**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  September 30, 2005** |
|                                                        |       |                                                                                                    |
| **or**                                                      |
|                                                        |       |                                                                                                    |
| **o**                                                       | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from             to             **

** **

**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  incorporation or organization)            |       | (I.R.S. Employer  Identification No.) |
|                                                                        |       |                                  |
| **9300 Lee Highway, Fairfax,  Virginia**                                    |       | **22031-1207**                        |
| (Address of principal executive  offices)                                   |       | (Zip Code)                            |
|                                                                        |       |                                  |
| Registrant’s telephone number  including area code: **(703) 934-3413** |

 

Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe 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

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o No ý

 

**Applicable only to issuers 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 Exchange Actsubsequent to the distribution of securities under a plan confirmed by acourt.  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 provided, among other things, thatholders of shares of common stock of Kaiser Group International, Inc.receive shares of common stock of Kaiser Group Holdings, Inc. and thatholders of specified outstanding debt obligations and other specified claimantsreceive cash and shares of preferred stock and common stock of Kaiser GroupHoldings, Inc., all in accordance with the terms set forth in the Plan.The initial distribution of securities occurred as of April 17, 2001.

 

Asof November 10, 2005, there were 1,613,270 shares of Kaiser Group Holdings, Inc.Common Stock, par value $0.01 per share, outstanding.

 

 

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**KAISER GROUP HOLDINGS, INC.**

 

**INDEX TO FORM 10-Q**

 
|                                                                                                 | **Page**                                                                                                                              |
|------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|
| **Part I - Financial  Information**                                                             |                                                                                                                                  |
|                                                                                                 |                                                                                                                                  |
| Item 1. Financial Statements:                                                                        |                                                                                                                                  |
|                                                                                                 |                                                                                                                                  |   |
|                                                                                                 | Consolidated Balance Sheets  at September 30, 2005 and December 31, 2004                                                    | 3 |
|                                                                                                 |                                                                                                                                  |   |
|                                                                                                 | Consolidated Statements of  Operations and Comprehensive Income for the Three and Nine Months Ended  September 30, 2005 and 2004 | 4 |
|                                                                                                 |                                                                                                                                  |   |
|                                                                                                 | Consolidated  Statements of Cash Flows for the Nine Months Ended September 30, 2005  and 2004                                    | 5 |
|                                                                                                 |                                                                                                                                  |   |
|                                                                                                 | Notes to Consolidated  Financial Statements                                                                                           | 6-13 |
|                                                                                                 |                                                                                                                                  |
| Item  2. Management’s Discussion and Analysis of Financial Condition and Results of  Operations | 14-21                                                                                                                                 |
|                                                                                                 |                                                                                                                                  |
| Item  3. Quantitative and Qualitative Disclosures About Market Risk                                  | 21                                                                                                                                    |
|                                                                                                 |                                                                                                                                  |
| Item 4.  Controls and Procedures                                                                     | 21                                                                                                                                    |
|                                                                                                 |                                                                                                                                  |
| **Part II –  Other Information**                                                           |                                                                                                                                  |
|                                                                                                 |                                                                                                                                  |
| Item 1. Legal  Proceedings                                                                           | 21                                                                                                                                    |
|                                                                                                 |                                                                                                                                  |
| Item  2. Unregistered Sales of Equity Securities and Use of Proceeds                                 | 21                                                                                                                                    |
|                                                                                                 |                                                                                                                                  |
| Item  3. Defaults Upon Senior Securities                                                             | 21                                                                                                                                    |
|                                                                                                 |                                                                                                                                  |
| Item  4. Submission of Matters to a Vote of Security Holders                                         | 21                                                                                                                                    |
|                                                                                                 |                                                                                                                                  |
| Item 5. Other  Information                                                                           | 21                                                                                                                                    |
|                                                                                                 |                                                                                                                                  |
| Item 6. Exhibits                                                                                     | 22-24                                                                                                                                 |
|                                                                                                 |                                                                                                                                  |
| **Signatures**                                                                                       | 25                                                                                                                                    |

 

2

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**PART I– FINANCIAL INFORMATION**

 

**ITEM1.  FINANCIAL STATEMENTS**

 

**KAISER GROUP HOLDINGS, INC. ANDSUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**(In thousands, except shareamounts)**

 
| ** **                                                                                                                       | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                       | ** ** | **(unaudited)**              | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                       | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| **Current Assets**                                                                                                               |       |                         |       |                        |       |
| Cash and cash equivalents                                                                                                        |       | $                            | 19,364     |                        | $          | 12,728 |   |
| Certificates of deposit                                                                                                          |       | 2,022                        |       | 1,006                       |       |
| Restricted cash and cash equivalents                                                                                             |       | 3,150                        |       | 3,931                       |       |
| Accounts receivable                                                                                                              |       | 393                          |       | 217                         |       |
| Prepaid expenses and other current assets                                                                                        |       | 828                          |       | 742                         |       |
| Contract receivable, net                                                                                                         |       | 3,000                        |       | 3,000                       |       |
| Total Current  Assets                                                                                                            |       | 28,757                       |       | 21,624                      |       |
|                                                                                                                             |       |                         |       |                        |       |
| **Other Assets**                                                                                                                 |       |                         |       |                        |       |
| Investments in and advances to affiliates                                                                                        |       | 92,787                       |       | 45,094                      |       |
| Notes receivable                                                                                                                 |       | 6,442                        |       | 5,894                       |       |
| Other long-term assets                                                                                                           |       | 41                           |       | 102                         |       |
|                                                                                                                             |       | 99,270                       |       | 51,090                      |       |
| Total Assets                                                                                                                     |       | $                            | 128,027    |                        | $          | 72,714 |   |
| ** **                                                                                                                       | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                   | ** ** | ** **                   | ** ** | ** **                  | ** ** |
|                                                                                                                             |       |                         |       |                        |       |
| **Current Liabilities**                                                                                                          |       |                         |       |                        |       |
| Accounts payable                                                                                                                 |       | $                            | 38         |                        | $          | 169 |   |
| Post-retirement benefit plan obligation                                                                                          |       | 6,324                        |       | 6,623                       |       |
| Other accrued expenses                                                                                                           |       | 4,307                        |       | 4,620                       |       |
| Reserve for ICT Spectrum settlement                                                                                              |       | 6,196                        |       | —                      |       |
| Interest payable on preferred stock                                                                                              |       | 133                          |       | 313                         |       |
| Deferred tax liability                                                                                                           |       | 26,910                       |       | 5,772                       |       |
| Income taxes payable                                                                                                             |       | 4,468                        |       | 763                         |       |
| Total Current  Liabilities                                                                                                       |       | 48,376                       |       | 18,260                      |       |
|                                                                                                                             |       |                         |       |                        |       |
| **Long-Term Liabilities**                                                                                                        |       |                         |       |                        |       |
| Mandatorily redeemable preferred stock                                                                                           |       | 11,409                       |       | 26,909                      |       |
|                                                                                                                             |       |                         |       |                        |       |
| **Commitments and Contingencies**                                                                                                |       |                         |       |                        |       |
|                                                                                                                             |       |                         |       |                        |       |
| Common stock, par value $0.01 per share:                                                                                         |       |                         |       |                        |       |
| Authorized—3,000,000  shares                                                                                                |       |                         |       |                        |       |
| Issued and  outstanding—1,613,270 and 1,610,270 shares at September 30, 2005 and  December 31, 2004, respectively |       | 16                           |       | 16                          |       |
| Capital in excess of par                                                                                                         |       | 8,141                        |       | 8,063                       |       |
| Retained earnings                                                                                                                |       | 60,044                       |       | 19,424                      |       |
| Accumulated other comprehensive income                                                                                           |       | 41                           |       | 42                          |       |
| Total  Shareholders’ Equity                                                                                                 |       | 68,242                       |       | 27,545                      |       |
| Total  Liabilities and Shareholders’ Equity                                                                                 |       | $                            | 128,027    |                        | $          | 72,714 |   |

 

See notes to consolidatedfinancial statements.

 

3

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**KAISER GROUP HOLDINGS, INC. ANDSUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME**

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

 
| ** **                                                                                                                                                                                                                                                   | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                   | ** ** | **(Unaudited)**                                    | ** ** | **(Unaudited)**                                   | ** ** |
| ** **                                                                                                                                                                                                                                                   | ** ** | **2005**                                           | ** ** | **2004**                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                                                                                                                                                                         |       |                                               |       |                                              |       |   |   |   |   |
| Gross Revenue                                                                                                                                                                                                                                                |       | $                                                  | 528        |                                              | $          | 512 |   | $ | 1,545 |   | $ | 512 |   |
| Labor and  subcontract costs                                                                                                                                                                                                                                 |       | (266                                               | )          | (373                                              | )          | (947 | ) | (373 | ) |
| Service Revenue                                                                                                                                                                                                                                              |       | 262                                                |       | 139                                               |       | 598 |   | 139 |   |
| Operating Expenses                                                                                                                                                                                                                                           |       |                                               |       |                                              |       |   |   |   |   |
| Administrative  expenses                                                                                                                                                                                                                                     |       | 1,275                                              |       | 999                                               |       | 3,831 |   | 4,060 |   |
| Reserve for ICT  Spectrum settlement                                                                                                                                                                                                                         |       | 6,196                                              |       | —                                            |       | 6,196 |   | — |   |
| Reversal of  Reserve for Settlement of Remaining Class 4 Claims                                                                                                                                                                                         |       | (223                                               | )          | —                                            |       | (223 | ) | — |   |
| Reserve for  Settlement of Remaining Class 4 Claims                                                                                                                                                                                                     |       | —                                             |       | —                                            |       | — |   | 1,400 |   |
| Operating Loss                                                                                                                                                                                                                                               |       | (6,986                                             | )          | (860                                              | )          | (9,206 | ) | (5,321 | ) |
| Other Income                                                                                                                                                                                                                                                 |       |                                               |       |                                              |       |   |   |   |   |
| Equity income in  earnings of affiliate, net of amortization of $5,285 and $881 for the three  months ended September 30, 2005 and 2004, respectively, and $7,047 and  $2,643 for the nine months ended September 30, 2005 and 2004,  respectively |       | 70,858                                             |       | 4,287                                             |       | 79,192 |   | 12,893 |   |
| Interest income                                                                                                                                                                                                                                              |       | 210                                                |       | 175                                               |       | 588 |   | 510 |   |
| Reduction of  reserve for note receivable                                                                                                                                                                                                                    |       | 548                                                |       | —                                            |       | 548 |   | — |   |
| Interest expense  for preferred dividends                                                                                                                                                                                                                    |       | (288                                               | )          | (493                                              | )          | (1,099 | ) | (1,580 | ) |
| Other income                                                                                                                                                                                                                                                 |       | —                                             |       | —                                            |       | — |   | 25 |   |
| Income from  Continuing Operations Before Income Tax                                                                                                                                                                                                         |       | 64,342                                             |       | 3,109                                             |       | 70,023 |   | 6,527 |   |
| Income tax expense                                                                                                                                                                                                                                           |       | (26,836                                            | )          | (1,385                                            | )          | (29,403 | ) | (3,128 | ) |
| Income Applicable to Common Shareholders                                                                                                                                                                                                                     |       | $                                                  | 37,506     |                                              | $          | 1,724 |   | $ | 40,620 |   | $ | 3,399 |   |
|                                                                                                                                                                                                                                                         |       |                                               |       |                                              |       |   |   |   |   |
| Basic and Diluted Income Per Common Share:                                                                                                                                                                                                                   |       |                                               |       |                                              |       |   |   |   |   |
| Continuing  operations, net of tax                                                                                                                                                                                                                           |       | $                                                  | 23.25      |                                              | $          | 1.07 |   | $ | 25.18 |   | $ | 2.11 |   |
| Discontinued  operations, net of tax                                                                                                                                                                                                                         |       | —                                             |       | —                                            |       | — |   | — |   |
| Net Income Per Share                                                                                                                                                                                                                                         |       | $                                                  | 23.25      |                                              | $          | 1.07 |   | $ | 25.18 |   | $ | 2.11 |   |
|                                                                                                                                                                                                                                                         |       |                                               |       |                                              |       |   |   |   |   |
| Weighted average  shares for basic and diluted earnings per common share                                                                                                                                                                                     |       | 1,613                                              |       | 1, 610                                            |       | 1,613 |   | 1,609 |   |
| Comprehensive Income                                                                                                                                                                                                                                         |       |                                               |       |                                              |       |   |   |   |   |
| Net Income                                                                                                                                                                                                                                                   |       | $                                                  | 37,506     |                                              | $          | 1,724 |   | $ | 40,620 |   | $ | 3,399 |   |
| Other  Comprehensive Income (Loss):                                                                                                                                                                                                                          |       |                                               |       |                                              |       |   |   |   |   |
| Change in  cumulative foreign translation adjustments                                                                                                                                                                                                        |       | —                                             |       | (1                                                | )          | (1 | ) | 1 |   |
|                                                                                                                                                                                                                                                         |       |                                               |       |                                              |       |   |   |   |   |
| Total  Comprehensive Income                                                                                                                                                                                                                                  |       | $                                                  | 37,506     |                                              | $          | 1,723 |   | $ | 40,619 |   | $ | 3,400 |   |

 

Seenotes to consolidated financial statements.

 

4

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

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(In thousands)**

 
| ** **                                                                     | ** ** | **For the Nine Months ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                     | ** ** | **2005**                                          | ** ** | **2004** | ** ** |
| ** **                                                                     | ** ** | **(Unaudited)**                                   | ** ** |
| Operating Activities:                                                          |       |                                              |       |   |   |
| Net income                                                                     |       | $                                                 | 40,620     |   | $ | 3,399 |   |
| Adjustments to  reconcile net income to net cash used in operating activities: |       |                                              |       |   |   |
| Deferred taxes  related to continuing operating activities                     |       | 21,138                                            |       | (619 | ) |
| Reserve for ICT  Spectrum settlement                                           |       | 6,196                                             |       | — |   |
| Equity in  earnings of affiliate                                               |       | (79,193                                           | )          | (12,893 | ) |
| Changes in  operating assets and liabilities:                                  |       |                                              |       |   |   |
| Account  receivables                                                           |       | (176                                              | )          | (197 | ) |
| Prepaid expenses  and other current assets                                     |       | (86                                               | )          | (99 | ) |
| Reversal of note  receivable reserve                                           |       | (548                                              | )          | — |   |
| Accounts payable  and accrued expenses                                         |       | (592                                              | )          | 13 |   |
| Income taxes  payable                                                          |       | 3,705                                             |       | 1,833 |   |
| Other operating  activities                                                    |       | (137                                              | )          | 226 |   |
| Net Cash Used in  Operating Activities                                         |       | (9,073                                            | )          | (8,337 | ) |
| Investing Activities:                                                          |       |                                              |       |   |   |
| Purchase of  certificate of deposit                                            |       | (1,000                                            | )          | — |   |
| Distributions  from affiliate                                                  |       | 31,500                                            |       | 10,394 |   |
| Net Cash  Provided by Investing Activities                                     |       | 30,500                                            |       | 10,394 |   |
| Financing Activities:                                                          |       |                                              |       |   |   |
| Transfer from  restricted cash for the redemption of preferred stock           |       | 785                                               |       | 3,084 |   |
| Transfers to  restricted cash                                                  |       | (76                                               | )          | — |   |
| Redemption of  preferred stock                                                 |       | (15,500                                           | )          | (8,266 | ) |
| Net Cash Used in  Financing Activities                                         |       | (14,791                                           | )          | (5,182 | ) |
| Increase (decrease) in Cash and Cash Equivalents                               |       | 6,636                                             |       | (3,125 | ) |
| Cash and Cash Equivalents at Beginning of Period                               |       | 12,728                                            |       | 11,151 |   |
| Cash and Cash Equivalents at End of Period                                     |       | $                                                 | 19,364     |   | $ | 8,026 |   |

 

Seenotes to consolidated financial statements.

 

5

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**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 U.S. generally accepted accountingprinciples (GAAP) for interim financial information.  Accordingly, they do not include all of theinformation and footnotes required by GAAP for complete financial statements.  In the opinion of management, all adjustmentsconsidered necessary for a fair presentation have been 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 September 30,2005 financial 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 by virtue of Rule 12g-3(a) under theSecurities Exchange Act of 1934. References to the “Company” or “KaiserHoldings” in these notes refer to Kaiser Group Holdings, Inc. and itsconsolidated subsidiaries. A summary of the Plan for Old Kaiser can be found ina Current Report on Form 8-K dated December 5, 2000 filed by OldKaiser.

 

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

 

•      theownership of a 50% interest in Kaiser-Hill Company, LLC (Kaiser-Hill), whichserves as the general contractor at the U.S. Department of Energy’s (DOE) RockyFlats site near Denver, Colorado for the performance of a contract for theclosure of the site (the Closure Contract) (See Note 4).

•      thecloseout and resolution of a completed contract for the engineering andconstruction of a steel mini-mill in the Czech Republic for Nova Hut (Nova Hutproject).

•      a wholly-owned captiveinsurance company that is in the process of resolving remaining claims and isnot currently issuing new policies. However,the Company has completed the necessary regulatory and legal processes toenable its wholly-owned captive insurance company to offer derivative captiveinsurance services to third-party clients through a sponsored captivesubsidiary.

•      anongoing obligation to fund a capped, post-retirement medical benefit plan for afixed number of retirees.

•      a wholly-owned subsidiary, Kaiser Analytical Management Services, Inc.(KAMS), which we formed in April 2004 to take over the operationsof 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 under certain circumstances resulting from a bankruptcythe creation of a new entity for financial reporting purposes upon theemergence of an 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, resulting 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 liabilities asof immediately prior to its emergence from bankruptcy on December 18,2000.  Terminal values of assets and

 

6

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liabilities were determined based either on contractedamounts, actuarial present values and/or management’s estimates of the outcomeof certain operating activities. Net after-tax cash flows, assuming a 40%effective tax rate, were discounted at 17% in order to take into considerationthe 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 assumptions regardingindividual retained matters which form the collective composition of theoverall enterprise value as of December 18, 2000 are inherently subject tosignificant economic and competitive uncertainties and contingencies beyond thecontrol of the Company.  Accordingly,there may be differences between projections and actual results because eventsand circumstances frequently do not occur as expected and may besignificant.  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.     General Terms ofPlan 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 claims initially filed in the bankruptcy is ongoing. Old Kaiserobjected to the majority of the unresolved claims, and if such claims are notsettled via the objection or dispute resolution processes or other means, theywill ultimately be heard and determined by the Bankruptcy Court. Once a claimis resolved with an amount due to the creditor, such portion of the claim is deemedto be an allowed claim by the Bankruptcy Court (an allowed claim). The Companycannot predict with accuracy when the claims resolution process will becomplete or what the total amount of allowed claims will be upon completion.

 

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

 

•      Allowed“Class 3 claims” against the Old Kaiser bankruptcy estate generallyconsisted of trade and similar creditors’ claims of $20,000 or less.  Holders of allowed Class 3 claimsreceived cash for their claims.

 

•      Allowed“Class 4 claims”, the largest class of claims against the Old Kaiserbankruptcy estate, is made up of creditor claims other than Class 3 claimsand equity claims. Class 4 claims included holders of Old Kaiser seniorsubordinated notes due 2003 (Old Subordinated Notes). Holders of allowed Class 4claims received a combination of cash and Kaiser Holdings preferred and commonstock in respect of their claims. Such holders received one share of KaiserHoldings’ preferred stock (New Preferred) and one share of Kaiser Holdings’common stock (New Common) for each $100 of claims. However, the number ofshares of New Preferred issued was reduced by one share for each $55.00 of cashreceived by the holder of an allowed Class 4 claim.

 

•      Thethird class of claims recognized in the Old Kaiser bankruptcy are equity claimsor “Class 5 claims”, consisting of holders of Old Kaiser common stock (OldCommon) and other “Equity Interests” as defined in the Plan. Under the Plan,holders of Equity Interests will receive a number of shares of New Common equalto 17.65% of the number of shares of such common stock issued to holders ofallowed Class 4 Claims. In the initial distribution, one share of NewCommon was issued for each 96 shares of previously outstanding Old Common.Additional distributions of New Common may be made in the future as additionalshares of New Common are issued to holders of newly allowed Class 4claims, if any. Apart from holders of Old Common, the only holders of EquityInterests of which the Company is aware are the former shareholders of ICTSpectrum Constructors, Inc., a corporation acquired by merger with asubsidiary of Old Kaiser in 1998. The Bankruptcy Court confirmed the equitynature of those claims.  See Note 7 belowfor information concerning court rulings with respect to 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 thereafterrequired to participate in a non-binding mediation before a mediator pre-selectedby the Bankruptcy Court.  All unresolvedclaims as of March 27, 2001 are subject to the ADR process. Since April 17,2001, the date of the initial distribution, $130.0 million of asserted claimshave been withdrawn, negotiated or mediated to an agreed amount, resulting incash payments approximating $2.8 million and issuances of 683 shares of NewPreferred and 823 shares of New Common. As of November 10, 2005, theaggregate amount of unresolved claims was less than $1.0 million. The Companyexpects to resolve the remaining claims by the end of 2005.  The Company currently believes

 

7

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that the total amount of Class 4 claims ultimately to be allowedin the Old Kaiser bankruptcy proceeding will not exceed $141.0 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.

 

There is also a significant Class 5 claim asserted by the formershareholders of ICT Spectrum Constructors, Inc.  As discussed in Note 7 below, the Companyexpects to issue a substantial number of additional shares of New Commonpursuant to the proposed settlement of this matter.

 

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 at that time.  Duringthe third quarter of 2005, the Company settled two of its more significant Class 4claims utilizing approximately $0.4 million of this reserve.  Upon settlement of these Class 4 claimsthe Company released an additional $0.2 million of the reserve that had beenpreviously set aside for the aforementioned claims.  Based upon the Company’s estimate ofunresolved claims at September 30, 2005, $0.4 million remains in thisreserve.

 

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, allthen-outstanding common stock equivalents were cancelled.  As a result, the Company has no dilutivesecurities outstanding.  Accordingly,anti-dilutive securities were not included in the computation of dilutedearnings per share.

 

Theeffect of preferred dividends of $0.3 million and $0.5 million for the threemonths ended September 30, 2005 and 2004, respectively, and $1.1 millionand $1.6 million for the nine months ended September 30, 2005 and 2004,respectively, has been included in continuing operations in the calculation ofbasic and diluted earnings per share for the three and nine months ended September 30,2005 and 2004.

 

4.     Summarized Financial Information ofUnconsolidated Affiliate

 

The Company owns 50% ofKaiser-Hill.  On October 13, 2005,Kaiser-Hill declared physical completion of the cleanup and closure of the DOE’sRocky Flats site.  With the certainty ofdeclaration of physical completion, at September 30, 2005, Kaiser-Hillrecognized a substantial balance of the remaining performance fee.

 

Summarized unaudited financialinformation of Kaiser-Hill was as follows as of September 30 (inthousands):

 
| ** **              | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|
|                    |       |     |       |     |       |
| Current assets          |       | $        | 62,151     |     | $          | 124,980 |   |
| Non-current assets      |       | 254,082  |       | 135,192  |       |
| Current liabilities     |       | 70,129   |       | 129,622  |       |
| Non-current liabilities |       | 66,134   |       | 55,647   |       |
|                         |            |          |            |          |            |  |  |

 
| ** **    | ** ** | **Three Months Ended**       | ** ** | **Nine Months Ended**        | ** ** |
|---------------|------------|------------------------------|------------|------------------------------|------------|
| ** **    | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
|          |       |                         |       |                         |       |   |   |   |   |
| Gross revenue |       | $                            | 261,007    |                         | $          | 188,573 |   | $ | 601,210 |   | $ | 487,811 |   |
| Net income    |       | 152,288                      |       | 10,336                       |       | 172,480 |   | 31,072 |   |
|               |            |                              |            |                              |            |  |  |  |  |  |  |  |  |

 

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As part of the Company’sadoption of fresh-start reporting as of December 31, 2000, the Companyincreased the carrying value of the Company’s investment in Kaiser-Hill by$21.1 million, and the Company has 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 remained unamortized.  BecauseKaiser-Hill declared physical completion of the site on October 13, 2005,at September 30, 2005 the Company wrote off the remaining $5.3 millionunamortized balance as a reduction to the equity income of earnings ofaffiliate.

 

5.     Notes Receivable

 

In June 2002,a settlement was reached between the Company and ICF Consulting, whereby theCompany agreed to restructure certain notes received by ICF Consulting totaling$6.6 million and accrued interest of $0.7 million, net of reserves, for a newpromissory note of $6.4 million (New Note) bearing interest at 8.5% per annum.  The New Note was subordinated to the rightsto ICF Consulting’s senior bank lenders. As a part of the settlement, ICF Consulting agreed to withdraw allclaims against the Company, release cash in escrow totaling $0.8 million andpurchase the Company’s 10% ownership in ICF Consulting, having a carrying valueof $1.1 million, for $4.5 million.

 

At December 31,2002, all terms of the settlement agreement between the Company and ICFConsulting had been implemented.  Because of uncertainties about the ultimate collectibility of the NewNote and accrued interest, at December 31, 2004, the Company continued tocarry a reserve of $0.5 million against the New Note.  On October 5, 2005, ICF Consulting paidthe New Note plus accrued interest in full. Because there no longer remained any uncertainties about ultimatecollection of the New Note and accrued interest at September 30, 2005, theCompany reversed the $0.5 million reserve against the New Note and the Companyrecorded it as other income in the quarter ended September 30, 2005.

 

6.     Mandatorily Redeemable Preferred Stock

 

At September 30,2005, the Company had 207,431 shares of New Preferred outstanding, net of101,471 treasury shares, with a liquidation preference of $11.4 million, and atDecember 31, 2004, the Company had 489,249 shares of New Preferredoutstanding, net of 101,471 treasury shares, with a liquidation preference of$26.9 million. The Company has scheduled a redemption of $11.4 million or207,431 shares of New Preferred on November 17, 2005, as a result of whichthe Company will redeem all of the remaining outstanding shares of NewPreferred held by non-affiliates.

 

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, $55.00 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.

 

TheCompany’s certificate of incorporation authorizes the issuance of 2,000,000shares of New Preferred. The New Preferred is shown at liquidation value of$55.00 per share and 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.   The certificate of incorporation of theCompany and Delaware law permit the Board of Directors to issue additionalseries of preferred stock, except that the Board of Directors may not authorizethe issuance of any securities that rank senior to or on a parity with the NewPreferred without the consent of holders of at least two-thirds of the NewPreferred.

 

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 below, the NewPreferred 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.

 

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% ofthe liquidation preference per share or in additional shares of New Preferredat an annual rate of 12% of the per share liquidation preference. Dividendsaccrue on the 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 as long as there areNew Preferred shares held by any non-affiliated entities or parties. If theCompany fails to pay a quarterly dividend when due, holders of New Preferredwill have the right to elect an additional director for each dividend paymentmissed, up to a maximum of two additional directors, but only until suchdividend is paid or provided for in full. The dividend due to holders of record on October 31, 2005, totalingapproximately $0.2 million, was paid on November 7, 2005.  Upon the November 17,

 

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2005redemption of the 207,431 shares of remaining outstanding New Preferred held bynon-affiliates, the Company will no longer have a dividend payment requirement.

 

TheNew Preferred has a liquidation preference of $55.00 per share plus the amountof unpaid dividends, if any. Upon the liquidation or dissolution of theCompany, each holder of New Preferred (other than an affiliate of the Company)is entitled 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. Any shares of New Preferred held by any affiliate of theCompany may not be redeemed pursuant to any of the redemption provisionsotherwise applicable to the New Preferred.

 

Holders of New Preferredgenerally are entitled to vote with holders of New Common on all matterssubmitted to a vote of shareholders, with each share of New Preferred beingentitled to one-tenth of a vote. In addition, holders of New Preferred have theright to vote separately as a class to exercise their right to elect anadditional director due to a failure by the Company to pay a quarterlydividend, to elect two-thirds of the directors if the New Preferred is notredeemed by December 31, 2007, and to consent to the issuance of anysenior or parity securities. The terms of the New Preferred may not bematerially or adversely modified without the consent of holders of at leasttwo-thirds of the New Preferred. If the Company or any of its affiliates holdsany New Preferred, they will not be entitled to vote that New Preferred.

 

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 is subject to outstanding put rights, expiring on December 31,2007, that obligate it to purchase New Preferred owned by a holder of the putright, at the 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 net after-tax proceeds from any direct or indirect disposition of any interestin Kaiser-Hill; or

•      if KGP receives net after-tax proceeds from an extraordinary distributionfrom 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 theamount of the available net after-tax proceeds from triggering events. KGP willnot purchase any fractional shares. KGP put rights will not become exercisablemore frequently than every 12 months unless the cumulative amount of availablenet after-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 – effectively requiringthe Company to redeem certain New Preferred. In addition, the Company had certain restricted cash balances available,which pursuant to the terms of its Plan of Reorganization are required to beused to redeem outstanding New Preferred. Rather than

 

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using the mechanism of the put rights to satisfy theCompany’s obligations to holders of the put rights after a trigger, the Companyobserved the requirements in the Plan of Reorganization to use certainrestricted cash balances, and in the terms of the New Preferred, to use certainavailable cash, for preferred redemptions. The Company believes this was a more cost-efficient manner of satisfyingthe obligations associated with the KGP put rights.

 

As of September 30, 2005, the Company hadredeemed the following shares of New Preferred (in thousands except shareamounts):

 

| **Date of  Redemption** | ** ** | **Use of  Unrestricted  Cash** | ** ** | **Use of  Reserve Fund  Cash** | ** ** | **Total  Amount of  Redemption** | ** ** | **Number of  Shares  Redeemed** | ** ** |
|-------------------------|------------|--------------------------------|------------|--------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
|                    |       |                           |       |                           |       |                             |       |                            |       |
| September 2005     |       | $                              | 4,565      |                           | $          | 935                              |       | $                               | 5,500      |   | 100,000 |   |
| 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 November 17, 2005 scheduled redemption of$11.4 million of New Preferred, or 207,431 shares.  The entire redemption will be funded throughthe use of unrestricted cash.

 

7.     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 was completein 2000, the contract with Nova Hut provided for a maximum of three possibleperformance tests. The first performance test was completed on November 13,2000. Kaiser Netherlands believes that the first performance test wassuccessful and that Nova Hut should have agreed to final acceptance of themini-mill and made final payment of amounts accrued by Kaiser Netherlandsthroughout the project, including fee and retention amounts with release ofperformance guarantee instruments.  NovaHut, however, asserted that the first test was not successful. KaiserNetherlands believes that such contention may have been put forth in responseto severe financial constraints on Nova Hut’s operations resulting fromweakening conditions in the worldwide steel market and the significant amountsthat Kaiser Netherlands believed it was contractually due.  As of September 30, 2005, this disputehas not been resolved, and Kaiser Netherlands continues to pursue legal actionto enforce its rights.  Until recently,the primary legal venue of this dispute has been the Delaware bankruptcyproceeding for Old Kaiser, where the Company has asserted claims against NovaHut and the International Finance Corporation (“IFC”).  The Delaware bankruptcy court had previouslyruled that the Company, as opposed to Kaiser Netherlands, could proceed withprosecution of its specific claims against Nova Hut and IFC in the Delawarebankruptcy court venue.  Both Nova Hutand IFC appealed this ruling and, during the first quarter 2004, the Delaware bankruptcycourt’s decision regarding the IFC was overturned by the District Court, rulingthat the IFC enjoys sovereign immunity from prosecution.  Kaiser Holdings filed an appeal with the U.S.Court of Appeals for the Third Circuit regarding this decision in favor of theIFC and, on February 25, 2005, the Third Circuit overturned the DistrictCourt’s decision. The IFC’s request for a rehearing of the case by the ThirdCircuit was refused.  The IFC thenpetitioned the Delaware bankruptcy court to stay proceedings pending completionof the Kaiser Netherlands-Nova Hut arbitration proceeding discussed below. ThisIFC motion was granted.  With regard tothe Nova Hut appeal, the District Court has ruled that U.S. bankruptcyproceedings should also be stayed pending 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 a hearing was held inSeptember.  At present, we do not expecta decision to be issued until the first quarter of 2006 at the earliest.  Nova Hut has submitted a $49.7 millioncounterclaim against Kaiser Netherlands in these same ICC proceedings.

 

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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****

 

On October 13, 2005,Kaiser-Hill declared physical completion of the cleanup and closure of the DOE’sRock Flats site.  DOE is reviewingKaiser-Hill’s declaration as required under the Closure Contract.  While DOE approval is anticipated, it ispossible that there will be disputes as to whether Kaiser-Hill has satisfiedits obligations as to the closure of the Rocky Flats site.  Such disputes could delay or reduce thepayment of fees due to Kaiser-Hill.

 

Under Kaiser-Hill’scontract with the DOE, Kaiser-Hill is not responsible for, and the DOE pays allcosts associated 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 Closure 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.

 

As the contract betweenKaiser-Hill and the DOE is cost-reimbursable 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-reimbursable 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.  In papers filed before the U.S.Bankruptcy Court for the District of Delaware, they claim to be entitled toadditional shares of New Common.  On January 20,2004, the Bankruptcy Court ruled in favor of the former shareholders of ICTSpectrum to the effect that the Company should issue to the former ICT Spectrumshareholders additional shares of New Common. On June 24, 2005, the U.S. District Court for the District ofDelaware affirmed the Bankruptcy Court’s decision.  The Company timely appealed to the U.S. Courtof Appeals for the Third Circuit.

 

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The Company is presently engaged in efforts to settle the claims of theICT Spectrum shareholders.  On October 19,2005, the Company and representatives of the former shareholders of ICTSpectrum entered into a settlement agreement, subject to Bankruptcy Courtapproval, to settle all claims of the former shareholders of ICT Spectrum.  On November 7, 2005, the BankruptcyCourt granted preliminary approval of the proposed settlement agreement.  If the Bankruptcy Court grants final approvalof the proposed settlement agreement, the Company will issue and distributeapproximately 175,000 shares of New Common, which could be expected to have amaterially dilutive effect on the value of shares of New Common presentlyoutstanding.  If the Company isunsuccessful in obtaining Bankruptcy Court approval of the proposed settlement,the Company may recommence its efforts to achieve reversal of the BankruptcyCourt’s ruling in favor of the former shareholders of ICT Spectrum.  Should the Company be unsuccessful in itsefforts to achieve reversal of the Bankruptcy Court’s ruling, the Company couldbe required to issue to former ICT Spectrum shareholders 247,350 shares of NewCommon in addition to shares on account of their old equity interests under thePlan.  Under the terms of the Plan, it ispossible that such issuance would require the issuance of yet additional sharesto others.  Thus, continued litigationrelating to the claim of the former ICT Spectrum shareholders could result inthe issuance of an even greater number of additional shares of New Common thatcould be expected to have a materially dilutive effect on the value of sharesof New Common presently outstanding.

 

Because an agreement, subject to Bankruptcy Court approval, was reachedwith the former shareholders of ICT Spectrum, at September 30, 2005, theCompany recorded a $6.2 million reserve on its balance sheet to account forthis non-cash transaction.  The amount ofthe reserve was based on the number of New Common shares to be issued and themarket value of the New Common shares on October 19, 2005, reduced for theestimated dilutive effect of the issuance of the additional New Common shares.

 

Post-RetirementBenefit Plan Obligation

 

In accordance with theterms and provisions of the Second Amended Plan of Reorganization for OldKaiser, the Company remains obligated to continue to fulfill the provisions ofOld Kaiser’s previously curtailed benefits plan, which provides certain medicaland death benefits to a group of retirees. All of the benefit derived from the plan is fully covered by the Company’sself-insurance.  With respect to theretirees covered by the medical self-insured plan, the benefits are funded toan insurance company as participants’ insurance claims are reimbursed.  With respect to the retirees covered by adeath benefit, the benefits are funded directly by the Company.

 

No new participants canbe added to the plan.  The net presentvalue benefit obligation as of December 31, 2004, was $6.6 million.  This amount will continue to decrease as thepopulation of covered participants declines for the purposes of medicalbenefits and as death benefits are paid out.

 

Since the December 2000approval of the reorganization plan, the Company has been negotiating with theDelaware Bankruptcy Court-appointed Official Committee of Retirees (OCR) to designand implement a benefits funding plan that would provide for all retireebenefit obligations going forward.  As ofSeptember 30, 2005, no agreement had been reached on such a plan.

 

The OCR recently hasfiled a motion seeking approval of an agreement it claims to have reached withthe Company regarding these issues. Since that filing, negotiations regarding an acceptable plan havecontinued.  Should the Company and theOCR not reach an agreement by mid-November 2005, it is expected that theOCR will continue to pursue its pending motion and, in the alternative, file amotion with the Delaware Bankruptcy Court in December 2005 seeking toimpose settlement on the basis of a guaranteed benefits plan through theestablishment of special type of trust commonly referred to as a VEBA, orVoluntary Employees’ Beneficiary Association. The Company could potentially incur high administrative costs, in therange of $3 million, to establish a VEBA to administer these benefits.  Such administrative costs would be in additionto the cost of providing the promised benefits. As a result, the Company is seeking to negotiate the adoption of analternative, lower-cost mechanism to fully underwrite all retiree benefits.  At this point, it is not possible to predictthe ultimate outcome of this matter.

 

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**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 “Plan”), effective December 18, 2000.  In this document, we will use the terms “we”and “Kaiser” to refer to Kaiser Group Holdings, Inc., Kaiser GroupInternational, Inc. and our other subsidiaries.

 

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:

 

•      theownership of a 50% interest in Kaiser-Hill Company, LLC (“Kaiser-Hill”), whichserves as the general contractor at the U.S. Department of Energy’s (“DOE”)Rocky Flats site near Denver, Colorado, for the performance of a contract forthe closure of the site (the Closure Contract).

•      thecloseout and resolution of a completed contract for the engineering andconstruction of a steel mini-mill in the Czech Republic for Nova Hut .

•      a wholly-owned captiveinsurance company that is in the process of resolving remaining claims and isnot currently issuing new policies. However,we have completed the necessary regulatory and legal processes to enable ourwholly-owned captive insurance company to offer derivative captive insuranceservices to third-party clients through a sponsored captive subsidiary.

•      anongoing obligation to fund a capped, post-retirement****medicalbenefit plan for a fixed number of retirees.

•      a wholly-owned subsidiary, Kaiser Analytical Management Services, Inc.(“KAMS”), which we formed in April 2004 to take over the operationsof the Analytical Services Division of Kaiser-Hill.  KAMS provides analytical management servicessuch as sample planning, sample management, records management, performance assessmentand data management in the general areas of health and safety, geotechnical,environmental and waste management, and deactivation and decommissioning.

 

***Outlook***

 

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

 

The timing and amount offuture distributions from Kaiser-Hill are subject to many uncertainties.  On October 13, 2005, Kaiser-Hilldeclared physical completion of the cleanup and closure of the DOE’s RockyFlats site.  The DOE is reviewingKaiser-Hill’s declaration as required under the Closure Contract.  If DOE approval of Kaiser-Hill’s declarationis forthcoming, Kaiser-Hill’s fee payments from the DOE in respect ofcompletion of the Closure Contract could be at the upper ranges of the feepotential under that contract.  At thoselevels of fee payments, management believes that cash distributions fromKaiser-Hill during the period from October 1, 2005 through physicalcompletion and the date Kaiser-Hill has been paid in full by DOE could be in arange as high as $90.0 million to $105.0 million. This is not to predict actualdistributions to 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” below.

 

In addition toKaiser-Hill, the principal uncertainty that we expect will affect ourperformance is the outcome of our ongoing disputes with Nova Hut.  As discussed in Note 7 to the ConsolidatedFinancial Statements, we have pending before the International Chamber ofCommerce (“ICC”) an arbitration against Nova Hut with respect to a contract wecompleted for the engineering and construction of a steel mini-mill in theCzech Republic.  Our aggregate claimstotal $67.5 million, and Nova Hut has asserted counterclaims of $49.7million.  It is not possible to predictthe outcome of these disputes, but management believes that our claims arestronger than those asserted by Nova Hut. Our assessment could be wrong, but we are determined

 

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to see these disputesthrough to conclusion because we believe we are entitled to a substantialpositive recovery.  At present, we do notexpect that the ICC will issue a decision until the first quarter of 2006 atthe earliest.

 

*PreferredStock Redemptions*.* *In September 2005,we redeemed $5.5 million, or 100,000 shares, of New Preferred.  Based upon the continued favorable level ofKaiser-Hill distributions, the Company has scheduled the redemption of theremaining $11.4 million of New Preferred, or 207,431 shares, on November 17,2005.

 

*ProposedReverse Split*.* *Our New Common iscurrently registered under the Securities Exchange Act of 1934 (Exchange Act),and consequently we are subject to reporting obligations of the ExchangeAct.  In special meetings on March 31,2005 and June 20, 2005, the Board of Directors unanimously approved a 1-for-20reverse split of our New Common, with fractional shares receiving $33.00 pershare.  If, as approved by the Board of Directors, we proceed to submitthe proposed reverse split to our stockholders, and it is approved andimplemented, it is anticipated that the reverse split would reduce the numberof record holders of New Common from approximately 1,180 to approximately 220,which would allow us to terminate our reporting obligations under the ExchangeAct and continue operations as a non-reporting Company.  In that event, we would file a Form 15with the Securities and Exchange Commission (Commission).  Upon filing of the Form 15, ourreporting obligations under the Exchange Act would be suspended, meaning thatwe would no longer be required to file with the Commission certain reports andforms, including Forms 10-K, 10-Q and 8-K and proxy statements.

 

Proceedingwith the reverse split would require that we amend the Company’s Certificate ofIncorporation, which requires stockholder approval.  On June 24, 2005, the United States DistrictCourt for the District of Delaware, affirmed a decision of the United StatesBankruptcy Court for the District of Delaware requiring that we issueadditional shares of New Common to former shareholders of ICT SpectrumConstructors, Inc. (ICT Spectrum) and perhaps others, as described in Note7 of the Notes to the Consolidated Financial Statements.  We subsequently filed an appeal with the U.S.Court of Appeals for the Third Circuit and began to explore means by which thedisputes with the former ICT Spectrum shareholders might be resolved.  There can be no assurance that these disputeswill be resolved at all, or on a timely basis, other than through normal legalprocesses.  On October 19, 2005, weand representatives of the former shareholders of ICT Spectrum entered into asettlement agreement, subject to Bankruptcy Court approval, to settle allclaims of the former shareholders of ICT Spectrum.  In connection with the proposed settlementagreement, we have agreed that, unless the proposed settlement agreementbecomes null and void, we will not take further steps to implement our proposed1-for-20 reverse stock split until 60 days following the distribution of theshares to be issued to the former ICT Spectrum shareholders under the proposedsettlement agreement.

 

Prior to the proposed settlement agreement discussed 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.  We opposed this motion, andthe Bankruptcy Court denied the ICT Spectrum Motion in an order dated June 2,2005.  The former ICT Spectrumshareholders have appealed the Bankruptcy Court’s denial of the ICT SpectrumMotion.  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 discussions with the former ICT Spectrum shareholders referred toabove are not successful, our intention is to continue to oppose both theappeal in the District Court and the related request for interim relief.  However, the results of the discussions withthe former ICT Spectrum shareholders or the results of legal proceedings relatedto the former ICT Spectrum shareholders could cause the Board of Directors todecide not to proceed with, or to continue to defer, the proposed reverse splitand deregistration process.

 

***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:

 

•      Recoverabilityof accounts receivable, a contract receivable and investments.

•      Incometax provision, deferred tax assets and liabilities.

•      Use of the equity method of accounting forKaiser-Hill, an affiliate that we have the ability to significantly influencebut not control.  In accordance with theequity method of accounting, we record our proportionate share of the affiliate’sincome or losses.

•      Estimatedfees on the Kaiser-Hill joint venture.  Estimating future costs and, therefore, revenues and profits, is aprocess requiring a high degree of judgment, including assumptions regarding futureoperations of Kaiser-Hill as

 

15

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wellas general economic conditions.  In theevent of a change in total estimated contract cost or profit, the cumulativeeffect of such change is recorded in the period the change in estimateoccurs.  Revenue recognition andprofitability from the Kaiser-Hill contract may be adversely affected to theextent that we revise our estimated cost to complete or incentive or award feeestimates.  Accordingly, our recorded revenuesand gross profits can fluctuate significantly from period to period.  The Kaiser-Hill contract contains incentiveprovisions for increased or decreased revenue and profit based on actualperformance against established cost targets and schedule-related goals.  Incentive fees are included in estimatedcontract revenue at the time the amounts can be reasonably determined and arereasonably assured based on historical experience and other objective criteria.  Should disputes arise regarding whether Kaiser-Hillfailed to perform satisfactorily under its contract, previously recognizedrevenues could be reversed and/or future period revenues could be reduced.

•      Our liability in connectionwith a post-retirement medical benefit plan for a fixed number of retirees.  The amount of 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.  The amount of the liability could also beaffected by possible costs associated with the establishment of a third-partymechanism to administer such benefits going forward, if the establishment ofsuch a mechanism is so ordered by the Delaware bankruptcy court.

 

***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 period-specificeffects or the cumulative effect of the change.  We will adopt SFAS No. 154on January 1, 2006. Management does not expect that adoption of SFAS No. 154will have a material impact on our consolidated financial statements.

 

**RESULTS OF OPERATIONS**

 

*Equity Income In Earnings of Affiliate*

 

Our major remainingsource of income is a 50% ownership in Kaiser-Hill.  We own Kaiser-Hill equally with CH2M HillCompanies Ltd.  The financial informationcontained herein for Kaiser-Hill is reflected on the equity basis.

 

*Physical Completion*

 

On October 13, 2005, Kaiser-Hill declaredphysical completion of the cleanup and closure of the DOE’s Rocky Flatssite.  DOE is reviewing Kaiser-Hill’sdeclaration as required under the Closure Contract. While DOE approvalis anticipated, it is possible that there will be disputes as to whetherKaiser-Hill has satisfied its obligations with respect to the closure of theRocky Flats site.  Such disputes coulddelay or reduce the payment of fees due to Kaiser-Hill.

 

*Closure Contract Provisions for Revenue and PerformanceAward*

 

TheClosure Contract provides that Kaiser-Hill will earn revenue equal to theactual cost of physical completion plus a performance fee.  The performance fee will be determined basedon (1) Kaiser-Hill’s cost to complete the site closure, which must bewithin the range of $3.1 billion and $4.9 billion, (2) the schedule ofphysical completion, which must be before 2007 and (3) Kaiser-Hill’ssafety performance.  At the time ofdeclaration of physical completion on October 13, 2005, Kaiser-Hill’s costestimate to complete the project remained at $3.44 billion, which could resultin a performance fee payable to Kaiser-Hill in excess of $500.0 million.

 

Since Kaiser-Hilldeclared physical completion, many of the performance risks have beeneliminated, but contract risks and uncertainties remain. Kaiser-Hill willrecognize any remaining fee as revenue when it is successful in mitigating oreliminating these remaining contract risks and uncertainties.

 

Dueto the certainty of declaration of physical completion, at September 30,2005, Kaiser-Hill recognized a substantial balance of the remaining fee.  Therefore for the three and ninemonths ended September 30, 2005, the Company recorded its 50% equity inKaiser-Hill’s income, recognizing $76.1 million and $86.2 million,respectively.

 

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*Closure Contract Billing Provisions*

 

****Fromthe inception of the Closure Contract in February 2000 through September 30,2005, Kaiser-Hill has invoiced DOE for the performance fee based on thecontract provisions, and has collected from DOE an aggregate of $225.3 millionin fees****.

 

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 DOE pursuant to applicable Federalregulations.  Accordingly, such expenses,which Kaiser-Hill estimates could total up to 15% to 20% of the total awardfee, are deducted from the total fee earned and collected by Kaiser-Hill priorto any distributions to either of its two owners.  From inception of the Closure Contractthrough September 30, 2005, Kaiser-Hill has distributed $95.5 million toeach of 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 ownersin excess of $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 our balance sheet.  TheClosure Contract also provides that DOE may release portions of the retainageholdback prior to DOE acceptance and approval of the contract completion if DOEdeems appropriate.  As of November 10,2005, DOE has released approximately $25.0 million of retainage holdback toKaiser-Hill.  Kaiser-Hill is not able toestimate whether DOE will release any additional retained holdback prior to thefinal fee payment.

 

As part of our adoptionof fresh-start reporting as of December 31, 2000, we increased thecarrying value of our investment in Kaiser-Hill by $21.1 million, and we havebeen amortizing that difference over an estimated life of the Kaiser-Hillinvestment of approximately 6 years.  At June 30,2005, $5.3 million of the difference remained unamortized.  Because Kaiser-Hill declared physicalcompletion of the site on October 13, 2005, at September 30, 2005 wewrote off the remaining $5.3 million unamortized balance.  In the three and nine month periods ended September 30,2005, the equity income in earnings of affiliate is net of $5.3 million and$7.0 million, respectively, of amortization of the excess of our carrying valueof our investment in Kaiser-Hill over our ownership percentage of theunderlying Kaiser-Hill equity. In both of the three and nine month periodsended September 30, 2004, the equity income in earnings of affiliate isnet of $0.9 million and $1.8 million, respectively, of amortization of theexcess of our carrying value of our investment in Kaiser-Hill over ourownership percentage of the underlying Kaiser-Hill equity.

 

*AdministrativeExpenses*

 

Administrativeexpenses for the three months ended September 30, 2005 were $1.3 million,an increase of $0.3 million compared to the three months ended September 30,2004, which is due primarily to an increase in legal fees in connection withthe Nova Hut arbitration and the ICT Spectrum litigation.  Administrativeexpenses for the nine months ended September 30, 2005 were $3.8 million, adecrease of $0.3 million compared to the nine months ended September 30,2004, which is due primarily to a cost reduction plan that managementimplemented in September 2004.

 

Ourcost to provide certain post-retirement medical****benefits to a fixed number of retirees is also treated as anadministrative expense.  In the three andnine month periods ended September 30, 2005 and 2004, the expenses relatedto this plan were $0.2 million and $0.7 million, respectively.

 

*Reservefor Proposed Settlement Agreement with ICT Spectrum*

 

Because an agreement, subject to Bankruptcy Court approval, was reachedwith the former shareholders of ICT Spectrum, at September 30, 2005, theCompany recorded a $6.2 million reserve on its balance sheet to account forthis non-cash transaction.  The amount ofthe reserve was based on the number of New Common shares to be issued in theevent such settlement is approved and the market value of the New Common shareson October 19, 2005, reduced for the estimated dilutive effect of theissuance of the additional New Common shares.

 

*Reversalof Reserve for Settlement of Remaining Class 4 Claims and Reserve for Settlement of Class 4Claims*

 

Inthe third quarter of 2005, we reduced the reserve for Settlement of Class 4claims by $0.2 million based upon management’s current estimate of remainingunresolved claims. In the first quarter of 2004, we established the reserve of$1.4 million based upon management’s estimate of the remaining unresolved Class 4claims at that time.

 

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*Interest Income*

 

Interestincome for the three and nine months ended September 30, 2005 was $0.2million and $0.6 million, respectively, which represents no change compared tothe three months ended September 30, 2004 and an increase of $0.1 millioncompared with the nine months ended September 30, 2004, respectively.  The increase is primarily due to fluctuationin the average cash balances.

 

*InterestExpense*

 

As a result of theadoption of Statement of Financial Accounting Standards No. 150, “Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity” (“SFAS No. 150”), effective July 1, 2003, and the classificationof the Series 1 Redeemable CumulativePreferred Stock (New Preferred) as a liability, preferred stockdividends are reflected as interest expense. Interest expense for the three and nine months ended September 30,2005 was $0.3 million and $1.1 million, respectively, compared to interestexpense for the three and nine month periods ended September 30, 2004 of$0.5 million and $1.6 million, respectively. The decrease in interest expense is due to redemptions of preferredstock since September 30, 2004 of $15.5 million.

 

*Income Tax Expense*

 

Werecorded an income tax expense of $26.8 million and $29.4 million,respectively, on operating income from continuing operations of $64.3 millionand $70.0 million, respectively, during the three and nine months ended September 30,2005.  Our effective income tax rate of42% for both the three and nine months ended September 30, 2005,respectively, reflects the non-deductibility of certain expenditures forfederal income tax purposes.  Our mostsignificant non-deductible expenditures are the reserve for the ICT Spectrumsettlement and interest expense on the New Preferred.  For the three and nine months ended September 30,2004, we recorded an income tax expense of $1.4 million and $3.1 million,respectively,  on operating income fromcontinuing operations of $3.1 million and $6.5 million, respectively.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

*Operating Activities*

 

Weused $9.1 million of cash during the nine months ended September 30, 2005compared to $8.3 million for the nine months ended September 30,2004.  The $0.8 million increase in theuse of cash for the nine months ended September 30, 2005 compared to thenine months ended September 30, 2004 was primarily due to an increase inincome tax payments made in 2005 compared to 2004.

 

*Investing Activities*

 

Wereceived $31.5 million in distributions from Kaiser-Hill during the nine monthsended September 30, 2005 compared to $10.4 million for the nine monthsended September 30, 2004.  Theincrease of Kaiser-Hill cash distributions is a result of the continuedfavorable progress in its performance and the DOE’s recognition of thatprogress.

 

*Financing Activities*

 

Duringthe nine months ended September 30, 2005, we redeemed $15.5 millionliquidation preference of New Preferred, utilizing $0.8 million of excessrestricted cash and $14.7 million of unrestricted cash.  During the nine months ended September 30,2004, we redeemed $8.3 million liquidation preference of New Preferred,utilizing $3.1 million of excess restricted cash and $5.2 million ofunrestricted cash.

 

*Liquidity and Capital Resource Outlook*

 

We currently have no debtas a result of the effectiveness of the Plan of Reorganization.  However, as a result of the adoption of SFAS No. 150effective July 1, 2003, and due to the mandatorily redeemable provisionsof the New Preferred, the New Preferred has been reflected as a long termliability.  We have financed the initialbankruptcy distribution requirements and follow-on working capital needs inpart through the use of available cash and distributions from Kaiser-Hill andfrom other asset sale proceeds. Based on (i) current expectations foroperating activities and results, (ii) expected Kaiser-Hill distributions,(iii) our current available cash position, (iv) recent trends andprojections in liquidity and capital needs, and (v) current expectationsof total allowed claims upon the completion of the bankruptcy proceedings,management believes we have sufficient liquidity to cover the required cashdistributions resulting from the resolution of claims in the bankruptcy

 

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process, our futureoperating needs and income tax requirements, as well as the dividend orinterest requirements applicable to our preferred stock.

 

Wehad obligations to pay dividends on outstanding New Preferred at September 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 all future dividends are paid in cash.   Theeffect these obligations are expected to have on our liquidity and cash flow infuture periods are as follows:

 
| ** **                | ** ** | **Total** | ** ** | **Less Than One  Year** | ** ** | **One to Three  Years** | ** ** | **After Three  Years** | ** ** |
|---------------------------|------------|-----------|------------|-------------------------|------------|-------------------------|------------|------------------------|------------|
| Preferred Stock dividends |       | $         | 1,797      |                    | $          | 799                     |       | $                      | 998        |   | — |   |
|                           |            |           |            |                         |            |                         |            |                        |            |  |  |  |

 

Theabove table does not reflect the November 17, 2005 scheduledredemption of $11.4 million of New Preferred, or 207,431 shares.  The redemption of 207,431 shares will redeemall of the remaining outstanding New Preferred held by non-affiliates and willeliminate our dividend payment requirement.

 

*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 7 to the Consolidated Financial Statements.

 

**RISKFACTORS RELATING TO KAISER HOLDINGS AND FORWARD-LOOKING STATEMENTS**

 

This Quarterly Report on Form 10-Qcontains, and our other periodic filings with the Securities and ExchangeCommission and written or oral statementsmade by our officers and directors to the press, potential investors,securities analysts and others, may contain forward-looking statementswithin the meaning of Section 27A of the Securities Act of 1933 and Section 21Eof the Securities Exchange Act of 1934. These forward-looking statements are not historical facts, but ratherare predictions, and generally can be identified by use of statements thatinclude terms such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan”or “foresee” or other words or phrases of similar import.  Similarly, statements that describe or contain information related to matters such asour intent, belief, or expectation with respect to financial performance,claims resolution, cash availability, stock redemption plans, contract awardsand performance, potential acquisitions and joint ventures and cost-cuttingmeasures are forward-looking statements. These forward-lookingstatements often reflect a number of assumptions and involve known and unknownrisks, uncertainties and other factors that could cause our actual results todiffer materially from those currently anticipated in these forward-lookingstatements.  In light of these risks anduncertainties, including those described below, the forward-looking eventsmight or might not occur.  We undertakeno obligation to publicly update any forward-looking statement, whether as aresult of new information, future events or otherwise.

 

**Our remaining primary source offunding is distributions from Kaiser-Hill, 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**.

 

*There are risks associated with potential disputeswith respect to the completion of the cleanup and closure of the Rocky Flatssite and the timing and award of fee payments from DOE to Kaiser-Hill.*

 

On October 13, 2005, Kaiser-Hill declared physical completion ofthe cleanup and closure of DOE’s Rocky Flats site.  DOE is reviewing Kaiser-Hill’s declaration asrequired under the Closure Contract.  Itis possible that there will be disputes as to whether Kaiser-Hill has satisfiedits obligations with respect to the closure of the site.  Such disputes could delay or reduce thepayment of fees due to Kaiser-Hill.  Inaddition, the timing and amount of payments to Kaiser-Hill could be affected bydelays by DOE or other authorities, limitations in processing payments,Congressional or DOE funding of the Rocky Flats project, or disputes related tothe overall U.S. Federal budget or funding of the DOE.

 

*There are potential substantial liabilities and costsassociated with Kaiser-Hill’s DOE contract, which may directly and indirectlyimpact our fee income from Kaiser-Hill.*

 

Under the Closure Contract, Kaiser-Hill isresponsible for, and DOE will not pay for costs associated with, liabilitiescaused by the willful misconduct or lack of good faith of Kaiser-Hill’smanagerial personnel or the failure to exercise prudent business judgment byKaiser-Hill’s managerial personnel. If Kaiser-Hill were found liable for any ofthese reasons, the associated costs

 

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could be substantial, which could have an adverseeffect on our operating results. A decrease in our operating resultscould cause a decrease in the value of our common stock.

 

**We face significant contingencies,which may adversely impact our ability to fund our continuing operations and toundertake 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 we have completed 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 specific 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 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, on satisfactory terms or at all, 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 stock.

 

*We may be unable to generate funds to meet our cashflow needs, and we may be unable to access additional capital.*

 

We may be unable to continue to generatesufficient funds to meet our cash flow needs. Although we believe that we will be able to generate sufficient funds tomeet our working capital needs for the foreseeable future, our ability to gainaccess to additional capital, if needed, is not certain. Due to thereorganization history of Kaiser Group Holdings, Inc. and currentfinancial markets, it is difficult to predict whether additional capital wouldbe available to us in the event that we were unable to generate funds to meetour obligations.  An inability to gainaccess to additional capital could also limit our ability to undertake newactivities.  Ultimately, an inability tomeet our existing obligations or to undertake new activities could adverselyimpact our cash flow and operating results. A decrease in our cash flows and operating results could resultin a decrease in the value of our common stock.

 

*We expect to issue a substantialnumber of additional common shares to the former shareholders of ICT Spectrum,which could be expected to have a materially dilutive effect on the value ofcommon shares currently outstanding.*

 

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 U.S. Bankruptcy Court for the District of Delaware ruled in favor ofthe former shareholders of ICT Spectrum and ordered that we should issue to theformer ICT Spectrum shareholders additional shares of New Common.  On June 24, 2005, the U.S. DistrictCourt for the District of Delaware affirmed the Bankruptcy Court’sdecision.  We timely appealed thisdecision to the U.S. Court of Appeals for the Third Circuit.

 

On October 19, 2005, the Company and representatives of the formershareholders of ICT Spectrum entered into an agreement, subject to BankruptcyCourt approval, to settle claims of the former shareholders of ICTSpectrum.  Under the proposed settlementagreement, the Company will, among other things, issue approximately 175,000shares of New Common, and distribute or make available for distribution thenewly issued shares of New Common together with approximately 10,400 shares ofNew Common previously reserved for the satisfaction of the equity claims offormer shareholders of ICT Spectrum.  On November 7,2005, the Bankruptcy Court granted preliminary approval of the proposedsettlement agreement.  If the BankruptcyCourt grants final approval of the proposed settlement agreement, the issuanceand distribution of the 175,000 shares of New Common could be expected to havea materially dilutive effect on the value of shares of New Common presentlyoutstanding.  If we are unsuccessful inobtaining Bankruptcy Court approval of the proposed settlement agreement, wemay recommence our efforts to achieve reversal of the Bankruptcy Court’s rulingin favor of the former shareholders of ICT Spectrum.  If we are unsuccessful in our efforts toachieve reversal of the Bankruptcy Court’s ruling in favor of the formershareholders of ICT Spectrum, we could be required to issue to former ICTSpectrum shareholders 247,350 shares of New Common in addition to shares onaccount of their old equity interests under the Plan.  Under the terms of the Plan, it is

 

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possible that such issuance would require the issuance of additionalshares to others.  Thus, continuedlitigation relating to the claim of the former ICT Spectrum shareholders couldresult in the issuance of an even greater number of additional shares of NewCommon that could be expected to have a materially dilutive effect on the valueof shares of New Common presently outstanding.

 

**ITEM 3.   QUANTITATIVEAND QUALITATIVE INFORMATION ABOUT MARKET RISK**

 

Wedo not believe that we have significant exposures to market risk because we donot presently have any debt.  Theinterest rate risk associated with our obligation to fund a capped retireemedical obligation is not sensitive to interest rate risk other than withrespect to the determination of the present value of our remaining obligationthereunder.  A 10% increase or decreasein the average annual prime rate would result in a decrease in the carryingvalue of the plan obligation but would not change the actual cost of the plan.

 

**ITEM 4.  CONTROLS ANDPROCEDURES**

 

Asof September 30, 2005, an evaluation was performed under the supervisionand with 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 September 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.

 

**PART II - OTHER INFORMATION**

 

**ITEM 1.  LEGALPROCEEDINGS**

 

SeeItem 3, “Legal Proceedings” in the Annual Report on Form 10-K for the yearended December 31, 2004.  For adiscussion of material developments with respect to such legal proceedingsduring the quarter ended September 30, 2005, see Note 7 of the Notes toConsolidated Financial Statements included in Part I hereof.

 

**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

 

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**ITEM 6.  EXHIBITS**

 
| 2      |   | Second Amended Plan of Reorganization (Incorporated by reference to  Exhibit 2 to Current Report on Form 8-K (Registrant No. 1-12248) filed with  the Commission on December 14, 2000)                                                                                                                                                                           |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 3.1    |   | Certificate of  Incorporation of Kaiser Group Holdings, Inc. (Incorporated by reference  to Exhibit 3(i) to Current Report on Form 8-K (Registrant  No. 1-12248) filed with the Commission on December 14, 2000)                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 3.2    |   | By-laws of  Kaiser Group Holdings, Inc. (Incorporated by reference to  Exhibit 3(ii) to Current Report on Form 8-K (Registrant  No. 1-12248) filed with the Commission on December 14, 2000)                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 4      |   | 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)                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.1   |   | Kaiser Group International, Inc. Employee Stock Ownership Plan (as  amended and restated as of January 1, 1996) (Incorporated by reference  to Exhibit No. 10(b) to Annual Report on Form 10-K  (Registrant No. 1-12248) filed with the Commission on April 17,  2000)                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.2   |   | Amendment No. 1 to Kaiser Group International, Inc. Employee  Stock Ownership Plan, effective January 1, 1998 (Incorporated by  reference to Exhibit No. 10(b)(1) to Annual Report on  Form 10-K (Registrant No. 1-12248) filed with the Commission on  April 17, 2000)                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.3   |   | Amendment  No. 2 to Kaiser Group  International, Inc. Employee Stock Ownership Plan, effective  January 1, 1996 (Incorporated by  reference to Exhibit No. 10(b)(2) to Annual Report on  Form 10-K (Registrant No. 1-12248) filed with the Commission on  April 17, 2000)                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.4   |   | Amendment No. 3 to Kaiser Group International, Inc. Employee  Stock Ownership Plan, dated April 19, 1999 (Incorporated by reference to  Exhibit No. 10(b)(3) to Annual Report on Form 10-K  (Registrant No. 1-12248) filed with the Commission on April 17,  2000)                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.5   |   | Amendment No. 4 to Kaiser Group International, Inc. Employee  Stock Ownership Plan dated June 25, 1999 (Incorporated by reference to  Exhibit No. 10(b)(4) to Annual Report on Form 10-K  (Registrant No. 1-12248) filed with the Commission on April 17,  2000)                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.6   |   | Trust Agreement with Vanguard Fiduciary Trust Company, dated as of  August 31, 1995, in connection with the ICF Kaiser  International, Inc. Employee Stock Ownership Plan (Incorporated by  reference to Exhibit No. 10(c) to Registration Statement on  Form S-1 (Registrant No. 33-64655) filed with the Commission on  November 30, 1995) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.7   |   | ICF Kaiser  International, Inc. Retirement Plan (as amended and restated as of  March 1, 1993, and further amended with respect to name change only as  of June 26, 1993) (Incorporated by reference to  Exhibit No. 10(d) to Quarterly Report on Form 10-Q  (Registrant No. 1-12248) filed with the Commission on October 15,  1993)   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.8   |   | Amendment No. 1 to ICF Kaiser  International, Inc. Retirement Plan, dated April 24, 1995  (Incorporated by reference to Exhibit No. 10(d)(1) to Annual  Report on Form 10-K (Registrant No. 1- 12248) filed with the  Commission on May 23, 1995)                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.9   |   | Amendment No. 2 to ICF Kaiser International, Inc.  Retirement Plan, dated December 15,  1995 (Incorporated by reference to Exhibit No. 10(d)(2) to  Transition Report on Form 10-K (Registrant No. 1-12248) for the  transition period from March 1, 1995 to December 31, 1995 filed  with the Commission on March 29, 1996)  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.10  |   | Amendment No. 3 to ICF Kaiser  International, Inc. Retirement Plan, dated December 13, 1996  (Incorporated by reference to Exhibit No. 10(d)(3) to  Registration Statement on Form S-1 (Registrant No. 333-19519) filed  with the Commission on January 10, 1997)                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.11  |   | Amendment No. 4 to ICF Kaiser International, Inc.  Retirement Plan, dated April 19,  1999 (Incorporated by reference to Exhibit No. 10(d)(4) to  Annual Report on Form 10-K (Registrant No. 1-12248) filed with the  Commission on April 17, 2000)                                                                                      |

 

22

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| 10.12  |   | Amendment No. 5 to ICF Kaiser International, Inc.  Retirement Plan, dated June 25, 1999  (Incorporated by reference to Exhibit No. 10(d)(5) to Annual  Report on Form 10-K (Registrant No. 1-12248) filed with the  Commission on April 17, 2000)                                                                                               |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.13  |   | Amendment No. 6 to ICF Kaiser International, Inc.  Retirement Plan, dated August 30,  1999 (Incorporated by reference to Exhibit No. 10(d)(6) to  Annual Report on Form 10-K (Registrant No. 1-12248) filed with the  Commission on April 17, 2000)                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.14  |   | Amendment No. 7 to ICF Kaiser  International, Inc. Retirement Plan, 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)                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.15  |   | Amendment  No. 8 to ICF Kaiser International, Inc. Retirement Plan, dated  June 8, 2000 (Incorporated by reference to Exhibit 10(d)(8) to  Quarterly Report on Form 10-Q (Registrant No. 1-12248) filed with  the Commission on September 6, 2000)                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.16  |   | Amendment  No. 9 to ICF Kaiser International, Inc. Retirement Plan, dated  June 19, 2003 (Incorporated by reference to Exhibit 10(c)(9) to  Quarterly Report on Form 10-Q (Registrant No. 1-12248) filed with  the Commission on August 14, 2003)                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.17  |   | Amendment  No. 10 to ICF Kaiser International, Inc. Retirement Plan, dated  March 17, 2004 (Incorporated by reference to Exhibit 10(c)(10) to  Quarterly Report on Form 10-Q (Registrant No. 1-12248) filed with  the Commission on May 24, 2004)                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.18  |   | Trust Agreement with Vanguard Fiduciary Trust Company, dated as of  August 31, 1995, in connection with the ICF Kaiser  International, Inc. Retirement Plan (Incorporated by reference to  Exhibit No. 10(e) to Registration Statement on Form S-1  (Registrant No. 33-64655) filed with the Commission on November 30,  1995)                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.19  |   | ICF Kaiser  International, Inc. Section 401(k) Plan (as amended and restated as  of March 1, 1993, and further amended with respect to name change only  as of June 26, 1993) (Incorporated by reference to  Exhibit No. 10(f) to Quarterly Report on Form 10-Q  (Registrant No. 1-12248) filed with the Commission on October 15,  1993)  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.20  |   | Amendment No. 1 to ICF Kaiser International, Inc.  Section 401(k) Plan, dated  April 24, 1995 (Incorporated by reference to  Exhibit No. 10(p)(1) to Annual Report on Form 10-K  (Registrant No. 1-12248) filed with the Commission on May 23, 1995)                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.21  |   | Amendment No. 2 to ICF Kaiser  International, Inc. Section 401(k) Plan, dated December 15,  1995 (Incorporated by reference to Exhibit No. 10(p)(2) to  Transition Report on Form 10-K (Registrant No. 1-12248) for the  transition period from March 1, 1995 to December 31, 1995 filed  with the Commission on March 29, 1996) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.22  |   | Amendment No. 3 to ICF Kaiser International, Inc.  Section 401(k) Plan, dated  December 13, 1996 (Incorporated by reference to  Exhibit No. 10(q)(3) to Registration Statement on Form S-1  (Registrant No. 333-19519) filed with the Commission on January 10,  1997)                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.23  |   | Amendment No. 4 to ICF Kaiser International, Inc.  Section 401(k) Plan, dated  April 8, 1999 (Incorporated by reference to  Exhibit No. 10(k)(4) to Annual Report on Form 10-K  (Registrant No. 1-12248) filed with the Commission on April 17,  2000)                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.24  |   | Amendment No. 5 to ICF Kaiser International, Inc.  Section 401(k) Plan, dated  June 25, 1999 (Incorporated by reference to  Exhibit No. 10(k)(5) to Annual Report on Form 10-K  (Registrant No. 1-12248) filed with the Commission on April 17,  2000)                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.25  |   | Amendment No. 6 to ICF Kaiser  International, Inc. Section 401(k) Plan, 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)                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.26  |   | Amendment No. 7 to ICF Kaiser  International, Inc. Section 401(k) Plan, dated January 1, 2001  (Incorporated by reference to Exhibit No. 10(m)(7) to Annual  Report on Form 10-K (Registrant No. 1-2248) filed with the  Commission on April 2, 2001)                                                                                      |

 

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| 10.27  |   | Amendment No. 8 to ICF Kaiser  International, Inc. Section 401(k) Plan, dated December 10,  2002 (Incorporated by reference to Exhibit 10(e)(8) to Quarterly  Report on Form 10-Q (Registrant No. 1-12248) filed with the  Commission on August 14, 2003)                                                                                |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.28  |   | Amendment No. 9 to ICF Kaiser  International, Inc. Section 401(k) Plan, dated June 19, 2003  (Incorporated by reference to Exhibit 10(e)(9) to Quarterly Report  on Form 10-Q (Registrant No. 1-12248) filed with the Commission on  August 14, 2003)                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.29  |   | Amendment No. 10 to ICF Kaiser  International, Inc. Section 401(k) Plan, dated March 17, 2004  (Incorporated by reference to Exhibit 10(e)(10) to Quarterly Report  on Form 10-Q (Registrant No. 1-12248) filed with the Commission on  May 24, 2004)                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.30  |   | Amendment No. 11 to ICF Kaiser  International, Inc. Section 401(k) Plan, dated November 11,  2004 (Incorporated by reference to Exhibit 10(e)(11) to Quarterly Report  on Form 10-Q (Registrant No. 1-12248) filed with the Commission on  November 15, 2004)                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.31  |   | Trust Agreement with Vanguard Fiduciary Trust Company, dated as of  March 1, 1989, in connection with the ICF Kaiser  International, Inc. Section 401(k) Plan (Incorporated by reference  to Exhibit No. 28(b) to Registration Statement on  Form S-8 (Registrant No. 33-51460) filed with the Commission on  August 31, 1992)           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.32  |   | Contract between 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 Report on Form 10-K (Registrant  No. 1-12248) filed with the Commission on April 17, 2000)                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.33  |   | Modification  M116 to Contract between Kaiser-Hill  Company, LLC and the U.S. Department of Energy , 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)                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.34  |   | Assignment of  Membership Interest in Hunters Branch Leasing, LLC by and between Kaiser  Holdings Unlimited, Inc. (Assignor)  and Nutley Partners, LC (Assignee), dated January 1, 2001 (Incorporated  by reference to Exhibit No. 10(i) to Annual Report on  Form 10-K (Registrant No. 1-12248) filed with the Commission on  April 2, 2001) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.35  |   | Subcontract between The S.M. Stoller Corporation and Kaiser Group  Holdings, Inc., dated June 30, 2004 (Incorporated by  reference to Exhibit No. 10(i) to Quarterly Report on  Form 10-Q (Registrant No. 1-12248) filed with the Commission on  August 13, 2004)                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.36  |   | Kaiser Group  Holdings, Inc. 2002 Equity Compensation Plan, as amended (Incorporated  by reference to Exhibit No. 10 to Registration Statement on  Form S-8 (Registration No. 333-107912) filed with the Commission on  August 13, 2003)                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.37  |   | Amended and  Restated Employment Agreement with John T. Grigsby, Jr., President and  Chief Executive Officer, effective as of December 18, 2000 (Incorporated  by 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)                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.38  |   | Transition  Agreement between Kaiser Group Holdings, Inc. and John T.  Grigsby, Jr. effective as of August 31, 2004 (Incorporated by  reference to Exhibit 99 to Current Report on Form 8-K (Registration  No. 1-12248) filed with the Commission on September 1, 2004)                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 31.1   |   | Certification of Chief Executive Officer,  pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities  Exchange Act of 1934, as amended                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 31.2   |   | Certification of Chief Financial Officer,  pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities  Exchange Act of 1934, as amended                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 32.1   |   | Certification of Chief Executive Officer,  pursuant to 18 U.S.C. Section 1350                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 32.2   |   | Certification of Chief Financial Officer,  pursuant to 18 U.S.C. Section 1350                                                                                                                                                                                                                                                                                                    |

 

24

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**SIGNATURES**

 

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

 
|                         | **KAISER GROUP HOLDINGS, INC.**                                    |   |
|------------------------------|--------------------------------------------------------------------|--------|
|                         | (Registrant)                                                       |   |
|                         |                                                               |
| Date: November 14, 2005 |                                                               |
|                         |                                                               |
|                         | /s/ Marian P. Hamlett                                              |   |
|                         | Marian P. Hamlett                                                  |
|                         | Executive Vice President and Chief Financial                       |
|                         | Officer (Duly authorized officer and principal  financial officer) |
|                              |                                                                    |        |  |

 

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