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EXCEL - IDEA: XBRL DOCUMENT - CIL&D, LLC | Financial_Report.xls |
EX-32 - CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 1350 - CIL&D, LLC | d243117dex32.htm |
EX-31.1 - CERTIFICATE OF RICHARD E. STODDARD CEO, PURSUANT TO RULE 13A-14(A)/15D-14(A) - CIL&D, LLC | d243117dex311.htm |
EX-31.2 - CERTIFICATE OF JAMES F. VERHEY CFO, PURSUANT TO RULE 13A-14(A)/15D-14(A) - CIL&D, LLC | d243117dex312.htm |
Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011 |
¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-33433
KAISER VENTURES LLC
(Exact name of small business issuer as specified in its charter)
DELAWARE | 33-0972983 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
3633 East Inland Empire Blvd., Suite 480
Ontario, California 91764
(Address of principal executive offices and zip code)
Registrants telephone number, including area code: (909) 483-8500
No Change
(Former name, former address and former fiscal year, if change since last report)
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 ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No x
At November 1, 2011, the registrant had 6,957,712 Class A Units outstanding including: (i) 104,267 Class A Units outstanding but reserved for distribution to the general unsecured creditors in the Kaiser Steel Corporation bankruptcy; (ii) 113,101 Class A Units outstanding and reserved for issuance to holders of Kaiser Ventures Inc. stock that have to convert such stock into Kaiser Ventures LLC Class A Units; and (iii) 84,612 units outstanding that are subject to certain vesting requirements.
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KAISER VENTURES LLC AND SUBSIDIARIES
TABLE OF CONTENTS TO FORM 10-Q
PAGE | ||||||
PART I | ||||||
FORWARD-LOOKING STATEMENTS | 1 | |||||
Item 1. |
1/15 | |||||
Item 2. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
2 | ||||
Item 3. |
10 | |||||
11 | ||||||
12 | ||||||
14 | ||||||
15 | ||||||
16 | ||||||
PART II | ||||||
Item 1. |
23 | |||||
Item 2. |
23 | |||||
Item 3. |
23 | |||||
Item 4. |
23 | |||||
Item 5. |
23 | |||||
Item 6. |
23 | |||||
25 |
AVAILABILITY OF PREVIOUS REPORTS
The Company will furnish without charge, to each member, upon written request of any such person, a copy of the Companys 2010 Annual Report on Form 10-K and the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 and for the quarter ended June 30, 2011. Those requesting a copy of such reports that are not currently members of the Company may also obtain a copy of the reports directly from the Company upon payment of a nominal photocopying charge. Requests for a copy of any report filed with the Securities and Exchange Commission should be directed to Executive Vice President-Administration, at 3633 East Inland Empire Boulevard, Suite 480, Ontario, California 91764. All such reports can also be accessed from the Companys website at www.kaiserventures.com.
The reader is encouraged to read this Report on Form 10-Q in conjunction with the Companys 2010 Annual Report on Form 10-K and the Companys first and second quarter 2011 Report on Form 10-Q as the information contained herein is often an update of the information in such reports.
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PART I
Except for the historical statements and discussions contained herein, statements contained in this Report on Form 10-Q 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, 10-KSB Report, Annual Report, 10-Q Report, 10-QSB Report, 8-K Report or press release of the Company and any amendments thereof 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: the filing by Mine Reclamation, LLC of a voluntary petition in bankruptcy pursuant to Chapter 11 of the U.S. Bankruptcy Code; pre-bankruptcy activities of Kaiser Steel Corporation, the predecessor of Kaiser, and asbestos claims; insurance coverage disputes; the challenge, reduction or loss of any claimed tax benefit, including Kaisers conclusion that its tender offer completed in December 2008 would not result in the Company being treated as a publicly traded partnership; any obligations that could arise out of any sale of the Companys ownership interests in Kaiser Eagle Mountain, LLC, Lake Tamarisk Development, LLC and Mine Reclamation, LLC; 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 Report on Form 10-Q is strongly encouraged to read the entire report, together with the Companys 2010 Annual Report on Form 10-K and the Companys Report on Form 10-Q for the period ended March 31, 2011 and for the period ended June 30, 2011 for background information and a complete understanding as to material developments concerning the Company. Such report can be found on Kaisers website at www.kaiserventures.com under the Member Relations tab.
WHO WE ARE
Unless otherwise noted: (1) the term Kaiser LLC refers to Kaiser Ventures LLC; (2) the term Kaiser Inc. refers to the former Kaiser Ventures Inc.; (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 currently Kaiser LLC, and their respective subsidiaries. Kaiser Inc. merged with and into Kaiser LLC effective November 30, 2001; (4) the terms Class A Units and members refer to Kaiser LLCs Class A Units and the beneficial owners thereof, respectively; and (5) the term the merger refers to the merger of Kaiser Inc. with and into Kaiser LLC effective November 30, 2001, in which Kaiser LLC was the surviving company. Kaiser is the reorganized successor to Kaiser Steel Corporation, referred to as KSC, which was an integrated steel manufacturer that filed for bankruptcy protection in 1987.
Item 1. | FINANCIAL STATEMENTS |
The Financial Statements are located at the end of Item 3, beginning on Page 11 of this Report and are incorporated herein by this reference.
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Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
BUSINESS UPDATE
Overview
Our business is developing and monetizing as appropriate the remaining assets we received from the KSC bankruptcy. Following is a summary of our material assets other than cash and securities:
| We own an 84.247% ownership interest in Mine Reclamation, LLC, (referred to as MRC), which has been seeking to develop a rail-haul municipal solid waste landfill at a property called the Eagle Mountain Site located in the California desert (the Landfill Project). On October 30, 2011, MRC filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for Central District of California, Riverside Division, bankruptcy case number 6:11-bk-43596 (the Bankruptcy Court). MRC will continue to operate its business as a debtor in possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code, Rules and orders of the Bankruptcy Court. The Landfill Project has been the subject of intense litigation in federal court over the course of more than ten years regarding the validity of a land exchange with the U.S. Bureau of Land Management (BLM). The land exchange is central to the development of the Landfill Project as permitted. On March 28, 2011, the U.S. Supreme Court denied the request of MRC for further review of the prior decision of the U.S. 9th Circuit Court of Appeals that had been adverse to the position of MRC and the BLM. Thus, the previous federal land exchange litigation is now final and concluded as there is no further right of appeal. Although the matter has been remanded to the BLM for further proceedings in accordance with the decision of the U.S 9th Circuit Court of Appeals, there is no pending litigation and no current plan or process being undertaken by MRC to fix the land exchange since MRC does not have the funds or wherewithal to pursue such an objective. For additional information on the federal land exchange litigation see below in Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSEAGLE MOUNTAIN LANDFILL PROJECT AND MRCPrior Federal Landfill Project Litigation. Further, MRC and the County Sanitation District No. 2 of Los Angeles County (the District) had entered into an 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 on August 9, 2000 (the Landfill Project Sale Agreement). The closing date under the Landfill Project Sale Agreement had been extended numerous times since December 31, 2000, pursuant to written extension agreements between MRC and the District. Under each of those extension agreements, the District had the right to either purchase the Landfill Project in its as is condition or to terminate its Landfill Project Sale Agreement with MRC. The latest extension of the closing date under the Landfill Project Sale Agreement was set to expire on October 31, 2011. The Chief Engineer and General Manager of the District had indicated that the District was not intending to proceed with the purchase of the Landfill Project. He later communicated that the District would be purchasing the Landfill Project on October 31, 2011. The District subsequently repudiated in writing the terms of the latest extension agreement, and threatened to sue MRC to, among other things, compel MRC, at MRCs sole expense and risk, to further proceed with the permitting of the landfill which would involve substantial additional financial resources and time, neither of which MRC has. Thus, MRC filed for bankruptcy protection on October 30, 2011, in federal bankruptcy court in Riverside County, California in order to preserve and protect its assets and options with respect to such assets. Management does not currently believe that MRCs bankruptcy filing will have a material impact on Kaisers operations. |
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| We continue to own or control millions of tons of iron ore resources at the Eagle Mountain Site. With this large amount of iron ore reserves and with the current high market prices for iron ore and other commodities, we have been aggressively pursuing possible opportunities with regard to the iron ore and other mineral resources. In this regard, the Company has retained an investment banking and advisory firm to assist it in exploring possible opportunities and transactions with regard to these resources. The Company received several confidential proposals for transactions involving the Eagle Mountain iron ore resources. The Company did enter into an option and purchase agreement whereby the option holder could purchase Kaisers ownership interest in MRC, in Kaiser Eagle Mountain, LLC (Kaiser Eagle Mountain), the owner of the property at Eagle Mountain, and in Lake Tamarisk Development, LLC (Lake Tamarisk), the owner of property at Lake Tamarisk. Such purchase was subject, in all instances, to the rights of the District to acquire the Landfill Project on or before October 31, 2011. The option holder was also willing to purchase the ownership interests in MRC that Kaiser did not own. However, with the actions of the District and the bankruptcy filing by MRC, the option holder did not exercise its option. The performance of the option and purchase agreement was tolled for a limited period and that tolling period will lapse without further extension. |
| We are also analyzing the issues and opportunities created by the proposed hydro-electric pumped storage project at the Eagle Mountain Site including the threat of the taking of our property by eminent domain. |
| We continue to own a 50% ownership interest in the West Valley Materials Recovery Facility and Transfer Station, a transfer station and materials recovery facility which we refer to as the West Valley MRF. |
Cash Maximization Strategy Status
In September 2000, Kaiser Inc.s Board of Directors approved a strategy to maximize the cash ultimately to be distributed to our owners taking into account all circumstances and applicable legal requirements. This strategy was continued with the conversion of Kaiser Inc. to a limited liability company at the end of 2001. Consistent with this strategy, Kaiser Inc. historically completed or entered into a number of transactions which resulted in Kaiser Inc. distributing a total of $12 per unit in cash to its shareholders. The adverse final decision in the federal land exchange litigation negatively impacts MRCs ability to pursue the Landfill Project, which in turn alters and adversely impacts the timing of the continuing implementation of the cash maximization strategy. In addition, the potential sale of our ownership interest in Kaiser Eagle Mountain, Lake Tamarisk Development, and MRC, would have substantially advanced the final implementation of the cash maximization strategy.
Eagle Mountain Landfill Project and MRC
In 1988, the Company entered into a 100-year lease agreement (the MRC Lease) with MRC. MRC was seeking to develop the Companys former iron ore mine near Eagle Mountain, California into a large, regional rail-haul, municipal solid waste landfill. On May 26, 2000, the Company also entered into a Real Estate Option Agreement (the MRC Option) with MRC which would permit MRC to acquire the real property for the Landfill Project upon the terms and conditions set forth in the MRC Option. The MRC Option has not yet been exercised and expires on December 31, 2011, if it is not extended by mutual agreement. The Company currently owns approximately 84.247% of the Class B units and 100% of the Class A units of MRC. On October 30, 2011, MRC filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy. For additional information, please see the discussion above under the first bullet point paragraph in Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSBUSINESS UPDATEOverview.
As part of the proceedings in Bankruptcy Court, MRC will need to develop a plan of reorganization which will include decisions regarding the status of the MRC Lease, the MRC Option and the Landfill Project Sale Agreement, among other things.
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Prior Federal Landfill Project Litigation. On September 20, 2005, the U.S. District Court for the Central District of California, Eastern Division, issued its opinion in Donna Charpied, et al., Plaintiffs v. United States Department of Interior, et al., Defendants (Case No. ED CV 99-0454 RT (Mex)) and in National Parks and Conservation Association, Plaintiff v. Bureau of Land Management, et al., Defendants (ED CV 00-0041 RT (Mex)). That decision is adverse to the Landfill Project in that it sets aside a land exchange completed between the Company and BLM in October 1999 and two BLM rights-of-way.
The Company and the U.S. Department of Interior each appealed the decision to the U. S. 9th Circuit Court of Appeals. On November 10, 2009, a three-judge panel of the U.S. 9th Circuit Court of Appeals issued its decision in the Companys land exchange litigation and Landfill Project appeal. In a 2 to 1 decision the majority opinion was adverse to the Landfill Project in that it upheld portions of the prior U. S. District Court decision setting aside the completed land exchange. A slightly modified decision was released on May 19, 2010, by the U.S. 9th Circuit Court of Appeals but the modified decision did not change any of the conclusions of the majority opinion. We elected to seek U.S. Supreme Court review of the adverse U.S. 9th Circuit Court of Appeals decision, but the U.S. Supreme Court on March 28, 2011, declined to accept our appeal. On May 10, 2011, the U.S. District Court issued its order remanding the actions to the BLM for proceedings consistent with the Ninth Circuits May 19, 2010 amended opinion. With the decision of the U.S. Supreme Court not to hear the appeal of the adverse decision of the 9th Circuit Court of Appeals, there is no longer any pending litigation and the adverse federal litigation is final and fully concluded as no further appeals are available.
MRC Financing. Since Kaiser became an owner of MRC in 1995, MRC has been financed through a series of private offerings of securities to its existing equity owners. As a result of a private placement completed in September 2011, MRC raised total proceeds of approximately $1.3 million, of which Kaiser contributed $1,146,344 which increased Kaisers ownership interest in MRC from 83.13% to 84.247%. The amount raised in the September 2011 private placement is far short of the total estimated amount of funds that would be necessary to implement any fix of the land exchange.
West Valley Materials Recovery and Transfer Station
West Valley MRF, LLC 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 of Burrtec Waste Industries, Inc. (Burrtec). This entity was formed to construct and operate the materials recovery facility and is referred to as the West Valley MRF. This facility is permitted to receive up to 7,500 tons per day of municipal solid waste. Currently, the facility is processing approximately 3,000 3,500 + tons per day of municipal solid waste and recyclable materials.
Construction of the West Valley MRF was financed primarily by bonds issued by the California Pollution Control Finance Authority. The bonds have a variable interest rate that is adjusted weekly. The rates during the first nine months of 2011 have ranged from a low of 0.15% to a high of 0.40%; however, the average rate for the first nine months of 2011 has been 0.29%. These rates do not include the credit enhancement fee of approximately 1.25%, which is paid to the bank providing the credit enhancement. The bank that provides the letters of credit that support the Pollution Control Finance Authority bonds extended the letters of credit for the 1997 Phase 1 bonds through June 30, 2012, which is their stated date of maturity and for the 2000 Phase 2 bonds through June 2016.
The performance of the West Valley MRF, which has been negatively impacted by the recent world-wide economic recession, continues to improve primarily as a result of increasing commodity prices. However, such improvement generally plateaued in the third quarter as a result of continuing world-wide financial and economic weakness. A cash distribution of $500,000 was received from the West Valley MRF during the first quarter of 2011 and a cash distribution of $750,000 was received in July 2011.
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Risks. There are a number of risks associated with the West Valley MRF which are discussed in more detail in the Companys Annual Report on Form 10-K for 2010. Waste volumes remain negatively impacted by the down-turn in the California economy. In addition, any material reduction in commodity prices would negatively impact the revenues, margins and net income of the West Valley MRF. Governmental regulation and competition for and loss of expiring waste contracts would also negatively impact the West Valley MRF.
OPERATING RESULTS
Summary of Revenue Sources
Due to the nature of the Companys projects and the Companys recognition of revenues from 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.
Results of Operations
Analysis of Results for the Quarters Ended September 30, 2011 and 2010
Revenues. Total revenues for the third quarter of 2011 were $645,000 as compared to $652,000 for the comparable period in 2010. The reasons for this increase are discussed below.
Revenue from the Companys equity method investment in the West Valley MRF increased by $76,000 to $588,000 for the third quarter of 2011 as compared to $512,000 for the same period in 2010. This increase, which is the result of increased operating profit from the West Valley MRF, is due primarily to higher recyclable sales resulting from the continuing increase in recyclable commodity prices (fiber and aluminum). However, West Valley continues to receive lower waste volumes due to the lingering impacts of the U.S. economic recession. The impact of higher commodity prices was partially offset by higher recyclable rebates and buyback expenses in 2011.
Revenue from Eagle Mountain operations decreased for the third quarter of 2011 by $83,000 to $57,000 as compared to $140,000 for 2010, primarily due to decreased revenue from salvage and scrap sales as compared to the same period in 2010.
Operating Costs. Operating costs increased to $548,000 for the third quarter of 2011 from $441,000 for the same period in 2010. This increase relates primarily to legal and consulting expenses incurred in pursuit of various business opportunities associated with the Companys Eagle Mountain assets.
Corporate General and Administrative Expenses. Corporate general and administrative expenses decreased to $467,000 for the third quarter of 2011 from $513,000 for the same period in 2010. This decrease is primarily related to the purchase of new office computers during this period in 2010.
Net Interest and Investment Income. Net interest and investment income, including net realized and unrealized losses of $146,000, for the third quarter of 2011 was a loss of $123,000 compared to a gain of $165,000 for the same period in 2010. Of the $123,000 loss for the third quarter of 2011, $23,000 was interest income, $14,000 was net realized and unrealized loss on the Companys short-term investments and $132,000 was the net unrealized loss on the Companys SERP accounts.
Loss Before Income Tax Benefit and Allocation of Non-Controlling Interest. The Company recorded a pre-tax loss of $493,000 in the third quarter of 2011 versus a pre-tax loss of $137,000 for the same period in 2010. The Company is taxed as a partnership and thus the Companys annual results of
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operations (on an income tax basis) are allocated to the unit holders for inclusion in their respective income tax returns.
Net Loss Attributable to Controlling Interest. For the third quarter of 2011, the Company incurred a net loss attributable to controlling interest of $438,000, which is equal to $0.06 per unit, versus a loss of $32,000, or $0.00 per unit for the same period in 2010.
Analysis of Results for the Nine Months Ended September 30, 2011 and 2010
Revenues. Total revenues for the first nine months of 2011 were $1,814,000, compared to $1,594,000 for 2010. The reasons for this increase are discussed below.
Revenue from the Companys equity method investment in the West Valley MRF increased by $376,000 to $1,690,000 as compared to $1,314,000 for 2010. This increase, which is the result of increased operating profit from the West Valley MRF, is due primarily to higher recyclable sales resulting from the continuing increase in recyclable commodity prices (fiber and aluminum). However, West Valley continues to receive lower waste volumes due to the lingering impacts of the U.S. economic recession. The impact of higher commodity prices was partially offset by higher recyclable rebates and buyback expenses in 2011.
Revenue from Eagle Mountain operations for the first nine months of 2011 decreased by $156,000 to $124,000 as compared to $280,000 for 2010. This decrease is primarily the result of decreased sales of rock and scrap metal which was partially offset by increased media related revenues.
Operating Costs. Operating costs decreased to $8,060,000 for the first nine months of 2011 from $13,559,000 for the same period in 2010. This decrease relates primarily to the $12,504,000 write down of MRCs investment in the Eagle Mountain Landfill project during the same period in 2010 versus the additional $6,683,000 write-down in the first quarter of 2011. In addition, the Company recorded $349,000 in non-capitalized MRC expenses in 2011 versus $114,000 in 2010.
Net Interest and Investment Income. Net interest and investment income, including net realized and unrealized losses of $90,000, for the first nine months of 2011, was a gain of $12,000 compared to a gain of $246,000 for the same period in 2010. Of the $12,000 gain for the first nine months of 2011, $102,000 relates to interest income, $5,000 was net realized and unrealized losses on the Companys short-term investments and $85,000 relates to a net unrealized loss on the Companys SERP accounts.
Loss Before Income Tax Benefit and Allocation of Non-Controlling Interest. The Company recorded a pre-tax loss of $7,705,000 in the first nine months of 2011 versus a pre-tax loss of $13,109,000 for the same period in 2010. The Company is taxed as a partnership and thus the Companys annual results of operations (on an income tax basis) are allocated to the unit holders for inclusion in their respective income tax returns. There are, however: (a) federal income taxes imposed on the Companys former subsidiary Business Staffing Inc. (in 2010 only); and (b) a gross revenue tax imposed by the State of California.
Net Loss Attributable to Controlling Interest. For the first nine months of 2011, the Company incurred a net loss of $6,465,000, or $0.95 per unit, versus a loss of $10,910,000, or $1.63 per unit for the same period in 2010.
FINANCIAL POSITION
Cash, and 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 increased $408,000 to $1,176,000 at September 30, 2011 from $768,000 at December 31, 2010. Included
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in cash and cash equivalents is $580,000 and $124,000 held solely for the benefit of MRC at September 30, 2011 and December 31, 2010, respectively.
Below is a table showing the major changes in cash during 2011:
Distributions received from the West Valley MRF |
$ | 1,250,000 | ||
Net increase in other current assets/liabilities |
(176,000 | ) | ||
Net purchase and maturity of investments |
1,431,000 | |||
Other cash used in operations |
(2,097,000 | ) | ||
|
|
|||
Net Increase in Cash and Equivalents |
$ | 408,000 | ||
|
|
Working Capital. During the first nine months of 2011, current assets decreased $1,099,000 to $5.7 million, while current liabilities increased $21,000 to $2.0 million. The decrease in current assets was the net result of decreases in short term investments of $1,437,000, and a decrease in restricted cash of $105,000. These decreases were partially offset by an increase in Accounts Receivable of $35,000 and $408,000 in cash and equivalents as discussed above. The increase in current liabilities is the result of increases of $14,000 and $7,000 in accounts payable and accrued liabilities, respectively. As a result, working capital decreased during the first nine months of 2011 by $1,120,000 to $3.7 million at September 30, 2011.
Below is a table showing the major changes in working capital.
Changes in Current Assets |
||||
Increase in Cash and Cash Equivalent |
$ | 408,000 | ||
Increase in Accounts Receivable and Other, Net |
35,000 | |||
Decrease in Short Term Investments |
(1,437,000 | ) | ||
Decrease in Restricted Cash |
(105,000 | ) | ||
Changes in Current Liabilities |
||||
Increase in Accounts Payable |
(14,000 | ) | ||
Increase in Accrued Liabilities |
(7,000 | ) | ||
|
|
|||
Net Decrease in Working Capital |
$ | (1,120,000 | ) | |
|
|
Accounts Receivable and Other (Net). During the first nine months of 2011, accounts receivable and other current assets increased by $35,000 primarily due to an increase in prepaid insurance.
Short-Term Investments. During the first nine months of 2011, short-term investments decreased by $1,437,000. This is primarily the result of the sale of investments to provide operating funds. On September 30, 2011, the Company had $2.7 million of its excess cash reserves invested in such investments. Investments are marked to market and unrealized earnings or loss are reflected in the value of the investment and in income for the period for which they are earned.
Investments. The Companys equity share of income from the investment in the West Valley MRF, which totaled $1,690,000 for the first nine months of the year, was offset by the receipt of cash distributions totaling $1,250,000 resulting in a $440,000 increase to the Companys investment in the West Valley MRF.
As previously stated, the investment in the MRC Landfill Project was determined to be impaired and, therefore, was written-down by $6,683,000 during the first quarter of 2011 which was charged to earnings. As required by the ASC, all subsequent Eagle Mountain Landfill expenses will be expensed as incurred.
Other Assets. For the first nine months of the year, there was a decrease in other assets of $214,000 which is the net result of the amortization of the environmental insurance policy of $225,000, and an
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increase in accumulated depreciation as of September 30, 2011 of $14,000, which were partially offset by the establishment of a $25,000 refundable legal retainer.
Environmental Remediation. The Company purchased, in 2001, a 12-year $50 million insurance policy to cover substantially any and all environmental claims (up to the $50 million policy limit) relating to the historical operations of the Company. As of September 30, 2011, based upon current information, we estimate that our future environmental liability related to certain matters and risks not assumed by CCG Ontario, LLC, a subsidiary of Prologis, in its purchase of the Mill Site Property in August 2000 would be approximately $2.7 million for which a reserve has been established. See Note 2. ENVIRONMENTAL MATTERS. In the event a claim for damages is filed against the Company that relates to this reserve, management believes that the claim may be covered by insurance depending upon the nature and timing of the claim.
Non-Controlling Interest. During the first nine months of 2011, the Non-Controlling Interest decreased by $1,032,000 from $3,136,000 as of December 31, 2010 to $2,104,000 as of September 30, 2011 due to the following factors: (i) Net loss attributable to Non-Controlling Interest for the nine month period amounted to $1,186,000 which was largely related to the write-down of the Eagle Mountain Landfill investment recorded in first quarter of 2011; and (ii) In September 2011, MRC completed a private placement whereby they raised total proceeds of $1.3 million, of which approximately $154,000 was contributed by Non-Controlling Interests. Current MRC expenditures are no longer being capitalized but are charged to operations. As of September 30, 2011 the resulting Non-Controlling Interest is $2,104,000, which relates to the approximate 15.8% ownership interest in MRC that the Company does not own.
Contingent Liabilities. The Company has contingent liabilities more fully described above and in the notes to the financial statements.
Critical Accounting Policies
The Companys accounting policies are more fully described in the Notes to the Consolidated Financial Statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010. As disclosed in the Notes to the 2010 Annual Financial Statements, the preparation of consolidated 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 consolidated financial statements and accompanying notes. Future events and their effects cannot be determined 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 consolidated financial statements.
The Company believes the following critical accounting policies, which comply with the ASC, are important to the portrayal of the Companys financial condition and results.
Investments. The Company accounts for investments under Section 320-10 of the ASC. The Company invests its excess cash reserves in high grade commercial paper (Standard & Poors rating of A or above), and U.S. government bonds which it classifies as available-for-sale and which are recorded at the purchase price of the security plus or minus the discount or premium paid. Investments are marked to market and unrealized earnings are reflected in income for the period in which they are earned. However, the Company expects to hold these investments to maturity, thereby mitigating any fluctuations in fair value.
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 Companys 50% non-controlling ownership interest.
Landfill Permitting and Development. Through its 84.247% interest in MRC, 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
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Section 970-10 of the ASC, capitalizable landfill site development costs are recorded at cost and will be expensed when management determines that the capitalized costs provide no future benefit. However, as discussed in more detail in this Report on Form 10-Q, effective June 30, 2010 and March 31, 2011, there was a determination of impairment of MRCs investment in the Eagle Mountain Landfill Project which resulted in write-downs of the carrying amount of such investment in our financial statements. With the determination that an impairment exists no further costs have been or will be capitalized.
Environmental Insurance and Environmental Remediation Liabilities. The Companys $3.8 million premium for the prospective insurance policy, which was reduced by a refund from the insurance carrier, is capitalized as a long-term asset and is being amortized on a straight-line basis over the twelve (12) year term of the policy. To the extent a pre-existing liability has not been recorded, claims made for environmental matters are recorded as litigation accruals in the Companys consolidated financial statements pursuant to Section 450-10 of the ASC when it becomes probable that a loss has been incurred and the amount of such loss can be reasonably estimated. Claims accepted by the insurance company pursuant to coverage under the policy are recorded as insurance receivables when coverage is accepted and the amount to be paid by the insurance company can be reasonably estimated.
Revenue Recognition. Revenues are recognized when the Company has completed the earnings process and an exchange transaction has taken place.
Conditional Asset Retirement Obligations. The Company accounts for certain asset retirement obligations at Eagle Mountain pursuant to ASC 410 Accounting for Asset Retirement and Environmental Obligations.
Long-Lived Assets. In accordance with Section 360 of the ASC, 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. As discussed in more detail in this Report of Form 10-Q, effective June 30, 2010 and March 31, 2011, there were determinations of impairment of the Eagle Mountain Landfill investment, a long-lived asset, which resulted in write-downs of the carrying amount of such investment in our financial statements.
BUSINESS OUTLOOK
The statements contained in this Business Outlook, as well as in Part IItem 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOverview, are based upon current operations and expectations. In addition to the forward-looking statements and information contained elsewhere in this Report on Form 10-Q, these statements are forward-looking and, therefore, actual results may differ materially. See the Companys 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 performance of our major long-term development projects and investments. We have previously sold most of our projects and investments. Our principal remaining assets and projects, other than cash and securities, are: (i) our ownership interest in MRC, however, MRC filed a voluntary bankruptcy petition under Chapter 11 of the U.S. Bankruptcy Code on October 30, 2011; (ii) our 50% equity ownership of the West Valley MRF; (iii) miscellaneous property at or near the Eagle Mountain Townsite; and (iv) the other resources at the Eagle Mountain Site on our fee owned property such as the millions of tons of iron ore, stockpiled rock and other mineral resources. We have no material ongoing operations except in connection with such assets and projects. Our principal sources of ongoing income are derived from the West Valley MRF, investment earnings and from miscellaneous income generated at the Eagle Mountain Site.
In regard to the West Valley MRF, the most significant factors affecting our future equity income will continue to depend upon: (i) the ability of the West Valley MRF to retain customers and waste volumes
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KAISER VENTURES LLC AND SUBSIDIARIES
at attractive processing rates; (ii) recyclable commodity prices; (iii) the ability to increase prices to reflect increases in such items as transportation, labor and disposal costs; and (iv) future competition from competing facilities. The performance of the West Valley MRF, which was negatively impacted by the recent world-wide economic recession, has significantly improved in the first nine months of 2011 versus 2010 primarily as a result of increasing commodity prices. However, such improvements generally plateaued in the third quarter of 2011. Additionally, the West Valley MRF is continuing the process of evaluating possible waste-to-energy and composting projects that might be capable of utilizing a portion of the municipal solid waste received at the facility. Finally, as part of our cash maximization strategy, we intend to evaluate any potential offers to purchase our interest in West Valley or other alternatives in light of our primary objective of maximizing value. West Valley currently generates more than sufficient cash flow to fund its cost of operations and does not require additional investment by us.
MRC. As discussed in more detail in Part IItem 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSBUSINESS UPDATEOverview, on October 30, 2011, MRC filed a voluntary petition in bankruptcy pursuant to Chapter 11 of the U.S. Bankruptcy Code. The filing was necessary to protect and preserve MRCs assets and options. Depending upon the results of the bankruptcy process, it is possible that the value of Kaisers investment in MRC could be further impaired.
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 Ontario, LLC substantially completed all material environmental remediation of this parcel pursuant to the terms of its agreement during 2002. CCG Ontario does have ongoing operations and maintenance obligation with respect to the Tar Pits Parcel. West Valley has the right to purchase the Tar Pits Parcel for $1.00.
Cash Maximization Strategy. In September 2000, Kaiser Inc.s Board of Directors approved a strategy to maximize the cash ultimately to be distributed to our owners taking into account all circumstances and applicable legal requirements. This strategy was continued with the conversion of Kaiser Inc. to a limited liability company at the end of 2001. Consistent with this strategy, Kaiser Inc. historically completed or entered into a number of transactions which resulted in Kaiser Inc. distributing a total of $12 per unit in cash to its shareholders. The now final adversely-decided federal land exchange litigation in connection with the Landfill Project alters and adversely impacts the timing of the continuing implementation of the cash maximization strategy.
Corporate Overhead. Given our current assets and projects, it is unlikely that we will be able to further reduce personnel and corporate overhead in the near future. However, as we divest our remaining assets, we intend to further reduce corporate staffing and overhead to reflect the reduced requirements of our 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 investments together with cash generated from the West Valley MRF, and any future asset sales as well as expense reductions will be sufficient to satisfy the Companys ongoing projected operating cash requirements for the next twelve months.
Item 3. | CONTROLS AND PROCEDURES |
Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Exchange Act Rule 13a-14.
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Based on its review of the Companys disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its subsidiaries) that is required to be included in the Companys periodic Securities and Exchange Commission filings. Specifically, since 2007, the Company has: (a) requested annually that all of the critical employees, officers and Members of the Board of Managers of the Company complete an extensive internal control and risk management questionnaire; and (b) internally reviewed and tested the implementation of its internal controls against the Companys written control procedures. The above conclusions are based upon the work performed. There were no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
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KAISER VENTURES LLC AND SUBSIDIARIES
(Unaudited)
as of
September 30, 2011 |
December 31, 2010 |
|||||||
ASSETS |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 1,176,000 | $ | 768,000 | ||||
Accounts receivable and other, net of allowance for doubtful accounts of $38,000 |
150,000 | 115,000 | ||||||
Short-term investments |
2,684,000 | 4,121,000 | ||||||
Restricted cash and cash equivalents: |
||||||||
Pledge for LOCs |
750,000 | 750,000 | ||||||
Contribution to Company SERP |
942,000 | 1,047,000 | ||||||
|
|
|
|
|||||
5,702,000 | 6,801,000 | |||||||
|
|
|
|
|||||
Due from Business Staffing Inc. |
111,000 | | ||||||
|
|
|
|
|||||
Eagle Mountain Landfill investment |
13,843,000 | 20,526,000 | ||||||
|
|
|
|
|||||
Investment in West Valley MRF |
5,630,000 | 5,191,000 | ||||||
|
|
|
|
|||||
Land |
2,465,000 | 2,465,000 | ||||||
|
|
|
|
|||||
Other Assets |
||||||||
Unamortized environmental insurance premium |
525,000 | 750,000 | ||||||
Refundable Deposits |
25,000 | | ||||||
Buildings and equipment (net) |
340,000 | 354,000 | ||||||
|
|
|
|
|||||
890,000 | 1,104,000 | |||||||
|
|
|
|
|||||
Total Assets |
$ | 28,641,000 | $ | 36,087,000 | ||||
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
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KAISER VENTURES LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
as of
September
30, 2011 |
December
31, 2010 |
|||||||
LIABILITIES AND MEMBERS EQUITY |
||||||||
Current Liabilities |
||||||||
Accounts payable |
$ | 75,000 | $ | 61,000 | ||||
Conversion distribution payable |
1,190,000 | 1,190,000 | ||||||
Accrued liabilities |
736,000 | 729,000 | ||||||
|
|
|
|
|||||
2,001,000 | 1,980,000 | |||||||
|
|
|
|
|||||
Long-term Liabilities |
||||||||
Accrual for MRC railroad casualty loss |
4,338,000 | 4,338,000 | ||||||
Accrual for Eagle Mountain Townsite cleanup |
2,340,000 | 2,340,000 | ||||||
Deferred lease liability |
| 5,000 | ||||||
Environmental remediation reserve |
2,711,000 | 2,733,000 | ||||||
Other accrued liabilities |
250,000 | 250,000 | ||||||
|
|
|
|
|||||
9,639,000 | 9,666,000 | |||||||
|
|
|
|
|||||
Total Liabilities |
11,640,000 | 11,646,000 | ||||||
|
|
|
|
|||||
Commitments and Contingencies |
||||||||
Members Equity |
||||||||
Class A units; issued and outstanding at September 30, 2011 6,872,712, at December 31, 2010 6,709,023 |
14,897,000 | 21,305,000 | ||||||
Class B units; issued and outstanding 751,956 |
| | ||||||
Class C units; issued and outstanding 872 |
| | ||||||
Class D units; issued and outstanding 128 |
| | ||||||
Accumulated other comprehensive Income |
| | ||||||
|
|
|
|
|||||
14,897,000 | 21,305,000 | |||||||
Equity attributable to non-controlling interest |
2,104,000 | 3,136,000 | ||||||
|
|
|
|
|||||
Total Members Equity |
17,001,000 | 24,441,000 | ||||||
|
|
|
|
|||||
Total Liabilities and Members Equity |
$ | 28,641,000 | $ | 36,087,000 | ||||
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
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KAISER VENTURES LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the Three and Nine Months Ended September 30
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues |
||||||||||||||||
Income from equity method investment in the |
||||||||||||||||
West Valley MRF, LLC |
$ | 588,000 | $ | 512,000 | $ | 1,690,000 | $ | 1,314,000 | ||||||||
Eagle Mountain revenues |
57,000 | 140,000 | 124,000 | 280,000 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
645,000 | 652,000 | 1,814,000 | 1,594,000 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating Costs |
||||||||||||||||
Environmental insurance premium amortization |
75,000 | 75,000 | 225,000 | 225,000 | ||||||||||||
Eagle Mountain Landfill investment impairment expense |
| | 6,683,000 | 12,504,000 | ||||||||||||
Non-capitalized MRC expenses |
80,000 | 114,000 | 349,000 | 114,000 | ||||||||||||
Expenses related to Eagle Mountain |
393,000 | 252,000 | 803,000 | 716,000 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating costs |
548,000 | 441,000 | 8,060,000 | 13,559,000 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross Income (Loss) |
97,000 | 211,000 | (6,246,000 | ) | (11,965,000 | ) | ||||||||||
Corporate General and Administrative Expenses |
||||||||||||||||
Total corporate and administrative expense |
467,000 | 513,000 | 1,471,000 | 1,390,000 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from Operations |
(370,000 | ) | (302,000 | ) | (7,717,000 | ) | (13,355,000 | ) | ||||||||
Fair Value Adjustments of Available for Sale Securities |
(166,000 | ) | 143,000 | (110,000 | ) | 161,000 | ||||||||||
Net Interest and Investment Income |
43,000 | 22,000 | 122,000 | 85,000 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss before Income Tax Benefit and allocations of Non-controlling interest |
(493,000 | ) | (137,000 | ) | (7,705,000 | ) | (13,109,000 | ) | ||||||||
Income Tax Benefit |
(42,000 | ) | (86,000 | ) | (54,000 | ) | (70,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Loss before allocation of non- controlling interest |
(451,000 | ) | (51,000 | ) | (7,651,000 | ) | (13,039,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss attributable to non-controlling interest |
(13,000 | ) | (19,000 | ) | (1,186,000 | ) | (2,129,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss attributable to controlling interest |
$ | (438,000 | ) | $ | (32,000 | ) | $ | (6,465,000 | ) | $ | (10,910,000 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Basic Loss Per Unit |
$ | (0.06 | ) | $ | (0.00 | ) | ($ | 0.95 | ) | ($ | 1.63 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Diluted Loss Per Unit |
$ | (0.06 | ) | $ | (0.00 | ) | $ | ($0.95 | ) | $ | ($1.63 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Basic Weighted Average Number of Units Outstanding |
6,871,000 | 6,528,000 | 6,822,000 | 6,688,000 | ||||||||||||
Diluted Weighted Average Number of Units Outstanding |
6,871,000 | 6,528,000 | 6,822,000 | 6,688,000 |
The accompanying notes are an integral part of the consolidated financial statements.
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KAISER VENTURES LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Nine Months Ended September 30
(Unaudited)
2011 | 2010 | |||||||
Cash Flows from Operating Activities |
||||||||
Total Net Loss |
$ | (7,651,000 | ) | $ | (13,039,000 | ) | ||
Adjustments to reconcile net loss to net cash used by operating activities |
||||||||
Investment impairment expense |
6,683,000 | 12,504,000 | ||||||
Net realized and unrealized loss (gain) on investments |
110,000 | (161,000 | ) | |||||
Equity income recorded |
(1,689,000 | ) | (1,314,000 | ) | ||||
Cash distributions received from West Valley |
1,250,000 | 1,250,000 | ||||||
Depreciation and amortization |
239,000 | 261,000 | ||||||
Class A Units / stock-based compensation expense |
57,000 | 32,000 | ||||||
Changes in assets: |
||||||||
Receivables and other |
(170,000 | ) | 75,000 | |||||
Changes in liabilities: |
||||||||
Accounts payable and accrued liabilities |
16,000 | 200,000 | ||||||
Environmental remediation expenditures |
(22,000 | ) | (42,000 | ) | ||||
|
|
|
|
|||||
Net cash flows used in operating activities |
(1,177,000 | ) | (234,000 | ) | ||||
|
|
|
|
|||||
Cash Flows from Investing Activities |
||||||||
Net Investment Activity |
1,431,000 | 391,000 | ||||||
Capital Asset dispositions |
| 1,000 | ||||||
Capitalized landfill expenditures |
| (311,000 | ) | |||||
|
|
|
|
|||||
Net cash flows provided by investing activities |
1,431,000 | 81,000 | ||||||
|
|
|
|
|||||
Cash Flows from Financing Activities |
||||||||
Capital contribution from non-controlling interest |
154,000 | | ||||||
|
|
|
|
|||||
Net cash flows provided by financing activities |
154,000 | | ||||||
|
|
|
|
|||||
Net Changes in Cash and Cash Equivalents |
408,000 | (153,000 | ) | |||||
Cash and Cash Equivalents at Beginning of Year |
768,000 | 1,465,000 | ||||||
|
|
|
|
|||||
Cash and Cash Equivalents at End of Period |
$ | 1,176,000 | $ | 1,312,000 | ||||
|
|
|
|
|||||
Supplemental disclosure of Cash Flow Information
|
||||||||
2011 | 2010 | |||||||
Cash paid during the period for income taxes |
$ | 4,800 | $ | 6,500 |
The accompanying notes are an integral part of the consolidated financial statements.
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KAISER VENTURES LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. BASIS OF PRESENTATION
The unaudited consolidated financial statements of Kaiser Ventures LLC and Subsidiaries (the Company) as of September 30, 2011 and 2010, as well as the related notes, should be read in conjunction with the Companys audited consolidated financial statements and related notes as of and for the year ended December 31, 2010, included in the Companys Annual Report on Form 10-K. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the Companys financial position at September 30, 2011, and results of operations and cash flows for the nine month periods ended September 30, 2011 and 2010.
The Companys consolidated financial statements include the following significant entities: Lake Tamarisk Development, LLC; Kaiser Eagle Mountain, LLC; Kaiser Recycling LLC; all of which are 100% owned; and Mine Reclamation, LLC, which was 83.13% owned until September 1, 2011 after which it is 84.247% owned. However, as disclosed in Note 9. SUBSEQUENT EVENTS. Mine Reclamation, LLC filed for Chapter 11 bankruptcy on October 30, 2011.
As discussed in our 2010 Annual Report on Form 10-K as a subsequent event, effective January 1, 2011, the Company sold its Business Staffing, Inc. (BSI) subsidiary to Richard Stoddard, James Verhey and to Tri-C, LLC, a limited liability company controlled by Terry Cook. Messrs. Stoddard, Verhey and Cook are the executive officers of the Company. BSI was established in 2001 in connection with the conversion of Kaiser Ventures Inc. to a limited liability company. BSI is an administrative services company that provides administrative services and employees to the Company. BSI is reimbursed by the Company, without mark-up, only for the expenses it incurs in providing services for the benefit of the Company and its subsidiaries. BSI will continue to provide services for the Company and its subsidiaries on such basis in accordance with an Amended and Restated Administrative Services Agreement. The purchase price for all of the stock of BSI was $3.00 plus the assumption of certain liabilities such as the deferred compensation obligations to those employees or prior employees that are currently participants in the Companys supplemental executive retirement plans. BSI will be responsible for such plans going forward and will become the sponsor for each plan. At January 1, 2011, BSI had minimal assets and liabilities. There was no gain or loss on the transaction.
Kaiser is the reorganized successor to Kaiser Steel Corporation, referred to as KSC, which was an integrated steel manufacturer that filed for bankruptcy protection in 1987. Since KSCs bankruptcy, we have been developing assets remaining after the bankruptcy and have realized substantial value from certain of those assets. Currently, our principal remaining assets are:
(i) An 84.247% (as of September 1, 2011) ownership interest in Mine Reclamation, LLC, (referred to as MRC), which owns a permitted rail-haul municipal solid waste landfill at a property called the Eagle Mountain Site located in the California desert (the Landfill Project). See Note 9. SUBSEQUENT EVENTS;
(ii) 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;
(iii) Approximately 5,400 additional acres owned or controlled by Kaiser at the Eagle Mountain Site that are not a part of the Landfill Project; and
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(iv) The resources at the Eagle Mountain Site on our fee owned property that are not a part of the Landfill Project such as the millions of tons of stockpiled rock and other mineral resources such as iron ore.
Note 2. ENVIRONMENTAL MATTERS
The Company purchased an insurance policy effective June 30, 2001 that is designed to provide broad prospective commercial general liability, pollution legal liability, and contractual indemnity coverage for the Companys ongoing and historical operations. The policy has a twelve (12) year term and limits of $50 million in the aggregate for defense and indemnity, with no deductible or self-insured retention. The policy is designed to provide coverage for future claims in excess of the Companys existing and historic insurance policies; however, to the extent that these other insurance policies are not responsive to a claim, the policy will provide first dollar coverage for a claim resulting from property damage, personal injury, bodily injury, cleanup costs or violations of environmental laws. The policy also provides for a broad defense of claims that may be brought against the Company. The policy is specifically intended to provide additional coverage for potential liabilities arising from pollution conditions or known and/or potential asbestos-related claims. The policy also provides contractual indemnity coverage for scheduled indemnity obligations of the Company arising from, e.g., prior corporate transactions and real estate sales. The Company expects this policy will cover substantially any and all environmental claims (up to the $50 million policy limit) relating to the historical operations of the Company.
The aggregate cost for this policy was approximately $5.8 million, of which, based upon discussions among the respective members of the Boards of Directors, KSC Recovery paid $2 million and the Company paid the balance of approximately $3.8 million. The portion of the policy paid by KSC Recovery was expected to cover known and/or potential asbestos claims; while the portion of the policy paid by the Company was expected to cover future potential claims arising from the Companys historical operations.
The Companys original $3.8 million premium for the prospective insurance policy was capitalized as a long-term asset and is being amortized on a straight-line basis over the 12 year term of the policy. To the extent a pre-existing liability has not been recorded, claims made for environmental matters are recorded as litigation accruals in the Companys consolidated financial statements pursuant to Section 450-10 of the ASC when it becomes probable that a loss has been incurred and the amount of such loss can be reasonably estimated. Claims accepted by the insurance company pursuant to coverage under the policy are recorded as insurance receivables when coverage is accepted and the amount to be paid by the insurance company can be reasonably estimated. Generally, unless previously accrued, the liability and the receivable relating to claims covered by this policy should occur in the same accounting period, thereby having no adverse or beneficial impact on the Companys operating results for that accounting period.
Note 3. INVESTMENTS
The Company has an Investment Policy which provides for the investment of excess cash balances primarily in bond funds, commercial paper, and debt instruments. At September 30, 2011 the Company had all of its investments in bonds, bond funds or high grade commercial paper (Standard & Poors rating of A or above) which is classified as available-for-sale.
Pursuant to Section 825-10 of the ASC, the Company at the end of a period, compares the actual market value to the actual cost and uses that calculation to determine any gain or loss on the maturity or sale of each available-for-sale investment.
The following is a summary of the fair value of investment securities classified as available-for-sale as of September 30, 2011 and December 31, 2010. For each item included in the table below the gains or losses from Fair Value reporting are included in income for the quarter.
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Available-for-sale Securities at September 30, 2011 and December 31, 2010 |
||||||||||||||||
Amortized Cost |
Net Unrealized | Fair Value | ||||||||||||||
Gains | Losses | |||||||||||||||
Bond Funds at September 30, 2011 |
$ | 2,689,000 | $ | | $ | 5,000 | $ | 2,684,000 | ||||||||
Bond Funds at December 31, 2010 |
$ | 4,109,000 | $ | 12,000 | $ | | $ | 4,121,000 |
Note 4. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:
Level 1Quoted prices in active markets for identical assets or liabilities.
Level 2Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.
Our short-term investments in commercial paper and bonds represent available-for-sale securities that are valued primarily using quoted market prices utilizing market observable inputs.
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The following table presents information about our assets measured at fair value on a recurring basis at September 30, 2011 and December 31, 2010, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.
FAIR VALUE MEASUREMENTS AT REPORTING DATE | ||||||||||||||||
AMOUNT RECORDED ON BALANCE SHEET |
QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1) |
SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2) |
SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) |
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Assets as of September 30, 2011: |
||||||||||||||||
Cash and cash equivalents |
$ | 1,176,000 | $ | 1,176,000 | | | ||||||||||
Short-term investments |
$ | 2,684,000 | $ | 2,684,000 | | | ||||||||||
Assets as of December 31, 2010: |
||||||||||||||||
Cash and cash equivalents |
$ | 768,000 | $ | 768,000 | | | ||||||||||
Short-term investments |
$ | 4,121,000 | $ | 4,121,000 | | |
In addition to the assets listed in the table, other short-term financial assets and liabilities of the Company consist of accounts receivable, accounts payable and certain accrued liabilities. These financial assets and liabilities generally approximate fair market value based on their short-term nature.
Note 5. INVESTMENT IN WEST VALLEY MRF, LLC
Effective June 19, 1997, Kaiser Recycling Corporation (KRC) (now Kaiser Recycling, LLC) and West Valley Recycling & Transfer, Inc. (WVRT), a subsidiary of Burrtec Waste Industries, Inc. (Burrtec), which are equal members of West Valley MRF, LLC, (a California limited liability company) entered into a Members Operating Agreement (MOA) which is substantially the equivalent of a joint venture agreement for a limited liability company. The construction and start-up of the West Valley MRF was completed during December 1997.
Most of the financing for the construction of the West Valley MRF of approximately $22 million, was obtained through the issuance and sale of two California Pollution Control Financing Authority (the Authority) Variable Rate Demand Solid Waste Disposal Revenue bonds. The bonds are secured by an irrevocable letter of credit issued by Union Bank of California, N.A. (Union Bank).
The payment schedule as of August 31, 2011, for the California Pollution Control Authority bonds is summarized below.
PAYMENT SCHEDULE | ||||||||||||
1997 | 2000 | |||||||||||
YEAR |
BONDS | BONDS | TOTAL | |||||||||
2012 |
$ | 620,000 | $ | | $ | 620,000 | ||||||
2013 thru |
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2029 |
| 4,930,000 | (1) | 4,930,000 | (1) | |||||||
2030 |
| 270,000 | 270,000 | |||||||||
|
|
|
|
|
|
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TOTAL |
$ | 620,000 | $ | 5,200,000 | $ | 5,820,000 | ||||||
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|
|
|
1 | Total payments for this period (2013 thru 2029) at $290,000 per year. |
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The Company also remains responsible for any pre-existing environmental conditions on the land on which the WVMRF is located, which is covered by insurance.
The Company is accounting for its investment in West Valley MRF, LLC under the equity method.
Due to the time required to close the books of the West Valley MRF, LLC and in keeping with past practice, there is a one month delay in reporting the results of West Valley MRF, LLC. The condensed summarized financial information of West Valley MRF, LLC is as follows:
August 31, 2011 |
November 30, 2010 |
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Balance Sheet Information: |
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Current Assets |
$ | 9,348,000 | $ | 8,641,000 | ||||
Property and Equipment (net) |
9,755,000 | 10,228,000 | ||||||
Other Assets |
| 3,000 | ||||||
|
|
|
|
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Total Assets |
$ | 19,103,000 | $ | 18,872,000 | ||||
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|
|
|
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Current Liabilities |
$ | 4,404,000 | $ | 4,432,000 | ||||
CPCFA Bonds Payable Long Term Portion |
5,200,000 | 5,820,000 | ||||||
Members Equity |
9,499,000 | 8,620,000 | ||||||
|
|
|
|
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Total Liabilities and Members Equity |
$ | 19,103,000 | $ | 18,872,000 | ||||
|
|
|
|
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2011 | 2010 | |||||||
Income Statement Information: |
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For the Nine Months Ended August 31 |
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Net Revenues |
$ | 10,303,000 | $ | 9,552,000 | ||||
Income from Operations |
$ | 3,455,000 | $ | 2,761,000 | ||||
Net Income |
$ | 3,379,000 | $ | 2,628,000 |
The increase in current assets between November 30, 2010 and August 31, 2011 is due primarily to an increase in cash. The increase in Members Equity for the West Valley MRF between November 30, 2010 and August 31, 2011, is primarily due to the fact that net income exceeded cash distributions during this period.
The Company recognized equity income from the West Valley MRF of $1,690,000 and $1,314,000 for the first nine months of 2011 and 2010, respectively.
Note 6. EVALUATION OF LONG-LIVED ASSETS
In accordance with Section 360 of the ASC, 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. Our reviews as of September 30, 2011, concluded that no impairment of the following long-lived assets had occurred: (a) our 50% ownership interest in the West Valley MRF because the West Valley MRF continues to generate significant net income and positive cash flow; and (b) our other real estate and building and equipment are recorded at the lower of cost or fair market values.
With the denial of our appeal to the U.S. Supreme Court, our quarterly analysis pursuant to the ASC of whether the MRC investment in Eagle Mountain Landfill Project was impaired, resulted in a determination of impairment and a write-down of the carrying amount of the MRC investment in Eagle Mountain Landfill Project as of March 31, 2011. As required by GAAP, the impairment determination and resulting calculation of fair value of the carrying amount of the MRC investment in Eagle Mountain Landfill Project were made utilizing a probability analysis of the remaining options with regard to the Landfill Project after the U.S. Supreme Court declined to accept the petition requesting further review of the adverse U.S. 9th Circuit Court of Appeals decision as of March 28, 2011. The total amount of the write-down was $6,683,000 which was charged to earnings in the first quarter of 2011. Previously, in 2010, the Company recorded a $12,504,000 write-down of MRCs Eagle Mountain Landfill Project investment as a result of its quarterly evaluation of long-lived assets and its determination that impairment had occurred as of June 30, 2010. As of September 30, 2011, there were no events or changes in circumstances that indicated that the carrying amount of MRCs investment in Eagle Mountain Landfill Project may not be recoverable. Possible further impairment in the MRC investment in Eagle Mountain Landfill Project resulting from MRCs bankruptcy filing on October 30, 2011, may be required in the future as the impact of the bankruptcy filing is determined.
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Note 7. COMMITMENTS AND CONTINGENCIES
Environmental Contingencies. As discussed in Note 2, effective June 30, 2001, the Company purchased a 12-year $50 million insurance policy which is expected to cover substantially any and all environmental claims (up to the $50 million policy limit) relating to the historical operations of the Company. To the extent a pre-existing liability has not been recorded, claims made for environmental matters are recorded as litigation accruals in the Companys consolidated financial statements pursuant to ASC 450-10 when it becomes probable that a loss has been incurred and the amount of such loss can be reasonably estimated. Claims accepted by the insurance company pursuant to coverage under the policy are recorded as insurance receivables when coverage is accepted and the amount to be paid by the insurance company can be reasonably estimated.
As of September 30, 2011, the Company estimates, based upon current information and discussions with environmental consultants, that its future environmental liabilities related to certain matters not assumed by CCG Ontario, LLC in its purchase of a substantial portion of Kaisers former Fontana mill site property (Mill Site Property), including a certain groundwater matter as well as potential matters at Eagle Mountain and at other historical locations, will be approximately $2.7 million. In the event that a future environmental claim for damages is filed against the Company such claim may be covered by insurance depending upon the nature and timing of the claim.
Previous Landfill Project Litigation. There currently is no pending litigation involving the Landfill Project. Two lawsuits were filed in U.S. District Court located in Riverside County challenging the completed federal land exchange. On September 20, 2005, the U.S. District Court for the Central District of California, Eastern Division, issued an opinion and order which concluded that the land exchange be reversed and the case be sent back to the BLM for further action consistent with the opinion. MRC and the U.S. Department of Interior appealed the decision to the U. S. 9th Circuit Court of Appeals. In November 2009, a three judge panel of the U.S. 9th Circuit Court of Appeals released its decision on the matter. The majority of the panel affirmed and reversed in part the U.S. District Court decision. The dissenting judge would have found in the Companys and BLMs favor on all matters. MRC sought further review of this decision by a broader panel of U.S. 9th Circuit of appeals judges but on July 30, 2010, such review was denied by the 9th Circuit. On March 28, 2011, the U.S. Supreme Court denied MRCs request to further review the prior adverse decision of the U.S. 9th Circuit Court of Appeals. Thus, the previously existing federal land exchange litigation is final as there is no further right of appeal.
MRC Financing. Since Kaiser became an owner of MRC in 1995, MRC has been financed through a series of private placements to its existing equity owners. As a result of a private placement completed in September 2011 MRC raised total proceeds of approximately $1,300,000, of which amount Kaiser contributed $1,146,344, which increased Kaisers ownership interest in MRC from 83.13% to 84.247%.
Contingent Distributions on Class B, C and D Units. Upon the sale of certain of the Companys assets at a price equal to or greater than certain minimum sales prices, distributions will be made on the Class B, C and D Units in accordance with their respective terms.
Note 8. RECENT ACCOUNTING PRONOUNCEMENTS
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) that are adopted by the company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the companys consolidated financial statements upon adoption.
In September 2011, the FASB issued an accounting standards update that gives an entity the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This guidance will be effective for annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The adoption of the guidance will not have a material impact on the consolidated financial statements. In June 2011, the FASB issued guidance regarding the presentation of comprehensive income. The new standard requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous
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statement of comprehensive income or in two separate but consecutive statements. The new standard also requires presentation of adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. The updated guidance is effective on a retrospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. The adoption of this guidance will not have a material impact on our consolidated financial statements.
In May 2011, the FASB issued additional guidance on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements. The updated guidance is effective on a prospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. The adoption of this guidance will not have a material impact on our consolidated financial statements.
Note 9. SUBSEQUENT EVENTS
On October 30, 2011, MRC filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for Central District of California, Riverside Division, bankruptcy case number 6:11-bk-43596 (the Bankruptcy Court). MRC will continue to operate its business as a debtor in possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code, Rules and orders of the Bankruptcy Court. The petition in bankruptcy was filed by MRC due to threatened litigation by the District to compel MRC at its sole expense and risk to further proceed with the permitting of the landfill which would involve substantial additional financial resources and time, neither of which MRC has. Management does not currently believe that MRCs bankruptcy filing will have a material impact on Kaisers operations.
On October 12, 2011, Kaiser Ventures executed an option and purchase agreement whereby the option holder could purchase Kaisers ownership interest in MRC, in Kaiser Eagle Mountain, LLC, the owner of the property at Eagle Mountain, and in Lake Tamarisk Development, LLC, the owner of property at Lake Tamarisk. Such purchase was subject, in all instances, to the rights of the District to acquire the Landfill Project on or before October 31, 2011. The option holder was also willing to purchase the ownership interests in MRC that Kaiser did not own. However, as a result of the actions of the District and the bankruptcy filing by MRC described above, the option holder did not exercise its option. The performance of the option and purchase agreement was tolled for a limited period and that tolling period will lapse without further extension.
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Item 1. | LEGAL PROCEEDINGS |
As discussed in our Annual Report on Form 10-K for 2010, we are engaged in certain claims and litigation. As of the date of the filing of this Report on Form 10-Q, there have not been any material developments in the legal proceedings involving the Company from the date of the filing of our Report on Form 10-K for the period ended December 31, 2010, and as updated by our first and second quarter 2011 reports on Form 10-Q except as noted below.
As discussed under Part IItem 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSBUSINESS UPDATE, MRC filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for Central District of California, Riverside Division, bankruptcy case number 6:11-bk-43596 (the Bankruptcy Court). MRC will continue to operate its business as a debtor in possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code, Rules and orders of the Bankruptcy Court.
Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Not applicable. However, MRC completed a private placement to its existing members in September 2011.
Item 3. | DEFAULTS UPON SENIOR SECURITIES |
Not applicable.
Item 4. | RESERVED |
Not applicable.
Item 5. | OTHER INFORMATION |
In addition to the other matters discussed in the report on Form 10-Q, on October 10, 2011, the Board of Managers took the following actions, among others:
| Amended the Companys Board of Managers Equity Compensation Plan so that annual equity grants of 5,000 Class A Units is now made on a calendar year basis instead of being issued around June 30th of each year. As a result of such modification, 2,500 Class A Units were issued to each member of the Board of Mangers other that Richard E. Stoddard. In addition, the Board approved the acceleration of the vesting of any unvested prior Class A equity grants to members of the Board of Managers. |
| Accelerated the issuance of 25,000 Class A Units to each of the executive officers. Under the employment agreement with each executive officer, each officer is to receive annually 25,000 Class A Units of the Company; and |
| Approved an option and purchase agreement for the sale of Kaisers interest in MRC, Kaiser Eagle Mountain, LLC and Lake Tamarisk Development, LLC. However, such option agreement was tolled due the actions of the District and the bankruptcy filing of MRC for a limited period of time and that tolling period will lapse without further extension. |
Item 6. | EXHIBITS |
A. | Exhibits |
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Exhibit 31.1 - Certificate of Richard E. Stoddard, Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a).*
Exhibit 31.2 - Certificate of James F. Verhey, Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a). *
Exhibit 32 - Certificate of Richard E. Stoddard, Chief Executive Officer, and James F. Verhey, Chief Financial Officer, pursuant to Section 1350. *
Exhibit 101 - The following materials from Kaiser Ventures LLCs Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language); (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Income; (iii) Condensed Consolidated Statements of Cash Flows; (iv) Condensed Consolidated Statements of Shareholders Equity; and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.
* | Filed with this Report. |
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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 LLC | ||
Date: November 14, 2011 | /s/ Richard E. Stoddard | |
Richard E. Stoddard | ||
President and Chief Executive Officer | ||
Principal Executive Officer | ||
Date: November 14, 2011 | /s/ James F. Verhey | |
James F. Verhey | ||
Executive Vice President - Finance & CFO | ||
Principal Financial and Accounting Officer |
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