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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, 1999
Commission File No. 1-12248
KAISER GROUP INTERNATIONAL, INC.
(formerly ICF Kaiser International, Inc.)
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
54-1437073
(I.R.S. Employer
Identification No.)
9300 Lee Highway, Fairfax, Virginia
(Address of principal executive offices)
22031-1207
(Zip Code)
Registrant's telephone number, including area code: (703) 934-3300
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
Preferred Stock Purchase Rights
Page 1
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 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. [_]
The aggregate market value of Common Stock held by non-affiliates of the
registrant was $4,944,912 million based on the Over-the-Counter Bulletin Board
closing price of $0.25 on April 13, 2000.
On April 13, 2000, there were 23,419,828 shares of Common Stock
outstanding.
Page 2
PART I
Item 1. Business
Corporate History
Kaiser Group International, Inc., through its operating subsidiaries, is a
provider of engineering, construction management, and project and program
management services and has performed a mixture of public- and private-sector
engineering and construction work since the inception of its predecessor, Kaiser
Engineers, in 1914. The "Company" or "Kaiser" in this Report refers to Kaiser
Group International, Inc. and/or any of its consolidated subsidiaries.
Incorporated in Delaware in 1987 under the name American Capital and Research
Corporation, it is the successor to ICF Incorporated, a nationwide consulting
firm organized in 1969. In 1988, the Company acquired the Kaiser Engineers
business. Reflecting a return to its historical business focus, the Company's
name was changed on December 27, 1999 from ICF Kaiser International, Inc. to
Kaiser Group International, Inc.
Kaiser also owns a 50% interest in Kaiser-Hill Company, LLC, which serves
as the integrated management contractor at the U.S. Department of Energy's
(DOE's) Rocky Flats Environmental Technology Site. Kaiser-Hill has performed at
DOE's Rocky Flats Environmental Technology Site near Denver, Colorado since 1995
and was recently awarded a new contract to manage the closure of the site within
the next 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 more than 14 tons of plutonium 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.
Recent History
The components of Kaiser's business underwent significant change during
1999 as a result of actions aimed at the restoration of the Company's financial
condition that had been damaged by substantial difficulties encountered in its
execution of four large fixed-price contracts to construct nitric acid plants in
1998 and early 1999. As discussed in Item 7. Management's Discussion and
Analysis, the changes included the sale and divestiture of two of its operating
groups, namely, its Environment and Facilities Management Group (EFM) and its
Consulting Group. The Company has also been focused on realigning and
rightsizing its remaining operations, resolving its liquidity issues and
restructuring its debt and equity. Unless otherwise noted, all discussions
contained in this Report reflect only the historical business operations of the
Company's non-divested and continuing operations, namely its Engineering
Operations and the operations of the Kaiser-Hill subsidiary. "Engineering
Operations" referenced hereafter in this Report refer to the Company's business
activities not conducted through the Kaiser-Hill subsidiary.
BUSINESS
Overview of Services and Markets
Kaiser's Engineering Operations are focused on serving clients in two
categories: Infrastructure and Facilities, comprised of transit and
transportation, facilities management, water/wastewater treatment and
microelectronics and clean technology business lines, and Metals, Mining and
Industry, comprised of alumina/aluminum; iron and steel and mining industry
business lines.
Infrastructure and Facilities
Transit and Transportation - Kaiser's transit and transportation services
support the planning, design, engineering, and construction of heavy- and light-
rail transit systems, high-speed rail, peoplemovers, bus systems, highways and
bridges, and airport improvements. Kaiser is developing state-of-the-art
transit systems for 20 cities worldwide and designing major highway projects
throughout the United States and in selected international markets. Domestic
growth is driven by the Federal Transportation Equity Act for the 21st Century.
Passed in July 1998, the bill authorized $217 billion of spending during the
next six years in transit and highway programs. Significant opportunities also
exist internationally as developing countries seek to improve their transit
systems. Current projects include
Page 3
transit systems in Seattle, New York, Los Angeles, the Philippines, Portugal and
Turkey; a passenger rail line in Portugal; and multi-million dollar highway and
bridge improvements in California, Florida, Massachusetts, and Oklahoma.
Facilities and Water/Wastewater - Kaiser provides engineering services to
public- and private-sector clients who need to modernize or maintain facilities;
design and build new capacity for the future; or improve existing operational
and environmental conditions. Future growth in this area of activity will be
based in part on the trend toward outsourcing by both private- and public-sector
clients. Kaiser's largest project of this type involves serving, through
Kaiser-Hill Company, LLC, as the integrating management contractor at the DOE
Rocky Flats site, a former nuclear weapons production facility near Denver,
Colorado. In another significant project, Kaiser serves as construction manager
for the $3.4 billion Boston Harbor cleanup project that is currently scheduled
to continue through December 31, 2002.
Microelectronics and Clean Technology - Kaiser also provides design/build
services for the microelectronics, semiconductor, biotechnology, and
telecommunication industries. Kaiser has constructed or remodeled over seven
million square feet of manufacturing, office, and other facilities, including
more than 500,000 square feet of cleanrooms, from class 1 to class 10,000.
Following a contraction over the past several years, this market is expected to
experience growth over the next two years, driven primarily by the automotive
industry and advanced technology manufacturers' needs for increased
manufacturing capacity and capabilities. A major project is the construction
management services for a semiconductor facility expansion for Motorola in
Arizona.
Metals, Mining and Industry
Alumina/Aluminum - Kaiser provides design and construction services for
expansion and modernization of some of the world's largest alumina and aluminum
facilities in locations from Kentucky to the Middle East and Australia.
Kaiser's areas of expertise include bauxite mining and handling; alumina
refining; aluminum reduction; and fabrication and rolling. Domestic
opportunities involve maintaining and retrofitting existing plants and replacing
aging production capacity with newer, more efficient, and environmentally
responsible facilities. Outside of the United States, there will be greater
focus on building new facilities. Current projects include detailed design,
engineering, procurement, and construction management for the expansion of a
$500 million alumina refinery in Western Australia, and a $180 million alumina
refinery in Louisiana.
Iron and Steel - Kaiser supports the iron and steel industry by providing
traditional services such as engineering, design, and project and construction
management for plant expansions, modernizations, and greenfield development.
Kaiser is the sole U.S. domestic designer and builder of coke ovens and coke
oven machinery, and is active in the development of mini-mills as an
alternative, cost-effective method of making steel. For example, Kaiser is
providing turnkey engineering and construction services for the new $262 million
thin-slab casting mini-mill project for Nova Hut, a.s. in Ostrava, Czech
Republic.
Mining and Industry - Kaiser offers a full range of engineering,
procurement and construction management services to this industry sector.
Current contracts include projects in the nickel, coal, silicon, iron ore,
magnesium, mineral sands, natural gas and gold industries. Activities in this
business line are carried out predominantly through the Company's operations in
Australia. Opportunities for growth in this business line are largely dependent
on commodity prices, which drive client investment and, in turn, opportunities
for the Company in connection with expansion and modernization of existing
facilities and construction of new facilities.
Most of the Company's Engineering Operations contract backlog is related to
public- and private-sector engineering and construction projects that span from
several months to several years in duration. The Company's Engineering
Operations ended 1999 with $202.0 million in contract backlog. The Company
expects to work off 49% of this amount in 2000.
Kaiser-Hill Company, LLC is equally owned by Kaiser and CH2M Hill Companies
Ltd.; Kaiser designates a majority of the members of Kaiser-Hill's Board of
Managers. The scope of Kaiser-Hill's contract with the DOE includes all
elements of daily and long-term operations, as well as ultimate closure of the
site, including stabilizing and safely storing more than 14 tons of plutonium,
cleaning up areas contaminated with hazardous and radioactive waste, and
restoring much of the 6,000-acre site for future use by the public.
Page 4
Kaiser-Hill's prior contract with the DOE was originally scheduled to
expire on September 2000. On January 24, 2000, Kaiser-Hill was awarded the
follow-on Rocky Flats contract pursuant to which Kaiser-Hill is providing
services that will complete the restoration of the Rocky Flats site and close it
to DOE occupation (the Closure Contract). The Closure Contract became effective
February 1, 2000 and terminated the remaining period of the former contract as
of January 31, 2000. The economic terms of the Closure Contract are
significantly different from the former contract in that Kaiser-Hill, in
addition to continuing to earn revenue from the reimbursement of the actual
costs of its services, will also earn a performance fee based on a combination
of the actual costs of completion and on the actual date of physical completion.
The Closure Contract will reimburse Kaiser-Hill for the costs it incurs to
complete the site closure, currently estimated to range between $3.6 billion and
$4.8 billion and, in addition, will pay Kaiser-Hill an incentive fee ranging
from $150.0 million to $460.0 million, depending on Kaiser-Hill's ability to
control the incurred costs at completion to within the targeted range and its
ability to meet the closure goal anytime between March 31, 2006 - March 31,
2007. If Kaiser-Hill attains physical completion above target cost, the fee
will be reduced by 30% of all contract costs incurred after such date up to a
maximum of $20.0 million.
General Information about Kaiser
Competition and Contract Award Process
The market for Kaiser's services is highly competitive. Kaiser competes
with many other engineering and construction, program and project management
services firms ranging from small firms to large multi-national firms having
substantially greater financial, managerial and marketing resources than Kaiser.
Other competitive factors include quality of services, technical qualifications,
reputation, geographic presence, price, financial stability and the availability
of key professional personnel.
Private-Sector Work. Competition for private-sector work generally is
based on several factors, including quality of work, reputation, price and
marketing approach. Kaiser's objective is to establish and maintain a strong
competitive position in its areas of operations by adhering to its basic
philosophy of delivering high-quality work in a timely fashion within its
clients' budgetary constraints.
Public-Sector Work. Most of Kaiser's contracts with public-sector clients
are awarded through a competitive bidding process that places no limit on the
number or type of bidders. The process usually begins with a government request
for proposals that delineates the size and scope of the proposed contract.
Proposals are evaluated by the government on the basis of technical merit,
including responses to mandatory solicitation provisions, corporate and
personnel qualifications, experience, and cost. Kaiser believes that its
experience and ongoing work strengthen its technical qualifications and thereby
enhance its ability to compete successfully for future government work.
Teaming Arrangements and Joint Ventures. In both the private and public
sectors, Kaiser, acting either as a prime contractor or as a subcontractor, may
join with other firms to form a team or a joint venture that competes for a
single contract or submits a single proposal. Because a team of firms or a
joint venture almost always can offer a stronger set of qualifications than any
firm standing alone, these arrangements often are very important to the success
of a particular competition or proposal. Kaiser maintains a large network of
business relationships with other companies and has drawn repeatedly upon these
relationships to form winning teams.
Contract Structure. Kaiser operates under a number of different types of
contract structures with its private- and public-sector clients, the most common
of which are cost plus and fixed price. Under cost plus contracts, Kaiser's
costs are reimbursed with a fee, either fixed or percentage of cost, and/or an
incentive or award fee offered to provide inducement for effective project
management. A variation of cost plus contracts are time-and-materials contracts
under which Kaiser is paid at a specified fixed hourly rate for direct labor
hours worked. Under fixed price contracts, Kaiser is paid a predetermined
amount for all services provided as detailed in the design and performance
specifications agreed to at the project's inception, and under which Kaiser
retains more performance risk than under cost plus contracts. While these fixed
price contracts can result in higher profit margins, they also can be costly if
Kaiser experiences cost overruns that are not recoverable from the client.
Page 5
Customers
Kaiser's domestic clients include the DOE and other federal departments and
agencies; major corporations in the transportation, steel, aluminum, mining, and
manufacturing industries; utilities; and a variety of state and local government
agencies throughout the United States and in other areas of the world. The DOE
accounted for approximately 74% of Kaiser's consolidated gross revenue for the
year ended December 31, 1999, approximately 63% for the year ended December 31,
1998, and approximately 64% for the year ended December 31, 1997.
Kaiser's international clients include both private firms and foreign
government agencies. For the years ended December 31, 1999, 1998, and 1997,
foreign clients accounted for approximately 11.5%, 12.2%, and 17.0% of Kaiser's
consolidated gross revenue, respectively. For information concerning gross
revenue, operating income, and identifiable assets of Kaiser's business by
geographic area during 1999, 1998 and 1997, see Note 5 to the consolidated
financial statements.
Contract Backlog
The aggregate amount of gross contract revenue remaining to be earned
pursuant to signed contracts extending beyond the current date is referred to as
contract backlog. Kaiser believes that contract backlog is not an absolute
predictor of future gross or service revenue for any particular periods as the
status of contract funding, especially in contracts with certain governmental
agencies, can be unilaterally altered. Most of Kaiser's contract backlog
relates to Kaiser-Hill's Rocky Flats Closure Contract.
Potential Liabilities Involving Clients and Third Parties
In performing services for its clients, Kaiser could potentially be liable
for breach of contract, personal injury, property damage, and negligence,
including improper or negligent performance or design, failure to meet
specifications, and breaches of express or implied warranties. The damages
available to a client, should it prevail in its claims, are potentially large
and could include consequential damages.
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. The exception to this reimbursement provision applies to 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.
Page 6
Insurance
Kaiser has a comprehensive risk management and insurance program that
provides a structured approach to protecting Kaiser. Included in this program
are coverages for:
. general, automobile, pollution impairment, and professional liability;
. workers' compensation; and
. employers and property liability.
Kaiser believes that the insurance it maintains, including self-insurance,
is in amounts and protects against risks as is customarily maintained by similar
businesses operating in comparable markets. At this time, Kaiser expects to
continue to be able to obtain insurance in amounts generally available to firms
in its industry. There can be no assurance that the insurance coverage and
levels maintained by Kaiser will continue, and if insurance of these types is
not available, it could have a material adverse effect on Kaiser.
Kaiser has pollution insurance coverage on an occurrence basis, in amounts
and on terms that are economically reasonable, against possible liabilities that
may be incurred in connection with its conduct of its environmental business.
An uninsured claim arising out of Kaiser's environmental activities, however, if
successful and of sufficient magnitude, could have a material adverse effect on
Kaiser.
Government Regulation
In the past, Kaiser had a number of cost-reimbursement contracts with the
U.S. government, the costs of which are subject to audit and adjustment by the
applicable U.S. government agency. Most of these contracts were entered into by
Kaiser's former EFM and Consulting Groups, which were divested in 1999.
However, in conjunction with these divestitures, Kaiser indemnified certain
elements of the sales and has retained many of the liabilities associated with
the pre-divestiture performance of these contracts. As a result of pending
audits related to fiscal years 1986 forward, the government has asserted, among
other things, that some costs claimed as reimbursable under government contracts
either were not allowable or not allocated in accordance with federal
procurement regulations. Kaiser is actively working with the government to
resolve these issues. Kaiser has provided for its estimate, in its financial
statements, of the potential effect of issues that have been quantified,
including its estimate of disallowed costs for the periods currently under audit
and for periods not yet audited. Many of the issues, however, have not been
quantified by the government or Kaiser, and others are qualitative in nature,
and their potential financial impact is not quantifiable by the government or
Kaiser at this time. This provision will be reviewed periodically as
discussions with the government progress.
Kaiser 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. Kaiser currently is the subject of a
number of U.S. government investigations and is cooperating with the responsible
government agencies involved. No charges presently are known to have been filed
against Kaiser by these agencies.
Employees
As of March 31, 2000, Kaiser had approximately 3,388 employees, 2,748 in
North America and 640 in numerous international sites. The Company believes
that its relations with its employees are good. Of this total, 2,048 persons
are employed at Kaiser-Hill's Rocky Flats site in Colorado. A total of 1,447 of
the Rocky Flats employees are represented by the United Steelworkers of America,
Local 8031; almost all of the union employees are contracted out to other
companies working at Rocky Flats. The Company believes that its relations with
the union are good.
Page 7
Item 2. Properties
Kaiser's activities are carried out through operating subsidiaries in 36
offices throughout the world. Kaiser's headquarters are located at 9300 Lee
Highway, Fairfax, Virginia 22031-1207, and its telephone number is (703) 934-
3300. Kaiser's operations are organized into North American and International
regions. The North American regional headquarters is located in Fairfax,
Virginia, and the International regional headquarters is located at Q.V. 1
Building, George's Terrace, Perth WA 6000 Australia, telephone 61-89-366-5366.
Other domestic offices include Chandler, Arizona; Los Angeles, San Diego,
and Oakland, California; Rocky Flats, Colorado; Washington, DC; Jacksonville,
Lake City, Miami, Orlando, and Tampa, Florida; Marietta, Georgia; Boise, Idaho;
Gramercy, Louisiana; Baltimore, Maryland; Boston, Massachusetts; New York City,
New York; Oklahoma City, Oklahoma; Pittsburgh, Pennsylvania; Richmond,
Virginia; and Seattle, Washington. The Company's other international offices
include Brisbane and Gladstone, Australia; Ostrava and Prague, Czech Republic;
London, England; Hong Kong; Budapest, Hungary; Rio de Janeiro and Sao Paulo,
Brazil; Manila, the Philippines; Lisbon, Portugal; Cairo, Egypt and Istanbul,
Turkey.
Kaiser's operations are conducted in leased facilities or in facilities
provided by the Federal government or other clients. Because Kaiser's
operations generally do not require the maintenance of unique facilities,
suitable office space is available for lease in all of the geographic areas
currently served. Kaiser believes that adequate space to conduct its operations
will be available for the foreseeable future. For information concerning an
investment by Kaiser in Fairfax, Virginia land and buildings where Kaiser's
headquarters are located, see Notes 7 and 12 to the consolidated financial
statements included in this Report.
Item 3. Legal Proceedings
In the course of Kaiser's normal business activities, various claims or
charges have been asserted and litigation commenced against Kaiser arising from
or related to properties, injuries to persons, and breaches of contract, as well
as claims related to acquisitions and dispositions. Claimed amounts may not
bear any reasonable relationship to the merits of the claim or to a final court
award. In the opinion of management, an adequate reserve has been provided for
final judgments, if any, in excess of insurance coverage, that might be rendered
against Kaiser in the event of litigation. See Note 15 to the consolidated
financial statements included in this Report.
Item 4. Submission of Matters to a Vote of Security Holders
The 1999 Annual Meeting of Shareholders of the Company was held on
Thursday, November 4, 1999, at the headquarters of the Company, 9300 Lee
Highway, Fairfax, VA 22031. The matters voted on were (i) the election of three
directors, (ii) the approval of the issuance of shares of preferred stock and
common stock in connection with an exchange offer for outstanding debt (the
"Stock Issuance Proposal"), (iii) the approval of an amendment to the
certificate of incorporation to effect a reverse split of Company's outstanding
common stock in a ratio that would have resulted in 5,000,000 shares of common
stock being outstanding (the "Reverse Split Proposal"), (iv) the approval of
amendments to the Company's certificate of incorporation and bylaws
(collectively, the "Shareholder Democracy Proposal"), (v) the approval of an
amendment to the Company's certificate of incorporation and bylaws to provide
that no new shareholder rights plan (sometimes referred to as a "poison pill")
shall be adopted without the approval of the shareholders (the "Rights Plan
Proposal"), (vi) the approval of amendments to the Company's certificate of
incorporation to eliminate provisions related to the terms of series of
preferred stock that are no longer outstanding (the "Obsolete Preferred Stock
Proposal"), (vii) the approval of amendments to the Company's Stock Incentive
Plan (the "Stock Incentive Plan Proposal"), (viii) the approval of the quasi-
reorganization of the Company's financial statements, pursuant to which the
Company would adjust its capital accounts to eliminate the accumulated deficit
in retained earnings from past unprofitable operations and establish a new
retained earnings account for the accumulation of future earnings (the "Quasi-
Reorganization Proposal") and (ix) the ratification of the appointment of
PricewaterhouseCoopers LLP as the Company's independent public accountants for
the fiscal year ending December 31, 1999. The number of votes cast for, against,
or withheld, as well as the number of abstention and broker non-votes for each
of the above-described matters are set forth below:
Page 8
Total Total Total
Votes Votes For Votes Total
Votes For % Withheld (*) Non-Votes
----- --- - ------------ ---------
1. Election of Directors
Thomas C. Jorling 19,163,638 80.443% 3,227,286 0
James J. Maiwurm 19,400,552 81.437% 2,990,372 0
Hazel R. O'Leary 18,058,476 75.804% 4,332,448 0
(*) "Votes Withheld" means that the shareholder marked the box on his/her proxy
card labeled "withheld." This vote total includes situations in which the
shareholder wrote in the name of the individual director for whom he/she did not
want to vote.
% of
Total Total Total Total Total
Votes Cast Votes Cast Votes Cast Broker Votes
For For Against Non-Votes Abstain
--- --- ------- --------- -------
2. Stock Issuance Proposal 14,883,708 86.420% 2,338,814 4,867,348 301,054
3. Reverse Split Proposal 20,722,437 93.540% 1,431,162 0 237,325
4. Shareholder Democracy Proposal 16,374,226 95.204% 824,838 4,867,348 324,512
5. Rights Plan Proposal 16,146,164 94.125% 1,007,801 4,867,348 369,611
6. Obsolete Preferred Stock Proposal 21,005,487 96.001% 874,946 0 510,491
7. Stock Incentive Plan Proposal 14,920,946 87.355% 2,163,878 4,867,348 438,752
8. Quasi-Reorganization Proposal 16,147,432 94.080% 1,016,121 4,867,348 360,023
9. Ratification of Accountants 20,677,851 94.441% 1,217,098 0 495,975
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
From September 14, 1993 until March 7, 2000, the Common Stock was traded on
the New York Stock Exchange (NYSE) under the symbols "ICF" and "KSR". On
December 27, 1999, coincident with the Company's name change, the NYSE symbol
was changed to "KSR". On March 8, 2000, the Common Stock ceased to be listed on
the NYSE and began to be traded on the Over-the-Counter Bulletin Board system
under the symbol "KSRG". At April 13, 2000, there were 1,455 shareholders of
record and the closing price of the Common Stock as reported by the Over-the-
Counter Bulletin Board was $0.25. The following table sets forth, for the
periods indicated, the high and low sales prices for the Common Stock as
reported by the NYSE:
Common Stock Price
------------------
1999 1998
---- ----
High Low High Low
--------- --------- ---------- --------
Year Ended December 31,
First Quarter................................... $1.500 $0.813 $3.000 $2.063
Second Quarter.................................. 0.813 0.250 3.063 2.180
Third Quarter................................... 0.500 0.313 2.313 1.125
Fourth Quarter.................................. 0.813 0.281 1.813 1.188
The Company's Transfer Agent and Registrar is EquiServe, First Chicago
Trust Division (formerly First Chicago Trust Company of New York), P.O. Box
2536, Jersey City, NJ 07303-2536. The Shareholder Relations telephone number is
(201) 324-0498, and the First Chicago Web site address is http://www.fctc.com.
The Company has never paid cash dividends on its Common Stock and
anticipates that no cash dividends will be paid on its Common Stock for the
foreseeable future and that the Company's earnings will be retained for use in
the business. The Board of Directors determines the Company's Common Stock
dividend policy based on the Company's results of operations, payment of
dividends on preferred stock, financial condition, capital requirements, and
other circumstances. The Company's debt agreements currently do not permit
dividends to be paid on its capital stock. See Note 9 to the consolidated
financial statements.
Item 6. Selected Financial Data
Page 9
The selected consolidated financial data of the Company for the years ended
December 31, 1999, 1998, 1997, 1996, and the ten months ended December 31, 1995,
have been derived from the Company'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,
1999 consolidated financial statements.
Selected Consolidated Financial Data
(in thousands, except per share data)
Ten
Months
Ended
December
Year Ended December 31, 31,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Statement of Operations Data:
Gross revenue................................................ $870,267 $ 999,721 $926,916 $809,643 $532,600
Service revenue.............................................. 295,451 211,762 300,986 308,016 240,996
Operating income (loss)...................................... (22,732) (97,001) 3,069 720 (6,900)
Loss from continuing operations before
income taxes, minority interest, extraordinary item
and cumulative effect of accounting change............. (41,448) (115,741) (12,439) (11,216) (18,197)
Loss before extraordinary item and
cumulative effect of accounting change.................. (5,924) (93,442) (4,987) (7,851) (12,668)
Basic and Diluted Earnings (Loss) Per Share:
Continuing operations before extraordinary item and
cumulative effect of accounting change...................... $ (2.00) $ (4.34) $ (0.62) $ (0.36) $ (0.60)
Discontinued operations, net of tax.......................... 1.78 0.47 0.40 0.62 0.71
Extraordinary item, net of tax............................... (0.03) (0.05) -- -- --
Cumulative effect of accounting change, net of tax........... -- (0.25) -- -- --
-------- --------- -------- -------- --------
Total.................................................. $ (0.25) $ (4.17) $ (0.22) $ 0.26 $ 0.11
======== ========= ======== ======== ========
Weighted average common shares outstanding:
--basic............................................ 23,823 24,092 22,382 22,035 21,132
--diluted.......................................... 23,823 24,092 22,382 22,057 21,606
Balance Sheet Data (end of period):
Total assets................................................. $253,563 $ 428,071 $399,288 $369,462 $370,179
Working capital.............................................. 17,108 3,271 91,121 113,898 84,589
Long-term liabilities........................................ 131,795 147,152 145,590 161,951 125,818
Redeemable preferred stock................................... -- -- -- -- 19,787
Shareholders' equity (deficit)............................... (69,903) (63,118) 27,327 34,892 28,427
Page 10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
During 1999, management continued to execute various elements of a
restructuring plan aimed at restoring the Company to profitability following the
difficulties caused primarily by problems in its execution of four large fixed-
price contracts to construct nitric acid plants in 1998 and early 1999. In
summary, the components of the restructuring plan developed by management and
the Board of Directors included the following:
. Divesting operating units and reinvesting the proceeds in the Company to
provide working capital necessary to stabilize the retained business
activities;
. Reducing the Company's overhead cost structure that would remain after the
divestitures of the operating units referenced above; and
. Revising the Company's capital structure in order to eliminate barriers to
securing new business and improve access to new sources of working capital.
Elements of the restructuring plan were initiated in the third quarter of
1998; however, the majority of the progress was achieved during 1999.
Achievements toward each plan element are described below.
Divesting Operating Units
. Sale of the Environment and Facilities Management Group (EFM): On April 9,
1999, the Company sold the majority of the active contracts and
investments, and transferred a substantial number of employees, of EFM to
The IT Group, Inc. (IT) for a cash purchase price of $82.0 million, less
$8.0 million which was retained by IT for EFM's working capital
requirements. The Company then completed EFM contracts that were not sold
to IT. Net of income tax expense of $24.5 million, the Company recognized a
gain of $12.0 million from the sale.
. Sale of the Consulting Group: On June 30, 1999, the Company sold 90% of its
Consulting Group to CM Equity Partners, L.P. and the Group's management for
$64.0 million in cash and $6.6 million of interest-bearing notes. The
Company retained a 10% ownership interest 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 the sale.
The Company finalized its accounting for the divestitures of its EFM and
Consulting Groups as well as for the sale of certain assets of a small business
unit sold earlier in the year during the fourth quarter and recorded a
reduction to the net gain on the sales of $6.2 million primarily for the income
tax effects of the transactions and for the write-off of certain additional
divested assets (Note 4 and Note 16).
The cash proceeds from the sales of the EFM and Consulting Groups, net of
transaction costs, and from the liquidation of the retained EFM assets, were, in
part, used to pay down all cash borrowings on the Company's revolving line of
credit. The balance was used for working capital purposes and held for use in
the debt restructuring element of the plan.
The combined net financial position, operating results and cash flows of
the EFM and Consulting Groups have been presented in the accompanying
consolidated financial statements as discontinued operations for the entire
year. All prior period operating results and cash flows have also been
reclassified to conform to the current year presentation.
Reducing Overhead and Improving Profitability
The restructuring plan included actions to realign and reduce the Company's
post-divestiture cost structure. Elements of the cost reduction plan included an
approximate 25% personnel reduction in the Company's wholly-owned North American
operations with lesser percentage reductions in its International operations,
eliminating regional overhead layers, downsizing facilities, closing of
marginally profitable office locations, discontinuing certain business
offerings, improving direct labor utilization on projects and enhancing project
controls to minimize risks of future contract losses. Because of certain
centralized aspects of the Company's organizational structure that existed prior
to completing the
Page 11
divestitures discussed above, the cost reduction elements of this phase of the
plan could not begin until after the divestitures were completed. The results of
the cost reduction plan have been positive - reducing administrative expenses by
more than $20.0 million on an annualized basis when comparing the fourth quarter
of 1999 to that of 1998. Although the majority of the reduction initiatives have
been enacted, the Company remains focused on appropriately controlling overhead
spending.
Revising the Capital Structure
The Company has not yet completed the last element of its plan, the
restructuring of its outstanding debt.
In September 1999, the Company reached an agreement in principle with the
majority of the holders of its $15.0 million in Senior Notes and the holders of
its $125.0 million Senior Subordinated Notes. On October 1, 1999, the Company
commenced an asset sale offer/exchange offer to implement a restructuring of its
$125.0 million Senior Subordinated Notes. On October 9, the Company completed
the first element of the debt restructuring by using proceeds from its recently
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.
By November 3, 1999, the Company had received notice of participation in
the asset sale offer/exchange offer by the holders of approximately 99% of the
principal amount of its $125.0 million Senior Subordinated Notes. On November 4,
1999, the Company obtained the necessary approvals of its common shareholders to
be able to effect the proposed restructuring. The detailed elements of the plan
are described in the Company's Prospectus dated October 1, 1999. In general
terms, the plan contemplated the cash repurchase of at least $35.0 million of
the Senior Subordinated Notes and the exchange of 2,600,000 shares of new
redeemable convertible preferred stock (liquidation preference of $65.0 million)
and up to $25.0 million in new unsecured 15% Senior Notes to be due December 31,
2002 for the balance of the Senior Subordinated Notes.
Consummation of the approved debt restructuring plan was 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 a facility that was compatible with the Company's needs. Due to the
fact that the Company could not secure an acceptable credit facility and on
continued financial underperformance of its Engineering Operations, on December
31, 1999, the Company paid the scheduled interest payment on the $126.0 million
in remaining notes and decided to delay implementation of the proposed debt
restructuring and re-open negotiations with its noteholders and potential
lenders.
The Company has continued negotiations with representatives of its Senior
Subordinated Notes and, while it has no assurance, believes it may be able to
implement a modified restructuring of those notes. Such a transaction could
involve an exchange of Senior Subordinated Notes for a combination of new common
stock and newly issued preferred stock. The Company believes that such a
restructuring would substantially improve its financial condition and provide a
basis for ongoing operations and continuation of the Company's turnaround.
However, such a restructuring would result in substantially more dilution of the
equity of existing common stockholders than the restructuring proposed during
the fall of 1999. Such a restructuring may be accomplished through consensual
insolvency proceedings.
While continuing negotiations with representatives of its Senior
Subordinated Noteholders, the Company has been exploring strategic alternatives
for the Company, including the possible sale of certain of its assets or
businesses. That process is still underway. The Company currently expects to be
able to reach a conclusion with respect to its strategic direction and begin to
implement its reorganization prior to the end of the second quarter of 2000.
Page 12
Results of Operations
The Company's business is comprised primarily of its Engineering Operations
and its 50% interest in the Kaiser-Hill subsidiary. The following discussion
separately addresses the operating results of the two, largely different
operations. In all cases, conforming changes to current period presentation
formats have been made in the historical results presented.
Kaiser-Hill
Kaiser-Hill is a 50% owned joint venture between Kaiser Group
International, Inc. and CH2M Hill, formed solely to perform the U.S. Department
of Energy's (DOE) Rocky Flats Closure Project (the Rocky Flats Contract)
initially awarded in late 1995. The Kaiser-Hill operating results for each of
the years ended December 31 were as follows (in thousands):
Kaiser-Hill 1999 1998 1997
--------- --------- ---------
Gross Revenue.................... $ 643,044 $ 632,600 $ 588,700
Subcontracts and materials..... (456,188) (478,100) (421,200)
--------- --------- ---------
Service Revenue.................. 186,856 154,500 167,500
Operating Expenses:..............
Direct labor and fringe........ 176,582 138,300 145,500
Depreciation/amortization...... 89 -- --
--------- --------- ---------
Operating Income................. $ 10,185 $ 16,200 $ 22,000
========= ========= =========
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 earned by Kaiser-Hill during the comparable periods above are
largely reflective of increased levels of reimbursable subcontractor costs,
i.e., pass-throughs, being incurred as the contract progress continued and as
the term of the contract neared its original completion date of June 30, 2000.
Although annual operating results are not directly comparable because of changes
in the underlying performance milestones that are established annually by the
DOE, the service revenue and operating income decreases from 1998 to 1999 are
largely the result of the January 24, 2000 award of the new Rocky Flats Closure
Contract, effective February 1, 2000. The Closure Contract shifted certain
remaining performance elements from the original contract into the new contract.
Since the Company 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, the Company
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
the Company to reverse, in the fourth quarter of 1999, previously recognized
revenue of $5.2 million. This adjustment merely reflects a change in the timing
of when Kaiser-Hill will earn performance fee. The service revenue decrease from
1997 to 1998 of $13.0 million is due to a lower incentive fee pool being
available for award in 1998 as compared to 1997. The DOE made the benchmarks to
earning the 1998 incentive fee pools more difficult - indirectly reducing the
amount of incentive fee potentially payable to Kaiser-Hill.
On January 24, 2000, Kaiser-Hill was awarded the follow-on Rocky Flats
Contract pursuant to which Kaiser-Hill will provide services through to closure
of the Rocky Flats site (the Closure Contract). The Closure Contract became
effective February 1, 2000, essentially terminating the remaining period of the
original contract. The economic terms of the Closure Contract are significantly
different from the original contract in that Kaiser-Hill will earn revenue based
on the actual cost of physical completion and will earn a performance fee based
on a combination of the actual cost of completion and the actual date of
physical completion, both as compared to contracted targets. The Closure
Contract fee may range from $150.0 million to $460.0 million based on Kaiser-
Hill's costs falling within the range of targeted completion cost of $3.6
billion to $4.8 billion, respectively, if completed within various dates between
March 31, 2006 - March 31, 2007. Physical completion above the target cost would
result in a reduction to the 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. Until such time as Kaiser-Hill can reasonably predict the likely
outcome of the total fee to be earned by contract completion, the fee will be
accrued at the minimum on a straight-line basis from February 1, 2000 through
December 31, 2007. Estimated changes in the earned fee will be recognized as
contract to date adjustments at such time as the estimate is revised. The
Closure Contract currently provides for Kaiser-Hill to invoice DOE quarterly
based on a $340.0 million target fee
Page 13
pool, less a 50% retainage for 2000. Thereafter, the quarterly invoicing will
revert to a formula such that cumulative contract billings would not exceed the
minimum fee of $150.0 million spread over a 7 year timeframe, with retainages.
All invoice payments made by DOE to Kaiser-Hill will be distributed to the joint
venture owners immediately upon receipt, less certain Kaiser-Hill
reimbursements.
Engineering Operations
The Engineering Operations provide design, engineering, procurement, and
construction and project management services to domestic and international
clients in the infrastructure, facilities, metals, mining and industrial
markets. The operating results for each of the years ended December 31 was as
follows (in thousands):
1999 1998 1997
---------- --------- ---------
Gross Revenue............................ $ 227,223 $ 367,121 $ 338,216
Subcontracts and materials............. (123,108) (239,694) (200,131)
Provision for contract losses.......... -- (76,210) (6,900)
Equity income of affiliates............ 4,480 6,045 2,301
--------- -------- --------
Service Revenue.......................... 108,595 57,262 133,486
Operating Expenses:
Direct labor and fringe................ 67,896 79,562 79,971
Selling, general and administrative.... 54,052 65,534 63,851
Depreciation/amortization.............. 5,180 8,288 8,595
Restructuring charges.................. 14,384 17,079 ---
---------- --------- ---------
Operating (Loss)......................... $ (32,917) $(113,201) $ (18,931)
========== ========= =========
Gross Revenue: Gross revenue represents the amount of goods and services
provided to the customer through primary contract relationships. Often included
as a component of gross revenue, and reimbursed by the customers, are costs of
certain services which the Company subcontracts to and procures from third
parties, including direct project costs and materials. These costs are excluded
from gross revenue to derive the Company's service revenue. Engineering
Operations derive the majority of their economic benefit, however, in the form
of engineering, procurement and construction management services performed
directly - this element is referred to as service revenue and is used as the
basis for managing the Engineering Operations.
The majority of the gross revenue fluctuations noted above are attributable
to the completion or near completion of several large fixed price projects that
also contained large amounts of construction materials and passed through
subcontractor costs. Such costs are included in the Company's gross revenues;
however, they typically have nominal effect on project profitability. More
specifically:
. the large fixed-price Nitric Acid projects were completed in the first
quarter of 1999 and resulted in gross revenue of $14.4 million in 1999
compared to $47.9 million and $55.1 million in 1998 and 1997, respectively.
. the large fixed-price project to construct the Nova Hut steel mini-mill in
the Czech Republic generated gross revenue of $54.2 million in 1999 versus
$77.8 million and $76.7 million in 1998 and 1997, respectively. The large
gross revenue earning phases of the Nova Hut project neared completion as of
December 31, 1999.
. the acquisition on March 19, 1998, of ICT Spectrum Constructors, Inc., a
construction contractor based in Boise, Idaho, specializing in construction
management of fabrication plants and other facilities for semiconductor and
microelectronics customers, resulting in $17.6 million and $87.2 million in
gross revenue in 1999 and 1998, respectively.
The Engineering Operations ended 1999 with approximately $202.0 million in
signed contract backlog.
Service Revenue: Apart from the fluctuations resulting from large project
completions, the Company's engineering operations experienced softness in 1999
compared to prior years in new business development in certain areas, including
all business lines in the Asia-Pacific region and within the iron and steel and
microelectronics business lines in North America. The operating performance
during the fourth quarter was also down from the prior quarter due to the
nearing completion of certain foreign projects during the third quarter of 1999
without equal replacements commencing immediately in the
Page 14
fourth quarter. These developments, in addition to the contract fluctuations
noted above, accounted for service revenue declines of $25.0 million in 1999
compared to 1998 and of $31.8 million compared to 1997 (after adjusting 1998 and
1997 service revenue results for the effects of the large project losses
recognized therein).
Operating gross margins - service revenue less direct labor and fringe
costs -as a percent of service revenue have declined slightly over the past
three years. The different types of services provided by the Engineering
Operation's business units typically attract different average operating
margins. As the business mix changes slightly from year to year, the
consolidating operating margins fluctuate with the relative shifts in underlying
service base composition. Adjusting 1998 and 1997 results for the effects of the
large contract losses recognized in those years, and excluding equity income in
affiliates, the gross margins as a percent of service revenue were 34.8%, 37.5%
and 42.1% during the years 1999, 1998 and 1997, respectively. The decreased 1999
operating gross margin is reflective of the fact that the 13% and 15% annual
reductions in direct labor spending from 1998 and 1997 compared to 1999 did not
parallel the pace of reductions in service revenue.
The decrease in 1999 equity in income from affiliates from 1998 levels
reflects the culmination of an alumina refinery project in Australia. A year
earlier, it was also this project that accounted for the increase of $3.7
million in 1998 compared to 1997. The project was awarded in late 1997.
Operating Expenses: The restructuring plan implemented in 1999 and late
1998 included actions to realign and reduce the Company's post-divestiture
overhead cost structure such that the remaining levels more appropriately fit
the needs and size of its continuing operations. Elements of the overhead
reduction plan included an approximate 25% personnel reduction in the Company's
wholly-owned North American operations with lesser percentage reductions in
International operations, eliminating regional overhead layers, downsizing
facilities, closing of marginally profitable office locations, discontinuing
certain business offerings, improving direct labor utilization on projects and
enhancing project controls to minimize risks of future contract losses. Because
of certain centralized aspects of the Company's organizational structure that
existed prior to completing the divestitures discussed above, the cost reduction
elements of this phase of the plan could not begin until after the divestitures
were completed. To date, the results from the cost reduction plan have been
positive- administrative expenses have been reduced by more than $20.0 million
on an annualized basis when comparing the fourth quarter of 1999 to that of 1998
and a $11.5 million absolute reduction from 1998 to 1999. Although the majority
of the reduction initiatives have been enacted, the Company remains focused on
controlling overhead spending.
In connection with its plan of reorganization discussed in the Overview,
the Company recorded charges for restructuring costs of $14.4 million and $17.1
million during 1999 and 1998, 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 (recognized in the fourth quarter), a charge for
business unit divestiture costs and for anticipated sublease losses and office
realignment and closings (see Note 3 to the consolidated financial statements).
These restructuring charges have been presented individually on the Consolidated
Statements of Operations.
Interest: The Company's average annual outstanding debt and the related
average effective interest rates for 1999, 1998, and 1997 were $146.7 million
and 14.7%, $151.7 million and 13.3%, and $140.8 million and 13.0%, respectively.
The rate of interest expense increased significantly in 1999 due to the
incurrence of rollover loan origination fees and points associated with
noncompliance with the terms of the revolving credit facility in early 1999 in
addition to higher base interest rates contained in the such credit facility as
compared to the former facility. Interest expense in 1997 was offset partially
by a one-time, $0.9 million reduction realized from the Company's favorable
resolution and reversal of a previously established liability for potential
interest costs associated with a foreign income tax matter.
Interest income is earned on available cash balances that were generated
primarily from the unused proceeds from the divestitures earlier in 1999 and
prior to those sales, largely only by Kaiser-Hill and foreign operations. All
other cash not required for operations was historically used to pay down
outstanding cash borrowings.
Page 15
Income Tax Expense: The income tax provision for all periods presented
excludes the minority's interest in Kaiser-Hill's operating income because it is
owned partially by another company and is a flow-through entity for income tax
purposes.
In 1999, the Company recognized total income tax expense of $38.4 million
allocable to the following results (in thousands):
Applicable Tax
Statement of Operations Category Income/(Loss) (Expense)/Benefit
-------------------------------- ------------- -----------------
Loss from continuing operations before income taxes................ $ (41,448) $ (1,110)
Income from discontinued operations................................ 4,210 (1,875)
Gain on the sales of discontinued operations....................... 75,878 (35,795)
Extraordinary loss on the early extinguishment of debt............. (989) 389
Also in 1999, the Company utilized deferred tax assets and the benefit of
current period losses totaling $33.6 million to offset a similar amount of
income tax liability resulting from the gain on the sales of discontinued
operations. The Company will not recognize an income statement benefit for any
previously unbenefitted or future operating losses or future tax deductions
until such time as management believes it is more likely than not that the
Company's future operations will generate sufficient taxable income to be able
to realize such benefits. As of December 31, 1999, the Company had provided a
valuation allowance against the entire remaining deferred tax asset of $39.9
million.
In 1998, the Company recorded an income tax benefit of $18.6 million on a
loss from continuing operations before income taxes of $115.7 million. The
Company recognized a $23.6 million valuation allowance against the total future
deferred tax benefit of the operating loss and any other future tax deductions
sufficient to ensure that the balance of the net deferred tax asset at December
31, 1998 would be completely utilized by the income tax gains that were
anticipated from sales of the operating divisions anticipated for completion in
1999.
Other 1998 changes in income tax expense versus 1997 include a $1.8 million
foreign income tax expense established for the anticipated repatriation to the
U.S. of Australian earnings, used for domestic working capital needs, and a $0.7
million provision for the permanent book-tax difference expected for the
redemption of $1.8 million in non-recourse loans to officers and former
employees, which were collateralized solely by shares of the Company's common
stock. At the inception of the loans, the collateral value exceeded the loans'
face value.
In 1997, the Company recognized a tax benefit of $9.4 million on pre-tax
loss from continuing operations of $12.4 million. Approximately $1.9 million of
the tax benefit was as a result of completing a study of historic research and
experimental expenditures for certain open tax years, enabling the Company to
recognize a benefit for research tax credits.
Extraordinary Items: In 1999, the Company 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, the Company'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.
As part of its efforts to restructure its Notes, the Company repurchased
$14.0 million of the $15.0 million outstanding in Senior Notes for 88% of face
value in October 1999. 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,
and costs incurred in the purchase the net gain on the repurchase was $0.2
million, net of related income tax effects.
Cumulative Effect of Accounting Change: In April 1998, the Accounting
Standards Executive Committee of the American Institute of Certified Public
Accountants issued Statement of Position 98-5 Reporting on the Costs of Start-Up
Activities (SOP 98-5). The SOP requires costs of organization and start-up
activities to be expensed as incurred. The Company elected early adoption of the
Statement effective April 1, 1998 and, at that time, reported the cumulative
effect of the change as a one-time, non-cash charge of $6.0 million after tax,
or $0.25 per share. The Company's amortization expense in 1998 was reduced by
$1.6 million because the cumulative charge included balances for items that were
previously amortized.
Page 16
Liquidity and Capital Resources
Operating activities: During 1999, the Company funded approximately $22.0
million of the $66.0 million in estimated nitric acid project cost overruns
identified in 1998, the remainder had been funded in 1998. Kaiser-Hill generated
$8.6 million in operating cash flows in 1999; versus $10.1 million in 1998. The
Company's nonrecurring restructuring activities used approximately $16.9 million
in cash for severance payments, lease restructuring costs etc. and professional
fees associated with its total debt restructuring initiatives, debt
extinguishments, and corporate reorganization and realignment activities. The
Company paid net interest expense of $18.7 million in 1999. Lastly, the
Company's Engineering Operations used cash of approximately $18.9 million in
its continuing operations. This usage was reflective, in part, of the fact
that the Company did not complete the majority of the overhead cost reductions
until the third and fourth quarters of 1999 and, in part, of the continued
operating weaknesses and business downturns in the Asia-Pacific region, in the
North American iron and steel and microelectronics business lines.
Excluding the $10.1 million in operating cash flows generated by Kaiser-
Hill in 1998, the Company's remaining $40.0 million used in operations
predominantly funded the nitric acid project overruns. Positive operating cash
flows of $26.2 million in 1997 were generated in part due to increased activity
in large commercial projects that had provisions in the contract terms for
milestone-based payments which were collected prior to actual contract
performance. Differences in the timing of the cash payments made to suppliers on
some of these large projects versus the collection of customer trade receivables
also contributed favorably to the 1997 operating cash flows.
Investing activities: Net of fees associated with completing the 1999
divestiture transactions, proceeds from the sales of the EFM and Consulting
Groups totaled $145.0 million. Proceeds of $2.4 million were received in 1998
from a 1997 installment sale of the Company's ownership interest in a pulverized
coal injection operation. Investments in fixed assets and software development,
including capitalized labor, were made in 1999, 1998 and 1997 totaling $2.1
million,$3.6 million and $4.6 million, respectively.
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 leases the land and owns the buildings leased primarily by the Company for
its corporate headquarters. The Company is committed 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 will increase to 16% in fixed annual
2.4% increments in each of the eleventh through fifteenth years of the
agreement.
Financing activities: Upon the closing of the sale of its EFM Group in
April, 1999, the Company paid off the outstanding balance on its revolving
credit facility of $36.0 million and used an additional $10.0 million to cash
collateralize certain outstanding contract performance guarantee letters of
credit. On June 30, 1999, the Company was required to cash collateralize an
additional $13.0 million so as to cover all $23.0 million of the Company's then
outstanding letters of credit. On October 9, 1999, the Company repurchased $14.0
million of its $15.0 million of Senior Notes at 88% of face value. As of
December 31, 1999 and April 14, 2000, the Company had no revolving credit
facilities and no debt other than its remaining Senior and Senior Subordinated
Notes totaling $126.0 million in principal amount. At December 31, 1999, the
Company had $13.1 million in total outstanding letters of credit, all fully
collateralized by restricted cash balances.
In 1998, the Company realized that it was going to incur significant cost
overruns on the nitric acid projects. Due to the significant risks, difficulties
and uncertainties involved in estimating the total costs to complete these large
fixed price projects, the Company revised and increased the total completed
project cost estimates several times in 1998. Given the completion cost
uncertainties 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 flexibilities. 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.
Page 17
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. After obtaining the Revolver, the
Company again increased the estimate of the total nitric acid projects cost
overruns it expected to incur and need to fund prior to the completion of the
projects, by an additional $19 million. This material adverse change to the
Company's financial condition triggered a technical event of default pursuant to
the Revolver's terms. The lender permitted the Company to borrow and obtain
letters of credit pursuant to all other terms of the Revolver, primarily
conditioned on the Revolver provision that proceeds from asset sales be used to
repay outstanding cash borrowings. That provision combined with the fact that
the Company was actively pursuing the sale of significant operating assets was
sufficient assurance for the lenders to continue to permit the use of the
facility until such time as an asset sale was completed. On April 9, 1999, the
Company completed the sale of its EFM Group (see Note 4 to the Consolidated
Financial Statements) and used $36 million of the sale proceeds to extinguish
outstanding Revolver cash borrowings plus $10 million to cash collateralize
outstanding letters of credit. The Company 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 the Company's completion of the sale of its
Consulting Group. Also in connection with the expiration, the Company 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. As of April 14, 2000, $12.6 million in outstanding letters of credit
remain collateralized and will continue to be so until such time as the Company
can secure a replacement credit facility with sufficient letter of credit
capacity.
The distributions of Kaiser-Hill earnings to the minority interest owner in
1999, 1998 and 1997 totaled $3.3 million, $10.3 million and $13.9 million,
respectively. Kaiser-Hill had a $50 million receivables purchase facility to
support its working capital requirements, containing elements for certain
program fees, specified minimum tangible net worth requirements, and default
provisions for delinquent receivables, which expired, on an extended basis, on
September 30, 1999. On November 2, 1999, Kaiser-Hill subsequently obtained its
own revolving credit facility from Bank of America, N.A. that provides for up to
$35.0 million in total availability, such amount not to subject to exceed the
sum of eligible portions of Kaiser-Hill's eligible billed and unbilled accounts
receivable on the DOE Rocky Flats contract. The facility matures six years from
inception. Both parents of Kaiser-Hill have agreed to cure any events of default
by Kaiser-Hill on the facility. The facility includes provisions for interest
and charges commensurate with market pricing as well as affirmative and negative
financial covenants.
Liquidity and Capital Resource Outlook
The Company currently has no working capital facility and is financing its
Engineering Operations' working capital through the use of the residual cash
proceeds from the sale of its Consulting Group completed in June 1999 as well as
from distributions from its Kaiser-Hill subsidiary. Based on (i) current
expectations for near-term operating results, (ii) its current available cash
position and (iii) recent trends and projections in liquidity and capital needs,
management believes the Company has sufficient short-term liquidity to bridge
current operating needs until the implementation of a modified debt
restructuring, assuming that such a restructuring can be accomplished within the
reasonably near term. As noted above, there is no assurance that a successful
restructuring can be accomplished.
Actions remaining critical to the Company's long-term liquidity include
completing a restructuring of its $125.0 million Senior Subordinated Notes prior
to the next interest payment due date of June 30, 2000, securing a sufficient
working capital facility with acceptable terms, obtaining successful outcomes
regarding significant contingent liabilities (see Other Matters), and improving
operating results. Management believes that, if these steps can be achieved, the
Company will have sufficient liquidity generated by improved operating results,
substantially decreased interest expense and borrowings on its new credit
facility to meet its longer-term working capital requirements.
As discussed in the Overview, the Company has been engaged in ongoing
negotiations with representatives of the holders of its $125.0 million Senior
Subordinated Notes and believes it could implement a modified restructuring of
those notes. Such a transaction could involve an exchange of Senior Subordinated
Notes for a combination of common stock and newly issued preferred stock on
terms that would permit the Company to retain available cash and not require a
new bank credit agreement. The Company believes such a restructuring would
substantially improve its financial condition and provide a basis for ongoing
operations and continuation of the Company's turnaround. However, such a
Page 18
restructuring would result in substantially more dilution of the equity of
existing common stockholders than the restructuring proposed during the fall of
1999 and may involve a consensual insolvency filing, which could entail
additional delays in implementation.
As also discussed above, while continuing negotiations with representatives
of holders of its Senior Subordinated Notes, the Company has also been exploring
strategic alternatives for the Company. Such alternatives could include
generating funds for debt restructuring or longer-term objectives and operating
needs through divestitures of additional operating assets, replacing the
Company's long-term debt, and negotiating additional equity infusions. This
evaluation of alternatives is still underway. The Company currently expects to
be able to reach a conclusion with respect to its strategic direction and begin
to implement its reorganization prior to the end of the second quarter of 2000.
The Company expects its financial condition to be materially affected by
the implementation of any debt restructuring or strategic alternative. The
consummation of either a debt restructuring or other strategic alternatives
could be completed through a "prepackaged" plan of reorganization under Chapter
11 of the U.S. Bankruptcy Code. If such a plan were selected as the mechanism
for completing the Company's restructuring, the Company expects that it would
have the support of the largest holders of its Senior Subordinated Notes and,
therefore, be able to implement the plan relatively promptly. If the Company
commences such a proceeding, the goals of any such plan would be to (i) minimize
adverse effects on Kaiser's ongoing operations, trade creditors and employees
and (ii) result in a financially strengthened and stable organization for
purposes of ongoing operations.
Other Matters
Bath Contingency: In March 1998, the Company entered into a $187 million
maximum price contract with Bath Iron Works to construct a ship building
facility. In May 1998, the Company subsequently learned that estimated costs to
perform the contract as reflected in actual proposed subcontracts were
approximately $30 million higher than the cost estimates originally used as the
basis for contract negotiation between the Company and the customer. After
learning this, the Company advised the customer that it was not required to
perform the contract in accordance with its terms as a result of a mutual
mistake among them in negotiating that contract. In October 1998, the customer
presented an initial draft of a claim against the Company requesting payment for
estimated damages and entitlements pursuant to the terminated contract. The
customer has also subsequently asserted a claim based on alleged differing site
conditions that allegedly should have been identified by the Company. In March
2000, Bath filed a combined claim against the Company in U.S. District Court in
the District of Maine requesting payment for $38 million. The Company continues
to object to Bath's allegations and is vigorously defending its position.
Although no resolution has been reached, management has recorded a provision in
the financial statements for the Company's proposed settlement of the non-
insured portion of the loss.
Acquisition Contingency: The Kaiser common shares exchanged for the stock
of ICT Spectrum in the March, 1998 acquisition carry the guarantee that the fair
market value of each share of stock will reach $5.36 by March 1, 2001. In the
event that the fair market value does not attain the guaranteed level, the
Company is obligated to make up the shortfall either through the payment of cash
or by issuing additional shares of common stock with a total value equal to the
shortfall, depending upon the Company's preference. Pursuant to the terms of the
Agreement, however, the total number of contingently issuable shares of common
stock cannot exceed an additional 1.5 million.
In December, 1999, the Company and certain former Company employees and
shareholders of ICT Spectrum agreed to amend the applicable agreements in a
manner that had the result of reducing the amount of the taxable gain created by
former shareholder-employees' involuntary departures from the Company. As
permitted per the agreement, the shareholders agreed to allow the Company to
retain some of the vested shares as payment of the income tax withholding in
lieu of cash. In total, the Company retained 255,669 shares and recorded the
transaction as a $1.37 million reduction to goodwill and paid-in-capital.
Given that the quoted fair market value of the Company's common stock at
December 31, 1999 was $0.37 per share, and that the Company's current debt
instruments restrict the amount of cash that can be used for acquisitions, the
assumed issuance of an additional 1.5 million shares (now adjusted downward by
the 255,669 retained shares to 1,244,331), would not completely extinguish the
remaining purchase price contingency. In this event, the Company will need to
fund the contingency in cash and
Page 19
would need to obtain an amendment to current debt instruments or replace them in
order to complete a cash fill-up. Any future distribution of cash or common
stock would be recorded as a charge to the Company's paid-in-capital.
Until the earlier of the contingent purchase price resolution or March 1,
2001, any additional shares assumed to be issued because of shortfalls in fair
market value will be included in the Company's diluted earnings per share
calculations, unless they are antidilutive. The exchanged shares also contain
restrictions preventing their sale prior to March 1, 2001.
On March 29, 1999, one ex-ICT Spectrum shareholder, individually and on
behalf of all others similarly situated, filed a class action lawsuit in the
U.S. District Court for the District of Idaho alleging false and misleading
statements made in a private offering memorandum, and otherwise, in connection
with the Company's acquisition of ICT Spectrum in 1998. The Company subsequently
filed a motion to dismiss the case. On March 14, 2000, the court ordered the
defendant to address certain claim deficiencies. Upon receipt of the claim
amendments, the court is expected to complete the ruling relative to the
Company's motion.
Litigation, Claims and Assessments Contingencies: In the course of the
Company's normal business activities, various claims or charges have been
asserted and litigation commenced against the Company arising from or related to
properties, injuries to persons, and breaches of contract, as well as claims
related to acquisitions and dispositions. Claimed amounts may not bear any
reasonable relationship to the merits of the claim or to a final court award. In
the opinion of management, adequate reserves have been provided for final
judgments, if any, in excess of insurance coverage, that might be rendered
against the Company in such litigation. The continued adequacy of reserves is
reviewed periodically as progress on such matters ensues.
The Company may from time to time, either individually or in conjunction
with other government contractors operating in similar types of businesses, be
involved in U.S. government investigations for alleged violations of procurement
or other federal laws and regulations. The Company currently is the subject of a
number of U.S. government investigations and is cooperating with the responsible
government agencies involved. No charges presently are known to have been filed
against the Company by these agencies. The Company has provided for its estimate
of the potential effect of these investigations, and the continued adequacy of
reserves is reviewed periodically as progress on such matters ensues.
Prior to the divestitures of its EFM and Consulting Groups, the Company had
a substantial number of cost-reimbursement contracts with the U.S. government,
the costs of which are subject to audit by the U.S. government. As a result of
pending audits related to fiscal years 1986 forward, the government has
asserted, among other things, that certain costs claimed as reimbursable under
government contracts either were not allowable or not allocated in accordance
with federal procurement regulations. The Company is actively working with the
government to resolve these issues. The Company has provided for its estimate of
the potential effect of issues that have been quantified, including its estimate
of disallowed costs for the periods currently under audit and for periods not
yet audited. Neither the government nor the Company, however, has quantified
many of the issues, and others are qualitative in nature, and their potential
financial impact is not quantifiable by the government or the Company at this
time. The adequacy of provisions for reserves is reviewed periodically as
progress with the government on such matters ensues.
Contract warranties and performance guaranty contingencies: In the course
of the Company's normal business activities, many of its contracts contain
provisions for warranties and performance guarantees. As progress on contracts
ensues, the Company regularly updates the estimates of the costs to perform such
contingencies and reserves a proportionate amount of the total related contract
value until such time as the contingency is resolved.
Year-2000 Readiness: The Company, to date, has not experienced any
material systems failures related to the Year 2000 (Y2K) rollover. Our
remediation plan for the Y2K issue is discussed in detail in the Company's 1998
Annual Report to Shareholders and in 1999 Forms 10-Q. The Company will continue
to monitor and address any issues that may arise from internal systems or those
of third parties. The Company's cumulative costs since inception of the Y2K
initiative were $6.4 million through December 31, 1999. These costs were largely
comprised of the costs to replace financial accounting and
Page 20
other software applications. Apart from the system replacement costs, other
costs related to Y2K have not had a material adverse effect on the Company's
results of operation or financial condition.
Market Risk
The Company does not believe that it has significant exposures to market
risk. The majority of its foreign contracts are denominated and executed in the
applicable local currency. The interest rate risk associated with the majority
of the Company's borrowing activities is fixed, however, a 10% increase or
decrease in the average annual prime rate would result in an increase or
decrease of .72% multiplied by the weighted-average amount of fluctuating rate
borrowings outstanding during a period.
Forward-Looking Statements
From time to time, certain disclosures in reports and statements released
by the Company, or statements made by its officers or directors, will be forward
- -looking in nature. These forward-looking statements may contain information
related to the Company's intent, belief, or expectation with respect to contract
awards and performance, potential acquisitions and joint ventures, and cost-
cutting measures. In addition, these forward-looking statements contain a number
of factual assumptions made by the Company regarding, among other things, future
economic, competitive, and market conditions. Because the accurate prediction of
any future facts or conditions may be difficult and involve the assessment of
events beyond the Company's control, actual results may differ materially from
those expressed or implied in such forward-looking statements.
The Company is availing itself of the safe harbor provisions provided in
the Private Securities Litigation Reform Act of 1995 by cautioning readers that
forward-looking statements, including those that use words such as the Company
"believes," "anticipates," "expects," "estimates," and "believes", are
subject to certain risks and uncertainties which could cause actual results of
operations to differ materially from expectations. These forward-looking
statements will be contained in the Company's federal securities laws filings or
in written or oral statements made by the Company's officers and directors to
press, potential investors, securities analysts, and others. Any such written or
oral forward-looking statements should be considered in context with the risk
factors discussed below:
. The Company must significantly revise its capital structure, in the form of a
debt to equity conversion or a combination of other equity investments, joint
ventures or asset sales. The inability of the Company to accomplish one or a
combination of transactions described above would have a material adverse
effect on the business.
. The Company requires access to a revolving credit line to fund short-term
borrowing needs and provide letter of credit capacity required in connection
with certain projects. Kaiser may not be able to generate collateral to
support a borrowing base of sufficient size to obtain such credit or may not
be able to improve operating results enough to be able to obtain such credit.
. The Company may not be able to obtain satisfactory contract performance
guarantee mechanisms, such as performance bonds.
. The Company's financial performance is significantly tied to Kaiser-Hill
Company, LLC, which is subject to uncertainties that may adversely affect its
and the Company's operating results.
. The Company may not be able to maintain the existing volume or size of
contracts and may not be able to realize increased contract performance
levels.
. The Company is involved in a number of fixed-price contracts under which the
Company can benefit from cost savings or performance efficiencies. The
Company's revenue and profit recognition policies are based on making a
series of assumptions including aspects relative to contract pricing and
performance capabilities. The Company's contract to construct the Nova Hut
steel min-mill in the Czech Republic includes such aspects. In the event that
such assumptions cannot be met or change as contract progress ensues, the
Company may have to make downward adjustments to revenue and profit already
recognized in the financial statements. Possible results of changes in such
assumptions could include the inability to realize all contract performance
fees or other incentives already recognized as revenue in the financial
statements, and may result in other unrecoverable cost overruns.
Page 21
. The Company may not be awarded new contracts for which it is competing in
its established markets or these awards may be delayed. In addition, the
Company may not be able to win contracts in new markets it chooses to
target. General economic conditions in the international arena, especially
Asia and Latin America, could negatively impact the Company's current
international business and its ability to expand in international markets.
. The Company may not be able to make acquisitions and/or enter into joint
ventures, and if made, acquisitions and joint ventures may take more time
to contribute favorably to the Company's financial results than was
formerly assumed. The Company is highly leveraged and is subject to
restrictive covenants that limit its ability to fund potential acquisitions
and joint ventures beyond certain levels established in its debts
agreements.
. A portion of the Company's business is generated either directly or
indirectly as a result of federal and state laws, regulations, and
programs; a reduction in the number or scope of these laws, regulations or
programs could materially affect the Company's business.
. The Company's ability to attract and retain business is closely related to
its ability to attract and retain key management and operating personnel.
The market for professionals of the types employed by the Company is quite
competitive. The Company may not be able to attract and retain personnel
necessary for successful operations.
. The Company has several significant contingent liabilities arising out of
prior operations and contracts, its 1998 acquisition of ICT Spectrum
Constructors, Inc. and the dispositions of its Environment and Facilities
Management and Consulting Groups. Adverse resolution of one or more of
those contingencies could adversely affect the Company's financial
performance and condition.
. Certain of the Company's environmental work poses risks of large civil and
criminal liabilities for violations of environmental laws and regulations,
and liabilities to customers and to third parties for damages arising from
the Company's performing environmental services to its clients. A large
fine or penalty imposed on the Company could negatively impact contract
performance fees under certain existing contracts or otherwise negatively
affect the Company's financial results.
. The Company generally grants uncollateralized credit to its customers and
is therefore subject to risks of financial instability on the part of its
customers. In certain cases, the Company secures project specific insurance
policies related to various insurable risks such as certain non-payment due
to insolvency of the customer. Negative changes in the financial condition
of its customers could expose the Company to adverse financial
consequences.
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-29 and S-1 hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Page 22
The Board of Directors currently consists of the following eight directors.
All directors' terms expire at the Annual Meeting in 2000.
Jarrod M. Cohen
James O. Edwards
Thomas C. Jorling
James J. Maiwurm
Hazel R. O'Leary
Keith M. Price
James T. Rhodes
Michael E. Tennenbaum
Jarrod M. Cohen, 34, is the Managing Director of J.M. Cohen and Company
since January 1999. He was the Managing Director, head of Proprietary Investing,
and head of Risk Management for Cowen and Company from April 1996 to December
1998. Previously, from September 1989 until April 1996, Mr. Cohen was the
Portfolio Manager for the Cowen Opportunity Fund and Co-head of Cowen Small Cap
Approach. An agreement between Mr. Cohen and the Company is described on page
31of this Report. Mr. Cohen has been a Director of the Company since May 1,
1998.
James O. Edwards, 56, was Chairman of the Board and Chief Executive Officer
of Kaiser Group International, Inc. or its predecessors from 1985 to 1998. In
1974, he joined ICF Incorporated, the predecessor of Kaiser Group International,
Inc., and was its Chairman and Chief Executive Officer from 1985 until the 1987
establishment of ICF Kaiser International, Inc. Mr. Edwards graduated from
Northwestern University (B.S.I.E.) and Harvard University (M.B.A., High
Distinction, George F. Baker Scholar).
Thomas C. Jorling, 59, has been Vice President, Environmental Affairs, of
International Paper Company since 1994. Mr. Jorling was the Commissioner of the
New York State Department of Environmental Conservation from 1987 to 1994. Prior
to that, Mr. Jorling was a professor of environmental studies and director of
the center for environmental studies at Williams College in Massachusetts. In
addition, Mr. Jorling served from 1977 to 1979 as Assistant Administrator for
Water and Hazardous Material at the U.S. Environmental Protection Agency. Mr.
Jorling has been a Director of the Company since 1995. Mr. Jorling graduated
from the University of Notre Dame (B.S.), Washington State University (M.S.),
and Boston College (LL.B.).
James J. Maiwurm, 51, Chairman of the Board, President and Chief Executive
Officer. Mr. Maiwurm has been President and Chief Executive Officer of Kaiser
since April 19, 1999. Mr. Maiwurm was elected to, and as Chairman of, the Board
of Directors of the Company in June 1999. Mr. Maiwurm serves as chairman of the
board of managers of Kaiser-Hill Company, LLC, which performs the performance
based integrating management services at the Department of Energy's Rocky Flats
Environmental Technology site near Denver, Colorado. From August 1998 until
elected as 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
serve as counsel to Kaiser. Mr. Maiwurm is a member of the Board of trustees of
Davis Memorial Goodwill Industries, Washington, D.C., a non-profit entity, and
is a member of the board of directors of Workflow Management, Inc., and
integrated graphic arts company providing documents, envelopes and commercial
printing to businesses in North America, the stock of which is traded on the
Nasdaq National Market System.
Hazel R. O'Leary, 62, has been chief operating officer of Blaylock
Partners, L.P., an investment banking firm, since February 2000. Prior to that
Mrs. O'Leary had been Chairman of the firm of O'Leary Associates, Inc. from the
time she left her position as Secretary of the Department of Energy (DOE) in
January 1997. President Clinton selected Mrs. O'Leary to be the Secretary of
Energy in December 1992, and she assumed her duties in January 1993. During her
four-year tenure as Secretary, Mrs. O'Leary effectively downsized DOE's number
of employees by 27 percent and its budget by $10 billion over five years and
focused all of DOE's activities around five areas: science and technology,
national security, energy research, environmental quality, and economic
productivity. Immediately before her appointment as Secretary of Energy, Mrs.
O'Leary was president of the wholly owned natural gas subsidiary of Northern
States Power (NSP), a $2 billion diversified utility holding company
headquartered in Minneapolis; she had been executive vice president of the
holding company from 1989 to 1992. Mrs. O'Leary has over 25 years of experience
in sustainable energy policy and large project development. She
Page 23
has been a Director of the Company since March 1997. She also currently serves
on the Board of Directors of AES Company, the global power company, UAL, which
is the parent of United Airlines, and on the non-profit Boards of The Arms
Control Association, Morehouse College (Atlanta), and The Keystone Center. Mrs.
O'Leary graduated from Fisk University (B.A.) and Rutgers University Law School
(J.D.).
Keith M. Price, 63, has been a Director of the Company since May 1997. He
has been a consultant to various U.S. and international engineering and
construction companies since 1994. From 1991 to 1994, he was first Managing
Director of Transportation Systems and Engineering and then Managing Director of
Operations for Transmanche-Link, a joint venture of ten major European
contractors that held a contract to design, manufacture, and construct the
tunnel transportation for the Chunnel, an $11 billion project that links England
to France. Prior to his positions with Transmanche-Link, Mr. Price had a 27-year
career with Morrison-Knudsen where he held a number of senior management
positions and was a director. Mr. Price graduated from Pepperdine University
(M.B.A.).
James T. Rhodes, 58, has been the Chairman and Chief Executive Officer of
the Institute of Nuclear Power Operations (INPO) since March 1998. INPO is a
nonprofit corporation established by the nuclear utility industry in 1979 to
promote the highest levels of safety and reliability in the operation of nuclear
electric generating plants. Dr. Rhodes retired as President and Chief Executive
Officer of Virginia Power in August 1997. He joined Virginia Power in 1971 as a
nuclear physicist and held increasingly responsible positions throughout that
company. In 1985 he became senior vice president-power operations and in 1988,
senior vice president-finance; in 1989 he was elected President and CEO. Prior
to joining Virginia Power, Dr. Rhodes worked as a project engineer in the U.S.
Army Nuclear Power Program from 1964 to 1968. Prior to his retirement from
Virginia Power, Dr. Rhodes was a director of the Edison Electric Institute,
NationsBank, N.A., the Nuclear Energy Institute, the Southeastern Electric
Exchange, and Virginia Power. Dr. Rhodes has been a Director of Kaiser Group
International, Inc. since February 1998. Dr. Rhodes graduated from North
Carolina State University (B.S.), Catholic University (M.S.), and Purdue
University (Ph.D., Atomic Energy Commission Fellow ).
Michael E. Tennenbaum, 64, has been the Managing Member of Tennenbaum &
Co., LLC since June 1996. Mr. Tennenbaum also is currently the Chief Executive
of Tennenbaum Securities, LLC, and he has held this position since May 1997.
Previously, from February 1993 until June 1996, Mr. Tennenbaum was a Senior
Managing Director of Bear, Stearns & Co., Inc. In addition, Mr. Tennenbaum was
previously a member of the Board of Directors of Bear, Stearns & Co., Inc. and
also held the position of Vice Chairman, Investment Banking. Mr. Tennenbaum's
responsibilities at Bear, Stearns & Co., Inc. included managing the firm's Risk
Arbitrage, Investment Research, and Options Departments. Mr. Tennenbaum has
served on the Boards of Directors of Arden Group, Inc.; Bear, Stearns & Co.,
Inc.; Jenny Craig, Inc.; Sun Gro Horticulture, Inc.; and Tosco Corporation. Mr.
Tennenbaum graduated from the Georgia Institute of Technology (B.S.I.E.) and
Harvard University (M.B.A., with Distinction). Mr. Tennenbaum has been a
Director of the Company since May 1, 1998.
Executive Officers
S. Robert Cochran, 46, has been Executive Vice President and President,
North America since April 1999. Mr. Cochran serves on the board of managers of
Kaiser-Hill Company, LLC, which performs the performance based integrating
management services at the Department of Energy's Rocky Flats Environmental
Technology Site near Denver, Colorado. Prior to that, he was Senior Vice
President of Hazwaste Industries, Inc. & Earth Technology Incorporated, focusing
primarily on business development in the hazardous and radioactive site cleanup
area. He was Senior Vice President and partner with Interface Incorporated;
served as Vice President of PEI/IT; was senior project and geotechnical group
manager with JRB/SAIC; and for Versar, Inc., worked as a senior project
geologist. He is a registered professional geologist.
Richard A. Leupen, 46, has been Executive Vice President and President,
International since April 1999. Prior thereto, he was President of the Engineers
& Constructors Group of Kaiser Group since August, 1998 and held senior
management positions in that Group since 1995. Prior to joining the Company, Mr.
Leupen held management positions with Protech Pty. Ltd., Weda Bay Minerals Ltd
(Calgary), Strand Mining Pty Ltd (Singapore), and Strand Management Pty Limited
as well as serving as director of a number of Kaiser subsidiaries and
affiliates. Mr. Leupen graduated from the University of South Wales in Australia
(B.S.).
Page 24
Timothy P. O'Connor, 35, has been Executive Vice President and Chief
Financial Officer of Kaiser Group International, Inc. since 1998. He had been
Treasurer of the Company since May 1997 and has been employed by Kaiser in
various financial positions since 1995. Mr. O'Connor serves on the board of
managers of Kaiser-Hill Company, LLC, which performs the performance based
integrating management services at the Department of Energy's Rocky Flats
Environmental Technology site near Denver, Colorado. From 1990 until 1995, Mr.
O'Connor was employed by Lockheed Martin Corporation of Bethesda, Maryland,
where he held a number of financial positions. Prior to that, Mr. O'Connor
worked for General Electric Company and Lazard Freres and Co. of New York. Mr.
O'Connor, who is a Certified Cash Manager, graduated from the University of
Delaware (B.S.).
Section 16(a) Beneficial Ownership Reporting Compliance
The U.S. Securities and Exchange Commission (SEC) requires the Company to
tell its shareholders when certain persons fail to report their transactions in
the Company's equity securities to the SEC on a timely basis. During the fiscal
year ended December 31, 1999, Mr. Edwards failed to timely file a report on Form
4 regarding the grant of restricted stock. Such filing has since been made.
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
its officers, directors, and beneficial owners of more than 10% of its equity
securities other than the delinquencies disclosed in this paragraph were timely
met.
Page 25
Item 11. Executive Compensation
The following table shows the compensation received by each person who
served as the Company's Chief Executive Officer ("CEO") during fiscal 1999, the
four other most highly compensated executive officers of the Company who were
serving as of December 31, 1999 and two other most highly compensated executive
officers who were no longer serving the Company as of December 31, 1999 (the
"Named Executive Officers") for the three years ended December 31, 1999.
SUMMARY COMPENSATION TABLE
Long-term Compensation
----------------------
Annual Awards
------ ------
Compensation
------------
(e)
---
(a) (b) Securities (f)
------- ---------- ---
Name, Principal (c) (b) Underlying All Other
--------------- --- --- ---------- ---------
Position, and Salary Bonus Options Compensation
------------- ------ ----- ------- ------------
Fiscal Period ($) ($)(a) (#)(a) (c)
------------- --- ------ ------ ---
James J. Maiwurm, Current Chairman,
President and CEO(d)
Fiscal 1999.................... $252,406 $250,296 0 $ 2,548
Keith M. Price, Former President and
CEO(e)
Fiscal 1999...................... $213,186 $ 50,000 0 $705,751
Fiscal 1998...................... $141,347 $ 50,000 200,000 options $ 52,068
S. Robert Cochran, Executive Vice
President(f)
Fiscal 1999 ..................... $245,583 $151,973 0 $ 13,264
Fiscal 1998...................... $200,013 $ 25,000 50,000 options $ 13,384
Fiscal 1997...................... $182,307 $ 15,000 9,900 options $ 13,138
Richard Leupen, Executive Vice
President(g)
Fiscal 1999...................... $291,266 $204,887 0 $ 99,246
Fiscal 1998...................... $207,357 $146,000 200,000 options $ 57,514
Fiscal 1997...................... $168,064 $ 80,000 9,900 options $ 25,151
Timothy P. O'Connor, Executive Vice
President, CFO(h)
Fiscal 1999...................... $238,848 $344,298 0 $ 12,641
Fiscal 1998...................... $200,013 $ 58,000 60,000 options $ 9,995
Fiscal 1997...................... $118,890 $ 7,500 6,000 options $ 7,567
Marijo L. Ahlgrimm, Senior Vice
President and Controller(i)
Fiscal 1999...................... $163,229 $ 88,322 0 $ 9,016
Fiscal 1998...................... $115,003 $ 0 0 $ 2,212
Fiscal 1997...................... $ 6,635 $ 0 6,000 options $ 0
- ----------------
(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. Restricted stock
and 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. No dividends are paid on any shares of restricted stock.
(b) Any amounts shown in the "Other Annual Compensation" column do not include
any perquisites or other personal benefits because the aggregate amount of
such compensation for each of the Named Executive Officers did not exceed
the lesser of (i) $50,000 or (ii) 10% of the combined salary and bonus for
the Named Executive Officer for the stated fiscal period.
(c) The Company's 1999 contributions to the Named Executive Officers pursuant
to the Company's Retirement Plan will not be made until September 2000 and
hence is not included herein.
(d) On June 1, 1999, Mr. Maiwurm entered into an employment agreement with the
Company. For a full description of the terms of the agreement, refer to the
discussion under "Certain Relationships and Related Transactions-Executive
Officers" on page 34 of this Report.
(e) Mr. Price was appointed President and CEO of the Company as of August 5,
1998. On April 27, 1999, Mr. Price and the Company mutually agreed to
terminate his employment effective April 30, 1999. As a result of these
agreements, the information for fiscal 1999 and 1998, represents all
Page 26
compensation paid to or earned by Mr. Price during the periods commencing
on his hire date through the period covering his termination. For a fuller
description of the terms of these agreements, refer to the discussion under
"Certain Relationships and Related Transactions--Current Directors" on
page 32 of this Report. The amount in column (d) represents a signing bonus
paid to Mr. Price in connection with his agreeing to serve as President and
CEO of the Company. The amounts in column (f) of the table for Mr. Price
comprise the following:
Fiscal 1999 $677,450 Severance
$ 2,400 Company match under the Company's Section 401(k) Plan
$ 793 Spouse travel
$ 25,108 Relocation expenses
Fiscal 1998 $ 1,757 Company match under the Company's Section 401(k) Plan
$ 3,770 Spouse travel
$ 943 Car allowance
$ 45,598 Relocation expenses
(f) On June 1, 1999, Mr. Cochran entered into an employment agreement with the
Company. For a full description of the terms of the agreement, refer to
the discussion under "Certain Relationships and Related Transactions-
Executive Officers" on page 34 of this Report. The amounts shown in column
(f) of the table for Mr. Cochran comprise the following:
Fiscal 1999 $ 3,200 Company match under the Company's Section 401(k) Plan
$10,164 Company Retirement Plan Contribution for 1998 made in September 1999
Fiscal 1998 $ 3,200 Company match under the Company's Section 401(k) Plan
$10,184 Company Retirement Plan Contribution for 1997 made in September 1998
Fiscal 1997 $ 3,646 Company match under the Company's Section 401(k) Plan
$ 9,492 Company Retirement Plan Contribution for 1997 made in September 1997
(g) On June 1, 1999, Mr. Leupen entered into an amended employment agreement
with the Company. For a full description of the terms of related
agreements, refer to the discussion under "Certain Relationships and
Related Transactions- Executive Officers" on page 34 of this Report. The
amounts shown in column (f) of the table for Mr. Leupen comprise the
following:
Fiscal 1999 $ 2,508 Company match under the Company's Section 401(k) Plan
$37,090 Company Retirement Plan contribution for 1998 made in September 1999
$22,063 Relocation expenses
$12,461 Car Allowance
$25,124 Spouse travel
Fiscal 1998 $ 1,385 Company match under the Company's Section 401(k) Plan
$ 7,897 Company Retirement Plan contribution for 1997 made in September 1998
$31,452 Relocation expenses
$11,191 Car Allowance
$ 5,589 Spouse travel
Fiscal 1997 $10,247 Company Retirement Plan contribution for 1997
$14,904 Car Allowance
(h) On June 1, 1999, Mr. O'Connor entered into an employment agreement with the
Company. For a full description of the terms of the agreement, refer to
the discussion under "Certain Relationships and Related Transactions-
Executive Officers" on page 35 of this Report. The amounts shown in column
(f) of the table for Mr. O'Connor comprise the following:
Fiscal 1999 $ 2,577 Company match under the Company's Section 401(k) Plan
$10,064 Company Retirement Plan Contribution for 1998 made in September 1999
Fiscal 1998 $ 2,500 Company match under the Company's Section 401(k) Plan
$ 7,495 Company Retirement Plan Contribution for 1997 made in September 1998
Fiscal 1997 $ 2,378 Company match under the Company's Section 401(k) Plan
$ 5,189 Company Retirement Plan Contribution for 1997 made in September 1997
Page 27
(i) The amounts shown in column (f) of the table for Ms. Ahlgrimm comprise the
following:
Fiscal 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
Fiscal 1998 $2,212 Company match under the Company's Section 401(k) Plan
OPTION GRANTS IN LAST FISCAL YEAR
There were no option grants to any of the Named Executive Officers during
the year ended December 31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
The following table shows certain information concerning the value as of
December 31, 1999 of unexercised options held by each of the Named Executive
Officers identified in the Summary Compensation Table on page 26 of this Report.
None of such Named Executive Officers exercised stock options during the fiscal
year ended December 31, 1999.
(a) (b) (c) (d) (e)
Value of Unexercised
Number of Securities --------------------
-------------------- In-the-Money Options
Shares Value Underlying Unexercised
------ ----- ---------------------- --------------------
Acquired on Realized Options at 12/31/99 (#) at 12/31/99 ($)
----------- -------- ----------------------- ---------------
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable*
---- ------------ --------- ------------------------- --------------------------
James J. Maiwurm........ 0 0 0/0 $0/$0
Keith M. Price.......... 0 0 200,000/0 $0/$0
Richard Leupen.......... 0 0 167,425/42,475 $0/$0
S. Robert Cochran....... 0 0 17,425/42,475 $0/$0
Timothy P. O'Connor..... 0 0 62,250/3,750 $0/$0
Marijo L. Ahlgrimm...... 0 0 3,000/3,000 $0/$0
James O. Edwards........ 0 0 30,000/10,000 $0/$0
Sudhakar Kesavan........ 0 0 49,950/14,150 $0/$0
- --------------
* The exercise price of all options is the average closing price of the
Company's Common Stock on each of the 20 trading days prior to the date of
grant, with the 20th day being the trading date immediately preceding the date
of grant. The closing price of the Company's Common Stock on December 31, 1999,
was $0.375 per share.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
In connection with their employment with the Company during the year ended
December 31, 1999, six of the executive officers, who are named in the Summary
Compensation Table have or had employment contracts. In connection with the
termination of their employment with the Company, three of these executive
officers received severance packages. These arrangements are described under
"Certain Relationships and Related Transactions--Current Directors" and "--
Former Directors/Executive Officers" on pages 31 - 35 of this Report.
Compensation and Human Resources Committee Interlocks and Insider Participation
The members of the Compensation & Human Resources Committee are Hazel
O'Leary (Chairperson), Thomas C. Jorling, and James T. Rhodes, none of whom are
employed by the Company. For the year ended December 31, 1999, there were no
director relationships that require disclosure under this section.
Page 28
Compensation of Non-employee Directors Effective March 1, 1997
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 $20,000, payable in advance in quarterly
installments, and is reimbursed for his or her expenses incurred in connection
with his or her Board service. Directors of the Company who are employees of the
Company are not compensated separately for their service as Directors.
On February 28, 1997, the Board of Directors adopted the Kaiser Group
International, Inc. Non-employee Directors Compensation and Phantom Stock Plan,
which provides for the cash compensation discussed in the preceding paragraph.
In addition, in lieu of option grants under the Non-employee Directors Stock
Option Plan adopted in 1991, each Non-employee Director of the Company is
granted a Phantom Stock Award ("PSA") equal to $20,000 worth of Common Stock
on the date of grant; the date of grant is the date of the annual board meeting
which occurs immediately following the conclusion of the Annual Meeting of
Shareholders. Three years after the PSA grant, the Company will pay each Non-
employee Director in cash the value of the shares to which the PSA relates. The
number of shares of Common Stock to which the PSA relates will be determined
using the average closing prices of the Common Stock for the 20 trading days
immediately prior to the date of grant. The same method will be used to
determine the value of the phantom stock as of the date of the cash payout.
In lieu of receiving cash compensation pursuant to the terms of the Kaiser
Group International, Inc. Non-employee Directors Compensation and Phantom Stock
Plan described above, on January 1, 1999, Mr. Coelho was being paid an annual
fee of $120,000. This amounts was being paid to Mr. Coelho as consideration for
his services as Chairman of the Board of Directors. Mr. Coelho resigned his
position as Chairman on June 7, 1999 and from the Board of Directors in
September 1999.
In 1999, the Non-employee Directors were awarded the following Phantom
Stock Units under the Kaiser Group International, Inc. Non-employee Directors
Compensation and Phantom Stock Plan:
Per Share Price
---------------
Total Value of (20-trading day Total Number of
-------------- --------------- ---------------
Common Stock average at Phantom Stock Date of
------------ ---------- ------------- -------
Non-employee Director on Date of Grant November 3, 1999) Units Granted Cash Payout
--------------------- ---------------- ----------------- ------------- -----------
Jarrod M. Cohen................ $20,000 $0.36 55,556 November 4, 2002
James T. Rhodes................ $20,000 $0.36 55,556 November 4, 2002
James O. Edwards............... $20,000 $0.36 55,556 November 4, 2002
Keith M. Price................. $20,000 $0.36 55,556 November 4, 2002
Michael E. Tennenbaum.......... $20,000 $0.36 55,556 November 4, 2002
Thomas C. Jorling.............. $20,000 $0.36 55,556 November 4, 2002
Hazel R. O'Leary .............. $20,000 $0.36 55,556 November 4, 2002
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of the April 14, 2000,
regarding each person known by the Company to beneficially own 5% or more of the
outstanding Common Stock of the Company. A person is deemed to be a beneficial
owner of the Company's Common Stock if that person has voting or investment
power (or voting and investment powers) over any shares of Common Stock or has
the right to acquire such shares pursuant to exercisable options or warrants
within 60 days from April 14, 2000.
Amount and Nature of
Beneficial
--------------------
Name and Address of Beneficial Owners Ownership of Shares of Percent of
------------------------------------- ---------------------- ----------
of More Than 5% of the Common Stock of the Common Stock
---------------------- ------------------- ------------
Common Stock of the Company Company(a) of the Company
--------------------------- ---------- --------------
Tennenbaum & Co., LLC;........................ 2,600,000(a) 11%
Michael E. Tennenbaum
11100 Santa Monica Boulevard
Los Angeles, CA 90025
- ----------------
Page 29
(a) The information with respect to the shares of common stock beneficially
owned by Tennenbaum & Co., LLC and Michael E. Tennenbaum is based on a
Report on Schedule 13D, Amendment No. 2 dated May 7, 1999, which was filed
with the SEC. Mr. Tennenbaum is a director of Kaiser.
The following table sets forth information regarding the beneficial
ownership of shares of common stock of Kaiser by each director, and by 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 April 14, 1999, except that information with
respect to ownership of shares of Common Stock in the Company's Employee Stock
Ownership Plan, Section 401(k) Plan, and Retirement Plan is current as of
December 31, 1999. The information is based on the Company's review of public
reports filed by each director/executive officer.
Amount and Nature of Percent of
-------------------- ----------
Certain Beneficial Owners Beneficial Ownership Common Stock
------------------------- -------------------- ------------
of Shares of Common Stock of Shares of Common of the Company
------------------------- ------------------- --------------
of the Company Stock of the Company(a) (*Less than 1%)
-------------- ----------------------- ---------------
(i) Directors
Jarrod M. Cohen..................................... 692,576(d) 2.7%
James O. Edwards.................................... 495,517(e) 1.7%
Thomas C. Jorling................................... 78,283(b) *
Hazel R. O'Leary.................................... 74,483(c) *
Keith M. Price...................................... 272,283(f) *
James T. Rhodes..................................... 62,574(g) *
Michael E. Tennenbaum............................... 2,662,574(h) 11%
James J. Maiwurm.................................... 0(k) *
(ii) Named Executive Officers
S. Robert Cochran................................... 60,900(i) *
Executive Vice President
Richard A. Leupen................................... 209,900(j) *
Executive Vice President
Timothy P. O'Connor................................. 66,000(l) *
Executive Vice President
Marijo L. Ahlgrimm.................................. 6,000(m) *
Senior Vice President
(iii) All Directors and Current Executive Officers as a Group
(12 Persons) 4,681,090(n) 15.4%
- -------
(a) For the purposes of this table, a person or group is deemed to have
"beneficial ownership" of any shares of common stock which such person has
the right to acquire within 60 days after the date as of which the
information is presented. However, for purposes of computing the percentage
of outstanding shares of common stock held by each person or group of
persons named above, any security which such person or group of persons has
the right to acquire from Kaiser within 60 days from the date as of which
the information is presented is not deemed to be outstanding for the
purposes of computing the percentage ownership of any other person.
(b) Mr. Jorling's share ownership includes 6,000 shares that may be acquired
within 60 days of April 14, 2000 upon the exercise of stock options. Mr.
Jorling has 72,283 Phantom Stock Units.
(c) Mrs. O'Leary has 72,283 Phantom Stock Units. Mrs. O'Leary also owns
directly 2,200 other shares.
(d) The information with respect to the shares of common stock beneficially
owned by Jarrod M. Cohen is based on information from Mr. Jarrod Cohen, and
is current as of April 10, 2000. Mr. Cohen has informed Kaiser that he
directly owns a total of 59,000 shares. Additionally, Mr. Cohen has sole
voting and investment power as to 637,020 shares beneficially owned by J.M.
Cohen & Company. Mr. Jarrod Cohen has 55,556 Phantom Stock Units.
(e) Mr. Edwards' share ownership includes 2,769 shares allocated to his ESOP
account, 2,406 shares allocated to his Section 401(k) Plan account, 72,338
shares allocated to his Retirement Plan account, and 30,000 shares that may
be acquired within 60 days of April 14, 2000 upon the exercise of stock
options. Mr. Edwards owns 20,000 restricted shares and has 55,556 Phantom
Stock Units. Mr. Edwards also owns directly 297,698 shares, 4,750 of which
are held in Mr. Edwards' IRA account.
Page 30
Additionally, 4,750 shares are indirectly owned and are held in Mr. Edwards
spouse's IRA account. Mr. Edwards also owns 10,000 options which are not
exercisable until January 24, 2001.
(f) Mr. Price's share ownership includes 200,000 shares that may be acquired
within 60 days of April 14, 2000 upon the exercise of stock options. Mr.
Price has 72,283 Phantom Stock Units.
(g) Mr. Rhodes has 62,574 Phantom Stock Units.
(h) The information with respect to the shares of common stock beneficially
owned by Tennenbaum & Co., LLC and Michael E. Tennenbaum is based on a
Report on Schedule 13D, Amendment No. 2 dated May 7, 1999, which was filed
with the SEC. Mr. Tennenbaum is a director of Kaiser. Mr. Tennenbaum is the
Managing Member of and may be deemed to control Tennenbaum & Co. LLC, which
owns 2,600,000 shares of common stock included in this table. Mr. Tennenbaum
also has 62,574 Phantom Stock Units.
(i) Mr. Cochran's share ownership includes 17,425 shares that may be acquired
within 60 days of April 14, 2000 upon the exercise of stock options. Mr.
Cochran has 10,000 options which are not exercisable until January 6, 2001;
2,475 options exercisable on January 24, 2001; 10,000 options exercisable on
January 6, 2002; 10,000 options exercisable on January 6, 2003; and 10,000
options exercisable on January 6, 2004. Mr. Cochran also owns directly 1,000
shares.
(j) Mr. Leupen's share ownership includes 167,425 shares that may be acquired
within 60 days of April 14, 2000 upon the exercise of stock options. Mr.
Leupen also has 2,475 options which are not exercisable until January 24,
2001; 10,000 options exercisable on February 27, 2001; 10,000 options
exercisable on February 27, 2002; 10,000 options exercisable on February 27,
2003; and 10,000 options exercisable on February 27, 2004.
(k) Mr. Maiwurm has no share ownership in the Company.
(l) Mr. O'Connor's share ownership includes 62,250 shares that may be acquired
within 60 days of April 14, 2000 upon the exercise of stock options. Mr.
O'Connor also owns 3,750 options which are not exercisable until January 01,
2001.
(m) Ms. Ahlgrimm's share ownership includes 3,000 shares that may be acquired
within 60 days of April 14, 2000 upon the exercise of stock options. Ms.
Ahlgrimm also owns 3,000 options which are exercisable in 50% installments
on December 8, 2000 and 2001, respectively.
(n) This total includes 453,109 Phantom Stock Units, 2,769 shares allocated to
ESOP accounts, 2,406 shares in Section 401(k) Plan accounts, 72,338 shares
allocated to individuals under the Retirement Plan or held in directed
investment accounts under the Retirement Plan, 486,100 shares that may be
acquired within 60 days of April 14, 2000 upon the exercise of stock
options, 40,763 restricted shares, 101,700 Unexercisable options, and
3,521,905 shares.
Item 13. Certain Relationships and Related Transactions
Current Directors
Jarrod M. Cohen. On March 13, 1998, the Company and Mr. Jarrod M.
Cohen (for himself, Cowen and Company, Cowen Incorporated, and Joseph M. Cohen,
collectively, the "Cohen Parties") signed an agreement pursuant to which the
Company agreed, upon receipt of Mr. Cohen's written request at any time between
July 1 and December 31, 1998, to enlarge the class of directors whose terms
expire at the 2000 Annual Meeting of Shareholders and elect Mr. Cohen to fill
the resulting vacancy. The Cohen Parties agreed (i) to withdraw any previous
consents and agreed not to consent to be a nominee for election to the Board of
Directors at the Company's 1998 Annual Meeting of Shareholders, (ii) to vote in
favor of the Company-proposed nominees for election at the 1998 Annual Meeting
of Shareholders, and (iii) to be present, in person or by Report, or otherwise
be deemed to be present (to the extent permitted by law) at meetings for which
they were given notice for the purpose of determining the presence of a quorum
at such meetings. In addition, the Cohen Parties agreed (a) not to subject any
of the Company's voting securities to a voting trust or voting agreement; (b)
not to solicit proxies or become a participant in a solicitation in opposition
to any recommendation of the Board of Directors of the Company; (c) not to join
with others or otherwise act in concert with others for the purpose of
acquiring, holding, voting, or disposing of voting securities of the Company;
(d) not to become, alone or in conjunction with others, an acquiring person as
defined in the Company's Shareholders Rights Plan; and (e) not to dispose of any
voting securities of the Company to any person who, to the knowledge of the
Cohen Parties, as a result of acquiring such voting securities would become an
acquiring person as defined in the Company's Shareholder Rights Plan. The
provisions of (a) through (e) above apply during the period from March 13, 1998
to the date Mr. Cohen or any other designee of the Cohen Parties ceases to be a
member of the Board of Directors. It was agreed that if the Cohen Parties
obtained the express written consent of a
Page 31
majority of the directors of the Company who are not designated by the Cohen
Parties, then the provisions of (a) through (e) above would not apply.
James O. Edwards. Effective May 1, 1997, the Company entered into an
employment agreement with Mr. Edwards for his services as Chairman and Chief
Executive Officer of the Company through December 31, 1999. In addition to
delineating Mr. Edwards' areas of responsibility and reporting line, the
agreement provided for a base annual salary of $400,000 beginning on April 1,
1997 (with $25,000 increases in each of the next two years); annual bonus
compensation to be determined by the Compensation & Human Resources Committee of
the Company's Board of Directors; severance payments as provided under the
Company's Senior Executive Officers Severance Plan; eligibility under the
Company's employee benefit plans; and a one-year non-competition period
following voluntary or "for cause" employment termination. The agreement also
provided for the grant on December 31, 1998, of 200,000 shares of Restricted
Stock under the Company's Stock Incentive Plan; 100,000 of these shares to vest
on December 31, 1999, with the balance vesting on December 31, 2000. Vesting
terms in the event of termination of Mr. Edwards' employment or his death also
are outlined in the agreement. As part of his employment agreement with the
Company, Mr. Edwards' outstanding indebtedness to the Company on May 1, 1997,
was restructured.
On November 6, 1998, Mr. Edwards entered into an agreement with the Company,
pursuant to which the parties mutually agreed to terminate Mr. Edwards'
employment agreement. In consideration of Mr. Edwards agreeing to terminate his
employment agreement, the Company agreed to compensate him with cash in the
aggregate amount of $850,000, all of which has been paid. The Company further
agreed (i) to provide Mr. Edwards and his dependents with continued health,
welfare, and life insurance benefits through April 30, 1999, (ii) to accelerate
the vesting of 30,000 options previously granted pursuant to the Company's Stock
Incentive Plan, (iii) consistent with the terms of his employment agreement, to
award 200,000 shares of restricted Common Stock, which shares vest upon the
earlier of November 6, 1999, or the merger, consolidation, sale of stock, or
sale of substantially all of the assets of, the Company, and (iv) to forgive
approximately $1,396,139 of indebtedness previously owed by Mr. Edwards to the
Company. In addition, Mr. Edwards agreed to provide certain consulting services
to the Company through January 31, 1999, for which he was compensated with
approximately $98,559 of cash payments. The Company will pay on Mr. Edwards'
behalf the amount of $10,000 for legal fees incurred by him in connection with
the negotiation of this Agreement. In exchange for the benefits received by Mr.
Edwards which are described in this paragraph, Mr. Edwards agreed to terminate
his employment agreement and execute a full general release as to the Company
and its affiliated parties.
Keith M. Price. On April 27, 1999, Mr. Price entered into an agreement with
Kaiser, pursuant to which the parties mutually agreed to terminate Mr. Price's
employment agreement effective as of April 30, 1999. The terms of that
employment agreement are described in the following two paragraphs. Consistent
with the terms of his employment agreement and inconsideration of Mr. Price's
agreeing to terminate his employment agreement, Kaiser paid him an aggregate
amount of $677,450 in cash. Kaiser further agreed (I) to provide Mr. Price and
his dependents with continued health, welfare and life insurance benefits
through April 30, 1999, (ii) to accelerate the vesting of certain options
previously granted to Mr. Price pursuant to Kaiser's Stock Incentive Plan, (iii)
to reimburse Mr. Price for certain costs and expenses in connection with Mr.
Price's move from Washington, D.C. to Boise, Idaho, and (iv) to continue to
provide directors and officers liability insurance coverage to Mr. Price for Mr.
Price's tenure at Kaiser. In addition, Mr. Price agreed to provide certain
consulting services to Kaiser through September 30, 2000, for which he will be
compensated monthly at a rate of $200 per hour with a $10,000 per month minimum.
Kaiser also agreed to reimburse Mr. Price for legal fees incurred by Mr. Price
in connection with the negotiation of this agreement up to a maximum of $1,000.
In exchange for the benefits received by Mr. Price which are described in this
paragraph, Mr. Price agreed to terminate his employment agreement and execute a
full general release as to Kaiser and its affiliated parties, and further agreed
not to compete with Kaiser for a period commencing on April 30, 1999 and running
through September 30, 2000.
Effective August 5, 1998, the Company entered into an employment agreement
with Mr. Price for his services as President and Chief Operating Officer of the
Company through August 5, 1999. In addition to delineating Mr. Price's areas of
responsibility and reporting line, the agreement provided for a base annual
salary of $375,000; a signing bonus of $100,000, $50,000 of which was paid upon
commencement of employment and $50,000 on January 1, 1999; annual bonus
compensation of not less than 50% of base annual salary; severance payments
equal to the balance of base annual compensation for the one year contract term;
eligibility under the Company's employee benefit plans, and a one-year, non-
Page 32
competition period following termination of employment for any reason other than
employment through the term of the contract. The agreement also provided for the
grant of three-year options to purchase 150,000 shares of the Company's common
stock, 50% of the options to vest on February 5, 1999 and 50% on August 4, 1999.
Effective November 4, 1998, Mr. Price was promoted to Chief Executive Officer
and the Company agreed to extend the term of Mr. Price's contract to two years
commencing August 5, 1998 and to grant Mr. Price three year options to purchase
an additional 50,000 share of the Company's common stock, 50% of the options to
vest on May 4, 1999 and 50% to vest on November 4, 1999, subject to his
continued employment through such dates.
Michael E. Tennenbaum. On March 13, 1998, the Company and Mr. Michael E.
Tennenbaum signed an agreement pursuant to which the Company agreed to nominate,
recommend, and solicit proxies for Mr. Tennenbaum's election as a Director of
the Company at the May 1, 1998, Annual Meeting of Shareholders for a three-year
term expiring at the 2001 Annual Meeting of Shareholders, and until his
successor is duly elected. The Company and Mr. Tennenbaum agreed that during the
period from March 13, 1998, to the earlier of (i) March 13, 2003, and (ii) the
day after the date Mr. Tennenbaum, Tennenbaum & Co., LLC, and their affiliates
cease to be the beneficial owners of any of the Company's voting securities (the
"Restricted Securities"), Mr. Tennenbaum and Tennenbaum & Co., LLC (the
"Tennenbaum Parties") shall not acquire, directly or indirectly, any voting
securities of the Company if, following such acquisition, the Tennenbaum Parties
and their affiliates would, directly or indirectly, be the beneficial owners of
more than 19.5% of the total combined voting power of all issued and outstanding
securities of the Company. The agreement states that the limitation set forth in
the immediately preceding sentence shall not be violated if the Tennenbaum
Parties and their affiliates become entitled to exercise voting power in excess
of 19.5% as a result of any event or circumstance other than the acquisition by
the Tennenbaum Parties or their affiliates of beneficial ownership of additional
voting securities of the Company. The Company agreed not to take any action,
including without limitation, any amendment to its Shareholders Rights Plan that
would prevent the Tennenbaum Parties from acquiring additional securities within
the limitations set forth above. The Tennenbaum Parties agreed that they (a)
would not subject any Restricted Securities to any voting trust or voting
agreement; (b) would not recruit or engage in organizing persons not nominated
by the Board of Directors to oppose the Board of Directors nominated candidates
in an election; (c) would not financially support a Report contest for Board of
Directors candidates to oppose the candidates nominated by the Board of
Directors; (d) would not provide any material, non-public information gained in
Mr. Tennenbaum's position as a Director to opposing Board candidates, except as
required by law, and then only after giving notice to the Company; (e) would not
join a partnership, limited partnership, syndicate, or other group or otherwise
act in concert with others for the purpose of acquiring, holding, voting, or
disposing of voting securities of the Company; and (f) would be present, in
person or by Report, or otherwise be deemed to be present (to the extent
permitted by law), at meetings for which they were given notice for the purpose
of determining the presence of a quorum as such meetings. The provisions of (a)
through (f) above apply during the period during which Mr. Tennenbaum (or
another affiliate of the Tennenbaum Parties) is a member of the Board of
Directors, and for a period of 90 days thereafter. It was agreed that if the
Tennenbaum Parties obtained the express written consent of a majority of the
directors of the Company who are not designated by the Tennenbaum Parties, then
the 19.5% ownership limitation and the provisions of (a) through (f) above would
not apply. Finally, the Company agreed to reimburse the Tennenbaum Parties for
reasonable and necessary documented out-of-pocket expenses incurred by them in
connection with their proposals to the Board of Directors of the Company and the
potential solicitation of proxies for the election of directors of the Company,
which reimbursement was made in the amount of $16,307.
Current Executive Officers
James J. Maiwurm. The Company entered into an employment agreement with Mr.
Maiwurm for his services as President and Chief Executive Officer of Kaiser
Group International, Inc. for the period June 1, 1999 through June 30, 2001. In
addition to delineating Mr. Maiwurm's areas of responsibility, the agreement
provides for a base annual salary of $375,000 through June 30, 2000, thereafter
subject to increase as determined by the Compensation & Human Resources
Committee. The agreement also provides for retention bonuses of $90,000 and
$90,000, payable upon the execution of the employment agreement and on May 1,
2000, respectively, as well as incentive bonus arrangements for amounts not to
exceed $387,500 (representing a bonus opportunity equal to 50% of the
executive's initial annual base salary that is contingent on satisfaction of
operational objectives and a special bonus opportunity of $200,000 that was
contingent on satisfaction of the Company's recapitalization objectives) payable
at the
Page 33
time and contingent upon the extent to which the corporation achieves specified
objectives. Either party may terminate the agreement upon thirty (30) days'
prior written notice. In the event that the agreement is terminated without
"cause" by the Company or by Mr. Maiwurm with "good reason" (as such terms
are defined in the agreement), Mr. Maiwurm is entitled to receive a severance
payment equal to two times his annual base salary in effect at the time of such
termination. Additionally, in the event that Mr. Maiwurm terminates the
agreement without "good reason" within twelve months after a "Change in
Control", Mr. Maiwurm is entitled to receive severance payment equal to one time
his annual base salary.
S. Robert Cochran. The Company entered into an employment agreement with
Mr. Cochran for his services as President, North America, of Kaiser Group
International, Inc. for the period June 1, 1999 through June 30, 2001. In
addition to delineating Mr. Cochran's areas of responsibility and reporting
lines, the agreement provides for a base annual salary of $260,000 through June
30, 2000, thereafter subject to increase as determined by the Compensation &
Human Resources Committee. In addition to eligibility under the Company's
employee benefit plans, the agreement also provides for retention bonus's of
$50,000 and $25,000 payable upon the execution of the employment agreement and
on May 1, 2000, respectively, as well as incentive bonus arrangements for
amounts not to exceed $130,000 (representing a bonus opportunity equal to 50% of
the executive's initial annual base salary that is contingent on satisfaction of
operational objectives). Either party may terminate the agreement upon thirty
(30) days' prior written notice. In the event that the agreement is terminated
without "cause" by the Company or by Mr. Cochran with "good reason" (as such
terms are defined in the agreement), Mr. Cochran is entitled to receive a
severance payment equal to two times his annual base salary in effect at the
time of such termination.
Richard A. Leupen. The Company entered into an amended employment agreement
with Mr. Leupen for his services as President, International, of Kaiser Group
International, Inc. for the period June 1, 1999 through December 31, 2000. In
addition to delineating Mr. Leupen's areas of responsibility, the agreement
provides for a base annual salary of $260,000 through June 30, 2000, thereafter
subject to increase as determined by the Compensation & Human Resources
Committee. In addition to eligibility under the Company's employee benefit
plans, the agreement also provides for retention bonuses of $25,000 and $25,000,
payable upon the execution of the employment agreement and on May 1, 2000,
respectively, as well as incentive bonus arrangements for amounts not to exceed
$130,000 (representing a bonus opportunity equal to 50% of the executive's
initial annual base salary that is contingent on satisfaction of operational
objectives). Either party may terminate the agreement upon ninety (90) days'
prior written notice. In the event that the Company terminates the agreement
without "cause" or Mr. Leupen terminates the agreement with "good reason"
(as such terms are defined in the agreement), Mr. Leupen is entitled to receive
a severance payment equal to one time his annual base salary in effect at the
time of such termination.
Prior to the amended agreement, Mr. Leupen's employment agreement with the
Company, for his role as President of the Engineers and Constructors Group and
Executive Vice President of the Company, was for the term of October 5, 1998
through August 4, 2001. In addition to delineating Mr. Leupen's areas of
responsibility and reporting line, the agreement provided for a base annual
salary of $300,000 beginning on October 5, 1998, subject to annual increases to
be determined by the Compensation & Human Resources Committee; a relocation
bonus of $46,000; bonus compensation of $35,000 for the period ended June 30,
1998, not less than $75,000 for the period ended December 31, 1998, not less
than $150,000 for the period ended August 4, 1999; signing bonus of $100,000,
payable in two equal increments on August 4, 1998 and January 1, 1999;
eligibility under the Company's employee benefit plans; reimbursement of
relocation and related expenses for Mr. Leupen and his family; and a one-year
non-competition following termination for "cause" of Mr. Leupen's employment.
The agreement also provided for the grant of 150,000 options, 50% of which
vested immediately and the remainder vested on January 1, 1999
Timothy P. O'Connor. The Company entered into an employment agreement with
Mr. O'Connor for his services as Chief Financial Officer of Kaiser Group
International, Inc. for the period June 1, 1999 through December 31, 2000. In
addition to delineating Mr. O'Connor's areas of responsibility, the agreement
provides for a base annual salary of $260,000 through June 30, 2000, thereafter
subject to increase as determined by the Compensation & Human Resources
Committee. In addition to eligibility under the Company's employee benefit
plans, the agreement also provides for retention bonuses of $75,000 and $55,000,
payable upon the execution of the employment agreement and on May 1, 2000,
respectively, as well as incentive bonus arrangements for amounts not to exceed
$330,000 (representing a bonus opportunity equal to 50% of the executive's
initial annual base salary that
Page 34
is contingent on satisfaction of operational objectives and a special bonus
opportunity of $200,000 that is contingent on satisfaction of the Company's
recapitalization objectives) payable at the time and contingent upon the extent
to which the corporation achieves specified objectives. Either party may
terminate the agreement upon thirty (30) days' prior written notice. In the
event that the agreement is terminated without "cause" by the Company or by
Mr. O'Connor with "good reason" (as such terms are defined in the agreement),
Mr. O'Connor is entitled to receive a severance payment equal to two times his
annual base salary in effect of such termination.
Former Directors/Executive Officers
None
Page 35
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this Report
Page
----
1. Consolidated Financial Statements of Kaiser Group International, Inc. and Subsidiaries
a. Report of Independent Accountants ...................................................... F-1
b. Consolidated Balance Sheets as of December 31, 1999 and December 31, 1998 .............. F-2
c. Consolidated Statements of Operations for the years ended December 31, 1999,
1998 and 1997 ........................................................................ F-3
d. Consolidated Statements of Shareholders' Equity (Deficit) and Comprehensive (Loss)
for the years ended December 31, 1999, 1998 and 1997 ................................. F-4
e. Consolidated Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997 ........................................................................ F-5
f. Notes to Consolidated Financial Statements ............................................. F-6
2. Supplemental Schedule Relating to the Consolidated Financial Statements of Kaiser Group
International, Inc. and Subsidiaries for the years ended December 31, 1999, 1998 and 1997.
a. Schedule II: Valuation and Qualifying Accounts ........................................ S-1
All Schedules except the one 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.
(b) Exhibits
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
sucession
2(a) Prospectus and Consent Solicitation contained in the Registration
Statement on Form S-4 (Registrant No. 1-12248) filed with the Commission
on October 1, 1999)
Exhibit No. 3--Articles of Incorporation and By-laws of the Registrant
3(a) Restated Certificate of Incorporation of Kaiser Group International, Inc.
(restated through June 26, 1993) (Incorporated by reference to Exhibit No.
3(a) 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. Amended Certificate of Incorporation of Kaiser Group International,
Inc. (restated through December 27, 1999) (Incorporated by reference
to Exhibit A to Report on Form 8-K (Registrant No. 1-12248) filed with
the Commission on December 29, 1999)
2. Certificate of Ownership and Merger with respect to name change only
dated December 27, 1999 (Incorporated by reference to Exhibit 3(a)(2)
to Registration Statement on Form 8-A filed with the Commission on
April 13, 2000)
3(b) Amended and Restated By-laws of Kaiser Group International, Inc. (as
amended through December 27, 1999) (Incorporated by reference to Exhibit
3(b) to Registration Statement on Form 8-A filed with the Commission on
April 13, 2000)
Page 36
Exhibit No. 3--Articles of Incorporation and By-laws of the Subsidiary
Guarantors
3(c) Articles of Incorporation of Cygna Consulting Engineers and Project
Management, Inc. (Incorporated by reference to Exhibit No. 3(c) to
Registration Statement on Form S-1 Registration No. 333-19519 filed with
the Commission on January 10, 1997)
3(d) By-laws of Cygna Consulting Engineers and Project Management, Inc.
(Incorporated by reference to Exhibit No. 3(d) to Registration Statement
on Form S-1 Registration No. 333-19519 filed with the Commission on
January 10, 1997)
3(e) Certificate of Incorporation of Kaiser Government Programs, Inc.
(Incorporated by reference to Exhibit No. 3(e) to Registration Statement on
Form S-1 Registration No. 333-19519 filed with the Commission on January
10, 1997)
1. Amended Certificate of Incorporation with respect to name change only
filed with the Delaware Secretary of State on August 27, 1999
(Incorporated by reference to Exhibit 3(e)(1) to Registration Statement
on Form 8-A filed with the Commission on April 13, 2000)
3(f) By-laws of Kaiser Government Programs, Inc. (Incorporated by reference to
Exhibit No. 3(f) to Registration Statement on Form S-1 Registration No.
333-19519 filed with the Commission on January 10, 1997)
3(g) Certificate of Incorporation of EDA, Incorporated (Incorporated by
reference to Exhibit No. 3(k) to Annual Report on Form 10-K (Registrant
No. 1-12248) for fiscal year 1997 filed with the Commission on March 31,
1998)
3(h) Amended and Restated By-laws of EDA, Incorporated (Incorporated by
reference to Exhibit No. 3(l) to Annual Report on Form 10-K (Registrant
No. 1-12248) for fiscal year 1997 filed with the Commission on March 31,
1998)
3(i) Certificate of Incorporation of Global Trade & Investment, Inc.
(Incorporated by reference to Exhibit No. 3(o) to Annual Report on Form
10-K (Registrant No. 1-12248 for fiscal year 1997 filed with the
Commission on March 31, 1998)
3(j) Amended and Restated By-laws of Global Trade & Investment, Inc.
(Incorporated by reference to Exhibit No. 3(p) to Annual Report on Form
10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998)
3(k) Certificate of Incorporation of Kaiser Europe, Inc. (Incorporated by
reference to Exhibit No. 3(q) to Annual Report on Form 10-K (Registrant
No. 1-12248) for fiscal year 1997 filed with the Commission on March 31,
1998)
1. Amended Certificate of Incorporation with respect to name change only
filed with the Delaware Secretary of State on September 2, 1999
(Incorporated by reference to Exhibit 3(k)(1) to Registration
Statement on Form 8-A filed with the Commission on April 13, 2000)
3(l) By-laws of Kaiser Europe, Inc. (Incorporated by reference to Exhibit No.
3(r) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal
year 1997 filed with the Commission on March 31, 1998)
3(m) Certificate of Incorporation of Kaiser / Georgia Wilson, Inc.
(Incorporated by reference to Exhibit No. 3(s) to Annual Report on Form
10- K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998)
1. Amended Certificate of Incorporation with respect to name change only
filed with the Delaware Secretary of State December 27, 1999
(Incorporated by reference to Exhibit 3(m)(1) to Registration
Statement on Form 8-A filed with the Commission on April 13, 2000)
Page 37
3(n) By-laws of Kaiser / Georgia Wilson, Inc. (Incorporated by reference to
Exhibit No. 3(t) to Annual Report on Form 10-K (Registrant No. 1-12248)
for fiscal year 1997 filed with the Commission on March 31, 1998)
3(o) Certificate of Incorporation of Kaiser Overseas Engineering, Inc.
(Incorporated by reference to Exhibit No. 3(u) to Annual Report on Form
10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998)
1. Amended Certificate of Incorporation with respect to name change only
filed with the Delaware Secretary of State on November 10, 1999
(Incorporated by reference to Exhibit 3(o)(1) to Registration
Statement on Form 8-A filed with the Commission on April 13, 2000)
3(p) Amended and Restated By-laws of Kaiser Overseas Engineering, Inc.
(Incorporated by reference to Exhibit No. 3(v) to Annual Report on Form
10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998)
3(q) Certificate of Incorporation of Kaiser Engineers Pacific, Inc.
(Incorporated by reference to Exhibit No. 3(w) to Annual Report on Form
10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998)
1. Amended Certificate of Incorporation with respect to name change only
filed with the Nevada Secretary of State on December 8, 1999
(Incorporated by reference to Exhibit 3(q)(1) to Registration
Statement on Form 8-A filed with the Commission on April 13, 2000)
3(r) Amended and Restated By-laws of Kaiser Engineers Pacific, Inc.
(Incorporated by reference to Exhibit No. 3(x) to Annual Report on Form
10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998)
3(s) Certificate of Incorporation of Kaiser Advanced Technology, Inc.
(Incorporated by reference to Exhibit No. 3(y) to Annual Report on Form
10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998) (incorporated by reference to Exhibit E No.
3 (aa) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the
third quarter of fiscal 1997 filed with the Commission on November 16,
1998)
1. Amended Certificate of Incorporation with respect to name change only
filed with the Idaho Secretary of State on November 15, 1999
(Incorporated by reference to Exhibit 3(s)(1) to Registration
Statement on Form 8-A filed with the Commission on April 13, 2000)
3(t) By-laws of Kaiser Advanced Technology, Inc. (Incorporated by reference to
Exhibit No. 3(z) to Annual Report on Form 10-K (Registrant No. 1-12248)
for fiscal year 1997 filed with the Commission on March 31, 1998)
(incorporated by reference to Exhibit No. 3 (bb) to Quarterly Report on
Form 10-Q (Registrant No. 1-12248) for the third quarter of fiscal 1997
filed with the Commission on November 16, 1998)
Exhibit No. 4--Instruments Defining the Rights of Security Holders, including
Indentures
4(a) Indenture dated as of January 11, 1994, between ICF Kaiser International,
Inc. and The Bank of New York, as Trustee (Incorporated by reference to
Exhibit No. 4(a) to Quarterly Report on Form 10-Q (Registrant No. 1-12248)
for the third quarter of fiscal 1994 filed with the Commission on January
14, 1994)
1. First Supplemental Indenture dated as of February 17, 1995
(Incorporated by reference to Exhibit No. 4(a)(1) to Annual Report on
Form 10-K (Registrant No. 1-12248) for fiscal year 1995 filed with the
Commission on May 23, 1995)
2. Second Supplemental Indenture dated September 1, 1995 (Incorporated by
reference to Exhibit No. 4(a) (2) to Registration Statement on Form
S-1 Registration No. 33-64655 filed with the Commission on November
30, 1995)
Page 38
3. Third Supplemental Indenture dated October 20, 1995 (Incorporated by
reference to Exhibit No. 4(a)(3) to Registration Statement on Form S-1
Registration No. 33-64655 filed with the Commission on November 30,
1995)
4. Fourth Supplemental Indenture dated as of March 8, 1996 (Incorporated
by reference to Exhibit No. 4 (a)(4) 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)
5. Fifth Supplemental Indenture dated as of June 24, 1996 (Incorporated
by reference to Exhibit No. 4 (a)(5) to Registration Statement on Form
S-1 Registration No. 333-16937 filed with the Commission on November
27, 1996)
6. Sixth Supplemental Indenture dated as of December 3, 1997
(Incorporated by reference to Exhibit No. 4(a)(6) to Annual Report on
Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998)
7. Seventh Supplemental Indenture dated as of August 13, 1998.
(incorporated by reference to Exhibit No. 4(a)(7) to Quarterly Report
on Form 10-Q (Registrant No. 1-12248) for the third quarter of fiscal
1997 filed with the Commission on November 16, 1998)
8. Eighth Supplemental Indenture dated as of April 9, 1999 (incorporated
by reference to Exhibit No. 4(a)(8) to Quarterly Report on Form 10-Q
(Registrant No. 1-12248) for the first quarter of fiscal 1999 filed
with the Commission on May 17, 1999)
9. Ninth Supplemental Indenture dated as of June 25, 1999 (incorporated by
reference to Exhibit No. 4(a)(9) to Pre-Effective Amendment No.3 on
Registration Statement on Form S-4 (Registrant No. 333-82643) filed
with the Commission on October 1, 1999)
10.Form of Tenth Supplemental Indenture with respect to the 12% Senior
Subordinated Notes due 2003 (incorporated by reference to Exhibit
4(a)(10) to Pre-Effective Amendment No. 3 on Registration Statement on
Form S-4 (Registrant No. 333-82643) filed with the Commission on
October 1, 1999)
4(b) Form of 12% Senior Subordinated Note due 2003 (Incorporated by reference
to Exhibit No. 4(b) to Quarterly Report on Form 10-Q (Registrant No. 1-
12248) for the third quarter of fiscal 1994 filed with the Commission on
January 14, 1994)
4(c) Form of Common Stock Purchase Warrant expiring May 15, 1999 (as amended
and restated through January 11, 1994) (Incorporated by reference to
Exhibit No. 4(e) to Quarterly Report on Form 10-Q (Registrant No. 1-12248)
for the third quarter of fiscal 1994 filed with the Commission on January
14, 1994)
4(d) Rights Agreement, dated as of January 13, 1992, between ICF Kaiser
International, Inc. and Office of the Secretary, ICF Kaiser International,
Inc. as Rights Agent, including (1) Form of Certificate of Designations of
Series 4 Junior Preferred Stock; (2) Form of Rights Certificate; and (3)
Summary of Rights to Purchase Preferred Stock (Incorporated by reference
to Exhibit No. 4(h) to Quarterly Report on Form 10-Q (Registrant No. 0-
18025) for the third quarter of fiscal 1992 filed with the Commission on
January 14, 1992)
1. Amendment No. 1 to the Rights Agreement dated as of January 13, 1992.
(incorporated by reference to Exhibit 1 to Form 8-K (Registrant No. 1-
12248) filed with the Commission on July 6, 1999)
2. Amendment No. 2 to the Rights Agreement dated as of January 13, 1992.
(incorporated by reference to No. 4(k) to Form 8-K (Registrant No. 1-
12248) filed with the Commission on October 12, 1999)
4(e) Warrant Agreement dated as of January 11, 1994, between the Registrant and
The Bank of New York, as Warrant Agent (Incorporated by reference to
Exhibit No. 4(c) to Quarterly Report on
Page 39
Form 10-Q (Registrant No. 1-12248) for the third quarter of fiscal
1994 filed with the Commission on January 14, 1994)
4(f) Indenture dated as of December 23, 1996, between ICF Kaiser International,
Inc. and The Bank of New York, as Trustee, including Guarantees, dated
December 23, 1996, by each of the Subsidiary Guarantors (Incorporated by
reference to Exhibit No. 4(g) to Registration Statement on Form S-1
Registration No. 333-19519 filed with the Commission on January 10, 1997)
1. First Supplemental Indenture dated as of December 3, 1997
(Incorporated by reference to Exhibit No. 4(a)(6) to Annual Report
on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed
with the Commission on March 31, 1998)
2. Second Supplemental Indenture dated as of August 13, 1998
(Incorporated by reference to Exhibit No. 4(g)(2) to Quarterly
Report on Form 10-Q (Registrant No. 1-12248) for the third quarter
of fiscal 1997 filed with the Commission on November 16, 1998)
3. Third Supplemental Indenture dated as of April 9, 1999
(Incorporated by reference to Exhibit No. 4(f)(3) to Quarterly
Report on Form 10-Q (Registrant No. 1-12248) for the first quarter
of fiscal 1999 filed with the Commission on May 17, 1999)
4. Fourth Supplemental Indenture dated as of June 25, 1999
(Incorporated by reference to Exhibit No. 4(d)(4) to Pre-Effective
Amendment No.3 on Form S-4 (Registrant No. 333-82643) filed with
the Commission on October 1, 1999)
5. Fifth Supplemental Indenture dated as of October 5, 1999
(Incorporated by reference to Exhibit No. 4(d)(5) on Form 8-K
(Registrant No. 1-12248) filed with the Commission on October 12,
1999)
4(g) Form of 12% Senior Note due 2003, Series B (Incorporated by reference to
Exhibit No. 4(i) to Registration Statement on Form S-1 Registration No.
333-19519 filed with the Commission on January 10, 1997)
4(h) Warrant Agreement dated as of December 23, 1996, between ICF Kaiser
International, Inc. and The Bank of New York, as Warrant Agent
(Incorporated by reference to Exhibit No. 4(j) to Registration Statement
on Form S-1 Registration No. 333-19519 filed with the Commission on
January 10, 1997)
4(i) Form of Warrant expiring December 31, 1999 issued under Warrant Agreement
dated as of December 23, 1996 (Incorporated by reference to Exhibit No.
4(k) to Registration Statement on Form S-1 Registration No. 333-19519
filed with the Commission on January 10, 1997)
4(j) Form of Certificate of Designation regarding Redeemable Convertible
Preferred Stock (Incorporated by reference to Exhibit No. 4(h) to Pre-
Effective Amendment No.3 on Form S-4 (Registrant No. 333-82643) filed with
the Commission on October 1, 1999)
4(k) Form of Indenture regarding 12% Senior Notes due 2002 (Incorporated by
reference to Exhibit No. 4(h) to Pre-Effective Amendment No.3 on Form S-4
(Registrant No. 333-82643) filed with the Commission on October 1, 1999)
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)
* 1. Amendment No. 1 with the effective date of January 1, 1998.
* 2. Amendment No. 2 with the effective date of January 1, 1996.
Page 40
*3. Amendment No. 3 dated April 19, 1999.
*4. Amendment No. 4 dated May 20, 1999.
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 Registration 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
Registration No. 333-19519 filed with the Commission on January 10,
1997)
*4. Amendment No. 4 dated April 19, 1999
*5. Amendment No. 5 dated May 20, 1999
*6. Amendment No. 6 dated August 30, 1999
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
Registration No. 33-64655 filed with the Commission on November 30, 1995)
10(f) Consolidated, Amended and Restated Deed of Lease Agreement between HMCE
Associates Limited Partnership R.L.L.P. (as Landlord) and ICF Kaiser
Hunters Branch Leasing, Inc. (as Tenant), dated November 12, 1997, for the
lease of the Registrant's headquarters in Fairfax, Virginia known as
Hunters Branch--Phase I (Incorporated by reference to Exhibit No. 10(g) to
Annual Report on Form 10-K (Registrant No. 1-12248) filed with the
Commission on March 25, 1997)
10(g) Consolidated, Amended and Restated Deed of Lease Agreement between HMCE
Associates Limited Partnership R.L.L.P. (as Landlord) and ICF Kaiser
Hunters Branch Leasing, Inc. (as Tenant), dated November 12, 1997, for the
lease of space in the building adjacent to the Registrant's headquarters
in Fairfax, Virginia known as Hunters Branch--Phase II (Incorporated by
reference to Exhibit No. 10(h) to Annual Report on Form 10-K (Registrant
No. 1-12248) filed with the Commission on March 25, 1997)
10(h) Contribution Agreement by and among HMCE Associates Limited Partnership
R.L.L.P.; ICF Kaiser Hunters Branch Leasing, Inc.; and IFA Nutley
Partners, LLC dated November 3, 1997 (Incorporated by reference to Exhibit
No. 10(i) to Annual Report on Form 10-K (Registrant No. 1-12248) filed
with the Commission on March 25, 1997)
10(i) ICF Kaiser International, Inc. Stock Incentive Plan (as amended and
restated through March 1, 1996) (Incorporated by reference to Exhibit No.
10(j) to Registration Statement on Form S-1 Registration No. 333-16937
filed with the Commission on November 27, 1996)
Page 41
10(j) Contract (#DE-AC3495RF00825) between Kaiser-Hill Company, LLC, a
subsidiary of the Corporation, and the U.S. Department of Energy dated as
of April 4, 1995. [IN ACCORDANCE WITH RULE 202 OF REGULATION S-T, THIS
EXHIBIT NO. 10(k) WAS FILED IN PAPER ON MAY 23, 1995, ON FORM SE PURSUANT
TO A CONTINUING HARDSHIP EXEMPTION is incorporated herein by reference
thereto]
1. Modifications 1 to 40 to Contract #DE-AC3495RF00825 (Incorporated by
reference to Exhibit No. 10(p)(l) to Registration Statement on Form
S-1 Registration No. 333-16937 filed with the Commission on November
27, 1996)
2. Modifications 42 to 46 to Contract #DE-AC3495RF00825 (Modification
41 not received) (Incorporated by reference to Exhibit No. 10(p)(2)
to Annual Report on Form 10-K (Registrant No. 1-12248) filed with
the Commission on March 25, 1997)
3. Modifications 47 to 81 to Contract #DE-AC3495RF00825 (Modifications
72 and 78 not received) (Incorporated by reference to Exhibit No.
10(j)(3) to Annual Report on Form 10-K (Registrant No. 1-12248)
filed with the Commission on April 15, 1999)
10(k) 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)
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
(Registration No. 333-19519) filed with the Commission on January
10, 1997)
*4. Amendment No. 4 dated April 19, 1999
*5. Amendment No. 5 dated May 20, 1999
10(l) 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 (Registration No. 33-51460) filed with the Commission on
August 31, 1992)
10(m) 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 (Registration No. 1-
12248) filed with the Commission on April 23, 1999)
10(n) 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 (Registration No. 1-12248) filed with
the Commission on July 15, 1999)
*10(o) Contract between Kaiser-Hill Company, LLC, a subsidiary of the
Corporation, and the U.S. Department of Energy dated January 24, 2000
Exhibit No. 10--Material Contracts (management contracts, compensatory plans, or
arrangements.)
Page 42
10(aa) Agreement dated as of May 19, 1997 with James O. Edwards, Chairman and
Chief Executive Officer of the Registrant (Incorporated by reference to
Exhibit No. 10(ll) to Quarterly Report on Form 10-Q (Registrant No. 1-
12248) for the second quarter of fiscal 1997 filed with the Commission
on August 14, 1997)
1. Agreement dated as of November 6, 1998, terminating Mr. Edwards'
employment agreement (Incorporated by reference to Exhibit No.
10(aa)(1) to Annual Report on Form 10-K (Registrant No. 1-12248)
filed with the Commission on April 15, 1999)
10(bb) ICF Kaiser International, Inc. 1998 Compensation (IC) Plan for Senior
Executives (adopted by the Board of Directors on February 27, 1998)
(Incorporated by reference to Exhibit No. 10(bb) to Annual Report on
Form 10-K (Registrant No. 1-12248) filed with the Commission on March
25, 1997)
10(cc) ICF Kaiser International, Inc. Non-employee Director Stock Option Plan
(as amended and restated as of June 26, 1993) (Incorporated by reference
to Exhibit No. 10(bb) 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)
10(dd) Agreement dated as of May 19, 1997 with Marc Tipermas, President and
Chief Operating Officer of the Registrant (Incorporated by reference to
Exhibit No. 10(mm) to Quarterly Report on Form 10-Q (Registrant No. 1-
12248) for the second quarter of fiscal 1997 filed with the Commission
on August 14, 1997)
1. Agreement dated as of August 7, 1998terminating Dr. Tipermas'
employment agreement (Incorporated by reference to Exhibit No.
10(dd)(1) to Annual Report on Form 10-K (Registrant No. 1-12248)
filed with the Commission on April 15, 1999)
10(ee) ICF Kaiser International, Inc. Senior Executive Officers Severance Plan
as approved by the Compensation Committee of the Board of Directors on
April 4, 1994, and adopted by the Board of Directors on May 5, 1994, as
further amended through May 1, 1997 (Incorporated by reference to
Exhibit No. 10(ee) to Annual Report on Form 10-K (Registrant No. 1-
12248) filed with the Commission on March 25, 1997)
10(ff) Employment Agreement with Thomas P. Grumbly, Executive Vice President of
the Registrant, effective as of April 7, 1997 (Incorporated by reference
to Exhibit No. 10(ff) to Annual Report on Form 10-K (Registrant No. 1-
12248) filed with the Commission on April 15, 1999)
1. Letter dated March 15, 1999, amending Mr. Grumbly's employment
agreement (Incorporated by reference to Exhibit No. 10(ff)(1) to
Annual Report on Form 10-K (Registrant No. 1-12248) filed with the
Commission on April 15, 1999)
10(gg) ICF Kaiser International, Inc. Consultants, Agents and Part-Time
Employees Stock Plan dated as of June 23, 1995 (Incorporated by
reference to Exhibit No. 99 to Registration Statement on Form S-8
Registration No. 33-60665 filed with the Commission on June 28, 1995)
10(hh) ICF Kaiser International, Inc. Stock Incentive Plan (as amended and
restated through March 1, 1996) (Incorporated by reference to Exhibit
No. 10 (j) to Registration Statement on Form S-1 Registration No. 333-
16937 filed with the Commission on November 27, 1996)
10(ii) Amended Employment Agreement dated as of December 1, 1996, with David
Watson, Executive Vice President and President, ICF Kaiser Engineers and
Constructors Group of the Registrant (Incorporated by reference to
Exhibit No. 10(kk) to Annual Report on Form 10-K (Registrant No. 1-
12248) filed with the Commission on March 25, 1997)
1. Agreement and Mutual Release dated August 17, 1998, terminating Mr.
Watson's employment agreement (Incorporated by reference to Exhibit
No. 10(ii)(1) to Annual Report on Form 10-K (Registrant No. 1-12248)
filed with the Commission on April 15, 1999)
10(jj) Intentionally Omitted.
Page 43
10(kk) Employment Agreement with Michael F. Gaffney, Executive Vice President
of the Registrant, effective as of January 1, 1997 (Incorporated by
reference to Exhibit No. 10(kk) to Annual Report on Form 10-K
(Registrant No. 1-12248) for fiscal year 1997 filed with the Commission
on March 31, 1998)
1. Agreement dated March 8, 1999, terminating Mr. Gaffney's employment
agreement (Incorporated by reference to Exhibit No. 10(kk)(1) to
Annual Report on Form 10-K (Registrant No. 1-12248) filed with the
Commission on April 15, 1999)
10(ll) Letter Agreement with Cowen Incorporated and Jarrod M. Cohen, dated as
of March 13, 1998 (Incorporated by reference to Exhibit No. 10(ll) to
Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997
filed with the Commission on March 31, 1998) (Incorporated by reference
to Exhibit No. 10(mm) to Annual Report on Form 10-K (Registrant No. 1-
12248) filed with the Commission on March 25, 1997)
10(mm) ICF Kaiser International, Inc. Non-employee Directors Compensation and
Phantom Stock Plan as adopted by the Board of Directors on February 28,
1997, with an effective date of March 1, 1997 (Incorporated by reference
to Exhibit No. 10(mm) to Annual Report on Form 10-K (Registrant No. 1-
12248) filed with the Commission on April 15, 1999)
10(nn) Letter Agreement with Tennenbaum & Co., L.L.C. and Michael E.
Tennenbaum, dated as of March 13, 1998 (Incorporated by reference to
Exhibit No. 10(nn) to Annual Report on Form 10-K (Registrant No. 1-
12248) for fiscal year 1997 filed with the Commission on March 31, 1998)
10(oo) Employment Agreement with Keith M. Price, President and Chief Executive
Officer of the Registrant, effective as of August 27, 1998 (Incorporated
by reference to Exhibit No. 10(oo) to Quarterly Report on Form 10-Q
(Registrant No. 1-12248) for the Third quarter of 1998 filed with the
Commission on November 16, 1998)
1. Terms of Promotion for Keith M. Price effective as of November 4,
1998 (incorporated by reference to Exhibit No. 10(oo)(1) to Annual
Report on Form 10-K (Registrant No. 1-12248) filed with the
Commission on April 15, 1999)
2. Agreement dated April 27, 1999, terminating Keith M. Price's
employment agreement (Incorporated by reference to Exhibit No.
10(oo)(2) to Registration Statement on Form S-4 (Registrant No. 333-
82643) filed with the Commission on July 9, 1999)
10(pp) Employment Agreement with James J. Maiwurm, President and Chief
Executive Officer of the Registrant, effective as of June 1, 1999
(Incorporated by reference to Exhibit No. 10(oo)(2) to Registration
Statement on Form S-4 (Registrant No. 333-82643) filed with the
Commission on July 9, 1999)
10(qq) Employment Agreement with S. Robert Cochran, Executive Vice President
and President, North America of the Registrant, effective as of June 1,
1999 (Incorporated by reference to Exhibit No. 10(qq) to Registration
Statement on Form S-4 (Registrant No. 333-82643) filed with the
Commission on July 9, 1999)
10(rr) Employment Agreement with Timothy P. O'Connor, Executive Vice President
and Chief Financial Officer of the Registrant, effective as of June 1,
1999 (Incorporated by reference to Exhibit No. 10(rr) to Registration
Statement on Form S-4 (Registrant No. 333-82643) filed with the
Commission on July 9, 1999)
10(ss) Employment Agreement with Richard A. Leupen, Executive Vice President
and President, International of the Registrant, effective as of June 1,
1999 (Incorporated by reference to Exhibit No. 10(ss) to Pre-Effective
Amendment No. 1 to Registration Statement on Form S-4 (Registrant No.
333-82643) filed with the Commission on September 3, 1999)
10(tt) Form of Agreement of Release, Consent and Waiver, dated October 5, 1999,
between ICF Kaiser International, Inc., T. Rowe Price, Penn Series High
Yield Bond Fund, NorthStar Investment Management, and Deutsche Bank
(Incorporated by reference to Exhibit 10(tt) to Registration
Page 44
Statement on Form 8-K (Registration No. 1-12248) filed with the
Commission on October 12, 1999)
* Exhibits filed as part of this Annual Report on Form 10-K.
Exhibit No. 21--Consolidated Subsidiaries of the Registrant as of April 14,
2000
Exhibit No. 23--Consent of PricewaterhouseCoopers, LLP
Exhibit No. 27--Financial Data Schedule. This schedule contains summary
financial information extracted from the consolidated financial statements of
Kaiser Group International, Inc. as of December 31, 1999 and 1998 and for the
three years ended December 31, 1999 and is qualified in its entirety by
reference to such financial statements.
(c) Reports on Form 8-K
On March 10, 1999, the Company filed a Current Report on Form 8-K.
Pursuant to Item 5 of its Report, the Company disclosed that it had signed a
letter of intent with CM Equity Partners, L.P., (CMEP) an equity investment firm
based in New York City, to sell the ICF Kaiser Consulting Group for $75 million
to CMEP and the group's management.
On April 23, 1999, the Company filed a Current Report on Form 8-K.
Pursuant to Item 5 of its Report, the Company disclosed that it sold the
majority of the active contracts and investments of its Environmental and
Facilities Management Group to The IT Group, Inc.
On May 12, 1999, the Company filed a Current Report on Form 8-K.
Pursuant to Item 5 of its Report, the Company disclosed that James Maiwurm
became CEO and President of the Company, and company veterans Richard Leupen and
Bob Cochran would assume new roles as, respectively, President of International
Business and President of North America Business.
On June 10, 1999, the Company filed a Current Report on Form 8-K.
Pursuant to Item 5 of its Report, the Company disclosed that Chairman of the
Board Tony Coelho had resigned from that position and that Mr. Coelho would
remain a member of the Board of Directors for a transition period effective June
9, 1999.
On July 6, 1999, the Company filed a Current Report on Form 8-K.
Pursuant to Item 5 of its Report, the Company disclosed that it had finalized
the sale of its Consulting Group.
On July 7, 1999, the Company filed a Current Report on Form 8-K.
Pursuant to Item 5 of its Report, the Company disclosed that it amended its
Rights Agreement dated January 13, 1992 that governs its Shareholder Rights Plan
effective July 6, 1999.
On July 16, 1999, the Company filed a Current Report on Form 8-K.
Pursuant to Item 2 of its Report, the Company disclosed that it completed the
sale of its Consulting Group. Pursuant to Item 7 of its Report, the Company
disclosed its Pro Forma financial information and its Recapitalization Agreement
among ICF Kaiser International, Inc., ICF Consulting Group Holdings, LLC and
Clement International Corporation dated May 21, 1999.
On October 12, 1999, the Company filed a Current Report on Form 8-K.
Pursuant to Item 5 of its Report, the Company disclosed that on September 15,
1999, the Company amended its Rights Agreement dated January 13, 1992 that
governs its Shareholder Rights Plan. Also pursuant to Item 5 of its Report, the
Company disclosed that on October 6, 1999, the Company purchased $14,000,000 of
outstanding notes from holders of its $15,000,000 12% Senior Notes due 2003 (the
"Notes"). Also, Pursuant to Item 7 of its Report, the Company disclosed its Form
of Agreement of Release, Consent and Waiver, dated October 5, 1999, between the
Company and T. Rowe Price, Penn Series High Yield Bond Fund, NorthStar
Investment Management, and Deutsche Bank.
On December 29, 1999, the Company filed a Current Report on Form 8-K.
Pursuant to Item 5 of its Report, the Company disclosed that it filed an Amended
Certificate of Incorporation at the close of business on December 27, 1999. The
Company changed the name of its principal operating entity to Kaiser Engineers,
Inc. and at the same time, the name of the parent company changed to Kaiser
Group
Page 45
International, Inc. The Company's ticker symbol on the New York Stock Exchange
became "KSR" at the start of trading on the morning of December 28, 1999.
Page 46
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 International, Inc.
(Registrant)
/s/ James J. Maiwurm
-----------------------------------------
By: James J. Maiwurm, Chairman
President and Chief Executive Officer
Date: April 14, 2000
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/ James J. Maiwurm
James J. Maiwurm Chairman, President and April 14, 2000
Chief Executive Officer
(2) Principal financial and accounting officer
/s/ Timothy P. O'Connor
- --------------------------------
Timothy P. O'Connor Executive Vice President April 14, 2000
and Chief Financial Officer
(3) Board of Directors
/s/ Jarrod M. Cohen
- --------------------------------
Jarrod M. Cohen Director April 14, 2000
/s/ James O. Edwards
- --------------------------------
James O. Edwards Director April 14, 2000
/s/ Thomas C. Jorling
- --------------------------------
Thomas C. Jorling Director April 14, 2000
/s/ James J. Maiwurm
- --------------------------------
James J. Maiwurm Director April 14, 2000
/s/ Hazel R. O'Leary
- --------------------------------
Hazel R. O'Leary Director April 14, 2000
/s/ Keith M. Price
- --------------------------------
Keith M. Price Director April 14, 2000
Page 47
/s/ James T. Rhodes
- --------------------------------
James T. Rhodes Director April 14, 2000
/s/ Michael E. Tennenbaum
- --------------------------------
Michael E. Tennenbaum Director April 14, 2000
Page 48
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and
Shareholders of Kaiser Group International, Inc.:
We have audited the consolidated financial statements and financial statement
schedule of Kaiser Group International, Inc. (formerly ICF Kaiser International,
Inc.) and Subsidiaries (the Company) listed in Item 14(a) of this Form 10-K.
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule 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 financial position of Kaiser Group
International, Inc and Subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company experienced significant operating
losses in 1998 and 1999, has no revolving credit facility and is negotiating to
restructure its outstanding Senior Subordinated Notes totaling $125.0 million.
These matters raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PricewaterhouseCoopers LLP
April 14, 2000
- --------------------------------------------------------------------------------
Kaiser Group International, Inc. Report on Form 10-K for the year
ended December 31, 1999. Page F - 1
KAISER GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------------
1999 1998
------------- --------------
(In thousands, except
share amounts)
ASSETS
Current Assets
Cash and cash equivalents...................................................... $ 26,391 $ 15,267
Restricted cash................................................................ 16,386 3,041
Contract receivables, net...................................................... 158,319 284,078
Prepaid expenses and other current assets...................................... 5,350 9,800
Deferred income taxes.......................................................... -- 34,673
--------- ---------
Total Current Assets................................................. 206,446 346,859
--------- ---------
Fixed Assets
Furniture, equipment, and leaseholds........................................... 14,224 43,996
Less depreciation and amortization............................................. (11,403) (37,411)
--------- ---------
2,821 6,585
--------- ---------
Other Assets
Goodwill, net.................................................................. 17,581 49,292
Investments in and advances to affiliates...................................... 10,040 7,728
Notes receivable............................................................... 6,550 --
Capitalized software development costs......................................... 1,601 5,062
Other.......................................................................... 8,524 12,545
--------- ---------
44,296 74,627
--------- ---------
Total Assets......................................................... $ 253,563 $ 428,071
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Debt currently payable......................................................... $ -- $ 30,729
Accounts payable............................................................... 119,556 189,906
Accrued salaries and benefits.................................................. 27,249 37,931
Other accrued expenses......................................................... 26,921 42,864
Deferred revenue............................................................... 9,015 40,011
Income taxes payable........................................................... 6,597 2,147
--------- ---------
Total Current Liabilities............................................ 189,338 343,588
Long-term Liabilities
Long-term debt................................................................. 124,218 137,488
Other.......................................................................... 7,577 9,664
--------- ---------
Total Liabilities.................................................... 321,133 490,740
--------- ---------
Commitments and Contingencies
Minority Interest.............................................................. 2,333 449
--------- ---------
Shareholders' Equity (Deficit)
Preferred stock................................................................ -- --
Common stock, par value $.01 per share:
Authorized--90,000,000 shares
Issued and outstanding-- 23,655,500 and 24,257,828 shares................. 237 242
Additional paid-in capital..................................................... 73,643 75,422
Notes receivable collateralized by common stock................................ -- (638)
Accumulated deficit............................................................ (140,681) (134,757)
Accumulated other comprehensive (loss)......................................... (3,102) (3,387)
--------- ---------
Total Shareholders' Equity (Deficit)................................. (69,903) (63,118)
--------- ---------
Total Liabilities and Shareholders' Equity (Deficit)................. $ 253,563 $ 428,071
========= =========
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
Kaiser Group International, Inc. Report on Form 10-K for the year
ended December 31, 1999. Page F - 2
KAISER GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
(In thousands, except per share amounts)
Gross Revenue................................................................... $ 870,267 $ 999,721 $ 926,916
Subcontract and direct material costs...................................... (579,296) (717,794) (621,331)
Provision for contract losses.............................................. -- (76,210) (6,900)
Equity in income of joint ventures and affiliated companies................ 4,480 6,045 2,301
--------- --------- ---------
Service Revenue................................................................. 295,451 211,762 300,986
Operating Expenses
Direct labor and fringe benefits........................................... 244,478 217,862 225,471
Selling, general and administrative........................................ 54,052 65,534 63,851
Depreciation and amortization.............................................. 5,269 8,288 8,595
Restructuring charges...................................................... 14,384 17,079 --
--------- --------- ---------
Operating Income (Loss)......................................................... (22,732) (97,001) 3,069
Other Income (Expense)
Gain on sale of investment................................................. -- -- 1,018
Interest income............................................................ 2,349 1,539 1,750
Interest expense........................................................... (21,065) (20,279) (18,276)
--------- --------- ---------
(Loss) From Continuing Operations Before Income Tax, Minority Interest,
Extraordinary Item, and Cumulative Effect of Accounting Change............. (41,448) (115,741) (12,439)
Income tax (expense) benefit............................................ (1,110) 18,606 9,366
--------- --------- ---------
(Loss) From Continuing Operations Before Minority Interest, Extraordinary
Item, and Cumulative Effect of Accounting Change........................... (42,558) (97,135) (3,073)
Minority interest in net income of subsidiaries........................ (5,184) (7,698) (10,867)
--------- --------- ---------
(Loss) From Continuing Operations Before Extraordinary Item and
Cumulative Effect of Accounting Change..................................... (47,742) (104,833) (13,940)
Income from discontinued operations, net of tax............................ 2,335 11,391 8,953
Gain on sales of discontinued operations, net of tax....................... 40,083 -- --
--------- --------- ---------
(Loss) Before Extraordinary Item and Cumulative Effect of
Accounting Change.......................................................... (5,324) (93,442) (4,987)
Extraordinary items........................................................ (600) (1,090) --
--------- --------- ---------
(Loss) Before Cumulative Effect of Accounting Change............................ (5,924) (94,532) (4,987)
Cumulative Effect of Accounting Change, net of tax......................... -- (6,000) --
--------- --------- ---------
Net (Loss)...................................................................... $ (5,924) $(100,532) $ (4,987)
========= ========= =========
Basic and Fully Diluted Earnings (Loss) Per Share:
Continuing operations, net of tax.......................................... $ (2.00) $ (4.34) $ (0.62)
Discontinued operations, net of tax........................................ 1.78 0.47 0.40
--------- --------- ---------
(Loss) Before Extraordinary Item and Cumulative Effect of
Accounting Change..................................................... (0.22) (3.87) (0.22)
Extraordinary items................................................. (0.03) (0.05) --
--------- --------- ---------
(Loss) Before Cumulative Effect of Accounting Change....................... (0.25) (3.92) (0.22)
Cumulative effect of accounting change, net of tax.................. -- (0.25) --
--------- --------- ---------
Net (Loss) Per Share....................................................... $ (0.25) $ (4.17) $ (0.22)
========= ========= =========
Weighted average shares for basic earnings (loss) per share..................... 23,823 24,092 22,382
Effect of dilutive stock options........................................... -- -- --
--------- --------- ---------
Weighted average shares for diluted earnings (loss) per share................... 23,823 24,092 22,382
========= ========= =========
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
Kaiser Group International, Inc. Report on Form 10-K for the year
ended December 31, 1999. Page F - 3
KAISER GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock
-----------------------
Accumulated
-----------
Additional Accumulated Other
---------- ----------- -----
Paid-in Notes Earnings Comprehensive Shareholders'
------- ----- -------- ------------- ----------------
Shares Par Value Capital Receivable (Deficit) (Loss) Equity/(Deficit)
----------- ---------- ---------- ---------- --------- ----- ----------------
(In thousands, except share amounts)
Balance, January 1, 1997.. 22,311,842 $223 $66,983 $(1,732) $ (29,238) $(1,344) $ 34,892
Net (loss)............... -- -- -- (4,987) -- (4,987)
Issuances of common
stock................... 319,300 3 644 -- -- -- 647
Reacquisition of common
stock................... (155,238) (1) (511) -- -- -- (512)
Foreign currency
translation
Adjustment.............. -- -- -- -- -- (2,023) (2,023)
Other.................... -- -- -- (690) -- -- (690)
---------- ---- ------- ------- --------- ------- ---------
Balance, December 31,
1997..................... 22,475,904 225 67,116 (2,422) (34,225) (3,367) 27,327
Net (loss)............... -- -- -- (100,532) -- (100,532)
Issuances of common
stock................... 1,941,446 19 8,856 -- -- -- 8,875
Reacquisition of common
stock................... (159,522) (2) (550) -- -- -- (552)
Foreign currency
translation
Adjustment.............. -- -- -- -- -- (20) (20)
Other.................... -- -- -- 1,784 -- -- 1,784
---------- ---- ------- ------- --------- ------- ---------
Balance, December 31,
1998..................... 24,257,828 242 75,422 (638) (134,757) (3,387) (63,118)
Net (loss)............... -- -- -- -- (5,924) -- (5,924)
Issuances of common
stock................... 145,788 2 106 -- -- -- 108
Reacquisition of
common stock......... (748,116) (7) (1,885) 638 -- -- (1,254)
Foreign currency
translation
Adjustment.............. -- -- -- -- -- 285 285
---------- ---- -------- ------- --------- ------- ---------
Balance, December 31,
1999..................... 23,655,500 $237 $73,643 $ -- $(140,681) $(3,102) $ (69,903)
========== ==== ======= ======= ========= ======= =========
KAISER GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
(In thousands)
Year Ended December 31,
-----------------------------------------
1999 1998 1997
------------- ------------- -----------
Net (Loss) $(5,924) $(100,532) $(4,987)
Other Comprehensive (Loss)
Foreign currency translation adjustments................ 285 (20) (2,023)
------- --------- -------
Total Comprehensive (Loss)........................... $(5,639) $(100,552) $(7,010)
======= ========= =======
See notes to consolidated financial statements.
Page F-4
KAISER GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------
1999 1998 1997
--------- ----------- ----------
(In thousands)
Operating Activities
Net (loss)................................................................................. $ (5,924) $(100,532) $ (4,987)
Adjustments to reconcile net (loss) to net cash (used in)
provided by operating activities:
Gain on sale of discontinued operations................................................... (40,083) -- --
Net income of discontinued operations..................................................... (2,335) (11,391) (8,953)
Depreciation and amortization............................................................. 5,163 8,408 8,701
Provision for losses...................................................................... 3,729 29,679 1,195
Provision for deferred income taxes ..................................................... (34,673) (12,228) (4,861)
Charge for cumulative effect of accounting change ....................................... -- 5,000 --
Note receivable write-off................................................................. 638 1,784 --
Extraordinary items....................................................................... 600 1,090 --
Earnings in excess of cash distributions from joint ventures and affiliated companies ... (258) (1,044) (91)
Minority interest in net income of subsidiaries ......................................... 5,184 7,698 10,867
Gain on sale of investment................................................................ -- -- (1,018)
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Contract receivables, net................................................................ 106,613 (18,843) (46,366)
Prepaid expenses and other current assets................................................ 4,512 535 (3,799)
Accounts payable and accrued expenses.................................................... (83,300) 40,552 42,082
Deferred revenue......................................................................... (30,996) 3,484 14,698
Income taxes payable ................................................................... 4,450 1,129 160
Other operating activities............................................................... (1,354) 3,408 3,547
-------- --------- ---------
Net cash (used in) provided by continuing operations............................. (68,034) (41,271) 11,175
Net cash provided by discontinued operations..................................... 8,579 11,833 15,016
-------- --------- ---------
Net Cash (Used in) provided by Operating Activities..................................... (59,455) (29,438) 26,191
-------- --------- ---------
Investing Activities
Investments in subsidiaries and affiliates, net of cash acquired........................... -- 3,456 (4,074)
Sales of subsidiaries and/or investments................................................... 145,041 2,400 17,028
Purchases of fixed assets.................................................................. (2,113) (3,580) (4,621)
-------- --------- ---------
Net cash provided by investing activities of continuing operations............. 142,928 2,276 8,333
Net cash used in investing activities of discontinued operations............... (4,941) (914) (267)
-------- --------- ---------
Net Cash Provided by Investing Activities............................................... 137,987 1,362 8,066
-------- --------- ---------
Financing Activities
Borrowings under revolving credit facility................................................. 61,855 139,629 104,500
Principal payments on revolving credit facility............................................ (92,584) (112,875) (121,000)
Cash collateralize letters of credit....................................................... (12,595) -- --
Extinguishment of Senior Notes............................................................. (12,320) -- --
Distribution of income to minority interest................................................ (3,300) (10,320) (13,950)
Change in book overdraft................................................................... (8,395) 8,395 (2,667)
Debt issuance costs........................................................................ -- (1,380) (624)
Other financing activities................................................................. -- 155 (38)
-------- --------- ---------
Net Cash Provided by (Used in) Financing Activities..................................... (67,339) 23,604 (33,779)
-------- --------- ---------
Effect of Exchange Rate Changes on Cash..................................................... (69) (281) (708)
-------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents............................................ 11,124 (4,753) (230)
Cash and Cash Equivalents at Beginning of Period............................................ 15,267 20,020 20,250
-------- --------- ---------
Cash and Cash Equivalents at End of Period.................................................. $ 26,391 $ 15,267 $ 20,020
======== ========= =========
Supplemental cash flow information is as follows:
Cash payments for interest ............................................................... $ 21,065 $ 20,051 $ 18,649
Cash payments for income taxes ........................................................... 820 936 402
Non-cash transactions:
Issuance of common stock ................................................................ 44 8,720 434
Reacquisition of common stock ........................................................... (1,254) (552) (261)
Acquisition of promissory notes in exchange for sale of discontinued operation.......... 6,550 -- --
See notes to consolidated financial statements.
Page F-5
KAISER GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Liquidity and Capital Resource Outlook
The accompanying financial statements have been prepared assuming that
Kaiser Group International, Inc. and Subsidiaries ("Kaiser" or "the Company")
will continue as a going concern. Significant losses on four large fixed price
projects to construct plants to produce nitric acid incurred primarily during
1998 within the Engineering Operations caused the Company to respond to the
resulting negative cash flows and to operating losses being experienced within
that Group, by implementing a plan designed to significantly restructure
operations and restore profitability. In summary, the components of the
restructuring plan developed by management and the Board of Directors included:
. Divesting operating units and reinvesting the proceeds in the Company to
provide working capital necessary to stabilize the retained business
activities (Note 4);
. Reducing the Company's overhead cost structure that would remain after the
divestitures of the operating units referenced above (Note 3); and
. Revising the Company's capital structure in order to eliminate barriers to
securing new business and improve accessibility to new sources of working
capital (Note 9).
Cash proceeds from the divestitures were subsequently used in part 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 the Company's other growing operating units prior to
the 1999 divestitures. Also, in 1999, the Company used some of the proceeds
from the divestitures to repurchase $14.0 million of $15.0 million in
outstanding Senior Notes.
The Company currently has no working capital facility and is financing
working capital shortfalls of its Engineering Operations through the use of the
residual cash proceeds from the sale of its Consulting Group completed in June
1999 as well as from distributions from its Kaiser-Hill subsidiary. Based on (i)
current expectations for near-term operating results, (ii) its current available
cash position and (iii) recent trends and projections in liquidity and capital
needs, management believes the Company has sufficient short-term liquidity to
bridge current operating needs until the implementation of a modified debt
restructuring.
Actions remaining critical, however, to the Company's long-term
liquidity include completing a restructuring of its $125.0 million in
outstanding Senior Subordinated Notes prior to the next interest payment due
date of June 30, 2000, securing a sufficient working capital facility with
acceptable terms, obtaining successful outcomes regarding significant contingent
liabilities (Note 15), and marginally improving operating results. Management
believes that if these steps can be achieved, the Company will have sufficient
liquidity generated by improved operating results, substantially decreased
interest expenses and borrowings on its new credit facility to meet its longer-
term working capital requirements. The inability of the Company to accomplish a
combination of actions described above would have a material adverse effect
on the financial condition, operating results, and the business.
The Company has been engaged in ongoing negotiations with
representatives of the holders of its $125.0 million Senior Subordinated Notes
and believes it could implement a modified restructuring of those notes. Such a
transaction could involve an exchange of Senior Subordinated Notes for a
combination of common stock and newly issued preferred stock on terms that would
permit the Company to retain available cash and not require a new bank credit
agreement. The Company believes such a restructuring would substantially improve
its financial condition and provide a basis for ongoing operations and
continuation of the Company's turnaround. However, such a restructuring would
result in substantial dilution of the equity of existing common stockholders.
While continuing negotiations with representatives of holders of its
Senior Subordinated Notes, the Company has also been exploring other strategic
alternatives. Such alternatives could include generating funds for debt
restructuring or longer-term objectives and operating needs through divestitures
of additional operating assets, replacing the Company's long-term debt, and
negotiating additional equity infusions. This evaluation of alternatives is
still underway. The Company expects to be able to reach a conclusion with
respect to its strategic direction and begin to implement its reorganization
prior to the end of the second quarter of 2000.
The Company expects its financial condition to be materially affected
by the implementation of any debt restructuring or strategic alternative. The
consummation of either a debt restructuring or other strategic alternatives
could be completed through a "prepackaged" plan of reorganization under Chapter
11 of the U.S. Bankruptcy Code. If such a plan were selected as the mechanism
for completing the Company's restructuring, the Company expects that it would
have the support of the largest holders of its Senior Subordinated Notes and,
therefore, be able to implement the plan relatively promptly. Kaiser expects
that any such plan would be designed to (i) minimize adverse effects on Kaiser's
operations, trade creditors and employees and (ii) result in a financially
strengthened and stable organization for purposes of ongoing operations.
These matters raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying consolidated financial statements
do not include any adjustments relating to the recoverability and classification
of asset carrying amounts or the classification of liabilities that might result
should the Company not be successful in attempts to enact the critical actions
summarized above.
2. Significant Accounting Policies
Nature of Operations: The Company provides design, engineering,
procurement, and construction and project management services to domestic and
international clients in the infrastructure, facilities, metals, mining and
industrial markets.
Principles of Consolidation: The consolidated financial statements
include all majority-owned or controlled subsidiaries. Investments in
unconsolidated joint ventures and affiliated companies are accounted for using
the equity method. The difference between the cost of joint venture investments
and the Company's underlying equity is amortized on a straight-line basis over
the estimated lives of the related investments. All significant intercompany
balances and transactions have been eliminated.
Revenue Recognition: The Company's revenue is derived primarily from
long-term contracts of various types. Revenue on time-and-materials contracts is
recognized based on actual hours delivered times the contracted hourly billing
rate, plus the costs incurred for any materials. Revenue on fixed-priced
contracts is 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 is 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.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles 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. Actual results could differ from those
estimates.
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 (deficit) 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):
Page F-6
1999 1998
-------------- ------------
Letters of credit collateralized by cash.............................. $13,066 $ 600
Cash balances of wholly owned insurance subsidiary. 2,570 2,441
Escrowed cash......................................................... 750 --
------- ------
$16,386 $3,041
======= ======
Page F-7
Fixed Assets: Furniture and equipment are carried at cost or fair
value at acquisition if acquired through the purchase of a business, and are
depreciated using the straight-line method over their estimated useful lives,
ranging from three to ten years. Leasehold improvements are carried at cost and
are amortized using the straight-line method over the remaining lease terms.
Capitalized Software Development Costs: Certain costs, including
consulting expenses and internal labor, incurred to develop major software
applications for internal Company use, as well as for external software product
sales are capitalized and amortized over the estimated useful or economic lives
of the software, respectively. These capitalized costs have been classified with
other long term assets. Amortization expense of $307,000 and $1,260,000 was
recognized during 1999 and 1998, respectively. Certain elements of capitalized
software were sold as part of the asset divestitures in 1999.
1999 1998
----------- -----------
(In thousands)
Internal use software .......................................... $2,263 $ 7,136
External use software .......................................... -- 816
------ -------
Total capitalized software .................................. 2,263 7,952
Accumulated amortization ....................................... ( 662) (2,890)
------ -------
$1,601 $ 5,062
====== =======
Goodwill: Goodwill represents the excess of cost of acquired
businesses over the fair value of the identifiable net tangible and intangible
assets acquired. Goodwill is amortized using the straight-line method over the
period for which the Company estimates it will benefit directly from the
acquisitions. The range of estimated benefit from the Company's historical
acquisitions ranges from five to forty years. The Company periodically evaluates
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. Management does not believe there has
been any impairment in the value of goodwill at December 31, 1999. Accumulated
amortization was $8,100,000 and $20,145,000, at December 31, 1999 and 1998,
respectively.
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.
Unless otherwise noted, provisions are not made for U.S. income taxes
for the undistributed earnings of the Company's foreign subsidiaries because the
Company intends to reinvest such earnings in continuing operations indefinitely.
There are no undistributed earnings of foreign subsidiaries for which income
taxes have not been provided.
Concentrations of Credit Risk and Major Customers: The Company
maintains cash balances primarily in overnight Eurodollar deposits, investment-
grade commercial paper, bank certificates of deposit, and U.S. government
securities. The Company grants uncollateralized credit to its customers.
Approximately 67% of the Company's contract receivables at December 31, 1999,
were from agencies of the U.S. government (see Note 6). The Company also
maintains certain project specific insurance policies related to various
insurable risks such as certain political risks including embargo, war, and non-
payment due to insolvency of the customer. The Department of Energy (DOE)
accounted for approximately for 74%, 63%, and 64% of Kaiser's consolidated gross
revenue for the year ended December 31, 1999, 1998 and 1997, respectively.
Recent Accounting Pronouncements: In April 1998, the Accounting
Standards Executive Committee of the American Institute of Certified Public
Accountants issued Statement of Position 98-5--Reporting on the Costs of Start-
Up Activities (SOP 98-5). The SOP requires costs of organization and start-up
activities to be expensed as incurred. The Company elected early adoption of SOP
98-5 effective April 1, 1998 and, at that time, reported the cumulative effect
of the change as a one-time, non-cash charge of $6,000,000, net of a tax benefit
of $2,930,000.
Reclassifications: Certain reclassifications have been made to the
prior-period financial statements contained herein in order to conform to the
1999 presentation.
Page F-8
3. Restructuring Plan
Restructuring Charges: In 1998, the Company began implementing the
various phases of its overall restructuring plan (Note 1). Correspondingly,
total restructuring charges recognized in 1999 and 1998 were $14.4 million and
$17.1 million, respectively. The component charges included costs incurred for
involuntary employee severance, including 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 costs associated with closing of marginally profitable office
locations, and costs to cease certain operating activities. Facility closure and
related costs include disposal costs of equipment, lease restructuring payments,
brokers fees and lease termination costs. These charges have been summarized as
Restructuring Charges on the Consolidated Statement of Operations and consisted
of the following (in thousands):
Current Year
----------------------
1999 January 1, Provisions Uses December 31
---- ---------- ---------- ---------- ------------
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
====== ======= ======= ======
1998
----
Severance.......................................... $ -- $ 7,607 $ 3,108 $4,499
Divestiture activities............................. -- 1,800 1,100 700
Contingency settlements............................ -- 1,750 1,750 --
Facility downsizing/consolidation.................. -- 5,922 5,067 855
------ ------- ------- ------
$ -- $17,079 $11,025 $6,054
====== ======= ======= ======
As of December 31, 1999, initiatives undertaken as part of the
1999 and 1998 charges relating to the Company's restructuring had been largely
completed consistent with the Corporation's original plans and estimates. The
amounts recorded in the Consolidated Balance Sheet at December 31, 1999 related
to these actions are, in the opinion of management, adequate to complete the
remaining initiatives originally contemplated in the 1999 and 1998 charges.
While these actions were intended to improve the Company's competitive position,
there can be no assurances as to their ultimate success or that additional
restructuring actions will not be required.
Page F-9
4. Divestitures and Acquisitions
Divestitures
Pursuant to a restructuring plan, the Company divested of several
operating units in 1999. The intention to divest of certain operating units
qualified the related units as discontinued operations for financial accounting
purposes.
. 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 which 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 to CM Equity Partners, L.P. and the 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 $11.4
million, the Company recognized a gain of $30.3 million from that sale.
The operating results of the EFM and Consulting Groups prior to divestiture
have been segregated from the 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 (in thousands):
1999 1998 1997
------------ --------------- ---------------
EFM
---
Gross Revenue...................................... $ 34,640 $105,300 $ 88,100
Subcontracts and materials........................ (20,053) (53,300) (34,300)
-------- -------- --------
Service Revenue.................................... 14,587 52,000 53,800
Operating Expenses:
Direct labor and fringe........................... 7,495 26,600 30,800
General and administrative........................ 5,631 19,800 18,900
Depreciation & amortization....................... 231 60 100
-------- -------- --------
Operating Income................................... 1,230 $ 5,540 4,000
Income tax expense................................. 595 2,176 1,624
-------- -------- --------
Income from discontinued operations................ $ 635 $ 3,364 $ 2,376
======== ======== ========
Consulting Group
----------------
Gross Revenue...................................... $ 49,519 $105,400 $ 93,100
Subcontracts and materials........................ (10,937) (23,700) (21,800)
-------- -------- --------
Service Revenue.................................... 38,582 81,700 71,300
Operating Expenses:
Direct labor and fringe........................... 18,638 38,100 33,300
General and administrative........................ 16,466 29,800 26,100
Depreciation & amortization....................... 498 700 900
-------- -------- --------
Operating Income................................... $ 2,980 $ 13,100 11,000
Income tax expense................................. 1,280 5,073 4,423
-------- -------- --------
Income from discontinued operations................ $ 1,700 $ 8,027 $ 6,577
======== ======== ========
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. The Company recognized a book loss of $2.2 million,
net of an income tax benefit 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.
Sale of Gary PCI: In December 1996, the Company sold the majority of its
investment in Gary PCI Ltd. L.P. (owners of pulverized coal injection
operations) and a related entity and certain related contractual rights for
$16.6 million resulting in a $9.4 million pretax gain. The buyer exercised an
option on January 5, 1998, to purchase the remaining equity investment for $2.4
million. In 1997, the Company recognized a total pretax gain of $1.0 million,
shown as a gain on sale of investment on the Consolidated Statement of
Operations, as the carrying value of the option was increased to reflect fair
market value.
Page F-10
The sales price for the second installment was included in other current assets
in the accompanying 1998 balance sheet and was collected in January of the
subsequent year.
Acquisitions:
ICT Spectrum: On February 17, 1998, the Company's Board of Directors
approved the acquisition of ICT Spectrum Constructors, Inc., a construction
contractor, based in Boise, Idaho, specializing in construction management of
fabrication plants and other facilities for semiconductor and microelectronics
customers. Each share of ICT Spectrum stock was exchanged for shares of Kaiser
stock, resulting in the issuance of 1.5 million shares of Kaiser common stock
and a total purchase price of $8,040,000 (see Note 15. Contingencies). The
acquisition of $18.5 million in total assets and $13.7 million in total assumed
liabilities accounted for as a purchase, resulted in approximately $4.8 million
in goodwill, which is being amortized over 12 years. The purchase was completed
on March 19, 1998 and the Company's Consolidated Statement of Operations
includes the operating results of the acquired entity from January 1, 1998.
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.
5. Business Segments and Foreign Operations
Business Segments: As a result of the 1999 divestitures of the EFM and
Consulting groups, the Company now has two reportable segments:
. the Kaiser-Hill Company, LLC (Kaiser-Hill), the 50%-owned, controlled
and consolidated entity which performs and manages the Department of
Energy's multibillion-dollar management contract at Rocky Flats;
. the Engineering Operations Group (E&C) which provides engineering
and construction services to commercial and state and local entities
in the areas of industry, infrastructure, transportation, and
microelectronics;
These segments are used for internal management purposes primarily
because of the similarities in products and services, customers, and regulatory
environments. 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 are managed by the Company and are 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.
Financial data for the segments are as follows (in thousands):
Kaiser-Hill Engineering Operations
Statements of Operations
for the years ended December 31, 1999 1998 1997 1999 1998 1997
-------------------------------- ---------- ---------- ---------- ---------- ----------- ----------
Gross Revenue............................ $ 643,044 $ 632,600 $ 588,700 $ 227,223 $ 367,121 $ 338,216
Subcontracts and materials.............. (456,188) (478,100) (421,200) (123,108) (239,694) (200,131)
Provision for contract losses........... -- -- -- -- (76,210) (6,900)
Equity income of affiliates............. -- -- -- 4,480 6,045 2,301
--------- --------- --------- --------- --------- ---------
Service Revenue.......................... 186,856 154,500 167,500 108,595 57,262 133,486
Operating Expenses:
Direct labor and fringe................. 176,582 138,300 145,500 67,896 79,562 79,971
Selling, general & administrative....... -- -- -- 54,052 65,534 63,851
Depreciation/amortization............... 89 -- -- 5,180 8,288 8,595
Restructuring charges................... -- -- -- 14,384 17,079 --
--------- --------- --------- --------- --------- ---------
Operating Income (Loss).................. $ 10,185 $ 16,200 $ 22,000 $ (32,917) $(113,201) $ (18,931)
========= ========= ========= ========= ========= =========
Asset information by reportable segment is not reported for any period
prior to December 31, 1999 because the Company did not maintain or use such
information for internal management purposes prior to the divestitures (Note 4).
Page F-11
Balance Sheets as of December 31, 1999 Kaiser-Hill E&C Total
-------------------------------------- ------------- ------------------ -----------------
Assets
Cash and cash equivalents $ 5,243 $ 21,148 $ 26,391
Restricted cash -- 16,386 16,386
Contract receivables, net 105,753 52,566 158,319
Other current assets 126 5,224 5,350
Other long-term assets 587 46,530 47,117
-------- -------- ---------
Total Assets 111,709 141,854 253,563
-------- -------- ---------
Liabilities
Accounts payable 90,813 28,743 119,556
Accrued salaries and benefits 14,717 12,532 27,249
Other current liabilities -- 42,533 42,533
Other long-term liabilities -- 131,795 131,795
-------- -------- ---------
Total liabilities 105,530 215,603 321,133
-------- -------- ---------
Net Assets (Liabilities) $ 6,179 $(73,749) $( 67,570)
======== ======== =========
Foreign Operations: Gross revenue and operating income from foreign operations
and foreign assets of all consolidated subsidiaries were as follows as of and
for the years ended December 31 (in thousands):
1999 1998 1997
-------------- ---------------- ---------------
Foreign gross revenue:
Europe...................................... $ 67,014 $ 89,155 $ 86,937
Asia-Pacific................................ 32,763 31,460 44,871
Other....................................... 2,001 1,387 25,876
-------- -------- --------
101,778 122,002 157,684
Domestic gross revenue......................... 768,489 877,719 769,232
-------- -------- --------
Total gross revenue...................... $870,267 $999,721 $926,916
======== ======== ========
Foreign operating income (loss):
Europe...................................... $ 1,911 $ 2 ,106 $ 11,153
Asia-Pacific................................ (2,636) 2,068 2,209
Other....................................... (1,855) (22,457) 785
-------- -------- --------
(2,580) (18,283) 14,147
Domestic operating income (loss)............... (20,152) (78,718) (17,216)
-------- -------- --------
Total operating income (loss)............ $(22,732) $(97,001) $ 3,069
======== ======== ========
Foreign assets:
Europe...................................... $ 26,449 $ 42,241 $ 34,900
Asia-Pacific................................ 13,336 18,312 15,071
Other....................................... 1,844 1,649 833
-------- -------- --------
41,629 62,202 50,804
Domestic assets................................ 211,934 365,869 348,484
-------- -------- --------
Total assets............................. $253,563 $428,071 $399,288
======== ======== ========
Page F-12
6. Contract Receivables
Contract receivables consisted of the following at December 31 (in
thousands) (the 1998 balances include receivables of EFM and Consulting Group
that were divested in 1999):
1999 1998
-------- --------
U.S. government agencies:
Currently due......................................... $ 2,822 $ 20,193
Retention............................................. 684 3,030
Unbilled.............................................. 105,589 156,025
-------- --------
109,095 179,248
-------- --------
Commercial clients and state and municipal governments:
Currently due......................................... 32,466 74,184
Retention............................................. 13,288 21,267
Unbilled.............................................. 13,064 20,229
-------- --------
58,818 115,680
-------- --------
167,913 294,928
Less allowances for uncollectible receivables.............. (9,594) (10,850)
-------- --------
$158,319 $284,078
======== ========
Unbilled receivables result from revenue that has been earned but not
billed. The unbilled receivables can be invoiced at contractually defined
intervals -based on the Company's current mix of contract types - the majority
is typically billed in the following month. Retention balances are billable at
contract completion or upon attainment of other specified contract milestones.
Consistent with industry practice, these receivables are classified as current
assets. The balance of billed receivables with U.S. government agencies at
December 31, 1999 includes $2.0 million in claims to which the Company believes
it is entitled, and recovery of which may take more than one year. The Company
anticipates that the remaining unbilled receivables will be substantially billed
and collected within one year.
7. Joint Ventures and Affiliated Companies
The Company has ownership interests in certain unconsolidated corporate
joint ventures and affiliated companies. The Company's net investments in and
advances to these corporate joint ventures and affiliated companies totaled
$10.0 million and $7.7 million at December 31, 1999 and 1998, respectively. The
investment increased in 1999 primarily as a result of the Company's sale of its
Consulting Group with the retention of a 10% interest The Combined summarized
financial information of all of the Company's unconsolidated corporate joint
ventures and affiliated companies as of December 31, was as follows (in
thousands):
1999 1998 1997
-------- -------- --------
Current assets............... $ 36,183 $ 20,390 $ 23,661
Non-current assets........... 12,983 12,462 10,182
Current liabilities.......... 25,601 21,602 20,479
Non-current liabilities...... 34,093 2,641 --
Gross revenue................ 81,915 24,546 41,285
Net income................... 5,209 5,318 7,522
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 leases the land and owns the buildings leased primarily by the Company for
its corporate headquarters. The Company is committed 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 will increase 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 will be
amortized over the estimated 15-year life of the LLC.
8. Notes receivable
The Company accepted two promissory notes as part of the total
consideration received in connection with the sale of the Consulting Group in
June 1999. Principal payments on an escrowed and
Page F-13
non-escrowed note, in the amounts of $3,250,000 and $3,300,000, respectively,
are due June 25, 2006. Interest payments of 10.5% are due from the inception of
the notes beginning December 31, 2000 and payable semi-annually thereafter. 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. The Company believes that the note carrying values at December 31,
1999 approximate fair value.
9. Debt
The Company's long-term debt was as follows at December 31 (in thousands)
and, net of all current maturities, is due in 2003:
1999 1998
-------- --------
12% Senior Subordinated Notes due 2003....... $125,000 $125,000
12% Senior Notes due 2003.................... 1,000 15,000
Revolving credit facility.................... -- 30,729
-------- --------
126,000 170,729
Less unamortized discount.................... 1,782 2,512
-------- --------
124,218 168,217
Less current maturities...................... -- 30,729
-------- --------
$124,218 $137,488
======== ========
Background to 1999 developments: In 1998, the Company realized that it was
going to incur significant cost overruns on four large fixed-price projects. Due
to the significant risks, difficulties and uncertainties involved in estimating
the total costs to complete these large fixed price projects, the Company
revised and increased the total completed project cost estimates several times
in 1998. Given the completion cost uncertainties 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.
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 anticipated material adverse change to the
Company's financial condition triggered a technical event of default pursuant to
the Revolver's terms. Despite the technical default status, the lender permitted
the Company to borrow and obtain letters of credit pursuant to all other terms
of the Revolver, primarily conditioned on the provision that proceeds from two
pending asset sale transactions be used to repay all outstanding cash
borrowings. On April 9, 1999, the Company completed the sale of its EFM Group
(see Note 4) and used $36 million of the sale proceeds to extinguish outstanding
Revolver cash borrowings. The Company then 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 -
concurrent with the Company's completion of the sale of its Consulting Group. A
charge of $0.8 million, net of income taxes, was recognized for the write off of
the unamortized balance of capitalized costs incurred to originally obtain the
facility. This charge was recognized as an extraordinary charge on the Statement
of Operations. Also in connection with the expiration of the Amended 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 were
outstanding under the expired facility. All of the Company's letters of credit
remain cash collateralized as of April 14, 2000 and will continue so until such
time as the Company can secure a replacement credit facility with sufficient
letter of credit capacity.
On September 30, 1999, the Company reached a debt restructuring agreement
in principle with the majority of the holders of its $15.0 million in Senior
Notes and $125.0 million in Senior Subordinated Notes. On or about October 1,
1999, the Company commenced an asset sale offer/exchange offer designed to
restructure its Notes, including the consummation of the first element of the
debt restructuring - using proceeds from completed asset sales to repurchase
$14.0 million of its $15.0 million in
Page F-14
outstanding Senior Notes for 88% of their face value on October 9, 1999. 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 and costs incurred in the repurchase, the net
gain on the repurchase was $0.2 million after related income taxes.
By November 3, 1999, the Company had received notice of participation in
the asset sale offer/exchange offer by the holders of approximately 99% of the
principal amount of its $125.0 million Senior Subordinated Notes. On November 4,
1999, the Company obtained the necessary approvals of its common shareholders to
be able to effect the proposed restructuring. The detailed elements of the plan
are described in the Company's Prospectus dated October 1, 1999. In general
terms, the plan contemplated the cash repurchase of at least $35.0 million of
the Senior Subordinated Notes and the exchange of 2,600,000 shares of new
redeemable convertible preferred stock (liquidation preference of $65.0 million)
and up to $25.0 million in new unsecured 15% Senior Notes to be due December 31,
2002 for the balance of the Senior Subordinated Note.
Consummation of the approved debt restructuring plan was 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 Company was not able to obtain a facility that was compatible with the
Company's needs. Due to the fact that the Company could not secure an acceptable
credit facility and on continued financial underperformance of it Engineering
Operations, on December 31, 1999, the Company paid the scheduled interest
payment on the $126.0 million in remaining notes and decided to delay
implementation of the proposed debt restructuring and re-open negotiations with
its noteholders and potential lenders.
The Company has remained in ongoing negotiations with representatives of
the holders of its Senior Subordinated Notes and believes it can implement a
modified restructuring of those Notes. Such a transaction could involve an
exchange of Senior Subordinated Notes for a combination of common stock and
newly issued preferred stock on terms that would permit the Company to retain
available cash and not require a new bank credit agreement. The Company believes
that such a restructuring would resolve concerns with respect to its financial
condition and provide a basis for ongoing operations and continuation of the
Company's turnaround. However, such a restructuring would result in
substantially more dilution of the equity of existing common stockholders than
the restructuring proposed during the fall of 1999.
Terms of Senior Notes: The 12% Senior Notes (Senior Notes) are due in 2003,
(Senior Notes). Each note unit consists 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. Payment of the
principal and interest on the Senior Notes are unconditionally guaranteed by 8
of the Company's wholly owned subsidiaries (Note 17).
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 are subordinate to its obligations
under the Senior Notes and revolving credit facilities, if any.
Interest payments are due semiannually on the Senior Notes and the
Subordinated Notes (collectively, the Notes). Interest has and will continue to
accrue at 13% until the Company achieves and maintains a specified level of
earnings. The indentures governing the Notes contain business and financial
covenants, including restrictions on additional indebtedness, dividends,
acquisitions and certain types of investments, and asset sales.
At December 31, 1999, the fair value, derived from the average of quoted
financial institution market prices, of the Senior Notes and Subordinated Notes
was approximately $0.88 million and $57.0 million, respectively. The capitalized
balance of the Notes issuance costs totaled $1.9 million and $3.3
Page F-15
million, respectively, at December 31, 1999 and 1998, and are being amortized
over the terms of the Notes.
Kaiser Hill Working Capital Facility: Kaiser-Hill had a $50 million
receivables purchase facility to support its working capital requirements which
expired, on an extended basis, on September 30, 1999. On November 2, 1999,
Kaiser-Hill subsequently obtained a revolving credit facility from Bank of
America, N.A. that provides for up to $35.0 million in total cash borrowing
availability, such outstanding amount not to exceed the sum of eligible portions
of Kaiser-Hill's eligible billed and unbilled accounts receivable on the DOE
Rocky Flats contract. The facility matures six years from inception. Kaiser-Hill
and both owners granted the lender a first lien security interest in all of the
ownership and equity interest in Kaiser-Hill and have agreed to cure events of
default by Kaiser-Hill on the facility. Interest on advances will accrue at
LIBOR-based rates or the higher of the prime or Federal Funds rates. There are
no amounts outstanding under the facility at December 31, 1999.
10. Capital Stock
Notes Receivable Collateralized by Common Stock: Certain former members of
senior management had outstanding notes to the Company for which 396,849 shares
of the Company's common stock served as the primary collateral. The remaining
management with such notes left the employment of the Company in 1999 and 1998
and the related amounts of note principal in excess of the then fair market
values of the collateral shares totaling $638,000 and $1,784,000, was expensed
in 1999 and 1998, respectively.
Shareholder Rights Plan: The Shareholder Rights Plan (Rights Plan) provides
the Board of Directors (the Board) with the ability to negotiate with a person
or group that might, in the future, make an unsolicited attempt to acquire
control of the Company. The Rights Plan provides for one Right (Right) for each
outstanding share of the Company's common stock. Each right entitles the holder
to purchase /1//100 of a share of Series 4 Junior Preferred Stock at a purchase
price of $50. The Rights generally may cause substantial dilution to a person or
group that attempts to acquire the Company on terms not approved by the Board.
The Rights expire on January 13, 2002.
Preferred Stock: The Company's authorized capital stock includes 3,100,000
shares of Series 4 Junior Preferred Stock, par value $.01 per share, of which
500,000 shares are reserved for the Shareholder Rights Plan described above.
There were no preferred shares issued or outstanding as of December 31, 1999 or
1998.
Page F-16
11. Income Taxes
The components of net (loss) used to compute the (expense) benefit from
continuing operations for income taxes for the years ended December 31 were as
follows (in thousands):
1999 1998 1997
-------- --------- --------
Income (loss) from continuing operations before
income taxes and minority interests:
Domestic......................................... $(40,998) $(116,431) $(14,325)
Foreign.......................................... (450) 690 1,886
-------- --------- --------
(41,448) $(115,741) $(12,439)
======== ========= ========
(Expense) benefit for income taxes:
Federal:
Current....................................... $ -- $ 6,740 $ 4,615
Deferred...................................... 2,094 9,577 4,505
-------- --------- --------
2,094 16,317 9,120
-------- --------- --------
State:
Current....................................... (236) 1,190 598
Deferred...................................... (2,684) 2,598 911
-------- --------- --------
(2,920) 3,788 1,509
-------- --------- --------
Foreign:
Current....................................... (1,271) (1,621) (764)
Deferred...................................... 987 122 (499)
-------- --------- --------
(284) (1,499) (1,263)
-------- --------- --------
$ (1,110) $ 18,606 $ 9,366
======== ========= ========
The effective income tax (expense) benefit from continuing operations
varied from the federal statutory income tax (expense) benefit because of the
following differences (in thousands):
1999 1998 1997
-------- --------- --------
Income tax benefit computed at federal statutory
tax rate.......................................... $ 14,092 $ 39,352 $ 4,354
-------- -------- -------
Change in (tax) benefit from:
Goodwill amortization............................ (746) (1,088) (1,010)
Minority interest earnings....................... 1,763 2,617 3,803
State income taxes............................... 1,703 3,388 981
Foreign taxes.................................... (1,192) (2,908) (316)
Valuation allowance.............................. (16,236) (22,031) --
Stock redemption................................. (76) (646) --
Business meals and entertainment................. (189) (349) (220)
Research and experimentation credits............. -- 491 1,881
Other............................................ (229) (220) (107)
-------- -------- -------
(15,202) (20,746) 5,012
-------- -------- -------
$ (1,110) $ 18,606 $ 9,366
======== ======== =======
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):
1999 1998
-------- --------
Net operating loss carryforwards............... $ 15,435 $ 25,899
Reserves for adjustments and allowances........ 17,136 23,686
Vacation and incentive compensation accruals... 2,673 5,264
Tax credit carryforwards....................... 3,200 3,008
Restricted stock............................... 2,167 2,669
Unbilled revenue............................... (2,220) (2,616)
Other.......................................... 1,490 408
-------- --------
39,881 58,318
Valuation allowance............................ (39,881) (23,645)
-------- --------
$ -- $ 34,673
======== ========
The Company has net operating loss carryforwards at December 31, 1999 in
the amount of $42.0 million for federal purposes which expire by 2018. The
Company has $3.2 million of tax credit carryforwards, of which, $1.8 million
have no expiration, and $1.4 million expire by 2012. The ability to derive
benefit from these carryforwards in the future is dependent on the Company's
ability to generate sufficient taxable income prior to the expiration dates.
Page F-17
The Company provided for an additional valuation allowance in 1999 of $16.2
million, in order to reserve the total amount of the net deferred tax asset, as
the Company cannot reasonably predict that the results of its future operations
will be sufficient to assure utilization of the tax benefit prior to expiration.
In 1998, the Company recognized a valuation allowance sufficient to ensure that
the balance of the net deferred tax asset at December 31, 1998 would be
completely utilized by the income tax gains that were anticipated from sales of
several operating divisions completed in 1999. Upon the consummation of those
asset sales in 1999, the entire $34.7 million deferred tax asset was utilized.
Approximately $0.8 million and $1.2 million of the valuation allowance at
December 31, 1999 and 1998, respectively, is attributed to foreign income tax
benefits also not currently assured of realization.
12. Leases
The Company leases all office space and the majority of all of equipment.
In connection with the Company's divestiture of two operating units during 1999,
the Company entered into long-term subleases with the buyers for the respective
amounts of acquired leased space and equipment. Scheduled annual future minimum
payments on prime noncancelable operating leases as well as scheduled annual
future minimum receipts on subleases for leases with initial or remaining terms
in excess of one year at December 31, 1999 are as follows (in thousands):
Lease Sublease
-------- --------
Year Amount Amount
---- -------- --------
2000...................... $ 18,693 $ 8,939
2001...................... 13,293 7,160
2002...................... 11,520 7,221
2003...................... 10,411 6,887
2004...................... 9,404 6,267
Thereafter................ 64,657 41,780
-------- --------
$127,978 $ 78,254
======== ========
The total rental expense for all operating leases was $27,407,000,
$28,733,000, and $27,576,000, for the years ended December 31, 1999, 1998, and
1997, respectively. Sublease rental income was $7,161,000, $5,482,000, and
$4,617,000 for the years ended December 31, 1999, 1998, and 1997, respectively.
13. Benefits and Compensation Plans
Employee Stock Purchase Plan: The Company's Stock Purchase Plan provides
for the sale of up to 2.0 million shares of common stock to all eligible
employees. Employees may elect to withhold up to 10% of annual base earnings for
the purchase of the Company's common stock. Options to purchase shares of common
stock are 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 years ended December
31, 1999, 1998 and 1997, respectively, 70,208, 98,551 and 101,927 shares were
sold under the plan. Operation of the Stock Purchase Plan was suspended
effective March 31, 1999.
Fixed Stock Option Plans: A Stock Incentive Plan (Incentive Plan) provides
for the issuance of options, stock appreciation rights, restricted shares, and
restricted stock units of up to an aggregate of 6.0 million shares of the
Company's common stock. Awards are made to employees at the discretion of the
Compensation and Human Resources Committee of the Board (Committee). Vesting
periods, determined by the Committee, are generally in equal installments over
three to six years. At December 31, 1999, 1,104,738 shares were available for
grant under this plan.
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 will be granted a PSA equal to $20,000 worth of
common stock on the date of grant. Three years after the PSA grant, the Company
will 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 will be expensed in the period of the value increase.
PSA's granted in 1999, 1998 and 1997 totaled 388,892, 49,126 and
Page F-18
48,545, respectively, with initial share values of $0.36, $2.85 and $2.06,
respectively. Expense associated with this plan of $0, $76,000 and $83,000 was
recognized in 1999, 1998 and 1997, respectively.
The precursor to the above plan was the Non-Employee Directors Stock Option
Plan (Non-Employee Plan) which provided each non-employee director of the
Company an immediately exercisable option to purchase 3,000 shares of the
Company's common stock for each year of service. The Non-Employee Plan does not
specify a maximum number of available shares. As of December 31, 1999, there are
135,000 shares of common stock reserved for issuance upon the exercise of
options granted under this plan and 60,000 are outstanding. This Plan was
suspended following adoption of the Non-Employee Directors Compensation and
Phantom Stock Plan.
The Company's Consultants, Agents, and Part-Time Employees Stock Option
Plan (Consultants Plan) provides for the issuance of options or restricted
shares of up to 1.0 million shares of the Company's common stock to consultants,
agents, and part-time employees. The vesting period is a minimum of one year. In
1999, 1998 and 1997, 0, 100,000 and 200,000 options were granted, respectively.
At December 31, 1999, there were 700,000 options available for grant.
All three active plans provide that the option or grant price is not to be
less than the fair market value on the date of grant. Under the Incentive and
Non-Employee Directors Plans, an option's maximum term is 10 years. As of
December 31, 1999, there have been no options granted under these plans with
terms greater than five years. An option's maximum term under the Consultants
Plan is five years.
A summary of stock option activity under all option plans is as follows:
Weighted-Average
----------------
Shares Option Price Exercise Price
--------- -------------- --------------
Balance, January 1, 1997.............. 2,182,931 $1.90 to $9.59 $4.29
Granted............................ 885,019 $1.91 to $4.00 $2.39
Expired............................ (572,961) $2.23 to $9.59 $5.77
---------
Balance, December 31, 1997............ 2,494,989 $1.90 to $6.90 $3.27
Granted............................ 1,175,500 $1.24 to $2.99 $1.95
Expired............................ (659,957) $1.90 to $6.07 $3.92
Exercised.......................... (330) $2.23 $2.23
---------
Balance, December 31, 1998............ 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 and 1998, were 1,412,808 and
1,408,203, respectively. The weighted-average remaining contractual life on
options outstanding at December 31, 1999, was 2.4 years. There were no
exercisable options outstanding at a price below the fair market value of the
Company's common stock at December 31, 1999.
The following is a summary of fixed stock options outstanding at December
31, 1999:
Options Outstanding Options Exercisable
------------------------------------------------------ -----------------------------
Weighted-Average
----------------
Range of Remaining Weighted-Average Number Weighted-Average
Number --------- ---------------- ------ ----------------
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
*Less than
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 elects 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, 1998, and 1997, respectively, the pro-forma net loss would have been
$(6.1)
Page F-19
million, [$(0.26) per share], $(101.3) million, [$(4.20) per share], and $(5.7)
million, [$(0.26) per share]. These per share amounts reflect basic and 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 are 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 both periods below. The weighted-average of all other significant
assumptions and weighted-average fair value of grants made during the years
ended December 31 are as follows:
Fixed Stock Option Plan: Employee Stock Purchase Plan:
----------------------------------- ------------------------------------
Assumptions 1999 1998 1997 1999 1998 1997
----------- --------- --------- --------- --------- --------- ----------
Volatility.................... 128.3% 71.6% 61.4% 128.3% 71.6% 61.4%
Risk-free interest rate....... 5.5% 5.2% 6.2% 5.1% 4.7% 5.1%
Expected lives................ 5.0 years 5.0 years 5.0 years 0.3 years 0.3 years 0.3 years
Fair value of grants............... $ 1.22 $1.20 $1.22 $0.05 $0.36 $1.40
Retirement Benefits Plans: The Company sponsors several retirement benefit
plans covering substantially all employees who meet minimum length of service
requirements. These plans include a defined-contribution retirement plan that
provides for contributions by the Company based on a percentage of covered
compensation, and a 401(k) Plan that allows employees to defer portions of their
salary, subject to certain limitations. Total expense for these plans for the
years ended December 31, 1999, 1998, and 1997, was $3,880,000, $6,970,000, and
$6,784,000, respectively. As of December 31, 1999, the Retirement Plan, 401(k)
Plan, and a discontinued Employee Stock Ownership Plan owned 806,660, 482,653,
and 1,289,313 shares, respectively, of the Company's common stock.
Collective Bargaining Agreements: Certain of the Company's employees are
covered by union-sponsored, collectively bargained, multi-employer benefit
plans. Contributions and costs are determined in accordance with the provisions
of negotiated labor contracts or terms of the plans. Pension expense for these
plans was $454,000, $413,000, and $482,000, for the years ended December 31,
1999, 1998, and 1997, respectively.
Postemployment Benefit Plan: The Company also continues to fulfill the
provisions of a previously curtailed plan which provides certain medical and
dental benefits to a group of former retirees. The benefits, which are limited
to a fixed amount, are funded to an insurance company as participants' insurance
claims are reimbursed. The benefit cost for this curtailed plan for the years
ended December 31 consisted of the following (in thousands):
1999 1998 1997
----- ------ ------
Interest cost............................ $ 315 $ 359 $ 412
Amortization of transition obligation.... 980 980 980
Amortization of unrecognized net gain.... (627) (591) (563)
----- ----- -----
Net benefit charge....................... $ 668 $ 748 $ 829
===== ===== =====
Page F-20
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):
1999 1998
------- -------
Benefit obligation at January 1,.................. $ 4,879 $ 5,508
Service cost................................... -- --
Interest cost.................................. 315 359
Benefits paid.................................. (688) (740)
Actuarial gain................................. (508) (248)
------- -------
Benefit obligation at December 31,................ 3,998 4,879
Unamortized transition obligation.............. (7,507) (8,487)
Unrecognized net gain.......................... 5,801 5,920
------- -------
Net benefit obligation liability at December 31,.. $(2,292) $(2,312)
======= =======
The discount rate for both 1999 and 1998 was 7%. The 1999 health-care cost
trend rate is 5%, effective until 2013 when the cost will be in excess of the
Company's maximum obligation. If the trend rate were increased by 1% for each
year, the benefit obligation as of December 31, 1999 would increase by
approximately $115,000 or 3%. The transition obligation is being amortized over
14.5 years.
14. Earnings Per Share
Basic EPS excludes dilution and is computed on the basis of the weighted-
average number of common shares outstanding for the period. Diluted EPS includes
the weighted-average effect of dilutive securities outstanding during the
period. Summary information of other common stock equivalents not included in
the 1999, 1998 and 1997 per share calculations because of their anti-dilutive
impact is as follows:
Weighted-
---------
Number of Average
--------- -------
Year Ended Other Common Remaining Range of Weighted-Average
---------- ------------ --------- -------- ----------------
December 31, Stock Equivalents Contract Life Exercise Prices Exercise Price
------------ ----------------- ------------- --------------- --------------
1999.... 2,390,780 2.4 years $1.24 - $4.41 $2.46
1998.... 3,390,290 2.5 years $1.24 - $6.87 $2.96
1997.... 3,475,077 2.1 years $1.90 - $6.90 $3.83
The amounts in the table are exclusive of common shares that would be issued in
the future based on the outcome of the ICT Spectrum acquisition contingency
discussed in Note 15.
15. Contingencies
Bath Contingency: In March 1998, the Company entered into a $187 million
maximum price contract with Bath Iron Works to construct a ship building
facility. In May 1998, the Company subsequently learned that estimated costs to
perform the contract as reflected in actual proposed subcontracts were
approximately $30 million higher than the cost estimates originally used as the
basis for contract negotiation between the Company and the customer. After
learning this, the Company advised the customer that it was not required to
perform the contract in accordance with its terms as a result of a mutual
mistake among them in negotiating that contract. In October 1998, the customer
presented an initial draft of a claim against the Company requesting payment for
estimated damages and entitlements pursuant to the terminated contract. The
customer has also subsequently asserted a claim based on alleged differing site
conditions that allegedly should have been identified by the Company. In March
2000, Bath filed a combined claim against the Company in U.S. District Court in
the District of Maine requesting payment for $38 million. The Company continues
to object to the Bath's allegations and is vigorously defending its position.
Although no resolution has been reached management has recorded a provision in
the financial statements for the Company's proposed settlement of the non-
insured portion of this claim.
Acquisition Contingency: The Kaiser common shares exchanged for the stock
of ICT Spectrum in the March, 1998 acquisition, carry the guarantee that the
fair market value of each share of stock will reach $5.36 by March 1, 2001. In
the event that the fair market value does not attain the guaranteed level, the
Company is obligated to make up the shortfall either through the payment of cash
or by issuing additional shares of common stock with a total value equal to the
shortfall, depending upon the
Page F-21
Company's preference. Pursuant to the terms of the Agreement, however, the total
number of contingently issuable shares of common stock cannot exceed an
additional 1.5 million shares.
In December, 1999, the Company and certain former Company employees and
shareholders of ICT Spectrum agreed to amend the applicable agreements in a
manner that had the result of reducing the amount of the taxable gain created by
former shareholder-employees' involuntary departures from the Company. As
permitted 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.
Given that the quoted fair market value of the Company's common stock at
December 31, 1999 was $0.37 per share, and that the Company's current debt
instruments restrict the amount of cash that can be used for acquisitions, the
assumed issuance of an additional 1.5 million shares (now adjusted downward by
the 255,669 retained shares to 1,244,331 shares) would not completely extinguish
the remaining purchase price contingency. In this event, the Company will need
to fund the contingency in cash and would need to obtain an amendment to current
debt instruments or replace them in order to complete a cash fill-up. Any future
distribution of cash or common stock would be recorded as a charge to the
Company's paid-in-capital.
Until the earlier of the contingent purchase price resolution or March 1,
2001, any additional shares assumed to be issued because of shortfalls in fair
market value will be included in the Company's diluted earnings per share
calculations, unless they are antidilutive. The exchanged shares also contain
restrictions preventing their sale prior to March 1, 2001.
On March 29, 1999, one ex-ICT Spectrum shareholder, individually and on
behalf of all others similarly situated, filed a class action lawsuit alleging
false and misleading statements made in a private offering memorandum, and
otherwise, in connection with the Company's acquisition of ICT Spectrum in 1998.
The Company subsequently filed a motion to dismiss the case. On March 14, 2000,
the court ordered the defendant to address certain claim deficiencies. Upon
receipt of the claim amendments, the court is expected to complete the ruling
relative to the Company's motion.
Litigation, Claims and Assessments: In the course of the Company's normal
business activities, various claims or charges have been asserted and litigation
commenced against the Company arising from or related to properties, injuries to
persons, and breaches of contract, as well as claims related to acquisitions and
dispositions. Claimed amounts may not bear any reasonable relationship to the
merits of the claim or to a final court award. In the opinion of management,
adequate reserves have been provided for final judgments, if any, in excess of
insurance coverage, that might be rendered against the Company in such
litigation. The continued adequacy of reserves is reviewed periodically as
progress on such matters ensues.
The Company may from time to time, either individually or in conjunction
with other government contractors operating in similar types of businesses, be
involved in U.S. government investigations for alleged violations of procurement
or other federal laws and regulations. The Company currently is the subject of a
number of U.S. government investigations and is cooperating with the responsible
government agencies involved. No charges presently are known to have been filed
against the Company by these agencies. The Company has provided for its estimate
of the potential effect of these investigations, and the continued adequacy of
reserves is reviewed periodically as progress on such matters ensues.
Prior to the divestitures of its EFM and Consulting Groups, the Company had
a substantial number of cost-reimbursement contracts by the applicable U.S.
government agency, the costs of which are subject to audit and adjustment by the
U.S. government. As a result of pending audits related to fiscal years 1986
forward, the government has asserted, among other things, that certain costs
claimed as reimbursable under government contracts either were not allowable or
not allocated in accordance with federal procurement regulations. The Company is
actively working with the government to resolve these issues. The Company has
provided for its estimate of the potential effect of issues that have been
quantified, including its estimate of disallowed costs for the periods currently
under audit and for periods not yet audited. Neither the government nor the
Company, however, has quantified many of the issues, and others are qualitative
in nature, and their potential financial impact, if any, is not quantifiable by
the government or the Company at this time. The adequacy of provisions for
reserves is reviewed periodically as progress with
Page F-22
the government on such matters ensues.
Contract warranties and performance guaranty contingencies: In the course
of the Company's normal business activities, many of its contracts contain
provisions for warranties and performance guarantees. As progress on contracts
ensues, the Company regularly updates the estimates of the costs to perform such
contingencies and reserves a proportionate amount of the total related contract
value until such time as the contingency is resolved.
16. Selected Quarterly Financial Information (Unaudited)
Fourth Third Second First
------ ----- ------ -----
Year Ended December 31, 1999 Quarter Quarter Quarter Quarter
- ---------------------------- --------- --------- --------- ---------
Gross revenue......................................................... $170,363 $254,527 $219,880 $225,497
Service revenue....................................................... 96,933 71,085 63,274 64,159
Operating income (loss)............................................... (13,590) 2,773 (10,095) (1,820)
income (loss) from continuing operations before
extraordinary item and cumulative effect of
accounting change................................................ (14,767) (5,873) (18,809) (8,293)
Income (loss) from discontinued operations............................ 178 -- (417) 2,574
Gain (loss) on sale of discontinued operations....................... (6,156) (2,516) 48,755 --
income (loss) before extraordinary item and
cumulative effect of accounting change......................... (23,261) (5,873) 29,529 (5,719)
Net income (loss).................................................... (23,163) (5,873) 28,831 (5,719)
Basic and fully diluted per share amounts for:
Income (loss) from continuing operations before extraordinary
item and cumulative effect of accounting change................. $ (0.73) $ (0.14) $ (0.79) $ (0.34)
Discontinued operations............................................. (0.24) (0.11) 2.03 0.10
-------- -------- -------- --------
Income (loss) before extraordinary item and
Cumulative effect of accounting change.......................... (0.98) (0.25) 1.24 (0.24)
Extraordinary item.................................................. -- -- (.03) --
Cumulative effect of accounting change.............................. -- -- -- --
-------- -------- -------- --------
Net income (loss)................................................... $ (0.97) $ (0.25) $ 1.21 $ (0.24)
======== ======== ======== ========
Fourth Third Second First
------ ----- ------ -----
Year Ended December 31, 1998 Quarter Quarter Quarter Quarter
- ---------------------------- --------- --------- --------- ---------
Gross revenue........................................................ $244,825 $234,928 $263,129 $256,839
Service revenue...................................................... 56,461 47,176 33,593 74,532
Operating income (loss).............................................. (25,796) (36,326) (39,227) 4,348
(loss) from continuing operations before
extraordinary item and cumulative effect of
accounting change.................................................. (29,989) (41,166) (31,612) (2,050)
Income from discontinued operations.................................. 4,061 2,875 1,944 2,495
income (loss) before extraordinary item and
cumulative effect of accounting change............................. (25,928) (38,291) (29,668) 445
Net income (loss).................................................... (27,018) (38,291) (35,668) 445
Basic and fully diluted per share amounts for:
Income (loss) before discontinue operations,
Extraordinary item and cumulative effect of
accounting change............................................ $ (1.26) $ (1.70) $ (1.31) $ (0.08)
Discontinued operations.......................................... 0.18 0.12 0.08 0.10
-------- -------- -------- --------
Income (loss) before extraordinary item and
Cumulative effect of accounting change........................... (1.08) (1.58) (1.23) 0.02
Extraordinary item............................................. (0.05) -- -- --
Cumulative effect of accounting change......................... -- -- (.25) --
-------- -------- -------- --------
Net income (loss)................................................ $ (1.13) $ (1.58) $ (1.48) $ 0.02
======== ======== ======== ========
Page F-23
The Company recognized the following significant 1999 fourth quarter
adjustments:
. Due to the January 24, 2000, award to the Kaiser-Hill subsidiary, of the new
Rocky Flats contract, effective February 1, 2000, certain remaining
performance elements contained in the original contract were shifted into
the new contract and the DOE essentially terminated the original contract.
Since the Company 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, the Company had to
revise its estimate of its earnings under the original contract. The
downward revision, due to the shift in performance elements from the
original contract (terminated as of January 31, 2000) to the new contract,
caused the Company to reverse previously recognized revenue of $5.2
million. This adjustment merely reflects a change in the timing of when
Kaiser-Hill will earn this revenue.
. The Company expensed approximately $4.0 million in professional fees
incurred during 1999 in connection with efforts to restructure its
outstanding Notes and with other efforts associated with the Company's
reorganization. Prior to the fourth quarter, these costs had been
capitalized on the balance sheet pending the completion of the related debt
restructuring and reorganization.
. The Company's Engineering Operations operating performance during the fourth
quarter was down due to the near completion of certain foreign projects
during the third quarter of 1999 without replacement projects of similar
magnitude.
. The Company finalized its accounting for the divestitures of its EFM and
Consulting Groups (Note 4) during the fourth quarter and recorded a
reduction to the gain on the sales of $6.2 million primarily for the income
tax effects of the transactions and for the write-off of additional divested
assets.
17. Guarantor Subsidiaries
Pursuant to SEC rules regarding publicly held debt, the Company is required
to provide financial information for wholly owned subsidiaries of Kaiser Group
International, Inc. (Subsidiary Guarantors) which unconditionally guarantee the
payment of the principal, premium, if any, and interest on the Company's Senior
Subordinated Notes and Series B Senior Notes. The Subsidiary Guarantors are
Cygna Consulting Engineers and Project Management, Inc; Kaiser Government
Programs, Inc; Global Trade & Investment, Inc; Kaiser Europe, Inc;
Kaiser/Georgia Wilson, Inc; Kaiser Overseas Engineering, Inc; EDA Incorporated,
Inc.; Kaiser Engineers Pacific, Inc; and Kaiser Advanced Technology, Inc.
Kaiser Remediation Company, a former Guarantor, was included in the sale of
the EFM Group to IT on April 9, 1999, Systems Applications International, Inc.,
also a former Guarantor, was included in the sale of the Consulting Group on
June 30, 1999 and the majority of the assets of EDA Incorporated, Inc. were sold
in an unrelated transaction on August 13, 1999. The guarantor information has
been updated to reflect these transactions.
Condensed consolidating financial information for Kaiser Group
International, Inc. (Parent Company), the Subsidiary Guarantors, and the Non-
Guarantor Subsidiaries follow on pages F-25-29. The information, except for the
December 31, 1999 condensed consolidating balance sheet, is unaudited.
Investments in subsidiaries have been presented using the equity method of
accounting. The Company does not have a formal tax-sharing arrangement with its
subsidiaries and has allocated taxes to its subsidiaries based on the Company's
overall effective tax rate.
Page F-24
KAISER GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 1999
(In thousands)
Kaiser Group
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Eliminations Consolidated
-------------- ------------- --------------- -------------- -----------------
ASSETS
Current Assets
Cash and cash equivalents..................... $ 11,472 $ 8,008 $ 6,911 $ -- $ 26,391
Restricted cash ............................. 13,816 -- 2,570 -- 16,386
Contract receivables, net ................... (3,698) 106,841 55,176 -- 158,319
Intercompany receivables, net ............... 194,308 17,466 (211,774) -- --
Prepaid expenses and other current assets ... 554 949 3,847 -- 5,350
--------- -------- --------- ------------- ---------
Total Current Assets ........................ 216,452 133,264 (143,270) -- 206,446
--------- -------- --------- ------------- ---------
Fixed Assets
Furniture, equipment, and leasehold
improvements ............................. 3,520 1,115 9,589 -- 14,224
Less depreciation and amortization .......... (3,057) (1,013) (7,333) -- (11,403)
--------- -------- --------- ------------- ---------
463 102 2,256 -- 2,821
--------- -------- --------- ------------- ---------
Other Assets
Goodwill, net ............................... -- 3,029 14,552 -- 17,581
Investment in and advances to affiliates .... (144,683) 1 8,844 145,878 10,040
Notes receivable ............................ 6,550 -- -- -- 6,550
Capitalized software development costs ...... 1,601 -- -- -- 1,601
Other ....................................... 3,403 587 4,534 -- 8,524
--------- -------- --------- ------------- ---------
(133,129) 3,617 27,930 145,878 44,296
--------- -------- --------- ------------- ---------
Total Assets ................................ $ 83,786 $136,983 $(113,084) $145,878 $ 253,563
========= ======== ========= ============= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and other accrued
expenses ................................. $ 21,587 $ 94,542 $ 30,348 $ -- $ 146,477
Accrued salaries and employee benefits ...... (11,788) 17,126 21,911 -- 27,249
Other ....................................... 11,956 (2,382) 6,038 -- 15,612
--------- -------- --------- ------------- ---------
Total Current Liabilities ................... 21,755 109,286 58,297 -- 189,338
Long-term Liabilities
Long-term debt, less current portion ........ 124,217 -- 1 -- 124,218
Other ....................................... 4,781 -- 2,796 -- 7,577
--------- -------- --------- ------------- ---------
Total Liabilities ........................... 150,753 109,286 61,094 -- 321,133
--------- -------- --------- ------------- ---------
Minority interests in subsidiaries .......... -- 2,333 -- -- 2,333
Shareholders' equity
Common stock ................................ 227 6,809 114 (6,913) 237
Additional paid-in capital .................. 73,644 2,372 48,266 (50,639) 73,643
Accumulated earnings (deficit) .............. (140,838) 16,545 (219,818) 203,430 (140,681)
Accumulated other comprehensive (loss) ...... -- (362) (2,740) -- (3,102)
--------- -------- --------- ------------- ---------
Total Shareholders' Equity (Deficit) ........ (66,967) 25,364 (174,178) 145,878 69,903
--------- -------- --------- ------------- ---------
Total Liabilities and Shareholders' Equity
(Deficit) ................................ $ 83,786 $136,983 $(113,084) $ 145,878 $ 253,563
========= ======== ========= ============= =========
Page F-25
KAISER GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
(In thousands)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Parent Subsidiary Non-Guarantor
Year Ended December 31, 1999 Company Guarantors Subsidiaries Eliminations Consolidated
- ------------------------------------------------ --------- ----------- -------------- ------------ -------------
Gross Revenue................................... $ 5,575 $ 670,295 $ 194,397 $ -- $ 870,267
Subcontract and direct material costs ... (5,250) (471,838) (102,208) -- (579,296)
Equity in income of affiliates .......... (74,208) -- 7,476 71,212 4,480
-------- --------- --------- ------- ---------
Service Revenue ............................... (73,883) 198,457 99,665 71,212 295,451
Operating Expenses
Operating expenses ...................... (6,918) 185,358 120,090 -- 298,530
Depreciation and amortization ........... 1,651 828 2,790 -- 5,269
Restructuring charges ................... 8,270 1,599 4,515 -- 14,384
-------- --------- --------- ------- ---------
Operating Income (Loss) ....................... (76,886) 10,672 (27,730) 71,212 (22,732)
Other Income (Expense)
Interest income ......................... 1,328 548 473 -- 2,349
Interest expense ........................ (1,328) (1,639) (18,098) -- (21,065)
-------- --------- --------- ------- ---------
Income (Loss) From Continuing Operations
Before Income Taxes, Minority Interest,
Extraordinary Item ...................... (76,886) 9,581 (45,355) 71,212 (41,448)
Income tax (expense) benefit ............ (13,021) (3,784) 15,695 -- (1,110)
-------- --------- --------- ------- ---------
Income (Loss) From Continuing Operations Before
Minority Interest, and Extraordinary Item...... (89,907) 5,797 (29,660) 71,212 (42,558)
Minority interest in net income of
subsidiaries ........................... -- (5,184) -- -- (5,184)
-------- --------- --------- ------- ---------
Income (Loss)From Continuing Operations
Before Extraordinary Item, and Cumulative
Effect of Accounting Change .............. (89,907) 613 (29,660) 71,212 (47,742)
Income from discontinued operations,
net of tax............................ -- -- 2,335 -- 2,335
Gain on sales of discontinued
operations, net of tax................ 84,583 (2,690) (41,810) -- 40,083
-------- --------- --------- ------- ---------
Income (Loss) Before Extraordinary Item ...... (5,324) (2,077) (69,135) 71,212 (5,324)
Extraordinary item, net of tax ........ (600) -- -- -- (600)
-------- --------- --------- ------- ---------
Net Income (Loss) ............................. $ (5,924) $ (2,077) $ (69,135) $71,212 $ (5,924)
======== ========= ========= ======= =========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Parent Subsidiary Non-Guarantor
Year Ended December 31, 1999 Company Guarantors Subsidiaries Eliminations Consolidated
- --------------------------------------------------- ---------- ----------- -------------- ------------ -------------
Net Cash Provided by (Used in)
Operating Activities ......................... $(65,511) $ 7,513 $(1,457) $ -- $(59,455)
-------- ------- ------- ------------ --------
Investing Activities
Cash proceeds from divestitures ............. 140,100 -- -- -- 140,100
Purchases of fixed assets ................... (1,492) (17) (604) -- (2,113)
-------- ------- ------- ------------ --------
Net Cash Provided by (Used in)
138,608 (17) (604) -- 137,987
Investing Activities ................... -------- ------- ------- ------------ --------
Financing Activities
Borrowings under credit facility ............ 61,855 -- -- -- 61,855
Principal payments on credit facility ....... (92,584) -- -- -- (92,584)
Cash collateral for performance guarantees .. (12,595) -- -- -- (12,595)
Change in book overdraft .................... (8,395) -- -- -- (8,395)
Extinguishment of debt ....................... (12,320) -- (12,320)
Distribution of income to minority interest... -- (3,300) -- -- (3,300)
-------- ------- ------- ------------ --------
Net Cash Provided by (Used in)
Financing Activities ................... (64,039) (3,300) -- -- (67,339)
-------- ------- ------- ------------ --------
Effect of Exchange Rate Changes on Cash ....... -- -- (69) -- (69)
-------- ------- ------- ------------ --------
Increase (Decrease) in Cash and Cash
Equivalents .................................. 9,058 4,196 (2,130) -- 11,124
Cash and Cash Equivalents at Beginning
of Period .................................... 2,414 3,812 9,041 -- 15,267
-------- ------- ------- ------------ --------
Cash and Cash Equivalents at End of Period .... $ 11,472 $ 8,008 $ 6,911 $ -- $ 26,391
======== ======= ======= ============ ========
Page F-26
KAISER GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 1998
(In thousands)
Parent Subsidiary Non-Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
---------- ----------- -------------- ------------- -------------
ASSETS
Current Assets
Cash and cash equivalents ....................... $ 2,414 $ 3,812 $ 9,041 $ -- $ 15,267
Restricted cash ................................. 600 -- 2,441 -- 3,041
Contract receivables, net ....................... (5,283) 132,758 156,603 -- 284,078
Intercompany receivables, net ................... 184,700 12,311 (197,011) -- --
Prepaid expenses and other current assets ....... 1,585 422 7,793 -- 9,800
Deferred income taxes ........................... 30,367 3,245 1,061 -- 34,673
--------- -------- --------- ------------ ---------
Total Current Assets ............................ 214,383 152,548 (20,072) -- 346,859
--------- -------- --------- ------------ ---------
Fixed Assets
Furniture, equipment, and leasehold
improvements ................................... 4,589 1,495 37,912 -- 43,996
Less depreciation and amortization .............. (4,040) (1,258) (32,113) -- (37,411)
--------- -------- --------- ------------ ---------
549 237 5,799 -- 6,585
--------- -------- --------- ------------ ---------
Other Assets
Goodwill, net ................................... -- 8,745 40,547 -- 49,292
Investment in and advances to affiliates ........ (64,556) 14 6,494 65,776 7,728
Capitalized software development costs .......... 4,296 766 5,062
Other ........................................... 4,910 523 7,112 -- 12,545
--------- -------- --------- ------------ ---------
(55,350) 9,282 54,919 65,776 74,627
--------- -------- --------- ------------ ---------
Total Assets .................................... $ 159,582 $162,067 $ 40,646 $ 65,776 $ 428,071
========= ======== ========= ============ =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt ............... $ 30,729 $ -- $ -- $ -- $ 30,729
Accounts payable and other accrued expenses ..... 39,759 121,769 71,242 -- 232,770
Accrued salaries and employee benefits .......... 7,818 13,690 16,423 -- 37,931
Other ........................................... 1,910 1,176 39,072 -- 42,158
--------- -------- --------- ------------ ---------
Total Current Liabilities ....................... 80,216 136,635 126,737 -- 343,588
Long-term Liabilities
Long-term debt, less current portion ............ 137,487 -- 1 -- 137,488
Other ........................................... 2,000 26 7,638 -- 9,664
--------- -------- --------- ------------ ---------
Total Liabilities ............................... 219,703 136,661 134,376 -- 490,740
--------- -------- --------- ------------ ---------
Minority interests in subsidiaries .............. -- 449 -- -- 449
Shareholders' Equity
Common stock .................................... 230 8,179 121 (8,288) 242
Additional paid-in capital ...................... 75,200 2,372 58,768 (60,918) 75,422
Accumulated earnings (deficit) .................. (134,913) 14,676 (149,502) 134,982 (134,757)
Accumulated other comprehensive (loss) .......... (638) (270) (3,117) -- (4,025)
--------- -------- --------- ------------ ---------
Total Shareholders' Equity (Deficit) ............ (60,121) 24,957 (93,730) 65,776 (63,118)
--------- -------- --------- ------------ ---------
Total Liabilities and Shareholders' Equity
(Deficit) ...................................... $ 159,582 $162,067 $ 40,646 $ 65,776 $ 428,071
========= ======== ========= ============ =========
Page F-27
KAISER GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
(In thousands)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Parent Subsidiary Non-Guarantor .
Year Ended December 31, 1998 Company Guarantors Subsidiaries Eliminations Consolidated
- ------------------------------------------------- ---------- ----------- -------------- ------------ -------------
Gross Revenue .................................. $ 1,120 $ 731,224 $ 267,377 $ -- $ 999,721
Subcontract and direct material costs .... (527) (562,396) (154,871) -- (717,794)
Provision for contract losses ............ -- -- (76,210) -- (76,210)
Equity in income of affiliates ........... (101,187) -- 6,740 100,492 6,045
--------- --------- --------- -------- ---------
Service Revenue ................................ (100,594) 168,828 43,036 100,492 211,762
Operating Expenses
Operating expenses ....................... (16,750) 152,323 147,823 -- 283,396
Depreciation and amortization ............ 2,513 1,319 4,456 -- 8,288
Restructuring charges .................... 12,289 -- 4,790 -- 17,079
--------- --------- --------- -------- ---------
Operating Income (Loss) ........................ (98,646) 15,186 (114,033) 100,492 (97,001)
Other Income (Expense)
Interest income .......................... 248 516 775 -- 1,539
Interest expense ......................... (280) (1,448) (18,551) -- (20,279)
--------- --------- --------- -------- ---------
Income (Loss) From Continuing Operations Before
Income Taxes, Minority Interest,
Extraordinary Item,
and Cumulative Effect Of Accounting Change (98,678) 14,254 (131,809) 100,492 (115,741)
Income tax (expense) benefit ............. (764) (751) 20,121 -- 18,606
--------- --------- --------- -------- ---------
Income (Loss) From Continuing Operations Before
Minority Interest, Extraordinary Item, and
Cumulative Effect of Accounting Change........ (99,442) 13,503 (111,688) 100,492 (97,135)
Minority interest in net income of -- (7,698) -- -- (7,698)
subsidiaries.............................. --------- --------- --------- -------- ---------
Income (Loss) From Continuing Operations Before
Extraordinary Item, and Cumulative Effect of
Accounting Change ........................... (99,442) 5,805 (111,688) 100,492 (104,833)
Income from discontinued operations,
net of tax............................ -- -- 11,391 -- 11,391
--------- --------- --------- -------- ---------
Income Before Extraordinary Item, and
Cumulative Effect of Accounting Change ...... (99,442) 5,805 (100,297) 100,492 (93,442)
Extraordinary item, net of tax ......... (1,090) -- -- -- (1,090)
Cumulative effect of accounting -- (754) (5,246) -- (6,000)
change, net of tax...................... --------- --------- --------- -------- ---------
Net Income (Loss) .............................. $(100,532) $ 5,051 $(105,543) $100,492 $(100,532)
========= ========= ========= ======== =========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Parent Subsidiary Non-Guarantor
Year Ended December 31, 1998 Company Guarantors Subsidiaries Eliminations Consolidated
- --------------------------------------------------- ---------- ----------- -------------- ------------ -------------
Net Cash Provided by (Used in)
Operating Activities .......................... $ (28,568) $ 3,876 $(4,746) $ -- $ (29,438)
--------- -------- ------- ------------ ---------
Investing Activities
Sales of subsidiaries and assets ............. -- -- 2,400 -- 2,400
Purchases of fixed assets .................... (2,208) -- (2,286) -- (4,494)
Investments in subsidiaries and
affiliates, net of cash acquired ........... 4,094 -- (638) -- 3,456
--------- -------- ------- ------------ ---------
Net Cash Provided by (Used in)
Investing Activities .................... 1,886 -- (524) -- 1,362
--------- -------- ------- ------------ ---------
Financing Activities
Borrowings under credit facility ............. 139,629 -- -- -- 139,629
Principal payments on credit facility ........ (112,860) -- (15) -- (112,875)
Distribution of income to minority .......... -- (10,320) -- -- (10,320)
Change in book overdraft ..................... 8,395 -- -- -- 8,395
Proceeds from issuances of stock ............. 155 -- -- -- 155
Debt issuance costs .......................... (1,380) -- -- -- (1,380)
--------- -------- ------- ------------ ---------
Net Cash Provided by (Used in)
Financing Activities .................... 33,939 (10,320) (15) -- 23,604
--------- -------- ------- ------------ ---------
Effect of Exchange Rate Changes on Cash ........ -- -- (281) -- (281)
--------- -------- ------- ------------ ---------
Increase (Decrease) in Cash and Equivalents .... 7,257 (6,444) (5,566) -- (4,753)
Cash and Equivalents at Beginning of Period .... (4,843) 10,256 14,607 -- 20,020
--------- -------- ------- ------------ ---------
Cash and Cash Equivalents at End of Period ..... $ 2,414 $ 3,812 $ 9,041 $ -- $ 15,267
========= ======== ======= ============ =========
Page F-28
KAISER GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
(In thousands)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Parent Subsidiary Non-Guarantor
Year Ended December 31, 1997 Company Guarantors Subsidiaries Eliminations Consolidated
- ----------------------------------------------------- -------- ----------- -------------- ------------- -------------
Gross Revenue ...................................... $ 727 $ 601,380 $ 324,809 $ -- $ 926,916
Subcontract and direct material costs ............ (608) (427,310) (193,413) -- (621,331)
Provision for contract losses .................... -- -- (6,900) -- (6,900)
Equity in income of affiliates ................... (6,059) -- 2,313 6,047 2,301
------- --------- --------- ------ ---------
Service Revenue .................................... (5,940) 174,070 126,809 6,047 300,986
Operating Expenses
Operating expenses ............................... (3,982) 151,675 141,629 -- 289,322
Depreciation and amortization .................... 2,350 1,066 5,179 -- 8,595
------- --------- --------- ------ ---------
Operating Income (Loss) ............................ (4,308) 21,329 (19,999) 6,047 3,069
Other Income (Expense)
Gain on sale of investment ....................... -- -- 1,018 -- 1,018
Interest income .................................. 570 671 567 (58) 1,750
Interest expense ................................. (570) (749) (17,010) 53 (18,276)
------- --------- --------- ------ ---------
Income (Loss) From Continuing Operations Before
Income Taxes and Minority Interest ............... (4,308) 21,251 (35,424) 6,042 (12,439)
Income tax (expense) benefit .................. (679) (4,258) 14,303 -- 9,366
------- --------- --------- ------ ---------
Income (Loss) From Continuing Operations Before (4,987) 16,993 (21,121) 6,042 (3,073)
Minority Interest..................................
Minority interest in net income of subsidiaries. -- (10,867) -- -- (10,867)
------- --------- --------- ------ ---------
Income (Loss) From Continuing Operations............. (4,987) 6,126 (21,121) 6,042 (13,940)
Net income from discontinued operations, net
of tax ................................... -- -- 8,953 -- 8,953
-------- --------- --------- --------- ---------
Net Income (Loss) ................................. $(4,987) $ 6,126 $ (12,168) $6,042 $ (4,987)
======= ========= ========= ====== =========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Parent Subsidiary Non-Guarantor
Year Ended December 31, 1997 Company Guarantors Subsidiaries Eliminations Consolidated
- ----------------------------------------------------- ---------- ----------- -------------- ------------- -------------
Net Cash Provided by (Used in)
Operating Activities .............................. $ 21,088 $ 12,141 $(7,532) $ 494 $ 26,191
Investing Activities
Sales of subsidiaries and assets ................. -- -- 17,028 -- 17,028
Purchases of fixed assets ........................ (1,871) (41) (2,976) -- (4,888)
Investments in subsidiaries and
affiliates, net of cash acquired ............... -- (100) (3,974) -- (4,074)
--------- -------- ------- ------------ ---------
Net Cash Provided by (Used
in) Investing Activities .................... (1,871) (141) 10,078 -- 8,066
--------- -------- ------- ------------ ---------
Financing Activities
Borrowings under credit facility ................. 104,500 -- -- -- 104,500
Principal payments on credit facility ............ (121,000) -- -- -- (121,000)
Distribution of income to minority interest ...... -- (13,950) -- -- (13,950)
Change in book overdraft ......................... (2,667) -- -- -- (2,667)
Proceeds from issuances of stock ................. 213 -- -- -- 213
Repurchases of common stock ...................... (251) -- -- -- (251)
Debt issuance costs .............................. (624) -- -- -- (624)
--------- -------- ------- ------------ ---------
Net Cash Used in Financing Activities ............ (19,829) (13,950) -- -- (33,779)
--------- -------- ------- ------------ ---------
Effect of Exchange Rate Changes on Cash ............ -- -- (708) -- (708)
--------- -------- ------- ------------ ---------
Increase (Decrease) in Cash and Cash Equivalents . (612) (1,950) 1,838 494 (230)
Cash and Cash Equivalents at
Beginning of Period ............................... (4,231) 12,206 12,769 (494) 20,250
--------- -------- ------- ------------ ---------
Cash and Cash Equivalents at End of Period ......... $ (4,843) $ 10,256 $14,607 $ -- $ 20,020
========= ======== ======= ============ =========
Page F-29
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
KAISER GROUP INTERNATIONAL, INC AND SUBSIDIARIES
(in thousands)
Column A Column B Column C Column D Column E
- -------------------------------------- ---------- ------------------------------- ------------- --------------
Additions
-------------------------------
Balance at
-----------
beginning Charged to costs Balance at end
----------- ---------------- --------------
Description of Period and expenses Other Deductions of period
- -------------------------------------- ---------- ------------- ----- ---------- ---------
Year Ended December 31, 1999
Deducted from asset account:
Allowance for doubtful accounts $10,850 5,414 (2,508)(3) 6,162(1) $ 9,594
Deducted from asset account and
included in other liabilities:
Provision for future losses
on contracts 29,679 9,225 18,437(4) 35,784(2) 19,953
------- ------- --------- --------- -------
$40,529 $14,639 $ 16,305 $ 41,926 $29,547
======= ======= ========= ========= =======
Year Ended December 31, 1998
Deducted from asset account:
Allowance for doubtful accounts $ 7,142 15,111 1,756(4) 13,159(1) $10,850
Deducted from asset account and
included in other liabilities:
Provision for future losses
on contracts 1,199 76,210 - 47,730(2) 29,679
------- ------- --------- --------- -------
$ 8,341 $91,321 $ 1,756 $ 60,889 $40,529
======= ======= ========= ========= =======
Year Ended December 31, 1997
Deducted from asset account:
Allowance for doubtful accounts $ 9,450 1,195 1,150(4) 4,653(1) $ 7,142
Deducted from asset account and
included in other liabilities:
Provision for future losses
on contracts 1,517 494 - 812 1,199
------- ------- --------- --------- -------
$10,967 $ 1,689 $ 1,150 $ 5,465 $ 8,341
======= ======= ========= ========= =======
- ---------------
(1) Reflects amounts written off against the allowance and related accounts
receivable accounts and settlement of doubtful accounts.
(2) Reflects amounts charged against the provision for contract losses.
(3) Reflects deductions to reserves related to asset divestitures completed in
1999 (Note 4 to consolidated financial statements).
(4) Reflects reclassified additions to reserves.
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