Maui Land & Pineapple Company, Inc. — Q2 2012 Form 10-Q
Business context and reporting period. The filing covers the quarter and six months ended June 30, 2012. The Hawaii-based company owns approximately 23,400 acres on Maui and operates in real estate, leasing, utilities, and resort amenities. Golf, retail, and agriculture operations are reported as discontinued operations.
Financial performance
Amounts below are in millions, except per-share data. The filing reports no income tax expense for the periods shown.
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $3.452 | $3.815 | $8.762 | $7.660 |
| Operating loss | $(0.582) | $(1.833) | $(0.175) | $(4.176) |
| Loss from continuing operations | $(1.048) | $(2.296) | $(1.275) | $(5.310) |
| Net income (loss) | $(1.034) | $(2.462) | $(1.278) | $9.963 |
| Operating cash flow | Not provided separately | Not provided separately | $(1.146) | $(5.443) |
- Six-month revenue grew 14% year over year, including $1.5 million from a January sale of an 89-acre parcel. That sale generated a reported gain of approximately $1.4 million.
- Six-month net results were a loss versus prior-year income because 2011 included a $15.1 million gain from the Bay Course sale, reported in discontinued operations. Q2 2012 included $14,000 of discontinued-operations income.
- Cash and cash equivalents were $1.113 million at June 30, 2012, compared with $0.890 million at year-end 2011. Total debt was $46.868 million, versus $45.521 million. Interest expense for the six months was $1.1 million.
- Current assets were $5.451 million and current liabilities were $58.268 million, a $52.8 million working-capital deficit. Stockholders’ deficiency was $26.847 million.
- The six-month operating loss equaled about 2% of revenue; Q2 operating loss equaled about 17% of revenue.
Material changes and management commentary
- Operating loss from continuing operations improved year over year, which management attributed to the land sale, operational improvements, and cost reductions. General and administrative expense fell to $1.774 million for the first half from $4.434 million; lower payroll, staffing, and professional-services costs contributed.
- Leasing revenue increased, supported by new tenants, licensing fees, and agricultural and industrial leases. Utilities revenue declined versus 2011, while resort amenities revenue rose; management cited higher spa pricing and activity.
- Cash used in operations improved from $5.443 million to $1.146 million. Investing activities provided $0.125 million; financing activities provided $1.244 million, primarily reflecting net borrowings.
- The company has no formal financial guidance in the filing. Management said near-term cash generation depends heavily on real estate sales, leasing and cost reductions, as well as refinancing or extending debt maturities.
Liquidity, debt, risks, and unusual items
- Going concern: Management stated that the circumstances raise substantial doubt about the company’s ability to continue as a going concern. It reported that available liquidity would be insufficient to repay debt if the facilities could not be extended or refinanced.
- Debt maturities: The $22.8 million Wells Fargo revolving balance and $24.1 million American AgCredit term loan mature May 1, 2013 and were classified as current. Wells Fargo had $11.2 million of available borrowing capacity. Both facilities include a minimum liquidity covenant of $4 million and a maximum total-liabilities covenant of $175 million. Management believed the company was in compliance at June 30, 2012, and was negotiating extensions with lenders.
- Bay Holdings: The company has a 51% interest, accounted for under the equity method with a zero carrying value. The project’s $282.3 million construction loan was in default; lenders filed for foreclosure in June 2012. The company has an agreement to purchase project amenities for approximately $35 million, but said it lacks liquidity to do so; no provision was recorded for this executory commitment.
- Pensions: Expected 2012 defined-benefit contributions were $2.2 million, of which $1.1 million had been funded by June 30. The company was discussing with the PBGC an additional security or contribution requirement of approximately $18.7 million related to unfunded plan liabilities.
- Contingencies: An EEOC lawsuit concerning former agricultural operations seeks unspecified damages; the company said it could not reasonably estimate any probable liability and recorded no provision. A separate lawsuit by owners of 10 Kapalua Bay units alleges breaches of fiduciary duties; the potential impact was not estimable and no provision was recorded. The company also recorded a $105,000 liability for specified water-filtration obligations.
- Comparative-period correction: The company corrected immaterial 2011 presentation and pension-related misstatements. The correction did not affect net income.
- Management reported effective disclosure controls and procedures as of quarter-end.
Investor verification priorities
- Confirm progress toward extending or refinancing both facilities before the May 2013 maturities, including covenant compliance and usable liquidity.
- Track real estate sales, leasing cash generation, and whether asset-sale proceeds must be applied to debt.
- Clarify the potential cost and negotiated terms of the approximately $35 million amenities purchase commitment.
- Monitor the Bay Holdings foreclosure, project operations, and the related owners’ lawsuit.
- Verify pension funding needs and any agreement with the PBGC, along with developments in the EEOC matter.