KAPALUA - Financial challenges facing Maui Land & Pineapple Co. are raising a "substantial doubt about the company's ability to continue as a going concern," the company reports in its latest filing with the U.S. Securities & Exchange Commission.
Among a number of disclosures in the filing, a group of lenders has declared that a $280.5 million loan for the Kapalua Bay Holdings' construction of the The Ritz-Carlton Club and Residences, Kapalua Bay is in default. ML&P has invested more than $50 million in cash and $25 million in land for the development project and has 51 percent ownership in the Bay Holdings company.
"The company's cash outlook for the next 12 months and its ability to continue to meet its financial covenants is highly dependent on selling certain real estate assets in a difficult market," the filing says. "If the company is unable to meet its financial covenants resulting in the borrowings becoming immediately due, the company would not have sufficient liquidity to repay such outstanding borrowings."
While the company's future appears ominous in its SEC filing, Tim Esaki, the company's financial officer, said Friday that company officials "remain optimistic."
Over the past two to three years, he said, "substantial progress has been made in improving cash flow from operations, eliminating unprofitable businesses, simplifying our business model, reducing our debt significantly, resolving legacy issues and right-sizing our company - all of which we did during the difficult economic downturn that our country, our state and Maui experienced.
"All of these proactive efforts, taken as a whole, enhance the long-term viability of ML&P and serves to protect our shareholders' interests," he said. "While no one can accurately predict the future, the actions taken by our board and our leadership team have strengthened ML&P, as compared to the financial condition that we were in a few years back."
The company's SEC filing details its current challenges. Those include its several purchase commitments and contingencies that could negatively impact its cash flow, it reported. Those include a commitment of up to $35 million to purchase the spa, beach club improvements and sundry store, also known as the amenities, of Kapalua Bay Holdings, according to the SEC filing.
While ML&P owns a little more than half of the Bay Holdings company and is its managing member, other owners are Marriott International Inc., 34 percent, and Exclusive Resorts LLC, 15 percent.
Kapalua Bay constructed a residential and time-share development, The Ritz-Carlton Club and Residences, Kapalua Bay, on land at the former site of the Kapalua Bay Hotel. Through March 31, the sale of 28 (84 total) whole-ownership units and 177 (744 total) fractional units have closed escrow, according to the filing.
ML&P has made cash contributions to Bay Holdings of $53.2 million and nonmonetary contributions of land valued at $25 million.
"As a result of the 2009 losses incurred by Bay Holdings, the company's carrying value of its investments in Bay Holdings was written down to zero in 2009," ML&P's filing with the SEC says. "The company does not expect to recover any amounts from its investment in Bay Holdings. The company will not recognize any additional equity in the earnings (losses) of Bay Holdings until the company's income attributable to Bay Holdings exceeds its accumulated losses."
The company's SEC report says that Kapalua Bay has a construction loan agreement with Lehman Brothers Holdings Inc. and other lenders, with $280.5 million outstanding as of March 31. The loan matured on Aug. 1, 2011.
The company reports that the loan was secured by the project assets, including the land owned by Kapalua Bay. An effort to extend the loan's maturity failed, and the lenders notified Kapalua Bay that the loan is in default as of March 13, the company's SEC filing says.
"Accordingly, the lenders are now entitled to pursue all applicable remedies for a default, including, but not limited to, exercising all rights reserved to Kapalua Bay under the condominium documents, taking title to the remaining unsold units pursuant to foreclosure proceedings (or by voluntary transfer to the lenders by Kapalua Bay) and selling the remaining unsold units to existing purchasers or a third party," the filing says.
The company also faces a lawsuit filed in April 2011 against its subsidiary, Maui Pineapple Co., and several other Hawaii-based farmers by the U.S. Equal Employment Opportunity Commission.
The lawsuit alleges violations of civil rights of immigrant farmworkers from Thailand. The commission is seeking back pay and up to $300,000 in damages for each of the workers.
According to ML&P, the lawsuit seeks unspecified compensatory and punitive damages and other relief.
"The company believes it has not been involved in any wrongdoing, disagrees with the charges and plans to vigorously defend itself," the company's filing says. "The company is presently unable to reasonably estimate the amount of possible liability, if any, related to this matter."
Another area of concern is the company's funding requirements related to its benefit pension plans.
In its SEC filing, the company says that after it stopped pineapple growing operations at the end of 2009, the corresponding reduction in the active participation count for the employee pension plan triggered the requirement that the company provide security to the Pension Benefits Guaranty Corp. of approximately $5.2 million to support the unfunded liabilities of the plan.
In April 2011, the company executed a settlement agreement with the PBGC and pledged the security of approximately 1,400 acres in West Maui that will be released in five years if the company does not otherwise default on the agreement.
Then, the company was advised in October 2011 that the ending of its golf operations and the loss of more active employees participating in the pension plan brought about the requirement that the company provide additional security to the PBGC of approximately $18.7 million to support the unfunded liabilities of pension plans or to make contributions to the plans in excess of the minimum required amounts.
"The company is currently working with the PBGC to reach an agreement as to the amount of the contributions that will be made or the form and amount of collateral that will be provided to the PBGC in connection with the unfunded liabilities."
The company's disclosures come as ML&P is reporting a net loss of $244,000, or 1 cent per share, for the first quarter of 2012. In the first quarter of 2011, the company had net income of $12.4 million, or 67 cents per share.
The company reported revenues of $5.3 million and $3.8 million for the first quarters of 2012 and 2011, respectively.
The first quarter of this year included a $1.4 million gain recognized from the sale of 89 acres Upcountry in January. That was only a fraction of the $15.1 million gain recognized in the first quarter of 2011 for the 2010 sale of the Kapalua Bay Course.
* Brian Perry can be reached at firstname.lastname@example.org.