MLP

Business Context and Reporting Period

Company: Maui Land & Pineapple Co Inc (MLP)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: MLP operates three segments: Community Development (real estate entitlement, development, and sales), Resort (Kapalua Resort operations including golf, spa, and retail), and Agriculture (pineapple growing and marketing). In November 2009, the Board approved the cessation of all pineapple agriculture operations by year-end, reporting this segment as discontinued operations. The Company owns approximately 24,300 acres of land on Maui.

Key Financial Metrics

Material Changes vs. Prior Period

• Net Loss Increase: Net loss increased by $43.9 million (55%) compared to 2008, driven primarily by a $47.2 million equity loss from the Kapalua Bay Holdings joint venture (compared to $18.8 million in 2008) and $14.2 million in impairment charges for deferred development costs.
• Segment Performance:
  • Resort: Revenues declined 20% to $29.8 million due to a 7% decrease in visitor days and lower per-person expenditures. Operating loss improved slightly to $16.1 million from $19.7 million due to cost-cutting measures.
  • Community Development: Revenues increased to $19.9 million from $11.4 million, primarily due to real estate inventory sales. However, operating loss widened to $62.6 million from $40.0 million due to the Bay Holdings impairment.
  • Agriculture: Operations ceased in December 2009. The segment is reported as discontinued operations with a loss of $34.9 million, including $22.8 million in charges for asset disposition and severance.
• Debt Reduction: Total debt decreased by approximately $40 million, largely due to applying $45 million of proceeds from the sale of the Plantation Golf Course to repay outstanding borrowings.
• Equity Deficiency: The Company moved from positive equity of $31.7 million in 2008 to a deficiency of $76.9 million in 2009.

Guidance, Outlook, Risks, and Contingencies

Going Concern Uncertainty: The Company's recurring losses, negative cash flows, and equity deficiency raise substantial doubt about its ability to continue as a going concern. The financial statements do not include adjustments that might result if the Company cannot continue operations.

Liquidity and Capital Resources:

• The Company has $1.9 million in cash and $13.5 million in available credit lines.
• Liquidity is highly dependent on selling real estate assets and raising new equity capital.
• There is a commitment to purchase amenities (spa, beach club, sundry store) from Bay Holdings for approximately $35 million, though terms are being renegotiated.

Key Risks and Contingencies:

• Debt Covenants: Failure to meet financial covenants (minimum liquidity of $8 million) could accelerate debt obligations totaling $97 million.
• NYSE Listing: The Company received notice from the NYSE in January 2010 of non-compliance with listing standards due to low market capitalization and negative equity. A compliance plan was submitted; failure to comply could result in delisting.
• Legal Proceedings:
  • LPGA Dispute: A dispute regarding the failure to hold the 2009 LPGA tournament due to lack of a title sponsor. Mediation is suspended; potential liability is uncertain but could impact liquidity.
  • Yamamura Lawsuit: A lawsuit filed by M. Yamamura and Sons, Inc., alleging breach of a pineapple planting agreement. The Company denies allegations and intends to defend vigorously.
• Joint Venture Impairment: The investment in Bay Holdings was written down to zero. The Company has no further funding commitments beyond estimated completion and recourse guarantees.

Management Commentary: Management focused 2009 efforts on increasing liquidity and stabilizing the Company. Initiatives include workforce reductions (from ~800 to 260 employees), outsourcing resort operations, and seeking equity financing.

Investor Verification Checklist

• Going Concern Status: Verify the Company's progress in raising equity capital or selling assets to meet the $8 million minimum liquidity covenant required by lenders.
• NYSE Compliance: Monitor the status of the NYSE compliance plan and the risk of delisting, which could trigger cross-defaults on debt.
• Bay Holdings Commitments: Confirm the final terms of the $35 million amenity purchase commitment and whether the Company has been relieved of this obligation.
• Legal Exposure: Assess the potential financial impact of the LPGA dispute and the Yamamura lawsuit on future cash flows.
• Real Estate Sales: Track the execution of planned real estate asset sales intended to generate approximately $38 million in proceeds.