United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended
June 30, 2011
or
[ ] Transition
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______ to __________
Commission file
#0-50273
KAANAPALI LAND, LLC
(Exact name of registrant as specified in its
charter)
Delaware
(State of organization)
|
01-0731997
(I.R.S. Employer Identification No.)
|
|
|
900 N. Michigan Ave., Chicago, Illinois
(Address of principal executive office)
|
60611
(Zip Code)
|
Registrant's telephone number, including area
code
312-915-1987
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 (the "Exchange
Act") during the preceding 12 months (or for such a shorter period that registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-5)
'
232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
[ ] No [ ]
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller reporting company. See the definitions
of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of
the Exchange Act.
|
Large accelerated filer
|
[ ]
|
|
Accelerated filer
|
[ ]
|
|
|
Non-accelerated filer
|
[ ]
|
|
Smaller reporting company
|
[ X ]
|
|
|
(Do not check if a smaller reporting company)
|
|
|
|
|
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No
[ X ]
Indicate by check mark whether the registrant
has filed all documents and reports required to be filed by Section 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 [ ]
As of July 31, 2011, the registrant had 1,792,613
shares of Common Shares and 52,000 Class C Shares outstanding.
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Condensed
Consolidated Financial Statements
KAANAPALI LAND, LLC
Condensed Consolidated Balance Sheets
June 30, 2011 and December 31, 2010
(Dollars in Thousands, except share data)
(Unaudited)
|
June 30,
2011
|
|
December 31,
2010
|
Assets
|
Cash and cash equivalents
|
$
|
11,081
|
|
$
|
11,729
|
Short-term investments
|
|
9,989
|
|
|
10,004
|
Receivables, net
|
|
55
|
|
|
112
|
Property, net
|
|
97,220
|
|
|
98,029
|
Pension plan assets
|
|
23,585
|
|
|
22,964
|
Other assets
|
|
1,800
|
|
|
1,859
|
Total assets
|
$
|
143,730
|
|
$
|
144,697
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
$
|
900
|
|
$
|
913
|
Deferred income taxes
|
|
19,567
|
|
|
19,383
|
Other liabilities
|
|
21,822
|
|
|
22,288
|
Total liabilities
|
|
42,289
|
|
|
42,584
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
Common stock, at 6/30/11 and 12/31/10 non par value
|
|
|
|
|
|
(Shares authorized – 4,500,000, Class C shares
|
|
|
|
|
|
52,000; shares issued and outstanding – common
|
|
|
|
|
|
shares 1,792,613 and Class C shares 52,000)
|
|
0
|
|
|
0
|
Additional paid-in capital
|
|
5,471
|
|
|
5,471
|
Accumulated other comprehensive income (loss), net of tax
|
|
(6,087)
|
|
|
(6,374)
|
Accumulated earnings
|
|
102,057
|
|
|
103,016
|
Total stockholders’ equity
|
|
101,441
|
|
|
102,113
|
Total liabilities and stockholders’ equity
|
$
|
143,730
|
|
$
|
144,697
|
The accompanying notes are an integral part
of the condensed consolidated financial statements.
KAANAPALI LAND, LLC
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2011
and 2010
(Unaudited)
(Dollars in Thousands, except per share data)
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Sales and rental
revenues
|
$
|
1,227
|
|
$
|
859
|
|
$
|
3,472
|
|
$
|
1,527
|
Interest and other
income
|
|
26
|
|
|
301
|
|
|
67
|
|
|
691
|
Total revenues
|
|
1,253
|
|
|
1,160
|
|
|
3,539
|
|
|
2,218
|
Cost and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
820
|
|
|
926
|
|
|
2,917
|
|
|
1,833
|
Selling, general and
administrative
|
|
1,228
|
|
|
(524)
|
|
|
1,431
|
|
|
1,117
|
Depreciation and
amortization
|
|
69
|
|
|
76
|
|
|
137
|
|
|
151
|
Total
cost and
expenses
|
|
2,117
|
|
|
478
|
|
|
4,485
|
|
|
3,101
|
Operating income (loss)
from continuing
operations
before
income taxes
|
|
(864)
|
|
|
682
|
|
|
(946)
|
|
|
(883)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
(expense)
|
|
(8)
|
|
|
(9)
|
|
|
(13)
|
|
|
(16)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(872)
|
|
$
|
673
|
|
$
|
(959)
|
|
$
|
(899)
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share – basic:
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(0.47)
|
|
$
|
0.36
|
|
$
|
(0.52)
|
|
$
|
(0.49)
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share – diluted:
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(0.47)
|
|
$
|
0.36
|
|
$
|
(0.52)
|
|
$
|
(0.49)
|
The accompanying notes are an integral part
of the condensed consolidated financial statements.
KAANAPALI LAND, LLC
Condensed Consolidated Statements of Cash
Flows
Six Months Ended June 30, 2011 and 2010
(Unaudited)
(Dollars in Thousands)
|
2011
|
|
2010
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
(196)
|
|
$
|
(3,942)
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities:
|
|
|
|
|
|
Property additions
|
|
(452)
|
|
|
(461)
|
Proceeds from note receivable
|
|
0
|
|
|
12,793
|
Purchase of short-term investments
|
|
0
|
|
|
(15,966)
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
(648)
|
|
|
(7,576)
|
Cash and cash equivalents at beginning of period
|
|
11,729
|
|
|
16,936
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
$
|
11,081
|
|
$
|
9,360
|
The accompanying notes are an integral part
of the condensed consolidated financial statements.
KAANAPALI LAND, LLC
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
(Dollars in Thousands)
The accompanying unaudited
condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United
States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by accounting principles generally accepted in the United States
for complete financial statements, and therefore, should be read in conjunction with the Company's Annual Report on Form 10-K (File
No. 0-50273) for the year ended December 31, 2010. Capitalized terms used but not defined in this quarterly report have the same
meanings as the Company's 2010 Annual Report on Form 10-K.
(1) Summary of Significant Accounting
Policies
Organization and Basis
of Accounting
Kaanapali Land, LLC ("Kaanapali
Land"), a Delaware limited liability company, is the reorganized entity resulting from the Joint Plan of Reorganization of
Amfac Hawaii, LLC (now known as KLC Land Company, LLC ("KLC Land")), certain of its subsidiaries (together with KLC Land,
the "KLC Debtors") and FHT Corporation ("FHTC" and, together with the KLC Debtors, the "Debtors")
under Chapter 11 of the Bankruptcy Code, dated June 11, 2002 (as amended, the "Plan").
The Company's continuing
operations are in two business segments - Agriculture and Property. The Agriculture segment grows seed corn and soybeans under
contract and is engaged in farming and milling operations relating to the coffee orchards on behalf of the applicable land owners.
The Property segment primarily develops land for sale and negotiates bulk sales of undeveloped land. The Company held a first mortgage
on the Waikele Golf Course and certain recourse guarantees as security for a promissory note received for a portion of the purchase
price at closing. As described below, in May 2010, the Company sold such note and assigned the underlying security documents to
a third party purchaser. The Property and Agriculture segments operate exclusively in the State of Hawaii.
Financial Accounting Standards
Board (“FASB”) ASC Topic 820, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value.
That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level
1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy
are described as follows:
|
Level 1
|
-
|
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
|
|
|
|
|
|
Level 2
|
-
|
Inputs to the valuation methodology include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in inactive markets; or other inputs that are observable for the asset or liability.
|
|
|
|
|
|
Level 3
|
-
|
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The asset or liability's
fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the
fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize unobservable inputs.
In January 2010, the FASB
issued guidance to improve disclosures about fair value measurements. The Company must provide additional disclosures regarding
transfers in and out of levels 1 and 2, and activity in level 3 fair value measurements. The guidance also provides clarification
regarding levels of disaggregation and disclosures about inputs and valuation techniques for both recurring and nonrecurring fair
value measurements that fall in either level 2 or level 3. The additional disclosure requirements were effective for the Company
beginning January 1, 2010, except for the additional disclosures regarding the roll forward of activity in Level 3 fair value measurements,
which were effective January 1, 2011. The adoption of this standard did not have a material effect on the Company's consolidated
financial statements.
Property
The Company's significant
property holdings are on the island of Maui (including approximately 4,000 acres known as Kaanapali 2020, of which approximately
1,500 acres is classified as conservation land which precludes development). The Company has determined, based on its current projections
for the development and/or disposition of its property holdings, that (except for inventory of land held for sale, as discussed
below) the property holdings are not currently recorded in an amount in excess of proceeds that the Company expects that it will
ultimately obtain from the operation and disposition thereof.
Inventory of land held
for sale, of approximately $26,000 and $27,100, representing primarily Kaanapali Coffee Farms, was included in Property, net in
the consolidated balance sheets at June 30, 2011 and December 31, 2010, respectively, and is carried at the lower of
cost or net realizable value. Based on current and foreseeable market conditions, discussions with real estate brokers and review
of historical land sale activity (level 2 and 3), the value of the inventory of land held for sale was reduced by $2,500 during
the third quarter of 2010 to reflect the land held for sale at the lower of carrying value or fair value less costs to sell, primarily
using a market approach to estimate fair value. No land is currently in use except for certain Kaanapali 2020 land that has been
set aside for the Company's seed corn operations and certain acreage of coffee trees which are being maintained to support the
Company's land development program and miscellaneous parcels of land that have been leased or licensed to third parties on a short
term basis.
On April 8, 2008, the Company
executed a contract (as subsequently amended) to sell its Waikele Golf Course for a purchase price of $23,300 (less commissions
and closing costs). The sale closed on November 12, 2008 with total cash received, including previous non-refundable deposits,
aggregating $10,000. The balance of the purchase price was represented by a promissory note in the original amount of $13,300 and
was secured by the property along with corporate and personal guarantees from the principal of the purchaser and an affiliate.
The note originally required monthly interest only payments of 7% per annum and was due May 12, 2009. Certain seller representations
and warranties existed for one year after the date of sale. The Company entered into a note modification agreement with the purchaser
on May 12, 2009 and subsequent note modification agreements on May 19, 2009, June 16, 2009 and November 12, 2009. The
note modifications allowed the purchaser to defer payment of such promissory note until May 12, 2010; provided, however, that the
purchaser was required by such agreement to make certain principal and interest payments in advance of maturity (before certain
deductions for commissions and other costs).
Pursuant to the note modification
agreement dated November 12, 2009 ("Effective Date"), the purchaser owed the Company a payment of approximately $1,300
of principal and interest on the Effective Date. The purchaser paid $253 on the Effective Date and the remaining amount due was
not paid. Pursuant to two letters dated November 30, 2009 and December 16, 2009 the guarantors of the promissory note were notified
that the promissory note was in default. On January 13, 2010, the Company made a forbearance offer that was accepted by the purchaser.
On May 5, 2010, the Company entered into an agreement with an unaffiliated third party whereby the Company agreed to sell the promissory
note and assign the first mortgage and recourse guarantees (and other security documents) to such third party, on a non-recourse
basis, for an aggregate purchase price of $12,500. The purchase price, which included all principal and accrued and unpaid interest
on such promissory note (including, but not limited to, the amounts previously deferred by the Company), approximated the Company's
net carrying value of the note. On May 6, 2010, such transaction closed and the Company received the purchase price. The Company
recognized a gain of $138, included in interest and other income, from the sale of the note.
Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ
from those estimates.
In the opinion of management,
all adjustments necessary for a fair presentation of the statement of financial position and results of operations for the interim
periods presented have been included in these financial statements and are of a normal and recurring nature.
Operating results for the
six months ended June 30, 2011 are not necessarily indicative of the results that may be achieved in future periods.
Short-Term Investments
It is the Company's policy
to classify all of its investments in U.S. Government obligations with original maturities greater than three months as held-to
maturity, as the Company has the ability and intent to hold these investments until their maturity, and are recorded at amortized
cost, which approximates fair value. At June 30, 2011, short-term investments consist of $9,989 of such securities purchased
in June 2011 with $4,998 maturing in December 2011 and $4,991 maturing in May 2012. Additionally, the amortized discount of $1
at June 30, 2011 is reflected in interest and other income.
(2) Land Development
During the first quarter
of 2006, the Company received final subdivision approval on an approximate 336 acre parcel in the region "mauka" (toward
the mountains) from the main highway serving the area. This project, called Kaanapali Coffee Farms, consists of agricultural lots,
which are currently being offered to individual buyers. The land improvements were completed during 2008. As of June 30, 2011,
the Company has closed on the sale of eight lots at Kaanapali Coffee Farms. In conjunction with two of the lots that closed in
2007, in addition to cash proceeds, the Company received promissory notes aggregating $1,429. Due to non-performance by the buyers,
reserves have been established for a substantial majority of the original balances. The Company has closed on the sale of two lots
in 2011, one each in January and March. In conjunction with the sale of the lot that closed in March 2011, in addition to cash
proceeds, the Company received a promissory note for $285. The promissory note was paid in full the first week of May 2011.
Effective September 30,
2010, the Company entered an agreement with an unaffiliated third party to sell an approximately 14.990 acre parcel of property
(the "Hospital Site") within the Company's Kaanapali 2020 development area for the construction of a hospital and acute
care facility and associated improvements (the "Medical Center"). In addition to the Hospital Site, the agreement provided
the purchaser with two separate options to purchase two additional adjacent parcels of property of approximately 30 acres each
which could only be exercised in the event that the purchaser closed on the purchase of the Hospital Site.
Construction of the Medical
Center on the Hospital Site was subject to certain contingencies including obtaining certain approvals from government agencies.
In March, 2011, it became clear that such approvals would not be obtained from one of the agencies and notice was provided by the
Company and the unaffiliated third party to the applicable governmental entity withdrawing their request for approval. The agreement
was terminated and the Company and an unaffiliated third party related to the previous prospective purchaser are exploring a new
agreement which may potentially move the site of the Medical Center to another location on Company lands.
There can be no assurance
that a new agreement will be finalized, that any contingencies imposed thereunder will be satisfied or that the closing of such
sale will occur.
(3) Mortgage and Other Notes
Payable
A subsidiary of Kaanapali
Land ("Holder") held a mortgage note that was previously secured by Waikele Golf Course in the original principal amount
of $7,178. Interest on the principal balance accrued at an adjustable rate of prime plus 1%. The principal and accrued interest,
which were prepayable, were due March 1, 2015. As a result of the sale of the Waikele Golf Course, the outstanding principal and
accrued interest was reduced pursuant to a payment of $9,300 towards the note and accrued interest and the mortgage security was
released. The note was satisfied in the third quarter of 2010, by the payment of $684 to such subsidiary from a portion of the
proceeds from the Company's sale of the promissory note provided by the purchaser of the Waikele Golf Course to a third party purchaser,
as described above. The note had been eliminated in the consolidated financial statements because the obligor and maker are consolidated
subsidiaries of Kaanapali Land.
Certain subsidiaries of
Kaanapali Land are jointly indebted to Kaanapali Land pursuant to a certain Secured Promissory Note in the principal amount of
$70,000 dated November 14, 2002. Such note matures on October 31, 2011, had an outstanding balance of principal and accrued interest
as of June 30, 2011 and December 31, 2010 of approximately $85,172 and $84,100, respectively, and carries an interest rate
of 3.04% compounded semi-annually. The note, which is prepayable, is secured by substantially all of the remaining real property
owned by such subsidiaries, pursuant to a certain Mortgage, Security Agreement and Financing Statement, dated as of November 14,
2002 and placed on record in December 2002. The note has been eliminated in the consolidated financial statements because the obligors
are consolidated subsidiaries of Kaanapali Land.
(4) Employee Benefit Plans
(a) Pension
Plans
The Company participates
in a defined benefit pension plan that covers substantially all its eligible employees. The pension plan is sponsored and maintained
by Kaanapali Land in conjunction with other plans providing benefits to employees of Kaanapali Land and its affiliates.
The components of the net
periodic pension benefit (credit), included in selling, general and administrative in the consolidated statements of operations
for the three and six months ended June 30, 2011 and 2010 are as follows:
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
Service cost
|
$
|
152
|
|
$
|
150
|
|
$
|
304
|
|
$
|
300
|
Interest cost
|
|
547
|
|
|
575
|
|
|
1,094
|
|
|
1,150
|
Expected return on
plan assets
|
|
(1,017)
|
|
|
(1,100)
|
|
|
(2,034)
|
|
|
(2,200)
|
Recognized net
actuarial
(gain) loss
|
|
235
|
|
|
225
|
|
|
470
|
|
|
450
|
Net periodic pension
credit
|
$
|
(83)
|
|
$
|
(150)
|
|
$
|
(166)
|
|
$
|
(300)
|
(b) Retiree
Health and Life Insurance Benefits
In addition to providing
pension benefits, a subsidiary of KLC Land had been providing certain healthcare and life insurance benefits to certain eligible
retired employees. As described below, the subsidiary of KLC Land discontinued providing such benefits effective June 2010. The
postretirement healthcare plan was contributory and contained cost-sharing features such as deductibles and copayments. The postretirement
life insurance plan was non-contributory and was unfunded. Kaanapali Land had not assumed any obligation to fund the cost of any
ongoing benefits on behalf of any of its affiliates.
Effective June 2010, a
subsidiary of KLC Land discontinued providing retiree health and life insurance benefits to retired employees. The subsidiary paid
a onetime lump sum cash payment to the participants totaling approximately $85. The Company recognized a settlement gain of approximately
$1,928, recorded in selling, general and administrative, which included recognition of approximately $192 remaining in accumulated
other comprehensive income relating to the post retirement benefit plan and approximately $1,736 from the reversal of the accrued
benefit obligation.
Net periodic postretirement
benefit cost included in selling, general, and administrative in the consolidated statements of operations for the three and six
months ended June 30, 2011 and 2010 includes the following components:
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
Interest cost
|
$
|
0
|
|
$
|
23
|
|
$
|
0
|
|
$
|
46
|
Amortization of
net gain
|
|
0
|
|
|
(6)
|
|
|
0
|
|
|
(12)
|
Net periodic post-
retirement benefit cost
|
$
|
0
|
|
$
|
17
|
|
$
|
0
|
|
$
|
34
|
The Company recognizes
the over funded or under funded status of its employee benefit plans as an asset or liability in its statement of financial position
and recognizes changes in its funded status in the year in which the changes occur through comprehensive income. Included in accumulated
other comprehensive income at December 31, 2010 are the following amounts that have not yet been recognized in net periodic pension
cost: unrecognized prior service costs of $1 ($1 net of tax) and unrecognized actuarial loss of $10,447 ($6,373 net of tax). The
prior service cost and actuarial loss included in accumulated other comprehensive income and recognized in net periodic pension
cost for the period ending June 30, 2011 are $0 and $471 ($287 net of tax), respectively.
The Company maintains a
nonqualified deferred compensation arrangement (the "Rabbi Trust") which provides certain former directors of Amfac and
their spouses with pension benefits. The Rabbi Trust invests in marketable securities and cash equivalents (Level 1). The deferred
compensation liability of approximately $1,466 represented in the Rabbi Trust and assets funding such deferred compensation liability
of approximately $811 are consolidated in the Company's balance sheet.
(5) Income Taxes
The Company uses a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. The Company's gross unrecognized tax benefits total approximately $2,000 at June 30, 2011. The
Company's continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. Consolidated
Balance Sheets at June 30, 2011 and December 31, 2010 include $62 and $49, respectively, accrued for the potential payment of interest
and penalties.
Federal tax return examinations
have been completed for all years through 2005. The statutes of limitations with respect to the Company's taxes for 2007 and subsequent
years remain open. The Company believes adequate provisions for income tax have been recorded for all years, although there can
be no assurance that such provisions will be adequate. To the extent that there is a shortfall, any such shortfall for which the
Company could be liable could be material.
The Company has recorded
a valuation allowance against any tax benefit or deferred tax asset generated through June 30, 2011.
(6) Commitments and Contingencies
At June 30, 2011, the Company
has no principal contractual obligations related to the land improvements in conjunction with Phase I of the Kaanapali Coffee Farms
project.
Material legal proceedings
of the Company are described below. Unless otherwise noted, the parties adverse to the Company in the legal proceedings described
below have not made a claim for damages in a liquidated amount and/or the Company believes that it would be speculative to attempt
to determine the Company's exposure relative thereto, and as a consequence believes that an estimate of the range of potential
loss cannot be made.
As a result of an administrative
order issued to Oahu Sugar by the HDOH, Order No. CH 98-001, dated January 27, 1998, Oahu Sugar engaged in environmental site assessment
of lands it leased from the U.S. Navy and located on the Waipio Peninsula. Oahu Sugar submitted a Remedial Investigation Report
to the HDOH. The HDOH provided comments that indicated that additional testing may be required. Oahu Sugar responded to these comments
with additional information. On January 9, 2004, EPA issued a request to Oahu Sugar seeking information related to the actual or
threatened release of hazardous substances, pollutants and contaminants at the Waipio Peninsula portion of the Pearl Harbor Naval
Complex National Priorities List Superfund Site. The request sought, among other things, information relating to the ability of
Oahu Sugar to pay for or perform a clean up of the land formerly occupied by Oahu Sugar. Oahu Sugar responded to the information
requests and had notified both the Navy and the EPA that while it had some modest remaining cash that it could contribute to further
investigation and remediation efforts in connection with an overall settlement of the outstanding claims, Oahu Sugar was substantially
without assets and would be unable to make a significant contribution to such an effort. Attempts at negotiating such a settlement
were fruitless and Oahu Sugar received an order from EPA in March 2005 that purported to require certain testing and remediation
of the site. As Oahu Sugar was substantially without assets, the pursuit of any action, informational, enforcement, or otherwise,
would have had a material adverse effect on the financial condition of Oahu Sugar.
Therefore, as a result
of the pursuit of further action by the HDOH and EPA as described above and the immediate material adverse effect that the actions
had on the financial condition of Oahu Sugar, Oahu Sugar filed with the United States Bankruptcy Court, Northern District of Illinois,
Eastern Division its voluntary petition for liquidation under Chapter 7 of Title 11, United States Bankruptcy Code. Such filing
is not expected to have a material adverse effect on the Company as Oahu Sugar was substantially without assets at the time of
the filing. While it is not believed that any other affiliates have any responsibility for the debts of Oahu Sugar, the EPA has
indicated that it intends to make a claim against Kaanapali Land as further described below, and therefore, there can be no assurance
that the Company will not incur significant costs in connection with such claim.
The deadline for filing
proofs of claim with the bankruptcy court passed in April 2006. Prior to the deadline, Kaanapali Land, on behalf of itself and
certain subsidiaries, filed claims that aggregated approximately $224,000, primarily relating to unpaid guarantee obligations made
by Oahu Sugar that were assigned to Kaanapali Land pursuant to the Plan on the Plan Effective Date. In addition, the EPA and the
U.S. Navy filed a joint proof of claim that seeks to recover certain environmental response costs relative to the Waipio Peninsula
site discussed above. The proof of claim contained a demand for previously spent costs in the amount of approximately $260, and
additional anticipated response costs of between approximately $2,760 and $11,450. No specific justification of these costs, or
what they are purported to represent, was included in the EPA/Navy proof of claim. Due to the insignificant amount of assets remaining
in the debtor's estate, it is unclear whether the United States Trustee who has taken control of Oahu Sugar will take any action
to contest the EPA/Navy claim, or how it will reconcile such claim for the purpose of distributing any remaining assets of Oahu
Sugar.
EPA has sent three requests
for information to Kaanapali Land regarding, among other things, Kaanapali Land's organization and relationship, if any, to entities
that may have, historically, operated on the site and with respect to operations conducted on the site. Kaanapali Land responded
to these requests for information. By letter dated February 7, 2007, pursuant to an allegation that Kaanapali Land is a successor
to Oahu Sugar Company, Limited, a company that operated at the site prior to 1961 ("Old Oahu"), EPA advised Kaanapali
that it believes it is authorized by CERCLA to amend the existing Unilateral Administrative Order against Oahu Sugar Company, LLC,
for the clean up of the site to include Kaanapali Land as an additional respondent. The purported basis for the EPA's position
is that Kaanapali Land, by virtue of certain corporate actions, is jointly and severally responsible for the performance of the
response actions, including, without limitation, clean-up at the site. No such amendment has taken place as of the date hereof.
Instead, after a series of discussions between Kaanapali and the EPA, on or about September 30, 2009, the EPA issued a Unilateral
Administrative Order to Kaanapali Land for the performance of work in support of a removal action at the former Oahu Sugar pesticide
mixing site located on Waipio peninsula. The work consists of the performance of soil and groundwater sampling and analysis, a
topographic survey, and the preparation of an engineering evaluation and cost analysis of potential removal actions to abate an
alleged "imminent and substantial endangerment" to public health, welfare or the environment. The order appears to be
further predicated primarily on the alleged connection of Kaanapali Land to Old Oahu and its activities on the site. Kaanapali
Land is currently performing work, including the conduct of sampling at the site, required by the order while reserving its right
to contest liability regarding the site. With regard to liability for the site, Kaanapali Land believes that its liability, if
any, should relate solely to a portion of the period of operation of Old Oahu at the site, although in some circumstances CERLCLA
apparently permits imposition of joint and
several liability, which can exceed a responsible party's equitable share. Kaanapali
Land believes that the U.S. Navy bears substantial liability for the site by virtue of its ownership of the site throughout the
entire relevant period, both as landlord under its various leases with Oahu Sugar and Old Oahu and by operating and intensively
utilizing the site directly during a period when no lease was in force. The Company believes that the cost of the work as set forth
in the order will not be material to the Company as a whole; however, in the event that the EPA were to issue an order requiring
remediation of the site, there can be no assurances that the cost of said remediation would not ultimately have a material adverse
effect on the Company. In addition, if there is litigation regarding the site, there can be no assurance that the cost of such
litigation will not be material or that such litigation will result in a judgment in favor of the Company.
Federal tax return examinations
have been completed for all years through 2005. The statutes of limitations with respect to the Company's tax returns for 2007
and subsequent years remain open. The Company believes adequate provisions for income taxes have been recorded for all years, although
there can be no assurance that such provisions will be adequate. To the extent that there is a shortfall, any such shortfall for
which the Company could be liable could be material.
Kaanapali Land, as successor
by merger to other entities, and D/C have been named as defendants in personal injury actions allegedly based on exposure to asbestos.
While there have been only a few such cases that name Kaanapali Land, there are a substantial number of cases that are pending
against D/C on the U.S. mainland (primarily in California). Cases against Kaanapali Land are allegedly based on its prior business
operations in Hawaii and cases against D/C are allegedly based on sale of asbestos-containing products by D/C's prior distribution
business operations primarily in California. Each entity defending these cases believes that it has meritorious defenses against
these actions, but can give no assurances as to the ultimate outcome of these cases. The defense of these cases has had a material
adverse effect on the financial condition of D/C as it has been forced to file a voluntary petition for liquidation as discussed
below. Kaanapali Land does not believe that it has liability, directly or indirectly, for D/C's obligations in those cases. Kaanapali
Land does not presently believe that the cases in which it is named will result in any material liability to Kaanapali Land; however,
there can be no assurance in this regard.
On February 15, 2005, D/C
was served with a lawsuit entitled American & Foreign Insurance Company v. D/C Distribution and Amfac Corporation, Case No.
04433669 filed in the Superior Court of the State of California for the County of San Francisco, Central Justice Center. No other
purported party was served. In the eight-count complaint for declaratory relief, reimbursement and recoupment of unspecified amounts,
costs and for such other relief as the court might grant, plaintiff alleged that it is an insurance company to whom D/C tendered
for defense and indemnity various personal injury lawsuits allegedly based on exposure to asbestos containing products. Plaintiff
alleged that because none of the parties have been able to produce a copy of the policy or policies in question, a judicial determination
of the material terms of the missing policy or policies is needed. Plaintiff sought, among other things, a declaration: of the
material terms, rights, and obligations of the parties under the terms of the policy or policies; that the policies were exhausted;
that plaintiff is not obligated to reimburse D/C for its attorneys' fees in that the amounts of attorneys' fees incurred by D/C
have been incurred unreasonably; that plaintiff was entitled to recoupment and reimbursement of some or all of the amounts it has
paid for defense and/or indemnity; and that D/C breached its obligation of cooperation with plaintiff. D/C filed an answer and
an amended cross-claim. D/C believed that it had meritorious defenses and positions, and intended to vigorously defend. In addition,
D/C believed that it was entitled to amounts from plaintiffs for reimbursement and recoupment of amounts expended by D/C on the
lawsuits previously tendered. In order to fund such action and its other ongoing obligations while such lawsuit continued, D/C
entered into a Loan Agreement and Security Agreement with Kaanapali Land, in August 2006, whereby Kaanapali Land provided certain
advances against a promissory note delivered by D/C in return for a security interest in any D/C insurance policy at issue in this
lawsuit. In June 2007, the parties settled this lawsuit with payment by plaintiffs in the amount of $1,618. Such settlement amount
was paid to Kaanapali Land in partial satisfaction of the secured indebtedness noted above.
Because D/C was substantially
without assets and was unable to obtain additional sources of capital to satisfy its liabilities, D/C filed with the United States
Bankruptcy Court, Northern District of Illinois, its voluntary petition for liquidation under Chapter 7 of Title 11, United States
Bankruptcy Code during July 2007, Case No. 07-12776. Such filing is not expected to have a material adverse effect on the Company
as D/C was substantially without assets at the time of the filing. The deadline for filing proofs of claim against D/C with the
bankruptcy court passed in October 2008. Prior to the deadline, Kaanapali Land filed claims that aggregated approximately $26,800,
relating to both secured and unsecured intercompany debts owed by D/C to Kaanapali Land. In addition, a personal injury law firm
based in San Francisco that represents clients with asbestos-related claims, filed proofs of claim on behalf of approximately 700
claimants. While it is not likely that a significant number of these claimants have a claim against D/C that could withstand a
vigorous defense, it is unknown how the trustee will deal with these claims. It is not expected, however, that the Company will
receive any material additional amounts in the liquidation of D/C.
The Company received notice
from the Hawaii Department of Land and Natural Resources ("DLNR") that it would inspect all significant dams and reservoirs
in Hawaii, including those maintained by the Company on Maui in connection with its agricultural operations. Inspections were performed
in April and October 2006 and again in March 2008 and July 2009. To date, the DLNR has cited certain maintenance deficiencies concerning
two of the Company's reservoirs, consisting primarily of overgrowth of vegetation that makes inspection difficult and could degrade
the integrity of reservoir slopes and impact drainage. The DLNR has required the vegetation clean-up as well as the Company's plan
for future maintenance, inspections and emergency response. Revised versions of the required plans were submitted to DLNR in December
2006. In October 2009, DLNR delivered an inspection report for the reservoirs to the Company which acknowledged the work done to
date but requested still more remediated action, and DLNR issued an amended report in March 2010. A final report on one such reservoir
was received in August 2010 which essentially restated the March 2010 report for such reservoir. The Company has completed the
majority of the work required by such report and continues its analysis with respect to the remaining items. In addition, the Company
has submitted revisions to its emergency action plans for both reservoirs in accordance with revised DLNR requirements. Such reservoirs
were again inspected in March 2011 and a report was received in late April 2011. The reports acknowledged work done to date and
also included certain corrective actions to be done on the reservoirs.
In September 2007, the
Company received correspondence from DLNR that it preliminarily intended to categorize each of the reservoirs as "high hazard"
under a new statute recently passed by the State of Hawaii concerning dam and reservoir safety. This classification, which bears
upon future government oversight and reporting requirements, may increase the future cost of managing and maintaining these reservoirs
in a material manner. The Company does not believe that this classification is warranted for either of these reservoirs and has
initiated a dialogue with DLNR in that regard. At this time, it is unknown what the final classification assigned to these reservoirs
will be or to what extent such classification will impact the future use and maintenance cost of these assets. In April 2008 the
Company received further correspondence from DLNR that included the assessment by their consultants of the potential losses that
result from the failure of these reservoirs. In April 2009, the Company filed a written response to DLNR to correct certain factual
errors in its report and to request further analysis on whether such "high hazard" classifications are warranted. The
Company and DLNR continue to engage in dialogue concerning these matters (which have included further site visits by DLNR personnel).
In addition to the foregoing,
the Company has received notice from DLNR that it intended to decommission a reservoir that is contained partly on DLNR land and
partly on land owned by an unaffiliated third party, that was previously sold by the Company to such third party. Upon such sale,
the Company reserved the right to use such reservoir and maintain it to the extent the Company determined to do so in its discretion.
While the Company continues to use such reservoir, it has disclaimed any responsibility for the costs of rehabilitation and/or
decommissioning and has determined not to expend funds there. DLNR has notified the third party owner that it may have liability
for a portion of such decommissioning costs and such owner has notified DLNR that while it initially objected to the decommissioning
of the reservoir, that it was withdrawing its proposal for an alternative plan to maintain the function of the reservoir. There
has been no further discussion about the responsibility for sharing of the costs of the closure. While the Company believes that
it has defenses to any claims that may be made against it for such costs, there can be no assurance that such defenses will be
successful or that the decommissioning of such reservoir will not have an adverse impact on the Company's other water rights and
distribution operations.
Other than as described
above, the Company is not involved in any material pending legal proceedings, other than ordinary routine litigation incidental
to its business. The Company and/or certain of its affiliates have been named as defendants in several pending lawsuits. While
it is impossible to predict the outcome of such routine litigation that is now pending (or threatened) and for which the potential
liability is not covered by insurance, the Company is of the opinion that the ultimate liability from any of this litigation will
not materially adversely affect the Company's consolidated results of operations or its financial condition.
(7) Calculation of Net Income
(Loss) Per Share
The following tables set
forth the computation of net income (loss) per share - basic and diluted:
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
(Amounts in thousands, except per share amounts)
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(872)
|
|
$
|
673
|
|
$
|
(959)
|
|
$
|
(899)
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
Number of weighted
average share
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
- basic and diluted
|
|
1,845
|
|
|
1,845
|
|
|
1,845
|
|
|
1,845
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
per share
|
|
|
|
|
|
|
|
|
|
|
|
- basic and diluted
|
$
|
(0.47)
|
|
$
|
0.36
|
|
$
|
(0.52)
|
|
$
|
(0.49)
|
(8) Business Segment Information
As described in Note 1,
the Company operates in two business segments. Total revenues and operating profit by business segment are presented in the tables
below.
Total revenues by business
segment includes primarily (i) sales, all of which are from unaffiliated customers and (ii) interest income that is earned from
outside sources on assets which are included in the individual industry segment's identifiable assets, as well as corporate assets.
Operating income (loss)
is comprised of total revenue less operating expenses. In computing operating income (loss), none of the following items have been
added or deducted: general corporate revenues and expenses, interest expense and income taxes.
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
$
|
325
|
|
$
|
234
|
|
$
|
1,908
|
|
$
|
526
|
Agriculture
|
|
921
|
|
|
662
|
|
|
1,616
|
|
|
1,098
|
Corporate
|
|
7
|
|
|
264
|
|
|
15
|
|
|
594
|
|
$
|
1,253
|
|
$
|
1,160
|
|
$
|
3,539
|
|
$
|
2,218
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
$
|
(352)
|
|
$
|
(231)
|
|
$
|
(596)
|
|
$
|
(718)
|
Agriculture
|
|
127
|
|
|
1,750
|
|
|
43
|
|
|
1,372
|
Operating income (loss)
|
|
(225)
|
|
|
1,519
|
|
|
(553)
|
|
|
654
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
(639)
|
|
|
(837)
|
|
|
(393)
|
|
|
(1,537)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
from continuing
operations before
income taxes
|
$
|
(864)
|
|
$
|
682
|
|
$
|
(946)
|
|
$
|
(883)
|
Part I. Financial Information
ITEM 2. Management’s
Discussion and Analysis of Financial Condition and
Results
of Operation
Liquidity and Capital Resources
General
In addition to historical
information, this Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are based on management's current expectations about its businesses and the markets in which the Company
operates. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties
or other factors which may cause actual results, performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such forward-looking statements. Actual operating results may
be affected by various factors including, without limitation, changes in international, national and Hawaiian economic conditions,
competitive market conditions, uncertainties and costs related to the imposition of conditions on receipt of governmental approvals
and costs of material and labor, and actual versus projected timing of events all of which may cause such actual results to differ
materially from what is expressed or forecast in this report.
Certain subsidiaries of
Kaanapali Land are jointly indebted to Kaanapali Land pursuant to a certain Secured Promissory Note in the principal amount of
$70 million, dated November 14, 2002. Such note matures on October 31, 2011, had an outstanding balance of principal and accrued
interest as of June 30, 2011 and December 31, 2010 of approximately $85 million and $84 million, respectively, and carries
an interest rate of 3.04% compounded semi-annually. The note, which is prepayable, is secured by substantially all of the remaining
real property owned by such subsidiaries, pursuant to a certain Mortgage, Security Agreement and Financing Statement, dated as
of November 14, 2002 and placed on record in December 2002. The note has been eliminated in the consolidated financial statements
because the obligors are consolidated subsidiaries of Kaanapali Land.
In addition to such Secured
Promissory Note, certain other subsidiaries of Kaanapali Land continue to be liable to Kaanapali Land under certain guarantees
(the "Guarantees") that they had previously provided to support certain Senior Indebtedness (as defined in the Plan)
and the Certificate of Land Appreciation Notes ("COLA Notes") formerly issued by Amfac/JMB Hawaii, Inc. (as predecessor
to KLC Land). Although such Senior Indebtedness and COLA Notes were discharged under the Plan, the Guarantees of the Non-Debtor
KLC Subsidiaries were not. Thus, to the extent that the holders of the Senior Indebtedness and COLA Notes did not receive payment
on the outstanding balance thereof from distributions made under the Plan, the remaining amounts due thereunder remain obligations
of the Non-Debtor KLC Subsidiaries under the Guarantees. Under the Plan, the obligations of the Non-Debtor KLC Subsidiaries under
such Guarantees were assigned by the holders of the Senior Indebtedness and COLA Notes to Kaanapali Land on the Plan Effective
Date. Kaanapali Land has notified each of the Non-Debtor KLC Subsidiaries that are liable under such Guarantees that their respective
guarantee obligations are due and owing and that Kaanapali Land reserves all of its rights and remedies in such regard. Given the
financial condition of such Non-Debtor KLC Subsidiaries, some of which have dissolved or are the subject of bankruptcy proceedings,
it is unlikely that Kaanapali
Land will realize payments on such Guarantees
that are more than a small percentage of the total amounts outstanding thereunder or that in the aggregate will generate any material
proceeds to the Company. Nevertheless, Kaanapali Land has submitted a claim in the Chapter 7 bankruptcy proceeding of Oahu Sugar
in order that it may recover the assets remaining in the bankruptcy estate, if any, that become available for creditors of Oahu
Sugar. Any amounts so received would not be material to the Company. The Company has commenced discussions with the United States
(the only other claimant in the Oahu Sugar bankruptcy) concerning the potential for dividing such remaining assets and closing
such bankruptcy case. There can be no assurance that such discussions will lead to a settlement acceptable to the Company. These
Guarantee obligations have been eliminated in the consolidated financial statements because the obligors are consolidated subsidiaries
of Kaanapali Land, which is now the sole obligee thereunder.
Those persons and entities
that were not affiliated with the predecessor of Kaanapali Land and were holders of COLAs or the date that the Plan was confirmed
by the Bankruptcy Court, and their successors in interest, represent approximately 9% of the ownership of the Company.
The Company had cash and
cash equivalents of approximately $11 million and $12 million, as of June 30, 2011 and December 31, 2010, respectively, which
is available for, among other things, working capital requirements, including future operating expenses in each of the Agriculture
and Property segments, and the Company's expenditures for engineering, planning, regulatory and development costs, drainage, water
storage and distribution, utilities, environmental remediation costs on existing and former properties, potential liabilities resulting
from tax audits, and existing and possible future litigation.
Effective June 2010, a
subsidiary of KLC Land discontinued providing retiree health and life insurance benefits to certain eligible retired employees.
The subsidiary paid a onetime lump sum cash payment to the participants totaling approximately $85 thousand. The Company recognized
a settlement gain of approximately $1.9 million, which included recognition of approximately $192 thousand remaining in accumulated
other comprehensive income relating to the post retirement benefit plan and approximately $1.7 million from the reversal of the
accrued benefit obligation.
The primary business of
Kaanapali Land is the investment in and development of the Company's assets on the Island of Maui. The various development plans
will take many years at significant expense to fully implement. Proceeds from land sales are the Company's only source of significant
cash proceeds and the Company's ability to meet its liquidity needs is dependent on the timing and amount of such proceeds.
On April 8, 2008, the Company
executed a contract (as subsequently amended) to sell its Waikele Golf Course for a purchase price of $23.3 million (less commissions
and closing costs). The sale closed on November 12, 2008 with total cash received, including previous non-refundable deposits,
aggregating $10 million. The balance of the purchase price was represented by a promissory note in the original amount of $13.3
million and was secured by the property along with corporate and personal guarantees from the principal of the purchaser and an
affiliate. The note originally required monthly interest only payments of 7% per annum and was due May 12, 2009. Certain seller
representations and warranties existed for one year after the date of sale. The Company entered into a note modification agreement
with the purchaser on May 12, 2009 and subsequent note modification agreements on May 19, 2009, June 16, 2009 and November 12,
2009. The note modifications allowed the purchaser to defer payment of such promissory note until May 12, 2010; provided, however,
that the purchaser was required by such agreement to make certain principal and interest payments in advance of maturity (before
certain deductions for commissions and other costs).
Pursuant to the note modification
agreement dated November 12, 2009 ("Effective Date"), the purchaser owed the Company a payment of approximately $1.3
million of principal and interest on the Effective Date. The purchaser paid $253 thousand on the Effective Date and the remaining
amount due was not paid. Pursuant to two letters dated November 30, 2009 and December 16, 2009 the guarantors of the promissory
note were notified that the promissory note was in default. On January 13, 2010, the Company made a forbearance offer that was
accepted by the purchaser. On May 5, 2010, the Company entered into an agreement with an unaffiliated third party whereby the Company
agreed to sell the promissory note and assign the first mortgage and recourse guarantees (and other security documents) to such
third party, on a non-recourse basis, for an aggregate purchase price of $12.5 million. The purchase price, which included all
principal and accrued and unpaid interest on such promissory note (including, but not limited to, the amounts previously deferred
by the Company), approximated the Company's net carrying value of the note. On May 6, 2010, such transaction closed and the Company
received the purchase price. The Company recognized a gain of $138 thousand, included in interest and other income, from the sale
of the note.
A subsidiary of Kaanapali
Land ("Holder") held a mortgage loan that was previously secured by the Waikele Golf Course. Interest on the principal
balance accrued at an adjustable rate of prime plus 1%. The principal and accrued interest, which were prepayable, were due March
1, 2015. As a result of the sale of the Waikele Golf Course, the outstanding principal and accrued interest was reduced pursuant
to a payment of $9.3 million towards the note and accrued interest and the mortgage security was released. The note was satisfied
in the third quarter of 2010, by the payment of $684 thousand to such subsidiary from a portion of the proceeds from the Company's
sale of the promissory note provided by the purchaser of the Waikele Golf Course, as described above. The note had been eliminated
in the consolidated financial statements because the obligor and maker are consolidated subsidiaries of Kaanapali Land.
The Company's continuing
operations have in recent periods been primarily reliant upon the net proceeds of sales of developed and undeveloped land parcels
and the recent sale of the promissory note secured by the golf course.
During the first quarter
of 2006, the Company received final subdivision approval on an approximate 336 acre parcel in the region "mauka" (toward
the mountains) from the main highway serving the area. This project, called Kaanapali Coffee Farms, consists of agricultural lots,
which are currently being offered to individual buyers. The land improvements were completed during 2008. As of June 30, 2011,
the Company has closed on the sale of eight lots at Kaanapali Coffee Farms. In conjunction with two of the lots that closed in
2007, in addition to cash proceeds, the Company received promissory notes aggregating $1.4 million. Due to non-performance by the
buyers, reserves have been established for a substantial majority of the original balances. The Company has closed on the sale
of two lots in 2011, one each in January and March. In conjunction with the sale of the lot that closed in March 2011, in addition
to cash proceeds, the Company received a promissory note for $285 thousand. The promissory note was paid in full the first week
of May 2011.
Effective September 30,
2010, the Company entered an agreement with an unaffiliated third party to sell an approximately 14.990 acre parcel of property
(the "Hospital Site") within the Company's Kaanapali 2020 development area for the construction of a hospital and acute
care facility and associated improvements (the "Medical Center"). In addition to the Hospital Site, the agreement provided
the purchaser with two separate options to purchase two additional adjacent parcels of property of approximately 30 acres each
which could only be exercised in the event that the purchaser closed on the purchase of the Hospital Site.
Construction of the Medical
Center on the Hospital Site was subject to certain contingencies including obtaining certain approvals from government agencies.
In March, 2011, it became clear that such approvals would not be obtained from one of the agencies and notice was provided by the
Company and the unaffiliated third party to the applicable governmental entity withdrawing their request for approval. The agreement
was terminated and the Company and an unaffiliated third party related to the previous prospective purchaser are exploring a new
agreement which may potentially move the site of the Medical Center to another location on Company lands.
There can be no assurance
that a new agreement will be finalized or that any contingencies imposed thereunder will be satisfied or that the closing of such
sale will occur.
Although the Company does
not currently believe that it has significant liquidity problems over the near term, should the Company be unable to satisfy its
liquidity requirements from its existing resources and future property sales, it will likely pursue alternate financing arrangements.
However it cannot be determined at this time what, if any, financing alternatives may be available and at what cost.
Results of Operations
Reference is made to the
footnotes to the financial statements for additional discussion of items addressing comparability between years.
The increase in sales and
cost of sales for the six months ended June 30, 2011 as compared to the six months ended June 30, 2010 is due primarily to the
sale of two lots during the first quarter of 2011. The increase in sales and rental revenues for the three months ended June 30,
2011 as compared to the three months ended June 30, 2010 is due primarily to an increase in farming revenues due to the timing
of the receipt of certain farming revenue.
The decrease in interest
and other income for the three and six months ended June 30, 2011 as compared to the three and six months ended June 30, 2010 is
due to the sale of the promissory note on the Waikele Golf Course during the second quarter of 2010.
Selling, general and administrative
expenses increased primarily due to the settlement gain recognized as a result of the discontinuance of the retiree health and
life insurance benefits to retirees during the second quarter of 2010.
Inflation
Due to the lack of significant
fluctuations in the level of inflation in recent years, inflation generally has not had a material effect on real estate development.
In the future, high rates
of inflation may adversely affect real estate development generally because of their impact on interest rates. High interest rates
not only increase the cost of borrowed funds to the Company, but can also have a significant effect on the affordability of permanent
mortgage financing to prospective purchasers. However, high rates of inflation may permit the Company to increase the prices that
it charges in connection with real property sales, subject to general economic conditions affecting the real estate industry and
local market factors, and therefore may be advantageous where property investments are not highly leveraged with debt or where
the cost of such debt has been previously fixed.
Item 4. Controls
and Procedures
Disclosure controls
and procedures.
The principal executive officer and the principal financial officer of the Company have evaluated the effectiveness
of the Company's disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended,
(the "Exchange Act") as of the end of the period covered by this report. Based on such evaluation, the principal executive
officer and the principal financial officer have concluded that the Company's disclosure controls and procedures were effective
to ensure that information required to be disclosed was recorded, processed, summarized and reported within the time periods specified
in the applicable rules and form of the Securities and Exchange Commission.
Internal control over
financial reporting.
There have not been any changes in the Company's internal control over financial reporting (as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the second quarter of 2011 that have materially
affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Part II. Other Information
Item 1. Legal
Proceedings
See Note 6 to the Condensed
Consolidated Financial Statements included in Part I of this report.
Item 1A. Risk
Factors
There has been no known
material changes from risk factors as previously disclosed in the Company's Annual Report on Form 10-K for the year ended December
31, 2010.
Item 6. Exhibit
|
(a)
|
Exhibits.
|
|
|
|
|
|
|
3.1
|
Amended and Restated Limited Liability Company Agreement of Kaanapali Land, LLC dated November 14, 2002 filed as an exhibit to the Company's report on Form 10 filed May 1, 2003 and hereby incorporated by reference.
|
|
|
|
|
|
|
3.2
|
Amendment to the Amended and Restated Limited Company Agreement of Kaanapali Land, LLC dated November 14, 2002 filed as an exhibit to the Company's report on Form 8-K filed April 21, 2008 and hereby incorporated by reference.
|
|
|
|
|
|
|
10.2
|
Restricted Share Agreement dated April 15, 2008 is filed as an exhibit to the Company's report on Form 10-Q filed August 14, 2008 and hereby incorporated by reference.
|
|
|
|
|
|
|
10.3
|
Waikele Golf Course, LLC - Waikele Country Club Inc. Property Purchase Agreement, as amended, dated October 29, 2008 filed as an exhibit to the Company's report on Form 10-Q (File No. 0-50273) filed on November 14, 2008 and hereby incorporated by reference.
|
|
|
|
|
|
|
10.4
|
Note Modification Agreement and Confirmation of Guarantee dated May 12, 2009 filed as an exhibit to the Company's report on Form 10-Q (File No. 0-50273) filed on May 13, 2009 and hereby incorporated by reference.
|
|
|
|
|
|
|
10.5
|
Third Note Modification Agreement and Confirmation of Guarantee dated June 16, 2009 filed as an exhibit to the Company's report on Form 10-Q (File No. 0-50273) filed on August 12, 2009 and hereby incorporated by reference.
|
|
|
|
|
|
|
10.6
|
Fourth Note Modification Agreement and Confirmation of Guarantee dated November 12, 2009 filed as an exhibit to the Company's report on Form 10-Q (File No. 0-50273) filed on November 16, 2009 and hereby incorporated by reference.
|
|
|
|
|
|
|
31.1
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) is filed herewith.
|
|
|
|
|
|
|
31.2
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) is filed herewith.
|
|
|
|
|
|
|
32.
|
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are filed herewith.
|
|
|
|
|
|
(b)
|
No reports on Form 8-K were filed since the beginning of the last quarter of the period covered by the report.
|
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.
|
KAANAPALI LAND, LLC
|
|
|
|
|
By:
|
Pacific Trail Holdings, LLC.
(sole member)
|
|
|
|
|
|
/s/ GAILEN J. HULL
|
|
By:
|
Gailen J. Hull, Senior Vice President
|
|
Date:
|
August 12, 2011
|
Kaanapali Land (PK) (USOTC:KANP)
Historical Stock Chart
From Jun 2024 to Jul 2024
Kaanapali Land (PK) (USOTC:KANP)
Historical Stock Chart
From Jul 2023 to Jul 2024