Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - KAANAPALI LAND LLCFinancial_Report.xls
XML - IDEA: XBRL DOCUMENT - KAANAPALI LAND LLCR1.htm
XML - IDEA: XBRL DOCUMENT - KAANAPALI LAND LLCR4.htm
XML - IDEA: XBRL DOCUMENT - KAANAPALI LAND LLCR9.htm
XML - IDEA: XBRL DOCUMENT - KAANAPALI LAND LLCR8.htm
XML - IDEA: XBRL DOCUMENT - KAANAPALI LAND LLCR2.htm
XML - IDEA: XBRL DOCUMENT - KAANAPALI LAND LLCR7.htm
XML - IDEA: XBRL DOCUMENT - KAANAPALI LAND LLCR3.htm
XML - IDEA: XBRL DOCUMENT - KAANAPALI LAND LLCR12.htm
EX-32 - KAANAPALI LAND LLCexh-32.htm
EX-31.2 - KAANAPALI LAND LLCexh-312.htm
EX-31.1 - KAANAPALI LAND LLCexh-311.htm
XML - IDEA: XBRL DOCUMENT - KAANAPALI LAND LLCR5.htm
XML - IDEA: XBRL DOCUMENT - KAANAPALI LAND LLCR10.htm
XML - IDEA: XBRL DOCUMENT - KAANAPALI LAND LLCR11.htm
XML - IDEA: XBRL DOCUMENT - KAANAPALI LAND LLCR6.htm

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

S Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2012

 

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 S    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 S  
  (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 S

 

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 S    No £

 

As of March 31, 2012, the registrant had 1,792,613 shares of Common Shares and 52,000 Class C Shares outstanding.

1
 

TABLE OF CONTENTS

 

 

Part I   FINANCIAL INFORMATION    
         
Item 1.   Condensed Consolidated Financial Statements 3  
         
Item 2.  

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

18  
         
Item 4.   Controls and Procedures 20  
         
Part II  OTHER INFORMATION    
         
Item 1.   Legal Proceedings 21  
         
Item 1A.   Risk Factors 21  
         
Item 6.   Exhibits 21  
         
SIGNATURES 22  

 

 

 

2
 

Part I.  Financial Information

     Item 1.  Condensed Consolidated Financial Statements

 

KAANAPALI LAND, LLC

 

Condensed Consolidated Balance Sheets

 

March 31, 2012 and December 31, 2011

(Dollars in Thousands, except share data)

(Unaudited)

 

 

 

 

March 31,

2012

 

December 31,

2011

Assets
Cash and cash equivalents $ 12,668    $ 14,419 
Short-term investments   4,998      4,996 
Receivables, net   70      63 
Property, net   96,555      96,442 
Pension plan assets   15,870      15,485 
Other assets   1,378      1,377 
          Total assets $ 131,539    $ 132,782 
           
Liabilities
           
Accounts payable and accrued expenses $ 1,061    $ 1,406 
Deferred income taxes   18,377      18,275 
Other liabilities   22,240      22,564 
          Total liabilities   41,678      42,245 
           
Stockholders’ Equity
           
Common stock, at 3/31/12 and 12/31/11 non par value          

  (Shares authorized – common shares 4,500,000,

  Class C shares 52,000, shares issued and outstanding

         
  - common shares 1,792,613 and Class C shares 52,000)   --      -- 
Additional paid-in capital   5,471      5,471 

Accumulated other comprehensive income (loss),

  net of tax

  (10,988)     (11,147)
Accumulated earnings   95,378      96,213 
          Total stockholders’ equity   89,861      90,537 
          Total liabilities and stockholders’ equity $ 131,539    $ 132,782 

 

 

 

 

 

 

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

3
 

KAANAPALI LAND, LLC

 

Condensed Consolidated Statements of Operations

 

Three Months Ended March 31, 2012 and 2011

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

 

  2012   2011
Revenues:          
  Sales and rental revenues $ 1,108    $ 2,245 
  Interest and other income   13      41 
       Total revenues   1,121      2,286 
Cost and expenses:          
  Cost of sales   999      2,097 
  Selling, general and administrative   882      203 
  Depreciation and amortization   71      68 
       Total cost and expenses   1,952      2,368 

  Operating income (loss) from continuing operations before

    income taxes

  (831)     (82)
           
  Income tax benefit (expense)   (4)     (5)
           
       Net income (loss) $ (835)   $ (87)
           
       Net income (loss) per share - basic and diluted $ (0.45)   $ (0.05)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

4
 

 

KAANAPALI LAND, LLC

 

Condensed Consolidated Statements of Comprehensive Income

 

Three Months Ended March 31, 2012 and 2011

(Unaudited)

(Dollars in Thousands)

 

 

 

  2012   2011
           
Net income (loss) $ (835)   $ (87)
           
Other comprehensive income (loss):          
  Net unrealized gains (losses) on pension plan assets   (260)     (235)
Other comprehensive income (loss), before tax   (260)     (235)
           

Income tax benefit (expense) related to items

  of other comprehensive income (loss)

  101      92 
Other comprehensive income (loss), net of tax   (159)     (143)
           
Comprehensive income (loss) $ (994)   $ (230)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

5
 

KAANAPALI LAND, LLC

 

Condensed Consolidated Statements of Cash Flows

 

Three Months Ended March 31, 2012 and 2011

(Unaudited)

(Dollars in Thousands)

 

 

 

  2012   2011
           
Net cash provided by (used in) operating activities $ (1,567)   $ 776 
           
Net cash provided by (used in) investing activities:          
  Property additions   (184)     (314)
          Net cash provided by (used in) investing activities   (184)     (314)
           
          Net increase (decrease) in cash and cash equivalents   (1,751)     462 
          Cash and cash equivalents at beginning of period   14,419      11,729 
           
          Cash and cash equivalents at end of period $ 12,668    $ 12,191 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

6
 

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, 2011. Capitalized terms used but not defined in this quarterly report have the same meanings as in the Company's 2011 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 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:

 

 

7
 

 

  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.

 

In June 2011, the FASB issued guidance related to the presentation of comprehensive income which amends current guidance related to comprehensive income. This guidance requires entities to present comprehensive income in either (i) one continuous financial statement or (ii) two separate but consecutive statements that display net income and the components of other comprehensive income. Totals and individual components of both net income and other comprehensive income must be included in either presentation. The provisions of this guidance was effective for the Company for the first quarter of 2012 and as a result, the Company included a separate statement.

 

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.

8
 

Inventory of land held for sale, of approximately $26,000 and $26,000, representing primarily Kaanapali Coffee Farms, was included in Property, net in the consolidated balance sheets at March 31, 2012 and December 31, 2011, 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 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.

 

In October 2011, the Company sold an approximate 68 acre gulch property located adjacent to the Waikele Golf course to an unaffiliated third party for $800, resulting in an approximate gain of $200. This was the Company’s last remaining property on Oahu other than various remnant parcels.

 

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 three months ended March 31, 2012 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 March 31, 2012, short-term investments consist of $4,998 of such securities purchased in June 2011 maturing in May 2012. Additionally, the amortized discount of $8 at March 31, 2012 is reflected in interest and other income.

 

9
 

 

(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 March 31, 2012, the Company has closed on the sale of eight lots at Kaanapali Coffee Farms. The Company 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.

 

 

(3)  Mortgage Note Payable

 

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, and due September 30, 2020, as extended. Such note had an outstanding balance of principal and accrued interest as of March 31, 2012 and December 31, 2011 of approximately $86,300 and $86,100, respectively. The interest rate currently is 1.19% per annum and compounds 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

 

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 months ended March 31, 2012 and 2011 are as follows:

 

  2012   2011
Service cost $ 157    $ 152 
Interest cost   478      547 
Expected return on plan assets   (1,031)     (1,017)
Recognized net actuarial (gain) loss   261      235 
Net periodic pension credit $ (135)   $ (83)

 

10
 

 

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 March 31, 2012 and December 31, 2011 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 $35 ($21 net of tax), respectively, and unrecognized actuarial loss of $10,188 ($6,215 net of tax) and $18,273 ($11,147 net of tax), respectively. The prior service cost and actuarial loss recognized in net periodic pension cost for the period ending March 31, 2012 are $1 ($1 net of tax) and $260 ($159 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 $1,534 represented in the Rabbi Trust and assets funding such deferred compensation liability of approximately $502 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 $1,900 and $1,367 at March 31, 2012 and December 31, 2011, respectively. The Company's continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. Consolidated Balance Sheets at March 31, 2012 and December 31, 2011 include $42 and $38, 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 2008 and subsequent years remain open, subject to possible utilization of loss carryforwards from earlier years. 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 during the three months ended March 31, 2012.

 

 

(6)  Commitments and Contingencies

 

At March 31, 2012, 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.

11
 

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. The Company has accrued $2,760 for these costs included in other liabilities on the consolidated balance sheet. 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.

12
 

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 CERCLA 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 2008 and subsequent years remain open, subject to possible utilization of loss carryforwards from earlier years. 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.

13
 

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.

 

14
 

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 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 indicated certain corrective actions to be done on the reservoirs.

 

The DLNR categorizes each of the reservoirs as "high hazard" under State of Hawaii Administrative Rules and State Statutes concerning dam and reservoir safety. This classification, which bears upon government oversight and reporting requirements, may increase the 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. 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).

 

 

15
 

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. The Company 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 although it initially objected to the decommissioning of the reservoir, it has subsequently decided to withdraw 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. The DLNR and the third party owner have initiated the decommissioning of the reservoir.

 

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:

 

 

(Amounts in thousands,

except per share amounts)

  2012   2011
Numerator:          
Net income (loss) $ (835)   $ (87)
           
Denominator:          
Number of weighted average share outstanding - basic and diluted   1,845      1,845 
           
Net income (loss) per share - basic and diluted $ (0.45)   $ (0.05)

 

 

16
 

(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 to 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.

 

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.

 

  2012   2011
Revenues:          
  Property $ 424    $ 1,583 
  Agriculture   695      695 
  Corporate      
  $ 1,121    $ 2,286 
           
Operating income (loss):          
  Property $ (551)   $ (244)
  Agriculture   (78)     (84)
Operating income (loss)   (629)     (328)
           
Corporate income (loss)   (202)     246 
           

Operating income (loss) from continuing

  operations before income taxes

$ (831)   $ (82)

 

The Company’s agricultural segment consists primarily of coffee and seed corn operations. Seed corn operations are under a contract with Monsanto Seed Company which is scheduled to expire on June 30, 2012. Monsanto has notified the Company that they intend to allow the contract to terminate on that date.

 

The Company is exploring alternative agricultural operations, but there can be no assurance that replacement operations at any level will result.

17
 

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, and due September 30, 2020, as extended. Such note had an outstanding balance of principal and accrued interest as of March 31, 2012 and December 31, 2011 of approximately $86 million and $86 million, respectively. The interest rate currently is 1.19% per annum and compounds 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

 

 

18
 

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 and short-term investments of approximately $18 million and $19 million, as of March 31, 2012 and December 31, 2011, 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.

 

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.

 

In October 2011, the Company sold an approximate 68 acre gulch property located adjacent to the Waikele Golf course to an unaffiliated third party for $0.8 million, resulting in an approximate gain of $0.2 million. This was the Company’s last remaining property on Oahu other than various remnant parcels.

 

The Company's continuing operations have in recent periods been primarily reliant upon the net proceeds of sales of developed and undeveloped land parcels.

 

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 March 31, 2012, the Company has closed on the sale of eight lots at Kaanapali Coffee Farms. The Company 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.

 

The Company’s agricultural segment consists primarily of coffee and seed corn operations. Seed corn operations are under a contract with Monsanto Seed Company which is scheduled to expire on June 30, 2012. Monsanto has notified the Company that they intend to allow the contract to terminate on that date.

19
 

 

The Company is exploring alternative agricultural operations, but there can be no assurance that replacement operations at any level will result.

 

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 decrease in sales and cost of sales for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011 is due primarily to the sale of two lots during the first quarter of 2011.

 

The increase in selling, general and administrative expenses for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011 is due primarily to insurance recoveries received during the first quarter of 2011.

 

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 first quarter of 2012 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 

20
 

 

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, 2011.

 

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.
       
    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.

 

 

21
 

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: May 11, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22