<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 September 30, 2000
Commission File No. 1-12248
KAISER GROUP INTERNATIONAL, INC.
(formerly ICF Kaiser International, Inc.)
(Exact name of registrant as specified in its charter)
Delaware 54-1437073
(State or other jurisdiction of (I.R.S. 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) 934-3300
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 No X
On October 31, 2000, there were 23,414,328 shares of Kaiser Group International,
Inc. Common Stock, par value $0.01 per share, outstanding.
--------------------------------------------------------------------------------
Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 30, 2000.
<PAGE>
KAISER GROUP INTERNATIONAL, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
<S> <C>
Part I - Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999................................... 3
Consolidated Statements of Operations and Comprehensive (Loss)
Three and Nine Months Ended September 30, 2000 and 1999.................... 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2000 and 1999.............................. 5
Notes to Consolidated Financial Statements................................. 6-18
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................. 19-26
Item 3 Quantitative and Qualitative Disclosures About Market Risk................. 27
Part 11 - Other Information
Item 1. Legal Proceedings................................................................. 27
Item 2. Changes in Securities and Use of Proceeds......................................... 27
Item 3. Defaults Upon Senior Securities................................................... 27
Item 4. Exhibits and Reports on Form 8-K.................................................. 27
</TABLE>
--------------------------------------------------------------------------------
Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 30, 2000.
Page 2
<PAGE>
KAISER GROUP INTERNATIONAL, INC.
Debtor-In-Possession
Consolidated Balance Sheets
(In thousands, except shares)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 42,437 $ 26,391
Restricted cash 15,933 16,386
Contract receivables, net 22,847 158,319
Prepaid expenses and other current assets 1,543 5,350
--------- ---------
Total Current Assets 82,760 206,446
--------- ---------
Fixed Assets
Furniture, equipment, and leaseholds 3,993 14,224
Less depreciation and amortization (3,493) (11,403)
--------- ---------
500 2,821
--------- ---------
Other Assets
Goodwill, net -- 17,581
Investments in and advances to affiliates 6,368 10,040
Notes receivable 6,550 6,550
Capitalized software development costs 1,338 1,601
Other 3,445 8,524
--------- ---------
17,701 44,296
--------- ---------
Total Assets $ 100,961 $ 253,563
========= =========
Liabilities and Shareholders' Equity (Deficit)
Liabilities Not Subject To Compromise
Current Liabilities
Accounts payable $ 7,282 $ 119,556
Accrued salaries and benefits 4,516 27,249
Other accrued expenses 6,650 26,921
Deferred revenue -- 9,015
Income taxes payable 542 6,597
--------- ---------
Total Current Liabilities 18,990 189,338
Long-term Liabilities
Long-term debt - 124,218
Other - 7,577
Liabilities Subject To Compromise 159,492 -
--------- ---------
Total Liabilities 178,482 321,133
Commitments and Contingencies
Minority Interest - 2,333
Shareholders' Equity (Deficit)
Preferred stock - -
Common stock, par value $.01 per share:
Authorized-90,000,000 shares
Issued and outstanding- 23,414,328 and
23,655,500 shares at September 30, 2000 and
December 31, 1999, respectively 234 237
Additional paid-in capital 73,360 73,643
Accumulated deficit (151,140) (140,681)
Accumulated other comprehensive income (loss) 25 (3,102)
--------- ---------
Total Shareholders' Equity (Deficit) (77,521) (69,903)
--------- ---------
Total Liabilities and Shareholders' Equity (Deficit) $ 100,961 $ 253,563
========= =========
</TABLE>
See notes to consolidated financial statements.
--------------------------------------------------------------------------------
Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 30, 2000. Page 3
<PAGE>
KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
Debtor-In-Possession
Consolidated Statements of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Gross Revenue $ -- $ 206,046 $ 271,385 $ 516,343
Subcontract and direct material costs -- (161,710) (195,367) (401,277)
Equity in net income of unconsolidated subsidiaries 2,121 -- 2,621 --
-------- --------- --------- ---------
Service Revenue 2,121 44,336 78,639 115,066
Operating Expenses
Direct labor and fringe benefits -- 40,299 63,426 102,620
Selling, general and administrative 1,343 1,685 6,389 6,791
Depreciation and amortization 822 864 2,467 3,962
Restructuring and/or reorganization charges 2,462 -- 4,377 10,694
-------- --------- --------- ---------
Operating Income (Loss) (2,506) 1,488 1,980 (9,001)
Other Income (Expense)
Interest income 793 858 1,966 1,465
Interest expense -- (4,592) (8,445) (16,801)
-------- --------- --------- ---------
Income (Loss) From Continuing Operations
Before Income Taxes, Minority Interest and
Extraordinary Item (1,713) (2,246) (4,499) (24,337)
Income tax benefit (expense) 7,672 276 8,420 364
-------- --------- --------- ---------
Income (Loss) From Continuing Operations
Before Minority Interest and Extraordinary Item 5,959 (1,970) 3,921 (23,973)
Minority interest in net income of subsidiaries -- (2,118) (5,999) (6,323)
-------- --------- --------- ---------
Income (Loss) Before Discontinued Operations,
and Extraordinary Item 5,959 (4,088) (2,078) (30,296)
Income (loss) from discontinued operations, net of tax (755) 771 1,089 2,034
Gain (loss) on sale of discontinued operations, net of tax (9,435) (2,556) (9,435) 46,199
-------- --------- --------- ---------
Income (Loss) before Extraordinary Item (4,231) (5,873) (10,424) 17,937
Extraordinary item, net of tax (35) -- (35) (698)
-------- --------- --------- ---------
Net Income (Loss) $ (4,266) $ (5,873) $ (10,459) $ 17,239
======== ========= ========= =========
Basic and Diluted Earnings (Loss) Per Share:
Continuing operations, net of tax $ 0.26 $ (0.18) $ (0.09) $ (1.27)
Discontinued operations, net of tax (0.44) (0.07) (0.36) 2.02
Extraordinary item, net of tax -- -- -- (0.03)
-------- --------- --------- ---------
$ (0.18) $ (0.25) $ (0.45) $ 0.72
======== ========= ========= =========
Weighted average shares for basic earnings per share 23,255 23,823 23,270 23,927
Effect of dilutive stock options -- -- -- --
-------- --------- --------- ---------
Weighted average shares for diluted earnings per share 23,255 23,823 23,270 23,927
======== ========= ========= =========
Comprehensive Income (Loss
Net Income (Loss) $ (4,266) $ (5,873) $ (10,424) $ 17,239
Other Comprehensive Income (Loss)
Change in cumulative foreign translation adjustments 2,793 313 3,127 446
-------- --------- --------- ---------
Total Comprehensive Income (Loss) $ (1,473) $ (5,560) $ (7,297) $ 17,685
======== ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
--------------------------------------------------------------------------------
Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 30, 2000.
Page 4
<PAGE>
KAISER GROUP INTERNATIONAL, INC.
Debtor-In-Possession
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
2000 1999
-------- --------
(Unaudited)
<S> <C> <C>
Operating Activities
Net income (loss) $(10,459) $ 17,239
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Income from discontinued operations (1,815) (2,034)
(Gain) Loss on sale of discontinued operations 9,435 (46,199)
Depreciation and amortization 2,467 4,016
Provision (credit) for losses - (27,904)
Extraordinary items 35 698
Provision for deferred income taxes - 34,673
Note receivable write-off - 638
Earnings in excess of cash distributions from
joint ventures and affiliated companies (3,571) (1,688)
Minority interest in net income of subsidiaries 5,999 6,323
Changes in operating assets and liabilities, net of amounts sold:
Contract receivables, net 7,174 (17,513)
Prepaid expenses and other current assets (2,016) (7,592)
Accounts payable and accrued expenses (10,081) (13,583)
Deferred revenue (7,253) (8,221)
Income tax payable (2,125) 1,209
-------- --------
Net Cash (Used in) Operating Activities (12,210) (59,938)
-------- --------
Investing Activities
Proceeds from sales of discontinued operations 37,717 135,316
Purchases of fixed assets (666) (659)
-------- --------
Net Cash Provided by Investing Activities 37,051 134,657
-------- --------
Financing Activities
Borrowings under revolving credit facility - 57,064
Principal payments on revolving credit facility - (92,584)
(Provision) release of cash collateral for performance guarantee 455 (21,000)
Redemption of Senior Notes (1,000) --
Change in book overdraft - 1,195
Distribution of income to minority interest (8,250) -
Proceeds from issuance of common stock - 38
-------- --------
Net Cash (Used in) Financing Activities (8,795) (55,287)
-------- --------
Effect of Exchange Rate Changes on Cash (--) 76
Increase in Cash and Cash Equivalents 16,046 19,508
Cash and Cash Equivalents at Beginning of Period 26,391 15,248
-------- --------
Cash and Cash Equivalents at End of Period $ 42,437 $ 34,756
======== ========
Supplemental cash flow information is as follows:
Cash payments for interest $ 27 $ 3,295
Cash payments for income taxes 2,171 -
Reacquisition of common stock - (337)
</TABLE>
See notes to consolidated financial statements.
--------------------------------------------------------------------------------
Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 30, 2000.
Page 5
<PAGE>
KAISER GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements of Kaiser Group
International, Inc. and subsidiaries (the Company), except for the December 31,
1999 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.
With respect to the Company's financial statements for periods ended prior to
December 31, 1999, such adjustments consist of normal and recurring adjustments
and reclassifications to be consistent with the September 30, 2000 presentation.
With respect to the Company's financial statements for the period ended
September 30, 2000, such adjustments consist of normal and recurring adjustments
as well as other adjustments that are consistent with the American Institute of
Certified Public Accountants' Statement of Position (SOP) 90-7, Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code, to reflect
the filing of voluntary petitions by the Company and certain of its subsidiaries
under Chapter 11 of the United States Bankruptcy Code on June 9, 2000.
These statements should be read in conjunction with the Company's audited
consolidated financial statements and footnotes thereto for the year ended
December 31, 1999 and the information included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
Recent Changes in Accounting Affecting Comparability of Financial Statements
----------------------------------------------------------------------------
Investment in Kaiser-Hill: Prior to June 8, 2000, through a designated majority
representation on Kaiser-Hill Company, LLC's board of managers, the Company had
a controlling interest in Kaiser-Hill and therefore consolidated Kaiser-Hill's
results of operations with those of its only other remaining business segment,
the Engineers and Constructors Group. Effective June 8, 2000, the Company
adopted the equity method of accounting for Kaiser-Hill coincident with its
signing of an agreement whereby the other 50% owner has the right to designate 3
out of the 5 members of Kaiser-Hill's board of managers. The Company retains the
right to designate 2 out of the 5 members of Kaiser-Hill's board of managers.
Accordingly, the financial information contained herein for Kaiser-Hill is
reflected on a consolidated basis for all periods presented through June 8,
2000, and financial information for periods after June 8, 2000 is reflected on
the equity basis.
Discontinued Engineering Operations: As more fully described herein, in two
separate transactions completed during the three months ended September 30,
2000, the Company sold the majority of its Engineering Operations pursuant to
its Plan of Reorganization as filed with the Bankruptcy Court. Accordingly, the
financial results of the divested operations have been presented in the
accompanying financial statements as "discontinued operations" for all periods
presented.
2. Reorganization Developments
On June 9, 2000, the Company announced its intention to sell the majority of its
Engineering Operations in two separate transactions (described below). Also on
June 9, 2000, the Company announced that it would effect these sales as well as
a debt restructuring of its Senior and Senior Subordinated Notes through a
voluntary and pre-arranged bankruptcy. Accordingly, on June 9, 2000, Kaiser
Group International, Inc. and 38 of its wholly-owned domestic subsidiaries (the
Debtor Entities) filed voluntary petitions for relief under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware. The Company's subsidiaries that did not file petitions for
relief under Chapter 11 are referred to herein as the Non-Debtor Entities. Since
then, the Company has continued to operate the Non-Debtor Entities' businesses
in the ordinary course and has operated the Debtor Entities' businesses as
debtors-in-possession. As such, the Debtor Entities are authorized to operate
their businesses in the ordinary course but may not engage in transactions
outside the ordinary course of business without Bankruptcy Court approval.
In accordance with its announced intentions and following the requisite
Bankruptcy Court approvals, the sales of the Company's Engineering Operations
were effected as follows:
. The Infrastructure and Facilities Sale: The Bankruptcy Court approved the
sale of the Infrastructure and Facilities line of business on July 17,
2000. On July 28, 2000, Kaiser completed the sale of its Infrastructure and
Facilities line of business, which provided engineering services to clients
around the world in the transit and transportation, facilities management,
water/wastewater treatment, and microelectronics and clean technology
sectors. In this transaction, substantially all of the assets of this
business were sold to Tyco Group S.A.R.L., the EarthTech unit of Tyco
International Ltd., for a cash purchase price of $30 million.
--------------------------------------------------------------------------------
Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 30, 2000.
Page 6
<PAGE>
. The Metals, Mining and Industry Sale: The Bankruptcy Court approved the
sale of the Metals, Mining and Industry line of business on August 17,
2000. Effective as of August 18, 2000, Kaiser completed the sale of its
Metals, Mining and Industry line of business, which provided engineering
services to clients around the world in the alumina/aluminum, iron and
steel, and mining industry sectors. In this transaction, substantially all
of the assets of this business were sold to Hatch Associates, Inc., a
subsidiary of The Hatch Group of Canada, for a cash purchase price of $7.0
million.
Although the Company has not finalized its accounting for the transactions, it
has to date recognized a net loss for financial reporting purposes of
approximately $(0.9) million. After adjusting this loss for items that are not
deductible for federal income tax purposes such as associated goodwill and
intangible asset write-offs totaling $19.0 million, the transactions resulted in
income tax expense of approximately $8.5 million, resulting in a total loss
after tax for financial reporting purposes of approximately $(9.4) million from
the collective sales.
As a result of the Company's June 9, 2000 bankruptcy filings, (i) all then
existing debts, liabilities and obligations of the Debtor Entities
(collectively, "Pre-petition Indebtedness") matured and became due and payable,
and (ii) all acts to collect Pre-petition Indebtedness and to enforce other
existing contractual obligations of the Debtor Entities were stayed. Under the
Bankruptcy Code, the Debtor Entities generally may not currently make payments
on Pre-petition Indebtedness. Liabilities and obligations incurred after the
commencement of the bankruptcy cases in connection with the operation of the
Debtor Entities' business generally enjoy priority in right to payment over Pre-
petition Indebtedness and may be paid by the Debtor Entities in the ordinary
course of business.
Under the Bankruptcy Code, the Debtor Entities may, subject to certain
conditions, assume or reject executory contracts existing at the commencement of
the bankruptcy cases. The rejection of an executory contract is treated as a
breach thereof occurring immediately before the filing of the Debtor Entities'
bankruptcy petitions. Any liabilities of the Debtor Entities arising as a result
of the rejection of the executory contracts will be treated as Pre-petition
Indebtedness.
The Debtor Entities have filed a consolidated plan of reorganization with the
Bankruptcy Court. On August 17, 2000, the Bankruptcy Court approved a disclosure
document prepared by the Company for use in soliciting acceptances of the Plan
of Reorganization by affected creditors and shareholders, who approved the plan.
There remain outstanding certain objections to the plan of reorganization, which
has not yet been confirmed by the Bankruptcy Court. On the afternoon of
Thursday, November 16, 2000, the Bankruptcy Court continued the hearing on
confirmation of the Plan of Reorganization of Kaiser Group International, Inc.
and 38 of its subsidiaries until 10:00 a.m. on December 5, 2000. The Company's
plan of reorganization, as well as the public record of all bankruptcy court
documents, can be accessed via the internet at www.deb.uscourts.gov. Although
--------------------------------------------------------
material changes are not expected, the plan of reorganization is subject to
change until such time as it is confirmed by the Bankruptcy Court. In general,
the proposed plan of reorganization contemplates:
. the cash payment of certain ordinary course liabilities, up to $20,000 per
creditor, incurred prior to June 9, 2000;
. the payment, with a combination of cash, preferred stock and newly issued
common stock, for most Pre-Petition Indebtedness not included in the class
described above. This creditor class will consist largely of the Company's
Senior Subordinated Notes and certain other claims for contingent or
disputed liabilities existing as of June 9, 2000 (collectively, the Class 4
Claims). The issuance of new preferred stock and new common stock to this
class of creditors would result in substantial dilution to the common
stockholders that existed immediately prior to the effectiveness of the
plan of reorganization; and
. the issuance to current common shareholders and the other equity interests
of shares in the reorganized company which would comprise, in the
aggregate, 15% of the common shares outstanding after the distribution of
new issued common shares to the Class 4 claims as described above.
Immediately following the completion of the bankruptcy and asset sales described
above, the reorganized Company will be engaged in or own only a limited number
of activities or assets, primarily consisting of:
. the completion of an engineering and construction services contract for the
construction of a steel mini-mill in the Czech Republic. This contract is
expected to be completed during late 2000 through the Company's Netherlands
subsidiary, although warranty obligations will exist for a period following
final acceptance of the mini-mill.
. the performance of a contract for the closure of DOE's Rocky Flats site
through Kaiser-Hill, and
. the holding of a minority ownership interest in ICF Consulting Group Inc.
(the consulting division that the Company sold in 1999) as well as the
promissory notes received in connection with that sale.
In the event that a plan of reorganization is not confirmed by the Bankruptcy
Court and a restructuring plan is not consummated, the ability of the Company to
continue as a going concern depends on the success of and cash flows generated
by the retained activities summarized above and on the ability to meet creditor
obligations. The Company's alternative would be to seek to confirm a modified
plan of reorganization or to liquidate the business and distribute available
proceeds.
--------------------------------------------------------------------------------
Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 30, 2000.
Page 7
<PAGE>
The accompanying financial statements have been prepared on a going concern
basis, which, except as disclosed, contemplates continuity of retained
operations, the realization of assets and the discharge of liabilities in the
ordinary course of business or pursuant to Bankruptcy Court orders. Until the
Company has an approved plan of reorganization, the realization of assets and
the ultimate resolution of the Company's contingent liabilities (Note 6) could
materially change the amounts currently recorded in the financial statements.
The financial statements do not give effect to any adjustments to the carrying
value of assets, or amounts and classification of liabilities that might be
necessary as a consequence of the outcome from the bankruptcy proceedings. In
addition, valuation methods used in Chapter 11 reorganization processes vary
depending on the purpose for which they are prepared and may differ from methods
used solely for purposes of GAAP, the basis on which the accompanying financial
statements are prepared. Accordingly, the values and assumptions used to set
forth amounts in the accompanying financial statements may not be indicative of
the values and assumptions presented to or used by the Bankruptcy Court. As a
result, valuations of the Company based on the accompanying financial statements
may be significantly different than valuations used by the Company in
determining the amounts to be received, if any by each class of creditor under a
plan of reorganization. As a result of the Chapter 11 filing, the financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the classification of liabilities
that might result should the Company not be successful in attempts to enact the
critical actions summarized above. Upon the effectiveness of the Company's Plan
of Reorganization, the principles of the AICPA's Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
will be applied in the form of "fresh start accounting" whereby the Company's
overall fair market value ("Reorganization Value") will be allocated to the
successor company's net assets using the purchase method of accounting.
3. Condensed financial information for the Company's Debtor and Non-Debtor
Entities is as follows:
<TABLE>
<CAPTION>
Statements of Operations Non-
------------------------ ----
For the period from June 9, 2000 (Petition Date) through September 30, 2000, Debtor Debtor
---------------------------------------------------------------------------- ------ ------
Entities Entities Total
-------- -------- -----
<S> <C> <C> <C>
Gross revenue................................................................. $ -- $ -- $ --
Subcontracts and materials................................................... (--) (--) (--)
Equity in unconsolidated subsidiaries........................................ -- 2,621 2,621
-------- -------- --------
Service revenue............................................................... -- 2,621 2,621
Operating expenses:
Direct labor and fringe...................................................... -- -- --
Selling, general and administrative.......................................... 1,790 -- 1,790
Depreciation and amortization................................................ 972 277 1,249
Reorganization costs......................................................... 3,565 -- 3,565
-------- -------- --------
Operating income.(loss)...................................................... $ (6,327) $ 2,344 $ (3,983)
======== ======== ========
Net income.(loss)............................................................ $ (4,166) $ 1,471 $ (2,695)
======== ======= ========
<CAPTION>
Non-
----
Debtor Debtor
------ ------
Balance Sheets as of September 30, 2000 Entities Entities Total
--------------------------------------- -------- -------- -----
<S> <C> <C> <C>
Assets (Unaudited)
Cash and cash equivalents.................................................... $ 37,468 $ 4,969 $ 42,437
Restricted cash.............................................................. 13,262 2,671 15,933
Contract receivables, net.................................................... 145 22,702 22,847
Other current assets......................................................... 1,032 511 1,543
Other long-term assets....................................................... 18,201 -- 18,201
---------- -------- --------
Total Assets................................................................ $ 70,108 $ 30,853 $100,961
========== ======== ========
Liabilities
Liabilities Not Subject To Compromise
Accounts payable............................................................. 1,090 6,192 7,282
Accrued salaries and benefits................................................ 4,516 -- 4,516
Other current liabilities.................................................... 542 6,650 7,192
---------- -------- --------
Total Liabilities Not Subject To Compromise................................. 6,148 12,842 18,990
Liabilities Subject To Compromise............................................. 159,492 -- 159,492
---------- -------- --------
Total Liabilities........................................................... 165,640 12,842 178,482
Commitments and contingencies
Minority Interest............................................................. -- -- --
---------- -------- --------
Net Assets.................................................................... $ (95,532) $ 18,011 $(77,521)
---------- -------- --------
</TABLE>
--------------------------------------------------------------------------------
Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 30, 2000.
Page 8
<PAGE>
4. Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net income by the
weighted average number of common shares outstanding. 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. The
Company's common stock equivalents that would be antidilutive have been excluded
from the fully diluted EPS calculation.
5. Liabilities Subject to Compromise ("Pre-petition Indebtedness")
As a result of the commencement of the Debtor Entities' bankruptcy cases, (i)
all then existing debts, liabilities and obligations of the Debtor Entities
(collectively, Pre-petition Indebtedness) matured and became due and payable,
and (ii) all acts to collect Pre-petition Indebtedness and to enforce other
existing contractual obligations of the Debtor Entities were stayed. Pre-
petition Indebtedness has been reflected on the Company's Consolidated Balance
Sheet at September 30, 2000 as Liabilities Subject to Compromise consisting of
the following (in thousands):
Debtor
------
Entities
--------
Liabilities Subject to Compromise: (Unaudited)
Accounts payable............................. $ 5,100
Accrued interest expense..................... 7,988
Other accrued expenses....................... 22,838
Notes payable................................ 123,566
--------
Total Liabilities subject to compromise.. $159,492
========
All amounts presented above may be subject to future adjustments depending on
Bankruptcy Court's actions, further developments with respect to disputed
claims, determination as to the security of certain claims, the value of any
collateral securing such claims, or other events. The Bankruptcy Court
established August 15, 2000 as a date ("bar date") for the majority of unsecured
creditors to file with the court a notice of the amount and nature of their
claims. Under the Bankruptcy Code, liabilities and obligations first incurred
after the commencement of the bankruptcy cases in connection with the operation
of the Debtor Entities' business generally enjoy priority in the right to
payment over Pre-petition Indebtedness and may be paid by the Company in the
ordinary course of business. Such liabilities are reflected on the Company's
Consolidated Balance Sheet as Liabilities Not Subject to Compromise.
Under the Bankruptcy Code, the Debtor Entities may, subject to certain
conditions, assume or reject executory contracts, including property and
equipment leases, existing at the commencement of the bankruptcy cases. The
rejection of an executory contract or lease is treated as a breach thereof
occurring immediately before the filing of the debtors' bankruptcy petitions,
and liabilities of the Debtor Entities arising as a result of the rejection of
executory contracts and leases will ultimately be included in Liabilities
Subject to Compromise.
Reorganization and Restructuring Costs
During the three and nine months ended September 30, 2000 the Company incurred
approximately $2.5 million and $4.5 million, respectively, in costs associated
with its bankruptcy activities - including third-party professional fees, court
fees, printing and mailing costs, and severance and staff retention costs among
others. During the nine months ended September 30, 1999, the Company recognized
unusual charges totaling $10.7 million incurred as part of activities aimed at
addressing the restructuring of its debt and the reorganization of its remaining
operations that were undertaken prior to the inception of the bankruptcy.
6. Contingencies
Litigation, Claims and Assessments Contingencies: 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. The Company
anticipates being able to resolve and/or settle matters within this category of
contingency during the course of its bankruptcy process. Until such resolution,
however, in the opinion of management, the financial statements contain adequate
provisions for reserves 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
--------------------------------------------------------------------------------
Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 30, 2000.
Page 9
<PAGE>
as progress on such matters ensue.
Bath Contingency: In March 1998, Kaiser entered into a $197 million maximum
price contract to construct a ship building facility for Bath Iron Works,
Inc. ("Bath"). In May 1998, Kaiser learned that the costs of subcontractors
to perform the contract were approximately $30 million higher than the
estimated costs previously known, and Kaiser terminated the contract on the
basis of mutual mistake between the contracting parties. Bath subsequently
asserted a claim based on site conditions that allegedly should have been
identified by Kaiser and its subcontractors. In March 2000, Bath filed
claims aggregating $38 million in the United States District Court for the
District of Maine. In August 2000, an agreement was reached among Kaiser,
its insurer and Bath in settlement of the potential claims. The agreement
of the parties was also approved by the Bankruptcy Court and accordingly,
there will be no allowed claim arising from the terminated Bath contract.
Acquisition Contingency: The 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 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.
In December, 1999, the Company and certain former Company employees and
shareholders of ICT Spectrum agreed to amend the applicable agreements in a
manner that had the result of reducing the amount of the taxable gain
created by former shareholder-employees' involuntary departures from the
Company. As permitted per the agreement, the shareholders agreed to allow
the Company to retain some of the vested shares as payment of the income
tax withholding in lieu of cash. In total, the Company retained 255,669
shares and recorded the transaction as a $1.37 million reduction to
goodwill and paid-in-capital.
The former shareholders of ICT Spectrum have submitted a claim in
bankruptcy against the Company. Pursuant to the Company's Plan of
Reorganization, the Company believes that the claim will be treated as a
Class 5 Equity Interest.
On March 29, 1999, one ex-ICT Spectrum shareholder, individually and on
behalf of all others similarly situated, filed a class action lawsuit in
the U.S. District Court for the District of Idaho 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
court denied the Company's motion to dismiss this suit. As a result of the
bankruptcy, this case has been stayed as to the Company.
Government contract contingencies: In the past, Kaiser had a number of
cost-reimbursement contracts with the U.S. government that have been the
subject of audits by the U.S. government. The U.S. government has asserted,
among other things, that some costs claimed as reimbursable under
government contracts either were not allowable or not allocated in
accordance with federal procurement regulations. Effective as of August 28,
2000, Kaiser and the respective governmental agencies reached an agreement
to settle this potential claim, without the return by Kaiser of any money
previously reimbursed to Kaiser by the U.S. government. Also pursuant to
the settlement agreement, the U. S. government will not assert any further
Claim in the Bankruptcy Cases arising from these U.S. government cost-
reimbursement contracts and Kaiser waives the right to additional payments
from the U.S. The Bankruptcy Court has also approved the settlement
agreement.
Contract warranties and performance guaranty contingencies: 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.
7. Guarantor Subsidiaries
Until the completion of the Company's bankruptcy process and pursuant to SEC
rules regarding publicly held debt, the Company is required to provide financial
information for wholly owned subsidiaries of Kaiser Group 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; Kaiser Government Programs, Inc; Global
Trade & Investment, Inc; Kaiser Europe, Inc; Kaiser/Georgia Wilson, Inc; Kaiser
Overseas Engineering, Inc; EDA Incorporated, Inc.; Kaiser Engineers Pacific,
Inc; and Kaiser Advanced Technology, Inc. Condensed consolidating financial
information for Kaiser Group International, Inc. (Parent Company), the
Subsidiary Guarantors, and the Non-Guarantor Subsidiaries follow on pages 11-18.
The information, except for the December 31, 1999 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.
--------------------------------------------------------------------------------
Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 2000. Page 10
10
<PAGE>
Kaiser Group International, Inc. and Subsidiaries
Debtor-In-Possession
Condensed Consolidating Balance Sheet
September 30, 2000
(In thousands)
<TABLE>
<CAPTION>
Kaiser Group
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Eliminations Consolidated
----------- ------------ ------------- -------------- ------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 37,392 $ 3 $ 5,042 $ - $ 42,437
Restricted Cash 13,237 - 2,696 - 15,933
Contract receivables, net (2,066) 1,424 23,489 - 22,847
Intercompany receivables, net 133,577 34,306 (167,883) - -
Prepaid expenses and other current assets 568 48 927 - 1,543
Deferred income taxes - - - - -
--------- ------- --------- ------------ ---------
Total Current Assets 182,708 35,781 (135,729) - 82,760
--------- ------- --------- ------------ ---------
Fixed Assets
Furniture, equipment, and leasehold improvements 3,593 45 355 - 3,993
Less depreciation and amortization (3,116) (40) (337) - (3,493)
--------- ------- --------- ------------ ---------
477 5 18 - 500
--------- ------- --------- ------------ ---------
Other Assets
Goodwill, net - - - - -
Investment in and advances to affiliates (131,907) 501 16,087 121,687 6,368
Notes receivable 6,550 - - - 6,550
Capitalized software development costs 1,338 - - - 1,338
Other 2,083 - 1,362 - 3,445
--------- ------- --------- ------------ ---------
(121,936) 501 17,449 121,687 17,701
--------- ------- --------- ------------ ---------
Total Assets $ 61,249 $36,287 $(118,262) $121,687 $ 100,961
========= ======= ========= ============ =========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and other accrued expenses $ 6,736 $ 131 $ 7,065 $ - $ 13,932
Accrued salaries and employee benefits (16,364) 2,096 18,784 - 4,516
Interest Payable - - - - -
Deferred revenue - - - - -
Income taxes payable 3,506 (3,160) 196 - 542
--------- ------- --------- ------------ ---------
Total Current Liabilities (6,122) (933) 26,045 - 18,990
Long-term Liabilities
Long-term debt - - - -
Other - - - - -
Liabilities subject to compromise 145,105 2,504 11,883 - 159,492
--------- ------- --------- ------------ ---------
Total Liabilities 138,983 1,571 37,928 - 178,482
--------- ------- --------- ------------ ---------
Minority Interest - - - - -
Shareholders' Equity (Deficit)
Common Stock 222 6,811 117 (6,916) 234
Additional Paid-in Capital 73,342 2,372 48,284 (50,638) 73,360
Accumulated Earnings (Deficit) (151,298) 25,533 (204,616) 179,241 (151,140)
Accumulated other comprehensive income (loss) - - 25 - 25
--------- ------- --------- ------------ ---------
Total Shareholders' Equity (77,734) 34,716 (156,190) 121,687 (77,521)
--------- ------- --------- ------------ ---------
Total Liabilities and Shareholders' Equity $ 61,249 $36,287 $(118,262) $121,687 $ 100,961
========= ======= ========= ============ =========
</TABLE>
11
<PAGE>
Kaiser Group International, Inc. and Subsidiaries
Debtor-In-Possession
Condensed Consolidating Balance Sheet
December 31, 1999
(In thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Kaiser Group
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 11,472 $ 8,008 $ 6,911 $ - $ 26,391
Restricted Cash 13,816 - 2,570 - 16,386
Contract receivables, net (3,698) 106,841 55,176 - 158,319
Intercompany receivables, net 194,308 17,466 (211,774) - -
Prepaid expenses and other current assets 554 949 3,847 - 5,350
Deferred income taxes - - - - -
--------- -------- --------- ----------- ---------
Total Current Assets 216,452 133,264 (143,270) - 206,446
--------- -------- --------- ----------- ---------
Fixed Assets
Furniture, equipment, and leasehold improvements 3,520 1,115 9,589 - 14,224
Less depreciation and amortization (3,057) (1,013) (7,333) - (11,403)
--------- -------- --------- ----------- ---------
463 102 2,256 - 2,821
--------- -------- --------- ----------- ---------
Other Assets
Goodwill, net - 3,029 14,552 - 17,581
Investment in and advances to affiliates (144,683) 1 8,844 145,878 10,040
Notes receivable 6,550 6,550
Capitalized software development costs 1,601 - 1,601
Other 3,403 587 4,534 - 8,524
--------- -------- --------- ----------- ---------
(133,129) 3,617 27,930 145,878 44,296
--------- -------- --------- ----------- ---------
Total Assets $ 83,786 $136,983 $(113,084) $145,878 $ 253,563
========= ======== ========= =========== =========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and other accrued expenses $ 21,587 $ 94,542 $ 30,348 $ - $ 146,477
Accrued salaries and employee benefits (11,788) 17,126 21,911 - 27,249
Deferred revenue 761 778 7,476 9,015
Income taxes payable 11,195 (3,160) (1,438) - 6,597
--------- -------- --------- ----------- ---------
Total Current Liabilities 21,755 109,286 58,297 - 189,338
Long-term Liabilities
Long-term debt 124,217 - 1 - 124,218
Other 4,781 - 2,796 - 7,577
--------- -------- --------- ----------- ---------
Total Liabilities 150,753 109,286 61,094 - 321,133
--------- -------- --------- ----------- ---------
Minority Interest - 2,333 - - 2,333
Shareholders' Equity (Deficit)
Common Stock 227 6,809 114 (6,913) 237
Additional Paid-in Capital 73,644 2,372 48,266 (50,639) 73,643
Accumulated Earnings (Deficit) (140,838) 16,545 (219,818) 203,430 (140,681)
Accumulated other comprehensive income (loss) - (362) (2,740) - (3,102)
--------- -------- --------- ----------- ---------
Total Shareholders' Equity (66,967) 25,364 (174,178) 145,878 (69,903)
--------- -------- --------- ----------- ---------
Total Liabilities and Shareholders' Equity $ 83,786 $136,983 $(113,084) $145,878 $ 253,563
========= ======== ========= =========== =========
</TABLE>
12
<PAGE>
Kaiser Group International, Inc. and Subsidiaries
Debtor-In-Possession
Condensed Consolidating Statement of Operations
Three Months Ended September 30, 2000
(In thousands)
<TABLE>
<CAPTION>
====================================================================================================================================
Kaiser Group
International,
Parent Subsidiary Non-Guarantor Discontinued Inc.
Company Guarantor Subsidiaries Operations Eliminations Consolidated
--------- ---------- ------------- ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Gross Revenue $ 670 $ 3,195 $ 37,734 $ (41,599) $ - $ -
Subcontract and direct material costs (522) (898) (28,282) 29,702 - -
Equity in income of joint ventures and
affiliated companies (1,077) 2,121 2,827 (267) (1,483) 2,121
-------- -------- --------- ---------- --------- ---------
Service Revenue (929) 4,418 12,279 (12,164) (1,483) 2,121
Operating Expenses
Operating expenses 75 124 14,792 (13,648) - 1,343
Depreciation and amortization 235 28 333 226 - 822
Restructuring charges 2,462 - - - - 2,462
-------- -------- --------- ---------- --------- ---------
Operating Income (Loss) (3,701) 4,266 (2,846) 1,258 (1,483) (2,506)
Other Income (Expense)
Interest income 656 - 137 - - 793
Interest expense - - - - - -
-------- -------- --------- ---------- --------- ---------
Income (Loss) From Continuing Operations
Before Income Taxes, Minority Interest
and Extraordinary Item (3,045) 4,266 (2,709) 1,258 (1,483) (1,713)
Income tax (expense) benefit 8,249 - (74) - - 8,175
-------- -------- --------- ---------- --------- ---------
Income (Loss) From Continuing Operations
Before Minority Interest and
Extraordinary Item 5,204 4,266 (2,783) 1,258 (1,483) 6,462
Minority interests in net income of subsidiaries - - - - - -
-------- -------- --------- ---------- --------- ---------
Income (Loss) From Continuing Operations
Before Extraordinary Item 5,204 4,266 (2,783) 1,258 (1,483) 6,462
Income from discontinued operations (net of tax) - - - (1,258) - (1,258)
Gain on sale of discontinued operations (net of
tax) (9,435) - - - - (9,435)
-------- -------- --------- ---------- --------- ---------
Income (Loss) Before Extraordinary Item (4,231) 4,266 (2,783) - (1,483) (4,231)
Extraordinary item, net of tax (35) - - - - (35)
-------- -------- --------- ---------- --------- ---------
Net Income (Loss) $ (4,266) $ 4,266 $ (2,783) $ - $ (1,483) $ (4,266)
======== ======== ========= ========== ========= =========
</TABLE>
13
<PAGE>
Kaiser Group International, Inc. and Subsidiaries
Debtor-In-Possession
Condensed Consolidating Statement of Operations
Three Months Ended September 30, 1999
(In thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Kaiser Group
International,
Parent Subsidiary Non-Guarantor Discontinued Inc.
Company Guarantor Subsidiaries Operations Eliminations Consolidated
--------- ---------- ------------- ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Gross Revenue $ 2,903 $ 211,863 $ 39,761 $ (48,481) $ - $ 206,046
Subcontract and direct material costs (2,796) (164,502) (16,982) 22,570 - (161,710)
Equity in income of joint ventures and
affiliated companies (4,013) - 1,796 (838) 3,055 -
-------- --------- -------- --------- ------- ---------
Service Revenue (3,906) 47,361 24,575 (26,749) 3,055 44,336
Operating Expenses
Operating expenses 2,345 42,043 23,006 (25,410) - 41,984
Depreciation and amortization 225 171 522 (54) - 864
Restruturing charges (1,383) - 1,383 - - -
-------- --------- -------- --------- ------- ---------
Operating Income (Loss) (5,093) 5,147 (336) (1,285) 3,055 1,488
Other Income (Expense)
Interest income 614 163 81 - - 858
Interest expense (4,679) 92 (5) - - (4,592)
-------- --------- -------- --------- ------- ---------
Income (Loss) From Continuing Operations
Before Income Taxes, Minority Interest
and Extraordinary Item (9,158) 5,402 (260) (1,285) 3,055 (2,246)
Income tax (expense) benefit 2,742 565 (3,545) - - (238)
-------- --------- -------- --------- ------- ---------
Income (Loss) From Continuing Operations
Before Minority Interest and
Extraordinary Item (6,416) 5,967 (3,805) (1,285) 3,055 (2,484)
Minority interests in net income of subsidiaries - (2,118) - - - (2,118)
-------- --------- -------- --------- ------- ---------
Income (Loss) From Continuing Operations
Before Extraordinary Item (6,416) 3,849 (3,805) (1,285) 3,055 (4,602)
Income from discontinued operations (net of tax) - 1,285 1,285
Gain on sale of discontinued operations (net of
tax) 543 (2,737) (362) - - (2,556)
-------- --------- -------- --------- ------- ---------
Income (Loss) Before Extraordinary Item (5,873) 1,112 (4,167) - 3,055 (5,873)
Extraordinary item, net of tax - - - - - -
-------- --------- -------- --------- ------- ---------
Net Income (Loss) $ (5,873) $ 1,112 $ (4,167) $ - $ 3,055 $ (5,873)
======== ========= ======== ========= ======= =========
</TABLE>
14
<PAGE>
Kaiser Group International, Inc. and Subsidiaries
Debtor-In-Possession
Condensed Consolidating Statement of Operations
Nine Months Ended September 30, 2000
(In thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Kaiser Group
Parent Subsidiary Non-Guarantor Discontinued International, Inc.
Company Guarantors Subsidiaries Operations Eliminations Consolidated
------- ---------- ------------- ----------- ------------ -----------------
Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Gross Revenue $ 3,182 $ 281,870 $143,506 $(157,173) $ - $ 271,385
Subcontract and direct material costs (2,858) (201,543) (83,164) 92,198 (195,367)
Equity in income of joint ventures and
affiliated companies 11,681 2,621 3,809 (1,275) (14,215) 2,621
-------- --------- -------- ---------- ----------- ---------
Service Revenue 12,005 82,948 64,151 (66,250) (14,215) 78,639
Operating Expenses
Operating expenses 9,023 65,647 59,580 (64,435) - 69,815
Depreciation and amortization 715 239 1,513 2,467
Restructuring charges 4,377 - - - - 4,377
-------- --------- -------- ---------- ----------- ---------
Operating Income (Loss) (2,110) 17,062 3,058 (1,815) (14,215) 1,980
Other Income (Expense)
Interest income 1,286 229 451 - - 1,966
Interest expense (8,414) (27) (4) - - (8,445)
-------- --------- -------- ---------- ----------- ---------
Income (Loss) From Continuing Operations
Before Income Taxes, Minority Interest
and Extraordinary Item (9,238) 17,264 3,505 (1,815) (14,215) (4,499)
Income tax (expense) benefit 8,249 - (555) - - 7,694
-------- --------- -------- ---------- ----------- ---------
Income (Loss) From Continuing Operations
Before Minority Interest and Extraordinary
Item (989) 17,264 2,950 (1,815) (14,215) 3,195
Minority interests in net income of
subsidiaries - (5,999) - - - (5,999)
-------- --------- -------- ---------- ----------- ---------
Income (Loss) From Continuing Operations
Before Extraordinary Item (989) 11,265 2,950 (1,815) (14,215) (2,804)
Income from discontinued operations (net of tax) - 1,815 1,815
Gain on sale of discontinued operations (net of
tax) (9,435) - - - - (9,435)
-------- --------- -------- ---------- ------------ ---------
Income (Loss) Before Extraordinary Item (10,424) 11,265 2,950 - (14,215) (10,424)
Extraordinary item, net of tax (35) - - - - (35)
-------- --------- -------- ---------- ------------ ---------
Net Income (Loss) $(10,459) $ 11,265 $ 2,950 $ - $(14,215) $(10,459)
======== ========= ======== ========== ============ =========
</TABLE>
15
<PAGE>
Kaiser Group International, Inc. and Subsidiaries
Debtor-In-Possession
Condensed Consolidating Statement of Operations
Nine Months Ended September 30, 1999
(In thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Kaiser Group
Parent Subsidiary Non-Guarantor Discontinued International, Inc.
Company Guarantors Subsidiaries Operations Eliminations Consolidated
--------- ---------- ------------ ---------- ------------ -------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Gross Revenue $ 3,524 $ 539,544 $ 240,599 $(267,324) $ - $ 516,343
Subcontract and direct material costs (3,162) (414,072) (118,976) 134,933 (401,277)
Equity in income of joint ventures and
affiliated companies (30,826) - 6,812 (3,834) 27,848 -
-------- --------- --------- --------- --------- ---------
Service Revenue (30,464) 125,472 128,435 (136,225) 27,848 115,066
Operating Expenses
Operating expenses 7,714 109,097 124,405 (131,805) - 109,411
Depreciation and amortization 1,434 612 2,699 (783) 3,962
Restructuring charges 5,759 1,599 3,336 - - 10,694
-------- --------- --------- --------- --------- ---------
Operating Income (Loss) (45,371) 14,164 (2,005) (3,637) 27,848 (9,001)
Other Income (Expense)
Interest income 677 427 363 (2) - 1,465
Interest expense (16,593) (194) (16) 2 - (16,801)
-------- --------- --------- --------- --------- ---------
Income (Loss) From Continuing Operations
Before Income Taxes, Minority Interest
and Extraordinary Item (61,287) 14,397 (1,658) (3,637) 27,848 (24,337)
Income tax (expense) benefit 933 255 (2,427) 1,603 - 364
-------- --------- --------- --------- --------- ---------
Income (Loss) From Continuing Operations
Before Minority Interest and Extraordinary
Item (60,354) 14,652 (4,085) (2,034) 27,848 (23,973)
Minority interests in net income of
subsidiaries - (6,323) - - - (6,323)
-------- --------- --------- --------- --------- ---------
Income (Loss) From Continuing Operations
Before Extraordinary Item (60,354) 8,329 (4,085) (2,034) 27,848 (30,296)
Income from discontinued operations (net of tax) - - - 2,034 - 2,034
Gain on sale of discontinued operations (net of
tax) 78,291 (2,737) (29,355) - - 46,199
-------- --------- --------- --------- --------- ---------
Income (Loss) Before Extraordinary Item 17,937 5,592 (33,440) - 27,848 17,937
Extraordinary item, net of tax (698) - - - - (698)
-------- --------- --------- --------- --------- ---------
Net Income (Loss) $ 17,239 $ 5,592 $ (33,440) $ - $ 27,848 $ 17,239
======== ========= ========= ========= ========= =========
</TABLE>
16
<PAGE>
Kaiser Group International, Inc. and Subsidiaries
Debtor-In-Possession
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2000
(In thousands)
<TABLE>
<CAPTION>
===================================================================================================================================
Non- Kaiser Group
Parent Subsidiary Guarantor International,
Company Guarantors Subsidiaries Eliminations Inc. Consolidated
------- ---------- ------------ ------------ -----------------
(Unauditied)
<S> <C> <C> <C> <C> <C>
Net Cash Provided by (Used in)
Operating Activities $(11,252) $ 245 $(1,203) $ - $ (12,210)
-------- ------- -------- ------- ---------
Investing Activities
Cash proceeds from investments in subsidiaries
and affiliates - - - - -
Sales of subsidiaries and/or investments - - - - -
Net proceeds from sale of discontinued operations 37,717 - - - 37,717
Purchases of fixed assets - - (666) - (666)
-------- ------- -------- ------- ---------
Net Cash Provided by (Used in) Investing
Activities 37,717 - (666) - 37,051
-------- ------- -------- ------- ---------
Financing Activities
Borrowings under revolving credit facility - - - - -
Principal payments on revolving credit facility - - - - -
Release of cash collateral for performance guarantees 455 - - - 455
Redemption of Senior Notes (1,000) - - (1,000)
Change in book overdraft - - - - -
Distribution of income to minority interest - (8,250) - - (8,250)
Payments towards debt issuance/restructuring costs - - - - -
Net issuances (repurchases) of common stock - - - - -
-------- ------- -------- ------- ---------
Net Cash Provided by (Used in) Financing
Activities (545) (8,250) - - (8,795)
-------- ------- -------- ------- ---------
Effect of Exchange Rate Changes on Cash - - - - -
-------- ------- -------- ------- ---------
Increase (Decrease) in Cash and Cash Equivalents 25,920 (8,005) (1,869) - 16,046
Cash and Cash Equivalents at Beginning of Period 11,472 8,008 6,911 - 26,391
-------- ------- -------- ------- ---------
Cash and Cash Equivalents at End of Period $ 37,392 $ 3 $ 5,042 $ - $ 42,437
======== ======= ======== ======= =========
</TABLE>
17
<PAGE>
Kaiser Group International, Inc. and Subsidiaries
Debtor-In-Possession
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 1999
(In thousands)
<TABLE>
<CAPTION>
====================================================================================================================================
Non- Kaiser Group
Parent Subsidiary Guarantor International,
Company Guarantors Subsidiaries Eliminations Inc. Consolidated
-------- ---------- ------------ ------------ -----------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net Cash Provided by (Used in)
Operating Activities $(61,463) $ 311 $ 1,195 $ - $ (59,938)
-------- ---------- ------------- ----------- -------------
Investing Activities
Cash proceeds from investments in subsidiaries
and affiliates - - - - -
Sales of subsidiaries and/or investments - - - - -
Net proceeds from sale of discontinued operations 135,316 - - - 135,316
Purchases of fixed assets - - (659 - (659)
-------- ---------- ------------- ----------- -------------
Net Cash Provided by (Used in) Investing
Activities 135,316 - (659 - 134,657
-------- ---------- ------------- ----------- -------------
Financing Activities
Borrowings under revolving credit facility 57,064 - - - 57,064
Principal payments on revolving credit facility (92,584) - - - (92,584)
(Provision of) cash collateral for performance
guarantees (21,000) - - - (21,000)
Change in book overdraft 1,195 - - - 1,195
Distribution of income to minority interest - - - - -
Net issuances (repurchases) of common stock 38 - - - 38
-------- ---------- ------------- ----------- -------------
Net Cash Provided by (Used in) Financing
Activities (55,287) - - - (55,287)
-------- ---------- ------------- ----------- -------------
Effect of Exchange Rate Changes on Cash - - 76 - 76
-------- ---------- ------------- ----------- -------------
Increase (Decrease) in Cash and Cash Equivalents 18,566 311 612 - 19,508
Cash and Cash Equivalents at Beginning of Period 2,414 3,814 9,039 - 15,248
-------- ---------- ------------- ----------- -------------
Cash and Cash Equivalents at End of Period $ 20,980 $ 4,125 $ 9,651 $ - $ 34,756
======== ========== ============= =========== =============
</TABLE>
18
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations Overview
Developments in Corporate Reorganization
On June 9, 2000, the Company announced its intention to sell the majority of its
Engineering Operations in two separate transactions (described below). Also on
June 9, 2000, the Company announced that it would effect these sales as well as
a debt restructuring of its Senior and Senior Subordinated Notes through a
voluntary and pre-arranged bankruptcy. Accordingly, on June 9, 2000, Kaiser
Group International, Inc. and 38 of its wholly-owned domestic subsidiaries (the
Debtor Entities) filed voluntary petitions for relief under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware. The Company's subsidiaries that did not file petitions
for relief under Chapter 11 will be referred to herein as the Non-Debtor
Entities. Since then, the Company has continued to operate the Non-Debtor
Entities' businesses in the ordinary course and has operated the Debtor
Entities' businesses as debtors-in-possession. As such, the Debtor Entities are
authorized to operate their businesses in the ordinary course but may not engage
in transactions outside the ordinary course of business without the Bankruptcy
Court's approval.
In accordance with its announced intentions and following the requisite
Bankruptcy Court approvals, the sales of the Company's Engineering Operations
were effected as follows:
. The Infrastructure and Facilities Sale: The Bankruptcy Court approved
the sale of the Infrastructure and Facilities line of business on July
17, 2000. On July 28, 2000, Kaiser completed the sale of its
Infrastructure and Facilities line of business, which provided
engineering services to clients around the world in the transit and
transportation, facilities management, water/wastewater treatment, and
microelectronics and clean technology sectors. In this transaction,
substantially all of the assets of this business were sold to Tyco
Group S.A.R.L., the EarthTech unit of Tyco International Ltd., for a
cash purchase price of $30 million.
. The Metals, Mining and Industry Sale: The Bankruptcy Court approved
the sale of the Metals, Mining and Industry line of business on August
17, 2000. Effective as of August 18, 2000, Kaiser completed the sale
of its Metals, Mining and Industry line of business, which provided
engineering services to clients around the world in the
alumina/aluminum, iron and steel, and mining industry sectors. In this
transaction, substantially all of the assets of this business were
sold to Hatch Associates, Inc., a subsidiary of The Hatch Group of
Canada, for a cash purchase price of $7.0 million.
Although the Company has not finalized its accounting for the transactions, it
has to date recognized a net loss for financial reporting purposes of
approximately ($0.9) million. After adjusting this loss for items that are not
deductible for federal income tax purposes such as associated goodwill and
intangible asset write-offs totaling $19.0 million, the transactions generated
income tax expense of approximately $8.5 million, resulting in a total after tax
loss for financial reporting purposes of approximately $(9.4) million from the
collective sales (approximately $8.2 million of this loss has been offset by an
equal income tax benefit recognized on previously unbenefitted net operating
losses). This loss, in addition to the results of operations prior to the
divestitures for these units, has been presented for all periods in the
accompanying statements as "discontinued operations".
As a result of the Company's June 9, 2000 bankruptcy filings, (i) all then
existing debts, liabilities and obligations of the Debtor Entities
(collectively, "Pre-petition Indebtedness") matured and became due and payable,
and (ii) all acts to collect Pre-petition Indebtedness and to enforce other
existing contractual obligations of the Debtor Entities were stayed. Under the
Bankruptcy Code, the Debtor Entities generally may not currently make payments
on Pre-petition Indebtedness. Liabilities and obligations incurred after the
commencement of the bankruptcy cases in connection with the operation of the
Debtor Entities' business generally enjoy priority in right to payment over Pre-
petition Indebtedness and may be paid by the Debtor Entities in the ordinary
course of business.
Under the Bankruptcy Code, the Debtor Entities may, subject to certain
conditions, assume or reject executory contracts existing at the commencement of
the bankruptcy cases. The rejection of an executory contract is treated as a
breach thereof occurring immediately before the filing of the Debtor Entities'
bankruptcy petitions. Any liabilities of the Debtor Entities arising as a result
of the rejection of the executory contracts will be treated as Pre- petition
Indebtedness.
The Debtor Entities have filed a proposed plan of reorganization with the
Bankruptcy Court. On August 17, 2000, the Bankruptcy Court approved a
disclosure document prepared by the Company for use in soliciting acceptances of
the Plan of Reorganization by affected creditors and shareholders, who approved
the plan. There remain outstanding certain objections to the plan of
reorganization, which has not yet been confirmed by the Bankruptcy Court. On
the afternoon of Thursday, November 16, 2000, the Bankruptcy court continued the
hearing on confirmation of the Plan of Reorganization of Kaiser Group
International, Inc. and 38 of its subsidiaries until 10:00 a.m. on December 5,
2000. The Company's plan of reorganization, as well as the public record of all
bankruptcy court documents, can be accessed via the internet at
------------------------------------
www.deb.uscourts.gov. Although material changes are not expected, the plan
---------------------
of reorganization is subject to change until such time as it is confirmed by the
Bankruptcy Court.
. the cash payment in full of certain ordinary course liabilities, up to
$20,000 per creditor, incurred prior to June 9, 2000; and
. the payment, with a combination of cash, preferred stock and newly
issued common stock, for most of the Pre-Petition Indebtedness not
included in the class described above. This creditor class will
consist largely of the Company's Senior
--------------------------------------------------------------------------------
Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 30, 2000 Page 19
<PAGE>
Subordinated Notes and certain other claims for contingent or disputed
liabilities existing as of June 9, 2000. The issuance of new preferred
stock and new common stock to this class of creditors would result in
substantial dilution to the common stockholders that existed
immediately prior to the effectiveness of the plan of reorganization;
and
. the issuance to current common shareholders and other equity interests
of shares in the reorganized company which would comprise, in the
aggregate, 15% of the common shares outstanding after the distribution
of new issued common shares to the Class 4 claims as described above.
Immediately following the completion of the bankruptcy, the reorganized Company
will be engaged in only a limited number of activities, primarily consisting of:
. the completion of an engineering and construction services contract
for the construction of a steel mini-mill in the Czech Republic. This
contract is expected to be completed during late 2000 through the
Company's Netherlands subsidiary.
. the performance of a contract for the closure of DOE's Rocky Flats
site through Kaiser-Hill (See Results of Operations - Kaiser-Hill),
and
. the holding of a minority ownership interest in ICF Consulting Group
Inc. (the consulting division that the Company sold in 1999) as well
as the promissory notes received in connection with that sale.
In the event that a plan or reorganization is not approved by the Bankruptcy
Court and a restructuring plan is not consummated, the ability of the Company to
continue as a going concern depends on the success of and cash flows generated
by the retained activities summarized above and on the ability to meet creditor
obligations. The Company's alternative would be to seek to confirm a modified
plan of reorganization or to liquidate the business and distribute available
proceeds.
The accompanying financial statements have been prepared on a going concern
basis, which, except as disclosed, contemplates continuity of retained
operations, the realization of assets and the discharge of liabilities in the
ordinary course of business or pursuant to Bankruptcy Court orders. Until the
Company has an approved plan of reorganization, the realization of assets and
the ultimate resolution of the Company's contingent liabilities (Note 6) could
materially change the amounts currently recorded in the financial statements.
The financial statements do not give effect to any adjustments to the carrying
value of assets, or amounts and classification of liabilities that might be
necessary as a consequence of the outcome from the bankruptcy proceedings. In
addition, valuation methods used in Chapter 11 reorganization processes vary
depending on the purpose for which they are prepared and used and may differ
from methods used solely for purposes of GAAP, the basis on which the
accompanying financial statements are prepared. Accordingly, the values and
assumptions used to set forth amounts in the accompanying financial statements
may not be indicative of the values and assumptions presented to or used by the
Bankruptcy Court. As a result, valuations of the Company based on the
accompanying financial statements may be significantly different than valuations
used by the Company in determining the amounts to be received, if any by each
class of creditor under a plan of reorganization. As a result of the Chapter 11
filing, the financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the
classification of liabilities that might result should the Company not be
successful in attempts to enact the critical actions summarized above. Upon
the effectiveness of the Company's Plan of Reorganization, the principles of the
AICPA's Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" will be applied in the form of "fresh
start accounting" whereby the Company's overall fair market value
("Reorganization Value") will be allocated to the successor company's net assets
using the purchase method of accounting.
Results of Retained Operations
Kaiser-Hill
Kaiser-Hill Company, LLC is a 50% owned joint venture between Kaiser Group
International, Inc. and CH2M Hill, formed solely to perform the U.S. Department
of Energy's Rocky Flats Closure Project initially awarded in late 1995. Under
such contract, Kaiser-Hill serves as the general contractor at the U.S.
Department of Energy's Rocky Flats Environmental Technology Site (a former DOE
nuclear weapons production facility) near Denver, Colorado. Prior to June 8,
2000, through a designated majority representation on Kaiser-Hill's board of
managers, the Company had a controlling interest in Kaiser-Hill and therefore
consolidated Kaiser-Hill's results of operations with those of its only other
remaining business segment, E&C. Effective June 8, 2000, the Company adopted the
equity method of accounting for Kaiser-Hill coincident with its signing of an
agreement whereby the other 50% owner has the right to designate 3 out of the 5
members of Kaiser-Hill's board of managers. The Company retains the right to
designate 2 out of the 5 members of the Kaiser-Hill board of managers.
Accordingly, the financial information contained herein for Kaiser-Hill is
reflected on a consolidated basis for all periods presented through June 8,
2000, and financial information for periods after June 8, 2000 is reflected on
the equity basis. The Company's accounting for the operating results for each of
the three and nine months ended September 30 were as follows (in thousands):
--------------------------------------------------------------------------------
Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 30, 2000 Page 20
<PAGE>
<TABLE>
<CAPTION>
2000 1999
---- ----
Three Months Nine Months Three Months Nine Months
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Gross Revenue............................. $ -- $ 271,385 $ 206,046 $ 516,343
Subcontracts and materials............... -- (195,367) (161,710) (401,277)
Equity in unconsolidated affiliates...... 2,121 2,621 - -
------ --------- --------- ---------
Service Revenue........................... 2,121 78,639 44,336 115,066
Operating Expenses:
Direct labor and fringe.................. -- 64,197 40,299 102,620
------ --------- --------- ---------
Operating Income.......................... $2,121 $ 14,442 $ 4,037 $ 12,446
====== ========= ========= =========
Minority's Interest In Operating Income... -- $ 5,999 $ 2,118 $ 6,323
------ --------- --------- ---------
Operating Income As If Equity Method Had
Been Applied Historically............... $2,121 $ 8,620 $ 2,118 $ 6,323
====== ========= ========= =========
</TABLE>
As if the equity method of accounting for the Kaiser-Hill investment had been
applied consistently during each of the periods reported above, the recorded
operating results for the Company's 50%-owned Kaiser-Hill subsidiary were
approximately $2.1 million and $8.6 million for the three and nine month periods
ended September 30, 2000 versus $2.1 million and $6.3 million for the same
periods in 1999. The change in the results for the nine months ended September
30, 2000 is largely due to the recognition of $7.0 million performance fee that
was awarded to Kaiser-Hill upon the January, 2000 completion and closeout of the
original Rocky Flats contract. On January 24, 2000, Kaiser-Hill was awarded the
follow-on Rocky Flats contract pursuant to which Kaiser-Hill is providing
services that will complete the restoration of the Rocky Flats site and close it
to DOE occupation (the Closure Contract). The Closure Contract became effective
February 1, 2000 and terminated the remaining period of the former contract as
of January 31, 2000.
The economic terms of the Closure Contract are significantly different from the
former contract in that Kaiser-Hill, in addition to continuing to earn revenue
from the reimbursement of the actual costs of its services, will also earn a
performance fee based on a combination of the actual costs of completion and on
the actual date of physical completion. The Closure Contract will reimburse
Kaiser-Hill for the costs it incurs to complete the site closure, currently
estimated to range between $3.6 billion and $4.8 billion and, in addition, will
pay Kaiser-Hill an incentive fee ranging from $150.0 million to $460.0 million,
depending on Kaiser-Hill's ability to control the incurred costs at completion
to within the targeted range and its ability to meet the closure goal anytime
between March 31, 2006 - March 31, 2007. In addition to recognizing revenue
equal to all reimburseable costs incurred on the project, Kaiser-Hill is also
recognizing a portion of the total estimated performance fee equal to the
proportion of total costs incurred to date as compared to total estimated costs
it expects to incur over the life of the project. Until Kaiser-Hill progresses
further into the activities of the new contract, it is using the lowest
potential fee award of $150.0 million as its basis estimate for recording that
element of current revenue and profit on the contract. The use of this
conservative fee estimate may change over time as Kaiser-Hill achieves certain
milestones and is better able to estimate the ultimate award fee.
Other Operating Expenses
Operating expenses incurred during the three and nine months ended September 30,
2000 totaled $1.4 million and $6.4 million, respectively, versus $1.7 million
and $6.8 million during the same periods in 1999. These expenses were incurred
to support the retained operations until their ultimate divestitures at various
times in 1999 and 2000 as well as to address the Company's debt resolution and
bankruptcy matters and corporate downsizing activities. The nature of the costs
in this category were indirect and administrative in nature - thus when the
discontinued business units of the Company were sold, functions performed by
cost elements in this category were typically already being performed by the
buyers' existing administrative functions and thus not included in the sale
transactions. Consequently, subsequent to August 2000, these costs have been
the focus of reduction efforts by the Company.
Depreciation and Amortization Expense
Depreciation expense decreased by approximately $1.5 million during the nine
months ended September 30, 2000 compared to the same period in 1999, largely as
a result of the write-off of approximately $25.0 million of goodwill in the
second quarter of 1999 upon the completion of the sales of the Environment and
Facilities Management (EFM) and Consulting Groups; the write-off of the
unamortized balance of original issuance costs associated with the $14.0 million
in Senior Notes that were repurchased in October 1999; the reduction in goodwill
of approximately $1.5 million in December 1999 resulting from a change in the
purchase price of a business acquired in 1998, and lastly, the write off of
approximately $19.0 million in goodwill and intangible assets in the third
quarter of 2000 upon the completion of the sales of its Infrastructure and
Metals engineering units.
Reorganization and Restructuring Costs
During the three and nine months ended September 30, 2000 the Company incurred
approximately $2.5 million and $4.5 million,
--------------------------------------------------------------------------------
Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 30, 2000 Page 21
<PAGE>
respectively, in costs associated with its bankruptcy activities - including
third-party professional fees, court fees, printing and mailing costs, and
severance and staff retention costs among others. During the nine months ended
September 30, 1999, the Company recognized unusual charges totaling $10.7
million incurred as part of activities aimed at addressing the restructuring of
its debt and the reorganization of its remaining operations that were undertaken
prior to the inception of the bankruptcy.
Interest
Interest income has been earned on available cash balances that were generated
primarily from the divestitures completed either in 1999 or 2000 prior to the
use of cash in operations or for bankruptcy-related matters.
Interest expense decreased by $5.4 million and $9.2 million during the three and
nine month periods ended September 30, 2000, respectively, as compared to the
same periods in 1999 as a result of several major transactions involving its
outstanding notes. Specifically, the Company:
. used some of the sale proceeds in June 1999 to extinguish the entire
balance on its revolving credit facility.
. repurchased principal amounts of $14.0 million and $1.0 million, plus
interest, in October 1999 and September 2000, respectively, in
outstanding Senior Notes carrying an effective interest rate of 13%.
Net of the write off of unamortized original issue costs, the Company
recognized an extraordinary loss on the early extinguishment of debt
in the fourth quarter of 1999 and the third quarter of 2000 totaling
$(0.7) million and ($0.1) million, respectively.
. did not recognized interest expense during the three months ended
September 30, under the assumption that no interest will be claimed by
the noteholders of the $125 million in outstanding Senior Subordinated
Notes for any periods subsequent to June 9, 2000 because such holders
filed a claim for indebtedness that included unpaid interest from
January 1, 2000 to June 9, 2000 only.
Income Tax Expense
The income tax provision for all periods presented prior to June 2000 excludes
the tax effects on the minority's interest in Kaiser-Hill's operating income
because it is owned partially by another company and is a flow-through entity
for income tax purposes. Subsequent to June 2000, and effective with the
Company's changing its accounting for the Kaiser-Hill investment, the minority's
interest is no longer presented.
The Company recorded an income tax benefit of $0.4 million and $0.5 million on
(losses) from continuing operations of ($1.6) million and ($4.4) million,
respectively, during the three months and nine months ended September 30, 2000.
During these periods, the Company continued with the established practice of not
recognizing current financial statement benefits to be derived by net operating
losses unless the likelihood of being able to utilize such deductions in the
future was more likely than not. The taxable income resulting from by the sale
of the two engineering units during the three months ended September 30, 2000
however, generated certainty over the ability to derive an income tax benefit
from available net operating loss carryforwards. Accordingly, the Company
reversed approximately $8.2 million of a previously established allowance
against the value of unused net operating losses resulting in an estimated $8.2
million income tax benefit during the quarter. The Company still has other
available net operating losses that it anticipates exhausting as part of the
debt restructuring transaction that it expects to result from the bankruptcy
proceedings. As of September 30, 2000, the Company has not recognized the
financial statement benefit of the remaining net operating losses.
Also included in the tax provisions for the three and nine months ended
September 30, 1999, however, are income tax benefits of $0.1 million and $1.6
million, respectively, to offset the same amount of income tax expense that was
allocated to the net income from discontinued operations (see Results of
Discontinued Operations).
Results of Discontinued Operations
Concurrent with its bankruptcy filing, the Company announced on June 9, 2000
that it would sell essentially all of its interests in the remaining
engineering lines of business, previously providing design, engineering,
procurement, and construction and project management services to domestic and
international clients in the infrastructure, facilities, metals, mining and
industrial markets. The engineering operations were sold in two separate
transactions during the third quarter of 2000 for proceeds totaling $36.7
million. Although the Company has not finalized its accounting for the
transactions, it has to date recognized a pre-tax net loss for financial
reporting purposes of approximately ($0.9) million. After adjusting this loss
for items that are not deductible for federal income tax purposes, such as
associated goodwill and intangible asset write-offs totaling $19.0 million, the
transactions resulted in pre-tax income tax expense of approximately $8.5
million, resulting in a total after tax loss for financial reporting purposes of
approximately $(9.4) million. Approximately $8.2 million of this loss has been
offset by an equal income tax benefit recognized on previously unbenefitted net
operating losses.
--------------------------------------------------------------------------------
Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 30, 2000 Page 22
<PAGE>
During April and June of 1999, the Company sold its EFM and Consulting
operations for proceeds approximating $135.0 million and reported a net gain of
$48.8 million.
The combined net financial position and operating results of the Engineering,
EFM and Consulting Groups have been presented in the accompanying consolidated
financial statements as discontinued operations for all periods presented. The
net operating results of the discontinued segments, using historical and
consistent internal reporting practices, has been included in the accompanying
financial statements, in accordance with generally accepted accounting
principles. Accordingly, these net results are not intended to reflect the
operating results of these businesses had they been treated as stand-alone
operations within the Company. Rather, these net results represent the net
contributions to the overall Company operations that resulted from providing
direct sales and service to customers and do not necessarily include the effects
of the allocation of certain administrative and indirect support costs necessary
for a stand-alone business. Summarized results for the discontinued segments
for the three and nine months ended September 30, 2000 and 1999 are as follows
(in thousands):
<TABLE>
<CAPTION>
2000 1999
---- ----
Three Months Nine Months Three Months Nine Months
------------ ----------- ------------ -----------
(Engineering Operations Only (All Discontinued Operations
Prior to Divestiture Dates) Prior to Divestiture Dates)
<S> <C> <C> <C> <C>
Gross Revenue................................................ $ 41,599 $157,173 $ 48,481 $ 267,324
Subcontracts and materials.................................. (29,702) (92,198) (22,570) (134,933)
Equity in unconsolidated subsidiaries....................... 267 1,275 838 3,834
-------- -------- -------- ---------
Service Revenue.............................................. 12,164 66,250 26,749 136,225
Operating Expenses:
Direct labor and fringe..................................... 8,027 40,180 16,348 76,599
Group overhead.............................................. 5,169 23,225 9,062 55,206
Depreciation and amortization............................... 226 1,030 54 783
-------- -------- -------- ---------
Income (loss) from discontinued operations before income tax $ (1,258) $ 1,815 $ 1,285 $ 3,637
======== ======== ======== =========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
Operating activities: Of the total $12.2 million of cash used in operating
activities during the nine months ended September 30, 2000, Kaiser-Hill's
earnings in excess of cash distributions represented approximately $3.5 million
of the total operating cash shortfall. Kaiser-Hill's cash flows become available
to the Company only upon actual periodic distributions of earnings to the
Company and to the other 50% owner - however it recognizes revenue ratably over
the contract performance period. The remaining $8.7 million was used in
Kaiser's Engineering Operations primarily for the funding of continued operating
losses, the payment of over $4.5 million for professional fees incurred in
connection with its debt restructuring and bankruptcy activities, the payment of
the 1999 pension obligation on September 15, 2000 of approximately $2.2 million,
and for the payment of $2.2 million in income taxes resulting from the 1999
asset sale gains. The Engineering Operations used $59.9 million in cash during
the nine months ended September 30, 1999 from continued operating losses and the
funding required to complete the Nitric Acid projects, the payment of $12.2
million in interest expense, the incurrence of $10.7 million of expenses
consisting largely of amounts for professional fees, severance, office
downsizing and other activities associated with the Company's restructuring.
Investing activities: The Engineering Operations were sold in two separate
transactions during the third quarter of 2000 for proceeds totaling $36.7
million. Also during the first quarter of 2000, the Company sold its 35%
interest in an environmental holding company based in France generating
approximately $1.0 million in cash from investing activities. During April and
June of 1999, the Company sold its EFM and Consulting operations for proceeds
approximating $135.0 million and reported a net gain of $48.8 million.
Financing activities: During the nine months ended September 30, 2000, Kaiser-
Hill distributed $8.25 million to each of the Company and its other 50% owner -
CH2M Hill. The payment to CH2M Hill is reflected in the accompanying Statement
of Cash Flows for the period during which the Company consolidated the
operations of Kaiser-Hill in its financial statements. On September 12, 2000,
the Company repurchased the remaining $1.0 million in outstanding Senior Notes
plus accrued interest since January 1, 2000. As of September 30, 2000 the
Company had $13.2 in letters of credit outstanding, primarily for the Nova Hut
project, collateralized by restricted cash balances.
Liquidity and Capital Resource Outlook
The Company anticipates that it will have the liquidity necessary to effect the
terms of the proposed Plan of Reorganization in the event that it is confirmed.
As of August 25, 2000, the Company had already completed the asset sales
contemplated in the proposed Plan of Reorganization and invested the portion of
the $36.7 million in proceeds not needed for current operations until the
remaining elements of the Plan are approved and effected. Post-bankruptcy, the
Company's ongoing operations will also be required to fund an
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Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 30, 2000 Page 23
<PAGE>
existing post-employment medical benefit obligation to certain former retirees
of the Company. The Company anticipates that its post-bankruptcy operating
liquidity needs will be adequately funded by its remaining assets and
investments. After its emergence from bankruptcy, in the event that cash
distributions from Kaiser-Hill meet certain thresholds, some amount of such
distributions will be used to purchase outstanding preferred stock issued
under the Plan of Reorganization to the former holders of the Company's Senior
Subordinated Notes. The preferred stock redemptions will be required in the
event that such former noteholders exercise put rights, entitling them to
certain Kaiser-Hill distributions, that are to be issued by a Non-debtor
Subsidiary with the effectiveness of the Company's Plan of Reorganization. After
the emergence from bankruptcy and after the initial distribution of preferred
stock that is to be issued pursuant to the Plan of Reorganization, the Company
will also have a commitment to pay dividends on the preferred stock. The
dividends will accrue at 7% of the liquidation preference of the new preferred
stock if paid in cash and will accrue at 12% of the existing liquidation
preference if paid-in-kind via an increase in the liquidation preference of the
preferred stock.
In the event that an acceptable Plan of Reorganization is not ultimately
confirmed, the Company estimates that its liquidity would be sufficient in the
short term for its remaining operations as well as for its debt service
requirements and certain pre-bankruptcy contingencies. Over the longer term,
the Company would need to obtain resolution to the method by which it would
ultimately satisfy the principal obligations on its outstanding Senior
Subordinated Notes. Alternatives could include the Company seeking to obtain
confirmation of a modified plan of reorganization or to liquidate the business
with a distribution of the available proceeds.
Other Matters
Litigation, Claims and Assessments Contingencies: 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. The Company
anticipates being able to resolve and/or settle matters within this category of
contingency during the course of its bankruptcy process. Until such resolution
however, in the opinion of management, the financial statements contain adequate
provisions for reserves 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 ensue.
Bath Contingency: In March 1998, Kaiser entered into a $197 million
maximum price contract to construct a ship building facility for Bath Iron
Works, Inc. ("Bath"). In May 1998, Kaiser learned that the costs of
subcontractors to perform the contract were approximately $30 million
higher than the estimated costs previously known, and Kaiser terminated the
contract on the basis of mutual mistake between the contracting parties.
Bath subsequently asserted a claim based on site conditions that allegedly
should have been identified by Kaiser and its subcontractors. In March
2000, Bath filed claims aggregating $38 million in the United States
District Court for the District of Maine. In August 2000, an agreement was
reached among Kaiser, its insurer and Bath in settlement of the potential
claims. The agreement of the parties was also approved by the Bankruptcy
Court and accordingly, there will be no allowed claim arising from the
terminated Bath contract.
Acquisition Contingency: The 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 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.
In December 1999, the Company and certain former Company employees and
shareholders of ICT Spectrum agreed to amend the applicable agreements in a
manner that had the result of reducing the amount of the taxable gain
created by former shareholder-employees' involuntary departures from the
Company. As permitted per the agreement, the shareholders agreed to allow
the Company to retain some of the vested shares as payment of the income
tax withholding in lieu of cash. In total, the Company retained 255,669
shares and recorded the transaction as a $1.37 million reduction to
goodwill and paid-in-capital.
The former shareholders of ICT Spectrum have submitted a claim in
bankruptcy against the Company. Pursuant to the Company's Plan of
Reorganization, the Company believes the claim will be treated as a Class 5
Equity Interest.
On March 29, 1999, one ex-ICT Spectrum shareholder, individually and on
behalf of all others similarly situated, filed a class action lawsuit in
the U.S. District Court for the District of Idaho 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
court denied the Company's motion to dismiss this suit. As a result of the
bankruptcy, this case has been stayed as to the Company.
Government contract contingencies: In the past, Kaiser had a number of
cost-reimbursement contracts with the U.S. government that have been the
subject of audits by the U.S. government. The U.S. government has asserted,
among other things, that some costs claimed as reimbursable under
government contracts either were not allowable or not allocated in
accordance with federal procurement regulations. Effective as of August
28, 2000, Kaiser and the respective governmental agencies reached an
agreement to settle this potential claim, without the return by Kaiser of
any money previously reimbursed to Kaiser by the U.S. government. Also
pursuant to the settlement agreement, the U. S. government will not
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Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 30, 2000. Page 24
<PAGE>
assert any further Claim in the Bankruptcy Cases arising from these U.S.
government cost-reimbursement contracts and Kaiser waives the right to
additional payments from the U.S. The Bankruptcy Court has also approved
the settlement agreement.
Contract warranties and performance guaranty contingencies: 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.
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
forward-looking statements, including those that use words such as the Company
"believes," "anticipates," "expects," and "estimates," 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 herein:
Risks Relating to Reorganized Kaiser's Business
Uncertainties Exist Relative to the Projected Operating and Non-Operating
Results While the Company is in Bankruptcy or Until it Completes the
Implementation of the Plan of Reorganization: The Company is currently in
Chapter 11, which inherently increases the difficulty in forecasting operating
results due to bankruptcy-related uncertainties relating to clients, suppliers
and employees of the Company's businesses and the resolution of claims in
bankruptcy. In addition, a protraction of the Chapter 11 process may have and
will continue to increase the risk and increase the expense of the restructuring
process.
After its emergence from bankruptcy, in the event that cash distributions from
Kaiser-Hill meet certain thresholds, some amount of such distributions will be
used to purchase outstanding preferred stock issued under the Plan of
Reorganization to the former holders of the Company's Senior Subordinated Notes.
The preferred stock redemptions will be required in the event that such former
noteholders exercise put rights, entitling them to certain Kaiser-Hill
distributions, that are to be issued by a Non-debtor Subsidiary with the
effectiveness of the Company's Plan of Reorganization. After the emergence from
bankruptcy and after the initial distribution of preferred stock that is to be
issued pursuant to the Plan of Reorganization, the Company will also have a
commitment to pay dividends on the preferred stock. The dividends will accrue at
7% of the liquidation preference of the new preferred stock if paid in cash and
will accrue at 12% of the existing liquidation preference if paid-in-kind via an
increase in the liquidation preference of the preferred stock.
Reorganized Kaiser Will Be Dependent on Kaiser-Hill's Performance and Nova Hut
Project: Reorganized Kaiser's long-term future profitability will be dependent,
to a significant extent, on Kaiser-Hill's performance under its new contract
with DOE. Kaiser-Hill's contract with the DOE includes a performance fee based
upon a combination of the actual costs to complete the site closure and the
actual date of completion of the closure. If Kaiser-Hill fails to complete
within the target cost for the project and fails to complete the project by
March 31, 2007, Kaiser- Hill's fee will be reduced by 30% of the costs incurred
after the target date, up to a maximum of $20 million.
In the shorter term, reorganized Kaiser's profitability will be dependent, to a
significant extent, on the performance of Kaiser's Netherlands subsidiary under
its contract for turnkey engineering and construction services relating to a
steel mini-mill in the Czech Republic for Nova Hut and on Nova Hut's ability to
pay for such services. Nova Hut is currently experiencing financial difficulty.
Risks From Special Federal Regulations: Because Kaiser-Hill provides the Federal
government with nuclear energy and defense-related services, it and a number of
its employees are required to have and maintain security clearances from the
Federal government. There can be no assurance that the required security
clearances will be obtained and maintained in the future. In addition, Kaiser-
Hill is subject to foreign ownership, control and influence regulations imposed
by the Federal government and designed to prevent the release of classified
information to contractors subject to foreign ownership, influence and control.
There can be no assurance that foreign ownership, influence and control concerns
will not affect the ability of Kaiser-Hill to maintain its DOE contract.
Potential Substantial Liabilities and Costs Associated With Kaiser-Hill's DOE
Contract: Under the DOE contract, Kaiser-Hill is responsible for, and DOE will
not pay for costs associated with, liabilities caused by the willful misconduct
or lack of good faith of Kaiser-Hill's managerial personnel or the failure to
exercise prudent business judgment by Kaiser-Hill's managerial personnel. If
Kaiser-Hill were found liable for any of these reasons, the associated costs
could be substantial.
Absence of a Business Plan Beyond Kaiser-Hill and Nova Hut Project: Apart from
the risks associated with Kaiser-Hill's performance under its new contract with
the DOE, the performance of Kaiser Netherlands on the Nova Hut project, and Nova
Hut's ability to pay Kaiser Netherlands, reorganized Kaiser's long-term future
profitability will be dependent, to a significant extent, on its ability to
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Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 30, 2000. Page 25
<PAGE>
develop a business plan for ongoing operations. It is possible that Kaiser's
ongoing business plan will be limited to completing the Nova Hut project and
participating in the activities of Kaiser-Hill. It is also possible that the
Board of Directors of reorganized Kaiser will consider whether Kaiser should
attempt to take advantage of its successful history of performing in the
government services market, both independently and through Kaiser-Hill, in order
to develop a new revenue base.
Certain Bankruptcy-Related Considerations
Risk That The Plan Will Not Be Confirmed: Although Kaiser believes that the
plan of reorganization will satisfy all requirements necessary for confirmation
by the Bankruptcy Court, there can be no assurance that the Bankruptcy Court
will reach the same conclusion. There can also be no assurance that
modifications of the plan of reorganization will not be required for
confirmation, that such negotiations would not adversely affect the holders of
claims and equity interests, or that such modifications would not necessitate
the re-solicitation of votes.
Risk Factors Related to Estimates and Assumptions
As with any plan of reorganization or other financial transaction, there are
certain risk factors that must be considered. All risk factors cannot be
anticipated, some events will develop in ways that were not foreseen, and many
or all of the assumptions that have been used in connection with the plan of
reorganization will not be realized exactly as assumed. Holders of allowed
claims and equity interests should be aware of some of the principal risks
associated with the contemplated reorganization:
. There is a risk that one of more of the required conditions or
obligations under the plan of reorganization will not occur, be
satisfied or waived, as the case may be, resulting in the inability to
confirm the plan of reorganization.
. The total amount of all claims filed in the Bankruptcy Cases may be
materially in excess of the estimated amounts of allowed claims
assumed in the development of the plan of reorganization. The actual
amount of all allowed claims in any class may differ significantly
from the estimates. Accordingly, the amount and timing of the
distributions that will ultimately be received by any particular
holder of an allowed claim in any class may be materially and
adversely affected should the estimates be exceeded as to any class.
. A number of other uncertainties may adversely impact reorganized
Kaiser's future operations including, without limitation, economic
recession, adverse regulatory agency actions, acts of God, or similar
circumstances. Many of these factors will be substantially beyond
reorganized Kaiser's control, and a change in any factor or
combination of factors could have a material adverse effect on
reorganized Kaiser's financial condition, cash flows, and results of
operations.
. There can be no assurance that reorganized Kaiser will be able to
continue to generate sufficient funds to meet its obligations,
notwithstanding the significant improvements in reorganized Kaiser's
operations and financial condition. Although reorganized Kaiser's
financial projections assume that reorganized Kaiser will generate
sufficient funds to meet its working capital needs for the foreseeable
future, its ability to gain access to additional capital, if needed,
cannot be assured.
Other Risks
. The Company may not be able to obtain satisfactory contract
performance guarantee mechanisms, such as performance bonds.
. The Company has been involved in a number of fixed-price contracts
under which the Company can benefit from cost savings or performance
efficiencies. The Company's revenue and profit recognition policies
are based on making a series of assumptions including aspects relative
to contract pricing and performance capabilities. The Company's
contract to construct the Nova Hut steel mini-mill in the Czech
Republic includes such aspects. In the event that such assumptions
cannot be met or change as contract progress ensues, the Company may
have to make downward adjustments to revenue and profit already
recognized in the financial statements. Possible results of changes in
such assumptions could include the inability to realize all contract
performance fees or other incentives already recognized as revenue in
the financial statements, and may result in other unrecoverable cost
overruns.
. The Company has several significant contingent liabilities arising out
of prior operations and contracts, its 1998 acquisition of ICT
Spectrum Constructors, Inc. and the dispositions of its Environment
and Facilities Management and Consulting Groups. The Company
anticipates resolving these contingencies during its bankruptcy
processes, however, adverse resolution of one or more of those
contingencies could adversely affect the Company's financial
performance and condition.
. The Company generally grants uncollateralized credit to its customers
and is therefore subject to risks of financial instability on the part
of its customers. In certain cases, the Company secures project
specific insurance policies related to various insurable risks such as
certain non-payment due to insolvency of the customer. Negative
changes in the financial condition of its customers could expose the
Company to adverse financial consequences.
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Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 30, 2000. Page 26
<PAGE>
Item 3. Quantitative and Qualitative Information about Market Risk
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.
Part II - Other Information
Item 1. Legal Proceedings
On June 9, 2000 the Company, including various of its subsidiaries, filed a
voluntary "pre-packaged" Chapter 11 reorganization in The United States
Bankruptcy Court for the District of Delaware case nos. 00-2263 through 00-
2301.
Item 2. Changes in Securities
(a) None
(b) None
(c) None
(d) Not applicable
Item 3. Defaults Upon Senior Securities
(a) In light of the fact that the Company filed a voluntary "pre-packaged"
Chapter 11 reorganization, the Company did not make its June 30, 2000
interest payment due on either the Company's 12% Senior Notes due 2002
or its 12% Senior Subordinated Notes due 2003.
(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 November 1, 2000.
No. 27 Financial Data Schedule
(b) Reports on Form 8-K
None
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.
KAISER GROUP INTERNATIONAL, INC.
Date: November 20, 2000 /s/ Timothy P. O'Connor
--------------------------------------------------
Timothy P. O'Connor
Executive Vice President, Chief Financial
Officer and Chief Administrative Officer
(Duly authorized officer and principal financial
officer)
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Kaiser Group International, Inc. Report on Form 10-Q for the Third Quarter
ending September 30, 2000. Page 27
