Maui Land & Pineapple Company, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing is an annual report; it does not provide standalone fourth-quarter results. The company owns approximately 23,400 acres on Maui and operates real estate, leasing, utility and resort-amenity businesses. Golf and retail operations were discontinued during 2011; agriculture had been discontinued previously.
Financial results and liquidity
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue | $14.5 million | $23.1 million |
| Operating loss | $7.3 million | $4.3 million |
| Continuing-operations loss | $9.6 million | $11.4 million |
| Income from discontinued operations | $14.6 million | $36.2 million |
| Net income | $5.1 million | $24.8 million |
| Net income per share | $0.27 | $1.99 |
| Cash used in operating activities | $10.2 million | $9.4 million |
| Year-end debt | $45.5 million | $45.2 million |
| Year-end cash | $0.9 million | $2.1 million |
- Revenue fell 37%, chiefly because 2010 included $7.9 million of real estate inventory sales; there were no such sales in 2011. The 2011 net profit was substantially supported by a $15.1 million gain on the Bay Course sale. In 2010, results included a $26.7 million gain related to the Plantation Golf Course sale and $16.6 million of post-retirement plan settlement and curtailment gains.
- Operating margin was approximately negative 50% in 2011, compared with negative 19% in 2010. Continuing operations remained loss-making despite lower interest and general and administrative expenses.
- Segment revenue and operating result in 2011: real estate $1.1 million and loss of $0.7 million; leasing $5.1 million and loss of $1.0 million; utilities $3.4 million and loss of $0.3 million; resort amenities $3.9 million and loss of $0.8 million. Unallocated “Other” reported a $4.5 million operating loss.
- At year-end, current assets were $5.3 million and current liabilities $12.5 million, a $7.2 million working-capital deficit. Stockholders’ deficiency was $26.3 million. The company reported negative operating cash flow and substantial doubt about its ability to continue as a going concern.
- Debt comprised $21.1 million under a Wells Fargo revolver and $24.4 million under an American AgCredit term loan; both mature May 1, 2013. The company reported $12.9 million of revolver availability, subject to facility terms and a legacy-cost reserve. Both facilities require minimum liquidity of $4 million and cap total liabilities at $175 million. Substantially all real estate assets are encumbered.
- Interest expense was $2.7 million, down from $9.5 million in 2010, primarily due to lower average borrowings and rates. The company reported $1.1 million of impairment charges in 2011, versus $3.1 million in 2010.
Material changes, outlook and risks
- In February 2011, credit facilities were restructured, increasing borrowing capacity by $9.5 million, extending maturities to May 2013, removing interest-rate floors and reducing certain covenant thresholds. The company sold 13 acres in Kahului for $9.75 million in June 2011 and received final County zoning approval for the 312-acre Pulelehua project in November.
- Management said 12-month liquidity and covenant compliance depend heavily on selling real estate in a difficult market. Planned 2012 actions included asset sales, leasing or otherwise monetizing land, and further cost reductions. There can be no assurance of sales at acceptable prices or of covenant compliance. No significant 2012 capital expenditures were expected; pension contributions of approximately $2.5 million were anticipated.
- A $35 million commitment to purchase the spa, beach club improvements and sundry store from Bay Holdings remains under negotiation; no provision was recorded for the executory purchase commitment. The company recorded $4.1 million for its estimated share of completion and limited-recourse guarantees. Bay Holdings’ approximately $276 million construction loan was matured and due; the company did not guarantee repayment of that loan.
- The defined-benefit pension plan was underfunded by $27.6 million at year-end, up from $22.1 million. The company was discussing approximately $18.7 million of additional security or contributions with the PBGC; approximately 1,400 acres had already been pledged for existing pension security.
- The company accrued a further $1.0 million LPGA settlement payment in 2011, payable in 2012. An EEOC suit involving discontinued agricultural operations and a separate buyer lawsuit concerning two Kapalua Bay units had unquantified potential liabilities; no provision was recorded for either. Other risks include real estate and tourism cyclicality, entitlement and development uncertainty, environmental obligations, pension-market sensitivity and covenant-default risk.
- The independent auditor issued an unqualified opinion but highlighted the going-concern uncertainty. Management reported effective disclosure controls and internal control over financial reporting. The filing also describes immaterial corrections to previously issued company financial statements; separate restatements of Bay Holdings information did not affect the company’s consolidated statements because its investment had been written down to zero.
Most important facts for investors to verify
- Current covenant calculations, available borrowing capacity after reserves, and the company’s ability to maintain required liquidity and refinance or repay debt due in May 2013.
- Progress, timing and net proceeds from planned real estate sales, including required lender repayments and any restrictions on using proceeds.
- Final terms and funding implications of the Bay Holdings amenities purchase, guarantees and restructuring of Bay Holdings’ matured construction loan.
- PBGC negotiations, pension funding requirements and changes in the pension deficit.
- Potential outcomes and cash exposure from the EEOC and unit-purchaser lawsuits, environmental obligations and other contingencies.
- How much recurring cash generation the continuing businesses can produce without one-time asset-sale gains, and whether development projects can advance under the company’s liquidity constraints.