kaiser filed a Form 8-K referencing a press release
announcing its June 30, 1999 sale of its Consulting Group.
31
<PAGE>
On July 7, 1999, ICF Kaiser filed a Form 8-K referencing an amendment to
its Rights Agreement dated January 13, 1992 that governs its Shareholder
Rights Plan.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized.
ICF KAISER INTERNATIONAL, INC.
(Registrant)
Date: August 16, 1999
/s/ Timothy P. O'Connor
-----------------------
Timothy P. O'Connor
Executive Vice President and Chief Financial
Officer
(Duly authorized officer and principal financial
officer)
32
<PAGE>
EXHIBIT 21
ICF KAISER INTERNATIONAL, INC.
9300 Lee Highway, Fairfax, Virginia 22031
(703) 934-3600
ICF Kaiser International, Inc.'s consolidated subsidiaries are listed
below. Consolidated subsidiaries which are less than wholly owned are indicated
by the ownership percentage figure in parentheses following the name of the
consolidated subsidiary.
<TABLE>
<CAPTION>
JURISDICTION
CONSOLIDATED SUBSIDIARY OF FORMATION
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
I. Cygna Group, Inc. Delaware
II. Liability Risk Management, Inc. California
I. EDA, Incorporated Maryland
I. HBG Hawaii, Inc. Delaware
I. HBG International, Inc. Delaware
I. ICF Kaiser Development Corporation, Inc. Delaware
II. Global Trade & Investment, Inc. Delaware
I. ICF Kaiser Engineers Group, Inc. Delaware
II. Henry J. Kaiser Company Nevada
II. ICF Kaiser Engineers, Inc. Ohio
III. Henry J. Kaiser Company (Canada) Ltd. Canada
III. ICF Kaiser Engineers & Builders, Inc. Delaware
III. ICF Kaiser Engineers (California) Corporation Delaware
III. ICF Kaiser Engineers Corporation New York
III. ICF Kaiser Engineers of Michigan, Inc. Michigan
III. ICF Kaiser International Planning & Design, Inc. (33 1/3%) Pennsylvania
III. ICF Kaiser Overseas Engineering, Inc. Delaware
III. Kaiser Engineers Limited United Kingdom
IV. Kaiser Engineers Technical Services Limited (80%) Cyprus
III. Kaiser Engineers and Constructors, Inc. Nevada
IV. ICF Kaiser Engenharia e Participacoes Ltda. (99.9%) Brazil
V. ICF Kaiser Construcoes e Engenharia Ltda (99.989%) Brazil
IV. ICF Pty. Ltd. (50%) Australia
IV. Kaiser Engineers Limited (0.02%) U.K.
IV. Kaiser Engenharia S.A. (50%) Portugal
V. ICF Kaiser Construcoes e Engenharia Ltda (0.01%) Brazil
IV. Kaiser Engineers (NZ) Ltd (1%) New Zealand
IV. Kaiser Engineers Pty. Ltd. (50%) Australia
V. KWA Kenwalt (50%) Australia
V. ICF Kaiser Aluterv KFT Hungary
V. ICF Kaiser Engineers Asia Pacific Pty Ltd Australia
V. ICF Kaiser Engineers (Hong Kong) Ltd Hong Kong
V. ICF Kaiser Engineers (Singapore) Pte Ltd Singapore
V. Kaiser Engineers (NZ) Limited (99%) New Zealand
III. Kaiser Engineers International, Inc. Nevada
IV. ICF Pty. Ltd. (50%) Australia
IV. ICF Kaiser Engenharia e Participacoes Ltda.(0.1%) Brazil
IV. ICF Kaiser Panama S.A. Panama
IV. Kaiser Engenharia S.A. (50%) Portugal
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
IV. Kaiser Engineers Pty. Ltd. (50%) Australia
III. Kaiser Engineers Limited (99.98%) U.K.
IV. Kaiser Engineers Technical Services Limited (80%) Cyprus
IV. Kaiser Engineers (UK) Limited (50%) U.K.
III. Kaiser Engineers (UK) Limited (50%) U.K.
IV. Kaiser Engineers Technical Services Limited (20%) Cyprus
III. KE Services Corporation Delaware
III. Kaiser Engenharia e Constructoes Limitada Brazil
II. International Waste Energy Systems, Inc. Delaware
II. KE Livermore, Inc. Delaware
I. ICF Kaiser Engineers Massachusetts, Inc. Delaware
I. ICF Kaiser Engineers Pacific, Inc. Nevada
I. ICF Kaiser Europe, Inc. Delaware
I. ICF Kaiser / Georgia Wilson, Inc. Delaware
I. ICF Kaiser Government Programs, Inc. Delaware
II. Kaiser-Hill Company, LLC (50%) Colorado
III. Kaiser-Hill Funding Company, L.L.C. (98%) Delaware
II. Kaiser-Hill Funding Company, L.L.C. (1%) Delaware
I. ICF Kaiser Hanford Company Delaware
I. ICF Kaiser Holdings Unlimited, Inc. Delaware
II. American Venture Investments Incorporated Delaware
III. American Venture Holdings, Inc. Delaware
II. Cygna Consulting Engineers and Project Management, Inc. California
II. Excell Development Construction, Inc. Delaware
II. ICF Kaiser DPI Holding Co., Inc. Delaware
II. ICF Kaiser Engineers Eastern Europe, Inc. Delaware
III. ICF Kaiser Netherlands B.V. (10%) Netherlands
II. ICF Kaiser Hunters Branch Leasing, Inc. Delaware
II. ICF Kaiser Idaho Programs, Inc. Delaware
II. ICF Kaiser Netherlands B.V. (90%) Netherlands
II. ICF Leasing Corporation, Inc. Delaware
I. ICF Kaiser Servicios Ambientales, S.A. de C.V. (66 2/3%) Mexico
I. ICF Kaiser Technology Holdings, Inc. Delaware
II. ICF Kaiser Advanced Technology, Inc. Idaho
III. ICF Kaiser Advanced Technology of New Mexico, Inc. New Mexico
I. ICF R G.P. No. 1, Inc. Delaware
I. Monument Select Insurance Company Vermont
I. Phase Linear Systems Incorporated Delaware
I. Tudor Engineering Company Delaware
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
Represents gross revenue, which includes costs of certain services subcontracted
to third parties and other reimbursable direct project costs, such as materials
procured by the company on behalf of its customers. Gross revenue also includes
equity in net income of unconsolidated subsidiaries for purpose of this
schedule.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 67,514,000
<SECURITIES> 0
<RECEIVABLES> 218,836,000
<ALLOWANCES> (14,078,000)
<INVENTORY> 0
<CURRENT-ASSETS> 310,819,000
<PP&E> 17,182,000
<DEPRECIATION> (13,244,000)
<TOTAL-ASSETS> 364,434,000
<CURRENT-LIABILITIES> 244,200,000
<BONDS> 137,730,000
0
0
<COMMON> 238,000
<OTHER-SE> (39,849,000)
<TOTAL-LIABILITY-AND-EQUITY> 364,434,000
<SALES> 0
<TOTAL-REVENUES> 445,377,000
<CGS> 0
<TOTAL-COSTS> 435,343,000
<OTHER-EXPENSES> 21,931,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,602,000
<INCOME-PRETAX> (7,001,000)
<INCOME-TAX> 602,000
<INCOME-CONTINUING> (27,102,000)
<DISCONTINUED> 50,912,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,112,000
<EPS-BASIC> .96
<EPS-DILUTED> .96
</TABLE>
