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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
Commission File No. 1-12248
KAISER GROUP HOLDINGS, INC.
(successor issuer to Kaiser Group International, Inc.)
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
54-2014870
(I.R.S. Employer
Identification No.)
9302 Lee Highway, Fairfax, Virginia
(Address of principal executive offices)
22031-1207
(Zip Code)
Registrant's telephone number, including area code: (703) 934-3600
Name of each exchange on which registered:
None
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
===============================================================================
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12,13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [X]
The Plan of Reorganization of Kaiser Group International, Inc. under Chapter 11
of the Bankruptcy Code became effective on December 18, 2000. The Plan
provides, among other things, that holders of shares of common stock of Kaiser
Group International, Inc. ("Old Common Stock") received shares of common stock
of Kaiser Group Holdings, Inc. and that holders of specified outstanding debt
obligations and other specified claimants received cash and shares of preferred
stock and common stock of Kaiser Group Holdings, Inc., all in accordance with
the terms set forth in the Plan. The initial distribution of securities
occurred as of April 17, 2001.
The aggregate market value of common stock held by non-affiliates of the
registrant was $4.3 million based on the Over-the-Counter Bulletin Board
average bid and asked prices of $2.71 on March 25, 2002. On March 25, 2002,
there were 1,601,046 shares of common stock outstanding.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-k for the year ended December 31,
2001 Page 2
PART I
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains, and our periodic filings with the
Securities and Exchange Commission and written or oral statements made by the
Company's officers and directors to press, potential investors, securities
analysts and others, will contain, forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 31E of the
Securities Exchange Act of 1934. These forward-looking statements are not
historical facts, but rather are predictions and generally can be identified by
use of statements that include phrases such as "believe," "expect,"
"anticipate," "estimate," "intend," "plan, " "foresee" or other words or
phrases of similar import. Similarly, statements that describe or contain
information related to matters such as our intent, belief, or expectation with
respect to financial performance, claims resolution, cash availability, stock
redemption plans, contract awards and performance, potential acquisitions and
joint ventures, and cost-cutting measures are forward-looking statements. These
forward-looking statements often reflect a number of assumptions and involve
known and unknown risks, uncertainties and other factors that could cause our
actual results to differ materially from those currently anticipated in these
forward-looking statements. In light of these risks and uncertainties, the
forward-looking events might or might not occur.
Important factors that could cause actual results to differ materially from
those suggested by these written or oral forward-looking statements, and could
adversely affect our future financial performance, include the risk factors
discussed in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operation.
ITEM 1. BUSINESS
REORGANIZED CORPORATE HISTORY
Kaiser Group Holdings, Inc. is a Delaware holding company formed on December 6,
2000 for the purpose of owning all of the outstanding stock of Kaiser Group
International, Inc. ("Old Kaiser" or "Kaiser Group International"), which in
turn continues to own the stock of its remaining subsidiaries. On June 9, 2000,
Old Kaiser and 38 of its domestic subsidiaries voluntarily filed for protection
under Chapter 11 of the United States Bankruptcy Code in the District of
Delaware (case nos. 00-2263 to 00-2301). Old Kaiser emerged from bankruptcy with
a confirmed plan of reorganization (the Second Amended Plan of Reorganization
(the "Plan") (Exhibit 2.a to this Report)) that was effective on December 18,
2000. The Company is deemed a "successor issuer" to Old Kaiser by virtue of rule
12-g3(a) under the Securities Exchange Act of 1934. References to the "Company"
or "Kaiser Holdings" in this Report refer to Kaiser Group Holdings, Inc. and its
consolidated subsidiaries. A summary of the Plan for Old Kaiser, as well as
other information relative to the process regarding the initial Plan
distributions of cash and new securities, can be found in a Current Report on
Form 8-K filed on December 14, 2000 with the Securities and Exchange Commission
by Old Kaiser.
Following the completion of the sales of businesses and the effectiveness of
the Plan, the Company has only a limited number of activities, assets and
liabilities, primarily consisting of (further described in this section under
"Overview of Retained Business Operations"):
. the ownership of a 50% interest in Kaiser-Hill Company, LLC
("Kaiser-Hill"), which serves as the general contractor at the U.S.
Department of Energy's Rocky Flats Environmental Technology Site near
Denver, Colorado, for the performance of a contract for the closure of the
site. Kaiser-Hill has performed for DOE at this site since 1995 and in
January 2000 was awarded a new contract to manage the closure of the site
within this decade. Rocky Flats is a former DOE nuclear weapons
production facility, and under the new closure contract, Kaiser-Hill is
working to stabilize and safely store radioactive materials at the site
and other locations, to clean up areas contaminated with hazardous and
radioactive waste, and to restore much of the 6,000-acre site to the
public. The Kaiser-Hill joint venture between Old Kaiser and CH2M Hill
Companies, Ltd. was formed solely for the performance of the current and
former Rocky Flats contracts. The level of success experienced by
Kaiser-Hill in achieving closure of the Rocky Flats site, and the cost of
achieving such closure, are the primary determinants of the Company's
long-term financial performance following the completion of the
reorganization process.
. a substantial claim, pending resolution, against the owner of a steel
mini-mill for Nova Hut in the Czech Republic. The engineering and
construction of the mini-mill was completed by a subsidiary of Old Kaiser
in 2000.
. the holding of a minority ownership interest in ICF Consulting Group, Inc.
(a division that Old Kaiser sold in 1999) as well as the interest-bearing
promissory notes and escrowed cash received in connection with that sale.
. a wholly-owned captive insurance company that is no longer issuing new
policies and is solely involved in resolving remaining claims made against
previously issued policies.
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Kaiser Group Holdings, Inc. Report on Form 10-k for the year ended December 31,
2001 Page 3
. an ongoing obligation to fund a capped, post-employment medical benefit
plan for a fixed group of retirees.
GENERAL TERMS AND DISTRIBUTION STATUS OF PLAN OF REORGANIZATION
The effectiveness of the Plan as of December 18, 2000 did not in and of itself
complete the bankruptcy process. The process of resolving in excess of $500
million of claims initially filed in the Old Kaiser bankruptcy process is
ongoing. Old Kaiser objected to the majority of the unresolved claims, and if
such claims are not settled via the objection or dispute resolution processes
or other means, they will ultimately be heard and determined by the Bankruptcy
Court. Once a claim is resolved with an amount due to the creditor, such
portion of the claim is deemed to be an allowed claim by the Bankruptcy Court
(an "Allowed Claim"). The Company cannot predict with accuracy when the claims
resolution process will be complete or what the total amount of Allowed Claims
will be upon completion.
In very general terms, the Plan contemplated three different classes of
creditors:
. Allowed "Class 3 claims" against the Old Kaiser bankruptcy estate -
generally trade and similar creditors' claims of $20,000 or less -
received cash for their claims.
. Allowed "Class 4 claims", the largest class of claims against the Old
Kaiser bankruptcy estate, is made up of creditor claims other than Class 3
claims and equity claims. Class 4 claims included holders of the former
Kaiser Group International senior subordinated notes due 2003 ("Old
Subordinated Notes"). Holders of allowed Class 4 claims received a
combination of cash and Kaiser Holdings preferred and common stock in
respect of their claims. Such holders received one share of preferred stock
("New Preferred") and one share of new common stock ("New Common") for each
$100 of claims. However, the number of shares of New Preferred issued was
reduced by one share for each $55.00 of cash received by the holder of an
allowed Class 4 claim. Under the Plan, fractional shares of New Preferred
and New Common were not issued. Each holder of an Allowed Class 4 claim or
Allowed Equity Interest (see below for discussion of Equity Interest)
received the total number of whole shares of New Preferred or New Common to
which it was entitled. Any remaining entitlement to fractions of shares of
New Preferred or New Common were treated by distributing unallocated shares
of New Preferred and New Common to holders of Allowed Class 4 Claims and
Allowed Equity Interests having the greatest fractional entitlements until
all unallocated fractional shares of New Preferred and New Common were
distributed. Dividends on shares of New Preferred issued under the Plan
will accrue from the initial distribution date. Shares of New Preferred
distributed after the initial distribution date will be entitled to any
dividends that would have accrued from and after the initial distribution
date.
. The third class of claims recognized in the Old Kaiser bankruptcy estate
are equity claims, consisting of holders of former Kaiser Group
International common stock ("Old Common") and other "Equity Interests" as
defined in the Plan. Under the Plan, holders of Equity Interests will
receive a number of shares of New Common of Kaiser Holdings equal to
17.65% of the number of shares of such common stock issued to holders of
allowed Class 4 Claims. In the initial distribution, one share of Kaiser
Holdings New Common was issued for each 96 shares of previously
outstanding Old Common. Additional distributions of Kaiser Holdings
New Common stock may be made in the future as additional shares of New
Common are issued to holders of newly allowed Class 4 claims, if any.
Apart from holders of former Kaiser Group International Old Common, the
only holders of Equity Interests of which the Company is aware are the
former shareholders of ICT Spectrum Constructors, Inc., a corporation
acquired by merger with a subsidiary of Kaiser Group International in
1998. The Bankruptcy Court confirmed the equity nature of those claims.
Pursuant to the terms of Old Kaiser's Plan, the Company was required to
complete its initial bankruptcy distribution within 120 days of the effective
date of the Plan. Accordingly, on April 17, 2001, the Company effected its
initial distribution. At that time, there were approximately $136.8 million of
Class 4 claims that had been allowed in the bankruptcy process. The amount of
unresolved claims remaining at April 17, 2001 was approximately $130.5 million.
With respect to the unresolved claims, the Plan required that, at the date of
the initial distribution, sufficient cash reserves be retained by the Company
such that if all remaining unresolved claims were ultimately deemed allowed at
the originally claimed amount, the Company would be able to satisfy the allowed
claims, including dividends accruing on related New Preferred since April 17,
2001. The cash reserve requirement, and the fact that the Company had not yet
received a substantial cash payment that the Company asserted it was due from
the owner of the Nova Hut steel mini-mill in the Czech Republic, limited the
amount of cash available at the time of the initial distribution to the holders
of allowed Class 4 claims. The Company determined that an aggregate of $25.0
million, or approximately $0.09347 per $1.00 of Allowed and "deemed allowed"
Class 4 claims, was available at the time of the initial distribution to
Allowed Class 4 claim holders. Thus, more shares of New Preferred were issued
than would have been had the claims resolution process advanced more quickly
and had more cash been available from the Nova Hut project and/or other
sources. Due to the proportion of remaining unresolved Class 4 claims in
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Kaiser Group Holdings, Inc. Report on Form 10-k for the year ended December 31,
2001 Page 4
relation to the total of all resolved and unresolved claims, approximately
$12.3 million of the $25.0 million in available cash was reserved on April 17,
2001.
To address the remaining unresolved claims, the Bankruptcy Court issued an
order on March 27, 2001, establishing an Alternative Dispute Resolution ("ADR")
procedure whereby the remaining claimants and Old Kaiser produce limited
supporting data relative to their respective positions and engage in initial
negotiation efforts in an attempt to reach an agreed claim determination. If
necessary, thereafter, the parties are required to participate in a non-binding
mediation before a mediator pre-selected by the Bankruptcy Court. All
unresolved claims are subject to the ADR process. Since April 17, 2001, the
date of initial distribution, $65.5 million of asserted claims have been
withdrawn, negotiated or mediated to an agreed amount, resulting in cash
payments approximating $0.8 million and no additional issuances of New
Preferred or New Common. As of March 15, 2002, the amount of unresolved claims
was approximately $65.0 million. The Company expects that substantial progress
will continue to be made in the resolution of claims over the balance of 2002.
The Company continues to believe that the amount of Class 4 claims ultimately
to be allowed in the Kaiser Group International bankruptcy proceeding will not
exceed $150.0 million. The Company intends to continue to aggressively pursue
settlement alternatives during its resolution of remaining Class 4 claims.
Regardless of the settlement intentions, the Company cannot determine, with
certainty, the effect of the outcome on its overall financial condition in the
event such settlements are or are not accepted in the future.
As discussed above, the exchange ratio of New Common for Old Common (1 new share
for each 96 old shares) and the nature of the distribution of shares of common
stock to holders of Class 4 claims resulted in there being a number of holders
of a relatively small number of shares of Kaiser Holdings common stock.
Therefore, in 2001 the Company initiated an offer to purchase all shares of New
Common distributable to persons who received 99 or fewer shares in the initial
distribution for a price equal to $4.50 per share. The offer expired on June 15,
2001 with 25,650 shares being repurchased by the Company under this plan for a
total of $115,000.
In the case of holders of Old Common, the offer to purchase shares was
conditioned on the holder's agreement to also sell the holder's right to future
distributions of shares of Kaiser Holdings' common stock under the Plan. The
offer price for such distribution rights was $0.50 per share that would
otherwise be distributed. This offer price was determined arbitrarily, based
primarily on the Company's current expectation that future distributions of
shares of Kaiser Holdings' common stock would not exceed 10% of the number of
shares distributed at the present time. Holders who wished to sell their right
to future distributions had to also sell their shares of Kaiser Holdings' common
stock. On June 15, 2001, the Company repurchased 20,002 rights under this plan
for a total cost of $10,000.
The following table depicts the results of the initial distributions to Allowed
Claims pursuant to the Plan of Reorganization:
Distribution Element
--------------------
Liquidation # of # of
----------- ---- -----
Preference of shares of shares of
------------- --------- ---------
of New New New
------ --- ---
Amounts as of Claim Distribution Preferred Preferred Common
----- --------- --------- ------
Initial Distribution Date: Amount Amount Cash Stock Stock Stock
------ ------ ---- ----- ----- -----
($'s in thousands) % $Value
- ------
Amount of Allowed $912 100% $912 $912 -- -- --
Class 3 Claims
Amount of Allowed
Class 4 Claims $136,863 55% $75,275 $12,794 $62,481 1,136,024 1,368,632
Holders of Old Common Stock -- -- -- -- -- 242,257
Buyback of Odd-Lot New
Common Stock -- -- -- -- -- (25,650)
-------- ------- ------- ------- --------- ---------
Totals $137,775 $76,387 $13,706 $62,481 1,136,024 1,585,239
======== ======= ======= ======= ========= =========
From time-to-time in the future, as remaining unresolved claims are resolved,
excess cash to be available from the "reserve" fund (including cash added to
"reserve" fund in payment of pro forma dividends on retained shares of New
Preferred) must be used to redeem outstanding shares of New Preferred.
Preferred Stock Put Rights
Holders of Old Subordinated Notes were offered the opportunity to have a right
to "put" their New Preferred to Kaiser Government Programs, Inc. ("KGP"), which
is the indirect 100% owner of Old Kaiser's 50% interest in Kaiser-Hill, if KGP
receives certain proceeds from Kaiser-Hill. This opportunity was offered in
exchange for the surrender of any remaining rights held by holders of Old
Subordinated Notes as of August 14, 2000 under a guarantee previously issued by
KGP. The KGP exchange offer expired on November 15, 2000, and the holders of
$124,303,000, or 99.4%, principal amount of the Old Subordinated Notes accepted
the exchange offer. On or about April 17, 2001, the holders of Old Subordinated
Notes received certificates representing the KGP put rights. The number of KGP
put rights represented by such certificates corresponded to the
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Kaiser Group Holdings, Inc. Report on Form 10-k for the year ended December 31,
2001 Page 5
number of shares of New Preferred Stock distributed with respect to such Old
Subordinated Notes.
The KGP put rights, expiring on December 31, 2007, obligate KGP to purchase New
Preferred owned by a holder of the KGP put right, at the holder's option, under
three circumstances:
. if KGP receives net after-tax proceeds from any cash distributions from
Kaiser-Hill that, on a quarterly basis, exceed 2.8 times the amount of
cash required to pay all past accrued but unpaid cash dividends on the New
Preferred distributed to holders of Old Subordinated Notes pursuant to the
Plan, plus the next scheduled quarterly cash dividend on New Preferred;
. if KGP receives net after-tax proceeds from any direct or indirect
disposition of any interest in Kaiser-Hill; or
. if KGP receives net after-tax proceeds from an extraordinary distribution
from Kaiser-Hill.
Upon exercise of a put, KGP will pay an exercising holder 100% of the
liquidation preference of the New Preferred that is the subject of the KGP put
rights, plus all accrued and unpaid dividends on the New Preferred. KGP will
purchase shares of New Preferred on a pro rata basis based upon the number of
shares of New Preferred as to which puts have been properly exercised, but only
up to the amount of the available net after-tax proceeds from triggering
events. KGP will not purchase any fractional shares. The number of KGP put
rights represented by such certificates will correspond with the number of
shares of New Preferred distributed with respect to Old Subordinated Notes. KGP
put rights will not become exercisable more frequently than every 12 months
unless the cumulative amount of available net after-tax proceeds from
triggering events is at least $3 million. KGP put rights will be transferable
except that puts shall cease to be transferable if KGP determines that any
further transfer would require registration of the puts as a class of
securities under the Securities Exchange Act of 1934. Kaiser Holdings does not
presently plan to arrange for trading of the KGP put rights on the
over-the-counter bulletin board or otherwise.
Overview of Retained Business Operations
Kaiser-Hill Company, LLC
- ------------------------
Kaiser-Hill is owned equally by Kaiser Group Holdings and CH2M Hill Companies
Ltd. CH2M Hill designates three of the five members of Kaiser-Hill's Board of
Managers, and Kaiser Holdings designates two members. The scope of Kaiser-Hill's
contract with the DOE includes all elements of daily and long-term operations
associated with the ultimate closure of the DOE's Rocky Flats site, including
stabilizing and safely storing or transporting radioactive material, cleaning up
areas contaminated with hazardous and radioactive waste, and restoring much of
the 6,000-acre Rocky Flats site for future use by the public.
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 Rocky Flats Site Closure Contract is primarily cost-reimbursable in nature,
but also contains certain minimum and incentive fee elements based on
qualitative and quantitative factors of actual performance levels compared to
annually negotiated and established benchmarks or milestones.
The economic terms of the Closure Contract provide that Kaiser-Hill will earn
revenue equal to the actual cost of physical completion in addition to a
performance fee based on a combination of the actual cost of completing the
site closure project and the actual date of physical completion, both as
compared to contracted targets. The potential fee to be earned pursuant to the
Closure Contract terms ranges from $150.0 million to $460.0 million based on
Kaiser-Hill's costs to complete the site closure being within the range of
targeted completion cost of $3.6 billion and $4.8 billion, and completion at
various dates between 2005 - 2007. Completion for a total cost in excess of the
target cost would result in a reduction to the potential fee whereby
Kaiser-Hill will share 30% in all costs incurred after such date, subject to a
maximum Kaiser-Hill liability of $20.0 million. From the inception of this
contract in February 2000 until December 31, 2000, uncertainties over the
ability to accurately predict the total cost at completion and date of
completion made management chose a conservative course for revenue recognition
whereby contract fee was recognized for financial reporting purposes at the
minimum level, i.e. the $150.0 million fee level on a straight-line basis over
an estimated period of contract completion ranging from February 1, 2000
through December 31, 2007.
During early 2001, Kaiser-Hill reduced its estimate of total cost at completion
to $4.5 billion from the original $4.8 billion. This reduction in estimated
cost at completion had the financial statement result of increasing its accrual
of the fee to be earned over the contract duration from $150.0 million to
$180.0 million.
Kaiser-Hill continued to make favorable progress on the Closure Contract during
2001 and, during the quarter ended December 31, 2001, amended its estimate for
the physical contract completion date from December 31, 2007 to December 31,
2006 and changed its estimate of the total cost to be incurred during the
Closure Contract duration to be below $4.0 billion. Kaiser-Hill
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Kaiser Group Holdings, Inc. Report on Form 10-k for the year ended December 31,
2001 Page 6
management believes that its schedule progression and reductions in estimated
total costs to date contribute to its being on course to earn a $340.0 million
performance fee over the Closure Contract duration. Because Kaiser-Hill uses
the percentage of completion method for the performance fee recognition on the
Closure Contract, the effect of increasing its performance fee estimate on the
project from $180.0 million to $340.0 million resulted in recording additional
earnings of $15.8 million as a change in estimate in the fourth quarter. This
adjustment was comprised of a revenue increase of $47.8 million, offset by
$32.0 million in project contingency reserves. Despite the uncertainties
relative to Kaiser-Hill performing on the Closure Contract so as to earn a
possible $340.0 million in total performance fee, Kaiser-Hill also has goals of
further improving its ultimate project performance. Goals however should not be
considered free of risk, and the ability to accurately predict the ultimate
results are highly uncertain.
Under Kaiser-Hill's contract with the DOE, Kaiser-Hill is not responsible for,
and the DOE pays, all costs associated with liabilities, including, without
limitation, any claims involving strict or absolute liability and any civil
fine or penalty, expense, or remediation cost, but limited to those of a civil
nature, which may be incurred by, imposed on, or asserted against Kaiser- Hill
arising out of any act or failure to act, condition, or exposure which occurred
before Kaiser-Hill assumed responsibility on July 1, 1995 ("pre- existing
conditions"). To the extent the acts or omissions of Kaiser-Hill constitute
willful misconduct, lack of good faith, or failure to exercise prudent business
judgment on the part of Kaiser-Hill's managerial personnel and cause or add to
any liability, expense, or remediation cost resulting from pre-existing
conditions, Kaiser-Hill is responsible, but only for the incremental liability,
expense, or remediation caused by Kaiser-Hill.
The Kaiser-Hill contract further provides that Kaiser-Hill will be reimbursed
for the reasonable cost of bonds and insurance allocable to the Rocky Flats
contract and for liabilities and expenses incidental to these liabilities,
including litigation costs, to third parties not compensated by insurance or
otherwise. There is an exception to this reimbursement provision applicable to
liabilities caused by the willful misconduct, lack of good faith or failure to
exercise prudent business judgment by Kaiser-Hill's managerial personnel.
The level of success experienced by Kaiser-Hill in achieving closure of the
Rocky Flats site on or before December 31, 2006, and the cost of achieving such
closure, are likely to be the primary determinants of the Company's long-term
financial performance following the completion of the reorganization process.
Kaiser Netherlands, B.V.
- ------------------------
Although Old Kaiser sold its Metals, Mining and Industry business unit in August
2000, it retained its Netherlands subsidiary, Kaiser Netherlands, B.V. ("Kaiser
Netherlands"), which had been performing a turnkey engineering and construction
services contract for the construction of a steel mini-mill in the Czech
Republic for Nova Hut. Upon completion of the construction of the mini-mill in
2000, the contract with Nova Hut provided for a maximum of three possible
performance tests to achieve final acceptance. The first performance test was
completed on November 13, 2000. Kaiser Netherlands believes that the first
performance test was successful, that additional tests were not necessary and
that Nova Hut should have agreed to final acceptance of the mini-mill and made
final payment of amounts accrued by Kaiser Netherlands throughout the project.
However, Nova Hut asserted that the first test was not successful. Kaiser
Netherlands believed that such contention may have been put forth by Nova Hut in
response to severe financial constraints on Nova Hut's operations resulting from
weakening conditions in the worldwide steel market and of the relatively
significant amounts that Kaiser Netherlands believed it was contractually due.
To date, this dispute has not been resolved, and Kaiser Netherlands has resorted
to legal proceedings to enforce its rights. The primary legal venue at this time
is the Delaware bankruptcy proceeding for Old Kaiser, where the Company has
asserted claims against Nova Hut and the International Finance Corporation
("IFC"), while rejecting substantial claims involving breach of contract filed
by Nova Hut and the IFC. The litigation of this dispute has had and may continue
to have a negative impact on the cash flow of Kaiser Netherlands and the
Company.
In February 2002, representatives of the Company, Nova Hut and the IFC met
under the auspices of a Delaware bankruptcy court-sponsored mediation. The
details of these discussions are subject to a confidentiality agreement. At the
date of this Report, there are no assurances that settlement will ultimately be
achieved through the bankruptcy court-sponsored mediation that is still in
process.
Other Retained Assets, Activities and Obligations
Kaiser Holdings also owns a 10% interest in ICF Consulting Group, Inc. ("IFC
Consulting"), a privately held entity, that was retained by Old Kaiser when it
sold its Consulting Group in June 1999. In connection with the sale, the Company
accepted two promissory notes as part of the total consideration received.
Principal payments on an escrowed and non-escrowed note, in the amounts of
$3,250,000 and $3,300,000, respectively, are due June 25, 2006. The notes are
subject to reduction in the event that certain divestiture-related contingencies
are not resolved as originally anticipated in the related sale agreement.
Amounts payable by ICF Consulting on such notes are subject to (1) the rights of
holders of ICF Consulting's senior lenders and (2) possible reduction as a
result of indemnification claims asserted by ICF Consulting pursuant to the
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Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001 Page 7
agreements entered into by the parties at the time of Old Kaiser's sale of its
Consulting Group. Initially as a result of a technical default of financial
covenants in its senior credit agreement, ICF Consulting has not made interest
payments on the notes since inception in 1999. The accrued amount of interest
receivable was $1.7 million and $1.1 million as of December 1, 2001 and 2000,
respectively. Under the terms of the notes, overdue interest bears interest at
12 1/2% per annum.
Also resulting from the sale of ICF Consulting, the Company is the beneficiary
of an escrowed cash balance totaling $835,000 that is currently held as
collateral in the event any applicable indemnification claims are made against
the Company by ICF Consulting. On February 12, 2001, ICF Consulting presented
the escrow agent with notice that it has claims for indemnification from the
Company for amounts significantly exceeding the balance of the Escrowed Cash
and the Escrowed Note. The Company has reviewed the indemnification claims and
believes them to be largely without merit and will vigorously defend its right
to be paid the escrowed funds upon their due dates. However, there can be no
assurance that the Company will be successful in this effort. In December 2001,
ICF Consulting proposed a settlement offer to the Company that was far below
the stated value of its claim. The Company rejected the ICF Consulting offer
and proposed an alternative settlement that was also rejected by ICF
Consulting. Based on the Company's perception of the lack of merit in the ICF
Consulting claims, the Company may begin implementation of legal actions to
defend the indemnification claim and to pursue the collection of escrowed cash
and interest that it is due.
The Company owns a captive insurance company that is no longer engaged in
issuing new policies but is solely in the process of resolving existing claims.
Restrictions on the insurance company's cash balances, maintained to support
statutory insurance reserves, will be released as reserve requirements decrease
in the future and to the extent such cash balances are not used in payment of
resolved claims.
The Company also has the obligation to pay certain medical, disability and life
insurance benefits to a fixed group of retirees for life. Such plans cover
certain individuals who retired from the Company prior to 1993. There are
approximately 653 retirees and dependents currently covered by the plan, the
average age of whom is approximately 80. The actuarially determined present
value of this obligation, based on the Company's existing commitments, interest
rate assumptions and related medical benefit insurance policies, is $7.5
million. Although the Company intends to try to reduce its remaining exposures
relative to the costs of this obligation in the future, there can be no
guarantees that this will feasible, nor can the Company estimate the amount of
potential future savings with any reasonable degree of accuracy.
The Company's assets also include those subsidiaries that were not debtors in
Old Kaiser's bankruptcy proceeding. However, many of those subsidiaries are
foreign entities and, except for Kaiser Netherlands which performed services
for the Nova Hut project and those subsidiaries related to Kaiser-Hill,
subsidiaries that were not debtors in Old Kaiser's bankruptcy proceedings do
not have material value. It is anticipated that a number of such subsidiaries
will be dissolved or otherwise cease to exist or become totally inactive.
The Company's Board of Directors will consider whether the Company will engage
in any additional business activities in the future. Among other things, it is
anticipated that the Board of Directors will consider whether the Company
should attempt to take advantage of Old Kaiser's successful history of
performing in the government services market, both independently and through
Kaiser-Hill, in order to develop a new revenue base. In keeping with this
effort, the Company has entered into an alliance with Tyco Infrastructure
Services (formerly Earth Tech) to pursue project opportunities. As of the date
of this Report, no projects have been targeted.
Selected Corporate Operating History for Periods Prior to the Bankruptcy
Reorganization
Old Kaiser was a provider of engineering, construction management, and project
and program management services. The original holding company was incorporated
in Delaware in 1987 under the name American Capital and Research Corporation,
as the successor to ICF Incorporated, a nationwide consulting firm organized in
1969. In 1988, the holding company acquired the Kaiser Engineers business,
which had performed a mixture of public- and private-sector engineering and
construction work since 1914. The name of the holding company was changed
several times since 1987 to and including ICF Kaiser International, Inc. and to
Kaiser Group International Inc. on December 27, 1999.
Old Kaiser's business operations and financial condition were significantly
impaired in 1998 and 1999 as a result of substantial difficulties and financial
losses encountered in the execution by its Engineering and Construction ("E&C")
Group of four large fixed-price contracts to construct nitric acid plants.
Pursuant to a plan intended to restore Old Kaiser to profitability, two other
unrelated operating groups were sold in 1999, a realignment of the retained E&C
Group was paired with substantial reductions in overhead spending, and a
restructuring of the then existing debt was proposed, subject to obtaining
credit arrangements providing adequate working capital.
Although Old Kaiser was able to obtain necessary stockholder approvals and
senior subordinated noteholders agreed to participate in a debt restructuring
plan, consummation of such a plan remained conditioned on Old Kaiser's ability
to obtain a
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001 Page 8
new revolving credit facility satisfactory to Old Kaiser and an unofficial
committee of the senior subordinated noteholders. The proposals ultimately
received from potential lenders did not provide Old Kaiser with a facility that
was compatible with Old Kaiser's projected needs. For this reason and due to the
continued disappointing financial performance of Old Kaiser's engineering
operations, Old Kaiser delayed implementation of the proposed debt restructuring
and reopened negotiations with the unofficial committee of noteholders and
potential lenders. Following additional attempts to effect a debt restructuring
and an evaluation of various potential strategic alternatives, including the
sale of assets or businesses, Old Kaiser announced the intention to sell the
majority of its remaining E&C Group in two separate transactions and to
restructure its debt in a voluntary and pre-arranged bankruptcy proceeding.
Accordingly, on June 9, 2000 the ("Petition Date"), Old Kaiser 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 ("Bankruptcy
Court"). The subsidiaries that did not file petitions for relief under Chapter
11 are referred to herein as the "Non-Debtor Entities". Old Kaiser continued to
operate the Non-Debtor Entities' businesses in the ordinary course and operated
the Debtor Entities' businesses as debtor-in-possession. As such, the Debtor
Entities were authorized to operate their businesses in the ordinary course but
were not allowed to engage in transactions outside the ordinary course of
business without Bankruptcy Court approval. As of December 18, 2000, Old
Kaiser's bankruptcy Plan became effective and the day-to-day operations of its
Debtor Entities were no longer subject to Bankruptcy court supervision.
Upon obtaining the necessary Bankruptcy Court approvals, the sales of the
majority of Old Kaiser's E&C Group were completed as follows:
. Infrastructure and Facilities: The Bankruptcy Court approved the sale of
the Infrastructure and Facilities line of business on July 17, 2000. On
July 28, 2000, Old Kaiser completed the sale of this 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 line were
sold to Tyco Group S.A.R.L., the EarthTech unit of Tyco International
Ltd., for a cash purchase price of approximately $30 million.
. Metals, Mining and Industry: 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, Old Kaiser completed the sale of this
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 line were sold to Hatch Associates, Inc., a subsidiary of The
Hatch Group of Canada, for a cash purchase price of approximately $7.0
million.
Insurance
Kaiser Holdings has a comprehensive risk management and insurance program in
place that provides a range of coverages tailored to the needs of the
reorganized company. Insurance coverages include policies for fiduciary, crime,
directors and officers liability, property, general liability, worker's comp,
and professional liability "runoff' coverage to deal with liabilities arising
from past activities and projects, if necessary.
Kaiser Holdings believes that the insurance coverages that it maintains,
including self-insurance, protect against risks that are commensurate for
similar businesses of the scope and present operating profile of Kaiser Holdings
and that related coverage amounts are economically reasonable. At this time,
Kaiser Holdings expects to continue to be able to obtain insurance in amounts
generally available to firms with a similar profile. There can be no assurance
that the insurance coverage and levels maintained by Kaiser Holdings will
continue to be reasonably available. An insured claim, or uninsured claim for
that matter, arising out of pre-reorganization or post-reorganization activities
of Old Kaiser, if successful and of sufficient magnitude, could have a material
adverse effect on the Company's financial position.
Government Regulation
Kaiser Holdings may, from time to time, either individually or in conjunction
with other government contractors operating in similar types of businesses, be
involved in U.S. government investigations for alleged violations of
procurement or other federal laws and regulations. No charges presently are
known to have been filed against Old Kaiser by these agencies.
Employees
As of March 31, 2002, the Company had approximately 12 (full and part-time)
employees.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001 Page 9
ITEM 2. PROPERTIES
The Company's only leased property is located at 9302 Lee Highway, Fairfax,
Virginia 22031-1207, and its telephone number is (703) 934-3600. The majority
of all leased properties were transferred to others as part of asset sale
transactions in 1999 and 2000.
ITEM 3. LEGAL PROCEEDINGS
On June 9, 2000, Old Kaiser and 38 of its wholly owned subsidiaries filed
petitions for relief under Chapter 11 of Title 11 of the U.S. Bankruptcy Code
with the U.S. Bankruptcy Court for the District of Delaware in order to
facilitate the restructuring of Old Kaiser's long-term debt, trade and other
obligations. Old Kaiser continued to operate as a debtor-in-possession subject
to the Bankruptcy Court's supervision and orders until its Plan of
Reorganization was confirmed on December 5, 2000 and became effective on
December 18, 2000. The provisions of such Plan are further described under Item
1 of this Report.
In the course of normal business activities, various claims or charges have
been asserted and litigation commenced against Old Kaiser arising from or
related to properties, injuries to persons, and breaches of contract, as well
as claims related to acquisitions and dispositions. Such claims are now part of
the overall bankruptcy proceeding. Claimed amounts may not bear any reasonable
relationship to the merits of the claim or to a final court award. In the
opinion of management, an adequate reserve has been provided for final
judgments, if any, in excess of insurance coverage, that might be rendered
against the Company in the event of unsuccessful bankruptcy resolution. The
continued adequacy of reserves is reviewed periodically as progress on such
matters ensues.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2001 Annual Meeting of Stockholders of the Company was held on Wednesday,
December 12, 2001, at 9300 Lee Highway, Fairfax, VA 22031-1207. The only matter
voted upon was the election of three directors. The directors elected at the
meeting included Jon B. Bennett, John T. Grigsby, Jr. and James J. Maiwurm. The
results of the election of directors was as follows:
For Withheld
--- --------
Jon B. Bennett 1,390,640 36,751
John T. Grigsby, Jr. 1,350,869 76,522
James J. Maiwurm 1,346,585 80,806
Withheld votes means that the shareholder marked the box on his/her proxy card
labeled "withheld".
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
From September 14, 1993 until March 7, 2000, the Old Common of Old Kaiser was
traded on the New York Stock Exchange (NYSE) under the symbol "ICF" and, after
December 27, 1999, under the symbol "KSR". On March 8, 2000, the Old Common
ceased to be listed on the NYSE and began to be traded on the Over-the-Counter
Bulletin Board system under the symbol "KSRG". The Over-the-Counter Bulletin
Board quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions. Effective
with the Company's implementation of Old Kaiser's Plan of Reorganization, on or
about April 17, 2001, each 96 shares of Old Common were exchanged for 1 share
of the Company's New Common. The Company's New Common currently trades on the
Over-the-Counter Bulletin Board system under the symbol "KGHI".
At March 22, 2002, there were 129 shareholders of record of the New Common. The
following table sets forth the high and low sales prices for the Old Common
Stock as reported by the NYSE for 2000 through March 7, 2000, and the range of
high and low bid quotations on the Over-the-Counter Bulletin Board commencing
March 8, 2000 through December 31, 2001. Historical prices per share for the
period January 1, 2001 to the Initial Distribution date of April 17, 2001 have
been adjusted to show the effect of the 96:1 conversion ratio of Old Common to
New Common effected in the Initial Distribution.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001 Page 10
New Common Old Common
---------- ----------
Stock Price Stock Price
----------- -----------
2001 2000
---- ----
High Low High Low
---- --- ---- ---
Year Ended December 31,
First Quarter................. $ 5.94 $ 1.98 $ 0.90 $ 0.12
Second Quarter................ 2.65 0.99 0.44 0.03
Third Quarter................. 2.45 1.75 0.06 0.03
Fourth Quarter................ 3.10 1.96 0.04 0.02
The Company's Transfer Agent and Registrar is EquiServe Trust Company, N.A,
P.O. 2536, Jersey City, NJ 07303-2536. The Shareholder Relations telephone
number is (201) 324-0498 and the internet address is http://www.equiserve.com.
Old Kaiser never paid cash dividends on its Old Common. Kaiser Holdings
anticipates that no cash dividends will be paid on the New Common for the
foreseeable future and that its earnings will be retained for use in the
business and also be used to pay dividends on and redeem outstanding shares of
New Preferred. The Board of Directors of Kaiser Holdings determines its dividend
policy based on its results of operations, payment of dividends on preferred
stock, financial condition, capital requirements, and other circumstances.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company for the year ended
December 31, 2001 and for Old Kaiser for the years ended December 31, 2000,
1999, 1998 and 1997, has been derived from the Company's and/or Old Kaiser's
audited consolidated financial statements. This information should be read in
conjunction with the consolidated financial statements and the related notes
thereto appearing elsewhere in this Report and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Certain
reclassifications have been made to the prior period financial statements to
conform to the presentation used in the December 31, 2001 consolidated
financial statements.
Selected Consolidated Financial Data
(in thousands, except per share data)
Successor Predecessor Company
Company ------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Statement of Operations Data:
Gross revenue........................................ $ -- $271,385 $643,044 $632,600 $588,700
Service revenue...................................... -- 76,018 186,856 154,500 167,500
Operating (loss)..................................... (10,792) (224) (16,544) (20,722) (90,654)
Income (loss) from continuing operations before
reorganization items, income taxes, minority
interest, extraordinary items and cumulative
effect of accounting change....................... 7,657 (1,736) (35,260) (39,462) (25,162)
Income (loss) before extraordinary items and
cumulative effect of accounting change............ (4,957) 29,762 (5,324) (93,442) (4,987)
Basic and Diluted Earnings (Loss) Per Share:
Continuing operations before extraordinary items
and cumulative effect of accounting change........ $ 1.92 $ 1.74 $ (1.65) $ (1.80) $ (0.96)
Discontinued operations, net of tax.................. (9.11) (0.46) 1.42 (2.07) 0.74
Extraordinary items, net of tax...................... -- 5.35 (0.02) (0.05) --
Cumulative effect of accounting change, net of tax... -- -- -- (0.25) --
-- -- -- ----- --
Total........................................... $ (7.19) $ 6.63 $ (0.25) $ (4.17) $ (0.22)
======= ======= ======== ======== ========
Weighted average common shares outstanding:
--basic........................................... 1,119 23,255 23,823 24,092 22,382
--diluted......................................... 1,119 23,255 23,823 24,092 22,382
Successor Company Predecessor Company
December 31, December 31,
--------------------- ----------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Balance Sheet Data (end of period):
Total assets........................... $80,891 $106,168 $253,563 $428,071 $399,288
Working capital........................ 23,974 54,131 17,116 3,271 91,121
Long-term liabilities.................. -- -- 131,795 147,152 145,590
Redeemable preferred stock *........... 62,481 -- -- -- --
Shareholders' equity (deficit)......... 3,360 87,500 (69,903) (63,118) 27,327
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001 Page 11
* As the Company had not initiated its initial bankruptcy distribution until
April 17, 2001, as of December 31, 2000, no shares of New Preferred were
actually outstanding as of such date. See table on page 5 for the details of
the initial distribution.
The estimated sum of the claims that ultimately will be allowed in the
bankruptcy proceedings, plus liabilities incurred after the bankruptcy filing,
exceeded the reorganization value of the assets of the emerged entity
immediately before the effective date. Additionally, holders of existing voting
shares immediately before the effective date received less than 50 percent of
the voting shares of the emerged entity, thus triggering a change in control of
the organization. The American Institute of Certified Public Accountants'
Statement of Position 90-7, Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code (SOP 90-7), requires that, under these circumstances,
a new entity is created for financial reporting purposes, and assets and
liabilities should be recorded at their fair values. Additionally, the value of
the reorganized enterprise becomes the established amount for the emerging
balance of stockholders' equity and any accumulated deficit of the predecessor
entity is offset against available paid-in-capital to result in an emerging
retained earnings of zero. This accounting treatment is referred to in this
Report as "fresh-start" reporting. The Company adopted fresh start reporting in
its consolidated balance sheet as of December 31, 2000 and recorded a net
increase to book value totaling $15.2 million resulting from the adjustments to
the individual assets and liabilities in Old Kaiser's Statement of Operations.
Because financial information from previous years was not prepared on a
comparable basis, a black line has been shown to separate new entity
information from prior year information. See also "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a discussion of
the effects of this reporting adoption.
As of December 18, 2000, the Company recognized a gain of $124.5 million, after
the effects of income taxes, on the forgiveness of pre-petition liabilities
approximating $150.0 million.
The recorded value for the emergent enterprise of $87.5 million was used for
fresh start reporting and was determined by management with the assistance of
independent advisors. The methodology employed involved estimation of
enterprise value taking into consideration a discounted cash flow analysis. The
discounted cash flow analysis was based on a seven-year cash flow projection
prepared by management - taking into consideration the terminal value of its
assets and liabilities as of immediately prior to its emergence from bankruptcy
on December 18, 2000. Terminal values of assets and liabilities were determined
based either on contracted amounts, actuarial present values and/or
management's estimates of the outcome of certain operating activities. These
post-emergent matters consist largely of the retained operations discussed in
this Report. Net after-tax cash flows, assuming a 40% effective tax rate, were
discounted at approximately 17% in order to take into consideration the risks
and uncertainties inherent in such projections. The cash flow projections were
based on estimates and assumptions about circumstances and events that have not
yet taken place. Estimates and assumptions regarding individual retained
matters which form the collective composition of the overall enterprise value
as of December 18, 2000 are inherently subject to significant economic and
competitive uncertainties and contingencies beyond the control of the Company.
Accordingly, there may be differences between projections and actual results
because events and circumstances frequently do not occur as expected and may be
significant. More specifically, assumptions within the valuation related to the
amount and timing of the ultimate performance and related cash flows of
Kaiser-Hill have the greatest impact to the overall enterprise valuation.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Item 7. has been divided into a discussion of events and activities of the
Company after the bankruptcy reorganization (Successor Entity) which was
effective December 18, 2000 (immediately below through page 18) and events of
Old Kaiser prior to that date (on pages 18-24 of this Report).
KAISER GROUP HOLDINGS, INC. (SUCCESSOR ENTITY)
Overview
In the year since the Plan of Reorganization of Kaiser Group International, Inc.
under Chapter 11 of the Bankruptcy Code became effective on December 18, 2000,
Kaiser Holdings consummated the initial bankruptcy distributions to allowed
claimholders, continued to progress in resolving remaining outstanding
bankruptcy claims, performed responsibilities with regard to the management of
its remaining assets, most predominantly being its 50% ownership interest in
Kaiser-Hill Company, LLC and wound down elements of Old Kaiser's previous
activities and corporate structure no longer necessary to Kaiser Holdings.
A summary of the Old Kaiser Plan of Reorganization as well as other information
relative to the process regarding the Plan distributions of the cash and new
securities can be found in summary in Item 1. Business - "General Terms and
Distribution Status of the Plan of Reorganization" and in its entirety in a
Current Report on Form 8-K filed with the Securities and Exchange Commission on
December 14, 2000 by Old Kaiser.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001 Page 12
Following the completion of the sales of businesses and the effectiveness of
the Plan, the Company has only a limited number of activities, assets and
liabilities, primarily consisting of:
. the ownership of a 50% interest in Kaiser-Hill, which serves as the
general contractor at the U.S. Department of Energy's Rocky Flats
Environmental Technology Site near Denver, Colorado, for the performance
of a contract for the closure of the site. Kaiser-Hill has performed for
DOE at this site since 1995 and in January 2000 was awarded a new contract
to manage the closure of the site within this decade. Rocky Flats is a
former DOE nuclear weapons-production facility, and under the new closure
contract, Kaiser-Hill is working to stabilize and safely store radioactive
materials at the site, to clean up areas contaminated with hazardous and
radioactive waste, and to restore much of the 6,000-acre site to the
public. The Kaiser-Hill joint venture between Old Kaiser and CH2M Hill
Companies, Ltd. was formed solely for the performance of the current and
former Rocky Flats contracts. The level of success experienced by
Kaiser-Hill in achieving closure of the Rocky Flats site, and the cost of
achieving such closure, are the primary determinants of the Company's
long-term financial performance following the completion of the
reorganization process.
. a substantial claim, pending resolution, against the owner of a steel
mini-mill for Nova Hut in the Czech Republic. The engineering and
construction of the mini-mill was completed by a subsidiary of Old Kaiser
in 2000.
. the holding of a minority ownership interest in ICF Consulting Group, Inc.
(a division that Old Kaiser sold in 1999) as well as the interest-bearing
promissory notes and escrowed cash received in connection with that sale.
. a wholly-owned captive insurance company that is no longer issuing new
policies but is solely involved in resolving existing claims. Restrictions
on the insurance company's cash balances maintained to support statutory
insurance reserves, will be released as reserve requirements decrease in
the future and to the extent that such cash balances are not used in
payment of resolved claims.
. an ongoing obligation to fund a capped, post-employment medical benefit
plan for a fixed group of retirees.
Critical Accounting Policies and Significant Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires that management make estimates and
assumptions affecting the assets and liabilities (including contingent assets
and liabilities) reported at the date of the Consolidated Financial Statements
and the income statement amounts reported for the periods presented. Management
bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances. Actual results may
differ from these estimates under different assumptions or conditions.
The Company's accounting measurements that are most affected by management's
estimates of future events are:
. Ultimate amount of claims that will be allowed pursuant to the Company's
bankruptcy proceedings. Any future adjustments necessary as a result of
the total claims ultimately allowed being less than or more than the
$150.0 million currently estimated will be recorded in income from
continuing operations.
. Recoverability of net assets of discontinued operations, notes receivable
and accrued interest, and investments.
. We use the equity method of accounting for affiliates that the Company
has the ability to significantly influence but not control. In accordance
with the equity method of accounting, we record our proportionate share of
the affiliate's income or losses. The difference between the carrying
value of the joint venture investment and the Company's underlying equity
is amortized on a straight-line basis over the term of the joint venture
investment, estimated at six years.
. Income tax provision, deferred tax assets and related valuation allowance
. Estimated fees on the Kaiser-Hill joint venture.
Results of Successor Operations
The Company's major remaining source of income is its 50% ownership in
Kaiser-Hill Company L.L.C. which performs all elements of daily and long-term
operations associated with the ultimate closure of the DOE's Rocky Flats site,
including stabilizing and safely storing radioactive material, cleaning up
areas contaminated with hazardous and radioactive waste, and restoring much of
the 6,000-acre Rocky Flats site for future use by the public. Kaiser-Hill is
owned equally by Kaiser Holdings and CH2M Hill Companies Ltd. CH2M Hill
designates three of the five members of Kaiser-Hill's Board of Managers and
Kaiser Holdings designates two members, including the chair of the Board of
Managers. The financial information contained herein for Kaiser-Hill is
reflected on the equity basis. Because Kaiser-Hill represents a significant
portion of the Company's financial position and results of operation, the
audited financial statements of Kaiser-Hill are included in this report (see
pages F-24 to F-35).
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page 13
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 Rocky Flats Site Closure Contract is primarily cost-reimbursable in nature,
but also contains certain minimum and incentive fee elements based on
qualitative and quantitative factors of actual performance levels compared to
annually negotiated and established benchmarks or milestones. Accordingly,
fluctuations in gross revenue, service revenue and direct labor and fringe
benefit costs earned by Kaiser-Hill during the comparable periods herein are
largely reflective of increased levels of reimbursable subcontractor costs
incurred as the contract progressed and as underlying activities changed.
The economic terms of the Closure Contract provide that Kaiser-Hill will earn
revenue equal to the actual cost of physical completion in addition to a
performance fee based on a combination of the actual cost of completing the
site closure project and the actual date of physical completion, both as
compared to contracted targets. The potential fee to be earned pursuant to the
Closure Contract terms ranges from $150.0 million to $460.0 million based on
Kaiser-Hill's costs to complete the site closure being within the range of
targeted completion cost of $3.6 billion and $4.8 billion, and completion at
various dates between 2005 - 2007. Physical completion for a total cost in
excess of the target cost would result in a reduction to the potential fee
whereby Kaiser-Hill will share 30% in all costs incurred after such date,
subject to a maximum Kaiser-Hill liability of $20.0 million. From the inception
of this contract in February 2000 until December 31, 2000, uncertainties over
the ability to accurately predict the total cost at completion and date of
completion made management chose a conservative course for revenue recognition
whereby contract fee was recognized for financial reporting purposes at the
minimum level, i.e. the $150.0 million fee level on a straight-line basis over
an estimated period of contract completion ranging from February 1, 2000
through December 31, 2007.
During early 2001, Kaiser-Hill reduced its estimate of total cost at completion
to $4.5 billion from the original $4.8 billion. This reduction in estimated
cost at completion had the financial statement result of increasing its accrual
of the fee to be earned over the contract duration from $150.0 million to
$180.0 million.
Kaiser-Hill continued to make favorable progress on the Closure Contract during
2001 and, during the quarter ended December 31, 2001, amended its estimate for
the physical contract completion date from December 31, 2007 to December 31,
2006 and, changed its estimate of the total cost to be incurred during the
Closure Contract duration to be below $4.0 billion. Kaiser-Hill management
believes that its schedule progression and reductions in estimated total costs
to date contribute to its being on course to earn a $340.0 million performance
fee over the Closure Contract duration. Because Kaiser-Hill uses the percentage
of completion method for the performance fee recognition on the Closure
Contract, the effect of increasing its performance fee estimate on the project
from $180.0 million to $340.0 million resulted in recording additional earnings
of $15.8 million as a change in estimate in the fourth quarter. This adjustment
was comprised of a revenue increase of $47.8 million, offset by $32.0 million
in project contingency reserves. Despite the uncertainties relative to
Kaiser-Hill performing on the contract so as to earn a possible $340.0 million
in total performance fee, Kaiser-Hill also has goals of further improving its
ultimate project performance. Goals however should not be considered free of
risk, and the ability to accurately predict the ultimate results are highly
uncertain.
Through 2000, the Closure Contract allowed Kaiser-Hill to invoice DOE quarterly
for the performance fee based on a $340.0 million target fee pool, less a 50%
retainage. Thereafter, the quarterly invoicing reverted to a formula such that,
unless otherwise approved by DOE, cumulative contract billings may not exceed
the minimum fee of $150.0 million spread over a 7-year timeframe. Based on
DOE's recent acknowledgement of and concurrence with Kaiser-Hill's revised
closure estimates and resulting increase to the estimated performance fee to be
earned over the contract duration, Kaiser-Hill now expects that it will be able
to increase the amount of its performance fee invoices to DOE based on the
$340.0 million. However, such invoices will now be subject to the 50% retainage
holdback payable at contract completion. Adjusted for the effects of the 50%
retainage holdback, Kaiser-Hill expects that its performance fee invoices to
DOE will increase by approximately $0.8 million per quarter effective in the
2nd quarter of 2002. Invoice payments made by DOE to Kaiser-Hill, less certain
Kaiser-Hill reimbursements, will continue to be distributed to the joint
venture owners upon receipt. In the future, as Kaiser-Hill continues to accrue
performance fee based on the $340.0 million level, less reserves deemed
appropriate in the circumstances, and remains subject to a 50% retainage
holdback on its performance fee invoicing, the level of unbilled accounts
receivable on its balance sheet will begin to increase substantially.
Kaiser-Hill will classify the 50% holdback portion of its performance fee
invoicing as long-term unbilled accounts receivable on its balance sheet. The
Closure Contract also contains provisions for DOE to release portions of the
retainage holdback prior to contract completion if the DOE deems appropriate.
Kaiser-Hill is not able to estimate whether any of the retainage holdback will
be released prior to contract completion.
Administrative expenses presented in the Statements of Operations for the year
ended December 31, 2001 consisted largely of costs incurred for activities
associated with the bankruptcy proceedings or with winding down of its
historical operations including: $5.0 million incurred for legal and
professional fees primarily for bankruptcy claims resolution, including the Nova
Hut and IFC claims; $2.8 million incurred for salaries and benefits; $0.9
million incurred for rent, records storage, utilities and repairs and $1.0
million in other administrative expenses, including
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page 14
insurance, securities issuance costs and other. Also included in the $9.7
million of total general and administrative expense is a $1.0 million non-cash
reduction in the amount of statutory self-insurance reserves required by the
Company's wholly-owned insurance subsidiary occurring in the fourth quarter.
General and administrative expenses incurred during the quarter ended December
31, 2001 approximated $1.9 million and represented a significant reduction in
the run rate of such expenses from the previous three quarters. As the Company
continues to make progress on winding down the operations of Old Kaiser and in
resolving remaining bankruptcy claims, it anticipates further declines in
general and administrative spending.
In the fourth quarter of 2001, the Company recorded a $1.1 million impairment
charge related to the Company's 10% interest in ICF Consulting Group, Inc., a
privately held entity, that was retained by Old Kaiser when it sold its
Consulting Group in June 1999. The impairment charge was based on management's
belief of the potential proceeds available to the Company if this investment
was liquidated.
During the year, Old Kaiser benefited from the fact that it had purchased
retirement annuity contracts during the 1980's for a capped group of
employees. Old Kaiser paid 100% of the premiums for the retirement annuity
contracts and such annuities represented the entire amount of this particular
retirement benefit obligation to the covered employees at the time. Having paid
100% of the insurance premiums, Old Kaiser became a mutual stockholder in the
Prudential Insurance Company. Due to the illiquid nature of ownership in a
mutual stockholder organization, Old Kaiser did not have a balance sheet
carrying value ascribed to this asset. During November 2001, however, the
Prudential Insurance Company demutualized its ownership structure through an
initial public offering of its common stock. As a result of the demutualization
of the Prudential stockholdings, the Company became the beneficial holder of
approximately 195,000 shares of Prudential common stock and accordingly
recorded a gain on the demutualization totaling $5.9 million, net of income tax
expense of $2.2 million, in December 2001.
In February 2002, the Company sold the Prudential common shares for $6.08
million in cash proceeds prior to the effects of income tax expense.
Interest income earned in 2001 was, in part, based on available cash balances,
generally, asset sale proceeds remaining from 2000 and from restricted cash
balances maintained for statutory purposes by the Company's wholly-owned
captive insurance subsidiary. As the Company used $13.7 million in cash in
April 2001 for its initial bankruptcy distribution, interest income, declined
by $0.6 million during 2001 compared to 2000 and, will likely decline in the
future based on significant reductions in interest rates during 2001. Interest
income will also decline based on the Plan of Reorganization requiring
potentially large amounts of available cash balances be used for purchasing or
redeeming outstanding preferred stock once all remaining bankruptcy claims are
resolved. Based on the developments in 2001, the Company recorded a $1.0
million reserve for uncertainties related to the collectibility of the ICF
Consulting Group, Inc. promissory notes and the related accrued interest. This
reserve was charged to interest income as it had the effect of reversing the
interest accrued on the notes in the current year.
Expenses presented as Results of Operations from Discontinued Operations
consist of the activities associated with the Nova Hut project. Based on the
Company's continued concern over Nova Hut's financial difficulties and the
uncertainties of a settlement involving the bankruptcy court-sponsored
mediation, the Company reserved approximately $15.6 million of the carrying
value of the remaining Nova Hut project assets from $21.6 million to $6.0
million. The Company also recorded an income tax benefit of $6.2 million
associated with this reserve. Other out-of-pocket costs were incurred for
winding down the project's site operations during early 2001 including
severance and relocation costs for returning project expatriates back to the
United States.
The Company recognized a total income tax benefit of $3.8 million allocable to
the following results (in thousands):
Applicable
Pre-tax Income Tax
Statements of Operations Category Income/(Loss) (Expense)/Benefit
- --------------------------------- ------------- -----------------
Income from continuing operations
before income taxes..................... $ 7,657 $ (2,417)
(Loss) from discontinued operation........ (16,409) 6,212
-----
$ 3,795
=====
In December 2000, the Company went through a change in control under the
Internal Revenue Code Section (IRC) 382 due to the Chapter 11 bankruptcy
reorganization. In September 2001, the Company determined that the change in
control met the stringent guidelines of the bankruptcy exception provided under
the Internal Revenue Code. This resulted in the Company not being subject to the
carryforward limitations of IRC Sec. 382. However, the Company was required to
reduce certain carryovers that
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page 15
included net operating losses and credits. The Company offset the reduction of
the carryforwards with the valuation allowance previously established for those
carryforwards and as a result, the effective income tax rate for income from
continuing operations differed significantly from statutory rates.
Changes in Liquidity and Capital Resources
The Company used $13.3 million of cash for operating activities in 2001,
inclusive of $0.6 million in cash used to satisfy Class 3 bankruptcy claims
(former trade accounts payable not paid until after the Plan of Reorganization
was deemed effective in December 2000). This use of cash was generally for the
$9.7 million in general and administrative expenses incurred in 2001 (see
General and Administrative Expenses) in addition to $3.6 million used for
severance and professional fees incurred prior to 2001 in connection with the
debt restructuring, bankruptcy and winding-down activities in 2000.
During the year ended December 31, 2001, Kaiser-Hill distributed $7.9 million
to the Company and to the other 50% owner - CH2M Hill.
At several times during 2001, but primarily in April as part of its initial
bankruptcy distribution, the Company paid out $13.7 million representing the
cash portion of Class 4 bankruptcy claim resolutions. Also as of April 2001,
the Company transferred $12.3 million to a separate reserve cash account to be
used to fund the cash portion of any remaining Class 4 bankruptcy claims
settlements (including any earned dividends on subsequently issued New
Preferred Stock). In June 2001, the Company used $125,000 to finalize a tender
offer to repurchase odd-lot shares of less than 99 in total holdings at $5.00
per common share. Lastly, the Company used $2.4 million in the payment of 7%
cash dividends accrued on its outstanding preferred stock.
Liquidity and Capital Resource Outlook
The Company currently has no debt as a result of the effectiveness of Old
Kaiser's Plan of Reorganization. The Company is financing its working capital
needs primarily from distributions from its Kaiser-Hill subsidiary. Based on
(i) current expectations for operating activities and results, (ii) its current
available cash position, (iii) recent trends and projections in liquidity and
capital needs, and (iv) current expectations of total Allowed Claims upon the
completion of the bankruptcy proceedings, management believes the Company has
sufficient liquidity to cover the required cash distributions resulting from
the resolution of Claims in the bankruptcy process, the future operating needs
of the Company and the dividend requirements applicable to the New Preferred
Stock. The terms of the New Preferred Stock include provisions for cumulative
dividends, payable quarterly, either in cash at an annual rate of 7% of the
liquidation preference per share or in additional shares of New Preferred Stock
at an annual rate of 12% of the per share liquidation preference.
With respect to a revolving credit facility obtained by Kaiser-Hill in November
1999, both parents of Kaiser-Hill granted a first lien security interest to the
Kaiser-Hill lenders in all of the ownership and equity interest of Kaiser-Hill
and have agreed to cure any events of default by Kaiser-Hill on the facility.
As of December 31, 2001 and 2000, Kaiser-Hill had $0 and $6.0 million in cash
balances outstanding on its revolving credit facility.
The Company has obligations associated with preferred stock dividends at
December 31, 2001. The following table is prepared assuming no preferred stock
redemptions until the mandatory redemption date of December 31, 2007, and that
all dividends are paid in cash. The effect these obligations are expected to
have on our liquidity and cash flow in future periods are as follows (in
thousands):
Less Than One One to Three After Three
Total Year Years Years
----- ---- ----- -----
Preferred Stock dividends... $26,256 $4,376 $8,752 $13,128
OTHER MATTERS
The Company has various obligations and liabilities from its continuing
operations, including general overhead expenses in connection with maintaining,
operating and winding down the various entities comprising the Company.
Additionally, the Company believes contingent liabilities may exist in the
areas described elsewhere in this Report. See Item 1. Business - "Overview of
Retained Operations".
The Company does not believe that it has significant exposures to market risk
as it no longer has any debt. The interest rate risk associated with the
Company's obligation to fund a capped retiree medical obligation is also not
sensitive to interest rate risk other than via the determination of the present
value of its remaining obligation thereunder. A 10% increase or decrease in the
average annual prime rate would result in a decrease in the carrying value of
the plan obligation but would not change the actual cost of the plan.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page 16
RISK FACTORS RELATING TO KAISER HOLDINGS
The restructuring of Old Kaiser through the bankruptcy process involves a
significant degree of risk, and this Annual Report on Form 10-K and certain
disclosures and reports or statements to be released by Kaiser Holdings or
statements to be made by its officers or directors may contain forward-looking
statements that involve risks and uncertainty. The Company's
actual results could differ materially from those anticipated in such
forward-looking statements as a result of a variety of factors, including those
set forth in the following risk factors and elsewhere in this Report.
Risks Relating to Kaiser Holdings' Business
Kaiser Holdings Is Dependent on Kaiser-Hill's Performance and Wind-Down of Nova
- -------------------------------------------------------------------------------
Hut Project
- -----------
The Company's long-term future profitability will be dependent, to a significant
extent, on Kaiser-Hill's performance under its Closure Contract with the DOE.
Kaiser-Hill serves as the general contractor at the DOE's Rocky Flats
Environmental Technology Site near Denver, Colorado. Rocky Flats is a former DOE
nuclear weapons production facility. 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.
See the discussion under Item 1. Business - "Overview of Retained Business
Operations".
As discussed above under Item 1. Business - "Overview of Retained Business
Operations," Kaiser Holdings' profitability and cash flow will also be
dependent, to a significant extent, on the resolution of disputes relating to
Kaiser Netherlands' performance under its fixed-price contract for turnkey
engineering and construction services relating to a steel mini-mill in the Czech
Republic for Nova Hut and on the ability of Nova Hut, which is in financial
difficulty, to pay for such services.
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 the 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 Closure
Contract with the DOE, the performance of Kaiser Netherlands and resolution of
the dispute regarding the Nova Hut project, and Nova Hut's ability to pay Kaiser
Netherlands, Kaiser Holdings' long-term future profitability will be dependent,
to a significant extent, on its ability to develop a business plan for ongoing
operations. It is possible that Kaiser Holdings' 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 Kaiser
Holdings will consider whether the Company 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.
In keeping with this effort, the Company has entered into an alliance with Tyco
Infrastructure Services (formerly Earth Tech) to pursue project opportunities.
As of the date of this Report, no projects have been targeted.
Ability to Obtain Performance Guaranties
- ----------------------------------------
Given Old Kaiser's history, Kaiser Holdings may not be able to obtain
satisfactory contract performance guaranty mechanisms, such as performance bond
and letters of credit, at all or on satisfactory terms, to the extent such
mechanisms are needed for new or existing projects.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page 17
Uncertainties Beyond Kaiser Holdings' Control
- ---------------------------------------------
A number of other uncertainties may adversely impact Kaiser Holdings' 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 Kaiser Holdings' control, and a change in any
factor or combination of factors could have a material adverse effect on Kaiser
Holdings' financial condition, cash flows, and results of operations.
Uncertainties Concerning Adequacy of Funds
- ------------------------------------------
There can be no assurance that Kaiser Holdings will be able to
continue to generate sufficient funds to meet its obligations, notwithstanding
the significant improvements in Kaiser Holdings' operations and financial
condition. Although Kaiser Holdings' believes it will be able to 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.
RISKS RELATED TO OLD KAISER'S REORGANIZATION AND RELATED ESTIMATES AND
ASSUMPTIONS
As with any plan of reorganization or other financial transaction, there are
certain risk factors that must be considered in connection with Kaiser Holdings
in relation to Old Kaiser's reorganization. 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 this Report on
Form 10-K and the Plan will not be realized exactly as assumed. Some or all of
such variations may be material.
Some of the principal risks associated with Old Kaiser's reorganization include
the following:
. The total amount of all Allowed Claims in the Bankruptcy Cases may be
materially in excess of the estimated amounts of Allowed Claims assumed in
Kaiser Holdings' financial statements in this Report. 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 assumptions be exceeded as to any Class.
. There are substantial uncertainties relating to the resolution of
disputes between Kaiser Netherlands and Nova Hut concerning the Nova Hut
mini-mill project and Nova Hut's financial capacity to pay the substantial
amounts Kaiser Holdings believes is due to Kaiser Netherlands.
. Due to delays in confirmation of the Plan, and the resolution of Claims,
uncertainties concerning the Nova Hut mini-mill project and other factors,
the amount of cash available for distribution under the Plan may be less
than previously anticipated.
. There are substantial uncertainties relating to the resolution of
disputes with ICF Consulting Group, Inc. and the ultimate recoverability
of the Company's notes receivable and related accrued interest.
RESULTS OF OPERATIONS OF OLD KAISER (PREDECESSOR ENTITY) PRIOR TO EFFECTIVENESS
OF PLAN OF REORGANIZATION-PRIOR TO 2001
The following discussion is intended to assist in an understanding of Old
Kaiser's historical financial position and results of operations for each of
the two years ended December 31, 2000 and should be read in conjunction with
the financial statements of the Company appearing elsewhere in this report. The
combined net financial position, operating results and cash flows of the
operating divisions that were divested in 2000 and 1999 have been presented in
the accompanying consolidated financial statements as discontinued operations
for all periods presented.
OVERVIEW
Old Kaiser's business operations and financial condition were significantly
impaired in 1998 and 1999 as a result of substantial difficulties and financial
losses encountered in the execution by its E&C Group of four large fixed-price
contracts to construct nitric acid plants. Pursuant to a plan intended to
restore Old Kaiser to profitability, two other unrelated operating groups were
sold in 1999, a realignment of the retained E&C Group was paired with
substantial reductions in overhead spending, and a restructuring of the then
existing debt was proposed, subject to obtaining credit arrangements providing
adequate working capital.
Although Old Kaiser was able to obtain necessary stockholder approvals and
senior subordinated noteholders agreed to participate in a debt restructuring
plan, consummation of such a plan remained conditioned on Old Kaiser's ability
to obtain a new revolving credit facility satisfactory to Old Kaiser and an
unofficial committee of the senior subordinated noteholders. The proposals
ultimately received from potential lenders did not provide Old Kaiser with a
facility that was compatible with Old
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page 18
Kaiser's projected needs. For this reason and due to the continued
disappointing financial performance of Old Kaiser's engineering operations,
Old Kaiser delayed implementation of the proposed debt restructuring and
reopened negotiations with the unofficial committee of noteholders and
potential lenders. Following additional attempts to effect a debt
restructuring and an evaluation of various potential strategic alternatives,
including the sale of assets or businesses, Old Kaiser announced the intention
to sell the majority of its remaining Engineering and Construction (E&C) Group
in two separate transactions and to restructure its debt in a voluntary and
pre-arranged bankruptcy proceeding.
Accordingly, on June 9, 2000 (the Petition Date), Old Kaiser 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 ("Bankruptcy
Court"). The subsidiaries that did not file petitions for relief under Chapter
11 are referred to herein as the "Non-Debtor Entities". Old Kaiser continued
to operate the Non-Debtor Entities' businesses in the ordinary course and
operated the Debtor Entities' businesses as debtor-in-possession. As such, the
Debtor Entities were authorized to operate their businesses in the ordinary
course but were not allowed to engage in transactions outside the ordinary
course of business without Bankruptcy Court approval. As of December 18, 2000,
Old Kaiser's bankruptcy Plan became effective and the day-to-day operations of
its Debtor Entities were no longer subject to Bankruptcy court supervision.
Upon obtaining the necessary Bankruptcy Court approvals, the sales of the
majority of Old Kaiser's E&C Group were completed as follows:
. Infrastructure and Facilities: The Bankruptcy Court approved the sale of
the Infrastructure and Facilities line of business on July 17, 2000. On
July 28, 2000, Old Kaiser completed the sale of this 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 line were
sold to Tyco Group S.A.R.L., the EarthTech unit of Tyco International Ltd.,
for a cash purchase price of approximately $30 million.
. Metals, Mining and Industry: 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, Old Kaiser completed the sale of this 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 line
were sold to Hatch Associates, Inc., a subsidiary of The Hatch Group of
Canada, for a cash purchase price of approximately $7.0 million.
. During April and June of 1999, Old Kaiser sold its Environmental and
Facilities Management Group (EFM) and its Consulting Group for aggregate
proceeds approximating $145.0 million and reported a net gain of $40.1
million.
The sales of these operating divisions constituted "discontinued operations" in
accordance with generally accepted accounting principles. All Statement of
Operations data contained elsewhere in this Report depict the results of
operations from continuing operations separately from discontinued operations
and related gains/(losses) on the sales of such operations.
Cash proceeds from the 2000 asset sales have subsequently used, in part, to
fund operating liquidity needs, and in part, to pay certain portions of
pre-bankruptcy liabilities, to pay bankruptcy claims settlements and in part
to pay dividends on New Preferred Stock issued pursuant to the bankruptcy
proceedings.
Cash proceeds from the 1999 divestitures were used to complete the nitric acid
projects and to repay cash borrowings from a revolving line of credit that had
been used primarily to fund the project losses as well as working capital needs
of Old Kaiser's other operating units prior to the 1999 divestitures. Also, in
1999, Old Kaiser used some of the proceeds from the divestitures to repurchase
$14.0 million in outstanding Senior Notes at 88% of face value plus accrued
interest.
Results of Predecessor Operations
Administrative Expenses: Amounts presented as Administrative Expenses on the
Statements of Operations consist largely of costs incurred for activities that
were indirectly supporting the business units that were divested earlier in
2000 and 1999 and of internal costs incurred in connection with the
restructurings, bankruptcy proceedings or activities associated with winding
down of its historical operations.
Due to the sale of the majority of Old Kaiser's operations and the reporting of
those operations as discontinued in the accompanying Statements of Operations
for all periods presented, all remaining components of reported revenue and
gross margin are solely attributed to the Company's 50% ownership of
Kaiser-Hill. 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
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page 19
whereby the other 50% owner assumed the right to designate 3 out of the 5
members of Kaiser-Hill's board of managers. The Company retained 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 on the equity basis for financial information applicable for periods
after June 8, 2000.
The Rocky Flats Contract is primarily cost-reimbursable in nature, but it also
contains certain minimum and incentive fee elements based on qualitative and
quantitative factors of actual performance levels compared to annually
negotiated and established benchmarks or milestones. Accordingly, fluctuations
in gross revenue, service revenue and direct labor and fringe benefit costs
earned by Kaiser-Hill during the comparable periods below are largely
reflective of increased levels of reimbursable subcontractor cost pass
throughs incurred as the contract progress continued and as activities
underlying contract progress changed. As a result, annual operating results
are not directly comparable because of changes in the underlying performance
milestones that are established annually by the DOE.
The Kaiser-Hill impact to the Company's overall financial results for each of
the two years ended December 31 were as follows (in thousands):
As Previously Consolidated and Reported: 2000 1999
---- ----
Gross Revenue........................................ $ 271,385 $ 643,044
Subcontracts and materials......................... (195,367) (456,188)
--------- ----------
Service Revenue.................................... 76,018 186,856
Operating Expenses:
Direct labor and fringe............................ 64,197 176,334
--------- ----------
Operating Income.................................... $ 11,821 $ 10,522
Interest, net 178 (154)
Other Owner's Interest in Operating Income (5,999) (5,184)
--------- ----------
Subtotal of Consolidated Results 6,000 5,184
Effect of change in accounting to equity method in June 2000:
Equity in unconsolidated earnings of affiliate 4,218 -
--------- ----------
Equity in income of affiliate as if the change to the
equity method had been applied historically $ 10,218 $ 5,184
========= ==========
The net operating results for the Company's 50%-owned portion of the
Kaiser-Hill subsidiary increased by $5.0 million, 2000 versus 1999. The 2000
increase over 1999 was largely due to Kaiser-Hill's recognition of a $7.0
million performance fee that was awarded 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. Another reason was that a
smaller overall potential award fee pool was appropriated for fiscal 1999
performance by the DOE (the predecessor contract to the Closure Contract
provided for annual and separate potential fee awards and award criteria) and
that certain elements of the ensuing Closure Contract had the effect of
shifting certain remaining performance elements from the predecessor contract
into the Closure Contract. Since Old Kaiser had been recognizing the
performance fee of the original contract using the percentage of completion
basis and since performance elements were shifted out of the original contract
into the Closure Contract, Old Kaiser had to revise downward its estimate of
its earnings under the original contract. The downward revision, due to the
shift in contract performance elements, caused Old Kaiser to reverse, in the
fourth quarter of 1999, previously recognized revenue of $5.2 million. This
adjustment merely reflected a change in the timing of when Kaiser-Hill would
earn performance fee as seen by the increase in operating margin during 2000.
Amounts presented as Administrative Expenses on the Statements of Operations
consisted largely of costs incurred for activities that were indirectly
supporting the business units that were divested earlier in 2000 and 1999 and
of internal costs incurred in connection with the restructurings, bankruptcy
proceedings or activities associated with winding down of its historical
operations. Since certain administrative functions were not divested along
with the asset sales, such costs have not been allocated to the results of
discontinued operations.
The restructuring plan implemented in 1999 and late 1998 included actions to
realign and reduce Old Kaiser's post-asset sale overhead costs such that the
remaining levels were appropriate for the needs and size of its continuing
operations. Elements of the overhead reduction plan included an approximate 25%
personnel reduction in Old Kaiser's wholly-owned North American operations with
lesser percentage reductions in international operations, eliminating regional
overhead layers, downsizing facilities, closing marginally profitable office
locations, discontinuing certain business offerings, improving direct labor
utilization on projects and enhancing project controls to minimize risks of
future contract losses. Because of certain centralized aspects of Old Kaiser's
organizational structure that existed prior to completing the 1999 asset sales,
the cost reduction elements of this phase of the plan could not begin until
after the divestitures were completed.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page 20
Declines in depreciation and amortization expense from 1999 to 2000 were
predominantly reflective of the fact that Old Kaiser wrote off significant
amounts of goodwill and other intangible acquisition costs in connection with
the asset sales consummated in 1999 and 2000. As of December 31, 2000, all
such goodwill and intangibles had been eliminated from the balance sheet.
In connection with its plan to re-align itself prior to its decision to
proceed with the voluntary bankruptcy, Old Kaiser incurred charges for
restructuring of $1.9 million and $14.4 million during 2000 and 1999,
respectively. Components of the charges included amounts for severance and
related matters, the write-off of goodwill associated with the discontinuance
of operations from a prior acquisition, a write-down of the impairment of
certain long-term investments, professional fees associated with the debt
restructuring, a charge for business unit divestiture costs and for
anticipated sublease losses and office realignment and closings.
Interest income was earned on available cash balances that were generated
primarily from the unused proceeds from the 1999 asset sales and from the $6.5
million in promissory notes resulting from the asset sales. Prior to those
sales, available cash balances were largely only attributable to Kaiser-Hill
and Old Kaiser's foreign operations. All other cash not required for operations
was historically used to pay down outstanding borrowings. Interest income of
$1.0 million earned on cash balances generated from the unused proceeds of the
2000 divestitures has been classified as a reduction to Reorganization Items in
the Statement of Operations pursuant to the requirements of SOP 90-7, since the
available cash balances were generated as a result of the bankruptcy
proceedings.
The total interest expense incurred in 2000 was primarily attributable to the
13% interest expense accruing on the $125.0 million of outstanding Old
Subordinated Notes through June 9, 2000 (interest stopped accruing on the Old
Subordinated Notes effective as of June 9, 2000, the date of the bankruptcy
filing). The interest on the Old Subordinated Notes for this period was not
paid in 2000 but rather was allowed as a claim of the noteholders along with
the principal amount of their Old Subordinated Notes. Interest expense
approximating $0.1 million was also incurred on the remaining $1.0 million of
Senior Notes that were paid off entirely by Old Kaiser on September 12, 2000.
Net of the write off of unamortized original issue costs, Old Kaiser
recognized an extraordinary loss on the early extinguishment of Senior Notes
totaling $0.1 million.
Prior to 2000, in addition to the $125.0 million in Senior Subordinated Notes,
Old Kaiser carried $14.0 million in outstanding Senior Notes as well as
borrowings on revolving credit facilities. Old Kaiser's average annual
outstanding debt and the related average effective interest rate for 1999 were
$146.7 million and 14.7%.
Other items affecting interest expense in 1999 was the use of some of the
asset sale proceeds in June 1999 to extinguish the entire $30 million balance
on the revolving credit facility and an October 1999 repurchase of an
aggregate principal amount of $14.0 million in outstanding Senior Notes
carrying an effective interest rate of 13%.
The $8.6 million reported in 2000 as reorganization items consisted of
essentially two types of matters:
. Reorganization Matters: During the year ended December 31, 2000, Old
Kaiser incurred approximately $7.6 million in costs associated with its
bankruptcy activities, including third-party professional fees, court
fees, printing and mailing costs, and severance and staff retention
costs. Interest income of approximately $1.0 million, earned on the
available cash proceeds resulting from the asset sales in July and August
2000, has been classified as a reduction to reorganization costs pursuant
to the provisions of SOP 90-7.
. Fresh start adjustments: The Company adopted fresh start reporting (See
Item 6. - "Selected Financial Data") in its consolidated balance sheet as
of December 31, 2000 and recorded a net increase to book value totaling
$15.2 million resulting from the adjustments to the individual assets and
liabilities in Old Kaiser's Statement of Operations. This overall increase
consisted of the write off of the net book value of abandoned fixed assets
and capitalized software, the net increase in the carrying value of
certain long-lived assets - predominantly attributable to the 50%
ownership in Kaiser-Hill, the increase in the carrying value of the
retiree medical obligation to reflect current actuarial estimates, and the
reduction of certain other accrued expenses deemed in excess of the
estimated requirements. The increase in the carrying value of the
Kaiser-Hill investment will be required to be amortized in the future,
over the asset's estimated life, to the extent that such carrying value
exceeds 50% of the underlying Kaiser-Hill equity.
The income tax provision for all periods presented excludes the elements of
Kaiser-Hill's operating income that were owned by another company since
Kaiser-Hill is a flow-through entity for income tax purposes.
The Statements of Operations report numerous unusual transactions in each of
the two periods presented, which pursuant to generally accepted accounting
principles, must be reported separately and distinctly from the ongoing
operating activities of the Company. The effects of these transactions upon
the Statements of Operations are also required to be presented net of
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page 21
related income tax effects. Accordingly, the overall income tax result of Old
Kaiser's activities during the years presented is reflected on various
different line items of the Statements. The following tabular presentation
attempts to identify the financial impact of the unusual transactions along
with its related income tax consequence. In 2000, the Company recognized a
total net income tax benefit of $9.0 million attributable to the following
elements on the Statements of Operations (in thousands):
Pre-tax Applicable Tax
------- --------------
Statements of Operations Category Income/(Loss) (Expense)/Benefit
- --------------------------------- ------------- -----------------
Income from continuing operations before income taxes..... $ 6,875 $ 39,521
(Loss) from discontinued operations....................... (2,072) (894)
(Loss) on the sale of discontinued operations............. (662) (7,007)
Extraordinary gain from the discharge of indebtedness..... 147,206 (22,664)
--------
$ 8,956
========
The asset sales of the E&C Group in 2000 created taxable income totaling $18.5
million, and the reorganization in bankruptcy generated $59.7 million of debt
forgiveness income pursuant to Internal Revenue Code Sec. 108, and thereby
enabled the Company to recognize a benefit in the current year for its current
year operating loss and for certain previously generated net operating loss
carryforwards. Additionally, in 2000, the Company adjusted its income tax
payable downward by $4.7 million, primarily related to a previous over-accrual
for foreign earnings. As of December 31, 2000, the Company carried a valuation
allowance against the entire remaining deferred tax asset available of $13.2
million.
In 1999, Old Kaiser recognized a total net income tax expense of $38.4 million
allocable to the following results (in thousands):
Pre-tax Applicable Tax
------- --------------
Statements of Operations Category Income/(Loss) (Expense)/Benefit
- --------------------------------- ------------- -----------------
(Loss) from continuing operations before income taxes..... $ (35,260) $ 1,150
(Loss) from discontinued operation........................ (1,978) (4,135)
Gain on the sales of discontinued operations.............. 75,878 (35,795)
Extraordinary (loss) on the early extinguishment of debt.. (989) 389
---
$(38,391)
=========
In 1999, Old Kaiser utilized deferred tax assets and the benefit of current
period operating losses of $32.2 million to offset a similar amount of income
tax liability resulting from the gains on sales of discontinued operations.
Old Kaiser did not recognize an income statement benefit for any previously
unbenefitted or future operating losses or future tax deductions at December
31, 1999 since it was not readily assured at that time that it was more likely
than not that Old Kaiser's future operations would generate sufficient taxable
income to be able to realize such benefits. As at December 31, 1999, Old
Kaiser had carried a valuation allowance against the entire remaining deferred
tax asset of $39.9 million.
Minority Interest in Net Income of Subsidiaries: Minority interest represents
the net amount of Kaiser-Hill's earnings that were due to the other 50% owner
for periods in which Old Kaiser consolidated the results of the Kaiser-Hill
entity.
Concurrent with its voluntary bankruptcy filing, Old Kaiser announced on June
9, 2000 that it would sell nearly 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 E&C Group was sold in two separate transactions during
the third quarter of 2000 for proceeds totaling $37.0 million before working
capital transfers of $7.9 million. Old Kaiser recognized a pre-tax net loss
for financial reporting purposes of approximately $(0.7) million. Taxable
income generated after adjusting this loss for items that are not deductible
for federal income tax purposes, such as associated goodwill and intangible
asset write-offs, totaled $19.2 million, and resulted in income tax expense of
approximately $7.0 million, resulting in a total after tax loss for financial
reporting purposes of approximately $(7.7) million. Approximately $7.0 million
of this loss has been offset by an equal income tax benefit recognized on
previously unbenefitted net operating losses.
During April and June of 1999, Old Kaiser sold its EFM and Consulting
operations for proceeds approximating $145.0 million and reported a net gain
of $40.1 million.
Summarized results for the discontinued segments for the years ended December
31, are as follows (in thousands):
2000 1999
---- ----
Gross Revenue $ 158,724 $ 311,382
Subcontracts and materials (97,210) (154,098)
Equity in unconsolidated affiliates 1,275 4,480
----- -----
Service Revenue 62,789 161,764
Operating Expenses:
Direct labor and fringe 40,606 94,029
Administrative expenses 23,225 67,094
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page 22
Depreciation and amortization 1,030 2,619
----- -----
(Loss) from discontinued operations
before income tax expense $ (2,072) $ (1,978)
======= =======
The combined net financial position and operating results of the E&C, 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, have 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 Old Kaiser. Rather, these results represent the
net contributions to the overall Old Kaiser 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.
Effective as of December 18, 2000, the Company recognized an extraordinary
gain on recording the effectiveness of Old Kaiser's Plan of Reorganization and
the exchange and discharge of an estimated $150.0 million in Allowed Claims
for a combination of cash, New Preferred Stock and New Common Stock. The gain
was computed based on the terms of the Plan whereby the claim holders will
receive a combination of cash and New Preferred Stock equal to 55% of the face
value of the Allowed Claims. The extraordinary gain totaled $147.2 million,
before income tax expense of $22.7 million.
In 1999, Old Kaiser had two early debt extinguishments as defined by generally
accepted accounting principles. Effective upon the completion of the sale of
the Consulting Group on June 30, 1999, Old Kaiser's revolving credit line was
terminated. A charge of $0.8 million, net of income tax effects, was recognized
for the write off of the unamortized balance of capitalized costs incurred to
originally obtain the facility.
In October 1999, as part of its efforts to restructure its debt, Old Kaiser
repurchased $14.0 million of the $15.0 million outstanding in Senior Notes for
88% of face value. After adjusting the amount of the repurchase discount by
the write off of the unamortized original issue discount on the notes and the
unamortized balance of capitalized costs incurred to originally issue the
notes, the net gain on the repurchase was $0.2 million, net of related income
tax effects.
Liquidity and Capital Resources
Operating activities: Old Kaiser recorded $16.5 million in cash generated from
Kaiser-Hill operations prior to deconsolidating the Kaiser-Hill results in its
financial reporting in June 2000 (an additional $5.0 million in 2000
distributions from Kaiser-Hill are reflected as receipts from investing
activities). In addition to approximately $2.0 million in interest income
earnings, Old Kaiser used $21.9 million of cash in operating activities: $14.7
million was used to fund continued operating losses of the E&C Group; $4.8
million was used for severance and professional fees incurred in connection
with its debt restructuring, bankruptcy and winding-down activities, $2.0
million was used to pay for the 1999 pension obligation on September 15, 2000
and approximately $2.2 million was used for the payment of income taxes
resulting from the 1999 asset sale gains.
Old Kaiser used a net $59.4 million of cash in 1999 operating activities after
offsetting $8.6 million in operating cash flows generated by Kaiser-Hill in
1999. Of the remaining $68.3 million of cash used in operating activities,
approximately $21 million was used for the funding of nitric acid project cost
overruns identified in 1998, approximately $15.4 million was used for severance
payments, lease restructuring costs and professional fees associated with total
debt restructuring initiatives, debt extinguishments, and corporate
reorganization and realignment activities, approximately $18.7 was used to pay
net interest expense and approximately $13.2 million was used for continuing
operations, reflective of the continued operating weaknesses and business
downturns in the Asia-Pacific region, and in the North American iron, steel and
microelectronics business lines.
Investing activities: The E&C Operations were sold in two separate
transactions during the third quarter of 2000 for proceeds totaling $37.0
million before working capital transfers of $7.9 million. Also during the
first quarter of 2000, Old Kaiser sold its 35% interest in an environmental
holding company based in France, generating approximately $0.7 million in cash
from investing activities. The deconsolidation of Kaiser-Hill from its
financial statements in June 2000 accounted for a reduction in cash of $5.2
million, and Kaiser-Hill distributed $5.0 million equally to its two owners
(after the date of deconsolidation).
Net of fees associated with completing the 1999 divestiture transactions,
proceeds from the sales of the EFM and Consulting Groups totaled $145.0
million. Investments in fixed assets and software development, including
capitalized labor, were made in 1999 totaling $1.1 million. The cash proceeds
from the sales of the EFM and Consulting Groups, net of income taxes and
transaction costs, and from the liquidation of the retained EFM assets, were,
in part, used to pay down all cash borrowings on Old Kaiser's revolving line
of credit. The balance was used for working capital purposes and held for use
as part of an overall debt-restructuring.
Old Kaiser had a 4% ownership interest in a limited liability company (the
"LLC") that leased the land and owned the buildings leased primarily by Old
Kaiser for its corporate headquarters. Effective October 28, 2000, Old Kaiser
amended the terms of
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page 23
the building investment agreement assigning all subleases to the LLC,
discontinuing all leased space except for month-to-month on a significantly
reduced portion of space, eliminating future capital contributions and fixing
the maximum amount of the potential future recovery of the investment to $2.8
million at whatever time as the property is sold or refinanced. The excess
remaining carrying value of the investment over $2.8 million and the
unamortized transaction costs associated with the original investment of $1.9
million were written-off due to their impairment. Prior to the amendment, Old
Kaiser had a commitment to make additional annual capital contributions to the
LLC totaling $600,000 annually during each of the first three years and
$700,000 annually during each of the fourth through ninth years of the LLC.
The ownership in the LLC would have increased to 16% in fixed annual 2.4%
increments in each of the eleventh through fifteenth years of the agreement. A
total of $600,000 was paid toward this commitment during each of 1999 and 2000.
Financing activities: During the year ended December 31, 2000, Kaiser-Hill
distributed $8.25 million to each of Old Kaiser and its other 50% owner - CH2M
Hill. The distribution to the other 50% owner of Kaiser-Hill reflected in the
accompanying Statements of Cash Flows represents the portion of the $13.3
million that was distributed to CH2M Hill for the portion of the year during
which Old Kaiser consolidated the results from Kaiser-Hill for financial
reporting purposes. On September 12, 2000, Old Kaiser repurchased the remaining
$1.0 million in outstanding Senior Notes plus accrued interest since January 1,
2000. On October 9, 1999, Old Kaiser repurchased $14.0 million of its $15.0
million of Senior Notes at 88% of face value.
As of December 31, 2000, the Company had $12.7 million in letters of credit
outstanding, collateralized by restricted cash balances, $11.1 million of which
was for the Nova Hut project. On February 16, 2001, Nova Hut drew against the
$11.1 million letter of credit prior to its expiration on March 5, 2001 and
$0.4 million remained as cash collateral for other outstanding letters of
credit (see Result of Successor Operations, page 13, for update to the status
of the Nova Hut project). Additionally, pursuant to the current terms of the
Nova Hut contract and upon the acceptance of the mini-mill, the Company is
required to have issued a twelve-month warranty letter of credit totaling $160
million. Until such time as such a revised letter of credit is provided,
however, the Company believes that $11.0 million held in retention by the
customer is sufficient to cash collateralize the requirement in the event it
is not addressed by a letter of credit.
On April 9, 1999, Old Kaiser completed the sale of its EFM and used $36
million of the sale proceeds to extinguish outstanding Revolver cash
borrowings plus $10 million to cash collateralize outstanding letters of
credit. Old Kaiser also received an amendment to the Revolver (the "Amended
Revolver") providing for cash borrowing and letters of credit up to an
aggregate of $30 million. The Amended Revolver expired on June 30, 1999 -
essentially upon Old Kaiser's completion of the sale of its Consulting Group.
Also in connection with the expiration, Old Kaiser was required to use an
additional $13.0 million of the asset sale proceeds to collateralize letters
of credit that were outstanding under the expired facility.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 142 ("FAS 142") "Goodwill and Other
Intangible Assets". FAS 142 provides guidance on the treatment of goodwill and
other intangible assets. This standard is effective for fiscal years beginning
after December 15, 2001. Upon adoption of FAS 142, goodwill and other
intangibles assets that have indefinite useful lives will not be amortized, but
rather will be tested at least annually for impairment. Recognized intangible
assets with determinable useful lives will continue to be amortized. We will
adopt FAS 142 effective January 1, 2002 and do not expect any financial impact.
In August 2001, the FASB issued FAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". FAS 144 provides guidance on the accounting for
the impairment or disposal of long-lived assets. FAS 144 supercedes FAS 121 and
applies to all long-lived assets (including discontinued operations) and
consequently amends Accounting Principles Board Opinion No. 30 ("APB 30"),
Reporting Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business. FAS 144 is effective for financial statements issued
for fiscal years beginning after December 15, 2001 and, generally, its
provisions are to be applied prospectively. The Company will adopt FAS 144
effective January 1, 2002 and does not expect any financial impact.
ITEM 7.A QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
See "Market Risk" in Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data appear on pages F-1 through
F-23 and S-1 through S-2 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Board of Directors
The Board of Directors currently consists of the following three directors. All
directors' terms expire at the next succeeding annual meeting of stockholders.
John T. Grigsby Jr., 61, has been President and Chief Executive Officer of
Kaiser Holdings since December 18, 2000, the effective date of Old Kaiser's
Plan. Mr. Grigsby is the President of John Grigsby and Associates, Inc., a firm
which he founded in June 1984 to provide consulting assistance to financially
distressed and reorganizing companies. Mr. Grigsby has served as the Trustee
for the Auto Works Creditors' Trust and has served as chief executive officer
of a number of financially distressed companies including Super Shops, Inc.,
Auto Parts Club, Reddi Brake, Rose Auto Stores-Florida, Inc. as well as for a
number of Chapter 11 debtors, including Pro Set, Inc., Lomas Financial
corporation and Thomson McKinnon Securities, Inc. Mr. Grigsby owns 2,000 shares
of Common Stock of Kaiser Holdings and no shares of Preferred stock.
Jon B. Bennett, 45, Director of Kaiser Holdings, has been a Director of
Information Management at Devens Reserve Forces Training Area, a Department of
the Army installation, since 1998. Mr. Bennett was Systems Administrator and
Analyst at the then Fort Devens from 1995 to 1997, and was the senior Budget
Analyst at Fort Devens from 1990 to 1995. Mr. Bennett graduated from Bucknell
University (B.A.). Entities managed by Bennett Management Corporation, which is
controlled by Mr. Bennett's brother, James Bennett, are significant holders of
the New Preferred Stock and New Common Stock issued by Kaiser Group Holdings in
April 2001, as a result of being significant holders of the Old Subordinated
Notes of Old Kaiser. Mr. Bennett owns 1,000 shares of Common Stock of Kaiser
Holdings and no shares of Preferred stock.
James J. Maiwurm, 53, Chairman of the Board of Directors of Kaiser Holdings, has
been a partner of Squire, Sanders & Dempsey L.L.P., Washington, D.C. since
February 24, 2001. He was President and Chief Executive Officer of Old Kaiser
from April 19, 1999 until the effective date of the Plan, and served as Chairman
of the Board of Directors of Old Kaiser from June 1999 until such effective
date. Mr. Maiwurm serves on the Board of Managers of Kaiser-Hill. From August
1998 until elected as Old Kaiser's President and Chief Executive Officer, Mr.
Maiwurm was a partner of Squire, Sanders & Dempsey L.L.P., Washington, D.C., and
from 1990 to 1998 was a partner of Crowell & Moring LLP, Washington, D.C. Both
law firms have served as counsel to Old Kaiser and continue to serve as counsel
to Kaiser Holdings. Mr. Maiwurm is a member of the Board of Trustees of Davis
Memorial Goodwill Industries, Washington, D.C., a non-profit entity, and the
Boards of Directors of Workflow Management, Inc., an integrated graphic arts
company providing documents, envelopes and commercial printing to businesses in
North American, the stock of which is traded on the NASDAQ National Market
System, and Cortez III Service Corporation, a privately- held government
services provider. Mr. Maiwurm graduated from the College of Wooster (B.A.) and
the University of Michigan (J.D.). Mr. Maiwurm owns 1,000 shares of Common Stock
of Kaiser Holdings and no shares of Preferred stock.
Executive Officers
John T. Grigsby Jr., 61, has been President and Chief Executive Officer of
Kaiser Holdings since December 18, 2000, the effective date of Old Kaiser's
Plan. Background information concerning Mr. Grigsby is set forth above.
Marijo L. Ahlgrimm, 41, is Executive Vice President and Chief Financial
Officer. Prior to becoming Executive Vice President and Chief Financial Officer
upon the effectiveness of Old Kaiser's Plan, Ms. Ahlgrimm served as Senior Vice
President and Corporate Controller of the predecessor Kaiser entities since
December, 1997. From 1993 to 1997, Ms. Ahlgrimm was Vice President and
Controller of an information technology service provider that was subsequently
acquired by TRW in December, 1997. Ms. Ahlgrimm was a manager with
PricewaterhouseCoopers LLP from 1985 to 1993. Ms. Ahlgrimm graduated from the
University of Wisconsin-Madison (B.B.A.).
Compliance with Section 16(a) of the Exchange Act
The U.S. Securities and Exchange Commission (SEC) requires public companies to
tell their shareholders when certain persons fail to report their transactions
in the company's equity securities to the SEC on a timely basis. Based upon a
review of SEC Forms 3, 4, and 5, and based on representations that no Forms 3,
4, and 5 other than those already filed were required to be filed, the Company
believes that all Section 16(a) filing requirements applicable to officers,
directors and beneficial owners of more than 10% of the equity securities of Old
Kaiser and Kaiser Holdings were timely met during the year ended December 31,
2001.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page 25
ITEM 11. EXECUTIVE COMPENSATION
The following table shows the compensation received by each person who served
as the Chief Executive Officer of the Company during 2001, and the executive
officers who were serving as of December 31, 2001.
SUMMARY COMPENSATION TABLE
Securities
----------
Name, Principal Position, (a) Underlying All Other
------------------------- --- ---------- ---------
And Period Ended December 31, Salary Bonus Options Compensation
----------------------------- ------ ----- ------- ------------
($) ($)(a) (#)(a)
--- ------ ------
John T. Grigsby, Jr., President and
Chief Executive Officer (b)
2001................................... $361,541 0 0 $ 28,958
2000................................... $ 67,693 0 0 $ 1,354
Marijo L. Ahlgrimm, Executive Vice President
and Chief Financial Officer (c)
2001................................... $180,768 $25,000 0 $ 36,802
2000................................... $173,984 0 0 $ 173,756
1999................................... $163,229 $88,322 0 $ 9,016
(a) Cash bonuses are reported for the year of service for which the cash
bonus was earned, even if pre-paid or paid in a subsequent year.
Options are reported for the year of service for which the stock
and/or options were earned, even if the grant date falls in a
subsequent fiscal year. All unexercised stock options that were
outstanding as of December 18, 2000 were cancelled. None of the stock
options reported in the table were exercised by the recipients.
(b) For a description of the terms of an employment agreement entered
into between Mr. Grigsby and the Company, refer to the discussion
under "Employment Contracts and Termination of Employment
Arrangements" below.
2001 $26,250 Company match under the Company's Section
401(k) Plan
$2,708 Company Retirement Plan contribution for
2000 made in January 2001
2000 $1,354 Company match under the Company's Section
401(k) Plan
(c) For a description of the terms of the employment agreements between
Ms. Ahlgrimm and Old Kaiser, refer to the discussion under
"Employment Contracts and Termination of Employment Arrangements"
below. The amounts shown under "All Other Compensation" for Ms.
Ahlgrimm comprise the following:
2001 $26,250 Company match under the Company's Section
401(k) Plan
$10,552 Company Retirement Plan contribution for
2000 made in January 2001
2000 $2,660 Company match under the Company's Section
401(k) Plan
$9,896 Company Retirement Plan contribution for
1999 made in September 2000
$161,200 Severance payment made in accordance with
bankruptcy proceedings
1999 $2,552 Company match under the Company's Section
401(k) Plan
$6,464 Company Retirement Plan contribution for
1998 made in September 1999
Option Grants in 2001 and Aggregated Option Exercises in 2001 and December 31,
2001 Option Values
There were no option grants to any of the named executive officers identified
in the Summary Compensation Table on Page 26 of this Report during the year
ended December 31, 2001. There were no exercises of outstanding stock options
held by any of the named executive officers identified in the Summary
Compensation Table on page 26 of this Report prior to December 18, 2000, upon
which date any unexercised stock options were cancelled pursuant to Old
Kaiser's bankruptcy Plan. There were no unexercised stock options outstanding
for stock of the Company as of December 31, 2001.
Employment Contracts and Termination of Employment Arrangements
John T. Grigsby. The Company entered into an employment agreement with Mr.
Grigsby for his services as President and Chief Executive Officer of Kaiser
Holdings commencing on the effective date of Old Kaiser's bankruptcy Plan,
December 18, 2000. The length of employment will be for an "evergreen" period
of twelve months, such that the remaining term of the agreement shall at all
times be twelve months. In addition to delineating Mr. Grigsby's areas of
responsibility, the agreement provides for a base annual salary of $400,000,
subject to adjustment from time to time throughout its duration. Either party
may terminate the agreement, with or without "cause" or "good reason", upon
sixty (60) days' prior written notice. Effective
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page 26
January 1, 2002, Mr. Grigsby's salary was adjusted to $210,000. Mr. Grigsby is
entitled to a bonus, currently up to a maximum of $500,000, based on the
successful resolution of claims in the Old Kaiser bankruptcy proceedings.
Marijo L. Ahlgrimm. Payments to Ms. Ahlgrimm, mentioned above, were
made pursuant to an employment agreement with the Company that has expired.
Effective September 1, 2001, Ms. Ahlgrimm became a variable part-time employee
and is compensated on an hourly rate of pay of $108 per hour.
Compensation of Non-employee Directors
Directors who are not employees of the Company ("Non-employee Directors") are
paid $1,000 for attendance at each meeting of the Board of Directors; they are
paid $1,000 for attendance at each meeting of a committee of the Board of
Directors of which the Director is a member. In addition, each Non-employee
Director receives an annual retainer of $18,000, payable in advance in
quarterly installments, and is reimbursed for expenses incurred in connection
with Board service. Directors who are employees of the Company are not
compensated separately for their service as directors.
Compensation Committee
The Compensation Committee of the Board of Directors of the Company during 2001
was comprised of Jon Bennett and James Maiwurm. The compensation reported for
executive officers of the Company during 2001 was determined in accordance with
applicable employment agreements entered into with such executive officers and
is described under "Employment Contracts and Termination of Employment
Agreements" on pages 26-27 of this Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A person is deemed to be a beneficial owner of the Company's equity securities
if that person has voting and/or investment power with respect to such equity
securities or has the right to acquire such equity securities within 60 days.
The following table sets forth information regarding each person known by the
Company to beneficially own 5% or more shares of the outstanding New Common and
New Preferred of the Company. A person is deemed to be a beneficial owner of the
Company's stock if that person has voting or investment power (or voting and
investment powers) over any shares of stock or has the right to acquire such
shares pursuant to exercisable options or warrants within 60 days.
==========================================================================================================================
Amount and Nature of Amount and Nature of
Name and Address of Beneficial Ownership Beneficial Ownership Percent of Percent of
Beneficial Owners of Shares of of Shares of Company's Company's
of More Than 5% of the Common Stock Preferred Stock Common Stock Prefferred Stock
Common Stock of the Company of the Company of the Company (*Less than 1%) (*Less than 1%)
==========================================================================================================================
Bennett Restructuring Fund, L.P.
James D. Bennett 374,264 (a) * 23.4% *
281 Tresser Boulevard
Stamford, CT 06901
- --------------------------------------------------------------------------------------------------------------------------
Mellon Financial Corporation
One Mellon Center 150,518 (b) 369,925 (b) 9.4% 32.6%
Pittsburgh, PA 15258
- --------------------------------------------------------------------------------------------------------------------------
Tennenbaum & Co., LLC
11100 Santa Monica Boulevard, 477,924 (c) 13,516 (c) 29.9% 1.2%
Suite 210
Los Angeles, CA 90025
- --------------------------------------------------------------------------------------------------------------------------
Michael E. Tennenbaum
11100 Santa Monica Boulevard, 190,300 (d) * 11.9% *
Suite 210
Los Angeles, CA 90025
- --------------------------------------------------------------------------------------------------------------------------
John Hancock Financial Services, Inc.
John Hancock Place 81,949 (e) * 5.1% *
P.O. Box 111
Boston, MA 02117
==========================================================================================================================
(a) The information with respect to 153,695 shares of Common Stock
beneficially owned by Bennett Restructuring Fund, L.P. is based on a
Report on Schedule 13D dated April 17, 2001, which was filed with the SEC
on May 10, 2001. The information with respect to 220,569 shares of Common
Stock beneficially owned by James D. Bennett is based on a Report on Form
4 dated July 6, 2001, which was filed with the SEC on July 6, 2001.
(b) The information with respect to the 150,518 shares of Common Stock
beneficially owned by Mellon Financial Corporation is based on a Report on
Schedule 13G, Amendment No. 2 dated October 10, 2001, which was filed with
the SEC on October 10, 2001. The information
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page 27
with respect to 369,925 shares of Preferred Stock beneficially owned by
Mellon Financial Corporation is based on a Report on Schedule 13G dated
June 8, 2001 which was filed with the SEC on June 8, 2001.
(c) The information with respect to 477,924 shares of Common Stock and 13,516
shares of Preferred Stock beneficially owned by Tennenbaum & Co., LLC
is based on a Report on Form 4 dated December 31, 2001, which was filed
with the SEC on January 9, 2002.
(d) The information with respect to 190,300 shares of Common Stock beneficially
owned by Michael E. Tennenbaum is based on a Report on Form 4 dated
December 31, 2001, which was filed with the SEC on January 9, 2002.
(e) The information with respect to the shares of Common Stock beneficially
owned by John Hancock Financial Services, Inc. is based on a Report on
Schedule 13G dated December 31, 2001, which was filed with the SEC on
February 1, 2002.
The following table sets forth information regarding the beneficial ownership
of shares of New Common and New Preferred of the Company by each director,
by current executive officers named in the Summary Compensation Table on page
26 of this Report, and by all directors and current executive officers as a
group. The information set forth below is current as of the March 22, 2002.
====================================================================================================================================
Amount and Nature Amount and Nature Percent of Percent of
Certain Beneficial Owners of Beneficial Ownership of Beneficial Ownership Common Stock Preferred Stock
Of Shares of Common Stock of Shares of Common of Shares of Preferred of the Company of the Company
of the Company Stock of the Company Stock of the Company (*Less than 1%) (*Less than 1%)
====================================================================================================================================
(i) Nominees for Director
- ------------------------------------------------------------------------------------------------------------------------------------
James J. Maiwurm 1,000 (a) 0 * *
Jon B. Bennett 1,000 (b) 0 * *
John T. Grigsby, Jr. 2,000 (c) 0 * *
- ------------------------------------------------------------------------------------------------------------------------------------
(ii) Current Executive Officers Named in the Summary Compensation Table
- ------------------------------------------------------------------------------------------------------------------------------------
John T. Grigsby, Jr. 2,000 (c) 0 * *
President and Chief Executive Officer
Marijo L. Ahlgrimm 0 (d) 0 * *
Executive Vice President and Chief
Financial Officer
- ------------------------------------------------------------------------------------------------------------------------------------
(iii) All Directors and Current Executive Officers
- ------------------------------------------------------------------------------------------------------------------------------------
as a Group (4 Persons) 4,000 0 * *
====================================================================================================================================
As discussed above under Item 1. Business--"General Terms and Distribution
Status of Plan of Reorganization" on page 4 of this Report, under Old Kaiser's
bankruptcy Plan:
. holders of Allowed Class 4 Claims, including holders of Old Subordinated
Notes, will receive a combination of cash, shares of New Preferred and New
Common,
. holders of shares of Old Common and other Equity Interests will
receive shares of New Common equal to 17.65% of the number of shares
of New Common issued to holders of Allowed Class 4 Claims.
The Company believes that the majority of new securities that it anticipates
will be issued under its Plan of Reorganization were issued with the Initial
Bankruptcy Distribution on or about April 17, 2001. As Old Kaiser has not,
however, completed the resolution of all bankruptcy claims, the possibility for
the issuance of more securities still exists as uncertainties remain surrounding
the amount of Class 4 Claims that ultimately will be determined to be Allowed
Class 4 Claims. Also since the number of shares of New Common to be issued to
holders of Allowed Class 4 Claims currently cannot be determined, neither can
the number of shares of New Common to be issued to holders of Old Common. Any
future issuance of New Preferred Stock pursuant to newly Allowed Class 4 Claims
will carry the right to receive accrued dividends retroactive to April 17, 2001.
As these uncertainties are affected by matters outside of the control of Kaiser
Holdings, it is not possible to accurately predict the number of shares of New
Preferred or New Common that will ultimately be issued by Kaiser Holdings in
accordance with Old Kaiser's Plan of Reorganization.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
James J. Maiwurm, currently a director of the Company, ceased holding the
position of President and Chief Executive Officer of Old Kaiser on December 18,
2000, the effective date of Old Kaiser's bankruptcy Plan. As disclosed in the
Proxy Statement for the 2001 Annual Meeting of Stockholders, in exchange for Mr.
Maiwurm's agreement to remain with Old Kaiser throughout the duration of its
bankruptcy proceedings and in accordance with arrangements approved by the
Bankruptcy Court and Mr. Maiwurm's agreement to remain with the Company for a
transition period, Mr. Maiwurm received a severance payment in January 2001 that
was accounted for in 2000. Mr. Maiwurm was a non-officer employee of the Company
from December 18, 2000 through February 9, 2001.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT
1. FINANCIAL STATEMENTS
Consolidated Financial Statements of Kaiser Group Holdings, Inc. and
Subsidiaries
Page
----
a. Report of Independent Accountants..................................................... F-1
b. Consolidated Balance Sheets as of
December 31, 2001 and December 31, 2000............................................... F-2
c. Consolidated Statements of Operations for the years ended December 31, 2001,
2000 and 1999....................................................................... F-3
d. Consolidated Statements of Shareholders' Equity (Deficit) and Comprehensive Income
(Loss) for the years ended December 31, 2001, 2000 and 1999......................... F-4
e. Consolidated Statements of Cash Flows for the years ended December 31, 2001,
2000 and 1999....................................................................... F-5
f. Notes to Consolidated Financial Statements............................................ F-6 - F-23
2. FINANCIAL STATEMENT SCHEDULES
Supplemental Schedule Relating to the Consolidated Financial Statements of
Kaiser Group Holdings Inc. and Subsidiaries for the years ended December 31,
2001, 2000 and 1999.
a. Financial Statements of Kaiser-Hill Company LLC as of December 31, 2001
and 2000 and for the three years ended December 31, 2001.............................. F-24 - F-35
b. (i) Report of Independent Accountants...................................... S-1
(ii) Schedule II: Valuation and Qualifying Accounts......................... S-2
All Schedules except the ones listed above have been omitted because they
are not applicable or not required or because the required information is
included elsewhere in the financial statements in this filing.
3. EXHIBITS (LISTED ACCORDING TO THE NUMBER ASSIGNED IN THE TABLE IN ITEM 601
OF REGULATION S-K).
EXHIBIT NO. 2--PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
- -------------------------------------------------------------------------------
SUCCESSION
- ----------
2(a) Amended Plan of Reorganization (Incorporated by reference to Exhibit 2 to
Current Report on Form 8-K (Registrant No. 1-12248) filed with the Commission
on December 14, 2000)
EXHIBIT NO. 3--ARTICLES OF INCORPORATION AND BY-LAWS OF THE REGISTRANT
- ----------------------------------------------------------------------
3(a) Certificate of Incorporation of Kaiser Group Holdings, Inc. (Incorporated
by reference to Exhibit 3(i) to Current Report on Form 8-K (Registrant No.
1-12248) filed with the Commission on December 14, 2000)
3(b) By-laws of Kaiser Group Holdings, Inc. (Incorporated by reference to
Exhibit 3(ii) to Current Report on Form 8-K (Registrant No. 1-12248) filed with
the Commission on December 14, 2000)
EXHIBIT NO. 4--INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
- -----------------------------------------------------------------------------
INDENTURES
- ----------
4(a) Form of Put Agreement relating to preferred stock of Kaiser Group
Holdings, Inc. (Incorporated by reference to Exhibit 4 to Current Report on
Form 8-K (Registrant No. 1-12248) filed with the Commission on December 14,
2000)
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page 29
EXHIBIT NO. 10 -- MATERIAL CONTRACTS
- ------------------------------------
10(a) Intentionally Omitted.
10(b) Kaiser Group International, Inc. Employee Stock Ownership Plan (as
amended and restated as of January 1, 1996). (Incorporated by reference to
Exhibit No. 10(b) to Annual Report on Form 10-K (Registrant No. 1-12248) filed
with the Commission on April 17, 2000)
1. Amendment No. 1 with the effective date of January 1, 1998
(Incorporated by reference to Exhibit No. 10(b)(1) to Annual Report on Form
10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)
2. Amendment No. 2 with the effective date of January 1, 1996
(Incorporated by reference to Exhibit No. 10(b)(2) to Annual Report on Form
10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)
3. Amendment No. 3 dated April 19, 1999. (Incorporated by reference to
Exhibit No. 10(b)(3) to Annual Report on Form 10-K (Registrant No. 1-12248)
filed with the Commission on April 17, 2000)
4. Amendment No. 4 dated June 25, 1999. (Incorporated by reference to
Exhibit No. 10(b)(4) to Annual Report on Form 10-K (Registrant No. 1-12248)
filed with the Commission on April 17, 2000)
10(c) Trust Agreement with Vanguard Fiduciary Trust Company dated as of August
31, 1995, for ICF Kaiser International, Inc. Employee Stock Ownership Plan
(Incorporated by reference to Exhibit No. 10(c) to Registration Statement on
Form S-1 (Registrant No. 33-64655) filed with the Commission on November 30,
1995)
10(d) ICF Kaiser International, Inc. Retirement Plan (as amended and restated
as of March 1, 1993) (and further amended with respect to name change only as
of June 26, 1993) (Incorporated by reference to Exhibit No. 10(d) to Quarterly
Report on Form 10-Q (Registrant No. 1-12248) for the second quarter of fiscal
1994 filed with the Commission on October 15, 1993)
1. Amendment No. 1 dated April 24, 1995 (Incorporated by reference to
Exhibit No. 10(d)(1) to Annual Report on Form 10-K (Registrant No. 1- 12248)
filed with the Commission on May 23, 1995)
2. Amendment No. 2 dated December 15, 1995 (Incorporated by reference to
Exhibit No. 10(d)(2) to Transition Report on Form 10-K (Registrant No. 1-12248)
for the transition period from March 1, 1995 to December 31, 1995 filed with
the Commission on March 29, 1996)
3. Amendment No. 3 dated December 13, 1996 (Incorporated by reference to
Exhibit No. 10(d)(3) to Registration Statement on Form S-1 (Registrant No.
333-19519) filed with the Commission on January 10, 1997)
4. Amendment No. 4 dated April 19, 1999 (Incorporated by reference to
Exhibit No. 10(d)(4) to Annual Report on Form 10-K (Registrant No. 1-12248)
filed with the Commission on April 17, 2000)
5. Amendment No. 5 dated June 25, 1999 (Incorporated by reference to
Exhibit No. 10(d)(5) to Annual Report on Form 10-K (Registrant No. 1-12248)
filed with the Commission on April 17, 2000)
6. Amendment No. 6 dated August 30, 1999 (Incorporated by reference to
Exhibit No. 10(d)(6) to Annual Report on Form 10-K (Registrant No. 1-12248)
filed with the Commission on April 17, 2000)
7. Amendment No. 7 dated April 13, 2000 (Incorporated by reference to
Exhibit 10(d)(7) on Form 8-K (Registrant No. 1-12248) filed with the Commission
on May 2, 2000)
8. Amendment No. 8 dated June 8, 2000 (Incorporated by reference to
Exhibit 10(d)(8) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for
the second quarter of fiscal 2000 filed with the Commission on September 6,
2000)
10(e) Trust Agreement with Vanguard Fiduciary Trust Company dated as of August
31, 1995, for ICF Kaiser International, Inc. Retirement Plan (Incorporated by
reference to Exhibit No. 10(e) to Registration Statement on Form S-1
(Registrant No. 33-64655) filed with the Commission on November 30, 1995)
10(f) ICF Kaiser International, Inc. Section 401(k) Plan (as amended and
restated as of March 1, 1993) (and further amended with respect to name change
only as of June 26, 1993) (Incorporated by reference to Exhibit No. 10(f) to
Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the second quarter
of fiscal 1994 filed with the Commission on October 15, 1993)
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page 30
1. Amendment No. 1 dated April 24, 1995 (Incorporated by reference to
Exhibit No. 10(p)(1) to Annual Report on Form 10-K (Registrant No. 1-12248) for
fiscal 1995 filed with the Commission on May 23, 1995)
2. Amendment No. 2 dated December 15, 1995 (Incorporated by reference to
Exhibit No. 10(p)(2) to Transition Report on Form 10-K (Registrant No. 1-12248)
for the transition period from March 1, 1995 to December 31, 1995 filed with
the Commission on March 29, 1996)
3. Amendment No. 3 dated December 13, 1996 (Incorporated by reference to
Exhibit No. 10(q)(3) to Registration Statement on Form S-1 (Registrant No.
333-19519) filed with the Commission on January 10, 1997)
4. Amendment No. 4 dated April 8, 1999 (Incorporated by reference to
Exhibit No. 10(k)(4) to Annual Report on Form 10-K (Registrant No. 1-12248)
filed with the Commission on April 17, 2000)
5. Amendment No. 5 dated June 25, 1999 (Incorporated by reference to
Exhibit No. 10(k)(5) to Annual Report on Form 10-K (Registrant No. 1-12248)
filed with the Commission on April 17, 2000)
6. Amendment No. 6 dated April 13, 2000 (Incorporated by reference to
Exhibit 10(k)(6) on Form 8-K (Registrant No. 1-12248) filed with the Commission
on May 2, 2000)
7. Amendment dated January 1, 2001. (Incorporated by reference to Exhibit
No. 10(m)(7) to Annual Report on Form 10-K (Registrant No. 1-2248) filed with
the Commission on March 30, 2001)
10(g) Trust Agreement with Vanguard Fiduciary Trust Company dated as of March
1, 1989, for the ICF Kaiser International, Inc. Section 401(k) Plan
(Incorporated by reference to Exhibit No. 28(b) to Registration Statement on
Form S-8 (Registrant No. 33-51460) filed with the Commission on August 31, 1992)
10(h) Asset Purchase Agreement between The IT Group, Inc. and ICF Kaiser
International, Inc. dated March 9, 1999 (Incorporated by reference to Exhibit C
to Registration Statement on Form 8-K (Registrant No. 1- 12248) filed with the
Commission on April 23, 1999)
10(i) Recapitalization Agreement among ICF Kaiser International, Inc., ICF
Consulting Group Holdings, LLC and Clement International Corporation dated May
21, 1999 (Incorporated by reference to Exhibit C to Registration Statement on
Form 8-K (Registrant No. 1-12248) filed with the Commission on July 15, 1999)
10(j) Contract between Kaiser-Hill Company, LLC, a subsidiary of the
Corporation, and the U.S. Department of Energy dated January 24, 2000
(Incorporated by reference to Exhibit No. 10(o) to Annual Report on Form 10-K
(Registrant No. 1-12248) filed with the Commission on April 17, 2000)
10(k) Master Transaction Agreement between Tyco Group S.a.r.l. and Kaiser Group
International, Inc. dated June 9, 2000 (Incorporated by reference to Exhibit
10(p) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the second
quarter of fiscal 2000 filed with the Commission on September 6, 2000)
1. Amendment No. 1 to the Master Transaction Agreement between Tyco Group
S.a.r.l. and Kaiser Group International, Inc. dated June 9, 2000 (Incorporated
by reference to Exhibit 10(p)(1) to Quarterly Report on Form 10-Q (Registrant
No. 1-12248) for the second quarter of fiscal 2000 filed with the Commission on
September 6, 2000)
10(l) Master Transaction Agreement between Hatch Associates, Inc. and Kaiser
Group International, Inc. dated July 6, 2000 (Incorporated by reference to
Exhibit 10(q) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the
second quarter of fiscal 2000 filed with the Commission on September 6, 2000)
10(m) Assignment of Membership Interest in Hunters Branch Leasing, LLC by and
between Kaiser Holdings Unlimited, Inc. (Assignor) and Nutley Partners, LC
(Assignee), dated January 1, 2001 (Incorporated by reference to Exhibit No.
10(r) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the
Commission on April 2, 2001)
EXHIBIT NO. 10--MATERIAL CONTRACTS (MANAGEMENT CONTRACTS, COMPENSATORY PLANS,
- -----------------------------------------------------------------------------
OR ARRANGEMENTS.)
- ----------------
================================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001 Page 31
10(bb) Employment Agreement with John T. Grigsby, Jr., President and Chief
Executive Officer, effective as of December 19, 2000 (Incorporated by reference
to Exhibit No. 10(vv) to Annual Report on Form 10-K (Registrant No. 1-12248)
filed with the Commission on April 2, 2001)
EXHIBIT NO. 21--CONSOLIDATED SUBSIDIARIES OF THE REGISTRANT AS OF FEBRUARY 1,
- -----------------------------------------------------------------------------
2002
- ----
(B) REPORTS ON FORM 8-K
On January 23, 2002, the Company filed a Current Report on Form 8-K.
Pursuant to Item 5 of its Report, the Company disclosed consummation of an
alliance with Tyco Infrastructure Services (formerly EarthTech) to pursue
targeted project opportunities with Federal, state and other agencies. These
opportunities are expected to focus on projects in which the experience and
qualifications of Kaiser-Hill would be beneficial.
================================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001 Page 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Kaiser Group Holdings, Inc.
(Registrant)
/S/ John T. Grigsby, Jr.
-----------------------------------
By: John T. Grigsby, Jr.
President and Chief Executive Officer
Date: March 29, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
(1) Principal executive officer
/S/ John T. Grigsby, Jr. March 29, 2002
-------------------------
John T. Grigsby, Jr. President
and Chief Executive Officer
(2) Principal financial and accounting officer
/S/ Marijo L. Ahlgrimm March 29, 2002
-------------------------
Marijo L. Ahlgrimm Executive Vice President,
Chief Financial Officer,
Secretary and Assistant Treasurer
(3) Board of Directors
/S/ Jon B. Bennett March 29, 2002
-------------------------
Jon B. Bennett Director
/S/ John T.Grigsby, Jr. March 29, 2002
-------------------------
John T. Grigsby, Jr. Director
/S/ James J. Maiwurm March 29, 2002
---------------------------
James J. Maiwurm Director
================================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001 Page 33
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and
Shareholders of Kaiser Group Holdings, Inc
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a), present fairly, in all material respects, the
financial position of Kaiser Group Holdings, Inc. and Subsidiaries at December
31, 2001 and December 31, 2000, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, on December 5,
2000, the United States Bankruptcy Court for the District of Delaware confirmed
the Company's Plan of Reorganization (the Plan). The Plan became effective on
December 18, 2000 and the Company emerged from Chapter 11. In connection with
its emergence from Chapter 11, the Company adopted Fresh-Start Reporting as of
December 18, 2000 as further described in Note 2 to the consolidated financial
statements. At this time there remain significant uncertainties related to the
ultimate amount of claims that will be allowed pursuant to the Company's
bankruptcy proceedings.
PricewaterhouseCoopers LLP
McLean, Virginia
March 22, 2002
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001 Page F-1
KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2001 2000
----- ----
ASSETS (In thousands, except share amounts)
Successor
---------
Current Assets
Cash and cash equivalents................................... 8,848 $ 41,344
Restricted cash and cash equivalents ....................... 15,844 16,190
Marketable securities available for sale.................... 6,489 --
Contract receivables, net................................... -- 1,692
Prepaid expenses and other current assets................... 1,843 2,861
Net assets of discontinued operations....................... 6,000 10,712
------- --------
Total Current Assets.................................... 39,024 72,799
------- --------
Other Assets
Investments in and advances to affiliates................... 29,229 26,692
Notes receivable ........................................... 6,550 6,550
Deferred tax assets......................................... 5,785
Other long-term assets...................................... 303 127
------- --------
41,867 33,369
------- --------
Total Assets............................................ $ 80,891 $ 106,168
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable............................................ $ 730 $ 2,367
Accrued salaries and benefits............................... 7,482 9,148
Other accrued expenses...................................... 4,767 6,848
Preferred stock dividend payable............................ 731 --
Income taxes payable........................................ 1,340 305
------- --------
Total Current Liabilities............................... 15,050 18,668
Commitments and Contingencies
Preferred stock, par value $.01 per share:..................
Authorized--2,000,000 shares
Issued and outstanding--1,136,024 shares in 2001; stated at 62,481 --
................................................
liquidation value of $55 per share........................
New Common stock, par value $.01 per share:
Authorized--3,000,000 shares
Issued and outstanding--1,585,239 shares in 2001 ......... 16 --
Old Common stock, par value $.01 per share:
Authorized--90,000,000 shares
Issued and outstanding-- 23,414,328 shares in 2000. -- 234
Capital in excess of par.................................... 7,947 87,266
Accumulated deficit......................................... (4,957) --
Accumulated other comprehensive income .................... 354 --
------- --------
Total Liabilities and Shareholders' Equity ............. $ 80,891 $ 106,168
======= ========
See notes to consolidated financial statements
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001 Page F-2
KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
-----------------------
Successor
Company Predecessor Company
------- -------------------
2001 2000 1999
---- ---- ----
(In thousands, except per share amounts)
Gross Revenue ................................................... -- $271,385 $643,044
Subcontract and direct material costs ......................... -- (195,367) (456,188)
------- --------- ---------
Service Revenue ................................................. -- 76,018 186,856
Operating Expenses
Direct labor and fringe benefits .............................. -- 64,197 176,582
Administrative expenses ....................................... 9,692 8,435 9,055
Depreciation and amortization ................................. -- 1,695 3,379
Impairment charge ............................................. 1,100 -- --
Restructuring charges ......................................... -- 1,915 14,384
------- --------- ---------
Operating Income (Loss) ......................................... (10,792) (224) (16,544)
Other Income (Expense)
Equity income in earnings of affiliate, net of amortization
of $3,524 for the year ended December 31, 2001 ................ 11,518 4,218 --
Gain on stock demutualization ................................. 5,856 -- --
Interest income ............................................... 1,075 2,024 2,349
Interest expense .............................................. -- (7,754) (21,065)
------- --------- ---------
Income (Loss) From Continuing Operations Before Reorganization
Items, Income Tax,
Minority Interest, and Extraordinary Items ................... 7,657 (1,736) (35,260)
Reorganization items ............................................ -- 8,611 --
------- --------- ---------
Income (Loss) From Continuing Operations Before Income Tax,
Minority Interest, and Extraordinary Items ...................... 7,657 6,875 (35,260)
Income tax (expense) benefit .................................. (2,417) 39,521 1,150
------- --------- ---------
Income (Loss) From Continuing Operations Before Minority Interest
and Extraordinary Items ....................................... 5,240 46,396 (34,110)
Minority interest in net income of affiliated company ......... -- (5,999) (5,184)
------- --------- ---------
Income (Loss) From Continuing Operations Before Extraordinary
Items ........................................................... 5,240 40,397 (39,294)
(Loss) from discontinued operations, net of tax................ (10,197) (2,966) (6,113)
Gain (Loss) on sales of discontinued operations, net of tax ... -- (7,669) 40,083
------- --------- ---------
Income (Loss) Before Extraordinary Items ........................ (4,957) 29,762 (5,324)
Extraordinary items, net of tax ............................... -- 124,542 (600)
------- --------- ---------
Net Income (Loss) (4,957) 154,304 (5,924)
Preferred stock dividends ....................................... (3,091) -- --
------- --------- ---------
Income (Loss) Applicable to Common Shareholders ................. $(8,048) $154,304 $(5,924)
======== ========= =========
Basic and Diluted Earnings (Loss) Per Common Share:
Continuing operations, net of tax ............................. $1.92 $1.74 $ (1.65)
Discontinued operations, net of tax ........................... (9.11) (0.46) 1.42
------ ------ ---------
Earnings (Loss) Before Extraordinary Items..................... $ (7.19) 1.28 (0.23)
Extraordinary Items ........................................... -- 5.35 (0.02)
------- ------ ---------
Net Earnings (Loss) Per Share $(7.19) $6.63 $(0.25)
======= ====== =========
Weighted average shares for basic and diluted earnings
(loss) per common share ....................................... 1,119 23,255 23,823
======= ====== =========
See notes to consolidated financial statements.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001 Page F-3
KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands, except share amounts)
Accumulated Accumulated
----------- -----------
Old Common Stock New Common Stock Capital In Notes Earnings Other
---------------- ---------------- ---------- ----- -------- -----
Shares Par Value Shares Par Value Excess of Receivable (Deficit) Comprehensive
------ --------- ------ --------- ---------- ---------- --------- -------------
Par Income (Loss)
---- -------------
Predecessor Company
Balance, January 1, 1999 24,257,828 $242 -- -- $75,422 $(638) $(134,757) $(3,387)
Net (loss) -- -- -- -- -- -- (5,924) --
Issuances of common stock 145,788 2 -- -- 106 -- -- --
Reacquisition of common (748,116) (7) -- -- (1,885) 638 -- --
stock
Foreign currency
translation
adjustment included -- -- -- -- -- -- -- 285
in net income -- -- -- -- -- -- -- ---
Balance, December 31, 1999 23,655,500 237 -- -- 73,643 -- (140,681) (3,102)
Net income -- -- -- -- -- -- 154,304 --
Reacquisition of common (241,172) (3) -- -- -- -- -- --
stock
Reclassification for
losses on
foreign currency
translation adjustment -- -- -- -- -- -- - 3,102
Effect of fresh-start
reporting:
Elimination of accumulated -- -- -- -- 13,623 -- (13,623) --
Earnings -- -- -- -- ------ -- -------- --
- ----------------------------------------------------------------------------------------------------------------------------------
Successor Company
Balance, December 31, 2000 23,414,328 234 -- -- 87,266 -- -- --
Net (loss) -- -- -- -- -- -- (4,957) --
Issuances of new common -- -- 1,610,889 16 (16) -- -- --
stock
Cancellation of old
common (23,414,328) (234) -- -- 234 -- -- --
Stock
Issuance of preferred -- -- -- -- (62,481) -- -- --
stock
Foreign currency
translation -- -- -- -- -- -- -- (39)
Adjustment
Unrealized gain on
securities 393
Available for sale
Preferred stock dividends -- -- -- -- (3,091) -- -- --
Cash buy back of new -- -- (25,650) -- (125) -- -- --
common
Stock
Class 4 allowed claim
settlements -- -- -- -- (13,840) -- -- --
-- -- -- -- -------- -- -- --
Balance, December 31, 2001 -- $-- 1,585,239 $16 $7,947 $-- $(4,957) $354
== === ========= === ====== === ======== ====
KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Year Ended December 31,
----------------------
Successor
Company Predecessor Company
--------- -------------------
2001 2000 1999
---- ---- ----
Net Income (Loss)................................................ $ (4,957) $154,304 $(5,924)
Other Comprehensive Income (Loss)
Foreign currency translation adjustments..................... (39) -- 285
Unrealized gain on securities, net of tax.................... 393 -- --
--
Reclassification for losses on foreign currency
translation included in net income........................ -- 3,102 --
-- ----- --
Total Comprehensive Income (Loss)....................... $ (4,603) $157,406 $(5,639)
========= ======== ========
See notes to consolidated financial statements.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001 Page F-4
KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31,
-------------------------------
Successor Company Predecessor Company
----------------- -------------------
2001 2000 1999
-------- -------- --------
(in thousands, except share amounts)
Operating Activities
Net income (loss)......................................... $(4,957) $ 154,304 $(5,924)
Adjustments to reconcile net income (loss) to net cash
Used in operating activities:
(Gain) loss on sale of discontinued operations........... -- 7,669 (40,083)
Loss of discontinued operations, net of tax.............. 10,197 2,966 6,113
Income tax benefit ...................................... -- (39,521) --
Reorganization items..................................... -- (8,611) --
Deferred taxes related to continuing operating
activities.............................................. 1,312 -- --
Gain on stock demutualization............................ (5,856) -- --
Impairment charge........................................ 1,100 -- --
Extraordinary items .................................... -- (124,542) 600
Equity in unconsolidated affiliate...................... (11,518)
Note receivable write-off .............................. -- -- 638
Cash distributions in excess of (less than)
earnings from consolidated Affiliate companies ....... -- 5,333 (347)
Depreciation and amortization........................... -- 1,695 5,163
Minority interest in net income of affiliate............ -- 5,999 5,184
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
Contract receivables, net............................. 1,692 7,403 20,885
Prepaid expenses and other current assets............. 1,018 (1,369) (126)
Accounts payable and accrued expenses................. (5,909) 7,680 (22,866)
Income taxes payable.................................. 1,035 (6,292) 4,450
Other operating activities .......................... (831) 1,364 --
-------- -------- --------
Net cash provided by (used in) continuing
operating activities before claims resolution and
reorganization items ............................. (12,717) 14,078 (26,313)
Distributions to allowed class 3 claim holders...... (600) -- --
-------- -------- --------
Net Cash (Used in) Provided by Continuing
Operating Activities Before Reorganization
Items........................................... (13,317) 14,078 (26,313)
Net cash used in discontinued operations -- (14,685) (33,142)
-------- -------- --------
Net Cash Used In Operating Activities Before
Reorganization Items.............................. (13,317) (607) (59,455)
-------- -------- --------
Reorganization items 8,611 --
Adjustments to reconcile reorganization items to
cash used by Reorganization items:
Revaluation of assets to fair value................... -- (16,297) --
Interest Income....................................... -- (976) --
Accrued reorganization expenses....................... -- 3,859 --
-------- -------- --
Net cash used in reorganization....................... -- (4,803) --
-------- -------- --
Net cash used in operating activities after
reorganization items.................................. (13,317) (5,410) (59,455)
-------- -------- --------
Investing Activities
Sales of subsidiaries.................................. -- 29,766 145,041
Distributions from 50% owned affiliate................. 7,900 5,050 --
Effect on cash resulting from deconsolidation of 50%
owned investments .................................. -- (5,243) --
Purchases of fixed assets.............................. -- -- (2,113)
-------- -------- --------
Net Cash Provided by Investing Activities from
Continuing Operations......................... 7,900 29,573 142,928
Net cash used in investing activities of
discontinued operations ...................... -- (153) (4,941)
-------- -------- --------
Net Cash Provided by Investing Activities ... 7,900 29,420 137,987
-------- -------- --------
Financing Activities
Distribution of income to minority interest............ -- (8,250) (3,300)
Borrowings under revolving credit facility............. -- -- 61,855
Principal payments on revolving credit facility........ -- -- (92,584)
Release of restricted cash............................. 802 -- --
Change in cash collateralized letters of credit........ -- 193 (12,595)
Extinguishment of Senior Notes......................... -- (1,000) (12,320)
Establishment of cash reserve for unresolved claims.... (12,331) -- --
Distribution to allowed class 4 claim holders.......... (13,065) -- --
Repurchase of New Common stock pursuant to buy back.... (125) -- --
Payment of preferred stock dividends .................. (2,360) -- --
Change in book overdraft............................... -- -- (8,395)
-------- -------- --------
Net Cash Used in Financing Activities........ (27,079) (9,057) (67,339)
-------- -------- --------
Effect of Exchange Rate Changes on Cash.................. -- -- (69)
-------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents......... (32,496) 14,953 11,124
Cash and Cash Equivalents at Beginning of Period......... 41,344 26,391 15,267
-------- -------- --------
Cash and Cash Equivalents at End of Period............... $ 8,848 $ 41,344 $ 26,391
======== ======== ========
See notes to consolidated financial statements.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001 Page F-5
KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
--------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Kaiser Group Holdings, Inc. is a Delaware holding company that was formed on
December 6, 2000 for the purpose of owning all of the outstanding stock of
Kaiser Group International, Inc. ("Old Kaiser") which in turn continues to own
the stock of its remaining subsidiaries. On June 9, 2000, Old Kaiser and 38 of
its domestic subsidiaries voluntarily filed for protection under Chapter 11 of
the United States Bankruptcy Code in the District of Delaware (case nos.
00-2263 to 00-2301). Old Kaiser emerged from bankruptcy with an approved plan
of reorganization (the Second Amended Plan of Reorganization (the "Plan")) that
was effective on December 18, 2000 (the Effective Date). The Company is deemed
a "successor issuer" to Old Kaiser by virtue of rule 12-g 3(a) under the
Securities Exchange Act of 1934. References to the "Company" or "Kaiser
Holdings" in this report refer to Kaiser Group Holdings, Inc. and its
consolidated subsidiaries. A summary of the Plan for Old Kaiser can be found in
a Current Report on Form 8-K dated December 5, 2000 filed by Old Kaiser.
Currently, apart from resolving remaining bankruptcy claims, the Company has
only a limited number of activities, assets and liabilities, primarily
consisting of:
. the ownership of a 50% interest in Kaiser-Hill Company, LLC
("Kaiser-Hill"), which serves as the general contractor at the U.S
Department of Energy's Rocky Flats Environmental Technology Site near
Denver, Colorado, for the performance of a contract for the closure of
the site. Kaiser-Hill has performed for the Department of Energy ("DOE")
at this site since 1995 and in January 2000 was awarded a new contract to
manage the closure of the site within this decade. Rocky Flats is a
former DOE nuclear weapons production facility, and under the new closure
contract, Kaiser-Hill is working to stabilize and safely store
radioactive materials at the site and other locations, to clean up areas
contaminated with hazardous and radioactive waste, and to restore much of
the 6,000-acre site to the public. The Kaiser-Hill joint venture between
Old Kaiser and CH2M Hill Companies, Ltd. was formed solely for the
performance of the current and former Rocky Flats contracts. The level of
success experienced by Kaiser-Hill in achieving closure of the Rocky
Flats site and the cost of achieving such closure, are the primary
determinants of the Company's long-term financial performance following
the completion of the reorganization process.
. the resolution and closeout of a completed contract for the engineering
and construction of a steel mini-mill for Nova Hut in the Czech Republic
("Nova Hut project").
. the holding of a minority ownership interest in ICF Consulting Group, Inc.
("ICF Consulting"), a division that Old Kaiser sold in 1999 as well as
interest-bearing promissory notes and escrowed cash received in
connection with that sale.
. a wholly owned captive insurance company that is no longer issuing new
policies and is simply involved in resolving remaining claims.
. an ongoing obligation to fund a capped, post-employment medical
benefit plan for a fixed group of retirees.
2. Changes in Accounting Affecting Comparability of Financial Statements
Adoption of Fresh-Start Reporting: The Company adopted fresh start reporting in
its consolidated balance sheet as of December 31, 2000. The American Institute
of Certified Public Accountants' Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" (SOP 90-7),
requires that under certain circumstances resulting from a bankruptcy, a new
entity is created for financial reporting purposes upon the emergence of that
entity from bankruptcy. Accordingly, the value of the reorganized enterprise
becomes the established amount for the emerging balance of shareholders' equity
and any accumulated deficit of the predecessor entity is offset against
available paid-in-capital to result in an emerging retained earnings of zero.
Additionally, assets and liabilities are recorded at their fair values. Since
the financial information as of and subsequent to December 31, 2000 has been
prepared as if it is of a new reporting entity, a black line has been shown to
separate new entity information from prior entity information on the Statements
of Operations, Statements of Comprehensive Income (Loss), Statements of
Shareholders' Equity and the Statements of Cash Flows since such presentations
were not prepared on a comparable basis to the prior year. Financial information
with regard to activity occurring prior to December 31, 2000 has been included
in these Financial Statements marked as "Predecessor" and financial information
with regard to activity as of December 31, 2000 and thereafter is marked herein
as "Successor".
The value of the emerged enterprise used for fresh start reporting as of
December 31, 2000 was $87.5 million and was determined by management with the
assistance of independent advisors. The methodology employed involved estimation
of the enterprise value taking into consideration a discounted cash flow
analysis. The discounted cash flow analysis was based on a seven-year cash flow
projection prepared by management - taking into consideration the terminal value
of its assets and liabilities as of immediately prior to its emergence from
bankruptcy on December 18, 2000. Terminal values of assets and
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001 Page F-6
liabilities were determined based either on contracted amounts, actuarial
present values and/or management's estimates of the outcome of certain
operating activities. Net after-tax cash flows, assuming a 40% effective tax
rate, were discounted at 17% in order to take into consideration the risks and
uncertainties inherent in such projections. The cash flow projections were
based on estimates and assumptions about circumstances and events that have not
yet taken place. Estimates and assumptions regarding individual retained
matters which form the collective composition of the overall enterprise value
as of December 18, 2000 are inherently subject to significant economic and
competitive uncertainties and contingencies beyond the control of the Company.
Accordingly, there may be differences between projections and actual results
because events and circumstances frequently do not occur as expected and may be
significant. More specifically, assumptions within the valuation related to the
amount and timing of the ultimate performance and related cash flows of the
Company's investment in Kaiser-Hill have the greatest impact to the overall
enterprise valuation.
The adjustments that reflected the adoption of "fresh start" reporting,
including the December 31, 2000 adjustments to record assets and liabilities at
their fair market values, were reflected in the financial statements as a
component of Reorganization Items. In addition, the Successor Company's opening
balance sheet was further adjusted to eliminate existing equity and to reflect
the aforementioned $87.5 million enterprise value.
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 method.
The fee on the Kaiser-Hill closure contract, ranging from $150.0 to $460.0
million, is primarily based upon the actual costs to complete closure and the
actual date of physical closure. Throughout 2001, Kaiser-Hill has reduced its
estimated costs to complete. As of December 31, 2001, based upon costs and
progress to date, Kaiser-Hill estimates it is on course to earn a $340.0
million fee, and recorded additional earnings of $15.8 million as a change in
estimate in the fourth quarter. This adjustment was comprised of a revenue
increase of $47.8 million, offset by $32.0 million in contingency reserves,
primarily related to uncertainty risks and the potential for safety related
work delays.
Discontinued operations: Through several separate transactions in 1999 and
2000, the Company divested of the majority of its operating activities. The
financial operations of the divested operations and non-divested engineering
operations have been presented as "discontinued operations" for all periods
presented.
3. General Terms of Plan and Status of Bankruptcy Distributions
The effectiveness of the Plan as of December 18, 2000 did not in and of itself
complete the bankruptcy process. The process of resolving in excess of $500
million of claims initially filed in the Kaiser Group International bankruptcy
process is ongoing. Old Kaiser objected to the majority of the unresolved
claims, and if such claims are not settled via the objection or dispute
resolution processes or other means, they will ultimately be heard and
determined by the Bankruptcy Court. Once a claim is resolved with an amount due
to the creditor, such portion of the claim is deemed to be an allowed claim by
the Bankruptcy Court (an "Allowed Claim"). The Company cannot predict with
accuracy when the claims resolution process will be complete or what the total
amount of Allowed Claims will be upon completion.
In very general terms, the Plan contemplated three basic classes of creditors:
. Allowed "Class 3 claims" against the Old Kaiser bankruptcy estate -
generally trade and similar creditors' claims of $20,000 or less -
received cash for their claims.
. Allowed "Class 4 claims", the largest class of claims against the Old
Kaiser bankruptcy estate, is made up of creditor claims other than Class 3
claims and equity claims. Class 4 claims included holders of the former
Kaiser Group International senior subordinated notes due 2003 ("Old
Subordinated Notes"). Holders of allowed Class 4 claims received a
combination of cash and Kaiser Holdings preferred and common stock in
respect of their claims. Such holders received one share of preferred stock
("New Preferred") and one share of new common stock ("New Common") for each
$100 of claims. However, the number of shares of New Preferred issued was
reduced by one share for each $55.00 of cash received by the holder of an
allowed Class 4 claim.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001 Page F-7
. The third class of claims recognized in the Old Kaiser bankruptcy are
equity claims, consisting of holders of former Kaiser Group International
common stock ("Old Common") and other "Equity Interests" as defined in the
Plan. Under the Plan, holders of Equity Interests will receive a number of
shares of New Common of Kaiser Holdings equal to 17.65% of the number of
shares of such common stock issued to holders of allowed Class 4 Claims. In
the initial distribution, one share of Kaiser Holdings New Common was
issued for each 96 shares of previously outstanding Old Common. Additional
distributions of Kaiser Holdings New Common may be made in the future as
additional shares of New Common are issued to holders of newly allowed
Class 4 claims, if any. Apart from holders of former Kaiser Group
International Old Common, the only holders of Equity Interests of which the
Company is aware are the former shareholders of ICT Spectrum Constructors,
Inc., a corporation acquired by merger with a subsidiary of Kaiser Group
International in 1998. The Bankruptcy Court confirmed the equity nature of
those claims.
Pursuant to the terms of Old Kaiser's Plan, the Company was required to
complete its initial bankruptcy distribution within 120 days of the effective
date of the Plan. Accordingly, on April 17, 2001, the Company effected its
initial distribution. At that time, there were approximately $136.8 million of
Class 4 claims that had been allowed in the bankruptcy process. The amount of
unresolved claims remaining at April 17, 2001 was approximately $130.5 million.
To address the remaining unresolved claims, the Bankruptcy Court issued an
order on March 27, 2001, establishing an Alternative Dispute Resolution ("ADR")
procedure whereby the remaining claimants and Old Kaiser produce limited
supporting data relative to their respective positions and engage in initial
negotiation efforts in an attempt to reach an agreed claim determination. If
necessary, thereafter, the parties are required to participate in a non-binding
mediation before a mediator pre-selected by the Bankruptcy Court. All
unresolved claims are subject to the ADR process. Since April 17, 2001, the
date of initial distribution, $65.5 million of asserted claims have been
withdrawn, negotiated or mediated to an agreed amount, resulting in cash
payments approximating $0.8 million and no additional issuances of New
Preferred or New Common. As of March 15, 2002, the amount of unresolved claims
was approximately $65.0 million. The Company expects that substantial progress
will continue to be made in the resolution of claims over the balance of 2002.
The Company continues to believe that the amount of Class 4 claims ultimately
to be allowed in the Kaiser Group International bankruptcy proceeding will not
exceed $150.0 million. As depicted in the claim settlements completed since
April 17, 2001, and based on the belief that it is in the best interest of the
Company and its current stockholders, the Company has been settling certain
remaining Class 4 claims entirely for cash payments in lieu of the combination
of cash and new preferred and new common stock as contemplated in Old Kaiser's
Plan of Reorganization. The Company intends to continue to use this settlement
alternative during its resolution of remaining Class 4 claims, but obviously
has no ability to determine the effect of the outcome on its overall financial
condition in the event such settlements are accepted in the future.
With respect to the unresolved claims, the Plan required that, at the date of
the initial distribution, sufficient cash reserves were to be retained by the
Company such that if all remaining unresolved claims were ultimately deemed
allowed at the originally claimed amount, the Company would be able to satisfy
the allowed claims, including dividends accruing on related preferred stock,
since April 17, 2001. The cash reserve requirement and the fact that the
Company had not yet received a substantial cash payment that the Company
asserts it is due from the owner of the Nova Hut steel mini-mill in the Czech
Republic (see Note 5), limited the amount of cash available at the time of the
initial distribution to the holders of allowed Class 4 claims. The Company
determined that an aggregate of $25.0 million, or approximately $0.09347 per
$1.00 of Allowed and "deemed allowed" Class 4 claims, was available at the time
of the initial distribution to Allowed Class 4 claim holders. Thus, more shares
of New Preferred were issued than would have been had the claims resolution
process advanced more quickly and had more cash been available from the Nova
Hut project and/or other sources. Due to the proportion of remaining unresolved
Class 4 claims in relation to the total of all resolved and unresolved claims,
approximately $12.3 million of the $25.0 million in available cash was reserved
on April 17, 2001.
As discussed above, the exchange ratio of New Common for Old Common (1 new
share for each 96 old shares) and the nature of the distribution of shares of
common stock to holders of Class 4 claims resulted in there being a number of
holders of a relatively small number of shares of New Common stock. Therefore,
the Company initiated an offer to purchase all shares of New Common stock
distributable to persons who received 99 or fewer shares in the initial
distribution for a price equal to $4.50 per share. The offer expired on June
15, 2001 with 25,650 shares being repurchased by the Company under this plan
for a total of $115,000.
In the case of holders of Old Common, the offer to purchase shares was
conditioned on the holder's agreement to also sell the holder's right to future
distributions of shares of New Common under the Plan. The offer price for such
distribution rights was $0.50 per share that would otherwise be distributed.
This offer price was determined arbitrarily, based primarily on the Company's
current expectation that future distributions of shares of New Common would not
exceed 10% of the number of shares distributed at the present time. Holders who
wished to sell their right to future distributions had to also sell their
shares of New Common. On June 15, 2001, the Company repurchased 20,002 rights
under this plan for a total cost of $10,000.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001 Page F-8
4. Significant Accounting Policies - Successor Company:
Principles of Consolidation: The consolidated financial statements include all
majority-owned or controlled subsidiaries. Investments in unconsolidated
affiliated companies are accounted for using the equity method. The difference
between the carrying value of the joint venture investment and the Company's
underlying equity is amortized on a straight-line basis over the estimated term
of the joint venture investment. All significant intercompany balances and
transactions have been eliminated.
Income Taxes: Deferred tax assets and liabilities represent the tax effects of
differences between the financial statement carrying amounts and the tax bases
carrying amounts of the Company's assets and liabilities. These differences are
calculated based upon the statutory tax rates in effect in the years in which
the differences are expected to reverse. The effect of subsequent changes in
tax rates on deferred tax balances is recognized in the period in which a tax
rate change is enacted. The Company evaluates its ability to realize future
benefit from all deferred tax assets and establishes valuation allowances for
amounts that may not be realizable.
Earnings Per Share: Basic EPS is computed by dividing net income (loss) by the
weighted average number of common shares outstanding for the period. The
weighted average shares outstanding for the year ended December 31, 2001
retroactively adjusts for the conversion of the Old Common to New Common
effective with the adoption of fresh-start reporting. As additional
distributions of Kaiser Holdings common stock are made to holders of newly
allowed Class 4 claims, the conversion ratio of 96 shares may be adjusted to
reflect the final total number of shares of New Common (as discussed in Note 3).
Because Kaiser Holdings is assumed to be a new entity (as discussed in Note 1)
periods prior to the adoption of fresh-start reporting have not been restated.
Diluted EPS normally includes the weighted-average effect of dilutive
securities outstanding during the period. Pursuant to the Company's Plan of
Reorganization that was effective as of December 18, 2000, all then outstanding
common stock equivalents were cancelled. Accordingly, no anti-dilutive
information is presented herein.
The effect of preferred dividends of $3.1 million has been included in
continuing operations in the calculation of basic and diluted earnings per
share for the year ended December 31, 2001.
Foreign Currency Translation: Results of operations for foreign entities are
translated using the average exchange rates during the period. Assets and
liabilities are translated to U.S. dollars using the exchange rate in effect at
the balance sheet date. Resulting translation adjustments are reflected net of
tax in shareholders' equity as cumulative translation adjustments.
Cash Equivalents and Restricted Cash: The Company considers all highly liquid
financial instruments purchased with maturities of three months or less at date
of purchase to be cash equivalents. Restricted cash balances consisted of the
following at December 31, (in thousands):
2001 2000
---- ----
Letters of credit collateralized by cash........................................ $ 600 $12,711
Cash reserved for future claim settlements, less payments of cash claim
settlements of $775.......................................................... 11,557 --
Cash balances of wholly owned insurance subsidiary.............................. 2,852 2,729
Escrowed cash................................................................... 835 750
--- ---
$15,844 $16,190
======= =======
Supplemental cash flow information for the year ended December 31, 2001, is as
follows:
2001
----
Cash payments for interest...................................................... $ --
Cash payments for income taxes.................................................. 99
Reclass of restricted cash to net assets of discontinued operations............. 11,100
Non cash transactions:
Retirement of Old Common 234
Issuance of Preferred Stock 62,481
Issuance of New Common 16
Marketable Securities: In December 2001, the Company recorded a gain on the
stock demutualization of a non-affiliated insurance company. The gain was
calculated based upon the fair value of the securities on the date of the
insurance company's initial public offering. These securities have been
classified as available for sale on the balance sheet as of December 31, 2001
as management sold the securities in February 2002. Investments classified as
available for sale are measured at fair value in the financial statements with
unrealized gains and losses reported, net of tax, in other comprehensive income
(loss).
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001 Page F-9
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosed amounts of contingent assets
and liabilities at the date of the financial statements, and the amounts of
revenues and expenses recognized during the reporting period. Such estimates
include those related to allowances for contract and notes receivable and
accrued interest, deferred tax assets and valuation allowance, recoverability of
net assets of discontinued operations, and other investments, the amortization
period for the excess value attributed to the Kaiser-Hill investment and the
remaining Allowed Claims. Actual results could differ from those estimates.
Concentrations of Credit Risk: The Company maintains cash balances primarily in
overnight Eurodollar deposits, investment-grade commercial paper, bank
certificates of deposit, and U.S. government securities.
Reclassifications: Certain reclassifications have been made to the prior-
period financial statements contained herein in order to conform them to the
2001 presentation.
5. Net Assets of Discontinued Operations
The components of the "Net Assets of Discontinued Operations" consist entirely
of the carrying value of the net assets of the Nova Hut project and were as
follows at December 31:
2001 2000
---- ----
Cash................................................................... $ 6 $ 276
Letter of credit cash collateral drawn by Nova Hut..................... 11,100 --
Retained accounts receivable........................................... 21,274 20,631
Prepaid expenses and other current assets.............................. 1 9
Subcontractor retentions and other accounts payable.................... (6,276) (7,123)
-------- --------
26,105 13,793
Allowance for estimated loss........................................... (20,105) (3,081)
-------- --------
$ 6,000 $ 10,712
======== =========
Although Old Kaiser sold its Metals, Mining and Industry business unit in
August, 2000, it retained its Netherlands subsidiary, Kaiser Netherlands, B.V.,
which had been responsible for a turnkey engineering and construction services
contract for the construction of a steel mini-mill in the Czech Republic for
Nova Hut. After construction of the mini-mill was complete in 2000, the
contract with Nova Hut provided for a maximum of three possible performance
tests. The first performance test was completed on November 13, 2000. Kaiser
Netherlands believes that the first performance test was successful and that
Nova Hut should have agreed to final acceptance of the mini-mill and made final
payment of amounts accrued by Kaiser Netherlands throughout the project.
Rather, Nova Hut asserted that the first test was not successful. Kaiser
Netherlands believes that such contention may have been put forth in response
to severe financial constraints on Nova Hut's operations resulting from
weakening conditions in the worldwide steel market and of the significant
amounts that Kaiser Netherlands believed it was contractually due. To date,
this dispute has not been resolved, and Kaiser Netherlands has resorted to
legal proceedings to enforce its rights. The primary legal venue at this time
is the Delaware bankruptcy proceeding for Kaiser Group International, where
Kaiser has asserted claims against Nova Hut and the International Finance
Corporation ("IFC"), while rejecting substantial claims involving contract
breach from Nova Hut and the IFC. The litigation of this dispute, as well as
the cost of a possible ongoing presence in Ostrava, Czech Republic, has had and
may continue to have a negative impact on the cash flow of Kaiser Netherlands
and Kaiser Holdings.
Based on the Company's continued concern over Nova Hut's financial difficulties
and the uncertainties of a settlement involving the bankruptcy court-sponsored
mediation, the Company reduced the carrying value of the remaining Nova Hut
project assets from $21.6 million to $6.0 million, in the fourth quarter of
2001, by recording a reserve of approximately $9.8 million, net of a $5.8
million income tax benefit, through a charge to "Loss from Discontinued
Operations".
6. Business Segments and Foreign Operations:
Business Segments: The Company had no reportable segments at any time during
2001.
Foreign Operations: Because all of the Company's international operations are
presented in the accompanying Statements of Operations as "Discontinued
Operations," all of the Company's reported gross revenue and operating income
(loss) from continuing operations were from domestic sources. Remaining foreign
assets consist solely of the carrying value of the net realizable value of the
Nova Hut contract matter (See "Net Assets of Discontinued Operations" and
"Other Contingencies").
===============================================================================
Kaiser Group Holdings, Inc. Report on From 10-K for the year ended December 31,
2001 Page F-10
7. Joint Ventures and Affiliated Companies
Prior to December 31, 2000, the Company had ownership interests in certain
unconsolidated corporate joint ventures and affiliated companies. During 1999
and 2000, the Company divested of the majority of such investments (Note 17 -
Notes Applicable Solely to the Predecessor Company - Divestitures and
Acquisitions). At December 31, 2001 and 2000, it retained a 50% investment in
Kaiser-Hill (See Notes 1 and 2) and a 10% ownership in ICF. The Company's net
investments in/or amounts due from this corporate joint venture and affiliated
company totaled $29.2 million and $26.7 million at December 31, 2001 and 2000,
respectively. The Company accounts for the Consulting Group investment using
the cost method and for the Kaiser-Hill Company LLC investment using the equity
method.
ICF Consulting Group, Inc.: In 2001, the Company recorded a $1.1 million
impairment charge related to this investment. The impairment charge was based
on management's estimate of the potential proceeds available to the Company if
this investment was liquidated.
Kaiser-Hill: Summarized financial information of Kaiser-Hill Company was as
follows as of December 31 (in thousands):
2001 2000
---- ----
Current assets...................................... $136,056 $132,485
Non-current assets.................................. 17,441 430
Current liabilities................................. 125,377 131,879
Non-current liabilities............................. 12,800 ----
Gross revenue....................................... 718,788 673,751
Net income.......................................... 30,084 20,436
Under Kaiser-Hill's contract with the DOE, Kaiser-Hill is not responsible for,
and the DOE pays all costs associated with, any liability, including, without
limitation, any claims involving strict or absolute liability and any civil
fine or penalty, expense, or remediation cost, but limited to those of a civil
nature, which may be incurred by, imposed on, or asserted against Kaiser-Hill
arising out of any act or failure to act, condition, or exposure which occurred
before Kaiser-Hill assumed responsibility on July 1, 1995 ("pre-existing
conditions"). To the extent the acts or omissions of Kaiser-Hill constitute
willful misconduct, lack of good faith, or failure to exercise prudent business
judgment on the part of Kaiser-Hill's managerial personnel and cause or add to
any liability, expense, or remediation cost resulting from pre-existing
conditions, Kaiser-Hill is responsible, but only for the incremental liability,
expense, or remediation caused by Kaiser-Hill.
The Kaiser-Hill contract further provides that Kaiser-Hill will be reimbursed
for the reasonable cost of bonds and insurance allocable to the Rocky Flats
contract and for liabilities and expenses incidental to these liabilities,
including litigation costs, to third parties not compensated by insurance or
otherwise. There is an exception to this reimbursement provision applicable to
liabilities caused by the willful misconduct, lack of good faith or failure to
exercise prudent business judgment by Kaiser-Hill's managerial personnel.
With respect to a revolving credit facility obtained by Kaiser-Hill in November
1999, both parents of Kaiser-Hill granted a first lien security interest to the
Kaiser-Hill lenders in all of the ownership and equity interest of Kaiser-Hill
and have agreed to cure any events of default by Kaiser-Hill on the facility.
As of December 31, 2001 and 2000, Kaiser-Hill had $0 and $6.0 million in cash
balances outstanding on its revolving credit, respectively.
8. Notes Receivable
Kaiser Holdings owns a 10% interest in ICF Consulting Group, Inc., a privately
held entity that was retained by Old Kaiser when it sold its Consulting Group in
June 1999. In connection with the sale, the Company accepted two promissory
notes as part of the total consideration received. Principal payments on an
escrowed and non-escrowed note, in the amounts of $3,250,000 and $3,300,000,
respectively, are due June 25, 2006. The notes are subject to reduction in the
event that certain divestiture-related contingencies are not resolved as
originally anticipated in the related sale agreement. Amounts payable by ICF
Consulting on such notes are subject to (1) the rights of holders of ICF
Consulting's senior lenders and (2) possible reduction as a result of
indemnification claims asserted by ICF Consulting pursuant to the agreements
entered into by the parties at the time of Old Kaiser's sale of its Consulting
Group. Initially as a result of a technical default of financial covenants in
its senior credit agreement, ICF Consulting has not made interest payments on
the notes since inception in 1999. The accrued amount of interest receivable was
$1.7 million and $1.1 million as of December 31, 2001 and 2000, respectively.
Under the terms of the notes, overdue interest bears interest at 12 1/2% per
annum.
Also resulting from the sale agreement, the Company is the beneficiary of an
escrowed cash balance totaling $835,000 that is currently held as collateral in
the event any applicable indemnification claims are made against the Company by
ICF Consulting. On
===============================================================================
Kaiser Group Holdings, Inc. Report on From 10-K for the year ended December 31,
2001 Page F-11
February 12, 2001, ICF Consulting presented the escrow agent with notice that it
has claims for indemnification from the Company for amounts significantly
exceeding the balance of the Escrowed Cash and the Escrowed Note. The Company
has reviewed the indemnification claims and believes them to be largely without
merit and will vigorously defend its right to be paid the escrowed funds upon
their due dates, however there can be no assurance that the Company will be
successful in this effort. In December 2001, ICF Consulting proposed a
settlement offer to the Company that was far below the value of their claim. The
Company rejected the ICF Consulting offer and proposed an alternative settlement
that was also rejected by ICF Consulting. Based on the Company's perception of
the lack of merit in the ICF Consulting claim, the Company may begin
implementation of legal actions to defend the indemnification claim and to
pursue the collection of escrowed cash and interest that it is due. Based on the
developments in 2001, the Company deemed it prudent to establish a $1.0 million
reserve, through a reduction of interest income, for uncertainties over the
collectibility of the combined carrying value of the escrowed cash, the
promissory notes and the interest receivable.
9. Preferred Stock
Kaiser Holdings certificate of incorporation authorizes the issuance of
2,000,000 shares of preferred stock. Resulting from its initial bankruptcy
distribution on April 17, 2001 (see Note 3), the Company had $62.5 million in
preferred stock outstanding at December 31, 2001. The preferred stock is a
series of authorized preferred stock designated as "Series 1 Redeemable
Cumulative Preferred Stock," and has a par value of $0.01 per share. The
preferred stock ranks ahead of Kaiser Holdings' New Common Stock.
The certificate of incorporation of Kaiser Holdings and Delaware law permit the
Board of Directors to issue additional series of preferred stock, except that
the Board of Directors may not authorize the issuance of any securities that
rank senior to or on a parity with the Series 1 preferred stock without the
consent of holders of at least two-thirds of such preferred stock.
Cumulative dividends on the preferred stock are payable on a quarterly basis,
as of April 30, July 31, October 31 and January 31, either in cash at an annual
rate of 7% of the liquidation preference per share or in additional shares of
preferred stock at an annual rate of 12% of the per share liquidation
preference. Dividends accrue on the preferred stock coincident with the initial
distribution date, April 17, 2001. Dividends will not be paid to any affiliate
of Kaiser Holdings on account of that affiliate's ownership of shares of
preferred stock. If Kaiser Holdings fails to pay a quarterly dividend when due,
holders of preferred stock will have the right to elect an additional director
for each dividend payment missed, up to a maximum of two additional directors,
but only until such dividend is paid or provided for in full. The dividend due
to holders of record on January 31, 2002, totaling approximately $1.1 million,
was paid on February 7, 2002. At December 31, 2001, in addition to the $10.0
million of cash reserves for unresolved claims, the Company had $1.6 million in
cash reserved for the payment of accrued dividends on any future issuances of
New Preferred issued as a result of remaining bankruptcy claims resolutions
(any New Preferred issued as a result of claims resolutions also carries the
right to dividends retroactively from April 17, 2001).
The preferred stock has a liquidation preference of $55 per share plus the
amount of unpaid dividends, if any. Upon the liquidation or dissolution of
Kaiser Holdings, each holder of preferred stock (other than an affiliate of
Kaiser Holdings) is entitled to this per share liquidation preference before
any holders of New Common or any other junior securities of Kaiser Holdings
receive any payment for their shares. If, in a liquidation or dissolution
setting, assets remaining after distribution to holders of debt and other
obligations are insufficient to pay all holders of preferred stock the per
share liquidation preference, then such assets will be distributed on a
proportionate basis to the holders of preferred stock (other than affiliates of
Kaiser Holdings) and any securities ranking on a parity with the preferred
stock.
The Company has the option to redeem the New Preferred at any time, in whole or
in part, at a redemption price of 100% of the liquidation preference per share
plus all accrued and unpaid dividends. In addition, any net proceeds in excess
of $3 million in a calendar year received by the Company or any of its direct
or indirect subsidiaries from the disposition of assets to an unaffiliated
party outside of the ordinary course of business must be used to redeem New
Preferred at a redemption price of 100% of the liquidation preference per share
plus all accrued and unpaid dividends. Furthermore, to the extent that any cash
is received from Nova Hut, it must be used to redeem New Preferred at a
redemption price of 100% of the liquidation preference per share plus all
accrued and unpaid dividends.
All outstanding shares of New Preferred are required to be redeemed by the
Company on or before December 31, 2007, and if such redemption does not occur,
holders of New Preferred will be entitled to elect two-thirds of the directors
of the Company. If shares of preferred stock are held by any affiliate of the
Company, those shares may not be redeemed pursuant to any of the redemption
provisions otherwise applicable to the New Preferred.
The Company will be required to offer to purchase the New Preferred at 100% of
the liquidation preference per share plus all accrued and unpaid dividends in
connection with a change of control of Kaiser Holdings.
===============================================================================
Kaiser Group Holdings, Inc. Report on From 10-K for the year ended December 31,
2001 Page F-12
Holders of New Preferred generally are entitled to vote with holders of New
Common Stock on all matters submitted to a vote of shareholders, with each
share of preferred stock being entitled to one-tenth of a vote. In addition,
holders of New Preferred have the right to vote separately as a class to
exercise their right to elect an additional director due to a failure to pay a
quarterly dividend, to elect two-thirds of the directors if the New Preferred
is not redeemed by December 31, 2007, and to consent to the issuance of any
senior or parity securities. The terms of the New Preferred may not be
materially or adversely modified without the consent of holders of at least
two-thirds of the New Preferred. If the Company or any of its affiliates holds
any New Preferred, they will not be entitled to vote that New Preferred.
The Plan provides that Major Stockholders (defined as holders of 10% or more of
the outstanding shares of New Preferred or New Common, or a person who is an
"affiliate" of Kaiser Holdings as defined under the Federal securities laws)
have certain registration rights. In general, a Major Stockholder may request
Kaiser Holdings to register under the Securities Act of 1933 for the sale of
all, but not less than all, of the New Preferred and/or New Common owned by the
Major Stockholder. Upon request for such a registration from a Major
Stockholder, Kaiser Holdings is required to give notice to other Major
Stockholders and use its best efforts to cause a registration statement to
become effective as expeditiously as possible and maintain such registration
statement current for a period of 12 months. Major Stockholders are not
entitled to request registration until one year after the Effective Date, and
Kaiser Holdings is not obligated to file a registration statement in response
to a request from a Major Stockholder until such time as Kaiser Holdings is
eligible to use Form S-3 under the Securities Act of 1933 for such an offering.
Kaiser Holdings is not required to effect more than one registration for Major
Stockholders during any twelve-month period. These registration rights expire
on December 31, 2007. The Plan also contemplates that Major Stockholders will
have "piggyback" registration rights in connection with a proposed underwritten
public offering of Kaiser Holdings New Common or New Preferred solely for cash
and for its own account.
Kaiser Government Programs, Inc.'s ("KGP") Put Rights
- --------------------------------------------
KGP is the Company subsidiary that owns the 50% interest in Kaiser-Hill Company
LLC. KGP has outstanding put rights, expiring on December 31, 2007, that
obligate it to purchase New Preferred owned by a holder of the put right, at
the holder's option, under three circumstances:
. if KGP receives net after-tax proceeds from any cash distributions from
Kaiser-Hill that, on a quarterly basis, exceed 2.8 times the amount of cash
required to pay all past accrued but unpaid cash dividends on the New
Preferred distributed to holders of Old Subordinated Notes pursuant to the
Plan, plus the next scheduled quarterly cash dividend on preferred stock;
. if KGP receives net after-tax proceeds from any direct or indirect
disposition of any interest in Kaiser-Hill; or
. if KGP receives net after-tax proceeds from an extraordinary
distribution from Kaiser-Hill.
Upon exercise of a put, KGP will pay an exercising holder 100% of the
liquidation preference of the preferred stock that is the subject of the KGP
put rights, plus all accrued and unpaid dividends on the preferred stock. KGP
will purchase shares of preferred stock on a pro rata basis based upon the
number of shares of preferred stock as to which puts have been properly
exercised, but only up to the amount of the available net after-tax proceeds
from triggering events. KGP will not purchase any fractional shares. KGP put
rights will not become exercisable more frequently than every 12 months unless
the cumulative amount of available net after-tax proceeds from triggering
events is at least $3 million. KGP put rights are transferable except that puts
shall cease to be transferable if KGP determines that any further transfer
would require registration of the puts as a class of securities under the
Securities Exchange Act of 1934. Kaiser Holdings does not presently plan to
arrange for trading of the KGP put rights on the NASD electronic bulletin board
or otherwise.
10. New Common Stock
The Kaiser Holdings certificate of incorporation authorizes the issuance
of 3,000,000 shares of New Common Stock. Pursuant to the Company's Plan,
holders of Allowed Class 4 Claims and Allowed Class 5 Equity Interests are to
receive shares of New Common Stock under the Plan.
In connection with its initial distribution out of bankruptcy on or about April
17, 2001, Kaiser Holdings issued to holders of Allowed Class 4 Claims one
share of New Common for each $100.00 of such holder's respective Allowed Class
4 Claim. There have been no additional issuances of common stock subsequent to
April 17, 2001 related to the settlement of claims.
Holders of Allowed Class 5 Equity Interests received their pro rata portion of
New Common representing 15% of the aggregate amount of New Common to be
outstanding following distributions to holders of Allowed Class 4 Claims and
Allowed Class 5 Equity Interests. This outcome was accomplished by issuing to
each holder of an Allowed Class 5 Equity Interest its pro rata portion of the
number of shares of New Common that represents 17.65% of the total number of
shares of
===============================================================================
Kaiser Group Holdings, Inc. Report on From 10-K for the year ended December 31,
2001 Page F-13
New Common issued from time to time to holders of Allowed Class 4 Claims.
All shares of New Common, at issuance, were duly authorized, fully paid and
non-assessable. The holders of such shares will have no preemptive or other
rights to subscribe for additional shares. The New Common has a par value of
$0.01 per share. Based on its current estimates of the aggregate amount of
Allowed Class 4 Claims and cash available for distribution, Kaiser Holdings
expects to ultimately issue approximately 1,764,750 shares of New Common to
holders of Allowed Class 4 Claims and Allowed Class 5 Equity Interests.
Old Kaiser never paid cash dividends on its Old Common. Kaiser Holdings
anticipates that for the foreseeable future no cash dividends will be paid on
the New Common and that Kaiser Holdings' earnings will be utilized to redeem
New Preferred or retained for use in the business. The Board of Directors of
Kaiser Holdings will determine its dividend policy based on its results of
operations, payment of dividends on, and redemption of, New Preferred,
financial condition, capital requirements, and other circumstances.
11. Leases
The Company has no capital leases or any material noncancelable operating
leases with initial or remaining terms in excess of one year at December 31,
2001. The total rental expense for all operating leases was $628,000 during the
year ended December 31, 2001.
12. Income Taxes
The components of net income (loss) used to compute the (expense) benefit for
income taxes for the years ended December 31 were as follows (in thousands):
Successor
Company Predecessor Company
-------------------
2001 2000 1999
---- ---- ----
Income (loss) from continuing operations before income taxes and minority
interests:
Domestic........................................................................ $ 7,657 $ 6,875 $(35,260)
Foreign......................................................................... -- -- --
-- -- --
$ 7,657 $ 6,875 $(35,260)
======== ======= ========
(Expense) benefit for income taxes:
Federal:
Current......................................................................... $ (809) $32,839 $ 1,021
Deferred........................................................................ (1,222) -- --
-------- ------- --------
(2,031) 32,839 1,021
-------- ------- --------
State:
Current......................................................................... (296) 6,682 --
Deferred........................................................................ (90) -- 129
-------- ------- --------
(386) 6,682 129
-------- ------- --------
Foreign:
Current......................................................................... -- -- --
Deferred........................................................................ -- -- --
======== ======= ========
$ (2,417) $39,521 $ 1,150
======== ======= ========
The effective income tax (expense) benefit varied from the federal statutory
income tax (expense) benefit because of the following differences (in
thousands):
Successor Company Predecessor Company
2001 2000 1999
---- ---- ----
Income tax (expense) benefit computed at federal statutory tax rate....... $ (2,604) $ (2,338) $ 11,988
--------- -------- --------
Change in tax (expense) benefit from:
Benefit (use) of previous net operating losses . -- 8,942 --
Reversal of excess accruals............................................ -- 3,784 --
Minority interest earnings............................................. -- 2,040 1,763
State income taxes. ................................................... (255) 4,410 85
Valuation allowance.................................................... 886 26,675 (12,494)
Stock redemption....................................................... -- (1,390) (76)
Business meals and entertainment.......................................... (35) (18) (12)
Restructuring costs....................................................... (41) -- --
Penalties and fines....................................................... (121) -- --
Lobbying costs............................................................ (51) -- --
Reversals and other....................................................... (196) (2,584) (104)
---------- -------- --------
187 41,859 (10,838)
---------- -------- --------
$ (2,417) $ 39,521 $ 1,150
========== ======== ========
===============================================================================
Kaiser Group Holdings, Inc. Report on From 10-K for the year ended December 31,
2001 Page F-14
The tax effects of the principal temporary differences and carryforwards that
give rise to the Company's net deferred tax asset are as follows (in thousands):
Successor Company
2001 2000
---- ----
Net operating loss carryforwards.......................................... $ -- $ 9,522
Reserves for adjustments and allowances................................... 12,603 6,026
Vacation and incentive compensation accruals.............................. -- 321
Tax credit carryforwards.................................................. -- 2,693
Investment in Kaiser-Hill................................................. (5,037) (5,281)
Write-down of other investments........................................... 418
Unrealized gain on marketable securities.................................. (2,466) --
Other..................................................................... 267 (75)
-------- --------
5,785 13,206
Valuation allowance....................................................... -- (13,206)
-------- --------
$ 5,785 $ --
======== ========
The ability to derive future benefit from the elements contributing to the
deferred tax asset at December 31, 2001 is dependent on the Company's ability
to generate sufficient taxable income prior to expiration. Additionally, in
December 2000 the Company went through a change in control under Internal
Revenue Code Section (IRC) 382 due to the Chapter 11 bankruptcy reorganization.
In September 2001, the Company determined that the change in control met the
stringent guidelines of the bankruptcy exception provided under the Internal
Revenue Code. This resulted in the Company not being subject to the
carryforward limitations of IRC Sec. 382. However, the Company was required to
reduce certain carryovers that included net operating losses and credits. As a
result, the Company offset the reduction of the carryforwards with the
valuation allowance previously established for those carryforwards in the
income tax rate reconciliation shown above. If a second change in control under
IRC Sec 382 occurs before the end of December 2002, certain elements of the net
deferred tax asset may be significantly limited. The Company believes that a
second change in control is unlikely to occur and the results of its future
operations will be sufficient to assure utilization of the tax benefit prior to
expiration. Therefore, the remaining valuation allowance has been reversed.
13. Retiree Benefits Plans
Postemployment Benefit Plan: As of December 31, 2001 the Company is required to
continue to fulfill the provisions of a previously curtailed plan which provides
certain medical and dental benefits to a group of retirees. A portion of the
benefit is fully insured and a portion is covered by the Company's
self-insurance. In respect to the retirees covered by the self-insured plan, the
benefits are funded to an insurance company as participants' insurance claims
are reimbursed. The Company is considering changing elements of this plan
coverage.
The benefit cost for this curtailed plan for the years ended December 31
consisted of the following (in thousands):
2001 2000 1999
---- ---- ----
Interest cost................................................................. $ 505 $ 412 $ 315
Amortization of transition obligation......................................... -- 980 980
Amortization of unrecognized net (gain)....................................... -- -- (627)
Adjustment for fresh-start accounting due to changes in actuarial
assumptions................................................................ -- 4,084 --
Adjustment for fresh-start accounting due to changes in unrecognized
gain and unamortized transition obligation............................... -- 726 --
-- --- --
Net benefit charge............................................................ $ 505 $6,202 $ 668
====== ====== =====
Because there are no new participants in this plan, there is no current service
cost. The change in the status of the plan as of December 31 was as follows (in
thousands):
Successor
Company Predecessor Company
------- -------------------
2001 2000 1999
---- ---- ----
Benefit obligation at January 1,......................... $ 7,982 $3,998 $ 4,879
Service cost.......................................... -- -- --
Interest cost......................................... 505 412 315
Benefits paid......................................... (1,014) (512) (688)
Actuarial (gain) loss................................. 979 4,084 (508)
-------- ------ -------
Benefit obligation at December 31,....................... 8,452 7,982 3,998
Unamortized transition obligation..................... -- -- (7,507)
Unrecognized net gain (loss).......................... (979) -- 5,801
-------- ------ -------
Net benefit obligation at December 31,................... $ 7,473 $7,982 $ 2,292
======== ====== =======
The discount rate used in determining the expense was 6.5% for 2001, 6.8% for
2000 and 7% for 1999. Pursuant to the terms of the plan obligations, changes in
medical cost trend rates have no financial impact on the actuarial valuation as
the cost of the benefit to the participant has exceeded the Company's
commitment. At December 31, 2001, there is a $979,000 unrecognized loss related
to changes in actuarial assumptions. This loss will be amortized over five
years.
The unamortized portion of the original transition
===============================================================================
Kaiser Group Holdings, Inc. Report on From 10-K for the year ended December 31,
2001 Page F-15
obligation at December 18, 2000, of $6,527,000, and the unrecognized net gain
of $5,801,000 were collectively recognized as a net $726,000 charge to the
Statement of Operations as a result of adopting fresh start accounting upon
emergence from bankruptcy (See Note 2). Also in connection with the adoption of
fresh-start accounting, the Company revised certain actuarial assumptions used
in determining the Accumulated Plan Benefit Obligation at December 18, 2000,
resulting in an increase to the APBO of over $4.0 million. The Company has
included this charge in Reorganization Items in the accompanying Statement of
Operations. Previously, transition balances were being amortized over 14.5
years.
14. Benefits and Compensation Plans
In 2001, the Company discontinued the majority of its previously sponsored
employee benefit plans. The Company did continue to sponsor a 401(k) Plan that
allowed employees to defer portions of their salary, subject to certain
limitations. Total expense for this plan for the year ended December 31, 2001
was $387,000.
15. Other Contingencies
Kaiser Holdings has various obligations and liabilities from its continuing
operations, including general overhead expenses in connection with maintaining,
operating and winding down the various entities and net assets comprising Kaiser
Holdings.
16. Selected Quarterly Financial Information (Unaudited)
For the year ended December 31, 2001 (Successor):
Fourth Quarter Third Quarter Second Quarter First Quarter
-------------- ------------- -------------- -------------
Gross Revenue............................................... -- -- -- --
Service Revenue............................................. -- -- -- --
Operating Income (Loss)..................................... (1,949) (2,240) (2,864) (3,739)
Income (loss) from continuing operations before income tax.. 6,080 1,032 500 45
Income (loss) from continuing operations.................... 5,478 231 (495) 26
Loss from Discontinued Operations, net of tax............... (9,779) (51) (367) --
Net income (loss)........................................... (4,301) 180 (862) 26
Preferred stock dividends................................... (1,102) (1,102) (887) -
Net Income (Loss) Applicable to Common Shareholders......... (5,403) (922) (1,749) 26
Basic and Diluted Earnings (Loss) Per Common Share:
Continuing operations, net of tax ........................ $ 3.64 $ (0.55) $ (1.28) $ 0.11
Discontinued operations, net of tax ...................... (8.74) (0.03) (0.34) --
------ ------ ------ ------
Net Earnings (Loss) Per Common Share.................... $ (5.10) $ (0.58) $ (1.62) $ 0.11
====== ====== ====== ======
Fourth Third Second First
------ ----- ------ -----
Year Ended December 31, 2000 (Predecessor) Quarter Quarter Quarter Quarter
------- ------- ------- -------
Gross revenue............................................................$ -- $ -- $ 99,595 $ 171,790
Service revenue.......................................................... 1,327 2,121 30,251 46,267
Operating income (loss).................................................. 2,785 (2,506) (1,809) 5,524
Net income (loss) from continuing operations before discontinued
operations and extraordinary items..................................... 42,938 5,959 (5,831) (2,669)
Income (loss) from discontinued operations............................... (2,752) (10,190) 1,964 343
Net income (loss) before extraordinary items........................... 40,186 (4,231) (3,867) (2,326)
Net income (loss)........................................................164,763 (4,266) (3,867) (2,326)
Basic and fully diluted per share amounts for:
Income (loss) before discontinued operations and
Extraordinary items...................................................$ 1.84 $ 0.26 $ (0.25) $ (0.11)
Discontinued operations................................................. (0.12) (0.44) 0.09 0.01
------ ------ ---- ----
Income (loss) before extraordinary items................................ 1.72 (0.18) (0.16) (0.10)
Extraordinary item....................................................... 5.35 -- -- --
---- -- -- --
Net income (loss).......................................................$ 7.07 $ (0.18) $ (0.16) $ (0.10)
===== ======= ======= =======
17. Notes Applicable Solely to the Predecessor Company
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-16
Significant Accounting Policies
- -------------------------------
Principles of Consolidation: The consolidated financial statements include all
majority-owned or controlled subsidiaries. Investments in unconsolidated
affiliated companies were accounted for using the equity method. All
significant intercompany balances and transactions were eliminated.
Due to the sale of the majority of Old Kaiser's operations and the reporting of
those operations as discontinued in the accompanying Statement of Operations
for all periods presented, all remaining components of reported revenue and
gross margin are solely attributable the Company's 50% ownership of
Kaiser-Hill. 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 on the
equity basis for financial information applicable for periods after June 8,
2000.
Fresh-start Reporting and Reorganization Items: Effective December 18, 2000,
the Company adopted the fresh start provisions of AICPA Statement of Position
90-7, Reporting by Entities in Reorganization Under the Bankruptcy Code, (SOP
90-7). As of such date, the Company estimated that the sum of the claims to
ultimately be allowed in the bankruptcy proceedings, plus remaining liabilities
incurred after June 9, 2000, would exceed the reorganization value of the
emerging entity. Additionally, holders of existing voting equity securities
immediately before confirmation would receive less than 50 percent of the
voting equity securities of the emerged entity thus triggering a change in
control. Under these circumstances, SOP 90-7 called for a new reporting entity
to be created and assets and liabilities to be recorded at their then current
fair values. This accounting treatment is referred to in these statements as
fresh-start reporting. The income statement effect of the adjustments to the
previous carrying value of various assets and liabilities has been reported in
the Statements of Operations as Reorganization Items. Reorganization Items as
reported on the accompanying Statements of Operations consist of the net
charges made during the period with respect to matters involving the
bankruptcy. For the year ended December 31, 2000, Reorganization Items
consisted of the following (in thousands):
Professional fees................................................. $ 4,827
Severance & retention amounts..................................... 2,776
Interest earned on excess cash balances........................... (976)
Adjustment of accounts to fair value for fresh-start reporting.... (15,238)
--------
$ (8,611)
========
Revenue Recognition: Prior to the divestiture of the majority of its
operations, the Company's revenue was derived primarily from long-term
contracts of various types. Revenue on time-and-materials contracts was
recognized based on actual hours delivered times the contracted hourly billing
rate, plus the costs incurred for any materials. Revenue on fixed-priced
contracts was recognized using the percentage-of-completion method and is
comprised of the portion of expected total contract earnings represented by
actual costs incurred to date as a percentage of the contract's total estimated
costs at completion. Revenue on cost-reimbursable contracts was recognized to
the extent of costs incurred plus a proportionate amount of the contracted fee.
Certain cost- reimbursable contracts also include provisions for earning
performance-based incentive fees. Such incentive fees are included in revenue
at the time the amounts can be reasonably determined. Provisions for
anticipated contract losses are recognized at the time they become estimable.
Foreign Currency Translation: Results of operations for foreign entities were
translated using the average exchange rates during the period. Assets and
liabilities were translated to U.S. dollars using the exchange rate in effect
at the balance sheet date. Resulting translation adjustments were reflected net
of tax in shareholders' equity (deficit) as cumulative translation adjustments.
The balance of the cumulative translation adjustment was realized in connection
with the 2000 sales of the E&C Group.
Supplemental cash flow information for the years ended December 31, is as
follows:
2000 1999
---- ----
Cash payments for interest.....................................$ 90 $ 21,065
Cash payments for income taxes.................................2,171 820
Non-cash transactions:
Issuance of common stock..................................... -- 44
Reacquisition of common stock................................ -- (1,254)
Acquisition of promissory note in exchange for sale of
a discontinued operation.......................... -- 6,550
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-17
Capitalized Software Development Costs: Certain costs, including consulting
expenses and internal labor, incurred to develop major software applications
for internal Company use were capitalized and amortized over the estimated
useful or economic lives of the software, respectively. Since the Company
divested of the majority of its operations during 2000 and no longer had
utility for the carrying value of the capitalized software assets, these
capitalized costs were written off in connection with the Company's adoption of
fresh start accounting as of December 18, 2000. Certain elements of capitalized
software were also sold as part of the asset divestitures in 1999. As of
December 31, 1999, a total of $2.3 million remained capitalized with an
accumulated amortization balance of $0.7 million. Amortization expense of $0.3
million and $0.3 million was recognized during 2000 and 1999, respectively.
Goodwill: Goodwill represented the excess of cost of acquired businesses over
the fair value of the identifiable net tangible and intangible assets acquired.
Goodwill was amortized using the straight-line method over the period for which
the Company estimated it would benefit directly from the acquisitions. The
range of estimated benefit from the Company's historical acquisitions ranged
from five to forty years. The Company periodically evaluated these ranges and
the recoverability of goodwill by comparing the estimated future undiscounted
operating cash flows for each underlying acquisition to the respective carrying
value of goodwill. The Company's remaining goodwill was written off during 2000
as a result of its sale of the remainder of its E&C Group. Accumulated
amortization was $8.1 million at December 31, 1999.
Income Taxes: Deferred tax assets and liabilities represented the tax effects
of differences between the financial statement carrying amounts and the tax
bases carrying amounts of the Company's assets and liabilities. These
differences were calculated based upon the statutory tax rates in effect in the
years in which the differences were expected to reverse. The effect of
subsequent changes in tax rates on deferred tax balances was recognized in the
period in which a tax rate change was enacted. The Company evaluated its
ability to realize future benefit from all deferred tax assets and established
valuation allowances for amounts that may not have been realizable. Unless
otherwise noted, provisions were not made for U.S. income taxes for the
undistributed earnings of the Company's foreign subsidiaries because the
Company intended to reinvest such earnings in continuing operations
indefinitely.
Concentrations of Credit Risk and Major Customers: The Company maintained cash
balances primarily in overnight Eurodollar deposits, investment-grade
commercial paper, bank certificates of deposit, and U.S. government securities.
The DOE, through the Kaiser-Hill joint venture, accounted for approximately
100% of Kaiser's consolidated gross revenue for the years ended December 31,
2000 and 1999, respectively (all other operating results were presented as
"Discontinued Operations" on the Statement of Operations.)
Restructuring Plan
- ------------------
Over the past few years, the Company implemented various restructuring plans.
Restructuring charges recognized in 2000 and 1999 were $1.9 million and $14.4
million, respectively. The components of the charges included costs incurred
for involuntary employee severance, facility closure costs associated with
closing of marginally profitable office locations, and costs to cease certain
operating activities. Employee severance costs reflected a 25% personnel
reduction or approximately 250 employees of the Company's wholly owned North
American operations and lesser percentage reductions in international
operations. Facility closure and related costs included disposal costs of
equipment, lease restructuring payments, brokers fees and lease termination
costs.
Restructuring initiatives undertaken as part of the 1999 and 1998 plans were
largely completed prior to December 31, 1999, consistent with the Corporation's
original plans and intentions. While related actions were originally intended
to improve the Company's competitive position, there were no assurances as to
their ultimate success or that additional restructuring actions would not be
required. This type of restructuring activity, for periods prior to the
Company's filing Chapter 11 on June 9, 2000, has been summarized as
Restructuring Charges on the Consolidated Statement of Operations during the
years ended December 31, 2000 and 1999 and consisted of the following:
Balance Balance
2000 January 1, Provisions Uses December 31,
- ---- ---------- ---------- ---- ------------
Facility downsizing/consolidation................. $ 355 $ 1,915 $ 2,270 $ --
---- ------ ------ ---
$ 355 $ 1,915 $ 2,270 $ --
==== ====== ====== ===
1999
- ----
Severance......................................... $ 4,499 $ 2,211 $ 6,710 $ --
Investment/goodwill impairments................... -- 3,855 3,855 --
Debt restructuring activities..................... -- 3,690 3,690 --
Divestiture activities............................ 700 1,335 2,035 --
Contingency settlements........................... -- 1,893 1,893 --
Facility downsizing/consolidation................. 855 1,400 1,900 355
--- ----- ----- ---
$ 6,054 $ 14,384 $20,083 $ 355
====== ======= ======= ====
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-18
Divestitures and Acquisitions
- -----------------------------
Divestitures: Pursuant to a restructuring plan, the Company divested of several
operating units in 1999 and 2000. The intention to divest of certain operating
units qualified the related units as discontinued operations for financial
reporting purposes.
. The Engineering & Construction Group's Sale of the Infrastructure
and Facilities Division: 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 Engineering & Construction Group's Sale of the Metals, Mining
and Industry Division: 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, the Company 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.
. In 2000, the Company recognized a pretax loss for financial
reporting purposes of approximately $(0.7) 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 $19.2 million, the transactions resulted in
income tax expense of approximately $7.0 million, resulting in a
total loss after tax for financial reporting purposes of
approximately $(7.7) million from the collective sales.
. Environment and Facilities Management Group ("EFM"): On April 9, 1999,
the Company sold the majority of the active contracts and
investments, and transferred a substantial number of employees of
EFM to IT Group, Inc. ("IT") for a cash purchase price of $82.0
million, less $8.0 million retained by IT for EFM's working capital
requirements. Contracts that were not sold to IT were completed by
the Company as of December 31, 1999. Net of income tax expense of
$24.5 million, the Company recognized a gain of $12.0 million from
the sale.
. Consulting Group: On June 30, 1999, the Company sold 90% of its
Consulting Group (the "Consulting Group") to CM Equity Partners, L.P.
and the Consulting Group's management for $64.0 million in cash and
$6.6 million in interest bearing notes. The Company retained 10%
ownership (Note 7) in the new and independent consulting company, now
known as ICF Consulting Group, Inc. Net of income tax expense of $11.2
million, the Company recognized a gain of $30.3 million from that sale.
The operating results of the E&C, EFM and Consulting Groups prior to
divestiture have been segregated from the Predecessor Company's continuing
operations and are reported as a separate line item on the Statement of
Operations for all periods presented. Details of the net operating results are
as follows:
2000 1999
---- ----
Gross Revenue.................................................. $ 158,724 $ 311,382
Subcontracts and materials................................... (97,210) (154,098)
Provision for contract losses................................ -- --
Equity in net income of unconsolidated affiliates............ 1,275 4,480
----- -----
Service Revenue................................................ 62,789 161,764
Operating Expenses:
Direct Labor and fringe...................................... 40,606 94,029
General and administrative................................... 23,225 67,094
Depreciation & amortization.................................. 1,030 2,619
----- -----
Operating (Loss)............................................... (2,072) (1,978)
Income tax benefit (expense)................................... (894) (4,135)
----- -------
(Loss) from discontinued operations............................ $ (2,966) $ (6,113)
======== ========
The segment operating results include all activities that had sole direct
benefit to the respective segment. Operating activities that are deemed to
benefit more than one segment were managed by the Company and were not
allocated to the segments. The accounting policies of the operating segments
are the same as those described in the summary of significant accounting
policies.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-19
Sale of EDA, Inc. (EDA): Additionally, in August of 1999, the Company sold the
majority of the active contracts and transferred selected assets and
liabilities associated with this business to Railplan International, Inc. for
approximately $1.2 million in cash. The Company recognized a book loss of $2.2
million, net of income tax of $0.1 million, primarily as a result of the write-
off of goodwill associated with this entity, which comprises a portion of the
total gain on sale of discontinued operations on the Consolidated Statement of
Operations.
Acquisitions: In December, 1999, the Company and the non-employee former
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 by 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 of goodwill and paid-in-capital.
Receivables
- -----------
Receivables as of December 31, 2000 consisted of $3.1 million currently due
less an allowance of $1.4 million.
Certain former members of senior management had notes outstanding to the
Company for which 396,849 shares of the Company's common stock served as the
primary collateral, accordingly the notes were presented as a reduction of
total stockholder's equity. The remaining management with such notes left the
employment of the Company in 1999 and the related amounts of note principal in
excess of the then fair market values of the collateral shares totaling
$638,000 were expensed in 1999.
Debt History
- ------------
On December 18, 2000, the effective date of the Company's Plan, the $125.0
million in outstanding Senior Subordinated Notes, plus accrued interest at 13%
thereon from January 1 to June 9, 2000, became an Allowed Class 4 Claim in Old
Kaiser's bankruptcy. The Plan provided that the Indenture for the Senior
Subordinated Notes was cancelled as of the Plan effective date. Therefore, as
of December 18, 2000, the Senior Subordinated Notes no longer represented a
debt obligation of Old Kaiser.
Also, during 2000, the holders of the Senior Subordinated Notes were offered the
opportunity to have a right to "put" their New Preferred Stock (expected to be
received pursuant to their claim and the terms of the Company's Plan or
Reorganization) to Kaiser Government Programs, Inc. (the indirect 100% owner of
Old Kaiser's 50% interest in Kaiser-Hill Company LLC) ("KGP"). This opportunity
was offered in exchange for the surrender of any remaining rights held by
holders of the Senior Subordinated Notes as of August 14, 2000 under a guarantee
previously issued by KGP. The exchange offer by KGP expired on November 15,
2000, and the holders of $124,303,000, or 99.4%, principal amount of the Senior
Subordinated Notes accepted the exchange offer.
As of December 31, 2000, outstanding Old Subordinated Notes represented the
right to receive (1) cash, New Preferred Stock and New Common Stock
distributable under the Plan and (2) to the extent the holder of an Old
Subordinated Note accepted the KGP exchange offer, or is a direct or indirect
transferee from a holder of Old Subordinated Notes who accepted the KGP
exchange offer, the appropriate number of KGP put rights. The carrying value of
unamortized issuance costs and original issue discount of $1.4 million and $1.3
million, respectively, at December 18, 2000 were written off as part of the
extraordinary gain of $124.5 million recognized from the debt forgiveness in
bankruptcy.
Background to the Debt Restructuring: Given significant uncertainties beginning
in 1998, relative to the costs of completing the large fixed price projects
that worsened the Company's financial condition beginning in 1998 and the
inability to finitely determine the impact of the losses on the Company's
liquidity and financing sources, management immediately pursued options for
additional financing sources and flexibility. In addition to seeking a
replacement working capital facility, the Company's Board of Directors also
began considering and pursuing other strategic alternatives, including, but not
limited to, the sale of portions of the Company. On December 18, 1998, the
Company successfully entered into a new revolving credit facility (the
Revolver) which offered cash borrowings and letters of credit up to an
aggregate of $60 million. Proceeds totaling $25,000,000 from the Revolver were
used to repay all outstanding amounts from the former revolving credit facility
and the Company wrote off the unamortized balance of the capitalized costs
related to the debt facility and recognized an extraordinary charge of $1.1
million, net of tax of $0.5 million.
After obtaining the Revolver, the Company again increased the estimate of the
total nitric acid projects cost overruns it expected to incur by an additional
$19 million. This unanticipated material adverse change to the Company's
financial condition triggered a technical event of default pursuant to the
Revolver's terms. On April 9, 1999, the Company completed
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-20
the sale of its EFM Group and used $36 million of the sale proceeds to
extinguish the outstanding Revolver cash borrowings. The remaining applicable
terms of the Revolver, essentially letter of credit provisions, expired on June
30, 1999 - concurrent with the Company's completion of the sale of its
Consulting Group. A charge of $0.8 million, net of income taxes of $0.5 was
recognized for the write off of the unamortized balance of capitalized costs
incurred to originally obtain the facility. Also in connection with the
expiration of the Revolver, the Company was required to use $10.0 million of
the asset sale proceeds to collateralize certain contract performance guarantee
letters of credit that had been outstanding under the expired facility.
On October 9, 1999, the Company used proceeds from completed asset sales to
repurchase $14.0 million of its $15.0 million in outstanding Senior Notes for
88% of their face value. The Company also paid the accrued interest on the
repurchased notes. After adjusting the amount of the repurchase discount by the
write off of the unamortized issue discount on the notes and the unamortized
balance of capitalized costs incurred to originally issue the notes, the net
gain on the repurchase was $0.2 million after related income taxes of $0.1
million.
Consummation of an approved debt restructuring plan (detailed elements of the
debt restructuring plan are more fully described in Amendment No. 3 to the Form
S-4 Registration Statement filed with the Securities and Exchange Commission on
October 1, 1999) remained conditioned on the Company's ability to obtain a new
bank revolving credit facility satisfactory to the Company and an unofficial
committee of the Senior Subordinated Noteholders. The proposals ultimately
received from potential lenders did not provide the Company with the necessary
level of liquidity and contained provisions that were not compatible with the
Company's short and long-term operating needs. Therefore, based on the
inability to obtain an acceptable credit facility and on continued financial
underperformance of its E&C Group, on December 31, 1999, the Company paid the
scheduled interest payment on the $126.0 million in remaining notes and
announced that it would delay implementation of the proposed debt restructuring
and re-open negotiations with its noteholders and potential lenders regarding
modifications to the debt restructuring plan. On June 9, 2000, the Company
voluntarily filed for Chapter 11 protection (See Note 1).
Original Terms of Senior Notes: The 12% Senior Notes (Senior Notes) were due in
2003. Each note unit consisted of $1,000 principal amount of 12% Senior Notes,
and 7 warrants, each to purchase one share of the Company's common stock at an
exercise price of $2.30 per share. The warrants contained certain anti-
dilution provisions and expired on December 31, 1999. On December 31, 1999,
28,000 warrants were exercised for proceeds totaling $64,400.
Original Terms of Senior Subordinated Notes: The Senior Subordinated Notes
consist of 1,000 units, each consisting of $1,000 principal amount and 4.8
warrants, each to purchase one share of the Company's common stock at an
exercise price of $5.00 per share. The warrants expired on December 31, 1998.
The Company's obligations under the Subordinated Notes were subordinate to its
obligations under the Senior Notes and revolving credit facilities, if any.
Interest payments were due semiannually on the Senior Notes and the
Subordinated Notes (collectively, the Notes). Interest accrued at 13% during
1999 and through to June 9, 2000 as the Company did not achieve and maintain a
specified level of earnings. The indentures governing the Notes contained
business and financial covenants, including restrictions on additional
indebtedness, dividends, acquisitions and certain types of investments, and
asset sales.
Building Investment
- -------------------
With the intent of significantly restructuring fixed operating leases for the
Company's corporate headquarters, the Company paid $1.5 million on November 12,
1997, for a 4% ownership interest in a limited liability company (the LLC) that
leased the land and owns the buildings leased primarily by the Company for its
corporate headquarters. The Company was committed to make additional annual
capital contributions to the LLC totaling $600,000 during each of the first
three years and $700,000 during each of the fourth through ninth years of the
LLC. The ownership in the LLC was to have increased to 16% in fixed annual 2.4%
increments in each of the eleventh through fifteenth years of the agreement.
Transaction costs totaling $1.7 million were capitalized and amortized over the
estimated 15-year life of the LLC.
Effective October 28, 2000, the Company amended the terms of the building
investment agreement assigning all subleases to the LLC, discontinuing all
leased space except for month-to-month on a significantly reduced portion of
space, eliminating future capital contributions and fixing the maximum amount
of the potential future recovery of the investment to $2.8 million at whatever
time as the property is sold or refinanced. Simultaneous with this
modification, the remaining carrying value of the unamortized transaction costs
associated with the original investment of $1.3 million were written-off as a
Reorganization Item due to their impairment.
Leases
- ------
The Company divested of the majority of its lease commitments during the year
ended December 31, 2000. Total rent expense for all operating leases was
$11,022,000 and $27,407,000 for the years ended December 31, 2000 and 1999,
respectively. Sublease rental income was $3,296,000 and $7,161,000 for the
years ended December 31, 2000 and 1999, respectively.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-21
Benefits and Compensation Plans
- -------------------------------
Historically, the Company sponsored several retirement benefit plans covering
substantially all employees who met minimum length of service requirements.
These plans included a defined-contribution retirement plan that provided for
contributions by the Company based on a percentage of covered compensation, and
a 401(k) Plan that allowed employees to defer portions of their salary, subject
to certain limitations. Total expense for these plans for the years ended
December 31, 2000 and 1999, was $791,000 and $3,880,000, respectively.
In 2001, the Company discontinued the majority of its previously sponsored
employee benefit plans. In addition, all previous common stock-based benefit
plans were terminated on December 18, 2000 pursuant to the terms of the
Company's Plan of Reorganization (any common stock previously reserved for
issuance upon exercises of any of the following plan benefits has also been
cancelled). A summary of the previously active plans is as follows:
Employee Stock Purchase Plan: The Company's Stock Purchase Plan provided for
the sale of up to 2.0 million shares of old common stock to all eligible
employees. Employees could elect to withhold up to 10% of annual base earnings
for the purchase of the Company's old common stock. Options to purchase shares
of old common stock were offered quarterly with a purchase price equal to 90%
of the lower of the closing market price on the first trading day of the month
preceding the quarter or the last trading day of the quarter. During the year
ended December 31, 1999, 70,208 shares were sold under the plan. Operation of
the Stock Purchase Plan was suspended effective March 31, 1999.
Fixed Stock Option Plans: The Stock Incentive Plan ("Incentive Plan") provided
for the issuance of options to purchase the Company's old common stock and the
issuance of stock appreciation rights or restricted shares of common stock. All
outstanding options not exercised prior to December 18, 2000 (the "Effective
Date") were cancelled.
On February 28, 1997, the Board of Directors adopted the Non-Employee Directors
Compensation and Phantom Stock Plan under which non-employee directors are
given phantom stock awards ("PSA's"). In lieu of option grants, each non-
employee director of the Company were granted a PSA equal to $20,000 worth of
common stock on the date of grant. Three years after the PSA grant, the Company
would pay each non-employee director, in cash, the value of the shares to which
the PSA relates. Any increases in value of the PSA after the date of grant and
prior to the cash payment were expensed in the period of the value increase. No
PSA's were granted during 2000. No amounts have ever been nor will ever be paid
relative to maturing PSA's. PSA's granted in 1999 totaled 388,892 with initial
share values of $0.36. No expense was associated with this plan in 1999.
There was no stock option activity under any of the above plans during the year
2000. A summary of stock option activity under all option plans for 1999 is as
follows:
Weighted-Average
----------------
Shares Option Price Exercise Price
------- ------------ --------------
Balance, January 1, 1999................................. 3,010,202 $1.24 to $ 2.42 $2.62
Granted............................................... 10,000 $1.41 $1.41
Expired............................................... (629,422) $1.90 to $ 4.39 $3.17
Exercised............................................. -- $-
-- --
Balance, December 31, 1999............................... 2,390,780 $1.24 to $ 4.41 $2.46
=========
Options exercisable at December 31, 1999 totaled 1,412,808. The following is a
summary of fixed stock options outstanding at December 31, 1999 (* denotes
"less than"):
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-Average
----------------
Range of Number Remaining Weighted-Average Number Weighted-Average
--------- ---------------- ------ ----------------
Exercise Prices Outstanding Contract Life (years) Exercise Price Exercisable Exercise Price
- --------------- ----------- --------------------- -------------- ----------- --------------
*$1.90 569,762 2.6 years $1.34 400,417 $1.35
$1.90 to $2.50 1,183,285 3.0 years $2.30 427,017 $2.18
$2.51 to $3.50 126,347 2.1 years $2.91 75,175 $2.92
$3.51 to $4.41 511,386 0.9 years $4.02 510,199 $4.02
Pro Forma Compensation Cost: Statement of Financial Accounting Standards No.
123, Accounting for Stock-based Compensation (SFAS No. 123), encourages
companies to adopt a fair value method of accounting for employee stock options
and similar equity instruments. The fair value method requires compensation
cost to be measured at the grant date based on the value of the award and to be
recognized over the service period. As alternatively provided by SFAS No. 123,
however, the Company elected to provide pro forma fair value disclosures for
stock-based compensation. Accordingly, had compensation cost been recognized
for awards granted under the Company's stock plans during the years ended
December 31, 1999 the pro-forma net income (loss) would have been $(6.1)
million, [$(0.26) per share]. The per share amount reflects both basic and
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-22
diluted earnings per share.
The fair value of each option grant under the fixed-price option plans and the
fair value of the employees' purchase rights under the employee stock purchase
plan were estimated on the date of grant for pro forma computations using the
Black-Scholes option-pricing model. The dividend yield was assumed to be zero
for 1999. The assumptions used to derive the weighted-average fair value of
grants made during the year ended December 31, 1999 were as follows:
Fixed Stock Employee Stock
Assumptions Option Plan: Purchase Plan:
- ----------- ----------- --------------
Volatility.............................. 128.3% 128.3%
Risk-free interest rate................. 5.5% 5.1%
Expected lives.......................... 5.0 years 0.3 years
Fair value of grants at date of grant... $1.22 $0.05
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-23
KAISER-HILL COMPANY, LLC
AND SUBSIDIARY
Consolidated Financial Statements
as of December 31, 2001 and 2000 and for each of
the three years in the period ended December 31, 2001
together with Report of Independent Public Accountants
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Kaiser-Hill Company, LLC:
We have audited the accompanying consolidated balance sheets of Kaiser-Hill
Company, LLC (a Colorado limited liability company) (the "Company") and
Subsidiary as of December 31, 2001 and 2000, and the related consolidated
statements of income, members' equity and cash flows for each of the three
years in the period ended December 31, 2001. These consolidated financial
statements and the supplementary consolidating information referred to
below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and supplementary consolidating information based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Kaiser-Hill Company, LLC and Subsidiary as of December 31,
2001 and 2000, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December
31, 2001, in conformity with accounting principles generally accepted in
the United States.
Our audits were made for the purpose of forming an opinion on the
consolidated financial statements taken as a whole. The consolidating
information contained in Schedules I and II is presented for purposes of
additional analysis of the consolidated financial statements, rather than
to present the financial position and the results of operations and cash
flows of the individual companies. This information has been subjected to
the auditing procedures applied in our audits of the consolidated
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the consolidated financial statements taken as a
whole.
Arthur Andersen LLP
Denver, Colorado
January 25, 2002
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-25
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2000
(amounts in thousands of dollars)
- -------------------------------------------------------------------------------
2001 2000
Assets
Current assets:
Cash and cash equivalents $ 19,448 $ 7,177
Current portion of contract receivables 114,380 124,931
Due from employees 114 22
Prepaids and other current assets 2,114 355
------------- -------------
Total current assets 136,056 132,485
Contract receivables, net of current portion 17,099 -
Deferred financing costs, net of accumulated
amortization of $183 and $95, respectively 342 430
------------- -------------
$ 153,497 $ 132,915
============= =============
Liabilities and Members' Equity
Current liabilities:
Accounts payable and payables to subcontractors $ 94,708 $ 101,444
Current portion of employee incentive plan 9,300 -
Accrued vacation 11,581 9,627
Accrued salaries and employee benefits 8,780 14,292
Payable to Members 1,008 516
Line of credit - 6,000
------------- -------------
Total current liabilities 125,377 131,879
Employee incentive plan, net of current portion 12,800 -
-------------- --------------
138,177 131,879
Contingencies (Note 7)
Members' equity 15,320 1,036
-------------- --------------
$ 153,497 $ 132,915
============== ==============
The accompanying notes are an integral part of these consolidated
financial statements.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-26
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(amounts in thousands of dollars)
- -------------------------------------------------------------------------------
2001 2000 1999
Gross revenue $ 718,788 $ 673,751 $ 646,398
Subcontractor costs and direct material costs (417,180) (417,203) (456,015)
------------- ------------- -------------
Service revenue 301,608 256,548 190,383
Direct cost of service and overhead (271,977) (236,671) (176,898)
------------- ------------- -------------
Operating income 29,631 19,877 13,485
Other income (expense):
Interest income 569 669 539
Interest expense (116) (110) (385)
Net income before cumulative effect of
adoption of a new accounting principle 30,084 20,436 13,639
Cumulative effect of adoption of a new accounting
principle (Note 2) - - (839)
------------- ------------- -------------
Net income $ 30,084 $ 20,436 $ 12,800
============= ============= =============
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-27
Kaiser-Hill Company, LLC and Subsidiary
Consolidated Statements of Members' Equity
for the years ended December 31, 2001, 2000 and 1999
(amounts in thousands of dollars)
- -------------------------------------------------------------------------------
Kaiser KH CH2M Hill
Holdings, Constructors,
Inc. Inc. Total
Members' equity, December 31, 1998 $ 500 $ 500 $ 1,000
Net income 6,400 6,400 12,800
Distributions (3,300) (3,300) (6,600)
-------------- ------------- --------------
Members' equity, December 31, 1999 3,600 3,600 7,200
Net income 10,218 10,218 20,436
Distributions (13,300) (13,300) (26,600)
-------------- ------------- --------------
Members' equity, December 31, 2000 518 518 1,036
Net income 15,042 15,042 30,084
Distributions (7,900) (7,900) (15,800)
-------------- ------------- --------------
Members' equity, December 31, 2001 $ 7,660 $ 7,660 $ 15,320
============== ============= ==============
The accompanying notes are an integral part of these consolidated
financial statements.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-28
Kaiser-Hill Company, LLC and Subsidiary
Consolidated Statements of Cash Flows
for the years ended December 31, 2001, 2000 and 1999
(amounts in thousands of dollars)
- -------------------------------------------------------------------------------
2001 2000 1999
Cash flows from operating activities:
Net income $ 30,084 $ 20,436 $ 12,800
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of adoption of a new accounting principle - - 839
Amortization 88 88 172
Changes in assets and liabilities:
(Increase) decrease in contract receivables (6,548) (17,664) 17,085
Increase in due from employees (92) (22) -
Decrease in receivable from Member - - 396
Increase in prepaids and other current assets (1,759) (355) -
(Decrease) increase in accounts payable and payables to
subcontractors (6,736) 10,972 (24,741)
Increase in employee incentive plan 22,100 - -
(Decrease) increase in other accrued expenses (3,558) 9,202 2,051
Increase (Decrease) in payable to Members 492 (216) (10)
------------ ------------ ------------
Net cash provided by operating activities 34,071 22,441 8,592
------------- ------------- -------------
Cash flows from financing activities:
Distributions to Members (15,800) (26,600) (6,600)
Payment of financing costs - - (300)
Proceeds from credit facility 29,900 42,000 -
Payments on credit facility (35,900) (36,000) -
------------ ------------ ------------
Net cash used in financing activities (21,800) (20,600) (6,900)
------------ ------------ ------------
Net increase in cash and cash equivalents 12,271 1,841 1,692
Cash and cash equivalents, beginning of year 7,177 5,336 3,644
------------ ------------ ------------
Cash and cash equivalents, end of year $ 19,448 $ 7,177 $ 5,336
============ ============ ============
Supplemental cash flow information:
Cash paid for interest $ 28 $ 22 $ 212
============ ============ ============
Supplemental noncash financing activity:
Accrued financing costs $ - $ - $ 225
============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
===============================================================================
Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-29
Kaiser-Hill Company, LLC and Subsidiary
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
1. ORGANIZATION
Kaiser-Hill Company, LLC (the "Company") was formed on October 24, 1994.
The principal business of the Company is to procure, execute, deliver,
and perform under a contract with the Department of Energy ("DOE") to
manage the programs and operate the DOE facilities at Rocky Flats
Environmental Technology Site ("RFETS") in Golden, Colorado. The mission
of the RFETS is directed toward cleanup, deactivation, and preparation
for decontamination and disposition of these DOE facilities.
The Company is a limited liability company owned equally by Kaiser KH
Holdings, Inc., a wholly owned subsidiary of Kaiser Group Holdings, Inc.
(formerly known as Kaiser Group International, Inc.) ("Kaiser"), and CH2M
Hill Constructors, Inc., an indirect wholly owned subsidiary of CH2M Hill
Companies, Ltd. ("CH2M Hill") (collectively, the "Members"). Net profits
and/or losses and distributions thereof are allocated equally to the
Members.
At December 31, 2001, the Company employed 1,480 hourly workers and 528
salaried workers. Approximately 88% of the hourly employees are
represented by United Steel Workers of America (the "Union") under a
collective bargaining agreement which expires on January 15, 2007.
On January 24, 2000, the Company and the DOE entered into a new contract
effective February 1, 2000. The new contract is in effect until the
physical completion of the Rocky Flats Closure Project including closure,
disposal of nuclear material, demolition of facilities, environmental
remediation, waste disposal, infrastructure and general site operations.
Under the new contract, the Company has the opportunity to earn fee if
the total costs incurred are below the contract target cost or the
completion of the site closure is before March 31, 2007. In addition, the
Company can lose fee if the costs exceed an amount equal to $200 million
above the contract target cost or the site closure is after March 31,
2007. The modified maximum and minimum fee available to be earned by the
Company through the date of closure is $460.6 million and $150.2 million,
respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company and its wholly
owned subsidiary Kaiser-Hill Funding Company, LLC. All intercompany
accounts and transactions have been eliminated in the consolidated
financial statements.
REVENUE RECOGNITION
Under the previous contract, revenue was recognized using the percentage
of completion method whereby revenue was accrued in an amount equal to
cost plus management's best estimate of base fee, performance based
incentive fees and cost reduction proposal fees to be received.
Under the new contract, revenue is recognized using the percentage of
completion method whereby revenue is accrued in an amount equal to cost
plus management's best estimate of fees. Fees are estimated based on
projected total contract costs and site closure date. The Company
continually monitors its progress towards the completion dates and its
estimated costs at completion and will modify its estimates of earnings
as needed. Changes in these estimates could have a significant effect on
future earnings of the Company.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers cash
in checking and short-term investments with original maturities of three
months or less to be cash and cash equivalents.
The Company maintains its cash accounts primarily with banks located in
Colorado, New York and Washington D.C. Cash balances are insured by the
FDIC up to $100,000 per bank and cash equivalents are not insured by the
FDIC. As of December 31, 2001, the majority of the cash balance was made
up of cash equivalents.
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Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-30
Kaiser-Hill Company, LLC and Subsidiary
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
NEW ACCOUNTING POLICY
Effective January 1, 1999, the Company adopted Statement of Position 98-5
("SOP 98-5"), Reporting on the Costs of Start-up Activities, which states
that costs of start-up activities, including organizational costs, be
expensed when incurred. Upon adoption, the Company recorded a cumulative
effect of a change in accounting principle of $839,000 in the accompanying
consolidated statements of income. Assuming SOP 98-5 was not adopted in
1999, amortization of start-up activities would have been approximately
$609,000 and the remaining $203,000 would have been expensed in 2000.
INCOME TAXES
The financial statements do not include a provision for income taxes
because the Company is treated as a partnership for income tax purposes
and does not incur federal or state income taxes. Instead, its earnings
and losses are included in the Members' separate income tax returns.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
Effective June 30, 2001, the Financial Accounting Standards Board ("FASB")
issued Statements of Financial Accounting Standards ("SFAS") Nos. 141,
"Business Combinations," and 142, "Goodwill and Other Intangible Assets".
SFAS No. 141 is effective for acquisitions occurring after June 30, 2001
and provides guidance on accounting for business combinations including
the use of the purchase method of accounting as the only acceptable method
to account for business combinations. SFAS No. 142 provides guidance on
the accounting for goodwill and other intangibles specifically relating to
identifying and allocating purchase price to specific identifiable
intangible assets. Additionally, SFAS No. 142 provides guidance for the
amortization of identifiable intangible assets and states that goodwill
shall not be amortized, but rather tested for impairment, at least
annually, using a fair value approach. The adoption of SFAS No. 142 will
not have a material impact on the Company's financial position.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which establishes accounting standards for
recognition and measurement of a liability for an asset retirement
obligation and the associated asset retirement cost. This Statement is
effective for financial statements issued for fiscal years beginning after
June 15, 2002. Management does not expect that the effect SFAS No. 143
will have a material impact on its financial position.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This Statement addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001. The provisions of this statement are generally to
be applied prospectively. Management does not expect that SFAS No. 144
will have a material impact on its financial position.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
3. RELATED PARTY TRANSACTIONS
In 2001 and 2000, the Members were subcontracted by the Company to perform
certain tasks under the DOE contract. The "Payable to Members" in the
accompanying balance sheets as of December 31, 2001 and 2000 consists of
$118,000 and $540,000, respectively, to Kaiser and $890,000 and ($24,000),
respectively, to CH2M Hill for these subcontracted tasks. These payables
are non-interest bearing.
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Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-31
Kaiser-Hill Company, LLC and Subsidiary
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
In addition, costs incurred related to work performed by Kaiser and CH2M
Hill, the majority of which are reimbursable and billed under the DOE
contract, were approximately $0 and $851,000 in 2001, respectively, $0 and
$799,000 in 2000, respectively, and $609,000 and $938,000 in 1999,
respectively.
4. CONTRACT RECEIVABLES
Contract receivables as of December 31, 2001 and 2000 primarily represent
unbilled receivables due under the DOE contract. Unbilled receivables
result from revenue and estimated fee that have been earned by the Company
but not billed to the DOE as of the end of the period. The unbilled
receivables can be invoiced at contractually defined intervals and
milestones. Management anticipates that the current portion of unbilled
receivables will be billed and collected in less than one year. In
addition, under the terms of the Company's contract with the DOE, the
Company receives a cash payment of 50% of the fee due on a quarterly
basis. The remainder of the fee will be paid by the DOE upon the
completion of the contract. As such, these amounts are classified as
non-current in the accompanying consolidated balance sheets.
The Company's contract receivables result primarily from its long-term
contract with the DOE. As a consequence, management believes that credit
risk is minimal.
5. EMPLOYEE INCENTIVE PLAN
In connection with the closure contract with the DOE, the Company
implemented an employee incentive plan. There are two components to the
plan. The first component represents a cash bonus which is earned and paid
yearly. The second component represents the issuance of performance units.
These units are allocated to employees on a yearly basis. The value of
these units ultimately depends on the closure date of the site and range
from $0 to $1 per unit. Employees remain eligible for these units as long
as they are employed by the Company or left in good standing, as defined,
and such amounts will be paid in cash at the end of the contract.
As of December 31, 2001, the Company has issued approximately 22,110,000
performance units and the estimated value to be paid is accrued as
employer incentive plan liability. The payment of the unit bonus will take
place upon closure of the contract and therefore the associated accrual is
classified as a long-term employee incentive plan accrual in the
accompanying consolidated balance sheets.
6. BUSINESS LOAN AND SECURITY AGREEMENT
Effective November 2, 1999, the Company, including its wholly owned
subsidiary Kaiser-Hill Funding Company, LLC, entered into a Business Loan
and Security Agreement (the "Agreement") with Bank of America, N.A.
("BOA") replacing its previous agreement with NationsBank, N.A. The term
of the Agreement is through December 31, 2005. The Company, Kaiser and
CH2M Hill granted a first lien security interest to BOA in all of the
ownership and equity interest of the Company. As of December 31, 2001 and
2000, the Company has $0 and $6,000,000 outstanding, respectively.
Under the Agreement, the Company has financing available which provides
temporary financing for the payment of the Company's costs incurred under
the DOE contract. This financing is utilized throughout the year for
periods of less than one month as, under the terms of the DOE contract,
the DOE must pay the Company's invoices within three business days of
receipt. The funding level under the Agreement can not exceed a Maximum
Borrowing Base calculated on the lesser of eligible billed and unbilled
government accounts receivable, as defined, or $35,000,000. Under the
terms of the Agreement, interest on the advances is calculated either
under a rate based upon LIBOR or a rate based upon the higher of the
Federal Funds Rate or the Prime Rate.
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Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-32
Kaiser-Hill Company, LLC and Subsidiary
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
The Agreement also contains various covenants, including tangible net
worth, fixed charge ratio and minimum cash balances requirements, among
other restrictions. Management believes the Company was in compliance with
all restrictive covenants.
7. CONTINGENCIES
The Company's reimbursable costs are subject to audit in the ordinary
course of business by various U.S. Government agencies. Management is not
presently aware of any significant costs, which have been, or may be,
disallowed by any of these agencies.
8. EMPLOYEE BENEFIT PLANS
In accordance with the DOE contract, the Company sponsors several benefit
plans covering substantially all employees who meet length of service
requirements. These plans include the following defined benefit pension
plans: The Rocky Flats Multiple Employer Salaried Retirement Plan and the
Kaiser-Hill Retirement Plan for Hourly Production and Maintenance
Employees. The Company also sponsors the following defined contribution
plans: Kaiser-Hill Company, LLC Savings Plan for Hourly Employees and Rocky
Flats Multiple Employer Salaried Thrift Plan, which includes Company
matching. The Company contribution amounts for the Savings Plan/Thrift Plan
were approximately $1,343,000, $608,000 and $454,000 for 2001, 2000 and
1999, respectively. No amounts were contributed to the Retirement Plans
during 2001, 2000 and 1999 because the Plans were overfunded.
The Company administers these benefit plans with benefits equivalent to the
RFETS contractor benefit plans maintained by the contractor that preceded
the Company at RFETS. Under the DOE contract, the Company recognizes the
cost of benefit plans when paid, and such costs are reimbursed by the DOE.
Any excess pension plan assets or unfunded pension plan liability which may
currently exist or is remaining at the end of the DOE contract is the
responsibility of the DOE.
9. SUBSEQUENT EVENT
In March 2002, the Company entered into a lease agreement for the lease of
office space through 2005. The Company will be leasing 94,582 square feet
for annual estimated base rent expense of $833,000.
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Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-33
SCHEDULE I
Kaiser-Hill Company, LLC and Subsidiary
Supplementary Consolidating Information to
Consolidated Financial Statements
Balance Sheet
as of December 31, 2001
(amounts in thousands of dollars)
- -------------------------------------------------------------------------------
Kaiser-Hill
Kaiser-Hill Funding
Company Company
LLC LLC Eliminations Consolidated
Assets:
Current assets:
Cash and cash equivalents $ 19,403 $ 45 $ - $ 19,448
Current portion of contract receivables 114,296 84 - 114,380
Intercompany receivables 5 - (5) -
Due from employees 114 - - 114
Prepaids and other current assets 2,114 - - 2,114
--------------- --------------- --------------- ---------------
Total current assets 135,932 129 (5) 136,056
Contract receivables, net of current portion 17,099 - - 17,099
Investment in Kaiser-Hill Funding
Company, LLC 117 - (117) -
Financing costs, net of accumulated
amortization of $183 342 - - 342
--------------- --------------- --------------- ---------------
$ 153,490 $ 129 $ (122) $ 153,497
=============== =============== =============== ===============
Liabilities and Members' Equity:
Current liabilities:
Accounts payable and payable to
subcontractors $ 94,701 $ 7 $ - $ 94,708
Accrued vacation 11,581 - - 11,581
Current portion of employee incentive plan 9,300 - - 9,300
Accrued salaries and employee benefits 8,780 - - 8,780
Intercompany payables - 5 (5) -
Payable to Members 1,008 - - 1,008
--------------- --------------- --------------- ---------------
Total current liabilities 125,370 12 (5) 125,377
Employee incentive plan, net of current portion 12,800 - - 12,800
--------------- --------------- --------------- ---------------
138,170 12 (5) 138,177
Members' equity 15,320 117 (117) 15,320
--------------- --------------- --------------- ---------------
$ 153,490 $ 129 $ (122) $ 153,497
=============== =============== =============== ===============
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Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-34
SCHEDULE II
Kaiser-Hill Company, LLC and Subsidiary
Supplementary Consolidating Information to
Consolidated Financial Statements
Statement of Income
for the year ended December 31, 2001
(amounts in thousands of dollars)
- -------------------------------------------------------------------------------
Kaiser-Hill
Kaiser-Hill Funding
Company Company
LLC LLC Eliminations Consolidated
Gross revenue $ 718,788 $ - $ - $ 718,788
Intercompany revenue - 183 (183) -
Intercompany expense (183) - 183 -
Subcontractor costs and direct
material costs (417,179) (1) - (417,180)
--------------- --------------- --------------- ---------------
Service revenue 301,426 182 - 301,608
Direct cost of service and overhead (271,834) (143) - (271,977)
--------------- --------------- --------------- ---------------
Operating income 29,592 39 - 29,631
Other income (expense):
Interest income 569 - - 569
Interest expense (88) (28) - (116)
--------------- --------------- --------------- ---------------
Net income $ 30,073 $ 11 $ - $ 30,084
=============== =============== =============== ===============
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Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page F-35
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To Board of Directors and
Shareholders of Kaiser Group Holdings, Inc.
Our audits of the consolidated financial statements referred to in our
report dated March 22, 2002 appearing in this Annual Report on Form 10-K
also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated
financial statements.
PricewaterhouseCoopers LLP
McLean, Virginia
March 22, 2002
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Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page S-1
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
(in thousands)
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Balance at Additions Charged Balance at
---------- ----------------- ----------
Beginning of to Costs and the End of
------------- ------------- ----------
Description Period Expenses Other Deductions Period
----------- ------ -------- ----- ---------- ------
Year Ended December 31, 2001 Deducted
from asset account: Allowance for
doubtful accounts $ 1,419 $ -- $ (181) $ (1,238) $ --
Discontinued operations 3,081 16,409 615 (4) -- $ 20,105
------- ------- -------- -- ----------
$ 4,500 $16,409 $ 434 $ (1,238) $ 20,105
======== ======== ======== ========= ==========
Year Ended December 31, 2000 Deducted
from asset account: Allowance for
doubtful accounts $ 9,594 $ -- $ -- $ (8,175) $ 1,419
Discontinued operations 19,953 -- -- (16,872) $ 3,081
------- -- -- --------- ----------
$29,547 $ -- $ -- $(25,047) $ 4,500
======= ======= ======== ========= ==========
Year Ended December 31, 1999 Deducted
from asset account: Allowance for
doubtful accounts $10,850 $ 5,414 $(2,508) (3) $ (4,162) (1) $ 9,594
Discontinued operations 29,679 9,225 18,833 (4) (37,784) (2) $ 19,953
------- ------- -------- --------- ----------
$40,529 $14,639 $ 16,325 $(41,946) $ 29,547
======= ======= ======== ========= ==========
1.) Reflects amounts written off against the allowance and related
accounts receivable accounts and settlement of doubtful accounts.
2.) Reflects losses charged against the provision for contract losses and
restructuring charges.
3.) Reflects deductions to reserves related to amounts divested as part
of 1000 asset sales transactions.
4.) Reflects reclassified additions to reserves.
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Kaiser Group Holdings, Inc. Report on Form 10-K for the year ended December 31,
2001. Page S-2