Maui Land & Pineapple Company, Inc. — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; the filing is an annual report, not a standalone fourth-quarter report. The company owns approximately 23,000 acres on Maui and operates real estate, leasing, utilities and resort-amenities businesses.
Financial results and key metrics
- Revenue: $33.0 million, up from $15.2 million in 2013. Real estate sales were $22.7 million, including the sale of Lipoa Point and the Kapalua Plantation Golf Course maintenance facility. Leasing revenue was $5.1 million, utilities $3.3 million, and resort amenities and other revenue $1.2 million.
- Profit: Operating income was $19.9 million, versus an operating loss of $0.5 million in 2013. Net income was $17.6 million ($0.94 per share), compared with a net loss of $1.2 million ($0.06 per share). The 2014 result included a roughly $19.3 million gain on the Lipoa Point sale; the gain was not recurring operating performance.
- Cash flow: Cash used in operating activities was $2.7 million, compared with $3.6 million used in 2013. Investing activities provided $2.2 million and financing activities provided $0.6 million. Year-end cash was $0.4 million.
- Margins and segment performance: Real estate generated $20.1 million of operating income, largely reflecting property-sale gains. Leasing returned to operating income of $0.6 million from a $0.4 million loss. Utilities operating income declined to $0.3 million from $0.9 million, mainly due to rainier weather and lower water sales. Resort amenities operating income fell to $0.1 million from $0.3 million as costs rose. Consolidated margin excluding the unusual property-sale gains is not separately stated.
- Debt and liquidity: Debt totaled $50.2 million at year-end, against cash of $0.4 million; $3.7 million of revolving credit was available. The debt facilities mature August 1, 2016. The company says it cannot repay them at maturity without property sales, refinancing or extensions. Covenants include a $3 million minimum liquidity requirement.
- Balance sheet: Total assets were $49.3 million; stockholders’ deficiency was $15.2 million. Accrued retirement benefits were $7.3 million, down from $21.3 million in 2013, following pension funding associated with the Lipoa Point sale. Deferred development costs were $9.3 million.
Material changes versus 2013
- Revenue and earnings rose substantially, principally because of the 2014 property sales. The $19.8 million Lipoa Point sale generated a gain of about $19.3 million; its net proceeds, approximately $19.4 million, were transferred to the pension plans as required by the sale arrangement.
- The $2.3 million maintenance-facility sale generated a $1.5 million gain; proceeds were used to release the Honolua Store from loan collateral and repay term debt.
- Leasing revenue and operating results improved, while utilities and resort-amenities operating income declined.
- Debt was reclassified mainly as long-term in 2014; the balance sheet reported $2.5 million as current debt versus $49.0 million current in 2013. Total debt nevertheless increased to $50.2 million from $49.0 million.
- Comprehensive income was $11.8 million, versus $6.7 million in 2013, reflecting a $5.9 million pension-related other comprehensive loss in 2014.
Outlook, risks and contingencies
- Going concern and financing: Management and the auditor report substantial doubt about the company’s ability to continue as a going concern. Cash needs and covenant compliance depend heavily on asset sales at acceptable prices and cost-reduction and leasing initiatives. Failure to meet covenants could accelerate debt repayment, which the company says it could not meet with available liquidity.
- Outlook: Management reported no significant development or capital expenditures planned, with current work focused on planning, permitting and entitlements. It did not expect minimum pension contributions in 2015 following the Lipoa Point funding. No quantified earnings or revenue guidance was provided.
- Development exposure: Planned projects require substantial future investment; estimated completion costs are $500 million–$1 billion for Kapalua Resort, $200 million–$300 million for Pulelehua and $100 million–$200 million for Hali’imaile Town. Timing, entitlements, financing and market conditions remain uncertain.
- Legal matters: Multiple lawsuits related to the former Kapalua Bay residential/timeshare project seek unspecified damages; the company cannot estimate any probable loss and has recorded no provision. A separate $8.1 million judgment against defunct subsidiary Maui Pineapple Company is not a liability of the registrant, which is not a party to that case.
- Other risks: Results are exposed to cyclical Maui real estate and tourism demand, interest rates, travel and fuel costs, weather, development and entitlement delays, environmental obligations and pension assumptions. Environmental remediation reserves were $0.14 million at year-end.
- Audit and controls: The financial statements received an unqualified audit opinion, with a going-concern emphasis. Management stated disclosure controls and internal control over financial reporting were effective; the auditor was not engaged to opine on internal-control effectiveness.
Important facts for investors to verify
- Whether the company can satisfy the $3 million minimum-liquidity covenant and meet all scheduled loan paydowns and other covenants.
- Progress and terms of asset sales, refinancing or extensions needed before the August 2016 debt maturity, including the use of net proceeds required for debt repayment.
- How much of 2014 earnings reflects one-time real estate gains, and the recurring cash generation of leasing, utilities and resort amenities.
- Potential outcomes and financial exposure from the Kapalua Bay lawsuits, as well as pension funding and benefit-obligation assumptions.
- Whether the $9.3 million of deferred development costs remain recoverable and whether planned projects can secure approvals and financing.