**UNITEDSTATESSECURITIES 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 quarterly period ended June 30,2005**

 

**Commission File No. 1-12248**

 

**KAISERGROUP HOLDINGS, INC.**

(successor issuer to Kaiser Group International, Inc.)

(Exact name of registrant as specified in itscharter)

 
| **Delaware**                              | ** ** | **54-2014870**      |
|-------------------------------------------|------------|---------------------|
| (State or other jurisdiction  of          |       | (I.R.S. Employer    |
| incorporation or organization)            |       | Identification No.) |
|                                      |       |                |
| **9300 Lee Highway, Fairfax,  Virginia**  | ** ** | **22031-1207**      |
| (Address of principal  executive offices) |       | (Zip Code)          |

 

Registrant’s telephone number including areacode: **(703) 934-3413**

 

Indicateby check mark whether the Registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject tosuch filing requirements for 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 to issuer’s involved in bankruptcy proceedings duringthe 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 SecuritiesExchange Act of 1934 subsequent to the distribution of securities under a planconfirmed by a court.  Yes ý No o

 

ThePlan of Reorganization of Kaiser Group International, Inc. under Chapter11 of the Bankruptcy 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 to corporate issuers:**

 

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

 

Asof August 10, 2005, there were 1,601,270 shares of Kaiser Group Holdings, Inc.Common Stock, par value $0.01 per share, outstanding.

 

 

----

 

**KAISER GROUP HOLDINGS, INC.**

 

**INDEX TO FORM 10-Q**

 
| **Part I  - Financial Information**                                                                                 |   |
|--------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                     |   |
| Item 1. Financial Statements:                                                                                            |   |
|                                                                                                                     |   |
| Consolidated  Balance Sheets -  June 30, 2005 and December 31, 2004.                                           |   |
|                                                                                                                     |   |
| Consolidated  Statements of Operations and Comprehensive Income  Three and Six Months Ended June 30, 2005 and 2004. |   |
|                                                                                                                     |   |
| Consolidated  Statements of Cash Flows -  Six Months Ended June 30, 2005 and 2004.                                  |   |
|                                                                                                                     |   |
| 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. Unregistered Sales  of Equity Securities and Use of Proceeds                                                     |   |
|                                                                                                                     |   |
| Item 3. Defaults Upon Senior  Securities                                                                                 |   |
|                                                                                                                     |   |
| Item 4. Submission of Matters  to a Vote of Security Holders                                                             |   |
|                                                                                                                     |   |
| Item 5. Other Information                                                                                                |   |
|                                                                                                                     |   |
| Item 6. Exhibits                                                                                                         |   |
|                                                                                                                     |   |
| **Signatures**                                                                                                           |   |

 

2

----

 

**PART I– FINANCIAL INFORMATION**

 

**ITEM1.  FINANCIAL STATEMENTS**

 

**KAISER GROUP HOLDINGS, INC. ANDSUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**(In thousands, except share amounts)**

 
| ** **                                                                                                                                                   | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                   | ** ** | **(unaudited)**         | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                   |       |                    |       |                        |       |
| Current Assets                                                                                                                                               |       |                    |       |                        |       |
| Cash and cash equivalents                                                                                                                                    |       | $                       | 17,771     |                        | $          | 12,728 |   |
| Certificate of deposit                                                                                                                                       |       | 1,017                   |       | 1,006                       |       |
| Restricted cash and cash equivalents                                                                                                                         |       | 4,046                   |       | 3,931                       |       |
| Accounts receivable                                                                                                                                          |       | 363                     |       | 217                         |       |
| Prepaid expenses and other current assets                                                                                                                    |       | 1,218                   |       | 742                         |       |
| Contract receivable, net                                                                                                                                     |       | 3,000                   |       | 3,000                       |       |
| Total Current Assets                                                                                                                                         |       | 27,415                  |       | 21,624                      |       |
|                                                                                                                                                         |       |                    |       |                        |       |
| Other Assets                                                                                                                                                 |       |                    |       |                        |       |
| Investments in and advances to affiliates                                                                                                                    |       | 32,428                  |       | 45,094                      |       |
| Notes receivable                                                                                                                                             |       | 5,894                   |       | 5,894                       |       |
| Other long-term assets                                                                                                                                       |       | 43                      |       | 102                         |       |
|                                                                                                                                                         |       | 38,365                  |       | 51,090                      |       |
| Total Assets                                                                                                                                                 |       | $                       | 65,780     |                        | $          | 72,714 |   |
| ** **                                                                                                                                                   | ** ** | ** **              | ** ** | ** **                  | ** ** |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                | ** ** | ** **              | ** ** | ** **                  | ** ** |
|                                                                                                                                                         |       |                    |       |                        |       |
| Current Liabilities                                                                                                                                          |       |                    |       |                        |       |
| Accounts payable                                                                                                                                             |       | $                       | 145        |                        | $          | 169 |   |
| Post retirement benefit plan obligation                                                                                                                      |       | 6,423                   |       | 6,623                       |       |
| Other accrued expenses                                                                                                                                       |       | 4,676                   |       | 4,620                       |       |
| Interest payable on preferred stock                                                                                                                          |       | 197                     |       | 313                         |       |
| Deferred tax liability                                                                                                                                       |       | 6,028                   |       | 5,772                       |       |
| Income taxes payable                                                                                                                                         |       | 666                     |       | 763                         |       |
| Total Current Liabilities                                                                                                                                    |       | 18,135                  |       | 18,260                      |       |
|                                                                                                                                                         |       |                    |       |                        |       |
| Long Term Liabilities                                                                                                                                        |       |                    |       |                        |       |
| Mandatorily redeemable preferred stock                                                                                                                       |       | 16,909                  |       | 26,909                      |       |
|                                                                                                                                                         |       |                    |       |                        |       |
| Commitments and Contingencies                                                                                                                                |       |                    |       |                        |       |
|                                                                                                                                                         |       |                    |       |                        |       |
| Common stock, par value $.01 per share:                                                                                                                      |       |                    |       |                        |       |
| Authorized—3,000,000 shares  Issued and outstanding—1,613,270 and 1,610,270 shares at June 30, 2005  and December 31, 2004, respectively |       | 16                      |       | 16                          |       |
| Capital in excess of par                                                                                                                                     |       | 8,141                   |       | 8,063                       |       |
| Retained earnings                                                                                                                                            |       | 22,538                  |       | 19,424                      |       |
| Accumulated other comprehensive income (loss)                                                                                                                |       | 41                      |       | 42                          |       |
| Total Shareholders’ Equity                                                                                                                              |       | 30,736                  |       | 27,545                      |       |
| Total Liabilities and Shareholders’ Equity                                                                                                              |       | $                       | 65,780     |                        | $          | 72,714 |   |

 

See notes to consolidatedfinancial statements.

 

3

----

 

**KAISER GROUP HOLDINGS, INC. ANDSUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME**

**(In thousands, except per shareamounts)**

 
| ** **                                                                                                                                                                                                    | ** ** | **For the Three Months Ended  June 30,** | ** ** | **For the Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                                                                                                                    | ** ** | **(unaudited)**                               | ** ** | **(unaudited)**                             | ** ** |
| ** **                                                                                                                                                                                                    | ** ** | **2005**                                      | ** ** | **2004**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                                                                                                                          |       |                                          |       |                                        |       |   |   |   |   |
| Gross Revenue                                                                                                                                                                                                 |       | $                                             | 497        |                                        | $          | — |   | $ | 1,017 |   | $ | — |   |
| Labor and subcontract costs                                                                                                                                                                                   |       | (334                                          | )          | —                                      |       | (681 | ) | — |   |
| Service Revenue                                                                                                                                                                                               |       | 163                                           |       | —                                      |       | 336 |   | — |   |
|                                                                                                                                                                                                          |       |                                          |       |                                        |       |   |   |   |   |
| Operating Expenses                                                                                                                                                                                            |       |                                          |       |                                        |       |   |   |   |   |
| Administrative expenses                                                                                                                                                                                       |       | 1,399                                         |       | 1,816                                       |       | 2,556 |   | 3,061 |   |
| Reserve for Settlement of Remaining Class 4  Claims                                                                                                                                                      |       | —                                        |       | —                                      |       | — |   | 1,400 |   |
| Operating Loss                                                                                                                                                                                                |       | (1,236                                        | )          | (1,816                                      | )          | (2,220 | ) | (4,461 | ) |
|                                                                                                                                                                                                          |       |                                          |       |                                        |       |   |   |   |   |
| Other Income                                                                                                                                                                                                  |       |                                          |       |                                        |       |   |   |   |   |
| Equity income in earnings of affiliate, net of  amortization of $881 for each of the three months ended June 30, 2005  and 2004 and $1,762 for each of the six months ended June 30, 2005 and  2004 |       | 4,108                                         |       | 4,322                                       |       | 8,334 |   | 8,606 |   |
| Interest income                                                                                                                                                                                               |       | 188                                           |       | 160                                         |       | 378 |   | 335 |   |
| Interest expense for preferred dividends                                                                                                                                                                      |       | (347                                          | )          | (517                                        | )          | (811 | ) | (1,087 | ) |
| Other income                                                                                                                                                                                                  |       | —                                        |       | —                                      |       | — |   | 25 |   |
|                                                                                                                                                                                                          |       |                                          |       |                                        |       |   |   |   |   |
| Income from Continuing Operations Before Income Tax                                                                                                                                                           |       | 2,713                                         |       | 2,149                                       |       | 5,681 |   | 3,418 |   |
| Income tax expenses                                                                                                                                                                                           |       | (1,249                                        | )          | (995                                        | )          | (2,567 | ) | (1,743 | ) |
|                                                                                                                                                                                                          |       |                                          |       |                                        |       |   |   |   |   |
| Income Applicable to Common Shareholders                                                                                                                                                                      |       | $                                             | 1,464      |                                        | $          | 1,154 |   | $ | 3,114 |   | $ | 1,675 |   |
|                                                                                                                                                                                                          |       |                                          |       |                                        |       |   |   |   |   |
| Basic and Diluted Income Per Common Share:                                                                                                                                                                    |       |                                          |       |                                        |       |   |   |   |   |
| Continuing operations, net of tax                                                                                                                                                                             |       | $                                             | 0.91       |                                        | $          | 0.72 |   | $ | 1.93 |   | $ | 1.04 |   |
| Discontinued operations, net of tax                                                                                                                                                                           |       | —                                        |       | —                                      |       | — |   | — |   |
|                                                                                                                                                                                                          |       |                                          |       |                                        |       |   |   |   |   |
| Net Income Per Share                                                                                                                                                                                          |       | $                                             | 0.91       |                                        | $          | 0.72 |   | $ | 1.93 |   | $ | 1.04 |   |
|                                                                                                                                                                                                          |       |                                          |       |                                        |       |   |   |   |   |
| Weighted average shares for basic and diluted  earnings per common share                                                                                                                                      |       | 1,613                                         |       | 1,609                                       |       | 1,613 |   | 1,608 |   |
|                                                                                                                                                                                                          |       |                                          |       |                                        |       |   |   |   |   |
| Comprehensive Income                                                                                                                                                                                          |       |                                          |       |                                        |       |   |   |   |   |
| Net Income                                                                                                                                                                                                    |       | $                                             | 1,464      |                                        | $          | 1,154 |   | $ | 3,114 |   | $ | 1,675 |   |
| Other Comprehensive Income (Loss):                                                                                                                                                                            |       |                                          |       |                                        |       |   |   |   |   |
| Realization of gain on securities, net of tax                                                                                                                                                                 |       | —                                        |       | —                                      |       | — |   | — |   |
| Change in cumulative foreign translation adjustments                                                                                                                                                          |       | 3                                             |       | (1                                          | )          | (1 | ) | 1 |   |
|                                                                                                                                                                                                          |       |                                          |       |                                        |       |   |   |   |   |
| Total Comprehensive Income                                                                                                                                                                                    |       | $                                             | 1,467      |                                        | $          | 1,153 |   | $ | 3,113 |   | $ | 1,676 |   |

 

Seenotes to consolidated financial statements.

 

4

----

 

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

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(In thousands)**

 
| ** **                                                                     | ** ** | **For the Six Months ended  June 30,** | ** ** |
|--------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                     | ** ** | **2005**                                    | ** ** | **2004** | ** ** |
| ** **                                                                     | ** ** | **(Unaudited)**                             | ** ** |
| Operating Activities:                                                          |       |                                        |       |   |   |
| Net income                                                                     |       | $                                           | 3,114      |   | $ | 1,675 |   |
| Adjustments to reconcile net income to net cash used  in operating activities: |       |                                        |       |   |   |
| Deferred taxes related to continuing operating  activities                     |       | 256                                         |       | (1,916 | ) |
| Equity in earnings of affiliate                                                |       | (8,334                                      | )          | (8,606 | ) |
| Changes in operating assets and liabilities:                                   |       |                                        |       |   |   |
| Account receivables                                                            |       | (146                                        | )          | — |   |
| Prepaid expenses and other current assets                                      |       | (476                                        | )          | 136 |   |
| Accounts payable and accrued expenses                                          |       | (168                                        | )          | 430 |   |
| Income taxes payable                                                           |       | (97                                         | )          | 1,743 |   |
| Other operating activities                                                     |       | (42                                         | )          | 103 |   |
| Net Cash Used in Operating Activities                                          |       | (5,893                                      | )          | (6,435 | ) |
| Investing Activities:                                                          |       |                                        |       |   |   |
| Distributions from affiliate                                                   |       | 21,000                                      |       | 6,894 |   |
| Net Cash Provided by Investing Activities                                      |       | 21,000                                      |       | 6,894 |   |
| Financing Activities:                                                          |       |                                        |       |   |   |
| Transfer from restricted cash for the redemption of  preferred stock           |       | —                                      |       | 2,646 |   |
| Transfer to restricted cash                                                    |       | (64                                         | )          | — |   |
| Redemption of preferred stock                                                  |       | (10,000                                     | )          | (5,276 | ) |
| Net Cash Used in Financing Activities                                          |       | (10,064                                     | )          | (2,630 | ) |
| Increase (decrease) in Cash and Cash Equivalents                               |       | 5,043                                       |       | (2,171 | ) |
| Cash and Cash Equivalents at Beginning of Period                               |       | 12,728                                      |       | 10,971 |   |
| Cash and Cash Equivalents at End of Period                                     |       | $                                           | 17,771     |   | $ | 8,800 |   |

 

Seenotes to consolidated financial statements.

 

5

----

 

**KAISER GROUP HOLDINGS, INC. ANDSUBSIDIARIES**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

1.                                       Basis of Presentation

 

The accompanying consolidated financial statements of Kaiser GroupHoldings, Inc. and subsidiaries (the Company), except for the December 31,2004 balance sheet (derived from audited financial statements), are unauditedand have been prepared in accordance with generally accepted accountingprinciples in the United States of America (GAAP) for interim financialinformation.  Accordingly, they do notinclude all of the information and footnotes required by GAAP for completefinancial statements.  In the opinion ofmanagement, all adjustments considered necessary for a fair presentation havebeen included.

 

These statements should be read in conjunction with the Company’saudited consolidated financial statements and footnotes and the otherinformation included in the Company’s Annual Report on Form 10-K for theyear ended December 31, 2004. Certain reclassifications have been made to the prior period financialstatements to conform them to the presentation used in the June 30, 2005financial statements.

 

Kaiser Group Holdings, Inc. is a Delaware holding company that wasformed on December 6, 2000 for the purpose of owning all of theoutstanding stock of Kaiser Group International, Inc. (Old Kaiser), whichin turn continues to own the stock of its remaining subsidiaries. On June 9,2000, Old Kaiser and 38 of its domestic subsidiaries voluntarily filed forprotection under Chapter 11 of the United States Bankruptcy Code in theDistrict of Delaware (case nos. 00-2263 to 00-2301). Old Kaiser emerged frombankruptcy with an approved plan of reorganization (the Second Amended Plan ofReorganization (the Plan)) that was effective on December 18, 2000 (theEffective Date). The Company is deemed a “successor issuer” to Old Kaiser byvirtue of Rule 12g-3(a) under the Securities Exchange Act of 1934.References to the “Company” or “Kaiser Holdings” in this report refer to KaiserGroup Holdings, Inc. and its consolidated subsidiaries. A summary of thePlan for Old Kaiser can be found in a Current Report on Form 8-K dated December 5,2000 filed by Old Kaiser.

 

Currently, apart fromresolving remaining bankruptcy claims, theCompany has only a limited number of activities, assets and liabilities,primarily consisting of:

 

**•**                  the ownership of a 50% interest inKaiser-Hill Company, LLC (Kaiser-Hill), which serves as the general contractorat the U.S. Department of Energy’s (DOE) Rocky Flats site near Denver, Coloradofor the performance of a contract for the closure of the site (the ClosureContract) (See Note 4 for summarized financial information).

**•**                  the closeout and resolution of acompleted contract for the engineering and construction of a steel mini-millfor Nova Hut in the Czech Republic (Nova Hut project).

**•**                  the holding of an interest-bearingpromissory note from ICF Consulting Group, Inc. (ICF Consulting), adivision 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. However, we have begun the necessary regulatory and legal process toenable our wholly-owned captive insurance company to offer derivative captiveinsurance services to third-party clients through a sponsored captivesubsidiary.

**•**                  an ongoing obligation to fund acapped, post-employment medical benefit plan for a fixed group of retirees.

**•**                  a subsidiary, Kaiser Analytical ManagementServices, Inc. (KAMS), which we formed in April 2004 to takeover the operations of the Analytical Services Division of Kaiser-Hill.  KAMS provides analytical management servicessuch as sample planning, sample management, records management, performanceassessment and data management in the general areas of health and safety,geotechnical, environmental and waste management, and deactivation anddecommissioning.

 

The Company adopted freshstart reporting in its consolidated balance sheet as of December 31, 2000.The American Institute of Certified Public Accountants’ Statement of Position 90-7,“Financial Reporting by Entities in Reorganization Under the Bankruptcy Code”(SOP 90-7), requires that, under certain circumstances resulting from 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.

 

The value of the emerged enterprise used for freshstart reporting as of December 31, 2000 was $87.5 million and wasdetermined by management with the assistance of independent advisors.  The methodology employed involved estimationof the enterprise value taking into consideration a discounted cash flowanalysis.  The discounted cash flowanalysis was based on a seven-year cash flow projection prepared by management,taking into consideration the terminal value of its assets and

 

6

----

 

liabilities as of immediately prior to its emergencefrom bankruptcy 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, 2000 are inherentlysubject to significant economic and competitive uncertainties and contingenciesbeyond the control of the Company. Accordingly, there may be differences between projections and actualresults because events and circumstances frequently do not occur as expected andmay be significant.  More specifically,assumptions within the valuation related to the amount and timing of theultimate performance and related cash flows of the Company’s investment inKaiser-Hill have the greatest impact on the overall enterprise valuation.

 

2.                                       GeneralTerms of Plan and Status of Bankruptcy Distributions

 

The effectiveness of the Old Kaiser Plan of Reorganization as of December 18,2000 did not, in and of itself, complete the bankruptcy process. The process ofresolving in excess of $500 million of claims initially filed in the bankruptcyis ongoing. Old Kaiser objected to the majority of the unresolved claims, andif such claims are not settled via the objection or dispute resolutionprocesses or other means, they will ultimately be heard and determined by theBankruptcy Court. Once a claim is resolved with an amount due to the creditor,such portion of the claim is deemed to be an allowed claim by the BankruptcyCourt (an allowed claim). The Company cannot predict with accuracy when theclaims resolution process will be complete or what the total amount of allowedclaims will be upon completion.

 

In general terms, the Plan contemplated three basic classes ofcreditors:

 

**•**                  Allowed “Class 3 claims” againstthe Old Kaiser bankruptcy estate generally consisted of trade and similarcreditors’ claims of $20,000 or less. Holders of allowed Class 3 claims received cash for their claims.

 

**•**                  Allowed “Class 4 claims”, thelargest class of claims against the Old Kaiser bankruptcy estate, is made up ofcreditor claims other than Class 3 claims and equity claims. Class 4claims included holders of Old Kaiser senior subordinated notes due 2003 (OldSubordinated Notes). Holders of allowed Class 4 claims received acombination of cash and Kaiser Holdings preferred and common stock in respect oftheir 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 class of claims recognizedin the Old Kaiser bankruptcy are equity claims, consisting of holders of OldKaiser common stock (Old Common) and other “Equity Interests” as defined in thePlan. Under the Plan, holders of Equity Interests will receive a number ofshares of New Common equal to 17.65% of the number of shares of such commonstock issued to holders of allowed Class 4 Claims. In the initialdistribution, 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,the only holders of Equity Interests of which the Company is aware are theformer shareholders of ICT Spectrum Constructors, Inc., a corporationacquired by merger with a subsidiary of Old Kaiser in 1998. The Bankruptcy Courtconfirmed the equity nature of those claims. See Note 6 below for information concerning court rulings with respectto these claims.

 

Pursuant to the terms of Old Kaiser’s Plan, the Company was required tocomplete its initial bankruptcy distribution within 120 days of the effectivedate of the Plan.  Accordingly, on April 17,2001, the Company effected its initial distribution.  At that time, there were approximately $136.8million of Class 4 claims that had been allowed in the bankruptcyprocess.  The amount of unresolved claimsremaining at April 17, 2001 was approximately $130.5 million.

 

To address the remaining unresolved claims, the Bankruptcy Court issuedan order on March 27, 2001 establishing an Alternative Dispute Resolution(ADR) procedure whereby the remaining claimants and Old Kaiser produce limitedsupporting data relative to their respective positions and engage in initialnegotiation efforts in an attempt to reach an agreed claim determination.  If necessary, the parties were thereafter requiredto participate in a non-binding mediation before a mediator pre-selected by theBankruptcy Court.  All unresolved claimsas of March 27, 2001 are subject to the ADR process. Since April 17,2001, the date of the initial distribution, $126.0 million of asserted claimshave been withdrawn, negotiated or mediated to an agreed amount, resulting incash payments approximating $2.6 million and issuances of 683 shares of NewPreferred and 823 shares of New Common. As of August 10, 2005, the amountof unresolved claims was approximately $4.5

 

7

----

 

million. The Company expects to resolve the remaining claims by the endof 2005.  The Company currently believesthat the total amount of Class 4 claims ultimately to be allowed in theOld Kaiser bankruptcy proceeding will not exceed $142.0 million.  As demonstrated by the claim settlementscompleted since April 17, 2001, and based on the belief that it is in thebest interest of the Company and its current shareholders, the Company has beensettling certain remaining Class 4 claims entirely for cash payments inlieu of the combination of cash and New Preferred and New Common ascontemplated in the Plan.  The Companyintends to continue to use this settlement alternative during the resolution ofremaining Class 4 claims.  Asdiscussed below in Note 6, pending proceedings involving claims asserted by theformer shareholders of ICT Spectrum Constructors, Inc. could require theissuance of a substantial number of additional shares of New Common.

 

In the first quarter of 2004, the Company recorded a $1.4 millionliability for future claim settlements based upon the Company’s estimate ofunresolved claims settlements.  During 2004,$0.4 million was charged against this liability, leaving a remaining balance of$1.0 million at June 30, 2005.

 

From time to time in the future, as remaining unresolved claims areresolved, excess cash from the “reserve” fund (including cash added to “reserve”fund in payment of pro forma dividends, classified as interest expensesubsequent to July 1, 2003, on retained shares of New Preferred) must beused to redeem outstanding shares of New Preferred.  See Note 5 for a schedule of pastredemptions of New Preferred and the amount of restricted cash used tofacilitate the redemption.

 

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 Common aremade to holders of newly allowed Class 4 claims, the conversion ratio of96 shares to one share may be adjusted to reflect the final total number ofshares of 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 thenoutstanding common stock equivalents were cancelled.  Accordingly, no anti-dilutive information ispresented herein.

 

Theeffect of preferred dividends of $0.3 million and $0.8 million for the threemonths ended June 30, 2005 and 2004, respectively, and $0.8 million and$1.1 million for the six months ended June 30, 2005 and 2004,respectively, has been included in continuing operations in the calculation ofbasic and diluted earnings per share for the three and six months ended June 30,2005 and 2004.

 

4.                                       Summarized Financial Information ofUnconsolidated Affiliate

 

The Company owns 50% of Kaiser-HillCompany, LLC.  Summarized unaudited financialinformation of Kaiser-Hill Company was as follows as of June 30 (inthousands):

 
| ** **              | ** ** | **2005** | ** ** | **2004** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|------------|------------|------------|------------|
|                    |       |     |       |     |       |       |       |       |       |
| Current assets          |       | $        | 113,056    |     | $          | 108,512    |       |       |       |   |   |
| Non-current assets      |       | 130,162  |       | 128,213  |       |       |       |       |       |
| Current liabilities     |       | 128,401  |       | 109,511  |       |       |       |       |       |
| Non-current liabilities |       | 66,134   |       | 55,647   |       |       |       |       |       |
|                         |            |          |            |          |            |            |            |            |            |  |  |

 
| ** **    | ** ** | **Three  Months Ended** | ** ** | **Six  Months Ended**   | ** ** |
|---------------|------------|-------------------------|------------|-------------------------|------------|
| ** **    | ** ** | **June 30, 2005**  | ** ** | **June 30,  2004** | ** ** | **June 30,  2005** | ** ** | **June 30,  2004** | ** ** |
|          |       |                    |       |                    |       |   |   |   |   |
| Gross revenue |       | $                       | 166,832    |                    | $          | 161,408 |   | $ | 340,203 |   | $ | 299,238 |   |
| Net income    |       | 9,979                   |       | 10,407                  |       | 20,192 |   | 20,736 |   |
|               |            |                         |            |                         |            |  |  |  |  |  |  |  |  |

 

5.                                       Mandatorily Redeemable Preferred Stock

 

TheCompany’s certificate of incorporation authorizes the issuance of 2,000,000shares of New Preferred. The Company had New Preferred outstanding with aliquidation preference of $16.9 million at June 30, 2005 and $26.9 millionat December 31, 2004, net of $5.6 million of treasury stock at both June 30,2005 and December 31, 2004.  The NewPreferred is a series of authorized preferred stock designated as “Series 1Redeemable Cumulative Preferred Stock,” and has a par value of $0.01 per share.The New Preferred ranks ahead of the Company’s 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 redeemablefeature of the New Preferred, described in greater detail

 

8

----

 

below,the New Preferred has been reclassified from mezzanine equity to a long term liabilityon the consolidated balance sheet, and the preferred stock dividends have beenreclassified to interest expense on the consolidated statement of operationseffective July 1, 2003.  There wasno transition adjustment recognized upon adoption of FAS 150.  There were 307,431 and 489,249 shares of NewPreferred outstanding at June 30, 2005 and December 31, 2004,respectively, net of 101,471 treasury shares. The New Preferred is shown at liquidation value of $55 per share.

 

Pursuantto approval by the Company’s Board of Directors, in 2002 and 2003 the Companypurchased a total of 101,471 shares, net of redemptions, of outstanding NewPreferred at prices ranging from $25.62 to $50.55 per share.  The treasury shares have been recorded atliquidation preference, $55 per share, as a reduction to preferred stock andthe remaining difference between cost and the liquidation preference wasrecorded as an increase to paid-in capital.

 

Thecertificate of incorporation of the Company and Delaware law permit the Boardof Directors to issue additional series of preferred stock, except that theBoard of Directors may not authorize the issuance of any securities that ranksenior to or on a parity with the New Preferred without the consent of holdersof at least two-thirds of the New Preferred.

 

Cumulativedividends, classified as interest expense subsequent to July 1, 2003, onthe New 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 the Company on account ofthat affiliate’s ownership of shares of preferred stock. If the Company failsto pay a quarterly dividend when due, holders of New Preferred will have theright to elect an additional director for each dividend payment missed, up to amaximum of two additional directors, but only until such dividend is paid orprovided for in full. The dividend due to holders of record on July 31,2005, totaling approximately $0.3 million, was paid on August 8, 2005.  At June 30, 2005, in addition to the$0.4 million of cash reserves for unresolved claims, the Company had $0.6million in cash reserved for the payment of accrued dividends on any futureissuances of New Preferred issued as a result of remaining bankruptcy claimsresolutions (any New Preferred issued as a result of claims resolutions alsocarries the right to dividends retroactively from April 17, 2001).

 

TheNew Preferred has a liquidation preference of $55 per share plus the amount ofunpaid dividends, if any. Upon the liquidation or dissolution of the Company,each holder of New Preferred (other than an affiliate of the Company) isentitled to this per share liquidation preference before any holders of NewCommon or any other junior securities of the Company receive any payment fortheir shares. If, in a liquidation or dissolution setting, assets remainingafter distribution to holders of debt and other obligations are insufficient topay all holders of New Preferred the per share liquidation preference, thensuch assets will be distributed on a proportionate basis to the holders of NewPreferred (other than affiliates of the Company) and any securities ranking ona 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 of theCompany.  In addition, any net proceedsin excess of $3.0 million in a calendar year received by the Company or any ofits 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,holders of New Preferred will be entitled to elect two-thirds of the directorsof the Company. If shares of New Preferred are held by any affiliate of theCompany, those shares may not be redeemed pursuant to any of the redemptionprovisions otherwise 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 December 31,2007, and to consent to the issuance of any senior or parity securities. Theterms of the New Preferred may not be materially or adversely modified withoutthe consent of holders of at least two-thirds of the New Preferred. If theCompany or any of its affiliates holds any New Preferred, they will not beentitled to vote that New Preferred.

 

9

----

 

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

 

KGPis the Company subsidiary that owns (through a wholly owned subsidiary of KGP)the 50% 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 KGPreceives net after-tax proceeds from any cash distributions from Kaiser-Hillthat, on a quarterly basis, exceed 2.8 times the amount of cash required to payall past accrued but unpaid cash dividends on the New Preferred, plus the nextscheduled 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 New Preferred that is the subject of the KGP put rights, plusall accrued and unpaid dividends on the New Preferred. KGP will purchase sharesof New Preferred on a pro rata basis based upon the number of shares of NewPreferred as to which puts have been properly exercised, but only up to the amountof the available net after-tax proceeds from triggering events. KGP will notpurchase any fractional shares. KGP put rights will not become exercisable morefrequently than every 12 months unless the cumulative amount of available netafter-tax proceeds from triggering events is at least $3 million.  KGP put rights are transferable except thatputs shall cease to be transferable if KGP determines that any further transferwould require registration of the puts as a class of securities under theSecurities Exchange Act of 1934. The Company does not presently plan to arrangefor trading of the KGP put rights on the NASD electronic bulletin board orotherwise.

 

The Company from time to time has receiveddistributions from Kaiser-Hill that triggered the put rights — effectivelyrequiring the Company to redeem certain New Preferred.  In addition, the Company had certainrestricted cash balances available, which pursuant to the terms of its Plan ofReorganization are required to be used to redeem outstanding NewPreferred.  Rather than using themechanism of the put rights to satisfy the Company’s obligations to holders ofthe put rights after a trigger, the Company observed the requirements in thePlan of Reorganization to use certain restricted cash balances, and in theterms of the New Preferred, to use certain available cash, for preferredredemptions.  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.

 

As of August 10, 2005, the Company had redeemed the followingshares of New Preferred (in thousands except share amounts):

 

| **Date of  Redemption** | ** ** | **Use of  Unrestricted  Cash** | ** ** | **Use of  Reserve Fund  Cash** | ** ** | **Total  Amount of  Redemption** | ** ** | **Number of  Shares  Redeemed** | ** ** |
|-------------------------|------------|--------------------------------|------------|--------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
|                    |       |                           |       |                           |       |                             |       |                            |       |
| April 2005         |       | $                              | 10,000     |                           | $          | —                           |       | $                               | 10,000     |   | 181,818 |   |
| July 2004          |       | 2,478                          |       | 512                            |       | 2,990                            |       | 54,361                          |       |
| February 2004      |       | 2,599                          |       | 2,677                          |       | 5,276                            |       | 95,932                          |       |
| October 2003       |       | 4,650                          |       | 1,594                          |       | 6,244                            |       | 113,530                         |       |
| January 2003       |       | 5,233                          |       | 8,913                          |       | 14,146                           |       | 257,200                         |       |
|                         |            |                                |            |                                |            |                                  |            |                                 |            |  |  |  |

 

Theabove table does not reflect the September 19, 2005 scheduled redemptionof $5.5 million of New Preferred, or 100,000 shares.  The entire redemption will be funded throughthe use of unrestricted cash.

 

6.                                       Other Contingencies

 

The Company 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 the Company.  Additionally, the Company believes contingentliabilities may exist in the following areas:

 

Nova Hut

 

Although Old Kaiser soldits Metals Mining and Industry business unit in August 2000, it retainedits Netherlands subsidiary, Kaiser Netherlands, B.V., which had beenresponsible for a turnkey engineering and construction services contract forthe construction of a steel mini-mill in the Czech Republic for Nova Hut.  After construction of the mini-mill wascomplete in 2000, the contract with Nova Hut provided for a maximum of threepossible performance tests. The first performance test was

 

10

----

 

completed on November 13,2000. Kaiser Netherlands believes that the first performance test was successfuland that Nova Hut should have agreed to final acceptance of the mini-mill andmade final payment of amounts accrued by Kaiser Netherlands throughout theproject, including fee and retention amounts with release of performanceguarantee instruments.  Nova Hut,however, asserted that the first test was not successful. Kaiser Netherlandsbelieves that such contention may have been put forth in response to severefinancial constraints on Nova Hut’s operations resulting from weakeningconditions in the worldwide steel market and the significant amounts thatKaiser Netherlands believed it was contractually due.  As of August 1, 2005, this dispute hasnot been resolved, and Kaiser Netherlands has resorted to legal proceedings toenforce its rights.  Until recently, theprimary legal venue of this dispute has been the Delaware bankruptcy proceedingfor Old Kaiser, where the Company has asserted claims against Nova Hut and theInternational Finance Corporation (“IFC”). The Delaware bankruptcy court had previously ruled that the Company, asopposed to Kaiser Netherlands, could proceed with prosecution of its specificclaims against Nova Hut and IFC in the Delaware bankruptcy court venue.  Both Nova Hut and IFC appealed this rulingand, during the first quarter 2004, the Delaware bankruptcy court’s decisionregarding the IFC was overturned by the District Court, ruling that the IFCenjoys sovereign immunity from prosecution. Kaiser Holdings filed an appeal with the Third Circuit Court of Appealsregarding this decision in favor of the IFC and, on February 25, 2005, theThird Circuit overturned the District Court’s decision. The IFC’s request for arehearing of the case by the Third Circuit was refused.  The IFC then petitioned the Delawarebankruptcy court to stay proceedings pending completion of the Kaiser Netherlands-NovaHut arbitration proceeding discussed below. This IFC motion was granted.  With regard to the Nova Hut appeal, theDistrict Court has ruled that U.S. bankruptcy proceedings should also be stayedpending completion of arbitration proceedings.

 

In January 2004,Kaiser Netherlands filed arbitration claims against Nova Hut in the amount of$51.1 million with the International Chamber of Commerce (“ICC”).  In November 2004, Kaiser Netherlands’claim against Nova Hut was amended to include late interest and other chargesand now totals $67.5 million.  Thearbitration panel has been constituted, and the proceedings have beeninitiated.  The earliest possible datefor a final award ruling being issued is the last quarter of 2005.  Nova Hut has submitted a $49.7 millioncounterclaim against Kaiser Netherlands in these same ICC proceedings.

 

In December 2003,the ICC, under the dispute resolution provisions of the Nova Hut mini-millsubcontract between Kaiser Netherlands and the mini-mill’s main equipmentsupplier, Tippins, Inc., issued a final award that was on balancefavorable to Kaiser Netherlands.  As aresult of the ruling, Kaiser Netherlands was relieved of the obligation to payadditional retention to Tippins and Kaiser Netherlands was awarded a net cashsettlement of $2.6 million.  The Companyhas not recorded this award due to the uncertainties regardingcollectibility.  However, the Companyintends to vigorously pursue collection of this award.

 

The continued litigationof these disputes has had and will continue to have a negative impact on thecash flow of Kaiser Netherlands and Kaiser Holdings.

 

Thecomponents of “Contract receivable, net” consist entirely of the carrying valueof the net assets of the Nova Hut project. Based on the Company’s continuedconcern over Nova Hut’s financial difficulties and the lack of a settlementresulting from an earlier bankruptcy court-sponsored mediation in the fourthquarter of 2003, the Company further reduced the carrying value of theremaining Nova Hut contract receivable from $6.0 million to $3.0 million byrecording an additional reserve of $3.0 million, net of a $1.1 million incometax benefit, through a charge to “Loss from Discontinued Operations”.  This reserve is in addition to a reserverecorded in 2001, which reduced the carrying value of the Nova Hut contractreceivable from $21.6 million to $6.0 million by recording a reserve ofapproximately $9.8 million, net of a $5.8 million income tax benefit, through a charge to “Loss fromDiscontinued Operations”.  Theseadjustments to the contract receivable carrying value were determined based onthe Company’s late 2003 estimate of Nova Hut’s 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-Hillassumed responsibility on July 1, 1995 (pre-existing conditions). To theextent the acts or omissions of Kaiser-Hill constitute willful misconduct, lackof good faith, 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 contractfurther provides that Kaiser-Hill will be reimbursed for the reasonable cost ofbonds and insurance allocable to the Rocky Flats contract and for liabilitiesand expenses incidental to these liabilities, including litigation costs, tothird parties not compensated by insurance or otherwise. There is an exceptionto this 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.

 

11

----

 

The clean-up and closureof the DOE’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.  Significantsafety incidents at the site could stop or significantly impede the progress ofwork being performed at the site by Kaiser-Hill and its subcontractors.  The DOE contract contemplates that all, orsubstantially all, of the nuclear waste at Rocky Flats will be transported toother sites operated or managed by the DOE. In addition, objections have arisen from time to time with regard to thetransportation 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.

 

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 ongoing.  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

 

The former shareholders of ICT Spectrum Constructors, Inc. (ICTSpectrum), a company acquired by merger with a subsidiary of Kaiser GroupInternational, Inc. in 1998, are holders of equity interests under thePlan.  They claim to be entitled toadditional shares of New Common.  On January 20,2004, the United States Bankruptcy Court for the District of Delaware ruled infavor of the former shareholders of ICT Spectrum to the effect that the Companyshould issue to the former ICT Spectrum shareholders additional shares of NewCommon.  The Company requested theBankruptcy Court to reconsider its decision. The Bankruptcy Court refused to do so, and the Company filed an appealto the United States District Court for the District of Delaware.  On June 24, 2005, the District Courtaffirmed the Bankruptcy Court’s decision. The Company continues to believe that this result is inconsistent withthe Plan and has filed an appeal with the United States Court of Appeals forthe Third Circuit.  Under the Plan, anyadditional shares required to be issued to the former shareholders of ICTSpectrum are not required to be issued until the Bankruptcy Court’s orderbecomes final and is no longer subject to any pending or final appeal.

 

Should the Company be unsuccessful in its efforts to achieve reversalof the Bankruptcy Court’s ruling in favor of the former shareholders ICTSpectrum, the Company could be required to issue to former ICT Spectrumshareholders an additional 247,350 shares of New Common.  Under the terms of the Plan, it is possiblethat such issuance would require the issuance of yet additional shares toothers.  Thus, litigation relating to theclaim of the former ICT Spectrum shareholders could result in the issuance of asubstantial number of additional shares of New Common that could be expected tohave a materially dilutive effect on the value of shares of New Commonpresently outstanding.

 

The Company is presently exploring whether the claims of the former ICTSpectrum shareholders might be resolved amicably.  In that connection, the Company has agreednot to take further steps to implement its proposed 1-for-20 reverse stocksplit through September 5, 2005 or such later date as may be mutuallyagreed between the Company and representatives of the ICT Spectrumshareholders.

 

**I****TEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

***General Overview***

 

KaiserGroup Holdings, Inc. is a Delaware holding company formed on December 6,2000 for the purpose of owning all of the outstanding stock of Kaiser GroupInternational, Inc.  Kaiser GroupInternational, Inc. continues to own the stock of its remainingsubsidiaries.  On June 9, 2000,Kaiser Group International, Inc. 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).Kaiser Group International, Inc. emerged from bankruptcy with a confirmedPlan of Reorganization (the Second Amended Plan of Reorganization (the Plan))that was effective on December 18, 2000. In this document, we frequently use

 

12

----

 

theterms “we” and “Kaiser” to refer to Kaiser Group Holdings, Inc., KaiserGroup International, Inc. and other subsidiaries we own.

 

Underthe Plan, Kaiser Group International, Inc. sold some of its businesses andmade payments of cash and stock to various classes of creditors described inNote 2 to the Consolidated Financial Statements.  We now have only a limited number ofactivities, assets and liabilities, primarily consisting of the following:

 

**•**                  the ownership of a 50% interest inKaiser-Hill Company, LLC (Kaiser-Hill), which serves as the general contractorat the U.S. Department of Energy’s (DOE) Rocky Flats site near Denver,Colorado, for the performance of a contract for the closure of the site (theClosure Contract). See “Kaiser-Hill” below for additional information onKaiser-Hill.

**•**                  the closeout and resolution of acompleted contract for the engineering and construction of a steel mini-millfor Nova Hut in the Czech Republic (Nova Hut project).

**•**                  the holding of an interest-bearingpromissory note from ICF Consulting Group, Inc. (ICF Consulting), adivision 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. However, we have begun the necessary regulatory and legal process toenable our wholly-owned captive insurance company to offer derivative captiveinsurance services to third-party clients through a sponsored captivesubsidiary.

**•**                  an ongoing obligation to fund acapped, post-employment medical benefit plan for a fixed group of retirees.

**•**                  a new subsidiary, Kaiser Analytical ManagementServices, Inc. (KAMS), which we formed in April 2004 to takeover the operations of the Analytical Services Division of Kaiser-Hill Company,LLC.  KAMS provides analytical managementservices such as sample planning, sample management, records management,performance assessment and data management in the general areas of health andsafety, geotechnical, environmental and waste management, and deactivation anddecommissioning.

 

***Outlook***

 

*Potential**Kaiser-Hill Distributions and the Nova Hut Disputes*.  As we look forward, by far the mostsignificant factor in determining our financial results will be the performanceof Kaiser-Hill and its success in collecting the fee that may be due toKaiser-Hill from the DOE.  Although lesssignificant, another material uncertainty affecting our future results is theoutcome of the disputes we have in arbitration with Nova Hut.

 

The timing and level offuture distributions from Kaiser-Hill are subject to many uncertainties, but ifKaiser-Hill continues to perform in line with its current level of performanceand progresses closer to Kaiser-Hill’s target closure of the site in the fourthquarter of 2005 and that performance is recognized by the DOE, Kaiser-Hill’sfee payments from the DOE in respect of completion of the Closure Contractcould be at the upper ranges of the fee potential under that contract.  At those levels of fee payments, we couldreceive from Kaiser-Hill, during the period of 2005 through physical projectcompletion and the date Kaiser-Hill has been paid in full by DOE, cashdistributions in a range as high as $100 million to $125 million, and we couldreceive cash distributions as high as $50 million in 2005.  This is not to predict actual distributionsto us at these levels, but merely to outline what is possible in optimisticcase scenarios.  There are many risks anduncertainties that could prevent the receipt of this level of distributionsfrom Kaiser-Hill, and the timing of fee payments from the DOE to Kaiser-Hillthat would enable such distributions is also subject to manyuncertainties.  See “Risk FactorsRelating to Kaiser Holdings and Forward-Looking Statements.”

 

Apart from Kaiser-Hill,the principal uncertainty that will affect our performance is the outcome ofour disputes with Nova Hut.  As discussedelsewhere in this report, we have pending against Nova Hut an arbitrationbefore the International Chamber of Commerce. Our aggregate claims are for $67.5 million, and Nova Hut has assertedcounterclaims of $49.7 million.  It isnot possible to predict the outcome of these disputes, but we feel our claimsare stronger than Nova Hut’s.  Ourassessment could be wrong, but we are determined to see these disputes throughto conclusion because we believe we are entitled to a substantial positiverecovery.  The arbitration process is nowunderway.  At present, we do not expectto receive any recovery from Nova Hut until the first quarter of 2006 at theearliest.

 

*PossiblePreferred Stock Redemption. *Forthe three and six months ended June 30, 2005 we received $10.5 million and$21.0 million, respectively, in distributions from Kaiser-Hill which comparesfavorably to the three and six months ended June 30, 2004 distributions of$3.5 million and $7.0 million, respectively. We have no assurance that this level of distributions will continue in2005.  However, based on progress to datein Kaiser-Hill’s performance under its Closure Contract with the DOE and assuminga continuation of that performance, we estimate that overall distributions in2005 could be as high as $50.0 million and in that event enable us to redeemthe balance of our New Preferred in early 2006.

 

13

----

 

*ProposedReverse Split. *Our NewCommon is currently registered under the Securities Exchange Act of 1934(Exchange Act), and consequently we are subject to reporting obligations of theExchange Act.  In special meetings on March 31,2005 and June 20, 2005, the Board of Directors unanimously approved a 1-for-20reverse split of the Company’s New Common, with fractional shares receiving$33.00 per share.  If the Company proceeds to submit the proposed reversesplit, as approved by the Board of Directors, to the Company’s stockholders andit is approved and implemented, it is anticipated that the reverse split wouldreduce the number of record holders of New Common from approximately 1,180 toapproximately 220, which would allow the Company to terminate its reportingobligations under the Exchange Act and continue future operations as anon-reporting Company.  In that event theCompany would file a Form 15 with the Securities and Exchange Commission(Commission).  That filing would suspendour reporting obligations under the Exchange Act, meaning that we would nolonger have to file with the Commission certain reports and forms, includingForms 10-K, 10-Q, 8-K and proxy statements.

 

Proceedingwith the reverse split would require that we amend the Company’s Certificate ofIncorporation, which requires stockholder approval.  Following receipt of the June 24, 2005decision of the United States District Court for the District of Delaware,described in Note 6 of the Notes to the Consolidated Financial Statements, affirminga decision of the United States Bankruptcy Court for the District of Delawareto the effect that the Company is required to issue additional shares of NewCommon to former shareholders of ICT Spectrum Constructors, Inc. (ICTSpectrum) and perhaps others, the Company filed an appeal with the UnitedStates Court of Appeals for the Third Circuit and began to explore means bywhich the disputes with the former ICT Spectrum shareholders might beresolved.  There can be no assurance thatthese disputes will be resolved at all, or on a timely basis, other thanthrough normal legal processes.  Pendingthe results of ongoing dialogue with representatives of the former ICT Spectrumshareholders, the Company has agreed not to take further steps to implement thereverse stock split through September 5, 2005 or such later date as may bemutually agreed between the Company and representatives of the ICT Spectrumshareholders.

 

Prior to the parties’ agreement concerning deferral of theimplementation of the proposed reverse split referred to above, onMay 6, 2005 a motion for a stay of deregistration (ICT Spectrum Motion)was filed in the Delaware Bankruptcy Court by the former shareholders of ICTSpectrum.  The Company opposed thismotion, and by order dated June 2, 2005 the Bankruptcy Court denied theICT Spectrum Motion.  The former ICTSpectrum shareholders appealed from the Bankruptcy Court’s denial of the ICTSpectrum Motion.  In addition, on June 10,2005 the former ICT Spectrum shareholders filed with the United States DistrictCourt for the District of Delaware a request for emergency relief staying thederegistration process pending appeal. If the discussions with the former ICTSpectrum shareholders referred to above are not successful, the Company presentlyplans to continue to oppose both the appeal the District Court and the requestfor interim relief. However, the results of the discussions with the former ICTSpectrum shareholders or the results of legal proceedings related to the formerICT Spectrum shareholders could cause the Board of Directors to decide not toproceed with, or to further defer, the proposed reverse split andderegistration process.

 

*Corporateand Capital Structure*. In light of our history and current activities, our corporate and capitalstructures are not as tax-efficient as we would like.  We have evaluated from time to time both thepossible refinancing of our New Preferred and possible changes to our corporateand tax structure.  Because oflimitations on our ability to borrow and our view that we may be able to redeemthe majority of the outstanding New Preferred by the end of 2005, we do notpresently plan to attempt to refinance the New Preferred.  Similarly, because of tax law requirements,limitations in the New Preferred as to how we use available cash, and thenature of our shareholder base, we have not identified an alternative to ourcurrent corporate and tax structure that we believe is practical toeffect.  As a result, we do not presentlyplan to attempt to effect changes to that structure.

 

***Critical Accounting Policies and Significant Estimates***

 

The preparation of financialstatements in conformity with U.S. generally accepted accounting principlesrequires that we make estimates and assumptions affecting the assets andliabilities (including contingent assets and liabilities) reported at the dateof the Consolidated Financial Statements and the income statement amountsreported for the periods presented.  Webase our estimates on historical experience and on various other assumptionsthat we believe to be reasonable under the circumstances.  Actual results may differ from theseestimates under different assumptions or conditions.

 

Our accountingmeasurements that are most affected by our estimates of future events are:

 

**•**                  Recoverability of accountsreceivable, a contract receivable, notes receivable and accrued interest, andinvestments.

**•**                  Income tax provision, deferred taxassets and liabilities.

**•**                  Useof the equity method of accounting for Kaiser-Hill, an affiliate that we havethe ability to significantly influence but not control.  In accordance with the equity method ofaccounting, we record our proportionate share

 

14

----

 

of the affiliate’s income or losses.  The difference between the carrying value ofthe joint venture investment and our underlying equity is amortized on astraight-line basis over the term of the joint venture investment, estimated atsix years.

**•**                  Estimated fees on the Kaiser-Hilljoint venture.  Estimating future costsand, therefore, revenues and profits, is a process requiring a high degree ofjudgment, including assumptions regarding future operations of Kaiser-Hill aswell as general economic conditions.  Inthe event of a change in total estimated contract cost or profit, thecumulative effect of such change is recorded in the period the change inestimate occurs.  Revenue recognition andour profitability from the Kaiser-Hill contract may be adversely affected tothe extent that estimated cost to complete or incentive or award fee estimatesare revised, delivery schedules are delayed, or progress under the contract isotherwise impeded.  Accordingly, ourrecorded revenues and gross profits from year to year can fluctuatesignificantly.  The Kaiser-Hill contractcontains incentive provisions for increased or decreased revenue and profitbased on actual performance against established cost targets andschedule-related goals.  Incentive feesare included in estimated contract revenue at the time the amounts can bereasonably determined and are reasonably assured based on historical experienceand other objective criteria.  ShouldKaiser-Hill fail to perform satisfactorily under its contract, previouslyrecognized revenues could be reversed and/or future period revenues could bereduced.

**•**                  Our liability inconnection with a post-employment medical benefit plan for a fixed group ofretirees.  This liability is affected bychanges in the discount rate, medical cost trend rates and certain actuarialassumptions.  Should actual rates andresults differ from the assumptions used, revisions to the liability would berequired resulting in additional income statement charges.

 

**New Accounting Standards**

 

In May 2005,the Financial Accounting Standards Board (FASB) issued Statement of FinancialAccounting Standard (SFAS) No. 154, “Accounting Changes and ErrorCorrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 addresses the requirements for the accounting for andreporting of a change in accounting principle.  This statement requiresretrospective application to prior periods’ financial statements of changes inaccounting principle, unless it is impractical to determine with theperiod-specific effects or cumulative effect of the change.  We will adoptSFAS 154 on January 1, 2006, and management does not expect that it willhave an impact on the consolidated financial statements.

 

**RESULTS OF OPERATIONS**

 

*Equity Income In Earnings of Affiliate*

 

Our major remainingsource of income is a 50% ownership in Kaiser-Hill.  The financial information contained hereinfor Kaiser-Hill is reflected on the equity basis.

 

*Closure Contract Provisions for Revenue and PerformanceAward*

 

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.  On March 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. As of June 30, 2005, Kaiser-Hill’s cost estimate to completethe project is $3.45 billion, with an estimated closure date in the fourthquarter of 2005, resulting in a potential fee at the upper ranges of therecently modified fee. As of June 30, 2005, Kaiser-Hill has recognized asrevenue in excess of $300.0 million of this fee.

 

As Kaiser-Hill nearsclosure of the site, many of the performance risks are diminishing, butcontract risks and uncertainties remain.  When Kaiser-Hill is successfulin mitigating or eliminating these contract risks and uncertainties,Kaiser-Hill will recognize a significant amount of the remaining fee, whichcould be as early as the third quarter of 2005. After the closure of the site,we anticipate that some risks and uncertainties will remain.  Any remaining fee will be recognized asrevenue as remaining contract risks and uncertainties are eliminated orsufficiently mitigated.

 

15

----

 

For the three and six monthsended June 30, 2005, the Company recorded its 50% equity in Kaiser-Hill’sincome, recognizing $4.1 million and $8.3 million, respectively, a nominaldecrease of $0.2 million and $0.3 million over the three and six month periodsended June 30, 2004, respectively. This nominal difference is indicative of Kaiser-Hill’s consistency inestimated costs and dates of completion of the Closure Contract during bothquarters.

 

*Closure Contract Billing Provisions*

 

****Sincethe inception of the Closure Contract in February 2000 through June 30,2005, Kaiser-Hill has invoiced DOE for the performance fee based on thecontract provisions, and has collected an aggregate of $203.2 million in feesfrom the DOE****.

 

Fee payments made by DOEto Kaiser-Hill, less certain non-reimbursable costs, will continue to bedistributed to the joint venture owners upon receipt.  Kaiser-Hill has historically incurredexpenses that are not reimbursable by the DOE pursuant to applicable Federalregulations.  Accordingly, such expenses,which Kaiser-Hill estimates could approximate up to 15% - 20% of the totalaward fee, are deducted from the total fee earned and collected by Kaiser-Hillprior to any distributions to either of its two owners.  Since inception of the Closure Contractthrough June 30, 2005, Kaiser-Hill has distributed $85.1 million to eachof its two owners.  Kaiser-Hill has indicated that it is possiblethat its performance fee invoices in 2005 to DOE could total in excess of$100.0 million and yield total distributions in 2005 to each of its two ownersas high as $50.0 million.

 

As Kaiser-Hill continuesto accrue performance fees based on its currently projected total, lessreserves deemed appropriate in the circumstances, and remains subject to a 50%retainage holdback on its performance fee invoicing, the level of unbilledaccounts receivable on its balance sheet will continue to increase.  Kaiser-Hill classifies the difference betweenrecorded performance fees and the collected fees as long-term unbilled accountsreceivable on its balance sheet, which is included as a component of Investmentin Affiliate on the Company’s balance sheet. The Closure Contract also contains provisions for DOE to releaseportions of the retainage holdback prior to contract completion if the DOEdeems appropriate.  As of August 11,2005, the DOE has released approximately $25.0 million of retainageholdback.  Kaiser-Hill is not able toestimate whether any additional of the retainage holdback will be releasedprior to contract completion.

 

In both of the three andsix month periods ended June 30, 2005 and 2004, the equity income inearnings of affiliate is net of $0.9 million and $1.8 million of amortizationof the excess of our carrying value of our investment in Kaiser-Hill over ourownership percentage of the underlying Kaiser-Hill equity.  As part of our adoption of Fresh-Startreporting as of December 31, 2000, we increased the carrying value of thisinvestment by $21.1 million and we have been amortizing that difference over anestimated life of the Kaiser-Hill investment of approximately 6 years.  At June 30, 2005, $5.3 million of thedifference remains unamortized.  At thepoint that Kaiser-Hill declares physical completion of the site and the DOEacknowledges the physical completion, we will review our amortizationmethodology for the unamortized difference of the investment.

 

*AdministrativeExpenses*

 

Administrativeexpenses for the three and six months ended June 30, 2005 were $1.4million and $2.6 million, respectively, a decrease of $0.4 million and $0.5million, respectively, compared to the three and six months ended June 30,2004.  The decrease in administrativeexpenses is due to decreases in payroll, legal and general administrativeexpenses.  In September 2004,management made a series of personnel cuts to further reduce administrativeexpenses.

 

Ourcost to provide certain post-employment medical****benefits to a capped group of retirees is also treated as anadministrative expense.  In the three andsix month periods ended June 30, 2005, the expense related to this planwas $0.2 million and $0.5 million, respectively, compared to $0.3 million and$0.5 million for the three and six month periods ended June 30, 2004,respectively.

 

*Reserve for Settlement of Class 4 Claims*

 

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

 

*Interest Income*

 

Interestincome for the three and six months ended June 30, 2005 was $0.2 millionand $0.4 million, respectively, which results in no change compared to thethree months ended June 30, 2004 and an increase of $0.1 million comparedwith the six months ended June 30, 2004.  The increase is primarily due to the fluctuationin the average cash balances.

 

*InterestExpense*

 

As a result of theadoption of FAS 150 effective July 1, 2003 and the classification of the Series 1 Redeemable Cumulative

 

16

----

 

PreferredStock (New Preferred) as a liability, preferred stock dividends havebeen shown as interest expense. Interestexpense for the three and six months ended June 30, 2005 was $0.3 millionand $0.8 million, respectively, compared to interest expense for the three andsix month periods ended June 30, 2004 of $0.5 million and $1.1 million,respectively.  The decrease in interestexpense is due to total redemptions of preferred stock since June 30, 2004of $13.0 million.

 

*Income Tax Expense*

 

Werecorded an income tax expense of $1.2 million and $2.6 million, respectively,on operating income from continuing operations of $2.7 million and $5.7million, respectively, during the three and six months ended June 30, 2005.  Our effective income tax rate of 46% and 45%for the three and six months ended June 30, 2005, respectively, isreflective of the non-deductibility of certain expenditures, primarily interestexpense on the New Preferred, for federal income tax purposes.  For the three and six months ended June 30,2004, we recorded an income tax expense of $1.0 million and $1.7 million,respectively,  on operating income fromcontinuing operations of $2.1 million and $3.4 million, respectively.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

*Operating Activities*

 

Weused $5.9 million of cash during the six months ended June 30, 2005compared to $6.4 million for the six months ended June 30, 2004.  The $0.5 million decrease in the use of cashfor the six months June 30, 2005 compared to the six months ended June 30,2004 was primarily due to a decrease of $0.5 million in administrative expensesin 2005 compared to 2004.

 

*Investing Activities*

 

Wereceived $21.0 million in distributions from Kaiser-Hill during the six months endedJune 30, 2005 compared to $6.9 million for the six months ended June 30,2004.  The increase of Kaiser-Hill cashdistributions is a result of the continued favorable progress in itsperformance and the DOE’s recognition of that progress.

 

*Financing Activities*

 

Duringthe six months ended June 30, 2005, we used unrestricted cash to redeem $10.0million liquidation preference of our preferred stock.  During the six months ended June 30,2004, we redeemed $5.3 million liquidation preference of our preferred stock.  Pursuant to the terms of the Plan ofReorganization, the Company used $2.6 million in excess restricted cash inaddition to $2.7 million of unrestricted cash to fund this redemption.

 

*Liquidity and Capital Resource Outlook*

 

We currently have no debtas a result of the effectiveness of the Plan of Reorganization. However, as aresult of the adoption of FAS 150 effective July 1, 2003, and due to themandatorily redeemable provisions of the New Preferred, the New Preferred hasbeen shown as a long term liability.  Wehave financed the initial bankruptcy distribution requirements and follow-onworking capital needs in part through the use of the available cash anddistributions from Kaiser-Hill and from other asset sale proceeds. Based on (i) currentexpectations for operating activities and results, (ii) expectedKaiser-Hill distributions, (iii) our current available cash position, (iv) recenttrends and projections in liquidity and capital needs, and (v) currentexpectations of total allowed claims upon the completion of the bankruptcyproceedings, management believes we have sufficient liquidity to cover therequired cash distributions resulting from the resolution of claims in thebankruptcy process, our future operating needs and income tax requirements, aswell as the dividend or interest requirements applicable to the our preferredstock.  Furthermore, as allowed Class 4claims are resolved, we will continue to review the timing of additionalpartial preferred stock redemptions.

 

Wehave obligations to pay dividends on outstanding New Preferred at June 30,2005.  Accordingly, we are required topresent the following table assuming that no preferred stock redemptions aremade until the mandatory redemption date of December 31, 2007, noadditional shares are issued and that all future dividends are paid in cash(irrespective of this disclosure requirement, we are not representingintentions with regard to the timing of New Preferred redemptions).  The effect these obligations are expected to haveon our liquidity and cash flow in future periods are as follows:

 
| ** **                | ** ** | **Total** | ** ** | **Less Than  One  Year** | ** ** | **One to  Three  Years** | ** ** | **After  Three  Years** | ** ** |
|---------------------------|------------|-----------|------------|--------------------------|------------|--------------------------|------------|-------------------------|------------|
| Preferred Stock dividends |       | $         | 2,959      |                     | $          | 1,184                    |       | $                       | 1,775      |   | — |   |
|                           |            |           |            |                          |            |                          |            |                         |            |  |  |  |

 

Theabove table does not reflect the September 19, 2005 scheduledredemption of $5.5 million of New Preferred, or 100,000

 

17

----

 

shares.  The redemption of 100,000 shares will reduceour annual dividend requirement by $0.4 million.

 

*Other Matters*

 

Wehave various obligations and liabilities from our continuing operations,including general overhead expenses in connection with maintaining, operatingand winding down the various entities. Additionally, we believe contingent liabilities may exist in the areasdescribed in Note 6 to the Consolidated Financial Statements.

 

**RISK FACTORS RELATING TO KAISERHOLDINGS AND**

**FORWARD-LOOKING STATEMENTS**

 

This Quarterly Report on Form 10-Qcontains, and our periodic filings with the Securities and Exchange Commissionand written or oral statements made by ourofficers and directors to press, potential investors, securities analysts andothers, may contain forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933 and Section 21E of the Securities ExchangeAct of 1934.  These forward-looking statementsare not historical facts, but rather are predictions and generally can beidentified by use of statements that include phrases such as “believe,” “expect,”“anticipate,” “estimate,” “intend,” “plan,” “foresee” or other words or phrasesof similar import.  Similarly, statementsthat describe or contain informationrelated to matters such as our intent, belief, or expectation with respect tofinancial performance, claims resolution, cash availability, stock redemptionplans, contract awards and performance, potential acquisitions and jointventures, and cost-cutting measures are forward-looking statements. Theseforward-looking statements often reflect a number of assumptions and involveknown and unknown risks, uncertainties and other factors that could cause ouractual results to differ materially from those currently anticipated in theseforward-looking statements.  In light ofthese risks and uncertainties, including those described below, theforward-looking events might or might not occur.

 

**Our remaining primary source offunding is from Kaiser-Hill distributions, which are subject to uncertaintiesthat may adversely impact our ability to meet our obligations on our preferredstock and the potential value of our common stock.**

 

*The fee income we anticipate receiving in the futurefrom Kaiser-Hill is dependent upon the ability of Kaiser-Hill to close theRocky Flats site at a predetermined targeted cost of between $3.1 billion and$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 is largely dependent on the performance ofKaiser-Hill under its contract with the Department of Energy.  Kaiser-Hill serves as the general contractorat the Rocky Flats site near Denver, Colorado, a former nuclear weaponsproduction facility.  Kaiser-Hill’scontract with the Department of Energy includes a performance fee based upon acombination of the actual costs incurred to complete the site closure and theactual date of completion of the closure. Although unanticipated, if Kaiser-Hill fails to complete the closurewithin the target cost for the project, Kaiser-Hill’s fee will be reduced to alevel significantly less than the fee estimate currently being used torecognize income on the project.

 

Kaiser-Hill has historically incurred expenses that are notreimbursable by the Department of Energy pursuant to federal regulations.  Accordingly such expenses, which Kaiser-Hillestimates could approximate up to 15% - 20% of the total award fee, will bededucted from the total fee prior to any distributions to its two owners. Forreasons similar to those described in the following paragraph, it is difficultto estimate either the amount of net fee to be distributed to the owners ofKaiser-Hill and or the effect, if any, that such unreimbursable costs wouldhave on our future cash flows.  Adecrease in our cash flows could result in a decrease in the value of ourcommon and preferred stock.

 

*There are substantial performance risks associated withKaiser-Hill’s work at the Rocky Flats site. The performance risks may impact the timing and cost of closing thesite, which in turn could impact our fee income from Kaiser-Hill.*

 

The clean-up and closure of the Departmentof Energy’s Rocky Flats site involvesubstantial performance risks.  Amongother things, Kaiser-Hill’s activities at the Rocky Flats site involve theclean-up, packaging and transportation of nuclear waste, and the demolition anddestruction of facilities where nuclear weapons components were previouslyproduced.  Some of these activities havenot been previously performed elsewhere, and therefore require the developmentof innovative and untested approaches. Kaiser-Hill emphasizes safety in its performance, but the nature of theRocky Flats site and the activities of Kaiser-Hill and its subcontractors atthe site are such that serious injuries, or even deaths, are possible.  Significant safety incidents at the sitecould stop or significantly impede the progress of work being performed at thesite by Kaiser-Hill and its subcontractors. The Department of Energycontract contemplates that all, or substantially all, of the nuclear waste atRocky Flats will be transported to other sites operated or managed by the Departmentof Energy. In addition, third-party objections have arisen from time to time withregard to the transportation to, and storage of nuclear waste at, certain sitespreviously

 

18

----

 

designated by the Department of Energy to receivewaste from Rocky Flats.  Although theDepartment of Energy contract contemplates that the Department of Energy isresponsible for providing transportation and storage sites for nuclear wastefrom Rocky Flats, an inability to store nuclear waste at other Department ofEnergy sites would pose a substantial risk to the timely closure of the RockyFlats site, and could interfere with Kaiser-Hill’s ability to earn the fees towhich Kaiser-Hill believes it should be entitled.  This loss of fee income could adverselyaffect our operating results, which could in turn result in a decreasein the value of our common and preferred stock.

 

*There are potential substantial liabilities and costsassociated with Kaiser-Hill’s Department of Energy contract, which may directlyand indirectly impact our fee income from Kaiser-Hill.*

 

Under the Department of Energy contract,Kaiser-Hill is responsible for, and the Department of Energy will not pay forcosts associated with, liabilities caused by the willful misconduct or lack ofgood faith of Kaiser-Hill’s managerial personnel or the failure to exerciseprudent business judgment by Kaiser-Hill’s managerial personnel. If Kaiser-Hillwere found liable for any of these reasons, the associated costs could besubstantial, which could have an adverse effect on our operating results. Adecrease in our operating results could cause a decrease in the value of ourcommon and preferred stock.

 

*There are risks associated with potential disputesas to the completion of the closure of the Rocky Flats site and the timing andaward of fee payments to Kaiser Hill.*

 

When Kaiser-Hill completes its activities at the Rocky Flats site, itis possible that there will be disputes as to whether Kaiser-Hill has satisfiedits obligations as to the closure of the site. Such disputes could delay or reduce the payment of fees due toKaiser-Hill.  In addition, the timing andamount of payments to Kaiser-Hill could be affected by delays by the Departmentof Energy or other authorities, limitations in processing payments,Congressional or Department of Energy or funding of the Rocky Flats project, ordispute related to the overall U.S. Federal budget or funding of the Departmentof Energy.

 

**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 significant business plan beyondKaiser-Hill and we may undertake new activities with start-up risks.*

 

Our long-term future profitability will bedependent, to a significant extent, on the extent to which we carry outactivities other than through Kaiser-Hill. Unless and until we further developplans for such operations, we are unable to determine either the amount of riskthat future operations will involve or whether we have the ability to realizelong-term profitability. In considering whether we should attempt to develop anew revenue base, we have established a new subsidiary to attempt to takeadvantage of our successful history of performance in the government servicesmarket and the commencement of the process to enable our wholly-owned captiveinsurance company to offer derivative captive insurance services.  Our efforts to develop a revenue baseseparate from Kaiser-Hill involve start-up activities with risks peculiar toactivities of this type, which may adversely impact our cash flow and operatingresults. A decrease in our cash flows and operating results could resultin a decrease in the value of our common and preferred stock.

 

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

 

Given the reorganization history of Kaiser GroupHoldings, Inc., we may not be able to obtain satisfactory contractperformance guaranty mechanisms, such as performance bonds and letters ofcredit, at all or on satisfactory terms, to the extent such mechanisms areneeded for new activities and projects. These factors could limit the nature of the business activities in whichwe can engage, which may adversely impact our cash flow and operating results andresult in a decrease in the value of our common and preferred stock.

 

*We may be unable to generate funds to meet ourobligations and we may be unable to access additional capital.*

 

We may be unable to continue to generatesufficient funds to meet our obligations, notwithstanding the significantimprovements in our operations and financial condition.  Although we believe that we will be able togenerate sufficient funds to meet our working capital needs for the foreseeablefuture, our ability to gain access to additional capital, if needed, is notcertain. Due to reorganization history of Kaiser Group Holdings, Inc. andcurrent financial markets, it is difficult to predict whether additionalcapital would be available to us in the event that we were unable to generatefunds to meet our obligations.  Aninability to gain access to additional capital may also limit our ability toundertake new activities.  Ultimately, aninability to meet our existing obligations or to undertake new activities couldadversely 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.

 

19

----

 

*We may have to issue a substantialnumber of additional common shares.*

 

The former shareholders of ICT Spectrum Constructors, Inc. (ICTSpectrum), a company acquired by merger with a subsidiary of Kaiser GroupInternational, Inc. in 1998, are holders of equity interests under thePlan.  They claim to be entitled toadditional shares of New Common.  On January 20,2004, the United States Bankruptcy Court for the District of Delaware ruled infavor of the former shareholders of ICT Spectrum to the effect that the Companyshould issue to the former ICT Spectrum shareholders additional shares of NewCommon.  The Company requested the BankruptcyCourt to reconsider its decision.  TheBankruptcy Court refused to do so, and the Company filed an appeal to theUnited States District Court for the District of Delaware.  On June 24, 2005, the District Courtaffirmed the Bankruptcy Court’s decision. The Company continues to believe that this result is inconsistent withthe Plan and has filed an appeal with the United States Court of Appeals forthe Third Circuit.  Under the Plan, anyadditional shares required to be issued to the former shareholders of ICTSpectrum are not required to be issued until the Bankruptcy Court’s orderbecomes final and is no longer subject to any pending or final appeal.

 

Should the Company be unsuccessful in its efforts to achieve reversalof the Bankruptcy Court’s ruling in favor of the former shareholders ICTSpectrum, the Company could be required to issue to former ICT Spectrumshareholders an additional 247,350 shares of New Common.  Under the terms of the Plan, it is possiblethat such issuance would require the issuance of yet additional shares to others.  Thus, litigation relating to the claim of theformer ICT Spectrum shareholders could result in the issuance of a substantialnumber of additional shares of New Common that could be expected to have amaterially dilutive effect on the value of shares of New Common presentlyoutstanding.

 

The Company is presently exploring whether the claims of the former ICTSpectrum shareholders might be resolved amicably.  In that connection, the Company has agreednot to take further steps to implement its proposed 1-for-20 reverse stocksplit through September 5, 2005 or such later date as may be mutuallyagreed between the Company and representatives of the ICT Spectrumshareholders.

 

*In the event of a change of control,we may not have the financial resources to redeem preferred stock.*

 

Our preferred stock is redeemable at the option of theholder upon a change of control as defined in the terms of the preferredstock.  We are not presently aware of anyevents that would cause a change of control. However, based on a Report on Form 4 dated June 3, 2005, whichwas filed with the Securities and Exchange Commission by Tennenbaum &Co., LLC on June 8, 2005, we believe that Tennenbaum & Co., LLCand Michael E. Tennenbaum together own approximately 46.7% of our common stock.  The terms of our preferred stock provide thata change of control occurs when, among other things, a person or “group”(within the meaning of Section 13(d)(3) of the Securities ExchangeAct of 1934) directly or indirectly acquires “beneficial ownership” (as definedin Rule 13d-3 under the Securities Exchange Act of 1934) of more than 50%of all classes of our common equity (defined in the terms of our preferredstock as capital stock entitled to vote in 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 to additional capitalfrom 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.   QUANTITATIVEAND QUALITATIVE INFORMATION ABOUT MARKET RISK**

 

Wedo not believe 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 in the averageannual prime rate would result in a decrease in the carrying value of the planobligation but would not change the actual cost of the plan.

 

**ITEM 4.  CONTROLS ANDPROCEDURES**

 

Asof June 30, 2005, an evaluation was performed under the supervision andwith the participation of the Company’s management, including the ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of thedesign and operation of the Company’s disclosure controls and procedures (asdefined in Rule 13a-15(e) or 15d-15(e) under the ExchangeAct).  Based on that evaluation, theCompany’s management, including the Chief Executive Officer and Chief FinancialOfficer, concluded that the Company’s disclosure controls and procedures wereeffective as of June 30, 2005. There were no significant changes in the Company’s internal control overfinancial reporting (as defined in Rule 13a-15(f) or 15d–15(f) underthe Exchange Act) that occurred during the period covered by this report thathave materially affected, or that are reasonably likely to materially affect,our internal control over financial reporting.

 

20

----

 

**PART II - OTHER INFORMATION**

 

**ITEM 1.  LEGALPROCEEDINGS**

 

Aspreviously reported in the Annual Report on Form 10-K for the year ended December 31,2004 and Note 6 of the Notes to Consolidated Financial Statements included in Part Ihereof.

 

**ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS**

 

(a) None

(b) None

(c) None

 

**ITEM 3.  DEFAULTS UPONSENIOR SECURITIES**

 

(a) None

(b) None

 

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

 

Notapplicable

 

**ITEM 5.  OTHERINFORMATION**

 

(a) None

(b) None

 

**ITEM 6.  EXHIBITS**

 

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

 

2(a) SecondAmended Plan of Reorganization (Incorporated by reference to Exhibit 2 toCurrent Report on Form 8-K (RegistrantNo. 1-12248) filed with the Commission on December 14, 2000)

 

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

 

3(a)  Certificate ofIncorporation of Kaiser Group Holdings, Inc. (Incorporated by reference toExhibit 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 ofKaiser Group Holdings, Inc. (Incorporated by reference to Exhibit 3(ii) toCurrent Report on Form 8-K (Registrant No. 1-12248) filed with theCommission on December 14, 2000)

 

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

 

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

 

**Exhibit No. 10 — Material Contracts**

 

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

 

1.  Amendment No. 1with the effective date of January 1, 1998 (Incorporated by reference to Exhibit No. 10(b)(1) toAnnual Report on Form 10-K (Registrant No. 1-12248) filed with theCommission on April 17, 2000)

 

2.  Amendment No. 2 with the effective dateof January 1, 1996  (Incorporated by reference to Exhibit No. 10(b)(2) toAnnual Report on Form 10-K (Registrant No. 1-12248) filed with theCommission on April 17, 2000)

 

21

----

 

3.  Amendment No. 3dated April 19, 1999.  (Incorporatedby reference to Exhibit No. 10(b)(3) to Annual Report on Form 10-K(Registrant No. 1-12248) filed with the Commission on April 17, 2000)

 

4.  Amendment No. 4dated June 25, 1999. (Incorporated by reference to Exhibit No. 10(b)(4) toAnnual Report on Form 10-K (Registrant No. 1-12248) filed with theCommission on April 17, 2000)

 

10(b) TrustAgreement 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 RegistrationStatement on Form S-1 (Registrant No. 33-64655) filed with theCommission on November 30, 1995)

 

10(c) ICF KaiserInternational, Inc. Retirement Plan (as amended and restated as of March 1,1993) (and further amended with respect to name change only as of June 26,1993) (Incorporated by reference to Exhibit No. 10(d) toQuarterly 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 April 24,1995 (Incorporated by reference to Exhibit No. 10(d)(1) toAnnual Report on Form 10-K (Registrant No. 1- 12248) filed with theCommission on May 23, 1995)

 

2.  Amendment No. 2dated December 15, 1995 (Incorporated by reference to Exhibit No. 10(d)(2) toTransition Report on Form 10-K (Registrant No. 1-12248) for thetransition period from March 1, 1995 to December 31, 1995 filed withthe Commission on March 29, 1996)

 

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

 

4.  Amendment No. 4dated April 19, 1999 (Incorporated by reference to Exhibit No. 10(d)(4) toAnnual Report on Form 10-K (Registrant No. 1-12248) filed with theCommission on April 17, 2000)

 

5.  Amendment No. 5dated June 25, 1999 (Incorporated by reference to Exhibit No. 10(d)(5) toAnnual Report on Form 10-K (Registrant No. 1-12248) filed with theCommission on April 17, 2000)

 

6.  Amendment No. 6dated August 30, 1999 (Incorporated by reference to Exhibit No. 10(d)(6) toAnnual Report on Form 10-K (Registrant No. 1-12248) filed with theCommission 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 onForm 10-Q (Registrant No. 1-12248) for the second quarter of fiscal2000 filed with the Commission on September 6, 2000)

 

9.  Amendment No. 9 dated June 19, 2003(Incorporated by reference to Exhibit 10(c)(9) to Quarterly Report onForm 10-Q (Registrant No. 1-12248) for the second quarter of fiscal2003 filed with the Commission on August 14, 2003)

 

10.  Amendment No. 10 dated March 17,2004 (Incorporated by reference to Exhibit 10(c)(10) to QuarterlyReport on Form 10-Q (Registrant No. 1-12248) for the first quarter offiscal 2004 filed with the Commission on May 24, 2004)

 

10(d) TrustAgreement 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 KaiserInternational, Inc. Section 401(k) Plan (as amended and restated asof March 1, 1993) (and further amended with respect to name change only asof June 26, 1993) (Incorporated by reference to Exhibit No. 10(f) toQuarterly 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. 1dated April 24, 1995 (Incorporated by reference to Exhibit No. 10(p)(1) toAnnual Report on Form 10-K (Registrant No. 1-12248) for fiscal 1995filed with the Commission on May 23, 1995)

 

2.  Amendment No. 2 dated December 15,1995 (Incorporated by reference to Exhibit No. 10(p)(2) toTransition Report on Form 10-K (Registrant No. 1-12248) for thetransition period from March 1, 1995 to December 31, 1995 filed withthe Commission on March 29, 1996)

 

22

----

 

3.  Amendment No. 3dated December 13, 1996 (Incorporated by reference to Exhibit No. 10(q)(3) toRegistration Statement on Form S-1 (Registrant No. 333-19519) filedwith the Commission on January 10, 1997)

 

4.  Amendment No. 4dated April 8, 1999 (Incorporated by reference to Exhibit No. 10(k)(4) toAnnual Report on Form 10-K (Registrant No. 1-12248) filed with theCommission on April 17, 2000)

 

5.  Amendment No. 5dated June 25, 1999 (Incorporated by reference to Exhibit No. 10(k)(5) toAnnual Report on Form 10-K (Registrant No. 1-12248) filed with theCommission on April 17, 2000)

 

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

 

7.  Amendment dated January 1, 2001(Incorporated by reference to Exhibit No. 10(m)(7) to AnnualReport on Form 10-K (Registrant No. 1-2248) filed with the Commissionon March 30, 2001)

 

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

 

9.  Amendment No. 9 dated June 19, 2003(Incorporated by reference to Exhibit 10(e)(9) to Quarterly Report onForm 10-Q (Registrant No. 1-12248) for the second quarter of fiscal2003 filed with the Commission on August 14, 2003)

 

10.  Amendment No. 10 dated March 17,2004 (Incorporated by reference to Exhibit 10(e)(10) to QuarterlyReport on Form 10-Q (Registrant No. 1-12248) for the first quarter offiscal 2004 filed with the Commission on May 24, 2004)

 

11.  Amendment No. 11 dated November 11,2004 (Incorporated by reference to Exhibit 10(e)(11) to Quarterly Reporton Form 10-Q (Registrant No. 1-12248) for the third quarter of fiscal2004 filed with the Commission on November 15, 2004)

 

10(f) TrustAgreement with Vanguard Fiduciary Trust Company dated as of March 1, 1989,for the ICF Kaiser International, Inc. Section 401(k) Plan(Incorporated by reference to Exhibit No. 28(b) to RegistrationStatement on Form S-8 (Registrant No. 33-51460) filed with theCommission on August 31, 1992)

 

10(g) Contractbetween Kaiser-Hill Company, LLC and the U.S. Department of Energy dated January 24,2000 (Incorporated by reference to Exhibit No. 10(o) to Annual Reporton Form 10-K (Registrant No. 1-12248) filed with the Commission on 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 ofMembership Interest in Hunters Branch Leasing, LLC by and between Kaiser HoldingsUnlimited, Inc. (Assignor) and NutleyPartners, LC (Assignee), dated January 1, 2001 (Incorporated byreference to Exhibit No. 10(r) to Annual Report on Form 10-K(Registrant No. 1-12248) filed with the Commission on April 2, 2001)

 

10(i) Subcontractbetween The S.M. Stoller Corporation and Kaiser Group Holdings, Inc. datedSeptember 30, 2004 (Incorporated by reference to Exhibit No. 10(i) toQuarterly Report on Form 10-Q (Registrant No. 1-12248) for the secondquarter of fiscal 2004 filed with the Commission on August 13, 2004)

 

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

 

10(j) Kaiser GroupHoldings, Inc. 2002 Equity Compensation Plan, as amended (Incorporated byreference to Exhibit No. 10 to Registration Statement on Form S-8(Registration No. 333-107912) filed with the Commission on August 13,2003)

 

10(k) Amended andRestated Employment Agreement with John T. Grigsby, Jr., President andChief Executive Officer, effective as of December 19, 2000 (Incorporatedby reference to Exhibit No. 10(m) to Registration Statement on Form S-4(Registrant No. 333-100640) filed with the Commission on October 18,2002)

 

10(l) TransitionAgreement between Kaiser Group Holdings, Inc. and John T. Grigsby, Jr.effective as of August 31, 2004 (Incorporated by reference to Exhibit 99to Current Report on Form 8-K (Registration No. 1-12248) filed withthe Commission on September 1, 2004)

 

23

----

 

**Exhibit 14 — Corporate Code of Conduct**

 

14(a) Kaiser Group Holdings, Inc. Corporate Code of Conduct (Incorporated byreference to Exhibit 14.1 to Current Report on Form 8-K(Registrant No. 1-12248) filed with the Commission on January 13,2004)

 

**Exhibit No. 21 — Consolidated Subsidiaries of the Registrantas of August 1, 2005**

 

**Exhibit No. 31.1 — Certification of the Principal ExecutiveOfficer**

 

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

 

**Exhibit No. 31.2 — Certification of the Principal FinancialOfficer**

 

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

 

**Exhibit No. 32.1 — Certification of the Principal ExecutiveOfficer**

 

Pursuant to 18 U.S.C. Section 1350

 

**Exhibit No. 32.2 — Certification of the Principal FinancialOfficer**

 

Pursuant to 18 U.S.C. Section 1350

 

 

**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 behalfby the undersigned thereunto duly authorized.

 
|                       | **KAISER GROUP HOLDINGS, INC.**                |
|----------------------------|------------------------------------------------|
|                       |    (Registrant)                 |
|                       |                                           |
| Date: August 15, 2005 |                                           |
|                       |                                           |
|                       | /s/ Marian P. Hamlett                          |   |
|                       | Marian P. Hamlett                              |
|                       | Executive Vice President and Chief Financial   |
|                       | Officer (Duly authorized officer and principal |
|                       | financial officer)                             |

 

24

----