Maui Land & Pineapple Company, Inc. — 2015 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2015; it does not provide a separate fourth-quarter financial summary. The company owns approximately 23,000 acres on Maui and operates in real estate, leasing, utilities, and resort amenities.
Financial performance and liquidity
| Metric | 2015 | 2014 |
|---|---|---|
| Operating revenue | $22.8 million | $33.3 million |
| Operating income | $9.3 million | $19.9 million |
| Net income | $6.8 million | $17.6 million |
| Basic and diluted earnings per share | $0.36 | $0.94 |
| Net cash provided by (used in) operating activities | $10.6 million | $(0.5) million |
| Cash at year-end | $1.1 million | $0.4 million |
| Outstanding borrowings | $40.6 million | $50.2 million |
Operating and net margins were approximately 41% and 30%, respectively, versus 60% and 53% in 2014. These reported results include significant gains on property sales and should not be read as recurring margins. 2015 operating cash flow included $11.6 million of net real-estate sale proceeds; cash receipts from other operations were $2.9 million. The filing reports no significant development spending and no significant utility infrastructure capital expenditures.
At year-end, current liabilities were $43.9 million against current assets of $3.1 million. The company reported $1.1 million of cash and $3.5 million of available borrowing capacity under its First Hawaiian Bank line. All $40.6 million of recorded debt was classified as current because the principal facilities mature August 1, 2016. Shareholders’ deficiency was $10.9 million. No cash dividends were declared in 2015 or 2014.
Material changes and unusual items
- Revenue fell 31% and net income fell 61% year over year, largely reflecting lower real-estate sales. 2015 included the $12.0 million sale of the Kapalua Golf Academy, generating a $10.2 million gain. In 2014, the $19.8 million Lipoa Point sale generated an approximately $19.3 million gain; the company also sold a golf-course maintenance facility for $2.3 million.
- Leasing revenue rose to $5.5 million from $5.4 million, with segment operating income increasing to $3.3 million from $2.9 million. Utilities revenue was nearly flat at $3.3 million; segment operating income increased to $1.1 million from $0.9 million. Resort amenities revenue rose to $1.4 million from $1.2 million.
- Interest expense increased to $2.5 million from $2.3 million. Average borrowing rates rose to 5.16% from 4.4%, while average borrowings declined to $47.4 million from $49.7 million.
- The defined-benefit pension plans’ reported funded status worsened to a $10.4 million deficit from $7.0 million. Pension-related accumulated other comprehensive loss increased to $28.7 million from $25.6 million.
Outlook, risks, and contingencies
Management’s near-term liquidity and going-concern outlook depends heavily on selling real estate at acceptable prices, refinancing or extending debt, generating cash through leasing, and reducing costs. The company stated it did not expect to repay the maturing facilities without asset sales, refinancing, or extensions; lenders require minimum defined liquidity of $3 million and may accelerate debt if covenants are breached. Sale proceeds are subject to mandatory debt repayments. The company disclosed substantial doubt about its ability to continue as a going concern. The auditor issued an unmodified opinion on the financial statements but also highlighted this going-concern uncertainty.
Development plans are long-term and conditional on financing and other factors. Estimated completion dates range from 2019 to 2039 for Kapalua Resort, 2019 to 2024 for Pulelehua, and 2029 to 2034 for Hali’imaile Town. Estimated project costs to complete are substantial; the filing gives ranges of $500 million–$1 billion, $300 million–$500 million, and $100 million–$200 million, respectively. Current activity was limited to planning, permitting, and entitlement work, with no significant development expenditures planned.
Key risks include cyclical Maui real estate and tourism demand, interest rates and financing availability, entitlement and construction delays or cost overruns, weather and natural disasters, environmental regulation, and restricted access to additional borrowing. Lawsuits relating to the former Ritz-Carlton Club and Residences, Kapalua Bay seek unspecified damages, including treble damages. The company disputes the allegations, cannot estimate a probable loss range, and recorded no provision.
Important facts for investors to verify
- Whether the August 1, 2016 debt maturities were extended, refinanced, repaid, or otherwise resolved, and whether the company maintained required liquidity and other covenants.
- Whether planned asset sales occurred at acceptable prices, the net proceeds available after required lender repayments, and the resulting liquidity for operations.
- How much of reported earnings and operating cash flow came from asset sales versus recurring business operations, and whether underlying operations can sustain positive cash generation.
- Developments in the Kapalua Bay litigation and any eventual estimate, provision, or settlement of exposure.
- Changes in pension-plan funding status, future contribution requirements, and the recoverability of $9.3 million in deferred development costs.