UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-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 2019, 2020
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, no par value | MLP | NYSE |
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 ☐ | 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 | |
Common Stock, no par value |
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MAUI LAND & PINEAPPLE COMPANY, INC.
AND SUBSIDIARIES
3 | |
3 | |
Condensed Consolidated Balance Sheets, March 31, | 3 |
4 | |
5 | |
Condensed Consolidated Statements of Cash Flows, Three Months Ended March 31, | 6 |
Notes to Condensed Consolidated Interim Financial Statements | 7 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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Exhibit 31.1 | |
Exhibit 31.2 | |
Exhibit 32.1 | |
Exhibit 32.2 | |
Exhibit 101 |
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, | December 31, | March 31, | December 31, | |||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
(in thousands except share data) | (unaudited) | (audited) | ||||||||||||||
ASSETS | ||||||||||||||||
(in thousands except share data) | ||||||||||||||||
CURRENT ASSETS | ||||||||||||||||
Cash | $ | 1,133 | $ | 624 | $ | 766 | $ | 683 | ||||||||
Accounts receivable, less allowance of $34 for doubtful accounts | 1,196 | 897 | ||||||||||||||
Current Portion of income tax receivable | 2,499 | 2,499 | ||||||||||||||
Accounts receivable, less allowance for doubtful accounts of $95 and $35, respectively | 1,024 | 1,173 | ||||||||||||||
Prepaid expenses and other assets | 128 | 37 | 189 | 101 | ||||||||||||
Assets held for sale | 156 | 212 | 7,607 | 7,597 | ||||||||||||
Total current assets | 5,112 | 4,269 | 9,586 | 9,554 | ||||||||||||
PROPERTY | 66,153 | 65,962 | 52,202 | 52,164 | ||||||||||||
Accumulated depreciation | (37,173 | ) | (36,741 | ) | (32,768 | ) | (32,445 | ) | ||||||||
Net property | 28,980 | 29,221 | ||||||||||||||
Property, net | 19,434 | 19,719 | ||||||||||||||
OTHER ASSETS | ||||||||||||||||
Deferred development costs | 10,772 | 10,790 | 8,504 | 8,504 | ||||||||||||
Income tax receivable | 2,500 | 2,500 | ||||||||||||||
Other noncurrent assets | 1,295 | 1,320 | 1,298 | 1,342 | ||||||||||||
Total other assets | 14,567 | 14,610 | 9,802 | 9,846 | ||||||||||||
TOTAL ASSETS | $ | 48,659 | $ | 48,100 | $ | 38,822 | $ | 39,119 | ||||||||
LIABILITIES & STOCKHOLDERS' EQUITY | ||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||
Current portion of long-term debt | $ | 1,735 | �� | $ | 1,235 | |||||||||||
Accounts payable | 2,081 | 2,024 | $ | 737 | $ | 1,356 | ||||||||||
Payroll and employee benefits | 335 | 814 | 300 | 928 | ||||||||||||
Current portion of accrued retirement benefits | 165 | 165 | 165 | 165 | ||||||||||||
Deferred revenue | 551 | 137 | ||||||||||||||
Deferred club membership revenue | 137 | 35 | ||||||||||||||
Other current liabilities | 380 | 323 | 566 | 468 | ||||||||||||
Total current liabilities | 5,247 | 4,698 | 1,905 | 2,952 | ||||||||||||
LONG-TERM LIABILITIES | ||||||||||||||||
Accrued retirement benefits | 9,889 | 9,871 | ||||||||||||||
Long-term debt | 235 | 1,035 | ||||||||||||||
Accrued retirement benefits, net of current portion | 9,577 | 9,702 | ||||||||||||||
Deferred license fee revenue | 2,000 | - | ||||||||||||||
Deposits | 2,543 | 2,558 | 2,688 | 2,674 | ||||||||||||
Other noncurrent liabilities | 118 | 54 | 64 | 64 | ||||||||||||
Total long-term liabilities | 12,550 | 12,483 | 14,564 | 13,475 | ||||||||||||
COMMITMENTS AND CONTINGENCIES (Note 11) | ||||||||||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||||||
STOCKHOLDERS' EQUITY | ||||||||||||||||
Common stock--no par value, 43,000,000 shares authorized, 19,180,375 and 19,125,521 shares issued and outstanding | 80,170 | 79,411 | ||||||||||||||
Additional paid in capital | 9,314 | 9,246 | ||||||||||||||
Common stock--no par value, 43,000,000 shares authorized, 19,281,035 and 19,238,081 shares issued and outstanding | 81,135 | 80,606 | ||||||||||||||
Additional paid-in-capital | 9,184 | 9,184 | ||||||||||||||
Accumulated deficit | (37,029 | ) | (35,934 | ) | (47,374 | ) | (46,300 | ) | ||||||||
Accumulated other comprehensive loss | (21,593 | ) | (21,804 | ) | (20,592 | ) | (20,798 | ) | ||||||||
Total stockholders' equity | 30,862 | 30,919 | 22,353 | 22,692 | ||||||||||||
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY | $ | 48,659 | $ | 48,100 | $ | 38,822 | $ | 39,119 |
See Notes to Condensed Consolidated Interim Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
Three Months Ended March 31, | ||||||||||||||||
2019 | 2018 | Three Months Ended March 31, | ||||||||||||||
(in thousands except | 2020 | 2019 | ||||||||||||||
per share amounts) | (in thousands except per share amounts) | |||||||||||||||
OPERATING REVENUES | ||||||||||||||||
Real estate | $ | 157 | $ | 36 | $ | 69 | $ | 157 | ||||||||
Leasing | 1,677 | 1,495 | 1,736 | 1,916 | ||||||||||||
Utilities | 748 | 704 | ||||||||||||||
Resort amenities and other | 261 | 307 | 230 | 261 | ||||||||||||
Total operating revenues | 2,843 | 2,542 | 2,035 | 2,334 | ||||||||||||
OPERATING COSTS AND EXPENSES | ||||||||||||||||
Real estate | 264 | 66 | 175 | 264 | ||||||||||||
Leasing | 568 | 578 | 776 | 720 | ||||||||||||
Utilities | 601 | 521 | ||||||||||||||
Resort amenities and other | 311 | 353 | 570 | 311 | ||||||||||||
General and administrative | 864 | 831 | 760 | 864 | ||||||||||||
Share-based compensation | 598 | 579 | 425 | 598 | ||||||||||||
Depreciation | 432 | 439 | 323 | 361 | ||||||||||||
Total operating costs and expenses | 3,638 | 3,367 | 3,029 | 3,118 | ||||||||||||
OPERATING LOSS | (795 | ) | (825 | ) | (994 | ) | (784 | ) | ||||||||
Pension and other post-retirement expenses | (253 | ) | (102 | ) | (117 | ) | (253 | ) | ||||||||
Interest expense | (47 | ) | (37 | ) | (46 | ) | (47 | ) | ||||||||
LOSS FROM CONTINUING OPERATIONS | $ | (1,157 | ) | $ | (1,084 | ) | ||||||||||
Income (Loss) from discontinued operations, net | 83 | (11 | ) | |||||||||||||
NET LOSS | $ | (1,095 | ) | $ | (964 | ) | $ | (1,074 | ) | $ | (1,095 | ) | ||||
Pension, net of income taxes of $0 | 211 | 185 | ||||||||||||||
Pension, net | 206 | 211 | ||||||||||||||
COMPREHENSIVE LOSS | $ | (884 | ) | $ | (779 | ) | $ | (868 | ) | $ | (884 | ) | ||||
NET LOSS PER COMMON SHARE | ||||||||||||||||
--BASIC AND DILUTED | $ | (0.06 | ) | $ | (0.05 | ) | ||||||||||
EARNINGS (LOSS) PER COMMON SHARE-BASIC AND DILUTED | ||||||||||||||||
Loss from Continuing Operations | $ | (0.06 | ) | $ | (0.06 | ) | ||||||||||
Income (Loss) from Discontinued Operations | $ | - | $ | - | ||||||||||||
Net Loss | $ | (0.06 | ) | $ | (0.06 | ) |
See Notes to Condensed Consolidated Interim Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
For the Three Months Ended March Months Ended3March 311, 20120920 and 20182019
(in thousands)
Accumulated | Common Stock | Additional Paid in | Accumulated | Accumulated Other Comprehensive | ||||||||||||||||||||||||||||||||||||||||||||
Additional | Other | Shares | Amount | Capital | Deficit | Loss | Total | |||||||||||||||||||||||||||||||||||||||||
Common Stock | Paid in | Accumulated | Comprehensive | |||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Capital | Deficit | Loss | Total | |||||||||||||||||||||||||||||||||||||||||||
Balance, January 1, 2019 | 19,125 | $ | 79,411 | $ | 9,246 | $ | (35,934 | ) | $ | (21,804 | ) | $ | 30,919 | |||||||||||||||||||||||||||||||||||
Share-based compensation | 52 | 889 | 208 | 1,097 | ||||||||||||||||||||||||||||||||||||||||||||
Vested restricted stock issued | 16 | 208 | (208 | ) | - | |||||||||||||||||||||||||||||||||||||||||||
Stock option exercised (Note 3) | 25 | 62 | 68 | 130 | ||||||||||||||||||||||||||||||||||||||||||||
Shares cancelled to pay tax liability | (38 | ) | (400 | ) | (400 | ) | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income - pension | 211 | 211 | ||||||||||||||||||||||||||||||||||||||||||||||
Net loss | (1,095 | ) | (1,095 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2019 | 19,180 | $ | 80,170 | $ | 9,314 | $ | (37,029 | ) | $ | (21,593 | ) | $ | 30,862 | |||||||||||||||||||||||||||||||||||
Balance, January 1, 2018 | 19,040 | $ | 78,584 | $ | 9,246 | $ | (36,432 | ) | $ | (20,254 | ) | $ | 31,144 | |||||||||||||||||||||||||||||||||||
Balance, January 1, 2020 | 19,238 | $ | 80,606 | $ | 9,184 | $ | (46,300 | ) | $ | (20,798 | ) | $ | 22,692 | |||||||||||||||||||||||||||||||||||
Share-based compensation | 71 | 845 | 120 | 965 | 68 | 865 | 186 | 1,051 | ||||||||||||||||||||||||||||||||||||||||
Vested restricted stock issued | 15 | 120 | (120 | ) | - | 17 | 186 | (186 | ) | - | ||||||||||||||||||||||||||||||||||||||
Shares cancelled to pay tax liability | (35 | ) | (411 | ) | (411 | ) | (42 | ) | (522 | ) | (522 | ) | ||||||||||||||||||||||||||||||||||||
Other comprehensive income - pension | 185 | 185 | 206 | 206 | ||||||||||||||||||||||||||||||||||||||||||||
Net income | (964 | ) | (964 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Net loss | (1,074 | ) | (1,074 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2020 | 19,281 | $ | 81,135 | $ | 9,184 | $ | (47,374 | ) | $ | (20,592 | ) | 22,353 | ||||||||||||||||||||||||||||||||||||
Balance, March 31, 2018 | 19,091 | $ | 79,138 | $ | 9,246 | $ | (37,396 | ) | $ | (20,069 | ) | $ | 30,919 | |||||||||||||||||||||||||||||||||||
Balance, January 1, 2019 | 19,125 | $ | 79,411 | $ | 9,246 | $ | (35,934 | ) | $ | (21,804 | ) | $ | 30,919 | |||||||||||||||||||||||||||||||||||
Share-based compensation | 52 | 889 | 208 | 1,097 | ||||||||||||||||||||||||||||||||||||||||||||
Vested restricted stock issued | 16 | 208 | (208 | ) | - | |||||||||||||||||||||||||||||||||||||||||||
Stock option exercised | 25 | 62 | 68 | 130 | ||||||||||||||||||||||||||||||||||||||||||||
Shares cancelled to pay tax liability | (38 | ) | (400 | ) | (400 | ) | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income - pension | 211 | 211 | ||||||||||||||||||||||||||||||||||||||||||||||
Net loss | (1,095 | ) | (1,095 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2019 | 19,180 | $ | 80,170 | $ | 9,314 | $ | (37,029 | ) | $ | (21,593 | ) | 30,862 |
See Notes to Condensed Consolidated Interim Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | $ | 555 | $ | 522 | $ | 1,453 | $ | 555 | ||||||||
INVESTING ACTIVITIES | ||||||||||||||||
Payments of deferred development costs | (146 | ) | (90 | ) | ||||||||||||
NET CASH USED IN INVESTING ACTIVITIES | (146 | ) | (90 | ) | ||||||||||||
CASH USED IN INVESTING ACTIVITIES | ||||||||||||||||
Payments for property and deferred development costs | (48 | ) | (146 | ) | ||||||||||||
FINANCING ACTIVITIES | ||||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||
Proceeds from long-term debt | 500 | - | 700 | 500 | ||||||||||||
Payments on long-term debt | (1,500 | ) | - | |||||||||||||
Debt and common stock issuance costs and other | (400 | ) | (411 | ) | (522 | ) | (400 | ) | ||||||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 100 | (411 | ) | (1,322 | ) | 100 | ||||||||||
NET INCREASE IN CASH | 509 | 21 | 83 | 509 | ||||||||||||
CASH AT BEGINNING OF PERIOD | 624 | 1,029 | 683 | 624 | ||||||||||||
CASH AT END OF PERIOD | $ | 1,133 | $ | 1,050 | $ | 766 | $ | 1,133 | ||||||||
Cash paid during the period: | ||||||||||||||||
Interest | $ | 26 | $ | 30 | ||||||||||||
Cash paid during the period for interest: | $ | 14 | $ | 26 |
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
● | Common stock issued to certain members of the Company’s management totaled |
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See Notes to Condensed Consolidated Interim Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM 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, 2018,2019, and pursuant to the instructions to Form 10-Q and Article 8 promulgated by Regulation S-X of the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes to the annual audited consolidated financial statements required by GAAP for complete financial statements. In the opinion of management, the accompanying interim unaudited 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, 20192020 and 2018.2019. The interim unaudited condensed consolidated financial statements and notes should be read in conjunction with the annual audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2018.2019.
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 reportsstatements are not necessarily indicative of results for a full year. Certain amounts in the DecemberMarch 31, 20182019 condensed consolidated balance sheetstatements of operations and comprehensive loss 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.
3. | SHARES – BASIC AND DILUTED |
Basic and diluted weighted-average shares outstanding for the three months ended March 31, 20192020 and 20182019 were as follows:
Three Months Ended March 31, | ||||||||||||||||
Three Months Ended | (unaudited) | |||||||||||||||
March 31, | 2020 | 2019 | ||||||||||||||
2019 | 2018 | |||||||||||||||
Basic and diluted | 19,144,912 | 19,058,202 | 19,254,783 | 19,144,912 | ||||||||||||
Potentially dilutive | 19,775 | 27,500 | - | 19,775 |
Basic net income (loss)loss per common share is computed by dividing net income (loss)loss by the weighted-average number of common shares outstanding. Diluted net income (loss)loss per common share is computed similar to basic net income (loss)loss per common 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. The treasury stock method is utilized to determine the number of potentially dilutive shares related to the outstanding non-qualified stock options.
On March 6, 2019, the Company’s Chairman & Chief Executive Officer exercised a non-qualified stock option to acquire 25,000 shares of the Company’s stock at an exercise price of $5.20 per share. The stock option was granted on March 9, 2009 and vested 20% annually beginning March 9, 2010 through March 9, 2014. The stock option had an expiration date of March 9, 2019.
4. | PROPERTY |
Property at March 31, 20192020 and December 31, 20182019 consisted of the following:
March 31, | December 31, | |||||||||||||||
2020 | 2019 | |||||||||||||||
March 31, | December 31, 2018 | (unaudited) | (audited) | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Land | $ | 5,086 | $ | 5,059 | $ | 5,073 | $ | 5,073 | ||||||||
Land improvements | 24,727 | 24,727 | 13,153 | 13,153 | ||||||||||||
Buildings | 24,884 | 24,884 | 23,439 | 23,439 | ||||||||||||
Machinery and equipment | 11,277 | 11,143 | 10,529 | 10,495 | ||||||||||||
Construction in progress | 179 | 149 | ||||||||||||||
Construction-in-progress | 8 | 4 | ||||||||||||||
Total property | 66,153 | 65,962 | 52,202 | 52,164 | ||||||||||||
Less accumulated depreciation | 37,173 | 36,741 | 32,768 | 32,445 | ||||||||||||
Net property | $ | 28,980 | $ | 29,221 | ||||||||||||
Property, net | $ | 19,434 | $ | 19,719 |
Land
Most of the Company’s 22,800 acres of land were acquired between 1911 and 1932 and is carried in its consolidated balance sheets at cost. Approximately 20,700 acres of land are located in West Maui and comprise a largely contiguous parcel that extends from the sea 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 2,100 acres of land are located in Upcountry Maui in an area commonly known as Hali’imaile 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 or conveyed in 2017. 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 Hali’imaile 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 Zipline Course and in the Company’s utilities operations.
5. | ASSETS HELD FOR SALE |
Assets held for sale at March 31, 20192020 and December 31, 20182019 consisted of the following:
March 31, 2019 | December 31, | |||||||
(in thousands) | ||||||||
Upcountry Maui, 630-acre parcel of agricultural land | $ | 156 | $ | 156 | ||||
Upcountry Maui, 33-acre parcel of agricultural land and wastewater treatment facility | - | 56 | ||||||
Assets held for sale | $ | 156 | $ | 212 |
March 31, | December 31, | |||||||
2020 | 2019 | |||||||
(unaudited) | (audited) | |||||||
(in thousands) | ||||||||
Kapalua Resort, 46-acre Kapalua Central Resort project | $ | 2,948 | $ | 2,938 | ||||
Kapalua Resort, Kapalua Water and Kapalua Waste Treatment Company assets | 4,503 | 4,503 | ||||||
Upcountry Maui, 630-acre parcel of agricultural land | 156 | 156 | ||||||
$ | 7,607 | $ | 7,597 |
In February 2020, the Company entered into an agreement to sell the Kapalua Central Resort project for $43.9 million. The closing of the transaction is contingent upon, among other things, the satisfaction of certain customary closing conditions, including a due diligence period ending on July 31, 2020 and a closing date 45 days after the last day of the due diligence period.
In December 2019, the Company entered into an Asset Purchase Agreement to sell the PUC-regulated assets of Kapalua Water Company, Ltd. and Kapalua Waste Treatment Company, Ltd. located in the Kapalua Resort. The sale is subject to certain closing conditions, including completion of due diligence and PUC approval. These assets are used by Kapalua Water Company and Kapalua Waste Treatment Company to provide water and sewage transmission services for the Kapalua Resort. See the results of discontinued operations related to the sale of the Kapalua Water Company and Kapalua Waste Treatment Company assets in Note 13.
The above assets held for sale have not been pledged as collateral under the Company’s credit facility.
The value of the Upcountry Maui, 33-acre parcel of agricultural land and wastewater treatment facility was considered fully impaired and written down to zero at March 31, 2019.
6. | LONG-TERM DEBT |
Long-term debt is comprised of amounts outstanding under the Company’s $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.2021. Interest on borrowings is at LIBOR plus 3.50%, or 5.99%5.08% and 5.84%5.19%, at March 31, 20192020 and December 31, 2018,2019, respectively. 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 $2.0 million, a maximum of $45.0 million in total liabilities, and a limitation on new indebtedness.
The Company believes that it is in compliance with the covenants under the Credit Facility as of March 31, 2019.2020.
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 Company’s 2017 Equity and Incentive Award Plan (Equity 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 Equity Plan. Restricted shares issued under the Equity 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.
Share-based compensation is determined and awarded annually to the Company’s officers and certain members of management based on their achievement of certain predefined performance goals and objectives under the Equity 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 $598,000$425,000 and $579,000$598,000 for the three months ended March 31, 20192020 and 2018,2019, respectively. Included in these amounts were $208,000$186,000 and $120,000$208,000 of restricted shares of common stock which vested during the first three months of 20192020 and 2018,2019, respectively.
8. | ACCRUED RETIREMENT BENEFITS |
Accrued retirement benefits at March 31, 20192020 and December 31, 20182019 consisted of the following:
March 31 | December 31, | March 31, | December 31, | |||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
(in thousands) | (unaudited) | (audited) | ||||||||||||||
Defined benefit pension plans | $ | 7,987 | $ | 7,971 | ||||||||||||
(in thousands) | ||||||||||||||||
Defined benefit pension plan | $ | 7,547 | $ | 7,658 | ||||||||||||
Non-qualified retirement plans | 2,067 | 2,065 | 2,195 | 2,209 | ||||||||||||
Total | 10,054 | 10,036 | 9,742 | 9,867 | ||||||||||||
Less current portion | (165 | ) | (165 | ) | (165 | ) | (165 | ) | ||||||||
Non-current portion of accrued retirement benefits | $ | 9,889 | $ | 9,871 | $ | 9,577 | $ | 9,702 |
The Company had twohas a defined benefit pension plansplan which covercovers substantially all of its former bargaining and non-bargaining full-time, part-time and intermittent employees. In 2011, pension benefits under both plansthe plan were frozen. The Company also has unfunded non-qualified retirement plans covering twelvenine of its former executives. The non-qualified retirement plans were frozen in 2009 and future vesting of additional benefits was discontinued. During the fourth quarter of 2018, the Company merged the two defined benefit pension plans to streamline the administration of the frozen plan.
The net periodic benefit costs for pension and postretirement benefits for the three months ended March 31, 20192020 and 20182019 were as follows:
Three Months | ||||||||||||||||
Ended March 31, | Three Months Ended March 31, (unaudited) | |||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Interest cost | $ | 527 | $ | 495 | $ | 408 | $ | 527 | ||||||||
Expected return on plan assets | (485 | ) | (578 | ) | (497 | ) | (485 | ) | ||||||||
Amortization of net loss | 211 | 185 | 206 | 211 | ||||||||||||
Pension and other postretirement expenses | $ | 253 | $ | 102 | $ | 117 | $ | 253 |
9. | DEFERRED REVENUE |
Deferred club membership revenue
The Company manages the operations of the Kapalua Club, a private, non-equity club program providing our members special programs, access and other privileges at certain of the amenities within the Kapalua Resort. Deferred revenues from dues received from the private club membership program are recognized on a straight-line basis over one year.
Deferred license fee revenue
The Company entered into a trademark license agreement with the owner of the Kapalua Plantation and Bay golf courses, effective April 1, 2020. Under the terms and conditions set forth in the agreement, the licensee is granted a perpetual, terminable on default, transferable, non-exclusive license to use the Company’s trademarks and service marks to promote its golf courses and to sell its licensed products. A single payment royalty of $2 million was received prior to the commencement of the agreement and recorded as deferred revenue as of March 31, 2020. Revenue from the license agreement will be recognized on a straight-line basis over its economic useful life.
| 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 rateprovision for 2019income taxes is calculated using the liability method. Deferred income taxes are provided for all temporary differences between the financial statement and 2018 reflects the recognition of interim period tax benefits and changes to its tax valuation allowance.
In December 2017, The Tax Cuts and Jobs Act of 2017 (TCJA) was signed into law. The law includes significant changes to the U.S. corporate income tax system, including a Federal corporate rate reduction from 35%bases of assets and liabilities using tax rates enacted by law or regulation. A full valuation allowance continues to 21%, eliminationbe established for deferred income tax assets as of Alternative Minimum Tax (AMT)March 31, 2020 and refund of AMT credit carryforward, limitations on the deductibility of interest expense and executive compensation, and the transition of U.S. international taxation from a worldwide tax system to a territorial tax system. The TCJA also establishes new tax laws that will affect future periods, including, but not limited to: (1) reducing the U.S. federal corporate tax rate; (2) limiting deductible interest expense; (3) modifying the tax treatment of like-kind exchanges; (4) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (5) imposing a new provision designed to tax global intangible low-tax income; (6) creating the base erosion anti-abuse tax, a new minimum tax; (7) limiting the use of Net Operating Loss (NOL) carryforwards created in tax years beginning after December 31, 2017; (8) modifying the limitations on the use of foreign tax credits to reduce our U.S. income tax liability; and (9) further restricting the deductibility of certain executive compensation and fringe benefits. The Company is in the process of analyzing the regulations issued and determining an estimate of the financial impact.
In accordance with TCJA, the Company eliminated $91.3 million of AMT NOL carry forwards at December 31, 2018 and recognized as income tax benefit $5.0 million from its unused AMT credit carry forwards. The Company expects to receive 50%, or $2.5 million, of said credit in 2019, and the remaining balance over the following two years.respectively.
11 | 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. Reportable operating segments are as follows:
Real Estate includes the development and sale of real estate inventory and the operations of Kapalua Realty Company, a general brokerage real estate company located within the Kapalua Resort.
Leasing primarily includes revenues and expenses from real property leasing activities, license fees and royalties for the use of certain of the Company’s trademarks and brand names by third parties, and the cost of maintaining the Company’s real estate assets, including conservation activities.
Utilities primarily include the operations of Kapalua Water Company and Kapalua Waste Treatment Company, the Company’s water and sewage transmission services (regulated by the Hawaii Public Utilities Commission) for the Kapalua Resort. The operating segment also includes the management of ditch, reservoir and well systems that provide non-potable irrigation water to West and Upcountry Maui areas.
Resort Amenities include a membership program that provides certain benefits and privileges within the Kapalua Resort for its members.
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, 20192020 and 20182019 were as follows:
Three Months | ||||||||||||||||
Ended March 31, | Three Months Ended March 31, (unaudited) | |||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Operating Segment Revenues | ||||||||||||||||
Real estate | $ | 157 | $ | 36 | $ | 69 | $ | 157 | ||||||||
Leasing | 1,677 | 1,495 | 1,736 | 1,916 | ||||||||||||
Utilities | 748 | 704 | ||||||||||||||
Resort amenities and other | 261 | 307 | 230 | 261 | ||||||||||||
Total Operating Segment Revenues | $ | 2,843 | $ | 2,542 | $ | 2,035 | $ | 2,334 | ||||||||
Operating Segment Income (Loss) | ||||||||||||||||
Real estate | $ | (107 | ) | $ | (30 | ) | $ | (106 | ) | $ | (107 | ) | ||||
Leasing | 1,109 | 917 | 960 | 1,196 | ||||||||||||
Utilities | 147 | 183 | ||||||||||||||
Resort amenities and other | (50 | ) | (46 | ) | (340 | ) | (50 | ) | ||||||||
Total Operating Segment Income | $ | 1,099 | $ | 1,024 | $ | 514 | $ | 1,039 |
12. | LEASING ARRANGEMENTS |
The Company leases land primarily to agriculture operators and space in commercial buildings, primarily to restaurant and retail tenants through 2048. In addition, the Company provides potable and non-potable water to West and Upcountry Maui areas These operating leases generally provide for minimum rents and, in some cases, licensing fees, percentage rentals based on tenant revenues, and reimbursement of common area maintenance and other expenses. Certain leases allow the lessee an option to extend or terminate the agreement. There are no leases allowing a lessee an option to purchase the underlying asset. Total leasing income for the three months ended March 31, 2020 and 2019 were as follows:
Three Months | ||||||||
Ended March 31, | ||||||||
(unaudited) | ||||||||
2020 | 2019 | |||||||
(in thousands) | ||||||||
Minimum rentals | $ | 697 | $ | 710 | ||||
Percentage rentals | 266 | 405 | ||||||
Licensing fees | 234 | 234 | ||||||
Other (primarily common area recoveries) | 290 | 327 | ||||||
Water system sales | 249 | 240 | ||||||
Total | $ | 1,736 | $ | 1,916 |
|
|
There haveThe results of discontinued operations related to the sale of the Kapalua Water Company and Kapalua Waste Treatment Company assets for the three months ended March 31, 2020 and 2019 were as follows:
Three Months Ended March 31, (unaudited) | ||||||||
2020 | 2019 | |||||||
(in thousands) | ||||||||
Operating revenues | $ | 740 | $ | 667 | ||||
Operating costs and expenses | (657 | ) | (607 | ) | ||||
Deprectiation expense | - | (71 | ) | |||||
Income (loss) from discontinued operations | $ | 83 | $ | (11 | ) |
14. | COMMITMENTS AND CONTINGENCIES |
On December 31, 2018, the State of Hawaii Department of Health (DOH) issued a Notice and Finding of Violation and Order (Order) for alleged wastewater effluent violations related to the Company’s Upcountry Maui wastewater treatment facility. The Company continues working with the DOH on a previously-approved corrective action plan to resolve and remediate the facility’s wastewater effluent issues. Due to COVID-19, the DOH has agreed to extend the deadline for the completion of new leach fields, postpone any ongoing claims, and all statutes of limitation to May 15, 2020.
The Company is presently unable to estimate the amount, or range of amounts, of any probable liability, if any, related to the Order and no provision has been no changesmade 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, 2018. accompanying interim unaudited condensed consolidated financial statements.
There are various other claims and legal actions pending against the Company. In the opinion of management, after consultation with legal counsel, theThe resolution of these other matters is not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.operations after consultation with legal counsel.
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. As a result, public health measures were taken to minimize exposure to the virus. Quarantine, travel restrictions and other governmental restrictions to reduce the spread of COVID-19 has caused and is likely to continue to have an adverse impact on economic activity, including business closures, increased unemployment, financial market instability, and reduced tourism to Maui. The duration of the disruption on global, national, and local economies cannot be reasonably estimated at this time. However, should the existence of the COVID-19 pandemic continue for an extended period, the Company’s future business operations, including the results of operations, cash flows and financial position will be significantly affected.
| 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 interim unaudited condensed consolidated 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 Company considers all cash on hand to be unrestricted cash for the purposes of the interim unaudited condensed consolidated balance sheets and interim unaudited condensed consolidated statements of cash flows. The fair value of receivables and payables approximate their carrying value due to the short-term nature of the instruments. The fair value of income tax receivables approximate their carrying value due to the certainty of collection or 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, which approximated fair value, was $235,000 and $1,035,000 (audited) at March 31, 20192020 and December 31, 2018 were $1,735,000 and $1,235,000, respectively, which approximated fair value.2019, respectively. The fair value of debt was measured using the level 2 inputs, noted above.
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