<PAGE>
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, 1996 Commission File Number 0-18858
KAISER VENTURES INC.
--------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-0594733
- ------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3633 East Inland Empire Blvd., Suite 850
Ontario, California 91764
-----------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (909) 483-8500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Yes X No
----- -----
On May 9, 1996, the Company had 10,516,594 shares of Common Stock, $.03 par
value outstanding (including 136,919 shares deemed outstanding and held in
reserve by the Company for issuance to the former general unsecured creditors of
Kaiser Steel Corporation pursuant to its Plan of Reorganization).
<PAGE>
TABLE OF CONTENTS TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION
BUSINESS UPDATE...................................................... 1
PART I
Item 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 6
Item 2. FINANCIAL STATEMENTS...................................... 10
CONSOLIDATED BALANCE SHEETS............................... 10
CONSOLIDATED STATEMENTS OF INCOME......................... 12
CONSOLIDATED STATEMENTS OF CASH FLOWS..................... 13
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY...................................... 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................ 15
PART II
Item 1. LEGAL PROCEEDINGS......................................... 17
Item 2. CHANGES IN SECURITIES..................................... 18
Item 3. DEFAULTS UPON SENIOR SECURITIES........................... 18
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS......... 18
Item 5. OTHER INFORMATION......................................... 18
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.......................... 18
SIGNATURES............................................................. 19
</TABLE>
<PAGE>
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
------------------------------------------
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, 1995, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE FINANCIAL STATEMENT SCHEDULES THERETO. THOSE
REQUESTING A COPY OF THE ANNUAL REPORT ON FORM 10-K THAT ARE NOT CURRENTLY
STOCKHOLDERS OF THE COMPANY MAY ALSO OBTAIN A COPY DIRECTLY FROM THE COMPANY.
REQUESTS FOR COPIES OF SUCH REPORT SHOULD BE DIRECTED TO VICE PRESIDENT-
CORPORATE RELATIONS, AT 3633 EAST INLAND EMPIRE BOULEVARD, SUITE 850, ONTARIO,
CALIFORNIA 91764.
THE READER IS ENCOURAGED TO READ THIS FORM 10-Q REPORT IN CONJUNCTION WITH
THE COMPANY'S MOST RECENT FORM 10-K REPORT SINCE THE INFORMATION CONTAINED
HEREIN IS OFTEN AN UPDATE ON THE INFORMATION IN SUCH REPORT.
ii
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
SOME OF THE STATEMENTS IN THIS FORM 10-Q REPORT CONTAIN FORWARD-LOOKING
INFORMATION 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.
ACTUAL RESULTS COULD DIFFER FROM THOSE PROJECTED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF FACTORS SUCH AS THE GENERAL ECONOMIC CONDITIONS IN THE
UNITED STATES AND SOUTHERN CALIFORNIA; THE IMPACT OF FEDERAL, STATE, AND LOCAL
LAWS AND REGULATIONS ON THE COMPANY'S DEVELOPMENT ACTIVITIES; THE IMPACT OF
WEATHER ON THE COMPANY'S CONSTRUCTION RELATED ACTIVITIES; AND THE DISCOVERY OF
UNANTICIPATED ENVIRONMENTAL CONDITIONS ON ANY OF THE COMPANY'S PROPERTIES.
INTRODUCTION
BUSINESS UPDATE
GENERAL
Kaiser Ventures Inc., ("Kaiser" or the "Company" which shall be deemed to
include its wholly-owned subsidiaries unless otherwise provided herein), is an
emerging company pursuing project opportunities and investments in activities
related to water resources, property redevelopment and solid waste management.
The Company's long-term emphasis is on the development of its principal assets:
(i) a 50.88% interest in Fontana Union Water Company ("Fontana Union"), a
mutual water company; (ii) a 10.56% interest in Penske Motorsports, Inc.
("PMI"), a publicly traded motorsports company; (iii) approximately 750 acres
of the former Kaiser Steel Corporation ("KSC") steel mill site (the "Mill Site
Property"); (iv) an approximate 72% interest in Mine Reclamation Corporation
("MRC"), the developer of the Eagle Mountain Landfill Project (the "Landfill
Project"); and (v) the 11,350 acre idle iron ore mine in the California desert
(the "Eagle Mountain Site"), which includes the associated 460 acre town of
Eagle Mountain ("Eagle Mountain Townsite"). A reader of this Form 10-Q Report
is encouraged to read the entire report, in addition to the Company's 1995 Form
10-K Report for background information and a complete understanding as to
material developments concerning the Company.
INVESTMENT IN FONTANA UNION WATER COMPANY
The Company, through a wholly-owned subsidiary, Fontana Water Resources,
Inc., leases its 50.88% ownership of the capital stock of Fontana Union, a
mutual water company, to Cucamonga County Water District ("Cucamonga") pursuant
to a 102-year take-or-pay lease (the "Cucamonga Lease"). Under the terms of the
Cucamonga Lease, Cucamonga's payments to the Company are based upon established
fixed quantities of water for most of the applicable sources, multiplied by a
fixed percentage of the rate for untreated and non-interruptible water from the
Metropolitan Water District of Southern California ("MWD") as available through
the Chino Basin Municipal Water District as it may change from time-to-time (the
"Lease Rate").
On July 1, 1995, MWD implemented its previously announced changed rates and
a new rate structure. As a result of these changes, the Cucamonga Lease rate
increased by at least 2.7% or up to approximately 5.1% if the Cucamonga Lease is
interpreted as the Company asserts to include all the changed rates and items
implemented by MWD. Cucamonga disputes the Company's interpretation of the
Cucamonga Lease. Since the Company and Cucamonga have been unable to resolve
this matter through negotiation, the Company, in April, 1996, commenced
litigation in the San Bernardino County Superior Court to resolve the dispute.
Cucamonga continues to pay under the terms of the Cucamonga Lease, but at a
level that only reflects a 2.7% rate increase as opposed to the 5.1% increase
that the Company maintains it is entitled to receive pursuant to the Cucamonga
Lease.
1
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
In addition to the changes MWD made as of July 1, 1995, MWD is studying
further water rate refinements as well as various rate and revenue generating
alternatives. It is the Company's current understanding that any decision on
rate refinements will most likely be implemented by MWD as of January 1, 1997.
The Company will continue to monitor MWD's rate refinement proposals and their
possible impact on the Lease Rate.
INTEREST IN PENSKE MOTORSPORTS, INC.
The Company owns a 10.56% interest in PMI. PMI is traded on the NASDAQ
National Market under the symbol "SPWY." The Company acquired its interest in
PMI in exchange for approximately 460 acres of the Mill Site Property on which
The California Speedway ("TCS") is being built. PMI is a leading owner and
operator of speedway facilities as well as a promoter of auto racing events.
PMI, through subsidiaries, owns: Michigan International Speedway; Nazareth Motor
Speedway; TCS (which is under construction); a 2% interest in North Carolina
Motor Speedway; Motorsports International Corp., a motorsports apparel and
memorabilia company; and Competition Tire West and Competition Tire South,
distributors of Goodyear racing tires in the mid-west and southern regions of
the United States. TCS is to be a two mile tri-oval similar to Michigan
International Speedway and is anticipated to be completed in the Spring of 1997.
On January 29, 1996, PMI filed a registration statement with the Securities
and Exchange Commission for the public offering of shares of its common stock
which registration was declared effective on March 26, 1996. In the offering,
PMI sold 3,737,500 shares of its common stock (which included the underwriter's
over allotment) at $24.00 per share. The net proceeds to PMI were approximately
$83.1 million. The Company owns 1,373,625 shares of the 12,987,500 issued and
outstanding shares of common stock of PMI.
The ownership of PMI and its subsidiary are illustrated on the chart on the
following page.
Currently, PMI is paying to the Company a quarterly fee of $162,500 which
will expire the first quarter of 1997.
PROPERTY REDEVELOPMENT
The Company currently owns approximately 750 acres of the Mill Site
Property after the contribution of approximately 460 acres of the Mill Site
Property in exchange for its interest in PMI. As discussed in detail in the
Company's 1995 Form 10-K Report, the Company is pursuing several other projects
for the redevelopment of the Mill Site Property, including a rail-served
municipal solid waste transfer and recovery facility, and several industrial
and commercial lots adjoining the motorsports complex. Material developments
with respect to these projects are described below.
WEST VALLEY MATERIALS RECYCLING FACILITY
Kaiser and Burrtec Waste Industries, Inc. ("Burrtec"), a privately-held
company, are equal joint venture partners in the development of the West Valley
Materials Recovery Facility (the "Joint Venture"), a proposed rail-served
municipal solid waste transfer and recovery facility to be located on three
parcels totaling approximately 30 acres of the Mill Site Property (the "Mill
Site MRF"). The transfer station and
2
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
CHART
[Chart illustrating the corporate structure and ownership of
Penske Motorsports, Inc. after the Initial Public Offering]
3
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
material recovery facility are fully permitted, other than necessary
construction and ancillary permits. The Company is responsible for the
environmental remediation of the property for the Mill Site MRF. The Company is
currently in the process of remediating the site (except for one parcel of about
two acres containing the tar pits) in anticipation that one or more phases of
the Mill Site MRF will soon be built.
The Joint Venture is presently undertaking the preliminary steps necessary
to construct Phase 1 of the Mill Site MRF which is currently expected to include
a 60,000 square foot building and related facilities for waste transfer and
recycling services. These preliminary steps include preparation of architectural
and engineering plans, grading of the site, installation of off site
improvements and obtaining appropriate financing. The estimated cost to the
Joint Venture to construct and equip Phase 1 of the Mill Site MRF is currently
$8 million (excluding the land which the Company will contribute to the Joint
Venture). A final decision by the Joint Venture to proceed with the construction
of Phase 1 of the Mill Site MRF will probably be made in the second quarter or
early third quarter of 1996.
SPEEDWAY BUSINESS PARK
The rough grading of the Speedway Business Park lots, totaling
approximately 60 acres adjacent to TCS, commenced in the first quarter of 1996
as part of the construction for TCS. This work is expected to be completed along
with street and utility improvements in the third or early fourth quarter of
1996. With the completion of these improvements, the lots will be available for
lease or sale.
NAPA LOTS
Construction of an access street for the benefit of the Napa lots, which
total approximately 31 acres, the Mill Site MRF, the northerly portion of the
West End Property, and TCS also commenced in the first quarter of 1996. Like the
Speedway Business Park, it is anticipated that street, utility and other
infrastructure improvements will be completed in the third or early fourth
quarter of 1996. There have been a number of inquiries regarding the lease or
sale of the Napa lots and the Company is in negotiations with a possible major
build-to-suit tenant which would utilize approximately 12 acres of the Napa
lots.
WASTE MANAGEMENT
EAGLE MOUNTAIN LANDFILL PROJECT
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). MRC became a subsidiary of the Company when the Company's
subsidiary, Eagle Mountain Reclamation, Inc., acquired a 70% interest in MRC
during the first quarter of 1995 in exchange for the elimination of the minimum
monthly rent due the Company under the MRC Lease. The elimination of the minimum
monthly rent did not change the future royalty payments due the Company once the
landfill commences operations.
As discussed in the Company's 1995 10-K Report, MRC is focusing its efforts
on re-permitting the Landfill Project. MRC continues to pursue the activities
necessary to re-permit the Landfill Project. It is currently anticipated that
the draft environmental impact report prepared by Riverside County's independent
consultant will be released to the public for comment in the second quarter of
1996. It is also the Company's current expectation that permitting of the
Landfill Project will not be completed until at least mid- to late 1997. In
addition to the approval of the environmental impact report and the
environmental impact statement, the Landfill Project must receive 20 regulatory
and technical permits from 14 separate local, state, and federal agencies.
4
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
As previously disclosed, the Company, through its wholly-owned subsidiary,
Eagle Mountain Reclamation, Inc., has made equity investments in MRC. The first
stage of funding, a $3.2 million private placement to existing MRC shareholders
of which the Company purchased approximately $2.4 million, was completed in
1995. In April, 1996 MRC completed a second phase of funding through another
private placement to existing MRC shareholders officers and directors. The
Company committed to purchase up to $ 2.1 million of the $2.8 million private
placement and funded $ 1,020,000 of such amount in April, 1996.
Additional funding will be necessary to complete all permitting activities.
Therefore, MRC continues to engage in discussions with potential investors and
strategic participants in the Landfill Project about financing, sales of air
space, sales of capacity rights, waste commitments and other similar types of
arrangements or investments. As discussed in more detail in the Company's 1995
10-K Report, there are numerous risks associated with MRC and the Landfill
Project which must be overcome to achieve the financing, permitting,
construction and operation of the Landfill Project. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation" in Part
I, Item 1 of this Form 10-Q Report.
KSC RECOVERY, INC. -- ODD-LOT STOCK PROGRAM
The Company's predecessor, Kaiser Steel Corporation ("KSC"), was in
reorganization under Chapter 11 of the United States Bankruptcy Code from
February, 1987 until November, 1988. Pursuant to the KSC Plan of Reorganization
(the "KSC Plan"), the Company established a subsidiary, KSC Recovery, Inc.,
which handles the administrative duties of the KSC bankruptcy estate. The major
remaining filed claims in the KSC bankruptcy were resolved in 1995. Resolution
of these claims has allowed for a distribution of cash and stock to unsecured
creditors of the KSC bankruptcy estate in accordance with the KSC Plan. This
distribution was commenced in the first quarter and will be completed in the
second quarter.
In conjunction with the distribution of cash and stock to the unsecured
creditors of the KSC bankruptcy estate, and due to the number of shareholders of
the Company owning less than 100 shares, the Company announced a voluntary
program through which shareholders owning fewer than 100 shares of the Company's
stock as of March 15, 1996 may conveniently sell their shares. This program is
not a redemption of shares by the Company but is a voluntary odd-lot sale
assistance program. Notice of this program was mailed to appropriate Company
shareholders beginning on April 15, 1996 with the program initially scheduled to
continue through May 16, 1996. The Company has decided to extend the program
through June 16, 1996. The Company is offering the program to save on annual
servicing costs associated with a large number of small shareholders and to
provide small shareholders a cost effective means of selling shares of the
Company if a shareholder so chooses.
LITIGATION SETTLEMENTS
In April, 1996, the Company collected a substantial portion of the balance
due under the terms of the environmental insurance litigation settlement with a
group of foreign insurance carriers. The balance due under the settlement
agreement is expected to be received within the next thirty (30) days.
Also in April, 1996, all items and amounts held in escrow in connection
with the settlement with California Steel Industries, Inc.("CSI") were
distributed to the Company in accordance with the terms of such settlement
agreement. For additional information see "Part II. Legal Proceedings -
California Steel Industries, Inc."
5
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
PART I
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Kaiser Ventures Inc. ("Kaiser" or the "Company") is an emerging company
pursuing project opportunities and investments in activities related to water
resources, property redevelopment and solid waste management. The Company's
long-term emphasis is on the development of its principal assets: (i) a 50.88%
interest in Fontana Union Water Company ("Fontana Union"), a mutual water
company; (ii) a 10.56% interest in Penske Motorsports, Inc. ("PMI"), a public
professional motorsports company that is developing The California Speedway
("TCS") on land acquired from Kaiser; (iii) approximately a 72% interest in Mine
Reclamation Corporation ("MRC"), the developer of the Eagle Mountain Landfill
Project (the "Landfill Project"); (iv) approximately 750 acres of the former
Kaiser Steel Corporation ("KSC") steel mill site (the "Mill Site Property"); and
(v) the 11,350 acre idle iron ore mine in the California desert (the "Eagle
Mountain Site"), which includes the associated 460 acre town of Eagle Mountain
("Eagle Mountain Townsite"). The Company is also pursuing other related longer-
term growth opportunities on the balance of its Mill Site Property, including
the development of a joint venture for a transfer station and materials
recovery facility on the Mill Site Property ("Mill Site MRF"); and the
redevelopment of industrial and commercial parcels of land adjoining TCS and the
Mill Site MRF.
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
Fontana Union to Cucamonga County Water District ("Cucamonga"). Property
redevelopment revenues currently reflect housing rental income, aggregate rock
sales and lease payments for the minimum security prison at the Eagle Mountain
Townsite, and royalty revenues from iron ore shipments from the Company's iron
ore mine in California (the "Silver Lake Mine"). Joint venture revenues reflect
Kaiser's share of income related to those equity investments (primarily PMI) and
joint ventures which the Company accounts for under the equity method.
INTERIM ACTIVITIES
Revenues from interim activities are generated from various sources
primarily related to the Mill Site Property. Significant components of interim
activities include rentals under short-term tenant lease arrangements, royalty
revenues from the sale of slag to outside contractors, water and wastewater
treatment service revenues, revenues from the sale of recyclable materials and
other miscellaneous interim activities.
SUMMARY OF REVENUE SOURCES
Due to the development 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.
6
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
ANALYSIS OF RESULTS FOR THE QUARTER ENDED MARCH 31, 1996 AND 1995
An analysis of the significant components of the Company's resource
revenues for the quarter ended March 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-------------------------------------------
1996 1995 % INC. (DEC)
----------- ----------- ------------
<S> <C> <C> <C>
ONGOING OPERATIONS
Water resource........................ $ 1,116,000 $ 1,078,000 4%
Property redevelopment................ 263,000 244,000 8%
Joint venture......................... 163,000 --- 100%
----------- -----------
TOTAL ONGOING OPERATIONS............ 1,542,000 1,322,000 17%
----------- -----------
INTERIM ACTIVITIES
Lease and royalty..................... 298,000 419,000 (29%)
Service............................... 57,000 117,000 (51%)
Miscellaneous......................... 137,000 141,000 (3%)
----------- -----------
TOTAL INTERIM ACTIVITIES............ 492,000 677,000 (27%)
----------- -----------
TOTAL RESOURCE REVENUES............. $ 2,034,000 $ 1,999,000 2%
=========== ===========
REVENUES AS A PERCENTAGE OF TOTAL
RESOURCE REVENUES:
Ongoing operations.................... 76% 66%
Interim activities.................... 24% 34%
----------- -----------
TOTAL RESOURCE REVENUES............ 100% 100%
=========== ===========
</TABLE>
Resource Revenues. Total resource revenues for the first quarter of 1996
were $2,034,000, as compared to $1,999,000 for the first quarter of 1995.
Revenues from ongoing operations increased 17% during the first quarter of 1996
to $1,542,000 from $1,322,000 in the first quarter of 1995, while revenues from
interim activities declined 27% to $492,000 from $677,000 in the first quarter
of 1995. Revenues from ongoing operations as a percentage of total revenues
increased to 76% in the first quarter of 1996 from 66% in the first quarter of
1995.
Ongoing Operations. Water lease revenues under the Company's 102-year take-
or-pay lease with Cucamonga were $1,116,000 during the first quarter of 1996 as
compared to $1,078,000 for the first quarter of 1995. The 4% increase in water
revenues during the year reflects the July, 1995 5.1% increase in water rates of
The Metropolitan Water District of Southern California ("MWD"). There was no
reduction in the Company's 55.53% effective interest in Fontana Union for 1996.
As previously disclosed, the Company's effective interest in Fontana Union may
decline over time due to an increase in the number of Fontana Union shareholders
taking water. However, the Company's effective interest in Fontana Union's water
cannot fall below its equity interest of 50.9%. In addition, MWD, effective July
1, 1995, implemented changed rates and a changed rate structure which has
resulted in a continuing lease interpretation dispute with Cucamonga regarding
the extent of the MWD rate increase. The total amount of lease payments in
dispute as of March 31, 1996 is approximately $110,000.
7
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
Property redevelopment revenues were $263,000 for the first quarter of 1996
as compared to $244,000 for the first quarter of 1995. The 8% increase from the
first quarter of 1995 primarily represents higher iron ore sales from one of the
Company's California mines.
Joint venture revenue increased 100% to $163,000 as a result of the
quarterly project service fee due from PMI. In addition, as a result of the
Company's conversion of its preferred stock interest into common stock, the
Company will begin to record its 10.56% share of PMI's net income as of April 1,
1996.
Interim Activities. Revenues from interim activities for the first quarter
of 1996 were $492,000 as compared to $677,000 for the first quarter of 1995. As
noted above, the 27% decrease in revenues from interim activities in the first
quarter of 1996 is primarily attributable to lower levels of service revenues
under the amended Services Agreement with California Steel Industries ("CSI")
and lower tenant rental income on the portion of the Mill Site Property that was
contributed to PMI in November 1995, for the development of TCS.
Resource Operating Costs. Resource operating costs are those costs directly
related to the resource revenue sources. Total resource operating costs for the
first quarter of 1996 declined to $723,000 from $916,000 in the first quarter of
1995. Operations and maintenance costs for the first quarter of 1996 were
$248,000 compared to $397,000 for the first quarter of 1995. This 38% decrease
in operations and maintenance costs was primarily due to lower expenses
associated with the reduced levels of services being provided to CSI and lower
property taxes associated with the portion of the Mill Site Property that was
contributed to PMI for the development of TCS. Administrative support expenses
for the first quarter of 1996 decreased 8% to $475,000 from $519,000 for the
first quarter of 1995 due primarily to lower staffing levels, lower outside
professional fees and depreciation expense.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses for the first quarter of 1996 increased 15% to $976,000
from $846,000 for the first quarter of 1995 due primarily to higher outside
professional and legal expenses.
Net Interest Expense. Net interest expense for the first quarter of 1996,
was $111,000, a decline of 25% from $149,000 in the first quarter of 1995. The
reduction was due primarily to the capitalization of interest expense associated
with the development of certain parcels of the Mill Site Property, and higher
interest income.
Income and Income Tax Provision. The Company recorded income before income
tax provision of $224,000 for the first quarter of 1996, a 155% increase from
the $88,000 recorded in the first quarter of 1995. A provision for income taxes
of $97,000 was recorded in the first quarter of 1996 as compared with $38,000 in
the first quarter of 1995. Over 90% of the tax provision in 1996 and 1995 is
not currently payable due primarily to utilization of the Company's net
operating loss carryforwards ("NOLs"). Consequently, pretax income is an
important indicator of the Company's performance.
Net Income. For the first quarter of 1996, the Company reported net income
of $127,000, or $.01 per share, a 154% increase from the $50,000, or $.00 per
share, reported for the first quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
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 declined $4,490,000 to $6,373,000 at
March 31, 1996 from $10,863,000 at December 31, 1995. Included in cash and cash
equivalents at December 31, 1995 is $1,820,000 held solely for the benefit of
MRC. The
8
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
Company also had short-term investments, comprised of treasury bills and
certificates of deposit, of $74,000 at March 31, 1996 and December 31, 1995. The
decrease in cash and cash equivalents is due primarily to the expenditure of
$4,230,000 for environmental remediation and site clearance on the Mill Site
Property.
Working Capital. During the first quarter of 1996, current assets decreased
$5,008,000 to $15,701,000 while current liabilities declined $159,000 to
$11,905,000. The decrease in current assets resulted primarily from the
$4,490,000 decrease in cash and cash equivalents discussed above plus a
$518,000 decline in accounts receivable. Included in current liabilities is
$1,342,000 in accounts payable and accrued liabilities relating to MRC. As a
result, working capital decreased during the first quarter of 1996 by $4,849,000
to $3,796,000 at March 31, 1996.
Real Estate. Real Estate increased $4.5 million during the first quarter of
1996 primarily due to the capitalization of $4.2 million of environmental
remediation and site clearance expenditures on the Mill Site Property.
Investments. As a result of the initial public offering completed by PMI on
March 26, 1996, the Company increased its investment in PMI by approximately
$6.5 million and recorded corresponding increases in deferred income taxes and
stockholders equity of approximately $400,000 and $6.1 million, respectively.
Other Assets. The increase in other assets is primarily related to
capitalized landfill permitting and development costs for MRC.
Long-term Debt and Other Long-term Liabilities. As of March 31, 1996, the
Company had $5,282,000 in long-term debt associated with the note the Company
issued as part of the purchase of properties from the Lusk Joint Ventures in
July, 1994. The Company has no outstanding borrowings under its $20.0 million
revolving-to-term credit facility at March 31, 1996.
Minority Interest and Other Liabilities. At March 31, 1996, the Company had
recorded $1,053,000 of minority interest relating to MRC in which the Company
had approximately a 72% equity interest.
Contingent Liabilities. The Company has contingent liabilities more fully
described in the notes to the financial statements.
Capital Resources. The Company expects that its current cash balances and
short-term investments together with: (a) cash provided from operating
activities; (b) proceeds from the CSI and environmental insurance litigation
settlements; and (c) amounts available under its $20,000,000 revolving-to-term
credit facility (less $339,000 in reductions in the borrowing base and
$3,432,000 reserved for financial assurances required by the DTSC and relating
to environmental remediation on the Mill Site Property) will be sufficient to
satisfy both the Company's near-term operating cash requirements and to enable
the Company to continue the development of its long-term projects. To the
extent that additional capital resources are required, such capital will be
raised through bank borrowings, partnerships, joint venture arrangements,
additional equity or asset sale or monetization.
As previously disclosed, the Company expects to commit, in 1996, a total of
approximately $14.6 million for currently approved capital projects of which
approximately $7.0 million will be for required environmental remediation, $4.6
million will be for real estate improvement and development of certain parcels
at the Company's Mill Site Property, $2.6 million will be for supporting MRC's
landfill permitting and development, and $400,000 at Eagle Mountain for the
Specific Plan and BLM Land Exchange.
9
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.............. $ 6,373,000 $ 10,863,000
Short-term investments................. 74,000 74,000
Accounts receivable and other, net of
allowance for doubtful accounts of
$458,000 and $414,000, respectively.. 9,254,000 9,772,000
------------ ------------
Total current assets..................... 15,701,000 20,709,000
------------ ------------
Real Estate
Land and improvements.................. 26,315,000 22,084,000
Real estate under development.......... 7,826,000 7,564,000
------------ ------------
Total real estate...................... 34,141,000 29,648,000
------------ ------------
Investment in Penske Motorsports, Inc..... 29,240,000 22,991,000
Investment in Fontana Union Water Company. 16,108,000 16,108,000
Other Assets
Landfill permitting and development.... 2,595,000 1,660,000
Buildings and equipment (net).......... 2,399,000 2,433,000
Other assets and investments........... 1,196,000 1,154,000
------------ ------------
Total other assets..................... 6,190,000 5,247,000
------------ ------------
Total Assets.............................. $101,380,000 $ 94,703,000
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
10
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable........................... $ 4,277,000 $ 4,065,000
Accrued liabilities........................ 7,388,000 7,759,000
Current portion of long-term debt.......... 240,000 240,000
------------ -----------
Total current liabilities.............. 11,905,000 12,064,000
------------ -----------
Long-term Liabilities
Deferred tax liabilities................... 1,118,000 721,000
Groundwater remediation reserve............ 1,428,000 1,431,000
Environmental remediation reserve.......... 5,500,000 5,500,000
Long-term debt............................. 5,282,000 5,342,000
------------ -----------
Total long-term liabilities............ 13,328,000 12,994,000
------------ -----------
Total liabilities...................... 25,233,000 25,058,000
------------ -----------
Minority Interest and Other Liabilities....... 1,053,000 948,000
Commitments and Contingencies
Stockholders' Equity
Common stock, par value $.03 per
share, authorized 13,333,333 shares;
issued and outstanding 10,481,614
and 10,470,614 respectively............... 314,000 314,000
Capital in excess of par value............. 66,526,000 60,256,000
Retained earnings since November 15, 1988.. 8,254,000 8,127,000
------------ -----------
Total stockholders' equity................. 75,094,000 68,697,000
------------ -----------
Total Liabilities and Stockholders' Equity.... $101,380,000 $94,703,000
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
11
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
RESOURCE REVENUES
Ongoing Operations
Water resource............................ $ 1,116,000 $ 1,078,000
Property redevelopment.................... 263,000 244,000
Joint venture............................. 163,000 ---
----------- -----------
Total ongoing operations................ 1,542,000 1,322,000
Interim Activities
Lease and royalty......................... 298,000 419,000
Service................................... 57,000 117,000
Miscellaneous............................. 137,000 141,000
----------- -----------
Total interim activities................ 492,000 677,000
----------- -----------
Total resource revenues................. 2,034,000 1,999,000
----------- -----------
RESOURCE OPERATING COSTS
Operations and maintenance.................... 248,000 397,000
Administrative support expenses............... 475,000 519,000
----------- -----------
Total resource operating costs.......... 723,000 916,000
----------- -----------
INCOME FROM RESOURCES............................ 1,311,000 1,083,000
Corporate general and administrative
expenses..................................... 976,000 846,000
----------- -----------
INCOME FROM OPERATIONS........................... 335,000 237,000
Net interest expense.......................... 111,000 149,000
----------- -----------
INCOME BEFORE INCOME TAX PROVISION............... 224,000 88,000
Income tax provision
Currently payable......................... 7,000 3,000
Deferred tax expense credited to
equity................................... 90,000 35,000
----------- -----------
NET INCOME....................................... $ 127,000 $ 50,000
=========== ===========
EARNINGS PER SHARE............................... $ .01 $ .00
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING.... 10,748,000 10,647,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
12
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................... $ 127,000 $ 50,000
Provision for income tax
which is credited to equity................... 90,000 35,000
Depreciation and amortization.................. 136,000 123,000
Allowance for doubtful accounts................ 44,000 12,000
Changes in assets:
Accounts receivable and other............... 475,000 926,000
Changes in liabilities:
Current liabilities......................... (463,000) (3,809,000)
Long-term groundwater remediation costs..... (3,000) ---
----------- -----------
Net cash flows from operating activities....... 406,000 (2,663,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Short-term investments and marketable
securities.................................... --- 1,513,000
Minority interest and other liabilities........ 105,000 1,176,000
Investment in Penske Motorsports, Inc.......... 264,000 6,000
Capital expenditures........................... (5,166,000) (684,000)
Other investments.............................. (103,000) (63,000)
----------- -----------
Net cash flows from investing activities....... (4,900,000) 1,948,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock....................... 64,000 ---
Principal payments on note payable............. (60,000) (60,000)
----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES.......... 4,000 (60,000)
----------- -----------
NET CHANGES IN CASH AND CASH EQUIVALENTS.......... (4,490,000) (775,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.... 10,863,000 3,205,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD.... $ 6,373,000 $ 2,430,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
13
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
------------------------- EXCESS OF RETAINED
SHARES AMOUNT PAR VALUE EARNINGS TOTAL
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 10,470,614 $314,000 $60,256,000 $8,127,000 $68,697,000
---------- --------- ----------- ----------- -----------
Provision for income tax,
credited to equity.................. --- --- 90,000 --- 90,000
Increase in investment in
Penske Motorsports, Inc.
due to public offering.............. --- --- 6,116,000 6,116,000
---
Issuance of shares of
common stock........................ 11,000 --- 64,000 --- 64,000
Net Income........................... --- --- --- 127,000 127,000
---------- --------- ----------- ----------- -----------
Balance at March 31, 1996............... 10,481,614 $314,000 $66,526,000 $8,254,000 $75,094,000
========== ========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
14
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The unaudited, consolidated financial statements as of March 31, 1996, and
for the three-months ended March 31, 1996 and 1995, 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, 1995. 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, 1996, and results
of operations and cash flows for the three-months ended March 31, 1996 and 1995.
The Company has reclassified the 1995 quarterly information to conform with
the 1996 presentation.
NOTE 2. PENSKE MOTORSPORTS, INC.
In March 1996, Penske Motorsports, Inc. ("PMI") effected a recapitalization
resulting in PMI ownership of the outstanding shares of Michigan International
Speedway, Inc., Pennsylvania International Raceway, Inc., The California
Speedway Corporation, Motorsports International Corp., Competition Tire West,
Inc. and Competition Tire South, Inc. Subsequent to the recapitalization, PMI
completed an initial public offering ("IPO") by issuing 3,737,500 shares of
common stock at a price to the public of $24 per share. The proceeds to PMI,
after underwriting discounts and commissions and other offering expenses, were
approximately $83.1 million. As a result of the IPO, the Company has recorded an
increase in its equity investment in PMI of $6,513,000 and corresponding
increases in deferred income taxes and capital in excess of par value of
$397,000 and $6,116,000, respectively.
NOTE 3. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL CONTINGENCIES
The Company currently estimates that as of March 31, 1996, its remediation
costs for the balance of its land will be between $14,000,000 and $24,000,000,
depending upon which approved remediation alternatives are eventually selected.
The Company anticipates recovery of these costs through redevelopment of the
property, primarily in connection with specific redevelopment projects or joint
ventures. The West End and Valley Boulevard Properties do not have any known
environmental problems and are not subject to the 1988 Consent Order with the
California Environmental Protection Agency, Department of Toxic Substances
Control ("DTSC"). Although extensive environmental investigations have been
conducted on the site and are ongoing, there can be no assurance that the actual
amount of environmental remediation expenditures will not substantially exceed
those currently anticipated or that additional areas of contamination may not be
identified.
While the Company has monitored certain groundwater wells in the past, the
DTSC requested and the Company will implement a supplemental groundwater
monitoring system. The Company has settled obligations of groundwater
contamination with the California Regional Water Quality Control Board. The
15
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
settlement required a $1,500,000 cash payment by the Company which was made in
February, 1994, and the contribution of 1,000 acre feet of water annually for 25
years to a water quality project. These water rights are unrelated to those
leased to Cucamonga County Water District. In 1995, the Company contributed
18,000 acre feet of its water in storage thus satisfying the first 18 years of
its obligation. The Company remains contingently liable for any impacts the
groundwater plume may have on water wells owned by third parties. Recently the
City of Ontario, California commenced litigation against the Company alleging
that the Company has contaminated one of its municipal wells. The Company
believes sufficient amounts have been accrued for this contingency.
16
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
As discussed in the Company's Form 10-K Report for 1995, the Company is
engaged in certain claims and litigation, which if resolved adverse to the
Company or the Company's interests, would have a material adverse impact on the
Company. There have been no material developments in any legal proceeding
except as noted below and as discussed in the "Introduction - Business Update"
section of this Form 10-Q Report.
CALIFORNIA STEEL INDUSTRIES, INC.
As previously announced and discussed in detail in the Company's 1995 10-K
Report, the Company and KSC Recovery, Inc. last year reached a definitive
settlement with California Steel Industries, Inc. ("CSI") resolving all the
issues and disputes among the parties. All conditions to the settlement where
satisfied prior to December 31, 1995, with the settlement documents and
consideration being held in escrow pending the sale by CSI of the Company's
stock it received as a part of its bankruptcy claim in the Kaiser Steel
Corporation ("KSI") bankruptcy. CSI sold the stock in April allowing for the
distribution of the settlement documents and funds in escrow to CSI and the
Company. The gain related to this settlement was recognized by the Company in
the fourth quarter of 1995 since all conditions to the completion of the
settlement were satisfied before year end.
CITY OF ONTARIO LITIGATION
On February 27, 1996, the City of Ontario, California served on the Company
a complaint filed in San Bernardino County Superior Court (City of Ontario v.
Kaiser Ventures Inc., et al.; Case No. RCV 17334). In sum, the complaint alleges
there is a plume or plumes containing organic carbon, dissolved solids and
mercury originating from the Company's Mill Site Property due to activities of
KSC, and/or a former tenant of the Mill Site Property, have impacted one of the
City of Ontario's water wells. Ontario seeks reimbursement for remedial costs,
replacement of the allegedly impacted well and replacement or improvement or
refurbishment of related facilities. The Company challenged Ontario's ability to
bring this litigation given the KSC bankruptcy and the discharge granted to the
Company. With this objection, on April 5, 1996, Ontario brought a declaratory
judgment action in the U. S. District Court for the District of Colorado in
Bankruptcy ("the U.S. Bankruptcy Court") against the Company, (City of Ontario
v. Kaiser Ventures Inc., Adversary Proceeding No. 96-1215 MSK). In the U. S.
Bankruptcy Court action, Ontario in effect seeks a determination that the
matters and damages alleged in its California lawsuit are not discharged as a
part of the KSC bankruptcy proceedings. The litigation in California is on hold
pending resolution of the matter before the U. S. Bankruptcy Court.
CCWD RATE DISPUTE LITIGATION
As discussed in more detail in the "Business Update" section of this Form 10-Q
Report, the Company on April 22, 1996 initiated legal action in San Bernardino
County Superior Court against Cucamonga County Water District ("Cucamonga"),
(Fontana Water Resources, Inc. v. Cucamonga County Water District; Case No.
RCV 21135). The Company and the Cucamonga have not been able to resolve a rate
dispute that arose due to changed rates and a new rate structure implemented by
the Metropolitan Water District of Southern California as of July 1, 1995.
Under the terms of the Cucamonga Lease, the Company believes it is entitled to a
5.1% rate increase and Cucamonga asserts that it is required to pay only a 2.7%
rate increase. The Company intends to vigorously prosecute the case.
17
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
See the "Introduction" Section of this Form 10-Q Report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
--------
EXHIBIT 27 - Financial Data Schedule for 1st Quarter 10-Q.
B. Reports on Form 8-K.
--------------------
None.
18
<PAGE>
KAISER VENTURES INC. 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 14, 1996 /s/ James F. Verhey
-------------------
James F. Verhey
Principal Financial Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income from the March
31, 1996 Form 10-Q Report and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,447,000
<SECURITIES> 0
<RECEIVABLES> 9,254,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,701,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 101,380,000
<CURRENT-LIABILITIES> 11,905,000
<BONDS> 5,282,000
0
0
<COMMON> 314,000
<OTHER-SE> 74,780,000
<TOTAL-LIABILITY-AND-EQUITY> 101,380,000
<SALES> 0
<TOTAL-REVENUES> 2,034,000
<CGS> 0
<TOTAL-COSTS> 723,000
<OTHER-EXPENSES> 976,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,000
<INCOME-PRETAX> 224,000
<INCOME-TAX> 97,000
<INCOME-CONTINUING> 127,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127,000
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
