MAUI LAND & PINEAPPLE CO INC - Quarter Report: 2016 June (Form 10-Q)

---

Table Of Contents

---

Table Of Contents

		June 30, 2016				December 31, 2015
		(in thousands except share data)
ASSETS
CURRENT ASSETS
Cash		$	742			$	1,087
Accounts receivable, less allowance of $319 and $194 for doubtful accounts			2,130				1,528
Prepaid expenses and other current assets			36				208
Assets held for sale			-				262
Total current assets			2,908				3,085
PROPERTY			69,056				69,126
Accumulated depreciation			(37,596	)			(36,608	)
Net property			31,460				32,518
OTHER ASSETS
Deferred development costs			8,833				9,310
Assets held for sale			286				-
Other noncurrent assets			1,591				1,686
Total other assets			10,710				10,996
TOTAL ASSETS		$	45,078			$	46,599
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Current portion of long-term debt		$	-			$	40,565
Accounts payable			930				675
Payroll and employee benefits			350				396
Current portion of accrued retirement benefits			378				378
Income taxes payable			443				473
Accrued interest			88				645
Other current liabilities			1,128				727
Total current liabilities			3,317				43,859
LONG-TERM LIABILITIES
Long-term debt			26,368				-
Accrued retirement benefits			10,246				10,252
Deposits			2,431				2,400
Deferred revenue			660				811
Other noncurrent liabilities			123				216
Total long-term liabilities			39,828				13,679
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock--no par value, 43,000,000 shares authorized, 18,935,576 and 18,867,768 shares issued and outstanding			77,986				77,628
Additional paid in capital			9,246				9,246
Accumulated deficit			(57,139	)			(69,146	)
Accumulated other comprehensive loss			(28,160	)			(28,667	)
Total stockholders' equity (deficiency)			1,933				(10,939	)
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIENCY)		$	45,078			$	46,599

---

Table Of Contents

		Three Months Ended June 30,
		2016				2015
		(in thousands except per share amounts)
OPERATING REVENUES
Real estate
Sales		$	15,000			$	-
Commissions			498				211
Leasing			1,277				1,422
Utilities			878				807
Resort amenities and other			324				325
Total operating revenues			17,977				2,765
OPERATING COSTS AND EXPENSES
Real estate
Cost of sales			747				-
Other			609				248
Leasing			545				611
Utilities			589				582
Resort amenities and other			270				265
General and administrative			410				487
Share-based compensation			181				143
Depreciation			493				555
Pension and other postretirement expenses			284				76
Total operating costs and expenses			4,128				2,967
OPERATING INCOME (LOSS)			13,849				(202	)
Interest expense			(445	)			(616	)
NET INCOME (LOSS)		$	13,404			$	(818	)
Pension, net of income taxes of $0			253				211
COMPREHENSIVE INCOME (LOSS)		$	13,657			$	(607	)
NET INCOME (LOSS) PER COMMON SHARE
--BASIC AND DILUTED		$	0.71			$	(0.04	)

---

Table Of Contents

		Six Months Ended June 30,
		2016				2015
		(in thousands except per share amounts)
OPERATING REVENUES
Real estate
Sales		$	15,000			$	-
Commissions			666				323
Leasing			2,892				2,837
Utilities			1,726				1,623
Resort amenities and other			670				776
Total operating revenues			20,954				5,559
OPERATING COSTS AND EXPENSES
Real estate
Cost of sales			747				-
Other			910				417
Leasing			1,258				1,149
Utilities			1,220				1,194
Resort amenities and other			506				479
General and administrative			1,165				1,069
Share-based compensation			560				692
Depreciation			988				1,113
Pension and other postretirement expenses			567				152
Total operating costs and expenses			7,921				6,265
OPERATING INCOME (LOSS)			13,033				(706	)
Interest expense			(1,026	)			(1,213	)
NET INCOME (LOSS)		$	12,007			$	(1,919	)
Pension, net of income taxes of $0			507				422
COMPREHENSIVE INCOME (LOSS)		$	12,514			$	(1,497	)
NET INCOME (LOSS) PER COMMON SHARE
--BASIC		$	0.64			$	(0.10	)
--DILUTED		$	0.63			$	(0.10	)

---

Table Of Contents

																		Accumulated
										Additional								Other
		Common Stock								Paid in				Accumulated				Comprehensive
		Shares				Amount				Capital				Deficit				Loss				Total
Balance, January 1, 2016			18,868			$	77,628			$	9,246			$	(69,146	)		$	(28,667	)		$	(10,939	)
Share-based compensation			99				503				119												622
Vested restricted stock issued			19				119				(119	)											-
Shares cancelled to pay tax liability			(50	)			(264	)															(264	)
Other comprehensive income - pension																			507				507
Net income															12,007								12,007
Balance, June 30, 2016			18,936			$	77,986			$	9,246			$	(57,139	)		$	(28,160	)		$	1,933
Balance, January 1, 2015			18,785			$	77,105			$	9,246			$	(75,959	)		$	(25,574	)		$	(15,182	)
Share-based compensation			104				645				90												735
Vested restricted stock issued			12				90				(90	)											-
Shares cancelled to pay tax liability			(47	)			(293	)															(293	)
Other comprehensive income - pension																			422				422
Net loss															(1,919	)							(1,919	)
Balance, June 30, 2015			18,854			$	77,547			$	9,246			$	(77,878	)		$	(25,152	)		$	(16,237	)

---

Table Of Contents

		Six Months Ended June 30,
		2016				2015
		(in thousands)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		$	14,140			$	(478	)
INVESTING ACTIVITIES
Payments for other assets			(24	)			(9	)
NET CASH USED IN INVESTING ACTIVITIES			(24	)			(9	)
FINANCING ACTIVITIES
Proceeds from long-term debt			500				600
Payments of long-term debt			(14,697	)			-
Debt and common stock issuance cost and other			(264	)			(291	)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES			(14,461	)			309
NET DECREASE IN CASH			(345	)			(178	)
CASH AT BEGINNING OF PERIOD			1,087				415
CASH AT END OF PERIOD			742				237
Cash paid during the period:
Interest		$	1,474			$	1,222
Income taxes		$	30			$	200

SUPPLEMENTAL NON-CASH ACTIVITIES:

 

●	Common stock issued to certain members of the Company’s management totaled $503,000 and $645,000 through June 30, 2016 and 2015, respectively.

---

Table Of Contents

1.     BASIS OF PRESENTATION

 

The accompanying interim unaudited condensed consolidated financial statements have been prepared by Maui Land & Pineapple Company, Inc. (together with its subsidiaries, the “Company”) in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information that are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and pursuant to the instructions to Form 10-Q and Article 8 promulgated by Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes to financial statements required by GAAP for complete financial statements. In the opinion of management, the accompanying condensed consolidated financial statements contain all normal and recurring adjustments necessary to fairly present the Company’s financial position, results of operations and cash flows for the interim periods ended June 30, 2016 and 2015. The condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2015.

 

LIQUIDITY

 

On August 5, 2016, the Company refinanced its $26.4 million of outstanding bank loans under a $27.0 million revolving credit facility with First Hawaiian Bank (the “Credit Facility”). The Credit Facility matures on December 31, 2019 and provides for two optional one-year extension periods. The Company has pledged a significant portion of its real estate holdings as security for borrowings under the Credit Facility, limiting its ability to borrow additional funds.

 

The Credit Facility includes covenants requiring among other things, an initial minimum liquidity (as defined) of $0.5 million, a maximum of $45 million in total liabilities, and a limitation on new indebtedness. If the Company is unable to meet its covenants, borrowings under the Credit Facility may become immediately due, and it would not have sufficient liquidity to repay such outstanding borrowings.

 

Net proceeds from the sale of any real estate assets pledged as security under the Credit Facility are required to be repaid toward outstanding borrowings and will permanently reduce the revolving commitment amount, limiting the available drawing capacity for future working capital purposes.

 

The Company continues to undertake efforts to generate cash flow by employing its real estate assets in leasing and other arrangements, by the sale of several real estate assets, and by continued cost reduction efforts.

 

2.     USE OF ESTIMATES AND RECLASSIFICATIONS

 

The Company’s reports for interim periods utilize numerous estimates of general and administrative expenses and other costs for the full year. Future actual amounts may differ from these estimates. Amounts reflected in interim reports are not necessarily indicative of results for a full year. Certain amounts in the December 31, 2015 condensed consolidated balance sheet and condensed consolidated statement of operations and comprehensive loss for the three and six months ended June 30, 2015 were reclassified to conform to the current period’s presentation. Such amounts had no impact on total assets and liabilities or net loss and comprehensive loss previously reported.

 

---

Table Of Contents

3.     BASIC AND DILUTED SHARES

 

Basic and diluted weighted-average shares outstanding for the three and six months ended June 30, 2016 and 2015 were as follows:

 

 

 

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding. Diluted net income (loss) per share is computed similar to basic net income (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares from share-based compensation arrangements had been issued.

 

Potentially dilutive shares arise from non-qualified stock options to purchase common stock and non-vested restricted stock. The treasury stock method is applied to determine the number of potentially dilutive shares for non-vested restricted stock and stock options assuming that the shares of non-vested restricted stock are issued for an amount based on the grant date market price of the shares and that the outstanding stock options are exercised.

 

4.

PROPERTY

 

Property at June 30, 2016 and December 31, 2015 consisted of the following:

 

 

 

Land

 

Most of the Company’s 23,000 acres of land were acquired between 1911 and 1932 and is carried in its balance sheets at cost. Approximately 21,000 acres of land are located in West Maui and comprise a largely contiguous parcel that extends from the shoreline to an elevation of approximately 5,700 feet. This parcel includes approximately 900 acres within the Kapalua Resort’s 3,000 acres. The Company’s remaining 2,000 acres of land are located in Upcountry Maui in an area commonly known as Haliimaile and are mainly comprised of leased agricultural fields, including processing and maintenance facilities.

 

Land Improvements

 

Land improvements are comprised primarily of roads, utilities, and landscaping infrastructure improvements at the Kapalua Resort. Also included is the Company’s potable and non-potable water systems in West Maui. The majority of the Company’s land improvements were constructed and placed in service in the mid-to-late 1970’s. Depreciation expense would be considerably higher if these assets were stated at current replacement cost.

 

Buildings

 

Buildings are comprised of restaurant, retail and light industrial spaces located at the Kapalua Resort and Haliimaile which are used in the Company’s leasing operations. The majority of the buildings were constructed and placed in service in the mid-to-late 1970’s. Depreciation expense would be considerably higher if these assets were stated at current replacement cost.

 

 

Machinery and Equipment

 

Machinery and equipment are mainly comprised of zipline course equipment installed in 2008 at the Kapalua Resort and used in the Company’s leasing operations. Also included are machinery and equipment used in the Company’s utilities operations.

 

5.     ASSETS HELD FOR SALE AND REAL ESTATE SALES

 

Assets held for sale at June 30, 2016 and December 31, 2015 consisted of the following:

 

 

In June 2016, the Company sold a fully-entitled 304-acre working-class community project located in West Maui, commonly referred to as Pulelehua, for $15 million. The sale resulted in a gain of approximately $14.3 million. The Company utilized the proceeds from the sale to payoff its American AgCredit term loan.

 

6.     LONG-TERM DEBT

 

Long-term debt at June 30, 2016 and December 31, 2015 consisted of the following:

 

 

On August 5, 2016, the Company refinanced its $26.4 million of outstanding bank loans under a $27.0 million revolving credit facility with First Hawaiian Bank. The Credit Facility matures on December 31, 2019 and provides for two optional one-year extension periods. Interest on borrowings is at LIBOR plus 3.75%, until such time as the Company obtains regulatory approval for the pledging of the stock of one of its utility subsidiaries, upon which interest decreases to LIBOR plus 3.50%.

 

The Credit Facility is secured by a significant portion of the Company’s real estate holdings, including approximately 850 acres within the Kapalua Resort and approximately 1,065 acres in Haliimaile. Net proceeds from the sale of any real estate assets pledged as security under the Credit Facility are required to be repaid toward outstanding borrowings and will permanently reduce the revolving commitment amount.

 

The terms of the Credit Facility include various representations, warranties, affirmative, negative and financial covenants and events of default customary for financings of this type. Financial covenants include an initial minimum liquidity (as defined) of $0.5 million beginning December 31, 2016, a maximum of $45 million in total liabilities, and a limitation on new indebtedness. There are no commitment fees on the unused portion of the Credit Facility.

 

The Company believes it is in compliance with the covenants under the Credit Facility.

 

---

Table Of Contents

7.	SHARE-BASED COMPENSATION

 

The Company’s non-employee directors, officers and certain members of management receive a portion of their compensation in shares of the Company’s common stock granted under the Maui Land & Pineapple Company, Inc. 2006 Equity and Incentive Award Plan (2006 Plan). Share-based compensation is valued based on the average of the high and low share price on the date of grant. Shares are issued upon execution of agreements reflecting the grantee’s acceptance of the respective shares subject to the terms and conditions of the 2006 Plan. Restricted shares issued under the 2006 Plan vest quarterly and have voting and regular dividend rights but cannot be disposed of until such time as they are vested. All unvested restricted shares are forfeited upon the grantee’s termination of directorship or employment from the Company.

 

Each of the Company’s non-employee directors receive restricted shares of common stock upon their annual appointment to the Company’s board of directors. Share-based compensation totaled $77,000 and $62,000 for the six months ended June 30, 2016 and 2015, respectively, for vesting of restricted shares granted to the Company’s non-employee directors.

 

The Company’s officers and certain members of management receive share-based compensation based on their achievement of certain predefined performance goals and objectives under an incentive compensation plan. Such share-based compensation is comprised of an annual incentive paid in shares of common stock and a long-term incentive paid in restricted shares vesting quarterly over a period of three years. Share-based compensation totaled $560,000 and $692,000 for the six months ended June 30, 2016 and 2015, respectively, for shares issued and the vesting of restricted shares granted to the Company’s officers and certain members of management.

 

8.	ACCRUED RETIREMENT BENEFITS

 

Accrued retirement benefits at June 30, 2016 and December 31, 2015 consisted of the following:

 

 

 

The net periodic benefit costs for pension and postretirement benefits for the three and six months ended June 30, 2016 and 2015 were as follows:

 

 

 

9.

INCOME TAXES

 

The Company’s effective tax rate for 2016 and 2015 reflects the recognition of expected federal alternative minimum tax liabilities and interim period tax benefits and changes to its tax valuation allowance.

 

  

The Company uses a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Interest accrued related to unrecognized tax benefits is recognized as interest expense and penalties are recognized in general and administrative expense in the Company’s condensed consolidated statements of operations and comprehensive income (loss); and such amounts are included in income taxes payable on the Company’s condensed consolidated balance sheets.

 

10.     REPORTABLE OPERATING SEGMENTS

 

The Company’s reportable operating segments are comprised of the discrete business units whose operating results are regularly reviewed by the Company’s Chief Executive Officer – its chief decision maker – in assessing performance and determining the allocation of resources. The Company’s reportable operating segments are as follows:

 

•

Real Estate – includes land planning and entitlement, development and sales activities. This segment also includes the operations of Kapalua Realty Company Ltd., a general brokerage real estate company located within the Kapalua Resort.

 

•

Leasing – includes residential, resort, commercial, industrial and agricultural land and property leases, licensing of the Company’s registered trademarks and trade names, and stewardship and conservation efforts.

 

•

Utilities – includes the operations of the Company’s two Hawaii Public Utilities Commission-regulated subsidiaries which provide potable and non-potable water and wastewater transmission services to the Kapalua Resort. In addition, this segment also includes management of ditch, reservoir and well systems which provide non-potable irrigation water systems in West and Upcountry Maui.

 

•

Resort Amenities – include the operations of the Kapalua Club, a private, non-equity club providing its members special programs, access and other privileges at certain of the amenities at the Kapalua Resort including a 30,000 square foot full-service spa and a private pool-side dining beach club.

 

The Company’s reportable operating segment results are measured based on operating income (loss), exclusive of interest, depreciation, general and administrative, share-based compensation, pension and other postretirement expenses.

 

Reportable operating segment revenues and income (loss) for the three and six months ended June 30, 2016 and 2015 were as follows:

 

 

---

Table Of Contents

11.	COMMITMENTS AND CONTINGENCIES

 

There have been no changes in the status of commitments and contingencies as reported in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015. There are various other claims and legal actions pending against the Company. In the opinion of management, after consultation with legal counsel, the resolution of these other matters is not expected to have a material adverse effect on the Company’s results of operations.

 

12.	FAIR VALUE MEASUREMENTS

 

GAAP establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements to enable the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. GAAP requires that financial assets and liabilities be classified and disclosed in one of the following three categories:

 

Level 1: Quoted market prices in active markets for identical assets or liabilities.

 

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

 

Level 3: Unobservable inputs that are not corroborated by market data.

 

The fair value of cash, receivables and payables approximate their carrying value due to the short-term nature of the instruments. The valuation is based on settlements of similar financial instruments all of which are short-term in nature and are generally settled at or near cost. The fair value of debt was estimated based on borrowing rates currently available to the Company for debt with similar terms and maturities. The carrying amount of debt at June 30, 2016 and December 31, 2015 was $26.4 million and $40.6 million, respectively, which approximated fair value. The fair value of debt has been classified in the level 2 category.

 

13.	NEW ACCOUNTING PRONOUNCEMENTS

 

In February 2016, the Financial Accounting Standards Board issued ASU No. 2016-02, Leases. This ASU affects the recognition of lease assets and lease liabilities by lessees for leases classified as operating leases under GAAP. This ASU will be effective for fiscal years beginning after December 15, 2018 for public entities, not-for-profit entities that have issued securities that are traded, listed or quoted on an exchange, and for employee benefit plans that file financial statements with the SEC. The adoption of this guidance will not have a material impact on the Company’s financial statements.

 

In March 2016, the Financial Accounting Standards Board issued ASU No. 2016-08, Revenue from Contracts with Customers. This ASU clarifies the implementation guidance on principal versus agent considerations. This ASU will be effective for annual reporting periods beginning after December 15, 2017 for public business entities, certain not-for-profit entities, and certain employee benefit plans. The Company is in the process of assessing the impact of ASU No. 2016-08 on its financial statements.

 

In March 2016, the Financial Accounting Standards Board issued ASU No. 2016-09, Compensation-Stock Compensation. This ASU simplifies the accounting for share-based payment transactions, including income taxes, classification of awards, and classification on the statement of cash flows. This ASU will be effective for annual periods beginning after December 15, 2016 for public business entities and after December 15, 2017 for all other entities. The Company is in the process of assessing the impact of ASU No. 2016-09 on its financial statements.

 

In April 2016, the Financial Accounting Standards Board issued ASU No. 2016-10, Revenue from Contracts with Customers. This ASU clarifies the guidance on identifying performance obligations and licensing. This ASU will be effective for annual reporting periods beginning after December 15, 2017 for public business entities, certain not-for-profit entities, and certain employee benefit plans. The Company is in the process of assessing the impact of ASU No. 2016-10 on its financial statements.

 

In May 2016, the Financial Accounting Standards Board issued ASU No. 2016-12, Revenue from Contracts with Customers. This ASU aims to reduce the potential for diversity in practice at initial application and to reduce the cost and complexity of applying the guidance both at transition and on an ongoing basis. This ASU will be effective for annual reporting periods beginning after December 15, 2017 for public business entities, certain not-for-profit entities, and certain employee benefit plans. The Company is in the process of assessing the impact of ASU No. 2016-12 on its financial statements.

 

In June 2016, the Financial Accounting Standards Board issued ASU No. 2016-13, Financial Instruments-Credit Losses. This ASU replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of information to inform credit loss estimates. This ASU will be effective for fiscal years beginning after December 15, 2019 for public business entities that are SEC filers. For all other public business entities, the update is effective for fiscal years beginning after December 15, 2020. The Company is in the process of assessing the impact of ASU No. 2016-13 on its financial statements.

 

---

Table Of Contents

---

Table Of Contents

---

Table Of Contents

---

Table Of Contents

---

Table Of Contents

---

Table Of Contents

---

Table Of Contents

---

Table Of Contents