Maui Land & Pineapple Company, Inc. — Q3 2013 Form 10-Q
Reporting period: Three and nine months ended September 30, 2013. Amounts below are in millions of dollars unless stated otherwise. The company owns approximately 23,300 acres on Maui and operates in real estate, leasing, utilities, and resort amenities. Its former agriculture, golf, and retail operations are reported as discontinued operations.
Financial results and liquidity
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $2.834 | $3.622 | $9.294 | $12.384 |
| Operating loss | $(0.910) | $(0.925) | $(2.976) | $(1.100) |
| Continuing-operations loss | $(1.551) | $(1.684) | $(4.817) | $(2.959) |
| Discontinued operations | $(0.013) | $0.068 | $2.269 | $0.065 |
| Net loss | $(1.564) | $(1.616) | $(2.548) | $(2.894) |
| Net loss per share | $(0.08) | $(0.09) | $(0.14) | $(0.16) |
- For the first nine months, operating cash flow was $(4.941), versus $(2.320) a year earlier. Investing activities provided $3.660, including $3.760 in property-sale proceeds; financing activities provided $0.872. Cash declined $0.409 to $0.420.
- At September 30, total debt was $50.507, compared with $49.268 at year-end 2012. All debt was classified as current because both facilities mature May 1, 2014. Cash was $0.420 and available Wells Fargo borrowing capacity was $4.5.
- Current assets were $4.253 and current liabilities $59.011, a $54.8 excess of current liabilities. Stockholders’ deficiency was $35.956. Management reported covenant-defined liquidity of $5.4 and said it believed the company was covenant-compliant at quarter-end.
- Gross margin is not separately presented. The filing reports operating losses and does not provide a clear consolidated margin figure.
Changes versus prior period
- Nine-month revenue declined 25%, primarily as spa and beach club operations ceased during 2013; the prior-year period also included $1.5 in real estate sale revenue. Q3 revenue fell about 22%, with the company citing the cessation of spa and beach club operations.
- Nine-month continuing-operations loss widened to $4.817 from $2.959, while net loss improved to $2.548 from $2.894, chiefly because discontinued operations included a $1.9 gain on a land sale and a $0.5 reversal of accrued tax and interest following an IRS settlement.
- Nine-month operating cash use more than doubled, which management attributed primarily to legal-defense costs; 2012 also included cash proceeds from a real estate inventory sale.
- Utilities operating profit rose to $0.652 from $0.472 for the nine months, with higher non-potable irrigation-water consumption during drier weather. Leasing revenue fell, primarily after the zipline operator lease ended in February 2013. Resort amenities revenue declined after spa and beach club operations ended.
Outlook, 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. Cash needs and covenant compliance depend heavily on asset sales at acceptable prices and/or refinancing or extending debt maturities. Without those actions, the company said it would not be able to repay the facilities at maturity or repay them if accelerated after a covenant breach.
- American AgCredit requires principal to be reduced to $20 by December 31, 2013; the filing says $2.3 remained to be paid down. Both facilities have minimum-liquidity and other financial covenants and are secured by substantial real estate holdings.
- The company expected 2013 pension contributions of about $2.1, of which $1.6 had been funded by September 30. Pension obligations were reported as unfunded by $24.2 and secured by approximately 8,400 acres. A state bill encouraged a possible purchase of the 270-acre Lipoa Point parcel but did not require either party to complete a sale.
- The company had an approximately $35 commitment to purchase Kapalua Bay amenities, but said it lacked liquidity to do so and was negotiating with the project’s new owners. In October 2013, it entered contingent agreements involving $2.4 toward deferred maintenance, land conveyances, and other consideration in exchange for releases from limited guarantees and the amenities commitment. Completion depended, among other conditions, on releases from at least 70 non-developer fractional-interest owners within 90 days.
- Other exposures include an EEOC lawsuit related to former agricultural operations, multiple lawsuits connected to the Kapalua Bay project, an IRS settlement requiring $1.8 in payments (with $0.6 paid by September 30), and environmental well-filtration obligations. The company recorded $4.1 for certain project-related obligations; several legal claims had no recorded provision because potential loss could not be estimated.
- Management cited cost reductions, leasing and other use of land, asset sales, negotiations with lenders, and efforts to resolve Kapalua Bay commitments. It provided no quantified revenue or earnings guidance and said significant 2013 development or capital expenditures were not anticipated.
Important facts for investors to verify
- Whether the October 2013 Kapalua Bay agreements satisfied their conditions and what releases or cash and property obligations ultimately resulted.
- Progress on extending or refinancing the two May 2014-maturity facilities, the required American AgCredit paydown, and ongoing covenant-defined liquidity.
- Real estate sale timing and proceeds, including whether sales are sufficient to fund operations, debt service, and pension contributions.
- Developments in the EEOC and Kapalua Bay litigation, the IRS payment schedule, and pension funding or collateral requirements.
- How recurring operating performance evolves after the spa and beach club closures, given lower revenue and continued operating cash outflows.