Item 8. Financial Statements and Supplementary
Data
Kaanapali Land, LLC
Index
Report of Independent Registered Public Accounting
Firm (PCAOB ID Number 248)
Consolidated Balance Sheets, December 31, 2021
and 2020
Consolidated Statements of Operations for the
years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Comprehensive Income
(Loss) for the years ended December 31, 2021,
2020 and 2019
Consolidated Statements of Equity for the years
ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the
years ended December 31, 2021, 2020 and 2019
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
Opinion on the financial statements
We have audited the accompanying consolidated balance
sheets of Kaanapali Land, LLC (a Delaware limited liability company) and subsidiaries (the “Company”) as of December 31, 2021
and 2020, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three
years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021,
in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal
control over financial reporting 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.
Our audits included performing procedures to assess the
risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
The critical audit matter communicated below is a matter
arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee
and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
Asbestos Loss Contingencies
As described further in note 7
to the consolidated financial statements, the Company, as successor by merger to other entities, and D/C Distribution Corporation (“D/C”)
have been named as defendants in personal injury actions allegedly based on exposure to asbestos. Cases are allegedly based on 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 the state of California.
The Company has recognized loss contingencies related
to these claims, which are included in other liabilities in the consolidated balance sheet as of December 31, 2021. We identified these
asbestos loss contingencies as a critical audit matter.
The principal considerations for our determination that
asbestos loss contingencies represent a critical audit matter are (i) the substantial use of estimates that involve significant measurement
uncertainty and (ii) the significant auditor subjectivity involved in evaluating the reasonableness of the related judgments.
Our audit procedures related to the these asbestos loss contingencies
included the following, among others:
| · | We evaluated the design of controls
relating to accounting for contingencies, including the Company’s ability to develop the estimates utilized in recognizing the related
liabilities. |
| · | We inspected summary reports
of actual claims prepared by third party law firms involved in these matters, and recomputed expected aggregate settlement amounts based
on settlement averages and number of plaintiffs. |
| · | We recomputed the aggregate
amount accrued for expected but not reported claims based on settlement averages, expected number of annual future claims, and estimated
market discount rate. We also evaluated the reasonableness of expected future claims based on past claim settlement data, estimated market
discount rate, and other factors. |
| · | We inspected settlement agreements
and cash disbursement evidence on a sample basis and agreed amounts to the analyses referenced above. |
| · | We inspected confirmation letters
received directly from third party law firms as well as Company internal counsel involved in these matters, assessing responses for consistency
and corroboration with the Company’s accounting treatment and related disclosures. |
/s/ GRANT THORNTON LLP
We have served as the Company’s
auditor since 2015.
Chicago, Illinois
March 30, 2022
Kaanapali Land, LLC
Consolidated Balance Sheets
December 31, 2021 and 2020
(Dollars in Thousands, except share data)
|
|
|
|
|
|
|
2021 |
|
2020 |
Assets |
Cash and cash equivalents |
$ |
16,997 |
|
$ |
17,715 |
Restricted cash |
|
840 |
|
|
902 |
Property, net |
|
62,091 |
|
|
62,660 |
Pension plan assets |
|
19,946 |
|
|
17,531 |
Other assets |
|
7,322 |
|
|
3,340 |
Total assets |
$ |
107,196 |
|
$ |
102,148 |
|
|
|
|
|
|
Liabilities |
Accounts payable and accrued expenses |
$ |
365 |
|
$ |
742 |
Deposits and deferred gains |
|
1,737 |
|
|
1,987 |
Deferred income taxes |
|
9,927 |
|
|
9,101 |
Other liabilities |
|
14,958 |
|
|
11,799 |
|
|
|
|
|
|
Total liabilities |
|
26,987 |
|
|
23,629 |
|
|
|
|
|
|
Commitments and contingencies (Note 7) |
|
|
|
|
|
|
|
|
|
|
|
Equity |
Common stock, at 12/31/21 and 12/31/20
Shares authorized – unlimited, Class C shares
52,000; shares
issued and outstanding 1,792,613
in 2021 and
2020, Class C shares issued and
outstanding
52,000 in 2021 and 2020 |
|
-- |
|
|
-- |
Additional paid-in capital |
|
5,471 |
|
|
5,471 |
Accumulated other comprehensive income (loss),
net of tax |
|
2,298 |
|
|
946 |
Accumulated earnings |
|
71,698 |
|
|
71,440 |
|
|
|
|
|
|
Stockholders’ equity |
|
79,467 |
|
|
77,857 |
|
|
|
|
|
|
Non-controlling interests |
|
742 |
|
|
662 |
|
|
|
|
|
|
Total equity |
|
80,209 |
|
|
78,519 |
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
$ |
107,196 |
|
$ |
102,148 |
The accompanying notes are an integral part of
the consolidated financial statements.
Kaanapali Land, LLC
Consolidated Statements of Operations
Years ended December 31, 2021, 2020 and 2019
(Dollars in Thousands except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
2021 |
|
2020 |
|
2019 |
Revenues: |
|
|
|
|
|
|
|
|
Sales |
$ |
4,576 |
|
$ |
2,638 |
|
$ |
3,815 |
Interest and other income |
|
177 |
|
|
715 |
|
|
369 |
|
|
4,753 |
|
|
3,353 |
|
|
4,184 |
|
|
|
|
|
|
|
|
|
Cost and expenses: |
|
|
|
|
|
|
|
|
Cost of sales |
|
5,217 |
|
|
4,461 |
|
|
4,471 |
Selling, general and administrative |
|
(777) |
|
|
4,132 |
|
|
4,564 |
Depreciation and amortization |
|
269 |
|
|
218 |
|
|
201 |
|
|
4,709 |
|
|
8,811 |
|
|
9,236 |
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
|
(350) |
|
|
959 |
|
|
1,182 |
|
|
|
|
|
|
|
|
|
Net
loss |
|
(306) |
|
|
(4,499) |
|
|
(3,870) |
|
|
|
|
|
|
|
|
|
Less: Net loss attributable to
non-controlling
interests |
|
(551) |
|
|
(759) |
|
|
(243) |
|
|
|
|
|
|
|
|
|
Net loss attributable to stockholders |
$ |
245 |
|
$ |
(3,740) |
|
$ |
(3,627) |
|
|
|
|
|
|
|
|
|
Net
income (loss) per share – basic and diluted |
$ |
0.13 |
|
$ |
(2.03) |
|
$ |
(1.97) |
The accompanying notes are an integral part of
the consolidated financial statements.
Kaanapali Land, LLC
Consolidated Statements of Comprehensive Income
(Loss)
Years ended December 31, 2021, 2020 and 2019
(Dollars in Thousands except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
2021 |
|
2020 |
|
2019 |
|
|
|
|
|
|
|
|
|
Net loss |
$ |
(306) |
|
$ |
(4,499) |
|
$ |
(3,870) |
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Net unrealized gains on pension plan assets |
|
1,827 |
|
|
1,601 |
|
|
1,844 |
|
|
|
|
|
|
|
|
|
Income tax expense related to
items of other comprehensive income |
|
(475) |
|
|
(416) |
|
|
(480) |
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax |
|
1,352 |
|
|
1,185 |
|
|
1,364 |
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
1,046 |
|
|
(3,314) |
|
|
(2,506) |
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to
non-controlling interests |
|
(551) |
|
|
(759) |
|
|
(243) |
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to
stockholders |
$ |
1,597 |
|
$ |
(2,555) |
|
$ |
(2,263) |
The accompanying notes are an integral part of
the consolidated financial statements.
Kaanapali Land, LLC
Consolidated Statements of Equity
Years ended December 31, 2021, 2020 and 2019
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock |
|
Additional
Paid-In
Capital |
|
Accumu-
lated
(Deficit)
Earnings |
|
Accumu-
lated
Other
Compre-
hensive
Income/
(Loss) |
|
Total
Stock-
holders’
Equity |
|
Non
Controlling
Interests |
|
Total
Equity |
Balance, December 31, 2018 |
|
|
$ -- |
|
$ |
5,471 |
|
$ |
78,792 |
|
$ |
(1,603) |
|
$ |
82,660 |
|
$ |
894 |
|
$ |
83,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of consolidat-
ing Kaanapali
Coffee Farms
Lot Owners’
Association |
|
|
-- |
|
|
-- |
|
|
8 |
|
|
-- |
|
|
8 |
|
|
410 |
|
|
418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income, net of tax |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
1,364 |
|
|
1,364 |
|
|
-- |
|
|
1,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
-- |
|
|
-- |
|
|
(3,627) |
|
|
-- |
|
|
(3,627) |
|
|
(243) |
|
|
(3,870) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019 |
|
|
-- |
|
|
5,471 |
|
|
75,173 |
|
|
(239) |
|
|
80,405 |
|
|
1,061 |
|
|
81,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of consolidat-
ing Kaanapali
Coffee Farms
Lot Owners’
Association |
|
|
-- |
|
|
-- |
|
|
7 |
|
|
-- |
|
|
7 |
|
|
360 |
|
|
367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income, net of tax |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
1,185 |
|
|
1,185 |
|
|
-- |
|
|
1,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
-- |
|
|
-- |
|
|
(3,740) |
|
|
-- |
|
|
(3,740) |
|
|
(759) |
|
|
(4,499) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020 |
|
|
-- |
|
|
5,471 |
|
|
71,440 |
|
|
946 |
|
|
77,857 |
|
|
662 |
|
|
78,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of consolidat-
ing Kaanapali
Coffee Farms
Lot Owners’
Association |
|
|
-- |
|
|
-- |
|
|
13 |
|
|
-- |
|
|
13 |
|
|
631 |
|
|
644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income, net of tax |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
1,352 |
|
|
1,352 |
|
|
-- |
|
|
1,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
-- |
|
|
-- |
|
|
245 |
|
|
-- |
|
|
245 |
|
|
(551) |
|
|
(306) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2021 |
|
|
$
-- |
|
$ |
5,471 |
|
$ |
71,698 |
|
$ |
2,298 |
|
$ |
79,467 |
|
$ |
742 |
|
$ |
80,209 |
The accompanying notes are an integral part of
the consolidated financial statements.
Kaanapali Land, LLC
Consolidated Statements of Cash Flows
Years ended December 31, 2021, 2020 and 2019
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
2021 |
|
2020 |
|
2019 |
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
$ |
(306) |
|
$ |
(4,499) |
|
$ |
(3,870) |
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Proceeds from property sales |
|
1,040 |
|
|
-- |
|
|
-- |
Gain on property sales |
|
(303) |
|
|
-- |
|
|
-- |
Net periodic pension cost (credit) |
|
(588) |
|
|
(421) |
|
|
306 |
Depreciation and amortization |
|
269 |
|
|
218 |
|
|
201 |
Deferred income tax
benefit |
|
350 |
|
|
(959) |
|
|
(1,182) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Other assets |
|
(3,982) |
|
|
763 |
|
|
(151) |
Accounts payable, accrued expenses, deposits,
deferred
gains and other |
|
2,532 |
|
|
(520) |
|
|
(141) |
Net cash used in operating activities |
|
(988) |
|
|
(5,418) |
|
|
(4,837) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Property additions |
|
(436) |
|
|
(680) |
|
|
(641) |
Net cash used in investing activities |
|
(436) |
|
|
(680) |
|
|
(641) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Contributions |
|
644 |
|
|
471 |
|
|
418 |
Distributions |
|
-- |
|
|
(104) |
|
|
-- |
Net cash provided by financing activities |
|
644 |
|
|
367 |
|
|
418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
(780) |
|
|
(5,731) |
|
|
(5,060) |
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and restricted cash
at
beginning of year |
|
18,617 |
|
|
24,348 |
|
|
29,408 |
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and restricted cash
at
end of year |
$ |
17,837 |
|
$ |
18,617 |
|
$ |
24,348 |
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.
There are 1,792,613 Common
Shares and 52,000 Class C Shares issued, all of which are outstanding at December 31, 2021.
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. The Kaanapali Coffee Farms Lot Owners’ Association is consolidated into
the accompanying consolidated financial statements. The interests of third party owners are reflected as non-controlling interests. All
significant intercompany transactions and balances have been eliminated in consolidation.
The Company's continuing
operations are in two business segments - Agriculture and Property. The Agriculture segment remains engaged in farming, harvesting and
milling operations relating to coffee orchards on behalf of the applicable land owners. The Company also cultivates, harvests and sells
bananas and citrus fruits and engages in certain ranching operations. The Property segment primarily develops land for sale and negotiates
bulk sales of undeveloped land. The Property and Agriculture segments operate exclusively in the State of Hawaii. 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. Included in this balance as of December 31,
2021 is a money market fund for $9,400 that is considered to be a Level 1 investment. The Company’s cash balances are maintained
primarily in two financial institutions. Restricted cash represents cash held by the Kaanapali Coffee Farms Lot Owners’ Association.
Such balances significantly exceed the Federal Deposit Insurance Corporation insurance limits. Management does not believe the Company
is exposed to significant risk of loss on cash and cash equivalents.
Revenue Recognition
Revenue from real property
sales is recognized at the time of closing when control of the property transfers to the customer. After closing of the sale transaction,
the Company has no remaining performance obligation.
Other revenues are recognized
when control of goods or services transfers to the customers, in the amount that the Company expects to receive for the transfer of goods
or provision of services.
Revenue recognition standards
require entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled to receive in exchange. The revenue recognition standards have implications for
all revenues, excluding those that are under the specific scope of other accounting standards.
The Company’s revenues
that were subject to revenue recognition standards for the years ended December 31, 2021, 2020 and 2019, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
2021 |
|
2020 |
|
2019 |
Sales of real estate |
|
$ |
1,040 |
|
$ |
-- |
|
$ |
-- |
Coffee and other crop sales |
|
|
2,557 |
|
|
1,873 |
|
|
2,909 |
Total |
|
$ |
3,597 |
|
$ |
1,873 |
|
$ |
2,909 |
The revenue recognition standards
require the use of a five-step model to recognize revenue from customer contracts. The five-step model requires that the Company
(i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction
price, including variable consideration to the extent that it is probable that a significant future reversal will not occur,
(iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as)
the Company satisfies the performance obligation.
Lease Accounting
In February 2016, the Financial
Accounting Standards Board (“FASB”) updated Accounting Standards Codification (“ASC”) Topic 842 Leases (ASU 2016-02).
Accounting Standards Update (“ASU”) 2016-02 requires lessees to record operating and financing leases as assets and liabilities
on the balance sheet and lessors to expense costs that are not direct leasing costs. Subsequently, the FASB issued additional ASUs that
further clarified the original ASU. The ASUs became effective for the Company on January 1, 2019. Upon adoption of the lease ASUs,
the Company elected the practical expedients allowable under the ASUs, which included the optional transition method permitting January
1, 2019 to be its initial application date. The adoption of this guidance did not result in an adjustment to retained earnings. Additionally,
the Company elected the package of practical expedients, which permits the Company not to reassess expired or existing contracts continuing
a lease, the lease classification for expired or existing contracts, and initial direct costs for any existing leases. Further, the Company
elected the practical expedient regarding short-term leases, which allows lessees to elect not to apply the balance sheet recognition
requirements in ASC 842 to short-term leases. Finally, under ASC 842, lessors are required to continually assess collectability of lessee
payments, and, if operating lease payments are not probable of collection, to only recognize into income the lesser of (i) straight-line
rental income or (ii) lease payments received to date. The adoption of this guidance did not have a material impact on the Company’s
consolidated financial statements.
The Company’s lease
arrangements, both as lessor and as lessee, are short-term leases. The Company leases land to tenants under operating leases, and the
Company leases property, primarily office and storage space, from lessors under operating leases. During the years ended December 31,
2021, 2020 and 2019, the Company recognized $835, $659 and $738, respectively, of lease income, substantially comprised of non-variable
lease payments. During the years ended December 31, 2021, 2020 and 2019, the Company recognized $57, $70 and $79, respectively, of
lease expense, substantially comprised of non-variable lease payments.
Recently Issued Accounting
Pronouncements
In June 2016, the FASB updated
ASC Topic 326 Financial Instruments – Credit Losses with ASU 2016-13 Measurement of Credit Losses on Financial Instruments (ASU
2016-13). ASU 2016-13 enhances the methodology of measuring expected credit losses to include the use of forward-looking information to
better inform credit loss estimates. ASU 2016-13 is effective for annual periods beginning after December 15, 2019 for public companies
except for smaller reporting companies, whose effective date will be periods beginning after December 15, 2022. While the Company
is currently evaluating the effect that implementation of this update will have on its consolidated financial statements, no significant
impact is anticipated.
In August 2018, the FASB issued
ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), which modifies the disclosure requirements
for employers that sponsor defined benefit pension plans and other postretirement plans. The guidance is effective for fiscal years beginning
after December 15, 2020 with early adoption permitted. The adoption of ASU 2018-14 did not have a material impact on the Company’s
consolidated financial statements.
In December 2019, the FASB ASU
2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in the
accounting standards. The guidance is effective for fiscal years beginning after December 15, 2020 with early adoption permitted. The
adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated financial statements.
In March 2020, FASB issued ASU
2020-04, Reference Rate Reform (ASU 2020-04) which provides optional expedients and exceptions for applying U.S. GAAP to contacts, hedging
relationships, and other transactions affected by the discontinuance of LIBOR or another referenced rate. ASU 2020-04 is effective for
fiscal years beginning after December 31, 2022. While the Company is currently evaluating the effect that the implementation of this guidance
will have on its consolidated financial statements, no significant impact is anticipated.
In October 2020, the FASB issued
ASU 2020-10, Codification Improvements, which clarifies various topics in the Accounting Standards Codification, including the addition
of existing disclosure requirements to the relevant disclosure sections. The guidance is effective for fiscal years beginning after December
15, 2020 with early adoption permitted. The adoption of ASU 2020-10 did not have a material impact on the Company’s consolidated
financial statements.
Land Development
During the first quarter of
2006, the Company received final subdivision approval on an approximate 336 acre parcel in the region "mauka" (toward the
mountains) from the main highway serving the area. This project, called Kaanapali Coffee Farms, originally consisted of 51
agricultural lots, offered to individual buyers. During the second quarter of 2021, the Company converted an approximate 55 acre
cultural resources lot to an agricultural lot, which has been offered for sale. The Company entered into a contract to sell this lot
in December 2021 and the sale closed on March 22, 2022. The purchase price was $5,000, paid in cash at closing. As of
December 31, 2021, the Company sold fifty-one
lots at Kaanapali Coffee Farms including one lot in December 2021.
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
In accordance with the core
principle of ASC 606, revenue from real property sales is recognized at the time of closing when control of the property transfers to
the customer. After closing of the sale transaction, the Company has no remaining performance obligation. 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.
Other revenues in the scope
of ASC 606 are recognized when control of goods or services transfers to the customers, in the amount that the Company expects to receive
for the transfer of goods or provision of services.
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.
|
2021 |
|
2020 |
Property, net: |
|
|
|
|
|
Land |
$ |
61,267 |
|
$ |
61,678 |
Buildings |
|
1,229 |
|
|
1,229 |
Machinery and equipment |
|
5,564 |
|
|
5,453 |
|
|
68,060 |
|
|
68,360 |
Accumulated depreciation |
|
(5,969) |
|
|
(5,700) |
|
|
|
|
|
|
Property, net |
$ |
62,091 |
|
$ |
62,660 |
Inventory of land held for
sale of approximately $3,045 and $736, representing Kaanapali Coffee Farms, was included in Property, net in the consolidated balance
sheets at December 31, 2021 and 2020, respectively, and is carried at the lower of cost or fair market value, less costs to sell,
which is based on current and foreseeable market conditions, discussions with real estate brokers and review of historical land sale activity
(Level 2 and 3). The land held for sale is recognized in the Property segment as disclosed in footnote 8 Business Segment Information.
Land is currently utilized for commercial specialty coffee farming operations which also support the Company’s land development
program, as well as, farming bananas, citrus and other farm products and ranching operations. Additionally, miscellaneous parcels of land
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 consisting of approximately 3,900 acres, 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.
In September 2014, Kaanapali Land
Management Corp. (“KLMC”), pursuant to a property and option purchase agreement with an unrelated third party, closed on the
sale of an approximate 14.9 acre parcel in West Maui. The purchase price was $3,300, paid in cash at closing. The agreement (as subsequently
amended) commits KLMC to fund up to $583, depending on various factors, for off-site roadway, water, sewer and electrical improvements
that will also provide service to other KLMC properties. Although certain off-site construction has begun at the site, the commitment
remains outstanding as construction of such improvements does not yet trigger such funding. The purchaser was also granted an option for
the purchase of an adjacent site of approximately 18.5 acres for $4,078. The option expired on December 31, 2020, and the nonrefundable
$525 option payment was included in Other income on the Company’s Consolidated Statement of Operations as of December 31, 2020.
The 14.9 acre site is intended to be used for a critical access hospital, skilled nursing facility, assisted living facility, and independent
living facility.
Other Liabilities
Other liabilities are comprised
of estimated liabilities for losses, commitments and contingencies related to various divested assets or operations. These estimated liabilities
include the estimated effects of certain asbestos related claims, 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. 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 loss contingency amounts and adjusts such as it determines the appropriate loss contingency amount 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.
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, 2021 and 2020, 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, 2029, as extended. Such note had an outstanding balance of principal and accrued interest as of December
31, 2021 and 2020 of approximately $90,565 and $90,367, respectively. The interest rate currently is 0.39% per annum and compounds semi-annually.
The note, which is prepayable, is secured by substantially all of the remaining real property owned by such subsidiaries, pursuant to
a certain Mortgage, Security Agreement and Financing Statement, dated as of November 14, 2002 and placed on record in December 2002.
The note has been eliminated in the consolidated financial statements because the obligors are consolidated subsidiaries of Kaanapali
Land.
(3) Rental Arrangements
During 2021, 2020 and 2019,
the Company leased various office spaces with average annual rental of approximately $19, $18 and $17 per year, respectively. Although
the Company was a party to certain other leasing arrangements, none of them were material.
(4) Employee Benefit Plans
As of December 31, 2021,
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.
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 and Collective Investment Funds: Valued at the closing price reported in the active market in which the mutual fund is traded, or the market value of the underlying assets. |
|
|
|
-- |
|
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. |
|
|
|
-- |
|
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. In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the table below are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. |
The following table sets forth by level, within
the fair value hierarchy, the Pension Plan's assets at fair value as of December 31, 2021:
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Mutual funds |
|
$ |
3,000 |
|
$ |
0 |
|
$ |
0 |
|
$ |
3,000 |
Collective investment funds |
|
|
0 |
|
|
15,700 |
|
|
0 |
|
|
15,700 |
Cash and cash equivalents |
|
|
700 |
|
|
0 |
|
|
0 |
|
|
700 |
|
|
|
3,700 |
|
|
15,700 |
|
|
0 |
|
|
19,400 |
Investments in private equity funds |
|
|
|
|
|
|
|
|
|
|
|
1,000 |
Investments in partnerships |
|
|
|
|
|
|
|
|
|
|
|
0 |
Total
Pension Plan assets
at
fair value |
|
$ |
|
|
$ |
|
|
$ |
0 |
|
$ |
20,400 |
The following table sets
forth by level, within the fair value hierarchy, the Pension Plan's assets at fair value as of December 31, 2020:
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Mutual funds |
|
$ |
2,500 |
|
$ |
0 |
|
$ |
0 |
|
$ |
2,500 |
Collective investment funds |
|
|
0 |
|
|
14,000 |
|
|
0 |
|
|
14,000 |
Cash and cash equivalents |
|
|
100 |
|
|
0 |
|
|
0 |
|
|
100 |
|
|
|
2,600 |
|
|
14,000 |
|
|
0 |
|
|
16,600 |
Investments in private equity funds |
|
|
|
|
|
|
|
|
|
|
|
1,300 |
Investments in partnerships |
|
|
|
|
|
|
|
|
|
|
|
0 |
Total
Pension Plan assets
at
fair value |
|
$ |
|
|
$ |
|
|
$ |
0 |
|
$ |
17,900 |
Changes in Level 3 Investments and Investments
Measured at Net Asset Value
The following table sets
forth a summary of changes in fair value of the plan's level 3 assets and assets measured at net asset value “NAV” for the
year ended December 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 |
|
Measured at NAV |
|
|
|
|
Investment
in
Insurance
Companies |
|
Investment
in
Partnerships |
|
Investment
in Private
Equity
Funds |
|
Total |
Balance, beginning of year |
|
$ |
0 |
|
$ |
0 |
|
$ |
1,300 |
|
$ |
1,300 |
Net earned interest and
realized/unrealized
gains (losses) |
|
|
0 |
|
|
0 |
|
|
200 |
|
|
200 |
Purchases, sales, issuance
and settlements |
|
|
0 |
|
|
0 |
|
|
(500) |
|
|
(500) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
0 |
|
$ |
0 |
|
$ |
1,000 |
|
$ |
1,000 |
The following table sets
forth a summary of changes in fair value of the plan's level 3 assets and assets measured at net asset value “NAV” for the
year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 |
|
Measured at NAV |
|
|
|
|
Investment
in
Insurance
Companies |
|
Investment
in
Partnerships |
|
Investment
in Private
Equity
Funds |
|
Total |
Balance, beginning of year |
|
$ |
0 |
|
$ |
100 |
|
$ |
1,400 |
|
$ |
1,500 |
Net earned interest and
realized/unrealized
gains (losses) |
|
|
0 |
|
|
(100) |
|
|
(100) |
|
|
(200) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
0 |
|
$ |
0 |
|
$ |
1,300 |
|
$ |
1,300 |
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, 2021, 2020 and 2019.
|
|
2021 |
|
2020 |
|
2019 |
Benefit obligation at beginning of year |
|
$ |
393 |
|
$ |
614 |
|
$ |
816 |
Service cost |
|
|
283 |
|
|
363 |
|
|
548 |
Interest cost |
|
|
6 |
|
|
13 |
|
|
24 |
Actuarial gain |
|
|
(232) |
|
|
(279) |
|
|
(467) |
Benefits paid |
|
|
(13) |
|
|
(318) |
|
|
(31) |
Settlement |
|
|
-- |
|
|
-- |
|
|
(276) |
|
|
|
|
|
|
|
|
|
|
Accumulated and projected benefit obligation
at end of year |
|
|
437 |
|
|
393 |
|
|
614 |
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
|
17,924 |
|
|
16,123 |
|
|
14,787 |
Actual return on plan assets |
|
|
2,472 |
|
|
2,119 |
|
|
2,110 |
Benefits paid |
|
|
(13) |
|
|
(318) |
|
|
(31) |
Settlement |
|
|
-- |
|
|
-- |
|
|
(743) |
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
|
20,383 |
|
|
17,924 |
|
|
16,123 |
|
|
|
|
|
|
|
|
|
|
Funded status |
|
|
19,946 |
|
|
17,531 |
|
|
15,509 |
|
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial (gain) loss |
|
|
(3,106) |
|
|
(1,279) |
|
|
321 |
Unrecognized prior service cost |
|
|
-- |
|
|
-- |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Prepaid pension cost |
|
$ |
16,840 |
|
$ |
16,252 |
|
$ |
15,831 |
At December 31, 2021, approximately
3% of the plan's assets are invested in cash, 5% in equity composite and 92% in multi-strategy composite. The allocations are within the
Company's target allocations in association with the Company's investment strategy.
The pension plan has investment
policies. These generally are written guidelines or general instructions for making investment management decisions. The investment policy
of the plan is to invest the plan’s assets in accordance with sound investment practices that emphasize long-term investment fundamentals,
taking into account the time horizon available for investment, the nature of the plan’s cash flow requirements, the plan’s
role within the Company’s long-term financial plan and other factors that affect the plan’s risk tolerance.
The components of the net
periodic pension credit for the years ended December 31, 2021, 2020 and 2019 (which are reflected as selling, general and administrative
in the consolidated statements of operations) are as follows:
|
|
2021 |
|
2020 |
|
2019 |
Service costs |
|
$ |
283 |
|
$ |
363 |
|
$ |
548 |
Interest cost |
|
|
6 |
|
|
13 |
|
|
24 |
Expected return on plan assets |
|
|
(916) |
|
|
(866) |
|
|
(866) |
Recognized net actuarial loss |
|
|
39 |
|
|
68 |
|
|
196 |
Amortization of prior service cost |
|
|
-- |
|
|
1 |
|
|
4 |
Loss on settlement |
|
|
-- |
|
|
-- |
|
|
400 |
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost (credit) |
|
$ |
(588) |
|
$ |
(421) |
|
$ |
306 |
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:
|
|
2021 |
|
2020 |
|
2019 |
As of January 1, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
1.95% |
|
2.93% |
|
3.96% |
|
|
|
|
|
|
|
|
Rates of compensation increase |
|
|
3% |
|
3% |
|
3% |
|
|
|
|
|
|
|
|
Expected long-term rate of return on assets |
|
|
6% |
|
6% |
|
6% |
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate – net periodic pension credit |
|
|
1.95% |
|
2.93% |
|
3.96% |
|
|
|
|
|
|
|
|
Discount rate – accumulated benefit obligation |
|
|
0.66% |
|
1.95% |
|
2.93% |
|
|
|
|
|
|
|
|
Rates of compensation increase |
|
|
3% |
|
3% |
|
3% |
|
|
|
|
|
|
|
|
Expected long-term rate of return on assets |
|
|
6% |
|
6% |
|
6% |
The above long-term rates
of return were selected based on historical asset returns and expectations of future returns.
The Company amortizes experience
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 2021 to the pension plan. 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):
Effect of a 1% change in
the discount rate and salary increase rate for the fiscal years ended December 31, 2021 and 2020:
|
|
2021
Discount
Rate |
|
2021
Salary
Increase |
|
2020
Discount
Rate |
|
2020
Salary
Increase |
Effect of a 1% increase on: |
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
0 |
|
$ |
1 |
|
$ |
1 |
|
$ |
1 |
Pension benefit obligation
at
year end |
|
$ |
(4) |
|
$ |
0 |
|
$ |
(16) |
|
$ |
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of a 1% decrease on: |
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
0 |
|
$ |
(1) |
|
$ |
(1) |
|
$ |
(1) |
Pension benefit obligation
at
year end |
|
$ |
4 |
|
$ |
0 |
|
$ |
18 |
|
$ |
(6) |
Effect of a 1% change in
the rate of return on assets for the fiscal year ended December 31, 2021:
|
|
1% Increase |
|
1% Decrease |
Net periodic pension cost |
|
$ |
(153) |
|
$ |
153 |
|
|
|
|
|
|
|
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, 2021 and 2020 are the following amounts that have not yet been recognized in net
periodic pension cost: unrecognized actuarial gain of $3,106 ($2,298, net of tax) and $1,279 ($946, 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 $356 and $369, included in Other liabilities, represented in the Rabbi Trust and assets funding such deferred compensation liability
of $3 and $13, included in Other assets, are consolidated in the Company's consolidated balance sheet as of December 31, 2021 and
2020, respectively.
(5) Income
Taxes
Income tax expense/(benefit)
attributable to income from continuing operations for the years ended December 31, 2021, 2020 and 2019 consist of:
|
|
Current |
|
Deferred |
|
Total |
Year ended December 31, 2021: |
|
|
|
|
|
|
|
|
|
U.S. federal |
|
$ |
-- |
|
$ |
282 |
|
$ |
282 |
State |
|
|
-- |
|
|
68 |
|
|
68 |
|
|
$ |
-- |
|
$ |
350 |
|
$ |
350 |
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2020: |
|
|
|
|
|
|
|
|
|
U.S. federal |
|
$ |
-- |
|
$ |
(775) |
|
$ |
(775) |
State |
|
|
-- |
|
|
(184) |
|
|
(184) |
|
|
$ |
-- |
|
$ |
(959) |
|
$ |
(959) |
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019: |
|
|
|
|
|
|
|
|
|
U.S. federal |
|
$ |
-- |
|
$ |
(957) |
|
$ |
(957) |
State |
|
|
-- |
|
|
(225) |
|
|
(225) |
|
|
$ |
-- |
|
$ |
(1,182) |
|
$ |
(1,182) |
The Tax Cuts and Jobs Act
(the Act) repealed the corporate alternative minimum tax and provided that prior alternative minimum tax credits (AMT credits) would be
refundable. Any remaining AMT credits became refundable incrementally from 2018 through 2021. The CARES Act accelerated the refund schedule,
enabling the Company to claim the refund in full. In February and July 2021, the Company received $1,483 and $1,486, respectively, including
interest, of the refundable tax credit from the IRS.
The Act is a comprehensive
tax reform bill containing a number of other provisions that either currently or in the future could impact the Company, particularly
the effect of certain limitations effective for the tax year 2018 and forward (prior losses remain subject to the prior 20 year carryover
period) on the use of federal net operating loss carryforwards (NOLs) which will generally be limited to being used to offset 80% of future
annual taxable income.
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 26
percent effective for 2021 and 2020 and prior years to pretax income from operations as a result of the following:
|
|
2021 |
|
2020 |
|
2019 |
Provision at statutory rate |
|
$ |
155 |
|
$ |
(1,222) |
|
$ |
(1,250) |
|
|
|
|
|
|
|
|
|
|
Federal NOLs utilized |
|
|
-- |
|
|
-- |
|
|
-- |
Federal NOLs generated |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
|
|
|
|
|
|
|
|
State NOLs utilized |
|
|
-- |
|
|
-- |
|
|
-- |
State NOLs generated |
|
|
150 |
|
|
258 |
|
|
193 |
|
|
|
|
|
|
|
|
|
|
Reversal of valuation allowance on
AMT credits |
|
|
-- |
|
|
-- |
|
|
(183) |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
45 |
|
|
5 |
|
|
58 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
350 |
|
$ |
(959) |
|
$ |
(1,182) |
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, 2021, 2020 and 2019 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2021 |
|
2020 |
|
2019 |
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Loss contingencies related primarily
to
losses on
divestitures, less recognized
insurance
recovery |
|
$ |
2,264 |
|
$ |
3,207 |
|
$ |
3,197 |
Loss carryforwards |
|
|
14,015 |
|
|
13,118 |
|
|
11,780 |
Other, net |
|
|
255 |
|
|
269 |
|
|
290 |
Total deferred tax assets |
|
|
16,534 |
|
|
16,594 |
|
|
15,267 |
Less – valuation allowance |
|
|
10,379 |
|
|
10,229 |
|
|
9,971 |
Total deferred tax assets |
|
|
6,155 |
|
|
6,365 |
|
|
5,296 |
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Property, plant and equipment, principally
due to purchase accounting
adjustments,
net of impairment charges |
|
|
10,322 |
|
|
10,334 |
|
|
10,333 |
Prepaid pension costs |
|
|
5,760 |
|
|
5,132 |
|
|
4,606 |
Total deferred tax liabilities |
|
|
16,082 |
|
|
15,466 |
|
|
14,939 |
Net deferred tax liability |
|
$ |
9,927 |
|
$ |
9,101 |
|
$ |
9,643 |
As of December 31, 2021, the Company
has a deferred tax asset related to federal net operating losses (NOLs) of $10,590, of which $6,953 has been subject to a valuation allowance.
The NOLs originated in 2006 through 2017 will expire over 20 years. The NOLs originated in 2018 and later years will not expire. As of
December 31, 2021, the Company has a deferred tax asset related to state NOLs of $3,426, all of which has been subject to a valuation
allowance. The state NOLs expire in various years 2021 through 2035.
The statutes of limitations
with respect to the Company's taxes for 2018 and more recent years remain open to examinations by tax authorities, subject to possible
utilization of loss carryforwards from earlier years. Notwithstanding the foregoing, all NOLs generated and not yet utilized are subject
to adjustment by the IRS. 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., which has some degree of common ownership with the Company, earns insurance brokerage commissions in connection
with providing the placement of insurance coverage for certain of the properties and operations of the Company. Such commissions are believed
by management to be comparable to those that would be paid to such affiliate insurance agency in similar dealings with unaffiliated third
parties. The total of such commissions for the years ended December 31, 2021, 2020 and 2019 was approximately $49, $35 and $20, respectively.
The Company reimburses affiliates
of Pacific Trail Holdings, LLC, the owner of approximately 81.8% of the Company’s Common Shares, for general overhead expense and
for direct expenses incurred on its behalf, including salaries and salary-related expenses incurred in connection with the management
of the Company's operations. Generally, the entity that employs the person providing the services receives the reimbursement. Substantially
all of such reimbursable amounts were incurred by JMB Realty Corporation or its affiliates, 900FMS, LLC, 900Work, LLC, and JMB Financial
Advisors, LLC, all of which have some degree of common ownership with the Company. The total costs recorded in cost of sales and selling,
general and administrative expenses in the consolidated statement of operations for the years ended 2021, 2020 and 2019 were $1,464, $1,466
and $1,276, respectively, of which approximately $0 was unpaid as of December 31, 2021.
The Company derives revenue
from farming and common area maintenance services and for providing non-potable water to the Kaanapali Coffee Farms Lot Owners Association
(“LOA”). The LOA is the association of the owners of the Kaanapali Coffee Farms. The revenues were $1,315, $1,305 and $1,297
for the years ended December 31, 2021, 2020 and 2019, respectively. Such revenue is recognized in the Agriculture Segment as disclosed
in Note 8 Business Segment Information. The revenue amounts have been eliminated in consolidated financial statements.
(7) Commitments
and Contingencies
At December 31, 2021, the
Company has no material contractual obligations related to the land improvements in conjunction with Phase I of the Kaanapali Coffee Farms
project.
Material legal proceedings
of the Company are described below. Unless otherwise noted, the parties adverse to the Company in the legal proceedings described below
have not made a claim for damages in a liquidated amount and/or the Company believes that it would be speculative to attempt to determine
the Company's exposure relative thereto, and as a consequence believes that an estimate of the range of potential loss cannot be made.
Two former subsidiaries, Oahu Sugar Company, LLC (“Oahu Sugar”) and D/C Distribution Corporation (“D/C”), filed
subsequent petitions for liquidation under Chapter 7 of the Bankruptcy Code in April 2005 and July 2007, respectively, as described
below. On December 17, 2019, the Oahu Sugar bankruptcy case was closed. As a consequence of the Chapter 7 filing, D/C is not
under control of the Company.
As a result of an administrative
order issued to Oahu Sugar by the Hawaii Department of Health (“HDOH”), Order No. CH 98-001, dated January 27, 1998, Oahu
Sugar engaged in environmental site assessment of lands it leased from the U.S. Navy and located on the Waipio Peninsula. Oahu Sugar submitted
a Remedial Investigation Report to the HDOH. The HDOH provided comments that indicated that additional testing may be required. Oahu Sugar
responded to these comments with additional information. On January 9, 2004, the Environmental Protection Agency (“EPA”) issued
a request to Oahu Sugar seeking information related to the actual or threatened release of hazardous substances, pollutants and contaminants
at the Waipio Peninsula portion of the Pearl Harbor Naval Complex National Priorities List Superfund Site. The request sought, among other
things, information relating to the ability of Oahu Sugar to pay for or perform a cleanup of the land formerly occupied by Oahu Sugar.
Oahu Sugar responded to the information requests and notified both the Navy and the EPA that while it had some modest remaining cash that
it could contribute to further investigation and remediation efforts in connection with an overall settlement of the outstanding claims,
Oahu Sugar was substantially without assets and would be unable to make a significant contribution to such an effort. Attempts at negotiating
such a settlement were fruitless and Oahu Sugar received an order from EPA in March 2005 that purported to require certain testing and
remediation of the site. As Oahu Sugar was substantially without assets, the pursuit of any action, informational, enforcement, or otherwise,
would have had a material adverse effect on the financial condition of Oahu Sugar.
Therefore, as a result of
the pursuit of further action by the HDOH and EPA as described above and the immediate material adverse effect that the actions had on
the financial condition of Oahu Sugar, Oahu Sugar filed with the United States Bankruptcy Court, Northern District of Illinois, Eastern
Division in April 2005, its voluntary petition for liquidation under Chapter 7 of Title 11, United States Bankruptcy Code. Such
filing was not expected to have a material adverse effect on the Company as Oahu Sugar was substantially without assets at the time of
the filing. While it was believed that other affiliates had no responsibility for the debts of Oahu Sugar, EPA made a claim against Kaanapali
Land as further described below, and therefore, no assurance could be given that the Company would 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, EPA and the U.S. Navy filed a joint proof of claim that
sought 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. There was an insignificant amount of assets remaining in the debtor's estate, and it was unclear whether the United States Trustee
who took control of Oahu Sugar was going to take any action to contest the EPA/Navy claim, or how it was going to reconcile such claim
for the purpose of distributing any remaining assets of Oahu Sugar. Over the years, counsel for the trustee, EPA, the Navy, and for Fireman’s
Fund, one of Kaanapali Land’s insurers, explored ways in which to conclude the Oahu Sugar bankruptcy. On December 16, 2019,
the Oahu Sugar bankruptcy trustee filed its final accounting with no distribution to claimants. On December 17, 2019, the Oahu Sugar
bankruptcy case was closed, and the trustee was discharged.
With regard to the Waipio
Peninsula alleged environmental issues, EPA sent three requests for information to Kaanapali Land regarding, among other things, Kaanapali
Land's organization and relationship, if any, to entities that may have, historically, operated on the site and with respect to operations
conducted on the Waipio site. Kaanapali Land responded to these requests for information. By letter dated February 7, 2007, pursuant
to an allegation that Kaanapali Land is a successor to Oahu Sugar Company, Limited, a company that operated at the site prior to 1961
("Old Oahu"), EPA advised Kaanapali that it believed it was authorized by the Comprehensive Environmental Response Compensation
and Liability Act (“CERCLA”) to amend the existing Unilateral Administrative Order against Oahu Sugar Company, LLC, for the
cleanup of the site to include Kaanapali Land as an additional respondent. The purported basis for EPA's position was that Kaanapali Land,
by virtue of certain corporate actions, was jointly and severally responsible for the performance of the response actions, including,
without limitation, clean-up at the site. No such amendment was made. 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 consisted 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 appeared to be further predicated primarily on the alleged connection of Kaanapali Land to Old Oahu and its activities on the
site. Kaanapali Land engaged in performing work, including the conduct of sampling at the site, required by the order while reserving
its rights to contest liability regarding the site. With regard to liability for the site, Kaanapali Land believed 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 believed that
the U.S. Navy bore 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 believed that the cost of the work as set forth in the order would 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 could be no
assurances that the cost of said remediation would not ultimately have a material adverse effect on the Company. In
addition, if there were litigation regarding
the site, there could be no assurance that the cost of such litigation would not be material or that such litigation would result in a
judgment in favor of the Company. Kaanapali and the EPA exchanged comments relative to further studies to be performed at the site, including
a possible ecological risk assessment. Over the years, work occurred at the Site and then the parties engaged in discussions to resolve
the matter, pursuant to the Consent Decree set forth below.
On February 11, 2015,
the Company filed a complaint for declaratory judgment, bad faith and damages against Fireman’s Fund Insurance Company (“Fireman’s
Fund”) in the Circuit Court of the First Circuit, State of Hawaii, Civil No. 15-1-0239-02, in connection with costs and expenses
it might incur in connection with the Waipio site. In the five-count complaint, the Company sought, among other things, a declaratory
judgment of its rights under various Fireman’s Fund policies and an order that Fireman’s Fund defend and indemnify Kaanapali
Land from all past, present and future costs and expenses in connection with the site, including costs of investigation and defense incurred
by Kaanapali and the professionals it has engaged. In addition, Kaanapali sought general, special, and punitive damages, prejudgment and
post judgment interest, and such other legal or equitable relief as the court deems just and proper. Fireman’s Fund has filed a
responsive pleading. This litigation is in the process of being settled and will likely be dismissed with prejudice pursuant to an agreement
between Fireman’s Fund and the Company dated November 24, 2021 (“Insurance Settlement”).
Under the Insurance
Settlement Fireman’s Fund paid $6,800
into an escrow that was used to fund the Consent Decree that was entered into with various federal agencies. The $6,800 was included
as a reduction of Selling, general and administrative expenses on the Company’s Consolidated Statement of Operations on
December 31, 2021. The insurance recovery caused the total Selling, general and administrative expense for the year ended
December 31, 2021 to be a negative expense. That Consent Decree, entered by United States District Court for the District of
Hawaii (the “Court”), and as more fully described below, resolved certain environmental claims against the Company with
respect to the former mixing site on Waipio Peninsula on Oahu in Hawaii (the “Mixing Site”). After the Consent Decree
was entered and finally approved by the Court in the form initially submitted by the Company and the federal government, the
escrowed funds plus interest were paid to the Environmental Protection Agency on March 3, 2022 to fund the settlement that is
the subject of the Consent Decree. The Insurance Settlement provides, among other terms and conditions, mutual releases of Claims
for coverage for Environmental Claims at the Mixing Site under known and unknown Fireman’s Fund insurance policies.
On April 16, 2021,
the U.S. Department of Justice and the U.S. Environmental Protection Agency, on behalf of various federal agencies of the United States
of America, executed a Consent Decree with Kaanapali Land, LLC, a Delaware limited liability company (the “Company”) that,
when entered by the U.S. District Court sitting in the District of Hawaii, United States of America v. Kaanapali Land, and Oahu Sugar
Company, LLC Case No. 1:21-CV-00190, would resolve the U.S. federal government’s pending environmental claims against the Company
with respect to contamination at the former mixing site on Waipio Peninsula on Oahu in Hawaii that had been leased by Oahu Sugar Company
LLC, a former subsidiary of the Company. In return for payments by the Company totaling $7,500, the Consent Decree resolves liability
asserted by the U.S. Government against the Company under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA)
as well as under the Clean Water Act, both for response costs (those costs expended for investigation and cleanup) and for natural resource
damages. The U.S. District Court in Hawaii entered an Order approving the Consent Decree on February 11, 2022 and payment of the
settlement amount was received by the government on March 3, 2022.
Kaanapali Land, as successor
by merger to other entities, and D/C have been named as defendants in personal injury actions allegedly based on exposure to asbestos.
While there are relatively few cases that name Kaanapali Land, there were a substantial number of cases that were pending against D/C
on the U.S. mainland (primarily in California). Cases against Kaanapali Land (hereafter, “Kaanapali Land asbestos cases”)
are allegedly based on its prior business operations in Hawaii and cases against D/C are allegedly based on sale of asbestos-containing
products by D/C's prior distribution business operations primarily in California. Each entity defending these cases believes that it has
meritorious defenses against these actions, but can give no assurances as to the ultimate outcome of these cases. The defense of these
cases had a material adverse effect on the financial condition of D/C as it was forced to file a voluntary petition for liquidation as
discussed below. Kaanapali Land does not believe that it has liability, directly or indirectly, for D/C's obligations in those cases.
Kaanapali Land does not presently believe that the cases in which it is named will result in any material liability to Kaanapali Land;
however, there can be no assurance in that regard.
On February 12, 2014,
counsel for Fireman’s Fund, the carrier that has been paying defense costs and settlements for the Kaanapali Land asbestos
cases, stated that it would no longer pay settlements or judgments in the Kaanapali Land asbestos cases due to then pending D/C and
Oahu Sugar bankruptcies. In its communications with Kaanapali Land, Fireman’s fund expressed its view that the automatic stay
in effect in the D/C bankruptcy case barred Fireman’s Fund from making any payments to resolve the Kaanapali Land asbestos
claims because D/C Distribution was also alleging a right to coverage under those policies for asbestos claims against it. However,
in the interim, Fireman’s Fund advised that it intended to continue to pay defense costs for those cases, subject to whatever
reservations of rights that might be in effect and subject further to the policy terms. Fireman’s Fund also indicated that to
the extent that Kaanapali Land cooperated with Fireman’s Fund in addressing settlement of the Kaanapali Land asbestos cases
through coordination with its adjusters, it was Fireman’s Fund’s intention to reimburse any such payments by Kaanapali
Land, subject, among other things, to the terms of any lift-stay order, the limits and other terms and conditions of the policies,
and prior approval of the settlements. Kaanapali Land and Fireman’s Fund entered into a settlement agreement on
November 24, 2021 whereby Fireman’s Fund will pay $2,441
for certain listed Kaanapali Land asbestos cases upon a Final Order of the D/C bankruptcy court lifting the automatic stay to allow
the payments. The D/C court issued the lift-stay order on March 1, 2022. However, there is no assurance that such payment will be received. Kaanapali Land is unable to determine what portion, if any, of future settlements or judgments in the Kaanapali Land
asbestos cases will be covered by insurance.
On February 15, 2005, D/C
was served with a lawsuit entitled American & Foreign Insurance Company v. D/C Distribution and Amfac Corporation, Case No. 04433669
filed in the Superior Court of the State of California for the County of San Francisco, Central Justice Center. No other purported party
was served. In the eight-count complaint for declaratory relief, reimbursement and recoupment of unspecified amounts, costs and for such
other relief as the court might grant, plaintiff alleged that it is an insurance company to whom D/C tendered for defense and indemnity
various personal injury lawsuits allegedly based on exposure to asbestos containing products. Plaintiff alleged that because none of the
parties have been able to produce a copy of the policy or policies in question, a judicial determination of the material terms of the
missing policy or policies is needed. Plaintiff sought, among other things, a declaration: of the material terms, rights, and obligations
of the parties under the terms of the policy or policies; that the policies were exhausted; that plaintiff was 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 had 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 on July 17, 2007, Case No. 07-12776. Such filing is not expected to have a material adverse effect on the Company as D/C was
substantially without assets at the time of the filing. Kaanapali Land filed claims in the D/C bankruptcy that aggregated approximately
$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 two thousand
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 January 21, 2020, certain
asbestos claimants filed a Stay Relief Motion in the Bankruptcy Court for the Northern District of Illinois, Eastern Division, Case No.
07-12776 (“motion to lift stay”) in connection with the D/C proceeding. The motion sought the entry of an order, among other
things, modifying the automatic stay in the D/C bankruptcy to permit those claimants to prosecute various lawsuits in state courts against
D/C Distribution, LLC, and to recover on any judgment or settlement solely from any available insurance coverage. Various oppositions
to the motion to lift stay were filed, and the matter was heard and taken under advisement in April 2020. On July 21, 2020, the bankruptcy
court issued an order granting the motion to lift stay to permit the movants to pursue their claims and to recover any judgment or settlement
from and to the extent of any available insurance coverage of D/C Distribution, LLC, only.
The bankruptcy trustee for D/C
is now in the process of closing the bankruptcy case. All of the asbestos-related proofs claims filed by the San Francisco personal injury
firm in the bankruptcy case have been withdrawn in connection with closing. It is anticipated that the Kaanapali Land will receive a small
distribution on account of its claims in the D/C case. Although D/C will no longer have any assets after the trustee’s final distribution
and closing of the case, there is no guaranty that personal injury claimants will not assert asbestos-related claims against D/C in the
future.
The Company has received
notice from Hawaii’s Department of Land and Natural Resources (“DLNR”) that DLNR on a periodic basis would inspect all
significant dams and reservoirs in Hawaii, including those maintained by the Company on Maui in connection with its agricultural operations.
A series of such inspections have taken place over the period from 2006 through the most recent inspections that occurred in July 2021.
To date, the DLNR cited certain deficiencies concerning two of the Company’s reservoirs relating to dam and reservoir safety standards
established by the State of Hawaii. These deficiencies include, among other things, vegetative overgrowth and roots and stumps left in
place, erosion of slopes, uncertainty of inflow control, spillway capacity, and freeboard and uncertainty of structural stability under
certain loading and
seismic conditions. The Company has taken certain
corrective actions, including lowering the reservoir operating level; as well as updating important plans to address emergency events
and basic operations and maintenance. In 2018, the Company contracted with an engineering firm to develop plans to address certain DLNR
cited deficiencies on one of the Company’s reservoirs. In 2012, the State of Hawaii issued new Hawaii Administrative Rules for Dams
and Reservoirs which require dam owners to obtain from DLNR Certificates of Impoundment (“permits”) to operate and maintain
dams or reservoirs. Obtaining such permits requires owners to completely resolve all cited deficiencies. Therefore, the process may involve
further analysis of dam and reservoir safety requirements, which will involve continuing engagement with specialized engineering consultants,
and ultimately could result in significant and costly improvements which may be material to the Company.
The DLNR categorizes the
reservoirs as "high hazard" under State of Hawaii Administrative Rules and State Statutes concerning dam and reservoir safety.
This classification, which bears upon government oversight and reporting requirements, may increase the cost of managing and maintaining
these reservoirs in a material manner. The Company does not believe that this classification is warranted for either of these reservoirs
and has initiated a dialogue with DLNR in that regard. In April 2008, the Company received further correspondence from DLNR that included
the assessment by their consultants of the potential losses that result from the failure of these reservoirs. In April 2009, the Company
filed a written response to DLNR to correct certain factual errors in its report and to request further analysis on whether such "high
hazard" classifications are warranted. It is unlikely that the “high hazard” designation will be changed.
Other than as described above,
the Company is not involved in any material pending legal proceedings, other than ordinary routine litigation incidental to its business.
The Company and/or certain of its affiliates have been named as defendants in several pending lawsuits. While it is impossible to predict
the outcome of such routine litigation that is now pending (or threatened) and for which the potential liability is not covered by insurance,
the Company is of the opinion that the ultimate liability from any of this litigation will not materially adversely affect the Company's
consolidated results of operations or its financial condition.
The Company often seeks insurance
recoveries under its policies for costs incurred or expected to be incurred for losses or claims under which the policies might apply.
During second quarter 2019, the Company received $442 in insurance proceeds related to an insured event that occurred during the 2018
crop year. This amount has been reflected in sales and rental revenues in the Company’s consolidated financial statements.
Kaanapali Land Management Corp.
(KLMC) is a party to an agreement with the State of Hawaii for the development of the Lahaina Bypass Highway. An approximate 2.4 mile
portion of this two lane state highway has been completed. Construction to extend the southern terminus was completed mid-2018. The northern
portion of the Bypass Highway, which extends to KLMC’s lands, is in the early stage of planning. Under certain circumstances, which
have not yet occurred, KLMC remains committed for approximately $1,100 of various future costs relating to the planning and design of
the uncompleted portion of the Bypass Highway. Under certain conditions, which have not yet been met, KLMC has agreed to contribute an
amount not exceeding $6,700 toward construction costs. Any such amount contributed would be reduced by the value of KLMC’s land
actually contributed to the State for the Bypass Highway.
These potential commitments have
not been reflected in the accompanying consolidated financial statements. While the completion of the Bypass Highway would add value to
KLMC’s lands north of the town of Lahaina, there can be no assurance that it will be completed or when any future phases will be
undertaken.
In March 2020, the World Health
Organization declared the outbreak of COVID-19 as a pandemic, and the U.S. including the Hawaiian economy began to experience pronounced
disruptions. Quarantine, travel restrictions and other governmental restrictions to reduce the spread of COVID-19 caused an adverse impact
on economic activity, including disruptions to global supply chains, business closures, stricter work rules, increased unemployment, financial
market instability, and reduced tourism to Maui. Certain travel restrictions to the State of Hawaii and the County of Maui were eased
during 2021 resulting in a significant increase in visitor arrivals to Maui. The effects of an improving economy could be negatively impacted
by surges in COVID-19 and new variants, the administration and effectiveness of vaccines and government responses to future developments
as well as supply chain disruptions, labor shortages and rising inflation. A resurgence of COVID-19 or the emergence of new, significant
variants, could negatively impact the Maui real estate market, which could negatively impact the Company’s results and financial
position.
(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.
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 cost of sales and operating expenses. In computing operating income (loss), none of the following items
have been added or deducted: general corporate revenues and expenses, interest expense and income taxes.
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.
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 primarily of coffee operations and licensing agreements.
The Company is exploring
alternative agricultural operations, but there can be no assurance that replacement operations at any level will result.
Agricultural identified assets
include land classified as agricultural or conservation for State and County purposes.
|
|
2021 |
|
2020 |
|
2019 |
Capital Expenditures: |
|
|
|
|
|
|
|
|
|
Property |
|
$ |
325 |
|
$ |
497 |
|
$ |
406 |
Agriculture |
|
|
111 |
|
|
183 |
|
|
235 |
|
|
$ |
436 |
|
$ |
680 |
|
$ |
641 |
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization: |
|
|
|
|
|
|
|
|
|
Property |
|
$ |
72 |
|
$ |
62 |
|
$ |
57 |
Agriculture |
|
|
197 |
|
|
156 |
|
|
144 |
|
|
$ |
269 |
|
$ |
218 |
|
$ |
201 |
(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,
2021 |
|
Year Ended
December 31,
2020 |
|
Year Ended
December 31,
2019 |
|
|
(Amounts in thousands except per share amounts) |
Numerator: |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(306) |
|
$ |
(4,499) |
|
$ |
(3,870) |
|
|
|
|
|
|
|
|
|
|
Less: Net loss attributable to non-controlling
interests |
|
|
(551) |
|
|
(759) |
|
|
(243) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable
to stockholders |
|
$ |
245 |
|
$ |
(3,740) |
|
$ |
(3,627) |
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
Number of weighted average shares –
basic and diluted |
|
|
1,845 |
|
|
1,845 |
|
|
1,845 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, attributable
to
Kaanapali Land – basic and
diluted |
|
$ |
0.13 |
|
$ |
(2.03) |
|
$ |
(1.97) |
As of December 31, 2021,
the Company had issued and outstanding 1,792,613 Common Shares and 52,000 Class C Shares. The Class C Shares have the same rights
as the Common Shares except that the Class C Shares will not participate in any distributions until the holders of the Common Shares
have received aggregate distributions equal to $19 per share, subject to customary antidilution adjustments. Net income per share data
are based on the aggregate 1,844,613 outstanding shares.
(10) Subsequent
Events
On January 15, 2022, Pacific
Trail Holdings LLC, the manager of the Company adopted, a plan to freeze the benefit accruals under and close participation in the Pension
Plan and terminate the Pension Plan on or about June 1, 2022. After distribution of Pension Plan benefits to participants, remaining surplus
Pension Plan assets are expected to be distributed from the Pension Plan in accordance with the requirements of the Internal Revenue Code
of 1986 (as amended) by certain regulatory deadlines.
On February 11, 2022,
the U.S. District Court in Hawaii entered into an order approving the Consent Decree relative to the Waipio Peninsula between the U.S.
Department of Justice and the U.S. Environmental Protection Agency and the Company. Payment of the settlement amount was received by the
government on March 3, 2022. Reference is made to Note 7 for discussion of this matter.
On March 22, 2022,
the Company closed on the sale of its final lot in the Kaanapali Coffee Farms subdivision. The purchase price was $5,000, paid in cash
at closing.