Maui Land & Pineapple Company, Inc. — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011. Financial amounts below are in millions of dollars unless stated otherwise. The company develops and manages real estate on Maui, with Resort and Community Development segments. Pineapple operations had ceased in 2009; golf-course operations ended March 31, 2011 and are reported as discontinued operations.
Financial results and condition
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Operating revenue | $5.2 | $6.3 | $11.6 | $13.9 |
| Operating loss | $(1.7) | $(1.1) | $(3.3) | $(2.4) |
| Continuing-operations loss | $(2.1) | $(3.1) | $(4.5) | $(7.2) |
| Discontinued operations | $(0.3) | $(1.5) | $14.4 | $(0.1) |
| Net income (loss) | $(2.5) | $(4.6) | $10.0 | $(7.3) |
| Net income (loss) per share | $(0.13) | $(0.57) | $0.54 | $(0.90) |
Six-month 2011 net income included a $15.1 million gain recognized on the Bay Course sale; it does not indicate profitable continuing operations. No separate percentage-margin figures are provided; operating losses are shown above.
- Cash flow: Operating activities used $5.4 million in the first half of 2011, versus $2.1 million used in 2010. Investing activities provided $5.1 million, largely from property disposals; financing activities used $1.2 million.
- Liquidity: June 30 cash and cash equivalents were $0.6 million, with another $4.1 million in restricted cash. Current liabilities exceeded current assets by $7.1 million. The company reported $14.1 million available on its revolving line of credit.
- Debt and equity: Total debt was $44.4 million, down from $45.4 million at December 31, 2010. Stockholders’ deficiency was $15.0 million. The company reported $71.6 million in total assets.
- Interest: Net interest expense was $0.5 million for Q2 and $1.1 million for the first half, substantially below prior-year periods, primarily following repayment of $40 million in convertible notes in August 2010 and lower borrowings and rates.
Changes versus prior comparable periods
- Q2 revenue declined about $1.1 million, principally because golf-course-related retail and lease revenues ended after the leasebacks expired. The net loss narrowed, reflecting lower operating, administrative and interest expense and reduced discontinued-operation losses.
- First-half revenue fell about $2.2 million. Community Development moved to a $1.3 million operating loss from $0.7 million profit, primarily because there were no real estate inventory sales (versus a 128-acre sale in 2010). Resort revenue also declined, while its operating loss improved to $2.1 million from $5.0 million through lower costs.
- The June sale of a 13-acre former cannery parcel generated $9.75 million gross proceeds and $8.2 million net cash proceeds, but an $0.9 million loss was recorded in discontinued operations. About $4.1 million was restricted for legacy costs and $0.9 million remained in escrow for post-closing obligations.
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. Continued covenant compliance depends heavily on real estate sales in a difficult market; a default could accelerate borrowings, which the company says it could not repay with available liquidity.
- The Wells Fargo revolver and American AgCredit term loan mature May 1, 2013, and each has a $4 million minimum-liquidity covenant and a $175 million maximum-liabilities covenant. The company believed it was compliant at June 30, 2011. Debt is secured by substantial real estate holdings.
- Management’s stated initiatives include asset sales, cost reductions and further debt reduction. It expected approximately $1.9 million of 2011 pension contributions and no significant 2011 capital expenditures. No earnings or revenue guidance was provided.
- Kapalua Bay’s $279.8 million construction loan matured August 1, 2011; the project was negotiating an extension. The company did not guarantee repayment but had completion and limited-recourse guarantees, with $4.1 million accrued for its estimated obligations. The company was also negotiating whether and on what terms it must purchase project amenities, previously estimated at approximately $35 million.
- Other material exposures include an LPGA sponsorship dispute (mediation suspended through December 2011), an EEOC employment lawsuit against its discontinued agricultural subsidiary, a lawsuit concerning Kapalua Bay residence sales, and pension funding obligations. For the lawsuits, the company said potential losses could not be reasonably estimated and recorded no provision.
- The company ceased its remaining retail-store operations in September 2011 as planned; Honolua Store had been leased to a third party effective June 27. A previously issued financial statement correction adjusted refundable club deposits and uncertain-tax-position interest; management deemed the corrections immaterial.
Investor verification priorities
- Confirm post-quarter status of the Kapalua Bay construction-loan extension and any resulting obligations for the company.
- Track cash, restricted funds, property-sale proceeds, pension contributions and compliance with the minimum-liquidity covenant.
- Assess whether asset sales and cost reductions can cover continuing operating cash outflows and debt requirements.
- Monitor the LPGA dispute, EEOC and residence-sale litigation, and the potential cost or resolution of the amenities commitment.
- Separate recurring operating performance from the $15.1 million Bay Course gain and discontinued operations when evaluating first-half earnings.