Maui Land & Pineapple Company, Inc. — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013; comparative periods ended June 30, 2012. Amounts below are in millions of dollars unless noted. The company owns approximately 23,300 acres on Maui and operates real estate, leasing, utilities, and resort amenities businesses.
Financial performance and position
- Q2 revenue: $3.11 million, down from $3.45 million. Operating loss was $0.95 million versus $0.58 million; continuing-operations loss was $1.46 million versus $1.05 million. Net income was $0.83 million, compared with a $1.03 million net loss, primarily reflecting discontinued-operations income.
- First-half revenue: $6.46 million, down from $8.76 million. Operating loss widened to $2.07 million from $0.18 million; continuing-operations loss widened to $3.27 million from $1.28 million. Net loss was $0.98 million versus $1.28 million. Basic and diluted loss per share was $0.05 versus $0.07.
- Cash flow: Operating activities used $3.06 million in the first half, compared with $1.15 million used in 2012. Investing activities provided $3.70 million, largely from $3.76 million of property-disposal proceeds. Financing activities used $1.00 million. Cash declined to $0.47 million from $0.83 million at year-end.
- Debt and liquidity: Debt totaled $48.61 million, down from $49.27 million at December 31, 2012. The entire balance was classified as current because both credit facilities mature May 1, 2014. The company had $6.4 million of available revolving capacity. Current liabilities exceeded current assets by $53.3 million; stockholders’ deficiency was $34.7 million.
- Margins and segments: The company reported operating losses in Q2 and the first half. First-half utility operating profit improved to $0.38 million from $0.34 million, while real estate and leasing moved to operating losses. Resort amenities’ first-half operating loss narrowed to $0.02 million from $0.06 million.
Material changes and unusual items
- First-half 2012 revenue included a $1.5 million sale of an 89-acre parcel; no real estate inventory sales occurred in the first half of 2013. In June 2013, the company sold a separate 7-acre former agricultural-facility parcel for $4.0 million, generating a $1.9 million gain reported in discontinued operations.
- Discontinued operations also included a $0.5 million reversal of accrued tax and interest after an IRS settlement. The settlement requires $1.8 million in payment; payment terms were still under discussion.
- Leasing revenue declined primarily because the zipline operator’s lease ended in February 2013. Utilities revenue increased, primarily from higher non-potable irrigation-water consumption amid drier weather. Resort amenities revenue declined with lower club dues; spa operations ceased in June.
- The Residences at Kapalua Bay foreclosure was completed in June 2013. The project’s lenders forgave approximately $228 million of debt, producing a reported gain of about $165 million at Bay Holdings; Maui Land & Pineapple’s investment had previously been written down to zero, and the company said it would not recognize additional equity earnings until accumulated losses are exceeded.
Outlook, risks, and contingencies
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. The next 12 months’ cash outlook and covenant compliance depend heavily on selling real estate at acceptable prices. Without asset sales or refinancing, the company does not expect to repay either credit facility at maturity; an uncured covenant failure could accelerate debt that it cannot repay.
- The American AgCredit loan requires principal to be reduced to $20 million by December 31, 2013; $1.8 million of mandatory principal repayment had been made by June 30. The company said it believed it was in compliance with both facilities’ covenants at quarter-end and was negotiating with lenders to extend maturities.
- The company is negotiating with the new project owners over a commitment of up to approximately $35 million to purchase spa, beach-club improvements, and a sundry store. It states that it lacks liquidity to fulfill the commitment. A $4.1 million accrual represents its remaining expected exposure for certain project commitments, contingencies, and legal matters.
- Defined-benefit pension liabilities were unfunded by approximately $25 million. Expected 2013 contributions were $2.1 million, of which $0.9 million had been funded by June 30. A Hawaii law directs the state to engage in a possible purchase of the 270-acre Lipoa Point parcel, but does not require a purchase or sale; proceeds and any pension-liability reduction remain uncertain.
- Risks also include the EEOC employment lawsuit, multiple lawsuits related to Kapalua Bay unit and timeshare sales, and potential environmental obligations. The company said it could not reasonably estimate probable liability for the cited lawsuits and had recorded no provision for them.
- Management’s stated actions include real estate sales, increased use of property in leasing arrangements, cost reductions, and negotiations regarding project obligations and debt extensions. The filing provides no quantified revenue or earnings guidance.
Important facts for investors to verify
- Progress and pricing for property sales, including whether proceeds satisfy debt paydown requirements and provide sufficient liquidity.
- Status of maturity extensions or refinancing for the Wells Fargo and American AgCredit facilities, and ongoing covenant compliance.
- Resolution and potential cost of the approximately $35 million amenities purchase commitment and other Kapalua Bay guarantees or contingencies.
- Actual timing and amount of pension contributions, and whether any Lipoa Point transaction proceeds.
- Developments in the EEOC, Kapalua Bay sales-related litigation, and IRS settlement payment terms.
- Underlying operating performance excluding the one-time property-sale gain and tax reversal; the filing’s reported Q2 net income depended on discontinued operations.