KAISER VENTURES INC, 10-Q, 1999-08-13

KAISER VENTURES INC
10-Q, 1999-08-13
LESSORS OF REAL PROPERTY, NEC

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended June 30, 1999 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 August 6, 1999, the Company had 10,699,354 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).
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TABLE OF CONTENTS TO FORM 10-Q

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PAGE
<S> <C>
INTRODUCTION

BUSINESS UPDATE....................................................................... 1

PART I

Item 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
Condition and Results of Operations......................................... 7

Item 2. FINANCIAL STATEMENTS........................................................ 16

CONSOLIDATED BALANCE SHEETS................................................. 16

CONSOLIDATED STATEMENTS OF OPERATIONS....................................... 18

CONSOLIDATED STATEMENTS OF CASH FLOWS....................................... 19

CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY........................................................ 20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................................. 21

PART II

Item 1. LEGAL PROCEEDINGS........................................................... 23

Item 2. CHANGES IN SECURITIES....................................................... 23

Item 3. DEFAULTS UPON SENIOR SECURITIES............................................. 23

Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS........................... 23

Item 5. OTHER INFORMATION........................................................... 23

Item 6. EXHIBITS AND REPORTS ON FORM 8-K............................................ 24

SIGNATURES................................................................................. 25
</TABLE>

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, 1998, as amended (the "10-K Report") as filed
with the Securities Exchange and Commission, including the financial statement
schedules thereto. Those requesting a copy of the 10-K Report that are not
currently stockholders 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 Vice
President-Finance, 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 first quarter 10-Q Report for 1999 and 10-K Report for 1998, as amended,
since the information contained herein is often an update of the information in
such reports.

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KAISER VENTURES INC. AND SUBSIDIARIES

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, Annual
Report to Stockholders, 10-Q or 8-K Report 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. 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. 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, actual results could materially differ from those projected as a result
of factors such as, but not limited to, general economic conditions in the
United States and Southern California; the impact of any year 2000 problems on a
regional or national basis; a material adverse change in the value of the Class
A common stock of International Speedway Corporation; 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; the
discovery of unanticipated environmental conditions on any of the Company's
properties; the failure of the bankruptcy discharge granted to the Company to
address claims and litigation that relate to the pre-bankruptcy activities of
Kaiser Steel Corporation; or the failure to obtain any required approval or
permit for the proposed Eagle Mountain landfill project or development of the
Company's Mill Site real estate. Readers are cautioned not to put undue reliance
on forward-looking statements. 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 Form 10-Q Report is strongly encouraged to read the entire
report, together with the Company's first quarter 1999 10-Q Report and 1998 Form
10-K Report, as amended, for background information and a complete understanding
as to material developments concerning the Company.

INTRODUCTION

BUSINESS UPDATE

General

Kaiser Ventures Inc. ("Kaiser" or the "Company") is an asset development
company pursuing project opportunities and investments associated with its
principal assets which are: (i) a 50.88% interest in Fontana Union Water Company
("Fontana Union"), a mutual water company; (ii) approximately a 74% interest in
Mine Reclamation Corporation ("MRC"), the developer of the Eagle Mountain
Landfill Project (the "Landfill Project"); (iii) a 50% joint venture interest in
the West Valley MRF ("WVMRF"), a transfer station and recycling facility located
on land acquired from the Company; (iv) approximately 629 acres (gross) of the
former Kaiser Steel Corporation ("KSC") steel mill site (the "Mill Site
Property"), a portion of which is currently being developed as the Kaiser
Commerce Center; 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") and the land leased to MRC

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KAISER VENTURES INC. AND SUBSIDIARIES

for the Landfill Project. In addition, as a result of the acquisition on July
26, 1999 of Penske Motorsports, Inc. ("PMI") by International Speedway
Corporation ("ISC"), a publicly traded motorsports company, the Company's former
11.73% interest in PMI was converted to ISC Class A common stock and cash worth
approximately $81 million at the time of the merger. The Company now owns
1,186,755 shares of ISC Class A common stock.

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 pursuant to a 102-year take-or-pay lease
expiring in 2092 (the "Cucamonga Lease"). Currently, the Company's pro rata
interest in unclaimed water raises its effective interest in Fontana Union to
57.33%. 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 a water rate 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").

As a result of changed rates and a new rate structure implemented by MWD as
of July 1, 1995, the Company and Cucamonga became involved in a rate dispute
under the terms of the Cucamonga Lease. After a trial held in March 1998, the
San Bernardino County Superior Court concluded that the rate on which the
Cucamonga Lease had been based was discontinued effective July 1, 1995. The
terms of the Cucamonga Lease require the parties to negotiate, in good faith, a
new substitute rate. If the parties are unable to agree on a substitute rate,
the matter is resolved in a reference proceeding which is a private trial much
like arbitration. There is no specified time period in which the new substitute
rate must be established. Cucamonga and the Company have been engaged in
sporadic negotiations but such negotiations have not, to date, resulted in a new
substitute rate. During the first quarter of 1999, the trial court again ruled
against Cucamonga when it sought to alter the Superior Court's prior decision.
As a result, the Superior Court ordered that, since the parties were at an
impasse, the new substitute rate was to be resolved by a reference proceeding as
required by the terms of the Cucamonga Lease. The parties are in the initial
stages of the reference proceeding. It is currently anticipated that the trial
in the reference proceeding will occur in the first half of 2000.

As previously reported, in April 1999, the Inland Empire Utilities Agency
(formerly known as the Chino Basin Metropolitan Water District) voted to
increase its administrative charge from $5.00 to $7.50 per acre foot effective
as of July 1, 1999. This $2.50 per acre foot increase is reflected in the rate
charged to Cucamonga.

Settlement negotiations continued during the second quarter with San
Bernardino County regarding the litigation commenced by the Company's wholly
owned subsidiary, Fontana Water Resources, Inc., with regard to water quality
and quantity concerns arising from San Bernardino County's Mid-Valley Sanitary
Landfill and its proposed expansion. However, there is no assurance that there
will be a satisfactory settlement of the litigation.

Investment in Penske Motorsports, Inc.

Until the close of business July 26, 1999, the Company owned 1,627,923
shares, or approximately 11.73 % of the common stock of PMI. The Company's
ownership interest in PMI was acquired as a result of: (i) its contribution in
November 1995, to PMI of approximately 480 acres, as adjusted, of the Central
Mill Site Property on which the California Speedway ("TCS") has been built; and
(ii) the subsequent sale of the Speedway Business Park, totaling approximately
54 acres to PMI in December

2
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KAISER VENTURES INC. AND SUBSIDIARIES

1996. Until the close of business on July 26, 1999, PMI was traded on the NASDAQ
National Market under the symbol "SPWY".

On May 10, 1999, PMI and ISC announced that they had signed a definitive
merger agreement whereby ISC would acquire PMI for consideration totaling $50.00
per share. On July 26, 1999, the proposed acquisition was consummated. The
Company voted for the merger and elected to take the cash and stock election
afforded to PMI shareholders. Thus, under the cash and stock election, Kaiser
received approximately $24 million in cash and approximately $57 million
(1,186,755 shares) in ISC Class A common stock. The Company's Board of
Director's is currently reviewing various alternatives with respect to the use
of the proceeds derived from the PMI/ISC merger.

ISC is a leading promoter of motorsports activities in the United States,
currently promoting more than 100 events annually. ISC currently owns and/or
operates 10 major motorsports facilities, including Daytona International
Speedway in Florida (home of the Daytona 500); Talladega Superspeedway in
Alabama; Michigan Speedway in Brooklyn, Michigan; California Speedway in San
Bernardino County, California; Homestead - Miami Speedway in Florida; Phoenix
International Raceway in Arizona; Darlington Raceway in South Carolina; North
Carolina Speedway in Rockingham, North Carolina; Watkins Glen International in
New York, and Nazareth Speedway in Pennsylvania. Other track interests include
the operation of Tucson (Arizona) Raceway Park and an indirect 37.5% interest in
Raceway Associates, LLC, which owns the Route 66 Raceway and is developing a
superspeedway in the Chicago area. ISC also owns and operates MRN Radio, the
nation's, largest independent sports radio network; DAYTONA USA, the "Ultimate
Motorsports Attraction" in Daytona Beach, Florida, the official attraction of
NASCAR; Americrown Service Corporation, a provider of catering services, food
and beverages concessions, and merchandise sales; Motorsports International, a
producer and marketer of motorsports-related merchandise; and competition Tire,
which distributes and sells Goodyear brand racing tires in the Midwest and
Southeast regions of the United States.

The following table sets forth the range of the low and high reported bid
price of ISC's Class A common stock for the first six months of 1999, as
reported on the NASDAQ National Marketsm System.

1999: Low High
---- ----
First Quarter $ 34.00 $ 50.06
Second Quarter $ 45.00 $ 55.31

On August 6, 1999, the reported closing price of ISC's Class A common stock
was $48.62.

The Company originally began accounting for its share of PMI's net income
as of April 1, 1996, under the equity method of accounting. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
However, effective April 1, 1999, the Company ceased accounting for PMI under
the equity method of accounting due to the decision to sell the PMI stock owned
by the Company, as a result of the announced PMI/ISC merger. For more detailed
information on the accounting treatment of the Company's former interest in PMI,
please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

The Mill Site Property

Redevelopment Activities and Approvals. As described below, the Company
continues to undertake various activities to redevelop portions of the Mill Site
Property.

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KAISER VENTURES INC. AND SUBSIDIARIES

In April 1997, the Company filed an application for a Specific Plan with
San Bernardino County for all of the Mill Site Property except for: (i)
approximately 26 acres within the City of Rancho Cucamonga; (ii) approximately
135 acres constituting the East Slag Pile property; (iii) the remaining NAPA
Lots of approximately 15 acres (already permitted); and (iv) the balance of the
Mill Site Property reserved for possible expansion of the West Valley MRF,
approximately 5 acres (already permitted). The property being entitled and
permitted, which totals approximately 448 acres (net), is referred to as the
"Kaiser Commerce Center." The Specific Plan application identified a wide
variety of potential uses for the Kaiser Commerce Center. Potential uses include
a rail-served distribution and commercial park, a multi-modal rail-truck
distribution center, warehousing, a commercial truck stop, as well as other
commercial and recreational uses. In furtherance of the entitlement process, an
environmental impact report ("EIR") was prepared and circulated in accordance
with the requirements of the California Environmental Quality Act.

The San Bernardino County entitlement process for the Kaiser Commerce
Center was completed on April 13, 1999, when the San Bernardino County Board of
Supervisors unanimously approved the Kaiser Commerce Center project, its EIR,
the Specific Plan and other land use documents. No litigation resulted from the
approval of the Kaiser Commerce Center project. This approval is a significant
step in the development of the Kaiser Commerce Center.

Separately, and in addition to the permitting and entitlement process with
the County, the Company continues to process approvals through the California
Transportation Department for an improved interchange at Etiwanda and the I-10
Freeway. Such freeway improvements near the Mill Site Property would also
involve the realignment of at least one existing street and the construction of
other street improvements.

As previously disclosed, subsequent to the approval of the Kaiser Commerce
Center, San Bernardino County and the California Transportation Department
received a letter from the U. S. Fish and Wildlife Service ("USF&W"). In
summary, the letter expressed concerns that the freeway improvements and the
Kaiser Commerce Center may have indirect impacts on two federally endangered
species, the San Bernardino Kangaroo Rat and the Delphi Sands Flower-Loving Fly.
In response to a previous letter, the Company had already surveyed both the
Kaiser Commerce Center and the location of the proposed freeway improvements and
found no suitable habitat for either species. However, with regard to the San
Bernardino Kangaroo Rat, there may be habitat on certain property adjoining the
site owned by others. The Company has held meetings with appropriate officials
to address the USF&W's concerns. The Company is currently waiting for the USF&W
to complete the review of its position. It is possible that the USF&W's concerns
could delay final approval of the Etiwanda and I-10 Freeway improvements by
state and federal officials.

As noted in previous reports, significant capital funds will be required to
implement the infrastructure and access improvements. Pursuant to the approvals
granted by San Bernardino County, construction of infrastructure and access
improvements must be completed prior to occupancy of the Kaiser Commerce Center.
The Company currently estimates the total on-site and off-site improvements will
cost approximately $43 million. Consistent with the Company's overall
development strategy, the Company intends to minimize its capital investments
for these improvements by: (a) seeking public or private financing sources; (b)
selling land; (c) structuring joint ventures and leases; or (d) contributing
portions of the land for an ownership interest in operating companies seeking to
develop the land. Congress has already allocated approximately $1.5 million in
the Federal highway and transportation funds toward the costs of the planned
improvements to the Etiwanda and I-10 Freeway interchange. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
additional information.

4
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KAISER VENTURES INC. AND SUBSIDIARIES

Sales Efforts and Tentative Sales. As a result of the approval of the
Kaiser Commerce Center project by San Bernardino County and the active Southern
California real estate market, the Company has received a number of unsolicited
offers from potential bulk purchasers and retail users regarding the possible
purchase of property within the project area, as well as the Company's remaining
NAPA Lots and the Rancho Cucamonga parcel. The Company is evaluating these
offers in light of the real estate opportunities and possible development plans
available to the Company.

In July 1999, the Company entered into a definitive purchase agreement to
sell the 5.2 acre NAPA Lot for $4.90 per square foot. The sale is subject to a
number of contingencies. This sale, if ultimately consummated, would be for a
total cash purchase price of approximately $1,110,000, subject to normal closing
adjustments. It is anticipated that this sale, if it proceeds, will be
consummated by year end.

Also, in July 1999, the Company entered into a definitive purchase
agreement to sell a 7.8 acre lot, a portion of the remaining NAPA Lot, for $5.00
per square foot, or a total cash purchase price of approximately $1,699,000.
This sale proposal, like the other NAPA Lot sale, is subject to satisfaction of
a number of conditions. It is currently anticipated that this sale, if it
proceeds, will be consummated by year end.

Environmental. During the second quarter of 1999 the Company continued its
environmental remediation activities. The Company also continued in its efforts
during the second quarter to determine if there are appropriate mechanisms by
which substantially all the environmental risks associated with the Mill Site
Property can be fixed or minimized. It appears that environmental insurance
products may be available that will fix and substantially minimize the
environmental risks associated with the Mill Site Property.

Waste Management

West Valley Materials Recovery Facility

The Company, through a wholly-owned subsidiary, and Burrtec Waste
Industries, Inc., also through a wholly-owned subsidiary, each own a fifty
percent (50%) interest in West Valley MRF, LLC, a limited liability company that
owns the West Valley MRF. Phase 1 of the West Valley MRF includes a 62,000
square foot building, sorting equipment, and related facilities for waste
transfer and recycling services. The West Valley MRF currently receives and
processes approximately up to approximately 2,000 tons per day of non-hazardous
commercial and municipal solid waste. Waste is primarily received from
jurisdictions in which Burrtec affiliated companies have hauling contracts, and
from the cities of Ontario, Chino and Chino Hills.

Given the current volumes of waste being handled by the West Valley MRF,
construction of Phase 2 of the West Valley MRF is being considered. Phase 2
would expand the processing capacity of the West Valley MRF from approximately
2,000 tons per day to approximately 3,500 tons per day. The estimated cost of
the expansion is currently estimated at approximately $6 - $9 million depending
on final design. A final decision on the expansion will probably not be made
until the fourth quarter of 1999.

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

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KAISER VENTURES INC. AND SUBSIDIARIES

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 a result of a series of private placements,
the Company's interest in MRC is now approximately 74%.

EIR Litigation and Appeal. After the September 1997 approval of the new
environmental impact report for the Landfill Project, (the "Project EIR"), the
litigation with respect to the Project EIR resumed. In February 1998, Judge
Judith McConnell of the San Diego County Superior Court issued her final ruling
with respect to the litigation before her on the new Project EIR. Judge
McConnell, in her final ruling, found that the new Project EIR remained
inadequate in evaluating the Landfill Project's impacts in two general areas:
(i) the threatened desert tortoise; and (ii) impacts to Joshua Tree National
Park. MRC, the Company and Riverside County appealed the Superior Court's
decision.

On May 7, 1999, the Court of Appeal announced its decision to completely
reverse the San Diego Superior Court's prior adverse decision. The Court of
Appeal's decision in effect certified the Project EIR and reinstated Riverside
County's approval of the Landfill Project. The Court of Appeal concluded that
there was substantial evidence to support the decision of the Riverside County
Board of Supervisors to approve the Landfill Project in September 1997, and that
the San Diego Superior Court had improperly substituted its judgment in
concluding that the Project EIR was defective. The Court of Appeal concluded
that there had been adequate study of the potential impacts on the desert
tortoise and on Joshua Tree National Park. In June 1999, opponents to the
Landfill Project requested that the California Supreme Court review and overturn
the Court of Appeal's decision. The California Supreme Court declined to review
the Court of Appeal's decision. MRC has resumed seeking the final technical
permits for the Landfill Project.

Federal Land Exchange. In January 1999, an appeal was filed with the
Interior Board of Land Appeals ("IBLA") with regard to United States Bureau of
Land Management's ("BLM") decision to deny all protests to the proposed Federal
land exchange with the Company. By way of background, the Company plans to
transfer to the BLM approximately 2,800 acres of Kaiser-owned property along its
railroad right-of-way, which has been identified as prime desert tortoise
habitat, in exchange for fee ownership of approximately 3,500 acres of land
within the Landfill Project area. In September 1997, the BLM approved the
proposed land exchange. A number of protests to the land exchange were received,
which protests were denied by the BLM in December 1998. As anticipated, in
January 1999 the same two opponents in the EIR litigation discussed above filed
an appeal of the BLM's decision to proceed with the land exchange. The Company,
MRC, and the BLM have filed their respective answers to the appeal. The IBLA has
granted expedited consideration of this appeal. The Company continues to project
that the IBLA will announce its decision during the third or fourth quarter of
1999.

Risks. As is discussed in more detail in the Company's 1998 Form 10-K
Report, there are numerous risks associated with MRC and the Landfill Project
which must be overcome to achieve the financing, permitting, construction,
opening and operation of the Landfill Project. There have been and will continue
to be opponents to the Landfill Project. Given the legal challenges that have
occurred to date and the controversies that generally surround landfill
projects, future legal challenges are likely. There is no guarantee that the
Landfill Project will be successfully permitted and ultimately operational.

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KAISER VENTURES INC. AND SUBSIDIARIES

PART I

Item 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Section 1: Operating Results

General

Kaiser Ventures Inc. ("Kaiser" or the "Company") is an asset development
company with a long-term emphasis on the further development of its principal
assets: (i) a 50.88% interest in Fontana Union Water Company ("Fontana Union"),
a mutual water company; (ii) approximately a 74% interest in Mine Reclamation
Corporation ("MRC"), the developer of the Eagle Mountain Landfill Project (the
"Landfill Project"); (iii) a 50% joint venture interest in the West Valley MRF
("WVMRF"), a transfer station and recycling facility located on land acquired
from the Company; (iv) approximately 629 acres of the former Kaiser Steel
Corporation ("KSC") steel mill site (the "Mill Site Property"), a portion of
which is currently being developed as the Kaiser Commerce Center; 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") and the land leased to MRC for the Landfill Project. In
addition, as a result of the July 26, 1999 acquisition of Penske Motorsports,
Inc. ("PMI") by International Speedway Corporation ("ISC"), a publicly traded
motorsports company, the Company's former 11.73% interest in PMI was converted
to ISC Class A common stock and cash worth approximately $81 million at the time
of the merger. The Company now owns 1,186,755 shares of ISC Class A common
stock.

On May 10, 1999, PMI and International Speedway Corporation ("ISC")
announced that they entered into a definitive merger agreement. Under the terms
of the agreement, ISC agreed to acquire the 88% or 12.2 million outstanding
common shares of PMI stock that it does not already own for $50.00 per share
subject to a collar provision. PMI shareholders would be able to elect to
receive this consideration as either: (1) $15.00 in cash and $35.00 in Class A
Common Stock of ISC; or (2) $50.00 of ISC Class A Common Stock. The merger
closed on July 26, 1999 and PMI shareholders had until August 9, 1999 to make
their election. The Company elected to take $15.00 in cash and $35.00 in Class A
common stock of ISC.

In anticipation of this merger, the Company, commencing April 1, 1999,
started accounting for its investment in PMI in accordance with Financial
Accounting Standards Board ("FASB") Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities (FASB 115). Under FASB 115 the
Company's investment in PMI stock was classified as available-for-sale
securities and reported at fair value, with unrealized gains and losses excluded
from earnings and reported as a separate component of stockholders' equity. As a
result, at June 30, 1999, the Company wrote up its investment in PMI by $35.1
million to $80.6 million, crediting a separate component of stockholders' equity
and deferred taxes with $29.4 million and $5.7 million, respectively.

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. Property redevelopment revenues primarily reflect
revenues from long-term redevelopment activities at the Mill Site Property,
including water and waste water treatment revenues; housing rental income;
aggregate and rock sales; lease payments for the

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KAISER VENTURES INC. AND SUBSIDIARIES

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"). Income from equity method investments reflect Kaiser's
share of income related to those equity investments (i.e., PMI from April 1996
through March 31, 1999) and joint ventures (i.e., West Valley MRF commencing
January 1, 1998) 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, royalty revenues from the
sale of recyclable revert materials and other miscellaneous short-term
activities. Revenues from these activities are declining rapidly as the
development of the remaining Mill Site property proceeds.

Summary of Revenue Sources

Due to the developmental nature of certain Company projects and the
Company's recognition of revenues from bankruptcy-related and other non-
recurring items, historical period-to-period comparisons of total revenues may
not be meaningful for developing an overall understanding of the Company.
Therefore, the Company believes it is important to evaluate the trends in the
components of its revenues as well as the recent developments regarding its
long-term ongoing and interim revenue sources. See "Part I, Item 1. - Business"
for a discussion of recent material events affecting the Company's revenue
sources.

Results of Operations

Analysis of Results for the Quarters Ended June 30, 1999 and 1998

An analysis of the significant components of the Company's resource
revenues for the quarters ended June 30, 1999 and 1998 follows:

<TABLE>
<CAPTION>
1999 1998 % Inc. (Dec)
---------------- ---------------- -----------------
<S> <C> <C> <C>
Ongoing Operations
Water resource.................................. $1,179,000 $1,169,000 1%
Property redevelopment.......................... 370,000 332,000 11%
Income from equity method
investments....................................
Penske Motorsports Inc....................... --- 1,251,000 (100%)
West Valley MRF, LLC......................... 212,000 10,000 2120%
---------- ---------- ----

Total ongoing operations....................... 1,761,000 2,762,000 (36%)
---------- ---------- ----

Interim Activities 104,000 304,000 (66%)
---------- ---------- ----

Total resource revenues........................ $1,865,000 $3,066,000 (39%)
========== ========== ====

Revenues as a Percentage of Total Resource
Revenues:
Ongoing operations.............................. 94% 90%
Interim activities.............................. 6% 10%
---------- ----------

Total resource revenues........................ 100% 100%
========== ==========
</TABLE>

8
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

Resource Revenues. Total resource revenues for the second quarter of 1999
were $1,865,000, compared to $3,066,000 for 1998. Revenues from ongoing
operations decreased 36% during the quarter to $1,761,000 from $2,762,000 in
1998, and revenues from interim activities decreased 66% to $104,000 from
$304,000 in 1998. Revenues from ongoing operations as a percentage of total
revenues increased to 94% in 1999 from 90% in 1998.

Ongoing Operations. Water lease revenues under the Company's 102-year take-
or-pay lease with Cucamonga were $1,179,000 during the second quarter of 1999
compared to $1,169,000 for 1998. The 1% increase in water revenues during the
quarter reflects an increase, as of July 1, 1998, in the effective non-
interruptible untreated water rate being paid by Cucamonga to $354.00 from
$351.75 per acre foot. As previously disclosed, Metropolitan Water District of
Southern California ("MWD"), effective July 1, 1995, implemented changed rates
and a changed rate structure which resulted in the continuing lease
interpretation dispute with Cucamonga regarding the extent of the MWD rate
increases. Although the Company is continuing to bill Cucamonga at what it
believes is the correct MWD rate under the lease with Cucamonga, the Company has
elected to report revenues on the basis of amounts Cucamonga is currently
paying. The total amount of lease payments in dispute as of June 30, 1999 is
approximately $2,194,000. In addition, MWD has stated that it may further refine
its rate structure in the future.

Property redevelopment revenues were $370,000 for 1999 compared to $332,000
for 1998. The 11% increase from 1998 is primarily the result of increased iron
ore sales from the California mines ($21,000) and a 5% lease increase included
in the 2 1/2 year lease extension with Management Training Corporation
($11,000).

Income from equity method investments decreased to $212,000 for the second
quarter of 1999 compared to $1,261,000 for 1998. The decrease of $1,050,000
reflects the discontinuance of recording equity income from PMI effective April
1, 1999 ($1,251,000) due to the impending merger between ISC and PMI being
partially offset by an increase in the second quarter equity income of the WVMRF
($202,000).

Interim Activities. Revenues from interim activities for the second quarter
of 1999 were $104,000 compared to $304,000 for 1998. The 66% decrease in
revenues from interim activities in 1999 is primarily attributable to lower
revenues from tenant rental and services revenues at the Mill Site due to
continued redevelopment activities ($218,000) being partially offset by
increased scrap and metallic sales at the Mill Site ($18,000).

Resource Operating Costs. Resource operating costs are those costs directly
related to the resource revenue sources. Total resource operating costs for the
second quarter of 1999 decreased to $701,000 from $850,000 in 1998. Operations
and maintenance costs for 1999 were $214,000 compared to $317,000 for 1998. The
32% decrease in 1999 operations and maintenance costs was primarily due to
reduced manpower and salaries ($15,000) and lower maintenance and supplies costs
for buildings and equipment at the Mill Site and Eagle Mountain ($84,000).
Administrative support expenses for the second quarter of 1999 decreased 8% to
$487,000 from $533,000 for 1998. This decrease was primarily due to lower
outside service expenses at the Mill Site and Eagle Mountain ($65,000), lower
outside legal costs associated with water revenue ($16,000) and lower salaries
and benefits at the Mill Site due to layoffs in the first quarter of 1999
($6,000). These decreases were partially offset by higher depreciation expense
relating to the sewer plant improvements ($9,000) at the Mill Site and the
capitalization of a portion of Eagle Mountain salaries in the second quarter of
1998 ($32,000).

Corporate General and Administrative Expenses. Corporate general and
administrative expenses for the second quarter of 1999 decreased 22% to $860,000
from $1,103,000 for 1998. The decrease is

9
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

primarily due to lower payroll and related expenses ($48,000) and lower
professional and outside consulting expenses ($197,000).

Net Interest Expense. Net interest expense for the second quarter of 1999
was $334,000 compared to $259,000 in 1998. The increase was due primarily to an
increase in interest expense ($52,000) associated with additional long term debt
under the Union Bank of California ("Union Bank") credit facility and an
increase in the amortization of deferred loan fees ($24,000).

Pre-Tax Loss and Income Tax Provision. The Company recorded a loss before
income tax provision of $30,000 for the second quarter of 1999, a $884,000
decrease from the $854,000 of income recorded in 1998. An income tax benefit of
$4,000 was recorded in the second quarter of 1999 as compared with a $363,000
income tax expense in 1998.

Net Loss. For second quarter of 1999, the Company reported a net loss of
$26,000, or $.00 per share, a $517,000 decrease from the income of $491,000, or
$.05 per share, reported for 1998.

Analysis of Results for the Six Months Ended June 30, 1999 and 1998

An analysis of the significant components of the Company's resource
revenues for the six months ended June 30, 1999 and 1998 follows:

<TABLE>
<CAPTION>
1999 1998 % Inc. (Dec)
---------------- ---------------- ----------------
Ongoing Operations
<S> <C> <C> <C>
Water resource.................................. $2,359,000 $2,338,000 1%
Property redevelopment.......................... 726,000 677,000 7%
Income (loss) from equity method
investments....................................
Penske Motorsports Inc....................... (329,000) 1,073,000 n/a
West Valley MRF, LLC......................... 212,000 40,000 530%
---------- ---------- ----

Total ongoing operations....................... 2,968,000 4,128,000 (28%)
---------- ---------- ----

Interim Activities............................... 171,000 611,000 (72%)
---------- ---------- ----

Total resource revenues........................ $3,139,000 $4,739,000 (34%)
========== ========== ====

Revenues as a Percentage of Total Resource
Revenues:
Ongoing operations.............................. 95% 87%
Interim activities.............................. 5% 13%
---------- ----------

Total resource revenues........................ 100% 100%
========== ==========
</TABLE>

Resource Revenues. Total resource revenues for the first six months of 1999
were $3,139,000, compared to $4,739,000 for 1998. Revenues from ongoing
operations decreased 28% during the quarter to $2,968,000 from $4,128,000 in
1998, and revenues from interim activities decreased 72% to $171,000 from
$611,000 in 1998. Revenues from ongoing operations as a percentage of total
revenues increased to 95% in 1999 from 87% in 1998.

Ongoing Operations. Water lease revenues under the Company's 102-year take-
or-pay lease with Cucamonga were $2,359,000 during the first six months of 1999
compared to $2,338,000 for 1998. The 1% increase in water revenues during the
quarter reflects an increase, as of July 1, 1998, in the effective

10
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

non-interruptible untreated water rate being paid by Cucamonga to $354.00 from
$351.75 per acre foot. As previously disclosed, Metropolitan Water District of
Southern California ("MWD"), effective July 1, 1995, implemented changed rates
and a changed rate structure which resulted in the continuing lease
interpretation dispute with Cucamonga regarding the extent of the MWD rate
increases. Although the Company is continuing to bill Cucamonga at what it
believes is the correct MWD rate under the lease with Cucamonga, the Company has
elected to report revenues on the basis of amounts Cucamonga is currently
paying. The total amount of lease payments in dispute as of June 30, 1999 is
approximately $2,194,000. In addition, MWD has stated that it may further refine
its rate structure in the future.

Property redevelopment revenues were $726,000 for the first six months of
1999 compared to $677,000 for 1998. The 7% increase from 1998 is primarily a
result of the 5% lease increase included in the 2 1/2 year lease extension with
Management Training Corporation ($23,000) and increased iron ore sales from the
California mines ($24,000).

Income (loss) from equity method investments decreased to a loss of
$117,000 for the first six months of 1999 compared to income of $1,113,000 for
1998. The decrease of $1,230,000 reflects the discontinuance of recording equity
income from PMI effective April 1, 1999 due to the merger between ISC and PMI
($1,251,000) that was announced in May 1999, and an increase in the reported
first quarter net loss of PMI ($181,000) being partially offset by an increase
in equity income from the WVMRF ($202,000).

Interim Activities. Revenues from interim activities for the first six
months of 1999 were $171,000 compared to $611,000 for 1998. The 72% decrease in
revenues from interim activities in 1999 is primarily attributable to lower
revenues from tenant rental and services sales at the Mill Site due to continued
redevelopment activities ($485,000) being partially offset by increased scrap
and metallic sales at the Mill Site ($45,000).

Resource Operating Costs. Resource operating costs are those costs directly
related to the resource revenue sources. Total resource operating costs for the
first six months of 1999 decreased to $1,316,000 from $1,884,000 in 1998.
Operations and maintenance costs for 1999 were $432,000 compared to $651,000 for
1998. The 34% decrease in 1999 operations and maintenance costs was primarily
due to lower salaries at the Mill Site ($15,000) and maintenance and supply
costs for buildings and equipment at the Mill Site and Eagle Mountain
($185,000). Administrative support expenses for the first six months of 1999
decreased 28% to $884,000 from $1,233,000 for 1998. This decrease was primarily
due to a decrease in outside legal costs associated with the CCWD lease rate
dispute ($190,000), the reduction of certain reserves for bad debt ($112,000),
and lower outside service expenses at the Mill Site and Eagle Mountain
($140,000) being partially offset by restructuring charges relating to planned
layoffs at the Mill Site ($100,000) and higher depreciation expense relating to
the sewer plant improvements ($18,000) at the Mill Site.

Corporate General and Administrative Expenses. Corporate general and
administrative expenses for the first six months of 1999 decreased 18% to
$1,742,000 from $2,113,000 for 1998. The decrease is primarily due to lower
payroll and related expenses ($98,000) and lower professional and outside
consulting expenses ($265,000).

Net Interest Expense. Net interest expense for the first six months of 1999
was $654,000 compared to $474,000 in 1998. The increase was due primarily to:
(a) an increase in interest expense ($114,000) associated with additional long
term debt under the Union Bank of California ("Union Bank") credit facility; (b)
an increase in the amortization of deferred loan fees ($48,000); and (c) lower
interest income ($17,000).

11
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

Pre-Tax Loss and Income Tax Provision. The Company recorded a loss before
income tax provision of $573,000 for the first six months of 1999, a $841,000
decrease from the $268,000 of income recorded in 1998. An income tax benefit of
$219,000 was recorded in the second quarter of 1999 as compared with a $116,000
income tax expense recorded in 1998.

Net Loss. For first six months of 1999, the Company reported a net loss of
$354,000, or ($.03) per share, a $506,000 decrease from the net income of
$152,000, or $.01 per share, reported for 1998.

Section 2: 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 $798,000 to $4,207,000 at June
30, 1999 from $3,409,000 at December 31, 1998. Included in cash and cash
equivalents is $2,873,000 and $2,545,000 held solely for the benefit of MRC at
June 30, 1999 and December 31, 1998, respectively. The increase in cash and cash
equivalents is primarily due to increased borrowings under the Company's Union
Bank revolving-to-term credit facility ($2,000,000), cash provided by operations
($990,000), equity funding by the MRC minority partners ($393,000), and the
issuance of common stock relating to the exercise of stock options ($128,000)
being partially offset by $1,836,000 in capital expenditures and $927,000 in
environmental remediation costs.

Working Capital. During the first six months of 1999, current assets
increased $11,000 to $5,859,000 while current liabilities increased $931,000 to
$9,266,000. The decrease in current assets resulted primarily from the $798,000
increase in cash and cash equivalents being offset and a $787,000 decline in net
accounts receivable. The increase in current liabilities resulted primarily from
an increase in liabilities associated with the permitting of Eagle Mountain
landfill and environmental remediation at the Mill Site. Included in current
liabilities as of June 30, 1999 is $655,000 in accounts payable and accrued
liabilities relating to MRC. As a result, working capital decreased during the
first quarter of 1999 by $920,000 to a negative $3,407,000 at June 30, 1999.
During the third quarter of 1999 the company's working capital will be
significantly impacted by the receipt of approximately $24 million in cash from
the ISC/PMI merger.

Real Estate. Real Estate increased $470,000 during 1999 due to continuing
redevelopment of the Mill Site properties.

Investments. There was a $34,798,000 increase in the Company's investment
in PMI during the first six months of 1999 due to the Company's recording of the
unrealized gain on the Company's common stock investment in PMI pursuant to FAS
115. There was a $212,000 increase in the Company's investment in WVMRF during
the first six months of 1999 due to the Company's recording of its 50% equity
share of the WVMRF's income for the first six months of 1999.

Other Assets. The increase in other assets ($1,158,000) is primarily
related to capitalized landfill permitting and development costs incurred by MRC
($1,387,000) and capital improvements at Eagle Mountain ($102,000), being
partially offset by an increase in accumulated depreciation and amortization as
of June 30, 1999 ($272,000) and a reduction in the long term portion of a note
receivable ($50,000).

Environmental Remediation. The Company estimates, based upon current
information, that its future remediation and other environmental costs for the
balance of its land and related matters, including groundwater and other
possible third party claims, will be between approximately $18 million and $28
million, depending both upon the ultimate extent of the environmental
remediation and clean-up effort involved and which approved remediation
alternatives are eventually selected. In order to provide better information
regarding these future remediation and other environmental costs, the Company
elected, in

12
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

1996, to restate its balance sheets to show as a separate liability rather than,
as previously, an offset to land, the amount of future environmental related
costs reflected in its financial statements. The restatement reflects the
original $34.7 million remediation adjustment to land; the $6.6 million
groundwater remediation reserve recorded in 1988 when the Company emerged from
bankruptcy as the reorganized successor of KSC; and the net $12.5 million in
environmental insurance litigation settlement proceeds received in 1995 being
offset by approximately $26.6 million in remediation and other environmental
costs expended through June 30, 1999. The Company's decision to restate its
balance sheet was based upon, among other things, the more extensive
investigation and remediation activities that have been pursued over the past
several years and the Company's ability to better estimate the probable range of
future remediation and other environmental costs.

As of June 30, 1999, the total short-term and long-term environmental
liabilities including remediation reflected on the Company's balance sheet were
approximately $27.2 million, the high end of the probable range of future
remediation and other environmental costs, which declined from the $28.3 million
as of December 31, 1998. The decrease is a result of approximately $1.1 million
in remediation and other environmental costs incurred in the first six months of
1999 on the Mill Site property.

Although ongoing environmental investigations are being conducted on the
Mill Site Property and management believes it is currently in a position to
estimate with some reasonable certainty future investigation and remediation
costs, there can be no assurance that the actual amount of environmental
remediation expenditures to be incurred will not substantially exceed those
currently anticipated or that additional areas of contamination may not be
identified. Accordingly, future facts and circumstances could cause these
estimates to change significantly.

Long-term Debt. Of June 30, 1999, the Company had $15,750,000 in long-term
debt, solely comprised of borrowings under the Company's $30,000,000 revolving-
to-term credit facility with Union Bank.

Long-term Liabilities. The $4,058,000 increase in other long-term
liabilities is primarily due to a $5,462,000 increase in the deferred tax
liability primarily associated with the unrealized gain on the Company's
investment in PMI, the reduction of the environmental remediation liability as a
result of $1,081,000 in environmental remediation undertaken during the first
six months of 1999 and a decrease of $323,000 in other long term liabilities.

Minority Interest and Other Liabilities. As of June 30, 1999, the Company
has recorded $4,168,000 of minority interest relating to the approximately 26%
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.

Section 3: Business Outlook

The statements contained in this Business Outlook 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.

On-Going Operations. As noted above, the Company's revenues from ongoing
operations are generally derived from the development of the Company's major
long-term projects and investments. The development of a number of these
projects and investments, such as the 102-year take-or-pay lease with Cucamonga,
and the 50% equity ownership of the West Valley MRF, are essentially complete
and

13
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

the Company has been recognizing significant revenues and income from these
investments. The Company expects revenues from these projects and investments to
increase moderately over time as certain key economic factors impacting these
projects and investments increase. In addition, the Company continues to
evaluate these completed projects and investments in light of how to best
provide maximum realizable value to its shareholders.

In regard to the lease with Cucamonga, the most significant economic factor
affecting future water lease revenues is likely to be adjustments in the MWD
rate for untreated and non-interruptible water as available through the Chino
Basin Municipal Water District (now called Inland Empire Utilities Agency (the
"Lease Rate") upon which the lease payments are calculated. The MWD rate
established for untreated, non-interruptible water is based on a number of
factors, including MWD's need for funds to finance capital improvements and to
cover large fixed overhead costs. After increasing at an average of over 8.0%
per year during the past 25 years, MWD is projecting that the MWD rate for
untreated, non-interruptible water, including all of the changed rates and
charges implemented by MWD since July 1, 1995, will likely increase at less than
5.0% per year for the next 2-4 years. This reduction is due to a reduced capital
budget, lower overhead, lower borrowing costs and reduced levels of inflation.
Also affecting the Company's future water lease revenues is the dispute with
Cucamonga regarding the calculation of the Lease Rate. In March 1998, the San
Bernardino Superior Court ruled that the Lease Rate had been discontinued as of
July 1, 1995. Thus, the parties are required to negotiate in good faith a
substitute Lease Rate. To date, the parties have been unable to negotiate a
substitute Lease Rate; consequently, the matter has been submitted to a
reference process, which is a private trial much like arbitration.

The Company discontinued utilizing the equity method of accounting for its
11.73% investment in PMI as of April 1, 1999. The Company has converted its
interest in PMI into approximately $24 million of cash and $57 million in ISC
Class A common stock as a result of the merger between ISC and PMI that was
completed in July 1999. The Company is currently evaluating its options relative
to its interest in ISC

In regard to the WVMRF, the most significant factors affecting the
Company's future equity income from the WVMRF will be the possible expansion of
the facility to meet the expanding demand for the WVMRF's processing services.
Since the beginning of 1999, the facility has been operating at full capacity
and recently began to explore the potential of expanding the processing
capabilities of the facility under its existing permits. A Phase 2 expansion of
the WVMRF would cost approximately $6-9 million and would increase processing
capacity from 2,000 to 3,500 tons per day.

The Company is also spending a significant amount of capital in the
continued development of its two other major project and investment
opportunities: the redevelopment of approximately 496 acres (gross) of the
Company's Mill Site Property and the repermitting of the Eagle Mountain Landfill
by MRC, the Company's 74% owned subsidiary. If it is successful in completing
the development of these two projects as planned, the Company expects to
generate significant future revenues and net income from them. However, as is
noted in the 1998 Form 10-K Report and elsewhere in this Report, there are
numerous risks associated with the redevelopment of the remaining Mill Site
Property and completing the re-permitting of the Landfill Project that could
materially impact the Company's future revenues and net income from these
projects.

In regard to the redevelopment of approximately 448 acres (gross) of the
Mill Site Property, the Company has received the final approvals necessary for
the development of a variety of possible commercial, industrial and recreational
uses. The Company received approval, from San Bernardino County, of its EIR for
the project in April 1999, and is seeking the approval of the California
Department of Transportation ("CalTrans") for improvements to the existing
freeway access to the site. In support of

14
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

these efforts, the Company expects to spend, in 1999, up to approximately $3.8
million for required environmental remediation. The $3.8 million to be spent in
1999 for required environmental remediation is a component of the $18-28 million
estimate to complete all remaining required remediation for the Mill Site
Property. In addition, substantial future capital expenditures will be required
to complete the necessary on-site and off-site improvements for the
redevelopment of remaining Mill Site Property. As a result of the approval of
the Kaiser Commerce Center project by San Bernardino County and the active
Southern California real estate market, the Company has received a number of
unsolicited offers from potential bulk purchasers and retail users regarding the
possible purchase of property within the project area, as well as the Company's
remaining NAPA Lots and the Rancho Cucamonga parcel. The Company is evaluating
these offers in light of the real estate opportunities and possible development
plans available to the Company.

Although neither the Company nor any subsidiary of the Company has any
obligation to invest funds in MRC, the Company has, to date, continued to make
investments in MRC. Through a series of private placements with existing MRC
shareholders, from July 1995 through March 31, 1999, a total of $14.9 million
has been raised by MRC, with Kaiser contributing approximately $11 million of
that amount. The Company has also approved advances to MRC totaling $1.2 million
for 1999, which together with the minority shareholders advances, will fund MRC
through September 30, 1999. Additional funding for 1999 and 2000 is expected to
be approved by the Company in the second half of 1999.

Capital Resources. The Company expects that its current cash balances and
short-term investments together with: (a) the approximately $24 million in cash
from the PMI/ISC merger; (b) cash provided from operating activities; and (c)
amounts available under its $30,000,000 revolving-to-term credit facility (less
$4,850,000 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 to fund the development of its long-term projects and
investments. As was discussed in more detail above, the Company expects to
commit, in 1999, a total of approximately $8.4 million for capital projects and
investments. To the extent that additional capital resources are required, such
capital will be raised through bank borrowings, the sale of ISC sales,
partnerships, joint venture arrangements, additional equity or the sales or
monetization of assets.

Improved Cash Flow from Use of Net Operating Loss Tax Carryforwards. Due to
the Company's status as successor to KSC and its use of KSC-related NOLs, income
taxes actually paid by the Company are substantially less than the income tax
provision reported in its financial statements. The tax benefit associated with
the utilization of these NOLs is reflected as an increase to stockholders'
equity rather than as an increase to net income. The Company expects that its
use of these NOLs will substantially reduce the cash paid for income taxes until
these NOLs are fully utilized. The total NOLs at June 30, 1999, are estimated to
be approximately $114 million for federal purposes and $3.4 million for
California purposes, not considering the potential utilization of NOLs to reduce
the tax liability associated with the ISC/PMI merger. The federal NOLs expire in
varying amounts over a period from year 2000 to 2014 while the California Nols
expire from 2000 through

If, within a three-year period, 50% or more of the stock of the Company
changes ownership, the future annual use of NOLs may be limited. The annual
limitation would be calculated as the product of: (i) the highest long-term tax-
exempt rate for a designated period prior to the ownership change; and (ii) the
market value of the Company at such time.

15
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
as of

<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------- --------------------
(Unaudited)
<S> <C> <C>
ASSETS

Current Assets
Cash and cash equivalents............................... $ 4,207,000 $ 3,409,000
Accounts receivable and other, net of allowance for
doubtful accounts of $253,000 and $303,000,
respectively............................................ 1,552,000 2,339,000
Note receivable......................................... 100,000 100,000
------------ ------------

5,859,000 5,848,000
------------ ------------

Investment in common stock of Penske Motorsports, Inc...... 80,582,000 45,784,000

Investment in Fontana Union Water Company.................. 16,108,000 16,108,000
------------ ------------

Investment in West Valley MRF.............................. 2,761,000 2,549,000
------------ ------------
Real Estate
Land and improvements................................... 15,621,000 15,621,000
Real estate in development.............................. 41,077,000 40,607,000
------------ ------------

56,698,000 56,228,000
------------ ------------
Other Assets
Note Receivable......................................... 664,000 714,000
Landfill permitting and development..................... 14,028,000 12,641,000
Buildings and equipment (net)........................... 2,836,000 2,949,000
Other assets............................................ 55,000 121,000
------------ ------------

17,583,000 16,425,000
------------ ------------

Total Assets............................................... $179,591,000 $142,942,000
============ ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

16
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
as of

<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------------- -------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts payable....................................... $ 1,448,000 $ 708,000
Accrued liabilities.................................... 4,013,000 3,822,000
Environmental remediation.............................. 3,805,000 3,805,000
------------ ------------

9,266,000 8,335,000
------------ ------------
Long-term Liabilities
Deferred gain on sale of real estate................... 656,000 656,000
Accrued liabilities.................................... 1,451,000 1,774,000
Deferred tax liabilities............................... 7,811,000 2,349,000
Long-term debt......................................... 15,750,000 13,750,000
Environmental remediation.............................. 23,384,000 24,465,000
------------ ------------

49,052,000 42,994,000
------------ ------------

Total Liabilities......................................... 58,318,000 51,329,000
------------ ------------

Minority Interest......................................... 4,168,000 3,775,000
------------ ------------

Commitments and Contingencies

Stockholders' Equity
Common stock, par value $.03 per share, authorized
13,333,333 shares; issued and outstanding
10,699,354 and 10,685,257 respectively................ 321,000 321,000
Capital in excess of par value......................... 74,930,000 74,741,000
Retained earnings since November 15, 1988.............. 12,422,000 12,776,000
Accumulated other comprehensive income................. 29,432,000 ---
------------ ------------

Total Stockholders' Equity................................ 117,105,000 87,838,000
------------ ------------

Total Liabilities and Stockholders' Equity................ $179,591,000 $142,942,000
============ ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

17
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
for the Three and Six Months Ended June 30
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------------------- ----------------------------------------
1999 1998 1999 1998
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Resource Revenues
Ongoing Operations
Water resource.............................. $ 1,179,000 $ 1,169,000 $ 2,359,000 $ 2,338,000
Property redevelopment...................... 370,000 332,000 726,000 677,000
Income (loss) from equity method investments
Penske Motorsports Inc..................... --- 1,251,000 (329,000) 1,073,000
West Valley MRF, LLC....................... 212,000 10,000 212,000 40,000
----------- ----------- ----------- -----------

Total ongoing operations................... 1,761,000 2,762,000 2,968,000 4,128,000
----------- ----------- ----------- -----------

Interim Activities 104,000 304,000 171,000 611,000
----------- ----------- ----------- -----------

Total resource revenues.................... 1,865,000 3,066,000 3,139,000 4,739,000
----------- ----------- ----------- -----------

Resource Operating Costs
Operations and maintenance................... 214,000 317,000 432,000 651,000
Administrative support expenses.............. 487,000 533,000 884,000 1,233,000
----------- ----------- ----------- -----------

Total resource operating costs............. 701,000 850,000 1,316,000 1,884,000
----------- ----------- ----------- -----------

Income from Resources......................... 1,164,000 2,216,000 1,823,000 2,855,000

Corporate general and administrative expenses 860,000 1,103,000 1,742,000 2,113,000
----------- ----------- ----------- -----------

Income from Operations........................ 304,000 1,113,000 81,000 742,000

Net Interest expense......................... 334,000 259,000 654,000 474,000
----------- ----------- ----------- -----------

Income (Loss) before Income Tax Provision..... (30,000) 854,000 (573,000) 268,000

Income tax provision
Currently payable........................... 7,000 7,000 14,000 14,000
Deferred tax benefit........................ (11,000) --- (233,000) ---
Deferred tax expense credited to equity..... --- 356,000 --- 102,000
----------- ----------- ----------- -----------

Net Income (Loss)............................. $ (26,000) $ 491,000 $ (354,000) $ 152,000
=========== =========== =========== ===========

Basic Earnings Per Share...................... $ .00 $ .05 $ (.03) $ .01
=========== =========== =========== ===========

Diluted Earnings Per Share.................... $ .00 $ .05 $ (.03) $ .01
=========== =========== =========== ===========

Basic Weighted Average Number of Shares
Outstanding.................................. 10,699,000 10,678,000 10,697,000 10,644,000

Diluted Weighted Average Number of Shares
Outstanding.................................. 10,699,000 10,852,000 10,697,000 10,828,000

</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

18
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Six Months Ended June 30
(Unaudited)

<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income (Loss)..................................... $ (354,000) $ 152,000
Equity (income) loss in Penske Motorsports, Inc. and
West Valley MRF, LLC................................. 117,000 (1,113,000)

Deferred tax (benefit) expense........................ (233,000) 102,000
Depreciation and amortization......................... 272,000 220,000
Allowance for doubtful accounts....................... (50,000) (3,000)
Changes in assets:
Receivables and other............................... 837,000 226,000
Changes in liabilities:
Current liabilities................................. 724,000 (343,000)
Long-term accrued liabilities....................... (323,000) 206,000
----------- -----------

Net cash flows from operating activities.............. 990,000 (553,000)
----------- -----------

Cash Flows from Investing Activities
Minority interest and other liabilities............... 393,000 506,000
Note receivable collections........................... 50,000 381,000
Capital expenditures.................................. (1,836,000) (2,428,000)
Environmental remediation expenditures................ (927,000) (1,197,000)
----------- -----------

Net cash flows from investing activities.............. (2,320,000) (2,738,000)
----------- -----------

Cash Flows from Financing Activities
Issuance of common stock.............................. 128,000 205,000
Principal payments on note payable.................... --- (5,102,000)
Borrowings under revolver-to-term credit facility..... 2,000,000 7,750,000
Payment of loan fees.................................. --- (50,000)
----------- -----------

Net cash flows from financing activities.............. 2,128,000 2,803,000
----------- -----------

Net Changes in Cash and Cash Equivalents............... 798,000 (488,000)

Cash and Cash Equivalents at Beginning of Year......... 3,409,000 4,330,000
----------- -----------

Cash and Cash Equivalents at End of Quarter............ $ 4,207,000 $ 3,842,000
=========== ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

19
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the Six Months Ended June 30, 1999
(Unaudited)

<TABLE>
<CAPTION>
Accumulated
Capital In Other
Common Stock Excess of Comprehensive Retained
-----------------------
Shares Amount Par Value Income Earnings Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 10,685,257 $321,000 $74,741,000 $ --- $12,776,000 $ 87,838,000

Net Loss..................... --- --- --- --- (354,000) (354,000)

Other comprehensive income, .........
unrealized gain on
securities of
$35,127,000, net of tax --- --- --- 29,432,000 --- 29,432,000
of $5,695,000........... ------------

Comprehensive Income......... 29,078,000
------------
Issuance of shares of
Common stock............. 14,097 --- 189,000 --- --- 189,000
---------- --------- ----------- ----------------- ----------- ------------

Balance at June 30, 1999 10,699,354 $321,000 $74,930,000 $29,432,000 $12,422,000 $117,105,000
========== ========= =========== ================= =========== ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

20
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1. BASIS OF PRESENTATION

The unaudited, consolidated financial statements as of June 30, 1999 and
for the three and six month periods ended June 30, 1999 and 1998, 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,
1998. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary (all of which are normal and/or
recurring in nature) to present fairly the Company's financial position at June
30, 1999, and results of operations and cash flows for the three and six month
periods ended June 30, 1999 and 1998.

Note 2. COMPREHENSIVE INCOME

As of April 1, 1999, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or shareholders,
equity. Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation adjustments,
which prior to adoption were reported separately in shareholders' equity to be
included in other comprehensive income. The Company's prior period financial
statements were not impacted by the adoption of Statement 130.

During the second quarter of 1999 total comprehensive income amounted to
$29,078,000, which included $29,432,000 related to the unrealized gain on the
Company's available-for-sale common stock investment in Penske Motorsports, Inc.
See Note 6 - Subsequent Event for additional information.

Note 3. CUCAMONGA LEASE

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 take-or-pay lease (the "Cucamonga Lease") that terminates in the year 2092.
In 1996, the Company instituted litigation against Cucamonga due to a dispute
concerning the amount payable to the Company pursuant to the terms of the
Cucamonga Lease. The dispute centers on the Company's assertion that either the
MWD Rate in the Cucamonga Lease was discontinued on July 1, 1995, or that the
Lease Rate should be interpreted to include all the changed rates and items
implemented by Metropolitan Water District of Southern California ("MWD") since
July 1, 1995. A five-day trial on the matter was held in March 1998. The Court
ruled, in favor of the Company, that the rate on which the Cucamonga Lease had
been based was discontinued effective July 1, 1995. Therefore the terms of the
Cucamonga Lease require the parties to negotiate in good faith a new substitute
MWD rate. To date, the parties have been unable to negotiate a substitute Lease
Rate; consequently, the matter is being submitted to a reference process, which
is a private trial much like arbitration. Cucamonga continues to pay under the
terms of the Cucamonga Lease, but at a rate substantially less than the Lease
Rate that the Company maintains it is entitled to receive pursuant to the
Cucamonga Lease. Although the Company is continuing to bill Cucamonga at what it
believes is the correct MWD rate under the lease with Cucamonga, the Company has
elected to report revenues on the basis of amounts Cucamonga is currently
paying. The total amount of lease payments in dispute as of June 30, 1999 is
approximately $2,194,000.

21
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

Note 4. SUPPLEMENTAL CASH FLOW INFORMATION

During the six months ended June 30, 1999 and 1998 the Company issued
$61,000 and $142,000 of common stock, respectively, for the payment of bonuses.

Note 5. COMMITMENTS AND CONTINGENCIES

Environmental Contingencies

The Company estimates, based upon current information, that its future
remediation and other environmental costs, including groundwater and other
possible third party claims, will be between approximately $18 million and $28
million, depending upon which approved remediation alternatives are eventually
selected.

Although ongoing environmental investigations are being conducted on the
Company's property, and management believes it is currently in a position to
estimate with some reasonable certainty future investigation and remediation
costs, there can be no assurance that the actual amount of environmental
remediation expenditures and incurred will not substantially exceed those
currently anticipated or that additional areas of contamination may not be
identified. Accordingly, future facts and circumstances could cause these
estimates to change significantly. The Company anticipates recovery of the
remediation costs incurred through redevelopment of the property, primarily in
connection with specific redevelopment projects or joint ventures. Further, the
Company has provided certain financial assurances to the DTSC in connection with
anticipated remediation activities, the primary one being the dedication of
approximately $4.8 million of Kaiser's Union Bank Credit facility.

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 previously settled obligations of groundwater
contamination with the California Regional Water Quality Control Board. The
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. 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. The City of Ontario, California has
commenced litigation against the Company alleging that the Company has
contaminated one of its municipal wells.

Note 6. SUBSEQUENT EVENT

22
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

PART II

Item 1. LEGAL PROCEEDINGS

As discussed in the Company's Form 10-K Report for 1998, the Company is
engaged in certain claims and litigation. There were no material developments
in any legal proceeding in the second quarter of 1999 except as noted below:

Eagle Mountain Landfill Project Litigation. On May 7, 1999, a unanimous
three-judge panel of the California Court of Appeal, 4th Appellate District,
Division 1, completely overturned the prior adverse decision of the San Diego
Superior Court on the Landfill Project's environmental impact report. The Court
of Appeal's decision in effect certified the environmental impact report and
reinstated Riverside County's approval of the Landfill Project. The California
Supreme Court on July 21, 1999, denied the opponents request that the Court of
Appeal's decision be reviewed and overturned. Landfill opponents have
effectively exhausted their challenges under the California Environmental
Quality Act. The landfill opponents have appealed another aspect the Landfill
Project, the proposed federal land exchange.

For additional information on the Landfill Project litigation, see
"Introduction - Business Update - Waste Management - Eagle Mountain" of this 10-
Q Report, as well as the Company's 1998 10-K Report.

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

A. See the "Introduction" section of this Form 10-Q Report.

B. During the second quarter, the Company's Independent Committee
continued its work, assisted by Merrill Lynch and other advisors,
in evaluating certain strategic alternatives for the Company and
its assets.

C. Due to work undertaken and to be completed by the Company's
Special Committee and Independent Committee, the Company's annual
meeting of shareholders has been delayed past its usual time. The
Company currently anticipates that its annual meeting of
shareholders will be held in the fourth quarter of 1999.

23
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

A. Exhibits
--------

Exhibit 27 - Financial Data Schedule for first quarter 10-Q.

B. Reports on Form 8-K.
--------------------

None.

24
<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: August 13, 1999 /s/ James F. Verhey
-------------------
James F. Verhey,
Sr. Vice President-Finance &
Principal Financial Officer

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FROM THE
JUNE 30, 1999 FORM 10-Q REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,207,000
<SECURITIES> 0
<RECEIVABLES> 1,652,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,859,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 179,591,000
<CURRENT-LIABILITIES> 9,266,000
<BONDS> 15,750,000
0
0
<COMMON> 321,000
<OTHER-SE> 116,784,000
<TOTAL-LIABILITY-AND-EQUITY> 179,591,000
<SALES> 0
<TOTAL-REVENUES> 3,139,000
<CGS> 0
<TOTAL-COSTS> 1,316,000
<OTHER-EXPENSES> 1,742,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 654,000
<INCOME-PRETAX> (573,000)
<INCOME-TAX> (219,000)
<INCOME-CONTINUING> (354,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (354,000)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)

</TABLE>