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 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2017

 

OR

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 001-06510

 

MAUI LAND & PINEAPPLE COMPANY, INC.

(Exact name of registrant as specified in its charter)

 

HAWAII		99-0107542
(State or other jurisdiction		(IRS Employer
of incorporation or organization)		Identification No.)

 

200 Village Road, Lahaina, Maui, Hawaii 96761

(Address of principal executive offices)

 

Registrant’s telephone number, including area code: (808) 877-3351

 

None

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

	Large accelerated filer ☐		Accelerated filer ☐
	Non-accelerated filer ☐            (Do not check if a smaller reporting company)		Smaller reporting company ☒
			Emerging growth company ☐

    

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class		Outstanding at April 15, 2017
Common Stock, no par value		19,012,416 shares

 

 

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MAUI LAND & PINEAPPLE COMPANY, INC.

AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION	3
Item 1. Financial Statements (unaudited)	3
Condensed Consolidated Balance Sheets, March 31, 2017 and December 31, 2016	3
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), Three Months Ended March 31, 2017 and 2016	4
Condensed Consolidated Statements of Stockholders’ Equity (Deficiency), Three Months Ended March 31, 2017 and 2016	5
Condensed Consolidated Statements of Cash Flows, Three Months Ended March 31, 2017 and 2016	6
Notes to Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Forward-Looking Statements and Risks	15
Item 3. Quantitative and Qualitative Disclosures About Market Risk	16
Item 4. Controls and Procedures	16
PART II. OTHER INFORMATION	17
Item 1A. Risk Factors	17
Item 6. Exhibits	17
Signature	18
EXHIBIT INDEX	19
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 101

 

  

PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(UNAUDITED)

 

		March 31,				December 31,
		2017				2016
		(in thousands except share data)
ASSETS
CURRENT ASSETS
Cash		$	579			$	602
Accounts receivable, less allowance of $57 for doubtful accounts			1,875				1,503
Prepaid expenses and other current assets			237				190
Assets held for sale			212				459
Total current assets			2,903				2,754
PROPERTY			58,959				58,959
Accumulated depreciation			(33,631	)			(33,215	)
Net property			25,328				25,744
OTHER ASSETS
Deferred development costs			10,250				8,843
Other noncurrent assets			1,652				1,542
Total other assets			11,902				10,385
TOTAL ASSETS		$	40,133			$	38,883
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable		$	694			$	569
Payroll and employee benefits			1,047				607
Current portion of accrued retirement benefits			172				175
Income taxes payable			405				443
Deferred revenue			546				24
Other current liabilities			357				580
Total current liabilities			3,221				2,398
LONG-TERM LIABILITIES
Long-term debt			1,235				6,857
Accrued retirement benefits			9,058				9,059
Deposits			2,393				2,378
Deferred revenue			366				409
Other noncurrent liabilities			45				40
Total long-term liabilities			13,097				18,743
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY
Common stock--no par value, 43,000,000 shares authorized, 18,967,575 and 18,958,018 shares issued and outstanding			78,160				78,123
Additional paid in capital			9,246				9,246
Accumulated deficit			(41,500	)			(47,332	)
Accumulated other comprehensive loss			(22,091	)			(22,295	)
Total stockholders' equity			23,815				17,742
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY		$	40,133			$	38,883

 

  

See Notes to Condensed Consolidated Financial Statements.

 

  

MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

 

(UNAUDITED)

 

		Three Months Ended March 31,
		2017				2016
		(in thousands except
		per share amounts)
OPERATING REVENUES
Real estate
Sales		$	7,000			$	-
Commissions			139				168
Leasing			1,586				1,615
Utilities			676				847
Resort amenities and other			282				346
Total operating revenues			9,683				2,976
OPERATING COSTS AND EXPENSES
Real estate
Cost of sales			576				-
Other			160				300
Leasing			469				712
Utilities			553				631
Resort amenities and other			333				197
General and administrative			489				754
Share-based compensation			559				380
Depreciation			416				495
Pension and other postretirement expenses			202				284
Total operating costs and expenses			3,757				3,753
OPERATING INCOME (LOSS)			5,926				(777	)
Interest expense			(94	)			(581	)
NET INCOME (LOSS)		$	5,832			$	(1,358	)
Pension, net of income taxes of $0			204				253
COMPREHENSIVE INCOME (LOSS)		$	6,036			$	(1,105	)
NET INCOME (LOSS) PER COMMON SHARE--BASIC AND DILUTED		$	0.31			$	(0.07	)

 

  

See Notes to Condensed Consolidated Financial Statements.

 

 

MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)

 

(UNAUDITED)

 

For the Three Months Ended March 31, 2017 and 2016

 

(in thousands)

 

																		Accumulated
										Additional								Other
		Common Stock								Paid in				Accumulated				Comprehensive
		Shares				Amount				Capital				Deficit				Loss				Total
Balance, January 1, 2017			18,958			$	78,123			$	9,246			$	(47,332	)		$	(22,295	)		$	17,742
Share-based compensation											87												87
Vested restricted stock issued			14				87				(87	)											-
Shares cancelled to pay tax liability			(4	)			(50	)															(50	)
Other comprehensive income - pension																			204				204
Net income															5,832								5,832
Balance, March 31, 2017			18,968			$	78,160			$	9,246			$	(41,500	)		$	(22,091	)		$	23,815
Balance, January 1, 2016			18,868			$	77,628			$	9,246			$	(69,146	)		$	(28,667	)		$	(10,939	)
Share-based compensation			100				503				53												556
Vested restricted stock issued			8				53				(53	)											-
Shares cancelled to pay tax liability			(47	)			(236	)															(236	)
Other comprehensive income - pension																			253				253
Net loss															(1,358	)							(1,358	)
Balance, March 31, 2016			18,929			$	77,948			$	9,246			$	(70,504	)		$	(28,414	)		$	(11,724	)

  

 

See Notes to Condensed Consolidated Financial Statements.

 

 

MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(UNAUDITED)

 

 

		Three Months Ended March 31,
		2017				2016
		(in thousands)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		$	7,052			$	(63	)
INVESTING ACTIVITIES
Payments for deferred development costs			(1,376	)			(16	)
NET CASH USED IN INVESTING ACTIVITIES			(1,376	)			(16	)
FINANCING ACTIVITIES
Payments of long-term debt			(5,622	)			-
Debt and common stock issuance cost and other			(77	)			(236	)
NET CASH USED IN FINANCING ACTIVITIES			(5,699	)			(236	)
NET DECREASE IN CASH			(23	)			(315	)
CASH AT BEGINNING OF PERIOD			602				1,087
CASH AT END OF PERIOD		$	579			$	772
Cash paid during the period:
Interest		$	50			$	420
Income taxes		$	-			$	30

 

 

SUPPLEMENTAL NON-CASH ACTIVITIES:

 

●	Common stock issued to certain members of the Company’s management totaled $503,000 for the three months ended March 31, 2016.

●	Accounts payable at March 31, 2017 includes $150,000 for the estimated cost of subdividing the Kapalua Golf Academy practice course.

 

See Notes to Condensed Consolidated Financial Statements.

 

  

MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(UNAUDITED)

 

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, 2016, 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 March 31, 2017 and 2016. 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, 2016.

 

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, 2016 condensed consolidated balance sheet were reclassified to conform to the current period’s presentation. Such amounts had no impact on total assets and liabilities or net income and comprehensive income (loss) previously reported.

 

3.     BASIC AND DILUTED SHARES

 

Basic and diluted weighted-average shares outstanding for the three months ended March 31, 2017 and 2016 were as follows:

 

		Three Months Ended
		March 31,
		2017				2016
Basic and diluted			18,962,823				18,903,466
Potentially dilutive			27,500				22,604

 

Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted net income per share is computed similar to basic net income 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 March 31, 2017 and December 31, 2016 consisted of the following:

 

		March 31, 2017				December 31, 2016
		(in thousands)
Land		$	5,059			$	5,059
Land improvements			18,051				18,051
Buildings			24,884				24,884
Machinery and equipment			10,965				10,965
Total property			58,959				58,959
Less accumulated depreciation			33,631				33,215
Net property		$	25,328			$	25,744

 

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, a master-planned, destination resort and residential community located in West Maui encompassing approximately 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 related 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 March 31, 2017 and December 31, 2016 consisted of the following:

 

		March 31, 2017				December 31, 2016
		(in thousands)
Upcountry Maui, 630-acre parcel of agricultural land		$	156			$	156
Kapalua Resort, 15-acre Kapalua Golf Academy practice course			-				247
Upcountry Maui, 80-acre parcel of agricultural land and wastewater treatment facility			56				56
Assets held for sale		$	212			$	459

 

None of the above assets held for sale have been pledged as collateral under the Company’s credit facility.

 

In February 2017, the Company sold the 15-acre Kapalua Golf Academy practice course located in the Kapalua Resort for $7.0 million to the owner of the Kapalua Plantation and Bay Golf Courses. The property was sold without any development entitlements. The sale resulted in a gain of approximately $6.4 million. The Company applied $5.6 million of the sale proceeds toward its revolving line of credit facility.

 

 

6.     LONG-TERM DEBT

 

The Company has a $15.0 million revolving line of credit facility with First Hawaiian Bank (Credit Facility). The Credit Facility matures on December 31, 2019 and provides for two optional one-year extension periods. Interest on borrowings is at LIBOR plus 3.50% (4.38% at March 31, 2017). The Company has pledged its 800-acre Kapalua Mauka project and approximately 30,000 square feet of commercial leased space in the Kapalua Resort as security for the Credit Facility. Net proceeds from the sale of any collateral are required to be repaid toward outstanding borrowings and will permanently reduce the Credit Facility’s revolving commitment amount. There are no commitment fees on the unused portion of the Credit Facility.

 

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 a minimum liquidity (as defined) of $0.5 million, a maximum of $45.0 million in total liabilities, and a limitation on new indebtedness. The Company believes it is in compliance with the covenants under the Credit Facility.

 

7.     SHARE-BASED COMPENSATION

 

The Company’s directors, officers and certain members of management receive a portion of their compensation in shares of the Company’s common stock granted under the Equity and Incentive Award Plans (Equity Plans). 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 Equity Plans. Restricted shares issued under the Equity Plans 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 and certain members of management receive restricted shares of common stock annually. Share-based compensation totaled $87,000 and $53,000 for the three months ended March 31, 2017 and 2016, respectively, for vesting of restricted shares granted.

 

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 $559,000 and $380,000 for the three months ended March 31, 2017 and 2016, 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 March 31, 2017 and December 31, 2016 consisted of the following:

 

		March 31				December 31,
		2017				2016
		(in thousands)
Defined benefit pension plans		$	7,537			$	7,560
Non-qualified retirement plans			1,693				1,674
Total			9,230				9,234
Less current portion			(172	)			(175	)
Non-current portion of accrued retirement benefits		$	9,058			$	9,059

 

 

The net periodic benefit costs for pension and postretirement benefits for the three months ended March 31, 2017 and 2016 were as follows:

 

		Three Months
		Ended March 31,
		2017				2016
		(in thousands)
Interest cost		$	557			$	708
Expected return on plan assets			(562	)			(677	)
Amortization of net loss			207				253
Pension and other postretirement expenses		$	202			$	284

 

9.      INCOME TAXES

 

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. The Company’s effective tax rate for 2017 and 2016 reflects the recognition of expected federal alternative minimum tax liabilities and interim period tax benefits and changes to its tax valuation allowance.

 

Income taxes payable at March 31, 2017 reflect the remaining balance due from a settlement agreement with the Internal Revenue Service regarding amounts owed under tax returns filed in prior years.

 

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 in the Kapalua Resort.

 

•

Leasing – includes residential, resort, commercial, agricultural and industrial 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.

 

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 for the three months ended March 31, 2017 and 2016 were as follows:

 

		Three Months
		Ended March 31,
		2017				2016
		(in thousands)
Operating Segment Revenues
Real estate		$	7,139			$	168
Leasing			1,586				1,615
Utilities			676				847
Resort amenities and other			282				346
Total Operating Segment Revenues		$	9,683			$	2,976
Operating Segment Income (Loss)
Real estate		$	6,403			$	(132	)
Leasing			1,117				903
Utilities			123				216
Resort amenities and other			(51	)			149
Total Operating Segment Income		$	7,592			$	1,136

 

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, 2016. 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 long-term debt was estimated based on borrowing rates currently available to the Company for long-term debt with similar terms and maturities. The carrying amount of long-term debt at March 31, 2017 and December 31, 2016 was $1.2 million and $6.9 million, respectively, which approximated fair value. The fair value of long-term debt has been classified in the level 2 category.

 

13.   NEW ACCOUNTING PRONOUNCEMENTS

 

In March 2017, FASB issued ASU No. 2017-07, Compensation-Retirement Benefits. This ASU aims to improve the presentation of the net periodic pension cost and net periodic postretirement benefit cost by requiring the reporting of the service cost component in the same line item or items as other compensation costs arising from services rendered by employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations This ASU will be effective for public business entities for annual periods beginning after December 15, 2017. The Company is in the process of assessing the impact of ASU No, 2017-07 on its financial statements.

 

  

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, 2016 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

 

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 23,000 acres of land on Maui and develop, sell, and manage residential, resort, commercial, agricultural 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 residential, resort, commercial, agricultural and industrial land and property 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 wastewater transmission services to the Kapalua Resort. In addition, we also manage several major non-potable irrigation water systems in West and Upcountry Maui.

 

•

Resort Amenities—We manage the operations of the Kapalua Club, a private, non-equity club providing its members special programs, access and other privileges at certain amenities at the Kapalua Resort.

 

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 three months of 2017.

 

 

RESULTS OF OPERATIONS

 

Three Months Ended March 31, 2017 compared to Three Months Ended March 31, 2016

 

CONSOLIDATED

  

		Three Months Ended March 31,
		2017				2016
		(in thousands)
Operating revenues		$	9,683			$	2,976
Operating costs and expenses			(2,091	)			(1,840	)
General and administrative			(489	)			(754	)
Share-based compensation			(559	)			(380	)
Depreciation			(416	)			(495	)
Pension and other postretirement expenses			(202	)			(284	)
Operating income (loss)			5,926				(777	)
Interest expense			(94	)			(581	)
Net income (loss)		$	5,832			$	(1,358	)
Net income (loss) per common share		$	0.31			$	(0.07	)

 

  

The increase in operating revenues for the three months ended March 31, 2017 compared to the three months ended March 31, 2016 resulted primarily from the sale of the 15-acre Kapalua Golf Academy practice course. The decrease in general and administrative expenses was primarily due to lower legal fees, utility costs, and repair and maintenance expenses. Share-based compensation for the three months ended March 31, 2017 compared to the three months ended March 31, 2016 as a result of an increase in amounts awarded under the Company’s incentive compensation plan.

 

REAL ESTATE

 

		Three Months Ended March 31,
		2017				2016
		(in thousands)
Operating revenues		$	7,139			$	168
Operating costs and expenses			(736	)			(300	)
Operating income (loss)		$	6,403			$	(132	)

 

In February 2017, we sold the 15-acre Kapalua Golf Academy practice course located in the Kapalua Resort for $7.0 million to the owner of the Kapalua Plantation and Bay Golf Courses. The property was sold without any development entitlements. The sale resulted in a gain of approximately $6.4 million. The property was not pledged as collateral under our revolving line of credit facility. We applied $5.6 million of the sale proceeds toward our revolving line of credit facility.

 

Also included in our real estate operating revenues were sales commissions from resales of properties owned by private residents in the Kapalua Resort and surrounding areas by our wholly-owned subsidiary, Kapalua Realty Company, Ltd. 

 

In 2009, we sold a 125-acre portion of our Kapalua Mauka project. As part of the sale, we agreed that if built by the owner, we would reimburse the owner for our share of a potable water system and a civil defense siren that will serve our Kapalua Mauka project in the future. During the three months ended March 31, 2017, we reimbursed the owner $1.4 million.

 

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

 

  

LEASING

  

		Three Months Ended March 31,
		2017				2016
		(in thousands)
Operating revenues		$	1,586			$	1,615
Operating costs and expenses			(469	)			(712	)
Operating income		$	1,117			$	903
Average occupancy rates:
Kapalua Resort			100	%			86	%
Other West Maui			95	%			90	%
Upcountry Maui			90	%			37	%

 

The decrease in operating income during the three months ended March 31, 2017 compared to the three months ended March 31, 2016 was primarily due to the timing of receipts of tenants’ share of common area reimbursable expenses. In addition, operating revenues and operating costs and expenses also decreased due to the sale of the Kapalua Village Center in December 2016.

 

Other West Maui leased properties are mainly large-acre former pineapple field parcels and maintenance facilities.

 

Our leasing operations face substantial competition from other property owners in Maui and Hawaii.

 

UTILITIES

 

		Three Months Ended March 31,
		2017				2016
		(in thousands)
Operating revenues		$	676			$	847
Operating costs and expenses			(553	)			(631	)
Operating income		$	123			$	216
Consumption (in million gallons):
Potable			38				41
Non-potable/irrigation			124				168

 

 

We have contracted a third-party water engineering and management company to manage the operations of our wholly-owned subsidiaries: Kapalua Water Company, Ltd. and Kapalua Waste Treatment Company, Ltd. We have contracted a water maintenance company to manage our non-potable/irrigation water systems in West and Upcountry Maui.

 

The decrease in operating revenues during the three months ended March 31, 2017 compared to the three months ended March 31, 2016 was primarily due to the decrease in consumption of potable and non-potable water.

 

RESORT AMENITIES AND OTHER

 

		Three Months Ended March 31,
		2017				2016
		(in thousands)
Operating revenues		$	282			$	346
Operating costs and expenses			(333	)			(197	)
Operating (loss) income		$	(51	)		$	149
Kapalua Club members			472				508

 

Dues collected from our Kapalua Club members are utilized principally to pay for access and other privileges to amenities operated by outside third parties in the Kapalua Resort.

 

 

The decrease in operating revenues during the three months ended March 31, 2017 compared to the three months ended March 31, 2016 was primarily due to the decrease in the number of members and annual membership dues. The increase in operating costs and expenses was due to an increase in amounts paid to operators of certain resort amenities used by club members.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Revolving Line of Credit Facility

 

We have a $15.0 million revolving line of 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 3.50% (4.38% at March 31, 2017). We have pledged our 800-acre Kapalua Mauka project and approximately 30,000 square feet of commercial leased space in the Kapalua Resort as security for the Credit Facility. Net proceeds from the sale of any collateral are required to be repaid toward outstanding borrowings and will permanently reduce the Credit Facility’s revolving commitment amount. There are no commitment fees on the unused portion of the Credit Facility.

 

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 a minimum liquidity (as defined) of $0.5 million, a maximum of $45.0 million in total liabilities, and a limitation on new indebtedness. We believe we are in compliance with the covenants under the Credit Facility.

 

Cash Flows

 

During the first three months of 2017, net cash provided by our operating activities was $7.1 million. Net cash used in our operating activities for the first three months of 2016 was $0.1 million.

 

Future Cash Inflows and Outflows

 

Our plans include continued efforts to generate cash flow by employing our real estate assets in leasing and other arrangements, by the sale of non-core real estate assets, and by continued cost containment efforts. We intend to utilize a portion of our Credit Facility and the proceeds from the sale of any of our real estate assets in our development efforts, including planning, permitting and securing further entitlements for our projects and other landholdings. We also plan to utilize available working capital in addressing deferred maintenance and improvements in our commercial leasing properties.

 

We do not expect to be required to make minimum contributions to our pension plans in 2017.

 

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, interest rates 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 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 real estate in Maui;

 

•

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 of 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 maturity dates, 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, 2016 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.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are not required to provide disclosure in response to Part 1: Item 3 of Form 10-Q because we are considered to be a “smaller reporting company.”

 

Item 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

As required by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the fiscal quarter covered by this report. Based upon the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in applicable SEC rules and forms.

 

 

Changes in Internal Controls Over Financial Reporting

 

No change in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f) or 15d-15(f)) occurred during the fiscal quarter ended March 31, 2017 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 5. OTHER INFORMATION

 

Mika Miyamoto, the Company’s Controller and Principal Accounting Officer, will be resigning from the Company on April 30, 2017 to pursue other business interests. Ms. Miyamoto’s resignation was not due to any disagreement with the Company relating to its operations, policies or practices.

 

On April 28, 2017, the Company adopted an Executive Severance Plan which provides severance benefits to the Company’s named executive officers and certain key employees in the event of an involuntary termination, as described more fully in the plan document filed as an exhibit to this report.

 

  

PART II OTHER INFORMATION

 

Item 1A. RISK FACTORS

 

Potential risks and uncertainties include, among other things, those factors 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, 2016 and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q. Readers should carefully review those risks and the risks and uncertainties disclosed in other documents we file from time to time with the SEC. We undertake no obligation to publicly release the results of any revisions to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.

 

 

Item 6. EXHIBITS

10.1	Maui Land & Pineapple Company, Inc. Executive Severance Plan
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(d) / 15d-14(a) of the Securities Exchange Act of 1934.
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(d) / 15d-14(a) of the Securities Exchange Act of 1934.
32.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) / 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
32.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) / 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Link Document

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		MAUI LAND & PINEAPPLE COMPANY, INC.
April 28, 2017		/s/ TIM T. ESAKI
Date		Tim T. Esaki
		Chief Financial Officer
		(Principal Financial Officer)

 

 

EXHIBIT INDEX

 

Exhibit Number		Description
10.1		Maui Land & Pineapple Company, Inc. Executive Severance Plan (1)
31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(d) / 15d-14(a) of the Securities Exchange Act of 1934. (1)
31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(d) / 15d-14(a) of the Securities Exchange Act of 1934. (1)
32.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) / 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350. (2)
32.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) / 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350. (2)
101.INS		XBRL Instance Document (2)
101.SCH		XBRL Taxonomy Extension Schema Document (2)
101.CAL		XBRL Taxonomy Extension Calculation Document (2)
101.DEF		XBRL Taxonomy Extension Definition Linkbase (2)
101.LAB		XBRL Taxonomy Extension Labels Linkbase Document (2)
101.PRE		XBRL Taxonomy Extension Presentation Link Document (2)

 

                                                                    

(1)	Filed herewith.

 

(2)	Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

 

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