Maui Land & Pineapple Company, Inc. — Q3 2011 Form 10-Q
Reporting period: Three and nine months ended September 30, 2011. Financial statements are unaudited. The company develops, sells and manages real estate and operates leasing, utility and resort-amenity businesses on Maui. Golf, retail and agriculture results are reported as discontinued operations.
Financial performance and position
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Operating revenue | $3.371m | $3.850m | $11.031m | $13.132m |
| Operating loss | $(0.803)m | $(3.661)m | $(4.979)m | $(6.914)m |
| Loss from continuing operations | $(1.360)m | $(5.191)m | $(6.670)m | $(13.240)m |
| Income (loss) from discontinued operations | $0.021m | $25.218m | $15.294m | $25.975m |
| Net income (loss) | $(1.339)m | $20.027m | $8.624m | $12.735m |
| Net income (loss) per share | $(0.07) | $1.35 | $0.47 | $1.23 |
Nine-month 2011 income includes a $15.1m gain recognized on the 2010 Bay Course sale; 2010 results included $25.7m of deferred gain on the Plantation Golf Course sale. These items materially affect year-over-year net income comparisons.
- Cash flow: Operating activities used $8.719m in the first nine months of 2011, versus $5.834m used in 2010. Investing activities provided $8.710m; financing activities used $1.838m. Cash fell from $2.095m at year-end 2010 to $0.248m.
- Debt and liquidity: Total debt and capital leases were $43.821m, down from $45.374m at December 31, 2010. The company reported $14.6m of available revolver capacity, including amounts subject to restrictions, and $0.5m of letters of credit. Current liabilities exceeded current assets by $9.3m.
- Balance sheet: Total assets were $66.413m and stockholders’ deficiency was $16.156m at September 30, 2011. Long-term liabilities totaled $69.748m.
- Interest: Net interest expense was $0.624m for Q3 and $1.758m for the first nine months, down from $1.791m and $6.502m, respectively, in 2010. Management attributed the decline to repayment of $40m convertible notes, lower borrowings and lower rates.
Material changes versus prior periods
- Revenue declined 12% in Q3 and 16% for the nine-month period. There were no real estate inventory sales in 2011; nine-month 2010 real estate revenue included a $1.65m land sale.
- Operating losses narrowed, with lower general and administrative, selling and marketing, leasing and depreciation costs. Management cited staff reductions, lower professional-services use and reduced pension costs.
- The company ceased golf operations in March 2011 and discontinued its remaining retail operations in June and September. Retail space is being leased to third parties.
- In June 2011, the company sold a 13-acre former cannery parcel for $9.75m, recording a $0.871m loss in discontinued operations. Net cash proceeds were $8.2m; proceeds were used for debt reduction, working capital and legacy-cost requirements.
- Reportable segments were revised to Real Estate, Leasing, Utilities and Resort Amenities. Utilities and resort amenities reported nine-month operating losses of $0.174m and $0.351m, respectively; leasing’s loss was $0.721m.
Outlook, risks and unusual items
- Going concern: Management said the circumstances raise substantial doubt about the company’s ability to continue as a going concern. The company’s ability to meet financial covenants depends heavily on real estate sales in a difficult market. Management said it was pursuing asset sales, cost reductions, cash generation and debt reduction; no assurance was given that these measures would succeed.
- Covenants and maturities: Credit facilities require minimum defined liquidity of $4m, cap total liabilities at $175m and restrict new indebtedness. The company believed it was compliant at September 30, 2011. The Wells Fargo revolver and American AgCredit term loan mature May 1, 2013; default could make borrowings immediately payable, and the company said it would lack liquidity to repay them. Significant real estate is pledged as collateral.
- Affiliated project exposure: Kapalua Bay’s $276.1m construction loan matured August 1, 2011; the project was negotiating an extension and continued funding with lenders. The company has limited completion and recourse guarantees, with $4.1m accrued for its estimated share, but does not guarantee loan repayment. A potential commitment of up to approximately $35m to purchase project amenities remains under discussion.
- Pension obligations: The company expected approximately $0.4m of pension contributions for the remainder of 2011. Following golf-operation closures, the PBGC required additional security or contributions; the amount and form were still being negotiated. Approximately 1,400 acres had already been pledged as security under an earlier agreement.
- Legal and other contingencies: Matters include an LPGA sponsorship dispute, an EEOC discrimination lawsuit against the discontinued agricultural subsidiary, and a purchaser lawsuit relating to Kapalua Bay residences. The company said it could not reasonably estimate potential liabilities for these matters and recorded no additional provision. It also reported tax examinations and a DBCP-related water-filtration obligation.
- Development: Pulelehua, a planned 312-acre community, received Maui County Council Land Use Committee approval in early October 2011; full council and mayoral approvals remained outstanding. The company did not anticipate significant 2011 capital expenditures.
- Financial statement correction: The filing corrected prior-period amounts for refundable club-member deposits and estimated interest on uncertain tax positions. Management characterized the corrections as immaterial.
Key facts for investors to verify
- Progress on real estate sales, covenant compliance, available borrowing capacity and the company’s going-concern plans.
- Extension and funding status of Kapalua Bay’s matured construction loan, and whether the company must purchase the amenities.
- PBGC security or contribution requirements and the ultimate exposure from disclosed litigation and other contingencies.
- How discontinued-operation gains and losses affect reported earnings, and the underlying profitability and cash needs of continuing operations.
- Required remaining approvals for the Pulelehua development and the timing and economics of any future land sales.