Maui Land & Pineapple Company, Inc. — Q1 2014 10-Q
Reporting period: Three months ended March 31, 2014; unaudited. The company owns approximately 23,300 acres on Maui and operates real estate, leasing, utility and resort-amenity businesses.
Financial results
- Revenue: $2.469 million, down 6% from $2.629 million in Q1 2013. Management attributed the decline mainly to lower potable and non-potable water sales, reflecting rainier weather.
- Operating loss: $376,000, improved from $912,000. Operating costs fell to $2.845 million from $3.541 million.
- Net loss: $909,000, or $0.05 per share, compared with $1.815 million, or $0.10 per share. Continuing-operations loss was $853,000 versus $1.606 million; discontinued-operations loss was $56,000 versus $209,000.
- Segment trends: Leasing returned to operating income of $224,000 from a $141,000 loss, largely because prior-year costs included termination of the zipline operator. Utilities income fell to $12,000 from $109,000 as water sales declined. Resort-amenities income was $9,000 versus $114,000, with fewer club members and settlement-related access payments. Real estate reported an operating loss of $336,000 versus $491,000; there were no real-estate inventory sales in either period.
- Cash flow: Operating cash use was $1.287 million, improved from $1.759 million. Investing cash use was $34,000; financing provided $1.441 million, primarily debt proceeds. Cash increased by $120,000 to $479,000.
- Debt and liquidity: Debt was $50.6 million at March 31, up from $49.0 million at year-end. Current assets were $3.288 million and current liabilities $5.051 million, a $1.763 million working-capital deficit. Stockholders’ deficiency was $27.827 million. The company reported $30.6 million outstanding on its Wells Fargo revolver and a $20 million American AgCredit term loan.
Material changes and management commentary
- In April 2014, after quarter-end, both credit facilities were extended from May 2014 to August 1, 2016. The company said it believed it was covenant-compliant at March 31. Both facilities require at least $3 million of defined liquidity and limit total liabilities to $175 million, among other covenants.
- The American AgCredit loan requires principal repayments of $3 million by May 1, 2015 and a further $2 million by May 1, 2016. Proceeds from certain property sales must also be applied to debt.
- Management stated that the company’s next-12-month cash outlook and ability to meet covenants depend heavily on selling real estate at acceptable prices. Without property sales or refinancing, it does not expect to be able to repay significant debt at maturity.
- The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern. Management’s response includes pursuing asset sales, leasing arrangements and cost reductions. No formal earnings or revenue guidance is provided.
Risks, contingencies and unusual items
- Expected 2014 defined-benefit pension contributions are $2.8 million; $0.5 million had been funded through March 31. Unfunded pension liabilities were $20.7 million and are secured by approximately 8,400 acres. A possible state-supported purchase of the 270-acre Lipoa Point parcel is not assured and its effect on pension obligations is uncertain.
- Several lawsuits related to the Kapalua Bay project seek unspecified damages. The company disputes the allegations, says it cannot estimate potential liability, and recorded no provision for these matters. An EEOC lawsuit involving a former subsidiary also remains unresolved, with no liability estimate recorded.
- A settlement requires $0.6 million of payments over four years for fractional owners’ dues; $0.5 million remained outstanding at quarter-end. The company also agreed to pay $29,000 monthly for Kapalua Club members’ access to the spa and beach club.
- Management cited dependence on real-estate values and sales, debt covenant and refinancing risks, pension funding, legal disputes, weather, and Hawaii real-estate and tourism demand. The filing reports effective disclosure controls and procedures.
Important facts for investors to verify
- Whether property sales or other cash-generating measures can satisfy liquidity covenants and scheduled debt repayments.
- The full terms and continuing covenant status of the April 2014 credit-facility extensions.
- Timing, amount and funding sources for pension contributions, and whether the proposed Lipoa Point transaction proceeds.
- Developments and potential financial exposure in the Kapalua Bay and EEOC litigation.
- Whether operating cash use, utility-water volumes and resort-club membership trends improve after Q1.