SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period
ended June 30, 2005 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 is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
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 filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [ X ] No [ ]
As of July 31, 2005, the registrant had 1,792,613 shares of common stock
outstanding.
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 . . . . . . . . . . . . . . . . . . . . 13
Item 4. Controls and Procedures. . . . . . . . . . . . . . 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 17
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 18
PART I FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
KAANAPALI LAND, LLC
Condensed Consolidated Balance Sheets
June 30, 2005 and December 31, 2004
(Dollars in Thousands, except share data)
(Unaudited)
A S S E T S
-----------
June 30, December 31,
2005 2004
--------- -----------
Cash and cash equivalents . . . . . . . $ 56,883 45,744
Receivables, net. . . . . . . . . . . . 1,214 445
Property, net . . . . . . . . . . . . . 90,890 104,036
Prepaid pension costs . . . . . . . . . 26,924 26,630
Other assets. . . . . . . . . . . . . . 2,382 2,546
-------- --------
$178,293 179,401
======== ========
L I A B I L I T I E S
---------------------
Accounts payable and accrued
expenses. . . . . . . . . . . . . . . $ 917 1,647
Deferred income taxes . . . . . . . . . 28,120 25,120
Accumulated postretirement benefit
obligation. . . . . . . . . . . . . . 3,153 3,267
Other liabilities . . . . . . . . . . . 43,549 44,171
Mortgage payable. . . . . . . . . . . . -- 7,178
-------- --------
Total liabilities . . . . . . . 75,739 81,383
Commitments and contingencies
S T O C K H O L D E R S' E Q U I T Y
-------------------------------------
Common stock, at 6/30/05 and
12/31/04 non par value
(shares authorized - 4,500,000;
shares issued 1,792,613). . . . . . . -- --
Additional paid-in capital. . . . . . . 5,357 5,357
Accumulated earnings. . . . . . . . . . 97,197 92,661
-------- --------
Total stockholders' equity. . 102,554 98,018
-------- --------
$178,293 179,401
======== ========
The accompanying notes are an integral part
of the condensed consolidated financial statements.
KAANAPALI LAND, LLC
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2005 and 2004
(Unaudited)
(Dollars in Thousands, except share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2005 2004 2005 2004
-------- -------- -------- --------
Revenues:
Sales . . . . . . . . . $ 23,801 1,770 26,312 3,857
Interest and
other income. . . . . 324 655 705 1,113
-------- -------- -------- --------
24,125 2,425 27,017 4,970
-------- -------- -------- --------
Cost and expenses:
Cost of sales . . . . . 14,604 918 15,570 1,928
Reduction of post-
retirement benefit
obligation. . . . . . -- (1,654) -- (1,779)
Selling, general and
administrative. . . . 1,800 2,328 3,215 3,644
Interest. . . . . . . . -- 152 168 298
Depreciation and
amortization. . . . . 265 264 528 537
-------- -------- -------- --------
16,669 2,008 19,481 4,628
-------- -------- -------- --------
Operating income
(loss) from
continuing
operations before
income taxes. . . . . 7,456 417 7,536 342
Income tax expense. . . (2,969) (162) (3,000) (133)
-------- -------- -------- --------
Net income (loss) . $ 4,487 255 4,536 209
======== ======== ======== ========
Earnings per share:
Net income (loss) . . . $ 2.50 .15 2.53 .12
======== ======== ======== ========
The accompanying condensed notes are an integral part
of the condensed consolidated financial statements.
KAANAPALI LAND, LLC
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2005 and 2004
(Unaudited)
(Dollars in Thousands)
2005 2004
-------- --------
Net cash provided by (used in)
operating activities. . . . . . . . . . . $ 19,523 (4,895)
Cash flows from investing activities:
Property additions. . . . . . . . . . . . (1,206) (980)
Note receivable . . . . . . . . . . . . . -- 14,366
-------- --------
Net cash provided by (used in)
investing activities. . . . . . . . . . . (1,206) 13,386
Cash flows from financing activities:
Repayments of debt. . . . . . . . . . . . (7,178) (1,049)
-------- --------
Cash used in financing activities . . . . (7,178) (1,049)
-------- --------
Net increase (decrease) in cash
and cash equivalents. . . . . . . 11,139 7,442
Cash and cash equivalents at
beginning of period . . . . . . . 45,744 28,995
-------- --------
Cash and cash equivalents at
end of period . . . . . . . . . . $ 56,883 36,437
======== ========
Supplemental disclosure of cash
flow information:
Cash paid for interest. . . . . . . . . $ 168 287
======== ========
The accompanying notes are an integral part
of the condensed consolidated financial statements.
KAANAPALI LAND, LLC
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Dollars in Thousands)
The accompanying unaudited condensed consolidated financial
statements are prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States
for complete financial statements, and therefore, should be read in
conjunction with the Company's Annual Report on Form 10-K (File No. 0-
50273) for the year ended December 31, 2004. Capitalized terms used but
not defined in this quarterly report have the same meanings as the
Company's 2004 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 Plan was confirmed by the Bankruptcy Court by orders dated
July 29, 2002 and October 30, 2002 (collectively, the "Order") and became
effective November 13, 2002 (the "Plan Effective Date"). Kaanapali Land
continues to implement the restructuring transactions that are contemplated
to be effected under the Plan, including, among other things, the
resolution of all outstanding claims and distributions on all claims that
are allowed under the Plan.
The Company's continuing operations are in three business segments -
agriculture, property and golf. The Agriculture segment grows seed corn
under contract and leases land currently cultivated in coffee to a third
party, while maintaining additional coffee acreage for possible future use.
The Property segment primarily develops land for sale and negotiates bulk
sales of undeveloped land. The Golf segment is responsible for the
management and operation of the Waikele Golf Course. The Property,
Agriculture and Golf segments operate exclusively in the State of Hawaii.
For further information on the Company's business segments see Note 9.
PROPERTY
The Company's principal land holdings are on the island of Maui. The
Company has determined, based on its current projections for the
development and/or disposition of its land holdings, that 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 disposition
thereof.
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 and six months ended June 30, 2005
are not necessarily indicative of the results that may be achieved in
future periods.
(2) LAND SALES
On January 20, 2005, the Company sold its mill sites and associated
lands on the Island of Kauai for approximately $1,300 before closing costs
and prorations.
On June 21, 2005, the Company closed the sale of Lot 3 for a base
purchase price of $22,500, pursuant to an option that the purchaser of
Lot 4 (a parcel which is contiguous to Lot 3 and sold by the Company in
2003) held on the property. The purchase price was paid in cash (before
closing costs and prorations) at closing. Pursuant to a purchase price
adjustment agreement entered into at closing as required in the option
agreement, the purchase price is subject to potential adjustment upward
depending on the number of units permitted to be developed on Lot 3 and
Lot 4 and the timing thereof.
The purchaser's performance of its obligations under the purchase
price adjustment agreement is secured by a mortgage in favor of NB Lot 3
and covering the property, which was filed at closing.
(3) MORTGAGE AND OTHER NOTES PAYABLE
The Waikele Golf Course mortgage note payable, secured by the Waikele
Golf Course, had an outstanding principal balance of $7,178 at December 31,
2004. The loan had certain cash flow and other financial covenants.
Waikele Golf Course, LLC repaid the mortgage in full on March 1,
2005, with proceeds obtained through a new mortgage loan granted by a
subsidiary of Kaanapali Land in the original principal amount of $7,178.
Interest on the principal balance accrues at an adjustable rate of prime
plus 1%. The principal and accrued interest are due March 1, 2015. The
note, which is prepayable, is secured by the Waikele Golf Course. The note
has been eliminated in the consolidated financial statements because the
obligor and maker are consolidated subsidiaries of Kaanapali Land.
(4) RENTAL ARRANGEMENTS
The Company leases various office space with average annual rental of
approximately $250 per year. Leases expire at various times through
December 2005. Although the Company is a party to certain other leasing
arrangements, none of them are material.
(5) EMPLOYEE BENEFIT PLANS
(a) PENSION PLANS
The Company participates in a defined benefit pension plan that
covers substantially all its eligible employees. The Plan is sponsored and
maintained by Kaanapali Land in conjunction with other plans providing
benefits to employees of Kaanapali Land and its affiliates.
The components of the net periodic pension benefit (credit) for the
three and six months ended June 30, 2005 and 2004 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2005 2004 2005 2004
-------- -------- -------- --------
Service cost. . . . . . . $ 16 38 32 38
Interest cost . . . . . . 634 1,328 1,268 1,328
Expected return on
plan assets . . . . . . (1,060) (2,080) (2,120) (2,080)
Recognized net actuarial
(gain) loss . . . . . . 235 464 470 464
-------- -------- -------- --------
Net periodic pension
expense (credit). . . . $ (175) (250) (350) (250)
======== ======== ======== ========
(b) RETIREE HEALTH AND LIFE INSURANCE BENEFITS
In addition to providing pension benefits, a subsidiary of KLC Land
currently provides certain healthcare and life insurance benefits to
certain eligible retired employees. Where such benefits are offered,
substantially all employees may become eligible for such benefits if they
reach a specified retirement age while employed by KLC Land (or the
applicable affiliate) and if they meet a certain length of service
criteria. The postretirement healthcare plan is contributory and contains
cost-sharing features such as deductibles and copayments. However, these
features, as they apply to bargaining unit retirees, are subject to
collective bargaining provisions of a labor contract between each such
entity and the International Longshoremen's & Warehousemen's Union as they
may have been amended or settled through agreements or memoranda executed
with the union at about the time each operating facility was closed. The
postretirement life insurance plan is non-contributory.
Certain entities continued to fund benefit costs on a pay-as-you-go
basis, and each entity continued funding its post-retirement health care
obligations until the end of 2004, which was a date on or after the date
when its required cost maintenance period as defined under Internal Revenue
Code Section 420 expired. Retiree medical benefits for these entities
terminated at the end of 2004. Kaanapali Land has not assumed any
obligation to fund the cost of these benefits on behalf of any of its
affiliates.
Net periodic postretirement benefit credit for the three and six
months ended June 30, 2005 and 2004 includes the following components:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2005 2004 2005 2004
-------- -------- -------- --------
Service cost. . . . . . . $ 5 6 10 6
Interest cost . . . . . . 42 142 84 142
Amortization of net gain. (13) (1,677) (26) (1,677)
Recognized settlement gain -- (125) -- (250)
-------- -------- -------- --------
Net periodic
postretirement
benefit cost (credit) . $ 34 (1,654) 68 (1,779)
======== ======== ======== ========
At the time the Company performed its calculations related to the
Medicare Prescription Drug Improvement and Modernization Act of 2003 (the
"Act") final rules were not yet released. The Company has not yet
determined if its plan is Actuarially Equivalent (as defined in the Act)
and thus, no adjustment has yet been recorded in the consolidated financial
statements.
(6) INCOME TAXES
Federal tax return examinations have been completed for years through
1999 and all required payments for taxes and interest due through that
date, have been made. As a result of the examination relative to 2000, the
IRS has asserted a deficiency in taxes, which the Company is contesting.
The statutes of limitations with respect to the Company's tax returns for
2001 and subsequent years remain open and the IRS has commenced its
examination of the Company's tax returns for 2001 and 2002. The Company
believes adequate provisions for income tax have been recorded for all
years.
(7) COMMITMENTS AND CONTINGENCIES
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. In proceedings filed prior to the Petition Date where a Debtor is
a defendant, such proceedings were stayed as against such Debtor by the
filing of the Reorganization Case. Those proceedings may now continue
since the Plan Effective Date has occurred so long as the plaintiffs
therein filed timely claims under the Plan. However, any judgments
rendered therein would be subject to the distribution provisions of the
Plan, which would in most cases result in the entitlement of such claims to
proceeds that are substantially less than the face amount of such
judgments. Any claims that were not filed on a timely basis under the Plan
have been discharged by the Bankruptcy Court and thus the underlying legal
proceedings should not result in any liability to the Debtors. Proceedings
against subsidiaries or affiliates of Kaanapali Land that are not Debtors
were not stayed by the Plan and may proceed. However, one such subsidiary,
Oahu Sugar, filed a subsequent petition under Chapter 7 of the Bankruptcy
Code in April 2005, as described below.
On or about February 23, 2001 Kekaha Sugar Co., Ltd., a subsidiary of
Kaanapali Land, received a letter from the Hawaii Department of Health
("HDOH") assigning the Kekaha Sugar Co., Ltd. site a high priority status
based on HDOH's review of available environmental data. In the letter,
HDOH identified five major areas of potential environmental concern
including the former wood treatment plant, the herbicide mixing plant, the
seed dipping plant, the settling pond, and the Kekaha Sugar Mill. While
setting forth specific concerns, the HDOH reserved the right to designate
still further areas of potential concern which might require further
investigation and possible remediation. HDOH further reserved the right to
modify its prioritization of the site should conditions warrant. The
assignment of the high priority status will likely result in a high degree
of oversight by the HDOH as the issues raised are studied and addressed.
Kekaha Sugar Co., Ltd. responded to the letter. The United States
Environmental Protection Agency has performed a visual inspection of the
property and indicated there will be some testing performed. HDOH has
performed some testing at the site and results are pending. Kekaha Sugar
Co., Ltd. is substantially without assets and is in dissolution and thus
will be unable to perform in the event of further pursuit of this matter by
HDOH.
On or about February 23, 2001, Lihue Plantation received a similar
letter from the HDOH assigning the LPCo site a high priority status based
on HDOH's review of available environmental data. In the letter, HDOH
identified four major areas of potential environmental concern including
the Lihue Plantation herbicide mixing plant, the seed dipping plant, the
settling pond and the Lihue Sugar Mill. While setting forth specific
concerns, the HDOH reserved the right to designate still further areas of
potential concern which might require further investigation and possible
remediation. HDOH further reserved the right to modify its prioritization
of the site should conditions warrant. As noted above, the high priority
assignment will likely result in a high degree of oversight by the HDOH as
the issues raised are studied and addressed. Lihue Plantation is
substantially without assets and further pursuit of this matter by HDOH
could have a material adverse effect on the financial condition of LPCo.
The purchaser of the Kekaha and Lihue Plantation Sugar Mills properties in
January 2005 assumed any obligations for environmental matters concerning
the property it purchased. However, there can be no assurance that such
purchaser will have sufficient assets to satisfy a claim should any
substantial liabilities result.
Pioneer Mill was engaged in a modest cleanup operation arising out of
the discovery of petroleum contamination found at the Pioneer Mill site.
The Pioneer Mill site was assigned a high priority by the HDOH and the HDOH
has shown an interest in the environmental conditions relating to or
arising out of the former operations of Pioneer Mill. EPA designated HDOH
as the oversight agency for Pioneer Mill. Pioneer Mill received a report
on the results of environmental testing conducted on the site by the EPA
and HDOH. However, Pioneer Mill's cleanup efforts to date have satisfied
HDOH and Pioneer Mill received a no further action letter during the fourth
quarter of 2004. It is possible that further cleanup operations may become
necessary in connection with the planned demolition of the former sugar
mill buildings on the site.
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 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 which
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 was in
the process of responding 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. While Oahu Sugar contested its liability
for such contamination and believed that it had meritorious defenses to any
claims, it did not have sufficient assets to justify litigation and
believed that attempting to cooperate and negotiate with the government was
its only opportunity to avoid bankruptcy. Nevertheless, 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. While the cost of compliance cannot be
estimated at this time, it is clear that the cost involved would have
greatly exceeded Oahu Sugar's remaining assets. Oahu Sugar has no source
of additional capital and has substantial unpaid obligations to Kaanapali
Land and other affiliates. Furthermore, as Oahu Sugar is substantially
without assets, the pursuit of any action, informational, enforcement, or
otherwise, would have a material adverse effect on the financial condition
of Oahu Sugar.
Therefore, as a result of the pursuit of further action by the HDOH
and EPA as described above and the immediate material adverse effect that
the actions had on the financial condition of Oahu Sugar, Oahu Sugar filed
with the United States Bankruptcy Court, Northern District of Illinois,
Eastern Division its voluntary petition for liquidation under Chapter 7 of
Title 11, United States Bankruptcy Code, 11 U.S.C. Subsection 101-1330 on
April 19, 2005, Case No. 05-15100. 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 and it is not believed that any
other affiliates have any responsibility for the debts of Oahu Sugar.
By letter dated June 23, 2005, the EPA sent to Kaanapali Land an
information request regarding, among other things, the Waipio site and
Kaanapali's relationship to Oahu Sugar. Kaanapali Land is preparing its
response to the letter.
The IRS filed a claim in the bankruptcy proceedings of the debtors in
the aggregate amount of approximately $20,600 for taxes, interest and
penalties related to the years 1998-2000. The Company entered into a
stipulation with the IRS whereby the IRS withdrew its claim due to the fact
that the Plan left the IRS unimpaired relative to any taxes that may be
due. Federal tax return examinations have been completed for years through
1999 and all required payments for taxes and interest due through that date
have been made. As a result of the examination relative to 2000, the IRS
has asserted a deficiency in taxes, which the Company is contesting. The
statutes of limitations with respect to the Company's tax returns for 2001
and subsequent years remain open and the IRS has commenced its examination
of the Company's tax returns for 2001 and 2002. The Company believes
adequate provisions for income tax have been recorded for all years.
However, to the extent that the Company is unsuccessful in defending
against any such claims by the IRS, the amount for which the Company could
be liable could materially affect the cash position of the Company.
On February 15, 2005, D/C Distribution 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. 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 alleges that it is an insurance company to whom D/C has
tendered for defense and indemnity various personal injury lawsuits
allegedly based on exposure to asbestos containing products. Plaintiff
alleges 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
seeks, 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 have been 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 is
entitled to recoupment and reimbursement of some or all of the amounts it
has paid for defense and/or indemnity; and that D/C has breached its
obligation of cooperation with plaintiff. D/C filed an answer and cross-
claim on April 1, 2005. The court has stricken D/C's cross-claim with
leave to replead. The litigation is in its early stages and D/C believes
that it has meritorious defenses and positions, and intends to vigorously
defend.
Kaanapali Land, as successor by merger to other entities, and D/C
Distribution Corporation ("D/C"), a subsidiary of Kaanapali Land, have been
named as defendants in personal injury actions allegedly based on exposure
to asbestos. There are approximately 67 cases against such subsidiary that
are pending on the mainland and are alleged based on such subsidiary's
prior business operations. Each company believes that it has meritorious
defenses against these actions, but can give no assurances as to the
ultimate outcome of these cases. In the case of D/C, there can be no
certainty that it will be able to satisfy all of its liabilities for these
cases, as it is without assets to satisfy any material existing or future
judgments, there can be no assurances that these cases (or any of them), if
adjudicated in a manner adverse to the subsidiary, will not have a material
adverse effect on the financial condition of such subsidiary. Kaanapali
Land does not believe that it has liability, directly or indirectly, for
such subsidiary's obligations.
Other than as described above and the Reorganization Case 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.
(8) CALCULATION OF NET INCOME PER SHARE
The following tables set forth the computation of net income (loss)
per share - basic and diluted:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2005 2004 2005 2004
-------- -------- -------- --------
(Amounts in thousands except per share amounts)
NUMERATOR:
Net income (loss) . . . . $ 4,487 255 4,536 209
======== ======== ======== ========
DENOMINATOR:
Denominator for
net income (loss)
per share -
basic and diluted. . . . $ 1,793 1,792 1,793 1,792
======== ======== ======== ========
Net income (loss)
per share -
basic and diluted. . . . $ 2.50 .15 2.53 .12
======== ======== ======== ========
(9) BUSINESS SEGMENT INFORMATION
As described in Note 1, the Company operates in three business
segments. Total revenues and operating profit by business segment are
presented in the tables below.
Total revenues by business segment includes primarily (i) sales, all
of which are from unaffiliated customers and (ii) interest income that is
earned from outside sources on assets which are included in the individual
industry segment's identifiable assets, as well as corporate assets.
Operating income (loss) is comprised of total revenue less operating
expenses. In computing operating income (loss), none of the following
items have been added or deducted: general corporate revenues and
expenses, interest expense and income taxes.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2005 2004 2005 2004
-------- -------- -------- --------
Revenues:
Property. . . . . . . . $ 22,686 546 23,994 1,072
Agriculture . . . . . . 357 563 763 1,299
Golf. . . . . . . . . . 952 931 1,891 2,000
Corporate . . . . . . . 130 385 369 599
-------- -------- -------- --------
$ 24,125 2,425 27,017 4,970
======== ======== ======== ========
Operating Profit (loss):
Property. . . . . . . . $ 8,425 (267) 9,030 (525)
Agriculture . . . . . . 422 193 587 623
Golf. . . . . . . . . . 104 156 260 352
-------- -------- -------- --------
Operating income (loss) . 8,951 82 9,877 450
Corporate . . . . . . . . (1,495) 487 (2,173) 190
Interest expense. . . . . -- (152) (168) (298)
-------- -------- -------- --------
Income (loss) from
continuing operations
before income taxes . . $ 7,456 417 7,536 342
======== ======== ======== ========
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 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.
Unless wound up by the Company, the Debtors shall continue to exist
after the Plan Effective Date as separate legal entities. Except as
otherwise provided in the Order or the Plan, the Debtors have been
discharged from all claims and liabilities existing through the Plan
Effective Date. As such, all persons and entities who had receivables,
claims or contracts with the Debtors that first arose prior to the Petition
Date and have not previously filed timely claims under the Plan or have not
previously reserved their right to do so in the Reorganization Case are
precluded from asserting any claims against the Debtors or their assets for
any acts, omissions, liabilities, transactions or activities that occurred
before the Plan Effective Date.
On November 14, 2002, pursuant to the Plan, all of the KLC Debtors
executed and delivered to Kaanapali Land a certain Secured Promissory Note
in the principal amount of $70 million. Such note matures on October 31,
2011 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 the KLC Debtors, 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 Non-Debtor KLC
Subsidiaries 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, however, 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 intends to assert its claims in
the Chapter 7 bankruptcy proceeding of Oahu Sugar in order that it may
recover substantially all of 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. 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.
As of June 30, 2005, the Company had cash and cash equivalents of
approximately $56.9 million, which is available for, among other things,
working capital requirements, including future operating expenses, and the
Company's obligations for engineering, planning, regulatory and other
development costs, environmental remediation costs on the former Pioneer
mill-site, the cost of renovations of the golf course (discussed below),
potential tax liabilities resulting from the IRS audits, retiree medical
insurance benefits for Pioneer Mill Company, and existing and possible
future litigation. Oahu Sugar filed for relief under Chapter 7 of the
United States Bankruptcy Code on April 19, 2005. Therefore, as of
April 19, 2005, the Company has reclassified approximately $29 thousand of
cash held by Oahu Sugar as restricted cash. 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, although the material portion of
such anticipated expenses are not currently subject to any contractual
commitments. 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 currently anticipates to cease operations at the Waikele
Golf Course for approximately six months during 2006 to allow for
renovations of the golf course greens and facilities. The cost of
renovations and the shut-down of operations is not expected to have a
material adverse effect on the overall financial condition of the Company.
The Company's mortgage note payable as of December 31, 2004 was a
loan secured by the Waikele Golf Course. Waikele Golf Course, LLC repaid
the mortgage in full on March 1, 2005, with proceeds obtained through a new
mortgage loan granted by a subsidiary of Kaanapali Land in the original
principal amount of approximately $7.2 million. The note has 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. On January 20, 2005, the Company sold its mill
sites and associated lands on the Island of Kauai for approximately $1.3
million (before closing costs and prorations). On June 21, 2005, the
Company closed the sale of Lot 3 for a base price of $22.5 million (before
closing costs and prorations).
Although the Company does not currently believe that it has
significant liquidity problems over the near term, should the Company prove
to be unable to satisfy its liquidity requirements from its existing
resources 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.
Receivables, net increased due to the reversal of an allowance for
doubtful receivables of approximately $800 relating to the collection in
July 2005 of amounts advanced in 2003 to reconfigure one of the golf holes
at the RKGC in conjunction with the settlement agreement with the ERS. The
recovery was reflected as a reduction of general and administrative
expenses.
Property, net decreased primarily due to the sale of Lot 3 during the
second quarter of 2005 partially offset by property additions during the
year.
Accounts payable and accrued expenses decreased primarily due to the
payment during the first quarter 2005 of broker's commissions owed as a
result of the sale of Lot 4 and payment of professional services.
The increase in deferred income taxes and the increase in income tax
expense for the three and six months ended June 30, 2005 is a result of the
increase in the Company's income from continuing operations.
Mortgage payable decreased in the accompanying balance sheets due to
the repayment of the Waikele Golf mortgage in full during the first quarter
of 2005.
The increase in sales and cost of sales for the three and six months
ended June 30, 2005 is primarily due to the sale of the mill sites and
associated lands on the Island of Kauai during the first quarter of 2005
and the sale of Lot 3 during the second quarter of 2005.
The reduction of post-retirement benefit obligation for the three and
six months ended June 30, 2004 was due to the effect of the expected
termination of most of the post-retirement obligations at the end of 2004.
INFLATION
Due to the lack of significant fluctuations in the level of inflation
in recent years, inflation generally has not had a material effect on real
estate development.
In the future, high rates of inflation may adversely affect real
estate development generally because of their impact on interest rates.
High interest rates not only increase the cost of borrowed funds to the
Company, but can also have a significant effect on the affordability of
permanent mortgage financing to prospective purchasers. However, high rates
of inflation may permit the Company to increase the prices that it charges
in connection with real property sales, subject to general economic
conditions affecting the real estate industry and local market factors, and
therefore may be advantageous where property investments are not highly
leveraged with debt or where the cost of such debt has been previously
fixed.
ITEM 4. CONTROLS AND PROCEDURES
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.
There was no change in internal control over financial reporting that
occurred during the period covered by this report that materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(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 Form 10 filed May 1, 2003 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) The following report on Form 8-K was filed since the beginning
of the last quarter of the period covered by the report.
The Company's report on Form 8-K (File No. 0-50273) for
June 21, 2005, filed on June 23, 2005 describing the sale of
Lot 3 was filed.
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: August 12, 2005