Maui Land & Pineapple Company, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. The company owns approximately 23,400 acres on Maui and operates real estate, leasing, utilities and resort amenities businesses. Former golf, retail and agriculture operations are reported as discontinued operations. Financial statements are unaudited.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Operating revenue | $5.310 million | $3.845 million |
| Operating income (loss) | $407,000 | ($2.343 million) |
| Continuing-operations income (loss) | ($227,000) | ($3.014 million) |
| Discontinued-operations income (loss) | ($17,000) | $15.439 million |
| Net income (loss) | ($244,000) | $12.425 million |
| Net loss per share | ($0.01) | Net income per share of $0.67 |
| Cash used in operating activities | $428,000 | $1.938 million |
Operating margin was approximately 7.7%, compared with an operating loss in Q1 2011. Revenue included a January sale of an 89-acre parcel for $1.5 million, producing a reported gain of approximately $1.4 million (approximately $1.35 million in the liquidity discussion). Cash from investing activities was $250,000; financing activities provided $865,000. Cash increased $687,000 to $1.577 million. Total assets were $64.0 million.
At March 31, 2012, debt was $46.468 million, comprising $22.4 million drawn on the Wells Fargo revolving line and $24.068 million under the American AgCredit term loan. The company reported $11.6 million of available revolver capacity and $1.577 million cash. Current liabilities exceeded current assets by $5.7 million; stockholders’ deficiency was $26.1 million. Both facilities mature May 1, 2013 and require minimum defined liquidity of $4 million and maximum total liabilities of $175 million. Management believed the company was covenant-compliant at quarter-end.
Changes versus prior period
- Revenue rose $1.465 million, mainly due to the 2012 land sale; there were no real estate inventory sales in Q1 2011.
- General and administrative expense fell to $1.052 million from $2.945 million, reflecting lower staffing and professional-services costs after the cessation of golf, retail and agriculture operations.
- Continuing-operations loss improved by $2.787 million, while the prior-year comparison included a $15.1 million gain from the Bay Course sale in discontinued operations. Consequently, reported net income of $12.425 million in Q1 2011 compares with a $244,000 net loss in Q1 2012.
- Leasing and utilities revenues increased to $1.502 million and $829,000, respectively. Resort amenities revenue was $1.134 million; the segment still recorded a $40,000 operating loss.
Outlook, risks and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. Meeting covenants and funding the next 12 months depends heavily on selling real estate in a difficult market. A covenant default could make borrowings immediately payable, and the company said it could not repay them with available liquidity.
- Cash plans: The company is pursuing property sales, leasing arrangements and cost reductions, and is negotiating with Bay Holdings members and lenders regarding the purchase and sale terms for resort amenities. It anticipated no significant 2012 capital expenditures and approximately $2.2 million in 2012 pension contributions. No earnings or revenue guidance was provided.
- Bay Holdings: Its $280.5 million construction loan was in default after the maturity extension was not agreed. The company owns 51% of Bay Holdings but accounts for it under the equity method; its investment carrying value had been written down to zero. The company has not guaranteed repayment of the loan, but has completion and limited-recourse obligations and recorded $4.1 million for its estimated share. A separate agreement contemplated buying completed amenities for approximately $35 million; no provision was recorded, and negotiations were ongoing.
- Pension and legal exposures: The company expects minimum pension contributions of $2.2 million and was negotiating with the PBGC over approximately $18.7 million of additional security or contributions. An EEOC lawsuit concerning former agricultural operations seeks unspecified relief; the company could not reasonably estimate probable liability and recorded no provision. Other environmental well-filtration obligations include a recorded $112,000 liability.
- Prior-period correction: The company corrected immaterial Q1 2011 presentation errors, including a $1.547 million understatement each of G&A expense and asset-disposition gain, with no net-income impact. A $216,000 pension-related correction affected comprehensive income, not net income. The filing also disclosed planned corrections to later 2011 interim periods.
- Disclosure controls were assessed as effective. A new accounting and financial-reporting system was implemented in February 2012.
Important facts for investors to verify
- Whether property sales and other cash-generation initiatives can sustain covenant compliance and liquidity, particularly the $4 million minimum-liquidity requirement.
- The status and terms of the 2013 debt maturities, available revolver capacity, and any lender waivers or amendments.
- The outcome of negotiations over the amenities purchase commitment of up to approximately $35 million and the Bay Holdings loan default and guarantees.
- Any agreement with the PBGC on pension security or contributions, and the company’s ability to fund pension requirements.
- Developments in the EEOC case and any other contingent obligations, including environmental liabilities.
- The subsequent filings’ treatment of the disclosed 2011 interim-period corrections.