<SEC-DOCUMENT>0000892626-11-000060.txt : 20110512
<SEC-HEADER>0000892626-11-000060.hdr.sgml : 20110512
<ACCEPTANCE-DATETIME>20110512145628
ACCESSION NUMBER: 0000892626-11-000060
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 20110331
FILED AS OF DATE: 20110512
DATE AS OF CHANGE: 20110512
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: KAANAPALI LAND LLC
CENTRAL INDEX KEY: 0001230058
STANDARD INDUSTRIAL CLASSIFICATION: LAND SUBDIVIDERS & DEVELOPERS (NO CEMETERIES) [6552]
IRS NUMBER: 010731997
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-50273
FILM NUMBER: 11835406
BUSINESS ADDRESS:
STREET 1: C/O JMB REALTY CORP
STREET 2: 900 NORTH MICHIGAN AVE
CITY: CHICAGO
STATE: IL
ZIP: 60611
BUSINESS PHONE: 312-915-1987
MAIL ADDRESS:
STREET 1: 900 NORTH MICHIGAN AVE
CITY: CHICAGO
STATE: IL
ZIP: 60611
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>kaa_10q.txt
<TEXT>
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 March 31, 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 01-0731997
(State of organization) (IRS Employer Identification No.)
900 N. Michigan Ave., Chicago, IL 60611
(Address of principal executive office) (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
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark whether 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)
S232.405 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 April 30, 2011, the registrant had 1,792,613 shares of Common Shares
and 52,000 Class C Shares outstanding.
<PAGE>
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 . . . . . . . . . . . . . . . . . . . . 17
Item 4. Controls and Procedures. . . . . . . . . . . . . . 21
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 22
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . 22
Item 6. Exhibits . . . . . . . . . . . . . . . . . . . . . 22
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . 23
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
KAANAPALI LAND, LLC
Condensed Consolidated Balance Sheets
March 31, 2011 and December 31, 2010
(Dollars in Thousands, except share data)
(Unaudited)
A S S E T S
-----------
March 31, December 31,
2011 2010
--------- -----------
Cash and cash equivalents . . . . . . . $ 12,191 11,729
Short-term investments. . . . . . . . . 9,994 10,004
Receivables, net. . . . . . . . . . . . 95 112
Property, net . . . . . . . . . . . . . 97,151 98,029
Pension plan assets . . . . . . . . . . 23,274 22,964
Other assets. . . . . . . . . . . . . . 2,051 1,859
-------- --------
$144,756 144,697
======== ========
L I A B I L I T I E S
---------------------
Accounts payable and accrued expenses . $ 1,010 913
Deferred income taxes . . . . . . . . . 19,475 19,383
Other liabilities . . . . . . . . . . . 22,101 22,288
-------- --------
Total liabilities . . . . . . . 42,586 42,584
Commitments and contingencies
S T O C K H O L D E R S' E Q U I T Y
-------------------------------------
Common stock, at 3/31/11 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) . . . . . . . . . . . . . . . -- --
Additional paid-in capital. . . . . . . 5,471 5,471
Accumulated other comprehensive
income, net of tax. . . . . . . . . . (6,230) (6,374)
Accumulated earnings. . . . . . . . . . 102,929 103,016
-------- --------
Total stockholders' equity. . . 102,170 102,113
-------- --------
$144,756 144,697
======== ========
The accompanying notes are an integral part
of the condensed consolidated financial statements.
<PAGE>
KAANAPALI LAND, LLC
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2011 and 2010
(Unaudited)
(Dollars in Thousands, except per share data)
2011 2010
-------- --------
Revenues:
Sales and rental revenues . . . . . . . . $ 2,245 668
Interest and other income . . . . . . . . 41 390
-------- --------
2,286 1,058
-------- --------
Cost and expenses:
Cost of sales . . . . . . . . . . . . . . 2,097 907
Selling, general and administrative . . . 203 1,641
Depreciation and amortization . . . . . . 68 75
-------- --------
2,368 2,623
-------- --------
Operating income (loss) from continuing
operations before income taxes. . . . . (82) (1,565)
Income tax benefit (expense). . . . . . . (5) (7)
-------- --------
Net income (loss). . . . . . . . . . . $ (87) (1,572)
======== ========
Earnings per share - basic:
Net income (loss). . . . . . . . . . . $ (.05) (.85)
======== ========
Earnings per share - diluted:
Net income (loss). . . . . . . . . . . $ (.05) (.85)
======== ========
The accompanying notes are an integral part
of the condensed consolidated financial statements.
<PAGE>
KAANAPALI LAND, LLC
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2011 and 2010
(Unaudited)
(Dollars in Thousands)
2011 2010
-------- --------
Net cash provided by (used in)
operating activities. . . . . . . . . . $ 776 (1,429)
Cash flows from investing activities:
Property additions. . . . . . . . . . . (314) (269)
-------- --------
Net cash provided by (used in)
investing activities. . . . . . . . . . (314) (269)
-------- --------
Net increase (decrease) in
cash and cash equivalents . . . 462 (1,698)
Cash and cash equivalents
at beginning of period. . . . . 11,729 16,936
-------- --------
Cash and cash equivalents
at end of period . . . . . . . $ 12,191 15,238
======== ========
The accompanying notes are an integral part
of the condensed consolidated financial statements.
<PAGE>
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.
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.
<PAGE>
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 March 31, 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.
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).
<PAGE>
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 three months ended March 31, 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 March 31, 2011, short-term investments
consist of $9,994 of such securities purchased in June 2010 maturing in
June 2011. Additionally, the amortized discount of $25 at March 31, 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 March 31, 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.
<PAGE>
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 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 to 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 March 31, 2011 and December 31, 2010 of approximately
$84,500 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.
<PAGE>
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, 2011 and 2010 are as
follows:
2011 2010
-------- --------
Service cost. . . . . . . . . . . . . . . . . $ 152 150
Interest cost . . . . . . . . . . . . . . . . 547 575
Expected return on plan assets. . . . . . . . (1,017) (1,100)
Recognized net actuarial (gain) loss. . . . . 235 225
-------- --------
Net periodic pension credit . . . . . . . . . $ (83) (150)
======== ========
(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 months ended March 31, 2011 and 2010 includes the following
components:
2011 2010
-------- --------
Interest cost . . . . . . . . . . . . . . . . $ -- 23
Amortization of net gain. . . . . . . . . . . -- (6)
-------- --------
Net periodic post-retirement benefit cost . . $ -- 17
======== ========
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
March 31, 2011 are $0 and $235 ($144 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.
<PAGE>
(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 March 31, 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 March 31, 2011 and December 31, 2010 include $54 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 March 31, 2011.
(6) COMMITMENTS AND CONTINGENCIES
At March 31, 2011, the Company's principal contractual obligations
are approximately $26 for the unpaid retention 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.
<PAGE>
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 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
<PAGE>
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
<PAGE>
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 one of these 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, but
as yet, the Company has received no formal feedback from DLNR concerning
such inspections.
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
<PAGE>
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 (1) it does not
support the decommissioning of such reservoir and (2) nevertheless, the
Company should be responsible for same as the operator. 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 Company understands the DLNR and such third-party owner reopened talks
whereby the reservoir may have been rehabilitated and reconfigured instead
of decommissioned but the Company so far has not participated in such talks
in any material way, and it is the Company's understanding that such talks
have broken down.
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:
2011 2010
-------- --------
(Amounts in thousands
except per share amounts)
NUMERATOR:
Net income (loss) . . . . . . . . . . . . . $ (87) (1,572)
======== ========
DENOMINATOR:
Number of weighted average shares
outstanding - basic and diluted . . . . . 1,845 1,845
======== ========
Net income (loss) per share -
basic and diluted . . . . . . . . . . . . $ (.05) $ (.85)
======== ========
<PAGE>
(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.
2011 2010
-------- --------
Revenues:
Property. . . . . . . . . . . . . . . . . $ 1,583 292
Agriculture . . . . . . . . . . . . . . . 695 436
Corporate . . . . . . . . . . . . . . . . 8 330
-------- --------
$ 2,286 1,058
======== ========
Operating income (loss):
Property. . . . . . . . . . . . . . . . . $ (244) (487)
Agriculture . . . . . . . . . . . . . . . (84) (378)
-------- --------
Operating income (loss) . . . . . . . . . . (328) (865)
Corporate . . . . . . . . . . . . . . . . . 246 (700)
-------- --------
Operating income (loss) from continuing
operations before income taxes. . . . . . $ (82) (1,565)
======== ========
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 March 31, 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
<PAGE>
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 $12
million and $12 million, as of March 31, 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).
<PAGE>
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 March 31, 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.
<PAGE>
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 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 to 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 other assets at March 31, 2011 as compared to
December 31, 2010 is primarily due to a promissory note received in
conjunction with one of the lots that closed during first quarter 2011.
The increase in sales and cost of sales for the three months ended
March 31, 2011 as compared to the three months ended March 31, 2010 is due
primarily to the sale of two lots during the first quarter of 2011.
The decrease in interest and other income for the three months ended
March 31, 2011 as compared to the three months ended March 31, 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 decreased primarily due
to insurance recoveries received during 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.
<PAGE>
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 2011 that have materially
affected, or are reasonably likely to materially affect, the Company's
internal control over financial reporting.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 7 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. EXHIBITS
(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.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company 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 12, 2011
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>exh_311.txt
<TEXT>
EXHIBIT 31.1
------------
CERTIFICATION
-------------
I, Gary Nickele, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period
ending March 31, 2011, of Kaanapali Land, LLC.
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal
control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)),for the registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
<PAGE>
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 12, 2011
/s/ Gary Nickele
----------------------------
Principal Executive Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>3
<FILENAME>exh_312.txt
<TEXT>
EXHIBIT 31.2
------------
CERTIFICATION
-------------
I, Gailen J. Hull, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period
ending March 31, 2011, of Kaanapali Land, LLC.
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal
control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)),for the registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
<PAGE>
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 12, 2011
/s/ Gailen J. Hull
----------------------------
Principal Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>4
<FILENAME>exh_32.txt
<TEXT>
EXHIBIT 32
----------
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
--------------------------------------------------
The following statement is provided by the undersigned with respect
to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2011,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be
deemed filed pursuant to any provision of the Securities Exchange Act of
1934 or any other securities law:
Each of the undersigned certifies that the foregoing Report on
Form 10-Q fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m) and that the information
contained in the Form 10-Q fairly presents, in all material respects, the
financial condition and results of operations of KAANAPALI LAND, LLC.
By: /s/ Gary Nickele By: /s/ Gailen J. Hull
--------------------------- ---------------------------
Gary Nickele Gailen J. Hull
Chief Executive Officer Chief Financial Officer and
Chief Accounting Officer
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>