Maui Land & Pineapple Company, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited. The company owns approximately 23,300 acres on Maui and operates real estate, leasing, utility and resort-amenity businesses.
Financial performance and position
Amounts below are in millions of dollars except per-share data. The filing reports that figures may not indicate full-year results.
| Metric | Q1 2013 | Q1 2012 / prior date |
|---|---|---|
| Revenue | $3.353 | $5.310 |
| Operating income (loss) | $(1.113) | $0.407 |
| Net loss | $(1.815) | $(0.244) |
| Loss per share, basic and diluted | $(0.10) | $(0.01) |
| Cash used in operations | $(1.759) | $(0.428) |
| Cash and cash equivalents | $0.457 at March 31 | $0.829 at December 31, 2012 |
| Total debt | $50.968 at March 31 | $49.268 at December 31, 2012 |
| Stockholders’ deficiency | $(35.845) at March 31 | $(34.363) at December 31, 2012 |
Operating loss was about 33% of revenue, compared with operating income equal to about 8% of revenue a year earlier. Interest expense, net, was $0.694 million versus $0.634 million. Current assets of $4.944 million were below current liabilities of $14.473 million by $9.529 million. The company reported approximately $7.1 million of available revolving-credit capacity.
Changes versus the prior comparable period
- Revenue fell $1.957 million, primarily because Q1 2012 included a $1.5 million sale of an 89-acre parcel; there were no real estate inventory sales in Q1 2013.
- Real estate revenue declined to $0.096 million from $1.819 million, and the segment moved from $1.053 million operating income to a $0.451 million loss. Brokerage commissions also fell.
- Leasing revenue decreased to $1.326 million from $1.502 million, mainly after the zipline operator’s lease ended early in February 2013; the segment recorded a $0.074 million operating loss versus $0.176 million income.
- Utilities revenue was nearly unchanged, while segment operating income rose to $0.120 million from $0.022 million, primarily due to lower allocated corporate costs. Resort amenities revenue declined modestly; its operating loss narrowed to $0.021 million.
- General and administrative expense declined to $0.704 million from $1.052 million, reflecting reduced staffing and lower professional-services and consulting costs. Operating cash outflow increased, primarily due to costs defending legal claims.
Liquidity, outlook, risks and unusual items
- Going concern: Management stated that these conditions raise substantial doubt about the company’s ability to continue as a going concern. Its cash outlook and ability to meet loan covenants depend heavily on selling real estate at acceptable prices, refinancing, leasing and cost reductions. The company said it would not have sufficient liquidity to repay debt if covenant failure accelerated borrowings.
- Debt and maturities: Wells Fargo revolving borrowings were $26.9 million and the American AgCredit term loan was $24.068 million. Both facilities mature May 1, 2014, and each has a $4 million minimum-liquidity covenant, a $175 million maximum-total-liabilities covenant and restrictions on new debt. The company said it did not expect to repay either facility at maturity without asset sales or refinancing. A $4.068 million current debt portion is shown on the balance sheet; American AgCredit requires a $4.1 million principal repayment by December 31, 2013. The company reported compliance with covenants as of March 31, 2013.
- Cash priorities: Management planned possible real estate sales, with proceeds partly directed to debt repayment and working capital. It did not anticipate significant capital expenditures in 2013 and expected approximately $2.1 million of pension contributions for the year, of which $0.4 million had been funded through March 31.
- Kapalua Bay exposure: The company has a contractual commitment to buy spa, beach-club and sundry-store amenities for approximately $35 million, but says it lacks liquidity to do so and is negotiating with project lenders. No provision was recorded for this executory purchase contract. The Kapalua Bay project loan was $289.7 million and in foreclosure; an investment firm was confirmed as the successful bidder in January 2013, but foreclosure was not complete at quarter-end. The company has limited completion-related guarantees, and recorded $4.1 million for its remaining expected exposure to loss related to the project.
- Other exposures: The company disclosed an EEOC lawsuit concerning former agricultural operations, two Kapalua Bay-related lawsuits, and other legal claims. For specified lawsuits, it could not reasonably estimate potential liability and recorded no provision. It also reported pension-plan funding obligations and an $83,000 recorded liability related to water-filtration obligations associated with agricultural chemicals.
- Discontinued operations: Loss from discontinued operations was $0.008 million, compared with $0.017 million. The company had previously ceased agriculture, golf-course and resort retail operations.
- No specific revenue or earnings forecast was provided. Management emphasized that real estate sales, market conditions, refinancing, covenant compliance, pension funding and the Kapalua Bay matters could materially affect results and liquidity.
Important facts for investors to verify
- Whether the company can maintain covenant compliance and secure refinancing or extensions before the May 2014 debt maturities.
- Whether real estate sales can generate sufficient proceeds, including for the $4.1 million required principal repayment by year-end 2013.
- How negotiations resolve the approximately $35 million amenities purchase commitment and the company’s Kapalua Bay guarantees and foreclosure-related exposure.
- Whether pension contributions, litigation outcomes or other contingencies create cash requirements beyond amounts currently accrued.
- Whether operating performance improves following the loss of the zipline lease and the absence of real estate sales in the quarter.