Maui Land & Pineapple Company, Inc. — Q3 2014 Form 10-Q
Business context and period: The company owns about 23,300 acres on Maui and operates real estate, leasing, regulated utilities, and resort amenities businesses. This unaudited filing covers the three and nine months ended September 30, 2014; financial amounts below are in millions unless otherwise noted.
Financial results and condition
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Operating revenue | $2.739 | $2.814 | $10.217 | $7.999 |
| Operating income (loss) | $(0.123) | $(0.849) | $0.595 | $(2.529) |
| Continuing-operations loss | $(0.721) | $(1.490) | $(1.072) | $(4.370) |
| Net loss | $(0.749) | $(1.564) | $(1.181) | $(2.548) |
| Net loss per share | $(0.04) | $(0.08) | $(0.07) | $(0.14) |
- Cash flow: Operating activities used $0.210 million in the first nine months, versus $4.941 million used in 2013. Cash fell $0.163 million from year-end to $0.196 million at September 30.
- Debt and liquidity: Total debt was $49.676 million, versus $49.000 million at year-end. Current assets were $2.195 million and current liabilities $6.909 million, a $4.714 million working-capital deficit. Stockholders’ deficiency was $27.691 million. The filing reports a $3 million minimum-liquidity covenant; management said it was in compliance at quarter-end.
- Interest and margins: Net interest expense was $0.598 million in Q3 and $1.667 million for the nine months. The filing does not state operating-margin percentages.
Changes and operating drivers
- Nine-month revenue increased $2.218 million, primarily reflecting the May sale of a golf-course maintenance property for $2.3 million, which generated a $1.5 million gain. Q3 revenue was modestly lower year over year.
- Nine-month operating results improved from a $2.529 million loss to $0.595 million income. Management attributed lower expenses in part to reduced legal-defense costs and pension expense; lower interest rates also reduced interest expense.
- Leasing operating income improved to $0.602 million for the nine months from a $0.223 million loss, including the benefit of the zipline resuming operations under a new operator in December 2013. Utilities revenue and operating income fell, primarily due to lower water sales in rainier weather. Resort amenities’ nine-month operating income declined to $0.110 million from $0.252 million.
- Prior-year nine-month discontinued operations included a $1.9 million gain on a land sale; 2014 discontinued operations reported a $0.109 million loss.
Outlook, risks, and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. Cash needs and covenant compliance over the next 12 months depend heavily on selling real estate at acceptable prices. Without asset sales or refinancing, the company does not expect to repay its credit facilities at their August 1, 2016 maturities; a covenant breach could make borrowings immediately due, and the company says it would lack sufficient liquidity to repay them.
- Debt terms: Wells Fargo borrowings were $30.143 million under a $32.7 million revolving facility; American AgCredit debt was $19.533 million under a $20 million term loan. The term loan requires principal reductions to $17 million by May 1, 2015 and $15 million by May 1, 2016. A $3.5 million First Hawaiian Bank line, maturing June 5, 2015, had no borrowings outstanding.
- Subsequent sale: On October 9, 2014, the company sold 244-acre Lipoa Point to the State of Hawaii for $19.8 million. The filing estimates a $19.3 million gain for the December quarter. Net proceeds, after about $0.4 million of closing costs, went to the pension-plan trustee, not general working capital; the PBGC mortgage on the property was released. The company said it did not expect minimum pension contributions for the foreseeable future after this funding.
- Pensions: Pension plans were underfunded by $20.3 million at September 30. Before the Lipoa Point sale, pledged land secured PBGC obligations; no formal appraisal of pledged acreage was performed.
- Contingencies: A stipulated default judgment was entered against subsidiary Maui Pineapple Company in an EEOC case; the company could not estimate related liability. Kapalua Bay-related lawsuits seek unspecified damages, and the company could not estimate any probable liability; no provision was recorded. A $0.059 million reserve was recorded for existing environmental filtration-system obligations.
- Management said development activity was limited to planning, permitting, and maintaining entitlements. Key risks include real-estate sales and refinancing, covenant compliance, Hawaii property and tourism demand, development approvals, pension assumptions, and litigation and environmental exposure.
Important facts for investors to verify
- Whether property sales or refinancing provide sufficient cash to meet covenants, scheduled paydowns, and the 2016 maturities.
- How Lipoa Point proceeds affect pension funding and future required contributions, given that proceeds were directed to the pension plans.
- The amount and potential consequences of liabilities from the EEOC judgment and Kapalua Bay litigation, which the filing does not quantify.
- Whether operating cash flow improves without reliance on infrequent real-estate dispositions.
- The company reported effective disclosure controls and procedures as of September 30, 2014.