Item
8. Financial Statements and Supplementary Data
Kaanapali
Land, LLC
Index
Report
of Independent Registered Public Accounting Firm
Consolidated
Balance Sheets, December 31, 2012 and 2011
Consolidated
Statements of Operations for the years ended December 31, 2012, 2011 and 2010
Consolidated
Statements of Comprehensive Income (Loss) for the years ended December 31, 2012, 2011 and 2010
Consolidated
Statements of Stockholders' Equity for the years ended December 31, 2012, 2011 and 2010
Consolidated
Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010
Notes
to Consolidated Financial Statements
Schedules
not filed:
All
schedules have been omitted as the required information is inapplicable or the information is presented in the financial statements
or related notes.
Report
of Independent Registered Public Accounting Firm
The
Managing Member and Stockholders
Kaanapali
Land, LLC
We
have audited the accompanying consolidated balance sheets of Kaanapali Land, LLC (the "Company") as of December 31,
2012 and 2011, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based
on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of Kaanapali Land, LLC at December 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.
/s/
Ernst & Young LLP
Chicago,
Illinois
March
27, 2013
Kaanapali
Land, LLC
Consolidated
Balance Sheets
December
31, 2012 and 2011
(Dollars
in Thousands, except share data)
|
2012
|
|
2011
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
14,270
|
|
|
14,419
|
Short-term investments
|
|
--
|
|
|
4,996
|
Property, net
|
|
95,535
|
|
|
96,442
|
Pension plan assets
|
|
16,154
|
|
|
15,485
|
Other assets
|
|
930
|
|
|
1,440
|
|
$
|
126,889
|
|
|
132,782
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
$
|
557
|
|
|
1,406
|
Deferred income taxes
|
|
18,933
|
|
|
18,275
|
Other liabilities
|
|
17,222
|
|
|
22,564
|
|
|
|
|
|
|
Total liabilities
|
|
36,712
|
|
|
42,245
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
Common stock, at 12/31/12 and 12/31/11
Shares
authorized – 4,500,000, Class C shares
52,000;
shares issued and outstanding 1,792,613
in
2012 and 2011, Class C shares issued and
outstanding
52,000 in 2012 and 2011
|
|
--
|
|
|
--
|
Additional paid-in capital
|
|
5,471
|
|
|
5,471
|
Accumulated other comprehensive
income (loss), net of tax
|
|
(11,089)
|
|
|
(11,147)
|
Accumulated earnings
|
|
95,795
|
|
|
96,213
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
90,177
|
|
|
90,537
|
|
|
|
|
|
|
|
$
|
126,889
|
|
|
132,782
|
The
accompanying notes are an integral part of the consolidated financial statements.
Kaanapali
Land, LLC
Consolidated
Statements of Operations
Years
ended December 31, 2012, 2011 and 2010
(Dollars
in Thousands Except Per Share Amounts)
|
2012
|
|
2011
|
|
2010
|
Revenues:
|
|
|
|
|
|
|
|
|
Sales
|
$
|
4,761
|
|
|
5,318
|
|
|
3,395
|
Interest and other income
|
|
379
|
|
|
175
|
|
|
742
|
|
|
5,140
|
|
|
5,493
|
|
|
4,137
|
|
|
|
|
|
|
|
|
|
Cost and expenses:
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
4,252
|
|
|
4,543
|
|
|
6,110
|
Selling, general and administrative
|
|
382
|
|
|
5,544
|
|
|
5,412
|
Depreciation and amortization
|
|
286
|
|
|
276
|
|
|
302
|
|
|
4,920
|
|
|
10,363
|
|
|
11,824
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before income taxes
|
|
220
|
|
|
(4,870)
|
|
|
(7,687)
|
Income tax benefit (expenses)
|
|
(638)
|
|
|
(1,933)
|
|
|
3,595
|
Income (loss)
|
|
(418)
|
|
|
(6,803)
|
|
|
(4,092)
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(418)
|
|
|
(6,803)
|
|
|
(4,092)
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share – basic and diluted
|
$
|
(0.23)
|
|
|
(3.69)
|
|
|
(2.22)
|
The
accompanying notes are an integral part of the consolidated financial statements.
Kaanapali
Land, LLC
Condensed
Consolidated Statements of Comprehensive Income (Loss)
Years
ended December 31, 2012, 2011 and 2010
(Dollars
in Thousands Except Per Share Amounts)
|
2012
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(418)
|
|
|
(6,803)
|
|
|
(4,092)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on pension plan assets
|
|
96
|
|
|
(7,825)
|
|
|
(788)
|
Other comprehensive income (loss), before tax
|
|
96
|
|
|
(7,825)
|
|
|
(788)
|
|
|
|
|
|
|
|
|
|
Income
tax expense related to items of other
comprehensive
income (loss)
|
|
(38)
|
|
|
3,052
|
|
|
307
|
Other comprehensive income (loss), net of tax
|
|
58
|
|
|
(4,773)
|
|
|
(481)
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
$
|
(360)
|
|
|
(11,576)
|
|
|
(4,573)
|
The
accompanying notes are an integral part of the consolidated financial statements.
Kaanapali
Land, LLC
Consolidated
Statements of Stockholders' Equity
Years
ended December 31, 2012, 2011 and 2010
(Dollars
in Thousands)
|
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Accumu-
lated
(Deficit)
Earnings
|
|
Accumu-
lated
Other
Compre-hensive
Income/
(Loss)
|
|
Total
Stock-holders’
Equity
|
Balance at December
31, 2009
|
|
$
|
--
|
|
5,471
|
|
107,108
|
|
(5,893)
|
|
106,686
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss,
net
of tax
|
|
|
--
|
|
--
|
|
--
|
|
(481)
|
|
(481)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
--
|
|
--
|
|
(4,092)
|
|
--
|
|
(4,092)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2010
|
|
|
--
|
|
5,471
|
|
103,016
|
|
(6,374)
|
|
102,113
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income, net of tax
|
|
|
--
|
|
--
|
|
--
|
|
(4,773)
|
|
(4,773)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
--
|
|
--
|
|
(6,803)
|
|
--
|
|
(6,803)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December
31, 2011
|
|
|
--
|
|
5,471
|
|
96,213
|
|
(11,147)
|
|
90,537
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income, net of tax
|
|
|
--
|
|
--
|
|
--
|
|
58
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
--
|
|
--
|
|
(418)
|
|
--
|
|
(418)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December
31, 2012
|
|
$
|
--
|
|
5,471
|
|
95,795
|
|
(11,089)
|
|
90,177
|
The
accompanying notes are an integral part of the consolidated financial statements.
Kaanapali
Land, LLC
Consolidated
Statements of Cash Flows
Years
ended December 31, 2012, 2011 and 2010
(Dollars
in Thousands)
|
2012
|
|
2011
|
|
2010
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(418)
|
|
|
(6,803)
|
|
|
(4,092)
|
Adjustments
to reconcile net loss to net cash
used
in operations:
|
|
|
|
|
|
|
|
|
Share based compensation
|
|
--
|
|
|
--
|
|
|
--
|
Property sales, disposals and retirements, net
|
|
1,045
|
|
|
1,674
|
|
|
--
|
Impairment loss
|
|
--
|
|
|
415
|
|
|
2,500
|
Pension plan assets
|
|
(573)
|
|
|
(346)
|
|
|
(546)
|
Depreciation and amortization
|
|
286
|
|
|
276
|
|
|
302
|
Deferred income taxes
|
|
620
|
|
|
1,944
|
|
|
(3,570)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Other assets
|
|
506
|
|
|
531
|
|
|
872
|
Accrued benefit obligation
|
|
--
|
|
|
--
|
|
|
(1,910)
|
Accounts payable, accrued expenses and other
|
|
(6,191)
|
|
|
769
|
|
|
(734)
|
Net cash used in operating activities
|
|
(4,725)
|
|
|
(1,540)
|
|
|
(7,178)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Property additions
|
|
(424)
|
|
|
(778)
|
|
|
(818)
|
Proceeds from short-term investments
|
|
5,000
|
|
|
15,000
|
|
|
--
|
Purchase of short-term investments
|
|
--
|
|
|
(9,992)
|
|
|
(10,004)
|
Proceeds from note receivable
|
|
--
|
|
|
--
|
|
|
12,793
|
Net cash provided by investing activities
|
|
4,576
|
|
|
4,230
|
|
|
1,971
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
(149)
|
|
|
2,690
|
|
|
(5,207)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
|
14,419
|
|
|
11,729
|
|
|
16,936
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
$
|
14,270
|
|
|
14,419
|
|
|
11,729
|
|
|
|
|
|
|
|
|
|
Cash received (paid) for income taxes
|
$
|
--
|
|
|
--
|
|
|
--
|
The
accompanying notes are an integral part of the consolidated financial statements.
Kaanapali
Land, LLC
Notes
to Consolidated Financial Statements
(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 Plan was filed jointly by all Debtors to consolidate each case for joint administration in the Bankruptcy Court in order to
(a) permit the petitioners to present a joint reorganization plan that recognized, among other things, the common indebtedness
of the debtors (i.e. the Certificate of Land Appreciation Notes ("COLAs") and Senior Indebtedness) and (b) facilitate
the overall administration of the bankruptcy proceedings. As indicated in the Plan, Kaanapali Land has elected to be taxable as
a corporation.
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"). During August 2005, pursuant to a motion for entry
of final decree, the bankruptcy cases were closed.
In
accordance with the Plan, approximately 1,793,000 Common Shares were issued all of which remained outstanding at December 31, 2012.
Kaanapali
Land's membership interests are denominated as non par value "Shares" and were originally divided into two classes: the
Class A Shares, which were widely held primarily by non-affiliated persons who had previously held Company indebtedness prior to
the Plan Effective Date and "Class B Shares" which were generally held by affiliates of Kaanapali Land. Pursuant to the
LLC Agreement, the Class A Shares and Class B Shares were automatically redesignated Company Common Shares on November 15, 2007.
Accordingly, the Company's Class A Shares and Class B Shares ceased to exist separately on November 15, 2007.
The
accompanying consolidated financial statements include the accounts of Kaanapali Land and all of its subsidiaries and its predecessor
(collectively, the "Company"), which include KLC Land and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. All references to acres/acreage are unaudited.
The
Company's continuing operations are in two business segments - Agriculture and Property. The Agriculture segment formerly grew
seed corn and soybeans under contract and remains engaged in farming and milling operations relating to the coffee orchards on
behalf of the applicable land owners. The corn and soybean contract expired June 30, 2012. 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. For further information on the Company's business segments see Note 8.
Cash
and Cash Equivalents
The
Company considers as cash equivalents all investments with maturities of three months or less when purchased.
Subsequent
Events
The
Company has performed an evaluation of subsequent events from the date of the financial statements included in this annual report
through the date of its filing with the SEC.
Recently
Issued Accounting Pronouncements
In
January 2010, the FASB issued guidance to improve disclosures about fair value measurements. The Company must provide additional
disclosures regarding transfers in and out of levels 1 and 2, and activity in level 3 fair value measurements. The guidance also
provides clarification regarding levels of disaggregation and disclosures about inputs and valuation techniques for both recurring
and nonrecurring fair value measurements that fall in either level 2 or level 3. The additional disclosure requirements were effective
for the Company beginning January 1, 2010, except for the additional disclosures regarding the roll forward of activity in Level
3 fair value measurements, which were effective January 1, 2011. The adoption of this standard did not have a material effect on
the Company’s consolidated financial statements.
In
June 2011, the FASB issued guidance related to the presentation of comprehensive income, which amends current guidance related
to comprehensive income. This guidance requires entities to present comprehensive income in either (i) one continuous financial
statement or (ii) two separate but consecutive statements that display net income and the components of other comprehensive income.
Totals and individual components of both net income and other comprehensive income are required to be included in either presentation.
The provisions of this guidance were effective for the Company for the first quarter of 2012, and as a result, the Company included
a separate statement.
Land
Development
During
the first quarter of 2006, the Company received final subdivision approval on an approximate 336 acre parcel in the region "mauka"
(toward the mountains) from the main highway serving the area. This project, called Kaanapali Coffee Farms, consists of 51 agricultural
lots, which are currently being offered to individual buyers. The land improvements were completed during 2008. As of December
31, 2012, the Company has closed on the sale of ten lots at Kaanapali Coffee Farms including two in 2012 and two in 2011. The Company
also closed on one lot sale in each of January and February 2013.
Project
costs associated with the development and construction of real estate projects are capitalized and classified as Property, net.
Such capitalized costs are not in excess of the projects' estimated fair value as reviewed periodically or as considered necessary.
In addition, interest, insurance and property tax are capitalized to qualifying assets during the period that such assets are undergoing
activities necessary to prepare them for their intended use.
For
development projects, capitalized costs are allocated using the direct method for expenditures that are specifically associated
with the lot being sold and the relative-sales-value method for expenditures that benefit the entire project.
Recognition
of Profit From Real Property Sales
For
real property sales, profit is recognized in full when the collectability of the sales price is reasonably assured and the earnings
process is virtually complete. When the sale does not meet the requirements for full profit recognition, all or a portion of the
profit is deferred until such requirements are met.
Property
Property
is stated at cost. Depreciation is based on the straight-line method over the estimated economic lives of 15-40 years for the Company's
depreciable land improvements, 3-18 years for machinery and equipment. Maintenance and repairs are charged to operations as incurred.
Significant betterments and improvements are capitalized and depreciated over their estimated useful lives.
Provisions
for impairment losses related to long-lived assets, if any, are recognized when expected future cash flows are less than the carrying
values of the assets. If indicators of impairment are present, the Company evaluates the carrying value of the related long-lived
assets in relationship to the future undiscounted cash flows of the underlying operations or anticipated sales proceeds. The Company
adjusts the net book value of property to fair value if the sum of the expected undiscounted future cash flow or sales proceeds
is less than book value. Assets held for sale are recorded at the lower of the carrying value of the asset or fair value less costs
to sell.
|
2012
|
|
2011
|
Property, net:
|
|
|
|
|
|
Land
|
$
|
91,955
|
|
|
92,662
|
Buildings
|
|
3,688
|
|
|
3,688
|
Machinery and equipment
|
|
3,938
|
|
|
3,852
|
|
|
99,581
|
|
|
100,202
|
Accumulated depreciation
|
|
(4,046)
|
|
|
(3,760)
|
|
|
|
|
|
|
Property, net
|
$
|
95,535
|
|
|
96,442
|
Inventory
of land held for sale of approximately $25,100, $26,000 and $27,100, representing primarily Kaanapali Coffee Farms, was included
in Property, net in the consolidated balance sheets at December 31, 2012, 2011 and 2010, respectively, and is carried at the
lower of cost or net realizable value. Based on current and foreseeable market conditions, discussions with real estate brokers
and review of historical land sale activity (level 2 and 3), the value of the inventory of land held for sale was reduced by $2,500
during the third quarter of 2010 to reflect the land held for sale at the lower of carrying value or fair value less costs to sell,
primarily using a market approach to estimate fair value. The value adjustment is reflected in cost of sales in the consolidated
statements of operations at December 31, 2010. No land is currently in use except for certain Kaanapali 2020 acreage of coffee
trees which are being maintained to support the Company's land development program and miscellaneous parcels of land that have
been leased or licensed to third parties on a short term basis.
The
Company's significant property holdings are on the island of Maui (including approximately 4,000 acres known as Kaanapali 2020,
of which approximately 1,500 acres is classified as conservation land which precludes development). The Company has determined,
based on its current projections for the development and/or disposition of its property holdings, that the property holdings are
not currently recorded in an amount in excess of proceeds that the Company expects that it will ultimately obtain from the operation
and disposition thereof.
Other
Liabilities
Other
liabilities are primarily comprised of reserves for losses, commitments and contingencies related to various divested
assets or operations. These reserves include the estimated effects of certain asbestos related claims, certain lease and
other real estate related guarantees and obligations, obligations related to former officers and employees such as
pension, post-retirement benefits and workmen's compensation, investigation and potential remedial efforts in connection
with environmental matters in the state of Hawaii, and reserves for potential income tax exposure generally associated with
real estate operations. In late 2012, the Company made a final cash payment in settlement of a future real estate
related obligation. As a result, a settlement gain, calculated as the excess of the reserved amount over cash paid, of
approximately $3,000 is recognized as a reduction of selling, general and administrative. Management's
estimates are based, as applicable, on taking into consideration claim amounts filed by third parties, life expectancy of
beneficiaries, advice of consultants, negotiations with claimants, historical settlement experience, the number of new cases
expected to be filed and the likelihood of liability in specific situations. Management periodically reviews the adequacy of
each of its reserve amounts and adjusts such as it determines appropriate to reflect current information. Reference is made
to Note 7, Commitments and Contingencies.
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.
Short-Term
Investments
It
is the Company's policy to classify all of its investments in U.S. Government obligations with original maturities greater than
three months as held-to maturity, as the Company has the ability and intent to hold these investments until their maturity, and
are recorded at amortized cost, which approximates fair value. Prior to maturity in May 2012, the Company held short term investments
consisting of $5,000 of such securities purchased in June 2011.
Income
Taxes
Income
taxes are accounted for under the asset and liability approach which requires recognition of deferred tax assets and liabilities
for the differences between the financial reporting and tax basis of assets and liabilities. A valuation allowance reduces deferred
tax assets when it is more likely than not some portion or all of the deferred tax assets will not be realized. As of December
31, 2012 and 2011, there were no uncertain tax positions that had a material impact on the Company's consolidated financial statements.
(2)
Mortgage Note Payable
Certain
subsidiaries of Kaanapali Land are jointly indebted to Kaanapali Land pursuant to a certain Secured Promissory Note in the principal
amount of $70,000 dated November 14, 2002, and due September 30, 2020, as extended. Such note had an outstanding balance of
principal and accrued interest as of December 31, 2012 and 2011 of approximately $87,000 and $86,100, respectively. The interest
rate currently is 1.19% per annum and compounds semi-annually. The note, which is prepayable, is secured by substantially all of
the remaining real property owned by such subsidiaries, pursuant to a certain Mortgage, Security Agreement and Financing Statement,
dated as of November 14, 2002 and placed on record in December 2002. The note has been eliminated in the consolidated financial
statements because the obligors are consolidated subsidiaries of Kaanapali Land.
(3)
Rental Arrangements
During
2012 and 2011, the Company leased various office spaces with average annual rental of approximately $26 and $27 per year, respectively.
Although the Company was a party to certain other leasing arrangements, none of them were material.
(4)
Employee Benefit Plans
Pension
Plan
As
of December 31, 2012, 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 Pension Plan for Bargaining Unit Employees of Amfac Plantations (the "Pension Plan")
provides benefits based primarily on length of service and career-average compensation levels. Kaanapali Land's policy is to fund
pension costs in accordance with the minimum funding requirements under provisions of the Employee Retirement Income Security Act
("ERISA"). Under such guidelines, amounts funded may be more or less than the pension expense or credit recognized for
financial reporting purposes.
The
Company does not consider the excess assets of the Pension Plan to be a source of liquidity. While under certain circumstances
the Company could seek to use the excess assets to provide such funds, there are substantial costs, including Federal income tax
consequences, in doing so.
FASB
ASC Topic 820, Fair Value Measurements and Disclosures
, establishes a framework for measuring fair value. That framework provides
a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the
lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described as follows:
Level 1
-
|
|
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
|
|
|
|
Level 2
-
|
|
Inputs to the valuation methodology include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in inactive markets; or other inputs that are observable for the asset or liability.
|
|
|
|
Level 3
-
|
|
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The
asset or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that
is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize
unobservable inputs.
Following
is a description of the valuation methodologies used for Pension Plan assets measured at fair value.
--
|
|
Common and Preferred Stock
: Valued at the closing price reported in the active market in which the individual security is traded.
|
|
|
|
--
|
|
Mutual Funds Holding Corporate Notes, Bonds and Debentures
: Valued at the closing price reported in the active market in which the mutual fund is traded.
|
|
|
|
--
|
|
Private Equity Investments and Investment in Partnerships
: Valued at net asset value ("NAV") of shares/ownership units held by the Pension Plan at year-end. NAV represents the Pension Plan's interests in the net assets of these investments which consisted primarily of equity and debt securities, some of which are exchange-traded or valued using independent pricing feeds (i.e. Bloomberg or Reuters) or independent broker quotes.
|
|
|
|
--
|
|
Investment Contract with Insurance Company
: Valued at fair value by recording a Market Value Adjustment to estimate the current market value of fixed income securities held by the insurance company.
|
The
following table sets forth by level, within the fair value hierarchy, the Pension Plan's assets at fair value as of December 31,
2012:
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Common and preferred stocks
|
|
$
|
18,400
|
|
--
|
|
--
|
|
18,400
|
Corporate notes, bonds and debentures
|
|
|
5,600
|
|
--
|
|
--
|
|
5,600
|
Investment in partnerships
|
|
|
100
|
|
17,200
|
|
1,100
|
|
18,400
|
Investments in insurance companies
|
|
|
--
|
|
--
|
|
1,800
|
|
1,800
|
Investments in private equity funds
|
|
|
7,800
|
|
1,900
|
|
7,800
|
|
17,500
|
Cash and cash equivalents
|
|
|
300
|
|
--
|
|
--
|
|
300
|
|
|
|
|
|
|
|
|
|
|
Total
Pension Plan assets
at
fair value
|
|
$
|
32,200
|
|
19,100
|
|
10,700
|
|
62,000
|
The
following table sets forth by level, within the fair value hierarchy, the Pension Plan's assets at fair value as of December 31,
2011:
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Common and preferred stocks
|
|
$
|
14,100
|
|
--
|
|
--
|
|
14,100
|
Corporate notes, bonds and debentures
|
|
|
8,200
|
|
--
|
|
--
|
|
8,200
|
Investment in partnerships
|
|
|
--
|
|
16,400
|
|
1,200
|
|
17,600
|
Investments in insurance companies
|
|
|
--
|
|
--
|
|
1,900
|
|
1,900
|
Investments in private equity funds
|
|
|
9,300
|
|
2,600
|
|
7,200
|
|
19,100
|
Cash and cash equivalents
|
|
|
200
|
|
--
|
|
--
|
|
200
|
|
|
|
|
|
|
|
|
|
|
Total
Pension Plan assets
at
fair value
|
|
$
|
31,800
|
|
19,000
|
|
10,300
|
|
61,100
|
Changes
in Level 3 Investments
The
following table sets forth a summary of changes in fair value of the plan's level 3 assets for the year ended December 31, 2012:
|
|
Investment
in
Insurance
Companies
|
|
Investment
in
Partnerships
|
|
Investment
in
Private
Equity
Funds
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
1,900
|
|
1,200
|
|
7,200
|
|
10,300
|
Net
earned interest and
realized/unrealized
gains
(losses)
|
|
|
200
|
|
200
|
|
600
|
|
1,000
|
Transfers in to Level 3
|
|
|
1,000
|
|
500
|
|
--
|
|
1,500
|
Transfers from Level 3
|
|
|
(1,300)
|
|
(800)
|
|
--
|
|
(2,100)
|
Purchases,
sales, issuances and
settlements
(net)
|
|
|
--
|
|
--
|
|
--
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
1,800
|
|
1,100
|
|
7,800
|
|
10,700
|
The
following table sets forth a summary of changes in fair value of the plan's level 3 assets for the year ended December 31, 2011:
|
|
Investment
in
Insurance
Companies
|
|
Investment
in
Partnerships
|
|
Investment
in
Private
Equity
Funds
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
2,000
|
|
21,900
|
|
9,100
|
|
33,000
|
Net
earned interest and
realized/unrealized
gains
(losses)
|
|
|
100
|
|
--
|
|
100
|
|
200
|
Transfers in to Level 3
|
|
|
1,100
|
|
1,200
|
|
--
|
|
2,300
|
Transfers from Level 3
|
|
|
--
|
|
(21,900)
|
|
(9,000)
|
|
(30,900)
|
Purchases,
sales, issuances and
settlements
(net)
|
|
|
(1,300)
|
|
--
|
|
7,000
|
|
5,700
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
1,900
|
|
1,200
|
|
7,200
|
|
10,300
|
The
following tables summarize the components of the change in pension benefit obligations, plan assets and funded status of the Company's
defined benefit pension plan at December 31, 2012, 2011 and 2010.
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
45,605
|
|
43,771
|
|
42,390
|
Service cost
|
|
|
627
|
|
602
|
|
642
|
Interest cost
|
|
|
1,881
|
|
2,182
|
|
2,378
|
Actuarial (gain) loss
|
|
|
1,660
|
|
2,850
|
|
2,406
|
Benefits paid
|
|
|
(3,959)
|
|
(3,800)
|
|
(4,045)
|
|
|
|
|
|
|
|
|
Accumulated
and projected benefit obligation
at
end of year
|
|
|
45,814
|
|
45,605
|
|
43,771
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
61,090
|
|
66,735
|
|
65,400
|
Actual return on plan assets
|
|
|
4,837
|
|
(1,845)
|
|
5,380
|
Benefits paid
|
|
|
(3,959)
|
|
(3,800)
|
|
(4,045)
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
61,968
|
|
61,090
|
|
66,735
|
|
|
|
|
|
|
|
|
Funded status
|
|
|
16,154
|
|
15,485
|
|
22,964
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial (gain) loss
|
|
|
18,146
|
|
18,238
|
|
10,447
|
Unrecognized prior service cost
|
|
|
31
|
|
35
|
|
1
|
|
|
|
|
|
|
|
|
Prepaid pension cost
|
|
$
|
34,331
|
|
33,758
|
|
33,412
|
At
December 31, 2012, approximately 22% of the plan's assets are invested in equity securities, 29% in fixed income funds, 44% in
alternative strategies and 5% in cash. The allocations are within Company's target allocations in association with the Company's
investment strategy.
The
investment committee for the Pension Plan, acting as the Plan fiduciary, along with its third party fiduciary advisor,
periodically reviews the performance of the Pension Plan’s investments and asset allocation. External investment
managers managed the investments of the Pension Plan.
The
components of the net periodic pension credit for the years ended December 31, 2012, 2011 and 2010 (which are reflected as selling,
general and administrative in the consolidated statements of operations) are as follows:
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
Service costs
|
|
$
|
627
|
|
602
|
|
642
|
Interest cost
|
|
|
1,881
|
|
2,182
|
|
2,378
|
Expected return on plan assets
|
|
|
(4,101)
|
|
(4,065)
|
|
(4,522)
|
Recognized net actuarial loss
|
|
|
1,016
|
|
930
|
|
957
|
Amortization of prior service cost
|
|
|
4
|
|
5
|
|
1
|
|
|
|
|
|
|
|
|
Net periodic pension credit
|
|
$
|
(573)
|
|
(346)
|
|
(544)
|
The
principal weighted average assumptions used to determine the net periodic pension benefit (credit) and the actuarial value of the
accumulated benefit obligation were as follows:
|
|
2012
|
|
2011
|
|
2010
|
As of January 1
,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.37%
|
|
5.24%
|
|
5.77%
|
|
|
|
|
|
|
|
|
Rates of compensation increase
|
|
|
3%
|
|
3%
|
|
3%
|
|
|
|
|
|
|
|
|
Expected long-term rate of return on assets
|
|
|
7.0%
|
|
7.0%
|
|
7.0%
|
|
|
|
|
|
|
|
|
As of December 31
,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate – net periodic pension credit
|
|
|
4.37%
|
|
5.24%
|
|
5.77%
|
|
|
|
|
|
|
|
|
Discount rate – accumulated benefit obligation
|
|
|
3.75%
|
|
4.37%
|
|
5.24%
|
|
|
|
|
|
|
|
|
Rates of compensation increase
|
|
|
3%
|
|
3%
|
|
3%
|
|
|
|
|
|
|
|
|
Expected long-term rate of return on assets
|
|
|
7.0%
|
|
7.0%
|
|
7.0%
|
The
above long-term rates of return were selected based on historical asset returns and expectations of future returns.
The
Company amortizes acturial gains and losses as well as effects of changes in actuarial assumptions and plan
provisions over a period no longer than the average expected mortality of participants in the pension plan.
The
measurement date is December 31, the last day of the corporate fiscal year.
A
comparison of the market value of the Pension Plan's net assets with the present value of the benefit obligations indicates the
Company's ability at a point in time to pay future benefits. The fair value of the Pension Plan's assets available for benefits
will fluctuate.
There
was no contribution required in 2012 to the pension plan. Currently, there are no scheduled payments for future years.
Furthermore, due to ERISA full funding limits, no contribution, whether required or discretionary, could be made and deducted
on the corporation's tax return for the current fiscal year.
The
Company's target asset allocations reflect the Company's investment strategy of maximizing the rate of return on plan assets and
the resulting funded status, within an appropriate level of risk. Plan assets are reviewed and, if necessary, rebalanced in accordance
with target allocation levels once every three months.
The
estimated future benefit payments under the Company's pension plan are as follows (in thousands):
|
|
Amounts
|
|
|
|
|
2013
|
|
$
|
3,657
|
2014
|
|
|
3,479
|
2015
|
|
|
3,324
|
2016
|
|
|
3,201
|
2017
|
|
|
3,065
|
2018-2022
|
|
|
13,843
|
Effect
of a 1% change in the discount rate and salary increase rate for the fiscal years ended December 31, 2012 and 2011:
|
|
2012
Discount
Rate
|
|
2012
Salary
Increase
|
|
2011
Discount
Rate
|
|
2011
Salary
Increase
|
Effect of a 1% increase on:
|
|
|
|
|
|
|
|
|
|
Net periodic pension credit
|
|
$
|
(18)
|
|
1
|
|
(35)
|
|
2
|
Pension
benefit obligation
at
year end
|
|
$
|
(4,287)
|
|
8
|
|
(4,190)
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Effect of a 1% decrease on:
|
|
|
|
|
|
|
|
|
|
Net periodic pension credit
|
|
$
|
8
|
|
(1)
|
|
32
|
|
(1)
|
Pension
benefit obligation
at
year end
|
|
$
|
5,165
|
|
(5)
|
|
5,032
|
|
(6)
|
Effect
of a 1% change in the rate of return on assets for the fiscal year ended December 31, 2012:
|
|
1% Increase
|
|
1% Decrease
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
(585)
|
|
585
|
The
Company recognizes the over funded or under funded status of its employee benefit plans as an asset or liability in its consolidated
statements of financial position and recognizes changes in its funded status in the year in which the changes occur through comprehensive
income. Included in accumulated other comprehensive income at December 31, 2012 and 2011 are the following amounts that have not
yet been recognized in net periodic pension cost: unrecognized prior service costs of $31 ($19, net of tax) and $35 ($21 net of
tax), respectively, and unrecognized actuarial loss of $18,146 ($11,069, net of tax) and $18,238 ($11,125, net of tax), respectively.
The
Company maintains a nonqualified deferred compensation arrangement (the "Rabbi Trust") which provides certain former
directors of Amfac and their spouses with pension benefits. The Rabbi Trust invests in marketable securities and cash equivalents
(Level 1). The deferred compensation liability of approximately $928 represented in the Rabbi Trust and assets funding such deferred
compensation liability of approximately $242 are consolidated in the Company's consolidated balance sheet.
(5) Income
Taxes
The
Company's gross unrecognized tax benefits total approximately $1,372 and $1,367 at December 31, 2012 and 2011,
respectively. The Company's continuing practice is to recognize interest and penalties related to income tax matters in
income tax expense. The Consolidated Balance Sheets at December 31, 2012, 2011 and 2010 include $55, $38 and $49,
respectively, accrued for the potential payment of interest and penalties.
Income
tax expense/(benefit) attributable to income from continuing operations for the years ended December 31, 2012, 2011 and 2010 consists
of:
|
|
Current
|
|
Deferred
|
|
Total
|
Year ended December 31, 2012:
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
--
|
|
574
|
|
574
|
State
|
|
|
--
|
|
64
|
|
64
|
|
|
$
|
--
|
|
638
|
|
638
|
|
|
|
|
|
|
|
|
Year ended December 31, 2011:
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
--
|
|
1,740
|
|
1,740
|
State
|
|
|
--
|
|
193
|
|
193
|
|
|
$
|
--
|
|
1,933
|
|
1,933
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010:
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
--
|
|
(3,236)
|
|
(3,236)
|
State
|
|
|
--
|
|
(359)
|
|
(359)
|
|
|
$
|
--
|
|
(3,595)
|
|
(3,595)
|
Income
tax expense/(benefit) attributable to income from continuing operations differs from the amounts computed by applying the U.S.
federal income tax rate of 35 percent to pretax income from operations as a result of the following:
|
|
2012
|
|
2011
|
|
2010
|
Provision at statutory rate
|
|
$
|
71
|
|
(1,701)
|
|
(2,680)
|
Increase
(reduction) in income taxes resulting from:
|
|
|
|
|
|
|
|
Increase (reduction) in valuation allowance
|
|
|
241
|
|
3,506
|
|
(565)
|
Other, net
|
|
|
326
|
|
128
|
|
(350)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
638
|
|
1,933
|
|
(3,595)
|
During
the year ended December 31, 2012, the Company increased its valuation allowance by $241 due to the uncertainty regarding future
valuation.
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The deferred tax effects of temporary differences at December 31,
2012, 2011 and 2010 are as follows:
|
|
December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Post retirement benefits
|
|
$
|
--
|
|
--
|
|
--
|
Reserves
related primarily to losses
on
divestitures
|
|
|
(5,810)
|
|
(7,682)
|
|
(7,806)
|
Loss carryforwards
|
|
|
(10,030)
|
|
(8,147)
|
|
(6,642)
|
Tax credit carryforwards
|
|
|
(2,777)
|
|
(2,777)
|
|
(2,777)
|
Other, net
|
|
|
(892)
|
|
(1,140)
|
|
(1,129)
|
Total deferred tax assets
|
|
|
(19,509)
|
|
(19,746)
|
|
(18,353)
|
Less – valuation allowance
|
|
|
13,165
|
|
12,924
|
|
(9,418)
|
Total deferred tax assets
|
|
|
(6,344)
|
|
(6,822)
|
|
(8,935)
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Property,
plant and equipment, principally
due
to purchase accounting adjustments,
net
of impairment charges
|
|
|
18,183
|
|
18,264
|
|
18,568
|
Prepaid pension costs
|
|
|
7,094
|
|
6,833
|
|
9,750
|
Total deferred tax liabilities
|
|
|
25,277
|
|
25,097
|
|
28,318
|
Net deferred tax liability
|
|
$
|
18,933
|
|
18,275
|
|
19,383
|
The
Company at December 31, 2012 has net operating loss carryforwards ("NOLs") of approximately $44,000 for state income
tax purposes which can be used to offset taxable income, if any, in future years. Federal NOLs of approximately $23,600 originated
in 2006 and later years, and the state NOLs began to expire in 2010.
Federal
tax return examinations have been completed for all years through 2005. The statutes of limitations with respect to the Company's
taxes for 2009 and subsequent years remain open, subject to possible utilization of loss carryforwards from earlier years. The
Company believes adequate provisions for income tax have been recorded for all years, although there can be no assurance that such
provisions will be adequate. To the extent that there is a shortfall, any such shortfall for which the Company may be liable could
be material.
(6) Transactions
with Affiliates
An
affiliated insurance agency, JMB Insurance Agency, Inc., 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 such affiliate insurance agency in similar dealings with unaffiliated third parties.
The total of such commissions for the years ended December 31, 2012, 2011 and 2010 was approximately $20, $21 and $29, respectively,
all of which was paid as of December 31, 2012.
The
Company reimburses their affiliates for general overhead expense and 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, 900 Financial Management Services, LLC, and JMB Financial Advisors, LLC, during 2012.
The total costs recorded in cost of sales and selling, general and administrative expenses in the consolidated statement of operations
for the years ended 2012, 2011 and 2010 were approximately $1,517, $2,476 and $2,471, respectively, of which approximately $125
was unpaid as of December 31, 2012.
(7) Commitments
and Contingencies
At
December 31, 2012, the Company has no principal contractual obligations related to the land improvements in conjunction with Phase
I of the Kaanapali Coffee Farms project.
Material
legal proceedings of the Company are described below. Unless otherwise noted, the parties adverse to the Company in the legal proceedings
described below have not made a claim for damages in a liquidated amount and/or the Company believes that it would be speculative
to attempt to determine the Company's exposure relative thereto, and as a consequence believes that an estimate of the range of
potential loss cannot be made. Those proceedings could continue since the Plan Effective Date had occurred so long as the plaintiffs
therein filed timely claims under the Plan. However, any judgments rendered therein were subject to the distribution provisions
of the Plan, which resulted in the entitlement of such claims to proceeds that were 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. All other claims have been satisfied.
Proceedings against subsidiaries or affiliates of Kaanapali Land that are not Debtors were not stayed by the Plan and were permitted
to proceed. However, two such subsidiaries, Oahu Sugar and D/C, filed subsequent petitions for liquidation under Chapter 7
of the Bankruptcy Code in April 2005 and July 2007, respectively, as described below.
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 that indicated that additional testing may be
required. Oahu Sugar responded to these comments with additional information. On January 9, 2004, EPA issued a request to Oahu
Sugar seeking information related to the actual or threatened release of hazardous substances, pollutants and contaminants at the
Waipio Peninsula portion of the Pearl Harbor Naval Complex National Priorities List Superfund Site. The request sought, among other
things, information relating to the ability of Oahu Sugar to pay for or perform a clean up of the land formerly occupied by Oahu
Sugar. Oahu Sugar responded to the information requests and had notified both the Navy and the EPA that while it had some modest
remaining cash that it could contribute to further investigation and remediation efforts in connection with an overall settlement
of the outstanding claims, Oahu Sugar was substantially without assets and would be unable to make a significant contribution to
such an effort. Attempts at negotiating such a settlement were fruitless and Oahu Sugar received an order from EPA in March 2005
that 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.
Therefore,
as a result of the pursuit of further action by the HDOH and EPA as described above and the immediate material adverse effect that
the actions had on the financial condition of Oahu Sugar, Oahu Sugar filed with the United States Bankruptcy Court, Northern District
of Illinois, Eastern Division its voluntary petition for liquidation under Chapter 7 of Title 11, United States Bankruptcy
Code. Such filing is not expected to have a material adverse effect on the Company as Oahu Sugar was substantially without assets
at the time of the filing. While it is not believed that any other affiliates have any responsibility for the debts of Oahu Sugar,
the EPA has indicated that it intends to make a claim against Kaanapali Land as further described below, and therefore, there can
be no assurance that the Company will not incur significant costs in 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 $224,000, primarily relating to unpaid guarantee
obligations made by Oahu Sugar that were assigned to Kaanapali Land pursuant to the Plan on the Plan Effective Date. In addition,
the EPA and the U.S. Navy filed a joint proof of claim that seeks to recover certain environmental response costs relative to the
Waipio Peninsula site discussed above. The proof of claim contained a demand for previously spent costs in the amount of approximately
$260, and additional anticipated response costs of between approximately $2,760 and $11,450. No specific justification of these
costs, or what they are purported to represent, was included in the EPA/Navy proof of claim. Due to the insignificant amount of
assets remaining in the debtor's estate, it is unclear whether the United States Trustee who has taken control of Oahu Sugar will
take any action to contest the EPA/Navy claim, or how it will reconcile such claim for the purpose of distributing any remaining
assets of Oahu Sugar.
EPA
has sent three requests for information to Kaanapali Land regarding, among other things, Kaanapali Land's organization and relationship,
if any, to entities that may have, historically, operated on the site and with respect to operations conducted on the site. Kaanapali
Land responded to these requests for information. By letter dated February 7, 2007, pursuant to an allegation that Kaanapali
Land is a successor to Oahu Sugar Company, Limited, a company that operated at the site prior to 1961 ("Old Oahu"), EPA
advised Kaanapali that it believes it is authorized by CERCLA to amend the existing Unilateral Administrative Order against Oahu
Sugar Company, LLC, for the clean up of the site to include Kaanapali Land as an additional respondent. The purported basis for
the EPA's position is that Kaanapali Land, by virtue of certain corporate actions, is jointly and severally responsible for the
performance of the response actions, including, without limitation, clean-up at the site. No such amendment has taken place as
of the date hereof. Instead, after a series of discussions between Kaanapali and the EPA, on or about September 30, 2009,
the EPA issued a Unilateral Administrative Order to Kaanapali Land for the performance of work in support of a removal action at
the former Oahu Sugar pesticide mixing site located on Waipio peninsula. The work consists of the performance of soil and groundwater
sampling and analysis, a topographic survey, and the preparation of an engineering evaluation and cost analysis of potential removal
actions to abate an alleged "imminent and substantial endangerment" to public health, welfare or the environment. The
order appears to be further predicated primarily on the alleged connection of Kaanapali Land to Old Oahu and its activities on
the site. Kaanapali Land is currently performing work, including the conduct of sampling at the site, required by the order while
reserving its rights to contest liability regarding the site. With regard to liability for the site, Kaanapali Land believes that
its liability, if any, should relate solely to a portion of the period of operation of Old Oahu at the site, although in some circumstances
CERCLA apparently permits imposition of joint and several liability, which can exceed a responsible party's equitable share. Kaanapali
Land believes that the U.S. Navy bears substantial liability for the site by virtue of its ownership of the site throughout the
entire relevant period, both as landlord under its various leases with Oahu Sugar and Old Oahu and by operating and intensively
utilizing the site directly during a period when no lease was in force. The Company believes that the cost of the work as set forth
in the order will not be material to the Company as a whole; however, in the event that the EPA were to issue an order requiring
remediation of the site, there can be no assurances that the cost of said remediation would not ultimately have a material adverse
effect on the Company. In addition, if there is litigation regarding the site, there can be no assurance that the cost of such
litigation will not be material or that such litigation will result in a judgment in favor of the Company.
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 only a few such cases that name Kaanapali Land, there are a substantial number of cases
that are pending against D/C on the U.S. mainland (primarily in California). Cases against Kaanapali Land are allegedly based on
its prior business operations in Hawaii and cases against D/C are allegedly based on sale of asbestos-containing products by D/C's
prior distribution business operations primarily in California. Each entity defending these cases believes that it has meritorious
defenses against these actions, but can give no assurances as to the ultimate outcome of these cases. The defense of these cases
has had a material adverse effect on the financial condition of D/C as it has been forced to file a voluntary petition for liquidation
as discussed below. Kaanapali Land does not believe that it has liability, directly or indirectly, for D/C's obligations in those
cases. Kaanapali Land does not presently believe that the cases in which it is named will result in any material liability to Kaanapali
Land; however, there can be no assurance in the regard.
On
February 15, 2005, D/C was served with a lawsuit entitled American & Foreign Insurance Company v. D/C Distribution and Amfac
Corporation, Case No. 04433669 filed in the Superior Court of the State of California for the County of San Francisco, Central
Justice Center. No other purported party was served. In the eight-count complaint for declaratory relief, reimbursement and recoupment
of unspecified amounts, costs and for such other relief as the court might grant, plaintiff alleged that it is an insurance company
to whom D/C tendered for defense and indemnity various personal injury lawsuits allegedly based on exposure to asbestos containing
products. Plaintiff alleged that because none of the parties have been able to produce a copy of the policy or policies in question,
a judicial determination of the material terms of the missing policy or policies is needed. Plaintiff sought, among other things,
a declaration: of the material terms, rights, and obligations of the parties under the terms of the policy or policies; that the
policies were exhausted; that plaintiff is not obligated to reimburse D/C for its attorneys' fees in that the amounts of attorneys'
fees incurred by D/C have been incurred unreasonably; that plaintiff was entitled to recoupment and reimbursement of some or all
of the amounts it has paid for defense and/or indemnity; and that D/C breached its obligation of cooperation with plaintiff. D/C
filed an answer and an amended cross-claim. D/C believed that it had meritorious defenses and positions, and intended to vigorously
defend. In addition, D/C believed that it was entitled to amounts from plaintiffs for reimbursement and recoupment of amounts expended
by D/C on the lawsuits previously tendered. In order to fund such action and its other ongoing obligations while such lawsuit continued,
D/C entered into a Loan Agreement and Security Agreement with Kaanapali Land, in August 2006, whereby Kaanapali Land provided certain
advances against a promissory note delivered by D/C in return for a security interest in any D/C insurance policy at issue in this
lawsuit. In June 2007, the parties settled this lawsuit with payment by plaintiffs in the amount of $1,618. Such settlement amount
was paid to Kaanapali Land in partial satisfaction of the secured indebtedness noted above.
Because
D/C was substantially without assets and was unable to obtain additional sources of capital to satisfy its liabilities, D/C filed
with the United States Bankruptcy Court, Northern District of Illinois, its voluntary petition for liquidation under Chapter 7
of Title 11, United States Bankruptcy Code during July 2007, Case No. 07-12776. Such filing is not expected to have a material
adverse effect on the Company as D/C was substantially without assets at the time of the filing. The deadline for filing proofs
of claims against D/C with the bankruptcy court passed in October 2008. Prior to the deadline, Kaanapali Land filed claims that
aggregated approximately $26,800, relating to both secured and unsecured intercompany debts owed by D/C to Kaanapali Land. In addition,
a personal injury law firm based in San Francisco that represents clients with asbestos-related claims, filed proofs of claim on
behalf of approximately 700 claimants. While it is not likely that a significant number of these claimants have a claim against
D/C that could withstand a vigorous defense, it is unknown how the trustee will deal with these claims. It is not expected, however,
that the Company will receive any material additional amounts in the liquidation of D/C.
On
or about February 13, 2013, PM Land Company received demand to mediate a dispute arising in connection with the sale of lot in
the Kaanapali Coffee Farms subdivision. PM Land currently retains the sum of $450,000 as a result of the sale to the claimants
that did not proceed to closing. Claimants seek, among other things, cancellation of the contract, the return of the amounts of
money still on deposit, treble damages, attorneys’ fees and costs. PM Land Company is contemplating a mediation of this matter
in an attempt to determine if this dispute can be resolved, amicably. In the event this matter cannot be resolved amicably, claimants
may proceed to file an arbitration demand. If claimants file a demand for arbitration or some other process, PM Land Company intends
to defend itself, vigorously. While it cannot be assured, it is not anticipated that the amounts obtained in any such an arbitration
or other venue, if successful, would have a material adverse effect on the Company.
The
Company has received notice from 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 January 2013. To date, the DNLR
has cited certain maintenance deficiencies concerning two of the Company’s reservoirs, relating to, among other things, overgrowth
that could impact the inspection process, degrade the integrity of the reservoir slopes and impact drainage; leak detection; and
erosion control. The DLNR has required vegetative clean-up and the Company’s plans for future maintenance, inspections, and
emergency response. The Company has taken certain corrective actions and submitted revisions to its emergency action plans for
both of its reservoirs in accordance with revised DLNR requirements. The January 2013 DLNR inspection reports relate to visual
dam safety inspections of the Company’s reservoirs and contain a list of certain deficiencies, recommendations, and actions.
The Company continues its analysis with respect to various items noted in the most recent inspection reports received from DLNR
in April 2011 and January 2013, including certain findings and corrective actions noted therein.
The
DLNR categorizes each of the reservoirs as "high hazard" under State of Hawaii Administrative Rules and State Statutes
concerning dam and reservoir safety. This classification, which bears upon government oversight and reporting requirements, may
increase the cost of managing and maintaining these reservoirs in a material manner. The Company does not believe that this classification
is warranted for either of these reservoirs and has initiated a dialogue with DLNR in that regard. In April 2008, the Company received
further correspondence from DLNR that included the assessment by their consultants of the potential losses that result from the
failure of these reservoirs. In April 2009, the Company filed a written response to DLNR to correct certain factual errors in its
report and to request further analysis on whether such "high hazard" classifications are warranted. The Company and DLNR
continue to engage in dialogue concerning these matters (which have included further site visits by DLNR personnel).
In
2012, the state issued new Hawaii Administrative Rules for Dams and Reservoirs which require dam owners to obtain Certificates
of Impoundment (“permits”) to operate and maintain dams. Obtaining such permits may involve further analysis of dam
safety requirements which could result in significant and costly improvements which may be material to the Company.
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.
(8) Business
Segment Information
As
described in Note 1, the Company operates in two business segments. Total revenues, operating profit, identifiable assets, capital
expenditures, and depreciation and amortization by business segment are presented in the tables below. The $2,500 impairment charge
for 2010 is shown in the Property segment.
Total
revenues by business segment include primarily (i) sales, all of which are to unaffiliated customers and (ii) interest income that
is earned from outside sources on assets which are included in the individual industry segment's identifiable assets.
Operating
income (loss) is comprised of total revenue less operating expenses. In computing operating income (loss), none of the following
items have been added or deducted: general corporate revenues and expenses, interest expense and income taxes.
Identifiable
assets by business segment are those assets that are used in the Company's operations in each industry. Corporate assets consist
principally of cash and cash equivalents, prepaid pension costs and receivables related to previously divested businesses.
|
|
2012
|
|
2011
|
|
2010
|
Revenues:
|
|
|
|
|
|
|
|
Property
|
|
$
|
3,044
|
|
2,562
|
|
1,450
|
Agriculture
|
|
|
2,073
|
|
2,877
|
|
2,201
|
Corporate
|
|
|
23
|
|
54
|
|
486
|
|
|
$
|
5,140
|
|
5,493
|
|
4,137
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
Property
|
|
$
|
(152)
|
|
(1,470)
|
|
(3,885)
|
Agriculture
|
|
|
(677)
|
|
(204)
|
|
926
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(829)
|
|
(1,674)
|
|
(2,959)
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
1,049
|
|
(3,196)
|
|
(4,728)
|
|
|
|
|
|
|
|
|
Operating
income (loss) from continuing
operations
before income taxes
|
|
$
|
220
|
|
(4,870)
|
|
(7,687)
|
|
|
|
|
|
|
|
|
Identifiable Assets:
|
|
|
|
|
|
|
|
Property
|
|
$
|
41,483
|
|
41,570
|
|
43,131
|
Agriculture
|
|
|
57,026
|
|
56,811
|
|
56,374
|
|
|
|
|
|
|
|
|
|
|
|
98,509
|
|
98,381
|
|
99,505
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
28,380
|
|
34,401
|
|
45,192
|
|
|
|
|
|
|
|
|
|
|
$
|
126,889
|
|
132,782
|
|
144,697
|
The
Company’s property segment consists primarily of revenue received from land sales and lease and licensing agreements.
The
Company’s agricultural segment currently consists of coffee operations. Seed corn operations formerly were under a contract
with Monsanto Seed Company which expired June 30, 2012.
The
Company is exploring alternative agricultural operations, but there can be no assurance that replacement operations at any level
will result.
Agricultural
identified assets include land classified as agricultural or conservation for State and County purposes.
|
|
2012
|
|
2011
|
|
2010
|
Capital Expenditures:
|
|
|
|
|
|
|
|
Property
|
|
$
|
251
|
|
505
|
|
651
|
Agriculture
|
|
|
173
|
|
273
|
|
167
|
Corporate
|
|
|
--
|
|
--
|
|
--
|
|
|
$
|
424
|
|
778
|
|
818
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
Property
|
|
$
|
61
|
|
75
|
|
91
|
Agriculture
|
|
|
225
|
|
201
|
|
211
|
Total
|
|
$
|
286
|
|
276
|
|
302
|
(9) Calculation
of Net Income Per Share
The
following tables set forth the computation of net income (loss) per share - basic and diluted:
|
|
Year
Ended
December
31,
2012
|
|
Year
Ended
December
31,
2011
|
|
Year
Ended
December
31,
2010
|
|
|
(Amounts in thousands except per share amounts)
|
Numerator:
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(418)
|
|
(6,803)
|
|
(4,092)
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Number of weighted average shares outstanding
|
|
|
1,845
|
|
1,845
|
|
1,845
|
|
|
|
|
|
|
|
|
Net income (loss) per share – basic and diluted
|
|
$
|
(0.23)
|
|
(3.69)
|
|
(2.22)
|
As
of December 31, 2012, the Company had issued and outstanding 1,792,613 Shares and 52,000 Class C Shares. The LLC Agreement initially
provided for two classes of membership interests, Class A Shares and Class B Shares, which had substantially identical rights
and economic value under the LLC Agreement; except that holders of Class A Shares were represented by a "Class A Representative"
who was required to approve certain transactions proposed by Kaanapali Land before they could be undertaken. Class B Shares were
held by Pacific Trail and various entities and individuals that are affiliated with Pacific Trail. Class A Shares were issued under
the Plan to claimants who had no such affiliation. Pursuant to the LLC Agreement, the Class A Shares and Class B Shares were automatically
redesignated as Common Shares on November 15, 2007. Accordingly, the Company's Class A Shares and Class B Shares ceased to
exist separately on November 15, 2007.
(10) Supplementary
Quarterly Data (Unaudited)
|
|
2012
|
|
|
At 3/31
|
|
At 6/30
|
|
At 9/30
|
|
At 12/31
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,121
|
|
1,282
|
|
1,276
|
|
1,461
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(835)
|
|
(409)
|
|
(635)
|
|
1,461
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per Share –
basic
and diluted
|
|
$
|
(0.45)
|
|
(0.22)
|
|
(0.35)
|
|
0.79
|
|
|
2011
|
|
|
At 3/31
|
|
At 6/30
|
|
At 9/30
|
|
At 12/31
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
2,286
|
|
1,253
|
|
998
|
|
956
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(87)
|
|
(872)
|
|
(687)
|
|
(5,157)
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per Share –
basic
and diluted
|
|
$
|
(0.05)
|
|
(0.47)
|
|
(0.37)
|
|
(2.80)
|
|
|
2010
|
|
|
At 3/31
|
|
At 6/30
|
|
At 9/30
|
|
At 12/31
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,058
|
|
1,160
|
|
1,140
|
|
779
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,572)
|
|
673
|
|
(3,383)
|
|
190
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per Share –
basic
and diluted
|
|
$
|
(0.85)
|
|
0.36
|
|
(1.83)
|
|
0.10
|