SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2002 Commission File Number 333-65194
KAISER VENTURES LLC
-------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0972983
- ----------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3633 East Inland Empire Blvd., Suite 850
Ontario, California 91764
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (909) 483-8500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
At April 30, 2002, 6,904,299 Class A Units were outstanding including 136,919
Class A Units outstanding but reserved for distribution to the general unsecured
creditors of Kaiser Steel Corporation.
TABLE OF CONTENTS TO FORM 10-Q
PAGE
PART I
FORWARD-LOOKING STATEMENTS ............................................ 1
Item 1. FINANCIAL STATEMENTS ....................................... 1/11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ....................... 2
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS ................................ 12
CONSOLIDATED STATEMENTS OF INCOME .......................... 14
CONSOLIDATED STATEMENTS OF CASH FLOWS ...................... 15
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY ...... 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ................. 17
PART II
Item 1. LEGAL PROCEEDINGS .......................................... 18
Item 2. CHANGES IN SECURITIES ...................................... 19
Item 3. DEFAULTS UPON SENIOR SECURITIES ............................ 19
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS .......... 19
Item 5. OTHER INFORMATION .......................................... 19
Item 6. EXHIBITS AND REPORTS ON FORM 8-K ........................... 20
SIGNATURES ............................................................ 21
AVAILABILITY OF PREVIOUS REPORTS
--------------------------------
The Company will furnish without charge, to each stockholder, upon written
request of any such person, a copy of the Company's annual report on Form 10-K
for the year ended December 31, 2001, as filed with the Securities and Exchange
Commission, including the financial statement schedules thereto. Those
requesting a copy of the 10-K Report that are not currently members of the
Company may also obtain a copy directly from the Company. Requests for a copy of
the 10-K Report should be directed to Executive Vice President-Administration,
at 3633 East Inland Empire Boulevard, Suite 850, Ontario, California 91764. The
Form 10-K Report can also be accessed from the Company's website at
www.kaiserventures.com.
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The reader is encouraged to read this Form 10-Q Report in conjunction with
the Company's 10-K Report for the period ended December 31, 2001, since the
information contained herein is often an update of the information in the 10-K
Report.
KAISER VENTURES LLC AND SUBSIDIARIES
PART I
FORWARD-LOOKING STATEMENTS
Except for the historical statements and discussions contained herein,
statements contained in this 10-Q Report constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Any 10-K Report,
Annual Report, 10-Q Report, 8-K Report or press release of the Company may
include forward-looking statements. In addition, other written or oral
statements, which constitute forward-looking statements, have been made and may
be made in the future by the Company. You should not put undue reliance on
forward-looking statements. When used or incorporated by reference in this 10-Q
Report or in other written or oral statements, the words "anticipate,"
"estimate," "project" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks,
uncertainties, and assumptions. We believe that our assumptions are reasonable.
Nonetheless, it is likely that at least some of these assumptions will not come
true. Accordingly, should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated, expected, or projected.
For example, our actual results could materially differ from those projected as
a result of factors such as, but not limited to: Kaiser's inability to complete
the anticipated sale of its Eagle Mountain landfill project; litigation,
including, among others, claims that relate to Eagle Mountain and pre-bankruptcy
activities of Kaiser Steel Corporation, the predecessor of Kaiser, including,
among others, asbestos claims; insurance coverage disputes; the impact of
federal, state, and local laws and regulations on our permitting and development
activities; competition; the challenge, reduction or loss of any claimed tax
benefits; and/or general economic conditions in the United States and Southern
California. The Company disclaims any intention to update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
Additional Information
A reader of this 10-Q Report is strongly encouraged to read the entire
report, together with the Company's 2001 10-K Report for background information
and a complete understanding as to material developments concerning the Company.
Who We Are
Unless otherwise noted: (1) the term "Kaiser Inc." refers to the former
Kaiser Ventures Inc., (2) the term "Kaiser LLC" refers to Kaiser Ventures LLC,
and (3) the terms "Kaiser," "the Company," "we," "us," and "our," refer to past
and ongoing business operations conducted in the form of Kaiser Inc. or Kaiser
LLC, and their respective subsidiaries. Kaiser Inc. merged with and into Kaiser
LLC effective November 30, 2001.
Item 1. FINANCIAL STATEMENTS
The Financial Statements are located at the end of Item 2., beginning on
Page 11 of this Report and are incorporated herein by this reference.
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KAIER VENTERS LLC AND SUBSICIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Business Update
General
Kaiser is the reorganized successor to Kaiser Steel Corporation, which was
an integrated steel manufacturer that filed for bankruptcy protection in 1987.
Since the Kaiser Steel bankruptcy, we have been developing certain assets
remaining after the bankruptcy. Currently, our principal assets include:
. An approximate 80% ownership interest in Mine Reclamation, LLC, (which
we refer to as MRC), which has permitted a rail-haul municipal solid
waste landfill at a property called the Eagle Mountain Site located in
the California desert. This landfill is currently subject to a
contract for its sale to County District No. 2 of Los Angeles County
(which we refer to as the District) for approximately $41 million;
. A 50% ownership interest in the West Valley Materials Recovery
Facility and Transfer Station, a transfer station and materials
recovery facility located on land acquired from Kaiser, which we refer
to as the West Valley MRF;
. Approximately 5,450 additional acres owned or controlled by Kaiser at
the Eagle Mountain Site that are not included in the pending sale to
the District; and
. Cash and cash equivalents, and receivables of approximately $18.1
million as of March 31, 2002.
After a series of transactions in 2000 and 2001, we had accumulated
approximately $80 million in cash and had taken steps to reduce our exposure to
various possible liabilities, including potential environmental and asbestos
liabilities. After consideration of a number of alternatives, it was determined
that converting Kaiser Inc. to a limited liability company would maximize the
cash available to Kaiser Inc. stockholders, would permit current and future
advantageous tax treatment to stockholders and would allow the continuation of
our business in a manner that provided flexibility in realizing our investment
in our remaining assets. At our November 28, 2001 annual meeting, the
conversion of Kaiser Inc. into a limited liability company was approved by
Kaiser Inc.'s stockholders. The conversion was accomplished by the merger of
Kaiser Inc. with and into Kaiser LLC, with Kaiser LLC being the surviving
entity. The merger was effective as of 11:59 p.m. on November 30, 2001, and
trading in Kaiser Inc.'s common stock ceased as of the close of business on such
date. As a result of the merger, each Kaiser Inc. stockholder of record as of
December 5, 2001, was entitled to receive $10.00 in cash and one Class A Unit in
Kaiser LLC per share of Kaiser Inc. common stock. The Class A Units were valued
at $1.50 per unit pursuant to an independent appraisal.
Eagle Mountain Landfill Project
Background. In 1988, the Company entered into a 100-year lease agreement
(the "MRC Lease") with MRC. MRC is seeking to develop the Company's former iron
ore mine near Eagle Mountain, California into a large, regional rail-haul,
municipal solid waste landfill. The Company currently owns 80% of the Class B
units and 100% of the Class A units of MRC. In December 1999, the Landfill
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KAIER VENTERS LLC AND SUBSICIARIES
Project received its last major permit necessary to construct and operate a rail
haul landfill. The Landfill Project is permitted to receive a maximum of 20,000
tons per day of municipal solid waste for up to 88 years.
Sale of Landfill Project. In August 2000, MRC entered into that certain
Agreement For Purchase and Sale of Real Property and Related Personal Property
In Regard To The Eagle Mountain Sanitary Landfill Project and Joint Escrow
Instructions ("Landfill Project Sale Agreement") with the District. In summary,
the Landfill Project (which includes our royalty payments under the MRC Lease)
is being sold for $41 million, with an initial closing currently anticipated to
occur in the second quarter of 2002. 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, satisfaction of
numerous contingencies and the negotiations of various ancillary agreements. The
contingencies include, but are not limited to, obtaining the transfer of the
Landfill Project's permits to the District and obtaining all necessary consents
to the transaction. The Company agreed to vote its interest in MRC in favor of
the sale of the Landfill Project to the District on its current terms.
The District has been undertaking extensive due diligence on the Landfill
Project and is waiting for receipt of several items, including final land and
right-of-way surveys. In addition, the parties are negotiating the terms of
various ancillary agreements such as joint use agreements for access, utilities,
and the Eagle Mountain railroad. With the sale of the Landfill Project, the
Company will continue to own more than 4,000 acres in the Eagle Mountain area,
including the Eagle Mountain town site. The parties agreed to extend the closing
date to no later than May 31, 2002. However, the contractual expiration date has
been extended a number of times. The conditions to closing are not expected to
be met by the current expiration date, and the parties will have to decide
whether to extend the period one or more additional times or waive certain
conditions. There is no assurance or requirement that the parties will continue
to extend the closing date and, if it is extended, for how long.
Upon closing, $39 million of the total purchase price will be deposited
into an escrow account and will be released when litigation contingencies are
fully resolved. The litigation contingencies are the federal litigation
challenging the completed federal land exchange. Interest began to accrue on
this portion of the purchase price in May 2001, and will be paid out to MRC on a
quarterly basis beginning with a successful outcome of the federal litigation at
the Federal District Court level for a period of up to four years. The remaining
$2 million of the purchase price will also be placed into an escrow account upon
closing and will be released upon the later of (1) the release of the $39
million as described above or (2) the permitting approvals of the District's
Puente Hills landfill for its remaining 10 years of capacity. Receipt 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. The District's environmental impact report for its Puente Hills
landfill was approved in January 2002. However, litigation has been commenced
against the District's environmental impact report for the expansion.
The foregoing summary of the Landfill Purchase Agreement is qualified in
its entirety by the Landfill Purchase Agreement filed as an exhibit to Kaiser
Inc.'s second quarter 2000 10-Q Report.
Landfill Project Litigation. Currently, the only pending litigation
involving the Landfill Project concerns two lawsuits filed in Federal District
Court located in Riverside County challenging the completed federal land
exchange and requesting its reversal. To date, no immediate injunctive relief
has been sought. These two lawsuits generally involve the same parties that were
the plaintiffs in the unsuccessful state environmental impact report litigation
and the unsuccessful appeals before the Interior Board of Land Appeals.
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KAISER VENTURES LLC AND SUBSIDIARIES
A decision in an unrelated case has the potential of having a material
adverse impact on the federal land exchange litigation and thus, the Landfill
Project and its pending sale. In November 2000, the Ninth Circuit U.S. Court of
Appeals issued a decision which required the reversal of the completed federal
land exchange for the competing Mesquite rail-haul landfill project. In the
case, Desert Citizens Against Pollution v Bisson, (9th Circuit Court of Appeals,
Case No. 97-55429), the Court of Appeals, among other things, determined that
the U.S. Bureau of Land Management ("BLM") did not properly value the land being
acquired by the developer of the landfill project by not considering the land
being acquired as a potential landfill. As a result of a decision in the Bisson
case the plaintiffs in our federal land exchange litigation amended their
respective complaints to now assert that the appraisal used to complete the
federal land exchange between the BLM and the Company is similarly defective.
The BLM is currently undertaking an independent appraisal review of Kaiser's
land exchange in light of the decision in the Bission case. In March 2002, the
Federal District Court ruled against the Plaintiffs' motion requesting that
discovery be allowed in the cases and also dismissed the suit against the
National Park Service. It is anticipated that a briefing schedule will soon be
agreed upon by the parties in the cases.
Financing. During the first quarter MRC commenced and completed a private
placement to its existing members resulting in commitments for $3 million
funding. We committed to fund at least $2.4 million of the private placement.
The funding is a payable in installments with the last installment due in
January 2003.
Risks. As is discussed in this 10-Q Report and in more detail in the
Company's 2001 Form 10-K Report, there are numerous risks associated with MRC
and the Landfill Project. There are also numerous risks and contingencies
associated with the pending sale of the Landfill Project to the District. There
can be no assurance that the sale to the District will occur or that the current
terms of the pending transaction may not be modified as a result of future
discussions with the District or as to the timing of the receipt of the purchase
price. In addition, there are litigation risks associated with the current
federal land exchange litigation, including reversal of the completed land
exchange which risks have increased as a result of the Ninth Circuit Courts of
Appeals' decision discussed above.
West Valley Materials Recovery and Transfer Station
West Valley MRF, LLC, referred to as "West Valley," was formed in June 1997
by Kaiser Recycling Corporation (now Kaiser Recycling, LLC (formerly Kaiser
Recycling, Inc.)), a wholly-owned subsidiary of Kaiser, and West Valley
Recycling & Transfer, Inc., a wholly-owned subsidiary Burrtec Waste Industries,
Inc. This entity was formed to construct and operate the materials recovery
facility referred to as the West Valley MRF.
Phase 1 of the West Valley MRF, which included a 62,000 square foot
building, sorting equipment and related facilities for waste transfer and
recycling services was built 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 tons per day. Phase 2 was completed for a
total approximate cost of $11 million. During the first quarter of 2002 West
Valley MRF processed approximately 14,000-15,000 tons of municipal solid waste
per week.
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KAISER VENTURES LLC AND SUBSIDIARIES
As part of our continuing strategy, we intend to evaluate any potential
offers to purchase our interest in the West Valley MRF in light of our primary
objective of optimizing value for our members. The West Valley MRF currently
generates sufficient cash flow to fund its cost of operations and does not
require additional investment by Kaiser to operate. Furthermore, the West Valley
MRF should generate sufficient cash distributions to cover a majority of Kaiser
LLC's foreseeable general and administrative costs.
OPERATING RESULTS
Primary Revenue Sources
Ongoing Operations
The Company's revenues from ongoing operations are generally derived from
the development of the Company's long-term projects. Revenues from water
resources represent payments under the lease of the Company's interest in FUWC
to Cucamonga. However, the lease with Cucamonga terminated effective March 6,
2001, with the sale of the Company's interest in FUWC to Cucamonga. Income from
equity method investments reflect Kaiser's share of income related to its
investment in the West Valley MRF.
Interim Activities (net)
Revenues from interim activities are generated from various short-term
activities that are not material to the Company's ongoing operations.
Summary of Revenue Sources
Due to the developmental nature of certain Company projects and the
Company's recognition of revenues from bankruptcy-related and other
non-recurring items, historical period-to-period comparisons of total revenues
may not be meaningful for developing an overall understanding of the Company.
Therefore, the Company believes it is important to evaluate the trends in the
components of its revenues as well as the recent developments regarding its
long-term ongoing and interim revenue sources. See "Part I, Item 1. BUSINESS"
for a discussion of recent material events affecting the Company's revenue
sources.
Results of Operations
Analysis of Results for the Quarters Ended March 31, 2002 and 2001
An analysis of the significant components of the Company's resource
revenues for the quarters ended March 31, 2002 and 2001 follows:
5
KAISER VENTURES LLC AND SUBSIDIARIES
2002 2001 % Inc. (Dec)
---- ---- ------------
Ongoing Operations
Gain on Sale of FUWC Stock $ --- $ 65,171,000 (100%)
Water Resource --- 295,000 (100%)
Gain on sale of California Mines --- 1,756,000 (100%)
Deferred gain on Mill Site land sales 27,000 27,000 ---%
Income from equity method investment in
West Valley MRF, LLC 247,000 257,000 (4%)
-------------- -------------- ----------
Total ongoing operations 274,000 67,506,000 (99%)
-------------- -------------- -----------
Interim Activities Net Income (Loss) (net)
Lease, service and other 5,000 (31,000) N/A
-------------- --------------- -----------
Total resource revenues $ 279,000 $ 67,475,000 (99%)
============== ============== ===========
Resource Revenues. Total resource revenues for the first quarter of 2002
were $279,000, compared to $67,475,000 for 2001. Revenues from ongoing
operations decreased 99% for the quarter to $274,000 from $67,506,000 in 2001,
while interim activities (net of related expenses) improved to net revenue of
$5,000 from a net loss of $31,000 in 2001.
Ongoing Operations. During the first quarter of 2001, the Company sold its
investment in FUWC to Cucamonga (to whom the shares were leased under a 102 year
lease) for $87.5 million, resulting in a gain of $65.2 million. Water lease
revenues under the Company's 102-year take-or-pay lease with Cucamonga were $0
during the first quarter of 2002 compared to $295,000 for 2001. The absence of
water lease revenues during the first quarter of 2002 reflects the sale of the
Company's investment in its FUWC stock which closed March 6, 2001.
During the first quarter of 2001, the Company sold its California Mine
properties for $2.0 million, resulting in a gain of $1,756,000. The Company also
recognized deferred gain of $27,000 from the sales of certain Mill Site
properties in 1997 and 1999, in the first quarters of 2002 and 2001.
Income from equity method investments decreased by $10,000 to $247,000 due
to lower equity income from the WVMRF during the first quarter of 2002 compared
to $257,000 recorded for the same period 2001. This decrease in equity income in
the West Valley MRF is mainly due to: (a) increased repairs and maintenance on
rolling stock ($64,000 or 66%); (b) an increase in depreciation expense due to
the facility expansion being completed in May 2001 ($112,000 or 79%); being
partially offset by a 7% increase in volume or $166,000.
Interim Activities Net Income (Loss) (net). Interim activities net of
expenses for the first quarter of 2002 reported net income of $5,000 compared to
a net expense of $31,000 for the same period in 2001. This turnaround in interim
activities (net) is only temporary and is primarily due to the reimbursement of
salaries and expenses by Mine Reclamation LLC on a capital improvement project
which will be concluded during the second quarter of 2002 ($74,000). This net
increase is being partially offset by lower net operating revenue at the
California Mines which were sold in February 2001 ($37,000). Additionally, the
California State budget presented by Governor Davis in early 2002, did not
include funding for certain private prisons, such as the one run by Management
Training Corporation ("MTC") in part of the Eagle Mountain Townsite. This budget
is currently being reviewed by the California State Legislature and if funding
is not restored the Company's lease with
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KAISER VENTURES LLC AND SUBSIDIARIES
MTC will terminate as soon as practicable after June 30, 2002. This lease
termination will in all likelihood result in the mothballing and closure of the
Eagle Mountain Townsite by year-end at an anticipated cost of $500,000.
Resource Operating Costs. Resource operating costs are those costs directly
related to the resource revenue. Total resource operating costs for the first
quarter of 2002 decreased to $0 from $42,000 in 2001. This decrease was due to a
decrease in the lease commission and outside legal costs associated with the
CCWD lease and CCWD lease rate dispute due to the sale of the Company's
investment in its FUWC stock on March 6, 2001.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses for the first quarter of 2002 decreased 62% to $886,000
from $2,349,000 for 2001. The decrease is primarily due to non-cash variable
stock option accounting ($1,155,000), the exercise of nonqualified stock options
($195,000) in the first quarter of 2001, and lower professional and outside
consulting expenses ($100,000) in the first quarter of 2002.
Net Interest Income. Net interest income for the first quarter of 2002 was
$185,000 compared to $386,000 in 2001. The change was due primarily to: (a) an
decrease in interest income ($230,000) due to lower cash and investment balances
and a decrease in interest expense ($29,000) associated with the Company's
$30,000,000 revolving-to-term credit facility with Union Bank which was
terminated prior to the Company's sale of its FUWC stock (the collateral for the
debt).
Pre-Tax Loss and Income Tax Provision. The Company recorded a loss before
income tax provision of $422,000 for the first quarter of 2002, versus income of
$65,470,000 recorded in 2001. Subsequent to the Company's conversion into an
LLC, the Company is taxed as a partnership and thus, the Company's results of
operations (on an income tax basis) are distributed to the unitholders for
inclusion in their respective income tax returns. Therefore, with the exception
of a small gross revenue tax imposed by the State of California (maximum annual
liability $12,590), there are no income taxes imposed directly on the Company.
An income tax provision of $2,000 was recorded in the first quarter of 2002
compared to $17,461,000 for 2001.
Net Income. For first quarter of 2002, the Company reported a net loss of
$424,000, or $0.06 per unit, versus net income of $48,009,000, or $7.35 per
share, reported for 2001.
FINANCIAL POSITION
Cash, Cash Equivalents and Short-Term Investments. The Company defines cash
equivalents as highly liquid debt instruments with original maturities of 90
days or less. Cash and cash equivalents increased $770,000 to $15,619,000 at
March 31, 2002 from $16,389,000 at December 31, 2001. Included in cash and cash
equivalents is $2,250,000 and $1,387,000 held solely for the benefit of MRC at
March 31, 2002 and December 31, 2001, respectively. The decrease in cash and
cash equivalents is primarily due to: (a) the payment of year-end accruals of
$1,273,000; (b) capital expenditures of $539,000; and (c) an operating loss of
$424,000. These cash uses were mostly offset by receipt of an income tax
receivable of $1,182,000 and a distribution from the West Valley MRF of
$250,000.
Working Capital. During the first quarter of 2002, current assets decreased
$2.0 million to $16.8 million, while current liabilities decreased $1.2 million
to $1.6 million. The decrease in current assets resulted primarily from the
$770,000 decrease in cash and cash equivalents and a $1.2 million decline in
income tax receivable. The decrease in current liabilities resulted primarily
from the payment of
7
KAISER VENTURES LLC AND SUBSIDIARIES
year-end accruals ($1.2 million). Included in current liabilities as of March 1,
2002 is $218,000 in accounts payable and accrued liabilities relating to MRC. As
a result, working capital decreased during the first quarter of 2002 by $800,000
to $15.2 million at March 31, 2002.
Investments. There was a $3,000 decrease in the Company's investment in the
WVMRF during the first quarter of 2002 due to the Company's recording of its
equity share of income during the period, being completely offset by a $250,000
cash distribution. Our investment in the Eagle Mountain Landfill increased
$593,000 during the first quarter of 2002 due to continuing landfill development
activities.
Other Assets. The decrease in other assets ($154,000) is related to
decreases in notes receivable due to the receipt of recurring payments
($82,000), and an increase in accumulated depreciation as of March 31, 2002
($72,000).
Environmental Remediation. As of March 31, 2002, based upon current
information, we estimate that our future environmental liability related to
certain matters not assumed by CCG Ontario, LLC, a subsidiary of Catellus
Development Corporation, a New York Stock Exchange company, in its purchase of
the Mill Site Property (August 2000), including groundwater and other possible
third party claims, would be approximately $4.0 million. However, we purchased,
effective June 30, 2001, a 12 year $50 million insurance policy at a cost of
approximately $3.8 million. This policy will cover, among other things,
virtually any and all environmental liabilities and claims, including defense
costs, (up to the $50 million policy limit) relating to the historical
operations and assets of the Company reflected in the above $4.0 million
liability. Due to the nature of the insurance policy, generally accepted
accounting practices require that the cost of the policy be capitalized, as an
asset, separately from the related liability.
Long-term Liabilities. The decrease in other long-term liabilities is
primarily due to a decrease in accrued liabilities ($67,000) and the recognition
of deferred gains on real estate sales ($27,000).
Minority Interest and Other Liabilities. As of March 31, 2002, the Company
has recorded $5,479,000 of minority interest relating to the approximately 19%
ownership interest in MRC the Company does not own.
Contingent Liabilities. The Company has contingent liabilities more fully
described in the notes to the financial statements.
Business Outlook
The statements contained in this Business Outlook, as well as in Part I.
Item 1. BUSINESS, are based upon current operations and expectations. In
addition to the forward-looking statements and information contained elsewhere
in this 10-Q Report, these statements are forward-looking and, therefore, actual
results may differ materially. See the Company's disclosure regarding
forward-looking statements in the section entitled "Forward-Looking Statements"
above.
Ongoing Operations. As noted above, our revenues from ongoing operations
have, in the past, been generally derived from the development of our major
long-term projects and investments. The development of a number of these
projects and investments, such as our 50% equity ownership of the West Valley
MRF, is essentially complete and we have been recognizing significant revenues
and income from these investments. However, the revenues from ongoing operations
were significantly
8
KAISER VENTURES LLC AND SUBSIDIARIES
reduced in 2001 as a result of completing the sale of our ownership interest in
Fontana Union to Cucamonga. In addition, we distributed a significant portion of
the net proceeds from the Fontana Union stock sale ($69,285,000) to Kaiser
Inc.'s stockholders in December 2001, as a result of the merger between Kaiser
Inc. with and into Kaiser LLC. We also continue to evaluate our remaining assets
and investments in light of how to best provide maximum value to our members.
In regard to the West Valley MRF, the most significant factor affecting our
future equity income from the West Valley MRF is the expansion of the facility's
capacity from 2,000 to 5,000 tons per day. The expanded facility is now
operational. The expansion enlarged the processing facility by an additional
80,000 square feet and provides for additional materials recovery sorting
capacity. The ultimate success of this expansion will continue to depend on the
ability of the West Valley MRF to attract new customers and waste volumes, and
on the future construction of any competing facilities.
As part of our strategy, we intend to evaluate any potential offers to
purchase our interest in the West Valley MRF in light of our primary objective
of maximizing value for our stockholders. The West Valley MRF currently
generates more than sufficient cash flow to fund its cost of operations and does
not require additional investment by us to operate. Furthermore, the West Valley
MRF should continue to generate sufficient cash distributions to the Company
which will help cover future general and administrative costs.
Pending Sale of Eagle Mountain Landfill Project. In August 2000, MRC
entered into an agreement to sell the landfill project located at the Eagle
Mountain Site to the District. Under that agreement, MRC will receive $41
million for the landfill project if the conditions to closing are satisfied and
the sale transaction closes. The cash will be held in escrow pending the
resolution of certain additional contingencies, which are not expected to occur
for several years. The closing of this sale is subject to, among other things,
the results of the District's due diligence, obtaining the transfer of the
landfill project's permits to the District, obtaining all necessary consents to
the transaction and resolution of various titled and joint use matters. The
parties have agreed numerous times to extend the initial closing date of the
sale transaction pending receipt of land surveys, resolution of title matters,
resolution of joint use agreements, resolution of certain title issues, receipt
of third-party approvals or consents and other matters. Further extensions
during 2002 of the Closing date will be required. There is no assurance that
extensions will be granted by either party.
If the sale transaction closes, $39 million of the total purchase price
will be deposited, upon closing, into an escrow account and will be released
when the outstanding federal litigation related to MRC's federal land exchange
with BLM is fully and satisfactorily resolved. Although the $39 million has not
yet been deposited into escrow, interest on this $39 million began accruing at
the beginning of May 2001. Accrued interest on this portion of the purchase
price, for up to a four year period, will be paid out to MRC on a quarterly
basis beginning with a successful outcome of the federal litigation. If the
transaction closes, the remaining $2 million of the purchase price will also be
placed into an escrow account, upon closing, and will be released upon the later
of (i) the release of the $39 million as described above, or (2) the permitting
approval of the District's Puente Hills landfill for its remaining 10 years of
capacity.
The District has been undertaking significant due diligence on the landfill
project and has the right to terminate the sale agreement if it is not satisfied
with the results of its due diligence. Additionally, the parties are negotiating
various ancillary agreements and a decision in an unrelated case related to a
federal land exchange to which BLM was a party could potentially have a material
adverse impact on
9
KAISER VENTURES LLC AND SUBSIDIARIES
the landfill project and its pending sale. For additional information see "Part
I, Item 1. BUSINESS - Eagle Mountain Landfill Project and Pending Site."
Mill Site Property. The only remaining Mill Site Property owned by the
Company is an approximate five acre parcel referred to as the Tar Pits Parcel.
CCG is obligated to remediate the environmental contamination of this parcel
pursuant to the terms of CCG's purchase of approximately 588 acres of the Mill
Site Property from us in August 2000.
Sale of Miscellaneous Properties. We are continuing to seek buyers for our
miscellaneous properties, most of which are located at or near our Eagle
Mountain facility.
Corporate Overhead. As we divest our remaining assets, we intend to further
reduce our corporate staffing and overhead to reflect the reduced requirements
of its remaining operations and projects.
Capital Resources. Kaiser LLC expects that its current cash balances and
short-term investments together with cash provided from operating activities and
reserves set aside from Kaiser Inc.'s sale of its investment in Fontana Union
will be sufficient to satisfy our projected operating cash requirements for the
next 3-4 years.
Cash Maximization Strategy
We have been developing the assets we received out of the Kaiser Steel
bankruptcy and then selling them at such time as we believe we can optimize
value for a particular project or asset. During 2000 and 2001, we: (i) sold the
balance of our real estate at the former Kaiser Steel Corporation mill site near
Fontana, California, except for an approximate five acre parcel; (ii) entered
into an agreement to sell the landfill project to the District, with MRC and the
District working toward a closing on such transaction; (iii) sold our interest
in Fontana Union to Cucamonga; and (iv) paid a total of $12.00 per share in cash
distributions to Kaiser Inc.'s stockholders. In continuing this strategy, our
current plans include:
. To complete the sale of the landfill project and to resolve favorably
the related outstanding federal land exchange litigation. Although the
closing with the District is currently scheduled to occur during 2002,
this sale is subject to the satisfaction of numerous conditions, and,
as a result, we cannot be sure when or if this sale will ultimately
close. Also, due to the status of the Districts' due diligence and
negotiations regarding joint use matters, we currently anticipate that
the closing date may be delayed further. If the sale transaction is
completed, we do not expect to receive any substantial cash from the
sale until the related litigation matters are resolved, which may be
several years. See "Part I. - Items 2. Eagle Mountain Landfill Project
and Sale of Landfill Project";
. To continue to hold our interest in West Valley MRF, which pays cash
distributions to us, until we believe we can maximize stockholder
value through a sale or other alternative transaction;
. To sell our remaining miscellaneous assets such as surplus property in
Southern California; and
. To further reduce our general and administrative expenses.
10
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.
Insurance. In furtherance of one of the goals of the Cash Maximization
Strategy, we 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 our ongoing and historical
operations. The policy has a twelve (12) year term and limits of $50,000,000, in
the aggregate, for defense and indemnity, with no deductible or self-insured
retention. The policy is designed to providecoverage in excess of our existing
and historic insurance policies; however, to the extent that these other
insurance policies are not responsive to a loss, the newly-purchased 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 are brought
against us. The policy is specifically intended to supplement our previously
existing coverage for our 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 Kaiser
arising from, e.g., prior corporate transactions and real estate sales. The
aggregate cost for this policy was approximately $5.8 million, of which KSC
Recovery paid $2.0 million and we paid the balance of approximately $3.8
million.
FINANCIAL STATEMENTS
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11
KAISER VENTURES LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of
March 31, December 31,
2002 2001
---- ----
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents ............................ $ 15,619,000 $ 16,389,000
Accounts receivable and other, net of allowance
for doubtful accounts of $34,000 ................... 153,000 173,000
Income tax receivable ................................ 722,000 1,904,000
Notes receivable ..................................... 337,000 337,000
--------------- ---------------
16,831,000 18,803,000
--------------- ---------------
Eagle Mountain Landfill Investment ........................ 26,244,000 25,651,000
--------------- ---------------
Investment in West Valley MRF ............................. 3,885,000 3,888,000
--------------- ---------------
Land and improvements ..................................... 2,503,000 2,503,000
--------------- ---------------
Other Assets
Notes Receivable ..................................... 1,266,000 1,348,000
Unamortized environmental insurance premium .......... 3,800,000 3,800,000
Buildings and equipment (net) ........................ 1,145,000 1,217,000
--------------- ---------------
6,211,000 6,365,000
--------------- ---------------
Total Assets .............................................. $ 55,674,000 $ 57,210,000
=============== ===============
The accompanying notes are an integral part of the
consolidated financial statements.
12
KAISER VENTURES LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of
March 31, December 31,
2002 2001
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable ............................. $ 274,000 $ 278,000
Accrued liabilities .......................... 1,306,000 2,521,000
--------------- ---------------
1,580,000 2,799,000
--------------- ---------------
Long-term Liabilities
Deferred gain on sale of real estate ......... 562,000 589,000
Accrued liabilities .......................... 267,000 334,000
Environmental remediation .................... 4,000,000 4,000,000
--------------- ---------------
4,829,000 4,923,000
--------------- ---------------
Total Liabilities ............................... 6,409,000 7,722,000
--------------- ---------------
Minority Interest ............................... 5,479,000 5,280,000
--------------- ---------------
Commitments and Contingencies
Members' Equity
Class A units; issued and outstanding
6,904,299 and 6,901,299, respectively ....... 43,786,000 44,208,000
Class B units; issued and outstanding
751,956 ..................................... --- ---
Class C units; issued and outstanding
952 and 0 ................................... --- ---
Class D units; issued and outstanding
48 and 0 .................................... --- ---
--------------- ---------------
Total Members' Equity ........................... 43,786,000 44,208,000
--------------- ---------------
Total Liabilities and Members' Equity ........... $ 55,674,000 $ 57,210,000
=============== ===============
The accompanying notes are an integral part of the consolidated financial
statements.
13
KAISER VENTURES LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the Three Months Ended March 31
(Unaudited)
2002 2001
---- ----
Resource Revenues
Ongoing Operations
Gain on sale of FUWC ....................................... $ --- $65,171,000
Water resource ............................................. --- 295,000
Gain on Sale of California Mines ........................... --- 1,756,000
Deferred gain on Mill Site land sales ...................... 27,000 27,000
Income from equity method investment in the
West Valley MRF, LLC ..................................... 247,000 257,000
----------- -----------
Total ongoing operations ............................... 274,000 67,506,000
----------- -----------
Interim Activities Net Income (Loss) .......................... 5,000 (31,000)
----------- -----------
Total resource revenues ................................ 279,000 67,475,000
----------- -----------
Resource Operating Costs ........................................ --- 42,000
----------- -----------
Income from Resources ........................................... 279,000 67,433,000
Corporate General and Administrative Expenses
Corporate overhead expenses, excluding stock based
compensation and stock option repricing expenses ........... 886,000 999,000
Stock based compensation expense .............................. --- 195,000
Stock option repricing expense ................................ --- 1,155,000
----------- -----------
886,000 2,349,000
----------- -----------
(Loss) Income from Operations ................................... (607,000) 65,084,000
Net interest income ............................................. (185,000) (386,000)
----------- -----------
(Loss) Income before Income Tax Provision ....................... (422,000) 65,470,000
Income tax provision ............................................ 2,000 17,461,000
----------- -----------
Net (Loss) Income ............................................... $ (424,000) $48,009,000
=========== ===========
Basic (Loss) Income Per Unit/Share .............................. $ (0.06) $ 7.35
=========== ===========
Diluted (Loss) Income Per Unit/Share ............................ $ (0.06) $ 7.26
=========== ===========
Basic Weighted Average Number of Units/Shares Outstanding ....... 6,904,000 6,535,000
Diluted Weighted Average Number of Units/Shares Outstanding ..... 6,924,000 6,612,000
The accompanying notes are an integral part of the consolidated financial
statements.
14
KAISER VENTURES LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Three Months Ended March 31
(Unaudited)
2002 2001
---- ----
Cash Flows from Operating Activities
Net (loss) income ........................................................ $ (424,000) $ 48,009,000
(Income) from equity method investments .................................. (247,000) (257,000)
Gain on sale of FUWC Stock ............................................... -- (65,171,000)
Gain on sale of California Mines ......................................... -- (1,756,000)
Deferred tax expense ..................................................... -- 12,860,000
Stock based compensation expense ......................................... -- 159,000
Stock option repricing ................................................... -- 1,155,000
Depreciation and amortization ............................................ 72,000 69,000
Allowance for doubtful accounts .......................................... -- --
Mill Site deferred gain realized ......................................... (27,000) (27,000)
Changes in assets:
Receivables and other .................................................. 20,000 2,010,000
Income tax receivable .................................................. 1,182,000 --
Changes in liabilities:
Current liabilities .................................................... (1,273,000) (461,000)
Income taxes payable ................................................... -- 4,379,000
Long-term accrued liabilities .......................................... (67,000) (124,000)
------------ ------------
Net cash flows from operating activities ................................. (764,000) 845,000
------------ ------------
Cash Flows from Investing Activities
Proceeds from the sale of FUWC Stock ..................................... -- 81,783,000
Proceeds from the sale of the California Mines ........................... -- 726,000
Minority interest ........................................................ 199,000 --
Distribution from West Valley MRF ........................................ 250,000 --
Note receivable collections .............................................. 82,000 39,000
Capital expenditures ..................................................... (539,000) (365,000)
Environmental remediation expenditures ................................... -- (9,000)
------------ ------------
Net cash flows from investing activities ................................. (8,000) 82,174,000
------------ ------------
Cash Flows from Financing Activities
Issuance of Class A units/common stock ................................... 2,000 119,000
------------ ------------
Net cash flows from financing activities ................................. 2,000 119,000
------------ ------------
Net Changes in Cash and Cash Equivalents ..................................... (770,000) 83,138,000
Cash and Cash Equivalents at Beginning of Year ............................... 16,389,000 10,097,000
------------ ------------
Cash and Cash Equivalents at End of Quarter .................................. $ 15,619,000 $ 93,235,000
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
15
KAISER VENTURES LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
for the Three Months Ended March 31, 2002
(Unaudited)
Class A Members'
Units Equity
------------ ------------
Balance at December 31, 2001 6,901,299 $ 44,208,000
Issuance of
Class A units ......... 3,000 2,000
Net Loss ................ -- (424,000)
------------ ------------
Balance at March 31, 2002 6,904,299 $ 43,786,000
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
16
KAISER VENTURES LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. BASIS OF PRESENTATION
The unaudited, consolidated financial statements as of March 31, 2002 and
for the three month periods ended March 31, 2002 and 2001, as well as related
notes, should be read in conjunction with the audited consolidated financial
statements and related notes as of and for the year ended December 31, 2001. In
the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary (all of which are normal and/or recurring in
nature) to present fairly the Company's financial position at March 31, 2002,
and results of operations and cash flows for the three month periods ended March
31, 2002 and 2001.
New Accounting Pronouncement. Effective January 1, 2002, the Company
adopted the provisions of Financial Accounting Standards Board Statement No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144),
which supersedes prior accounting standards concerning the financial accounting
and reporting for the impairment or the disposition of long-lived assets and for
the disposition of a segment of a business. The adoption of FAS 144 did not have
an effect on the Company's results of operations or financial condition and is
effective for fiscal years beginning after December 15, 2001.
Note 2. SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended March 31, 2001, the Company sold its
California Mine Property for $2 million, $700,000 cash at closing and $1.3
million in the form of a note receivable secured by the real estate.
During the three months ended March 31, 2001 the Company had 44,833 stock
options exercised on a net basis. These transactions resulted in the Company
receiving 30,146 shares of its own common stock as payment for the purchase
price of the options and for the payment of income taxes.
Note 3. COMMITMENTS AND CONTINGENCIES
Environmental Contingencies. As of March 31, 2002, based upon current
information, we estimate that our future environmental liability related to
certain matters not assumed by CCG Ontario, LLC, a subsidiary of Catellus
Development Corporation, a New York Stock Exchange company, in its purchase of
the Mill Site Property (August 2000), including groundwater and other possible
third party claims, would be approximately $4.0 million. However, we purchased,
effective June 30, 2001, a 12 year $50 million insurance policy at a cost of
approximately $3.8 million. This policy will cover, among other things,
virtually any and all environmental liabilities and claims, including defense
costs, (up to the $50 million policy limit) relating to the historical
operations and assets of the Company reflected in the above $4.0 million
liability. Due to the nature of the insurance policy, generally accepted
accounting practices require that the cost of the policy be capitalized
separately from the related liability.
17
KAISER VENTURES LLC AND SUBSIDIARIES
Note 4. EQUITY
During the first quarter of 2002, the Company issued Class C and D units to
certain officers and terminated the Long-Term Incentive Plan ("TIP") as to
future unearned payments that could have been payable to the Company's executive
officers. Payments to holders of the Class C and D units will only be paid upon
the monetization of the Company's major assets. Payments, if any, will be made
under a formula that replicates the amount that would have been paid under the
TIP if it had been continued. Class C and D units are not entitled to any other
distributions or profits, have no voting rights except as required by law and
are not transferable.
PART II
Item 1. LEGAL PROCEEDINGS
As discussed in the Company's Form 10-K Report for 2001, the Company is
engaged in certain claims and litigation. Except as noted below, there were no
material developments in any legal proceeding in the first quarter.
Product Liability Litigation. On March 22, 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). In
summary, the allegations are that Kaiser Steel Corporation 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
is further alleged that such portion of the pipeline was defective and ruptured
on March 9, 2000, releasing gasoline which caused 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. We have confirmed with
plaintiffs' legal counsel that the lawsuit was filed against several current or
former steel companies because of statute of limitation concerns since
plaintiffs have not yet made a final determination of who manufactured the pipe
that ruptured. Kaiser Inc. and Kaiser LLC were also named as defendants in the
lawsuit. If Kaiser should remain in this case, we will vigorously defend the
lawsuit.
Slemmer Litigation. On March 28, 2002, we were served with a complaint
captioned 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. We believe that the suit against us is totally without merit and
we will vigorously defend the lawsuit.
18
KAISER VENTURES LLC AND SUBSIDIARIES
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
ANNUAL MEETING MATTERS AND AVAILABILITY OF INFORMATION
Since we had our last annual meeting on November 28, 2001, we will not need
to have another annual meeting until the Spring of 2003. Accordingly, we will
not be preparing or distributing an annual report or proxy for 2001.
In addition, in an effort to reduce our overhead costs we will be posting
all 10-K Reports, 10-Q Reports, press releases and other information on our
website at www.kaiserventures.com. You will be able to download and print any
such materials from that website.
TERMINATION OF LONG-TERM TRANSACTION INCENTIVE PLAN
As more completely described in the Company's Form 10-K Report for the
period ended December 31, 2001, effective January 1, 2002, the Company
terminated the Company's Long-Term Transaction Incentive Plan ("TIP") as to
future unearned payments that could be payable to the Company's executive
officers. In lieu of the TIP, the Company issued Class C and Class D Units as
set forth below. The Class C and Class D Units are designed to replicate the
payments that would have been received under the TIP if it had continued.
PARTICIPATING OFFICER CLASS C UNITS CLASS D UNITS
--------------------------------------------------------------------
Rick Stoddard 400
Terry Cook 240
James Verhey 160
Anthony Silva 72 48
Paul Shampay 80
19
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
--------
None.
B. Reports on Form 8-K
-------------------
None.
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---------------------------------------------------------
20
KAISER VENTURES LLC AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
KAISER VENTURES INC.
Dated: May 2, 2002 /s/ James F. Verhey
---------------------------
James F. Verhey
Principal Financial Officer
21