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MLP > SEC Filings for MLP > Form 10-Q on 25-Oct-2012All Recent SEC Filings

Show all filings for MAUI LAND & PINEAPPLE CO INC

Form 10-Q for MAUI LAND & PINEAPPLE CO INC


25-Oct-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2011 and the unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. Depending upon the context, the terms the "Company," "we," "our," and "us," refer to either Maui Land & Pineapple Company, Inc. alone, or to Maui Land & Pineapple Company, Inc. and its subsidiaries collectively.

Overview of the Company

Maui Land & Pineapple Company, Inc. is a Hawaii corporation and the successor to a business organized in 1909. The Company consists of a landholding and operating parent company, its principal subsidiary, Kapalua Land Company, Ltd. and certain other subsidiaries of the Company.

The Company owns approximately 23,400 acres of land on Maui and develops, sells, and manages residential, resort, commercial, and industrial real estate through the following business segments:

Real Estate - Our real estate operations consist of land planning and entitlement, development, and sales.

Leasing - Our leasing activities include commercial, industrial and agricultural land and facilities leases, licensing of our registered trademarks and trade names, and stewardship and conservation efforts.

Utilities - We operate two publicly-regulated utility companies which provide potable and non-potable water and sewage transmission services to the Kapalua Resort. In addition, we also manage ditch, reservoir and well systems which provide non-potable irrigation water to West and Upcountry Maui areas.

Resort Amenities - Within the Kapalua Resort, we manage a full-service spa, a beach club, and a private club membership program.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of accounting estimates. Changes in these estimates and assumptions are considered reasonably possible and may have a material effect on the consolidated financial statements and thus actual results could differ from the amounts reported and disclosed herein. Our critical accounting policies that require the use of estimates and assumptions were discussed in detail in our most recently filed Form 10-K. There have been no significant changes in our critical accounting policies during the first nine months of 2012.

There are no accounting pronouncements or interpretations that have been issued but not yet applied by us that we believe will have a material impact on our consolidated financial statements.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2012 compared to Three Months Ended September 30, 2011; and Nine Months Ended September 30, 2012 compared to Nine Months Ended September 30, 2011

CONSOLIDATED



                                        Three Months Ended       Nine Months Ended
                                          September 30,            September 30,
                                         2012         2011        2012        2011
                                           (in thousands except share amounts)

Consolidated Revenues                 $     3,622   $  3,371   $   12,384   $ 11,031

Loss From Continuing Operations       $    (1,684 ) $ (1,360 ) $   (2,959 ) $ (6,670 )

Income From Discontinued Operations   $        68   $     21   $       65   $ 15,294

Net Income (Loss)                     $    (1,616 ) $ (1,339 ) $   (2,894 ) $  8,624

Net Income (Loss) Per Common Share    $     (0.09 ) $  (0.07 ) $    (0.16 ) $   0.47


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Consolidated revenues during the nine months ended September 30, 2012 includes the January 2012 sale of an 89-acre parcel in Upcountry Maui for $1.5 million. The decrease in loss from continuing operations between the nine months ended September 30, 2012 and 2011 reflects the sale of the 89-acre parcel and improvements in operations and cost reductions efforts. Income from discontinued operations for the nine months ended September 30, 2011 included a gain of $15.1 million recognized in March 2011 from sale of the Kapalua Bay Golf Course (Bay Course).

GENERAL AND ADMINISTRATIVE



                               Three Months Ended       Nine Months Ended
                                 September 30,            September 30,

2012 2011 2012 2011
(in thousands)

General and Administrative $ 629 $ 678 $ 2,403 $ 5,113

The decrease in general and administrative expenses between the nine month and three month periods ended September 30, 2012 and 2011was primarily attributed to lower payroll and staff expenses, as we reduced support and other administrative functions in conjunction with the cessation of our golf, retail, and agriculture operations. Also contributing to the decline from the prior periods were lower professional services costs as we continue to resolve outstanding legacy issues and reduce the size our operations. General and administrative expenses during the nine months ended September 30, 2011 included $1.5 million for an adjustment to correct the understatement of contributions of land and improvements that were not originally recorded at their fair value (Note 14 to our condensed consolidated financial statements).

General and administrative expenses are incurred at the corporate level and at the operating segment level. Corporate level general and administrative expenses are allocated to operating segments based on our evaluation of the level of services provided to the operating segments.

REAL ESTATE



                             Three Months Ended        Nine Months Ended
                               September 30,             September 30,
                             2012          2011         2012         2011
                                           (in thousands)

Revenues                  $       90    $       75   $     2,153    $  695

Operating Profit (Loss)   $     (440 )  $     (206 ) $       272    $ (712 )

Revenues for the nine months ended September 30, 2012 include the January 2012 sale of an 89-acre parcel in Upcountry Maui for $1.5 million. We had no sales of real estate inventory during the nine month or three month periods ended September 30, 2011. The other revenues included in this operating segment were real estate commissions from Kapalua Realty Company totaling $90,000 and $75,000 for the three months ended September 30, 2012 and 2011, respectively, and $653,000 and $695,000 for the nine months ended September 30, 2012 and 2011, respectively.

Real estate development and sales are cyclical and depend on a number of factors. Results for one period are therefore not necessarily indicative of future performance trends in this segment.

LEASING



                            Three Months Ended       Nine Months Ended
                              September 30,            September 30,
                             2012         2011        2012        2011
                                          (in thousands)

Revenues                  $    1,413    $  1,380   $    4,394    $ 3,827

Operating Profit (Loss)   $       81    $    (83 ) $      471    $  (721 )


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The increase in leasing revenues during the nine months ended September 30, 2012 reflects additional lease rent and licensing fees from new tenants who have assumed certain of our former golf and retail businesses in addition to new agricultural and industrial space leases. Increased operating profits for the three and nine month periods ended September 30, 2012 are due primarily to lower corporate level general and administration expense allocations and improvements in segment operations.

UTILITIES



                            Three Months Ended       Nine Months Ended
                              September 30,            September 30,
                              2012         2011       2012        2011
                                          (in thousands)

Revenues                  $      1,085    $  935   $    2,628    $ 2,651

Operating Profit (Loss)   $        131    $   96   $      472    $  (174 )

Increased operating profits for the three and nine month periods ended September 30, 2012 are due primarily to lower corporate level general and administration expense allocations.

RESORT AMENITIES



                   Three Months Ended       Nine Months Ended
                     September 30,            September 30,
                     2012         2011       2012        2011
                                 (in thousands)

Revenues         $      1,031    $  909   $    3,171    $ 2,819

Operating Loss   $         (6 )  $  (89 ) $      (65 )  $  (351 )

Increased revenues during the first nine months ended September 30, 2012 reflect higher spa service and treatment revenues as a result of increases in pricing and activity. Reduced operating losses for the three and nine month periods ended September 30, 2012 are due primarily to lower corporate level general and administration expense allocations.

DISCONTINUED OPERATIONS



                                           Three Months Ended                 Nine Months Ended
                                              September 30,                     September 30,
                                         2012              2011             2012            2011
                                                              (in thousands)

Income from Discontinued
Operations Before Income Taxes $ 68 $ 21 $ 65 $ 15,294

Our former retail, golf and agriculture operations are reported as discontinued operations. Income from discontinued operations for the nine months ended September 30, 2011 includes a $15.1 million gain from the sale of the Bay Course (Note 6 to our condensed consolidated financial statements).

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

At September 30, 2012, our total debt was $47.6 million, compared to $45.5 million at December 31, 2011, and we had approximately $10.5 million available under our revolving line of credit and $0.6 million in cash and cash equivalents. Our debt matures on May 1, 2013 and, accordingly, has been reflected in current liabilities in our condensed consolidated financial statements. Cash used in operating activities was $2.3 million for the nine months ended September 30, 2012. At September 30, 2012, we had a deficiency in stockholders' equity (total liabilities exceeded total assets) of $28.2 million.


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Revolving Line of Credit with Wells Fargo

We have a $34.5 million revolving line of credit with Wells Fargo that matures on May 1, 2013. Interest rates on borrowings are at LIBOR plus 3.8% and the line of credit is collateralized by approximately 880 acres of our real estate holdings at the Kapalua Resort. The line of credit agreement contains various representations, warranties, affirmative, negative and financial covenants and events of default customary for financings of this type. Financial covenants include a required minimum liquidity (as defined) of $4 million and maximum total liabilities of $175 million. The credit agreement includes predetermined release prices for the real property securing the credit facility and an option to extend the maturity date to May 1, 2014, upon satisfaction of certain conditions. There are no commitment fees on the unused portion of the revolving facility. We may extend the maturity date under the credit agreement to May 1, 2014 if (i) we are not in default under the credit agreement, (ii) there has been no material adverse change, as determined by the lender, in our financial condition, (iii) the aggregate amount of the credit line does not exceed 40% of the value of the property securing the credit line, and (iv) our operating income attributable to the properties securing the credit line is at least 6% of the aggregate amount of the credit line. If the loan-to-value or the operating income thresholds are not met, the credit agreement may still be extended, but the aggregate amount of the credit line will be reduced such that those percentages are satisfied. We may not be able to extend the credit agreement if the conditions are not satisfied. Even if we are able to extend the credit agreement, we may be required to repay a portion of our borrowings if the aggregate amount of the credit line is reduced. Absent the sale of some of our real estate holdings or refinancing, we do not expect to be able to repay any significant amount of borrowings under the credit line.

As of September 30, 2012, we had $23.5 million of borrowings outstanding under our Wells Fargo revolving line of credit, $10.5 million available borrowing capacity and irrevocable letters of credit totaling $0.5 million that were secured by the line of credit.

Term Loan with American AgCredit

We have a $24.1 million term loan with American AgCredit that matures on May 1, 2013. The interest rate on this credit facility is based on the greater of 1.00% or the 30-day LIBOR rate, plus an applicable spread of 4.25%. The loan agreement provides for tiered reductions in the applicable spread to 3.75%, subject to corresponding reductions in the principal balance of the loan. The loan requires mandatory principal prepayments of 100% of the net proceeds of the sale of any real property pledged as collateral for the loan. It also requires tiered mandatory principal prepayments based on predetermined percentages ranging from 10% to 75% of the net proceeds from the sale of non-collateralized real property. In accordance with this provision, we made $353,000 of principal payments in January 2012 due to the real property sale discussed in Note 4 to our condensed consolidated financial statements. The credit agreement is collateralized by approximately 3,100 acres of our real estate holdings in West Maui and Upcountry Maui. The term loan agreement contains various representations, warranties, affirmative, negative and financial covenants and events of default customary for financings of this type. Financial covenants include a required minimum liquidity (as defined) of $4 million and maximum total liabilities of $175 million. Absent the sale of some of our real estate holdings or refinancing, we do not expect to be able to pay the outstanding balance under the term loan on the maturity date.


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Operating Cash Flows

During the first nine months of 2012, consolidated net cash used in operating activities was $2.3 million compared to net cash used in operating activities of $8.7 million for the first nine months of 2011. Operating cash flows for the first nine months of 2012 included interest payments of $1,608,000 compared to interest payments of $1,790,000 for the first nine months of 2011. Operating cash flows for the first nine months of 2012 included $1.4 million from the sale of real estate inventory.

Investing and Financing Cash Flows

Cash provided by investing activities during the first nine months of 2012 included $405,000 from the sale of various machinery and equipment. Cash provided by financing activities included net borrowings of $2.0 million. We utilized $353,000 of the proceeds from the sale of real estate inventory to repay a portion of our term loan with American AgCredit, in accordance with the terms of our credit agreement.

Future Cash Inflows and Outflows

Our ability to continue to meet our financial covenants is highly dependent on selling certain real estate assets in a difficult market. If we are unable to meet our financial covenants resulting in our loan borrowings becoming immediately due, we would not have sufficient liquidity to repay such outstanding borrowings. In addition, our revolving line of credit with Wells Fargo matures on May 1, 2013, unless we are able to exercise the option to extend the maturity date to May 1, 2014, and our term loan with American AgCredit matures on May 1, 2013. If we are unable to refinance or extend the maturity dates under our lines of credit, we do not expect to have sufficient liquidity to repay such outstanding borrowings on their maturity dates.

We are subject to several commitments and contingencies that could negatively impact our future cash flows, including purchase commitments up to $35 million related to our investment in Kapalua Bay Holdings, LLC (Bay Holdings) to purchase the spa, beach club improvements and the sundry store (the "Amenities") of Bay Holdings, an EEOC matter related to our discontinued agricultural operations, and funding requirements related to our defined benefit pension plans. These matters are further described in Notes 10 and 13 to our condensed consolidated financial statements. The aforementioned circumstances raise substantial doubt about our ability to continue as a going concern. There can be no assurance that we will be able to successfully achieve the initiatives discussed below in order to continue as a going concern.

In response to these circumstances, we continue to undertake significant efforts to generate cash flow by employing our real estate assets in leasing and other arrangements, by the sale of several real estate assets and by continued cost reduction efforts. We are actively working with our lenders to extend the maturity dates of our credit facilities. We have been in discussions with the other members of Bay Holdings and the lenders to negotiate the terms of the purchase and sale agreement for the Amenities including the purchase and payment terms.

Contributions to our defined benefit pension plans are expected to be approximately $2.0 million in 2012, of which $1.7 million has been funded as of September 30, 2012.

We do not anticipate any significant capital expenditures in 2012, except as described above.

FORWARD-LOOKING STATEMENTS AND RISKS

This and other reports filed by us with the Securities and Exchange Commission, or SEC, contain forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They contain words such as "may," "will," "project," "might," "expect," "believe," "anticipate," "intend," "could," "would," "estimate," "continue" or "pursue," or the negative or other variations thereof or comparable terminology. Actual results could differ materially from those projected in forward-looking statements as a result of the following factors, among others:

unstable macroeconomic market conditions, including, but not limited to, energy costs, credit markets and changes in income and asset values;

risks associated with real estate investments generally, and more specifically, demand for real estate and tourism in Hawaii;

risks due to our joint venture relationships;


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our ability to complete land development projects within forecasted time and budget expectations, if at all;

our ability to obtain required land use entitlements at reasonable costs, if at all;

our ability to compete with other developers of luxury real estate in Maui;

obligations related to Bay Holdings, including the possible purchase of the Amenities, certain limited guarantees entered into with respect to the completion of the Residences at Kapalua Bay or certain limited recourse obligations with respect to Bay Holdings;

potential liabilities and obligations under various federal, state and local environmental regulations with respect to the presence of hazardous or toxic substances;

changes in weather conditions or the occurrence of natural disasters;

our ability to maintain the listing of our common stock on the New York Stock Exchange;

our ability to comply with funding requirements for our defined benefit pension plans;

our ability to comply with the terms of our indebtedness, including the financial covenants set forth therein, and to extend the maturity date, or refinance such indebtedness, prior to its maturity date;

our ability to raise capital through the sale of certain real estate assets; and

availability of capital on terms favorable to us, or at all.

Such risks and uncertainties also include those risks and uncertainties discussed in the sections entitled "Business," "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2011 and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" in this Quarterly Report on Form 10-Q, as well as other factors described from time to time in our reports filed with the SEC. Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable as of the date of this report, we cannot guarantee future results, levels of activity, performance or achievements, and our actual results may differ substantially from the views and expectations set forth in this report. Thus, you should not place undue reliance on any forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Further, any forward-looking statements speak only as of the date made and, except as required by law, we undertake no obligation to publicly revise our forward-looking statements to reflect events or circumstances that arise after the date of this report.

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