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MLP > SEC Filings for MLP > Form 10-Q on 12-Nov-2013All Recent SEC Filings

Show all filings for MAUI LAND & PINEAPPLE CO INC

Form 10-Q for MAUI LAND & PINEAPPLE CO INC


12-Nov-2013

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, 2012 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.

We own approximately 23,300 acres of land on Maui and develop, sell, and manage 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.


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The following summarizes information related to our building leases as of September 30, 2013:

                                Total       Average
                   Number of   Square      Rent Per      Occupancy       Lease
                    Spaces     Footage    Square Foot    Percentage   Expiration
Kapalua Resort            43   103,414   $        2.45           79 % 2014 -2028
Hali'imaile Town          25   119,095   $        0.54           88 % 2014 - 2029
Other West Maui           15    66,185   $        0.43           38 % 2015 - 2019

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 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 2013.

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, 2013 compared to Three Months Ended September 30, 2012; and Nine Months Ended September 30, 2013 compared to Nine Months Ended September 30, 2012

CONSOLIDATED



                                       Three Months Ended            Nine Months Ended
                                          September 30,                September 30,
                                       2013           2012          2013           2012
                                             (in thousands except share amounts)

Consolidated Revenues               $     2,834    $    3,622    $     9,294    $   12,384

Loss From Continuing Operations     $    (1,551 )  $   (1,684 )  $    (4,817 )  $   (2,959 )

Income (Loss) From Discontinued
Operations                          $       (13 )  $       68    $     2,269    $       65

Net Loss                            $    (1,564 )  $   (1,616 )  $    (2,548 )  $   (2,894 )

Net Loss Per Common Share           $     (0.08 )  $    (0.09 )  $     (0.14 )  $    (0.16 )

Income (loss) from discontinued operations for the nine months ended September 30, 2013 included a $1.9 million gain from the sale of a 7-acre parcel that was part of our former agricultural processing facilities in Central Maui and a $0.5 million reversal of accrued income taxes payable and accrued interest resulting from our settlement with the IRS (Notes 6 and 11 to our condensed consolidated financial statements).

The decrease in consolidated revenues for the three months and nine months ended September 30, 2013 was due to the cessation of the spa and beach club operations in June 2013 and September 2013, respectively. Consolidated revenues for the nine months ended September 30, 2012 also included $1.5 million from the sale of an 89-acre former agricultural parcel in Upcountry Maui.


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Our investment in the Kapalua Bay project was written down to zero in 2009 and we do not expect to recover any amounts from our investment in the Kapalua Bay project. Accordingly, other than resolution of certain commitments, the foreclosure proceeding and auction will not directly impact our future operating results.

REAL ESTATE



                             Three Months Ended        Nine Months Ended
                               September 30,             September 30,
                             2013          2012         2013        2012
                                           (in thousands)

Revenues                  $      206    $       90   $       397   $ 2,153

Operating Profit (Loss)   $     (605 )  $     (440 ) $    (1,552 ) $  (272 )

Revenues and operating loss 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 months ended September 30, 2013.

Other revenues included in this operating segment were real estate commissions from Kapalua Realty Company totaling $397,000 and $653,000 for the nine months ended September 30, 2013 and 2012, respectively. The decrease in commissions primarily reflects fewer transactions in 2013 and lower average values per transaction.

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,
                             2013         2012        2013        2012
                                          (in thousands)

Revenues                  $    1,315    $  1,413   $    3,838    $ 4,394

Operating Profit (Loss)   $       80    $     81   $      (26 )  $   471

The decrease in leasing revenues and operating results for the three and nine months ended September 30, 2013 was primarily due to the termination of our ziplines operator lease in February 2013.

UTILITIES



                     Three Months Ended       Nine Months Ended
                       September 30,            September 30,
                      2013         2012        2013        2012
                                   (in thousands)

Revenues           $    1,010    $  1,085   $    2,793    $ 2,628

Operating Profit   $      269    $    131   $      652    $   472

The increase in utilities revenues for the nine months ended September 30, 2013 was primarily the result of increased consumption of West Maui non-potable irrigation water due to drier weather conditions.


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RESORT AMENITIES



                             Three Months Ended        Nine Months Ended
                               September 30,             September 30,
                            2013          2012          2013        2012
                                           (in thousands)

Revenues                  $    300    $      1,031   $    2,255    $ 3,171

Operating Profit (Loss)   $     18    $         (6 ) $        -    $   (65 )

The decrease in resort amenities revenues for the three and nine months ended September 30, 2013 was due to the cessation of the spa and beach club operations in June 2013 and September 2013, respectively, in conjunction with the conclusion of the Residences at Kapalua Bay foreclosure proceeding. For the nine months ended September 30, 2013 and 2012, revenues for the spa and beach club operations were $1.5 million and $2.4 million respectively.

GENERAL AND ADMINISTRATIVE



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

2013 2012 2013 2012
(in thousands)

General and Administrative $ 685 $ 667 $ 2,156 $ 2,525

General and administrative expenses are incurred at the corporate level and at the operating segment level. Results of operations presented above for the reportable operating segments include an allocation of a portion of the general and administrative expenses at the corporate level. Such allocations are made on the basis of our evaluation of the level of services provided to the operating segments.

Lower general and administrative expenses for the nine months ended September 30, 2013 were primarily due to reduced staffing levels, and lower professional services and outside consultant costs.

DISCONTINUED OPERATIONS



                                           Three Months Ended                Nine Months Ended
                                              September 30,                    September 30,
                                         2013              2012             2013            2012
                                                             (in thousands)

Income (Loss) from Discontinued
Operations Before Income Taxes $ (13 ) $ 68 $ 2,269 $ 65

Our former retail, golf and agriculture operations are reported as discontinued operations. Income (loss) from discontinued operations for the nine months ended September 30, 2013 included a $1.9 million gain from the sale of a 7-acre parcel that was part of our former agricultural processing facilities in Central Maui and a $0.5 million reversal of accrued income taxes payable and interest resulting from our settlement with the IRS (Notes 6 and 11 to our condensed consolidated financial statements).

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

At September 30, 2013, our total debt was $50.5 million, compared to $49.3 million at December 31, 2012, and we had approximately $4.5 million available under our revolving line of credit and $0.4 million in cash and cash equivalents. Cash used in operating activities was $4.9 million for the nine months ended September 30, 2013. At September 30, 2013, we had a deficiency in stockholders' equity (total liabilities exceeded total assets) of $36 million.


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Revolving Line of Credit with Wells Fargo

We have a $32.7 million revolving line of credit with Wells Fargo that is scheduled to mature on May 1, 2014. 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 $3 million, maximum total liabilities of $175 million, and a limitation on new indebtedness. The credit agreement includes predetermined release prices for the real property securing the credit facility. There are no commitment fees on the unused portion of the revolving facility. Absent the sale of some of our real estate holdings or refinancing, we do not expect to be able to pay the outstanding balance of the revolving line of credit on the maturity date. Additional borrowings in the first and third quarter were used to fund operations.

As of September 30, 2013, we had $4.5 million available borrowing capacity.

Term Loan with American AgCredit

We have a $22.3 million term loan with American AgCredit that is scheduled to mature on May 1, 2014. 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 that the principal balance be paid down to $20 million by December 31, 2013. The 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, maximum total liabilities of $175 million and a limitation on new indebtedness. It also requires mandatory principal repayments of 100% of the net proceeds of the sale of any real property pledged as collateral for the loan and tiered mandatory principal repayments 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 $1.8 million and $353,000 principal repayments in June 2013 and January 2012, respectively, in conjunction with the sales of non-collateralized real property. The loan is collateralized by approximately 3,100 acres of our real estate holdings in West Maui and Upcountry Maui. 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.

As of September 30, 2013, we believe we are in compliance with the covenants under our Wells Fargo and American AgCredit credit facilities. Our liquidity (as defined) was $5.4 million as of September 30, 2013.

Cash Flows

During the first nine months of 2013, consolidated net cash used in operating activities was $4.9 million compared to $2.3 million during the first nine months of 2012. The increase in net cash used in operating activities was primarily due to the costs associated with defending various claims and legal actions pending against the Company. In addition, the sale of real estate inventory provided $1.4 million of cash in January 2012. For the first nine months of 2013, loan modification fees of $251,000 were included in financing activities.

Future Cash Inflows and Outflows

Our plans for 2013 include the possible sale of certain operating and non-operating real estate assets that could result in net cash proceeds which would be used to partially repay outstanding indebtedness, settle our remaining legacy issues and provide general working capital. There can be no assurance that we will be able to sell any of our real estate assets on acceptable terms, if at all.

Contributions to our defined benefit pension plans are expected to be approximately $2.1 million in 2013, of which $1.6 million has been funded through September 30, 2013.

We do not anticipate any significant development or capital expenditures in 2013.

Our cash outlook for 2013 and our ability to continue to meet our loan covenants and to continue as a going concern are highly dependent on successfully implementing our business initiatives and selling real estate assets at acceptable prices. If we are unable to meet our loan covenants resulting in our loan borrowings becoming immediately due, we would not have sufficient liquidity to repay such outstanding borrowings.


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We are subject to several commitments and contingencies that could negatively impact our future cash flows, including purchase commitments of up to $35 million to purchase the Amenities from the new owners of the Residences at Kapalua Bay, an EEOC matter related to our discontinued agricultural operations, the timing of payments under an IRS settlement related to previously filed tax returns, and funding requirements related to our defined benefit pension plans. These matters are further described in Notes 8, 10, 11, 13 and 15 to the accompanying 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 in active negotiations with the new owners of the Residences at Kapalua Bay project to resolve our limited guarantees and purchase commitment for the Amenities. We are also actively working with our lenders to extend the maturity dates of our credit facilities.

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;

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 the Residences at Kapalua Bay project, including the possible purchase of certain amenities of the Residences at Kapalua Bay, certain limited guarantees entered into with respect to the completion of the Residences at Kapalua Bay and certain limited recourse obligations with respect to Bay Holdings;

our investment in the Kapalua Bay project was written down to zero in 2009 and we do not expect to recover any amounts from our investment in the Kapalua Bay project. Accordingly, other than resolution of certain commitments, the foreclosure proceeding and auction will not directly impact our future operating results;

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;


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our expectation, absent the sale of some of our real estate holdings or refinancing, that we do not expect to be able to pay any significant amount of our debt;

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, 2012 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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