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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2002 Commission File Number 333-65194
KAISER VENTURES LLC
-------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0972983
- -------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3633 East Inland Empire Blvd., Suite 480
Ontario, California 91764
-----------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (909) 483-8500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
At July 30, 2002, 6,911,799 Class A Units were outstanding including 136,919
Class A Units outstanding but reserved for distribution to the general unsecured
creditors of Kaiser Steel Corporation.
TABLE OF CONTENTS TO FORM 10-Q
PAGE
PART I
FORWARD-LOOKING STATEMENTS ....................................... 1
Item 1. FINANCIAL STATEMENTS ................................. 1/14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ................ 2
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS .......................... 15
CONSOLIDATED STATEMENTS OF OPERATIONS ................ 17
CONSOLIDATED STATEMENTS OF CASH FLOWS ................ 18
CONSOLIDATED STATEMENTS OF CHANGES IN
MEMBERS' EQUITY .................................... 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ........... 20
PART II
Item 1. LEGAL PROCEEDINGS .................................... 22
Item 2. CHANGES IN SECURITIES ................................ 22
Item 3. DEFAULTS UPON SENIOR SECURITIES ...................... 22
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS .... 22
Item 5. OTHER INFORMATION .................................... 23
Item 6. EXHIBITS AND REPORTS ON FORM 8-K ..................... 23
SIGNATURES ....................................................... 24
AVAILABILITY OF PREVIOUS REPORTS
The Company will furnish without charge, to each unitholder, upon written
request of any such person, a copy of the Company's annual report on Form 10-K
for the year ended December 31, 2001, as filed with the Securities and Exchange
Commission, including the financial statement schedules thereto. Those
requesting a copy of the 10-K Report that are not currently members of the
Company may also obtain a copy directly from the Company. Requests for a copy of
the 10-K Report should be directed to Executive Vice President-Administration,
at 3633 East Inland Empire Boulevard, Suite 480, Ontario, California 91764. The
Form 10-K Report can also be accessed from the Company's website at
www.kaiserventures.com.
The reader is encouraged to read this Form 10-Q Report in conjunction with
the Company's Form 10-K Report for the period ended December 31, 2001, and the
Company 2002 First Quarter Form 10-Q Report since the information contained
herein is often an update of the information in such reports.
i
KAISER VENTURES LLC AND SUBSIDIARIES
PART I
FORWARD-LOOKING STATEMENTS
Except for the historical statements and discussions contained herein,
statements contained in this 10-Q Report constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Any 10-K Report,
Annual Report, 10-Q Report, 8-K Report or press release of the Company may
include forward-looking statements. In addition, other written or oral
statements, which constitute forward-looking statements, have been made and may
be made in the future by the Company. You should not put undue reliance on
forward-looking statements. When used or incorporated by reference in this 10-Q
Report or in other written or oral statements, the words "anticipate,"
"estimate," "project" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks,
uncertainties, and assumptions. We believe that our assumptions are reasonable.
Nonetheless, it is likely that at least some of these assumptions will not come
true. Accordingly, should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated, expected, or projected.
For example, our actual results could materially differ from those projected as
a result of factors such as, but not limited to: Kaiser's inability to complete
the anticipated sale of its Eagle Mountain landfill project; litigation,
including, among others, claims that relate to Eagle Mountain and pre-bankruptcy
activities of Kaiser Steel Corporation, the predecessor of Kaiser, including,
among others, asbestos claims; insurance coverage disputes; the impact of
federal, state, and local laws and regulations on the landfill project;
competition; the challenge, reduction or loss of any claimed tax benefits;
and/or general economic conditions in the United States and Southern California.
The Company disclaims any intention to update or revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.
Additional Information
A reader of this 10-Q Report is strongly encouraged to read the entire
report, together with the Company's 2001 Form 10-K Report and 2002 First Quarter
Form 10-Q Report for background information and a complete understanding as to
material developments concerning the Company.
Who We Are
Unless otherwise noted: (1) the term "Kaiser Inc." refers to the former
Kaiser Ventures Inc., (2) the term "Kaiser LLC" refers to Kaiser Ventures LLC,
and (3) the terms "Kaiser," "the Company," "we," "us," and "our," refer to past
and ongoing business operations conducted in the form of Kaiser Inc. or Kaiser
LLC, and their respective subsidiaries. Kaiser Inc. merged with and into Kaiser
LLC effective November 30, 2001.
Item 1. FINANCIAL STATEMENTS
The Financial Statements are located at the end of Item 2, beginning on
Page 14 of this Report and are incorporated herein by this reference.
1
KAISER VENTURES LLC AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Business Update
General
Kaiser is the reorganized successor to Kaiser Steel Corporation, which was
an integrated steel manufacturer that filed for bankruptcy protection in 1987.
Since the Kaiser Steel bankruptcy, we have been developing certain assets
remaining after the bankruptcy. Currently, our principal assets include:
. An approximate 80% ownership interest in Mine Reclamation, LLC, (which
we refer to as MRC), which has permitted a rail-haul municipal solid
waste landfill at a property called the Eagle Mountain Site located in
the California desert. This landfill is currently subject to a contract
for its sale to County District No. 2 of Los Angeles County (which we
refer to as the District) for approximately $41 million;
. A 50% ownership interest in the West Valley Materials Recovery Facility
and Transfer Station, a transfer station and materials recovery
facility located on land acquired from Kaiser, which we refer to as the
West Valley MRF;
. Approximately 5,450 additional acres owned or controlled by Kaiser at
the Eagle Mountain Site that are not included in the pending sale to
the District; and
. Cash and cash equivalents, short-and long-term investments and current
receivables of approximately $15.5 million as of June 30, 2002, a
substantial portion of which are maintained for ongoing and anticipated
future activities of Kaiser.
At the November 28, 2001 annual meeting of Kaiser Inc. stockholders, the
conversion of Kaiser Inc. into a limited liability company was approved. The
conversion was accomplished by the merger of Kaiser Inc. with and into Kaiser
LLC, with Kaiser LLC being the surviving entity. The merger was effective as of
11:59 p.m. on November 30, 2001, and trading in Kaiser Inc.'s common stock
ceased as of the close of business on such date. As a result of the merger, each
Kaiser Inc. stockholder of record as of December 5, 2001, was entitled to
receive $10.00 in cash and one Class A Unit in Kaiser LLC per share of Kaiser
Inc. common stock. The Class A Units were valued as of the date of the merger at
$1.50 per unit pursuant to an independent appraisal.
Eagle Mountain Landfill Project
Background. In 1988, we entered into a 100-year lease agreement (the "MRC
Lease") with MRC. MRC is seeking to develop a substantial portion of our former
iron ore mine near Eagle Mountain, California into a large, regional rail-haul,
municipal solid waste landfill (the "Landfill Project"). We currently own 80% of
the Class B units and 100% of the Class A units of MRC. In December 1999, the
Landfill Project received its last major permit necessary to construct and
operate a rail-haul landfill. The Landfill Project is permitted to receive a
maximum of 20,000 tons per day of municipal solid waste for up to 88 years.
2
KAISER VENTURES LLC AND SUBSIDIARIES
Sale of Landfill Project. In August 2000, MRC entered into that certain
Agreement For Purchase and Sale of Real Property and Related Personal Property
In Regard To The Eagle Mountain Sanitary Landfill Project and Joint Escrow
Instructions ("Landfill Project Sale Agreement") with the District. In summary,
the Landfill Project (which includes our royalty payments under the MRC Lease)
is being sold for $41 million. The exact timing of any initial closing is
currently unknown. In addition, payment of the purchase price will be delayed as
described in more detail below. The sale of the Landfill Project is subject to
the results of the District's due diligence, satisfaction of numerous
contingencies and the negotiations of various ancillary agreements. The
contingencies include, but are not limited to, obtaining the transfer of the
Landfill Project's permits to the District and obtaining all necessary consents
to the transaction. We agreed to vote our interest in MRC in favor of the sale
of the Landfill Project to the District on its current terms.
The District has been undertaking extensive due diligence on the Landfill
Project and is waiting for receipt of several items, including final land and
right-of-way surveys. In addition, the parties are negotiating the terms of
various ancillary agreements such as joint use agreements for access, utilities,
and the Eagle Mountain railroad. After the sale of the Landfill Project, Kaiser
will continue to own more than 4,000 acres in the Eagle Mountain area, including
the Eagle Mountain town site. The parties agreed to extend the closing date to
September 30, 2002. However, the contractual expiration date has been extended a
number of times. The conditions to closing are not expected to be met by the
current expiration date, and the parties will have to decide whether to extend
the period one or more additional times or waive certain conditions. There is no
assurance or requirement that the parties will continue to extend the closing
date and, if it is extended, for how long.
Upon closing, $39 million of the total purchase price will be deposited
into an escrow account and will be released when litigation contingencies are
fully resolved. The litigation contingencies are the federal litigation
challenging the completed federal land exchange. Interest began to accrue on
this portion of the purchase price in May 2001, and will be paid out to MRC on a
quarterly basis beginning with a successful outcome of the federal litigation at
the Federal District Court level for a period of up to four years. The remaining
$2 million of the purchase price will also be placed into an escrow account upon
closing and will be released upon the later of (1) the release of the $39
million as described above or (2) the permitting approvals of the District's
Puente Hills landfill for its remaining 10 years of capacity. Receipt by MRC of
any portion or all the purchase price, if at all, could be delayed for a
substantial period of time pending satisfactory resolution of these
contingencies. The District's environmental impact report for its Puente Hills
landfill was approved in January 2002. However, litigation has been commenced
against the District's environmental impact report for the expansion.
The foregoing summary of the Landfill Purchase Agreement is qualified in
its entirety by the Landfill Purchase Agreement filed as an exhibit to Kaiser
Inc.'s second quarter 2000 Form 10-Q Report.
Landfill Project Litigation. Currently, the only pending litigation
involving the Landfill Project concerns two lawsuits filed in Federal District
Court located in Riverside County challenging the completed federal land
exchange and requesting its reversal. To date, no immediate injunctive relief
has been sought. These two lawsuits generally involve the same parties that were
the plaintiffs in the unsuccessful litigation regarding the state environmental
impact report litigation and the unsuccessful appeals before the Interior Board
of Land Appeals. In March 2002, the Federal District Court ruled against the
Plaintiffs' motion requesting that discovery be allowed in the cases and also
dismissed the
3
KAISER VENTURES LLC AND SUBSIDIARIES
suit against the National Park Service. Briefing is currently underway in this
litigation with the final brief due in the fourth quarter of 2002.
As discussed in previous reports, a decision in an unrelated case (Desert
Citizens Against Pollution v Bisson, (9th Circuit Court of Appeals, Case No.
97-55429)), has the potential of having a material adverse impact on the federal
land exchange litigation and consequently, the Landfill Project and its pending
sale. In that case, the Court of Appeals, among other things, determined that
the U.S. Bureau of Land Management ("BLM") did not properly value the land being
acquired by the developer of the Mesquite landfill project by not considering
the land being acquired as a potential landfill. As a result of this decision,
the plaintiffs in MRC's federal land exchange litigation amended their
respective complaints to now assert that the appraisal used to complete the
federal land exchange between the BLM and the Company is similarly defective.
The BLM is currently undertaking an independent appraisal review of Kaiser's
land exchange in light of the decision in the Bission case.
Risks. As is discussed in this Form 10-Q Report and in more detail in the
Company's 2001 Form 10-K Report, there are numerous risks associated with MRC
and the Landfill Project, including the competition represented by the Mesquite
rail-haul landfill project, which the District has also agreed to purchase. The
District has entered into an agreement to purchase the Mesquite rail-haul
landfill on what management understands to be substantially similar terms. There
are also numerous risks and contingencies associated with the pending sale of
the Landfill Project to the District. There can be no assurance that the sale to
the District will occur or that the current terms of the pending transaction may
not be modified as a result of future discussions with the District or as to the
timing of the receipt of the purchase price. In addition, there are litigation
risks associated with the current federal land exchange litigation, including
reversal of the completed land exchange which risks have increased as a result
of the Ninth Circuit Courts of Appeals' decision discussed above.
West Valley Materials Recovery and Transfer Station
West Valley MRF, LLC, referred to as "West Valley," was formed in June 1997
by Kaiser Recycling Corporation (now Kaiser Recycling, LLC (formerly Kaiser
Recycling, Inc.)), a wholly-owned subsidiary of Kaiser, and West Valley
Recycling & Transfer, Inc., a wholly-owned subsidiary Burrtec Waste Industries,
Inc. This entity was formed to construct and operate the materials recovery
facility referred to as the West Valley MRF.
West Valley MRF has the capacity and the permits to process up to 5,000
tons of municipal solid waste per day. During the second quarter of 2002 West
Valley MRF processed, on average, approximately 3,000 tons per day or
14,000-15,000 tons per week of municipal solid waste.
As part of our continuing strategy, we intend to evaluate any potential
offers to purchase our interest in the West Valley MRF in light of our primary
objective of optimizing value for our members. The West Valley MRF currently
generates more than sufficient cash flow to fund its cost of operations and does
not require additional investment by Kaiser to operate. Furthermore, the West
Valley MRF should generate sufficient cash distributions to cover a significant
portion of Kaiser LLC's foreseeable general and administrative costs.
Eagle Mountain Townsite
A portion of the Eagle Mountain Townsite is leased to a company that
operates a minimum security prison under contract with the State of California.
As reported in our Form 10-K Report for
4
KAISER VENTURES LLC AND SUBSIDIARIES
2001, there is a continuing concern that funding for private prisons may be
discontinued due to State of California budgetary pressures. While funding for
private prisons was initially eliminated in California's 2002 - 2003 state
budget, we understand that it currently is the intent of the California
legislature to restore funding for one year. However, since the 2002-2003 budget
for the State of California has not been passed and signed into law by the
Governor of California as of the filing of this Form 10-Q Report, there is no
assurance that funding will actually be restored. Accordingly, the Company is
extending the current lease with the prison operator on a month to month basis
and is deferring the rent payable under the lease. If funding for the private
prison fails to materialize, we will not be paid rent after June 30, 2002. Even
if there should be funding for the private prison in California's 2002-2003
budget, there is no assurance that funding for the private prison at the Eagle
Mountain Townsite will continue beyond one year. However, if funding for the
private prison is discontinued, for any reason, and/or the MTC lease is
terminated, Kaiser would significantly curtail its remaining Eagle Mountain
operations and staffing and record a reserve for the cost of such a curtailment.
Operating Results
Primary Revenue Sources
Ongoing Operations
The Company's revenues from ongoing operations are generally derived from
the development of the Company's long-term projects. Revenues from water
resources represent payments under the lease of the Company's interest in FUWC
to Cucamonga. However, the lease with Cucamonga terminated effective March 6,
2001, with the sale of the Company's interest in FUWC to Cucamonga. Income from
equity method investments reflect Kaiser's share of income related to its
investment in the West Valley MRF.
Interim Activities (net)
Revenues from interim activities are generated from various short-term
activities that historically are not material to the Company's ongoing
operations.
Summary of Revenue Sources
Due to the developmental nature of certain Company projects and the
Company's recognition of revenues from bankruptcy-related and other
non-recurring items, historical period-to-period comparisons of total revenues
may not be meaningful for developing an overall understanding of the Company.
Therefore, the Company believes it is important to evaluate the trends in the
components of its revenues as well as the recent developments regarding its
long-term ongoing and interim revenue sources. See "Part I, Item 1. BUSINESS"
for a discussion of recent material events affecting the Company's revenue
sources.
Results of Operations
Analysis of Results for the Quarters Ended June 30, 2002 and 2001
An analysis of the significant components of the Company's resource
revenues for the quarters ended June 30, 2002 and 2001 follows:
5
KAISER VENTURES LLC AND SUBSIDIARIES
2002 2001 % Inc. (Dec)
---- ---- ------------
Ongoing Operations
Deferred gain on Mill Site land sales ...... 27,000 26,000 4%
Income from equity method investment in
West Valley MRF, LLC ..................... 355,000 217,000 64%
-------------- -------------- ----------
Total ongoing operations ................. 382,000 243,000 57%
-------------- -------------- ----------
Interim Activities Net Loss
Lease, service and other ................... (65,000) (75,000) 13%
--------------- --------------- ----------
Total resource revenues .................. $ 317,000 $ 168,000 89%
============== ============== ==========
Resource Revenues. Total resource revenues for the second quarter of 2002
were $317,000, compared to $168,000 for 2001. Revenues from ongoing operations
increased 57% for the quarter to $382,000 from $243,000 in 2001, while interim
activities (net of related expenses) improved to a net expense of $65,000 from a
net expense of $75,000 in 2001.
Ongoing Operations. The Company recognized deferred gain of $27,000 and
$26,000, respectively, in the second quarters of 2002 and 2001 from the sales of
certain Mill Site properties that took place in 1997 and 1999.
Income from equity method investments increased by $138,000 to $355,000 due
to higher equity income from the WVMRF during the second quarter of 2002
compared to $217,000 recorded for the same period 2001. This increase in equity
income in the West Valley MRF is mainly due to a 6% increase in volume of waste
processed at the WVMRF ($216,000) being partially offset by an increase in
depreciation expense due to the facility expansion being completed in May 2001
($72,000).
Interim Activities Net Loss. Interim activities net of expenses for the
second quarter of 2002 reported a net expense of $65,000 compared to a net
expense of $75,000 for the same period in 2001. This reduction in interim
activities expense (net) is only temporary and is primarily due to the
reimbursement of salaries and expenses by Mine Reclamation LLC on a capital
improvement project which was concluded during the second quarter of 2002
($27,000). This net increase is being partially offset by lower net operating
revenue at the California Mines which were sold in February 2001 ($37,000).
In November 2000, the voters of California passed Proposition 36 entitled,
"The Substance Abuse and Crime Prevention Act" which allowed certain individuals
convicted of certain drug offenses to enter a treatment program instead of
prison. A benefit of this law was to help reduce the demand for prison cells in
California. In February 2002, with a projected deficit of over $20 billion,
California's Governor proposed a budget for the fiscal year beginning in July
2002, that did not contain funding for privately run prisons in the state. After
hearings in the legislature, the California Senate determined a need for the
private prisons to still exist and passed a budget bill containing funding for
all privately run prisons through June 2003. However, as of the filing of this
Form 10-Q Report, a budget bill has not been passed and signed into law. If
funding for private prisons is not retained in California's final budget, the
Company's lease with MTC will terminate as soon as practicable after June 30,
2002. This lease termination will likely result in the mothballing and closure
of the entire Eagle Mountain Townsite by year-end at an anticipated cost of
$500,000 to $1.0 million. The Company is extending the current lease on a
month-to-month basis and is deferring payment of rent under the lease. If
funding for private prisons is discontinued, the Company will not be paid rent
after June 30, 2002.
6
KAISER VENTURES LLC AND SUBSIDIARIES
Resource Operating Costs. Resource operating costs are those costs directly
related to the associated resource revenue. Previously these costs consisted of
lease commission expense and outside legal costs associated with the CCWD lease.
These expenses terminated with the sale of the Company's investment in its FUWC
stock on March 6, 2001.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses for the second quarter of 2002 decreased 38% to $675,000
from $1,085,000 for 2001. This decrease is primarily due to lower non-cash
variable stock option accounting ($117,000) and lower professional and outside
consulting expenses ($390,000) being partially offset by the elimination of a
previously established reserve during the second quarter of 2001 ($100,000).
This reserve was established for certain assets that were sold in the first
quarter of 2001, and thus was determined to be unnecessary and was reversed
against general and administrative expenses.
Net Interest Income. Net interest income for the second quarter of 2002 was
$92,000 compared to $1,012,000 in 2001. This change was due primarily to an
decrease in interest income ($924,000) due to lower cash and investment
balances.
Pre-Tax Loss and Income Tax Provision. The Company recorded a loss before
income tax provision of $266,000 for the second quarter of 2002, versus income
of $95,000 recorded in 2001. Subsequent to the Company's conversion into an LLC,
the Company is taxed as a partnership and thus, the Company's results of
operations (on an income tax basis) are distributed to the unitholders for
inclusion in their respective income tax returns. Therefore, with the exception
of a small gross revenue tax imposed by the State of California (maximum annual
liability $12,590), there are no income taxes imposed directly on the Company.
An income tax provision of $1,000 was recorded in the second quarter of 2002
compared to $25,000 for 2001.
Net Income. For second quarter of 2002, the Company reported a net loss of
$267,000, or $0.04 per unit, versus net income of $70,000, or $0.01 per share,
reported for 2001.
Results of Operations
Analysis of Results for the Six Months Ended June 30, 2002 and 2001
An analysis of the significant components of the Company's resource
revenues for the six months ended June 30, 2001 and 2000 follows:
2002 2001 % Inc. (Dec)
---- ---- ------------
Ongoing Operations
Gain on Sale of FUWC Stock ................. $ --- $ 65,171,000 (100%)
Water resource ............................. --- 295,000 (100%)
Gain on sale of California mines ........... --- 1,756,000 (100%)
Deferred gain on Mill Site land sales ...... 53,000 53,000 ---%
Income from equity method investment in
West Valley MRF, LLC ..................... 602,000 474,000 27%
--------------- --------------- -----------
Total ongoing operations ................. 655,000 67,749,000 (99%)
--------------- --------------- -----------
Interim Activities Net Loss
Lease, service and other ................... (59,000) (106,000) 44%
--------------- --------------- -----------
Total resource revenues .................. $ 596,000 $ 67,643,000 (99%)
=============== =============== ===========
7
KAISER VENTURES LLC AND SUBSIDIARIES
Resource Revenues. Total resource revenues for the first six months of 2002
were $596,000, compared to $67,643,000 for 2001. Revenues from ongoing
operations decreased 99% for the six months to $655,000 from $67,749,000 in
2001, while interim activities (net of related expenses) improved to net expense
of $59,000 from a net expense of $106,000 in 2001.
Ongoing Operations. During the first six months of 2001, the Company sold
its investment in FUWC to Cucamonga (to whom the shares were leased under a 102
year lease) for $87.5 million, resulting in a gain of $65.2 million. Water lease
revenues under the Company's 102-year take-or-pay lease with Cucamonga were $0
during the first six months of 2002 compared to $295,000 for 2001. The absence
of water lease revenues during the first six months of 2002 reflects the sale of
the Company's investment in its FUWC stock which closed March 6, 2001.
During the first six months of 2001, the Company sold its California Mine
properties for $2.0 million, resulting in a gain of $1,756,000. The Company also
recognized deferred gain of $53,000 from the sales of certain Mill Site
properties in 1997 and 1999, in the first six months of 2002 and 2001.
Income from equity method investments increased by $128,000 to $602,000 due
to higher equity income from the WVMRF during the first six months of 2002
compared to $474,000 recorded for the same period 2001. This increase in equity
income in the West Valley MRF is mainly due to a 7% increase in volume of waste
processed at the WVMRF ($502,000), being partially offset by increases in: (a)
depreciation expense due to the facility expansion being completed in May 2001
($184,000); (b) increased repairs and maintenance on rolling stock ($80,000);
and (c) other operational and overhead expenses ($98,000).
Interim Activities Net Loss. Interim activities net of expenses for the
first six months of 2002 reported a net expense of $59,000 compared to a net
expense of $106,000 for the same period in 2001. This reduction in interim
activities expense (net) is only temporary and is primarily due to the
reimbursement of salaries and expenses by Mine Reclamation LLC on a capital
improvement project which was concluded during the second quarter of 2002
($97,000). This net increase is being partially offset by lower net operating
revenue at the California Mines which were sold in February 2001 ($37,000).
As discussed in "Results of Operations - Analysis for the Quarters ended
June 30, 2002 and 2001 - Interim Activities Net Loss" on Page 6 of this Form
10-Q Report, continued funding for private prisons by the State of California is
in jeopardy. If funding for private prisons is not retained in California's
final budget for 2002-2003, the Company's lease with MTC will terminate as soon
as practicable after June 30, 2002. This lease termination will likely result in
the mothballing and closure of the entire Eagle Mountain Townsite by year-end at
an anticipated cost of $500,000 to $1.0 million. Rents after June 30, 2002, are
being deferred until funding for private prisons is restored. If funding for
private prisons is discontinued, the Company will not be paid rent after June
30, 2002.
Resource Operating Costs. Resource operating costs are those costs directly
related to the associated resource revenue. Total resource operating costs for
the first six months of 2002 decreased to $0 from $42,000 in 2001. This decrease
was due to a decrease in the lease commission and outside legal costs associated
with the CCWD lease. These expenses terminated with the sale of the Company's
investment in its FUWC stock on March 6, 2001.
8
KAISER VENTURES LLC AND SUBSIDIARIES
Corporate General and Administrative Expenses. Corporate general and
administrative expenses for the first six months of 2002 decreased 55% to
$1,561,000 from $3,435,000 for 2001. The decrease is primarily due to: (a) lower
non-cash variable stock option accounting ($1,272,000); (b) the exercise of
nonqualified stock options ($195,000); and (c) lower professional and outside
consulting expenses ($492,000) being partially offset by the elimination of a
previously established reserve during the second quarter of 2001 ($100,000).
This reserve was established for certain assets that were sold in the first
quarter of 2001, and thus was determined to be unnecessary and was reversed
against general and administrative expenses.
Net Interest Income. Net interest income for the first six months of 2002
was $277,000 compared to $1,399,000 in 2001. The change was due primarily to:
(a) an decrease in interest income ($1,151,000) due to lower cash and investment
balances and a decrease in interest expense ($32,000) associated with the
Company's $30,000,000 revolving-to-term credit facility with Union Bank which
was terminated prior to the Company's sale of its FUWC stock (the collateral for
the debt).
Pre-Tax Loss and Income Tax Provision. The Company recorded a loss before
income tax provision of $688,000 for the first six months of 2002, versus income
of $65,565,000 recorded in 2001. Subsequent to the Company's conversion into an
LLC, the Company is taxed as a partnership and thus, the Company's results of
operations (on an income tax basis) are distributed to the unitholders for
inclusion in their respective income tax returns. Therefore, with the exception
of a small gross revenue tax imposed by the State of California (maximum annual
liability $12,590), there are no income taxes imposed directly on the Company.
An income tax provision of $3,000 was recorded in the first six months of 2002
compared to $17,486,000 for 2001.
Net Income. For first six months of 2002, the Company reported a net loss
of $691,000, or $0.10 per unit, versus net income of $48,079,000, or $7.35 per
share, reported for 2001.
Financial Position
Cash, Cash Equivalents and Short-Term Investments. The Company defines cash
equivalents as highly liquid debt instruments with original maturities of 90
days or less. Cash and cash equivalents decreased $10,322,000 to $6,067,000 at
June 30, 2002 from $16,389,000 at December 31, 2001. Included in cash and cash
equivalents is $1,408,000 and $1,387,000 held solely for the benefit of MRC at
June 30, 2002 and December 31, 2001, respectively. The decrease in cash and cash
equivalents is primarily due to: (a) the investment of excess cash reserves into
short-term and long-term commercial paper and corporate bonds ($7,930,000); (b)
the payment of year-end accruals of $1,561,000; (c) capital expenditures of
$1,386,000 (predominately relating to the Eagle Mountain Landfill Project); and
(d) an operating loss of $691,000. These cash uses were partially offset by
receipt of an income tax receivable of $1,182,000 and cash distributions from
the West Valley MRF of $500,000.
Working Capital. During the first six months of 2002, current assets
decreased $6.9 million to $11.9 million, while current liabilities decreased by
$1.4 million from $2.8 million to $1.4 million. The decrease in current assets
resulted primarily from the $10.3 million decrease in cash and cash equivalents,
as a result of the items discussed immediately above, and a $1.2 million decline
in income tax receivable, being partially offset by a $4.4 million increase in
short-term investments. Additionally, $3.5 million of cash was invested in
long-term bonds and commercial paper in 2002. The decrease in current
liabilities resulted primarily from the payment of year-end accruals ($1.4
million). Included in current liabilities as of June 30, 2002 is $309,000 in
accounts payable and
9
KAISER VENTURES LLC AND SUBSIDIARIES
accrued liabilities relating to MRC. As a result, working capital decreased
during the first six months of 2002 by $5.4 million to $10.6 million at June 30,
2002.
Short-Term and Long-Term Investments. During the second quarter of 2002,
the Company invested $7.9 million of its cash reserves in high-grade marketable
commercial paper and corporate bonds with maturities that closely match the
Company's anticipated future cash requirements. Due to the maturity dates of
these investments, $4.4 million was classified as a current asset while $3.5
million was classified as a long-term asset.
Investments. There was a $102,000 increase in the Company's investment in
the WVMRF during the first six months of 2002 due to the Company's recording of
its equity share of income during the period ($602,000) being nearly offset by
$500,000 in cash distributions. The Company's investment in the Eagle Mountain
Landfill increased $1,531,000 during the first six months of 2002 due to
continuing landfill development activities.
Other Assets. The decrease in other assets ($309,000) is related to
decreases in notes receivable due to the receipt of recurring payments
($166,000), and an increase in accumulated depreciation as of June 30, 2002
($143,000).
Environmental Remediation. As of June 30, 2002, based upon current
information, we estimate that our future environmental liability related to
certain matters not assumed by CCG Ontario, LLC, a subsidiary of Catellus
Development Corporation, a New York Stock Exchange company, in its purchase of
the Mill Site Property (August 2000), including groundwater and other possible
third party claims, would be approximately $4.0 million. However, we purchased,
effective June 30, 2001, a 12 year $50 million insurance policy at a cost of
approximately $3.8 million. This policy will cover, among other things,
virtually any and all environmental liabilities and claims, including defense
costs, (up to the $50 million policy limit) relating to the historical
operations and assets of the Company reflected in the above $4.0 million
liability. Due to the nature of the insurance policy, generally accepted
accounting practices require that the cost of the policy be capitalized, as an
asset, separately from the related liability.
Long-Term Liabilities. The decrease in other long-term liabilities
($128,000) is primarily due to a decrease in accrued liabilities ($66,000) and
the recognition of deferred gains on real estate sales ($53,000).
Minority Interest and Other Liabilities. As of June 30, 2002, the Company
has recorded $5,487,000 of minority interest relating to the approximately 19%
ownership interest in MRC the Company does not own.
Contingent Liabilities. The Company has contingent liabilities more fully
described in the notes to the financial statements.
Critical Accounting Policies
The Company's accounting policies are more fully described in the Notes to
the Financial Statements. As disclosed in the Notes to the Financial Statements,
the preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions about future events that affect the amounts reported in the
financial statements and accompanying notes. Future events and their effects
cannot be determined
10
KAISER VENTURES LLC AND SUBSIDIARIES
with absolute certainty and therefore, the determination of estimates requires
the exercise of judgment. Actual results inevitably will differ from those
estimates, and such differences may be material to the financial statements.
The Company believes the following critical accounting policies are
important to the portrayal of the Company's financial condition and results.
Investments. The Company accounts for investments under the provisions of
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." The investments are classified as
"held-to-maturity" and are recorded at the purchase price of the security plus
or minus the amortization of the discount or premium paid.
Investment in West Valley MRF, LLC. The Company accounts for its investment
in West Valley MRF, LLC, the owner of West Valley MRF, under the equity method
of accounting because of the Company's 50% ownership interest.
Landfill Permitting and Development. Through its 80% interest in Mine
Reclamation, LLC, the Company has been developing, for sale to a municipal
entity or operating company, its property known as the Eagle Mountain Site in
the California desert for use as a rail-haul municipal solid waste landfill.
Pursuant to Statement of Financial Accounting Standards No. 67 "Accounting for
Costs and Initial Rental Operations of Real Estate Projects," capitalizable
landfill site development costs are recorded at cost and expensed when
management determines that the capitalized costs provide no future benefit.
Long-Lived Assets. In accordance with Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-lived Assets and
Long-lived Assets to be Disposed of," long-lived assets are evaluated for
potential impairment whenever events or changes in circumstances indicate the
carrying amount of an asset may not be recoverable. Beginning in 2002, the
Company is evaluating impairment in accordance with SFAS No. 144.
Revenue Recognition. Revenues are recognized when the Company has completed
the earnings process and an exchange transaction has taken place.
Use of Estimates. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Environmental Reserves. The Company has obligations for environmental
liabilities and based on management's estimates, the Company has recorded
reserves for these obligations. The Company has purchased an insurance policy
related to these environmental liabilities and due to the nature of the
insurance policy, accounting principles generally accepted in the United States
require that the cost of policy be capitalized as an Other Asset separately from
the related liability and amortized as the related liabilities are resolved.
11
KAISER VENTURES LLC AND SUBSIDIARIES
Business Outlook
The statements contained in this Business Outlook, as well as in Part I.
Item 1. BUSINESS, are based upon current operations and expectations. In
addition to the forward-looking statements and information contained elsewhere
in this Form 10-Q Report, these statements are forward-looking and, therefore,
actual results may differ materially. See the Company's disclosure regarding
forward-looking statements in the section entitled "Forward-Looking Statements"
above.
Ongoing Operations. As noted above, our revenues from ongoing operations
have, in the past, generally been derived from the development of our major
long-term projects and investments. The development of a number of these
projects and investments, such as our 50% equity ownership of the West Valley
MRF, is essentially complete and we have been recognizing significant revenues
and income from these investments. However, the revenues from ongoing operations
were significantly reduced in 2001 as a result of completing the sale of our
stock in Fontana Union to Cucamonga. In addition, we distributed a significant
portion of the net proceeds received from the Fontana Union stock sale
($69,285,000) to Kaiser Inc.'s stockholders in December 2001, in connection with
the merger between Kaiser Inc. with and into Kaiser LLC. We also continue to
evaluate our remaining assets and investments in light of how to best provide
maximum value to our members.
In regard to the West Valley MRF, the most significant factor affecting our
future equity income from the West Valley MRF is the profitability of the
expansion of the facility's capacity from 2,000 to 5,000 tons per day. The
expanded facility is now operational. The expansion enlarged the processing
facility by an additional 80,000 square feet and provides for additional
materials recovery sorting capacity. The ultimate success of this expansion will
continue to depend on the ability of the West Valley MRF to attract new
customers and waste volumes at attractial processing rates, and on the future
construction of any competing facilities.
As part of our strategy, we intend to evaluate any potential offers to
purchase our interest in the West Valley MRF in light of our primary objective
of maximizing value for our stockholders. The West Valley MRF currently
generates more than sufficient cash flow to fund its cost of operations and does
not require additional investment by us to operate. Furthermore, the West Valley
MRF should continue to generate sufficient cash distributions to cover a
significant portion of Kaiser LLC's foreseeable general and administrative
costs.
Pending Sale of Eagle Mountain Landfill Project. In August 2000, MRC
entered into an agreement to sell the landfill project located at the Eagle
Mountain Site to the District. Under that agreement, MRC will receive $41
million for the landfill project if the conditions to closing are satisfied and
the sale transaction closes. The cash will be held in escrow pending the
resolution of certain additional contingencies, which are not expected to occur
for several years. The closing of this sale is subject to, among other things,
the results of the District's due diligence, obtaining the transfer of the
landfill project's permits to the District, obtaining all necessary consents to
the transaction and resolution of various title and joint use matters. For
additional information see "Part I, Item 1. BUSINESS - Eagle Mountain Landfill
Project and Pending Site." The parties have agreed numerous times to extend the
initial closing date of the sale transaction pending receipt of land surveys,
resolution of title matters, resolution of joint use agreements, resolution of
certain title issues, receipt of third-party approvals or consents and other
matters. Further extensions during 2002 of the Closing date will be required.
There is no assurance that such extensions will be granted by either party.
12
KAISER VENTURES LLC AND SUBSIDIARIES
If the sale transaction closes, $39 million of the total purchase price
will be deposited, upon closing, into an escrow account and will be released
when the outstanding federal litigation related to MRC's federal land exchange
with BLM is fully and satisfactorily resolved. Although the $39 million has not
yet been deposited into escrow, interest on this $39 million began accruing at
the beginning of May 2001. Accrued interest on this portion of the purchase
price, for up to a four year period, will be paid out to MRC on a quarterly
basis beginning with a successful outcome of the federal litigation. If the
transaction closes, the remaining $2 million of the purchase price will also be
placed into an escrow account, upon closing, and will be released upon the later
of (i) the release of the $39 million as described above, or (2) the permitting
approval of the District's Puente Hills landfill for its remaining 10 years of
capacity.
Mill Site Property. The only remaining Mill Site Property owned by the
Company is an approximate five acre parcel referred to as the Tar Pits Parcel.
CCG is obligated to remediate the environmental contamination of this parcel
pursuant to the terms of CCG's purchase of approximately 588 acres of the Mill
Site Property from us in August 2000.
Sale of Miscellaneous Properties. We are continuing to seek buyers for our
miscellaneous properties, most of which are located at or near our Eagle
Mountain facility.
Corporate Overhead. As we divest our remaining assets, we intend to further
reduce our corporate staffing and overhead to reflect the reduced requirements
of its remaining operations and projects. The costs of such reductions shall be
recorded at the time the decision to make such reductions is made by the
Company.
Capital Resources. Kaiser LLC expects that its current cash balances and
short-term and long-term investments together with cash provided from operating
activities will be sufficient to satisfy our projected operating cash
requirements for the next 3-4 years.
Cash Maximization Strategy
We have been developing the assets we received out of the Kaiser Steel
bankruptcy and then selling them at such time as we believe we can optimize the
realizable value for a particular project or asset. During 2000 and 2001, we:
(i) sold the balance of our real estate at the former Kaiser Steel Corporation
mill site near Fontana, California, except for an approximate five acre parcel;
(ii) entered into an agreement to sell the landfill project to the District,
with MRC and the District working toward a closing on such transaction; (iii)
sold our interest in Fontana Union to Cucamonga; and (iv) paid a total of $12.00
per share in cash distributions to Kaiser Inc.'s stockholders. In continuing
this strategy, our current plans include:
. To complete the sale of the landfill project and to resolve favorably
the related outstanding federal land exchange litigation. Although the
closing with the District is currently scheduled to occur during 2002,
this sale is subject to the satisfaction of numerous conditions, and,
as a result, we cannot be sure when or if this sale will ultimately
close. Also, due to the status of the Districts' due diligence and
negotiations regarding joint use matters, we currently anticipate that
the closing date may be delayed further. If the sale transaction is
completed, we do not expect to receive any substantial cash from the
sale until the related litigation matters are resolved, which may be
several years. See "Part I. - Items 2. Eagle Mountain Landfill Project
and Sale of Landfill Project";
13
KAISER VENTURES LLC AND SUBSIDIARIES
. To continue to hold our interest in West Valley MRF, which pays cash
distributions to us, until we believe we can maximize stockholder value
through a sale or other alternative transaction;
. To sell our remaining miscellaneous assets such as surplus property in
Southern California; and
. To further reduce our general and administrative expenses.
Conversion. In November 2001, the stockholders of Kaiser Inc.
overwhelmingly approved the conversion of Kaiser Inc. into a newly-formed
limited liability company pursuant to a merger between the Kaiser Inc. and
Kaiser LLC. In this conversion, Kaiser Inc.'s stockholders received $10.00 in
cash plus one Class A Unit for each share of common stock in Kaiser Inc. The
conversion to a limited liability company and the resulting cash payment to
stockholders was an important step in the implementation of the Cash
Maximization Strategy.
FINANCIAL STATEMENTS
[The Remainder of this Page was Intentionally Left Blank]
14
KAISER VENTURES LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of
June 30, December 31,
2002 2001
---- ----
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents ....................................... $ 6,067,000 $ 16,389,000
Accounts receivable and other, net of allowance for
doubtful accounts of $34,000 .................................. 408,000 173,000
Short-term investments .......................................... 4,412,000 ---
Income tax receivable ........................................... 722,000 1,904,000
Notes receivable ................................................ 337,000 337,000
--------------- ---------------
11,946,000 18,803,000
--------------- ---------------
Eagle Mountain Landfill Investment ................................... 27,182,000 25,651,000
--------------- ---------------
Investment in West Valley MRF ........................................ 3,990,000 3,888,000
--------------- ---------------
Land and improvements ................................................ 2,503,000 2,503,000
--------------- ---------------
Long-term investments ................................................ 3,518,000 ---
--------------- ---------------
Other Assets
Notes Receivable ................................................ 1,182,000 1,348,000
Unamortized environmental insurance premium ..................... 3,800,000 3,800,000
Buildings and equipment (net) ................................... 1,074,000 1,217,000
--------------- ---------------
6,056,000 6,365,000
--------------- ---------------
Total Assets ......................................................... $ 55,195,000 $ 57,210,000
=============== ===============
The accompanying notes are an integral part of the consolidated financial
statements.
15
KAISER VENTURES LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of
June 30, December 31,
2002 2001
---- ----
(Unaudited)
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Accounts payable .............................................. $ 395,000 $ 278,000
Accrued liabilities ........................................... 988,000 2,521,000
--------------- ---------------
1,383,000 2,799,000
--------------- ---------------
Long-term Liabilities
Deferred gain on sale of real estate .......................... 536,000 589,000
Accrued liabilities ........................................... 268,000 334,000
Environmental remediation ..................................... 3,991,000 4,000,000
--------------- ---------------
4,795,000 4,923,000
--------------- ---------------
Total Liabilities ................................................... 6,178,000 7,722,000
--------------- ---------------
Minority Interest ................................................... 5,487,000 5,280,000
--------------- ---------------
Commitments and Contingencies
Members' Equity
Class A units; issued and outstanding 6,911,799 and
6,901,299, respectively ....................................... 43,530,000 44,208,000
Class B units; issued and outstanding 751,956 ................... --- ---
Class C units; issued and outstanding 952 and 0,
respectively .................................................. --- ---
Class D units; issued and outstanding 48 and 0, respectively .... --- ---
--------------- ---------------
Total Members' Equity ............................................... 43,530,000 44,208,000
--------------- ---------------
Total Liabilities and Members' Equity ............................... $ 55,195,000 $ 57,210,000
=============== ===============
The accompanying notes are an integral part of the consolidated financial
statements.
16
KAISER VENTURES LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the Three and Six Months Ended June 30
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
-------------------------------- --------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Resource Revenues
Ongoing operations
Gain on sale of FUWC ........................ $ --- $ --- $ --- $65,171,000
Water resource .............................. --- --- --- 295,000
Gain on sale of California mines ............ --- --- --- 1,756,000
Deferred gain on Mill Site land sales ....... 27,000 26,000 53,000 53,000
Income from equity method
investments West Valley MRF, LLC .......... 355,000 217,000 602,000 474,000
----------- ----------- ----------- -----------
Total ongoing operations .................. 382,000 243,000 655,000 67,749,000
Interim Activities Net Loss ................... (65,000) (75,000) (59,000) (106,000)
----------- ----------- ------------ -----------
Total resource revenues ................... 317,000 168,000 596,000 67,643,000
Resource Operating Costs ......................... --- --- --- 42,000
----------- ----------- ----------- -----------
Income from Resources ............................ 317,000 168,000 596,000 67,601,000
----------- ----------- ----------- -----------
Corporate General and Administrative Expenses
Corporate overhead expenses, excluding stock
based compensation and stock option
repricing expenses .......................... 675,000 968,000 1,561,000 1,968,000
Stock based compensation expense ............... --- --- --- 195,000
Stock option repricing expense ................. --- 117,000 --- 1,272,000
----------- ----------- ----------- -----------
675,000 1,085,000 1,561,000 3,435,000
----------- ----------- ----------- -----------
Income (loss) from Operations .................... (358,000) (917,000) (965,000) 64,166,000
Net interest income ........................... (92,000) (1,012,000) (277,000) (1,399,000)
----------- ----------- ------------ ------------
Income (loss) before Income Tax Provision ........ (266,000) 95,000 (688,000) 65,565,000
Income tax provision .......................... 1,000 25,000 3,000 17,486,000
----------- ----------- ----------- -----------
Net Income (loss) ................................ $ (267,000) $ 70,000 $ (691,000) $48,079,000
=========== =========== ============ ===========
Basic Earnings (loss) Per Share .................. $ (0.04) $ .01 $ (0.10) $ 7.35
=========== =========== ============ ===========
Diluted Earnings (loss) Per Share ................ $ (0.04) $ .01 $ (0.10) $ 7.26
=========== =========== ============ ===========
Basic Weighted Average Number of
Units/Shares Outstanding ..................... 6,906,000 6,463,000 6,905,000 6,544,000
Diluted Weighted Average Number of
Units/Shares Outstanding ..................... 6,926,000 6,541,000 6,925,000 6,621,000
The accompanying notes are an integral part of the consolidated financial
statements.
17
KAISER VENTURES LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Six Months Ended June 30
(Unaudited)
2002 2001
---- ----
Cash Flows from Operating Activities
Net (loss) income ....................................... $ (691,000) $ 48,079,000
Income from equity method investments ................... (602,000) (474,000)
Gain on sale of FUWC Stock .............................. --- (65,171,000)
Gain on sale of California Mines ........................ --- (1,756,000)
Deferred tax expense .................................... --- 12,860,000
Issuance of Restricted Class A Units .................... 11,000 ---
Unit/Stock based compensation expense ................... --- 159,000
Stock option repricing .................................. --- 1,273,000
Depreciation and amortization ........................... 143,000 129,000
Allowance for doubtful accounts ......................... --- ---
Mill Site deferred gain realized ........................ (53,000) (53,000)
Changes in assets:
Receivables and other ................................. (235,000) 1,726,000
Income tax receivable ................................. 1,182,000 ---
Changes in liabilities:
Current liabilities ................................... (1,561,000) (960,000)
Income taxes payable .................................. --- 1,054,000
Long-term accrued liabilities ......................... (66,000) (129,000)
-------------- --------------
Net cash flows from (used in) operating activities ...... (1,872,000) 3,263,000
-------------- --------------
Cash Flows from Investing Activities
Proceeds from the sale of FUWC Stock .................... --- 81,783,000
Proceeds from the sale of the California Mines ......... --- 726,000
Purchase of short/long-term investments ................. (7,930,000) ---
Minority interest ....................................... 207,000 ---
Distribution from West Valley MRF ...................... 500,000 500,000
Notes receivable collections ............................ 166,000 114,000
Environmental insurance ................................. --- (3,800,000)
Capital expenditures .................................... (1,386,000) (579,000)
Environmental remediation expenditures .................. (9,000) (126,000)
-------------- --------------
Net cash flows from (used in) investing activities ...... (8,452,000) 76,618,000
-------------- --------------
Cash Flows from Financing Activities
Issuance of Class A units/common stock .................. 2,000 131,000
-------------- --------------
Net cash flows from financing activities ................ 2,000 131,000
-------------- --------------
Net Changes in Cash and Cash Equivalents .................... (10,322,000) 75,486,000
Cash and Cash Equivalents at Beginning of Year .............. 16,389,000 10,097,000
-------------- --------------
Cash and Cash Equivalents at End of Quarter ................. $ 6,067,000 $ 85,583,000
============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
18
KAISER VENTURES LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
for the Three Months Ended June 30, 2002
(Unaudited)
Class A Members'
Units Equity
-------------------------------
Balance at December 31, 2001 6,901,299 $ 44,208,000
Issuance of
Class A units ................ 10,500 13,000
Net Loss ....................... --- (691,000)
------------- ---------------
Balance at June 30, 2002 .......... 6,911,799 $ 43,530,000
============= ===============
The accompanying notes are an integral part of the consolidated financial
statements.
19
KAISER VENTURES LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. BASIS OF PRESENTATION
The unaudited, consolidated financial statements as of June 30, 2002 and
for the three and six month periods ended June 30, 2002 and 2001, as well as
related notes, should be read in conjunction with the audited consolidated
financial statements and related notes as of and for the year ended December 31,
2001. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary (all of which are normal and/or
recurring in nature) to present fairly the Company's financial position at June
30, 2002, and results of operations and cash flows for the three and six month
periods ended June 30, 2002 and 2001.
New Accounting Pronouncement. Effective January 1, 2002, the Company
adopted the provisions of Financial Accounting Standards Board Statement No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144),
which supersedes prior accounting standards concerning the financial accounting
and reporting for the impairment or the disposition of long-lived assets and for
the disposition of a segment of a business. The adoption of FAS 144 did not have
an effect on the Company's results of operations or financial condition and is
effective for fiscal years beginning after December 15, 2001.
Investments. The Company accounts for investments under the provisions of
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." The investments are classified as
"held-to-maturity" and are recorded at the purchase price of the security plus
or minus the amortization of the discount or premium paid.
Note 2. SUPPLEMENTAL CASH FLOW INFORMATION
During the six months ended June 30, 2002 the Company issued a total of
7,500 Restricted Class A units to outside members of its Board of Managers as
part of their compensation. The restrictions on these units lapse in January
2003.
In the first quarter of 2001, the Company sold its California Mine Property
for $2 million, $700,000 cash at closing and $1.3 million in the form of a note
receivable secured by the real estate.
During the six months ended June 30, 2001 the Company had 44,833 stock
options exercised on a net basis. These transactions resulted in the Company
receiving 30,146 shares of its own common stock as payment for the purchase
price of the options and for the payment of income taxes.
Note 3. INVESTMENTS
The Company has an Investment Policy which provides for the investment of
excess cash balances primarily in commercial paper, debt instruments and
government securities. All investments are classified as held-to-maturity
investments. The following is a summary of investment securities:
20
KAISER VENTURES LLC AND SUBSIDIARIES
June 30, 2002
Less Current Maturities from
Held-to-Maturity Securities Amortized Cost Maturities One to Five Years
U.S. corporate commercial paper $ 4,442,000 $ 3,912,000 $ 530,000
U.S. corporate debt securities 2,487,000 0 2,487,000
U.S. corporate securities 1,001,000 500,000 501,000
--------------- --------------- ----------------
$ 7,930,000 $ 4,412,000 $ 3,518,000
--------------- --------------- ----------------
Note 4. EVALUATION OF LONG-LIVED ASSETS
The Company reviews all long-lived assets on a quarterly basis to determine
if the anticipated cashflows from the assets will equal or exceed their
capitalized costs. Our reviews as of June 30, 2002, concluded that no impairment
of any long-lived asset existed: (a) the Eagle Mountain Landfill Project is
currently under a sale contract with County District No. 2 of Los Angeles County
for $41 million (80% of which belongs to Kaiser), far more than its capitalized
cost; (b) our 50% ownership interest in the West Valley Materials Recovery
Facility and Transfer Station continues to generate significant net income and
positive cashflow; (c) our long-term notes receivable are performing as written;
and (d) our other real estate and building and equipment are recorded at the
lower of cost or fair market values.
Note 5. EAGLE MOUNTAIN CONTRACT WITH MANAGEMENT TRAINING CORP
In November 2000, the voters of California passed Proposition 36 entitled,
"The Substance Abuse and Crime Prevention Act" which allowed certain individuals
convicted of certain drug offenses to enter a treatment program instead of
prison. A benefit of this law was to help reduce the demand for prison cells in
California. In February 2002, with a projected deficit of over $20 billion,
California's Governor proposed a budget for the fiscal year beginning in July
2002, that did not contain funding for privately run prisons in the state. After
hearings in the legislature, the California Senate determined a need for the
private prisons to still exist and passed a budget bill containing funding for
all privately run prisons through June 2003. However, as of the filing of this
Form 10-Q Report, a budget bill has not been passed and signed into law. If
funding for private prisons is not retained in California's final budget, the
Company's lease with MTC will terminate as soon as practicable after June 30,
2002. This lease termination will likely result in the mothballing and closure
of the entire Eagle Mountain Townsite by year-end at an anticipated cost of
$500,000 to $1.0 million. The Company is extending the current lease on a
month-to-month basis and is deferring payment of rent under the lease. If
funding for private prisons is discontinued, the Company will not be paid rent
after June 30, 2002.
Note 6. COMMITMENTS AND CONTINGENCIES
Environmental Contingencies. As of June 30, 2002, based upon current
information, we estimate that our future environmental liability related to
certain matters not assumed by CCG Ontario, LLC, a subsidiary of Catellus
Development Corporation, a New York Stock Exchange company, in its
21
KAISER VENTURES LLC AND SUBSIDIARIES
purchase of the Mill Site Property (August 2000), including groundwater and
other possible third party claims, would be approximately $4.0 million. However,
we purchased, effective June 30, 2001, a 12 year $50 million insurance policy at
a cost of approximately $3.8 million. This policy will cover, among other
things, virtually any and all environmental liabilities and claims, including
defense costs, (up to the $50 million policy limit) relating to the historical
operations and assets of the Company reflected in the above $4.0 million
liability. Due to the nature of the insurance policy, generally accepted
accounting practices require that the cost of the policy be capitalized
separately from the related liability.
Note 7. EQUITY
During the first quarter of 2002, the Company issued Class C and D units to
certain officers and terminated the Long-Term Incentive Plan ("TIP") as to
future unearned payments that could have been payable to the Company's executive
officers. Payments to holders of the Class C and D units will only be paid upon
the monetization of the Company's major assets. Payments, if any, will be made
under a formula that replicates the amount that would have been paid under the
TIP if it had been continued. Class C and D units are not entitled to any other
distributions or profits, have no voting rights except as required by law and
are not transferable.
PART II
Item 1. LEGAL PROCEEDINGS
As discussed in the Company's Form 10-K Report for 2001, and in the
Company's Form 10-Q Report for the quarter ended March 31, 2002, the Company is
engaged in certain claims and litigation. There were no material developments in
any legal proceeding in the second quarter.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
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KAISER VENTURES LLC AND SUBSIDIARIES
Item 5. OTHER INFORMATION
During the second quarter, employment agreements between Business Staffing,
Inc. and the Company's executive officers were finalized. There were no material
changes from the employment agreements formerly with Kaiser Inc. except that the
severance benefits of an executive officer will vest upon the death of the
executive officer. Business Staffing, Inc. leases to the Company all of its
employees.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
*10.1 Employment Agreement between Business Staffing, Inc. and
Terry L. Cook dated effective January 1, 2002.
*10.2 Employment Agreement between Business Staffing, Inc. and Paul
E Shampay dated effective January 1, 2002.
*10.3 Employment Agreement between Business Staffing, Inc. and
Richard E. Stoddard dated effective January 1, 2002.
*10.4 Employment Agreement between Business Staffing, Inc. and
James F. Verhey dated effective January 1, 2002.
(* Indicates a compensation plan, contract or arrangement.)
B. Reports on Form 8-K
None.
[The Remainder of this Page was Intentionally Left Blank]
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KAISER VENTURES LLC AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
KAISER VENTURES INC.
Dated: August 5, 2002 /s/ James F. Verhey
---------------------------
James F. Verhey
Principal Financial Officer
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