United States
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
(Mark One)
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Forfor the fiscal year ended December 31, 2003
2008
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 333-65194000-33433
KAISER VENTURES LLC
(Exact name of registrant as specified in its charter)
DELAWARE | 33-0972983 | |
(State or Other Jurisdiction of | (I.R.S. Employer
|
3633 E. Inland Empire Blvd. Suite 480
Ontario, Ca 91764
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (909) 483-8500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class | Name of Each Exchange on which Registered | |
Class A Units | Not Applicable |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Securities registeredIndicate by check mark if the registrant is not required to file reports pursuant to Section 12(g)13 or 15(d) of the Act: NoneAct. Yes ¨
No x
Indicate by check mark whether the registrantissuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the precedingpast 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. Yesx No¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 229.405) is not contained herein, and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.¨
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 ¨ | Smaller reporting company x | |||
(Do not check if a smaller reporting company) |
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No x
The Class A Units are not publicly traded. The aggregate market value of the registrant’sissuer’s Class A Units held by non-affiliates of the registrant wasissuer as of March 16, 2009, would be approximately $9,581,391$5,437,278 based upon the tax appraisal conducted on behalf of the Company as of November 30, 2001 which was assumed to be the same value asreflecting a $1.50 per unit value. There has not been any public trading of March 23, 2004. The Class A Units are not publicly traded.since that date. (For purposes of this calculation, Class A Units held by each manager, executive officer, and by each person known by the registrant as owning 10% or more of the outstanding Class A Units have been excluded. This determination of affiliate status is not necessarily a conclusive determination for other purposes).
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes¨ Nox
At March 23, 2004, 6,919,29916, 2009, 6,528,222 Class A Units were outstanding including 126,598104,267 Class A Units outstanding but reserved for distribution to the general unsecured creditors in the Kaiser Steel Corporation bankruptcy.
bankruptcy and 113,250 Class A Units deemed 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.
Documents Incorporated By Reference:by Reference: Certain exhibits as identified in the Exhibit List to this Report on Form 10-K are incorporated by reference.
Transitional Small Business Disclosure Format (Check One): Yes ¨ No x
TABLE OF CONTENTS TO FORM 10-K
PAGE | ||||
PART I | ||||
1 | ||||
1 | ||||
Item 1. | 1 | |||
Item 1A. | 17 | |||
Item 1B. | UNRESOLVED STAFF COMMENTS | 17 | ||
Item 2. | ||||
Item 3. | ||||
Item 4. | 22 | |||
PART II | ||||
Item 5. | MARKET FOR THE COMPANY’S EQUITY, | 23 | ||
Item 6. | 24 | |||
Item 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 25 | ||
Item 7A. |
| 35 | ||
Item 8. | ||||
Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | |||
Item | 63 | |||
Item 9B. | 64 | |||
PART III | ||||
Item 10. | MANAGERS, | |||
Item 11. | ||||
Item 12. |
| |||
Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND MANAGER INDEPENDENCE | |||
Item 14. | ||||
PART IV | ||||
Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
i
KAISER VENTURES LLC AND SUBSIDIARIES
PART I
Except for the historical statements and discussions contained herein, statements contained in this 10-K 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, Annual10-KSB Report, 10-Q Report, 10-QSB Report, 8-K Report, website posting or press release of the Company and any amendment 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-K Report or in other written or oral statements, the words “anticipate,” “estimate,” “project”“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 current 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 relatethe averse decision of the U.S. District Court in September 2005 impacting the Eagle Mountain landfill project and the outcome of the appeal of this adverse decision to Eagle Mountain,the U.S. 9th Circuit Court of Appeals, pre-bankruptcy activities of Kaiser Steel Corporation, the predecessor of Kaiser, and asbestos claims; insurance coverage disputes; the impact of federal, state, and local laws and regulations on our permitting and development activities; competition; the challenge, reduction or loss of any claimed tax benefits;benefits, including the taxation of the Company as a partnership; the impact of natural disasters on our assets; 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.
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,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 LLC’s 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.
Item 1. | BUSINESS |
Business Strategy
General.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 KSC’s bankruptcy, we have been developing certain assets remaining after the bankruptcy. Currently,In summary, our principal assets currently include:
An 82.48%83.13% 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. This landfill project is currently subject to a contract for its sale
KAISER VENTURES LLC AND SUBSIDIARIES
|
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; and
Approximately 5,400 additional acres owned or controlled by Kaiser at the Eagle Mountain Site that are not included in the pending sale to the District. Millions of tons of stockpiled rock are located on this acreage. However, the September 2005 adverse U.S. District Court decision reversing a completed land exchange between Kaiser and the United States Bureau of Land Management (“BLM”), if upheld on appeal, will change the amount and nature of a material portion of Kaiser’s land holdings at the Eagle Mountain Site;
Over approximately 150 million tons of stockpiled rock that is located on our fee owned Eagle Mountain property that is not a part of the landfill project. The sale of such rock is subject to market conditions and the Company having all necessary permits; and
Land at Lake Tamarisk consisting of 72 residential lots and approximately 420 acres of other undeveloped property. Lake Tamarisk is an unincorporated community located approximately 70 miles east of Palm Springs, California, and approximately 8 miles from the Eagle Mountain Site.
As of December 31, 2003,2008, we also had cash and cash equivalents, receivables and short-term investments of approximately $15.2$7.66 million.
Cash Maximization Strategy. In September 2000, Kaiser Inc.’s Board of Directors approved a strategy to maximize the cash distributed to Kaiser Inc.’s stockholders. Under this strategy, Kaiser soughtis seeking to:
Resolve the outstanding litigation in connection with the related federal land exchange for such project and complete the sale of the landfill project at the Eagle Mountain Site and to resolve the outstanding litigation in connection with the related federal land exchange at that site.Site;
Reduce the risk to Kaiser from outstanding environmental and other similar types of liabilities by purchasing additional insurance coverage and negotiating with purchasers of our properties to assume liability risks as part of the sale transaction;
Continue to hold our 50% interest in West Valley MRF, which pays cash distributions to Kaiser, until we believe it is appropriate to sell this asset;
Explore other opportunities for use of the Eagle Mountain Site, including the development of the millions of tons of rock stockpiled at the site;
Sell the Company’s other miscellaneous assets, such as surplus property and mineral interests in Southern California; and
Minimize our general and administrative expenses by continuing to reduce our staff as we sell our remaining assets.
Consistent with this strategy, Kaiser Inc. completed or entered into the following transactions:
KAISER VENTURES LLC AND SUBSIDIARIES
In August 2000 MRC entered into an agreement to sell the landfill project at the Eagle Mountain Site to the District. This sale is subject to the satisfaction of numerous conditions, not all of which have been satisfied.satisfied and is subject to satisfactory resolution of outstanding litigation involving the landfill project. As a result, we cannot be sure that this sale will close on the terms negotiated with the District, if at all. For additional information, see “BUSINESS“DESCRIPTION OF BUSINESS - Eagle Mountain Landfill Project and Pending Sale - Pending Sale of the Landfill Project.”
Also in August 2000 we sold approximately 588 acres of the former KSC mill site property (referred to as the Mill Site Property) for $16 million in cash plus the assumption of certain environmental liabilities. For additional information, see “BUSINESS“DESCRIPTION OF BUSINESS - Historical Operations and Completed Transactions - Mill Site Property - CCG Ontario, LLC.”
In October 2000 we sold approximately 37 additional acres of the Mill Site Property for $3.8 million in cash. For additional information, see “BUSINESS“DESCRIPTION OF BUSINESS - Historical Operations and Completed Transactions - Mill Site Property - Rancho Cucamonga Parcel.”
In March 2001 in connection with the resolution of certain litigation, we sold our interest in Fontana Union Water Company, a mutual water company, for $87.5 million in cash, plus approximately $2.5 million in additional payments due under a related lease. For additional information, see “BUSINESS“DESCRIPTION OF BUSINESS - Historical Operations and Completed Transactions - Water Resources - Fontana Union Stock Sale.”
Conversion to a Limited Liability Company. As a result of the actions outlined above, Kaiser Inc. had cash and cash equivalents of approximately $80 million as of September 30, 2001. At that time, Kaiser Inc.’s Board sought the best means of delivering this cash to its investors on a tax advantageous basis while also avoiding any future double taxation generally imposed on future corporate distributions to investors. After considering various alternatives, Kaiser Inc.’s Board determined that converting Kaiser Inc. into a limited liability company would best achieve these goals.
More specifically, by converting to a limited liability company on or before December 31, 2001, Kaiser ultimately saved approximately $16 million in income taxes in 2001 by capturing the significant accumulated tax losses associated with MRC. These tax savings meant that Kaiser Inc. was able to increase the cash distributed to its stockholders by almost $2.00 per share. In addition, the conversion enabled most of Kaiser Inc.’s stockholders to offset their tax basis in each share of Kaiser Inc.’s common stock against the cash distribution to them in the merger, with only the difference taxed at capital gains rates.
The conversion was approved at Kaiser Inc.’s November 28, 2001, annual meeting of its stockholders and consummated on November 30, 2001. The conversion was accomplished through the merger of Kaiser Inc. with and into Kaiser LLC, with Kaiser LLC as the surviving company of the merger. In order to capture the benefits associated with the income tax flow-through treatment offered by a limited liability structure and as a result of the requirements imposed by the Internal Revenue Code, the Class A Units received in the merger are not traded on any securities or secondary market and are subject to significant transfer restrictions.
KAISER VENTURES LLC AND SUBSIDIARIES
We continue to undertake activities that evaluate and implement the cash maximization strategy. However, it is unlikely that staff and related expenses will be reduced further given our remaining assets and activities. In addition, the September 2005 adverse U.S. District Court decision concerning the landfill project and the outcome of the appeal of that decision may ultimately alter and will certainly impact the timing of the continuing implementation of the cash maximization strategy. For additional information on the adverse U.S. District Court decision and its appeal to the U.S. 9th Circuit Court of Appeals, please see “Item 3. LEGAL PROCEEDINGS - Eagle Mountain Landfill Project and Pending SaleLitigation.”
Repurchase of Units Through a Tender Offer.In September 2008 an unaffiliated third party initiated a tender offer to purchase up to 1,400,000 of the Company’s Class A Units at a price of $.50 per unit less a pro-rata portion of the associated transfer costs. The Company’s Board of Managers recommended that the owners of the Company’s Class A Units not sell their units for such price. In response to such tender offer and in recognition that some unitholders may have had a pressing need or desire to sell their units in the Company, the Company commenced its own tender offer for Class A Units at $.90 per unit net of all transfer costs. Even though the Company commenced a self-tender offer, the Company’s Board of Mangers recommended that owners of Class A Units not sell their units. The unaffiliated third party ultimately terminated its tender offer without purchasing any units. The Company’s tender offer closed on December 1, 2008. The Company purchased 841,544 Class A Units as a result of its tender offer which closed on December 1, 2008. An additional 140 Class A Units were purchased by the Company in January 2009. All repurchased units were cancelled resulting in a corresponding decrease in the number of Class A Units issued and outstanding.
EAGLE MOUNTAIN LANDFILL PROJECT AND PENDING SALE
Description of the Eagle Mountain Site. Kaiser’s 10,108 acre Eagle Mountain Site located in the remote California desert approximately 200 miles east of Los Angeles, consistscurrently consisting of approximately 10,800 acres that contains three large open pit mines, the Eagle Mountain Townsite and a 52-mile private rail line that accesses the site. In 1988, Kaiser leased what is now approximately 4,654 acres of the idle mine site and the rail line to MRC for development of a rail-haul solid-waste landfill. As discussed in more detail below, the amount and nature of the acreage owned and controlled at the Eagle Mountain Site would change in the event the September 2005 U.S. District Court decision reversing a land exchange completed between the Company and the BLM in October 1999 is upheld on appeal.
In 1988, in anticipation of Southern California’s need for new environmentally safe landfill capacity, MRC began the planning and permitting for a 20,000 ton per day rail-haul, non-hazardous solid waste landfill at Kaiser’s Eagle Mountain Site. The landfill project has received all the major permits and approvals required for siting, constructing, and operating the landfill project.project in 1999. We believe that the Eagle Mountain Site has many unique attributes which make it particularly well-suited for a rail-haul, solid waste landfill, including, among other attributes, its remote location, arid climate, available and suitable materials for the proposed liner system and daily cover, and rail access.
Acquisition of Our Interest in MRC. We initially acquired our interest in MRC in 1995, as a result of the withdrawal of MRC’s previous majority owner, a subsidiary of Browning Ferris Industries. Before and in connection with this withdrawal, Browning Ferris invested approximately $45 million in MRC. In 2000, Kaiser assigned all of the economic benefits of the MRC lease and granted an option to buy the landfill property to MRC in exchange for an increase in Kaiser’s ownership interest in MRC. The MRC lease will terminate upon the sale of the landfill project to the District, assuming the sale is completed. We presently own 82.48%83.13% of MRC’s Class B Units (like common stock) and 100% of its Class A Units.Units (like preferred stock). See “Item 1. DESCRIPTION OF BUSINESS - Eagle Mountain Landfill Project and Pending Sale - MRC Financing” below.
KAISER VENTURES LLC AND SUBSIDIARIES
Pending Sale of the Landfill Project
Background.In August 2000, MRC entered into an agreement to sell the landfill project to the District for $41 million. Under the terms of that agreement, upon closing of the sale, $39 million of the total purchase price is to be deposited into an escrow account. This money willwould then be released to MRC on the resolution of certain litigation contingencies relating tocontingencies. Currently the only existing litigation contingency arises out of the federal litigation challenging the completed federal land exchange.exchange which is discussed below. Even though the closing has not taken place and these funds have not been deposited into an escrow account, interest began accruing on this portion of the purchase price on May 3, 2001, and will be paid out to MRC on a quarterly basis once the initial closing of the sale occurs and once there is a successful outcome of the federal litigation at the Federal District Court level.2001. The remaining $2 million of the purchase price would also be placed into an escrow account upon closing and was originally to 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. However, in 2003 and early 2004 the District has received the necessary permits for the expansion of its Puente Hills landfill and thus, the full purchase price willwould be placed into escrow when the initial closing has occurred, and will be released upon resolutionoccurred. As discussed in more detail in “Item 3. LEGAL PROCEEDINGS - Eagle Mountain Landfill Project Exchange Litigation,” on September 20, 2005, the U.S. District Court for the Central District of California, Eastern Division, issued an adverse decision in the pending federal land exchange litigation. Receiptlitigation, which would, if fully affirmed on appeal, jeopardize the viability of the landfill project and its sale to the District. Accordingly, receipt of the purchase price, in whole or in part, if at all, is expectedwill continue to be delayed for several years pending satisfactory resolution of these contingencies. At this time, we cannot estimate when or if the sale may be completed.
Additionally, theThe sale of the landfill project is subject to the results of the District’s due diligence and satisfaction of numerous contingencies. The contingencies include, but are not limited to, obtaining the transfer of the landfill project’s permits to the District, obtaining all necessary consents to the transaction, resolving title matters, and negotiating mutually acceptable joint use agreements.agreements and resolution of outstanding litigation. We continue to workhave been working on resolving various title issues, obtaining necessary consents and otherwise working toward a closing. However, resolution of all remaining issues will not occur until and unless there is a positive decision in the land exchange litigation which is currently on appeal to the U.S. 9th Circuit Court of Appeals. Although the contractual expiration date is currently June 30, 2004,2009, the date has already been extended numerous times. The conditions to closing are not expected to be met by the current expiration date, and the parties will individually determine whether to extend the closing date one or more additional times. In addition, as discussed in more detail below, the adverse decision in the federal land exchange may impact the sale of the landfill project to the District. There is no assurance or requirement that either party will continue to extend the closing date for the proposed sale of the landfill project. Kaiser has agreed with the District to vote its interest in MRC in favorSee “Item 1. DESCRIPTION OF BUSINESS - Eagle Mountain Landfill Project and Pending Sale - Risks Factors” for a more detailed discussion of some of the sale ofmaterial risk factors facing the landfill project to the District onand its current terms prior to the initial closing.
sale.
Flood Damage to Railroad
The Company owns an approximate 52-mile private railroad that runs from Ferrum Junction near the Salton Sea to the Eagle Mountain mine. In late August and early September of 2003, portions of the railroad and related protective structures sustained considerable damage due to heavy rains and flash floods. This damage included having some rail sections being buried under silt while other areas had their rail bed undermined. Subsequent to the filing of our report on Form 10-Q for the quarter ended September 30, 2003, we conducted a more complete investigation of the damage and of the costs to return the railroad to the condition that it was in prior to the flood damage. As a result of suchthat investigation, we currently estimateestimated that the cost to repair the damage to be a minimum of $4,500,000. We currently plan to undertake, as soon as reasonably possible,$4.5 million for which an accrual has been made. Since the 2003 floods, work necessary to help preserve and protect the existing railroad.railroad has been undertaken. However, the major repairs required to return the railroad to its condition prior to the flood damage will be deferred until a later date.
MRC FinancingKAISER VENTURES LLC AND SUBSIDIARIES
MRC Financing
Since 1995 MRC has been funded through a series of private placements to its existing equity holders. DuringAs a result of prior MRC private placements and in exchange for releasing the second quartereconomic benefits of 2003,the lease with MRC commenced and thengranting MRC the option to acquire the landfill project site for $1.00, we have increased our original 70% ownership interest in MRC acquired in 1995 to 83.13%. A private placement to MRC’s existing members was completed in the third quarter of 2003 a $2,100,0002007. The private placement of its Class B Units to its existing members. Kaiser will fund at least $1,820,000 of the private placement. The funding iswas payable in two installments with the lastsecond installment due in July 2004. Kaiser made its first equity contribution of $910,000 under the private placement in August 2003, bringing its ownership interest in MRC to 82.48%. A second equity contribution of approximately $435,000 was madepaid in March 2004.2008. Future funding of MRC will be required to cover such items as the federal land exchange litigationcompletion of the pending sale to the District and the railroad repairs but there is no assurance that such funding will be obtained.
Current Status
Approval by Riverside County of the Landfill Project; Development Agreement. Between 1992 and 1995, MRC faced legal challenges to its application and receipt of regulatory permits and consents required to operate the landfill project. In March 1995, MRC again initiated the necessary permitting process by filing its land use applications with Riverside County and working with the County and U.S. Bureau of Land Management, referred to as the BLM, in securing the certification and approval of a new environmental impact report, or an EIR. After extensive public comment, the new EIR was released to the public in January 1997, and received final approval from the Riverside Board of Supervisors in September 1997.
As a part of the process of considering the landfill project, Kaiser and MRC negotiated a Development Agreement with Riverside County. The Development Agreement provides the mechanism by which MRC acquires long-term vested land-use rights for a landfill and generally governs the relationship among the parties to the Agreement. The Development Agreement also addresses such items as the duties and indemnification obligations to Riverside County; the extensive financial assurances to be provided to Riverside County; the reservation and availability of landfill space for waste generated within Riverside County; and events of default and remedies, as well as a number of other items.
In addition, the financial payments to or for the benefit of Riverside County and others are detailed in the Development Agreement as well as in the Purchase and Sale Agreement, which forms a part of the Development Agreement. The Purchase and Sale Agreement requires a per ton payment on non-County waste determined from a base rate which is the greater of $2.70 per ton or ten percent (10%) of the landfill tip fee up to 12,000 tons of non-County waste. The 10% number increases to 12½12 1/2% for all non-County waste in excess of 12,000 tons per day. The per ton payment to the County also increases as volume increases. The per ton payments on non-County Waste to Riverside County are summarized as follows:
Average Tons Per Day of | Payment to Riverside County | |
0 - 7,000 | Greater of 10% (12.5% once volume exceeds 12,000 tpd or $2.70 (“Base”) | |
7,000 - 10,000 | Base + | |
10,000 - 12,000 | Base + $1.30 | |
12,000 - 16,000 | Base + $2.30 | |
16,000 - 20,000 | Base + $3.30 |
Of the payments made to Riverside County by MRC on non-County municipal solid waste, $.90 of the per ton payment will be deposited into an environmental trust. In addition, MRC directly pays $.90
per ton into the environmental trust for in-County waste deposited into the landfill. Funds in the environmental trust are to be used within Riverside County for: (a) the protection, acquisition, preservation and restoration of parks, open space, biological habitat, scenic, cultural and scientific
KAISER VENTURES LLC AND SUBSIDIARIES
resources; (b) the support of environmental education and research; (c) the mitigation of the landfill project’s environmental impacts; and (d) the long term monitoring of the above mentioned items.
Finally, MRC has agreed to pay $.10 per ton of municipal solid waste deposited into the landfill to the National Parks Foundation for the benefit of the National Park Service.
Other major payments include: (i) partial funding for up to four rail crossings with $1 million due atupon the occurrence of the earlier of: (y) the commencement of constructionlandfill construction; or (z) under certain circumstances, within 90-days of the landfillexecution of the Development Agreement between Riverside County and MRC; (ii) an additional $1 million for upgrading rail crossings is to be paid over the course of landfill operations; (ii)(iii) financial assistance of approximately $2 million for the host community, Lake Tamarisk, comprised of $500,000 due at the commencement of construction of the landfill plus approximately $1.5 million due over the course of landfill operations; and (iii)(iv) funding for the non-California Environmental Quality Act reduction air emission programs of $600,000 over the course of operations.
The initial term of the Development Agreement is fifty years, although it may be extended to November 30, 2088, under certain conditions. The Development Agreement allows the landfill project to receive up to 20,000 tons per day, 6 days a week, of non-hazardous municipal solid waste. However, during its first ten years of operation, the landfill owner is limited to 10,000 tons per day of non-County waste plus the waste generated from within the County. After ten years, the owner of the landfill may request an increase in its daily tonnage, and an independent scientific panel will review such request. The panel’s review is effectively limited to confirming substantial compliance with all developmental approvals, mitigation measures and permits.
The Development Agreement will be effective with the resolution of Kaiser’s ownership of the land which is the subject of the current land exchange litigation that is on appeal to the U.S. 9th Circuit Court of Appeals. We anticipate that the Development Agreement will be fully executed and recorded just prior to the anticipated closing of the sale of the landfill project. Riverside County has approved the assumption of the Development Agreement by the District as part of the sale of the landfill by MRC.
In October 2005 following the adverse U.S. District Court decision on the land exchange litigation, one member of the Riverside Board of Supervisors attempted to terminate the existing Riverside County approvals for the landfill project. Such attempt was defeated with the only supervisor voting in favor of the proposal to terminate the existing approvals being the supervisor that proposed the termination of the county’s approvals. This same county supervisor originally opposed and voted against the landfill project in 1997.
Successful Appeal of State EIR Litigation.After the September 1997 approval of the new EIR for the landfill project, litigation with respect to MRC’s EIR certification resumed. In February 1998, the San Diego County Superior Court issued a final ruling with respect to this litigation, finding that the EIR certification did not adequately evaluate the landfill project’s impact on the Joshua Tree National Park and the threatened desert tortoise. MRC, Kaiser and Riverside County appealed the Superior Court’s decision; opponents did not appeal.
On May 7, 1999, the Court of Appeal announced its decision to completely reverse the San Diego Superior Court’s prior adverse decision. The Court of Appeal’s decision, in effect, reinstated the EIR certification and reinstated the previous approval of the landfill project by Riverside County. In June 1999, opponents to the landfill project requested that the California Supreme Court review and overturn the Court of Appeal’s decision. In July 1999, the California Supreme Court declined to review the Court of Appeal’s decision.
KAISER VENTURES LLC AND SUBSIDIARIES
Federal Land Exchange Litigation and OngoingOther Threatened Litigation. In October 1999, Kaiser’s wholly owned subsidiary, Kaiser Eagle Mountain, Inc. (now Kaiser Eagle Mountain, LLC), completed a land exchange with the BLM. In this exchange, Kaiser transferred approximately 2,800 acres of Kaiser-owned property along its railroad right-of-way to the BLM and a nominal cash equalization payment in exchange for approximately 3,500 acres of land within the landfill project area. The land exchanged by Kaiser was identified as prime desert tortoise habitat and was a prerequisite to completion of the permitting of the landfill project. With the land exchange completed, the Eagle Mountain Site consists of approximately 10,108 acres with 8,636 acres held in fee (which includes the Eagle Mountain Townsite) and approximately 1,472 acres held as various mining claims. The land exchange also involved the grant of two rights-of-way by the BLM and the termination of a reversionary interest involving approximately 460 acres of the Eagle Mountain Townsite that was contained in the original grant of such property.
Following completion of the land exchange, two lawsuits were filed challenging it and requesting its reversal. The plaintiffs argue that the land exchange should be reversed because the BLM failed to comply with the National Environmental Policy Act and the Federal Land Management Policy Act. In November 2000,Nearly three years after the Ninthfinal brief in the case was filed, 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 inNational Parks and Conservation Association, Plaintiff v.Bureau of Land Management, et al., Defendants (ED CV 00-0041 RT (Mex)). The decision was adverse to the landfill project in that it set aside the land exchange completed between the Company and BLM as well as two BLM rights-of-way. The Company along with the U.S. Department of Interior appealed the decision to the U.S. 9th Circuit Court of Appeals. The briefing for the appeal was completed in 2007 and oral argument was heard before a three judge panel on December 6, 2007. The U.S. 9th Circuit Court of Appeals announcedgenerally announces its decisions six to twelve months following oral argument but on occasion the announcement of a decision may take substantially longer. Since oral argument in an unrelated caseour appeal was held more than a year ago, the decision may be announced at any time. However, we cannot predict when the decision will actually be announced. If the U.S. District Court’s decision is fully affirmed on appeal, such a decision would jeopardize the viability of the landfill project. In addition, such a decision could adversely impact the agreement to sell the landfill project to the District, including termination of the agreement. For a more detailed discussion of this litigation and the risks associated with this litigation, see “Item 3. LEGAL PROCEEDINGS - Eagle Mountain Landfill Project Land Exchange Litigation.”
In April 2007 Donna Charpied, et al, filed a motion with the same U.S. District Court that may have a material adverse impact on Kaiser’s federalhandled the land exchange litigation andseeking to enforce the pending salecourt’s order in such case. The allegations were that additional actions were necessary to the District. InDesert Citizens Against Pollution v. Bisson,(Ninth Circuit Court of Appeals, Case No. 97-55429), the Court of Appeals concluded, among other things, that the BLM did not properly valueset aside the land being acquired byexchange and to prevent the competing Mesquite rail-haul landfill projectuse of property at Eagle Mountain that would “change the character and ordered a reversal of the land exchange. The court concluded that the appraisal should have considered the lands being acquired from the BLM as a landfill. The court did not, however, determine the proper valuationuse of the exchanged lands.properties …”. The plaintiffs in Kaiser’s federalmotion sought to prevent our use of even the land exchange litigation amended their respective complaintswe owned prior to include allegations that the appraisal used in Kaiser’s land exchange withexchange.
On September 18, 2008, the BLM is similarly defective. In light ofU.S. District Court denied theBisson decision, Plaintiffs’ motion and determined that: (i) the BLM has completed an independent review of the “highest and best use” analysis. The BLM’s independent appraiser concluded that there would be no change in the determination of the “highest and best use” in the appraisal used inactions to date to set aside the land exchange if the property involved was expressly considered as a landfill site. Given all the factswere sufficient and circumstances, the independent appraiser concluded that there was no premiumreconveyance documents needed to be paidrecorded; (ii) the military training activities that had taken place at Eagle Mountain did not change the character and use of the exchange lands; and (iii) the activities associated with the testing of the suitability of Eagle Mountain rock for use in a possible Salton Sea restoration plan were acceptable. The Court declined to rule on the property interests exchanged by the BLM even ifchallenge to a portion of such property interests were a part of a planned landfill. The scheduled briefing in this case was completed in January 2003. We are awaiting a decision from the court in this matter.
private prison project since there is no current private prison project at Eagle Mountain.
In addition to the federal land exchange litigation, the Company along with the U.S. Department of Interior, the BLM, the District and Metropolitan Water District of Southern California, received a letter in September 2002 from the Center for Biological Diversity, the Sierra Club, Citizens for the Chuckwalla Valley (“Complaining Groups”) declaring their intent to sue for violations of the Endangered Species Act in regard to actions or inactions related to the railroad that would serve the landfill project. Among other things, it is alleged that there has been a failurethreatened from time to complytime with a biological opinion issued by the U.S. Fish & Wildlife Service and that the BLM has failed to enforce the terms of that biological opinion. In summary, the Complaining Groups are demanding enforcement of the biological opinion or revocation by the BLM of the right-of-ways granted for the existing Eagle Mountain railroad and the Eagle Mountain road. The biological opinion contains, among other items, mitigation measures for the desert tortoise which could require substantial expenditures.
In reviewing the complaints of the Complaining Group, the BLM out of an abundance of caution conducted an informal consultation with the U.S. Fish & Wildlife Service with respect to the biological opinion. Although neither the construction ofadditional litigation over the landfill project norinvolving such matters as the regular usefederal Endangered Species Act. However, as of the railroaddate of the filing of this Annual Report on Form 10-K none of the previous threats have commenced,resulted in the BLM requested thatcommencement of a legal action against the Company develop a maintenance schedule for the railroad that would include addressing, among other things, the particular concerns of culverts and rail line ballast. The Company has submitted a proposed schedule which is under review by the BLM. See “Legal Proceedings—Eagle Mountain Landfill Project Land Exchange Litigation.”Company.
KAISER VENTURES LLC AND SUBSIDIARIES
Eagle Crest Energy Company. In November 2000, Eagle Crest Energy Company, referred to as ECEC, a previous opponent to the landfill project, filed an application foris pursuing a preliminary permit withlicense from the Federal Energy Regulatory Commission, referred to as FERC, for a proposed 1,0001,300 mega-watt hydroelectric pumppumped storage project and ancillary facilities. The proposed ECEC project would utilize two of the mining pits and other property at the Eagle Mountain Site, portions of which are currently leased to MRC and the subject of the pending sale to the District. ECEC has been pursuing this project for nearly 20 years. The Company has not agreed to sell or lease this property to ECEC. This project iswas essentially the same project that ECEC previously proposed and was dismissed by the FERC in July 1999. However, asECEC has filed for a necessary water quality permit from the State of California and has announced that it will file its license application with FERC in 2009. We, along with others, oppose the ECEC project. In addition, the ECEC project is not compatible with the Landfill Project regardless of claims to the opposite by ECEC. It is unclear to us if ECEC is anything more than a shell company and if it has the financial ability to pursue the project.
If the completed land exchange is ultimately and permanently reversed in accordance with the September 2005 U.S. District Court decision, certain lands currently owned in fee by Kaiser will revert back to federal lands, although a substantial amount of such lands will then be controlled by Kaiser because of its federal mining claims. As a result of the land exchange with the BLM, there is no title reservation on any final reversal to federal ownership, a portion of the property. FERC issuedland may be subject to a title encumbrance associated with the issuance of the preliminary permit to ECEC in June 2001. We, along with others, have objected to the ECEC project and have intervened in the matter. To
management’s knowledge, there was no material activity by Eagle Crest Energy Company in 2003 with regard to its permit application.
FERC.
Ongoing Considerations if the Sale is not CompletedRisk Factors
Successful resolution of the federal land exchange litigation could take a number of years. Due to delays in closing on the sale to the District, the additional threatened Endangered Species Act litigation, and the need to repair the flood damage to the railroad we anticipate that an additional investment in MRC will be necessary. We can make no assurance that sufficient and suitable funding will be available to MRC in order to allow it to continue to pursue the landfill project, to undertake the major railroad repairs and to resolve the federal litigation and any new litigation. Alternatively, MRC could decide not to pursue the continued development of the landfill project, which would likely materially hinder MRC’s ability to realize any value from the landfill project.
Governmental Regulation/Permitting. In the development and maintenance of our assets, we and other entities on which we rely are subject to extensive, expensive and increasingly stringent regulation by federal, state and local authorities. Entities operatingAs discussed in this arena must obtain and maintain numerous local, state and federal governmental permits and consents. Failure to comply with these regulations could result in the loss of a needed license, permit or consent or could result in significant monetary fines. Examples of the wide ranging regulations which apply to the development and maintenance of our assets include:
Competition. The waste management industry is highly competitive, with a few large, integrated waste management firms and a significant number of smaller, independent operators. The number of competitors has decreased over the past five years, but their size has greatly increased as a result of mergers and acquisitions of waste hauler and management companies. Due to this increasing competition and industry consolidation, there are fewer independent waste management operating companies than in the past and, as a result, fewer potential buyers of our waste related assets. If this reduction of industry operators negatively impacts our ability to operate or sell our assets on favorable terms, our results will likely be materially and adversely affected.
Currently, the Mesquite Regional Landfill located in Imperial County, California is the only other competing rail-haul project proposed in California. The District also entered into an agreement to purchase the Mesquite Regional Landfill at a price and on terms substantially similar to the sale of the landfill project by MRC to the District. The District completed its purchase of the Mesquite Regional Landfill in late 2002. We understand that the District has contracted for the engineering and other work necessary to be in a position to begin construction on the Mesquite project. The impact, if any, of the District’s completion of the purchase of the Mesquite landfill project prior to the completion of the purchase of the Eagle Mountain landfill project is unknown.
Truck-haul landfills in the Los Angeles Basin are also competitors to the proposed rail-haul landfills.
Risks. As is discussed in thisAnnual Report on Form 10-K, there are numerous risks associated with MRC and the landfill project, including the competition represented by the Mesquite rail-haulproject. The landfill project
has been and continues to be the subject of extensive litigation which has and will continue to substantially delay the District purchased in late 2002. There are also numerous riskslandfill project and contingencies associated with the pending salewhich could ultimately lead to termination of the landfill project toproject. If the District. There can be no assurance that all outstanding matters currently preventing an initial closing with the District will be resolved to the satisfaction of the parties. Accordingly, 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 significantly modified as a result of future discussions with the District or as to the timing of the receipt of the purchase price. There can be no assurance that the completed purchase of the Mesquite landfill by the District will not adversely impact the negotiations and the closing on the sale of the landfill to the District. In addition, there are material litigation risks associated with the current federal land exchange litigation including reversalis not favorably resolved or resolved in a manner that a cure can be reasonably undertaken, the landfill project will not be viable as currently permitted. Even if the appeal of the completed land exchange and the threatened litigation over the Endangered Species Act, all as discussed above. No assurance can be made that we will successfully and timely resolve these matters so as to avoid a material adverse effect on our current plan to sell the landfill to the District. If we are unable to manage any of these risks or uncertainties,U.S. District Court decision is successful, we may not be able to sellcure all of the concerns with regard to other title or due diligence matters in a timely fashion to permit the sale to the District to be completed. If the litigation is not favorably resolved and/or the Company cannot otherwise cure various alleged title and other closing issues in a timely fashion, then the District’s purchase of the landfill project would not be completed and the Company might have to abandon Eagle Mountain and its investment in MRC. If this should occur, the Company will likely seek to pursue any other possible opportunities or to re-solicit bids for the purchase of the landfill project, which may not result in a sale of the landfill project on favorable terms, if at all.
The ECEC pumped storage project may also be a risk to the successful completion of the landfill project and the value of our Class A Unitssignificant expenditures could be materially reduced.
required to oppose this potential project.
In addition to the litigation and other closing risks, there are risks that the landfill project will be impacted by natural disasters like the floods that caused significant damage to the rail line in 2003. Certain risks may be uninsurable or are not insurable on terms which we believe are economical.
As stated above, MRC will need additional funding to complete the landfill project and its potential sale, including funds to repair the flood damage sustained by the Eagle Mountain rail line. There is no assurance that MRC can obtain additional funds through debt or equity financing on acceptable terms.
The landfill project also faces competition from other landfills as well as the Mesquite rail-haul landfill project which the District owns and is developing.
We are also dependent upon the continued services of our executive officers given the complex nature of the landfill project, the challenges it faces, and the importance of historical information. The loss of
KAISER VENTURES LLC AND SUBSIDIARIES
the services of our executive officers, especially without advance notice, could materially and adversely impact this project and well as our other business.
WEST VALLEY MATERIALS RECOVERY FACILITYWEST VALLEY MATERIALS RECOVERY FACILITY AND TRANSFER STATION TRANSFER STATION
Background
West Valley MRF, LLC, referred to as “West Valley,” was formed in June 1997 by Kaiser Recycling, CorporationInc. (now Kaiser Recycling, LLC (formerly Kaiser Recycling, Inc.))LLC), a wholly-owned subsidiary of Kaiser, and West Valley Recycling & Transfer, Inc., a wholly-owned subsidiary of Burrtec Waste Industries, Inc. This entity was formed to construct and operate the materials recovery facility referred to as the West Valley MRF. Under the terms of the parties’ business arrangements, Kaiser Recycling and Kaiser remain responsible for any pre-existing environmental conditions and West Valley MRF is responsible for environmental issues that may arise related to any future deposit or release of hazardous substances. Kaiser and Burrtec have each separately guaranteed the prompt performance of their respective subsidiary’s obligations.
Phase 1 of theThe West Valley MRF which included a 62,000includes an approximate 140,000 square foot building, sorting equipment and related facilities for waste transfer and recycling services was builtservices. The facility is currently permitted to handle 7,500 tons of municipal solid waste and equipped in 1997 for a total cost of approximately $10.3 million. Phase 2 of the West Valley MRF was completed in 2001 and increased the processing facility by an additional 80,000 square feet and included the installation of new recycling lines that increased the capacity of the facility to approximately 5,000 tonsrecyclable materials per day. Phase 2 was completed for a total approximate cost of $11 million. West Valley MRF is currently processing, on average, approximately 3,500-4,0004,000—4,400 tons of municipal solid waste and green wasterecyclable materials per operating day.
As part of its recyclable operations, the West Valley MRF processes for sale in the commodities markets certain materials, including paper, cardboard, aluminum, plastic and glass. The West Valley MRF generates cash flow in excess of that necessary to fund its cost of operations. Furthermore, the West Valley MRF shouldoperations and, therefore, has historically has been able to distribute sufficient cash to cover a significant portion of
Kaiser LLC’s foreseeable general and administrative costs. In 2003,2008, the West Valley MRF distributed a total of $2,250,000$2.5 million in cash to Kaiser.
The Operating Agreement for the West Valley MRF provides the opportunity for either Burrtec or Kaiser to buy the other party’s interest in the West Valley MRF at fair market value in the event a party desires to accept an offer to buy its interest in the West Valley MRF,MRF; in the event of default by a party under the Agreement that is not cured within a specified time period or,or; in some circumstances, in the event there is a proposed transfer or deemed transfer. For example, a change in the control of Kaiser to a company that is in the waste management business could trigger Burrtec’s option to purchase our interest in the West Valley MRF. In the event a party exercises its right to purchase upon the occurrence of an uncured default, a discount to fair market value may be applicable.
Financing
Most of the financing for the West Valley MRF was obtained through California Pollution Control Financing Authority tax exempt bonds. Approximately $9,500,000$9.5 million in bonds were issued in June 1997 (Phase 1),1997. These bonds were for Phase 1 of the West Valley MRF which consisted of a 62,000 square foot building, sorting equipment and approximately $8,500,000ancillary facilities. Approximately $8.5 million in bonds were issued in May 2000 (Phase 2).which was for Phase 2 of the West Valley MRF which consisted of an 80,000 square foot facility expansion and new sorting equipment. The interest rate for the Bondsbonds varies weekly. The rates for 20032008 ranged from 1.20approximately 1.05% to 1.95%8.55%. The temporary extreme rise in the interest rate on the bonds was due to the adverse financial and credit market conditions experienced in 2008. The interest rates on the bonds have returned to their historic low levels. Bonds issued for Phase 1 have a stated maturity date of June 1, 2012, and bonds issued for Phase 2 have a stated maturity date of June 1, 2030,2013, although West Valley MRF is required, pursuant to an agreement with Union Bank, to annuallyperiodically redeem a portion of the Bonds.bonds. However, in the event the letters of credit securing such bonds, which are discussed immediately below, are not renewed, the full principal amount of the bonds would be due as a balloon payment.
KAISER VENTURES LLC AND SUBSIDIARIES
The bonds are secured by a pledge and lien on the loan payments made by West Valley MRF and funds that may be drawn on an irrevocable direct pay letter of credit issued by Union Bank of California, N.A. The bonds are backed by a letterletters of credit issued by Union Bank. The letter of credit for the 1997 Phase 1 bonds is currently scheduled to expire June 30, 2009 and the letter of credit for the 2000 Phase 2 bonds is currently scheduled to expire June 30, 2011. West Valley MRF is working toward the renewal of the letter of credit for the 1997 bonds with Union Bank. Kaiser and Burrtec have each severally guaranteed fifty percent (50%) of the principal and interest on the bonds to Union Bank in the event of a default by West Valley MRF.
In 2007 West Valley and Union Bank modified the bank’s repayment schedule for the bonds. It was agreed that the then required accelerated principal repayments of the indebtedness could be modified in accordance with the original issuance terms of the respective bond issues subject to the extension of the current letters of credit which serves as security for such bonds. If such letters of credit are not extended by their respective due date, then the outstanding principal balance of the bonds secured by such letter of credit would be due as a balloon payment. Union Bank and West Valley are in the process of extending the letter of credit that secures the 1997 bonds through June 2011.
As of December 31, 2008, the principal amount of bonds outstanding totaled approximately $7,710,000.
West Valley MRF and Union Bank have executed a Reimbursement Agreement that, among other things, sets the terms and conditions whereby West Valley MRF:
is required to repay Union Bank in the event of a draw under the letter of credit;
grants Union Bank certain security interests in the income and property of West Valley MRF;
agrees to a schedule for the redemption of the Bonds; and
agrees to comply with certain financial and other covenants.
Kaiser and Kaiser Recycling have also provided environmental guaranty agreements to Union Bank. Under these agreements, Kaiser and Kaiser Recycling are jointly and severally liable for any liability that may be imposed on Union Bank for pre-existing environmental conditions on the West Valley MRF’s property acquired from Kaiser Recycling that the West Valley MRF fails to timely address.
Competition
Burrtec owns and operates a transfer and limited materials recovery facility in Agua Mansa, California. This facility is located approximately 15 miles from the West Valley MRF and could compete, in very limited areas,competes for certain waste that might otherwise go to the West Valley MRF. To date, the materials recovery facility in Agua Mansa has had little impact on the West Valley MRF’s market for customers.MRF monitors such waste to ensure that it receives its appropriate share of such waste. Burrtec also owns or controls materials recovery facilities in Victorville, California and in the Coachella Valley of California, which are not considered to be competitors of the West Valley MRF. Other entities have from time to time proposed to develop materials recovery facilities that would serve
the same broad geographic area as that served by West Valley. Except for a relativelyThere is one small materials recovery facility locatedoperating in Colton California owned by Republic Industries, we believe that none of them has yet completed the permitting process. However, theand two other transfer and materials recovery facility in Colton is a competitor and one municipality formerly usingfacilities are currently being proposed that could, if built, be competitors for certain of the waste now processed by the West Valley MRF has contracted for its recycling services withMRF. One such new facility would be in the Colton facility.City of Pomona and the other facility would be in the City of San Bernardino. Such competition would likely adversely impact the volume and profitability of the waste processed at West Valley.
KAISER VENTURES LLC AND SUBSIDIARIES
Tar Pits ParcelRisk Factors
The West Valley MRF faces a number of risks. These risks include risks related to general economic and market conditions that are outside its control.
Currently,In 2008 risks associated with the only remaining property we own atfinancial and credit markets temporarily caused a dramatic increase in the Mill Site Property is an approximate 5 acre parcel known as the Tar Pits Parcel. Under our agreement withinterest rate on the West Valley MRF, we are obligated to contribute the Tar Pits Parcel to the West Valley MRF, at its option, upon the environmental remediationMRF’s outstanding bonds. However, as of the property. Except for ongoing inspection and monitoring activities, remediationdate of the Tar Pits Parcel was completed in 2002 at CCG Ontario, LLC’s, (referred to as CCG), expense. CCG is responsible for this property’s environmental remediation pursuant to the terms of the purchase agreement entered into between CCG and Kaiser in August 2000 relating to Kaiser’s sale of approximately 588 acres of the Mill Site Property. See “BUSINESS - Historical Operations and Completed Transactions - Mill Site Environmental Matters.”
EAGLE MOUNTAIN TOWNSITE
We own and operate the Eagle Mountain Townsite through a wholly-owned subsidiary, Kaiser Eagle Mountain, LLC. The Eagle Mountain Townsite covers approximately 1,300 acres, consists of more than 300 houses (of which approximately 100 have been renovated for current occupancy), a water supply and sewage treatment system, an office building, machine shops, school facilities and other structures. As part of the District’s purchase of the landfill project from MRC, the District will acquire or control a substantial portion of this infrastructure, including utility and water distribution facilities, which serves the landfill property as well as the Eagle Mountain Townsite. However, the District will not be acquiring any houses as a part of the landfill property.
During 2003 a portion of the Eagle Mountain Townsite was leased on a month-to-month basis to Management Training Corporation (“MTC”), a company that operates a minimum security prison under contract with the State of California. Funding for many private prisons was eliminated from California’s 2003 - 2004 state budget as of December 31, 2003, including the private prison located at Eagle Mountain. Accordingly, effective December 31, 2003, the private prison at Eagle Mountain was closed. MTC surrendered most of the property it leased as of December 31, 2003, with the exception of several houses that it continued to lease through February 2004. As of the datefiling of this Report on Form 10-K, wethe interest rates on the West Valley MRF’s bonds have not had any successdeclined to historic low levels. A material increase in findingfuture interest rates could result in a replacement tenant and thus, we arematerial increase in the West Valley MRF’s interest expense. The risks associated with the financial and credit markets could also potentially impact the renewal and the terms of the West Valley MRF’s outstanding letters of credit which secures its bonds.
Waste volumes are also being negatively impacted by the economic down-turn in Southern California. Although the services of the West Valley MRF are generally considered of an essential nature, a weak economy usually results in decreases in the volume of waste generated, which in turn decreases revenues. Additionally, the processing of recyclable materials and their resale in the commodities markets are a significant source of revenue for the West Valley MRF. The volatility of commodity prices and the substantial reduction in commodity prices that began in the fourth quarter of 2008 have and will continue to negatively impact the revenues, margins and net income of the West Valley MRF for the foreseeable future.
The West Valley MRF also faces risks associated with rising and fluctuating operating costs that it may not be able to pass through, in whole or in part, to its customers. For example, the price of fuel is unpredictable and is based upon factors outside the control of the West Valley MRF. Until the fourth quarter of 2008, fuel prices had dramatically increased during the last two years. In addition to the fuel used by the West Valley MRF’s equipment and vehicles, many of its vendors raise their prices as a means to offset their own rising fuel costs. While the West Valley MRF usually attempts to pass through its increased costs such as the cost of fuel, it may not be able to timely pass through all of such increases due to competition or as a result of the terms of a customer’s contract. These increased operating costs would then likely negatively impact the profitability of the West Valley MRF.
Competition for and the loss of expiring waste contracts would also negatively impact the West Valley MRF. Most of the waste processed at the West Valley MRF is as a result, directly or indirectly, of hauler or municipal contracts or franchise agreements. Many of these arrangements are for a specified term and are subject to competitive bidding in the future In addition, under certain conditions, some of the customers of West Valley MRF may terminate their contracts prior to the scheduled contract term. Governmental action may also affect waste flow to the West Valley MRF. Municipalities may annex unincorporated areas within San Bernardino County and Riverside County where the West Valley MRF currently derives waste; as a result customers in annexed areas may be required to obtain services from competitors.
The largest sources of waste for the West Valley MRF are derived through Burrtec affiliated companies, the City of Ontario and Waste Management, Inc. affiliated companies. The loss of waste currently hauled or directed by these companies or the City of Ontario to the West Valley MRF could materially impact West Valley.
The West Valley MRF also faces the risks associated with extensive governmental regulation of the waste industry. The regulatory process requires firms in the waste hauling, waste recycling and/or landfill business to obtain and retain numerous governmental permits to conduct various aspects of developingtheir operations, any of which may be subject to revocation, modification or denial. Changes in such governmental policies and implementingattitudes relating to the industry could impair the West Valley MRF’s ability to obtain and maintain applicable permits from governmental authorities on a plantimely basis. Such regulations could also impact the
KAISER VENTURES LLC AND SUBSIDIARIES
expansion of existing facilities and/or the providing of new related waste services such as green waste composting. The Company is not in a position at the present time to mothballassess the extent of the impact of such potential changes in governmental policies and attitudes on the permitting processes, but they could be significant. Additionally, West Valley MRF cannot predict with certainty the extent of future costs that may be required under such regulation including the future costs associated with environmental, health and safety laws and regulations. For example, environmental groups and regulatory agencies in California and in the United States have increasingly focused their attention on the emission of greenhouse gases and the impact to climate of such emissions. The passage of laws and regulations to control green house gases, including the imposition of fees or taxes, could adversely impact the West Valley MRF’s operations and financial results. In addition to the governmental permitting and environmental restrictions and conditions that may be imposed directly on the West Valley MRF, governmental authorities may impose other conditions and regulations that impact the West Valley MRF. For example, waste hauling permits/agreements provided by some of the counties served by the West Valley MRF have restricted the flow of waste to the West Valley MRF.
The waste industry is highly competitive. West Valley MRF faces competition from governmental, quasi-governmental, and private sources for municipal solid waste and recyclable materials. See “Item. 1. DESCRIPTION OF BUSINESS-West Valley Materials Recovery Facility and Transfer Station-Competition” above.
Any of the factors described above could materially adversely affect the West Valley MRF’s results of operation and cash flows.
Miscellaneous Business
The Company is occasionally able to generate miscellaneous income from time to time from various activities. Such activities have historically included leasing our fee owned land at Eagle Mountain for films, commercials and military and law enforcement training and the sale of rock.
OTHER KAISER ASSETS
For a discussion of our other assets such as the Eagle Mountain Townsite, which should be completed by the end of the third quarter of 2004. With the closure of the private prison, Eagle Mountain’s ongoing operations and staffing will be reduced. The Company has recorded a reserve for the costs of such a reduction in activity, the adequacy of which management will continue to review.
Other than possible environmental remediation associated with asbestos containing products in certain structures, we are not aware of any material environmental remediation required atproperty adjoining the Eagle Mountain Townsite that could require us to expend substantial funds or that could lead to material liability. However, under the terms of a reclamation plan for a portion of the former mine site there are ongoing reclamation activities for which the Company has recorded a reserve for the estimated cost of such activities.
OTHER KAISER ASSETS
Land adjacent to the Eagle Mountain Site
In and around the Eagle Mountain Townsite area, Kaiser has various possessory mining claims aggregating approximately 1,472 acres and holds approximately 7,344 acres in fee simple. This property is in addition to the approximate 1,300 acre Eagle Mountain Townsite. Approximately 4,654 acres of this property will be sold as a part of the sale of the landfill project.
Kaiser owns four deep water wells, two of which are currently being used, and two booster pump stations that serve the Eagle Mountain site and the Eagle Mountain Townsite.
Lake Tamarisk Californiaproperty, please see “Item 2. DESCRIPTION OF PROPERTIES.”
HISTORICAL OPERATIONS AND COMPLETED TRANSACTIONS
Lake TamariskThe following information is an unincorporated community located two miles northwest of Desert Center, Californiaprovided as historical background and approximately 8 miles from the Eagle Mountain mine. This community has 150 improved lots situated around two recreational lakes and a nine-hole golf course. With 70 homes and a 150-space mobile home park, the community has an average year-round population in excess of 150. Lake Tamarisk Development, LLC, a wholly owned subsidiary of Kaiser, owns: (i) 77 improved lots,to put into context our current activities including among other lots, one residential structure; (ii) a 240 acre parcel of unimproved land across the highway from the main entrance to Lake Tamarisk; (iii) and an approximate 200 acre unimproved parcel adjoining the nine-hole Lake Tamarisk golf course.
HISTORICAL OPERATIONSAND COMPLETED TRANSACTIONS
our current cash maximization strategy.
Water Resources
Background. Until the sale of its ownership interest in Fontana Union Water Company, or Fontana Union, to Cucamonga County Water District, referred to as “Cucamonga,” in March 2001 for $87.5 million or approximately $10,860 per share of Fontana Union stock, the Company’s results of operations depended, in large part, on water rights and successfully leasing such rights. Concurrently with the sale of its Fontana Union stock, the Company also received approximately $2.5 million in payments under its water lease with Cucamonga. Thus, the following information concerning Fontana Union and Cucamonga is provided for historical purposes and to assist the reader as toThe sale was completed in the context of settling outstanding litigation between Cucamonga and the Company. Prior to that time Kaiser leased all of its shares in Fontana Union stock sale.
to Cucamonga under the terms of 102-year take-or-pay lease.
Fontana Union owns water rights to produce water from four distinct surface and subsurfacevarious sources of water near Fontana, California. Kaiser’s ownership of Fontana Union entitled it to receive, annually, a proportionate share of Fontana Union’s water. In addition, when other shareholders of Fontana Union did not take their annual proportionate shares of water, the unclaimed water for each year was divided pro rata among the shareholders that did exercise their right to take water in that year. At the time we sold our interest in Fontana Union in March 2001, our pro rata interest in unclaimed water raised our effective overall ownership percentage to approximately 57.19%.
Lease of Interest in Fontana Union to Cucamonga County Water District. In 1989, Kaiser leased all of its then owned shares of Fontana Union stock to Cucamonga, a local water district, under the terms of the 102-year take-or-pay lease, referred to as the “Cucamonga Lease.” Under this lease, Cucamonga was entitled to receive all of our proportionate share of water from Fontana Union (including shares acquired after 1989) with lease payments based upon fixed quantities of water at a rate of 68.13% of rate charged by the Metropolitan Water District of Southern California, the “MWD,” for untreated, non-interruptible water as available through Chino Basin Municipal Water District.
Under the terms of the Cucamonga Lease, our future lease revenue increases depended primarily upon any adjustments in the MWD water rates and other fees upon which the lease rate was calculated. The MWD rate established for untreated, non-interruptible water is based on a number of factors, including the MWD need for funds to finance capital improvements and to cover its fixed operational and overhead costs.
On July 1, 1995, MWD implemented changed rates and a new rate structure which was the subject of a dispute between Kaiser and Cucamonga. In December 2000, MWD approved another major rate restructuring. Without the Fontana Union stock sale, we anticipated that we would be engaged in an additional dispute with Cucamonga as a result of MWD’s continued adoption major rate restructuring programs every few years.
The Cucamonga Lease Dispute.As a result of these July 1995 changes in the MWD rates, we asserted that all the changed rates and items implemented by MWD, which must be paid in order to receive untreated, non-interruptible water from MWD, were to be included in the calculation of the MWD rate payable under the terms of the Cucamonga Lease. Cucamonga disputed our interpretation and asserted that our interpretation of the Cucamonga lease in relation to the changes effected in 1995 by the MWD would result in a rate increase to Cucamonga in excess of the 1995 MWD rate of increase Cucamonga asserted was the appropriate rate increase (the “Dispute”). This Dispute, impacted all payments made by Cucamonga subsequent to July 1995. Because Kaiser and Cucamonga were unable to resolve this Dispute out of court, in 1996 Kaiser instituted litigation against Cucamonga in San Bernardino County Superior Court.KAISER VENTURES LLC AND SUBSIDIARIES
After a trial on the matterFontana Union’s water, which water was historically used in March 1998, the Court concluded that the MWD rate, as defined in the Cucamonga lease, was discontinued effective July 1, 1995, as a result of the rate restructuring implemented by MWD.
Fontana Union Stock Sale.Prior to the determination of the outcome of an arbitration over the new MWD rate that would be used under the terms of the Cucamonga Lease, the parties negotiated a resolution to the Disputeconnection with the sale of the Company’s Fontana Union Stock to Cucamonga for a purchase price of $87.5 million. In addition, Cucamonga agreed to pay $2.5 million in payments under the Cucamonga Lease. Kaiser Inc.’s stockholders approved the Fontana Union stock sale in February 2001, and the Fontana Union stock sale was completed on March 6, 2001.
Kaiser’s steel making activities.
Mill Site Property
Background. From 1942 through 1983, KSC operated a steel mill in Southern California near the junction of the Interstate 10 and Interstate 15 freeways and approximately three miles to the northeast of Ontario International Airport. The original Mill Site Property owned by Kaiser after it emerged from the KSC bankruptcy consisted of approximately 1,200 acres and portions of the property required substantial environmental remediation. Except for the approximate five acre Tar Pits Parcel, we no longer own any portion of the Mill Site Property. The disposition of the Mill Site Property by us over the past several years is described below.
The California Speedway Property. In November 1995, the Company contributed approximately 480 acres of the Mill Site Property in exchange for common stock in the company that became Penske Motorsports, Inc., a leading promoter of motor sports activities and an owner and operator of automobile racetracks. In December 1996, the Company sold to PMI approximately 54 additional acres of the Mill Site Property, for cash and additional stock in PMI. The California Speedway, a world class motor sports speedway, was constructed on this approximate 534 acres of the Mill Site Property.
In July 1999 International Speedway Corporation, referred to as ISC, through a wholly owned subsidiary, acquired PMI. Kaiser Inc., as a stockholder in PMI, voted for the merger and elected to receive a portion of the merger consideration in cash and a portion in ISC stock. In the transaction Kaiser received approximately $24 million in cash and 1,187,407 shares of ISC Class A common stock, resulting in a gain of $35.7 million. Subsequent to PMI’s acquisition, we sold all of the shares we owned in ISC at an average price of approximately $53.52 per share, realizing an additional gain of approximately $6.6 million. The gross cash proceeds we received in 1999 from the merger and the subsequent sale of ISC stock totaled approximately $88 million.
The NAPA Lots. In conjunction with the permitting and development of the California Speedway, we permitted and developed three parcels known as the “NAPA Lots” for sale. In September 1997, the largest NAPA Lot, consisting of approximately 15.5 acres, was sold for a gross sale price of approximately $2.9 million. In November 1999, another of the NAPA Lots, consisting of approximately 7.8 acres, was sold for a gross cash sale price of approximately $1.7 million. The remaining NAPA Lot of approximately 5.2 acres was sold in December 1999 for a cash sale price of approximately $1.1 million.
CCG Ontario, LLC (CCG).In August 2000, we sold approximately 588 acres of our remaining Mill Site Property to CCG for $16 million in cash plus the assumption of virtually all known and unknown environmental obligations and risks associated with the property as well as certain other environmental obligations. Included in the land sold to CCG were ancillary items such as the sewer treatment plant and the water rights associated with the property. As part of the transaction, CCG obtained environmental insurance coverage and other financial assurance mechanisms related to the known and unknown environmental obligations and risks associated with the transferred property as well as other environmental obligations subject to limited exceptions. In addition, before this sale transaction, we were party to a consent order with the California Department of Toxic Substances Control, referred to as the DTSC, which was essentially an agreement to investigate and remediate property. As part of the sale transaction, this consent order and our financial assurances to the DTSC were terminated, and CCG entered into a new consent order with the DTSC and provided the necessary financial assurances. CCG is a subsidiary of Catellus Corporation which in turn is owned by ProLogis. ProLogis is considered the world’s largest developer of commercial warehouse space. ProLogis and many of its subsidiaries are being adversely impacted by worldwide economic conditions. These adverse financial and credit conditions increase the risk that CCG could default in the obligations it assumed in connection with its
KAISER VENTURES LLC AND SUBSIDIARIES
purchase of the property. For additional information, see “Part I, Item 1. BUSINESS—DESCRIPTION OF BUSINESS - Historical Operations and Completed Transactions - Mill Site Environmental Matters” below.
Rancho Cucamonga Parcel.In October 2000, the Company completed the sale of approximately 37 acres of the Mill Site Property, known as the Rancho Cucamonga parcel, to The California Speedway Corporation. The gross cash sale price was approximately $3.8 million.
West Valley MRF Property.At the time of the formation of West Valley in 1997, Kaiser Inc. contributed 23 acres of the former Mill Site Property, on which a 62,000 square foot building, sorting equipment and related facilities were constructed during Phase 1 of the West Valley MRF development. Under the terms of our agreements with West Valley, we contributed additional land approximating 7 acres after that land’s environmental remediation in 2000. We are also obligated to contribute the Tar Pits Parcel to West Valley MRF at its option, upon the environmental remediation of the Tar Pits Parcel in a manner suitable for use by West Valley MRF. The Tar Pits Parcel is the only acreage that we continue to own at the former Mill Site Property.
Mill Site Environmental Matters
The operation of a steel mill by the Company’s predecessor, KSC, resulted in known contamination of limited portions of the Mill Site Property. As discussed above, the Company’s consent order with the DTSC was terminated in connection with the sale of approximately 588 acres of the remaining Mill Site Property to CCG for $16 million in cash plus the assumption of virtually all known and unknown environmental obligations and risks associated with the property as well as certain other environmental
obligations. Concurrently with that termination, CCG entered into a new consent order with the DTSC, in which CCG assumed responsibility for all future investigation and remediation of the Mill Site Property it purchased, as well as various other items covered under its CCG consent order. In addition, CCG assumed and agreed to indemnify the Company against various contractual environmental indemnification and operations and maintenance (“O&M”) obligations the Company has with purchasers of other portions of the Mill Site Property. In connection with this land sale, CCG entered into a fixed price environmental remediation services agreement with IT Corporation (“IT”), an environmental contractor, to remediate the known environmental conditions on the property. IT filed for bankruptcy in January 2002, but certain of the assets of IT were eventually acquired by The Shaw Group, including the fixed price environmental contract. Accordingly, the fixed price environmental remediation services contract continues to be performed. In addition, CCG is obligated to remediate the Tar Pits Parcel pursuant to a solidification and capping strategy. The remediation of the Tar Pits parcel is also covered by the fixed price environmental remediation contract. Except for continuing inspection and maintenance obligations, the remediation of the Tar Pits Parcel has been completed.completed although the Company may review additional remediation possibilities as a means of making such parcel useable property.
CCG is in the process of undertaking necessary investigation and remedial actions at the Mill Site Property, including a groundwater investigation.
Many of the environmental obligations assumed by CCG are backed, in whole or in part, by various financial assurance mechanisms or products. Examples of the financial assurances or products provided, include, but are not limited to: a performance bond issued to assure performance under the environmental remediation service agreement; a real estate environmental liability insurance policy with a policy limit of $50 million; a remediation stop loss policy covering $15 million in cost overruns for known remediation, which known remediation was estimated to be approximately $15 million; andmillion. Additionally, there is a limited corporate guaranty by CCG’s parent company. All financial assurance mechanisms or products are subject to their terms. In addition, there are certain exceptions to CCG’s assumption of the Company’s prior environmental obligations such as any certain environmentally related litigation outstanding as of the date of the closing of the land sale to CCG.
KAISER VENTURES LLC AND SUBSIDIARIES
With regard to groundwater, we previously settled certain obligationsallegations of groundwater contamination with the California Regional Water Quality Control Board, or the RWQCB, concerning a plume (containing total dissolved solids, sulfate, and organic carbon) to which the historic steel operations allegedly contributed. The settlement required us to make a $1.5 million cash payment, which was made in February 1994, and the contribution of 1,000 acre feet of water annually for 25 years to a water quality improvement project. In 1999, approximately 20 years ahead of schedule, we contributed the full 25,000 acre feet required under the terms of the settlement agreement with the RWQCB. This contribution of water satisfied all of the Company’s obligations to the RWQCB under the terms of the settlement agreement. CCG did not assume any of the Company’s future obligations, if any, with regard to the specified plume, and we retained potential liability from certain third party claims alleging damages from the identified groundwater plume. One such claim has been asserted against the Company. See “Part 1. Item 3. LEGAL PROCEEDINGS.”
As a result of the transaction with CCG and the Company’s previous remediation activities in 2000, the Company’s estimated environmental liabilities were reduced by approximately $21.9 to $4.5 million. These potential environmental liabilities included, among other things, environmental obligations at the Mill Site Property that were not assumed by CCG, such as any potential third party damages from the identified groundwater plume discussed above, environmental remediation work at the Eagle Mountain Site, and third-party bodily injury and property damage claims, including asbestos claims not covered by insurance and/or paid by the KSC bankruptcy estate.
In 2004, this reserve was again reduced to approximately $2.4 million to reflect settlement of a third party claim related to the groundwater plume discussed above. This reserve was further reduced in 2005 as a result of reclassifying $500,000 to the Eagle Mountain Townsite Cleanup Reserve. This environmental reserve was increased by $1.2 million as of December 31, 2005, for Eagle Mountain Townsite environmental related matters, as discussed in more detail in “Item 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Section 2: New Accounting Pronouncements.” As a result of some remediation actives that took place at Eagle Mountain in 2007 the environmental reserve was further reduced by $33,000 and the reserve was again reduced in 2008 by $72,000 as a result of work conducted in 2008 associated with the former Kaiser Mill Property.
In keeping with our goal to minimize our potential liabilities, including the potential liabilities outlined above, we purchased an insurance policy effective June 30, 2001. This2001, a 12-year $50 million insurance policy, which is designedexpected to provide broad commercial general liability, pollution legal liability,cover substantially any and contractual indemnity coverage for Kaiser’s ongoing andall environmental claims (up to the $50 million policy limit) relating to the historical operations. Withoperations of the purchase of this policy, we were able to reduce our estimated environmental liabilities to zero.Company. See “MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” in Part II, Item 7.6., of this Annual Report on Form 10-K.
The Company is involved, from time-to-time, in legal proceedings concerning environmental matters. See “Part I, Item 3. LEGAL PROCEEDINGS.”
Tar Pits Parcel
Currently, the only remaining property we own at the Mill Site Property is an approximate 5 acre parcel known as the Tar Pits Parcel. Under our agreement with the West Valley MRF, we are obligated to contribute the Tar Pits Parcel to the West Valley MRF, at its option, upon the environmental remediation of the property. Except for ongoing inspection and monitoring activities, remediation of the Tar Pits Parcel was completed in 2002 at CCG Ontario, LLC’s, (referred to as CCG), expense. CCG is responsible for this property’s environmental remediation pursuant to the terms of the purchase agreement entered into between CCG and Kaiser in August 2000 relating to Kaiser’s sale of approximately 588 acres of the Mill Site Property. However, the Company is exploring additional remediation alternatives as a means of making the Tar Pits Parcel useable. See “Part I, Item 1. DESCRIPTION OF BUSINESS - Historical Operations and Completed Transactions - Mill Site Environmental Matter.
Employees
As of March 23, 2004,16, 2009, Kaiser LLC had no employees. However, Kaiser LLC leases employees through Business Staffing, Inc., a subsidiary of Kaiser LLC, and reimburses Business Staffing for the costs associated with 86 full-time (4 at Ontario, California and 42 at Eagle Mountain, California) and 35 permanent part-time employees at(4 in Ontario, California. It is anticipated that the number of full time employeesCalifornia and 1 at Eagle Mountain, will be reducedCalifornia).
KAISER VENTURES LLC AND SUBSIDIARIES
Item 1A. | RISK FACTORS |
We are a smaller reporting company as defined in 2004 as a resultRule 12b-2 of the closureExchange Act and are not required to provide the information required under this item.
Item 1B. | UNRESOLVED STAFF COMMENTS |
We are a smaller reporting company as defined in Rule 12b-2 of the private prison that was operated throughExchange Act and are not required to provide the end of 2003. All of the full-time and part time employees were previously employed by Kaiser Inc.information required under this item.
Item 2. |
Office Facilities
Our principal offices are located at 3633 East Inland Empire Boulevard, Suite 480, Ontario, California, 91764. The Company currently leases approximately 2,9503,130 square feet in Ontario, California at a current cost of approximately $6,900$7,300 per month. However, as result of the negotiations in connection with our exercising the option to extend our lease through August 31, 2011, we will receive three months of free rent beginning June 1, 2009, and the monthly base rent will be reduced to approximately $6,413 for one year beginning September 1, 2009, and will increase on September 1, 2010 to approximately $6,600. Accordingly, our total base rent for 2009, 2010 and 2011 (unless the lease is extended beyond August 31, 2011) will be approximately $62,148, $77,696 and $52,800, respectively. The office lease expires on August 31, 2007,2011, with the rightCompany having the option to terminateextend the lease upon prior written notice effective as of February 28, 2006.after August 31, 2011. Our subsidiary, Kaiser Eagle Mountain, LLC, also currently maintains an office at the Eagle Mountain Site. We own the building used as an office at the Eagle Mountain Site.
Eagle Mountain, California
The Kaiser Eagle Mountain idle iron ore mine and the adjoining Eagle Mountain Townsite are located in Riverside County, approximately ten miles northwest of Desert Center, California. Desert Center is located on Interstate 10 between Indio and Blythe. The heavy duty maintenance shops and electrical power distribution system have been kept substantially intact since the 1982 shutdown. The Company also owns several buildings, a water distribution system, a sewage treatment facility, and related infrastructure. The District, upon its purchase of the landfill project, will own or control a substantial portion of this infrastructure. Accordingly, the District and the Company are negotiating a number of agreements addressing access and joint use of infrastructure facilities. The Eagle Mountain Townsite includes more than 300 single family homes, approximately 100 of which have been renovated. However, dueDue to the closurepassage of time and the impacts of weather, a number of the private prisonbuildings and houses at the Eagle Mountain Townsite effectiveare deteriorating at a faster rate than anticipated and may not be salvageable. Accordingly, we may need to demolish or rehabilitate a number of structures over the next several years and we have established a $2.5 million reserve for such purposes. In 2006, 27 homes were remediated and demolished. No homes were demolished in 2007. See also “Part II, Item 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Section 2: Liquidity and Capital Resources - New Accounting Pronouncements”.
Until December 31, 2003, we are in the process of developing and implementing a plan to mothball the Townsite.
During 2003 a portion ofprivate prison was operated at the Eagle Mountain Townsite was leased on a month-to-month basis to MTC that operated a minimum security prison under contract with the State of California. Funding for many private prisons was eliminated from California’s 2003 - 2004 state budget as of December 31, 2003, including the private prison located at Eagle Mountain. Accordingly, effective December 31, 2003, the private prison at Eagle Mountain was closed with most of the leased property returned to us as of that date, with the exception of several houses that it continued to lease through February 2004. As of the date of this Report on Form 10-K, we have not had any success in finding a replacement tenant and thus, we are in the process of developing and implementing a plan to mothball the Eagle Mountain Townsite which we expect to complete by the end of the third quarter of 2004.Townsite. With the closure of the private prison we implemented a “mothball” plan in 2004 for the Eagle Mountain’sMountain Townsite. We are continuing to seek appropriate tenants for a lease of all or portions of the Eagle Mountain Townsite but have been unsuccessful to date in finding permanent tenants. The September 2005 adverse U.S. District Court decision involving a completed land exchange between Kaiser and the BLM may hinder these efforts.
KAISER VENTURES LLC AND SUBSIDIARIES
Other than possible future environmental remediation associated with asbestos containing products in certain structures for which a reserve has been recorded, we are not aware of any material environmental remediation required at the Eagle Mountain Townsite that could require us to expend substantial funds or that could lead to material liability. However, under the terms of a reclamation plan for a portion of the mine site there are ongoing operations and staffing will be reduced. Thereclamation activities for which the Company has also recorded a reserve for the costsestimated cost of such a reduction in activity, the adequacy of which management will continue to review.activities.
In and around the Eagle Mountain areasite the Company currently has various possessory mining claims of approximately 3,5091,472 acres and holds approximately 5,6358,644 acres in fee simple (which includes the approximate 1,300 acre Eagle Mountain Townsite). Approximately 4,654 acres of this property will be sold as a part of sale of the landfill project, assuming such sale is completed. See “Part I, Item 1. DESCRIPTION OF BUSINESS - Eagle Mountain Landfill Project.”
However, if the adverse U.S. District Court decision is upheld on appeal it will impact the amount and nature of our land holdings. If the land exchange is finally reversed, and we are placed back to the same position as prior to the land exchange, we would own or control in and around Eagle Mountain approximately 1,800 acres in fee and 9,550 acres in various possessory mining claims. In addition, the reversal of the land exchange would reinstate a reversionary interest contained in the original grant of approximately 460 acres of the Eagle Mountain Townsite.
The Company owns four deep water wells, of which two are currently being used, and two booster pump stations that serve the Eagle Mountain Site.
Rock/Aggregate
As a result of previous mining at Eagle Mountain, millions of tons of rock of various sizes have been stockpiled on portions of the property around the Eagle Mountain Townsite. We have shipped rock products in various quantities in the recent past and we are exploring opportunities to increase future rock shipments.
Railroad
To transport ore from the Eagle Mountain mine to the mill site (see below), Kaiser Steel Corporation constructed a 52-mile heavy duty rail line connecting the mine to the main Southern Pacific rail line at Ferrum, California. We own in fee approximately 10% of the 52-mile railroad right-of-way. The major remaining portion of the railroad right-of-way consists of various private easements and an operating right-of-way from the BLM. The railroad is included in the lease to MRC and, to the extent reasonably possible, will be transferred to the District upon the consummation of the sale of the landfill project if the sale is completed. Portions of the railroad suffered significant flood damage in 2003. The adverse U.S. District Court decision reversing a completed land exchange would also reverse a BLM right-of-way granted under the Federal Land Policy and Management Act for the railroad but the original federal right-of-way granted under the Private Law 790 would remain in place. In addition, if the land exchange is fully reversed, Kaiser would reacquire approximately 2,800 acres along or near the railroad that had been conveyed to the BLM as a part of the October 1999 land exchange. For additional information, see “Part I, Item 1. DESCRIPTION OF BUSINESS - Eagle Mountain Landfill Project and Pending Sale –- Flood Damage to Railroad.”
Fontana, California
With exception of the approximate 5 acre Tar Pits Parcel, the Company no longer owns any property at the former Mill Site Property. With the exception of ongoing maintenance and inspection obligations, the environmental remediation of this parcel has been completed.completed although the Company is exploring additional remediation alternatives as a means to make the parcel usable. See “Part 1, Item 1.
KAISER VENTURES LLC AND SUBSIDIARIES
DESCRIPTION OF BUSINESS - Historical Operations and Completed Transactions - Mill Site Property.”
Lake Tamarisk, California
Lake Tamarisk is an unincorporated community located two miles northwest of Desert Center, California and approximately 8 miles from the Eagle Mountain mine. This community has 150 improved lots situated around two recreational lakes and a nine-hole golf course. With 70 homes and a 150-space mobile home park, the community has an average year-round population in excess of 150. Lake Tamarisk Development, LLC, a wholly-ownedwholly owned subsidiary of the Company, owns 77Kaiser, owns: (i) 72 single family improved lots, including, one residential structure. Lake Tamarisk, LLC also owns a 240structure; (ii) 3 multi-family lots totaling 12.42 acres; (iii) 1 commercial lot totaling approximately 3.31 acres; (iv) an approximate 170 acre parcel of unimproved land across the highway from the main entrance to Lake Tamarisk andTamarisk; (v) an approximate 200 acre parcel of unimproved landparcel adjoining the nine-hole Lake Tamarisk golf course.course; and (vi) an approximate 39 acre unimproved parcel adjacent to Lake Tamarisk. We are seeking to sell our Lake Tamarisk properties but are also looking at other development opportunities that may enhance the ultimate value and sale of such properties.
Other Real Estate Properties
Several parcels near Walsenburg, Colorado were sold on an “as is” basis in 2003 for less than $100,000 with the Kaiser Steel bankruptcy estate receiving the net proceeds from the sale.
Item 3. | LEGAL PROCEEDINGS |
Kaiser, inIn the normal course of itsour business iswe are involved in various claims and legal proceedings. A number of litigation matters previously reported have settled and such settlements did not have a material adverse impact on our financial statements. Significant legal proceedings, including those which may have a material adverse effect on our business or financial condition, are summarized below. However, the following discussion does not, and is not intended to, discuss all of the litigation matters to which we
may be or become a party. Should we be unable to resolve any legal proceeding in the manner we anticipate and for a total cost within close proximity to any potential damage liability we have estimated, our business and results of operations may be materially and adversely affected.
Litigation
Eagle Mountain Landfill Project Land Exchange Litigation.In October 1999 Kaiser’s wholly-owned subsidiary, Kaiser Eagle Mountain, Inc. (now Kaiser Eagle Mountain, LLC), completed a land exchange with the BLM. This completed land exchange has been challenged in two separate federal lawsuits.
Federal Land Exchange Litigation. There are two separate, but related, litigation matters in federal district court involving On September 20, 2005, the completed land exchange between Kaiser Eagle Mountain, Inc, and the BLM. The details of each case are as follows:
A. Donna Charpied; Laurence Charpied; The Desert Protection Society (Plaintiffs) v. United States Department of the Interior; Bureau of Land Management; Bruce Babbitt, in his official capacity as Secretary of the Interior; Tom Fry, in his official capacity as Acting Director of the Bureau of Land Management; Al Wright, in his official capacity as Acting California State Director of the Bureau of Land Management; Tim Salt, in his official capacity as Bureau of Land Management California Desert District Manager; Robert Stanton, in his official capacity as Director of the National Park Service, Kaiser Eagle Mountain, Inc., and Mine Reclamation Corporation (Defendants), (United StatesU. S. District Court for the Central District of California, RiversideEastern Division, Caseissued its opinion in Donna Charpied,et al., Plaintiffs v.United States Department of Interior, et al., Defendants (Case No. EDCVED CV 99-0454 RT(MCx)RT (Mex)) and inNational Parks and Conservation Association, Plaintiff v.Bureau of Land Management, et al., Defendants (ED CV 00-0041 RT (Mex)). The decision is adverse to the landfill project in that it sets aside a land exchange completed between the Company and U.S. Bureau of Land Management (“BLM”) in October 1999 as well as two BLM rights-of-way. It also effectively reinstates a reverter title issue involving the Eagle Mountain Townsite.
In December 1999, opponentsthe exchange, the Company’s wholly owned subsidiary, Kaiser Eagle Mountain, Inc. (now Kaiser Eagle Mountain, LLC) transferred approximately 2,800 acres of Kaiser-owned property along its railroad right-of-way to the BLM and a cash equalization payment in exchange for approximately 3,500 acres of land within the Eagle Mountain landfill project filedarea. The land exchanged by the Company was identified as prime desert tortoise habitat and was a lawsuit inprerequisite to completion of the federal district court located in Riverside, California seeking to stoppermitting of the Eagle Mountain landfill project. In summary,Following completion of the lawsuit challenges the BLM’s approval of a land exchange, betweentwo lawsuits were filed challenging it and requesting its reversal. The plaintiffs argued that the Company and the BLM. The challenges are based upon,land exchange should have been reversed, because, among other things,reasons, the Company’s and the BLM’s alleged failureBLM failed to comply with the National Environmental Policy Act and the Federal Land Policy Management’sand Management Act. The relief sought is an unwinding of the land exchange that was completed on October 13, 1999, and the award of attorneys’ fees. The National Park Service has been dismissed out of the lawsuit. InDesert Citizens Against Pollution v. Bisson,(Ninth CircuitU.S. District Court of Appeals, Case No. 97-55429), the Court of Appeals concluded, among other things, that the BLM did not properly value the land being acquired by the competing Mesquite rail-haul landfill project and ordered a reversal of the land exchange. The court concluded that the appraisal should have consideredenvironmental impact statement was deficient in its explanation and/or environment analysis with regard to: (i) the highest best useissue of eutrophication which deals with the introduction of nutrients, in this case primarily nitrogen, as a result of the lands being acquired fromexistence of the BLM as a landfill.landfill project; (ii) Big Horn Sheep, which is not an endangered species; (iii) the statement of purpose and need for the landfill project; and (iv) the reasonable range of alternatives to the proposed project. The court did not, however, determine the proper valuationrule in favor of the exchanged lands. The plaintiffs in Kaiser’s federal land exchange litigation have amended their respective complaintslandfill project with regard to include allegations that the appraisal used in Kaiser’s land exchange with the BLM is similarly defective.environmental analysis and explanation for: (i) noise; (ii) night lighting; (iii) visual impacts; (iv)
KAISER VENTURES LLC AND SUBSIDIARIES
In light of theBisson ruling, desert tortoise; (v) groundwater; and (vi) air. The court also ruled that the environmental impact statement was deficient under the Federal Land Policy and Management Act with regard to: (i) the appraisal undertaken by the BLM has completed an independent review of the “highest and best use” analysis consistent with that discussed in theBisson decision. The BLM’s independent appraiser concluded that there would be no change in the determination of the “highest and best use” analysis in the appraisal used in the land exchange ifexchange; and (ii) a full discussion of the property involved was expressly considered as a land fill site. Given allBLM’s conclusions on the facts and circumstances, the independent appraisal concluded that there was no premium to be paidpublic need for the property interests exchanged by the BLM even if a portion of such property interests were a part of a planned landfill.
All scheduled briefing for the case was completed in January 2003. We are currently awaiting a decision from the court. Kaiser is vigorously defending the litigation.
B. National Parks and Conservation Association (Plaintiff) v. Bureau of Land Management; United States Departmentlandfill project. A copy of the Interior; Kaiser Eagle Mountain, Inc.; and Mine Reclamation Corporation
(Defendants), (United States District Court for the Central District of California, Riverside Division, Case No. EDCV 000041 VAP(JWJx)).
This lawsuit was brought by the National Parks Association and alleges causes of action that are virtually identicaldecision can be found as Exhibit 99.1 to the causes of action asserted in theCharpied litigation. All scheduled briefing has been completed for this litigation. Kaiser is also vigorously defending this matter.
Company’s Report on Form 8-K dated September 20, 2005.
Threatened Endangered Species Act Litigation. The Company along withWe and the U.S. Department of Interior appealed the BLM,adverse decision to the Los Angeles County Sanitation District and Metropolitan Water DistrictU. S. 9th Circuit Court of Southern California, received a letter dated September 26, 2002, from the Center for Biological Diversity, the Sierra Club, CitizensAppeals. The briefing for the Chuckwalla Valley (“Complaining Groups”) declaring their intentappeal was completed in 2007 and oral argument was heard by a three judge panel on December 6, 2007. The U.S. 9th Circuit Court of Appeals usually announces its decisions six to sue for violationstwelve months following oral argument but on occasion the announcement of a decision may take substantially longer. Since oral argument was completed more than one year ago, a decision can be announced at any time. There can be no assurance that we will be successful in any appeal. If the decision is fully affirmed on appeal, the decision would jeopardize the viability of the Endangered Species Act in regardlandfill project. In addition, the decision could adversely impact the agreement to actions or inactions relatedsell the landfill project to the railroadDistrict, including termination of the agreement.
In April 2007 Donna Charpied, et al, filed a motion with the same U.S. District Court that handled the land exchange litigation seeking, in their opinion, to enforce the court’s order in such case. The allegations were that additional actions are necessary to set aside the land exchange and to prevent the use of property at Eagle Mountain that would serve“change the character and use of the exchanged properties …”. In the motion, the opponents objected to the military training that has taken place and that may take place on Kaiser fee owned land at Eagle Mountain (even though military and law enforcement training previously took place at Eagle Mountain), the possible use of a portion of the Eagle Mountain landfill project. Among other things, it is alleged that there has beenTownsite for a failure to comply with a biological opinion issued by the U.S. Fish & Wildlife Service and that the BLM has failed to enforce the terms of that biological opinion. In summary, the Complaining Groups are demanding enforcement of the biological opinion or revocation by the BLM of the right-of-ways granted for the existing Eagle Mountain railroad andprison facility (even though one operated successfully at the Eagle Mountain road.Townsite for over 12 years) and the possible use of rock from Eagle Mountain to help remediate acknowledged environmental problems at the Salton Sea located in Imperial and Riverside counties in Southern California.
On September 18, 2008, the U.S. District Court denied the Plaintiffs’ motion and determined that: (i) the BLM’s actions to date to set aside the land exchange were sufficient and that no reconveyance documents needed to be recorded; (ii) the military training activities that had taken place at Eagle Mountain did not change the character and use of the exchange lands; and (iii) the activities associated with the testing of the suitability of Eagle Mountain rock for use in a possible Salton Sea restoration plan were acceptable. The biological opinion contains, among other items, mitigation measuresCourt declined to rule on the challenge to a private prison project since there is no current private prison project at Eagle Mountain.
Iron Partners Litigation.In April 2008, the Company, along with KSC Recovery, Inc. (the Kaiser Steel Corporation bankruptcy estate), and the federal government were sued by Iron Partners LLC in the U.S. District Court for the desert tortoiseWestern District of Washington (Iron Partners, LLC v. Maritime Association, United States Department of Transportation, et al., U.S. District Court, Western District Washington at Tacoma, Case No. C08-5217 RJB). The allegations in the case are that the Company and KSC Recovery, Inc. are the successors to the Kaiser Company, Inc. and such company leased or owned certain property in Vancouver, Washington in the 1940’s that served as a shipyard. It is further alleged that hazardous wastes were buried on such property for which could require substantial expenditures.
In reviewing the complaintsCompany is liable. The plaintiff, Iron Partners, LLC, now owns such property. The plaintiff seeks damages under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), the Washington Model Toxic Control Act and under common law trespass. The City of Vancouver, Washington has indicated that it may intervene as a plaintiff in the case since a portion of the Complaining Group,buried debris appears to extend onto property owned by the BLM, outcity. However, the City of an abundance of caution, conducted an informal consultation withVancouver has yet to intervene in the matter. The federal government filed a motion to dismiss all common law claims against it except for the CERCLA claims. On March 5, 2009, the U.S. Fish & Wildlife ServiceDistrict Court announced its decision in favor of the government dismissing the remaining common law claims against the government. The government, however, remains in the case with respect to the biological opinion. Although neitherCERCLA claims. While we are still in the constructionearly stages of the landfill project nor the regular use of the railroad has commenced, the BLM requested the Company to develop a maintenance schedule for the railroad that would address, among other things, the particular concerns of culvertslitigation and rail line ballast. The Company has submitted a proposed schedule which is under review by the BLM.
Warrant Dispute.New Kaiser Employees’ Voluntary Benefit Association, VEBA, and Pension Benefit Guaranty Corporation, PBGC, are the beneficial owners of warrants to purchase, respectively, 460,000 and 285,260 Class A Unitsinformal discovery in the Company (the warrants were initially for common stock of Kaiser Inc. and were converted into Class A Units of Kaiser LLC in the merger). VEBA and PBGC have each claimedthis matter, we understand that the treatment of its warrant inclaim is between $1.5 million and $2.5 million. However, if the conversion violated the terms of the warrant. Prior to the vote on the conversion proposal, it was agreed by Kaiser, VEBA and PBGC that the rights of each VEBA and PBGC, under its warrant, would not be changed or waived by (i) any consent to or approval of the conversion proposal by either VEBA, PBGC or any director representing either of them, or (ii) any decision by either the VEBA or the PBGC to delay any potential legal challenge until after the adoption and completion of the conversion proposal. VEBA and PBGC voted their respective shares in Kaiser Inc. in 2001 in favor of the conversion proposal. VEBA and PBGC each occasionally continue to assert that the conversion proposal violated the terms of its warrant. We have had several discussions with VEBA representatives concerning the claim and we believe the claim does not have any merit. Neither the VEBA nor the PBGC have taken legal action to pursue the claim.City
KAISER VENTURES LLC AND SUBSIDIARIES
of Vancouver becomes a plaintiff, the size of the claim will likely increase. This matter has been tendered to our insurance carrier which has accepted the defense of this matter subject to a reservation of rights.
Tex Tin ClaimPortland Harbor Superfund Site. In February 2004 we receivedlate March 2009 KSC Recovery, Inc., the bankruptcy estate of the former KSC, and the Company were notified that they each may be a potential responsible party in connection with the investigation and clean-up of the Portland Harbor Superfund Site, Portland, Oregon. No information was provided in the correspondence identifyingconcerning the reasons why KSC Recovery, Inc or the Company have been identified as a potentially responsible party for remediation and related costs at a property in Texas known asno amount of damages was alleged although apparently over $69 million has been spent to date to characterize the Tex Tin site. It appears thatenvironmental problems affecting the basis for such identification is thatPortland Harbor. Since this claim was just received, the Company is consideredand KSC Recovery are in the reorganized successor to KSC. However,very preliminary stages of investigating the factual basismatter. KSC Recovery, Inc. and the monetary extent of the alleged liability are currently unknown. No legal action has been commenced against the Company. WeCompany have informed those giving the notice that we believe such liability, if any, was discharged in the bankruptcy of KSC. We also believe that there is coverage under our existingtendered this claim to their appropriate insurance for this claim.carrier.
Asbestos Litigation. There are pending asbestos litigation claims, primarily bodily injury, against Kaiser LLC and Kaiser Steel Corporation (the bankruptcy estate of Kaiser Steel Corporation is embodied
in KSC Recovery, Inc.). There currently are approximately 1418 active suits. MostMany of the plaintiffs allege that they or their family members were aboard Kaiser ships or worked in shipyards in the Oakland/San Francisco, California area or Vancouver, Washington area in the 1940’s and that the Company and/or KSC Recovery were in some manner associated with one or more shipyards or has successor liability. However, we are beginning to see the focusthere is an increasing number of the claims shifting from ships and shipyardsrelated to other facilities such as the former Kaiser Steel Mill Site Property. Plaintiffs attorneys are increasingly requesting mill site and Eagle Mountain related documents in an effort to build a “war chest” of documents for future litigation.
Most of these lawsuits are third party premises claims alleging injury resulting from exposure to asbestos or asbestos containing products and involve multiple defendants. The Company anticipates that it, often along with KSC Recovery, will be named as a defendant in additional asbestos lawsuits. A number of large manufacturers and/or installers of asbestos and asbestos containing products have filed for bankruptcy over the past several years, increasing the likelihood that additional suits will be filed against the Company. In addition, the trend has been toward increasing trial damages and settlement demands. Virtually all of the complaints against us and KSC Recovery are non-specific, but involve allegations relating to pre-bankruptcy activities. It is difficult to determine the amount of damages that we could be liable for in any particular case until near the time of trial; indeed, many of these cases do not include pleadings with specific damages. The Company vigorously defends all asbestos claims as is appropriate for a particular case.
Of the claims resolved to date, approximately 76%70% have been resolved without payment to the plaintiffs, and of the 40 cases that have been settled to date involving a payment made to plaintiffs, the settlement amount was $37,500 or less for 32 of such cases.plaintiffs. The Company believes that it currently has substantial insurance coverage for the asbestos claims and has tendered these suits to appropriate insurance carriers.
City of Ontario Claim. In 2001,Claims Against the California Regional Water Quality Control Board (“RWQCB”) communicated with us that the City of Ontario had asserted that we were responsible for the damage caused by a plume of high total dissolved solids (such as salt) to one of its wells, which plume allegedly emanated from our former mill site property. By way of background, in the fall of 1993, RWQCB approved a settlement agreement resolving the Company’s groundwater remediation obligation. The settlement agreement provided that the Company would: (i) pay $1,500,000 upon approval of the settlement agreement; and (ii) contribute 1,000 acre feet of water in storage per year for 25 years for the benefit of a regional groundwater de-salter program either by direct transfer to the de-salter project or abandonment to the basin with a Watermaster waiver of the de-salter replenishment obligation. We have satisfied all of its obligations under the settlement agreement. However, the settlement agreement left open the possibility of certain third party claims. The City of Ontario’s claims were fully settled in March 2004 with the settlement paid by one of our insurance carriers.
Slemmer Litigation. Thomas M. Slemmer, et al v. Fontana Union Water Company, et al., (San Bernardino County District Court, California, Case No. SCVSS 086856). The defendants in the lawsuit are Kaiser, Fontana Union Water Company, Cucamonga County Water Company, San Gabriel Valley Water and individuals serving on the Board of Directors of Fontana Union Water Company. In summary, plaintiffs allege that they are the owners of 175 shares of the stock of Fontana Union Water Company, a mutual water company, and that the defendants conspired and committed acts that constitute an unlawful restraint of trade, a breach of fiduciary duty by the controlling shareholders of Fontana Union and fraudulent business practices in violation of California law. Among other things, plaintiffs have requested $25,000,000 in damages and the trebling of such damages under California law. In October 2003, the court ruled that the lawsuit could proceed as a class action lawsuit. With this ruling, discovery will proceed in the case. We believe that the allegations against us are without merit and we will vigorously defend this suit.
Port of Oakland. The Port of Oakland continues to assert a potential claim arising out of alleged contamination of soil from underground storage tanks. The Port of Oakland alleged that KSC used these tanks at property owned by the Port of Oakland and leased by Kaiser Steel Corporation pursuant to a lease agreement that terminated in 1986. Based upon the communication received, the Port of Oakland claims damages of approximately $150,000 plus unknown potential remediation costs. We believe, based upon the information provided to date, that the allegations are without merit and that any potential claim would be barred under the statute of limitations.
Port of Los Angeles. On March 21, 2003, KSC received a Third Party Complaint captionedSanta Monica Baykeeper, et al (Plaintiffs) v. Kaiser International Corporation, et al (Defendants) / American Bulk Loading Enterprises, Inc. et al (Third-Party Plaintiffs) v. AMICOR, et al (Third Party Defendants) United States District Court Central District of California; Case Number CV-97-7761 DDP (RCx). The underlying litigation involves a citizens enforcement action commenced against the Port of Los Angeles, Kaiser International Company, and others by the Santa Monica Baykeepers for alleged contamination to the San Pedro Inner Harbor in the Port of Los Angeles arising from the operation of a bulk loading facility. The Third Party Plaintiffs subsequently commenced litigation against KSC and thirty-nine other Third Party Defendants seeking recovery for any amount paid by the Third Party Defendants under theories of equitable indemnity, negligence and contribution. While we understand the case is still open, the litigation is not being actively pursued against KSC.
London Market Claim. In 2002, litigation was commenced by Truck Insurance Exchange (“Truck”) against Lloyd’s, London, and certain London Market Insurance Companies (collectively “London Carriers”), captioned Truck Insurance Exchange v. Fremont Indemnity, et al, Los Angeles Superior Court Case No. BC 260738. In essence Truck was claiming that the London Carriers were obligated to participate in the payment of a litigation settlement that Truck had made. The London Carriers tendered the claim to the Company for indemnification pursuant to a 1995 settlement agreement between the London Carriers and the Company. The Company in turn submitted the London Carriers’ claim to IMACC, which is a third party that we believe is ultimately responsible for the payment of any amount that it determined to be owed in litigation. During the second quarter of 2003, the Truck litigation was dismissed because of Truck’s failure to commence its law suit within the applicable statute of limitations. As of the date of this Report on Form 10-K, IMACC has been reimbursing the London Carriers for the reasonable attorneys’ fees and costs of this litigation. We understand the Truck has decided to appeal the trial court’s decision to dismiss the case.
Dismissal of Product Liability Litigation. In March 2002, we received a complaint in the mail captioned Explorer Pipeline Company, et al v. Kaiser Steel Corporation, et al., (District Court of Tarrant County, Texas, Case No. 96-191821-02). The plaintiffs in this suit allege that KSC, or possibly other steel companies may have manufactured or sold pipe that was used in a portion of a petroleum pipeline that runs from the Texas Gulf Coast to Hammond, Indiana. It was further alleged that this portion of the pipeline was defective and ruptured on March 9, 2000, releasing gasoline and causing damage to the plaintiffs’ respective interests in land and that there were business interruption damages to certain of the plaintiffs. Plaintiffs filed this lawsuit because of statute of limitations concerns without knowing who may have actually sold or manufactured the pipe in the ruptured section of the pipeline. A National Transportation & Safety accident report identified another company as the maker of the ruptured pipe. On March 2, 2004, the Company was dismissed from the lawsuit.
Bankruptcy ClaimsEstate. The bankruptcy estate of KSC was officially closed by order of U.S. Bankruptcy Court for the District of Colorado on October 2, 1996. However, the bankruptcy case was reopened in 1999 in connection with certain litigation matters. Since that time, the bankruptcy case was again closed, however, the administration of KSC’s bankrupt estate will continue for several more years.
From time to time various environmental and similar types of claims that relate to Kaiser Steel pre-bankruptcy activities, are asserted against KSC and Kaiser LLC. Excluding the asbestos claims, there has been an average of twoone to fourthree such claims a year for the past several years. TheExplorer PipelinelitigationFor example, as discussed above in “Portland Harbor Superfund Site” KSC Recovery, Inc. the KSC bankruptcy estate, was notified in late March 2009 that it was identified as a potentially responsible party in connection with the investigation and thePort of Oakland claims are examplesclean-up of the types of claims that are occasionally alleged to have arisen out of pre-bankruptcy activities. Portland Harbor Superfund Site.
In connection with the KSC plan of reorganization, Kaiser, as the reorganized successor to KSC, was discharged from all liabilities that may have arisen prior to confirmation of the plan, except as otherwise
KAISER VENTURES LLC AND SUBSIDIARIES
provided by the plan and by law. Although Kaiser believes that in general all pre-petition claims were discharged under the KSC bankruptcy plan, there have been some challenges as to the validity of the discharge of certain specified claims, such as asbestos claims. If any of these or other similar claims are ultimately determined to survive the KSC bankruptcy, or if they are not covered by insurance it could have a materially adverse effect on Kaiser’s business and value.
Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
None. We anticipate holding our next members’ meeting sometime following the decision in the land exchange litigation that is currently before the U.S. 9th Circuit Court Appeals.
None.[REMAINDEROFTHIS PAGE INTENTIONALLY LEFT BLANK]
KAISER VENTURES LLC AND SUBSIDIARIES
PART II
Item 5. | MARKET FOR THE COMPANY’S EQUITY, |
Kaiser Inc.’s common stock commenced trading on the NASDAQ Stock Marketsm in the fourth quarter of 1990 under the symbol “KSRI.” In the merger, each Kaiser Inc. stockholder of record as of December 5, 2001, received $10.00 in cash plus one (1) Class A Unit in Kaiser LLC for each share of stock. The Class A Units are subject to significant trading restrictions and are not listed for trading on any securities exchange. As a result, Kaiser Inc.’s common stock ceased being publicly traded on November 30, 2001. Kaiser Inc. paid a $2.00 per share cash distribution to stockholders of record as of December 13, 2000. In connection with the merger, the Class A Units were independently appraised and determined to have a value of $1.50 as of November 30, 2001.
The Class A Units are subject to substantial transfer restrictions and, therefore, the Class A Units are not traded on an established securities market and are not readily tradable on a secondary market or the substantial equivalent thereof. However, we are aware that there have been a very limited number of private purchase and sale transactions since November 30, 2001, with no single2001. There were a limited number of private transactions in 2008 at prices ranging from $.50 to $1.60 per unit. There was one block sale to a third party in May 2008 involving approximately 170,000 units at $.50 per unit. In the third quarter of 2008 a third-party commenced a tender offer to purchase and sale transaction involving more than 15,000up to 1,400,000 of our Class A Units at a price of $.50 per unit less a pro-rata share of transfer costs. This third party ultimately terminated its tender offer. In response to such third party tender offer, we conducted a self-tender offer for a portion of our Class A Units. We understandAs a result of the tender offer conducted by us that the sales price in the private transactions has ranged from $1.00 to $1.50 perclosed on December 1, 2008, we purchased 841,544 of our Class A Unit. In connection withUnits at a price of $.90 per unit. We also paid all related transfer costs for the merger,units purchased by the Company.
Since the Class A Units were independently appraisedare not publicly traded and determined to have a value of $1.50 as of November 30, 2001.
there is no secondary market for the units, there is no performance graph.
As of March 23, 2004,16, 2009, there were approximately 3,1083,375 holders of record of our Class A Units which includes holders of Kaiser Inc. stock that have yet to convert their shares to Class A Units as a result of the merger.
As of March 23, 2004,16, 2009, KSC Recovery held 126,598104,267 Class A Units that are outstanding but reserved for distribution to the former general unsecured creditors of KSC pursuant to the KSC Plan. It is anticipated that a distribution of up to 65,000In addition there are 113,250 Class A Units will be madedeemed outstanding that are reserved for those investors that have yet to the former general unsecured creditorsconvert their Kaiser Inc. stock to Kaiser LLC Class A Units as a result of the KSC bankruptcy estate in the second quarter of 2004.
merger.
We currently have no immediate plans to make distributions but anticipate making distributions subsequent to receiving our share of the proceeds from the sale of the Eagle Mountain landfill project if such sale is completed.completed or if other funds become available for distribution in accordance with our cash maximum strategy.
As discussed above, we purchased 841,544 of our Class A Units at $.90 per unit pursuant to a self-tender offer that closed December 1, 2009.
Equity Compensation Plan Information
As required by Item 201(d) of Regulation S-K, the following table provides certain information as of December 31, 2003,2008, with respect to our equity compensation plans under which equity securities of the Company are authorized for issuance. All outstanding unexercised options expired as of December 31, 2008. Thus, we no long have any outstanding options. As discussed in more detail in this Report on
KAISER VENTURES LLC AND SUBSIDIARIES
PLAN CATEGORY | Number of securities to be issued upon exercise of outstanding options, warrants and rights1 | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column | |||||
Equity compensation plans approved by security holders | 298,100 | $ | 3.11 | 0 | ||||
Equity compensation plans not approved by security holders | N/A | N/A | 7,500 annual | 2 |
Form 10-K, all options with an exercise price of $1.25 or less per unit or were exercised and all options with an exercise price of greater than $1.25 per unit were forfeited as of midnight of December 31, 2008.
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted- average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) | |||||
Equity compensation plans approved by security holders | 0 | $ | 0 | 0 | ||||
Equity compensation plans not approved by security holders | N/A | N/A | 95,000 annually | 1 |
1 |
Each non-management member of the Board of Managers receives an annual grant of |
Item 6. | SELECTED |
We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
The information presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, related notes and other financial information included herein.
KAISER VENTURES LLC AND SUBSIDIARIES
Selected Statement of Operations Data for the years ended | 2003 | 2002 | 2001 | 2000 | 1999 | |||||||||||||||
Total revenues | $ | 2,274,000 | $ | 1,394,000 | $ | 68,051,000 | $ | 7,644,000 | $ | 49,516,000 | ||||||||||
MRC casualty loss | 4,500,000 | — | — | — | — | |||||||||||||||
Other costs and expenses | 2,791,000 | 2,526,000 | 6,903,000 | 6,847,000 | 13,788,000 | |||||||||||||||
Income (loss) from operations | (5,017,000 | ) | (1,132,000 | ) | 61,148,000 | 797,000 | 35,728,000 | |||||||||||||
Net interest (income) expense | (627,000 | ) | (497,000 | ) | (2,532,000 | ) | (581,000 | ) | 498,000 | |||||||||||
Income (loss) before minority interest and income tax provision | (4,390,000 | ) | (635,000 | ) | 63,680,000 | 1,378,000 | 35,230,000 | |||||||||||||
Minority interest in loss | 789,000 | — | — | — | — | |||||||||||||||
Income (loss) before income tax provision | (3,601,000 | ) | (635,000 | ) | 63,680,000 | 1,378,000 | 35,230,000 | |||||||||||||
Income tax currently payable | 16,000 | 18,000 | 1,795,000 | 33,000 | 8,364,000 | |||||||||||||||
Income tax expense (benefit) attributed to activities prior to conversion to LLC | 46,000 | (585,000 | ) | — | — | — | ||||||||||||||
Deferred tax expense (benefit) | — | — | 12,861,000 | (11,998,000 | ) | (3,211,000 | ) | |||||||||||||
Deferred tax expense credited to equity(1) | — | — | — | — | 6,048,000 | |||||||||||||||
Net income (loss) | $ | (3,663,000 | ) | $ | (68,000 | ) | $ | 49,024,000 | $ | 13,343,000 | $ | 24,029,000 | ||||||||
Earnings (loss) per unit/share | ||||||||||||||||||||
Net income (loss) | ||||||||||||||||||||
Basic | $ | (0.53 | ) | $ | (0.01 | ) | $ | 7.45 | $ | 2.09 | $ | 2.35 | ||||||||
Diluted | $ | (0.53 | ) | $ | (0.01 | ) | $ | 7.38 | $ | 1.99 | $ | 2.31 | ||||||||
Basic Weighted average number of units/shares outstanding(2) | 6,916,000 | 6,908,000 | 6,584,000 | 6,394,000 | 10,226,000 | |||||||||||||||
Diluted Weighted average number of units/shares outstanding(2) | 6,916,000 | 6,908,000 | 6,646,000 | 6,699,000 | 10,386,000 | |||||||||||||||
Selected Balance Sheet Data as of December 31: | 2003 | 2002 | 2001 | 2000 | 1999 | |||||||||||||||
Cash, cash equivalents and short-term investments | $ | 13,670,000 | $ | 10,347,000 | $ | 16,389,000 | $ | 10,097,000 | $ | 14,686,000 | ||||||||||
Working capital | 13,268,000 | 10,454,000 | 16,004,000 | 19,274,000 | 5,170,000 | |||||||||||||||
Total assets | 56,598,000 | 55,424,000 | 57,210,000 | 74,788,000 | 103,445,000 | |||||||||||||||
Long-term debt | — | — | — | — | — | |||||||||||||||
Long-term accrual for MRC casualty loss | 4,195,000 | — | — | — | — | |||||||||||||||
Long-term environmental remediation reserves | 3,938,000 | 3,956,000 | 4,000,000 | 4,490,000 | 23,868,000 | |||||||||||||||
Members’/Stockholders’ equity(2) | 40,336,000 | 44,153,000 | 44,208,000 | 59,474,000 | 60,890,000 | |||||||||||||||
Units/Shares outstanding(2) | 6,919,000 | 6,912,000 | 6,901,000 | 6,523,000 | 6,317,000 | |||||||||||||||
Book value per unit/share(2) | $ | 5.83 | $ | 6.39 | $ | 6.41 | $ | 9.12 | $ | 9.64 |
Item 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF |
Section 1: Operating Results
Summary Background
Kaiser, including its wholly-owned subsidiaries unless otherwise provided herein, is the reorganized successor to Kaiser Steel Corporation which was an integrated steel manufacturer that filed for bankruptcy protection in 1987 (“KSC”). Since the KSC bankruptcy, we have been developing certain assets remaining after the bankruptcy. As of the date of this Report on Form10-K,Form 10-K, our remaining principal assets include: (i) an 82.48%83.13% ownership interest in Mine Reclamation, LLC, which owns a permitted rail-haul municipal solid waste landfill located at the Eagle Mountain Site; (ii) a 50% ownership interest in the West Valley Materials Recovery Facility and Transfer Station; and (iii) approximately 5,400 additional acres owned or controlled by Kaiser at the Eagle Mountain Site that are not included in the pending sale to the County District No. 2 of Los Angeles County (which we refer to as the District). However, if the September 2005 U.S. District Court decision providing that a land exchange completed in October 1999 is to be unwound is upheld on appeal, the reversal of the land exchange will impact the amount and nature of the land we own and control; (iv) over approximately 150 million tons of stockpiled rock that is located on our fee owned Eagle Mountain property that is not a part of the Landfill Project. Sale of such rock is subject to market conditions and the Company having all necessary permits; and (v) land at Lake Tamarisk consisting of 72 residential lots and approximately 420 acres of other undeveloped property. Lake Tamarisk is an unincorporated community located approximately 70 miles east of Palm Springs, California, and approximately 8 miles from the Eagle Mountain Site. As of December 31, 2003,2008, we also had cash and cash equivalents, receivables and long-termshort-term investments in securities of approximately $15.2$7.66 million. As previously discussed, the permitted rail-haul municipal solid waste landfill project at Eagle Mountain is currently under contract to be sold to the District for approximately $41 million.
million plus interest from 2001.
We have sought to sell our assets at such times and on such terms as we believe will generate maximum value from those assets. In September 2000, Kaiser Inc.’s Board of Directors approved a strategy to maximize cash distributions to Kaiser Inc.’s stockholders. We continue to pursue this strategy and seek to liquidate our remaining assets in order to maximize cash distributions to our members.
Annual Report on Form 10-K
Kaiser qualifies as a smaller reporting company under SEC rules and under such rules Kaiser is required to include and discuss in this Annual Report on Form 10-K its consolidated balance sheets, its consolidated statements of operations, cash flows and changes in members’ equity for the years ended December 31, 2008, and 2007. The reader of this Annual Report on Form 10-K is encouraged to read our prior reports filed with the SEC for our financial statements for other previous years.
Primary Revenue Sources
Ongoing Operations
Kaiser’s revenues from ongoing operations are generally derived from the development of our long-term projects. Income from equity method investments reflectreflects Kaiser’s share of income related to those equity investments (i.e., West Valley MRF) which we account for under the equity method. Revenues from water resources represent payments received under the lease of our interest in Fontana Union to Cucamonga, which was sold in 2001.
Interim Activities (net)
Revenues and expenses from interim activities are also generated from various miscellaneous sources. Significant components of interimHistorically, miscellaneous revenue activities includehave included housing rental income, aggregate and rock sales and lease payments for the minimum security prison at the Eagle Mountain Site. Due tofacility. During 2007 and 2008, the interim nature of these activities, we are presenting these revenues net of their related expenses. Due to the termination of the minimum security prison leaseCompany generated miscellaneous income at the Eagle Mountain Townsitefrom activities such as of December 31, 2003, interim revenues are expected to decline significantly in 2004. Expenses at the Eagle Mountain Townsite will remain at historical levels while the Townsite operations are being closed downleasing its fee owned land for media-related activities and we are in the process of developingmilitary and implementing a plan to mothball its facilities.law enforcement training.
Summary of Revenue SourcesKAISER VENTURES LLC AND SUBSIDIARIES
Due to the developmental nature of certain of ourthe Company’s projects and ourthe 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, we believethe Company believes it is important to evaluate the trends in the components of ourits revenues as well as the recent developments regarding ourits long-term ongoing and interim revenue sources. See “Part I, Item 1. BUSINESS”2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - BUSINESS UPDATE” for a discussion of recent material events affecting the Company’s revenue sources.
Results of Operations
Table summarizing major variances in net loss between the years ended December 31, 2008 and 2007:
AMOUNT OF VARIANCE (INC. <DEC.>) | ||||
Income from West Valley MRF, LLC | $ | (178,000 | ) | |
Revenues from Eagle Mountain Operations | $ | (226,000 | ) | |
Unrealized loss on Investments | $ | (343,000 | ) | |
Lower realized interest income | $ | (230,000 | ) | |
Income tax provision | $ | (456,000 | ) |
For additional information on the items constituting the major variances, please read the discussion and analysis of our financial condition and results of operations below.
Analysis of Results for the Years Ended December 31, 20032008 and 20022007
An analysis of the significant components of our resource revenues for the years ended December 31, 2003 and 2002 follows:
2003 | 2002 | % Inc. (Dec) | |||||||||
Ongoing Operations | |||||||||||
Income from equity method investment in West Valley MRF | $ | 2,281,000 | $ | 1,502,000 | 52 | % | |||||
Gain on Mill Site land sales | 107,000 | 107,000 | — | % | |||||||
Total ongoing operations | 2,388,000 | 1,609,000 | 48 | % | |||||||
Interim Activities (net) | (114,000 | ) | (215,000 | ) | 47 | % | |||||
Total resource revenues | $ | 2,274,000 | $ | 1,394,000 | 63 | % | |||||
Resource Revenues. Total resource revenues for 20032008 were $2,274,000,$2,389,000, compared to $1,394,000$2,794,000 for 2002. 2007. The reasons for this decrease are discussed below.
Revenues from ongoing operations increased 48% for 2003 to $2,388,000 from $1,609,000 in 2002, while the loss from interim activities (net of related expenses) decreased 47% to $114,000 from $215,000 in 2002.
Ongoing Operations. Income fromCompany’s equity method investments increased by $779,000 to $2,281,000 due to increased equity income frominvestment, the West Valley MRF, during 2003decreased by $178,000 to $2,271,000 for 2008 as compared to 2002.2007. This increase in equity income indecrease, which correlates to lower operating profit at the West Valley MRF, is mainly due to: (a)primarily to lower revenues as a 17% increaseresult of a drop in volumevolumes of waste processed, atwhich were partially offset by lower operating and partnership expenses and lower depreciation expenses relating to fully depreciated equipment. The reduced volume levels reflect the current economic recession. The West Valley MRF also experienced a significant drop in recyclable commodity prices in the fourth quarter of 2008 which will likely adversely affect the West Valley MRF ($626,000);MRF’s operating profits in 2009.
Revenue from Eagle Mountain operations decreased to $118,000 from $345,000 for 2007. This decrease is primarily the result of decreased utilization of our fee owned property for military training and media activities.
Operating Costs. Operating expenses increased to $1,883,000 from $1,623,000 for 2007. This increase relates primarily to: (a) legal and consulting services associated with the development of the Eagle Mountain rock resources and the development of the Company’s land at Lake Tamarisk; and (b) an increase in net recyclable sales mainly due to higher commodity prices ($140,000); (c) reduced repairs and maintenance expenses ($172,000); and (d) a decrease in interest expense ($40,000). These increases in revenues and reductions in expenses were partially offset by an increase in payroll and related operating expenses ($221,000).
Gain on Mill Site land sales. The Company recognized gains of $107,000 during both 2003 and 2002, from the sales of certain Mill Site property parcels that closed in 1997 and 1999.
Interim Activities (net). Interim activities, net of expenses, for 2003 were a loss of $114,000 compared to a loss of $215,000 for 2002. This reduction in interim activities losses is only temporary and was primarily due to higher nonrecurring revenues ($108,000) being offset by slightly higher operating expenses ($7,000). This nonrecurring revenue consists of income from a salvage/scrap contract and onetime location fees for a movie. Due to the termination of the minimum security prison lease at the Eagle Mountain Townsite as of December 31, 2003, (see the following paragraph for details) interim revenues are expected to decline significantly in 2004. Expenses at the Eagle Mountain Townsite will remain at historical levels while the Townsite operations are being closed down and its facilities are being mothballed.
During 2003, a portion of the Eagle Mountain Townsite was leased on a month-to-month basis to Management Training Corporation (“MTC”), a company that operates a minimum security prison under contract with the State of California. Funding for many private prisons was eliminated from California’s 2003 - 2004 state budget as of December 31, 2003, including the private prison located at Eagle
Mountain. Accordingly, effective December 31, 2003, the private prisonpersonnel costs at Eagle Mountain was closed. MTC surrendered most of the property it leased as of December 31, 2003, with the exception of several houses that it continued to lease through February 2004. As of the date of this Report on Form 10-K, we have not had any success in finding a replacement tenant and thus, we are in the process of developing and implementing a plan to mothball the Eagle Mountain Townsite which should be completed by the end of the third quarter of 2004. With the closure of the private prison, Eagle Mountain’s ongoing operations and staffing will be reduced. The Company has recorded a reserve for the costs of such a reduction in activity, the adequacy of which management will continue to review.
MRC Casualty Loss. During the third quarter of 2003, portions of the 52-mile Eagle Mountain railroad and related protective structures sustained considerable damage due to heavy rains and flash floods. The damage included some rail sections being buried under silt while other areas had their rail bed undermined. We currently estimate the cost of repairing this damage to be $4,500,000, $300,000 of which we expect to be incurred in 2004. As a result, the Company has recorded a reserve and a charge to earnings in the amount of $4,500,000 during 2003 to cover the cost of these repairs.Mountain.
Corporate General and Administrative Expenses.ExpensesTotal corporate. Corporate general and administrative expenses for 20032008 increased 10%8% to $2,791,000$1,983,000 from $2,526,000$1,832,000 for 2002. The2007. This increase is primarily duerelated to one time retention payments ($1,031,000) made as of June 30, 2003, to senior management under the terms of their respective employment agreements negotiated in 2000. This increase was substantially offset by: (a) reduced staffing expenses ($330,000); (b) lower non-recurring severance costs ($193,000); (c)incurred for the elimination of a previously established reserveCompany’s tender offer completed during 2003 ($189,000); and (d) lower office rent expenses ($52,000). The reserve eliminated had been established in previous years for certain possible liabilities that were resolved during 2003, and thus the reserve was determined to be unnecessary and was reversed against general and administrative expenses.2008.
Net Interest and Investment Income (Loss). Net interest and investment incomeloss for 20032008 was $627,000$91,000 compared to $497,000a gain of $482,000 for 2007. This change is primarily the result of a temporary reduction in 2002. The change was due to increased gains on investments ($243,000) and increased dividend income ($118,000) being partially offset by lower interest income ($232,000).
KAISER VENTURES LLC AND SUBSIDIARIES
the “Market Value” of the investments during the year. The current U.S. credit crisis has caused some of the Company’s commercial paper and other investments to decline in market value as of December 31, 2008. The Company expects to hold these investments either to maturity or to disposition so that this decline in market value amounting to $343,000 at December 31, 2008, is considered temporary. As of January 1, 2008, the Company adopted FAS 159 “The Fair Value Option for Financial Assets and Financial Liabilities” which permits entities to choose to measure many financial instruments and certain other items at fair value. Investments are marked to market and unrealized earnings or losses are reflected in income for the period in which they are earned.
Pre-Tax Loss before Minority Interest and Income Tax Provision. The Company recorded a pre-tax loss before minority interest and income tax provision of $4,390,000$1,568,000 for 2003 versus $635,000 for 2002.
Minority Interest. The minority unitholders in MRC were allocated $789,000, or 17.52%, of the $4,500,000 recorded casualty loss that was incurred due the heavy rains and flash flood damage on the 52-mile Eagle Mountain railroad.
Pre-Tax Income (Loss) and Income Tax Provision. The Company recorded a loss before income tax provision of $3,601,000 for 2003,2008 versus a pre-tax loss of $635,000 recorded in 2002. Subsequent to the Company’s conversion into an LLC, the$179,000 for 2007. The Company is taxed as a partnership and, thus, the Company’s results of operations (on an income tax basis) are distributedallocated to the unit holders for inclusion in their respective income tax returns. Therefore, the onlyThere are, however, income taxes imposed on the Company areCompany; and on Business Staffing Inc. (“BSI”), the Company’s only corporate subsidiary; and a small gross revenue tax imposed by the State of California, and income taxes imposed on Business Staffing Inc., a subsidiary of the Company. These taxesCalifornia. The tax provision amounted to $16,000$531,000 for 2003,2008, versus $18,000$10,000 for 2002. Additionally, during 2003,2007.
The significant increase in the Company recorded a $46,000 tax expense whileprovision in 2002, the Company recorded a tax benefit of $585,000, both of which related to activity prior to its conversion to a limited liability company. The additional income tax expense for 2003 was2008 is the result of the following:
BSI taxes due for 2007 | $ | 15,600 | |
BSI deferred tax asset valuation allowance | 328,000 | ||
BSI tax expense | 104,600 | ||
KVLLC tax expense | 7,800 | ||
Total tax provision for 2008 | $ | 456,000 | |
The major component of this tax provision of $328,000 relates to the Company’s determination to establish a finalization of a State of California incomevaluation reserve against the deferred tax audit for 1999. The benefit for 2002 was the result of changesasset representing amounts originally believed to be recoverable in the Federal tax law and finalization of the Company’s Federalfuture due to anticipated income tax returns for 2001.in BSI, our corporate subsidiary.
Net Income (Loss).Loss.For 2003,2008, the Company reported a net loss of $3,663,000$2,024,000 or $0.53$0.29 per unit, versus a net loss of $68,000,$189,000 or $0.01$0.03 per unit, reported for 2002.2007.
Results of Operations
Analysis of Results for the Years Ended December 31, 2002 and 2001
An analysis of the significant components of our resource revenues for the years ended December 31, 2002 and 2001 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 | %) | |||||||
Income from equity method investment in West Valley MRF | 1,502,000 | 978,000 | 54 | % | |||||||
Gain on Mill Site land sales | 107,000 | 107,000 | — | % | |||||||
Total ongoing operations | 1,609,000 | 68,307,000 | (98 | %) | |||||||
Interim Activities (net) | (215,000 | ) | (256,000 | ) | 16 | % | |||||
Total resource revenues | $ | 1,394,000 | $ | 68,051,000 | (98 | %) | |||||
Resource Revenues. Total resource revenues for 2002 were $1,394,000, compared to $68,051,000 for 2001. Revenues from ongoing operations decreased 98% for 2002 to $1,609,000 from $68,307,000 in 2001, while the loss from interim activities (net of related expenses) decreased 16% to $215,000 from $256,000 in 2001.
Ongoing Operations. During the first quarter of 2001, we completed the sale of our investment in Fontana Union 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. Included in the net gain of $65.2 million was the payment of $1.0 million to management pursuant to our Long-Term Transaction Incentive Program. Accordingly, water lease revenues under our 102-year take-or-pay lease with Cucamonga were $0 during 2002 compared to $295,000 for 2001.
During the first quarter of 2001, we also sold our California Mine properties for $2.0 million, resulting in a gain of $1,756,000. Finally in both 2002 and 2001, we recognized deferred gains of $107,000 from the sales of certain Mill Site property parcels that closed in 1997 and 1999.
Income from equity method investments increased by $524,000 to $1,502,000 due to increased equity income from the West Valley MRF during 2002 compared to 2001. This increase in equity income in the West Valley MRF is mainly due to a 12% increase in volume of waste processed at the West Valley MRF ($575,000); an increase in net recyclable sales due to higher commodity prices ($400,000); and a decrease in interest expense ($60,000). These increases were partially offset by increases in (a) repairs and maintenance ($185,000); (b) depreciation expense due to the facility expansion that was completed in May 2001 ($165,000); and (c) other operational and overhead expenses ($165,000).
Interim Activities (net). Interim activities, net of expenses, for 2002 were a loss of $215,000 compared to a loss of $256,000 for 2001. This reduction in interim activities losses 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 ($75,000).
Resource Operating Costs. Resource operating costs are those costs directly related to the associated resource revenue. Total resource operating costs for 2002 decreased to $0 from $42,000 in 2001. This decrease was due to a decrease in the commission and outside legal costs associated with the Cucamonga lease. These expenses terminated with the sale of the Company’s investment in Fontana Union on March 6, 2001.
Corporate General and Administrative Expenses.Total corporate general and administrative expenses for 2002 decreased 63% to $2,526,000 from $6,861,000 for 2001. The decrease is primarily due to: (a) lower professional and outside consulting expenses ($1,740,000); (b) the absence of expenses relating to the exercise of nonqualified stock options ($1,288,000); (c) lower salary and benefit expense ($975,000); and (d) lower non-cash variable stock option accounting expenses ($428,000) being partially offset by the elimination of a previously established reserve during 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 expense.
Net Interest Income. Net interest income for 2002 was $497,000 compared to $2,532,000 in 2001. The reduction was due primarily to: (a) a decrease in interest income due to lower cash and investment balances on hand and lower interest rates ($2,073,000); and (b) a decrease in interest expense ($39,000) primarily 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 Fontana Union stock (the collateral for the debt).
Loss before Minority Interest and Income Tax Provision. The Company recorded a loss before minority interest and income tax provision $635,000 for 2002, versus income of $63,680,000 recorded in 2001.
Pre-Tax Income (Loss) and Income Tax Provision. The Company recorded a loss before income tax provision of $635,000 for 2002, versus income of $63,680,000 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 unit holders for inclusion in their respective income tax returns. Therefore, the only taxes imposed on the Company are a small gross revenue tax imposed by the State of California, and income taxes imposed on Business Staffing Inc., a subsidiary of the Company. The total tax expense recorded for 2002 was $18,000. Additionally, during 2002, the Company recorded an income tax benefit of $585,000. This benefit was the result of changes in the Federal tax law and finalization of the Company’s income tax returns for 2001 and related solely to activity prior to its conversion to a limited liability company.
Net Income (Loss).For 2002, the Company reported a net loss of $68,000 or $0.01 per unit, versus net income of $49,024,000, or $7.45 per unit, reported for 2001.
Section 2: Financial PositionLiquidity and Capital Resources
Cash, Cash Equivalents and Investments. We define cash equivalents as highly liquid debt investment instruments with original maturities of 90 days or less. Cash and cash equivalents decreased $6,785,000$302,000 to $3,562,000$1,117,000 at December 31, 2003 from $10,347,000 at December 31, 2002.2008. Included in cash and cash equivalents is $2,069,000 and $1,335,000$785,000 held solely for the benefit of MRC at December 31, 2003 and2008.
Below is a table showing the major changes in cash:
Distributions received from the West Valley MRF | 2,500,000 | |||
Cash received form MRC minority unit holders | 57,000 | |||
Cash from exercise of options | 126,000 | |||
Decrease in Short Term Investments | $ | (1,630,000 | ) | |
Tender offer expenses and payments | (1,009,000 | ) | ||
Cash Generated by Operations | 141,000 | |||
Capitalized Landfill Expenditures | (428,000 | ) | ||
Capital Expenditures | (59,000 | ) | ||
Net Increase in Cash and Equivalents | $ | (302,000 | ) | |
Working Capital. During 2008, current assets decreased $2,231,000 to $9,510,000, while current liabilities decreased $270,000 to $1,992,000. As a result working capital decreased by $1,960,000 to $7.5 million at December 31, 2002, respectively.2008.
KAISER VENTURES LLC AND SUBSIDIARIES
Below is a table showing the major changes in working capital.
Changes in Current Asset | |||
Decrease in Consolidated Cash | (302,000 | ) | |
Decrease in Accounts Receivable and Other Net | (38,000 | ) | |
Decrease in Short Term Investments | (1,630,000 | ) | |
Decrease in Restricted Cash | (260,000 | ) | |
Changes in Current Liabilities | |||
Decrease in Payables | 89,000 | ||
Increase in Income Taxes Payable | (29,000 | ) | |
Increase in Accrued Liabilities | 210,000 | ||
Net Decrease in Working Capital | (1,960,000 | ) | |
Tender Offer. In 2008 an unaffiliated third party initiated a tender offer to purchase up to 1,400,000 of the Company’s Class A Units at $.50 per unit less a pro-rata portion of associated transfer costs. In response to such tender offer the Company initiated its own tender offer. The decreaseCompany’s Board of Managers recommended that neither tender offer be accepted. The Company incurred legal, tax advice and other expenses associated with the tender offers totaling $252,000. The Company’s tender offer closed on December 1 2008, with the Company purchasing 841,599 units at $.90 per unit for a total expenditure of $757,390. The units purchased by the Company were retired.
Accounts Receivable and Other (net). During 2008, accounts receivable and other (net) decreased by $38,000 primarily as a result of the increased collection of trade receivables.
Short-Term Investments. During 2008, short-term investments decreased by $1,630,000. This is the result of the sale of a portion of the Company’s investments to provide cash for operations and for funds required to fund the Company’s tender offer completed in cash and cash equivalents is primarily due to: (a)December 2008. At December 31, 2008, the net investment ofCompany had $6.4 million of its excess cash reserves invested in short-term investments; (b) $2.1 millionshort term investments.
Investments. The Company’s recording of cash used by operations (exclusive$2,271,000 relating to its share of purchase of investments); and (c) capitalized MRC expenditures of $1.1 million. These cash uses were partiallyincome from its investment in the West Valley MRF was offset by the receipt of cash distributions from the West Valley MRF of $2.3 million and collections on notes and accounts receivable totaling $593,000.
Working Capital. During 2003, current assets increased $4.7 million to $16.2 million, while current liabilities increased $1.8 million to $2.8 million. The increase$2,500,000. This resulted in current assets resulted primarily from the $10.1 million increase in short-term investments and a $1.3 million increase in restricted cash, being mostly offset by a $6.8 million$229,000 decrease in cash and cash equivalents as discussed above. The restricted cash is the result of receiving $1,300,000 in cash from the Company’s transfer agent as discussed below. The increase in current liabilities resulted primarily from: (a) the $1,340,000 increase in the conversion distribution payable, as discussed below; (b) the moving of the balance of the deferred real estate gain to current; and (c) the $300,000 current portion of the $4,495,000 accrual to repair the 52-mile Eagle Mountain railroad. Included in current liabilities as of December 31, 2003 is $376,000 in accounts payable and accrued liabilities relating to MRC. As a result, working capital increased during 2003 by $2.9 million to $13.3 million at December 31, 2003.
Accounts Receivable and Other (net). During 2003, accounts receivable decreased by $308,000 primarily as the result of collections from MTC ($450,000) being partially offset by advances to vendors for insurance related matters ($173,000). At December 31, 2003, the Company’s accounts receivable and other balances totaled $455,000. A portion of this balance, $281,000, relates to amounts advanced by the Company to certain third party vendors for claim expenses that will be reimbursed by the insurance companies in accordance with the provisions of the Company’s insurance policies. The balance at December 31, 2002, was $763,000, of which $455,000 was receivable from MTC. This large receivable from MTC was a result of the late budget approval by the State of California, which delayed payments to service providers.
Short-Term and Long-Term Investments. At December 31, 2003 the Company had $10.1 million of its excess cash reserves invested in high-grade marketable commercial paper, and bond mutual funds. Based on the maturity dates of these investments, the entire amount was classified as a current asset. During the course of 2003, the Company made investments totaling $14.4 million and had maturities of $8.0 million. At December 31, 2002, the Company had investments totaling $3.8 million in high-grade marketable commercial paper, certificates of deposit, corporate bonds and U.S. government securities all of which were classified as long-term assets.
Investments. There was a $31,000 increase in our investment in the West Valley MRF during 2003 due to the recording ofMRF. In addition, our equity share of income of $2,281,000 being mostly offset by the receipt of $2,250,000 in cash distributions during the year. Our investment in the Eagle Mountain Landfill increased $1,137,000$428,000 during 20032008 due to continuing landfill development activities.activities which were capitalized. On June 19, 2007 the Company approved a subscription agreement with MRC to provide, at a minimum, an additional $990,000 in working capital for MRC. The first installment of the minimum subscription amount ($594,000) was paid during the second quarter, with the second and final installment paid on March 31, 2008. Since all the owners of MRC did not purchase their respective pro rata interest in the private placement, we purchased the balance of such units, resulting in an additional investment of $431,000 during 2008. As a result, our ownership interest in MRC increased from 82.48% to 83.13%.
Other Assets. TheThere was a decrease in other assets ($904,000)of $838,000 which is mainly related to decreases in notes receivable due to the receipt of principal payments during 2003 ($356,000), the reclassificationnet result of the balanceamortization of a note receivable into current assets ($307,000) andthe environmental insurance policy of $300,000, an increase in accumulated depreciation ($227,000).as of December 31, 2008 of $371,000, the valuation allowance recorded against the deferred tax asset of $328,000 and the recording of a $75,000 receivable for overpayment of estimated income taxes for 2008. These decreases were partially offset by the capitalization of building and water system repairs of $59,000.
Environmental Remediation. We estimated, asThe Company purchased, effective June 30, 2001, 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. As of December 31, 2003,2007, based upon current information, we estimate that our future environmental liability related to
KAISER VENTURES LLC AND SUBSIDIARIES
certain matters and risks 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) (Catellus Development Corporation merged with and into Palmtree Acquisition Corporation, a subsidiary of ProLogis on September 15, 2005), including a certain groundwater matter as well as potential matters at Eagle Mountain and at other historical locations and other possible third party claims, would be approximately $3.9 million. However, we purchased, effective June 30, 2001,$2.8 million for which a 12 year $50 millionreserve has been established. 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 such insurance policy at a cost of approximately $3.8 million. This policy will cover, among other things, virtually anydepending upon the nature and all environmental liabilities and claims, including defense costs, (up to the $50 million policy limit) relating to the historical operations and assetstiming of the Company reflected in the above approximate $3.9 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. The Company amortizes this policy on a “claims paid” basis, and therefore expensed $14,000 of the policy premium during 2003.
Long-term Liabilities. The increase in other long-term liabilities is primarily due to the accrual of the MRC casualty loss ($4,195,000) being partially offset by decreases in the environmental remediation reserve ($18,000), the recognition of deferred gains on prior real estate sales ($107,000) and the reclassification of the balance of the deferred real estate gain to current liabilities to coincide with its note receivable classification.
claim.
Minority Interest. As of December 31, 2003, we2008, the Company has recorded $5,038,000$5,322,000 of minority interest relating to the approximately 17.52%16.87% ownership interest in MRC we dothe Company does not own. This balance reflects current year contributions by minority owners of $240,000, and the absorption of the $789,000 loss allocated to the minority owners. Upon termination of MRC, each minority unitholder is entitled to receive his pro-rata share of the net proceeds (if any) from the disposition of MRC’s assets.
Contingent Liabilities. We haveThe Company has contingent liabilities that are more fully described above and 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 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.
results of operations.
Investments. The Company accounts for investments under the provisions of Statement of Financial Accounting Standards (SFAS) No. 115,Accounting for Certain Investments in Debt and Equity SecuritiesSecurities.. The investments are classifiedCompany invests its’ excess cash reserves in high grade commercial paper (Standard & Poor’s 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 amortization of the discount or premium paid. ChangesAs of January 1, 2008, the Company has adopted (SFAS) No. 159,The Fair Value Option for Financial Assets and Financial Liabilities. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Investments are marked to market and unrealized earnings are reflected in income for the marketperiod in which they are earned. Due to the current U.S. credit crisis, the fair value of the Company’s commercial paper investments are recorded as a changehave fluctuated significantly. However, the Company expects to the investment with a corresponding changehold these investments to comprehensive income, which is a component of members’ equity. In addition, realized gains or losses, and interest income or dividends are reflectedmaturity, thereby mitigating any unknown fluctuations in the statement of operations.fair market value.
Investment in West Valley MRF, LLC. The Company accounts for its investment in West Valley MRF, LLC, the owner of the West Valley MRF, under the equity method of accounting because of the Company’s 50% non-controlling ownership interest.
Landfill Permitting and Development. Through its 82.48%83.13% 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 SFAS 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 SFAS No. 144,Accounting for the Impairment or Disposal of Long-lived Assets, 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.
Environmental Insurance and Environmental Remediation Liabilities. The Company’s $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
KAISER VENTURES LLC AND SUBSIDIARIES
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 Company’s consolidated financial statements pursuant to FAS No. 5 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.
Accounting for Conditional Asset Retirement Obligations.The Company adopted FIN 47, Accounting for Conditional Asset Retirement Obligations, or FIN 47, effective December 31, 2005. Upon adoption of FIN 47, the Company recorded a liability of $5.2 million which related to estimated costs to remove asbestos that is contained within the Eagle Mountain Townsite facilities.
The Company has determined that a conditional asset retirement obligation exists for asbestos remediation. Though not a current health hazard, upon demolition, the Company may be required to take the appropriate remediation procedures in compliance with state law to remove the asbestos. The Company determined the fair value of the conditional asset retirement obligation as the present value of the estimated future cost of remediation based on an estimated expected date of remediation. This computation is based on a number of assumptions which may change in the future based on the availability of new information, technology changes, changes in costs of remediation, and other factors.
The determination of the asset retirement obligation is based upon a number of assumptions that incorporate the Company’s knowledge of the facilities, the asset life, the estimated time frame, the current cost for remediation of asbestos and the current technology at hand to accomplish the remediation work. These assumptions to determine the asset retirement obligation may be imprecise or be subject to changes in the future. Any change in the assumptions can impact the value of the determined liability and impact our future earnings.
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 ReservesUncertain Tax Benefits.. The Company has obligations for environmental liabilities and, based on management’s estimates, the Company has recorded reserves for these obligations. In addition, 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 the policy be capitalized as an Other Asset separately from the related liability and amortized as the related liabilities are resolved.
New Accounting Pronouncements
In January 2003, the FASB issuedadopted Financial Standards Board Interpretation No. 46, “Consolidation of Variable Interest Entities”48 Accounting for Uncertainty in Income Taxes (“Interpretation 46”FIN 48”), an interpretation of ARB No. 51. Interpretation 46 addresses consolidation by business enterprises of variable interest entities. Interpretation 46 applies immediately to variable interest entities created afterFASB Statement 109 (“SFAS 109”) effective January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. For interests in special-purpose entities, it applies in the first year or interim period ending after December 15, 2003, and for all other types of variable interest entities, it applies for periods ending after March 15, 2004, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Based upon its review of this interpretation, as amended,2007. Because the Company does not believeis a limited liability company, it has any variable interest entitiesno unrecognized tax benefits and the adoption of FIN 48 will have no impact on the Company’s financial statements.
Fair Value Measurements. Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (“SFAS 157”) which provides guidance for using fair value to measure assets and liabilities and information about the extent to which Interpretation 46 would apply.
In May 2003, FASB issued Statementcompanies measure assets and liabilities at fair value. SFAS 157 also expands financial statement disclosure requirements about a company’s use of Financial Accounting Standards No. 150,Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (“SFAS 150”). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both debt and equity and requires an issuer to classify the following instruments as liabilities in its balance sheet:
a financial instrument that embodies an unconditional obligation that the issuer must settle by issuing a variable number of its equity shares if the monetary value of the obligation is based solely or predominantly on (1) a fixed monetary amount, (2) variations in something other than the fair value measurements, including the effect of the
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In November 2003, FASB issued FASB Staff Position No. 150-3 (“FSS 150-3”) which deferred the effective dates for applying certain provisionssuch measures on earnings. The adoption of SFAS 150 related to mandatorily redeemable financial instruments of certain non-public entities and certain mandatorily redeemable non-controlling interests for public and non-public companies. For public entities, SFAS 150 is effective for mandatorily redeemable financial instruments entered into or modified after May 31, 2003 and is effective for all other financial instruments as of the first interim period beginning after June 15, 2003. For mandatorily redeemable non-controlling interests that would not have to be classified as liabilities by a subsidiary under the exception in paragraph 9 of SFAS 150, but would be classified as liabilities by the parent, the classification and measurement provisions of SFAS 150 are deferred indefinitely. The measurement provisions of SFAS 150 are also deferred indefinitely for other mandatorily redeemable non-controlling interests that were issued before November 4, 2003. For those instruments, the measurement guidance for redeemable shares and non-controlling interests in other literature shall apply during the deferral period.
The Company adopted the provisions of SFAS 150 effective June 30, 2003 and such adoption157 did not have a material impact on itsthe Company’s consolidated financial statements.
As noted above, effective January 1, 2008, the Company adopted SFAS No. 159 “The Fair Value option for Financial Assets and Liabilities” which permits entities to choose to measure many financial instruments and certain other items at fair value. This Statement expanded the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for
KAISER VENTURES LLC AND SUBSIDIARIES
financial instruments. The adoption of SFAS 159 did not have a material impact on the Company’s consolidated financial statements.
New Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”) which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statement to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company does not expect SFAS No. 141R to have a significant impact on its consolidated financial statements when effective, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions the Company consummates after the effective date. The Company has evaluated the impact of this standard on future acquisitions and currently does not expect it to have a significant impact on its financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS160”). SFAS 160 introduces significant changes in the accounting and reporting for business acquisitions and noncontrolling interest (“NCI”) in a subsidiary. SFAS 160 also changes the accounting for and reporting for the deconsolidation of a subsidiary. Companies are required to adopt the new standard for fiscal years beginning after December 15, 2008. The Company has evaluated the impact of this standard and currently does not expect it to have a significant impact on its financial position, results of operations or cash flows.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (“SFAS 161”), which changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Companies are required to adopt SFAS 161 for fiscal years beginning after November 15, 2008. The Company has evaluated the impact of this standard and currently does not expect it to have a significant impact on its financial position, results of operations or cash flows.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” The statement is intended to improve financial reporting by identifying a consistent hierarchy for selecting accounting principles to be used in preparing financial statements that are prepared in conformance with generally accepted accounting principles. Unlike Statement on Auditing Standards (SAS) No. 69, “The Meaning of Present in Conformity With GAAP,” FAS No. 162 is directed to the entity rather than the auditor. The statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with GAAP,” and is not expected to have any impact on the Company’s results of operations, financial condition or liquidity.
In May 2008, FASB Staff Position (“FSP”) No. APB 14-1, “Accounting for Convertible Debt Instruments that May be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP No. APB 14-1”) was issued which specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the issuer’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP No. APB 14-1 is effective for financial
KAISER VENTURES LLC AND SUBSIDIARIES
statements issued for fiscal years beginning after December 15, 2008. Early adoption is not permitted. In June 2008, the FASB issued FSP Emerging Issues Task Force (EITF) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” Under the FSP, unvested share-based payment awards that contain rights to receive nonforfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. The FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those years, and is not expected to have a significant impact on the Company’s results of operations, financial condition or cash flows.
In April 2008, FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP No. FAS 142-3”) was issued which provides for additional considerations to be used in determining useful lives and requires additional disclosure regarding renewals. FSP No. FAS 142-3 is effective for fiscal years beginning after December 15, 2008. Early adoption is not permitted. The Company is currently evaluating the impact of this standard.
In October 2008, the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”, (“FSP 157-3”), to clarify the application of the provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 was effective upon issuance and applies to the Company’s current financial statements. The application of the provisions of FSP 157-3 did not materially affect the Company’s results of operations or financial condition as of and for the year ended December 31, 2008.
Section 3: Business Outlook
The statements contained in this Business Outlook, as well as in “Part I.I, Item 1. DESCRIPTION OF BUSINESS”, are based upon current operations and expectations. In addition to the forward-looking statements and information contained elsewhere in this Annual Report on Form 10-K, 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 performance of our major long-term development projects and investments. CertainWe have previously sold most of theseour projects and investments, such asinvestments. Our principal remaining assets and projects, other than cash and securities, are: (i) the landfill project; (ii) our 50% equity ownership of the West Valley MRF, are essentially completeMRF; and we(iii) miscellaneous property at or near the Eagle Mountain Townsite that is not a part of the landfill project. A substantial amount of rock is stock piled on property at Eagle Mountain that is not a part of the landfill project. We have been recognizing significant revenues and income from them. However, the revenues fromno material 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 2001except in connection with such assets and projects. Our principal sources of ongoing income are derived from the merger.West Valley MRF and our investments although we are occasionally generating miscellaneous income from the lease of our Eagle Mountain property for various activities. We alsowill 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 factorfactors 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 completed in 2001. 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: (a) ondepend upon: (i) the ability of the West Valley MRF to attract new customers and waste volumes at attractive processing rates; (b) on(ii) recyclable commodity prices; (iii) the ability to increase prices to reflect increases in such items as fuel and (c) onpersonnel costs; and (iv) future competition from competing facilities. During 2007 and 2008, the West Valley MRF was able to increase it rates to many of its customers as a result of increases in operating and disposal expenses as well as the increase in the minimum wage laws in California that went into effect in January 2007. However, these rate increases may not be sufficient to cover all past and future anticipated increases in the costs of operation. In addition, commodity prices have fluctuated dramatically and this volatility impacts the West Valley MRF’s revenue both positively and negatively. Due to the volatility of commodity prices and the current adverse worldwide economic conditions West Valley MRF may need to restructure its prices in certain
KAISER VENTURES LLC AND SUBSIDIARIES
markets which could have a negative impact on revenues and profitability. In order to address anticipated future demand, the West Valley MRF in 2007 received an increase in its permitted waste processing capacity to 7,500 tons per day. Additionally, West Valley is in the process of evaluating possible waste-to-energy and composting projects that might be capable of profitably utilizing a portion of the municipal solid waste received at the facility.
As part of our strategy, we intend to evaluate any potential offers to purchase our interest in the West Valley MRF or other alternatives in light of our primary objective of maximizing value. 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. Furthermore, although such distributions may decline due to the adverse worldwide economic conditions 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. As discussed in more detailed in “Part I, Item 1. MANAGEMENT’S DISCUSSION AND ANALYSISDESCRIPTION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - BUSINESS - Eagle Mountain Landfill Project and Pending Site.Sale,” Inin 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 under contract to be sold to the District for $41 million. The exact future timingmillion plus an estimated approximate $8 million in accrued interest from May 2001 to the date of any initial closingthis Report on Form 10-K. Kaiser’s equity interest in MRC is currently unknown and83.13%.
Assuming there areis a number of risks associated with the project and certain conditions that must be satisfied before the sale of the District.
Upon closing of the sale of the landfill project, $39$41 million of the total purchase price will be deposited into an escrow account and will be released when any litigation contingencies are fully resolved. As of the date of this Report, on Form 10-K, the only litigation contingency is the federal litigation challenging the completed federal land exchange. In September 2005 the Company received an adverse U.S. District Court decision in the land exchange litigation that may materially impact the validity of the landfill project. The decision was adverse to the landfill project in that it set aside the land exchange completed between the Company and BLM as well as two BLM rights-of-way. The Company along with the U.S. Department of Interior appealed the decision to the U.S. 9th Circuit Court of Appeals. The briefing for the appeal was completed in 2007 and oral argument was heard before a three judge panel on December 6, 2007. While a decision may be announced at any time, the U.S. 9th Circuit Court of Appeals usually announces its decisions six to twelve months following oral argument. However, on occasion, the announcement of a decision may take substantially longer. If the U.S. District Court’s decision is fully affirmed on appeal, the decision would jeopardize the viability of the landfill project. In addition, the decision could adversely impact the agreement to sell the landfill project to the District, including termination of the agreement. For a more detailed discussion of this litigation and the risks associated with this litigation, see “Item 3. LEGAL PROCEEDINGS - Eagle Mountain Landfill Project Land Exchange Litigation.” Although closing has not occurred, interest began to accrue on this portion of the purchase price in May 2001, and will be paid out to MRC after the initial closing on a quarterly basis beginning with a successful outcome of the federal litigation regarding the land exchange with the BLM at the Federal District Court level for a period of up to four years. Also upon closing, the remaining $2 million of the purchase price will also be placed into an escrow account as a result of the District’s Puente Hills landfill receiving in 2003 and early 2004 the necessary permit approvals for its remaining 10 years of capacity.
2001.
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 substantially completed the environmental remediation of this parcel pursuant to the terms of its agreement during 2002. The West Valley MRF has the right to purchase the Tar Pits Parcel for $1.00.
Sale of Miscellaneous Properties.Properties, Eagle Mountain Townsite, and other Possible Opportunities. We are continuing to seek buyers for our miscellaneous properties, most of which are located at or near our Eagle Mountain facilities.facilities and we are continuing to seek tenants for the private prison facility in the Eagle Mountain Townsite. We were successful in selling two Lake Tamarisk lots in July 2007. However, the September 2005 adverse U.S. District Court decision involving a completed land exchange between Kaiser and the BLM may hinder our efforts at Eagle Mountain. Additionally, due to the passage of time and the impacts of weather, a number of the buildings and houses at the Eagle Mountain Townsite are
KAISER VENTURES LLC AND SUBSIDIARIES
deteriorating at a faster rate than anticipated and may not be salvageable. Accordingly, we will need to demolish or rehabilitate a number of structures over the next several years and we have established a reserve for such purposes.
In addition, we are exploring possible opportunities for the sale of rock from the Eagle Mountain Site. As a result of past mining activities, millions of tons of rock of various sizes was stockpiled near the Eagle Mountain Townsite. Any sale of rock would be from property that is not a part of the landfill project.
We will continue to explore the development and use of our property at Lake Tamarisk and at Eagle Mountain for other purposes. For example, in the past, military and law enforcement training exercises have taken place on portions of the Eagle Mountain property. A recent example of this is that in January 2007 the U.S. Marines conducted troop training exercises on portions of our fee owned land at Eagle Mountain property. In March 2009 portions of the property were used as a location for a film. However, litigation has slowed the use of such property for alternative uses.
Corporate Overhead. AsGiven 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, note receivables and any future asset sales will be sufficient to satisfy the Company’s ongoing projected operating cash requirements for the next 3-4 years.requirements.
Cash Maximization Strategy
We have been developing our remaining assets and then selling them at such times and on such terms as we believe optimizes 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 KSC mill site near Fontana, California, except for an approximate five acre parcel, the Tar Pits Parcel; (ii) entered into an agreement to sell the landfill project to the District for an aggregate of $41 million, 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 resolve favorably the outstanding federal land exchange litigation and to complete the sale of the landfill project and to resolve favorably the related outstanding federal land exchange litigation.project. Although the closing with the District was originally scheduled to occur during 2002, this sale is subject to the satisfaction of numerous conditions and, as a result, this date has been extended numerous times, and we cannot be sure when or if this sale will ultimately close. If the sale transaction is completed, weWe do not expect to receive any substantial cash from the sale, if it closes, until the relatedfederal land exchange litigation matters are resolved, which may be several years.matter is successfully resolved. See “Part I. -I, Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS1. DESCRIPTION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - BUSINESS—Eagle Mountain Landfill Project and Sale of Landfill Project”Pending Sale”;
To continue to hold our interest in West Valley MRF, which pays significant cash distributions to us, until we believe we can negotiate a sale of our interest that maximizesor otherwise create enhanced value tofor our members;members from the West Valley MRF;
To explore other opportunities for use of the Eagle Mountain Site, including the development of the millions of tons of rock stockpiled at the site; and
To maximize our revenue as we attempt to sell our remaining miscellaneous assets, such as our surplus property in Riverside County, California; andCalifornia.
KAISER VENTURES LLC AND SUBSIDIARIES
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.
Insurance. In furtherance of the cash maximization strategy, we purchased an insurance policy in 2001 that is designed to provide broad commercial general liability, pollution legal liability, and contractual indemnity coverage for our ongoing and historical operations. The aggregate cost for this policy was approximately $5.8 million, of which KSC Recovery paid $2.0 million and the Company paid $3.8 million.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
Not applicable.We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
KAISER VENTURES LLC AND SUBSIDIARIES
Item 8. |
Please see Item 15 of this Report on Form 10-K for financial statements and supplementary data.
PAGE | ||
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38 | ||
Consolidated Statements of Operations for the years ended December 31, 2008 and 2007 | 40 | |
Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007 | 41 | |
Consolidated Statements of Changes in Members’ Equity for the years ended December 31, 2008 and 2007 | 42 | |
43 |
Not applicable.
Disclosure Controls and ProcedureKAISER VENTURES LLC AND SUBSIDIARIES
The Company maintains controlsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members and procedures designed to ensure that it is able to collectBoard of Managers of Kaiser Ventures LLC
We have audited the information it is required to discloseaccompanying consolidated balance sheet of Kaiser Ventures LLC and subsidiaries as of December 31, 2008 and the related consolidated statements of operations, members’ equity and cash flows for each of the years in the reports it files withtwo-year period ended December 31, 2008. These consolidated financial statements are the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Based on an evaluationresponsibility of the Company’s disclosure controls and procedures asmanagement. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the endPublic Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of the period covered by this report conducted by the Company’s management, with the participation of the Chief Executive and Chief Financial Officer, the Chief Executive and Chief Financial Officer believe that these controls and procedures are effective at the “reasonable assurance level” to ensure that thematerial misstatement. The Company is able to collect, process and disclose the information it isnot required to disclosehave, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the reports it files withcircumstances, but not for the SEC withinpurpose of expressing an opinion on the required time periods.
Internal Control Over Financial Reporting
During the period covered by this report, there have been no changes ineffectiveness of the Company’s internal control over financial reportingreporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that have materially affected or are reasonably likelyour audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to materially affectabove present fairly, in all material respects, the Company’s internal control overconsolidated financial reporting.
Limitations onposition of Kaiser Ventures LLC and subsidiaries as of December 31, 2008, and the Effectivenessconsolidated results of Controls
We do not expect that the disclosure controls or our internal controls will prevent all errorsits operations and they cannot possibly prevent all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectivesits cash flows for each of the control system are met. Further,years in the designtwo-year period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.America.
/s/ Moss Adams LLP
Irvine, California
March 27, 2009
PART III
BOARDOF MANAGERS
The current members of the Board of Managers are as follows:
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Richard E. Stoddard was appointed Chief Executive Officer of Kaiser in June 1988, and has held such position and/or the position of Chairman of the Board since such date. Prior to joining Kaiser in 1988, he was an attorney in private practice in Denver, Colorado. Mr. Stoddard is Chairman of the Board of Managers of Mine Reclamation,KAISER VENTURES LLC and until July 1999 he served on the Board of Directors of Penske Motorsports, Inc. (“PMI”) when International Speedway Corporation acquired PMI. As of January 1, 2003, Mr. Stoddard began working less than full time for Kaiser. In addition to working on behalf of Kaiser, Mr. Stoddard works as a general business consultant with an emphasis on distressed businesses and water development opportunities.AND SUBSIDIARIES
Ronald E. BitontiCONSOLIDATED BALANCE SHEET is Chairman
as of December 31
2008 | 2007 | |||||
ASSETS | ||||||
Current Assets | ||||||
Cash and cash equivalents | $ | 1,117,000 | $ | 1,419,000 | ||
Accounts receivable and other, net of allowance for doubtful accounts of $37,500. | 131,000 | 169,000 | ||||
Short-term investments | 6,412,000 | 8,042,000 | ||||
Restricted cash and investments | ||||||
Conversion distribution | 1,190,000 | 1,190,000 | ||||
Company SERP | 661,000 | 921,000 | ||||
9,511,000 | 11,741,000 | |||||
Long-Term Assets | ||||||
Eagle Mountain landfill investment | 32,332,000 | 31,904,000 | ||||
Investment in West Valley MRF | 5,042,000 | 5,271,000 | ||||
Land | 2,465,000 | 2,465,000 | ||||
Other Assets | ||||||
Deferred income tax asset | 75,000 | 328,000 | ||||
Reclamation financial assurance | 27,000 | — | ||||
Unamortized environmental insurance premium | 1,350,000 | 1,650,000 | ||||
Buildings and equipment (net) | 740,000 | 1,052,000 | ||||
2,192,000 | 3,030,000 | |||||
Total Assets | $ | 51,542,000 | $ | 54,411,000 | ||
The accompanying notes are an integral part of the Benefits Committee for the VEBA and was Chairmanconsolidated financial statements.
KAISER VENTURES LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
as of December 31
2008 | 2007 | |||||
LIABILITIES AND MEMBERS’ EQUITY | ||||||
Current Liabilities | ||||||
Accounts payable | $ | 79,000 | $ | 169,000 | ||
Conversion distribution payable | 1,190,000 | 1,190,000 | ||||
Accrued liabilities | 722,000 | 903,000 | ||||
1,991,000 | 2,262,000 | |||||
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 | ||||
Accrual for environmental remediation | 2,810,000 | 2,882,000 | ||||
Other accrued liabilities | 250,000 | 250,000 | ||||
9,738,000 | 9,810,000 | |||||
Total Liabilities | 11,729,000 | 12,072,000 | ||||
Minority Interest | 5,322,000 | 5,265,000 | ||||
Members’ Equity | ||||||
Class A units; issued and outstanding 6,453,362 | 34,491,000 | 37,047,000 | ||||
Class B units; issued and outstanding 751,956 | — | — | ||||
Class C units; issued and outstanding 800 | — | — | ||||
Class D units; issued and outstanding 200 | — | — | ||||
Accumulated other comprehensive income | — | 27,000 | ||||
Total Members’ Equity | 34,491,000 | 37,074,000 | ||||
Total Liabilities and Members’ Equity | $ | 51,542,000 | $ | 54,411,000 | ||
The accompanying notes are an integral part of the Reorganized Creditors’ Committee formed during the KSC bankruptcy until dissolution of this committee in 1991. From 1985 to 1991, Mr. Bitonti served as International Representative for the United Steelworkers of America. Mr. Bitonti retired from KSC in 1981 and has been a director or manager of Kaiser since November 1991.consolidated financial statements.
KAISER VENTURES LLC AND SUBSIDIARIES
Todd G. ColeCONSOLIDATED STATEMENTS OF OPERATIONS has been a director or manager of Kaiser since November 1989. Mr. Cole was Chief Executive Officer of CIT Financial Corporation before starting his present career as a consultant and corporate director. He currently is President of Cole & Wilds Associates, Inc., a consulting company. Mr. Cole served on
for the Board of Directors of Hawaiian Airlines, Inc. until his resignation in May 2003. (Hawaiian Airlines, Inc. is a certificated air carrier, which filed for Chapter 11 bankruptcy reorganization on March 21, 2003). He is a founding director of Coral Gable Trust Company, a Florida State chartered institution, which will begin operations in April 2004. Mr. Cole isYears Ended December 31
2008 | 2007 | |||||||
Revenues | ||||||||
Income from equity method investment in the West Valley MRF, LLC | 2,271,000 | 2,449,000 | ||||||
Eagle Mountain revenues | 118,000 | 345,000 | ||||||
Total revenues | 2,389,000 | 2,794,000 | ||||||
Operating Costs | ||||||||
Environmental insurance premium amortization | 300,000 | 300,000 | ||||||
Expenses related to Eagle Mountain | 1,583,000 | 1,323,000 | ||||||
Total resource operating costs | 1,883,000 | 1,623,000 | ||||||
Gross Income | 506,000 | 1,171,000 | ||||||
Corporate General and Administrative Expenses | ||||||||
Corporate and administrative expenses | 1,731,000 | 1,832,000 | ||||||
Expenses associated with company tender offer | 252,000 | — | ||||||
Total corporate and administrative expenses | 1,983,000 | 1,832,000 | ||||||
Loss from Operations | (1,477,000 | ) | (661,000 | ) | ||||
Unrealized Loss on Investments | (343,000 | ) | — | |||||
Net Interest and Investment Income | 252,000 | 482,000 | ||||||
Loss before Income Tax Provision | (1,568,000 | ) | (179,000 | ) | ||||
Income Tax Provision | ||||||||
Current year income tax provisions | 128,000 | 10,000 | ||||||
Deferred tax asset valuation adjustment | 328,000 | — | ||||||
Total tax provisions | 456,000 | 10,000 | ||||||
Net Loss | $ | (2,024,000 | ) | $ | (189,000 | ) | ||
Basic Loss Per Unit | $ | (0.29 | ) | $ | (0.03 | ) | ||
Diluted Loss Per Unit | $ | (0.29 | ) | $ | (0.03 | ) | ||
Basic Weighted Average Number of Units Outstanding | 7,096,000 | 7,051,000 | ||||||
Diluted Weighted Average Number of Units Outstanding | 7,096,000 | 7,051,000 |
The accompanying notes are an active memberintegral part of the Georgia Bar Association and is an accredited certified public accountant (inactive status).consolidated financial statements.
KAISER VENTURES LLC AND SUBSIDIARIES
Gerald A. FawcettCONSOLIDATED STATEMENTS OF CASH FLOWS was President and Chief Operating Officer of Kaiser Inc. from January 1996 until his retirement from full time duties on January 15, 1998. He was appointed to Kaiser’s Board on January 15, 1998, and currently serves as Vice Chairman
for the Years Ended December 31
2008 | 2007 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (2,024,000 | ) | $ | (189,000 | ) | ||
Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
Deferred income tax valuation adjustment | 328,000 | — | ||||||
Unrealized loss on investments | 343,000 | — | ||||||
Reclamation Financial Assurance | 27,000 | — | ||||||
Change in West Valley MRF, LLC | ||||||||
Equity income recorded | (2,271,000 | ) | (2,449,000 | ) | ||||
Cash distributions received | 2,500,000 | 2,000,000 | ||||||
Depreciation and amortization | 644,000 | 653,000 | ||||||
Land option not exercised | — | 20,000 | ||||||
Class A Units / stock-based compensation expense | 99,000 | 47,000 | ||||||
Changes in assets: | ||||||||
Accounts Receivable- and other | 38,000 | 33,000 | ||||||
Changes in liabilities: | ||||||||
Accounts payable and accrued liabilities | (345,000 | ) | 31,000 | |||||
Environmental remediation expenditures | (72,000 | ) | (33,000 | ) | ||||
Net cash flows provided by (used in) operating activities | (773,000 | ) | 113,000 | |||||
Cash Flows from Investing Activities | ||||||||
Minority interest | 57,000 | 86,000 | ||||||
Purchase of investments | (51,308,000 | ) | (26,801,000 | ) | ||||
Sale of investments | 52,800,000 | 27,691,000 | ||||||
Capital acquisitions | (59,000 | ) | (81,000 | ) | ||||
Sale of Lake Tamarisk lots | — | 48,000 | ||||||
Capitalized landfill expenditures | (428,000 | ) | (790,000 | ) | ||||
Net cash flows provided by (used in) investing activities | 1,062,000 | 153,000 | ||||||
Cash Flows from Financing Activities | ||||||||
Proceeds from the exercise of unit options | 126,000 | — | ||||||
Purchase of units pursuant to tender offer | (757,000 | ) | — | |||||
Net cash flows from financing activities | (631,000 | ) | — | |||||
Net Increase (Decrease) in Cash and Cash Equivalents | (302,000 | ) | 266,000 | |||||
Cash and Cash Equivalents at Beginning of Year | 1,419,000 | 1,153,000 | ||||||
Cash and Cash Equivalents at End of Year | $ | 1,117,000 | $ | 1,419,000 | ||||
Supplemental Disclosure of Cash Flow Information | ||||||||
Cash paid during the year for income taxes | $ | 347,200 | $ | 96,500 |
The accompanying notes are an integral part of the Board and undertakes special projects on behalf of the Company from time-to-time. Mr. Fawcett began his employment with KSC in 1951, holding various positions in the steel company and ultimately becoming Division Superintendent of the Cold Rolled and Coated Products Division. After working five years consulting with domestic and overseas steel industryconsolidated financial statements.
clients, Mr. Fawcett joined Kaiser in 1988 as Senior Vice President and became Executive Vice President in October 1989. He is also Vice Chairman of the Board of MRC.
Marshall F. Wallach has been a director or manager of Kaiser since November 1991. Since 1984, Mr. Wallach has served as President of The Wallach Company, a Denver, Colorado based investment banking firm. The Wallach Company was sold to Keycorp on January 1, 2001. Mr. Wallach retired from The Wallach Company on Dec. 31, 2003. Prior to forming The Wallach Company, Mr. Wallach managed the corporate finance department and established the mergers and acquisitions department of Boettcher & Company, a regional investment bank in Denver, Colorado. Mr. Wallach serves on the boards of several non-profit organizations and privately-owned corporations. He also serves on the Board of Tomkins, PLC and is currently President of Wallach Capital Advisors, Inc. which was incorporated in early 2004.KAISER VENTURES LLC AND SUBSIDIARIES
MANAGER EMERITUSCONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
for the Years Ended December 31, 2008 and 2007
Member Class A Units | Members’ Equity | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||
Balance at December 31, 2006 | 6,969,299 | 37,189,000 | 41,000 | 37,230,000 | |||||||||||
Net loss | — | (189,000 | ) | — | (189,000 | ) | |||||||||
Comprehensive loss | |||||||||||||||
Change in gain on investments | |||||||||||||||
Realized | — | — | (41,000 | ) | (41,000 | ) | |||||||||
Unrealized | — | — | 27,000 | 27,000 | |||||||||||
Total Comprehensive loss | — | — | — | (203,000 | ) | ||||||||||
Issuance of Class A Units | 95,000 | 47,000 | — | 47,000 | |||||||||||
Balance at December 31, 2007 | 7,064,299 | $ | 37,047,000 | $ | 27,000 | $ | 37,074,000 | ||||||||
Net loss | — | (2,024 ,000 | ) | — | (2,024,000 | ) | |||||||||
Cumulative effect of a change in accounting due to adoption of SFAS 159: | — | — | (27,000 | ) | (27,000 | ) | |||||||||
Total Comprehensive loss | — | — | — | (2,051,000 | ) | ||||||||||
Issuance of Class A Units | |||||||||||||||
Retirement of Class A Units purchased through tender offer | (841,544 | ) | (757,000 | ) | — | (757,000 | ) | ||||||||
Unit options exercised | 104,100 | 126,000 | — | 126,000 | |||||||||||
Units granted to consultants | 13,000 | 8,000 | — | 8,000 | |||||||||||
Units granted to executives and Board of Managers | 113,507 | 91,000 | — | 91,000 | |||||||||||
Total Net Class A Activity | (610,937 | ) | $ | (532,000 | ) | $ | — | $ | (532,000 | ) | |||||
Balance at December 31, 2008 | 6,453,362 | $ | 34,491,000 | $ | — | $ | 34,491,000 | ||||||||
Reynold C. MacDonald serves as a Manager Emeritus on our Board of Managers. This isAt December 31, 2008 and 2007, Kaiser Ventures LLC had 751,956 Class B Units outstanding. At December 31, 2008 and 2007, Kaiser Ventures LLC had outstanding 800 and 200 units outstanding, Class C and D, respectively.
The accompanying notes are an honorary, nonvoting and unpaid position. In this position, Mr. MacDonald is available to the Board and to the Chief Executive Officer to provide guidance on Company matters. Mr. MacDonald served on the Board of Directors of Kaiser Inc. from November 1988 until completionintegral part of the merger in 2001, and he also was an employee of Kaiser Steel from 1946 to 1963, with his last position being assistant general superintendent of all the mills. Mr. MacDonald served as Chairman of the Board for Acme Metals Company from 1986 until 1992 and continues as a director with that company. He has also served as a director with Interlake, Inc., a metals fabrication and materials handling company and of ARAMARK Group, Inc.consolidated financial statements.
KAISER VENTURES LLC AND SUBSIDIARIES
AUDIT COMMITTEE MATTERSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. NATURE OF BUSINESS
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.
On November 16, 1988, the Company began operations as Kaiser Steel Resources, Inc. upon the successful completion of the reorganization of Kaiser Steel Corporation (“KSC”) under Chapter 11 of the Bankruptcy Code. The Audit Committee’s primary functionCompany has changed its name twice since reorganization in June 1993 and 1995, to Kaiser Resources Inc. and to Kaiser Ventures Inc. (“Kaiser Inc.”), respectively. In November 2001, the stockholders of Kaiser Inc. approved the conversion of Kaiser Inc. into a newly-formed limited liability company pursuant to a merger of Kaiser Inc. with and into Kaiser Ventures LLC. Under the terms of the agreement and plan of merger, Kaiser Inc.’s stockholders received $10.00 in cash plus one Class A Unit for each share of common stock in Kaiser Inc. Kaiser Inc. assets and liabilities were carried over at their historical cost basis.
At December 31, 2008, the Company’s principal assets include: (i) an 83.13% ownership interest in Mine Reclamation, LLC, which owns a permitted rail-haul municipal solid waste landfill located at the Eagle Mountain Site, this landfill is to review the financial informationcurrently under contract to be providedsold to our members, the financial reporting process, the systemCounty District No. 2 of internal controls, the audit process and the Company’s processLos Angeles County for monitoring compliance with laws and regulations.
Under our Audit Committee Charter, the Audit Committeeapproximately $41 million plus accrued interest, which sale is solely responsible for:
Mr. Wallach and Mr. Cole serve as membersnumber of our Audit Committee. Our Board has determined that both Mr. Wallach and Mr. Cole are independentconditions, several of Kaiser’s management and that they have accounting or financial management experience sufficientwhich remain to qualify each of them asbe fully satisfied; (ii) a “financial expert” under the rules issued by NASDAQ. In addition, our Board has determined that Mr. Wallach and Mr. Cole each qualify as an “audit committee financial expert” under current SEC rules and regulations. However, even if none of the current members of our Audit Committee would qualify as an “audit committee financial expert” under SEC rules and regulations, we would retain Mr. Wallach and Mr. Cole on the Audit Committee because of their expertise and experience in financial matters, including reviewing and analyzing financial statements, and their familiarity with the Company and its operations. In addition:
In performing its duties, the Audit Committee seeks to maintain free and open communication between the managers, the independent auditors and our internal financial management. The Audit Committee is intended to provide an independent and, as appropriate, confidential forum in which interested parties can freely discuss information and concerns. In carrying out its oversight duties, among other things, the Audit Committee:
In connection with our annual audit:
Ongoing Operations
The Audit Committee has discussed with our independent auditors the matters required to be discussed by Statement of Auditing Standards 61.
Interim Activities
Revenues and has discussed withexpenses from interim activities are generated from various sources. Significant components of interim activities have included housing rental income, aggregate and rock sales and lease payments for the independent auditors their independence.
both 2007 and 2008.
EXECUTIVE OFFICERSKAISER VENTURES LLC AND SUBSIDIARIES
The current executive officers of the Company are:
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Richard E. Stoddard’s biographical information is set forth above under “Board of Managers.”
James F. Verhey joined Kaiser and was appointed Vice President—Finance and Chief Financial Officer in August 1993, appointed Senior Vice President-Finance in January 1996, and appointed Executive Vice President of Kaiser in January 1998. In addition to his duties with Kaiser, Mr. Verhey was appointed Vice President of Finance and Chief Financial Officer of Mine Reclamation Corporation in February 1995. Mr. Verhey is a certified public accountant and spent several years with PricewaterhouseCoopers LLP in Los Angeles, California. As of October 1, 1999, Mr. Verhey began working less than full time for Kaiser. In addition to working for Kaiser, Mr. Verhey is the President of UCC Vineyard Group, which is headquartered in Napa, California, and which owns and manages wine grape vineyards.
Terry L. Cook joined Kaiser and was appointed General Counsel and Corporate Secretary in August 1993, became a Senior Vice President in January 1996, and was appointed Executive Vice President—Administration in January 2000. Mr. Cook was appointed General Counsel and Corporation Secretary of Mine Reclamation Corporation in February 1995. Prior to joining Kaiser, Mr. Cook was a partner in the Denver office of the national law firm McKenna & Cuneo (now called McKenna Long & Aldridge) specializing in business, corporate, and securities matters. Prior to his joining McKenna & Cuneo in July 1988, Mr. Cook was an attorney in private practice as a partner in a Denver, Colorado, law firm.
Paul E. Shampaywas appointed Vice President, Finance in January 2000. Mr. Shampay joined Kaiser in 1995, as Corporate Controller. Prior to joining Kaiser, Mr. Shampay spent 11 years in various senior financial positions at Rancon Financial Corporation, a syndicator of SEC registered limited partnerships and regional commercial and residential real estate developer. Mr. Shampay is a certified public accountant, certified management accountant, and is certified in financial management.
COMPLIANCEWITH SECTION 16(A)OFTHE SECURITIES EXCHANGE ACTOF 1934
Section 16(a) of the Securities Act of 1934, as amended, requires our managers and executive officers, and persons who own more than 10% of our Class A Units, to file with the SEC initial reports of ownership and reports of changes in ownership of Kaiser LLC.
To our knowledge, based solely on a review of copies of reports provided by such individuals to us and written representations of certain individuals that no other reports were required, during the fiscal
year ended December 31, 2003, all Section 16(a) filing requirements applicable to our managers, officers, and greater that 10% beneficial owners were timely filed.
CODEOF BUSINESS CONDUCTAND ETHICS
In 2003 the Company adopted an employee policy called the “Code of Business Conduct and Ethics.” This policy states the Company’s policies on, among other things, complying with laws, fair dealing, confidentiality and insider trading. The Code of Business Conduct and Ethics applies to all employees including the Company’s executive officers. This policy also creates an enforcement procedure in which employees are able to submit reports or inquiries to the Audit Company, on a strictly confidential basis, for the committee’s independent investigation. The Company’s Code of Business Conduct and Ethics is available on the Company’s website www.kaiserventures.com. A copy may also be obtained free of charge by writing to the Company.
The following table sets forth the compensation information for our Chief Executive Officer and our three most highly compensated executive officers. (There are only four executive officers of the Company.) Over the past two years we have reduced our staffing needs due primarily to the sale of substantial assets and consummation of the merger that created the present structure.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY COMPENSATION TABLE(1)Principles of Consolidation
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The consolidated financial statements include the accounts of the Company and all wholly-owned subsidiaries and majority-owned investments, except as specified below. Intercompany accounts and transactions have been eliminated.
OPTION GRANTSIN 2003
There wereKSC Recovery, Inc. (“KSC Recovery”).The Company’s wholly-owned subsidiary, KSC Recovery, Inc., which is governed and controlled by a Bankruptcy Court approved Plan of Reorganization, acts solely as an agent for KSC’s former creditors in pursuing bankruptcy related adversary litigation and administration of the KSC bankruptcy estate. Kaiser exercises no option grants made to a named executive officer in 2003.
AGGREGATED OPTION EXERCISESIN 2003AND OPTION VALUESAT DECEMBER 31, 2003
No options were exercised during the fiscal year ended December 31, 2003, by the executive officers namedsignificant control or influence over nor does Kaiser have any interest in the Summary Compensation Table. The following table summarizes the valueoperations, assets or liabilities of their unexercised optionsKSC Recovery except as of December 31, 2003:
NAME | UNITS ACQUIRED ON EXERCISE | VALUE REALIZED | NUMBEROF EXERCISABLE/ | VALUEOF IN-THE-MONEY EXERCISABLE/ UNEXERCISABLE(1) | ||||||
Richard E. Stoddard | 0 | $ | 0 | 62,350/0 | $ | 8,000/$0 | ||||
James F. Verhey | 0 | $ | 0 | 45,000/0 | $ | 0/$0 | ||||
Terry L. Cook | 0 | $ | 0 | 45,000/0 | $ | 0/$0 | ||||
Paul E. Shampay | 0 | $ | 0 | 0/0 | N/A |
LONG-TERM INCENTIVE COMPENSATION PLANS
Kaiser Inc. provided an incentive to its executive officers through a long-term transaction incentive plan, referred to as the TIP. The TIP was designed to compensate Kaiser Inc.’s executive officers for maximizing proceeds from asset sales and resulting distributions to Kaiser Inc.’s stockholders. The TIP was terminated shortly after the merger. In place of the TIP, Kaiser LLC issued Class C and Class D Units in Kaiser LLC (collectively referred to as the “Incentive Units”) to the five previous participants in the TIP (the “Participating Officers”). The terms of the Incentive Units mirror the previous cash flow incentives provided to the Participating Officers under the TIP.
Under both the TIP and the terms of the Incentive Units,approved Plan of Reorganization. In addition, KSC Recovery’s cash on hand and potential future recoveries fund all costs and expenses of KSC Recovery. Consequently, activity of KSC Recovery is not included in Kaiser’s financial statements; however, KSC Recovery is a member of the Participating Officers receiveKaiser consolidated group for tax purposes and is therefore included in the consolidated tax return.
Reclassifications
In 2008, in an effort to provide investors more detail of our revenues, we began presenting our interim revenues and expenses separately rather than net. All relative prior period balances have been reclassified to conform to the current period presentation. These reclassifications had no material impact on revenue, gross margin, net loss, assets or liabilities in the periods presented.
Cash and Cash Equivalents
The Company maintains its cash distributionsbalances with two financial institutions that have Standard & Poor’s ratings of AA- or higher, have at least $30 billion in assets and are insured by the Federal Deposit Insurance Corporation up to $100,000 at each institution. At December 31, 2008, and at various times throughout the year, the Company had cash in excess of federally insured limits.
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 December 31, 2008 the Company had investments in high grade commercial paper (Standard & Poor’s rating of “A” or above) which is classified as “available-for-sale.” The classification of investment securities is reviewed by the Company as of the end each reporting period.
The Company adopted SFAS 157 on January 1, 2008, which provides a definition of fair value, establishes a framework for measuring fair value, and requires expanded disclosures about fair value measurements. The standard applies when GAAP requires or allows assets or liabilities to be measured at fair value and therefore, does not expand the use of fair value in any new circumstance.
SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 clarifies that fair value should be based on the cashassumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available for distributionin active markets (i.e., observable inputs) and the lowest priority to our members fromdata lacking transparency (i.e., unobservable inputs). Additionally, SFAS 157 requires an entity to consider all aspects of nonperformance risk, including the proceeds realized in the saleentity’s own credit standing, when measuring fair value of our remaining major assets (net of expenses and taxes) and on our operating expenses.a liability.
KAISER VENTURES LLC AND SUBSIDIARIES
The termsSFAS 157 establishes a three-level hierarchy to be used when measuring and disclosing fair value. An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. Following is a description of the Incentive Units set “threshold” and “target” sale prices for our remaining assets. The Participating Officers, as a group, receive 5% of the aggregate net proceeds from an asset sale in excess of the threshold. If the net proceeds exceeds the higher target sale value, the Participating Officers, as a group, receive 10% of the aggregate net proceeds from such sale in excess of the target. The Incentive Units do not contain a maximum cap as to the amount distributable to such units.
Based on the predetermined thresholds and targets, Kaiser made the following payments to the named executive officers under the TIP from sale of the Mill Site Property, the sale of Kaiser’s Fontana Union stock to Cucamonga, and the tax benefits generated by the conversion to a limited liability company:
NAME | TOTAL PAYMENTS MADE UNDER TIP1 | ||
Richard E. Stoddard | $ | 633,256 | |
James F. Verhey | $ | 253,303 | |
Terry L. Cook | $ | 379,954 | |
Paul E. Shampay | $ | 126,652 |
The Class C Units are held by Participating Officers still employed by Kaiser LLC, and, upon a Participating Officer’s departure, all Class C Units are automatically converted into Class D Units. One former officer of Kaiser LLC holds 72 Class C Units and 48 Class D Units. In the event a Participating Officer is terminated for “cause,” Kaiser LLC may repurchase, for a nominal value, all of that officer’s Incentive Units. Any payment to the Participating Officers will be split with a full share to each Class C Unit and a smaller share for each Class D Unit which will depend on the length of the period since its issuance. The following table sets forth the number of Incentive Units held by the Participating Officers that are also named executive officers.three hierarchy levels:
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The Incentive Units do not have the right to vote on any matter, except as required by law. Neither the Incentive Units nor any rights to distributions with respect to such units may be transferred by any Participating Officer. The Incentive Units do not have a termination date.
Each Incentive Unit will be allocated an amount of the profits of the Company equal to the amount of any distribution with respect to such Incentive Unit, with the character (capital gain, ordinary income, etc.) of the profits to reflect the portion of each type of income recognized by the Company with respect to that asset(s) after January 1, 2002, as determined by the Board in good faith. Therefore, the total amount that Participating Officers will receive pursuant to the terms of the Incentive Units can only be determined upon sale of all of our assets and satisfaction of our general obligations and liabilities. The following table sets forth the total amount that would be earned by the Participating Officers, assuming that (i) each Participating Officer continues to work for Kaiser throughout the period; and (ii) the
proceeds generated from the sale of each major asset and the related cash available for distribution to members equals the specified target for such asset:
PERIOD UNTIL PAYOUT | ESTIMATED AGGREGATE FUTURE PAYOUTS UNDER NON-STOCK PRICE-BASED PLANS | |||||||||||
NAME | THRESHOLD ($) | TARGET ($) | MAXIMUM ($) | |||||||||
Richard E. Stoddard(1) | N/A | (2) | 0 | (3) | $ | 442,000 | N/A | (4) | ||||
James F. Verhey(1) | N/A | (2) | 0 | (3) | $ | 176,800 | N/A | (4) | ||||
Terry L. Cook(1) | N/A | (2) | 0 | (3) | $ | 265,200 | N/A | (4) | ||||
Paul E. Shampay(1) | N/A | (2) | 0 | (3) | $ | 88,400 | N/A | (4) |
EMPLOYMENT AGREEMENTS
As part of our cash maximization strategy and in connection with the merger, effective, January 1, 2002, Business Staffing, Inc., our subsidiary, became the employer of all of Kaiser’s employees and the contracting employer with respect to the several employment agreements discussed below. Business Staffing leases employees to Kaiser LLC and Kaiser LLC reimburses Business Staffing for all employee and related expenses.
Mr. Stoddard is employed pursuant to an employment agreement dated as of January 1, 2003, which reflects a reduced time commitment by Mr. Stoddard to Kaiser and a base salary reduction of $100,000 from Mr. Stoddard’s previous employment agreement with Kaiser. Mr. Stoddard’s employment agreement has a three-year term and continues thereafter on a month-to-month basis until we have disposed of all of our material assets. Voluntary termination of employment by Mr. Stoddard results in the forfeiture of all severance benefits to Mr. Stoddard.
Mr. Verhey is employed pursuant to an employment agreement dated as of January 1, 2002, which reduced his time commitment to the Company. As a part of his new employment arrangement, in January 2002 Mr. Verhey received a transition payment of $155,000 representing the acceleration of his final severance payment. If Mr. Verhey voluntarily terminates his employment, his employment agreement entitles him to continue to receive employee benefits for six months following his termination at levels and at amounts consistent with the benefits offered to him at the time of his termination. Under Mr. Verhey’s employment agreement, 90 days’ advance notice of any employment termination is required by the terminating party.
Effective January 1, 2002, Mr. Cook, and Mr. Shampay each entered into an employment agreement with Business Staffing. Subject to the payment of severance compensation, Kaiser may terminate these executive officers at anytime. Voluntary termination of employment results in the forfeiture of all severance benefits for Mr. Cook and Mr. Shampay.
Although Kaiser’s Board formally terminated our historical annual bonus program, Business Staffing reserves the right, in it’s Board’s sole and absolute discretion, to grant bonuses to executives officers.
Under the terms of prior employment agreements, each executive officer was to receive severance in an amount equal to one year’s base salary and average bonus, with Mr. Stoddard to receive two year’s annual base salary and average bonus. Beginning in 2000, the severance obligation was split equally between a retention fee and a final severance payment, with the total compensation remaining the same. As of June 30, 2003, Mr. Stoddard, Mr. Cook and Mr. Verhey were paid a retention fee of $595,387, $164,267 and $155,000, respectively, since each remained an employee. Mr. Shampay’s employment agreement does not provide for a retention fee.
If an officer is terminated without cause, including, among other reasons, constructive termination, such officer is entitled to receive cash severance pay as follows:
The average annual bonus for any officer, would equal the product of (X) the average percentage of base salary of the bonuses granted to such officer over the five years immediately preceding and including 2000 (or such lesser period for which he has participated in the annual bonus program) and (Y) the officer’s then current base salary.
Severance is payable in one lump sum or, at the executive’s option, over a period of time. In addition, Business Staffing will continue to pay benefits, such as health and dental insurance, for one year except that Mr. Stoddard shall receive a continuation of such benefits for two years. In the event an executive officer voluntarily terminates his employment, Business Staffing will not be obligated to pay him any severance or other additional compensation, other than the compensation due and owing up to the date of termination.
None of the employment agreements contain “change of control” provisions.
In the event any payments to an executive officer would be subject to the excise tax for Internal Revenue Code determined excess “parachute” payments, he has the election to receive either the full amount of the payments or such lesser amount as would result in the greatest after tax payment to him.
Each executive officer can be terminated for “cause.” “Cause” is defined as:
a. Willful breach by an officer of any provision of his employment agreement, provided, however, if the breach is not a material breach, Business Staffing is required to give written notice of such breach and the officer shall have thirty (30) days in which to cure such breach. No written notice or cure period shall be required in the event of a willful and material breach of his agreement;
b. Gross negligence or dishonesty in the performance of the officer’s duties or possibilities under his employment agreement;
c. Engaging in conduct or activities or holding any position that materially conflicts with the interest of, or materially interferes with the officer’s duties and responsibilities to Business Staffing, Kaiser LLC or their respective affiliates; or
d. Engaging in conduct which is materially detrimental to the business of Business Staffing, Kaiser LLC or their respective affiliates.
Set forth below is the annual base salary of Kaiser’s Chief Executive Officer and each of its other named executive officers as of March 1, 2004:
NAME | ANNUAL BASE SALARY | ||
Richard E. Stoddard | $ | 294,580 | |
Terry L. Cook | $ | 221,604 | |
James F. Verhey | $ | 135,059 | |
Paul E. Shampay | $ | 118,450 |
Over the past two years we have had reduced our staffing needs due primarily to the sale of substantial assets and the consummation of the merger creating the present structure.
HUMAN RELATIONS COMMITTEE INTERLOCKSAND INSIDER PARTICIPATIONS
During the year ending December 31, 2003, the Human Relations Committee consisted of Messrs. Cole (Chairman), Bitonti, and Fawcett. Mr. Fawcett was President and Chief Operating Officer of Kaiser from January 1996, until his retirement from full time duties on January 15, 1998. Mr. Fawcett continues to perform work for us from time-to-time. During 2003, Mr. Fawcett received $60,000 as a base salary. He was not separately compensated for his service on the Board of Managers. Mr. Fawcett also continues to serve on the Board of Managers of Mine Reclamation, LLC.
MANAGER COMPENSATION
Non-employee managers are paid an annual retainer fee of $15,000 and a meeting fee of $1,000 for each in person meeting and a meeting fee of $750 per telephonic meeting. The chairman of any
committee receives an additional annual retainer fee of $2,000 and an additional meeting fee of $500 per committee meeting.
The current Board equity plan provides that each non-management manager shall be granted 2,500 unvested Class A Units as of May 31st of each year, commencing May 31, 2002. Accordingly, a grant of 2,500 restricted Class A Units was made to Messrs. Bitonti, Cole and Wallach effective May 31, 2003. Each annual grant vests on January 31st of the year following the grant, subject to acceleration upon the occurrence of certain events. Accordingly, the restricted 2,500 Class A Units granted to Messrs. Bitonti, Cole and Wallach on May 31, 2003, fully vested on January 31, 2004.
We do not provide retirement benefits for managers.
PRINCIPAL UNIT MEMBERS
The following table sets forth, based upon the latest available filings with the Securities and Exchange Commission and from the Company’s Class A Unit member ownership list (generally reporting ownership as of March 23, 2004), the number of Class A Units owned by each person known by us to own of record or beneficially five percent (5%) or more of such units. The table includes the 126,598 Class A Units issued but reserved and not yet distributed to the Class 4A unsecured creditors of KSC because those reserved units are not eligible to vote.
Name and Address of Beneficial Owner | Number of Class A Units Beneficially Owned Excluding Warrants | Warrants Exercisable Within 60-Days of March 23, 2004(1) | Total # of Class A Units Owned(1) | % of Issued and Outstanding Class A Units(2) | |||||
Ascend Capital Holdings Corporation One Montgomery St., Suite 3300 San Francisco, CA 94104 | 656,000 | — | 656,000 | 9.5 | % | ||||
First Eagle SOOFN Global Fund. 1345 Avenue of the Americas, 44th Floor New York, New York 10105 | 365,000 | — | 365,000 | 5.3 | % | ||||
Kaiser’s Voluntary Employees’ Beneficiary Association Trust (VEBA)(3) 9786 Sierra Avenue Fontana, CA 92335 | 656,987 | 460,000 | 1,116,987 | 15.1 | % | ||||
Pension Benefit Guaranty Corporation(4) Pacholder Associates, Inc. 8044 Montgomery Road, Suite 382 Cincinnati, OH 45236 | 407,415 | 285,260 | 692,675 | 9.6 | % | ||||
Willow Creek Capital Partners(5) Willow Creek Offshore Fund 17 E. Sir Francis Drake Blvd., Suite 100 Lakespur, CA 94939 | 654,900 | — | 654,900 | 9.5 | % |
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SECURITY OWNERSHIPOF MANAGEMENT
This table below reflects the number of Class A Units beneficially owned by the Company’s (1) managers and manager nominees, (2) named executive officers, and (3) all of its managers and named executive officers as a group, as of March 23, 2004, as well as the number of options exercisable within 60 days of that date.
Column 1 | Column 2 | Column 3 | Column 4 | ||||||
Name | Class A Units Beneficially Owned, Excluding Options | Class A Units Underlying Options Exercisable Within 60- Days of March 23, 2004 | Total # of Class A Units Owned(1) | % of Issued and Outstanding Class A Units(1) | |||||
Richard E. Stoddard, CEO, President & Chairman | 110,194 | 62,350 | 172,544 | 2.5 | % | ||||
Gerald A. Fawcett, Vice Chairman(2) | 98,078 | 62,000 | 160,078 | 2.3 | % | ||||
James F. Verhey, Executive Vice President – Finance & CFO | 42,035 | 45,000 | 87,035 | 1.2 | % | ||||
Terry L. Cook, Executive Vice President - Administration, General Counsel & Corporate Secretary | 67,966 | 45,000 | 112,966 | 1.6 | % | ||||
Paul E. Shampay, Vice President - Finance | 22,500 | 0 | 22,500 | * | |||||
Ronald E. Bitonti, Manager(3) | 15,896 | 1,500 | 17,396 | * | |||||
Todd G. Cole, Manager | 22,688 | 0 | 22,688 | * | |||||
Marshall F. Wallach, Manager | 25,750 | 1,500 | 27,250 | * | |||||
All officers and directors as a group (8 persons)(1) | 405,107 | 217,350 | 622,457 | 8.7 | % |
VEBA and PBGC beneficially own warrants to purchase 460,000 and 285,260 Class A Units, respectively. Both VEBA and PBGC have asserted that the merger violated the terms of their warrants. We have had several discussions with VEBA concerning the claim and we believe the claim is without merit. No legal action has been pursued by either VEBA or PBGC with regard to this matter.
Independent Auditor and Fees
Ernst & Young served as the Company’s independent accountants for fiscal year 2003.
The Audit Committee has appointed Ernst & Young as the Corporation’s auditor for the current fiscal year.
Fees (including reimbursements for out-of-pocket expenses) paid to Ernst & Young for services in fiscal 2003 and 2002 were as follows:
2003 | 2002 | |||||
Audit Fees | $ | 89,000 | $ | 79,000 | ||
Audit-Related Fees | $ | — | $ | — | ||
Tax Fees | $ | 46,000 | $ | 110,000 | ||
All Other Fees | $ | — | $ | — |
The above Audit Fees are for the respective year’s audit, quarterly reviews and SEC filings, regardless of when the fees were billed or paid. Tax Fees include tax compliance (tax return preparation) and tax advice services. The above Audit-Related Fees, Tax Fees and All Other Fees shown are based upon billings dates, and may relate to the preceding fiscal year. The Audit Committee considered the compatibility of non-audit services by Ernst & Young with the maintenance of that firm’s independence. It should be noted that in 2001 Kaiser Ventures Inc. was merged into Kaiser Ventures LLC which necessitated the preparation of both a final corporate income tax return and an initial partnership tax return for 2001. The services for the preparation of these income tax returns were incurred during 2002.
The Audit Committee generally approves all engagements of the independent auditor in advance including approval of the related fees. The Audit Committee approves an annual budget (and may from time to time approve amendments), which specifies projects and the approved levels of fees for each. To the extent that items are not covered in the annual budget or fees exceed the budget, management must have them approved by the Audit Committee or, if necessary between Committee meetings, by the Audit Committee chairman on behalf of the Committee. Services in fiscal 2002 were engaged prior to the development of the current Committee approval requirements.
PART IV
(a) The following financial statements and financial statement schedules are filed as a part of this report:
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All other schedules are omitted because they are not required, are inapplicable, or the information is included in the Consolidated Financial Statements or Notes thereto.
(b) Reports on Form 8-K.
None.
(c) Exhibits.
The following exhibits are filed as part of this Form 10-K.
EXHIBIT INDEX
(* Indicates compensation plan, contract or arrangement)
the quoted prices cannot be adjusted by the entity. | ||
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Copies of any of the exhibits referred to above will be furnished at a cost of $.25 per page to members who make a written request therefore to Kaiser Ventures LLC, 3633 E. Inland Empire Blvd., Suite 480, Ontario, California 91764. Attention: Corporate Secretary.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
(Power of Attorney)
Each person whose signature appears below constitutes and appoints RICHARD E. STODDARD and JAMES F. VERHEY as his true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.
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Following is a description of the valuation methodology used to measure short-term investments at fair value.
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REPORT OF INDEPENDENT AUDITORS
BoardIn February 2007, the FASB issued SFAS No. 159 “The Fair Value option for Financial Assets and Liabilities.” This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reporting earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of Managers
Kaiser Ventures LLC and Subsidiaries
We have auditedfair value measurement, which is consistent with the accompanyingBoard’s long-term measurement objectives for accounting for financial instruments. The provisions of SFAS 159 are effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company adopted SFAS 159 as of January 1, 2008, which has no material impact on the Company’s consolidated balance sheetsfinancial statements. The following is a summary of Kaiser Ventures LLC and Subsidiaries (the “Company”)the fair value of investment securities classified as “available-for-sale” as of December 31, 20032008 and 2002, andDecember 31, 2007:
AVAILABLE-FOR-SALE | DECEMBER 31, 2008 | DECEMBER 31, 2007 | ||||
Commercial Paper | $ | 6,412,000 | $ | 8,042,000 | ||
The Company has chosen to adopt FAS 159 for the related consolidated statementsmeasurement of operations, cash flows, and changesshort-term investments in members’ equity for eachan effort to more clearly identify the actual value of the three years ininvestment and its earnings for the reporting period. At the end of a period ended December 31, 2003. Our audits also included the financial statement schedule listed inactual market value is compared to the Index at Item 15(a). These financial statementsactual cost and schedule areused to determine any gain or loss on the responsibilitymaturity or sale of each available-for-sale investment. Below is a table showing the effect of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are freeadoption of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,FAS 159 as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Kaiser Ventures LLC and Subsidiaries at December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Orange County, California
February 12, 2004January 1, 2008.
KAISER VENTURES LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETSINITIAL ADOPTIONOF FAIR VALUE OPTION (FVO)
BALANCE SHEET JANUARY 1, 2008 PRIOR TO ADOPTION | NET GAIN (LOSS) UPON ADOPTION | BALANCE SHEET JANUARY 1, 2008 AFTER ADOPTION OF FVO | |||||||
Commercial Paper | $ | 8,015,000 | $ | 27,000 | $ | 8,042,000 | |||
Pre-tax cumulative effect of adoption of the fair value option | $ | 27,000 | |||||||
The current U.S. credit crisis has caused some of the Company’s commercial paper investments to decline in value as of December 31, 2008.
Real Estate
In accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, the Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets.
2003 | 2002 | |||||
ASSETS | ||||||
Current Assets | ||||||
Cash and cash equivalents | $ | 3,562,000 | $ | 10,347,000 | ||
Accounts receivable and other, net of allowance for doubtful accounts of $34,000 and $34,000, respectively | 455,000 | 763,000 | ||||
Short-term investments | 10,108,000 | — | ||||
Notes receivable | 644,000 | 337,000 | ||||
Restricted cash held for conversion distribution | 1,340,000 | — | ||||
16,109,000 | 11,447,000 | |||||
Eagle Mountain Landfill Investment | 28,963,000 | 27,826,000 | ||||
Investment in West Valley MRF | 4,171,000 | 4,140,000 | ||||
Land | 2,503,000 | 2,503,000 | ||||
Long-term investments | — | 3,752,000 | ||||
Other Assets | ||||||
Notes receivable | 349,000 | 1,012,000 | ||||
Unamortized environmental insurance premium | 3,786,000 | 3,800,000 | ||||
Buildings and equipment (net) | 717,000 | 944,000 | ||||
4,852,000 | 5,756,000 | |||||
Total Assets | $ | 56,598,000 | $ | 55,424,000 | ||
Interest and property taxes related to real estate under development are capitalized during periods of development.
Investment in West Valley MRF, LLC
The accompanying notes are an integral partCompany accounts for its investment in West Valley MRF, LLC, the owner of West Valley MRF, under the equity method of accounting because of the consolidated financial statements.
KAISER VENTURES LLC AND SUBSIDIARIES
Company’s 50% ownership interest.
CONSOLIDATED BALANCE SHEETSLandfill Permitting and Development
Through its 83.13% 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 SFAS No. 67,Accounting for Costs and Initial Rental Operations of December 31
2003 | 2002 | ||||||
LIABILITIES AND MEMBERS’ EQUITY | |||||||
Current Liabilities | |||||||
Accounts payable | $ | 118,000 | $ | 73,000 | |||
Income taxes payable | 20,000 | 14,000 | |||||
Conversion distribution payable | 1,340,000 | — | |||||
Deferred gain on sale of real estate | 375,000 | — | |||||
Accrued liabilities | 688,000 | 906,000 | |||||
Current portion of MRC accrual for casualty loss | 300,000 | — | |||||
2,841,000 | 993,000 | ||||||
Long-term Liabilities | |||||||
Deferred gain on sale of real estate | — | 482,000 | |||||
Accrued liabilities | 250,000 | 254,000 | |||||
Accrual for MRC casualty loss | 4,195,000 | — | |||||
Environmental remediation | 3,938,000 | 3,956,000 | |||||
8,383,000 | 4,692,000 | ||||||
Total Liabilities | 11,224,000 | 5,685,000 | |||||
Minority Interest | 5,038,000 | 5,586,000 | |||||
Commitments and Contingencies | |||||||
Members’ Equity | |||||||
Class A units; issued and outstanding 6,919,299 and 6,911,799, respectively | 40,501,000 | 44,153,000 | |||||
Class B units; issued and outstanding 751,956 | — | — | |||||
Class C units; issued and outstanding 952 respectively | — | — | |||||
Class D units; issued and outstanding 48 | — | — | |||||
Accumulated other comprehensive loss | (165,000 | ) | — | ||||
Total Members’ Equity | 40,336,000 | 44,153,000 | |||||
Total Liabilities and Members’ Equity | $ | 56,598,000 | $ | 55,424,000 | |||
Real Estate Projects, capitalizable landfill site development costs are recorded at cost and consist of engineering and environmental studies, legal and consulting expenses, and other costs directly related to the permitting and development process. These costs are expensed when management determines that the capitalized costs provide no future benefit. Additionally, in accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long-lived Assets, 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. The accompanying notes are an integral partCompany is still litigating challenges to a land exchange completed with the Bureau of Land Management of the consolidatedU. S. Department of the Interior in October 1999 (See Note 17), and no sale of the Eagle Mountain is expected until this matter is ultimately resolved. Further, the perception of the public and private financial statements.markets of the value of solid waste sites and the waste management industry can fluctuate significantly over time. Accordingly, there can be no assurance that the Company will successfully sell the Eagle Mountain assets on favorable terms or at all.
Buildings and Equipment
Buildings and equipment are stated on the cost basis. Depreciation is provided on the straight-line method over the estimated useful lives of the respective assets which range from 3 to 10 years.
KAISER VENTURES LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONSImpairment of Long-Lived Assets
The Company periodically evaluates the carrying value of long-lived assets in relation to the future undiscounted cash flows of the underlying businesses to assess recoverability of the assets. If the estimated undiscounted future cash flows are less than the carrying amount, an impairment loss, which is determined based on the difference between the fair value and the carrying value of the assets, is recognized. As of December 31, 2008 and 2007, none of the Company’s long-lived assets were impaired.
Asset Retirement Obligations
In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (“FIN 47”). FIN 47 clarified the term “conditional asset retirement obligation” as used in SFAS No. 143, Accounting for Asset Retirement Obligations, which refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be in control of the entity. FIN 47 requires that either a liability be recognized for the Years Endedfair value of a legal obligation to perform asset-retirement activities that are conditioned on the occurrence of a future event if the amount can be reasonably estimated, or where it cannot, that disclosure of the liability exists, but has not been recognized and the reasons why a reasonable estimate cannot be made. FIN 47 became effective as of December 31, 2005.
2003 | 2002 | 2001 | ||||||||||
Resource Revenues | ||||||||||||
Ongoing Operations | ||||||||||||
Gain on sale of FUWC stock | $ | — | $ | — | $ | 65,171,000 | ||||||
Water resource | — | — | 295,000 | |||||||||
Gain on sale of California mines | — | — | 1,756,000 | |||||||||
Income from equity method investment in the West Valley MRF | 2,281,000 | 1,502,000 | 978,000 | |||||||||
Realized deferred gain on Mill Site land sales | 107,000 | 107,000 | 107,000 | |||||||||
Total ongoing operations | 2,388,000 | 1,609,000 | 68,307,000 | |||||||||
Interim Activities, net loss | (114,000 | ) | (215,000 | ) | (256,000 | ) | ||||||
Total resource revenues | 2,274,000 | 1,394,000 | 68,051,000 | |||||||||
Resource Operating Costs | ||||||||||||
Operating costs | — | — | 42,000 | |||||||||
MRC casualty loss | 4,500,000 | — | — | |||||||||
Total resource operating costs | 4,500,000 | — | 42,000 | |||||||||
Income (Loss) from Resources | (2,226,000 | ) | 1,394,000 | 68,009,000 | ||||||||
Corporate General and Administrative Expenses | ||||||||||||
Corporate overhead expenses, excluding employee retention, stock-based compensation and stock option repricing expenses | 1,749,000 | 2,515,000 | 5,145,000 | |||||||||
Employee retention expense | 1,031,000 | — | — | |||||||||
Stock-based compensation expense | 11,000 | 11,000 | 1,288,000 | |||||||||
Stock option repricing expense | — | — | 428,000 | |||||||||
2,791,000 | 2,526,000 | 6,861,000 | ||||||||||
Income (Loss) from Operations | (5,017,000 | ) | (1,132,000 | ) | 61,148,000 | |||||||
Net interest and investment income | 627,000 | 497,000 | 2,532,000 | |||||||||
Income (Loss) before Minority Interest and Income Tax Provision | (4,390,000 | ) | (635,000 | ) | 63,680,000 | |||||||
Minority Interest in Loss | 789,000 | — | — | |||||||||
Income (Loss) before Income Tax Provision | (3,601,000 | ) | (635,000 | ) | 63,680,000 | |||||||
Income tax provision | ||||||||||||
Currently payable | 16,000 | 18,000 | 1,795,000 | |||||||||
Deferred tax expense | — | — | 12,861,000 | |||||||||
Income tax expense (benefit) attributed to activities prior to conversion to LLC | 46,000 | (585,000 | ) | — | ||||||||
Net Income (Loss) | $ | (3,663,000 | ) | $ | (68,000 | ) | $ | 49,024,000 | ||||
Basic Income (loss) Per Unit/Share | $ | (0.53 | ) | $ | (0.01 | ) | $ | 7.45 | ||||
Diluted Income (loss) Per Unit/Share | $ | (0.53 | ) | $ | (0.01 | ) | $ | 7.38 | ||||
Basic Weighted Average Number of Units/Shares Outstanding | 6,916,000 | 6,908,000 | 6,584,000 | |||||||||
Diluted Weighted Average Number of Units/Shares Outstanding | 6,916,000 | 6,908,000 | 6,646,000 |
The accompanying notes are an integral partdetermination of the asset retirement obligation was based upon a number of assumptions that incorporated the Company’s knowledge of the facilities, the asset life, the estimated time frames for periodic renovations, the current cost for remediation of asbestos and the current technology at hand to accomplish the remediation work. Any change in the assumptions can impact the value of the determined liability and will be recognized as a change in estimate in the period identified.
The Company determined that a conditional asset retirement obligation exists for asbestos remediation. Though not a current health hazard in its facilities, upon demolition, the Company would be required to take the appropriate remediation procedures in compliance with state law to remove the asbestos. The fair value of the conditional asset retirement obligation for the future abatement of asbestos-containing products in certain of the viable structures at Eagle Mountain was estimated at approximately $1.2 million. The fair value was determined as the present value of the estimated future cost of remediation based on an estimated expected date of remediation. This computation is based on a number of assumptions which may change in the future based on the availability of new information, technology changes, changes in costs of remediation, and other factors.
Environmental Insurance
The Company’s $3.8 million premium for the prospective insurance policy 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 Company’s consolidated financial statements.statements pursuant to FAS No. 5 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.
KAISER VENTURES LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWSIncome Taxes
The Company is taxed as a partnership and thus, the Company’s results of operations (on an income tax basis) are allocated to the members for inclusion in their respective income tax returns. The only income taxes imposed on the Company are a minor gross revenue tax imposed by the State of California and income taxes imposed on Business Staffing Inc., the Company’s only corporate subsidiary.
Earnings Per Unit
forThe Company follows SFAS No. 128,Earnings per Sharein calculating basic and diluted earnings per unit. Basic earnings per unit excludes the Years Endeddilutive effects of options, warrants and convertible securities, while diluted earnings per unit includes the dilutive effects of claims on the earnings of the Company.
LLC Unit/Stock Options
At December 31, 2008, the Company has three stock-based employee compensation plans, which are described more fully in Note 13. Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123R (“SFAS 123R”), “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all share-based payment (or in our case units) awards to employees and managers based on estimated fair values. SFAS 123R supersedes the Company’s previous accounting methodology which used the intrinsic value method under Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees.” Under the intrinsic value method no share-based compensation expense related to any option awards granted to employees or managers had been recognized in the Company’s Consolidated Statements of Operations, as all unit option awards granted under the plans had an exercise price equal to the Company’s closing stock price on the date of grant.
2003 | 2002 | 2001 | ||||||||||
Cash Flows from Operating Activities | ||||||||||||
Net (loss) income | $ | (3,663,000 | ) | $ | (68,000 | ) | $ | 49,024,000 | ||||
Income from equity method investment in West Valley MRF | (2,281,000 | ) | (1,502,000 | ) | (978,000 | ) | ||||||
Income tax (expense) benefit attributed to activities prior to the conversion to LLC | 46,000 | (585,000 | ) | — | ||||||||
Deferred tax (benefit) expense | — | — | 12,861,000 | |||||||||
MRC casualty loss, net of minority interest | 3,711,000 | — | — | |||||||||
Depreciation and amortization | 241,000 | 273,000 | 275,000 | |||||||||
Unrealized gain on investments | (87,000 | ) | — | — | ||||||||
Class A Units / Stock-based compensation expense | 11,000 | 11,000 | 1,288,000 | |||||||||
Stock option repricing expense | — | — | 428,000 | |||||||||
Gain on sale of FUWC stock | — | — | (65,171,000 | ) | ||||||||
Mill Site land sale deferred gain realized | (107,000 | ) | (107,000 | ) | (107,000 | ) | ||||||
Gain on sale of Ca Mines | — | — | (1,756,000 | ) | ||||||||
Changes in assets: | ||||||||||||
Receivable and other | 308,000 | (590,000 | ) | 2,273,000 | ||||||||
Purchase of investments - trading | (7,045,000 | ) | — | — | ||||||||
Income tax receivable | — | 2,489,000 | (1,904,000 | ) | ||||||||
Changes in liabilities: | ||||||||||||
Accounts payable and accrued liabilities | (232,000 | ) | (1,678,000 | ) | (1,757,000 | ) | ||||||
Income taxes payable | (40,000 | ) | 14,000 | — | ||||||||
Long-term accrued liabilities | (4,000 | ) | (80,000 | ) | (337,000 | ) | ||||||
Net cash flows used in operating activities | (9,142,000 | ) | (1,823,000 | ) | (5,861,000 | ) | ||||||
Cash Flows from Investing Activities | ||||||||||||
Minority interest | 241,000 | 306,000 | — | |||||||||
Proceeds from the sale of FUWC stock | — | — | 81,783,000 | |||||||||
Purchase of investments | (7,369,000 | ) | (9,660,000 | ) | — | |||||||
Maturities of investments | 7,980,000 | 5,908,000 | — | |||||||||
Proceeds from the sale of Ca Mines | — | — | 726,000 | |||||||||
Collection of notes receivable | 356,000 | 336,000 | 281,000 | |||||||||
Capitalized landfill expenditures | (1,083,000 | ) | (2,317,000 | ) | (1,429,000 | ) | ||||||
Other capital expenditures | — | — | (25,000 | ) | ||||||||
Environmental remediation expenditures | (18,000 | ) | (44,000 | ) | (126,000 | ) | ||||||
Environmental insurance | — | — | (3,800,000 | ) | ||||||||
Distribution from West Valley MRF. | 2,250,000 | 1,250,000 | 750,000 | |||||||||
Net cash flows from (used in) investing activities | 2,359,000 | (4,221,000 | ) | 78,160,000 | ||||||||
Cash Flows from Financing Activities | ||||||||||||
Issuance of Class A units/common stock | — | 2,000 | 3,278,000 | |||||||||
Receipt of conversion distribution from transfer agent, net | 1,340,000 | — | — | |||||||||
Increase in restricted cash for conversion distribution, net | (1,340,000 | ) | — | — | ||||||||
Distribution to Shareholders | — | — | (69,285,000 | ) | ||||||||
Net cash flows from (used in) financing activities | — | 2,000 | (66,007,000 | ) | ||||||||
Net Changes in Cash and Cash Equivalents | (6,785,000 | ) | (6,042,000 | ) | 6,292,000 | |||||||
Cash and Cash Equivalents at Beginning of Year | 10,347,000 | 16,389,000 | 10,097,000 | |||||||||
Cash and Cash Equivalents at End of Year | $ | 3,562,000 | $ | 10,347,000 | $ | 16,389,000 | ||||||
Use of Estimates
The accompanying notes are an integral partpreparation 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 consolidated financial statements.statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
As of January 1, 2008, the Company adopted both SFAS 157 “Fair Value Measurement,” and SFAS 159 “The Fair Value Option for Financial Assets and Liabilities” as discussed in further detail above.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and Cash Equivalents. The carrying amount approximates fair value because of the short-term maturity of these instruments.
Receivables. The carrying amount approximates fair value because of the short-term maturity of these instruments.
Investments. The carrying amount approximates fair value of these investments.
KAISER VENTURES LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
for the Years Ended December 31, 2003, 2002 and 2001
Member Units / Common Stock | ||||||||||||||||||||||||||
Class A Units / Shares | Amount | Capital In Par Value | Retained Earnings | Members’ Equity | Accumulated Other | Total | ||||||||||||||||||||
Balance at December 31, 2000 | 6,522,700 | $ | 195,000 | $ | 51,676,000 | $ | 7,603,000 | $ | — | $ | — | $ | 59,474,000 | |||||||||||||
Issuance of shares of common stock | 378,599 | 12,000 | 4,555,000 | — | — | — | 4,567,000 | |||||||||||||||||||
Repricing of stock options | — | — | 428,000 | — | — | — | 428,000 | |||||||||||||||||||
Conversion to LLC | (207,000 | ) | (56,659,000 | ) | (7,603,000 | ) | 64,469,000 | — | — | |||||||||||||||||
Dividend | — | — | — | — | (69,285,000 | ) | — | (69,285,000 | ) | |||||||||||||||||
Net income | — | — | — | — | 49,024,000 | — | 49,024,000 | |||||||||||||||||||
Balance at December 31, 2001 | 6,901,299 | — | — | — | 44,208,000 | — | 44,208,000 | |||||||||||||||||||
Issuance of Class A Units | 10,500 | — | — | — | 13,000 | — | 13,000 | |||||||||||||||||||
Net loss | — | — | — | — | (68,000 | ) | — | (68,000 | ) | |||||||||||||||||
Balance at December 31, 2002 | 6,911,799 | — | — | — | 44,153,000 | — | 44,153,000 | |||||||||||||||||||
Net loss | — | — | — | — | (3,663,000 | ) | — | (3,663,000 | ) | |||||||||||||||||
Comprehensive loss, change in net unrealized gain on investments | — | — | — | — | — | (165,000 | ) | (165,000 | ) | |||||||||||||||||
Comprehensive loss | (3,828,000 | ) | ||||||||||||||||||||||||
Issuance of Class A Units | 7,500 | — | — | — | 11,000 | — | 11,000 | |||||||||||||||||||
Balance at December 31, 2003 | 6,919,299 | $ | — | $ | — | $ | — | $ | 40,501,000 | $ | (165,000 | ) | $ | 40,336,000 | ||||||||||||
At December 31, 2003, 2002 and 2001, Kaiser Ventures LLC had 751,956 Class B, Units outstanding. At December 31, 2003 and 2002, Kaiser Ventures LLC had 952 and 48, Class C and D Units
The Company has outstanding respectively. There were no Class B, C and D Units which are reflected on the Company’s Balance Sheet as equity securities that were designed and implemented to replicate the cash distributions the holders of such units outstandingwould have received under certain former long-term transaction incentive plans. These former plans provided for bonus payments as a result of the sale of certain assets at prices above certain minimum threshold requirements. Even though the Class B, C and D Units are classified as equity securities, the Company will account for any future distributions on the Class B, C and D Units by recording compensation expense for the full amount of the distribution at the time a distribution become probable and estimateable. For additional information regarding the Class B, C and D Units. Please see “Note 13. EQUITY” and “Note 16. COMMITMENTS AND CONTINGENCIES - Contingent Distributions on Class B, C and D Units.”
Note 3. ACCOUNTS RECEIVABLE AND OTHER
Accounts receivable and other as of December 31, 2001.2008 consisted of the following:
The accompanying notes are an integral part of the consolidated financial statements.
KAISER VENTURES LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Prepaid Insurance | 45,000 | |||
Accounts Receivable Trade and Other | 123,000 | |||
Sub Total | 168,000 | |||
Allowance for doubtful accounts | (37,000 | ) | ||
Total | $ | 131,000 | ||
Note 1. NATURE OF BUSINESS4. INVESTMENT IN WEST VALLEY MRF, LLC
Unless otherwise noted: (1)Effective June 19, 1997, Kaiser Recycling Corporation (“KRC”) 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 term “Kaiser Inc.” refers to the former Kaiser Ventures Inc., (2) the term “Kaiser LLC” refers to Kaiser Ventures LLC,equivalent of a joint venture agreement but for a limited liability company. The construction 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.
On November 16, 1988, the Company began operations as Kaiser Steel Resources, Inc. upon the successful completionstart up of the reorganization of Kaiser Steel Corporation (“KSC”) under Chapter 11 of the Bankruptcy Code. The Company has changed its name twice since reorganization in June 1993 and 1995,West Valley MRF was completed during December 1997.
Pursuant to Kaiser Resources Inc. and to Kaiser Ventures Inc. (“Kaiser Inc.”), respectively. In November 2001, the stockholders of Kaiser Inc. approved the conversion of Kaiser Inc. into a newly-formed limited liability company pursuant to a merger of Kaiser Inc. with and into Kaiser Ventures LLC. Under the terms of the MOA, KRC contributed approximately 23 acres of Mill Site property on which the West Valley MRF was constructed while WVRT contributed all of Burrtec’s recycling business that was operated within Riverside County, thereby entitling West Valley MRF to receive all revenues generated from this business after the closing date. The Company also remains responsible for any pre-existing environmental conditions on the land, which is generally covered by insurance.
Most of the financing for the construction of the West Valley MRF of approximately $22 million, including reimbursement of previously incurred development costs of Burrtec and the Company, was obtained through the issuance and sale of two California Pollution Control Financing Authority (the “Authority”) Variable Rate Demand Solid Waste Disposal Revenue Bonds (West Valley MRF, LLC Project) Series 1997A and Series 2000A (the “Bonds”). The Bonds are secured by an irrevocable letter of credit issued by Union Bank of California, N.A. (“Union Bank”). The Bonds have stated maturity dates of June 1, 2012 for Series 1997A ($9.5 million) and June 1, 2030 Series 2000A ($8.5 million), although West Valley MRF, LLC is required, pursuant to its agreement with Union Bank, to periodically redeem a portion of the Bonds on a stated schedule. Pursuant to a Guaranty Agreement with Union Bank, the Company and planBurrtec each are liable for fifty percent (50%) of merger, Kaiser Inc.’s stockholders received $10.00the principal and interest on the Bonds in cash plus one Class A Unitthe event of a default by the West Valley MRF, LLC.
During the second quarter of 2007 West Valley MRF, LLC and Union Bank agreed to modify the bank’s repayment schedule for each share of common stock in Kaiser Inc. Kaiser Inc. assetsWest Valley MRF, LLC’s outstanding indebtedness issued by the California Pollution Control Finance Authority. West Valley MRF, LLC and liabilities were carried over at their historical cost basis.the bank agreed that the
KAISER VENTURES LLC AND SUBSIDIARIES
At December 31, 2003,current principal repayments of the indebtedness could be rescheduled in accordance with the original issuance terms of the respective bond issues.
The Company has also provided environmental guaranty agreements to Union Bank. Under these agreements, Kaiser and Kaiser Recycling are jointly and severally liable for any liability that may be imposed on Union Bank for pre-existing environmental conditions on the West Valley MRF’s property acquired from the Company that the West Valley MRF fails to timely address.
Subject to the extension of the letters of credit that secure the Bonds, the current payment schedule for the California Pollution Control Authority bonds is summarized below.
Payment Schedule | ||||||||||
Year | 1997 Bonds | 2000 Bonds | Total | |||||||
2009 | $ | 630,000 | $ | — | $ | 630,000 | ||||
2010 | $ | 630,000 | $ | — | $ | 630,000 | ||||
2011 | $ | 630,000 | $ | — | $ | 630,000 | ||||
2012 | $ | 620,000 | $ | — | $ | 620,000 | ||||
2013 thru | ||||||||||
2029 | $ | 290,000 | $ | 4,930,000 | (1) | |||||
| ($290,000 per year) | | ||||||||
2030 | $ | 270,000 | $ | 270,000 | ||||||
Total | $ | 2,510,000 | $ | 5,200,000 | $ | 7,710,000 | ||||
1 | Total payments for this period (2013 thru 2029) at $290,000 per year. |
The above payment scheduled is based and conditioned upon a renewal of the existing letters of credit which secure the bonds. The letter of credit for the 1997 bonds is currently scheduled to expire in June of 2009 and the letter of credit in for 2000 bonds is currently scheduled to expire in June of 2011. If such letters of credit are not extended by their respective due date, then the outstanding principle balance of the bonds secured by such letters of credit would be due as a balloon payment. Union Bank and West Valley are in the process of extending the letter of credit from the 1997 bonds.
The condensed summarized balance sheet information of West Valley MRF, LLC as of November 30, 2008, is as follows:
Balance Sheet Information | |||
Current Assets | $ | 7,765,000 | |
Property and Equipment (net) | 11,910,000 | ||
Other Assets | 99,000 | ||
Total Assets | $ | 19,774,000 | |
Current Liabilities | $ | 4,370,000 | |
CPCFA Bonds Payable (long-term portion) | 7,080,000 | ||
Other Liabilities | — | ||
Members’ Equity | 8,324,000 | ||
Total Liabilities and Members’ Equity | $ | 19,774,000 | |
KAISER VENTURES LLC AND SUBSIDIARIES
The condensed summarized income statement information for the West Valley MRF, LLC as of November 30, 2008 and 2007, is as follows:
Income Statement Information | November 30, 2008 | November 30, 2007 | ||||
Net Revenues | $ | 14,719,000 | $ | 16,340,000 | ||
Gross Profit | $ | 5,961,000 | $ | 6,702,000 | ||
Net Income | $ | 4,542,000 | $ | 4,898,000 |
The Company has recognized equity income from the West Valley MRF of $2,271,000, and $2,449,000, in 2008 and 2007, respectively. The Company has received cash distributions of $2.5 million during 2008 and $2.0 million in 2007, from its investment in the West Valley MRF. However, with the materially adverse economic conditions facing world economies and with the resulting current low commodity prices, we project that in 2009 there could be a material reduction in the amount of cash distributions made by the West Valley MRF to Kaiser.
Note 5. MINE RECLAMATION, LLC
The Company, in January 1995, acquired a 70% interest in Mine Reclamation, the developer of the landfill project. As a result of subsequent equity fundings and purchases, the Company’s principal assets include: (i) an 82.48% ownership interest in Mine Reclamation LLC, which owns a permitted rail-haul municipal solid waste landfill located at theas of December 31, 2007, is 83.13%. On August 9, 2000, MRC, entered into that certain Agreement For Purchase and Sale of Real Property and Related Personal Property In Regard To The Eagle Mountain Site,Sanitary Landfill Project and Joint Escrow Instructions (“Landfill Project Sale Agreement”) with the District. In summary, the landfill project (which includes the Company’s royalty payments under the MRC Lease) is being sold for $41 million plus accrued interest, with an initial closing currently scheduled to occur on June 30, 2008, but the initial closing date has been extended numerous times. However, 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 and satisfaction of numerous contingencies. 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 and resolving the outstanding federal land exchange litigation.
In September 2005, the Company received an adverse U.S. District Court decision in the federal land exchange litigation that may materially impact the validity of the landfill project. The decision was adverse to the landfill project in that it set aside the land exchange completed between the Company and BLM as well as two BLM rights-of-way. The Company along with the U.S. Department of Interior appealed the decision to the 9th Circuit Court of Appeals. The briefing for the appeal was completed in 2007 and oral argument was held on December 6, 2007, before a three judge panel of the 9th Circuit Court of Appeals. The U.S. 9th Circuit Court of Appeals usually takes six to nine months to issue a decision after oral argument but occasionally the announcement of a decision may take substantially longer. Since oral argument was completed more than one year ago, a decision may be announced at any time. However, we cannot predict when the decision will actually be announced. If the decision is fully affirmed on appeal, the decision would jeopardize the viability of the landfill project. In addition, the decision could adversely impact the agreement to sell the landfill project to the District, including termination of the agreement. For a more detailed discussion of this litigation and the risks associated with this litigation, see “Note 15. LEGAL PROCEEDINGS - Eagle Mountain Landfill Project Land Exchange Litigation.” The Company has evaluated the adverse decision on the landfill project in the context of whether such asset should be considered impaired. The Company finds itself in much the same position as it was in 2000 when the San Diego County Superior Court judge ruled that the environmental documentation was insufficient under California law. Believing that the Superior Court was in error, much like the Company believes the U.S. District Court is in error, the Company appealed the San Diego County Superior Court decision. The Company won that appeal with the California Court of Appeals unanimously reversing the San Diego Superior Court. Accordingly, the Company has concluded that, although it is possible, it is not currently under contractprobable or measurable that there has been impairment of the
KAISER VENTURES LLC AND SUBSIDIARIES
investment in MRC at this time due to the pending appeal of the decision before the U.S. 9th Circuit Court of Appeals.
Assuming there is a closing, $41 million of the total purchase price plus accrued interest is to be solddeposited 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. Even though the closing has not taken place and these funds have not been deposited into an escrow account, interest began accruing on this portion of the purchase price on May 3, 2001.
The District has been undertaking extensive due diligence on the landfill project and has the right to Countyterminate the Landfill Project Sale Agreement if it is not satisfied with the results of its due diligence and other matters. Due diligence, joint use negotiations and other items are expected to continue during 2008 although a number of items have been delayed and will not be resolved until there is a successful conclusion of the land exchange litigation that is on appeal to the U.S. 9th Circuit Court of Appeals. In addition, the parties will individually determine whether each chooses to continue to extend the closing date for the transaction.
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 No. 2 of Los Angeles County for approximately $41 million; (ii) a 50% ownership interest in the West Valley Materials Recovery Facilitypurchased. There are also numerous risks and Transfer Station (“West Valley MRF”); (iii) approximately 5,400 additional acres owned or controlled by Kaiser at the Eagle Mountain Site that are not included incontingencies associated with the pending sale of the landfill project to the District; and (iv) cash and cash equivalents, receivables and short-term investments of approximately $15.2 million.
The Company’s consolidated financial statements includeDistrict. There can be no assurance that all outstanding matters currently preventing an initial closing with the following significant entities: Kaiser Services, Inc.; Lake Tamarisk Development, LLC; Kaiser Eagle Mountain, LLC; Kaiser Recycling LLC; Business Staffing, Inc.; and Mine Reclamation, LLC. See Note 2 below for additional information concerningDistrict will be resolved to the Company’s subsidiaries.
Ongoing Operations
The Company’s revenues from ongoing operations are generally derived from the developmentsatisfaction of the Company’s long-term projects. Income from equity method investments reflect Kaiser’s share of income related to its equity investment inparties. Accordingly, there can be no assurance that the West Valley MRF which the Company accounts for under the equity method.
Interim Activities
Revenues and expenses from interim activities are generated from various sources. Significant components of interim activities include housing rental income, aggregate and rock sales and lease payments for the minimum security prison at the Eagle Mountain Townsite. Duesale to the interim natureDistrict will occur or that the current terms of these activities, the Company is presenting these revenues netpending transaction may not be significantly modified as a result of their related expenses. Total interim revenues for 2003, 2002, and 2001, were $1.1 million, $1.0 million, $1.0 million, respectively. Duefuture discussions with the District or as to the terminationtiming of the minimum security prison lease at the Eagle Mountain Townsite the Townsite operations are being closed down and its facilities are being mothballed.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accountsreceipt of the Company and all wholly-owned subsidiaries and majority-owned investments, except as specified below. Intercompany accounts and transactions have been eliminated.
Fontana Union Water Company.Prior topurchase price. There can be no assurance that the sale in March 2001, the Company owned 53.71% of Fontana Union Water Company (“Fontana Union” or “FUWC”), a mutual water company, which entitled the Company to its proportionate share of Fontana Union water. The Company effectively transferred its control in Fontana Union to Cucamonga County Water District (“Cucamonga”) pursuant to a 102-year lease of its Fontana Union shares (“Cucamonga Lease”) which the Company entered into in March 1989, and which was amended in 1989, 1992 and 1993. Therefore, Kaiser received no direct benefit from nor had any direct exposure to the operations or financial performance of Fontana Union. Consequently, Kaiser’s investment in Fontana Union was recorded on the cost method with revenues from the Cucamonga Lease being recorded on a current basis pursuant to the terms and conditionscompleted purchase of the Lease. On March 6, 2001,Mesquite landfill by the Company closedDistrict will not adversely impact the negotiations and the closing on the sale of the landfill to the District. In addition, there are material litigation risks associated with the current federal land exchange litigation, and the appeal of the adverse U.S. District Court decision in such litigation including reversal of the completed land exchange and the threatened litigation over the Endangered Species Act, all as discussed in “Note 15. LEGAL PROCEEDINGS”. No assurance can be made that the Company will successfully and timely resolve these matters so as to avoid a material adverse effect on the Company’s current plan to sell the landfill to the District. In addition, there are risks that the landfill project will be impacted by natural disasters like the floods that caused significant damage to the rail line in 2003. Certain risks may be uninsurable or are not insurable on terms which the Company believes are economical.
As discussed below, MRC will need additional funding to complete the landfill project, including funds to repair the flood damage sustained by the Eagle Mountain rail line, to fund the litigation involving the project and to fund the activities necessary for its Fontana Union investmentpossible sale. There is no assurance that MRC can obtain additional funds through debt or equity financing on acceptable terms.
If the Company is unable to Cucamonga. (See Note 4)manage any of these risks or uncertainties, the Company may not be able to sell the landfill at a favorable price, if at all, and the value of the Company’s Class A Units could be materially reduced.
Flood Damage to Railroad. The Company owns an approximate 52-mile private railroad that runs from Ferrum Junction near the Salton Sea to the Eagle Mountain mine. In late August and early September of 2003, portions of the railroad and related protective structures sustained considerable damage due to heavy rains and flash floods. This damage included having some rail sections being buried under silt while other areas had their rail bed undermined. Subsequent to the filing of the Company’s report on Form 10-Q/A for the quarter ended September 30, 2003, the Company conducted a more complete investigation of the damage and of the costs to return the railroad to the condition that it was in prior to the flood damage. As a result of such investigation, the Company has estimated the cost to repair the damage to be a minimum of $4.5 million, an accrual for which was recorded in 2003. The Company’s
KAISER VENTURES LLC AND SUBSIDIARIES
KSC Recovery, Inc. (“KSC Recovery”).The Company’s wholly-owned subsidiary, KSC Recovery, Inc., which is governedcurrent plans are to undertake, the work necessary to help preserve and controlled by a Bankruptcy Court approved Plan of Reorganization, acts solely as an agent for KSC’s former creditors in pursuing bankruptcy related adversary litigation and administration ofprotect the KSC bankruptcy estate. Kaiser exercises no significant control or influence over nor does Kaiser have any interest inexisting railroad. However, the operations, assets or liabilities of KSC Recovery except as provided bymajor repairs to return the terms of the approved Plan of Reorganization. In addition, KSC Recovery’s cash on hand and potential future recoveries fund all costs and expenses of KSC Recovery. Consequently, activity of KSC Recovery is not included in Kaiser’s financial statements; however, KSC Recovery is a member of the Kaiser consolidated group for tax purposes and is therefore included in the consolidated tax return.
Reclassification
Certain amounts in therailroad to its condition prior years have been reclassified to conform to the current year financial statement presentation.
flood damage will be deferred until a later date.
Cash and Cash EquivalentsNote 6. INVESTMENTS
The Company considers all highly liquid debt instruments purchased with original maturities of 90 days or less to be cash equivalents. The Company maintains its cash balances with two financial institutions that have Standard & Poor’s ratings of AA- or higher, have at least $30 billion in assets and are insured by the Federal Deposit Insurance Corporation up to $100,000 at each institution.
Investments
The Company accounts for investments under the provisions of Statement of Financial Accounting Standards (SFAS) No. 115,Accounting for Certain Investments in Debt and Equity Securities. The Company has an Investment Policy which provides for the investment of excess cash balances primarily in mutualbond funds, commercial paper, certificatesand debt instruments. At December 31, 2007, the Company had investments in high grade commercial paper (Standard & Poor’s rating of deposit, debt instruments,“A” or above) and government debt securities. The Company considers instruments with maturities of 365 days or more from the balance sheet date to be long-term investments.U.S. governmental bonds which were classified as “available-for-sale.” The classification of investment securities is reviewed by the Company at each reporting period.
During 2003, the Company invested in bond mutual funds which were originally classified as “trading” when purchased and were accounted for as such through June 30, 2003. As a “trading” security, the investment was marked to market with any unrealized gain or loss reflected in the statement of operations. However, as of June 30, 2003, the bond funds were reclassified to “available-for-sale”. Additionally as a result of certain investment transactions during the first six-months of 2003, the Company reclassified all of its investments previously classified as “held-to-maturity” to “available-for-sale” as of June 30, 2003. As an “available-for-sale” security realized gains or losses, and interest income or dividends are reflected in the statement of operations while unrealized gains and losses are included in comprehensive income (loss) which is a component of members’ equity.
At December 31, 2002 all investments were classified as held-to-maturity and were recorded at the purchase price of the security plus or minus the amortization of the discount or premium paid.
Real Estate
In accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, which the Company adopted effective January 1, 2002, the Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. During 2001, the Company sold its California iron ore mines for $2.0 million.
Interest and property taxes related to real estate under development are capitalized during periods of development.
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 82.48% 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 SFAS No. 67,Accounting for Costs and Initial Rental Operations of Real Estate Projects, capitalizable landfill site development costs are recorded at cost and consist of engineering and environmental studies, legal and consulting expenses, and other costs directly related to the permitting and development process. These costs are expensed when management determines that the capitalized costs provide no future benefit. Additionally, in accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long-lived Assets, 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. The Company is still litigating challenges to a land exchange completed with the Bureau of Land Management of the U. S. Department of the Interior in October 1999 (See Note 6), and no sale of the Eagle Mountain is expected until this matter is ultimately resolved. Further, the perception of the public and private financial markets of the value of solid waste sites and the waste management industry can fluctuate significantly over time. Accordingly, there can be no assurance that the Company will successfully sell the Eagle Mountain assets on favorable terms or at all.
Buildings and Equipment
Buildings and equipment are stated on the cost basis. Depreciation is provided on the straight-line method over the estimated useful lives of the respective assets.
Revenue Recognition
Revenues are recognized when the Company has completed the earnings process and an exchange transaction has taken place.
Income Taxes
The Company recognized deferred tax liabilities and assets for the expected future tax consequences of temporary timing differences between the financial statement and tax bases of assets and liabilities at the applicable enacted tax rates through November 30, 2001. Subsequent to the conversion into a limited liability company, the Company is taxed as a partnership and thus, the Company’s results of operations (on an income tax basis) are distributed to the members for inclusion in their respective income tax returns. The only income taxes imposed on the Company are a minor gross revenue tax imposed by the State of California and income taxes imposed on Business Staffing Inc., the Company’s only corporate subsidiary.
Earnings Per Share/Unit
The Company follows SFAS No. 128,Earnings per Sharein calculating basic and diluted earnings per unit/share. Basic earnings per unit/share excludes the dilutive effects of options, warrants and convertible securities, while diluted earnings per unit/share includes the dilutive effects of claims on the earnings of the Company.
LLC Unit/Stock Options
At December 31, 2003, the Company has three stock-based employee compensation plans, which are described more fully in Note 14. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock Based Compensation,” to the above plans.
2003 | 2002 | 2001 | |||||||||
Net Earnings (loss) | |||||||||||
As reported | $ | (3,663,000 | ) | $ | (68,000 | ) | $ | 49,024,000 | |||
Pro forma | $ | (3,663,000 | ) | $ | (68,000 | ) | $ | 49,024,000 | |||
Earnings (loss) per unit/share (Basic) | |||||||||||
As reported | $ | (0.53 | ) | $ | (0.01 | ) | $ | 7.45 | |||
Pro forma | $ | (0.53 | ) | $ | (0.01 | ) | $ | 7.45 | |||
Earnings (loss) per unit/share (Diluted) | |||||||||||
As reported | $ | (0.53 | ) | $ | (0.01 | ) | $ | 7.38 | |||
Pro forma | $ | (0.53 | ) | $ | (0.01 | ) | $ | 7.38 |
The Company employed the Black-Scholes option-pricing model in order to calculate the above adjustment in net income (loss) and earnings (loss) per unit/share. The effect on net earnings for 2003, 2002, and 2001 is not necessarily representative of the effect in future years. The following table describes the assumptions utilized by the Black-Scholes option-pricing model for options granted during 1999, the last year stock options were granted by the Company.
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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.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimateis a summary of the fair value of each classinvestment securities classified as “available-for-sale” as of financial instruments for which it is practicable to estimate that value:December 31, 2007:
AVAILABLE-FOR-SALE SECURITIES | DECEMBER 31, 2008 | ||
Commercial Paper | $ | 6,412,000 |
Cash and Cash Equivalents. The carrying amount approximates fair value becauseAll of the short-term$6,412,000 available for sale at December 31, 2008, has a maturity of these instruments.less than one year and is therefore classified as short-term investments on the consolidated balance sheet.
Receivables.The carrying amount approximates fair value becauseCompany has chosen to adopt FAS 159 for the measurement of short-term investments in an effort to more clearly identify the short-term maturity of these instruments.
Investments. The carrying amount approximates fair value of these investments.
New Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“Interpretation 46”), an interpretation of ARB No. 51. Interpretation 46 addresses consolidation by business enterprises of variable interest entities. Interpretation 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. For interests in special-purpose entities, it applies in the first year or interim period ending after December 15, 2003, and for all other types of variable interest entities, it applies for periods ending after March 15, 2004 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Based upon its review of this interpretation, as amended, the Company does not believe it has any variable interest entities to which Interpretation 46 would apply.
In May 2003, FASB issued Statement of Financial Accounting Standards No. 150,Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (“SFAS 150”). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with
characteristics of both debt and equity and requires an issuer to classify the following instruments as liabilities in its balance sheet:
The current U.S. credit crisis has caused some of the Company’s commercial paper investments to decline in somethingvalue as of December 31, 2008. The Company is expected to hold these investments to maturity so that this decline in market value at December 31, 2008, is considered temporary. As of January 2008 the Company has adopted FAS 159 the “Fair Value Option for Financial Assets and Financial Liabilities” which permits entities to choose to measure many financial instruments and certain other thanitems at fair value. Investments are marked to market and unrealized earnings or loss is reflected in income for the fairperiod in which they are earned. As of December 31, 2008, the adoption of FAS 159 decreased the value of the issuer’s equity shares, or (3) variations inversely related to changes in the fair value of the issuer’s equity shares.
In November 2003, FASB issued FASB Staff Position No. 150-3 (“FSS 150-3”)Company’s investment by $83,000, which deferred the effective dates for applying certain provisions of SFAS 150 related to mandatorily redeemable financial instruments of certain non-public entities and certain mandatorily redeemable non-controlling interests for public and non-public companies. For public entities, SFAS 150 is effective for mandatorily redeemable financial instruments entered into or modified after May 31, 2003 and is effective for all other financial instruments as of the first interim period beginning after June 15, 2003. For mandatorily redeemable non-controlling interests that would not have to be classified as liabilities by a subsidiary under the exception in paragraph 9 of SFAS 150, but would be classified as liabilities by the parent, the classification and measurement provisions of SFAS 150 are deferred indefinitely. The measurement provisions of SFAS 150 are also deferred indefinitely for other mandatorily redeemable non-controlling interests that were issued before November 4, 2003. For those instruments, the measurement guidance for redeemable shares and non-controlling interests in other literature shall apply during the deferral period.was charged against income.
The Company adopted the provisions of SFAS 150 effective June 30, 2003 and such adoption did not have a material impact on its consolidated financial statements.
Note 7. CONVERSION DISTRIBUTION
At December 31, 2008, the Company holds $1,190,000 in cash it had previously sent to its transfer agent in December 2001 for the payment of the $10.00 per share merger consideration to shareholders. This cash, classified as restricted cash, will ultimately be distributed to shareholders once the correct paperwork is submitted by such shareholders, thereby reducing the related conversion distribution payable.
Note 3. ACCOUNTS RECEIVABLE8. BUILDINGS AND OTHEREQUIPMENT
Accounts receivableBuildings and otherequipment as of December 31, 2008 consisted of the following:
2003 | 2002 | |||||||
Management and Training Corporation | $ | 5,000 | $ | 455,000 | ||||
Insurance policy receivable | 281,000 | 104,000 | ||||||
Interest receivable | 22,000 | 73,000 | ||||||
KSC Recovery | 26,000 | 11,000 | ||||||
Other | 155,000 | 154,000 | ||||||
489,000 | 797,000 | |||||||
Allowance for doubtful accounts | (34,000 | ) | (34,000 | ) | ||||
Total | $ | 455,000 | $ | 763,000 | ||||
Buildings and structures | $ | 3,285,000 | ||
Machinery and equipment | 1,862,000 | |||
5,147,000 | ||||
Accumulated depreciation | (4,407,000 | ) | ||
Total | $ | 740,000 | ||
Note 4. SALE OF FONTANA UNION WATER COMPANY STOCKKAISER VENTURES LLC AND SUBSIDIARIES
Effective March 6, 2001, the Company completed the sale of its 53.71% ownership interest in the capital stock of Fontana Union, a mutual water company, to Cucamonga for $87.5 million. ApprovalDepreciation expenses for the saleyears ended December 31, 2008 and 2007 was obtained from Kaiser Inc.’s stockholders. Included in the net gain$369,000 and $351,000, respectively.
Note 9. ACCRUED LIABILITIES - CURRENT
The current portion of $65.2 million was the paymentaccrued liabilities as of $1.0 million to management pursuant to the Company’s Long-Term Transaction Incentive Program. In addition, the Company received approximately $2.5 million in payments under the lease of Fontana Union shares to Cucamonga. With the saleDecember 31, 2008 consisted of the Fontana Union interest, the lease with Cucamonga was effectively terminated and the rate dispute litigation between the Company and Cucamonga was settled.following:
Note 5. INVESTMENT IN WEST VALLEY MRF, LLC
Effective June 19, 1997, Kaiser Recycling Corporation (“KRC”) 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 but for a limited liability company. The construction and start up of the West Valley MRF was completed during December 1997.
Pursuant to the terms of the MOA, KRC contributed approximately 23 acres of Mill Site property on which the West Valley MRF was constructed while WVRT contributed all of Burrtec’s recycling business that was operated within Riverside County, thereby entitling West Valley MRF to receive all revenues generated from this business after the closing date.
Most of the financing for the construction of the West Valley MRF of approximately $22,000,000, including reimbursement of previously incurred development costs of Burrtec and the Company, was obtained through the issuance and sale of two California Pollution Control Financing Authority (the “Authority”) Variable Rate Demand Solid Waste Disposal Revenue Bonds (West Valley MRF, LLC Project) Series 1997A and Series 2000A (the “Bonds”). The Bonds are secured by an irrevocable letter of credit issued by Union Bank of California, N.A. (“Union Bank”). The Bonds have stated maturity dates of June 1, 2012 for Series 1997A ($9.5 million) and June 1, 2030 Series 2000A ($8.5 million), although West Valley MRF, LLC is required, pursuant to its agreement with Union Bank, to annually redeem a portion of the Bonds on a stated schedule. Pursuant to a Guaranty Agreement with Union Bank, the Company and Burrtec each are liable for fifty percent (50%) of the principal and interest on the Bonds in the event of a default by the West Valley MRF, LLC. West Valley MRF, LLC also has established a $2.0 million equipment line of credit with Union Bank in order to refinance and purchase additional equipment.
The Company also remains responsible for any pre-existing environmental conditions on the land, which is covered by insurance.
The Company is accounting for its investment in West Valley MRF, LLC under the equity method.
The condensed summarized financial information of West Valley MRF, LLC as of November 30, is as follows:
2003 | 2002 | |||||
Balance Sheet Information | ||||||
Current Assets | $ | 6,801,000 | $ | 6,743,000 | ||
Property and Equipment (net) | 16,987,000 | 18,413,000 | ||||
Other Assets | 383,000 | 449,000 | ||||
Total Assets | $ | 24,171,000 | $ | 25,605,000 | ||
Current Liabilities | $ | 4,628,000 | $ | 4,278,000 | ||
Other Liabilities | 391,000 | 737,000 | ||||
CPCFA Bonds Payable (long-term portion) | 12,570,000 | 14,070,000 | ||||
Members’ Equity | 6,582,000 | 6,520,000 | ||||
Total Liabilities and Members’ Equity | $ | 24,171,000 | $ | 25,605,000 | ||
Income Statement Information | ||||||
Net Revenues | $ | 12,749,000 | $ | 11,216,000 | ||
Gross Profit | $ | 5,641,000 | $ | 4,226,000 | ||
Net Income | $ | 4,561,000 | $ | 3,005,000 |
The Company has recognized equity income from the West Valley MRF of $2,281,000, $1,502,000, and $978,000 in 2003, 2002 and 2001, respectively. The Company has received distributions of $2,250,000, $1,250,000, and $750,000 during 2003, 2002, and 2001, respectively, from its investment in the West Valley MRF.
Compensation, severance and related employee costs | $ | 178,000 | |
Accrued professional | 449,000 | ||
Other | 12,000 | ||
Total | $ | 639,000 | |
Note 6. MINE RECLAMATION, LLC10. ENVIRONMENTAL REMEDIATION RESERVE
The Company, in January 1995, acquired a 70% interest in Mine Reclamation,With the developersale of approximately 588 acres of the landfill project. As a result of subsequent equity fundingsCompany’s Mill Site Property to CCG Ontario, LLC (“CCG”) in August 2000, and purchases, the Company’s ownership interest in Mine Reclamation as of December 31, 2003, is 82.48%. On August 9, 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 the Company’s royalty payments under the MRC Lease) is being sold for $41 million, with an initial closing currently scheduled to occur on June 30, 2004, but the initial closing date has been extended numerous times. However, 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 and satisfaction of numerous contingencies. 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.
Upon closing, $39 million of the total purchase price is to 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. Even though the closing has not taken place and these funds have not been deposited into an escrow account, interest began accruing on this portion of the purchase price on May 3, 2001, and will be paid out to MRC on a quarterly basis, once the initial closing of the sale occurs and once there is a successful outcome of the federal litigation at the Federal District Court level. The remaining $2 million of the purchase price would also be placed into an escrow account upon closing and was originally to 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. However, in 2003 and early 2004, the District received the necessary permits for the expansion of its Puente Hills landfill and thus, the full purchase price will be placed into escrow when the initial closing has occurred, and will be released upon resolution of the pending federal land exchange litigation. Receipt of the purchase price, in whole or in part, if at all, could be delayed for
a substantial period of time pending satisfactory resolution of these contingencies. At this time the Company cannot estimate when or if the sale may be completed.
The District has been undertaking extensive due diligence on the landfill project and has the right to terminate the Landfill Project Sale Agreement if it is not satisfied with the results of its due diligence and other matters. Due diligence, joint use negotiations and other items are expected to continue during 2004. In addition, the parties will individually determine whether each chooses to continue to extend the closing date for the transaction.
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 purchased. 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 all outstanding matters currently preventing an initial closing with the District will be resolved to the satisfaction of the parties. Accordingly, 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 significantly modified as a result of future discussions with the District or as to the timing of the receipt of the purchase price. There can be no assurance that the completed purchase of the Mesquite landfill by the District will not adversely impact the negotiations and the closing on the sale of the landfill to the District. In addition, there are material litigation risks associated with the current federal land exchange litigation, including reversal of the completed land exchange and the recently threatened litigation over the Endangered Species Act, all as discussed in “Note 21. –LEGAL PROCEEDINGS”. No assurance can be made that the Company will successfully and timely resolve these matters so as to avoid a material adverse effect on the Company’s current planprevious remediation activities in 2000, the Company’s estimated environmental liabilities were reduced by approximately $21.9 to sell$4.5 million. These potential environmental liabilities included, among other things, environmental obligations at the landfill toMill Site Property that were not assumed by CCG, such as any potential third party damages from the District. In addition, there are risks that the landfill project will be impacted by natural disasters like the floods that caused significant damage to the rail line in 2003. Certain risks may be uninsurable or are not insurable on terms which we believe are economical.
Asidentified groundwater plume discussed below, MRC will need additional funding to complete the landfill project, including funds to repair the flood damage sustained byenvironmental remediation work at the Eagle Mountain rail line. There is no assurance that MRC can obtain additional funds through debt Site, and third-party bodily injury and property damage claims, including asbestos claims not covered by insurance and/or equity financing on acceptable terms.
If the Company is unable to manage any of these risks or uncertainties, the Company may not be able to sell the landfill at a favorable price, if at all, and the value of the Company’s Class A Units could be materially reduced.
Flood Damage to Railroad. The Company owns an approximate 52-mile private railroad that runs from Ferrum Junction near the Salton Sea to the Eagle Mountain mine. In late August and early September of 2003, portions of the railroad and related protective structures sustained considerable damage due to heavy rains and flash floods. This damage included having some rail sections being buried under silt while other areas had their rail bed undermined. Subsequent to the filing of the Company’s report on Form 10-Q for the quarter ended September 30, 2003, the Company conducted a more complete investigation of the damage and of the costs to return the railroad to the condition that it was in prior to the flood damage. As a result of such investigation, the Company currently estimates the cost to repair the damage to be a minimum of $4,500,000. The Company’s current plans are to undertake, as soon as reasonably possible, the work necessary to preserve and protect the existing railroad. However, the major repairs to return the railroad to its condition prior to the flood damage will be deferred until a later date.
Note 7. 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 December 31, 2002, the Company had investments in U. S. government debt securities, commercial paper, and debt instruments which were all classified as “held to maturity”. At December 31, 2003, the Company had investments in bond mutual funds and U.S. corporate commercial paper which were all classified as “available for sale”. The classification of investment securities is reviewedpaid by the Company at each reporting period.
In April 2003, the Company sold certain of its “held to maturity” investments prior to their stated maturity date. The Company had determined that its investments were too concentrated in one industry, and thus sold certain investments in order to minimize that risk. As a result of these transactions, the remaining “held to maturity” investments with an amortized cost of $4,773,000 were reclassified as “available-for-sale” investments. The unrealized gain of $52,000 associated with investments classified as “available-for-sale” was recorded as an increase to the investment with a corresponding increase to comprehensive income, which is a component of members’ equity. In addition, realized gains or losses, and interest income or dividends are reflected in the statement of operations.
KSC bankruptcy estate.
The Company’s investments in bond mutual funds were originally classified as “trading” when purchased and were accounted for as such through June 30, 2003. As a “trading” security, the investment was marked to market with any unrealized gain or loss reflected in the statement of operations. However, as of June 30, 2003, the bond funds were reclassified to “available-for-sale”.
During 2003 the Company sold investments, classified as “held to maturity”, with a basis of $1,025,000 for $1,017,000, resulting in a loss of $8,000. Also during 2003 the Company sold investments, classified as “available-for-sale”, with a basis of $2,942,000 for $3,010,000, resulting in a realized gain of $68,000. The Company had no investment sales during 2002 or 2001. The basis for all investments sold was determined using “specific identification”.
The following is a summary of investment securities, all with maturities on or prior to December 31, 2004, which are classified as “available-for-sale” as of December 31, 2003:
AVAILABLE-FOR-SALE SECURITIES | FAIR VALUE | ||
Bond funds | $ | 9,332,000 | |
U.S. corporate commercial paper | 776,000 | ||
$ | 10,108,000 | ||
As of December 31, 2003, the Company’s “available for sale” securities had an unrealized net loss of $165,000 that is included in “other comprehensive income”, a component of Member’s Equity. This unrealized net loss includes unrealized gains of $11,000 on four individual bonds, and unrealized losses of $176,000 on two bond funds. The unrealized losses on the two bond funds arose during July 2003. Due to the diverse nature and return history of these bond funds, the Company believes that these losses are only temporary. The value of these bond funds recovered a significant portion of the unrealized loss amount in January 2004.
The following is a summary of the amortized cost of the investment securities as of December 31, 2002:
HELD-TO-MATURITY SECURITIES | MATURITIES FROM ONE TO FIVE YEARS | ||
U.S. corporate commercial paper | $ | 787,000 | |
U.S. corporate debt securities | 2,464,000 | ||
U.S. government debt securities | 501,000 | ||
$ | 3,752,000 | ||
Note 8. CONVERSION DISTRIBUTION
At December 31, 2003, the Company holds $1,340,000 in cash it had previously sent to its transfer agent in December 2001 for the payment of the $10.00 per share merger consideration to shareholders. This cash, classified as restricted cash, will ultimately be distributed to shareholders once the correct paperwork is submitted by such shareholders, thereby reducing the related conversion distribution payable. During the first seven months of 2003, the transfer agent returned to the Company, $1,470,000 of its December 2001 merger consideration. During the fourth quarter of 2003, the Company returned to the transfer agent $130,000 of these funds for distribution to shareholders.
Note 9. NOTES RECEIVABLE
As of December 31, 2003, the Company has two notes receivable from McLeod Properties, Fontana LLC (Budway Trucking, Inc.) and one note receivable from Levand Steel.
The outstanding balances of the Budway notes at December 31, 2003 total $375,000, all of which has been included in current assets. The notes bear interest at 10% per annum with quarterly payments of $26,700 plus interest, with the remaining balance due October 2004. The Company previously agreed to subordinate its notes receivable to a construction/permanent loan in order to facilitate the construction of a building on the property.
The outstanding balance of the Levand Steel note at December 31, 2003 is $618,000, of which $269,000 has been included in current assets and the balance of $349,000, is classified as a long-term asset. The note bears interest at 8% per annum with monthly payments of $25,700 including interest, with the remaining balance due February 2006.
Note 10. ENVIRONMENTAL INSURANCE
One of the goals in the cash maximization strategy approved by the Company’s Board of Directors in September 2000 was to reduce the liabilities associated with existing and potential future environmental and other similar types of claims. In furtherance of such a goal, the Company purchased an insurance policy effective June 30, 2001 that is designed to provide broad commercial general liability, pollution legal liability, and contractual indemnity coverage for the Company’s ongoing and historical operations. The policy has a twelve (12) year term and limits of $50,000,000$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 Company’s existing and historic insurance policies; however, to the extent that these other insurance policies are not responsive to a loss,claim, the policy will provide first dollar coverage for a loss 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 aremay be brought against the
Company. The policy is specifically intended to provide additional coverage for the Company’s known and/or potential liabilities arising from pollution conditions or 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.
In August 2001, the California Regional Water Quality Control Board, on behalf of the City of Ontario, asserted an environmental claim against the Company relating to the historical operations conducted at the Mill Site. The aggregate cost for this policy was approximately $5.8 million,Company tendered the claim to its insurance carrier and the insurance carrier accepted the claim. As a result, at September 30, 2001, the Company recorded an insurance receivable in an amount equal to its pre-existing estimated environmental liability of which KSC Recovery paid $2$1.5 million and reclassified the obligation as a litigation accrual separate from its environmental remediation liabilities. The City of Ontario’s claims were fully settled in March 2004 with the settlement paid by the insurance carrier. The final settlement between our insurance carrier and the City of Ontario resulted in a payment to the City that was $250,000 less than the Company paidhad accrued. Therefore the balance of approximately $3.8 million. The Company amortizes thisreduced both its litigation accrual and insurance policy on a “claims paid” basis, and therefore expensed $14,000receivable by $250,000 as of the policy premium during 2003.date of the settlement.
In 2004, this reserve was reduced to approximately $2.4 million to reflect settlement of a third party claim related to the groundwater plume discussed above. This reserve was further reduced in 2005 as a result of reclassifying $500,000 to the Eagle Mountain Townsite Cleanup Reserve. Finally, this environmental reserve was increased by $1.2 million as of December 31, 2005, for Eagle Mountain Townsite environmental related matters.
KAISER VENTURES LLC AND SUBSIDIARIES
ThisAs discussed above in Note 2, the Company, as a result of the adoption of FIN 47, increased its environmental reserve by $1.2 million to account for the contingent asset retirement obligation related to the possible future abatement obligations relating to asbestos-containing products in certain of the viable structures at Eagle Mountain and increased the cost basis of the associated structures at Eagle Mountain by a comparable amount. During 2008, and 2007, $28,000 and $33,000, respectively of the reserve was utilized primarily for the abatement of these products. Thus, as of December 31, 2008, the Company estimates, based upon current information, that its future environmental liability related to certain matters not assumed by CCG in its purchase of the Mill Site Property, such as the groundwater plume discussed above and other environmental related items, including, but not limited to, the conditional asset retirement obligation at the Eagle Mountain Site, potential third party property damage and bodily injury claims, would be approximately $2,882,000. In the event a future claim for damages is filed against the Company that exceeds the remaining $2,801,000 environmental reserve, management believes that the claim may be covered by insurance depending upon the nature and timing of the claim.
Note 11. EQUITY
Conversion into LLC
In November 2001, the stockholders of Kaiser Inc. approved the conversion of Kaiser Inc. into a newly-formed limited liability company pursuant to a merger between Kaiser Inc. and Kaiser LLC, the surviving company. Under the terms of the merger converting Kaiser Inc., to a limited liability company, Kaiser Inc.’s stockholders received $10.00 in cash plus one Class A Unit for each share of common stock in Kaiser Inc. The new Class A Units are not listed on any stock exchange, additionally the transferability of the units is subject to the approval of an executive of the Company. Subsequent to the conversion, Kaiser LLC is taxed as a partnership and thus, Kaiser LLC results of operations (on an income tax basis) are distributed to the unit holders for inclusion in their respective income tax returns.
Class A Units Outstanding
At December 31, 2008 Kaiser LLC had 6,453,362 Class A Units outstanding.
At December 31, 2008, there are no Class A Units available for issuance relating to outstanding options. As of December 31, 2008, all outstanding options had been exercised or lapsed. Thus, there are no outstanding options.
At December 31, 2008, 104,267 Class A Units of the Company were being held for the benefit of the former general unsecured creditors of the predecessor company pending the resolution of disputed bankruptcy claims. The final resolution of these claims will result in the final allocation of the held shares among the unsecured creditor group, which presents no liability to the Company. For financial reporting purposes these shares have been considered issued and outstanding. Just prior to the Company’s conversion into an LLC in November 2001, the then 136,919 shares were issued to the bankruptcy estate, and subsequently converted into Class A units. Distribution of these units have been made periodically for the settlement of unsecured creditor claims.
At December 31, 2008, 113,690 Class A Units were deemed outstanding and reserved for issuance to holders of Kaiser Inc. stock that have yet to convert such stock to Kaiser LLC Class A Units.
Repurchase of Units Through a Tender Offer
In September 2008 an unaffiliated third party initiated a tender offer to purchase up to 1,400,000 of the Company’s Class A Units at a price of $.50 per unit less a pro-rata portion of the associated transfer costs. The Company’s Board of Managers recommended that the owners of the Company’s Class A Units not sell their units for such price. In response to such tender offer and in recognition that some unitholders may have had a pressing need or desire to sell their units in the Company, the Company
KAISER VENTURES LLC AND SUBSIDIARIES
commenced its own tender offer for Class A Units at $.90 per unit net of all transfer costs. Even though the Company commenced a self-tender offer, the Company’s Board of Managers recommended that owners of Class A Units not sell their units. The unaffiliated third party ultimately terminated its tender offer without purchasing any units. The Company’s tender offer closed on December 1, 2008. The Company purchased 841,544 Class A Units as a result of its tender offer which closed on December 1, 2008. Such units were cancelled and are no longer issued and outstanding.
During 2008 the following unit transactions took place:
Retirement of Class A Units purchased through tender offer | (841,544 | ) | |
Units granted to officers and Board of Managers | 113,507 | ||
Units granted to consultants | 13,000 | ||
Unit options exercised | 104,100 | ||
Net reduction in Class A Units outstanding | (610,937 | ) | |
Class B Units
Prior to the merger, Kaiser LLC issued 751,956 Class B Units to current and former MRC executives. These MRC executives had previously been granted the right to receive certain contingent incentive payments in order to incentivize each of them to assist Kaiser and MRC in closing the sale of the landfill project as well as meeting all conditions necessary for the release of funds from escrow. These Class B Units, issued to the MRC executives, replaced those incentive payments rights.
These Class B Units are entitled to receive approximately 2% of any cash actually received by MRC, up to approximately $752,000 or $1.00 per unit, if MRC receives the currently agreed upon price of $41 million. The Class B Units are not entitled to any distributions or profits, have no voting rights except as required by law and are not transferable. Please see “Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Class B, C and D Units” for the accounting treatment of the Class B Units.
At December 31, 2008, Kaiser LLC had 751,956 Class B Units outstanding.
Class C and D Units
During 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. Please see “Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Class B, C and D Units” for the accounting treatment of the Class C and D Units.
At December 31, 2008, Kaiser LLC had 872 and 128 Class C and D Units outstanding, respectively.
Unit/Stock Option and Unit/Stock Grant Programs
In October 1990, the Company’s stockholders approved the Amended, Restated and Substituted Kaiser Steel Resources, Inc. 1989 Stock Plan (the “1989 Stock Plan”). The 1989 Stock Plan provided for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock or deferred stock awards. Certain options granted under the 1989 Stock Plan are still outstanding. The Company incurred no compensation expense during 2008 related to these options.
In July 1992, the Company’s stockholders approved the 1992 Stock Plan. The 1992 Stock Plan provides for the grant of incentive stock options and non-qualified stock options. The 1992 Stock Option
KAISER VENTURES LLC AND SUBSIDIARIES
Plan is administered by the Board of Directors. The 1992 Plan is a three-year Plan with years running from July 1 to June 30. Each July 1, an amount equal to 2% of the Company’s shares outstanding became available to support grants of stock options to employees during that year. At the end of each plan year, reserved plan shares not made subject to stock options revert to normal unissued share status. Grants are generally established at fair market value of the Company’s common stock on the date of the grant and the exercise thereof may extend for up to 10 years with various vesting schedules.
In addition, under the 1992 Stock Plan each director when first elected to the Board was automatically granted options for 5,000 common stock shares. Each non-employee director who is re-elected or serving an unexpired term as a member of the Board at an annual meeting of holders of stock of the Company will be automatically granted an additional 1,500 stock options. These options have an exercise price equal to the fair market value of the Company’s Common Stock on the date of the grant.
In June 1995, the Company’s stockholders approved the 1995 Stock Plan. The 1995 Stock Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock and other stock related incentives. However, there are no outstanding options under this plan as of December 31, 2008.
In addition, under the 1995 Stock Plan, each director when first elected to the Board was automatically granted options for 5,000 common stock shares. Each non-employee director who is re-elected or serving an unexpired term as a member of the Board at an annual meeting of holders of stock of the Company was automatically granted an additional 1,500 stock options. These options have an exercise price equal to the fair market value of the Company’s common stock on the date of the grant.
Additionally, each member of the Board of Managers, other than Mr. Stoddard, receives an annual grant of 5,000 Class A Units.
Effective with the date of the merger, all options with an exercise price of $10.00 and below, 326,750 options, were deemed exercised which entitled the optionees to participate in the $10.00 cash distribution and conversion into Class A Units. As a result of this cash distribution, the Company reduced the exercise price on all remaining outstanding options, 301,100 Class A Unit options, by the $10.00 in order to mirror the $10.00 dividend per share. Additionally, the term on the remaining unit options was extended, due to their reduced liquidity, to December 31, 2008.
A summary of the status of grants under the Company’s unit/stock plans as of December 31, 2008 and 2007, and activities during the years ended on those dates is presented below:
2008 | 2007 | |||||||||||
Options | Weighted- Average Exercise Price | Options | Weighted- Average Exercise Price | |||||||||
Outstanding at beginning of Year | 298,100 | $ | 3.11 | 298,100 | $ | 3.11 | ||||||
Granted | — | — | — | — | ||||||||
Exercised | 104,100 | 1.21 | — | — | ||||||||
Forfeited | 194,000 | 4.13 | — | — | ||||||||
Outstanding at end of year | — | $ | — | 298,100 | $ | 3.11 | ||||||
Options exercisable at year End | — | $ | — | 298,100 | $ | 3.11 | ||||||
Weighted-average fair value of options granted during the year | $ | N/A | $ | N/A |
As of December 31, 2008, all outstanding options expired and were therefore forfeited.
KAISER VENTURES LLC AND SUBSIDIARIES
Note 12. LOSS PER UNIT/SHARE
The following table sets forth the computation of basic and diluted loss per unit/share:
2008 | 2007 | |||||||
Numerator: | ||||||||
Net loss | $ | (2,024,000 | ) | $ | (189,000 | ) | ||
Numerator for basic loss per unit | ||||||||
Loss available to Class A members | $ | (2,024,000 | ) | $ | (189,000 | ) | ||
Numerator for diluted loss per unit | ||||||||
Loss available to Class A members | $ | (2,024,000 | ) | $ | (189,000 | ) | ||
Denominator: | ||||||||
Denominator for basic earnings per unit-weighted-average shares | 7,096,000 | 7,051,000 | ||||||
Effect of dilutive options | — | — | ||||||
Denominator for diluted earnings per unit -adjusted weighted-average shares and assumed conversions | 7,096,000 | 6,960,000 | ||||||
Basic loss per unit | $ | (0.29 | ) | $ | (0.03 | ) | ||
Diluted loss per unit | $ | (0.29 | ) | $ | (0.03 | ) | ||
For additional disclosures regarding the outstanding employee unit/stock options see Note 12.
The Company incurred a net loss during 2008 and 2007 and therefore all options are considered antidilutive for those years.
Note 13. INCOME TAXES
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 allocated to the unit holders for inclusion in their respective income tax returns. Therefore, the only income taxes are those imposed on Business Staffing Inc. (“BSI”). These taxes amounted to $456,000 for 2008 and $10,000 for 2007.
The significant increase in the tax provision in 2008 is the result of the following:
BSI taxes due for 2007 | $ | 15,600 | |
BSI reversal of deferred tax asset | 328,000 | ||
BSI estimate payments required in 2008 based on 2007 tax liability | 104,600 | ||
KVLLC estimated tax liability for 2008 | 7,800 | ||
Total tax provision for 2008 | $ | 456,000 | |
The major component of this tax provision of $328,000 relates to the Company’s determination to establish a valuation reserve against the deferred tax asset representing amounts originally believed to be recoverable in the future due to anticipated income in BSI, our corporate subsidiary.
Note 14. COMMITMENTS AND CONTINGENCIES
Environmental Contingencies
As discussed in Note 11., effective June 30, 2001, the Company purchased, a 12-year $50 million insurance policy, covers virtuallywhich is expected to cover substantially any and all environmental liabilities and claims (up to the $50 million policy limit) relating to the historical operations and assets of the CompanyCompany. To the extent a pre-existing liability has not been recorded, claims made for environmental matters are recorded as litigation accruals in the Company’s consolidated financial statements pursuant to FAS No. 5 when it becomes probable that a loss has been incurred and reflected on the balance sheetamount of such loss can be reasonably estimated. Claims accepted by the
KAISER VENTURES LLC AND SUBSIDIARIES
insurance company pursuant to coverage under the caption Environmental Remediation. policy are recorded as insurance receivables when coverage is accepted and the amount to be paid by the insurance company can be reasonably estimated.
At December 31, 2003, the recorded environmental remediation liability was approximately $3.9 million. Due to the natureinception of the insurance policy, generallycontract, the Company estimated, 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 the Mill Site Property, including a certain groundwater matter as well as potential matters at Eagle Mountain and at other historical locations, would be approximately $4.0 million. These liabilities reflected management’s estimate of potential future environmental claims, remediation and related costs but did not represent known claims at the inception of the policy. In August 2001, the California Regional Water Quality Control Board, on behalf of the City of Ontario, asserted an environmental claim against the Company relating to the historical operations conducted at the Mill Site. The Company tendered the claim to its insurance carrier and the insurance carrier accepted accounting principles require thatthe claim. As a result, at September 30, 2001, the Company recorded an insurance receivable in an amount equal to its pre-existing estimated environmental liability of $1.5million and reclassified the obligation as a litigation accrual.
As discussed above in Note 2., the Company, as a result of the adoption of FIN 47, increased its environmental reserve by $1.2 million to account for its conditional asset retirement obligations related to possible future abatement obligations for asbestos-containing products in certain of the viable structures at Eagle Mountain and increased the cost basis of the policy be capitalized as an Other Asset separately from the related liability and amortized as the related liabilities are resolved.
Note 11. BUILDINGS AND EQUIPMENT (Net)
Buildings and equipment (net)associated structures at Eagle Mountain by a comparable amount. Thus, as of December 31, consisted2008, the Company estimates, based upon current information, that its future environmental liability related to certain matters not assumed by CCG in its purchase of the following:Mill Site Property, such as the groundwater plume discussed above and other environmental related items, including, but not limited to remediation at the Eagle Mountain Site, potential third party property damage and bodily injury claims, would be approximately $2,810,000. In the event a future claim for damages is filed against the Company that relates to the remaining $2,810,000 environmental reserve, management believes that the claim may be covered by insurance depending upon the nature and timing of the claim.
Pension Plans
The Company currently sponsors a voluntary qualified 401(k) savings plan and one nonqualified pension plan, available to all full-time employees. Participants may make contributions of up to 25% of their base salary and 100% of any cash bonus with the Company matching one-half of each participant’s contribution up to 6% of compensation. The non-qualified plan that is potentially available to all full time employees mirrors the qualified 401(k) plan.
In January 2007, an additional nonqualified pension plan was established that benefits two of the executive officers. The Company placed into this Plan previously accrued amounts due Richard E. Stoddard and Terry L. Cook upon termination of their employment in the amount of $660,872 and $260,121, respectively. Like the terms of their previous employment agreements, the amounts in the Plan remain subject to forfeiture if the executive officer is terminated for “cause” as defined in such Plan (which is the same definition as contained the employment agreements of the executive officers) or if the officer should voluntarily terminate his employment. In addition, the amounts in such Plan fully vest if the executive officer is terminated without cause, is constructively terminated without cause, dies, is permanently disabled or upon completion of the initial term of their employment. Once vested, payments may commence, upon the officer’s death, permanent disability, or the termination of the officer for any reason except for “cause” as defined in the Plan.
Total expense relative to all of these plans for the years ended December 31, 2008 and 2007 was $106,000 and $101,100, respectively.
KAISER VENTURES LLC AND SUBSIDIARIES
2003 | 2002 | |||||||
Buildings and structures | $ | 2,085,000 | $ | 2,085,000 | ||||
Machinery and equipment | 1,877,000 | 1,954,000 | ||||||
3,962,000 | 4,039,000 | |||||||
Accumulated depreciation | (3,245,000 | ) | (3,095,000 | ) | ||||
Total | $ | 717,000 | $ | 944,000 | ||||
MRC Financing
Since 1995 MRC has been funded through a series of private placements to its existing equity holders. The last private placement was completed bringing its ownership interest in MRC to 83.13%. Future funding of MRC will be required to cover such items as the federal land exchange litigation appeal and the railroad repairs but there is no assurance that such funding will be obtained.
Contingent Distributions on Class B, C and D Units
Upon the sale of certain of the Company’s 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. For additional information, see “Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Class B, C and D Units” and “Note 12. EQUITY” above.
Note 12. ACCRUED LIABILITIES - CURRENT15. LEGAL PROCEEDINGS
The current portionIn the normal course of accrued liabilities as of December 31 consisted ofour business we are involved in various claims and legal proceedings. Significant legal proceedings, including those which may have a material adverse effect on our business or financial condition, are summarized below. However, the following:
2003 | 2002 | |||||
Compensation, severance and related employee costs | $ | 197,000 | $ | 222,000 | ||
Accrued professional | 415,000 | 515,000 | ||||
Other | 76,000 | 169,000 | ||||
Total | $ | 688,000 | $ | 906,000 | ||
Note 13. ENVIRONMENTAL REMEDIATION RESERVE
With the sale of approximately 588 acres of the Company’s Mill Site Propertyfollowing discussion does not, and is not intended to, CCG in August 2000, substantiallydiscuss all of the litigation matters to which we may be or become a party. Should we be unable to resolve any legal proceeding in the manner we anticipate and for a total cost within close proximity to any potential damage liability we have estimated, our business and results of operations may be materially and adversely affected.
Eagle Mountain Landfill Project Land Exchange Litigation. In October 1999, Kaiser’s wholly-owned subsidiary, Kaiser Eagle Mountain, Inc. (now Kaiser Eagle Mountain, LLC), completed a land exchange with the BLM. This completed land exchange has been challenged in two separate federal lawsuits. 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 inNational Parks and Conservation Association, Plaintiff v.Bureau of Land Management, et al., Defendants (ED CV 00-0041 RT (Mex)). The decision is adverse to the landfill project in that it sets aside a land exchange completed between the Company and U.S. Bureau of Land Management (“BLM”) in October 1999 as well as two BLM rights-of-way. It also effectively reinstates a reverter title issue involving the Eagle Mountain Townsite.
In the exchange, the Company’s wholly owned subsidiary, Kaiser Eagle Mountain, Inc. (now Kaiser Eagle Mountain, LLC) transferred approximately 2,800 acres of Kaiser-owned property along its railroad right-of-way to the BLM and a cash equalization payment in exchange for approximately 3,500 acres of land within the Eagle Mountain landfill project area. The land exchanged by the Company was identified as prime desert tortoise habitat and was a prerequisite to completion of the permitting of the Eagle Mountain landfill project. Following completion of the land exchange, two lawsuits were filed challenging it and requesting its reversal. The plaintiffs argued that the land exchange should have been reversed, because, among other reasons, the BLM failed to comply with the National Environmental Policy Act and the Federal Land Policy and Management Act. The U.S. District Court concluded that the environmental liabilities associatedimpact statement was deficient in its explanation and/or environment analysis with that property were eliminated; thus,regard to: (i) the issue of eutrophication which deals with the introduction of nutrients, in this case primarily nitrogen, as a result of the saleexistence of the landfill project; (ii) Big Horn Sheep, which is not an endangered species; (iii) the statement of purpose and need for the landfill project; and (iv) the reasonable range of alternatives to the proposed project. The court did rule in favor of the landfill project with regard to the environmental analysis and explanation for: (i) noise; (ii) night lighting; (iii) visual impacts; (iv) the desert tortoise; (v) groundwater; and (vi) air. The court also ruled that the environmental impact statement was deficient under the Federal Land Policy and Management Act with regard to: (i) the appraisal undertaken by the BLM in the land exchange; and (ii) a full discussion of the BLM’s
KAISER VENTURES LLC AND SUBSIDIARIES
conclusions on the public need for the landfill project. A copy of the decision can be found as Exhibit 99.1 to the Company’s Report on Form 8-K dated September 20, 2005.
We and the remediation work undertaken priorU.S. Department of Interior appealed the decision to the sale,U. S. 9th Circuit Court of Appeals. The briefing for the Companyappeal was ablecompleted in 2007 and oral argument was heard by a three judge panel on December 6, 2007. The U.S. 9th Circuit Court of Appeals usually announces its decisions six to reduce its environmental remediation reserves by $21,252,000.
Astwelve months following oral arguments but on occasion the announcement of December 31, 2003,a decision may take substantially longer. Since oral argument in our appeal was held more than one year ago, the Company estimates, based upon current information,decision may be announced at any time. However, we cannot predict when the decision will actually be announced. There can be no assurance that its future environmental liability related to certain matters not assumed by CCGwe will be successful in its purchaseany appeal. If the decision is fully affirmed on appeal, the decision would jeopardize the viability of the Mill Site Property,landfill project. In addition, the decision could adversely impact the agreement to sell the landfill project to the District, including termination of the agreement.
In April 2007, Donna Charpied, et al, filed a motion with the same U.S. District Court that handled the land exchange litigation seeking, in their opinion, to enforce the court’s order in such ascase. The allegations were that additional actions are necessary to set aside the groundwater plume discussed belowland exchange and other environmental related items,
including, but not linked to remediationprevent the use of property at Eagle Mountain that would “change the character and use of the exchanged properties …”. In the motion, the opponents objected to the military training that has taken place and that may take place on Kaiser fee owned land at Eagle Mountain (even though military and law enforcement training previously took place at Eagle Mountain), the possible use of a portion of the Eagle Mountain Townsite for a prison facility (even though one operated successfully at the Eagle Mountain Site, potential third party property damageTownsite for over 12 years) and bodily injury claims, wouldthe possible use of rock from Eagle Mountain to help remediate acknowledged environmental problems at the Salton Sea located in Imperial and Riverside counties in Southern California.
On September 18, 2008, the U.S. District Court denied the Plaintiffs’ motion and determined that: (i) the BLM’s actions to date to set aside the land exchange were sufficient and that no reconveyance documents needed to be approximately $3.9 million. For example,recorded; (ii) the military training activities that had taken place at Eagle Mountain did not change the character and use of the exchange lands; and (iii) the activities associated with the testing of the suitability of Eagle Mountain rock for use in a possible Salton Sea restoration plan were acceptable. The Court declined to rule on the challenge to a private prison project since there is no current private prison project at Eagle Mountain.
Iron Partners Litigation.In April 2008, the Company, remains contingently liablealong with KSC Recovery, Inc. (the Kaiser Steel Corporation bankruptcy estate), and the federal government were sued by Iron Partners LLC in the U.S. District Court for any impacts the elevated total dissolved solid groundwater plumeWestern District of Washington (Iron Partners, LLC v. Maritime Association, United States Department of Transportation, et al., U.S. District Court, Western District Washington at Tacoma, Case No. C08-5217 RJB). The allegations in the case are that the Company and KSC Recovery, Inc. are the successors to the Kaiser Company, Inc. and such company leased or owned certain property in Vancouver, Washington in the 1940’s that served as a shipyard. It is further alleged that hazardous wastes were buried on such property for which the Company is liable. The plaintiff, Iron Partners, LLC, now owns such property. The plaintiff seeks damages under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), the Washington Model Toxic Control Act and under common law trespass. The City of Vancouver, Washington has indicated that it may have on previously existing water wellsintervene as a plaintiff in the case since a portion of the buried debris appears to extend onto property owned by third parties.the city. However, the City of Vancouver has yet to intervene in the matter. The federal government filed a motion to dismiss all common law claims against it except for the CERCLA claims. On March 5, 2009, the U.S. District Court announced its decision in favor of the government dismissing the remaining common law claims against the government. The government, however, remains in the case with respect to CERCLA claims. While we are still in the early stages of the litigation and informal discovery in this matter, we understand that the claim is between $1.5 million and $2.5 million. However, if the City of Vancouver becomes a plaintiff, the size of the claim will likely increase. This matter has been tendered to our insurance carrier which has accepted the defense of this matter subject to a reservation of rights.
See Notes 10, 20 and 22, “Environmental Insurance”, “Commitments and Contingencies” and “Subsequent Events” for further information.
Note 14. EQUITYKAISER VENTURES LLC AND SUBSIDIARIES
Conversion intoPortland Harbor Superfund Site. In late March 2009 KSC Recovery, Inc., the bankruptcy estate of the former KSC, and the Company were notified that they each may be a potential responsible party in connection with the investigation and clean-up of the Portland Harbor Superfund Site, Portland, Oregon. No information was provided in the correspondence concerning the reasons why KSC Recovery, Inc or the Company have been identified as a potentially responsible party and no amount of damages was alleged although apparently over $69 million has been spent to date to characterize the environmental problems affecting the Portland Harbor. Since this claim was just received, the Company and KSC Recovery are in the very preliminary stages of investigating the matter. KSC Recovery, Inc. and the Company have tendered this claim to their appropriate insurance carrier.
Asbestos Litigation. There are pending asbestos litigation claims, primarily bodily injury, against Kaiser LLC and Kaiser Steel Corporation (the bankruptcy estate of Kaiser Steel Corporation is embodied in KSC Recovery, Inc.). There currently are approximately 18 active suits. Many of the plaintiffs allege that they or their family members were aboard Kaiser ships or worked in shipyards in the Oakland/San Francisco, California area or Vancouver, Washington area in the 1940’s and that the Company and/or KSC Recovery were in some manner associated with one or more shipyards or has successor liability. However, there is an increasing number of claims related to other facilities such as the former Kaiser Steel Mill Site Property.
Most of these lawsuits are third party premises claims alleging injury resulting from exposure to asbestos or asbestos containing products and involve multiple defendants. The Company anticipates that it, often along with KSC Recovery, will be named as a defendant in additional asbestos lawsuits. A number of large manufacturers and/or installers of asbestos and asbestos containing products have filed for bankruptcy over the past several years, increasing the likelihood that additional suits will be filed against the Company. In addition, the trend has been toward increasing trial damages and settlement demands. Virtually all of the complaints against us and KSC Recovery are non-specific, but involve allegations relating to pre-bankruptcy activities. It is difficult to determine the amount of damages that we could be liable for in any particular case until near the time of trial; indeed, many of these cases do not include pleadings with specific damages. The Company vigorously defends all asbestos claims as is appropriate for a particular case.
Of the claims resolved to date, approximately 70% have been resolved without payment to the plaintiffs. The Company believes that it currently has substantial insurance coverage for the asbestos claims and has tendered these suits to appropriate insurance carriers.
Claims Against the Bankruptcy Estate. The bankruptcy estate of KSC was officially closed by order of U.S. Bankruptcy Court for the District of Colorado on October 2, 1996. However, the bankruptcy case was reopened in 1999 in connection with certain litigation matters. Since that time, the bankruptcy case was again closed, however, the administration of KSC’s bankrupt estate will continue for several more years.
From time to time various environmental and similar types of claims that relate to Kaiser Steel pre-bankruptcy activities, are asserted against KSC and Kaiser LLC. Excluding the asbestos claims, there has been an average of one to three such claims a year for the past several years. For example, as discussed above in “Portland Harbor Superfund Site” KSC Recovery, Inc. the KSC bankruptcy estate, was notified in late March 2009 that it was identified as a potentially responsible party in connection with the investigation and clean-up of the Portland Harbor Superfund Site.
In connection with the KSC plan of reorganization, Kaiser, as the reorganized successor to KSC, was discharged from all liabilities that may have arisen prior to confirmation of the plan, except as otherwise provided by the plan and by law. Although Kaiser believes that in general all pre-petition claims were discharged under the KSC bankruptcy plan, there have been some challenges as to the validity of the
KAISER VENTURES LLC AND SUBSIDIARIES
In November 2001,discharge of certain specified claims, such as asbestos claims. If any of these or other similar claims are ultimately determined to survive the stockholders of Kaiser Inc. approvedKSC bankruptcy, or if they are not covered by insurance it could have a materially adverse effect on Kaiser’s business and value.
Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
Item 9A(T). CONTROLS AND PROCEDURES
Disclosure Controls and Procedure
The Company maintains controls and procedures designed to ensure that it is able to collect the conversion of Kaiser Inc. into a newly-formed limited liability company pursuantinformation it is required to a merger between Kaiser Inc.disclose in the reports it files with the SEC, and Kaiser LLC,to process, summarize and disclose this information within the surviving company. Undertime periods specified in the termsrules of the merger converting Kaiser Inc., to a limited liability company, Kaiser Inc.’s stockholders received $10.00 in cash plus one Class A Unit for each share of common stock in Kaiser Inc. The new Class A Units are not listedSEC. Based on any stock exchange, additionally the transferabilityan evaluation of the units is subject to the approval of an executiveCompany’s disclosure controls and procedures as of the Company. Subsequentend of the period covered by this report conducted by the Company’s management, under the supervision and with the participation of the Chief Executive and Chief Financial Officer, the Chief Executive and Chief Financial Officer believe that these controls and procedures are effective at the “reasonable assurance level” to the conversion, Kaiser LLC is taxed as a partnership and thus, Kaiser LLC results of operations (on an income tax basis) are distributed to the unitholders for inclusion in their respective income tax returns.
Equity Transactions
During 2001ensure that the Company recorded transactions directlyis able to equity other than changes resulting from net income or equity transactionscollect, process and disclose the information it is required to disclose in the reports it files with members/shareholders. These transactions were from the repricing of unit/stock options and amounted to $428,000. No repricings were completedSEC within the required time periods. Specifically, in 2002 or 2003.
Class A Units/Common Stock Outstanding
At December 31, 2003 and 2002, Kaiser LLC had 6,919,299 and 6,911,799 Class A Units outstanding, respectively.
At December 31, 2003, there are 1,043,000 Class A Units available for issuance relating to outstanding options and warrants.
As of December 31, 2000, 136,919 shares2008, the Company: (a) requested that all of the outstanding common stockcritical employees, officers and Members of the Board of Managers of the Company were being held forcomplete an extensive internal control and risk management questionnaire; and internally reviewed and tested its internal controls against its written procedures. The above conclusions are based upon the benefitwork performed. Additionally, during the first quarter of 2009, the Company further reviewed its controls and procedures and made modifications to provide additional checks and oversight as a part of the former general unsecured creditors of the predecessor company pending the resolution of disputed bankruptcy claims. The final resolution of these claims will result in the final allocation of the held shares among the unsecured creditor group, which presents no liability to the Company. Forcontrols and procedures.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting purposes these shares have been considered issued and outstanding. Just prior to(as defined in Rule 13a-15(f) under the Company’s conversion into an LLC in November 2001, these 136,919 shares were issued toSecurities Exchange Act, as amended). Company management assessed the bankruptcy estate, and subsequently converted into Class A units. During 2003, 11,321effectiveness of these 136,919 Class A units were tendered by the bankruptcy estate to a bankruptcy claimant as partial settlement of their claim. Therefore,our internal control over financial reporting as of December 31, 2003 there are 125,598 Class A units being held2008. In making this assessment, our management used the criteria set forth by the bankruptcy estate.
Class B Units
Prior to the merger, Kaiser LLC issued 751,956 Class B Units to current and former MRC executives. These MRC executives had previously been granted the right to receive certain contingent incentive
payments in order to incentivize eachCommittee of them to assist Kaiser and MRC in closing the saleSponsoring Organizations of the landfill project as well as meeting all conditions necessary for the release of funds from escrow. These Class B Units, issued to the MRC executives, replaced those incentive payments rights.
These Class B Units are entitled to receive approximately 2% of any cash actually received by MRC, up to approximately $752,000 or $1.00 per unit, if MRC receives the currently agreed upon price of $41 million. The Class B Units are not entitled to any distributions or profits, have no voting rights except as required by law and are not transferable.
At December 31, 2003 and 2002, Kaiser LLC had 751,956 Class B Units outstanding.
Class C and D Units
During 2002, the Company issued Class C and D Units to certain officers and terminated the Long-Term Incentive PlanTreadway Commission (“TIP”COSO”) as to future unearned paymentsin Internal Control-Integrated Framework. Our management has concluded 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.
At December 31, 2003 and 2002, Kaiser LLC had 952 and 48, Class C and D Units outstanding, respectively.
Warrants
In November 1999, Kaiser Inc. purchased 2,730,950 and 1,693,551 shares of its common stock from the New Kaiser Voluntary Employees’ Benefit Association (the “VEBA”) and from the Pension Benefit Guaranty Corporation (the “PBGC”), respectively, who were then the Company’s two largest stockholders. As consideration for these shares Kaiser Inc.: paid $13.00 per share in cash; issued stock purchase warrants that have an exercise price of $17 per share and a term of five years to the VEBA (460,000 shares) and the PBGC (285,000 shares), which provided the VEBA and the PBGC with additional consideration approximating $0.60 per share; and gave the VEBA and the PBGC certain limited participation rights in the future success of the Company. The Company initially recorded this transaction at a net value of $13 per share because the warrant value conveyed to the sellers of approximately $0.60 per share is offset by a corresponding equity credit for the warrant’s issuance value. Subsequently, in 2000, as a result of the two sales of the Company’s remaining Mill Site Property, the Company made contingent payments equaling approximately $1.11 per share. At December 31, 2003, these warrants are outstanding.
Unit/Stock Option and Unit/Stock Grant Programs
In October 1990, the Company’s stockholders approved the Amended, Restated and Substituted Kaiser Steel Resources, Inc. 1989 Stock Plan (the “1989 Stock Plan”). The 1989 Stock Plan provided for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock or deferred stock awards. Certain options granted under the 1989 Stock Plan are still outstanding. The Company incurred no compensation expense during 2003, 2002 and 2001 related to these options.
In July 1992, the Company’s stockholders approved the 1992 Stock Plan. The 1992 Stock Plan provides for the grant of incentive stock options and non-qualified stock options. The 1992 Stock Option Plan is administered by the Board of Directors. The 1992 Plan is a three-year Plan with years running
from July 1 to June 30. Each July 1, an amount equal to 2% of the Company’s shares outstanding became available to support grants of stock options to employees during that year. At the end of each plan year, reserved plan shares not made subject to stock options revert to normal unissued share status. Grants are generally established at fair market value of the Company’s common stock on the date of the grant and the exercise thereof may extend for up to 10 years with various vesting schedules.
In addition, under the 1992 Stock Plan each director when first elected to the Board shall automatically be granted options for 5,000 common stock shares. Each non-employee director who is re-elected or serving an unexpired term as a member of the Board at an annual meeting of holders of stock of the Company will be automatically granted an additional 1,500 stock options. These options have an exercise price equal to the fair market value of the Company’s Common Stock on the date of the grant.
In June 1995, the Company’s stockholders approved the 1995 Stock Plan. The 1995 Stock Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock and other stock related incentives. However, there are no outstanding options under this plan, as of December 31, 20032008, our internal control over financial reporting is effective based on these criteria. As noted under “Disclosure Controls and 2002.
In addition, under the 1995 Stock Plan, each director when first elected to the Board shall automatically be granted options for 5,000 common stock shares. Each non-employee director who is re-elected or serving an unexpired term as a member of the Board at an annual meeting of holders of stock ofProcedure”, the Company will be automatically granted an additional 1,500 stock options. These options have an exercise price equal to the fair market value of the Company’s common stock on the date of the grant.
In May 2000, the Company’s proposed 2000 Stock Plan was not approved by the shareholders of the Company thus no options were granted in 2000. The Company in May 2000 granted to each non-employee director who was re-elected or serving an unexpired term as a member of the Board a restricted stock award of 1,500 shares. The restrictions on these shares lapse equally on the firstfurther reviewed its internal accounting and second anniversaries of the grants.
In December 2000, the Company declaredreporting controls and paid a cash distribution of $2.00 per share from the proceeds of the two Mill Site Property sales in 2000. As a result of this cash distribution, the Company reduced the exercise price on all outstanding options by the $2.00 in order to mirror the $2.00 dividend per share. This repricing required the Company to change to variable plan accounting for its outstanding options, which resulted in the Company incurring an expense of $428,000 for 2001.
Effective with the date of the merger, all options with an exercise price of $10.00 and below, 326,750 options, were deemed exercised which entitled the optionees to participate in the $10.00 cash distribution and conversion into Class A Units. As a result of this cash distribution, the Company reduced the exercise price on all remaining outstanding options, 301,100 Class A Unit options, by the $10.00 in order to mirror the $10.00 dividend per share. Additionally, the term on the remaining unit options was extended, due to their reduced liquidity, to December 31, 2008.
In 2003 and 2002, the Company did not incur any unit based compensation expense related to the exercise of nonqualified unit options. In 2001 the Company incurred unit/stock based compensation expense of $1,288,000 related to the exercise of nonqualified unit/stock options that were subject to variable accounting.
A summary of the status of grants under the Company’s unit/stock plans as of December 31, 2003, 2002, and 2001 and activitiesprocedures during the years ended on those dates is presented below:
2003 | 2002 | 2001 | ||||||||||||||||||
Options | Weighted- Average Exercise Price | Options | Weighted- Average Exercise Price | Options | Weighted- Average Exercise Price | |||||||||||||||
Outstanding at beginning of year | 298,100 | $ | 3.11 | 301,100 | $ | 3.08 | 712,650 | $ | 10.51 | |||||||||||
Granted | — | — | — | — | — | — | ||||||||||||||
Exercised | — | — | (3,000 | ) | 0.55 | (411,550 | ) | 8.62 | ||||||||||||
Forfeited | — | — | — | — | — | — | ||||||||||||||
Outstanding at end of year | 298,100 | $ | 3.11 | 298,100 | $ | 3.11 | 301,100 | $ | 3.08 | |||||||||||
Options exercisable at year end | 298,100 | $ | 3.11 | 298,100 | $ | 3.11 | 301,100 | $ | 3.08 | |||||||||||
Weighted-average fair value of options granted during the year | $ | N/A | $ | N/A | $ | N/A |
The following table summarizes information about variable unit options outstanding as of December 31, 2003:
Options Exercisable and Outstanding | |||||||
Range of Exercise Prices | Weighted- Average Remaining Life (years) | Options | Weighted- Average Exercise Price | ||||
$0.55 to 1.625 | 5.0 | 161,600 | $ | 1.36 | |||
$4.85 to $5.58 | 5.0 | 136,500 | $ | 5.18 |
Note 15. EARNINGS PER UNIT/SHARE
The following table sets forth the computation of basic and diluted earnings (loss) per unit/share:
2003 | 2002 | 2001 | |||||||||
Numerator: | |||||||||||
Net (loss) income | $ | (3,663,000 | ) | $ | (68,000 | ) | $ | 49,024,000 | |||
Numerator for basic earnings (loss) per unit/share | |||||||||||
Income (loss) available to common stockholders | $ | (3,663,000 | ) | $ | (68,000 | ) | $ | 49,024,000 | |||
Numerator for diluted earnings (loss) per unit/share | |||||||||||
Income (loss) available to common stockholders | $ | (3,663,000 | ) | $ | (68,000 | ) | $ | 49,024,000 | |||
Denominator: | |||||||||||
Denominator for basic earnings per unit/share -weighted-average shares | 6,916,000 | 6,908,000 | 6,584,000 | ||||||||
Effect of dilutive options | — | — | 62,000 | ||||||||
Denominator for diluted earnings per unit/share -adjusted weighted-average shares and assumed conversions | 6,916,000 | 6,908,000 | 6,646,000 | ||||||||
Basic earnings (loss) per unit/share | $ | (0.53 | ) | $ | (0.01 | ) | $ | 7.45 | |||
Diluted earnings (loss) per unit/share | $ | (0.53 | ) | $ | (0.01 | ) | $ | 7.38 | |||
For additional disclosures regarding the outstanding employee unit/stock options see Note 14.
The following discussion and table discloses the number of vested and outstanding options during 2003, 2002, and 2001 that were not included in the computation of diluted earnings per unit/share. The Company incurred a net loss during 2003 and 2002, and therefore all options are considered antidilutive for that year. For 2001, the following table lists options of which the exercise price was greater than the average market price of the common shares during for the respective year and, therefore, are antidilutive.
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Note 16. SALES OF ASSETS
During 2001 the Company completed the sale of its approximately 53.71% ownership interest in the capital stock of Fontana Union Water Company, a mutual water company, to Cucamonga for $87.5 million. Also during 2001 the Company sold its California Mine properties for $2.0 million.
Note 17. SUPPLEMENTAL CASH FLOW INFORMATION
No interest was paid in 2003 or 2002. The Company paid interest during 2001 of $39,000.
No interest expense was incurred in 2003 or 2002. Total interest expense incurred in 2001 was $25,000.
Income taxes paid in 2003, 2002, and 2001 were $56,000, $5,000, and $3,477,000, respectively. During 2003, the Company was audited by the State of California for years prior to its conversion to a limited liability company, as a result of that audit the Company paid the State of California $46,000.
In the first quarter of 2001,2009 and enhanced them as appropriate.
This Annual Report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company sold its California Mine Property for $2 million, $726,000 cash at closing and $1.3 million on a note receivable secured by the real estate.to provide only management’s report in this annual report.
Changes Internal Control over Financial Reporting
During 2001, the Company had 54,333 stock options exercised on a net basis. These transactions resultedperiod covered by this report, there have been no changes in the Company receiving back 36,704 shares during 2001 of its own common stock as payment forCompany’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the purchase price of the options and for the payment of income taxes.Company’s internal control over financial reporting.
The Company has not capitalized interest or property taxes during 2003, 2002, and 2001.KAISER VENTURES LLC AND SUBSIDIARIES
Note 18. INCOME TAXESLimitations on the Effectiveness of Controls
We do not expect that the disclosure controls or our internal controls will prevent all errors and they cannot possibly prevent all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Item 9B. | OTHER INFORMATION |
Not applicable.
KAISER VENTURES LLC AND SUBSIDIARIES
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, the only taxes imposed on the Company are a small gross revenue tax imposed by the State of California, and income taxes imposed on Business Staffing Inc. These taxes amounted to $16,000 for 2003 and $18,000 for 2002. Also, during 2003 the Company recorded an additional $46,000 income tax expense as a resultPART III
Item 10. | MANAGERS, EXECUTIVE OFFICERS AND COMPANY GOVERNANCE |
BOARD OF MANAGERS
The current members of the finalizationBoard of a State of California income tax audit for 1999. Additionally, during 2002, the Company recorded an income tax
benefit of $585,000. This benefit was the result of changes in the Federal tax law and finalization of the Company’s income tax returns for 2001 and related solely to activity prior to its conversion to a limited liability company.
The income tax provision for the year ended December 31, 2001Managers are composed of the following:
2001 | ||||
Current tax expense: | ||||
Federal | $ | 300,000 | ||
State | 1,495,000 | |||
1,795,000 | ||||
Deferred tax expense (credit): | ||||
Federal | 13,144,000 | |||
State | (283,000 | ) | ||
12,861,000 | ||||
$ | 14,656,000 | |||
As a result of the conversion into a limited liability company, the remaining deferred tax assets and liabilities at December 31, 2001, were eliminated through the provision.
The net change in the valuation allowance during 2001 was a reduction of $238,000. The decrease in the valuation allowance for 2001 was due to the utilization of net operating loss carry forwards that occurred during 2001 as a result of the sale of the Fontana Union stock, in March 2001.
A reconciliation of the effective income tax rate to the federal statutory rate, for financial reporting purposes, is as follows:
NAME | POSITIONWITHTHE COMPANY | |||
| Chief Executive Officer, President and Chairman of the Board | |||
| Manager | |||
| Manager | |||
| ||||
76 | ||||
Marshall F. Wallach | 66 | Manager |
Richard E. Stoddardwas appointed Chief Executive Officer of Kaiser in June 1988, and has held such position and/or the position of Chairman of the Board since such date. Prior to joining Kaiser in 1988, he was an attorney in private practice in Denver, Colorado. Mr. Stoddard is Chairman of the Board of Managers of Mine Reclamation, LLC and until July 1999 he served on the Board of Directors of Penske Motorsports, Inc. (“PMI”) when International Speedway Corporation acquired PMI. As of January 1, 2003, Mr. Stoddard began working less than full time for Kaiser. In addition to working on behalf of Kaiser, Mr. Stoddard works as a general business consultant with an emphasis on distressed businesses and water development opportunities. In the water development area, Mr. Stoddard is working primarily on behalf of Cadiz, Inc.
Note 19. SIGNIFICANT CUSTOMERSRonald E. Bitonti is Chairman of the Benefits Committee for the VEBA and was Chairman of the Reorganized Creditors’ Committee formed during the KSC bankruptcy until dissolution of this committee in 1991. From 1985 to 1991, Mr. Bitonti served as International Representative for the United Steelworkers of America. Mr. Bitonti retired from KSC in 1981 and has been a director or manager of Kaiser since November 1991.
Todd G. Cole has been a director or manager of Kaiser since November 1989. Mr. Cole was Chief Executive Officer of CIT Financial Corporation before starting his present career as a consultant and corporate director. He currently is President of Cole & Wilds Associates, Inc., a consulting company. He was a founding director of Coral Gable Trust Company, a Florida State chartered institution, which began operations in April 2004. Mr. Cole is a member of the Georgia Bar Association and is an accredited certified public accountant (inactive status).
Gerald A. Fawcett was President and Chief Operating Officer of Kaiser Inc. from January 1996 until his retirement from full time duties on January 15, 1998. He was appointed to Kaiser’s Board on January 15, 1998, and currently serves as Vice Chairman of the Board and undertakes special projects on behalf of the Company from time-to-time. Mr. Fawcett began his employment with KSC in 1951, holding various positions in the steel company and ultimately becoming Division Superintendent of the Cold Rolled and Coated Products Division. After working five years consulting with domestic and overseas steel industry clients, Mr. Fawcett joined Kaiser in 1988 as Senior Vice President and became Executive Vice President in October 1989. He is also Vice Chairman of the Board of MRC.
Marshall F. Wallach has been a director or manager of Kaiser since November 1991. From 1984 to 2003, Mr. Wallach served as President of The Wallach Company, a Denver, Colorado based investment banking firm. The Wallach Company was sold to Keycorp on January 1, 2001. Mr. Wallach retired from The Wallach Company on Dec. 31, 2003. Prior to forming The Wallach Company, Mr. Wallach
KAISER VENTURES LLC AND SUBSIDIARIES
managed the Corporate Finance Department and established the Mergers and Acquisitions Department of Boettcher & Company, a regional investment bank in Denver, Colorado. Mr. Wallach serves on the boards of several non-profit organizations and privately-owned corporations. He is currently President of Wallach Capital Advisors, Inc. which was incorporated in early 2004 and is President of Gates Capital Partners, LLC formed in 2005.
MANAGER EMERITUS
Reynold C. MacDonald serves as a Manager Emeritus on our Board of Managers. This is an honorary, nonvoting and unpaid position. In this position, Mr. MacDonald is available to the Board and to the Chief Executive Officer to provide guidance on Company matters. Mr. MacDonald served on the Board of Directors of Kaiser Inc. from November 1988 until completion of the merger in 2001, and he also was an employee of Kaiser Steel from 1946 to 1963, with his last position being assistant general superintendent of all the mills. Mr. MacDonald served as Chairman of the Board for Acme Metals Company from 1986 until 1992 and continues as a director with that company. He has also served as a director with Interlake, Inc., a metals fabrication and materials handling company and of ARAMARK Group, Inc.
INDEPENDENT MANAGERS
Messrs. Bitonti, Cole and Wallach are considered independent managers (directors) under applicable rules.
COMMITTEES OF THE BOARD
Our Board has a standing Audit Committee and Human Relations Committee.
AUDIT COMMITTEE MATTERS
The duties and responsibilities of the Audit Committee are set forth in our Audit Committee Charter. The Audit Committee’s primary function is to review the financial information to be provided to our members, the financial reporting process, the system of internal controls, the audit process and the Company’s process for monitoring compliance with laws and regulations.
Under our Audit Committee Charter, the Audit Committee is solely responsible for:
Hiring and firing the independent registered public accounting firm auditors for Kaiser LLC;
Resolving any disagreement between the independent registered public accounting firm and management; and
Approving all non-audit services performed by Kaiser LLC’s independent registered public accounting firm, subject to a de minimis exception.
Mr. Wallach (Chairman) and Mr. Cole serve as members of our Audit Committee. Our Board has determined that both Mr. Wallach and Mr. Cole are independent of Kaiser’s management and that they have accounting or financial management experience sufficient to qualify each of them as a “financial expert” under the rules issued by NASDAQ. In addition, our Board has determined that Mr. Wallach and Mr. Cole each qualify as an “audit committee financial expert” under current SEC rules and regulations. However, even if none of the current members of our Audit Committee would qualify as an “audit committee financial expert” under SEC rules and regulations, we would retain Mr. Wallach and Mr. Cole on the Audit Committee because of their expertise and experience in financial matters, including
KAISER VENTURES LLC AND SUBSIDIARIES
reviewing and analyzing financial statements, and their familiarity with the Company and its operations. In addition:
Neither Mr. Wallach nor Mr. Cole sits on audit committees for more than two other public companies.
Each member of the Audit Committee has one vote.
Neither Mr. Wallach nor Mr. Cole receives any compensation from us, other than as a manager and/or as a member of any committee appointed by the Board of Managers.
In performing its duties, the Audit Committee seeks to maintain free and open communication between the managers, the independent registered public accounting firm and our internal financial management. The Audit Committee is intended to provide an independent and, as appropriate, confidential forum in which interested parties can freely discuss information and concerns.
The Audit Committee retained Moss Adams LLP as our independent registered public accounting firm for fiscal 2008 and also retained the firm as our independent registered public accounting firm for 2009.
In connection with our annual audit:
The Audit Committee reviewed and discussed with Moss Adams LLP, our independent registered public accounting firm, their overall plans for the audit and the audit’s scope.
The Audit Committee reviewed the fees for our financial statements and the fees charged for other services rendered to Moss Adams LLP.
The Audit Committee reviewed and discussed the audited financial statements with our management.
The Audit Committee discussed with our independent registered public accounting firm the matters required to be discussed by Statement of Auditing Standards 61.
The Audit Committee received the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1, and has discussed with the independent registered public accounting firm its independence.
The Audit Committee also discussed with Moss Adams LLP the Company’s internal controls and procedures.
The Audit Committee met in executive session with management and separately with representatives of Moss Adams LLP.
Based upon the foregoing, the Audit Committee recommended to the Board of Managers that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2008.
HUMAN RELATIONS COMMITTEE
The duties and responsibilities of the Human Relations Committee are set forth in our Human Relations Committee Charter. Although Kaiser LLC leases its employees from Business Staffing, Inc., the Human Relations Committee, along with Business Staffing, Inc. reviews compensation and benefit
KAISER VENTURES LLC AND SUBSIDIARIES
programs for the employees leased to Kaiser by Business Staffing, Inc.
The Human Relations Committee is composed of Messrs. Cole (Chairman) Bitonti and Fawcett.
EXECUTIVE OFFICERS
The current executive officers of the Company are:
NAME | AGE | POSITIONWITHTHE COMPANY | ||
Richard E. Stoddard | 58 | Chief Executive Officer, President and Chairman of the Board | ||
James F. Verhey | 61 | Executive Vice President - Finance and Chief Financial Officer | ||
Terry L. Cook | 53 | Executive Vice President - Administration, General Counsel and Corporate Secretary |
Richard E. Stoddard’s biographical information is set forth above under “Board of Managers.”
James F. Verhey joined Kaiser and was appointed Vice President - Finance and Chief Financial Officer in August 1993, appointed Senior Vice President - Finance in January 1996, and appointed Executive Vice President of Kaiser in January 1998. In addition to his duties with Kaiser, Mr. Verhey was appointed Vice President of Finance and Chief Financial Officer of Mine Reclamation Corporation in February 1995. Mr. Verhey is a certified public accountant and spent several years with PricewaterhouseCoopers LLP in Los Angeles, California. As of October 1, 1999, Mr. Verhey began working less than full time for Kaiser. In addition to working for Kaiser, Mr. Verhey is a director of Silverado WineGrowers, LLC, which is headquartered in Napa, California, and which owns and manages wine grape vineyards throughout California.
Terry L. Cook joined Kaiser and was appointed General Counsel and Corporate Secretary in August 1993, became a Senior Vice President in January 1996, and was appointed Executive Vice President - Administration in January 2000. Mr. Cook was appointed General Counsel and Corporation Secretary of Mine Reclamation Corporation in February 1995. Prior to joining Kaiser, Mr. Cook was a partner in the Denver office of the national law firm McKenna & Cuneo (now called McKenna Long & Aldridge) specializing in business, corporate, and securities matters. Prior to his joining McKenna & Cuneo in July 1988, Mr. Cook was an attorney in private practice as a partner in a Denver, Colorado, law firm.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Act of 1934, as amended, requires certain beneficial owners of our units to file with the SEC initial reports of ownership and reports of changes in ownership of Kaiser LLC.
To our knowledge, based solely on a review of the Form 3, 4 and 5 filings with the SEC of certain beneficial owners of our Class A Units, all Section 16(a) filing requirements applicable to Section 16 reporting persons were timely filed.
CODE OF BUSINESS CONDUCT AND ETHICS
We have adopted an employee policy called the “Code of Business Conduct and Ethics.” This policy states our policies on, among other things, complying with laws, fair dealing, confidentiality and insider trading. The Code of Business Conduct and Ethics applies to all employees including our executive officers. This policy also creates an enforcement procedure in which employees are able to submit reports or inquiries to the Audit Committee, on a strictly confidential basis, for the committee’s independent investigation. The Company’s Code of Business Conduct and Ethics is available on the
KAISER VENTURES LLC AND SUBSIDIARIES
Significant CustomersCompany’s websitewww.kaiserventures.com. A copy may also be obtained free of charge by writing to us.
Management and Training Corporation (“MTC”) operated a minimum security prison facility on a portion of the Eagle Mountain Site through December 31, 2003.
The Company received substantial portions of its revenue from the following customers:
Year Ended | Cucamonga Lease | MTC Lease | ||||
2003 | $ | — | $ | 873,000 | ||
2002 | $ | — | $ | 847,000 | ||
2001 | $ | 295,000 | $ | 815,000 |
Item 11. | EXECUTIVE COMPENSATION |
The following table sets forth the compensation information for our Chief Executive Officer, and our other two most highly compensated executive officers. (Currently, we only have three executive officers.) Over the past several years we have reduced our staffing needs due primarily to the sale of substantial assets and consummation of the merger that created the present structure.
SUMMARY COMPENSATION TABLE(1)
Name and | Year | Salary(2) $ | Bonus(3) $ | Unit Awards(4) $ | All Other Compensation(5) $ | Total $ | ||||||
Richard E. Stoddard | 2008 | 341,248 | — | 17,455 | 60,328 | 419,031 | ||||||
Chairman of the Board, President and CEO | 2007 | 332,925 | 3,455 | 15,955 | 720,026 | 1,072,361 | ||||||
James F. Verhey | 2008 | 156,456 | — | 17,455 | 28,603 | 202,514 | ||||||
Exec. Vice President - Finance & CFO | 2007 | 152,640 | 3,455 | 15,955 | 24,957 | 197,007 | ||||||
Terry L. Cook | 2008 | 282,336 | — | 17,455 | 38,564 | 338,355 | ||||||
Exec. Vice President, General Counsel and Secretary | 2007 | 275,450 | 3,455 | 15,955 | 293,472 | 588,332 |
(1) | All employees are leased to Kaiser LLC by Business Staffing, Inc., a subsidiary of the Company. The “Bonus”; “Option Awards”; “Non-Equity Incentive Plan Compensation”; and “Change in Pension Value and Non-qualified Deferred Compensation Earnings” columns have been eliminated from the Summary Compensation Table because there were no reportable events/compensation earned for the applicable years for such items. |
(2) | The salary amount was not reduced for any employee contributions to our 401(k) Savings Plan and Supplemental Executive Retirement Plans. |
(3) | The bonus was paid pursuant to the Executive Officer New Revenue Incentive Participation Plan whereby the executive officers are paid a bonus based upon a percentage of net new revenue, if any. Half of the bonus is paid in cash, which is reflected in the “Bonus” column, and the other half is payable in Class A Units. For additional information, see “Item 10. EXECUTIVE COMPENSATION - EXECUTIVE OFFICER NEW REVENUE INCENTIVE PARTICIPATION PLAN.” Any cash bonus is reported for the year earned, e.g., 2007, although actual payment of the bonus may not occur until the first quarter of the following calendar year. |
(4) | Represents value of 25,000 Class A Units issued to each executive officer under his respective employment agreement and for 2007 units issued pursuant to the Executive Officer New Revenue Incentive Participation Plan. |
(5) | The “All other Compensation” column includes distributions made on the Company’s Class C Units in 2008 to Mr. Stoddard - ($1,357), Mr. Verhey - ($543), and Mr. Cook - ($814). Our executive officers are provided with certain health insurance, disability insurance and other non-cash benefits generally available to all salaried employees and therefore are not included in this table under applicable SEC rules. However, Mr. Stoddard and Mr. Cook received a comprehensive medical physical in 2007, at the Company’s expense. The cost of such physical was $2,800 for Mr. Stoddard and $2,992 for Mr. Cook. However, in 2008 an insurance company reimbursed the Company the full amount of such physical and thus, the “All Other Compensation” and “Total” columns for Mr. Stoddard have been appropriately adjusted. Mr. Verhey received a comprehensive medical physical in 2008, at the Company’s expense for such physical was $816. These amounts are included in the “All Other Compensation” column as appropriate. Our contributions to the 401(k) Savings Plan, and to the Supplemental Executive Retirement Plan in 2008 and 2007 are listed below. Additionally, our one time contribution to what is identified below as the “Restricted SERP” is specified below. |
Note 20. COMMITMENTSKAISER VENTURES LLC AND CONTINGENCIESSUBSIDIARIES
COMPANY CONTRIBUTIONS | ||||||||||
NAME | YEAR | 401(K) PLAN(a) ($) | SERP(a) ($) | RESTRICTED SERP(a), (b) ($) | TOTAL TO PLANS ($) | |||||
Richard E. Stoddard | 2008 | 18,604 | 15,973 | — | 34,577 | |||||
2007 | 18,604 | 14,118 | 660,872 | 693,594 | ||||||
James F. Verhey | 2008 | 14,319 | — | — | 14,319 | |||||
2007 | 12,890 | — | — | 12,890 | ||||||
Terry L. Cook | 2008 | 18,604 | 10,423 | — | 29,027 | |||||
2007 | 18,604 | 8,587 | 260,121 | 287,713 |
(a) | Reported in the “All Other Compensation” column. |
(b) | A SERP was adopted in 2007 with a one time contribution by the Company of $660,877 and of $260,121 for the benefit of Mr. Stoddard and Mr. Cook, respectively. These one time contributions represent the accrued amount of severance under their respective employment agreements in effect as of December 31, 2006. The amounts in this Restricted SERP are subject to vesting and certain other restrictions. For additional information see “ITEM 10. Executive Compensation—Non-Qualified Deferred Compensation Plans.” |
Like all other employees employed more than five (5) years, our executive officers can participate in a program under which we will pay two-thirds (2/3) of the premium on a life insurance policy or policies with a total benefit equal to approximately three (3) times an employee’s annual base salary. The term life insurance policies of the executive officers expired in 2007 or were soon due to expire. Thus, new term life insurance policies were obtained in 2007. The premiums paid by us under this life insurance program for each of our executive officers are as follows:
NAME | YEAR | COMPANY’S PREMIUM PAYMENTS(a) ($) | ||
Richard E. Stoddard | 2008 | 1,726 | ||
2007 | 3,268 | |||
James F. Verhey | 2008 | 1,166 | ||
2007 | 2,619 | |||
Terry L. Cook | 2008 | 1,523 | ||
2007 | 2,340 |
(a) | Does not include the cost of a $50,000 term life insurance policy that we pay for all employees of the Company, other than certain part-time employees. |
Both Mr. Stoddard and Mr. Verhey reside outside Southern California. As a part of the terms of their employment, we pay or reimburse them for their commuting, rental car and hotel expenses as well as other miscellaneous commuting expenses such as parking fees and mileage reimbursement for use of a private vehicle.
COMMUTING EXPENSES | ||||||||||||||
NAME | YEAR ($) | AIRFARE ($) | LODGING ($) | CAR SERVICE ($) | RENTAL CAR ($) | MISC. ($) | TOTAL ($) | |||||||
Richard E. Stoddard | 2008 | 9,769 | 5,766 | 2,483 | 4,005 | 645 | 22,668 | |||||||
2007 | 9,999 | 6,451 | 2,658 | 4,619 | 463 | 24,890 | ||||||||
James F. Verhey | 2008 | 3,873 | 3,714 | — | 2,998 | 2,295 | 12,880 | |||||||
2007 | 2,053 | 3,841 | — | 3,224 | 1,853 | 10,971 |
Mr. Cook receives an annual automobile allowance of $7,200.
KAISER VENTURES LLC AND SUBSIDIARIES
Environmental ContingenciesOUTSTANDING EQUITY AWARDS AT 2008 FISCAL YEAR-END
All of the Company’s unexercised options expired as of December 31, 2008. In December Mr. Stoddard, Chairman of the Board, President and Chief Executive Officer exercised options to acquire a total of 75,000 Class A Units at $1.25 per unit. There were no option grants to the named executive officers in 2008. However, under the terms of their respective January 1, 2007 employment agreement, each executive officer was issued 25,000 Class A Units in 2008 and 2007. Additionally, each of executive officer earned 5,169 Class A Units in 2007 under the terms of the Executive Officer New Revenue Participation Plan such units were reissued in first quarter of 2008. No Class A Units were earned under the terms of the Executive Officer New Revenue Participation Plan for 2008.
LONG-TERM INCENTIVE COMPENSATION PLAN
Kaiser Inc. provided an incentive to its executive officers through a long-term transaction incentive plan, referred to as the TIP. The TIP was designed to compensate Kaiser Inc.’s executive officers for maximizing proceeds from asset sales and resulting distributions to Kaiser Inc.’s stockholders. The TIP was terminated shortly after the merger payments were made to the participants under the plan due to the sale of the Mill Site Property, the sale of Kaiser’s Fontana Union stock to Cucamonga, and the tax benefits generated by the conversion to a limited liability company. In place of the TIP, Kaiser LLC issued Class C and Class D Units in Kaiser LLC (collectively referred to as the “Incentive Units”) to the five previous participants in the TIP (the “Participating Officers”). The terms of the Incentive Units mirror the previous cash flow incentives provided to the Participating Officers under the TIP.
Under the terms of the Incentive Units, the Participating Officers receive cash distributions based on the cash available for distribution to our members from the proceeds realized in the sale of our remaining major assets (net of expenses and taxes) and on our operating expenses.
The terms of the Incentive Units set “threshold” and “target” sale prices for our remaining assets. The Participating Officers, as a group, receive 5% of the aggregate net proceeds from an asset sale in excess of the threshold. If the net proceeds exceeds the higher target sale value, the Participating Officers, as a group, receive 10% of the aggregate net proceeds from such sale in excess of the target. The Incentive Units do not contain a maximum cap as to the amount distributable to such units.
The Class C Units are held by Participating Officers still employed by Kaiser LLC, and, upon a Participating Officer’s departure, all Class C Units are automatically converted into Class D Units. Two former officers of Kaiser LLC hold a total of 200 Class D Units. In the event a Participating Officer is terminated for “cause,” Kaiser LLC may repurchase, for a nominal value, all of that officer’s Incentive Units. Any payment to the Participating Officers will be split with a full share to each Class C Unit and a smaller share for each Class D Unit which will depend on the length of the period since its issuance. The following table sets forth the number of Incentive Units held by the Participating Officers that are also named executive officers.
PARTICIPATING OFFICER | CLASS C UNITS | |
Richard E. Stoddard | 400 | |
Terry L. Cook | 240 | |
James F. Verhey | 160 |
The Incentive Units do not have the right to vote on any matter, except as required by law. Neither the Incentive Units nor any rights to distributions with respect to such units may be transferred by any Participating Officer. The Incentive Units do not have a termination date.
Each Incentive Unit will be allocated an amount of the profits of the Company equal to the amount of any distribution with respect to such Incentive Unit, with the character (capital gain, ordinary income,
KAISER VENTURES LLC AND SUBSIDIARIES
The Company estimates, based upon current information, that its future environmental liability related to certain matters not assumed by CCG Ontario, LLC in its purchaseetc.) of the mill site property, including groundwaterprofits to reflect the portion of each type of income recognized by the Company with respect to that asset(s) after January 1, 2002, as determined by the Board in good faith. Therefore, the total amount that Participating Officers will receive pursuant to the terms of the Incentive Units can only be determined upon sale of all of our assets and other possible third party claims,satisfaction of our general obligations and liabilities. The following table sets forth the total amount that would be approximately $4.0 million. However,earned by the Company purchased, effective June 30, 2001,Participating Officers, assuming that (i) each Participating Officer continues to work for Kaiser throughout the period; and (ii) the proceeds generated from the sale of each major asset and the related cash available for distribution to members equals the specified target for such asset:
PERIOD UNTIL PAYOUT | ESTIMATED AGGREGATE FUTURE PAYOUTS UNDER NON-STOCK PRICE- BASED PLAN | |||||||||||
NAME | THRESHOLD ($) | TARGET ($) | MAXIMUM ($) | |||||||||
Richard E. Stoddard(1) | N/A | (2) | 0 | (3) | $ | 442,000 | N/A | (4) | ||||
James F. Verhey(1) | N/A | (2) | 0 | (3) | $ | 176,800 | N/A | (4) | ||||
Terry L. Cook(1) | N/A | (2) | 0 | (3) | $ | 265,200 | N/A | (4) |
(1) | The actual participation percentage of each Participating Officer in any distributions to the Incentive Units will depend on whether the Participating Officer holds Class C or Class D Units. Adjustment of the individual percentages will not change the size of the total distributions. |
(2) | The right to distributions primarily depends upon the sale of Kaiser LLC’s major assets for aggregate net proceeds in excess of the previously established threshold levels. |
(3) | Participating Officers are only entitled to receive distributions on their Incentive Units if and when Kaiser LLC sells a remaining major asset for aggregate net proceeds in excess of the previously established sale price threshold for such asset, or, in the event of the sale of the Company, in excess of the previously set sale price (net of expenses and taxes) for the overall Company. If net proceeds generated from the sale exceeds the applicable thresholds, then the Participating Officers, as a group, would receive as a distribution on their Incentive Units cash equal to 5% of any amount over the applicable threshold up to the applicable target. |
(4) | There is no maximum cap as to distribution to the holders of Incentive Units. In the event proceeds in excess of the target are generated, the Participating Officers, as a group, would receive distributions equal to 10% of the aggregate net proceeds realized in excess of the target. |
In 2008 distributions were made on the Class C and D Units as a 12 year $50 million insurance policy at a costresult of approximately $3.8 million. This policy will cover, among other things, virtually any and all environmental liabilities and claims, including defense costs, (upthe sale of certain minor miscellaneous assets in 2007. The total amount distributed with respect to the $50 million policy limit) relatingClass C Units was $2,714 and $309 with respect to the historical operations and assets of the Company and reflected in the above, approximate $4.0 million liability.
Class D Units.
Pension Plans401(K) RETIREMENT PLAN
The Company currently sponsors a combined voluntary qualified 401(k) savings and money purchase plan. This plan and a nonqualified pension plan,is available to all full-timefull time employees. Participants may make contributions of up to 15%25% of their compensationbase salary and 100% of any cash bonus with the Company matching one-half of each participant’s contribution up to 6% of compensation.
NON-QUALIFIED DEFERRED COMPENSATION PLANS
Supplemental Executive Retirement Plan. The Company also sponsors a non-qualified deferred compensation plan which mirrors the qualified 401(k) plan.
Total expense relativeplan discussed immediately above. Contributions to these plans forsuch plan commence once a participant reaches the years ended December 31, 2003, 2002, and 2001, was $176,000, $192,000, and $262,000, respectively.
maximum annual Social Security wage base. The assets of this plan are held in a “rabbi” trust.
Letters of CreditLimited Participation Deferred Compensation Plan. Business Staffing adopted the “Business Staffing Supplemental Deferred Compensation Plan” (the “Supplemental Plan”) and a related “Non-
KAISER VENTURES LLC AND SUBSIDIARIES
At December 31, 2003,Qualified Deferred Compensation Plan Trust Agreement” (the “Trust”) on January 10, 2007.
Business Staffing placed into the Company had guaranteed a letterSupplemental Plan previously accrued amounts due Richard E. Stoddard and Terry L. Cook upon termination of credit outstanding on its behalftheir employment in the amount of $660,872 and $260,121, respectively. Like the terms of their previous employment agreements, the amounts in the Plan remain subject to third parties totaling $120,000. This letter of credit was issuedforfeiture if the executive officer is terminated for reclamation activities performed at an idled coal property, on behalf of and at“cause” as defined in the expenseSupplemental Plan (which is the same definition as contained the employment agreements of the KSC bankruptcy estate.
executive officers) or if the officer should voluntarily terminate his employment. In addition, the amounts in the Supplemental Plan fully vest if the executive officer is terminated without cause, is constructively terminated without cause, dies, is permanently disabled or upon completion of the initial term of their employment. Once vested, payments may commence, upon the officer’s death, permanent disability, or the termination of the officer for any reason except for “cause” as defined in the Supplemental Plan. The Supplement Plan’s assets will be held through the Trust which is a “rabbi trust” and all investment earnings or losses shall accrue to account of each officer under the Supplemental Plan.
MRC FinancingEXECUTIVE OFFICER COMPENSATION
As part of our cash maximization strategy and in connection with the merger, effective, January 1, 2002, Business Staffing, Inc., our subsidiary, became the employer of all of Kaiser’s employees and the contracting employer with respect to the several employment agreements discussed below. Business Staffing leases employees to Kaiser LLC and Kaiser LLC reimburses Business Staffing for all employee and related expenses.
Since 1995 MRCDuring much of 2006, Kaiser’s Human Relations Committee along with Business Staffing engaged in an extensive review of the existing compensation agreements and plans for our executive officers. The review recognized that elements of the compensation of the executive officers of Kaiser have been adopted and implemented at various times over the years in relation to our cash maximization plan but the original estimates of the timing of such plan’s complete implementation and realization have proven to be too optimistic. Accordingly, Kaiser along with Business Staffing developed modified or new compensation agreements and plans that, among other things, further align the interests of the executive officers with those of the members of Kaiser and will encourage the retention of the executive officers. Business Staffing leases employees, including the executive officers of Kaiser, to Kaiser. These plans remain in effect.
EXECUTIVE OFFICER EMPLOYMENT AGREEMENTS
On January 10, 2007, Business Staffing entered into new employment agreements with each of the executive officers of Kaiser with such agreements being effective as of January 1, 2007. The new employments agreements superseded the existing employment agreements for the executive officers.
General Terms and Compensation. Except for the name, title, duties, amount of salary, and a special bonus that may be earned by James Verhey upon the sale of Kaiser’s interest in the West Valley MRF, the terms of the new employment agreements are the same in all material respects. The agreements commence as of January 1, 2007, and continue for a term of five (5) years (the “Initial Term”) and continue thereafter on a month-to-month basis until Kaiser has been funded through a seriesdisposed of private placements toall of its existing equity holders. material assets. Under the terms of the employment agreements, Messrs. Stoddard, Verhey and Cook have base salaries of $332,945; $152,640 and $275,450, respectively. Base salaries will be adjusted annually by no less than utilizing the Consumer Price Index for Urban Wage Earners and Clerical Workers, U.S. City Average, All Items, published by the Bureau of Labor Statistics of the United Stated Department of Labor.
During the second quarterterm of 2003, MRC commenced and then completed intheir employment, each executive officer is to be awarded 25,000 Kaiser Class A Units as of January 15 of each year beginning January 15, 2007; provided, however, the third quarter of 2003 a $2,100,000 private placement of its Class B Units to its existing members. Kaiser will fund at least $1,820,000amount of the private placement. The funding is payable in installments with the last installment due in July 2004. Kaiser made its first equity contributionannual award of $910,000 under the private placement in August 2003, bringing its ownership interest in MRC to 82.48%. A second equity contribution of approximately $435,000 was made in March 2004. A third and final equity contribution of approximately $435,000 under the current private placement is due in July 2004. Future funding of MRCunits will be requiredreviewed prior to cover such items as the federal land exchange litigation and the railroad repairs but there is no assurance that such funding will be obtained.January 15, 2010 grant.
Note 21. LEGAL PROCEEDINGSKAISER VENTURES LLC AND SUBSIDIARIES
The Company,discretionary annual bonus for executive officers was eliminated in the normal coursenew employment agreements. A new performance based incentive bonus program was adopted to commence effective January 1, 2007, as discussed in more detail below.
Unique to Mr. Verhey’s employment agreement is that if during his employment Kaiser’s interest in the West Valley MRF is sold, he will be paid a bonus based upon the collected net sales price. At this time, the projected bonus would be approximately $100,000 but the actual amount of its business, is involvedthe bonus would increase or decrease if the value of Kaiser’s West Valley MRF interest increases or decreases after January 1, 2007.
Like all other employees, the executive officers receive medical, dental, vision, and long-term disability insurance benefits. In addition, like other employees employed more than five (5) years, the executive officers have the opportunity to participate in various claimslife insurance whereby Business Staffing will pay two-thirds (2/3) of the premium on a life insurance policy or policies with a total benefit equal to three times an employee’s salary. As in previous employment agreements, Mr. Cook receives a car allowance of $600 per month and legal proceedings. A numberMessrs. Stoddard and Verhey are reimbursed for their commuting costs to Ontario, California and any rental car and lodging costs. In addition, the new employment agreements provide that the executive officers are entitled to reimbursement of litigation matters previously reported have settledcertain wellness benefits which are directed toward an annual medical physical and such settlements did nota comprehensive medical physical and appropriate tests every two (2) years. If an executive fails to timely have a material adverse impact oncomprehensive physical performed, the Company’s financial statements. Significant legal proceedings, including those which may have a material adverse effect on the Company’s business or financial condition, are summarized below. However, the following discussion does not, and is not intended to, discuss all of the litigation matters to which the Company may be or become a party. Should the
Company be unable to resolve any legal proceeding in the manner the Company anticipates and for a total cost within close proximity to any potential damage liability the Company has estimated, the Company’s business and results of operations may be materially and adversely affected.
Eagle Mountain Landfill Project Land Exchange Litigation. In October 1999, Kaiser’s wholly-owned subsidiary, Kaiser Eagle Mountain, Inc., completed a land exchange with the U.S. Bureau of Land Management (“BLM”). This completed land exchange has been challenged in two separate federal lawsuits.
Federal Land Exchange Litigation. There are two separate, but related, litigation matters in federal district court involving the completed land exchange between Kaiser Eagle Mountain, Inc, and the BLM. The details of each case are as follows:
A.Donna Charpied; Laurence Charpied; The Desert Protection Society (Plaintiffs) v. United States Department of the Interior; Bureau of Land Management; Bruce Babbitt, in his official capacity as Secretary of the Interior; Tom Fry, in his official capacity as Acting Director of the Bureau of Land Management; Al Wright, in his official capacity as Acting California State Director of the Bureau of Land Management; Tim Salt, in his official capacity as Bureau of Land Management California Desert District Manager; Robert Stanton, in his official capacity as Director of the National Park Service, Kaiser Eagle Mountain, Inc., and Mine Reclamation Corporation (Defendants), (United States District Court for the Central District of California, Riverside Division, Case No. EDCV 99-0454 RT(MCx)).
In December 1999, opponents of Eagle Mountain landfill project filed a lawsuit in the federal district court located in Riverside, California seeking to stop the Eagle Mountain landfill project. In summary, the lawsuit challenges the BLM’s approval of a land exchange between the Company and the BLM. The challenges are based upon, among other things, the Company’s and the BLM’s alleged failure to comply with the National Environmental Policy Act and the Federal Land Policy Management’s Act. The relief sought is an unwinding of the land exchange that was completed on October 13, 1999, and theannual award of attorneys’ fees. The National Park Service has been dismissed out of the lawsuit. InDesert Citizens Against Pollution v. Bisson,(Ninth Circuit Court of Appeals, Case No. 97-55429), the Court of Appeals concluded, among other things, that the BLM did not properly value the land being acquired by the competing Mesquite rail-haul landfill project and ordered a reversal of the land exchange. The court concluded that the appraisal should have considered the highest best use of the lands being acquired from the BLM as a landfill. The court did not, however, determine the proper valuation of the exchanged lands. The plaintiffs in Kaiser’s federal land exchange litigation have amended their respective complaints to include allegations that the appraisal used in Kaiser’s land exchange with the BLM is similarly defective.
In light of theBisson ruling, the BLM has completed an independent review of the “highest and best use” analysis consistent with that discussed in theBisson decision. The BLM’s independent appraiser concluded that there would be no change in the determination of the “highest and best use” analysis in the appraisal used in the land exchange if the property involved was expressly considered as a land fill site. Given all the facts and circumstances, the independent appraisal concluded that there was no premium to be paid for the property interests exchanged by the BLM even if a portion of such property interests were a part of a planned landfill.
All scheduled briefing for the case was completed in January 2003. The Company is currently awaiting a decision from the court. Kaiser is vigorously defending the litigation.
B.National Parks and Conservation Association (Plaintiff) v. Bureau of Land Management; United States Department of the Interior; Kaiser Eagle Mountain, Inc.; and Mine Reclamation Corporation
(Defendants), (United States District Court for the Central District of California, Riverside Division, Case No. EDCV 000041 VAP(JWJx)).
This lawsuit was brought by the National Parks Association and alleges causes of action that are virtually identical to the causes of action asserted in theCharpied litigation. All scheduled briefing has been completed for this litigation. Kaiser is also vigorously defending this matter.
Threatened Endangered Species Act Litigation. The Company along with the U.S. Department of Interior, the BLM, the Los Angeles County Sanitation District and Metropolitan Water District of Southern California, received a letter dated September 26, 2002, from the Center for Biological Diversity, the Sierra Club, Citizens for the Chuckwalla Valley (“Complaining Groups”) declaring their intent to sue for violations of the Endangered Species Act in regard to actions or inactions related to the railroad that would serve the Eagle Mountain landfill project. Among other things, it is alleged that that there has been a failure to comply with a biological opinion issued by the U.S. Fish & Wildlife Service and that the BLM has failed to enforce the terms of that biological opinion. In summary, the Complaining Groups are demanding enforcement of the biological opinion or revocation by the BLM of the right-of-ways granted for the existing Eagle Mountain railroad and the Eagle Mountain road. The biological opinion contains, among other items, mitigation measures for the desert tortoise which could require substantial expenditures.
In reviewing the complaints of the Complaining Group, the BLM, out of an abundance of caution, conducted an informal consultation with the U.S. Fish & Wildlife Service with respect to the biological opinion. Although neither the construction of the landfill project nor the regular use of the railroad has commenced, the BLM requested the Company to develop a maintenance schedule for the railroad that would address, among other things, the particular concerns of culverts and rail line ballast. The Company has submitted a proposed schedule which is under review by the BLM.
Warrant Dispute.New Kaiser Employees’ Voluntary Benefit Association, VEBA, and Pension Benefit Guaranty Corporation, PBGC, are the beneficial owners of warrants to purchase, respectively, 460,000 and 285,260 Class A Units for such executive will be delayed until such time as the comprehensive medical physical and any related medical tests are completed.
Severance. If any officer is terminated without cause during the Initial Term, including, among other reasons, constructive termination, such officer is entitled to receive cash severance pay equal to two (2) year’s base salary. Severance is payable in the Company (the warrants were initially for common stock of Kaiser Inc. and were converted into Class A Units of Kaiser LLC in the merger). VEBA and PBGC have each claimed that the treatment of its warrant in the conversion violated the terms of the warrant. Prior to the vote on the conversion proposal, it wasone lump sum or, if mutually agreed by Kaiser, VEBAthe executive and PBGC thatBusiness Staffing, over a period of time. In addition, Business Staffing will continue to pay benefits, such as health and dental insurance, for two years. In the rights of each VEBA and PBGC, under its warrant, wouldevent an executive officer voluntarily terminates his employment, Business Staffing will not be changed or waived by (i) any consent to or approval of the conversion proposal by either VEBA, PBGC or any director representing either of them, or (ii) any decision by either the VEBA or the PBGC to delay any potential legal challenge until after the adoption and completion of the conversion proposal. VEBA and PBGC voted their respective shares in Kaiser Inc. in 2001 in favor of the conversion proposal. VEBA and PBGC each occasionally continue to assert that the conversion proposal violated the terms of its warrant. The Company has had discussions with VEBA representatives concerning the claim and the Company believes the claim does not have any merit. Neither the VEBA nor the PBGC have taken legal action to pursue the claim.
Product Liability Litigation. In March 2002, the Company received a complaint captioned Explorer Pipeline Company, et al v. Kaiser Steel Corporation, et al., (District Court of Tarrant County, Texas, Case No. 96-191821-02). The plaintiffs in this suit allege that KSC, or possibly other steel companies may have manufactured or sold pipe that was used in a portion of a petroleum pipeline that runs from the Texas Gulf Coast to Hammond, Indiana. It was further alleged that this portion of the pipeline was defective and ruptured on March 9, 2000, releasing gasoline and causing damage to the plaintiffs’ respective interests in land and that there were business interruption damages to certain of the plaintiffs. No amount of damages has been pled. Based upon the complaint, it appears that plaintiffs filed this lawsuit because of statute of limitations concerns without knowing who may have actually sold or manufactured the pipe in the ruptured section of the pipeline. There were no material developments in
this case in 2003. A National Transportation & Safety accident report identified another company as the maker of the ruptured pipe. Based upon information currently known, it is anticipated that the Company will ultimately be dismissed from the lawsuit. See “Note 22. Subsequent Events” for further information.
Asbestos Litigation. There are pending asbestos litigation claims, primarily bodily injury, against Kaiser LLC and Kaiser Steel Corporation (the bankruptcy estate of Kaiser Steel Corporation is embodied in KSC Recovery, Inc.). There currently are approximately 14 active suits. Most of the plaintiffs allege that they were aboard Kaiser ships or worked in shipyards in the Oakland/San Francisco, California area or Vancouver, Washington area in the 1940’s and that the Company and/or KSC Recovery were in some manner associated with one or more shipyards or has successor liability. However, the Company is beginning to see the focus of the claims shifting from ships and shipyards to other facilities such as the former Kaiser Steel Mill Site Property. Plaintiffs attorneys are increasingly requesting mill site and Eagle Mountain related documents in an effort to build a “war chest” of documents for future litigation.
Most of these lawsuits are third party premises claims alleging injury resulting from exposure to asbestos or asbestos containing products and involve multiple defendants. The Company anticipates that it, often along with KSC Recovery, will be named as a defendant in additional asbestos lawsuits. A number of large manufacturers and/or installers of asbestos and asbestos containing products have filed for bankruptcy over the past several years, increasing the likelihood that additional suits will be filed against the Company. In addition, the trend has been toward increasing trial damages and settlement demands. Virtually all of the complaints against us and KSC Recovery are non-specific, but involve allegations relating to pre-bankruptcy activities. It is difficult to determine the amount of damages that the Company could be liable for in any particular case until near the time of trial; indeed, many of these cases do not include pleadings with specific damages. The Company vigorously defends all asbestos claims as is appropriate for a particular case.
Of the claims resolved to date, approximately 76% have been resolved without payment to the plaintiffs, and of the 40 cases that have been settled to date involving a payment made to plaintiffs, the settlement amount was $37,500 or less for 32 of such cases. The Company believes that it currently has substantial insurance coverage for the asbestos claims and has tendered these suits to appropriate insurance carriers.
City of Ontario Claim. In 2001, the California Regional Water Quality Control Board (“RWQCB”) communicated with us that the City of Ontario had asserted that the Company was responsible for the damage caused by a plume of high total dissolved solids (such as salt) to one of its wells, which plume allegedly emanated from the Company’s former mill site property. By way of background, in the fall of 1993, RWQCB approved a settlement agreement resolving the Company’s groundwater remediation obligation. The settlement agreement provided that the Company would: (i) pay $1,500,000 upon approval of the settlement agreement; and (ii) contribute 1,000 acre feet of water in storage per year for 25 years for the benefit of a regional groundwater de-salter program either by direct transfer to the de-salter project or abandonment to the basin with a Watermaster waiver of the de-salter replenishment obligation. The Company has satisfied all of its obligations under the settlement agreement. However, the settlement agreement left open the possibility of certain third party claims. See “Note 22. Subsequent Events” for further information.
Slemmer Litigation. Thomas M. Slemmer, et al v. Fontana Union Water Company, et al., (San Bernardino County District Court, California, Case No. SCVSS 086856). The defendants in the lawsuit are Kaiser, Fontana Union Water Company, Cucamonga County Water Company, San Gabriel Valley Water and individuals serving on the Board of Directors of Fontana Union Water Company. In summary, plaintiffs allege that they are the owners of 175 shares of the stock of Fontana Union Water Company, a mutual water company, and that the defendants conspired and committed acts that constitute an unlawful restraint of trade, a breach of fiduciary duty by the controlling shareholders of Fontana Union and
fraudulent business practices in violation of California law. Among other things, plaintiffs have requested $25,000,000 in damages and the trebling of such damages under California law. In October 2003, the court ruled that the lawsuit could proceed as a class action lawsuit. With this ruling, discovery will proceed in the case. The Company believes that the allegations against the Company are without merit and the Company will vigorously defend this suit.
Port of Oakland. The Port of Oakland continues to assert a potential claim arising out of alleged contamination of soil from underground storage tanks. The Port of Oakland alleged that KSC used these tanks at property owned by the Port of Oakland and leased by Kaiser Steel Corporation pursuant to a lease agreement that terminated in 1986. Based upon the communication received, the Port of Oakland claims damages of approximately $150,000 plus unknown potential remediation costs. The Company believes, based upon the information it has been provided to date, that the allegations are without merit and that any potential claim would be barred under the statute of limitations.
Port of Los Angeles. On March 21, 2003, KSC received a Third Party Complaint captionedSanta Monica Baykeeper, et al (Plaintiffs) v. Kaiser International Corporation, et al (Defendants) / American Bulk Loading Enterprises, Inc. et al (Third-Party Plaintiffs) v. AMICOR, et al (Third Party Defendants) United States District Court Central District of California; Case Number CV-97-7761 DDP (RCx). The underlying litigation involves a citizens enforcement action commenced against the Port of Los Angeles, Kaiser International Company, and others by the Santa Monica Baykeepers for alleged contamination to the San Pedro Inner Harbor in the Port of Los Angeles arising from the operation of a bulk loading facility. The Third Party Plaintiffs subsequently commenced litigation against KSC and thirty-nine other Third Party Defendants seeking recovery for any amount paid by the Third Party Defendants under theories of equitable indemnity, negligence and contribution. While the Company understands the case is still open, the litigation is not actively being actively pursued against KSC.
London Market Claim. In 2002, litigation was commenced by Truck Insurance Exchange (“Truck”) against Lloyd’s, London, and certain London Market Insurance Companies (collectively “London Carriers”), captioned Truck Insurance Exchange v. Fremont Indemnity, et al, Los Angeles Superior Court Case No. BC 260738. In essence Truck was claiming that the London Carriers were obligated to participate inpay him any severance or other additional compensation, other than the payment of a litigation settlement that Truck had made. The London Carriers tendered the claimcompensation due and owing up to the Company for indemnification pursuant to a 1995 settlement agreement between the London Carriers and the Company. The Company in turn submitted the London Carriers’ claim to IMACC, which is a third party that the Company believes is ultimately responsible for the payment of any amount that is determined to be owed in litigation. During the second quarter of 2003, the Truck litigation was dismissed because of Truck’s failure to commence its law suit within the applicable statute of limitations. As of the date of this Report on Form 10-K, IMACC has been reimbursing the London Carriers for the reasonable attorneys’ fees and costs of this litigation. The Company understands that Truck has decided to appeal the trial court’s decision to dismiss the case.termination.
Bankruptcy ClaimsChange of Control. The bankruptcy estate of KSC was officially closed by order of U.S. Bankruptcy Court for the District of Colorado on October 2, 1996. However, the bankruptcy case was reopened in 1999 in connection with certain litigation matters. Since that time, the bankruptcy case was again closed, however, the administration of KSC’s bankrupt estate will continue for several more years.
From time to time various environmental and similar types of claims that relate to Kaiser Steel pre-bankruptcy activities, are asserted against KSC and Kaiser LLC. Excluding the asbestos claims, there has been an average of two to four such claims a year for the past several years. TheExplorer Pipelinelitigation and thePort of Oakland claims are examplesNone of the typesemployment agreements contain “change of claimscontrol” provisions. No compensation is due an officer upon a “change of control” absent an officer’s employment being terminated.
Termination for Cause. Each executive officer can be terminated for “cause.” “Cause” is generally defined as:
a. Willful breach by an officer of any provision of his employment agreement, provided, however, if the breach is not a material breach, Business Staffing is required to give written notice of such breach and the officer shall have thirty (30) days in which to cure such breach. No written notice or cure period shall be required in the event of a willful and material breach of his agreement;
b. Gross negligence or dishonesty in the performance of the officer’s duties or possibilities under his employment agreement;
c. Engaging in conduct or activities or holding any position that are occasionally alleged to have arisen out of pre-bankruptcy activities. In connectionmaterially conflicts with the KSC planinterest of, reorganization,or materially interferes with the officer’s duties and responsibilities to Business Staffing, Kaiser as the reorganized successor to KSC, was discharged from all liabilities that may have arisen prior to confirmation of the plan, except as otherwise provided by the plan and by law. Although Kaiser
believes thatd. Engaging in general all pre-petition claims were discharged under the KSC bankruptcy plan, there have been some challenges asconduct which is materially detrimental to the validitybusiness of the discharge of certain specified claims, such as asbestos claims. If any of theseBusiness Staffing, Kaiser LLC or other similar claims are ultimately determined to survive the KSC bankruptcy, it could have a materially adverse effect on Kaiser’s business and value.their respective affiliates.
Note 22. SUBSEQUENT EVENTS
Settlement of City of Ontario. In February 2004, the Company executed a final settlement agreement with the City of Ontario with regard to allegations of impacts to municipal wells owned by the City of Ontario. The full settlement price was paid by insurance and will be reflected in the Company’s financial statements in the first quarter of 2004.
Dismissal of Products Liability Litigation. On March 2, 2004, the Company was dismissed without prejudice from the caseExplorer Pipeline Company, et al with Kaiser Steel Corporation, et al (District Court of Tarrant County Texas, Case No. 96-191 821-02).
Tex Tin Claim. In February 2004 the Company received correspondence identifying the Company as a potentially responsible partyNo severance is payable if an executive is terminated for remediation and related costs at a property in Texas known as the Tex Tin site. It appears that the basis for such identification is that the Company is considered the reorganized successor to KSC. However, the factual basis and the monetary extent of the alleged liability are currently unknown. No legal action has been commenced against the Company. The Company has informed those giving the notice that the Company believes such liability, if any, was discharged in the bankruptcy of KSC. The Company believes that there is coverage under the Company’s existing insurance for this claim.
Note 23. QUARTERLY FINANCIAL DATA (Unaudited)
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
2003 | ||||||||||||||||
Resource revenues | $ | 835,000 | $ | 343,000 | $ | 509,000 | $ | 587,000 | ||||||||
Income (loss) from operations | $ | 409,000 | $ | (1,236,000 | ) | $ | (1,541,000 | ) | $ | (2,649,000 | ) | |||||
Income (loss) before minority interest and income tax provision | $ | 522,000 | $ | (1,016,000 | ) | $ | (1,427,000 | ) | $ | (2,469,000 | ) | |||||
Income (loss) before income tax provision | $ | 522,000 | $ | (1,016,000 | ) | $ | (1,164,000 | ) | $ | (1,943,000 | ) | |||||
Net (loss) income | $ | 518,000 | $ | (1,020,000 | ) | $ | (1,212,000 | ) | $ | (1,949,000 | ) | |||||
Earnings (loss) per unit | ||||||||||||||||
Basic | $ | 0.08 | $ | (0.15 | ) | $ | (0.18 | ) | $ | (0.28 | ) | |||||
Diluted | $ | 0.08 | $ | (0.15 | ) | $ | (0.18 | ) | $ | (0.28 | ) | |||||
See Note 6—Mine Reclamation, LLC regarding loss in fourth quarter related to flood damage to railroad |
| |||||||||||||||
2002 | ||||||||||||||||
Resource revenues | $ | 279,000 | $ | 317,000 | $ | 406,000 | $ | 392,000 | ||||||||
Income (loss) from operations | $ | (607,000 | ) | $ | (358,000 | ) | $ | (264,000 | ) | $ | 97,000 | |||||
Income (loss) before income tax provision | $ | (422,000 | ) | $ | (266,000 | ) | $ | (149,000 | ) | $ | 202,000 | |||||
Net (loss) income | $ | (424,000 | ) | $ | (267,000 | ) | $ | 432,000 | $ | 191,000 | ||||||
Earnings (loss) per unit | ||||||||||||||||
Basic | $ | (0.06 | ) | $ | (0.04 | ) | $ | 0.06 | $ | 0.03 | ||||||
Diluted | $ | (0.06 | ) | $ | (0.04 | ) | $ | 0.06 | $ | 0.03 |
“cause.”
KAISER VENTURES LLC AND SUBSIDIARIES
SCHEDULE II - VALUATIONCurrent Salary of Executive Officers. Set forth below is the annual base salary of Kaiser’s Chief Executive Officer and each of its other named executive officers as of March 16, 2009:
NAME | ANNUAL BASE SALARY | ||
Richard E. Stoddard | $ | 358,310 | |
Terry L. Cook | $ | 296,453 | |
James F. Verhey | $ | 164,279 |
EXECUTIVE OFFICER NEW REVENUE INCENTIVE PARTICIPATION PLAN
On January 10, 2007, Business Staffing approved the “Executive Officer New Revenue Incentive Bonus Plan” to be effective commencing January 1, 2007 (the “Performance Bonus Plan”). The previous discretionary bonus plan was terminated and replaced with the Performance Bonus Plan.
Pursuant to this incentive plan, eighteen percent (18%) of the annual New Net Revenue of the Company, as defined in the Performance Bonus Plan shall be awarded as a bonus pool to the current executive officers and to any new executive officer as may be provided in the Performance Bonus Plan. Any performance bonus payable under the Performance Bonus Plan shall be paid equally among the executive officers and shall be paid 50% in Class A Units and 50% either in cash or by a contribution to the account of the respective officer under the SERP or any other tax deferred plan that may be established in the discretion of Business Staffing.
“New Revenue” means all revenue generated from new lines of business or new sources of revenue for Kaiser that are not historically recurring revenues as of January 1, 2006. New Revenue does not include revenues generated from the sale of Kaiser’s existing assets and projects, except as provided in the Performance Bonus Plan, distributions from Kaiser’s interest in West Valley MRF, LLC, revenues generated as a result of landfill operations at Eagle Mountain, interest and investment income. “New Revenue Expenses” means all incremental and new direct and indirect expenses incurred in the generation of New Revenue but New Revenue Expenses shall not include the amortization or depreciation cost of any existing asset or an allocation of any fixed expense or charge, including the allocation of the base salary and benefits of existing employee positions of the Company. “Net New Revenue” is the positive difference, if any, of New Revenue less New Revenue Expenses for any give calendar year. The Performance Bonus Plan is administered by a committee composed of the individuals serving on Kaiser’s Human Relations Committee. The bonus, if any, is to be paid by March 14 of each year. No bonus was earned under such plan for 2008.
HUMAN RELATIONS COMMITTEE INTERLOCKS AND QUALIFYING ACCOUNTSINSIDER PARTICIPATIONS
During the year ending December 31, 2008, the Human Relations Committee consisted of Messrs. Cole (Chairman), Bitonti, and Fawcett. Mr. Fawcett was President and Chief Operating Officer of Kaiser from January 1996, until his retirement from full time duties on January 15, 1998. Mr. Fawcett continues to perform work for us from time-to-time. Mr. Fawcett’s compensation is summarized in the “Manager Compensation” table located on the next page.
KAISER VENTURES LLC AND RESERVESSUBSIDIARIES
MANAGER COMPENSATION
During 2008 non-employee managers were paid on the following basis:
DESCRIPTIONOF COMPENSATIONFOR NON-EMPLOYEE MANAGERS | AMOUNT | |||
Annual Cash Retainer | $ | 20,000 | ||
Chairman of Committee-Additional Annual Cash Retainer | $ | 5,000 | * | |
Meeting Fee-(In Person) | $ | 1,500 | ||
Meeting Fee-(Telephonic) | $ | 1,000 | ||
Annual equity grant (Class A Units) | 5,000 |
* | The chairman of the Audit Committee receives an additional $2,500 annual cash retainer. |
Each grant vests on January 31st of the year following the grant, subject to acceleration upon the occurrence of certain events. Accordingly, the restricted 5,000 Class A Units granted to Messrs. Bitonti, Cole, Fawcett and Wallach in 2007, fully vested on January 31, 2008, and those granted in June 2008 vested in January 2009.
We do not provide retirement benefits for non-employee managers.
MANAGER COMPENSATION TABLEFOR 2008(1)
Classification | Balance at Beginning of Period | Charged to Costs and Expenses | Deductions/ Adjustments from Reserves | Balance at End of Period | ||||||||
Year Ended December 31, 2003 | ||||||||||||
Allowance for losses in collection of current accounts receivable | $ | 34,000 | $ | — | $ | — | $ | 34,000 | ||||
Year Ended December 31, 2002 | ||||||||||||
Allowance for losses in collection of current accounts receivable | $ | 34,000 | $ | — | $ | — | $ | 34,000 | ||||
Year Ended December 31, 2001 | ||||||||||||
Allowance for losses in collection of current accounts receivable | $ | 83,000 | $ | — | $ | 49,000 | $ | 34,000 | ||||
Name | Fees Earned or Paid in Cash ($) | Unit Awards ($)(2) | Total ($) | ||||
Ronald E. Bitonti | 31,000 | (3) | 2,500 | 33,500 | |||
Todd G. Cole | 36,500 | 2,500 | 39,000 | ||||
Gerald A. Fawcett(4) | — | 2,500 | 2,500 | ||||
Richard E. Stoddard(5) | — | — | — | ||||
Marshall F. Wallach | 37,500 | 2,500 | 40,000 |
(1) | The “Option Awards”; “Non-Equity Incentive Plan Compensation”; “Change in Pension Value and Non-qualified Deferred Compensation”; and “All Other Compensation” columns have been eliminated from the Manager Compensation Table because there were no reportable events/compensation earned for such items in 2008. |
(2) | The Company’s Class A Units are not publicly traded. The $.50 per Class A Unit value is based upon the average sales price of the few private sales of units that did occur during the six-month period prior to the date of the units issuance in June 2008. |
(3) | Included in this amount is the annual retainer of $2,000 per year Mr. Bitonti receives for serving on the Board of Directors of KSC Recovery, Inc., the bankruptcy estate of Kaiser Steel Corporation. |
(4) | Mr. Fawcett works on our behalf through Business Staffing, Inc. on various matters and projects in addition to his work on the Board of Managers. Accordingly, he is considered an employee for compensation purposes and is paid an annual salary of $60,000. He is not paid additional compensation for serving on the Board of |
KAISER VENTURES LLC AND SUBSIDIARIES
Managers except for the annual award of 5,000 Class A Units. Mr. Fawcett also receives medical, dental, and vision insurance and other similar benefits made available to all employees of Business Staffing, Inc. |
(5) | As an employee - manager, Mr. Stoddard receives no additional compensation for serving on the Company’s Board of Managers. His compensation as an executive officer is summarized under “Item 10. EXECUTIVE COMPENSATION - Summary Compensation Table.” |
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KAISER VENTURES LLC AND SUBSIDIARIES
Item 12. | SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED MEMBER MATTERS |
PRINCIPAL UNIT MEMBERS
The following table sets forth, based upon the latest available filings with the Securities and Exchange Commission and from the Company’s Class A Unit member ownership list (generally reporting ownership as of December 31, 2008), the number of Class A Units owned by each person known by us to own of record or beneficially five percent (5%) or more of such units.
Name and Address of Beneficial Owner | Number of Class A Units Beneficially Owned | % of Issued and Outstanding Class A Units(1) | |||
Ascend Capital Holdings Corporation One Montgomery St., Suite 3300 San Francisco, CA 94104 | 656,000 | 10.01 | % | ||
Kaiser’s Voluntary Employees’ Beneficiary Association Trust (VEBA)(2) 9786 Sierra Avenue Fontana, CA 92335 | 656,987 | 10.01 | % | ||
Pension Benefit Guaranty Corporation(3) Pacholder Associates, Inc. 8044 Montgomery Road, Suite 382 Cincinnati, OH 45236 | 407,415 | 6.24 | % | ||
Willow Creek Capital Partners 300 Drakes Landing Road, Suite 230 Greenbrae, California | 756,200 | 11.58 | % |
(1) | The percentage for each member is based on the total number if issued and outstanding Class A Units including the 104,267 Class A Units reserved but not yet distributed to the Class 4A unsecured creditors of KSC and 113,250 Class A Units deemed 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. |
(2) | VEBA received its shares in Kaiser as a creditor of the KSC bankruptcy. VEBA’s shares in Kaiser are held in trust by AST Trust Company. |
(3) | PBGC received its shares in Kaiser as a creditor of the KSC bankruptcy. The Company understands that Pacholder Associates, Inc. has a contract with PBGC pursuant to which it has full and complete investment discretion with respect to substantially all of the units owned by PBGC, including the power to vote such securities. Substantially all of the PBGC’s units are held through a nominee Beat & Co. |
KAISER VENTURES LLC AND SUBSIDIARIES
92SECURITY OWNERSHIP OF MANAGEMENT
This table below reflects the number of Class A Units beneficially owned by the Company’s: (1) managers and manager nominees; (2) named executive officers; and (3) all of its managers and named executive officers as a group, as of March 16, 2009, as well as the number of options exercisable within 60 days of that date.
Name | Class A Units Beneficially Owned, Excluding Options | Class A Units Underlying Options Exercisable Within 60-Days of March 16, 2009 | Total # of Class A Units Owned(1) | % of Issued and Outstanding Class A Units(1) | |||||
Richard E. Stoddard, CEO, President & Chairman | 281,386 | 0 | 281.386 | 4.31 | % | ||||
Gerald A. Fawcett, Vice Chairman(2) | 140,578 | 0 | 140.578 | 2.15 | % | ||||
James F. Verhey, Executive Vice President - Finance & CFO | 128,227 | 0 | 128,227 | 1.96 | % | ||||
Terry L. Cook, Executive Vice President - Administration, General Counsel & Corporate Secretary | 154,158 | 0 | 154,158 | 2.36 | % | ||||
Ronald E. Bitonti, Manager(3) | 39,896 | 0 | 39,896 | * | |||||
Todd G. Cole, Manager | 40,188 | 0 | 40,188 | * | |||||
Marshall F. Wallach, Manager | 49,750 | 0 | 49,750 | * | |||||
All officers and managers as a group (7 persons)(1) | 834,183 | 0 | 834,183 | 12.78 | % |
* | Less than one percent. |
(1) | The percentage for each individual is based on the total number of issued and outstanding Class A Units (including the 104,267 Class A Units which have been issued but are reserved and not yet distributed to the Class 4A unsecured creditors of KSC and 113,250 Class A Units reserved for those who have yet to convert their Kaiser Inc. stock to Kaiser LLC Class A Units as a result of the merger) and was determined as if all the options listed in Column 2 had been exercised by that particular individual. All options are vested. |
(2) | Mr. Fawcett retired as President and Chief Operating Officer of Kaiser effective January 15, 1998. |
(3) | Mr. Bitonti is Chairman of the VEBA Board of Trustees. He disclaims any beneficial ownership interest in the units beneficially owned by VEBA. |
Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND MANAGER INDEPENDENCE |
None reportable.
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KAISER VENTURES LLC AND SUBSIDIARIES
Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Independent Auditor and Fees
The Audit Committee appointed Moss Adams as the Company’s independent registered public accounting firm for 2007, 2008 and for the current fiscal year.
Fees (including reimbursements for out-of-pocket expenses) paid to Moss Adams LLP for services in fiscal 2007 and 2008 were as follows:
MOSS ADAMS LLP | ||||||
FEE CATEGORY | FISCAL 2007 FEES | FISCAL 2008 FEES | ||||
Audit – Fees | $ | 142,940 | $ | 146,750 | ||
Audit – Related Fees | $ | — | $ | — | ||
Tax Fees | $ | 54,475 | $ | 85,165 | ||
All Other Fees | $ | 24,255 | $ | 29,281 | ||
Total Fees | $ | 221,670 | $ | 261,196 | ||
The above Audit Fees are for the respective year’s audit, quarterly reviews and SEC filings, regardless of when the fees were billed. Tax Fees include tax compliance (tax return preparation) and tax advice services. The above Audit-Related Fees, Tax Fees and All Other Fees shown are based upon billings dates, and may relate to the preceding fiscal year.
The Audit Committee generally approves all engagements of the independent registered accounting firm in advance including approval of the related fees. The Audit Committee approves an annual budget (and may from time to time approve amendments), which specifies projects and the approved levels of fees for each. To the extent that items are not covered in the annual budget or fees exceed the budget, management must have them approved by the Audit Committee or, if necessary between Committee meetings, by the Audit Committee chairman on behalf of the Committee.
KAISER VENTURES LLC AND SUBSIDIARIES
PART IV
Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) Exhibits.
The following exhibits are filed as part of this Form 10-K.
EXHIBIT INDEX
(* Indicates compensation plan, contract or arrangement)
EXHIBIT | DOCUMENT DESCRIPTION | |
2.1 | Second Amended Joint Plan of Organization as Modified, as filed with the United States Bankruptcy Court for the District of Colorado on September 19, 1988, incorporated by reference from Exhibit 2.1 of Kaiser Ventures Inc.’s Form 10-K Report for the year ended December 31, 1988. | |
2.2 | Second Amended Joint Plan of Reorganization Modification, as filed with the United States Bankruptcy Court on September 26, 1988, incorporated by reference from Exhibit 2.2 of Kaiser Ventures Inc.’s Form 10-K Report for the year ended December 31, 1988. | |
2.3 | United States Bankruptcy Court Order dated October 4, 1988, confirming the Second Amended Joint Plan of Reorganization as Modified, incorporated by reference from Exhibit 2.3 of Kaiser Ventures Inc.’s Form 10-K Report for the year ended December 31, 1988. | |
2.4 | Agreement and Plan of Merger between Kaiser Ventures Inc. and Kaiser Ventures LLC, incorporated by reference from Exhibit 2.6 to Kaiser Ventures LLC Registration Statement on Form S-4, filed on October 19, 2001. | |
2.5 | Certificate of Merger to be filed with the Secretary of State of Delaware, incorporated by reference from Exhibit 2.7 to Kaiser Ventures LLC Registration Statement on Form S-4, filed on October 19, 2001. | |
3.1 | Certificate of Formation of Kaiser Ventures LLC, filed with the Delaware Secretary of State on July 10, 2001, incorporated by reference from Exhibit 3.3 to Kaiser Ventures LLC Registration Statement on Form S-4, filed on July 16, 2001. | |
3.2 | Kaiser Ventures LLC Operating Agreement, effective as of July 10, 2001, incorporated by reference from Exhibit 3.4 to Kaiser Ventures LLC Registration Statement Form S-4 filed on July 16, 2001. | |
3.3 | Amended and Restated Kaiser Ventures LLC Operating Agreement, effective as of October 1, 2001, incorporated by reference from Exhibit 3.5 to Kaiser Ventures LLC’s Registration Statement Form S-4 filed on October 16, 2001. | |
3.4 | First Amendment to Amended and Restated Kaiser Ventures LLC Operating Agreement, effective as of January 15, 2002, incorporated by reference from Exhibit 3.4 to Kaiser Ventures LLC Form 10-K Report for the year ended December 31, 2001. | |
10.1 | Lease Entered into between Kaiser Eagle Mountain, Inc., and Mine Reclamation Corporation, dated November 30, 1988, incorporated by reference from Exhibit 10.1 of the Kaiser Ventures Inc.’s Form 10-K Report for the year ended December 31, 1988. | |
10.1.1 | First Amendment dated December 18, 1990, to Lease dated November 30, 1990 between Kaiser Eagle Mountain, Inc. and Mine Reclamation Corporation, incorporated by reference from the Kaiser Ventures Inc.’s Form 8-K Report dated December 18, 1990. |
KAISER VENTURES LLC AND SUBSIDIARIES
EXHIBIT | DOCUMENT DESCRIPTION | |
10.1.2 | Second Amendment dated July 29, 1994, to Lease dated November 30, 1990, between Kaiser Eagle Mountain, Inc. and Mine Reclamation Corporation, incorporated by reference from Exhibit 4 of Kaiser Ventures Inc.’s Form 10-Q Report for the period ending June 30, 1994. | |
10.1.3 | Third Amendment dated January 29, 1995, but effective as of January 1, 1995, to Lease dated November 30, 1990, between Kaiser Eagle Mountain, Inc. and Mine Reclamation Corporation, incorporated by reference from Exhibit 10.1.3 of Kaiser Ventures Inc.’s Form 10-K Report for the year ended December 31, 1994. | |
10.1.4 | Fourth Amendment dated effective January 1, 1996, between Kaiser Eagle Mountain, Inc. and Mine Reclamation Corporation, incorporated by reference from Exhibit 10.1.4 of Kaiser Ventures Inc.’s Form 10-K Report for the year ended December 31, 1995. | |
10.1.5 | Indemnification Agreement dated September 9, 1997 among Riverside County, Mine Reclamation Corporation, Kaiser Eagle Mountain, Inc. Eagle Mountain Reclamation, Inc. and Kaiser Ventures Inc, incorporated by reference from Exhibit 10.1 of Kaiser Ventures Inc.’s Form 10-Q Report for the period ended September 30, 1997. | |
10.1.6 | Development Agreement to be executed upon consummation of federal land exchange among Riverside County, Mine Reclamation Corporation, Kaiser Eagle Mountain, Inc. Eagle Mountain Reclamation, Inc. and Kaiser Ventures Inc., incorporated by reference from Exhibit 10.2 of Kaiser Ventures Inc.’s Form 10-Q Report for the period ended September 30, 1997. | |
10.1.7 | Operating Agreement for Mine Reclamation, LLC dated June 1, 2000, incorporated by reference from Exhibit 10.1.7 of Kaiser Ventures Inc.’s Form 10-K Report for the year ended December 31, 2000. | |
10.2 | 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 between County Sanitation District No. 2 of Los Angeles County and Mine Reclamation, LLC incorporated by reference from Exhibit 10.3 of the Company’s Form 10-Q Report for the quarter ended June 30, 2000, incorporated by reference from Exhibit 10.2 of Kaiser Ventures Inc.’s Form 10-K Report for the year ended December 31, 2000. | |
10.3* | Employment Agreement between Business Staffing, Inc. and Richard E. Stoddard dated as of January 1, 2007, incorporated by reference from Exhibit 10.1 of Kaiser Ventures LLC’s Form 8-K dated January 10, 2007. | |
10.4* | Employment Agreement between Kaiser Ventures Inc. and Gerald A. Fawcett dated as of January 18, 1999, incorporated by reference from Exhibit 10.5 of Kaiser Ventures Inc.’s Form 10-K Report for the year ended December 31, 1998. | |
10.5* | Employment Agreement between Business Staffing, Inc. and Terry L. Cook dated as of January 1, 2007, incorporated by reference from Exhibit 10.3 of Kaiser Ventures LLC’s Form 8-K Report dated January 10, 2007. | |
10.6* | Employment Agreement between Business Staffing, Inc. and James F. Verhey dated as of January 1, 2007, incorporated by reference from Exhibit 10.2 of Kaiser Ventures LLC’s 8-K Report dated January 10, 2007. | |
10.7 | Lease Agreement between American Trading Estate Properties (now known as Lord Baltimore Properties), Landlord and Kaiser Resources Inc., Tenant, dated June 6, 1994, incorporated by reference from Exhibit 10.8 of Kaiser Ventures Inc.’s Form 10-K Report for the year ended December 31, 1994. |
KAISER VENTURES LLC AND SUBSIDIARIES
EXHIBIT | DOCUMENT DESCRIPTION | |
10.7.1 | Second Amendment to Lease Agreement between Lord Baltimore Properties and Kaiser Ventures Inc. dated September 27, 1999, incorporated by reference from Exhibit 10.10.1 of Kaiser Ventures Inc.’s 10-K for the year ended December 31, 1999. | |
10.7.2 | Third Amendment to Lease Agreement between Lord Baltimore Properties and Kaiser Ventures LLC dated February 19, 2002, incorporated by reference from Exhibit 10.16.2 of Kaiser Ventures LLC Report for the year ended December 31, 2001. | |
10.7.3 | Fourth Amendment to Lease Agreement between CIP Empire Tower LLP and Kaiser Ventures LLC dated November 13, 2006 incorporated by reference from Exhibit 10.1 of Kaiser Ventures LLC’s Form 10-QSB Report for the period ended September 30, 2006. | |
10.7.4 | Fifth Amendment to Lease Agreement between CPI Empire Tower LLC and Kaiser Ventures LLC dated March 16, 2009, filed herewith. | |
10.8* | Amended, Restated and Substituted Kaiser Steel Resources, Inc. 1989 Stock Plan, incorporated by reference from Kaiser Ventures Inc.’s Proxy Statement for the Special Meeting of Stockholders held on October 2, 1990. | |
10.9* | Kaiser Steel Resources, Inc. 1992 Stock Option Plan, as amended, incorporated by reference from Exhibit 10.16 of Kaiser Ventures Inc.’s Form S-2 (Registration No. 33-56234). | |
10.10* | Kaiser Ventures Inc. 1995 Stock Plan incorporated by reference from Exhibit 10.15 of Kaiser Ventures Inc.’s 10-K Report for the year ended December 31, 1995. | |
10.10.1* | First Amendment to Kaiser Ventures Inc. 1995 Stock Option Plan, incorporated by reference from Exhibit 4.1.1 of Kaiser Ventures Inc.’s Form S-8 Registration Statement (Registration No. 333-17843). | |
10.11* | Executive Officer New Revenue Participation Incentive Plan adopted to be effective January 1, 2007, incorporated by reference from Exhibit 10.4 of Kaiser Ventures LLC’s Form 8-K Report dated January 10, 2007. | |
10.12* | Business Staffing, Inc. Supplemental Deferred Compensation Plan dated January 10, 2007, incorporated by reference from Exhibit 10.5 of Kaiser Ventures LLC’s Form 8-K Report dated January 10, 2007. | |
10.12.1* | Non-Qualified Deferred Compensation Agreement dated January 10, 2007, incorporated by reference from Exhibit 10.6 of Kaiser Ventures LLC’s Form 8-K Report dated January 10, 2007. | |
10.13* | Board of Directors Stock Plan adopted May 10, 2000, incorporated by reference from Exhibit 10.19 of Kaiser Ventures Inc.’s Form 10-K Report for the year ended December 31, 2000. | |
10.14 | Form of Indemnification Agreement for individuals serving on the Board of Managers of Kaiser Ventures LLC, incorporated by reference from Exhibit 10.25 of Kaiser Ventures LLC’s 10-K Report for the year ended December 31, 2001. | |
10.15 | Form of Indemnification Agreement for officers of Kaiser Ventures LLC, incorporated by reference from Exhibit 10.26 of Kaiser Ventures LLC’s 10-K Report for the year ended December 31, 2001. | |
10.16 | Members Operating Agreement dated June 19, 1997 between Kaiser Recycling Corporation and West Valley Recycling & Transfer, Inc., incorporated by reference from Exhibit 10.1 of Kaiser Ventures Inc.’s 10-Q Report for the period ended June 30, 1997. | |
10.16.1 | Second Amendment to Members Operating Agreement dated December 1, 2001, incorporated by reference from Exhibit 10.18.1 of Kaiser Ventures LLC’s 10-KSB Report for the year ended December 31, 2004. |
KAISER VENTURES LLC AND SUBSIDIARIES
EXHIBIT | DOCUMENT DESCRIPTION | |
10.16.2 | Performance Guaranty and Indemnification Agreement (KRC Obligations) dated June 19, 1997 given by Kaiser Ventures Inc. for the benefit of West Valley MRF, LLC and West Valley Recycling & Transfer, Inc., incorporated by reference from Exhibit 10.1.1 of Kaiser Ventures Inc.’s 10-Q Report for the period ended June 30, 1997. | |
10.17 | Loan Agreement dated as of June 1, 1997 between West Valley MRF, LLC and California Pollution Control Financing Authority, incorporated by reference from Exhibit 10.2 of the Company’s 10-Q Report for the period ended June 30, 1997. | |
10.17.1 | Indenture Agreement dated as of June 1, 1997 between California Pollution Control Financing Authority and BNY Western Trust Company for the benefit of $9,500,000 California Pollution Control Financing Authority Variable Rate Demand Solid Waste Disposal Revenue Bonds (West Valley MRF, LLC Project) Series 1997A, incorporated by reference from Exhibit 10.2.1 of Kaiser Ventures Inc.’s 10-Q Report for the period ended June 30, 1997. | |
10.17.2 | Remarketing Agreement dated as of June 1, 1997, and among West Valley MRF, LLC and Westhoff, Cone & Holmstedt and Smith Barney, Inc. with regard to $9,500,000 California Pollution Control Financing Authority Variable Rate Demand Stock Waste Disposal Revenue Bonds (West Valley MRF, LLC Project) Series 1997A, incorporated by reference from Exhibit 10.3 of Kaiser Ventures Inc.’s 10-Q Report for the period ended June 30, 1997. | |
10.18 | Reimbursement Agreement dated as of June 1, 1997 between West Valley MRF, LLC and Union Bank of California, N.A., incorporated by reference from Exhibit 10.4 of Kaiser Ventures Inc.’s 10-Q Report for the period ended June 30, 1997. | |
10.18.1 | Second Amendment Agreement dated as of May 1, 2007, between West Valley MRF, LLC and Union Bank of California, N.A., filed herewith. | |
10.19 | Guaranty and Mandatory DSR Agreement dated as of June 1, 1997 given by Kaiser Ventures Inc. and Kaiser Recycling Corporation for the benefit of Union Bank of California, N.A., incorporated by reference from Exhibit 10.4.1 of Kaiser Ventures Inc.’s 10-Q Report for the period ended June 30, 1997. | |
10.19.1 | Guarantors’ Acknowledgment and Consent (1997 L/C) dated as of May 1, 1007, given by Kaiser Ventures LLC, Kaiser Recycling, LLC, Burrtec Waste Industries, Inc. and West Valley Recycling & Transfer, Inc. for the benefit of Union Bank of California filed herewith. | |
10.20 | Environmental Compliance Agreement dated as of June 19, 1997 between West Valley MRF, LLC and Union Bank of California, N.A., incorporated by reference from Exhibit 10.5 of Kaiser Ventures Inc.’s 10-Q Report for the period ended June 30, 1997. | |
10.21 | Environmental Guaranty Agreement dated as of June 19, 1997 given by Kaiser Ventures Inc. and Kaiser Recycling Corporation for the benefit of Union Bank of California, N.A., incorporated by reference from Exhibit 10.5.1 of Kaiser Ventures Inc.’s 10-Q Report for the period ended June 30, 1997. | |
10.21.1 | First Amendment and Restated Environmental Guaranty Agreement between West Valley MRF, LLC and Union Bank of California dated May 1, 2000, incorporated by reference from Exhibit 10.4 of Kaiser Ventures Inc.’s Form 10-Q Report for the period ended June 30, 2000. | |
10.22 | Guaranty and Mandatory Deposit Agreement between West Valley MRF, LLC and Union Bank of California, N.A. dated May 1, 2000, incorporated by reference from Exhibit 10.4.1 of Kaiser Ventures Inc.’s Form 10-Q Report for the period ended June 30, 2000. | |
10.23 | First Amendment and Restated Environmental Compliance Agreement between West Valley MRF, LLC and Union Bank of California, N.A. dated May 1, 2000, incorporated by reference from Exhibit 10.4.2 of Kaiser Ventures Inc.’s Form 10-Q Report for the period ended June 30, 2000. |
KAISER VENTURES LLC AND SUBSIDIARIES
EXHIBIT | DOCUMENT DESCRIPTION | |
10.24 | Reimbursement Agreement between West Valley MRF, LLC and Union Bank of California, N.A. dated May 1, 2000, incorporated by reference from Exhibit 10.4.3 of Kaiser Ventures Inc.’s Form 10-Q Report for the period ended June 30, 2000. | |
10.24.1 | Third Amendment Agreement (2000 L/C) dated as of May 1, 2007, between West Valley MRF, LLC and Union Bank of California, N.A., filed herewith. | |
10.25 | Loan Agreement between West Valley MRF, LLC and Union Bank of California, N.A. dated May 1, 2000, incorporated by reference from Exhibit 10.4.4 of Kaiser Ventures Inc.’s Form 10-Q Report for the period ended June 30, 2000. | |
10.26 | Loan Guaranty between West Valley MRF, LLC and Union Bank of California, N.A. dated May 1, 2000, incorporated by reference from Exhibit 10.4.5 of Kaiser Ventures Inc.’s Form 10-Q Report for the period ended June 30, 2000. | |
10.26.1 | Guarantors’ Acknowledgment and Consent (2000 L/C) dated as of May 1, 2007, between West Valley MRF, LLC and Union Bank of California, N.A., filed herewith. | |
14 | Code of Business Conduct and Ethics of Kaiser Ventures LLC incorporated by reference from Exhibit 14.1 of Kaiser Ventures LLC’s Form 10-K Report for the year ended December 31, 2002. | |
21 | Active subsidiaries of Kaiser Ventures LLC are: Lake Tamarisk Development, LLC; Kaiser Eagle Mountain, LLC; Kaiser Recycling, LLC; Business Staffing, Inc.; and Mine Reclamation, LLC. | |
23 | Consent of Moss Adams LLP Independent Registered Public Accounting Firm. | |
24 | Power of Attorney (included in the signature page). | |
31.1 | Certificate of Richard E. Stoddard, Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a) filed with this Report. | |
31.2 | Certificate of James F. Verhey, Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a) filed with this Report. | |
32 | Certificates of Richard E. Stoddard, Chief Executive Officer, and James F. Verhey, Chief Financial Officer, pursuant to Section 1350, filed with this Report. | |
99 | Preliminary Opinion and related analysis of Duff & Phelps, LLC, relating to its independent valuation of the Class A Units as of November 30, 2001, incorporated by reference from Exhibit 99.3 of Amendment No. 2 to Kaiser Ventures LLC’s Registration Statement on Form S-4, filed on September 30, 2001. | |
99.1 | Amended and Restated Audit Committee Charter of Kaiser Ventures LLC adopted November 11, 2005 incorporated by reference from Exhibit 99. of Kaiser Ventures LLC’s Report on Form 10-QSB for the period ended September 30, 2005. |
(b) Reports on Form 8-K.
None.
KAISER VENTURES LLC AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 30, 2009 | KAISER VENTURES LLC | |||||||
By: | /s/ Richard E. Stoddard | |||||||
Name: | Richard E. Stoddard | |||||||
Title: | President, Chief Executive Officer | |||||||
and Chairman of the Board of Managers |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
KAISER VENTURES LLC AND SUBSIDIARIES
(Power of Attorney)
Each person whose signature appears below constitutes and appoints RICHARD E. STODDARD and JAMES F. VERHEY as his true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.
Signature | Title | Date | ||
1. Principal Executive Officer | ||||
/s/ Richard E. Stoddard Richard E. Stoddard | President, Chief Executive Officer and Chairman of the Board of Managers (Principal Executive Officer) | March 30, 2009 | ||
2. Principal Financial and Accounting Officer | ||||
/s/ James F. Verhey James F. Verhey | Executive Vice President, and Chief Financial Officer (Principal Financial and Accounting Officer) | March 30, 2009 |
KAISER VENTURES LLC AND SUBSIDIARIES
Signature | Title | Date | ||
4. Managers | ||||
/s/ Ronald E. Bitonti Ronald E. Bitonti | Manager | March 30, 2009 | ||
/s/ Todd G. Cole | Manager | March 30, 2009 | ||
Todd G. Cole | ||||
/s/ Gerald A. Fawcett Gerald A. Fawcett | Vice Chairman | March 30, 2009 | ||
/s/ Marshall F. Wallach Marshall F. Wallach | Manager | March 30, 2009 |
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