10-K 1 kaana10k-2023.htm KAANAPALI LAND - FORM 10-K - 12/31/2023
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

 

FORM 10-K

 

[  X  ]  

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended December 31, 2023

   

 

or

 

[       ]   Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _____ to _____

 

Commission file number:  0-50273

 

 

Kaanapali Land, LLC

(Exact name of registrant as specified in its charter)

 

 

Delaware

(State or other jurisdiction

of incorporation or organization)

01-0731997

(I.R.S. Employer Identification No.)

   

900 N. Michigan Ave., Chicago, Illinois

(Address of principal executive offices)

60611

(Zip Code)

 

Registrant's telephone number, including area code 312-915-1987

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s)

Name of each exchange on

which registered

N/A N/A N/A

 

 

Securities registered pursuant to Section 12(g) of the Act:

 

Limited Liability Company Interests (Class A Shares)

(Title of Class)

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [ X ]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [ X ]

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [ X ] No [ ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of "large accelerated filer," "accelerated filer,""smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer [     ]   Accelerated filer [     ]  
  Non-accelerated filer [ X ]   Smaller reporting company [ X ]  
        Emerging growth company [     ]  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   Yes [ ] No [ ]

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [ ]

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by checkmark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. [ ]

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes [ ] No [ X ]

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. Not applicable.

 

As of March 27, 2024, the registrant had 1,792,613 Common Shares and 52,000 Class C Shares outstanding.

 

Documents incorporated by reference: None

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Table of Contents

 

Part I     Page
Item 1.   Business 4
       
Item 1A.   Risk Factors 12
       
Item 1B.   Unresolved Staff Comments 19
       
Item 1C.   Cybersecurity 19
       
Item 2.   Properties 20
       
Item 3.   Legal Proceedings 20
       
Item 4.   Mine Safety Disclosures 20
       
Part II      
Item 5.  

Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities

20
       
Item 6.   [Reserved] 21
       
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
       
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk 27
       
Item 8.   Financial Statements and Supplementary Data 28
       
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 56
       
Item 9A.   Controls and Procedures 56
       
Item 9B.   Other Information 56
       
Item 9C.   Disclosure Regarding Foreign Jurisdictions that Prevent Inspections ` 56
       
Part III      
Item 10.   Directors, Executive Officers and Corporate Governance 57
       
Item 11.   Executive Compensation 59
       
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 60
       
Item 13.   Certain Relationships and Related Transactions, and Director Independence 60
       
Item 14.   Principal Accountant Fees and Services 61
       
Part IV      
Item 15.   Exhibit and Financial Statement Schedules 62
       
Item 16.   Form 10-K Summary 63
       
Signatures 64
         

 

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Part I

 

Item 1. Business

 

Kaanapali Land, LLC ("Kaanapali Land" or the “Company”), 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 (as defined in the Plan)) 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.

 

The Company operates in two primary business segments: (i) Property and (ii) Agriculture. The Company operates through a number of subsidiaries, each of which is owned directly or indirectly by Kaanapali Land.

 

KLC Land is the direct subsidiary of Kaanapali Land through which the Company conducts substantially all of its remaining operations. KLC Land conducts substantially all of its business through various subsidiaries. Those subsidiaries with remaining assets of significant net value include KLC Holding Corp. ("KLC"), Pioneer Mill Company, LLC ("PMCo"), Kaanapali Land Management Corp. ("KLMC" formerly known as Kaanapali Development Corp.) and PM Land Company, LLC. In 2013, the Kaanapali Coffee Farms Lot Owners’ Association (“KCF LOA”) was consolidated with the interests of third-party owners reflected as non-controlling interests. The KCF LOA was deconsolidated in the third quarter of 2022 as a result of the turnover of control of the KCF LOA board of directors to the third-party owners of the lots in the subdivision.

 

All dollar amounts are in thousands of dollars unless otherwise noted.

 

Project Planning and Development. The Company's real estate development approach, for land that it holds for development rather than investment, is designed to enhance the value of its properties in phases. In most instances, the process begins with the preparation of market and feasibility studies that consider potential uses for the property, as well as costs associated with those uses. The studies consider factors such as location, physical characteristics, demographic patterns, anticipated absorption rates, transportation, infrastructure costs, both onsite and offsite, and regulatory and environmental requirements.

 

For any property targeted for development, the Company will generally prepare a land plan that is consistent with the findings of the studies and then commence the process of applying for the entitlements necessary to permit the use of the property in accordance with the land plan. The length and difficulty of obtaining the requisite entitlements by government agencies, as well as the cost of complying with any conditions attached to the entitlements, are significant factors in determining the viability of the Company's projects. Applications for entitlements may include, among other things, applications for state land use reclassification, Maui County (the “County”) community plan amendments, changes in zoning, and if applicable, subdivision.

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Pioneer Mill Site. The Company owns approximately 19 acres in Lahaina, known as the Pioneer Mill Site, which is zoned primarily industrial. This is the former site of PMCo's sugar mill on Maui and was the site of the coffee mill operation. In addition, portions of this parcel were subject to various short-term license agreements with third parties that generated income for the Company. Plans are in process for future potential development of the site. As discussed below, the site was negatively impacted by the Lahaina wildfire.

 

Lahaina Wildfire. Beginning on August 8, 2023, a wildfire occurred due east of historic Lahaina town in Maui. The fire spread rapidly due to extreme wind conditions caused in part by Hurricane Dora which traveled 800 miles offshore west of Maui. The fires caused multiple fatalities, widespread damage to Lahaina town and the surrounding area including the Company’s 19-acre Pioneer Mill site. The Company’s offices and coffee mill were located on the site as well as various other structures and a building which is leased to an unrelated third party and used to operate a coffee store. The Company also utilized portions of the property for short term license agreements with third parties that generated income for the Company. Although no employees were injured in the fire, the Company’s offices and coffee store building were destroyed. Additionally, it appears that most of the personal property of the licensees and the coffee mill was destroyed. The widespread destruction is likely to cause disruptions in the Company’s development plans. The damage to the coffee mill has disrupted operations and prevented the Company from processing and selling the current year coffee crop. It is also likely that the fires and devastation caused thereby will adversely affect the Maui economy and businesses operated on Maui. Clean up of Lahaina, including the Pioneer Mill site, has commenced by U.S. Army Corps of Engineers (“USACE”) contractors. Access to the property remains restricted, and such restrictions are expected to continue while the clean-up of Lahaina town continues, estimated by USACE to be completed in approximately 18 months. The Company has initiated claims with its insurance carriers and in October 2023, the Company received an initial, unallocated advance payment of $1 million from its insurance carrier. Notwithstanding the advance, there can be no assurance that the Company’s insurance coverage will fully compensate the Company for its losses incurred in connection with the fire and related devastation, including the costs of its structures and equipment lost in the fire, the loss in revenue from the lack of coffee sales, or the loss of income from the licensees. The Company could experience losses in excess of our insured limits, and further claims for certain losses could be denied or subject to deductibles or exclusions under our insurance policies. The Company has relocated its offices to temporary office facilities located on its lands in Kaanapali and is in the planning stages of relocating its coffee mill to its farm in Kaanapali. Additionally, the Company was able to recover its electronic files which were stored on its servers destroyed in the fire from back up files existing at an offsite location. Recovery efforts continue.

 

Kaanapali 2020 Development Plan. The Company's developable lands are located on the west side of the Island of Maui in the State of Hawaii. The majority of the developable lands are located near to the Kaanapali resort area. The Kaanapali development lands have been the subject of a community-based planning process that commenced in 1999 for the Kaanapali 2020 Development Plan. The Kaanapali 2020 Development Plan includes a mix of residential (including workforce affordable housing), commercial, quasi-public facilities, recreation, agriculture, rural, and open space. Any development plan for any of the Company's land, including the Kaanapali 2020 Development Plan, will be subject to approval and regulation by various state and County agencies and governing entities, especially insofar as the nature and extent of zoning, and improvements necessary for site infrastructure, building, transportation, water management, environmental and health are concerned. A substantial portion of the Company’s Kaanapali 2020 Development Plan land will require state district boundary amendments and county general plan and community plan amendments, as well as rezoning approvals. In Hawaii, the governmental entities may impose limits or controls on growth in their communities during the review and consideration of the various entitlement processes mainly through restrictive conditions, including limitations on density, impact fees, infrastructure contribution, among others, all of which may materially affect utilization of the land and the costs associated with developing the land. In addition, the County currently requires certain percentages and levels of affordability to be included in

5 

 

proposed residential developments or subdivisions of land, thereby affecting the feasibility of these projects. There can be no assurance that the Company will be successful in obtaining the necessary zoning and related entitlements for development of any currently unentitled Maui lands. At this time, the only Kaanapali 2020 Development Plan land that has sufficient entitlements to commence development is the Puukolii Village Mauka development, as described below.

 

The current regulatory approval process for a development project takes a number of years or more and involves substantial expense. The applications generally require the submission of comprehensive plans that involve the use of consultants and other professionals. A substantial portion of the Company's Kaanapali 2020 Development Plan land will require state district boundary amendments and county general plan and community plan amendments, as well as rezoning approvals. There is no assurance that all necessary approvals and permits will be obtained with respect to the current projects or future projects of the Company. Generally, entitlements are extremely difficult to obtain in Hawaii. There is often significant opposition to proposed developments from numerous local groups, environmental organizations, various community and civic groups, condominium associations and politicians advocating no-growth policies, among others. Any such group with standing can challenge submitted applications, which may substantially delay the process. Generally, once the applications are deemed acceptable, the various governing agencies involved in the entitlement process commence consideration of the requested entitlements. The applicable agencies often impose conditions, which may be costly and time consuming, on any approvals of the entitlements. The substantial time and expense of obtaining entitlements and the uncertainty of success in obtaining the entitlements could have a material adverse effect on the Company's success.

 

At the state level, all land in Hawaii is divided into four land use classifications: urban, rural, agricultural and conservation. The majority of the Kaanapali 2020 Development Plan land is currently classified as either agricultural or conservation.

 

A relatively small portion (approximately 300 acres) of the Kaanapali 2020 Development Planning area owned by the Company, known as Puukolii Village Mauka, comprised of two parcels known as Puukolii Village Mauka and another parcel adjacent to Puukolii Village Mauka, received entitlements in 1993 under the terms of a superseded law that fast tracked entitlements for planned mixed use developments that contained the requisite percentage of affordable housing units. The requirements imposed on the Company relative to these entitlements proved uneconomic and thus the developments were not pursued. The Company proposed revisions to certain entitlement conditions as well as the development agreement with the applicable state agencies and is continuing to plan for the development of the Puukolii Village Mauka area, which will, if ultimately developed, include certain affordable and market housing units, a small commercial area, a school, a park and associated improvements. From 2007 through 2009, the Company received various approvals of its proposed revisions of entitlement conditions and of the development agreement including the addition of the County housing department as a party to the development agreement.

 

Despite the hurdles mentioned above, the Company remains hopeful that it will generally be able to develop that portion of its land for which it can obtain classification as an urban district from the State Land Use Commission. However, it is uncertain whether the Company will be able to obtain all necessary entitlements or, if so, how long it will take, and it cannot be predicted what the market will be for such land (or the associated development costs) at such time. Conservation land is land that has been considered by the state as necessary for preserving natural conditions as well as to protect water resources and cannot be developed. Lands within agricultural and rural districts have limited development potential, especially as it relates to density and use. Pursuant to the Kaanapali 2020 Development Plan, the Company intends to apply to the State Land Use Commission for reclassification of a portion of the agricultural lands to urban, and perhaps some rural, but does not intend to apply for reclassification of the conservation lands.

 

6 

 

During 2012, the County updated its General Plan which projects general growth of the County over the next few decades. This update included a new component with maps which show directed growth areas. The County recognized the Kaanapali 2020 Development Plan to be within the urban growth limits identified in these directed growth maps. Development of the Kaanapali 2020 Development Plan lands in accordance with the Kaanapali 2020 Development Plan will require, in addition to state land use reclassification of some of the land from agriculture to urban, appropriate designation under the County community plan, and the appropriate County zoning designation included in the Maui County General Plan noting it as an urban growth area. In December 2021, the West Maui Community Plan (“WMCP”),which consists of a vision statement, goals, policies, and actions to guide growth and preservation in West Maui, was updated and became part of the General Plan. The Company is evaluating the effect, if any, the changes to the WMCP will have on its development plans. Obtaining any and all of these approvals can involve a substantial amount of time and expense, and approvals may need to be resubmitted if there is any subsequent, material deviation in current approved plans or significant objections by the responsible government agencies. There are no assurances that the Company can obtain approvals or deviations.

 

In connection with any successful petition to change any of the various land use classifications (state land use district, county community plan, county zoning) of the Kaanapali 2020 Development Plan, the Company may be required to make significant improvements in public facilities (such as roads), to dedicate property for public use, to provide employee/workforce housing units and to make other concessions, monetary or otherwise. The ability of the Company to perform its development activities may also be adversely affected by restrictions that may be imposed by government agencies and the surrounding communities because of inadequate public facilities, such as roads, water management areas and sewer facilities, and by local opposition to continued growth. The Lahaina wildfires may also cause further delays in the Company’s planned developments. However, as part of the Kaanapali 2020 Development Plan, the Company has included a number of community members and local government officials in the development planning process and has earned significant community support for its preliminary Kaanapali 2020 Development Plan. It also believes that it enjoys general local community support for its new Puukolii Village Mauka concept. The Company hopes that carrying on with this process will continue to generate substantial support from local government and the community for the Company's development plans.

 

There can be no assurance that all necessary approvals will be obtained, that modifications to those plans will not require additional approvals, or that such additional approvals will be obtained, nor can there be any assurance as to the timing of such events.

 

In September 2014, KLMC, pursuant to a property and option purchase agreement (“Purchase Agreement”) sold an approximately 14.9 acre parcel in West Maui. The Purchase Agreement (as subsequently amended) commits KLMC to fund up to $0.6 million, depending on various factors, for off-site roadway, sewer and electrical improvements that will also provide service to other KLMC properties. KLMC may, at its discretion, design, construct, install, and complete all or portions of the off-site road, sewer and/or electrical improvements, in which case the developer shall pay to KLMC the total costs thereof, less the KLMC committed amount. In relation to such sewer line improvement, KLMC has entered into a contract for $1.1 million to install the sewer line. KLMC has paid $1.1 million on the contract which has been recorded as a receivable, less KLMC’s sewer line commitment of $0.2 million. In accordance with the Purchase Agreement, the receivable accrues interest of 6.5% and is secured by the 14.9 acre property. The developer has begun certain other offsite construction has begun at the site. In conjunction with the Purchase Agreement, the Company retains certain approval rights relating to the uses and designs of the site to ensure the uses and designs are aligned with the Company’s planned master development. If such uses result in a dispute with the developer of the site, such dispute could delay the development of the site. 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.

7 

 

The Company is in the planning stages for the development of a 295-acre parcel in the region mauka of the Kaanapali Coffee Farms (“KCF Mauka”). The parcel is to be comprised of 61 agricultural lots that will be offered to individual buyers. The Company expects to develop the parcel in phases and all phases have been submitted to the County for subdivision approval. The Company continues to work with the County to resolve certain of the County’s comments relating to the subdivision. The Company’s understanding is that all outstanding comments from the County have been resolved verbally with County staff. The final approval letter has been pending and additional efforts are being made to secure the approval. Upon final subdivision approval of all phases and receipt of final plat of the first phase from the County, which requires a bond in the amount of the cost to develop the first phase, the Company can pre-sell the undeveloped lots in the first phase. The Company expects to market the lots in the first phase upon receiving final approvals from the County, subject to various contingencies, including, but not limited to, governmental and market factors and the availability of a bond to secure the first phase of the development. At this time, the Company is assessing whether the fires and resulting devastation may negatively impact the near term marketability of the lots in the first phase of the development. Therefore, there can be no assurance the Company will be able to meet such timetable, that the subdivision will ultimately be approved or that the lots will sell for prices deemed advantageous by the Company.

 

The Company is in the planning stages for the development of a 241-acre residential development site in the region south of Kaanapali Coffee Farms known as Puukolii Village. The conceptual master plan is comprised of 20 developable parcels planned for 940 units including a mix of affordable and market priced homes, both single and multi-family, mixed use commercial, parks, school, and community facilities. Puukolii Village is fully entitled. At this time, the Company is uncertain whether the fires and resulting devastation might delay approvals from the County. In conjunction with the potential development of Puukolii Village and in coordination with the possible development by an unrelated third party of the 14.9 acre site to be used for a critical access hospital, as noted above, the Company entered into a contract to install a sewer line from the Puukolii Village site to the critical care hospital site. The developer of the critical access hospital site is obligated to share in the sewer line cost for the portion of the sewer line fronting the critical care hospital site. (See discussion above).

 

KLMC is a party to an agreement with the State of Hawaii for the development of the Lahaina Bypass Highway. Approximately 2.4 miles of this two lane state highway have 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 $1.1 million 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 $6.7 million 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.

 

8 

 

Agriculture

 

Current Operations. Agricultural operations consist primarily of cultivation, milling and sale of coffee. The coffee farming operation includes manpower and equipment required to fertilize, prune and maintain the coffee plantations as well as equipment required to harvest and haul coffee cherry to the Company’s former processing plant (the “Mill”) located on the former sugar mill site in Lahaina, Hawaii. As discussed above, the coffee mill was destroyed in the Lahaina wildfire. The Company is in the planning stages of building a new mill at its farm in Kaanapali, which is not expected to be completed in time for the next coffee harvest. The coffee fields were not destroyed in the fire. The Company also maintains and operates a system of irrigation infrastructure including development tunnels, ditches, tunnels, siphons, flumes and reservoirs required to irrigate the Company’s agricultural operations and future planned developments with non-potable water.

 

The Company sells milled green coffee under the brand name Mauigrown Coffee mainly to interisland Hawaii customers, generally roasters who have retail coffee shops, and also sell to grocery stores and online. Based on availability, green coffee is also shipped and sold to mainland and international customers, including roasters, dealers, and traders. Portions of the coffee farms are operated as part of the 336-acre Kaanapali Coffee Farms agricultural subdivision, in which a portion of each lot owned by the lot owner is used for their single-family dwelling, while the remainder of the lot containing coffee trees is farmed by the Company. The Company has entered into certain agreements with the Kaanapali Coffee Farms Lot Owners Association in this regard. The planned 295-acre, second phase of KCF Mauka will be within the coffee farming area as well. The Company continues to plant additional acreage of coffee on its agricultural land not currently included in the developable lands of Kaanapali 2020 Development Plan.

 

Coffee production and yields are subject to many factors, particularity weather related factors, including rainfall and the availability of sufficient irrigation water flowing through its irrigation system. Yields may be reduced in years of drought when irrigation water and rainfall is insufficient. Reference is made to Item 1A. Risk Factors for risks relating to agriculture. The Company purchases crop insurance annually which reduces certain coffee crop production risks. The Company received crop insurance proceeds in 2023 related to losses sustained to the 2022 coffee crop due to an insured event. Additionally, acreage under production is reduced annually by required tree pruning of approximately one quarter to one third of total coffee acreage in production.

 

The coffee is sold as Maui origin “specialty coffee” (as defined by the Specialty Coffee Association) as is most coffee produced in Hawaii. Hawaiian coffees generally command a higher price per pound green than many other specialty coffees produced around the world but there can be no assurance such prices will continue or that coffee prices or yields will be sufficient to cover all costs of production and sales.

 

9 

 

In addition to the Company’s commercial coffee farming operations, the Company grows bananas, citrus, and alfalfa. The Company also has approximately 660 acres of fenced pasture for cattle grazing as well as approximately 40 acres of fenced pasture for goat grazing. The Company’s banana operation currently consists of approximately 14 acres. The bananas are sold by the Company to certain customers for distribution on Maui. KLMC also grows and sells various citrus including grapefruit and lemons. These are sold to various local venders to be sold at farmer’s markets on Maui. Although the Company realizes minor amounts of revenue relating to these agricultural operations there are certain property tax advantages with land engaged in active agriculture.

 

For a description of financial information by segment, please read Note 8 to the attached consolidated financial statements included in Item 8, which information is incorporated herein by reference.

 

Employees

 

At March 1, 2024, Kaanapali Land and its subsidiaries employed a total of 23 employees. Certain corporate services are provided by Pacific Trail Holdings, LLC (“Pacific Trail”) and its affiliates. Pacific Trail owns in excess of 80% of the Common Shares of Kaanapali Land. Kaanapali Land reimburses Pacific Trail and its affiliates for these services and related overhead at cost.

 

Trademarks and Service Marks

 

The Company maintains a variety of trademarks and service marks that support each of its business segments. These marks are filed in various jurisdictions, including the United States Patent and Trademark Office, the State of Hawaii Department of Commerce and Consumer Affairs and foreign trademark offices. The trademarks and service marks protect, among other things, the use of the term "Kaanapali" and related names in connection with the developments in the vicinity of the Kaanapali Resort area on Maui and the various trade names and service marks obtained in connection with the Company's coffee operations. Certain trademarks, trade names and service marks have also been registered in connection with the Kaanapali Coffee Farms development. Also protected are certain designs and logos associated with the names protected. Certain marks owned by the Company have been licensed to third parties, however, the income there from is not material to the Company's financial results. To the extent deemed advantageous in connection with the Company's ongoing businesses, to satisfy contractual commitments with respect to certain marks or where the Company believes that there are future licensing opportunities with respect to specific marks, the Company intends to maintain such marks to the extent necessary to protect their use relative thereto. The Company also intends to develop and protect appropriate marks in connection with its future land development and agricultural activities.

 

Market Conditions and Competition

 

There are a number of factors that historically have negatively impacted Kaanapali Land's property activities, including market conditions, the difficulty in obtaining regulatory approvals, the high cost of required infrastructure and the Company's ability to maintain operating surplus in its other business segment. In addition, the Lahaina wildfire could eventually cause a weakening of the west Maui real estate market, which could negatively ipact the Company. As a result, the planned use of many of the Company's land holdings and the ability to generate cash flow from these land holdings have become long-term in nature, and the Company has found it necessary to sell certain parcels in order to raise cash rather than realize their full economic potential through the entitlement process.

 

10 

 

There are several developers, operators, real estate companies and other owners of real estate that compete with the Company in its property business on Maui, many of which have greater resources. The number of competitive properties in a particular market could have a material adverse effect on the Company's success. In addition, many properties previously purchased from the Company by retail buyers are listed for resale and could provide additional competition to the Company in future years.

 

Government Regulations and Approvals

 

The current regulatory approval process for a project can take many years and involves substantial expense. There is no assurance that all necessary approvals and permits will be obtained with respect to the Company's current and future projects. Generally, entitlements are extremely difficult to obtain in Hawaii. Many different agencies at the state and County level are involved in the entitlement process. There is often significant opposition from numerous local groups - including environmental organizations, various community and civic groups, condominium associations and politicians advocating no-growth policies, among others. Certain ordinances adopted by the County of Maui have placed additional requirements on developers, some of which may be difficult or expensive to satisfy. Other proposed ordinances that have not yet passed may place moratoria on new development. It is currently unknown to what extent new legislative initiatives will impact the cost or timing of the Company's planned developments.

 

By letters dated October 28, 2022, the State of Hawaii Commission on Water Resource Management (“CWRM”) officially designated all six Aquifer System Areas of the Lahaina Aquifer Sector, Maui, as Ground Water Management Areas, as of August 6, 2022. CWRM notified the Company that by August 5, 2023, the Company would need to apply for ground and surface water use permits to continue the Company's use of certain wells that are integral to the Company's entire operations. The Company has submitted such applications for permits. The permits, when or if granted and subject to various conditions, would preserve the Company's existing water uses as of August 6, 2022. The Company has submitted such applications for permits. The Company cannot provide any assurances that CWRM will approve such permit applications for the amounts of water the Company seeks or impose conditions on such use that might affect the Company’s operations. If CWRM should fail to approve the Company’s water requests or impose onerous conditions on its use, CWRM’s actions could delay the Company’s development in substantial and material respects and affect the Company’s operations and finances. Further, in the event permits adequate to the Company's plans are not received timely or at all, there could be negative impacts on the west Maui real estate market as a whole and the development and sale of the Company's lands on the Island of Maui, thereby materially and adversely affecting the Company's operations, land sales, land values, results, and financial position.

11 

 

By letter dated March 13, 2023, CWRM provided the Company a notice of alleged water violation covering the metering and monitoring of certain designated areas with the Honokowai aquifer and hydrologic unit, as well as certain waste conditions CWRM allegedly observed on prior investigations of those certain areas. The Company has engaged with CWRM to address the alleged violations and to seek clarification of the issues. While the Company does not believe that such issues, when and if addressed by the Company, will prove material in cost, there are no assurances of same.

 

Kaanapali Land continues to work toward the necessary entitlements for the Kaanapali 2020 Development Plan. While some of these lands have some form of entitlements, it is anticipated that at least a substantial portion of the land will require state district boundary amendments and Community Plan amendments, as well as rezoning approvals. In January 2009 the Company received approval of revisions to its development plans for the Puukolii Village Mauka parcels. The Kaanapali 2020 Development Plan is recognized within the urban growth areas identified in the growth maps of the Maui County General Plan. Approximately 1,500 acres of the Company's Maui land which is contiguous to Kaanapali 2020 Development Plan land is located toward the top of mountain ridges and in gulches is classified as conservation, which precludes most other use. This conservation land, and other land that will be designated as open space, is an important component of the overall project, allowing for the protection of water and other natural resources, and its existence is expected to influence obtaining the entitlements for the remaining land.

 

Environmental Matters

 

The Company is subject to environmental and health safety laws and regulations related to the ownership, operation, development and acquisition of real estate, the destruction that occurred at the Pioneer Mill Site as a result of the Lahaina wildfire, or the operation of former business units. Under those laws and regulations, the Company may be liable for, among other things, the costs of removal or remediation of certain hazardous substances. In addition, the Company may find itself having to defend against personal injury lawsuits based on exposure to substances including asbestos related liabilities. Regarding asbestos related liabilities, Kaanapali Land, as successor 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. Those laws and regulations often impose liability without regard to fault. With regard to other environmental matters as generally described in the risk factors set forth below, no assurance can be given that those matters will not have a material adverse effect on the Company’s consolidated financial position or results of operations. Reference is made to Item 1A. Risk Factors and Note 7 of the consolidated financial statements included in Item 8 for a description of certain legal proceedings related to environmental conditions.

 

Item 1A. Risk Factors

 

The Company faces numerous risks and uncertainties, including those set forth below. The risks described below are not the only risks that the Company faces. New risk factors emerge from time to time and it is not possible to predict all such risk factors. Risk factors include a number of factors that could negatively impact Kaanapali Land's property activities. Any of the risks described below and potential new risks not yet identified may have a material adverse effect on the Company's business, consolidated financial position or results of operations.

 

Reference is made to Item 1. Business and Item 3. Legal Proceedings for further discussion of some of the risk factors facing Kaanapali Land, LLC.

 

12 

 

Risks Related to Hawaiian Real Estate and Development Markets

 

The Kaanapali 2020 Development Plan (including, without limitation, Kaanapali Coffee Farms and Puukolii Village Mauka), as well as the Company's other development activities, are, apart from the risks associated with the entitlement process described above, subject to the risks generally incident to the ownership and development of real property. These include the possibility that cash generated from sales will not be sufficient to meet the Company's continuing obligations. This could result from inadequate pricing or declines on asset values or pace of sales of properties or disruptions and delays in the supply of construction material or changes in costs of construction or development; increased and continuing government mandates; adverse changes in Hawaiian economic conditions, such as increased costs resulting from continuing high rates of inflation, and availability of labor, increased costs of marketing and production, restricted availability of financing; adverse changes in local, national and/or international economic conditions (including adverse changes in exchange rates of foreign currencies for U.S. dollars); adverse effects of international political events, such as geopolitical events in Europe, the Middle East, Asia, and Russia’s invasion of Ukraine, additional terrorist activity in the U.S. or abroad that lessen travel, tourism and investment in Hawaii; substantial increase in cost of travel to Hawaii due to the increase in fuel costs or other events in the airline industry that could lessen travel and tourism in Hawaii; the spread of contagious viruses or diseases that could negatively impact commerce generally and travel to Hawaii; the need for unanticipated improvements or unanticipated expenditures in connection with environmental matters; increase in real estate tax rates and other expenses; delays in obtaining permits or approvals for construction or development and adverse changes in laws, governmental rules and fiscal policies; acts of God, including wildfires, earthquakes, volcanic eruptions, floods, droughts, fires, tsunamis, unusually heavy or prolonged rains, and hurricanes; and other factors which are beyond the control of the Company. Because of these risks and others, real estate ownership and development is subject to unexpected increases in costs.

 

During 2012, the County updated its General Plan which projects general growth of the County over the next few decades. This update included a new component with maps which show directed growth areas. The County recognized the Kaanapali 2020 Development Plan to be within the urban growth limits identified in these directed growth maps. Development of the Kaanapali 2020 lands in accordance with the Kaanapali 2020 Development Plan will require, in addition to state land use reclassification of some of the land from agriculture to urban, appropriate designation under the County community plan, and the appropriate County zoning designation included in the Maui County General Plan noting it as an urban growth area. In December 2021, the WMCP was updated and became part of the General Plan. The Company is evaluating the effect, if any, the changes to the WMCP will have on its development plans. Obtaining any and all of these approvals can involve a substantial amount of time and expense, and approvals may need to be resubmitted if there is any subsequent, material deviation in current approved plans or significant objections by the responsible government agencies. There are no assurances that the Company can obtain approvals or deviations.

13 

 

By letters dated October 28, 2022, CWRM officially designated all six Aquifer System Areas of the Lahaina Aquifer Sector, Maui, as Ground Water Management Areas, as of August 6, 2022. CWRM notified the Company that by August 5, 2023, the Company would need to apply for ground and surface water use permits to continue the Company's use of certain wells that are integral to the Company's entire operations. The Company has submitted such applications for permits. The permits, when or if granted and subject to various conditions, would preserve the Company's existing water uses as of August 6, 2022. The Company cannot provide any assurances that CWRM will approve such permit applications for the amounts of water the Company seeks or impose conditions on such use that might affect the Company’s operations. If CWRM should fail to approve the Company’s water requests or impose onerous conditions on its use, CWRM’s actions could delay the Company’s development in substantial and material respects and affect the Company’s operations and finances. Further, in the event permits adequate to the Company's plans are not received timely or at all, there could be negative impacts on the west Maui real estate market as a whole and the development and sale of the Company's lands on the Island of Maui, thereby materially and adversely affecting the Company's operations, land sales, land values, results, and financial position.

 

By letter dated March 13, 2023, CWRM provided the Company a notice of alleged water violation covering the metering and monitoring of certain designated areas with the Honokowai aquifer and hydrologic unit, as well as certain waste conditions CWRM allegedly observed on prior investigations of those certain areas. The Company has engaged with CWRM to address the alleged violations and to seek clarification of the issues. While the Company does not believe that such issues, when and if addressed by the Company will prove material in cost, there are no assurances of same.

 

The Company may, from time to time and to the extent economically advantageous, sell rezoned, undeveloped or partially developed parcels, such as portions of the Kaanapali 2020 Development Plan lands and/or the former Pioneer Mill site. The Company currently intends to develop the balance of its lands for residential, resort, affordable housing, limited commercial and recreational purposes. There can be no assurances that the Company will be successful in such efforts.

 

Additional increases in interest rates or downturn in the international, national or Hawaiian economy could affect the value of Company's properties and its profitability and sales. A downturn of the economy could have a profound negative effect on the Hawaiian real estate market. However, the Kaanapali resort area has historically enjoyed a significant mainland tourist market in the United States and Canada. A weakening of the Maui real estate market has in the past negatively impacted, and would in the future negatively impact the Company.

 

The Company's real estate activities may be adversely affected by possible changes in tax laws, including changes which may have an adverse effect on resort and residential real estate development. High rates of inflation adversely affect real estate development generally because of their impact on interest rates. High interest rates not only increase the cost of borrowed funds to the Company, but also have a significant effect on the affordability of permanent mortgage financing to prospective purchasers. However, high rates of inflation may permit the Company to increase the prices that it charges in connection with land sales, subject to a slowdown in sales and increase in home construction costs and to general economic conditions affecting the real estate industry and local market factors. There can be no assurance that Hawaiian real estate values will rise, or that, if such values do rise, the Company's properties will benefit.

 

14 

 

Risks Relating to Natural Events

 

The Company's development lands are located in an area that is susceptible to hurricanes and seismic activity. In addition, during certain times of year, heavy rainfall is not uncommon. These events may adversely impact the Company's development activities and infrastructure assets, such as roadways, reservoirs, water courses and drainage ways. Significant events may cause the Company to incur substantial expenditures for investigation and restoration of damaged structures and facilities. Climate change, flooding, drought, fires, wind, prolonged heavy rains, and other natural perils can adversely impact agricultural production and water transmission and storage resources on lands owned or used by the Company.

 

Beginning on August 8, 2023, a wildfire occurred due east of historic Lahaina town in Maui. The fire spread rapidly due to extreme wind conditions caused in part by Hurricane Dora which traveled 800 miles offshore west of Maui. The fires caused multiple fatalities, widespread damage to Lahaina town and the surrounding area including the Company’s 19-acre Pioneer Mill Site. The Company’s offices and coffee mill were located on the site as well as various other structures and a building which is leased to an unrelated third party and used to operate a coffee store. The Company also utilized portions of the property for short term license agreements with third parties that generated income for the Company. Although no employees were injured in the fire, the Company’s offices and coffee store building were destroyed. Additionally, most of the personal property of the licensees and the coffee mill was destroyed. The widespread destruction is likely to cause disruptions in the Company’s development plans. The damage to the coffee mill has disrupted operations and prevented the Company from processing and selling the current year coffee crop. It is also likely that the fires and devastation caused thereby will adversely affect the Maui economy and businesses operated on Maui. Clean up of Lahaina, including the Pioneer Mill site, has commenced by U.S. Army Corps of Engineers (“USACE”) contractors. Access to the property remains restricted, and such restrictions are expected to continue while the clean-up of Lahaina town continues, estimated by USACE to be completed in approximately 18 months. The Company has initiated claims with its insurance carriers and in October 2023, the Company received an initial, unallocated advance payment of $1 million from its insurance carrier. Notwithstanding the advance, there can be no assurance that the Company’s insurance coverage will fully compensate the Company for its losses incurred in connection with the fire and related devastation, including the costs of its structures and equipment lost in the fire, the loss in revenue from the lack of coffee sales, or the loss of income from the licensees. The Company could experience losses in excess of our insured limits, and further claims for certain losses could be denied or subject to deductibles or exclusions under our insurance policies. The Company has relocated its offices to temporary office facilities located on its lands in Kaanapali and is in the planning stages of relocating its coffee mill to its farm in Kaanapali. Additionally, the Company was able to recover its electronic files which were stored on its servers destroyed in the fire from back up files existing at an offsite location. Recovery efforts continue.

 

In addition, similar events elsewhere in Hawaii may cause regulatory responses that impact all landowners. For example, as described in Note 7 to the consolidated financial statements included in Item 8, the Company received notice from the Hawaii 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 April 2022. To date, the DLNR has cited certain deficiencies concerning two of the Company’s reservoirs relating to dam and reservoir safety standards established by the State of Hawaii. These deficiencies include, among other things, vegetative overgrowth, erosion of slopes, uncertainty of inflow control, spillway capacity, and freeboard, and uncertainty of structural stability under certain loading and seismic conditions. The Company has taken certain corrective actions, including lowering the reservoir operating level; as well as updating important plans to address emergency events and basic operations and maintenance. Remediation of all cited deficiencies could result in significant and costly improvements which may be material to the Company.

15 

 

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.

 

Risks Relating to Agriculture

 

The Company remains engaged in farming, harvesting, and milling operations relating to coffee orchards. The Company incurs significant risks relating to the cost of growing and maintaining the coffee trees and producing and selling the coffee. As discussed above, the coffee mill was destroyed in the Lahaina wildfire. The Company is in planning stages of building a new mill at its farm in Kaanapali, which is not expected to be completed in time for the next coffee harvest. The coffee fields were not damaged in the fire. The Company is experiencing rising costs in its farming operations as a result of certain supply chain disruptions, local labor shortages and the recent rise in inflation. Such cost increases may negatively impact the Company’s results of operations in the future and may cause disruptions in the Company’s development plans. The Company also incurs the risk that coffee farming could be materially affected because of the adverse effects on coffee yields caused by coffee berry borer (“CBB”), coffee leaf rust (“CLR”) or through regulatory risk, as described below. The Company relies on water sourced from its irrigation systems, which divert water from streams and development tunnels into a network of ditches, tunnels, flumes, siphons and reservoirs. In the event CWRM or any other regulatory body limits the Company’s ability to divert stream waters to its irrigation systems, the result could have a negative impact on the Company’s ability to continue with its agricultural operations and development plans.

 

Several years ago, CBB, a beetle native to Central Africa and that has existed for some time in Central and South America, was discovered on the islands of Hawaii and Oahu. In 2017 the CBB appeared on the island of Maui. Effective May 1, 2017, the Hawaii Department of Agriculture (“HDOA”) began restricting the shipping of coffee grown on Maui to other Hawaiian Islands due to the discovery of the CBB on the island. The restriction requires specific treatment and inspection by HDOA Plant Quarantine inspectors before shipping to other islands.

 

In September 2020, the Company discovered the CBB on its land. The Company has been aware of the possible spread to its crops and has maintained sound management practices. The Company has developed an integrated management program designed to manage all aspects for cultural control of the CBB. Such program has resulted in an increase in the costs of farming the coffee and the CBB may lower the quantity and quality of salable coffee.

 

The overall effect of the CBB is to reduce the yield and quality of the coffee bean. Farming methods have been developed to reduce the effect on the islands of Hawaii and Oahu, and the Company has incorporated many of these practices into its integrated management program. While the Company intends to continue to utilize the best practices available, there can be no assurance that the action by the HDOA or the spread of the CBB to its crops will not have a material effect on its coffee operations.

 

In October 2020, agriculture officials with HDOA confirmed the presence of CLR on Maui. HDOA also confirmed the presence of CLR on the island of Hawaii in November 2020. The Company found evidence of CLR on its farm in January 2021, which was subsequently confirmed by HDOA. CLR is one of the most devastating diseases of coffee plants. It is established in all of the other major coffee-growing areas of the world but had not previously been found in Hawaii. The HDOA has since discovered CLR in all of the coffee-growing regions of Hawaii.

 

16 

 

CLR can cause severe defoliation. Infected leaves drop prematurely, greatly reducing the plant’s photosynthetic capacity and reducing berry growth. Long-term effects of CLR can have a stronger impact by causing dieback, which reduces the number of productive nodes on branches, significantly impacting the following year’s yield.

 

The Company has implemented an integrated past management program designed to manage all aspects for cultural control of CLR. As with the CBB, such program may result in an increase in the costs of farming the coffee and lower the quantity and quality of salable coffee, and there can be no assurance that CLR will not have a material adverse effect on the Company’s coffee operations.

 

Risks Relating to Hawaiian, U.S. and World Economies Generally

 

The Company's businesses will be subject to risks generally confronting the Hawaiian, U.S. and world economies. All of the Company's tangible property is located in Hawaii. As a result, the Company's revenues will be exposed to the risks of investment in Hawaii and to the economic conditions prevalent in the Hawaiian real estate market. While the Hawaiian real estate market is subject to economic cycles that impact tourism and investment (particularly in the United States, Japan and other Pacific Rim countries), it is also influenced by the level of economic development in Hawaii generally and by external and internal political forces.

 

Adverse macroeconomic conditions continue to cause economic uncertainty and market volatility. Continued high levels of inflation, slower growth or recession, changes to fiscal and monetary policy, higher interest rates, currency fluctuations, ongoing challenges in the supply chain and other adverse macroeconomic conditions, may continue. Such uncertainty and risk may negatively impact the Company’s performance and financial results, including any potential negative impact on the values of its property holdings on Maui and future planned development and sales of parcels of such development, changes in law and/or regulation, and uncertainty regarding government and regulatory policy.

 

Various factors impact the desire of people to travel, particularly by air. Discretionary income and unemployment throughout the world also impact travel to Hawaii and the market for real estate. Thus, Hawaii is subject to higher risks than other portions of the United States due to its disproportionate reliance on air travel and tourism. The visitor industry is Hawaii's most important source of economic activity, accounting for a significant portion of Gross State Product. For example, the outbreak of the COVID-19 coronavirus materially impacted and limited the travel and tourism industry and a similar event could again trigger a prolonged adverse effect on such economic activity.

 

Because of the foregoing considerations, the risks associated with the large reliance by Hawaii on a visitor base, both from foreign countries and the United States mainland, will disproportionately impact the Company in future years, as market and visitation cycles play out.

 

17 

 

Environmental Risks and Environmental Regulations

 

The Company is subject to environmental and health safety laws and regulations related to the ownership, operation, development and acquisition of real estate, or the operation of former business units. Under various federal, state and local laws, ordinances and regulations, a current or previous owner, developer or operator of real estate may be liable for the costs of removal or remediation of certain hazardous toxic substances at, on, under or in its property. The costs of such removal or remediation of such substances could be substantial. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the actual release or presence of such hazardous or toxic substances. The presence of such substances may adversely affect the owner's ability to sell or rent such real estate or to borrow using such real estate as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances also may be liable for the costs of removal or remediation of such substances at the disposal or treatment facility, whether or not such facility is owned or operated by such person. Certain environmental laws impose liability for the release of asbestos containing material into the air, pursuant to which third parties may seek recovery from owners or operators of real properties for personal injuries associated with such materials, and prescribe specific methods for the removal and disposal of such materials. The cost of legal counsel and consultants to investigate and defend against these claims is often high and can significantly impact the Company's operating results, even if no liability is ultimately shown. No assurance can be given that the Company will not incur liability in the future for known or unknown conditions and any significant claims may have a material adverse impact on 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 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 were allegedly based on sale of asbestos-containing products by D/C's prior distribution business operations primarily in California. Certain asbestos-related proofs of claims in the bankruptcy case have been withdrawn in connection with closing the bankruptcy. 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. Such bankruptcy case was closed on June 14, 2023. 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. Reference is made to Note 7 to the Company’s consolidated financial statements included in Item 8 for additional discussion.

 

Risks Relating to the Company’s Shares

 

The Company’s shares are not listed on a major exchange in the United States and are instead traded via the over-the-counter broker-dealer network. Therefore, there may be additional steps and fees when trading the Company’s shares. The Company’s shares have less liquidity, low trading volume, price volatility, and may experience larger spreads between bid price and ask price.

 

 

18 

 

Item 1B. Unresolved Staff Comments

 

Not applicable.

 

 

Item 1C. Cybersecurity

 

The Company utilizes an affiliated company of Pacific Trail (“IT Provider”), which is a provider of financial services to numerous affiliates of Pacific Trail, which operate in the real estate and financial services industries for its accounting, accounts payable, treasury and related Information Technology (“IT”) and data processing functions. The Company’s financial systems and related controls, procedures, risk management, and including IT systems is integrated with that of the affiliated companies (together the “Affiliated Group”).

 

Cybersecurity and cybersecurity risk management are important aspects of operations and a focus area for the Affiliated Group. Cybersecurity risks are evaluated on an ongoing basis by the Affiliated Group and its IT Provider, both internally and with the assistance of external firms.

 

The Company engages a national technology firm in an effort to maintain and continually update its cybersecurity posture and keep current with evolving cybersecurity risks. The IT Provider’s cybersecurity program is examined on a regular basis, and new procedures and tools are adopted on an ongoing basis to address the changing cybersecurity landscape. The IT Provider’s technology team tests the effectiveness of its tools with periodic exercises, including Penetration (PEN) tests. Risk is assessed to identify and manage risks that could affect its ability to provide reliable processing to the Affiliated Group. This process requires IT Provider to identify significant risks based upon the following: (a) management’s internal knowledge of and perceived risks to the IT environment, (b) significant changes to the internal and the third-party vendor IT environments, (c) input received annually from its consultants and external auditors based on its auditor’s review of the IT operating environment, (d) management’s review of Service Organization Controls (SOC) reports received from vendors housing critical applications, (e) regulatory requirements or operating standards that may directly impact the IT environment, and (f) identification of threats and the evaluation of the probability and likelihood of threats. For any significant risks identified, IT Provider’s management is responsible for implementing appropriate measures to monitor and manage these risks, including implementing or revising control procedures, conducting specific consulting projects, and updating systems and processes to ensure compliance,.

 

As many security threats involve email and social engineering, the IT Provider has a multifaceted security training program for Affiliated Group employees. Cybersecurity training classes are administered at least annually. Testing and assessment of employees’ ability to thwart attacks are performed throughout the year, with training being targeted at areas of users’ weakness.

 

The Company does not believe that any risks from cybersecurity threats to date, including as a result of any previous cybersecurity incidents of which the Company is aware, have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial conditions, however, there can be no assurance in that regard.

 

19 

 

The management of IT Provider is responsible for directing and controlling operations and for establishing, communicating, and monitoring policies and procedures. The key members of management are the President, (who has over 20 years’ experience in his current position) and is responsible for overseeing delivery of the services, and the Chief Information Officer (“CIO”) (who has over 10 years’ experience in his current position) and is responsible for overseeing the IT environment that supports the services. Importance is placed on maintaining sound internal controls and promoting integrity and the ethical values of the Affiliated Group in all personnel. Organizational values and behavioral standards are communicated to all personnel through policy statements and the Employee Handbook. Additionally, the President and CIO are in daily contact with personnel at all levels and reinforce the Affiliated Group’s policies, procedures, and organizational values.

 

The IT Provider reports to the President and upper level management of the Affiliated Group as part of the risk management process in which IT Provider management identifies significant risks through discussions with Affiliated Group management and develops responses and mitigating actions to address such risks.

 

 

Item 2. Properties

 

Land Holdings

 

The major real properties owned by the Company are described under Item 1. Business.

 

 

Item 3. Legal Proceedings

 

The information set forth under the “Commitments and Contingencies” section in Note 7 to the consolidated financial statements, included in Part II, Item 8 of this report, is incorporated herein by reference.

 

 

Item 4. Mine Safety Disclosures

 

None.

 

 

Part II

 

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters

               and Issuer Purchases of Equity Securities

 

As of March 1, 2024, there were approximately 628 holders of record of the Company's 1,792,613 Common Shares and 52,000 Class C Shares. The Company has no outstanding options, warrants to purchase or securities convertible into, common equity of the Company. There is no established public trading market for the Company's shares. The Company has elected to be treated as a corporation for federal and state income tax purposes. As a consequence, under current law, holders of shares in the Company will not receive direct allocations of profits or losses relating to the financial results of the Company as they would for the typical limited liability company that elects to be treated as a partnership for tax purposes. In addition, any distributions that may be made by the Company will be treated as dividends. However, no dividends were paid by the Company in 2023 and the Company does not anticipate making any distributions for the foreseeable future.

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Item 6. [Reserved]

 

 

 

Item 7.  Management’s Discussion and Analysis of Financial Condition and

              Results of Operations

 

All references to "Notes" herein are to Notes to Consolidated Financial Statements contained in this report. Information is not presented on a reportable segment basis in this section because in the Company's judgment such discussion is not material to an understanding of the Company's business.

 

In addition to historical information, this Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations about its businesses and the markets in which the Company operates. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties or other factors which may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual operating results may be affected by various factors including, without limitation, natural events, including the Lahaina wildfire discussed below, the effect of geopolitical, economic and market conditions in Hawaii and globally, including continued increases in the rate of inflation, changes to fiscal and monetary policy, heightened interest rates and currency fluctuations, pressure on the global banking system, competitive market conditions, uncertainties and costs related to the imposition of conditions on receipt of governmental approvals and costs of material and labor, and actual versus projected timing of events all of which may cause such actual results to differ materially from what is expressed or forecast in this report.

 

Lahaina Wildfire

 

Beginning on August 8, 2023, a wildfire occurred due east of historic Lahaina town in Maui. The fire spread rapidly due to extreme wind conditions caused in part by Hurricane Dora which traveled 800 miles offshore west of Maui. The fires caused multiple fatalities, widespread damage to Lahaina town and the surrounding area including the Company’s 19-acre Pioneer Mill Site. The Company’s offices and coffee mill were located on the site as well as various other structures and a building which is leased to an unrelated third party and used to operate a coffee store. The Company also utilized portions of the property for short term license agreements with third parties that generated income for the Company. Although no employees were injured in the fire, the Company’s offices and coffee store building were destroyed. Additionally, it appears that most of the personal property of the licensees and the coffee mill was destroyed. The widespread destruction is likely to cause disruptions in the Company’s development plans. The damage to the coffee mill has disrupted operations and prevented the Company from processing and selling the current year coffee crop. It is also likely that the fires and devastation caused thereby will adversely affect the Maui economy and businesses operated on Maui. Clean up of Lahaina, including the Pioneer Mill Site, has commenced by USACE contractors. Access to the property remains restricted, and such restrictions are expected to continue while the clean-up of Lahaina town continues, estimated by USACE to be completed in approximately 18 months. The Company has initiated claims with its insurance carriers and in October 2023, the Company received an initial, unallocated advance payment of $1 million from its insurance carrier. Notwithstanding the advance, there can be no assurance that the Company’s insurance coverage will fully compensate the Company for its losses incurred in connection with the fire and related devastation, including the costs of its structures and equipment lost in the fire, the loss in revenue from the lack of coffee sales, or the loss of income from the licensees. The Company could experience losses

21 

 

in excess of our insured limits, and further claims for certain losses could be denied or subject to deductibles or exclusions under our insurance policies. The Company has relocated its offices to temporary office facilities located on its lands in Kaanapali and is in the planning stages of relocating its coffee mill to its farm in Kaanapali. Additionally, the Company was able to recover its electronic files which were stored on its servers destroyed in the fire from back up files existing at an offsite location. Recovery efforts continue.

 

Liquidity and Capital Resources

 

Certain subsidiaries of Kaanapali Land are jointly indebted to Kaanapali Land pursuant to a certain Secured Promissory Note in the principal amount of $70 million dated November 14, 2002, and due September 30, 2029, as extended. Such note had an outstanding balance of principal and accrued interest as of December 31, 2023 and 2022 of approximately $91 million and $90 million, respectively. The interest rate currently is 0.39% per annum and compounds semi-annually. The note, which is prepayable, is secured by substantially all of the remaining real property owned by such subsidiaries, pursuant to a certain Mortgage, Security Agreement and Financing Statement, dated as of November 14, 2002 and placed on record in December 2002. The note has been eliminated in the consolidated financial statements because the obligors are consolidated subsidiaries of Kaanapali Land.

 

In addition to such Secured Promissory Note, certain other subsidiaries of Kaanapali Land continue to be liable to Kaanapali Land under certain guarantees (the "Guarantees") that they had previously provided to support certain Senior Indebtedness (as defined in the Plan) and the Certificate of Land Appreciation Notes ("COLA Notes") formerly issued by Amfac/JMB Hawaii, Inc. (as predecessor to KLC Land). Although such Senior Indebtedness and COLA Notes were discharged under the Plan, the Guarantees of the Non-Debtor KLC Subsidiaries were not. Thus, to the extent that the holders of the Senior Indebtedness and COLA Notes did not receive payment on the outstanding balance thereof from distributions made under the Plan, the remaining amounts due there under remain obligations of the Non-Debtor KLC Subsidiaries under the Guarantees. Under the Plan, the obligations of the Non-Debtor KLC Subsidiaries under such Guarantees were assigned by the holders of the Senior Indebtedness and COLA Notes to Kaanapali Land on the Plan Effective Date. Kaanapali Land has notified each of the Non-Debtor KLC Subsidiaries that are liable under such Guarantees that their respective guarantee obligations are due and owing and that Kaanapali Land reserves all of its rights and remedies in such regard. Given the financial condition of such Non-Debtor Subsidiaries, however, it is unlikely that Kaanapali Land will realize payments on such Guarantees that are more than a small percentage of the total amounts outstanding there under or that in the aggregate will generate any material proceeds to the Company. These Guarantee obligations have been eliminated in the consolidated financial statements because the obligors are consolidated subsidiaries of Kaanapali Land, which is now the sole obligee there under.

 

Those persons and entities that were not affiliated with a predecessor of the Company and were holders of COLAs on the date that the Plan was confirmed by the Bankruptcy Court, and their successors in interest, represent approximately 9.0% of the ownership of the Company.

 

The Company had cash and cash equivalents of approximately $26 million as of December 31, 2023, which is available for, among other things, working capital requirements, including future operating expenses, and the Company's obligations for engineering, planning, regulatory and development costs, drainage and utilities, environmental remediation costs on existing and former properties, potential liabilities resulting from tax audits, and existing and possible future litigation. The Company does not anticipate making any distributions for the foreseeable future.

22 

 

The primary business of Kaanapali Land is the investment in and development of the Company's assets on the Island of Maui. The various development plans will take many years at significant expense to fully implement. Reference is made to Item 1 - Business, Note 7 to the consolidated financial statements and other footnotes to the consolidated financial statements included in Item 8. Proceeds from land sales are the Company's only source of significant cash proceeds and the Company's ability to meet its liquidity needs is dependent on the timing and amount of such proceeds.

 

The Company's operations have in recent periods been primarily reliant upon the net proceeds of sales of developed and undeveloped land parcels.

 

In September 2014, KLMC sold an approximate 14.9 acre parcel in West Maui. The Purchase Agreement commits KLMC to fund up to $0.6 million, depending on various factors, for off-site roadway, sewer and electrical improvements that will also provide service to other KLMC properties. KLMC may, at its discretion, design, construct, install, and complete all or portions of the offsite road, sewer and or electrical improvements, in which case, the developer shall pay to KLMC the total costs thereof, less the KLMC committed amount. In relation to the sewer line improvement, KLMC has entered into a contract for $1.1 million to install the sewer line. KLMC has paid $1.1 million on the contract which has been recorded as a receivable, less KLMC’s sewer line commitment of $0.2 million. In accordance with the Purchase Agreement, the receivable accrues interest of 6.5% and is secured by the 14.9 acre property. The development has begun certain other offsite construction has begun at the site. In conjunction with the Purchase Agreement, the Company retains certain approval rights relating to the uses and designs of the site to ensure the uses and designs are aligned with the Company's planned master development. If such uses result in a dispute with the developer of the site, such dispute could delay the development of the site. 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.

 

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. The Company closed on the sale of this lot on March 22, 2022. The purchase price was $5 million, paid in cash at closing. The Company has sold all the lots at Kaanapali Coffee Farms.

 

The Company is in the planning stages for the development of a 295-acre parcel in KCF Mauka. The parcel is to be comprised of 61 agricultural lots that will be offered to individual buyers. The Company expects to develop the parcel in phases and all phases have been submitted to the County for subdivision approval. The Company has been working with the County to resolve certain of the County’s comments relating to the subdivision. The Company’s understanding is that all outstanding comments from the County have been resolved verbally with County staff. The final approval letter has been pending and additional efforts are being made to secure the approval. Upon final subdivision approval of all phases and receipt of final plat of the first phase from the County, which requires a bond in the amount of the cost to develop the first phase, the Company can pre-sell the undeveloped lots in the first phase. The Company expects to market the lots in the first phase upon receiving final approvals from the County, subject to various contingencies, including, but not limited to, governmental and market factors and the availability of a bond to secure the first phase of the development. At this time, the Company is assessing whether the fires and resulting devastation may negatively impact the marketability of the lots in the first phase of the development. Therefore, there can be no assurance the Company will be able to meet such timetable, that the subdivision will ultimately be approved or that the lots will sell for prices deemed advantageous by the Company.

23 

 

The Company is in the planning stages for the development of a 241-acre residential development site in the region south of Kaanapali Coffee Farms known as Puukolii Village. The conceptual master plan is comprised of 20 developable parcels planned for 940 units including a mix of affordable and market priced homes, both single and multi-family, mixed use commercial, parks, school, and community facilities. Puukolii Village is fully entitled. At this time, the Company is uncertain whether the fires and resulting devastation might delay approvals from the County. In conjunction with the potential development of Puukolii Village and in coordination with the possible development by an unrelated third party of the 14.9 acre site to be used for a critical access hospital, as noted above, the Company entered into a contract to install a sewer line from the Puukolii Village site to the critical care hospital site. The developer of the critical access hospital site is obligated to share in the sewer line cost for the portion of the sewer line fronting the critical care hospital site (see discussion above).

 

By letters dated October 28, 2022, CWRM officially designated all six Aquifer System Areas of the Lahaina Aquifer Sector, Maui, as Ground Water Management Areas, as of August 6, 2022. CWRM notified the Company that by August 5, 2023, the Company would need to apply for ground and surface water use permits to continue the Company's use of certain wells that are integral to the Company's entire operations. The Company has submitted such applications for permits. The permits, when or if granted and subject to various conditions, would preserve the Company's existing water uses as of August 6, 2022. The Company cannot provide any assurances that CWRM will approve such permit applications for the amounts of water the Company seeks or impose conditions on such use that might affect the Company’s operations. If CWRM should fail to approve the Company’s water requests or impose onerous conditions on its use, CWRM’s actions could delay the Company’s development in substantial and material respects and affect the Company’s operations and finances. Further, in the event permits adequate to the Company's plans are not received timely or at all, there could be negative impacts on the west Maui real estate market as a whole and the development and sale of the Company's lands on the Island of Maui, thereby materially and adversely affecting the Company's operations, land sales, land values, results, and financial position.

 

By letter dated March 13, 2023, CWRM provided the Company a notice of alleged water violation covering the metering and monitoring of certain designated areas with the Honokowai aquifer and hydrologic unit, as well as certain waste conditions CWRM allegedly observed on prior investigations of those certain areas. The Company has engaged with CWRM to address the alledged violations and to seek clarification of the issues while the Company does not believe that such issues, when and if addressed by the Company will prove material in cost, there are no assurances of same.

 

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 Company’s former Pension Plan (the “Pension Plan”) and terminated the Pension Plan on or about June 1, 2022. The Company paid lump sum benefits totaling approximately $0.42 million to Pension Plan participants during October 2022, thereby settling all Pension Plan liabilities.

 

The Company transferred $5 million, which was approximately 25% of the Pension Plan assets to a qualified replacement plan (“QRP”). Such assets are maintained in a suspense account within the QRP pending allocation to plan participants. The assets will be allocated to the participants in the QRP who were participants in the terminated Pension Plan and the employees of certain affiliates of the Company. Such allocations are planned to be allocated ratably over a period not to exceed seven years to comply with regulatory requirements. The remaining assets of the terminated Pension Plan of approximately $14.5 million reverted to the Company on September 15, 2023.

24 

 

The Company was subject to a 20% excise tax of approximately $2.9 million, which was paid in October 2023. The funds freed up cash to better prepare the Company for tightening credit markets and are available for, among other things, working capital requirements, including future operating expenses, the Company’s obligations for engineering, planning, regulatory and development costs, drainage and utilities, and potential environmental remediation costs on existing properties.

 

Although the Company believes that it has sufficient liquidity to fund its operations and capital needs over the next 12 months and beyond, should the Company be unable to satisfy its liquidity requirements from its existing resources and future property sales, it will likely pursue alternate financing arrangements. However it cannot be determined at this time what, if any, financing alternatives may be available and at what cost.

 

Results of Operations

 

Reference is made to the footnotes to the financial statements included in Item 8, for additional discussion of items addressing comparability between years.

 

2023 Compared to 2022

 

The decrease in investments at December 31, 2023 as compared to December 31, 2022 is primarily due to the remaining assets of the terminated Pension Plan that were reverted to the Company on September 15, 2023.

 

The increase in pension plan investments at December 31, 2023 as compared to December 31, 2022 is due to terminated Pension Plan assets of $5 million transferred to a qualified replacement plan pending allocation to plan participants.

 

The decrease in deferred income taxes at December 31, 2023 as compared to December 31, 2022 is primarily due to the reversal of the reserve of the Company’s net operating loss carry forward included as a deferred tax asset related to the remaining assets of the terminated Pension Plan that were reverted to the Company.

 

The decrease in other liabilities at December 31, 2023 as compared to December 31, 2022 is primarily due to the derecognition of a contingent liability related to the D/C bankruptcy case.

 

The decrease in sales and the related decrease in costs of sales for the year ended December 31, 2023 as compared to the year ended December 31, 2022 is primarily due to the sale of a lot for $5 million during the first quarter 2022, as well as, the reduction of coffee sales as a result of the Lahaina wildfire.

 

The increase in interest and other income for the year ended December 31, 2023 as compared to the year ended December 31, 2022 is primarily due to an increase in cash available for investment and market value adjustments related to investments.

 

The decrease in selling, general and administrative expenses for the year ended December 31, 2023 as compared to the year ended December 31, 2022 is primarily due to the derecognition of a contingent liability related to the D/C bankruptcy case during second quarter 2023.

 

The increase in excise tax expense for the year ended December 31, 2023 as compared to the year ended December 31, 2022 is due to the excise tax that was paid in October 2023 related to the terminated Pension Plan.

 

25 

 

2022 Compared to 2021

 

The increase in sales and the related increase in costs of sales for the year ended December 31, 2022 as compared to the year ended December 31, 2021 is primarily due to the sale of the 55 acre agricultural lot during the first quarter 2022.

 

The increase in selling, general and administrative expenses for the year ended December 31, 2022 as compared to the year ended December 31, 2021 is due to the insurance recoveries related to asbestos claims offset by the adjustment of the loss contingency during first quarter 2021.

 

Critical Estimates and Significant Accounting Policies

 

The discussion and analysis of the Company's financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that management believes are reasonable under the circumstances; additionally management evaluates these results on an on-going basis. Management's estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Different estimates could be made under different assumptions or conditions, and in any event, actual results may differ from the estimates. The impact of a change in these estimates, assumptions, and judgments could materially affect the amounts reported in the Company’s consolidated financial statements.

 

The Company reviews its property for impairment of value if events or circumstances indicate that the carrying amount of its property may not be recoverable. Such reviews contain uncertainties due to assumptions and judgments considering certain indicators of impairment such as significant changes in asset usage, significant deterioration in the surrounding economy or environmental problems. If such indications are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying value, the Company will adjust the carrying value down to its estimated fair value. Fair value is based on management's estimate of the property's fair value based on discounted projected cash flows. If significant changes occur in future periods, future operating results could be materially impacted.

 

Prior to the termination of the Pension Plan and settlement of the Pension Plan benefit obligations, pension assumptions were significant inputs to the actuarial models that measured pension benefit obligations and related effects on operations. Two assumptions - discount rate and expected return on assets –were important elements of plan expense and asset/liability measurement. The Company evaluated these critical assumptions at least annually. The Company periodically evaluated other assumptions involving demographic factors such as mortality, and updated the assumptions to reflect experience and expectations for the future. Such assumptions required significant judgment by the Company and its actuaries and therefore actual results in any given year may have differed from actuarial assumptions because of economic and other factors. Reference is made to Note 4 to the consolidated financial statements included in Item 8 for further discussion.

 

26 

 

Deferred income taxes are accounted for in accordance with FASB ASC Topic 740 – Income Taxes. 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. Topic 740 requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion of the deferred income tax asset will not be realized. The Company has a deferred tax asset related to federal net operating losses (NOLs) of $7,700, of which $4,063 has been subject to a valuation allowance. Such allowance is subject to assumptions and judgment. If the Company generates taxable income in future years and the Company determines that the valuation allowance is no longer required, the tax benefit for the remaining deferred tax asset will be recognized at that time. Reference is made to Note 5 to the consolidated financial statements included in Item 8 for further discussion.

 

Material legal proceedings of the Company include Kaanapali Land, as successor by merger to other entities, and D/C having been named as defendants in personal injury actions allegedly based on exposure to asbestos. 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. Predicting the outcome of such claims and estimating the costs and exposure requires the Company to make estimates, assumptions, and judgments that could result in actual costs to be materially different from such estimates. Reference is made to Note 7 to the consolidated financial statements included in Item 8 for further discussion.

 

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

The Company's future earnings, cash flows and fair values relevant to financial instruments are dependent upon prevailing market rates. Market risk is the risk of loss from adverse changes in market prices and interest rates. The Company manages its market risk by matching projected cash inflows from operating properties, financing activities, and investing activities with projected cash outflows to fund capital expenditures and other cash requirements. The Company does not enter into financial instruments for trading purposes.

 

27 

 

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, 2023 and 2022

 

Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021

 

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023,

    2022 and 2021

 

Consolidated Statements of Equity for the years ended December 31, 2023, 2022 and 2021

 

Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021

 

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.

 

 

28 

 

 

 

 

 

 

 

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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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.

   

 

 

29 

 

 

Critical audit matter

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 a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 

Impairment of Land

 

At December 31, 2023, the Company’s Land balance, included within Property, net, totaled $59.9 million. During 2023, the Company did not recognize impairment relating to Land. As described further in Note 1 to the consolidated financial statements, the Company reviews its Property for impairment of value if events or circumstances indicate that the carrying amount of its Property may not be recoverable. As a result of the August 2023 wildfires in the historic Lahaina town in Maui, the Company performed an impairment evaluation of Land to determine if provisions for impairment losses should be recognized.

 

The principal considerations for our determination that the impairment of Land is a critical audit matter is that it involves a high degree of subjectivity in evaluating management’s judgments not only regarding impairment triggers but also regarding estimates and assumptions utilized in its assessment of fair value.

 

Our audit procedures related to the evaluation of impairment of Land included the following, among others.

 

·We obtained an understanding and evaluated the design and implementation of relevant controls over the evaluation of potential impairments of Land
·We evaluated the appropriateness of management’s qualitative impairment indicator analysis, including triggering factors.
·We evaluated the level of knowledge, skill, and ability of management’s specialists and their relationship to the Company. With the assistance of internal valuation specialists, we evaluated the reasonableness of the methods and significant inputs and assumptions used in the fair value analyses of Land, which included the assessing reasonableness of sale comparison approach and adequacy of comparable properties used in the analyses. We evaluated these inputs and assumptions by reviewing supporting data provided by management’s specialists and comparing them to observable market data.

 

 

30 

 

 

 

 

 

 

/s/GRANT THORNTON LLP

We have served as the Company’s auditor since 2015.

 

Dallas, Texas

March 27, 2024

 

31 

 

Kaanapali Land, LLC

 

Consolidated Balance Sheets

 

December 31, 2023 and 2022

(Dollars in Thousands, except share data)

 

 

           
  2023   2022
Assets
           
           
Cash and cash equivalents $ 26,260    $ 19,815 
Property, net   60,200      58,988 
Investments   --      19,115 
Retirement plan investments   5,067      -- 
Other assets   1,492      596 
          Total assets $ 93,019    $ 98,514 
           
Liabilities
           
Accounts payable and accrued expenses $ 346    $ 643 
Deposits and deferred gains   1,433      1,371 
Deferred income taxes   5,979      9,322 
Other liabilities   1,550      7,174 
           
          Total liabilities   9,308      18,510 
           
Commitments and contingencies (Note 7)          
           
Equity
           

Common equity, at 12/31/2023 and 12/31/2022

  Shares authorized – unlimited, Class C shares

      52,000; Common shares issued and outstanding 1,792,613

      at 12/31/2023 and 12/31/2022, Class C shares issued and

      outstanding 52,000 in 12/31/2023 and 12/31/2022

   --      -- 
Additional paid-in capital   5,471      5,471 
Accumulated earnings   78,240      74,533 
           
          Total shareholders’ equity   83,711      80,004 
           
          Total liabilities and shareholders’ equity $ 93,019    $ 98,514 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

32 

 

Kaanapali Land, LLC

 

Consolidated Statements of Operations

 

Years ended December 31, 2023, 2022 and 2021

(Dollars in Thousands except Per Share Amounts)

 

 

                 
  2023   2022   2021
Revenues:                
    Sales $ 2,990    $ 9,063    $ 4,576  
    Interest and other income   1,726      161      177  
    Crop insurance proceeds   538      --      -- 
    5,254      9,224      4,753  
                 
Cost and expenses:                
    Cost of sales   2,858      6,840      5,217  
    Selling, general and administrative   (804)     1,626      (777) 
    Excise tax expense   2,952      --      -- 
    Depreciation and amortization   198      243      269  
    5,204      8,709      4,709  
                 

Operating income before other income

  and income taxes

   50      515      44 
                 
Other income:                
    Casualty loss insurance proceeds   314      --      -- 

    Settlement gain on pension plan assets

      (before taxes)

   --      2,479      -- 
    314      2,479      -- 
                 
Income before income taxes   364      2,994      44 
    Income tax benefit (expense)   3,343      (202)     (350)
                 
         Net income (loss)   3,707      2,792      (306)
                 

Less:  Net loss attributable to

    non-controlling interests

   --      (58)     (551)
                 
Net income attributable to shareholders $ 3,707    $ 2,850    $ 245 
                 
         Net income per share – basic and diluted $ 2.01    $ 1.55    $ 0.13 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

33 

 

Kaanapali Land, LLC

 

Consolidated Statements of Comprehensive Income (Loss)

 

Years ended December 31, 2023, 2022 and 2021

(Dollars in Thousands)

 

 

                 
  2023   2022   2021
                 
Net income $ 3,707    $ 2,792    $ (306)
                 
Other comprehensive income (loss):                
  Net realized gains on pension plan assets   --      (3,106)      1,827 
                 

Income tax expense related to

  items of other comprehensive income

   --      808      (475)
                 
Other comprehensive income (loss), net of tax   --      (2,298)      1,352 
                 
Comprehensive income (loss)   --      494      1,046 
                 

Comprehensive loss attributable to

  non-controlling interests

   --      (58)     (551)
                 

Comprehensive income attributable

  to shareholders

 $ 3,707    $   552    $ 1,597 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

34 

 

Kaanapali Land, LLC

 

Consolidated Statements of Equity

 

Years ended December 31, 2023, 2022 and 2021

(Dollars in Thousands)

 

 

                                           
   

Common

Stock

  

Additional

Paid-In

Capital

  

Accumu-

lated

(Deficit)

Earnings

  

Accumu-

lated

Other

Compre-

hensive

Income/

(Loss)

  

Total

Stock-

holders’

Equity

  

Non

Controlling

Interests

  

Total

Equity

Balance December 31, 2020

     --    $ 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 
                                           

Effect of deconsolidat-

  ing Kaanapali

  Coffee Farms

  Lot Owners’

  Association

     --      --      (15)      --      (15)     (684)     (699)
                                           

Other comprehensive

  loss, net of tax

     --      --      --      (2,298)     (2,298)     --      (2,298)
                                           
Net income  (loss)     --      --      2,850      --      2,850      (58)     2,792 
                                           

Balance December 31 2022

     --      5,471      74,533      --      80,004      --      80,004 
                                           
Net income     --      --      3,707      --      3,707      --      3,707 
                                           

Balance December 31, 2023

   $ --    $ 5,471    $ 78,240    $ --    $ 83,711    $ --    $ 83,711 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

35 

 

Kaanapali Land, LLC

 

Consolidated Statements of Cash Flows

 

Years ended December 31, 2023, 2022 and 2021

(Dollars in Thousands)

 

                 
  2023   2022   2021
Cash flows from operating activities:                
  Net income (loss) $ 3,707    $ 2,792    $ (306)

  Adjustments to reconcile net income (loss) to net cash

   provided by (used in) operating activities:

                
    Proceeds from property sales   --      4,750      1,040 
    Gain on property sales   --      (1,705)     (303)
    Net periodic pension cost (credit)   --      (2,275)     (588)
    Depreciation and amortization   198      243      269 
    Deferred income taxes   (3,343)     202      350 

    Effect of deconsolidating the Kaanapali Coffee

      Farms Lot Owners’ Association

   --      93      -- 
  Changes in operating assets and liabilities:                
    Investments   19,115      --      -- 
    Retirement plan investments   (5,067)     --      -- 
    Other assets   (598)     6,727      (3,982)

    Accounts payable, accrued expenses, deposits,

      deferred gains and other

   (5,859)     (7,872)     2,532 
Net cash provided by (used in) operating activities   8,153      2,955      (988)
                 
Cash flows from investing activities:                
  Property additions   (1,823)     (332)     (436)
  Receivable due to sewer line installation   (885)     --      -- 
  Proceeds from casualty loss insurance   1,000      --      -- 

  Relinquishment of property as a result of

    deconsolidating the Kaanapali Coffee Farms

    Lot Owners’ Association

   --      147      -- 

  Relinquishment of cash as a result of

    deconsolidating the Kaanapali Coffee Farms

    Lot Owners’ Association

   --      (1,177)     -- 
Net cash used in  investing activities   (1,708)     (1,362)     (436)
                 
Cash flows from financing activities:                
    Contributions   --      385      644 
Net cash provided by financing activities   --      385      644 
                 
                 
          Net increase (decrease) in cash and cash equivalents   6,445      1,978      (780)
                 

          Cash and cash equivalents at beginning of year

   19,815      17,837      18,617 
                 

          Cash and cash equivalents at end of year

 $ 26,260    $ 19,815    $ 17,837 

 

The accompanying notes are an integral part of the consolidated financial statements.

36 

 

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 (as defined in the Plan)) 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, 2023.

 

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. Prior to July 1, 2022, the Kaanapali Coffee Farms Lot Owners’ Association (“LOA”) was consolidated into the Company’s consolidated financial statements and the interests of third-party owners of the lots in the Kaanapali Coffee Farms subdivision were reflected as equity including non-controlling interests. The Company sold its last owned lot in the Kaanapali Coffee Farms subdivision in early 2022 and as a consequence, the Company elected to turnover control of the LOA board of directors to the third-party owners of the lots in the subdivision. An election for a new board of directors, comprised entirely of third-party lot owners, was held during June 2022 and the results of the election were announced July 1, 2022. Therefore, effective July 1, 2022, the Company deconsolidated the LOA due to the loss of control over the LOA and derecognized the assets, liabilities, equity (including the non-controlling interests) and results of operations in its financial statements. The Company does not have any direct or indirect retained interest in the LOA. The Company currently has agreements with the LOA to farm coffee, perform common area maintenance services and provide non-potable water.

 

37 

 

The Company's continuing operations are in two business segments - Agriculture and Property. The Agriculture segment primarily engages in farming, harvesting and milling operations relating to coffee orchards pursuant to farming agreements with the LOA and a related entity. 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, 2023 is a money market fund for $23,750 that is considered to be a fair value hierarchy Level 1 investment. The Company’s cash balances are maintained primarily in two financial institutions. 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.

 

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 Securities and Exchange Commission. For further information on the Company’s subsequent events See Note 10.

 

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, 2023, 2022 and 2021, were as follows (in thousands):

 

                   
    Years ended December 31,
    2023   2022   2021
Sales of real estate   $ 0   $ 4,750   $ 1,040 
Coffee and other sales     2,283     2,909     2,557 
Total   $ 2,283   $ 7,659   $ 3,597 

 

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.

38 

 

Lease Accounting

 

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, 2023, 2022 and 2021, the Company recognized $707, $1,101 and $835, respectively, of lease income, substantially comprised of non-variable lease payments. During the years ended December 31, 2023, 2022 and 2021, the Company recognized $106, $75 and $57, respectively, of lease expense, substantially comprised of non-variable lease payments. The majority of the Company’s leases to tenants were terminated due to the Lahaina wildfire.

 

Recently Issued Accounting Pronouncements

 

In December 2022, the FASB issued ASU No. 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848". The amendments in this Update defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The amendments in this Update are effective for all entities upon issuance of this Update. The adoption of ASU No. 2022-06 did not have a material impact on the Company’s consolidated financial statements.

 

In October 2023, the FASB issued ASU No. 2023-06 (“ASU 2023-06”), Disclosure Improvements - Codification Amendment in Response to the SEC’s Disclosure Update and Simplification Initiative. This ASU modified the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations. The amendments to the various topics should be applied prospectively, and the effective date will be determined for each individual disclosure based on the effective date of the SEC’s removal of the related disclosure. If the SEC has not removed the applicable requirements from Regulation S-X or Regulation S-K by June 30, 2027, then this ASU will not become effective. Early adoption is prohibited. 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 November 2023, the FASB issued ASU No. 2023-07 (“ASU 2023-07”), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments in the ASU enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. Early adoption is permitted. 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 December 2023, the FASB issued ASU No. 2023-09 (“ASU 2023-09”), Income Taxes (Topic 740): Improvement to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, on a prospective basis. Early adoption is permitted. 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.

 

39 

 

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. The Company closed on the sale of this lot on March 22, 2022. The purchase price was $5,000, paid in cash at closing. The Company has sold all lots at Kaanapali Coffee Farms.

 

In September 2014, Kaanapali Land Management Corp. (“KLMC”), pursuant to a property and option purchase agreement (“Purchase Agreement”) with an unrelated third party, sold an approximately 14.9 acre parcel in West Maui. The Purchase Agreement (as subsequently amended) commits KLMC to fund up to $583, depending on various factors, for off-site roadway, sewer and electrical improvements that will also provide service to other KLMC properties. KLMC may, at its discretion, design, construct, install, and complete all or portions of the off-site road, sewer and/or electrical improvements, in which case the developer shall pay to KLMC the total costs thereof, less the KLMC committed amount. In relation to such sewer line improvement, KLMC has entered into a contract for $1,070 to install the sewer line. KLMC has paid $1,068 on the contract which has been recorded as a receivable, less KLMC’s sewer line commitment of $208. In accordance with the Purchase Agreement, the receivable accrues interest of 6.5% and is secured by the 14.9 acre property. The developer has begun certain other off-site construction at the site. In conjunction with the Purchase Agreement, the Company retains certain approval rights relating to the uses and designs of the site to ensure the uses and designs are aligned with the Company’s planned master development. If such uses result in a dispute with the developer of the site, such dispute could delay the development of the site. 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.

 

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.

 

40 

 

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.

 

  2023   2022
Property, net:          
    Land $ 59,874    $ 58,381 
    Buildings   958      1,234 
    Machinery and equipment   4,330      5,239 
    65,162      64,854 
    Accumulated depreciation   (4,962)     (5,866)
           
    Property, net $ 60,200    $ 58,988 

 

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.

 

Inventory of land held for sale, if any, 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). 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 prior to the Lahaina wildfire.

 

Beginning on August 8, 2023, a wildfire occurred due east of historic Lahaina town in Maui. The fire spread rapidly due to extreme wind conditions caused in part by Hurricane Dora which traveled 800 miles offshore west of Maui. The fires caused multiple fatalities, widespread damage to Lahaina town and the surrounding area including the Company’s 19-acre Pioneer Mill Site. The Company’s offices and coffee mill were located on the site as well as various other structures and a building which is leased to an unrelated third party and used to operate a coffee store. The Company also utilized portions of the property for short term license agreements with third parties that generated income for the Company. Although no employees were injured in the fire, the Company’s offices and coffee store building were destroyed. Additionally, it appears that most of the personal property of the licensees and the coffee mill was destroyed. The widespread destruction is likely to cause disruptions in the Company’s development plans. The damage to the coffee mill has disrupted operations and prevented the Company from processing and selling the current year coffee crop. It is also likely that the fires and devastation caused thereby will adversely affect the Maui economy and businesses operated on Maui. Clean up of Lahaina, including the Pioneer Mill Site, has commenced by U.S. Army Corps of Engineers (“USACE”) contractors. Access to the property remains restricted, and such restrictions are expected to continue while the clean-up of Lahaina town continues, estimated by USACE to be completed in approximately 18 months. The Company has initiated claims with its insurance carriers and in October 2023, the Company received an initial, unallocated advance payment of $1,000 from its insurance carrier. Notwithstanding the advance, there can be no assurance that the Company’s insurance coverage

 

41 

will fully compensate the Company for its losses incurred in connection with the fire and related devastation, including the costs of its structures and equipment lost in the fire, the loss in revenue from the lack of coffee sales, or the loss of income from the licensees. The Company could experience losses in excess of our insured limits, and further claims for certain losses could be denied or subject to deductibles or exclusions under our insurance policies. The Company has relocated its offices to temporary office facilities located on its lands in Kaanapali and is in the planning stages of relocating its coffee mill to its farm in Kaanapali. Additionally, the Company was able to recover its electronic files which were stored on its servers destroyed in the fire from back up files existing at an offsite location. Recovery efforts continue.

  

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.

 

The Company reviews its property for impairment of value if events or circumstances indicate that the carrying amount of its property may not be recoverable. Such reviews contain uncertainties due to assumptions and judgments considering certain indicators of impairment such as significant changes in asset usage, significant deterioration in the surrounding economy or environmental problems.

  

As a result of the fires, the Company performed an impairment evaluation of its asset groups to determine if provisions for impairment losses should be recognized. The Company concluded a provision for impairment should not be recognized for the current period. The Company will continue to monitor and evaluate the indicators for evidence of impairment in future periods. There can be no assurance that future impairment testing will not indicate that impairment has occurred and that a provision for impairment will be required.

 

While most of the personal property destroyed in the fire was fully depreciated the Company wrote off the net carrying value of destroyed property and equipment totaling approximately $413, which was offset against a portion of the insurance advance included in other liabilities on the Company’s consolidated financial statements at December 31, 2023.

 

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. 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.

 

42 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) 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, 2023 and 2022, 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, 2023 and 2022 of approximately $90,555 and $90,203, 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 2023, 2022 and 2021, the Company leased various office spaces with average annual rental of approximately $26, $17 and $19 per year, respectively. In addition,the Company is a party to certain other immaterial leasing arrangements.

 

 

(4) Employee Benefit Plans and Investments

 

Prior to June 1, 2022, the Company participated in a defined benefit pension plan (the “Pension Plan”) that covered substantially all its eligible employees. The Pension Plan was sponsored and maintained by Kaanapali Land in conjunction with other plans providing benefits to employees of Kaanapali Land and its affiliates.

 

43 

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 June 1, 2022. Effective February 7, 2022, the fair value hierarchy Level 1 and Level 2 plan asset investments were reallocated to a money market fund. Benefit accruals were frozen on March 31, 2022. The Company paid lump sum benefits totaling approximately $420 to Pension Plan participants during October 2022, thereby settling all benefit Pension Plan liabilities.

 

On September 8, 2023, the Company transferred $5,000 which was approximately 25% of the Pension Plan assets to a qualified replacement plan (“QRP”). Such assets are considered to be a fair value hierarchy Level 1 investment, and are maintained in a suspense account within the QRP pending allocation to plan participants. The assets will be allocated to the participants in the QRP who were participants in the terminated Pension Plan and the employees of certain affiliates of the Company. Such allocations are planned to be allocated ratably over a period not to exceed seven years to comply with regulatory requirements. In accordance with GAAP, the amount transferred to the QRP is reflected as retirement plan investments on the Company’s condensed consolidated balance sheet at December 31, 2023. The remaining assets of the terminated Pension Plan of approximately $14,547 reverted to the Company on September 15, 2023.

 

The Company was subject to a 20% excise tax of approximately $2,900, which was paid in October 2023. The funds freed up cash to better prepare the Company for tightening credit markets and are available for, among other things, working capital requirements, including future operating expenses, the Company’s obligations for engineering, planning, regulatory and development costs, drainage and utilities, and potential environmental remediation costs on existing properties.

 

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.

 

44 

Following is a description of the valuation methodologies used for Pension Plan assets measured at fair value.

 

--   Private Equity Investments:  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, 2022:

 

    Level 1   Level 2   Level 3   Total
Cash and cash equivalents   $ 19,000    $ 0    $ 0    $ 19,000 
    $ 19,000    $ 0    $ 0      19,000 
Investments in private equity funds                       200 

        Total Pension Plan assets

          at fair value

                     $ 19,200 

 

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 Pension Plan's assets measured at net asset value “NAV” for the year ended December 31, 2022:

 

   

Measured

at NAV

    
   

Investment

in Private

Equity

Funds

   Total
Balance, beginning of year   $ 1,000    $ 1,000 
Net earned interest and realized/unrealized gains (losses)     (200)     (200)
Purchases, sales, issuance and settlements     (600)     (600)
Balance, end of year   $ 200    $ 200 

 

45 

The following tables summarize the components of the change in pension benefit obligations, plan assets and funded status of the Pension Plan at December 31, 2022 and 2021.

             
    2022   2021
Benefit obligation at beginning of year   $ 437    $ 393 
Service cost     411      283 
Interest cost     4      6 
Actuarial gain     (366)     (232)
Benefits paid     --      (13)
Lump sum payments `   (474)     -- 
Curtailment gain     (12)     -- 
             
Accumulated and projected benefit obligation at end of year     --      437 
             
Fair value of plan assets at beginning of year     20,383      17,924 
Actual return on plan assets     (794)     2,472 
Benefits paid     --      (13)
Settlement     (474)     -- 
             
Fair value of plan assets at end of year     19,115      20,383 
             
Funded status     --      19,946 
             
Unrecognized net actuarial (gain) loss     --      (3,106)
             
Prepaid pension cost   $ --    $ 16,840 

 

The components of the net periodic pension credit for the years ended December 31, 2022 and 2021 (which are reflected as selling, general and administrative in the consolidated statements of operations) are as follows:

           
  2022   2021
Service costs $ 411    $ 283 
Interest cost   4      6 
Expected return on plan assets   (185)     (916)
Recognized net actuarial (gain) loss   (14)     39 
Amortization of prior service cost   --      -- 
Curtailment gain   (12)     -- 
Settlement gain   (2,479)     -- 
Net periodic pension cost (credit) $ (2,275)   $ (588)

 

46 

 

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:

 

        2022   2021
As of January 1,              
               
Discount rate         0.66%   1.95%
               
Rates of compensation increase         3%    3%
               
Expected long-term rate of return on assets         1.40%    6%
               
As of December 31,              
               
Discount rate – net periodic pension credit         1.16%    1.95%
               
Discount rate – accumulated benefit obligation         N/A    0.66%
               
Rates of compensation increase         N/A    3%
               
Expected long-term rate of return on assets         1.40%     6%

 

The above long-term rates of return were selected based on historical asset returns and expectations of future returns.

 

The Company amortized 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 October 5, 2022, the date on which all Pension Plan liabilities were settled through lump sum payments.

 

The Company's target asset allocations reflect the Company's investment strategy of minimizing risk and maintaining the current balance of plan assets prior to the termination of the Pension Plan in 2023.

 

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 $244 and $329, included in Other liabilities, represented in the Rabbi Trust and assets funding such deferred compensation liability of $13 and $8, included in Other assets, are consolidated in the Company's consolidated balance sheet as of December 31, 2023 and 2022, respectively.

47 

 

(5)       Income Taxes

 

Income tax expense/(benefit) attributable to income from continuing operations for the years ended December 31, 2023, 2022 and 2021 consist of:

    Current   Deferred   Total
Year ended December 31, 2023:                  
    U.S. federal   $ --    $ (2,674)   $ (2,674)
    State     --      (669)     (669)
    $ --    $ (3,343)   $ (3,343)
                   
Year ended December 31, 2022:                  
    U.S. federal   $ --    $ 163    $ 163 
    State     --      39      39 
    $ --    $ 202    $ 202 
                   
Year ended December 31, 2021:                  
    U.S. federal   $ --    $ 282    $ 282 
    State     --      68      68 
    $ --    $ 350    $ 350 

 

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 Coronavirus Aid, Relief, and Economic Security Act (“CARES”) 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 Internal Revenue Services (“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 (“NOLs”) carryforwards 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 21 percent effective for 2023, 2022 and 2021 and prior years to pretax income from operations as a result of the following:

 

    2023   2022   2021
Federal provision at 21%   $ 77    $ 641    $ 125 
State provision at 5%     18      153      30 
                   
Federal NOLs utilized     (2,395)     (495)     -- 
Federal NOLs generated     --      --      -- 
                   
State NOLs utilized     (950)     (118)     -- 
State NOLs generated     --      --      150 
                   
Other     (93)     21      45 
                   
          Total   $ (3,343)   $ 202    $ 350 

 

48 

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, 2023, 2022 and 2021 are as follows:

 

                   
    December 31,
    2023   2022   2021
Deferred tax assets:                  

  Loss contingencies related primarily

    to losses on divestitures, less

    recognized insurance recovery

   $ 575    $ 2,015    $ 2,264 
  Loss carryforwards     10,057      13,402      14,015 
  Other, net     97      237      255 
          Total deferred tax assets     10,729      15,654      16,534 
          Less – valuation allowance     6,422      9,766      10,379 
          Total deferred tax assets     4,307      5,888      6,155 
                   
Deferred tax liabilities:                  

  Property, plant and equipment, principally

    due to purchase accounting adjustments,

    net of impairment charges

     10,286      10,311      10,322 
  Prepaid pension costs     --      4,899      5,760 
          Total deferred tax liabilities     10,286      15,210      16,082 
          Net deferred tax liability   $ 5,979    $ 9,322    $ 9,927 

 

As of December 31, 2023, the Company has a deferred tax asset related to federal NOLs of $7,700, of which $4,063 has been subject to a valuation allowance. As of December 31, 2022, the Company has a deferred tax asset related to federal NOLs of $10,095, of which $6,458 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, 2023, the Company has a deferred tax asset related to state NOLs of $2,358, all of which has been subject to a valuation allowance. The state NOLs expire in various years through 2037.

 

The statutes of limitations with respect to the Company's taxes for 2020 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 is liable, the Company’s results of operations may be affected adversely and materially.

 

(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. The total of such commissions for the years ended December 31, 2023, 2022 and 2021 was approximately $51, $41 and $49, respectively.

49 

 

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 2023, 2022 and 2021 were $1,158, $1,136 and $1,464, respectively, all of which was paid as of December 31, 2023.

 

The Company had derived 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 lot owners of the Kaanapali Coffee Farms. Effective July 1, 2022, the LOA is no longer an affiliate of the Company due to relinquishment of control over the LOA. The revenues were $616 and $1,315 for the years ended December 31, 2022 and 2021, respectively. Such revenue is recognized in the Agriculture Segment as disclosed in Note 8 Business Segment Information. Through June 30, 2022, the revenue amounts have been eliminated in consolidated financial statements.

 

(7)       Commitments and Contingencies

 

Material legal proceedings of the Company are described below. Unless otherwise noted, the parties adverse to the Company in the legal proceedings described below have not made a claim for damages in a liquidated amount and/or the Company believes that it would be speculative to attempt to determine the Company's exposure relative thereto, and as a consequence believes that an estimate of the range of potential loss cannot be made.

 

Under an insurance settlement the Company reached with Fireman’s Fund as a result of a complaint the Company filed against Fireman’s Fund in 2015, Fireman’s Fund paid $6,800 into an escrow during the first quarter of 2022 that was used to fund a settlement amount pursuant to a Consent Decree (described below) which was entered into with various federal agencies. 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.

 

On April 16, 2021, the U.S. Department of Justice and the U.S. Environmental Protection Agency, on behalf of various federal agencies of the United States of America, executed a Consent Decree with Kaanapali Land, LLC, a Delaware limited liability company (the “Company”) that, if entered by the U.S. District Court sitting in the District of Hawaii, United States of America v. Kaanapali Land, and Oahu Sugar Company, LLC Case No. 1:21-CV-00190, resolved the U.S. federal government’s current environmental claims against the Company with respect to contamination at the former mixing site on Waipio Peninsula on Oahu in Hawaii that had been leased by Oahu Sugar Company LLC, a former subsidiary of the Company. In return for payments by the Company totaling $7,500, the Consent Decree resolved 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.

 

50 

A subsidiary of the Company, D/C Distribution Corporation (“D/C”), filed a petition for liquidation under Chapter 7 of the Bankruptcy Code in July 2007. During the pendency of the bankruptcy case, D/C was not under control of the Company.

 

At the time of the filing of the bankruptcy petition, Kaanapali Land, as successor by merger to other entities, and D/C had been named as defendants in personal injury actions allegedly based on exposure to asbestos. While there were 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”) were allegedly based on its prior business operations in Hawaii and cases against D/C were 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 did not have 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 or about November 24, 2021 whereby Fireman’s Fund paid $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. On April 12, 2022, the Company received $2,441 as reimbursement for the various settlements Kaanapali made that were subject to the lift-stay order as of March 1, 2022. The $2,441 was included as a reduction of Selling, general and administrative expenses on the Company’s consolidated statement of operations for the year ended December 31, 2022. 

 

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 was not expected to have a material adverse effect on the Company as D/C was substantially without assets at the time of the filing.

 

51 

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. 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 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 only.

 

Certain asbestos-related proofs claims in the bankruptcy case have been withdrawn in connection with closing. A court hearing was held on March 29, 2023 in which the court awarded the trustee’s compensation and expenses and therefore D/C no longer has any assets. On June 6, 2023, the bankruptcy trustee filed a final account and application to close the D/C bankruptcy and on June 14, 2023, the D/C bankruptcy court closed the case and the trustee was discharged. Due to the closing of the case, the Company derecognized a related contingent liability. The derecognition of the contingent liability is included as a reduction of Selling, general and administrative expenses and resulted in a credit in expenses on the Company’s consolidated statement of operations for the year ended December 31, 2023. However, personal injury claimants have asserted, and may in the future assert, asbestos-related claims against D/C.

 

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 April 2022. 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, 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. Remediation plans for addressing all deficiencies have been submitted to DLNR. 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.

 

52 

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 third quarter 2023, the Company received $538 in insurance proceeds related to an insured event that occurred during the 2022 crop year. This amount has been reflected in crop insurance proceeds in the Company’s consolidated financial statements. Additionally, as a result of the Lahaina wildfire, the Company received an intial, unallocated advance payment of $1,000 from its insurance carrier. Reference is made to Note 1, Property, for further discussion regarding the Lahaina wildfire.

 

Kaanapali Land Management Corp. (“KLMC”) is a party to an agreement with the State of Hawaii for the development of the Lahaina Bypass Highway. Approximately 2.4 miles of this two lane state highway have 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 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.

 

(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.

 

53 

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 and receivables related to previously divested businesses.

 

    2023   2022   2021
Revenues:                  
    Property   $ 458    $ 5,061    $ 1,304 
    Agriculture     3,178      4,093      3,340 
    Corporate     1,618      70      109 
    $ 5,254    $ 9,224    $ 4,753 
                   
Operating income (loss):                  
    Property   $ (1,625)   $ (259)   $ (1,357)
    Agriculture     (55)     625      (24)
                   
      (1,680)     366      (1,381)
Corporate     1,730      149      1,425 
                   

Operating income (loss) before other income

  and income taxes

   $ 50    $ 515    $ 44 
                   
Identifiable Assets:                  
    Property   $ 10,468    $ 13,633    $ 14,923 
    Agriculture     53,298      57,488      58,207 
                   
      63,766      71,121      73,130 
    Corporate     29,253      27,393      34,066 
                   
    $ 93,019    $ 98,514    $ 107,196 

 

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’s Corporate segment consists primarily of interest earned on investments.

 

The Company is exploring alternative agricultural operations, but there can be no assurance that replacement operations at any level will result.

 

54 

 

Agricultural identified assets include land classified as agricultural or conservation for State and County purposes.

 

    2023   2022   2021
Capital Expenditures:                  
    Property   $ 1,619    $ 178    $ 325 
    Agriculture     204      154      111 
    $ 1,823    $ 332    $ 436 
                   
Depreciation and Amortization:                  
    Property   $ 69    $ 63    $ 72 
    Agriculture     129      180      197 
    $ 198    $ 243    $ 269 

 

(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,

2023

  

Year Ended

December 31,

2022

  

Year Ended

December 31,

2021

    (Amounts in thousands except per share amounts)
Numerator:                  
Net income (loss)   $ 3,707    $ 2,792    $ (306)
                   

Less: Net loss attributable to non-controlling

    interests

     --      (58)     (551)
                   
Net income attributable to stockholders   $ 3,707    $ 2,850    $ 245 
                   
Denominator:                  

Number of weighted average shares –

  basic and diluted

     1,845      1,845      1,845 
                   

Net income per share, attributable to

  Kaanapali Land – basic and diluted

   $ 2.01    $ 1.55    $ 0.13 

 

As of December 31, 2023, 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 is based on the aggregate 1,844,613 outstanding shares.

 

(10) Subsequent Events

 

In February 2024, approximately $1,019 was allocated to the participants in the qualified replacement plan.

 

55 

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

 

Item 9A. Controls and Procedures

 

Disclosure Controls and Procedures

 

The principal executive officer and the principal financial officer of the Company have evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, (the "Exchange Act") as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and the principal financial officer have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed was recorded, processed, summarized and reported within the time periods specified in the applicable rules and form of the Security and Exchange Commission (“SEC”).

 

Management’s Report on Internal Control Over Financial Reporting

 

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of management including the principal executive officer and the principal financial officer management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can only provide reasonable assurances with respect to financial statement preparation and presentation.

 

Based on the Company’s evaluation under the framework in Internal Control – Integrated Framework (2013 Framework), management concluded that its internal control over financial reporting was effective as of December 31, 2023.

 

Internal Control Over Financial Reporting

 

There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fourth quarter of 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 

 

Item 9B. Other Information

 

Not applicable.

 

 

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

 

None

56 

 

Part III

 

 

Item 10. Directors, Executive Officers and Corporate Governance

 

The sole managing member of Kaanapali Land, LLC is Pacific Trail, which is also Kaanapali Land's largest shareholder. Pacific Trail manages the business of Kaanapali Land pursuant to the terms of the Company’s Amended and Restated Limited Liability Agreement (“LLC Agreement”). Although the executive officers of Kaanapali Land are empowered to manage its day-to-day business affairs, under the Company’s LLC Agreement, most significant actions of Kaanapali Land outside the ordinary course of business must first be authorized by Pacific Trail, which is responsible and has full power and authority to do all things deemed necessary and desirable by it to conduct the business of Kaanapali Land. Pacific Trail may be removed as manager in certain specified circumstances. As of December 31, 2023, the executive officers and certain other officers of the Company were as follows:

 

Name   Position Held with the Company
Stephen A. Lovelette   President, Chief Executive Officer and Chief Financial Officer
Richard Helland   Vice President and Principal Accounting Officer

 

Certain of these officers are also officers and/or directors of JMB Realty Corporation ("JMB") and numerous affiliated companies of JMB (hereinafter collectively referred to as "JMB affiliates"). JMB affiliates outside of the Company have not materially engaged in the agriculture business and have primarily purchased, or made mortgage loans securing, existing commercial, retail, office, industrial and multi-family residential rental buildings or have owned or operated hotels on various other hospitality businesses. However, certain partnerships sponsored by JMB and other affiliates of JMB were previously engaged in land development activities including planned communities, none of which are in Hawaii.

 

57 

 

The following sets forth certain business experience during the past five years of such officers of the Company.

 

Stephen Lovelette (age 67) has been the President of KLC Land and Kaanapali Land since March 2019. Since March 2019, Mr. Lovelette has been Chief Executive Officer of Kaanapali Land and since June 2018, Mr. Lovelette has been Chief Financial Officer of Kaanapali Land. Mr. Lovelette is in charge of implementing the Kaanapali 2020 Development Plan. Mr. Lovelette has been associated with JMB and its affiliates for over 30 years. Mr. Lovelette holds a bachelor's degree from The College of the Holy Cross and an MBA from Seton Hall University. In addition, Mr. Lovelette has extensive experience in corporate finance and has been responsible for obtaining substantial financial commitments from institutional lenders relating to the assets of JMB and its affiliates. During the past five years, Mr. Lovelette has also been a Managing Director of JMB.

 

It is currently anticipated that Stephen Lovelette will devote approximately 25 to 50 percent of his time to the operations of the Company. The percentage is largely dependent upon potential land sale transactions, the entitlement processes relating to various land parcels and other matters (including attention devoted to litigation, overhead, staffing and operations).

 

Richard Helland (age 67) has been a Vice President of the Company since July 2004. Mr. Helland has been Principal Accounting Officer since June 2018. He holds a bachelor’s degree from Illinois State University and is a Certified Public Accountant. Mr. Helland has substantial experience in the management and reporting functions of both public and private entities.

 

In light of the fact that the Company's shares are not publicly traded, the Company is a limited liability company and the rights of members are governed by the Company’s LLC Agreement, the Company has determined that it is not necessary to have a separately designated audit committee, compensation committee, an audit committee financial expert or a code of ethics that applies to its principal executive, financial or accounting officers as those terms are defined in the rules and regulations of the SEC.

 

58 

 

Item 11. Executive Compensation

 

Certain officers of the Company listed in Item 10 above are officers of JMB and are compensated by JMB or an affiliate thereof (other than the Company and its subsidiaries). The Company will reimburse JMB, Pacific Trail and their affiliates for any expenses incurred while providing services to the Company.

 

Summary Compensation Table

 

Name (1)   Principal Position   Year  

Salary

($) (2)

  

All Other

Compensation

($)

  

Total

($)

Stephen A. Lovelette  

President, Chief Executive

Officer and Chief Financial

Officer

   2023   337,778       337,778
      2022   334,444   --    334,444
                   

 

(1)       Mr. Lovelette is the Company’s only executive officer.

 

(2)       Salary amounts for Mr. Lovelette represents the portion of total compensation allocated and charged to the Company. The Company does not have a compensation committee as compensation is determined by the Company’s manager. Executive officer compensation was determined through deliberations with Pacific Trail representatives.

 

59 

 

Item 12.  Security Ownership of Certain Beneficial Owners and Management and

                Related Stockholder Matters

 

Title of Class  

Name and Address

of Beneficial Owner

  

Amount and Nature

of Beneficial Ownership

  

Percent

of Class

             
Common Shares  

Pacific Trail Holdings, LLC

900 North Michigan Avenue

Chicago, IL 60611

  

1,466,573 Common Shares

owned directly (1) (2)

   81.8%
             
Class C Shares  

Stephen A. Lovelette

900 North Michigan Avenue

Chicago, IL 60611

  

52,000 Class C Shares

owned directly (2)

   100.0%

 

(1)   The sole managing member of Pacific Trail, Pacific Trail Holdings, Inc. ("PTHI"), may be deemed to beneficially own the Common Shares owned by Pacific Trail. PTHI disclaims beneficial ownership with respect to any of the shares owned by Pacific Trail. Each of the shareholders of PTHI may be deemed to own the Common Shares owned by Pacific Trail. Each of such shareholders, being Gary Nickele, Gailen J. Hull and Stephen A. Lovelette, disclaims beneficial ownership with respect to any of the shares owned by Pacific Trail. The addresses of PTHI and Messrs. Nickele, Hull and Lovelette are the same as for Pacific Trail.
     
(2)   As of December 31, 2023, there were approximately 1,792,613 Common Shares and 52,000 Class C Shares issued and outstanding.

 

No other person including any officer of the Company is known by the Company to beneficially own in excess of 5% of the Common Shares issued, outstanding and distributed.

 

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

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. The total of such commissions for the year ended December 31, 2023 was approximately $51 thousand, all of which was paid as of December 31, 2023.

 

The Company reimburses Pacific Trail and its affiliates for general overhead expense and for direct expenses incurred on its behalf, including salaries and salary-related expenses incurred in connection with the management of the Company's operations. Generally, the entity that employs the person providing the services receives the reimbursement. Substantially all of such reimbursable amounts were incurred by JMB Realty Corporation or its affiliates, 900FMS, LLC, 900Work, LLC, and JMB Financial Advisors, LLC, all of which have some degree of common ownership with the Company. The total costs for the year ended December 31, 2023 was approximately $1.2 million, all of which was paid as of December 31, 2023.

 

In light of the fact that the Company's shares are not publicly traded, is a limited liability company, and has no independent outside directors or managers, it has no formal policy or procedure for the review, approval or ratification of related party transactions that are required to be disclosed pursuant to Item 404 of Regulation S-K.

 

 

60 

 

Item 14. Principal Accountant Fees and Services

 

In March 2015, the Company approved the engagement of Grant Thornton, LLP (“Grant Thornton”) as its independent registered public accounting firm. The fees billed by Grant Thornton for the years ended December 31, 2023 and 2022 are as follows:

 

(1)       Audit Fees

 

The fees incurred for the years ended December 31, 2023 and 2022 professional services for the audit of the Company’s consolidated financial statements were approximately $258 thousand and $231 thousand, respectively.

 

The fees incurred for the year ended December 31, 2023 for professional services for the audit of the Pension Plan’s financial statements are still in discussion. The fees incurred for the year ended December 31, 2022 for professional services for the audit of the Pension Plan’s financial statements was approximately $42 thousand.

 

(2)       Audit Related Fees

 

None

 

(3)       Tax Fees

 

The fees incurred for the years ended December 31, 2023 and 2022 for professional tax compliance services related to the Pension Plan’s IRS Form 5500 Annual Report was approximately $3 thousand and $6 thousand, respectively.

 

(4)       All Other Fees

 

None.

 

 

All audit and permitted non-audit services proposed to be performed by the Company’s independent registered public accounting firm are approved by the managing member of the Company before the service is undertaken.

61 

 

Part IV

 

Item 15. Exhibits, Financial Statement Schedules

 

  (a) Exhibits.
    2.1 Order Confirming Second Amendment Joint Plan of Reorganization Dated June 1, 2002, including as an exhibit thereto, the Second Amended Joint Plan of Reorganization of Amfac Hawaii, LLC, Certain of its Subsidiaries and FHT Corporation Under Chapter 11 of the Bankruptcy Code incorporated herein by reference the Amfac Hawaii, LLC Current Report on Form 8-K for July 29, 2002 dated August 13, 2002 (File No. 33-24180).
       
    2.2 Second Amended Disclosure Statement with Respect to Joint Plan of Reorganization of Amfac Hawaii, LLC, Certain of its Subsidiaries and FHT Corporation Under Chapter 11 of the Bankruptcy Code, incorporated herein by reference from the Amfac Hawaii, LLC Current Report on Form 8-K for July 29, 2002 dated August 13, 2002 (File No. 33-24180).
       
    3.1 Amended and Restated Limited Liability Company Agreement of Kaanapali Land, LLC dated November 14, 2002 filed as an exhibit to the Company's Form 10 filed May 1, 2003 and hereby incorporated by reference.
       
    3.2 Consent Decree entered into as of April 16, 2021, for the United States of America by U.S. Department of Justice and U.S. Environmental Protection Agency and by Kaanapali Land, LLC and Oahu Sugar Company, LLC filed as an exhibit to the Company’s report on Form 8-K filed April 22, 2021, and hereby incorporated by reference.
       
    4.1 Description of the Registrant’s Common Shares is filed herewith.
       
    10.1 Service Agreement, dated November 18, 1988, between Amfac/JMB Hawaii, Inc., and Amfac Property Development Corp.; Amfac Property Investment Corp.; Amfac Sugar and Agribusiness, Inc.; Kaanapali Water Corporation; Amfac Agribusiness, Inc.; Kekaha Sugar Company, Limited; The Lihue Plantation Company; Oahu Sugar Company, Limited; Pioneer Mill Company, Limited; Puna Sugar Company, Limited; H. Hackfeld & Co., Ltd.; and Waiahole Irrigation Company, Limited and JMB Realty Corporation, incorporated herein by reference to the Amfac Hawaii, LLC Annual Report on Form 10-K filed on March 22, 1989 (File No. 33-24180) for the year ended December 31, 1988.
       
    21 List of Subsidiaries is filed herewith.
       
    31 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) is filed herewith.
       
    32 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are filed herewith.
       
     101.SCH  Inline XBRL Taxonomy Extension Schema Document
       
     101.CAL  Inline XBRL Taxonomy Extension Calculation Linkbase Document
       
     101.LAB  Inline XBRL Taxonomy Extension Label Linkbase Document
       
     101.DEF  Inline XBRL Taxonomy Extension Definition Linkbase Document

62 

       
    101.PRE  Inline XBRL Taxonomy Extension Presentation Linkbase Document 
       
     104  Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
       
          (1) Previously filed as exhibits to Amfac Hawaii, LLC's Registration Statement on Form S-1 (as amended) under the Securities Act of 1933 (File No. 33-24180) and hereby incorporated by reference.

 

 

 

 

Item 16. Form 10-K Summary

 

None.

63 


Signatures

 

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Kaanapali Land, LLC
     
  By:

Pacific Trail Holdings, LLC

(Sole Managing Member)

     
    /s/ Richard Helland
  By:

Richard Helland

Vice President

  Date: March 27, 2024

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

     
     
     
    /s/ Richard Helland
  By:

Richard Helland

Vice President and Principal Accounting Officer

  Date: March 27, 2024
     
     
     
    /s/ Stephen A. Lovelette
  By:

Stephen A. Lovelette

President, Chief Executive Officer and

Chief Financial Officer

  Date: March 27, 2024

64