Maui Land & Pineapple Company, Inc. — Q3 2012 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2012. The Maui-based company owns approximately 23,400 acres and reports Real Estate, Leasing, Utilities, and Resort Amenities segments. Former golf, retail, and agricultural operations are reported as discontinued operations. Financial amounts below are in millions unless stated otherwise.
Financial performance
- Revenue: Q3 revenue was $3.62 million, up from $3.37 million; nine-month revenue was $12.38 million, up from $11.03 million. Nine-month 2012 revenue included $1.5 million from an 89-acre land sale.
- Profit/loss: Q3 continuing-operations loss was $1.68 million versus $1.36 million. Nine-month continuing-operations loss narrowed to $2.96 million from $6.67 million. Nine-month net loss was $2.89 million, compared with net income of $8.62 million in 2011, which included a $15.1 million gain from the Bay Course sale. Q3 net loss was $1.62 million versus $1.34 million.
- Operating results: Nine-month operating loss improved to $1.10 million from $4.98 million. Net interest expense increased to $1.86 million from $1.76 million. The filing does not provide a consolidated gross-margin measure.
- Cash flow: Cash used in operating activities was $2.32 million for the first nine months, improved from $8.72 million in 2011. Investing activities provided $0.07 million and financing activities provided $1.93 million. Cash declined from $0.89 million at year-end 2011 to $0.57 million.
- Debt and liquidity: Debt totaled $47.57 million, all classified as current and due May 1, 2013; this compares with $45.52 million at December 31, 2011. The company had $10.5 million of available Wells Fargo borrowing capacity, subject to facility terms. Current assets of $5.25 million were exceeded by current liabilities of $59.57 million, a $54.3 million working-capital deficit. Stockholders’ deficiency was $28.18 million.
Changes and management commentary
- Revenue growth reflected the land sale, higher leasing revenue from new tenants, and stronger spa activity and pricing. Management cited cost reductions and lower corporate allocations as drivers of improved segment results and lower continuing-operations losses.
- Nine-month general and administrative expense fell to $2.40 million from $5.11 million, partly because 2011 included a $1.55 million correction for land contributions previously not recorded at fair value. The correction did not affect net income.
- Management is pursuing land sales, leasing arrangements, cost reductions, and extensions of debt maturities. It reported covenant compliance at September 30, 2012, but stated that repayment at maturity is not expected to be possible without asset sales or refinancing. No specific earnings or revenue guidance is provided.
Risks, contingencies, and unusual items
- Going concern: The filing states that the circumstances raise substantial doubt about the company’s ability to continue as a going concern. Continued liquidity and covenant compliance depend heavily on asset sales and refinancing or extending debt due in May 2013; failure to do so could leave the company unable to repay borrowings.
- Kapalua Bay: The company’s 51%-owned affiliate had a $284.1 million construction loan in default, and lenders filed for foreclosure. An auction was scheduled for December 3, 2012. The company’s investment carrying value is zero, but it has agreed to purchase completed spa, beach-club, and store amenities for approximately $35 million. It says it cannot currently fund the purchase; no provision was recorded for this executory commitment. Related lawsuits and the project’s operating and financing issues add uncertainty.
- Pensions: 2012 required pension contributions were estimated at $2.0 million, of which $1.7 million had been funded by September 30. The company was also working with the PBGC regarding approximately $18.7 million of additional security or contributions for plan liabilities.
- Legal and other exposures: An EEOC lawsuit concerning discontinued agricultural operations seeks unspecified relief; the company could not reasonably estimate potential liability and recorded no provision. A separate condominium-owner lawsuit likewise has no estimable recorded liability. A $105,000 liability was recorded for existing water-filtration obligations.
- NYSE listing: On October 23, 2012, the company received notice that it failed NYSE continued-listing standards because market capitalization and reported shareholders’ equity were each below $50 million. It intended to submit a compliance plan; delisting could affect share liquidity and, under the filing, violate credit-agreement provisions.
Important facts for investors to verify
- Progress and final terms for refinancing or extending both credit facilities before their May 1, 2013 maturities, including covenant compliance and any required paydown.
- Real-estate sale prospects, timing, and net proceeds, and whether these can meet liquidity needs in a difficult market.
- Outcome of the Kapalua Bay foreclosure and negotiations over the approximately $35 million amenities purchase commitment.
- NYSE compliance-plan status and the consequences of any delisting for the company’s credit agreements.
- Future pension funding or PBGC collateral requirements, and developments in the EEOC and condominium-owner lawsuits.