Kaanapali Land LLC 10-Q for FY2021 Q3
Kaanapali Land LLC (KANP)
About this 10-Q
Kaanapali Land LLC filed this 10-Q on November 12, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $884K
- up 65.5% from $534K a year earlier
- Net loss
- $608K
- compared with a net loss of $711K a year earlier
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
[
For the quarterly
period ended
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 #
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive office) |
(Zip Code) |
Registrant's telephone number, including
area code:
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Trading Symbol(s) |
Name of each exchange on which registered | ||
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company", and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] | |||
| [ ] | Smaller reporting company | [ |
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| Emerging growth company | ||||||
1
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ]
As of November 12, 2021, the registrant had shares of Common Shares and 52,000 Class C Shares outstanding.
2
| Part I FINANCIAL INFORMATION | ||||
| Item 1. | Condensed Consolidated Financial Statements (unaudited) | 4 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risks | 28 | ||
| Item 4. | Controls and Procedures | 28 | ||
| Part II OTHER INFORMATION | ||||
| Item 1. | Legal Proceedings | 29 | ||
| Item 1A. | Risk Factors | 29 | ||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 29 | ||
| Item 3. | Defaults Upon Senior Securities | 29 | ||
| Item 4. | Mine Safety Disclosures | 29 | ||
| Item 5. | Other Information | 29 | ||
| Item 6. | Exhibits | 30 | ||
| SIGNATURES | 31 | |||
3
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
KAANAPALI LAND, LLC
Condensed Consolidated Balance Sheets
September 30, 2021 and December 31, 2020
(Dollars in Thousands, except share data)
(Unaudited)
|
September 30, 2021 |
December 31, 2020 | ||||
| Assets | |||||
| Cash and cash equivalents | $ | $ | |||
| Restricted cash | |||||
| Property, net | |||||
| Pension plan assets | |||||
| Other assets | |||||
| Total assets | $ | $ | |||
| Liabilities | |||||
| Accounts payable and accrued expenses | $ | $ | |||
| Deposits and deferred gains | |||||
| Deferred income taxes | |||||
| Other liabilities | |||||
| Total liabilities | |||||
| Commitments and contingencies (Note 7) | |||||
| Equity | |||||
|
Common stock, at 9/30/21 and 12/31/20 par value (Shares authorized – ; shares issued and outstanding – common shares and Class C shares) |
-- | -- | |||
| Additional paid-in capital | |||||
|
Accumulated other comprehensive income, net of tax |
|||||
| Accumulated earnings | |||||
| Stockholders’ equity | |||||
| Non-controlling interests | |||||
| Total equity | |||||
| Total liabilities and equity | $ | $ | |||
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
KAANAPALI LAND, LLC
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2021 and 2020
(Unaudited)
(Dollars in Thousands, except per share data)
|
Three Months Ended September 30, |
Nine Months Ended September 30, | ||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||
| Revenues: | |||||||||||
| Sales and rental revenues | $ | $ | $ | $ | |||||||
| Interest and other income | |||||||||||
| Total revenues | |||||||||||
| Cost and expenses: | |||||||||||
| Cost of sales | |||||||||||
|
Selling, general and administrative |
|||||||||||
|
Depreciation and amortization |
|||||||||||
| Total cost and expenses | |||||||||||
|
Operating income (loss) before income taxes |
( |
( |
( |
( | |||||||
| Income tax benefit | |||||||||||
| Net loss | ( |
( |
( |
( | |||||||
|
Less: Net income (loss) attributable to non controlling interests |
( |
( |
( |
( | |||||||
|
Net loss attributable to stockholders |
$ | ( |
$ | ( |
$ | ( |
$ | ( | |||
|
Net loss per share - basic and diluted |
$ | ( |
$ | ( |
$ | ( |
$ | ( | |||
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
KAANAPALI LAND, LLC
Condensed Consolidated Statements of Comprehensive Income (Loss)
Three and Nine Months Ended September 30, 2021 and 2020
(Unaudited)
(Dollars in Thousands)
|
Three Months Ended September 30, |
Nine Months Ended September 30, | ||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||
| Net loss | $ | ( |
$ | ( |
$ | ( |
$ | ( | |||
| Other comprehensive income: | |||||||||||
|
Net unrealized gains on pension plan assets |
|||||||||||
|
Other comprehensive income, before tax |
|||||||||||
|
Income tax expense related to items of other comprehensive income |
( |
( |
( |
( | |||||||
|
Other comprehensive income, net of tax |
|||||||||||
| Comprehensive loss | ( |
( |
( |
( | |||||||
|
Comprehensive loss attributable to non controlling interests |
( |
( |
( |
( | |||||||
|
Comprehensive loss attributable to stockholders |
$ | ( |
$ | ( |
$ | ( |
$ | ( | |||
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
KAANAPALI LAND, LLC
Condensed Consolidated Statements of Equity
Three and Nine Months Ended September 30, 2021
(Unaudited)
(Dollars in Thousands)
|
Common Stock |
Additional Paid-In Capital |
Accumu- lated (Deficit) Earnings |
Accumu- lated Other Compre- hensive Income/ (Loss) |
Total Stock- holders’ Equity |
Non Controlling Interests |
Total Equity | |||||||||||||||
|
Balance, December 31, 2020 |
$ | -- | $ | $ | $ | $ | $ | $ | |||||||||||||
|
Effect of consolidat- ing Kaanapali Coffee Farms Lot Owners’ Association |
-- | -- | -- | ||||||||||||||||||
|
Other comprehensive income, net of tax |
-- | -- | -- | -- | |||||||||||||||||
| Net loss | -- | -- | ( |
-- | ( |
( |
( | ||||||||||||||
|
Balance, March 31, 2021 |
-- | ||||||||||||||||||||
|
Effect of consolidat- ing Kaanapali Coffee Farms Lot Owners’ Association |
-- | -- | -- | ||||||||||||||||||
|
Other comprehensive income, net of tax |
-- | -- | -- | -- | |||||||||||||||||
| Net loss | -- | -- | ( |
-- | ( |
( |
( | ||||||||||||||
|
Balance, June 30, 2021 |
-- | ||||||||||||||||||||
|
Effect of consolidating Kaanapali Coffee Farms Lot Owners’ Association |
-- | -- | -- | ||||||||||||||||||
|
Other comprehensive income, net of tax |
-- | -- | -- | -- | |||||||||||||||||
| Net loss | -- | -- | ( |
-- | ( |
( |
( | ||||||||||||||
|
Balance, September 30, 2021 |
$ | -- | $ | $ | $ | $ | $ | $ | |||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
7
KAANAPALI LAND, LLC
Condensed Consolidated Statements of Equity
Three and Nine Months Ended September 30, 2020
(Unaudited)
(Dollars in Thousands)
|
Common Stock |
Additional Paid-In Capital |
Accumu- lated (Deficit) Earnings |
Accumu- lated Other Compre- hensive Income/ (Loss) |
Total Stock- holders’ Equity |
Non Controlling Interests |
Total Equity | |||||||||||||||
|
Balance, December 31, 2019 |
$ | -- | $ | $ | $ | ( |
$ | $ | $ | ||||||||||||
|
Effect of consolidat- ing Kaanapali Coffee Farms Lot Owners’ Association |
-- | - | -- | ||||||||||||||||||
|
Other comprehensive income, net of tax |
-- | -- | -- | -- | |||||||||||||||||
| Net loss | -- | -- | ( |
-- | ( |
( |
( | ||||||||||||||
|
Balance, March 31, 2020 |
-- | ( |
|||||||||||||||||||
|
Effect of consolidat- ing Kaanapali Coffee Farms Lot Owners’ Association |
-- | -- | -- | ||||||||||||||||||
|
Other comprehensive income, net of tax |
-- | -- | -- | -- | |||||||||||||||||
| Net loss | -- | -- | ( |
-- | ( |
( |
( | ||||||||||||||
|
Balance, June 30, 2020 |
-- | ( |
|||||||||||||||||||
|
Effect of consolidat- ing Kaanapali Coffee Farms Lot Owners’ Association |
-- | -- | -- | ||||||||||||||||||
|
Other comprehensive income, net of tax |
-- | -- | -- | -- | |||||||||||||||||
| Net loss | -- | -- | ( |
-- | ( |
( |
( | ||||||||||||||
|
Balance, September 30, 2020 |
$ | -- | $ | $ | $ | ( |
$ | $ | $ | ||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
8
KAANAPALI LAND, LLC
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2021 and 2020
(Unaudited)
(Dollars in Thousands)
| 2021 | 2020 | ||||
| Net cash used in operating activities | $ | ( |
$ | ( | |
| Net cash used in investing activities: | |||||
| Property additions | ( |
( | |||
| ( |
( | ||||
| Net cash provided by financing activities: | |||||
| Contributions related to the LOA | |||||
|
Net decrease in cash, cash equivalents and restricted cash |
( |
( | |||
|
Cash, cash equivalents and restricted cash at beginning of period |
|||||
|
Cash, cash equivalents and restricted cash at end of period |
$ | $ | |||
The accompanying notes are an integral part of the condensed consolidated financial statements.
9
KAANAPALI LAND, LLC
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Dollars in Thousands)
(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 accompanying condensed consolidated financial statements include the accounts of Kaanapali Land and all of its subsidiaries and its predecessors (collectively, the “Company”), which include KLC Land and its wholly-owned subsidiaries. The Kaanapali Coffee Farms Lot Owners’ Association is consolidated into the accompanying condensed consolidated financial statements. The interests of third-party owners are reflected as non-controlling interests. All significant intercompany transactions and balances have been eliminated in consolidation.
The Company's continuing operations are in two business segments - Agriculture and Property. The Agriculture segment remains engaged in farming, harvesting and milling operations relating to coffee orchards on behalf of the applicable land owners. The Company also cultivates, harvests and sells bananas and citrus fruits and engages in certain ranching operations. 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.
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, 2020. Capitalized terms used but not defined in this quarterly report have the same meanings as in the Company's 2020 Annual Report on Form 10-K.
Property
The Company's significant
property holdings are on the island of Maui consisting of approximately
10
Inventory of land held
for sale, of approximately $
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.
Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be achieved in future periods.
Cash and Cash Equivalents
The Company considers
as cash equivalents all investments with maturities of three months or less when purchased. Included in this balance as of September 30,
2021 is a money market fund for $
Revenue Recognition
Revenue from real property sales is recognized at the time of closing when control of the property transfers to the customer. After closing of the sale transaction, the Company has no remaining performance obligation.
Other revenues are recognized when control of goods or services transfers to the customers, in the amount that the Company expects to receive for the transfer of goods or provision of services.
Revenue recognition standards require entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange. The revenue recognition standards have implications for all revenues, excluding those that are under the specific scope of other accounting standards.
11
The Company’s
revenues that were subject to revenue recognition standards for the nine months ended September 30, 2021 and 2020 were $
The revenue recognition standards require the use of a five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
Lease Accounting
In February 2016, the Financial Accounting Standards Board (“FASB”) updated Accounting Standards Codification (“ASC”) Topic 842 Leases (ASU 2016-02). Accounting Standards Update (“ASU”) 2016-02 requires lessees to record operating and financing leases as assets and liabilities on the balance sheet and lessors to expense costs that are not direct leasing costs. Subsequently, the FASB issued additional ASUs that further clarified the original ASU. The ASUs became effective for the Company on January 1, 2019. Upon adoption of the lease ASUs, the Company elected the practical expedients allowable under the ASUs, which included the optional transition method permitting January 1, 2019 to be its initial application date. The adoption of this guidance did not result in an adjustment to retained earnings. Additionally, the Company elected the package of practical expedients, which permits the Company not to reassess expired or existing contracts continuing a lease, the lease classification for expired or existing contracts, and initial direct costs for any existing leases. Further, the Company elected the practical expedient regarding short-term leases, which allows lessees to elect not to apply the balance sheet recognition requirements in ASC 842 to short-term leases. Finally, under ASC 842, lessors are required to continually assess collectability of lessee payments, and, if operating lease payments are not probable of collection, to only recognize into income the lesser of (i) straight-line rental income or (ii) lease payments received to date. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.
The Company’s lease
arrangements, both as lessor and as lessee, are short-term leases. The Company leases land to tenants under operating leases, and
the Company leases property, primarily office and storage space, from lessors under operating leases. During the three and nine
months ended September 30, 2021, the Company recognized approximately $
12
Recently Issued Accounting Pronouncements
In June 2016, FASB updated ASC Topic 326 Financial Instruments – Credit Losses with ASU 2016-13 Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 enhances the methodology of measuring expected credit losses to include the use of forward-looking information to better inform credit loss estimates. ASU 2016-13 is effective for annual periods beginning after December 15, 2019 for public companies except for smaller reporting companies whose effective date will be periods beginning after December 15, 2022. While the Company is currently evaluating the effect that implementation of this update will have on its condensed consolidated financial statements, no significant impact is anticipated.
In December 2019, FASB issued ASU 2019-12, Income Taxes (Topic 740) to simplify the accounting for income taxes. This guidance removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The guidance also clarifies and simplifies other areas of ASC 740. This standard is effective for public companies for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.
In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (ASU 2020-04) which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuance of LIBOR or another referenced rate. ASU 2020-04 is effective for fiscal years beginning after December 31, 2022. While the Company is currently evaluating the effect that the implementation of this guidance will have on its condensed consolidated financial statements, no significant impact is anticipated.
(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, originally consisted of
In September 2014, Kaanapali
Land Management Corp. (“KLMC”), pursuant to a property and option purchase agreement with an unrelated third party,
closed on the sale of an approximate
13
(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 $
(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 Company’s Pension
Plan has excess assets of approximately $
The components of the net periodic pension benefit (credit), included in selling, general and administrative in the Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 are as follows:
|
Three Months Ended September 30, |
Nine Months Ended September 30, | ||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||
| Service cost | $ | $ | $ | $ | |||||||
| Interest cost | |||||||||||
| Expected return on plan assets | ( |
( |
( |
( | |||||||
| Recognized net actuarial loss | |||||||||||
|
Net periodic pension cost (credit) |
$ | ( |
$ | ( |
$ | ( |
$ | ( | |||
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 September 30, 2021 and December 31, 2020 are the following amounts that have not yet been
recognized in net periodic pension cost: unrecognized prior service costs of $
14
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 deferred compensation liability of $
(5) Income Taxes
Reference is made to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
The statutes of limitations
with respect to the Company's taxes for
The Tax Cuts and Jobs Act
(the “Act”) repealed the corporate AMT and provided that prior AMT credits would be refundable. Any remaining AMT credit
amount became refundable incrementally from 2018 through 2021. The CARES Act accelerated the refund schedule, enabling the Company
to claim the refund in full. In February and July 2021, the Company received $
The Act is a comprehensive tax reform bill containing a number of other provisions that either currently or in the future could impact the Company, particularly the effect of certain limitations effective for the tax year 2018 and forward (prior losses remain subject to the prior 20 year carryover period) on the use of federal NOL carryforwards which will generally be limited to being used to offset 80% of future annual taxable income.
(6) Transactions with Affiliates
An affiliated insurance
agency, JMB Insurance Agency, Inc., which has some degree of common ownership with the Company, earns insurance brokerage commissions
in connection with providing the placement of insurance coverage for certain of the properties and operations of the Company. Such
commissions are believed by management to be comparable to those that would be paid to unaffiliated third parties. Commissions
paid were $
15
The Company reimburses
its affiliates for general overhead expense and for direct expenses incurred on its behalf, including salaries and salary-related
expenses incurred in connection with the management of the Company's operations. Generally, the entity that employs the person
providing the services receives the reimbursement. Substantially all of such reimbursable amounts were incurred by JMB Realty Corporation
or its affiliates, 900FMS, LLC, 900Work, LLC, and JMB Financial Advisors, LLC, all of which have some degree of common ownership
with the Company. The total costs recorded in cost of sales and selling, general and administrative expenses in the condensed consolidated
statement of operations for the three and nine months ended September 30, 2021 and 2020 were $
The Company derives revenue
from farming and common area maintenance services and for providing non-potable water to the Kaanapali Coffee Farms Lot Owners
Association (“LOA”). The LOA is the association of the owners of the Kaanapali Coffee Farms. The revenues were $
(7) Commitments and Contingencies
At September 30, 2021, 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. Two former subsidiaries, Oahu Sugar Company, LLC (“Oahu Sugar”) and D/C Distribution Corporation (“D/C”), filed subsequent petitions for liquidation under Chapter 7 of the Bankruptcy Code in April 2005 and July 2007, respectively, as described below. On December 17, 2019, the Oahu Sugar bankruptcy case was closed. As a consequence of the Chapter 7 filing, D/C is not under control of the Company.
As a result of an administrative order issued to Oahu Sugar by the Hawaii Department of Health (“HDOH”), Order No. CH 98-001, dated January 27, 1998, Oahu Sugar was 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, the Environmental Protection Agency (“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 cleanup of the land formerly occupied by Oahu Sugar. Oahu Sugar responded to the information requests and had notified both the Navy and 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 would purport 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.
16
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 in April 2005, its voluntary petition for liquidation under Chapter 7 of Title 11, United States Bankruptcy Code. Such filing was 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 was and is not believed that any other affiliates have any responsibility for the debts of Oahu Sugar, EPA made 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 conjunction 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 $
EPA 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 Waipio 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 the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”) to amend the existing Unilateral Administrative Order against Oahu Sugar Company, LLC, for the cleanup of the site to include Kaanapali Land as an additional respondent. The purported basis for 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 EPA, on or about September 30, 2009, 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 was engaged in performing work, including the conduct of sampling at the site, required by the order while reserving its rights to contest liability regarding the
17
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 current order will not be material to the Company as a whole; however, in the event that 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. Kaanapali and EPA have exchanged comments relative to further studies to be performed at the site, including a possible ecological risk assessment.
On February 11, 2015, the Company filed a complaint for declaratory judgment, bad faith and damages against Fireman’s Fund Insurance Company (“Fireman’s Fund”) in the Circuit Court of the First Circuit, State of Hawaii, Civil No. 15-1-0239-02, in connection with costs and expenses it has incurred or may incur in connection with the Waipio site. In the five-count complaint, the Company seeks, among other things, a declaratory judgment of its rights under various Fireman’s Fund policies and an order that Fireman’s Fund defend and indemnify Kaanapali Land from all past, present and future costs and expenses in connection with the site, including costs of investigation and defense incurred by Kaanapali and the professionals it has engaged. In addition, Kaanapali seeks general, special, and punitive damages, prejudgment and post judgment interest, and such other legal or equitable relief as the court deems just and proper. Fireman’s Fund has filed a responsive pleading. There are no assurances of the amounts of insurance proceeds that may or may not be ultimately recovered.
On April 16, 2021, the
U.S. Department of Justice and the U.S. Environmental Protection Agency, on behalf of various federal agencies of the United States
of America, executed a Consent Decree with Kaanapali Land, LLC, a Delaware limited liability company (the “Company”)
that, if entered by the U.S. District Court sitting in the District of Hawaii, United States of America v. Kaanapali Land, and
Oahu Sugar Company, LLC Case No. 1:21-CV-00190, would resolve the U.S. federal government’s current environmental claims
against the Company with respect to contamination at the former mixing site on Waipio Peninsula on Oahu in Hawaii that had been
leased by Oahu Sugar Company LLC, a former subsidiary of the Company. In return for payments by the Company totaling $
18
The Consent Decree is subject to a number of contingencies that could prevent it from being finalized with its current terms. In particular, and without limitation, (i) the Consent Decree has been lodged with the District Court for a period of at least 30 days for public notice and comment, and the United States has reserved the right to withdraw or withhold its consent if the comments regarding the Consent Decree disclose facts or considerations that indicate the Consent Decree is inappropriate, improper or inadequate, (ii) the Company may oppose entry of the Consent Decree as the result of any objection in other pending proceedings to use by the Company of site-related insurance proceeds from Fireman’s Fund; and (iii) the District Court in Hawaii might determine not to enter the Consent Decree as currently written or as approved by the federal government. There can be no assurance that the contingencies will not preclude entry of the Consent Decree. As a result of the execution of the Consent Decree and the proposed settlement payment of $7,500 by the Company thereunder, the Company evaluated, re-measured and adjusted its loss contingency related to the Waipio site during first quarter 2021.
Fireman’s Fund and the Company have agreed in principle to enter into a settlement and release (the “Insurance Settlement”). The Insurance Settlement is not yet consummated.
Under the Insurance Settlement, Fireman’s Fund proposes to pay $
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 are relatively few cases that name Kaanapali Land, there were a substantial number of cases that were pending against D/C on the U.S. mainland (primarily in California). Cases against Kaanapali Land (hereafter, “Kaanapali Land asbestos cases”) 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 that regard.
19
On February 12, 2014, counsel for Fireman’s Fund, the carrier that has been paying defense costs and settlements for the Kaanapali Land asbestos cases, stated that it would no longer advance fund settlements or judgments in the Kaanapali Land asbestos cases due to the pendency of the D/C and Oahu Sugar bankruptcies. In its communications with Kaanapali Land, Fireman’s Fund expressed its view that the automatic stay in effect in the D/C bankruptcy case bars Fireman’s Fund from making any payments to resolve the Kaanapali Land asbestos claims because D/C Distribution is also alleging a right to coverage under those policies for asbestos claims against it. However, in the interim, Fireman’s Fund advised that it presently intends to continue to pay defense costs for those cases, subject to whatever reservations of rights may be in effect and subject further to the policy terms. Fireman’s Fund has also indicated that to the extent that Kaanapali Land cooperates with Fireman’s Fund in addressing settlement of the Kaanapali Land asbestos cases through coordination with its adjusters, it is Fireman’s Fund’s present intention to reimburse any such payments by Kaanapali Land, subject, among other things, to the terms of any lift-stay order, the limits and other terms and conditions of the policies, and prior approval of the settlements. Kaanapali Land continues to pursue discussions with Fireman’s Fund in an attempt to resolve the issues, however, Kaanapali Land is unable to determine what portion, if any, of settlements or judgments in the Kaanapali Land asbestos cases will be covered by insurance.
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 $
20
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. Kaanapali Land filed claims in the D/C bankruptcy that
aggregated approximately $
On January 21, 2020, certain asbestos claimants filed a Stay Relief Motion in the Bankruptcy Court for the Northern District of Illinois, Eastern Division, Case No. 07-12776 (“motion to lift stay”) in connection with the D/C bankruptcy proceeding. The motion seeks the entry of an order, among other things, modifying the automatic stay in the D/C bankruptcy to permit those claimants to prosecute various lawsuits in state courts against D/C Distribution, LLC, and to recover on any judgment or settlement solely from any available insurance coverage. Various oppositions to the motion to lift stay have been filed, and the matter was heard and taken under advisement in April 2020. On July 21, 2020, the bankruptcy court issued an order granting the motion to lift stay to permit the movants to pursue their claims and to recover any judgment or settlement from and to the extent of any available insurance coverage of D/C Distribution, LLC, only.
The parties in the D/C and in the prior pending Oahu Sugar bankruptcy had reached out to each other to determine if there was any interest in pursuing settlements of the claims in the prior Oahu Sugar bankruptcy and the D/C bankruptcy insofar as the Fireman’s Fund insurance policies are concerned. Settlement discussions have taken place relative to the prior and pending claims in the two bankruptcies. There are no assurances that a settlement of any or all claims and controversies as relating to Waipio can be reached and, if reached, that it can be consummated.
The Company has received notice from Hawaii’s Department of Land and Natural Resources (“DNLR”) that DNLR on a periodic basis would inspect all significant dams and reservoirs in Hawaii, including those maintained by the Company on Maui in connection with its agricultural operations. A series of such inspections have taken place over the period from 2006 through the most recent inspections that occurred in July 2021. To date, the DLNR has cited certain deficiencies concerning two of the Company’s reservoirs relating to dam and reservoir safety standards established by the State of Hawaii. These deficiencies include, among other things, vegetative overgrowth, erosion of slopes, uncertainty of inflow control, spillway capacity, and freeboard, and uncertainty of structural stability under certain loading and seismic conditions. The Company has taken certain corrective actions, including lowering the reservoir operating level; as well as updating important plans to address emergency events and basic operations and maintenance. In 2018, the Company contracted with an engineering firm to develop plans to address certain DLNR cited deficiencies on one of the Company’s reservoirs. In 2012, the State of Hawaii issued new Hawaii Administrative Rules for Dams and Reservoirs which require dam owners to obtain from DLNR Certificates of Impoundment (“permits”) to operate and maintain dams or reservoirs. Obtaining such permits requires owners to completely resolve all cited deficiencies. Therefore, the process may involve further analysis of dam and reservoir safety requirements, which will involve continuing engagement with specialized engineering consultants, and ultimately could result in significant and costly improvements which may be material to the Company.
21
The DLNR categorizes 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. It is unlikely that the “high hazard” designation will be changed.
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.
Kaanapali Land Management
Corp. (KLMC) is a party to an agreement with the State of Hawaii for the development of the Lahaina Bypass Highway. An approximate
2.4 mile portion of this two lane state highway has been completed. Construction to extend the southern terminus was completed
mid-2018. The northern portion of the Bypass Highway, which extends to KLMC’s lands, is in the early stage of planning. Under
certain circumstances, which have not yet occurred, KLMC remains committed for approximately $
These potential commitments have not been reflected in the accompanying condensed consolidated financial statements. While the completion of the Bypass Highway would add value to KLMC’s lands north of the town of Lahaina, there can be no assurance that it will be completed or when any future phases will be undertaken.
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, and the U.S. including the Hawaiian economy began to experience pronounced disruptions. Quarantine, travel restrictions and other governmental restrictions to reduce the spread of COVID-19 have caused an adverse impact on economic activity, including disruptions to global supply chains, business closures, stricter work rules, increased unemployment, financial market instability, and reduced tourism to Maui. Certain travel restrictions to the State of Hawaii and the County of Maui were eased over the summer of 2021 resulting in a significant increase in visitor arrivals to Maui. In late August 2021, the COVID-19 Delta variant caused an increase in hospitalizations and as a result, the Governor requested visitors and residents to delay all non-essential travel through the end of October 2021 which resulted in a decrease in economic activity on Maui. Other state mandates remain in effect unless terminated or extended by a separate proclamation. The effects of an improving economy may continue to be negatively impacted by surges in COVID-19 and new variants, the administration and effectiveness of vaccines and government responses to future developments. The duration of the ongoing disruption on global, national, and local economies cannot be reasonably estimated at this time. Therefore, while this matter will negatively impact the Company’s results and financial position, the related financial impact cannot be reasonably estimated at this time and no such impact is recorded in these consolidated financial statements.
22
The following tables set forth the computation of net loss per share - basic and diluted:
|
Three Months Ended September 30, |
Nine Months Ended September 30, | ||||||||||
| (Amounts in thousands, except per share amounts) | |||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||
| Numerator: | |||||||||||
| Net loss | $ | ( |
$ | ( |
$ | ( |
$ | ( | |||
|
Less: Net loss attributable to non controlling interests |
( |
( |
( |
( | |||||||
|
Net loss attributable to stockholders |
$ | ( |
$ | ( |
$ | ( |
$ | ( | |||
| Denominator: | |||||||||||
Number of weighted average share outstanding - basic and diluted |
|||||||||||
|
Net loss per share, attributable to Kaanapali Land - basic and diluted |
$ | ( |
$ | ( |
$ | ( |
$ | ( | |||
(9) 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 cost of sales and 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.
23
|
Three Months Ended September 30, |
Nine Months Ended September 30, | ||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||
| Revenues: | |||||||||||
| Property | $ | $ | $ | $ | |||||||
| Agriculture | |||||||||||
| Corporate | |||||||||||
| $ | $ | $ | $ | ||||||||
| Operating loss: | |||||||||||
| Property | $ | ( |
$ | ( |
$ | ( |
$ | ( | |||
| Agriculture | ( |
( |
( |
( | |||||||
| Operating loss | ( |
( |
( |
( | |||||||
| Corporate | ( |
( |
( |
( | |||||||
|
Operating loss before income taxes |
$ | ( |
$ | ( |
$ | ( |
$ | ( | |||
The Company’s property segment consists primarily of revenue received from land sales and lease and licensing agreements.
The Company’s agricultural segment consists primarily of coffee operations and licensing agreements.
The Company is exploring alternative agricultural operations, but there can be no assurance that replacement operations at any level will result.
24
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, the effect of the outbreak of the COVID-19 virus, 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, 2029, as extended. Such note had an outstanding balance of principal and accrued interest as of September 30, 2021 and December 31, 2020 of approximately $91 million and $90 million, respectively. The interest rate currently is 0.39% 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.
The Company had cash and cash equivalents of approximately $17 million and $18 million, as of September 30, 2021 and December 31, 2020, respectively, which is available for, among other things, working capital requirements, including future operating expenses, and the Company's obligations for engineering, planning, regulatory and development costs, drainage and utilities, environmental remediation costs on existing and former properties, potential liabilities resulting from tax audits, and existing and possible future litigation. The Company does not anticipate making any distributions for the foreseeable future.
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.
The Company's operations have in recent periods been primarily reliant upon the net proceeds of sales of developed and undeveloped land parcels.
25
On April 16, 2021, the U.S. Department of Justice and the U.S. Environmental Protection Agency, on behalf of various federal agencies of the United States of America, executed a Consent Decree with Kaanapali Land, LLC, a Delaware limited liability company (the “Company”) that, if entered by the U.S. District Court sitting in the District of Hawaii, United States of America v. Kaanapali Land, and Oahu Sugar Company, LLC Case No. 1:21-CV-00190, would resolve the U.S. federal government’s current environmental claims against the Company with respect to contamination at the former mixing site on Waipio Peninsula on Oahu in Hawaii that had been leased by Oahu Sugar Company LLC, a former subsidiary of the Company. In return for payments by the Company totaling $7.5 million, the Consent Decree would resolve liability asserted by the U.S. government against the Company under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) as well as under the Clean Water Act, both for response costs (those costs expended for investigation and cleanup) and for natural resource damages.
The Consent Decree is subject to a number of contingencies that could prevent it from being finalized with its current terms. In particular, and without limitation, (i) the Consent Decree has been lodged with the District Court for a period of at least 30 days for public notice and comment, and the United States has reserved the right to withdraw or withhold its consent if the comments regarding the Consent Decree disclose facts or considerations that indicate the Consent Decree is inappropriate, improper or inadequate, (ii) the Company may oppose entry of the Consent Decree as the result of any objection in other pending proceedings to use by the Company of site-related insurance proceeds from Fireman’s Fund; and (iii) the District Court in Hawaii might determine not to enter the Consent Decree as currently written or as approved by the federal government. There can be no assurance that the contingencies will not preclude entry of the Consent Decree.
Fireman’s Fund and the Company have agreed in principle to enter into a settlement and release (the “Insurance Settlement”). The Insurance Settlement is not yet consummated.
Under the Insurance Settlement, Fireman’s Fund proposes to pay $6,800,000 into an escrow for potential use in funding the Consent Decree that was entered into with various federal agencies. That Consent Decree, if entered by United States District Court for the District of Hawaii (the “Court”), would resolve certain environmental claims against the Company with respect to the former mixing site on Waipio Peninsula on Oahu in Hawaii (the “Mixing Site”). The Consent Decree remains subject to a number of contingencies described above and has not yet been entered by the Court. If the Consent Decree is entered and finally approved by the Court in the form initially submitted by the Company and the federal government, the escrowed funds plus interest are to be paid to the Environmental Protection Agency or the Company to fund the settlement that is the subject of the Consent Decree. If the Consent Decree is not so entered and approved, at the Company’s sole option, it can either accept the escrowed funds and interest or return such funds to Fireman’s Fund. If the Company accepts the funds from escrow, the releases set forth in the Insurance Settlement and other terms of the Insurance Settlement shall be deemed to have been met. The Insurance Settlement provides, among other terms and conditions, mutual releases of Claims for coverage for Environmental Claims at the Mixing Site under known and unknown Fireman’s Fund insurance policies. If the escrowed funds are returned to Fireman’s Fund, the Insurance Settlement as proposed shall be deemed null and void. There are no assurances that the Insurance Settlement will be consummated.
26
The Company is in the planning stages for the development of a 295-acre parcel in the region mauka of the Kaanapali Coffee Farms (“KCF Mauka”). The parcel is to be comprised of 61 agricultural lots that will be offered to individual buyers. The Company expects to develop the parcel in phases and all phases have been submitted to the County for subdivision approval. The Company is working with the County to resolve certain of the County’s comments relating to the subdivision. Upon final subdivision approval and receipt of final plat of the first phase from the County, which requires a bond in the amount of the cost to develop the first phase, the Company can pre-sell the undeveloped lots in the first phase. The Company expects to market the lots in the first phase upon receiving final approvals from the County of Maui, subject to various contingencies, including, but not limited to, governmental and market factors and the availability of a bond to secure the first phase of the development and the considerable uncertainty surrounding the COVID-19 pandemic and its continuing repercussions may impact the viability or timing of the project. Therefore, there can be no assurance the Company will be able to meet such timetable, that the subdivision will ultimately be approved or that the lots will sell for prices deemed advantageous by the Company.
In January 2021, the Company entered into agreements with an unrelated third party for that third party to prepare plans to develop Puukolii Village Mauka and another subdivision on the Company’s property. The plans are to include development segments and timeline, offsite and onsite infrastructure, construction cost analysis, proposed budgets and proforma financial statements. If after discussion and negotiation the Company and the third party are unable to agree on the plans, then either the Company or the third party may terminate the agreements.
The Commission on Water Resource Management (“CWRM”) consists of approximately seven members appointed by the governor and confirmed by the Hawaii State Senate. CWRM assists the state as trustee of water resources pursuant to the state water code. CWRM exercises jurisdiction over land-based surface sources and conducts water resource assessments and regulatory activities over, among other things, freshwater streams throughout Maui. The Company is reliant on water sourced from its irrigation systems which divert water from streams and development tunnels into a system of ditches, tunnels, flumes, siphons and reservoirs.
The Company’s Pension Plan has excess assets of approximately $18 million. The Company is exploring the feasibility of liquidating the Pension Plan for future liquidity needs.
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.
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, and the U.S. and Hawaiian economy began to experience pronounced disruptions. Quarantine, travel restrictions and other governmental restrictions to reduce the spread of COVID-19 have caused an adverse impact on economic activity, including disruptions to global supply chains, business closures, stricter work rules, increased unemployment, financial market instability, and reduced tourism to Maui. Certain travel restrictions to the State of Hawaii and the County of Maui were eased over the summer of 2021 resulting in a significant increase in visitor arrivals to Maui. In late August 2021, the COVID-19 Delta variant caused an increase in hospitalizations and as a result, the Governor requested visitors and residents to delay all non-essential travel through the end of October 2021 which resulted in a decrease in economic activity on Maui. The effects of an improving economy may continue to be negatively impacted by surges in COVID-19 and new variants, the administration and effectiveness of vaccines and government responses to future developments. The duration of the ongoing disruption on global, national, and local economies cannot be reasonably estimated at this time. Therefore, while this matter will negatively and materially impact our results and financial position, the related financial impact cannot be reasonably estimated at this time. The Company continues to monitor the economic impact of the COVID-19 pandemic, as well as mitigating emergency assistance programs, such as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and other subsequent federal legislation.
27
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 other assets at September 30, 2021 as compared to December 31, 2020 is primarily due to refundable AMT tax credits received from the IRS in February and July 2021.
The increase in other liabilities at September 30, 2021 as compared to December 31, 2021 and the related increase in selling, general and administrative expenses for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 is due to the adjustment of the loss contingency related to the Waipio site during the first quarter of 2021.
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 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable as Registrant is a smaller reporting company.
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/principal financial officer has 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 third quarter of 2021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
28
Part II. Other Information
Item 1. Legal Proceedings
The information set forth under “Commitments and Contingencies” in Note 7 of the Notes to the Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report is incorporated herein by reference.
Item 1A. Risk Factors
Reference is made to the risks described in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None
29
Item 6. 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. | ||
| 10.1 | Consent Decree entered into as of April 16, 2021, for the United States of America by U.S. Department of Justice and U.S. Environmental Protection Agency and by Kaanapali Land, LLC and Oahu Sugar Company, LLC. filed as an exhibit to the Company’s report on Form 8-K filed April 22, 2021, 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 Principal Executive and 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. |
30
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/ RICHARD HELLAND | ||
| By: | Richard Helland, Vice President | |
| Date: | November 12, 2021 | |
31