**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**ý****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterlyperiod ended March 31, 2004**

 

**Commission File No.1-12248**

 

**KAISER GROUPHOLDINGS, INC.**

(successor issuer to Kaiser GroupInternational, Inc.)(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                                | **54-2014870** |
|-----------------------------------------------------------------------------|----------------|
| (State or other jurisdiction of  incorporation or organization)             |           | (I.R.S. Employer  Identification No.) |
|                                                                        |           |   |
| **12303 Airport Way,  Suite 125, Broomfield, Colorado**                     |           | **80021-0007** |
| (Address of principal executive offices)                                    |           | (Zip Code) |
|                                                                        |           |   |
| Registrant’s telephone number including  area code: **(720) 889-2770** |

 

Indicateby check mark whether the Registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports) and (2) has been subject to such filing requirementsfor the past 90 days. Yes ý No o

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inExchange Act Rule 12b-2).  Yes o No ý

 

**Applicable only toissuer’s involved in bankruptcy proceedings during the preceding five years:**

 

Indicateby check mark whether the registrant has filed all documents and reportsrequired to be filed by Section 12, 13 or 15(d) of the Securities Exchange Actof 1934 subsequent to the distribution of securities under a plan confirmed bya court.  Yes ý No o

 

The Planof Reorganization of Kaiser Group International, Inc. under Chapter 11 of theBankruptcy Code became effective on December 18, 2000.  The Plan provides, among other things, thatholders of shares of common stock of Kaiser Group International, Inc. receivedshares of common stock of Kaiser Group Holdings, Inc. and that holders ofspecified outstanding debt obligations and other specified claimants receivedcash and shares of preferred stock and common stock of Kaiser Group Holdings,Inc., all in accordance with the terms set forth in the Plan. The initialdistribution of securities occurred as of April 17, 2001.

 

**Applicable only tocorporate issuers:**

 

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock as of the latest practicable date.

 

As of May20, 2004, there were 1,598,270 shares of Kaiser Group Holdings, Inc. CommonStock, par value $0.01 per share, outstanding.

 

 

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**KAISERGROUP HOLDINGS, INC.**

 

**INDEXTO FORM 10-Q**

 
| **Part I - Financial Information**                                                                           |   |
|--------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                         |   |
| Item 1. Financial Statements:                                                                                |   |
|                                                                                                         |   |
| Consolidated Balance Sheets -  March 31, 2004 and December 31, 2003.                                         |   |
|                                                                                                         |   |
| Consolidated Statements of Operations and  Comprehensive Income  Three Months Ended March 31, 2004 and 2003. |   |
|                                                                                                         |   |
| Consolidated Statements of Cash Flows -  Three Months Ended March 31, 2004 and 2003.                         |   |
|                                                                                                         |   |
| Notes to Consolidated Financial Statements.                                                                  |   |
|                                                                                                         |   |
| Item 2. Management’s Discussion and  Analysis of Financial Condition  and Results of Operations         |   |
|                                                                                                         |   |
| Item 3. Quantitative and Qualitative  Disclosures About Market Risk.                                         |   |
|                                                                                                         |   |
| Item 4. Controls and Procedures                                                                              |   |
|                                                                                                         |   |
| **Part II - Other Information**                                                                              |   |
|                                                                                                         |   |
| Item 1. Legal Proceedings                                                                                    |   |
|                                                                                                         |   |
| Item 2. Changes in Securities, Use of  Proceeds and Issuer Purchases of Equity Securities                    |   |
|                                                                                                         |   |
| Item 3. Defaults Upon Senior Securities                                                                      |   |
|                                                                                                         |   |
| Item 4. Submission of Matters to a Vote of Security Holders                                                  |   |
|                                                                                                         |   |
| Item 5. Other Information                                                                                    |   |
|                                                                                                         |   |
| Item 6. Exhibits and Reports on Form 8-K                                                                     |   |
|                                                                                                         |   |
| **Signatures**                                                                                               |   |

 

2

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**PART I –FINANCIAL INFORMATION**

 

**ITEM 1.  FINANCIAL STATEMENTS**

 

**KAISERGROUP HOLDINGS, INC. AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**(Inthousands, except share amounts)**

 
|                                                                                                                                  |   | **March 31,  2004** |       | **December  31,  2003** |       |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|------------|-------------------------|------------|
| **ASSETS**                                                                                                                            |   |                |       |                    |       |
| Current Assets                                                                                                                        |   |                |       |                    |       |
| Cash and cash equivalents                                                                                                             |   | $                   | 9,725      |                    | $          | 11,151 |   |
| Restricted cash and cash equivalents                                                                                                  |   | 4,356               |       | 7,049                   |       |
| Prepaid expenses and other current assets                                                                                             |   | 990                 |       | 971                     |       |
| Net assets of discontinued operations                                                                                                 |   | 3,000               |       | 3,000                   |       |
| Total Current Assets                                                                                                                  |   | 18,071              |       | 22,171                  |       |
|                                                                                                                                  |   |                |       |                    |       |
| Other Assets                                                                                                                          |   |                |       |                    |       |
| Investments in and advances to affiliates                                                                                             |   | 46,678              |       | 45,788                  |       |
| Notes receivable                                                                                                                      |   | 5,894               |       | 5,894                   |       |
| Other long-term assets                                                                                                                |   | 148                 |       | 227                     |       |
|                                                                                                                                  |   | 52,720              |       | 51,909                  |       |
| Total Assets                                                                                                                          |   | $                   | 70,791     |                    | $          | 74,080 |   |
|                                                                                                                                  |   |                | ** ** |                    | ** ** |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                         |   |                | ** ** |                    | ** ** |
|                                                                                                                                  |   |                |       |                    |       |
| Current Liabilities                                                                                                                   |   |                |       |                    |       |
| Accounts payable                                                                                                                      |   | $                   | 201        |                    | $          | 304 |   |
| Post retirement benefit plan obligation                                                                                               |   | 6,841               |       | 6,913                   |       |
| Other accrued expenses                                                                                                                |   | 5,531               |       | 4,432                   |       |
| Interest payable on preferred stock                                                                                                   |   | 342                 |       | 409                     |       |
| Deferred tax liability                                                                                                                |   | 6,243               |       | 6,495                   |       |
| Income taxes payable                                                                                                                  |   | 1,134               |       | 275                     |       |
| Total Current Liabilities                                                                                                             |   | 20,292              |       | 18,828                  |       |
|                                                                                                                                  |   |                |       |                    |       |
| Long Term Liabilities                                                                                                                 |   |                |       |                    |       |
| Mandatorily redeemable preferred stock                                                                                                |   | 29,899              |       | 35,175                  |       |
| Commitments and Contingencies                                                                                                         |   |                |       |                    |       |
|                                                                                                                                  |   |                |       |                    |       |
| Common stock, par value $.01 per share:                                                                                               |   |                |       |                    |       |
| Authorized—3,000,000 shares

Issued and outstanding—1,594,270 shares at  March 31, 2004 and December 31, 2003, respectively |   | 16                  |       | 16                      |       |
| Capital in excess of par                                                                                                              |   | 7,975               |       | 7,975                   |       |
| Retained earnings                                                                                                                     |   | 12,570              |       | 12,049                  |       |
| Accumulated other comprehensive income  (loss)                                                                                        |   | 39                  |       | 37                      |       |
| Total Shareholders’ Equity                                                                                                       |   | 20,600              |       | 20,077                  |       |
| Total Liabilities and Shareholders’ Equity                                                                                       |   | $                   | 70,791     |                    | $          | 74,080 |   |

 

See notes to consolidatedfinancial statements.

 

3

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**KAISERGROUP HOLDINGS, INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME**

**(inthousands, except per share amounts)**

 
|                                                                                                                |   | **For the  Three Months ended  March 31,** |   |
|---------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                                                                                |   | **2004**                                   |   | **2003** |   |
|                                                                                                                |   | **(Unaudited)**                            |   |
|                                                                                                                |   |                                       |   |   |   |
| Gross Revenue                                                                                                       |   | —                                     |   | — |   |
| Subcontract and direct material costs                                                                               |   | —                                     |   | — |   |
| Service Revenue                                                                                                     |   | —                                     |   | — |   |
| Operating Expenses                                                                                                  |   |                                       |   |   |   |
| Administrative expenses                                                                                             |   | $                                          | 1,245  |   | $ | 1,446 |   |
| Reserve for Settlement of Class 4 Claims                                                                            |   | 1,400                                      |   | — |   |
| Operating Income (Loss)                                                                                             |   | (2,645                                     | )      | (1,446 | ) |
| Other Income (Expense)                                                                                              |   |                                       |   |   |   |
| Equity income in earnings of affiliate, net  of amortization of $881 for the quarters ended March 31, 2004 and 2003 |   | 4,284                                      |   | 4,365 |   |
| Interest income                                                                                                     |   | 175                                        |   | 243 |   |
| Interest expense for preferred dividends                                                                            |   | (570                                       | )      | — |   |
| Other income                                                                                                        |   | 25                                         |   | — |   |
| Income From Continuing Operations                                                                                   |   |                                       |   |   |   |
| Before income tax                                                                                                   |   | 1,269                                      |   | 3,162 |   |
| Income tax (expense)                                                                                                |   | (748                                       | )      | (1,243 | ) |
| Income From Continuing Operations                                                                                   |   | 521                                        |   | 1,919 |   |
| Income (Loss) from discontinued operations,  net of tax                                                             |   | —                                     |   | — |   |
| Net Income (Loss)                                                                                                   |   | 521                                        |   | 1,919 |   |
| Preferred stock dividends                                                                                           |   | —                                     |   | (812 | ) |
|                                                                                                                |   |                                       |   |   |   |
| Income (Loss) Applicable to Common  Shareholders                                                                    |   | $                                          | 521    |   | $ | 1,107 |   |
|                                                                                                                |   |                                       |   |   |   |
| Basic and Diluted Earnings (Loss) Per  Common Share:                                                                |   |                                       |   |   |   |
| Continuing operations, net of tax                                                                                   |   | $                                          | 0.33   |   | $ | 0.69 |   |
| Discontinued operations, net of tax                                                                                 |   | —                                     |   | — |   |
| Net Earnings (Loss) Per Share                                                                                       |   | $                                          | 0.33   |   | $ | 8.91 |   |
|                                                                                                                |   |                                       |   |   |   |   |   |
| Weighted average shares for basic and  diluted earnings (loss) per common share                                     |   | 1,594                                      |   | 1,590 |   |
|                                                                                                                |   |                                       |   |   |   |
| Comprehensive Income                                                                                                |   |                                       |   |   |   |
| Net Income                                                                                                          |   | $                                          | 521    |   | $ | 1,919 |   |
| Other Comprehensive Income (Loss):                                                                                  |   |                                       |   |   |   |
| Change in cumulative foreign translation  adjustment                                                                |   | 2                                          |   | 67 |   |
|                                                                                                                |   |                                       |   |   |   |
| Total Comprehensive Income                                                                                          |   | $                                          | 523    |   | $ | 1,986 |   |

 

See notesto consolidated financial statements.

 

4

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**KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(inthousands)**

 
|                                                                           |   | **For the  Three Months ended  March 31,** |   |
|--------------------------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                                           |   | **2004**                                   |   | **2003** |   |
|                                                                           |   | **(Unaudited)**                            |   |
| Operating Activities:                                                          |   |                                       |   |   |   |
| Net income                                                                     |   | $                                          | 521    |   | $ | 1,919 |   |
| Adjustments to reconcile net income to net  cash used in operating activities: |   |                                       |   |   |   |
| Deferred taxes related to continuing  operating activities                     |   | (252                                       | )      | 1,136 |   |
| Gain on sale of stock                                                          |   | —                                     |   | — |   |
| Equity in earnings of affiliate                                                |   | (4,284                                     | )      | (4,365 | ) |
| Changes in operating assets and  liabilities:                                  |   |                                       |   |   |   |
| Prepaid expenses and other current assets                                      |   | (19                                        | )      | 946 |   |
| Accounts payable and accrued expenses                                          |   | 924                                        |   | (1,058 | ) |
| Income taxes payable                                                           |   | 859                                        |   | (25 | ) |
| Other operating activities                                                     |   | 60                                         |   | 95 |   |
| Net Cash Used in Operating Activities                                          |   | (2,191                                     | )      | (1,352 | ) |
| Investing Activities:                                                          |   |                                       |   |   |   |
| Distributions from affiliate                                                   |   | 3,395                                      |   | 3,000 |   |
| Net Cash Provided by Investing Activities                                      |   | 3,395                                      |   | 3,000 |   |
| Financing Activities:                                                          |   |                                       |   |   |   |
| Transfer from restricted cash for the  redemption of preferred stock           |   | 2,646                                      |   | 8,913 |   |
| Payment of preferred stock dividends                                           |   | —                                     |   | (986 | ) |
| Redemption of preferred stock                                                  |   | (5,276                                     | )      | (14,146 | ) |
| Net Cash Used in Financing Activities                                          |   | (2,630                                     | )      | (6,219 | ) |
| Increase (Decrease) in Cash and Cash  Equivalents                              |   | (1,426                                     | )      | (4,571 | ) |
| Cash and Cash Equivalents at Beginning of  Period                              |   | 11,151                                     |   | 17,413 |   |
| Cash and Cash Equivalents at End of Period                                     |   | $                                          | 9,725  |   | $ | 12,842 |   |

 

See notesto consolidated financial statements.

 

5

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**KAISERGROUP HOLDINGS, INC. AND SUBSIDIARIES**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

 

1.             Basis of Presentation

 

The accompanyingconsolidated financial statements of Kaiser Group Holdings, Inc. andsubsidiaries (the Company), except for the December 31, 2003 balance sheet(derived from audited financial statements), are unaudited and have beenprepared in accordance with generally accepted accounting principles in theUnited States of America (GAAP) for interim financial information.  Accordingly, they do not include all of theinformation and footnotes required by GAAP for complete financialstatements.  In the opinion ofmanagement, all adjustments considered necessary for a fair presentation havebeen included.

 

These statements shouldbe read in conjunction with the Company’s audited consolidated financialstatements and footnotes and the other information included in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2003.  Certain reclassifications have been made tothe prior period financial statements to conform them to the presentation usedin the March 31, 2004 financial statements.

 

Kaiser Group Holdings,Inc. is a Delaware holding company that was formed on December 6, 2000 for thepurpose of owning all of the outstanding stock of Kaiser Group International,Inc. (Old Kaiser), which in turn continues to own the stock of its remainingsubsidiaries. On June 9, 2000, Old Kaiser and 38 of its domestic subsidiariesvoluntarily filed for protection under Chapter 11 of the United StatesBankruptcy Code in the District of Delaware (case nos. 00-2263 to 00-2301). OldKaiser emerged from bankruptcy with an approved plan of reorganization (theSecond Amended Plan of Reorganization (the Plan)) that was effective onDecember 18, 2000 (the Effective Date). The Company is deemed a “successorissuer” to Old Kaiser by virtue of Rule 12g-3(a) under the Securities ExchangeAct of 1934. References to the “Company” or “Kaiser Holdings” in this reportrefer to Kaiser Group Holdings, Inc. and its consolidated subsidiaries. Asummary of the Plan for Old Kaiser can be found in a Current Report on Form 8-Kdated December 5, 2000 filed by Old Kaiser.

 

Currently, apart from resolvingremaining bankruptcy claims, the Companyhas only a limited number of activities, assets and liabilities, primarilyconsisting of:

 

•                  the ownership ofa 50% interest in Kaiser-Hill Company, LLC (Kaiser-Hill), which serves as thegeneral contractor at the U.S. Department of Energy’s (DOE) Rocky Flats sitenear Denver, Colorado, for the performance of a contract for the closure of thesite (the Closure Contract). (See Note 4 for summarized financial information.)

•                  the closeout andresolution of a completed contract for the engineering and construction of asteel mini-mill for Nova Hut in the Czech Republic (Nova Hut project).

•                  the holding ofan interest-bearing promissory note from ICF Consulting Group, Inc. (ICFConsulting), a division that Old Kaiser sold in 1999.

•                  a wholly-ownedcaptive insurance company that is not at this time issuing new policies and issimply involved in resolving remaining claims.

•                  an ongoingobligation to fund a capped, post-employment medical benefit plan for a fixedgroup of retirees.

 

The Company adopted fresh startreporting in its consolidated balance sheet as of December 31, 2000. TheAmerican Institute of Certified Public Accountants’ Statement of Position 90-7,“Financial Reporting by Entities in Reorganization Under the Bankruptcy Code”(SOP 90-7), requires that, under certain circumstances resulting from abankruptcy, a new entity is created for financial reporting purposes upon theemergence of that entity from bankruptcy. Accordingly, the value of the reorganized enterprise becomes theestablished amount for the emerging balance of shareholders’ equity, and anyaccumulated deficit of the predecessor entity is offset against availablepaid-in-capital to result in an emerging retained earnings of zero.  Additionally, assets and liabilities arerecorded at their fair values.

 

Thevalue of the emerged enterprise used for fresh start reporting as of December31, 2000 was $87.5 million and was determined by management with the assistanceof independent advisors.  Themethodology employed involved estimation of the enterprise value taking intoconsideration a discounted cash flow analysis. The discounted cash flow analysis was based on a seven-year cash flowprojection prepared by management, taking into consideration the terminal valueof its assets and liabilities as of immediately prior to its emergence frombankruptcy on December 18, 2000. Terminal values of assets and liabilities were determined based eitheron contracted amounts, actuarial present values and/or management’s estimatesof the outcome of certain operating activities. Net after-tax cash flows,assuming a 40% effective tax rate, were discounted at 17% in order to take intoconsideration the risks and uncertainties inherent in such projections.  The cash flow projections were based onestimates and assumptions about circumstances and events that had not yet takenplace.  Estimates and assumptionsregarding individual retained matters which form the collective composition ofthe overall enterprise value as of December 18,

 

6

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2000 areinherently subject to significant economic and competitive uncertainties andcontingencies beyond the control of the Company.  Accordingly, there may be differences between projections andactual results because events and circumstances frequently do not occur asexpected and may be significant.  Morespecifically, assumptions within the valuation related to the amount and timingof the ultimate performance and related cash flows of the Company’s investmentin Kaiser-Hill have the greatest impact on the overall enterprise valuation.

 

2.             General Terms of Plan and Status of BankruptcyDistributions

 

The effectiveness of theOld Kaiser Plan of Reorganization as of December 18, 2000 did not, in and ofitself, complete the bankruptcy process. The process of resolving in excess of$500 million of claims initially filed in the bankruptcy is ongoing. Old Kaiserobjected to the majority of the unresolved claims, and if such claims are notsettled via the objection or dispute resolution processes or other means, theywill ultimately be heard and determined by the Bankruptcy Court. Once a claimis resolved with an amount due to the creditor, such portion of the claim isdeemed to be an allowed claim by the Bankruptcy Court (an allowed claim). TheCompany cannot predict with accuracy when the claims resolution process will becomplete or what the total amount of allowed claims will be upon completion.

 

In general terms, thePlan contemplated three basic classes of creditors:

 

•                  Allowed “Class 3claims” against the Old Kaiser bankruptcy estate generally consisted of tradeand similar creditors’ claims of $20,000 or less.  Holders of allowed Class 3 claims received cash for their claims.

 

•                  Allowed “Class 4claims”, the largest class of claims against the Old Kaiser bankruptcy estate,is made up of creditor claims other than Class 3 claims and equity claims.Class 4 claims included holders of Old Kaiser senior subordinated notes due2003 (Old Subordinated Notes). Holders of allowed Class 4 claims received acombination of cash and Kaiser Holdings preferred and common stock in respectof their claims. Such holders received one share of Kaiser Holdings’ preferredstock (New Preferred) and one share of Kaiser Holdings’ common stock (NewCommon) for each $100 of claims. However, the number of shares of New Preferredissued was reduced by one share for each $55.00 of cash received by the holderof an allowed Class 4 claim.

 

•                  The third classof claims recognized in the Old Kaiser bankruptcy are equity claims, consistingof holders of Old Kaiser common stock (Old Common) and other “Equity Interests”as defined in the Plan. Under the Plan, holders of Equity Interests willreceive a number of shares of New Common equal to 17.65% of the number ofshares of such common stock issued to holders of allowed Class 4 Claims. In theinitial distribution, one share of New Common was issued for each 96 shares ofpreviously outstanding Old Common. Additional distributions of New Common maybe made in the future as additional shares of New Common are issued to holdersof newly allowed Class 4 claims, if any. Apart from holders of Old Common, theonly holders of Equity Interests of which the Company is aware are the formershareholders of ICT Spectrum Constructors, Inc., a corporation acquired bymerger with a subsidiary of Old Kaiser in 1998. The Bankruptcy Court confirmed theequity nature of those claims.  See Note6 below for information concerning a recent Bankruptcy Court ruling withrespect to these claims.

 

Pursuant to the terms ofOld Kaiser’s Plan, the Company was required to complete its initial bankruptcydistribution within 120 days of the effective date of the Plan.  Accordingly, on April 17, 2001, the Companyeffected its initial distribution.  Atthat time, there were approximately $136.8 million of Class 4 claims that hadbeen allowed in the bankruptcy process.  The amount of unresolved claims remaining at April 17, 2001 wasapproximately $130.5 million.

 

To address the remainingunresolved claims, the Bankruptcy Court issued an order on March 27, 2001establishing an Alternative Dispute Resolution (ADR) procedure whereby theremaining claimants and Old Kaiser produce limited supporting data relative totheir respective positions and engage in initial negotiation efforts in anattempt to reach an agreed claim determination.  If necessary, the parties were thereafter required to participatein a non-binding mediation before a mediator pre-selected by the BankruptcyCourt.  All unresolved claims as ofMarch 27, 2001 are subject to the ADR process. Since April 17, 2001, the dateof the initial distribution, $123.0 million of asserted claims have beenwithdrawn, negotiated or mediated to an agreed amount, resulting in cashpayments approximating $2.2 million and issuances of 683 shares of NewPreferred and 823 shares of New Common. As of May 10, 2004, the amount of unresolvedclaims was approximately $7.5 million. The Company expects to resolve theremaining claims by the third quarter of 2004. The Company currently believes that the total amount of Class 4 claimsultimately to be allowed in the Old Kaiser bankruptcy proceeding will notexceed $142.5 million.  As demonstratedby the claim settlements completed since April 17, 2001, and based on thebelief that it is in the best interest of the Company and its currentshareholders, the Company has been settling certain remaining Class 4 claimsentirely for cash payments in lieu of the combination of cash and New Preferredand New Common as contemplated in the Plan. The Company intends to continue to use this settlement alternative duringthe resolution of remaining Class 4 claims.

 

7

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From time to time in thefuture, as remaining unresolved claims are resolved, excess cash from the“reserve” fund (including cash added to “reserve” fund in payment of pro formadividends, classified as interest expense subsequent to July 1, 2003, onretained shares of New Preferred) must be used to redeem outstanding shares ofNew Preferred.  In February 2004, theCompany redeemed 95,932 shares of New Preferred by using $2.6 million ofrestricted cash and $2.7 million of unrestricted cash.**** InJanuary 2003, the Company redeemed 257,200 shares of outstanding New Preferredby using $8.9 million and $5.2 million of restricted and unrestricted cash,respectively.  In October 2003, theCompany redeemed 113,530 shares of outstanding New Preferred by using $1.6million and $4.6 million of restricted and unrestricted cash, respectively

 

3.             Earnings Per Share

 

Basicearnings per share (EPS) is computed by dividing net income by the weightedaverage number of common shares outstanding for the period.  As additional distributions of New Commonare made to holders of newly allowed Class 4 claims, the conversion ratio of 96shares to one share may be adjusted to reflect the final total number of sharesof New Common (as discussed in Note 2).

 

DilutedEPS normally includes the weighted-average effect of dilutive securitiesoutstanding during the period.  Pursuantto the Plan that was effective as of December 18, 2000, all then outstandingcommon stock equivalents were cancelled. Accordingly, no anti-dilutive information is presented herein.

 

In 2004,the effect of preferred dividends of $0.6 million has been included incontinuing operations in the calculation of basic and diluted earnings pershare for the three months ended March 31, 2004.  In 2003, the effect of preferred dividends of $0.8 million hasbeen included in continuing operations in the calculation of basic and dilutedearnings per share for the three months ended March 31, 2003.  As discussed in Note 5, the Company adoptedFAS 150 effective July 1, 2003. Therefore, $0.6 million of first quarter preferred stock dividends hasbeen shown as interest expense.

 

4.             Summarized Financial Information ofUnconsolidated Affiliate

 

**TheCompany owns 50% of Kaiser-Hill Company, LLC. Summarized, unaudited financial information of Kaiser-Hill is as followsfor the three months ended March 31 (in thousands):**

 
|                    |   | **2004** |    | **2003** |   |
|-------------------------|--------|----------|---------|----------|--------|
|                    |   |     |    |     |   |
| Current assets          |   | $        | 112,229 |     | $      | 116,703 |   |
| Non-current assets      |   | 121,410  |    | 85,659   |   |
| Current liabilities     |   | 109,831  |    | 111,692  |   |
| Non-current liabilities |   | 55,647   |    | 28,644   |   |
|                    |   |     |    |     |   |
| Gross revenue           |   | 137,830  |    | 175,855  |   |
| Net income              |   | 10,329   |    | 10,492   |   |
|                         |        |          |         |          |        |  |  |

 

5.             Mandatorily Redeemable PreferredStock

 

KaiserHoldings’ certificate of incorporation authorizes the issuance of 2,000,000shares of New Preferred. The Company had New Preferred outstanding with aliquidation preference of $29.9 million and $35.2 million, respectively, atMarch 31, 2004 and December 31, 2003, net of $5.6 million of treasury stock atboth March 31, 2004 and December 31, 2004. The New Preferred is a series of authorized preferred stock designatedas “Series 1 Redeemable Cumulative Preferred Stock,” and has a par value of$0.01 per share. The New Preferred ranks ahead of Kaiser Holdings’ New Common.

 

TheCompany adopted FAS 150, “Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity” effective July 1, 2003.  Due to the mandatorily redeemable feature ofthe New Preferred, described in greater detail below, the New Preferred hasbeen reclassified from mezzanine equity to a long term liability on theconsolidated balance sheet, and the preferred stock dividends have beenreclassified to interest expense on the consolidated statement of operationseffective July 1, 2003.  There was notransition adjustment recognized upon adoption of FAS 150.  There were 543,610 and 639,542 shares of NewPreferred outstanding at March 31, 2004 and December 31, 2003, respectively,net of 101,471 treasury shares.  The NewPreferred is shown at liquidation value of $55 per share.

 

Pursuantto approval by the Company’s Board of Directors, the Company purchased a totalof 101,471 shares, net of redemptions, of outstanding New Preferred at pricesranging from $25.62 to $50.55 per share. The treasury shares have been recorded at liquidation preference, $55per share, as a reduction to preferred stock and the remaining differencebetween cost and the liquidation preference was recorded as an increase topaid-in capital.

 

8

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Thecertificate of incorporation of Kaiser Holdings and Delaware law permit theBoard of Directors to issue additional series of preferred stock, except thatthe Board of Directors may not authorize the issuance of any securities thatrank senior to or on a parity with the New Preferred without the consent ofholders of at least two-thirds of the New Preferred.

 

Cumulativedividends, classified as interest expense subsequent to July 1, 2003, on theNew Preferred are payable on a quarterly basis, as of April 30, July 31,October 31 and January 31, either in cash at an annual rate of 7% of theliquidation preference per share or in additional shares of New Preferred at anannual rate of 12% of the per share liquidation preference. Dividends accrue onthe New Preferred commencing with the initial distribution date, April 17,2001. Dividends will not be paid to any affiliate of Kaiser Holdings on accountof that affiliate’s ownership of shares of preferred stock. If Kaiser Holdingsfails to pay a quarterly dividend when due, holders of New Preferred will havethe right to elect an additional director for each dividend payment missed, upto a maximum of two additional directors, but only until such dividend is paid orprovided for in full.   The dividend dueto holders of record on April 30, 2004, totaling approximately $0.5 million,was paid on May 7, 2004.  At March 31,2004, in addition to the $0.7 million of cash reserves for unresolved claims,the Company had $0.7 million in cash reserved for the payment of accrueddividends on any future issuances of New Preferred issued as a result ofremaining bankruptcy claims resolutions (any New Preferred issued as a resultof claims resolutions also carries the right to dividends retroactively fromApril 17, 2001).

 

The NewPreferred has a liquidation preference of $55 per share plus the amount ofunpaid dividends, if any. Upon the liquidation or dissolution of KaiserHoldings, each holder of New Preferred (other than an affiliate of KaiserHoldings) is entitled to this per share liquidation preference before anyholders of New Common or any other junior securities of Kaiser Holdings receiveany payment for their shares. If, in a liquidation or dissolution setting,assets remaining after distribution to holders of debt and other obligationsare insufficient to pay all holders of New Preferred the per share liquidationpreference, then such assets will be distributed on a proportionate basis tothe holders of New Preferred (other than affiliates of Kaiser Holdings) and anysecurities ranking on a parity with the New Preferred.

 

TheCompany has the option to redeem the New Preferred at any time, in whole or inpart, at a redemption price of 100% of the liquidation preference per shareplus all accrued and unpaid dividends. The Company is required to offer topurchase the New Preferred at 100% of the liquidation preference per share plusall accrued and unpaid dividends in connection with a change of control ofKaiser Holdings.  In addition, any netproceeds in excess of $3 million in a calendar year received by the Company orany of its direct or indirect subsidiaries from the disposition of assets to anunaffiliated party outside of the ordinary course of business must be used toredeem New Preferred at a redemption price of 100% of the liquidationpreference per share plus all accrued and unpaid dividends. Furthermore, to theextent that certain categories of cash are received from Nova Hut, such cashmust be used to redeem New Preferred at a redemption price of 100% of theliquidation preference per share plus all accrued and unpaid dividends.

 

Alloutstanding shares of New Preferred are required to be redeemed by the Companyon or before December 31, 2007, and if such redemption does not occur, holdersof New Preferred will be entitled to elect two-thirds of the directors of theCompany. If shares of preferred stock are held by any affiliate of the Company,those shares may not be redeemed pursuant to any of the redemption provisionsotherwise applicable to the New Preferred.

 

Holders of New Preferredgenerally are entitled to vote with holders of New Common on all matterssubmitted to a vote of shareholders, with each share of New Preferred beingentitled to one-tenth of a vote. In addition, holders of New Preferred have theright to vote separately as a class to exercise their right to elect anadditional director due to a failure to pay a quarterly dividend, to electtwo-thirds of the directors if the New Preferred is not redeemed by December31, 2007, and to consent to the issuance of any senior or parity securities.The terms of the New Preferred may not be materially or adversely modifiedwithout the consent of holders of at least two-thirds of the New Preferred. Ifthe Company or any of its affiliates holds any New Preferred, they will not beentitled to vote that New Preferred.

 

The Planprovides that Major Stockholders (defined as holders of 10% or more of theoutstanding shares of New Preferred or New Common, or a person who is an“affiliate” of Kaiser Holdings as defined under the Federal securities laws)have certain registration rights. In general, a Major Stockholder may requestKaiser Holdings to register under the Securities Act of 1933 for the sale ofall, but not less than all, of the New Preferred and/or New Common owned by theMajor Stockholder. Upon request for such a registration from a MajorStockholder, Kaiser Holdings is required to give notice to other MajorStockholders and use its best efforts to cause a registration statement tobecome effective as expeditiously as possible and maintain such registrationstatement current for a period of 12 months. Major Stockholders are notentitled to request registration until one year after the Effective Date, andKaiser Holdings is not obligated to file a registration statement in responseto a request from a Major Stockholder until such time as Kaiser Holdings iseligible to use Form S-3 under the Securities Act of 1933 for such an offering.Kaiser Holdings is not required to effect more than one registration for MajorStockholders during any twelve-month period. These registration rights expireon December 31, 2007. The Plan also contemplates that Major Stockholders willhave “piggyback” registration rights in connection with a proposed underwritten

 

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publicoffering of Kaiser Holdings New Common or New Preferred solely for cash and forits own account.

 

Kaiser Government Programs, Inc.’s (“KGP”) Put Rights 

 

KGP isthe Company subsidiary that owns (through a wholly owned subsidiary of KGP) the50% interest in Kaiser-Hill Company LLC. KGP has outstanding put rights, expiring on December 31, 2007, thatobligate it to purchase New Preferred owned by a holder of the put right, atthe holder’s option, under three circumstances:

 

**•**                  if KGP receives net after-tax proceeds from any cash distributions fromKaiser-Hill that, on a quarterly basis, exceed 2.8 times the amount of cashrequired to pay all past accrued but unpaid cash dividends on the NewPreferred, plus the next scheduled quarterly cash dividend on New Preferred;

•                  if KGP receives netafter-tax proceeds from any director indirect disposition of any interest in Kaiser-Hill; or

•                  if KGP receives net after-tax proceeds from anextraordinary distribution from Kaiser-Hill.

 

Uponexercise of a put, KGP will pay an exercising holder 100% of the liquidationpreference of the preferred stock that is the subject of the KGP put rights,plus all accrued and unpaid dividends on the preferred stock. KGP will purchaseshares of preferred stock on a pro rata basis based upon the number of sharesof preferred stock as to which puts have been properly exercised, but only upto the amount of the available net after-tax proceeds from triggering events.KGP will not purchase any fractional shares. KGP put rights will not becomeexercisable more frequently than every 12 months unless the cumulative amountof available net after-tax proceeds from triggering events is at least $3million.  KGP put rights aretransferable except that puts shall cease to be transferable if KGP determinesthat any further transfer would require registration of the puts as a class ofsecurities under the Securities Exchange Act of 1934. Kaiser Holdings does notpresently plan to arrange for trading of the KGP put rights on the NASDelectronic bulletin board or otherwise.

 

The Company received distributions fromKaiser-Hill during the third quarter of 2003 and the fourth quarter of 2002 inamounts that triggered the put rights – effectively requiring the Company toredeem certain New Preferred.  Inaddition, the Company had certain restricted cash balances available, whichpursuant to the terms of its Plan of Reorganization are required to be used toredeem outstanding New Preferred. Rather than using the mechanism of the put rights to satisfy theCompany’s obligations to holders of the put rights after a trigger, the Companyobserved the requirements in the Plan of Reorganization to use certainrestricted cash balances, and in the terms of the New Preferred, to use certainavailable cash, for preferred redemptions. In January and October 2003 and February 2004, the Company redeemed$14.1 million, $6.2 million and $5.3 million, respectively, liquidationpreference of New Preferred, or 257,200, 113,530 and 95,932 shares,respectively.  The Company believes thiswas a more cost-efficient manner of satisfying the obligations associated withthe KGP put rights and plans to continue to use this redemption process tosatisfy such obligations in the future.

 

6.             Other Contingencies

 

Kaiser Holdings has variousobligations and liabilities from its continuing operations, including generaloverhead expenses in connection with maintaining, operating and winding downthe various entities and net assets comprising Kaiser Holdings.  Additionally, the Company believescontingent liabilities may exist in the following areas:

 

Nova Hut

 

Although Old Kaiser sold itsMetals, Mining and Industry business unit in August 2000, it retained its Netherlandssubsidiary, Kaiser Netherlands, B.V., which had been responsible for a turnkeyengineering and construction services contract for the construction of a steelmini-mill in the Czech Republic for Nova Hut. After construction of the mini-mill was complete in 2000, the contractwith Nova Hut provided for a maximum of three possible performance tests. Thefirst performance test was completed on November 13, 2000. Kaiser Netherlandsbelieves that the first performance test was successful and that Nova Hutshould have agreed to final acceptance of the mini-mill and made final paymentof amounts accrued by Kaiser Netherlands throughout the project, including feeand retention amounts with release of performance guarantee instruments.  Nova Hut, however, asserted that the firsttest was not successful. Kaiser Netherlands believes that such contention mayhave been put forth in response to severe financial constraints on Nova Hut’soperations resulting from weakening conditions in the worldwide steel market andthe significant amounts that Kaiser Netherlands believed it was contractuallydue. To date, this dispute has not been resolved, and Kaiser Netherlands hasresorted to legal proceedings to enforce its rights.  Until recently, the primary legal venue has been the Delawarebankruptcy proceeding for Old Kaiser, where the Company has asserted claimsagainst Nova Hut and the International Finance Corporation (“IFC”).  The Delaware bankruptcy court had previouslyruled that the Company, as opposed to Kaiser Netherlands, could proceed withprosecution of its specific claims against Nova Hut and IFC in the Delawarebankruptcy court venue.  Both Nova Hutand IFC appealed this ruling and, during the first quarter 2004, the Delawarebankruptcy court’s decision regarding the IFC was overturned by the DistrictCourt, ruling that the IFC

 

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enjoys sovereign immunity fromprosecution.  Kaiser Holdings has fileda notice of appeal with the Third Circuit regarding this decision in favor ofthe IFC.  With regards to the Nova Hutappeal, the District Court has ruled that U.S. Bankruptcy proceedings should bestayed pending completion of international arbitration proceedings.

 

In January 2004, KaiserNetherlands filed arbitration claims against Nova Hut in excess of $40.0million with the International Chamber of Commerce (“ICC”).  The arbitration panel is currently beingconstituted, and the first hearing should take place during the second or thirdquarter of 2004 with the earliest possible final award ruling being issuedsometime in 2005.  Nova Hut hassubmitted a $49.7 million counterclaim against Kaiser Netherlands in these sameICC proceedings.

 

In December 2003, the ICC,under the dispute resolution provisions of the Nova Hut mini-millsubcontract  between Kaiser Netherlandsand the mini-mill’s main equipment supplier, Tippins, Inc., issued a finalaward that was on balance favorable to Kaiser Netherlands.  As a result of the ruling, KaiserNetherlands was relieved of the obligation to pay additional retention toTippins and Kaiser Netherlands was awarded a net cash settlement of $2.6million.  The Company has not recordedthis award due to the uncertainties regarding collectibility.  However, the Company intends to vigorouslypursue collection of this award.

 

The continued litigation ofthese disputes has had and will continue to have a negative impact on the cashflow of Kaiser Netherlands and Kaiser Holdings.

 

Thecomponents of the “Net Assets of Discontinued Operations” consist entirely ofthe carrying value of the net assets of the Nova Hut project.  Based on the Company’s continued concernover Nova Hut’s financial difficulties and the lack of a settlement resultingfrom an earlier bankruptcy court-sponsored mediation in the fourth quarter of2003, the Company further reduced the carrying value of the remaining Nova Hutproject assets from $6.0 million to $3.0 million by recording an additionalreserve of $3.0 million, net of a $1.1 million income tax benefit, through a chargeto “Loss from Discontinued Operations”. This reserve is in addition to a reserve recorded in 2001, which reducedthe carrying value of the Nova Hut project assets from $21.6 million to $6.0million by recording a reserve of approximately $9.8 million, netof a $5.8 million income tax benefit,through a charge to “Loss from Discontinued Operations”.  These adjustments to the project assetcarrying value have been determined based on the Company’s estimate of NovaHut’s current ability to pay such liability.

 

Kaiser Hill

 

Under Kaiser-Hill’s contractwith the DOE, Kaiser-Hill is not responsible for, and the DOE pays all costsassociated with, any liability, including, without limitation, any claimsinvolving strict or absolute liability and any civil fine or penalty, expense,or remediation cost, but limited to those of a civil nature, which may beincurred by, imposed on, or asserted against Kaiser-Hill arising out of any actor failure to act, condition, or exposure which occurred before Kaiser-Hill assumedresponsibility on July 1, 1995 (pre-existing conditions). To the extent theacts or omissions of Kaiser-Hill constitute willful misconduct, lack of goodfaith, or failure to exercise prudent business judgment on the part ofKaiser-Hill’s managerial personnel and cause or add to any liability, expense,or remediation cost resulting from pre-existing conditions, Kaiser-Hill isresponsible, but only for the incremental liability, expense, or remediationcaused by Kaiser-Hill.

 

The Kaiser-Hill contract furtherprovides that Kaiser-Hill will be reimbursed for the reasonable cost of bondsand insurance allocable to the Rocky Flats contract and for liabilities andexpenses incidental to these liabilities, including litigation costs, to thirdparties not compensated by insurance or otherwise. There is an exception tothis reimbursement provision applicable to liabilities caused by the willfulmisconduct, lack of good faith or failure to exercise prudent business judgmentby Kaiser-Hill’s managerial personnel.

 

The clean-up and closure of theDOE’s Rocky Flats site involve substantial performance risks.  Among other things, Kaiser-Hill’s activitiesat the Rocky Flats site involve the clean-up, packaging and transportation ofnuclear waste, and the demolition and destruction of facilities where nuclearweapons components were previously produced. Some of the activities have not been previously performed elsewhere, andtherefore require the development of innovative and untested approaches.  Kaiser-Hill emphasizes safety in itsperformance, but the nature of the Rocky Flats site and the activities ofKaiser-Hill and its subcontractors at the site are such that serious injuries,or even deaths, are possible. Significant safety incidents at the site could stop or significantlyimpede the progress of work being performed at the site by Kaiser-Hill and itssubcontractors.  The DOE contractcontemplates that all, or substantially all, of the nuclear waste at RockyFlats will be transported to other sites operated or managed by the DOE.  The appropriate sites for storage of certainof those nuclear wastes have not yet been identified.  In addition, objections have arisen from time to time with regardto the transportation and storage of nuclear waste at certain sites previouslyscheduled by the DOE to receive waste from Rocky Flats.  Although the DOE contract contemplates thatthe DOE is responsible for providing transportation and storage sites fornuclear waste from Rocky Flats, an inability to store nuclear waste at otherDOE sites would pose a substantial risk to the timely closure of the RockyFlats site, and could interfere with Kaiser-Hill’s ability to earn fees towhich Kaiser-Hill believes it should be entitled.

 

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As the contract betweenKaiser-Hill and the DOE is cost-reimburseable in nature, the costs invoiced byKaiser-Hill for reimbursement by the DOE are subject to audit by the U.S.government.  Also since the inception ofKaiser-Hill, the Company invoiced certain management oversight costs toKaiser-Hill.  Government audits atKaiser-Hill are in process for the years of the predecessor contract, which ranfrom 1995 until January 2000.  AlthoughKaiser-Hill and the Company have historically provided for their estimates ofdisallowed costs on cost-reimburseable contracts, uncertainties exist withregard to whether government audits will result in any disallowed costs needingto be refunded to the government customer. The continued adequacy of provisions for reserves with regard tounallowable costs is reviewed regularly.

 

Common Stock

 

On January 20, 2004, the United States Bankruptcy Court for theDistrict of Delaware ruled on a claim in favor of former shareholders of ICTSpectrum Constructors, Inc.  The BankruptcyCourt has refused to reconsider its decision and the Company has appealed.Should the Company be unsuccessful in its efforts to achieve reversal of theBankruptcy Court’s ruling, the Company could be required to issue to former ICTSpectrum shareholders an additional 247,350 common shares, which would thencomprise approximately 13.4% of the aggregate common shares outstanding. TheCompany believes that issuing such a substantial number of additional commonshares could be expected to have a materially dilutive effect on the value ofcommon shares presently outstanding.

 

**I****TEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS**

 

**GeneralOverview**

 

KaiserGroup Holdings, Inc. is a Delaware holding company formed on December 6, 2000for the purpose of owning all of the outstanding stock of Kaiser GroupInternational, Inc.  Kaiser GroupInternational, Inc. continues to own the stock of its remaining subsidiaries.  On June 9, 2000, Kaiser Group International,Inc. and 38 of its domestic subsidiaries voluntarily filed for protection underChapter 11 of the United States Bankruptcy Code in the District of Delaware(case nos. 00-2263 to 00-2301). Kaiser Group International, Inc. emerged frombankruptcy with a confirmed Plan of Reorganization (the Second Amended Plan ofReorganization (the Plan)) that was effective on December 18, 2000.  In this document, we frequently use theterms “we” and “Kaiser” to refer to Kaiser Group Holdings, Inc., Kaiser GroupInternational, Inc. and other subsidiaries we own.

 

Under thePlan, Kaiser Group International, Inc. sold some of its businesses and madepayments of cash and stock to various classes of creditors described in Note 2to the Consolidated Financial Statements. We now have only a limited number of activities, assets and liabilities,primarily consisting of the following:

 

•                  We ownKaiser-Hill Company, LLC equally with CH2M Hill Companies Ltd.  Kaiser-Hill is our major source ofincome.  Kaiser-Hill currently serves asthe general contractor at the U.S. Department of Energy’s Rocky Flatssite.  Kaiser-Hill has performed for theDepartment of Energy at this site since 1995 and in January 2000 was awarded anew contract to manage the closure of the site.  The level of success experienced by Kaiser-Hill in achievingtimely closure of the Rocky Flats site, and the cost of achieving such closure,are the primary determinants of our long-term financial performance followingthe completion of the reorganization process. See “Kaiser-Hill” below for additional information on Kaiser-Hill.

•                  We have a substantial claim, pending resolution,against the owner of a steel mini-mill that we constructed for Nova Hut, s.a.in the Czech Republic.  The engineeringand construction of the mini-mill was completed in 2000 by a subsidiary ofKaiser Group International, Inc. called Kaiser Netherlands, B.V.

•                  Until September 30, 2002 we held a minorityownership interest in ICF Consulting Group, Inc. (a division that Kaiser GroupInternational, Inc. sold in 1999).  Wecontinue to hold an 81⁄2% subordinated promissory note from ICF Consulting dueJune 25, 2006 in the principal amount of $6.4 million as a result of thattransaction.

•                  We have a wholly-owned captive insurance companythat is not at this time issuing new policies and is solely involved inresolving remaining claims made against previously issued policies.  However, we have begun the necessaryregulatory and legal process to enable our wholly-owned captive insurancecompany to offer derivative captive insurance services to third party clients.

•                  We have an ongoing obligation to fund a cappedpost-employment medical benefit plan for a fixed group of retirees.

•                  We formed a new subsidiary in April 2004 toattempt to take advantage of the successful history of Kaiser in the governmentservices market.

 

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**Kaiser-Hill**

 

Our major remaining asset and source of income is our50% ownership interest in Kaiser-Hill Company, LLC.  Kaiser-Hill was formed solely for the performanceof the current and former Rocky Flats contracts.  CH2M Hill designates three of thefive members of Kaiser-Hill’s Board of Managers and we designate two members.

 

Kaiser-Hillcurrently serves as the general contractor at the U.S. Department of Energy’sRocky Flats site near Denver, Colorado (Closure Contract). Kaiser-Hill hasperformed since 1995 at this site, a former Department of Energy nuclearweapons production facility. Kaiser-Hill is working to stabilize and safely store radioactive materialsat the site and other locations, clean up areas contaminated with hazardous andradioactive waste, and restore much of the 6,000 acre site to the public.  The level of success experienced byKaiser-Hill in achieving timely closure of the Rocky Flats site, and the costof achieving such closure, are the primary determinants of our long-termfinancial performance.

 

RESULTS OF RETAINED OPERATIONS

 

*Equity Income In Earnings of Affiliate*

 

Our major remaining source of incomeis a 50% ownership in Kaiser-Hill.  Thefinancial information contained herein for Kaiser-Hill is reflected on theequity basis.

 

*Closure Contract Provisions for Revenue andPerformance Award*

 

Theeconomic terms of the Closure Contract provide that Kaiser-Hill will earnrevenue equal to the actual cost of physical completion plus a performance feebased on a combination of factors involving the actual cost of completing thesite closure project and the actual date of physical completion, both ascompared to contracted targets.  OnMarch 24, 2004 Kaiser-Hill received a contract modification that motivates safecontinuing positive performance by increasing the maximum fee ceiling that maybe earned under the Closure Contract. The same contract modification reduces the minimum fee floor andincludes other provisions related to work scope changes.  The potential fee to be earned pursuant tothe Closure Contract as recently modified ranges from $75.0 million to $560.0million based on Kaiser-Hill’s costs to complete the site closure being withinthe range of completion costs of $3.1 billion and $4.9 billion, and completionat various dates between 2005 and 2007. For project costs saved below the target level, Kaiser-Hill retains avarying percentage share ranging from 20% to 30% as additional incentivefee.  Similarly, for project costsincurred above a target level, Kaiser-Hill’s incentive fee is reduced by the30% share.

 

Kaiser-Hill’sfavorable performance on the contract since its inception in February of 2000has resulted in a trend of cautious but continuously improving estimates ofcompletion dates, cost estimates and potential fee earning opportunities.   As of March 31, 2004, Kaiser-Hill’s costestimate to complete the project is $3.7 billion, with an estimated completiondate of December 2006, resulting in a potential fee of $424 million.    Kaiser-Hill has goals of further improvingits ultimate project performance; however, goals are not free of risk, and theability to accurately predict the ultimate results are highly uncertain.  See “Risk Factors Relating to KaiserHoldings and Forward-Looking Statements” below.

 

For the three months endedMarch 31, 2004, the Company recorded its 50% equity in Kaiser-Hill’s income,recognizing $4.3 million, a nominal decrease of $0.1 million over the amountrecorded for the three months ended March 31, 2003 indicative of Kaiser-Hill’sconsistency in estimated costs and dates of completion of the Closure Contractduring both quarters.

 

*Closure Contract Billing Provisions*

 

Since the inception of the ClosureContract in February 2000 through March 31, 2004, Kaiser-Hill has invoiced DOEfor the performance fee based on the contract provisions, and has collected anaggregate of $127.0 million in fees from the DOE.

 

Fee payments made by DOE toKaiser-Hill, less certain non-reimbursable costs, will continue to bedistributed to the joint venture owners upon receipt.  Kaiser-Hill has historically incurred expenses that are notreimbursable by the DOE pursuant to the Federal regulations.  Accordingly, such expenses, whichKaiser-Hill estimates could approximate up to 15% - 20% of the total award fee,are deducted from the total fee earned and collected by Kaiser-Hill prior toany distributions to either of its two owners. Since inception of the Closure Contract through March 31, 2004,Kaiser-Hill has distributed $50.0 million to each of its two owners. Adjusted for the effects of the 50% retainage holdback, Kaiser-Hillexpects that its performance fee invoices to DOE will yield distributions of$3.5 million per quarter to each of its two owners in 2004.  Similar to 2002 and 2003, Kaiser-Hill isanticipating that DOE will approve a non-recurring fee payment during thefourth quarter of 2004 acknowledging Kaiser-Hill’s continued favorableprogression on the project. Historically, the fourth quarter fee payment has

 

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rangedfrom an additional $10.0 million to $16.0 million above the typically recurringquarterly fee payment.  However, thereare no assurances as to the amount or timing of any additional fourth quarterfee payment.

 

In the future, as Kaiser-Hillcontinues to accrue performance fees based on its currently projected total,less reserves deemed appropriate in the circumstances, and remains subject to a50% retainage holdback on its performance fee invoicing, the level of unbilledaccounts receivable on its balance sheet will begin to increasesubstantially.  Kaiser-Hill willclassify the difference between recorded performance fees and the collectedfees as long-term unbilled accounts receivable on its balance sheet, which willbe included as a component of Investment in Affiliate on the Company’s balancesheet.  The Closure Contract alsocontains provisions for DOE to release portions of the retainage holdback priorto contract completion if the DOE deems appropriate.  Kaiser-Hill is not able to estimate whether any of the retainageholdback will be released prior to contract completion.

 

In both of the three-monthperiods ended March 31, 2004 and 2003, the equity income in earnings ofaffiliate is net of $0.9 million of amortization of the excess of our carryingvalue of our investment in Kaiser-Hill over our ownership percentage of theunderlying Kaiser-Hill equity.  Weincreased the carrying value of this investment by $21.1 million as part of ouradoption of Fresh-Start reporting as of December 31, 2000 and will continue toamortize that difference over the estimated life of the Kaiser-Hill investmentof approximately 6 years.

 

*Administrative Expenses*

 

Administrativeexpenses for the three months ended March 31, 2004 were $1.2 million, adecrease of $0.2 million compared to the three months ended March 31,2003.  The decrease in administrativeexpense is due primarily to reductions in legal and professional fees.  These decreases result from our progress inwinding down the discontinued operations of Kaiser Group International.  Weanticipate further declines in general and administrative spending as remaininglitigation and bankruptcy claims are resolved. Our cost to provide certain post-employment medical****benefits to a capped group of retirees isalso treated as an administrative expense. In the three-month periods ended March 31, 2004 and 2003, the expenserelated to this plan was $0.3 million and $0.2 million, respectively.

 

*Reserve forSettlement of Class 4 Claims*

 

In thefirst quarter of 2004, we recorded $1.4 million liability for the remainingunresolved Class 4 claims.

 

*Interest Income*

 

In boththe three months ended March 31, 2004 and 2003, interest income was $0.2million.  For both the three monthsended, March 31, 2004 and 2003, we recorded $0.1 million in interest incomerelated to the ICF Consulting note.  Theremaining amount of interest income resulted from interest earning bankbalances.

 

*Interest Expense*

 

As a result of the adoption ofFAS 150 effective July 1, 2003 and the classification of the Series 1 Redeemable Cumulative Preferred Stock (NewPreferred) as a liability, preferred stock dividends of $0.6 million have beenshown as interest expense.  As requiredby FAS 150, prior dividends have not been reclassified.

 

*Income Tax Expense*

 

Werecorded an income tax expense of $0.7 million on operating income fromcontinuing operations of $1.3 million during the three months ended March 31, 2004.  Our effective income tax rate of 59% isreflective of the non-deductibility of certain expenditures for federal incometax purposes and the inclusion of $0.6 million of non-deductible preferreddividends on the New Preferred included in operating income due to the adoptionof FAS 150 effective July 1, 2003.  Forthe three months ended March 31, 2003, we recorded an income tax expense of$1.2 million on operating income from continuing operations of $3.2 million.

 

**LIQUIDITY AND CAPITALRESOURCES**

 

*Operating Activities*

 

We used$2.2 million and $1.4 million of cash during the three months ended March 31,2004 and March 31, 2003, respectively, primarily for the extinguishment ofobligations arising out of our bankruptcy, including severances, professionalfees, retiree benefits and various other wind-down expenditures.  The increase in the use of operating cashfor the three months

 

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endedMarch 31, 2004 compared to the three months ended March 31, 2003 is due to theeffect of preferred dividends of $0.6 million being included in continuingoperations in 2004.

 

*Investing Activities*

 

Wereceived $3.4 million in distributions from Kaiser-Hill during the period endedMarch 31, 2004 compared to $3.0 million in the period ended March 31,2003.  The increase of Kaiser-Hill cashdistributions is a result of the continued favorable progress in itsperformance.

 

*Financing Activities*

 

Duringthe three months ended March 31, 2004, we redeemed $5.3 million liquidation preferenceof our preferred stock.    Pursuant tothe terms of the Plan of Reorganization, the Company used $2.6 million inexcess restricted cash in addition to $2.7 million of unrestricted cash to fundthis redemption.

 

Duringthe three months ended March 31, 2003, we redeemed $15.5 million liquidationpreference of our preferred stock, net of $1.4 million liquidation preferenceof shares held as treasury stock. Pursuant to the terms of the Plan of Reorganization, the Company used$8.9 million in excess restricted cash in addition to $5.2 million ofunrestricted cash to facilitate this redemption.

 

Duringthe three months ended March 31, 2003, we paid $1.0 million, in dividends onour preferred stock.  Due to theadoption of FAS 150 effective July 1, 2003, $0.6 million of preferred stockdividends have been shown as interest expense and are no longer reflected aspreferred stock dividends on the statement of cash flows.

 

*Liquidity and Capital Resource Outlook*

 

We currently have no debt as aresult of the effectiveness of the Plan of Reorganization. However, as a resultof the adoption of FAS 150 effective July 1, 2003, and due to the mandatorilyredeemable provisions of the New Preferred, the New Preferred has been shown asa long term liability.  We have financedthe initial bankruptcy distribution requirements and follow-on working capitalneeds in part through the use of the available cash and distributions fromKaiser-Hill and from other asset sale proceeds. Based on (i) currentexpectations for operating activities and results, (ii) expected Kaiser-Hilldistributions, (iii) our current available cash position, (iv) recent trendsand projections in liquidity and capital needs, and (v) current expectations oftotal allowed claims upon the completion of the bankruptcy proceedings,management believes we have sufficient liquidity to cover the required cashdistributions resulting from the resolution of claims in the bankruptcyprocess, our future operating needs and income tax requirements, as well as thedividend or interest requirements applicable to the our preferred stock.  Furthermore, as allowed Class 4 claims areresolved, we will continue to review the timing of additional partial preferredstock redemptions.

 

We haveobligations to pay dividends on outstanding preferred stock at March 31,2004.  Accordingly, we are required topresent the following table assuming that no preferred stock redemptions aremade until the mandatory redemption date of December 31, 2007, no additionalshares are issued and that all future dividends are paid in cash (irrespectiveof this disclosure requirement, we are not representing intentions with regardto the timing of preferred stock redemptions). The effect these obligations are expected to have on our liquidity andcash flow in future periods are as follows:

 
|                      |   | **Total** |   | **Less Than One  Year** |   | **One to Three  Years** |   | **After Three  Years** |   |
|---------------------------|--------|-----------|--------|-------------------------|--------|-------------------------|--------|------------------------|--------|
| Preferred Stock dividends |   | $         | 7,849  |                    | $      | 2,093                   |   | $                      | 4,186  |   | $ | 1,570 |   |
|                           |        |           |        |                         |        |                         |        |                        |        |  |  |  |  |

 

*Other Matters*

 

We havevarious obligations and liabilities from our continuing operations, includinggeneral overhead expenses in connection with maintaining, operating and windingdown the various entities. Additionally, we believe contingent liabilities may exist in the areasdescribed in Note 6 to the Consolidated Financial Statements.

 

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**RISK FACTORS RELATING TO KAISER HOLDINGS AND**

**FORWARD-LOOKING STATEMENTS**

 

This Quarterly Report on Form10-Q contains, and our periodic filings with the Securities and ExchangeCommission and written or oral statementsmade by our officers and directors to press, potential investors, securitiesanalysts and others, may contain, forward-looking statements within themeaning of Section 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934.  Theseforward-looking statements are not historical facts, but rather are predictionsand generally can be identified by use of statements that include phrases suchas “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “foresee”or other words or phrases of similar import. Similarly, statements that describe or contain information related to matters such as our intent, belief, orexpectation with respect to financial performance, claims resolution, cashavailability, stock redemption plans, contract awards and performance,potential acquisitions and joint ventures, and cost-cutting measures areforward-looking statements. These forward-looking statements oftenreflect a number of assumptions and involve known and unknown risks,uncertainties and other factors that could cause our actual results to differmaterially from those currently anticipated in these forward-lookingstatements.  In light of these risks anduncertainties, including those described below, the forward-looking eventsmight or might not occur.

 

**Ourremaining primary source of funding is from Kaiser-Hill distributions, whichare subject to uncertainties that may adversely impact our ability to meet ourobligations on our preferred stock and to permit our consideration and fundingof strategic alternatives for the Company.**

 

*The fee income we anticipate receiving in thefuture from Kaiser-Hill is dependent upon the ability of Kaiser-Hill to closethe Rocky Flats site at a predetermined targeted cost of between $3.1 billionand $4.9 billion and closing date ranging from December 31, 2005 to not laterthan March 31, 2007, both of which are subject to operational risks anduncertainties.*

 

Our long-term outlook islargely dependent on the performance of Kaiser-Hill under its contract with theDepartment of Energy.  Kaiser-Hillserves as the general contractor at the Rocky Flats site near Denver, Colorado,a former nuclear weapons production facility. Kaiser-Hill’s contract with the Department of Energy includes aperformance fee based upon a combination of the actual costs incurred tocomplete the site closure and the actual date of completion of theclosure.  Although unanticipated, ifKaiser-Hill fails to complete the closure within the target cost for the project,Kaiser-Hill’s fee will be reduced to a level significantly less than the feeestimate currently being used to recognize income on the project.

 

Kaiser-Hill hashistorically incurred expenses that are not reimbursable by the Department ofEnergy pursuant to federal regulations. Accordingly such expenses, which Kaiser-Hill estimates could approximateup to 15% - 20% of the total award fee, will be deducted from the total feeprior to any distributions to its two owners. For reasons similar to those describedin the following paragraph, it is difficult to estimate either the amount ofnet fee to be distributed to the owners of Kaiser-Hill and or the effect, ifany, that such unreimbursable costs would have on our future cash flows.  A decrease in our cash flows could result ina decrease in the value of our common and preferred stock.

 

*There are substantial performance risksassociated with Kaiser-Hill’s work at the Rocky Flats site.  The performance risks may impact the timingand cost of closing the site, which in turn could impact our fee income fromKaiser-Hill.*

 

Theclean-up and closure of the Department of Energy’s Rocky Flats site involve substantial performance risks.  Among other things, Kaiser-Hill’s activitiesat the Rocky Flats site involve the clean-up, packaging and transportation ofnuclear waste, and the demolition and destruction of facilities where nuclearweapons components were previously produced. Some of these activities have not been previously performed elsewhere,and therefore require the development of innovative and untestedapproaches.  Kaiser-Hill emphasizessafety in its performance, but the nature of the Rocky Flats site and theactivities of Kaiser-Hill and its subcontractors at the site are such thatserious injuries, or even deaths, are possible.  Significant safety incidents at the site could stop orsignificantly impede the progress of work being performed at the site byKaiser-Hill and its subcontractors.  TheDepartment of Energy contractcontemplates that all, or substantially all, of the nuclear waste at RockyFlats will be transported to other sites operated or managed by the Departmentof Energy. The appropriate sites for storage of certain of those nuclear wasteshave not yet been identified.  Inaddition, third-party objections have arisen from time to time with regard tothe transportation to, and storage of nuclear waste at, certain sitespreviously designated by the Department of Energy to receive waste from RockyFlats.  Although the Department ofEnergy contract contemplates that the Department of Energy is responsible forproviding transportation and storage sites for nuclear waste from Rocky Flats,an inability to store nuclear waste at other Department of Energy sites wouldpose a substantial risk to the timely closure of the Rocky Flats site, andcould interfere with Kaiser-Hill’s ability to earn the fees to whichKaiser-Hill believes it should be entitled. This loss of fee income could adversely affect our operating results,which could in turn result in a decrease in the value of our common andpreferred stock.

 

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*There are potential substantial liabilitiesand costs associated with Kaiser-Hill’s Department of Energy contract, whichmay directly and indirectly impact our fee income from Kaiser-Hill.*

 

Underthe Department of Energy contract, Kaiser-Hill is responsible for, and theDepartment of Energy will not pay for costs associated with, liabilities causedby the willful misconduct or lack of good faith of Kaiser-Hill’s managerialpersonnel or the failure to exercise prudent business judgment by Kaiser-Hill’smanagerial personnel. If Kaiser-Hill were found liable for any of thesereasons, the associated costs could be substantial, which could have an adverseeffect on our operating results. A decrease in our operating resultscould cause a decrease in the value of our common and preferred stock.

 

**We face significant contingencies,which may adversely impact our ability to meet our obligations on our preferredstock, to fund our continuing operations and to undertake new operations.**

 

*We do not have a business plan beyondKaiser-Hill and we may undertake new activities with start-up risks.*

 

Ourlong-term future profitability will be dependent, to a significant extent, onour ability to develop a business plan for ongoing operations. Unless and untilwe develop such a business plan, we are unable to determine either the amountof risk that future operations will involve or whether we have the ability torealize long-term profitability. In considering whether we should attempt todevelop a new revenue base, our Board of Directors authorized the establishmentof a new subsidiary to attempt to take advantage of our successful history ofperformance in the government services market and the commencement of theprocess to enable our wholly-owned captive insurance company to offerderivative captive insurance services. Our efforts to develop a revenue base separate from Kaiser-Hill mayinvolve start-up activities with risks peculiar to activities of this type,which may adversely impact our cash flow and operating results. Adecrease in our cash flows and operating results could result in a decrease inthe value of our common and preferred stock.

 

*We may be unable to obtain performanceguarantees, which may limit our ability to undertake new activities.*

 

Giventhe reorganization history of Kaiser Group Holdings, Inc., we may not be ableto obtain satisfactory contract performance guaranty mechanisms, such asperformance bonds and letters of credit, at all or on satisfactory terms, tothe extent such mechanisms are needed for new projects.  These factors could limit the nature of thebusiness activities in which we could engage should we decide to attempt todevelop a new revenue base apart from Kaiser-Hill, which may adversely impactour cash flow and operating results and result in a decrease in thevalue of our common and preferred stock.

 

*We may be unable to generate funds to meetour obligations and we may be unable to access additional capital.*

 

Wemay be unable to continue to generate sufficient funds to meet our obligations,notwithstanding the significant improvements in our operations and financialcondition.  Although we believe that wewill be able to generate sufficient funds to meet our working capital needs forthe foreseeable future, our ability to gain access to additional capital, ifneeded, is not certain. Due to reorganization history of Kaiser Group Holdings,Inc. and current financial markets, it is difficult to predict whetheradditional capital would be available to us in the event that we were unable togeneral funds to meet our obligations. Our inability to gain access to additional capital may also limit ourability to undertake new activities.  Ultimately,our inability to meet our existing obligations or to undertake new activitiescould adversely impact our cash flow and operating results.  A decrease in our cash flows andoperating results could result in a decrease in the value of our common andpreferred stock.

 

*We mayhave to issue a substantial number of additional common shares.*

 

On January 20, 2004, the United States Bankruptcy Court for theDistrict of Delaware ruled on a claim in favor of former shareholders of ICTSpectrum Constructors, Inc.  TheBankruptcy Court has refused to reconsider its decision and we haveappealed.  Should we be unsuccessful inour efforts to achieve reversal of the Bankruptcy Court’s ruling, we could berequired to issue to former ICT Spectrum shareholders an additional 247,350common shares, which would then comprise approximately 13.4% of the aggregatecommon shares outstanding.  We believethat issuing such a substantial number of additional common shares could beexpected to have a materially dilutive effect on the value of common sharespresently outstanding.

 

*In theevent of a change of control, we may not have the financial resources to redeempreferred stock.*

 

Our preferred stock is redeemable at theoption of the holder upon a change of control as defined in the terms of thepreferred stock.  We are not presentlyaware of any events that would cause a change of control.  However, based on a Report on Form 4 datedApril 3, 2003, which was filed with the Securities and Exchange Commission byTennenbaum & Co., LLC on April 3, 2003, we believe that Tennenbaum &Co., LLC and Michael E. Tennenbaum together own approximately 47.2% of our

 

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common stock.  The terms of our preferred stock provide that a change of controloccurs when, among other things, a person or “group” (within the meaning ofSection 13(d)(3) of the Securities Exchange Act of 1934) directly or indirectlyacquires “beneficial ownership” (as defined in Rule 13d-3 under the SecuritiesExchange Act of 1934) of more than 50% of all classes of our common equity(defined in the terms of our preferred stock as capital stock entitled to votein the election of directors).

 

In the event that we arerequired to redeem preferred stock due to a change of control, we may not haveavailable capital to redeem the stock. Our ability to gain access toadditional capital from outside sources, if needed, is not certain.  The inability to gain access to additionalcapital may limit our ability to meet the redemption obligations with respectto the preferred stock.

 

**ITEM 3.  QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK**

 

We do notbelieve that we have significant exposures to market risk as we do notpresently have any debt.  The interestrate risk associated with our obligation to fund a capped retiree medicalobligation is not sensitive to interest rate risk other than via thedetermination of the present value of our remaining obligation thereunder.  A 10% increase or decrease inthe average annual prime rate would result in a decrease in the carrying valueof the plan obligation but would not change the actual cost of the plan.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

As ofMarch 31, 2004, an evaluation was performed under the supervision and with theparticipation of the Company’s management, including the Chief ExecutiveOfficer and Chief Financial Officer, of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures (as defined inRule 13a-15(e) or 15d-15(e) under the Exchange Act).  Based on that evaluation, the Company’s management, including theChief Executive Officer and Chief Financial Officer, concluded that theCompany’s disclosure controls and procedures were effective as of March 31,2004.  There were no significant changesin the Company’s internal control over financial reporting that occurred duringthe period covered by this report that have materially affected, or that arereasonably likely to materially affect, our internal control over financialreporting.

 

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**PART II - OTHERINFORMATION**

 

**ITEM 1.  LEGAL PROCEEDINGS**

 

Aspreviously reported in the Annual Report on Form 10-K for the year endedDecember 31, 2003.

 

**ITEM 2. CHANGES INSECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES**

 

(a)  None

(b)  None

(c)  None

(d)  Not applicable

(e)  Not applicable

 

**ITEM 3. ****DEFAULTS UPON SENIOR SECURITIES**

 

(a)  None

(b)  None

 

**ITEM 4.****  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

At theMay 5, 2004 Annual Meeting of Shareholders, the only matter up for a vote wasthe election of directors.

 

1.             Election for Directors

 

Thefollowing individuals were elected to a one-year term expiring at the 2005Annual Meeting of Shareholders, and the total number of votes cast for andwithheld for each were as follows:

 
|                   |   | **For**   |   | **Withheld** |   | **Total** |   |
|------------------------|--------|-----------|--------|--------------|--------|-----------|--------|
| Jon B. Bennett         |   | 1,588,566 |   | 9,092        |   | 1,597,658 |   |
| John T. Grigsby, Jr.   |   | 1,523,440 |   | 74,218       |   | 1,597,658 |   |
| James J. Maiwurm       |   | 1,522,933 |   | 74,725       |   | 1,597,658 |   |
| Frank E. Williams, Jr. |   | 1,588,551 |   | 9,107        |   | 1,597,658 |   |

 

(*) “Votes Withheld” means thatthe shareholder marked the box on his/her proxy card labeled “withheld.”  This is equivalent to a “No” for all fournominees.  This vote total includessituations in which the shareholder wrote in the name of the director ordirectors he/she did not want to vote for.

 

**ITEM 5.  OTHER INFORMATION**

 

(a)  None

(b)  None

 

**ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K**

 

**Exhibit No. 2—Plan ofAcquisition, reorganization, arrangement, liquidation or succession**

 

2(a)Second Amended Plan of Reorganization (Incorporated by reference to Exhibit 2 toCurrent Report on Form 8-K (Registrant No.1-12248) filed with the Commission on December 14, 2000)

 

**Exhibit No.3—Articles of Incorporation and By-laws of the Registrant**

 

3(a)  Certificate of Incorporation of Kaiser Group Holdings, Inc.(Incorporated by reference to Exhibit 3(i) to Current Report on Form 8-K(Registrant No. 1-12248) filed with the Commission on December 14, 2000)

 

3(b)  By-laws of Kaiser Group Holdings, Inc. (Incorporated by referenceto Exhibit 3(ii) to Current Report on Form 8-K (Registrant No. 1-12248) filedwith the Commission on December 14, 2000)

 

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**Exhibit No.4—Instruments Defining the Rights of Security Holders, including Indentures**

 

4(a)  Form of Put Agreement relating to preferredstock of Kaiser Group Holdings, Inc. (Incorporated by reference to Exhibit 4 toCurrent Report on Form 8-K (Registrant No. 1-12248) filed with the Commissionon December 14, 2000)

 

**Exhibit No. 10 —Material Contracts**

 

10(a)  Kaiser Group International, Inc. EmployeeStock Ownership Plan (as amended and restated as of January 1, 1996)  (Incorporated by reference to Exhibit No.10(b) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with theCommission on April 17, 2000)

 

1.  Amendment No. 1 with theeffective date of January 1, 1998 (Incorporated by reference to Exhibit No. 10(b)(1) to Annual Report onForm 10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)

 

2.  Amendment No. 2 with the effective date ofJanuary 1, 1996  (Incorporated by reference to Exhibit No. 10(b)(2) to Annual Report onForm 10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)

 

3.  Amendment No. 3 dated April19, 1999.  (Incorporated by reference toExhibit No. 10(b)(3) to Annual Report on Form 10-K (Registrant No. 1-12248)filed with the Commission on April 17, 2000)

 

4.  Amendment No. 4 dated June25, 1999. (Incorporated by reference to Exhibit No. 10(b)(4) to Annual Reporton Form 10-K (Registrant No. 1-12248) filed with the Commission on April 17,2000)

 

10(b)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 onForm S-1 (Registrant No. 33-64655) filed with the Commission on November 30,1995)

 

10(c) ICF Kaiser International,Inc. Retirement Plan (as amended and restated as of March 1, 1993) (and furtheramended with respect to name change only as of June 26, 1993) (Incorporated byreference 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 onOctober 15, 1993)

 

1.  Amendment No. 1 dated April 24, 1995(Incorporated by reference to Exhibit No. 10(d)(1) to Annual Report on Form10-K (Registrant No. 1- 12248) filed with the Commission on May 23, 1995)

 

2.  Amendment No. 2 datedDecember 15, 1995 (Incorporated by reference to Exhibit No. 10(d)(2) toTransition Report on Form 10-K (Registrant No. 1-12248) for the transitionperiod from March 1, 1995 to December 31, 1995 filed with the Commission onMarch 29, 1996)

 

3.  Amendment No. 3 dated December 13, 1996(Incorporated by reference to Exhibit No. 10(d)(3) to Registration Statement onForm S-1 (Registrant No. 333-19519) filed with the Commission on January 10,1997)

 

4.  Amendment No. 4 dated April19, 1999 (Incorporated by reference to Exhibit No. 10(d)(4) to Annual Report onForm 10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)

 

5.  Amendment No. 5 dated June25, 1999 (Incorporated by reference to Exhibit No. 10(d)(5) to Annual Report onForm 10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)

 

6.  Amendment No. 6 dated August30, 1999 (Incorporated by reference to Exhibit No. 10(d)(6) to Annual Report onForm 10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)

 

7.  Amendment No. 7 dated April 13, 2000(Incorporated by reference to Exhibit 10(d)(7) on Form 8-K (Registrant No.1-12248) filed with the Commission on May 2, 2000)

 

8.  Amendment No. 8 dated June 8, 2000(Incorporated by reference to Exhibit 10(d)(8) to Quarterly Report on Form 10-Q(Registrant No. 1-12248) for the second quarter of fiscal 2000 filed with theCommission on September 6, 2000)

 

9.  Amendment No. 9 dated June 19, 2003(Incorporated by reference to Exhibit 10(c)(9) to Quarterly Report on Form 10-Q(Registrant No. 1-12248) for the second quarter of fiscal 2003 filed with theCommission on August 14, 2003)

 

10.  Amendment No. 10 dated March 17, 2004

 

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10(d)Trust Agreement with Vanguard Fiduciary Trust Company dated as of August 31,1995, for ICF Kaiser International, Inc. Retirement Plan (Incorporated byreference to Exhibit No. 10(e) to Registration Statement on Form S-1(Registrant No. 33-64655) filed with the Commission on November 30, 1995)

 

10(e)       ICF Kaiser International, Inc. Section 401(k) Plan (as amendedand restated as of March 1, 1993) (and further amended with respect to namechange 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 secondquarter of fiscal 1994 filed with the Commission on October 15, 1993)

 

1.  Amendment No. 1 dated April24, 1995 (Incorporated by reference to Exhibit No. 10(p)(1) to Annual Report onForm 10-K (Registrant No. 1-12248) for fiscal 1995 filed with the Commission onMay 23, 1995)

 

2.  Amendment No. 2 dated December 15, 1995(Incorporated by reference to Exhibit No. 10(p)(2) to Transition Report on Form10-K (Registrant No. 1-12248) for the transition period from March 1, 1995 toDecember 31, 1995 filed with the Commission on March 29, 1996)

 

3.  Amendment No. 3 datedDecember 13, 1996 (Incorporated by reference to Exhibit No. 10(q)(3) toRegistration Statement on Form S-1 (Registrant No. 333-19519) filed with theCommission on January 10, 1997)

 

4.  Amendment No. 4 dated April8, 1999 (Incorporated by reference to Exhibit No. 10(k)(4) to Annual Report onForm 10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)

 

5.  Amendment No. 5 dated June25, 1999 (Incorporated by reference to Exhibit No. 10(k)(5) to Annual Report onForm 10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)

 

6.  Amendment No. 6 dated April 13, 2000(Incorporated by reference to Exhibit 10(k)(6) on Form 8-K (Registrant No.1-12248) filed with the Commission on May 2, 2000)

 

 7. Amendment dated January 1, 2001 (Incorporated by reference to ExhibitNo. 10(m)(7) to Annual Report on Form 10-K (Registrant No. 1-2248) filed withthe Commission on March 30, 2001)

 

8.  Amendment No. 8 dated December 10, 2002(Incorporated by reference to Exhibit 10(e)(8) to Quarterly Report on Form 10-Q(Registrant No. 1-12248) for the second quarter of fiscal 2003 filed with theCommission on August 14, 2003)

 

9.  Amendment No. 9 dated June 19, 2003(Incorporated by reference to Exhibit 10(e)(9) to Quarterly Report on Form 10-Q(Registrant No. 1-12248) for the second quarter of fiscal 2003 filed with theCommission on August 14, 2003)

 

10.  Amendment No. 10 dated March 17, 2004

 

10(f)  Trust Agreement with Vanguard FiduciaryTrust 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) toRegistration Statement on Form S-8 (Registrant No. 33-51460) filed with theCommission on August 31, 1992)

 

10(g)Contract between Kaiser-Hill Company, LLC and the U.S. Department of Energydated January 24, 2000 (Incorporated by reference to Exhibit No. 10(o) toAnnual Report on Form 10-K (Registrant No. 1-12248) filed with the Commissionon April 17, 2000)

 

1.Modification M116 to Contract #DE-AC34-00RF01904, effective March 24, 2004(Incorporated by reference to Exhibit 10(g)(1) to Annual Report on Form 10-K(Registrant No. 1-12248) filed with the Commission on March 30, 2004)

 

10(h)  Assignment of Membership Interest in Hunters Branch Leasing, LLCby and between Kaiser Holdings Unlimited, Inc. (Assignor) and Nutley Partners, LC (Assignee), dated January 1, 2001 (Incorporatedby reference to Exhibit No. 10(r) to Annual Report on Form 10-K (Registrant No.1-12248) filed with the Commission on April 2, 2001)

 

**Exhibit No.10—Material Contracts (management contracts, compensatory plans, orarrangements)**

 

10(i)  Kaiser Group Holdings, Inc. 2002 Equity Compensation Plan, asamended (Incorporated by reference to Exhibit No. 10 to Registration Statementon Form S-8 (Registration No. 333-107912) filed with the Commission on August13, 2003)

 

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10(j)  Amended and Restated Employment Agreement with John T. Grigsby,Jr., President and Chief Executive Officer, effective as of December 19, 2000(Incorporated by reference to Exhibit No. 10(m) to Registration Statement onForm S-4 (Registrant No. 333-100640) filed with the Commission on October 18,2002)

 

**Exhibit 14 —Corporate Code of Conduct**

 

14(a)  Kaiser Group Holdings, Inc. Corporate Codeof Conduct (Incorporated by reference to Exhibit 14.1 to CurrentReport on Form 8-K (Registrant No. 1-12248) filed with the Commission onJanuary 13, 2004)

 

**Exhibit No. 21 —Consolidated Subsidiaries of the Registrant as of May 1, 2004**

 

**Exhibit No. 31.1 —Certification of the Principal Executive Officer**

 

Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Actof 1934

 

**Exhibit No. 31.2 —Certification of the Principal Financial Officer**

 

Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Actof 1934

 

**Exhibit No. 32.1 —Certification of the Principal Executive Officer**

 

Pursuant to 18 U.S.C. Section 1350

 

**Exhibit No. 32.2 —Certification of the Principal Financial Officer**

 

Pursuant to 18 U.S.C. Section 1350

 

**(b) Reports on Form8-K**

 

OnJanuary 13, 2004, the Company filed a Current Report on Form 8-K.  Pursuant to Item 5 of its Report, theCompany announced plans for a preferred stock redemption of its Series 1Redeemable Cumulative Preferred Stock with a redemption date of February 16,2004.  The Company also announced thatit will hold its annual meeting of shareholders on Wednesday, May 5, 2004.

 

OnJanuary 26, 2004, the Company filed a Current Report on Form 8-K.  Pursuant to Item 5 of its Report, theCompany announced that on January 20, 2004, the United States Bankruptcy Courtfor the District of Delaware rendered a decision in claim litigation involvingKaiser Group Holdings, Inc. and a class comprised of former holders of sharesof ICT Spectrum Constructors, Inc.

 

On March 26, 2004, the Companyfiled a Current Report on Form 8-K. Pursuant to Item 5 of its Report, the Company announced that on March24, 2004 Modification Number M116 to Contract # DE-AC34-00RF01904 betweenKaiser-Hill Company, LLC, owned 50% by the Registrant, and the U.S. Departmentof Energy was executed and effective.

 

On April 19, 2004, the Companyfiled a Current Report on Form 8-K. Pursuant to Item 5 of its Report, the Company announced the departure ofMarijo L. Ahlgrimm as Executive Vice President and Chief Financial Officer andthe appointment of Marian P. Hamlett as Executive Vice President and ChiefFinancial Officer and the appointment of Jeffrey Lehman as Vice President andAssistant Treasurer effective April 15, 2004.

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this Quarterly Report on Form 10-Q to be signed on its behalf bythe undersigned thereunto duly authorized.

 
|               | **KAISER GROUP  HOLDINGS, INC.**                                                                                 |   |
|--------------------|------------------------------------------------------------------------------------------------------------------|--------|
|               | (Registrant)                                                                                                     |   |
|               |                                                                                                             |   |
| Date: May 24, 2004 |                                                                                                             |   |
|               |                                                                                                             |   |
|               | /s/ Marian P. Hamlett                                                                                            |   |
|               | Marian P. Hamlett                                                                                                |   |
|               | Executive Vice President and Chief Financial  Officer (Duly authorized officer and principal  financial officer) |   |

 

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