Maui Land & Pineapple Company, Inc. — Q2 2014 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. Financial amounts below are in millions of dollars unless noted. The company owns about 23,300 acres on Maui and operates real estate, leasing, utilities and resort-amenities businesses.
Key financial results
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Operating revenue | $5.009 | $2.556 | $7.478 | $5.185 |
| Operating income (loss) | $1.094 | ($0.768) | $0.718 | ($1.680) |
| Income (loss) from continuing operations | $0.502 | ($1.274) | ($0.351) | ($2.880) |
| Net income (loss) | $0.477 | $0.831 | ($0.432) | ($0.984) |
| Operating margin | 21.8% | (30.0%) | 9.6% | (32.4%) |
Q2 basic and diluted earnings per share were $0.03, compared with $0.04 a year earlier; six-month loss per share was $0.02, versus $0.05. Operating margins are calculated from reported revenue and operating income. No income tax expense was reported for continuing operations in these periods.
Cash, debt and balance sheet
- At June 30, cash and cash equivalents were $0.203; total debt was $48.776, compared with $49.000 at year-end 2013. Total assets were $51.900 and stockholders’ deficiency was $27.135.
- Current assets of $2.008 were below current liabilities of $7.462 by about $5.5. Six-month operating cash flow was positive $0.689, versus cash used of $3.057 in the prior-year period; cash fell $0.156 to $0.203.
- Debt comprised $29.243 outstanding on a Wells Fargo revolving facility and $19.533 on an American AgCredit term loan. Both mature August 1, 2016. The AgCredit loan requires principal reduction to $17 million by May 1, 2015 and $15 million by May 1, 2016. A new First Hawaiian Bank line provides up to $3.5 million through June 5, 2015; it had no borrowings at quarter-end.
- The Wells Fargo and AgCredit facilities include a minimum-liquidity covenant of $3 million, a maximum-liabilities covenant of $175 million and restrictions on additional debt. The company reported that it believed it was in compliance at June 30.
Changes and operating drivers
- Revenue and operating income improved substantially, principally due to the May sale of a 4-acre golf-course maintenance property for $2.3 million, generating a $1.5 million gain. Proceeds were used in part to release the Honolua Store from Wells Fargo collateral and repay $0.4 million of the AgCredit loan.
- Year-earlier 2013 results included a $1.9 million gain on a separate land sale, reported in discontinued operations. Accordingly, despite Q2 2014 continuing-operations income, total Q2 net income was lower than in 2013.
- Leasing operating income improved as zipline operations resumed under a new operator in December 2013. Utilities revenue and income declined, which management attributed primarily to rainier weather and lower water sales. Resort-amenities costs rose, including $29,000 monthly payments for club-member access to the spa and beach club.
- Six-month interest expense declined year over year, primarily due to lower borrowing rates; Q2 interest expense increased in part because the prior-year period included an $181,000 AgCredit dividend.
Outlook, risks and unusual items
- Going concern: Management stated that the company’s cash outlook and ability to meet loan covenants over the next 12 months depend heavily on selling real estate at acceptable prices. The filing says these conditions raise substantial doubt about the company’s ability to continue as a going concern. Without asset sales or refinancing, the company does not expect to repay outstanding balances on the major facilities at maturity; a covenant failure could make borrowings immediately due, and the company says it would lack sufficient liquidity to repay them.
- The company planned possible sales of operating and non-operating real estate, with proceeds partly directed to debt repayment and working capital, alongside leasing initiatives and cost reductions. It gave no quantified revenue or earnings guidance and cautioned there is no assurance of sales on acceptable terms.
- Defined-benefit pension plans had $20.6 million of unfunded liabilities. Required 2014 contributions were estimated at $2.8 million, of which $0.5 million had been paid by June 30. A possible state-facilitated purchase of the 270-acre Lipoa Point property was not assured and remained subject to negotiation.
- Several Kapalua Bay-related lawsuits seek unspecified damages; the company said it could not estimate any probable liability and recorded no provision. In a separate EEOC case, a stipulated default judgment was entered against subsidiary Maui Pineapple Company on June 30; the company could not estimate the related liability.
- The company also reported a $59,000 reserve for existing DBCP-related water-filtration obligations. Future-well costs were not reserved because they could not be reasonably estimated.
Most important facts for investors to verify
- Whether the company can complete asset sales or refinancing in time to satisfy liquidity covenants and the scheduled AgCredit principal reductions.
- Current covenant compliance and the amount of liquidity available under the facilities, including how the contractual $3 million minimum-liquidity test is calculated.
- Progress toward refinancing or repaying the Wells Fargo and AgCredit debt before their August 2016 maturities.
- Actual pension funding needs and whether the proposed Lipoa Point transaction proceeds, at what price, and with what effect on pension obligations and pledged land.
- Developments and potential financial exposure in the EEOC default judgment and Kapalua Bay litigation, which the filing does not quantify.